Taiwan stuck at a crossroads with US and China over trade deals, facing conflicting prospects
- Speculation has mounted as to whether China will allow its Economic Cooperation Framework Agreement with Taiwan to end amid rising political tensions
- US Health and Human Services Secretary Alex Azar also floated the prospect of renewing long-running US-Taiwan trade talks, but doubts remain on both fronts
Washington rekindled an old Taiwanese dream this month when a cabinet member floated the idea of a trade deal with the United States, a goal discussed for the past quarter of a century between the export-reliant Asian economy and its second largest market.
At the same time, there are question marks hanging over Taiwan’s 10-year old trade deal with mainland China, which Beijing officials have publicly discussed cancelling as political ties spiral downward.
A continuation of trade ties with China – even at a time of such political strain – appears to be an easier “win” than the elusive US trade deal Taipei has chased for decades, but on which it has perennially failed to offer concessions enough to sway Washington.
The US is much more important to Taiwan than the other way around
In 1994, the two sides agreed to talk regularly toward a deal and had met 10 times as of 2016, but there have been no such meetings so far during the administration of US President Donald Trump.
But then, during his somewhat controversial visit to Taiwan, US Health and Human Services Secretary Alex Azar confirmed that he had discussed trade issues with Taiwanese officials in Taipei “including questions surrounding bilateral trade arrangements” – a sign that talks might be back on the agenda.
“We would like to make progress,” said Taiwan’s cabinet spokeswoman Kolas Yotaka, when asked about the deal with the US, but there are few outward signs of progress towards it.
For Taiwan, a trade deal with the US “is consistent with its long-term strategy of reducing dependence on the Chinese market and diversifying export destinations”, said Ma Tieying, an economist at DBS Bank.
Taiwan, as a net exporter to the US, would benefit more economically from a trade deal, said Gareth Leather, senior emerging Asia economist at Capital Economics in London.
“The US is much more important to Taiwan than the other way around,” Leather said. “Countries which have signed free trade deals with the US in the past, notably South Korea, have been successful in gaining market share.”
Taiwanese exporters sent US$46.24 billion worth of goods to the US last year, up from US$39.49 billion in 2018, Taiwan government trade data showed.
“China has been an important production base for Taiwanese tech manufacturers for many years,” said Jessica Hsu, senior industry analyst with the Market Intelligence & Consulting Institute in Taipei. “The US tariffs on some products exported from China to the United States have prompted Taiwanese manufacturers to diversify their production bases.”
Supporters of a deal say strike while the iron is hot, but seasoned US negotiators have taken fresh talk of a trade deal with a pinch of salt.
“Now is the right time for a bilateral trade agreement,” said Richard Thurston, former general counsel at Taiwan Semiconductor Manufacturing Company, now with the New York law firm Duane Morris.
“During the early 2000s under president Chen Shui-bian, I participated on a Taiwan internal task force to prepare for a trade agreement. But, then and during the next 15 years, neither side was prepared to make concessions on key disputed provisions,” added Thurston, who urged both sides to “move quickly to take advantage of favourable conditions on both sides of the Pacific”.
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Wendy Cutler, managing director at the Asia Society Policy Institute and previously a lead US trade negotiator, recalls previous talks floundering on agricultural issues.
The main sticking point has been the strength of Taiwan’s agricultural lobby. Trade officials recall being greeted at Taipei airports by hordes of angry farmers gathered to protest various stages of bilateral or multilateral trade talks, while the US in particular has been frustrated by a ban on the animal feed additive ractopamine.
“While Taiwan has made great strides in recent years in addressing US trade concerns in such areas as intellectual property rights, agriculture has remained a serious sticking point. Resolving our differences on pork and beef would go a long way in helping to chart an expanded and deeper trade relationship,” she said.
Ractopamine is a food additive widely used in American livestock but banned in over 160 other countries and territories.
If Trump decides to pursue an agreement, it would thus probably be for political reasons and could produce a reaction that he may not fully understand or expect
Jeff Moon was at the negotiating table towards the end of Barack Obama’s second term as US president, and while he said talks were “friendly and cordial with none of the tension and zero-sum atmosphere that pervades US-China trade negotiations”, there was no indication that Taiwan was serious about addressing American agricultural demands.
“My sense was that we were going through the motions of an exercise that ended with results known well in advance,” said the former assistant US trade representative for China.
“I am not privy to current negotiations, but have no indication that either side has changed its position on the trade issues, despite Azar’s vague comments during his visit. If Trump decides to pursue an agreement, it would thus probably be for political reasons and could produce a reaction that he may not fully understand or expect.”
James Zimmerman, a partner in the Beijing office of law firm Perkins Coie - which represents the US Democratic National Committee - and former chairman of the American Chamber of Commerce in China, said that Azar’s trip and statement suggested that Washingtonian may be using Taiwan as a “bargaining chip with Beijing”.
Seriously, going down a path that inspires or heartens Taiwan toward independence is likely to be perceived as a threat to Beijing’s core interests
“What does Trump, [US Secretary of State Mike] Pompeo or Azar seek to gain, other than Beijing’s ire? Seriously, going down a path that inspires or heartens Taiwan toward independence is likely to be perceived as a threat to Beijing’s core interests, and it’s disingenuous to think that it’s in the best strategic interests for Taiwan, the US, or the rest of Asia,” Zimmerman said of the highest-level US visit to Taiwan since 1979.
Separately, Taiwan runs a widening trade surplus with the US, a total of US$23 billion last year, 53.3 per cent higher than in 2018. The Trump government has griped about similar gaps with China and Vietnam with which it does not have free trade deals.
US officials might demand that Taiwan increase imports and “address the trade imbalance” before inking a deal, Ma from DBS Bank added.
A similar demand was made of Seoul during the Trump-ordered renegotiation of the US-Korea Free Trade Agreement, which was re-signed in 2018.
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Both Taiwan’s Foreign Trade Bureau and the de facto US embassy in Taipei declined to comment on prospects for a bilateral trade agreement.
Meanwhile, Taiwan’s Economic Cooperation Framework Agreement (ECFA) with China will turn 10 years old in September, the point at which, according to World Trade Organisation rules, signatories are “free to modify or withdraw the concessions” given in a deal, should a full customs union or free-trade zone not be established, as is the case with ECFA. Under the rules, either side can cancel the deal with 180 days notice
China and Taiwan had agreed to keep lowering trade barriers in the years after 2010, and while Taiwan’s exports to the mainland have soared, there has been little progress towards a free trade deal.
In 2014, mass protests in Taipei scuttled a services liberalisation pact with Beijing, while the 2016 election of President Tsai Ing-wen led the mainland to cut off any further trade talks because she disputes Beijing’s political condition for dialogue – that both sides belong to “one China”.
Last year, Chinese state media reported that the deal “is unlikely to be renewed”.
There are industry people and certain scholars who have indicated that an end to ECFA would hurt companies on both sides as well as cross-Strait relations and hope we can keep carrying it out
“Unfortunately, due to reasons known to all, the negotiation on the signing of the follow-up service agreement between the two sides has been interrupted. The agreement did not benefit our Taiwan compatriots,” said Taiwan Affairs Office of the State Council spokesman Ma Xiaoguang.
Tsai’s government said it plans to uphold pre-2016 agreements signed with the mainland.
Taiwan’s Mainland Affairs Council, a policymaking body, issued the South China Morning Post with a statement saying that the ECFA’s “early harvest list” still helps both sides by cutting import tariffs. The list covers around 800 import categories, including machine tools and petrochemical raw materials.
“There are industry people and certain scholars who have indicated that an end to ECFA would hurt companies on both sides as well as cross-Strait relations and hope we can keep carrying it out,” the statement said.
China has kept the ECFA either because it is hoping for an upturn in overall relations with Taiwan, or is waiting for a symbolic moment politically to spike it, said Liang Kuo-yuan, president of the Polaris Research Institute think tank in Taipei.
“You don’t know how much pressure they want to put on Taiwan,” he said.
