Taiwan brief

Overview

Taiwan is an island in the Pacific Ocean, separated from the China mainland by the Taiwan Strait. The island was historically known as 'Formosa', from the Portuguese: Ilha Formosa, meaning beautiful island. About half the size of Tasmania, Taiwan is home to a population of around 23 million, similar to that of Australia, making it one of the most densely populated areas in the world. Situated on the Pacific "ring of fire", Taiwan is seismically active, and the central and western parts of the island are ruggedly mountainous, reducing the area available for agriculture or habitation. In addition to the main island, Taiwan administers a number of smaller islands and archipelagos including the Penghu Islands in the Taiwan Strait, and Matsu and Kinmen Islands close to the shore of China's Fujian Province.

China's Nationalist government withdrew to Taiwan following its defeat by Mao Zedong's Communists in 1949. Despite losing control of the mainland, the Nationalist government maintained it was the legitimate government of the whole of China, through the Constitution of the Republic of China adopted in 1946, and established its capital in Taipei in the north of Taiwan. Subsequent constitutional amendments have distinguished between the 'mainland area' and the 'free area' under control of the authorities in Taiwan, but the Republic of China still claims to be the legitimate government of the whole of China.

The Australian Government recognised the People's Republic of China (PRC) as the sole legal government of China through the Joint Communiqué with the PRC of 21 December 1972. As a consequence, Australia does not recognise that the authorities in Taiwan, who claim to be the government of the Republic of China, have the status of a national government. This is the basis of Australia's one-China policy. All Australian governments since 1972 have adhered to this policy.

Although Australia and Taiwan do not have official diplomatic relations, the Australian Government strongly supports the development, on an unofficial basis, of two-way economic and cultural contacts. Australia supports Taiwan's participation in international organisations and conferences where appropriate and where a consensus on such participation can be achieved. The Government encourages Australian business to pursue trade and investment opportunities involving Taiwan and supports the development of people-to-people contacts.

Political overview

System of government

Since the end of martial law in 1987, Taiwan has transformed itself into a vibrant democracy. The first democratic elections for the Legislative Yuan (legislature) were held in 1992, with democratic elections for the Presidency following in 1996.The central government consists of the Office of the President and five branches – the Executive Yuan, Legislative Yuan, Judicial Yuan, Examination Yuan and Control Yuan. The President, as Head of State, has command of the armed forces and the authority to promulgate laws under the Constitution of the Republic of China.

The Executive Yuan, Taiwan's Cabinet, is the main policymaking arm of government, and consists of the Premier, Vice Premier, Ministry and Commission Chairs, and Ministers without Portfolio. Its members are presidential appointees in the American style rather than elected representatives. Currently, there are nine ministries and 24 other agencies under the Executive Yuan.

The Legislative Yuan is Taiwan's law-making body, or parliament. It comprises 113 legislators, elected to four-year terms from a mixture of single-member electorates and proportional representation seats. In addition to making laws, the Legislative Yuan's functions include questioning government officials and ministers on policies; reviewing budgetary bills and audit reports, and confirming presidential nominations to top government posts. It also has the power to impeach the president or vice president.

Political developments

There are two main political parties in Taiwan. The modern Kuomintang (KMT), evolved from the former military government Nationalist Party. The KMT's support base is in northern Taiwan, where the Nationalist government and its supporters from the mainland established their new capital, Taipei. The KMT generally supports a conservative free-market agenda, although it maintains support for some state intervention in important sectors of the economy through a number of large state-owned enterprises that had been established under the Nationalist government.

The pro-democracy movement of the 1970s and 80s gave rise to the Democratic Progressive Party (DPP). The DPP's support base is in southern Taiwan, particularly among the "Taiwanese" communities established prior to the arrival of the "mainlanders" in 1949. As a result, some elements within the DPP support Taiwan's de jure independence from China. The DPP held power from 2000 to 2008 under President Chen Shui-bian, whose leanings towards independence heightened tensions with China. The DPP's broader policy agenda is generally socially progressive, focusing on issues such as social inequality and the environment.

Presidential and parliamentary elections in Taiwan were held together in January 2012. This was the fifth time Taiwan has held a popular presidential election since the first in 1996 (four year terms).

Dr Ma Ying-jeou of the KMT won the presidential election with 51.6 per cent of the vote. Challenger Dr Tsai Ing-wen of the DPP received 45.6 per cent of the vote, James Soong of the People First Party (PFP) 2.8 per cent.

In the parliamentary (Legislative Yuan) election, the KMT retained a majority, winning 64 of the 113 seats but reduced from the 72 seats it held in the previous legislature. The DPP won 40 seats, eight more than in the previous legislature. Three seats were secured by Soong's PFP, the Taiwan Solidarity Union also won three, and the Non-Partisan Solidarity Union won two. The remaining seat was taken by an independent candidate.

Ma's election for a second (and final) term promises a continuation of the cross-strait rapprochement seen during his first term. Ma has said that economic issues remained Taiwan's priority in its relations with China, and it was in no rush to begin dialogue on political issues. Ma's China policy puts "pressing matters before less pressing ones, easily resolved issues before difficult ones and economics before politics."

Cross-Strait relations

The Government of the PRC in Beijing claims sovereignty over Taiwan. PRC policy statements advocate peaceful reunification while refusing to rule out the use of military force if this cannot be achieved. The PRC codified its position in 2005 when it enacted its Anti-Secession Law.

On the Taiwan side, Ma Ying-jeou has undertaken to maintain the status quo in the Taiwan Strait, under the principle of "no unification, no independence and no use of force" (commonly referred to as the "three no's") and within the framework of the Constitution of the Republic of China.

Relations across the Strait are managed via "semi-official" agencies: Taiwan's Straits Exchange Foundation (SEF) and China's Association for Relations across the Taiwan Strait (ARATS). The SEF and ARATS have concluded eighteen agreements designed to ease economic restrictions since Ma came to power. Many impediments to cross-strait trade and investment have been removed – including the establishment of direct transport and tourism links and cooperation on a range of communications, financial, judiciary and agricultural trade concerns. The Economic Cooperation Framework Agreement (ECFA) came into effect in September 2010 and promises to continue progress in liberalising goods, services and financial sectors. Articles in the ECFA cover intellectual property rights protection, trade facilitation, industrial cooperation and trade relief measures and the establishment of a Cross-Strait Economic Cooperation Committee to handle follow-up negotiations, monitor implementation and serve as a mechanism to resolve disputes arising out of the implementation and interpretation of the ECFA.

International recognition

Most governments recognise the PRC as the sole legal government of China and do not recognise Taiwan. Currently 22 states recognise Taiwan as the Republic of China (ROC): Belize, Burkina Faso, Dominican Republic, El Salvador, Guatemala, Haiti, Holy See, Honduras, Kiribati, Marshall Islands, Nauru, Nicaragua, Palau, Panama, Paraguay, Sao Tome and Principe, Solomon Islands, St Lucia, St Kitts and Nevis, St Vincent and the Grenadines, Swaziland and Tuvalu.

Taiwan maintains extensive unofficial ties with countries that do not recognise it, focusing on trade, investment, culture and cooperation in non-political areas. Taiwan has more than 100 representative offices in over 70 countries, including four offices in Australia (Canberra, Brisbane, Melbourne and Sydney), which have the title "Taipei Economic and Cultural Office" (TECO).

Since 1971, when the PRC replaced the ROC in the United Nations, Taiwan has not been a member of any UN bodies, for which statehood is a requirement. Since 2009, Taiwan has been invited to attend the World Health Assembly as an observer.

Taiwan acceded to the World Trade Organization (WTO) as the "Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu" with effect from 1 January 2002. Since its admission to the Asia Pacific Economic Cooperation (APEC) in November 1991 as "Chinese Taipei", Taiwan has played a positive and constructive role in APEC activities (China and Hong Kong were also admitted at the 1991 APEC meeting).

Economic overview

Until the mid-1960s Taiwan's economy was dominated by agriculture, especially rice and sugar production. One of Asia's 'Four Tigers', the development of export-oriented manufacturing transformed Taiwan's economy and labour force into one defined by urban and industrial production. By the 1980s Taiwan began exporting its low-technology manufacturing offshore, especially to China. More recently there has been a trend for some of Taiwan's more advanced, high-tech industries to follow suit. Today Taiwan is also increasingly a tertiary economy, with services accounting for almost 70 per cent of national output and over half of all employment. Taiwan's GDP for 2013 is estimated to be US$484.7 billion in current prices, with a population of 23.3 million and estimated per capita GDP of US$20,706.  

Taiwan's economy rebounded strongly after the Global Financial Crisis with real GDP growing by 10.8 per cent in 2010. In 2011 GDP growth slowed to 4.1 per cent reflecting decreased demand for Taiwan's exports, a contraction in private investment, and a reduction in private consumption. Renewed global uncertainty over the impact of the European debt crisis, concerns over a slowdown in China and a fall in exports slowed the economy through 2012, with GDP growth at 1.3 per cent. In 2013, GDP growth picked up to an estimated  2.2 per cent.

Agriculture receives government assistance including import protection and domestic support. Import protection involves high tariff rates, tariff-rate quotas and special safeguard measures. Taiwan’s average tariff on agricultural products is 17.4 per cent (WTO definition). Domestic support in Taiwan includes price stabilisation measures, subsidised loans and inputs, and income support for senior farmers. Government intervention continues to focus on rice.

Taiwan is relatively open to foreign investment. Foreign Direct Investment (FDI) in Taiwan totalled US$5.56 billion in 2012. The largest foreign investors in Taiwan are the United States, British Overseas Territories in the Caribbean, the Netherlands and Japan. Taiwan has relatively few restrictions, although foreign businesses periodically raise concerns about red tape and the slow progress of deregulation in a number of sectors, including telecommunications and financial services. For the most part, foreign investment application and approval processes are straight-forward. (Taiwan ranked 16th out of 189 economies in the World Bank's Ease of Doing Business Index as at June 2013).

Bilateral economic and trade relationship

Overview

Taiwan was Australia's 6th largest merchandise export market and 14th-largest source of merchandise imports for the 2012-2013 financial year. Australia's merchandise exports to Taiwan in the 2012-2013 financial year were worth A$7.5 billion. Major exports were coal, iron ore, aluminium and crude petroleum. Imports from Taiwan were worth A$3.8 billion in the 2012-2013 financial year. Key imports include telecommunications, refined petroleum, cycles, and computers. Australia's prominence in the supply of resources and primary products to Taiwan, and the significant value of Taiwan's high-technology exports to Australia, underpin the complementary nature of the trading relationship between the two economies.

In 2012, Australia was the fourth-largest exporter of agricultural products to Taiwan, the most important items being beef, wheat and dairy. Australian food and lifestyle products are increasingly popular in Taiwan, with medicaments, including items such as vitamins and health supplements, becoming a major export item worth A$408 million in 2012.

Two-way services trade totalled A$957 million in the 2012-2013 financial year (A$647 million in Australian exports to Taiwan and A$310 million in imports from Taiwan). Taiwan is a major tourism and education market for Australia and Taiwan and Australia have a mutual working holiday maker (WHM) arrangement (and as at 30 June 2013 there were 25,272 WHM visa holders from Taiwan).  

Two-way foreign investment is showing signs of growth, albeit from a low base. Taiwan investment in Australia was A$5 billion in 2012. There have been a number of recent announcements of Taiwanese investments, including in Australian resources projects. In 2012, Taiwan’s CPC Corporation announced it would take a 5 per cent equity stake in Shell’s Prelude floating LNG project in the Browse Basin, with the deal finalised in February 2013. Taiwan’s largest private company, Formosa Plastics Groups, is also a significant investor in Australia’s resource sector, having committed to invest A$1.26 billion into the Pilbara region with Fortescue Metals Group in August 2013. Australian investment in Taiwan in 2012 stood at A$3.7 billion. The largest Australian investors are the Macquarie Group and ANZ. Macquarie has a stake in one of Taiwan's leading cable and digital TV operators – Taiwan Broadband Communications, and also has investments in wind farms and container terminals. ANZ has been in Taiwan since 1980 and was the largest foreign investor in Taiwan in 2012 investing $333 million to upgrade its retail banking operation from a branch to a subsidiary.

Australian trade and investment strategies

Australia holds annual Bilateral Economic Consultations with Taiwan. The consultations cover a wide range of issues, including market access, investment, agriculture and clean energy. Both sides also hold annual Joint Energy and Minerals Trade, Investment Cooperation Consultations and an Agricultural Working Group meeting to support trade and investment in these sectors. The Australian Government supports the work of the Australia-Taiwan Business Council and encourages trade and investment in Taiwan. Arrangements with Taiwan to facilitate trade cover issues such as quarantine and double taxation.

For more information on export opportunities and export assistance in Taiwan, visit Austrade's Taiwan country page

Updated January 2014