Introduction

As neighbouring countries, economic relationships between ASEAN and Taiwan have been intensified primarily through de facto economic integration of trade and investment, instead of de jure integration, such as free trade agreements (FTAs). Not until in 2013 when Taiwan signed its FTA with Singapore (known as ASTEP) — its very first trade agreement ever with an ASEAN member. However, long before that, trade and direct investment between the two sides have intertwined to enhance mutual economic relationships. Particularly, it was direct investment in ASEAN made by numerous Taiwanese SMEs starting from the mid-1980s that triggered and pushed forward this economic integration (CIER 1995). In Taiwan, many tend to refer to this integration as the “investment-induced trade”. However, it can involve a process of “deep integration” (WTO 2011; Baldwin 2013a, p. 26) in a crossborder manner.

In addition, global value chains (GVCs) (Gereffi and Frederick 2010; Gereffi, Humphrey and Sturgeon 2005; Gereffi and Memedovic 2003) and otherwise known as global production networks (GPNs) (Chen 2002; Coe et al. 2004; Ernst 2005, 2006; Sturgeon and Lee 2005; UNCTAD 2005) are keys to such integration. It is well-documented that in East Asia, SMEs have made significant contribution to de facto regional economic integration via their participation in GVCs and/ or GPNs (ESCAP 2009; Lim and Kimura 2009; Harvie 2010; Chen 2002; OECD 2007), which in turn has become an important source of national economic growth. A typical example at issue refers to the GPNs, led by a few brand marketers in ICT (information and communications technology) hardware and software (Chen 2002; Yang and Coe 2009), involving such countries as Taiwan, Malaysia, Thailand, China, India and the Philippines. Furthermore, the WTO (2011) and a few scholars (Baldwin 2013a, 2013b; Low 2013) have suggested that GVCs/GPNs and FTAs often lead to “deep integration”, through intertwining relationships among trade, investment, service and intellectual property; a phenomenon termed the “trade-investmentservice- intellectual property (IP) nexus” (Baldwin 2013a, p. 26).

Set against the above context, this study sets out to examine the evolution of Taiwan's economic links with ASEAN. Indeed, GVCs/ GPNs are major elements underlying the economic links between ASEAN and Taiwan. To discuss this issue, we examine the macro data of direct investment and bilateral trade, from the Taiwanese perspective.