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Date: Wed, 18 Nov 92 12:51:16 EST
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11/18/92


TITLE #m#gm#m##m#tlj#m#IS U.S. MISSING THE TAIWAN BOAT?

American Contracts There Hinge On Closer Ties Michael Stroud In
Taipei, Taiwan Just outside Taipei, workers are laying the track
for an $11.9 billion bullet train that will whisk passengers from
Taiwan's capital city to the island's southern port in 80
minutes.

In northeastern Taiwan, engineers are building the country's
fourth nuclear power plant, at an estimated cost of $7.1 billion.
The government is spending $4.1 billion more to create an
optical-fiber communications network that will span the island.
The projects are part of a $300 billion, six-year national
development plan, funded in part with the world's largest foreign
exchange reserves, that will complete Taiwan's transformation
from a developing country into one of the world's most economi-
cally powerful nations by 1997.  Sniffing profits in Taiwan's
booming economy, senior government officials from a range of Eu-
ropean countries have visited the island over the past year to
court Taipei's favor.  Clearly, this is not the same under-
developed, isolated country that President Carter severed rela-
tions with when he recognized the People's Republic of China in
1979. And some policy analysts wonder whether it isn't time to
reassess America's arm's-length foreign policy toward the island
nation.  "All these visits by (top officials from developed
Western nations) put a lot of pressure on us," said Andrew
Nathan, director of the East Asian Institute at Columbia Univer-
sity in New York. "If we want to play a part in their $300 bil-
lion (national development plan), we may have to pay them court
ourselves." How far the U.S. should go in courting Taipei will be
an important foreign policy concern for the incoming Clinton ad-
ministration.  The issue boils down to two questions: Should the
U.S. move toward a de facto recognition of Taipei by sending
Cabinet- level officials to the island? And should the U.S. con-
sider stepping up arms sales to Taiwan?  In either case, the U.S.
risks angering China, which still considers itself technically at
war with Taiwan. Asia experts fear that any move by the U.S. to
upgrade relations with Taiwan could threaten the tenuous U.S. re-
lationship with the People's Republic, one of the world's
fastest-growing economies and a potential adversary.

President-elect Clinton, however, has made no secret of his dis-
satisfaction with China's human rights record and authoritarian
tendencies.  By contrast, Taiwan has made steady progress in
democratizing over the past half-decade.  A one-party dictator-
ship in the early 1980s, the government lifted martial law in
1987 and permitted an opposition party to form. In Taiwan's leg-
islature, spirited debates between the two parties have sometimes
erupted into fist fights.  The Clinton administration's Taiwan
policy could have important implications for the U.S. economy.
American companies are hotly competing with European and Japanese
corporations over projects in Taiwan's IS U.S. MISSING THE TAIWAN
BOAT?


$300 billion infrastructure development plan. Companies like
Westinghouse Electric Corp., General Electric Co., Motorola Inc.
and American Telephone & Telegraph Co. already have won contracts
worth tens of millions of dollars.  At the same time, Taiwanese
businesses and individuals are increasingly investing their money
abroad as government financial restrictions recede. Taiwanese
investors have been busily buying or investing in U.S. companies,
helping fund U.S. start-ups and buying U.S. real estate over the
past few years.  Earlier this year, fledgling Taiwan Aerospace
Corp. tentatively agreed to invest more than $3 billion in McDon-
nell Douglas Corp.'s Douglas Aircraft division as part of a plan
to jointly build a new generation of aircraft. Although the deal
subsequently foundered, the news was a telling sign of Taiwan's
growing investment clout.

At a time when new Japanese investment in the U.S. is waning,
Taiwanese investment could represent a significant source of new
capital for U.S. companies.  Taiwan officials agree that the
U.S., Taiwan's leading trade partner, has a leg up on its foreign
rivals in the competition for Taiwanese money. But many of these
officials strongly suggest that they want closer diplomatic ties
and stronger backing for its entry into international organiza-
tions.  "While the (business) opportunities are here, (how much
American companies win) depends on the U.S. authorities' attitude
toward us," said Sheu Ke-sheng, director-general of the Economic
Ministry's Board of Foreign Trade.  The U.S. may have taken the
hint.

This fall, it agreed to sell Taiwan F-16 fighters worth $6 bil-
lion to replace underpowered, Taiwan-made aircraft.

Threats From China


The sale spurred a condemnation from China, which called the de-
cision an interference in its internal affairs and threatened to
downgrade relations with the U.S.  European countries haven't
been as shy as the U.S. in according Taiwan greater recognition.
France, Sweden, Britain and Germany, among others, all have
dispatched senior government ministers in an attempt to grab a
chunk of Taiwan's development projects.  As Taiwan's economic
clout has grown, it has managed to crack into some key interna-
tional institutions. Two weeks ago, the island was granted ob-
server status in the General Agreement on Tariffs and Trade, a
status that typically presages full membership. Last summer,
Taiwan participated in the Olympics for the first time in de-
cades.  Taiwan also has gained stature in its own backyard,
becoming a member of the Asian Development Bank in 1990 and the
Asia Pacific Economic Council last year.  For a country that has
existed in almost total diplomatic isolation over the last de-
cade, these affiliations represent important victories. Only a
smattering of countries recognize Taiwan, which still lays claims
to all of China.  Taiwan's new international respectability is
almost wholly an outgrowth of its impressive economic growth.
Over the last 12 years, the country's gross national product has
risen from $41.4 billion to $180.4 billion and exports have more
than tripled to $76.2 billion. The country's wealth is reflected
in a more than threefold jump since 1980 in per capita income to
$8,815.  Eager to modernize Taiwan's industries, the government
has engineered the country's gradual exit from light industries
like textiles and furniture and encouraged the growth of high-
tech ones like computers and electronics.

Huge Foreign Reserves

Booming exports and an obsession for saving have helped a nation
of only 22 million build foreign reserves of almost $90 billion,
the world's largest.

The nation's rapid industrialization, however, has exacted a high
cost in the population's quality of life.  The island's transpor-
tation infrastructure is among the most clogged in the developed
world. Taiwan has some of the worst air and water pollution prob-
lems in Asia. Many Taipei residents live in decaying buildings
built decades ago.  The country's six-year, 675-project plan is
designed to remedy these problems. At a time when most countries
are struggling with recession, Taiwanese planners are going on a
spending binge.  The U.S. would indeed seem to be on an inside
track to win many of these projects. Although Taiwan is trading
more with European countries than it used to, the U.S. remains
its biggest partner, absorbing about 29% of the island's exports
last year.  Taiwanese officials have promised in the past that
they would deal with an unfavorable trade balance with the U.S.
by favoring American companies in business deals. And, indeed, a
U.S. trade official estimates that the U.S. has won a third of
six-year plan contracts awarded so far.  But William Wang, direc-
tor of the Chinese National Association of Industry and Commerce
in Taipei, warns that American companies shouldn't get overconfi-
dent.

"They can't just come in like rich uncles and assume we're going
to hand them (projects)," he said. "They're going to have to do
their homework like everybody else." Some of Taiwan's new-found
confidence in dealing with the U.S. stems from the fact that it
is far less dependent upon the American market than it was ten
years ago, when the U.S. absorbed about half of Taiwan's exports.

Exports To U.S. Down

Taiwan's exports to the U.S. peaked at $24 billion in 1989, and
have been falling back since then, according to figures released
by the Ministry of Finance.

Privately, Taiwanese government officials say they want to see
signs that the U.S. government is committed to upgrading rela-
tions - if not through formal recognition, at least through send-
ing senior U.S. officials such as the U.S. trade representative
to the island.  Since 1979, the U.S. has conducted all official
business in Taiwan through the American Institute in Taiwan,
which takes the place of an embassy. Most Western countries have
similar organizations in Taipei.  For the moment, Washington is
waffling on broadening ties with Taipei.  "We believe in reaching
business agreements on the merits of an individual proposal," a
senior American official said. "We can't send some minister every
time we sign a contract. What are we going to do, send 675 minis-
ters?" Others, however, believe it is only a matter of time be-
fore the U.S. gives Taiwan at least some of what it wants.  "If
we can send a few senior people over there without upsetting
Beijing, it's not such a big deal," said a State Department offi-
cial.  More concretely, Taipei hopes the U.S. will step up
weapons sales to the island. Although tensions with China have
cooled over the past few years, Taiwanese government officials
still fear China's plans to modernize its military.  Under its
agreement to recognize China, the U.S. committed itself to gradu-
ally ending arms sales to Taiwan. Congress later passed an
act#m##m# committing the U.S. to safeguarding Taiwan's security.
The two contradictory resolutions have left U.S. military policy
toward Taiwan ambiguous.

Relations Secure

The U.S. sale of F-16s to Taiwan indicates that the security re-
lationship between the two countries is in no danger of ending
any time soon. Some analysts suggest the U.S. may wish to
strengthen its military ties with Taiwan as a counter to
Beijing's growing influence in the region.  Whatever happens,
Taiwan's voice is likely to be heard far more strongly next year
in Washington than it was in 1979.  "Money talks," said the U.S.
trade official. "People are recognizing that Taiwan is a major
player in the international scene that can't be ignored."

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