At a meeting held in early October to celebrate the establishment of an organization aimed at boosting Taiwan's exports to South Korea and reducing the island's trade deficit with that country, Economics Minister Ho Mei-yueh reported that her ministry's efforts had already helped boost shipments to Korea by 30% year-on-year during the April-August period this year.

The minister further said that she expected the growth in exports to continue following the resumption of scheduled flights between Taiwan and Korea in September. Flights by carriers based in the two countries were suspended in 1991 when South Korea shifted its diplomatic recognition from Taiwan to mainland China.

Despite the recent export growth, S.H. Hsu, chairman of the new organization (which represents 241 Taiwanese computer, textile, machinery, electronics, electrical-equipment, and trading companies) and of Compal Electronics Group, predicts that the bilateral trade imbalance in favor of South Korea will rise to US$5 billion this year, following a decline to US$4.5 billion in 2003. This will make Korea the second-largest trade-deficit source for Taiwan, after Japan, a position which it has held since 1989.



Petrochemical products and textile materials were the main factors in Taiwan's deficit with South Korea in earlier years, but recently they have been joined by cellphones, TV dramas, household appliances, online games, and information-technology products. Samsung Electronics alone, for instance, exported US$3 billion worth of products to Taiwan last year.

Taiwan, for its part, invested only US$220 million in the development of South Korean business last year, an amount equal to only 0.56% of the island's total outward investment. Most of the money went into acquisitions and the establishment of new facilities. Major Taiwanese investors in South Korea include Tatung Corp., Sampo Corp., China Airlines, Yang Ming Line, Wan Hai Lines, China Development Industrial Bank, Advanced Semiconductor Engineering (ASE), and KGI Group.

Industry watchers in Taiwan attribute the island's anemic investment in South Korea to that country's national pride, which makes it difficult for consumers there to accept imported products if locally made equivalents are available. In addition, Taiwanese manufacturers say, South Korea's investment conditions are inferior to those of most Southeast Asian countries.

Hsu, who is a veteran in dealing with South Korean business circles, suggests that Taiwanese companies wishing to do business there pay attention to the principle of interaction. "South Korean businesspeople respond with as much force as you exert on them," he explains. "This means that you have to obtain a grasp of the characteristics of the South Korean market before you try to move into it."