US and Taiwan sign up for stronger economic ties, rankling Beijing

Mark Magnier in Washington, South China Morning Post

Posted at Nov 22 2020 08:30 AM

The United States and Taiwan signed a blueprint for closer economic ties Friday in Washington as the departing Trump administration tries to cement its legacy and Taipei seeks to build on gains made over the past four years.

The memorandum of understanding agreed to during Friday's inaugural talks over a US-Taiwan Economic Prosperity Partnership Dialogue included discussions on the healthcare, semiconductors, 5G infrastructure and energy sectors and on enhancing supply-chain security.

"We find ourselves in a drastically changing world with new challenges to human rights, cybersecurity, economic stability and geopolitics," Hsiao Bi-khim, Taiwan's official representative in Washington, said in a statement. "Therefore today's dialogue comes at an opportune time to discuss how we could work together to address these challenges."

Taiwan hopes this dialogue, which was first announced in late August, is the start of stronger ties with the US. "The goal on the Taiwan side is to create a framework that can be handed off to the next administration," said Bonnie Glaser, director of the China Power Project at the Centre for Strategic and International Studies. "What Taipei really wants is a free-trade agreement."

Beijing regards the self-ruled island, with a population of about 24 million, as a wayward province, to be brought under its rule - by force, if necessary.

The US has dealt with Taiwan mostly through unofficial channels since it switched diplomatic recognition to Beijing in 1979. Any more binding, formal trade agreement faces an uphill climb given issues of timing, substance, agency bickering and Beijing's looming presence.

The partnership has been shepherded on the US side by the State Department, led by Secretary of State Mike Pompeo. But any free-trade agreement would also require support from the office of the United States Trade Representative, led by Robert Lighthizer.

That office has expressed little enthusiasm, reportedly amid concerns by Lighthizer that such a relationship could jeopardise the phase-one trade deal with China signed in January that he regards as a major accomplishment.

"It's a big day," said Rupert Hammond-Chambers, president of the US-Taiwan Business Council. "I'd point out, though, that the genesis of this is that USTR has simply refused to engage economically with Taiwan."

"Lighthizer had a very grumpy phone call with Pompeo a few weeks ago that there would be no discussion of free trade agreements, that's USTR's wicket," he added.

Taipei views a free-trade pact with the US as particularly important in the wake of this week's signing of a Regional Comprehensive Economic Partnership (RCEP) trade agreement by 15 Asian-Pacific countries including China that it is not part of, analysts said. It has also been excluded from the Japan-led Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

"Taiwan can only continue to exist as a free and independent entity if it has a vibrant economy. If China squeezes it further, it's in big trouble," said an individual knowledgeable about the talks who declined to be identified, citing the sensitivities of the topic.

"Taiwan is being marginalised by ongoing trade deals and needs to have the US so it can explore, expand and have more market to sell into."

Taiwan's delegation Friday was led by its Deputy Minister of Economic Affairs Chen Chern-chyi, with the US side headed by Undersecretary of State Keith Krach, who visited Taipei in September.

Chinese Foreign Ministry spokesman Wang Wenbin warned last week that the partnership risks damaging Washington-Beijing relations. "China consistently opposes official exchanges between the US and the Taiwan region," he said, adding that Washington should "send no misleading signals to the Taiwan separatist forces".

In a further irritant for Beijing, Taipei announced on Friday that US Environmental Protection Agency head Andrew Wheeler would visit the island in December, the third such high-level US official visit since August. China has long sought to contain Taiwan globally.

Members of the Taiwan and US business communities also hope that Friday's partnership agreement can revive bilateral Trade and Investment Framework Agreement (TIFA) talks that have stalled since 2016; such a restart would also require USTR buy-in.

"There was a decision made yesterday by the Trump administration, not announced, that there will be a round of TIFA talks with Taiwan before January 20," said one person knowledgeable on Taiwan issues, referring to the day Joe Biden is inaugurated as the next US president.

US President Donald Trump continues to contest the results but his chances are dimming; Biden leads by nearly 6 million in the popular vote.

The flurry of Washington-Taipei moves comes as the Trump administration announces a host of initiatives related to Israel, Afghanistan, China and Taiwan all intended to entrench favoured policies in the waning weeks of its tenure.

They also dovetail with continuing questions over whether and how quickly a Biden administration might re-engage with Beijing - and how that might affect US-Taiwan relations.

Beyond geopolitics, more prosaic issues also could impede closer US-Taiwan economic ties, despite strong bipartisan support for Taiwan in Congress and growing US wariness of China's actions.

"The incoming Biden administration will have certain challenges in handling China, and there are still long-standing issues in the US-Taiwan relationship," said Russell Hsiao, executive director of the Global Taiwan Institute. "How China responds to the US-Taiwan relationship remains to be seen."

Members of Congress and administration officials have bridled at Taiwanese protectionism in the food, financial and pharmaceutical sectors, among others, and the island's persistent merchandise trade surplus, which was US$23 billion in 2019, up from US$15.6 billion in 2018. Some US lawmakers have also criticised Taipei for not doing enough to bolster its own defences against a possible invasion by China.

Taiwanese President Tsai Ing-wen has gone on a US weapons buying spree and pledged in August to allow imports of US pork and beef, banned since 2006 over additives. But she is facing stiff resistance from local pork producers and a threatened referendum organised by political opponents to block entry of American meat products.

"Taiwan loves the Trump administration for what they've done," said the individual with knowledge of the talks. "But I don't see them locking anything in that's irreversible."

"People in Taiwan are somewhat fearful over what they'll get in a Biden administration, whether it will be an Obama 2.0 that tiptoes around China."

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