The Belgrade embassy bombing notwithstanding, the statement of Taiwan's President Lee Teng-hui that Taipei-Beijing dialog should be considered a state-to-state discussion, not talks between a central government and its renegade province, may be the most historically significant event of the season.

Already, rising tensions sparked by that remark seem to have had an impact on the U.S. corporate community: There are reports that Taiwan's airline has decided to cancel a major aircraft purchase from Boeing -- a prominent U.S. company -- to display pique with Washington.As regrettable as these actions may be, President Lee makes a valid point, one that the U.S. government and the U.S. business community would be wise to recognize.The current controversy goes back to the "one-China" policy, which has defined the triangle throughout the Cold War. The essence of this policy is that there is but one China and Taiwan is part of it. From the beginning, this seemed more a semantic game than a true policy.The reality was always that this tortured phrase concealed deep disagreement. With the end of the Cold War and the emergence of a truly democratic government in Taiwan that no longer laid claim to the mainland, the days of one China were numbered.Some in Beijing and Washington tried to keep the fiction alive with the notion that Taiwan would someday rejoin the mainland in some kind of confederation. With pressure from the United States, Taipei was willing to contemplate the possibility that at some distant point mainland China would become a democracy. Tiananmen Square and subsequent events, however, emphasize that the democratic transformation of the mainland is still far away.Lee's remarks doubtlessly are driven, in part, by the coming election in Taiwan. But they also reflect the understandable resentment at living a fiction made necessary by the demands of a totalitarian regime.As a major architect of the one-China policy, the United States could not realistically hope to avoid the controversy sparked by the Lee statement. Some in Taiwan have for some time criticized the Clinton administration for tilting too far toward Beijing. At times, the evidence of this tilt was scant, but the decision to dispatch diplomats to Taiwan to get Lee to retract his statement was seen as a definitive tilt.Although neither Taiwan's airline nor the Taipei government made a formal statement, the airline has reportedly canceled a $1.5 billion order from Boeing. Apparently, it now plans to buy from Europe's Airbus. Signals have not been clear in this instance; Taiwan also recently made a major purchase from Boeing. Reportedly, however, the decision to go with Airbus on this $1.5 billion order was influenced by consternation over recent U.S. actions.If true, it is impossible not to be sympathetic of the plight of Boeing and its workers. At times, they have also been Beijing's whipping boy when the People's Republic of China wanted to express its dissatisfaction with Washington's actions.But Boeing has made itself a target by being a vocal advocate for Beijing in Washington. Boeing and many other large U.S. companies have aggressively lobbied on Beijing's behalf each year for extension of trading privileges and a number of other matters.Hopefully, Taiwan will reconsider its decision, but this demonstrates that some U.S. companies may also have tilted too far toward Beijing -- at least from Taipei's perspective.No one wants to see a military conflict emerge between Taiwan and mainland China. Still, it is unreasonable to expect Taiwan to live with the myth that it is a renegade province forever. Taiwan is a prosperous land of 23 million people, with a population larger than Australia. It also is a full-fledged democracy, something that still appears a quite remote prospect for the mainland.Mr. Lee stated an inconvenient truth, but it is the truth nonetheless. For all practical purposes, Taiwan is a separate country from mainland China. As much as Beijing and some in Washington may want to ignore that truth, it cannot and should not be wished away.In the coming months and years, the U.S. government and U.S. companies will have to find a new balance between Taipei and Beijing. As inconvenient as that reality is, the old one-China policy just does not work anymore. All should take care not to make an enemy of Beijing, but they cannot be expected to ignore reality on its behalf.