TAIPEI, December 20: German giant Bayer AG on Friday suspended a long-frustrated proposal to build a $1.5-billion chemical plant in Taiwan, saying it would switch to a contingency site in Texas.

"We are deeply disappointed that our intensive efforts to convince the Taiwanese authorities of the benefits of this project have not met with success," Bayer Taiwan chairman Horst Muck told reporters at a hastily called news conference.

Muck said Bayer now would pursue contingency plans to build the plant to make the chemical TDI in Baytown, Texas, though he added that Bayer was not giving up on Taiwan.

"We are following orders from our parent company to suspend talks with the government on this project, but this does not mean we will not come back in the future," Muck said.

"Suspension means suspension but doesn't mean cancellation," he added. "It does not mean we will not open in the future."

Muck's carefully worded comments left open the possibility that Bayer would consider further talks. But the suspension ratcheted up pressure on Taipei to resolve local opposition and embrace the project.

Shortly before Bayer's announcement, economic minister Wang Chih-kang told parliament that Bayer's possible withdrawal in the face of local political and environmental opposition would be deeply worrying for Taiwan's investment environment.

"If the Bayer case fails, it would be extremely worrying for our future investment environment," Wang had said.

"Bayer has followed every rule and strived towards the case for more than three years," Wang added. "Now, if we say no to the case we will introduce drastic uncertainty to both foreign and local investors."

Taiwan's stock market was down 0.75 per cent or 62.21 points at 8,192.84 and holding stable after Bayer's announcement, but was well rebounded from a morning dip to 8,092 when reports of a possible Bayer pullout were circulating in the market.

"Investors are unlikely to react to a single investment case," said Oliver Fang of National Securities. "The decline mainly reflects the overnight fall on Wall Street."Executives hinted strongly on Thursday that Bayer would not tolerate further delays in the frustrated investment, which has passed environmental reviews and won national government support but has been mired in local politics for 18 months.

The proposal for central Taichung county has come to be seen as a major test for Taiwan's fledgling democracy and its reputation as an Asian oasis for international investment.

Local chapters of the European Council of Commerce and Trade and American Chamber of Commerce, backing Bayer, had strongly opposed plans to put the project to a local referendum, an opposition initiative likely to cause months of delay.

The chamber said such a vote would be "inconsistent with the concepts of transparency and regulatory procedures...essential to maintaining a vital and attractive investment climate".

Local media said a review of land leases by the provincial assembly, seen by Bayer as a test of Taiwan's sincerity, had gone nowhere and that necessary approvals were not imminent.

The ruling Nationalist Party had pledged to mobilise all assembly members to pass the proposal. But under political liberalisations rolled out since the late 1980s, the venerable party's clout has been eroded by a surging opposition.

The Democratic Progressive Party routed the Nationalists in islandwide municipal elections in late November, emboldening Bayer's opponents -- particularly newly elected Taichung county magistrate Liao Yung-lai, a Democratic Progressive.The plant would be designed to make toluence di-isocyayate,or TDI, a midstream chemical product used in synthetic leather.

Bayer executives had said the plant would be safer and cleaner than any Bayer TDI plant anywhere in the world -- including Japan and the West where standards are toughest.

Bayer said it had spent more than $10 million over the past three years to conduct environmental evaluation and other research for the proposed project.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.