Across the Strait: The Case for a Special EU-Taiwan Trade and Investment Partnership

 

by Horia Ciurtin LL.M., Managing Editor of the EFILA Blog*

Not Just a Bridgehead: Mercantile Reflections on EU’s Taiwan Position

 At the crossroads of global trade, Taiwan represents a hot spot that unites the flows of goods and capital from near mainland China, from the South-East Asian cauldron, as well as a bridgehead for Western transoceanic commerce and investment. Not truly an island (in the sense of isolation), but a focal meeting point between two seas and an (open) ocean, Taiwan strategically lies in one of the best positions in opening up the Asian markets to larger influxes of EU-based products and capital.

Economically speaking, the relation between the supra-national European entity and the quasi-national Taiwanese one presents quite balanced trading features and a totally asymmetric degree of FDI. Thus, according to the 2015 EU Factfile on the matter, in 2014, while Taiwan exported goods and services in value of around 26.5 billion EUR to the European conglomerate, the EU exported somewhat less to Taiwan, around 22 billion EUR. On the other hand, the FDI situation is reversed in respect to the two actors: while the investment flows originating from the EU rise to approximately 0.8 billion EUR (9.1 billion stocks), those of Taiwan going to Europe are of 0.1 billion EUR (1.1 billion stocks).

In this regard, the European Union is the most prominent investor in Taiwan, representing nearly 25% of all the FDI received by the insular entity. The striking disequilibrium between the investment flows in and out of Taiwan is paradoxical in the conditions in which this particular Asian economy invests in other parts of the world at a much higher level (for example in the Caribbean, its investments flows are 4 times higher than in the EU) or at a similar level with its EU investments, despite not receiving the same investment inputs (for example, in Vietnam or Japan). Moreover, when looking at the accumulated investments in the 1952-2014, it appears that the EU ranks first in Taiwan, while the island’s investment in the EU is only the 7th destination of its funds, ranking far below the Caribbean zone, the US, Singapore or Vietnam.

This asymmetric investment relation between EU and Taiwan takes place in the context of a European adherence to a formal strict One China policy, in line with its member states and transatlantic allies. No political or diplomatically ties are officially admitted among the two entities, in deference to China’s position toward the Taiwanese islands. The strategical factor here plays a fundamental role. It was not until the China-Taiwan relations were formalized in the cross-strait agreements in 2010 that the EU actively began to approach Taiwan in search for a bilateral arrangement.

Muddying the Waters: Hermeneutic Reflections on the EU’s Taiwan Position

Later on, in 2013, the Parliament mandated the Commission to seek ways to accommodate these geopolitical imperatives with a more economic-oriented perspective. At a first glance, a complete warming-up was appearing on the Taiwanese horizon. The rhetoric seemed to go beyond what is usually expected when dealing with Taiwan and its uncertain legal status, portraying a future relation from authority to authority (and not informal-commercial surrogates) and an institutional grounding.

However, as always, the devil is in the details. In this case, the language details of the resolution. Thus, the Parliament’s formal acknowledgement reveals the limits of such a mandate and the caveats it intrinsically implies. When confronted with the Chinese ‘elephant in the room’, the drafters feel the need to justify their decision on the PRC’s approach to enter itself into such prior agreements with Taiwan. Moreover, the resolution states that “whereas closer economic ties with Taiwan do not in any way contradict the EU’s ‘one China’ policy” and that “the decision to start such negotiations with Taiwan should be based on economic reasons, and should not be interlinked with an assessment of relations between the EU and the People’s Republic of China”.

A continuous hesitation of the EU side to assume the initiative subsists in the entire document. It heavily relies on other states’ decision to do so, on the multilateral framework of which Taiwan is already a part (WTO, for example) or – the crown-jewel of justificatory rhetoric – the normalization of China-Taiwan relation and the mainland’s prior recourse to such agreements. We did it just because others did it. Even China did it.

Hermeneutic analysis reveals an indecisive language, far below the intensity expected even in diplomatic documents. The emphasis on the purely economic dimension of the relation is relevant. No trade and investment treaty is simply economic. And everybody knows it. It is also strategic and a geopolitical statement. By formally – and vehemently – denying it such value, any future agreement is left in a mercantile limbo, deprived of symbolic – and effective – power. Among the risks of not being clear enough is not being able to settle a conflict once it occurs.

Simply economic, without a diplomatic – and, yes, political – dimension, the possibility of such a treaty appears as a rhetorical exercise. Two contracting parties with only ‘business interests’ and no identifiable political relation are not really playing the ‘great’ game of international relations. And no subsequent enforceability of their agreement might arise. Muddy (legal) waters allow no divers, no swimmers and no steady flux of boats to carry goods across them.

Beyond Sovereignty: An Interaction with Systemic Stakes

The truth is that the EU should not be afraid of institutionalizing its relations with Taiwan. From a legal point of view, none of them is truly and traditionally a ‘sovereign’. None of them can be – at the moment – perfectly circumscribed within the Westphalian system. And no actual risk exists for the individual state entities involved in the international agora. Rather, such a post-sovereign mode of interaction might open the possibilities of a different systemic configuration: supra-national entities contracting with quasi-national ones in a newly found order. Beyond the sovereign state.

On the other hand, the EU’s reluctance (as that of its member states or the US) to formally institutionalize its engagement with Taiwan is simply a historical and circumstantial position that lives on by inertia. In the post-Cold War environment where everybody rushed to admit Kosovo to the new ‘concert’ of states, Taiwan’s uncertain status lingers without any principled reason. By itself, such a decision was bound to upset major powers (i.e. Russia), even cause discord within the community of the EU member states, to trouble the fragile order of the Balkans even more. However, there was no impediment in going further in this direction and even considering the possibility of a future Kosovo accession to the EU.

In the same fashion, there is a significant support from EU institutions for the establishment of an independent Palestinian state, continuously urging for its future recognition despite vehement Israeli opposition. Of course, Taiwan’s situation is less tragic and incommensurately more complex, but it poises similar conceptual problems regarding recognition.

While understandable for classical sovereigns, such a hesitant position appears paradoxical when stemming from the EU, the self-styled postmodern entity that was to break away with Vattel’s system. In its assumed mission of using ‘soft power’ and moving away from frivolous geopolitical calculations, the EU appears as the most likely source for taking the debate a step further in the Taiwan case. Given the 2016 elections in which the DPP party won the presidential campaign, it might be possible that Taiwan’s rhetoric of autonomy rises in intensity, rather than decreases. In such conditions, it is interesting to see how the EU reacts to a legitimate desire for self-determination of a democratic community.

The post-sovereign reality of EU itself could present the Western states a chance to nuance their position towards Taiwan. The European colossus is not in any acute danger of being excluded from commerce with the discontent actors. It only faces an immediate period of diplomatic pressures (both from competitors and allies), but its irreplaceable locus is not threatened in any fundamental way. However, failing to live up to its promises as a benevolent and avant-garde hegemon might damage its reputation and the reach of EU ‘soft power’.

Moreover, the interaction of two entities that are ‘deviant’ from the classical assumptions of Westphalian sovereignty might not cause too much of a turmoil. It can – at any moment – be presented as a rather ‘exotic’ and unrepeatable manner of establishing relations in the international agora. The broad – and decoupled – mandate of the Commission might preserve the image of its member states in front of virtual Sinic dissatisfaction. The Commission did it. Not us.

On the other hand, the manner in which the EU can interact with Taiwan might not really disrupt the Westphalian status quo in an essential manner, as it is able to speak a language very different from that of sovereignty. Therefore, the established relations neither need to conform to traditional diplomatic categories of sovereign-to-sovereign parlance, nor do they have to resort to informal surrogates of such institutions. A different, post-sovereign and non-statist mode of interaction can emerge. EU can thus accommodate Taiwan’s need for recognized autonomy without bringing into discussion the notion of sovereignty or its diplomatic corollary. Such a new type of relation would appear as one that maintains EU’s rhetorical coherence and does not threaten China’s position.

The Win-Win Perspective: (Not Only) Trade and Investment

In this sense, a proper way forward could take the form of a fully-assumed trade and investment treaty, of a comprehensive instrument regulating international business flow. This would be consistent with EU’s active policy of signing expansive FTAs over the world (take, for example, the EU-Vietnam FTA, the EU-Singapore FTA or the highly-debated CETA and TTIP). Its negotiation power would be higher than with most other contracting parties, offering EU the opportunity to implement its wildest innovations in the field of ISDS and investment protection.

However, such an agreement would be of little use if the avoidant language of diplomatic-surrogates is deployed. The existing mode of interaction (for example, in the India-Taiwan BIT, the Thailand-Taiwan BIT, Vietnam-Taiwan BIT) places the agreement under the aegis of the Taipei Economic and Cultural Office/Centre and its corresponding institution from the other state. This type of ‘treaties’ serves no practical purpose when confronted with the harsh reality of cross-border investment. Take, for example, the anti-Chinese riots in Vietnam where numerous Taiwanese individuals and businesses were also strongly affected. The threat of using the Vietnam-Taiwan BIT (improperly called so) brought on no true reaction from the other side, as the Vietnamese officials knew all too well the limits of such an agreement. As did the Taiwanese side.

With no possibility of further using the ICJ if arbitration fails, Taiwan is left in a legal limbo. The ‘representative offices’ signing such agreements in a quasi-official capacity do not really create binding obligations under international law. At least not truly enforceable. And thus such ‘BITs’ are left at the will and whim – or idealistically said, at the good-will – of the other party to accept the jurisdiction of an arbitral tribunal. And then to voluntarily comply with the outcome of the arbitral proceedings.

In reality, the EU needs to move further from this existing model of interaction. But neither go in the opposite direction of engaging in an endless – and, finally, sterile – discussion about sovereignty. As a post-sovereign hegemon of global caliber, the EU is able to treat Taiwan in its ‘eccentric’ manner and establish a sui generis type of interaction. One that does not avoid direct institutional and formal relations, but also does not get entangled in the Westphalian vocabulary of inter-state connections.

From a mercantile perspective, this would also permit EU to bolster its SME focus as Taiwan presents itself as a success story of small businesses that sustain a vibrant market economy. Its democratic institutions (although quite new and imperfect, but not unlike those of some Eastern EU member states) are a guarantee for the relative degree of fairness in treating foreign investors and complying with its commitments. In addition, once allowing the access of Taiwanese investors on a more comprehensive level on the European market, the disequilibrium of outbound and inbound investment might ameliorate and help the EU diversify its sources of capital.

On the other hand, the Taiwanese subsidiaries of EU companies would largely benefit from Taiwan’s position and – in the safe harbor of a stable and free market environment – could expand in the near South-East Asian zone while avoiding some of the inherent turbulence of the area. Their double quality (of EU origin and Taiwanese operational mechanisms) would allow the European companies to take all the benefits of working from such a privileged geographic and political position, as well as circumventing the problems of being a purely Taiwanese economic entity.

And thus – symbolically – both EU and Taiwan would gain from such a bargain, allowing the European entity to advance its systemic agenda of transforming international relations and permitting Taiwan to escape its uncertain status. In this win-win scenario, the only major loser is the notion of sovereignty. A concept that seems to function rather erratically in our multipolar world. For these reasons, the sovereignty discussion would not be put under silence because it is uncomfortable, but rather because both parties – postmodern entities – regard it as irrelevant for their relation. A sui generis interaction. At the twilight of Westphalia.



 * Horia Ciurtin, Managing Editor, EFILA Blog; Legal Adviser – International Arbitration, Scandic Distilleries S.A; Editor, VERSO Journal [Romania]; Freelance researcher [see SSRN author page].

Redefining the ‘Centre’: International Economic Law and Grand Strategy in a Multipolar World

by Horia Ciurtin LL.M., Managing Editor of the EFILA Blog*

(Legal) Multipolarity Revisited: What Lies Beyond Westphalia?

This brief introduction to such an ambitious thematic must undoubtedly commence by positing its adherence to the (non-legal) core concept of ‘grand strategy’ and its realist avatars in international economic law. More precisely, it shall be argued that – at a certain level – the normative sphere is instrumentalised by competing nomothetic actors in order to enhance their power position and joint economic security, in a troubled multipolar world.

Thus, following John Mearsheimer’s influential paradigm and his (in)famous 1994 article regarding the false promise of international institutions, it can be affirmed that the “[international] institutions are basically a reflection of distribution of power in the world” and that the most powerful actors in the system “create and shape institutions so that they can maintain their share of world power, or even increase it”. For these reasons, international law and its main agents – international institutions – represent a formalised, but temporary consensus in the clash of competing interests.

However, this side of the story is entirely accurate only for an international arena dominated solely by sovereign state actors. Presently, as the Westphalian international system of autarchic legalities disintegrates, paving the way for a post-sovereign order, a different relation between legal macro-spaces (or, as Carl Schmitt famously called them, Grossräume) seems to emerge. New power blocs are forged from the global economic bellum omnium contra omnes, allowing them to surpass the notion of sovereignty and building stranger ‘empires’ bound together by the cold letter of international treaties which – eventually – develops into a more stable quasi-constitutional internal order.

The European Union, the NAFTA space and the Eurasian Union are just a few examples of this trend. Each of these blocs implies a loss or – at least – a limitation of state sovereignty in several fields, in the quest for attaining the upper hand in a larger global confrontation with other blocs or singular actors. In a certain way, some sovereignty is individually lost so that the sovereigns might increase its projected power in a joint manner, following their grand strategy for hegemony.

In such circumstances, the classical balance of power cannot any longer occur between single states and their shifting alliances, but rather among macro-spaces united in formal legal agreements (later turned into quasi-constitutional orders). Even though, as posited by Mearsheimer and other realists, self-interest and the desire for hegemony might drive sovereigns into such legal constructs, their origin does not account for their further development.

Thus, once roaming the international arena, macro-spaces appear as a new breed of economic ‘predators’, more powerful and more fit for survival than the sovereigns taken separately, factor which convinces such states that a (post)sovereign structural alignment might take them further in the quest for power and hegemony, despite having to share some part of the spoils with the co-victors.

Normative Mimesis: Imperial Weapon or Remedy for Lingering Divisions?

In such a context, can we still refer to a truly international system or just a series of regional sub-orders that economically interact in an episodic manner? Is the international order now also territorially fragmented, in addition to the already decried functional fragmentation?

If once upon an idealist time, ‘autonomous’ normative systems – such as FTAs, BITs, multilateral trade agreements – and the institutions that administrate them were thought to act as gap-filling mechanisms, offering a cohesive and coherent paradigm to an otherwise centrifugal setting, the new global paradigm reveals the original realist tenet.

More precisely, major power brokers – be it soft or traditional – use such instruments for their own strategic goals. While alignment with like-actors is carefully negotiated in a quest for convergence of paradigms and tactics, the relationship with non-aligned or competing actors is defined in different terms, seeking to advocate for rules that would attract the other in one’s own normative realm.

Setting an example, triggers normative mimesis. A ‘centre’ dominates the periphery solely by creating a model. With a model consistent enough, advocated by an actor strong enough (often adversarial), there commences a process of legal emulation and ‘bandwagoning’. The ones left on the margins will try to imitate the centre’s model in order to gain recognition and reflect its power. Once the peripheries and non-aligned actors had been attracted in the ‘gravitational’ area of a hegemonic actor, other hegemons might succumb to the newly created rules. Imitation is the beginning of legal dominion.

However, such a strategic ‘great game’ in the field of international economic law might not have results as cynical as its origins appear to be. The ailing divisions and fragmentation of this system might benefit from mimetic normativism, forcing reluctant actors in one direction or another and opening the path to an ‘imposed’ con vergence, but nonetheless convergence.

Between TPP and TTIP: Where is the ‘Centre’ of the World?

Such realities and tactics is what determined the BIT ‘European gold standard’ to be quasi-universal in the 20th century. It attracted in its sphere of legal influence both the north-American actors, the ‘Third World’, the Communist and post-Communist states. With few exceptions, such a model became the undisputed norm in international investment law. The trend set by EU (EC) member states in their bilateral relations reverberated across the globe, enveloping former colonies and present allies, benefactors and adversaries, richer and poorer states, without limits or tactical setbacks.

However, the first actor to start diverging from the model was undoubtedly the United States. Near the turn of the century, its FTAs and ‘model BITs’ were developed in an innovative way, reflecting a change of options and a new geopolitical framework. Part of another grand strategy, the US new FTAs and model BITs offered an alternative to the classical ‘neat’ European-inspired BIT, advocating a more expansive view upon international trade and investment.

Following this pattern, the US began the negotiation of two ample FTAs (including consistent investment chapters) along its new comprehensive trade and investment policy. Concentrating in ‘crossing’ both oceans, the US crafted a strategy of gaining an intermediary position between its Asian alterity and European kinship, acting both as a bridge and unavoidable toll-house. With this goal in mind, the US acted so as to transform itself into the epicentre of a globalised world that seems to be increasingly multipolar. Thus, in its design, even though the international arena is unavoidable moving towards plurality, the actors need not be of equal rank. Asymmetry reigns even better in a multipolar setting, allowing north America to be the utmost centre among several centres.

TPP. The first of these two agreements – TPP – involved the strategic lines of concentrating on the Asian ‘pivot’ and attracted twelve states from all around the Pacific Rim (both from North/South America, Asia and Australia), in a multilateral effort to create an open economic space. However, everybody seemed (and still seems) to diplomatically ignore the geopolitical elephant in the room: the total absence of China from the negotiations. If this was merely a legal-economic instrument, such a choice and development would have proved incomprehensible.

If, on the other hand, one analysed the situation (geo)politically, it might lead to different conclusions: (a) either this is one initial step of a ‘containment’ strategy directed against China, (b) or the relationship with China is a privileged one, deserving a bilateral approach between two sovereigns of equal calibre.

Nonetheless, even though China is the great absentee in the TPP game, the conclusion of this agreement – with its myriad of typically American exceptions and derogations – sets the scene for any further development of this legal sphere. The TPP example has been set and – with some effort – it will be ratified and come into full force before the US finishes the negotiations with other high-profile ‘centres’ such, representing a ‘living’ precedent that might compel other actors to follow this model or – at least – to make substantial concessions from their previous practice in the FTA/IIA area.

TTIP. As regards the negotiation of the comprehensive agreement with the European Union, the situation proved to be different from the outset. The 28 member states had a single voice in the negotiation (unlike the 11 Pacific states) with the US and their joint economies accounted for a higher power. One EU tactic for reaching an initial negotiation equilibrium was not to approach the US as part of a larger NAFTA space, but rather to take on individually each of the NAFTA states. Therefore, in the TTIP process, asymmetry was less evident and no decisive ‘upper hands’ appeared during the game.

Moreover, the EU itself also managed to have its ‘model’ tested and set out, in the FTA with Singapore and in the finalised agreement with Canada. At the same time, it also began a more ample FTA programme, envisioning a deal with Vietnam, India, South Korea and – eventually – China. Thus, the EU also strives to be the trend-setter in the FTA/IIA area, introducing its own innovations and idiosyncrasies, concentrating upon Asia and the Pacific Rim itself.

In these circumstances, TPP, EUFSTA, CETA proved to be a ‘prologue’ to the much anticipated clash of EU and US during TTIP negotiations, leaving both actors bound to their own models and with less room for manoeuvre. However, what keeps them wired to the endless rounds of negotiations (so far, eleven) is the idea that – once such an agreement reached – it will transform these two ‘centres’ in a formally allied mega-centre that irremediably sets the example for the entire world.

This is the reason for which each actor wishes to see its own model enshrined in TTIP. Once there, it will be the model. And the normative mimesis triggered thereafter will emulate the rules of the hegemon that managed to formalise its legal strategy in such an influential agreement.


 * Horia Ciurtin, Managing Editor, EFILA Blog; Legal Adviser – International Arbitration, Scandic Distilleries S.A; Editor, VERSO Journal [Romania]; Freelance researcher [see SSRN author page].