ASEAN and Taiwan: Cooperation opportunities amid diplomatic constraints
US House Speaker Nancy Pelosi's August 2022 visit to Taiwan has dominated regional headlines. Southeast Asian strategic experts and diplomatic communities have quickly calculated the potential implications of her visit and those of a series of subsequent high-profile American visitors to Taiwan for ASEAN and the future of ASEAN-Taiwan engagement.
As the region most affected by US-China competition and rivalry, ASEAN immediately warned of the risk of miscalculation and declared its desire to play a constructive role in facilitating peaceful dialogue. ASEAN reaffirmed its support for the "one China" policy, recognising Taiwan as an inalienable part of China's territory. Thus, very little on ASEAN-Taiwan engagement has been written by scholars so far. Most analyses of a potential fallout have focused on ASEAN-Taiwan trade prospects.
ASEAN-Taiwan engagement: representative offices and trade
ASEAN-Taiwan engagement is unique as both sides do not have formal diplomatic relations. Taiwan has a representative office in Singapore, an economic and trade office in Indonesia, and six economic and cultural offices in Brunei Darussalam, Malaysia, Myanmar, the Philippines and Vietnam. All ASEAN countries except Cambodia and Laos are represented by similar representative offices in Taipei.
Despite the lack of official diplomatic ties, bilateral economic relations have advanced given converging interests: Taiwan urgently needs to reduce its economic dependency on mainland China and diversify its trade and investment portfolio. Meanwhile, ASEAN envisions itself as an inclusive and open trade and investment bloc in the Indo-Pacific and would like to be more proactive in shaping the regional trade architecture.
In 2019, 47% of Taiwan's total overseas investment and production went to ASEAN.
Trade between ASEAN and Taiwan has grown substantially, especially after President Tsai Ing-wen's New Southbound Policy (NSP). Taiwan successfully diverted almost 10% of its investment funds from China to ASEAN after the policy took effect in 2016. In 2019, 47% of Taiwan's total overseas investment and production went to ASEAN. Of this, Vietnam, Malaysia, the Philippines, and Indonesia attracted 40% of Taiwan's total investment in ASEAN.
...digital transformation will increase the demand for chips globally, ensuring that Taiwan will remain relevant. Deepening trade relations will likely reinforce ASEAN and Taiwan's competitive advantage in the years to come.
Could this economic momentum be maintained despite China's pressures on ASEAN member states not to recognise Taiwan as a sovereign state? There are at least two possible scenarios to be explored.
First, ASEAN and Taiwan have the potential to deepen their trade relations. Both are critical fulcrums in global trade and investment. ASEAN's tremendous growth potential provides investment opportunities for international partners while members such as Indonesia, Malaysia, and Vietnam are vital suppliers of metal commodities.
Meanwhile, Taiwan dominates global semiconductor chip production, capturing 66% of market share by revenue, and has successfully established itself as an important global logistics hub for assembly and automation technology. Although the US and China have attempted to re-shore chip production to their countries through their respective CHIPS Act and Made in China policies to curb dependence on Taiwan, it will take time for them to catch up with Taiwan's manufacturing capability and expertise in high-end chips. Also, digital transformation will increase the demand for chips globally, ensuring that Taiwan will remain relevant. Deepening trade relations will likely reinforce ASEAN and Taiwan's competitive advantage in the years to come.
There are models for ASEAN and Taiwan to formalise this economic bond. For instance, they can use the ASEAN-Hong Kong, China (HKC) Free Trade Agreement, which entered into force in 2019, as a precedent. Alternatively, bilateral arrangements with individual ASEAN members could take root. Taiwan already has the Agreement between Singapore and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu on Economic Partnership (ASTEP).
ASEAN and Taiwan could explore the opportunity of paradiplomacy or city-to-city cooperation in the absence of formal state-to-state partnerships.
In the current geopolitical situation, ASEAN members initiating trade agreements with Taiwan might be quite risky, certainly where irking China is concerned. But establishing such agreements will bring legal certainty, better market access, and fair and equitable treatment, which would intensify trade and investment flows between ASEAN and Taiwan.
City-to-city cooperation
Second, ASEAN and Taiwan could explore the opportunity of paradiplomacy or city-to-city cooperation in the absence of formal state-to-state partnerships. To the Taiwanese, this alternative form of diplomacy will be essential for strengthening Taiwan's global engagement.
For instance, ASEAN and Taiwanese cities could explore pragmatic cooperation such as exchanges of expertise, transfers of knowledge, and research collaboration. One excellent example is the global city-twinning programme that allows cities to pool their resources to procure and manage digital infrastructure, thus reducing costs.
For cities adapting to the fourth industrial revolution, where local infrastructures are becoming more digitised and connected beyond national borders, robust technical cooperation for a specific cause can reap economic and other advantages. An exemplary precedent is a new agreement to establish the world's longest green and digital corridor for low and zero-carbon shipping between Singapore and Rotterdam.
It is possible to imagine ASEAN and Taiwan exploring paradiplomacy. ASEAN, in fact, has been exercising this since it launched the ASEAN Smart Cities Network in 2018, which has successfully empowered 26 ASEAN cities to articulate their goals and needs for smart and sustainable urban development and pair up with global partners.
ASEAN can leverage this opportunity to provide a platform for Taiwanese and ASEAN cities to explore meaningful cooperation.
Taiwanese cities have performed well in various international rankings and will be viable partners. Taipei ranked fourth on the 2021 Smart City Index published by the Swiss Institute of Management Development and was rated the tenth Most Liveable City in 2022 by lifestyle magazine Monocle, showcasing its excellent technological capacity, high quality of life, and sustainability leadership.
However, Taiwanese cities are underrepresented in city government networks worldwide. Taiwan's exclusion from the United Nations framework frequently hinders its participation in UN-backed global city fora such as the United Nations Human Settlement Programme (UN-Habitat) and the UN Department of Economic and Social Affairs (UNDESA). ASEAN can leverage this opportunity to provide a platform for Taiwanese and ASEAN cities to explore meaningful cooperation. By doing so, ASEAN will showcase its commitment to openness and inclusivity while still respecting its commitment to the "one China" policy.
It would be unfortunate if the current Sino-US political tension deters ASEAN from pursuing substantive cooperation beyond economic areas with Taiwan. Despite having a limited diplomatic space in which to manoeuvre, ASEAN and Taiwan must continue finding ways to boost connectivity for mutual gain.
This article was first published by ISEAS - Yusof Ishak Institute as a Fulcrum commentary.