Prosperity in Isolation

Since it was kicked out of the U.N. in 1971, Taiwan has become ever more isolated diplomatically. But its emissaries have proved adept at gaining entree to the markets and financial centers of some of the very nations that have barred them from foreign ministries. As a result, the island country has attracted enough trade and investment to overtake even Japan in the speed of its economic growth.

Although its population of 15 million ranks only 40th in the world, Taiwan last year climbed into 20th place among all trading nations, with a giant 45% increase in its foreign commerce, to $5.9 billion (substantially larger than the foreign trade of the People's Republic of China). Its gross national product jumped 12% last year, the fastest rise in all Asia, and average family income reached $1,500, a figure exceeded among Asian countries only by Japan and Singapore. Recently seven Taiwanese trade missions were scouting for additional commercial exchanges with Western countries and swallowing nationalist pride to do so. In courting Canada, West Germany and Italy for further trade contacts, the Taiwanese teams refrain from insisting upon the term China to describe their country.

The foundation of Taiwan's economic success was laid in the late 1960s by Finance Minister K.T. Li. He pioneered the establishment of free-trade zones where foreign-owned factories can import raw materials and parts duty-free, assemble them into finished products and ship the products out as exports. Taiwan now has three such zones, each a kind of manufacturing compound. Together they will eventually employ some 90,000 Taiwanese workers in 150 enterprises. Foreign investors are also lured by cheap labor costs--one-third to one-fourth lower than in Japan--and velvet-glove treatment by the government. Foreign companies can buy factories built by the government on generous deferred-payment terms, and they encounter no red tape when they want to send their profits back home.

This policy has attracted such foreign-owned giants as Voeest, an Austrian combine that is expected to turn out $1.1 million worth of steel annually on Taiwan, and a slew of electronics firms: Sony, Hitachi, RCA, Motorola, Zenith, Admiral. Taiwan is now the chief supplier of black-and-white TV sets to the U.S. Ford Motor Co. has embarked on a $36.3 million venture with Lio Ho, a Taiwanese firm, to produce several small economy cars, selling at around $1,600, for the Asian market. The island also produces Sanyang motorcycles. Taiwan lately has switched to seeking capital-intensive heavy industry in order to stay a jump ahead of Malaysia and Indonesia, where labor costs are even cheaper. Its biggest catch: the Kaohsiung shipyard, a $27 million joint Sino-American enterprise whose annual capacity will be 1.5 million shipping tons. Together with older yards, Kaohsiung will make Taiwan the world's 15th largest ship-building nation.

The biggest threat to Taiwan's prosperity, of course, is a cooling of its relations with the U.S. Taiwanese have worked hard to head off that threat, with some success. In mid-February, even as Henry Kissinger jetted to Peking to chat with Communist officials, a delegation of 20 U.S. businessmen visited Taiwan, with Washington's approval, to search for new investments. Recently two high-powered Taiwanese trade delegations were in Washington. One, led by Y.T. Wong, director of the Board of Foreign Trade, returned home with an $800 million purchase agreement under which Taiwan will buy U.S. grain over a three-year period. It hopes in that way to head off further protectionist action, such as the "voluntary" agreement that Washington negotiated in 1971 to restrict Taiwan's textile exports to the U.S.

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