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Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) THE DILEMMA OF THE TAIWAN STRAIT Since 1949, when the Kuomintang relocated the Republic of China government to Taiwan following its defeat to Chinese Communists, who established the People’s Republic of China (PRC), the Taiwan Strait has emerged as not only a regional but a global flashpoint. Three cross-Strait crises have emerged, threatening the fragile peace in East Asia, and almost prompted the use of tactical nuclear weapons in the mid-1950s by the US against the PRC. In the decade since the last cross-Strait crisis of 1995-1996, an uneasy and uncomfortable peace has emerged in the Taiwan Strait. Constant saber-rattling by the PRC and independence rhetoric by Taiwan means that there is no permanent peace, but simply a lack of violence or aggression materializing in real military conflict. The almost surprising non-violence that has persisted in the Taiwan Strait can be analyzed from a variety of angles. One analytical tool that seems to be salient in describing the Taiwan Strait is game theory. Even notwithstanding its existing contributions to the study of international relations, which surely underpin its expanding application, game theory holds much analytical promise in describing, analyzing, and hopefully facilitating a solution to the Taiwan Strait dilemma. TAIWAN STRAIT AS A PRISONER’S DILEMMA Game theoretic analysis of the Taiwan Strait invariably begins by describing the dilemma as a classic Prisoner’s Dilemma (PD) game.1 Though there are various modifications and more sophisticated extensions of the PD game, it is essentially a two-person game where each player has two choices, either to cooperate or defect. In the Taiwan Strait context, the two players, Taiwan and the PRC, have two choices, either to maintain the status quo or to change the status quo. A unique feature of the PD game is that it appears to be a zero-sum game. Since both players assume the worst of the other player, they choose their least bad option, which in this case, is for both parties to maintain the status quo. This is the most common perception of the 1 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) dilemma as “propagandists and the media on both sides of the Taiwan Strait [consistently portray] the contest in the international arena as a zero-sum game.”2 In the public understanding of the Taiwan Strait as a zero-sum PD game, there appears no little opportunity or incentive for cooperation. Scholars, too, have adopted this perception, arguing that unequivocally, the “political game across the Taiwan Strait [is a] deadlock game in game theory.”3 However, that is in fact an erroneous misapplication and misunderstanding of the characteristics of the PD game. What the public and many scholars fail to realize is that the Taiwan Strait dilemma is a PD game in its true theoretical form, and as such, “may be zero-sum in the short run but [has] scope for mutual benefit in the long run.”4 Table 1: Taiwan Strait PD game payoff matrix Maintain PRC Change status quo status quo Taiwan Change (a) 1 (b) -1 status quo 1 -2 Maintain status quo -2 (c) -1 (d) 0 0 As Table 1 shows, in the Taiwan Strait PD game, unilateral deviation, designated by (b) and (c), significantly reduces the payoff as it would most likely lead to military conflict, leading to loses for both parties; the initiating player would lose more, which is further incentive not to defect. As such, both players assume that the other player will assume the status quo, and so, in a self-fulfilling prophecy, both maintain the status quo, at (d). However, payoffs are maximized when both players decide to cooperate and both change the status quo, as seen in (a). Therefore, there exists a solution, a best strategy where “both players could benefit if they both changed their strategies together.”5 In the context of the Taiwan Strait dilemma, the basic PD game is insufficient because it does not properly specify the full range of strategic options that Taiwan and the PRC can 2 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) execute. By better defining the strategies available to both players, a more refined Taiwan Strait PD game will provide more insight into possible non-zero sum solutions. Though enumerating more strategies does not necessarily ensure a solution, it does reveal more combinations that could emerge as equilibria solutions. As Table 2 below illustrates, a better defined Taiwan Strait PD game has nine possible solutions, instead of just four with the basic PD game as each player now has three playable strategies, to maintain the status quo, to move to a two-state option, or to move towards Taiwanese unification with the PRC. Taiwan Table 2: Re-specified Taiwan Strait PD game payoff matrix PRC PRC Two states Status quo Taiwan (a) 0 (b) -1 Two states 1 -1 (d) -2 (e) 0 Status quo 0 0 (g) -2 (h) 0 Unification -2 -2 Unification (c) -2 (f) -1 (i) 0 In the payoff matrix for this redefined Taiwan Strait PD game, the current status quo is at (e), where both players both marginally seek to maintain the status quo. As in the basic Taiwan Strait PD game, unilateral deviations from the status quo, as seen in (b), (d), (f), and (h), lead to negative payoffs for both parties, with the initial defector suffering the most. The strong disincentive to act means that all the unilateral defections from the status quo are not equilibria solutions. Beyond the four combinations of unilateral deviations from the status quo, there are also four solutions where both Taiwan and the PRC simultaneously deviate from the status quo. When both states play different strategies, as in (c) and (g) when one state moves towards unification and the other towards a two-state solution, both players experience very negative payoffs. Points (c) and (g) represent impossible solutions, since at these combinations both players suffer the greatest loss. Conversely, though (a) and (i) are not equilibria solutions, they 3 -2 -1 1 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) are still more optimum than (e) because at these combinations, total payoff for both players are maximized. At (a), where both states adopt a two-state strategy, Taiwan experiences a positive payoff. While Taiwan gains full independence, a “normal” international status, and a cessation of uncertainty regarding its future, the PRC would suffer a net payoff of zero. Though the PRC would lose all claims over Taiwan, and its associated effects of solidifying nationalistic sentiments, it would no longer have to deal with criticisms of its aggression towards Taiwan. Moreover, relations with the US would undoubtedly improve since the Taiwan issue is one of the most prevalent sticking points in the bilateral relationship. At (i), a mutual move towards unification, the PRC would gain a positive payoff while Taiwan experiences a net zero payoff. Under unification, the PRC would now possess Taiwan, which would then rival Hong Kong as one of the nation’s crown jewels. Though Taiwan would lose what sovereignty it has, a voluntary acceptance of unification means that it would be able to insure some favorable terms, perhaps even a limited degree of political and economic autonomy. Both parties would also benefit from a greater degree of certainty over the Taiwan Strait. However, though there are two combination points where the total payoff is maximized, (a) and (i), the negative payoffs associated with the rest of the defection strategies are strong disincentives for any deviation from the status quo. Therefore, though this redefined payoff matrix shows more combination points, it does not reveal a more salient equilibrium. In game theory, a solution to the PD game comes through cooperation and communication. With the key assumption that there are an indeterminate number of future plays, three strategies for cooperation are often suggested, the trigger method, tit-for-tat, and the leader initiative. However, each of these is insufficient and ineffective in the cross-Strait context. The trigger method fails because the threat of permanent punishment, triggered by an inevitable 4 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) incident of PRC antagonism or Taiwanese provocation, would eliminate permanently the possibility of future cooperation. Tit-for-tat and the leadership initiative also fail because there is no incentive for either Taiwan or the PRC to make the first move towards cooperation, as the payoff matrix demonstrates. For the PRC, offering an olive branch to Taiwan or assuming the leader initiative as the stronger party is irrational. Indeed, “no Chinese leader…can afford to be cast as a lishi zuiren (a person condemned by history) for not acting to prevent the split of the nation.”6 Similarly, “Taiwan’s leaders will see no opportunity for moderating their own activity”7 especially since “electoral considerations [are] the most powerful force in Taiwanese politics,”8 and having a soft stance towards the PRC can be politically fatal. Not only are prospects for cooperation weak, but differences between Taiwan and the PRC are increasingly divergent. As the PRC remains insistent on unification, the evolution of Taiwanese political and cultural identity has caused it to move ever away from the PRC. Exacerbated by the “PRC’s rather ham-handed management of the return of Hong Kong to its jurisdiction,”9 unification is now all but been dismissed in Taiwan. Indeed, given the dynamics of the Taiwan Strait, there are grim prospects for increased cross-Strait cooperation and communication in the near future. FOCAL POINT SOLUTION TO THE TAIWAN STRAIT PD GAME? Though there appears to be slim prospects of increased cooperation and communication to coordinate strategies, and there is no internal solution to the Taiwan Strait PD game, there is nonetheless another means by which a cooperative solution may be achieved. Thomas Schelling, in his classic Strategy of Conflict, suggests that cooperation is possible even in situations where there is no meaningful communication. He argues that since “people can often concert their intentions or expectations with others if each knows that the other is trying to do the same, [there is] some focal point for each person’s expectation of what the other expects him to expect to be expected to do.”10 In the absence of direct communication, Schelling instead focuses on 5 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) expectations and perceived expectations of behavior as a means of players independently arriving at a common solution, the focal point. Finding a focal point requires analysis of the cultural norms and behavioral identities prevalent in the Taiwan Strait. Analysis in the constructivist tradition may be the key to finding a solution to the Taiwan Strait dilemma because the dynamics of the Strait are such that “emotion supplants reasoned debate…given history, the growing Taiwan identity, PRC actions, and the fear of outsiders that many feel.”11 In Taiwan, two behavioral norms, political liberalization and economic liberalization with the PRC, dominate. As one of the shining beacons of democracy in Asia, Taiwan’s domestic society is increasingly marked by a “new way of life for which democratic politics, respect for human rights and the upholding of the rule of law are becoming entrenched, [making] it increasingly difficult for people in Taiwan to see why it would be in their best interest to risk them all to join the PRC.”12 One consequence of increased political liberalization and democratization is the emergence of domestic politics as a shaper of foreign policy. Since “electoral considerations [are] the most powerful force in Taiwanese politics, no government in Taipei…can afford not to push to the limit of Beijing’s bottom line through Taiwan’s assertion of its sense of national identity.”13 Simultaneously, while Taiwanese nationalism is rising, which can but antagonize the PRC, there is also a recognized need for greater economic engagement and trade with the PRC. Since PRC liberalization that opened its market to Taiwanese investors, Taiwanese FDI into the PRC has topped $100 billion.14 Taiwanese firms have also invested “on a per capita basis…more capital to China than has any other country”15 while “almost three-quarters of Taiwanese firms that had invested overseas had investments in the PRC.”16 This trend shows no sign of relenting, as in the first five months of 2006, the flow of Taiwanese FDI into the PRC was up 46% from the same period in 2005.17 Qualitatively, this 6 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) means that “Taiwan is now China’s third-largest trade partner, and China is Taiwan’s secondlargest trade partner.”18 The simultaneous existence of two conflicting norms, one that risks antagonizing the PRC and another that seeks greater PRC engagement, means that it is difficult to identify a single dominant behavioral norm in Taiwan. It is unclear how Taiwanese policy will balance these conflict norms. Even the growing assumption that most Taiwanese have rejected unification with the PRC cannot be taken for granted, given the volatility and unpredictability of Taiwanese domestic politics, which is both a sign of democratic maturity and a constraint on governmental statecraft. By contrast, the PRC’s behavior seems to be dominated by a single norm of nationalism, as reflected in an uncompromising insistence on unification of Taiwan to the mainland. As the PRC moves away from its communist ideological roots, nationalism and territorial integrity has become a key source of future regime legitimacy. Ensuring unification of Taiwan is the PRC’s “sacred duty”19 as “regaining Taiwan is the chief goal as well as the leading symbol of that reborn nationalism and assertiveness.”20 Since a conciliatory stance towards Taiwan may cause “secessionist movements in Tibet, Xinjiang, and other parts of China [to] be emboldened to escalate their resistance to Chinese rule,”21 the Taiwan issue is effectively the means of consolidating power domestically. As power begins to transition from the fourth generation of PRC leadership to the fifth generation, the need to consolidate power domestically means that Chinese leaders will continue “to compete fiercely to be seen as most hawkish on Taiwan [to] gain more credit through nationalist appeals.”22 Yet in the opaque halls of PRC decision makers, there may be internal disagreement on a timetable and means of achieving unification, as PRC policy seems to vacillate between emphasizing the stick (holding military exercises simulating a potential invasion of Taiwan) or the carrot (reaching out to Taiwanese business interests). 7 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) Nonetheless, the official PRC governmental position remains an iron-clad commitment against Taiwanese independence dictates policy, even if its associated costs “may appear prohibitive in the assessment of academics, military analysts, and government officials outside of the PRC.”23 Therefore, this domestic norm is a strong determinant and guiding principle of the PRC’s crossstrait policy, resulting in a cross-Strait policy largely “influenced by the emotionally blinding force of Chinese nationalism.”24 Normative analysis of Taiwan and the PRC reveals contesting norms that present different expectations and perceptions of expected behavior. Though such marked differences are more prevalent in Taiwan, variance in the intensities of conflicting norms may only be a reflection of societal differences. Since Taiwanese society is more open and liberalized, conflicting norms are perhaps more pronounced than in the PRC, where the central government strives to maintain social harmony and minimize the resonance of disunity or contending viewpoints. Nonetheless, even accounting for these variances, the general direction of Taiwanese and PRC behavioral norms remains unchanged—there is a Taiwanese aversion to unification, if not outright embracing of a two-state strategy, while the PRC will settle for nothing short of unification. In order to formulate a focal point solution, normative analysis would need to reveal a convergence of norms as “the more consistent with each other the policies of both parties are, the less possible it is they would initiate a conflict with the opponent.”25 However, the norms and predicted behavioral preferences held by Taiwan and the PRC do not lead to convergence, but divergence. There is thus an “increasing improbability that the trajectories of the two Chinese factions can be reconciled—as Taipei’s desire to design a future independent of the mainland grows, so does Beijing’s ability and determination to prevent that 8 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) independence.”26 Therefore, no focal point solution exists as prevailing domestic norms all but eliminate opportunities for cross-Strait cooperation. BEYOND JUST THE PRISONERS’S DILEMMA FRAMEWORK Existing research of the Taiwan Strait using the game theoretic framework begins and ends at the Prisoner’s Dilemma framework. But in merely describing the Taiwan Strait dilemma as a PD game, no new analytical insights are achieved, as it is simply an intellectual exercise where the status quo of the Taiwan Strait dilemma is described using different terms and technical jargon. The failure of traditional cooperation strategies and even Schelling’s focal point theory in this context means that such game theoretic tools do not adequately describe the dynamic realities of the Taiwan Strait. The failure of the PD game in the Taiwan Strait context, then, is not by the lack of compatibility, but by a lack of descriptive power. Its first inherent shortcoming is its base assumption of unitary state actors. This assumption, already challenged by normative analysis of Taiwan and the PRC in trying to arrive at a focal point solution, must be abandoned given the intricacies of decision-making in Taiwan and the PRC. It is rare that each of the state players exhibit consistent and coordinated statecraft. There are a wide variety of different sub-state and non-state actors that actively engage in cross-Strait relations, all of which say and do different things. For example, while Taiwanese governmental officials criticize the PRC’s aggressive overtures towards Taiwan, leaders of Taiwan’s opposition party actively engage the PRC, even going so far as to visit their counterparts in the PRC, most recently in April 2007.27 Indeed, then, the fundamental reason why there the Taiwan Strait is a dilemma is that there is a plurality of national, social, and economic interests involved, as shown in the table below. Compounded by a similar plurality of actors in each state, there exists a wide array of different desired objectives at play in the Taiwan Strait, making cooperation complicated and a cohesive state policy difficult. 9 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) Table 3: Varying interests in the cross-Strait context Actors Taiwan Government (CCP) Opposition (KMT) Business community PRC Government (CCP) Military (PLA) Business community Interests Remain in power, expand international status, solidify national identity Return to power, manage cross-Strait engagement for political advantage Peace and stability to enable trade and commerce Remain in power, solidify regime legitimacy, foster economic growth Assert greater role in domestic politics, justify need for military spending Peace and stability to enable trade and commerce BARGAINING POWER Given the dynamic nature of the players in the Taiwan Strait, a bargaining power (BP) model is the best game theoretic means by which to describe realities of the dilemma and hopefully provide an equilibrium solution. Bargaining theory states that a solution to conflict arises when players negotiate given their relative power endowments and come to a cooperative solution that reflects this power parity. In other words, “in this bargaining process each player should be expected to behave according to some bargaining strategy that satisfies the same utility-maximization criterion as in any other game situation.”28 It assumes and accounts explicitly for differing levels of initial power and endowment; thus, bargaining “does not necessarily arrive at “fair” outcomes.”29 In technical form, formulated utility functions represent each state’s bargaining power. Each bargaining power function has four variables and an independent variable. The four variables represent a distinct source of bargaining power: outcome power (α), threat power (β), credibility power (γ), and attitudes toward risk (δ); each value is a ratio relative to the strength of the other sources of bargaining power in the context of that state’s total bargaining power posture. The independent variable (x) represents each player’s actions, with an increase signifying a move towards two-state strategy and a decrease signifying a move towards a unification strategy. To understand the dynamic behavior and predictive power of the bargaining power functions, each source of bargaining power is explained. 10 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) The first source of bargaining power, outcome power, describes a player’s overall ability to achieve its desired outcomes, usually predicated on a state’s military and socio-economic strength. Taiwan’s outcome power is not its indigenous military capabilities, but rather, the American military presence in the Pacific that could potentially intervene in the event of a PRC invasion. Taiwan, thus, does not posses positive outcome power, but merely the restraining power that could prevent the forceful unification outcome. Conversely, the PRC’s outcome power seems to be growing as it has an ability to coerce Taiwan through economic pressure, project military power across the Strait, and is developing a legitimate deterrent against potential an American military deployment. Increased economic engagement across the Strait, and a growing dependence of Taiwanese firms on production centers in the PRC means that the PRC “is in a position to use Taiwan’s economic dependence as leverage to coerce Taiwan [as the Taiwanese business community], so glued to the Chinese economy, could unintentionally become a liability for Taiwan’s security and autonomy, creating a “hostage effect.””30 The PRC’s outcome power is also bolstered by its burgeoning military strength. As “the primary near-term focus of China’s military modernization is to develop military options for addressing the situation with Taiwan,”31 it is also developing increased capabilities of deterring potential US military intervention in the Strait. Since Taiwan’s main source of outcome power is the expectation of American intervention, so the PRC’s ability to prevent American military deployment is an important source of countering outcome power. The PRC is engaging in “asymmetrical warfare and has directed its military planning toward US weakness or “holes” in its capabilities.”32 To deal with the expected deployment of an American carrier fleet, the PRC is developing and acquiring “anti-ship and theater ballistic missiles, wake-homing torpedoes, computer viruses, and electronic jamming [to] give Beijing a capacity to inhibit the U.S. Navy’s 11 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) ability to protect Taiwan.”33 The PRC has even made submarine capabilities a centerpiece of ongoing efforts to modernize the Chinese navy because “submarines are as a potent, asymmetric answer to US maritime superiority.”34 Threat power, the second type of bargaining power, is the ability of one player to “threaten the other with the possibility of a Pareto-inferior state—without necessarily moving there—by communicating its intentions in advance.”35 Threat power resonates in the Taiwan Strait as “Chinese strategy and tactics since ancient times have consisted largely of seeking to win without fighting, and of outwitting the opponent by ruse and stratagem instead of combat.”36 Taiwan’s threat power is largely non-existent as it lacks real offensive capabilities to threaten the PRC, though it is trying to revive an indigenous cruise missile program. On the other side of the Strait, the PRC’s threat power is based on military coercion and intimidation. The PRC, in preferring “to mass forces and provide plenty of warning to its adversaries [to] avoid combat while prevailing by intimidation,”37 projects significant threat power. Threat power is a stop-gap measure that enables the PRC to become strong enough to “bring about unification on terms it can tolerate.”38 The PRC’s threat power is embodied in its offensive missile arsenal and its staging of military exercises as large-scale displays of force. Its threat power was in full display in 1996 when it test-fired missiles very close to Taiwan while simultaneously staging massive military exercise. Though tensions looked like it might deteriorate into military conflict, “the military brinkmanship in 1995-96 was [paradoxically] intended to ensure peace across the Taiwan Strait [as] the military brinkmanship …never went beyond a war of posturing.”39 These saber-rattling exercises thus demonstrate the PRC’s “resolution and willingness to escalate to high levels of military action if necessary”40 to prevent a war it has no desire of fighting. 12 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) The third component of bargaining power, credibility and reputation power, determines the extent that a player’s outcome and threat power affect the other player. Having a credible reputation strengthens a player’s threat power, while a weak reputation reduces the intimidating force of threats. Indeed, since “credibility is the only limitation on threats,”41 having a credible reputation strengthens one’s bargaining power by minimizing the costs of threatening or totally obviating a player from “the need actually to carry out threats.”42 Taiwan’s credibility and reputation power does not derive from its threat power, which it does not have, but from the continued development of a rationally stubborn reputation. A strategy of rational stubbornness is feasible if there are “potential long-term benefits in acting stubbornly, [if] a reputation for stubbornness will mean that they are threatened less often and thus may carry on doing what they prefer.”43 In the face of growing PRC threats, Taiwan has unified in opposition against the PRC despite domestic differences. Indeed, the independence “sentiment becomes quite evident when Beijing rattles its sabers and seeks to bully Taiwan.”44 Therefore, as national consolidation takes place in the face of increasing PRC threats, and it repeatedly declares that “it will not enter into negotiations [with the PRC] under pressure [and will not] abandon any efforts deemed as essential to its national dignity,”45 Taiwan is developing a stubborn reputation that will not bow to PRC shows of force and will not back down in the face of PRC threats. Increasing Taiwanese reputation and credibility power does not equate to a decrease in the PRC’s reputation and credibility power. It remains strong, especially as the PRC continues to deploy threatening ballistic missiles aimed at Taiwan, but may have been diminished following the ineffectiveness of its 1995-96 military exercise. The military exercises did undermine Taiwanese consumer confidence, leading to “considerable panic [especially in] the island’s stock market.”46 An argument can also be made that the US military presence did not cause the PRC to back down, as 13 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) it conducted another round of missile tests even closer to Taiwan after US carriers arrived in the Taiwan Strait.47 Indeed, a month after the crisis, PRC President Jiang Zemin “boasted to Japanese politicians…that he had ordered the missile tests to continue after the US armadas had moved into the area of the Taiwan Strait [as] he said he was undaunted by the US carriers.”48 Nonetheless, the incident prompted misgivings about the credibility of Chinese threats across the Taiwan Strait. The military exercises failed in intimidating Taiwanese voters and ironically emboldened the Taiwanese populace to reelect President Lee; the threats also “failed to dissuade the DPP and the KMT from endorsing candidates that, in its view, were pushing for Taiwan’s independence.”49 Furthermore, “polls taken after the 1995-96 missile crisis showed that the PRC’s actions only deepened popular resentment against it in Taiwan and hardened the determination of the political leadership in Taipei to resist Beijing’s claim to the island.”50 The final component of bargaining power, attitudes toward risk, reflects a player’s patience and willingness to assume risk in achieving the desired outcome. A player that is willing to accept more risk and be more patient stands to have greater bargaining power, and potentially, a greater payoff. Taiwan’s attitude toward risk is a balancing act between fostering stable relations with the PRC to facilitate trade and the domestic desire for a greater international status. Such a risk-neutral attitude reflects the recognition that while Taiwan’s “security depends critically on its economic strength [as Taiwan] cannot maintain its democratic way of life and security without economic prosperity,”51 there is also a need to also assert a greater international stature despite the importance of the PRC to continued economic growth. By contrast, the PRC’s attitude towards risk is balanced between preventing Taiwanese independence and maintaining the status quo to facilitate economic development. Its larger initial power endowment means that the PRC is able to be more risk-acceptant. It has ignored US calls to 14 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) repeal its Taiwanese anti-secession law and withdraw its ballistic missiles aimed at Taiwan. Moreover, the PRC continues its systematic efforts to reduce Taiwan’s international stature, from continually blocking Taiwan’s efforts to enter the United Nations to refusing to participate in any international meeting where Taiwan is allowed to participate using its own name. TAIWAN STRAIT COMPREHENSIVE BARGAINING POWER MODEL Together, the four variables that represent a source of bargaining power and the independent variable, which represents state actions, combine to form a bargaining power utility function. The dependent variable, U(x), represents the expected payoff accrued by each player; it reflects each player’s bargaining power, as the greater the bargaining power, the greater the payoff. For Taiwan, an increase in its payoff signifies a move towards a two state solution, where it achieves the international stature of a normal international state. Conversely, for the PRC, a larger payoff reflects a move towards a one state unification solution. Table 4: Bargaining power utility functions in analytical form Bargaining powerTaiwan Bargaining powerPRC UTaiwan = (αTaiwan + βTaiwan + γTaiwan) – [δTaiwan](xTaiwan) UPRC = (αPRC + βPRC + γPRC – δPRC) / (xPRC) Graphically, and after term rearrangement, these two utility functions can be placed on the same axis. Taiwan, because it is risk-neutral, has a linear representative curve while the PRC has a convex representative curve because it is risk-acceptant. An equilibrium solution occurs when both curves intersect at one point. When both players do not play the same strategy, no equilibrium is achieved, and the status quo is assumed to be the base condition. In other words, unless both players play the same strategies, the status quo is maintained. These two plays reflect the status quo. As seen in Figure 1 below, there are two potential equilibria points. Point B represents the two-state Taiwanese independence solution while point C represents the onestate unification solution. These two points correspond with the two optimized solutions as derived from the re-specified Taiwan Strait PD game. However, they are potential equilibrium 15 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) points, and not achieved given the fact that both Taiwan and the PRC are playing their status quo strategies, remaining at T(a) and C(a) respectively. The status quo strategy is thus represented as playing a strategy at the reflection point or median point, as seen below, and the status quo remains until both players play strategies that converge on a single equilibrium point. Figure 1: Representative bargaining utility curves of Taiwan and the PRC Taiwan payoff Two state solution PRC bargaining function B Taiwan bargaining function T(a) C(a) C Unification solution PRC payoff More than simply graphing out equilibria solutions, my BP model describes how state actions are a reflection of and constrained by domestic actors. A core assumption of bargaining power models, in the neorealist tradition, is of a monolithic state actor. One of the implications of such a theoretical foundation is that many variables in expected utility functions are assumed to be constant. Graphically, it means that the shape and position of the bargaining power functions are assumed fixed, except in the event of a significant exogenous shock, and state action is merely movement along the curve. However, such an assumption does not reflect the empirical realities of the Taiwan Strait. Given the increased dynamism of interlinked relationships between non-state actors on the domestic level, each pursuing specific interests, my 16 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) BP model includes domestic feedback loops. In my BP model, a change in the independent variable, any state action in the Taiwan Strait context, does not only change the payoffs of each state, but also affects that state’s constitutive bargaining power. In other words, state actions, which are represented by a movement along the curve, can also change the shape and position of that state’s bargaining utility function. Including this added element of dynamic interaction, a domestic feedback loop, means that state action is not analyzed in an interstate context, but also in the intrastate context. The feedback loop reflects changing power dynamics on a domestic level, then resonates affecting interstate relations by changing the shape and position of a state’s bargaining power function. A necessary element of the feedback loop is defining how the four types of bargaining power are associated with various sub-state actors. Table 4: Bargaining power as represented by sub-state actors Actors Taiwan Government (CCP) Opposition (KMT) Business community PRC Government (CCP) Military (PLA) Business community Associated bargaining power Outcome power; credibility and reputation power Credibility and reputation power Attitudes toward risk Outcome power; credibility and reputation power Threat power; credibility and reputation power Attitudes toward risk As the table above shows, each facet of bargaining power is associated with certain sub-state actors, and vice versa. Notable in table is the fact that no sub-state actor in Taiwan possess threat power; this reflects Taiwan’s lack of threat power altogether. From these links, it is possible to determine the feedback and resonance of state action. Given a state action, there is feedback, as that action affects a particular aspect of that state’s bargaining power. Domestically, it means that sub-state actor(s) will have gained, as that state action achieved that sub-state actor’s particular interest. A state action can also have similar effects in the other player’s state actions, 17 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) and change the other player’s domestic power balance and constitutive bargaining power. Since the coefficient values of the bargaining power are ratios of bargaining power, or the distribution of total bargaining power among the four types of power, a change in domestic power dynamics changes the coefficients of one or more variables. This could change the shape and position of a player’s bargaining power model, thus changing that state’s bargaining posture in future interactions. TECHNICAL ISSUES OF APPLICATION The primary technical difficulty of the bargaining power model is how to operationalize realities that are inherently qualitative into quantitative numerical rankings that can be analyzed technically. One possible solution is to make all the values uniformly arbitrary such that they have no real value meaning but can indicate relative differences. For example, the bargaining power variables have coefficients which are not absolute values, but ratios that represent relative differences. The second major technical difficulty concerns the bargaining model’s efficiency in describing simultaneous state actions as it may be hard to capture precisely the differing magnitude of change in each player’s bargaining power. However, in most real-world scenarios, bargaining power rarely changes simultaneously, as there is a time-lag response to another player’s state actions. Given the added dynamism of a feedback loop, additional technical issues arise. For example, how can the bargaining power variables be fixed in one moment, when state action is represented by a shift along the bargaining power utility, and then not constant in the next, as state action causes domestic feedback. One way to overcome this is to reintroduce the concept of an intra-play time lag, and how one state “play”, or state action, is inherently a twopart sequence. First, there is state action, and a change in the independent variable, and a movement along the curve. Then, there is a feedback effect, which then changes the bargaining 18 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) power variables. By increasing the time horizon of each play to encompass this two-step sequence, issues of temporal inconsistency can be overcome. ANALYZING SCENARIOS WITH THE BARGAINING MODEL Though technical issues may never be fully addressed, the BP model is shown to be efficient by using it to examine case studies. (Due to my need to meet the 9/15 deadline, my case studies and scenario analysis section was not satisfactory as I need to redo some graphs and graphical analysis; however, it will be ready by the time of the conference. My sincere apologies) INSIGHTS AND LESSONS FROM THE FOUR SCENARIOS The scenarios analyzed challenge the neorealist assumption of a single, monolithic state actor. Such an assumption, though analytically feasible, is no longer a viable explanation of cross-Strait relations. Instead, domestic sub-state actors are increasingly important, not only in domestic power disputes, but also in feedback and resonance effects on state actions. In other words, as has been shown, state actions impact domestic sub-state actors, but a feedback loop exists where these actors can also constrain state policy. As seen in changes in relative bargaining power, a state action can not only impact domestic sub-state actors, but also the substate actors across the Strait. For example, the PRC’s recent campaign to increase economic incentives for Taiwanese businesses does not only increase the PRC’s outcome power, it also has resonance effects for the Taiwanese business community. Already risk-adverse, the Taiwanese business community will then lobby for non-combative Taiwanese policies so as to not upset the additional gains from trade that they are receiving from preferential trade incentives; as such, Taiwan in general loses bargaining power, as it becomes more risk-adverse. Such cross-Strait resonance effects seem to suggest that increased non-governmental interactions can help to forge a more sustainable Taiwan Strait solution. Given the seemingly insurmountable political chasm 19 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) that divides the reigning DPP government in Taiwan and the CCP regime in the PRC, the ability of sub-state actors to engage each other can be a viable means by which cross-Strait relations can be improved. However, at the same time, guarded optimism must be balanced with a pragmatic caution, as evidence suggests that civil societies on both sides of the Strait are increasingly divergent. Though there are growing economic links, and even cultural-tourism links, national identity formation appears to be on diverging trajectories. Both Taiwanese and Chinese societies are increasingly nationalistic, and concerned with the assertion of a greater international presence. Yet there are contradictory claims of nationalism on both sides of the Strait, as Taiwanese nationalism advocates a distinct social and political state identity while Chinese nationalism advocates the sacred duty that the PRC to achieve Taiwanese unification. Regardless of these two contrary claims, this bargaining power model nonetheless demonstrates the need for future analysis of the Taiwan Strait to place a greater focus on domestic sub-state actors as their ability to constrain and affect cross-Strait policies on a national level will only grow in the near future. CHALLENGES AND APPLICATION The model also highlights the fact that Taiwan needs to strengthen its bargaining power. In the face of inevitable PRC political, military, and economic expansion that will increase the PRC’s bargaining power and shift the balance of power towards the mainland. Taiwan needs to adopt new strategies of international engagement or risk being at a grave power disadvantage. Finding means by which to increase its outcome power, its credibility and reputation power, and its attitude toward risk will be difficult as Taiwan faces increasing international isolation and greater global reluctance to invoke the ire of the PRC. Therefore, there is need for Taiwan to formulate a grand strategy so that it has a coherent and systematic plan by which to prevent international irrelevancy and an undesirable scenario where unification is inevitable. The second 20 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) great challenge for Taiwan is how to balance cross-Strait economic relations in such a way as to not create overdependence, but manipulate cross-Strait trade as a means of continuing economic growth. No cross-Strait trade will definitely lead to economic stagnation, but a balance must be struck between economic necessity and national security. Such a balance will be difficult to find, much less maintain, especially given the growing prominence of the Taiwanese business community, which seems less concerned with the consolidation of a distinct Taiwanese community and more concerned with the consolidation of personal wealth. The greatest challenge for the PRC is to balance a gentler cross-Strait approach and the need to maintain a legitimate ability to threaten Taiwan if it chooses to reject the PRC’s incentives for unification. While seeking to engage the Taiwanese business community, it must not forget that the state-business relationship is different in Taiwan; while in the PRC the state has a great ability to directly impact the business community, such a link is more tenuous in Taiwan. Also, democratic tendencies in civil society may have a negative reaction to economic incentives purely aimed at Taiwanese economic interests. In other words, it must seek not only to win the wallets of the Taiwanese people, but also their hearts and minds. Moreover, it must be willing to remain risk-acceptant, and not succumb to business pressures to too quickly normalize and expand relations with Taiwan, and in doing so, sacrifice its ability to effectively prevent Taiwanese independence overtures. AREAS OF FUTURE RESEARCH There are areas of future research that will help to make the model even more robust and analytically efficient. The process of operationalization needs to be better defined so that changes in the Taiwan Strait are better incorporated into the bargaining power model. The bargaining power model itself can also be further refined to account for mixed strategies. On the substantive side, there is an obvious need to define potential equilibria solutions beyond just the 21 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) simple two-state Taiwanese independence and one-state Taiwanese unification model. Also, research to better define and differentiate between the different determinants of bargaining power is necessary. More than differentiating, there is a need to consider if other sources of power such as domestic identity or strategic culture, contribute to each player’s bargaining power; if they do, then they should be incorporated into the model as a facet of bargaining power. CONCLUSION The bargaining power model, by incorporating the relative bargaining power of Taiwan, the PRC, and the US, is a robust analytical tool for systematic analysis of the Taiwan Strait. By incorporating game theory into Taiwan Strait research, a significant step has been made towards an analytical framework that is not only methodologically robust but also systematically rigorous. Beginning with the simple prisoner’s dilemma game to a redefined multi-strategy multi-equilibria model to the introduction of a bargaining power model, game theoretic concepts are able to explain the realities of the Taiwan Strait, why cooperation is difficult, why a sustainable solution is so elusive, and the growing role that sub-state actors can and will play in managing the conduct of cross-Strait relations. Further research is needed to better define the model and the determinants of the model, but this application of game theory and creation of the bargaining power model stands as an important contribution, specifically to the study of the Taiwan Strait and more broadly, applied game theory in international relations. Not only does the bargaining power model provide a new vehicle of Taiwan Strait analysis, but it is also a case study of game theory’s relevance and salience in international relations. Therefore, the Taiwan Strait bargaining power model, as a systematically robust methodology for analysis, is a crucial vanguard and first effort in establishing a new direction of research that will facilitate insightful academic and policy analysis of the Taiwan Strait in the future. 22 Joshua Su-Ya Wu AACS, Panel 5D “A Taiwan Strait bargaining power model” (draft) See Zhang, Zhaoyong, Xin Xu, and Wei-Bin Zhang. “The dynamics of political and economic interactions between Mainland China and Taiwan.” Papers in Regional Science, 82, 2003, 373-388, 2003 and Bau, Tzong-Ho. “Beijing-Taipei Interaction as a Two-Person Conflict (1949-88)” in Simon, Denis Fred and Michael Kau, eds. Taiwan: Beyond the Economic Miracle. New York: M.E.Sharpe Inc, 1992. 2 Clough, Ralph. “Cooperation or conflict in the Taiwan Strait” in Gong, Gerrit W., ed. Taiwan Strait Dilemmas: China-US-Taiwan Policies in the New Century. Washington, Center for Strategic and International Studies Press, 2000. 90 3 Zhang, Zhaoyong, Xin Xu, and Wei-Bin Zhang. “The dynamics of political and economic interactions between Mainland China and Taiwan.” Papers in Regional Science, 82, 2003, 373-388. 375 4 Dixit, Avinash and Susan Skeath. Games of Strategy. New York: W.W Norton and Company, 1999. 20 5 Morrow 91 6 Zhao, Quansheng. “Beijing’s Dilemma with Taiwan: war or peace?” The Pacific Review. 18(2), June 2005, 217242. 224 7 Clough, Gong ed 92 8 Tsang, Steve. “Drivers behind the use of force” in Tsang, Steve, ed. If China Attacks Taiwan: Military Strategy, Politics, and Economics. New York: Routledge, 2006. 13 9 Carpenter, Ted Galen. America’s Coming War with China. New York: Palgrave MacMillan, 2005. 78 10 Schelling, Thomas. Strategy of Conflict. Boston: Harvard University Press, 1960. 57 11 Bush, Richard. “The US Policy of Dual Deterrence” in Tsang, Steve, ed. If China Attacks Taiwan: Military Strategy, Politics, and Economics. New York: Routledge, 2006. 50 12 Tsang, Steve. “War or Peace Across the Taiwan Strait” in Tsang, Steve, ed. Peace and Security Across the Taiwan Strait. New York: Palgrave Macmillan, 2004. 6 13 Tsang, Tsang ed. If China Attacks Taiwan… 13 14 Sutter 528 15 Cheng, T.J. “Cheng, T.J. “China-Taiwan Economic Linkage: Between Insulation and Superconductivity.” In Tucker, Nancy Bernkopf, ed. Dangerous Strait: The US-Taiwan-China Crisis. New York: Columbia University Press, 2005. 93 16 Sutter 529 17 Nystedt, Dan. “Taiwan Investment to China up 46% in 2006.” IDG News Service, June 21 2006. 1 18 Moore, Thomas. “China’s International Relations: The Economic Dimension.” In Kim, Samuel S, ed. The International Relations of Northeast Asia. New York: Rowman & Littlefield Publishers, 2004. 101-134. 111 19 Tsang, Tsang ed, If China Attacks Taiwan… 12 20 Carpenter 117 21 Ross, Robert. “Navigating the Taiwan Strait: Deterrence, Escalation, Dominance, and US-China Relations.” International Security. 27(2), Fall 2002, 48-85. 55 22 Yu, Taifa. “Taiwanese Democracy Under Threat: Impact and Limit of Chinese Military Coercion.” Pacific Affairs, 70(1), Spring 1997, 7-36. 22 23 Tsang, “Peace Proposal Two…”, Tsang Peace and Security…196 24 Ibid 13 25 Bau, Simon and Kau ed. 316 26 Porch, Douglas. “The Taiwan Straits Crisis of 1996: Strategic Implications for the United States Navy.” Naval War College Review, 52(3), Summer 1999. 13 27 BBC News. “Beijing urges closer Taiwan ties.” BBC News Online. April 28 2007. [http://news.bbc.co.uk/go/pr/fr/-/2/hi/asia-pacific/6602299.stm] 28 Myerson 370 29 Heap, Shaun Hargreaves, Martin Hollis, Bruce Lyons, Robert Sugden, and Albert Weale. The Theory of Choice: A Critical Guide. 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Washington: National Defense University Press, 1997. 157 38 McVadon, Lilley and Downs ed. 273 39 Zhao, Suisheng. “China’s Bottom Line and Incentives for a Peaceful Solution” in Tsang, Steve, ed. Peace and Security Across the Taiwan Strait. New York: Palgrave Macmillan, 2004. 94 40 Zhao, Tsang ed. 83 41 Dowding 73 42 Ibid 141 43 Ibid 7 44 Carpenter 76 45 Yu 30 46 Cheung, Tai Ming. “Chinese Military Preparations Against Taiwan over the Next 10 Years” in Lilley, James R. and Chuck Downs, ed. Crisis in the Taiwan Strait. Washington: National Defense University Press, 1997. 55 47 Carpenter 69 48 Cooper 16 49 Ibid 22 50 Wang, T.Y. “Cross-Strait Relations after the 2000 Election in Taiwan: Changing Tactics in a New Reality.” Asian Survey, 41(5), Sep-Oct 2001, 716-736. 732 51 Yan, Jiann-fa. “Taiwan’s Bottom Line” in Tsang, Steve, ed. Peace and Security Across the Taiwan Strait. New York: Palgrave Macmillan, 2004. 106 36 24