U.S. Dept. of State - IIP: The United States and China

Text: Deputy Assistant Secretary Shirk on WTO, China and Taiwan
(Could have far-reaching economic, strategic benefits)

Deputy Assistant Secretary of State for East Asian and Pacific Affairs Susan Shirk told the U.S./ROC Business Council May 12 that the accession of the People's Republic of China (PRC) and Taiwan into the World Trade Organization (WTO) could have far-reaching economic and strategic benefits, while the refusal by Congress to grant China permanent Normal Trade Relations (PNTR) status would have a negative impact on U.S. economic and strategic interests.

"Should the Congress not approve China PNTR, the PRC would interpret that as a declaration of hostile relations, especially in light of its extensive concessions to U.S. trade demands," Shirk warned.

"In that case, the PRC would also see everything we do with Taiwan as a challenge and an effort to constrain them... [and] such a development would aggravate both U.S.-China and China-Taiwan relations," Shirk said.

Shirk said once China and Taiwan are members of WTO, not only will they both enjoy economic benefits from reduced trade and investment barriers, but they will be governed by a common enforceable trade regime.

She suggested that Taiwan would find that "a China that plays by the rules internationally is more likely to be a predictable cross-Strait partner."

"The stronger economic ties, which will result from having both the PRC and Taiwan in the WTO, could enhance the prospect for improvements in cross-strait social and political relations," Shirk said.

"With foresight and political courage, it can help lay a new foundation for dialogue and stability to the benefit of all," she concluded.

Susan Shirk, Deputy Assistant Secretary of State for East Asian and Pacific Affairs
U.S./ROC Business Council
Seminar on Issues Facing Taiwan's New Cabinet
Luncheon Discussion on the Impact of WTO Entry for Taiwan and China
May 12, 2000

Thank you for inviting me to join you this afternoon. The issues before us today are ones that will significantly impact U.S.-Taiwan relations, Taiwan's security and prosperity and the future of the entire region, and you have brought together an impressive array of wisdom and experience to consider these questions. I am honored to do what I can to add my little bit.

As you might expect, I personally am working full time on these issues. As you have seen on the news, they are high on the agendas of senior leadership in the State Department and the White House as well. The reason for their prominence is simple: if we handle the entry of the PRC and Taiwan into the WTO successfully; if the political transition in Taiwan occurs without increased tensions across the Taiwan Strait, then the region and Taiwan will be more prosperous and secure. If we do not, the negative consequences are very serious.

1. The accession of China and Taiwan to the World Trade Organization (WTO) and the vote on granting China Permanent Normal Trading Relations (PNTR) with the United States; and

2. Restoring cross-strait dialogue and preventing increased military tensions following the inauguration of Chen Shui-bian.

The commercial reasons for supporting the entry of the PRC and Taiwan into the WTO are well known. I will not attempt to recite the specifics of these WTO agreements. I suspect some of you know these details far better than I.

1. These deals do nothing to improve the access of PRC or Taiwan companies to the United States market. Regardless of whether the PRC and Taiwan join the WTO, regardless of whether the United States Congress grants Permanent Normal Trade Relations to the PRC, these companies will have the same access to the American market which they have now.

2. This deal will significantly advance opportunities for American companies to export goods and services, particularly to China where they have faced the more significant barriers.

When the PRC joins the WTO, it will reduce tariffs on a wide range of manufactured goods by 50 percent or more over the first five years of its membership in the WTO, and will either eliminate or greatly reduce other import barriers. China will make the largest tariff cuts in U.S. priority goods. China will eliminate export subsidies for cotton and other agricultural goods, making U.S. goods more competitive against Chinese exports in other markets. Finally, China will eliminate all tariffs on computers, semi-conductors and other high-tech products.

Taiwan will provide significant tariff cuts on key U.S. exports of industrial and agricultural products. Key agricultural markets previously off-limits to U.S. exporters, such as rice and pork, are also being opened. Taiwan will also implement important concessions in telecommunications and financial services. It will join the WTO Agreement on Government Procurement and the Agreement on Trade in Civil Aircraft. Taiwan will also complete significant revisions in its laws, eliminating the alcohol and tobacco monopoly and expanding access to its market for motor vehicles and motorcycles.

In trade terms, then, the case is clear: the accession of China and Taiwan to the WTO overwhelmingly benefits the United States.

In the case of China's accession, there is one large caveat: we will not enjoy most of these benefits unless the Congress grants permanent Normal Trade Relations to China upon its accession to the WTO. If it does not, these advantages, so skillfully negotiated by Amb. Barshefsky and her team, will go only to our competitors in other nations. They will be able to sell their services to China, while we will not. They will be able to use WTO mechanisms to resolve disputes with China, while we will not. Clearly, that makes no sense.

But, I would like to step back and consider the impact of these accessions, particularly China's in a larger strategic context. I do not want to be simplistic and suggest that China's WTO accession will lead to immediate changes, but I do want to suggest that WTO accession confirm and deepen positive social and political as well as economic trends in China. It will, over time, help shape China's trajectory.

Over the last twenty years, China has changed its perspective on its place in the world. Where once it vocally opposed many global standards and multilateral regimes, now it recognizes that these regimes advance its interests.

Where China once had a policy of proliferating dangerous technologies to rogue nations, now it is publicly committed to halting proliferation. Its nonproliferation record is not perfect, but it is easy sometimes to forget how far it has come. China now recognizes that it has a stake in global and regional security, an interest which is threatened by the proliferation of weapons of mass destruction, whatever short-term commercial interest might be advanced by the sale of these destructive technologies. As a result, it has signed the Comprehensive Test Ban Treaty, and signed and ratified the Nonproliferation Treaty and the Chemical Weapons Convention.

For that reason, China took a lead in urging both India and Pakistan to halt their nuclear tests and to sign on to the Comprehensive Test Ban Treaty. China has also agreed to halt the sale of anti-ship cruise missiles to Iran, missiles which threaten the safety of U.S. naval ships in the Persian Gulf. This decision improved the security of the region and advanced U.S. objectives in the region, but equally important it made sense for China, which needs security in the Gulf because it must import crude oil from the Middle East to fuel its own growing economy.

The same is true on environmental issues. Once China criticized U.S. calls for improved protection of the environment as a subterfuge to keep China poor. As its own economic growth clouded its cities with soft coal smoke from electrical power plants and with auto exhaust emissions, as its people's health deteriorated from polluted water supplies, China has sought out American expertise, particularly in the areas of energy efficiency, renewable energy and pollution reduction.

In the ASEAN Regional Forum (ARF) and in the Asian Pacific Economic Cooperation Forum (APEC), China has shown a growing willingness to discuss regional issues and support common solutions. Most recently, it agreed to send Chinese police to assist the UN efforts in East Timor.

China's entry into the WTO will be one more piece in the mosaic of China's growing commitment to the rules and standards of the international community. We should not expect that China's behavior will be perfect (we do not expect that of the European Union). We should recognize that it will take time for the perspective of some in the Chinese leadership and economy to change. We should be prepared to actively assist and monitor China's implementation of its WTO commitments. But, we should also recognize that, with its WTO accession, the positive trajectory of China's behavior is clear, and clearly in our interests.

Should the Congress not approve China PNTR, the PRC would interpret that as a declaration of hostile relations, especially in light of its extensive concessions to U.S. trade demands. In that case, the PRC would also see everything we do with Taiwan as a challenge and an effort to constrain them. Such a development would aggravate both U.S.-China and China-Taiwan relations.

For all these reasons, a vote for China PNTR is in the U.S. economic and strategic interests. It is also in Taiwan's interests. Don't simply take my word for it. Talk to Frank Carlucci who heard that message loud and clear during his recent trip to Taiwan. Talk to members of the American Chamber of Commerce in Taipei, who recently came to Washington to lobby for China PNTR. Remember that Chen Shui-bian stated, shortly after his election victory, that he supported China's entry into the WTO and normalization of U.S.-China trade relations.

Let's take a moment to consider why China's WTO accession benefits Taiwan. First of all, a China that plays by the rules internationally is more likely to be a predictable cross-Strait partner. Consider also the economic equation. Once the PRC and Taiwan enter the WTO, both sides will be governed by a common enforceable trade regime. Both will benefit from reduced barriers to the growth of trade and investment, particularly because the two economies are highly complementary. The bulk of Taiwan's exports to the PRC are parts and components for electrical machinery and other equipment, as well as plastics and synthetic yarn. Taiwan imports from the PRC remain predominantly raw materials (e.g. coal and zinc) and agricultural goods. Much of that trade is driven by Taiwan investment in the PRC. Taiwan-invested factories typically buy their plant, equipment and intermediate inputs from their suppliers in Taiwan, and often export semi-finished goods back to Taiwan and elsewhere for value-added processing and re-export.

Last year total two-way Taiwan-PRC trade totaled $25.8 billion, having averaged 9.8% growth over the previous five years. This growth rate was significantly faster than the 5.4% growth rate for Taiwan's overall trade. By 1998, the PRC had become Taiwan's third largest overall trade partner after the U.S. and Japan. A surge in Taiwan investment in the PRC late last year suggests that cross-Strait trade is poised for still further growth as businesses prepare to take advantage of PRC and Taiwan WTO accession.

This brief review of cross-strait trade -- and lets remember that legal cross-strait trade and investment is just over a decade old -- makes clear why increased cross-Strait trade and investment are in Taiwan's interest. They make it equally clear why it is in China's economic interests that both it and Taiwan enter the WTO. And, it is worth adding one final observation: WTO accession will make Taiwan a member of one of the most significant international organizations.

For our part, we have made it absolutely clear that the United States supports the accession of both Taiwan and the PRC to the WTO as soon they are ready to do so on commercially viable terms. Clearly, Taiwan has reached that standard. We want to ensure that Taiwan's accession is smooth and unobstructed, and we have been working hard to that end. The PRC has assured us that it will not block Taiwan's accession. I believe those assurances, at least in part because the PRC so clearly benefits economically from Taiwan's accession and reduced barriers to cross-Strait trade and investment.

With that, let me comment briefly on prospects for cross-Strait relations. Even assuming China PNTR passes and both Taiwan and the PRC accede to the WTO soon, it will require good faith and intensive efforts by all involved to restore dialogue between Taiwan and the PRC.

Chen Shui-bian has shown since his election the same restraint and the same clear sense of statesmanlike responsibility that he displayed throughout the election campaign. His remarks have signaled an interest in finding a moderate approach that can give the two sides a basis for dialogue, and he has repeatedly expressed his strong desire to be a peacemaker.

At the same time, we have to acknowledge that as Chen assumes the presidency, his governing experience is as a mayor, rather than in international and cross-Strait issues. In one sense, that may free him to attempt new approaches to bridging old divides. In addition, Chen takes office as a minority president and one whose party holds a minority of seats in the Legislative Yuan. He will need to reach out beyond his party's base to build support for undertaking policy initiatives.

On PRC side, we are encouraged by the direct assurances from the senior leadership in Beijing that they will take a "wait and see" attitude toward the new leaders on Taiwan, though there has also been some harsh rhetoric. We recognize that the Beijing leadership has developed a deep distrust of Chen and the DPP, and that will take some time to overcome.

Now, we believe, is the time for the PRC to change its frame of reference. Threats of the use of force have not brought the two sides closer together. Instead, they have heightened Taiwan's suspicions of PRC intentions. The challenge is now to take a new approach -- to bridge gaps and restore dialogue. This will not be an easy or a familiar task. Old approaches and old rhetoric must be put aside. Success will require positive efforts, flexibility, and creativity.

The U.S. has been very actively urging both sides to start talking and show flexibility. We will continue to do so. Neither side will benefit by reciting the familiar differences of the past. The differences of the past are challenges for the two sides to overcome together. They cannot do so separately. Nor can they expect us to somehow broker a solution.

Those who follow these issues by what is reported on the front pages of the daily papers will be obsessed with reports of the latest vote count for China PNTR in the Congress. Nonetheless, some analysts are looking past the PNTR vote and the entry of the PRC and Taiwan into the WTO in order to consider the trade and economic future that lies beyond the vote and accession. A few are even recognizing the strategic benefits that the U.S. and the region that we will realize.

It is equally clear that a vote for China PNTR and the entry of the PRC and Taiwan to the WTO will contribute to increased prosperity for people on both sides of the Taiwan Strait.

Let me offer a final thought, returning for a moment to my earlier theme that China and Taiwan's accession to the WTO offers strategic as well as economic benefits. The stronger economic ties, which will result from having both the PRC and Taiwan in the WTO, could enhance the prospect for improvements in cross-strait social and political relations. With foresight and political courage, it can help lay a new foundation for dialogue and stability to the benefit of all.

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)