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Calculating the Canada-Taiwan trade equation

Negotiating a Taiwan investment deal could signal a shift in Canada’s Indo-Pacific strategy
Oleksii Liskonih/iStock/Getty Images Plus

The business opportunities for Canada resulting from foreign investment promotions/protection agreement (FIPA) negotiations with Taiwan would come primarily from where those discussions lead rather than from any potential deal achieved.

“It’s long overdue,” said Hugh Stephens, distinguished fellow at the Asia Pacific Foundation and vice-chairman of the Canadian Committee on Pacific Economic Cooperation, following the federal government’s announcement that FIPA discussions with Taiwan were underway. “I never understood what the delay was; it was my understanding that the Taiwanese were ready to deal. I don’t think there were any substantial roadblocks other than the fact that Canada – either through inertia or out of some misplaced deference to upset the China apple cart – dragged its feet.”

The news was announced on Jan. 11 by Canadian international trade minister Mary Ng, whose office said in a statement that the goal of a deal would be to “further promote supply chain resilience and mutually beneficial commercial opportunities, as well as to increase collaboration on science, technology and innovation, education, Indigenous affairs and the green economy.”

The current level of two-way foreign investment is small. Canadian parliamentary statistics from 2017 showed that since 2010 annual Canadian investment in Taiwan has regularly hovered around $100 million, whereas Taiwanese investment in Canada is steadier but also regularly below $150 million per year in the last decade.

This contrasts with the overall trade picture, where Taiwan ranked as Canada’s 15th largest trade partner in 2020 and its sixth largest in Asia (after China, Japan, South Korea, Vietnam and India).

That’s why, Stephens said, logic would indicate that a successful FIPA discussion could lead to something more substantial, such as some a free-trade link, perhaps through the multi-lateral Trans-Pacific Partnership (CPTPP).

“I was surprised how little investment there is,” he noted. “According to [Ng’s ministry’s release], there are only $250 million of Taiwanese money in Canada – and that’s paltry. We could be doing far better than that.… And when you ask if we should be going to a bilateral trade agreement, the answer is no. It makes more sense to deal with this issue in a broader grouping.”

But any discussion of ties with Taiwan inevitably leads to the question of China. Beijing has claimed the island as a rebel province since 1949, when the Chinese Civil War ended with the Communist party victorious and causing the Nationalist government to retreat to Taiwan, beginning decades of diplomatic and military standoff.

In the meantime, Taiwan has evolved into a full-fledged democracy with elected executive and legislative branches – in contrast with the mainland’s one-party, centralized authoritarian rule.

Traditionally, Canada has been one of China’s stronger proponents in the West. It was among the first countries to recognize the People’s Republic of China (PRC, communist) in 1970.

However, Canada-China relations have degenerated dramatically in the last three years, especially after an extradition request by the United States resulted in the arrest of Huawei Technologies CFO Meng Wanzhou in Vancouver in late 2018. (Meng reached a deferred prosecution agreement with U.S. authorities last fall and was released back to China.)

Jonathan Berkshire Miller, director of the Macdonald-Laurier Institute’s Indo-Pacific program, said Ottawa’s delay in pursuing a FIPA with Taiwan may have been to avoid adding further wrinkles to Canada’s worsening links to its second-largest trading partner. Nonetheless, he called Ng’s announcement “really positive.”

But Berkshire Miller added that more needs to be done.

“I would say, as much as the economic leg is important, that has been the knee-jerk reaction for us for the last 20, 30 years, to see this as purely an economic opportunity. That sort of downplays the political security things that are happening. We’ve viewed this as not necessarily our fight … But we are starting to realize it’s a faulty approach, because these are important factors to our partners.”

So far, Beijing has been muted in its response to the development. And it should be, Stephens said, noting that Taiwan is a World Trade Organization member, and therefore Canada has the right to negotiate business agreements to its benefit.

Angie Tsai, former president at the Taiwan Chamber of Commerce in BC, said she and many of her colleagues in the local Taiwanese business community are relieved to finally see a FIPA take shape.

Tsai added that she hopes it leads to increased two-way investment flow between Canada and Taiwan.  She agreed, however, that an economic deal would be an even bigger catalyst.

“When we talk about investment to Taiwan, Canada’s talking about its Indo-Pacific strategy,” Tsai said. “A link with Taiwan would fit really well into that thought, because of Taiwan’s geographic location – in the middle of East Asia, with easy access and distribution to markets like Southeast Asia. So I do think there would be more interest if a FIPA does come to reality.”

The most likely path for something like that to happen, Stephens and Berkshire Miller agreed, is for Taiwan to become a CPTPP member along with Canada, Japan, Australia, New Zealand, Mexico, Singapore, Malaysia and Vietnam.

However, there is a China complication on that path, too. Both Beijing and Taipei filed applications to join the CPTPP last year. While experts are skeptical that China can change its regulations to match the progressive requirements (such as labour and environmental law updates) for CPTPP membership, Stephens said its bid nonetheless presents a complication for Taiwan’s application.

“That’s the big question: Did China do this for good economic reasons because there’s a desire to reform the Chinese economy to some extent?” he said. “Are they prepared to meet the obligations? There are some people who think they are. The other side of this is that this was done purely for tactical reasons, to put a spike in Taiwan’s canon so they don’t get in before China does to extract some concessions.”

However, Berkshire Miller noted that the news coincided with Ottawa seeking to examine its Indo-Pacific strategy and how to engage with the region while perhaps diversifying away from the Chinese market.

As such, the goal of diversifying economic links to places like Southeast Asia – where Ottawa is also seeking a free-trade deal – appears to be a logical strategy that would fit an eventual economic component into Canada’s links to Taiwan and Canada’s overall Indo-Pacific strategy.

“The key element of our trade engagement right now is the CPTPP, and Taiwan is somewhat on the outside looking in,” Berkshire Miller said. “But the truth is people have known Taiwan has wanted to apply for years. And the idea that the Chinese would be ready to join is just a fantasy.

“On issues like this, [Canada] has shown no desire to be leaders out of the gate, and – in many ways – not even seventh or eighth out of the gate. So I do think this is a good sign.” •