The contrast between tensions elsewhere in the region and the relative calm in the Taiwan Strait was clearly in focus.  In an event commemorating the 20^th anniversary of cross-strait exchanges, President Ma said progress is “an example for East Asia and the world by demonstrating peaceful resolution of disputes.” Taipei and Beijing continue to make slow but steady progress in expanding and institutionalizing ties.  Health and crime issues, which provoked controversy in the past, have been addressed and talks on an exchange of unofficial representative offices have begun.  Nevertheless, fundamental policy divergences and differences over the pace and scope of interaction will likely place real limits on future integration. Taipei and Tokyo successfully concluded a landmark fisheries agreement that constructively focuses on resource cooperation.

The contrast between tensions elsewhere in the region and the relative calm in the Taiwan Strait, evident for some time, was clearly in focus in the first months of 2013.  In a late April event commemorating the 20^th anniversary of cross-strait exchanges, President Ma Ying-jeou said recent progress is “an example for East Asia and the world by demonstrating peaceful resolution of disputes.” With little fanfare, Taipei and Beijing continue to make slow but steady progress in expanding and institutionalizing cross-strait ties.  Health and crime issues, which provoked controversy in the past, have been addressed cooperatively and talks on an exchange of unofficial representative offices have begun.  Nevertheless, fundamental policy divergences and differences over the pace and scope of interaction will likely place real limits on future integration.  Taipei and Tokyo successfully concluded a landmark fisheries agreement with respect to the Senkaku/Diaoyutai Islands that constructively focuses on resource cooperation.

Cross-strait progress

During the first four months of 2013, the region was threatened by hostile rhetoric from North Korea as well as continuing tensions in the East and South China Seas.  In the midst of this turmoil, relative stability prevailed in the Taiwan Strait, where the two sides continued to make modest but steady progress in expanding economic relations and institutionalizing ties.

The most significant step was the implementation of the Cross-Strait Currency Settlement Memorandum of Understanding (MOU), which provides a framework for the use of the Renminbi (RMB) in Taiwan and the New Taiwan Dollar (NT$) in China.  RMB services began Feb. 6 in Taiwan.  As Taiwan banks offered attractive interest rates on RMB deposits and with the RMB gradually appreciating, money flowed into such accounts.  By the end of March, domestic bank units held 18.5 billion in RMB deposits and experts forecast the total may reach 150 billion RMB by yearend, equivalent to about 3 percent of a broad definition of the money supply in Taiwan.  Some of these deposits represent funds moving from the grey market into authorized accounts.  Taipei has authorized denominating customs declarations in RMB, and it is expected that an increasing portion of cross-strait trade will be conducted in RMB.  Plans are also being made for issuing RMB (Bao Dao) bonds on Taiwan.  These changes have been implemented without political controversy and without opposition charges that use of the RMB is threatening Taiwan’s sovereignty.  Economists note that RMB is not and will not be legal tender in Taiwan and depositors and investors have been guided by economic considerations.

Behind the scene, negotiations have continued on the long-delayed services trade agreement called for in the 2010 Economic Cooperation Framework Agreement (ECFA).  In April, the new Taiwan Affairs Office (TAO) Minister Zhang Zhijun stated that the negotiation had been completed, and Straits Exchange Foundation (SEF) Secretary General Kao Koong-lian said the agreement would be signed after a new president of the Association for Relations across the Taiwan Strait (ARATS) had been appointed by Beijing, which occurred in late April.

Health and law enforcement issues that had created controversy in years past have been handled cooperatively under the relevant cross-strait agreements.  Beijing’s handling of the developing H7N9 bird flu outbreak is the clearest example.  As soon as Beijing announced the first H7N9 deaths, it notified Taipei through the contact mechanism established under the 2010 Medical and Health Cooperation Agreement.  A week later, two Taiwan health experts were received in Shanghai.  Beijing agreed to provide Taipei a sample of the H7N9 virus, and this sample was delivered on April 20.  Beijing has clearly learned lessons from the mistakes in its handling of the 2003 SARS outbreak, and its positive response on the Taiwan aspects have made H7N9 thus far a positive example of cooperation.  Unfortunately, a businessman returned to Taiwan with the illness in late April, becoming the first case detected outside the mainland.

On April 12, bombs were discovered on a Taiwan High Speed Railway (THSR) train and outside the office of a local politician. When the suspects fled to China, Taipei, working through channels established under the 2009 Cooperation Agreement on Crime Fighting and Judicial Cooperation, asked Beijing to arrest them.  On April 16, Beijing repatriated the two suspects.  President Ma cited this as an example of prompt cooperation in fighting terrorism.  However, many other Taiwan fugitives remain at large on the mainland.

Progress has been made in other areas.  Taipei has expanded the number of mainland universities whose academic degrees will be recognized in Taiwan.  Cruise ship operators have agreed to procedures for cross-strait tours.  A new undersea cable has been opened between Tamsui in Taiwan and Fuzhou in China.

Early in the year, the TAO began urging an early start to discussion of an exchange of offices between SEF and ARATS.  In late January, SEF President Lin Join-sane indicated the issue was being actively considered, and informal discussions followed.  In April, Mainland Affairs Council (MAC) Chairman Wang Yu-chi reported that a first round of negotiations had taken place, and the Executive Yuan presented draft legislation to authorize the exchange of offices.  Some of the main issues under consideration are nomenclature, office functions including travel document issuance, number of offices for each side, use of national flags, personnel including level of the office head, and immunities. Both sides envisage the offices focusing on practical services to travelers and businesses, but many of the issues involve politically sensitive aspects with potential sovereignty implications. In the first hearing on the issue, legislators urged that the office issue passports and conduct prison visits.  In late April, President Ma commented that the offices did not need to use flags as neither side recognized the other and that since the offices would not be “consulates,” it would be inappropriate for them to issue “visas.”  The two sides now talk of concluding the negotiations by yearend.  However with many controversial aspects, it will be a challenge to meet that timetable.

Limitations

While there has seen continued progress in improving relations, differences between the two sides remain wide and domestic political constraints in Taiwan limit the scope for progress.  The gaps are widest on sovereignty and related political issues.  Statements issued for the New Year illustrated the differences.  President Ma’s New Year’s statement focused on the present and appealed for cooperation in maintaining cross-strait peace.  General Secretary Xi Jinping’s statement mentioned briefly Beijing’s long-term unification goal and reiterated the “one country, two systems” proposal that has long been rejected in Taiwan.

After Kuomintang (KMT) Honorary Chairman Lien Chan met Xi Jinping in Beijing, Lien commented that political issues would have to be addressed and urged development of a framework for such talks.  Lien was not speaking for President Ma or the KMT, and certainly not for the Taiwan public.  The Ma administration quickly released a statement that political issues were not a priority.  In recent interviews, Ma reiterated that in the absence of domestic consensus the time was not ripe for talks on political issues.  Recognizing this, Beijing’s TAO spokesmen continued to encourage think tanks to address political issues and there were some Track-2 meetings held on the subject in the past months.

Security issues also place limits on progress as the military advantage continues to shift in Beijing’s favor.  Taiwan’s Quadrennial Defense Review, which was released in mid-March, stated that the time is not ripe for discussions on military confidence building measures (CBMs).  Vice Minister of Defense Andrew Yang explained that negotiating CBMs would require a level of mutual trust that does not yet exist.  In Beijing, the Ministry of Defense reiterated its interest in developing military trust measures.

China completes its leadership transition

Highlighted by the annual meetings of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) in March, China completed the leadership transition that began last November. Xi Jinping was inaugurated as president of China, and other positions in the party and state bureaucracies, including those responsible for relations with Taiwan, were filled.

Zhang Zhijun was named TAO minister.  Zhang had been vice minister of foreign affairs since 2009, and was elected to the Chinese Communist Party Central Committee (CCPCC) in November.  Zhang replaced Wang Yi at the TAO, who was named minister of foreign affairs.  On April 26, Chen Deming was named president of the ARATS; noticeably, Chen was not elected to the CCP Central Committee in November. Though he said in his first remarks that he is a newcomer to cross-strait relations, Chen is said to have been a member of the Party’s Taiwan Affairs Leading Small Group for the past few years. There is no doubt that he is a veteran negotiator, having served as commerce minister from 2007-2013.

Policies of the Xi administration: continuing “peaceful development”

Xi Jinping and other officials made clear they will continue Hu Jintao’s Taiwan policy.  The new CCPCC Chairman, Politburo Standing Committee member Yu Zhengsheng, continued his predecessor Jia Qinglin’s prominent role in Taiwan affairs by making the opening address to the annual Taiwan Affairs Work Conference in February.  Yu emphasized continuity in Hu’s “peaceful development” policies that prioritize economic engagement and doing easier issues before difficult.  Specific policy measures were spelled out in a March 22 speech by Zhang Zhijun, under the theme “moving steadily forward, developing on all fronts” – including political issues.  He listed four main goals:

• Develop political relations based on the 1992 consensus and opposition to Taiwan independence.
• Accelerate economic dialogue, and finalize agreements under ECFA.
• Institutionalize cross-strait cooperation in trade, investment, and finance.
• Strengthen exchanges in intellectual, cultural, and education areas, emphasizing traditional Chinese culture and a common ethnic (Chinese) identity.

Zhang acknowledged the difficult political issues and urged open discussion of all political issues by think tanks on both sides to explore ideas and gradually build consensus.

At the same time, Xi Jinping placed cross-strait relations and the unification of the motherland into the framework of his trademark “Chinese dream” for the “great rejuvenation of the Chinese nation.”  More than their predecessors, Xi and other officials emphasized the common ethnic heritage, viewing the two sides as “one family.”  Xi emphasized these two themes in his meeting with Lien Chan and again when he met Vincent Siew at the Boao Forum.  In the same vein, Premier Li Keqiang said on March 17 that the people of mainland and Taiwan are of one flesh.  In April, Xinhua highlighted Zhang Zhijun’s expression of his good feelings from working on “family” matters (Taiwan) in contrast to his previous work at the Foreign Ministry.

The emphasis on shared heritage and “one family” is designed to address Taiwan’s strong sense of a separate identity.  However, this kind of rhetoric is seen as old-fashioned to most in Taiwan – and as hostile by many.  A MAC statement released after Li’s remarks said, in part, “the Republic of China is our nation, and Taiwan is our home.”  There is a disconnect between Xi’s focus on one family and unification as part of his dream for China’s rejuvenation and the reality of a strong sense of separate identity in Taiwan.  Promoting these themes is unlikely to pay dividends for Beijing and could pose a problem further down the road.

A point of light in the Diaoyutai/Senkaku dispute

In late January, Taiwan’s Coast Guard escorted activists from Taiwan who were attempting to land on one of the Diaoyu/Senkaku Islands and warned Japanese Coast Guard vessels, as well as a People’s Republic of China (PRC) ship, to leave Republic of China (ROC) waters. Taiwan and Japan ships exchanged water cannon volleys, contributing to a sense that Taiwan was part of the problem; an article in The National Interest in late February inaccurately characterized Taiwan’s involvement in the dispute as a new development, and called it “troubling.” A US Congressional Research Service report noted that possible willingness in Taipei to cooperate with Beijing where interests align could be an “issue” for US policy.  This idea of cooperation is promoted by many in China, but only a few in Taiwan and is consistently rejected by the Ma administration.  That Taipei’s Coast Guard ships had warned off a PRC ship protecting Chinese sovereignty in January was seen by Beijing as bordering on a traitorous act.

Later, on April 10, representatives from Taiwan and Japan signed an agreement to allow fishermen from each side to operate in a large part of the disputed area free of the jurisdiction of the other side. Taiwan ships are excluded from a 12 nautical mile radius surrounding each island, and a smaller “special cooperation zone” will be jointly managed. The agreement establishes a joint committee for the two sides to conduct further talks on remaining issues and opens up 4,530 sq. km of ocean to eastern Taiwan’s fishermen, and could generate US$6.7 billion in revenue.

This agreement dramatically changed the narrative on Taiwan’s role in the dispute, showing it to be a positive actor – a “responsible stakeholder and a facilitator of peace” as President Ma said. Indeed, the agreement conforms to Ma’s August 2012 East China Sea Peace Initiative. Both sides made concessions: Taiwan “set aside” – but did not forfeit – its sovereignty claims, while Japan agreed to establish a “special cooperation zone” rather than designating exclusive areas for fishing rights.

The sovereignty issue was shelved to cooperate on shared fisheries resources.  Taiwan’s foreign minister said both Taiwan and Japan agreed that sovereignty claims remain unchanged. It is unclear whether Japanese ships are also excluded from the 12 nm radius surrounding each island; on April 10, Taiwan’s Coast Guard commander called for fishermen from both Japan and China to avoid the exclusion zone, and vowed to adopt unspecified measures to protect the rights of Taiwanese fishermen.

Beijing was “extremely concerned” according to a Foreign Ministry spokesman who demanded that Japan abide by its “one China” agreements.  In Japan, the agreement was portrayed in part as a successful move to divide Beijing and Taipei on the issue.  The Global Times sniffed that Taiwan had “neglected the mainland’s feelings.”

Taiwan’s international participation

The tug of war over Taiwan’s participation in multilateral activities also continued. At his meeting with Xi Jinping in April, former ROC Vice President Vincent Siew stressed the need for Taiwan to be involved in the trend toward multilateral trade regimes; the TAO said that Xi received Siew’s views favorably. Despite some visible successes for Taiwan, there is no evidence of increased flexibility in Beijing’s opposition to Taiwan’s international participation.

On March 11, Taiwan’s representative to Japan attended a high-profile ceremony in Tokyo marking the second anniversary of the 2011 earthquake and tsunami. China boycotted the ceremony, its Foreign Ministry claiming that the invitation to Taiwan “violated the principles and spirit of the China-Japan Joint Statement and the commitments of the Japanese side.” While Taiwan was included, after having been left out of a similar event in 2012, its representative was classified as a “miscellaneous guest” from the “Taipei Economic and Cultural Representative Office in Japan,” rather than from “Taiwan” or the “ROC.”

The chairmen of the US Senate and House Foreign Relations Committees introduced identical bills instructing the secretary of state to “develop and implement” plans to enable “Taiwan” to participate as an observer in the triennial International Civil Aviation Organization (ICAO) Assembly meeting in Montreal in September. The bills state – and Taiwan has long argued – that participation will help Taiwan uphold international safety norms and protect the safety of international travelers. TAO spokesman Yang Yi objected to these bills as interference in an internal affair, also arguing that ICAO membership is restricted to “sovereign states.”

On March 19, President Ma attended the Investiture Mass for Pope Francis, a very rare appearance on the world stage for a leader of Taiwan.  Ma spoke with Pope Francis and others, including US Vice President Joseph Biden and German Prime Minister Angela Merkel, adding substance to the significant public relations value. This does not signify privileged treatment for Taiwan, even though the Holy See is the only European state to recognize the ROC. A Vatican spokesman said that no specific invitations to the Mass were extended.  Beijing chose not to participate, and the Foreign Ministry called on the Vatican to break its ties with the ROC and “recognize the Chinese government as the sole legal representative of all China.” This is a standard demand, and one of three major issues in Beijing’s decades-long stalemate with the Vatican, but seems counter to the spirit of the “diplomatic truce” that was proclaimed by President Ma in 2008 and tacitly accepted by the mainland.

Also, in mid-March, two Taiwan scholars and two staff members from Taiwan’s representative office in Indonesia were disinvited by the Indonesian government from the March 20-21 Jakarta International Defense Dialogue (JIDD) just days before the event began. The Financial Times reported that the Chinese Embassy had protested to Indonesia’s Defense Ministry and asked it to “discourage” the Taiwan delegates from attending. A group from Taiwan participated in the JIDD in 2012 without complaint; the FT reported that the delegation this year had planned to approach participants from the United States and the Philippines to discuss “security in the South China Sea” and other issues.

DPP and China

Democratic Progressive Party (DPP) leaders continue to talk about their efforts to reach out to China.  The most noteworthy effort was the visit by Hsu Tain-tsair, a long-time independence advocate and popular former Tainan mayor, who visited Shanghai and Beijing in January.  Beijing interpreted the visit as a further sign that the DPP saw the need to deal with China.

Debate is ongoing within the party on policy toward China.  Frank Hsieh has continued to promote his “respective interpretation of constitutions” reform proposal, both through speeches in Taiwan and travel to the United States.  On the other side, in late April, a group of older generation fundamentalists, including Mark Chen and Trong Chai from the DPP, organized a pressure group called the “Anti-One China Alliance.”  Since February, party leaders have been working behind the scenes to organize the DPP’s China Affairs Committee, with Party Chairman Su Tseng-chang as convener.  In addition, advisory groups of scholars and party members have been drafting reports to be presented to the committee, once it is formed.  On May 1, the DPP announced the initial name list of eight committee members that included former Premier Yu Shyi-kun, former head of the National Security Council (NSC) Chiou I-jen, Kaohsiung Mayor Chen Chu and others.  After originally declining to take a seat on the committee, Frank Hsieh joined on May 6.  The committee held its first meeting on May 9 and announced that future meetings will take place every two months.  Convening the committee is a significant step, but there is no sign the DPP is any closer to reaching consensus on policy toward China.

Su Tseng-chang visited Japan in February.  In comments there, Su advocated that Japan and Taiwan join in a democratic alliance and criticized China’s handling of the Senkaku/Diaoyutai issue.  The DPP views the visit as a successful effort to strengthen ties with Japan.  In Beijing, the TAO spokesman criticized Su’s statements saying they indicated that he lacked a sense of (Chinese) nationalism.

Next media drama ends well

Want Want group leader Tsai Eng-meng’s efforts to buy the Next Media Group and China Network Services ended in failure.  The opposition parties and freedom of press advocates had organized opposition to these purchases both because they would give Tsai a dominant position in Taiwan’s print media and out of fear that Tsai’s strong pro-Beijing views would give Beijing greater opportunities to manipulate the Taiwan media.  Tsai, the wealthiest man in Taiwan, had enlisted financial support from two other prominent family conglomerate heads: William Wang of Formosa Plastics and Jeffery Koo of China Trust.  However, the two deals required approval from regulators in the Fair Trade Commission (FTC) and National Communications Commission (NCC).  To their credit, the regulators stood their ground against a formidable coalition.  The NCC put conditions on the purchase of China Network Services, and rejected the purchase in February because those conditions were not met.  The purchase of Next Media fell through in late March when the purchasers chose not to provide the required documentation within the established deadline.  Consequently, the risk that Tsai’s purchase of these media assets would give Beijing new opportunities to influence Taiwan media has been averted.

Looking ahead

The coming months are likely to see further modest steps forward in cross-strait relations.  Now that a new ARATS president is in office and the services trade negotiation concluded, the way is clear for the ninth ARATS-SEF meeting somewhere in China.  Press reports indicate that ARATS President Chen Deming and SEF Chairman Lin Join-sane may hold a first meeting in Beijing in May to sign the services trade agreement.  The way would also be clear for a semi-annual meeting of the Cross-strait Economic Cooperation Committee (CSECC) to be led by newly appointed commerce vice-ministers.  How quickly the negotiations on an exchange of SEF and ARATS offices proceed will be a test of the two sides’ ability to finesse the sensitive political issues involved in such an exchange.

The triennial ICAO Assembly meeting in September will focus attention on Beijing’s continued unwillingness to remove its objections to Taiwan’s participation.  As Taiwan’s approach seeking observer status as a health entity using the name Chinese Taipei, does not create the political problem Beijing objects to the way should be clear for Beijing to remove its objections – a step that would be welcome by Taipei and the international community.

The implementation of the Taiwan-Japan Fisheries Agreement and the evolution of the territorial disputes in the East and South China Seas have the potential to affect both cross-strait rhetoric and the international perception of Taiwan as a responsible stakeholder. Taiwan faces a challenge in ensuring that its claims and interests are not overshadowed by the two larger parties, but it must do so in a constructive way to maintain international goodwill.