A U.S.-Taiwan Free Trade Agreement is Very Unlikely

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Dec. 14, 2023
By: Chaney A. Finn

We have observed over the last year the evolution of free trade agreements from what used to be driven solely by lower tariffs, to what now trends towards bilateral agreements that establish a “deeper economic engagement” with trading partners. Such engagements extend beyond market access and reduced tariff and duty amounts by including provisions such as environmental and labor standards. We have also reported on the Congressional backlash to these types of agreements.

The U.S. heavily depends on Taiwan for critical semiconductor manufacturing. Consequently, a trade agreement between Taiwan and the United States could be beneficial to both parties. However, the U.S. relationship with the island nation is complicated since Washington does not recognize Taiwan as an independent country but is legally bound to support its defense capability. Formally, the U.S. has instituted a One China policy which recognizes the Peoples Republic of China as the “sole legal Government of China” which includes Taiwan. This means that Taiwan’s trade and diplomatic status tie into the larger and yet more complicated relationship between the U.S. and the People’s Republic of China.

Despite the official relationship with Taiwan, the U.S. has moved towards strengthening trade and influence with the island. The U.S. bypasses limitations imposed by the lack of formal diplomatic relations by conducting negotiations between the American Institute in Taiwan and the Taipei Economic and Cultural Representative Office in the United States, allowing the entities to serve as the "designated representative" for each side. This was the main takeaway from the conclusion of the U.S.-Taiwan Initiative on 21st Century Trade negotiations that were conducted in early 2023.

Taiwan’s top trade negotiator, John Deng, recently expressed the intent to expand the scope of the two sides’ initial bilateral trade pact to something that looked more like an FTA. In an interview, Deng stated “One goal is to expand the coverage, more topics like agriculture, labor. Second is the market access issue, that is tariffs. We hope that one day the U.S. government is ready for tariff talk.”

Deng’s ambitions were curbed as U.S. Trade Representative, Katherine Tai made a case that the U.S. was not moving forward with any trade agreements at the moment. During a public conference, Tai stated that the U.S. was dealing with “different geopolitical tensions” during the U.S.-Taiwan Initiative on 21st Century Trade negotiations, however the previous negotiations were touted as “excellent progress” that would continue to be looked at to build upon during times that were less “challenging.”

The future for the U.S. and Taiwan does not look to be less challenging in the foreseeable future. China has reiterated its belief that Taiwan is part of China with military shows of force. Meanwhile, in addition to their own shows of force, the U.S. and allies have been busily creating structures like the Indo-Pacific Economic Framework for Prosperity which is intended to advance economic cooperation and resilience in the region. Thus, despite the current stall in negotiations between the U.S. and Taiwan strengthening trade ties remains an important strategic priority for the United States. It just probably won’t be through a free trade agreement.

Should you have any questions on trade agreements, supply chain management, or any other trade-related questions, please contact any attorney at Barnes, Richardson & Colburn LLP.