Taiwan looks for ways around a niggly neighbour

By GRAHAM REID

Francis Liang, deputy director-general of Taiwan's Board of Foreign Trade in the Ministry of Economic Affairs, has an interesting plan to rectify the $1.65 billion trade imbalance in New Zealand's favour.

He jocularly suggests he'd like to see our government instigate "a Buy Taiwan movement."

For a man used to negotiating the tetchy political relationship between Taiwan and mainland China, and who navigates the complex currents of trade between the two sides of the Taiwan Strait, the genial, quick-witted Mr Liang laughs quite a lot.

But he is also readily drawn into a discussion of the more philosophical problems which exist as a permanent backdrop to Taiwan's position in the world of geopolitics and trade.

China claims Taiwan is a breakaway province. But the Taiwanese want to maintain the status quo as a democratic sovereign state.

While relations across the strait have been at an impasse since the Democratic Progressive Party assumed power a little over a year ago beneath the rhetoric a vigorous, if often indirect, cross-strait trade flourishes.

It was worth $US32.4 billion ($77.53 billion) last year - but was conducted in a potentially dangerous unregulated business environment.

"One one hand, for economic reasons, our business community is now investing in mainland China," says Mr Liang.

"On the other, it is also a fact of life that the PRC [Peoples Republic of China] politically poses a threat to our national security.

"So how to reconcile the constraints put on trade by political considerations depends on a very careful manoeuvring and balancing various interests out.

"So far I believe we have been doing relatively well.

"Politically we can adhere to some of our basic beliefs and principals; on the other hand the constraints haven't hindered too much the trade and economic development initiatives."

Mr Liang believes business may be the catalyst to precipitate a political change in China with the growth of a middle class which will ask for more participation in political processes.

And he accepts that business people will do business, often with little regard for the posturing of their political masters.

However part of his department's role is to counsel Taiwanese investors about the political, business and legal risks they face entering the unregulated Chinese market.

He also reminds them that, despite the attraction of the huge nearby market which speaks the same tongue, they shouldn't ignore traditional markets.

The United States and Japan remain among the largest of these, and links are also being developed with South America and Eastern Europe.

"If they only look at China, they are probably taking an unduly large risk if they can invest in the US, Japan, New Zealand or others markets.

"Mainland China provides a very attractive production base for some labour intensive industries, but not for the high tech industry.

"In that industry we have the rule 95:5, which means 95 per cent of the product needs to be shipped out within five days of receiving the order.

"You could never achieve that in mainland China because it not only requires efficiency and a 24 hours working labour force, but also shipping, customs clearances and so on.

"In Taiwan we do that and have reached 97:3. That's why the IT industries are still heavily investing in Taiwan, because of the logistical support."

But with the slowdown in the domestic economy has come a significant flight of capital overseas, notably to where, for labour-intensive products such as shoes, the workforce is cheap.

As Premier Chang Chun-hsiung has observed, for the cost of employing one Taiwanese worker, a company can have 12 in China and 20 in Vietnam.

Once the gates are opened with China and Taiwan's admission into the World Trade Organisation - now expected at the end of the year - much will change.

On the credit side for Taiwan will be a regulated business environment and access to potential markets and resources.

On the debit side, Taiwan can expect job losses.

That's always unpopular but more so now with unemployment at a 15-year high of 4 per cent and showing no signs of dropping. Predictions have been made of 100,000 lost jobs in agriculture alone.

Mr Liang concedes jobs will be lost when protection can no longer be provided to farmers, and he acknowledges is no secret that Taiwan and Japan are not the most economic producers of rice.

"To us, rice price support was not an economic decision but a social support measure, so people talk about jobs to be lost.

"There will be short term social and political hardship for local communities and we understand that. But we are looking for long-term benefits."

The shakedown on admission to the WTO will mean uneconomic businesses or those relying on Government support won't survive, and in the long term that tight competitiveness is also what helped Taiwan ride out the "Asian flu" better than some countries in Asia, says Mr Liang.

"In the 10 years before the Asian crisis we were doing our best to liberalise trade and create an economic internationalisation of our economy, so we really did not protect any specific and major sectors. That makes our industries very competitive.

"Taiwan is a tiny company but probably for every two notebook computers in the world we will produce one. Ninety per cent of our IT products have to be exported - we don't have a cosy domestic market to rely on. They have to be competitive enough or they shouldn't be in business in that tough environment."

Taiwan's political situation - not officially recognised by most countries which, like New Zealand, observe the "one-China policy" - has also led to it being denied potential markets with little recourse for redress.

"From time to time we face unilateral trade measures by other countries in the form of anti-dumping laws or tax or quota limitations," says Mr Liang.

Brazil, he says, recently shut Taiwan out of textile exports. "That's unfair, but there is no official channel to correct it. There are rules established by the WTO; if you want to set a quota you can set up procedures for bilateral consultation and so forth. But when we mention that, they say we are not a member."

WTO membership will also give Taiwan access to more markets, essential as its economy grew at its slowest pace in 26 years in the first quarter and the Government expects exports to shrink five per cent in 2001 after growing 22 per cent last year.

With the exception of the mainland market, export sales were weak. US purchases of Taiwan-made goods fell 26 per cent on the previous year, said a report in the Taipei Times last week.

Despite the one-China policy and the trade imbalance, New Zealand is counted as a friend and valued trading partner which has a good image in Taiwan.

Mr Liang sees our two economies, one high tech and the other strong in agricultural, as complementary but largely untapped.

"After we join the WTO many of our agricultural sectors will be open to New Zealand exporters. You are one of the most competitive producers of certain agricultural and fishery products in this part of the world.

"However, I think New Zealand has probably only been actively looking at Asia as its main market in the last few years, and for us New Zealand is a new discovery. So as we come to understand each other's market potential, there are going to be more opportunities."

* Graham Reid travelled to Taiwan on an Asia 2000 scholarship.