US embassy cable - 05TAIPEI4697

UNCLAS SECTION 01 OF 12 TAIPEI 004697 
 
SIPDIS 
 
DEPT PASS TO AIT/W AND USTR 
 
DEPT FOR EAP/RSP/TC AND EB/MTA 
 
USTR FOR TIM WINELAND AND GBLUE 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, KTDB, TW, Trade 
SUBJECT: TAIWAN: 2006 NATIONAL TRADE ESTIMATE 
REPORT 
 
TRADE SUMMARY 
------------- 
 
1.  The U.S. trade deficit with Taiwan was $12.9 
billion in 2004, a decrease of $1.3 billion from 
$14.2 billion in 2003. U.S. goods exports in 2004 
were $21.7 billion, up 24.6 percent from the 
previous year. Corresponding U.S. imports from 
Taiwan were $34.6 billion, up 9.6 percent.  Taiwan 
is currently the 9th largest export market for 
U.S. goods. U.S. exports of private commercial 
services (excluding military and government) to 
Taiwan were $5.5 billion in 2004, and U.S. imports 
were $5.7 billion.  The stock of U.S. foreign 
direct investment (FDI) in Taiwan in 2004 was 
$12.1 billion, up from $11.0 billion in 2003. U.S. 
FDI in Taiwan is concentrated largely in the 
finance, manufacturing, and wholesale sectors. 
 
 
IMPORT POLICIES- TARIFFS 
------------------------ 
 
2. Taiwan promulgated a comprehensive tariff 
revision schedule on January 1, 2004 in compliance 
with Taiwan's Free Trade Agreement with Panama and 
Taiwan's accession commitments to the WTO. Tariffs 
on pharmaceuticals, pulp/paper, iron/steel, 
construction equipment, agricultural equipment, 
medical equipment, furniture and toys were 
eliminated starting on January 1, 2004.  As a 
result, the average nominal tariff rate on 
imported goods in 2005 was approximately 5.67 
percent and is expected to fall to 5.5 percent by 
2007.  To comply with WTO commitments, Tariff-Rate 
Quotas (TRQs) on certain items including chicken 
meat, pork bellies, and poultry and pork variety 
meats, were lifted on January 1, 2005.   In 
addition, Taiwan voluntarily lifted the sugar TRQ 
effective January 1, 2005 to meet Taiwan's 
domestic needs.  However, U.S. industry continues 
to request that Taiwan lower tariffs on imports of 
many goods, including large motorcycles, wine, 
canned soups, cookies (sweet biscuits), savory 
snack foods, vegetable juices, potato and potato 
products, table grapes, apples, fresh vegetables, 
and citrus products. 
 
3. Upon Taiwan's accession to the WTO in January 
2002, Taiwan implemented tariff-rate quotas (TRQs) 
on small passenger cars, three categories of fish 
and fish products, and a number of other 
agricultural products. On January 1, 2004, in 
accordance with its WTO accession commitments, 
Taiwan made additional tariff cuts and increased 
TRQ amounts on these products. 
 
4. Taiwan has notified the WTO that it maintains 
Special Safeguards (SSGs) for a number of 
agricultural products covered by TRQs. SSGs, 
permitted under Article 5 of the Agreement on 
Agriculture, allow Taiwan to impose additional 
duties when import quantities exceed SSG trigger 
volumes or import prices fall below SSG trigger 
prices. As Taiwan has not imported many of these 
products previously, SSG trigger volumes are 
relatively low. Taiwan has not imposed any 
safeguard provisions and none of the imports of 
subject products have reached the safeguard 
ceiling in 2005, although SSGs have been 
previously triggered on several products, 
including chicken legs and wings, and several 
types of offal.  Products generally continue to be 
imported in spite of the safeguard tariff. 
 
5. To meet WTO commitments, Taiwan has eliminated 
99.27 percent import controls of 10,921 official 
import categories.  Currently, there are 80 
product categories requiring import permits from 
the Board of Foreign Trade (BOFT) including 56 
categories that are prohibited and 24 that can 
only be imported under special conditions.  Most 
of the permit-required categories are related to 
public-sanitation and national-defense concerns 
and include ammunition and some agricultural 
products.  In addition, Taiwan maintains a lengthy 
list of products that are banned if made in China, 
including chocolate confectionary and meters for 
medical equipment.  However, the Ministry of 
Economic Affairs recently informed AIT that 
imports of certain unfilled chocolate from China 
will be allowed no later than June 1, 2006. 
 
6. Agricultural and Fish Products: Prior to its 
WTO accession, Taiwan banned or restricted imports 
of 42 agricultural and fish items. In January 
2002, Taiwan liberalized imports of 18 of these 
agricultural and fish categories and implemented 
TRQs on the remaining 24 items. TRQs on a number 
of products of interest to the United States 
(chicken meat, pork bellies and offal, and poultry 
offal) were eliminated on January 1, 2005. 
 
7. Rice: Before Taiwan's WTO accession, imports of 
rice were banned. During 2002, rice imports were 
subject to an absolute quota that covered both 
public and private sector imports. In 2003, Taiwan 
changed its rice import regime to a tariff-rate 
quota system without consultation with its trade 
partners. As a result, in January 2003 the United 
States, as well as Australia and Thailand, 
formally objected to Taiwan's proposed rice import 
system at the WTO. Since then, the United States 
has also raised concerns regarding Taiwan's 
implementation of its rice import system, 
including cancellation of mark-up price reductions 
for several private-sector tenders, and the use of 
a "ceiling price" for public-sector tenders. 
Despite these difficulties, the U.S. has been able 
to supply a majority of Taiwan's imported rice 
every year since accession. In 2004, Taiwan's 
implementation of its import commitments improved 
significantly, but the price ceiling issue 
resurfaced in 2005.  Also, during 2004 and 2005 
the United States and Taiwan made substantial 
progress in resolving outstanding differences on 
Taiwan's rice procurement arrangements.  However, 
certain rice suppliers to the Taiwan market other 
than the United States have not agreed to proposed 
modifications to Taiwan's rice import system. As a 
result, Taiwan will continue its current system 
while working toward final resolution of the rice 
import issue. 
 
8. Tobacco and Alcohol Products: As a condition of 
Taiwan's WTO accession, a new tobacco and alcohol 
management and tax system went into effect on 
January 1, 2002. In place of the previous tax on 
imports administered by the former monopoly 
authority, the Taiwan Tobacco and Wine Monopoly 
Bureau (TTWMB), Taiwan agreed to impose an excise 
tax and to eliminate tariffs on imports of most 
spirits.  Taiwan also liberalized private alcohol 
production upon its accession to the WTO and 
private cigarette manufacturing in 2004. TTWMB 
became a state-owned corporation, Taiwan Tobacco 
and Liquor Corporation (TTLC), in July 2002. 
However, primarily due to resistance by organized 
labor, the privatization of the TTLC has been 
repeatedly postponed and there is no target date 
for implementing privatization. 
 
9. Wood Products: Taiwan has revised building 
codes in line with international practices. 
However, Taiwan has not yet completed a companion 
fire code. This delay means that while a wood 
frame structure may be built, approval by fire 
inspection authorities is contingent on review and 
comment by a special committee on details, such as 
design and usage - making insurance and financing 
difficult to obtain. U.S. wood products companies 
have raised concerns that this practice is 
restrictive and does not encourage wood use in 
construction. The continued use of a special 
committee rather than finalizing a fire code 
unnecessarily delays construction of wood 
structures and raises the cost of using wood 
materials significantly beyond that of other 
materials such as concrete and steel. 
 
10. Automobiles and Motorcycles: Local content 
requirements in the automobile and motorcycle 
industries were lifted as part of Taiwan's WTO 
accession. The importation of motorcycles with 
engines larger than 150 cc was liberalized in July 
2002 as part of Taiwan's WTO commitments.  In mid- 
2003 Taiwan agreed to set emissions standards for 
motorcycles over 700 cc in line with international 
standards, a step the U.S. motorcycle industry 
supported. Small motorcycles (below 250cc) are 
prohibited on expressways.  Larger motorcycles are 
restricted from most expressways but are allowed 
on two national highways.  The Ministry of 
Transportation and Communications (MOTC) has 
entrusted the Institute of Transportation (IOT) 
with conducting an evaluation to determine whether 
to lift the restriction on large motorcycles on 
expressways.  IOT is scheduled to announce the 
result in June 2006.  The U.S. remains concerned 
with Taiwan's tariffs and other taxes on large 
motorcycles as well as Taiwan's restrictions on 
motorcycle access to highways. 
 
STANDARDS, TESTING, LABELING AND CERTIFICATION 
--------------------------------------------- - 
 
11. As of October 31, 2005, the Bureau of 
Standards, Metrology & Inspection (BSMI) had 
13,981 separate existing standards.  The rate of 
harmonization with international standards (both 
identical and modified) was 72 percent, up from 69 
percent on December 31, 2004. 
 
12. Industrial and Home Appliance Products: 
Industrial and home appliance products (such as 
air-conditioning and refrigeration equipment) are 
subject to safety and Electo-magnetic 
Compatability (EMC) testing requirements before 
clearing customs.  The manufacturers or importers 
can choose tests on each shipment "batch-by-batch 
inspection" (BBI) with Type Approval or 
"registration of product certification" (RPC). 
All safety testing for end products must be done 
in Taiwan by Taiwan-accredited laboratories. 
Taiwan accepts EMC testing by NIST-accredited 
laboratories if they are in the U.S. only for IT 
equipment based on the EMC Mutual Recognition 
Agreement (MRA).  For those products that adhere 
to the ISO 9000 quality management system, an 
alternative factory inspection module was 
introduced.  The manufacturers or importers may 
choose the method most appropriate to them when 
applying for registration under the RPC scheme. 
 
13. Several new standards were announced in 2005 
for electronic and household appliances and toys. 
The revised Chinese National Standards (CNS) 12574 
on household pressure-cooking pots was published 
on September 27, 2004.  This revised standard was 
used to conduct inspections of such products 
beginning in May 2005.  Starting August 1, 2005, 
18 additional types of toys were required to pass 
inspection before entering the market.  This makes 
a total of 38 types of toys that require 
inspection.  In July 2005, The Ministry of 
Economic Affairs proposed that television 
receivers must include the capability to receive 
over-the-air digital television (DTV) broadcast 
signals, in addition to the existed EMC and safety 
requirements for television receivers that are 
already subject to inspection.   The DTV receiving 
capability schedule will be based on the size of 
the screen with larger TV's required to comply as 
of January 1, 2006 and the smallest by January 1, 
2008. 
 
14. Sanitary and Phytosanitary Measures: As a 
member of the WTO, Taiwan must abide by the WTO 
Agreement on the Application of Sanitary and 
Phytosanitary Measures (including notification of 
such measures). In 1998, Taiwan agreed to accept 
meat and poultry imports from plants approved by 
the USDA Food Safety Inspection Service. In 1999 
and 2000, Taiwan agreed to accept Codex 
Alimentarius or U.S. pesticide residue standards 
for some chemicals used on imported fruits and 
vegetables. However, the U.S. continues to be 
concerned that some Taiwan plant and animal 
quarantine measures are not always based on sound 
science and are more trade restrictive than 
required. 
 
15. Beverage Alcohol Products: On July 1, 2004, 
the Ministry of Finance (MOF) eliminated 
ingredient-labeling requirements for alcoholic 
beverages.  However, product labels must include a 
warning label stating overdrinking is harmful to 
health.  Taiwan will implement new "Regulations 
Governing the Inspection of Imported Alcohol", 
beginning January 1, 2006 for wine, fruit wine, 
beer, and brewed cereal beverages; and on July 1, 
2006 for all alcoholic beverage imports. 
Importers of alcoholic beverages can submit 
documentation of sanitary inspection or safety 
assurance issued by official in charge of alcohol 
product inspection or professional alcohol 
associations of exporting countries to replace 
product inspection upon customs clearance. 
 
16. Agricultural Biotechnology Products: Taiwan 
authorities generally have taken a cautious, but 
fairly rational approach to trade in agricultural 
biotechnology products. Risk assessment 
documentation on agricultural biotechnology corn 
and soybeans were required to be submitted to the 
Department of Health (DOH) before April 30, 2002, 
and mandatory labeling on certain corn and soybean 
products commenced in 2003. In October 2003, DOH 
announced its intention to require registration of 
agricultural biotechnology products other than 
corn and soybeans in 2004, but offered an 
opportunity for life science companies to obtain 
interim approval for those products currently 
commercialized.  No disruptions to trade have 
resulted from Taiwan's biotechnology regulations. 
However, with a number of products entering the 
regulatory approval pipeline and a lack of 
investment in a strong domestic regulatory 
infrastructure, delays in approvals have become 
more frequent. 
 
17. Labeling of biotechnology food: Taiwan 
requires warning labels on foods containing 
biotechnology corn or soybeans. All food products 
containing 5 percent or more bio-engineered 
soybean or corn ingredients by weight must be 
labeled as "Genetically Modified (GM)" or 
"Containing Genetically Modified." 
 
18. Medical Devices: Registration and approval 
procedures for medical device imports are complex 
and time-consuming, and have been the subject of 
long-standing complaints by U.S. firms. The 
registration process requires extensive 
documentation, sometime arbitrary demands for 
additional information and redundant testing. 
Changes in the registration requirements mean 
manufacturers must register Class 1 devices for 
the first time and re-register previously approved 
products.  In most cases, this requires companies 
to submit additional documentation, even when 
products are based on previously approved devices, 
are identical products made in different quality 
system documentation (QSD) manufacturing sites, or 
have changes in the product's outer package.  The 
Department of Health was forced to extend a 
registration deadline of June 20, 2005 when it 
became clear that DOH lacked the staff to process 
applications for the majority of devices by the 
deadline.  DOH is optimistic that most products 
will be registered by December 20, 2005.  In 
addition, regulations are vague on when local 
clinical trials are required for the review 
process or whether industry is allowed to provide 
additional input in response to questions posed by 
DOH officials reviewing the clinical trial 
submissions.  Taiwan has identified both the 
medical device and pharmaceutical sectors as 
priorities for local development, resulting in 
Taiwan agencies often favoring the interests of 
local companies over foreign firms. 
 
19. Pharmaceuticals: Taiwan's lengthy 
pharmaceutical registration process slows market 
entry for new drugs that have already received 
regulatory approval in advanced economy markets 
and imposes unnecessary costs on drugs that have 
been approved in Taiwan.  Product registration 
requires submission of plant master files, 
validation documentation as well as local clinical 
trials.  Following extensive negotiations, Taiwan 
agreed in August 2003 to replace submission of 
full-scale validation documentation with an 
overview template/certificate of pharmaceutical 
products (CPP) issued by relevant authority from 
the source country.  DOH retains the right to 
conduct overseas site inspections based on risk 
factors.  Despite intensive consultations, US 
industry remains concerned that these inspections 
will unfairly target manufacturers that provide 
abridged data.  Discussions between the United 
States and Taiwan to resolve remaining issues, 
especially requirements for computerized 
validation data, have led to the development of 
mutually agreeable standards. 
 
20. Taiwan uses various methods to lower assigned 
prices on innovative drugs, including "reference 
pricing" and periodic lowering of assigned prices 
without a transparent process.  In addition, 
Taiwan continues to restrict consumer choice and 
limit U.S. market access through disproportionate 
reimbursement of domestically manufactured generic 
drugs.  Article 49 of Taiwan's National Health 
Insurance law mandates reimbursement of healthcare 
providers at actual transaction costs, but this 
law is not enforced. Discussions between the 
United States and Taiwan on this issue are 
ongoing. 
 
21. In July 2002, Taiwan introduced a "global 
budget" in selected locations in which hospital 
reimbursements are capped by the National Health 
Insurance system.  The goal is to increase 
efficiency and encourage cost-cutting measures. 
In practice, this has led to increased pressure on 
pharmaceutical suppliers to provide discounted 
products.  Despite reports of negative effects on 
patient care, DOH has announced plans to extend 
global budgeting to all medical centers in January 
2006. 
 
22. On September 1, 2005, BNHI introduced 
guidelines to discourage improper use of 
pharmaceuticals.  For instance, duplication of 
anti-acid prescriptions will no longer be 
reimbursed.  In an effort to cut costs, BNHI 
stopped reimbursing for some over-the-counter 
medicines in July 2005. 
 
23. Other issues: Taiwan reimposed its import 
suspension on U.S. beef in June of 2005, after the 
discovery of a second case of Bovine Spongiform 
Encephalopathy (BSE) in the U.S.  Taiwan initially 
reopened the market to U.S. beef in April 2005, 
after banning imports of U.S. beef in December 
2003 following the detection of the first positive 
case in the State of Washington. As of the 
publication of this report, the U.S. Government is 
working intensively to re-open the market as 
quickly as possible. Non-ruminant products for 
feed use, such as tallow, lard, poultry and 
porcine meal are banned. Limited exceptions are 
only approved after a very slow case-by-case 
review or plant clearance process. 
 
GOVERNMENT PROCUREMENT 
---------------------- 
 
24. Taiwan committed to accede to the WTO 
Agreement on Government Procurement (GPA) as part 
of its WTO accession.  While Taiwan has applied 
for accession to the GPA, its accession has not 
yet been completed due to differences regarding 
nomenclature issues.  To prepare for accession, 
Taiwan implemented a new Government Procurement 
Law in mid-1999.  This was an important first step 
toward establishing a transparent and predictable 
environment for Taiwan's multi-billion dollar 
public procurement market. 
 
25. In August 2001, Taiwan and the United States 
signed a Memorandum of Understanding on Government 
Procurement.  The MOU calls for Taiwan to 
implement certain procedural commitments 
immediately, while others will be implemented upon 
accession to the GPA.  U.S. participation in 
Taiwan's government procurement projects is 
discouraged by clauses in some contracts that 
exclude foreign tenders as well as Taiwan's 
refusal to implement liability caps and exclusions 
for consequential damages.  The Public 
Construction Commission often requests U.S. firms 
to provide U.S. relevant practices and 
international cases for reference.  The United 
States continues to encourage the Taiwan 
government to abide by the provisions of the GPA 
in spite of difficulties in accession. 
 
EXPORT SUBSIDIES 
---------------- 
 
26. The Taiwan Government provides incentives to 
industrial firms in export processing zones and to 
firms in designated "emerging industries."  Some 
of these programs may have the effect of 
subsidizing exports.  Taiwan has notified the WTO 
of these programs and, as part of its WTO 
accession, committed to amend or abolish any 
subsidy programs inconsistent with WTO rules. 
Amendments of relevant laws, such as the Statute 
for Establishment and Management of Economic 
Processing Zones and the Statute for Establishment 
of Scientific Industrial Parks, to eliminate 
improper subsidies, went into effect upon Taiwan's 
WTO accession.  The United States continues to 
monitor Taiwan's compliance with the commitments 
it undertook as part of its WTO accession, 
including those obligations associated with the 
Agreement on Subsidies and Countervailing 
Measures. 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
--------------------------------------------- 
 
27. IPR protection continues to be an important 
issue in the U.S.-Taiwan trade relationship.  The 
U.S. recognizes Taiwan's continuing efforts to 
take measures to improve enforcement of IPR in 
2005, including intensifying raids against 
manufacturers and retailers.  The U.S. 
International Intellectual Property Alliance 
estimates that losses due to IPR infringement in 
Taiwan will cost U.S. industry $320 million in 
2005. The U.S. Government also continues to be 
concerned with the prevalence of counterfeit 
pharmaceuticals in Taiwan despite several large 
raids against manufacturers and the passage of 
amendments strengthening the pharmaceutical law. 
Another area of concern is the lack of adequate 
protection for the packaging, configuration, and 
outward appearance of all products - known as 
trade dress. U.S. industry has also complained 
about delays in court cases and the Taiwan 
judiciary's difficulty in handling technical 
cases. Generally, U.S. IPR holders find that court 
procedures themselves constitute barriers and 
penalties for intellectual property violations are 
inadequate to deter violators. 
 
28. In December 2004, Taiwan was moved from the 
U.S. Special 301 Priority Watch List to the Watch 
List after an out-of-cycle review determined that 
Taiwan had made sufficient progress to warrant an 
improved status. In addition, soon after the 
results of the out-of-cycle review were announced 
in January 2005, Taiwan's legislature approved a 
bill to prevent unfair commercial use of 
pharmaceutical test data. Despite these 
improvements, the United States will continue to 
monitor Taiwan authorities' development of 
implementing regulations for the protection of 
pharmaceutical test data.  Taiwan needs to take 
further effective actions against piracy of 
copyrighted works over the Internet and to 
continue strengthening of enforcement efforts so 
that piracy and counterfeiting are effectively 
reduced. The United States also will continue to 
follow with interest Taiwan Customs efforts to 
stop exports of counterfeit materials to ensure 
that these efforts are as effective, or more 
effective, than Taiwan's recently abolished Export 
Monitoring System. 
 
29. To improve Taiwan's ability to protect IPR, 
the government formulated a three-year (2003-2005) 
IPR Action plan. Measures included establishing 
the Integrated Enforcement Task Force (IETF) with 
a force of 220 police officers in January 2003; 
opening three warehouses for storing 
counterfeiting seizures; raising informant rewards 
to up to approximately $310,000 per counterfeiting 
seizure; strengthening border control inspection 
for optical media exports; and increasing day and 
night inspections on optical media production 
facilities, night markets, and retail shops. 
Counterfeit goods seized by the U.S. Customs 
Service from shipments of Taiwan origin dropped 
from $26.5 million in FY2002 to $767,671 in the 
first half of FY 2005.  The Business Software 
Alliance (BSA) also announced that the software 
piracy rate in Taiwan fell from 54 percent in 2002 
to 43 percent in 2003, this rate remained 
unchanged in 2004. 
 
30. Trademark piracy, particularly clothing and 
luxury goods is a growing concern.  Much of the 
counterfeit product is allegedly smuggled from 
China.  Rightsholders claim Taiwan is both a 
transshipment point and a market for this pirated 
material.  Taiwan Customs makes regular seizures 
of counterfeit apparel and handbags, but 
rightsholders complain that investigation and 
prosecution remains hampered by an overworked and 
disinterested bureaucracy and light sentences do 
not deter trademark pirates. 
 
31. Internet piracy and illegal peer-to-peer 
downloading are serious concerns for IP 
enforcement in Taiwan. Infringers use the Internet 
to market illegal goods and allow the unauthorized 
downloading of music, movies, and software from 
Internet service providers. To deter internet 
piracy, the Taiwan Intellectual Property Office 
(TIPO) in May 2005 initiated an "implementation 
plan for strengthening preventive measures against 
internet infringement".  TIPO created a joint 
internet infringement inspection special task 
force to conduct internet inspections, and has 
made efforts to strengthen cooperation with 
enforcement agencies in other nations to tackle 
cyber crime.  In addition, TIPO is coordinating 
with ISPs and rightsholders' associations to 
establish code of conduct for ISPs and is working 
with the Ministry of Education to enhance internet 
management at schools.  Efforts to use the legal 
system to shut down or restrict the activities of 
such services have met with mixed success.  In 
June 2005, peer-to-peer (P2P) company EZPeer was 
found not guilty of allowing users to download 
copyrighted material through their site.  However, 
in September 2005, another popular P2P site, Kuro, 
was found guilty of the same charge. 
Rightsholders groups call on Taiwan to further 
amend the Copyright Law or other regulations to 
clarify secondary liability of ISPs and other 
intermediaries.  Taiwan's 2001 Optical Media law 
and night and day inspections have led to a 
dramatic decrease in large-scale factory 
production of counterfeit optical media products. 
32. The U.S. remains concerned with the growing 
incidence of counterfeit pharmaceutical products 
in the Taiwan market.  The Taiwan government in 
March 2004 revised the pharmaceutical affairs law 
to increase penalties for pharmaceutical 
counterfeiting and the Ministry of Justice, the 
Taiwan Coast Guard and Taiwan Customs have had 
some success in intercepting imports of 
counterfeit pharmaceuticals.  Nevertheless, 
counterfeit products continue to be a threat to 
public health and Taiwan's DOH enforcement 
mechanism is not strong.  In January 2005, 
Taiwan's legislature approved a bill to provide 
data protection for pharmaceutical products, a 
TRIPS commitment, and an incentive for innovative 
pharmaceutical manufacturers to introduce new 
products into the Taiwan market but final 
implementing regulations are still pending. The 
United States will monitor Taiwan's development of 
implementing regulations to ensure that 
commitments made by Taiwan regarding the period of 
protection are adequately codified. 
 
33. Taiwan's judiciary continues to experience 
difficulties in handling technical cases, and U.S. 
industry has complained about long delays in court 
cases.  Often conflicting or unclear lines of 
bureaucratic authority stymie IPR enforcement 
efforts.  The United States continues to assist in 
remedying the weaknesses of the judicial system by 
holding seminars on criminal enforcement and 
encourages Taiwan to set up IP courts with 
experienced judges. 
 
SERVICES BARRIERS 
----------------- 
 
Financial Services: 
34. Taiwan continues to liberalize its financial 
market beyond its WTO accession commitments. In 
January 2001, the Securities and Futures Exchange 
Commission (SFEC) lifted the restriction on 
employment of foreigners by domestic securities 
firms. Also in January 2001, the SFEC removed the 
50-percent foreign ownership limit on listed 
companies. In June 2003, the SFEC phased out a 
minimum two-year period for foreign holders of 
global depository receipts (GDRs) to exchange GDRs 
for equity stocks after a GDR is issued. In July 
2003, the SFEC lifted the ceiling limit of $3 
billion on inward remittances by a qualified 
foreign institutional investor (QFII). It also 
abolished the requirement for a QFII to inwardly 
remit its investment fund within two years after 
it receives approval. In early October 2003, the 
Taiwan government voluntarily abolished the QFII 
system. 
 
35. Foreign portfolio investors are required to 
complete registration rather than seek advance 
approval, and in December 2003, the registration 
could be done through the Internet. In late 2003, 
Taiwan allowed foreign portfolio investors to 
trade in the futures and money markets as a part 
of financial management prior to actual portfolio 
investment. However, futures, money market funds 
and bank deposits are subject to a limit of 30 
percent of total inward remittances. All offshore 
foreign portfolio investors may trade in Taiwan's 
stock market regardless of their size, except for 
investments in hedge funds and investors from the 
PRC.  However, foreign individual investors are 
still subject to an investment limit. Onshore 
foreign individuals and institutional investors 
are also subject to annual inward/outward limits. 
 
36. Morgan Stanley Capital International (MSCI) 
raised the weight for Taiwan stocks in its index 
over the past year, attracting a large volume of 
foreign investment funds to flow into Taiwan in 
early 2005.  In addition to liberalization, Taiwan 
plans to set up a securities market international 
board where both listing and trading will be 
denominated in U.S. dollars.  The planned 
international board is designed to attract foreign 
companies to list here as well as foreign 
portfolio investors to trade on the board. 
 
37. Taiwan continues to work towards fulfilling 
its May 1997 commitment to liberalize insurance 
premium rates and policy clauses. It voluntarily 
opened the reinsurance market. In November 2001, 
Taiwan permitted life insurance companies to sell 
investment-linked products. Taiwan began to allow 
life insurance companies to set their own premium 
rates in January 2002 if the companies had their 
own actuaries to determine such rates. Taiwan 
adopted a three-stage premium rate liberalization 
program for non-life insurance. Effective January 
1, 2002, insurance firms were allowed to set 
premium rates for large face-value fire insurance 
policies and fire insurance policies sold to 
multinational corporations. All non-life insurance 
companies were permitted to set loading expenses 
(including commissions) for all insurance 
products.  The second stage of premium 
liberalization began in April 2005.  After that 
date, non-life insurance firms meeting government- 
set requirements were not required to obtain prior 
approval for pure premiums except for car and fire 
insurance.  For car and fire insurance, they were 
allowed to set pure premiums within a range 
between the government-approved benchmark rate and 
10% below the benchmark. The target date for total 
liberalization may be advanced to 2006 from 
January 2008 when the insurance policy review 
procedure is deregulated. 
 
38. Taiwan adopted a transparent approval 
procedure for insurance policies in January 2001. 
Prior approval is not required for products whose 
policy clauses are identical or very similar 
either to the standard versions published by the 
government or to the existing products of other 
companies. New products are subject to prior 
approval. Taiwan's Insurance Bureau (formerly the 
Department of Insurance) adopted a negative list 
system in January 2005. Under the new system, new 
products subject to prior approval from the Bureau 
will be sharply reduced. The processing time will 
be cut from 90 days to 75 days for life insurance 
products and 60 days for non-life products. The 
Insurance Bureau plans to further deregulate the 
insurance policy review procedure in 2006. 
Insurance companies with a rating above a set 
level will be permitted to determine their own 
premium rates, and will not need to seek approval 
for 90% of their new products. 
 
39. Taiwan's Insurance Bureau has allowed market 
access for Taiwan's reinsurance market, and the 
Central Reinsurance Corporation Statute was 
revoked in June 2004. The Central Reinsurance 
Corporation, the only local reinsurance firm in 
Taiwan, was privatized in July 2002. In August 
2002, the Bureau lowered the capital requirement 
for entering the reinsurance market. In response 
to the liberalization, the Swiss Reinsurance Co. 
became the first foreign reinsurance firm to set 
up a branch in Taiwan in early 2004. 
 
Telecommunications Services: 
40. Following the issuance of licenses to three 
fixed-line telecommunications service providers in 
2000, the Directorate General of 
Telecommunications (DGT) again opened applications 
for integrated network licenses in September 2004. 
The capital requirement for integrated network 
services was reduced to NT$16 billion from NT$40 
billion and system capacity requirements were 
lowered from one million to 400,000 subscriber 
lines.  Since that time there has been only one 
bidder (October 2005) for a license to provide 
integrated network services.  DGT also opened the 
local, long-distance and international call 
businesses in March 2005. A new formula based on 
local population will be used to calculate the 
capital requirements for each of the new service 
licenses; for instance, NT$1.2 billion may be 
required for a local call license in Taipei City 
and NT$2 billion for long-distance and 
international service licenses. 
 
41. Existing fixed-line operators still face 
serious difficulties in negotiating reasonable 
interconnection arrangements at technically 
feasible points in the network of the dominant 
carrier, Chunghwa Telecom (CHT). Despite its 
announcement in May 2004 that it would share the 
local loop with the three private providers, CHT 
set two limitations; non-CHT service providers 
access to CHT's local loop can only be initiated 
by end users and only voice service in three 
metropolitan areas is open to non-CHT operators. 
Taiwan's Premier announced in November 2003 that 
the government would invest a total of NT$35 
billion in the next five years to help local 
governments resolve "last mile" problems for 
telecommunications end-users. This plan, part of a 
number of telecommunications-related investment 
proposals called "Mobile Taiwan," will also 
include the construction of a second broadband 
network around Taiwan to be jointly used by 
telecommunications service companies. These new 
investment projects are expected to help break the 
monopoly of the telecommunications network by 
formerly state-owned CHT. 
 
42. Until 2005, Taiwan's telecommunications 
regulator (DGT) and the largest telecom operator 
(CHT) were both under the control of the Ministry 
of Transportation and Communication (MOTC), 
creating an obvious conflict of interest. 
Privatizing CHT and establishing an independent 
regulator were two of Taiwan's WTO accession 
commitments.  In August 2005, MOTC officially 
privatized CHT by selling an additional 17 percent 
of its CHT stock --3 percent domestically and 14 
percent on the New York Stock Exchange.  These 
sales brought the percentage of CHT stock in 
government hands to below 50 percent.  However, 
CHT still retains close ties to the government. 
In November 2005, Taiwan's Premier announced a CHT 
rate cut on the floor of the Legislative Yuan, 
calling into question CHT's independence.  The 
Legislative Yuan in October 2005, finally approved 
the independent regulatory body called the 
National Communications Commission (NCC) after 
heated political debate.  The political compromise 
necessary to pass the legislation raise concerns 
that the NCC could be subject to political 
pressure.  The new body will have 13 commissioners 
selected by political parties and will be staffed 
by employees of the former DGT and Government 
Information Office.  It is expected to begin 
operation by the beginning of 2006. 
 
43. In August 2003, DGT amended regulations to 
open Taiwan's mobile virtual network operator 
(MVNO) market and began licensing in September 
2003. The MVNO market opening offers an 
alternative third-generation (3G) wireless service 
to local consumers and allows service providers to 
operate without a 3G license by partnering with 
existing 3G operators. Cellular carriers KG 
Telecom and Far EasTone merged in October 2003. 
The merger has created a mobile service market 
equally divided between FarEasTone, CHT and Taiwan 
Cellular. In November 2003 the DGT announced the 
regulations governing number-portability service, 
enabling subscribers to retain their existing 
telephone numbers when switching from their 
original Type I enterprise to another Type I 
enterprise engaging in the same business. Actual 
implementation of the number-portability service 
started October 15, 2005.  In November 2004 DGT 
began to solicit comments for a proposal to 
facilitate development in the voice over Internet 
protocol (VoIP) services. DGT is expected to open 
VoIP to telecom operators in November 2005.  The 
United States continues to monitor Taiwan's 
progress in the telecommunications sector. 
 
INVESTMENT BARRIERS 
------------------- 
 
44. Taiwan continues to relax investment 
restrictions in a host of areas, but foreign 
investment remains prohibited in a handful of 
industries such as agriculture, public utilities, 
and postal services.  Taiwan dropped oil 
exploration from the negative list of industries 
in May 2004. Foreign investors in the 
telecommunications sector are subject to a 60 
percent ownership limit, with the limit on direct 
foreign investment raised from 20 percent to 49 
percent in 2002. Foreign investors can own 
minority stakes in cable and satellite 
broadcasters, but are prohibited from owning 
terrestrial broadcasters.  In February 2003, 
Taiwan lifted its ban on foreign investment in 
liquor production, although prior approval is 
required.  Similarly, in January 2004, foreign 
investment restrictions on cigarette production 
were removed, although prior approval is required. 
The 50 percent foreign ownership limit on air 
cargo forwarders and air cargo terminals was 
eliminated when Taiwan became a WTO member.  The 
limit on foreign ownership of power plants has 
been removed, while foreign investment in 
electricity transmission and distribution remains 
subject to a 50 percent ownership limit and 
approval by the Executive Yuan. In October 2003, 
Taiwan set a foreign ownership limit of 49 percent 
on high-speed railway transportation. 
 
ANTICOMPETITIVE PRACTICES 
------------------------- 
 
45. In the cable TV market, U.S. program providers 
contend that the island's three dominant multi- 
system operators (MSOs) frequently collude to 
inhibit fair competition. Control by the MSOs of 
upstream program distribution deterred U.S. 
program providers from negotiating reasonable 
program fees. In December 2003, Taiwan's 
legislature passed a new broadcasting law 
combining the Radio and Television Broadcasting 
Law, the Cable Television Broadcasting Law, and 
the Satellite Television Broadcasting Law. 
Following passage of the law, Taiwan officials are 
working to eliminate political interference in the 
television broadcasting industry by monitoring 
public releases of state-owned and party-owned 
equity shares in broadcast media. 
 
 
ELECTRONIC COMMERCE 
------------------- 
 
46. Taiwan's approach to electronic commerce and 
related issues is still evolving.  According to 
the Institute for Information Industry, over 90 
percent of Taiwan's companies have corporate 
networks and a network infrastructure, while 61 
percent of 5.2 million household computer users 
link their computer to networks -- mainly by 
broadband digital subscriber line (DSL).   A law 
protecting personal on-line data was approved in 
2001. The Electronic Signature Law, passed by the 
Legislative Yuan in late October 2001, adopts the 
principles of the United Nations Commission on 
International Trade Law's Model Law on Electronic 
Commerce and recognizes the legal validity of 
electronic contracts, records, and signatures. 
The Taiwan government has passed several laws and 
regulations governing electronic commerce since 
2003.  In May 2005, the Ministry of Finance 
announced a guideline to impose a business tax on 
internet vendors who sell products for profit and 
have monthly sales over NT$60,000.  In addition to 
a business tax, the authorities discussed a 
proposal to assess import duties for software sold 
and downloaded over the Internet. If implemented, 
such a policy would appear to run counter to the 
Doha Declaration that WTO Members would maintain 
their current practice of not imposing customs 
duties on electronic transmissions. Taiwan has 
refused to join the United States at APEC in 
advocating for a permanent moratorium on taxation 
of Internet transactions. 
 
KEEGAN