On May 18, American and Taiwanese officials announced a conclusion to the first round of negotiations for the US-Taiwan Initiative on 21st Century Trade (USTI). These negotiations represent the first significant effort between the United States and Taiwan on trade since Taiwan joined the World Trade Organization in 2002. Negotiations for the trade initiative were announced just last August, with negotiators having met only a couple of times within these nine months. It’s unclear how many more rounds of partial deals there will be as a part of this trade initiative, but it’s encouraging to see progress as American officials have avoided trade negotiations with Taiwan for years.
The last two US administrations have looked at ways of expanding the US-Taiwan economic relationship. For decades, trade and investment issues were handled through the US-Taiwan Trade and Investment Framework Agreement (TIFA). But three new initiatives have emerged within the last three years. In 2020, the Trump Administration announced the launch of the Economic Prosperity Partnership Dialogue (EPPD), led by the State Department. In 2021, the Biden Administration announced the launch of the Technology Trade and Investment Collaboration (TTIC) framework, led by the Commerce Department. And last year, USTR announced the USTI. Each of these initiatives approaches economic issues like investment, technology, and trade a bit differently.
When the USTI trade negotiations were announced last year, officials laid out 11 areas for negotiations—with the option to include other areas as negotiations progressed. The partial deal just announced covers four of those areas: (1) customs administration and trade facilitation; (2) regulatory practices; (3) anticorruption; and (4) small and medium-sized enterprises (SMEs). There is also a chapter on services. Those areas that still remain to be negotiated are: agriculture, standards, digital trade, labor, environment, state-owned enterprises, and non-market policies and practices.
Excerpts from the Agreement
The agreement that was announced is still fresh off the press, meaning it still needs to be signed and enforced. But the text offers some valuable insight into how negotiators think about the US-Taiwan economic relationship. The preamble of the agreement text starts by highlighting that both the United States and Taiwan seek to “strengthen the economic and trade relationship between the US and Taiwan.” Last year the United States was Taiwan’s second-largest trading partner for goods. Meanwhile, Taiwan was the 10th-largest trading partner of the United States. Despite the already large amount of trade between the United States and Taiwan, it’s clear that both sides would prefer to increase trade with each other—while reducing trade dependencies on countries like China.
The first chapter of substance in the agreement focuses on customs administration and trade facilitation. This chapter has the most noteworthy content of the whole agreement. Customs and trade facilitation is essentially the process of looking at ways to make the bureaucracy pertaining to importing and exporting goods more efficient. One of the most effective ways to accomplish this is not just to make the forms that importers/exporters need to fill out easier to understand; but instead, to adopt paperless practices through the creation of digital filing practices. This includes the use of electronic involving (e-invoicing), electronic payments, and the digital exchange of certain information with customs officers. American and Taiwanese officials also agreed to establish a Committee on Trade Facilitation that will seek to encourage more cooperation between US and Taiwan trade authorities on these matters.
The second chapter of substance focuses on good regulatory practices. Generally, both sides agree good regulatory practices include “greater transparency, objective analysis, accountability, and predictability” when crafting new domestic regulations. Ways in which the agreement looks to increase transparency include: sharing a list of regulations expected to be adopted soon; making sure that the text of regulations soon to be adopted is easily accessible; and making sure that language used in new regulations is easy to understand. To help facilitate this, both sides agreed to also establish a Committee on Good Regulatory Practices.
The third chapter of substance is on “development and administration of services authorization measures (services domestic regulation).” Much of this chapter is similar to the chapter on good regulatory practices, in that is an attempt to make sure that non-regulatory measures taken by American and Taiwanese authorities are transparent and non-discriminating. As USTR highlights on its website, “the negotiated text ensures service suppliers are treated fairly when they apply for permission to operate, and that there is a smooth flow of information between the applicant for a license and the regulator.”
The next chapter of substance focuses on anticorruption. The goal of this chapter is to align with language used in the US-Canada-Mexico trade agreement that ensures that public officials can’t use their positions of power for anti-competitive behavior or behaviors linked to corruption. Things that can be considered corruption include financial and non-financial bribery, and solicitation. It also includes the aiding or abetting of, or conspiracy to commit, corruptive practices. Other criminal offenses include embezzlement, keeping false records, or destruction of records.
Finally, the last chapter of substance focuses on small and medium-sized enterprises. Most jobs in the United States and Taiwan are created by SMEs. But the size of SMEs limits their ability to scale up, find import/export opportunities, and prepare for supply chain disruptions. The chapter on SMEs hopes to encourage more trade and investment between American and Taiwanese SMEs, while providing training, finance, and trade missions. Mostly, this means providing SMEs with the information they need to deal with the regulatory environment in both the United States and Taiwan, while also providing opportunities for greater Trans-Pacific engagement. The agreement also includes the option for both the United States and Taiwan to periodically convene an SME dialogue.
Like most trade agreements, there is language in the text of the agreement intended to ensure that nothing in the agreement runs contradictory to the national security interests of either the United States or Taiwan. The agreement also allows for amendments, which may be how other significant economic concerns—agriculture, digital trade, and the environment, for example—could be added in later. The agreement will go into force once both American and Taiwanese officials confirm the agreement is allowable within their respective domestic regulations. And just in case, the agreement can be terminated six months after either the United States or Taiwan decide to leave.
One thing that’s clarified throughout the document is legal authority for the United States and Taiwan to negotiate this agreement. It’s often Beijing’s argument that Taiwan is a part of the People’s Republic of China and therefore unable to have certain rights. This is untrue given that Taiwan is its own member at the World Trade Organization and administers its own customs territory. Taiwan already has nine free trade agreements—agreements which are much more substantial than this one.
A Digital Trade Issue
This first USTI agreement is what some may call an “early harvest.” This means that negotiators have picked several of the areas that were easiest to agree upon in order to secure an early agreement. This also means that the areas left for negotiators are much harder. There are two areas from the seven remaining that stick out as particularly worrisome. The first is on agricultural issues: the United States and Taiwan have a long history of back and forth on agricultural issues, such as the trade in pork and beef. The second could be on digital trade.
As the United States and Taiwan continue negotiating the USTI, the United States is also in negotiations with 13 other countries towards the Biden Administration’s Indo-Pacific Economic Framework (IPEF) initiative. A focus on the digital economy was a part of IPEF’s inception. It just happens, however, that most parties to the IPEF negotiations are members of the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP), which has a specific chapter on electronic commerce. The United States is not a member of CPTPP, but does have existing precedent language on digital trade through both the US-Canada-Mexico (USMCA) trade agreement and the US-Japan Digital Trade Agreement. This means that the United States would likely have to square its interests between the digital chapters it has already agreed to with those of the CPTPP—and it would have to do so without involving Congress.
The bigger issue is whether American negotiators of IPEF are looking to negotiate a digital trade agreement that goes beyond what may be found in either the USMCA or CPTPP. Towards the end of May, IPEF partners announced an update to IPEF negotiations – including an agreement on supply chains. Before IPEF negotiations started, policy watchers in Washington saw a regional digital trade agreement as another early harvest possibility—however, there has been no update on whether the United States has been successful or not in negotiating such a deal through IPEF. Meanwhile, Taiwan has already committed to trying to join the CPTPP. It is one thing for Taiwanese officials to make sure their digital trade policies are aligned with the rules of the CPTPP; but it is another if American negotiations of USTI ask Taiwan to go above and beyond what is important for the US-Taiwan economic partnership.
The main point: The United States and Taiwan were able to secure their first trade agreement—the first of what could hopefully be several agreements. However, the initial success they have achieved with less contentious issues means that negotiations going forward will only become more difficult. At some point, Taiwan’s desire to join the CPTPP may come in conflict with some of the efforts that US trade negotiators may try to achieve through the US-Taiwan Initiative on 21st Century Trade.