US and Taiwan draw closer with new trade pact opposed by China

By Eric Cheung, CNN

Taipei, Taiwan (CNN) — The United States and Taiwan agreed the first stage of a bilateral trade initiative on Thursday, less than a year after negotiations began, in a move that demonstrated the increasingly close relationship between Washington and Taipei.

The new initiative, titled the US-Taiwan Initiative of 21st Century Trade and unveiled in June last year, will be the first official trade agreement between Taiwan and the United States since US President Joe Biden assumed office in 2021.

It covers areas including trade facilitation, regulatory practices, services domestic regulation, anti-corruption and supporting small and medium sized enterprises, a statement from the US Trade Representative (USTR) Office said.

However, it does not cover tariffs.

“This accomplishment represents an important step forward in strengthening the US-Taiwan economic relationship,” US Trade Representative Katherine Tai said in the statement.

“It demonstrates how we can work together and advance mutual trade priorities on behalf of our people. We look forward to continuing these negotiations and finalizing a robust and high-standard trade agreement that tackles pressing 21st century economic challenges,” she added.

The US Trade Representative Office said discussions will soon begin to finalize the remaining seven areas of the deal: agriculture, labor, environment, standards, state-owned enterprises, digital trade, and non-market policies and practices.

It added that a signing ceremony will be held “in the coming weeks.”

Experts say the move is particularly significant for Taiwan because it is the island democracy’s first official trade agreement since it was excluded from the Indo-Pacific Economic Framework (IPEF) launched by Biden last year.

The IPEF, made up of 14 member states including Japan, Singapore and the Philippines, is not a trade agreement in the traditional sense. It includes one “pillar” related to trade, but has other aims too, including making supply chains more resilient, promoting clean energy and combating corruption.

Kristy Hsu, a director of the Taiwan ASEAN Studies Center at the Chung-Hua Institution of Economic Research, said the US-Taiwan agreement would “create a more efficient and transparent business environment for companies from the two sides.”

“It proves to the international world that if Taiwan is able to engage in such a high-quality initiative with the US, that means our commitment to transparency and trade facilitation should have no question,” she said.

‘An important ally’

Taiwan, population around 24 million, is currently the world’s 21st largest economy. It plays a crucial role in global supply chains due to its leading role in producing semiconductor chips, vital components in everything from smartphones to computers.

One of its firms – Taiwan Semiconductor Manufacturing Company (TSMC) – is particularly important. It is the world’s largest contract manufacturer of chips and plays a critical role in powering products designed by tech companies like Apple, Qualcomm and Nvidia.

Worth nearly $500 billion, TSMC is one of Asia’s most valuable companies, and accounts for 90% of the world’s super-advanced chips.

The strengthening US-Taiwan relationship comes as the self-governing island comes under increasing pressure from mainland China, whose ruling Communist Party claims sovereignty over Taiwan despite never having controlled it.

Consequently, Taiwan has emerged as one of the central issues between China and the United States. The US has shown its support for Taiwan recently by increasing weapons sales to the island, but experts say trade pacts can also play a key role in elevating Taiwan’s international standing.

“It very much sends a signal of recognition that Taiwan is an important ally to the United States,” said J. Michael Cole, a Taipei-based senior adviser with the International Republican Institute.

“Taking the lead in signing a trade agreement with Taiwan and bolstering its economy also sets the tone for other countries to potentially explore the possibility of signing their own agreements with Taiwan as well,” he added.

Hsu, the economist at the Chung-Hua Institution, said the latest agreement could create momentum in the US-Taiwan economic relationship.

“The harmonization of trade rules and regulations mean customs procedures and efficiency may be improved, and that may help save money and time for exporters,” she said.

While the present agreement does not include any reduction in tariffs, Taiwan’s trade representative John Deng said last year that it could be a precursor to a free-trade agreement.

Next stop CPTPP?

The development also comes amid efforts by Taiwan to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a major free-trade agreement that came into force in 2018.

The CPTPP comprises of 11 founding members: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam. In March, Britain also reached an agreement to join the free trade bloc.

In 2021, Taiwan applied to join the CPTPP, but its request is still under consideration. China has also submitted an application to join.

Analysts say the US-Taiwan trade agreement could boost Taiwan’s hopes of joining the CPTPP, even if some members are reluctant to include it due to fears of angering Beijing.

“This trade initiative (between US and Taiwan) actually covers most of the chapters under the CPTPP,” Hsu said. “It will help Taiwan to accelerate our regulatory reform for our efforts toward joining the CPTPP.”

Some analysts expect China to protest the US-Taiwan deal, which it opposed when the first round of negotiations began last year.

“The attempt to play the ‘Taiwan card’ and prevent China’s unification and national rejuvenation will not succeed,” the spokesman of China’s Taiwan Affairs Office Ma Xiaoguang said last August.

Hsu also cautioned that reaching a consensus in the remaining seven areas of the US-Taiwan trade initiative could be more challenging as it may require Taiwan to make concessions that could be controversial domestically.

In 2020, lawmakers in Taiwan threw pig intestines in parliament to protest a proposal to ease restrictions on pork imports from the US. Opponents said the move would allow imports of pork containing ractopamine, an animal feed additive common in the US. The proposal was later passed in a referendum.

“There will be some challenges in the remaining seven chapters,” Hsu said.

The-CNN-Wire
™ & © 2023 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.