Effect Of Cross-strait ECFA Implementation Of Trade Flows And Structure

In the21st century, world economy has been experiencing great changes, one ofwhich is the overall deterioration of Taiwan economy, in contrast with the10-yearrapid growth of Mainland China GDP. Reasonably, Taiwan rests its hope-bothboosting economy and increasing industrial competence-on strengthening economicand trade cooperation with Mainland China. On June29,2010, the government ofMainland China and Taiwan finally signed an preferential trade agreement known as“Economic Cooperation Framework Agreement”(ECFA) that aims to reduce tariffsand commercial barriers between the two sides. It will boost the current US$110billion bilateral trade between both sides. According to the “Early Harvest Program",which came into effect on January1,2011,537trading items exported to Mainlandand267trading items exported to Taiwan first enjoy preferential duty cuts andtreatment. This article systematically evaluates the results of “Early Harvest Program”,and gives an empirical study of the effects of ECFA and other relative factors onexport and import volume between Taiwan and Mainland, based on the “GravityModel of Trade”. The results shows that:1) Gross domestic product of Taiwan(Taiwan GDP), Taiwan’s direct investment towards Mainland(FDI), and ECFA havepositive effect on Taiwan export volume to Mainland(Export Volume);2) ECFA hasno significant effect on Taiwan import volume from Mainland;3) ECFA has greatpositive effect on both export and import volume of agricultural products;4) ECFAhas great positive effect on both export and import volume of mechanical andelectrical products. In conclusion, for the moment, ECFA promotes cross-strait tradein specific industry more significantly. Furthermore, this article provides somepractical policy suggestions to further increase the benefits of the ECFA:1) Toenhance policy coordination and industrial cooperation across the strait;2) Toestablish a feasible evaluation mechanism of trade and production effects of ECFA;3)To establish specialized agencies that supervise the implementation of ECFA.