At the end of May, during U.S. President Joe Biden's visit to Japan, Biden disclosed details about the Indo-Pacific Economic Framework for the first time. The Framework will affect 40% of the world's GDP. Among the thirteen countries invited to participate in the first round were Australia, Brunei, India, Indonesia, Japan, and Korea—but not Taiwan. 

Exclusive letter to the editor: Potential BTA between Taiwan and the U.S.

On the same day, Andrew Wylegala, President of AmCham Taiwan, sent an exclusive letter to CommonWealth Magazine's English website. In his letter, Wylegala points out that although Taiwan is currently not part of the Indo-Pacific Economic Framework, it is the ideal time to negotiate bilateral trade agreements (BTA). Wylegala was advisor to the U.S. Secretary of Commerce and has influence in Washington. 

He quotes a tweet from U.S. Trade Representative Adam Hodge: During the APEC summit in Thailand, when U.S. Trade Representative Katherine Tai spoke to Taiwanese representative John Deng about concrete ways to solidify trade and investment relationships between Taiwan and the U.S., it was in fact of great significance. 

Upon returning from Thailand, Deng responded to CommonWealth's query and verified that both sides have agreed to move forward according to the rules set by the Trade and Investment Framework Agreement (TIFA).

Individual task group meetings will be held to ascertain, in a timely manner, the exact trade and finance topics that need to be discussed, so both sides will know how to communicate with one another. "We have reached an understanding on our goal to improve our bilateral trade and economic relations. We aspire to improve the quality and substance of both of our markets."

Deng calls this a major breakthrough that comes six months after Taiwan opened its market to American pork containing ractopamine. It is also the first time since 2013 that the United States has exhibited this degree of engagement.

However, he admits that the U.S. Trade Representatives were not authorized by Congress to discuss the matters of opening markets or reducing tariffs. What's more, the last free trade agreement that the U.S. signed was the United States-Mexico-Canada Agreement (USMCA). The chances of the U.S. entering into a conventional bilateral trade agreement is small. "But I feel that customs clearance procedures, inspection and quarantine, and investment-related matters also count as a BTA, even if they don't touch upon tariffs," Deng stresses.

It's worth noting that the Indo-Pacific Economic Framework has not been approved by Congress either. The outline disclosed on the 23rd is vastly different from what is usually found in traditional free trade agreements.

On the same day, after speaking with Japanese Prime Minister Fumio Kishida, Biden shocked the world by replying “Yes” to a question on if the United States would intervene militarily if China were to invade Taiwan by force. “That is the commitment we made," he added.

All 4 pillars of Indo-Pacific Economic Framework are bulwarks against China

The Indo-Pacific Economic Framework is made up of four main pillars. All four seem designed to compete against China. They are in accordance with Biden's stated goal of gaining an edge over China, as part of the two superpowers' overarching rivalry. 

The Framework is designed to not favor any specific interest group. It is also in lockstep with Biden's foreign policy, which is centered on catering to the middle class. In short, it is a different kettle of fish compared to a traditional FTA.

First of all, in terms of facilitating trade, the thirteen participating nations will be held to the highest standards of the digital economy. These include ensuring the free flow of data and helping small- and medium-sized enterprises benefit from the growing e-commerce sector in the Indo-Pacific region, while addressing issues such as online privacy as well as discriminatory and unethical use of artificial intelligence. 

The Framework also seeks to enshrine strong labor and environmental standards and corporate accountability provisions, which will enable even entry-level workers to share the fruit of the Indo-Pacific region's economic growth.

The second pillar is about supply chain resilience. The IPEF will leverage first-of-their-kind "supply chain commitments" to establish an early warning system for potential supply chain disruptions. It will also seek to guard against price spikes that may increase the cost of living for American families.

The third pillar is centered on new energy. Indo-Pacific countries will pursue commitments on clean energy, decarbonization, and infrastructure that promote good-paying jobs. It will also seek to reach a consensus in the areas of carbon removal and energy efficiency standards, as well as enact new measures to reduce methane emissions.

The fourth and last pillar is focused on combating corruption and money laundering. The countries in the Indo-Pacific region will crack down on crime by exchanging tax and bribery-related information.

Why is ASEAN on the fence?

In truth, the four pillars of the Indo-Pacific Economic Framework were announced as far back as May 12th, during the Special Summit convened between the Association of Southeast Asian Nations (ASEAN) and the United States. However, by presenting the Indo-Pacific Economic Framework as an executive order, the White House is able to concentrate its energy on institutional reform. It does not touch upon incentives such as access to markets and tax reduction. It also does not need to pass through Congress.

Tomoo Marukawa, Professor at the Institute of Social Science at the University of Tokyo, feels that the lack of substance in the benefits outlined under the Framework was what gave ASEAN pause. After readjusting the contents, Washington chose to have Biden make the announcement during his visit to Japan.

What's more, according to a report by the Center for Strategic and International Studies (CSIS), the areas of focus in the Indo-Pacific Economic Framework—the digital economy, clean energy, and anti-corruption regulations—are matters of greater interest to developed countries like Japan, Korea, and Singapore. For the relatively underdeveloped ASEAN members, these topics are entirely unattractive. 

Another reason why ASEAN was on the fence was because they worried Taiwan would be among the first members to be invited to join the Framework. This would make it abundantly clear that the Indo-Pacific Economic Framework was designed to poke China in the eye. 

Roy Chun Lee (李淳), Senior Deputy Executive Director at the Taiwan WTO & RTA Center, points out that any action against corruption or in support of infrastructure would be connected to national sovereignty. ASEAN members are afraid of being asked to "pick a side".

Does it hurt Taiwan not to have been invited?

According to Lee, while not being invited to participate with the other thirteen members is a blow, the damage to Taiwan is limited.

The reason is because Taiwan has always been integral to the global supply chain. There isn't a country that doesn't want to work with Taiwan. In the interest of facilitating trade, Taiwan is already working on bilateral trade improvements with many different countries. 

Darson Chiu (邱達生), Research Fellow at the Taiwan Institute of Economic Research, says that although Taiwan was not a "first draft pick" for the Indo-Pacific Economic Framework, it does not take away from the fact that Taiwan is irreplaceable in the global supply chain. Any actual investments or trade cooperation stemming from the Framework will include Taiwan by necessity.

The Indo-Pacific Economic Framework is expected to enter into its next stage of negotiations by July. In total, negotiations are expected to take up to 18 months. After finalizing the first round of negotiations, another group of member nations may be invited to join the Framework. In the future, it is possible that Taiwan will be negotiating BTAs with the United States on the one hand, while working to be invited into the Framework on the other.

The Indo-Pacific Economic Framework is reform on the institutional level. Lee thinks the Framework includes generally the same member nations and covers roughly the same issues as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which Taiwan is eager to join. If Taiwan can use the Framework as a guideline for refining supply chain resilience and enacting overall trade reform, it will not only help Taiwan catch up to international trade and finance regulations, it may also pave the way for Taiwan to enter the CPTPP.

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Have you read

• The IPEF train has departed. Now transferring to the BTA track
• Richard Bush: Biden's Taiwan Policy would be More Predictable
• What a Biden presidency means for US-China relations

Translated by Jack Chou
Edited by TC Lin
Uploaded by Penny Chiang