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CHAMBER REPORTS ON RECENT DEVELOPMENTS Implications of a
Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (“Chinese
Taipei”) 17
November 2001 CONTENTS What
is the current state of cross-strait relations? Will
tensions be eased as a result of WTO membership for both mainland China and
Taiwan? Has
Taiwan’s position within the global community changed? What
factors are contributing to the present attitudes of the Taiwanese? Related
documents ”Chinese Taipei” in
the “Key Cities” section Outcome of 1st December
elections in Taiwan (“Chinese Taipei”) |
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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: v
a limit of US$50 million for individual investments
in the mainland, v
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:
From http://www.trade.gov.tw/english/page31-1.htm 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. |
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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”. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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