Taiwan Today

Twenty years ago, enterprising Taiwan businessmen began opening
markets in Europe by carrying suitcases filled with product samples to
the leading trade fairs. Now with the help of active trade offices on
both sides, Europe has become an important partner for Taiwan in
trade, investment, and technological exchange.

Despite the geographic distance, economic ties between Taiwan and Europe date back to 1642 when Holland established a settlement in southern Taiwan that remained for forty years. Today, almost all the major Western European countries are operating trade offices in Taipei. One longtime holdout, Portugal, is expected to follow suit before the end of this year, now that political obstacles have been removed by its handover of Macao to China in 1999. Although most of the offices maintain a staff the size of a small business--about twenty people--their agendas are packed with a wide range of tasks, events, and promotional activities.

To strengthen this country's European ties, Taiwan's Ministry of Economic Affairs (MOEA) five years ago began a routine of sending a ministerial mission to visit Europe each summer. This June, Minister Lin Yi-fu headed a thirty-seven-member delegation to Germany, England, and Spain. In Germany, he witnessed the signing of an agreement promoting German-Taiwan bilateral trade cooperation and joined ceremonies marking several private-sector strategic alliances and joint ventures. "It was the second time in two years for Taiwan's economics minister to visit Germany," says Axel Bartkus, director of the German Trade Office (GTO) in Taipei, founded in 1981. "That's an indication of how our trade ties have been steadily increasing." Germany has been Taiwan's largest trade partner in Europe for more than two decades.

According to MOEA statistics, the bilateral trade volume last year reached US$8.7 billion ($1.3 billion less than in 2000 and roughly the same level as in 1999). The main German exports to Taiwan are machinery, electronics, luxury cars and other transportation equipment, construction materials, chemicals, and an expanding range of high-quality consumer goods. German investment into Taiwan over the years has come to 246 cases, valued at US$750 million or 2 percent of Taiwan's overall foreign investment. At the same time, Taiwan companies have invested in 101 projects in Germany worth $109 million. The GTO estimates that around 200 German companies have established branches, subsidiaries, or joint ventures in Taiwan, and about the same number of Taiwanese companies are in Germany.

In line with structural changes in Taiwan's economy toward high-tech production, Germany has become a valued source for the latest technology in the areas of biotechnology, optoelectronics, analytical laboratory equipment, and environmental protection. "Taiwan has for many years been Germany's third largest market in Asia," Bartkus says. "What's more, Taiwan's industrial structure is similar to Germany's in the sense that both have a very high share of small and medium-sized businesses. That common scale makes it much easier for our companies to cooperate, not only in this market but also in other markets in the region."

Bartkus says his office's chief challenge is to continuously develop new services in response to Taiwan's rapid adaptation to economic changes and new technology. The office has recently been putting greater effort into promoting tourism and vocational training programs for employees of both Taiwan and German companies. Bartkus also notes that German universities are luring more Taiwanese students by offering English courses.

Similar university programs are beginning to attract Taiwanese students to the Netherlands as well. "We hope to see the number increase from the current 100 a year to 200 or 250 in the near future," says Siebe K. Schuur, representative of the Netherlands Trade and Investment Office until his reassignment this summer. "If these students are satisfied with what the Netherlands has to offer, they'll become our best investment in Taiwan. Someday when they look for business contacts, they'll think of Holland." Holland is already Taiwan's second largest European trade partner, with a total trade volume of US$7 billion in 2000 and $5.7 billion in recession-wracked 2001.

Dutch exports to Taiwan are mainly electrical machinery and equipment, optical and medical instruments, and mechanical appliances. In 2000, Taiwan was Holland's largest export market in Asia, surpassing even China and Hong Kong combined, with half of the export value coming from a single company, ASML, which supplies expensive equipment for the semiconductor industry, among other products. Another Dutch company, Philips, has been a major investor in Taiwan since it opened its first factory in Kaohsiung in 1966 (it also owns a 25-percent share of Taiwan Semiconductor Manufacturing Co.), and it has steadily increased the sophistication of its operations as Taiwan moved up the technological ladder.

Schuur now sees "great opportunities for Taiwan to become very strong in the service sector," as long as the government steps back and lets the financial service sector develop on its own. He urges the government to open the labor market to accommodate more international knowledge workers. "It's especially difficult to bring in such workers from China," he says. "The unemployment rate in Taiwan may be high, but people here shouldn't be afraid of competition."

Taiwan's third largest trade partner in Europe is Britain. Last year, Taiwan ranked as the United Kingdom's thirty-fourth largest export market and eighteenth largest source of imports. The wide range of UK exports to Taiwan includes chemicals, machinery, whiskey, and many types of consumer goods. During the past few years, British retailers such as B&Q, Tesco, Boots, MFI, Dunhill, and the Body Shop have all gained a foothold in the Taiwan market. B&Q has taken a 25-percent market share in the DIY sector, with fourteen stores spread across the island.

The British Trade and Cultural Office (BTCO), directed for the past three years by David Coates before his departure this June and now by Derek Marsh, helps to stage such events as the annual meeting of the Taiwan-British Business Council, a gathering of businessmen from both countries that provides a matchmaking platform for companies seeing business partners. The BTCO also holds seminars and symposiums on current issues, supports promotions for British products and educational institutions, organizes exchange visits, and conducts research to identify significant opportunities for British business. Among the sectors considered the most promising are apparel and fashion, multimedia, electronics and information technology (IT), infrastructure projects, education and training, environmental technology, and the service industries.

"Taiwan's getting a lot of attention from the United Kingdom, especially in the area of technological cooperation," says Coates. When Lord Sainsbury, British minister of science and innovation, visited several Taiwan research institutes this March to highlight the United Kingdom's expertise in science and technology, he also witnessed the signing of a memorandum of understanding between Taiwan's National Science Council (NSC) and Britain's Engineering and Physical Sciences Research Council. The memo randum is expected to lead to closer scientific cooperation in such fields as engineering, bioinformatics, and nanotechnology.

One of the BTCO's sections is devoted to encouraging Taiwanese firms to invest in Britain, and a separate Science and Technology section was started three years ago to alert Taiwanese businesses to prospective partnerships or strategic alliances in Britain. The BTCO boasts that 70 percent of all Taiwanese investment in Europe, in terms of the number of companies, is in the United Kingdom--a total of twenty-eight factories and more than 150 other companies, many of them involved in electronics and IT. One reason for Britain's attractiveness as an investment site is that Taiwanese businessmen are far more comfortable using English than any other European language.

Coates suggests that Taiwan's business environment could be improved through greater clarity and transparency in the government's decision-making process. He cites examples of international firms of high repute who have not been permitted to bid in large public tenders. "The rules aren't very clear and keep changing," the British trade specialist says. In addition, for Taiwan to attract more foreign investment, he maintains, more needs to be done to enhance the domestic business climate and to facilitate cross-Strait transportation links. Not many companies would choose Taiwan as an operations center unless their staff can conveniently travel between Taiwan and China.

Although the quality of the local workforce is very good, Coates observes, foreign language skills also must be upgraded if Taiwan wishes to play a role as an international business hub. The BTCO and the British Council, an independent international organization that promotes English educational and cultural programs, are seeking to help in this respect by training competent domestic personnel who in turn would train the additional English teachers needed for the public schools' expanded English education program. Meanwhile, some 14,000 Taiwanese students a year, or 28 percent of all Taiwanese students overseas, attend classes in the United Kingdom. The first half of 2002 saw a further 30-percent increase in the number of student visas issued.

The Taipei Representative Office in Britain works closely with the BTCO to promote programs in the interest of both sides. Tzeng Wen-hua, Taiwan representative to London from February 1998 to April 2002, during his term signed several agreements with his Taipei counterpart, David Coates. The most recent one, on the elimination of double taxation and prevention of tax evasion, was signed in April this year, and earlier pacts dealt with intellectual property rights and cultural and educational exchanges. "The BTCO's aggressive posture in getting things done reflects the view of its government back home," Tzeng says. "Britain considers Taiwan as one of its priority markets in Asia and the office is therefore doing everything it can to promote business with Taiwan."

In another field of cooperation, Taiwan's NSC and Academia Sinica have signed memorandums of understanding with important British research organizations such as the Loyal Society, the British Academy, and the British Council. Currently, at least thirteen joint research projects are underway. "Britain's technological level is more advanced than Taiwan's," Tzeng notes, explaining the basis for the cooperation. "But Taiwan is very strong in commercial applications, which enables us to find opportunities for joint business projects. It's also a good chance to raise the British people's impression about Taiwan's capabilities."

Tzeng notes that the establishment of a single market under the European Union (EU), now also unified by a common currency, "means better market access and greater business prospects for Taiwan." He says he has been pleased to see that "more people are choosing Europe as a place for education and as a place to do business, since our economic vision shouldn't be confined to focusing on the size of the China market."

Sharing that view, French Trade Commissioner Pascal Gondrand attributes Taiwan's underdeveloped presence in Europe to its companies' taking China as their number-one market and production base. The process of diverting business attention to Europe will be long and gradual, he says, but it will be vital to the successful globalization of the Taiwan economy.

Compared with the many Korean companies that market under their own brand names worldwide, Taiwan's contracted-manufacturing model provides fewer incentives for companies to develop logistical and distribution networks around the globe. "More and more Taiwanese companies will need to develop a presence in Europe because of its importance as a final market, and France is the ideal place to do so," Gondrand says. The EU represents 23 percent of worldwide GDP and is home to 370 million people.

So far, only forty to fifty Taiwanese companies of various sizes are believed to be operating in France, even though France occupies fourth place among Taiwan's European trade partners with a two-way volume of US$3.3 billion in 2001. While the typical Taiwanese knows France mostly for its perfumes, fashion, wine, and food products, 70 percent of its exports to Taiwan consist of industrial products, mainly in electronics and telecommunications. "Many people in Taiwan don't realize that France is a diversified economy that also excels in developing technology," Gondrand says.

The main job of the twenty staff members of the French Trade Commission is to "give information and advice to companies on both sides and help them find reliable business partners," he adds. Last June, the commission organized a seminar on smart card and Internet security applications, which attracted more than 200 attendees from among the banking community and Internet service providers. Though not many people in France are very familiar with Taiwan, many of those who have chosen to do business here have been extremely enthusiastic about their experience. Several French companies, such as the Carrefour hypermarkets and the Fnac bookstore chain, have even chosen Taiwan as the first point of entry in the Asian market.

The lack of information about one another is an even more serious problem between Taiwan and the Eastern European countries, a part of the world that has been little visited by even the most well-traveled Taiwan businessmen. Until about two decades ago, political reasons kept the Soviet Union and its satellites off limits, but even after the fall of communism in Eastern Europe, economic ties have developed only gradually. Russia established its representative office--the Moscow-Taipei Economic and Culture Coordination Commission in Taipei--in April 1997 with a staff of thirteen people, while Taipei opened its Moscow office a year earlier. The Russian-Taiwan bilateral trade volume reached US$2 billion before Russia's 1998 financial crisis, but the volume dropped to $1.5 billion in 2000 and fell again by 45 percent last year to $865 million. Russian representative Vladislav N. Verchenko is alert to the fact that the bulk of the trade volume with Taiwan is achieved through third countries, such as China, Japan, and Germany, and that Taiwan businessmen are still reluctant to invest in Russia.

So far, only about twenty small Taiwanese companies have set up operations in Russia. "Taiwanese businessmen seem afraid to deal with Russia even though the situation in Moscow has changed for the better," Verchenko notes. "Many people don't realize that our economies are complementary. Russia is rich in natural resources--gas, crude oil, wood--which can help supply Taiwan's industrial needs. At the same time, Taiwan could help upgrade our currently underdeveloped economy through its strong background in supplying computers and electronics, and more importantly by introducing the managerial and entrepreneurial skills Russia needs in moving from a planned economy to a free market."

Verchenko's commission this June organized a fact-finding tour to Russia that included high-level officials from the China Petrochemical Development Corp., the Export-Import Bank, the China External Trade Development Council, and the government's International Cooperation and Development Fund. The group traveled across the country, but concentrated on the island of Sakhalin near the abundant natural resources of the Russian Far East. Prior to the trip, the Export-Import Bank initiated a credit line with Russia's Gas-Industry Bank to facilitate trade exchanges. Within Taiwan, representatives of the Moscow-Taipei Commission have visited various parts of the island to announce its presence and expand people's knowledge about Russia. Though it tried hard to interest businessmen in participating in the third APEC Investment Mart being held in Vladivostok this month, it met with little positive response.

Verchenko notes that Taiwan's solid legal foundation with other countries has developed from trade ties, citing the example of the Taiwan-British agreement to eliminate double taxation. But he said that the Russian legal system needs considerable further adjustment before any similar agreements could be undertaken. Another problem is pressure from China for Moscow to adhere scrupulously to the "one China" principle inherited from the former Soviet Union. He expressed confidence, however, that focusing on concrete economic cooperation could enable any political obstacles to be overcome.

Urging Taiwan businessmen to look beyond their traditional markets, Verchenko emphasized that Russia has much to offer in such areas as space technology, aircraft manufacturing, metallurgy, oil refining, and other types of advanced technology. He is also hoping to attract Taiwan investors to participate in railway and other projects in Russia, as well as promoting tourism in both directions. After beginning negotiations on an aviation pact almost a decade ago, this could be the year that direct flights between Taipei and Moscow are launched, he said.

"Many things are difficult, but nothing is impossible," according to Dutch representative Schuur's motto. That seems to be the spirit driving many countries, through their Taiwan trade offices, to ensure that the mere lack of formal diplomatic relations does not lessen the chance for fostering economic, cultural, and other substantive ties.

Source: Board of Foreign Trade, Ministry of Economic Affairs