ECFA crucial to Taiwan's competitiveness: SEF chairman

However, many of the restricted sectors are open to Hong Kong businesses, mainly because Hong Kong has signed a Closer Economic Partnership Agreement (CEPA) with China, Chiang said.

This has resulted in a phenomenon in which many Taiwanese businesses have acquired Hong Kong companies so that they could enter the Chinese market, he said.

According to Chiang, economic agreements between countries can lead to a trade diversion effect, which is usually unfavorable to those excluded from the pacts.

For example, he said, after South Korea signed a free trade agreement (FTA) with the United States, some Taiwanese businesses decided to set up operations in South Korea so as to obtain tariff-free treatment for their exports to the United States.

“This shows that if Taiwan cannot sign similar agreements with other countries, Taiwanese businesses will be deprived of the opportunity to compete fairly in the world markets,” Chiang said.

To date, there are more than 400 economic agreements in effect worldwide, he noted. These include the economic integration in Europe, which allows for tariff exemptions and the free flow of goods and personnel in the region, he added.

Another example is the imminent economic integration between the Association of Southeast Asian Nations (ASEAN) and China, Japan and South Korea, he said.

Under this framework, Japan will grant tariff-free treatment to 90 percent of the goods exported by ASEAN countries and will gradually increase that to 93 percent within 10 years, which will severely undermine the competitiveness of Taiwanese exports, according to Chiang.

Although Taiwan has raised the possibility of signing FTAs with Japan, Singapore and the United States, there has been no progress on these fronts so far mainly because of these countries' concerns about opposition from China, he said.

With 40 percent of Taiwan's exports being directed to China, the signing of an ECFA between the two sides has become an urgent issue, Chiang said.

President Ma Ying-jeou has expressed strong support for the establishment of an ECFA with China, stressing that it would be similar to an FTA and there would be no political strings attached.

Critics, however, have warned that the agreement could jeopardize Taiwan's sovereignty, make Taiwan too economically dependent on China, and lead to an influx of Chinese capital and goods.

The opposition Democratic Progressive Party, which is strongly against the proposal, has insisted that a referendum be held to allow the public to have a say in the matter.

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