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TAIPEI, Taiwan (July 9, 1999 - The National)---Papua New Guinea said yesterday Taiwan did not buy diplomatic recognition in a deal that has infuriated China.

"Let me make it very clear indeed that there is no trade-off here in the sense of money," Foreign Minister Roy Yaki told a Taipei news conference.

But Mr. Yaki could not guarantee the survival of the agreement, signed with Taiwan on Monday, which has also come under fierce criticism from Australia and the domestic political opposition.

PNG Prime Minister Bill Skate, who was in Taipei with Mr Yaki during the signing of the deal, announced his resignation on Wednesday and the frontrunner to replace him, Sir Mekere Morauta, said he would review the agreement, which he said had "regional and international implications."

The deal outraged China, which regards Taiwan as an insubordinate province and which routinely shuns those who recognize it.

Taiwan officials have consistently denied pledging cash or other aid in exchange for PNG's decision to become Taipei's 29th diplomatic partner.

Mr. Yaki said he wanted ties with Taiwan but that if there were any political changes in his country, he hoped that the new arrangement "would be carefully weighed before any final decision is made".

Mr Skate asked for US$ 2.35 billion (K 6.5 billion) in financial aid in exchange for diplomatic recognition of Taiwan, according to a confidential government paper obtained by Reuters.

The Papua New Guinea Foreign Affairs Department document is dated June 29 and was submitted to the government cabinet.

Mr. Skate took to Taipei a shopping list including provision of US$ 1.5 billion (K 4.1 billion) in grant assistance and US$ 500 million (K 1.3 billion) of which was to be released upon the signing of a "bilateral treaty establishing full diplomatic relations."

Also included in the paper was a private placement of US$ 250 million (K 690 billion) of PNG bonds with Taiwan's central bank "at a lower interest rate than that prevailing in the market" and US$ 500 million (K 1.3 billion) in 20-year concessional loans at interest rates between four and five per cent.

The document lists another US$ 100 million (K 2.7 billion) line of credit from Taiwan's central bank to the Bank of Papua New Guinea.

Meanwhile, Taiwan has threatened to impose trade sanctions against Australia after Canberra tried to stop PNG from switching diplomatic recognition from Beijing to Taipei, it was reported yesterday.

"The foreign ministry is drafting trade sanction measures, under which Taiwan may switch its iron ore sourcing from Australia to PNG," the United Evening News said.

(This is despite the fact that PNG does not export iron ore.)

Taiwan imported US$ 1.21 billion (K 5.1 billion) worth of goods from Australia in the first five months of this year and exported shipments totaling US$ 736.7 million (K 2 billion) in the same period.

Foreign ministry acting spokesman Henry Chen told AFP he was not clear about the report of Australian pressure on PNG and said further checks were needed before commenting.

But he said "PNG is very rich in natural resources" and "stepping up purchases from allies is one of the directions that could be considered."

China said yesterday it had strongly protested to PNG over its decision to switch diplomatic recognition to Taiwan and urged it to "correct" its move.

"China hopes the Papua New Guinea government will immediately correct its erroneous decision of establishing 'diplomatic ties' with Taiwan so as to bring the relations between China and PNG back onto the normal track," foreign ministry spokesman Zhang Qiyue told a news conference.

"China has made solemn representations to and lodged a strong protest against the Papua New Guinea government over its signing of the so-called communiqué on the establishment of diplomatic ties with Taiwan," she said.

"The aforementioned actions by a handful of people in the PNG government have met strong opposition from far-sighted persons within and outside the PNG government, the PNG people and media," Ms Zhang said.

For additional reports from The National, go to PACIFIC ISLANDS REPORT News/Information Links: Newspapers/The National (Papua New Guinea).

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