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Interpretation of the Cross-Strait Agreement on Trade in Services by Head of Department of Taiwan, Hong Kong and Macao Affairs of MOFCOM

On June 21, the Cross-Strait Agreement on Trade in Services (hereinafter referred to as “the Agreement”) was signed in Shanghai. In order to have the public and enterprises to better understand the Agreement, the head from Department of Taiwan, Hong Kong and Macao Affairs of MOFCOM made interpretations in details on the contents, features and roles of the Agreement as follows:

Q: What are the specific contents of the Agreement?

A: The Agreement includes the body text and two Annexes. The body text consists of four chapters and twenty four articles. Four chapters are General Provisions, Obligations and Standards, Specific Commitment, and Miscellaneous; twenty four articles are Objectives, Definition, Scope, Fair and Equitable Treatment, Information Disclosure and Offer, Management Standards, Commercial Activities, Negotiations for Emergencies, Payment and Transfer, Limitations to Guarantee External Balance of Payments, Exceptions, Cooperation, Market Access, Other Commitments, Schedules of Specific Commitments, Gradual Extension of Limitations on Trade in Services, Revisions to List of Specific Commitments, Contact Mechanism, Deliberation, Dispute Settlement, Format, Annex, Amendment, and Effectiveness; two Annexes are List of Specific Commitments on Trade in Services, and Specific Provisions on Service Providers.

Q: What commitments on opening have been made by both Parties according to the Agreement?

A: According to Annex I “List of Specific Commitments on Trade in Services” to the Agreement, both Parties have totally made 144 commitments on opening concerning more than 100 service sectors covering commerce, communication, construction, distribution, environment, health and society, tourism, entertainment, culture and sports, transportation, and finance. Mainland China has made 80 commitments on opening (including 65 for non-finance and 15 for finance), which are further commitments made on the basis of commitments made for its WTO entry; Taiwan has made 64 commitments on opening (including 55 for non-finance and 9 for finance), which are further commitments made on the basis of Taiwan’s admission on entry of investments from Mainland China into Taiwan.

Q: What are the unique features of the Agreement compared with other similar economic and trade agreements?

A: First, the Agreement is highly open and has a wide coverage. Both Parties have made 144 commitments on opening concerning more than 100 service sectors. Among others, Mainland China opens further to Taiwan on the basis of commitments made for its WTO entry, and has totally made 80 commitments this time, which is rare in similar agreements that have already been signed by Mainland China.

Second, this Agreement has highlighted the characteristics of both sides of the Straits. On one hand, both Parties focus on the objective needs for the development of cross-strait service industry and make reasonable arrangements for the promotion of normalization and liberalization. On the other hand, based on the full understanding of current economic and social status of Taiwan, Mainland China does not require Taiwan to open specialized fields to Mainland China, showing its greatest sincerity and goodwill.

Third, the Agreement is to promote mutual opening with existing mechanism. In 2011, the service trade work groups were established in the first regular meeting of the Cross-Strait Economic Cooperation Committee (ECC). For the past two years, with the efforts of ECC service trade work groups, both Mainland China and Taiwan have been actively promoting the negotiation on the Agreement and finally concluded the Agreement successfully. Under the Agreement, both Parties may continue to promote cross-strait opening through the service trade work groups and keep improving the overall level of cross-strait service industry according to needs in the future.

Q: What does the signing of the Agreement mean to the development of and cooperation in the cross-strait trade in services?

A: First, the Agreement has laid the foundation for the final realization of liberalization of trade in services between both sides of the Straits. After the Agreement is signed, both Parties will expand opening in more than 100 service sectors including extension of terms for market access, removal of equity restrictions, expansion of business scopes and operating regions, delegation of examining and approving powers and limits, and facilitating market access, etc.. It is also specified in the Agreement that both Parties may negotiate with respect to further opening of markets for trade in services on the basis of mutual benefits. All these above have laid the foundation for both sides of the Straits to gradually reduce or eliminate the restrictive measures between both Parties on trade in services covering many departments, and for promoting the liberalization of trade in services.

Second, the Agreement helps to accelerate the integration and complementation of cross-strait service sectors and enhance international competitiveness of cross-strait service sectors. In Taiwan, the service industry is the core power of the economic growth which made up about 72% of GDP in 2012, and the employed population of which accounts for nearly 60% of the total population for long. In Mainland China, the service industry made up about 45% of GDP in 2012. In the “Twelfth Five-Year Plan”, the development of service industry has been considered as the strategic focus for optimization and upgrading of industrial structure, leaving vast room for the development of the industry. Upon conclusion of the Agreement, both Parties will open markets in more than 100 service sectors. Mainland China has vast market resources while Taiwan has advanced service management level. The opening of cross-strait service sectors helps to complement each other’s advantages, share business opportunities and enhance international competitiveness, and thus is a win-win situation.

Third, the Agreement helps to expand the benefit coverage to cross-strait people. Judging from the Early Harvest of ECFA, the Agreement does not only benefit cross-strait practitioners, but also helps to provide the public with more convenient and high quality services. The Early Harvest of ECFA preferential measures only cover 20 service sectors. However, since its implementation in October 2010, a total of 226 enterprises or institutions in Taiwan have been benefited, and 82 cases of investments from Mainland China into Taiwan have been approved. The Agreement will open markets to a larger range on the basis of the Early Harvest to provide more preference and convenience for the cooperation of cross-strait service sectors, which, with no doubts, will further expand the benefit coverage to cross-strait people and enhance well-beings for cross-strait compatriots.

Q: When will the commitments of the Agreement be realized? Is it the next step to further open the markets by signing supplementary agreements?

A: In accordance with Article 24 of the Agreement, the commitments on opening markets listed in the Agreement will be realized as soon as the Agreement comes into effect. The Ministry of Commerce will introduce relevant supporting measures together with relevant competent authorities as soon as possible.

The features of wide coverage of trade in services have decided that the opening cannot be achieved overnight, but is a progressive process. In accordance with Article 16 of the Agreement, both Parties may negotiate as required with respect to further opening of markets for trade in services on the basis of mutual benefits.

Q: How to deal with issues that may occur in the course of carrying out the Agreement?

A: In accordance with the provisions of the Agreement, ECC service trade work groups will be responsible for dealing with matters concerning trade in services, including coordination and settlement of issues that may occur in the course of carrying out the Agreement.

In January 2011, the ECC was established under the framework of ARATS (Association for Relations Across the Taiwan Straits) and SEF (Straits Exchange Foundation) to be responsible for the implementation of and negotiation on the ECFA and other matters related to the ECFA. In February the same year, the ECC held the first regular meeting, in which 6 work groups were established covering trade in goods, trade in services, investment, settlement of disputes, industrial cooperation and customs cooperation, and the negotiation on subsequent agreements of ECFA was formally initiated. Up to present, the ECC has held 4 regular meetings to have promoted the successful conclusion of the Cross-Strait Agreement on Investment Protection and Promotion and Cross-Strait Agreement on Trade in Services, promoted the progressive negotiation on trade in goods and settlement of disputes, and urged the effective implementation of the ECFA Early Harvest and expanded the effects thereof.

Q: How to deal with disputes arising from the interpretation, implementation and application of the Agreement?

A: At present, both Parties are negotiating with respect to the ECFA and the subsequent agreements thereto, including the settlement procedures for disputes arising from the interpretation, implementation and application of the Cross-Strait Agreement on Trade in Services. Before the agreement for settlement of disputes comes into effect, such disputes may be settled subject to negotiation by both Parties or submitted to the ECC Trade Service Work Group for proper settlements.

Q: What is the “Certificate of Service Provider”? Why is the “Certificate of Service Provider” needed? Which enterprises need it and how to obtain it?

A: The “Certificate of Service Provider” is actually the “Certificate of Origin” for trade in services, which is a protocol to review the qualification of the service providers as well as one of prevailing rules for trade in services to prevent a third party from hitchhike. In accordance with Annex II to the Agreement, service providers of either party to establish commercial presence in region of the other party with preferential measures committed in the ECFA beyond the commitment for WTO entry shall apply for the “Certificate of Service Provider”.

For example, if an enterprise from Mainland China plans to make investments in Taiwan and establish a commercial organization with certain ECFA preferential measure, which is beyond the commitment made by Taiwan for WTO entry, then this enterprise is required to apply for the “Certificate of Service Provider” with relevant authorities in Mainland China. Details about authorities to be applied with and the application procedures will be further released.

Q: Upon effectiveness of the Agreement, will the continuous implementation of the ECFA Early Harvest Program on Trade in Services be affected?

A: No. The Agreement is to further open on the basis of the Early Harvest. Relevant provisions with respect to cross-strait trade in services under the Agreement also apply to the measures of the Early Harvest on opening. In addition, pursuant to the ECFA, the definition of service provider specified therein will not apply upon effectiveness of the Agreement. And Specific Provisions on Service Providers attached as Annex II to the Agreement will apply to the measures of the ECFA Early Harvest on opening.

Q: As “revisions to the list of commitments” are referred in Article 17 of the Agreement, does it mean there are uncertainties in the list of commitments?

A: No. First, the commitment may be revised after three years since it is carried out; second, commitment that is lower than the level of commitment by the maker for WTO entry can only be revised to be more open, and it cannot be revoked or restricted by the three-year period; third, before the revision is made to the commitment, notification and negotiation procedures for remedial adjustment shall be carried out, meaning that the revision to or revocation of the list of commitments is not made arbitrarily.

Q: Are service providers mentioned in the Agreement subject to the protection of investors under the Cross-Strait Agreement on Investment Protection?

A: According to the Cross-Strait Agreement on Investment Protection, the protection objects are cross-strait investors and their investments (no matter in the agriculture, manufacture or service industry), which are, in nature, within the range of investment, provided that such investors and investments provide services in the form of commercial presence within the pattern of service specified by the WTO. Providers of such services may seek for protections subject to relevant provisions of the Cross-Strait Agreement on Investment Protection.

Q: How to understand the provision in the body text of the Agreement that requirements and procedures for qualification shall not constitute unnecessary trade-in-service barriers?

A: In order to standardize industry management and guarantee service quality and level, for service sectors with a high level of specialty and technicality such as architecture, medical treatment, accounting and finance, both Mainland China and Taiwan have set out corresponding professional qualification and procedure requirements. It means, in accordance with the Agreement, that the standards and provisions of both Parties on requirements and procedures for qualification shall be open, objective, transparent, and reasonable. The examining and approving authorities shall not take requirements or procedures for qualifications beyond the applicant’s capability as the reason for rejection.

Translated by Hou Zuowei

(All information published in this website is authentic in Chinese. English is provided for reference only. )