20 years in the WTO is a milestone achieved not just by Mainland China, but Taiwan, too.
MB October 2021 Special Report | China at the WTO
The WTO formally approved Taiwan for Membership in November 2001.
Taiwan had been negotiating for entry into the WTO for more than 12 years. However, as Professor Andrew Christie Papadimos, International Business and Economics, School of Business, Australian Catholic University, states, “Taiwan‘s main obstacle was that it had to accede to Chinese demands that China be allowed entry first, even though negotiations and the terms of Taiwan‘s accession to the WTO were effectively completed two years before.”
Beijing’s argument was that despite Taiwan‘s status as a separate territory from Mainland China, it is a part of China that will eventually be reunited with the mainland. So, to accommodate Beijing’s view, within the WTO Taiwan is known as Chinese Taipei and it entered the WTO as the “Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu”.
In contrast to other international organizations, the WTO does not require its members to be states, and it was this constitutional feature that allowed Taiwan to join the WTO. 20 years later, the WTO is now the only major international organization in which Taiwan can participate as a full member.
Professor Papadimos, author of the book China and Taiwan’s WTO Experiences, notes that “despite the tension between China and Taiwan, both areas have been forced to adopt WTO rules stipulating that all Members must treat each other’s goods and services equally.” He adds, however, that “because the tensions between China and Taiwan are a zero-sum game by nature, where there will ultimately only be one winner and one loser, the WTO will find it difficult to ease political tensions between the two sides.”
Political tensions – but also opportunities.
To take stock of these 20 years and understand whether belonging to the WTO is more important from a geostrategic point of view than a commercial one, Macau Businesssought the opinion of one of Taiwan’s leading experts, Professor Roy Lee, Senior Deputy Executive Director, Taiwan WTO and RTA Centre, Chung-Hua Institution for Economic Research.
“Commercial interest is equally significant, if not more. In particular, WTO membership facilitated the rapid development of Taiwan’s electronics industry, which before WTO accession had suffered from trade barriers in key export markets,” Professor Lee replies.
“Specifically, the WTO’s Information Technology Agreement (ITA) held tariff rates at zero for a broad range of products, including semiconductors, desktop and laptop computers (and components), smart phones, display monitors and digital set-top-boxes. As ITA-covered products account for more than 50 per cent of Taiwan’s overall exports, the benefit for Taiwan is significant,” he explains.
“The ITA also offsets the economic impact of Taiwan’s exclusion from regional free-trade areas such as the Regional Comprehensive Economic Partnership (RCEP), since a majority (over 70 per cent on average) of Taiwan’s exports to RCEP members is already tariff free. Other sectors that have gained the most from WTO participation are solar PV components, automotive parts, and steel manufacturing,” Professor Lee, also a member of the Advisory Committee to Taiwan’s Mainland Affairs Council, adds.
Professor Steve Charnovitz, George Washington University Law School, Washington DC, asserts that “what Taiwan’s membership does do, however, is to establish some rule of law between Taiwan and China and to give Taiwan standing in an international tribunal should it wish to assert that China has violated WTO rules. The parallel memberships of Taiwan and China also provide a neutral international forum for those two governments to meet and negotiate if needed.”
As in other sectors of Taiwan’s life, the Taipei Government’s biggest ally in its accession to the WTO was the United States.
Two decades later, Washington remains in the front row.
Recently Washington announced its intention to elevate Taiwan’s status, as the two sides revived a Trade and Investment Framework Agreement (TIFA) that was signed in 1994, “but essentially moribund since then,” according to Joseph Bosco, who served as China Country Desk Officer in the Office of the Secretary of Defense from 2005 to 2006. Now a member of the advisory board of the Global Taiwan Institute, Bosco adds, “Beijing strongly objected to the Trump administration’s growing ties with Taiwan and warned that Washington would have to choose which trade partner was more important to its interests. The political impasse over Taiwan’s economic status was reminiscent of the years-long delay that held up its accession to the World Trade Organization in the 1990s.”
What are the possible consequences of this US decision?
“Cross-Strait relations, insofar as the economic aspect is concerned, are decided mainly by the architecture of the global supply network,” Roy Lee tells Macau Business. “For instance, the semiconductors exported to China by US ‘fabless’ [non-fabricating] chip firms such as QUALCOMM, AMD and Apple are manufactured in Taiwan. Those chips are added to laptop computers, iPhones and Chinese smart phones, which are assembled in China, in many cases by Taiwanese companies (e.g. Foxconn) with premises in China,” he continues.
“This indicates that the major factors affecting the Taiwan–China economic relationship are actually associated with the US–China de-coupling process, rather than the TIFA,” Professor Lee says, adding that while “an improved Taiwan-US relationship at government level is certainly a good sign, commercial interest is still the dominating factor for the private sector at the end of the day.”
His prediction: “In summary, we expect to see a decline of outbound investment from Taiwan to China because of the supply network re-configuration, yet bilateral trade will remain strong for the time being.”