Taiwan and China will be sitting down at the World Trade Organisation to thrash out their differences over steel tariffs, officials in Taipei said.

"From our understanding, China's WTO representative has agreed to bilateral consultations after a request from the Taiwan side," said Berton Chiu, a spokesman for the Taiwanese economics ministry.

The surprise move is not only the first time the rivals have consented to use the WTO to settle trade arguments since they both joined last year.

The talks would also represent the first direct communication since 1999, when Taiwan's then president Lee Teng-hui used the phrase "state to state" to describe the relationship between the two.

China's insistence on viewing Taiwan as a rebel province has been one of the key sticking points in setting up the WTO talks as well.

Dumping

The specific argument between the two revolves around the steel import protection measures China instituted earlier this year, following the US's decision to protect its ailing domestic steel industry in the face of massive global over-supply.

Taiwan was one of several producers singled out by Beijing for "dumping" - selling cold-rolled steel at or below cost to establish market share, at the expense of local competition.

Taiwan has its own worries, since its own steel tariffs are set to disappear by 2004 and mainland producers protected by the new measures could make it a dumping target in its own right.

Meanwhile, Taiwan and three other states complained to the WTO about the Chinese tariffs.

Frosty relations

But although China was prepared to enter bilateral talks with the other three states, Taipei had to threaten a formal complaint before China would respond - and then only in writing, and in Chinese rather than the official WTO languages of English and French.

The letter was addressed to the "WTO economics and trade office" of Taipei, ignoring even the compromise it had itself demanded of making Taiwan's official title "The Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu".

In China's eyes, after all, Taiwan is a "breakaway province" lurking just across a narrow strait, not an independent country.

This does not please the Taiwanese, according to a report in the United Daily News newspaper.

"We cannot accept any attempt by communist China to downgrade our name," the Taiwanese paper reported Economics Minister Lin Yi-fu as saying.

Growing ties

Despite the all-too-real war of words, which has rarely abated in the half-century since Mao Zedong's revolution on the mainland in 1949 triggered the split, economic ties across the Taiwan Strait are building fast.

On Wednesday, final approval came from Taipei for indirect charter flights to Shanghai during the Lunar New Year festival - although only for its own airlines, not China's, since China had refused direct talks.

And the past decade has seen more than 2 trillion new Taiwan dollars (£34.5bn; $57.2bn) invested by Taiwanese in mainland businesses.