Five short years ago, ROC trade policy presented a very different picture from the image laid out in the import-export graphs of today. In the mid-1980s, Taiwan was continuing trends that had begun decades ago; in short, the island relied heavily on the United States as an export market, and Japan as an import source. By 1986, for example, nearly 48 percent of exports were destined for U.S. markets. Meanwhile, 34 percent of imports came from Japan, creating a US$3.7 billion deficit. The dangerous dependency on these two markets led the government to launch a large-scale campaign in 1987 to shift international trade.
Where could Taiwan exporters and importers go, if they were to be weaned from these traditional partners? One answer was Europe. Trade volume to the region was small—two-way trade accounted for between 10 and 15 percent of total trade through the first half of the 1980s—but it had potential for growth. Germany, France, Spain, the U.K., and the other Western European nations offered exporters a large consumer base with relatively high purchasing power, and gave importers an alternative to Japan as a source for high-value items such as electronics and cars. And the impending formation of the European Community (EC), with its single market, provided further impetus to build trade ties quickly.
The government and private organizations set about establishing and expanding trade channels. The ROC's main trade promotion organization, the quasi-governmental China External Trade Development Council (CETRA), which operates thirty-one trade offices world wide, opened six new European trade centers or offices between 1989 and 1992: in Rotterdam, Düsseldorf, Budapest, Moscow, and Belgrade (this last one is now closed due to the civil war conditions). Earlier this year, CETRA opened another office in Lisbon, and the organization is now planning a new branch in Berlin. These join offices already operating in Paris, Vienna, Madrid, Stockholm, and London.
In 1988, the Board of Foreign Trade announced an ambitious four-year Guideline for Strengthening Economic and Trade Ties with Europe. The plan sought to prepare ROC traders for the coming European single market by researching new EC laws and regulations, stepping up market research, increasing trade missions to the region, and encouraging investment, joint ventures, and other links with the region.
Buoyed by these efforts, local traders hurried to break into the region. According to Bruce Sinclair Stewart, executive manager of the European Council of Commerce and Trade, a 170-member private business association in Taipei, the past five years have brought something of a flood of ROC business people to the region, most of them eager to establish a base before the formation of the EC single market. "The thought was," Stewart says, "if we don't get set up in Europe before 1992, we'll never go there."
PCs to go, from ACER—Taiwan sent US$1.8 billion in computers to Europe last year, despite fierce competition from world suppliers.
The result? Due in part to these efforts, Taiwan's international trade balance has shifted dramatically over the past five years. Exports to the United States dropped to 29 percent in 1991, slashing the trade surplus from US$16 billion in 1987 to US$8.2 billion last year. Although imports from Japan dropped to 30 percent last year, the deficit rose to US$9.7 billion last year and is expected to hit US$12 billion in 1992. Meanwhile, two-way trade with Europe jumped from about US$14 billion in 1987 to US$24 billion last year. The region now accounts for 17 percent of total trade.
The ROC's main export items to Europe are PCs and computer peripherals (US$1.87 billion-worth were exported in 1991). Other top European exports are office machinery, television sets, bicycles, and integrated circuits. Cars are the main import item (auto imports totaled US$489 million in 1991), followed by gold, integrated circuits and computer parts, steel, and machinery. During the first seven months of 1992, imports of European cars alone doubled over the January-through-July figure for 1991. Investments have also surged upward. Between 1986 and 1990, ROC investment in Europe increased 800 times, to more than US$2 billion.
Peter Hsiao calls the ROC and Eastern Europe "well matched," "We Import capital goods and machinery and we export finished products."
"In the past seventeen years, we have definitely made improvements," says Peter Hsiao (蕭濤), deputy secretary-general of the Euro-Asia Trade Organization. The nonprofit, private trade promotion organization in Taipei was founded in 1975, a time when contacts with Europe were extremely limited. "In those days, there was no government contact, only private contact," Hsiao says. "Now we have about fifteen European trade offices in Taiwan, and twenty banks from European countries are operating here."
K.C. Hsu (徐國忠), section manager of the market development department for CETRA, agrees that Taiwan business people have made significant inroads since the late 1980s. "Three years ago, we had thirty Taiwan companies with branch offices in Europe; now almost three hundred Taiwan companies have established branch offices there," he says. "It is a good beginning."
Many analysts and entrepreneurs believe that this beginning will lead to much more. Bruce Sinclair Stewart of the European Council of Commerce and Trade points out that Taiwan and Europe have become better matched as trade partners in recent years. "The reason why we've been having a shift toward Europe is because the quality of goods and technology in Taiwan has improved," Stewart says. He explains that while Taiwan manufacturers are losing market share in the United States to lower-priced competitors, they are attracting European buyers by producing high-value, high quality goods that are made to specification. "Goods in Taiwan are now more suited to the more diverse European market," Stewart says. "America, being a large market, attracts goods from other Southeast Asian countries that produce cheaper goods. Taiwan can't really compete in those low-end markets."
"Our exporters used to prefer the U.S. market, because it absorbs large quantities, and quality is not as important as in Europe," says Steve Chen (陳聰潔), section chief of the department overseeing Western Europe for the Board of Foreign Trade. While U.S. buyers typically buy large volumes of a single type of product, he explains, European buyers require smaller quantities and more variety. "In the beginning, exporters were not as familiar with the interests of this market," he says. "But now they realize they have to develop the European market".
Chen also expects to see increased imports from Europe in coming years. "Europe is very important in diversifying our markets," he says. Many of the products Taiwan currently imports from Japan could come from Europe instead. Chen expects the region to be an important supplier for the equipment and raw materials necessary in the massive infrastructure projects outlined in the Six-Year National Development Plan. "We think Europe will be one of our big import resources," he continues. "So we tell our importers to import more from European countries. We also encourage European companies to attend high-tech equipment exhibitions in Taipei. We'd like them to create more opportunities to sell to Europe and for Europe to sell here."
Signs of prosperity--consumer wealth, on display at Berlin's posh Europa Centre, has made Germany Taiwan's most important trade partner In Europe.
Today, Taiwan is experiencing a second, broader, wave of interest in Europe. For one thing, the region itself has suddenly expanded. Before the dismantling of the Berlin Wall in 1989, the traditional definition of Europe as a trade partner referred mainly to Western Europe—the countries west of the Iron Curtain. But the Soviet bloc no longer exists. Eastern Europe has become Central Europe and the former USSR is now enveloped into the trade region as the Commonwealth of Independent States (CIS). Local traders contemplating this new, bigger Europe find a vast region full of diverse import sources and export markets. With a foot hold established in Western Europe, the next logical step for adventurous ROC importers and exporters is to head into the new business frontiers opening up in Poland, Hungary, Czechoslovakia, Russia and the other Commonwealth countries.
Considering the short time span in which the ROC and Eastern European countries have been able to do business directly, and the vast differences in economic systems between the two sides, the progress already made is impressive. Direct trade opened up in Czechoslovakia, Hungary, and Poland in 1979 (the same year that restrictions on tourism and business travel were lifted for ROC citizens). In Russia and the other CIS republics, direct trade was opened in 1990. That year, two-way trade with Eastern Europe, including the former USSR, totaled US$700 million. Although this adds up to only 0.5 percent of total ROC trade, the figure represents a 59 percent jump over the 1990 trade volume. During the first eight months of 1992, two-way trade rose another 19 percent to US$503 million.
Officials and business people on both sides believe that Taiwan and Eastern Europe offer much potential for win-win trade agreements. After all, Eastern Europe has abundant natural resources and Taiwan has capital, consumer goods, and technological know-how. "If we look ahead, these two economies are complementary to each other," says Alex Hu (胡業民), senior specialist for the trading department of the Central Trust of China. Hu stresses that Taiwan needs resources to support its industries and the massive infrastructure projects now under way around the island. "We have a big need for raw materials," he says. Hu uses steel billet (bars of semirefined steel), as an example. "For the Six-Year National Development Plan, each year, we need 2.7 million tons of steel billet," he says. "There are several big steel suppliers from Eastern Europe. We should be very big buyers."
"We need what they can supply; they need what we can supply," adds colleague Carl Chang (張城), acting general manager of the Central Trust of China's trading department. "Taiwan merchants are very smart, quite active. They can find any advantageous opportunity." He points out that many Taiwan traders are working to position themselves as joint venture partners who provide marketing experience and international contacts as Eastern European companies venture into the main world markets.
Peter Hsiao of the Euro-Asia Trade Organization, agrees that the economies of both sides are well matched. "We import capital goods and machinery, and we export finished products," he says. Hsiao stresses that local entrepreneurs are increasingly able to make inroads into the region. "We think our business community has a very keen interest in Eastern Europe. They have information and they know who to contact." But he cautions, "I don't think the pace will be quick."
Breaking into these new markets is no easy mission. Alex Hu tells the tale of a Taiwan manufacturer who, after more than six months of negotiations, thought he had secured a US$5 million deal to sell 500,000 karaoke machines to a Russian buyer. The manufacturer was ready to begin production this fall when the Russian buyer suddenly announced that he would not be paying in cash; instead, he'd be shipping timber, aluminum ingot, and steel. This was not good news for the Taiwan manufacturer.
"He called me asking what to do," Hu recalls. "As a karaoke manufacturer, he had no experience in selling aluminum ingot or steel" After a brief lesson in the complexities of barter trade, the local manufacturer figured he would need to take another trip to Moscow to renegotiate the deal.
Carl Chang sums up the potential pitfalls of breaking ground in Eastern Europe in this way: "The first problem is the lack of foreign exchange," he says. "The second problem is their trading system is in a state of flux; the third is their lack of sufficient infrastructure." In short, every step of a transaction can be difficult, including things that most local business people take for granted in international trade. "It is very difficult for us to send a facsimile or cable to those countries," Chang continues. "This wastes a lot of time and energy, and makes doing business very inefficient."
In addition, after forty years of severed diplomatic ties, both sides lack basic information about the other. "In Hungary, Albania, Romania, and the CIS republics—all those countries—we are just beginning to gather information and build a database," Chang says. "It takes time to achieve the level of understanding necessary for business transactions." Add to these difficulties the language barrier (few Taiwan students major in Hungarian or Polish), and a picture begins to emerge of the obstacle course that traders must traverse before breaking into the region.
But government and private agencies are laying the ground-work for building trade. In addition to the two new CETRA offices opened recently in Eastern Europe, the privately operated International Trade Association of the ROC opened a Vienna branch in 1987, and a Moscow office in 1990. Meanwhile, the Ministry of Economic Affairs opened an office in Budapest in 1990 and is planning a Moscow branch. In addition, the Ministry of Foreign Affairs opened a branch office in Prague last year, and is now planning offices in Warsaw and Moscow.
To help business people overcome language and cultural barriers, CETRA added Russian classes to its list of two-year courses for business people in 1991. (Classes are also offered in French, German, and Spanish, and non-European languages.) The trade council is also focusing more of its promotion work on Europe. In 1993, CETRA plans to sponsor thirty-six European trade events—trade missions, market surveys, or other pro motional activities—including seven in Eastern Europe. In 1994, CETRA will host forty-three such events, including ten in Eastern Europe. Meanwhile, CETRA will increase spending on European trade promotions from 51 percent of the total budget in 1993 to 67 percent in 1994.
Ironically, the current cooling of economies in Western Europe seems to be heightening interest in Eastern Europe. After a decade of rapid growth, Taiwan exports to Europe slipped this year. While imports from the region rose 25 percent from January to August of this year compared with the same period in 1991, exports fell by I percent, or US$77 million. Exports to Germany alone, the ROC's main European market, were down by US$248 million.
Analysts blame the dip in exports on the economic slump in the traditional markets of the region and on fierce competition in world markets. "The first reason [for the decline] is the European recession," says Steve Chen of the Board of Foreign Trade. "Another reason, one that is very important, is that our most important export is information products, like PCs. The computer market is very competitive." Chen calls the world PC market "saturated," and stresses that many international manufacturers slashed prices in 1992, forcing local traders to do the same.
In Germany, the destination for one third of all ROC exports to Europe, many analysts blame the dramatic economic drop on the capital drain caused by reunification. Peter Hsiao of the Euro- Asia Trade Organization expects reunification to drain the German economy for the next few years. Nevertheless, he expects the country to remain Taiwan's most important trade partner in the future because of the wealth of its consumers, its large population, and the role that eastern Germany can playas a gateway to Eastern Europe.
As sales to Western Europe slipped this year, ROC trade officials began promoting new markets within the region, especially southern and Eastern Europe. "The southern part of Europe-Spain, Italy, Greece—also has very good market potential," Hsiao says.
K.C. Hsu is pleased with Taiwan's progress in Europe—"Now almost three hundred Taiwan companies have established offices there. It is a good beginning."
"From the beginning of this year, we have seen the whole EC economy cool down," adds Hsu of CETRA. To compensate, the council is encouraging ROC business people to build ties elsewhere in the region. CETRA led a trade mission to southern Europe in 1991, and another to Eastern Europe in 1992. The Ministry of Economic Affairs will send another delegation to Eastern Europe in 1993.
With the rapid development in official ties, the opening of new trade offices, and increased attention to solving logistical problems such as language barriers and lack of information on using barrier trade, officials and business people are overcoming the obstacles to trade with Eastern Europe. Carl Chang of the Central Trust of China points out that the Central European Trade Association, established in Taipei last March, now has forty-six members. "All the members are aggressive, active traders," Chang says. He stresses that while Japan and Germany served as middlemen in ROC-Eastern European trade in years past, more and more local traders are now doing business directly with Eastern Europe.
How confident can local business people be when venturing into Eastern Europe? Consider the mixed predictions for Russia, one of the countries expected to offer the biggest trade potential. Expectations now fall into two camps. While some people expect two-way trade to jump from the current US$200 million to US$20 billion in the near future, Chang points out that "others hold the opposite view; they say that the transitional period might last as long as eight or ten years, given their domestic military problems, their hyperinflation, and malfunction of the government organizations." Such conflicting predictions are common throughout the region, given the massive changes under way. Perhaps the best viewpoint on Eastern Europe is Chang's own stance on Russia. He says: "I'm cautiously optimistic." ▪