TAIPEI (May 17): “Go west!” is the mantra Taiwanese companies lived by for the best part of three decades, turning China into their biggest trading partner. But with cross-strait relations at their worst in close to a decade, President Tsai Ing-wen is urging firms to turn south.

Tsai wants to mitigate reliance on the mainland by bolstering trade with 18 countries in Southeast Asia and South Asia, including Australia and New Zealand, a departure from her predecessor Ma Ying-jeou’s promise of stronger growth through better ties with China. 

But Taiwan must further strengthen regional relations with other governments if Tsai’s New Southbound policy is to succeed, top trade negotiator John Deng said in an interview in Taipei last week. The minister without portfolio said the main problem is that trade ties with Southeast Asia have often been based on personal relationships rather than formal government communications.

“Other countries have already established themselves in this important region,” he said. “We need to be highly ambitious. Our ties can’t be allowed to disappear if people change positions.”

The Southbound policy’s target countries account for 22% of exports compared with around 40% for China. But while the mainland’s numbers are stagnating, Southeast Asia is increasingly becoming Taiwan’s driver of growth. Total exports rose 13.6% from January to April, with exports to Southeast Asia rising 17%.

The focus on Southeast Asia goes back to Taiwan’s first democratically elected president, Lee Teng-hui, who proposed the first “Go South” policy in the 1990s; his successor Chen Shui-bian continued the push. But when Ma took over in 2008, the focus switched firmly toward better relations and trade with China.

Beijing has claimed Taiwan as part of its territory, to be united by force if necessary, ever since the two sides split as the civil war drew to a stalemate in 1949. A prerequisite for countries dealing with China is dropping any official diplomatic ties with Taiwan. 

Deng says stronger institutional relations with other countries in Asia doesn’t mean pushing for formal recognition for Taiwan, but rather that Taipei must be able to negotiate directly with other governments to ease the path for Taiwanese companies looking to invest in the region.

Diplomatic Isolation

Despite having official ties with just 21 mainly developing countries in the Pacific, West Africa and Central America, Taiwan signed free-trade agreements with New Zealand and Singapore in 2013. All other investor-protection agreements it has with other countries were signed decades ago.

Eddie Chang, the former president of Taiwanese bubble tea maker La Kaffa, led the company’s expansion into Southeast Asia. Now a consultant specializing in overseas expansions, he says diplomatic isolation is an issue.

“The lack of official ties is the biggest problem local companies face when investing overseas,” he said. “Add to that the fact the judicial systems in these countries are less developed, and you don’t stand a chance if there’s a legal dispute.”

He said many Taiwanese companies get around that by registering in another country or joining forces with investors from a third country to enter a market under their banner. Compared with other countries, Taiwanese companies have been late to enter Southeast Asia and can’t afford to ignore the fast-growing region’s potential, according to Carl Liu, an economist at KGI Securities in Taipei.

“Taiwan’s trade with the US and Europe is declining,” Liu said. “The goal now is to take advantage of the fact trade with Southeast Asia is growing faster than it is shrinking with other regions, so total trade can keep expanding.”

Of the 18 countries targeted by the Southbound policy, Deng identified six, including Indonesia, Vietnam and the Philippines, as priorities for signing new investment-protection and tax-exemption agreements. Companies the government owns stakes in, such as Chunghwa Telecom Co., Taiwan Sugar Corp. and Taiyen Biotech Co. are leading the way.

While investment may take time to show signs of accelerating, tourism is one area where the government can point to immediate results. 

Since Tsai’s inauguration a year ago, leaders in Beijing have cut all direct ties, insisting she first acknowledge Taiwan is part of China. While mainland arrivals in the fourth quarter fell 40% from a year earlier, Taiwan posted a record number of visitors in 2016 after relaxing visa restrictions for tourists from Southeast Asia.

The foreign ministry plans to ease tourism rules even further to ensure the number of arrivals from that region continues to grow, according to Deng.

“Before, changes to visa regulations fell through because we always insisted on reciprocity from the other country,” Deng said. “But then something clicked in us. It’s better for us if they just come.”