"Taiwan and China Since Joining the WTO"
Forum held at Georgia Tech, September 25th

Georgia Tech's Center for International Strategy, Technology and Policy, the Taipei Economic and Cultural Office (TECO) and the China Research Center co-sponsored a forum addressing economic integration in Asia in light of both Taiwan and China becoming recent members of the World Trade Organization (WTO). Director General Maggie Tien of the TECO opened the forum with an assessment of the trends in the region from Taiwan's point of view, followed by presentations by three eminent scholars.

Nicholas Lardy, a fellow with the Brookings Institution in Washington, D.C., spoke about the impact of the rise of China in the global economy. China is now the 6th largest trading nation in the world. Significantly, last year total world trade and foreign direct investment (FDI) both fell, but China's trade and FDI continued to rise. These developments in China will make a difference around the world, but especially in Asia.

Japan now imports more from China than from the U.S. China has replaced South Korea and Taiwan as the leading suppliers of footwear to the U.S. This pattern of trade is also seen in toys, sporting goods and games. Further, the next group of products that China may dominate is personal computers and related internet technology (IT) products. In IT hardware, China is now the third largest exporter in the world. This is largely due to Taiwan companies moving their production from Taiwan to the mainland. In addition, since quota restrictions on apparel will be phased out by 2005 due to the Uruguay Round agreements, China is likely to increase its exports of apparel, especially to the U.S. Taiwan will reconsider trade barriers that now exist towards China as a result of joining the WTO.

Although these trends are impressive and bode well for China's future, Dr. Lardy pointed out three major challenges. The first is dealing with the changes required within China to meet their negotiated WTO obligations. China agreed to far-reaching changes, beyond what any other country has done. The second is rural restructuring. China employs more people in agriculture than is economically sustainable, which means that many people will have to find non-agricultural jobs either in rural areas or in the cities. The impact of WTO will push this restructuring forward, but it would be necessary even without the WTO factor. Finally, the third challenge will be political transition.

Dr. Zhi Wang, who is currently at George Mason University, gave the second presentation. He began by asking why the relationship between China and Taiwan was warm in terms of economics but cold in terms of politics, and what this might mean for the next ten years in terms of who would gain and who would lose. Dr. Wang's analysis is based on a general equilibrium model (GEM) that incorporates China and many countries in Asia. Using this approach, the impact of different policy choices or phases of WTO obligations can be assessed.

Overall, Dr. Wang's analysis points to companies moving towards higher capital intensive production in China between 2002 and 2011. This result is driven by China's relative factor endowments and inflow of capital, combined with the segmentation of world commodity production due to the globalization of production primarily driven by outsourcing. Typically production design is done in advanced countries, with high-tech production done in the newly industrialized countries and assembly done in the less advanced countries. In this setting, China has the most to gain since it is exploiting both labor-intensive assembly and high-tech production.

Dr. Lawrence Grinter, Professor of Future Conflict Studies at the Air War College in Alabama, gave the final presentation focusing on the security aspects of the cross-strait situation. While Taiwan businesses are moving production to China to help their profits, government officials and others are concerned that the island is being drained of capital and skilled labor. Some believe this will have serious national security consequences. If the two sides come to blows, then Taiwan will have much more to lose.

On the military side, China is gaining a quantity and stealth advantage in weapons. To counter this trend, Dr. Grinter argued that Taiwan needs more defensive weapons. Weapons alone will not be enough, however, since Taiwan will also need training and other help to absorb them. This has become more challenging as talent moves to the mainland. Overall, Dr. Grinter expressed pessimism in the longer term political relationship between Taiwan and China, pointing out that after 2008, when the Olympic Games in Beijing will be over, there could be serious problems.

A lively question-answer session followed the presentations. The Center for International Strategy, Technology and Policy is in the Sam Nunn School of International Affairs and is co-directed by Dr. John Endicott and Dr. Seymore Goodman. The Center can by reached at 404-894-1903 and www.cistp.gatech.edu. The Taipei Office of Economic and Cultural Affairs (TECO) can be reached at 404-532-1940 or teco-atlanta@roc-taiwan.org, and the China Research Center's website is www.chinacenter.net.

Dr. Lardy	Dr. Wang	Dr. Grinter