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