China forced Australia to abandon a planned free trade agreement with Taiwan because it wanted to isolate the island’s pro-independence president Tsai Ing-wen, according to former foreign minister Julie Bishop.

Bishop told the Fairfax media group that she was informed by her Chinese counterpart Wang Yi during several meetings in 2017 and this year that China did not want Canberra to upgrade its relationship with Taiwan. 

“The Chinese government made it clear to me that circumstances had changed between Taiwan and mainland China and that China would not look favorably on Australia seeking to pursue a free trade agreement with Taiwan, as New Zealand had done some years ago,” she said.

Those circumstances have been changing since Tsai Ing-wen’s Democratic Progressive Party came to power in 2016 and ditched the rapprochement policy with Beijing advanced by Ma Ying-jeou’s previous KMT government.

New Zealand, Singapore sign deal

It had been expected that Australia would pursue an FTA with Taiwan after it concluded a similar deal with China in late 2015. New Zealand and  Singapore were both able to do so without any political complications.

However, the chill set in after president-elect Donald Trump accepted a phone call from Tsai in 2016 and said he would elevate US relations with Taiwan, thus triggering the start of his diplomatic stand-off with China.

Australia, which was caught in the middle because of its close ties with the US, quietly admitted that it would be “polite to leave an elegant distance between the deal with China and doing a deal with Taiwan.”

Since then Australian businesses have been losing export share in Taiwan to rivals from countries that do have FTAs, and have started lobbying for the start of formal negotiations. There is particular concern that New Zealand firms, benefiting from low-tariff access to Taiwanese markets, have been able to undercut Australian export prices for dairy products.

The Australia-Taiwan Business Council, which acts as a de facto economic bridge, sent a delegation to meet with then-trade minister Steve Ciobo in August last year, “making a strong case for the commencement of negotiations with Taiwan for an ‘economic cooperation arrangement,’ in other circumstances called an FTA,” revealed its CEO Ching-Mei Tuan.

Ching also lobbied participants at the most recent bilateral economic consultation in October 2017, but by then China had turned the screws. 

“During my time as foreign minister I observed an increasing assertiveness on the part of China to encourage nations to disengage from their relationship with Taiwan,” said Bishop, who became a minister in 2013 but quit after the leadership spill by the ruling coalition in August this year.

“This included in the Pacific and where some nations still formally recognize Taiwan and in some of the major multilateral forums where Taiwan had observer status to participate in such meetings.”

Ching said his organization “won’t give up on the FTA issue,” which has attracted strong support from business groups in both countries since Taiwan launched its New Southbound Policy in 2016 to strengthen relations with Australia and New Zealand, as well as Southeast Asia.   

But it is clear Canberra puts more value on its economic relationship with China. Last year Australian companies earned about US$100 billion from merchandise exports to China, more than any other market worldwide, and a further $11.2 billion from services – mostly student enrolments.

Combined investment flows between the two countries were also worth more than $100 billion, including $38.2 billion in direct expenditure.

No immediate plans

By comparison, Australian exporters shipped merchandise goods with a value of $6.3 billion to Taiwan last year and two-way services trade was worth $1.2 billion, including $708.1 million for Australian businesses.

Taiwanese companies had $8.7 billion invested in Australia, mainly in the resources sector, and Australia’s investment stock in Taiwan stood at $4.3 billion. Most Australian capital has gone to the financial industry.

Simon Birmingham, who succeeded Ciobo as trade minister following the political upheaval in August, said in a statement that “the government had no immediate plans to begin negotiations on a free trade agreement.”

Fairfax quoted an unnamed government official in Taipei as saying there was a strong political will from Taiwan for a free trade agreement, “but we understand the difficult political situation Australia faces.”

“We will be patient,” the official added.