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Taiwan enters WTO with eye on China

club goers
Taiwan joined the WTO as the clock ticked over, but these partygoers in a Taipei club were just happy to welcome the new year  

By Alex Frew McMillan and wire reports

TAIPEI, Taiwan -- Taiwan officially joined the World Trade Organization on Tuesday, as clocks and calendars ticked over to 2002.

"This marks a significant milestone," Taiwanese President Chen Shui-bian said, who pledged greater cooperation with mainland China.

Joining the WTO marks the end to a 12-year quest for the island, the world's 14th largest trading economy.

It becomes the WTO's 144th member as the customs territory of "Chinese Taipei," following Beijing's wishes.

Taiwan calls itself the Republic of China. But China has done its best to restrict Taiwan's efforts to claim recognition as an independent country.

Per the fine print on its forms at the Geneva-based WTO, its full title is "the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu."

'Time of confrontation has long gone'

Chen hailed the newly won membership of both China and Taiwan and said he hoped the event would usher in benefits for both.

"Taiwan, Penghu, Kinmen and Matsu used to be the anti-communist fortress in the Cold War era, but the time of confrontation has long gone," Chen said, according to Reuters news agency.

"The Republic of China is willing to engage in constructive cooperation and play a more active role in the international community in the new century," he said.

China's nationalist government moved to Taiwan in 1949, after being ousted following defeat in a civil war with China's communists.

Chinese President Jiang Zemin said in October that continued American support for Taiwan was the biggest problem facing U.S.-Sino relations.

Experts say joining the group, which sets the rules for world trade, is first and foremost a political victory for Taiwan.

Doors open to overseas Chinese

China officially entered the WTO on December 11. Approval of its "accession" to the group came on November 10 - one day before trade ministers in Qatar approved Taiwan.

The approvals mean that both Taiwan and China will have to open their markets to the other WTO members. Because trade rules for one WTO member must be applied evenly to all, they have to drop once-tight restrictions on business links with each other.

Taiwan in November scrapped a cap on direct investment by Taiwanese companies looking to set up shop in the mainland. That is likely to speed up the relocation of factories from Taiwan to China, where labor costs and land are much cheaper.

On Tuesday, Taiwan opened its doors to Chinese tour groups for the first time in more than five decades. But the move is mainly symbolic - the offer is only open to Chinese citizens living overseas, with mainlanders still not allowed to travel to Taiwan as tourists.

On the economic front, WTO membership will almost certainly involve more pain for Taiwan, already suffering through its worst recession on record.

Jobless rate set to rise

Agriculture and financial services are expected to face the toughest time, with both industries having enjoyed substantial government protection in the past. But Taiwan's government has moved swiftly to bolster its banking sector, sparking merger mania in the industry.

Shoppers were hoarding rice wine, popular for cooking, as prices went to T$120 a bottle from T$21  

The Taiwan Institute of Economic Research expects Taiwan's jobless rate to rise up to 0.2 percent as changes in those industries put people out of work. It is already near a record, around 5.3 percent.

Rising joblessness forced antigovernment demonstrations in 2001, with some Taiwanese demanding closer links to booming China.

The two economies tell very different stories. Chip-driven Taiwan was the second-worst economy in Asia in 2001, expected to have shrunk around 2 percent.

On the flipside, China was the best-performing economy in Asia. China's gross domestic product rose 7.3 percent in 2001, according to preliminary official figures.

Morgan Stanley economist Andy Xie has argued that Taiwan faces a tough time in the years ahead, with its manufacturing needing to move to China to stay competitive but with little in the way of an advantage in services to compensate for the lost jobs.

WTO entry speeds up the need for wholesale changes in the way Taiwanese business works, Xie believes. It will likely lead to a "China shock" for Taiwan, as jobs, factories and investment capital move there, he wrote in a recent report.

"Before it can find a niche to focus on for long-term growth, we believe Taiwan will first have to survive the China shock," he wrote. "Unemployment will likely spike from current levels, and could stay high over the medium term."

Taiwan's stock market and most of its businesses are closed Tuesday, celebrating the start of the new year.

Reuters contributed to this report.


• Taiwan's WTO entry mixes bad with good
December 31, 2001
• China officially joins WTO
November 11, 2001
• Taiwan joins China in WTO
November 11, 2001
• Taiwan frees up business ties with China
May 31, 2001



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