A bilateral investment agreement (BIA) between Taiwan and the European Union (EU) has long been a sensitive issue for both parties. Taiwan has historically advocated for such a deal in an effort to further institutionalize its growing economic ties with Brussels. Nevertheless, prospects for a transformative BIA between Brussels and Taipei recently suffered a significant setback when EU diplomats told Taiwanese officials that an agreement is unnecessary.
The Deal that Never Was
At an event held at the European Parliament on March 8, 2023, Taiwan’s Vice Foreign Minister Roy Chun Lee (李淳) stated that a “bilateral investment agreement is top of our agenda, and has been for many years.” Indeed, Taiwan President Tsai Ing-wen (蔡英文) has declared on multiple occasions her desire to accelerate a long-stalled BIA with the EU. The Taiwanese government is convinced that the agreement would provide the confidence to “expand investment and engagement, advance shared interests and values, and help shape a more sustainable, secure, and prosperous world.”
Ultimately, after years of delays, the BIA has been rejected by EU officials, who reiterated that there is no economic rationale for such an agreement. Gunnar Wiegand, the European External Action Service (EEAS) managing director for the Asia and the Pacific, stated at the same event that the European Commission had considered a bilateral agreement under previous leadership, but that it had not progressed because “you negotiate new agreements when you need new agreements.” EU officials also pointed to a lack of demand from the business community, which traditionally prefers to deepen economic relations with Taiwan through cooperation on a technical level, rather than through more headline-grabbing agreements.
The EU’s decision means two things. First, amid a turbulent geopolitical environment, the European Commission wants to be cautious about moves that could anger the People’s Republic of China (PRC). Second, the EU believes that economic relations with Taipei are well-addressed under the current framework. EU officials have explained that since conditions for European investors in Taiwan are already stable, a BIA would be redundant. Instead, the EU is demonstrating its political engagement with the island through other means.
This view is not shared by many European lawmakers. “I don’t agree with that, nor does the overwhelming majority of the European Parliament, which has voted in favor of seeking a Taiwan BIA several times,” said Member of the European Parliament (MEP) Reinhard Bütikofer, chair of the European Parliament’s delegation for relations with the PRC. “The reason for that stance is very clear. Not only would such a deal benefit both sides economically, but it would also contribute to enhancing the political support for Taiwan as a partner democracy against PRC threats.” 
The idea of an EU-Taiwan BIA first arose in 2015, though this was never followed by actual talks. At the time, the European Union was negotiating the controversial Comprehensive Agreement on Investment (CAI) with the PRC. Concurrent EU-Taiwan negotiations on a similar agreement could potentially have created a beneficial synchronization for Brussels’s placement strategy in the region. The conclusion of investment agreements with both side of the Taiwan Strait within a short period would have created a three-way win for the EU, the PRC and Taiwan. The CAI, however, following the worsening of EU-PRC relations, has never been ratified.
Nonetheless, the PRC has reiterated that any formal pact with Taiwan would represent a breach of the EU’s “One-China Policy.” In its complaints, Beijing often refers to Sir Christopher Soames’ 1975 statement that “the [European Economic] Community does not entertain any official relations with Taiwan or have any agreements with it.” However, this claim has been firmly dismissed by Nabila Massrali, an EU spokeswoman, who told the South China Morning Post that “it is the EU which assesses what falls within the scope of its One-China policy.” Accordingly, she claimed that the bloc could “strengthen trade and investment ties with Taiwan.”
Furthermore, the PRC itself has an Economic Cooperation Framework Agreement (ECFA) with Taiwan, while other countries like New Zealand and India have already signed trade and investment agreements with Taipei. The US and Canada have also entertained the notion of moving closer toward bilateral trade and investment agreements with Taiwan.
Image: President Tsai Ing-wen greets MEP Reinhard Bütikofer while receiving a visiting European Parliament delegation in December 2022. (Image source: CNA)
A few days after the event, the Taiwanese media outlet Central News Agency (CNA) strongly rebuked the EU for its decision, criticizing the justification presented: “[I]f dialogue could replace more institutional bilateral agreements, wouldn’t the EU’s agreements with other countries be in vain?” Taiwan’s Representative to the EU, Remus Li-Kuo Chen (陳立國), bitterly commented on the issue to Politico: “While the US and Canada are currently negotiating economic and trade agreements with Taiwan, we hope that the EU will also look to adopt concrete and creative ways to deepen its cooperation with Taiwan.”
More importantly, the same article warned that such decision by Brussels could impact its chip diplomacy. The EU has recently expressed the desire to strengthen its high-tech supply chain, particularly relating to semiconductors, while increasing its autonomy. After the Russian invasion of Ukraine, the worsening of EU-PRC relations, and rising concerns about tensions in the South China Sea, Brussels wants to reduce its dependence on Russia and the PRC for energy and raw materials and secure its supply of high-tech goods. In pursuit of these goals, the EU has been trying to attract Taiwanese chipmaking investments, especially from Taiwan Semiconductor Manufacturing Company (TSMC, 台灣積體電路製造股份有限公司). The world’s biggest semiconductor manufacturing company is currently deciding whether or not to build a semiconductor plant in Germany, which could help to meet strong European demands for TSMC’s specialty processes and mitigate potential geopolitical barriers. In the wake of the EU’s statement about the BIA, these plans could be threatened.
The EU’s Growing Relations with Taiwan
Despite its dismissal of a BIA, Brussels sees Taiwan as an important, like-minded partner, and has included the island in its discussions of how to strengthen its economic resilience in the face of Beijing’s economic coercion. The economic links between the two sides are strong and growing.
In early June 2022, Brussels and Taipei upgraded their “EU-Taiwan Trade and Investment Economic Dialogue.” By the end of 2021, the EU was the largest foreign investor in Taiwan, representing over 25 percent of Taiwan’s total foreign direct investment (FDI) stocks, with a total value of over USD $50 billion. In 2021 alone, the EU’s FDI flows into Taiwan amounted to USD $1.4billion (18.4 percent of Taiwan’s total FDI inflow), higher than that from either the United States (9.4 percent or USD $0.7 billion) or Japan (9.7 percent). The EU’s FDI stock in Taiwan mainly originated from the Netherlands (72.9 percent), whose investments to build a more secure and resilient global supply chain in the semiconductor industry have been massive, though Germany (8.8 percent) and Denmark (6.5 percent) have also played major roles.
However, amongst Taiwan’s FDI stock in the world, the EU plays a limited role. By the end of 2021, the EU held only 2.2 percent (USD $8.0 billion) of Taiwan’s worldwide FDI stock. The Netherlands held the largest Taiwanese FDI stock in the EU, accounting for 53.0 percent of the total investments, followed by Hungary (17.2 percent) and Luxembourg (8.0 percent). Nonetheless, Taiwanese investors continue to demonstrate confidence in the EU market and the potential for greatly expanded Taiwanese investment in the bloc. Taiwan’s financial and insurance industries attracted 89.9 percent of EU-bound investment, followed by its manufacturing sector (5.4 percent) and wholesale and retail industry (2.9 percent). Taiwanese investments in the EU are steadily moving toward more high-tech, service-oriented fields, such as internet and communications technology (ICT) and financial services.
Brussels is also Taiwan’s fourth-largest trading partner, with a bilateral exchange worth roughly USD $64 billion, including a 29.7 percent increase in 2021. A significant portion of this trade includes Europe’s expertise in in the production of specialized chemicals and machine tools, crucial in the chip industry.
Politically, EU institutions have increasingly recognized Taiwan’s importance in recent years. The EU Strategy for Cooperation in the Indo-Pacific, adopted in 2021, urges the Commission to sign a BIA and acknowledges Taiwan as a major partner in the Indo-Pacific region. Specifically, it states that “the EU will also pursue its deep trade and investment relationships with partners with whom it does not have trade and investment agreements, such as Taiwan.” In recent years, the European Parliament has passed multiple non-binding resolutions and recommendations urging the Commission to begin consultations on a BIA in order to enhance the partnership. The European Parliament’s approach has often seemed to differ from that of the other EU institutions. The reason lies in how each institution views the triangular relationship between Brussels, Beijing, and Taipei. While the Parliament considers the EU-Taiwan BIA to be a separate issue from the EU-PRC BIA, the Council and the Commission regard these two agreements as interlinked.
Since the 1990s, the EU has adopted diverse forms of recognizing Taiwan in economic and political arenas under its “One-China Policy.” Many EU member states have already entered into economic agreements and other forms of cooperation with Taiwan, such as agreements on tax evasion, investment promotion, or cultural exchange. Nevertheless, such agreements include limited—if any—legal obligations, and are generally negotiated at the national or subnational level through representative offices.
Taiwan’s admission to the World Trade Organization (WTO) in 2002 institutionalized economic interactions with the EU under a multilateral framework, and marked a key milestone in the relationship. Specifically, the WTO provides a forum for the island to act as a separate customs territory. By utilizing WTO mechanisms, the EU could potentially negotiate and conclude a BIA with Taiwan and further institutionalize the economic ties between the two. First, the BIA could increase the extent of the EU’s recognition of Taiwan’s governmental authority to enact international agreements, and promote the mutual recognition of governmental measures on investment protection, promotion, and facilitation. Second, the BIA’s dispute settlement provisions could galvanize recognition of Taiwanese investors in the international economic order.
A BIA to Further Deepen Relations
While the EU’s desire to avoid angering the PRC is understandable, it should be acknowledged that Taiwan plays—and will continue to play—an important role in future supply chain networks, especially in the semiconductor sector. With a Global Value Chain participation index of 60.8, Taiwan is one of the most deeply embedded actors in global value chains.  The EU should unequivocally recognize that a discussion on an EU-Taiwan BIA would not only have implications for trade interests, but also for the role of trade in geopolitical relations and for fostering the EU’s values.
An investment agreement would facilitate the development of a more liberal, transparent, and well-regulated market, as well as enhance investors’ understanding of each other’s market regulations and mitigate strict local content requirements for certain sectors. Moreover, Taiwan could offer fresh business opportunities for the EU’s medical technology industry and world-leading green energy sector. The Taiwanese government has put in place a range of ambitious green energy production goals, including a vast increase of its offshore wind capacity. Further investments in the island’s energy sector could represent a great opportunity for European firms, who have already won large proportions of the development projects from now until 2025.
However, the EU cannot expect to have the cake (i.e., prosperous economic relations with Taipei without a BIA) and eat it too (i.e., enjoy a growing cooperation in the semiconductor industry). As an interim solution, Taiwan and the EU will continue holding discussions on less politically charged areas, such as technical barriers, digital economy, and an agreement on artificial intelligence regulatory or standardization cooperation. With Taiwan’s expertise in critical technologies, and the mutual desire to diversify away from the PRC in the long-term, starting a dialogue on resilient supply chains should also be a priority.
An EU-Taiwan BIA could not only promote the EU’s economic and geopolitical interests by increasing EU-Asia connectivity, but it could also demonstrate Brussels’ solidarity with like-minded trade partners and contribute to the resilience of European supply chains. The EU should recognize that Taiwan’s economic prosperity and security are deeply connected to European interests.
The main point: The EU is not willing to bring forward the project of a bilateral investment agreement with Taiwan. The decision has more to do with Brussel’s fear of angering the PRC than with the benefits of bilateral cooperation with Taipei. Nonetheless, the refusal to discuss a BIA could have serious repercussions for Taiwanese investments in Europe and for the EU’s chip diplomacy.
 Comments by MEP Reinhard Bütikofer to the author.
 This metric measures the percentage share of global value chains relative to value added in gross exports.