Really Going WTO?  (c) Simon Xi Zhang, 2002

According to Regulations Governing Permission of Trade between Taiwan Area and Mainland Area (hereinafter Trade Regulations), cross-strait trade was required to be conducted in an indirect manner. In any sale where Taiwanese was a party to the contract, the opposing party must be a business or person outside mainland area (a third area person); the transportation of the subject goods had to be routed through a third area, or "overseas transportation center" administered by Ministry of Transportation of Taiwan[22].

No doubt, such requirement increases unnecessarily the transaction cost of Taiwanese buyers when they purchase goods from mainland China. Taiwanese sellers are also at disadvantage compared with Japanese or Korean competitors, in dealing with potential buyers in mainland China. It is because either the mainland buyer pays for transportation therefore direct transportation from Japan maybe cheaper than indirect routing starting from Taiwan, or the Taiwanese seller bears transportation cost and then has to cut off some portion of the profit, which is otherwise retainable but for the indirectness requirement.