Select Committee on Foreign Affairs Memoranda

Memorandum submitted by Foreign and Commonwealth Office (Taiwan)

I.  INTRODUCTION

  1.  Taiwan has a unique position. It has an economy of global importance and has witnessed remarkable developments both in its economy and more recently in its political system. However, for reasons set out in paragraphs two and three below, the United Kingdom, like most other countries including our closest allies, does not recognise Taiwan as a state. We thus do not have diplomatic relations or any formal dealings with the authorities in Taiwan. Britain nonetheless does have real interests in relation to Taiwan and we maintain an unofficial British Trade and Cultural Office there.

II.  BACKGROUND

  2.  Taiwan was ceded to the Japanese under the Treaty of Shimonoseki in 1895. At the end of the Pacific War, Taiwan was occupied by Nationalist troops of the Republic of China. Following their defeat in the civil war in China, the remnants of the Nationalist administration fled to Taiwan. For many years, the Nationalist administration in Taiwan maintained its claim to be the legitimate government of the whole of China, a claim also made by the Government of the People's Republic (PRC). Although the "Republic of China" constitution still lays claim to sovereignty over the mainland, the administration has in practice long since stopped denying that there is another legitimate government in power on the mainland (ie one (notional) country, two separate non-overlapping jurisdictions).

III.  UK POSITION ON THE STATUS OF TAIWAN

  3.  HMG recognised the Government of the PRC in 1950. We retained a British Consulate in Tamsui outside Taipei, accredited to the provincial authorities of Taiwan, until 1972. At that time, an agreement was signed with the PRC allowing for an exchange of Ambassadors with China. The Consulate was withdrawn at that time and since then there has been no official UK representation in Taiwan. Under the terms of the 1972 agreement with China, HMG acknowledged the position of the government of the PRC that Taiwan was a province of the PRC and recognised the PRC Government as the sole legal Government of China. This remains the basis of our relations with Taiwan. We do not deal with the Taiwan authorities on a government to government basis, and we avoid any act which could be taken to imply recognition.

IV.  TAIWAN'S ECONOMIC DEVELOPMENT

  4.  Taiwan has an economy of global importance. It has a GNP of US$290 billion and a GDP per capita of US$13,203 which ranks it among the developed industrialised nations. The Ministry of Finance estimates true GNP per capita as over US$21,000. This figure includes income from Taiwanese investments abroad and assumptions about the size of the black economy (thought to be worth at least a quarter of official GNP). It is the world's fourteenth largest trading economy and has the world's third largest foreign exchange reserves at US$110 billion.

  5.  Of the major industrialised economies in Asia, Taiwan's is arguably the strongest and the healthiest. In the past four years, it has bounced back vigorously from bouts of Chinese sabre rattling, the Asian financial crisis, and an earthquake which killed 2,500 and destroyed 100,000 homes. In 1998 at the height of the Asian crisis, Taiwan eased back to 4.9 per cent growth compared to negative growth in Hong Kong, Korea and Singapore. Last year Taiwan posted 5.5 per cent growth and at least 6.5 per cent is predicted for 2000. At the macro-level it owes its robustness to a consistent trade and current account surplus, a surplus in net domestic savings, local investment mostly locally funded, negligible external debt, and massive forex reserves. Taiwan has pursued a policy of keeping capital account exchange controls in place until the economy is judged strong enough to withstand their complete removal. It also runs a floating but managed exchange rate. On a micro-level, the financial system is relatively sound and well regulated, and bad loans, corruption and "crony capitalism" are less widespread than elsewhere in Asia. In industry most large companies are neither over-expanded nor over-geared.

  6.  In preparation for WTO entry, the Taiwanese economy has been extensively liberalised and opened to foreign participation. Fulfilment of further commitments following WTO accession will eventually make Taiwan one of the most open economies in Asia if not the world. Britain is already benefiting from improved market access for both goods (eg whisky) and services (retailing and financial services).

V.  TAIWAN'S POLITICAL DEVELOPMENT

  7.  Politically Taiwan has undergone a remarkably smooth transition from an authoritarian one-party system to a fully functioning democracy in the last 15 years. The ruling Nationalist Party first tolerated and then had gradually to yield power to the opposition Democratic Progressive Party. The election, in March 2000, of Chen Shui-bian, the candidate of the Democratic Progressive Party, as President marked a further important step in this process. For the first time in its history, representatives of a party other than the Nationalists (Kuomintang) hold power at the national level in Taiwan. Since the election both the political landscape and the structure of the government have changed dramatically. Though a small number of Nationalist members have been recruited to Chen's government, including the former Defence Minister Tang Fei as premier, the Nationalist Party is nevertheless in serious trouble and undergoing a critical look at itself.

It now barely retains a majority in the legislature. It may yet lose this if it continues to divide and more MPs defect to the new People's First Party, formed by James Soong, the former Nationalist governor of Taiwan Province, who ran as an independent in the Presidential election. The DPP controls only a third of the seats in the legislature and is itself composed of several factions. The result is a fragmented parliament with no party in firm control and the DPP struggling to form a majority alliance. Meanwhile the National Assembly, once aiming to evolve into an Upper House, has voted to pass its Constitution-amending powers to the legislature, the very body whose excesses it had aimed to curb. Taiwan now has an unusual semi-Presidential system, with a powerful uni-cameral parliament. It slightly resembles the French system but has yet to be put to the test.

  8.  Uncharted waters thus lie ahead in the short-term. But in the transition to democracy since 1986, Taiwan has peacefully absorbed numerous dramatic changes. With the transfer of power to the DPP, the last big shake-up is now taking place, but there is no reason to believe that it will not be peaceful. Chen Shui-bian was elected to begin the longer-term but less spectacular work of strengthening democracy and the rule of law inside Taiwan. Already in place are a functioning democratic electoral system, freedom of speech and movement, and a free press. There are no political prisoners or exiles. Serious human rights concerns are limited to the use of the death penalty and occasional reports of police and military brutality.

VI  THE RELATIONSHIP WITH CHINA

  9.  The Government of the People's Republic of China continues to maintain that Taiwan is an inalienable part of China, that it is the sovereign power over Taiwan, and that its ultimate aim is reunification. In fact, official-level dialogues have been carried out in the past between China and Taiwan to discuss the possibility of establishing a modus vivendi, at least on the technical issues if not on the fundamental questions of Taiwan's status and the possibility of agreeing terms on eventual reunification. But these contacts were broken off following President Lee Teng-hui's statement in July 1999, that relations across the straits should be conducted on a "special state to state" basis. The Chinese leadership have more recently re-asserted their policy position that the PRC will not rule out recourse to military means to secure reunification, especially in the context of the Taiwanese Presidential election in March 2000. Their statement that "indefinite refusal to negotiate on these issues" would be a pretext for such action was widely construed as a threat to the Taiwanese not to elect a candidate who might incline towards independence for Taiwan. China publicly described the subsequent election of Chen Shui-bian as "destablising", but has indicated that it would be prepared to resume cross-straits talks on the basis that Taiwan accepts the policy of

"one China". Chen, for his part, has since the election attempted to steer a careful course to avoid offending the PRC, while not wholly abandoning the idea of independence for Taiwan.

  10.  Chen's measured approach reflects a general consensus in Taiwan not to disturb the status quo by unnecessarily provoking the Chinese while not compromising Taiwan's interests in the face of Chinese pressure. While neither side wishes to force the issue, their positions are some way apart and the question of the approach to "one China" remains a sensitive and difficult issue for both sides. It will take some inspired thinking to find an acceptable way back into the negotiating process.

VII.  UK AIMS AND OBJECTIVES IN TAIWAN

  11.  HMG's principal objectives in relation to Taiwan are economic. We seek to develop UK exports and commercial involvement with Taiwan, including inward investment. We also seek to develop a wide range of unofficial links, particularly in the educational and cultural fields. We support the further economic development of Taiwan and look forward to its entry to the WTO. We also welcome Taiwan's political development and the democratic elections that have taken place there. In developing our relations with Taiwan we act within the restraints imposed by our formal position on the status of Taiwan and bear in mind Chinese sensitivities in order to ensure that unnecessary damage to that relationship is avoided.

  12.  We also make it clear that we consider the Taiwan issue is one to be settled by the Chinese people on both sides of the Taiwan strait. We are strongly opposed to any use of military force and urge both sides to engage in constructive dialogue on the issue.

VIII.  UK/TAIWAN BILATERAL CONTACTS

  13.  For the reasons outlined above, the UK has no official representation in Taiwan. Our commercial and other interests are unofficially represented through the British Trade and Cultural Office (BTCO). It was established in 1993 when it was decided to strengthen our effort in Taiwan. It is headed by a senior Diplomatic Service officer on secondment. The principal role of the BTCO is to promote our trade and investment interests and the majority of staff are devoted to this task. It also has a Visa Handling Unit, set up in 1989. Because of its unofficial nature it cannot carry out any formal consular functions. However it does seek to carry out some consular type protection work by assisting distressed British citizens, for example during the earthquake in September last year and in undertaking prison visits.

  14.  The BTCO currently has nine UK based staff and a complement of 41 locally engaged staff in Taipei. There is a small branch office in the southern port of Kaohsiung which is currently staffed by one locally engaged officer.

  15.  The British Council has been operating as the Cultural and Education Section of the BTCO since 1993 when it took over, and expanded, the functions of the private Anglo Taiwan Education Centre. One of its principal functions (below) is to encourage Taiwanese students to study in the UK. It has offices in Taipei and Kaohsiung and a total of 45 staff in Taipei (UK based and locally engaged) and four in Kaohsiung (locally engaged).

  16.  Taiwanese representation in London is similarly unofficial. It consists of the Taipei Representative Office in the UK which carries out similar functions to the BTCO. It has a branch office in Edinburgh which opened in 1998. There is also an office called the Taiwan Trade Centre, which is an arm of the private Taiwanese trade promotion body called the China External Trade Development Council (CETRA).

IX.  COMMERCIAL RELATIONS

  17.  Our main emphasis is on trade and investment promotion. UK exports to Taiwan dipped in 1998 and 1999 but are now showing signs of recovery. The total export figure in 1999 was £867.6 million. Since 1992, there have been regular private visits to Taiwan by UK Ministers to pursue trade and inward investment promotion objectives. The most recent was by Mr. Caborn, the Minister for Trade, in February. We hope to continue and develop these exchanges which can provide real practical support to British business. We welcome private visits by Taiwanese Ministers to this country. Recent senior visitors have included the Minister of Health in 1998 and the Minister of Economic Affairs last year.

  18.  The annual UK/Taiwan trade policy talks form the focal point of regular official level bilateral dialogue on market access and trade liberalisation. We are also actively seeking practical ways to help UK businesses through improving the business environment; the BTCO recently signed with the relevant body in Taiwan an Intellectual Property Arrangement and is hoping to negotiate other informal arrangements, such as one on the avoidance of double taxation. The BTCO has also been active on market issues such as the removal of discriminatory taxes on Scotch whisky, better access for financial services, lobbying for the lifting of the ban on British beef and pork and the protection of British intellectual property. It makes regular informal representations in support of the protection of Falkland Islands fish stocks from poaching.

X.  INWARD INVESTMENT FROM TAIWAN

  19.  Taiwan is a major inward Asian investor, with 80 per cent of their European investment in the UK. The companies are almost exclusively IT related. Taiwan is the third largest IT producer behind USA and Japan. Although, like Hong Kong, inward investment to the UK has slowed, there too are signs that Taiwanese companies are now more actively looking to invest overseas with an accent on Research and Development into new IT technologies. There is also a growing interest in biotechnology.

  20.  The Invest in Britain Bureau is housed within the BTCO with a team of five full time (one UK based) staff devoted to inward investment.(These have been included in the total staff of BTCO above). This is the largest IBB team in Asia outside Japan. Ten regional development agencies also maintain offices in Taipei, although these are spearate from the BTCO. They are: Advantage West Midlands, London First Centre, One North East, North West England Development Bureau, East Midlands Development Bureau, Locate in Kent, Locate in Scotland, Welsh Development Agency, Industrial Development Board for Northern Ireland, and English Partnerships. The Yorkshire Forward office closed in February 2000.

XI.  EDUCATIONAL AND OTHER UNOFFICIAL LINKS

  21.  The number of Taiwanese students in Britain has grown impressively in the last decade. The UK now has approximately 24 per cent of the Taiwanese overseas study market, compared to 1 per cent in 1989. During 1999, some 6,550 students visas were issued in Taipei and the total number of Taiwanese students in the UK during the year is estimated at between 10,000 and 11,000. The BTCO's educational and Cultural Section holds eight education exhibitions a year, produces a range of publications and offers daily counselling. In addition to education promotion, it operates in the field of arts, science and technology and English language teaching.

  22.  The British Tourist Authority closed down its Taipei operation in February 1999 and the British Council now operates a limited tourist information service on its behalf. Due to the Asian financial crisis, tourist numbers fell 6 per cent to 28,000 last year, but the total number of Taiwanese visitors grew by 5 per cent to 43,000.

  23.  Parliamentary exchanges are active. Since 1993, Taiwan has hosted oveer 100 visits by British MPs. The Foreign Affairs Committee and the Employment Committee both visited in 1993, and the Trade and Industry Committee has visited twice, although there have been no Select Committee visits in recent years. Taiwan's Legislative Yuan has an association promoting links with parliaments in Europe and numerous MPs have visited the UK. The BTCO's lobbying and networking activities are directed at key MPs of all parties as well as at the authorities.

  24.  We seek to encourage non-official links in a wide range of areas, cultural, scientific and so on where these can be of mutual benefit.

XII.  TAIWAN AND INTERNATIONAL BODIES

  25.  Because of our formal position on the status of Taiwan we do not support Taiwan's membership of international bodies whose membership is limited to states. We do support and encourage Taiwan's membership of appropriate international economic fora, including the WTO. We look forward to Taiwan joining the WTO, under the right terms, in its capacity as the Customs Territory of Taiwan, Kinmen, Matsu and Penghu.

---

---

Prepared 30 October 2000