Washington may be feeling more warmly toward Taiwan, but it is still unclear how the
government-to-government U.S.-Taiwan economic relationship will be evolving.

BY DON SHAPIRO

If the current attitude in Washington toward Taiwan could be summed up in a single word, it would undoubtedly be “relief.” As a veteran U.S. Asia-watcher told AmCham’s 2009 Doorknock delegation, “the Ma Ying-jeou outreach to China has reduced if not eliminated a significant strategic headache for the United States. It’s a good thing for China and Taiwan, and for the U.S.”

In recent years during the presidency of Chen Shui-bian, the U.S.-Taiwan relationship had been soured as the American government was frequently taken by surprise by initiatives on Taipei’s part that Washington viewed as exacerbating cross-Strait tensions, with fears that U.S. forces could be dragged into a conflict. This year, U.S. officials were clearly thankful to have one less flash point in the world to worry about, and appreciative that Taipei has kept them well-informed about its moves to improve relations with China.

At the same time, it remains far from clear how Washington’s satisfaction with the evolution of the cross-Strait relationship might be translated into new policies to bolster U.S.-Taiwan economic ties. A variety of reasons were offered for that continued uncertainty. For one, although President Obama took office in January, it has taken many months – given the increasingly lengthy vetting and confirmation process in the United States – to fill all the top policy positions in the administration. As of the Doorknock team’s visit in mid-June, several key posts relating to Asian affairs had not yet been filled, with the result that new policies had largely not yet been formulated.

(It should also be noted, however, that the new appointees already named included some key figures with strong backgrounds in Taiwan affairs. Among them are Deputy Secretary James Steinberg and Assistant Secretary for East Asia and the Pacific Kurt Campbell at the State Department, Senior Director for Asian Affairs Jeff Bader at the National Security Council, and Principal Deputy Assistant Secretary of Defense for Asia-Pacific Security Affairs Derek Mitchell.)  

Further, the new U.S. administration has had more than its share of high-priority issues to keep it occupied since taking office. On the domestic front, it has had to tackle the multi-faceted challenges emerging from the financial crisis, as well as the politically delicate task of devising a national healthcare plan. Internationally, it has faced crises in such places as North Korea and Iran. Not only has Taiwan been barely a blip on the radar, but the administration has not yet even had time to construct its overall trade policy.   

A more specific reason why the U.S.-Taiwan economic agenda has remained stalled has been the failure of the two sides to resolve a longstanding trade issue that has risen to the level of being a major obstacle to progress. That issue is Taiwan’s continued prohibition of the import of certain types of U.S. beef, including cuts containing bone, and meat from animals older than 30 months – restrictions imposed several years ago at the time of the “mad cow” scare in the United States.

Officials on both sides have told AmCham that the problem is now close to resolution, with only a few relatively technical items still outstanding. But for the past year or more, the beef issue appeared to totally dominate the bilateral agenda. Apparently due to that disagreement, the bilateral trade talks known as TIFA (for Trade and Investment Framework Agreement), normally conducted once a year, were not held in 2008.

In its 2009 Taiwan White Paper published in May, AmCham expressed dismay that the concerns of a broad spectrum of U.S. businesses were being shunted aside because of a single issue, beef, which represents but a tiny portion of the overall trade volume between the two countries. The Chamber called on both sides to find a solution. It urged the Taiwan government to lift its ban in recognition of Department of Health findings that there is no scientific evidence that bone-in beef poses any threat to consumers. At the same time, it appealed to the U.S. government not to allow all other commercial interests to be held hostage to the beef issue.

Those messages were repeated during the Doorknock visits. In response, U.S. officials and observers provided an explanation for why beef had become such an overriding issue. Part of the story is the powerful nature of the agricultural lobby in the United States (as is also true in many other countries) and its traditionally strong role in the formation of trade policy. Notably, the chairmen and senior minority members of some of the most influential Congressional committees dealing with trade issues are from states that rely heavily on beef production and other forms of agriculture.

Beyond the political importance of farming constituencies, another factor was reportedly growing U.S. annoyance that Taiwan had failed to live up to repeated assurances that the beef-import problem would soon be resolved. The issue was particularly sensitive in Washington because of the domestic political heat taken by South Korean President Lee Myung-bak last year after his administration opened the market to U.S. beef. Washington was urging other Asian countries to follow suit to help provide some political cover for the Koreans; it thought it had Taiwan’s promised cooperation in the matter, but wound up being disappointed.

While this year’s Doorknock mission continued to hear expressions of American concern about beef, the team was also gratified to learn from key U.S. government agencies that they are already giving thought to scheduling the next round of TIFA talks. If the beef dispute is soon settled, the Doorknock group was told, the talks could be held this fall in Taipei, with new Deputy U.S. Trade Representative Demetrios Marantis leading the delegation.

Bilateral agreements

Besides calling for early resumption of TIFA, the Doorknock delegation also encouraged the U.S. side to move forward on two proposed bilateral agreements, one on investment and the second on tax matters, originally broached by then American Institute in Taiwan (AIT) Director Stephen Young in 2006. On the understanding that the tax agreement will need longer consideration, AmCham had focused in the 2009 White Paper on the Bilateral Investment Agreement (BIA), urging that formal negotiations be launched during the coming months.

“Unfortunately, the news on the BIA was quite disappointing,” reports AmCham President Andrea Wu. “We were informed that the process is basically at a standstill because the Obama administration is undertaking a comprehensive review of U.S. policy toward bilateral investment pacts in general. But even after that review is completed, which is expected to happen this fall, there’s no assurance that a Taiwan BIA will be feasible.”

The reason behind that uncertainty was said to be the lack of formal diplomatic relations between Taiwan and the United States, which means that agreements between them cannot take the form of a treaty. Under the U.S. Constitution, treaties are ratified only by the upper house of Congress, the Senate. But U.S. government lawyers have advised that some form of Congressional approval would still be required, as the BIA would bind the parties to accept arbitration in the event of disputes (for example, over investment expropriation).

Some executive branch agencies seem disconcerted by the prospect of a BIA bill going not only to the Senate but to the House of Representatives, which ordinarily has no role in such matters – and which at least theoretically might use the opportunity to raise complicating issues. The Doorknock group was told that no one currently had a workable answer to this problem, although a search for a “creative solution” would be undertaken.

The BIA and the Bilateral Taxation Agreement, which would constitute the equivalence of chapters in an overall Free Trade Agreement (FTA), were initially proposed when it became clear that Taiwan would not be able to begin negotiations on a full-scale FTA before the U.S. President’s “fast-track authority” to conduct such negotiations expired in mid-2007. The two bilateral agreements were billed as “building blocks” toward an eventual FTA.

If Constitutional snags continue to block progress toward those agreements, it was suggested in Washington that some alternative building blocks might need to be found to provide mechanisms for deepening and broadening the U.S.-Taiwan economic relationship. Among the possibilities mentioned were agreements on Transparency, Competition Policy, and Technical Barriers to Trade. Since these do not touch on arbitration, they would not need Congressional action and could be concluded through an exchange of letters between AIT and the Taipei Economic and Cultural Representative Office in the United States.     

The Doorknock team voiced its apprehension that no clear way forward was apparent for furthering bilateral trade and investment ties, especially at a time when Taiwan and China are rapidly improving their economic relations, and even planning to engage in an FTA-like Economic Cooperation Framework Agreement (ECFA). “We mentioned the irony,” said Andrea Wu, “that companies from China, a place that for decades was considered to be Taiwan’s number one enemy, might actually enjoy preferential conditions in this market compared to those available to companies from the United States, traditionally Taiwan’s closest ally.”

The vagueness about the way forward to the next stage in the U.S.-Taiwan economic relationship stood in contrast to the clear statements of continued commitment to assistance with Taiwan’s defense that the Doorknock team heard at the Pentagon.
The AmCham delegation carried a number of other messages to Washington, including:

• Reiteration of the White Paper theme that Taiwan has achieved an important breakthrough in the past year by forging a constructive environment for economic interchange with China. More broadly, however, economic progress is being held back by inefficient regulatory processes; Taiwan’s regulatory agencies might benefit from greater coordination and consultation with their U.S. counterparts.
• Expression of satisfaction that Taiwan has recently joined the Government Procurement Agreement (GPA) under the World Trade Organization, but with the caveat that implementation will need monitoring to assure that the market access stipulated under the GPA regulations is being made available to international bidders.
• Explanation of the AmCham Pharmaceutical Committee’s position that the quality of Taiwan’s healthcare will be disadvantaged unless the National Health Insurance program adopts pricing and reimbursement policies that properly encourage the launching of innovative new drugs in this market.
• Elucidation of the Banking Committee’s concern that proposed legislation in Taiwan to mandate an interest-rate cap on credit-card debt will not only weaken the financial industry but curtail consumers’ access to credit and reduce economic activity.
• Requests that the U.S. government consider adding Taiwan to the Visa Waiver Program and that Congress remove discriminatory provisions regarding the taxation of U.S. citizens working overseas.
• The suggestion that the United States restore the policy in place during the Clinton administration of occasionally dispatching Cabinet-level officials to Taiwan for discussions to help strengthen bilateral economic ties.

After returning to Taiwan, the Doorknock team and other members of the AmCham leadership paid a call on Premier Liu Chao-shiuan to brief him about the results of the Washington trip. Visits to other government leaders are being scheduled.   

AMERICAN CHAMBER OF COMMERCE IN TAIPEI

2009 Doorknock, Washington, D.C.

Dates: June 15-19, 2009

GOVERNMENT MEETINGS

Department of Commerce (International Trade Administration)
Department of State

• Office of Taiwan Coordination
• Office of Investment Affairs

Office of the U.S. Trade Representative
National Security Council
Department of the Treasury
Department of Defense
Food & Drug Administration
U.S.-China Economic & Security Review Commission
Congressional Research Service
Congressman Eni Faleomavaega, chairman, House Subcommittee on Asia-Pacific
Office of Sen. Robert Menendez (D-NJ), co-chair of  Senate Taiwan Caucus
Office of Rep. Carolyn Maloney (D-NY)
Senior staff aides from Senate Foreign Relations, Senate Finance, House Ways & Means, and House Foreign Affairs Committees
AIT – Washington

THINK TANKS

Brookings Institution
Heritage Foundation
Project 2049

OTHER ORGANIZATIONS

C&M International
Nelson Report
Taipei Economic & Cultural Representative Office
U.S. Chamber of Commerce
U.S.-Taiwan Business Council
DPP Liaison in Washington

A Week in Washington

Each June, AmCham Taipei sends a delegation to Washington, D.C. for a round of discussions with executive branch officials dealing with U.S.-Taiwan affairs, members of Congress and their staff assistants, think tanks, scholars, and other organizations interested in the bilateral relationship. This year’s group, led by AmCham Chairman Alan T. Eusden, held a total of 28 meetings between June 15 and 19.

Other members of the 2009 Doorknock delegation included AmCham President Andrea Wu; Past Chairman Paul Cassingham, senior legal consultant at Yangming Partners; Pharmaceutical Committee Co-chair Wei-Li Shao, General Manager of Eli Lilly and Co. (Taiwan); Thomas Clark, Vice President, Government Relations – Asia, GE Capital; Director of Government Relations Anita Chen, and Director of Publications Don Shapiro.

The annual trip is timed to come shortly after publication of the Chamber’s Taiwan White Paper, a compendium of recommendations to both the Taiwan and U.S. governments on how the business climate for multinational companies in Taiwan could be improved.