On the Path to a BTA?

U.S. Secretary of Health and Human Services Alex Azar calls on President Tsai. Photo: Office of the President

Taiwan’s initiative in easing restrictions on imports of U.S. beef and pork should bolster its case in favor of a bilateral trade agreement.    

President Tsai Ing-wen’s August 28 announcement that Taiwan’s restrictions on the import of American pork and beef would be relaxed made clear that the objective was to clear the way for Taiwan and the U.S. to deepen the bilateral relationship by entering into a full-fledged trade agreement. 

“It is undeniable that our relevant regulations, which are not yet in line with international norms, have become an obstacle to furthering Taiwan-U.S. economic cooperation,” Tsai said in the announcement. “I trust that if we can take this key step regarding U.S. beef and pork issues, it will be an important starting point for more comprehensive Taiwan-U.S. economic cooperation.”

American beef on display at a Taiwan supermarket. Photo: CNA

The initial response from the U.S. government was highly encouraging, while stopping short of any definite commitment regarding a future BTA. Secretary of State Mike Pompeo promptly tweeted that “President Tsai’s vision and leadership in removing these longstanding barriers open the door to greater economic and trade cooperation between the United States and Taiwan.”

A few days later, the State Department disclosed plans for the U.S. to engage Taiwan in an Economic and Commercial Dialogue, with Under Secretary for Economic Growth, Energy, and Environment Keith Krach slated to lead a delegation to Taipei for those talks in the near future. “We will be taking our economic relationship [with Taiwan] to the next level,” said a statement from the American Institute in Taiwan. 

The National Pork Producers Council, a powerful Washington, D.C.-based lobbying organization that had strongly opposed a U.S. trade agreement with Taiwan before the pork-import issue was resolved, also came out with a statement welcoming Taiwan’s pronouncement. “NPPC appreciates that Taiwan is indicating it will soon lift all non-tariff barriers to U.S. pork,” the Council said. 

The beef and pork issues have been the main subject of discord in the U.S.-Taiwan economic relationship for years (see the sidebar for more details). The issue was made more difficult to resolve because of a spate of food-safety scandals in Taiwan that undermined public confidence in the government’s ability to assure the reliability of the food supply. Vehement objections from various consumer organizations on food-safety grounds became a bigger obstacle to resolution of the problem than protectionist arguments raised by Taiwan’s large hog-raising industry.

Inevitably the topic also became entangled in politics, with the opposition Chinese Nationalist Party (KMT) eager to latch onto an issue enabling it to criticize the ruling Democratic Progressive Party for allegedly putting public welfare at risk. Since President Tsai’s August 28 announcement, the KMT has indeed been making the proposed policy change the number-one subject on its agenda. Some heads of KMT-controlled cities and counties have even threatened to maintain their own bans on meat with any traces of ractopamine.

Given the sensitivity of the matter, especially regarding pork, the Tsai administration was aware that it would need to expend a good deal of political capital to confront the issue head on. Some officials reportedly advised against the move as posing too much political risk, but a counter argument that apparently carried the day was that now would be the most opportune time to take some heat. Early this year, President Tsai won reelection to a second term by a comfortable margin, and her popular support has further increased in recent months due to her administration’s impressive management of the coronavirus crisis. 

The current excellent state of U.S.-Taiwan relations was certainly also part of the equation, as it gives Taiwan more hope that its concessions on beef and pork will be reciprocated by American willingness to negotiate a BTA. There is a long list of recent positive developments in the bilateral relationship, including major sales of defensive weaponry to Taiwan, passage of supportive legislation by the U.S. Congress, and the recent visit to Taipei of U.S. Secretary of Health and Human Services Alex Azar, the highest ranking American official to make the trip since formal diplomatic ties ended in 1980.

The China question

The recent deterioration in U.S.-China relations is an additional factor affecting the atmosphere in which the U.S. will consider next steps with Taiwan. For one thing, it may lessen Washington’s concern over the impact of Beijing’s potential reaction to initiatives regarding Taiwan. In addition, the growing U.S. view of China as a serious strategic competitor for superiority in advanced technology is increasingly causing the American government to look on Taiwan as a valued partner in ensuring the security of supply chains. 

At the same time, however, the Trump administration would like to sign another trade-agreement round with China, ideally before the November 3 elections to give the President an additional “win” to point to as an achievement. Influential Republican Senator Charles Grassley, who represents the important pork-producing state of Iowa, recently told reporters that the administration should seek to determine quickly whether negotiating a phase-two trade deal with China is feasible. If it is, then negotiations with China should receive priority because of the size of the market, said Grassley. But if not, pursuing a BTA with Taiwan would make sense, he said. Grassley is chairman of the Senate Finance Committee, which has jurisdiction over trade matters.

Proponents of a BTA argue that it would bring meaningful economic and strategic benefits to both sides. The volume of two-way trade is already substantial, at nearly US$43 billion for the first half of this year. The U.S. has long been Taiwan’s second-largest trading partner, and in recent years Taiwan has ranked among the top 10 trading partners for the U.S.

A BTA would provide the opportunity to increase the amount of business in both directions even further. Recent simulation studies conducted by the Taipei-based Chung Hua Institution for Economic Research estimated that a U.S.-Taiwan BTA could bring economic gains to each side of more than US$2 billion in terms of tariff reductions and service-sector liberalization.

On the U.S. side, the export sectors projected to be the major beneficiaries from a BTA are automobiles, chemicals, and agricultural products, while those for Taiwan would be metal products such as fasteners and hand tools, as well as functional textiles, the study found.

The agreement potentially would also cover additional areas of mutual concern such as digital trade rules, supply chain security, intellectual property rights protection, and other trade-related matters.

AmCham Taipei has enthusiastically welcomed Taiwan’s initiative in easing its import restrictions on U.S. beef and pork, and has urged the U.S. government to respond to that gesture of good will by beginning preparations for a BTA. In pursuit of that objective, AmCham is collaborating with the U.S.-Taiwan Business Council in the U.S. and the Chinese National Association of Industry and Commerce in Taiwan.

Why Beef and Pork Became an Issue

A protest demonstration in 2012 against opening the market to “bone-in” American beef. Photo: Martti Chen

The dispute over whether Taiwan’s ban on certain U.S. meat products has been appropriate has involved two separate issues.

The first can be traced back to several cases of bovine spongiform encephalopathy (BSE), commonly known as mad cow disease, found in the U.S. early in the century. Taiwan banned all U.S. beef for a period, and when it re-opened the market in 2009, it did so only partially, limiting the opening to meat from younger animals. Since BSE no longer appears to be a concern, the initiative recently announced by President Tsai will broaden market opportunities through an executive order allowing the sale of beef from U.S. cattle aged 30 months or older.

In addition, in 2009 the Legislative Yuan passed a law prohibiting the import of ground beef and offal from American cattle – basically overturning provisions in a market-opening protocol that the executive branch had signed with the U.S. The action was surprising in that both the executive and legislative branches were controlled at the time by the same party, the KMT. Although it would now take legislative action to reverse the prohibition, the items affected are considered less important commercially.

The second issue involves what had been Taiwan’s strict policy banning meat with any trace of a leanness-enhancing feed additive called ractopamine. After the Codex Alimentarius Commission, the body responsible for international food standards, set a maximum residue level for ractopamine of 10 parts per billion, Taiwan in 2012 accepted that standard for beef imports. The liberalization was not extended to pork, however, on the grounds that it is consumed by Taiwanese in much larger quantities than beef.  

The U.S. government has consistently maintained that Taiwan’s regulations on beef and pork constitute trade barriers in violation of World Trade Organization stipulations that trade restrictions must be based on established scientific evidence. 

“Although ractopamine use by hog farmers is not widespread, it is an option that is safe and acceptable,” the National Pork Producers Council, the trade organization representing the industry in the U.S., reiterated following President Tsai’s announcement of the new policy. “NPPC opposes government mandates that, with no scientific backing, dictate production practices and unnecessarily increase food prices and inhibit consumer choice.”

In her announcement of the revised import policy, which is expected to go into effect in January next year, President Tsai stressed that the decision “promotes Taiwan-U.S. relations, satisfies food safety standards, and ensures that the incomes of pig farmers are not adversely affected.”

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