2.1 Theoretical concepts and the EU’s diplomatic strategies

In 1949, Kuomintang (KMT) lost mainland China to its rival, the Chinese Communist Party that established the PRC. The ROC government led by the KMT relocated to Taiwan, an island over which the ROC resumed sovereignty following the Japanese surrender at the end of the Second World War.Footnote ¹⁰ In 1950, the UK and the Netherlands were among the first Western European allies to sever diplomatic ties with Taipei and switch recognition to Beijing.Footnote ¹¹ France and the Federal Republic of Germany similarly recognized the PRC in 1964 and 1972, respectively.Footnote ¹² Moreover, the 1971 UN General Assembly Resolution 2758 replaced Taipei with Beijing as the government that represents China.Footnote ¹³ Since 1974, the ROC has only been recognized by the Holy See in Europe.Footnote ¹⁴ To understand how the EU and Taiwan have ‘normalized’ their trade relations and the corresponding legal frameworks without diplomatic recognition, it is critical to understand the theoretical concepts of recognition and non-recognition and their impact on EU diplomacy.

G. W. F. Hegel’s recognition theory provides the basis for the notion of recognition in political theory.Footnote ¹⁵ His master-slave dialectic explains that human behaviour is motivated by seeking recognition peers, and thus, establishing self-consciousness.Footnote ¹⁶ Similarly, in interstate relations, Hegel also asserted that the sovereignty and legitimacy of a state are influenced by recognition by foreign states.Footnote ¹⁷ In the post-Second World War era, political theorists explored the Hegelian idea of struggles for recognition in domestic politics and reinvigorated social equality movements.Footnote ¹⁸ Since the 2000s, the emerging IR literature on recognition has applied the recognition theory to decipher international affairs.Footnote ¹⁹ Commentators averred that the Hegelian analysis of states’ desire for recognition could complement the neorealist assumption that states struggle predominantly for security in anarchy.Footnote ²⁰

IR academics have attempted to crystallize the new IR concept of recognition.Footnote ²¹ They first utilized a psychological approach to interpret state behaviour. This approach was transplanted from ‘identity politics’, which elaborates individuals’ search for recognition of their identities in an intersubjective social process.Footnote ²² Distinguishable from the neorealist angle centred on the pursuit of material power, IR scholars argued that states’ actions are inherently promoted by their psychological desire for having their identity recognized on par with their self-image.Footnote ²³ This identity-driven pursuit of recognition is essentially the ‘struggle for prestige’.Footnote ²⁴ Moreover, IR scholars sought to offer a more balanced examination by stressing ‘the status dimensions of recognition’ based on Fraser’s justice-oriented ‘principle of participatory parity’.Footnote ²⁵ Distinct from identity construction, a status claim focuses on the ‘struggle for dignity’.Footnote ²⁶ In state practice, state actions motivated by the desire for pursuing the identity and status dimensions are often intertwined.

The notions of recognition in IR have developed in parallel with international law. As Hersch Lauterpacht well observed, ‘there is probably no other subject in the field of international relations in which law and politics appear to be more closely interwoven’.Footnote ²⁷ Recognition can be defined as ‘an authoritative statement’ that signals a foreign state’s willingness ‘to treat with a new state or government or to accept that consequences . . . flow from a new situation’.Footnote ²⁸ As for the consequences, recognition can also be seen as ‘an act on the international plane, affecting the mutual rights and obligations of states, and their status or legal capacity in general’.Footnote ²⁹

Central to the EU’s approach to Taiwan, recognition of states and governments are legally different. While recognition of states concerns the international existence (i.e., whether an entity exists as a state), recognition of governments relates to the international representation (i.e., which government represents the state).Footnote ³⁰ Some international law textbooks discuss Taiwan in the category of recognition of governments on the grounds that ‘China’ remains the recognized state, and that the issue is whether Taipei or Beijing represents the state.Footnote ³¹ Yet, in contemporary interstate affairs and judicial practice, the status of Taiwan often falls within the ambit of recognition of statehood.

Notably, discussions on IR’s turn to the recognition theory represent the latest academic attempt to bridge the ‘missing link’ between IR and international law.Footnote ³² It is widely accepted that the granting ‘of recognition by a state is a unilateral act’ and there is no duty for states to accord recognition.Footnote ³³ The great debate that IR and legal academics have commonly discussed lies in the issue of whether statehood hinges on recognition.Footnote ³⁴ There are two main legal theories of recognition. Relying on Hegel’s concept, the constitutive theory holds that recognition completes statehood and is essential to the legal personality of a state.Footnote ³⁵ Consequently, the existence of statehood depends on recognition by foreign states.

In contrast, the declaratory theory contends that recognition only functions as a formal acknowledgement of statehood.Footnote ³⁶ In other words, the existence of a state is a fact, and recognition does not amount to a criterion of statehood. International law practice demonstrates that the declaratory theory prevails over the constitutive theory.Footnote ³⁷ The 1933 Montevideo Convention manifests this position by omitting recognition from the criteria of statehood and indicating that ‘[t]he political existence of the state is independent of recognition by other states’.Footnote ³⁸ Nevertheless, IR academics argue for a constitutive analysis of recognition.Footnote ³⁹ According to them, states’ identity construction and status claim cannot be ignored in construing state behaviour in practice.Footnote ⁴⁰

Non-recognition is often seen as the negative side of recognition. As the EU case illustrates, the tensions and compatibility between a non-recognition policy and the permissible scope of recognition that allows for engagement such as economic pacts often give rise to political dilemma. Non-recognition, which implies a negation of identity and status of states, gives rise to different treatment.Footnote ⁴¹ From the view of unrecognized entities, non-recognition can be perceived as an act of misrecognition premised on injustice and disrespect.Footnote ⁴² Both IR and legal academics understand the legal principle of non-recognition in a similar way. Rooted in earlier treaties such as the Covenant of the League of Nations, the legal principle can be applied in the form of collective non-recognition that aims to sanction entities that are created because of serious violations of international law.Footnote ⁴³ The international community’s non-recognition of Manchukuo and South African homelands represents this approach.Footnote ⁴⁴

Nevertheless, the legal principle is not absolute. Based on the EU practice, ‘the space of non-recognition’ may enable some flexibility and latitude for engaging unrecognized entities.Footnote ⁴⁵ Various forms of engagement are galvanized by geopolitical considerations to buttress regional stability. The IR view for the space of non-recognition is also supported by international lawyers. Evidenced by the EU’s position on Taiwan under the one-China policy, a policy of non-recognition does not necessarily denote the illegality of unrecognized entities or mean non-discourse.Footnote ⁴⁶ While international law imposes no duty to recognize foreign states, an unrecognized entity should not ‘be treated as a nullity’ and can be recognized ‘as something else’.Footnote ⁴⁷ Consequently, systemic engagement may lead to legal instruments that accord gradual forms of recognition to the identity and status of an unrecognized entity. These instruments, including trade and investment agreements, also result in binding effects in international and domestic laws.

2.2 The European models for trade agreements with unrecognized entities

In considering the EU-Taiwan BIA, the European models for economic agreements with other unrecognized entities are critical. The space of non-recognition permits diverse forms of engagement and may in turn result in additional degrees of legal recognition, which does not amount to recognition of statehood in international law. The EU’s strategies for interacting with unrecognized entities demonstrate the unique policy that balances non-recognition and engagement.Footnote ⁴⁸ The EU’s relations with Taiwan under the one-China policy can be understood as an example. Although none of the 28 EU member states recognize Taiwan, the EU indicates that both sides ‘share the same values of democracy, and respect for human rights and the rule of law, and are seeking closer cooperation where their interests and values converge’.Footnote ⁴⁹

Devised by Peter Semneby, the EU Special Representative for the South Caucasus, the EU adopted the ‘Non-recognition and Engagement Policy’ (NREP) for Abkhazia and South Ossetia in 2009.Footnote ⁵⁰ The NREP aimed to prevent counterproductive effects of isolation while holding the premise that ‘engagement without a firm line on non-recognition is a potential slippery slope’.Footnote ⁵¹ Significantly, while the NREP implies the illegality of the unrecognized entities, other policy options may represent a neutral stance. The EU’s approach to Kosovo and Palestine evidences the ‘engagement without recognition’ policy, which is conceptually different from the NREP.Footnote ⁵² Here, the EU policy represents a modus vivendi, in which the legality of an entity is not judged.Footnote ⁵³

In contrast to the Abkhazia and South Ossetia case, where all of 28 EU members hold almost identical non-recognition policies, EU states presently diverge in recognizing Kosovo and Palestine. As of 2019, five EU member states have yet to recognize Kosovo and only nine member states have recognized the State of Palestine.Footnote ⁵⁴ To co-ordinate the different positions among its constituencies, the EU as a supranational institution maintains a status-neutral stance that simply reflects an abstention of recognition.

The level of the EU’s engagement with Kosovo and Palestine is evidenced by the conclusion of economic agreements that ‘normal’ states have concluded. The EU and Kosovo signed the Stabilization and Association Agreement (SAA), which liberalizes trade in goods, trade in services and investment and will ‘gradually develop a free trade area between’ the two sides.Footnote ⁵⁵ Although Kosovo is not a WTO member, the SAA commits to WTO principles on regional integration.Footnote ⁵⁶ With a narrower scope, the European Community also previously inked an Interim Association Agreement on Trade and Cooperation with Palestine to liberalize trade with the West Bank and Gaza Strip.Footnote ⁵⁷ Furthermore, the EU, Kosovo, and Palestine are contracting parties to a regional convention that facilitates intra-regional trade by enabling regional cumulation of origin.Footnote ⁵⁸

Commentators may contend that these trade agreements can be construed as implied recognition in international law. Yet, this argument does not stand because ‘recognition is a matter of intention’.Footnote ⁵⁹ An intention is often subject to recognizing states’ interpretations. Absent a clear intention to recognize entities as sovereign states, the intention of recognizing statehood cannot be easily inferred from the conclusion of agreements that may not be interpreted as formal treaties.Footnote ⁶⁰ Hence, this legal analysis and the precedents of EU agreements with Kosovo and Palestine provide a formula for the BIA with Taiwan.

2.3 Pragmatic ‘re-engagement’ of European states with Taiwan

The EU’s approach to Taiwan is based on the common denominator of EU member states’ one-China policies. While EU members hold a common position that recognizes the PRC as the sole de jure government of China, they have diverged in the level of engagement with Taiwan. From an IR perspective, while non-recognition may be perceived as disrespectful and result in conflicts, what EU member states have attempted to achieve is to facilitate pragmatic co-operation. Within the space of non-recognition, the EU’s attempts have accorded various forms of recognition to Taiwan’s identity separate from the PRC and a status akin to other sovereign states. Among European states, the practices of the UK, Germany and France are most representative because of their influence over EU institutions and long-standing engagement with China and Taiwan.

Comparable to the US-PRC Shanghai Communiqué, the UK’s 1972 communiqué with Beijing merely ‘acknowledges’ Beijing’s position that Taiwan is part of China.Footnote ⁶¹ The carefully chosen word ‘acknowledgement’ differs from ‘recognition’ that represents a binding effect, thus leaving the scope of relations with Taiwan undetermined. Similarly, the Netherlands only ‘respects’ and Italy and Belgium ‘take note of’ Beijing’s position on Taiwan.Footnote ⁶² However, the German case is different. When the Federal Republic of Germany (West Germany) established official ties with Beijing, the Chinese side did not insist on including a Taiwan-related clause in their 1972 communiqué.Footnote ⁶³ Arguably, a critical reason is that West Germany could have also included a ‘one-Germany clause’ that would antagonize East Germany, which was Beijing’s communist ally.Footnote ⁶⁴

France and the PRC concluded two communiqués that are of significance to French-Taiwan relations. President Charles de Gaulle’s ‘national independence’ policy prompted a departure from America’s pro-Taipei stance by establishing diplomatic ties with Beijing in 1964, but Paris managed to omit the Taiwan issue in the communiqué.Footnote ⁶⁵ To some extent, the post-Tiananmen Massacre sanctions against Beijing led by France triggered the contact with Taipei in 1989 when Taiwanese Foreign Minister Lien Chan was invited to commentate the bicentennial anniversary of the French Revolution.Footnote ⁶⁶

In the early 1990s, China responded robustly to France’s arms sale, including six frigates and 60 ‘Mirage 2000’ fighters, to Taiwan by closing France’s consulate and cancelling large-scale contracts.Footnote ⁶⁷ To remedy commercial and political ties, France in the 1994 communiqué with the PRC altered its previous position by recognizing Taiwan to be part of China and committing not to authorize additional arms sales.Footnote ⁶⁸ These cases demonstrate that while the space of non-recognition permits flexibility and latitude, the degrees of according recognition to unrecognized entities may fluctuate and depend on broader geopolitical changes and commercial interests. It is therefore incorrect to assume that EU-Taiwan relations have been static since de-recognition.

In line with EU members’ shifting positions, Taiwan’s ties with the EU changed significantly in 1975 when Christopher Soames, Vice President of the European Commission in charge of external relations, visited China.Footnote ⁶⁹ Although Soames stressed that recognition is not within the capacity of the European Community, he confirmed that Community members recognized the PRC as China’s sole legal government and did ‘not entertain any official relations or enter any agreements with Taiwan’.Footnote ⁷⁰ This position led to the subsequent establishment of diplomatic relations with China in the same year.

The normalization of EU-China relations was premised on elements of the one-China principle demanded by PRC Foreign Minister, Chiao Kuan-Hua (Qiao Guanhua). His requests included recognition of the PRC, to which Taiwan belongs, and commitments not to develop ‘official relations with Taiwan’.Footnote ⁷¹ Undeniably, non-recognition has jeopardized Taiwan’s participation in economic relations. A seminal instance is Taipei’s quest to accede to the European Community’s Generalized System of Preferences, which would provide preferential tariff treatment to developing nations, including Taiwan’s key export competitors. The request was denied in 1975 because of the view that due to non-recognition, Taiwan ‘did not exist for’ the Community.Footnote ⁷² In other words, the EU perceived non-recognition of the ROC as its non-existence in law.

For several reasons, the situations have changed since the 1980s. First, Taiwan’s rapid economic growth made itself one of the four ‘Asian tigers’ and dramatically expanded trade with major European nations. For instance, from 1970 to 1990, Taiwan’s trade with Germany and France ascended by 45 and 238 times, respectively.Footnote ⁷³ The creation of the EU and its enlargements since the 1993 Maastricht Treaty have further bolstered bilateral trade. In contrast, the PRC’s trade with the EU at the inception of Deng Xiaoping’s economic form was rather limited.

Second, the European Parliament has strengthened its support for Taiwan over the decades. Based on core values of democracy and human rights, the Parliament’s pro-Taiwan stance has also resulted in the ‘spillover effect’ on the implementation of one-China policy by the Council of the EU and the European Commission.Footnote ⁷⁴ Lastly, Taiwan’s accession to the WTO as the ‘Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu’ in 2002 has institutionalized interactions with the EU under a multilateral framework.Footnote ⁷⁵ It also led to Brussels’ policy change to recognize ‘Taiwan as a separate customs territory’.Footnote ⁷⁶ This form of non-statehood recognition is a critical step from the previous view of ‘non-recognition, no existence’ in the 1970s. The stance, hence, extended the WTO formula to overall foreign policy on Taiwan and enabled a larger scope of engagement.

In 2001, Taiwan also expanded the operations of its Brussels-based mission and re-designated it as the ‘Taipei Representative Office in the EU and Belgium’ as a central contact point for EU institutions.Footnote ⁷⁷ To accommodate the policy shift, the EU established the European Economic and Trade Office (EETO) in Taipei in 2003.Footnote ⁷⁸ The EETO is claimed to be informal and non-political, but it performs official functions similar to an EU delegation. The creation of the EETO was in line with the EU members’ evolving relations with Taipei. Due to Taiwan’s trade significance, Spain, the UK, Belgium, France and Germany have set up their de facto embassies in Taiwan since 1974.Footnote ⁷⁹ Currently, Taiwan has 23 offices in 27 EU states, and 16 EU countries have Taipei-based offices that operate closely with the EETO.Footnote ⁸⁰ With some exceptions, most of Taiwan’s missions and diplomats in the EU are entitled to various degrees of diplomatic privileges.Footnote ⁸¹

The re-engagement of the EU and its member states with Taiwan has positively impacted the bilateral economic frameworks. In the 2000s, the EU further adjusted its diplomatic discourse by recognizing ‘Taiwan as an economic and commercial entity’.Footnote ⁸² The EU’s recognition of Taiwan as an ‘entity’, which resembles the legal concept of entities sui generis, implies a broader ambit of recognition than as recognition of a trade-specific ‘separate customs territory’.Footnote ⁸³ Since the 1970s, the EU’s views on Taiwan changed from ‘non-existence’ to a ‘separate customs territory’ and an ‘economic and commercial entity’. These policy changes evidence the gradual forms of recognition in IR within the space of non-recognition. They also reiterate the legal view that unrecognized entities can be recognized ‘as something else’ and recognition of the governmental capacity, in turn, builds the foundation for the BIA.

Recent developments further demonstrate the divergence between EU members’ one-China policies and Beijing’s one-China principle, as well as the political premise that recognizes Taiwan’s separate identity from the PRC and independent legal status. In response to the Trump administration’s pro-Taiwan stance, Beijing has exerted additional pressure on EU states to reinforce the legitimacy of Chinese sovereign claims over Taiwan. While major European states have reiterated their positions to follow their one-China policies, they stressed their support for peaceful development of cross-strait ties and declined to succumb to Beijing’s extra demands.Footnote ⁸⁴

To illustrate, Paris issued a statement that congratulated the elected candidates of Taiwan’s ‘presidential and legislative elections’ in 2016.Footnote ⁸⁵ The specific acknowledgement of Taiwan’s central government-level elections defeats China’s argument that Taiwan is merely its province. In the same year, London concluded an arrangement with Taiwan on the transfer of sentenced persons. The arrangement, which equally refers to the governments of both sides as ‘authorities’, recognizes its legal consequences and defines the territorial application.Footnote ⁸⁶ In the context of non-recognition, these provisions particularly reinforce Taiwan’s participatory parity in bilateral relations.

In 2018, China demanded that foreign airlines, including British Airways, alter the designation of Taiwan to ‘Taiwan, China’ on their websites.Footnote ⁸⁷ The UK expressed concerns about the request and emphasized that its terminology for Taiwan would remain simply ‘Taiwan’.Footnote ⁸⁸ Beijing’s assertive stance also incurred opposition from local governments. The newly-elected Prague mayor decided to remove Article 3 of the city’s partnership agreement with Beijing in which the former mayor agreed to include a one-China policy clause in exchange for a panda.Footnote ⁸⁹

3.1 Competences and policies of EU institutions in the post-Lisbon era

Composed of heads of states, the European Council has less direct impact on the Taiwan issue because of its role in setting political directions and agenda without performing legislative function.Footnote ⁹⁴ Similarly as an intergovernmental body, the Council of the EU (the Council) includes ministers of member states and performs the EU’s primary policy-making and legislative role.Footnote ⁹⁵ The Council implements the EU’s CFSP on the basis of the European Council’s guidelines and gives mandate to the European Commission, a supranational agency, to negotiate EU FTAs and BIAs.Footnote ⁹⁶

The Council also makes ‘co-decisions’ with the European Parliament in the legislative process.Footnote ⁹⁷ While the Council and the European Commission’s approach to Taiwan has been cautious, their initiation and support for the BIA is pivotal. As the European Parliament represents EU citizens rather than states, its actions tend to reflect the ideological and moral values of the EU.Footnote ⁹⁸ On the grounds of democracy and human rights, the Parliament has adopted a critical stance on China and functioned as Taiwan’s ‘best friend’ in the EU.Footnote ⁹⁹

As IR academics asserted, the struggle for recognition has both identity and status dimensions. While the two core elements are often intertwined, the former stresses the pursuit of prestige, and the latter focuses on dignity. The common positions of EU institutions on Taiwan demonstrate their emphasis on Taiwan’s status, which is the justice-based concept that ensures Taiwan’s equal participation in international organizations and pragmatic engagement with the EU. The Commission and the Council specifically recognize the status of Taiwan as distinguishable from that of Hong Kong and Macau. While these two institutions recognize Taiwan’s rights to have ‘technical’ co-operation with the EU, they remain ambiguous as to what such co-operation may entail. The Parliament’s recognition of Taiwan extends much further, as evidenced by the specific reference to official titles such as the ROC and the invitations extended to Taiwan’s government officials. These practices affirm the legal and IR stances that an unrecognized state can be recognized ‘as something else’, thus paving the way for the bilateral framework that results in legal effects within the space of non-recognition.

3.2 EU-Taiwan bilateral consultations and WTO interactions

Prior to recognizing the PRC in 1975, the European Community’s contact with Taiwan was under the GATT framework and the 1971 bilateral cotton textile agreement, which imposed self-constraints on Taiwan’s textile exports.Footnote ¹²⁶ The ROC’s initial observer status was granted by GATT Contracting Parties in 1965, but they decided to follow UN General Assembly Resolution 2758 in 1971.Footnote ¹²⁷ The loss of the GATT observer status and the non-renewal of the three-year cotton textile agreement essentially rendered Taiwan invisible from the EU’s diplomatic landscape.Footnote ¹²⁸

The support of the European Parliaments and EU states’ reengagement with Taiwan prompted the EU to seek a pragmatic strategy. The ice-breaking event was the first informal ‘Economic and Trade Consultation’ meeting in London in 1981.Footnote ¹²⁹ These annual consultations have been conventionally chaired by Taiwan’s Vice Economic Minister and Deputy Director General of the European Commission’s Directorate General of Trade (DG Trade) in Taipei or Brussels.Footnote ¹³⁰ These meetings subsequently covered political issues such as the removal of the restrictions on EU officials’ visits to Taiwan and the establishment of an EU office in Taiwan.Footnote ¹³¹ From the first to the thirty-first consultation meeting in 2019, these regular interactions have provided the most high-level communication scheme in the absence of diplomatic ties.

Taiwan’s re-application for joining the GATT in 1990 and bilateral market access negotiations with the EU have reinvigorated bilateral talks. In 1992, an EU official visited Taiwan for the first time. It was the visit by Martin Bangemann, the Vice-President of the European Commission, in his ‘private’ capacity as Chairman of the Friedrich-Naumann Foundation.Footnote ¹³² Subsequently, European Commissioner for Trade, Leon Brittan, met with Taiwan’s Economic Minister at the 1994 GATT ministerial meeting and the 1995 WTO ministerial meeting.Footnote ¹³³

Following Taiwan’s WTO membership, another milestone was its accession to the WTO Government Procurement Agreement (GPA) in 2009.Footnote ¹³⁴ As a GPA observer, China contended that sovereign nomenclatures in Taiwan’s offers that list central government institutions, such as the Office of President and the Ministry of Foreign Affairs, contravene Taiwan’s WTO status.Footnote ¹³⁵ To ease political obstacles to Taiwan’s participation in the GPA, the EU and the United States prompted the parties to decide that the GPA nomenclatures do not ‘have implications for sovereignty’.Footnote ¹³⁶ The fact that China also softened its position after president Ma Ying-jeou of pro-China KMT was inaugurated in 2008 enabled Taiwan to join the GPA. At present, Taiwan and the EU are among 23 WTO members negotiating the Trade in Services Agreement, a critical WTO pact that aims to liberalize trade in services.Footnote ¹³⁷

Significantly, Taiwan and the EU are contracting parties to the WTO’s first sectoral agreement, the Information Technology Agreement (ITA). In 2008, Taiwan, joined by Japan and the United States, brought the claim against the EU in the case of EC – IT Products.Footnote ¹³⁸ Taiwan argued that as the ITA provided duty-free treatment to flat panel displays, set-top boxes with communication functions, and multifunction digital machines, the EU’s imposition of 6–14 per cent tariffs violated the ITA and Article II of the GATT.Footnote ¹³⁹ The WTO panel’s decision marked Taiwan’s first WTO litigation success against the EU. Moreover, Taiwan has consistently participated in the EU’s WTO cases involving other members such as China.Footnote ¹⁴⁰ The evolution from technical, informal consultations to formal WTO negotiations and disputes reinforces the EU’s recognition of Taiwan’s governmental capacity and results in a binding effect regardless of diplomatic recognition. In turn, these developments strengthened the legal and political impetus for the BIA.

4.1 The EU’s 2015 ‘Trade for All’ strategy and the China factor

To urge the European Commission to be more proactive, the European Parliament passed the 2013 resolution to express its favour for ‘agreements on investment protection and market access with Taiwan’ and such agreements ‘should not be interlinked with’ EU relations with Beijing.Footnote ¹⁴¹ This was the first resolution specifically on the EU-Taiwan BIA, which has a narrower scope and is less politically sensitive than a full-fledged FTA that may have caused concern to the Council and the Commission. Nevertheless, the Commission’s stance remained conservative in expressing that it had ‘no intention to start negotiations for an economic cooperation agreement with Taiwan’.Footnote ¹⁴²

New momentum was gained when the European Commission issued the 2015 ‘Trade for All’ policy paper that outlines the EU’s trade and investment agreement strategy.Footnote ¹⁴³ Developing trade and investment agreements with Asian countries became the EU’s priority. While the EU FTAs with Korea and Japan were concluded in 2009 and 2018, respectively, both agreements still lack investment chapters to be negotiated.Footnote ¹⁴⁴ As for the Association of Southeast Asian Nations (ASEAN) countries, the EU signed separate FTAs and investment protection agreements with Singapore and Vietnam.Footnote ¹⁴⁵ The EU is presently negotiating FTAs with Indonesia and the Philippines, as well as a BIA with Myanmar.Footnote ¹⁴⁶

The ‘Trade for All’ policy paper is also the Commission’s first official paper that positively responded to the Parliament’s request to negotiate a BIA with Taiwan. In particular, the Commission indicated that ‘[b]uilding on investment provisions under negotiation with China, the EU will explore launching negotiations on investment with Hong Kong and Taiwan’.Footnote ¹⁴⁷ In the footnote, the Commission also identified Taiwan’s capacity as a separate customs territory.Footnote ¹⁴⁸

China responded to the Commission’s plan to start BIA talks with Taiwan by calling the EU to consider ‘the overall interests of China-EU relations’ and to ‘refrain from having any form of official exchanges or signing any official agreement with’ Taiwan.Footnote ¹⁴⁹ Without addressing Beijing’s ‘warning’, the Commission’s 2017 report to the Council and the Parliament reiterated that it ‘is preparing to launch investment negotiations with Hong Kong and Taiwan’. In 2018, Beijing’s new policy paper on the EU specifically demanded that Brussels ‘refrain from signing with Taiwan any agreement with sovereign implications or official in nature’.Footnote ¹⁵⁰

Compared with the Council and the Commission, the Parliament has adopted a much more proactive approach to the EU-Taiwan BIA. Since 2016, the European Parliament has addressed this issue three times. In 2016, the Parliament called on the Commission ‘immediately to start negotiations on an investment agreement with Taiwan’.Footnote ¹⁵¹ In 2018, in its annual report on the common commercial policy, the Parliament again requested that the preparatory work be finalized in order to start negotiations ‘as soon as possible’.Footnote ¹⁵² In the same year, the Parliament found ‘it regrettable that no such negotiations have actually begun’.Footnote ¹⁵³ Notably, in 2019, Anna Cecilia Malmström, European Commissioner for Trade, informed the Parliament that several EU-Taiwan Investment Working Group meetings had been held.Footnote ¹⁵⁴ As investment negotiations require an impact assessment, ‘no specific timeframe had been set by the Commission’.Footnote ¹⁵⁵ The positive side effect of these meetings was to enhance Taiwan’s systemic dialogues with the Commission and enable the EU to solicit Taiwan’s views on cross-strait relations and Hong Kong protests.Footnote ¹⁵⁶

As EU institutions have somewhat different positions, what is the EU’s common approach to the EU-Taiwan BIA? The key difference is that while the Parliament considers the EU-Taiwan BIA to be a separate issue from the EU-China BIA, the Council and the Commission regard these two BIAs as interlinked. In other words, while all EU institutions agree to accord Taiwan an additional degree of legal status without utterly ‘complying with’ Chinese demands, the Council and the Commission take into account more economic and geopolitical interests.

Tellingly, in 2015, Malmström commented at the European Parliament’s Committee on International Trade meeting that the Taiwan BIA negotiation would commence ‘only once the talks of the BIA with China would be done’.Footnote ¹⁵⁷ China is now the EU’s second largest trading partner only after the United States.Footnote ¹⁵⁸ The statement that the EU would launch the EU-Taiwan BIA talks on the basis of the provisions of the EU-China BIA suggests that Brussels may adopt the ‘China first, Taiwan second’ policy.Footnote ¹⁵⁹ This practice has been followed by Beijing and Taipei’s GATT/WTO accession process.

The 1992 GATT Chairman’s statement declared that while China and Taiwan’s ‘working party reports should be examined independently’, the report and the protocol of Beijing will be adopted before those of Taipei.Footnote ¹⁶⁰ This reluctant compromise made Taiwan’s WTO accession fall one day after China’s.Footnote ¹⁶¹ Also notably, the 2015 ‘Trade for All’ policy paper that grouped Taiwan and Hong Kong in BIA negotiations represents the Commission’s delicate political exercise to decrease Chinese opposition. The two Asian Tigers are the EU’s fifteenth and twentieth trading partners, respectively.Footnote ¹⁶² Nevertheless, the EU has already negotiated larger-scale FTAs with the Philippines and New Zealand, which are only the EU’s forty-second and fiftieth trading partners.Footnote ¹⁶³

The impact of EU-China relations on EU-Taiwan interactions is salient. The EU’s trade with China has escalated more than four times after both sides upgraded bilateral relations from the 1998 ‘comprehensive partnership’ to the 2003 ‘comprehensive strategic partnership’.Footnote ¹⁶⁴ EU-China BIA negotiations commenced in 2013 and both sides held the twenty-first round of negotiations in 2019 with a focus on the most challenging market access issues.Footnote ¹⁶⁵ The EU-China BIA is expected to be concluded in 2020.Footnote ¹⁶⁶ Both sides envisioned that this BIA would form a basis for an FTA with a larger scope of trade liberalization.Footnote ¹⁶⁷ The foreseeable finalization of the EU-China BIA is therefore, ironically ‘positive’ for Taiwan.

Yet, other critical trade and political developments that may affect the EU-China BIA cannot be ignored. Other than market access issues, trade tensions have arisen from the EU’s refusal to recognize China’s market economy status.Footnote ¹⁶⁸ The EU position is perceived by China to violate WTO rules and discriminate Chinese products in anti-dumping proceedings. Moreover, Brussels has become more concerned about Beijing’s increasingly assertive ‘divide and rule’ strategy that has been applied to ASEAN. China has attracted 15 EU countries, including mostly Eastern European countries and Italy, to join the Belt and Road Initiative that facilitates infrastructure loans from Chinese banks.Footnote ¹⁶⁹ Tellingly, akin to the role of Cambodia in blocking ASEAN’s statement on South China Sea issues, Greece prevented the EU statement at the UN human rights body from criticizing China in 2017.Footnote ¹⁷⁰ The EU’s concern is evidenced by the German Foreign Minister’s remarks that called for unity of Europe and requested China to follow a ‘one-Europe’ policy.Footnote ¹⁷¹

The EU’s stance on China changed significantly in 2019 when the EU changed the status of China from a ‘partner’ to a ‘systemic rival’ and urged member states to stay in ‘full unity’ for their China policies.Footnote ¹⁷² This policy shift reflects Brussels’ frustration over the substantive results of the ‘partnership’ at bilateral and global arenas where China has undermined the EU’s strategic interests.Footnote ¹⁷³ The new European Commission, led by President Ursula von der Leyen, has emphasized ‘the European way’ and is expected to continue an assertive stance on Beijing.Footnote ¹⁷⁴ However, unlike the Trump administration that has played the ‘Taiwan card’ in trade conflicts with Beijing, it remains unclear if the EU will tie the Taiwan issue with the new ‘rivalry’ relations with China.

4.2 Taiwan’s strategy and 2019 meetings of the European Parliament

The pursuit of the BIA with the EU can be perceived as Taiwan’s pursuit of recognition of its economic power and sovereign status. Taipei’s main strategy to affect Brussels’ decision-making process is through the influence of the European Parliament. Taiwan President Tsai Ing-wen’s confrontational stance on Beijing provided a further impetus for signing the BIA with the EU, as the investment pact will increase the legitimacy of her policy. She has stressed the importance of the BIA at various occasions, including the meetings with MEPs and Belgian Senate President.Footnote ¹⁷⁵ In 2019, the European Parliament held two unprecedented meetings that focused on Taiwan.

At the Parliament’s plenary session on cross-straits relations in January 2019, a representative on behalf of High Representative and Vice President Federica Mogherini, the EU’s top diplomat, emphasized that the EU has ‘an interest in developing closer relation with Taiwan’.Footnote ¹⁷⁶ More specifically, the EU does ‘engage with Taiwan even in the lack of diplomatic recognition’ under the EU’s one-China policy.Footnote ¹⁷⁷ In less than a month after the plenary debate, ten cross-party MEPs convened the very first public hearing on EU-Taiwan trade relations with a focus on the EU-Taiwan BIA.Footnote ¹⁷⁸ Those who were invited to testify included the head of Taiwan’s Bureau of Foreign Trade, EEAS and DG Trade officials, and the EU’s private sector representatives.

Crucial developments on the EU and Taiwan sides provided renewed momentum for the BIA. While the EU countries (particularly the Netherlands) remain Taiwan’s largest foreign direct investment (FDI) source, Taiwan’s outbound FDI to the EU has declined since 2016.Footnote ¹⁷⁹ This decreasing investment trend continued after the drop from US$1.1 billion in 2016 to US$0.2 billion in 2017.Footnote ¹⁸⁰ Presently, only 3 per cent of Taiwan’s FDI goes to the EU.Footnote ¹⁸¹ Investment is also intertwined with the job creation effect. As one of the most prominent examples, Taiwan-based Hong Hai (internationally known as Foxconn) has expanded information technologies’ manufacturing plants by employing almost 6,000 people in the Czech Republic, Slovakia and Hungary.Footnote ¹⁸² In particular, the scale of the employment site in the Czech Republic presumably made the country adopt the most pro-Taipei stance in Central Europe.

Moreover, as the composition of private industry representatives at the Parliament’s public hearing demonstrates, major EU wind power firms such as Orsted of Denmark and WPD of Germany are concerned about the progress of the EU-Taiwan BIA.Footnote ¹⁸³ Due to public concerns over Japan’s Fukushima disaster, Taiwan’s DPP government aims to phase out nuclear power and increase wind projects by 2025.Footnote ¹⁸⁴ The government’s prospective investment up to USD 23 billion and its offer of a 20-year power purchase agreement for the auction made Taiwan Asia’s ‘battleground’ for the wind power sector.Footnote ¹⁸⁵ A BIA is thus, pivotal to ensure legal certainty and investment protection for EU companies.

A contextual understanding of Taiwan’s overall FTA and BIA strategy is also essential to analyse the importance of having a BIA with the EU. As of 2020, Taiwan has concluded more than 30 FTAs and investment protection agreements irrespective of Westphalian sovereignty challenges.Footnote ¹⁸⁶ The previous KMT government’s China-friendly policy led to the 2010 Economic Cooperation Framework Agreement with China and eased political obstacles to Taiwan’s 2013 FTAs with Singapore and New Zealand.Footnote ¹⁸⁷ Both Singapore and New Zealand had existing FTAs with Beijing and do not diplomatically recognize the ROC. The fact that Taiwan adopted its WTO nomenclature, ‘separate customs territory’ or ‘Chinese Taipei’, for the two FTAs also helped decrease sovereign disputes.

Taiwan’s FTAs with diplomatic allies, such as Paraguay and Eswatini, were motivated by more political considerations than economic interests. Although these FTAs were signed in the name of the ROC, they cover insignificant portions of Taiwan’s foreign trade. Interestingly, while Panama and El Salvador switched recognition to Beijing, their FTAs remain in effect.Footnote ¹⁸⁸ Modern FTAs mostly contain investment chapters akin to conventional BIAs. Different from FTAs that are under the auspices of the WTO, BIAs are stand-alone pacts that do not oblige parties to notify the WTO. As concluding an FTA with Taiwan is not on the EU’s agenda, both sides aim to finalize an investment pact outside the WTO framework.

Currently, Taiwan has neither FTAs nor BIAs with EU member states. The Republic of Macedonia (now North Macedonia) is the only European Country that has a BIA with Taiwan, as the pact was concluded in 2019 when the two sides had diplomatic ties.Footnote ¹⁸⁹ Taipei has signed instruments on investment co-operation and facilitation with eight EU states at national and regional levels. For instance, agreements with the German State of Rheinland-Pfalz and Germany’s federal investment agency were concluded in 1990 and 2002, respectively.Footnote ¹⁹⁰ These instruments usually contain primary principles and intentions without detailed binding obligations. In particular, the MoU on investment promotion with Spain specifies that the instrument ‘is not intended to create any domestic or international legal obligations’.Footnote ¹⁹¹ In terms of legal stability and political weight, these instruments are much weaker than contemporary BIAs that encompass enforceable investment protection provisions.

4.3 The structure of the investment pact

From the 1980s, the EU has established diverse methods of recognizing Taiwan in economic and political arenas under the one-China policy. Non-recognition is often perceived as a disrespectful act that negates the identity and status of unrecognized entities. However, the flexibility and latitude of recognition within the space of non-recognition can facilitate stability and co-operation. As its engagement policy illustrates, the EU practice reinforces the IR view of recognition as a gradual process and evidences the legal position that unrecognized entities should not be regarded as a nullity. In particular, a comprehensive BIA will enhance the process of legal recognition in domestic and international laws.

From 2017 to 2019, Taiwan has updated BIAs with the Philippines, India and Vietnam.Footnote ¹⁹² It is expected that the new BIAs and the FTAs with Singapore and New Zealand will facilitate Taiwan’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Agreement and the Regional Comprehensive Economic Partnership. Due to the limited progress in joining the two mega-regional trade agreements, a BIA with the EU emerged as Taiwan’s trade and diplomatic priority. Taiwan’s recent investment pacts and the investment chapters of FTAs, as well as the EU’s recent investment protection agreements with Singapore and Vietnam, are the natural models for the EU-Taiwan BIA. The structure of a modern BIA subsequently leads to additional forms of legal recognition in diverse arenas.

First, the BIA increases the extent of the EU’s recognition of Taiwan’s governmental authority to enact international agreements and its effective representation of the territory and people. It also promotes the mutual recognition of governmental measures on investment protection, promotion and facilitation. Arguably, the requirement of the capacity to enter into relations with other states under the Montevideo Convention indicates ‘a consequence of statehood, not a criterion for it’.Footnote ¹⁹³ Indeed, from the IR viewpoint, Taiwan’s capacity to conclude a BIA with the EU inevitably buttresses the claim for the independent identity and status of statehood at the international level.

The foremost issue for the EU-Taiwan BIA is to assess which institutions can be authorized by the respective authorities to negotiate and sign the pact. Taiwan’s current agreements with EU institutions are rare and confined to technical issues. For instance, a confidentiality agreement was signed between Taiwan’s Food and Drug Administration and the Council of Europe.Footnote ¹⁹⁴ Taiwan’s Representative Office also signed an administrative arrangement on industry cluster co-operation with the European Commission.Footnote ¹⁹⁵ Based on the established practice of Taiwan’s BIAs, the EU-Taiwan BIA is most likely to be concluded by the Taipei Representative Office in the EU and Belgium, and the EETO in Taipei. From Brussels’ perspective, this mechanism enables the investment pact to decrease its sovereign implications, as it is signed between non-governmental agencies. Nonetheless, the ‘unofficial’ nature by no means undermines the binding effect of the agreement.

Second, the BIA’s dispute settlement provisions allow for state-to-state and investor-state disputes and therefore galvanize recognition of what Fraser called ‘participatory parity’ for Taiwan and Taiwanese investors in the international economic order.Footnote ¹⁹⁶ As IR academics reasoned, this status dimension of recognition reflects the desire to demand dignity based on the normative standards of respect.Footnote ¹⁹⁷ The absence of a mechanism to enforce rights in Taiwan’s bilateral instruments and MoU with European states may be seen as status subordination. Thus, the BIA’s state-to-state dispute mechanism establishes the equality structure for both sides to pragmatically settle frictions.

From the commercial aspect, investor-state dispute settlement (ISDS) is of more significance to EU and Taiwan businesses. Distinct from contemporary BIAs, none of Taiwan’s investment protection agreements include International Centre for Settlement of Investment Disputes (ICSID) provisions. ICSID is a World Bank arbitral mechanism that deals with ISDS, but as a non-UN member and non-party to the ICSID Convention, Taiwan is unable to resort to this mechanism.Footnote ¹⁹⁸ Detailed provisions under recent EU agreements, which create an ‘Investment Court System’ (ICS), could help fill the legal vacuum for Taiwan.

In 2015, the European Commission first proffered the ICS proposal in FTA negotiations with the United States as a step to address fairness of arbitrators and transparency issues that arise from conventional ISDS.Footnote ¹⁹⁹ The ICS provisions, which set up a permanent tribunal of first instance and an appellate tribunal, are included in the EU’s FTA with Canada and investment protection agreements with Singapore and Vietnam. In its 2017 decision, the Court of Justice of the EU held that ISDS provisions do not fall within the EU’s exclusive competence of the common commercial policy under the Treaty of Lisbon.Footnote ²⁰⁰ As the EU shares competence with member states with respect to ISDS, new EU BIAs will be subject to approval by the European Parliament and 28 national parliaments. Although the ruling will likely delay the ratification of the BIA, the approval from both, the EU and member states, reinforces the legitimacy of the Taiwan government and defeats the PRC’s claim to represent Taiwan.

Compatible with the EU’s ICS scheme, Taiwan’s 2018 BIA with India includes an ‘Appeals Facility’ provision, under which both sides ‘may establish an institutional mechanism to develop an appellate body or similar mechanism’ for ISDS.Footnote ²⁰¹ ISDS is key to foreign investors. Taiwan faced its first investor-state case in 2017 when Singapore’s Surfeit Harvest Investment Holding filed a notice of arbitration to the Permanent Court of Arbitration.Footnote ²⁰² The legal basis of the claim is the investment chapter of the Singapore-Taiwan FTA. The fact that Taiwan is addressed as the ‘Republic of China (Taiwan)’ as the defendant by an international court also illustrates a form of recognition from the IR and legal perspectives.Footnote ²⁰³ Similar consequences can be derived from the EU-Taiwan BIA because it will encompass the extensive cover of investment, such as shares, stocks and intellectual property rights, the detailed clause on fair and equitable treatment. For European enterprises, including wind power companies that have made significant investments in Taiwan, these provisions and the ICS will provide substantive and procedural guarantees.

Third, the provisions that require both parties to recognize the arbitral awards rendered under the BIA are critical to both the EU and Taiwan. In other words, while the conventional state-centric system establishes different treatment for states without recognition, economic agreements may overcome non-recognition by according rights under international treaties to them. Neither Taiwan nor the EU are parties to the ICSID Convention, which stipulates that awards based on the Convention should be binding and enforced ‘as if it were a final judgment of a court in that State’.Footnote ²⁰⁴ Importantly, the enforcement of awards provisions in the EU’s investment protection agreements with Singapore and Vietnam contain comparable obligations.Footnote ²⁰⁵ The inclusion of these provisions in the EU-Taiwan BIA will effectively address the enforcement issues due to Taiwan’s inability to accede to the ICSID Convention. The provisions also affirm the authority of courts, and thus, buttress the argument that the BIA magnifies the degree of recognition in domestic and international laws.

Lastly, the institutional provisions of the BIA will mandate that the EU and Taiwan establish a joint committee to implement investment co-operation and conduct periodic reviews. Other than the implications for sovereign equality, these mechanisms can yield a constructive psychological effect for recognizing the prestige of contracting parties. It can be expected that the BIA will invigorate a wider scope of ministerial-level interactions irrespective of a policy of non-recognition. The European companies have requested to further expand the business scope of e-commerce in Taiwan’s insurance industry and enhance regulatory certainty for wind energy development.Footnote ²⁰⁶

The BIA committee will be capable of dealing with these requests from the private sectors. It will also be a point of contact for governments. In the long term, the BIA committee meetings will cover more comprehensive matters and involve additional government agencies than the current bilateral ‘Economic and Trade Consultation’ meetings. Moreover, the EU-Taiwan BIA helps provide a framework agreement modeled on those concluded between the EU and Canada and Korea, therefore, consolidating the consensus for a full-fledged FTA. These expected developments reinforce recognition as a gradual process with effects in domestic and international laws.