The upcoming TIFA meeting is seen as a good chance to show commitment to liberalization.
This year’s AmCham Taipei Doorknock delegation to Washington D.C. found itself in the U.S. capital during a momentous week that included two historic Supreme Court decisions (upholding “Obamacare” and legalizing single-sex marriages nationwide) and – more germane to the Chamber’s agenda – passage by the Senate on June 24 of Trade Promotion Authority (TPA) for the President. Following previous votes in the House of Representatives that produced mixed signals as to the viability of the Obama administration’s cornerstone trade policy of promoting the 12-party Trans-Pacific Partnership (TPP) free-trade area, the result in the Senate was hailed as likely to pave the way for early completion of the TPP negotiations. It also signaled that Congress could later be expected to ratify American participation in TPP, ensuring that the pact becomes a reality.
“The Senate action made our key Doorknock message even more relevant,” says AmCham Taipei President Andrea Wu. That message, as also enunciated in the Chamber’s 2015 Taiwan White Paper released in early June, stresses that membership in the TPP second round will be essential to ensure Taiwan’s future economic prosperity and well-being. The alternative is to see the Taiwan economy increasingly marginalized in the regional and global arenas, as well as seriously hampered in meeting export competition from Korean rivals and ever more dependent on the Chinese market. As the AmCham team pointed out during its meetings in Washington, that outcome would not be in the economic or security interests of the United States.
In all, this year’s Doorknock consisted of a total of 47 meetings. Nine were with executive branch agencies – including the State Department, Office of the U.S. Trade Representative (USTR), Commerce Department, National Security Council, and the Department of Health & Human Services – 24 with Congressional offices, and the rest with think tanks, other private-sector organizations, and the Taipei Economic and Cultural Representative Office, Taiwan’s quasi-embassy in Washington. The 12-member team was led by Chamber Vice Chairman Dan Silver together with Andrea Wu.
Most meetings began with a reminder from AmCham of why Taiwan matters, citing the island’s huge trade volume (it is the 10th largest trading partner of the United States), two decades of vibrant democracy, and key position in the global technology supply chain. After making the case for eventual Taiwan participation in TPP, “we heard a great deal of potential support for Taiwan’s second-round candidacy, but also frequent reminders that Taiwan will first need to do more to demonstrate its firm commitment to economic liberalization,” says Andrea Wu.
In fact, depending on the conversation (or even the portion of the conversation), the AmCham delegation heard the state of the U.S.-Taiwan bilateral relationship characterized in two different ways. From one perspective, the relationship was described as “very positive” and also “reconceptualized” in recent years to put greater emphasis on Taiwan as a valued entity unto itself rather than viewing it chiefly through the prism of cross-Strait relations.
The Taiwan government will be expected to show by word and deed that it is prepared to grapple with difficult issues in terms of market opening and accepting international standards and regulatory practices.
Along these lines, the U.S. government has increasingly been making an effort to help Taiwan play a more prominent in regional affairs in areas where it has considerable experience and expertise, such as healthcare, environmental protection, women’s rights, and small business development. Such programs were portrayed as benefiting the region while also assisting Taiwan in gaining the “dignity it deserves.” Another new initiative arose out of the recent visit to Taipei of Assistant Secretary of State for Economic and Business Affairs Charles Rivkin: a Digital Economy Forum to be launched later this year between the United States and Taiwan to promote cooperation in such fields as e-commerce and cyber-security.
At the same time, American sources advised that Taiwan should not expect the United States to champion its candidacy for TPP simply because of their long history of friendly relations. “It will not come gift-wrapped on a platter,” as one official put it. Instead, the Taiwan government will be expected to show by word and deed that it is prepared to grapple with difficult issues in terms of market opening and accepting international standards and regulatory practices. The pact has been termed a “gold-standard, 21st century trade agreement” that goes beyond tariff reductions to cover such other elements as the service sector, intellectual property protection, investment, and environmental protection.
Considerable skepticism remains in Washington that Taiwan is actually ready for a TPP bid. Compared with some first-round TPP negotiating partners such as Vietnam, for example, Taiwan is seen is economically more advanced, yet less able to muster the political will to overcome bureaucratic resistance or opposition to change from particular interest groups. USTR, for instance, has been discussing a number of issues with Taiwan that may fall into the category of “technical barriers to trade” – regulatory provisions that directly or indirectly impede the ability of foreign goods and services to compete. Some of these correspond to practices that AmCham Taipei’s Taiwan White Paper has cited as “Taiwan-unique regulations” that raise the bar for compliance by multinational companies operating in a relatively small market.
Taiwan’s reputation in Washington as a reliable trading partner has been especially damaged in recent years by the market restrictions it has placed on the import of certain beef and pork products from the United States. For example, Taiwan continues to ban pork containing any trace of the leanness-enhancing feed additive ractopamine, even though Codex Alimentarius, the United Nations-affiliated body responsible for setting international food standards, has set a permissible residue level of 10 parts per billion – a standard Taiwan has accepted for beef.
In the case of beef, in 2009 Taiwan and the United States signed a protocol conditionally reopening the Taiwan market (which had previously been closed because of concerns about bovine spongiform encephalopathy or mad cow disease). But Taiwan’s Legislative Yuan almost immediately undid portions of the accord by passing legislation prohibiting beef internal organs or ground beef from the United States from entering the market.
In March this year when Taiwan’s Minister of Economic Affairs, John Deng, visited Washington, D.C., he attempted to show Taiwan’s good will by offering to open the market to six beef products (such as bone marrow and head meat) that are not explicitly prohibited by law. But even though the offer was largely symbolic, since U.S. meat companies have reportedly had no intention of exporting the items to Taiwan, the initiative was still blocked when the Legislative Yuan’s Economics Committee passed a resolution opposing the opening. Although the resolution officially was non-binding, executive-branch agenies hesitate to displease legislators who have the power to approve or disapprove their next year’s operating budget.
“John Deng tried to do a modest bit on beef, but he got knocked down in the LY,” said one senior U.S. source. He noted that the incident only raised further doubts about Taiwan’s ability to make the difficult adjustments that will be necessary to meet strict TPP requirements.
At the time of the Doorknock, another area of disappointment in Washington was Taiwan’s stance on expansion of the Information Technology Agreement (ITA) that eliminates tariffs on technology-intensive products. Negotiations had proceeded off and on in Geneva over the past three years among some 80 World Trade Organization member economies in an effort to achieve the needed consensus. But until a breakthrough agreement was achieved in late July, Taiwan and South Korea had been holding out for the inclusion of machine tools and LCD flat-panel displays. Seeking Taiwan’s cooperation by maintaining that the current deal is the best possible attainable, U.S. officials cautioned not to let the “perfect be the enemy of the good.”
Looking ahead to TIFA
The “TIFA Council” meetings normally held each year under the bilateral Trade and Investment Framework Agreement are an unparalleled channel for the two governments to resolve economic issues. “When the talks were not held this spring as usual, AmCham grew concerned that a vital opportunity to discuss trade issues was being lost,” says Andrea Wu. But U.S. officials told the Doorknock group that this year’s TIFA talks will indeed take place during the second half of this year, with consultations currently under way over the exact timing. “We now feel reassured that the trade agenda is indeed moving forward,” notes Wu, although AmCham expressed its strong hope that in future the TIFA talks will be held annually according to a regular, fixed schedule. “That would force action on outstanding items, while giving the business community confidence that there will be a forum for its issues to be raised,” she says.
The best countermeasure is for Taiwan to clearly and dramatically demonstrate its commitment to removing trade barriers and implementing regulatory reform.
When referring to the upcoming TIFA talks, sources in Washington stressed that a highly successful TIFA meeting would help Taiwan’s cause by sending a clear signal of its sincerity and determination to be a serious prospective TPP candidate. U.S. officials also encouraged the Taiwan government to publicize the results of its last year’s “stock-taking exercise” that analyzed the gaps between Taiwan’s current trade practices and the provisions of the Korea-U.S. Free Trade Agreement (KORUS), which is expected to approximate much of the content of the eventual TPP agreement – and start making progress in closing those gaps.
During the visit to the Commerce Department, officials commended Taiwan for its excellent support for the SelectUSA initiative to encourage more international business investment in the United States. Also discussed at Commerce was an effort to introduce the U.S. administrative-procedure system as a possible model for Taiwan in enhancing regulatory effectiveness. By ensuring that potential stakeholders have ample chance to offer comments on proposed new regulations, and to receive feedback on their comments, the system helps ensure that new rules are well-thought-out, practical, less subject to controversy, and easier to enforce. Adopting such procedures would also constitute a building block toward TPP membership, as the pact will include a chapter on transparency.
On recent years’ Doorknocks, AmCham had supported the idea of negotiating a Bilateral Investment Agreement (BIA) between Taiwan and the United States as way to instill greater momentum in the economic relationship on the way to Taiwan’s participation in TPP. At that point, it was still unclear when – or even whether – first-round TPP negotiations could be concluded. But with TPP now seeming to make good progress, it would appear that the steppingstone of a BIA is no longer needed.
To further promote bilateral economic relations, the Doorknock delegation also urged the American government to send high-level U.S. officials to Taiwan more often for substantive discussions. AmCham noted the excellent results achieved by the visits of Environmental Protection Agency administrator Gina McCarthy last year and Assistant Secretary of State Rivkin this spring.
Following the Doorknock group’s return from Washington, the AmCham Taipei leadership has started to schedule meetings with Taiwan officials, starting with a call on Premier Mao Chi-kuo on July 8, to brief them on the Doorknock outcome. The Premier thanked the Chamber for its constructive suggestions for Taiwan’s economic development, expressed through the annual Taiwan White Paper and other channels. He likened AmCham Taipei’s contribution to that of Chancellor Wei Zheng, who was widely respected for his forthright advice to the emperor during the Tang Dynasty.
The X-Factor: China’s Attitude
In the view of many American analysts of foreign relations and trade affairs, Taiwan is likely to face two major challenges in advancing its candidacy for second-tranche inclusion in TPP. First will be whether it can muster the political will – and skill – to tackle sensitive issues regarding market access and regulatory procedures, and second is whether China would be able to block Taiwan’s entry. In fact, the two may be closely related.
U.S. Sinologists say that Beijing’s intentions are still unknown, but most of them expect that China would try to pressure certain of its trading partners among TPP members to either keep Taiwan out entirely or insist that Taiwan’s accession be delayed to allow China to enter first. Since TPP will operate by consensus, any existing member country would in effect have veto-power over who may be admitted in future rounds.
At one time, the PRC appeared to regard TPP with suspicion, viewing it as a U.S.-led initiative to restrict China’s economic influence in the Asia Pacific. But more recently, Chinese scholars and officials have seemed less hostile toward TPP, even hinting that Beijing might wish to join the grouping at some point. For Taiwan, a prospective Chinese candidacy would raise the specter of a repeat of the situation that occurred in the 1990s when Taiwan had completed negotiations for entry into the World Trade Organization (WTO) but had to wait for years until China was also ready. Taiwan’s admission to the WTO finally took place in January 2002, minutes after China’s. Since most observers consider China as far from ready to meet TPP requirements, repetition of the WTO scenario could keep Taiwan isolated from regional economic integration for a long time.
The best countermeasure to that threat, in the view of American observers sympathetic to Taiwan’s position, is for Taiwan to clearly and dramatically demonstrate its commitment to removing trade barriers and implementing regulatory reform – eliminating any possible valid objections to Taiwan’s TPP accession and unmasking any opposition as politically motivated. As one analyst remarked: “Taiwan has to meet a higher standard and so more than anyone else because of its unique political situation. That’s unfair, but it’s the reality.”