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Ties That Will Bind China, Taiwan

May 28, 2000|Greg Mastel | Greg Mastel is director of the Global Economic Policy Project at the New America Foundation

WASHINGTON — 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.

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