Taiwan and the European Union (EU) have much in common. As a major trading nation, Taiwan, like the EU, is committed to the market-based economy. It shares with the EU a commitment to universal values including democracy , the rule of law and freedom of speech and assembly although not, unfortunately, extending to abolition of the death penalty. In various international comparisons, including Transparency International âs Corruption Perceptions Index , the World Bank âs Doing Business report and the World Economic Forumâ s Global Competitiveness Report, Taiwanâs ranking compares favourably with that of many EU member states. And as the 26th largest economy in the world, it sits between Belgium and Austria in global rankings of GDP .1
At first glance, this commonality is reflected in the interaction between the two. Regular co-operation and exchanges take place in various fields including research and development, human rights, education and climate change.2 In recent years the conjuncture of views between the two has included a shared belief in the importance and benefits of multilateral free trade. Until 2012 at least, the EUâs stated position was that preservation and strengthening of the multilateral trading system was its highest trade priority, and like the EU, Taiwan had a strong preference for the multilateral trading system over regional or bilateral agreements. Their reasons for this differed somewhat: in the case of the EU there was a conviction that regional or bilateral Free Trade Agreements (FTAs) would be suboptimal in terms of their outcomes, very possibly leading to trade diversion rather than trade creation. In Taiwanâs case, the driving force was primarily political rather than practical or theological: its lack of significant diplomatic recognition places it at a disadvantage, as few countries seem willing to include Taiwan in their plans for narrower bilateral agreements, either because of their lack of official relations with the country or because of a perception that China will object strongly to such an agreement. Arguably, the absence of official relations with other countries reinforces the importance of such agreements for Taiwan as they have become one of the few means open to it to project its sovereignty.3
But even while the EU formally held to its stated position, it was negotiating bilateral FTAs, seemingly having concluded that the risks to it of trade diversion arising from new FTA s to which it was not a party outweighed the importance of adherence to the multilateral trading system .4 Taiwan stood to lose much more from potential trade diversion: as a small open economy, trade and foreign investment are disproportionately important to it, its 2014 trade/GDP ratio of 130.5 far surpassing that of any comparable economy.5 Anxious, therefore, not to lose out from the move away from multilateralism, it was also pursuing its own bilateral agreements, signing the first of four FTAs with five Central America n countries in 2003, followed in 2013 by FTAs with both Singapore and New Zealand.6
While this was happening, the EU had publicly committed to developing its engagement with East Asia under its Global Agenda. This has included the establishment of Strategic Dialogues , Partnership and Co-operation Agreements and more with the countries of the region. Trade has been a driving force of this burgeoning engagement, arguably the driving force. For example, between 1997 and 2015, total bilateral trade of the principal six EU trading economies with the Republic of Korea (South Korea, hereinafter Korea) grew more than 168% and with China more than tenfold.7 So FTAs feature strongly in the EUâs engagement: in July 2011, an FTA between the EU and Korea entered into force, one of the most comprehensive such agreements reached to date. In mid-2017, the EU reached agreement in principle on a similar one with Japan and it has also had several rounds of discussions with China over a comprehensive bilateral investment agreement (BIA).8
Logic would suggest that Taiwan should also feature in this list. The key criteria set out by the European Commission in 2006 for negotiating new FTA s include both market potential and the degree of protection against EU exports to that country.9 These factors alone support the EU making Taiwan a priority market in negotiations, and Taiwanese policymakers have been lobbying for some years now for a bilateral FTA with the EU.
Taiwanese arguments have been supported by several academic studies since 2006, all of which have concluded that an EUâTaiwan bilateral FTA would bring significant benefits to both sides. Two stand out for the thoroughness of their analysis and conclusions. The first, a 2008 study by Copenhagen Economics for the European Chamber of Commerce in Taipei, which was updated four years later, concluded that such an agreement would see the EUâs exports to Taiwan increase by âŹ12bn annually, Taiwanâs to the EU by âŹ10bn and that it would add âŹ4bn to Taiwanâs GDP.10 A 2010 analysis was more cautious, suggesting that a purely bilateral FTA between the EU and Taiwan would not deliver major gainsâthe boost to overall EU GDP would be just 0.02% at best. But it argued that much greater welfare gains would accrue from an agreement that would encompass the EU, Taiwan and China, given the increasing predominance of China in Taiwanâs trade.11 A 2016 study, focusing on the potential benefits of a BIA between the EU and Taiwan, was strongly positive about the likely benefits but did not attempt to quantify these.12
This evidence notwithstanding, the European Commission position has been that the economic case for an FTA is not compelling. It argues that most of the current bilateral trade is in areas where tariffs are already low or zero and a traditional agreement focusing mainly on tariff reductions would therefore have little impact. But economic factors alone have not deterred the EU from negotiating FTAs with countries such as Vietnam or even Myanmar , whose bilateral trade with the EU is much lower than that of Taiwan and which do not adhere to the same broader values, while bilateral trade between the EU and Taiwan is far from being free of friction. In January 2017, the Commission imposed anti-dumping duties on Taiwanese stainless steel tubes and certain pipe fittings, and in March 2017 similar duties on solar panels were extended for a further 18 months. The Commissionâs market access database also lists 16 areas in which barriers or impediments to trade with Taiwan have been reported, significantly more than in Japan or Korea. On the other hand, between 2013 and 2017, only two new trade investigations were initiated by the Commission against Taiwan, one fewer than against Korea.13
Inevitably, perhaps, this absence of progress towards opening discussions on a bilateral FTA has encouraged the view that the EUâs lack of enthusiasm is more for political than economic reasons: a reluctance to offend or annoy China. For the EUâs relations with North East Asia are dominated by its perceptions of China as a growing world power, not just a regional one. Its bilateral relationship with China appears to be booming. It is described officially as âone of the worldâs biggest and most dynamic trading relationships ... a major engine driving ⌠respective economic development and innovation.â It is a source for the EU of trade, investment and tourism. The EUâs China policy undoubtedly has a bearing on its relations with Taiwan, which it recognises only as an âeconomic and commercial entity.â The EUâs Guidelines on Foreign and Security Policy in East Asia , which aim to provide an overall orientation for the EUâs dealings with countries of the region across all its activities, scarcely mention Taiwan.14
Driving the EUâs engagement is competition between the individual member states, for Chinese capital to support their own economies, for trade or for both. This has generated criticism within Europe that the determination to win such business is over-riding other concerns or objectives, for example the dete...