Order Code RS20683
Updated May 16, 2003
CRS Report for Congress
Received through the CRS Web
Taiwan’s Accession to the WTO and its
Economic Relations with the United States
and China
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), the international organization that sets rules for most international trade, on
January 1, 2002. Taiwan’s WTO membership is expected to accelerate 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), some Members of Congress have
indicated support and proposed legislation (H.Con.Res. 98) for a U.S.-Taiwan free trade
agreement (FTA). This report will be updated as events warrant.
Taiwan’s Economy and WTO Application
Taiwan is a major economic and trade power and a significant U.S. trading partner.
Taiwan’s 2002 GDP was $289 billion, and its total trade (exports plus imports) was
$243.2 billion. Total U.S.-Taiwan trade in 2002 was $50.6 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 2002 were $18.4 billion (making Taiwan the 9th largest U.S. export
market), while U.S. imports from Taiwan were $32.2 billion (the 8th largest source for
U.S. imports). U.S.-Taiwan trade has stagnated in recent years. U.S. exports to Taiwan
fell by 25.7% in 2001 (over 2000 levels), and grew by only 1.5% in 2002. U.S. imports
from Taiwan fell by 17.6% in 2001 and by 3.5% in 2002.
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 1990. 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, while not independent countries, are WTO members). At that time it appears that
several GATT signatories indicated support for allowing Taiwan to join the GATT only
Congressional Research Service ˜ The Library of Congress

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after China did — a position that continued to be supported by most members when the
WTO was established in 1995.1
The Taiwanese government made accession to the WTO a top priority and took a
number of steps prior to accession to remove a wide variety of tariff and non-tariff
barriers. 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, including the United States (February 1998), providing immediate
market access and phased-in commitments for goods, services, and agricultural products.
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.
Congressional support for Taiwan’s WTO bid was included in H.R. 4444, a bill to
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.
China’s WTO membership was formally approved at the WTO Ministerial
Conference in Doho, Qatar on November 10, 2001.2 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 agreed to cut tariffs and remove non-
tariff barriers on a wide range of goods over specified time periods:
! Tariffs. Simple average tariffs on agricultural products dropped from
their pre-WTO level of 20% to14% in 2002, and will fall to 12.9% by
1 This informal agreement appears to have been taken due to political concerns over offending
China, which views Taiwan as part of China.
2 In November 2001, Taiwan Legislative Yuan passed a comprehensive revision to its tariff
schedules to reflect its WTO commitments.

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2007 when tariff cuts are fully implemented.3 Similarly, simple average
tariffs on industrial goods dropped from 6.0% to 5.8% (in 2002) and
eventually will fall to 4.2% by 2004. 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 products. Taiwan also agreed to participate in
the WTO Chemical Harmonization Initiative.
! Automotive Products. Taiwan agreed to 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, and remove a 50% local content requirement for auto parts.
! Government Procurement. Taiwan agreed to join the WTO
Government Procurement Agreement (GPA), which will open its
procurement markets to a wide range of U.S. products, including
power-generating, transport and power transmission services.4 Taiwan
also agreed to implement a new, more fair and transparent, contract and
dispute resolution system regarding government contracts.
! Services. Upon WTO accession, Taiwan agreed to 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 rice; expand market access for pork, poultry, and variety
meats; and to make significant immediate tariff reductions on hundreds
of agricultural products (such as potato products, pears, grapes,
grapefruit, sunflower oil, and soup). Taiwan also agreed to eliminate
restrictive sanitary and phytosanitary (SPS) regulations.
! Intellectual Property Rights (IPR). Taiwan agreed to makes its IPR
protection regime conform to the WTO Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPs) upon accession.
3 Taiwan agreed to implement 68% of its tariff reductions upon accession. The remaining 32%
(covering 2,217 tariff lines) will be implemented over time. For example, tariff reductions for
most chemicals, iron and steal, auto parts, and plywood will be completed by 2004, and those for
most motor vehicles by 2008.
4 The Taiwan Economic News reported on December 11, 2002, that Taiwan was close to
completing negotiations with other WTO members that would enable it to soon join the GPA.

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U.S. government and business officials have given Taiwan relatively high marks for
its WTO implementation efforts to date. However, complaints have arisen over a number
of issues, including inadequate enforcement of IPR laws, failure to privatize state-owned
enterprises, lack of transparency for trade rules and regulations, restrictive SPS measures,
uneven administration of TRQs (especially for rice), and regulatory barriers on
pharmaceuticals and telecommunications.
Economic Implications of Taiwan’s WTO Accession
Most economists contend that Taiwan’s WTO accession will greatly benefit its
economy in the long run. For example, 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 increase by nearly ten fold ($55 billion).5
The United States is Taiwan’s second largest source of imports (after Japan), accounting
for 14.9% of Taiwan’s imports (2002), and thus U.S. exporters are expected be a major
beneficiary of Taiwan’s WTO accession.6 Taiwan’s economy should also be enhanced by
its WTO membership through efficiency gains resulting from further economic and trade
reforms and by increased foreign trade and investment.
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 several years. From
1991 to 2002, total bilateral trade rose from $8.1 billion to $39.6 billion.7 In 2002,
Taiwan’s exports to China ($32.0 billion) grew by 35.4% over the previous year, while
its imports from China ($7.6 billion) grew by 30.7%. 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, it is a relatively small source of its imports
mainly because Taiwan places significant restrictions on imports from China (especially
products that might compete directly with Taiwanese-made goods).8
5 Mastel, Greg. Taiwan in the WTO: An Economic and Policy Analysis, October 6, 1999,
available at [http://www.taipei.org/un/wto0223.htm].
6 The U.S. Department of Agriculture predicts that Taiwan’s WTO accession, once fully
implemented, could boost U.S. agricultural exports there by an additional $500 million per year.
7 Taiwan trade data. Full year data estimated by CRS based on actual data for Jan.-Oct. 2002.
8 The percentage share of Taiwanese exports going to China has risen dramatically over the past
few years, rising from 9.1% of total exports in 1991 to 24.9% in 2002. In 2002, China replaced
the United States as Taiwan’s most important export market. Imports from China as a share of
total Taiwanese imports rose from 1.8% in 1991 to 6.8% in 2002, due to a gradual relaxation of
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Taiwan has shifted many of its labor-intensive, export oriented, industries to the
mainland. The actual level of Taiwanese foreign direct investment (FDI) in the mainland
is greatly debated. Taiwan maintains restrictions on the amount and types of investment
that are allowed to be made in China by Taiwanese investors, although many seek to
circumvent these restrictions by investing in the mainland through off-shore companies.
Taiwanese data show the cumulative level of Taiwanese FDI in China (through 2001) at
about $25.1 billion, while Chinese data estimate this figure at $32.1 billion. Some
Taiwanese business groups contend that the actual level of Taiwanese FDI in China is far
higher than Taiwanese and Chinese official data, with estimates ranging from $60 billion
to over $100 billion.
WTO membership for Taiwan and China could eventually 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.9 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, but this policy has come under review in recent years, mainly because
of growing economic problems in Taiwan. The economic slowdown in the United States
and other major world economies in 2001 caused Taiwanese exports (especially high-
technology products) to decline sharply, raising unemployment to record levels (5.3% in
November 2001), and pushing the economy into recession (real GDP declined by 2.1%).
Taiwan’s economy improved somewhat in 2002, due largely to increased trade with
China, but unemployment remained relatively high at about 5.2% in 2002.
Taiwan’s current economic problems have 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 postal 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.10 Several
Taiwanese business representatives have called on the Taiwanese government to remove
restrictions on direct commercial links with the mainland, as such restrictions add
8 (...continued)
import restrictions on Chinese goods by the Taiwanese government.
9 In December 2002,Taiwan and China held their first ever bilateral consultation in the WTO.
Additionally, Taiwan has removed a number of discriminatory trade barriers on Chinese goods.
10 They say 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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significant costs to doing business with China.11 Some supporters of normalized trade
relations with the mainland have called on the Taiwanese government to negotiate a free
trade agreement with China. Many Taiwanese policymakers believe that great economic
ties with the mainland will help to stabilize the relationship and reduce the likelihood of
a Chinese invasion. 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.12 Another major
concern is over becoming too economically dependent on the mainland and thus
becoming more vulnerable to political pressure from China.
Chinese officials have indicated support for direct trade links with Taiwan, but have
often 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.
More recently, it appears that Chinese officials have tended to avoid tying political issues
to closer economic ties, perhaps in part in the belief that closer economic cooperation will
advance China’s goal of “reunification.”
Closer China-Taiwan economic integration is currently being hampered by the
outbreak of a new deadly and contagious virus called Severe Acute Respiratory Syndrome
(SARS), which started in China and has subsequently spread to other countries and
regions. The disease has led to disruptions in China’s and Taiwan’s domestic economies
and has sharply reduced the number of Taiwanese business representatives visiting the
mainland. This may lead to a short-term disruption of trade and investment links between
the two economies until the virus is effectively contained.
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. Some Members of Congress have
indicated support for a U.S.-Taiwan free trade agreement (FTA) that would reduce trade
barriers by both sides, thus boosting U.S.-Taiwanese economic ties.13 Bush
Administration officials have indicated support for such an FTA, but only after Taiwan
first agrees to resolve various trade disputes with the United States, in particular Taiwan’s
inadequate enforcement of IPR.14 As a result, U.S. officials have indicated that an FTA
may take several years to conclude.
11 One study found that the ban on direct trade links between China and Taiwan adds 60% to
freight costs, and that removal of such barriers would boost GDP on both sides by 3% and
increase trade by a total of $10 billion. See Wang, Zhi. WTO Accession and Economic
Integration Among Taiwan, Hong Kong and China, 2001.
12 Debate is currently taking place in Taiwan over whether to let Taiwanese microchip makers
establish production facilities in the mainland (many already do so illegally without government
permission). Taiwanese microchip producers argue that such a move is needed for the sector to
remain competitive, especially in the wake of slumping worldwide sales and increased investment
in microchip production by foreign competitors, while opponents fear that the “crown jewels”
of Taiwan’s economy, its high-tech industries, will eventually be lost.
13 In the 106th Congress, H.Con.Res. 98 (Rep. Ramstad) called for a U.S.-Taiwan FTA.
14 The International Intellectual Property Alliance (IIPA) estimates that lack of IPR protection in
Taiwan cost U.S. firms $757 million in lost sales in 2002, more than double estimated losses in
2001.

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