Direct Cross-strait Transportation as the Missing Link Between and Global Economic Networks?

In 2000, during the presidential campaign, candidate Chen Shui-bian proposed to restructure cross-strait economic relations. Based on proactive management, a loosening of the restrictions governing cross-strait trade and economic ties, and the opening of direct transportation, his new policy was designed to smooth the progress of the exchanges between the two sides. Chen was the most proactive of the three main presidential candidates in terms of Mainland policy. KMT candidate Lien Chan was the most cautious. For Chen, Taiwan had to turn into its own advantage its cultural and geographical proximity with , in order to meet the challenge of economic globalization. Six years after, although some elements of this strategy have been put into practice, still upholds many constraining policies to slow down economic exchanges between the two sides. Direct cross-strait transportation has not been implemented. Progressively, an improvement of the mechanisms regulating cross-strait exchanges was removed from Chen’s political agenda. In his 2006 New Year address, he has proposed a new policy, “Positive management, effective opening”, suggesting a more negative approach toward economic relations between the two sides. In 2006, compared with 2000, Taipei’s economic policy toward China is formulated in a new environment. The central government is under constant criticism from the opposition parties, who underscore that the absence of direct links with China constitutes a bottleneck for Taiwan’s economy, contributing to marginalize the island in the global economy. In power, the KMT, just like the DPP after the power transition, had emphasized the security challenge arising from direct transportation, arguing that it would threaten Taiwan’s sovereignty, its national defense, and the welfare of Taiwanese society. Just like Chen administration now, the KMT had been unable to find a negotiations formula with , which could authorize cross-strait talks without jeopardizing Taipei’s claim that the ROC in Taiwan is a sovereign political entity. But arguably, its experience in opposition has changed the KMT. Chen faces now an opposition far more proactive in its bid to improve cross-strait economic ties than he himself was during the presidential campaign in 2000. One of the main differences is that

1 opposition delegations are now able to discuss in China, with the Communist régime, concrete measures to improve cross-strait relations, including the implementation of direct links, whereas Chen’s administration is still ignored by Beijing.

Securitization vs. desecuritization of cross-strait direct transportation

The decline of Taiwan is a leitmotiv in the opposition discourse today in Taiwan. According to opposition parties and leading medias, under Chen Shui-bian’s presidency, Taiwan’s economy has regressed. In daily TV programs, opposition lawmakers and journalists insist on the new weaknesses of the Taiwanese economy resulting of wrong government policies. In one of them, James Soong Chu-yu, president of the People’s First Party, could speak of the feeling of “angst” (恐慌) that he thought was the dominant frame of mind of Taiwanese people regarding the future of the island under the DPP administration1. The main point of the opposition is that Chen cares more about politics than economics, just like China during the Cultural Revolution, whereas Taiwan used to focus successfully on economic development, and not on politics, just like China after the Cultural Revolution. Opposition parties argue that Chen, for ideological reasons, pushes for Taiwan’s independence, jeopardizing Taiwan’s economy. They consider that the first priority of the Taiwanese government should be to develop the economy (拚經濟)2. On the other side, Chen Shui-bian contends that pan-blue coalition plans to sell out Taiwan to China, and facilitate annexation. Under this background, direct transportation has become a critical issue. The and the PFP call for its immediate opening. Leading newspapers, such as Zhongguo Shipao, Lienhebao, or Jingji Ribao approve. The New Tide faction of the DPP, quite critical of Chen Shui-bian achievements, tilts in favor of direct transportation and of further loosening of cross-strait economic relations 3 . The official position of the government is that direct links are a matter of time, but among Chen’s supporters, many oppose it, for security reasons. The Taiwan Solidarity Union (TSU), the Ziyou Shipao, Taiwan’s leading daily paper in terms of distribution, some DPP leaders such as vice-

1 TVBS, March 10, 2006. 2 There are plenty of declarations. For a recent one by Ma Ying-jeou, see Zhongyang Ribao, March 8, 2006. 3 Zhongguo Shipao, January 4, 2006.

2 president Lu Xiulian are against their opening4. Today, the direct transportation issue has become a central focus of the opposition campaign against Chen Shui-bian’s Mainland policy. Direct transportation is part of a debate over Taiwan’s future, the economic identity of the island within the Asia-Pacific area, and the degree to which Taiwan should rely on China and on other countries to achieve economic growth without sacrificing its sovereignty claim. The heart of the debate lies in an opposition between a security approach and an approach focused on Taiwan’s economic development. For opposition parties, direct transportation is the missing link between Taiwan and the global economy, whereas for the ruling party, under the present circumstances of Chinese irredentist strategy, direct transportation endangers Taiwan’s security. Ole Waever has defined security in the post Cold War era as a “speech act”. According to his analysis, “in naming a certain development a security problem, the state can claim a certain right” over that problem and gain control over it. Therefore, security is a matter of political agenda rather than objective threats. In that perspective, security and insecurity are not opposed: both face a security problem, while if the former has taken an efficient measure against it, the latter has failed to do so. However, if there is no security problem, it is irrelevant to conceptualize a situation in terms of security. He reaches the conclusion that the same issue can be “securitized” or “de-securitized” by political groups, and that the main divide between these two opposite approaches lies in the discourse of these groups regarding an issue 5 . Applied to that Taiwanese situation, this conceptual framework suggests that the political groups in power tend to move the direct transportation issue within the scope of Taiwan’s security policy towards , while opposition parties, who are not in control of the state security policy, are able to de- securitize the issue, because they don’t bear the burden of national security. Moreover, if one adds the factor of electoral strategy to the analysis, the “securitization” framework suggests that a security approach of the direct transportation issue provides a good electoral platform for a ruling party running for reelection, whereas a “de-securitized” approach allows opposition parties to formulate an alternative Mainland policy and to

4 For an account of the position of pro-independence forces regarding direct transportation, see Liang’an jiaoliu yu guojia anquan, guoji yantaohui lunwenji (Cross-strait Exchanges and National Security), Taipei, Caituan faren quncehui, January 2004 5 Ole Waever “Securitization and Desecuritization”, in Ronnie Lipschutz (ed), On Security, Columbia University Press, 1995. pp 46-86.

3 gather disappointed voters. Finally, it suggests that once a political party has gained executive power in Taiwan through elections, it becomes unable to overcome structural constraints and open cross-strait links. In a nutshell, regardless of ideological differences between political parties, the “gains/losses” calculus regarding cross-strait direct transportation would be determined by their position within Taiwan’s political system, in the opposition or at the head of the state. An analysis of the behavior and the discourse of Taiwanese political parties from the 2000 transition of power to today can find plenty of evidence to this hypothesis. Nevertheless, this approach neglects three evolutions during the 1999-2006 period: the increased need of Taiwan’s economic actors for improved mechanisms regulating cross-strait economic exchanges, the reconciliation between the KMT and the CCP, and China’s ability to continue high speed economic growth without cooperating with Taipei.

The case for desecuritization: opposition discourses

There is a remarkable continuity concerning the vision of political elites for the future of Taiwan. The DPP and the KMT have both pointed that in a globalized economy, Taiwan should become a logistics center in the Asia-Pacific region for global firms, taking advantage of Taiwan’s advantageous geographical position between China, and South-East Asia. This vision was articulated very early. In 1995, Lee Teng-hui proposed to turn Taiwan into an “Asia-Pacific Operation Center”. Before 2000 presidential elections, a new plan was released, to build Taiwan into a “global logistics center”. In August 2001, Chen Shui-bian summarized its economic strategy under the slogan “Taiwan First with Global Perspectives”6. In January 2002, the Executive Yuan released a new project to turn Taiwan into a “Green Silicon Valley”, with a highly qualified R&D sector, a high quality living environment, and again, the idea that Taiwan would become a center for international logistics; 75 billion US$ of public funds were to be invested in six years7. Nevertheless, none of these governmental plans saw the implementation of

6 Chen Shui-bian, “Address at the Closing Ceremony of the Economic Development Advisory Conference”, August 26, 2001 7 See “Challenge 2008, the Six Years National Development Plan”, Government Information Office, May 21, 2002.

4 direct links as a priority; they concentrated rather on Taiwan’s infrastructure, investment environment and human resources. But is it possible to achieve this vision without cross-strait direct transportation? Today, the KMT and the DPP disagree on tactics. Taiwan’s government argues that security nets have to be put into place before allowing direct flights and sea routes, whereas pan-blue consider them a priority. Taiwanese officials have acknowledged that turning Taiwan into a regional hub and a logistic center needed direct links. Oliver Yu, Taiwan's deputy minister of transportation and communications, commenting on the 2004 Free Port project, conveyed that: "When we talk about logistics, we do need direct links, but we have to face the local political situation and national security considerations. So before that time comes, we still try to do something to help the situation" 8 . Business corporations argue that in the absence of direct transportation, Taiwan is not in a position of achieving this vision. The American Chamber of Commerce or the European Chamber of Commerce have repeatedly stressed the need for Taiwan to implement the Three Links in order to create a better environment in Taiwan for the operations of global firms. No foreign company would be in a position of implementing a cost-effective strategy in the “” area without the Three Links. Taiwanese entrepreneurs with operations in China complain about the nuisance of indirect transportation to their business. Scholars also argue that direct transportation links are a sine qua non condition to achieve that plan9. Interestingly, the DPP was the first Taiwanese political party to articulate this claim into a comprehensive development strategy. Between the years 1998-2001, Chen Shui-bian called for the implementation of direct transportation, and was the first presidential candidate to do so. However, a careful look at the DPP discourses at the end of the 1990’s outlines that security considerations were never put aside. Chen Shui-bian proposed a new Mainland policy based on desecuritization, but his preconditions for cross-strait cooperation have retrospectively proven naïve, although he was able at that time to gain support from the business community. Chen’s policy platform as a

8 Reuters, May 17, 2004. 9 Interviews in National Chengchi University and at the Chunghwa Institute for Economic Research. See for example Leng Tse-kang “Securing Economic Relations Across the Taiwan Straits: New Challenges and Opportunities”, Journal of Contemporary China, vol 11, No31, pp 261-279.

5 presidential candidate resulted from a consensus reached in February 1998 in a DPP Mainland policy symposium. At that time, the Formosa faction, led by Hsu Hsin-liang, advocated deeper economic integration with China. For him and his supporters, direct links were a means to make Taiwan a bridge between China and the world, and more economic interdependence was a way to avoid annexation. This policy was known under its slogan, “Go West Boldly” (大膽西進). The New Tide Faction, allied with the Justice Alliance and the Welfare State Alliance, proposed instead a strategy of “Strengthen the Base and Go Cautiously to the West” ( 強本漸進), arguing that economic interdependence would not ensure Taiwan’s sovereign status and that Taiwan should rather focus on its domestic policy and on diversifying its economic partners. In economic terms, this strategy implied a more cautious approach toward investment and trade with China. As a result, Chen Shui-bian’s political platform as the DPP presidential candidate was a compromising slogan, “Strengthen the Base and Go West” (強本西進), aimed at uniting the DPP behind him. This policy was developed in more concrete terms in the DPP White Paper on China policy, issued on November 15, 1999. Its cornerstone was to “normalize” cross-strait economic and trade relations, under a framework of internationalization, since Taiwan’s sovereignty is not negotiable. The White Paper called for a comprehensive normalization of cross-strait ties, under three conditions: it should not be achieved at the expense of national security, it required a comprehensive long-term strategy of economic security in the form of proactive management to replace passive regulations, and it had to be set up through cross-strait negotiations. Under this framework, the DPP proposed the opening of cross-strait direct transportation. The mainland should open the ports of , , , Qingdao and Tianjin to direct navigation, and Taiwan would reciprocate with the opening of the ports of Keelung and Kaohsiung. Direct air transportation would be operated exclusively by Taiwan but the profits would be shared between the two sides10. A month later, in his speech at the London School of Economics, candidate Chen integrated this new cross-strait economic policy within a broader framework, the so-called “Third Way” for Taiwan. He argued that as cross-strait trade had already reached an “irreversible phase”, the government had to play a proactive

10 White Paper on China Policy for the 21st Century, DPP, November 30, 1999.

6 role in providing institutional incentives and more consideration for the law of the market while dealing with cross-strait issues11. This new policy enabled Chen Shui-bian to gain public support from leading executives of Taiwan’s business world, such as Chang Rongfa (Evergreen), Shi Zhenrong (Acer) and Hsu Wenlong (Chimei). However, it was not the main factor behind Chen’s election on March 18, 2000. Moreover, concepts such as “internationalization” or “normalization” seem retrospectively pretty unrealistic since they expect an unacceptable concession from Beijing. But this platform helped the DPP to increase its support base by moving to the center, and to build the image of a ruling party. As we will see below, Lien Chan, as the outgoing ROC vice-president, did not call for the opening of direct transportation during his presidential bid in 2000. The making of a new Mainland policy, distinctive from the DPP, was slow because in 2000, the DPP occupied the center of the political chessboard in Taiwan in terms of cross-strait policy. The KMT, who from 2000 elections played the card of stability and non-provocative Mainland policy, was defeated on his own stronghold. And during the early period of Chen’s first mandate, the KMT took a cooperative stance regarding the loosening of regulations governing cross-strait economic relations. In August 2001, the KMT took part to the Economic Development Advisory Conference (EDAC), during which key policies were decided in a consensus-style decision-making process, including the pledge to open direct transportation. Lien Chan declared after the conference that the goal of the KMT was to implement the consensus reached during the conference, and that as the dominant party in the Legislative Yuan, the KMT would not obstruct the government policy. Lien Chan insisted the KMT had to “cooperate” with the Executive Yuan, and “control” the implementation of the EDAC results12. Step by step though, as Chen Shui-bian’s administration was unable to resume talks with Beijing and took a more independentist political line, the KMT came to see itself as the only force able to achieve a breakthrough on cross-strait economic relations. When Chen Shui-bian took steps interpreted as independentists (“One country on each side of the Strait” in August 2002, the repeated calls for a new constitution during the 2004

11 “The Third Way for Taiwan: A New Political Perspective”, December 6, 1999. 12 Zhongyang ribao, September 1st, 2001.

7 presidential campaign, the decision to organize a “defensive referendum” in December 2003, or more recently, the decision to cease the National Unification Council), it became easier for the KMT to formulate an alternative Mainland policy. Arguably, the 2004 presidential campaign was a turning point. As it increased political divisions within the Taiwanese society, the opposition discourse against Chen’s Mainland policy became more and more harsh, and increasingly, direct transportation turned out to provide the KMT with an electoral tool to defeat the DPP. As a result, KMT has been far more assertive on the issue than the DPP when it was the main opposition party. First, the KMT sharpened his discourse in favor of direct transportation and attempted to prove to the Taiwanese that it had the capacity to talk with Beijing and achieve a breakthrough in cross-strait relations. During the 2004 presidential campaign, the pan-blue coalition failed to push the Three Links at the center of the political debate. One of their campaign poster claimed: “The Three Direct Links, they can’t do it, but we can”. Although it attempted to launch a debate over cross-strait economic and trade relations, the campaign debate was successfully refocused by the DPP on identity issues, and the direct transportation issue, despite pan-blue efforts, was overshadowed. But after this second defeat in presidential elections, the KMT consolidated its Mainland policy. Lien Chan’s “peace journey” (和平 之旅) in China was a critical turning point for the KMT, since it gained credit that it really had the capacity to talk with Beijing. During their historical meeting on April 29, 2005, Lien Chan and reached a five points agreement, in which they call to open direct transportation, were the KMT to regain power in Taiwan 13 . The 1992 consensus would provide a basis to resume cross-strait talks. Ma Ying-jeou has followed this policy, indicating that the KMT’s new Mainland policy had been settled and stabilized (確立) by Lien’s visit14. After his election at the head of the KMT on July 16, 2005, Ma pledged to open the links in 2008, if he is elected ROC President. In early September 2005, he declared that it would be possible to implement direct transportation within two years after a power transition in Taipei15. In a December 2005 speech in , he argued that in power, the DPP has failed to improve Taiwan’s economy and

13 Taipei Times, April 30, 2005. 14 Lienhebao, December 12, 2005. 15 Ziyou Shipao, 3 September 3, 2005.

8 cross-strait relations. He developed the example of Kaohsiung harbor: without direct transportation, the harbor had failed to become a hub between Chinese goods and world markets, and step-by-step, it was losing its initial competitive advantages16. Second, the KMT took concrete steps to exert direct pressure against the Executive Yuan into accepting to open the links. In May 2002, the KMT legislative caucus started to push a bill creating a legal framework for cross-strait transportation, without forcing the government to take concrete steps though17. According to Taiwan law, the Legislative Yuan has the power to draft laws against the will of the Executive power, at the condition that these laws don’t increase the government budget. Therefore, the opposition, who detains a majority at the Legislative Yuan, could push for legislation but the government could refuse to implement direct links because of their costs in terms of national security expenditures. Moreover, it would be extremely difficult for the KMT to secure a majority in a vote regarding the Three Links, because of lack of party discipline within its own ranks, and incertitude over the necessary support of PFP and independent lawmakers18. But still, KMT pushed for legislation, accordingly with the support of the PFP. Under the pressure of these opposition legislators, MAC accepted to draft amendments to the Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area, the principal legal obstacle to progress by Taiwan on the direct links issue. The amendments were finally voted on October 9, 2003. Under the new articles, Taiwan had 18 months to complete negotiations with China over the Three Links (article 28). After 18 Months, the Minister of Transportation testified before the Legislative Yuan that negotiations were impossible to complete, because Beijing refused to talk with Taipei 19 . But more importantly, the law provided the government with a new legal instrument to negotiate the Three Links: private organizations can now negotiate technical issues with the Mainland on the government behalf. As we will see below, the government refused to use the new article to discuss the Three Links with Beijing, but the law permitted the negotiations held in 2005 over New Year direct Charter flights. In early 2006, the KMT caucus in the Legislative Yuan prepares a new legislation calling the government to open

16 Dajiyuan, December 15, 2005. 17 New York Times, May 5, 2002. 18 Interview with a scholar, National Taiwan University. 19 Interview with a scholar, Institute for National Policy Research.

9 the direct links. According to Ma Ying-jeou, if the government fails to do so after the vote, the KMT could launch a campaign for a referendum on the direct transportation issue; however he insists that the “referendum” is not yet an official policy of the KMT, only an idea put forward by scholars close to the KMT20. However, a referendum on the direct transportation issue is not on the KMT agenda prior to 2008 presidential election. This threat should rather be interpreted as a tool to increase pressure on the government. If the DPP in 1998-2001 and the pan-blue coalition today have called for desecuritization, they did it in different way and in a different cross-strait background. They have different threat perceptions, and hope for different benefits. Before 2000 elections, the DPP believed it was able to set the conditions for cross-strait talks. Direct flights could be operated under an international framework, and without any concession over ROC sovereignty. It has been perceived at that time as an open attitude focused on economy, but retrospectively, one could also stress that for the DPP, direct transportation was perceived as a bargaining chip used to force Beijing into accepting Taiwan’s status as a sovereign state. The DPP wanted to exchange an improvement of economic relations against political security for Taiwan. Today, the KMT’s pledge to come back to the “1992 consensus” suggests that the Nationalist party plans to bracket the sovereignty issue in order to secure economic advantages, and refrain from challenging too openly Beijing’s claim that Taiwan is part of China. The KMT plans to trade economic gains for Taiwan against loyalty to Beijing against Taiwan independence forces. It also plans to improve Taiwan’s security environment by appeasing Beijing, and not by balancing China. Ma Ying-jeou’s insistence to put the missile issue on the agenda of cross-strait talks suggests that Taiwan will try to maximize relative security gains in the negotiations process21.

The case for securitization: the state discourse

From 2000 to 2006, the KMT has evolved from a passive position to a proactive position regarding cross-strait direct transportation. In late 1999, when Chen Shui-bian expressed

20 Dajiyuan, January 7, 2006. 21 Taipei Times, February 14, 2006.

10 his positions concerning direct links, MAC Chairman Su Chi (today a KMT legislator), argued that Chen did not take national security and dignity into consideration, and that his policy would sacrifice the ROC sovereignty by turning cross-strait relations into relations between a central and a local government22. Interestingly, President Chen used exactly the same arguments to undermine Ma Ying-jeou’s claim that he would be able to open direct transportation links with China once he’ll be elected President in 2008. Chen emphasized that it was China and not Taiwan who rendered the opening of direct transportation impossible, because of its preconditions negating Taiwan’s sovereign status. Chen judged Ma Ying-jeou’s speech “extremely dangerous”, because it implied that KMT’s Mainland policy caved in to China’s conditions and sold out Taiwan’s sovereignty. He insisted that whoever was President, he could not open direct transportation without making a concession over Taiwan’s status23. As a matter of fact, KMT and DPP administrations have been unable to open direct links with China for the same reasons. Mainly, they lacked a formula to resume talks with China without undermining Taiwan’s status as a sovereign political entity. This explains why Lien Chan in 2000 and Chen Shui-bian during the 2004 presidential campaigns were so cautious regarding the issue of the Three Links. During the 2000 campaign, although he had pledged to increase cross-strait interactions, Lien Chan’s main proposals were to expand the functions of the Kaohsiung transshipment center, and to discuss with Mainland China the opening of and Matsu as a special zone for trade and transportation across the Strait24. The key point of candidate Lien’s economic policy toward China was the opening of “special cross-strait zones”. Moreover, he stressed that the government policy toward cross-strait transportation had already been very flexible by opening a transshipment center25. Lien, as an outgoing vice-president, emphasized continuity with the policies implemented by Taipei. He was the coldest of the three main presidential candidates regarding the lift of investment ceilings within the “no haste, be patient framework”. During the campaign, KMT officials declared that the opening of direct links would not be “out of question” in

22 Ziyou Shipao, November 4, 1999. 23 Dajiyuan, 7 September 2005. 24 Taiwan Headlines, February 17, 2000. 25 Lienhepao, February 13, 2000.

11 case of electoral success; but the KMT should proceed step by step, opening first Kinmen and Matsu, and then some points off the coast of Yunlin district and Chiayi district26. At that time, the KMT was far more cautious than the DPP, and constantly reminded voters that the loosening of Taipei’s regulations regarding cross-strait trade and economic relations required Beijing’s goodwill and tangible responses. Today, according to MAC Chairman , Chen’s administration official policy is to “prepare for future direct shipping and air transportation links”27. This is clearly a step backward compared to Chen’s 2000 campaign, to the declarations of the administration during its early first mandate, and to other presidential speeches afterwards that have been interpreted as illusory promises by the opposition. Chen Shui-bian has faced exactly the same problem than the late KMT administration: Beijing’s refusal to talk without preconditions with an administration suspected of following a strategy of creeping independentism. Moreover, under his presidency, the administration has assessed that direct transportation should not be implemented unless Taipei has successfully put into place “security nets” to safeguard the sovereignty of the island and the welfare of its society. Chen has pronounced contradictory statements regarding the Three Links issue, sometimes describing them as an inevitable work in progress, some other times stating that they were not a “panacea” for Taiwan’s economy. Chen has also appeared to give different statements to different interests groups, as if he was distributing promises by adapting his discourses to his interlocutors. But despite his rhetorical shifts concerning direct cross-strait transportation, there is historical evidence to prove that it is his agenda, and not his position on the issue, that has changed. Looking back at six years of government policy toward the direct transportation issue, it is clear that the conditions set in the DPP 1999 White Paper have been upheld. The only concession, considered twice but given up twice, has been to allow private companies to discuss the links with Beijing. The key point for Taipei has been to defend Taiwan’s sovereignty, and thus to refuse to engage in talks which could undermine it. Therefore, the implementation of the Three mini Links and New Year direct charter flights are only symbolic achievements, which did not provide Chen’s administration with a workable formula to discuss full-scale direct

26 Lienhepao, March 1st, 2000. 27 Taipei Times, 18 October 2004.

12 transportation. Their economic effect was very limited and their political effect turned against Chen Shui-bian. As Tao Si-min argues, they have had the indirect effect of increasing pressure on Chen’s administration to open direct links, and they undermined Chen’s insistence that direct transportation should be discussed through government level talks, increasing the marginalization of the SEF/ARATS model28. Immediately after his inauguration speech, Chen favored a SEF/ARATS formula to find a solution to the “inevitable” Three Links issue29. In September 2000, he reiterated that his administration was willing to push for direct transportation if cross-strait dialogue was restored, suggesting that the issue would be at the top of the agenda of the talks, and pointing that Taiwan should not be an “ostrich”30. In January 2001, Taipei turned down a Chinese proposal that “cross-strait routes under special management” could be negotiated between transport companies of the two sides, contending that the SEF was the only authorized body to negotiate with Beijing on behalf of Taipei31. In May 2002 in Tatan Island, Chen reiterated that direct transportation was a “necessity”, and suggested cross- strait party talks between the DPP and the CCP32. In May 2002, Taiwan renegotiated its air links with Hongkong under a new formula: commercial organization representing air companies involved in the flights led the negotiation, while government officials were only present as “advisors”33. Speculation rose that this model could serve as a negotiation formula for cross-strait direct links. And in June 2002, the government changed his stance on cross-strait talks. As the opposition was pushing for legislation, Tsai Ying-wen conceded that private groups should be authorized to negotiate direct transportation, and the government submits the amendments to the legislature34. During the summer 2002, Taiwan authorities were considering expanding the Mini Three Links to Penghu. In October 2002, Taipei adopted first a cautious but positive attitude to Qian Qichen’s declaration that China dropped its demand that Taiwan recognize the One-China

28 Tao Si-min, Chen Shuibian zhizheng shiqi liang’an jingmao zhengce zhi fenxi, (Analysis of ChenShui- bian policies regarding cross-strait economic and trade relations, 2000-2004)M.A thesis, Institute of East Asian Studies, National Chengchi University, 2005. pp 111-112. 29 China Post, May 31, 2000. 30 Reuters, September 16, 2000. 31 Taipei Times, January 7, 2001. 32 President Chen’s speech at Tatan, Government Information Office, May 9, 2002. 33 Asia Times, November 9, 2002. 34 Taiwan News, June 4, 2002.

13 principle as a precondition to resume talks, and that the Three Links should be considered an economic issue, not a political issue. But the same month, for the first time during its first mandate, Chen Shui-bian pronounced a negative declaration regarding the opening of direct links, arguing that Taiwan should not be too “naïve”, and that the links were not a “cure-all medicine”35. And although observers had expected Taiwan to agree on the private organizations talks formula, Chen stepped backward and insisted talks had to be conducted by government officials36. This was a real turnabout. And as to add weight to Chen’s declarations, the Ministry of Defense made public for the first time its recommendation regarding the opening of direct transportation. Among them, there was the insistence that the direct flights between the two sides had to be treated as international flights and managed according to international law37. Afterwards, Taipei stuck to his repudiation of the private organizations formula to resume talks. In January 2003, the administration turned down a new Chinese proposal, arguing that at least, semi-officials channels, the SEF and the ARATS, should lead cross-strait talks38. And in February 2003, Chen Shui-bian declared to DPP members in Changhua county that his administration ruled out direct links, arguing that as Taipei had already opened every door to talk with China, direct links were “definitely not an option under the present circumstances”, and emphasizing the risk of industrial hollowing out for Taiwan39. In August 2003, he stated that direct links would be put into service at the end of 2004 if he was re-elected President in March 2004, predicting that Beijing would resume cross-strait talks 40 . During that speech, Chen set a timetable for the implementation of direct transportation. The first stage, before March 2004 poll, was thought to be a preparatory phase to set up security nets in order to minimize risks for Taiwan. The day after, the Executive Yuan released a key document elaborating on the risks and the opportunities arising from cross-strait direct transportation, the Assessment of the Impact of Cross-Strait Direct Transportation41. Today, it still represents Taipei’s

35 Taiwan News, October 24, 2002. 36 China Post, November 1, 2002. 37 Taipei Times, November 8, 2002. 38 Taipei Times, January 25, 2003. 39 Taipei Times, February 27, 2003. 40 Taiwan News, August 14, 2003. 41 Assessment of the Impact of Direct Cross-Strait Transportation, , August 15, 2003.

14 stance. Accordingly, as direct flights and shipping would have extensive and far-reaching effects on Taiwan, the key question for the government is how to amplify the positive effects and diminish the negative impacts. Consequently, in adherence with the national economic strategy of “cultivating Taiwan deeply and positioning globally”, Taiwan needs to implement many preparatory measures, to cope with a security challenge encompassing economic security, national defense, social security, health care, international relations, political security (harm on national sovereignty), and even identity since it would blur the psychological border between Taiwan and China. According to the document, Taipei will stick to his position that government-to-government talks are necessary, and that direct transportation will only be addressed under a wider negotiation agenda covering all aspects of cross-strait economic relations. In September 2003, MAC unveiled a new plan under which air cargo transportation would become semi-direct during one experimental year, with only a short stopover in Honkgong, but the proposition was turned down by Beijing42. Two months later, Chen declared again that the example of the slowdown of Singapore and Hongkong showed that direct transportation would not be a “panacea” for Taiwan’s economy43. In October 2004, after Chen’s reelection, a new indirect rhetorical dispute broke out between the two sides, with Beijing pushing to call direct links a domestic issue, and Taipei proposing “cross-strait routes” under international regulations44. In November 2004, the MAC agreed to the private organizations negotiation formula for direct charter flights during the New Year holidays45. After the success of the talks and the first direct flights from late January 2005 to late February 2005, under a model reconducted during the 2006 New Year, Chen’s administration, reacting to the Anti-secession law and the opposition leaders visit to China, seems to have given up the perspective of holding talks with Beijing. Arguing that these two developments have led to a unilateral modification of the status quo by China, Taipei takes a harder stance. The anti-secession law and the military threat are put

42 Financial Times, September 25, 2003. 43 AP, November 18, 2003. 44 China Post, October 14, 2004. 45 CNA, November 13, 2004.

15 forward by Taiwan’s authorities to refuse to extend the charter flights model and discuss full direct links46. There are two main reasons why Taiwan insists that direct links can only be worked out through government-to-government talks. The first reason seems to be ideological and motivated by domestic politics. Taipei doesn’t want to see Taiwan’s national sovereignty jeopardized through non-governmental talks. But as it has been described, Taipei has refused, after obvious hesitations, to agree on a formula involving private organizations, although the administration has been able to work out direct charter flights through this model. Consequently, it is impossible not to conclude that Chen’s administration has tried to use the direct transportation issue as a bargaining chip to force Beijing into accepting, at least in a tacit way, that Taiwan is a sovereign political entity. Chen Shui-bian has attempted to achieve political gains through cross-strait inter-governmental talks. This was predictable since “normalization’ of cross-strait relations has always been the top priority of his Mainland policy47. But the second reason to insist on government-to- government talks is technical. Talks on routes, approved carriers, customs procedures, quarantine measures, immigration procedures clearly need the involvement of governments to achieve agreements. Among these necessary talks, behind the rhetorical debate regarding transportation as a domestic or an international issue, there is an important technical point. There is a profound juridical difference between international routes and domestic routes, and Taiwan wishes to open cross-strait routes to foreign companies, in order to become the regional logistics center it hopes to be turned into48.

The need for improved mechanisms to regulate cross-strait economic exchanges

After his election, Chen Shui-bian has taken concrete steps to smooth the progress of cross-strait economic exchanges. Three measures were of particular importance. In the aftermath of the EDAC, under the principle of proactive management, Taipei lifted the investment ceiling of NT$50 millions, which was the pillar of the “no haste, be patient” policy. It established instead clear standards for investments over US$20 millions, to be

46 Taipei Times, March 12, 2005. 47 Interview, DPP, Departement of Chinese Affairs. 48 Interview, MAC, Departement of Policy Planning.

16 reviewed by a commission under the Ministry of Economic Affairs (MOEA), and the “40%” principle, under which any firm investing in China should keep 60% of its assets in Taiwan. Moreover, bans regarding Taiwanese investments in advanced technologies were progressively replaced by proactive policies. Taipei took two key measures. During the first quarter of 2002, it authorized investments for laptop production. In January 2003, the government gave a positive answer to Taiwan Semiconductor Manufacturing co. (TSMC) bid to invest in China. By doing so, he opened the way for semi-conductors industries, one of the strongholds of Taiwan’s industry, to build in China 200 millimeters semi-conductors wafers. In April 2003, Executive Yuan issued regulations for the transfer in China of semi-conductor wafers. Under the proactive management principle, they are authorized, but their R&D must stay in Taiwan, they have to be controlled fully by Taiwanese companies, and need a MOEA approval through a case-by-review. Moreover, for each investment in 200 millimeters wafers in China, companies have to invest in a plant of 300 millimeters wafers in Taiwan, in order to retain Taiwan technological advance in this field, but also to avoid a complete hollowing out of this strategic industry. These two measures were extremely important since they opened two key industries to cross-strait exchanges49. These measures strengthened cross-strait exchanges and enhanced the competitiveness of Taiwanese firms. The value of Taiwanese registered investment in China amounted to 2,607 billions US$ for the year 2000. It reached 6,94 billions US$ for the year 2004. Furthermore, as the growth rate of cross-strait trade was stagnating during the 1996-2001 period (two-way trade value was 26,4 billions US$ in 1997 and 27,8 billions US$ in 2001), it experienced a real breakthrough in 2002, amounting to 37,4 billions US$, and kept on growing after this turning point, reaching 61,6 billions US$ in 2004. Second, Chen Shui-bian’s policies allowed for an explosion of Taiwanese investments during the years 2002-2003 in the sectors of computer manufacturing and information technologies. As Leng Tse-kang’s works have described, since the late 90’s, a new wave of Taiwanese investment has led to the formation of a global division of labor between the Silicon

49 In 2001, Taiwan companies manufactured 55% of world notebook computers, and earned 70% of the world’s semiconductor foundries revenues (with sales worth more than US$20 billions).

17 Valley, Taiwan and Mainland China, with products reaching worldwide markets50. This trend had started during the years 1998-2000, when Taiwanese investment on the mainland began a shift from labor-intensive goods produced by Taiwan’s SMEs to the manufacturing of IT products, involving Taiwanese big firms. Taiwan’s liberalization policies, implemented against a background of global restructuring in the IT industry, permitted a continual technological up grading of the products manufactured in China by Taiwanese firms. These results have been achieved through indirect transportation. Without direct transportation, China is already Taiwan’s first trading partner (since 2002) and the first destination for Taiwanese outwards investments. Taiwanese companies employ 10 millions of employees on the Mainland. Their products are sold worldwide, and contribute to the rise of China as a powerful trading nation. As The Economist has argued, for firms operating across the , indirect links are a “nuisance, although it is nothing more than that”51. However, economists agree that Taiwan’s mechanisms to regulate cross-strait economic and trade relations seriously need to be improved. The key question is how to attract capital in Taiwan. As it has been proved, when Taiwan’s economic policy toward the Mainland is restricted (in 1996) or when political relations between the two sides worsen, SMEs try to avoid governmental control and big companies apply for big-scale investment, fearing that they could be forbidden in the next stage52. According to Chen Li-ying, the main problem faced by Taiwan to operate its transition to a logistics center is that restrictive cross-strait regulations have incited Taiwanese capital to leave Taiwan, without coming back. A part of this capital is working in China, avoiding Taiwanese regulations. But the most important problem for Taiwan’s development is that profits made by Taiwanese firms in China stay abroad and are not reinvested in Taiwan53. Chen Li-ying has described a new pattern in cross-strait economic relations under Chen Shui- bian. Taiwanese firms apply by the MOEA to invest in China, and negotiate investment projects with local or central authorities in China. But their capital is not invested in

50 Leng Tse-kang “State and Business in the Era of Globalization: the Case of Cross-Strait Linkages in the Computer Industry”, The China Journal, No53, January 2005, 63-79. “Economic Globalization and IT Talent Flows Across the Taiwan Strait”, Asian Survey, Vol.XLII, No2, March/April 2002, 230-250. 51 “Onshoring”, The Economist, January 13, 2005. 52 Chen Li-ying, “jiji dingwei, peitao kaifang, youxiao huiliu”, Qiandan Jiaodian, March 5, 2006, pp 2-10. 53 Interview, Chunghwa Institute of Economic Research.

18 China, it just flees out of Taiwan. Before 2001, the sum of Taiwanese real investment on the Mainland was higher that the sum authorized by Taiwan authorities (in 1999 for example, 2,6 billion US$ against 1,25 billion US$). In 2004, the gap has been reversed: the MOEA authorized 6,94 billion US$, and only 3,1 were invested in China, although Taishang had negotiated 9,3 billion US$ of investment projects with Mainland authorities! She estimates that 13 billion US$ have been lost for the economies of both sides during 2004 and 2005, and work in third countries54. Therefore, the cross-strait deadlock could lead to a “de-Taiwanisation” of Taiwanese firms and of Taiwan’s capital, as private actors would go global without maintaining their roots in Taiwan. Leng Tse-kang has described the case of Semiconductor Manufacturing International Corporation (SMIC), a Taiwanese company with a capital of US$1,46 billion, registered as an American company, with headquarters in Shanghai, and production facilities in Tianjin and Beijing. The company produces in China technologies that Taiwanese companies are forbidden to produce55. The lack of direct transportation was also an important factor behind the decisions of foreign companies such as Sony, HP, Motorola, IBM, and Siemens to cancel investment projects in Taiwan after 200056. Direct transportation could be a key measure to improve the investment environment in Taiwan, and the opportunities of investment for Taiwanese firms in China. Economists have forecasted that its direct effect on GDP growth would be limited. Chen Li-ying predicts an increase of 0,15% of Taiwan’s GDP, the MAC, between 0,03 and 0,04% the first year, between 0,4 and 1,15% in the long term, Gao Zhang, a negative growth of 0,1%57. Direct transportation would clearly cut operation costs for Taiwanese firms operating on the Mainland. MAC estimates that shipping costs would be reduced by 820 millions NT$ a year, shipping times would be reduced by half, air passenger travel costs would be reduced by 13,2 billion NT$ a year, and companies could reduce costs of air cargo by 820 millions NT$ per year. In sum, individual enterprises could reduce their transportation costs by 15 to 30%58. Evergreen Marine, the world's third-largest shipper, predicts that direct links could save it almost US$15 million a year in terminal charges in third ports

54 Chen Li-ying, op.cit 55 Leng Tse-kang, “State and Business in the Era of Globalization”, op.cit. 56 Tao Si-min, op.cit, p 95 57 Tao Si-min, op.cit, p 94. 58 Assessment of the Impact of Direct Cross-Strait Transportation, MAC, op.cit

19 such as and Macau59. It would also have an important psychological effect, improving the image of Taiwan’s economic dynamism and attracting foreign multinationals. But direct transportation, as an isolated measure, would not be enough to transform Taiwan in a regional logistics center, although it could trigger this transformation. The political debate on the value and the risks of cross-strait direct transportation takes place in a context of serious challenge for Taiwan’s economy. Arguably, indirect transportation is just one the impediments encountered by private actors operating both sides of the Strait. The problem faced by Taiwan is how to maintain its competitiveness under the double pressure of globalization and of China’s rise as a manufacturing powerhouse. This is a challenge encompassing cross-strait transportation. For example, IT companies in Taiwan, if they want to maintain and to expand their position in global production networks, should face the double pressure of rapid innovative improvements by leading foreign firms and rising capabilities in emerging economies such as China’s60. Clearly. Taiwan has also to undertake “unilateral” reforms to enhance its competitiveness in the East Asian region, and particularly with China. Taiwan’s biggest problem is that it is still an OEM country, when China is becoming a cheaper OEM country. China’s rise as a global manufacturing center thus challenges Taiwan’s core area of competitiveness. As Hsu Ch’ih-jen, President of the Foreign Trade Association argues, since it is impossible to win a cross-strait competition on costs, Taiwan has to compete in terms of innovation, brand and differentiation61. Without an attractive environment to keep Taiwanese capital in Taiwan, this transition will be more difficult to achieve. Taiwan authorities have addressed this problem but without the capital of private actors, central planning will bring only incomplete results. Interestingly, the proactivity of opposition leaders seems to have forced Chen Shui-bian to harshen his rhetoric and to give up any hope of finding a negotiation formula with Beijing, as if the “reconciliation market” had been stolen from him. In March 2006, a delegation of KMT lawmakers led by the director of KMT Mainland Affairs Department

59 Reuters, May 17, 2004. 60 Suzanne Berger and Richard Lester “Globalization and the Future of the ”, in S.Berger and R.Lester (eds) Global Taiwan, M.E Sharpe, 2005, pp 3-33. 61 Taiwan News, October 17-25, 2005.

20 Zhang Ronggong was in Beijing to discuss concrete steps to open direct transportation62. In the aftermath of the anti-secession law and after opposition leaders visited China, the improvement of cross-strait economic relations mechanisms has been removed from the political agenda of the Chen administration. Chen Shui-bian seems to have given up the “Go West” part of his “Strengthen the basis, Go West” policy. In his 2006 New Year address, he proposed a new policy for cross-strait economic relations: “positive management, effective opening” 63 . According to Chang Shu-ting, Director of the Department of Policy Planning at the MAC, exchanges beyond governmental rules, direct consultations between private groups, opposition parties and Chinese officials by-passing the Taiwanese authorities have led to a loss of the overview by Taipei of cross-strait economic ties. This is the reason behind Chen Shui-bian’s new slogan, which has yet to be turned into concrete policies. It does not mean that the long-standing policy is going to change, but that what is beyond governmental control will be the focus of new attention and regulations to increase control efficiency 64 . Therefore, no further loosening of regulations governing cross-strait economic relations is to be expected during his mandate.

Conclusion

As a President, Chen Shui-bian kept his word of managing proactively cross-strait economic relations. Economic exchanges between the two sides increased both in quality and in intensity, but still in a constraining environment for Taiwanese private actors. As a result, the need for efficient mechanisms enabling Taiwanese firms to effectuate smoother cross-strait operations increased. The pressure for direct transportation is higher now than it was in 2000. But in the same time, Taipei’s policy of “constructive engagement” with China failed, because the two sides were unable to find an acceptable framework to resume talks. Cross-strait cooperation was impossible, because both sides perceived each other as willing to use the direct transportation issue as a tool to reinforce

62 Xinhua, February 22, 2006. 63 Taipei Times, January 2, 2006. 64 Interview, MAC.

21 their respective stance over Taiwan’s status. Economic pragmatism was eclipsed by mutual distrust. On the one hand, China has remained firm and did not let Chen Shui-bian use direct transportation as a bargaining chip to secure political advantages in cross-strait relations. This can be seen as a success of China’s irredentist strategy. After Chen Shui-bian’s reelection, China’s strategy has been described as “strive for dialogue, prepare to fight, no fear to postpone” (爭取談，準備打，不怕拖). In practice, “Strive for dialogue” means that Beijing rewards loyalty against independentism with concrete advantages through dialogue. “No fear to postpone” suggests that Beijing is self-confident and won’t let Taiwan authorities set the conditions to resume talks. China can wait for her conditions to be accepted by Taipei, which obviously Chen’s administration will refuse to do. Moreover, China’s Taiwan policy has shifted from “Listen to what he says, observe what he does” (聽其言，觀其行) to “You listen to what I say, and I observe how you react” (聽我言，觀你行). This means that China has set up his own framework for negotiations, and if Taipei does not accept it, no cooperation is to be expected. The “soft/hard” strategy (軟硬兩手) has thus evolved. It is now directed at precise groups of the Taiwanese society (hard against independentists, soft for non-independentists), and most of all, it is directed to precise groups of the Taiwanese political spectrum. This strategy has contributed to the political division of Taiwan. On the other hand China welcomed KMT leaders in Beijing as a grant for their position against Taiwan independence. Cross-strait transportation appears more and more as a gift that Beijing could offer to opposition leaders to let them achieve economic gains, just as Beijing offered the Closer Economic Partnership to Hongkong and . Beijing is powerful enough to decide who in Taiwan could get richer and intends to bribe them for loyalty: the opening of Taiwan to Chinese tourists, the opening of the Chinese market to Taiwanese fruits would generate considerable profits in the concerned sectors in Taiwan. Ma Ying-jeou’s claim that the Taiwanese government should focus on economy and put aside the question of independence vs. unification suggests that he accepts to de- politicize cross-strait economic relations. But from opposition to power, political discourses evolve. If he is elected President, Ma Ying-jeou will face a difficult balancing act of double-edged diplomacy. On the one hand, he will have to talk with China without

22 asserting the sovereignty of the ROC in Taiwan. On the other hand, he will need to be able to continue to claim in Taiwan that he is the President of a sovereign state. The key question is whether Beijing would find it satisfying to cooperate with a KMT government on that basis or not. The recent developments in the Taiwan Strait suggest that Beijing would.

23