People who live in Taipei county's Yung-ho city are familiar with "Korea Street" where some seventy Korean clothes shops, ginseng and dried mushroom vendors are concentrated in a space of around 400 meters. However, window shoppers might well be disappointed when they enquire further about the boasts of "excellent quality--cheap prices." The garish colours and crude tailoring are like the Taiwanese clothes of a decade ago and the only thing likely to move people is the prices of NT$300-500 for a suit.

The Korean Miracle--Late Starter Rising Fast: But the strength of Korea is not fully represented by clothing. Go to the exclusive shopping area in Taipei's Tunhua North Road and look at the displays of Hyundai -- Korea's largest car manufacturer. No matter what the interior quality is like, just think that Korea exports seven or eight-thousand vehicles to Taiwan each year. With Taiwan's domestic car industry still taking its first steps, people are unavoidably shocked.

"It is as though our image of a Korea with high foreign debts, political turmoil and wife-beating machismo has not changed for over ten years," says Jing Ker-yi, Korea expert at the Chung-hua Institution for Economic Research. "At present Korea has incredibly overtaken us in a number of industries. This includes their high-profile automobiles and domestic appliances. It's not very easy for people to realize, but they have made startling achievements in petrochemicals, steel, upper and mid-stream primary products and components. It is not surprising that people don't want to admit this. In fact, we have overlooked their achievements."

Looking back, the "Korean miracle" came later than Taiwan's but its swiftness has been dazzling. In the booming international climate of 1986 Korea's overall foreign trade came out of the red and went into its first surplus. The great industrial conglomerates such as Daewoo, Samsung, and Hyundai also came into their own, establishing their brand names in world markets as well as the good reputation of Korean goods. That year's Asian Games and the achievements of their team at the Olympic Games two years later led the world to marvel at Korea. The Koreans themselves, with an attitude of self-confidence and satisfaction, could now talk of "founding the nation on technology," and "chasing the U.S.--overtaking Japan."

After 1989, although the Korean economy hit a bottle-neck after such rapid acceleration, by June this year the 1991 Global League of Competitiveness of the IMD still placed the strength of Korea's domestic economy and technology at the head of the world's ten NIC's. As for its overall competitiveness, although Korea did not equal Singapore and Hong Kong, it still beat Taiwan by one place.

Taiwan's Fifth Biggest Trade Deficit: "Korea beats Taiwan," the latest conclusion of his prestigious investigation, left Taiwan's industrialists with a sense of crisis. "This is not surprising," says Wu Chia-hsing, Korea expert of the economic research department of the Council for Economic Planning and Development. "In recent years, whether in commodities, the market or commercial development, Korea and Taiwan have always been close. You could say we were competing 'in step,' unlike the other two little dragons--Hong Kong and Singapore--who are led by service industries which are not such a direct threat to Taiwan as is Korea's manufacturing."

Apart from abstract leagues of competitiveness, the trade statistics also disturb people. According to customs statistics for the ROC, the running trade deficit with Korea which Taiwan fell into three years ago is now forecast to reach $400 million In other words, behind Japan, Saudi Arabia, Australia and Switzerland, Korea now has the fifth largest trade deficit of countries trading with Taiwan!

Industrialists disagree about the causes of this deficit. According to customs statistics for the two countries, electronics, household appliances, machinery, steel and petrochemicals are the main commodities traded between the two. "There is not much difference between us in terms of technology and quality of goods--with a bit of give and take we have usually been fairly equal," says Jing Ker-yi." But over the past couple of years, due to large investments in heavy industry, Korean productivity has increased and output has outstripped demand, so they could only look to overseas markets. At the same time, our domestic heavy industry has been hampered by soaring overheads in land, labor and environmental protection and an apparently faltering climate. In addition, with Taiwan being so close to Korea, reductions in tariffs and market liberalization have naturally made us the target of Korea's export drive. This kind of situation has been especially pronounced in petrochemicals and steel."

Low-Price Dumping Disputes: "The first case we dealt with after being established was that of accusations of Korean petrochemical dumping," says Kuang Cheng-hua, executive-secretary of the Committee on Import Injury Reliefs of the Chinese National Federation of Industry, which was founded last November.

Around the meeting of the Sino-Korean Economic Cooperation Conference accusations of Korean dumping were also flying. Among these, the joint accusation by three companies, Nan Ya, Chang Chun and Shinkong, against Korean PBT dumping received most public attention.

Having prepared the massive documentation and spent over a year on the case, D.L. Hou, manager of Shinkong's engineering plastic dept. points out that, with the advantage of an import tariff of only 2.5 percent in 1989, Korean industrialists were able to take 36 percent of the domestic PBT market by making low FOB price quotations. With supply outstripping demand in their main market, his faltering company was thrown into confusion and, gritting its teeth and lowering prices, was led to urgently make accusations of subsidization.

Another case that the Korean side wanted to sort out at this session of the Sino-Korean Economic Cooperation Conference was the unfinished matter of the An Mau Steel company's accusations against Korean zinc-coated coils dumping, which was much like the PBT case. Operating smoothly until the entry of low-price Korean products into the Taiwan market, since when the company ran a continuous deficit for 25 months, An Mau received a favorable outcome and by April this year had already returned to profitability, which could be considered a big victory.

"Before the case was cleared up we made private approaches to the Korean industrialists but they took a superior attitude," says George Chen, An Mau's Taipei Liaison Office manager, with great glee. "I never thought that in March, after the investigation of customs tariffs by the Ministry of Finance, it would be announced that the matter would be investigated by a tribunal. The Koreans were startled into 'what's to be done with this antidumping tax!?'''

Because of this, with the case only started in March, the level of Korean and Japanese goods of the same category immediately dropped in quantity and rose in price. "Only with this kind of obstruction do you get results!" says a delighted George Chen.

Are Koreans More Patriotic?: Although successful, the process has still left George Chen concerned. "I also thought angrily of using their own methods and personnel--using even lower prices to dump things back in Korea, but I found that there were no opportunities for doing it!"

The reasons for this are many. It has not been possible to find in Taiwan someone to act as the spearhead who is both sufficiently versed in the particular qualities of An Mau's products as well as being familiar with the requirements of doing business in the Korean market. If you wanted to teach a Korean importer, you would only find out that they are so patriotic that they would not be willing to act as intermediary for a Taiwanese business and attack their own industries.

Moreover, Korean industrialists also band together. George Chen points to the case of Korean downstream industries which want to use imported steel products but must first get the consent of the unions. If they do get it then the import duty is only 6 percent, otherwise it is 20 percent. Korean industrialists at all levels of production have a tacit understanding. How can it be said to be easy if you want to attack one of them and penetrate their circle?

Apart from purely economic factors, there are also political reasons for the increase in trade with Korea and Taiwan's growing deficit. "The ROC and Korea both have long-standing deficits with Japan, and 'joining hands against Japan' has long been the desire of governments in both countries," points out Shen Wen-lien, first commercial secretary to the Ministry of Economic Affairs, who lived in Korea for more than twenty years. Three years ago, both sides signed an agreement to strengthen purchase of some 100 products, which is updated each year. Last year's meeting of the ROC-Korea Economic Cooperation Organization agreed resolutions on selecting further items, initiating joint openness and co-operation or division of labor. However, more than a few Taiwanese businessmen feel that the Korean did not commit themselves enough and that they lack sincerity.

For example, four years ago the Koreans demanded to export automobiles to Taiwan, in exchange for which Taiwan would export parts to Korea. The agreement was that Korean exports would grow by 30 percent each year. It is estimated that this year their exports will exceed NT$1 billion, while Taiwan's export of parts to Korea will still be around NT$100,000. "In fact we are losing out!" admits one member of the External Trade Development Council who is not willing to be named.

Deficit or Surplus--Each Has Their Own Version: But the Koreans also have something to say about the friction caused by the trade deficit. "Your country's media has recently stressed the 'invasion' of Korean goods, and this is not fair," says Kim Hong-ji, director of the Korea Trade Center in Taipei, who has always felt that the Taiwanese media has not been fair in its reporting. "According to Korean customs statistics, Korea usually imports much from Taiwan and imports little. Where is this so-called problem of a trade deficit?"

Looking at customs statistics of the two countries, last year Taiwan's records show a deficit with Korea of $130 million. Korean statistics, however, show a Korean deficit of $200 million. To May this year, both sides think they have a deficit of $170 million and $64 million respectively (see table).

"Because there is a difference in the price of goods when they leave one side and when they reach the other, it is not unusual for the customs statistics for two countries to differ," says Shen Wen-lien. "Take a look at the customs statistics for our trade with the United States, which still usually differ by more than $1 billion. It is understandable that the ROC and Korea should say different things."

In other words, ROC-Korea trade has its give and take and it is really not clear which side is running a surplus and which a deficit. Jeffrey Koo, present chairman of the Council for Sino-Korean Economic Cooperation, and director of the influential China Trust, also points out in fairness that "at present ROC-Korea trade is roughly balanced. You can only say that previously the ROC was in an advantageous economic and trading position vis-a-vis Korea; now that advantage is gradually disappearing and the worry is that we might even be overtaken."

Strengthening the Sense of Crisis: Looking at statistics for the last five years it seems then that much of the worry is not groundless. "What we really should be worrying about is not in fact the ups and downs of the trade statistics with Korea, but strengthening the sense of crisis about the longterm development of our industrial competitiveness," explains Shen Wen-lien excitedly. "The future of Taiwan depends on the economy and trade, and economic strength and prosperity depends on industrial development. Just look at how Korea has already nearly completed its fourth nuclear power station, and don't mention all the fuss about petrochemical plants, they have already got everything. But all we can do is close the door and squabble among ourselves. It is only this that we need to worry about!"

Similarly, Jing Ker-yi stresses that we should not only look at the gradual emergence of Korea's might without realizing that it is the result of twenty years of fostering heavy industry and has nothing to do with good luck. "From the early 1970s, the Korean government has been willing to risk over expansion of large enterprises, loss of profits, unemployment and environmental pollution, incur foreign debt and use all its strength to support a number of large-scale enterprises so as to develop its heavy chemical industry," he points out. Then there is the completion of the Pusan steel works which made Korea one of the top ten steel producing nations. With the addition of a new factory to the original Pusan works, an annual output of 21 million tons can be achieved, nearly twice that of Taiwan.

The rapid development of the heavy chemical industry has given mid-and down-stream manufacturers an abundant supply of materials. The influence has been felt in automobiles, machines, ship building, architecture, domestic communications, chemical fibers and related industries which have all developed rapidly. Large enterprises have also been built on massive investment in research and development, a base for overseas distribution, their own brand names, Korean investment in overseas markets and sensible borrowing.

Taiwan Doesn't Value the Korean Market?: "In the Taiwan market, Korea has sixteen large-scale companies which have put down branches here and work hard to promote Korean goods. Taiwan can only blame us for having a closed market but you have not done the same hard work. Isn't this another kind of 'deficit'?" questions Kim Hong-ji in fluent Mandarin.

At the same time he points out that every year several hundred Korean students study Chinese in Taiwan, many of them later becoming the shock troops of the Korean "invasion." Looking at Taiwan, the number of people who can speak Korean or understand Korean culture, and therefore the number of essential business personnel, is very small. "Frankly, using surplus goods from the United States market to export to Korea, how can you have good results?" he says.

Looking at it from another angle, at present the strength of Korean exports is obviously on the up; however, when goods come in, can they really make money? This is another question.

The general manager of the Taiwan branch of Samsung's electronics division, Hong In-sung says plainly, "Business is really not done well in Taiwan!" Speaking in broken English and Chinese about his division's semiconductors and domestic appliances, he says that it was because Samsung invested relatively early in research and development of semiconductors that, in this respect, they had the edge over Taiwan. Due to this, for more than three years business has increased by the high rate of 25 percent a year and profits have been not bad. Hong In-sung feels that the liberalization of the Taiwan market has given Korean business and brands from the whole world an opportunity to compete, but the people who have really benefited have been Taiwan's consumers, of which he is a little envious. Of course, with the opening up of Korea's market from July 1 this year Samsung will also face the big challenge of strong competition.

Competing Together on the International Stage: In the same boat of fierce competition and slim profits as domestic appliances are the five makes of Korean automobile imports. Because the ROC has fixed quotas for these, the subject will also be raised for discussion at this meeting of the Sino-Korean Economic Cooperation Conference.

"In fact the Korean quota can basically not be sold completely. Why not get rid of the quota, open up imports and avoid giving the Koreans an excuse for stirring things up and complaining that we only open our markets to automobiles from other countries so that we can make friendly relations!" Shen Wen-lien points out.

Weighing it up carefully, this is not far from the truth. The Korean automobile quota for this year of more than 8000 vehicles is only 2.5 percent of the market. It is much the same with the "sense of crisis" caused by the growing trade deficit with Korea; in fact over the years the proportion of ROC-Korea trade has only accounted for some 2 percent of the overall trade of both countries, which could be said to be insignificant in the scale of each other's economy and trade.

"Korea is Taiwan's most competitive friend, but the markets on which we compete are not each others, but the world," Jing Ker-yi concludes. "We need not worry too much about the ups and downs of trade with each other. It is the long-term commercial development of the future that should concern us most."

Competing in the Long-Term: Some people wonder, if Korea produces so much PBT at cheap prices that can satisfy our demands, then why don't our domestic factories give up this line and develop something else? Shinkong's D.L. Hou says why, "American PBTs are still of very high quality, they can be used in space ships. But the Taiwanese and Korean industries at present are still in their infancy and are only suitable for use in computers and automobile parts." If we are "eaten up" by Korea now then our future loss will not only be a trade deficit because, "for the upgrading of Taiwan's commerce, even if we make a loss, we still have to carry out research and development," D.L. Hou puts his finger on the crux of the matter.

[Picture Caption]

Apart from the formal annual ROC-Korea trade meeting there is also a lot of unofficial contact.

The cheap clothes in "Korea Street" in Taipei County's Yungho City attra ct quite a few regular customers. (photo by Huang Lili)

Daewoo cars are loaded for export. The dispute over automobiles and components is a point of contention for ROC-Korea trade.

Kim Hong-ji, director of the Korea Trade Center in Taipei, has sincere advice and expectations for industrialists of both sides. (photo by Diago Chiu)

Every year a few hundred Korean students study Chinese in Taiwan. They will become the advance guard of Korea's commercial assault on Taiwan and mainland China.

The high quality of Taiwan's textiles is still ahead of Korea's and is the main export to that country. This is the textile fair held by the China External Trade Development Council. (photo from Sinorama files)

Demonstrators express concern for the environment. The rising cost of land and environmental conservation has held up Taiwan's heavy industry for years so it now lags far behind that of Korea.

ROC-KOREA BILATERAL TRADE STATISTICS information courtesy of Board of Foreign Trade[Picture]

ROC-KOREA BILATERAL TRADE STATISTICS information courtesy of Board of Foreign Trade[Picture].

The cheap clothes in "Korea Street" in Taipei County's Yungho City attra ct quite a few regular customers. （photo by Huang Lili）

Daewoo cars are loaded for export. The dispute over automobiles and components is a point of contention for ROC-Korea trade.