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Containers and a cargo ship at the Keelung harbour in Taiwan on June 14.SAM YEH/AFP/Getty Images

The self-governing democracy of Taiwan is increasingly relying on its foreign allies, with neighbouring China threatening to annex the island and waging an international campaign to diplomatically isolate its 24 million inhabitants.

In the coming weeks, Canada and Taiwan will upgrade relations by signing a pact to grant protection to business investors from each other’s country. The deal is meant to assure that their respective capital markets investments will not be damaged or appropriated without due process and compensation.

Canada has signed 38 such foreign investment deals around the world – normally called foreign investment promotion and protection agreements (FIPA). They pave the way for more bilateral investment by setting up a more stable, rules-based environment for foreign investors.

This pact flows from Canada’s Indo-Pacific 2022 policy that pledged a more active role in the region, including sending more Canadian warships to conduct exercises with allies.

The accord with Taiwan, however, is an “arrangement,” not an agreement and it will not be legally binding like FIPAs. That’s because Canada doesn’t recognize Taiwan as a sovereign state and doesn’t maintain official diplomatic relations with Taipei.

Negotiations for the deal are complete, both sides announced Oct. 24, and now it’s being fully translated into legal text in English, French and Mandarin.

Instead of Canadian and Taiwanese cabinet ministers signing the deal, it will be inked by envoys from both countries. For Taiwan, it will be Harry Ho-jen Tseng, Taiwan’s chief representative and unofficial ambassador to Canada. Jim Nickel, Ottawa’s unofficial ambassador to Taiwan whose title is executive director of the Canadian Trade Office in Taipei, is signing for Canada.

Ottawa is trying to help Taiwan while steering clear of actions that might draw the wrath of an increasingly aggressive People’s Republic of China.

The Chinese Communist Party, which seized power in China in 1949, has never ruled the island, where nationalist forces retreated after losing a civil war to Mao Zedong more than 70 years ago. Chinese President Xi Jinping has not ruled out using force to seize Taiwan and has stepped up efforts to menace the island.

Canada has not recognized Taiwan as a sovereign state since 1970, when then-prime minister Pierre Trudeau switched diplomatic relations to Communist-led China. Many countries have done the same.

In recent years, Beijing has ramped up efforts to isolate Taiwan from the international community, including by denying it the chance to participate in global bodies such as the World Health Organization’s regular assemblies, and by persuading countries that recognize Taiwan as a sovereign country to sever relations.

China has also been flooding the island with disinformation campaigns, has blocked some Taiwanese imports and has encircled it with military exercises that include missile launches.

Chinese military aircraft have increasingly crossed the median line in what Taiwan calls escalating harassment: That’s the midpoint in the waterway between Taiwan and China, which Taipei says was previously tacitly accepted by Beijing as an unofficial buffer.

In 2000, Taiwan had diplomatic relations with 29 member states of the United Nations, as well as the Vatican. Today, the number is down to 12, plus the Vatican.

Taipei has been working to maintain robust informal ties with Western liberal democracies, as well as Asian countries such as Japan.

A vibrant democracy with a population roughly the size of Australia, Taiwan is particularly suited to the progressive outlook of many Western governments. Taiwan was the first Asian jurisdiction to legalize same-sex marriages; it has embarked on major reconciliation efforts with its significant Indigenous population; and it has a transgender cabinet minister.

Canada’s new trade pact with Taiwan is one of the ways that Taipei’s unofficial allies are pushing back against Beijing. It’s part of the somewhat more assertive role that Ottawa is carving out for itself in the Indo-Pacific region under a new policy unveiled by Foreign Affairs Minister Mélanie Joly in 2022 – one that includes increased military presence there.

Last month, Canada’s decision to deploy an extra frigate to the Indo-Pacific brought it in more frequent proximity with the increasingly combative Chinese military, which fired flares in front of a Canadian helicopter conducting an exercise in international waters near China.

This new trade arrangement with Taiwan is also generating aggressive commentary from China.

Asked for comment, China’s embassy in Canada had nothing positive to say.

“China strongly opposes official interaction of any form between China’s Taiwan region and countries that have diplomatic relations with China,” China’s embassy in Ottawa said in a statement to The Globe and Mail. “That includes negotiating or signing any agreement of sovereign implication or official nature.”

International trade lawyer Larry Herman, who once served as chair of the Canada-Taiwan Business Association, said this FIPA with Taiwan will be more akin to a memorandum of understanding, a non-legally-binding arrangement where both sides pledge best efforts.

“While not legally enforceable, it has moral and especially political weight, so one can assume both sides will abide by its terms,” he said.

“For Taiwan, it’s a significant development. It cements commercial – and political – relations with a G7 country,” Mr. Herman said.

Despite the non-legally binding nature, he said the FIPA represents more than a goodwill gesture. Creating a rules-based framework for capital investment helps build supply chains not dependent on China and its propensity to weaponize commerce.

“In geopolitical terms, it signals to China that Canada will continue to maintain and augment ties with Taiwan – a policy reinforced in the sailing of Canadian frigates through the Taiwan Strait these past weeks,” he said. “The investment arrangement also fits into Canada’s Indo-Pacific strategy, of which Taiwan is a crucial part.”

Taiwan is Canada’s 13th-largest trading partner and fifth largest in Asia.

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