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Taiwan’s Mainland Policy: Borrowing the Opponent’s Force and Using it as One’s Own – Turning the Threat of War into Peace and Prosperity

American Enterprise Institute Speech

Lai Shin-yuan, Minister, Mainland Affairs Council, Executive Yuan, Republic of China

Dr. Gary Schmitt, distinguished quests:

Good morning!

I would like to thank the American Enterprise Institute for inviting
me here and giving me the chance to join this meeting of distinguished scholars
and experts. It is a very special honor for me.

The purpose of my speech today is to highlight the main significance
of recent developments in cross-strait relations. I will cover four aspects of this,
namely: cross-strait negotiations; the cross-strait Economic Cooperation Framework
Agreement (ECFA); the relationship of Taiwan’s soft power with cross-strait relations;
and political and military issues of cross-strait relations.

1. Conducting cross-strait negotiations, to establish
lasting peace and stability in cross-strait relations

First, let me briefly describe what the government of the Republic
of China’s mainland policy has achieved in the past two years.

Since May 20, 2008, under President Ma’s leadership, the ROC’s
mainland policy has sought to calm the previously angry waves and turbulent billows
of the Taiwan Strait. In the language of popular music, we inherited a situation
of "Dire Straits", and have been building a  "Bridge Over Troubled Water".

During these two years, we have been striving to tear down the
walls of hostility that had been built across the Taiwan Strait over a long period.
Step by step, we have carried out an arduous mission that could not have been accomplished
in the past. By opening negotiation and dialogue, we have turned the formerly tense
situation of cross-strait relations into a driving force for the national development
of the Republic of China. We have made cross-strait relations into a vital force
for building peace and harmony in the Taiwan Strait and the Asia-Pacific region.

The government of the Republic of China’s basic position has
been to pursue cross-strait exchanges and interaction under maintenance of the status
quo, with strict adherence to the mantra of “no unification, no independence, and
no use of force.” We have advocated that both sides should put aside political disputes,
and conduct negotiations in a pragmatic frame of thinking. We have insisted that
negotiations be conducted on a footing of equality and dignity. And we have always
acted under the principle of “putting Taiwan first for the benefit of the people.”

On this basis, we have held five rounds of high-level talks with
mainland China, at which 14 cross-strait agreements have been concluded. The coverage
of these agreements includes tourism, direct flights and shipping, postal services,
food safety, finance, crime-fighting, fishery affairs, agricultural product inspection
and quarantine, and product standards, metrology, testing and certification. At
the 5th round of talks, on June 29 this year, we signed the Cross-Strait Agreement
on Intellectual Property Rights Protection and Cooperation, and, most importantly,

The results of these negotiations have alleviated the tense standoff
that formerly marked cross-strait relations. They have generated cooperative ties
that are beneficial to both sides. They have opened a historic new era of unprecedented
positiveness in cross-strait relations. And by all of this, they have underpinned
the prospects for peace and stability in the Asia-Pacific region.

The Mainland Affairs Council of Taiwan regularly commissions
academic institutions to conduct public opinion surveys. Over the past two years,
these surveys have shown a consistently high level of public support for institutionalized
cross-strait negotiations. In poll after poll, we have seen close to 70 percent
of Taiwanese approving of this as a means of solving problems arising from cross-strait
connections. And in the latest survey, conducted last month, the public support
for this was even more apparent, with 79.3 percent of the people expressing approval.

The public have also expressed high satisfaction with individual
agreements. The signing of the IPR agreement was given an approval rating of 73.1
percent; the signing of ECFA was endorsed by 61.1 percent. These figures demonstrate
that Taiwan government’s policy on the Mainland has earned wide approval from Taiwanese
public opinion.

2. ECFA’s key importance to the further globalization
of Taiwan’s economy

In this next part of my address, I will talk about ECFA. ECFA
is the most important outcome of the cross-strait negotiations pursued by President
Ma’s administration. It is also the cross-strait agreement that has received the
most attention and discussion in international media.

ECFA was formally signed by the Straits Exchange Foundation (SEF)
and the Association for Relations Across the Taiwan Strait (ARATS) on June 29 of
this year. It has been widely welcomed around the world, with the United States,
Japan, the EU, Germany, France, Singapore, New Zealand, Thailand etc., and WTO director-general
Pascal Lamy among those expressing approval.

The signing of this agreement is a major step in the development
of cross-strait relations. It provides a basic framework for establishing orderly
interaction in cross-strait economic and trade affairs. There are three key aspects
of ECFA that I would like to highlight for you:

(1) Firstly, ECFA possesses great significance for promoting
the systemization of cross-strait economic and trade affairs and the globalization
of Taiwan’s economy.

Taiwan is America’s 9th-largest trade partner and the world’s
17th-largest exporter. Globalization of Taiwan’s economy is vitally important for
maintaining its competitiveness. But in the first eight years of the 21st century,
Taiwan faced great difficulties on this front.

Firstly, the high level of hostility in cross-strait relations
precluded the creation of institutional safeguards for cross-strait economic and
trade activity. This increased the risks and costs for Taiwanese businesses, foreign
businesses and foreign investors operating between the two sides of the Taiwan Strait.

Secondly, since other countries paid close heed to mainland China’s
attitude, they shut Taiwan out when they actively pursued regional economic integration,
and Taiwan was increasingly isolated.

But now ECFA has cemented a fundamental change in this situation.
We believe that ECFA will bring greater stability and greater predictability to
cross-strait economic and trade activity. It is a vital starting point for the Republic
of China to set forth again on the path of economic globalization.

Let me put this in the context of the worldwide march toward
regional economic integration. By 2020, it is highly likely that an extensive free
trade area will have been established in the Asian region. ECFA will enable Taiwan
to push forward with the international alignment of Taiwan’s economy. It will enable
Taiwan to gain inclusion in regional economic integration. It will enable Taiwan
to avoid being marginalized, and to keep a place in global industrial chains. This
situation will be beneficial not only to Taiwan, but to all of our economic partners,
too. American firms will be able to gain great advantage from it for their investment
positioning in Asia.

(2) Secondly, ECFA will help Taiwan maintain its economic
autonomy in the process of regional economic integration

There is a huge gulf in size between the economies on the two
sides of the Taiwan Strait. Taiwan must have a safety valve to prevent excessive
impact on domestic industries, with the social problems that could cause. Hence,
when we negotiate ECFA, we insist on putting the words “taking into account each
party’s economic conditions” in the preamble, to serve as a safety valve for Taiwan’s

One of the concrete meanings of “taking into account each party’s
economic conditions” is that, when ECFA is put into effect, consideration must be
given to the special nature of cross-strait relations and the differences between
the economic scale and industrial development conditions on either side of the Strait.
This is to ensure that Taiwan’s sensitive, vulnerable industries are not severely

“Taking into account each party’s economic conditions” also means
that our government can take account of actual conditions in reducing or eliminating
barriers to cross-strait trade and investment. We can carry this out gradually,
in cautious, carefully sequenced steps, to create a fair environment for trade and

(3) Thirdly, ECFA’s early harvest program is an outcome
of trade negotiations conducted in accordance with the principle of proportionality

The day before the signing of ECFA, the Wall Street Journal carried
an editorial about it entitled “Taiwan’s Trade Harvest.” This was an accurate title,
and an excellent choice of words. Taiwan certainly will be a beneficiary of ECFA.

Under ECFA’s early harvest program, Taiwan will gain greater
benefit from early tariff reductions than mainland China. The list of items on which
mainland China will drop its tariffs for Taiwan is twice as long as Taiwan’s corresponding
list. Moreover, the application of these reductions to each side’s cross-strait
exports will give Taiwan 4.8 times greater benefit, applying to export shipments
worth US$13.8 billion versus imports worth US$2.9 billion.

This fairly reflects the current balance of trade across the
Taiwan Strait, with Taiwan exporting roughly four times as much to mainland China
as mainland China exports to Taiwan. Hence, it cannot be regarded as mainland China
“granting favors” to Taiwan or any such thing. It is simply and evidently the outcome
of trade negotiations conducted in accordance with the principle of proportionality.

In summary, ECFA has brought Taiwan back into the eyes of the
world. It has refocused international attention on Taiwan’s economic importance,
and on its credentials for becoming a regional economic and trade hub. In addition,
we have designed a safety valve that greatly reduces potential shocks to our society
from the process of regional economic integration. From Taiwan’s perspective, to
borrow a phrase from domestic baseball, ECFA is a “combined achievement of offence-defense”
agreement that provides for offensive and defensive needs equally well.

3. Taiwan’s soft power versus the Mainland’s rise

Next, I will say something about Taiwan’s soft power in its relationship
to cross-strait relations. Soft power is Taiwan’s most precious asset for facing
the trend of regional economic integration. It is also a very important bargaining
chip when we conduct cross-strait negotiations.

According to a report by IHS Global Insight, America’s 110-year
reign as the world leader in manufacturing output could be lost to mainland China
as early as next year. Mainland China’s economic rise is an undeniable fact. While
there are still countries that do not know how to respond to it, some may ask how
Taiwan dares to sign an agreement like ECFA. Considering the massive gulf in size
between the two sides’ economies, what are Taiwan’s calculations in making this

In particular, given mainland China’s unwavering political goal
of unification, is the daring move of Taiwan a case of what the old Chinese saying
calls “asking a tiger for its skin?” Is it a highly dangerous move?

My answer is: “Of course not!” The negotiation and signing of
ECFA is not at all a dangerous move. On the contrary, it is a measure for reducing

During the past two years, every action taken by Taiwan to improve
cross-strait relations has been a step toward turning the threat of war into peace
and prosperity. It is one of the most successful examples of this strategy in modern

If we look back over the history of mankind, we can see that
many capitalist countries used to pursue trade expansion by exerting the power of
their ships and guns to break down trade barriers. Many countries came into confrontation
and resorted to arms because of tariff walls. It was these painful lessons that
prompted the formation of GATT after World War Two, as a means of replacing confrontation
with negotiation. Later, after GATT’s transformation into the WTO, the trend of
regional economic integration took hold around the world, and free trade agreements
(FTAs) came into proliferation.

That path from GATT to today’s spreading web of FTAs is a chronicle
of mankind’s efforts over the past sixty years to avoid mercantilism-triggered war.
Taiwan’s pursuit of institutionalized cross-strait negotiations, and its signing
of ECFA and other agreements with mainland China, far from being a highly dangerous
move, is in fact one of the most successful models of replacing confrontation with
negotiation since the formation of GATT.

The signing of ECFA and other agreements with Taiwan has given
mainland China an opportunity to show its positive face to the world. It has enabled
Beijing to choose this regulated and orderly path of economic and trade systemization
instead of using force to deal with the Taiwan Strait question. Taiwan has furnished
the linchpin for turning the threat of war into peace and prosperity. President
Ma’s Mainland policy is one of the finest blessings bestowed by the Chinese people
on the whole of mankind in modern history.

What are Taiwan’s bargaining chips in negotiations with mainland
China? For a start, there is the major role Taiwan plays in mainland China’s economy.
The statistics speak for themselves: Taiwanese businesses have invested more than
US$200 billion in mainland China; cross-strait trade is worth more than US$100 billion
a year; and Taiwanese businesses employ more than 14 million workers in mainland

Besides this direct input into mainland China’s economic well-being,
Taiwan’s role in the global economy is also a strong bargaining chip. Taiwan is
the world’s 17th-largest exporter. We have a well established position and networks
in markets worldwide. These are valuable counters for us at the negotiating table.

And then there is Taiwan’s status as a democratic nation. The
workings of democracy mean that our government policy must be rooted in the will
of the people. The will of the people is another important bargaining chip in Taiwan’s
negotiations with mainland China.

Taiwan is drawing on all of these advantages to rationally respond
to mainland China’s rise. We are also using these advantages to secure the most
favorable negotiating outcomes for Taiwan, and at the same time to maintain Taiwan’s

Taiwan is not “asking a tiger for its skin.” A more appropriate
analogy can be taken from a tactic in the martial art of taiqiquan: “borrowing the
opponent’s force and using it as one’s own,” which is also sometimes rendered in
English as “using four ounces to deflect a thousand pounds.” That is how we are
using wisdom to face up to mainland China’s rising power, drawing on its influence
in the global division of labor to provide assisting force for Taiwan’s connection
with global markets.

The fact that mainland China’s rise cannot be ignored gives Taiwan
all the more importance in the global scheme of affairs. A few of our American friends
seem to think that, because the situation in the Taiwan Strait is no longer tense,
Taiwan’s status in US foreign policy is less important than before. I do not agree
with this point of view. This kind of thinking is a throwback to a Cold War mindset.

In the past, Taiwan was called an “unsinkable aircraft carrier.”
That was because, in the days when the world was divided into capitalist and communist
camps, each shut off from the other, Taiwan’s geographic location put it in the
front line of the capitalist world’s face-off with mainland China. But after the
disintegration of the communist camp and mainland China’s launch of its reform and
opening-up policy, Taiwan took on a completely different role.

Since the late 1980s, Taiwan’s capital, business people, technologies,
and specialist personnel have played a significant part in mainland China’s economic
rise. Taiwanese enterprises have taken their experience and well-honed know-how
in global division-of-labor systems to mainland China. They have also contributed
their good reputation, built up over many years of operating in global markets,
to mainland China. These vital inputs from Taiwan have enabled mainland China to
develop trade with other countries relatively smoothly. They have also been a key
factor in mainland China emergence as the so-called “workshop of the world.”

The process of mainland China’s economic rise has in some respects
repeated the Taiwan experience. This is the manifestation of Taiwan’s soft power.
The participation of Taiwanese capital, business people, technology, and specialist
personnel in mainland China’s economic transformation has amplified Taiwan’s influence
within mainland China. It has also spurred a metamorphosis of the economic and trade
realm in mainland China.

The Taiwan experience has hitherto served as one of the key factors
in the transformation of mainland China’s economy and trade, and this role is set
to continue in the future. Moreover, with the expansion and deepening of cross-strait
contacts in the social, cultural and other spheres, the influence of the Taiwan
experience in mainland China will not be limited only to the realm of economy and
trade. The United States should attach importance to such influence, and further
strengthen relations with Taiwan to support its positive effects.

Let me cite one example, as a concrete illustration of this idea.
While American companies were angrily hurling accusations and complaints about IPR
issues at China, this June Taiwan signed an agreement with mainland China that can
give concrete IPR protection to our businesses. But more than this, I also noted
that, in the process leading up to the signing of IPR agreement, mainland China
dispatched no fewer than ten expert groups, including groups of academics, judges,
and private specialists, to visit Taiwan’s IPR court. This is a significant manifestation
of Taiwan’s soft power. It is also a demonstration of Taiwan’s influence in mainland

This presently unfolding aspect of the Taiwan experience is worthy
of note by the Western world, led by the United States, as it learns how to do business
with mainland China. US-led Western capitalism and mainland China’s state capitalism
are competing in world markets, and Taiwan is in a prime position to benefit from
this situation. Located on the western boundary of the Pacific Rim economic zone,
facing the collision and contest between these two powerful forces, we are adept
at picking what we need from both forces to augment Taiwan’s advantages.

This year, Taiwan’s economic recovery has been the strongest
in the world. This is mainly thanks to the correctness of our Mainland policy, which
has enabled us to provide the right basic conditions for leveraging the effects
of Taiwan’s soft power. At the same time, we have also benefited from the support
of the United States and other allies, which has enabled Taiwan to face mainland
China tall and unwaveringly.

In face of mainland China’s economic rise, countries around the
world need Taiwan to play this linchpin role. Conversely, Taiwan needs the support
of its international friends, to ensure that it can continue to exert its influence
on mainland China to best effect.

The ROC government has repeatedly requested the United States
to continue and step up its arms sales to Taiwan. We have also contended against
the US conferring with mainland China about such arms sales. Our purpose in making
arms purchases is to bolster Taiwan’s self-defense capabilities. This is essential
for giving us the confidence and conditions Taiwan needs for dealing and negotiating
with mainland China.

4. Mainland China must forsake the thinking of using
military force as a means of resolving cross-strait differences

This brings me to the fourth and final focal area of this speech:
political and military aspects of cross-strait relations.

Here, I wish to state emphatically that mainland China must forsake
the thinking of using military force as a means of resolving cross-strait differences.
I have openly stressed many times before in other forums, and will stress it again
here today: At present, the timing and conditions are still not ripe for the two
sides of the Taiwan Strait to embark on political and military talks. A sense of
urgency on one side alone cannot be sufficient reason for demanding the other side
to meet its subjective expectations.

I will say again what I have said before: “Cadence and direction”
are very important. What Taiwan’s 23 million people need is a compass for the development
of cross-strait relations. We will act in accordance with our established objectives
in pursuing stable and orderly progress in cross-strait relations.

I also must emphasize that the Republic of China is a sovereign
and independent country. This is an established fact, which mainland China cannot
deny. If cross-strait relations are to develop further, the Mainland will need to
understand and face up to this fact. Most of all, mainland China will need to respect
this fact!

Taiwan has four primary strategic objectives: First, to preserve
our free and democratic system; second, to maintain the current state of peace and
stability; third, to expand our participation in the international community; and
fourth, to make our country safer and more prosperous. The Republic of China is
a highly democratic sovereign nation. Taiwan’s future will certainly be decided
by the democratic, freely exercised choices of its 23 million citizens. It cannot
be decided unilaterally by mainland China.

Even though cross-strait relations have greatly improved, they
are still heavily impeded by two factors. First, mainland China is still continuing
to expand its military deployment against Taiwan. And second, the Mainland authorities
are still not willing to change the policy and law that sanction the use of force
against Taiwan. These are the obstacles to the development of cross-strait relations,
and they need to be eliminated. Mainland China must change its thinking and adjust
its policy. Only thus will the way be open for the two sides in the future to establish
full confidence in each other. And only thus will the way be open for the achievement
of true peace.

5. Conclusion: The outlook and challenges

In conclusion, I would like to point out that, though opportunity
has now arisen for cross-strait relations to develop peacefully and stably, the
train of ensuing challenges has only just begun. This is a task that both sides
must address in concert.

Despite the closeness of contacts and dealings now taking place
across the Taiwan Strait, there are still many different views within Taiwan about
the development of cross-strait relations. This is a legacy of the acute confrontation
and hostility that prevailed across the Strait in the past.

Our government has a responsibility to face up to and tolerate
differences of opinion within our society. We strongly support that the government
should continue to adhere to a high level of transparency in handling important
cross-strait issues and conducting cross-strait policy. We need to initiate better
communication and discussion of views, set up opinion spaces and platforms for public
discussion, and take on board all shades of opinion within society. These can help
us reduce contention and resistance, and boost the building of social consensus.

Let me close with an appeal to the American government. The US
is a longstanding ally of the Republic of China. Our two countries should enhance
substantive and effective official-to-official policy dialogue concerning the development
of cross-strait relations and regional security issues. We need to work together
to promote democracy, freedom, security and prosperity, and to propel cross-strait
relations toward a new realm of true peace with reconciliation.

Ladies and gentlemen, thank you for your kind attention. As you
are all experts in cross-strait affairs, I attach a lot of value to your feedback
and advice. I look forward now to hearing your views and comments on what I have
told you here today and the matters I have referred to.