Following China’s ban of
Taiwanese pineapple and wax apple imports in 2021, grouper fish and citrus
fruits joined Beijing’s expanding list of restricted Taiwanese agricultural
imports in August 2022. Because agriculture accounts for just 0.6 per cent of Taiwan’s
exports to China, the direct economic impact of these restrictions is limited.
Yet the coercive nature of these measures suggest that Taiwan needs to be
prepared for the future.
The official reasoning
behind the bans is sanitary and phytosanitary concerns, such as excessive
pesticide residue and fruit insects. While WTO rules grant China the right to
impose measures necessary to protect human, animal and plant life, China’s bans
do not seem evidence-based or necessary.
For all the restrictions
imposed to date and despite Taiwan’s repeated requests for information, China
has not provided any scientific documentation other than border inspection
data. Taiwan was even able to divert its pineapple exports to Japan two months
after China’s ban, where agricultural imports are subject to equally if not
more stringent phytosanitary requirements. This underscores concern regarding
the scientific validity of China’s restrictions.
The bans are also
excessive. China’s justification of its pineapple import ban is that scale
insects have been detected in exports from Taiwan. Scale insects have also been
found in some exports from Taiwan to Japan — but instead of being denied entry,
the pineapples underwent methyl bromide fumigation at the border to alleviate
the risk. This signifies the excessiveness of China’s total ban without
considering less restrictive alternatives.
China’s practices also
go against the obligations of the Cross-Strait Cooperation Agreement on
Phytosanitary Measures regarding Agriculture Products, which has been in force
since 2009. Articles 5 and 6 of the Agreement expressly stipulate that both
Taiwan and China need to ‘immediately notify’ the other party of major
incidents, followed by an expedited fact verification and consultation process.
According to Taiwan’s Council of Agriculture, a total of 14 requests were
lodged between March 2021 and March 2022 without any acknowledgment of receipt
from China.
Taiwanese government and
industry actors alike have concluded that these agricultural import bans amount
to economic coercion, reflecting China’s political displeasure. Although the
overall economic shock for Taiwan is small, the measures do create significant
impacts on individual farmers involved. In the case of pineapples, while only
10 per cent of Taiwan’s pineapple production is bound for export, 90 per cent
of exports go to China. Similarly concentrated export structures can be found
for wax apple, citrus fruits and grouper fish, suggesting that these
agricultural products have been specifically chosen to maximise their coercive
impact.
Increasing domestic
consumption and diversifying export markets have been Taiwan’s main tools to
alleviate the shock. With assistance from the Council of Agriculture and other
government agencies, pineapple exports to Japan and elsewhere are set to reach
roughly 80 per cent of exports to China in 2022.
Yet the ability to
diversify might not be an option available for other targeted products, with
the Council of Agriculture admitting the unlikelihood of finding alternative
markets for grouper fish in the short run. More importantly, there is growing
concern that these developments indicate that Beijing is moving toward a
strategy of weaponising Taiwan’s economic interdependence with China to
increase political pressure.
As the Taiwan–China
relationship deteriorates, Taiwan needs to prepare new economic security risk
assessments. China remains Taiwan’s largest trading partner and investment
destination. In 2021, China and Hong Kong accounted for over 40 per cent and 22
per cent of Taiwan’s total exports and imports respectively and received 30 per
cent of Taiwan’s total outward investment. On the other hand, Taiwan accounts
for an insignificant share of China’s external trade and investment,
constituting only 2.3 per cent of total exports and 9 per cent of imports.
Investment to Taiwan falls outside China’s top 20 destinations.
Yet the risk level for
Taiwan is still modest for the time being. For Taiwan’s imports from China,
over 90 per cent are intermediate inputs for which alternative supply sources
are available in most cases. Around half of Taiwan’s exports to China are
semiconductors and alternative sources of advanced chips outside Taiwan are
extremely limited — South Korea is the only other commercially available source
of supply. This limits China’s willingness and ability to target the
centrepiece of Taiwan’s exports.
Taiwan’s immense
investments in China, which total over USD$300 billion, could also be a major
point of vulnerability. Unverified reports of coercion against Taiwanese
investments are not new, including through explicit charges of tax evasion or
environmental pollution or implicit business cutbacks or cancellation of
contracts. These cases are difficult to verify and there are little remedies
available outside of the local Chinese judicial system.
The asymmetry in
cross-Strait economic relations is providing the opportunity for China to
increase its leverage in weaponising Taiwan’s interdependency — and it seems
that China is now more inclined to do so. A priority for Taiwan should be to
undertake assessments of its investments in China to understand the potential
economic security concerns and come up with possible actions to address them.