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China-Taiwan trade pact brings relief

Publication Date : 10-08-2012


Taiwanese businessmen in China have expressed relief as Taiwan and China inked an agreement yesterday to protect vast Taiwanese investments on the mainland following two years of wrangling.

The Cross-Strait Bilateral Investment Agreement offers Taiwanese businesses which have ploughed US$110 billion into China better protection than that given to foreign businesses under similar, international agreements, said the agencies that signed the pact. These are Taiwan's Straits Exchange Foundation (SEF) and China's Association for Relations Across the Taiwan Strait (Arats), the quasi-official agencies handling bilateral negotiations in the absence of official ties.

It is the most anticipated pact under the Economic Cooperation Framework Agreement, or Ecfa, the free-trade deal the two sides inked in 2010 as relations rapidly thawed after Taiwan President Ma Ying-jeou came to power in 2008.

The most-touted feature is the option for Taiwanese investors to conduct arbitration in a country outside of the mainland or Taiwan for their disputes with Chinese individuals or companies. Such disputes comprise 65 per cent of all complaints received by SEF and are currently limited to arbitration in China.

All Taiwanese businesses in China are covered under the pact, including companies registered outside of Taiwan - a legacy from the era of cross-strait hostility when the island's government banned direct investment in China. The inclusion of such "indirect" investors was one of the contentions during negotiations.

"We have designed a comprehensive set of rules and regulations to protect Taiwanese investments," SEF chairman Chiang Pin-kung told reporters after signing the agreement with his Arats counterpart Chen Yunlin at Taipei's Grand Hotel. They also signed a separate Customs cooperation pact which aims to reduce costs and speed up bilateral trade.

Lin Ching-fa, who manages Giant Bicycles' mainland business and heads the Taiwanese business association in Beijing, said the investment pact would be the bedrock of safety for mainland-based Taiwanese businessmen.

"Seventy per cent of Taiwan's listed and over-the-counter companies have investments in China. Without adequate protection they and their shareholders' interests remain vulnerable," Lin told The Straits Times.

A formal protection mechanism for Taiwanese businessmen had been mooted as far back as the 1990s. But, until now, the best they got was the "investment protection law for Taiwanese compatriots" enacted unilaterally by China in 1994.

The law suffers from ambiguity and poor enforcement while disputes increased every year as Taiwanese investments poured in.

In the 21 years to June this year, the SEF received 2,178 complaints from Taiwanese investors on business or asset disputes in China, and another 2,715 complaints about personal safety issues, of which nearly 800 pertained to detention by the Chinese authorities.

The most infamous case in recent years was the row over management rights between Shinkong Mitsukoshi Department Store Co of Taiwan and the Beijing Hualian Group. Months after their joint venture mall, the 750-million- yuan Shin Kong Place, opened in Beijing in April 2007, Hualian raided the mall with 200 guards and sacked most of the Taiwanese executives. Shinkong's Taiwanese general manager of Beijing operations Steven Wu was detained by security officials as he was about to board a plane back to Taiwan.

Wu was released days later but the power struggle dragged on until Shinkong relinquished joint control by reducing its 50 per cent stake in the profitable venture to 20 per cent.

Observers cautioned against seeing the new pact as a panacea. "Implementation of the pact will be key," said the Economic Daily News in an editorial.

SEF vice-chairman Kao Kong-lian said prevention remains better than cure, and investors ought to ensure their business contracts cover all bases. He said: "Many are still under the illusion that because we use the same language, that our laws and regulations are the same. Not so."


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