This is a co-authored post by Inu Manak, who is a fellow for trade policy at the Council on Foreign Relations in Washington, DC, and Amanda Lin, who is an intern for trade policy at the Council on Foreign Relations and a graduate student at the Elliot School for International Affairs at George Washington University in Washington, DC.
Trade has not been a top priority for the Joe Biden administration, which has instead pursued domestic economic objectives such as the landmark Inflation Reduction Act and CHIPS and Science Act. However, the strategic and economic importance of Taiwan has motivated the first stage of a broader trade agreement with Taiwan, the first that the Biden administration has concluded. While this first agreement under the U.S.-Taiwan Initiative on 21st-Century Trade is not a comprehensive deal, it is significant in and of itself and lays the groundwork for deeper commitments in the future. Congress’s recent approval of the deal also signals to U.S. trading partners that the United States remains interested in traditional trade pacts despite the current administration’s domestic agenda.
The U.S.-Taiwan Initiative on 21st Century Trade
The U.S.-Taiwan Initiative on 21st Century Trade, the first agreement of which took less than a year to negotiate, covers eleven areas of negotiation, four of which were concluded in May 2023: trade facilitation, good regulatory practices, anticorruption, and small- and medium-sized enterprises. The issues left to be negotiated include agriculture, standards, digital trade, labor, environment, state-owned enterprises, and non-market policies and practices.
The majority of the provisions in the concluded deal focus on trade facilitation, reducing the bureaucratic barriers to trade and simplifying the customs process for producers and consumers. A chapter on customs administration and trade facilitation includes commitments for the digitalization of trade processes—such as e-invoicing, online enquiry points, electronic payments—and a single window system for the submission of trade documentation. The good regulatory practices chapter is modeled after the U.S.-Mexico-Canada Agreement (USMCA) and obligates more transparency in the regulatory process, including early planning, regulatory analysis, and consultation. There are also separate provisions for services domestic regulation, modeled after the World Trade Organization (WTO) initiative of the same name. The last chapter encourages more investment and trade between small- and medium-sized enterprises from the United States and Taiwan by providing more access to information as well as training.
While the first phase’s outcomes are significant—particularly considering the speed of the talks—there is much left to negotiate. The remaining issue areas are also some of the most contentious. On agriculture, Taiwan and the United States have different approaches to risk assessment for food health standards. For instance, Taiwan upholds restrictions on certain biotechnology and genetically modified agricultural goods. There are other agricultural issues as well, such as Taiwan’s tariff-rate quotas on sixteen agricultural products (though it is unlikely those will be addressed in subsequent negotiations given the Biden administration’s reluctance to put market access on the table).
In addition, the overlapping and potentially conflicting provisions prompt a closer evaluation of the deal. If Taiwan is already a member of the WTO and a signatory of the Trade Facilitation Agreement and Joint Initiative on Services Domestic Regulation, how much do the recent deal’s provisions improve existing trade conditions? And, as talks on the digital trade chapter get underway, it remains to be seen whether the United States will pursue conditions reflective of its commitments under the USMCA, or whether it will borrow from ongoing negotiations under the auspices of the Indo-Pacific Economic Framework, or even the Trans-Pacific Partnership agreement, from which it withdrew in 2017. Therefore, while the first phase of the deal is a good start, it is a far cry from a comprehensive trade agreement that can deliver the economic opportunities needed to deepen trade relations between the United States and Taiwan.
What’s at Stake
For both economic and strategic reasons, Taiwan is an important trading partner for the United States. It is the eighth-largest merchandise-trading partner, with $114.1 billion in total goods trade, and the seventh-largest source of U.S. imports. Discussions to strengthen bilateral economic ties have been ongoing for decades and have taken many different forms. The Trade and Investment Framework Agreement (TIFA), signed in 1994, has been one of the main platforms to address trade issues with Taiwan, including its ban on U.S. beef and pork products, which has long been a sore point in bilateral trade relations. In the past, the U.S. Trade Representative (USTR) suspended TIFA talks to signal its displeasure over Taiwan’s trade restrictions, so negotiations have developed in fits and starts.
All the same, Taiwan has been interested in a more comprehensive trade agreement for years. The Donald Trump administration renewed the strategic focus on Taiwan as a means to counter China’s growing influence in Asia, and the Biden administration has pursued talks along similar lines. As a major hub for semiconductor production, Taiwan remains vulnerable to supply chain disruptions and intellectual property theft, as well as issues surrounding export controls.
The U.S. Congress has also taken notice of Taiwan’s strategic importance. In 2020, a bipartisan group of fifty senators called on the USTR to start the process of negotiating a trade agreement with Taiwan to further the goal of “a free and open Indo-Pacific” and to counter “China's use of unfair trading practices and other policies to advance its economic dominance in the region.” Such robust bipartisan support for a stronger trade relationship with Taiwan undoubtedly motivated Congress to recently pass a bill approving the first agreement in the U.S.-Taiwan Initiative on 21st Century Trade, which Biden just signed into law.
The content of the deal and the politics surrounding its approval point to a possible shift in U.S. trade policy if Congress continues to reassert its trade authority. The Biden administration should take advantage of the bipartisan commitment to Taiwan and pursue a comprehensive, high-standard trade agreement with substantive market-access provisions to ensure that economic ties between the United States and Taiwan can be secured for years to come. U.S. trading partners should also pay close attention to how these talks unfold and the role that Congress plays in pushing them along. A more assertive Congress could help revive many stagnant trade dialogues and open the way to more collaborative trade initiatives in the near future.
