President’s Report: The US-Taiwan Business Council & U.S.-Taiwan Relations 2009

December 31, 2009

President’s Report:
The US-Taiwan Business Council & U.S.-Taiwan Relations

(Arlington, Virginia, December 31, 2009)

Report by Rupert Hammond-Chambers

On January 20th of this year, our country welcomed a new president into office and with him a new U.S. government Asia team. This influx of new blood was most welcome, particularly given the final several years of Taiwan relations under President Bush, and the extent to which the relationship had deteriorated since 2001.

President Obama has built a strong Asia team with highly experienced Assistant Secretaries at the U.S. Departments of Defense and State and well qualified officials at the National Security Council (NSC). He has – wisely, in my view – retained his Asia team at the Office of the United States Trade Representative (USTR). As I will note below, that particular decision has already reaped tangible benefits – although Taiwan has not yet capitalized on them.

US-Taiwan Relations
When President Obama took office, his initial focus was on the state of our nation’s economy and on the two wars we are presently fighting in Iraq and Afghanistan. Later in the year, however, focus has also been placed on Asia, starting with Secretary of State Clinton’s speech in Bangkok in July, where she outlined the Obama administrations Asia policy goals and objectives.

Meanwhile, Taiwan has been distracted by its own priorities; improving relations with China and its domestic efforts to jumpstart its economy (which fell off a cliff in November and December of 2008). In the early part of 2009, President Ma – under pressure from Taiwan industry – started to articulate more clearly the notion of an Economic Cooperation Framework Agreement (ECFA) or some sort of Free Trade Agreement (FTA) with China. In many respects, the ECFA concept mirrors Vice President Vincent Siew’s long-time vision of a Cross Strait Common Market. Conceptually, it also enjoys broad support amongst an important domestic coalition of technocrats, business leaders, ruling party politicians and a majority of the citizenry.

The Ma government has signed 9 agreements with China since taking office in May of 2008. These agreements represent important normalization to areas of commerce and social and criminal cooperation, and create some momentum and trust for the two parties so that they can then potentially tackle thornier issues. In 2009, Taiwan also welcomed in excess of 700,000 Chinese visitors – including numerous representatives of the Chinese government.

In light of the rapprochement between Taiwan and China, the Obama administration chose a cautious approach to any Taiwan-specific initiatives, and they in essence left the Bush administration’s end-term policies in place. While the arms freeze was broken in October 2008, several important defense & security matters remain unaddressed. Some former Bush administration officials claim that this was intentional. I believe that it was not, yet it left the Obama team with some unfinished business. Meanwhile, a two-year freeze in the Trade and Investment Framework Agreement (TIFA) process – halted over access to the Taiwan market for certain types of U.S. beef products – still remains.

Trade Policy
The TIFA freeze over the issue of beef imports is actually the second such trade dialogue freeze this decade. I have been unable to identify any other significant bilateral trade relationship that is treated similarly, and I would also suggest that it is a counterproductive approach to extracting concessions from Taiwan.

TIFA is primarily a platform for the U.S. to engage with its trading partners on our “issues”. The U.S. attitude towards bilateral talks with Taiwan, including their being frozen due to lingering issues, has resulted in important attitude changes amongst Taiwan’s technocrats and bureaucrats. While this attitude change is still subtle, it suggests that our leverage in trade negotiations is deteriorating.

A decade ago America was Taiwan’s most important trading market. When coupled with our security relationship and guarantees, it meant that there was no more important relationship for Taiwan than that with the U.S. This is now changing. China’s economic importance to Taiwan has soared, and that relationship will soon be formalized in a free trade agreement. Meanwhile, America’s increasing inability to maintain a credible and consistent security commitment undermines Taiwan’s confidence in our resolve. Couple that with our “on again off again” trade policy, and we are doing a great deal to undermine broader U.S. interests in the market.

In the past, the U.S. often saw TIFA meetings as a U.S. deliverable principally benefiting Taiwan. As if by sitting down and addressing trade concerns with their counterparts the U.S. was “doing Taiwan a favor”. Yet Taiwan played to that notion as well, when it frequently encouraged the view that the photo ops were the key deliverable, not the substance of the meetings. But those days are long since gone. There are now important members of the Taiwan government who do not see the optics of such meetings and consultations as of primary importance, and who bristle at the apparent one-sidedness of the arrangement. There is no doubt that we still maintain some leverage in our trade relationship with Taiwan, but it is vastly reduced from where we used to be. And as we move into 2010 – the year of the ECFA – we will find that leverage continuing to track downward. Therefore, a continued delay of TIFA will not be greeted with universal concern by all constituencies of the Taiwan government.

That said, the USTR (Eric Altbach and Tim Stratford at USTR and Hanscom Smith and Rick Ruzicka at AIT are the real stars here) was able to secure a resolution to the beef issue in October, with an agreement that had been several years in the making. Regrettably, the Ma government’s handling of the roll-out of the decision was appalling, and the beef issue turned into a major domestic battle in the run-up to the December 5 elections. The Taiwan legislature’s recent decision to enact populist changes to Taiwan’s Food Sanitation Act is taking what had been a win in the bilateral relationship and ensuring that it remains a major problem. The USTR and the U.S. Department of Agriculture released a joint statement on December 29 criticizing Taiwan’s move towards more restrictions on U.S. beef – a decision that could have possible repercussions in the security relationship as well (addressed below).

One final but important point to make is that President Obama does not have – nor can he have – a sound Asia policy in the absence of a trade liberalization policy. His recent trip to Asia was particularly instructive, as the top priority of every Asian ally and partner was trade liberalization and America’s leadership role in such efforts. Asian nations welcome improved access to China’s market, but they are uncomfortable at China being the only game in town – they look to the U.S. for balance and options. Whatever Mr. Obama’s views of global trade liberalization, given the absence of any Congressional interest in passing Trade Promotion Authority – along with other presidential priorities – it is unlikely that Asia policy generally will achieve the goals so eloquently laid out by Mrs. Clinton in July. There appears to be no interest within the U.S. government in placing America back in the forefront of global trade talks with a mandate to liberalize, and this is what matters most to our Asian friends and allies.

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