Order Code RS20683
Updated February 14, 2002
CRS Report for Congress
Received through the CRS Web
Taiwan and the World Trade Organization
Wayne M. Morrison
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
After several years of negotiations, Taiwan joined the World Trade Organization
(WTO) on January 1, 2002. Taiwan’s WTO membership will likely accelerate its trade
and economic reforms, boost economic growth, and expand trade and investment links
with other WTO members, including the United States. WTO accession by both Taiwan
and China (which joined in December 2001) could expand their bilateral commercial ties
as well. In an effort to further boost U.S.-Taiwan economic ties (and to lessen Taiwan’s
growing economic dependency on the mainland), legislation (S.1636) has been
introduced in Congress to authorize the President negotiate a free trade agreement with
Taiwan. This report will be updated as events warrant.
Taiwan’s WTO Application
Taiwan is a major economic and trade power and a significant U.S. trading partner.
Taiwan’s 2001 GDP was $280 billion, and its total trade (exports plus imports) was
$230.2 billion. Total U.S.-Taiwan trade in 2001 is estimated at $52.1 billion, making
Taiwan the 8th largest U.S. trading partner (the U.S. was Taiwan’s largest trading partner).
U.S. exports to Taiwan in 2001 were $18.3 billion (making Taiwan the10th largest U.S.
export market), while U.S. imports from Taiwan were $33.8 billion (the 7th largest U.S.
import market).1
Taiwan’s attempt to join the General Agreement on Tariffs and Trade (GATT) and
its successor organization, the World Trade Organization (WTO), dates back to January
1990.2 In September 1992, a GATT Working Party was established to handle Taiwan’s
application to the GATT as “the Separate Customs Territory of Taiwan, Penghu, Kinmen
and Matsu,” or “Chinese Taipei” (a designation similar to that of Hong Kong and Macau,
both of which are WTO members). At that time it appears that several GATT signatories
1 U.S. trade data for 2001 are estimates based on actual data for January-November 2001.
2 The GATT was created in 1947 and has provided the legal framework for international trade and
the forum for successive rounds of multilateral negotiations to reduce trade barriers. The GATT
was incorporated into the World Trade Organization (WTO) in 1995.
Congressional Research Service ˜ The Library of Congress

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indicated support for allowing Taiwan to join the GATT only after China did, and this
position was supported by a majority of WTO members.3
The Taiwanese government made accession to the WTO a top priority and took a
number of steps in recent years to remove a wide variety of tariff and non-tariff barriers
to prepare for WTO membership. In addition, Taiwan agreed to be treated as a developed
economy in the WTO upon its accession, a designation that required it to adopt stricter
standards on trade than is required of developing economies.
Taiwan negotiated bilateral trade agreements with 26 WTO members. Taiwan and
the United States reached a bilateral WTO agreement in February 1998 that would provide
immediate market access and phased-in commitments for U.S. priority exports of goods,
services, and agricultural products to Taiwan.4
U.S. Policy on Taiwan’s WTO Entry and Congressional Concerns
The issue of Taiwan’s WTO accession became a major issue during debate in the
106th Congress. Several Members expressed concern that China might try to exert political
influence over some WTO members (or take other unspecified steps) to block Taiwan’s
accession or would try to insert language into China’s WTO accession agreement that
expressly stated that Taiwan was part of China. Many Members urged the Clinton
Administration to restate its position on Taiwan’s WTO membership, and others made
legislative proposals.
In an August 31, 2000 letter to Senator Jon Kyl on U.S. policy towards Taiwan’s
WTO accession, President Clinton stated that “China has made clear on many occasions,
and at high levels, that it will not oppose Taiwan’s accession to the WTO.” However, the
letter acknowledged that “China did submit language to their working party stating that
“Taiwan is a separate customs territory of China,” but went on to state that it had “advised
the Chinese that such language is inappropriate and irrelevant to the working party and
that we will not accept it.” In a letter (dated September 12, 2000) to Senators Thomas
Daschle and Trent Lott, President Clinton stated:
There should be no question that my Administration is firmly committed to Taiwan’s
accession to the WTO, a point I reiterated in my September 8 meeting with President
Jiang Zemin. Based on our New York discussions with the Chinese, I am confident we
have a common understanding that both China and Taiwan will be invited to accede to
the WTO under the language agreed to in 1992, namely as the Separate Customs
Territory of Taiwan, Penghu, Kinmen and Matsu (referred to as “Chinese Taipei”). The
United States will not accept any other outcome.
3 This informal agreement appears to have been taken due to political concerns over offending
China, which views Taiwan as part of China.
4 As a “down payment” for eventual WTO membership, Taiwan agreed to lower many tariffs, and
remove various non-tariff barriers, on a number of industrial goods, agricultural products, and
services prior to its entry into the WTO. According to the USTR, many of these reductions were
made according to government administrative orders and must be renewed annually until Taiwan
enacts permanent reductions upon joining the WTO.

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Congressional support for Taiwan’s WTO bid was included in H.R. 4444, a bill that
would extend permanent normal trade relations status to China upon its accession to the
WTO. Section 601 of the bill (which was enacted into law on October 10, 2000, P.L.106-
286) states that, immediately upon approval by the WTO General Council of China’s
accession to the WTO, the U.S. representative to the WTO should request that Taiwan’s
WTO accession be the next order of business, and that the United States should be
prepared to aggressively counter any effort to block Taiwan’s accession.
The Bush Administration indicated its strong support for Taiwan’s WTO accession.
In testimony before the House Ways & Means Committee on China’s normal trade
relations (NTR) status in July 2001, Assistant USTR Jeffrey A. Bader stated:
We fully expect the WTO to approve Taiwan’s accession in the same time frame as
China’s. As a major player in international trade and a new and thriving democracy,
Taiwan deserves membership and a larger role in the international community. We
have discussed our expectations on Taiwan’s accession thoroughly with all the
concerned parties and are confident there is a consensus on this.
Completion of Taiwan’s WTO Application
As noted, Taiwan’s accession to the WTO was tied to the completion of China’s
accession process. On September 13, 2001, China concluded a WTO bilateral trade
agreement with Mexico) the last of the original 37 WTO members that had requested such
an accord), and on September 17, 2001, the WTO Working Party handling China’s WTO
application announced that it had resolved all outstanding issues regarding China’s WTO
accession. Subsequently, on September 18, 2001, the WTO Working Party handling
Taiwan’s membership announced that it had completed its work. China’s WTO
membership was formally approved at the WTO Ministerial Conference in Doho, Qatar
on November 10, 2001. The next day, the WTO formally approved Taiwan’s membership.
On December 2, 2001, the Taiwanese government notified the WTO that it had formally
ratified its WTO accession agreement and, as a result, Taiwan joined the WTO on January
1, 2002.
Taiwan’s WTO Accession Agreement
Under the terms of its WTO accession, Taiwan will cut tariffs and remove non-tariff
barriers on a wide range of goods and services:
! Tariffs. Simple average tariffs on agricultural products will drop from
their pre-WTO level of 20% to 14% in 2002, and to 12.9% when tariff
cuts are fully implemented. Similarly, simple average tariffs on industrial
goods will drop from 6.0% to 5.8% (in 2002) and eventually fall to
4.2%.5 Taiwan agreed to join all Uruguay Round zero-for-zero
initiatives by eliminating all tariffs on paper, pharmaceuticals, medical
equipment, construction equipment, steel, toys, furniture, agriculture
equipment, civil aircraft, distilled spirits, and information technology
5 Tariff reductions cover 3,470 industrial products and 1,021 agricultural products.

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products. Taiwan also agreed to participate in the WTO Chemical
Harmonization Initiative.
! Automotive Products. Taiwan will cut tariffs on imported autos from
30% to 10%, decrease the commodity tax on vehicle imports, eliminate
an existing 9% subsidy on automobile components designed in Taiwan;
remove a 50% local content requirement for auto parts, and make
regulatory changes that will allow foreign companies to both lease
vehicles and operate used car businesses.
! Government Procurement. Taiwan agreed to join the WTO
Government Procurement Agreement, which will open its procurement
markets to a wide range of U.S. products, including power-generating,
transport and power transmission services. Taiwan will implement a new,
more fair and transparent, contract and dispute resolution system
regarding government contracts.
! Services. Upon WTO accession, Taiwan will open completely a number
of service sectors, including professional services (architects, accountants,
engineers, lawyers), audiovisual services, express delivery services,
advertising, computer services, construction, wholesale and retail
distribution, franchising, and environmental services. Taiwan also agreed
to allow foreign companies to hold a controlling interest in Taiwan
communications companies, and to remove various barriers for
telecommunication services in Taiwan. Finally, Taiwan agreed to provide
substantially full market access and national treatment in the full range of
financial services, such as banking, insurance, and securities.
! Agriculture. Taiwan agreed to immediately liberalize previously closed
markets for pork, poultry, and variety meats and to make additional
liberalization of such products after WTO accession. Taiwan also
committed to begin the process of opening its rice market and to open
fully markets for pork, variety meats and poultry to all WTO members
upon accession by phasing out its tariff rate quota system. The agreement
also called for significant immediate tariff reductions on a broad range of
U.S. agricultural products, including potato products, pears, grapes,
grapefruit, sunflower oil, and soup.6
A 1999 study by Dr. Greg Mastel (at the International Trade Studies at the Center
for National Policy) examined the effects WTO accession would have on Taiwanese
imports of six major agricultural and industrial sectors (fruits and vegetables, meat
products, automobiles, auto parts, semiconductors, and textile and apparel), and concluded
that combined imports of these products would likely rise by an additional $5.5 billion (a
significant level of which would come in the auto sector) over the course of nine years (the
time period in which tariff and non-tariff reductions are phased in). The study concluded
that, taking in consideration the full range of import categories, this figure would probably
6 USTR Press Release, February 20, 1998.

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increase by nearly ten fold ($55 billion).7 The United States is Taiwan’s second largest
source of imports (after Japan), accounting for 17.2% of Taiwan’s imports (2001), and
thus U.S. exporters would likely be a major beneficiary of Taiwan’s WTO accession.8
Taiwan’s economy would also likely be enhanced by its WTO membership through gains
in efficiency resulting from further economic and trade reforms, and by increased trade.
WTO and China-Taiwan Commercial Ties
Accession to the WTO by both Taiwan and China could have a significant effect on
their bilateral commercial ties. Despite the current lack of direct economic and political
links, China-Taiwan trade and investment have surged over the past 11 years. From 1990
to 2001, total bilateral trade rose from $5.2 billion to $29.8 billion.9 The cumulative value
of Taiwanese investment in the mainland at the end of 2000 was $26.4 billion (making
Taiwan the 4th largest foreign investor in China). Taiwan has shifted many of its labor-
intensive, export oriented, industries to the mainland. Most trade between China and
Taiwan takes place indirectly via Hong Kong (due to the lack of direct trade links). While
China is a major market for Taiwan’s exports ($23.9 billion in 2001), it is a relatively small
source of its imports ($5.9 billion), mainly because Taiwan places significant restrictions
on imports from China (especially products that might compete directly with Taiwanese-
made goods).10 Taiwan also maintains restrictions on the amount and types of investment
that are allowed to be made in China (although many investors seek to circumvent these
restrictions by investing through off-shore companies).
WTO membership for Taiwan and China could lead to direct trade links, the
extension of mutual most-favored-nation (MFN), or non-discriminatory, treatment, a
reduction in trade and investment restrictions by both parties (especially by Taiwan), and
possibly the use by both parties of the WTO dispute resolution process to resolve trade
disputes. Alternatively, Taiwan or China could decide at any point to invoke Article 21
in the WTO, a provision that enables WTO members to suspend MFN treatment to
another member for national security reasons.
Both Chinese and Taiwanese government officials appear to have mixed views on
closer economic integration. Each seems to think that closer economic ties gives them
greater political leverage over the other to influence the relationship (e.g., Taiwan hopes
such ties help to stabilize the relationship with the mainland and reduce the likelihood of
a Chinese invasion, while China hopes such ties improve the chances for reunification with
Taiwan and diminish the likelihood of Taiwan declaring independence). At the same time,
however, each side seems concerned with becoming too dependent on cross-strait
7 Mastel, Greg. Taiwan in the WTO: An Economic and Policy Analysis, October 6, 1999,
available at [http://www.taipei.org/un/wto0223.htm].
8 The U.S. Department of Agriculture predicts that Taiwan’s WTO accession could boost U.S.
agricultural exports there by an additional $500 million a year.
9 All Taiwanese and Chinese trade data for 2001 cited in this report are estimated, based on actual
data for January-November 2001.
10 In 2001, China was Taiwan’s 3rd largest trading partner, its 2nd largest export market, and its 4th
largest source for imports. According to Chinese statistics, Taiwan was China’s 5th largest trading
partner, its 9th largest export market, and its 2nd largest source of its imports.

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economic ties, since a disruption in that relationship could have serious economic
consequences for both.
Since 1996, the Taiwanese government has maintained a “no haste, be patient”
policy, seeking to limit the level of Taiwanese investment with the mainland for security
reasons.11 However, economic conditions have deteriorated sharply in Taiwan during
2001. Due largely to the economic slowdown in the United States and other major world
economies, Taiwanese exports (especially high-technology products) have declined
sharply. In 2001, unemployment hit record levels (5.3% in November), and the economy
fell into recession (real GDP declined by 2.1%).12
Taiwan’s growing economic crisis has led several Taiwanese government officials to
call for an abandonment of the “no haste, be patient” policy as a means to help revive the
economy. In August 2001, Taiwanese President Chen Shui-bian endorsed the
replacement of the “no haste, be patient” policy with an “active opening, effective,
management” policy, which would relax current restrictions on investment in the mainland,
establish direct trade, transportation and communication links with China, and gradually
allow mainland investment in Taiwan. Supporters of closer economic integration with the
mainland argue that Taiwanese firms must take advantage of China’s growing demand for
goods and services, as well as its abundant low-cost labor, in order to stay competitive in
world markets.13 Some supporters of normalized trade relations with the mainland have
called on the Taiwanese government to negotiate a free trade agreement with China.
Opponents of closer ties with China contend that such policies will accelerate the transfer
of Taiwanese firms to the mainland, leading to a hollowing out of core industries, and
raising the level of unemployment in Taiwan. Chinese officials have indicated support for
direct trade links with Taiwan, but have predicated that support on Taiwan’s acceptance
of Beijing’s “One China Principle,” which states that Taiwan is part of China, a position
rejected by Taiwan’s government.
Some U.S. policymakers have expressed concern that China may attempt to use its
expanding economic power, and Taiwan’s growing dependence on its economic ties to the
mainland, to undermine Taiwan’s autonomy. In November 2001, Senator Max Baucus
introduced S.1636 (the United States-Taiwan Free Trade Agreement Act of 2001), a bill
that would give the President fast track authority (i.e., without amendment and limited
debate time to consider the measure in Congress) to negotiate a free trade agreement
(FTA) with Taiwan. The proposed FTA would seek to achieve lower Taiwanese trade
barriers on U.S. exports of goods and services and thereby boost U.S.-Taiwanese
economic ties.
11 The policy has been aimed at restricting investment of over $50 million as well as certain
high-tech industries and infrastructure projects.
12 Taiwan’s economy has been further damaged by the effects of the terrorist attacks against the
United States on September 11, 2001.
13 They note that China’s WTO accession will make it a major economic powerhouse and that
Taiwan needs to be in a position to take advantage of the growing opportunities in China for trade
and investment. But in order for the WTO agreements to apply between China and Taiwan, both
sides will need to extend non-discriminatory trade treatment to one another.

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