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policy was founded on the proposition that the Chinese who fled to Taiwan from the mainland spoke for the hundreds of millions in China. Even today the government on Taiwan still claims to be the government of China, the only legitimate Chinese government. Technically that claim is still recognized by the United States. Moreover, we remain allied with that government, presumably against the Chinese People's Republic with whom we are attempting to normalize relations.

The provisions of the Shanghai Communique relative to Taiwan read:

The Chinese side reaffirmed its position: The Taiwan question is the crucial question obstructing the normalization of relations between China and the United States; the Government of the People's Republic of China is the sole legal government of China; Taiwan is a province of China which has long been returned to the motherland; the liberation of Taiwan is China's internal affair in which no other country has the right to interfere; and all U.S. forces and military installations must be withdrawn from Taiwan. The Chinese Government firmly opposes any activities which aim at the creation of "one China, one Taiwan," "one China, two governments." "two Chinas," and "independent Taiwan" or advocate that "the status of Taiwan remains to be determined."

The U.S. side declared: The United States acknowledges that all Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is part of China. The United States Government does not challenge that position. It reaffirms its interest in a peaceful settlement of the Taiwan question by the Chinese themselves. With this prospect in mind, it affirms the ultimate objective of the withdrawal of all U.S. forces and military installations from Taiwan. In the meantime, it will progressively reduce its forces and military installations on Taiwan as the tension in the area diminishes. (Italics supplied).

Three years after the Shanghai Communique, conditions in the Western Pacific are more peaceful than they have been for a quarterof a century. Nevertheless, in June 1974 there were still 5,145 U.S. servicemen on Taiwan. Indeed, additional U.S. air power was sent to the island in 1973. Since the signing of the Shanghai Communique, we have also agreed to allow Taiwan to co-produce, U.S. F-5E fighters. In addition to the active U.S. forces on Taiwan, there is a U.S. military advisory mission of 147 officers and men, a reduction of only 18 since 1972. The basic purpose of this mission is to advise, to equip and to train the Chinese on Taiwan on how best to fight the Chinese from the People's Republic. The mission will cost the U.S. taxpayers about $3.6 million for the current fiscal year. The United States alsocontinues to provide weapons to Taiwan, purchased by means of longterm, low interest credits. In 1973, the fiscal year following the pledge of the Shanghai Communique, U.S. Government credit sales of arms to Taiwan totaled $45.2 million; in fiscal year 1974 they were $60million; and $80 million in arms credits are scheduled for the current fiscal year.

All this hardly adds up to carrying out the obvious intent of the Shanghai Communique which anticipated our military disengagement.

The immense energy and talents of the Chinese people are harnessed in productive work. China is still a poor country by Western standards. Its riches lie in a talented people, a rich culture, and abundant natural resources which have been meshed under a political system that is delivering the essentials of an adequate life and some of its amenities to a quarter of mankind.

II. United States-China Relations

THE PATH SINCE SHANGHAI

It is impossible to understand current U.S. relations with China without some awareness of our China policy since World War II. After the military clash with the Chinese in Korea the United States sought to quarantine the new People's Republic of China. This policy continued for two decades, long after its relevance to Korea had disappeared. Its continuance was related to our support of the Republic of China which found a haven on the island of Taiwan. The implicit but unrealistic expectation was that that government would one day return to the Mainland.

While this policy originally saw the People's Republic as a reckless and powerful belligerent, manipulated by the Soviet Union, Peking saw itself as a struggling revolutionary government trying to build on the rubble of civil war a political and economic order better able to serve the needs of the Chinese people. U.S. efforts at containment were regarded as an extension of the Western world's efforts to dominate and exploit China as had been the case for the previous century and a half.

The costs of this outdated policy, founded on a distortion of reality and deep internal political fears, are immeasurable. Its assumptions and miscalculations were a factor in bringing about the confrontation with China in Korea. It was an element in leading more than two and a half million Americans into the political quicksands of Southeast Asia. Thirty-three thousand Americans lost their lives in the hills and valleys of Korea, and 55,000 gave their lives in the paddies and jungles of Indochina. The dollar cost of the Vietnamese war pales in comparison to the tragedy which that conflict inflicted on our national unity, faith in our political institutions, and our economic system.

President Nixon's journey to Peking in 1972 was a major step on the path back to reality in dealing with China. This Nixon initiative is still applauded as a courageous and constructive act by Chinese leaders. The Nixon-Chou Shanghai Communique provided a blueprint for the resumed relationship. In the nearly three years since the document was issued, there has been some development of trade and cultural, educational, and scientific exchanges with China. Where does rapprochement stand today? As one Chinese official put it: "Generally speaking, our relationship is good and is moving ahead. But are we satisfied? I cannot say so."

TAIWAN

The basic reason for this mixed evaluation is the problem of Taiwan which has remained at a stalemate. Prior to the Nixon visit our China

was incorporated into Fukien province and later was made into a separate province. The Chinese exercised sovereignty over Taiwan until May 8, 1895 when, under terms of the Treaty of Shimonoseki, ending the Sino-Japanese war, the island was ceded to Japan. For fifty years, Japan exercised control over the island.

In 1943, the United States and the United Kingdom agreed with China that "all territories Japan had stolen from the Chinese, such as Manchuria, Formosa, and the Pescadores, shall be restored to the Republic of China." In keeping with this pledge, the Chinese nationalist forces received the surrender of the Japanese troops on Taiwan in 1945. Chiang Kaishek established a provisional capital at Taipei in December 1949 following his flight from the mainland.

There is no question that Taiwan has been a direct part of China since 1683, excluding the period of the Japanese occupation from 18951945. Chinese culture and civilization have prevailed on the island from as early as the 2nd Century. Although a two-China policy may appear to be an easy way out of a difficult situation, in the light of the above circumstances and after the Nixon-Chou Shanghai Communique, I believe that for this nation to pursue such a course would be most inadvisable, if not improper. In my judgment it would not be in our nation's interest or in the interests of stability in the Western Pacific.

As for our defense treaty with Taiwan, it seems to me that it is properly seen as a relic of the past. Treaties are not chiseled in stone. To serve the public interest, treaties like any other aspect of a nation's foreign or domestic policy, must be kept current. We must match our commitments, particularly those which could embroil us in vet another foreign war, to our contemporary interests.

Whatever we may do, the Chinese are confident that one day Taiwan will be reunited with the mainland. While the Chinese leaders insist that "as to how and when Taiwan will be returned" after the United States terminates its ties with the island is their internal affair, they also "hope there will be a peaceful solution."

TRADE MATTERS

China's priorities in foreign trade have emphasized the purchase of goods especially related to the expansion of food production. Major imports have been complete plants, machinery and equipment. Trade is also used to overcome significant bottlenecks in domestic production or internal distribution and for acquiring design prototypes. Until recently, at least, the People's Republic has avoided long-term foreign credits but has used medium and short-term commercial credits to finance some imports.

Total foreign trade in 1959 was about $4.3 billion, when it then dropped, not to reach that level again until 1970. But in 1973 there was an increase to $9 billion, with about a $300 million deficit. It is estimated that trade totaled between $12 billion and $14 billion in 1974, 80 percent of that with non-communist countries. It is too early to tell how the 1974 balance will come out, although China is concerned over the impact of inflation on import prices as well as over the softening of the export market for some of its products. Large amounts of imports planned for 1974, including U.S. grains, have been postponed until 1975.

PETROLEUM

In 1973 China entered the international oil market with the sale of one million tons of crude oil to Japan and, in the following year, entered into arrangements for substantial shipments to the Philippines. The latter commitment was made in conjunction with the well-received visit of Mrs. Imelda Romualdez Marcos, the wife of the Philippine's President.

China has been self-sufficient in petroleum since 1965 and for several years prior to the 1973 sale to Japan, had been exporting petroleum products to North Vietnam, North Korea, and Albania. The Chinese are now looking to crude oil as a major earner of foreign exchange, to help finance increased imports of industrial plants and equipment. The old slogan, "oil for the lamps of China," used by Western traders to exploit China for so long, has been given an ironic twist.

The continental shelf off China's shore, particularly the areas between Taiwan and Japan and under the Yellow Sea, are considered by many petroleum experts to contain some of the richest oil reserves in the world. China's coastline extends from the Bay of Korea in the North to the Gulf of Tonkin in the South and the continental shelf slopes gently out as far as 200 miles in some places. No one really knows how great the offshore potential is since exploration began only recently. Deep sea drilling rigs have been bought from Japan and additional exploration equipment has been purchased from the United States and other countries. However, most of the petroleum technology being used to develop China's oil resources, offshore and on land, is China's own. China recently announced, for example, the bringing in of its first offshore well in the Yellow Sea, using a rig built in a Shanghai shipyard.

There will be thorny international problems in developing some of the offshore oil potential along Asia's periphery. Following the publication of the results of a 1968 United Nations sponsored geophysical survey of the Chinese continental shelf, Taiwan, Japan and South Korea each advanced overlapping claims to parts of the region. In December 1970 the People's Republic issued its claim to the continental shelf and to ownership of the Senkaku Islands, although the latter are also claimed by Japan and Taiwan. While U.S. policy is to lend no encouragement to exploration in the disputed areas, some U.S. companies have obtained concessions from Taiwan. Specifically, these corporations are Gulf, Amoco, Conoco, Oceanic, Clinton and Texfel. Several of the concessions lie off the Senkakus. However, no U.S. drilling operations have yet been conducted in that area but Amoco, Gulf and Conoco have been involved in drilling off the west coast of Taiwan in the Taiwan straits, with the work being done by American-owned vessels of foreign registry and manned by foreign crews. There have been no U.S. Government investment guarantees issued for these drilling operations.

There is also an oil potential in the Paracel Islands, southeast of Vietnam, claimed by both South Vietnam and China but occupied solely by China. In fact, the People's Republic had a drilling rig on one of the islands at the time of a military encounter there between the two countries in 1974. There are also conflicting claims of China,

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South Vietnam, the Philippines and Taiwan to the Spratly Islands which also lie to the southeast of Vietnam. With oil reserves an increasingly important asset, overlapping claims off the Asian littorals contain the seeds of very serious difficulties. While the United States should not shirk participation in international efforts to deal in a rational way with these difficulties, we should not provide government incentives or otherwise lend encouragement to companies which wish to plunge ahead with exploration and development in disputed

areas.

In addition to an offshore potential, China has very promising internal oil bearing basins. In fact, the main emphasis is still on land exploration. Estimates of China's total reserves have been consistently revised upwards over the last ten years. Even approximate figures on how much oil China may have are not available. The general view, however, is that the potential is very great.

I was informed that China's oil production was now "in the same range as Algeria's, perhaps a little more." Chinese output is increasing at the rate of twenty percent annually. If this rate is maintained, it would push production to over 400 million tons by 1984, compared with an estimated 60 million plus tons in 1974, making China a major factor in the world petroleum trade.

China sold 5 million tons of crude oil to Japan in 1974, earning about $450 million, and is said to have committed 10 million tons for 1975. Smaller amounts have been sold to the Philippines and Thailand. There are also reports that China has offered to sell oil to U.S. companies. China's 1975 petroleum exports are expected to be double the 1974 level and to continue to climb as new production comes in. Output is limited only by a shortage of equipment and transport. Some pertinent points about China's oil export potential are brought out by the following excerpt from a recent analysis:

Peking's plans to expand oil exports substantially during the next five years are borne out by the construction of new oilhandling facilities at the ports of Chin-huang-tao and Tsingtao and the purchase of dredging equipment needed to make Chinese ports deep enough for large tankers of more than 50,000 DWT to transport crude oil for export. The tonnage of tankers in the Chinese international fleet has doubled in the past year and now totals almost 200,000 DWT.

The goal of 50 million tons of crude oil for export in 1980 appears feasible. Reserves are large enough, even without production from offshore fields. If production accelerates, or even if it only continues to grow at 22 percent-the rate achieved during 1965-1972-the PRC could export 50 million tons in 1980 and still provide a generous leeway for using oil to modernize the economy.

As a developing country, China needs increasing amounts of petroleum. The potential for export, therefore, may not be as great as it seems at first glance although it should be substantial because the Chinese do not use energy or any other commodity for that matter in a wasteful or profligate manner. Indeed, if the United States followed even a part of the Chinese practices in the use of petroleum, this nation would be more than self-sufficient.

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