Vanderbilt Journal of Transnational Law

First Page



The debacle of the Nationalist regime in China and the subsequent United States trade embargo on the People's Republic of China (China) from 1949 to 1970, resulted in the deletion or obsolescence of United States federal income tax incentives previously applicable to Sino-American trade. The benefits of these tax provisions were transferred, with the Nationalist government, to the Taiwan-based Republic of China (Taiwan). Moreover, foreign trade tax measures enacted during the economic stalemate were largely inapplicable to China, but enhanced existing trade with Taiwan and Hong Kong. Initial United States responses to the current detente with China portend increasingly significant bilateral trade relations. Attractive tax provisions presently available to American investors trading with the established Asian market, however, may curtail the vast potential of China trade unless the United States provides tax measures consistent with its policy of diplomatic conciliation and expanding economic intercourse. The divergent economic systems of the two nations, particularly with respect to the generation of internal revenue, complicate the selection of an appropriate format for a tax relief program.