Canada Should Encourage Taiwan’s Accession to the CPTPP

Given the ongoing difficult situation that Canada finds itself in our relations with China as a result of the arrest in Vancouver last December of Huawei executive Meng Wanzhou, and China’s subsequent retaliation by detaining two Canadians, Michael Kovrig and Michael Spavor, and blocking or impeding the entry into China of several key Canadian exports, several commentators have speculated on what Canada could or should do to push back as part of a new approach to relations with China. Among the actions proposed is the reassessment of our relations with Taiwan, in other words doing more economically and in other areas with the island democracy. This is the right policy proposal–but we must be careful not to do it for the wrong reasons. We shouldn’t be seeking to do more with Taiwan in order to get back at China; rather we should be doing it because it is in Canada’s interests to engage more fully with Taiwan within the existing confines of our one-China policy. For too long, we have trodden very cautiously in developing our relations with Taiwan lest we annoy China and imperil Canadian economic prospects in the China market. Now is the time to take a more balanced approach, one that has the added benefit of being consistent with Canada’s self-proclaimed “progressive” values. Encouraging Taiwan’s accession to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) would be one element of this strategy.

Taiwan is regarded by China as an inalienable part of the People’s Republic, and it considers the island as, in effect,  a renegade province even though Taiwan’s twenty-three million people are governed by their own legislature and presidential system. At the time that Canada and China established diplomatic relations in 1970, Canada “took note” of China’s claim to Taiwan, although it did not “accept” it or “acknowledge” it, (but nor did it challenge it). At the same time, Canada recognized the regime in Beijing as the “sole legal government of China”. That was the sort of creative ambiguity that was required at the time to square the circle of Taiwan’s separate status with Canada’s one-China policy. Over the years, structures have been put in place between Canada and Taiwan to promote relations within the confines of this policy, and Canada has always been scrupulous (some would say too scrupulous) in following both the spirit and the letter of the arrangement with Beijing. This arrangement permits economic and “people to people” ties with Taiwan, but not political or diplomatic engagement. For the past thirty years or so, both Taiwan and Canada have maintained non-diplomatic representative offices in their respective capitals. These offices perform many of the functions of an embassy, but are not considered to constitute a government-to-government relationship.

Even though the number of countries that diplomatically recognize Taiwan is very small, Taiwan operates as a de facto separate jurisdiction. Whether it is in the area of shipping, airlines, health, taxation, environment, trade, immigration, police enforcement, or any other area that requires two jurisdictions to interface with each other, there is a practical need to deal with the Taiwanese authorities. In the case of Canada and other countries that do not recognize Taiwan, this is usually achieved by signing an “arrangement” with Taiwan that falls short of a being a government to government agreement but has the practical effect of dealing with the issues at hand. Canada has such agreements with Taiwan on the avoidance of double taxation and air services, for example.

Trade and investment is a special case. Despite not being in Beijing’s eyes a sovereign power, Taiwan is nonetheless a full-fledged member of the World Trade Organization (WTO) as it is a separate customs territory from China. Sovereign status is not required to be a WTO member. (Hong Kong and Macau, both parts of China, are also separate members of the WTO). But being a member of the WTO is not enough to address many trade barriers today. In light of the WTO’s current inability to effectively deal with a number of trade issues, there has been a trend to bilateral or plurilateral trade agreements between countries in order to remove trade barriers selectively, but Taiwan has found it difficult to reach such agreements because of China’s opposition. This is despite the fact that China has signed its own Economic Partnership Agreement with Taiwan, which has been in effect since 2010.

In the past it was considered that a country that had achieved a bilateral trade agreement with China then had the “licence” (from China) to proceed to negotiate a non-diplomatic trade agreement with Taiwan. That was the pattern followed by New Zealand, which signed a Free Trade Agreement (FTA) with China in 2008 and with Taiwan five years later. Singapore, which has a pre-existing FTA with China, also later reached an agreement with Taiwan. Today, with China’s hardening attitude to Taiwan it is not clear whether the previous tolerance by China for bilateral agreements with Taiwan still prevails. Even if the pattern of “China first, Taiwan second” still prevailed, it is clear that it will be a very long time, if ever, before Canada and China ever conclude an FTA. In fact, it may be a very long time, given current political relations between the two, before even the negotiation of an FTA is once again contemplated. Does that mean that Canada’s hands are tied in dealing on trade issues with Taiwan, its fourth largest market in Asia? Fortunately there is a way forward.

That opportunity is the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) which came into force at the end of last year and is now applicable to seven of the eleven signatories. (Chile, Peru, Malaysia and Brunei have yet to ratify the agreement. The other members are Canada, Australia, New Zealand, Japan, Singapore, Vietnam and Mexico). Canada is already seeing benefits from the CPTPP in its trade with Japan, among others. Global Affairs Canada has just opened a public consultation on the opportunities for Canada of CPTPP expansion, and has specifically identified four economies that have already expressed interest in joining the CPTPP; South Korea, Thailand, Taiwan and, somewhat strangely, the United Kingdom. While the consultation specifically mentions these four countries, comments can be submitted on the potential succession of “any other Asia-Pacific economy”. This is a welcome step. The accession of Taiwan to the CPTPP would not only bring economic benefits to Canada but would help consolidate Taiwan’s economic role in the Asia-Pacific region, particularly with respect to supply chains and acceptance of high standards of discipline with respect to transparency and non-tariff barriers. Since Australia, New Zealand and Singapore already have Free Trade Agreements with China, and Vietnam, Malaysia and Brunei have an arrangement with China through ASEAN, it will be difficult for China to oppose widening an existing regional agreement to include Taiwan, as long as others are accepted at the same time. Japan has already expressed its support for Taiwanese accession. While many of the other CPTPP countries have not yet taken an official position, Canada can help build support within the organization.

Taiwan is not going to be able roll back China’s diplomatic offensive that is trying to strip it of the few remaining micro-states that officially recognize it, nor will it be possible for Canada or other nations that have established relations with Beijing to expand contacts with Taiwan into the political space. The U.S., which traditionally has somewhat more leeway in its relations with Taiwan, may continue arms sales. Canada should not go there. What we should do is to exploit actively and fully the legitimate and accepted channels to promote closer relations between Canada and the people of Taiwan. That means building on the existing bilateral “arrangements” already in place to include areas such as investment promotion and protection and taking advantage of an opportunity like the CPTPP to encourage Taiwan (technically the “Customs Territory of Taiwan, Penghu, Kinmen and Matsu”) into further liberalization of its trade regime, and bringing into it alignment with the best practices subscribed to by Canada and other members of the CPTPP.

While engaging more fully with Taiwan should not be done to tweak the dragon’s tail, the current impasse with China does provide us with the opportunity to reflect more fully on Canadian interests. Those interests certainly include putting Canada-China relations back on track over time, but they also require Canada to examine other elements of its Asia-Pacific strategy. China will continue to play a large part in this strategy, but we also need to step up our trade linkages and promotion with other economies offering opportunities for Canada, such as Japan, Korea, the ASEAN nations—and Taiwan.

China’s hardline and disproportionate retaliation against Canada over the Meng Wanzhou affair has demonstrated clearly the risks of putting too many eggs into one basket. China is an attractive alternative to dependency on the U.S. market because of its phenomenal economic growth and market potential, but dependency on any one market carries risks. The CPTPP is an opportunity for Canada to mitigate those risks by diversifying our market development efforts to build closer economic relations with a number of trading partners in the Asia region. Taiwan is a small but not unimportant part of that region, and now is the time for Canada to take advantage of the opportunity to strengthen economic and people-to-people ties with the island democracy.