A NEW ERA FOR TAIWAN AND IMPLICATIONS FOR THE EU

Taiwan is a multi-party democracy and the only ethnic Chinese society that can boast of being a Democracy. On 16 January 2016, 23 million citizens of the island voted to choose their sixteenth president. Dr Tsai Ing-wen of the Democratic Progressive Party (DPP) emerged victorious with 6.89 million votes (56 per cent of the total votes), and became the first female president of Taiwan.

Cross-Strait relations were one of the central issues during the sixteenth general election. Unlike the previous government, Dr Tsai does not consider the ‘1992 consensuses’ as the only options for dealing with China. She considers this issue to be related to the identity of Taiwanese citizens and believes that it requires the full understanding and participation of the people. With her victory, there are apprehensions that there may be a lot of changes in Taiwan’s policies toward China.

The overarching DPP foreign policy is to deepen Taiwan’s relation with the US and Japan. Additionally, it wants to diversify its trade with the South, Southeast and East Asia.  To date, Taiwan has entered into bilateral investment arrangements and regional trade agreements containing market access chapters with Japan, Singapore and New Zealand, signed 21 agreements with mainland China, and has been steadily strengthening economic relations with the United States under the Trade and Investment Framework Agreement (TIFA) platform. 

Implications for the EU

The EU and its Member States have not yet shown themselves willing to take the necessary steps towards opening negotiations with Taiwan on an economic agreement of any kind, despite efforts on the part of the Taiwanese government to move in this direction.

There would be value for the EU in recognizing the symbolically important role of Taiwan as a transparent and rules-based economic and democratic system. European governments and businesses would do well to make better use of the opportunities that exist to strengthen economic ties between both sides. This includes taking the necessary steps — slowly but steadily — towards opening negotiations on trade liberalization, in full consideration of the political sensitivities of such a move for China. Openness in this direction on the part of the EU should constitute a significant impetus for the Taiwanese government to address seriously the calls for regulatory reform in Taiwan — as long desired by the European public and private sectors — and to make a more compelling case as to why Taiwan is attractive as a regional hub for European firms. Many European companies still disregard Taiwan as a business partner, in part because of fixed assumptions of the political issues that might hinder commercial dealings with the island. It has been noted that when it comes to doing business with Taiwan, companies often have no grasp of the range of possibilities and that they lack sound business strategies.

Various levels of government can play a crucial role in breaking this cycle, by informing and supporting entrepreneurs and companies that are interested in doing business with Taiwan more proactively and strategically.

The Taiwanese government, in turn, would do well to make a more compelling case as to why Taiwan is attractive as a regional hub for European firms. More than a few policy-makers at the local, national and EU levels are open to the idea of Taiwan as a hub and of the need to invest in negotiating EU–Taiwan economic agreements, but remain to be convinced. This goes for economic agreements, as well as the potential of Taiwan as a hub for European businesses’ economic activities in China. More specifically, European companies would benefit from a strengthened position and improved practice of Taiwan’s trade and investment promotion agencies. These are said to be rather weak at present, while there is reason to make sure that they play a positive role in finding the right partners for European companies. Finally, European trade promotion agencies, as well as the private sector, would benefit from more transparent and detailed information about Taiwan’s industrial policy. In particular, which sectors are prioritized and to what extent/under what conditions can foreign parties participate in joint ventures? Such knowledge will help their assessment of market potential and thereby strengthen the ability to move quickly.

Out of all the EU member states, Germany is Taiwan’s largest trading partner with 28 per cent of total EU–Taiwan trade . Its large share of trade volume with Taiwan follows from Germany’s leading position in the world market in areas such as machine tools and other mechanical equipment. The Netherlands and the United Kingdom are Taiwan’s second and third largest EU trading partners, with shares of 19 per cent and 14 per cent respectively. Together, these three member states — Germany, the Netherlands and the United Kingdom — thus account for well over half of total EU trade with Taiwan.

The EU was also the second largest provider of foreign direct investment (FDI) to Taiwan, providing 14 per cent of all FDI flows into Taiwan in 2013 — after the British Overseas Territories in the Caribbean (29.2 per cent). European investments have risen steadily since the 1990s, with especially the Netherlands, the United Kingdom, Germany and France making substantial investments in Taiwan. Dutch investments, in particular, have surged over the last few years, accounting for more than one-third of total EU investments . Despite the large flow of European FDI in Taiwan, investments from Taiwan into the EU are lagging behind those of other Asian countries with economies of a similar size. Most of Taiwan’s investments are directed instead towards China, Vietnam, Australia, the United States and Hong Kong. Nevertheless, Taiwanese investments in the EU show a positive trend — almost tripling in 2012 from € 301 million to € 818 million.

Exchanges between the EU and Taiwan are surprisingly active when compared to other partners in the region. Taiwan is the EU’s seventh largest trading partner in Asia after China, Japan, South Korea, India, Singapore and Hong Kong . Even so, the EU’s trade relations with Taiwan are said to be more developed than those with Hong Kong, and the level of detail is similar to consultations with Japan before FTA talks started. A positive result of all these efforts is that EU–Taiwan trade flows are rarely affected, even when trade frictions arise.