American and Taiwanese flags fly together. Photo: Central News Agency, Taiwan

In a visit to Taipei on Thursday, David Bohigian, the acting head of the US-based Overseas Private Investment Corporation (OPIC), pledged to partner with Taiwan’s International Cooperation and Development Fund (TaiwanICDF) to help assist Taipei’s diplomatic allies. Established in 1971, OPIC is a self-sustaining US government agency offering financing and political risk insurance to assist American businesses in emerging markets. TaiwanICDF offers lending and investment, technical cooperation, humanitarian assistance, and international education and training to Taipei’s 17 diplomatic allies.

The US signed a bilateral investment guaranties agreement with Taipei in 1963 for American investments for activities in Taiwan. OPIC does not have a bilateral agreement with the People’s Republic of China (PRC).

Earlier this year, the two agencies committed to their first joint investment, toward a US$184 million facility for Banco Regional, a Paraguayan bank, for onlending to women-led and women-owned small and medium sized enterprises.

In addition to the “carrot” of mutual cooperation to assist Taiwan’s allies, Washington has introduced a legislative “stick” that could punish Taipei’s allies for desertion – the aptly named Taiwan Allies International Protection and Enhancement Initiative (TAIPEI) Act. Introduced in September 2018 by Republican US Senator Cory Gardner, the act directs the US State Department to consider:

  • supplementing or reducing the US diplomatic presence to provide incentives to countries considering or taking steps to alter or downgrade ties with Taiwan; and
  • expanding, reducing, or terminating economic and military assistance to countries that have reduced or are anticipating reducing ties with Taiwan.

The act seeks to counter the diplomatic pressure and economic incentives from Beijing that have led to a number of Taiwan’s allies switching their diplomatic recognition away from Taipei and toward Beijing. Taipei has lost five diplomatic allies since 2016, namely Burkina Faso, the Dominican Republic, El Salvador, Panama, and Sao Tome and Principe. While Taipei currently retains 17 diplomatic allies, some (such as the Solomon Islands) are reassessing their priorities in light of Beijing’s Belt and Road Initiative. The BRI promises millions of dollars in funding for those countries that recognize the PRC as the “one China” and refuse to recognize the Republic of China (Taiwan).

To help Washington compete with Beijing’s BRI, the US Congress passed the Better Utilization of Investments Leading to Development (BUILD) Act, signed into law last October. Under the act, OPIC is slated to merge with the US Agency for International Development’s Development Credit Authority to create a $60 billion financial behemoth called the US International Development Finance Corporation (USDFC or DFC). While not as flush with cash as the $1 trillion or so BRI, the DFC will seek to use its limited funds in a more targeted way than Beijing, by offering a cleaner and greener approach to development assistance through greater attention to the environment, good governance, transparency, local employment, and quality.

Thursday’s visit of OPIC representatives is a clear indication of support Washington’s support for Taipei, which stands to gain not only financial assistance for the island but for its 17 remaining allies, who can choose to accept the carrots on offer from the BUILD Act, or possibly face the stick of the TAIPEI Act and rely instead on promises from Beijing.

In passing such legislation, and in pursuing the ongoing trade war, Washington has set upon a more confrontational path toward countering Beijing, appearing ready to use its economic muscle, as well as diplomatic and economic sanctions, to compete with China for geopolitical influence. All of which is good news for those countries that stand to gain more by playing the two superpowers off against each other. But with far less funding on offer than Beijing, both Washington and Taipei must choose their partners wisely.

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