Strengthening the U.S.-Taiwan Economic Relationship

Jose W. Fernandez
Assistant Secretary, Bureau of Economic and Business Affairs
American Chamber of Commerce
Taipei, Taiwan
August 5, 2012

I. Introduction

Thank you. This is my first trip to Taiwan and I continue to marvel at the numerous cultural and economic ties that bind our people. One of our ties was illustrated to me as I read the paper this morning. I enjoyed seeing that Jeremy Lin’s visit took top billing in the newspaper, and the meeting between President Ma and I drew a little less attention.

Let me give you just one example that is illustrative of the larger U.S. – Taiwan relationship. It is a great American tradition to start new companies in a home garage. In an Irvine, California garage in 1988 Linksys was born. The creators of this now ubiquitous line of home computer networking devices were Taiwan immigrants Janie and Victor Tsao. At the time they founded Linksys, they were also working as consultants specializing in pairing U.S. technology vendors with manufacturers in Taiwan. That pairing has become emblematic of the U.S. – Taiwan economic relationship. The latest numbers show that two-way trade between the United States and Taiwan in electrical machinery hovers around $23 billion per year.

II. Strategic Rebalancing Toward Asia

While Taiwan has been exemplary as one of the so-called “Asian Tigers,” I want to put our economic relationship with Taiwan in the larger Asian context before discussing Taiwan specifically. That larger context is our work on the Trans Pacific Partnership, and the Select USA initiative.

As you know, the global economic crisis of the past few years has pushed us in the United States to pursue our own economic recovery. This is a two-sided coin, with an eye toward regional trade liberalization on one side, and concerted efforts to attract more foreign investment to the United States on the other. At all levels of the U.S. government, we are broadening and deepening our economic relationships throughout the Asia Pacific region. We are acutely aware that reinvigorating our economy at home goes hand in hand with partnering on economic growth abroad.

The United States has long been involved in developments in the Asia Pacific region. We are proud that our contributions to regional security here helped create the conditions that brought more people out of poverty faster than anywhere else in history. That engagement continues today and the futures of the United States and the Asia Pacific are inextricably linked. As Secretary of State Hillary Clinton has highlighted, we are not just a diplomatic or military power here. We are an economic force as well. In 2010 alone, our exports to the Pacific Rim were over $320 billion, supporting 850,000 American jobs.

But our work is not finished. One of our country’s great challenges in this century will be to establish a stronger network of trade links and practices around the Pacific Rim. Our recently enacted Free Trade Agreements with South Korea and Colombia, and our commitment to the Trans-Pacific Partnership, are clear demonstrations that we are here to stay.

I am proud to note that the American Institute in Taiwan (AIT) has been a very active promoter of these efforts. In fact, they have been so successful in working to promote America’s economic relationship with Taiwan that I was able to personally congratulate the former Director, Bill Stanton, on winning my award for export promotion in 2011. He also received the State Department’s coveted Cobb award for global trade promotion efforts. That’s two awards in the same year to one man, something that doesn’t happen very often in the State Department. The AIT team in Taipei and Kaohsiung (“GOW shung”) is carrying on that tradition and I expect great achievements from the incoming leadership team here in Taipei.

All of these individual efforts fit into our larger work toward regional trade liberalization. Also supporting this effort is our commitment to the Trans-Pacific Partnership.

Looking ahead to the next generation of trade agreements, we are aiming at crafting an agreement that addresses new and emerging trade issues and challenges. The Trans-Pacific Partnership, or TPP, includes the United States, along with Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. It is a high-standard, broad-based regional agreement. We see the TPP as the most credible pathway to broader Asia-Pacific regional economic integration.

The agreement will include core issues traditionally found in trade agreements, such as industrial goods, agriculture, and textiles as well as rules on intellectual property, technical barriers to trade, labor, and the environment. But it will also address cross-cutting issues not previously found in trade agreements, such as making the regulatory systems of TPP countries more compatible so U.S. companies can operate more seamlessly in TPP markets. It will also help innovative, job-creating small- and medium-sized enterprises participate more actively in international trade. Equally important is addressing new emerging trade issues, such as trade and investment in innovative products and services, and ensuring that state-owned enterprises compete fairly with private companies and do not distort competition in ways that put U.S. companies and workers at a disadvantage.

The United States is participating in the TPP as the best vehicle to advance our economic interests and to promote economic growth and development in the critical Asia-Pacific region. Expanding U.S. exports is critical to our economic recovery and to the creation and retention of high-quality jobs in the United States. With its rapid growth and large markets, there is no region with which expanding our trade is more vital than the Asia Pacific.

The TPP countries recently announced the addition of Mexico and Canada to the negotiations. Late last year Japan also formally expressed interest in beginning consultations with TPP member countries with a view to possibly joining the negotiations. Candidate countries for TPP must demonstrate through their actions and through bilateral consultations with each TPP country their readiness to meet the standards and objectives of the agreement. Once those bilateral processes are concluded, the current TPP partners must decide by consensus before a new member can participate. In short, we are excited by the possibilities created in the Asia-Pacific by the TPP, and are working very hard to make it a reality by the end of this year.

Let’s move on to another program we just started, Select USA. So one side of the coin of economic recovery is expanding opportunities for U.S. companies to do business effectively abroad. The other side of that coin is the work that we do at home to encourage investment in the United States. The United States consistently ranks at the top of most major indicators for its attractive business and investment climate. In fact, from 2006 through 2010, the United States received more FDI than any other country. The FDI flow into the United States in 2010 - $228 billion - was more than double the flow into any other country in the world, and despite economic difficulties of the time, 49 percent greater than the FDI flow into the United States in 2009. At the same time, total Taiwan direct investment flow in the United States was over $5 billion in 2010, an increase of 14.7% from 2009.

Under a program called SelectUSA, the U.S. Departments of Commerce and State engage partners around the world, as I am doing here, to promote investment into our dynamic economy. SelectUSA showcases how the United States is the world’s premier business location and provides easy access to federal-level programs and services related to business investment.

Why do I say that the United States is the world’s premier business location? Because we are the world’s largest economy; we consistently rank at the top of most major indicators for our attractive business and investment climate; our own investment in research and development makes us the world’s center for innovation; and our leadership in protecting intellectual property with a transparent and predictable legal system makes doing business in the U.S. both cost-efficient and secure. Also, one of the strongest reasons will always be the quality of our higher education, particularly in science and engineering. Taiwan people in the United States are well aware of this: 80 percent have achieved some level of higher education, particularly in these fields and in medicine. I understand that the U.S. regulatory environment can be daunting to some investors, but through our hardworking representatives at the American Institute in Taiwan, and SelectUSA and other U.S. government partners back in Washington, we can help connect investors with the business counseling and training they may need to comply with applicable regulations.

We can also direct you to the different states’ economic development agencies, making sure you get connected to the right partners for your investment selection process.

III. U. S. – Taiwan Economic Relations

Where does Taiwan figure into this picture? How can Taiwan partner with us and benefit from this wealth creation? Today, Taiwan is our 10th largest trading partner and our 15th largest export market. It would surprise many people but the United States actually trades more with Taiwan than with France; and Taiwan-U.S. trade is at near the same level as India-U.S. bilateral trade. The United States is Taiwan’s largest foreign investor, and Taiwan companies have made significant investments in the United States. Historically, the United States has been the strongest champion of Taiwan’s participation in global trade bodies such as the World Trade Organization and the APEC forum. Our strong economic relationship covers more than six decades. Taiwan has been an invaluable partner in influencing others to embrace reform and strive for economic growth.

In recent years, however, this immensely valuable relationship has hit some bumps in the road that hinder our partnership and progress. We can’t afford these bumps and need to make sure that they do not detract from efforts to make full use of our potential. We were pleased to see that the Legislative Yuan recently took action that will clear the path for Taiwan to establish a maximum residue limit for ractopamine in beef, eliminating a serious impediment to U.S. beef imports. U.S. trade agencies will be monitoring implementation of the regulatory measures needed to allow U.S. beef imports to resume. These steps will be important in helping to rebuild confidence in our bilateral trade relationship.

We know from our own experience that adhering to bilateral and multilateral trade commitments is not always easy, but it is essential to maintaining the credibility that serves as the foundation of what has long been a positive, constructive relationship between trading partners.

Of course our bilateral economic relationship goes well beyond this particular issue and we have continued to engage Taiwan at the working level and via our capable colleagues at AIT on the full range of important bilateral trade and investment issues. For example, the United States worked for many years in support of Taiwan’s candidacy to join the WTO Government Procurement Agreement. These joint efforts were rewarded when Taiwan acceded to the Agreement in 2009. Taiwan has already made many reforms to its procurement practices, and we stand ready to assist as Taiwan continues to harmonize its measures with global best practices with regard to transparency, contract terms, and licensing.

Taiwan has made tremendous progress over the years in improving intellectual property rights protection and enforcement, and the United States has carried out significant bilateral cooperation activities on intellectual property rights—IPR—issues. Still, challenges remain, including with regard to online infringement and the theft of trade secrets. During my time here in Taiwan I have visited companies that have had their technology stolen and heard their stories. For U.S. firms the protection of IPR is so vital because so many of our exports derive from IPR. A recent study estimated that 75% of U.S. exports involve IPR. Taiwan aspires to be an economy based on innovation, and together our unceasing efforts will ensure that Taiwan’s IPR enforcement regime meets the highest standards. Improved protection of trade secrets in Taiwan will help both foreign and domestic firms be competitive and innovative in today’s knowledge-based economy. The bottom line: we have made major progress over the years on many critical issues when both sides have been prepared to work together. The United States sincerely desires a reinvigorated trade relationship with Taiwan. It’s already generally good, but we can do better.

Like the United States, Taiwan is also pursuing trade liberalization. We understand the Ma Administration has indicated a desire to be considered for the TPP in eight years. As a gold standard for future trade agreements in the region, the TPP requires members to embrace ambitious and comprehensive liberalization and open their markets to competition. We commend President Ma for recognizing the importance of trade integration, and for his expressed determination to push forward liberalization measures that would help Taiwan make its case as a possible candidate for future trade agreements.

Change will not be easy, but the benefits of liberalization are clear: stronger and more competitive firms, better services, wider availability of products at lower prices, greater efficiency, and smoother integration into the world marketplace. More comprehensive economic liberalization will be an essential component for securing Taiwan's economic future. Real liberalization will demonstrate Taiwan's commitment to trade integration and potential inclusion in various trade arrangements. This includes comprehensive, bilateral FTAs—such as Taiwan's ongoing negotiations with Singapore—which is an important first step. As Taiwan's leaders implement meaningful market liberalization measures and pursue new trade agreements, firm resolve and commitment to free market principles as a responsible WTO member are essential attributes to live by. We look forward to deepening our trade and economic interaction with Taiwan. We will support Taiwan as it embraces these fundamental prerequisites to effective and meaningful trade integration. Everyone in this room is an important element of what we hope to do.

IV. Next Steps & Conclusion

Just as Janie and Victor Tsao understood when they founded Linksys nearly 25 years ago, trade between Taiwan and the United States is vital to the prosperity of both. The United States and Taiwan have a long and positive history of cooperation and many shared interests in the region. We are hopeful that the positive recent steps Taiwan has taken to address the beef issue are a demonstration of the sustained commitment that will be needed to reenergize our bilateral trade dialogue. To be sure, Taiwan, like any democracy, will face tough choices in order to live up to its international obligations and to put its long-term economic interests above domestic politics. Taiwan is a part of the Asia-Pacific region’s economic future. We look forward to working with Taiwan as it builds cooperative and credible partnerships throughout the region, including with the United States.