Order Code IB98034
Issue Brief for Congress
Received through the CRS Web
Taiwan: Recent Developments and
U.S. Policy Choices
Updated January 22, 2003
Kerry B. Dumbaugh
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

---

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Background to U.S. Interests in Taiwan
Issues in U.S.-PRC-Taiwan Relations
U.S. Defense Commitments to Taiwan
Policy Changes in the George W. Bush Administration
U.S. Policy Statements and the “One-China” Policy
The “Reagan Interpretation” of the 1982 Communique
U.S. Visits by Taiwan Officials
Policy Implications of Global Anti-Terrorism Campaign
President Clinton’s 1998 “Three Noes” Statement
Political Liberalization in Taiwan
Background
Taiwan’s Presidential Elections, 2000: Change in Government
Legislative Changes in December 2001
Taiwan-Mainland Relations
Official Developments During the Chen Administration
Private-Sector Exchanges
PRC “White Papers”On Taiwan
Economic and Trade Issues
Taiwan’s World Trade Organization (WTO) Accession
U.S. Policy Implications
Congressional Role
LEGISLATION
CHRONOLOGY
FOR ADDITIONAL READING
CRS Reports

---

IB98034
01-22-03
Taiwan: Recent Developments and U.S. Policy Choices
SUMMARY
Under the current Bush Administration,
policy attention on Taiwan. The 107th Con-
U.S.-China-Taiwan relations have undergone
gress also considered and acted upon legisla-
important changes. Many observers see cur-
tion that increasingly sought to expand the
rent approach as having abandoned the long-
margins of U.S.-Taiwan ties.
standing U.S. policy of “strategic ambiguity”
on Taiwan in favor of “strategic clarity” that
These apparent U.S. policy shifts have
places more emphasis on Taiwan’s interests
come at a time of complexity and unpredict-
and less on PRC concerns. Among other
ability in Taiwan’s political environment.
things, President Bush has publicly stated that
Since 2000, the long-ruling Nationalist Party
the United States will do “whatever it takes”
(KMT) has been handed stunning defeats, first
to help Taiwan’s defense – an unprecedented
losing the presidency to opposition Demo-
statement which no prior U.S. President has
cratic Progressive Party (DPP) candidate Chen
made. In April 2002, the President also ap-
Shui-bian, then losing its majority in the
proved a substantial sale of U.S. weapons to
legislature in 2001. The legislative election
Taiwan, including Kidd-class destroyers, anti-
results in particular mean that there is now no
submarine P-3 “Orion” aircraft, and diesel
political party in Taiwan with an absolute
submarines. The White House also has been
majority, a result leading some analysts to
more accommodating to visits from Taiwan
conclude that Taiwan will remain politically
officials than previous U.S. Administrations,
paralyzed for the foreseeable future.
and permitted visits from Taiwan’s president
in 2001 and by Taiwan’s Vice-President and
The misfortunes of the KMT and the
Defense Minister in 2002.
fluidity of Taiwan’s political scene have
longer-term policy implications for the PRC
The Administration’s assertive posture
and for U.S.-PRC-Taiwan relations. The
toward Taiwan also is in keeping with grow-
KMT has been the island’s most outspoken
ing congressional sentiment that the United
defender of the “one-China” policy and oppo-
States needs to do more to assist in Taiwan’s
nent of independence for Taiwan, while the
defense needs, particularly given the PRC’s
DPP has long been associated with a pro-
military build-up along the south China coast.
independence platform. The new prominence
Consequently, the 107th Congress pushed
of the DPP in Taiwan’s political life has
forward with bipartisan initiatives seeking to
meant that cross-strait talks between the PRC
focus more U.S. attention on Taiwan and raise
and Taiwan are likely to remain stalled at the
its international stature. On April 9, 2002, a
official level despite extensive Taiwanese
bipartisan coalition of House Members
trade with, and investment in, the Chinese
formed the Congressional Taiwan Caucus, the
mainland. This issue brief will be updated as
stated purpose of which is to focus increased
developments warrant.
Congressional Research Service ˜ The Library of Congress

---

IB98034
01-22-03
MOST RECENT DEVELOPMENTS
On September 4, 2002, a delegation of KMT and PFP legislators from Taiwan began
a visit to the United States with the goal of increasing inter-parliamentary exchanges. The
delegation met with U.S. Members of Congress in Washington D.C. before leaving for
meetings in New York.
On August 9, 2002, the Chair of Taiwan’s Mainland Affairs Council, Dr. Tsai Ing-wen,
wound up two days of meetings with U.S. officials in Washington D.C. Many saw her trip
as an “emergency visit” necessitated to repair any damage made by the controversial
remarks of Taiwan’s President on August 3, 2002. In a speech that day, President Chen had
said that Taiwan and China were two separate countries, and he endorsed the passage of
legislation that would allow a national referendum on Taiwan’s sovereignty.
On June 24-25, 2002, U.S. defense officials met in Washington D.C. with Taiwan
military officials to discuss security cooperation and Taiwan’s defense needs.
On April 9, 2002, 83 Members of the House, including 45 Republicans, 37 Democrats,
and one Independent, announced the formation of a Congressional Taiwan Caucus.
BACKGROUND AND ANALYSIS
Background to U.S. Interests in Taiwan
U.S. involvement with the government of Taiwan (known as the Republic of China or
ROC) has its roots in the World War II U.S. alliance with the Nationalist Chinese
government of Chiang Kai-shek, then on mainland China. In October 1949, upon its defeat
by the Chinese communist forces of Mao Zedong, Chiang’s government fled to Taiwan, an
island off the south China coast. While on the mainland the Chinese Communist Party
established the People’s Republic of China (PRC), Chiang’s ROC government on Taiwan
insisted that the communist government in Beijing was not credible, and that the
administration on Taiwan was the only legitimate government of all China. For the next 30
years, the United States supported this claim with U.S. military protection and over $5 billion
in military and economic aid, allowing Chiang’s one-party government (the Nationalist Party,
or KMT) to consolidate its position on Taiwan.
In the 1950s and 1960s, U.S. forces used Taiwan as a forward base against Sino-Soviet
communism in Asia. But after President Nixon’s opening to Beijing in 1971-72, and the
major pullback of U.S. forces in Asia under the guidelines of the “Nixon doctrine,” U.S.
officials came to view Beijing more as a strategic asset against the Soviet Union than an
adversary to be confronted in the Taiwan Strait. On January 1, 1979, the United States
switched its diplomatic recognition from Taipei to Beijing. In the U.S.-PRC joint
communique announcing the change, the United States recognized the government of the
PRC as the sole legal government of China and acknowledged the Chinese position that there
CRS-1

---

IB98034
01-22-03
is but one China, and Taiwan is part of China.1 As part of de-recognition, the United States
also notified Taiwan authorities that effective January 1, 1980, it would terminate the 1954
U.S.-ROC Mutual Defense Treaty. This move prompted extensive congressional debate at
the time over the President’s authority to unilaterally dissolve a defense treaty without prior
consultation with Congress.
In a statement released December 16, 1978, the United States declared that it “continues
to have an interest in the peaceful resolution of the Taiwan issue and expects that the Taiwan
issue will be settled peacefully by the Chinese themselves.” Subsequently, the United States
affirmed its security and other interests in Taiwan through the Taiwan Relations Act (TRA)
and the continued supply of U.S. arms to Taiwan. The TRA (enacted as P.L. 96-8 in April
1979) which still governs U.S. relations with Taiwan, was essentially a congressional
construct, enacted by a Congress unhappy with the Carter Administration’s failure to develop
more detailed plans for how U.S. relations were to be conducted with Taiwan after official
relations were severed.
With the thaw in the Cold War in the late 1980s and subsequent collapse of the Soviet
Union, U.S. interest in the PRC as a “strategic asset” in global politics declined. The PRC’s
burgeoning economy and sometimes assertive foreign policy in the 1990s revived U.S.
interest in finding pragmatic and effective ways to deal with rising Chinese power. At the
same time, Taiwan’s political system had undergone dramatic changes, including a transition
to democratic political pluralism. The combination of these developments led to subtle
changes in U.S.-Taiwan ties, including deepening economic, military, social, and other
contacts.
Today, the United States is an important investor and trading partner for Taiwan. U.S.
markets receive about 25% of Taiwan’s exports, while the United States supplies a much
smaller percentage of Taiwan’s imports, leading to a $15.25 billion U.S. trade deficit with
Taiwan in 2001. Taiwan continues to enjoy Export-Import Bank financing, Overseas Private
Investment Corporation (OPIC) guarantees, most-favored-nation status, and ready access to
U.S. markets. Meanwhile, many U.S. leaders want to encourage Taiwanese enterprises to
invest in the United States.
Issues in U.S.-PRC-Taiwan Relations
U.S. Defense Commitments to Taiwan. U.S. arms sales to Taiwan are part of a
decades-long U.S. policy approach which came to be called “strategic ambiguity” and which
tried continually to balance two competing policy objectives. On the one hand, U.S.
policymakers recognized Beijing as the legitimate government of all China and promised
PRC leaders that the United States would not recognize Taiwan as an independent state. On
the other hand, the United States had extensive contacts with Taiwan under the auspices of
the TRA, an Act which also mandated the continued U.S. sale of defense weapons and
equipment to Taiwan. The nature of U.S. defense commitments and arms sales to Taiwan
is defined in Section 3 of the TRA. Section 3 is non-specific about the defense articles and
1 The texts of the Taiwan Relations Act and the 3 U.S.-China communiques that underpin bilateral
U.S.-China-Taiwan relations can be found in CRS Report 96-246.
CRS-2

---

IB98034
01-22-03
services the United States may provide Taiwan. It merely calls for “such defense articles and
services...as may be necessary,” and gives Congress a role in determining what needs Taiwan
may have. Although PRC officials were satisfied with the U.S. position that it would not
recognize Taiwan independence, they objected strenuously to continued U.S. arms sales to
Taiwan. On August 17, 1982, a U.S.-PRC joint communique addressed this point. In that
communique, the PRC cited it had a “fundamental policy” of striving for a peaceful solution
to the Taiwan question, while Washington stated that the U.S. did not:
seek to carry out a long-term policy of arms sales to Taiwan, that its arms sales to Taiwan
will not exceed, either in qualitative or quantitative terms, the level of those supplied in
recent years since the establishment of diplomatic relations between the United States and
China, and that it intends to reduce gradually its sales of arms to Taiwan.
Policy Changes in the George W. Bush Administration. In recent years, the
fundamentals of U.S.-China-Taiwan relations appear to be changing. Many observers see
the current Bush Administration as having abandoned the long-standing U.S. policy of
“strategic ambiguity” on Taiwan in favor of policy clarity that places more emphasis on
Taiwan’s interests and less on PRC concerns. On April 25, 2001, for instance, in an ABC
television interview, President Bush responded to a question about what the United States
would do if Taiwan were attacked by saying that the United States would do “Whatever it
took to help Taiwan defend herself.” Since Section 3 of the TRA only addresses arms sales
and not the use of American military forces in the island’s defense, the President’s answer
caused considerable controversy over whether the United States had changed its policy
toward Taiwan’s security or was preparing to change its position on Taiwan independence.
Although State Department and White House officials, including President Bush, later
insisted that the President’s statement was consistent with U.S. commitments in the TRA and
that there had been no change in U.S. policy, subsequent statements and actions by Bush
Administration officials have been judged to be more solicitous and supportive of Taiwan
than those of previous U.S. Administrations.
In addition to his statement, in April 2002 President Bush also approved the second-
largest U.S. weapons sale package to Taiwan, surpassed only by President Bush senior’s
1992 sale of 150 F-16s, valued at $5.9 billion. The 2002 weapons sale included four Kidd-
class destroyers, 12 anti-submarine P-3 “Orion” aircraft, and eight diesel submarines. Since
the United States has built only nuclear submarines since the 1950s, discussions have been
underway on plans either to acquire the diesel subs from a third country or to permit U.S.
companies to build the subs especially for Taiwan. Among the U.S. companies reported to
be interested are three owned by Northrop Grumman, three owned by General Dynamics, and
Lockheed Martin. The White House decided not to sell Taiwan the more sophisticated Aegis
battle management system and Arleigh Burke class destroyers.
The Bush Administration’s newly assertive posture toward Taiwan’s defense needs also
is in keeping with growing sentiment among some Members of Congress that the TRA is
outdated and that Taiwan’s self-defense capabilities have eroded while the PRC has grown
militarily more capable and more hostile. These conclusions appear to have been supported
by a congressionally mandated report, issued by the Pentagon in February 1999, that assessed
the military balance in the Taiwan Strait. The report concluded that in light of improvements
in offensive military capabilities, by the year 2005 China will have acquired the ability “to
attack Taiwan with air and missile strikes which would degrade key military facilities and
CRS-3

---

IB98034
01-22-03
damage the island’s economic infrastructure.” Congressional proponents of enhanced
security for Taiwan have argued that China’s military build-up along its southern coast is
inconsistent with its 1982 pledge to strive for a “peaceful resolution” to the issue of Taiwan.
Therefore, they say, U.S. policy should be adjusted accordingly.
U.S. Policy Statements and the “One-China” Policy. In addition to criticizing
U.S. arms sales, Beijing routinely criticizes other aspects of U.S. support for Taiwan, saying
that such actions reduce Taipei’s interest in negotiations on reunification with the mainland.
The PRC regularly refers to these actions as violations of the “one-China policy,” in which,
over the years and in various guises, the United States has “acknowledged” that Chinese on
both sides of the Taiwan Strait hold that there is only one China and that Taiwan is part of
it. In addition to the TRA, U.S. policy positions on Taiwan are encapsulated in three Sino-
U.S. communiques signed in 1972, 1979, and 1982. Relevant policy statements from these
communiques are:
The “Shanghai Communique” of 1972: The United States acknowledges that all
Chinese on either side of the Taiwan Strait maintain there is but one China and that
Taiwan is a part of China. The United States Government does not challenge that
position.
The U.S.-PRC Joint Communique on Establishment of Diplomatic Relations, 1979:
The United States of America recognizes the Government of the People’s Republic of
China as the sole legal Government of China. Within this context, the people of the
United States will maintain cultural, commercial, and other unofficial relations with the
people of Taiwan....The Government of the United States of America acknowledges the
Chinese position that there is but one China and Taiwan is part of China.
The U.S.-China Joint Communique on Arms Sales to Taiwan, 1982: The United
States Government attaches great importance to its relations with China, and reiterates
that it has no intention of infringing on Chinese sovereignty and territorial integrity, or
interfering in China’s internal affairs, or pursuing a policy of “two Chinas” or “one
China, one Taiwan.”
The Clinton Administration in 1994 conducted a comprehensive review of U.S. policy
toward Taiwan. In testimony before the Senate Foreign Relations Committee about the
policy review, however, Assistant Secretary of State Winston Lord said that while the review
had resulted in “a series of changes,” the fundamental framework of U.S. Taiwan policy
remained unchanged.
The “Reagan Interpretation” of the 1982 Communique. In discussing U.S.
intentions to gradually reduce its arms sales to Taiwan, the 1982 Communique refers several
times to the PRC’s policy of “striving for a peaceful reunification” with Taiwan. In an
interview with Charles Stuart Kennedy on October 30, 1998 ( part of the Foreign Affairs Oral
History Project being conducted by the Association for Diplomatic Studies and Training),
former U.S. Ambassador to China James Lilley provided information about President
Reagan’s interpretation of the 1982 communique. According to Lilley, President Reagan
viewed the 1982 communique as specifically linking the reduction of U.S. arms to Taiwan
with China’s peaceful resolution of the Taiwan question. If the PRC became belligerent or
built up a power projection capability in the Strait which threatened Taiwan, President
CRS-4

---

IB98034
01-22-03
Reagan considered that this would be a violation of the 1982 communique and that the
United States would be free to increase its arms sales to Taiwan.
U.S. Visits by Taiwan Officials. In the absence of official U.S. ties with Taiwan,
PRC officials argue that no high-level officials of the Taiwan government should be received
in the United States. Mindful of PRC sensitivities, U.S. officials for years were unwilling
to issue visas to senior Taiwan officials for U.S. visits. This changed on May 22, 1995, when
President Clinton, bowing to substantial congressional pressure, decided to allow Taiwan
President Lee Teng-hui to make a visit to the United States, but in his capacity as a private
citizen, not as an official representing Taiwan. Beijing reacted strongly, holding several live-
fire missile exercises in the Taiwan Strait after the Lee visit and prior to the March 1996
presidential elections in Taiwan, where Lee was running for re-election. In response to the
PRC military exercises, the United States sent two carrier battle groups to the region of the
Taiwan Strait. The PRC exercises, which ended on March 25, 1996, failed to discredit Lee,
who won 54% of the vote in a field of four candidates in presidential elections.
In contrast to previous Administrations, the George W. Bush Administration has been
more accommodating in granting visits to senior Taiwan officials. In June 2000, Taiwan’s
new President, Chen Shui-bian, was allowed a transit stop in New York City and Houston
on his way to Latin America. Taiwan’s Vice-President, Annette Lu, was accorded a similar
transit stop in New York in early January 2002. More recently, from March 9-12, 2002, U.S.
officials permitted Taiwan’s Defense Minister, Tang Yao-ming, to attend a defense
conference in Florida. While here, Minister Tang met with U.S. Deputy Secretary of Defense
Paul Wolfowitz and U.S. Assistant Secretary of State James Kelly. The PRC protested. In
June 2002, KMT party chairman Lien Chan attended a dinner at the White House in
conjunction with his visit to Washington D.C. to attend an International Democratic Union
(IDU) party leadership meeting.
Policy Implications of Global Anti-Terrorism Campaign. Some have suggested
that the September 11, 2001 terrorist attacks against the World Trade Center, the Pentagon,
and in Pennsylvania may have implications for U.S. policy calculations about Taiwan
because of the U.S. efforts to build an international coalition that includes PRC support.
While the PRC has assured Washington of its support in the anti-terrorism effort, PRC
officials in the past have attempted to exact policy concessions from the United States in
exchange for support for U.S. initiatives. Some expect that the PRC thus may attempt to
condition its future support for the global anti-terrorism campaign on U.S. concessions on
Taiwan.
President Clinton’s 1998 “Three Noes” Statement. Taiwan officials and U.S.
supporters of Taiwan often saw the Clinton Administration as too willing to respond to PRC
pressure to reaffirm the U.S. “one China” policy in ways that appeared to curb support for
Taiwan. These concerns were heightened during a summit visit to the PRC in June 1998,
during which President Clinton made a controversial statement about Taiwan that some
interpreted as being a change in U.S. policy. The statement was made in response to a
question during a discussion in Shanghai on June 30, 1998. According to a White House
transcript, the President said:
I had a chance to reiterate our Taiwan policy, which is that we don’t support
independence for Taiwan, or two Chinas, or one Taiwan-one China. And we don’t
CRS-5

---

IB98034
01-22-03
believe that Taiwan should be a member in any organization for which statehood is a
requirement. So I think we have a consistent policy.
Although Clinton Administration officials insisted the President’s remarks were fully
consistent with U.S. policy, some American observers maintained that the Clinton Shanghai
statement was a distinct change from original U.S. policy statements in the three U.S.-China
communiques of 1972, 1979, and 1982, and in the Taiwan Relations Act.
Political Liberalization in Taiwan
Background
Under the leadership of Chiang Kai-shek, (who ruled the Republic of China from 1945-
1975), the KMT-dominated government that fled wholesale to Taiwan ruled in a sometimes
harsh authoritarian fashion. Considering itself still at war, it retained those legislative and
executive officials that had served in the mainland, and it tolerated little open political
dissent. It pursued policies of a strong national defense against the Communist mainland and
export-oriented economic growth. But widespread international recognition of the PRC in
the 1970s challenged a major source of the political legitimacy of the KMT regime on
Taiwan. It was harder to argue that people on Taiwan should accept and pay for an elaborate
central government administration that included a majority of representatives who were
elected on mainland China 30 years before. KMT leaders, particularly Chiang Kai-shek’s
son, Chiang Ching-kuo (CCK), began to institute political reforms. They emphasized other
elements in support of KMT rule, noting in particular the leadership’s successful supervision
of Taiwan’s dramatic economic progress. CCK and his associates also included in the
government more “Taiwanese” — the 85% of the island’s population whose roots go back
to Taiwan prior to the influx of two million “mainlanders.” Important Taiwanese dignitaries,
including future President Lee Teng-hui, were elevated within the Party.
A combination of international and domestic pressures accelerated the pace of political
reform in the 1980s. In September 1986, opponents of KMT political dominance finally
overcame years of the Party’s objections and formed an opposition party, the Democratic
Progressive Party (DPP). President Chiang ended martial law in July 1987, and following
his death in January 1988, the new President, Lee Teng-hui, reaffirmed commitments to
political reform. In 1991, President Lee declared an end to the state of civil war with the
PRC and the associated “temporary provisions” that had given KMT leaders “emergency”
powers to deal with dissent. Members of legislative bodies elected in the mainland over 40
years earlier retired. An election was held to fill seats in a new National Assembly, and in
1992 a new legislature was elected.
In subsequent annual island-wide elections, the KMT incrementally lost ground to the
DPP and the New China Party, founded in 1993. In the March 23, 1996 presidential
elections, Lee Teng-hui won 53.9% of the vote, the DPP candidate, 21.1%, and two
conservative independents, 14.9%, and 9.9%, respectively. In concurrent elections for the
National Assembly’s 334 seats, the Nationalists got 183 seats with 49.7% of the vote; the
DPP got 99 seats with 29.9%; and the New China Party got 46 seats with 13.7%.
CRS-6

---

IB98034
01-22-03
Taiwan’s Presidential Elections, 2000: Change in Government. On March
18, 2000, Taiwan voters went to the polls for only the second time to elect a new president
in a hotly contested election that was judged too close to call in the final days. The winning
candidate in that election, Chen Shui-bian, is a member of the opposition, 14-year old DPP
Party. The vote was a stunning defeat for the KMT and its unbroken tenure in power for 50
years. With three leading presidential candidates, Chen won with 39% of the popular vote,
while an independent challenger, James Soong, ran a close second with 36.5% of the vote.
The KMT candidate, sitting vice-president Lien Chan, ran a distant third with only 23% of
the vote. In spite of this success at the executive level, the legislature remained dominated
by the KMT. Thus, President Chen was limited domestically by his inability to gain
consistent and broad support for his policy initiatives from the legislature, leading to
bitterness and a near paralysis in Taiwan’s political system.
Legislative Changes in December 2001
On December 1, 2001, Taiwan held mayoral, magistrate, and national legislative
elections which many thought offered a crucial opportunity to improve the DPP’s ability to
govern. Although the results in elections for county magistrates and city mayors were evenly
split between the KMT and the DPP (each won nine posts), elections for the 225-member
national legislature handed a stunning and unprecedented defeat to the KMT – giving it just
68 seats instead of its former 115 seats. While the struggling KMT lost its majority status
in – and, many thought, its control of – the legislature for the first time in 50 years, President
Chen’s DPP party increased its representation from 66 to 87. Other seats were won by the
People First Party (46 seats); the “Taiwan Solidarity Union” (13); and the New Party (1); and
various minority or non-party candidates (10). As a result, when the new legislature
convened in February 2002, no single party had an absolute majority. Control of the
legislature instead would go to those parties able to form an effective majority coalition.
(See CRS Report RS21093, Taiwan’s December 2001 Elections.)
Many observers thought that the new DPP legislative plurality would strengthen the
position of President Chen by allowing him to craft a political coalition that could give him
effective legislative control. In addition to the likely support of independents, the natural ally
was the Taiwan Solidarity Union (TSU), a new party formed on July 24, 2001, by former
KMT members closely associated with former President Lee Teng-hui. The TSU promised
it would follow policies crafted by Lee and would operate as a coalition bloc with the DPP,
ostensibly to help President Chen “govern more effectively.” While this still would leave
the DPP just shy of a controlling legislative bloc, DPP political strategists early in 2002 were
counting on the defection of a handful of disgruntled KMT legislators to the DPP camp and
political isolation of the remaining KMT legislators, which would break the stalemate and
give effective legislative control to Chen and the DPP.
Nevertheless, the actions of the new legislature in its initial months did not turn out as
expected. The rash of KMT defections has not occurred. Instead, the KMT has been able
to exert party discipline on its 68 elected members. Nor are the KMT members politically
isolated. Instead, they have been able to overcome political and ideological differences with
the People First Party (PFP) and form a coalition with the PFP’s 46 elected members that has
shown remarkable solidarity and has blocked DPP/TSU initiatives. Finally, the TSU has
proven an unreliable coalition partner for the DPP. Instead of supporting President Chen’s
moderate agenda, TSU members have pushed policy proposals that are especially
CRS-7

---

IB98034
01-22-03
provocative to Beijing, and on occasion they have threatened to withhold their support unless
Chen and the DPP made policy concessions to TSU views. Judging from KMT-leader Lien
Chan’s comments during his visit to the United States in June 2002, KMT political
strategists have decided to portray DPP/TSU policies as a dangerous road for the Taiwan
people from which only a return to KMT rule can save them. Developments in 2002 suggest
that unless circumstances change, Chen will not be able to count on the new legislature’s
support for his policy initiatives after all, and political stalemate and infighting will continue
to characterize Taiwan’s political scene. Moreover, events in 2002 suggest that the KMT
may yet be able to resurrect itself from near-death to regain political power, and that the
campaign for Taiwan’s next presidential election in 2004 is already well underway.
Taiwan-Mainland Relations
Beginning with Taiwan’s relaxation of restrictions on travel to the mainland in 1987,
succeeding Taiwan governments have incrementally eased long-standing restrictions on
contacts with the PRC. In Taiwan, cross-strait policies are under the purview of the
Mainland Affairs Council (MAC), a government body, while cross-strait talks are handled
by the Straits Exchange Foundation (SEF), a private organization authorized by the
government to handle these exchanges. Corresponding bodies in the PRC are the
government’s Taiwan Affairs Office, while cross-strait talks are handled by the Association
for Relations Across the Taiwan Strait (ARATS). Despite substantial and growing economic
ties, the two sides have not held official talks since October 14-19, 1998, in Shanghai and
Beijing. These talks improved the atmosphere but did little to bridge the wide gap between
the negotiating positions of Beijing and Taipei. Further progress on official cross-strait talks
have remained frozen since 1999, when then-President Lee Teng-hui declared that such talks
should be conducted on an equal, “state to state” basis, which Beijing took as a statement of
Taiwan sovereignty.
Official Developments During the Chen Administration. Although Beijing has
adamantly opposed the DPP and its pro-independence statements, during the Chen
Administration both the PRC and Taiwan governments have made selected overtures and
statements that some have interpreted as suggestive of movement in PRC-Taiwan relations.
In January 2001, Taiwan launched what it called the “three mini links” – for the first time
permitting direct transport, commerce, and postal exchanges between two outlying Taiwan
islands and the south of China. (Further expansion of the “mini links” was announced in
June 2002.) In October 2001, Taiwan officials announced they would simplify visa
application procedures for professionals from the PRC, making it easier for them to come
live and work in Taiwan. In November 2001, President Chen gave a speech in Taiwan
urging the PRC government to drop its opposition to negotiating with his administration. In
May 2002, President Chen announced he would send a DPP delegation to Beijing to establish
contacts between the DPP and the Chinese Communist Party.
In what some suggest is a significant softening of PRC policy, on January 24, 2002,
PRC Vice-Premier Qian Qichen described pro-independence advocates in the DPP as only
an “extremely small number” in the Party, and he invited DPP members to visit the mainland
under a “suitable status.” This is a notable departure from previous PRC policy, which was
not to meet or negotiate with DPP members. Among other things, the PRC also will allow
two Taiwan banks – Chang Hwa Bank and United World Chinese Commercial Bank – to
CRS-8

---

IB98034
01-22-03
open representative offices on the mainland. More interestingly, in an interview with
Russia’s ITAR-TASS news agency on March 14, 2002, the deputy director of the PRC’s
Taiwan Affairs Office, Zhou Mingwei, suggested that the PRC may be willing to accept the
simultaneous representation of both Beijing and Taipei in the United Nations, provided that
Taiwan acknowledges the “one-China” principle.
Despite these positive signs, tensions remain. Taiwan’s domestic political scene
ensures that various opportunists will be able to continue to use cross-strait relations as a tool
for political leverage and advancement. On January 15, 2002, for instance, Taiwan
authorities announced they would add the words “Issued in Taiwan” to Taiwan passports to
avoid confusion between the PRC and Taiwan. A seemingly innocuous change, the decision
appeals to Taiwan nationalists and irritates Beijing, which responded by saying that the move
demonstrated Taiwan was “inching toward independence.” Taiwan’s relationship with the
United States also remains both a source of tension and an opportunity for political
maneuvering in Taiwan. For instance, the PRC vigorously protested the U.S. decision in
March 2002 to allow Taiwan’s defense chief, Tang Yao-ming, to visit the United States for
meetings with senior U.S. diplomatic and military officials. This was the first visit of a
Taiwan defense minister to the United States since the mid-1960s. PRC officials continue
to insist that official contacts between Taiwan’s government officials and those of any other
country are inappropriate. Meanwhile, KMT leader Lien Chan used the occasion of his June
2002 U.S. visit to advance the KMT’s political ambitions and chastise current Taiwan
leaders for contributing to what he called the “Taiwanization” of the island.
Private-Sector Exchanges.
Meanwhile, although Taiwan’s leaders still adhere
publicly to the official policy of the “three noes” – no contact, no negotiation, and no
compromise with the PRC – unofficial Taiwan-PRC contacts and economic ties have grown
increasingly robust in the past decade. Over 13 million visits have taken place from Taiwan
to the mainland. Over 250,000 mainland Chinese experts, entrepreneurs and others have
traveled to Taiwan for consultations and exchanges. Exchanges of PRC-Taiwan scholars and
experts for consultations on cross-strait and other issues provide, in the view of some
Taiwanese officials, an active “second track” for PRC-Taiwan dialogue. Other events in
cross-strait relations have included the decision by oil companies in the PRC and Taiwan to
explore jointly offshore areas for oil; the start of flights from Taiwan to the mainland with
only a short stopover in Macao or Hong Kong; and Taiwan’s opening to third-country ships,
and selected mainland and Taiwanese ships, to carry cargo to and from designated ports in
Taiwan and on the mainland.
PRC “White Papers”On Taiwan. On February 21, 2000, the PRC issued its
second “white paper” about Taiwan, the first having been issued in August 1993. In the
more recent paper, “The One-China Principle and the Taiwan Issue,” PRC officials offered
a mix of apparent conciliatory gestures and a new ominous-sounding assertion that if Taiwan
authorities tried to indefinitely delay cross-strait talks about Taiwan’s future, then the PRC
would be “forced to adopt all drastic measures possible, including the use of force.”
Previously, the PRC had reserved the right to use force in only two instances: if Taiwan
declared independence; and if Taiwan were invaded and occupied by a foreign country. A
Washington Post article of February 23, 2000, cited a top Pentagon official as responding to
the new statement by warning the PRC of “incalculable consequences” if the PRC resorted
to force against Taiwan.
CRS-9

---

IB98034
01-22-03
On October 16, 2000, China published its third national security white paper, entitled
“China’s National Defense in 2000.” The document listed China’s national defense
expenditures for 2000 at 121.29 billion renminbi – roughly U.S. $14.65 billion. In describing
its view of the current international security situation, the white paper declared that there are
“new negative developments in the security situation” in the region. The paper cited U.S.
weapons sales to Taiwan and consideration of the Taiwan Security Enhancement Act by the
106th Congress as some of these negative developments. The paper also stated that if Taiwan
were invaded or continued to refuse to negotiate on reunification with China, the Chinese
government “will have no choice but to adopt all drastic measures possible, including the use
of force, to safeguard China’s sovereignty...”
China’s periodically harsh rhetoric on Taiwan has raised concerns in some policy circles
about the prospects for military conflict in the area. The danger of military conflict first
became evident during the PRC military exercises held at the time of Taiwan’s presidential
elections in March 1996. Following Taiwan President Lee Teng-hui’s personal visit to
Cornell University in the United States in June 1995, Beijing broke off high-level talks on
cross-Strait relations, stridently excoriated Lee for allegedly attempting to split China and
lead Taiwan toward independence, and conducted a series of military exercises designed to
convey a warning to the Taiwan people.
Beijing has also given top priority to checking Taiwan’s efforts to broaden its
international standing through so-called pragmatic diplomacy. Thus, it has countered
Taiwan’s efforts to establish formal relations with states already maintaining official ties
with Beijing, and it has pressed foreign governments to refuse to receive Taiwan leaders
traveling to their countries on an ostensibly private basis. Partly as a result of PRC efforts,
Taiwan now maintains official relations with less than 30 countries, mostly small states in
Central America and the Caribbean, Africa, and the South Pacific. It is unable to host senior-
level meetings of the Asian Pacific Economic Cooperation (APEC) forum, even though
Taiwan is a member in good standing of the group, and it has been unsuccessful in gaining
even observer status in such U.N. affiliated groups as the World Health Organization. Both
China and Taiwan have so far dealt reasonably well with the economic consequences of the
1997-1998 Asian economic crisis. Politically, Taipei quickly used the crisis as an opportunity
to broaden high-level official contacts with most Southeast Asian governments seeking
outside assistance, and Beijing was unsuccessful is dissuading cash-starved Southeast Asian
leaders from seeking economic advantage through talks with senior Taiwan political leaders.
Economic and Trade Issues
Taiwan’s economy grew rapidly (around 10% a year) in the 1970s and 1980s. Growth
declined to around 5-6% a year in the 1990s as the economy matured. In the past two years
however, the Taiwan economy has experienced a serious slowdown. Second-quarter GDP
for 2001 contracted by 2.35% – Taiwan’s first economic contraction in 26 years. Exports
were down 13.6% in the first seven months of 2001, while the unemployment rate hovered
at around 5%. Experts blame the economic difficulties on the global economic downturn,
reduced U.S. demand for Taiwan’s information technology exports, and the sizeable transfer
of the island’s manufacturing base to the PRC; in the first half of 2001, for instance,
Taiwan’s investment in the PRC grew by 24% over the previous year. This trend is likely
to accelerate beginning in 2002, when Taiwan authorities will lift a ban that limited
CRS-10

---

IB98034
01-22-03
Taiwanese investment in the PRC to $50 million per project, and will abolish the need to
obtain approval for investment projects below $20 million.
The United States is Taiwan’s largest trading partner, while Taiwan is the 7th largest
U.S. trading partner. In the year 2000, total U.S.-Taiwan trade was approximately $65
billion, with a Taiwan surplus of approximately $16 billion. Taiwan’s chief exports to the
United States include clothing and footwear, toys, and various electronic products. In recent
years, Taiwanese government officials have attempted to accommodate increased U.S.
pressure on trade issues. They met many U.S. demands for greater market access for U.S.
goods and services and responded to U.S. complaints by taking stronger measures to protect
U.S. copyrights and other intellectual property rights.
Taiwan’s World Trade Organization (WTO) Accession. After an application
process lasting 12 years, Taiwan officially joined the WTO on January 1, 2002 as “the
Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu” or, less formally,
“Chinese Taipei.” In keeping with the PRC’s wishes, Taiwan was not admitted to the
organization until after the PRC’s accession, which occurred on December 12, 2001, after
a 15-year application process. As a result of its WTO membership, Taiwan will have to
reduce tariffs and open a number of market sectors to foreign investment, thus setting the
stage for new opportunities for U.S. businesses. In addition, mutual membership in the WTO
is likely to have a significant impact on PRC-Taiwan economic and trade relations. To be
in compliance with their WTO obligations, both Beijing and Taipei will have to reduce long-
standing bilateral trade restrictions, setting the stage for direct trade links between the two
governments.
U.S. Policy Implications
Always an important factor in Taiwan politics, the U.S. policy position on Taiwan and
China appears to be undergoing some changes. Mid-way through its first term, the George
W. Bush Administration is seen to be making good on its early promises to broaden the focus
of American policy in Asia, concentrating more on Japan and other U.S. allies and de-
emphasizing U.S.-PRC relations. This new attitude is nowhere as apparent as in the
President’s actions regarding Taiwan, which differ markedly from those of his predecessors.
The Bush Administration is pursuing a policy that appears more heavily weighted toward
Taiwan than at any time since U.S. normalization of relations with the PRC. Beginning with
the President’s authorization in 2001 of a major sale of defense articles and services – the
largest U.S. sale to Taiwan in the past decade – President Bush also appeared in a TV
interview saying that the United States would do “whatever it takes” regarding Taiwan’s
defense, a sentiment that was reaffirmed in a statement made by Deputy Secretary of Defense
Paul Wolfowitz in March 2002.
In addition, the Bush Administration’s actions surrounding the decision to allow
President Chen Shui-bian to make a transit stop-over in the United States differed markedly
from the precedents set by earlier White House occupants. While earlier U.S.
Administrations either were unwilling or were forced by congressional pressure to permit
Taiwan officials to make stop-overs in the United States, by comparison, Bush
Administration officials have been remarkably accommodating. Not only was the Taiwan
President’s 2001 transit stop permitted, but Chen spent several days in the United States;
CRS-11

---

IB98034
01-22-03
visited both New York (previously off-limits) and Houston; attended public functions and
meetings with local elected officials; and met with nearly two-dozen Members of Congress
– all actions encouraged by the Bush Administration. Taiwan’s Vice-President, Annette Lu,
was accorded a similar transit stop in New York in early January 2002. More recently, from
March 9 -12, 2002, U.S. officials permitted Taiwan’s Defense Minister, Tang Yiao-ming,
to attend a defense conference in Florida. While there, Minister Tang met with U.S. Deputy
Secretary of Defense Paul Wolfowitz and U.S. Assistant Secretary of State James Kelly.
Congressional Role. It has been a tradition over the past decade that pressure to
field a more sympathetic U.S. policy toward Taiwan has come most pointedly from
congressional sources. Members of Congress who believe that the Taiwan Relations Act
(TRA) is outdated pushed the Clinton White House to be more assertive in arms sales to
Taiwan and to take other steps to enhance Taiwan’s security. Initially, with the election of
the Bush Administration and its promise of a more sympathetic policy toward Taiwan, it
appeared that pressure from Congress would be reduced. Nevertheless, bipartisan policy
initiatives continued in the 107th Congress. On April 9, 2002, Reps. Dana Rohrabacher(R),
Robert Wexler(D), Steve Chabot(R), and Sherrod Brown(D) announced the formation of a
Congressional Taiwan Caucus comprised of over 80 House Members, the purpose of which
is to focus increased policy attention on Taiwan’s situation. The 107th Congress also
considered and acted upon legislation seeking to expand U.S.-Taiwan ties. (See below.)
The more assertive U.S. role and the fluctuating and opportunistic Taiwan political
scene raise the stakes for U.S.-China-Taiwan relations. A few observers have suggested that
some Members of Congress now may seek legislatively to put the brakes on more assertive
White House actions that they feel could raise cross-strait tensions. In addition, some in
Congress may assert that the current complexity of the Taiwan political environment argues
for U.S. caution. On the other hand, the full Republican majority in the 108th Congress may
seek to support even more fully Bush Administration policy priorities on Taiwan, although
in the past U.S. actions in support of Taiwan have attracted support from both sides of the
aisle. In the near term, however, it appears that both U.S. and Taiwan actors will continue
efforts to push the United States into ever greater activism on behalf of Taiwan.
LEGISLATION
P.L. 107-10 (H.R. 428)
Taiwan Participation in the World Health Organization (WHO). Requires the Secretary
of State to initiate a U.S. plan to endorse and obtain observer status for Taiwan at the annual
week-long summit of the World Health Assembly in May 2001 in Geneva, Switzerland; and
requires the Secretary of State to submit the plan to Congress in a written, unclassified report.
Introduced on February 6, 2001, and referred to the House International Relations
Committee, which marked the bill up on March 28, 2001. The House passed the bill on
April 24, 2001, by a vote of 407-0. The Senate passed the bill, amended, on May 9, 2001,
by unanimous consent. On May 15, 2001, the House agreed to the Senate amendment by a
vote of 415-0. The President signed the bill into law on May 29, 2001.
CRS-12

---

IB98034
01-22-03
P.L. 107-107 (S. 1438)
The Defense Authorizations Act, introduced on September 19, 2001. Section 1216(b)
authorizes the sale of four U.S. Kidd class guided missile destroyers to the Taipei Economic
and Cultural Representative Office (TECRO) in the United States (Taiwan’s unofficial
representative office in the U.S.) The destroyers authorized for sale are: KIDD (DDG 993),
CALLAGHAN (DDG 994), SCOTT (DDG 995), and CHANDLER (DDG 996). The
measure was taken up by the Senate on September 21, 2001. Cloture was invoked on
October 2, 2001 (100-0), and the Senate passed the bill, amended, on the same day by a vote
of 99-0. Conference meetings were held on October 31 and November 1, 2001, and a
conference report (H.Rept. 107-333) was filed on December 12, 2001. On December 13,
2001, both the House (382-40), and the Senate (96-2) passed the conference report. The bill
became P.L. 107-107 on December 28, 2001.
P.L. 107-228 (H.R. 1646/S. 1401)
As enacted by the 107th Congress, P.L. 107-228, the Foreign Relations Authorization
Act for FY2003, contains provisions that make changes in U.S. practice and could have an
affect on U.S.-China relations. Provisions dealing with Taiwan are particularly sensitive
because Beijing views the Act as an effort to make U.S. security relations with Taiwan more
formal and routinized. Among other things, the Act contains a provision allowing the
Secretary of State to detail a State Department employee to the American Institute in Taiwan
(AIT) while remaining on the U.S. government payroll. (The United States does not have
official relations with Taiwan, and all bilateral contacts since 1979 have been handled
through AIT, whose employees are not considered U.S. government employees.) The Act
also includes House language providing that, for the purposes of U.S. arms sales, Taiwan
should be treated as the equivalent of a major non-NATO ally; and that the President consult
with appropriate congressional committees every six months about Taiwan’s request for
defense articles and services. The Act also contains sense-of-Congress language that the
Taiwan situation be resolved peacefully and with the consent of the people on Taiwan; and
that the American flag be publicly displayed at U.S. offices in Taiwan as at other U.S.
embassies, consulate, and official residences around the world.
P.L. 107-158 (H.R. 2739) (Brown, S.)
To amend P.L. 107-10 to require a U.S. plan to obtain WHO observer status for Taiwan
at the annual summit of the World Health Assembly in May 2002 in Geneva. Introduced on
August 2, 2001, and referred to the House International Relations Committee. Passed the
House by voice vote and the Senate by unanimous consent. Became P.L. 107-158 on April
4, 2002.
CHRONOLOGY
08/03/02 — Taiwan’s President, Chen Shui-bian, referred in a speech to Taiwan and
China being two different countries, and called for a national referendum on
Taiwan’s status. China charged that the statement was a violation of the
“one-China” policy.
CRS-13

---

IB98034
01-22-03
06/24/02 —
A delegation of Taiwan military officials met in Washington with U.S.
defense officials to discuss security cooperation and Taiwan’s defense needs.
04/09/02 — U.S. Members of Congress announced the formation of a Congressional
Taiwan Caucus, with over 80 Members.
03/12/02 —
Taiwan’s Defense Minister, Tang Yiao-ming, left the United States after a
three-day defense conference that included meetings with U.S. Deputy
Secretary of Defense Paul Wolfowitz and U.S. Assistant Secretary of State
James Kelly.
01/01/02 —
Taiwan enters the WTO.
12/01/01 — In national legislative elections, the DPP made a strong showing at the
expense of the National Party, winning 87 legislative seats in the 225-
member body to the latter’s 68 seats.
09/18/01 —
The WTO voted to accept Taiwan’s application for membership.
07/24/01 — Supporters of Taiwan’s former President, KMT member Lee Teng-hui,
announced the formation of a new political party in Taiwan, the Taiwan
Solidarity Union (TSU). The organizing meeting of the new party was held
beginning August 12, 2001.
04/25/01 —
In an ABC television interview, President Bush said that he would use the
U.S. military – to do”whatever it takes” to help Taiwan defend herself.
04/24/01 —
The Bush Administration announced it would sell Taiwan a new assortment
of defense articles, including diesel submarines, P-3C anti-submarine aircraft,
and Kidd-class destroyers.
01/02/01 —
For the first time in more than 5 decades, 3 Taiwan ships left Quemoy and
Matsu and later docked in the Chinese ports of Xiamen and Fuzhou.
10/16/00 —
China issued a white paper, “China’s National Defense 2000,” reinforcing its
claim that it would use force against Taiwan if Taiwan continued to refuse to
negotiate for reunification with China.
08/17/00 —
Taiwan’s President Chen made a transit stop in Los Angeles. Invited to dine
with Members of Congress, Chen declined under pressure from U.S.
government officials.
05/20/00 —
Chen Shui-bian was inaugurated as Taiwan’s newly elected president. His
inauguration speech was viewed generally as a moderate attempt to lower
tensions with Beijing.
03/24/00 —
President Lee Teng-hui resigned as head of the ruling Nationalist Party
because of his party’s unprecedented defeat in the presidential election.
CRS-14

---

IB98034
01-22-03
03/18/00 —
In presidential elections in Taipei, DPP candidate Chen Shui-bian won with
approximately 39% of the vote.
02/21/00 —
The PRC issued a White Paper, “The One-China Principle and the Taiwan
Issue,” with a mix of conciliatory gestures and a new threat that Taiwan’s
indefinite delay in cross-Strait talks may prompt use of force by the PRC.
02/01/00 —
The House passed H.R. 1838, the Taiwan Security Enhancement Act, by a
vote of 341-70.
11/17/99 —
The ruling Kuomintang (KMT) Party expelled presidential candidate James
Soong and six of his key staff.
07/09/99 —
Taiwan’s President, Lee Teng-hui, said that ties between Taiwan and the
PRC should be conducted on a “state-to-state” basis.
04/19/99 —
Taiwan DPP leader Chen Shui-bian began several days of seminars and
meetings in Washington, DC.
02/17/99 —
The U.S. Defense Department issued a congressionally mandated report on
rising military strengths on both sides of the Taiwan Strait. The report
intensified arguments on whether the United States should provide ballistic
missile defense systems to Taiwan despite strenuous objections from Beijing.
10/23/98 —
Secretary of Defense William Cohen had an unofficial meeting with
Taiwan’s armed forces chief of staff then visiting Washington.
10/19/98 —
Taiwan negotiator Koo Chen-fu left Beijing after talks with Chinese party
leader Jiang Zemin and other senior officials.
01/24/98 —
Elections for mayors, county assemblies, and city councils showed the
KMT’s continued dominance at the grass-roots level of Taiwanese politics.
The Kuomintang won over 60% of the contested seats; the DPP about 20%.
01/01/98 —
South Africa, the most important country to maintain official ties with
Taiwan, broke off official relations and established formal ties with China.
03/10/96 —
The Pentagon disclosed that two U.S. carrier battle groups had been ordered
to the Taiwan area.
03/08/96 —
PRC forces began holding ballistic missile exercises in two impact areas near
Taiwan. The actions were condemned by Congress and the Administration.
01/24/96 —
The New York Times reported on a series of explicit warnings from the PRC
to U.S. leaders over the likelihood of military action in the Taiwan Strait.
12/02/95 —
In elections for the 164-seat Legislative Yuan, the KMT received 85 seats
with 45% of the vote; the DPP, 54 seats; and the New China Party, 21 seats.
CRS-15

---

IB98034
01-22-03
05/22/95 —
Yielding to congressional pressure, President Clinton decided to allow
Taiwan’s president to visit the United States the following month.
04/08/95 —
President Lee Teng-hui responded to President Jiang Zemin’s eight-point
proposal on cross-Strait relations with his own proposal.
01/30/95 —
China’s leader Jiang Zemin issued a positive sounding eight-point proposal
on Taiwanese-mainland relations.
09/07/94 —
The Clinton Administration’s Taiwan policy review called for modestly
increased contacts with Taiwan.
09/02/92 —
President Bush agreed to sell 150 F-16 jet fighters to Taiwan.
07/15/87 —
Martial law ended in Taiwan.
FOR ADDITIONAL READING
Rigger, Shelley. “Why Taiwan’s Political Paralysis Persists,” Foreign Policy Research
Institute, April 18, 2002.
Tsang, Steve. “China and Taiwan: A Proposal for Peace,” Security Dialogue, v. 31, Sept.
2000: pp. 327-336.
Clough, Ralph N. Cooperation or Conflict in the Taiwan Strait, Rowman and Littlefield,
1999.
CRS Reports
CRS Report RS21093. Taiwan’s December 2001 Elections, by Kerry Dumbaugh.
CRS Report 96-498. China-U.S.-Taiwan Economic Relations, by Wayne Morrison and
William Cooper.
CRS Report RL30957. Taiwan: Major U.S. Arms Sales Since 1990, by Shirley Kan.
CRS Report RS20187. Taiwan’s Defense: Assessing the U.S. Department of Defense Report,
“The Security Situation in the Taiwan Strait,” by Robert Sutter.
CRS Report 96-246. Taiwan: Texts of the Taiwan Relations Act and the China
Communiques, by Kerry Dumbaugh.
CRS-16

---