A Study on the Establishment of ECFA between Mainland of China and Taiwan

As the chances of a successful conclusion to the Doha Round of trade liberalization under the WTO become increasingly problematic, so the pace of negotiating local free trade agreements (FTAs) is increasing. According to the WTO report, countries in the Asia-Pacific region are “consolidating their drive towards regionalism at an accelerated pace”. After the trade agreements between China and the Association of South-East Asian Nations-so-called ASEAN+1 took effect at the beginning of 2010, both Mainland of China and Taiwan speeded the negotiation on signing the Economic Cooperation Framework agreement (ECFA). Taiwan's exports to China face tariffs ranging from 5% to 15% and its government fears that, unless they are lowered, the island will be left at a competitive disadvantage in the giant Chinese market. This disadvantage would greatly worsen if a planned ASEAN+3 were one day signed, embracing South Korea and Japan. On June 29 at a ceremony in Chongqing, both sides signed ECFA which went into effect later from September 12, 2010. This agreement will remove trade and investment barriers between two economies. So far ECFA has become a hot topic catching the eyes of researchers and government officials. It has been reported that this agreement may result in a GDP growth of 1.65-1.72% at Taiwan side. Besides GDP growth, which specific sectors will benefit from this ECFA on both sides? How will it affect its neighbor economies? Based on GTAP model (Global Trade Analysis Program) which is derived from the CGE model, this paper will update the data after 2004 which is set in GTAPAgg7 and simulate the economic changes on both sides, such as GDP growth, welfare changes, all the sectors production changes. The economic influences on some East Asian economies will also be discussed. JEL Classification: F13, F15, D58