China and ties between Taiwan and ASEAN

Taiwan and the majority of Southeast Asian countries have long established strong economic ties even in the absence of diplomatic ties, but their resilience is now being challenged with the rise of China to become an Asian and global economic power.

The “One-China” policy embraced by all member governments of the Association of Southeast Asian Nations (ASEAN) has not prevented Taiwan from forging close ties, including with Indonesia, which supplies much of its energy resources needs, and Vietnam, the second-largest recipient of Taiwan’s foreign direct investment after China.

But Taiwan, which emerged as one of the Asian economic tigers in the 1980s, as well as just about all the 10 ASEAN countries, have adjusted and realigned their economies to the new reality of the Asian economy now dominated by China. Increasingly they find that they are trading more and more with China, and in the case of Taiwan, its corporations are investing heavily across the Formosa Strait.

The ASEAN Institute of Strategic and International Studies (ASEAN-ISIS) and Taiwan’s Institute of International Relations (IIR) last week held their 12th annual dialogue in the Malaysian capital to review how Taiwan and Southeast Asian countries should proceed with their relations given the changing dynamics of the region.

Two factors are adding to the urgency for these countries to take another look at their relationship. One is the proliferation of free trade agreements in Asia. The other is the signing of the Economic Cooperation and Friendship Agreement (ECFA) between China and Taiwan in June.

Since trade agreements — whether for full free trade, for the more limited investment and trade version, or for the wider economic framework — negotiated and signed by governments, Taiwan has been virtually excluded from this process. Economic ties within Asia are increasingly governed under one giant “noodle bowl” of FTAs. Taiwan’s exclusion from these pacts, which tend to be exclusive to the signatories, could lead to it being marginalized from the rising prosperity of East Asia.

The ECFA signed in June may just be the saving grace as it is seen as another noodle strain added to the bowl, this one with Taiwan in it. The agreement also effectively gives Taiwan indirect access to trade agreements that China has with other countries, including with ASEAN and one or two individual ASEAN members.

Taiwan also sees the ECFA as paving the way for opening discussions on trade agreement with other countries. Taiwan participants in the dialogue in Kuala Lumpur said they had not heard of any outright objections from Beijing toward Taiwan opening negotiations for free trade with other Asian countries.  

Singapore will be the first test case as the island nation announced in August that it was launching a discussion on trade with Taiwan in December. Malaysia is also reportedly following suit. Other Southeast Asian countries are closely watching the development. In particular, they are watching how Beijing responds to Singapore’s initiative.

Experts say Beijing will likely have no objection to Southeast Asian countries forging trade agreements with Taiwan, provided they already have similar bilateral deals with China. This effectively puts Singapore ahead of the other ASEAN countries. Singapore will provide the model for trade agreements with other countries in the future.

Any approach on forging trade agreements between Taiwan and Southeast Asian countries will likely be bilateral in nature rather than multilateral through ASEAN. Unlike its member states, ASEAN does not have any link whatsoever with Taiwan.

While recognizing the huge benefit of investing in China, Taiwan companies are being encouraged 
by their government not to put all their eggs in one basket. Taipei is promoting the concept of the “China + 1” policy, by which companies investing in China should also invest in a secondary manufacturing 
base elsewhere.

Vietnam became the favorite destination after China because of the incentives and facilities offered, but many Taiwan companies are now taking a closer look at Indonesia, which not only offered competitive wage levels, but also a huge market base and political stability. But whether Taiwan companies eventually translate this interest into investment depends largely on the package of incentives Indonesia can offer.

Although Taiwan provides economic and technical assistance and Indonesia provides much of Taiwan’s energy needs, Taiwan’s investment in Indonesia is among the lowest in Southeast Asia. This may change in the coming years if Indonesia plays its cards right.

Taiwan researchers say one major difference between Indonesia and Vietnam is that small and medium enterprises, which make the bulk of the Taiwan corporate world, find they are far more welcome in Vietnam. Indonesia tends to close the door on small and medium enterprises, irrespective of their technology capability, and reserve the sector for its own SMEs.

Taiwan is also looking at the possibility of piggybacking on existing trade pacts, invoking the World Trade Organization (WTO) rules that require these countries to keep their economies open to outside players.

One of these arrangements that Taiwan is vying is the Trans-Pacific Strategic Economic Partnership (TPP), which involves Brunei, Chile, New Zealand, Singapore, Australia, Peru, the US and Vietnam. Malaysia also joined in October.

Economic ties between Taiwan and Southeast Asian countries will continue to face the handicap that comes with the absence of diplomatic ties. But since the two sides have managed to forge strong ties in spite of it, in the end it is up to the creativity of the players on the ground, with some nudging from their governments, to maintain and expand these relations.

Now that everyone, including Taiwan, has to deal with China as the major economic player in the region, they need to be even more creative than in the past.

The writer is senior editor of The Jakarta Post. He took part in the 12th ASEAN ISIS-IIR Taiwan Dialogue in Kuala Lumpur from 
Oct. 27-29.