Here’s how the US should upgrade economic ties with Taiwan

Aerial view of intersection junction with cars traffic at Taipei Downtown, Taiwan. Financial district and business centers in smart urban city. Skyscraper and high-rise buildings at night

The Biden administration’s announcement that it would resume trade and investment negotiations with Taiwan after a five-year hiatus is a more significant development than some may realize. Since the mid-1990s, the “TIFA talks,” typically held each year, have proven to be a useful vehicle for ironing out policy differences between the two sides and setting the stage for further cooperation. The suspension of the Taiwan TIFA process had imposed a chill on the economic dimensions of an otherwise warming U.S.-Taiwan relationship. 

The previous impasse was, in part, because of Taiwan’s import restrictions on certain U.S. pork products, plus the Trump administration’s desire to focus on trade deals with China. It was particularly unfortunate in that it came at a time when the U.S. government was becoming increasingly cognizant of Taiwan’s role as a force for peace and stability in the Indo-Pacific and as a key player in global technology supply chains. Now, with the TIFA roadblock lifted, the time has come for the two governments — with heightened engagement by the private sector and civil society — to move decisively to bring bilateral economic relations to a new, higher level for the benefit of businesses, consumers and workers in both countries.

In the 2021 edition of its Taiwan White Paper, due to be released on June 23, the American Chamber of Commerce in Taiwan proposes a practical six-track Taiwan Commercial Initiative designed to culminate in the signing of a comprehensive, high-standard bilateral trade agreement. The first element in the plan — U.S. re-initiation of TIFA talks — has been accomplished, making it possible to move ahead expeditiously on the other initiatives:

Track 2: Expand the economic prosperity partnership dialogue (EPPD) to include private-sector participation. The U.S. and Taiwan held the first EPPD round in November as a means of supplementing traditional trade and investment talks with discussions of collaboration in such fields as science, technology and economic security. American business heads in Taiwan hope that a second round will happen this year and provide expanded scope for private enterprise to contribute. Excluded from most international forums, Taiwan is heavily reliant on the public-private arena.

Track 3: Develop transaction-oriented bilateral trade and investment platforms under Commerce Department/Ministry of Trade auspices. Such platforms, organized by the two governments but driven by the private sector, can translate market-access or strategic cooperative agreements into job- and wealth-creating business. For example, Taiwan consistently has been among the world’s largest participants in the SelectUSA Investment Summit, and recent announcements by the Taiwan Semiconductor Manufacturing Co. and Hon Hai (Foxconn) suggest a wave of U.S.-bound direct investment that this track could facilitate. Commercial defense collaboration and infrastructure are among many sectoral or functional topics that are candidates within this track. The Infrastructure Finance Framework set up in late 2020 to promote U.S.-Taiwan cooperation on projects, including those in Southeast Asia, also may be leveraged.

Track 4: Conclude a double taxation agreement. The U.S. has signed tax treaties with several Indo-Pacific countries but lacks one with Taiwan, its ninth-biggest trading partner. Such agreements prevent redundant taxation of the income of American individuals and businesses working in signatory countries, and vice versa. They help minimize tax evasion, facilitate the circulation of talent between co-signers, and enhance bilateral relations and investment. The improved efficiency leads to more job creation, offsetting revenue lost to the Treasury. However, progress has stalled in part because of the lack of a legal template to conclude economic agreements in a streamlined fashion with Taiwan. Conclusion of this discreet yet impactful bilateral tax accord is tailor-made for the State Department’s legal office and National Security Council to use to hammer out the needed framework.

Track 5: Bring Taiwan into existing and new plurilateral economic talks. To reinforce the four bilateral tracks, Washington should continue to bring Taiwan into discussions with Japan and other similarly-minded governments involving digital trade, export controls, cybersecurity and other issues where Taiwan stands to contribute. Asian and European partners are keen to work with Taiwan given its strong rule of law, transparent governance and protection of intellectual property rights. Washington also could play an invaluable role by convening a discussion among multinational private sector actors to foster semiconductor technology and supply chain security. 

Track 6: Carry the momentum forward to a bilateral trade agreement. The U.S. national economic interest case for a bilateral trade agreement — already strong when first broached two decades ago — is now compelling, whether considered in macroeconomic, strategic technology terms or from a political, defense-security and geopolitical viewpoint. The Biden administration’s re-emphasis on U.S. alliance architecture and soft power utilization further underscores the value of such an agreement with Taiwan.

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