Decisions on American policy toward Taiwan have long been constrained by concern about possible objections from China. But considering that China is increasingly being viewed by Americans across the political spectrum as a strategic adversary with political and economic interests largely antithetical to those of the U.S., it is time to reevaluate the U.S. position toward Taiwan. Besides its economic importance to the U.S. as a major trading partner and vital component of the supply chain for many American technology companies, Taiwan – despite the lack of formal diplomatic relations – is one of the closest friends and allies that the U.S. possesses in the Indo-Pacific.
AmCham Taipei urges the U.S. administration and Congress to take the following steps to broaden and deepen the American relationship with Taiwan:
Suggestion 1. Enter into negotiations with Taiwan for a bilateral trade agreement (BTA).
Concluding a BTA would bring substantial benefits to both sides. No matter how the current U.S.-China trade war ends, enormous changes will be occurring in the months and years ahead in the way international trade is conducted. Many of the American and Taiwanese companies that have relied heavily on Chinese sources of production will be looking for new arrangements with new partners. With their longstanding business ties with U.S. companies and extensive understanding of world markets, Taiwanese enterprises would be among the most suitable collaborators for their American counterparts. A BTA would facilitate that cooperation by promoting two-way trade, encouraging more Taiwanese investment in the U.S., and expediting joint undertakings in third countries.
The U.S. would find Taiwan to be an enthusiastic negotiating partner. Despite its role as one of the world’s leading trading economies, Taiwan has been in the frustrating position of being blocked, due to Chinese pressure, from participating in many bilateral or multilateral trade agreements. As a result, Taiwan has been at a growing competitive disadvantage against its main rivals in international markets. Entering into a BTA with the U.S. would be a huge breakthrough in its own right, but more than that it would likely give other countries the courage to follow suit.
From a strategic point of view, a bilateral agreement with the U.S. would strengthen Taiwan’s security position in the Indo-Pacific region and help it reverse the tendency of recent years of increasing economic dependence on China. It would further bolster a U.S. relationship with Taiwan that already involves excellent cooperation in a large number of areas, including anti-terrorism, anti-money-laundering, environmental protection, regional humanitarian assistance, intellectual property rights, and space programs.
Among the most frequently cited obstacles to a BTA with Taiwan are the ongoing Taiwanese import restrictions on American pork containing traces of a leanness-enhancing feed additive, as well as on some beef products. Although scientific evidence supports the U.S. argument that these products pose no threat to human health, in the Taiwan media the issue is presented as a question of food safety, making it a politically sensitive matter for the government to handle. The chance of resolving these issues would be vastly improved if they could be dealt with in the course of BTA negotiations.
Suggestion 2. Set the stage for BTA negotiations through the resumption of TIFA Council meetings.
The Trade and Investment Framework Agreement (TIFA) that the U.S. concluded with Taiwan in 1994 established the primary negotiating channel between the two countries on trade and investment issues. The cornerstone of the process is the convening of TIFA Council meetings, usually referred to more informally as “TIFA talks,” led by a Deputy U.S. Trade Representative on the American side and as Vice Minister of Economic Affairs heading the Taiwanese delegation.
From the perspective of the U.S. business community in Taiwan, the TIFA talks have proved to be extremely useful over the years in improving mutual understanding and resolving policy differences. Taiwan’s recent creation of a mechanism for protecting pharmaceutical patents is an example of a TIFA success story. Draft legislation in Taiwan for regulation of copyright and the cosmetics market has also been improved through the TIFA process.
Although that process theoretically could carry on without TIFA Council meetings, in our experience there is no substitute for contacts at the Council level to ensure that issues receive appropriate attention. Unfortunately, no TIFA Council session has been held since October 2016. AmCham Taipei urges a return to a regular schedule of annual council meetings as soon as feasible, hopefully within the second half of this year.
Suggestion 3. Arrange more high-level government visits in both directions.
Congressional passage last year of the Taiwan Travel Act with broad bipartisan support was a strong reaffirmation of the American commitment to helping assure Taiwan’s continued security and well-being. President Trump’s decision to sign the bill rather than allow it to become law automatically was a further demonstration of the health of the bilateral relationship.
The provisions of the law should now be used to schedule more frequent visits of Taiwanese officials to the U.S. and of American officials to Taiwan. In the 1990s, visits to Taiwan by U.S. cabinet secretaries occurred on the average of once every two years. Since 2000, however, only one U.S. cabinet-rank official has made the trip – Environmental Protection Agency administrator Gina McCarthy in 2015. The U.S. representation was at a lower level even for last year’s dedication ceremony for a new US$255.6 million office complex for the American Institute in Taiwan and for this year’s observances of the 40th anniversary of the Taiwan Relations Act.
High-level visits are not mere junkets or photo opportunities. Rather they are action-forcing events. Weeks or even months of preparation go into laying the groundwork for cooperative agreements to be reached or policy initiatives to be discussed. Promoting such exchanges is a way of ensuring that the U.S.-Taiwan relationship – despite its unique political context – remains vigorous and forward-looking.
An excellent opportunity for such a visit would be AmCham Taipei’s annual Hsieh Nien Fan banquet, usually held in March shortly after the Chinese New Year, where the U.S. official could share the role of keynote speaker with the president of Taiwan. Each year, the event is attended by about 600 executives from the American business community, plus about 100 guests from the Taiwanese government.
Suggestion 4. Implement tax reforms to relieve burdens on Americans overseas and help promote U.S. exports.
AmCham Taipei endorses the following proposals advocated by the Asia-Pacific Council of American Chambers of Commerce (APCAC):
Revise the income-tax system to base tax liability on residence rather than citizenship. The U.S. taxes Americans on their worldwide income. This unique system results in an un-level playing field as American citizens compete for jobs abroad – including at U.S. companies – with foreigners who are less expensive to employ. The on-going reduction in the number of American citizens in key management positions diminishes the natural procurement ties to U.S. goods. As the Administration and Congress consider a territorial tax system for U.S. corporations, so too should such a system be adopted for each individual taxpayer. This will level the competitive paying field, promote exports, and create more investment and jobs for U.S. companies and citizens.
Amend the Foreign Account Tax Compliance Act. FATCA’s costly reporting requirements and its significant legal and financial risks can make it unprofitable for financial companies to serve Americans overseas. While the introduction of the Common Reporting Standard has somewhat leveled the playing field, APCAC urges lawmakers to reform the law comprehensively or support specific reform proposals, including a Same Country Safe Harbor provision, which would treat the financial accounts of Americans abroad in their country of residence the same way as it treats the U.S. accounts of Americans residing in the U.S.
U.S. exports cannot be effectively promoted without American businesspeople on the scene in international markets. Their presence abroad should not be discouraged by taxation or other policies.