Taiwan and Japan signed an arrangement Thursday to bolster mutual investment despite their lack of formal diplomatic ties.
The deal comes amid steadily improving ties between the sides. Relations hit a trough at the beginning of Taiwanese President Ma Ying-jeou's term in office, but have blossomed in recent months, particularly after Taiwan extended substantial aid to Japan in the wake of the devastating earthquake and tsunami that hit the country in March.
Taiwanese Vice Economics Minister Hwang Jung-chiou said the arrangement is expected to help Taiwan lure more investment from Japan, including from companies considering moving production overseas to avoid supply chain disruptions caused by the March disaster.
"Japan has been the biggest source of technology for our industries," Hwang said. "Many of the big Japanese corporations have already invested here, but with the arrangement, we can attract those who were not as enthusiastic before, such as makers of machinery components, chemical materials, and biotechnology."
Taiwan's East Asia Relations Commission Chairman Peng Run-tsu signed the new agreement with his Japanese counterpart Mitsuo Ohashi, chairman of the Japan Interchange Association.
The deal is not expected to draw protests from China, which claims sovereignty over Taiwan but has improved its own ties with its rival in recent years. The two sides split amid civil war in 1949.
Last year, China signed a landmark deal to offer tariff cuts for hundreds of Taiwan-made goods. Taiwanese officials say Japanese corporations may be lured to invest on the island to get access to the same preferential tariffs when exporting to China.
Hwang said Japanese investment in Taiwan has increased over the past two years, and that bilateral trade totaled nearly $70 billion in 2010.
Under the arrangement signed Thursday, companies from the two sides can enjoy the same benefits as local counterparts when investing in each other's territories.
Both governments will be obligated to assure the free movement of money by their companies to the other side. Investment disputes can also be resolved by international arbitration agencies.
Tokyo switched recognition from Taipei to Beijing in 1972.
Hwang said the two sides will also consider the signing of a more comprehensive free trade agreement, which would involve liberalization of the service sector and removing remaining import and export barriers.