Taiwan and Post-Communist Europe

Shopping for Allies

Czeslaw Tubilewicz

• Publisher: Routledge
• Year: 2007
• ISBN:
  9781134100835
• Edition: 1
• Topic: Economia
• Subtopic: Economia internazionale

Taiwan and Post-Communist Europe examines Taiwan's economic diplomacy towards post-communist states in Central and Eastern Europe. The media, and occasionally academia, have often suggested that Taipei resorts to costly aid, trade and investment diplomacy to facilitate its foreign relations, whilst China engages in equally costly counter-economic diplomacy to keep Taiwan isolated. Czeslaw Tubilewicz argues conversely that Beijing's diplomacy in post-communist Europe has demonstrated China's reluctance to employ economic instruments against states violating the 'one-China' principle when cheaper (diplomatic) alternatives are available. Taipei, for its part, has demonstrated that promises of economic assistance are sufficient to induce target states' short term compliance, whilst in the medium to long term Taiwanese economic assistance, conditional upon meeting political criteria, has proved inconsequential due to Taipei's refusal to follow up aid commitments.

This book examines the efficacy and limitations of Taipei's frugal economic diplomacy in furthering its broader diplomatic objectives, looking at both Taipei's failure to establish a lasting diplomatic presence in post-communist Europe, but also its success in securing 'substantive' relations with a number of major post-communist states, and thus opening transition economies for its exports and investments. The first in-depth study into Taiwan's economic diplomacy toward post-communist Europe, this book will appeal to readers interested in Taiwan and China studies, diplomacy, Asian studies and international relations.

1 Taiwan’s economic diplomacy

Diplomacy of the Republic of China (ROC) on Taiwan has often been described as ‘unorthodox’ or ‘unconventional’. Its unorthodox nature stems from the nonrecognition of the ROC as a sovereign state by the majority of states, resulting in Taipei’s inability to enter most international organizations and to conduct interstate communications through conventional diplomatic channels. Struggling to find an international space in the face of international isolation, imposed and enforced by the People’s Republic of China (PRC), Taipei has developed creative forms of diplomacy, such as ‘holiday diplomacy’ (

) or academic diplomacy (

), where Taiwanese leaders use ostensibly private vacations abroad or acceptance of honorary degrees from foreign academic institutions to engineer ‘chance meetings’ with their counterparts in an outwardly social milieu. On a more regular basis, however, Taipei relies upon other diplomatic techniques, such as the use of intermediaries, representative or trade offices (which act as disguised embassies or consulates), special envoys, missions at intergovernmental organizations that allow Taiwanese membership (e.g. the World Trade Organization, WTO) and regular dialogue with the diplomatic corps of states that recognize Taiwan.

Despite its contested international status, Taipei can and does resort to four foreign policy tools utilized by sovereign states, classified by Harold Lasswell as: diplomatic negotiations, military statecraft, economic statecraft and propaganda.¹ Taiwan conducts open diplomatic dialogue with its 25 current allies (known in Taiwan as state diplomacy,

), in addition to covert diplomatic communication via special envoys, intermediaries or representative and trade offices. It retains armed forces, although the survival imperative prevents it from diverting military capacity towards any objective other than self-defence. It engages in economic exchanges with the whole world, and boasts robust foreign propaganda machinery. Unlike most sovereign states, however, Taiwan has become exceedingly reliant upon economic diplomacy to sustain its claim to sovereignty amid China-imposed diplomatic isolation. Attempting to trade economic favours in exchange for diplomatic support, Taipei offers economic incentives and/or rewards to those states that cannot gain any political or expressive (symbolic) benefits from supporting Taiwan, but cannot resist the economic rewards stemming from such support.

Economic diplomacy defined

Defined as governmental attempts to influence other state and non-state international actors, relying primarily on resources, which have a reasonable semblance of a market price in terms of money, economic diplomacy has been practised for centuries by all states, while the past 100 years in particular have witnessed a significant growth in its use.² Although considered less effective in the deterrence situation than military force, economic diplomacy is valued for its inherent credibility due to its higher cost, compared to conventional or expressive diplomacy and lower cost than the alternative, military conflict. David Baldwin concludes that it represents an appealing combination of costs that are high enough to be effective and low enough to be bearable.³ Falling into two categories – positive (promising or granting specific rights and privileges) and negative (threatening, withholding or ending specific privileges or relations or the imposition of particular constraints) – economic diplomacy broadly aims at accomplishing two – often interrelated – goals:

1 to enhance domestic economic growth through international economic transactions (economic means used for economic ends); and

2 to advance foreign policy objectives, be they diplomatic, military or expressive (economic tools used for non-economic ends).⁴

Although states resort to both positive and negative instruments, it is the latter that attract most attention in the media and academia.⁵ The focus of political scientists on coercive instruments of economic diplomacy led Baldwin to remark that ‘it is not that political scientists have said wrong things about the effectiveness of positive economic diplomacy; it is just that they have said little’.⁶ A few years later, he accused political scientists of ‘paint[ing] themselves into a conceptual corner which left little room for non-military factors, positive sanctions, and promise systems’.⁷ Since the late 1960s–early 1970s, when the massive aid programmes took off and the United Nations (UN) urged economically advanced states to increase their foreign aid budgets to at least 0.7 per cent of their gross national income (GNI),⁸ the positive instruments of economic diplomacy have been attracting more academic attention. They are of particular importance in Taiwan’s case because Taipei relies primarily upon positive economic diplomacy to attain its foreign policy objectives, resorting to negative instruments only when the positive ones fail.

Positive economic diplomacy can be summed up – to follow Diane Kunz’s suggestion – in the phrase ‘trade and aid’. The subheading of trade includes such benefits as favourable tariff discrimination, granting Most Favoured Nation (MFN) treatment, tariff reductions, direct purchases, subsidies to exports or imports, granting export or import licences or credits or promises of the above. (Most of the trade-related instruments are no longer available for the WTO member states.) Foreign aid – defined as a concessionary transfer of economic resources from one government to another – may take the form of cash grants, soft loans, encouragement of private capital exports (investments), technical assistance, humanitarian (relief) assistance, bribery or promises of the above.⁹ The major aid donors, grouped in the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development, define aid more narrowly as official development assistance (ODA; targeting developing states) or official assistance (OA; targeting post-communist states). ODA/OA refers to transfers of resources, either in cash or in the form of commodities or services, at highly concessional rates, provided by government agencies and administered with the promotion of the economic development and welfare of recipient states as the main objective. Apart from grants and loans, ODA/OA includes technical assistance, food aid, support of cultural institutions, assistance to refugees, costs of education and training provided to developing state nationals in the donor state, subsidies to non-government organizations and the administrative costs of ODA programmes.¹⁰

Economic diplomacy and asymmetrical interdependence

To achieve non-economic ends, positive economic diplomacy is expected to transform economic instruments (trade or aid) into tools inducing the target state’s foreign policy compliance. As early as 1945, Albert Hirschman – having examined Nazi Germany’s successful attempts at influencing its southeastern neighbours through the manipulation of trade relations – isolated foreign trade as an effective means of influencing economically weaker states.¹¹ In the 1960s, Robert Keohane agreed that economic and security instruments, such as foreign aid, trade and protection could be used to extract political compliance from other states.¹² Subsequently, Keohane and Joseph Nye elaborated upon the concept of asymmetrical interdependence, which they defined as ‘asymmetries in dependence that are most likely to provide sources of influence for actors in their dealings with one another’.¹³ While Keohane and Nye did not focus exclusively on the economic dimension of asymmetrical interdependence, James A. Caporaso conceptualized asymmetrical interdependence strictly in economic terms as actor A’s dependence on actor B to the extent that ‘A relies on B for large quantities (expressed as proportions of total consumption) of important goods which cannot be easily replaced at sufferable costs while B acquires small quantities of unimportant goods from A which it can easily replace’.¹⁴ Thus, B can terminate the relationship with A at little or no cost, while A can do so only at considerable cost.¹⁵ Having established an asymmetrical interdependence, positive economic diplomacy places the dominant state in a position to influence the dependent state’s policies so that these become compliant with the dominant state’s policy preferences.

For Neil Richardson, the concept of bargaining (quid pro quo or a favour for a favour) remains central to the analysis of the asymmetrical relationship, in which the economically dependent state complies with the explicit or implicit expectations of the donor as ‘partial payment in exchange for the maintenance of benefits [it] derives from [its] economic ties to the dominant country’.¹⁶ Richardson also notes the limits of asymmetrical interdependence, suggesting that the dependent state’s compliance could diminish if the dominant state’s demands become too incompatible with the dependent’s wishes.¹⁷ Bruce Moon reminds us that the bargaining concept assumes a dependent state having the choice of a different policy option in the absence of influence attempt, while Kenneth Menkhaus and Charles Kegley suggest that the compliance could result from voluntary alignment or co-optation, rather than the influence attempt.¹⁸ Exceptionally, some argue that the dominant state could derive benefits even when its economic diplomacy fails to establish a dependent relationship, as such attempts alone create an access to the target state’s decision-makers and provide the dominant state with an opportunity to exert its influence.¹⁹

James Caporaso proposed three conditions of positive economic diplomacy that could facilitate the formation of a dependent relationship: size of the reliance relationship, importance of the goods on which one relies, and ease, availability and cost of the replacement alternatives.²⁰ Adrienne Armstrong focused on trade and investment as compliance-inducing factors: the higher the degree of a state’s investment controlled by another state, the greater the difficulty of finding a substitute for a commodity or a trading partner; and the more intense demand for a commodity, the greater the possibility of establishing an asymmetrical interdependence.²¹ David Baldwin suggested eight criteria to estimate the efficacy of an influence attempt based on foreign aid alone. These include fungibility, forms of aid, transparency of donor’s objectives, degree of conflicting interests between donor and recipient’s goals, credibility of threats, size of aid package, future of aid provision and difficulty in providing aid.²² More recently, Eileen Crumm concluded that the dominant and target states’ political and economic characteristics, features of goods and services provided and world market conditions affected the value of economic incentives as instruments inducing foreign policy compliance.²³

Aid and trade as instruments of positive economic diplomacy

Two broad sets of motivations have been identified as relevant in examining the objectives of foreign aid: one set refers to states pursuing humanitarian objectives (to promote economic growth or reduce poverty) and the other to the states pursuing their own interests, defined as economic interests (e.g. aid tied to the donor’s exports), security interests, military–strategic interests or political interests. While some states aim primarily at promoting humanitarian objectives, other states are more self-interest driven, while yet others take the middle ground, where the pursuit of aid diplomacy reflects both their interests and recipient needs. Most scholars of positive economic diplomacy argue that humanitarian needs of the recipient states are usually of lesser importance to the majority of donor states when allocating economic assistance than the donors’ interests.²⁴ With the end of the Cold War, however, the donors might have paid a greater attention to the objectives of alleviating poverty and supporting good governance or democracy. And indeed, human concerns began playing a greater role in aid allocation in the 1990s and beyond.²⁵ Yet, some analysts maintain that selfinterest still dominates the donors’ aid policies.²⁶

Empirical studies – whether quantitative or qualitative – confirm some donors’ success (particularly, Japan’s) at converting foreign aid into promotion of their own economic development.²⁷ However, they yield no consistent conclusions confirming or denying the donors’ ability to transform aid into the recipient’s foreign policy compliance. Comparing the United States’ (USA) and the US aid recipients’ voting at the UN, Samuel Bernstein and Eugene Alpern, Eugene Wittkopf, Kul Rai, Per Lundborg and T.Y. Wang, for example, found a correlation between the two.²⁸ Charles Kegley and Steven Hook, however, found no such association despite President Ronald Reagan’s explicit tying of aid to UN votes, and concluded that neither the economic need of the top recipients of US assistance nor the size of US aid as a proportion of their GNI predicted changes in the aid dependent states’ voting coincidence with the United States.²⁹ Armstrong found that US economic aid had a negative effect on compliance, although Soviet aid (particularly in the 1950s) was the ‘single most important predictor of compliance’.³⁰ Philip Roeder, however, disagreed, claiming that ‘the offer or threatened loss of Soviet economic assistance has not directly increased compliant behaviour among recipients’.³¹ Randall Ne...