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Rethinking the exclusionary clause

President Chen Shui-bian(陳水扁) has said that since both Taiwan and China are expected to be admitted into the WTO, he hopes that both sides will engage in constructive interaction under the framework of the trade body.

Chen's statement seems to imply that Taiwan will not employ the "exclusion provision" against China upon its accession, but instead will treat it on a par with other countries. But, because cross-strait trade issues involve complex questions of politics and sovereignty, the legal framework for cross-strait trade relations cannot completely follow WTO rules and WTO entry is not actually directly related to the direct links issue.

The WTO is the largest organization dealing with international trade. Its main function is to administer trade agreements, act as a forum for trade negotiations and settle trade disputes.

Under the WTO, China and Taiwan could settle trade issues through consultation based on WTO multilateral trade agreements. Many believe membership of China and Taiwan will raise issues regarding Taiwan's policies restricting direct links (links in mail, transportation and trade) and restrictions on investment in China, because the polices infringe on the WTO non-discrimination principle.

However, according to the dispute settlement system and procedures of the WTO, if China disagrees with Taiwanese policies, China must enter into consultations with Taiwan within 30 days.

If there is no settlement after 60 days, the complaining party may request the establishment of a panel to review Taiwanese policies.

This set of consultations in securing dispute resolution under WTO rules would imply equal status between China and Taiwan and might therefore internationalize the cross-straight problem.

China is quick to point out that the GATT Working Party chairman's statement in 1992 showed that "all contracting parties acknowledge the view that there is only one China" (UN General Assembly Resolution 2758 of Oct. 25, 1971).

Many contracting parties agree with China's view that "Chinese Taipei," as a separate customs territory, should not accede to the GATT before the PRC.

In other words, because they have defined China as a state and Taiwan as a separate customs territory under the WTO, consultations under WTO auspices will infringe on "one China."

So it is important to understand that Beijing has not defined cross-strait trade relations under the WTO as relations between two normal WTO member countries.

Instead, they have defined cross-strait relations under the WTO framework as "trade relations between the main body of China and its separate customs territory," and defined cross-strait shipping as "specially managed domestic transport," and investment by Taiwanese compatriots as "special domestic investment."

It is highly ironic that Beijing is insistent on the recognition of "one China" when it comes to the matter of "direct links." Owing to the political sensitiveness of WTO entry and Beijing's reluctance to internationalize the Taiwan problem, these strategies will reduce the likelihood that the two sides would be able to carry out negotiations under the WTO framework.

Under such a situation, Taiwan still has space to not invoke the exclusionary clause, but also not to change existing trade policy vis-a-vis China too significantly.

Of course, the precipitated growth in exports after accession will boost trade between the two sides, especially in raw materials, components and parts which are supplied to China's industries from Taiwan. In addition, China's reform of its trading framework will reduce uncertainty and irregularity in its trade environment, thus encouraging investment from medium and large enterprises across the Strait. These trends will spur more demands for direct links.

In order to meet demand for direct links and stability in cross-strait relations, both sides should carry out bilateral negotiations in order to build an open trade environment.

In sum, Taiwan and China should build a new framework for interaction that is good for future trade relations. Setting aside the direct links issue in favor of first dealing with relatively less sensitive and less controversial cross-strait trade policy will help break through the cross-strait impasse. And doing that will help lay a solid foundation for mutual prosperity and healthy relations across the Taiwan Straits.

Tsai Horng-ming is the Vice secretary-general of the Chinese National Federation of Industries.

Translated by Eddy Chang
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