In recent years, China’s economic coercion has become an intensely scrutinized issue on the international stage. The Chinese regime had employed economic coercion as a means to achieve its political objectives: a measure of threat and oppression for countries or individuals who cannot be simply bought off. Though the research from the Center for Strategic and International Studies (CSIS) had indicated that economic coercion from China had rarely succeeded in changing the target country’s policies or attitudes, the scope of Chinese economic coercion had nevertheless continued to expand, and its methods had been constantly evolving. In response to China’s aggressive expansion, the recent G7 summit placed economic security as a central topic of discussion and collectively proposed the initiative of a “Coordination Platform on Economic Coercion” [1]to counter economic coercions. Many international leaders have openly expressed concerns that the authoritarian aspiration of China poses a threat to democratic nations and regional peace.
In this policy report on Chinese economic threats, the Economic Democracy Union not only introduces the proposed idea of a “Democratic Defense Trade Agreement”, but also highlights two unique forms of economic coercion faced by Taiwan due to its distinct relationship with China.
(A) The advocacy of Economic Democracy Union: Democratic Defense Trade Agreements.
Most countries around the world, including Taiwan and China, are members of the World Trade Organization (WTO). The WTO establishes general norms and regulations for international trade. Additionally, it allows countries to form bilateral free trade agreements (FTAs) or regional trade agreements (RTAs) amongst themselves or with a group of nations.
Under regional trade agreements, countries establish closer economic and trade relationships with each other. Generally, over 90% of products between participating countries are subject to zero tariff policies, and the majority of service sectors are open to each other. However, in recent years, in addition to general regional trade agreements, we have seen the emergence of special types of regional trade agreements. For example, there is the Information Technology Agreement (ITA) formed by specific countries with the aim of reducing tariffs on information technology products. Taking such precedents into consideration, the Economic Democracy Union proposes the establishment of a “Democratic Defense Trade Agreement” by democratic countries collectively.
As a member of the World Trade Organization (WTO), Taiwan certainly respects the concepts of open markets and equal trade among nations. However, when an authoritarian country resorts to trade measures such as blockades or coercion to achieve its political objectives against another country, it is crucial for democratic nations to unite, and provide mechanisms of mutual assistance and a protective network for the target countries under threat, and the products affected by the coercion.
The inspiration for the proposal of the “Democratic Defense Trade Agreement” stems from past historical practices. For instance, when China banned the export of Taiwanese pineapples for political reasons in March 2021, Taiwan actively sought alternative channels to sell pineapples to other countries. At that time, former Japanese Prime Minister Shinzo Abe immediately extended a helping hand and publicly called on Japanese citizens to support Taiwanese pineapples. Similarly, when Lithuania agreed to establish a “Taiwanese” representative office in its territory in 2021[2], a batch of Lithuanian-produced rum was rejected upon customs clearance in China in December 2021. Taiwan’s tobacco and liquor company promptly purchased the entire batch for the Taiwanese market, and it quickly sold out[3]. In late 2020, when China imposed retaliatory tariffs on Australian wine, political leaders in Taiwan and many other countries came forward to urge everyone to drink “Freedom Wine,” highlighting the alliance of democratic nations. These instances demonstrate the solidarity among democratic countries and their support for each other in the face of economic coercion.
We believe that based on shared beliefs in democracy, the international community will extend assistance to other countries facing China’s politically motivated trade coercion. It can be expected, however, Chinese and Russian deployment of trade coercion tactics will be more frequent and widespread. In response to this, democratic countries should be better prepared to discuss how scattered and individual acts of goodwill and political appeals can be transformed into a system of mutual assistance among democratic nations. When it is confirmed that an authoritarian country is imposing import or export restrictions on specific goods or services as an economic coercion tactic to undermine democracy and pursue its political interests, it is essential for democratic countries to initiate a reciprocal enhanced procurement or enhanced supply assistance program for that particular product or service. The Economic Democracy Union refers to this mutual assistance system as the “Democratic Defense Trade Agreement.”
We also saw the article written by Rahm Emanuel, the U.S. Ambassador to Japan, in the Nikkei Asia on March 27th of this year. In the article, he not only pointed out that China uses economic leverage, boycotts of goods, and other economic means to coerce other countries to change their political stances and achieve its political objectives, he also called for countries to form an alliance against coercion and resist China’s use of economic weaponry[4]. This discourse aligns with the proposal put forward by the Economic Democracy Union.
Taiwan being the primary target of Chinese economic coercion tactics, we deeply understand the importance of mutual assistance and alliance among democratic countries when facing China’s economic threats. In the past, when China imposed sanctions or boycotts on certain Taiwanese goods, Taiwan could rely on domestic efforts and social appeals to overcome the hindrance in sales. For example, when China boycotted Taiwanese pineapples, mangoes, or groupers, the government called on the people to consume more domestic pineapples, mangoes, and groupers. However, when China unexpectedly announced on December 8, 2022, that it would prohibit the entry of 2,400 Taiwanese products, the scale of this economic coercion policy exceeded the scope that general goodwill actions could respond to. This alerted us to the need for a systematic mechanism of mutual assistance among democratic countries, specifically a democratic defense trade agreement, to address such situations.
In the following section, we will discuss two specific issues and proposals related to China’s economic coercion that are unique to Taiwan. Due to the unique nature of the relationship between China and Taiwan, these issues may not occur in other countries, but they can still serve as references for partners within the democratic world.
(B) The Economic Democracy Union proposes to examine the historical process of Taiwan and China’s accession to the WTO to find solutions to address China’s trade barrier practices.
(1) The true strategic intent behind China’s recent trade barrier investigations against Taiwan.
Recently, China has been claiming that Taiwan’s restrictions on the import of over 3,000 agricultural and industrial products from China constitute unfair trade practices and violate WTO trade rules. The timing of the investigation, which was announced right before Taiwan’s elections, is widely interpreted as an attempt by China to intimidate the Taiwanese people and influence the election outcome. The Economic Democracy Union holds that China’s actions go beyond mere electoral interference, and is in fact an indication to deeper political aspirations.
First, if a pro-China candidate is elected as the President in Taiwan’s general election, the so-called tariff investigations can be utilized in the favor of the President-elect, as a justifying excuse to reinitiate negotiations on the Cross-Strait Service Trade Agreement (CSSTA) and the Trade in Goods Agreement, as well as the follow-up negotiations for the completion of the Economic Cooperation Framework Agreement (ECFA). These opportunities would be utilized to achieve further economic integration between Taiwan and China.
During the negotiations for Trade in Goods Agreement under the Ma administration, the intention is to achieve a comprehensive opening of imports of Chinese agricultural and industrial products in exchange for zero tariffs on Taiwan’s petrochemicals, panels, automobiles, and machine tools imported into China. At that time, the pro-China president would claim that once the Cross-Strait Service Trade Agreement (CSSTA) and the Trade in Goods Agreement come into effect, China would lift its trade sanctions against Taiwan. However, the cost of such an arrangement would be a significantly larger influx of Chinese goods into Taiwan, deepening Taiwan’s economic dependence on China. The cost would be the loss of Taiwan’s economic autonomy and the difficulty in maintaining its political autonomy.
Secondly, if a candidate from the Democratic Progressive Party (DPP) is elected as the President, the Chinese regime could interpret Taiwan’s restrictions on importation as a violation of WTO rules, and further employ trade sanctions. Subsequently, they would employ a strategy of discrimination to bolster the Communist Party’s proxies and the proxy government in Taiwan, attempting to undermine the legitimacy of Taiwan’s democratically elected government.
Since the DPP came to power in 2016, Chinese entities involved in cross-strait affairs have already been accused of manipulating Chinese tourist groups and procurement groups to only visit KMT-controlled counties (eight counties and cities under Kuomintang governance). In the future, they may even provide exempt pathways under certifications issued by pro-unification parties or united front organizations.
(2) The peculiar accessions processes of Taiwan and China.
According to the rules of accession, when an economic entity applies to join the World Trade Organization (WTO), it engages in accession consultations and negotiations with other member countries that wish to negotiate with it. The so-called bilateral trade barriers are inevitably examined, discussed, negotiated, and modified in such accession consultations and negotiations. The goal is to establish a reasonable order that is accepted by both (or multiple) economies involved and the international community.
China joined the WTO on December 11, 2001, while Taiwan joined shortly after on January 1, 2002. This essentially eliminates the possibility of conducting accession consultations and negotiations between the two parties. The Economic Democracy Union believes that this was not a coincidence but a deliberate arrangement by the international community in response to the tense relationship between Taiwan and China. We believe that such an arrangement implies three meanings:
- China and Taiwan’s almost simultaneous accession to the WTO prevented China from using the WTO accession consultations to block Taiwan’s membership.
- Similarly, Taiwan was also unable to use WTO accession consultations to block China’s membership.
- Due to various unique factors, China and Taiwan have been in a long-standing military standoff and tense relationship, which has led to limitations on their economic and trade interactions with each other. The international community respects the special economic and trade relationship between China and Taiwan that has developed since 1949, including their trade barriers, and believes that there is no need to compel both parties to make adjustments through WTO accession negotiations.
The predecessor of the WTO, the General Agreement on Tariffs and Trade (GATT), includes a clause of security exceptions in Article XXI, which justifies exceptions to the obligations in cases of “war or other emergency in international relations.” In the dispute over the transport ban against Russia raised by Ukraine in 2016, the WTO’s dispute settlement panel made its first official interpretation of this provision. The panel report concluded that the terms “necessary” or “essential security interests” in Article XXI (b) of the GATT are subject to the subjective judgment of the implementing country. However, the use of Article XXI still requires acting in “good faith,” and the measures taken must have a “relationship” or “necessity” in response to “essential security interests in times of international emergency.”[5]
We hope that the international community can understand the historical context when considering the current trade tariff investigations, and we also hope that Taiwanese officials can draw lessons from the aforementioned history, cases, and GATT norms to formulate strategic guiding principles in addressing trade barrier investigations.
(C) The Economic Democracy Union advocates that individuals who exercise public authority on behalf of China in Taiwan should be subject to prosecution under offenses against the external security of the State.
We believe that in the next phase of its united front efforts, the Chinese Communist Party (CCP) will leverage Taiwan’s economic dependence on China and utilize economic coercive means. They may employ the strategy of “discrimination” to support CCP proxies or a proxy government, aiming to undermine the legitimacy of Taiwan’s democratically elected government or even attempt to enable CCP proxies and a proxy government to exercise public authority in Taiwan.
Looking back at the period from 2008 to 2016 during the Ma administration, the Chinese Communist Party’s economic united front strategy at that time revolved around “concession” or “enticement.” During this period, China not only signed the Economic Cooperation Framework Agreement (ECFA) with the Ma administration in 2010 but also the Cross-Strait Service Trade Agreement (CSSTA) in 2013. Subsequently, negotiations for a goods trade agreement took place, with both sides planning to allow Taiwan to export more petrochemicals, panels, automobiles, and machine tools to China at low or zero tariffs. In exchange, the CCP sought political support from the local collaborators and fostered Taiwan’s economic dependence on China. There were also plans to open up the Chinese financial market and medical market to Taiwan on more favorable terms compared to other WTO member countries, aiming to achieve similar objectives.
The momentous Sunflower Movement in 2014 halted the progress of cross-strait economic integration. China realized that using economic benefits to win the support of the Taiwanese people had limited effectiveness because, for the people of Taiwan, there are values of freedom, democracy, lifestyle, and historical culture, which are more important than monetary interests. Reflecting on this history, the recent surge in China’s restrictions on Taiwanese food imports and trade barrier investigations can be seen as a new strategy adopted by the Chinese Communist Party to undermine Taiwan’s economy after the failure of the “benefits” approach.
Based on our observations, it appears that China’s current strategy is to employ punitive measures if Taiwan is unwilling to further integrate into a unified economic relationship with China and thus leading to a state of complete dependence. Instead of using concession such as tariff reductions or zero tariffs, China now resorts to measures that involve raising tariffs or outright bans on imports as a means of coercion. We assess that the scale of these punitive measures and coercion is likely to expand in the future for the Chinese Communist Party to achieve its political objectives.
But we believe that the Chinese Communist Party’s strategy will not be permanent, nor will it impose universal sanctions on all products from Taiwan. Instead, it will be targeted. The political report of the 18th National Congress of the Communist Party of China clearly states that deepening political, economic, cultural, and social ties with Taiwan is aimed at achieving the “complete reunification of the motherland.” China understands that only through a high degree of economic integration with Taiwan and Taiwan’s heavy dependence on China’s economy and trade can Taiwan completely lose its economic autonomy and potentially surrender politically without the need for military force. In this way, China would not cut off the economic and trade exchanges across the Taiwan Strait, as it would hinder the implementation of its strategic policy of achieving economic integration before political integration.
As mentioned earlier, we believe that the Chinese Communist Party is more likely to adopt targeted sanctions on products. This means that after implementing certain trade retaliation or a large-scale ban on Taiwanese agricultural and industrial products, China would provide differentiated treatment to these products to support its proxies and proxy governments. China would adhere to the main principle of prohibiting the import of Taiwanese products and services but may make exceptions for certain counties and cities that adhere to the “One China” principle. The emergence of this coercive tactic is not a hypothetical scenario. As mentioned earlier, Chinese agencies involved in Taiwan affairs previously planned to allow only Chinese tour groups and purchasing groups to visit the eight counties and cities governed by the Kuomintang in 2016. Another possible form is granting privileges similar to those of the Chinese government to local collaborators, pro-unification political parties, and united front organizations, allowing Taiwanese businesses to apply for certification as local collaborators to serve as a permit for exemptions in customs clearance. The relationship between Taiwan’s long-life cigarettes and senior members of the New Party is an example of such a situation.
The Economic Democracy Union (EDU) believes that as a sovereign nation, Taiwan’s democratic order, exercised by an elected government within its borders, should not be threatened. Any form of differential treatment provided by local governments, individuals, or organizations in collaboration with China’s trade controls on Taiwan, whether through “principle-based control” or “exceptional exemptions,” is considered as assisting the People’s Republic of China government in exercising its power in Taiwan. The intention behind such actions is to subordinate Taiwan to the People’s Republic of China and undermine our country’s free and democratic constitutional order. These behaviors should be treated as offenses against the external security of the State, and shall be subjected to punishment.
Conclusions
China’s utilization of trade barriers investigations is contorting a tool for upholding fair trade into a tool for its own political incentives. We can anticipate that the Chinese Communist Party will gradually advance towards undermining democratic order through economic coercion. The Economic Democracy Union believes that no country should be forced to endure economic coercion from China in order to safeguard its own autonomy. To prevent the expansion of China’s economic coercion and its influence, the Economic Democracy Union recommends that democratic nations make concerted efforts to establish a systematic economic coercion defense network and establish a “Democratic Defense Trade Agreement” as soon as possible.
China’s initiation of trade barrier investigations against Taiwan is not only aimed at damaging Taiwan’s international image but also clearly intended to influence Taiwan’s presidential election in 2024. If the results of the trade barrier investigations are not released by October 12, 2023, the postponed results will be announced on January 12, 2024, the day before the presidential election in Taiwan. If the WTO makes an unfavorable decision against Taiwan at that time, China can package it as a fear of “voting for the Democratic Progressive Party (DPP) empties one’s wallet” to intimidate the Taiwanese people into electing a pro-China candidate. In response, the Economic Democracy Union calls on the international community not to indulge China in using the World Trade Organization (WTO), which upholds fair trade, as a puppet to achieve its political objectives. The Taiwanese government should handle this trade barrier investigation by firmly relying on the security exception clause under GATT Article XXI to secure Taiwan’s economic security.
For the Chinese Communist Party, economic policies can influence the decision-making of national leaders and even impact the outcomes of elections in a country. In the case of Taiwan, it is highly possible that economic coercion could threaten the exercise of power by an elected government. It is essential for our country to take such actions seriously, as the Chinese Communist Party may attempt to undermine Taiwan’s elected government through economic maneuvers. Those who assist the government of People’s Republic of China in exercising its power in Taiwan should be treated as engaging in treasonous acts against the state and face appropriate punishment.
[1] Guei C., 2023, “[G7 Summit] Countries Agreed to the Advocacy on ‘Countering Economic Coercion’ While China Opposes”. May 20th, Tai Sounds.
https://www.taisounds.com/news/content/84/61077
[2] Taiwanese Representative Office in Lithuania was officially opened on November 18th, 2021. It is the second Taiwanese representative institution to be established with the name “Taiwan”, and the only one in Europe.
[3] Han T., 2022, “Lithuanian Rum Sold Out Within an Hour”. February 1st, Central News Agency.
https://www.cna.com.tw/news/ahel/202202010073.aspx
[4] Lin Y., 2023, “China’s Economic Coercion US Ambassador to Japan Calls for an Boycott Alliance”, March 28th, Liberty Times.
https://news.ltn.com.tw/news/world/paper/1574463
[5] Yen H., Nie T., 2019, “The First Substantive Interpretation and Impact of the WTO National Security Exception, CIER”. CIER WTO and RTA Center.
https://web.wtocenter.org.tw/Page/13222/328367