SERIES: Brookings East Asia Commentary | Number 57 of 81 « Previous | Next »

Getting Beyond Beef in U.S.-Taiwan Relations

During Taiwan’s recent presidential election campaign, it was clear that the U.S. government’s preference – despite repeated official avowals of neutrality – was to see the Kuomintang’s Ma Ying-jeou returned to office for a second term. From the American perspective, Ma’s first four years in the presidency had delivered what was most important: improved relations with China, greatly reducing the risk that Washington would be drawn into a conflict in the Taiwan Strait. The prospect of a return to power by the opposition Democratic Progressive Party stirred painful memories in Washington of its tense dealings with the former DPP administration under Chen Shui-bian. In the years before leaving office in 2008, Chen had constantly infuriated Beijing – and frustrated Washington – by pushing an agenda that seemed aimed at departing from the status quo to promote Taiwan’s explicit separation from China.

Evidence of a U.S. tilt toward Ma came last fall with a controversial Financial Times report quoting a senior U.S. official as expressing doubts about DPP candidate Tsai Ing-wen’s ability to manage the delicate cross-Strait relationship. Visiting Taiwan just before the balloting in mid-January, Douglas Paal, a former director of the American Institute in Taiwan (in which position he was the de facto U.S. ambassador) expressed his understanding that the “private feelings” of senior American officials were that “the assurances given [by Tsai] about cross-Strait management in the Tsai administration were too vague to make Washington comfortable” – in effect, confirming the Financial Times report. There was also speculation in the media as to whether the series of high-ranking American officials to travel to Taiwan in recent months, including Deputy Secretary of Energy Daniel Poneman, the most senior such visitor in 12 years, was purely coincidental or designed to demonstrate support for Ma’s candidacy.

While Ma improved U.S.-Taiwan relations in large part by enhancing peace and stability, however, not all was well with the U.S.-Taiwan relationship. Heading the list of U.S. concerns, in a testament to the political sensitivity of agricultural issues, have been Taiwan’s restrictions on the import of certain American beef products. Consternation in the U.S. executive branch and some influential offices on Capitol Hill has been so great that the U.S. side has refused to hold what used to be routine annual trade negotiations (the so-called “TIFA talks” under the Trade and Investment Framework Agreement signed in 1994) while beef remains an unsettled issue. Those talks have not been held now since 2007. In addition to the challenges this poses to simply maintaining trade relations, until the beef controversy is resolved there seems little likelihood that the U.S. government will contemplate any new major economic initiatives with Taiwan, such as bilateral tax or investment agreements or even championing Taiwan for future membership in the Trans-Pacific Partnership (TPP) trade pact.

Although it considered itself well-versed on the beef issue, an American Chamber of Commerce in Taipei delegation that visited Washington last autumn was still surprised by the vehemence of the criticism of Taiwan it heard from American officials on the subject. One high-level official described Taiwan flatly as “an unreliable trading partner,” for example, while another said the disagreement over beef had “cast a pall” over the entire bilateral relationship. Beef had taken on a symbolic importance far out of proportion to its monetary value of less than 1 percent of U.S. exports to Taiwan.

The background is that the two governments signed a protocol in October 2009 lifting most of the remaining restrictions on U.S. beef products that Taiwan had put in place following the discovery of a case of mad cow disease in 2003. Just two months later, however, the Taiwan legislature – in which Ma’s Kuomintang controlled some three-quarters of the seats – enacted a law that reversed some of those very provisions. Despite resentment at what it regarded as Taiwan’s reneging on the protocol, the U.S. government by early 2011 was willing to start preparations to resume TIFA talks. Then another obstacle arose when Taiwan rejected some shipments of beef found to contain traces of the leanness-enhancing feed additive ractopamine. Though ractopamine, widely used by American ranchers, had long been a banned substance in Taiwan, inspectors had not previously tested for its presence. Random inspections, and the rejection of many shipments, have continued over the past year, and the uncertainty has caused some big buyers such as Costco to switch to other sources of supply.

Whenever questions were raised last year about finding a solution to the impasse, Taiwan officials responded that nothing could be done before this January’s elections, for fear of sparking protests from consumer and farming groups that could escalate into a campaign issue. Although no promises were made about what might happen after the election, this month has seen a flurry of public comments from government officials and scholars that appear to be preparing the groundwork for a change in policy. Inter-agency discussions are currently taking place among the Council of Agriculture, Department of Health, and Ministry of Economic Affairs.

The likely way forward would be to replace the current zero tolerance of ractopamine with a defined limit on the amount permitted. In fact, in 2007 Taiwan had notified the World Trade Organization (WTO) of its intention to set such a Maximum Residue Level (MRL), though it never followed through. But a major question mark would be whether Taiwan would propose – and the United States agree to – a compromise in which an MRL would be set for beef but not pork. Taiwan has no beef industry to speak of, but hog-raising is big business, and the pig farmers, who are politically well organized, are adamantly opposed to opening the door to competition from American pork.

Although the U.S. government and meat industry insist there is no scientific basis for a total ban on ractopamine, the Taiwan public may not be so easily persuaded, especially after several major food-safety scares in recent years. And the political delicacy of the whole issue was driven home two years ago when Su Chi, one of Ma’s most trusted lieutenants, was forced to resign as head of the National Security Council after his efforts to resolve the matter through the protocol with the U.S. were undercut by the legislature. It would therefore require a measure of political will and some skillful maneuvering to reach a solution, though acting four years before the next presidential election is perhaps the best time to risk taking a political hit.

If the two sides can get past the beef dispute, what would the TIFA talks be expected to deal with? Part of the agenda would undoubtedly be devoted to exploring areas for potential bilateral cooperation, for example in green-energy research. But of greatest interest to the U.S. business community would be discussion of problems that American companies are facing in Taiwan in terms of regulatory barriers. Among the industries that have been most affected:

  • Pharmaceuticals. Under Taiwan’s National Health Insurance reimbursement program to healthcare providers, locally produced generics receive some of the highest prices in the world compared with the original drugs, while innovative medicines from international suppliers are often priced so low that the manufacturers are unwilling to launch the product in the Taiwan market. Medical-device companies face a similar problem of extremely low reimbursement levels for innovative items.
  • Financial services. Contrary to the international trend for cross-border outsourcing of services such as data processing, Taiwan’s Financial Supervisory Commission is asking foreign bank branches and subsidiaries to submit plans to bring the performance of those services back onshore within the next several years.
  • Infrastructure. Although Taiwan has signed the Government Procurement Agreement under the WTO, U.S. engineering companies still feel discouraged from bidding on many public projects because of unfavorable contract terms and conditions, especially regarding liability.
  • Retail. Consumer goods suppliers and retailers complain about unreasonable and often unique-to-Taiwan labeling requirements and other regulations.
  • High-tech. Although Taiwan has done a great deal over the past decade to improve its intellectual property protection, a new and growing problem is proprietary information flowing to China through employees hired away by Chinese competitors. Penalties for violations of the Trade Secrets Law are so lenient as to serve as little deterrent.

One message that U.S. officials would presumably deliver at TIFA talks is that Taiwan will need to do more to fully open up its economy and accept international standards if it wishes to be seriously considered for TPP membership. President Ma has expressed Taiwan’s intention to join the TPP, but within a 10-year timeframe. That seems unduly long if Taiwan is to maintain its international competitiveness, particularly when its main trade rival, Korea, has already negotiated free trade agreements with the U.S. and European Union.

At least for now, however, commercial activity between the U.S. and Taiwan continues to be robust. Last year, Taiwan remained in ninth place among U.S. trading partners, with total two-way trade reaching $62 billion. In other measures of the depth of the relationship, Taiwanese citizens annually make some 300,000 trips to the U.S. and nearly 25,000 Taiwanese students are enrolled in American educational institutions, the fifth largest national contingent.

Though the beef dispute has soured attitudes toward Taiwan in certain official quarters in Washington, the displeasure does not seem to have carried over into aspects of the relationship other than trade. A clear example was the State Department announcement in December that Taiwan has been nominated for inclusion in the U.S. Visa Waiver Program, having met all the basic criteria. Still pending is a review of Taiwan’s homeland security and immigration procedures, and a final step may be for Taiwan to differentiate its regular passports more clearly from the “compatriot passports” it issues to some overseas Chinese who lack the right to residence in Taiwan. It appears likely that Taiwan could formally qualify for visa waiver status in the second half of this year. Given the Taiwanese love for overseas travel and willingness to spend money, the expected upswing in Taiwan tourists to the U.S. would be good news for the American travel and retail sectors.

The idea of seeking an extradition agreement with the U.S. was previously mentioned almost as frequently as visa waiver by the Taiwan authorities, but more recently the notion seems to have been dropped. As eager as the Taiwan government was to get back criminals who had fled to the U.S., it may have seen a political downside to the obligation of turning over American citizens – who might also include Taiwanese with dual nationality – for prosecution of such offenses as tax evasion, insider trading, and price rigging.

Another aspect of the relationship treated independently from the beef issue is arms sales, in line with the requirement in the Taiwan Relations Act that the U.S. provide Taiwan with the wherewithal needed to maintain its defense capability. Of course, just what weaponry is needed to meet that standard is the subject of frequent debate, and Taiwan’s supporters in Congress have been pushing hard for the U.S. to sell F-16C/D fighters to strengthen the island’s air power. So far, the U.S. has agreed only to a retrofit program to upgrade Taiwan’s existing fleet of 145 F-16A/B aircraft.

Though many of Taiwan’s backers in the U.S. view that as an indication that Washington has given in to Chinese pressure, the State Department and Pentagon insist that the decision on the more advanced C/D models is still open. They also cite the record $12 billion in arms sales approvals to Taiwan in the past two years as proof of a continuing U.S. commitment to Taiwan’s security. Besides the F-16A/B retrofits, the major items have included PAC-III anti-missile missiles, Blackhawk helicopters, radar systems, and command-and-control equipment. U.S. officials also point to the increased interaction between the two armed services in recent years for training Taiwanese military officers and consultation on security issues.

At the same time, the U.S. government has been dismayed that the Ma administration has not done more to enhance Taiwan’s own defense posture. A frequent yardstick is the proportion of GDP devoted to the defense budget. Ma had pledged to raise that level to 3%, but so far the goal has not been met.

But if Taiwan’s priority in Ma’s first term was to reduce cross-Strait tensions and build more cordial relations with China, even if that meant taking the U.S. somewhat for granted, that attitude may change in the second term. The easy cross-Strait economic gains – direct flights, the opening to mainland tourism, a limited easing of restrictions on Chinese investment, and the “early harvest” two-way tariff concessions under the Economic Cooperation Framework Agreement ¬– have already been achieved. Completing the rest of ECFA, including an investment dispute-resolution mechanism and the equivalent of a comprehensive free trade agreement, will involve much tougher negotiations.

Further, Beijing is expected to want to move on to more politically sensitive measures, such as a peace agreement, in hopes of securing Taiwan’s placement on the course to eventual unification while Ma is still in office. The resurgence of the DPP in this past election would give them no confidence that Ma’s successor would necessarily be from the Kuomintang.

With China pushing for additional concessions, Ma may well feel the need to balance that pressure with closer alignment with the U.S. – at the same time seeking to woo more international investors to Taiwan in hopes of keeping the island's economy from becoming even more dependent on the Chinese market. But Taipei – as well as Washington – is likely to hear some vociferous complaints from Beijing over any signs, such as the dispatching of American cabinet-level officials on visits to Taipei, that the U.S.-Taiwan relationship is being upgraded. China was relatively silent about the Poneman trip, visa waiver nomination, and the F-16A/B retrofit program when those could be viewed as aiding Ma's reelection chances, a cause it also favored. Beijing may no longer be so accommodating, however, now that the election is over.

For its part, the U.S. in recent years was sufficiently preoccupied with Iraq, Afghanistan, North Korea, and other problems – including its own dealings with China – that it hardly minded if Taiwan concentrated on cross-Strait relations, removing another potential flashpoint from the map. But with a pivot to greater U.S. attention to Asia under way, Washington may assign greater weight to Taiwan’s strategic location and contribution to regional security.

In the meantime, a $225 million building project in the Neihu district of Taipei symbolizes the U.S. expectation that it will remain heavily involved in Taiwan for many years to come. When construction is completed in 2015, the site will be the new home for the American Institute in Taiwan, the organization that serves as the U.S. embassy in all but name – providing a brick-and-mortar reminder of the U.S. commitment to Taiwan.

—Don Shapiro, who has worked as a journalist in Taiwan for more than 40 years, is senior director of the American Chamber of Commerce in Taipei and editor-in-chief of its Taiwan Business Topics magazine.

SERIES: Brookings East Asia Commentary | Number 57