Home The Washington Diplomat May 2009 Taiwan Ditches Dollar DiplomacyIn Favor of Cooperation With China

Taiwan Ditches Dollar DiplomacyIn Favor of Cooperation With China


After years of thumbing its nose at mainland China and engaging in a high-stakes game of “dollar diplomacy” that drained the coffers of both countries, Taiwan has toned down its rhetoric — thanks to a new leader who favors cooperation over confrontation.

President Ma Ying-jeou, elected in March 2008 with 58 percent of the vote, calls himself a “peacemaker, not a troublemaker.” Since his inauguration a year ago, he’s cast aside the belligerent stance of his pro-independence predecessor, Chen Shui-bian, lifting the prospect of cross-strait reconciliation to the most promising in decades.

As a result of intense negotiations between both sides, more than 100 direct flights each week now link Taipei with Shanghai, Beijing and other mainland cities — up from zero only a year ago. And the government is looking to expand that to around 350 flights a week.

“Before, it would take eight and a half hours to fly from Taipei via Hong Kong to Shanghai. Now it takes only 85 minutes,” said Jason Yuan, representative of the Taipei Economic and Cultural Representative Office (TECRO) in Washington, Taiwan’s de facto embassy in the United States. “As president of a company, I can now leave Taipei at 9 a.m., arrive in Shanghai at 10:30, do my business, fly back at 6 p.m. and be home in time to have dinner with my wife.”

Taiwan’s new approach will be put to the test later this month, when the World Health Organization considers whether to grant the island observer status in its decision-making body, the World Health Assembly. The May 18-27 gathering in Geneva is crucial for Taiwan, which argues that its expertise in combating epidemics like SARS (severe acute respiratory syndrome) and bird flu — along with its widely recognized national health coverage — is far more important than the political differences separating the island from mainland China.

But it’s also a highly symbolic gamble — one which Yuan says will undoubtedly pay off for Taiwan’s 23 million people.

“For the past 60 years, we never really had constructive dialogue between Taiwan and the mainland,” Yuan told The Washington Diplomat in early April. “Under the new president, our policy is very clear and easy to understand: no unification, no independence, no use of force. This will create a healthy U.S.-Taiwan-China relationship. It’s a win-win-win situation for all of us.”

Despite the worldwide recession and worsening unemployment at home, Taiwan enjoys an annual per-capita gross domestic product of around ,000 and boasts foreign-exchange reserves of just over 0 billion — the world’s fourth largest after China, Japan and Russia.

In 2007, Taiwan ranked as the world’s 24th-largest economy among the 181 economies surveyed by the International Monetary Fund in its 2008 World Economic Outlook Database. Meanwhile, World Trade Organization statistics indicate that, in the same year, it was the world’s 16th-largest merchandise importer and 17th-largest merchandise exporter, with a trade surplus of .4 billion.

Cross-Strait ‘Flexible’ Diplomacy But economic prosperity hasn’t led to diplomatic respect for the Republic of China — as Taiwan is known — a virtual pariah among nations despite its democratic system and flourishing free press.

Today, only 23 governments recognize the island that the People’s Republic of China regards as a breakaway province, with most of the world throwing their allegiance to China and its 1.3 billion people (also see “Taiwan Rattled by Prospect of Losing Allies to China” in the July 2007 issue of The Washington Diplomat).

China’s economic might has clearly put it ahead in the tit-for-tat race for global recognition, but Yuan says the days of “dollar diplomacy” are definitely over. No more, vowed the TECRO chief, will Taiwan try to buy small countries’ friendship with promises of millions of dollars in economic assistance.

“We have ‘flexible diplomacy’ now,” he said. “We have made this clear to the other side. We told them, ‘You enjoy diplomatic ties with 171 countries. We have only 23 countries. Is there any need for us to use taxpayers’ money to steal countries back and forth? It’s nonsense. One more country on your list doesn’t mean much. So why should we fight about it?’”

This newfound attitude was very much on display last year in Paraguay — the only South American nation that still recognizes Taiwan instead of mainland China.

Immediately following his April 2008 election victory, left-leaning Paraguayan President Fernando Lugo vowed that upon taking office, he’d immediately break relations with Taiwan and recognize China — possibly hoping to squeeze a few extra dollars out of Beijing for his impoverished country. Even so, Taiwanese President Ma insisted on attending Lugo’s inauguration in Asunción as planned.

“A lot of advisers told him not to go,” Yuan recalled. “They said if he went and Paraguay broke ties with us, it would be a big embarrassment, and that it would look very bad. But our president went anyway.”

Eventually, the Chinese themselves persuaded Lugo to back off from his threat, according to Yuan, because “the timing was not right,” he said. This softened rivalry could also explain why some other smaller countries have maintained close relations with Taiwan at the expense of shutting out China.

“Nicaragua’s [President Daniel] Ortega is another example. He’s a leftist, but they still maintain diplomatic relations with Taiwan,” said Yuan. “My minister just got back yesterday from El Salvador, and it was business as usual.”

On June 1, leftist Mauricio Funes will replace El Salvador’s current pro-American, pro-Taiwan president, Tony Saca. Among other things, Funes has promised to establish diplomatic ties with both Cuba and China — following in the footsteps of Costa Rican President Oscar Arias Sánchez, who kicked the Taiwanese out last year, welcomed the Chinese, and recently negotiated Central America’s first free trade agreement with Beijing.

In March, Taiwanese Foreign Minister Francisco Ou said his country would not object if El Salvador forged formal ties with China. The remarks sparked widespread speculation that Taiwan might accept dual recognition in line with Ma’s call for a “diplomatic truce” with China.

Yuan, who suggests that Costa Rica already regrets its “betrayal” of Taiwan, insists his country no longer tries to tell other nations what to do. He claims that — with relations improving day by day — China would gain little at this point by having Nicaragua, El Salvador or any other small state come over to its side while abandoning Taiwan.

“I don’t resent Panama doing business with mainland China, nor do we resent Chinese ships going through the Panama Canal,” said Yuan, who left Panama as Taiwan’s ambassador there the year before the United States gave up sovereignty over the famous waterway. “We do business with the mainland, so how can we stop others from doing the same?”

Sovereignty Set Aside Two years ago, you’d be hard-pressed to find a Taiwanese diplomat who would say something like that. But it’s clearly not business as usual when it comes to cross-strait relations. Though many supporters of former President Chen’s Democratic Progressive Party are still leery of Chinese engagement, the Kuomintang-led government has done a complete 180 on its approach toward the mainland.

Almost immediately after taking office, Ma dispatched Taiwan’s Straits Exchange Foundation (SEF) to China in order to negotiate with the mainland’s Association for Relations Across the Taiwan Strait (ARATS). In October 1992, the two groups held talks in Hong Kong — the first time authorized representatives from the two sides had done so since 1949. The so-called “1992 consensus” reached was that both sides recognize there is only one China, but agree to differ on that definition.

Using that consensus with a view toward ending cross-strait hostilities, the two sides agreed last year to resume talks. The new approach resulted in two agreements calling for charter flights between China and the mainland, and opening up Taiwan to Chinese tourists.

“Then last November, the chairman of ARATS led a delegation to Taiwan to conduct a second round of negotiations. That round, concluded in Taipei, led to four more accords: direct air links on a daily basis, direct shipping on a daily basis, direct postal services and cooperation in food safety,” explained Yuan.

“Our president said we should set sovereignty issues aside and start with easy things: trade, tourism and the economy. So this is how we started negotiating shipping and air links. Since then, the Chinese have opened up 64 ports to Taiwanese ships. We only have 11 ports, and we’ve opened up all 11 for them.”

Predictably, tensions between the two Chinas have declined significantly since Ma’s election, making the threat of a military confrontation these days seem extremely unlikely.

“In last year’s presidential debates between Obama and McCain, the China-Taiwan issue wasn’t raised even once,” Yuan said. “There was no need for them to raise that, because they don’t see the Taiwan Straits as a flashpoint anymore. And at the G-20 meeting in London, Obama and [Chinese President] Hu Jintao didn’t even mention Taiwan.”

The latest signal that Beijing wants to expand its dialogue with Taipei came during a March 5 address by Wen Jiabao, the Chinese Communist Party’s second-highest ranking leader.

“We are ready to hold talks on cross-strait political and military issues and create conditions for ending the state of hostilities and concluding a peace agreement,” said Wen, though the Chinese official reaffirmed that any move by Taiwan would still have to satisfy Beijing’s “one-China” policy. “We are ready to make fair and reasonable arrangements through consultation concerning Taiwan’s expanded participation in the international community.”

Healthy Participation And Taiwan, which has long been shut out of world bodies at Beijing’s insistence, is more than ready to start officially participating in the international community again — beginning with the World Health Organization (WHO).

“We’re just asking for observer status [in WHO], not full membership,” insisted Yuan, noting that Taiwan has been steadfastly pursuing that goal — along with membership in the United Nations — since 1997 (and steadfastly rejected each year). According to a government position paper issued in March, “in addition to its diplomatic allies, Taiwan has succeeded in gaining firm support from the United States and Japan. The European Union and Canada have also signaled their support for Taiwan’s meaningful participation in the WHO, and many other countries recognize the need to include Taiwan in the global health network.”

Yuan pointed out that the Republic of China was a founding member of the WHO in 1948, one year before Chiang Kai-shek was overthrown by the communists and fled to Taiwan with his fellow Nationalists. In 1972, Taiwan left the WHO when it admitted China. Yuan said that as an observer nation, “we would be contributors instead of recipients. This is not only symbolic. It would really do something good for us and the world.”

Yuan, 67, was appointed to his current job in Washington last summer, taking over from predecessor Joseph Wu. The Chen administration, which Wu represented, had been plagued by money-laundering and corruption charges — a fact that helped bring down his Democratic Progressive Party in the 2008 legislative and presidential elections, and hand victory to the opposition Kuomintang.

Despite the government turnover, Yuan isn’t exactly a regular visitor to the sprawling new Chinese Embassy on International Drive, located only six-tenths of a mile east of Taiwan’s de facto embassy on Wisconsin Avenue. (Some diplomats quip that the short distance between the two offices makes Van Ness Street the local Taiwan Straits.)

“As consul-general in Los Angeles, I met with my Chinese counterpart. I’ve only been in this job a few months, so I haven’t had a chance to meet the Chinese ambassador,” Yuan said. “I wouldn’t turn down the opportunity, but there is no reason for me to pursue that right now.”

In keeping with State Department protocol, no Taiwanese flag flutters from the roof of the four-story mission that is the Taipei Economic and Cultural Representative Office (TECRO) because it is not technically an embassy — even though TECRO’s Web site is listed as www.taiwanembassy.org/US/.

Taiwan hasn’t had a real embassy here since 1979, when President Jimmy Carter broke diplomatic relations with the steadfast U.S. ally and recognized mainland China instead.

As such, Yuan isn’t really an ambassador, although he’s frequently addressed as such because from 1996 to 1998 he was Taiwan’s ambassador to Panama.

“My status is somewhere between that of the World Bank and the diplomatic corps. In other words, I do enjoy privileges like diplomatic immunity, but not the official title of ambassador,” he explained. “With that status, I cannot officially call on the president of the United States or the secretary of state.”

Other departments like Commerce, Defense and the U.S. Trade Representative Office are lot more relaxed about the policy, he said, “but the two places I cannot go are the White House and the State Department.”

On the other hand, Yuan can meet any lawmaker he wants — and he often does.

“Just last week I went to see Harry Reid,” said Yuan, referring to the Democratic Senate majority leader from Nevada. He also confers regularly with congressional leaders such as Rep. Nancy Pelosi (D-Calif.), Sen. Mitch McConnell (R-Ky.) and Rep. Lincoln Díaz-Balart (R-Fla.). “We had a big reception March 26, with 18 senators and 200 staffers coming to celebrate the 30th anniversary of the Taiwan Relations Act,” he said.

“In very practical terms, we enjoy close ties with Congress, and friends in and out of government. We are the beacon of democracy in Asia and the world, and the U.S. treasures this kind of friendship. But because of this lack of diplomatic relations, sometimes it’s not so enjoyable,” Yuan admitted.

The Taiwan Relations Act (TRA) — passed by a sympathetic Congress in the wake of what many Taiwanese still view as Jimmy Carter’s treason for breaking ties in 1979 — ensures, among other things, that the United States will protect Taiwan in the event of an unprovoked attack by mainland China.

“Today, there are only 12 senators who participated in that vote, and out of 435 members in the House, only 19 members are still there,” Yuan said. “Both houses feel strongly that the 30th anniversary of the act is the time to remind everyone how Congress wisely passed this law to make sure the U.S. maintains some kind of relationship with Taiwan.”

President Ma, in an April 12 speech commemorating the 1979 legislation, said “its very existence has stabilized” the triangular relationship among mainland China, Taiwan and the United States.

“In an imperfect world, the TRA — which largely accommodates Taiwan’s needs for continuity, reality, security, legality and governmental status in the new Taiwan-U.S. relationship — is the second-best choice for Taiwan. Today, the TRA is more than a convenient solution to a political dilemma,” said Ma, the former mayor of Taipei. “It serves to check mainland China by balancing the power disparity across the Taiwan Strait, while simultaneously constraining Taiwan from moving toward de jure independence.”

Different Kind of Dollar Motivation But these days, with a worldwide economic slowdown and many Taiwanese weary of tense pro-independence rhetoric, business has reunited the longtime adversaries in ways politics never could. More business than ever, in fact.

Mainland China (including Hong Kong and Macau) has become Taiwan’s largest trade partner, with two-way commerce amounting to 0.2 billion in 2007. It has also become the most important overseas destination for Taiwanese companies, with conservative estimates putting cumulative investment in China at more than 0 billion. Some analysts cite even higher figures.

In addition, more than 1 million Taiwanese businesspeople, managers and technical experts now live and work in China. In recent years, well over 60 percent of all high-tech exports from the mainland have been manufactured by Taiwanese companies.

These days, the talk in Taipei isn’t so much about missiles, but about the proposed ECFA — Economic Cooperation Framework Agreement — with Beijing that might pave the way for similar free trade deals with other countries.

“If we do not do this now, we will regret it tomorrow,” Ma said recently, arguing that the ECFA could prevent Taiwan from becoming marginalized in the wake of a tariff-exemption deal between China and the 10-member Association of Southeast Asian Nations that takes effect next year.

“Our petrochemical, electronics, textile and machine-tool exports will be subject to a 6.5 percent tariff on the mainland, while ASEAN members’ products will be exempted from such duties,” warned the president, whose popularity is at an all-time low as trade-dependent Taiwan tries to climb out of recession. “Being excluded from economic agreements in the region could cost the island 114,000 jobs and see a fall in GDP of 1 percent.”

Ma said a cross-strait ECFA could include non-tariff measures like investment and intellectual property protections, as well as a mechanism for settling disputes. “It is non-political and will not involve unification, independence or sovereignty issues,” promised the pragmatic president.

Such a trade pact between two longtime enemies would have been unthinkable only a few years ago — which is why Taiwan has so much riding on a highly symbolic issue like winning observer status at the WHO.

So what if, at the end of the day, Taiwan doesn’t get what it wants? What if China took a mile but doesn’t give back an inch? Will the prosperous little island revert to its confrontational ways and declare unilateral independence from the mainland, provoking tensions all over again?

Not a chance, assured the envoy from Taipei.

“I always think positively. I cannot see why we wouldn’t get in,” said Yuan, ever the optimist. “And I’m pretty sure that when we do, the Taiwanese economy will get better — and the approval rating of my president will go up, instead of down.”

About the Author

Larry Luxner is news editor of The Washington Diplomat.