Saturday, April 14, 2007

Can Two Chinas Coexist in the WTO?

Fast-forward to late 2002. Both China and Taiwan have been in the World Trade Organization for nearly a year. Without warning, China slaps restrictions on polyester imports from Taiwan, which are steamrolling mainland rivals. Taiwan takes the squabble to the WTO's Dispute Settlement Board in Geneva. But China refuses even to attend the proceedings, claiming that what happens between Beijing and Taipei is an internal Chinese affair. The two sides engage in a cycle of escalating sanctions, and trade across the Taiwan Strait shrivels. In this worst-case scenario, the WTO's reputation is besmirched -- as is China's claim to play by international rules.

Amid the hoopla surrounding Beijing's entry to the WTO, little has been said about what Taiwan's membership will mean for cross-strait ties. For Taipei, its expected January entry is a diplomatic coup. Taipei sees WTO membership as a tangible acknowledgment by the rest of the world that Taiwan is indeed a separate entity from Beijing.

ORDER, CIVILITY. At the same time, Taipei hopes joining the WTO will bring more trading privileges and legal protections, allowing it to boost trade and investment with China -- without having to kowtow to Beijing. "We're expecting more orderly and friendly ties under WTO," Taiwan Premier Chang Chun-hsiung told BusinessWeek. "After we join WTO, we'll gradually open trade, investment, and cross-strait remittances. We'll even allow direct investment from the mainland into Taiwan."

Chang may be too optimistic. His assumption is that the Chinese leadership will be more reasonable once both sides join the WTO and are forced to play by its rules, which are designed to lower tariff barriers and encourage trade and investment between nations. But Beijing wants Taiwan to agree there is only one China -- to cede sovereignty before talks to liberalize trade and transportation take place.

Moreover, Beijing holds more cards than Taipei. Mired in its worst recession ever, Taiwan has nowhere to go but China, both as a source of cheap labor and a market for Taiwanese exports. Furthermore, under the WTO, Taiwan must open its economy to China. That will bring not only opportunities but security risks as the mainland becomes more deeply involved in Taiwan's economy.

SABATOGE. Premier Chang vows not to invoke national security opt-outs to discriminate against Chinese products. Still, he frets that Beijing might try to manipulate the stock market or slip in spies among a growing flood of mainland visitors. So Taipei won't completely open its financial markets -- meaning mainlanders won't be able to scoop up stocks and property. "We worry the mainland will take advantage of WTO entry to sabotage [our] economy," says Chang.

Of most concern, however, is the possibility that Beijing will simply ignore Taipei's WTO membership. On Oct. 31, Zhang Mingqing, a spokesman for China's Taiwan Affairs Office, reminded Taipei that Beijing sees trade, economic exchanges, and direct links as domestic issues. "We don't need WTO rules to handle internal matters," he said. The two sides also are miles apart on how to resolve future disputes.

STEP BACKWARD. According to a trade official in Beijing, China wants to skip the WTO and settle trade spats informally with Taiwan, as it does now with Hong Kong. Not only would that hurt WTO credibility but it could be bad for China. "It would undermine so much of what they have tried to accomplish," says Nicholas R. Lardy, a senior fellow at the Brookings Institution.

Given all the complications and potential humiliation, WTO membership looks to be a bittersweet triumph for Taiwan. Whatever satisfaction it gets from joining an international body will be tainted by continuing pressure from Beijing. Economics is driving the two sides closer. But for now, at least, politics will put a limit on just how far that relationship can go -- WTO or not.

By Mark L. Clifford in Taipei, with Alysha Webb in Guangzhou, and Dexter Roberts in Beijing