Taiwan Looks Outward

In a battle against declining export markets and unstable foreign sources of raw materials, Taiwan, long known as a host for international companies, is attempting to join the ranks of the industrialized countries that serve as home bases for the world's multinationals.

By many estimates, Taiwan has surpassed most other Third World countries in capturing the benefits of the foreign-owned export industries that dominate its economy. More than U.S.$300 million in new foreign investment was logged in 1979, and per capita income increased by 18 percent. Income distribution continues to be among the most equitable in the non-communist world.

Traditionally, however, Taiwanese investment overseas has been viewed by the government as capital flight, and the policy of openness to foreign investment has been coupled with restrictions on the right of Taiwan citizens to invest abroad. Recently, however, the government has pursued policies designed to channel much of the country's $6 billion foreign reserves into choice foreign climes.

The government has encouraged this investment on an ad-hoc basis over the past 18 months, approving overseas projects at a much higher rate than previously. Such investment for the first half of 1980 multiplied six-fold over the corresponding period in 1979. And the trend is likely to accelerate. A July policy initiative by Premier Y.S. Sun established tax incentives for foreign investors in certain sectors and dropped the level of paid-up capital required of corporations proposing overseas projects.

Underlying the policy shift-part of the government's New Industrial Development Program-is a perceived need to acquire natural resources. "Man power itself can do nothing," says Mei-Tsun Wu, economicso officer of the Coordination Council for North American Affairs, Taiwan's unofficial embassy in the U.S. "We need to be at the source of supply of raw materials," Wu comments, echoing the prevailing view of Taiwan industrialists.

Energy imports are the major impetus for the current investment drive. Since the island remains totally dependent on imported oil, government and private investors are now being urged to look for more extensive traditional and alternative, sources of energy. The Overseas Petroleum Investment Corporation, for instance, recently sunk $60 million into an Indonesian oil exploration venture for a 25 percent share of the proceeds : And the government-owned Taipower Corporation has invested in Paraguay for uranium to fuel nuclear power plants.

In the U.S., the Formosa Plastics Group, a leading Taiwanese conglomerate, has negotiated a 60 percent share in a petrochemical joint venture with Louisiana Chemical and Plastics to be built near Houston.

The new investment program is also designed to cushion the economy from foreign protectionism. Sampo Company, for example, is putting $5 million into a television plant in Atlanta in an effort to circumvent the U.S. quota on Taiwan-made color televisions, currently set at 400,000.

Taiwan has coupled investment expansion in consumer goods manufacturing with a concerted effort to diversify its trading partners. Trade with Western Europe is expected to increase 25 percent in 1980 to a total of $5 billion. And in an ironic twist, the island, wary of recessions in the West and mindful of its increased political isolation, is turning ever more to the East for export sales; since December 1979, direct trade has opened to five Eastern European countries-Czechoslovakia, East Germany, Hungary, Poland, and Yugoslavia.