Negotiators from the US and Taiwan met recently to discuss the next round of negotiations for the “US-Taiwan Initiative on 21st Century Trade.” When trade negotiations were launched in 2022, it was apparent that, as trade talks between the two sides progressed, the issues they would discuss would only become more politically sensitive. The most recent negotiations included three relatively sensitive areas: agriculture, environment, and labor.
If negotiators can reach an agreement soon, this will be a significant achievement for US-Taiwan trade negotiations. It will also mean that more than half of the 11 areas of negotiations initially planned will be complete – with only digital trade, standards, state-owned enterprises, and non-market policies and practices remaining as the primary areas still waiting to be addressed. Whether an agreement can be reached soon will also be a litmus test for the Congressional oversight that now looms over these trade negotiations.
This article will examine the progress that has been made on the US -Taiwan Initiative on 21st Century Trade (hereafter “Initiative”), and consider potential paths forward for the future.
Quick timeline of events to date
On June 1, 2022, the US and Taiwan announced the launch of the “Initiative on 21st-Century Trade.” Two months later, on August 17, 2022, the US and Taiwan agreed on at least 11 areas for negotiations as a part of their negotiating mandate. Nine months later, on May 18, 2023, both sides announced that they had reached an initial agreement on the first round of negotiations. This initial agreement was formally signed on June 1, 2023. It covered four of the 11 initial areas of negotiation—customs administration and trade facilitation, regulatory practices, anticorruption, and small and medium-sized enterprises—and included a chapter on services.
On August 7, 2023, a bill was signed approving the first US-Taiwan trade agreement. Less than two weeks later, On August 18, 2023, the United States and Taiwan held negotiations for the second US-Taiwan trade agreement. The proposed text included three of the 11 areas of negotiation: agriculture, environment, and labor. These negotiations continued on April 29, 2024. These events do not include the virtual meetings held between trade negotiators over the preceding year. And there was also no indication as to whether negotiators were anywhere near coming to an agreement on a second trade agreement anytime soon.
Agriculture, environment, and labor
In August 2023, the Office of the US Trade Representative (USTR) released a report noting that the next round of negotiations between Washington and Taipei would cover the areas of agriculture, environment, and labor. Last month, on April 5, USTR released a summary of its proposed text in regard to these three areas. Additionally, at the end of April officials met in Taipei to further negotiate a second agreement.
What USTR has initially proposed should come as no surprise to those who have been following US-Taiwan trade relations. On agriculture, two big issues that have haunted US-Taiwan trade negotiations for years have been: (1) expanding American exporters’ access to the Taiwan market; and (2) making sure that there is regulatory transparency in the process. US trade negotiators have continued to emphasize the need for science- and evidence-based decision making when it comes to regulating the flow of agricultural and farm products. The summary of the proposed text also highlights the need for greater consideration of food safety and sustainable agriculture production.
This leads into the next area of consideration: the environment. In regards to environmental issues, quite a few items were tabled. Such topics included the continued availability of resources, responsible business conduct, sustainable finance, environmental justice, air quality, marine litter, plastic pollution, wildlife trafficking, sustainable forest management, and conservation. An overarching goal appears to be ensuring that the domestic environmental laws of both countries are effectively enforced, and not diminished in an effort to attract trade or investment. To this end, the proposed text will also seek to create an “Environment Committee” to oversee the implementation of the commitments set forth in the chapter.
Finally, the proposed text contains a section on labor, including a focus on labor rights in supply chains and on distant water fishing vessels. It would ensure each side adopts and maintains internationally recognized labor rights and protections for whistleblowers. The chapter includes provisions for the use of migrant workers. It directs the two sides to identify and collaborate on emerging labor issues – such as labor rights of workers in the digital economy, or those on deep sea fishing vessels. It includes a mechanism to address forced labor in supply chains. Finally, USTR proposed establishing processes and mechanisms for the two sides to maintain regular communication and cooperation on labor issues.
Of these three areas, historically speaking, agriculture (and farm) trade has been one of the most sensitive topics for US-Taiwan trade negotiators. Given that the Biden Administration has placed workers’ interests at the center of their trade negotiations, the chapter on labor will likely be the greatest concern for American negotiators this time around.
Congressional oversight
On August 7, 2023, President Biden signed into law the US-Taiwan Initiative on 21st-Century Trade First Agreement Implementation Act. This law not only established Congressional approval of the first US-Taiwan agreement (and therefore made it a binding agreement), but also looked to create greater Congressional oversight for future US-Taiwan trade negotiations. As the White House noted, however, it would consider any provision of the law that hindered its ability to negotiate with Taiwan as non-binding. This was done in order to ensure that future negotiations would not be slowed down by excessive Congressional oversight during the negotiation process.
The law also established that if US-Taiwan trade negotiators are able to come to another agreement, that this too would require a bill to be enacted to approve the agreement. This first bill was passed relatively quickly, clearing both the House and Senate within just a couple of weeks after being introduced. The next agreement may be just as quickly welcomed in Congress. While this process seems piecemeal, it is arguably the best path at the present time towards establishing a comprehensive US-Taiwan bilateral trade agreement.
The US-Taiwan (First) Trade Agreement
For years, policy experts have been calling for the US and Taiwan to establish a free trade agreement. When Congress (and the Legislative Yuan) approved the first agreement between the United States and Taiwan last year, they essentially established the first US and Taiwan trade agreement. While this first trade agreement is not a comprehensive trade agreement along the lines of a free trade agreement, it has greater Congressional approval than other agreements – such as the US-Japan Critical Minerals Agreement (CMA).
It is worthwhile noting that the CMA was never approved by Congress, and therefore is not a legally binding trade agreement. However, the Treasury Department proposed a rule saying that the CMA was a trade agreement insofar as it lets Japanese companies apply for US electric vehicle credits as a part of the Inflation Reduction Act. Furthermore, the USTR currently lists the CMA on its website for current US trade agreements. While it is not listed on USTR’s website, it’s fair to say the first agreement under the US-Taiwan Initiative on 21st-Century Trade represents the first official trade agreement between Taiwan and the United States.
Snapshot of US-Taiwan Trade
Despite the recent negotiations on agriculture, environment, and labor, US-Taiwan trade continues to be primarily driven by the trade in electronics. The growth in exports from Taiwan to the US over the last 10 months has been driven exclusively by increased demand for data servers and computer processors (including GPUs), fueled by the recent demand boom for artificial intelligence (AI) services. Compared to the same period a year earlier (between June 2022 and April 2023), a tally of exports to the US excluding servers and CPUs would have been down 7.6 percent. When I wrote a preceding piece in February on Taiwan’s trade prospects, and the potential decrease in exports this year, I did not expect such a quick surge in demand for AI products.
An election on the horizon
In the wake of Taiwan’s successful election earlier this year trade negotiations have continued, even as the next administration in Taipei has yet to officially begin. However, there is widespread expectation that the incoming Lai Administration will see significant continuity with the outgoing Tsai Administration. The real question on everyone’s mind is: What will the outcome of the upcoming US election be, and how might it affect US-Taiwan trade negotiations?
This uncertainty around the US presidential election may incentivize US-Taiwan trade negotiators to come to a deal on a second agreement sooner rather than later. (Or at least, getting something agreed upon and put before the Congress and the Legislative Yuan before the end of this year.) Looking towards November and what it could mean for US-Taiwan trade relations next year, if Biden wins again, we can expect a lot of continuity on this account as well. However, it is questionable whether trade talks will progress if Trump wins again, as his first term in office prioritized trade negotiations with Beijing over Taiwan. And, it is apparent that trade negotiations with Beijing would be a priority for his second administration, as well.
The main point: US-Taiwan trade negotiations are continuing to make progress. The ongoing negotiations for a second agreement cover more sensitive issues and may take longer to reach an agreement. However, the uncertainty surrounding the upcoming US presidential election may encourage trade negotiators to reach a deal sooner than later.
