The New Paradigm: Washington Getting Tough on Taipei

The New Paradigm: Washington Getting Tough on Taipei
Illustration: Stellina Chen

What you need to know

'Even career government officials who had served in previous administrations adopted a tougher tone this year, asserting that little progress could be expected in expanding bilateral economic ties unless Taiwan acts decisively to shave its trade deficit with the United States and tackle major outstanding trade issues.'

By Don Shapiro

Early on in the five-day AmCham Taipei “Doorknock” visit to Washington D.C. in late June, the delegation became starkly aware of just how much the operating style of the U.S. government has changed under the Trump administration. Even career government officials who had served in previous administrations adopted a tougher tone this year, asserting that little progress could be expected in expanding bilateral economic ties unless Taiwan acts decisively to shave its trade deficit with the United States and tackle major outstanding trade issues.

Taiwan’s restrictions on the import on certain U.S. beef and pork products, always of concern to U.S. economic officials, were brought up earlier in the conversations than in recent years and criticized sharply as violations of existing commitments. Lack of progress toward solving these problems, it was suggested, could lead to such measures as delays in scheduling the next round of high-level talks under the bilateral Trade and Investment Framework Agreement (TIFA), negotiations that are normally held on an annual basis.

Washington insiders made clear that the new hardline approach to trade policy is not directed solely at Taiwan, but reflects the Trump administration’s inclination to view trade relations chiefly through the prism of the impact on American jobs – and manufacturing jobs in particular. Besides zeroing in on trade deficits, the Trump government has stressed the need for “reciprocity” in trade relations, stating that trading partners should not deny benefits to the United States that they themselves enjoy in the U.S. market.

But what has been called the “personalization of foreign policy” under President Trump puts Taiwan at a distinct disadvantage, since the absence of formal diplomatic relations presents obstacles for high-level officials of the two governments to meet and develop rapport. As governments around the world scramble to come up with new strategies and tactics to cope with the new paradigm in Washington, friends of Taiwan in the U.S. capital described Taiwan as still behind the curve.

Adding to what political observers termed the “confusing” and “uncertain” atmosphere currently prevailing in Washington is the far from complete staffing in major government departments. Numerous important government positions remain unfilled, and many of the officials who met with the Doorknock team still had the word “acting” in front of their titles. As has been widely reported in the media, several competing factions are vying for influence inside the executive branch, and even within the White House staff. And although the Republican Party controls the Presidency and both houses of Congress, President Trump’s popularity rating stands at a historic low and the party’s legislators are seriously divided on many key issues.

These factors, combined with President Trump’s habit of sometimes reversing his policy stance, make it difficult to predict what posture the new administration will ultimately adopt on either specific trade issues or broader Asian policy following the U.S. pull-out from the Trans-Pacific Partnership on Trump’s first day in office.

One thing that remained clear to the Doorknock team, however, is the widespread bipartisan support that Taiwan continues to have among members of Congress. At a time when the executive branch appears to be focusing most heavily on the dollars-and-cents aspects of foreign relations, the conversations in legislative offices were often marked by recognition of the democratic values and respect for human rights that Taiwan shares with the United States. Said one member of Congress: “Congress traditionally has its own view on Taiwan,” no matter what the stance of the executive branch.

Also clear was that for the foreseeable future American trade negotiators will be preoccupied with revisions to the North American Free Trade Agreement (NAFTA) among the United States, Canada, and Mexico. President Trump had initially considered withdrawing completely from NAFTA, but was instead persuaded to opt for “modernizing” the agreement. In an irony noted by many commentators, some key principles that the U.S. government now seeks to incorporate in NAFTA were borrowed from TPP provisions.

Shaping the policy calendar

Although some sources suggested that the NAFTA revamping could be completed before the end of this year, the more common view was that the process will take longer – possibly stretching into 2019 since next year will be politically complicated by the presidential election in Mexico and the mid-term Congressional elections in the United States.

What the post-NAFTA U.S. trade-policy agenda will look like is difficult to predict. “It’s a whole new world we’re working in right now,” the trade specialist on the staff of one Republican senator told the Doorknock team, “so who knows what will happen after we finish with NAFTA?”

In its meetings in Washington, the AmCham Taipei delegation proposed that a natural next step after NAFTA would be U.S. government consideration of a bilateral trade pact with Taiwan. Following up on one of the themes in the Chamber’s 2017 Taiwan White Paper, AmCham noted that as the 10th largest trading partner of the United States and an active and constructive member of the Asia Pacific Economic Cooperation forum (APEC), Taiwan would seem to be a logical candidate for that role. Given its relative isolation in the global arena, in addition, Taiwan would undoubtedly be an eager participant in the negotiations, seeing them as a rare opportunity to raise its international profile and bolster relations with the United States.

Before leaving for Washington, the AmCham delegation had also been encouraged by recent remarks by influential Senator Charles Grassley from the pork-producing state of Iowa. Previously adamant that the U.S. government should not contemplate a bilateral trade agreement with Taiwan unless Taiwan accepted resolution of the pork-import issue as a pre-condition, Grassley this spring softened his approach by suggesting that the issue could be settled as part of the negotiating process. It was not clear at the time, however, whether the senator spoke only for himself or was reflecting a new line of thinking within the American government.

In briefing the visitors from AmCham, executive-branch officials confirmed that the next stage after NAFTA would focus on bilateral negotiations, but offered little hope that Taiwan would be among the target economies. Indicating that the U.S. side already has a list of countries in mind to be priority negotiating partners, they alluded to Japan plus the other four TPP members with which the United States does not already have free trade agreements (FTAs): Vietnam, Malaysia, New Zealand, and Brunei. Also mentioned was the United Kingdom, with whom negotiations would need to wait until Britain’s formal exit from the European Union.

The officials noted that Taiwan is not currently on the list. Referring to the relatively small staff at the Office of the U.S. Trade Representative (USTR), they said the “limited bandwidth” means it would take a number of years to work through the existing list before additional candidates for bilateral trade agreements could be considered.

There also appeared to be no willingness to consider a quid pro quo in the form of assurances that negotiations on a bilateral trade agreement would be forthcoming if Taiwan acts to lift the restrictions on beef and pork. The stated rationale for that view was that trading partners should not need an inducement to do the right thing.

Although most of the restrictions on American beef were removed in 2009 under a protocol signed by representatives of the U.S. and Taiwan governments, ground beef and certain internal organs of cattle remain prohibited under a law passed by the Legislative Yuan in direct reaction to that accord. For pork, the issue is Taiwan’s ban on imports containing traces of the leanness-enhancing feed additive ractopamine, used by most American hog farmers. Since 2012, Taiwan has allowed beef meeting the international standard of less than 10 parts per billion of ractopamine to enter the market, but has not set such a maximum residue level for pork.

Where to go from here

For the Tsai Ing-wen administration, already embattled over such sensitive domestic issues as pension reform and working condition standards, opening the market fully to American beef and pork would undoubtedly pose a major political challenge. The problem is thought to lie less with the farming lobby (cattle-raising is not a big business in Taiwan, and policies are being devised to assist the hog farmers) than with consumer groups likely to attack the move as a threat to food safety. The media and opposition politicians could be expected to seize on that issue.

Since a bilateral trade agreement currently seems out of reach, some experienced Washington hands advised the Doorknock team that Taiwan might have more chance of success by pursuing a bilateral investment agreement (BIA) instead. “A BIA is a smaller package and therefore easier to manage,” said one think tank scholar. It was also noted that Beijing would have less standing to object, since China and the United States have already been negotiating a bilateral investment treaty.

On the other hand, the same obstacles confronting a trade agreement are likely to be present with a BIA: U.S. dissatisfaction with Taiwan’s treatment of the beef and pork issues, as well as USTR’s limited resources. Further, U.S. officials in the past have cited possible legal complications surrounding completion of a BIA with Taiwan due to the lack of diplomatic relations.

Others in Washington suggested that Taiwan’s best opportunity for a breakthrough in international trade relations might come from the current Japanese-led efforts to keep TPP alive, even without U.S. participation. Representatives from the remaining 11 countries have been meeting to discuss a potential way forward, and appear to have been making progress. If enough countries sign on to make a revived TPP a reality, Taiwan would almost certainly be among the first in line – along with South Korea – seeking admission when the group expands through a second round.

An encouraging sign was the statement at a June press conference in Tokyo by Japanese cabinet spokesman Yoshihide Suga, explicitly including Taiwan among the countries that Japan would welcome for eventual TPP accession. If China were to push other member countries to blackball Taiwan’s application, however, it is unknown whether Tokyo will have as much sway to counter that pressure as the United States would have had.

At the same time, experienced players in trade politics in Washington would urge Taiwan not to give up on the goal of entering into a bilateral trade agreement with the United States, even if it will take somewhat longer to achieve than originally hoped. Recalling that the notion of a U.S. FTA with Japan was once dismissed as utterly impractical, they note the importance of “planting a seed” so an idea can gain support over time. Unless advocates start speaking up about why Taiwan should have a prominent place on the U.S. trade agenda, the prospect of a U.S.-Taiwan agreement will never become part of the wider policy conversation in Washington, they maintain.

Sources in Washington advised that whether aiming at an FTA or BIA with the United States, or eventual accession to a resuscitated TPP, Taiwan will need to adopt “bold measures” to conclusively demonstrate its determination to abide by open-market principles and international standards and best practices. The sources emphasized that these steps are in Taiwan’s own best interest to help reinvigorate the domestic economy, regardless of the response of trading partners.

A major test along these lines is expected to arise in the autumn session of the Legislative Yuan, when a bill to establish a Patent Linkage system for pharmaceuticals will come up for deliberation. Until now, Taiwan has lacked an effective mechanism to prevent generic drugs from reaching the market while the original drug still has a valid Taiwan patent. The issue has appeared in AmCham Taipei’s Taiwan White Paper for more than a decade, and has been one of the major items raised by USTR during TIFA talks. Early passage of the bill, without any diluting amendments, would be taken by the U.S. government and multinational companies as a highly laudable, though overdue, signal of Taiwan’s commitment to intellectual property rights protection.

Another promising area for progress relates to regulatory coherence. As the Doorknock team made a point of mentioning in its Washington meetings, the Taiwan government took a highly significant step last October when it extended the notice and comment period for new laws and regulations from a mere two weeks to a full 60 days, thus providing stakeholders and all members of the public with ample time to make their views known. The increased transparency and consultation should vastly improve the rules-making process, and will make a favorable impression on Taiwan’s trading partners. The challenge now is to ensure that the system is well used, with government agencies abiding by the notice timetable and providing meaningful responses to the outside comments.

Considering the importance of domestic job creation to the Trump administration, it was also clear from discussions in Washington that major new Taiwanese investment projects would be an extremely effective way of raising Taiwan’s profile in the United States. That Taiwan was represented at the American government’s 2017 SelectUSA investment forum (held at about the same time as the Doorknock) with the second largest delegation – 140 people from 84 companies – was widely noticed and appreciated. The more recent news that Hon Hai Precision (known internationally as Foxconn) has announced plans for a US$10 billion facility to build LCD panels in the state of Wisconsin was widely publicized. These kinds of projects not only generate good will in Washington but also build support for Taiwan at the state and local level.

Economic and trade issues aside, other signs of continuing substantial bilateral relations between Taiwan and the United States were evident during the Doorknock week. While the AmCham Taipei team was in Washington, the Trump administration announced its US$1.42 billion arms sales package to help fortify Taiwan’s defense posture. And proposed legislation, known as the Taiwan Travel Act, to encourage more high-level visits in both directions by U.S. and Taiwan officials was gaining support in Congress.

Following the Doorknock delegation’s return to Taipei, AmCham leaders have begun briefing Taiwan officials on the main findings during the trip.

The News Lens has been authorized to repost this article. The piece was first published by Taiwan Business TOPICS.

(Taiwan Business TOPICS is published monthly by the American Chamber of Commerce in Taipei.)

TNL Editor: Edward White