Hypotheses

Since the creation of the PRC, the Chinese government has sought to weaken the Taiwanese position by placing pressure on outside countries that have official relations with Taiwan to have China reunified. The two components of the OCP previously described must have different effects on the trade flows of China and Taiwan with their trading partners. In this context, we formulate three main hypotheses.

First, Chinese and Taiwanese bilateral trade flows could enhance or deteriorate according to the nature of the vote of their trading partners regarding the UN res-olution for China’s recognition in 1971 (Table 9). Indeed, countries having voted

“Yes” could see their trade flows increase with China, whereas a reverse effect could appear with Taiwan in this case. In other words, countries having recognized the PRC as “one China” to the detriment of Taiwan enjoy better market access, reduced bilateral tensions with China and the probability of the use of retaliations (closing

19https://history.state.gov/historicaldocuments/frus1969-76v17/d136

20http://www.taipeitimes.com/News/taiwan/archives/2012/03/09/2003527354

21“It is the policy of the United States to maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan.” http://www.ait.org.tw/en/taiwan-relations-act.html

diplomatic representations, postponing trade missions or negotiations, rising tariff and non-tariff barriers) against them which could push bilateral trade upward. For countries having voted “No”, there could be a trade-promoting effect for Taiwanese bilateral trade flows and a trade-deteriorating effect for China in so far as the latter could then apply retaliation measures. For the abstention vote, the expected effects are mixed because we suppose that China ensured the results of this vote.

Second, the fact that countries have diplomatic ties with China could lead to improved Chinese trade flows, whereas for Taiwan, this situation could become a hindrance in trade relationships. As previously indicated, the establishment of diplo-matic ties with China implies that these foreign countries unilaterally sever relations with Taiwan, which would allow for better political bilateral relationships with China by complying with the diplomatic commitments, that appear in these agreements.

For instance, in the US-China Joint communiqu´e in 1979 on the establishment of diplomatic relations, it is clearly stated two main points. On the one hand, “the government of the United States of America acknowledges the Chinese position that there is one China and Taiwan is part of China”, i.e. the assertion of the OCP. Never-theless, due to the particular status of the US, they intend to promote relationships with Taiwan: “within this context, the people of the United States will maintain cultural, commercial, and other unofficial relations with the people of Taiwan”. On the other a hand, “the United States of America and the People’s Republic of China will exchange ambassadors and establish embassies”. Chinese bilateral trade flows are likely to be improved, when the trading partners have diplomatic agreements with China. “Alliances and diplomatic ties reinforce states’ commitments to trade openness in several manners” (Bagozzi and Landis, 2015). Indeed, they allow to reciprocally facilitate market access through diplomatic exchanges and the presence of diplomatic representations leading to a decrease of transaction costs. Therefore, a

better trade opening towards the outward and a trade-promoting effect can appear.

Third, we suppose that the impact of diplomatic ties with China on bilateral trade flows may differ according to the nature of trading partners, i.e. developed (herein OECD) and developing countries (herein ex-colonies). Several reasons can justify this intuition. On the one hand, we observed that developing countries, more precisely former colonies, have been the first countries to recognize China after their independence, unlike developed countries. We suppose that “premium-recognition”

could positively affect trade flows through a “win-win” partnership (financial aid, cooperation) between them. Moreover, we observe that African ex-colonies are the main countries where China has cut diplomatic ties (Table 10) because of the es-tablishment of diplomatic relations with Taiwan²². Suspending political relations between countries undermines economic exchanges, as observed for Cuba and Iran, which perfectly illustrate the economic repercussions. On the other hand, Chinese economic expansion in Africa “is coupled with a diplomatic activism”²³, which has led some African countries to cut diplomatic ties with Taiwan under the threat of retaliations.

4.4.2 Data

We use a worldwide database²⁴ with more than 1.3 million observations over the period 1948-2012. This database includes the traditional variables in a gravity model, such as GDP, GDP per capita, geographical distance, shared language, contiguity,

22Chad, Burkina Faso, Guinea Bissau, Lesotho, Gambia, Niger, Senegal, Benin, Central African Republic.

23 http://www.forum2000.cz/en/projects/forum-2000-conferences/2014/panel-summaries-and-transcripts/expansion-of-the-global-economic-influence-of-china/

24See the website of Keith Head: http://strategy.sauder.ubc.ca/head/sup/

former colonizers, and trade agreements²⁵. Our dependent variable is the value, in millions of dollars, of bilateral exports (Xijt) constructed by DOTS (IMF) and complemented by COMTRADE. We decide to approximate the OCP through the channels of foreign policy to better grasp the elements described in Section 3. We have two main variables of interest: i) countries’ vote on China’s recognition by the UN in 1971²⁶ (Table 9) ; ii) diplomatic relationships with China²⁷ (Table 10).