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Taiwan’s President Tsai Ing-wen is under pressure to show foreign policy achievements after losing two South Pacific diplomatic allies to China last month. Photo: EPA-EFE

Risking China backlash, Taiwan and Britain push ahead with free trade talks

  • Taiwan and Britain are looking to their deepen trade relationship, but opposition from China remains a major hurdle
  • Recent trade talks focused on access for British lamb exports, ways to boost cooperation in financial services and offshore wind power

Taiwan and Britain are pushing ahead with trade negotiations as Taipei looks to reduce its reliance on China and Britain seeks to secure post-Brexit trade deals.

Negotiators from the two sides met for their 22nd round of talks on October 1 in London, where they discussed access for British lamb exports, ways to boost cooperation in financial services, offshore wind power and pharmaceuticals.

Discussions between Taiwan and Britain have occurred almost annually since 1991, but pressure from China over Taiwan’s status as a self-ruled island remains a major stumbling block to a formal free trade deal.

“If Taiwan can sign some official deal with the UK, that’s definitely a political achievement,” said Liang Kuo-yuan, president of the Taipei-based economic think tank Yuanta-Polaris Research Institute. “Even unofficially it would be a political achievement, though it would need to have practical application.”

If Taiwan can sign some official deal with the UK, that’s definitely a political achievement
Liang Kuo-yuan

Beijing, which sees Taiwan as part of China, frowns on countries seeking bilateral free trade deals with Taipei. As a result, the island has signed a free trade deal with just one of its top 10 trading partners, Singapore, meaning its exporters are stung with higher import tariffs than many competitors.

Any deal with Taiwan would be a boon for Britain too, analysts said, as once it leaves the European Union it will have to renegotiate all trade deals it was party to as a member of the 28-member union.

“The consensus there is that the UK needs to seek new free trade agreements vigorously after Brexit,” said Yun Sun, East Asia programme senior associate at the Stimson Center, a Washington-based think tank.

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Britain is most interested in trade deals with countries that already have agreements with the European Union, said Sun, who visited London last week. But talks with Taiwan show that London sees economic value there, too, according to some experts.

Perhaps most important is the UK appears to be looking at trade with Taiwan on its economic merits, rather than prejudicially shying away out of fear of offending the much bigger China market
Denny Roy

Britain might sign a deal with Taiwan despite the risk of backlash from Beijing, said Denny Roy, senior fellow at the East-West Centre research institution in Honolulu.

“Perhaps most important is the UK appears to be looking at trade with Taiwan on its economic merits, rather than prejudicially shying away out of fear of offending the much bigger China market,” Roy said. “So, the UK is poised to modestly help Taiwan increase its international economic space.”

Taiwan is open to a formal trade deal with the UK, a spokeswoman from Ministry of Economic Affairs told the South China Morning Post on Monday. The government sees informal agreements as “achievements” too, the spokeswoman said.

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Ahead of elections in January, Taiwan’s President Tsai Ing-wen is under pressure to show foreign policy achievements after losing two South Pacific diplomatic allies, the Solomon Islands and Kiribati, which ended their diplomatic relations with the island in favour of mainland China last month.

Two-way trade between Taiwan and Britain grew to US$8.12 billion last year, up by nearly a quarter since 2016, according to the British government. It is currently Taiwan’s third biggest trading partner in the European Union.

In striking a trade deal, Britain hopes to build on its role as a European financial centre and Europe’s biggest hi-tech hub for firms valued at more than US$1 billion. Taiwan, meanwhile, has manufactured consumer electronics for decades and is the world’s 21st largest economy, according to the International Monetary Fund.

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James Berkeley, managing director at London-based business advisory firm Ellice Consulting, said Britain wants to become a leading destination for Taiwanese investment as the island has talent and capital resources that are much in demand.

“It is a much about the symbolism for both sides as the financial benefits,” Berkeley said. “Taiwan is precisely the forward-looking country that the UK wants to embrace economically.”

Breaking down restrictive market access barriers was a key point of discussion earlier this month, UK Trade Policy Minister Conor Burns said in an official release.

British trade officials are also eyeing a piece of Taiwan’s expanding offshore wind power generation, which will increase from 4 per cent of the island’s total electric output to 20 per cent by 2025, as well as greater access for British food and beverages. British companies have invested US$9.78 billion in Taiwan to date.

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Taiwan sees Britain as an opportunity to move past its current trade situation, which has been hurt by the trade war between China and the United States, Ministry of Economic Affairs deputy minister Wang Mei-hua said in a statement last week. She called the 18 British firms working on offshore wind power in Taiwanese waters an example increased engagement with the Britain.

In 2017, negotiators agreed to improve access to Taiwan for specialist medicines from Britain and to build on some US$216 million in British financial services exports to Taiwan the previous year.

Market access to Taiwan “remains a key vital discussion point” for fintech, renewable energy and agricultural businesses, Berkeley said.

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This article appeared in the South China Morning Post print edition as: Taiwan and Britain in talks to strikea free-trade deal
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