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China

Taiwan sticks to its guns, to U.S. chagrin
STRATFOR's
Global Intelligence Update
July 14, 1999

Summary:

Taiwan has refused to back down from President Lee Teng-hui's declaration that the island was abandoning the ''One China'' concept, despite economic, political, and military threats from Beijing. However, Taiwan has yet to face the likely threats from the U.S., which is attempting to mend relations with Beijing and so does not appreciate being put in the middle of a new crisis.

Analysis:

Taiwan has refused to back down from President Lee Teng-hui's declaration that the island was abandoning the ''One China'' concept. Lee's abandonment of one ambiguous policy for a slightly less ambiguous but much more confrontational one - just a step short of a declaration of Taiwan's independence - has drawn threats from mainland China and subdued but substantial concern from the United States. On July 13, Lee reiterated Taiwan's new policy of national sovereignty. ''The Republic of China has always been a sovereign state, not a local government,'' Lee said to visiting Honduran Foreign Minister Roberto Flores Bermudez. And to emphasize Taiwan's newly declared sovereignty, the Taiwanese Foreign Ministry issued a statement on July 13 proclaiming Taiwanese sovereignty over the Spratly Islands in the South China Sea. The statement condemned recent Philippine and Malaysian activities on the islands and declared that the Spratlys and the entire South China Sea belong to Taiwan ''legally, historically, geographically, or in reality."

Taiwan has apparently evaluated and accepted the potential consequences of its declaration. An official from Taiwan's Industrial Development Bureau was quoted by Agence-France Presse on July 13 as saying, ''Taiwan should see its exports pummeled by 7.64 percent should the mainland authorities slap a trade sanction'' on Taiwanese exports to mainland China. However, this would have the effect of reducing Taiwan's trade surplus with China from $14.29 billion to $12.89 billion. Evidently $1.4 billion is an acceptable cost. And while both the Taiwan dollar and the stock market fell July 13 in response to increased tensions with China, the drops were not dramatic. The Taiwan dollar closed at 32.275 against the U.S. dollar, from a closing of 32.255 the previous day. The Taiwan stock market weighted average fell 3.1 percent, following a 1.0 percent drop the previous day.

Taiwan also appears confident, for the time being, that China does not pose a military threat. Hong Kong's Ming Pao daily cited anonymous People's Liberation Army officers on July 13 as stating that China is considering holding large-scale military exercises in a show of force over Taiwan's decision to redefine relations with China as ''state-to-state.'' However, Taiwanese Defense Ministry spokesman Kung Fan-Ding responded, ''There is no sign that Chinese communist troops are preparing for large scale war games. But the military are keeping a close watch on any development.'' The fact that the U.S. aircraft carriers Kitty Hawk and Constellation are in or near the region can only bolster Taiwan's confidence.

Finally, Taiwan holds to the notion that negotiations with the mainland can continue, despite Beijing's threat that the declaration of sovereignty could lead to a break in talks. Taiwan Presidential Deputy Secretary General Lin Pi-Chao said July 13 that Taiwan was still pushing for talks with Beijing, despite a redefinition of the relationship between Taiwan and China. According to Agence France Presse, Lin said, ''We have made preparations to push for political dialogue and drafted several proposals based on Taiwan's new status declared by President Lee. We are willing to adopt a more positive attitude on the negotiation table if their reaction is practical and rational.'' Lin added, ''We definitely would not see a backstep in cross-strait relations, and we hope Wang Daohan, chairman of the Association for Relations Across the Taiwan Strait (ARATS), would visit Taiwan as scheduled."

The United States, which has intervened in the past as cross-straits relations escalated to potential military confrontation, has been extremely cautious in its response to Lee's declaration. In response to journalists' questions at a regular briefing on July 12, State Department spokesman James Foley said, ''I can only speak for the United States, and our policy is unchanged. Our 'One China' policy is long-standing and certainly well known.'' According to Foley, the U.S. maintains that Taiwan's future is a matter for Taiwan and China to resolve, though ''the United States has an abiding interest and concern that any such resolution be a peaceful one.'' Foley said Taiwan's position did not affect the U.S. defensive commitment to Taiwan under the Taiwan Relations Act. Foley refused to declare Lee's statement ''unhelpful,'' or to evaluate whether or not it would have a negative impact on cross straits negotiations. When asked whether the U.S. would attempt to restrain Taiwan's leaders, or pressure them not to take actions against U.S. interests in East Asia, as Washington had done in the past, Foley rejected that characterization of U.S. behavior.

The U.S. position was somewhat stronger on July 13, when State Department spokesman James Rubin announced that officials from the American Institute of Taiwan - Washington's unofficial diplomatic channel to Taipei - would meet with Taiwanese authorities on July 14 to ''clarify from Taipei what the significance, if any, of these statements are.'' Rubin said the U.S. remains concerned about Lee's comments, noting, ''It is not helpful for the Taiwanese authorities to make statements that would make it harder to have dialogue.'' He went on to say, ''We are also concerned that it's not helpful for Beijing to make statements that indicate that a dialogue is harder to achieve."

For Washington, Taiwan's sudden declaration of sovereignty could not come at a worse time. The U.S. is attempting to repair relations with Beijing shattered by the bombing of the Chinese embassy in Belgrade. In fact, U.S. State Department legal advisor David Andrews and Deputy Assistant Secretary for East Asia and the Pacific Susan Shirk will reportedly be in Beijing from July 14-17 to discuss compensation for NATO's bombing of the embassy. While trying to atone for the embassy bombing, the U.S. is attempting to maintain pressure on Beijing regarding China's World Trade Organization membership bid. And the U.S. is pushing for development of a theater missile defense system with Japan, South Korea, and possibly Taiwan - a move that China sees as a direct threat. Now Washington must tread a diplomatic minefield laid by Taiwan.

That alone may help explain why Taiwan chose this time to declare its sovereignty. Taiwan has watched China grow more aggressive in its foreign policy - pressuring Japan to avoid defensive ties with Taiwan, asserting Beijing's claim to the Spratlys, building a strategic alliance with and purchasing advanced weapons from Russia. Taiwan has also watched as Chinese reformers, struggling against vested interests in the government and military, have been unable to prop up the shaky Chinese economy. Now, with rumors of a devaluation of the yuan again in the wind, hopes for the continued dominance of reformers in Beijing are fading. With a return to old-school Communist leaders and state-centric economic policies in China, Taiwan can only anticipate a deteriorating cross-strait dialogue regardless of its self-declared status. And while China slowly regresses, the U.S. appears to have lost both leverage and commitment in its China policy.

Taiwan, anticipating the worst, may be attempting to sabotage U.S. efforts at reconciliation with China in hopes of realigning U.S. policy in the region. It's a risky maneuver - similar to attempts underway in the Caucasus and the Balkans - and there is no guarantee that Washington will be swayed. After Kosovo, and as presidential elections draw near, the U.S. has a great deal of foreign and defense policy to re-evaluate. It is not ready for the next crisis quite yet. Regardless of the direction China appears to be heading, Washington is unlikely to appreciate having its hand forced, and will likely attempt to pressure Lee to retract his statement - at least for now.

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