The Case for a US-Taiwan Bilateral Trade Agreement

Economic Needs for Expanding Business in Asia

Taiwan has long been an important trading partner of the United States. It has also been an ideal place for US companies to diversify economic and legal risks when they attempt to conduct business with China. According to USTR, Taiwan exported goods worth USD $45.8 billion [1] and imported goods worth USD $30.2 billion during 2018, making it the 11th largest goods trading partner with the United States. For US firms, potential biggest beneficiaries from the FTA are the top exporters, in fields such as electrical machinery, mineral fuels, and aircraft industry. The similarities between US-Taiwan and US-China trade suggest that Taiwan could be an ideal substitute for mitigating the losses from the ongoing US-China trade war [2].

Taiwan possesses two major comparative advantages in high-tech innovation and manufacturing that motivate US-based tech giants such as Google and Microsoft to choose Taiwan to expand their investment as well as research and development facilities. First, Taiwan has better performance in intellectual property protection compared to Chinese companies. Second, it has relatively reasonable costs for hiring highly educated talent, making Taiwan an ideal place for American companies to expand research and development centers. In this regard, American companies would be able to reduce the surging costs from contracting with Chinese firms and purchasing made-in-China electronic components by shifting part of its manufacturing contracts to Taiwan in the future. In addition, Taiwanese firms enjoy the benefits of the trade creation effect generated by lower tariffs and zero-protectionism. In essence, the FTA is supportive of US firms’ diversification strategy in the short run. Since Taiwanese firms already play a key role in the global market, the FTA will facilitate long-term cooperation between Taiwanese and American firms in leading the global supply chain of high-tech innovation and manufacturing.

Overcoming the Challenges of Protectionism

Despite the prospects for US-Taiwan cooperation in the high-tech industry that can be discussed in a trade negotiation, the long-lasting disputes over US beef and pork imports to Taiwan have hindered trade negotiations. USTR pointed out in its 2019 Trade and Policy Agenda that removing Taiwan’s trade barriers on US beef and pork products are the priority for the talks. Although Taiwan’s Ministry of Economic Affairs said that it would work with relevant authorities to deal with this matter, there has been little visible progress to show on Taipei’s side. Indeed, it is incumbent on Taipei to propose a plan for reducing limitations on US meat to show its resolve to enter the negotiation.

One reason for Taiwan to reduce the trade barriers is that the value of Taiwan’s electrical machinery trade with the United States significantly surpasses that of beef and pork. In 2018, beef and pork imports from the US totaled USD $567 million, while exports of electrical machinery totaled USD $12.6 billion dollars, according to the Directorate General of Customs of Taiwan. These numbers imply that the government of Taiwan should focus on enhancing the manufacturing industry’s export competitiveness. Another reason is that the US demand for Taiwan’s beef and pork demand has been increasingly significant over time. Despite trade barriers, Taiwan’s imports of US beef and pork have been growing in recent years—beef imports rose by 33 percent in terms of weight, and pork imports have grown by 106 percent compared to 2016, according to data from the Directorate General of Customs of Taiwan.

To overcome domestic concerns over market competition and health issues related to imported meat from the United States, industrial transformation and labeling guidelines could be a useful tool. Traditional agricultural industry could remain domestically competitive by transforming into high value-added industry. For example, the Taiwanese government could assist pork producers in improving meat quality, building brands, or transforming farms into eco-parks for education and tourism. Moreover, a clear labeling guide can alleviate health and hygiene-related concerns regarding US beef and pork products for Taiwanese consumers. While the United States has argued that its beef and pork products are in line with international standards, food experts in Taiwan remain skeptical about ractopamine’s impacts on high-risk populations. In order to tackle this divide in the interpretation of scientific results, a detailed and clear food-labeling guide could be provided. Rather than introducing amendments to its Food and Sanitation Act to ban certain American beef products, Taiwanese government could urge meat retailers to provide buyers with health information and ingredients when they purchase US beef and pork products.

As the decade-long controversy over beef and pork leave a legacy of public distrust towards US meat, the United States should promote confidence among the local population with its products. It is worthwhile for US meat exporters to address domestic concerns in Taiwan that a BTA will make Taiwanese beef producer worse off by increasing the competition in Taiwanese beef market. The US Meat Export Federation (USMEF) has already taken action to establish ties and foster mutual understanding with Taiwanese meat retailers and consumers. In June 2019, USMEF brought a team of leading US beef producers to visit retailing buyers and several restaurants in Taipei, and they also hosted three other public tasting events in other cities of Taiwan. Positive results of these non-governmental exchanges helped mitigate consumer concerns over imported US meat in Taiwan, although more action from the government side could be done.

Lastly, taking steps from conditionally open to a fully open market would minimize the adverse impact of trade negotiations on Taiwan’s politics. The case of US-Korean Free Trade Agreement (KORUS FTA) suggests that insufficient communication with the public can create public resentment over the negotiations. Similar to Taiwan, the United States was South Korea’s largest beef exporter and consumer’s concern over the bovine spongiform encephalopathy (BSE) hindered the negotiation. South Korean government passed a Beef Access Agreement in 2008, which granted full access to South Korean market [3]. Due to the lack of transparency and the government’s awareness of the public opinion, the agreement caused public protest (the “candlelight vigil”) and reduced the then-ruling party’s ability to pursue its political agenda in the Korean Parliament [4]. As a result, since trade negotiation is not a one-shot game,” the United States should allow Taiwan to reduce trade barriers on US beef in stages to defuse public concerns, especially during the election season.

Broad-based Public Support for US-Taiwan BTA

US scholars have argued that the US-Taiwan BTA would contribute to the US foreign policy goal of a “free and open” Indo-Pacific by giving Taiwan a stronger position to engage with regional trade frameworks. For one, the agreement can deepen Taiwan’s economic integration with the region by encouraging other regional actors to engage with the island. Taiwan is more likely to break through Beijing’s diplomatic blockade when other countries observe strong American support of Taiwan’s participation in the international community.

Another potential effect of this agreement is that it can reduce China’s economic leverage over Taiwan, as mentioned in AmCham Taipei’s 2019 Taiwan White Paper. Taiwan would obtain greater economic autonomy if its firms invest their capital in a variety of countries. Lower dependence on Chinese businesses will further strengthen Taiwan’s sovereignty and increase its resistance against Chinese Communist Party’s (CCP) aggression.

In addition, there is strong US congressional support for improving US-Taiwan economic relations. Indeed, a bipartisan group of 161 members of Congress recently sent a letter to USTR calling to start negotiations on a BTA with Taiwan. The Senate introduced the Taiwan Assurance Act on March 26, 2019, which also calls on the USTR to resume TIFA meetings on a bilateral trade agreement with Taiwan. After the law was passed, Heritage Foundation President Edwin J. Feulner predicted huge bipartisan support for US-Taiwan Bilateral Trade Deal on Capitol Hill in an interview with VOA. House Representative Ted Yoho also emphasized the importance of bilateral trade and the shared value of democracy between Taiwan and the United States. During Taiwan’s President Tsai Ing-wen’s visit to Colorado, Senator Cory Gardner also expressed strong support of closer US-Taiwan ties, saying that he would continue to work with the Trump administration on entering FTA negotiations with Taiwan. Furthermore, former AIT Director William Stanton mentioned that a US-Taiwan FTA will contribute to the US alliance system in Asia as Taiwan’s continued freedom and sovereignty plays a critical role in the continuation of this system.

Conclusion

Geopolitical security objectives and economic benefits constitute solid reasons for negotiating a BTA with Taiwan. Both sides should work on resuming TIFA meetings in a timely manner while both administrations’ security goals are aligned. The last TIFA meeting was held back in 2016. It is worth noting that after winning her second term in office, President Tsai Ing-wen reportedly suggested that signing a bilateral trade deal would lead to further economic and bilateral trade growth in the United States and Taiwan. Politicians in Taiwan should take actions to overcome societal concerns over US beef and pork products and reduce protectionism to facilitate trade negotiations. For the United States, the BTA with Taiwan should not be solely about business interests but also about forming a strategic arrangement that promotes peace and security in the Indo-Pacific region.

The main point: A US-Taiwan BTA would contribute to the US goal of a “free and open” Indo-Pacific by giving Taiwan a stronger position to engage with regional trade frameworks. Comparative advantage of Taiwan’s high-tech industry makes it an ideal place for US companies to expand R&D and to diversify risks.

[1] Top export categories in 2018 were electrical machinery ($4.8 billion), machinery ($4.7 billion), mineral fuels ($3.8 billion), aircraft ($2.6 billion) and optical and medical instruments ($2.1 billion).

[2] Electrical machinery products are among top trade categories of the US with both Taiwan and China, according to USTR.

[3] “It allows for imports of all cuts of US boneless and bone-in beef and other beef products from the edible parts of cattle, irrespective of age, as long as specified risk materials (SRMs) known to transmit mad cow disease are removed and other conditions are met.” – Remy Jurenas and Mark E. Manyin, “U.S.-South Korea Beef Dispute: Issues and Status.” September 23, 2010. US Congressional Research.

[4] Remy Jurenas and Mark E. Manyin, “U.S.-South Korea Beef Dispute: Issues and Status,” August 3, 2011. Congressional Research Service.

(Feature photo by Tom Fisk from Pexels)