US International Development Finance Corporation: A New Avenue of US-Taiwan Cooperation

US International Development Finance Corporation: A New Avenue of US-Taiwan Cooperation

US International Development Finance Corporation: A New Avenue of US-Taiwan Cooperation

Taiwan’s international affairs are constrained by its ambiguous sovereignty. With only 15 diplomatic allies as of this article’s publication—and likely more to drop off in the face of mounting pressure from an increasingly global China—Taiwan is forced to find creative ways to strengthen its relations with foreign partners. Taiwan’s policymakers have highlighted the potential that overseas development assistance (ODA) presents for Taiwan, and they were particularly excited and optimistic about Taiwan’s new cooperation with the US Overseas Private Investment Corporation (OPIC), which has transitioned to the US International Development Finance Corporation (USDFC) and charged with mobilizing private capital to achieve US development goals. This offers Taiwan a means to engage with the US government in a manner that is not subject to the same diplomatic idiosyncrasies as other elements of their bilateral relations. Taiwan’s government and development finance community should work hard to increase cooperation with USDFC. This new avenue of cooperation between the United States and Taiwan would help both sides accomplish their strategic, economic, and development goals.

Policy Frameworks Provide a Strong Case for ODA Cooperation

US president Donald Trump and Taiwan president Tsai Ing-wen (蔡英文) both have foreign policy frameworks that serve as the overarching drivers of strategic engagement in the Indo-Pacific region. The Trump administration announced its Free and Open Indo-Pacific Strategy (FOIP) in 2017. The US FOIP centers on economics, governance, and security in the region and is designed to counteract Chinese investment and influence in Indo-Pacific countries. Because the US government cannot match Chinese government outbound investment dollar-for-dollar, mobilizing US private sector capital in Indo-Pacific countries is a critical component of a successful FOIP. Similarly, the Tsai administration announced its New Southbound Policy (NSP) in September 2016 to facilitate and enhance Taiwan’s engagement with ASEAN member states, further countries in South Asia, Australia, and New Zealand. While the NSP includes goals for enhancing cultural ties, it is also heavily focused on building economic ties, both through encouraging Taiwan’s private sector companies to invest in NSP countries and by fostering an environment for more multilateral and bilateral dialogues.

These two foreign policy frameworks provide not only the backdrop but also the policy impetus for ODA cooperation between the United States and Taiwan. For Taiwan, ODA cooperation allows the Tsai administration to chart a new path of cooperation with the United States, one of its most important foreign partners. Taiwan would also be able to amplify its investments abroad, especially in targeted countries. This includes Taiwan’s 15 diplomatic allies, as well as the 18 Indo-Pacific countries that fall under the NSP. All the while, Taiwan will be working to build out a relationship with a new, powerful US government agency, helping it better leverage its private sector capital for political and economic gain abroad.

For the United States, this type of economic cooperation between the United States and Taiwan provides a pathway for strengthening economic ties that is less controversial than negotiating a bilateral FTA would be. Furthermore, it allows the United States to increase its investment in the Indo-Pacific region, serving as an important counterweight to China’s multi-billion-dollar Belt and Road Initiative (also known as “One Belt, One Road”). The United States and Taiwan should invest time and resources into strengthening development finance cooperation, while placing a particular emphasis on collaboration in the Indo-Pacific region.

This opportunity for greater cooperation comes at a time when OPIC and the export credit portion of the US Agency for International Development (USAID) have merged to create the USDFC—a stronger, more modern government agency. The USDFC will have an investment cap of $60 billion, more than double the investment capacity of its predecessor OPIC. With more resources, the USDFC is poised to increase cooperation with foreign development finance institutions and be more strategic about its investments abroad. According to an OPIC Statement, “[US]DFC will make America a stronger and more competitive leader on the global development stage, with greater ability to partner with allies on transformative projects and provide financially-sound alternatives to state-directed initiatives that can leave developing countries worse off.”

USDFC’s natural counterpart in Taiwan is the Taiwan International Cooperation and Development Fund (TaiwanICDF). TaiwanICDF is a government-funded agency that manages Taiwan’s foreign aid programs and “offers lending and investment, technical cooperation, humanitarian assistance, and international education and training to Taipei’s diplomatic allies.” Given that USDFC and TaiwanICDF serve similar functions in their respective economies, the two agencies should aim to work together to strategically mobilize their private sector capital around the world.

Current Scope of US-Taiwan Cooperation

The scope of OPIC and TaiwanICDF’s current partnership had been focused on Taiwan’s diplomatic allies. However, as the FOIP and NSP suggest, both sides appear eager to expand this partnership beyond its current scope. David Bohigian, the executive vice president of OPIC, traveled to Taiwan in July 2019 to meet with President Tsai, along with other officials in Taiwan’s Foreign Ministry and development finance community. Mr. Bohigian made it clear that OPIC is eager to partner with Taiwan on projects in the Indo-Pacific region, indicating benefits to both sides from cooperation. He also stressed that the United States and Taiwan could promote alternative, sustainable development models abroad “by supporting projects that are built to last, respect the environment, create local jobs, and ensure transparency.” Mr. Bohigian clearly articulated the strategic argument for US-Taiwan ODA cooperation throughout the Indo-Pacific region.

Because the initial scope of ODA cooperation between Taiwan and the United States is centered around Taiwan’s diplomatic allies, the projects under the current framework will be concentrated in Latin America and the Pacific Islands. Mr. Bohigian traveled to Taipei just a few months after Taiwan and OPIC successfully collaborated on their first joint project, something Taiwan’s government officials touted multiple times during our delegation meetings. In March 2019, OPIC and TaiwanICDF signed their first joint investment for a $184 million project in Paraguay in cooperation with Banco Regional, a Paraguayan bank, to enable on-lending to women-led and women-owned small and medium-sized enterprises.

Paraguay was an excellent place for OPIC and TaiwanICDF to begin their collaborative relationship. It is a place familiar to TaiwanICDF, and as of February 2018, Paraguay is one of four countries with which Taiwan has an Economic Cooperation Agreement.

This project provides a successful blueprint for US-Taiwan economic cooperation in third countries that have diplomatic ties with Taiwan. It also shows how cooperation with the United States can amplify the development work that Taiwan is already doing with its diplomatic partners. For example, TaiwanICDF, which is focused exclusively on providing assistance to Taiwan’s diplomatic allies, is already financing a number of projects in Paraguay on its own, mainly in the agriculture and healthcare sectors. These investments are targeted and impactful, but they exist on a smaller scale; collaboration with OPIC therefore allows TaiwanICDF to amplify the good work it is already doing.

A Timely Opportunity to Do More

To build on the Paraguay model, the USDFC and TaiwanICDF are exploring further cooperation in Haiti and St. Lucia, two other diplomatic allies of Taiwan. OPIC had teams on the ground in other countries that recognize Taiwan’s sovereignty, including Nicaragua, Tuvalu, Honduras, and Guatemala, so presumably these are further potential areas for collaboration. But there is also enormous opportunity for cooperation between Washington and Taipei on countries of greater mutual interest and strategic value. In our conversations with Taiwan’s government officials, they indicated that they were ready for cooperation in South and Southeast Asian countries, a region of key importance to both the US FOIP and the NSP.

Taiwan has demonstrated that it is eager to forge stronger ties between its private sector and the US private sector outside the development sphere, as well. For the second year in a row, for example, Taiwan brought the largest delegation to the annual SelectUSA conference, an event hosted by the US Department of Commerce to attract foreign direct investment into the United States. Taiwan’s cooperation with USDFC is another way to foster private sector cooperation, and it allows the benefits of private sector cooperation to be amplified outside the bilateral context. Taiwan and the United States were right to begin cooperation in this area in Paraguay, one of Taiwan’s remaining diplomatic allies, and there is much space left for further cooperation.

Taiwan would benefit from facilitating and increasing economic cooperation that takes place outside traditional multilateral forums and government-to-government relationships, which are fraught with diplomatic rules and sensitivities. Taipei will, and of course should, continue its policies of more traditional government-to-government engagement and fight for a voice in the international economic conversation. Taiwan will continue to try to negotiate bilateral FTAs, just as it will continue to be an enthusiastic and productive member of the WTO and APEC. But development finance cooperation provides an opportunity for largely unrestrained economic cooperation and should therefore be a top priority for the Tsai administration.

If executed properly, Taiwan’s cooperation with USDFC will allow Taipei to engage with countries in the Indo-Pacific region in a meaningful way—in cooperation with the United States, at a higher level of investment than it could achieve on its own, and with the high standards that the United States and Taiwan are committed to delivering. An example of potential cooperation in this area is the Blue Dot Network, a multilateral initiative of the United States, Japan, and Australia that was announced in November 2019 and that aims to enhance cooperation on global infrastructure development. Taiwan and the United States can strive for a similar type of cooperation in a bilateral context, and if the Blue Dot Network expands beyond the current three countries, Taiwan should strongly consider joining. Development finance cooperation with the United States in the Indo-Pacific region would help put meat on the bones of the Tsai administration’s NSP, a hallmark foreign policy which, to date, has few concrete markers of success in the economic sphere. Taiwan would have a real partner in the United States, because the promises of development finance cooperation between the two sides benefit not only Taiwan, but also the United States. The United States and Taiwan together can leverage their deep private sector pockets for mutual strategic benefit and the benefit of third countries around the world.

The main point: While the United States and Taiwan have maintained strong economic ties for quite some time, the two states have the opportunity to greatly expand their economic cooperation through join overseas development assistance initiatives through the newly formed US International Development Finance Corporation.

[Editor’s note: When the article was originally written the USDFC (formed on December 20, 2019) was not officially established. To make the article current, some references to OPIC have been changed to USDFC and verb tenses were modified for style. The original version of the article is available here.]

[1] As part of a delegation trip to Taiwan in June 2019, I had the opportunity to meet with a number of Taiwan’s policymakers and experts.
[2] The USDFC was supposed to be operational as of October 1, 2019. However, the agency is still in the process of opening its doors as of the publication of this article.