On May 10, Taiwan President Tsai Ing-wen (蔡英文) spoke at the Copenhagen Democracy Summit, highlighting cooperative relations between the island-democracy and the European Union (EU). “Taiwan will continue to engage with the EU and other democratic partners to establish a more resilient supply of critical goods such as semiconductors and medical supplies,” she said in a video message broadcast at the summit. As EU countries have requested Taiwan’s assistance in relieving a global semiconductor chip shortage, Taiwan, which ranks as the EU’s sixth-largest trade partner in Asia, has in turn urged EU partners to work towards a potential Taiwan-EU bilateral investment agreement (BIA).
Tsai also said at the Summit that “a BIA would not just help secure our supply chains; it would protect our mutual geopolitical and economic interests, and send a message about the partnerships and values on which our interests depend.” Taiwan’s newfound push to commence negotiations on the BIA comes as new strains in the China-EU relationship have impeded the speedy ratification of the China-EU investment deal reached in late 2020. Given that movement on the Taiwan-EU BIA is—at least in principle—tied to the conclusion of the China-EU investment deal, there seem to be dim prospects for jumpstarting bilateral Taiwan-EU BIA talks in the short term irrespective of Taiwan’s potential semiconductor leverage.
Freeze on the China-EU Investment Agreement
After seven years of bilateral negotiations, an agreement in principle was reached on the China-EU Comprehensive Agreement on Investment (CAI) at a virtual meeting attended by Chinese President Xi Jinping (習近平), German Chancellor Angela Merkel, French President Emmanuel Macron, and other EU representatives on December 30, 2020. The bilateral investment pact has been hailed as a significant milestone in China-EU relations, and as a major step in creating a more level playing field for European companies competing against Chinese state firms in the Chinese market. Moreover, the CAI became a symbol of how China-EU ties continued to grow even while the transatlantic relationship plummeted to a low point during Donald Trump’s administration. In fact, Beijing may have been motivated by the need to preempt transatlantic cooperation against China under the new US presidency, and thus tried to pull out all the stops to conclude the deal only a few weeks before Joseph Biden’s inauguration.
To Washington’s dismay, the China-EU investment pact was reached by sidestepping thorny human rights issues, such as those regarding Xinjiang and Hong Kong. However, the coordinated US-EU sanctions in March of this year against Chinese officials involved in the mistreatment of ethnic Uyghurs in Xinjiang, coupled with Chinese retaliatory sanctions against EU parliamentarians, have dealt a temporary blow to the final ratification of the agreement by the European Parliament, a requirement for the deal to take effect. In response to Chinese sanctions against EU officials, Bernd Lange, chair of the European Parliament’s Committee on International Trade that is responsible for the review, said that China’s response to European sanctions was too excessive and that review of the investment agreement would be put on hold. Later, on May 20, the European Parliament approved a resolution to freeze ratification of the CAI until Beijing lifts its sanctions on EU politicians. Given that the Taiwan-EU BIA is informally tied to the conclusion of the CAI, this recent setback for the China-EU investment pact may, in fact, impede the start of formal investment negotiations with Taipei.
Origins of the Taiwan-EU BIA
The European Parliament has been in favor of agreements on investment protection and market access with Taiwan, with an eye towards expanding Taiwanese investments in the EU and rectifying its persistent trade deficit with the island. From the EU perspective, the overall trade relationship between the EU and Taiwan was “performing well below its potential,” particularly given opportunities for cross-collaboration in the information and communications technology (ICT) industry and in the development of smart products and services. The Belgian Chamber of Representatives was the first parliamentary body in an EU member state to pass a resolution in 2012 supporting the negotiation and signing of an economic cooperation agreement with Taiwan. [1] Later, a 2013 resolution passed by the European Parliament said that the decision to launch investment negotiations with Taiwan should be based on “economic reasons” and not the state of relations between the EU and China.
Since 2015, the EU has been interested in negotiating an investment agreement with Taiwan. The European Commission’s “Trade for All” strategy, which was released in a 2015 report, discussed the benefits of reaching investment agreements with key East Asian economies in the regional supply chain, including China, Hong Kong, and Taiwan. The report stated that the EU will explore launching negotiations on investment with Taiwan, building on the investment framework under negotiation with China at the time. The European Commission then began preparations for starting negotiations on investment with Taipei and exchanged views with Taiwanese officials. [2] The European Parliament passed a resolution on July 5, 2016, calling on the European Commission “immediately to start negotiations on an investment agreement with Taiwan.”
China First, Taiwan Second
The European Parliament passed another set of resolutions in May 2018, and more recently in October and November 2020, calling on the European Commission to start BIA negotiations with Taiwan. Peter Berz, Head of Unit in the Directorate General for Trade of the European Commission, remarked in early 2019 that although the EU has a “One-China Policy,” it will not rule out negotiations with Taiwan to sign a bilateral investment agreement. However, the European Commission has expressed that it will not begin formal negotiations with Taipei on a BIA until the EU and Beijing reach their investment agreement first. Indeed, the EU’s policy to follow the “China first, Taiwan second” sequence has made any progress on a Taiwan-EU BIA contingent on the successful conclusion of the China-EU investment agreement.
After the CAI was reached in December 2020, there was hope that the Taiwan-EU BIA could finally get off the ground. In a resolution passed in January 2021, the European Parliament again highlighted the need to actively explore a Taiwan-EU investment agreement. However, European Commission Executive Vice President Valdis Dombrovskis said in February 2021 that “the Commission has not taken a decision on launching investment negotiations with Taiwan nor does it have a roadmap for the negotiations.” During this time, the EU has been working with Taipei to address some of Taiwan’s current trade barriers affecting European exporters, Dombrovskis said. There also has not been official discussion on a future Free Trade Agreement (FTA) between the EU and Taiwan given that currently, the primary focus appears to be centered on investment. [3] Thus, it seems that for the time being, there will not be any major progress on advancing the Taiwan-EU BIA until there is parallel movement on the CAI—at least until after ratification of the China-EU investment deal by the European Parliament.
Leveraging Taiwan’s Semiconductor Power?
Can Taiwan leverage its semiconductor prowess to jumpstart the BIA? Recently, the media have put a spotlight on Taiwan’s strategic role in global supply chains as a major supplier of semiconductor chips. Taiwan Semiconductor Manufacturing Corp. (TSMC, 台灣積體電路製造股份有限公司) has emerged as a new player in the island’s relations with the United States, the EU, Japan, and other countries—and could very well influence their national security calculations towards Taiwan. Such views, in essence, enhance the critical importance of preserving Taiwan’s national security and preventing an outbreak of conflict in the Taiwan Strait. Some analysts have argued that Taiwan’s semiconductor industry serves a role similar to that of Kuwait’s oil: a strategic layer of protection against external threats. Some commentators argue that Washington, which came to Kuwait’s defense and repelled the Iraqi invasion of Kuwait in 1991, may do the same to protect Taiwan’s semiconductor industry.
However, there are drawbacks to the argument that Taiwan can utilize its semiconductor industry as a bargaining chip to propel the EU into negotiations on a BIA. Some Taiwanese analysts, such as I-Chung Lai (賴怡忠), president of the Prospect Foundation (遠景基金會), advise against the Taiwanese government interfering in the market on behalf of requesting countries. Instead of intervening in Taiwan’s semiconductor production every time a foreign government makes such requests, Lai proposes that Taipei set up a cooperative mechanism with other countries to manage global requests for semiconductor chips—similar to the oil production and price regulation mechanism of the Organization of Petroleum Exporting Countries (OPEC). Furthermore, the effects of government intervention in TSMC’s operations in a manner that favors certain countries would “cause enormous problems in the supply chain,” Rupert Hammond-Chambers, president of the US-Taiwan Business Council, said at a Global Taiwan Institute virtual seminar on May 19.
Taiwan’s semiconductor card does not seem to have direct influence on the EU Commission’s decision-making in regards to the Taiwan-EU BIA. Instead, the EU seems hemmed in by the freeze on the CAI, which would likely push back the commencement of formal investment talks with Taipei. Indeed, the Taiwanese government faces procedural and structural constraints emanating from the EU-China relationship—which, despite the current clashes over human rights issues, remains an economically important relationship at its core. Nonetheless, Taipei should continue to work to significantly boost investment in EU member states in ways that would benefit both its domestic economic innovation goals and its BIA agenda. Taipei and the EU can enhance cooperation in improving digital connectivity in Southeast Asia, investing in clean and renewable energy projects, and promoting low carbon initiatives, all of which are potential areas of collaboration under a BIA. [4]
The main point: Taipei may be looking at ways to leverage its semiconductor power to jumpstart negotiations on a bilateral investment treaty with the EU. However, a recent setback in ratification of the China-EU investment agreement may also impede progress on a potential Taiwan-EU BIA.
[1] “Taiwan/China: President Ma Meets Belgian Chamber of Representatives Vice-President Sonja Becq,” Thai News Service, July 13, 2016, retrieved in Nexis Uni.
[2] Giacomo Fracassi, “Taiwan Momentum Needed for Taiwan-EU Trade Talks to Proceed,” EU Reporter, February 9, 2016, retrieved in Nexis Uni.
[3] “Register of Commission Documents: Written Answer: Trade and Investment Agreements between EU and Taiwan,” Impact News Service, February 12, 2018, retrieved in Nexis Uni.
[4] Stephanie Chao, “Taiwan and ECCT Talk Prosperity, Regional Peace,” The China Post, June 8, 2016, retrieved in Nexis Uni.
