The Magazine

Free Trade at Last?

Time to stop holding Taiwan at arm's length.

Jun 2, 2003, Vol. 8, No. 37 • By GREG MASTEL
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MAINTAINING RELATIONS with both Taiwan and the People's Republic of China has posed a series of challenges to American diplomacy. And things have only become more difficult as Taiwan has completed a transition from authoritarian rule to true democracy, while mainland China remains a dictatorship with a grievous human rights record. Thus it is no longer appropriate that the job of striking a balance between Taiwan and the People's Republic of China be left to professional diplomats and other conciliatory China hands. Their approach is now out of touch with core American values as the United States continues to find its relationship with Taiwan, a model new democracy, constrained by the world's leading authoritarian power, China.

The last three administrations have worked--with varying degrees of enthusiasm--to define a new relationship with Taiwan that recognizes and rewards the progress Taiwan has made. This has included the sale of defensive armaments, demonstrations of U.S. military support, and clearing of the way for Taiwan's membership in the World Trade Organization (WTO). Recent trends and events suggest it is time to take the next step and introduce a free trade agreement (FTA) with Taiwan.

As illustrated by the recent SARS crisis, it is critical that Taiwan's involvement in the international community increase. The spread of SARS from China to Taiwan and the World Health Organization's reluctance to help Taiwan fight the infection demonstrates that the world would be better protected if Taiwan were a member of the WHO. At the very least, Taiwan's efforts to control the disease have offered a stark contrast with Beijing's efforts to cover it up. Despite all this Beijing's bullying has again barred Taiwan from entering the WHO.

But while WHO membership depends on the international community's standing up to Beijing, Washington can move ahead on its own to establish a U.S.-Taiwan Free Trade Agreement.

The economic progress made by Taiwan during its transition to democracy is simply amazing. By building a market-driven, export-oriented economy, Taiwan has lifted its per capita GDP from well under $1,000 per year to about $13,000. Taiwan is now one of the ten largest trading powers in the world and a significant presence in many industrial and high tech sectors. It is also America's 8th-largest trading partner, purchasing more from the United States in most recent years than its mainland neighbor. Many U.S. companies--AT&T, Citibank, DuPont, and Microsoft--have major presences in Taiwan. For their part, Taiwanese companies have invested $600 million in the United States.

Taiwan and the United States have had occasional disputes over the size of the bilateral trade imbalance, agriculture, and, more recently, intellectual property protections. Nevertheless, this large and expanding economic relationship has been beneficial to the United States and instrumental in Taiwan's transition to democracy. While the U.S. security guarantee to Taiwan has certainly been critical, the presence of a strong trade tie with the United States has been at least as important to the building of modern Taiwan.

Currently, the United States has FTAs with Israel, Canada, Mexico, and Jordan. Congress last year gave the green light for more FTAs. New agreements have been negotiated with Singapore and Chile and will likely be approved by Congress later in the year. The United States is also negotiating FTAs with Morocco, South Africa, Australia, and five Central American countries. President Bush has announced that he hopes to negotiate a broad FTA with many Middle Eastern countries over the next decade. Perhaps another dozen countries are seeking agreements with the United States.

FTAs provide an attractive avenue for pursuing economic growth, while encouraging reform in strategically important regions and strengthening relationships with key allies. Especially in a time of tight budgets, the Bush administration's fondness for FTAs is understandable and, indeed, laudable. Unfortunately, the Bush administration has to date overlooked Taiwan on the list of potential FTA partners.

This oversight is hard to understand since Taiwan already has a successful trading relationship with the United States. In fact, Taiwan seems a more promising market for the United States than any of the countries with whom FTA negotiations are currently underway. In a study of the likely effects of an FTA between the United States and Taiwan, the U.S. International Trade Commission--the government's trade think tank--concluded that both the United States and Taiwan would benefit. American farmers, motor vehicle manufacturers, and equipment manufacturers stand to make particular gains in a more open Taiwan market.