A US/Taiwan FTA - what are the chances of a deal?

Industry News | | MIC Customs Solutions |

With a bipartisan group of US senators urging progress on an FTA with Taiwan, what could such a deal mean for the Asia-Pacific region?


Efforts to improve trade between the US and Taiwan have been gathering pace in recent months, with US secretary of state Anthony Blinken indicating the country is looking to reopen suspended talks and US Trade Representative Katerine Tai meeting virtually with her Taiwanese counterpart to discuss the trade and investment relationship between the two parties.

But could this be just the start of a journey towards a more comprehensive arrangement with Taiwan that ends with a formal free trade agreement (FTA) being reached? And if so, what would the impact be on relations with key players in the region, especially China?

US senators seek deal

Political efforts to strengthen trade relations with China were supported in July by a bipartisan group of 42 US senators, who wrote to Ms Tai asking her to begin laying the groundwork for negotiating an FTA or other preliminary agreement with Taipei.

In it, they said: "Maintaining US economic influence in the region and reducing Taiwan's dependence on China is essential to ensuring that the region remains free and open." 

They noted that Taiwan is currently the US' tenth-largest trading partner - ahead of nations such as India, France, and Italy - and has high standards in areas such as labor rights and environmental protections, which can often be among the most difficult parts of an FTA to negotiate.

"We can all be confident that an agreement negotiated with Taiwan could serve as a model for what a high-standard FTA should look like. It will facilitate free trade under fair conditions that allow American workers, producers, and companies alike to flourish," the letter continued.

Could it further harm relations with China?

The biggest stumbling block to any formal agreement will be the attitude of China, which regards Taiwan as a breakaway province that does not have the right to maintain relations with other countries.

The Independent noted that any such moves are likely to increase tensions, adding that China's foreign ministry has warned the US to "stop any form of official exchanges with Taiwan, handle the Taiwan issue cautiously, and refrain from sending any wrong signals to Taiwan independence forces".

Wen-Ti Sung, a lecturer at Australian National University, told ABC that any bilateral FTA between the US and Taiwan is likely to have significant political implications. He said that "if such an agreement is reached between Washington and Taipei, Beijing may construe it as Washington's recognition of de jure Taiwanese statehood", as such agreements are typically only reached between sovereign states.

As a result, it is more likely that the US will continue to pursue an updated Trade and Investment Framework Agreement, which is less politically sensitive than an FTA, but offers a more piecemeal approach to trade that does not go as far as the Taiwanese government would wish. 

Other nations watching closely

Should the US opt to aim for a full FTA, however, it could also act as a strong signal to other nations in the Asia-Pacific region to go ahead with their own agreements. It was noted by David Sacks and Jennifer Hillman, research fellows at the Council on Foreign Relations, that a full FTA "could provide political cover for other countries to begin negotiations of their own with Taipei".

Among the countries with a significant interest in this include Australia, which postponed free trade negotiations with Taiwan in 2016 - in large part so as not to offend China.

With relations between Beijing and Canberra deteriorating significantly in recent years, some commentators have suggested the time is right to revisit negotiations. However, Dr Wei Li, a lecturer at the University of Sydney Business School, said such a move would "continue to escalate trade friction" with China, and would therefore need to be carried out "with great caution and low profile".

Mr Sung agreed that countries such as Australia should be following the US' lead when it comes to trade agreements with Taiwan, and the implied recognition of statehood that would come with such a move. Therefore, many governments may be watching any US negotiations closely before making their own moves.