DAVA Mercantile Digest no. 3 by Horia Ciurtin, Senior Expert & Founder
(also see in .pdf format)
At the Crossroads of Global Trade: Understanding Taiwan’s Mercantile Position
From a geoeconomic perspective, Taiwan represents a hot spot that unites the flows of goods and capital from near mainland China, from the South-East Asian cauldron, as well as a bridgehead for Western transoceanic commerce and investment. Not truly an island (in the sense of isolation), but a focal meeting point between two seas and an (open) ocean, Taiwan strategically lies in one of the best positions in opening up the Asian markets to larger influxes of EU-based products and capital.
Economically speaking, the relation between the supra-national European entity and the quasi-national Taiwanese one presents quite balanced trading features and a totally asymmetric degree of FDI. Thus, according to the 2017 EU Factfile on the matter, in 2016, while Taiwan exported goods and services in value of around 29.4 billion EUR to the European conglomerate, the EU exported somewhat less to Taiwan, around 24.2 billion EUR. On the other hand, the FDI situation is reversed in respect to the two actors: while the investment stocks originating from the EU rose (in 2015) to approximately 12 billion EUR, those of Taiwan within Europe are of 1.45 billion EUR.
In this regard, the European Union is the most prominent investor in Taiwan, representing more than a quarter of all the FDI received by the insular entity. The striking disequilibrium between the investment flows in and out of Taiwan is paradoxical in the conditions in which this particular Asian economy invests in other parts of the world at a much higher level (for example in the Caribbean, its investments flows are 4 times higher than in the EU) or at a similar level with its EU investments, despite not receiving the same investment inputs (for example, in Vietnam or Japan). Moreover, when looking at the accumulated investments in the 1952-2014, it appears that the EU ranks first in Taiwan, while the island’s investment in the EU is only the 7th destination of its funds, ranking far below the Caribbean zone, the US, Singapore or Vietnam.
This asymmetric investment relation between EU and Taiwan takes place in the context of a European adherence to a formal strict One China policy, in line with its member states and transatlantic allies. No political or diplomatically ties are officially admitted among the two entities, in deference to China’s position toward the Taiwanese islands. The strategical factor here plays a fundamental role. It was not until the China-Taiwan relations were formalized in the cross-strait agreements in 2010 that the EU actively began to approach Taiwan in search for a bilateral arrangement.
Muddying the Waters: Hermeneutic Reflections on the EU’s Taiwan Position
Later on, in 2013, the Parliament mandated the Commission to seek ways to accommodate these geopolitical imperatives with a more economic-oriented perspective. At a first glance, a complete warming-up was appearing on the Taiwanese horizon. The rhetoric seemed to go beyond what is usually expected when dealing with Taiwan and its uncertain legal status, portraying a future relation from authority to authority (and not informal-commercial surrogates) and an institutional grounding.
However, as always, the devil is in the details. In this case, the language details of the resolution. Thus, the Parliament’s formal acknowledgement reveals the limits of such a mandate and the caveats it intrinsically implies. When confronted with the Chinese ‘elephant in the room’, the drafters feel the need to justify their decision on the PRC’s approach to enter itself into such prior agreements with Taiwan. Moreover, the resolution states that “whereas closer economic ties with Taiwan do not in any way contradict the EU’s ‘one China’ policy” and that “the decision to start such negotiations with Taiwan should be based on economic reasons, and should not be interlinked with an assessment of relations between the EU and the People’s Republic of China”.
A continuous hesitation of the EU side to assume the initiative subsists in the entire document. It heavily relies on other states’ decision to do so, on the multilateral framework of which Taiwan is already a part (WTO, for example) or – the crown-jewel of justificatory rhetoric – the normalization of China-Taiwan relation and the mainland’s prior recourse to such agreements. We did it just because others did it. Even China did it.
Hermeneutic analysis reveals an indecisive language, far below the intensity expected even in diplomatic documents. The emphasis on the purely economic dimension of the relation is relevant. No trade and investment treaty is simply economic. And everybody knows it. It is also a strategic and a geopolitical statement. By formally – and vehemently – denying it such value, any future agreement is left in a mercantile limbo, deprived of symbolic – and effective – power. Among the risks of not being clear enough is not being able to settle a conflict once it occurs.
Simply economic, without a diplomatic – and, yes, political – dimension, the possibility of such a treaty appears as a rhetorical exercise. Two contracting parties with only ‘business interests’ and no identifiable political relation are not really playing the ‘great’ game of international relations. And no subsequent enforceability of their agreement might arise. Muddy (legal) waters allow no divers, no swimmers and no steady flux of boats to carry goods across them.
Beyond Sovereignty: An Interaction with Systemic Stakes
The truth is that the EU should not be afraid of institutionalizing its relations with Taiwan. From a legal point of view, none of them is truly and traditionally a ‘sovereign’. None of them can be – at the moment – perfectly circumscribed within the Westphalian system. And no actual risk exists for the individual state entities involved in the international agora. Rather, such a post-sovereign mode of interaction might open the possibilities of a different systemic configuration: supra-national entities contracting with quasi-national ones in a newly found order. Beyond the sovereign state.
On the other hand, the EU’s reluctance (as that of its member states or the US) to formally institutionalize its engagement with Taiwan is simply a historical and circumstantial position that lives on by inertia. In the post-Cold War environment where everybody rushed to admit Kosovo to the new ‘concert’ of states, Taiwan’s uncertain status lingers without any principled reason. By itself, such a decision was bound to upset major powers (i.e. Russia), even cause discord within the community of the EU member states, to trouble the fragile order of the Balkans even more. However, there was no impediment in going further in this direction and even considering the possibility of a future Kosovo accession to the EU.
In the same fashion, there is a significant support from EU institutions for the establishment of an independent Palestinian state, continuously urging for its future recognition despite vehement Israeli opposition. Of course, Taiwan’s situation is less tragic and incommensurately more complex, but it poises similar conceptual problems regarding recognition.
While understandable for classical sovereigns, such a hesitant position appears paradoxical when stemming from the EU, the self-styled postmodern entity that was to break away with Vattel’s system. In its assumed mission of using ‘soft power’ and moving away from frivolous geopolitical calculations, the EU appears as the most likely source for taking the debate a step further in the Taiwan case. Given the 2016 elections in which the DPP party won the presidential campaign, it might be possible that Taiwan’s rhetoric of autonomy rises in intensity, rather than decreases. In such conditions, it is interesting to see how the EU reacts to such demands.
The post-sovereign reality of EU itself could present the Western states a chance to nuance their position towards Taiwan. The European colossus is not in any acute danger of being excluded from commerce with the discontent actors. It only faces an immediate period of diplomatic pressures (both from competitors and allies), but its irreplaceable locus is not threatened in any fundamental way. However, failing to live up to its promises as a benevolent and avant-garde hegemon might damage its reputation and the reach of EU ‘soft power’.
Moreover, the interaction of two entities that are ‘deviant’ from the classical assumptions of Westphalian sovereignty might not cause too much of a turmoil. It can – at any moment – be presented as a rather ‘exotic’ and unrepeatable manner of establishing relations in the international agora. The broad – and decoupled – mandate of the Commission might preserve the image of its member states in front of virtual Sinic dissatisfaction. The Commission did it. Not us.
On the other hand, the manner in which the EU can interact with Taiwan might not really disrupt the Westphalian status quo in an essential manner, as it is able to speak a language very different from that of sovereignty. Therefore, the established relations neither need to conform to traditional diplomatic categories of sovereign-to-sovereign parlance, nor do they have to resort to informal surrogates of such institutions.
A different, post-sovereign and non-statist mode of interaction can emerge. EU can thus accommodate Taiwan’s need for recognized autonomy without bringing into discussion the notion of sovereignty or its diplomatic corollary. Such a new type of relation would appear as one that maintains EU’s rhetorical coherence and does not threaten China’s position.
The Win-Win Perspective: (Not Only) Trade and Investment
In this sense, a proper way forward could take the form of a fully-assumed trade and investment treaty, of a comprehensive instrument regulating international business flow. This would be consistent with EU’s active policy of signing expansive FTAs over the world (take, for example, the EU-Vietnam FTA, the EU-Singapore FTA or the highly-debated CETA). Its negotiation power would be higher than with most other contracting parties, offering EU the opportunity to implement its wildest innovations in the field of ISDS and investment protection.
However, such an agreement would be of little use if the avoidant language of diplomatic-surrogates is deployed. The existing mode of interaction (for example, in the India-Taiwan BIT, the Thailand-Taiwan BIT, Vietnam-Taiwan BIT) places the agreement under the aegis of the Taipei Economic and Cultural Office/Centre and its corresponding institution from the other state. This type of ‘treaties’ serves no practical purpose when confronted with the harsh reality of cross-border investment. Take, for example, the anti-Chinese riots in Vietnam where numerous Taiwanese individuals and businesses were also strongly affected. The threat of using the Vietnam-Taiwan BIT (improperly called so) brought on no true reaction from the other side, as the Vietnamese officials knew all too well the limits of such an agreement. As did the Taiwanese side.
With no possibility of further using the ICJ if arbitration fails, Taiwan is left in a legal limbo. The ‘representative offices’ signing such agreements in a quasi-official capacity do not really create binding obligations under international law. At least not truly enforceable. And thus such ‘BITs’ are left at the will and whim – or idealistically said, at the good-will – of the other party to accept the jurisdiction of an arbitral tribunal. And then to voluntarily comply with the outcome of the arbitral proceedings.
In reality, the EU needs to move further from this existing model of interaction. But neither go in the opposite direction of engaging in an endless – and, finally, sterile – discussion about sovereignty. As a post-sovereign hegemon of global caliber, the EU is able to treat Taiwan in its ‘eccentric’ manner and establish a sui generis type of interaction. One that does not avoid direct institutional and formal relations, but also does not get entangled in the Westphalian vocabulary of inter-state connections.
From a mercantile perspective, this would also permit EU to bolster its SME focus as Taiwan presents itself as a success story of small businesses that sustain a vibrant market economy. Its democratic institutions (although quite new and imperfect, but not unlike those of some Eastern EU member states) are a guarantee for the relative degree of fairness in treating foreign investors and complying with its commitments. In addition, once allowing the access of Taiwanese investors on a more comprehensive level on the European market, the disequilibrium of outbound and inbound investment might ameliorate and help the EU diversify its sources of capital.
On the other hand, the Taiwanese subsidiaries of EU companies would largely benefit from Taiwan’s position and – in the safe harbor of a stable and free market environment – could expand in the near South-East Asian zone while avoiding some of the inherent turbulence of the area. Their double quality (of EU origin and Taiwanese operational mechanisms) would allow the European companies to take all the benefits of working from such a privileged geographic and political position, as well as circumventing the problems of being a purely Taiwanese economic entity.
And thus – symbolically – both EU and Taiwan would gain from such a bargain, allowing the European entity to advance its systemic agenda of transforming international relations and permitting Taiwan to escape its uncertain status. In this win-win scenario, the only major loser is the classical notion of sovereignty. A concept that seems to function rather erratically in our fluid international world. For these reasons, the sovereignty discussion would not be put under silence because it is uncomfortable, but rather because both parties – postmodern entities – regard it as irrelevant for their relation. A sui generis interaction. At the twilight of Westphalia.
Horia Ciurtin, Founder and Senior Expert of DAVA | Strategic Analysis; Associate Expert for New Strategy Center, a reputed strategy think-tank with offices in Bucharest, the Managing Editor of the online platform for the European Federation for Investment Law and Arbitration (Brussels), the EFILA Blog, as well as Legal Adviser in the field of International Investment Law. He can be contacted at firstname.lastname@example.org
This report represents an updated – and partially rewritten – version of the author’s material published on the EFILA blog.