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### Viewing cable 05TAIPEI4697, TAIWAN: 2006 NATIONAL TRADE ESTIMATE

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05TAIPEI4697 | 2005-11-25 02:55 | 2011-08-23 00:00 | UNCLASSIFIED | American Institute Taiwan, Taipei

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    UNCLAS SECTION 01 OF 12 TAIPEI 004697

    SIPDIS

    DEPT PASS TO AIT/W AND USTR

    DEPT FOR EAP/RSP/TC AND EB/MTA

    USTR FOR TIM WINELAND AND GBLUE

    E.O. 12958: N/A
    TAGS: ETRD ECON KTDB TW
    SUBJECT: TAIWAN: 2006 NATIONAL TRADE ESTIMATE
    REPORT

    TRADE SUMMARY
    -------------

    ¶1.  The U.S. trade deficit with Taiwan was $12.9
    billion in 2004, a decrease of $1.3 billion from
    $14.2 billion in 2003. U.S. goods exports in 2004
    were $21.7 billion, up 24.6 percent from the
    previous year. Corresponding U.S. imports from
    Taiwan were $34.6 billion, up 9.6 percent.  Taiwan
    is currently the 9th largest export market for
    U.S. goods. U.S. exports of private commercial
    services (excluding military and government) to
    Taiwan were $5.5 billion in 2004, and U.S. imports
    were $5.7 billion.  The stock of U.S. foreign
    direct investment (FDI) in Taiwan in 2004 was
    $12.1 billion, up from $11.0 billion in 2003. U.S.
    FDI in Taiwan is concentrated largely in the
    finance, manufacturing, and wholesale sectors.

    IMPORT POLICIES- TARIFFS
    ------------------------

    ¶2. Taiwan promulgated a comprehensive tariff
    revision schedule on January 1, 2004 in compliance
    with Taiwan's Free Trade Agreement with Panama and
    Taiwan's accession commitments to the WTO. Tariffs
    on pharmaceuticals, pulp/paper, iron/steel,
    construction equipment, agricultural equipment,
    medical equipment, furniture and toys were
    eliminated starting on January 1, 2004.  As a
    result, the average nominal tariff rate on
    imported goods in 2005 was approximately 5.67
    percent and is expected to fall to 5.5 percent by
    ¶2007.  To comply with WTO commitments, Tariff-Rate
    Quotas (TRQs) on certain items including chicken
    meat, pork bellies, and poultry and pork variety
    meats, were lifted on January 1, 2005.   In
    addition, Taiwan voluntarily lifted the sugar TRQ
    effective January 1, 2005 to meet Taiwan's
    domestic needs.  However, U.S. industry continues
    to request that Taiwan lower tariffs on imports of
    many goods, including large motorcycles, wine,
    canned soups, cookies (sweet biscuits), savory
    snack foods, vegetable juices, potato and potato
    products, table grapes, apples, fresh vegetables,
    and citrus products.

    ¶3. Upon Taiwan's accession to the WTO in January
    2002, Taiwan implemented tariff-rate quotas (TRQs)
    on small passenger cars, three categories of fish
    and fish products, and a number of other
    agricultural products. On January 1, 2004, in
    accordance with its WTO accession commitments,
    Taiwan made additional tariff cuts and increased
    TRQ amounts on these products.

    ¶4. Taiwan has notified the WTO that it maintains
    Special Safeguards (SSGs) for a number of
    agricultural products covered by TRQs. SSGs,
    permitted under Article 5 of the Agreement on
    Agriculture, allow Taiwan to impose additional
    duties when import quantities exceed SSG trigger
    volumes or import prices fall below SSG trigger
    prices. As Taiwan has not imported many of these
    products previously, SSG trigger volumes are
    relatively low. Taiwan has not imposed any
    safeguard provisions and none of the imports of
    subject products have reached the safeguard
    ceiling in 2005, although SSGs have been
    previously triggered on several products,
    including chicken legs and wings, and several
    types of offal.  Products generally continue to be
    imported in spite of the safeguard tariff.

    ¶5. To meet WTO commitments, Taiwan has eliminated
    99.27 percent import controls of 10,921 official
    import categories.  Currently, there are 80
    product categories requiring import permits from
    the Board of Foreign Trade (BOFT) including 56
    categories that are prohibited and 24 that can
    only be imported under special conditions.  Most
    of the permit-required categories are related to
    public-sanitation and national-defense concerns
    and include ammunition and some agricultural
    products.  In addition, Taiwan maintains a lengthy
    list of products that are banned if made in China,
    including chocolate confectionary and meters for
    medical equipment.  However, the Ministry of
    Economic Affairs recently informed AIT that
    imports of certain unfilled chocolate from China
    will be allowed no later than June 1, 2006.

    ¶6. Agricultural and Fish Products: Prior to its
    WTO accession, Taiwan banned or restricted imports
    of 42 agricultural and fish items. In January
    2002, Taiwan liberalized imports of 18 of these
    agricultural and fish categories and implemented
    TRQs on the remaining 24 items. TRQs on a number
    of products of interest to the United States
    (chicken meat, pork bellies and offal, and poultry
    offal) were eliminated on January 1, 2005.

    ¶7. Rice: Before Taiwan's WTO accession, imports of
    rice were banned. During 2002, rice imports were
    subject to an absolute quota that covered both
    public and private sector imports. In 2003, Taiwan
    changed its rice import regime to a tariff-rate
    quota system without consultation with its trade
    partners. As a result, in January 2003 the United
    States, as well as Australia and Thailand,
    formally objected to Taiwan's proposed rice import
    system at the WTO. Since then, the United States
    has also raised concerns regarding Taiwan's
    implementation of its rice import system,
    including cancellation of mark-up price reductions
    for several private-sector tenders, and the use of
    a "ceiling price" for public-sector tenders.
    Despite these difficulties, the U.S. has been able
    to supply a majority of Taiwan's imported rice
    every year since accession. In 2004, Taiwan's
    implementation of its import commitments improved
    significantly, but the price ceiling issue
    resurfaced in 2005.  Also, during 2004 and 2005
    the United States and Taiwan made substantial
    progress in resolving outstanding differences on
    Taiwan's rice procurement arrangements.  However,
    certain rice suppliers to the Taiwan market other
    than the United States have not agreed to proposed
    modifications to Taiwan's rice import system. As a
    result, Taiwan will continue its current system
    while working toward final resolution of the rice
    import issue.

    ¶8. Tobacco and Alcohol Products: As a condition of
    Taiwan's WTO accession, a new tobacco and alcohol
    management and tax system went into effect on
    January 1, 2002. In place of the previous tax on
    imports administered by the former monopoly
    authority, the Taiwan Tobacco and Wine Monopoly
    Bureau (TTWMB), Taiwan agreed to impose an excise
    tax and to eliminate tariffs on imports of most
    spirits.  Taiwan also liberalized private alcohol
    production upon its accession to the WTO and
    private cigarette manufacturing in 2004. TTWMB
    became a state-owned corporation, Taiwan Tobacco
    and Liquor Corporation (TTLC), in July 2002.
    However, primarily due to resistance by organized
    labor, the privatization of the TTLC has been
    repeatedly postponed and there is no target date
    for implementing privatization.

    ¶9. Wood Products: Taiwan has revised building
    codes in line with international practices.
    However, Taiwan has not yet completed a companion
    fire code. This delay means that while a wood
    frame structure may be built, approval by fire
    inspection authorities is contingent on review and
    comment by a special committee on details, such as
    design and usage - making insurance and financing
    difficult to obtain. U.S. wood products companies
    have raised concerns that this practice is
    restrictive and does not encourage wood use in
    construction. The continued use of a special
    committee rather than finalizing a fire code
    unnecessarily delays construction of wood
    structures and raises the cost of using wood
    materials significantly beyond that of other
    materials such as concrete and steel.

    ¶10. Automobiles and Motorcycles: Local content
    requirements in the automobile and motorcycle
    industries were lifted as part of Taiwan's WTO
    accession. The importation of motorcycles with
    engines larger than 150 cc was liberalized in July
    2002 as part of Taiwan's WTO commitments.  In mid-
    2003 Taiwan agreed to set emissions standards for
    motorcycles over 700 cc in line with international
    standards, a step the U.S. motorcycle industry
    supported. Small motorcycles (below 250cc) are
    prohibited on expressways.  Larger motorcycles are
    restricted from most expressways but are allowed
    on two national highways.  The Ministry of
    Transportation and Communications (MOTC) has
    entrusted the Institute of Transportation (IOT)
    with conducting an evaluation to determine whether
    to lift the restriction on large motorcycles on
    expressways.  IOT is scheduled to announce the
    result in June 2006.  The U.S. remains concerned
    with Taiwan's tariffs and other taxes on large
    motorcycles as well as Taiwan's restrictions on
    motorcycle access to highways.

    STANDARDS, TESTING, LABELING AND CERTIFICATION
    --------------------------------------------- -

    ¶11. As of October 31, 2005, the Bureau of
    Standards, Metrology & Inspection (BSMI) had
    13,981 separate existing standards.  The rate of
    harmonization with international standards (both
    identical and modified) was 72 percent, up from 69
    percent on December 31, 2004.

    ¶12. Industrial and Home Appliance Products:
    Industrial and home appliance products (such as
    air-conditioning and refrigeration equipment) are
    subject to safety and Electo-magnetic
    Compatability (EMC) testing requirements before
    clearing customs.  The manufacturers or importers
    can choose tests on each shipment "batch-by-batch
    inspection" (BBI) with Type Approval or
    "registration of product certification" (RPC).
    All safety testing for end products must be done
    in Taiwan by Taiwan-accredited laboratories.
    Taiwan accepts EMC testing by NIST-accredited
    laboratories if they are in the U.S. only for IT
    equipment based on the EMC Mutual Recognition
    Agreement (MRA).  For those products that adhere
    to the ISO 9000 quality management system, an
    alternative factory inspection module was
    introduced.  The manufacturers or importers may
    choose the method most appropriate to them when
    applying for registration under the RPC scheme.

    ¶13. Several new standards were announced in 2005
    for electronic and household appliances and toys.
    The revised Chinese National Standards (CNS) 12574
    on household pressure-cooking pots was published
    on September 27, 2004.  This revised standard was
    used to conduct inspections of such products
    beginning in May 2005.  Starting August 1, 2005,
    18 additional types of toys were required to pass
    inspection before entering the market.  This makes
    a total of 38 types of toys that require
    inspection.  In July 2005, The Ministry of
    Economic Affairs proposed that television
    receivers must include the capability to receive
    over-the-air digital television (DTV) broadcast
    signals, in addition to the existed EMC and safety
    requirements for television receivers that are
    already subject to inspection.   The DTV receiving
    capability schedule will be based on the size of
    the screen with larger TV's required to comply as
    of January 1, 2006 and the smallest by January 1,
    ¶2008.

    ¶14. Sanitary and Phytosanitary Measures: As a
    member of the WTO, Taiwan must abide by the WTO
    Agreement on the Application of Sanitary and
    Phytosanitary Measures (including notification of
    such measures). In 1998, Taiwan agreed to accept
    meat and poultry imports from plants approved by
    the USDA Food Safety Inspection Service. In 1999
    and 2000, Taiwan agreed to accept Codex
    Alimentarius or U.S. pesticide residue standards
    for some chemicals used on imported fruits and
    vegetables. However, the U.S. continues to be
    concerned that some Taiwan plant and animal
    quarantine measures are not always based on sound
    science and are more trade restrictive than
    required.

    ¶15. Beverage Alcohol Products: On July 1, 2004,
    the Ministry of Finance (MOF) eliminated
    ingredient-labeling requirements for alcoholic
    beverages.  However, product labels must include a
    warning label stating overdrinking is harmful to
    health.  Taiwan will implement new "Regulations
    Governing the Inspection of Imported Alcohol",
    beginning January 1, 2006 for wine, fruit wine,
    beer, and brewed cereal beverages; and on July 1,
    2006 for all alcoholic beverage imports.
    Importers of alcoholic beverages can submit
    documentation of sanitary inspection or safety
    assurance issued by official in charge of alcohol
    product inspection or professional alcohol
    associations of exporting countries to replace
    product inspection upon customs clearance.

    ¶16. Agricultural Biotechnology Products: Taiwan
    authorities generally have taken a cautious, but
    fairly rational approach to trade in agricultural
    biotechnology products. Risk assessment
    documentation on agricultural biotechnology corn
    and soybeans were required to be submitted to the
    Department of Health (DOH) before April 30, 2002,
    and mandatory labeling on certain corn and soybean
    products commenced in 2003. In October 2003, DOH
    announced its intention to require registration of
    agricultural biotechnology products other than
    corn and soybeans in 2004, but offered an
    opportunity for life science companies to obtain
    interim approval for those products currently
    commercialized.  No disruptions to trade have
    resulted from Taiwan's biotechnology regulations.
    However, with a number of products entering the
    regulatory approval pipeline and a lack of
    investment in a strong domestic regulatory
    infrastructure, delays in approvals have become
    more frequent.

    ¶17. Labeling of biotechnology food: Taiwan
    requires warning labels on foods containing
    biotechnology corn or soybeans. All food products
    containing 5 percent or more bio-engineered
    soybean or corn ingredients by weight must be
    labeled as "Genetically Modified (GM)" or
    "Containing Genetically Modified."

    ¶18. Medical Devices: Registration and approval
    procedures for medical device imports are complex
    and time-consuming, and have been the subject of
    long-standing complaints by U.S. firms. The
    registration process requires extensive
    documentation, sometime arbitrary demands for
    additional information and redundant testing.
    Changes in the registration requirements mean
    manufacturers must register Class 1 devices for
    the first time and re-register previously approved
    products.  In most cases, this requires companies
    to submit additional documentation, even when
    products are based on previously approved devices,
    are identical products made in different quality
    system documentation (QSD) manufacturing sites, or
    have changes in the product's outer package.  The
    Department of Health was forced to extend a
    registration deadline of June 20, 2005 when it
    became clear that DOH lacked the staff to process
    applications for the majority of devices by the
    deadline.  DOH is optimistic that most products
    will be registered by December 20, 2005.  In
    addition, regulations are vague on when local
    clinical trials are required for the review
    process or whether industry is allowed to provide
    additional input in response to questions posed by
    DOH officials reviewing the clinical trial
    submissions.  Taiwan has identified both the
    medical device and pharmaceutical sectors as
    priorities for local development, resulting in
    Taiwan agencies often favoring the interests of
    local companies over foreign firms.

    ¶19. Pharmaceuticals: Taiwan's lengthy
    pharmaceutical registration process slows market
    entry for new drugs that have already received
    regulatory approval in advanced economy markets
    and imposes unnecessary costs on drugs that have
    been approved in Taiwan.  Product registration
    requires submission of plant master files,
    validation documentation as well as local clinical
    trials.  Following extensive negotiations, Taiwan
    agreed in August 2003 to replace submission of
    full-scale validation documentation with an
    overview template/certificate of pharmaceutical
    products (CPP) issued by relevant authority from
    the source country.  DOH retains the right to
    conduct overseas site inspections based on risk
    factors.  Despite intensive consultations, US
    industry remains concerned that these inspections
    will unfairly target manufacturers that provide
    abridged data.  Discussions between the United
    States and Taiwan to resolve remaining issues,
    especially requirements for computerized
    validation data, have led to the development of
    mutually agreeable standards.

    ¶20. Taiwan uses various methods to lower assigned
    prices on innovative drugs, including "reference
    pricing" and periodic lowering of assigned prices
    without a transparent process.  In addition,
    Taiwan continues to restrict consumer choice and
    limit U.S. market access through disproportionate
    reimbursement of domestically manufactured generic
    drugs.  Article 49 of Taiwan's National Health
    Insurance law mandates reimbursement of healthcare
    providers at actual transaction costs, but this
    law is not enforced. Discussions between the
    United States and Taiwan on this issue are
    ongoing.

    ¶21. In July 2002, Taiwan introduced a "global
    budget" in selected locations in which hospital
    reimbursements are capped by the National Health
    Insurance system.  The goal is to increase
    efficiency and encourage cost-cutting measures.
    In practice, this has led to increased pressure on
    pharmaceutical suppliers to provide discounted
    products.  Despite reports of negative effects on
    patient care, DOH has announced plans to extend
    global budgeting to all medical centers in January
    ¶2006.

    ¶22. On September 1, 2005, BNHI introduced
    guidelines to discourage improper use of
    pharmaceuticals.  For instance, duplication of
    anti-acid prescriptions will no longer be
    reimbursed.  In an effort to cut costs, BNHI
    stopped reimbursing for some over-the-counter
    medicines in July 2005.

    ¶23. Other issues: Taiwan reimposed its import
    suspension on U.S. beef in June of 2005, after the
    discovery of a second case of Bovine Spongiform
    Encephalopathy (BSE) in the U.S.  Taiwan initially
    reopened the market to U.S. beef in April 2005,
    after banning imports of U.S. beef in December
    2003 following the detection of the first positive
    case in the State of Washington. As of the
    publication of this report, the U.S. Government is
    working intensively to re-open the market as
    quickly as possible. Non-ruminant products for
    feed use, such as tallow, lard, poultry and
    porcine meal are banned. Limited exceptions are
    only approved after a very slow case-by-case
    review or plant clearance process.

    GOVERNMENT PROCUREMENT
    ----------------------

    ¶24. Taiwan committed to accede to the WTO
    Agreement on Government Procurement (GPA) as part
    of its WTO accession.  While Taiwan has applied
    for accession to the GPA, its accession has not
    yet been completed due to differences regarding
    nomenclature issues.  To prepare for accession,
    Taiwan implemented a new Government Procurement
    Law in mid-1999.  This was an important first step
    toward establishing a transparent and predictable
    environment for Taiwan's multi-billion dollar
    public procurement market.

    ¶25. In August 2001, Taiwan and the United States
    signed a Memorandum of Understanding on Government
    Procurement.  The MOU calls for Taiwan to
    implement certain procedural commitments
    immediately, while others will be implemented upon
    accession to the GPA.  U.S. participation in
    Taiwan's government procurement projects is
    discouraged by clauses in some contracts that
    exclude foreign tenders as well as Taiwan's
    refusal to implement liability caps and exclusions
    for consequential damages.  The Public
    Construction Commission often requests U.S. firms
    to provide U.S. relevant practices and
    international cases for reference.  The United
    States continues to encourage the Taiwan
    government to abide by the provisions of the GPA
    in spite of difficulties in accession.

    EXPORT SUBSIDIES
    ----------------

    ¶26. The Taiwan Government provides incentives to
    industrial firms in export processing zones and to
    firms in designated "emerging industries."  Some
    of these programs may have the effect of
    subsidizing exports.  Taiwan has notified the WTO
    of these programs and, as part of its WTO
    accession, committed to amend or abolish any
    subsidy programs inconsistent with WTO rules.
    Amendments of relevant laws, such as the Statute
    for Establishment and Management of Economic
    Processing Zones and the Statute for Establishment
    of Scientific Industrial Parks, to eliminate
    improper subsidies, went into effect upon Taiwan's
    WTO accession.  The United States continues to
    monitor Taiwan's compliance with the commitments
    it undertook as part of its WTO accession,
    including those obligations associated with the
    Agreement on Subsidies and Countervailing
    Measures.

    INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
    ---------------------------------------------

    ¶27. IPR protection continues to be an important
    issue in the U.S.-Taiwan trade relationship.  The
    U.S. recognizes Taiwan's continuing efforts to
    take measures to improve enforcement of IPR in
    2005, including intensifying raids against
    manufacturers and retailers.  The U.S.
    International Intellectual Property Alliance
    estimates that losses due to IPR infringement in
    Taiwan will cost U.S. industry $320 million in
    ¶2005. The U.S. Government also continues to be
    concerned with the prevalence of counterfeit
    pharmaceuticals in Taiwan despite several large
    raids against manufacturers and the passage of
    amendments strengthening the pharmaceutical law.
    Another area of concern is the lack of adequate
    protection for the packaging, configuration, and
    outward appearance of all products - known as
    trade dress. U.S. industry has also complained
    about delays in court cases and the Taiwan
    judiciary's difficulty in handling technical
    cases. Generally, U.S. IPR holders find that court
    procedures themselves constitute barriers and
    penalties for intellectual property violations are
    inadequate to deter violators.

    ¶28. In December 2004, Taiwan was moved from the
    U.S. Special 301 Priority Watch List to the Watch
    List after an out-of-cycle review determined that
    Taiwan had made sufficient progress to warrant an
    improved status. In addition, soon after the
    results of the out-of-cycle review were announced
    in January 2005, Taiwan's legislature approved a
    bill to prevent unfair commercial use of
    pharmaceutical test data. Despite these
    improvements, the United States will continue to
    monitor Taiwan authorities' development of
    implementing regulations for the protection of
    pharmaceutical test data.  Taiwan needs to take
    further effective actions against piracy of
    copyrighted works over the Internet and to
    continue strengthening of enforcement efforts so
    that piracy and counterfeiting are effectively
    reduced. The United States also will continue to
    follow with interest Taiwan Customs efforts to
    stop exports of counterfeit materials to ensure
    that these efforts are as effective, or more
    effective, than Taiwan's recently abolished Export
    Monitoring System.

    ¶29. To improve Taiwan's ability to protect IPR,
    the government formulated a three-year (2003-2005)
    IPR Action plan. Measures included establishing
    the Integrated Enforcement Task Force (IETF) with
    a force of 220 police officers in January 2003;
    opening three warehouses for storing
    counterfeiting seizures; raising informant rewards
    to up to approximately $310,000 per counterfeiting
    seizure; strengthening border control inspection
    for optical media exports; and increasing day and
    night inspections on optical media production
    facilities, night markets, and retail shops.
    Counterfeit goods seized by the U.S. Customs
    Service from shipments of Taiwan origin dropped
    from $26.5 million in FY2002 to $767,671 in the
    first half of FY 2005.  The Business Software
    Alliance (BSA) also announced that the software
    piracy rate in Taiwan fell from 54 percent in 2002
    to 43 percent in 2003, this rate remained
    unchanged in 2004.

    ¶30. Trademark piracy, particularly clothing and
    luxury goods is a growing concern.  Much of the
    counterfeit product is allegedly smuggled from
    China.  Rightsholders claim Taiwan is both a
    transshipment point and a market for this pirated
    material.  Taiwan Customs makes regular seizures
    of counterfeit apparel and handbags, but
    rightsholders complain that investigation and
    prosecution remains hampered by an overworked and
    disinterested bureaucracy and light sentences do
    not deter trademark pirates.

    ¶31. Internet piracy and illegal peer-to-peer
    downloading are serious concerns for IP
    enforcement in Taiwan. Infringers use the Internet
    to market illegal goods and allow the unauthorized
    downloading of music, movies, and software from
    Internet service providers. To deter internet
    piracy, the Taiwan Intellectual Property Office
    (TIPO) in May 2005 initiated an "implementation
    plan for strengthening preventive measures against
    internet infringement".  TIPO created a joint
    internet infringement inspection special task
    force to conduct internet inspections, and has
    made efforts to strengthen cooperation with
    enforcement agencies in other nations to tackle
    cyber crime.  In addition, TIPO is coordinating
    with ISPs and rightsholders' associations to
    establish code of conduct for ISPs and is working
    with the Ministry of Education to enhance internet
    management at schools.  Efforts to use the legal
    system to shut down or restrict the activities of
    such services have met with mixed success.  In
    June 2005, peer-to-peer (P2P) company EZPeer was
    found not guilty of allowing users to download
    copyrighted material through their site.  However,
    in September 2005, another popular P2P site, Kuro,
    was found guilty of the same charge.
    Rightsholders groups call on Taiwan to further
    amend the Copyright Law or other regulations to
    clarify secondary liability of ISPs and other
    intermediaries.  Taiwan's 2001 Optical Media law
    and night and day inspections have led to a
    dramatic decrease in large-scale factory
    production of counterfeit optical media products.
    ¶32. The U.S. remains concerned with the growing
    incidence of counterfeit pharmaceutical products
    in the Taiwan market.  The Taiwan government in
    March 2004 revised the pharmaceutical affairs law
    to increase penalties for pharmaceutical
    counterfeiting and the Ministry of Justice, the
    Taiwan Coast Guard and Taiwan Customs have had
    some success in intercepting imports of
    counterfeit pharmaceuticals.  Nevertheless,
    counterfeit products continue to be a threat to
    public health and Taiwan's DOH enforcement
    mechanism is not strong.  In January 2005,
    Taiwan's legislature approved a bill to provide
    data protection for pharmaceutical products, a
    TRIPS commitment, and an incentive for innovative
    pharmaceutical manufacturers to introduce new
    products into the Taiwan market but final
    implementing regulations are still pending. The
    United States will monitor Taiwan's development of
    implementing regulations to ensure that
    commitments made by Taiwan regarding the period of
    protection are adequately codified.

    ¶33. Taiwan's judiciary continues to experience
    difficulties in handling technical cases, and U.S.
    industry has complained about long delays in court
    cases.  Often conflicting or unclear lines of
    bureaucratic authority stymie IPR enforcement
    efforts.  The United States continues to assist in
    remedying the weaknesses of the judicial system by
    holding seminars on criminal enforcement and
    encourages Taiwan to set up IP courts with
    experienced judges.

    SERVICES BARRIERS
    -----------------

    Financial Services:
    ¶34. Taiwan continues to liberalize its financial
    market beyond its WTO accession commitments. In
    January 2001, the Securities and Futures Exchange
    Commission (SFEC) lifted the restriction on
    employment of foreigners by domestic securities
    firms. Also in January 2001, the SFEC removed the
    50-percent foreign ownership limit on listed
    companies. In June 2003, the SFEC phased out a
    minimum two-year period for foreign holders of
    global depository receipts (GDRs) to exchange GDRs
    for equity stocks after a GDR is issued. In July
    2003, the SFEC lifted the ceiling limit of $3
    billion on inward remittances by a qualified
    foreign institutional investor (QFII). It also
    abolished the requirement for a QFII to inwardly
    remit its investment fund within two years after
    it receives approval. In early October 2003, the
    Taiwan government voluntarily abolished the QFII
    system.

    ¶35. Foreign portfolio investors are required to
    complete registration rather than seek advance
    approval, and in December 2003, the registration
    could be done through the Internet. In late 2003,
    Taiwan allowed foreign portfolio investors to
    trade in the futures and money markets as a part
    of financial management prior to actual portfolio
    investment. However, futures, money market funds
    and bank deposits are subject to a limit of 30
    percent of total inward remittances. All offshore
    foreign portfolio investors may trade in Taiwan's
    stock market regardless of their size, except for
    investments in hedge funds and investors from the
    PRC.  However, foreign individual investors are
    still subject to an investment limit. Onshore
    foreign individuals and institutional investors
    are also subject to annual inward/outward limits.

    ¶36. Morgan Stanley Capital International (MSCI)
    raised the weight for Taiwan stocks in its index
    over the past year, attracting a large volume of
    foreign investment funds to flow into Taiwan in
    early 2005.  In addition to liberalization, Taiwan
    plans to set up a securities market international
    board where both listing and trading will be
    denominated in U.S. dollars.  The planned
    international board is designed to attract foreign
    companies to list here as well as foreign
    portfolio investors to trade on the board.

    ¶37. Taiwan continues to work towards fulfilling
    its May 1997 commitment to liberalize insurance
    premium rates and policy clauses. It voluntarily
    opened the reinsurance market. In November 2001,
    Taiwan permitted life insurance companies to sell
    investment-linked products. Taiwan began to allow
    life insurance companies to set their own premium
    rates in January 2002 if the companies had their
    own actuaries to determine such rates. Taiwan
    adopted a three-stage premium rate liberalization
    program for non-life insurance. Effective January
    1, 2002, insurance firms were allowed to set
    premium rates for large face-value fire insurance
    policies and fire insurance policies sold to
    multinational corporations. All non-life insurance
    companies were permitted to set loading expenses
    (including commissions) for all insurance
    products.  The second stage of premium
    liberalization began in April 2005.  After that
    date, non-life insurance firms meeting government-
    set requirements were not required to obtain prior
    approval for pure premiums except for car and fire
    insurance.  For car and fire insurance, they were
    allowed to set pure premiums within a range
    between the government-approved benchmark rate and
    10% below the benchmark. The target date for total
    liberalization may be advanced to 2006 from
    January 2008 when the insurance policy review
    procedure is deregulated.

    ¶38. Taiwan adopted a transparent approval
    procedure for insurance policies in January 2001.
    Prior approval is not required for products whose
    policy clauses are identical or very similar
    either to the standard versions published by the
    government or to the existing products of other
    companies. New products are subject to prior
    approval. Taiwan's Insurance Bureau (formerly the
    Department of Insurance) adopted a negative list
    system in January 2005. Under the new system, new
    products subject to prior approval from the Bureau
    will be sharply reduced. The processing time will
    be cut from 90 days to 75 days for life insurance
    products and 60 days for non-life products. The
    Insurance Bureau plans to further deregulate the
    insurance policy review procedure in 2006.
    Insurance companies with a rating above a set
    level will be permitted to determine their own
    premium rates, and will not need to seek approval
    for 90% of their new products.

    ¶39. Taiwan's Insurance Bureau has allowed market
    access for Taiwan's reinsurance market, and the
    Central Reinsurance Corporation Statute was
    revoked in June 2004. The Central Reinsurance
    Corporation, the only local reinsurance firm in
    Taiwan, was privatized in July 2002. In August
    2002, the Bureau lowered the capital requirement
    for entering the reinsurance market. In response
    to the liberalization, the Swiss Reinsurance Co.
    became the first foreign reinsurance firm to set
    up a branch in Taiwan in early 2004.

    Telecommunications Services:
    ¶40. Following the issuance of licenses to three
    fixed-line telecommunications service providers in
    2000, the Directorate General of
    Telecommunications (DGT) again opened applications
    for integrated network licenses in September 2004.
    The capital requirement for integrated network
    services was reduced to NT$16 billion from NT$40
    billion and system capacity requirements were
    lowered from one million to 400,000 subscriber
    lines.  Since that time there has been only one
    bidder (October 2005) for a license to provide
    integrated network services.  DGT also opened the
    local, long-distance and international call
    businesses in March 2005. A new formula based on
    local population will be used to calculate the
    capital requirements for each of the new service
    licenses; for instance, NT$1.2 billion may be
    required for a local call license in Taipei City
    and NT$2 billion for long-distance and
    international service licenses.

    ¶41. Existing fixed-line operators still face
    serious difficulties in negotiating reasonable
    interconnection arrangements at technically
    feasible points in the network of the dominant
    carrier, Chunghwa Telecom (CHT). Despite its
    announcement in May 2004 that it would share the
    local loop with the three private providers, CHT
    set two limitations; non-CHT service providers
    access to CHT's local loop can only be initiated
    by end users and only voice service in three
    metropolitan areas is open to non-CHT operators.
    Taiwan's Premier announced in November 2003 that
    the government would invest a total of NT$35
    billion in the next five years to help local
    governments resolve "last mile" problems for
    telecommunications end-users. This plan, part of a
    number of telecommunications-related investment
    proposals called "Mobile Taiwan," will also
    include the construction of a second broadband
    network around Taiwan to be jointly used by
    telecommunications service companies. These new
    investment projects are expected to help break the
    monopoly of the telecommunications network by
    formerly state-owned CHT.

    ¶42. Until 2005, Taiwan's telecommunications
    regulator (DGT) and the largest telecom operator
    (CHT) were both under the control of the Ministry
    of Transportation and Communication (MOTC),
    creating an obvious conflict of interest.
    Privatizing CHT and establishing an independent
    regulator were two of Taiwan's WTO accession
    commitments.  In August 2005, MOTC officially
    privatized CHT by selling an additional 17 percent
    of its CHT stock --3 percent domestically and 14
    percent on the New York Stock Exchange.  These
    sales brought the percentage of CHT stock in
    government hands to below 50 percent.  However,
    CHT still retains close ties to the government.
    In November 2005, Taiwan's Premier announced a CHT
    rate cut on the floor of the Legislative Yuan,
    calling into question CHT's independence.  The
    Legislative Yuan in October 2005, finally approved
    the independent regulatory body called the
    National Communications Commission (NCC) after
    heated political debate.  The political compromise
    necessary to pass the legislation raise concerns
    that the NCC could be subject to political
    pressure.  The new body will have 13 commissioners
    selected by political parties and will be staffed
    by employees of the former DGT and Government
    Information Office.  It is expected to begin
    operation by the beginning of 2006.

    ¶43. In August 2003, DGT amended regulations to
    open Taiwan's mobile virtual network operator
    (MVNO) market and began licensing in September
    ¶2003. The MVNO market opening offers an
    alternative third-generation (3G) wireless service
    to local consumers and allows service providers to
    operate without a 3G license by partnering with
    existing 3G operators. Cellular carriers KG
    Telecom and Far EasTone merged in October 2003.
    The merger has created a mobile service market
    equally divided between FarEasTone, CHT and Taiwan
    Cellular. In November 2003 the DGT announced the
    regulations governing number-portability service,
    enabling subscribers to retain their existing
    telephone numbers when switching from their
    original Type I enterprise to another Type I
    enterprise engaging in the same business. Actual
    implementation of the number-portability service
    started October 15, 2005.  In November 2004 DGT
    began to solicit comments for a proposal to
    facilitate development in the voice over Internet
    protocol (VoIP) services. DGT is expected to open
    VoIP to telecom operators in November 2005.  The
    United States continues to monitor Taiwan's
    progress in the telecommunications sector.

    INVESTMENT BARRIERS
    -------------------

    ¶44. Taiwan continues to relax investment
    restrictions in a host of areas, but foreign
    investment remains prohibited in a handful of
    industries such as agriculture, public utilities,
    and postal services.  Taiwan dropped oil
    exploration from the negative list of industries
    in May 2004. Foreign investors in the
    telecommunications sector are subject to a 60
    percent ownership limit, with the limit on direct
    foreign investment raised from 20 percent to 49
    percent in 2002. Foreign investors can own
    minority stakes in cable and satellite
    broadcasters, but are prohibited from owning
    terrestrial broadcasters.  In February 2003,
    Taiwan lifted its ban on foreign investment in
    liquor production, although prior approval is
    required.  Similarly, in January 2004, foreign
    investment restrictions on cigarette production
    were removed, although prior approval is required.
    The 50 percent foreign ownership limit on air
    cargo forwarders and air cargo terminals was
    eliminated when Taiwan became a WTO member.  The
    limit on foreign ownership of power plants has
    been removed, while foreign investment in
    electricity transmission and distribution remains
    subject to a 50 percent ownership limit and
    approval by the Executive Yuan. In October 2003,
    Taiwan set a foreign ownership limit of 49 percent
    on high-speed railway transportation.

    ANTICOMPETITIVE PRACTICES
    -------------------------

    ¶45. In the cable TV market, U.S. program providers
    contend that the island's three dominant multi-
    system operators (MSOs) frequently collude to
    inhibit fair competition. Control by the MSOs of
    upstream program distribution deterred U.S.
    program providers from negotiating reasonable
    program fees. In December 2003, Taiwan's
    legislature passed a new broadcasting law
    combining the Radio and Television Broadcasting
    Law, the Cable Television Broadcasting Law, and
    the Satellite Television Broadcasting Law.
    Following passage of the law, Taiwan officials are
    working to eliminate political interference in the
    television broadcasting industry by monitoring
    public releases of state-owned and party-owned
    equity shares in broadcast media.

    ELECTRONIC COMMERCE
    -------------------

    ¶46. Taiwan's approach to electronic commerce and
    related issues is still evolving.  According to
    the Institute for Information Industry, over 90
    percent of Taiwan's companies have corporate
    networks and a network infrastructure, while 61
    percent of 5.2 million household computer users
    link their computer to networks -- mainly by
    broadband digital subscriber line (DSL).   A law
    protecting personal on-line data was approved in
    ¶2001. The Electronic Signature Law, passed by the
    Legislative Yuan in late October 2001, adopts the
    principles of the United Nations Commission on
    International Trade Law's Model Law on Electronic
    Commerce and recognizes the legal validity of
    electronic contracts, records, and signatures.
    The Taiwan government has passed several laws and
    regulations governing electronic commerce since
    ¶2003.  In May 2005, the Ministry of Finance
    announced a guideline to impose a business tax on
    internet vendors who sell products for profit and
    have monthly sales over NT$60,000.  In addition to
    a business tax, the authorities discussed a
    proposal to assess import duties for software sold
    and downloaded over the Internet. If implemented,
    such a policy would appear to run counter to the
    Doha Declaration that WTO Members would maintain
    their current practice of not imposing customs
    duties on electronic transmissions. Taiwan has
    refused to join the United States at APEC in
    advocating for a permanent moratorium on taxation
    of Internet transactions.

    KEEGAN

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