US, Taiwan fasten closer trade links, but snags remain

The United States has switched diplomatic allegiance to mainland China, but the economic commitment to the nationalist government on Taiwan is stronger than ever.

''During the past decade, trade between the ROC (Republic of China) and the US has grown an average of 30 percent a year, in spite of the energy crisis, worldwide stagflation, and the severance of diplomatic relations,'' says Yu Kuo-Hwa, governor of the central bank.

And official projections foresee continued high growth in both trade and investment throughout the 1980s. In 1965 two-way trade amounted to a little over a quarter-billion dollars. Ten years ago it was $1.2 billion. Last year it rose to almost $13 billion, representing nearly 30 percent of Taiwan's foreign trade.

The Board of Foreign Trade predicts total ROC trade volume will top $200 billion by the end of the decade, adding: ''The US will still be our principal trade partner, both as a market and a supply source.''

Board officials say that the ROC is now the ninth-largest supplier and 14 th-biggest customer of the US, as well as being its No. 2 trading partner in Asia, after Japan.

Officials here, however, are worried about the widening trade gap in Taiwan's favor. In 1970 the surplus was only $201 million. Last year it reached $3.4 billion. One concern is that the gap may heighten protectionist pressures in the US.

Vincent Sieuw, director general of the Board of Foreign Trade, says: ''We don't like to see this sort of situation developing, as our whole aim is an equitable balance with all our trading partners.''

The ROC, he says, has done everything possible to buy more US products to narrow the gap. A ''buy more from America program'' was instituted in 1978. Six government-sponsored procurement missions have been sent on tours of the US. The Board of Foreign Trade says these missions have led to import contracts worth almost $5.4 billion.

The seventh mission is scheduled to depart from Taipei this September. Among trade-promotion steps taken, Mr. Sieuw cites:

* A five-year contract, beginning last September, under which the ROC will import more than 17 million metric tons of US grain. The previous five-year contract was for 10 million tons of wheat, corn, and soybeans.

* When the government halted automobile imports in 1974 to cut gasoline consumption after the first oil crisis, the US was (and remains) the only exception.

* Tariff rates on household electric appliances have been slashed to encourage the import of US-made products.

Mr. Yu says: ''I'm convinced our consumers and producers will always prefer to buy from the US, as long as the quality and price remain competitive.''

On the other side, there is concern in Taipei at the growth of American protectionism, particularly in textiles. The island has traditionally been the biggest beneficiary of the US Generalized System of Preference (GSP), the duty-free treatment of specific items from designated developing countries. But recently a number of important Taiwanese export items have been excluded from GSP, an action the Board of Foreign Trade sees as unjustified, given the state of the ROC economy.

Investment is another area of high growth. At the end of last year, the ROC had approved foreign investments in the country totaling $2.1 billion, almost half of it coming from the US. Companies involving US investments provide 6 percent of the island's manufacturing employment, and account for 7 percent of its exports.

A recent development here has been the establishment of joint ventures between local interests and some of America's best-known engineering and construction firms. They are credited with contributing significantly to the improvement of Taiwanese engineering capabilities, particularly in the conventional and nuclear-power fields.

But it is no longer a one-way street. Chinese investments overseas are growing, helping to get around trade barriers. By the end of 1980, figures show, government wants to see this increased in the next few years.

For the future, Taiwan is seeking closer US collaboration in manufacturing ventures. This is seen here as beneficial to both countries. Minister without portfolio K. T. Li has suggested several possible approaches, including:

* Joint ventures in Taiwan for the manufacture or assembly of machinery and high-technology equipment for export. Initially these would be marketed under US trademarks and with US financial backing. After-sales service centers would be set up on Taiwan to cover the Asian region.

* US firms could set up regional branches here to promote their sales in Asia , in view of the island's strategic location between Japan, the Korean peninsula , and the ASEAN-member countries.

* US and ROC organizations could set up joint engineering and consulting firms in Taiwan, combining America's advanced technology, patent rights, and financial strength with Taiwan's supply of manpower. The joint firms could provide a variety of technical and engineering services to the rest of Asia, such as factory design, construction, and even initial plant operation.