Strengthening the U.S.-Taiwan Relationship
The Prospects for a Free Trade Agreement
About This Event

The U.S.-Taiwan economic relationship has been a model of free trade, economic growth, and prosperity in Asia. Taiwan’s liberal market economy and central location have made it a hub of global commerce, and its bilateral annual trade with the United States today is valued at over $60 billion. But the Listen to Audio


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future of the U.S.-Taiwan economic relationship cannot be taken for granted: Taiwan has been excluded from regional free trade talks, and risks being marginalized.

How would a U.S.-Taiwan free trade agreement (FTA) strengthen the bilateral relationship and foster further economic liberalization in Taiwan? What major changes could the United States expect to see in Taiwan’s economy and markets after a FTA? How would it impact both Taiwan’s and America’s trade relations with China? How would a U.S.-Taiwan FTA create leverage for future U.S. trade negotiations with other major trading partners in Asia? On July 25, AEI will hold a conference to answer these and other questions related to U.S.-Taiwan relations. Steve Ruey-Long Chen, Taiwan’s deputy minister of economic affairs and top trade agreement negotiator, will present keynote remarks.

Agenda
9:15 a.m.
Registration
9:30
Keynote Speaker:
Steve Ruey-Long Chen, Ministry of Economic Affairs of Taiwan
10:00
Speakers:
Claude Barfield, AEI
Rupert Hammond-Chambers, U.S.-Taiwan Business Council
Webster Wei-Ping Kiang, Chinatrust Commercial Bank
Chun-Der Wu, Institute for Information Industry
Moderator:
Dan Blumenthal, AEI
Noon
Adjournment
Event Summary

July 2006

 

Strengthening the U.S.-Taiwan Relationship: The Prospects for a Free Trade Agreement

 

The U.S.-Taiwan economic relationship has been a model of free trade, economic growth, and prosperity in Asia. Taiwan’s liberal market economy and central location have made it a hub of global commerce, and its bilateral annual trade with the United States today is valued at over $60 billion. But the future of the U.S.-Taiwan economic relationship cannot be taken for granted: Taiwan has been excluded from regional free trade talks and risks being marginalized. How would a U.S.-Taiwan free trade agreement (FTA) strengthen the bilateral relationship and foster further economic liberalization in Taiwan? What major changes could the United States expect to see in Taiwan’s economy and markets after a FTA? How would it impact both Taiwan’s and America’s trade relations with China? How would a U.S.-Taiwan FTA create leverage for future U.S. trade negotiations with other major trading partners in Asia? On July 25, AEI held a conference to answer these and other questions related to U.S.-Taiwan relations.

 

Steve Ruey-Long Chen
Ministry of Economic Affairs of Taiwan

 

The transformation of the Taiwanese economy has been remarkable. Last year, bilateral trade between the United States and Taiwan amounted to $57 billion, making Taiwan America’s eighth largest trading partner and the United States the third largest trading partner of Taiwan. This relationship has created the most dynamic information technology global supply chain in the world and is one of the world’s most important economic and strategic relationships.

 

According to a study by the U.S. International Trade Commission (USITC), if there were a FTA between the two countries, American exports to Taiwan could grow by $3.4 billion. That represents an almost 16 percent growth rate. Trade could grow by as much as $6.6 billion, making the relationship with Taiwan more financially viable than relationships with the ten other countries that have an FTA with America. It is believed that an FTA between the United States and Taiwan will enhance the existing bilateral economic and trade relationship and will certainly promote higher-level investment ties. More importantly, the innovation-driven partnership between the two countries can be further strengthened with a trade agreement.

 

Webster Wei-Ping Kiang
Chinatrust Commercial Bank

 

Taiwan is the eighth largest trading partner of the United States, and its bilateral trade amounts to $49.5 billion. If the FTA is signed, the amount of trade can be expected to increase by 16 percent, according to an estimate made by the USITC.

 

The gains for the United States, should the FTA agreement be signed, would be significant, especially in the areas of financial services, telecommunication industries, express delivery, medical services, and intellectual property rights license fees under government procurements.

 

It is important to focus on the service industries in Taiwan, paying particular attention to the financial sector. Recent examples highlight the evolving role of Taiwan in Asian economic policy. With ongoing financial reforms, the financial service industry in Taiwan has come to play an indispensable role in the region. Also of note is a new cabinet-level agency, the Financial Supervisory Commission, which was established in July 2004 and which permits banking securities and insurance operations to be conducted by a single financial holding company.

 

With such a variety of activities, Taiwanese companies are eager for financial services to be provided by the Taiwanese banks with the aid of American banks. Unfortunately, the opening of full banking services remains slow. It is hoped that the signing of a FTA between the United States and Taiwan will serve as a catalyst for speeding up the opening of these services across Taiwan’s strait.

 

Claude Barfield
AEI

 

The priority of the Bush administration’s trade policy remains with the World Trade Organization (WTO). With competitive liberalization, the United States decided that the WTO is its main priority, but the United States remains committed to negotiations for free trade with Taiwan. The Bush administration’s trade policy is a part of a subset of larger security, political, and diplomatic goals. America chooses its trading partners partly on the basis of their support for the United States in its foreign and security policy goals.

 

Taiwan ought to be close to the top of the list for signing a FTA with America for the following reasons: Taiwan is a democracy; it has a significant economic relationship with the United States; it is willing to reach a comprehensive agreement, including services, investment, and intellectual property; it is willing to go beyond WTO liberalization; and it is also a staunch diplomatic and security ally of the United States.

 

Currently, a wave of bilateral agreements are being negotiated that may lead to a regional free trade agreement and eventually to global free trade. However, there are major political and economic issues that come up when trying to go beyond bilateral agreements. In Asia, there was the hope in the 1990s that APEC would lead to some sort of free trade agreement in trans-Pacific trade relationships. In East Asia, there now are fifty free trade agreements, and negotiations for another fifty continue today. Because of China’s unwavering bullying in East Asia, all nations in the region have refused to sign FTAs with Taiwan. Therefore, Taiwan is increasingly becoming economically isolated.

 

The Chinese have said that signing an agreement with Taiwan is a step towards recognizing it as a sovereign nation, but this breaks the compromise which had been in place for some decades. The United States has looked at a Taiwan partnership with caution to avoid provoking mainland China. But by following international law and custom, China has allowed Taiwan to enter the WTO, essentially agreeing that Taiwan has a different status that is internationally recognized. It is time for the United States to live up to its international obligations.

 

Chun-Der Wu
Institute for Information Industry

 

The industries of the United States and Taiwan are complementary. America is very good in sales, marketing, and system integration, while Taiwan is very good at manufacturing. These two forces could build a very strong relationship in the marketplace. Communications equipment produced by Taiwanese companies reached about $15.5 billion with a growth rate of 23 percent. Most of those products are manufactured outside of Taiwan--primarily in China. Taiwan controls the logistics and engineering and can find the best place for the manufacturer, making it a great benefit to have Taiwan as a partner for American vendors. However, Taiwanese manufacturers need Americans to participate in some areas: technology innovation, defining technical specification, testing and certifying, and marketing.

 

Taiwan will serve the United States as a gateway to export products and services to the Asia-Pacific region and the rest of the globe. The Taiwanese government has done a lot to ease regulation constraints, and the Taiwanese National Communications Committee (NCC) has been formed to clarify the rule for merging the broadband, broadcast, and communications industries.

 

Rupert Hammond-Chambers
U.S.-Taiwan Business Council

 

The U.S.-Taiwan Business Council is very much in favor of a U.S.-Taiwanese free trade agreement. The communication between the American government and the Chen administration needs to continue in a positive direction. If that happens, there would be little substantive reason not to sign the FTA.

 

It is not enough to say Taiwan needs to do more on cross-Straits economic integration. Taiwan’s integrated economic relationship with China is good, but clearly there are things that Taiwan’s government can do to maintain the relationship. There is going to be more incremental change on cross-Straits economic liberalization. The role the United States must play is to press the Chinese to continue quietly engaging Taiwan in negotiations.

 

This summary was prepared by AEI intern Jess Nelson.

View complete summary.
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AEI Participants

 

Claude
Barfield
  • Claude Barfield, a former consultant to the office of the U.S. Trade Representative, researches international trade policy (including trade policy in China and East Asia), the World Trade Organization (WTO), intellectual property, and science and technology policy. His many books and publications include Swap: How Trade Works with Philip Levy, a concise introduction to the principles of world economics, and Telecoms and the Huawei conundrum: Chinese foreign direct investment in the United States, an AEI Economic Studies analysis that explores the case of Chinese telecom equipment maker Huawei and its commitment to long-term investment in the US.
  • Phone: 2028625879
    Email: cbarfield@aei.org
  • Assistant Info

    Name: Hao Fu
    Phone: 202-862-5214
    Email: hao.fu@aei.org

 

Dan
Blumenthal
  • Dan Blumenthal is the director of Asian Studies at the American Enterprise Institute, where he focuses on East Asian security issues and Sino-American relations.  Mr. Blumenthal has both served in and advised the U.S. government on China issues for over a decade.  From 2001 to 2004, he served as senior director for China, Taiwan, and Mongolia at the Department of Defense.  Additionally, he served as a commissioner on the congressionally-mandated U.S.-China Economic and Security Review Commission since 2006-2012, and held the position of vice chairman in 2007.  He has also served on the Academic Advisory Board of the congressional U.S.-China Working Group. Mr. Blumenthal is the co-author of "An Awkward Embrace: The United States and China in the 21st Century" (AEI Press, November 2012).

  • Phone: 202.862.5861
    Email: dblumenthal@aei.org
  • Assistant Info

    Name: Shannon Mann
    Phone: 202-862-5911
    Email: Shannon.Mann@aei.org
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