The agreement concluded by the U.S. and Taiwan is due to bring both economic and strategic benefits.
Finalized in May and signed in June, the first agreement under the 21st-Century Initiative on U.S.-Taiwan Trade has now been passed by the U.S. Congress and reviewed by Taiwan’s Legislative Yuan. The relevant government agencies on both sides will now proceed to adopt measures and set timetables to implement its provisions with the goal of enhancing the efficiency and transparency of bilateral trade and investment flows.
The Customs Administration and Trade Facilitation chapter, for example, promotes digital means for notification, processing, and payment of duties to reduce the incumbrances of conventional paper transactions. The Good Regulatory Practices section commits the two governments to engaging in consistent and effective consultation with industry and other stakeholders as they consider and then implement changes in relevant laws and regulations.
More broadly, as the most comprehensive agreement reached between the U.S. and Taiwan since the ending of formal diplomatic relations in 1979, “21CI” (as some are calling the pact for short) signifies the increasingly close strategic partnership between Washington and Taipei. And as Taiwan’s chief trade negotiator, Minister without Portfolio John Deng, noted in July interviews with Taiwan Business TOPICS and CNN, the pact could have further significance by demonstrating Taiwan’s willingness to accept high standards and therefore help counter China’s efforts to block its entry into regional trade accords like the Comprehensive and Progressive Agreement for Trans-Pacific Trade (CPTPP).
Also noteworthy, stresses trade specialist Yen Huai-shing of Taiwan’s Chung-Hua Institution for Economic Research, is that entering into the 21CI agreement in effect serves to “certify Taiwan as a friend-shoring partner for the United States,” a status that confers preference for inclusion in sensitive supply chains on the basis of shared values.
When the plans for launching 21CI negotiations were announced in June 2022, many observers speculated that it was merely a consolation prize for not including Taiwan among the 13 countries then participating in the nascent Indo-Pacific Economic Framework (IPEF). Some of those countries were leery of arousing Beijing’s animosity.
But it soon became apparent that engaging in a bilateral undertaking also brings advantages. With just two negotiating partners, it is possible to move more expeditiously and with a more tailored agenda than with multilateral talks. Even so, when the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the U.S. (TECRO) signed the agreement on the first five sections of the 21CI this June on behalf of their respective governments, observers noted that the sound preparatory work, professionalism, and good will of the two negotiating teams had enabled the talks to proceed unusually rapidly.
Commenting on the content of the Customs Administration and Trade Facilitation chapter – one of five chapters included in the initial 21CI agreement – Michael Chu, co-chair of AmCham’s Transportation and Logistics Committee, praised the section’s focus on “streamlining customs procedures,” making relevant information readily available to stakeholders (including more information in English), implementing electronic documentation and payment of customs duties, and protecting confidential data.
He particularly cited two provisions expected to help facilitate the flow of U.S. goods to Taiwan. The first removes the need for American exporters, prior to most shipments, to obtain authentication confirmation from a Taiwanese consular office in the U.S. That requirement, especially onerous when the Taiwanese office is not located in the same city or state as the exporter, had added to the time and paperwork needed for export procedures.
The other change sets the cap at which an express-delivery shipment is eligible for expedited customs handling at a value of US$2,500. Until now the ceiling in Taiwan has been NT$50,000 (slightly over US$1,560 at current exchange rates). The new level will ease and expand the flow of express deliveries into Taiwan.
As the first 21CI agreement now comes into force, the two sides will establish a Trade Facilitation Committee and a Good Regulatory Practices Committee, each meeting at least once a year, to ensure ongoing communication and coordination. The role of the committees will be to monitor implementation of the agreed-upon provisions and give stakeholders a channel to present their views. American companies with pertinent customs or regulatory issues will be able to raise them for the Committee’s attention through AmCham and/or AIT.
The Good Regulatory Practices chapter also commits the two governments to provide an adequate public notice and comment period when seeking to introduce a new or amended law or regulation – at least four weeks in general and 60 days for proposals deemed to have “significant impact on international trade or investment.” A 60-day timeframe was incorporated into Taiwan’s Administrative Procedure Act in 2016 following an advocacy campaign by AmCham, but the requirement has not always been followed rigorously.
By making adherence a matter of bilateral obligation and providing some guidance regarding acceptable circumstances for deviating from the requirement, 21CI should lead to better compliance. Equally important, the Good Regulatory Practices section broadens and strengthens the stakeholder-consultation obligation to include sharing potential regulatory changes from the time a government agency begins to consider them, as well as requiring officials to define the purpose of the change and provide a cost-benefit analysis.
Further, the chapter addresses the use by regulatory authorities of “expert advisory groups and bodies” for policymaking input and advice, as is the case in Taiwan in such sectors as pharmaceuticals and medical devices. The section is designed to ensure that a diversity of interests is represented; that the membership, functions, and findings of the groups are transparent; and that interested parties have sufficient opportunity to communicate with the experts.
Three other key topics are included in the initial 21CI agreement:
• The Services Domestic Regulation chapter calls for fair treatment for service suppliers applying for permission to operate and a smooth flow of information between the applicant and regulator. Although financial services are not covered by the same notice-and-comment requirement as mentioned above, the agreement specifies that interested parties be given a “reasonable opportunity” to comment on proposed regulatory changes in that sector.
• The Anticorruption section commits the two sides to adopt comprehensive measures to prevent and combat bribery and other forms of official corruption.
• The Small- and Medium-Sized Enterprises chapter encourages increased SME trade and investment opportunities between Taiwan and the U.S.
The next round of negotiations will cover the remaining seven chapters of the 21st-Century Initiative: Agriculture, Standards, Digital Trade, Labor, Environment, State-owned Enterprises, and Non-market Policies and Practices. While some observers say a second and final agreement could potentially be reached by the end of this year, the greater sensitivity and complexity of several of the subjects suggest that the next agreement may take longer to negotiate.
Agricultural issues are always among the most politically problematic areas of trade policy, as governments are often under intense domestic pressure to protect their farming populations. Both Taiwan and the U.S., however, should see opportunities to expand exports of certain food products.
In recent years, the U.S. Congress has placed increased emphasis in its trade negotiations on environmental and labor conditions. Taiwan has generally maintained high standards in both areas, though its officials have acknowledged more needs to be done to protect the welfare of migrant workers, especially those employed on deep-sea fishing vessels.
Since China is a major trading partner for the U.S. and even more so for Taiwan, the chapter setting policies and practices for dealing with non-market economies will undoubtedly also be a major topic of discussion.
When the entire package of 12 chapters has been finalized, Taiwan will have completed negotiations for many of the components of a comprehensive free trade agreement (FTA). Taiwan’s (and AmCham’s) hope is that based on this “building-block” process, Washington will then agree to begin talks on the remaining portions of an FTA – chiefly the market-access provisions defining tariff levels.
The Biden Administration so far has been unwilling to consider entering into FTA negotiations with any trading partner. But some analysts speculate that in time it may come to regard Taiwan as an exception as the U.S. seeks ways to bolster bilateral ties in the face of Chinese intimidation.