return to MA Projects
  

Taiwan’s Accession to the World Trade Organization Agreement on Government Procurement 

A Comprehensive Strategy for General Tech

By
Charles Tsai

 

Advisors:
Professor Geza Feketekuty 

Professor William W. Monning
Professor William Arrocha
 

-2003- 

This paper was researched and written to fulfill the M.A. project requirement for completing the Monterey Institute of International Studies’ Master of Arts in Commercial Diplomacy. It was not commissioned by any government or other organization. The views and analysis presented are those of the student alone. Names of people, corporations, businesses and governments are used only as examples in fictitious sample correspondence, statements, etc. in order to depict a realistic, albeit fictional, scenario. This does not represent any knowledge of these examples, nor does it in any way represent an endorsement by an individual, corporation, business or government.  The company referred to in this project is purely hypothetical.  The general background and information related to the relevant laws, regimes and agreements is factual, although students will need to supplement the information on specific WTO agreements and cases through their own research.

Foreword 

As Taiwan has not yet acceded to the Agreement on Government Procurement (AGP), public information on Taiwan’s accession negotiations is very limited.  What little concrete evidence is available cannot in any way be considered definitive.  Pointedly, the draft text of Annex I to Taiwan’s AGP accession documents (which lists the “Central Government Entities” that are crucial to the analysis presented in this paper) remains a restricted document at the time this paper is being written.  The need for confidentiality about the inner workings of international trade negotiations left the researcher to rely primarily on the limited, publicly available data.  As a result, this paper will operate under the assumption that Chinese concerns over Taiwan’s accession to the AGP are the primary hindrance to Taiwan’s accession to the AGP.  A factual basis for this premise is presented in the section of this paper entitled A Brief History of Taiwan’s AGP Accession Process.  And while the public record supports this perspective, the very sensitive nature of sovereignty and cross-strait relations can only mean that this paper is an academic exercise: it pretends to be nothing else.

Although the subject of this study has at various times been referred to as Formosa, the Republic of China (ROC) and Chinese Taipei (just to name a few), I have chosen to use the term “Taiwan” wherever possible.  I decided to use this designation solely based upon my desire to use a term that is both concise and widely recognized. 

Table of Contents 

Introduction

 

Scenario

 

Issue

 

Executive Summary

 

A Brief History of Taiwan’s AGP Accession Process

 

Backgrounders

 

Policy Backgrounder                                                  

 

Commercial Backgrounder                                                    

 

Economic Backgrounder

 

Political Backgrounder

 

Legal Backgrounder

 

Analysis

 

The Perspective from General Tech

 

Policy Analysis

 

Commercial Analysis 

 

Economic Analysis

 

Political Analysis

 

Legal Analysis

 

Conclusion

 

Strategy

 

Track I

 

Track II

 

Expenses for the Coalition

 

Appendix

 

Joint Communiqué of the United States of America and the People's Republic of China

 

Understanding on Government Procurement Between the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei) and the Government of the United States

 

A Selection of Trade Agreements Act Countries

 

The Government Procurement Market Represented by AGP Members And What it May Mean for Taiwanese Personal Computer Manufacturers

 

Total Procurement by AGP Members Minus Expenditures & Defense

 

Total Procurement by AGP Members Minus Expenditures

 

The Democratic Process

 

Hong Kong Central Government Entities

 

Taiwan’s Government Entities

 

Coalition Partners

 

Members of Congress Who Have Sponsored Pro-Taiwan Legislation: 107th Congress (2001-2002)

 

Members of Congress Who Have Co-Sponsored Pro-Taiwan Legislation: 107th Congress (2001-2002)

 

Sample Letter to Congressmen

 

Preferred Outcomes

 

Negotiation Chart

 

 

Scenario 

General Tech (GT)[1] sourced roughly US$15.5 billion in Information Technology (IT) hardware from Taiwan in 2001.[2]  General Tech is also a major supplier of IT hardware to the US government.  However, Taiwan is not part of the World Trade Organization’s (WTO) Agreement on Government Procurement (AGP), and General Tech products originating in Taiwan are thus not eligible for sale to the US government without significant restrictions.   

Under US government procurement rules, government agencies can procure goods from foreign countries that are not party to the AGP, under the general condition that the cost of the non-AGP product is at least 6 percent below that of the nearest domestic or AGP competitor.  However, government agencies may set a higher threshold value when it is in the national interest.  For example, the Defense Department generally applies a 50 percent threshold in this respect, and a 12 percent threshold (although not specifically mandated) is normally applied in cases where such a higher threshold would benefit areas with high unemployment.[3] 

As such, products sourced by GT from Taiwan for sale to the US government are subject to a minimum competitive disadvantage of 6 percent or more when assessed against bids consisting of products produced in AGP countries.  Oftentimes, the competitive disadvantage resulting from Taiwan’s non-AGP status leaves GT to source products intended for sale to the US government, which would otherwise be more efficiently produced in Taiwan, from less efficient producers in third countries.  In the case of GT alone, this paper estimates the total value of the actual and hypothetical Taiwan sourced production impacted by Taiwan’s non-AGP status to be US$3 billion.[4]  The resulting costs to GT, which we estimate to be roughly US$180 million,[5] represents not only higher production costs in less efficient third countries, but also substantial administrative and IT costs associated with creating a separate system of product identification codes for products designated for US government sale.  The object of this exercise is to assess the policy, commercial, economic and political issues involved by Taiwan’s accession to the AGP, and then to propose a comprehensive strategy that GT may employ to remove restrictions on the sale of Taiwanese products to the US government. 

As part of the staff in the government relations department at GT, I have been made responsible for developing a comprehensive strategy to meet this commercial challenge.  The comprehensive strategy is comprised of two tracks: one based on facilitating Taiwan’s accession to the AGP, and the other, to assist the establishment of a US-Taiwan bilateral Memorandum of Understanding (MOU) on government procurement.  Either of these strategies could independently solve GT’s commercial problem by de-restricting products sourced from Taiwan for sale to the US government.  Importantly, pursuing these complementary strategies simultaneously will enhance the possibility for an early solution, as will be outlined in the Strategy section.

Issue

By the time of the February 2002 meeting of the WTO Committee on Government Procurement (CGP), Taiwan’s eight year long process of bilateral negotiations with AGP members appeared complete and expectations were high that Taiwan would leave the meeting as an AGP member.  Taiwan left that meeting with its membership status unchanged.  The reason for this largely unexpected outcome lies in the controversial relationship between Taiwan and China, and the implications that Taiwan’s accession to the AGP may have on this relationship.  In contrast to more typical case studies in the field of Commercial Diplomacy where the stakeholder directly responsible for the political, economic and administrative costs of a desired change in policy or law must be persuaded to make that change, the case of Taiwan’s accession to the AGP is one in which the directly competent stakeholder, the Taiwanese government:  

1)     is already politically committed to joining the AGP; 

2)     has already altered domestic rules and regulations (despite strong domestic opposition in some quarters) to meet the requirements of the AGP; and  

3)     has largely concluded bilateral negotiations for accession to the AGP with all AGP members.   

The central negotiation challenge in this paper is not to engage in efforts to demonstrate the benefits that Taiwan would secure by entry into the AGP.  Nor is it to persuade the competent Taiwanese officials to expend political, legislative and administrative capital to join the AGP: this task is de facto complete. The solution to this negotiating challenge, however, will require the expenditure of political capital by various actors in Taiwan, the US and China, as will be addressed in the Strategy section. 

The central negotiation challenge in this paper is to resolve the Commercial Diplomacy challenge posed by China’s concerns regarding the impact that the listing of Taiwanese central government agencies within the AGP might have on Taiwan’s legal (and thus political) standing within the international community. 

Under Track I, this paper forwards a blueprint to facilitate Taiwan’s AGP accession.  This plan-of-action addresses the two negotiation challenges that must be overcome by any solution to Taiwan’s AGP accession.  First, China’s concerns regarding the implications that Taiwan’s accession to the AGP will have on China’s claim of sovereignty over Taiwan must be addressed.  Second, the solution cannot incur an unacceptable political cost to the current Chen Shui-bian government on Taiwan, which is heavily dependent upon a constituency known for its desire to keep Taiwan independent from China.  In short, this blueprint seeks to negotiate around two conflicting political forces – one, international and one, domestic – and ultimately allow Taiwan to accede to the AGP, thus freeing GT products sourced from Taiwan for sale to the US government.

Under Track II, an agenda will be forwarded for promoting the establishment of a US-Taiwan MOU on government procurement.  Under this MOU, Taiwan would implement the measures it had already pledged to implement upon its accession to the AGP.  In exchange, the US would treat Taiwanese products as if Taiwan were really an AGP member.  Such an MOU would provide an alternative means to free products GT sources from Taiwan for sale to the US government.


Executive Summary

In this executive summary, we will introduce the historical, legal and political relationship between Taiwan, China and the United States.  By highlighting the complex uncertainties and tensions involved in this triangular relationship, we seek to clarify the political topography that Taiwan’s AGP accession must navigate.  Next, we highlight China’s concerns over the impact that Taiwan’s accession to the AGP may have on its claim of sovereignty over Taiwan by examining Taiwan’s accession to the WTO itself.  In doing so, we clarify the distinctions between the more familiar legal terrain of Taiwan’s WTO membership and define the obstacles that are unique to Taiwan’s AGP accession.  Finally, we compare the AGP accession of Taiwan with that of Hong Kong (which is already an AGP member) as a means to refine our understanding of the subtle legal, political and procedural distinctions existing between these related cases.  In so doing, we gain a more complete understanding of the specific problems facing Taiwan’s accession to the AGP. 
 

The United States, the Republic of China and the People’s Republic of China. 

China’s stake in this issue is best understood within its historical context.  The Shanghai Communiqué established between the United States and the People’s Republic of China (PRC) in 1972 created the principle of “One China.”  The Shanghai Communiqué itself resulted from a meeting engineered by Henry Kissinger during which President Richard Nixon flew to mainland China and began the process of formal rapprochement between the US and the PRC during the Cold War.  This process eventually led the US to sever formal diplomatic relations with the government of the Republic of China (ROC) which the US had until then recognized as the sole and legitimate government of China (a territory which included the island of Taiwan).  The Shanghai Communiqué also set the stage for the formal establishment of diplomatic relations with the PRC which the US would come to recognize as the legitimate government of China.  The question of Taiwan however, was addressed only by an ambiguous agreement on the One China principle.  In Paragraph 11 of the Communiqué, the PRC defines the One China principle in the negative: 

The Chinese Government firmly opposes any activities which aim at the creation of "one China, one Taiwan", "one China, two governments", "two Chinas", an "independent Taiwan" or advocate that "the status of Taiwan remains to be determined". 

Responding in Paragraph 13: 

The U.S. side declared: The United States acknowledges that all Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of China. The United States Government does not challenge that position.[6] 

Under this agreement signed between the leaders of the US and the PRC (although never approved by the US Congress), the US “acknowledged” the One China principle and did “not challenge that position.”  Although the US soon removed diplomatic representation from Taiwan and established it with the PRC, the political and legal relationship between the two sides of the Taiwan Strait remains politically and legally uncertain to this day.   

China’s ambivalence over Taiwan’s accession to the AGP. 

It is against this historical backdrop that we[IESC1]  should assess the implications which Taiwan’s accession to the AGP may hold for China’s claim of sovereignty over Taiwan.  As a matter of practicality, accession to the AGP requires aspiring signatories first to identify and then to negotiate the “central,” “sub-central” and “other” government agencies to be covered by the negotiations.  Having done so, bilateral negotiations with current AGP members are then conducted, and concessions made under these three categories.  Finally, the results of all bilateral negotiations are consolidated into the final accession package, which will be applied universally by all AGP members.  China is concerned that by identifying and listing commercial concessions made by Taiwanese central” government agencies within a legally binding international agreement, Taiwan’s accession to the AGP may one day be used as the basis for a legal argument in support of Taiwanese independence from China.  From Beijing’s perspective, the One China principle means that there can only be one central government for China, and that central government exists in Beijing.  As a matter of legal practicality, if China does not openly register its reservations, China’s future leverage in a hypothetical international legal dispute over Taiwan’s relationship vis-à-vis China may be compromised.

Intuitively, one would think that China’s concerns over its relationship with Taiwan within the WTO agreements were addressed when Taiwan acceded to the WTO.  Indeed, China’s sensitivities over Taiwan’s accession to the WTO were largely mollified by Taiwan’s accession to WTO, not as “Taiwan,” but as the “Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu” or “Chinese Taipei.”[7]  However, the AGP may pose different problems for two distinct reasons.

First, as indicated above, China has expressed uncertainties over the legal effect that Taiwan joining the AGP as an entity containing “central government agencies,” would have on Beijing’s claim of sovereignty over what it considers China’s “Separate Customs Territory.”  Indeed, joining the WTO as a Separate Customs Territory does appear to be different from joining the AGP as an entity expressly containing central government agencies.  In this light, the existence of two distinct central government agencies codified and recognized in a binding international legal agreement within the WTO, would prima facie contradict the “One China” principle laid out in the Shanghai Communiqué. 

Second, the original negotiations allowing Taiwan’s accession to the WTO required Taiwan to be represented under innovative nomenclature within the WTO.  This compromise was in referring to Taiwan as the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu or Chinese Taipei.  However, it is important to note that these negotiations occurred at a time when the pro-independence movement within Taiwan was in its infancy, and the ability of this nascent democratic process to check such concession was limited.  In line with the usage of innovative nomenclature as a solution for WTO membership, some have suggested that the names of the relevant government agencies could be omitted or altered to accommodate the political realities impeding Taiwan’s AGP accession.  However, this would be a politically risky undertaking due to the newfound freedoms of expression, press and democratic process that characterize the Taiwanese political landscape of today.  Notably, the first and current popularly elected President in Taiwanese history, President Chen secured his election based upon a constituency known for strongly pro-independence ideology.  As a result, there is a good deal of uncertainty over whether the elected government is prepared to endure the political fallout from a constituency that would perceive any changes in the names of domestic government agencies within AGP accession documents, as unjustifiable humiliations that should not be tolerated as the cost of membership to the AGP.  

 

What about Hong Kong’s membership within the AGP? 

Logically, one would note that Hong Kong[8] is both a part of China and a member of the AGP.  (Macao is also part of China and a member of the WTO, but not the AGP).  China did not object to Hong Kong’s accession to the AGP because, at the time, Hong Kong was still a formal colony of the United Kingdom.  With respect to the precedent that Hong Kong sets for Taiwan’s AGP accession, there are three crucial differences.  These differences exist at the international level, at the organizational level (within the context of the WTO) and the agreement level (within the AGP accession process itself).  First, unlike Taiwan, political sovereignty over Hong Kong is not in question.  Hong Kong does not have a high profile pro-independence movement as does Taiwan.  And more importantly, a recent amendment to Hong Kong’s constitution has provided Beijing with veto power over the selection of the Hong Kong’s Chief Executive, thereby concretely establishing the political sovereignty of China over Hong Kong in a framework outside of the WTO.[9]  Second, within the context of the WTO specifically, Hong Kong’s lack of self-sovereignty has never been a source of controversy.  Indeed, Hong Kong first joined the WTO as the explicit Separate Customs Territory of the United Kingdom. And when the UK returned Hong Kong to China in 1997, diplomatic and legal procedures were followed within the WTO that clearly defined the relationship between “Hong Kong, China” (the official designation for Hong Kong within the WTO) and China.  Although Taiwan acceded to the WTO as the “Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu” (or “Chinese Taipei”), ambiguity remains over the precise relationship between “Chinese Taipei” and China within the context of the WTO.  Note for example, the subtle but significant difference between appellations of “Hong Kong, China” (which clearly reveals Hong Kong as part of China) and “Chinese Taipei” (in which the use of “Chinese” could be interpreted to have only regional or cultural implications).  Finally, within the context of the AGP itself (and as we will detail in the Legal Backgrounder section and assess in the Legal Analysis section), the names of the central government agencies listed within Hong Kong’s AGP accession documents do not imply sovereignty over the territories they govern whereas those appearing on Taiwan’s AGP accession documents likely do.  From China’s perspective, fundamental differences exist between the cases of Hong Kong and Taiwan within the international context, within the WTO framework and under the AGP.

A Brief History of Taiwan’s AGP Accession Process 

This short history reveals that Taiwanese authorities initially conceived of AGP accession as a way to facilitate entry into the WTO.  Ironically, Taiwan’s accession to the AGP has proven to be a greater challenge to Taiwan than accession to the WTO itself.  The following provides the reader with an understanding of the issues Taiwan has encountered in its quest to accede to the AGP.  It also provides a factual basis for the crucial assumption underlying this paper: that the primary impediment to Taiwan’s accession to the AGP is not Taiwan’s inability to conclude commercially viable bilateral agreements with all AGP members.  But rather, it is the whole host of evolving issues surrounding the uncertainties in the relationship between Taiwan and China.  While this paper does not attempt to resolve the political issues existing between Taiwan and China, it does address them in the context of a solution to the commercial problem GT faces due to the significant restrictions on the sale of products sourced from Taiwan to the US government. 

From AGP accession to WTO accession? 

The first recorded indication of an intention by the Taiwanese government to join the AGP predates the existence of the AGP (January 1, 1996) and even that of the WTO (January 1, 1995) itself.  On April 23, 1994, a Central News Agency article headlined “Taiwan to sign government procurement pacts” explained the rational behind Taiwan’s accession to the AGP: 

Taiwan has decided to sign government procurement agreements with contracting parties of the General Agreement on Tariffs and Trade (GATT)[10] this year in order to facilitate its entry into the Geneva-based world trade regulating body.[11] 

By the following week, a headline appearing in the same paper reported “Taiwan hopes to sign the Government Procurement Agreement[12] accord next year.”[13]  On June 30, 1994, Taiwan began an unexpectedly long and eventful process of accession to the AGP within the WTO.[14]  As an early indication of Taiwan’s political commitment to AGP accession, the representative of Taiwan affirmed during a formal meeting of the WTO Committee on Government Procurement (CGP) held on May 21, 1997, that Taiwan would: 

acced[e] to the Agreement [AGP] within one year after its accession to the WTO.  If, however, the national government procurement law was enacted prior to its accession to the WTO, Chinese Taipei would accede to the Agreement within one year after enactment of the law or at the time it acceded to the WTO, whichever was later.[15]  (Emphasis Added) 

By February 19, 1998, Taiwan had already signed its bilateral accession agreement with Switzerland.[16]  Matching legislative action to political commitment, President Lee Tung-hui promulgated the Government Procurement Law (GPL) on May 27, 1998.[17]  Upon entry into force on May 27, 1999, the GPL brought Taiwan’s domestic legal system into conformity with the rules of the AGP.[18]  With the necessary domestic laws in place by mid-1999, the quote appearing above would suggest that Taiwan would accede to the AGP “at the time it acceded to the WTO” as long as accession took place after May 27, 2000.  By July 10, 2001, an article appearing in a prominent economic daily, The Taiwan Economic News, confidently reported that: 

The ROC government has effectively completed consultations with all trade partners concerning Taiwan’s entry into the World Trade Organization (WTO) following its recent [clinching] of an agreement with Canada.[19] 

The first signs of the difficulties to come. 

Foreshadowing the unique challenges that were to face Taiwan’s AGP accession process, an article appearing in the November 14, 2001 edition of the Hong Kong Ming Pao, reported that Taiwan might ban bidding by Hong Kong companies on strategic works projects such as power plants and airports due to concerns that influence by the Chinese government over Hong Kong could compromise national security.[20]  Pointing to AGP rules allowing signatories to decline bids based on national security concerns,[21] the article also suggested that actions might be taken to protect the integrity of the ban Taiwan currently applies against investment from China.  The concern, similarly, being that capital from China might find its way into Taiwan through Hong Kong firms undertaking projects in Taiwan.  However, by late February 2002, this issue appears to have been resolved by way of a diplomatic solution.  In testimony before the Legislative Council (the highest legislative authority in Hong Kong), the Hong Kong Secretary for Commerce and Industry indicated that: 

Following informal contacts between representatives of Hong Kong, China and Chinese Taipei in Geneva, all non-application provisions against Hong Kong have been removed from the latest draft documents.[22]  (Emphasis Added) 

During the months leading up to and immediately following Taiwan’s accession to the WTO on January 1, 2002, there was a pervasive and – on the face of it – warranted expectation that Taiwan would become a member of the AGP as a formality following its WTO accession.  Late in October 2001, Vice Premier Lai In-jaw assured an audience during an official speech at an American Chamber of Commerce luncheon held in Taipei that Taiwan “has promised to sign the Agreement on Government Procurement immediately after its admittance into the international trade body [WTO].”[23] In a November 10, 2001 article, a respected English language daily, the Taipei Times published an article entitled “Government procurement opened to foreign bidders” in which the Ministry of Economic Affairs confirmed that “[g]overnment procurement contracts would be open to more than 30 countries after Taiwan joins the WTO.”[24]  On February 18, 2002, a Central News Agency article entitled “ROC to become 29th Contracting Party to GPA,” reported: 

An ROC delegation, headed by Kuo Yao-chi, chairwoman of the Cabinet-level Public Construction Commission (PCC), left for Geneva Monday to attend the upcoming GPA conference as Taiwan became a full WTO member at the beginning of this year. Once the GPA commission approves Taiwan's GPA accession protocol, the document will then be referred to the ROC's Legislative Yuan for approval. According to WTO regulations, Taiwan will formally become a GPA signatory or contracting party 30 days after it deposits its instrument of ratification at the WTO's Secretariat.[25]   (Emphasis Added) 

On February 18, 2002 an Agence France Presse headline pronounced “Taiwan to sign WTO’s Government Procurement Agreement.”[26]  The following day, an on-line paper based in Pakistan also reported “Taiwan to sign procurement agreement.”[27]  Intuitively, the issue of sovereignty and Taiwan’s accession to the AGP should have been resolved by Taiwan’s accession to the WTO.  The public record supports the contention that officials in Taiwan and many of the AGP members assumed that the sovereignty component of Taiwan’s AGP accession would also been resolved by Taiwan’s accession to the WTO. 

The press certainly suggested that officials in Taiwan and many AGP signatory countries expected Taiwan to accede to the AGP during the February 2002 meeting of the WTO CGP.  However, it became clear by the conclusion of this meeting that Taiwan’s accession to the AGP would require more than offering a commercially viable package of concessions to the members of the AGP.  At the time this paper is being written, Taiwan is over two months past the first anniversary of its accession to the WTO, and knowledgeable sources suggest Taiwan’s accession is over a year away.
 

 What went wrong? 

Although incontrovertible evidence is unavailable,[28] the public record supports the contention that Taiwan was unable to accede due to China’s influence over the February 2002 meeting of the CGP.  Referring to the events surrounding the February meeting, sources have indicated that sudden, unexpected and extraordinary negotiating positions taken up by Singapore and Israel, could only reasonably be interpreted as blocking actions taken in deference to Beijing.  Known to have close ties to Beijing, Singapore and Israel are both AGP members, and are thus countries with which Taiwan must reach bilateral accession agreements with in order to accede to the AGP.  Consonant with the frustration experienced at the February meeting, the following meeting of the CGP occurring during the summer of 2002 also yielded no progress.  The contention that progress over Taiwan’s AGP accession rests in Beijing is addressed by an article appearing in the June 28, 2002 edition of the Taipei Times in which Europe-based trade officials are quoted as saying: 

While supporting Taiwan’s bid to sign on to the agreement [AGP], China raised concerns about its status as a signatory to the agreement despite the fact it is categorized as a separate customs territory entitled Chinese Taipei …

 

Later in the same article, it is suggested that the current Taiwanese Minister of Economic Affairs Lin Yi-fu would agree.  He stated:

 

… Singapore and Israel – two strong allies of China and current signatories to the agreement – claimed that they need more time to revise their negotiation documents.[29] 

In a firm rebuttal appearing in a Yahoo News article dated July 2, 2002, Singapore’s Ministry of Trade and Industry (MTI) referred specifically to the article cited above and rejected speculation of a link between China’s concerns and Singapore’s objection to Taiwan’s AGP accession. MTI confirmed its objection to the Taiwan’s AGP accession, but indicates that it had done so: 

…because Taipei had discriminated against Singapore by offering some of its concessions under the GPA only to the United States, the European Commission, Japan, Korea, Switzerland, Canada, Hong Kong-China, Norway and Iceland.[30] 

The clarification put forward by the Singaporean government does cast doubt on the assertion that China is the key factor standing between Taiwan and its accession to the AGP.  However, there is no record of a reaction from Israel.[31]  At this point, it is useful to recall the explicit assurance of Taiwanese representatives during the May 1997 meeting of the CGP that: 

“If … the national government procurement law was enacted prior to its accession to the WTO, Chinese Taipei would accede to the Agreement within one year after enactment of the law or at the time it acceded to the WTO.” (Emphasis Added)

In fact, Taiwan put the GPL into force in May 1999 but had not acceded to the AGP by 2003, over a year after its accession to the WTO.  There is good reason to believe that the challenges facing Taiwan’s accession are more complex than the negotiating difficulties indicated by Singapore.

Here it is useful to recognize that formal meetings of committees within the WTO are normally the product of the carefully rehearsed informal meetings that precede them.  This is largely due to the fact that the WTO Secretariat provides a written record of formal meetings.  As a result, representatives of WTO members attending formal meetings are naturally very careful about statements at such meetings.  In short, the categorical statement made by the representatives of Taiwan at the May 1997 meeting of the CGP would not have been made without confidence that it could be honored.  The fact that it was not supports the thesis of Chinese intervention.

Significantly, the minutes from the meetings of the CGP demonstrate a trajectory in Taiwan’s AGP accession process which should have resulted in Taiwan’s accession at the February 2002 meeting.  Taiwan completed its bilateral AGP accession agreement with Japan early in October 1998.[32]  Good progress was reported in negotiations with Korea during the March 2000 meeting.[33]  By the time of the May 2001 meeting: negotiations with the US had been concluded; Canada “looked forward to reaching a rapid solution to a few outstanding issues;” and the European Communities (EC) had “concluded the remaining issues with Chinese Taipei and looked forward to receiving a revised offer.”[34]  Momentum was very positive by the May 2001 meeting with most bilaterals at or very near conclusion.  Records from the meetings of the CGP leave the reader with every reason to believe that Taiwan should have acceded to the AGP “at the time of its accession to the WTO” in 2002.

Pointedly absent from any of the available minutes of the CGP meetings spanning Taiwan’s seven-year process, however, is any mention of Israel or Singapore in connection within Taiwan’s accession process, whether positive or negative in context.  It is unusual that progress in bilaterals between Taiwan and Singapore and then Taiwan and Israel would suddenly result in an impasse at such a late stage in the negotiation process.  This is significant as most negotiations within the WTO are weighted heavily on the conclusion of agreements with the US and the EC.  Once the US and the EC are on-board, the conclusion of negotiating processes is normally swift.  In this case, Taiwan’s bilaterals with the US and possibly the EC had been complete for over two meetings of the CGP prior to Taiwan’s accession to the WTO.

The significance of concluding bilateral agreements with the US and the EC within the context of any WTO negotiating process goes beyond a simple consideration of the phenomenal political influence of these two WTO members.  The conclusion of negotiations with the US and the EC is the litmus of a mature negotiating process. The sheer economic weight and competitiveness of these two WTO members means that the domestic commercial impact of liberalization measures taken by a WTO member as part of an agreement will often largely result from the economies the US and the EC.  Smaller economies, by contrast, are normally much less likely to have a large impact on the domestic economy of a liberalizing member.  Thus, tying up the loose ends of negotiations with the smaller economies is normally not a monumental challenge once the economic interests of the US and the EC have been met.  This is likely even more so in the arena of government procurement where liberalizations are restricted to contracts above high threshold values,[35] and hence favor the provision of goods and services by large and sophisticated economies. 

The fact that Taiwan has been unable to accede to the AGP despite having already reached agreements with the US and the EC, suggests that the obstacle to Taiwan’s AGP accession is not commercial or economic in nature.  The fact that Taiwan’s accession process has reached impasse at such a late stage, and due to an inability to reach bilaterals with two small economies that had not raised concerns early in the negotiation process is unusual.  The fact that these two small economies have significant political relations with China strongly suggests that Taiwan’s AGP accession will rest on decisions made in Beijing.
 


Policy Backgrounder 

To adequately address the complexities covered by this paper, this policy backgrounder will examine a spectrum of political and economic policies and identify their relationships.  In the following, these policies will be addressed in a manner approximating the chronology in which the Government Affairs Department of GT became aware of them.  We start by examining the commercial problem created by the US policy of encouraging expansion in the membership of the AGP.  By purposefully restricting the purchase of goods from non-AGP signatories, US policymakers hope to create an incentive for non-AGP signatures to join the agreement.  This means that GT cannot sell products sourced from Taiwan to the US government without significant restrictions.  We then examine the broader implications that the US policy agenda on government procurement has for Taiwan’s AGP accession process.  Following a review of China’s status within the AGP process, we move to look at the perspectives that Taiwan and China have taken on the One China principle, and examine how these differing perspectives influence China’s policy on Taiwan’s AGP accession.  Continuing, we examine how US policy on the One China principle interacts with the issue of Taiwan’s accession to the AGP.  Finally, we touch on Sino-US tensions that might be generated by the manner and vigor with which the US supports Taiwan’s AGP accession, and how such tensions might be assessed within the context of the broad national and security policies of the US and China. 

1.           The US policy of encouraging economic liberalization and anti-corruption efforts through support for increasing the membership of the AGP.

2.           The US policy on Taiwan’s accession to the AGP.

3.           China’s policy on the AGP.

4.           China, Taiwan and the AGP.

5.          The lack of a clear policy by the US with respect to the One China principle.

6. Broader US and Chinese commercial and security policies that may be impacted by increased Sino-US political tensions. 

The United States policy of encouraging economic liberalization and anti-corruption efforts through support for increasing the membership of the AGP. 

In line with the longstanding US policy of supporting international economic liberalization and anti-corruption efforts, the US enforces significant restrictions[36] on government procurement from non-AGP countries.  By conditioning access to a US government procurement market valued at over US$800 billion,[37] US policymakers hope to create an incentive for non-AGP signatory countries to accede to the AGP.  The establishment of the AGP is one of the most significant markers of US efforts to enhance economic liberalization and transparency.  Concluded on April 15, 1994 as part of the Marrakesh Agreement establishing the WTO, the AGP is a plurilateral agreement, which means that individual WTO members are free to choose whether to join or to remain outside this agreement.  Entering into force on January 4, 1996, the AGP requires acceding members to liberalize their government procurement markets to other AGP members in accordance with bilateral agreements negotiated with each of the other AGP members as part of the AGP accession process.

By opening government procurement to international bidding and enforcing a set of transparency and procedural requirements on the bidding process, the potential for corruption in bidding on government procurement within AGP signatory countries is significantly reduced.  Although AGP rules do not prohibit AGP signatories from accepting bids from non-AGP signatories, access to the government procurement markets of AGP signatory countries by non-signatories is significantly restricted and hence an inducement exists for countries to join the AGP.

It should be noted here, however, that under the United States Trade Agreements Act of 1979 (TAA), the President is empowered to liberalize access to the US government procurement market for certain non-AGP signatory countries based on a set a specified criteria.[38]  Presently, a number of low-income countries are allowed access to the US government procurement market as part of economic assistance programs designed to benefit low-income countries in Latin American, the Caribbean and elsewhere.  A selection of such beneficiary countries may be found in the A Selection of Trade Agreements Act Countries table in the Appendix.  
   

The US policy on Taiwan’s accession to the AGP. 

With a respectable per-capita income of US$12,941 for 2001,[39] Taiwan is not an obvious candidate to receive access to the US government procurement market based on the past application of the TAA.  In fact, the primary objective of US policy in the case of Taiwan’s accession to the AGP is to insure that Taiwan liberalizes its US$15 billion government procurement market in accordance with the AGP agreement.  Indeed, evidence of this policy position is concretely spelled out in an MOU regarding Taiwan’s accession to the AGP concluded between the US and Taiwan on August 23, 2001.[40]  This MOU indicates a number of legal and policy changes that Taiwan will implement before its accession to the AGP, as well as a number that will be implemented following Taiwan’s accession to the AGP.  The majority of provisions contained in this MOU concern commercial access to lucrative Taiwanese government procurement contracts for construction services.  Highlights of this agreement pointed out by the American Institute in Taiwan (AIT) (the de facto US diplomatic representation in Taiwan) immediately following the conclusion of this MOU include: 

  • Taiwan will not requdition for tendering.
    U.S. suppliers participating in the tendering process have recourse to challenge procedures through an independent Complaint Review Board.

  •  Taiwan will include global business experience in its evaluation of suppliers' qualifications, and will not limit such evaluations to previous performance in Taiwan.

  •  A supplier's delay or failure to perform a GPA-covered contract due to an event of "force majeure" will not constitute the basis for termination of the contract for default, forfeiture of any performance security, or imposition of liquidated damages.[41] 

  
The Taiwanese policy perspective on accession to the AGP.
 

Efforts by the Taiwanese government to accede to the AGP are well documented in the A Brief History of Taiwan’s AGP Accession Process section and will not be repeated here.  The fact that Taiwan has already made numerous alterations to bring the Taiwanese domestic legal system into full compliance with AGP rules prior to accession is indicative of Taiwan’s commitment to join the AGP.  Although there were problems with Taiwan’s bilateral AGP negotiations in the case of bidding on strategic infrastructure projects by Hong Kong, and preferential treatment accorded to some AGP signatories and not others (e.g. Singapore), the History suggests that the primary obstacle to Taiwan’s AGP membership is China’s concern that the appearance of “central government entities” in Taiwan’s draft AGP accession documents could negatively impact its claim of sovereignty over Taiwan.[42]

In order to placate China’s concerns on this matter, it has been suggested that the names of the central government entities appearing on Taiwan’s draft Annex I AGP accession documents could be altered so that they no longer imply that they are bodies of the Taiwanese “central government.”  Unfortunately however, given the context of Taiwan’s current domestic political environment, the elected government would find the introduction of such a policy to be a politically challenging.  Given the visibly pro-independence tendencies of the constituency he relied upon for his electoral victory in 2000 and the reality that he must continue to rely on this same constituency for the next presidential elections in 2004, it comes as no surprise that the election of Chen to the Taiwanese Presidency brought about a harsh winter in relations between Taiwan and China.  In his inaugural speech delivered on May 20, 2000, Chen carefully formulated his position on the One China issue in terms of a statement that he would not declare independence as long as China did not resort to force.  The primary source of friction between the mainland government and the Chen government is the fact that neither side will acquiesce to formal communications except under its own terms: China, the One China principle; and Taiwan, a dialogue between equals.  The most recent controversy in the saga of cross strait tensions was a statement by Chen on August 3, 2002 that he supported a plebiscite on whether the island should declare independence.[43]  Although this would appear to represent a change in policy from the original “no declaration of independence so long as China did not exercise force” formulation of Chen’s inaugural speech, Taiwanese government officials were quick to announce following this comment that Chen’s remarks do not in anyway reflect a change in Taiwan’s China policy.  The uncertain nature of official Taiwanese policy on independence is indicative of the multifaceted domestic political forces at play within Taiwan’s domestic policy process.  This diversity of political forces would make changing the name of government agencies appearing in Taiwan’s Annex I list a complex policy, public and election issue.

  
China’s policy on the AGP.
 

It should be noted from the start that China is itself moving towards accession to the AGP.  Although not yet formally committed to joining the AGP, China formally committed to becoming an observer within the CGP upon its accession to the AGP and “intends” to accede to the AGP.[44]  The Working Party Report on the Accession of China to the WTO reveals a commitment by China to “table an Appendix 1 offer as soon as possible.”[45]  As in the case of Taiwan, China has already begun administrative reforms to bring domestic regulations in line with AGP rules.  The Chinese Ministry of Finance (MOF) promulgated the Interim Regulations on Government Procurement in April 1998.[46] 



[1] General Tech (GT) is a fictional multi-national IT company. 

[2] Foreign IT Procurement to hit US$41 billion in 2002. (2002, February 7). Taiwan Economic News. 

[3] House Ways and Means Committee, U.S. House of Congress (. (2001, June). Overview and Compilation of

U.S. Trade Statutes: 2001 Edition. (Washington: U.S. Government Printing Office)84. 

[4] For details see the Economic Analysis section. 

[5] For details see the Commercial Analysis section.

[6] The actual text of the Joint Communiqué of the United States of America and the People's Republic of China may be found in the Appendix. 

[7] Although normally referred to as Chinese Taipei for short, the “Separate Customs Territory of Taiwan, Kinmen, Matsu and Penghu” is the formal name for Taiwan within the WTO.  And it is under this designation that Taiwan is represented within the official roster of WTO members.  See Members and Observers. (2002). World Trade Organization [On-line]. Available at: http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm Cited 2002, August 30.  

[8] Although most sources support the contention that Hong Kong is an independent actor within the WTO, a blemish remains on Hong Kong’s otherwise enviable record as an active and constructive member of this organization.  While Taiwan and Hong Kong completed bilateral negotiations for Taiwan’s accession to the WTO more than a year prior to Taiwan’s WTO accession, the actual agreement was not signed until the moment before Taiwan’s WTO accession.  Commentators have viewed this policy as an action taken in deference to China. 

[9] Hong Kong surrenders veto power to China: Beijing can fire Chief Executive. (2001, July 12). The

Washington Times.

[10] The General Agreement on Tariffs and Trade (GATT) was the international agreement that formed the basis for the creation of the WTO in 1995. 

[11] Taiwan to Sign Government Procurement Pacts. (1994, April 23). Central News Agency. 

[12] The title "Government Procurement Agreement" and the acronym "GPA," are synonymous with the "Agreement on Government Procurement" and "AGP." 

[13] Taiwan hopes to sign the Government Procurement Accord next year. (1994, April 30). Central News

Agency. 

[14] INTERIM COMMITTEE ON GOVERNMENT PROCUREMENT - MINUTES OF THE MEETING

HELD ON 15 NOVEMBER 1994. (1994). World Trade Organization [On-line]. Available at: http://www.wto.org Cited 2002, August 29. 

[15] Committee on Government Procurement - Minutes of the Meeting Held on 25 June 1998. (1998). World

Trade Organization [On-line]. 

[16] Taiwan: Government Procurement Accord signed with Switzerland. (1998, February 19) ).Central News

Agency. 

[18] Summary Information on Government Procurement: Chinese Taipei. (2002). APEC Secretariat [On-

line]. Available at: http://www.apecsec.org.sg/govtproc/gp_ct.html Cited 2002, August. 29.   

[19] Taiwan completed all necessary WTO talks. (. (2001). Taiwan Economic News [On-line]. Available at:

               http://th.gio.gov.tw/show.cfm?news_id=9905 Cited 2002, August. 29. 

[20] Taiwan to ban Hong Kong bids on strategic projects (. (2001, November 16). ChinaOnline

[On-line]. Available at: http://chinaonline.com/features/eyeontaiwan/currentnews/secure/C01111510.asp Cited 2002, September 16. 

[21] We will address the legal complexities of this topic within the Legal Backgrounder and Legal Analysis sections. 

[22] Legco Question No. 19 (Written Reply). (. (2002, February 27). [A reply by the Secretary for Commerce

and Industry to a question by Hon Abraham Shek]. Government Information Center, Hong Kong, Special Administration of the People’s Republic of China [On-line]. Available at: www.info.gov.hk/cib/ehtml/pdf/p_releases/ press_e_2002_02_27(b).PDF Cited 2003, February 18. 

[23] Vice Premier discusses challenges facing Taiwan. (. (2001, November 1). Taiwan Business News [On-line]. 

Available at: http://203.160.250.52/eeypnews/Business/200111/1004579310.htm Cited 2002, August. 30. 

[24] Government procurement opened to foreign bidders. (. (2001, November 10). Taipei Times [On-line].

Available at: http://www.taipeitimes.com/news/2001/11/10/story/0000110987 Cited 2002, August. 30. 

[25] ROC to Become 29th Contracting Party to GPA. (. (2002, February 18). Central News Agency. 

[26] Taiwan to sign WTO’s government procurement agreement. (. (2002, February 18). Agence France Presse. 

[27] Sehbai, Shaleen. (. (2002, February 19). Taiwan to sign procurement agreement. Jang Group Online

Editions [On-line]. Available at: http://216.239.35.100/search?q=cache:Qo3ycXZcLj4C:www.jang.com.pk/thenews/feb2002-daily/
19-022002/business/b14.htm+taiwan+%22government+procurement+agreement%22+-software
&hl=en&ie=UTF-8
Cited 2002, September 8.
 

[28] At the time of the writing of this paper, the minutes of this meeting GPS/M/16 remain restricted and are unavailable to the public at the WTO website. 

[29] Efforts in WTO hurt by Beijing. (. (2002, June 28). Taipei Times [On-line]. Available http://taipei

times.com/news/2002/06/28/print/0000146213 Cited 2002, August 30. 

[30] Taipei’s discriminatory action led to Singapore’s objections on GPA: MTI. (. (2002, July, 3). Yahoo News 
[On-line]. Available http://sg.news.yahoo.com/020703/5/singapore12109.htm Cited 2002, August 30.
 

[31] A thorough search for a reaction from Israel on this matter found nothing. 

[32] Committee on Government Procurement - Minutes of the Meeting Held on 7 October 1998. (1998).

World Trade Organization [On-line].  

[33] Committee on Government Procurement - Minutes of the Meeting Held on 8 March 2000.  (2000). World

Trade Organization [On-line].  

[34] Committee on Government Procurement - Minutes of the Meeting Held on 3 May 2001. (. (2000). World

Trade Organization [On-line]. 

[35] For the precise figures see the What is the AGP? subsection in the Legal Backgrounder section.

[36] See the Scenario section for further details. 

[37] See the Total Procurement by AGP Members Minus Expenditures table in the Appendix.

[38] The Trade Agreements Act of 1979 (TAA) will be further elaborated on in the Commercial Backgrounder section. 

[39] ROC (Taiwan) vs. PRC (China): A Comparison.  (2002), Government Information Office, Republic of

China [On-line]. Available at: http://www.gio.gov.tw/taiwan-website/5-gp/rocprc/#top Cited Cited 2002 September 18. 

[40] See the text of the Understanding on Government Procurement Between the 
Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei) 
and the Government of the United States
in the Appendix.

[41] The United States and Taiwan Sign Understanding on the WTO Government Procurement Agreement.

(2001, August 24). American Institute in Taiwan [On-line]. Available at: http://www.ait.org.tw/

Cited 2002, September 23. 

[42] As an agreement still in the process of negotiation, none of 
these documents are available to the general public. However, the 
US-Taiwan Memorandum of Understanding provides this paper with 
a satisfactory but inexact proxy.  See the Taiwan’s Government Entities list in Appendix. 

[43] Taiwan’s Chen Backs Vote on Independence. (. (2002, August 4) ). Washington Post. 

[44] Report of the Working Party on the Accession of China..  (2001, November 10). World Trade

Organization [On-line], p. 71. 

[45] Ibid., p. 72. 

[46] Ibid. 


 [IESC1]It’s best to use a consistent form.  Since “we” is in the executive summary, I added “we” here.

 

top

continue to next page