SOLVING TAIWAN'S TRADE IMBALANCE

Success often breeds its own problems. That has certainly been the case for Taiwan in international trade.

Exports account for 55 percent of the gross national product of Taiwan, an island with only 19 million people that now ranks as the 15th largest trading entity in the world and the sixth largest trading partner of the United States. On a per capita basis, its trade surplus with the United States, which could reach $15 billion this year, is far higher than Japan, a nation of 120 million people.Such statistics, however, indicate a dangerous reliance on trade in this era of growing protectionism. Taiwan is especially aware of the increased prospects for protectionist legislation in the United States, the market for 48 percent of its exports, now that the Democrats have regained control of the Senate.

Yet the Taiwanese believe they must remain export-oriented if their economy is to prosper. They contend that the island's population is too small for them to reorient the economy to focus more heavily on the domestic market. Trade relations also provide a substitute for diplomatic ties, a commodity in which Taiwan is in noticeably short supply. Thus, Taiwan can hardly be faulted for wanting to continue its export orientation.

Government officials here say they are trying several solutions to the trade imbalance. These approaches include diversification of the country's export markets, liberalization of trade barriers affecting potential U.S. imports and stimulation of domestic demand.

The government deserves credit for these and other efforts, which include its practice of sending procurement missions to the United States to buy American goods. "We are the only nation that enjoys a surplus with the United States to take this kind of initiative," says Vice Minister John H. Chang of the Ministry of Foreign Affairs. Over the past seven years, 12 of these missions have visited 47 states and purchased $8.6 billion in U.S. products.

While there is undoubtedly more that Taiwan can and should be doing to reduce the trade imbalance, it fears that wide-scale reductions or even elimination of tariffs would simply allow Japan to increase its sales to Taiwan, rather than reducing its surplus with the United States. Last year, for example, Japan, which enjoyed a $4.3 billion trade surplus with Taiwan, was the big winner here when the government bowed to a request from Sen. Arlen Specter, R-Pa., and lowered its tariff on chocolate imports.

To avoid duplicating that experience in the future, Taiwan has embraced a proposal by the Heritage Foundation that the United States and Taiwan establish a free trade agreement, which would eliminate all tariffs in trade between the countries. Clearly, Taiwanese exporters would benefit in some cases, but Mr. Chang argues that U.S. exporters would stand to gain a lot more. The United States reached a similar agreement with Israel in 1984 and is currently seeking to negotiate one with Canada.

Mr. Chang said the United States has not reciprocated Taiwan's interest in such an accord. An official with the American Institute in Taiwan, the ''unofficial" organization that conducts U.S. relations with Taiwan in the absence of formal diplomatic ties, denied that. "We haven't shut the door," he said. But, he added, it's unlikely that the United States could even begin to negotiate such an accord with Taiwan before the end of the decade because of its preoccupation with the Canadian negotiations.

Martin Lassiter, a Heritage Foundation official, points out that the trade problem with Taiwan isn't going to wait until 1990 for a solution. "We need to look at it now," he says, adding he does not know of too many people who object to the idea.

One very important party that might object would be the People's Republic of China, which is very sensitive about U.S.-Taiwan relations. One way that Taiwan might help Washington overcome those sensitivities, and also diversify its own export markets, would be to establish formal trade links with China. Taiwan has vigorously resisted any kind of dealings with the Communist regime in Peking ever since Mao Zedong formally proclaimed the People's Republic of China on Oct. 1, 1949. And to this day, it even prohibits direct mail links with the mainland.

Yet informal exchanges between Taiwan and the mainland have developed quite extensively in recent years. Indirect trade,mainly via Hong Kong, is placed at $1.5 billion annually. And in the past few years many residents of Taiwan have visited the mainland without being harassed upon their return. Mail exchanges are conducted through relatives in Hong Kong and the United States.

Peking has played the role of avid suitor, eagerly seeking trade ties with Taiwan as part of its campaign to reunify the offshore province with the motherland. Taiwan, for its part, has vigorously and consistently rejected those solicitations, fearing that any kind of ties with Peking could result in an embrace from which it could not escape.

Now, however, may be an appropriate time for Taiwan to take a fresh look at the prospect of allowing trade with the mainland. Private businessmen in Taiwan, like their counterparts everywhere else in the world, salivate at the prospect of a new market with 1 billion people. And they would obviously have major competitive advantages over anyone else - the common language and culture, the geographical proximity and China's desire to emulate Taiwan's economic success.

Naturally, Taiwan is wary about entering into a trade relationship where it could very quickly find itself dependent on China as a market. Such dependency could lead Taiwan into a Communist trap, some officials fear. But Taiwan is already overly dependent on the U.S. market, and the prospects of significantly reducing the share of its exports going to the United States - to, say, below 40 percent - are rather slim unless it can open up a totally new market such as China.

Establishing trade ties with China would also help Taiwan by contributing to the liberalization process being fostered by Deng Xiaoping and his

proteges. The more China becomes part of the world economy, the less likely that it would ever resort to belligerent action to reclaim Taiwan.

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