Ties That Will Bind China, Taiwan

Rather than cause for celebrating the transformation of a former authoritarian ally into a vibrant democracy, the inauguration of Chen Shui-bian as Taiwan’s new president was, in general, greeted indifferently in the United States. During Taiwan’s presidential campaign, China railed against Chen’s candidacy and threatened to use military force against Taiwan if he continued to pursue a path toward Taiwanese independence. Many in the United States worried that China, which officially claims Taiwan as a breakaway province, might make good on its military threats and draw the United States into a dangerous conflict. Many of Taiwan’s allies in Congress are pressing to upgrade U.S.-Taiwan military ties and sell Taiwan new weapons systems.

In light of China’s threats, it is prudent to consider working with the new Taiwanese president to upgrade the island’s defenses, but weapons sales are not the only, and may not be the best, approach to ensuring Taiwan’s security. Encouraging expanded economic ties between Taipei and Beijing may do more to foster peace, and the United States can help to build these economic and trade links by bringing both into the World Trade Organization.

Economic ties between Taiwan and China are already considerable. According to China, Taiwan is China’s fifth-largest trading partner; Taiwan’s figures also make China one of its largest trading partners. Since 1987, trade between the two has totaled $1.9 trillion. In 1998, almost 20% of Taiwan’s exports and 4% of its imports were with China. Trade across the Taiwan Strait continues to expand, growing at a better than 7% annual clip in 1999.

In addition to restrictions on trade, the government of Taiwan imposes limits on Taiwanese investment on the mainland. This has fostered efforts to route some of the Taiwanese investments through other channels. Taiwanese statistics put total investment on the mainland, spread over more than 22,000 projects, at $14.4 billion. The Chinese count nearly 44,000 projects and a total investment of $22.4 billion. According to Taiwanese figures, more than 40% of Taiwan’s total external investment was directed to China, by far the favorite destination for overseas Taiwanese investment. China lists Taiwan as the second-largest source of investment after Hong Kong.

This considerable commercial relationship exists in spite of, not because of, the actions of the governments of Taiwan and China. Taiwan still bans direct trade and shipping with China. Direct commerce, Taiwan worries, might threaten its national security by allowing the mainland more opportunities to infiltrate, spy upon and perhaps even take military action against Taiwan.

Despite the Taiwanese business community’s enthusiasm for investing in China, the previous Taiwanese government urged a policy of “no haste, be patient.” Individual mainland investments were limited to $50 million. During the Taiwanese presidential campaign, all candidates indicated at least some willingness to consider lifting some of these restrictions.

Formally, Beijing does not discriminate against Taiwanese investors, but some complain that the limits on formal ties between Taipei and Beijing have constrained their ability to obtain protections afforded to investors from other countries.

Because both place great importance on economic development, Beijing and Taipei have sought WTO membership for some time. Taiwan is generally acknowledged to be qualified for membership, and China hopes to join this year. The House’s vote last week to award permanent normal trade relations to Beijing certainly boosts China’s case. The political tensions between the two have greatly complicated their membership drives, particularly for Taiwan, but the Clinton administration believes there is an understanding among all parties to allow both Beijing and Taipei to join the WTO this year.

The WTO generally requires members to treat all other members the same--grant most-favored-nation treatment--and, notwithstanding some narrow exceptions, not discriminate against other members’ commerce. Thus, on its face, WTO membership for both China and Taiwan would require each to open its market and treat the other no worse than other trading partners.

Most of Taiwan’s current restrictions on direct trade and shipping would be difficult to reconcile with WTO rules. As Taiwan’s new president has acknowledged, the island’s restrictions on commerce would be substantially liberalized by WTO membership, which would move Taiwan’s policy in the direction that China has urged.

One purpose of the world trading system founded after WWII was to expand trade and commerce in hopes that this would diminish the risks of future conflict. Expanded trade and investment have certainly not produced a solution to China-Taiwan tensions, but they have served as a stabilizing factor. In all likelihood, a broader economic relationship between the two would generate domestic political momentum on both sides in favor of stable, friendly ties, which would affect policy in both Taiwan and China.

By some analyses, China would have more to gain from Taiwan from mutual membership in the WTO. But there are other factors to consider.

* Since both rely heavily on commerce with the rest of the world, China and Taiwan would have a great deal to gain by securing MFN treatment from all their trading partners in the WTO and gaining a voice in setting future trading rules.

* Taiwan would likely enjoy some substantial political benefits from WTO membership. At China’s request, Taiwan is excluded from most major international organizations, including the United Nations. WTO membership would grant Taiwan a measure of international recognition. Most important, it would provide a forum for mediated communication with China. With the WTO, China and Taiwan would essentially deal as equals, with both enjoying the rights of WTO members.

In the case of disputes over the application of WTO rules, third-party settlement would be available upon the request of either party. This would provide Taiwan a valuable and relatively stable channel for dealing with the mainland, at least on commercial issues. Given the frustration that Taiwan has expressed with maintaining a dialogue with the mainland on an equal basis, this could be a benefit.

In the short term, Taiwan’s recent election may increase cross-strait tensions. Doubtlessly, some in Taipei and Beijing would allow a confrontational relationship to continue even after the two joined the WTO. If that were to happen, both Beijing and Taipei stand to lose.

Mutual membership in the WTO is one of the few clear possibilities for a win-win relationship between Taiwan and China. As trading powers, both would gain from having a seat at the table at the world trading body. Beyond that, the WTO could expand trade and commercial opportunities for both, particularly improving China’s opportunities to trade with Taiwan. Both sides, particularly Taiwan, could benefit from having the WTO as an intermediary to help build a broader trade and investment relationship.

It would be folly to ignore the military dimensions of the Washington-Taipei-Beijing relationship, but it would be equal folly to ignore the possibilities for building expanded economic ties across the Taiwan Strait in the hopes of decreasing the potential for military conflict. By strengthening economic ties and creating a permanent channel of communication, the WTO could be a positive force for addressing this seemingly insoluble conflict. Rather than threatening to use diplomatic maneuvers or WTO legal strategies to thwart the other, Taipei and Beijing should embrace mutual membership in the WTO for their own good and for the world’s. As a senior WTO member, the United States should work toward achieving mutual WTO membership in 2000.