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The EU-Taiwan balancing act

Almost two years ago, the EU launched its first Indo-Pacific strategy in which, among others, it vowed to press ahead with trade agreements in the region and to deepen its digital and supply chain resilience conversations with a range of Asian countries.

Taiwan also featured in the strategy.

So where does the EU Taiwan trade relationship stand now?

Deeper below-the-radar ties between Taiwan and EU member states

Formal EU Taiwan trade and investment relationships remain largely ‘under the radar’. The modest pledges the EU has made in increasing cooperation with Taiwan remain only half-fulfilled.

There clearly has been more attention paid to Taiwan in Europe both in Brussels and in a range of EU member states. The rapprochement has run in parallel to a growing wariness of Beijing’s global economic policies and geopolitical ambitions.

China’s ambivalent position towards Russia following its invasion of Ukraine has led a range Central and Eastern European member states to distance themselves – at least partly – away from Beijing whilst seeking closer ties with Taiwan.

These countries see Taiwan as a fellow democracy whose existence is put in jeopardy by an imperialistic power next door.

Taiwan’s official relationships with the two EU giants Germany and France – both countries not keen to rock the diplomatic boat with Beijing – have also improved in recent months.

Germany’s education minister Bettina Stark-Watzinger was the first government representative to visit Taiwan officially in March 2023. Although there was no official meeting with France’s economy minister Bruno Le Maire, Taiwan’s economy minister Wang Mei-Hua was able to visit Paris in June.

New MoUs with EU member states – but none at EU level

For many years now Taiwan has sought to formalise its trade and investment relationships with the EU.

Taiwan’s relationships with MEPs and the European Parliament have been strong and long-standing. But no equivalent relationships have emerged with the European Commission.

Taiwan, an industrial and tech powerhouse, is losing out in its trade with Europe as its economic competitors such as Japan and Korea enjoy ever deeper integration with the EU’s single market thanks to bilateral free trade agreements and new ‘digital partnerships’.

A 2015 European Commission pledge to start investment agreement negotiations with Taipei has gone nowhere.

The 2021 Indo-Pacific strategy however states that “the EU will also pursue its deep trade and investment relationships with partners with whom it does not have trade and investment agreements, such as Taiwan”.

The document also says that the EU “will work with its Indo-Pacific partners to reinforce value chains by strengthening and diversifying trade relations, implementing existing trade agreements, finalising ongoing trade negotiations and developing cooperation in strategic sectors, including to address strategic dependencies in supply chains.”

More specifically, “for semiconductors (…) it will do so with partners such as Japan, the Republic of Korea and Taiwan”, the document says.

“An investment agreement [with the EU] remains the first priority” for Taiwan, explained C C Chen, Taiwan’s deputy economic minister in a recent conversation with Borderlex in Brussels.

“We would be open for other trade agreements such as a mutual recognition agreement on technical standards,” Chen said.

But the European Commission has not dared take any step in the direction of a formal agreement with the authorities in Taipei.

Green tech cooperation doing better than semiconductors?

There is no sign that a modest, legally non-binding instrument such as a memorandum of understanding is on offer.

Despite the fact that Taiwan produces 60% of the world’s semiconductors, no MoU in this area is in sight.

In contrast, the EU is pursuing an MoU on semiconductors with India, a country that has merely begun to put itself on the radar screen of global industrial supply chains in this sector.

Individual EU member states – most recently in Central and Eastern Europe – have signed MoUs with Taiwan in topic areas covering technical standards, semiconductor cooperation, and ‘good regulatory practices’.

There are no international legal obstacles to signing economic agreements with Taiwan.

Despite not being an independent state, Taiwan is an independent customs territory. Taiwan is a full-fledged member of the World Trade Organization and has signed a range of bilateral free trade agreements, including one with China itself.

Taipei is engaged in formal trade rule negotiations with the United States, a country that also claims to pursue a ‘One China’ policy. Taiwan is part of a semiconductor discussion with South Korea, Japan and the United States called Chip 4 – and the EU is not part of it.

This lack of progress has prompted MEPs such as Reinhard Bütikofer, who chairs the European Parliament’s delegation to China, to propose that the EU and Taiwan establish a ‘supply chain resilience’ agreement.

An accompanying study commissioned by Bütikofer’s Greens Group spells out what such an agreement could entail. The deal, says the study, “should ensure transparency, regulate export restrictions and improve the regulatory framework” and cover semiconductors, green energy and the health sector.

It should also address market access issues as well as labour rights and environmental standards.

EU Taiwan ‘dialogue’

The European Commission has given a slightly higher profile to its Taiwan engagements by agreeing to hold an annual Trade and Investment Dialogue with Taiwan in 2022.

This enhanced ‘dialogue’ format is held at director-general level with the directorates-general for trade and industry DG Trade and DG Grow.

Other EU partnerships and dialogues – not least those with Japan and South Korea – are held ‘at ministerial level’, i.e. they involve executive vice-presidents of the commission on the EU side and relevant ministers on the side of the counterparts.

The second EU Taiwan dialogue took place last April. The parties took stock of a range of “technical exchanges” that had taken place over earlier months “on semiconductors, research and innovation, foreign direct investment screening and export controls”.

For Taiwan these conversations are vital.

Speaking last May at an event hosted by the Brussels branch of the German Marshall Fund, a US think tank, Roy Chun Lee, deputy minister of foreign affairs of Taiwan said that he had “a humble request for the EU”, which is “to ensure that suppliers will receive equal treatment as our competitors”.

Taiwan also wants to be part of the domestic EU conversation on semiconductors as it rolls out its industrial policy under the EU Chips Act , where subsidies are offered to non EU companies to set up factories on its soil.

“Non-discriminatory treatment in terms of access to funding and other facilitations under the EU Chips Act is very important,” said Roy Chun Lee.

The European Commission for its part would have liked to see Taiwanese semiconductor firms pledge major factory investments in Europe. But these have not materialised yet, although Taiwan’s advanced semiconductor producer TSMC has expressed interest in doing so.

The question is whether EU and member state subsidies funds will make the business proposition attractive when TSMC has already pledged to set up large fabs in the United States and in Japan.

Green tech developments

Whilst the EU Taiwan conversation on semiconductors is not making much visible progress, it has moved in other, perhaps more unexpected areas.

Taiwan is host to automotive component firms that are actively seeking to find their niche and make their mark in the global race to switch to electric vehicles.

Taiwanese firms have taken advantage of the EU’s relevant industrial policy. Taiwanese electric battery firm ProLogium announced €5.2 bn worth of investments in Northern France last May.

Taiwan itself is seeking industrial partners in its quest to reduce its carbon footprint and reach its own net-zero climate targets.

Taiwan wants to increase the share of its renewable energy production – whilst phasing out coal-fired and nuclear electricity plants.

EU firms active in the renewable energy field are wary of Taiwan’s onerous planning and local content requirements to develop onshore and offshore wind farms.

In June Taiwan signed a memorandum of understanding with Poland on hydrogen. Poland wants to develop its hydrogen industrial capacity, whereas energy import-dependent Taiwan, in its pledge to decarbonise its industry, is seeking new suppliers.

Digital conversations between Brussels and Taipei have also been stepped up.

“The EU and Taiwan agreed to engage in expert discussions on digital trade facilitation measures such as e-invoicing and e-signature, with a view to lowering transaction costs and increasing economic efficiency for both EU and Taiwanese businesses,” the EU announced after their April meeting.

But the level of policy engagement is a far cry from the formalised digital partnerships and and digital chapters in FTAs currently under negotiation between the EU on the one hand and Japan and Korea on the other.

Most importantly there are no signs of concrete follow-up on Brussels’ Indo-Pacific strategy’s statement that Taiwan might be a candidate – alongside countries such as Thailand or Sri Lanka – to receive an ‘adequacy’ decision for its personal data privacy protections. Such a decision could boost digital ties. Japan and Korea already enjoy the EU’s adequacy status.

Taiwan’s very own balancing act

The EU might well be extremely cautious and ambivalent in its dealings with Taiwan, Taiwan itself is treading carefully in its public appearances and statements in Europe.

Taiwan benefits from the greater attention it has gained in EU capitals and the wider European public.

But the global attention is also a double-edged sword, as it breeds military threats from Beijing and diplomatic crises to manage – whilst dividing Taiwanese society itself ahead of general elections in 2024.

When the G7 leaders gathered in Hiroshima last May to issue unusually strong wording condemning Chinese ‘economic coercion’ and support for Taiwan, they provoked Beijing’s ire.

Taiwan needs to nurture and secure its investments in China – it is one of the main foreign investors on the mainland. It has strong economic and human ties with the land across the Taiwan Strait.

“Despite Taiwan’s regulations limiting outbound foreign investment, today, over 50 percent of Taiwanese companies’ total stock of foreign direct investment remains located in mainland China,” the Peterson Institute for Economics Chad Bown reminds us.

Taipei does not want to be seen as provoking a rupture in the fragile territorial status quo with mainland China, whereby it remains a de facto independent state whilst not being internationally recognised as a state that is independent from China.

“Our trade policy is to stabilise relations with China, to connect with like-minded economies and to integrate our supply chains by signing agreements,” minister CC Chen said.

Taiwan also wants to remain the world’s prime location for semiconductor production. It does not want increased international tensions to force it to relocate production too strongly as the global economy fragments.

Taipei’s officials consistently tell trading partners that are concerned about semiconductor supply chain disruptions that the best way to do so is to ensure stability in cross-Strait relations and make sur Beijing too understands this message.

“Peace and stability of the Taiwan Strait is a matter of importance for European countries,” said Roy Chin Lee. “[It] is an important element to ensure the resilience and stability of the semiconductor supply network.”

EU capitals seem to understand this message.  Their June 29-30 Council conclusions include precisely this kind of statement. Council conclusions are good barometer of an always fragile consensus among 27 member states.

“The East and South China Seas are of strategic importance for regional and global prosperity and security,” the conclusions say.

“The European Union is concerned about growing tensions in the Taiwan Strait. The European Council opposes any unilateral attempts to change the status quo by force or coercion. It reconfirms the EU’s consistent ‘One China policy’.”

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