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### Viewing cable 05TAIPEI153, Taiwan: 2004 INVESTMENT CLIMATE STATEMENT

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05TAIPEI153 | 2005-01-14 06:12 | 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 16 TAIPEI 000153

    SIPDIS

    STATE PLEASE PASS AIT/W, USTR AND OPIC

    STATE FOR EAP/RSP/TC AND EB/IFD/OIA

    USTR FOR SCOTT KI

    USDOC FOR 4430/ITA/MAC/AP/OPB/JKELLY/MBMORGAN

    TREASURY FOR OASIA/WISNER

    E.O. 12958: N/A
    TAGS: EINV EFIN ECON TW
    SUBJECT: Taiwan: 2004 INVESTMENT CLIMATE STATEMENT

    REF:2004 STATE 250356

    ¶1. The following is the Taiwan Investment Climate Statement
    for 2004, as requested reftel.  A copy has been transmitted
    by e-mail to EB/OIA.

    ----------------------------------
    A.1 Openness to Foreign Investment
    ----------------------------------

    ¶2.  Taiwan officially welcomes foreign direct investment,
    which at the end of 2003 amounted to 20.8 percent of GDP.
    Although authorities have taken steps to improve the
    investment climate, U.S. firms report that impediments
    remain in some sectors, especially services.  Rules on local
    licensing of professionals are cited as a barrier to foreign
    providers of some services.  Some foreign investors complain
    of lengthy and non-transparent approval processes.  Taiwan's
    science-based industrial parks and export processing zones
    by contrast offer streamlined procedures.  While Taiwan has
    made significant improvement in protecting intellectual
    property, some foreign firms still cite inadequate
    protection as a deterrent to investing.

    ¶3.  As part of its efforts to improve the investment
    climate, Taiwan no longer has a list of permitted
    investments, but maintains a negative list of industries
    closed to foreign investment (i.e., only those industries on
    the list are not open to foreign investment).
    Liberalization has reduced the list to less than one percent
    of manufacturing categories and less than five percent of
    service industries.  Some foreign investors believe that
    liberalization of investment regulations has proceeded
    faster than corresponding adjustments in attitudes of
    officials implementing the regulations.  The latest
    significant liberalization took place in February of 2003
    when alcohol production, agricultural production, fishing,
    and animal husbandry were opened to foreign investors,
    although prior approval is still required from the Taiwan
    authorities.  To live up to its WTO accession commitments,
    Taiwan opened private production of cigarettes in 2004
    without any foreign ownership limit.  Railway transport,
    freight transport by small trucks, pesticide manufacture,
    and real estate development, brokerage and leasing and
    trading were all completely opened to foreign investment.
    After its accession to the WTO in January 2002, Taiwan
    opened imports of gasoline and liquid natural gas (LNG) to
    the private sector, without any foreign ownership
    restriction.  It also permitted private wine and cigarette
    imports.  In April 2004, Taiwan dropped ordinary trucking
    services from but included single-axle truck leasing in the
    negative list.

    ¶4.  Most foreign ownership limits have been removed, with a
    few exceptions.  Taiwan-flagged merchant ships are subject
    to a foreign ownership limit of 66.66 percent.  The foreign
    ownership limit on wireless and wireline telecommunications
    firms is 60 percent, including a direct foreign investment
    limit of 49 percent.  For the state-owned Chunghwa Telecom
    Co., which controls 97 percent of the fixed line telecom
    market, direct and indirect foreign investment is limited to
    20 percent.  In January 2003, Taiwan raised the foreign
    ownership limit on cable television broadcasting services
    from 50 percent to 60 percent, including a 20 percent limit
    on foreign direct investment.  A 50 percent foreign
    ownership limit remains on onshore mining, satellite
    television broadcasting services, power transmission and
    distribution, piped distribution of natural gas, ground-
    handling firms, air-cargo terminals, air-catering companies,
    air-cargo forwarders, and high-speed railways.  The foreign
    ownership limit on airline companies is 33 percent.

    ¶5.  Regulations governing foreign direct investment
    principally derive from the Statute for Investment by
    Foreign Nationals (SIFN) and the Statute for Investment by
    Overseas Chinese (SIOC).  These two laws permit foreign
    investors to invest in foreign currencies as well as in NT
    dollars.  Companies reinvested by joint ventures with
    foreign ownership below 33 percent are exempt from
    limitations applicable to industries on the negative list.
    Both the SIFN and the SIOC specify that foreign-invested
    enterprises must receive the same regulatory treatment
    accorded local firms.  Foreign companies may invest in firms
    undergoing privatization and are eligible to participate in
    public-financed research and development programs.
    ¶6.  The Foreign Investment Commission (FIC) of the Ministry
    of Economic Affairs screens applications for investment,
    acquisitions, and mergers.  According to the FIC,
    approximately 98 percent of projects with an investment
    value less than NT$500 million (US$14.9 million) are
    excluded from the negative list; the FIC estimates that
    approval for these projects is generally granted within
    three working days at the FIC division chief level.  For
    investments above NT$500 million excluded from the negative
    list, approval authority rests with the FIC Executive
    Secretary and normally is granted within one week.  Approval

    SIPDIS
    of investments in industries on the negative list requires
    several weeks because those investments must be referred to
    the relevant supervisory ministries and, for investments
    less than NT$500 million, require approval of the FIC
    Chairman or FIC Executive Secretary.  Listed investments
    exceeding NT$500 million require screening at the monthly
    meeting of an inter-ministerial commission.

    ¶7.  Taiwan offers incentives to encourage investment,
    including accelerated depreciation and tax credits for
    investments in emerging or strategic industries, pollution-
    control systems, production automation and energy
    conservation.  Equipment for R&D purposes can be brought
    into Taiwan duty-free.  Other incentives include low-
    interest loans for developing new and/or cutting edge
    products, upgrading traditional industries, and importing
    automation or pollution-control equipment.  A broad five-
    year tax holiday for new investments was re-instituted in
    January 1995.  Other incentives for manufacturing firms to
    locate factories in designated industrial parks include free
    rent the first two years, 80 percent discount on rent in the
    subsequent two years, and 60 percent discount in the fifth
    and sixth years.  As part of its financial reform, Taiwan
    encourages banks, insurance companies, and securities firms
    to merge or transform into financial holding companies.
    Such mergers and transformations are eligible for
    incentives.

    ¶8.  In spite of the FIC and efforts to encourage investment,
    many foreign investors, especially small investors in the
    service sector, encounter cumbersome and non-transparent
    procedures when trying to establish businesses in Taiwan.
    Strict rules require foreign engineering firms to appoint
    locally licensed professional engineers as their company
    representatives in Taiwan.  Professionals such as lawyers,
    architects, accountants, and securities brokers all must
    pass local licensing exams before they can practice.
    Foreign investors report that a major attraction of
    investing in Taiwan's science-based industrial parks is the
    assistance provided in expediting needed approvals.
    Investors outside of these areas must seek approval from
    several central and local government offices.  This can be
    daunting for the small investor without a local partner or
    agent.

    ------------------------------------
    A.2 Conversion and Transfer Policies
    ------------------------------------

    ¶9.  There are relatively few restrictions on converting or
    transferring direct investment funds.  Foreign investors
    with approved investments can readily obtain foreign
    exchange from a large number of designated banks.
    Remittance of capital invested in Taiwan according to a
    schedule submitted by the company to the FIC.  Declared
    earnings, capital gains, dividends, royalties, management
    fees, and other returns on investments can be repatriated at
    any time.  Capital movements arising from trade in
    merchandise and services, as well as from debt servicing,
    are not restricted.  No prior approval is required for
    movement of foreign currency funds not requiring exchange
    between the NT dollar and the foreign currency.  No prior
    approval is required if the cumulative amount of inward or
    outward remittances does not exceed the annual limit of US$5
    million for a person or US$50 million for a corporation.
    There are no reported delays in remitting investment returns
    or principal through legal channels.

    ¶10.  An outbound investment may not exceed 40 percent of the
    investing company's net worth or paid-in capital (whichever
    is less), unless the company charter waived the 40 percent
    limit or unless such investment is approved by shareholders.
    A local company is not required to obtain prior approval for
    overseas investments; however, such an approval exempts the
    company from the annual capital outflow limit of US$50
    million.

    ¶11.  In April of 2002, Taiwan significantly relaxed
    restrictions on Taiwan entities' direct investment in China
    down to a negative list covering only about 100
    manufacturing products and 430 agricultural products.  In
    August of 2002, Taiwan abolished a requirement for direct
    investment in China to go through third nations or areas and
    removed a direct investment limit of US$50 million.  The
    ceiling on small and medium enterprises' investment in China
    was raised from NT$60 million to NT$80 million.  For large
    enterprises, the Chinese investment may not exceed 20
    percent of the company's net worth exceeding NT$10 billion,
    30 percent of net worth from NT$5 billion to NT$10 billion,
    or 40 percent of the net worth below NT$5 billion.  Prior
    approval is not required for investments below US$200,000,
    but these must be reported to FIC within six months.  Taiwan
    opened direct investment in eight-inch silicon wafer plants
    in China with some restrictions.  Taiwan authorities require
    an investor to submit a quarterly financial report if the
    cumulative investment in a project exceeds US$20 million.
    Investors are encouraged to repatriate their capital and
    earnings.

    ¶12. Taiwan authorities have actively encouraged investment
    in Southeast Asian nations.  Investments are also encouraged
    in a number of countries with which Taiwan has diplomatic
    relations, mainly in Central America.  Incentives include
    loans and/or overseas investment insurance with the Export-
    Import Bank of ROC.

    ----------------------------------
    A.3 Expropriation and Compensation
    ----------------------------------

    ¶13.  No foreign invested firm has ever been nationalized or
    expropriated in Taiwan.  No examples of "creeping
    expropriation" or official actions tantamount to
    expropriation have been reported.  Under Taiwan law no
    venture with 45 percent or more foreign investment can be
    nationalized for a period of 20 years after the venture is
    established.  Expropriation can be justified only for
    national defense needs and "reasonable" compensation must be
    given.

    ----------------------
    A.4 Dispute Settlement
    ----------------------

    ¶14.  Taiwan is not a member of the International Center for
    the Settlement of Investment Disputes or the New York
    Convention of 1958 on the recognition and enforcement of
    foreign arbitrage awards.  However, investment disputes are
    not common.  Normally, Taiwan resolves disputes according to
    domestic laws and regulations.

    ¶15.  Taiwan has comprehensive commercial laws, including
    Company Law, Commercial Registration Law, Business
    Registration Law, Commercial Accounting Law as well as laws
    for specific industries.  Taiwan's Bankruptcy Law guarantees
    that all creditors have the right to share the assets of a
    bankrupt debtor on a proportional basis.  Secured interests
    in property, both chattel and real, are recognized and
    enforced through a registration system.

    ¶16.  Taiwan's court system is generally viewed as
    independent and free from overt interference by the
    Executive Branch.  Judges are generally over-worked.  In
    response to complaints about the slow pace of the judicial
    decision-making, Taiwan authorities adopted measures in 2002
    to monitor the case processing time.  Simplified courts have
    been set up to deal with minor cases that can be resolved
    quickly.  Special courts for intellectual property rights
    (IPR) cases have been established.  Unfortunately, the IPR
    courts are required to hear all types of cases, thus
    diluting their value.  The judgments of foreign courts with
    jurisdictional authority are enforced in Taiwan by local
    courts on a reciprocal basis.

    -------------------------------------------
    A.5 Performance Requirements and Incentives
    -------------------------------------------

    ¶17.  All of Taiwan's performance requirements were removed
    in January 2002 upon Taiwan's WTO accession except for
    industrial offset arrangement for Taiwan's military
    procurements.  Like domestic firms, foreign invested-
    invested companies must be located in areas zoned for
    appropriate industrial or commercial use.  Employment of
    foreign white-collar employees is subject to prior approval,
    and a requirement for such employment is a minimum capital
    of NT$5 million and annual sales of NT$10 million.  Tax
    credits and tax breaks are offered to encourage the
    introduction of new technology into Taiwan.  Tax credits are
    also offered to encourage companies to locate in less-
    developed areas of Taiwan.  Subsidies of up to one-half of
    total expenditures are offered for R&D programs.  Taiwan
    does not require that firms transfer technology, locate in
    specified areas, or hire a minimum of local employees as a
    prerequisite to investment.

    ¶18.  Manufacturing firms located in export-processing zones
    and science-based industrial parks are required to export
    all of their production in exchange for tariff-free
    treatment of production inputs.  However, these firms may
    sell on the domestic market upon payment of relevant import
    duties.

    ¶19.  "Offsets," or requirements to make investments and/or
    transfer technology as a condition of a public procurement
    are generally not permitted under WTO guidelines that,
    however, do not cover military procurements.  Taiwan
    authorities frequently impose offset obligations on
    successful bidders for large military procurements under an
    organized Industrial Cooperation Program (ICP) administered
    by the Industrial Development Bureau of the Ministry of
    Economic Affairs.  Winning a Taiwan defense contract of
    US$10 million or more triggers a direct or indirect offset
    obligation of at least 40 percent.  In some cases, the
    offset ratio has reached 70% percent.  Defense contractors
    frequently complain of lack of transparency and
    predictability in setting offset requirements.  Although the
    U.S. Government's Foreign Military Sales (FMS) program does
    not recognize offset obligations, the successful vendor in
    an FMS transaction may nevertheless face offset obligations
    to the Taiwan authorities.  Direct offsets are performance
    requirements directly related to the goods or services
    procured, such as a commitment to manufacture certain parts
    of a weapon system in Taiwan.  Indirect offsets are less
    directly related, or even completely unrelated, to the sale.
    For example, a firm selling military aircraft to Taiwan
    might assume an obligation to introduce and/or invest in
    technologies that are central to the island's industrial
    policy such as biotechnology or nanotechnology.  Most firms
    with substantial offset obligations employ in-house
    specialists or outside contractors to structure their offset
    programs.
    --------------------------------------------- ---
    A.6 Right to Private Ownership and Establishment
    --------------------------------------------- ---
    ¶20.  Private investors have the general right to establish
    and own business enterprises, except in a limited number of
    industries involving national security and environmental
    protection.  Private entities have the right to freely
    acquire and dispose of interests in business enterprises.
    Private business firms have the same access as state-owned
    companies to markets, credit, licenses, and supplies.
    Taiwan authorities have eliminated state-owned monopolies in
    such areas as power generation, oil refining, and
    telecommunications.

    ---------------------------------
    A.7 Protection of Property Rights
    ---------------------------------

    ¶21.  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.
    To prepare for its WTO accession in 2002, Taiwan amended its
    Patent Law and Copyright Law in November 2001.  The
    amendments extended the term of protection from 18 years to
    20 years for some patents and defined computer software as
    literary works.  To address the problem of CD/DVD piracy,
    Taiwan passed an Optical Media Law in October 2001.  The law
    provides Taiwan authorities with a legal framework to manage
    CD manufacturing plants through licensing and the use of
    Source Identification (SID) codes in production.  Offenders
    can receive prison terms up to three years and be fined up
    to NT$6 million (US$179,000).  The Optical Media Law and the
    Joint Optical Disk Enforcement (JODE) Task Force's night/day
    inspection has led to a dramatic decrease in large-scale
    factory production of counterfeit CD products produced by CD
    plants.   Taiwan again passed amendments to strengthen its
    copyright law in 2003 and 2004.  These amendments made
    infringement a public crime, increased penalties for
    counterfeiters and made it illegal to tamper with technical
    protection measures.

    ¶22.  Following its 2002 "IPR Action Plan", the Executive
    Yuan adopted a fresh IPR Action Plan for 2003-2005.  One
    important measure within this "three-year IPR Action Plan"
    framework was to establish in January 2003 an Integrated
    Enforcement Task Force (IETF) consisting of 220 IP police
    officers.  The task force conducts raids on retail optical
    media sales points to enforce IP rights and has led to a
    significant decrease in the number of vendors of counterfeit
    CDs and DVDs.  Other enforcement measures include increasing
    the reward (by ten times to NTD10 million (USD0.29 million)
    to IPR informants for counterfeiting seizures and setting up
    an anti-pirating CD export task force to strengthen
    inspection on the border.

    ¶23.  Taiwan's Legislature passed amendments to the Patent
    and Trademark Laws in January and April of 2003,
    respectively.  The amendments abrogated the administrative
    and legal procedures for opposing patent applications and to
    add voice and 3-D shares as elements eligible for trademark.

    ¶24.  In general, Taiwan is moving towards improved IPR
    protection.  Counterfeit goods from Taiwan seized by 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) announced that software
    piracy rate in Taiwan fell from 54 percent in 2002 to 43
    percent in 2003.  Despite these gains, areas for improvement
    remain.  Taiwan is facing a growing internet-based piracy
    threat.  Counterfeit and parallel imported pharmaceuticals
    are common in the Taiwan marketplace.  Although the LY
    passed amendments to the pharmaceutical law in March 2004 to
    strengthen the penalties for dealing in counterfeit
    pharmaceuticals, enforcement remains relatively weak.
    Rights owners continue to complain of slow progress in
    judicial cases, or poor protection on trade dress
    properties, such as unregistered marks, packing
    configurations, and outward appearance features.

    -----------------------------------------
    A.8 Transparency of the Regulatory System
    -----------------------------------------

    ¶25.  Taiwan has a set of relatively comprehensive laws and
    regulations regarding taxes, labor, health and safety.

    ¶26.  Foreign investors note that in addition to tax
    incentives one of attractions of Taiwan's science-based
    industrial parks and export processing zones is that
    bureaucratic procedures associated with investment
    applications are relatively few and transparent.  Outside
    these areas, the Industrial Development and Investment
    Center (IDIC) is supposed to function as the coordinator
    between investors and all agencies involved in the
    investment process.  The Foreign Investment Commission (FIC)
    is charged with reviewing and approving inbound and outbound
    investments.  However, especially for small investors in
    services the investment approval process can be daunting.

    ¶27.  Taiwan has made much effort to simplify the work-permit
    issuance procedure for foreign white-collar employees.  In
    March 2004, the Council of Labor Affairs (CLA) set up a
    single window to issue work permits for all white-collar
    workers.  It takes 7 to 10 days for CLA to issue work
    permits.  The work permit may be extended indefinitely as
    long as the employer considers the employment necessary.

    ¶28.  In December of 2002, Taiwan removed the job experience
    requirement for employment of foreign management
    professionals by global operational headquarters and R&D
    centers in Taiwan as well as business firms of designated
    industries.  White-collar workers having a master's degree
    or above are not subject to any job experience requirement.
    Those with lower education levels are required to have job
    experience.  Foreign white- and blue-collar workers have the
    right to obtain permanent residence status after they have
    legally stayed in Taiwan for seven consecutive years with
    the minimum time of residence of 180 days per year in
    Taiwan.  The seven-year requirement is waived for high-tech
    personnel and those who have made "significant
    contributions" to Taiwan.

    ¶29.  The entry-visa issuance procedures for foreign white-
    collar workers who work for foreign-invested companies are
    relatively simple.  A foreign executive who enters Taiwan
    with a tourist visa is no longer required to leave the
    island before the tourist visa can be transferred to an
    employment visa.  A foreign executive whose employment visa
    expires is not required to exit before the visa can be
    renewed.

    --------------------------------------------- ---------
    A.9 Efficient Capital Markets and Portfolio Investment
    --------------------------------------------- ---------

    ¶30.  A wide variety of credit instruments, all allocated on
    market terms, are available to both domestic- and foreign-
    invested firms.  Legal accounting systems are largely
    transparent and consistent with international standards.
    The regulatory system is generally fair.  Foreign portfolio
    investors are no longer subject to the foreign ownership
    limits or investment fund limits.  In recent years, Taiwan
    authorities have taken a number of steps to encourage more
    efficient flow of financial resources and credit.  The limit
    on NT dollar deposits that a branch of a foreign bank may
    take has been lifted.  Non-residents are permitted to open
    NT dollar bank accounts, which are subject to capital-flow
    controls.  After its accession to the WTO in January 2002,
    Taiwan lifted restriction on residents' opening bank
    accounts overseas.  Limits on branch banking have been
    lifted, although approval must be obtained to open new
    branches.  Restrictions on capital flows relating to
    portfolio investment have been removed.  The insurance and
    securities industries have been liberalized and opened to
    foreign investment.  Access to Taiwan's securities markets
    by foreign institutional investors has also been broadened.

    ¶31.  Taiwan abolished the complicated regulatory system
    governing foreign portfolio investment in October 2003.  In
    the past, only such approved "qualified foreign
    institutional investors" (QFIIs) as large banks, insurance
    companies, securities firms and mutual funds, were permitted
    to engage in portfolio investment.  Since then, any foreign
    institutional investor is allowed to enter Taiwan's markets,
    and registration has replaced prior approval.  The minimum
    asset requirement has been removed.  Investment and capital
    flows are not limited.  On-shore foreign investors (like
    other residents) are still subject to portfolio investment
    limits of U.S. $5 million for an individual foreign investor
    and US$50 million for a non-QFII foreign company.

    ¶32.  In December of 2002, Taiwan removed all legal limits on
    foreign ownership in companies listed on the Taiwan Stock
    Exchange (TAIEX) except for certain industries, including
    power distribution, telecommunications, mass media firms,
    and airline companies.  There have been no reports of
    private or official efforts to restrict the participation of
    foreign-invested firms in industry standards-setting
    consortia or organizations.

    ¶33.  Taiwan has a tightly regulated banking system.  Since
    the mid-1980s, the financial sector as a whole has been
    steadily opening to private investment.  Nevertheless, the
    market share held by foreign banks remains relatively small
    (below three percent).  The establishment of new securities
    firms, banks, insurance companies, and holding companies,
    has underscored this liberalization trend and enhanced
    competition.  Four large state-owned banks were privatized
    in early 1998, and anther four sold to the private sector in
    ¶1999.  The only reinsurance company was privatized in 2002.
    Privatization efforts have reduced the number of public
    banks to five and cut the share of assets controlled by
    public banks from 61 percent to 21 percent of total assets
    of all domestic and foreign banks.  The total assets of
    these five public banks were NT$5.67 trillion (US$169
    billion) as of September 2004.

    -----------------------
    A.10 Political Violence
    -----------------------

    ¶34.  Taiwan is a relatively young multi-party democracy with
    still evolving, democratic political institutions.  The
    close margin in the 2004 presidential election resulted in
    an attack on election offices and several large-scale
    demonstrations.  Nevertheless, these incidents were
    peacefully resolved in a short time.  There have been no
    reports of politically motivated damage to foreign
    investment.  Both local and foreign companies have, however,
    been subject to protests and demonstrations relating to
    labor disputes and environmental issues.

    ------------------
    A.11.a. Corruption
    ------------------

    ¶35.  Taiwan has implemented laws, regulations, and penalties
    to combat corruption.  The "Corruption Punishment Statute,"
    and the criminal code contain specific penalties for corrupt
    activities.  In January 2004, legislation doubled the
    penalties for corruption by financial personnel, including
    maximum jail sentences of up to ten years.

    ¶36.  We are not aware of cases where bribes have been
    solicited for investment approval.  Both central and local
    governments are offer investors incentives including free
    rent on land for the first two years and discounts in
    subsequent years.  Taiwan authorities encourage foreign
    investment and would take action against officials and
    individuals convicted of profiting illegally from foreign
    investors.

    ¶37.  The Government Procurement Law promulgated in 1998 and
    amended in February 2001 as an element of Taiwan's accession
    to the WTO has brought significant improvements.  The Public
    Construction Commission (PCC) publishes all major government
    procurement projects that require open bidding, in
    accordance with WTO transparency requirements.  The PCC
    organizes inspection teams to monitor all public procurement
    projects both at the central and local levels.  It publishes
    results of bidding and of inspections.  A task force has
    been organized to investigate complaints.

    ¶38.  Authorities generally investigate allegations of
    corruption and take action to penalize corrupt officials.
    Since its inauguration in May 2000, the Chen Administration
    has strengthened anti-corruption efforts.  Prosecutors
    indicted 5,958 persons for corruption, including 320 senior
    officials (department director level and above) and 426
    elected officials.  Indicted elected officials included a
    former speaker of the legislature and 19 legislators.  In
    2003, a heavy weight in the ruling party was forced to give
    up her title as senior presidential advisor because of
    allegations of corruption.  In 2001, the Secretary General
    of the executive branch was forced to step down for
    corruption committed when he was Chairman of the state-owned
    Taiwan Sugar Corp.

    ¶39.  Attempting to bribe, or accepting a bribe from, Taiwan
    officials constitutes a criminal offense, punishable under
    the "Corruption Punishment Statute" and the "Criminal Code."
    The Corruption Punishment Statute as amended in late 2002
    treats payment of a bribe to a foreign official a criminal
    act and makes such a bribe subject to criminal prosecution.
    The maximum penalty for corruption is life imprisonment plus
    a maximum fine of three million NT dollars (US$89,500).  In
    addition, the offender may be barred from public office.
    The assets obtained from acts of corruption may be seized
    and turned over to either the injured parties or the
    Treasury.

    ----------------------------------
    ¶B. Bilateral Investment Agreements
    ----------------------------------

    ¶40.  Taiwan has concluded bilateral investment guaranty
    agreements with the following 25 countries: Argentina,
    Belize, Burkina Faso, Costa Rica, Dominica, El Salvador,
    Guatemala, Honduras, India, Indonesia, Liberia, Malaysia,
    Macedonia, the Marshall Islands, Nicaragua, Nigeria, Panama,
    Paraguay, the Philippines, Saudi Arabia, Senegal, Singapore,
    Swaziland, Thailand, Malawi, and Vietnam.  In addition,
    there is an agreement to guaranty Taiwan's investment in
    Malawi and another agreement to protect U.S. investment in
    Taiwan.  (An agreement with Latvia signed in 1992 was
    revoked in August 2004.)

    ¶41.  Under the terms of the 1948 Friendship, Commerce, and
    Navigation Treaty with the United States, U.S. investors are
    generally accorded national treatment and are provided with
    a number of protections, including protection against
    expropriation.  Taiwan and the United States also have an
    agreement, signed in 1952, pertaining to investment
    guarantees that serve as the basis for the U.S. Overseas
    Private Investment Corporation (OPIC) program in Taiwan.  In
    September 1994, representatives of the United States and
    Taiwan signed a bilateral Trade and Investment Framework
    Agreement (TIFA) to serve as the basis for consultations on
    trade and investment issues.  Consultations on a bilateral
    investment agreement between the United States and Taiwan
    began in 1996, but are currently on hold.

    --------------------------------------------- --
    ¶C. OPIC and Other Investment-Insurance Programs
    --------------------------------------------- --

    ¶42.  OPIC programs are available to U.S. investors, though
    U.S. investors have never filed an OPIC insurance claim for
    an investment in Taiwan.  Taiwan is not a member of the
    Multilateral Investment Guaranty Agency.

    --------
    ¶D. Labor
    --------

    ¶43.  As a result of Taiwan's changing industrial structure,
    labor shortages exist in hi-tech fields including
    semiconductor and computer chip design and production,
    computer software design, and telecommunications
    engineering.  The law governing licensing hiring procedures
    for professional engineering consulting firms continues to
    place an unnecessary burden on foreign personnel.  A two-
    year work experience requirement for work permits restricts
    companies from hiring foreign interns or recent graduates.
    Taiwan began employment of foreign blue-collar workers in
    1990 when Taiwan was a full employment economy with labor
    shortages.  However, in the early 2000s, the relatively high
    unemployment rate prompted the government to restrict
    employment of foreign workers, reducing foreign workers in
    Taiwan by nearly ten percent between 2000 and early 2004.
    Economic expansion prompted Taiwan's government to slightly
    relax restrictions and foreign workers in Taiwan rose 3.6
    percent from 298,392 persons in March to 309,339 persons in
    October 2004.

    ¶44.  There are no special hiring practices in Taiwan.  Wages
    typically include a one-month bonus at the end of a year.
    Fringe benefits often include meals, transportation, and
    dormitory housing.  Dividend-sharing is common among high-
    tech industries.  A standard labor insurance program is
    mandatory.  The program provides maternity, retirement, and
    other benefits. A separate retirement program requires
    employers to grant employees with voluntary retirement at
    age of 15 years and a length of service of 15 years. The
    mandatory retirement age is 60 years.  A new retirement
    system to be implemented in July 2005 will require employers
    to contribute six percent of the monthly wage to employees'
    accounts at designated banking institutions, and the
    accounts will follow employees transferred from one employer
    to another.  A universal national health insurance system
    covers all employees and their family.

    ¶45.  The Employment Insurance Law enacted in 2002 provides
    unemployment relief practices with a legal basis.
    Alternatives for unemployment pay include vocational
    training allowance for jobless persons and employment
    subsidy for employers to encourage employment of jobless
    persons.  The Labor Standard Law (LSL) sets a standard eight-
    hour workday and a biweekly maximum of 84 hours.
    Legislation adopted in late 2000 set a five-day workweek for
    the public sector, effective January 2001.  Nearly 40
    percent of private firms have adopted the five-day workweek
    system.  The LSL restricts child labor and requires
    employers to provide overtime pay, severance pay, and
    retirement benefits.  The LSL covers both manufacturing and
    service sectors.  Violators are liable to criminal penalties
    (jail terms) and administrative punishments (fines).

    ¶46.  The minimum wage is set at NT$15,840 (US$473) per
    month.  Current manufacturing sector wages average NT$41,512
    (US$1,239).  In principle, the minimum wage is adjusted in
    August every year based on the results of collective
    negotiation between the Chinese National Federation of
    Industries and the Chinese Federation of Labor Unions.
    However, for the past six years, the minimum wage has not
    been adjusted.
    ¶47.  Labor unions have become more active and independent
    since Taiwan's martial law was lifted in 1987.  In light of
    economic expansion in 2003/2004, labor disputes dropped in
    2003 and further declined in the first ten months of 2004.
    Taiwan is not a member of the International Labor
    Organization but generally adheres to the ILO convention of
    protecting worker's rights.

    ---------------------------------
    ¶E. Foreign Trade Zones/Free Ports
    ---------------------------------

    ¶48.  Taiwan's first free trade/free port zone began
    operation at Keelung, Taiwan's northern port, in November
    ¶2004.  The second free trade/free port zone will be
    inaugurated at Kaohsiung Harbor, southern Taiwan, in January
    ¶2005.  Plans call for another ten zones to be set up.
    Taiwan authorities have relaxed restrictions on movement of
    merchandises, capital and personnel into and out of such
    zones.  Foreign investors are accorded national treatment.

    ---------------------------------------
    ¶F. Foreign Direct Investment Statistics
    ---------------------------------------

    ¶49.  Statistics on foreign direct investment in Taiwan are
    available from two sources.  The Foreign Investment
    Commission (FIC) publishes monthly and yearly foreign
    investment approval statistics by industry and by country.
    The Central Bank of China (CBC) publishes foreign direct
    investment arrivals on a quarterly and yearly basis.  CBC
    data, contained in balance-of-payments (BOP) statistics, are
    not further classified by industry or country.

    ¶50.  Economic expansion in 2003/2004 prompted Taiwan's
    private investment to resume positive growth in the second
    half of 2003, and the growth rate accelerated to nearly 30
    percent in the first half of 2004.  In the second half of
    2004, excess inventory began to slow Taiwan's industrial
    sector, particularly electronic, optical, and information
    technology (IT) industries.  For semiconductor firms,
    facility utilization declined from 100 percent in late 2003
    to 85 percent in late 2004.  Consequently, real growth in
    private investment is expected to slow to a single-digit
    rate.

    ¶51.  Foreign investment in Taiwan is concentrated in
    electronics and electrical industries and the service
    sector.  The 2003 approved direct investment in electronics
    and electrical industries including Semiconductor, TFT-LCD
    and other optical electronic projects soared 45 percent from
    2002, and 140 percent in the first half of 2004, but
    declined of 20 percent in the third quarter.  This category
    accounted for a quarter of the cumulative approved inbound
    direct investment.  Sixty percent of the approved inbound
    direct investment in Taiwan's electronics and electrical
    industries came from the United States and Japan.

    ¶52.  Approved inbound direct investment in the service
    sector (including banking & insurance, wholesale & retail,
    trade, and professional services), grew 17 percent in 2003
    to US$1.9 billion, then leveled off in the first ten months
    of 2004.  This category constituted 44 percent of the
    cumulative approved inbound direct investment.

    ¶53.  The United States and Japan used to be the two main
    sources of Taiwan's foreign investment, but they were
    replaced by the tax havens in the British Territories in
    America (BTA), which harbor a growing number of
    multinational corporations (many originating in Taiwan).
    Approvals for U.S. investment from 1952 to October 2004
    totaled US$13 billion, or 22 percent of total foreign
    investment.  Of total U.S. investment, 34 percent was
    directed toward the electronics and electrical industries,
    and another 34 percent toward the service sector.  Approvals
    for Japanese investment amounted to US$12 billion, or 20
    percent of total foreign investment, of which 28.5 percent
    was in electronics and electrical industries and 31 percent
    in the service sector.
    ¶54.  Approvals for investment from the BTA surged steadily
    from US$76 million in 1994 to US$1.2 billion in 1999 when
    the BTA surpassed the United States and Japan to become the
    largest source of foreign investment in Taiwan.  Investment
    from the BTA during 1999- October 2004 accounted for 27
    percent of total approved investments, compared to 18.5
    percent from the United States and 15 percent from Japan.
    Twenty-seven percent of the investment from the BTA was
    directed towards the banking and insurance industries and
    another 21 percent to the electronic and electrical
    industries.

    ¶55.  As a relatively open and liberal economy, Taiwan
    receives foreign investment while its businesses invest
    overseas, especially in China, Southeast Asia and the
    Americas.  According to balance-of-investments statistics
    compiled by the CBC, outbound direct investment has exceeded
    inbound direct investment since 1988.  According to FIC
    statistics, by October 2004 cumulative approvals for
    outbound investments totaled US$81 billion.  One of the main
    recipients of Taiwan investment has been China where
    approved investments increased by 19 percent in 2003 and 52
    percent in the first ten months of 2004.

    ¶56.  Taiwan business firms started to relocate their
    production bases to China in the late 1980s.  Production
    lines in China gradually shifted from cheap labor-oriented
    industries in the late 1980s to products requiring lower-end
    technologies, such as PC and motherboard, in the early
    2000s.  The WTO accession of China and Taiwan in 2002
    prompted Taiwanese business firms to accelerate relocation
    to China to sharpen their competitive edge in exports.
    Taiwan factories based in China use the lower cost labor and
    land there to process Taiwan-made production inputs into
    finished goods for exports to such industrial markets as the
    United States, Japan and Europe.  Taiwan's direct investment
    across the Taiwan Strait grew from US$1.25 billion in 1999
    to US$5.4 billion in the first ten months of 2004.  As a
    result of this trend Greater China (China plus Hong Kong)
    replaced the United States as Taiwan's largest export market
    in 2001, and Greater China's share of Taiwan's exports in
    the first ten months of 2004 reached 37 percent, much higher
    than 16 percent for the United States and 13 percent for the
    European Union.
    Table 1
    Foreign Investment Approvals by Year and by Area
    (1952-2004) (unit: U.S. dollar million)

                           Central        Hong
    Year    U.S.A.  Japan  Ameri.  Europe Kong  Other  Total
    ------- ------- -----  ------- ------ ----- ------ ------
    52-89    3,067  2,983     341   1,312 1,198  2,049 10,950
    1990       581    839      66     283   236    297  2,302
    1991       612    535      60     165   129    277  1,778
    1992       220    421      37     165   213    405  1,461
    1993       235    278      38     214   169    279  1,213
    1994       327    396      76     245   251    336  1,631
    1995     1,304    573     151     338   147    412  2,925
    1996       489    546     417     198   267    544  2,461
    1997       491    854     659     401   237  1,625  4,267
    1998       952    540     711     367   274    895  3,739
    1999     1,145    514   1,216     462   161    733  4,231
    2000     1,329    733   2,300   1,000   271  1,775  7,608
    2001       940    685   1,397   1,182   145    780  5,129
    2002       600    609     803     609    66    585  3,272
    2003       687    726     919     635    44    565  3,575
    Jan-Oct
    2004       284    791     687     550   181    432  2,925
    52-04   13,264 12,022   9,878   8,326 3,989 11,989 59,468
    --------------------------------------------- ------------
    Source: Foreign Investment Commission
    Table 2
    Foreign Investment Approvals by Industry and Area
    (1952-2004) (unit: U.S. dollar million)
                                Centr.      Hong
    Industry      U.S.A.  Japan Ameri. Eur. Kong  Other   Total
    ------------- ------- ----- ----- ----- ----- ------  -----
    Total         12,980 12,022 9,191 7,776 3,989 11,989 59,468
    Electronics
     & Electrical  4,885  3,425 2,114 1,711   649  1,726 14,146
    Banking
     & Insurance   2,129    412 2,653 1,967   694  2,571 10,426
    Services         942  1,446 1,507   876   503  1,553  6,827
    Chemicals      1,511    878   305 1,090   278    386  4,448
    Wholesale
     & Retail        815    947   888   871   263    778  4,562
    Trade            524    870   214   326   313    483  2,730
    Basic Metal
     & Products      355    790   192   129   128    946  2,540
    Machinery        338    842   232   216   118    334  2,080
    Food &
     Beverage        254    263   109   245   127    404  1,408
    Transportation    76     72    15    76   141    734  1,114
    Transport
     Equipment       101    531    88    68    97     70    955
    Non-metallic
     Minerals        257    268    40    96    81    166    908
    Others         1,441  1,272 1,521   655   596  1,839  7,324
    --------------------------------------------- --------------
    Source: Foreign Investment Commission

    Table 3
    Outbound Investment Approvals by Year and by Area
    (1952-2004) (unit: U.S. dollar million)

                        Central
    Year         China  Americ.  U.S.A.  ASEAN  Others   Total
    ----------  ------- -------  ------  -----  ------ --------
    1952-89       n.a.      76      865    429    155    1,525
    1990          n.a.     170      429    567    386    1,552
    1991           174     268      298    720    370    1,830
    1992           247     239      193    309    146    1,134
    1993         1,140     194      529    434    504    2,801
                (2,028)                                 (2,028)
    1994           962     569      144    398    506    2,579
    1995         1,093     370      248    326    413    2,450
    1996         1,229     809      271    587    498    3,394
    1997         1,615   1,051      547    641    655    4,509
                (2,720)                                 (2,720)
    1998         1,519   1,838      599    478    381    4,815
                  (515)                                   (515)
    1999         1,253   1,359      445    522    943    4,522
    2000         2,607   2,248      862    389  2,118    7,684
    2001         2,784   1,693    1,093    523  1,083    7,176
    2002         3,859   1,575      578    211  1,006    7,229
                (2,864)                                 (2,864)
    2003         4,595   1,997      467    298  1,206    8,563
                (3,104)                                 (3,104)
    Jan-Oct
    2004         5,425     874      492    904    609    8,304
    1952-04     39,734  15,330    8,059  7,736 10,440   81,299
    --------------------------------------------- -------------
    Source: Foreign Investment Commission
    Note: Figures in parentheses refer to investments made prior
    to the specified year but not previously registered.

    Table 4
    Outbound Investment Approvals by Industry and by Area
    (1952-2004) (unit: U.S. dollar million)

                            Centr.
    Industry         China  Amer.  U.S.A. ASEAN Others   Total
    --------------  ------- ------ ------ ----- ------ --------
    Total            39,734 15,330  8,060 7,736 10,439  81,299
    Electronics
     & Electrical    13,451    421  2,585 2,916  2,032  21,405
    Banking
     & Insurance        545 12,009  1,203   724  4,039  18,520
    Services          1,219  1,087  1,161   192    648   4,307
    Chemicals         2,663     68  1,091   552    342   4,716
    Basic Metals
     & Products       3,539     76     50   639    230   4,534
    Trade               348    925    253    69    761   2,356
    Plastic
     Products         2,524     20      7    51     27   2,629
    Food &
     Beverage         1,906      2    162   253     99   2,422
    Precision
     Instrument       2,103     43     94    58     65   2,363
    Wholesale &
     Retail             726    318    761   201    378   2,384
    Textiles          1,431     21     44   648    180   2,323
    Non-metallic
     Minerals         2,052      -      7   388     35   2,482
    Others            7,228    340    642 1,045  1,603  10,858
    --------------------------------------------- --------------
    Source: Foreign Investment Commission

    Table 5
    Technical Cooperation Projects by Year and by Area
    (1952-1995) (unit: number of projects)

    Year    Japan   U.S.A.   Europe   Others   Total
    ------  -----   ------   ------   ------  -------
    52-89   1,996     728      412     103    3,221
    1990      106      54       30      10      200
    1991       80      65       33       8      186
    1992      193      50       19      10      175
    1993       85      50       34      12      181
    1994       70      39       24       6      139
    1995       50      29       10       5       94
    52-95   2,483   1,015      562     136    4,196
    --------------------------------------------- ----
    Source: Foreign Investment Commission
    Note: Taiwan ceased to compile statistics on technical
    cooperation with foreign companies in 1996. Businesses have
    not been required to report technical cooperation projects
    to the FIC since the Statute for Technical Cooperation was
    abolished.

    Table 6
    Technical Cooperation Projects by Industry and by Area
    (1952-1995) (unit: number of projects)

    Year                   Japan  U.S.A.  Europe Others  Total
    ------                 -----  ------  ------ ------ -------
    Total                  2,483  1,015     562    136   4,196
    Electronics &
      Electrical             708    416     106     16   1,246
    Chemicals                416    203     160     28     807
    Machinery                368     68      97      9     542
    Basic Metal &
      Products               329     55      53      6     443
    Other Services           111    106      27     42     286
    Rubber Products          131     32      21      4     188
    Non-metallic Minerals     97     22      24      2     145
    Food and Beverage         80     38      13      9     140
    Textiles                  47     21       8      2      78
    Construction              38      5      10      4      57
    Garment & Footwear        18     14       4      3      39
    Paper Products &
      Printing                19     13       4      -      36
    Transport Equipment       20      2       8      1      31
    Others                   101     20      27     10     149
    --------------------------------------------- --------------
    Source: Foreign Investment Commission

    Table 7 Major U.S. Investors in Taiwan
    --------------------------------------------- -------
    U.S. Investor/
    Local Investment                     Major Products
    ----------------------------------   ---------------
    NRG Energy/                          power generation
    Hsin Yu Energy Co.

    Amkor Technology Ltd./
    Amkor Technology Taiwan (Lungtan)    IC packing
      Ltd.
    Amkor Technology Taiwan (Linkou) Ltd.

    AIG/
    Yageo Corp.                          electronic Component
    Far East Air Transport Corp.         airlines
    Nan Shan Life Insurance Co.          insurance

    Citi Co./
    Fu Bong Group                        banking/finance

    Pruco Insurance Group/
    Masterlink Securities Co.            securities

    Corning Inc./                         mother glass for
    Corning Glass Taiwan Co., Ltd.        TFT/LCD

    GTE-Verizon
    Taiwan Fixed Network Telecom          fixed-line and mobile
    Taiwan Cellular Corp.                 phone service

    Carlyle Group/
    Taiwan Broadband Co. (TBC)            cable TV

    Ensite Limited (Ford Motor)/
    Ford Lio Ho Motor Co.                 autos

    Texas Instruments Inc.
    Texas Instruments Taiwan Ltd.         semiconductor

    AMOCO Chemical Corp./
    China American Petrochemical Co.      petrochemicals

    E.I. Dupont De Nemours/               industrial, electronic
    Dupont Taiwan Ltd.                    agricultural goods

    IBM Corp./                            computers:
    IBM Taiwan Ltd.                       sales and service

    AETNA Life Insurance Co./
    Taiwan Branch                         insurance

    AT & T Inc./                          telecommunication:
    AT & T Communications Services        sales and services
     Taiwan Inc.
    Far EasTone Telecommunications        mobile phone service
    Yuan-ze Telecommunications Ltd.

    View Sonic Co./                       mobile phone service
    Taiwan PCS Network Inc.

    Waner Village Cinema Co./
    Waner Village Cinema (Taiwan) Co.     movie theater
                                          operation

    United Parcel Service International
      Inc. (UPS)/                         world wide express
    UPS, Taiwan Branch                    services

    Intel Inc./InteX. Co.                 ADSL chipset

    Applied Materials Ltd./               semiconductor mfg.
    Applied Materials Taiwan Ltd.         equipment
    General Motor Co./                    auto assembly &
    Yulon GM Motor Co.                    sales

    Table 8  Major Japanese Investments in Taiwan
    --------------------------------------------- ---------------
    Japanese Investors/Investment           Major Products
    -------------------------------------   ----------------
    Toppan Printing Co./                    sales and produce
    Toppan Electronics (Taiwan) Co.         color filter
    Toppan CFI (Taiwan ) Co.

    Nippon Sheet Glass Co./
    Taiwan Auto Glass Industry Co.           Auto glass
    Nippon Sheet Glass (Taiwan) Ltd.         Mother glass

    Asahi Glass Co. (AGC)/
    Asahi Glass (Taiwan) Co.                 Mother glass

    NTT DoCoMo/
    KG Telecommunication Co                  Phone service

    Taiwan Shinkansen Corp./
    Taiwan High Speed Rail Corp.             High speed rail

    Sharp Corp./
    Quanta Display Co.                       TFT-LCD

    Nissan Motor/Yulon Motor                 autos

    Toyota Motor/Kuozui Motor                autos

    Matsushita Electronic Co./               electrical
    Matsushita Electronic (Taiwan) Co., Ltd. appliances

    Hitachi Co./                             electrical
    Taiwan Hitachi Co., Ltd.                 appliance, and
    Kaohsiung Hitachi electronics Co., Ltd.  components

    Yamaha Motor Co., Ltd./
    Yamaha Motor Taiwan Co., Ltd.            motorcycle

    Sankyo Co./Sankyo Co. Taipei             pharmaceuticals

    Idemitsu Co./Shinkong Idemitsu Corp.     petrochemicals

    Mitsui Co./Mitsui (Taiwan)               trading

    Takashimaya Co./Ta-ya Takashimaya        department store
    Dept. store

    Sumitomo Co./Sumitomo (Taiwan)           trading

    Toshiba Co./Toshiba Compressor (Taiwan)  compressor

    Sadagawa Steel Co./Sheng Yu Steel Co.    steel

    Shin-Etsu Handotai Co./Shi-Etsu Handotai
    Taiwan Co.                               semiconductor

    Komatsu Co./
    Formosa Komatsu Silicon Co.              silicon wafer

    Fujitsu Hitachi Plasma Display Co./
    Formosa Plasma Display Co.               PDP

    Mitsui Mining & Smelting Co./
    Taiwan Copper Foil Co.                   copper foil

    Kirin Brewery Co./
    Taiwan Kirin Co.                         beer sales
    --------------------------------------------- --------------
    Table 9  Major European Investments in Taiwan
    --------------------------------------------- ---------------
    European Investors/Investment               Major Products
    ------------------------------------------  ----------------
    Saberasu Investments Co./                   Assets Managemt.
    Cerberus Asset Management Co.               business

    Goldman Sachs/                              securities;
    Goldman Sachs, Taipei Branch                underwriting

    Deutsche Telecom/                           fixed-lien
    Eastern Broadband Telecom                   service
    Volkswagen Ag/Ching Chung Motor Co.         autos

    Dresdner Bank Ag/Grand Cathay Securities    securities

    Imperial Chemical Inc./ICI Taiwan Ltd.      chemicals

    N.V.  Philips/Philips Eectronics (Taiwan)   electronics

    Alcatel Co./Alcatel Taisel Co.              switch board

    Internallianz Bank, Zurich/Kwang Hwa        securities
    Securities

    Horwood Investment/Chi Mei Industry Co.     petrochemicals

    H.S. Development & Finance/ChinaTrust       banking
    Commercial Bank

    Infineon Technologies Inc./
    Promos Technologies Inc.
    Inotera Co.                                 DRAM
    Siemens Telecommunications systems Ltd.     switch system &
                                                phone equipment
    Isenbourg-sgp, Lda/
    RT-Mart International Ltd.                  Shopping malls
    --------------------------------------------- --------------
    End table.
    PAAL

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