Treaty Validity After Diplomatic Cutoff: The Case of the Taiwan-Panama Free Trade Agreement

Introduction

On June 13, 2017, Panama decided to establish diplomatic relations with the People's Republic of China (the PRC, or China) and simultaneously terminated its diplomatic ties with Taiwan, formally entitled the Republic of China (ROC).¹ In accordance with this diplomatic shift, Panama, on July 10, 2017, unilaterally declared that, in line with its adherence to the "one China" policy, all treaties between Taiwan and Panama, including the Free Trade Agreement between the Republic of China and the Republic of Panama (Taiwan-Panama FTA),² would no longer have legal effect as of the day of a break in diplomatic relations. In response, Taiwan claimed that the legal status of the Taiwan-Panama FTA remained intact, as did other treaties between the two nations.³ According to Taiwan, as a treaty is governed by general international law, the existence of diplomatic relations is not indispensable for its application, and a treaty can only be terminated through the termination provisions thereof.⁴

In view of the opposing positions of Taiwan and Panama, this paper intends to examine the legal status of the Taiwan-Panama FTA after the termination of diplomatic relations between these two countries. This paper argues that the severance of diplomatic relations does not affect the legal relations of Taiwan-related FTAs. This paper puts forward two arguments in support of the continuous legal validity of the Taiwan-Panama FTA from the perspectives of public international law and the law of the World Trade Organization (WTO). First, as the law of treaties provides, the severance of diplomatic relations shall not affect the treaty relations of the parties concerned, as codified in Article 63 of the Vienna Convention on the Law of Treaties (VCLT).⁵ According to this rule, which presupposes the existence of the states concerned, legal relations established by treaties and diplomatic ties are legally independent.⁶ Therefore, breaking off diplomatic relations does not affect treaty relations. However, in light of the extinction of international legal personality, one may argue that if derecognition of a state is the underlying rationale of the severance of diplomatic relations, the treaties between the parties would cease to have effect. For Panama, this reasoning may serve its purpose. Without doubt, Taiwan will never accept that recognition by Panama defines its statehood. Taiwan considers itself a state under international law, regardless of Panama's recognition. Alternatively, even if one accepts that in the context of Taiwan-Panama relations, Taiwan would no longer be considered a state, the Taiwan-Panama FTA continues to have legal effect by virtue of Taiwan's status of separate customs territory, as evidenced by its membership in the WTO. In this context, Taiwan, as a separate customs territory, can be qualified as an "other subject of international law" in terms of Article 3 of the VCLT.

Against this backdrop, this paper is arranged as follows. Part I presents the factual background relevant to the current dispute. At the outset, it explores how Taiwan, step-by-step, abandoned the claim to be the legitimate government of China. It reveals why long-term Taiwan-Panama relations may no longer stand for China-Panama relations. Part I also sets forth the development of the Taiwan-Panama FTA. Part II addresses the relevant issues from the perspective of general international law and reviews the rules pertaining to treaties governing the severance of diplomatic relations, especially where derecognition, or withdrawal of recognition, is a factor. Indeed, the rupture of diplomatic relations and withdrawal of recognition are legally independent. Yet, in light of Taiwan's impasse in international relations, severance of diplomatic relations with Taiwan is generally an expression of derecognition. Thus, Part II examines whether Panama's derecognition entailed extinction of Taiwan's international legal personality and resulted in the termination of the FTA in 2017.⁷ Part III approaches this issue in the WTO context and further examines the implications of Taiwan's WTO membership. Based on the foregoing findings, Part IV concludes with remarks on why Panama's revocation of...