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### Viewing cable 05TAIPEI17, TAIWAN: 2005 NATIONAL TRADE ESTIMATE REPORT

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05TAIPEI17 | 2005-01-04 06:24 | 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 10 TAIPEI 000017

    SIPDIS

    DEPT PASS TO AIT/W AND USTR

    DEPT FOR EAP/RSP/TC AND EB/MTA

    USTR FOR SCOTT KI AND GBLUE

    E.O. 12958: N/A
    TAGS: ETRD ECON KTDB TW KPRP
    SUBJECT: TAIWAN: 2005 NATIONAL TRADE ESTIMATE REPORT

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

    ¶1.  The U.S. trade deficit with Taiwan was $14.2 billion in
    2003, up $385 million from 2002.  U.S. goods exports during
    the same period were $ 17.4 billion, down 5.1 percent from
    the previous year.  Corresponding U.S. imports from Taiwan
    were $31.6 billion, down 1.7 percent.  Taiwan is the 9th
    largest export market for U.S. goods and 6th largest market
    for agricultural products.

    ¶2.  U.S. exports of private commercial services (i.e.,
    excluding military and government) to Taiwan were $4.8
    billion in 2002 (latest data available), and U.S. imports
    were $5 billion.  The stock of U.S. foreign direct
    investment (FDI) in Taiwan in 2003 was $ 11 billion, up from
    $ 10.1 billion in 2002.  U.S. FDI in Taiwan is concentrated
    largely in the finance, manufacturing, and wholesale
    sectors.

    OVERVIEW
    --------

    ¶3.  Taiwan experienced an economic boom in 2004, prompting
    its estimated real GDP growth to post a seven-year high of
    nearly six percent.  However, excess inventory, higher oil
    prices and a steady increase in interest rates dampened
    Taiwan's major export markets and contributed to a slowdown
    in Taiwan's economic expansion in the second half of 2004.
    Taiwan's real GDP growth is expected to decline from 7.3
    percent in the first half of 2004 to 4.7 percent in the
    second half and further down to 4.5 percent in 2005.  Export
    growth declined steadily from 29 percent in the second
    quarter to 21 percent in the third quarter and 17.5 percent
    in October 2004.  Meanwhile, industrial growth dropped from
    15 percent in the second quarter to 8.6 percent in the third
    quarter and merely three percent in October.  A chronic
    trade surplus has enabled Taiwan to hold the third largest
    foreign exchange reserves of US$235 billion and made Taiwan
    a net capital supplier to the world.  Taiwan is one of the
    major sources of foreign direct investment in China.
    Financial reforms adopted in late 2001 prompted local banks
    to write off NT$1.3 trillion of bad debt, cutting the
    average ratio of non-performing loans (overdue for over
    three months) from nearly 12 percent in early 2002 to 4.5
    percent in October 2004.

    IMPORT POLICIES
    ---------------

    TARIFFS
    -------

    ¶4.  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 2004 was
    approximately 5.7 percent and is expected to fall to 5.5
    percent by 2007.  However, U.S. industry continues to
    request that Taiwan lower tariffs on imports of large
    motorcycles, wine, canned soup, biscuits, cookies, snack
    foods, mixed vegetable juices, potato and potato products,
    table grapes, apples, citrus products and polylactic acid,
    which is used to make recyclable plastics.

    ¶5.  Upon Taiwan's accession to the WTO in January 2002,
    Taiwan implemented a tariff-rate quota (TRQ) system on small
    passenger cars, three categories of fish and fish products,
    and a number of 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. Some items of interest to U.S. exporters,
    including chicken meat, pork belly, and poultry and pork
    variety meats, will be fully liberalized in 2005.  In May
    2004, Taiwan increased TRQ on sugar from 205,000 tons to
    255,000 tons to meet Taiwan's domestic market shortage.

    ¶6.  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.  SSGs will also come into play
    once imports of certain commodities are fully liberalized in
    2005 and will likely have the greatest effect on U.S.
    poultry exports.  The United States has raised concerns over
    Taiwan's use of SSGs in both Taipei and Geneva.

    Licensing and Other Restrictions
    --------------------------------

    ¶7.  In order to comply with its WTO commitments, Taiwan
    eliminated import controls on over 99 percent of 10,912
    official import product categories.  Currently, 24 product
    categories require import permits from the Board of Foreign
    Trade.  Imports of 65 categories are "restricted", including
    ammunition and some agricultural products.  These items can
    only be imported under special circumstances, and their
    importation is effectively banned.

    ¶8.  Agricultural and Fish Products: Prior to 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 belly
    and offal, and poultry offal) will be eliminated on January
    1, 2005 when trade is fully liberalized.

    ¶9.  Rice: Before Taiwan's WTO accession, imports of rice
    were banned. During 2002, rice imports were subject to a
    minimum market access quota that covered both public- and
    private sector imports. In 2003, Taiwan changed its rice
    import regime from a minimum market access quota to a tariff-
    rate quota 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
    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, U.S. suppliers
    were able to gain a majority of the rice import market in
    2002 and 2003. In 2004, Taiwan's implementation of its
    import commitments improved significantly, allowing the
    United States to secure the largest import market share.  At
    the same time, both sides made substantial progress in
    resolving outstanding bilateral differences in 2004, paving
    the way for final resolution of the issue.

    ¶10.  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.  In
    2003, some legislators proposed lower excise taxes on salt-
    added cooking wine, contrary to Taiwan's WTO commitments,
    but these legislators failed.

    ¶11.  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 postponed until 2005.

    ¶12.  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.
    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
    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.

    ¶13.  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 that the U.S. motorcycle industry
    supported.  The U.S. Government 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
    --------------------------------------------- -

    ¶14.  Industrial and Home Appliance Products: Industrial and
    home appliance products (such as air-conditioning and
    refrigeration equipment) are subject to safety and
    electromagnetic compatibility (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 apply "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
    1999 EMC Mutual Recognition Agreement (MRA) signed between
    the American Institute in Taiwan (AIT) and the Taipei
    Economic and Cultural Representatives Office (TECRO) in the
    United States.  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 module most appropriate to them
    when applying for registration under the RPC scheme.

    ¶15.  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 United States
    continues to be concerned that some Taiwan plant and animal
    quarantine measures are not always based on sound science
    and are not the least trade-restrictive measures available.

    ¶16.  Alcohol Beverage Products: On December 31, 2001,
    immediately before its WTO accession, Taiwan implemented new
    regulations requiring major ingredient labeling for alcohol
    beverages.  Although these regulations relate to
    international trade, the United States was not informed by
    Taiwan in advance of their implementation.  Bilateral
    meetings were conducted in 2002 to discuss this requirement
    and as a result, enforcement of the ingredient-labeling
    requirement was delayed until July 2003.  In December 2003,
    Taiwan's legislature passed the Tobacco and Alcohol
    Administrative Law (TAAL), which enabled the Ministry of
    Finance (MOF) to eliminate ingredient-labeling requirements
    for alcohol beverage products.  Beginning July 1, 2004,
    alcoholic beverage product labels do not need to include a
    list of ingredients.

    ¶17.  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 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
    regulatory infrastructure, delays in approvals have become
    more frequent.

    ¶18.  Labeling of Genetically Modified (GM) food:  Taiwan's
    bioengineered food safety approval and labeling regulation
    took effect on January 1, 2003.  Mandatory labeling of
    bioengineered food was phased in over a two-year period,
    beginning with certain soybean and corn products.  By 2005,
    the label will be required for all processed corn and
    soybean products.    Taiwan uses a 5 percent tolerance for
    bioengineered food labeling.  All food products containing 5
    percent or more bioengineered soybean or corn ingredients by
    weight must be labeled as "Genetically Modified (GM)" or
    "Containing Genetically Modified".

    ¶19.  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 redundant
    testing, and foreign manufacturers must re-register new
    products even though they are based on previously approved
    devices.  In addition, it is unclear 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.  The adoption of the U.S. Food and Drug
    Administration's medical device classification system in
    June 2000 was welcomed by industry.  However, Taiwan's
    implementation of this system in 2004 was faulted by
    industry for requiring re-registration of previously
    approved products.  Taiwan has identified both the medical
    device and pharmaceutical sectors as priorities for local
    development, resulting in Taiwan's agencies often favoring
    the interests of local companies over foreign firms.

    ¶20.  Pharmaceuticals: Taiwan's lengthy pharmaceutical
    registration process slows market entry for new drugs that
    have already been approved in other economies and also
    imposes unnecessary costs on drugs that have been approved
    in Taiwan.  In May 2001, the DOH announced a requirement for
    firms to submit voluminous amounts of proprietary
    manufacturing data as part of the registration and approval
    process for both new drugs and those already on the market.
    The amount of such "validation" data requested by Taiwan far
    exceeded international norms.  In response to concerns
    raised by the United States and its industry, the DOH had
    postponed implementation of this requirement.  In December
    2002, the United States and Taiwan exchanged letters in
    which Taiwan affirmed its commitment to adhere to
    international practices as applied in advanced economies,
    and agreed that firms can demonstrate validation status by
    providing documentary evidence, including abridged
    registration applications.  In August 2003, DOH and the U.S.
    industry reached agreement on validation data resolutions.
    However, DOH has announced plans to assign risk based
    "priority numbers" that will be used to determine which
    manufacturers are inspected by DOH.  US industry is
    concerned that these risk priority numbers are based on non-
    transparent criteria and inspections will unfairly target
    manufacturers that provide abridged data.  Discussions
    between the United States and Taiwan to resolve remaining
    issues are ongoing.

    ¶21.  Taiwan uses various methods to lower assigned prices on
    innovative drugs, including "reference pricing" (assigning a
    lower price when a drug is approved for an additional use)
    and lowering 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.
    To address these outstanding concerns of foreign
    pharmaceutical firms, Taiwan announced a reimbursement-
    pricing plan in March 2003.  In this plan, the DOH and the
    Bureau of National Health Insurance agreed to find ways to
    include a "reward for innovation" component in its pricing
    mechanism for new drugs.  However, industry representatives
    have criticized the new drug pricing mechanism as non-
    transparent and believe the reimbursement prices will not
    achieve the stated objective.  Discussions between the
    United States and Taiwan on this issue are ongoing.

    ¶22.  In July 2002, Taiwan introduced a "global budget"
    system in which hospitals receive lump sums from the
    National Health Insurance system to cover the cost of
    providing all services.  The goal is to increase efficiency
    and encourage cost-cutting measures, but critics contend
    that the global budget system primarily encourages hospitals
    to seek discounts on pharmaceuticals in order to make up for
    losses in providing medical services.  In addition, critics
    say the system discourages use of innovative drugs.

    ¶23.  Other issues: Taiwan banned imports of U.S. beef in
    December 2003 with the detection of one positive case of
    Bovine Spongiform Encephalopathy (BSE) in the State of
    Washington.  As of the publication of this report, the U.S.
    government is taking aggressive action and 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 with few exceptions that
    are only approved after a very slow case-by-case review or
    plant clearance process.  A few products such as bovine
    serum and pet food are allowed entry.
    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 market for public procurement projects.  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.  Taiwan agreed to establish new
    procedures providing for the independent review of
    complaints that arise during the tendering process, to
    encourage its procuring entities to make use of mediation
    procedures, and to cooperate fully when such procedures are
    invoked.  Despite these commitments, Taiwan officials have
    continued to incorporate provisions in its public
    procurement tenders that appear to be inconsistent with the
    GPA, although Taiwan is not yet a party to that agreement.
    Further, the lack of transparency in the government
    procurement process as well as the review process for
    complaints remains a serious issue.  U.S. participation in
    Taiwan's government procurement market continues to decline
    as a result of these practices.  The United States continues
    to remain concerned with the government procurement
    environment.

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

    ¶25.  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
    ---------------------------------------------

    ¶26.  IPR protection continues to be an important and serious
    issue in the US/Taiwan trade relationship.  In 2004, Taiwan
    continued to take measures to improve enforcement of IPR,
    including stepping up raids against manufacturing and retail
    outlets, legalizing previously ad hoc task forces, and
    passing important revisions to the copyright law that
    increase penalties for counterfeiters.  The U.S.
    International Intellectual Property Alliance estimates that
    Taiwan's IPR infringements caused trade losses to the United
    States of USD464 million in 2003.  Despite several large
    raids against manufacturers and passage of amendments
    strengthening the pharmaceutical law, the U.S. Government
    continues to be concerned with the prevalence of
    counterfeits in the Taiwan pharmaceutical market and the
    lack of adequate data protection for innovative
    pharmaceuticals.  U.S. industry has complained about delays
    in court cases and the difficulty Taiwan's judiciary has in
    handling technical cases.  In April 2004, Taiwan was placed
    on the U.S. Special 301 Priority Watch List for the fourth
    year in a row, but was -given an out of cycle review at the
    end of 2004.
    ¶27.  To improve Taiwan's ability to protect IPR, the
    government formulated a three-year (2003-2005) IPR Action
    plan.  Measures included the establishment of the Integrated
    Enforcement Task Force (IETF) with a force of 220 police
    officers in January 2003; opening of three warehouses for
    counterfeiting seizures; the raising of the informant reward
    to up to NT$10 million per counterfeiting seizure;
    strengthening of border control inspection for CD exports;
    and increasing day/night inspection on disc plants, night
    markets, and retail shops selling optical media.  Taiwan's
    counterfeit goods seized by the U.S. Customs dropped from
    US$26.5 million in FY2002 to US$610,000 in FY2003, and to
    US$60,000 in the first half of FY 2004.  The Business
    Software Alliance (BSA) also announced that software piracy
    rate in Taiwan fell from 54 percent in 2002 to 43 percent in
    ¶2003.

    ¶28.  Amendments to the Copyright Law passed by the
    Legislative Yuan in June 2003 lifted the requirement that
    rights-holders file a complaint before police can conduct
    enforcement actions.  But provisions to allow ex officio
    seizure by Customs officials and prohibiting the
    circumvention of technical protection measures were
    eliminated and minimum sentences were repealed.  In
    addition, provisions to address Internet piracy were removed
    from the final bill.  After concerted lobbying by industry
    and the Taiwan Executive Yuan, the Legislative Yuan in
    August 2004 passed additional amendments to the Copyright
    Law including a) technological protection measures, b)
    heavier penalty for infringement, and c) giving Customs the
    authority to take ex officio action.

    ¶29.  Internet piracy and illegal peer-to-peer downloading
    are becoming serious concerns for IP enforcement in Taiwan.
    Infringers are using the Internet to market illegal goods
    and illegally download music, movies, and software from
    indicted peer-to-peer Internet service providers (ISC).
    Efforts to use the legal system to shut down or restrict the
    activities of P2P platforms has met with limited success
    thus far.

    ¶30.  In response to U.S. and industry requests to improve
    protection of optical media products and curtail the illegal
    manufacture of such goods, Taiwan passed an optical media
    law on October 31, 2001.  Manufacturers must apply for
    production licenses and report any changes to the
    authorities.  Violators face a maximum three-year jail
    sentence and a fine of approximately $86,000.  The law was
    fully implemented effective May 2002.  The Optical Media Law
    and IETF's night/day inspection has led to a dramatic
    decrease in large-scale factory production of counterfeit CD
    products produced by CD plants.

    ¶31.  The U.S. Government also is concerned with the growing
    incidence of counterfeit pharmaceutical products in the
    Taiwan market and the lack of adequate data protection for
    these products.  The Taiwan government in March 2004 revised
    the pharmaceutical affairs law to increase penalties for
    pharmaceutical counterfeiting.  Nevertheless, counterfeit
    products continue to pose a threat to public health and
    Taiwan's Department of Health enforcement mechanism is not
    strong. Although a bill is pending in the Legislative Yuan,
    Taiwan has not yet fully provided data exclusivity for
    pharmaceutical products, a TRIPS commitment and a
    disincentive for pharmaceutical producers to introduce new
    products into the Taiwan market.

    ¶32.  The lack of adequate protection for the packaging,
    configuration, and outward appearance of products, an area
    of IPR known as "trade dress," is another area of concern.
    Despite provisions in Taiwan's Fair Trade law designed to
    protect unregistered marks and other packaging features,
    misleading copying of U.S. products by local manufacturers
    remains a problem.

    ¶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.  Generally, U.S. IPR holders
    find that judges and court procedures themselves constitute
    barriers and that penalties for intellectual property
    violations are inadequate to deter violators.  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 to handle the case.

    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 Taiwan
    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 GDR for equity stocks after the GDR is issued.  In
    July 2003, the SFEC lifted the ceiling limit of US$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.
    Foreign portfolio investors are required to complete
    registration rather than seek advance approval, and as of
    December 2003, the registration could be done on 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 investment by 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.

    ¶35.  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.  The target date for total
    liberalization is January 2008, but the liberalization date
    for an individual insurance firm can be advanced if it has a
    good credit reputation and its capital adequacy ratio
    reaches 300 percent.

    ¶36.  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 to existing products of other companies.  New
    products are subject to prior approval.  Taiwan's Insurance
    Bureau will adopt a negative list system in January 2005.
    Under the new system, new products subject to prior approval
    will be deeply cut, down from 50 percent to 25-30 percent
    for life insurance and to 10-20 percent for non-life
    insurance.  The processing time will be cut from 90 days to
    75 days for life insurance and 60 days for non-life
    insurance.  The Department of Insurance has opened its
    reinsurance market, and the Central Reinsurance Corporation
    Statute was revoked in June 2004.  The Central Reinsurance
    Corporation, the only reinsurance firm in Taiwan, was
    privatized in July 2002.  In August 2002, the DOI lowered
    the capital requirement for entering the reinsurance market,
    strongly in favor of foreign reinsurance firms over domestic
    competitors.  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.

    LEGAL SERVICES
    --------------

    ¶37.  Following Taiwan's accession to the WTO, foreign
    lawyers are permitted to practice law in Taiwan either by
    setting up individual practices (single lawyer) or entering
    into partnerships with local counterparts.  In order to
    practice domestic law, foreign lawyers must pass the local
    bar examination and use the Chinese language when appearing
    before the court or submitting written briefs.  If the
    foreigner does not meet these qualifications, local lawyers
    working for, or in cooperation with, the foreign lawyer may
    represent the foreign lawyer's interests on domestic law
    issues.  When practicing international or foreign law,
    foreign lawyers do not need to pass the language or bar
    examinations and are not required to hire or partner with
    local lawyers.

    TELECOMMUNICATIONS SERVICES
    ---------------------------

    ¶38.  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 service was reduced to NT$16 billion from NT$40
    billion and system capacity requirements were lowered from
    one million to 400,000 subscribers' lines.  However, the
    September's open season failed to generate any bids.  DGT
    also announced in September 2004 that it would launch a
    biannual licensing schedule in March and September beginning
    this fall.  According to DGT's plan, local, long-distance
    and international call businesses will be added to the
    licensing schedule under less restrictive conditions in
    March 2005.  A new formula based on local population will be
    used to calculate the capital requirements for each of the
    new service license.  As low as 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.

    ¶39.  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 to share the local loop with
    the three private providers, CHT set two limitations.  A
    change to allow non-CHT service providers access to CHT's
    local loop can only be initiated by end users.  Only voice
    service in three metropolitan areas is open to non-CHT
    operators.  The 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 "Mobile
    Taiwan" plan 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 state-owned CHT.  Taiwan's
    telecommunications regulatory body, DGT and the state-owned
    former monopoly CHT are under the purview of the MOTC,
    creating a potential conflict of interest.  DGT lacks the
    full authority, independence, and resources to effectively
    resolve telecommunications-related disputes.  Two draft
    laws, "Communications and Broadcasting Basic Law" and the
    statute for the organization of the proposed Cabinet-level
    "National Communications and Broadcasting Commission (NCC)",
    have been introduced by the Cabinet.  The Basic Law was
    passed in December 2003 and the reorganizing statue is
    currently pending in the legislative process.  The NCC will
    be an independent regulatory body that will unify regulatory
    authority now split between DGT for wired or wireless
    communications and the Government Information Office for
    radio and television broadcasting.

    ¶40.  Taiwan's telecommunications market is transforming.  In
    June 2003 the DGT announced regulations governing equal
    access service, allowing Type I subscribers to select the
    long distance and international network service of other
    providers.  In August 2003 the DGT amended regulations to
    open Taiwan's mobile virtual network operator (MVNO) market
    and began licensing in September 2003.  The MVNO 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.  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 is likely
    to be postponed from January to December 2005 due to delay
    by an industrial alliance in completing a central database.
    In November 2004 DGT began to solicit comments for a
    proposal to facilitate development in the voice over
    Internet protocol (VoIP) services.  DGT plans to adopt the
    ¶E. 164 numbering plan and help safeguard the
    interconnectivity between VoIP providers and fixed-line
    operators as given by the Telecom Act, but has not finalized
    the interconnectivity between VoIP providers.  Legislative
    amendment to the Telecom Act would be required for
    compulsory interconnectivity between VoIP providers.
    Supported by the central government's "Mobile Taiwan" plan
    toward a wireless island, the three metropolitan areas have
    seen progress in the wireless network infrastructure in
    ¶2004.  Taichung City currently leads Taipei City and
    Kaohsiung City in reaching the goal of 80 percent coverage.
    International submarine cable firms remain limited to only
    one gateway for their links from the cable-landing site to
    network providers while they are permitted to build their
    own backhaul facilities.

    ¶41.  Taiwan's telecommunications market saw a merger of KG
    Telecom and Far EasTone in October 2003.  The merger has
    created a mobile service market equally divided between Far
    EasTone, CHT and Taiwan Cellular.  The United States
    continues to monitor Taiwan's progress in the
    telecommunications sector.

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

    ¶42.  Taiwan continues to relax investment restrictions in a
    host of areas, but foreign investment remains prohibited in
    a handful of industries such as agriculture, wireless
    broadcasting, oil exploration of Taiwan's coastal area,
    public utilities, and postal services.  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.  In February
    2003, Taiwan lifted its ban on foreign investment in liquor
    production, though prior approval is required.  Similarly,
    in January 2004, foreign investment restrictions on
    cigarette production were removed, though prior approval is
    required.  Foreign ownership in airlines is limited to 33
    percent.  The 50 percent foreign ownership limit on air
    cargo forwarders and air cargo terminals was eliminated when
    Taiwan became a WTO member.  Foreign ownership on 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.  Imports of gasoline and liquid natural gas were
    opened to the private sector in January 2002.  In October
    2003, Taiwan set a foreign ownership limit of 49 percent on
    high-speed railway transportation.

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

    ¶43.  In the cable TV market, U.S. program providers contend
    that the island's two dominant multi-system operators (MSOs)
    frequently collude to inhibit fair competition.  Control by
    the two 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 the
    legislative 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 stocks.

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

    ¶44.  Taiwan's approach to e-commerce and related issues is
    still evolving.  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.  Still under discussion is a proposal to assess
    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 US
    at APEC in advocating for a permanent moratorium on taxation
    of Internet transactions.
    PAAL

`