The US Aid and Taiwan By Man-houng Lin, I-min Chang, Wei-chen Lee Presented at the XVIth World Economic History Congress, 9-13 July 2012, Stellenbosch University, South Africa SUMMARY After the outbreak of the Korean War in June 1950, the US included Taiwan in its Asia-Pacific containment line and restored the military and economic aid to the Republic of China in Taiwan (Taiwan hereafter) for the regional security. Taiwan became the second largest U.S. foreign military aid recipient countries. Among the over 120 countries all over the world which received US aids, Taiwan is one of the few countries which had successfully moved from “dependence” to “independently sustained growth.” The U.S. aid to the countries along the Asia-Pacific defense line was not only supplying munitions but also linking these countries together in economic dimension. This article will firstly review the historical background of U.S. aid to Taiwan and related institutional development; secondly, illustrate how Taiwan used U.S. aid and on which economic sectors the U.S. aid affected; thirdly, trace the impact of U.S. aid on Taiwan’s foreign trade, and lastly, discuss the role of U.S. aid in building multilateral economic networks among the US, Japan, Korea, Southeast Asia countries, African countries and Taiwan. KEYWORDS Foreign aid and development; multilateral economic networks; U.S. aid CONTACT DETAILS Professor Man-houng Lin, Institute of Modern History, Academia Sinica and Department of History, National Taiwan Normal University, Taipei Email: [email protected] Assistant Professor I-min Chang, Department of Public Finance, China University of Technology, Taipei Email: [email protected] Assistant Professor Wei-chen Lee, Graduate Institute of Taiwan History, National Chengchi University, Taipei Email: [email protected] 1. Historical Background “The US aid " is abbreviation of "U.S. foreign assistance" which was part of U.S. foreign policy after World War II. As the American Foreign Policy Encyclopedia defined, under “the US aid, " the U.S. government established institutions to conduct military and economic aid to other government. 1 The United States aid to ROC government could be divided into four periods: the first period was from the China civil war to the Korean War, the second period was from military aids to economic aids, the third period was termination of economic aids, and the last period was continuous measures after the termination. After WWII, the United States passed the Economic Cooperation Act of 1948 in April. For this law, the USA organized Economic Cooperation Administration (ECA) under the President’s direct order, and ECA dispached missions in recipient countries to execute and supervise the US aid.1 The U.S. aid to Taiwan was traced back to this law. The US and ROC made “Economic Aid Agreement” in July 1948 at Nanjing. For assisting ROC to promote self-support scheme and strengthening self-defense ability, the US government agreed with providing ROC with a large 2 variety of economic resources by grants and loans. Then ECA established ECA Mission to China, and Executive Yuan ROC established the Council for US Aid (CUSA) as the corresponding institution. In the China aid fund of 1948, $10 million was supplied to Taiwan for economic construction.3Such first US aid to Taiwan was used for Taiwan Sugar Company, Taiwan Railway Administration, and Taiwan Power Company.4 However, shortly after the agreement, with the failure of the KMT in the civil war in Mainland China, the United States terminated the aid to ROC government, and published “United States Relations with China with Special Reference to the Period 1944-1949” (commonly known as “China White Paper”) on August 5, 1949 to indicate the reasons why the US stopped aid to China.5 Therefore, the first phase of US aid to China was not 1 Wen Xin-ying, Jingji qiji de beiho—Taiwan meiyuan jingyan de zhengjing fenxi[ Behind the economic miracle—a political and economic analysis of the US aid experience of Taiwan] (Taipei: Zili wanbao Press, 1990), p.46. 2 The Management Council of the Sino-America Fund for Economic and Social Development Executive Yuan( MCSAF), Zhongmei jingji shehui fazhan jijin zhi yunyong shilu [the operating record of the Sino-America Fund for Economic and Social Development ] (Taipei: CEPD Executive Yuan, 2007), p.2. （http://www.cepd.gov.tw/m1.aspx?sNo=0000277）） 3 Wen Xin-ying, behind the economic miracle—a political and economic analysis of the US aid experience of Taiwan, p.85. 4 Hsueh Hua-yuan ed., Taiwan maoyishi [Taiwan Trade History](Taipei: Taiwan External Trade Development Council, TAITRA, 2008), p.249. 5 In the China White Paper, the US indicated that the failure of KMT in the civil war is not because the US aid was not enough, but because the KMT was corrupt and lose popular sentiment ect. ( Lai Ya-shin, “Meiguo Fabiao “Zhongguo baipishu” zhi juece guocheng [The Decision making process of China Whit Paper] ,” Taipei: MA thesis, Graduate Institute of the Americans, Tamkang University, 2009. 1 completely appropriated. The central government of the ROC moved to Taiwan on December 1949, and the Korean War broke out on June 25, 1950. The US included Taiwan as one of the West Pacific containment line and restored the military and economic aid to the Republic of China on Taiwan.6 Thus, most studies on the US aid to Taiwan discussed from 1950—the year Taiwan formally started to receive the US aid. This article also mainly discuss the period of US aid on Taiwan from 1950. The extent of the US aid to Taiwan was very wide. It was basically classified into general economic assistance and military assistance. The military assistance shared more than economic assistance.7 However, as Wu Tsong-min (1988) pointed out, military assistance help Taiwan to maintain a stable society to pursue a stable economic growth, which helped the US to maintain its ‘global defense system’.8 The content, operation and administration of the US aid funds are very complex. The 'counterpart fund' was an important system designed. The system was derived from the experience of US aid to Greece and Turkey after WWII. At the beginning, money from Greek of equivalent amount as the outlay of selling relief materials should be saved into the special Greek currency deposit account as a fund, and then used this fund to achieve the revival plan. Then the USA set up similar accounts with local currencies in Austria, Italy, France and China and others as a revolving fund. The counterpart fund system had been refined in the Middle aid plan and Marshall Plan.9 Due to the Economic Aid Agreement of 1948, the ROC government should provide local currency equal to the amount of the US aid and save it in the 'counterpart fund.' This counterpart fund which used for economic development of Taiwan was mutually managed and operated by the US and the ROC. The counterpart fund not only contributed to restrain Taiwan's inflation during 1950s, after the US aid terminated, it was also one of the financial resources of the ROC government. US military and economic aid has influenced Taiwan in many field, including society, politics, culture, education, and international relationships, in addition to economic development and military security. In this article, we shall discuss these various effects. After introducing this historical background of the U.S. aid to Taiwan at the first section; this paper shall secondly illustrate how Taiwan used U.S. aid and on which sectors the U.S. aid effected. Thirdly, this paper shall study the general impact of U.S. aid on Taiwan. Fourthly, this paper shall illustrate the relationships between the US aid and the sovereign rights of the ROC 6 Wen Xin-ying, behind the economic miracle—a political and economic analysis of the US aid experience of Taiwan, p.89. 7 During 1950-1965, the U.S. aid to Taiwan are roghly 1,585.8 million dollars on economic assistance and 2,384.2 million dollars on military one.( Ibid., p.91) 8 Wu Tsong-min, “Meiyuan Yu Taiwan de Jingji Fazhan [ the US aid and the economic development of Taiwan]’ Taiwan shehui yanjiu jikan[Taiwan: A Radical Quarterly in Social Studies], 1:1, Spring 1988, p.148. 9 Nichino Terutarō, Beikoku enjo, mikaeri shikin’ tokubetsu kanjō: sono keisei katei ni kansuru shiryō[ the special account of the “counterpart fund” of the US aid: data of its formatting process]( Tokyo: kokuritsu kokkai toshokan chōsa rippō kōsakyoku, 1949), pp.2-3. 2 government. Lastly, the paper shall discuss the role of U.S. aid in weaving the multilateral economic networks among the US, Japan, Korea, Southeast Asia countries and Taiwan. 2. Its content, amount, and use 2.1 content and amount U.S. foreign economic assistance included direct grants, bilateral or multilateral development loans and technical cooperation to achieve the transfer and circulation of goods and services.11 The U.S. agricultural surplus consumption in the “Food-for-Peace Program” is based on the “Public Law 480,” which is also an important part of economic aid. Military assistance included providing military advisers and training, transferring and sales of weapons and equipment, and assisted recipient countries’ national defense construction. 10 During the period of 1951-1968, the achieved amount of U.S. economic assistance to Taiwan is shown in Figures 1&2. The aid was provided from the Development Loan Fund in 1959, 1960, and 1963, with the rest from the “financial assistance ” in the early years and from “Public Law 480” in the remaining periods. Overall, the general economic assistance projects accounted for nearly 70%, Public law 480 for 26%.