Eyes on the Taiwan Strait: Affirming EU-Taiwan Trade Relations Through a Security Lens

In an ever-changing geopolitical climate, trade relations between the EU and Taiwan are being viewed through a microscope. Rising tensions between China and the United States have increasingly made security across the Taiwan Strait a top priority for EU lawmakers, which has become evident in the EU’s 2021 Indo-Pacific Strategy and its implementation. Taiwan is a vital economic trade partner for the EU and by assessing the history, trends, and current status of the trade relationship between the two partners, the EU can do better to economically engage with Taiwan in the future. Remaining a partner in East Asia in promoting shared values such as “democracy, freedom, human rights and the rule of law”, Taiwan and the EU are looking for channels to affirm their trade relationship in an increasingly delicate geopolitical climate.

Priorities for the EU and Taiwan are to balance trade relations, attract more Taiwanese investments into the EU and focus on de-risking, especially in regards to the supply of semiconductors which require a stable investment climate and secure shipping lanes in the region. In addition, common ground will need to be found in international standard-setting and regulatory affairs, while taking advantage of opportunities in new, advanced, fields of trade cooperation and innovation such as renewable energy, blue growth, financial services, healthcare, the social sector, digitalisation, nano-electronics, robotics, and ICT. With Presidential elections in Taiwan coming up in January 2024 and European elections taking place in June 2024, we should also keep a close eye on the potential shifts the  political climate might undergo as a result and what implications these may have across the Taiwan Strait.   

Status of Trade Relations between the EU and Taiwan

As the EU adheres to the “One-China” Policy, Taiwan and the EU do not  have official diplomatic or formal political relations. However, the two entities have cooperated on trade through international organisations such as the World Trade Organization (WTO), which Taiwan joined in 2002, and the establishment of The European Economic and Trade Office in 2003. Since Taiwan’s accession to the WTO, the trade relationship between the EU and Taiwan has increased more than eightfold. As of 2022, the EU was the largest foreign investor in Taiwan, accounting for approximately one quarter of Taiwan’s inward FDI, while the Island continues to rise in the EU’s trade ranks, becoming the EU’s 12th largest trading partner in 2022, a recognisable achievement given Taiwan’s small size.  Currently, there is a growing trade deficit for goods that has increased from €-3.5 billion to €-14.1 billion between 2020 and 2022. However, for services, the EU observes a less dramatic, but still growing trade surplus between 2020 and 2022 from €5.5 to €6.9 billion. Altogether in 2020-2021, bilateral trade amounted to €73.4 billion, with manufactured goods accounting for 94.9 per cent of the trade between the EU and Taiwan. Currently, the EU’s outward FDI to Taiwan is six times greater than that of Taiwan to the EU, representing only around 2 per cent of Taiwan’s outward FDI. Therefore, a priority is to increase Taiwanese investment in Europe to align with its de-risking strategies and create a more mutual trade relationship between the two partners. Additionally, the Taiwan Strait is the primary shipping lane for European ships headed for Japan, Korea, and China, and EU Foreign Policy Chief Josep Borrell has described the strait as “the most strategic strait in the world”. Hence, one of Taiwan’s most valuable assets for trade is its shipping lanes which account for half of the global container fleet and over 80 per cent of the world’s largest shipping containers passing through it.  The importance of Taiwan in the global economy highlights how the geopolitical tensions between China and Taiwan present an economic risk for Europe. 

Business-to-Business Dialogues

To support conversations surrounding trade, the EU and Taiwan have hosted regular Trade and Investment Dialogues to discuss topics surrounding sustainable industries such as the offshore wind sector, supply chains, and the security aspects related to trade, including unifying their solidarity with Ukraine against Russian aggression. These EU-Taiwan Trade and Investment Dialogues have recently also been upgraded to the levels of Minister and Director-General. As of now, one of the main barriers for Taiwanese businesses to increase their presence in the EU is a lack of familiarity and knowledge of the European investment environment. Taiwanese investors are also faced with increasing energy costs in Europe following the war in Ukraine and a struggle to source labour. The cultural and linguistic differences between Taiwan and the EU have been identified as a challenge for Taiwanese businesses that look for foreign places to invest, instead turning to more familiar partners such as Singapore. While there is potential scope for increased Taiwanese investments in the EU, it will be essential to address these barriers and fully understand the existing reasons for investment imbalances. 

Chips Act and the Semiconductor Industry

One of the most robust areas for cooperation between the EU and Taiwan is in the production of semiconductors. Semiconductors are materials that are used in the production of digital products including smartphones, cars, and military equipment. More than 90 per cent of the most advanced semiconductors are manufactured in Taiwan, whereas the EU only accounts for 3 per cent of the market for chip design outside of companies that both design and produce chips. While representing a small proportion of the process, European companies such as ASML and IMEC play a key role in the technological and conceptual development and production of the most advanced semiconductors. For example, ASML is the only company producing EUV lithography machines which are needed to make all advanced chips. 

With rising global tensions, other powers including the United States and the EU are taking steps to not only protect this vital industry but also increase their share in their production and boost their economy. This follows a supply-chain shortage, which at its height in 2021, saw 26% less chip production. Initially because of increasing demands for digital technology amid lockdowns due to the pandemic, the supply chains faced severe bottlenecks. Although lockdowns have eased, the demand for chips is only expected to increase with a pivot towards more electric cars and overall global digitalisation. This shortage exposed the vulnerabilities and importance of this manufacturing sector, reinforcing the need for global capacity-building for chip manufacturing. The European Chips Act, passed in 2022, seeks to increase European “competitiveness and resilience” by mobilising €43 billion in public and private investment towards European manufacturing of semiconductors, including subsidies for Taiwanese semiconductor investment in Europe. While this is a good step in the right direction, it pales in comparison to the USD $400 bn in economic incentives from the United States’ Chips Act and Inflation Reduction Act. 

Taiwan Semiconductor Manufacturing Co Ltd. (TSMC) has announced plans to open a fabrication plant, a “fab”, in Germany, showing some positive effects of European efforts to increase Taiwanese investment in Europe, which is seen as both a strategic as well as a symbolic move. As of June 2023, TSMC has said that they “feel good” about this “fab”, though they are not expected to proceed with any concrete deals until August 2023. Although Europe’s interest in Taiwanese investment is in support of the EU economy, access to Europe’s high-tech machinery and manufacturing capabilities is also necessary for Taiwan’s economy and semiconductor production. Taiwan’s success as a leader in advanced semiconductor manufacturing is dependent on Europe’s innovative high-tech industry. Therefore, Taiwan should also be making investment in Europe a priority. 

Taiwan’s Perspective of an Investment Agreement

A long-standing sticking point between the two partners is the now stalled EU-Taiwan Investment Agreement (BIA). While put on the list for consideration for a BIA in 2015 by the EU, there has been no progress towards meeting this achievement since. This BIA would improve market access conditions, enhance the predictability of the investment environment, and create dispute resolution mechanisms for FDI between the two countries. However, since negotiations began and eventually stalled between China and the EU over the Comprehensive Agreement on Investment (CAI) there has been little support on the European Commission’s side to make progress on the BIA. Nevertheless, on the side of the European Parliament, there has been a stronger push for bilateral relations with Taiwan. However, the overall economic importance of Europe’s relations with China, and the politicisation of trade relations with Taiwan, have dissuaded Europe from pursuing a government-to-government trade agreement, and instead have refocused their trade discussions around a more sectoral approach. Asia Pacific Managing Director at the European External Action Service, Gunnar Wiegand has stated that there is little reason for the EU to seek a BIA between the two partners because the trade relationship as it currently stands is based on “stable conditions and a well-functioning legal system”, denouncing the need for the agreement as “political”. However, this contrasts with the Taiwanese perspective, as Taiwan has seen strengthening bilateral trade ties with other states, such as the United States and Singapore, and is hoping to achieve similar results with Europe. Acknowledging that progress on the BIA is unlikely in the near future, Taiwan’s Deputy Foreign Minister, Roy Lee has also suggested finding common ground in other areas such as food safety standardisation, digital trade agreements, or artificial intelligence (AI) regulations. 


To align with a ‘rules-based’ international order, Taiwan and Europe are trying to align their policies with international and regional standards. For example, Taiwan is amending its 2015 Personal Data Protection Act 2015 (PDPA) to align its data protection standards with the EU’s General Data Protection Regulation (GDPR) to achieve an adequacy decision. Furthermore, with the implementation of the EU’s Carbon Border Adjustment Mechanism (CBAM), Taiwan is seeking to achieve net-zero by 2050 by amending its Climate Change Response Act. To reduce carbon emissions Taiwan is trying to increase its Electric Vehicle (EV) production. However, conflicting regulating bodies means that the internationally agreed upon standards cannot be implemented in Taiwan. Therefore, many products require double-testing before entering either the European or Taiwanese markets which is a costly and time consuming process. In order to increase trade cooperation between the EU and Taiwan, helping Taiwan implement these internationally agreed upon standards and reduce trade irritants, can streamline the trading process and help Taiwan move toward its climate goals. Another way to increase climate cooperation between the EU and Taiwan is with offshore wind investments and expanding the share of other types of renewables in Taiwan’s energy mix. 

The windy Taiwan Strait is a prime location for offshore wind energy facilities. Yet, international investors are wary of the increasingly tense geopolitical climate and strict local content requirements (LCRs), which seek to increase foreign investment in the fruitful offshore wind industry in Taiwan, while supporting local economies. These regulations call for 60%-plus local content requirement and a 500MW cap on the size of future projects, which large European companies, such as Denmark’s Orsted, have said might limit emerging and competing firms from investing in the region. Further dialogues between Taiwanese companies and European investors can increase the ease of cooperation in the offshore wind sector. Overall, standardisation of regulations will not only increase trade relations between the EU and Taiwan but will help Taiwan and the EU in their “green transitions”. 

Future Prospects for EU-Taiwan Relations

Trade between the EU and Taiwan is as important as ever, but the heightening global derisking has strained some aspects of the relationship while enhancing others. A priority for the EU is creating a business environment that can facilitate outward FDI from Taiwan to Europe and address existing deficits. While the slowed BIA progress has put tension between the EU and Taiwan, progress on semiconductor agreements has improved with the passing of the European Chips Act and the potential for a TSMC “fab” in Germany among other Taiwanese investments in Europe. Additionally, other industries with growth potential for the EU include the offshore wind sector in Taiwan, ICT collaboration, and other technological innovations such as AI. However, relations between the EU and Taiwan cannot ignore the implications on the Sino-EU relationship amid growing Cross-Strait and US-China relations.  Trying to enhance de-risking strategies amongst heightening security risks in the Taiwan Strait, while deepening trade relations with Taiwan is a delicate geopolitical balancing act. However, by considering a sectoral approach to trade policy both the EU and Taiwan may be able to meet their political and economic goals while maintaining security as a top priority for the two partners.

This Op-Ed explores the potential for trade relations between EU and Taiwan following the participation of EIAS Director Lin Goethals, in the Public Hearing of the European Parliament’s Committee on International Trade (INTA) on “Trade and Investment Relations with Taiwan” on July 19, 2023. 

Programme of the INTA Hearing
Recording of the INTA Hearing

Author: Cora Fagan, EIAS Junior Researcher

Photo Credits: Pixabay