Woo Taiwan And Encourage China, Too

In early 1994, more than a year before his visit to the U.S., Taiwanese President Lee Teng-hui took a vacation in Southeast Asia. While on holiday, he met with Indonesian President Suharto and Philippines President Fidel Ramos. At the time, the reaction from Beijing was restrained. The communist leadership didn't start firing missiles Taiwan's way, it didn't denounce Lee as a traitor, and it didn't issue ultimatums to Jakarta or Manila to keep Lee from visiting again.

Much has changed in the wake of Lee's June, 1995, visit to his alma mater, Cornell University. By raising such a fuss after the trip, Beijing has made it nearly impossible for Southeast Asian nations to let Taiwan's President renew the quiet "vacation diplomacy" of last year. The Association of South East Asian Nations can hardly be faulted for wanting to avoid angering Beijing: For all of Taiwan's economic clout, the island of 21 million people is no match for the mainland. Even China's greatest rivals in Southeast Asia, Vietnam and Indonesia, don't want any trouble with their giant neighbor.

That puts Southeast Asian countries in a bind. For years, they have struggled to compete with China as the preferred source of low-cost labor. One of the major providers of capital has been Taiwan, which invested billions from state-owned enterprises and ruling-party companies. The government also encouraged private companies who sought alternatives to China's bureaucratic delays to build plants south of Taiwan.

Taiwan has invested nearly $28 billion in Southeast Asia over the past decade, matching its total investment in China. In exchange for their dollars, Taiwan has tried to get political recognition. But given China's strident opposition, countries are handcuffed. Just as Suharto couldn't get Lee to the Asian Pacific Economic Cooperation summit last year, Ramos is unlikely to invite Taiwan to next year's confab in Subic Bay.

Short of a presidential visit, bound to inflame Beijing, is there anything Southeast Asian countries can do to encourage Taiwanese investment? One way is to allow more contacts at lower levels. The ASEAN countries should welcome visits by Taiwan's economics minister, for instance. China hasn't objected to such visits in the past, and they would spur economic integration between Taiwan and ASEAN.

But what should the U.S. and other industrialized democracies do? How can they soothe China while encouraging Taiwan to continue its political liberalization, which by next March--when the island conducts its first-ever presidential election--will make it one of the most democratic nations in Asia? For the West, one answer may be to push for Taiwanese inclusion in the World Trade Organization. So far, Taipei's application has languished, victim to the wrangling between Washington and Beijing over Chinese membership. Taiwan shouldn't have to wait. On strictly economic grounds, it is already far ahead of China in meeting the WTO requirements for open capital, investment, and grade markets. Moving forward on integrating Taiwan into the global economy might even encourage China to hasten its own economic reforms to gain entry.

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