ON RECENT DEVELOPMENTS
Implications of a Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (“Chinese Taipei”)
17 November 2001
Recent commentaries on China’s entry into the World Trade Organisation (WTO) have eclipsed the simultaneous entry of Taiwan into that organisation. Perhaps this is not surprising since the Taiwanese economy needed less “renovation” in order to comply with normal entry requirements.
In addition, it was generally recognised that Taiwan’s trade regulations discriminated against the mainland. This was evident in the following:
a limit of US$50 million for individual investments
in the mainland,
restrictions on investments in the mainland by
“strategic industries” in Taiwan, and
v tariffs and other import restrictions that were aimed at keeping mainland agricultural products, and some manufactured items, out of Taiwan.
These discriminatory measures are not permitted under WTO rules, so they would eventually be removed. It was not clear, however, whether the mainland authorities would exert pressure to have them removed prior to Taiwan’s entry as a separate customs union, or whether Taiwan would remove them without being pressured to do so.
As a result, the rest of the world adopted a wait-and-see attitude, as did most of the media reporters and commentators, apart from those in Taiwan and Hong Kong.
Like other aspects of the cross-strait relations, Taiwan’s participation in international organisations has taken a number of twists and turns. We reported some of the background influences in a Chamber Newsletter released in June 2000. This is available in the Archives section of the Internet site at: http://www.accci.com.au/trade/el23.htm
The “timeline” background for Taiwan in the General Agreement on Tariffs and Trade (the forerunner of the WTO) is as follows:
Taiwan’s application to rejoin GATT in 1990 was made as “Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (referred to as “Chinese Taipei”)”. The name, stated in that way, was reportedly chosen to avoid objections from the mainland authorities. The latter did not object to it, and subsequently insisted that the official name for Taiwan in the WTO be the same as the one used in the 1990 application.
As is noted below, a number of
Taiwanese are not happy with this result.
The mainland authorities are adamant that any negotiations for improved relations must begin with acceptance by the Taiwanese of the “one China” principle. This was verbally agreed upon in 1992, when both sides recognised that only “one China” existed, but reserved the right to offer differing interpretations of what “one China” meant.
The Taiwanese are apparently willing to accept the principle of “one China, differing interpretations” provided it does not require them to abandon the name “Republic of China” (and presumably what it conveys) prior to the resumption of the negotiations.
What limits, if any, were placed on the “differing interpretations” in 1992 is not known since the agreement was not recorded. In any case, the loss of political dominance by the Kuomintang (KMT), and the even greater loss of prestige by the “old guard” of the KMT, would undoubtedly give rise to a Taiwanese desire to renegotiate the limits, if they did exist.
In 1995, Jiang Zemin suggested that negotiations should be held between the Chinese Communist Party (CCP) and the Chinese KMT on a reciprocal basis. This was not accepted by the non-KMT voters in Taiwan, and they are now in the majority.
The relevance of Taiwan’s
admission to the WTO is that it opens the possibility of resumption in the
negotiations by allowing them to proceed between the People’s Republic of
China and the “Special Customs Union of Taiwan, Penghu, Kinmen and Matsu”.
Most analysts suggest that it will not ease the intransigence within the next year and perhaps longer. The reasons involve, first, the important agenda item of direct transport links and, second, the nature of changing politics in Taiwan.
Neither Taiwan nor the mainland officially lists goods shipped to the other as “exports”. There is no customs entry for such goods on either side so neither can officially record the trade. Apart from items illegally brought in by “fishing boats”, all goods traded between Taiwan and the mainland are shipped either through Hong Kong or Okinawa (with the latter for the northern mainland ports).
Taiwan’s exports to the mainland through Hong Kong are substantially greater than the mainland’s exports to Taiwan through Hong Kong. During 2000, Hong Kong’s re-exports of Taiwan goods to the Chinese mainland were US$9.6 billion while re-exports of mainland goods to Taiwan were only US$2.0 billion.
This means that a substantial amount of empty space exists on eastbound voyages from Hong Kong, suggesting that the freight rates on inward freight to Taiwan are relatively low. Not surprisingly, the pressure to initiate direct transport links comes mainly from Taiwanese exporters.
This could change with the rules agreed to by Taiwan for WTO entry. Currently, Taiwan's average nominal tariff rate is 8.2 percent, which is at a fairly low level and is comparable to the low single digit rates of the United States, Europe, and Japan.
In accession talks, Taiwan agreed to lower its average tariff rate to 5 percent. These tariff concessions will ultimately affect 3,470 industrial products and 1,021 agricultural products.
The average tariff nevertheless hides the fact that significant barriers to trade can exist for specific items. Taiwan’s tariffs, as well as non-tariff measures, are particularly significant in the agricultural sector. Tariffs on many meat products exceed 50 per cent and they are prohibitive for various types of fruits and vegetables.
A large increase in imports of these agricultural products is expected to occur shortly after membership in the WTO becomes official. Much of this increase is likely to come from the mainland and this will alter the mixture of freighted items.
Specifically, the additional eastbound volume from Hong Kong, combined with the likely need for reefer containers, will add to mainland costs. The direct distance between Fuzhou and Taipei by sea is about 250 kilometres, and only slightly more for sea travel between Xiamen and Kaohsiung.
In comparison, the land distance from Fuzhou to Hong Kong is about 750 kilometres and the sea journey to Taipei adds another 850 kilometres. The additional 1,350 kilometres will be relatively costly for fresh food from Fuzhou. Moreover, the indirect route gives an advantage to farmers in Guangdong Province, who have a smaller distance to Hong Kong, relative to farmers in Fujian Province.
With this increased trade,
pressure to find a solution to the blockage of direct transport could come
from both sides, but this is not likely to build up for some time.
Direct passenger sailing between Taiwan and the mainland started in January 2001 with government-run ferries between Kinmen and Matsu (in Taiwan) with Xiamen and Fuzhou (in Fujian Province). The Straits Travel Agency, a new office founded by the Taiwan Affairs Office under Beijing's State Council, was established to replace the China Travel Agency. It is an exclusively body in charge of Taiwan-bound tourism and will be responsible for issuing documents to Taiwan residents for travel to the mainland for a wide variety of purposes.
This suggests that the existing direct passenger service is not intended principally for business travel, which will almost certainly increase with the WTO concessions. For example, Taiwanese authorities agreed to scrap the US$50-million cap on individual investment in the mainland. Offshore units of Taiwan banks will also be allowed to exchange funds with the mainland.
The Taiwan government has also decided to simplify the review process for investments valued below US$20 million, though investments that exceed that amount will continue to be reviewed. Perhaps more importantly, Taiwanese businesses can now invest directly in the mainland, without going through a third party, provided of course that they meet these requirements.
The amount of investment is already relatively high. During the period from January to March 2001, approved investment (through third parties) amounted to US$640 million, which was an increase of 13.5 per cent from the same period in 2000. By the end of 2000, more than 47,000 Taiwanese enterprises contracted to invest about US$60 billion funds in the mainland.
Little information is available about direct investment from the mainland to Taiwan. Most probably, strategic alliances are established at the present time by including Hong Kong intermediaries. This also could change, however, with the liberalisation of direct investment, thus giving rise to increased business travel across the Taiwan Strait for both Taiwanese and mainlanders.
As with pressures for exporters on both sides, a similar, two-sided desire for direct flights between Taiwan and the mainland, for business purposes, will not occur immediately.
A polarisation of Taiwanese views about the “one China” principle became apparent in the early 1990s. It is unlikely that the views changed suddenly at that time; it is more likely that the increased democratisation in Taiwan during that period allowed a freer expression of previously held opinions.
Until 1991, the “old guard” of the KMT reiterated the claim that they represented all of China. Thus, for them, “one China” was unambiguously the “Republic of China” on Taiwan. Increasingly, those who were born on Taiwan railed against this, not only because it was obvious that the mainland was not controlled from Taiwan, but also because the claim tended to gloss over what Taiwan had accomplished since 1949.
Beginning in 1986, the opposition Democratic Progressive Party (DPP) and independents acquired an increasing amount of voter support. Perhaps as a response to these changing views within Taiwan, Lee Teng-hui, who became president in 13 January 1988, softened the pronouncement of the “one-China” principle and used phrases such as "two governments", "two reciprocal political entities", "independent sovereignty" for Taiwan and "state-to-state" negotiations.
This change was generally welcomed by a large number of Taiwanese. It did not, however, change the official view of the KMT, and the principle of “one China” meant different things to different Taiwanese.
The factional split in the KMT remained, despite the efforts of Lee Teng-hui to re-state the official position in different forms. Voters lost confidence in the ruling party and elected Chen Shui-bian, the DPP candidate as the presidency, in May of 2000. The KMT retain a majority in the Legislative Yuan, but this is expected to be reduced in the coming election (1 December 2001).
The Taipei Times (http://www.taipeitimes.com) reported on 14 November 2000:
Two KMT legislative candidates known as members of the "pro-localisation" faction -- Chen Horng-chi and Chen Hsueh-fen -- have called on the party to build a coalition government with the DPP after next month's elections. Their move attests to the tremendous pressure facing them in the fight for votes. It has also brought the KMT's identity crisis -- widespread but hitherto kept under wraps -- to the surface.
Under KMT Chairman Lien Chan's leadership, the party has cut the umbilical cord that connected it to his predecessor and former president Lee Teng-hui and moved to vie with the People First Party and the New Party -- which are basically KMT spinoffs -- for mainlander votes.
In doing so, the KMT has
abandoned the pro-localisation voter base, which accounts for 80 percent of
all votes. Meanwhile, the conflict
over the KMT's future continues to percolate within the party, to which the
two Chens' latest move is but an early pre-election overture.
Until 1992, Taiwan’s total exports exceeded the exports of mainland China. Specifically, Taiwan’s exports were US$76 billion, in 1991, compared to US$72 billion for mainland China, but in 1992 Taiwan exported US$81 billion compared to the mainland’s US$85 billion. The gap became larger since then, and took a large jump in 1998 when Taiwan’s exports contracted.
A recent survey conducted by Taiwan’s Ministry of Foreign Affairs showed that China's rise as a world power has many Taiwanese worried about the island’s global importance. Despite euphoria over Taiwan's accession to the WTO, 46.4 percent of respondents to the survey said they believe Taiwan's international status is declining:
"This figure has little to do with WTO accession. ... It largely reflects the problems with Taiwan's domestic situation, both in political and economic terms, and the general perception of China as a rising power," said Lo Chih-cheng, chairman of the foreign ministry's Research and Planning Board.
"It [the result], indeed, largely has to do with our self-confidence," Lo added.
Taipei Times, http://www.taipeitimes.com 14 November 2001.
According to the survey, 30.5 percent of respondents said there has been no apparent change in Taiwan's international status during the past year, while 10.9 percent said Taiwan's status in the global community has risen.
When asked if the government should continue to push for Taiwan's accession to more international organisations now that Taiwan is a member of the WTO, 81.7 percent said "yes" while 3.7 percent said "no."
With a sample size of 1,076 aged 20 and above, the same poll also indicated that 36.1 percent of respondents said China should be blamed for Taiwan's absence from this year's APEC summit, while 28.3 percent said Taiwan should take most of the responsibility for the diplomatic fiasco.
Another 72.1 percent of respondents said they opposed the idea of “one country, two systems”, while 19.3 percent declined to answer the question. A similar poll conducted in June 2001 showed that 75.2 percent of respondents opposed the notion while 14.2 percent declined to answer.
A recent editorial appearing in the Taipei Times is informative, particularly since the sentiments expressed would not have appeared in the Taiwanese media 10 years ago:
The people of Taiwan should clearly understand that the seeds of disaster planted under KMT rule run deeper than Lien Chan [the present KMT Chairman] would like them to believe. Not only did the "Chiang Dynasty" isolate Taiwan from the international community, but the KMT government that followed willingly agreed, before Taiwan joined APEC, to send only trade ministers to APEC meetings. This inflicted tremendous damage to Taiwan's national dignity and chained the sovereignty issue to the whims of Beijing.
Frederick Chien, the former foreign minister who formulated the humiliating policy, still serves as a high-level government official. This is a glaring irony for the DPP government, which has vowed to safeguard Taiwan's sovereignty to the death.
Since this unpleasant precedent was set, Taiwan has found it difficult to find ways to publicly defend itself internationally, or to break through Beijing's international diplomatic blockade. Nonetheless, Taiwan must more boldly strive for ways to do so.
It is clear that considerable
time, and even more political skill, will be required to “mend the fences”
across the Taiwan Strait.
Per capita income, based upon purchasing power parity, in Taiwan reached $17,500 this year. Middle-income earners therefore comprise a substantial number, all of which have assets in property, shares, retirement funds or consumer durables. Like everyone else in that group, they seek security and protection for their assets.
WTO membership for Taiwan is expected to be moderately costly for the first two years and could be greater on a per capita basis than the cost for mainlanders (see the earlier report by the Chamber on the mainland at http://www.accci.com.au/wto.com).
This expectation arises from the apparent willingness of the Taiwanese to “plunge in”. Unlike the arrangements negotiated by the mainland authorities, Taiwan has few phase-ins for the reduction in tariffs and the removal of non-tariff protection. The consumer will benefit, since food prices will decline, but many people in Taiwan’s rural sector will be badly hit.
A large number of Taiwanese consider this to be an unnecessary sacrifice since Taiwan could have (and perhaps should have) remained a member of GATT, and subsequently became a member of the WTO with much less pain, and probably greater gain from even faster rates of economic growth than were experienced.
Entry into the WTO, though welcome, comes at an unfortunate time for Taiwan. The Asian Development Bank forecasted growth for the economy at negative 2.1 per cent this year, as a result of the global downturn in sales of electronics and the impact of several typhoons this year.
If this occurs, it will be unprecedented. Taiwan continuously experienced positive rates of growth since 1952 (the first year of comprehensive economic growth data), though it fell to 1.2 per cent in 1974 (the year of the first oil-price shock).
These conditions are expected to improve by the end of 2002, giving Taiwan a projected growth rate of 2 per cent. Most Taiwanese recognise that the poor result for 2001, and only some improvement for 2002, is the result of circumstances over which neither the Taiwanese leaders nor the mainland leaders had any influence.
These Taiwanese nevertheless have diminishing sympathy for what they consider to be obsolete objectives that detract from what they – the middle-class and moderately affluent Taiwanese – consider to be important.
Hopefully the exchange of
government officials from all WTO members, which should arise from Taiwan’s
status as the Special Customs Territory of Taiwan, Penghu, Kinmen and Matsu,
will make this point more visible.
From past experience, however, the “learning curve” of government
officials is relatively flat in the short term.