The Time Is Now for a Trade Deal With Taiwan



David Sacks, Jennifer Hillman | Council On Foreign Relations

U.S. Secretary of State Antony Blinken made headlines last week when he signaled during congressional testimony that the United States would be resuming its suspended trade dialogue with Taiwan. U.S. Trade Representative Katherine Tai followed up by meeting virtually with her Taiwanese counterpart last Thursday, where they agreed to convene the Trade and Investment Framework Agreement (TIFA) Council “in the coming weeks.” This is a welcome and overdue development, but it is still not enough. Instead, the time is ripe for the United States to begin negotiations with Taiwan on a comprehensive bilateral trade agreement.

Taiwan is the United States’ ninth-largest trading partner and its seventh-largest destination for agricultural exports, with total trade in goods valued at $90 billion in 2020. Trade with Taiwan supports over two hundred thousand U.S. jobs. Taiwan also occupies a central position in global technology supply chains, in particular semiconductors. The United States trades more with Taiwan than it does with India, France, or Italy. Beyond trade, Taiwan is an important partner on regional and global issues, working with the United States on everything from climate change to global health, anticorruption, women’s empowerment, sustainable development, and counterterrorism.

The United States and Taiwan signed a Trade and Investment Framework Agreement (TIFA) in 1994, which provides a forum for officials from the Office of the United States Trade Representative (USTR) to meet with their Taiwanese counterparts to discuss and hopefully resolve irritants to bilateral trade and investment. Since 2007, the trade relationship has not been able to get past Taiwan’s barriers to U.S. agricultural exports. The main stumbling block has been Taiwan’s ban on imports of U.S. pork and beef because they often contain ractopamine, an additive (currently also banned in the European Union and China) that promotes leanness. To signal its displeasure with Taiwan’s stance, USTR suspended TIFA talks, resuming them from 2013 to 2016 (after Taiwan allowed some beef imports containing ractopamine), before the Trump administration suspended them again in 2017.

Taiwan’s President Tsai Ing-wen, a trade negotiator by training, recognized the primary hurdle as well as the importance of improving trade ties with the United States. After handily winning reelection, in August 2020 President Tsai announced that she would remove the ban, to significant domestic political backlash. This policy change is now subject to a nonbinding referendum that will be held in August. The Trump administration, despite all its talk about the importance of U.S.-Taiwan relations, did not initiate trade talks, reportedly because it was concerned that doing so would prompt China to walk away from the phase one trade deal.

USTR has identified remaining issues that could be addressed during negotiations, namely Taiwan’s barriers on agricultural products, in particular rice, genetically modified foods, ground beef, and animal byproducts. USTR likely also would push Taiwan to lower tariffs on distilled spirits, large motorcycles, and soda ash, and create a more level playing field in the pharmaceutical and medical device sectors. There is also scope for Taiwan to more effectively combat copyright infringement, especially with respect to online piracy, and to provide greater access to its cloud computing market. Progress on these issues should be attainable.

Despite a general lack of appetite for new free-trade agreements, there appears to be a large degree of congressional support for a deal with Taiwan. In the fall of 2020, a bipartisan group of fifty senators signed a letter calling on then-U.S. Trade Representative Robert Lighthizer to begin working toward a comprehensive trade agreement with Taiwan. This followed a similar bipartisan letter signed by 161 members of the House in 2019 and the passage in 2020 of the Taiwan International Protection and Enhancement Initiative (TAIPEI) Act by unanimous consent, which called on USTR to further strengthen bilateral trade and economic relations with Taiwan.

This strong bipartisan support reflects an appreciation of Taiwan’s constructive role on regional and global issues and recognition that Taiwan’s continued security is critical to regional stability in the Asia-Pacific. As China’s military strength and confidence increase, the United States needs to find additional ways to continue to deter Chinese adventurism. In addition to the economic merits of a trade deal, this development would also send a strong signal to China on the importance the United States places in its relationship with Taiwan and increase Taiwan’s confidence, allowing Taipei to approach the mainland from a position of strength.

China’s strategy for Taiwan is to employ a range of tools in an attempt to cause Taiwan’s twenty-four million people to conclude that their only viable future is to join China. In the economic realm, it has cut tourism to Taiwan, banned imports of Taiwanese pineapples, and most importantly sought to marginalize Taiwan in international trade. Although Taiwan is a member of the World Trade Organization (WTO) and the Asia-Pacific Economic Cooperation (APEC) forum, it is not a member of the two largest regional trade groupings, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP) that includes Canada, Japan, Mexico, and eight other countries and the Regional Comprehensive Economic Partnership (RCEP) that includes China, Japan, South Korea, Australia, New Zealand and the Association of Southeast Asian Nations (ASEAN) countries. Taiwan is excluded largely because members fear Chinese retaliation. Taiwan only has two free trade agreements with countries that do not maintain diplomatic relations with the island – deals with Singapore and New Zealand – and China has pressured other countries not to conclude trade agreements with Taiwan. This despite the fact that China signed an Economic Cooperation Framework Agreement (ECFA) with Taiwan in 2010, which significantly reduced tariffs and trade barriers. There is a well-founded fear that without the ability to join in trade liberalization, Taiwan’s economy will fall behind, which would add to China’s leverage over the island. A U.S.-Taiwan trade deal, however, could provide political cover for other countries to begin negotiations of their own with Taipei.

While resuming TIFA talks is a positive step, this dialogue alone is unlikely to generate enough momentum toward a trade agreement. The time is ripe to be more ambitious. President Tsai has three years left in her second term, and because she does not have to stand for reelection she is in a position to spend political capital to finalize a trade deal with the United States. Her successor, regardless of political party, will be unlikely to make the necessary concessions during a first term. President Tsai, who has focused on diversifying Taiwan’s economy away from China (with mixed success), would view a trade agreement with the United States as an important part of her legacy, and can be expected to negotiate in good faith.

A U.S.-Taiwan trade agreement would increase the island’s economic and national security while further opening an important market for U.S. exports. It would signal support for an important partner and underscore the U.S. interest in cross-strait stability. The time is right for an ambitious U.S.-Taiwan trade agenda.

David Sacks is a research fellow at the Council on Foreign Relations, where his work focuses on U.S.-China relations, U.S.-Taiwan relations, Chinese foreign policy, cross-Strait relations, and the political thought of Hans Morgenthau. He was previously the Special Assistant to the President for Research at the Council on Foreign Relations.

Jennifer A. Hillman is a senior fellow for trade and international political economy at the Council on Foreign Relations (CFR), specializing in U.S. trade policy, the law and politics of the World Trade Organization (WTO), international organizations, and Brexit.   

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