Order Code IB98034
CRS Issue Brief for Congress
Received through the CRS Web
Taiwan: Recent Developments
and U.S. Policy Choices
Updated May 20, 2005
Kerry B. Dumbaugh
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
U.S. Interests in Taiwan
Basis for U.S. Defense Commitments to Taiwan
Key Current Issues in Taiwan
PRC Anti-Secession Law
Opposition Party Visits to China
National Assembly Elections, May 14, 2005
Political Liberalization
End of KMT Dominance — 2000-2001
2004 Election Cycles
March 20th Presidential Election and Referendum
December 11th Legislative Elections
New Political Trends
Growing Political Polarization
Reassessing “One China”
Taiwan-Mainland Relations
Cross-Strait Developments in the Chen Administration
Private-Sector Exchanges
Economic and Trade Issues
Taiwan’s World Trade Organization (WTO) Accession
SARS, Avian Flu, and WHO Observer Status
Policy Trends in the George W. Bush Administration
Initial Tilt Toward Taiwan
Toward a Taiwan/PRC Balance
Problems over Arms Purchases
Implications for U.S. Policy
LEGISLATION
CHRONOLOGY
FOR ADDITIONAL READING

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Taiwan: Recent Developments and U.S. Policy Choices
SUMMARY
Under the Bush Administration, U.S.-
election of March 20, 2004, to incumbent
China-Taiwan relations have undergone a
Democratic Progressive Party (DPP) candidate
number of changes. Initially, the new Admin-
Chen Shui-bian by a razor-thin margin. Chen
istration seemed to abandon the long-standing
has been able to seize the political initiative by
U.S. policy of “strategic ambiguity” on Tai-
disavowing the concepts long embraced by his
wan in favor of “strategic clarity” that placed
KMT opponents: that there is “one China,”
more emphasis on Taiwan’s interests and less
that Taiwan is a part of it, and that Chinese
on PRC concerns. Among other things, Presi-
history and culture are Taiwan’s heritage.
dent Bush publicly stated that the United
Instead, Chen has emphasized a “new Taiwan
States would do “whatever it takes” to help
identity” and has said publicly that Taiwan
Taiwan’s defense — a position more support-
already “is an independent, sovereign country”
ive of Taiwan than had been articulated by
— a “status quo” that he promises to main-
previous U.S. presidents. In April 2001, the
tain. Legislative elections held on December
President also approved a substantial sale of
11, 2004, however, suggest that Taiwan’s
U.S. weapons to Taiwan, including Kidd-class
electorate appeared to reject the more strident
destroyers, anti-submarine P-3 “Orion” air-
aspects of the DPP’s election strategy, instead
craft, and diesel submarines. The White
returning a slim KMT majority to the legisla-
House also was more accommodating to visits
ture. As in Chen’s first term, it appears that
from Taiwan officials than previous U.S.
continued opposition control of the legislature
Administrations, and permitted visits from
could lead to policy gridlock, with the
Taiwan’s president in 2001 and 2003, and
legislature amending or blocking DPP policy
from Taiwan’s vice president and defense
initiatives.
minister in 2002.
Political trends in Taiwan have raised
The Administration’s initially assertive
anxieties about its future and the implications
posture was in keeping with growing congres-
for U.S. policy. Some are concerned that a
sional sentiment that greater U.S. support was
continued emphasis on “Taiwan identity” may
needed for Taiwan’s defense needs, particu-
lead to ethnic polarization and conflict.
larly given the PRC’s military build-up in
Others are concerned about the implications
southern China. Members undertook a num-
that these trends have for a possible
ber of bipartisan initiatives to focus more U.S.
declaration of Taiwan independence, which
attention on Taiwan and raise its international
Beijing has vowed to “pay any price” to
stature. These included House establishment
prevent. In recent months, political
of the Congressional Taiwan Caucus in 2002,
developments in Taiwan appear to be causing
and Senate establishment of the Senate Tai-
the Bush Administration to dial back its
wan Caucus in 2003.
earlier enthusiasm for supporting Taiwan.
U.S. officials now appear to be balancing
But President Bush’s first term has been
criticisms of the PRC military buildup
a time of increasing complexity and unpredict-
opposite Taiwan with periodic cautions and
ability in Taiwan’s political environment.
warnings to the effect that U.S. support for
Since 2000, the long-ruling Nationalist Party
Taiwan is not unconditional, but has limits.
(KMT) has been handed a series of stunning
This issue brief tracking the situation in Tai-
defeats, most recently losing the presidential
wan will be updated as events warrant.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
May 16, 2005 — At the annual meeting for the World Health Organization, 33 countries
objected to putting the issue of Taiwan’s observer status in WHO on the agenda. Fiji and
Papua New Guinea, who do not have relations with Taiwan, spoke in its favor.
May 14, 2005 — The DPP won the largest block of seats in elections for Taiwan’s 300-
member National Assembly, charged with considering proposed constitutional amendments.
May 5, 2005 — PFP opposition party Chairman James Soong departed for a week-long
visit to China.
April 26, 2005 — KMT opposition party Chairman Lien Chan left for an eight-day
“peace journey” to China. It was the first time the leaders of the CCP and KMT met since
World War II.
March 14, 2005 — China’s NPC enacted an anti-secession law aimed at reining in
Taiwan’s independence advocates. U.S. officials called the law “unhelpful.”
BACKGROUND AND ANALYSIS
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 on mainland China. But while the allied victory over Japan
and Germany meant the end of conflict for much of the world, it did not mean the end of
conflict in China. For the Chinese government, it meant the resumption of a civil war against
rebelling Chinese communist forces led by Mao Zedong. By October 1949, Mao’s forces
had pushed the Nationalist Army off the mainland, and the remnants of Chiang’s government
fled to Taiwan, an island off the south China coast. While on the mainland, the Chinese
Communist Party declared victory and established the People’s Republic of China (PRC);
Chiang’s ROC government on Taiwan insisted that the communist government in Beijing
was not credible, that the ROC government was the only legitimate government of all China,
and that ROC forces would regroup on Taiwan and one day retake the mainland. 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
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communiqué 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
is but one China, and Taiwan is part of China. (See CRS Report 96-246, Taiwan: Texts of
the Taiwan Relations Act, the U.S. - China Communiques, and the ‘Six Assurances.’) 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,
with U.S. markets receiving about 25% of Taiwan’s exports. 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.
Basis for U.S. Defense Commitments to Taiwan
U.S. arms sales to Taiwan began as part of the U.S. policy approach of “strategic
ambiguity” 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 Washington 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 that also mandated the continued U.S. sale of defense weapons and
equipment to Taiwan. Although it is a common American view that the TRA clearly
mandates the United States to defend Taiwan in case of attack, that is not the case. Section
2(a) of the TRA states that any use of intimidation or force to settle the Taiwan question will
be “of grave concern to the United States” and further states that U.S. policy is to “maintain
the capacity of the United States to resist...coercion” in addressing the Taiwan issue. The
nature of U.S. defense commitments and arms sales to Taiwan is defined in Section 3 of the
TRA, and it is notably nonspecific about U.S. defense commitments. Section 3 merely calls
for the United States to sell to Taiwan “such defense articles and services...as may be
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necessary to enable Taiwan to maintain a sufficient self-defense capability” and gives
Congress a role in determining what needs Taiwan may have. Although satisfied with the
U.S. position on Taiwan independence after normalization, the PRC objected strenuously to
continued U.S. arms sales to Taiwan. On August 17, 1982, a U.S.-PRC joint communiqué
addressed this point. In that communiqué, the PRC maintained 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.
Although “strategic ambiguity” toward Taiwan remained the basis of U.S. policy
throughout the rest of the 20th century, several controversies late in the century raised
questions about the nature of U.S. commitments. The Administration of President George
H.W. Bush in 1992 approved the sale of 150 F-16 aircraft to Taiwan, a decision that PRC
officials charged was clearly beyond the limits suggested by the arms sale communiqué of
1982. During the PRC’s aggressive live-fire missile exercises off the Taiwan coast in 1995-
1996, the Administration of President William Clinton responded by sending two U.S.
carrier battle groups to the area. And in April 2001, the current Administration of President
George W. Bush approved the second-largest U.S. weapons sale package to Taiwan,
including four Kidd-class destroyers, twelve anti-submarine P-3 “Orion” aircraft, and eight
diesel submarines.
Key Current Issues in Taiwan
PRC Anti-Secession Law
On March 14, 2005, the PRC’s National People’s Congress (NPC) officially adopted
a ten-article “anti-secession law” aimed at reining in Taiwan independence advocates. Even
before its contents were known, American observers and U.S. officials termed the initiative
counterproductive, particularly given improvements in a range of Taiwan-China contacts
since December 2004. Many fear that the anti-secession law could significantly raise
tensions across the Taiwan strait and increase the possibility of conflict. Critics also fear the
law could be used to harass independence advocates in Taiwan by, for example, labeling
them “criminals” and demanding their extradition from third countries. While much of the
new law speaks of conciliatory measures — such as encouraging cross-strait economic and
cultural exchanges and resumption of direct trade, air, and mail links — Article 8 of the new
law specifically authorizes the use of “non-peaceful means” to reunify Taiwan with China.
According to Article 8:
In the event that the “Taiwan independence” secessionist forces should act under any
name or by any means to cause the fact of Taiwan’s secession from China, or that major
incidents entailing Taiwan’s secession from China should occur, or that possibilities for
a peaceful reunification should be completely exhausted, the state shall employ non-
peaceful means and other necessary measures to protect China’s sovereignty and
territorial integrity.
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Taiwan authorities denounced the enactment of the law, saying that for the moment they
would suspend further talks with Beijing on holding direct-charter cargo and holiday
passenger flights between the two sides. On March 16, 2005, President Chen made his first
public statement about the law, saying it would have a “severe impact” on cross-strait
relations. Chen called for “a million people” to march on March 26, 2005, in protest to the
law.
Opposition Party Visits to China
PRC officials also have sought to increase pressure on the Chen government by inviting
Taiwan’s two key opposition leaders to visit China and meet with PRC President Hu Jintao
in Beijing. Both Taiwan’s Nationalist Party (KMT) chairman Lien Chan and People First
Party (PFP) chairman James Soong accepted these invitations, making eight-day visits to
China in April and May 2005. While some view the visits as a positive development for
Taiwan-PRC relations, others see them as Beijing’s effort to exploit Taiwan’s internal
political divisions and further isolate President Chen.1 Some critics have accused Lien and
Soong of helping the PRC to more successfully “sell” to the world its claim that the
intentions of its March anti-secession law are peaceful.2 U.S. officials have warned Beijing
against using the Lien-Soong visits to drive a wedge between Taiwan’s political parties, and
have stressed that Beijing should be talking to President Chen and the elected Taiwan
government.
National Assembly Elections, May 14, 2005
Despite the political momentum it lost by the Lien-Soong visits, the DPP appeared to
revive on May 14, 2005, when it won the largest number (127) of the 300 seats in Taiwan’s
National Assembly elections. The KMT trailed slightly with 117 seats. But cautious
observers point out that the record low turnout for the elections — only 23% — can hardly
serve as a litmus test of Taiwan political opinion on the DPP’s performance or the Lien-
Soong visits. The 300-member National Assembly itself is an antiquated body tasked with
considering constitutional changes. But its scheduled current and final purpose is
problematic to Beijing. At a session to be convened on May 30, 2005, the Assembly’s sole
remaining responsibility is to consider a number of proposed constitutional amendments,
including one that would end its own existence and approve a public referenda mechanism
for future constitutional changes. Beijing objects strongly to this amendment, fearing that
Taiwan will one day hold a referendum on independence. Taiwan supporters of the
constitutional amendments won 80% of the National Assembly seats on May 14.3
1 “It’s classic divide-and-conquer strategy: Assemble the most allies possible and isolate your
enemy.” Jean-Philippe Beja, senior fellow at the Center for International Studies and Research in
Paris. Cited in Magnier, Mark and Tsai Ting-I, “China tries new tactic with Taiwan,” Los Angeles
Times, April 29, 2005, p. A-3.
2 According to Shen Dingli, a PRC foreign policy expert at Shanghai’s Fudan University, “These
invitations for Taiwanese to visit help China regain the international high ground in cross-strait
matters. And it deflects international focus from the anti-secession law.” Ibid, Los Angeles Times,
April 29, 2005.
3 Dean, Jason, “Taiwan’s Chen Declares Victory...” Asian Wall Street Journal, May 16, 2005, p. 2.
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Political Liberalization
Under the strongly authoritarian rule of the KMT, Taiwan’s political decisions from
1949 to 1979 were predictable, closely aligned with U.S. interests, and dependent largely on
U.S. support. But several decades of political reforms have made Taiwan politics today both
more democratic and more nationalistic — and hence have complicated matters for U.S.
policymakers. The KMT first permitted opposition parties in 1986, allowing the birth of the
current ruling party, the Democratic Progressive Party, or DPP. The government also ended
martial law (in 1987), and opened government positions to native “Taiwanese” — the 85%
of the island’s population who predated the influx of the two million “mainlanders” fleeing
communist forces. Members of Taiwan’s legislature, elected on mainland China over 40
years earlier, were asked to retire and were replaced by a new elected legislature in 1992.
In 1996, Taiwan held its first direct election for president, which was won by KMT leader
Lee Teng-hui, himself a native Taiwanese. During his presidency, Lee increasingly
distanced himself from his party’s traditional position — a position on which U.S. policy was
based — holding that there was only “one China” and that Taiwan was part of it. Ultimately,
entrenched corruption within the KMT and ideological differences over the direction
President Lee was taking caused a deep political fracture within the party which abruptly
ended its political dominance. The primary beneficiary of this KMT fracture was the DPP,
a party strongly associated with support for Taiwan independence.
End of KMT Dominance — 2000-2001. The uninterrupted KMT dynasty on
Taiwan finally was broken on March 18, 2000, when DPP candidate Chen Shui-bian won
the presidency with only 39% of the popular vote. The victory, a stunning defeat for the
KMT and its unbroken 50-year tenure, was facilitated by the fracture that split Chen’s
opposition vote between two “KMT” candidates: KMT sitting vice-president Lien Chan
(who came in a distant third), and former senior KMT official James Soong, who ran as an
independent. Eighteen months later, in December 2001, legislative elections dealt the
struggling KMT a second unprecedented blow, cutting its 115 seats in the 225-member body
to only 68, while increasing President Chen’s DPP party seats from 66 to 87. Still, the
former ruling KMT managed to remain part of an effective though slender legislative
majority by cobbling together a working coalition from its own remnants: the remaining 68
KMT members and the 46 elected members of the newly formed People First Party (PFP),
headed by James Soong. Since early 2002, the KMT/PFP legislative coalition has been able
to block or modify most of President Chen’s and the DPP’s legislative initiatives, leading to
significant political gridlock. With this legislative-executive split in government, political
stalemate and infighting has continued to characterize Taiwan’s political scene.
2004 Election Cycles
March 20th Presidential Election and Referendum. In a real sense, Taiwan’s
2000 presidential election was replayed in the March 20, 2004 presidential election. DPP
candidate and incumbent Chen Shui-bian ran for a second term, while his two opponents in
the 2000 election — KMT head Lien Chan and PFP head James Soong — joined forces this
time on a single ticket to oppose him. After a highly contentious campaign in a race judged
too close to call by its end, the incumbent was certified the winner by an extremely slender
margin and under three unusual last-minute circumstances. The day before the elections,
while campaigning in an open-roofed car in his hometown of Tainan, President Chen and his
running mate, Annette Lu, were shot and slightly wounded by one or more unknown
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assailants. As a result of the shooting, President Chen invoked a national security protocol,
placing 200,000 military and police personnel on emergency duty status. Finally, after the
polls closed, Taiwan’s Central Election Commission declared that 337,297 of the votes cast
on March 20 were invalid, reportedly due to uncertainties about whether polling places had
followed consistent standards in vote-counting. Out of a reported total of 13.25 million votes
cast, the DPP ticket won by only 29,518 votes.
Along with the presidential elections, Taiwan also held a controversial and precedent-
setting referendum on March 20, 2004, posing two questions to the electorate: whether
Taiwan should acquire more advanced anti-missile weapons if the PRC refused to withdraw
the missiles it has deployed opposite Taiwan; and whether the Taiwan government should
engage in negotiations with the PRC concerning a “peace and stability” framework for cross-
strait interactions. The PRC has adamantly opposed the idea of a Taiwan referendum,
believing it could set a precedent for holding an islandwide vote on Taiwan independence.
Some observers, then, were concerned that passage of the March 20 measures would trigger
PRC retaliation. But the referendum failed when only about 40% of the Taiwan electorate
participated in the vote, a rate insufficient to meet the 50% requirement for passage under
Taiwan law. As the referendum had been a Chen Shui-bian initiative, its failure to pass was
regarded as a defeat for the DPP government and a public rejection of government actions
that could threaten the political status quo across the Taiwan Strait.
Vote Recount and Other Challenges. The KMT immediately challenged the
March 20, 2004 election results as suspicious and unfair and called for a recount, saying that
the DPP victory had been “achieved under layer upon layer of suspicion.”4 The KMT
objected strongly to the high number of ballots judged invalid and also voiced suspicion
about whether the shooting attempt on Chen was real or staged. Finally, the KMT raised
questions about President Chen’s state of emergency declaration, which it claimed prevented
the 200,000 mobilized military and police officers — presumed KMT supporters — from
getting to the polls to vote. Tensions grew for several weeks in the aftermath of the
elections, with opponents of outcome holding several large protests and rallies, some of
which were marred by violence.
On April 12, 2004, both parties finally agreed to details surrounding an islandwide
recount, which began on May 10 and ended on May 18, 2004, having uncovered 40,000
disputed ballots. Some news accounts reported that 23,000 of the disputed ballots were votes
for Mr. Chen and 16,000 were votes for the opposition, which if true would make it very
unlikely that Chen’s victory will be overturned.5 But in a press conference in Taipei, a KMT
spokesman said that the recount had “all but erased” Chen’s slender margin, and that the
party was hopeful that it would upset the incumbent.6 On November 4, 2004, the High Court
ruled against the KMT petition to nullify the election result and rejected the KMT claim that
the assassination attempt had distorted the election result. On December 30, 2004, the High
Court rejected a second KMT lawsuit to nullify the election; KMT operatives have said they
4 Quote attributed to KMT candidate Lien Chan, in Keith Bradsher and Joseph Kahn, “Taiwan
Leader Wins re-election; Tally Is Disputed,” New York Times, Mar. 21, 2004.
5 “Taiwan Vote Recount Ends,” BBC News, World Edition, May 18, 2004.
6 Statement of KMT secretary-general Lin Feng-cheng, “KMT Hopeful for Upsetting President
Chen’s Reelection,” KMT-International Center, May 18, 2004.
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will appeal. (For further details about the election and its aftermath, see CRS Report
RS21770, Taiwan in 2004: Elections, Referenda, and Other Democratic Challenges.)
December 11th Legislative Elections. Coming off their recent presidential and
local election victories, DPP and TSU leaders projected that in legislative elections on
December 11, 2004, their parties would make substantial gains that would give them
unprecedented legislative control and allow them to pursue policies anathema to Beijing.
Gaining legislative control, said Chen at a campaign rally, would allow him to “build Taiwan
into a normal, complete, progressive, beautiful and great country.”7 But in what was clearly
a shock to DPP/TSU party leaders, the opposition KMT not only retained legislative control,
but increased its margin slightly over the DPP. When Taiwan’s Legislative Yuan is seated
in February 2005, then, the opposition KMT coalition will have 114 members and the DPP
coalition 101 members, with the remaining 10 seats in the 225-member body held by
independents. DPP moderates blamed the loss on President Chen’s “radically pro-
independent” campaign rhetoric, and in a bow to this criticism, Chen resigned as DPP party
chairman on December 15, 2004.8 Observers of Taiwan’s political scene suggest that the
electoral rebuke by voters will force Chen to move to a more centrist position for his second
and final presidential term. Some have also suggested that the continuation of divided
government in Taiwan will mean continued policy gridlock and political infighting.
New Political Trends
The constraints that may now be on the DPP as a result of its December 11, 2004
legislative defeat may affect several recent political trends in Taiwan that many observers
have found growing cause for concern. These trends, should they continue, could further
complicate an already difficult U.S. policy problem and could increase the danger of conflict
in the Taiwan Strait during the next few years.
Growing Political Polarization. Many observers of Taiwan’s political scene have
been particularly concerned about what they see as the growing polarization of the Taiwan
polity between “mainlanders” — those PRC natives who came to Taiwan fleeing Mao’s
communist forces in 1949 — and the “native Taiwanese” whose habitation of the island pre-
dates the mainlander arrival. In recent years, the ruling DPP/TSU coalition often has been
able to seize the political initiative by emphasizing that Taiwan is in the process of achieving
a “new Taiwan identity” with “new core values” that are very different from those of the
past. The DPP further accelerated this trend during the 2004 presidential election campaign,
when “Love Taiwan” became one of the party’s principle campaign slogans. The inference
many took away with them from this slogan was that if you embraced the “Republic of
China” (Taiwan’s formal name), espoused a “one-China policy,” or favored “engagement”
with the PRC — all traditional KMT platforms — then you did not love Taiwan. Some
mainlanders and KMT members saw the slogan as an attempt to raise questions about their
political legitimacy, and many saw it as a potentially dangerous provocation to China that
could end in military conflict. International observers, and at least one member of the DPP
7 Jason Dean,”Taiwan Vote Is All About China — Results May Bolster Chen’s Push for Island’s
Separate Identity,” Asian Wall St. Journal, Dec. 7, 2004.
8 Katherine Hille, “Taiwan’s President Promises to End Political Infighting,” Financial Times, Dec.
15, 2004.
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itself, counseled DPP officials to drop the “Love Taiwan” campaign to avoid creating
divisiveness or further inflaming islander-mainlander tensions.9 Some have interpreted the
DPP defeat in legislative elections as a firm rejection of these tactics. They believe that the
DPP will need to pursue a less inflammatory approach if it is to regain public support.
Reassessing “One China”. Observers are also concerned about what appears to
be the rapid fading away of the “one-China” policy in Taiwan — the premise that there is
only one China and that both mainland China and Taiwan are part of it.10 For 50 years, the
governments of Taiwan and the PRC have embraced this symbolic political framework, and
U.S. policymakers for decades have made reference to it in documents and statements. In
1999, president Lee Teng-hui, then head of a united KMT party, proposed a “two-state”
framework for holding cross-strait negotiations. This proposal helped fracture the KMT
party, raised Beijing’s ire, and ended cross-strait dialogue. But the “one China” formulation
appeared to unravel during the 2004 presidential and legislative campaigns. President Chen
Shui-bian began to depart significantly from precedent late in 2003 by referring openly and
frequently to a sovereign Taiwan. In a February 2004 interview with Time magazine, Chen
said “Taiwan is an independent, sovereign country” that “must reject the ‘one-China’ claim.”
Days before the December 2004 legislative elections, Chen continued with this theme by
pledging to remove “China” and substitute “Taiwan” in the official names of Taiwan’s state-
owned enterprises, embassies, and representative offices overseas. On May 13, 2005, the
PRC’s Hu Jintao revealed a new version of the “one China” framework, describing it as “two
sides of the strait, one China.” President Chen Shui-bian said that the formula offered
nothing new.

Taiwan-Mainland Relations
Since Taiwan relaxed restrictions on travel to the mainland in 1987, succeeding
governments incrementally have 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. Further progress stalled
in 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.
Cross-Strait Developments in the Chen Administration. Although Beijing has
adamantly opposed the DPP and its pro-independence statements, early in Chen’s first term
both the PRC and Taiwan governments made selected overtures and statements that some
interpreted as positive signs in PRC-Taiwan relations. In January 2001, Taiwan launched
9 One DPP lawmaker, Shen Fu-hsiung, suggested to the party’s central decision-making body that
it drop the “Love Taiwan” campaign. “Shen Draws Heat from DPP over ‘Love Taiwan’ Criticism,”
China Post, Apr. 19, 2004.
10 Richard Halloran, “‘One China’ Principle Is All but Dead,”Japan Times, Apr. 7, 2004.
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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. In October 2001, Taiwan officials announced they would simplify visa application
procedures for professionals from the PRC, making it easier for them to reside 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.
The PRC also appeared to soften its position. 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” — a change in the PRC’s policy of not meeting with DPP members. 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. Even
so, the PRC continued to increase its missile build-up along the south China coast opposite
Taiwan, now deploying close to 500 missiles.
In the lead-up to and aftermath of the March 2004 Taiwan presidential elections, cross-
strait tensions increased. On September 1, 2003, for instance, Taiwan authorities added the
words “Issued in Taiwan” to Taiwan passports, reportedly to avoid confusion between the
PRC and Taiwan. A seemingly innocuous change, the decision appealed to Taiwan
nationalists and irritated Beijing, which responded by saying that the move demonstrated
Taiwan was “inching toward independence.” In December 2003, as the Taiwan referendum
debate heated up, PRC officials publicly warned Taiwan that further moves toward
independence could result in a PRC military response. But as has happened in the past,
tensions appear to have eased in the election’s aftermath. On January 29, 2005, for instance,
Taiwan and the PRC launched the first non-stop direct charter flights flown in 55 years
between the two adversaries. While temporary (the flights were scheduled only to reunite
families and friends during the weeks surrounding the Lunar New Year holiday on February
9, 2005), the direct-flight breakthrough suggests that further momentum might be possible.
With the PRC’s enactment of the anti-secession law, Taiwan officials now have put a hold
on further direct-flight talks.
Private-Sector Exchanges. Meanwhile, 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.
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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. During the first years
of the 21st century, however, the Taiwan economy experienced a serious slowdown. GDP
growth for 2001 contracted by 2.2% — 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 blamed these 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.
Even with the official restrictions that Taiwan continues to maintain on investment and
trade with mainland China, Taiwan businesses are increasingly invested across the strait,
although the exact figures remain unclear. Taiwan-China trade has also increased
dramatically over the past decade, so that China (along with Hong Kong) now has surpassed
the United States as Taiwan’s most important trading partner. According to one report,
statistics show Taiwan’s total bilateral trade with the PRC rose to $61.64 billion in 2004 —
a 33.1% increase over 2003.11
This increasing economic interconnectedness with the PRC has put special pressure on
Taiwan’s DPP government to further accommodate the Taiwan business community by
easing restrictions on direct travel and investment to the PRC. But such accommodations are
worrisome to the DPP’s pro-independence political base in Taiwan, who believe that further
economic ties to the mainland will erode Taiwan’s autonomy and lead to a “hollowing out”
of Taiwan’s industrial base.12 Thus, each Taiwan decision on economic links with the PRC
represents an uneasy political compromise.
Taiwan’s World Trade Organization (WTO) Accession. After a 12-year
application process, Taiwan 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 on December 12, 2001, following 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.
11 According to the Foreign Board of Trade, cited by Agence-France Presse in Taiwan News online,
March 3, 2005, [http://www.etaiwannews.com]. See also CRS Report RL31749, Foreign Direct
Investment in China, by Dick Nanto and Radha Sinha.
12 For instance, there are reportedly 300,000 Taiwan citizens now living and working in Shanghai.
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SARS, Avian Flu, and WHO Observer Status
Taiwan did not escape the outbreak of new viruses that have swept Asia since 2002.
By late May 2003, Taiwan reported 585 probable cases of Severe Acute Respiratory
Syndrome, or SARS — which first surfaced in southern China in November 2002 — placing
it behind China and Hong Kong for the greatest number of cases. Taiwan also was affected
by avian flu outbreaks in 2004, although apparently with a less virulent strain than that
ravaging bird populations and causing some human fatalities throughout Asia.
Because Taiwan is not a member of WHO (the World Health Organization), the SARS
and avian flu outbreaks had broader political ramifications for Taiwan’s international
position and for China-Taiwan relations. The PRC has objected strenuously to any WHO
representation by Taiwan, claiming that as Taiwan is part of China, it can access WHO’s
services through the PRC government. Even as the SARS crisis was underway, PRC leaders
continued vigorously to block any international effort to give Taiwan unofficial “observer”
status in the WHO.13 PRC authorities did consent to a WHO team visit to Taiwan to
investigate SARS early in May 2003, and Taiwan scientists attended a two-day WHO SARS
conference in Kuala Lumpur on June 17-18, 2003. But generally, the PRC insisted that any
Taiwan health official wishing to take advantage of WHO’s medical expertise should do so
only as part of a PRC delegation.
Taiwan authorities, in a view supported by many Members of the U.S. Congress, used
the SARS crisis to press their argument that the rapid spread and consequences of emerging
communicable diseases demonstrate why WHO observer status is essential for Taiwan. But
the argument has been to no avail; Taiwan again failed to gain observer status when 33
countries objected to considering the issue on May 16, 2005, at the annual meeting of the
World Health Assembly (WHA), WHO’s decision-making body.
Policy Trends in the George W. Bush Administration
When it first assumed office, the Bush Administration articulated policies in Asia that
were more supportive of Taiwan and less solicitous of engagement with China than those of
previous U.S. Administrations. More recently, however, Administration officials are seen
to be placing caveats on U.S. support for Taiwan while at the same time fielding a more
cordial policy toward the PRC.
Initial Tilt Toward Taiwan. Many observers concluded in 2001 that the newly
elected George W. Bush had abandoned the long-standing U.S. policy of “strategic
ambiguity” in favor of “strategic clarity” that placed a clearer emphasis on Taiwan’s interests
and showed less concern for PRC views. In addition to approving a major arms sales
package for Taiwan, in an ABC television interview on April 25, 2001, President Bush
responded to a question about what Washington would do if Taiwan were attacked by saying
13 On May 14, 2003, WHO began a ten-day meeting of its General Assembly in Geneva, at which
the United States was prepared to support Taiwan’s bid — its seventh such attempt — to gain WHO
observer status. Because of PRC opposition, WHO member countries elected not to place the matter
of Taiwan’s participation on the meeting’s agenda.
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that the United States would do “Whatever it took to help Taiwan defend herself.” Since
Section 3 of the Taiwan Relations Act (TRA) addresses only 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 in the following months continued to appear more supportive of Taiwan than those
of previous U.S. Administrations.
The Bush Administration’s support for Taiwan was in keeping with growing sentiment
in Congress in the late 1990s that the TRA was outdated and that Taiwan’s self-defense
capabilities had eroded while the PRC had grown militarily more capable and more hostile
to its smaller neighbor. These conclusions were supported by a congressionally mandated
annual report, first issued by the Pentagon in February 1999, assessing the military balance
in the Taiwan Strait. The 1999 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 damage the
island’s economic infrastructure.”
In addition to differences over security issues, the Administration also differed from its
predecessors in how it handled requests for U.S. visits by senior Taiwan officials. Whereas
earlier U.S. Administrations were either unwilling or forced by congressional pressure to
allow Taiwan officials to come to the United States, the Bush Administration was more
accommodating. The White House approved a transit stop for new Taiwan President Chen
Shui-bian in 2001 during which he visited both New York (previously off-limits) and
Houston, attended public functions and meetings, and met with nearly two-dozen Members
of Congress. Similar U.S. visits were approved for Taiwan’s Vice-President, Annette Lu,
(in early January 2002), and for Taiwan’s Defense Minister, Tang Yao-ming (March 2002),
who attended a defense conference in Florida and while there met with U.S. Deputy
Secretary of Defense Paul Wolfowitz and U.S. Assistant Secretary of State James Kelly. In
late October 2003, the Bush Administration accommodated President Chen with a higher-
profile transit visit to New York City — a visit that received wide press coverage in Taiwan.
Toward a Taiwan/PRC Balance. Since assuming office, however, the Bush
Administration has been reshaping its own policy articulations concerning both Taiwan and
the PRC. Administration officials now see smooth U.S.-PRC relations as an important tool
in cooperating against terrorism and maintaining stability on the Korean peninsula. As
articulated by Vice President Cheney during his visit to Shanghai in April 2004, the White
House judges that “the areas of agreement [between the United States and the PRC] are far
greater than those areas where we disagree...”14 By the same token, during Taiwan’s
presidential and legislative campaigns in 2004, the Administration continued to balance
14 From the Q & A session with Vice President Cheney following his speech at Fudan University in
Shanghai, broadcast by Beijing CCTV in English, found in FBIS, April 15, 2004.
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criticisms of the PRC military buildup opposite Taiwan with periodic cautions and warnings
to the Taiwan government, indicating that U.S. support for Taiwan is not unconditional.15
Problems over Arms Purchases. New difficulties also have arisen in recent years
in the U.S.-Taiwan arms sales relationship. Despite the Bush Administration’s stated support
for enhanced military cooperation with Taiwan and the U.S. decision in 2001 to approve a
major weapons sale package, no arms sales agreements have gone forward for several years.
(The first to do so surfaced on March 30, 2004, when the Pentagon notified Congress of its
intent to sell Taiwan long-range early warning radar systems worth $1.7 billion.) Taiwan’s
apparent inability to take advantage of proffered U.S. military support has become something
of an irritant in Taiwan-U.S. relations. In 2002, U.S. officials began to voice concerns over
what they described as weaknesses in Taiwan’s self-defense and a lagging pace to Taiwan’s
arms purchases. According to one DOD report, Taiwan’s self-defense deficiencies include
an “opaque military policymaking system; a ground force-centric orientation; and a
conservative military leadership culture.” (The full text of the 2003 DOD report can be found
at [http://www.defenselink.mil/pubs/20030730chinaex.pdf].) Some U.S. analysts attribute
the lack of progress on arms purchases to Taiwan’s depressed economy, which has reduced
the funds available for defense spending. Others cite Taiwan’s domestic political
environment, in which opposition Taiwan lawmakers have questioned both the overall
military budget and the details of specific weapons purchases, including their cost,
effectiveness, delivery dates, compatibility with Taiwan’s military, and whether Taiwan
companies can benefit or participate.
Implications for U.S. Policy
For much of the past twenty-five years, Taiwan and PRC officials generally maintained
that the United States should remain uninvolved in issues concerning Taiwan’s political
status. Since mid-2003, that appears to be changing, and U.S. officials have been under
subtle but increasing pressure from both governments to become directly involved in some
aspects of the issue. PRC officials late in 2003 began quietly urging the United States to
pressure Chen Shui-bian into shelving his referendum plans. In 2004, they have pressed U.S.
officials to avoid sending the “wrong signals” to Taiwan — defined as those encouraging
independence aspirations. Members of the Taiwan government have begun suggesting to
U.S. officials that the Taiwan Relations Act needs to be strengthened or re-evaluated. Chiou
I-jen, a key advisor to President Chen, made a low-profile visit to Washington in late April
reportedly to seek U.S. support for Chen’s constitutional reform plans.
Taiwan’s supporters within the U.S. Congress also continue to press for more favorable
U.S. treatment of Taiwan and for Taiwan’s inclusion in some capacity in international
organizations like the World Health Organization. Congressional policy initiatives have
included the formation of the Congressional Taiwan Caucus on April 9, 2002, and the
formation of the Senate Taiwan Caucus on September 17, 2003. Both of these bodies have
15 “There are limitations with respect to what the United States will support as Taiwan considers
possible changes to its constitution.” Testimony of Assistant Secretary of State James A. Kelly
before the House International Relations Committee, April 21, 2004.
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strongly bipartisan memberships. The 108th Congress also is actively considering legislative
measures seeking to reinforce or expand on U.S.-Taiwan ties. (See Legislation below.)
Faced with these competing pressures and with continuing transformations in both the
PRC and Taiwan systems, U.S. officials may be facing new and more difficult policy choices
concerning Taiwan in the next few years. In addition to raising the risks of political and
economic instability, growing political polarization in Taiwan could erode the quality of
U.S.-Taiwan contacts and create fractures and divisiveness within the sizeable U.S. Chinese-
American community. Pressure from multiple sources could continue to build for U.S.
officials to take any number of actions: to reassess all the fundamentals of U.S.
China/Taiwan policy in light of changing circumstances; to reinforce American democratic
values by providing greater support for Taiwan and possibly support for Taiwan
independence; or to abandon Taiwan in favor of the geopolitical demands and benefits of
close U.S.-China relations. U.S. officials could face increasing pressure to abandon the
traditional “noninvolvement” U.S. approach and instead adopt a mediating role in the cross-
strait relationship. Finally, any policy developments that affect Taiwan have direct
consequences for U.S.-China relations and could involve crucial decisions among U.S.
officials about the extent of U.S. support for Taiwan’s security. In the coming two years, it
appears that actors from across the political spectrum — including governments, interest
groups, political parties, and individuals — will continue efforts to push the United States
into greater commitments and clarity on various questions involving Taiwan.
LEGISLATION
H.Con.Res. 76 (Miller)
Expressing the sense of Congress that the United States should strongly oppose China’s
anti-secession law with respect to Taiwan. Introduced on February 17, 2005, and referred
to the House Committee on International Relations.
H.Con.Res. 98 (Hyde)
Expressing the “grave concern” of Congress about China’s passage of an anti-secession
law aimed at Taiwan. Introduced March 15, 2005. The measure passed on March 16, 2005,
by a vote of 424-4.
CHRONOLOGY
05/16/05 — At the annual meeting for the World Health Organization (WHO), 33
countries objected to putting the issue of Taiwan’s observer status on the
agenda.
05/14/04 — The DPP won the largest block of seats in elections for Taiwan’s 300-
member National Assembly, charged with considering proposed
constitutional amendments.
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05/05/05 —
PFP Chairman James Soong departed for a week-long visit to China.
04/26/05 —
KMT Chairman Lien Chan left for an eight-day “peace journey” to China. It
was the first time the leaders of the CCP and KMT met since World War II.
03/17/05 —
Taiwan’s cabinet approved a $15.5 billion reduced special defense budget to
purchase weapons from the United States. The original budget of $18.2
billion had been criticized as too high by opposition legislators.
03/16/05 —
The House of Representatives passed H.Con.Res. 98, a measure expressing
Congress’ “grave concern” about China’s passage of the anti-secession law.
The measure passed by a vote of 424-4.
03/14/05 — The National People’s Congress (NPC) enacted an anti-secession law
authorizing “non-peaceful” means to resolve the Taiwan question.
02/24/05 — In their first meeting in five years, Taiwan’s President Chen and PFP
opposition leader James Soong agreed to relax restrictions on business ties
with China and to cooperate to improve cross-strait ties.
01/02/05 —
Taiwan’s chief negotiator with the PRC, Koo Chen-fu, died at age 87. The
last official cross-strait talks in which Koo participated were in 1993.
12/27/04 — The PRC published a white paper, “China’s National Defense in 2004,”
calling Taiwan’s independence advocates the “biggest immediate threat to
China’s sovereignty and territorial integrity.”
12/15/04 —
President Chen resigned as chairman of the DPP, bowing to criticism that his
policies had caused the DPP’s defeat in legislative elections.
12/11/04 —
Legislative elections gave the opposition KMT 114 seats, the DPP 101 seats,
and independents 10, assuring continued KMT legislative control.
10/25/04 —
Speaking in Beijing, Secretary of State Colin Powell said that Taiwan was
not a sovereign country and that the United States supported Taiwan’s
peaceful reunification with mainland China.
05/20/04 —
Congress passed legislation making permanent a requirement that the United
States annually seek and obtain observer status for Taiwan at the annual
Geneva meeting for the World Health Organization.
04/15/04 —
In response to a question about Taiwan during a speech at the PRC’s Fudan
University, Vice President Cheney stated, “We oppose unilateral efforts on
either side to try to alter the current set of circumstances...”
04/11/04 — Taiwan named Mark Chen Tan-sun, a former independence activist and
former president of the World Federation of Taiwanese Associations, to
replace Eugene Chien as Foreign Minister.
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04/07/04 —
Theresa Shaheen, director of the American Institute in Taiwan (the unofficial
office managing U.S. relations with Taiwan) resigned unexpectedly amid
speculation that she was considered to be too sympathetic to Taiwan.
03/20/04 —
Chen Shui-bian was re-elected as Taiwan’s president by 29,518 votes out of
13.25 million cast. The KMT opposition challenged the results.
03/19/04 —
Taiwan’s president, Chen Shui-bian, and his running mate, Annette Lu, were
shot and slightly wounded while campaigning in Tainan, Chen’s home town.
12/09/03 —
In the company of PRC Premier Wen Jiabao, President Bush publicly warned
“the leader of Taiwan” not to take provocative political actions.
FOR ADDITIONAL READING
CRS Report RS21770: Taiwan in 2004: Elections, Referenda, and Other Democratic
Challenges, by Kerry Dumbaugh.
CRS Report RL30957. Taiwan: Major U.S. Arms Sales Since 1990, by Shirley Kan.
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