A QUESTION ARISES over whether the shameless hectoring of Taipei's representative at the APEC forum in Shanghai is an omen of what to expect from Beijing when it is Taiwan's turn to join the WTO. This apprehension is raised because earlier on, Beijing was completely opposed to Taiwan's application.
Beijing's opposition then came despite the fact that Taiwan had applied not as a sovereign nation but as an independent customs territory, as is the case with Hong Kong. Under these conditions, there was no contradiction with any of the many tortured interpretations of the "one China" principle.
A long-standing agreement requires that Taiwan's accession to the WTO must not precede China's. Now the understanding is that Taiwan will follow shortly thereafter, but not on the same day as China. Unfortunately, making Taiwan wait one extra day provides a last-minute window of opportunity, albeit a short one, for China to sabotage Taiwan's accession.
Although Taiwan has a long and distinguished record as a successful market economy, the Legislative Yuan could have unwittingly acted as a co-conspirator in Beijing's possible sabotage. Finally they have ended lengthy delays and passed a number of outstanding bills required in preparation for WTO membership on the last day of the legislative session before campaigning starts for the upcoming elections. Despite this considerable progress, a temporary session will be required to pass remaining WTO-related laws.
The new laws and revisions included cuts in tariffs and deregulation of the service sector. An amendment to the architectural law would allow foreign construction companies to establish operations in Taiwan. This affects government procurement agreements and is a step toward deregulating the service sector by allowing foreign firms to compete on government tenders. An electronic signature law will legalize the use of electronic signatures over the Internet.
Even so, Taiwan offers itself to the WTO as a much more suitable and predictable member than China. Given that its leadership has experience with democracy, it will be better placed to accept compromise than an autocratic regime. As most of Taiwan's enterprises are privately owned and have been fierce competitors in open markets, they are less likely to commit offenses against WTO rules.
One can only wonder why there is so much enthusiasm about allowing China into the WTO. About 450 anti-dumping cases had been lodged against China by the end of December last year, more than any other exporter, and the number can only be expected to increase.
According to the South China Morning Post, a senior legal adviser to the Ministry of Foreign Trade and Economic Cooperation expects a continuation of these actions for up to 15 years after China enters the global trading body. This suggests that Beijing expects that it will take more than a decade before domestic enterprises will operate under market-based prices and costs.
As is well known, most of the complaints arise from China's dysfunctional flirtations with becoming a market economy while adhering to some centralist tendencies. This has led to granting subsidies to most of those state-owned enterprises engaged in exporting as well as granting access to loans from state-owned banks at low or zero interest rates. Consequently, prices provided by Beijing do not signify a fair price, requiring complainants to refer to prices from a third country.
Beijing has also imposed extensive regulations to protect state-run banks from domestic and foreign competition. In particular, foreign banks face limitations on their number and location of branches so that they can only serve specific types of customers and are limited in terms of the sources of local-currency deposits. At present, only a select group of 23 foreign banks are permitted to conduct a limited number of yuan-based transactions.
A vice minister of China's Ministry of Foreign Trade and Economic Cooperation, Long Yongtu (
From what he has said, it is clear that China will do no more than already conceded for entry. It also reinforces an expectation that Beijing will resist pressures for further opening with every rule and bylaw available under WTO regulations.
By contrast, Taiwan's Ministry of Economic Affairs has announced bold steps to be ready to participate responsibly in the WTO. There will be large cuts in tariffs on industrial products, reducing the trade-weighted average to 5.78 percent during the first year of membership on almost 3,500 categories of products. The process of reduction will continue until 2004, when the average will be 4.15 percent.
Although Taiwan's financial sector is no paragon of openness, there have been some encouraging signs. Foreign institutional investors will be able to invest as much as US$2 billion in the market, up from US$500 million. Despite elimination of the limit of 75 percent on the foreign ownership of any single company, this is only a partial liberalization. Foreign investors will continue to face restrictions on ownership of certain "special industries" such as telecommunications.
Taiwan's rating in the Heritage Foundation's international survey of economic freedom slumped to 18th place last year. Taiwan's worsening record on economic freedom is mostly because of government intervention in the foreign exchange and stock markets, extending policies initiated by the KMT. Unfortunately, this intervention has damaged investor confidence without meeting its intended goals.
Continued intervention by the stabilization fund will ensure that market sentiment remain bearish. Taipei can inspire a rebound in economic efficiency and restore investor confidence by abandoning these interventions.
Leaders in Taipei should provide some more convincing evidence to the WTO by taking prompt initiatives to increase the openness of the economy. This will make it more difficult for Beijing to interfere with Taiwan's operation as an independent economic actor in the global marketplace.
Christopher Lingle is global strategist for eConoLytics.com and author of The Rise and Decline of the Asian Century.
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