While its unofficial ties with major democracies are paramount, Taiwan still values its remaining formal diplomatic relationships because they affirm its sovereignty.
In July, Taiwan rolled out the red carpet for Paraguayan President-elect Santiago Peña, who visited the island democracy to reaffirm ties following his re-election. President Tsai Ing-wen and Vice President Lai Ching-te jointly hosted a banquet in Peña’s honor as the two countries celebrated 66 years of diplomatic ties on July 12. Paraguay is Taiwan’s last diplomatic ally in South America and one of just 13 countries formally recognizing Taipei.
Peña brought a delegation that included the future ministers of finance, industry, and trade and urged Taiwan to invest in Paraguay, a middle-income country with per-capita GDP of less than US$6,000. By comparison, Taiwan’s is almost US$33,000. Investing in Paraguay “is not only responding to diplomatic or political interests but…to the mutual economic benefit of both nations,” Peña was quoted as saying by Taiwan’s Presidential Office.
The unspoken message seemed to be that Paraguay expects something substantial in return for continued diplomatic recognition – a familiar conundrum for Taiwan as it struggles against China’s unflagging efforts to negate its sovereignty and restrict its international space. Since President Tsai Ing-wen took office in 2016, Beijing has picked off eight diplomatic allies from Taiwan, five of them in Latin America. The most recent case was Honduras, which severed ties with Taiwan in March.
Each loss of official diplomatic recognition, in which the state switching over affirms per Beijing’s One China Principle that “Taiwan is an inalienable part of China’s territory,” chips away at Taipei’s right of self-determination and advances Chinese Communist Party (CCP) propaganda narratives. When Honduras derecognized Taipei, Chinese Foreign Minister Qin Gang said that the decision “has the overwhelming support of the international community and represents the prevailing trend of the world.”
While President Peña has pledged to maintain ties with Taiwan, “he faces pressure from beef and other agriculture product exporters who want access to the China market,” says Ross Darrell Feingold, a Taipei-based lawyer and political risk analyst.
Outgoing Paraguayan President Mario Abdo Benítez told Financial Times in an interview last year that he wanted US$1 billion in investment from Taiwan so that the Paraguayan people would “feel the real benefits of the strategic alliance.” A 2021 study published in the journal Foreign Policy Analysis found that Taiwan’s investments in Paraguay averaged US$4 million a year between 2005 and 2014.
“My research suggests that as a country’s exports as a percentage of GDP increase, it is more likely to switch to China,” says Timothy Rich, an associate professor of political science at Western Kentucky University. He notes that Honduras’ desire for greater access to the China market factored into its decision to establish formal ties with Beijing. In June, the General Administration of Customs of China said on its website that fresh Honduran bananas – the country’s number-two export after coffee – would be allowed for direct import into China. Beijing and Tegucigalpa have also committed to begin negotiating a free-trade agreement.
While ties with Paraguay appear secure for now, the same cannot be said of those with Guatemala, Taiwan’s largest remaining diplomatic ally by population (17.1 million). In the Central American country’s June presidential election, the favored conservative Sandra Torres won just 16% of the vote, while left-wing upstart Bernardo Arévalo finished second with 12%. Since neither secured enough votes to win the presidency, they will compete in a runoff on August 20.
Shortly after the first round, Arévalo told journalists he would pursue closer relations with China if he won. Feingold notes that while Arévalo did not explicitly state that he would terminate diplomatic relations with Taiwan, “the implication of his remarks is clear, and it has caused worry for Taiwan that if Arévalo is elected president, he will in fact switch relations.”
The risk of an Arévalo administration derecognizing Taipei is significant, Feingold says. In addition to economic factors, “Arévalo might want to take revenge against Taiwan for its friendship with his predecessors, just as Honduras President Xiomara Castro did by terminating diplomatic relations with Taiwan in the aftermath of Taiwan’s enthusiastic support for her corrupt predecessor Juan Orlando Hernandez.” The former president has been extradited to the U.S., where he is facing drug-trafficking charges.
Some analysts have called on Taiwan to de-emphasize its diplomatic allies, arguing that the value of the financial and other support provided by Taiwan is not commensurate with what it gets out of the relationships. Derek Grossman, a senior defense analyst at the American think tank RAND Corporation, wrote in a December 2021 Nikkei Asia commentary that “cutting all diplomatic allies would free Taipei from a competition it cannot win.”
Alexander Huang, Taiwan’s opposition party Kuomintang’s (KMT) representative to the U.S. and a professor of international relations at Tamkang University, has a different perspective. Having official diplomatic relationships “is one of the criteria for statehood,” he says, and implies “that the PRC (on the mainland) and the ROC (on Taiwan) both equally exist in legal terms.” He adds that if Taiwan had no official diplomatic relationships, Beijing could claim that the entire international community upholds its One China Principle.
Having diplomatic allies in Latin America also allows Taiwan’s leadership to visit the United States on “transit stops” that give them face time with senior U.S. officials. These transits often meet resistance from China but allow Taipei and Washington to explain their necessity based on the principle of “comfort and safety.” Without these allies, it would be virtually impossible for the Taiwanese president and vice president to visit the U.S., given the restrictions of Washington’s One China policy. President Tsai visited the U.S. on the way to and from official visits to Guatemala and Belize in April. For his part, Vice President Lai is expected to transit in the U.S. in August, when he will travel to Paraguay to attend President-elect Peña’s inauguration.
From a geopolitical standpoint, several of Taiwan’s Pacific Islands allies have outsized importance. Palau and the Marshall Islands (as well as the Federated States of Micronesia, which is not an ally) have signed Compact of Free Association (COFA) agreements with the U.S., under which Washington is responsible for their defense. “The uncontested operational environment granted to the U.S. by the COFAs allows the U.S. to deploy unimpeded from roughly Hawaii to the Philippines,” Cleo Paskal, a Pacific Islands expert and non-resident senior fellow at the Foundation for Defense of Democracies in Washington, wrote in a July Diplomat commentary.
“Palau’s strategic importance is its location, as the anchor of the second island chain [stretching from Japan to Micronesia],” says John Hennessy-Nyland, a professor of international affairs at Texas A&M University and a former U.S. Ambassador to the Pacific island nation. He notes that the area was the scene of major WWII battles and is “likely to be strategically significant again” for any regional contingency as well as for the supply and logistic lines of U.S. and allied forces in the event of a conflict over Taiwan.
Hennessy-Nyland adds that despite sustained pressure and inducements to switch diplomatic recognition from Taiwan to China, Palau President Surangel Whipps Jr. has been vocal in his support for Taiwan.
“Palau seems intent on maintaining its freedom and sovereignty, the COFA relationship with the United States, and diplomatic recognition of Taipei,” says Ivan Kanapathy, a former China, Taiwan, and Mongolia director at the U.S. National Security Council and senior associate at the Center for Strategic and International Studies (CSIS) in Washington, D.C. “Access to Palau is critical to the U.S. military’s posture and presence in the region.”
The COFA pact with Palau was renewed in May, while the one with the Marshall Islands will expire later this year. Unfortunately, negotiations between the U.S. and Marshall Islands are “mired in past mistakes, current politics, and unrealistic future projections. If it starts to unravel – as China would like, and is undoubtedly working toward – the whole Indo-Pacific will be deeply affected,” Paskal wrote in a LinkedIn post.
Leveraging unofficial relationships
Although Taiwan has lost more than one-third of its diplomatic allies in the past seven years, relations with its most important democratic partners have reached new post-1979 highs. Kanapathy says that while Beijing will continue its attempts to strip away Taiwan’s remaining diplomatic allies, “China’s aggression is leading Taiwan’s unofficial partners to increase engagement with Taipei.”
In the case of the U.S., its increased support for Taiwan’s defense is most obvious. For instance, when it passed the 2023 fiscal year defense policy bill, Congress authorized US$2 billion per year in foreign military financing for Taiwan. The U.S. has also accelerated the pace of arms sales and delivery to Taiwan.
Kanapathy urges Taiwan to “dramatically increase procurement of U.S. munitions suitable for island defense. This would help reduce the trade surplus while demonstrating its will to fight – both of which would increase U.S. support for Taiwan.”
Taiwan’s commercial ties with the U.S. have also deepened. In June, the first agreement under the U.S.-Taiwan Initiative on 21st-Century Trade was signed, marking a watershed moment in their economic relationship. For its part, Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, has committed to invest US$40 billion in two Arizona fabs.
Rich of Western Kentucky University credits Taiwan with “effectively blurring the lines of official and unofficial relations to the point that, practically speaking, it’s hard to tell the difference other than in formal titles.” It has done so by emphasizing its democracy, its economic contributions, and its vulnerability, he says.
That said, more efforts are required to deepen unofficial ties with countries besides the U.S. and Japan. Rich sees Australia and India as countries that share interests with Taiwan, though in New Delhi’s case, “efforts to strengthen even informal relations have not seemed to progress in the last decade or so.”
Looking ahead, Taiwan may need to tailor its diplomatic outreach to different regions of the world. For instance, apart from Japan, with which Taiwan shares deep bilateral ties and significant security concerns, its other neighbors are highly wary of offending China due to economic dependencies and a preference for non-confrontational diplomacy.
At the same time, other countries, including some of Taiwan’s own diplomatic allies, do not necessarily share Taipei’s political values. Emphasizing democracy and human rights may work well with Western democracies and Japan, but not necessarily in countries with less-free political systems.
In the case of Guatemala, “statements by the Taiwan government that the Morales government (2016-2020) shared the values of democracy and freedom, or that the Giammattei government (2020-present) stands firm in defense of freedom and democracy, are inconsistent with international condemnation of the corruption and democracy backsliding that occurred during their presidencies,” Feingold says.
Some countries that do share values with Taiwan are still overly cautious that speaking up for Taipei would upset China. Given the existential stakes for Taiwan of a conflict with its giant neighbor, it may be worth expending some political capital to enhance deterrence.
To that end, when asked by Politico in a June interview why TSMC had not yet committed to building a fab in Germany, Foreign Minister Joseph Wu said that Taipei hoped that countries that sought to attract investment from TSMC could take Taiwan’s geostrategic concerns into consideration. Wu spoke of a “philosophical issue” – the disconnect between a country asking Taiwan to ramp up semiconductor production on its behalf while overlooking a “broader picture of better relations with Taiwan, economic or otherwise.”