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Trade Pact Might Reshape Taiwan Industry

Published June 30, 2010

TAIPEI, Taiwan (BRAIN)—It’s too early to tell what impact a newly signed trade agreement between Taiwan and China eventually will have on the bicycle industry. But manufacturers and suppliers say it could lead to profound changes in production management and boost sales of high-end bikes in China’s domestic market.

On Tuesday, representatives signed what’s being hailed as a “landmark” trade agreement that could end China’s 17 percent tariff on Taiwan-made bicycles and parts sold within China. That could open up China’s fast-growing middle class to higher value Taiwan bikes and parts. The tariff would be cut to zero over a three-year period.

The trade pact, formally called the Economic Co-Operation Framework Agreement, takes effect Jan. 1, 2011. It covers more than 530 categories of products Taiwan exports to China. On the other hand, China will receive tariff relief on about 260 categories of products exported to Taiwan.

The agreement appears to have little if any impact on pricing for bicycles made for overseas consumption in the U.S., Europe or other nations—at least for now. Currently, Taiwan-made parts shipped to China for assembly on exports arrive through a duty free zone.

Pat Cunnane, president and CEO of Advanced Sports Inc, said the company and its manufacturing partner, Ideal Bike Corporation with facilities in Taiwan and China, could benefit from the sweeping trade agreement. “It will bring down costs of bikes in China that are made in Taiwan and it makes it easier for Taiwanese companies to sell in China,” he said.

Bonnie Tu, Giant Manufacturing’s chief financial officer, told the Financial Times the agreement could help the company better manage its production. Giant has factories in Taiwan and China. Giant builds its high-end bikes, particularly carbon fiber, in Taiwan. Lesser value models are made in China.

“If there is no tax issue, we can really integrate our factories and shuffle production as we like,” Tu said. “China’s economy of scale for high-end bicycles could be really big,” she added.

Cunnane said the future impact of the trade agreement doesn’t appear to offer either nation a major competitive advantage in the bicycle market. But the continued thaw in relations between the island nation of 23 million and its much larger rival is significant.

For example, China and Taiwan have over the last year or so eased airline travel. In the past, Taiwanese businessmen had to fly first to Hong Kong and then take another flight to a major Chinese city. “That change has really been a huge advantage for us. Now I can fly directly from Taichung to Shenzhen, but there’s still not enough flights,” Cunnane said.

The deal, however, continues to roil Taiwan’s political arena where many Taiwanese members of the Democratic Progressive Party (DPP) oppose any significant reconciliation with China out of fear that China eventually will dominate the island.

President Ma Ying-jeou’s Chinese Nationalist Party (KMT), on the other had, has moved steadily toward easing trade between the countries amidst worries that Taiwan could become increasingly isolated in the international marketplace by China’s surging economy.

—Marc Sani

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