Although unforeseen bumps in the road may be ahead, there seems to be a good chance that both China and Taiwan will become members of the World Trade Organization (WTO) this year. This will not be the first international organization to which both China and Taiwan belong, but it could be the most important in terms of facilitating the economic development of Taipei and Beijing and in creating a basis for a peaceful resolution of their longstanding conflict.

Most discussion of accession has focused upon the timing of the accession process, negotiations with other WTO members and some bilateral diplomatic elbows thrown between the two. These might make interesting daily news stories, but the media rarely comment on the far more important topic of the WTO's role in facilitating cross-strait relations.

It may seem that an organization primarily devoted to economic and trade issues would have little apparent ability to catalyze an improved relationship in other spheres, but trade and economics has been one of the few areas under which Taiwan-PRC ties have steadily grown in recent years. Beyond that, the WTO is more than a simple trade agreement. It covers a broad range of economic activities, including investment. The WTO also maintains a binding dispute settlement procedure under which by a neutral panel drawn from third countrie decide disputes over WTO rules that cannot be settled through consultations.

Despite the relative youth of the WTO, the basic principles of the world trading system remained largely unchanged over the last 50 years. Two of those principles that are relevant to this discussion are "most favored nation" or MFN treatment and "national treatment." Both of these principles have some recognized exceptions under the WTO, but MFN treatment essentially requires that trade benefits extended to one trading partner be extended to all, and national treatment requires foreign goods and companies to be treated no worse than domestic products and companies.

The WTO allows countries to recognize exceptions for specific other countries with which special issues exist; it also allows leeway for countries to vary from these principles in order to promote other objectives, such as national security. The United States has taken the latter approach to justify its efforts to halt trade with and investment in Cuba. In general, however, MFN treatment and national treatment are the cornerstones of the WTO.

In business together

Despite the historical tensions between Taiwan and the PRC, economic ties between the two are considerable. Because of various restrictions much of the trade and investment is indirect and flows through Hong Kong, making precise and reliable figures on trade and investment difficult to obtain. There also are some discrepancies between Taiwanese figures and mainland statistics. Nonetheless, the PRC and Taiwan undoubtedly share significant commerce.

According to PRC statistics, Taiwan is China's fifth largest trading partner; Taiwan's own figures also make China one of its largest trading partners. Since 1987, trade between the PRC and Taiwan has totaled $1.9 trillion, with Taiwan running a substantial trade surplus with the PRC. In 1998, almost 20% of Taiwan's exports and 4% of its imports were trade with the PRC. Trade across the Taiwan Straits continues to expand, growing at a better-than-7% annual clip in 1999.

This considerable commercial relationship seems to exist in spite of, not because of, the actions of the Taiwan and PRC governments. Despite talks on allowing more direct commerce, Taiwan still bans direct trade, mail and shipping between itself and the PRC. Taiwan has justified these restrictions by arguing that direct shipping and commerce might threaten its national security by allowing the mainland more opportunities to infiltrate, spy upon and perhaps even take military action against Taiwan. For its part, the PRC has called for the opening of direct links, but according to Taiwanese sources, has proposed directing shipping to little used ports.

Despite great enthusiasm on the part of the Taiwanese business community in investing in China, the Taiwanese government has been skeptical about too much investment in the mainland and have urged a policy of "no haste, be patient." Individual mainland investments have been limited to $50 million. The new Taiwanese president, Chen Shui-bian, may seek to liberalize some of these restrictions. Formally, Beijing has not discriminated against Taiwanese investment, but some complain that the limits on formal ties between Taipei and Beijing have limited the ability of Taiwanese investors to obtain protections afforded to investors from other countries.

The WTO and cross-strait commerce

On its face, WTO membership for both China and Taiwan would require each to treat the other no worse than other trading partners. National treatment and various other WTO provisions would open considerable access for Taiwanese companies in the mainland and vice versa. This would apply to some potentially sensitive industries on both sides of the straits, including banking, telecommunications and agriculture.

Most of Taiwan's current restrictions on direct trade and shipping would be difficult to reconcile with WTO requirements. As was debated in Taiwan's presidential election, WTO membership would substantially liberalize the so-called "three-links policy." In practice, this would move Taiwan's policy far in the direction that China has urged. Although trade flows are tied to many factors, WTO membership would likely result in a reduction of Taiwan's trade surplus with the China as its restrictions on trade with China are phased out.

Perhaps more importantly, the lowering and elimination of trade barriers that both would agree to as condition of their WTO membership would substantially increase the international trade opportunities for each in the other's market. Although WTO rules on investment are limited, present rules may also provide a basis for challenging some of the discriminatory policies of the other, and future WTO negotiations on investment may well extend the protections further.

One of the original purposes of the General Agreement on Tariffs and Trade, the predecessor to the WTO, was to expand trade and commerce in hopes that this would decrease the risks of future conflict. To date, expanded trade and investment certainly have not guaranteed a solution to PRC-Taiwan tensions, but they likely have been one stabilizing factor. In all likelihood, an expanded economic relationship would create a growing force on both sides in favor of stable, friendly ties that would likely affect policy in both Taiwan and China.

A strict reading of the situation based on the past positions of both sides would suggest that China would have more to gain than Taiwan from mutual membership in the WTO. But other factors could alter that conclusion. First, because both rely heavily on commerce with the rest of the world, Taiwan would have a great deal to gain by securing MFN treatment from all their other trading partners in the WTO and gaining a voice in setting future trading rules.

Second, Taiwan would likely enjoy some substantial political benefits from WTO membership. Membership would grant Taiwan a measure of international recognition, though not as a separate power. Perhaps most importantly, it would also provide a forum for communication with China. In the context of the WTO, China and Taiwan would essentially deal as equals with both enjoying the rights of WTO members. In the case of intractable disputes on the application of WTO rules, third-party dispute settlement would be available upon the request of either party. This would provide Taiwan a valuable and relatively stable channel for dealing with the mainland, at least on commercial issues. Given the frustration that Taiwan has expressed with maintaining a dialogue with the mainland on a more or less equal basis, this could be a significant benefit of mutual WTO membership.

Of course, actions by either side could upset this potentially positive outcome. For its part, despite commitments to allow Taiwan to join the WTO once it is a member, China could try to block Taiwan's membership. This also might be done indirectly, for instance, by trying to force Taiwan to accept a change in its name on its application for membership that would be unacceptable to Taiwan. As mentioned above, either side could also block the application of WTO rules with reference to the other by taking a general exception or arguing that the provisions could be exempted as a national-security exemption. Some Taiwanese officials have noted this as a possibility for defending the current restrictions on direct trade and investment.

For the good of the world

It seems at times that political gamesmanship and one-upmanship dominate Taiwanese-PRC relations. Doubtlessly, there are those in both Taipei and Beijing who would allow that confrontational relationship to continue in the context of the WTO. If that were to happen, both Beijing and Taipei stand to lose.

Mutual membership in the WTO is one of the few clear possibilities for a win-win relationship between Taiwan and China.

At times the disagreements between Taiwan and the PRC seem intractable. Periodically, the Taiwan Straits threaten to be the site of potentially destructive conflict that threatens all of Asia or even the entire world. By building economic ties and creating a permanent channel of communication, the WTO could be a positive force for addressing this seemingly insoluble conflict. Rather than threatening to use diplomatic maneuvers or WTO legal strategies to thwart the other, Taipei and Beijing should embrace mutual membership in the WTO for their own good and for the world's.