The Heritage Foundation

Asian Backgrounder #115

September 16, 1991

September 16, 1991 | Asian Backgrounder on

Standing at the Door: Why Taipei Merits Full Membership in the World Economic Community

(Archived document, may contain errors)

September 16,1991 U.S. Shift. But on July 19 the Bush Administration took an important. step to- ward ending the unfair and unrealistic treatment of the ROC.- In a letter to Mon- tana Democratic Senator Max Baucus that sought to win votes for unconditional renewal of mainland China's most-favored-nation trade status, George Bush agreed to support Taipei's bid to join the GATT. By so doing, the United States for the first time signals its intention to help Taipei play a role in globalinstitu- tions that reflects the island's growing economic muscle. The shift in the U.S. approach comes as other Western countries also are im- proving their commercial relations with Taipei. On July 29, for instance, British Undersecretary of Trade and Industry John Meadway expressed support .for the ROC's GATT bid. Meadway was leading an economic delegation to Taipei for the first official trade talks between Britain and the ROC since LDndon severed diplomatic ties with Taipei 41 years ago. That same day, ROC Economics Minis- ter Vincent Siew returned from the ROC's first ministerial-level visit to Australia since Canberra formally recognized Beijing in 1972. - Politics partially fuels the change in attitudes toward Taipei: it is fashionable to be regarded as being "tough" on Beijing in almost any Western capital these days. One way of doing this is to be conciliatory toward Taipei. Even so, the intema- tional community remains reluctant to offend mainland China. Taipei, in fact, may be more sensitive about its relations with the mainland than anyone else. It took pains to apply to the GATT as a "customs territory," not a sovereign state, and because the ROC's trade with China grows daily, Taipei seeks to avoid riling Beijing. This year's business across the Taiwan Strait between Taiwan and the mainland could exceed $7 billion. Significant Econondc Role. The most important factor in the new calculus is the 'reality of the ROC's role in the world economy. It is significant when judged by virtually every economic measure--degree of industrMzadon, trade flow'. amount of capital exports, and international currency reserves. Moreover, the progress that the ROC's free market economy has made 'over the past three de- cades' and its recent moves toward democracy, are strides mainland China should Quips the Economist magazine: "If there we a market in co'hntdes... emula re Taiwan would be launching a takeover bid for China." The international economic community long ago should have recognized this. Granted, each 1130 has a separate mandate and a separate set of goals. But they nonetheless all ostensibly share the common purpose of contributing to the -effec- tive operation of the world economy, reducing trade frictions, and promoting eco- nomic growth. If the GATT or the Organization for Economic Cooperation and Development exclude a nation whose products are the target of much of the fvorld's trade barriers, GATT and the OECD are inherently less able to mediate successfully an economic dispute.

2 See "'Me Other, Better Chinas," in the Ecowmist, February 13, 1988, p. 13. Benifits of Indusion. Granting the ROC membership in IEOs would benefit all parties because it would make the organizations more representative. It would en- courage the exchange of ideas and broaden the range of contacts. And because the process of applying for membership requires disclosing extensive information on trade and economic performance, bringing the ROC into the IEOs will pressure Taipei to be less protectionist.3 The ROC's inclusion in IEOs, moreover, would grant Taipei its proper place among the world's economic powers. Although the ROC belongs to such regional economic organizations as the Asian Development Bank, the Pacific Economic Cooperation Conference, and the Pacific Basin Economic Council, and maintains diplomatic relations with 29 nations, it remains largely an outsider in the interna- tional arena. The ROC belongs to no major international political or economic or- ganization. Western countries, for instance, bar visits by ROC leaders, and most foreign government ministers dare not go to Taipei, for fear of offending Beijing.

3 See Stephan D. Krasner (ed.),InternadonaIReginws (Ithwa, NY: CorneU University Press, 1983). ROC membership in IE0s would provide Taipei its rightful place in interna- tional economic affairs. Bush's assurance "to work actively with other contracting parties to resolve in a favorable manner the issues relating to Taiwan's GATT ac- cession" is the necessary first step toward achieving this. Beyond this, Washing- ton should: + * Commence immediately the complex federal inter-agency process that will deal with the ROC's GATT bid. Such bids generally are handled by the fif- teen-agency Trade Policy Staff Committee chaired by the Assistant U.S. Trade Representative for Trade Policy Coordination. 4 * * Inform U.S. allies, particularly Japan and the European Community, of American support for the ROC's GATT bid. * * Begin lobbying senior officials at the GATT, the World Bank and other international organizations to help smooth the way for Taipei's acces- sion. * * Work to gain the ROC's membership in the Organization for Eco- nomic Cooperation and Development. If this organization truly is predicated on fostering free trade, then it must include a wading power like Taipei among its ranks. * # Support, in principle, Beijing's efforts to rejoin GATT. Bush's July 19 pledge to Congress not only supported Taipei's GATT bid but vowed to "take steps on trade reform so that China's GATT application can advance and its trade practices can be brought under GATT disciplines" as well. 5Since 1986, mainland China vigorously has lobbied to re-enter GATT, which it quit after the commu- nists took power in Beijing in 1949. Consideration of its application has been stalled since the June 1989 Tiananmen Square killings.

THE IMPORTANCE OF ROC MEMBERSHIP

The dozen years of political isolation since the Carter Administration in 1979 tore up America's 1954 Mutual Defense Treaty with the ROC have forced the ROC to establish unorthodox relations with the U.S., Western Europe, and other Asian countries. Taipei has been extremely successful in forging these informal links. Today, over thirty nations that have no diplomatic relations with the ROC maintain quasi-official trade offices in downtown Taipei. Another nineteen trade offices represent U.S. states. Notes Charles Cross, the first director of the Ameri- can Institute in Taiwan, the unofficial U.S. mission in the ROC: Taiwan "is qu- ietly but rapidly @rfgming a world leader in developing unofficial relationships between countries.'

4 Represented on the TPSC are staffers from: the Departments of Agriculture, Commerce, Defense, Energy, Interior, Justice, Labor, State, Transportation, and Treasury; the Agency for International Development; the Council of Economic Advisors; the National Security Council; the Office of Management and Budget; and the U.S. Trade Representative. 5 See George Bush's letter to Senator Max Baucus, July 19, 199 1, in Inside U.S. Trade, July 20, 1991. It is, of course, the ROC's healthy and growing trade - relationship with most of the Chart I world that allows Taipei to Republic of China World Trade do this. Some 20 million 1985-1990 people on an island the size of New Hampshire have $70- Billions of U.S. Dollars traded almost $250 billion E.-M X. of goods with the world in ...... Soo . .................................... 7. X. just the past two years. Few :M $Go . ......................... other similarly sized econo- mies am as capable of exert- $40 . .............. ...... ... ing its influence on the M world market. 11130-- r7i ...... ....

Few other countries also 20--- ...... ... am as dependent as the ROC is on world trade. The pro- .. ..... portion of the ROC's total so trade volume to its gross na- 1985 lose 1967 1987 1989 1990 tional product roughly mea- Imports M Exports sures this. Last year, almost 70 percent of the ROC's Sourow Ministry of Economic Affairs, GNP was related to trade RePublic of China Heritage DataChart with other countries.7 By contrast, the U.S. ratio of trade to GNP was about 15 percent and Japan's 16 percent, while the ratio is 52 percent for the Netherlands and about 40 percent for Singapore. As strong a trader as the ROC is, it may become even more important as a con- sumer. Real GNP growth likely will exceed 6 percent this year and Taipei fore- casts per capita GNP to jump from $8,750 this year to $14,000 by 1996. Notes Laura Scogna of the U.S. International Trade Administration: "This dramatic in- crease in the standard of living in Taiwan has created an increasingly voracious appetite for consumer goods-especially imported ones."8 Foreign businessmen watch this especially closely as they eye Taipei's recently approved six-year, $300 billion infrastructure development program. Irnport Barriem For years'. nations seeking to export their products to Taiwan typically were stymied by a maze of obstacles-quotas, high tariffs, poor protec- tion of patents and copyrights, and a host of 'non-tariff barriers. In the past five years, however, many of these barriers have fallen. Increasingly, trade sectors are, open to greater, and fairer, competition. Foreign exchange controls on tra&-re-

6 Charles T. Cross, "Taipei's Identity Crisis," Foreign Policy, Summer 1983. 7 Calculations based on ROC per capita GNP of $8,750. 8 See Laura Scogna, "Growing Economy, More Open Markets Create Unpmcedented Export Opportunities -for U.S. Firms," in Business America, July 29 and August 12, 1991, p. 6. lated transactions have been removed. And access for service industries, like banking and insurance, has been improved. Still, problems remain. Effective intellectual property rights protection in areas such as semi-conductor lay-out designs does not exist. Counterfeiting of trade- marks remains a serious problem. ROC patent law does not protect many food- stuffs. And although Taipei has moved to slash tariffs on some imports, like indus- trial goods, excessively high tariff rates remain on agricultural products. Fresh fruit and processed agricultural products often face import duties of up to 50 per- cent. Import licensing also restricts U.S. farm goods. At present, 66 percent, or 5,918 items in the ROC's 9,004-item tariff schedule, can be imported without a li- 9 cense. But the import of many agricultural products remains tightly regulated. These include: chicken, wild rice, dried garlic, peanuts and wheat flour. Because reduction of such import barriers is the main goal of most international economic organizations, the ROC's membership in such organizations would en- courage freer trade. For one thing, Taipei's formal inclusion in the international economic community would give Taipei a wider forum to defend itself and to be criticized for its policies on contentious economic issues, like import licensing and tariff barriers. For another thing, GATT's so-called dispute arbitration mecha- nism provides an efficient means to amicably reduce trade barriers between Taipei and the worldL

GAINING SUPPORT FOR THE ROCS MEMBERSHIP IN THE IEOs

Some prominent leaders in the international economic community gradually have grown more vocal about the IE0s' stake in Taipei's membership. Last Octo- ber, for instance, Taipei's GATT application garnered the enthusiastic support of U.S. Trade Representative Carla A. Hills. "We have a unique opportunity to bring under GATT discipline one of the last major market-price-basedirading entities outside the GATT system," Hills told the House Ways and Means Committee. She added that the admission of Taiwan would "greatly benefit U.S. commercial and trade policy interests and the international ui&ng system as a whole.1110 But Hills's voice was the exception in the Bush Administration at the time. Until last month, the Administration was divided over Taipei's GATT applica- tion.11 European Community countries also have been divided. Recently an ROC trade official told Ile Heritage Foundation: "We have been fighting an uphill bat- tle to convince the world that the reasons for including Taiwan in international economic organizations outweigh the risk of offending China.',12

9 See U.S. Trade Representative, Nadonal Trade EsdViate, 1991, p. 207. 10 See Clyde H. Farnsworth "Bush Administration is Split of Taiwan's Joining GATT," in The New York Tintes, November 8,1990, p. Dl. 11 Ibid. 12 Discussions in Taipei, January 26, 199 1.

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That is why George Bush's pledge to support the ROC's GATT bid is so im- portant. The U.S. is the first major GATT member to speak out in the ROC's favor. Now Washington must go farther. Specifically, it should assist Taipei in its efforts to join international economic organizations by: * # Proceeding with the necessary federal inter-agency consideration of Taipei's GATT bid. A key element of any GATT application is payment of a so-called entry fee. This does not take the form of money but is a promise by the applicant country to make tariff and non-tariff concessions to GATT members. These concessions are designed to tear down existing trade barriers. The Trade Policy Staff Committee (TPSQ is most directly responsible for U.S. policy on GATT accessions. Usually chaired by the Assistant USTR for Trade Policy Coordination, currently David Weiss, the TPSC and its various subcommittees define the specific U.S. economic interests and set the American "entry fee" for GATT applicants. The TPSC must be convened and begin its deliberations. Bush now must instruct the USTR office to do so. The TPSC is likely to suggest that the American entry fee for Taipei's ad- mission to GATT be the ROC's abolition of import licensing requirements on American fruits and processed goods. * # Pressing GATT members to support Taipei's GATT bid. The GATT's credibility is linked to its capacity to strengthen the global trading system. As such, the exclusion of the ROC, one of the world's primary traders, in- herently makes GATT a less representative organization. Washington should urge Tokyo and the European Community capitals to begin, as is the U.S., to consider Taipei's GATT entry fee. # * Notifying and lobbying senior international economic organization offl- cials to begin preparing for Taipei's entrance in the organizations. GATT, for instance, establishes so-called worldng parties to examine member- ship bids. It is here that U.S. GATT officials should press for the prompt determi- nation of the terms for Taipei's accession. * * Supporting the ROC's membership in the Organization for Economic Cooperation and Development (OECD). Formed in 1960, the OECD is a consultative assembly for guiding the eco- nomic policies of developed countries. Guidelines for membership include: per ca- pita GNP of over $2,000, a standing amongst the world's top exporters of manu- factures, "reasonably liberar' economic and political arrangements, and a willing- ness to give aid to poorer countries.13 OECD has 20 members including the U. Australia, Canada, Japan, New Zealand and the countries of Western Europe. V Taipei's current participation in the OECD is limited to the largely ceremonial dis- cussions that the organization conducts with the so-called DAEs or Dynamic

13 OECD Information Pamphlet, September 1990. 14 Western European member countries include- Austria, Belgium, Britain, Denmark, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and Turkey.. Asian Economies. The ROC deserves full membership. OECD member Portugal last Chart 2 year had a per capita GNP Per Capita GNP of the ROC and of $6,099, while OECD Selected OECD Members: 1990 member Turkey's was $1,944. Non-member $25-/ Thousands of U.S. Dollars ROC's per capita GNP was $8,750.

................................................ .. Supporting, in prin- $20` ciple, Beijing's efforts to join the GATT. . ................................................ ..... But U.S. support should come only if China commits .................................... $10- itself to the free market prin- ciplqs that govern intema- tional trade and continues its . ........... decade-old economic reform.

The Bush Administration $0 should note, however, that Turlwy Portugal ROC Now Zealand USA U.S. support requires Beij- source: U.S. Department of Commeroe ing to stop its efforts to Heritage DataChart blackball Taipei in the inter- national community. In par- ticular, Washington should tell Beijing that its efforts to block Taipei's formal ap- plication to enter the GATT runs counter to U.S. interests.

CONCLUSION

The Pacific Basin's monumental economic growth, and the-ROC's role in fuel- ing it, in itself is a compelling enough reason for Taipei's official entrance into the international economic community. And the ROC is more than just a regional power. It overwhelmingly is a presence in the world trade picture as well. Econornic Reality. In such light, the politics of exclusion that have tainted Taipei's relations with the international economic community for over a decade should be changed. Economic reality requires that international economic organi- zations address, or by-pass, contentious politics and adopt policies of inclusion. George Bush's support for Taipei's application to enter the GATT shows that he understands this. The international economic community scarcely can ignore a country that adds a big blip to international trade figures and justifiably can be la- beled an economic mini-superpower. Now his Administration should move vigor- ously on the basis of his understanding. Andrew B. Brick Policy Analyst APPENDIX

GATT MEMBERS Antigua and Barbuda Argentina Australia Austria Bangladesh Barbados Belgium Belize Benin Bolivia Botswana Brazil Burkina Faso Burundi Cameroon Canada Central African Republic Chad Chile Colombia Congo Costa Rica Cdte Ovoire Cuba Cyprus Czechoslovakia Denmark Dominican Republic Egypt El Salvador Finland France Gabon Gambia Germany Ghana Greece Guyana Haiti Hong Kong Hungary Iceland India Indonesia Ireland Israel Italy Jamaica Japan Kenya Korea, Republic of Kuwait Lesotho Luxembourg Macau Madagascar Malawi Malaysia Maldives Malta- Mauritania Mauritius Mexico Morocco Myanmar Netherlands New Zealand Nicaragua Niger Nigeria Norway Pakistan Peru Philippines Poland Portugal Romania Rwanda Senegal Sierra Leone Singapore South Africa Spain Sri Lanka Suriname Sweden Switzerland Tanzania Thailand Togo Trinidad and Tobago Tunisia Turkey Uganda United Kingdom United States Uruguay Venezuela Yugoslavia Zaire Zambia Zimbabwe

DE FACTO MEMBERS OF GATT Algeria Angola Bahamas Bahrain Brunei Cambodia Cape Verde Dominica Equatorial Guinea Fiji Grenada Guinea-Bissau Kiribati Mali Mozambique Papua New Guinea Qatar Saint Kitts and'Nevis Saint Lucia Saint Vincent Sao Tome and Pdncipd and the Grenadines Seychelles Solomon Islands Swaziland Tonga Tuvalu United Arab Emirates Yemen

NON-MEMBERS OF GATT Afghanistan Albania Andorra Bhutan Bulgaria China, People's Republic of China, Republic of Comoros Cook Islands Djibouti Dominica Ecuador Ethiopia Guatemala Guinea Holy See (Vatican City) Honduras Iran Iraq Jordan Korea, North Laos Lebanon Liberia Libya Liechtenstein Oman Panama San Marino Saudi Arabia Somalia Sudan Syria U.S.S.R. Vanuatu Vietnam Western Samoa

Source: Office of the U.S. Trade Representative.

Note: According to the GATT, de facto members are countries "to whose territories the GATT has been applied and which now, as independent'states, maintain a de facto application of the GAIT pending final decisions as to their future commercial policy."

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