China and Taiwan took the first step toward economic integration on Tuesday by signing a trade pact called the Economic Cooperation Framework Agreement. The ECFA, signed in the Chinese city of Chongqing by trade representatives from both sides, is tantamount to a free trade agreement.

It is expected to create a pan-Chinese market that encompasses mainland China, Taiwan, Hong Kong and Macau, with 1.36 billion consumers and a combined GDP of US$5.39 trillion.

Chiang Pinkung, chairman of Taiwan's semiofficial Straits Exchange Foundation, and his Beijing counterpart, Chen Yunlin, signed the pact after trade talks that began in January.

Chiang Pinkung (left), the chairman of Taiwan's semiofficial Straits Exchange Foundation, and his Beijing counterpart, Chen Yunlin shake hands before signing the ECFA in Chongqing on Tuesday. /AP-Yonhap

China made significant concessions to Taiwan, which will not import Chinese agricultural products and continue to ban workers from the mainland from seeking employment on the island. A total of 539 Taiwanese products are included in the so-called "Early Harvest Program" subject to zero tariff within two years. In contrast, only 267 Chinese goods are included in the program.

China also opened its banking, securities, insurance, accounting and motion picture industries to Taiwanese businesses and allowed import of Taiwanese agricultural products as well.

ECFA is expected to hit Korean manufacturers who export similar products to China. The Korea International Trade Association in a report Tuesday outlined measures Korean businesses should take to deal with the impact.  "A large number of Taiwanese exports to China with zero tariffs within two years overlap with Korean-made products," KITA said in the report.

Analysis by KITA and the Korea Institute for International Economic Policy show 14 out of the top 20 Korean and Taiwanese exports to China overlap, including semiconductors, liquid crystal displays and petrochemicals. They account for 60 percent of Korea's exports to China. When the list is expanded to Korea's and Taiwan's top 50 export items to China, a total of 33 products overlap.

KITA said China has agreed to eliminate tariffs immediately for Taiwanese petrochemical products, machinery, textiles and automotive parts, so this will have an immediate impact on the price competitiveness of Korean products. China currently levies between 6 to 12 percent tariff on plastic products and a 6.5 percent tariff on organic compounds. ECFA means they will be scrapped, while tariffs on Korean goods will remain intact, translating into higher price tags for Korean exports. "Korea needs to speed up the Korea-China FTA, while expanding trade with Southeast Asian countries," KITA said.