4. Convergence of Slovakia’s and Taiwan’s Interests
4.1 Slovakia’s economic awakening
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why Slovakia‟s political development and transition had been more difficult is generally agreed to be the complicated task of creating simultaneously a new nation, a new economic structure, and new legal and political institutions (Elster et al., 1998).
This complicated transition environment seemed to make of Slovakia in the 1990s an exception among the Central European countries. As it was pointed out before, Slovakia‟s exceptionality in the region lies as well in the delayed opening of the representative offices with Taiwan. To which extent is the „troubled‟ development of post-independence Slovakia relevant to the late establishment of the Slovak-Taiwanese diplomatic missions? The next section will attempt to provide the answer.
4.1 Slovakia’s economic awakening
The Slovak-Taiwanese relations, as all of the substantive foreign relations of Taiwan, began with economic cooperation. This is because Taiwan‟s complex international position allows it only to rely on unofficial diplomacy and its successful economic development is an essential asset of it. Nonetheless, the analysis of the previous chapter shows that the Slovak-Taiwanese economic relations were delayed almost by ten years compared to the other Central European countries. This might have resulted from the delay in Slovakia‟s economic development itself, which as a consequence discouraged the foreign investors and it‟s therefore plausible to assume that it discouraged Taiwan as well. It is thus relevant for this research to understand how the Slovak-Taiwanese relations evolved on the background of Slovakia‟s economic development in the period of 1993 to 2003, i.e. before the opening of the trade offices with Taiwan.
With the decline of centrally planned economies in Central and Eastern Europe and the beginnings of a free-market system, Taiwan enterprises showed interest to enter the region‟s market and set up their operations. Hungary, Poland and Czechoslovakia seemed to be the countries with the greatest potential when it came to economic and political conditions, infrastructural development, and the level of risk (Taiwan Today, 1992). What especially attracted Taiwan was the ideal location, a solid industrial base, low wage costs and a skilled labor force (我國設立駐斯洛伐克 代表處記者會紀要, 2003). To promote bilateral economic relations, Taiwan‟s public
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and private sectors both organized several delegations to visit Eastern Europe.
Moreover, to help Taiwan enterprises interested in entering the Central European market, a private organization called Taipei-based Central European Business Association of the ROC was founded in 1992 (Taiwan Today, 1992).
Before entering into economic partnership, economic reforms, a good legal framework and business infrastructure were qualities upon which Taiwanese businessmen and investors were looking. In this aspect, Hungary attracted more foreign businesses than any other nation in the region. The country‟s legal structure was more complete than in other former COMECON countries, and the telecommunications system and transportation were also more convenient than in other countries in the area. Besides, Hungary had tax laws that offered significant incentives for companies to invest in key industries such as electronics, vehicles and vehicle parts, machine tools, public telecommunication services, and tourism development. To boost bilateral trade, in 1990 Taiwan eventually set up the representative office in Budapest (Taiwan Today, 1992). As it has been already mentioned many times, Czechoslovakia and Poland followed a rather similar course of events and set up their offices in 1991 and 1992 respectively.
Unlike the other Central European countries, Slovakia after independence did not enjoy any of the conditions that would attract and motivate foreign and in particular Taiwan enterprises to enter its market. After the fall of the Soviet Union and communism itself, Slovakia with other post-communist countries was strongly undercapitalized. Companies borrowed money to repay back the old debts instead of buying new technologies or modernize. Adding to the difficult situation was the fact that, after the separation of Czechoslovakia, Slovakia not only had to build its own market economy but, at the same time, establish the institutions of an independent state. In order to gain access to loans, joining international monetary institutions, such as the International Monetary Fund was of a vital importance. However, Slovakia‟s prospects were not favorable, especially in contrast with its neighbor, the Czech Republic, where the industry better adapted to new conditions because after the split of Czechoslovakia it was more developed and competitive than Slovakia‟s. While the Czech Republic could rely on middle-sized production that could trade with neighbors from the European Union, Slovakia‟s production mostly depended on heavy and
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defense industries with ineffective structure and thus failed to compete with rivals on the EU markets (Spectator, 2018). A much higher unemployment than in the Czech Republic, political instability and the absence of consensus on the path of economic reform hindered the transformation process and highly affected the development of Slovakia‟s economy (Agenda 2000 - Commission Opinion on Slovakia‟s Application for Membership of the European Union).
One of the ways to do away with the obstacles to economic growth and to introduce a free enterprise economy was adopting the so called privatization method.
The Slovak government was under international pressure, especially from the European Community, the OECD and the World Bank to move forward in this area as it would provide Slovakia with chances of gaining membership in the international institutions and facilitate the integration with the Western market. However, privatization of the state enterprise proceeded rather slowly. The reason for that was that Mečiar favored an economic system somewhere between capitalism and socialism that included a substantial amount of state control and a very gradual rate of change (Goldman, 1999).
The government‟s self-serving management of Slovak privatization represented an important source of political patronage, yet it had several negative implications on Slovak economy. One of them was the very low foreign direct investment. Although Slovakia had low wage costs and a skilled labor force, its direct foreign investment in the early 1990s amounted to only about USD 620 million, which was about nine times less than the Czech‟s foreign investment and desperately far away from Hungary‟s USD 11 billion (Goldman, 1999). The main reasons for this seemed to be uncertainty of foreign community towards the commitment of the Slovak authorities towards market reform, political instability (Agenda 2000, 1997) and a larger actual openness of the economy (infrastructure of border crossings, customs duties and certificates) (Marcincin, Beblavy, 2000). Moreover, the Slovak government discriminated foreigners in most of the privatization process in favor of government officials, which called attention of the media (Spectator, 2019) and consequently produced a negative image of Slovakia. Slovakia‟s prime minister himself believed foreign money would discourage domestic entrepreneurs (Goldman,
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1999).9 The unwillingness of giving up state control of „strategic‟ companies, the cost of restructuring old and inefficient enterprises to make them saleable and a scarcity of foreign investment eventually made Slovakia lag behind its Central European neighbors in the percentage of GNP coming from the free sector (Goldman, 1999).
It is highly possible that the improper approach of the government towards Slovakia‟s economic reforms not only curtailed the chances of cooperation with many foreign partners, but with Taiwan as well. After all, Taiwanese diplomats themselves affirmed that the impression that Slovakia after independence gave to Taiwan was that of a small and agricultural country. The contrast was especially big when comparing Slovakia with its neighbors, who were bigger and more skilled in banking, and international affairs (Interview, 2019). In other words, Slovakia simply did not provide attractive incentives as well as safe and favorable conditions that would stimulate the interest of foreign businesses and investors. Moreover, as Podstavek, the current SECO‟s representative argues:
“In the 1990s, Slovakia was a great unknown to non-European partners, or perceived as just one of the regions of Czechoslovakia, which was logically identified with the Czech Republic and Prague. This of course was mainly due to poor self-promotion by the Slovak government and central authorities. Very few East Asian investors were so analytically savvy that they could estimate Slovakia's economic investment potential. It seems that even the Slovaks could not estimate it in the first half of the 1990s. Furthermore, East Asia had never before been an important economic partner for Slovakia and therefore there were no experts involved in the East Asian markets that could have facilitated the bilateral economic interactions.”
(Podstavek, Interview, 2019).
When Mikuláš Dzurinda‟s government took power in 1998 and introduced economic reforms, Slovakia finally made a leap forward. The reforms had immediate effects and as a result, Slovakia gained acceptance of the international community and was no more perceived as an “international pariah” (Pridham, 2001). Dzurinda‟s government re-elected in 2002 adopted consistent economic policy, the implementation of liberal economic reforms, investor-friendly legislation and
9 As Goldman (1999) claims, this statement proved to be misleading given the poverty of most Slovaks, who anyway did not have chance to be small investors in the proposed new companies.
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proactive measures towards the adoption of euro. This gradually made of Slovakia a model of successful economic transformation and one of the fastest developing countries in the European Union (Daborowski, 2009). In the „Doing Business 2009‟
World Bank report, which assessed the conditions for, and legislation on business activity and foreign investments, Slovakia‟s conditions for economic activity ranked as the most favorable among all of its neighbors10 (World Bank, 2009 in Daborowksi, 2009). Analysts see this being the result of the very favorable conditions that the Slovak government conferred to major foreign investors and the tax cuts and reliefs that were much deeper than in the neighboring countries (including Poland and the Czech Republic). As a result, large global companies, especially the automotive sector and electronic industry, chose Slovakia as an ideal location for investment and new factories (Daborowksi, 2009). Asian investors such as Japan and Korea became increasingly interested in Slovakia and Taiwan followed their example as well (Podstavek, Interview 2019).
Taiwan got attracted by Slovakia‟s successful economic development as it can be seen from intensified economic interactions. In 1998, in attempt to deepen mutual trade contacts and learn from the example of the neighboring countries, Slovakia signed a trade agreement between the Slovak Commerce and Industrial Chamber (Slovenská obchodná a priemyselná komora, SOPK) and the China National Association of Industry and Commerce (中華民國工商協進會, CNAIC) (MOFA SK, Economic Information about Territory, Taiwan, 2016).11 Subsequently, the activities accompanying the agreement and the Slovakia‟s upcoming membership in the EU eventually led to negotiations about the opening of the diplomatic missions with Taiwan in 2003. The offices eventually enabled the major flux of investments from Taiwan that began when Delta Electronics came to Slovakia in 2006. The other important Taiwanese investors that followed are Foxconn, AU Optronix and Eson (SECO Taipei, 2017).
10 Slovakia ranked 36th of the 181 states studied, compared to Hungary at 41st, the Czech Republic at 75th, Poland at 76th and Ukraine at 145
11 The Slovak Commerce and Industrial Chamber served in the early years mainly as an official communication platform for economic diplomacy. In recent years, however, fruitful economic interactions and communication on ministerial level have been going on between Taiwan and Slovakia thanks to the Slovak-Taiwanese Chamber of Commerce.
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