Despite IPEF setback, Taiwan-ASEAN ties are on the right track

WRITTEN MARSHALL REID AND ZOE WEAVER-LEE

2 June 2022

On 13 May, the Biden administration welcomed the leaders of nine Association of Southeast Asian Nations (ASEAN) states for a “historic” US-ASEAN Special Summit. In the lead-up to the summit, several commentators noted that the US could potentially use the event to present its vision for the Indo-Pacific Economic Framework (IPEF), a new initiative that has been described as the “linchpin of the Biden administration’s efforts to show the United States is again willing to take the lead on economic and trade issues in the region”.

Others pointed out that the US could use the meeting to push for increased ASEAN cooperation with Taiwan. Despite these lofty goals, however, the current incarnation of the IPEF was criticised by several ASEAN leaders for being excessively vague and US-centric, while both the initiative and Taiwan were left out of the event’s Joint Vision Statement. For Taiwan — an active investor in Southeast Asia with hopes of joining the IPEF — this was likely a worrisome development. However, Taiwan has long demonstrated the ability to forge economic connections despite its exclusion from most multilateral economic frameworks. While the IPEF could certainly help facilitate Taiwan’s economic relations with ASEAN states, Taipei is more than capable of expanding its footprint in the region without it.

Maintaining realistic expectations for IPEF

President Biden’s proposed Indo-Pacific Economic Framework addresses four pillars: fair and resilient trade, supply chain resilience, infrastructure and clean energy, and tax and anti-corruption. Perhaps the most anticipated portion — trade facilitation — will entail policies which address barriers to trade with the region and with the United States. Specifically, the Framework would implement Authorised Economic Operator (AEO) programs and expand Mutual Recognition Arrangements (MRAs). If Taiwan were included, the grouping could serve as a platform for it to be recognised as a trusted trading partner among ASEAN nations. This, however, may be the most insignificant of its concerns.

In general, it does not seem that the IPEF has gained momentum in Southeast Asia — it is mainly cited as a poor replacement for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), in which the United States will not be actively involved. At its worst, critics worry that the IPEF may be perceived as an exclusive club designed to distance ASEAN nations from China — an image that would not improve if Taiwan were to join as well. China has already expressed disapproval of the grouping and argued that it is an attempt to persuade Southeast Asian nations to “decouple from China” As noted by Matthew Goodman at a recent Brookings panel, the question remains: what is the United States offering and who will be in charge?

Fuelled by rapidly growing private investment, state-led cooperative initiatives and broader changes in regional trade flows, Taiwan has established itself as a key economic player in the ASEAN region.

As such, Taiwan’s exclusion from the IPEF would not be detrimental to its ability to engage with ASEAN. Notably, Taiwan has cultivated impressive economic partnerships despite its continuing exclusion from most regional economic groupings. In an area of the world replete with multilateral acronyms — from CPTPP to RCEP — Taiwan has largely been forced to act alone. While it has been remarkably successful in doing so, leaders in Taipei have made no secret of their desire to join these groupings. Nevertheless, Taipei has much to be optimistic about when it comes to its economic relations with ASEAN states.

Taiwan’s relationship with ASEAN

In recent years, Southeast Asia has emerged as an increasingly crucial region for Taiwan, especially on the economic front. Following her inauguration in 2016, Taiwan’s President Tsai Ing-wen announced the establishment of the New Southbound Policy (NSP), a comprehensive plan to expand Taiwan’s economic and trade ties with the Indo-Pacific. In general, the NSP aims to engage in economic collaboration, talent exchange, resource sharing, and diplomatic exchange between Taiwan and its target countries. Taiwan has expanded efforts to integrate its supply chains in Southeast Asia, export medical equipment, and collaborate on critical infrastructure. From Taiwan’s perspective, ASEAN represents a key strategic region for economic security, especially in the face of coercion from Beijing.

While the NSP includes nations across Asia and Oceania — including India, Australia and New Zealand — its primary thrust has thus far been directed at the 10 ASEAN states. The region makes up 86 per cent of Taiwan’s NSP exports and within one year of NSP’s implementation accounted for an inbound investment increase of nearly 25 per cent. Over the six years since the Policy’s inception, Taiwan has significantly upgraded its economic ties with the region, establishing a wide range of agreements and dramatically expanding its regional investment portfolio. Despite China’s efforts to pull ASEAN states into its sphere of influence, Taiwan has nevertheless been able to carve out a substantial economic niche in the region.

While it can be argued that the NSP has made significant progress in developing Taiwan’s relationship with ASEAN, much of the region’s engagement has been fuelled by private investment. In 2021, Taiwanese investment in ASEAN countries surpassed that of Chinese ventures. While the motivations for these investments are dependent on the sector, Taiwanese business professionals and entrepreneurs are becoming increasingly drawn to ASEAN’s vast labour force and limited regulations. Additionally, as China pursues its goal of dual circulation and implements more isolationist policies, ASEAN could offer an alternative market for Taiwanese investment.

In many ways, the Taiwan-ASEAN economic partnership has the potential to be complementary. Taiwan’s expertise in healthcare and medical equipment, for example, has tremendous commercial opportunities in ASEAN, where healthcare spending has increased in recent years. Additionally, while ASEAN’s potential as a manufacturing hub for semiconductors may appear as a source of competition, it could also provide an opportunity for Taiwan to geographically diversify its supply chain: “High-end manufacturing is reshoring to Taiwan, Japan, Europe and the US, while labour-intensive sectors have been relocating to ASEAN and South Asia”. In fact, current conceptualisations of IPEF are looking to encourage ASEAN members to build semiconductor supply chains, specifically alongside the United States and Japan. Considering Taiwan’s current domination of the semiconductor supply chain’s manufacturing and design sectors, shifting more labour-intensive operations to ASEAN nations could help Taiwan diversify its industries. This process will become increasingly important as China’s coercion of the island becomes more severe (including its attempts to poach Taiwanese engineering talent). Even without the structure of IPEF, Taiwan is already making these adjustments through the NSP.

Moving forward without IPEF

While the IPEF could help facilitate Taiwan’s economic engagement with ASEAN states, it is by no means a prerequisite. In recent years, Taipei has demonstrated an impressive ability to build bilateral ties with nations across the region, even as China has worked to isolate it. Fuelled by rapidly growing private investment, state-led cooperative initiatives and broader changes in regional trade flows, Taiwan has established itself as a key economic player in the ASEAN region. Though the US-ASEAN Summit did little to improve Taiwan’s position, leaders in Taipei should not be discouraged. Instead, they should build upon their current approach by proactively seeking opportunities for collaboration, connecting complementary industries and encouraging private investment and entrepreneurship. By doing so, Taiwan could continue to expand its presence in an increasingly crucial geopolitical region, strengthen its most important industries and gain further access to one of the world’s largest markets.

DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform.

Author biographies

Marshall Reid is a program manager at the Global Taiwan Institute. Zoe Weaver-Lee is a program assistant at the Global Taiwan Institute. Image credit: Makoto Lin/Office of the President.