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Australia’s Free Trade hesitations and why such agreements could be Taiwan’s salvation

There is still a strong case to be made for FTAs with Taiwan and the potential rewards are well worth the effort

Kaohsiung Container Port.

Kaohsiung Container Port. (Wikimedia Commons photo)

It seems that Taiwan’s efforts to secure a Free Trade Agreement (FTA) with Australia are, for the time being at least, on hold. As Taiwan News reported earlier this week, Australian Liberal Democratic Party senator David Leyonhjelm has been chasing up the Australian Government on the proposed Taiwan FTA, which was put on hold after Australia signed a similar agreement with China back in 2015.

The responses he has received reveals a great deal about the level of pressure China exerts on the international community to stop them engaging with Taiwan.

In 2015, after signing their FTA with China, the Australian Government announced that they believed it would be "polite to leave an elegant distance between the deal with China and doing a deal with Taiwan." This can safely be interpreted as China making one of the conditions of their own deal that a similar arrangement with Taiwan did not go ahead.

One China – or no external trade agreements

Now, in response to questioning from Leyonhjelm, the Australian authorities have said that there are concerns that any FTA with Taiwan could jeopardize a similar one with Hong Kong. Despite the so-called "One China, Two Systems" arrangement, Hong Kong is effectively an outpost of Beijing already and this comment makes clear that, once again, China is using its economic clout to stop Australia doing a deal with Taiwan.

The reality is that a country will always put their own economic interests first. An FTA with China will undoubtedly be more lucrative than one with Taiwan. It has a bigger economy than Taiwan and is bigger trading partner with Australia.

This pattern is repeated around the world. Just as it is pressure from China which leads to Taiwan being excluded from most international bodies, so it is the same pressure which stops countries from signing FTA’s with Taiwan.

As a result, Taiwan only has full FTA’s with two countries that are not diplomatic allies (ignoring the Economic Cooperation Framework Agreement with China); New Zealand and Singapore. Both of these were signed under the Ma Government when relations with Beijing were good. It is therefore likely that both were approved by Beijing.

Trade for Diplomacy or Diplomacy for trade?

However, both have seen significant improvements in trading relations, with New Zealand’s exports to Taiwan growing by a huge 25% the year after they signed their deal in 2013. They also offer an important precedent.

Both New Zealand and Singapore continue to have effective free trade deals with both China and Taiwan without any undue political or economic recompense from the Chinese Communist Party. This is absolutely as it should be and should be used by Taiwan to push for more of the same elsewhere.

In responding to Leyonhjelm, Australian Senate leader George Brandis noted that any FTA with Taiwan "would have to be consistent with our One China policy." But these two issues must not become convoluted. Signing an FTA with Taiwan does not require countries to recognize Taiwan or to renounce their acceptance of the "One China" policy. Neither New Zealand nor Singapore has done so.

And there is further precedent. If we accept, for a moment, the Australian position that Taiwan is, like Hong Kong, a part of China, then the fact that Australia requires a separate FTA with Hong Kong shows that China acknowledges that the economy of their so-called "Special Administrative Regions" is separate from that of the mainland. It is therefore perfectly logical for countries to sign trade agreements with Taiwan as they do with Hong Kong.

If further evidence is needed, then look at China, which has itself signed a form of FTA with Taiwan in the Economic Cooperation Framework Agreement. Any efforts to stop FTA’s with Taiwan now are clearly politically motivated and the international community should overlook them.

That will require countries like Australia to show some moral fortitude though and, sadly, this appears to be in short supply right now. As Leyonhjelm is quoted as saying in the Australian Financial Review, “I'm concerned that the government has caved in to pressure from China and that an FTA with Taiwan is no longer on the agenda. While trade with China will always be greater, we should not abandon our values and principles.” Sadly, for now, at least, they have.

In the circumstances, as well as making this case forcefully, Taiwan may need to do more to sweeten the deal. They must successfully argue that an FTA with Taiwan is in the best interest of Australia and other countries. This will likely mean offering economic incentives, tax breaks and subsidies, to tempt governments to take the risk. It will also mean making the case that while China might threaten repercussions for signing a deal, their economy is sufficiently brittle that they are unlikely to act on it.

Just one FTA could lead to many more

To set the ball rolling, Taiwan needs to persuade just one significant country to sign up. That seems unlikely to be Australia, but there are other contenders. India has shown itself to be open to closer economic ties with Taiwan of late and currently has a strained relationship with China, to say the least. Japan is another big economy in a similar position.

There have also been suggestions of a post-Brexit FTA with the UK. Britain will be looking to build strong new economic links everywhere once it is freed of the shackles of the EU and there is no reason why Taiwan should not take advantage of this as other nations are primed to. Whoever it turns out to be, one nation signing up could prompt others to follow

Another area to look at is Tsai’s new Southbound policy. So far, this has focused on boosting soft-diplomatic ties and has enjoyed some notable successes. Exports to the eighteen countries targeted grew by 13.5% in the first half of 2017. The time will come to try and move this onto a more formal basis and it has a good chance of success, especially with those regional neighbors who are not totally in thrall to Beijing.

The potential benefits to Taiwan are huge. As well as the obvious boost to the economy that such trade deals bring, they will also boost Taiwan’s presence in the international space. And they will enhance Taiwan’s security. The more economic interests the global community has in Taiwan, the more likely they are to support Taiwan if China’s military threats are ever realized.

Open trade with the international community is the pinnacle of diplomatic achievement for Taiwan right now. It is the key to the country’s economic prosperity, its security, and its long-term future. And by making its case forcefully and showing the flaws in the stance that Australia and others have taken, Taiwan has the potential to make some giant strides forward.