Cross-strait baggage

It was the biggest change in cross-strait relations in 60 years. In June, China and Taiwan signed the Economic Cooperation Framework Agreement (ECFA), a historic free trade pact cutting tariffs on 539 categories of exports from Taiwan to China and 267 Chinese products entering Taiwan.
 
Expectations run high that Taiwan will reap economic benefits from the deal: The ECFA is expected to boost bilateral trade – already at US$110 billion a year – as nearly US$14 billion of Taiwan’s goods exported to China will have tariffs reduced or removed. And according to the Peterson Institute for International Economics, a Washington think tank, the deal will increase Taiwan’s GDP by as much as 5.3% by 2020.
 
The trade deal will not only open doors for manufacturers, but also Taiwan and China’s logistics industries.
 
Taiwan is already trying to take advantage of the ECFA and warming cross-strait relations, announcing that it will invest US$3.19 billion between 2010 and 2013 in a plan to develop the island into an Asia Pacific logistics hub.
 
There is good reason to set sights on the whole region. The trade deal with China has great potential to help Taiwan ink bilateral free trade agreements (FTAs) with other countries in Asia. In the past, the island has been unable to sign FTAs with key trading partners as these nations are wary of upsetting Beijing.
 
Yet, only two months after the ECFA was signed, Taiwan and Singapore announced they were starting trade negotiations. Taiwan leaders hope an agreement with Singapore could lead to Taiwan’s eventual entry into the 11-nation trade bloc of the Association of South East Asian Nations plus China. It may also pave way for an alternative avenue for Singaporean companies to access China’s markets.
 
Deeper economic integration in Asia’s trade network and serving as an entry point into China could mean a boost for Taiwan’s transportation and logistics sector.
 
That said, changes are unlikely to be dramatic. After all, Taiwan is overshadowed by its booming neighbor, Hong Kong, which has long established itself as a gate into the mainland with sufficient infrastructure and service levels. Meanwhile, Xiamen’s expanding port is increasingly in competition with Kaohsiung across the Taiwan Strait. Freight can enter China directly through Xiamen, which has increased its links with major international markets. As such, Taiwan logistics providers will have to differentiate themselves and work quickly to link cross-strait logistics sectors.
 
There are signs of this already. Taiwan’s Council for Economic Planning and Development (CEPD) has stated that part of its logistics development plan is to further cooperation with China – especially in terms of boosting customs clearance efficiency, as well as investments in air and sea port facilities.
 
That will be the key for cross-strait logistics: Honing in on the increased flow of goods from Taiwan companies doing more business in China, and vice versa. Exports to mainland China and Hong Kong, for example, topped US$85.4 billion in the first nine months of the year – 42.2% of total exports, a record high share for Taiwan.
 
To differentiate itself, Taiwan must leverage its long experience in high-tech industries, which will attract even more manufacturing and logistics business with the ECFA. More foreign companies requiring advanced production skills for high-tech goods may set up facilities in Taiwan, and then ship their products to China’s market while enjoying lower duties.
 
Taiwan must also push for China’s long-term development of ports in second-tier cities, like Wuhan and Chongqing. Increased access to the mainland can only help Taiwan’s supply chain network.
 
The island must ride this wave of improved ties; it should move quickly to coordinate customs clearance and further open up air cargo routes with China. To speed up cargo flows and reap more logistics benefits, China and Taiwan must intensify cooperation and integration, rather than competition.