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Volume 3, Number 1


 The Republic of China on Taiwan:
Recent Developments and Future Challenges


by Stephen S.F. Chen

April 13, 1998

(Stephen S.F. Chen is head of the Taipei Economic and Cultural Representative Office in the United State.)

Ladies and gentlemen: It is a great pleasure to appear today before the distinguished Nixon Center for Peace and Freedom to discuss recent developments and future challenges affecting my country, the Republic of China on Taiwan, including its relationship with the United States. Permit me to express my personal appreciation to the chairman of today's event, Ambassador Peter Rosenblatt; and to the Center's president, Mr. Dimitri Simes. I know this audience includes many old and steadfast friends of Taiwan, and I am honored by your invitation.

For those of you who may be unfamiliar with the Republic of China on Taiwan, I can tell you that our political vision is really quite simple: to successfully establish and sustain the first democratic Chinese society in five thousand years of history, thereby serving as a role model for all of China, especially the communist mainland. In actual fact, we are a society today that cherishes freedom and peace, that practices democracy, and that strives for fairness and justice for all our citizens.

I recall that in his first Inaugural Address in 1969, the late President Richard Nixon observed that "The essence of freedom is that each of us shares in the shaping of his own destiny." Barely one decade ago, my government launched the historic initiative to accelerate national democratic reform for the 21 million people on Taiwan. This sweeping democratic transition has touched every part of our society, and it has changed the way of life of our citizens. Most important, it has given the ROC clear moral authority as a government "of the people, by the people, and for the people."

Today our national policy is thoroughly debated and crafted through constitutional parliamentary processes much like those in the United States. Freely elected Legislators and National Assemblymen voice the concerns of their constituents, and demand accountability from administration officials. As a part of this process, special interest groups promote their respective agendas, while private citizens rally for causes and candidates; petition the government; vote; and amplify their views through various media channels, including "talk radio" and newspaper editorials. In fact, we believe our experience sets a good example for other developing countries which wish to modernize without upsetting their fundamental social order and stability.

Taiwan's traditionally strong and stable economic vitality is particularly noteworthy within the context of East Asia's widespread economic crisis these past few months. Despite the general regional decline, the ROC's economic growth last year was about 6.7 percent, and we expect almost the same this year. Gross National Product surpassed $285 billion, with per capita GNP at approximately $13,000 -- one of the highest levels in Asia. At present, the ROC is the fifteenth-largest trading nation in the world -- with total volume exceeding $236 billion -- and the seventh-largest overseas investor. We remain hopeful of sustaining our economic vitality well into the next century.

The Asian financial crisis has had less impact upon Taiwan, in part, because we always have striven to manage our economy prudently. We have maintained a low rate of inflation, we have kept our international debt to manageable levels, and we have maintained a persistent surplus in our current account. Moreover, Taiwan has one of the highest volumes of foreign exchange reserves in the world. Our national financial institutions are basically healthy and our major enterprises -- the small and medium-sized businesses -- have been very adaptable to changing economic conditions over time.

To deal with difficult future challenges generated by the crisis in our neighborhood, my government intends to follow a cautious macro-economic policy including sound financial supervision, in order to nurture continuing growth and the inflow of foreign capital. We will devote even higher priority to economic liberalization, financial efficiency, and respect for the rules of market economics. And we will make every effort to actively participate in international aid programs for Asian nations.

One very obvious fact arising from the present crisis experience is the need for closer financial consultations, coordination, and cooperation between all the Asian-Pacific Region's economies. The reality of our common interdependence is indisputable. That's why Taiwan is trying to fulfill its responsibilities as a constructive, contributing regional partner.

It is a real testimonial to the strength of our bilateral friendship that the relationship between the people of the Republic of China and the United States remains so broad and durable, almost twenty years after the break in formal relations. In fact, I believe the spirit of cooperation and friendship has intensified over time, to our mutual benefit. Overall, it is a very practical partnership that befits the historical friendship between Americans and Chinese. The Taiwan Relations Act remains the solid foundation for the wide spectrum of bilateral interaction between us. Educational and cultural exchanges, for example, are continually expanding. And we know that, under terms of the Act, the United States still considers any threat to Taiwan's security to be a matter "of grave concern" that jeopardizes the peace and stability of the Pacific region.

Trade between our two peoples has thrived since the 19th century, due in large part to the complementary nature of our markets. Today the longtime commercial cooperation between the U.S. and Taiwan continues to grow in volume each year. There is a climate of healthy vitality and momentum that contributes to our mutual prosperity. In fact, since diplomatic relations were severed, ROC-U.S. trade has not declined at any point . There has been steady growth in annual trade from $7 billion in 1978 to nearly $53 billion last year.

Analysts estimate the total value of all our commercial transactions with the United States (including trade, investment, foreign study, and tourism) provided over 840,000 new job opportunities in the United States last year.

In 1998, Taiwan remains America's seventh-largest export market in the world, with over $23 billion in U.S. goods purchased annually by our consumers. This averages out to $64 million in sales per day. It is worth noting that although the population in the Taiwan area is 58 times smaller than that of mainland China, we import twice as many American goods as the mainland, every year.

Surely our consistently strong trade partnership demonstrates the goodwill and good faith of Taiwan towards the United States. Your country remains our single-largest commercial partner; and fully one-fifth of our total trade flows to and from the United States. At present, the most important items of that trade, in both directions, are electronic equipment and machinery, along with parts. Some 40 percent of our total trade in services is transacted with the United States. The U.S. maintains a substantial surplus in trade in services, at about $5.4 billion annually, which goes a long way toward offsetting our own surplus in merchandise trade.

Meanwhile, the United States is the second-largest investor in our economy, with some $4.6 billion flowing into Taiwan from the United States between 1986 and 1996. That represented 26 percent of our inward foreign direct investment. On our part, our investors have poured nearly $20 billion into American ventures.

Through the years, of course, the ROC and the United States have successfully discussed and resolved a series of common concerns in the commercial area. It has required a good deal of hard work and goodwill on both sides. Moving far beyond the trade imbalance issue that dominated talks just ten years ago, Taipei and Washington have successfully negotiated market access, intellectual property protection, and endangered species and environmental conservation cooperation in recent years. My country's liberalized trading policies, legal reforms, and stricter enforcement activities have largely resolved many of these issues.

Last February, Taipei agreed to open further our domestic markets to a broad range of U.S. goods and services, moving us a big step closer to membership in the World Trade Organization. The expanded market access will greatly benefit U.S. producers of pork, chicken and other meat, as well as U.S. automakers and other industrial producers. It also benefits American providers of financial, telecommunications and other services. In fact, Washington estimates this historic accord will result in $250 million in annual savings for U.S. exporters. The U.S. Trade Representative has called it "a commercially sound, advantageous agreement."

As of today, the ROC has worked out bilateral market-access agreements with 24 of the 26 WTO member nations. And while Mainland China still has much further to go in its membership bid, U.S. officials assure us that each of our applications is being considered on a "separate track."

No doubt about it: my government places great emphasis on maintaining mutually beneficial and cooperative trade relations with the United States. We do expect that our continuing liberalization measures, including tariff reductions, will boost American competitiveness in exporting high-quality products to Taiwan.

We are also implementing a plan to transform Taiwan into an Asian Pacific Regional Operations Center for commercial activity, which we believe will contribute to the integration and prosperity of the entire region. Six sub-operations centers will comprise a regional hub for manufacturing, telecommunications, media and financial services, and air and sea transportation. Strong interest and support by U.S. enterprises can expedite APROC's success, and serve our common interests.

Now I want to turn to the subject of future challenges: specifically, the topics of cross-Strait relations, and our pragmatic diplomatic outreach to the international community.

My government still believes that the major hurdle to greater interaction and eventual reunification between Taiwan and Mainland China is the difference between the political systems and the ways of life of the two sides. Only by narrowing such differences can the two sides naturally reach reunification based on democracy, liberty, and prosperity. The ROC government has been consistent in its mainland policy, with a strong desire to construct peaceful and stable cross-Strait relations through exchanges and negotiations. We believe that by promoting mutual understanding and building mutual trust, we can create a positive and objective environment for national reunification. This is why we are hoping for an early resumption of dialogue through established non-official channels.

Since 1991, the ROC has adhered to a three-stage process termed "Guidelines for National Reunification:" that is, to promote exchanges and reciprocity with the mainland in the "short term;" to promote mutual trust and cooperation in the "medium term;" and to enter into formal consultation and unification in the "long term."

In the near term, cross-Strait trade and economic integration should be expedited. In the longer term, it will be necessary for both sides to be able to negotiate China's unification on an equal footing. Otherwise, the loss of international standing for us would only lead to pressures for "Taiwan independence," thereby adding to tensions across the Strait, which work to no one's interest.

In 1995, President Lee defined six points relating to our unification goal: Taipei seeks to (1) pursue unification based on the reality that the two sides are governed respectively by two governments; (2) strengthen bilateral exchanges based on Chinese culture; (3) enhance trade and economic relations to develop a mutually beneficial and complementary relationship; (4) ensure that both sides join international organizations on an equal footing and that leaders on both sides meet in a natural setting; (5) adhere to the principle of resolving all disputes by peaceful means; and (6) jointly safeguard prosperity and promote democracy in Hong Kong and Macao.

Now, three years after President Lee's overture, our Premier Vincent Siew proposed this month that both sides meet together with Southeast Asian countries for a very positive and productive purpose: "to stabilize financing and promote economic development in the region." If such coordination of aid efforts by Taipei and Beijing were possible, it would surely strengthen the ability of Southeast Asian countries to handle their financial crisis. Premier Siew also called again for the reunification of China under the principles of democracy, freedom and equitable distribution of wealth. However, a preliminary response by Beijing's foreign ministry spokesman rejected our right to participate in such an effort, and warned needy nations against accepting our assistance. Such a narrow and rigid view may seem clearly counterproductive to international observers.

In another vein, we believe that comprehensive democratization on Mainland China, like that on Taiwan, would work to the benefit of all Chinese people, while enhancing the prospect of national reunification and promoting regional peace and prosperity. All Chinese everywhere want to be able to enjoy human rights, individual liberty, economic prosperity, and the ultimate unity of China. But much depends on the willingness of the authorities in Beijing to accept necessary reforms and changes as they have been accepted in other Asian-Pacific societies.

My country, the ROC on Taiwan, actually considers itself better equipped to encourage that reform process than anyone, given our unique geographical, cultural, and historical connections with the people on the mainland.

To help improve mutual understanding, Taipei is hoping for an early resumption of the two-way dialogue through designated counterparts, which was suspended in 1995 by the Beijing authorities. We have emphasized that the door to negotiations remains open. In recent comments, certain mainland authorities have indicated a willingness to resume negotiations, and my government welcomes such gestures.

In reply to a communication received from its non-official counterpart on the mainland, our Straits Exchange Foundation agreed in a letter last month to send a delegation from Taiwan to visit the mainland "for a wide-ranging exchange of views regarding business matters and issues of concern to both sides." We have offered to send a person of appropriate seniority to the mainland as soon as the other side accepts, in order to discuss the delegation's itinerary and related matters. Fundamentally, we believe that any issue conducive to peaceful cross-Strait development and the democratic reunification of China can be addressed step by step through regular communications.

Despite ongoing disagreement over the conditions under which China inevitably will be united, private exchanges between Taiwan and the mainland have helped to narrow the gap between us over the last ten years. Since 1988, approximately ten million visits and 100 million letters and telephone calls have been exchanged between Taiwan and the mainland. News coverage and other forms of cultural and educational contact also have expanded.

Trade between the two sides has grown as well. According to the ROC Mainland Affairs Council, the volume of two-way trade reached $21 billion during the first ten months of last year. The biggest portion of this is our exports of industrial raw materials and components to the mainland; but our imports of mainland herbal medicines, cotton, fur, and polyester are rising. And as of early 1997, my government had approved nearly 12,000 Taiwan investment projects on the Chinese mainland totaling over $6.8 billion. Estimates show that the total aggregate of our investment on the mainland have reached $30 billion, involving 30,000 businesses. We treat cross-Strait trade relations strictly in accordance with market principles rather than political factors.

Nevertheless, these exchanges so far have not been able to generate enough mutual understanding, goodwill, and trust between the two sides. The People's Republic of China on the mainland still considers Taiwan to be a "renegade province," even though Taiwan never has been part of the PRC and even though the communists have never ruled Taiwan for even a single day. The fact is that the Republic of China has been a sovereign state since 1912 when it was founded by Dr. Sun Yat-sen, although it now has effective control over Taiwan, Penghu, Kinmen, and Matsu only.

But Beijing backs up its claims with a threat to use force against Taiwan, a threat which it refuses to renounce even now. It is hard to be good trading partners when one side reserves the option of using violence against the other whenever it sees fit. We would like to see the mainland achieve success in its economic reform and development. But at the same time, we are compelled to put national security ahead of trade and investment on our list of priorities. Such vigilance would not be necessary if the PRC renounced the use of force against us and acknowledged our sovereign status in the international community. Until it does, we must judiciously manage our trade and investment with the mainland, so that the PRC cannot gain critical leverage over our economy, our well-being, or our destiny.

We have developed a policy, which can be summed up by the maxim "no haste, be patient." This new policy is aimed not at preventing investment on the mainland but at monitoring and regulating it so that it better reflects the economic and political risks involved. For example, while the government discourages Taiwan businesses from investing heavily in infrastructure and heavy industry on the mainland, we place no restrictions on small and medium sized investments

China's reunification remains Taipei's policy and political objective, but it cannot be achieved overnight. We have no timetable. The time for unification will come whenever Mainland China attains democracy, freedom, and social justice. Until it is possible, we hope that Mainland China will come to understand better the ROC's general political and social situation and accept it as a model, or at least as a helping hand. Hopefully, the mainland can carry out reforms so that the two sides can be reunited gradually.

Meanwhile, it is important for the rest of the world to understand that Taiwan is a vital link, and has a very valuable role to play in the process of peace and prosperity across the Taiwan Strait, and within the international community generally.

With a remarkable level of economic and political progress to their credit in recent years, the people on Taiwan are seeking to become more active participants in regional and global affairs. This is a necessity if we are to survive as a free people. Today Taiwan engages in an enormous variety of commercial and cultural activities with more than 140 countries and territories worldwide. Our regional role is particularly strong and still growing. Taiwan is now one of the largest sources of external investment in Vietnam, Mainland China, and Malaysia, and among the largest in the world in overall long-term capital outflow.

Consistent with this, my government is continuing its policy of "pragmatic diplomacy" abroad, which is meant to be neither confrontational nor antagonistic. In fact, it benefits the common welfare even as it reinforces our own survival and development.

We have a legitimate right to represent our people's interests at home and abroad. Fundamentally, we cannot short-change our democracy for fear of antagonizing Beijing. Democracy is a hard-earned and precious asset for the people on Taiwan, and responsive government is a duty for ROC officials. Today the people on Taiwan direct ROC policy and activity abroad. It is their goals, desires, and aspirations which set our course. People who limit their aspirations through fear of repercussions cannot truly claim to be free.

We believe that our exercise of pragmatic diplomacy is a necessary step in the overall process of reunifying the entire Chinese nation. After all, joint participation in international activities can create opportunities for Taipei and Beijing to meet and interact, thereby enhancing our understanding of each other. For our part, we have set aside the dispute over which side has a right to represent the whole of China in international forums, replacing it with a more practical proposal that, before national reunification is achieved, the two sides should enjoy parallel rights of representation. This merely reflects pragmatism, not separatism, and we trust it will be recognized as such. Those who admire our democracy and successful economy should talk with us and work with us in a pragmatic fashion. That is the root of our drive for international contact and participation.

Indeed, President Nixon himself told Americans in that same Inaugural Address twenty years ago that "We seek an open world - open to ideas, open to the exchange of goods and people, a world in which no people, great or small, will live in angry isolation."

Therefore, in closing, I'd like to say how grateful my countrymen and I are to the United States and her people for their steadfast support of Taiwan's democracy, security, and freedom to participate in the international community. Despite the lack of formal diplomatic relations between our two governments, Congress and the American people have consistently expressed support for, and friendship towards us. We place great importance on the many efforts to preserve and strengthen economic, cultural, and other relations between our two nations. We encourage all of our friends to actively work to sustain the strong bilateral ties that exist in so many areas. With broad public support, and that of Congress, we are confident our two democratic peoples will be brought even closer together; and that benefits will continue to accrue to both nations, and to the region overall.

Thank you very much.


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