Taiwan’s Bid to Join GATT Puts U.S. in a Spot : Pacific Rim: The United States had cautioned Taiwan to wait for China to become a full member. But Tian An Men Square changed things.

The Bush Administration is beginning to grapple with another potentially embarrassing issue involving U.S. relations with China--the revival of the dispute over whether Taiwan should be allowed to join the Geneva-based General Agreement on Tariffs and Trade.

The issue re-emerged this month with a surprise new application by Taiwan to join the 97-country compact, which administers global trade rules. Washington has been cautioning Taiwan to wait until China--which now has observer status--becomes a full-fledged GATT member.

But worldwide reaction to the crackdown at Tian An Men Square last May has brought progress on China’s application to a halt, and Taiwan--contending that it no longer could wait for China’s application to go through--filed its own petition for membership status.

China has protested the move, contending that it is “utterly illegal and absurd” for GATT to admit Taiwan now.

U.S. reaction to the Taiwanese move has been low-key so far. U.S. economic policy-makers are preparing a report based on the trade issues involved, and the issue then will come under review by the Administration’s top political strategists. A decision is expected by mid-March.

But the decision may not be easy. Although no one really expects the White House to back Taiwan’s petition for full membership, officials in Taipei have offered to sweeten it with some significant trade concessions that Washington has been seeking for years.

Unlike previous years, this time Taiwan has offered to enter GATT as an industrialized country rather than as a developing country--meaning that it will agree in advance to a substantial reduction in its trade barriers that otherwise might take years of hard bargaining to achieve.

“It’s a very attractive offer,” a U.S. official conceded. “We’re still in the process of getting our position together here,” he said.

To top that off, Taiwan has made it easier for GATT members to accept its application by offering to join as part of a broader trading entity rather than as the “Republic of China”--thus eliminating the “two-Chinas” issue that has plagued Taiwan all these years.

In a bit of creative diplomacy, the application has been filed on behalf of a “separate customs union” that includes Taiwan and Penhu, Quemoy, and Matsu--three neighboring islands. The ruse has not fooled anyone, but technically it eliminates the two-Chinas question.

With a sizable trade surplus and about $65 billion in cash reserves, Taiwan has become an important economic power. Applying for membership as an industrialized country, rather than a developing country, would guarantee Taiwan fast-track approval of its membership application, rather than having to spend years in observer status, as is the case for most developing nations.

To be sure, U.S. officials concede it is unlikely that the White House will support the latest Taiwanese initiative. President Bush has shown he wants to maintain good relations with China even in the face of formidable pressure at home for imposing sanctions on Beijing. In protesting the GATT application, a Chinese foreign ministry spokesman told reporters Wednesday that there is only one China in the world and GATT must recognize that.

Nevertheless, some economic policy-makers are expected to argue, at least in the initial stages of debate, that supporting the Taiwanese application makes good sense from a trade policy perspective. And Washington could use Taipei’s move as leverage against Beijing.

“There could be a bit of a battle about it within the Administration,” one well-placed official said.

Meanwhile, GATT officials in Geneva say Director-General Arthur Dunkel effectively has put Taiwan’s application on hold pending reaction from individual GATT members. “I don’t think we will do anything else,” one official said.