Paving the Way for Broader Economic Engagements between Taiwan and Japan

Paving the Way for Broader Economic Engagements between Taiwan and Japan

Paving the Way for Broader Economic Engagements between Taiwan and Japan

The United States has pulled out of the most ambitious global trade pact to date, but across Asia, the appetite for multilateral deals that would encourage greater regional economic integration remains high. The growing consensus that the Trans-Pacific Partnership (TPP) will likely be moving forward, albeit without the United States, is undoubtedly good news for Taiwan, as it opens up the possibility for Taipei to become a member of the trade deal down the line. But, while the possibility of a thriving TPP-11 has increased Taiwan’s odds of eventually joining a multilateral agreement, how Taipei moves forward in enhancing its global economic standing in the meantime will be the more immediate challenge.

President Trump’s whirlwind tour of East and Southeast Asia made clear that, when it comes to trade, Asian nations are prepared to move forward without the United States. Moreover, Washington is untroubled by being the odd nation out in the global bandwagon to deepen trade ties. Another post-presidential trip revelation has been that there is a distinct lack of appetite among Asian countries, and especially in Japan, to pursue a bilateral free trade agreement with the United States. The White House’s focus on enforcing existing rules, coupled with worries about economic nationalism taking center stage, has decreased the allure of reaching a deal with Washington.

For Taiwan’s leadership, however, prospects of bilateral trade deals, not just with the United States, but with other countries including Japan, remain alluring as much for political as well as for economic reasons. The question is how best Taipei can ensure its competitive edge in pursuing such a deal.

With Japan, Taiwan is steadily moving forward in opening its markets and enhancing broader relations with Tokyo as a result. At the latest Japan-Taiwan trade and economic conference in Tokyo in late November, the two sides moved even further forward since lifting a 16-year ban on importing beef from Japan back in September with the signing of two memorandums of understanding on law enforcement cooperation and cultural exchange. Expectations run high that the resumption in exports of Japanese beef to Taiwanese markets will be the harbinger of a broader economic engagement; and, perhaps more importantly, there is growing anticipation that the latest trade deal will also lead to closer political ties at a time when tensions across East Asia continue to rise.

The challenge, however, is how Beijing might respond to such warm relations across its own shores, and whether Tokyo can pave the way to help Taipei carve out, not only new trade agreements with potential partners, but also help supporting Taiwan’s footing in a newly emerging Asian order.

There is no doubt that allowing Japanese beef back into the Taiwanese market has been a diplomatic achievement as much as an economic one. Stories of luxurious Taipei restaurants serving up marbled Miyazaki beef from October in spite of it being more than twice as expensive as its US or Australian counterpart have been touted at length by the Japanese media, furthering public interest in one another on both sides of the East China Sea. As Japan makes headway in establishing itself as an exporter of high-end agricultural products in a region hungry for food safety, Japan has also found it difficult to shrug off concerns about foods produced at home, following the Fukushima nuclear disaster of 2011. Meanwhile, the outbreak of mad cow disease two decades ago had already hurt demand for Japanese beef, and led to the shutout of Japanese cattle from Taiwanese markets in 2001. Being welcomed back into Taiwan has certainly been a boon for the beef farmers of Miyazaki, and it is expected that beef from other areas of Japan, including the Kobe region, will be let back in again soon.

Yet as the lifting of the beef ban breeds greater success, the question that looms ever larger is what the next steps can and should be. For Taipei, lifting the trade ban has certainly been seen as one step closer toward establishing a more comprehensive bilateral free trade agreement with Japan, especially given the political goodwill it now enjoys. At the same time, there are expectations that a bilateral trade deal with Japan could pave the way to achieving a bilateral investment treaty, if not a full trade agreement, with the United States down the line as well.

There are clear benefits on both sides to closer economic relations, even if Taiwan and Japan do not have formal diplomatic ties. After all, Japan is Taiwan’s second largest trading partner, and Taiwan is Japan’s fifth largest. Their greater mutual interests, though, lie in the political realm, especially when the markets on both sides are relatively limited. Bearing in mind that, even without official trade agreements, Taiwan and Japan are closely intertwined economically, the corporate gains to be made from an official economic trade agreement are relatively few. That is particularly the case when Japan grapples with a rapidly aging population and struggles to remain the third largest economy in the world, and there are likewise limits to boosting Taiwan’s domestic demand for imported goods and services.

The political calculus for enhancing bilateral ties, on the other hand, is much more expansive. It is in Taipei that Tokyo finds its biggest supporter in Asia, as Japan has been able to skirt much of the tension over its occupation of Taiwan and the legacy of World War II, unlike in its dealings with South Korea or the People’s Republic of China (PRC). At the same time, both Japan and Taiwan have struggled to deal with China’s ever-increasing ambitions to be both a wealthy and powerful nation that would be the undisputed hegemon of Asia. Many, of course, would argue that Beijing has already reached that status, at least within the Asia-Pacific region. But, should the PRC act as a hegemon, it would not only jeopardize the foundations of Taiwan, but it would also marginalize Japan in the region as well. The question is: to what extent can the cross-Strait status quo be maintained, while relations between Taipei and Tokyo—and with others in the region—grow?

Japan’s official position is that it does not support Taiwanese independence per se, and it has focused on deepening economic and cultural ties. Yet, even within those limitations, the two sides have been able to ink 28 bilateral agreements during the previous administration in Taiwan alone (2008 to 2016). The most significant of those was the 2013 fisheries deal that allowed fishing boats from both sides to be exempted from the jurisdiction of each other’s law enforcement. It was a success insofar as it helped avert conflict between the two sides over the Senkaku/Diaoyou islands in the East China Sea, thus averting an escalation of tensions as a result of territorial disputes. Moreover, it preempted an alignment between Beijing and Taipei against Tokyo over the islands. Nonetheless, the striking fact of the deal was that there was little protest from the PRC against the agreement. In addition, it gave Taiwan a bigger platform on the international stage as a regional peacekeeper, with President Ma touting his East China Sea Peace Initiative.

The possibility of Japan and Taiwan striking a similarly broad, strategic deal on the economic front will likely prove to be more difficult.  For one, cross-Strait relations have become less certain under the new Democratic Progressive Party government, and any move by Taipei now to bolster relations with either Japan or the United States could lead to a backlash from the PRC. Another factor is that the economic landscape of the Asia-Pacific region, too, has become much more uncertain. The US withdrawal from the Trans-Pacific Partnership agreement has not killed the TPP altogether, but as the remaining 11 TPP members mull over how to move forward with a regional trade framework, China’s own economic vision for the region has become increasingly attractive. Under the current climate, concerns about Beijing’s backlash against a deal will undoubtedly stave off any proactive move by Japan or, indeed, the United States.

On the upside, prospects for a TPP-11 remain bright, and with them the possibility of Taiwan joining the multilateral trade agreement down the line. As the biggest economy amongst the 11 members, Japan will continue to shepherd the other countries to remain committed to reaching a successful conclusion to the deal. It will also be expected to ensure the TPP’s success, so that if and when the United States is ready to return to multilateral discussions, it will be the ambitious, high-standard agreement that it had initially set out to be. Japan will also play a key role in ensuring that article 30:4 on accession is adhered to, namely that the TPP would be open to accession by “any state or separate customs territory that is a member of APEC,” which would include Taiwan.

Remaining open to potential multilateral trade deals will certainly be critical for Taiwan to remain competitive in the longer term. In the meantime, deepening trade relations with Japan as well as the United States will not only enhance Taiwan’s growth prospects, but also its political standing amid a rapidly shifting regional order. Taipei must, however, resist being lured into the trap of pursuing trade agreements as a means to secure its status, given the political realities of the region. A trade deal is no guarantee of future success, especially when such agreements can be unexpectedly revoked. Continued economic strength will remain key to ensuring Taiwan’s standing in the world, and that will come from an ability to adapt more nimbly to the rapid changes brought about by increased globalization and technological disruptions.

The main point: Remaining open to potential multilateral trade deals will certainly be critical for Taiwan to remain competitive in the longer term. In the meantime, deepening trade relations with Japan as well as the United States will not only enhance Taiwan’s growth prospects, but also its political standing amid a rapidly shifting regional order.