Taiwan has been an export-driven trading nation over the past few decades. As such, its trade policy becomes critical in ensuring its position in this increasingly competitive global economic environment. Taiwan’s admission to APEC in 1991 and to the WTO in 2002 were significant milestones in legitimizing its role as a key player in the global economy.
During the Ma Ying-jeou administration (2008-2016), Taiwan’s emphasis was on bolstering trade ties with China. Most of the government’s trade negotiation efforts were placed on the Economic Cooperation Framework Agreement (ECFA) and a substantial portion of the administration’s trade promotion resources were dedicated towards China.
The Tsai Ing-wen administration recognized the risks of China absorbing nearly 40 percent of Taiwan’s export trade volume, and opted for a policy designed to diversify trade and investment destinations to avoid over-dependence on a single trading partner.
Worldwide Economic Uncertainties and Taiwan’s Response
Given Taiwan’s economic dependence on trade, its policies are influenced by world events. In addition to the sluggish economic growth affecting economies around the world, the 2016 Brexit vote in the United Kingdom (UK) and the election of President Donald Trump in the United States introduced greater unpredictability to the global economy. Rising populism in Europe and the United States may steer future trade policies towards protectionist efforts.
As the negotiation for Brexit with the European Union (EU) is scheduled to begin on March 29, 2017, the final terms and impact of Brexit remain to be seen. The EU is Taiwan’s 5th largest trading partner and its largest source of foreign direct investment (FDI). The UK is Taiwan’s 3rd largest trading partner within the EU, and its 2nd largest source of FDI from the EU. Both the EU and UK play significant roles in Taiwan’s trade and economy, and the results of the Brexit negotiation may well impact Taiwan in ways that require proactive and timely responses.
To ensure a smooth transition, Taiwan will maintain an open dialogue with the UK through the Taiwan-UK Trade Dialogue, which has been held annually for the past 19 years. Through official dialogue, Taiwan will continue to seek to further strengthen its trade relations with the UK during and after the Brexit negotiations have been completed. On the EU front, The European Commission has officially included the possibility of initiating a BIA (Bilateral Investment Agreement) with Taiwan in its 2015 “Trade for All” policy paper. Taiwan seeks to continue the dialogue and push for the official initiation of the BIA negotiation.
Similarly, Taiwan is currently the 9th largest trading partner for the United States. Not unlike their European counterparts, President Trump and his administration also bring in a different philosophy to trade negotiation, firstly rejecting the Trans-Pacific Partnership (TPP) and seeking to renegotiate NAFTA and other key bilateral trade agreements. While the general blueprint may be set, the actual measures and actions will have to wait until the US Trade Representative is appointed and his/her team is in place and in motion. Given these uncertainties, the whole world—Taiwan included—is watching to respond to the United States’ next economic move.
During the Obama administration, Taiwan was preparing itself for the second round of TPP member accession, and it commenced some of the regulatory reforms that would have been required of a new TPP member, including passing 15 fishing by-law amendments, which came into effect January 2017. Other regulatory reform efforts, including TPP-grade amendments Patent Act, Trademark Act, Pharmaceutical Act and Cosmetics Hygiene and Safety Regulatory Act have been drafted by the administration and submitted to the Legislative Yuan for review. These efforts were made in the hope that Taiwan would be better positioned for acceptance into the TPP. With the United States pulling out of TPP, the remaining 11 member countries are still exploring different possibilities for regional integration, but this may take more time. In the interim, Taiwan will continue to maintain an open dialogue under the Trade and Investment Framework Agreement (TIFA) with the United States, and explore potential possibilities for a mutually beneficial bilateral trade agreement that would include both market access and investment chapters.
Taiwan’s Economic Landscape
After eight years of China-driven trade and economic policy, Taiwan requires a long-overdue industrial upgrade and overhaul. This is the rationale behind the 5+2 Innovative Industries, which are: Green Energy, Asian Silicon Valley, Biotechnology, Smart Machinery and National Defense plus New Agriculture and Circular Economy. The government seeks to accelerate the industrial transformation upgrade to propel the next generation of economic growth drivers. These 7 industrial focuses share the commonality of satisfying domestic needs, and the potential for attracting further private sector investments. These forward-looking industrial policies seek to drive economic growth for the currently stagnant economy.
Together with this wave of industrial innovation, the New Southbound Policy also serves to diversify Taiwan’s trade and investments, both going outbound and inbound. To this end, the Tsai administration seeks to focus on the following trade policy directions to bolster the efforts of New Southbound Policy.
Taiwan’s Current Trade Policy Direction
In order to open up greater market access and investment opportunities for our agile corporations that seek to expand their market and also their manufacturing base beyond China, Taiwan needs to actively promote dialogues for potential trade negotiations. In addition to the aforementioned United States, EU, and UK, it is also in the process of engaging in dialogues with Japan and Australia to explore possibilities for further collaboration.
In terms of the ASEAN countries, Taiwan seeks to upgrade existing BIAs (some of which are over 20 years-old) with Singapore, Indonesia, the Philippines, Malaysia, Vietnam, and Thailand to better protect the rights of investors to and from Taiwan. Taiwan also seeks to explore potential BIAs with Brunei, Myanmar, Laos, and Cambodia, and to expand to South Asian countries such as Pakistan, Sri Lanka, Bhutan, and Nepal. Given the potential political sensitivities, the BIA strategy is a first step towards better and more robust trade relations between Taiwan and these New Southbound nations.
In spite of the impasse in passing the TPP, even in the form of TPP-minus the United States, Taiwan remains open to the possibility of regional economic integration through other arenas, including a Free Trade Area of the Asia-Pacific (FTAAP) driven APEC members, the Regional Comprehensive Economic Partnership (RCEP), which is backed China, or another version of TPP that evolves from TPP-minus US, promoted by key TPP members, including Australia and New Zealand.During this period of uncertainty, Taiwan will continue to actively participate in the multilateral and plurilateral trade arenas, including the WTO and APEC, where substantial exchanges at the ministerial and senior trade official level are conducted in a constructive manner.
The main point: Taking into consideration the global uncertainties due to election results and administration changes, Taiwan continues to remain agile and proactive in engaging in bilateral and multilateral dialogues to further promote trade.