Economy & Business
Taiwan needs a champion to join CPTPP
Taiwan could benefit from being part of international trade deals with large economies but its unique international status makes joining a challenge.
By Darryl Lupton
Taiwan exists in the twilight world, somewhere between a successful member of the international community and a phantom with no real sovereign existence; certainly according to the United Nations (UN) and the People's Republic of China (PRC), which claims Taiwan as a province despite never having ruled over it. This lack of international status makes it difficult for Taiwan to engage with countries on many levels, including setting up trade deals. Despite these challenges, Taiwan managed to join the Asia-Pacific Economic Cooperation (APEC) in 1991, the World Trade Organisation (WTO) in 2002, the Economic Cooperation Framework Agreement (ECFA) in 2010 with China, while its latest trade agreement with the US is being negotiated with the first part signed in 2023. Naturally, the government would like Taiwan to be more integrated into the world economy. Yet the PRC is very reluctant to allow Taiwan to flourish economically and lessen its dependence on the mainland, with ECFA meant to bind Taiwan closer to China’s economic sphere and make it overly dependent on PRC markets. This is a stumbling block for Taiwan which wants to normalise its presence in the world and enhance its economy through internationally favourable trade relations. The case in point would be Taiwan’s desire to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This article will provide an analysis of Taiwan’s bid to join this trade agreement, what benefits there might be for both Taiwan and the current 12 members and what obstacles exist for Taiwan’s accession to becoming a member.
The original form of this trade agreement was titled the Trans Pacific Partnership (TPP) and initiated by former US president Obama as the economic arm to the US ‘pivot to Asia’. The intention was to have a trade agreement that incorporated stricter terms that would initially exclude China and help to constrain the PRC’s growing economic influence in the Asia-Pacific region. The agreement would ensure that US values and interests would be front and centre by promoting labour rights, environmental protections and intellectual property standards. In addition, state owned enterprises (SOE) would be compelled to be transparent and share relevant information, certainly a significant challenge for the PRC. History shows that the Trump administration rejected this agreement and chose to hobble China with tariffs instead of constraining its trade via a multilateral agreement. Instead, China joined the Regional Comprehensive Economic Partnership (RCEP) in 2022, the largest trade bloc in history, despite India pulling out of it. This bloc focuses primarily on goods and trade volumes, whereas the CPTPP also includes more services, investment, intellectual property and e-commerce.
With the initiator of the trade deal, the US, rejecting its own trade proposal, Japan under prime minister Abe stepped up to rescue America’s scuppered project. It was renamed CPTPP and signed into existence by the end of 2018. There are currently 11 members, with the UK expected to ratify the agreement and become the twelfth. Several prospective members have applied to join, including China and Taiwan. However, with accession depending on the approval of all the members, Taiwan has a diplomatic challenge to overcome. It is eligible to join as membership is not based on UN membership. This is similar to how Taiwan joined the WTO and APEC. Taiwan needs a champion to guide and support it through the application process and help to persuade other members of the benefits of having Taiwan as a trade partner. Yet, without US involvement and support, this is not an attractive proposition for any existing members. China usually blocks Taiwan’s admission to international groups, like the World Health Organisation (WHO). If it does relent, then it wishes to accede to the organisation first, as a face-saving measure, before Taiwan. China’s approval to join would depend on its acceptance of many terms that are onerous and difficult to achieve, as detailed with SOEs and intellectual property. This might mean that China is never fully capable of joining without radical reforms. Furthermore, it is likely that China will pressure other countries, like ASEAN members that have important economic ties with the PRC, to block Taiwan’s accession.
There are countries like Japan, Australia and Canada that have expressed support for Taiwan but they are wary of backlash from China. Shihoko Goto from the Wilson Center believes that Japan is more focused on the security aspect regarding Taiwan rather than trying to sponsor Taiwan’s CPTPP entry. She believes that Japan will delay helping Taiwan and instead hope that the US decides to join and then back Taiwan’s bid to be in the group. Another possibility is Australia championing Taiwan’s cause as a democratic nation that has a vibrant and open society. What’s more, Taiwan’s economy is almost in the world’s top 20 with plenty to offer in the tech sector, particularly in semiconductors and electronics. Having been economically bullied by China, Australia survived and showed the world that it is possible to stand up to the economic behemoth and weather the economic sanctions China imposed. Is it worth going out on an economic limb to prove a point against an economic heavyweight? Probably not. Yet, if China were assuaged with loud proclamations of the ‘One-China’ policy and assured that its own membership would be guaranteed if it met the trade requirements, there may be a chance. Besides, if China is too intransigent, it could face being blocked from joining the CPTPP, even if it adjusts its economic ideology. Huang Kwei-bo from National Chengchi University intimates that Taiwan has a small chance of joining the trade grouping, though this would depend on being ready to meet the required standards of the agreement and if there is consensus among the existing members to allow accession. He believes that these members generally try to balance and harmonise their economic relations with the PRC and are aware of its modus operandi of economically punishing those countries that oppose its wishes.
What would be the pros and cons for Taiwan joining the CPTPP? The TPP was designed to establish high-standard trade rules and norms that would be a benchmark for future trade agreements. By leading the creation of the TPP, the US aimed to shape the economic architecture of the Asia-Pacific region that would reflect its own values and interests by promoting labour rights, environmental protection and intellectual property rights. This is in contrast to the RCEP that has been criticised by the Australian Institute of International Affairs for ignoring labour, human rights, and environmental sustainability issues. Besides its poor record in the fishing industry, Taiwan could match these standards far more easily than China could. Nevertheless, AmCham Taiwan stresses “the importance for Taiwan to harmonize its regulatory framework with those of major economies, ensuring that its trade practices and commercial environment are conducive to international business.” Aligning with international standards is a key step for Taiwan to boost its international standing and attract investment.
Connecting with a wide range of trade partners would help to diversify Taiwan’s trade network and help it integrate more regionally. Joining the CPTPP would grant Taiwan preferential access to markets of member countries, potentially boosting exports of electronics, machinery, and other manufactured goods. Lower barriers could attract foreign investment, enhancing technological advancements and job creation within Taiwan. Moreover, other members would benefit by a new dynamic economy that offers an attractive market, particularly for their agricultural and service sectors. Also, Taiwan's technological prowess could further enhance the integrated production networks within the CPTPP. The fact that Taiwan is an open and inclusive society with a free press is certainly good for the bloc’s image, though it’s doubtful this would be a persuasive factor in an anarchic environment where self-interest dictates policy choices.
If Taiwan were accepted into the trade bloc, then it would help Taiwan diversify from the PRC and be more resilient in trade. This would then lessen the chances of economic coercion from China. However, Gary Ting, a former HSBC Asset Manager Vice Chair, speculates that the most likely outcome is that neither the ROC nor the PRC will be accepted into the CPTPP. He recommends that Taiwan promote its strengths to the world, leverage its semiconductor superpowers and enhance capitalisation in order to attract foreign direct investment. In fact, when the Nationalist Party (KMT) is in power, China allows Taiwan more international agency but restrains it more when the Democratic Progressive Party (DPP) is in power. The new President of Taiwan, Lai Ching-te, considered a separatist by Beijing, was met with the suspension of 134 tariff concessions under ECFA after beating the rival KMT party at the polls. This economic coercion is why Taiwan needs to develop a wider range of trade partners.
Taiwan doesn't have any formal free trade agreements (FTAs) with the European Union (EU), individual EU countries, or the UK. However, Taiwan and the EU do enjoy a close economic partnership and the European Commission states that, “The EU supports Taiwan's meaningful participation in multilateral fora, especially where Taiwan's participation is important to the EU and global interests.” As both Taiwan and the EU are members of the WTO, this provides a basic framework for trade between them. There is also the EU-Taiwan Framework for Cooperation that facilitates regular dialogue and cooperation on various economic and trade issues. There are annual bilateral trade consultations to discuss trade concerns and explore potential areas for collaboration. Thus, despite the absence of formal agreements, trade between Taiwan and the EU has grown significantly over the past two decades and Taiwan became the EU’s 12th largest trading partner in 2022. The EU would like to significantly improve its agricultural exports to Taiwan to help balance trade relations. There have been discussions about establishing a more comprehensive trade agreement between Taiwan and the EU as well as less comprehensive agreements, such as a bilateral investment agreement. In 2023, Taiwan expressed interest in a framework similar to its pact with the US, focusing on areas like technology, green energy, and investment. In his speech at the ECCT’s Europe Day Dinner, President Lai “expressed hope for Taiwan to sign an economic partnership agreement with the EU, which would give businesses on both sides a better investment environment and more business opportunities.” Taiwan's new EU envoy, Roy Chun Lee, believes that this would also allow Taipei and Brussels to put in place systematic channels to exchange information on economic coercion and derisking strategies.
It is in the interests of the world that there is peace and stability in the Taiwan Strait. When Australian lawmakers, including Labor Party member, Josh Wilson, visited Taiwan, then President Tsai Ing-wen called on Australia to support Taiwan’s accession to the CPTPP. Wilson replied by contending that both Taiwan and Australia had a shared interest in a peaceful, stable and environmentally sustainable region that could foster prosperity together and support an open and inclusive Indo-Pacific based on respectful and collaborative participation. Former president Tsai is a cat-lover so a feline analogy might help to encapsulate Taiwan’s predicament in the political world: Taiwan is analogous to Schrodinger’s cat. The whole world knows it’s in its designated box but its status is undetermined: it either exists as a nation state or it doesn’t, depending on how closely it’s examined. Maybe this is what China fears: the box being opened and the world seeing an alive and vibrant Taiwan.
Dr Darryl Lupton is an Australian academic who was a 2023 Taiwan Ministry of Foreign Affairs’ research scholar affiliated with National Taiwan University.
