AmCham Taiwan’s delegation returned to Washington, D.C. following a five-year pandemic-induced hiatus.

As the AmCham Taiwan delegation returned from a weeklong trip to Washington, D.C., in late June, one thing was clear: there has never been a better time to advocate for deeper economic ties between the United States and Taiwan. The group was met with broad, bipartisan support and enthusiasm for Taiwan and the bilateral relationship, setting a solid foundation for productive discussions.

When the group, led by AmCham Chairperson Dan Silver and President Patrick P. Lin, headed for the approximately 40 meetings collectively known as the AmCham Doorknock, it brought with it three main requests to the U.S. government:

• Enact necessary legislation for U.S.-Taiwan double taxation avoidance.
  
• Complete negotiations on the U.S.-Taiwan Initiative on 21st Century Trade and use the agreement as a springboard for a full-fledged Bilateral Trade Agreement.
  
• Continue to support Taiwan’s security and preparedness.

“The message from U.S. officials and Congressional offices was one of undivided support for Taiwan,” says Lin. “Regardless of political affiliation, the people we met with agreed that Taiwan is an increasingly important partner to the United States.”

The Doorknock team engaged with key U.S. executive branch agencies, including the State Department, National Security Council, Commerce Department, Defense Department, Treasury Department, and the Office of the U.S. Trade Representative (USTR). They also met with members of Congress and their staff, leading think tanks, and other stakeholders following the state of U.S.-Taiwan economic ties.

Reflecting the current high degree of interest in Taiwan in those circles, the AmCham delegation was received at a higher level than ever before at the State Department (by Deputy Secretary Kurt Campbell) and USTR (by Ambassador Katherine Tai).

Taiwan’s critical position in the global semiconductor industry and associated supply chains was a major focus of discussions. The United States views Taiwan’s advanced manufacturing capabilities as essential for maintaining technological superiority and economic security. The need to derisk supply chains, driven by geopolitical factors, underscores the need to reinforce Taiwan’s role in the technology ecosystem.

AmCham emphasized the strategic importance of integrating Taiwan more closely into U.S. industrial and technological frameworks. This integration is vital for creating a resilient supply chain capable of withstanding political pressures and reducing vulnerabilities.

Discussions suggested that both the United States and Taiwan need to continually adjust their strategies to ensure resilience. Relevant strategies might involve finding new markets, diversifying sources of raw materials, and investing in technology to reduce dependencies on single points of failure.

The challenges of strengthening the supply chain include logistical complexities, regulatory hurdles, and the need for continuous adaptation to the evolving global market. Both the United States and Taiwan are exploring ways to streamline processes, including potential reforms in trade policies, export controls, and investment climates.

The digital economy was another significant topic, with members of the AmCham delegation expressing concerns over lack of clarity and continuity in Taiwan’s digital policies and apparent U.S. government reluctance to adopt a firm digital trade policy in its negotiations with trading partners. Some of the Washington contacts encouraged Taiwan to regulate AI and other digital technologies proactively, drawing benchmarks from U.S. regulations.

Taiwan’s unfulfilled potential as an alternative to Hong Kong and Shanghai as a financial hub was also discussed, given the gap between government aspirations and the required digital infrastructure. “We hope to work closely with the Taiwan government and provide our members’ expertise in best practices for the digital economy,” says Lin.

Reaching agreements

The U.S. bill on a double taxation avoidance agreement (DTAA) with Taiwan holds broad bipartisan support due to its significant impact on bilateral economic cooperation. However, the bill, currently bundled with more contentious legislative issues, is now stuck in the Senate.

AmCham has for long actively advocated for the completion of a DTAA, emphasizing its importance for facilitating business operations and investment in both directions. Such an agreement is particularly crucial for Taiwanese companies investing in the United States, notably the supply chain for TSMC’s US$65 billion semiconductor project in Arizona.

“Many of TSMC’s suppliers are small and medium-sized enterprises from Taiwan, which face significant challenges because of double taxation,” Lin notes. “A DTAA would ease the financial burden on these companies, making the U.S. investment environment more favorable and competitive.”

It is currently unclear whether the tax package that includes the DTAA will even be brought to a vote despite opposition from some key Republican Senators. Given the unlikelihood of passage, supporters of U.S.-Taiwan tax avoidance measures are weighing other possible approaches, including the submission of standalone legislation. No resolution is expected until late this year or early 2025.

The U.S.-Taiwan Initiative on 21st Century Trade (21CI) is a cornerstone of the economic and strategic partnership between the United States and Taiwan, aiming to deepen ties through enhanced trade agreements.

Negotiating the 21CI has presented challenges, particularly in regulatory alignment, standards, dispute resolution mechanisms, agricultural trade, and digital commerce. The legislative and policy landscapes are complex, requiring persistent advocacy and strategic actions to navigate political contentions. Stakeholder engagement is essential to maintain momentum and ensure the initiative does not stagnate amidst other governmental priorities.

“The long-term success of the 21st Century Agreement hinges on clearly defined expectations and strategic planning,” says Lin. “In our meetings, the U.S. side encouraged the private sector to articulate its needs to the Taiwan government and provide insight on practical implications.”

A first agreement covering the first five chapters of the 21CI was signed last year but has not yet gone into effect pending U.S. government certification to Congress that relevant Taiwan laws and regulations are in compliance. The AmCham delegation heard in Washington that the process was near completion, which would allow establishment of bilateral committees to ensure continued progress on good regulatory practice and trade facilitation/customs administration. A second agreement on additional chapters is expected to be signed before the end of the year.

Defense and security

U.S. defense and security assistance to Taiwan was a key topic during the Doorknock. Discussions highlighted the importance of readiness to deal with a multitude of security challenges – not just conventional military conflict but also gray-zone tactics like blockades and cyber warfare. The AmCham group heard increased bipartisan concern about the strategic threat posed by China and the importance of security in the Taiwan Strait for stability throughout the Indo-Pacific region.

The delegation received confirmation that the backlog of U.S. military equipment deliveries to Taiwan – due to such factors as the recent pandemic, support for Ukraine’s defense against Russian aggression, and normal bureaucratic procedures – has been reduced from US$19.8 billion in recent years to less than US$10 billion. But there was recognition of remaining logistical challenges and the need for continual policy adjustment to align with evolving security and economic needs.

A Biden administration initiative last year authorized Taiwan to receive Foreign Military Financing (FMF) from the United States in the form of grants or loans for the first time. Until now, all arms deals between the two sides were on a cash basis. The discussions in Washington noted that Taiwan is unlikely to utilize the loan provision, as interest rates available to it domestically are much more favorable.

The complexity and long timelines associated with the traditional Foreign Military Sales process were noted as significant challenges, with contract implementation often taking up to 36 months, followed by another 24 months for delivery. Proposals to address these delays include adjusting Congressional notification thresholds and pre-funding certain high-usage items to expedite acquisitions.

Defense-related discussions also explored opportunities for co-production and deeper engagement between U.S. and Taiwanese defense industries, aiming to integrate Taiwan’s industrial base into the global supply chain and enhance interoperability. However, challenges related to intellectual property, export controls, and the financial viability of local manufacturers were noted.

The delegation heard numerous reassurances that strong support for Taiwan in Congress would continue regardless of the results of the U.S. presidential and legislative elections this November. Republicans tended to downplay signs of growing isolationist sentiment in their party, noting that concerns about the United States being caught up in prolonged defense of Ukraine does not affect willingness to stand up to China over Taiwan.

Other interlocutors, however, raised the prospect of a transactional President Trump being tempted by a deal offered by China, with few in his party willing to buck his leadership.

Taiwan matters

As AmCham regularly does during its trips to Washington, each meeting included the presentation of a two-page handout informing the Chamber’s American contacts of the many reasons why Taiwan is important to the United States. Some of the key points include Taiwan’s rank as America’s eighth largest trading partner, its open and vibrant political system sharing American values of democracy and human rights, and close collaboration with American industry as a key part of their global supply chains.

“The U.S.-Taiwan relationship is closer than ever, but there’s still a lot of untapped potential for collaboration,” says Lin. “Areas like the environment, technological development, healthcare, and digitalization are just a few examples of where collaboration would be beneficial not only for both economies but for the world at large.”

Following the Doorknock, the AmCham team will report on its findings to prominent leaders in the Taiwan government as well as to the American Institute in Taiwan.