After independence in 1994, Palau had a choice between the Republic of China (ROC, also known as Taiwan) and the People's Republic of China (PRC). PRC probably had more money or power, considering the size of their land, and more nations were maintaining relations with PRC by then. Palau chose to establish relations with ROC.
Why?
Older ties
Japan and the USA, both former colonial powers in Palau, have played the most important roles in Palau’s development. Taiwan started influencing Palau in the late 1970s, when it started regarding Palau as a major potential tourist attraction and investment place. Interest from Taiwanese investors started in the 1980s with Palau’s independence on the horizon, and the tourism in Palau starting to grow. In the 1990s, Taiwanese visitors have become the major part of Palau’s tourist industry. 1
Taiwan has had exchanges with Palau since 1980, signing an agricultural agreement with the island in 1984 2
Presidential inauguration
In Palau, official representatives from the PRC and unofficial representatives from Taiwan attended the presidential inauguration ceremony in January 1989. 3
Aid
With Western powers and Russians caring little about poor small countries with the end of the Cold War, the Taipei-Beijing conflict has become a new nice-little earner for the poor, the disadvantaged and the ignored. Palau Republic, a mini-island country in the South Pacific with a population of 18,000, again proves this point. Since its independence in 1994, it enjoyed benefitting from the courting from both Beijing and Taipei without even committing itself to either side - a smarter tactic than that used by the African countries. As the host of the South Pacific Forum in 1999, the government accepted US$230,100 from Taipei to cover the operational cost of the gathering, but also received luxury cars worth US$400,000 donated by Beijing for the use of the attending VIPs. Eventually, it was Taipei's more massive - massive by Palau's standards - economic and technical aid projects that made the island make up its mind and set up diplomatic relations with Taipei.
Foreign Policy of the New Taiwan: Pragmatic Diplomacy in Southeast Asia By Jie Chen
Recognition
In late December 1999, Palau extended official diplomatic recognition to Taiwan 4
As a very new and very small middle-income country, Palau was relatively easy for Taiwan to win over. The Guardian reports:
Palau, which was under US administration until its independence in 1994, struck up diplomatic relations with Taiwan in 1999 after a few years of what Kesolei calls “wooing” from both Beijing and Taipei. The almost 20-year friendship has been strong, with Kesolei saying “every Palauan has a story” of interaction with Taiwan, whether travelling there for a holiday, education or medical treatment.
Although China is putting heavy pressure on Palau to change policy, their current leader has expressed clear commitment to Taiwan:
Since the China ban, Remengesau has reiterated his commitment to Taiwan, telling the Nikkei Asian Review that while China was an “important partner” Palau had “more in common with Taiwan”.
A statement from his spokesperson was even more defiant, suggesting Palau would not bow to pressure: “Palau is a country of laws, it is a democracy and we make our own decisions.”
