Taiwan's move to lift restrictive trade practices with China is likely to be cautiously welcomed by Beijing, which hopes closer economic links will help realise its goal of reunification.
A key advisory panel to the Taiwanese President, Mr Chen Shui-bian, urged on Sunday that Taipei develop direct trade, transport and postal links with China, and end the $50 million investment cap on individual projects in favour of a case-by-case approval process.
A favourable response from China is considered crucial for the recommendations to work. China considers the self-governing island a renegade province.
The panel urged scrapping the five-year-old policy, which restricts trade with, and investment in China and replacing it with one that advocates "aggressive opening, effectively managing" risks. While the committee recommendations are not binding, Mr Chen had said a group consensus would carry the weight of government policy.
The recommendations have strengthened Mr Chen's hand three months ahead of crucial elections. Taiwan is bitterly split between camps favouring independence and those who want reunification with China, though an overwhelming majority prefer the political status quo.
The panel's recommendations boost the chances for the president's Democratic Progressive Party (DPP) to capture moderate votes in parliamentary and mayoral elections on December 1st.Since his election last year ended 55 years of one-party rule, Mr Chen has spoken vaguely of economic and political integration with China. But his attempts to forge closer ties with Beijing have been thwarted by those who want independence.
The advisory panel also recommended the government let in Chinese tourists and allow Chinese investment in Taiwanese real estate and stock markets. China has long urged Taiwan to scrap the bans on direct trade and transport links with China, but has insisted the island first acknowledge Beijing's "one-China" policy before progress can be made on other bilateral initiatives. President Chen has said one-China is not acceptable to Taiwan.
Taiwan's economy had its worst performance in 26 years in the April-June period, and the government is forecasting the economy will contract for the first time ever for the whole of 2001.
Despite the fact that political relations between the two countries remain tense, Taiwanese businessmen have put about $60 billion into China since rapprochement began in the late 1980s. China is expected to join the WTO by the end of this year, and Taiwan will immediately follow this.