Early this October, a delegation from the Republic of China went to the United States for trade negotiations. As a result of the talks, the ROC agreed to lower tariffs on 192 American products, among them beer, wine, and tobacco, as well as relaxing restrictions on American banking, insurance, and leasing activities in Taiwan. Reaction to the agreements was favorable, with many noting how the developments were in keeping with the government's efforts to further liberalize and internationalize the economy, but American pressure also played a role in the changes.

Since the end of the Second World War, the United States has been the largest and most open market in the world, creating a system which ensured free and fair trade. As Singapore's Prime Minister Lee Kuan Yew recently pointed out, this structure enabled Japan, and later Taiwan, South Korea, and Hong Kong, to work themselves out of poverty into thriving, healthy countries. The U.S. also has benefited in no small way from the postwar arrangement.

"Trade is simply people dividing up the production process, each to his own advantage," says Hou Chia-chu, economics professor at Tungwu University. "Americans buy foreign goods because they can be made cheaper overseas than in the U.S. When developing countries take over the production of relatively simple products, this allows the Americans to concentrate their resources on high technology."

That free trade is mutually beneficial can be seen in President Reagan's recent decision not to impose controls on footwear imports. His reasoning was that high tariffs would result in higher consumer prices. Estimates put the added costs for footwear at US$2.3 billion, with the consequent preservation of only 33,000 jobs, or $68,000 per employee, hardly a wise tradeoff.

Yet the American market still has a tremendous problem, namely its massive trade deficit, predicted this year to reach $150 billion. To right this imbalance, some urge restricting imports, while others suggest expanding American exports. Proponents of the first school would like the U.S. Congress to impose stiff duties on foreign products, with the Jenkins textile bill recently passed by the House of Representatives being a good example. Reagan thus far has resisted protectionist pressures, opting instead for the second course and urging foreign countries to further open their markets to American goods or risk retaliatory measures.

The debate and developments in the U.S. have influenced many other countries, not in the least the ROC. In the past, the ROC prohibited the import of some products and levied heavy tariffs on others. Owing to the small size of its domestic market, few minded these trade barriers. The economic growth in the past twenty years, however, has transformed Taiwan's status vis-a-vis its trading partners. In 1984, the island was the third largest exporter to the United States, shipping $9.8 billion worth of goods. In the words of Chao Yao-tung, Chairman of the Council for Economic Planning and Development, Taiwan "must now respect the rules and play the international game."

Chao says, "Free trade is our only choice. Our natural resources are limited, and we have to import raw materials for our industry and manufacturing. If other nations slam their doors and close their markets, we don't have a chance."

Steps taken by the government to liberalize the economy include lowering taxes and tariffs, stiffening intellectual property laws, and sending trade missions abroad. Some note that sectors of Taiwan's economy need protective import duties to survive against international competition, and that such measures should not be taken during an economic downturn. Nevertheless, others believe that this policy will in the long run strengthen the competitiveness of the economy and keep overseas markets open. So far the ROC's actions have satisfied the U.S., with the ROC still not being considered to be a country employing unfair trade practices.

Hou Chia-chu, however, warns against complacency. "We have foreign currency reserves of $20 billion. We can afford to open our markets even further, and should do it for our own good, not only to please others." According to classical economics, a large trade surplus means that a country has sold its labor and natural resources abroad, to be rewarded only with a wad of cash. Increased domestic consumption could help stimulate production and the economy as a whole. Hou also encourages greater foreign investment by local firms. "Money," he says, "only has value if it is put to use."

Current ROC tariffs average a high 7.8%, which is criticized by several observers. They note that certain fields of high technology Taiwan is simply unable to develop, while world-class performers such as the textile and footwear industries are still granted protective tariffs of over 60%. In addition, Taiwan's main competitor, South Korea, has an average import duty of only 5.7%, despite the fact that the country has a sizable foreign debt.

Although Taiwan at present is a net exporter, its industrial and technological base and legal system still need strengthening. The country cannot declare its preference for free trade today and then tomorrow wipe away all tariffs. Unfair situations deserve correction, but revenge rarely is the best solution. No one wins in a trade war.

[Picture Caption]

Trade talks this October between the U.S. and the ROC led to the liberalization of liquor and tobacco imports into Taiwan, which will give native producers considerable competition.

The coming of McDonald's sparked the establishment of many similar fast-food outlets.

Trade Liberalization Measures Taken By The ROC In Recent Years Re U.S.-ROC Trade

Counterfeiting violates the principles of fair international trade. This pirate factory was recently raided by the police and left in disarray.

The creation of a favorable investment climate is one of the most important ways of attracting foreign capital. Here Li Ch'ang-i, Director of the Industrial Development and Investment Center, talks with a foreign businessman.

Taiwan makes one-ninth of the world's shoes, with machines like this one helping to produce sizable amounts of foreign exchange currency for the ROC

The coming of McDonald's sparked the establishment of many similar fast-food outlets.

Counterfeiting violates the principles of fair international trade. This pirate factory was recently raided by the police and left in disarray.

The creation of a favorable investment climate is one of the most important ways of attracting foreign capital. Here Li Ch'ang-i, Director of the Industrial Development and Investment Center, talks with a foreign businessman.

Taiwan makes one-ninth of the world's shoes, with machines like this one helping to produce sizable amounts of foreign exchange currency for the ROC.