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

UNCLAS SECTION 01 OF 10 TAIPEI 000017 
 
SIPDIS 
 
DEPT PASS TO AIT/W AND USTR 
 
DEPT FOR EAP/RSP/TC AND EB/MTA 
 
USTR FOR SCOTT KI AND GBLUE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON KTDB TW KPRP
SUBJECT: TAIWAN: 2005 NATIONAL TRADE ESTIMATE REPORT 
 
 
TRADE SUMMARY 
------------- 
 
¶1.  The U.S. trade deficit with Taiwan was $14.2 billion in 
2003, up $385 million from 2002.  U.S. goods exports during 
the same period were $ 17.4 billion, down 5.1 percent from 
the previous year.  Corresponding U.S. imports from Taiwan 
were $31.6 billion, down 1.7 percent.  Taiwan is the 9th 
largest export market for U.S. goods and 6th largest market 
for agricultural products. 
 
¶2.  U.S. exports of private commercial services (i.e., 
excluding military and government) to Taiwan were $4.8 
billion in 2002 (latest data available), and U.S. imports 
were $5 billion.  The stock of U.S. foreign direct 
investment (FDI) in Taiwan in 2003 was $ 11 billion, up from 
$ 10.1 billion in 2002.  U.S. FDI in Taiwan is concentrated 
largely in the finance, manufacturing, and wholesale 
sectors. 
 
OVERVIEW 
-------- 
 
¶3.  Taiwan experienced an economic boom in 2004, prompting 
its estimated real GDP growth to post a seven-year high of 
nearly six percent.  However, excess inventory, higher oil 
prices and a steady increase in interest rates dampened 
Taiwan's major export markets and contributed to a slowdown 
in Taiwan's economic expansion in the second half of 2004. 
Taiwan's real GDP growth is expected to decline from 7.3 
percent in the first half of 2004 to 4.7 percent in the 
second half and further down to 4.5 percent in 2005.  Export 
growth declined steadily from 29 percent in the second 
quarter to 21 percent in the third quarter and 17.5 percent 
in October 2004.  Meanwhile, industrial growth dropped from 
15 percent in the second quarter to 8.6 percent in the third 
quarter and merely three percent in October.  A chronic 
trade surplus has enabled Taiwan to hold the third largest 
foreign exchange reserves of US$235 billion and made Taiwan 
a net capital supplier to the world.  Taiwan is one of the 
major sources of foreign direct investment in China. 
Financial reforms adopted in late 2001 prompted local banks 
to write off NT$1.3 trillion of bad debt, cutting the 
average ratio of non-performing loans (overdue for over 
three months) from nearly 12 percent in early 2002 to 4.5 
percent in October 2004. 
 
IMPORT POLICIES 
--------------- 
 
TARIFFS 
------- 
 
¶4.  Taiwan promulgated a comprehensive tariff revision 
schedule on January 1, 2004 in compliance with Taiwan's Free 
Trade Agreement with Panama, and Taiwan's accession 
commitments to the WTO.  Tariffs on pharmaceuticals, 
pulp/paper, iron/steel, construction equipment, agricultural 
equipment, medical equipment, furniture and toys were 
eliminated starting on January 1, 2004.  As a result, the 
average nominal tariff rate on imported goods in 2004 was 
approximately 5.7 percent and is expected to fall to 5.5 
percent by 2007.  However, U.S. industry continues to 
request that Taiwan lower tariffs on imports of large 
motorcycles, wine, canned soup, biscuits, cookies, snack 
foods, mixed vegetable juices, potato and potato products, 
table grapes, apples, citrus products and polylactic acid, 
which is used to make recyclable plastics. 
 
¶5.  Upon Taiwan's accession to the WTO in January 2002, 
Taiwan implemented a tariff-rate quota (TRQ) system on small 
passenger cars, three categories of fish and fish products, 
and a number of agricultural products.  On January 1, 2004, 
in accordance with its WTO accession commitments, Taiwan 
made additional tariff cuts and increased TRQ amounts on 
these products. Some items of interest to U.S. exporters, 
including chicken meat, pork belly, and poultry and pork 
variety meats, will be fully liberalized in 2005.  In May 
2004, Taiwan increased TRQ on sugar from 205,000 tons to 
255,000 tons to meet Taiwan's domestic market shortage. 
 
¶6.  Taiwan has notified the WTO that it maintains Special 
Safeguards (SSGs) for a number of agricultural products 
covered by TRQs.  SSGs, permitted under Article 5 of the 
Agreement on Agriculture, allow Taiwan to impose additional 
duties when import quantities exceed SSG trigger volumes or 
import prices fall below SSG trigger prices.  As Taiwan has 
not imported many of these products previously, SSG trigger 
volumes are relatively low.  SSGs will also come into play 
once imports of certain commodities are fully liberalized in 
2005 and will likely have the greatest effect on U.S. 
poultry exports.  The United States has raised concerns over 
Taiwan's use of SSGs in both Taipei and Geneva. 
 
Licensing and Other Restrictions 
-------------------------------- 
 
¶7.  In order to comply with its WTO commitments, Taiwan 
eliminated import controls on over 99 percent of 10,912 
official import product categories.  Currently, 24 product 
categories require import permits from the Board of Foreign 
Trade.  Imports of 65 categories are "restricted", including 
ammunition and some agricultural products.  These items can 
only be imported under special circumstances, and their 
importation is effectively banned. 
 
¶8.  Agricultural and Fish Products: Prior to WTO accession, 
Taiwan banned or restricted imports of 42 agricultural and 
fish items. In January 2002, Taiwan liberalized imports of 
18 of these agricultural and fish categories and implemented 
TRQs on the remaining 24 items. TRQs on a number of products 
of interest to the United States (chicken meat, pork belly 
and offal, and poultry offal) will be eliminated on January 
1, 2005 when trade is fully liberalized. 
 
¶9.  Rice: Before Taiwan's WTO accession, imports of rice 
were banned. During 2002, rice imports were subject to a 
minimum market access quota that covered both public- and 
private sector imports. In 2003, Taiwan changed its rice 
import regime from a minimum market access quota to a tariff- 
rate quota without consultation with its trade partners.  As 
a result, in January 2003 the United States, as well as 
Australia and Thailand, formally objected to Taiwan's 
proposed rice import system at the WTO. Since then, the 
United States has also raised concerns regarding Taiwan 
implementation of its rice import system, including 
cancellation of mark-up price reductions for several private 
sector tenders, and the use of a "ceiling price" for public 
sector tenders. Despite these difficulties, U.S. suppliers 
were able to gain a majority of the rice import market in 
2002 and 2003. In 2004, Taiwan's implementation of its 
import commitments improved significantly, allowing the 
United States to secure the largest import market share.  At 
the same time, both sides made substantial progress in 
resolving outstanding bilateral differences in 2004, paving 
the way for final resolution of the issue. 
 
¶10.  Tobacco and Alcohol Products: As a condition of 
Taiwan's WTO accession, a new tobacco and alcohol management 
and tax system went into effect on January 1, 2002.  In 
place of the previous tax on imports administered by the 
former monopoly authority, the Taiwan Tobacco and Wine 
Monopoly Bureau (TTWMB), Taiwan agreed to impose an excise 
tax and to eliminate tariffs on imports of most spirits.  In 
2003, some legislators proposed lower excise taxes on salt- 
added cooking wine, contrary to Taiwan's WTO commitments, 
but these legislators failed. 
 
¶11.  Taiwan also liberalized private alcohol production upon 
its accession to the WTO and private cigarette manufacturing 
in 2004.  TTWMB became a state-owned corporation, Taiwan 
Tobacco and Liquor Corporation (TTLC), in July 2002. 
However, primarily due to resistance by organized labor, the 
privatization of the TTLC has been postponed until 2005. 
 
¶12.  Wood Products: Taiwan has revised building codes in 
line with international practices. However, Taiwan has not 
yet completed a companion fire code. This delay means that 
while a wood frame structure may be built, approval by fire 
inspection authorities is contingent on review and comment 
by a special committee on details, such as design and usage. 
U.S. wood products companies have raised concerns that this 
practice is restrictive and does not encourage wood use in 
construction. The continued use of a special committee 
unnecessarily delays construction of wood structures and 
raises the cost of using wood materials significantly beyond 
that of other materials such as concrete and steel. 
 
¶13.  Automobiles and Motorcycles: Local content requirements 
in the automobile and motorcycle industries were lifted as 
part of Taiwan's WTO accession.  The importation of 
motorcycles with engines larger than 150 cc was liberalized 
in July 2002 as part of Taiwan's WTO commitments. In mid- 
2003 Taiwan agreed to set emissions standards for 
motorcycles over 700 cc in line with international 
standards, a step that the U.S. motorcycle industry 
supported.  The U.S. Government remains concerned with 
Taiwan's tariffs and other taxes on large motorcycles as 
well as Taiwan's restrictions on motorcycle access to 
highways. 
STANDARDS, TESTING, LABELING AND CERTIFICATION 
--------------------------------------------- - 
 
¶14.  Industrial and Home Appliance Products: Industrial and 
home appliance products (such as air-conditioning and 
refrigeration equipment) are subject to safety and 
electromagnetic compatibility (EMC) testing requirements 
before clearing customs.  The manufacturers or importers can 
choose tests on each shipment "batch-by-batch inspection" 
(BBI) with Type Approval or apply "registration of product 
certification (RPC)".  All safety testing for end products 
must be done in Taiwan by-Taiwan accredited laboratories. 
Taiwan accepts EMC testing by NIST accredited laboratories 
if they are in the U.S. only for IT equipment based on the 
1999 EMC Mutual Recognition Agreement (MRA) signed between 
the American Institute in Taiwan (AIT) and the Taipei 
Economic and Cultural Representatives Office (TECRO) in the 
United States.  For those products that adhere to the ISO 
9000 quality management system, an alternative factory 
inspection module was introduced.  The manufacturers or 
importers may choose the module most appropriate to them 
when applying for registration under the RPC scheme. 
 
¶15.  Sanitary and Phytosanitary Measures: As a member of the 
WTO, Taiwan must abide by the WTO Agreement on the 
Application of Sanitary and Phytosanitary Measures 
(including notification of such measures). In 1998, Taiwan 
agreed to accept meat and poultry imports from plants 
approved by the USDA Food Safety Inspection Service. In 1999 
and 2000, Taiwan agreed to accept Codex Alimentarius or U.S. 
pesticide residue standards for some chemicals used on 
imported fruits and vegetables.  However, the United States 
continues to be concerned that some Taiwan plant and animal 
quarantine measures are not always based on sound science 
and are not the least trade-restrictive measures available. 
 
¶16.  Alcohol Beverage Products: On December 31, 2001, 
immediately before its WTO accession, Taiwan implemented new 
regulations requiring major ingredient labeling for alcohol 
beverages.  Although these regulations relate to 
international trade, the United States was not informed by 
Taiwan in advance of their implementation.  Bilateral 
meetings were conducted in 2002 to discuss this requirement 
and as a result, enforcement of the ingredient-labeling 
requirement was delayed until July 2003.  In December 2003, 
Taiwan's legislature passed the Tobacco and Alcohol 
Administrative Law (TAAL), which enabled the Ministry of 
Finance (MOF) to eliminate ingredient-labeling requirements 
for alcohol beverage products.  Beginning July 1, 2004, 
alcoholic beverage product labels do not need to include a 
list of ingredients. 
 
¶17.  Agricultural Biotechnology Products: Taiwan authorities 
generally have taken a cautious, but fairly rational 
approach to trade in agricultural biotechnology products. 
Risk assessment documentation on agricultural biotechnology 
corn and soybeans were required to be submitted to DOH 
before April 30, 2002, and mandatory labeling on certain 
corn and soybean products commenced in 2003. In October 
2003, DOH announced its intention to require registration of 
agricultural biotechnology products other than corn and 
soybeans in 2004, but offered an opportunity for life 
science companies to obtain interim approval for those 
products currently commercialized. No disruptions to trade 
have resulted from Taiwan's biotechnology regulations. 
However, with a number of products entering the regulatory 
approval pipeline and a lack of investment in a strong 
regulatory infrastructure, delays in approvals have become 
more frequent. 
 
¶18.  Labeling of Genetically Modified (GM) food:  Taiwan's 
bioengineered food safety approval and labeling regulation 
took effect on January 1, 2003.  Mandatory labeling of 
bioengineered food was phased in over a two-year period, 
beginning with certain soybean and corn products.  By 2005, 
the label will be required for all processed corn and 
soybean products.    Taiwan uses a 5 percent tolerance for 
bioengineered food labeling.  All food products containing 5 
percent or more bioengineered soybean or corn ingredients by 
weight must be labeled as "Genetically Modified (GM)" or 
"Containing Genetically Modified". 
 
¶19.  Medical Devices: Registration and approval procedures 
for medical device imports are complex and time-consuming, 
and have been the subject of long-standing complaints by 
U.S. firms.  The registration process requires redundant 
testing, and foreign manufacturers must re-register new 
products even though they are based on previously approved 
devices.  In addition, it is unclear when local clinical 
trials are required for the review process or whether 
industry is allowed to provide additional input in response 
to questions posed by DOH officials reviewing the clinical 
trial submissions.  The adoption of the U.S. Food and Drug 
Administration's medical device classification system in 
June 2000 was welcomed by industry.  However, Taiwan's 
implementation of this system in 2004 was faulted by 
industry for requiring re-registration of previously 
approved products.  Taiwan has identified both the medical 
device and pharmaceutical sectors as priorities for local 
development, resulting in Taiwan's agencies often favoring 
the interests of local companies over foreign firms. 
 
¶20.  Pharmaceuticals: Taiwan's lengthy pharmaceutical 
registration process slows market entry for new drugs that 
have already been approved in other economies and also 
imposes unnecessary costs on drugs that have been approved 
in Taiwan.  In May 2001, the DOH announced a requirement for 
firms to submit voluminous amounts of proprietary 
manufacturing data as part of the registration and approval 
process for both new drugs and those already on the market. 
The amount of such "validation" data requested by Taiwan far 
exceeded international norms.  In response to concerns 
raised by the United States and its industry, the DOH had 
postponed implementation of this requirement.  In December 
2002, the United States and Taiwan exchanged letters in 
which Taiwan affirmed its commitment to adhere to 
international practices as applied in advanced economies, 
and agreed that firms can demonstrate validation status by 
providing documentary evidence, including abridged 
registration applications.  In August 2003, DOH and the U.S. 
industry reached agreement on validation data resolutions. 
However, DOH has announced plans to assign risk based 
"priority numbers" that will be used to determine which 
manufacturers are inspected by DOH.  US industry is 
concerned that these risk priority numbers are based on non- 
transparent criteria and inspections will unfairly target 
manufacturers that provide abridged data.  Discussions 
between the United States and Taiwan to resolve remaining 
issues are ongoing. 
 
¶21.  Taiwan uses various methods to lower assigned prices on 
innovative drugs, including "reference pricing" (assigning a 
lower price when a drug is approved for an additional use) 
and lowering assigned prices without a transparent process. 
In addition, Taiwan continues to restrict consumer choice 
and limit U.S. market access through disproportionate 
reimbursement of domestically manufactured generic drugs. 
To address these outstanding concerns of foreign 
pharmaceutical firms, Taiwan announced a reimbursement- 
pricing plan in March 2003.  In this plan, the DOH and the 
Bureau of National Health Insurance agreed to find ways to 
include a "reward for innovation" component in its pricing 
mechanism for new drugs.  However, industry representatives 
have criticized the new drug pricing mechanism as non- 
transparent and believe the reimbursement prices will not 
achieve the stated objective.  Discussions between the 
United States and Taiwan on this issue are ongoing. 
 
¶22.  In July 2002, Taiwan introduced a "global budget" 
system in which hospitals receive lump sums from the 
National Health Insurance system to cover the cost of 
providing all services.  The goal is to increase efficiency 
and encourage cost-cutting measures, but critics contend 
that the global budget system primarily encourages hospitals 
to seek discounts on pharmaceuticals in order to make up for 
losses in providing medical services.  In addition, critics 
say the system discourages use of innovative drugs. 
 
¶23.  Other issues: Taiwan banned imports of U.S. beef in 
December 2003 with the detection of one positive case of 
Bovine Spongiform Encephalopathy (BSE) in the State of 
Washington.  As of the publication of this report, the U.S. 
government is taking aggressive action and is working 
intensively to re-open the market as quickly as possible. 
Non-ruminant products for feed use, such as tallow, lard, 
poultry and porcine meal are banned with few exceptions that 
are only approved after a very slow case-by-case review or 
plant clearance process.  A few products such as bovine 
serum and pet food are allowed entry. 
GOVERNMENT PROCUREMENT 
---------------------- 
 
¶24.  Taiwan committed to accede to the WTO Agreement on 
Government Procurement (GPA) as part of its WTO accession. 
While Taiwan has applied for accession to the GPA, its 
accession has not yet been completed due to differences 
regarding nomenclature issues.  To prepare for accession, 
Taiwan implemented a new Government Procurement Law in mid- 
¶1999.  This was an important first step toward establishing 
a transparent and predictable environment for Taiwan's multi- 
billion dollar market for public procurement projects.  In 
August 2001, Taiwan and the United States signed a 
Memorandum of Understanding on Government Procurement.  The 
MOU calls for Taiwan to implement certain procedural 
commitments immediately, while others will be implemented 
upon accession to the GPA.  Taiwan agreed to establish new 
procedures providing for the independent review of 
complaints that arise during the tendering process, to 
encourage its procuring entities to make use of mediation 
procedures, and to cooperate fully when such procedures are 
invoked.  Despite these commitments, Taiwan officials have 
continued to incorporate provisions in its public 
procurement tenders that appear to be inconsistent with the 
GPA, although Taiwan is not yet a party to that agreement. 
Further, the lack of transparency in the government 
procurement process as well as the review process for 
complaints remains a serious issue.  U.S. participation in 
Taiwan's government procurement market continues to decline 
as a result of these practices.  The United States continues 
to remain concerned with the government procurement 
environment. 
 
EXPORT SUBSIDIES 
---------------- 
 
¶25.  The Taiwan Government provides incentives to industrial 
firms in export processing zones and to firms in designated 
"emerging industries."  Some of these programs may have the 
effect of subsidizing exports.  Taiwan has notified the WTO 
of these programs and, as part of its WTO accession, 
committed to amend or abolish any subsidy programs 
inconsistent with WTO rules. Amendments of relevant laws, 
such as the Statute for Establishment and Management of 
Economic Processing Zones and the Statute for Establishment 
of Scientific Industrial Parks, to eliminate improper 
subsidies, went into effect upon Taiwan's WTO accession. 
The United States continues to monitor Taiwan's compliance 
with the commitments it undertook as part of its WTO 
accession, including those obligations associated with the 
Agreement on Subsidies and Countervailing Measures 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
--------------------------------------------- 
 
¶26.  IPR protection continues to be an important and serious 
issue in the US/Taiwan trade relationship.  In 2004, Taiwan 
continued to take measures to improve enforcement of IPR, 
including stepping up raids against manufacturing and retail 
outlets, legalizing previously ad hoc task forces, and 
passing important revisions to the copyright law that 
increase penalties for counterfeiters.  The U.S. 
International Intellectual Property Alliance estimates that 
Taiwan's IPR infringements caused trade losses to the United 
States of USD464 million in 2003.  Despite several large 
raids against manufacturers and passage of amendments 
strengthening the pharmaceutical law, the U.S. Government 
continues to be concerned with the prevalence of 
counterfeits in the Taiwan pharmaceutical market and the 
lack of adequate data protection for innovative 
pharmaceuticals.  U.S. industry has complained about delays 
in court cases and the difficulty Taiwan's judiciary has in 
handling technical cases.  In April 2004, Taiwan was placed 
on the U.S. Special 301 Priority Watch List for the fourth 
year in a row, but was -given an out of cycle review at the 
end of 2004. 
¶27.  To improve Taiwan's ability to protect IPR, the 
government formulated a three-year (2003-2005) IPR Action 
plan.  Measures included the establishment of the Integrated 
Enforcement Task Force (IETF) with a force of 220 police 
officers in January 2003; opening of three warehouses for 
counterfeiting seizures; the raising of the informant reward 
to up to NT$10 million per counterfeiting seizure; 
strengthening of border control inspection for CD exports; 
and increasing day/night inspection on disc plants, night 
markets, and retail shops selling optical media.  Taiwan's 
counterfeit goods seized by the U.S. Customs dropped from 
US$26.5 million in FY2002 to US$610,000 in FY2003, and to 
US$60,000 in the first half of FY 2004.  The Business 
Software Alliance (BSA) also announced that software piracy 
rate in Taiwan fell from 54 percent in 2002 to 43 percent in 
¶2003. 
 
¶28.  Amendments to the Copyright Law passed by the 
Legislative Yuan in June 2003 lifted the requirement that 
rights-holders file a complaint before police can conduct 
enforcement actions.  But provisions to allow ex officio 
seizure by Customs officials and prohibiting the 
circumvention of technical protection measures were 
eliminated and minimum sentences were repealed.  In 
addition, provisions to address Internet piracy were removed 
from the final bill.  After concerted lobbying by industry 
and the Taiwan Executive Yuan, the Legislative Yuan in 
August 2004 passed additional amendments to the Copyright 
Law including a) technological protection measures, b) 
heavier penalty for infringement, and c) giving Customs the 
authority to take ex officio action. 
 
¶29.  Internet piracy and illegal peer-to-peer downloading 
are becoming serious concerns for IP enforcement in Taiwan. 
Infringers are using the Internet to market illegal goods 
and illegally download music, movies, and software from 
indicted peer-to-peer Internet service providers (ISC). 
Efforts to use the legal system to shut down or restrict the 
activities of P2P platforms has met with limited success 
thus far. 
 
¶30.  In response to U.S. and industry requests to improve 
protection of optical media products and curtail the illegal 
manufacture of such goods, Taiwan passed an optical media 
law on October 31, 2001.  Manufacturers must apply for 
production licenses and report any changes to the 
authorities.  Violators face a maximum three-year jail 
sentence and a fine of approximately $86,000.  The law was 
fully implemented effective May 2002.  The Optical Media Law 
and IETF's night/day inspection has led to a dramatic 
decrease in large-scale factory production of counterfeit CD 
products produced by CD plants. 
 
¶31.  The U.S. Government also is concerned with the growing 
incidence of counterfeit pharmaceutical products in the 
Taiwan market and the lack of adequate data protection for 
these products.  The Taiwan government in March 2004 revised 
the pharmaceutical affairs law to increase penalties for 
pharmaceutical counterfeiting.  Nevertheless, counterfeit 
products continue to pose a threat to public health and 
Taiwan's Department of Health enforcement mechanism is not 
strong. Although a bill is pending in the Legislative Yuan, 
Taiwan has not yet fully provided data exclusivity for 
pharmaceutical products, a TRIPS commitment and a 
disincentive for pharmaceutical producers to introduce new 
products into the Taiwan market. 
 
¶32.  The lack of adequate protection for the packaging, 
configuration, and outward appearance of products, an area 
of IPR known as "trade dress," is another area of concern. 
Despite provisions in Taiwan's Fair Trade law designed to 
protect unregistered marks and other packaging features, 
misleading copying of U.S. products by local manufacturers 
remains a problem. 
 
¶33.  Taiwan's judiciary continues to experience difficulties 
in handling technical cases, and U.S. industry has 
complained about long delays in court cases.  Often 
conflicting or unclear lines of bureaucratic authority 
stymie IPR enforcement efforts.  Generally, U.S. IPR holders 
find that judges and court procedures themselves constitute 
barriers and that penalties for intellectual property 
violations are inadequate to deter violators.  The United 
States continues to assist in remedying the weaknesses of 
the judicial system by holding seminars on criminal 
enforcement and encourages Taiwan to set up IP courts with 
experienced judges to handle the case. 
 
SERVICES BARRIERS 
----------------- 
 
Financial Services 
------------------ 
 
¶34.  Taiwan continues to liberalize its financial market 
beyond its WTO accession commitments.  In January 2001, the 
Securities and Futures Exchange Commission (SFEC) lifted the 
restriction on employment of foreigners by domestic Taiwan 
securities firms.  Also in January 2001, the SFEC removed 
the 50-percent foreign ownership limit on listed companies. 
In June 2003, the SFEC phased out a minimum two-year period 
for foreign holders of global depository receipts (GDRs) to 
exchange GDR for equity stocks after the GDR is issued.  In 
July 2003, the SFEC lifted the ceiling limit of US$3 billion 
on inward remittances by a qualified foreign institutional 
investor (QFII).  It also abolished the requirement for a 
QFII to inwardly remit its investment fund within two years 
after it receives approval.  In early October 2003, the 
Taiwan government voluntarily abolished the QFII system. 
Foreign portfolio investors are required to complete 
registration rather than seek advance approval, and as of 
December 2003, the registration could be done on the 
Internet.  In late 2003, Taiwan allowed foreign portfolio 
investors to trade in the futures and money markets as a 
part of financial management prior to actual portfolio 
investment.  However, futures, money market funds and bank 
deposits are subject to a limit of 30 percent of total 
inward remittances.  All offshore foreign portfolio 
investors may trade in Taiwan's stock market regardless of 
their size, except for investment by hedge funds and 
investors from the PRC.  However, foreign individual 
investors are still subject to an investment limit.  Onshore 
foreign individuals and institutional investors are also 
subject to annual inward/outward limits. 
 
¶35.  Taiwan continues to work towards fulfilling its May 
1997 commitment to liberalize insurance premium rates and 
policy clauses.  It voluntarily opened the reinsurance 
market.  In November 2001, Taiwan permitted life insurance 
companies to sell investment-linked products.  Taiwan began 
to allow life insurance companies to set their own premium 
rates in January 2002 if the companies had their own 
actuaries to determine such rates.  Taiwan adopted a three- 
stage premium rate liberalization program for non-life 
insurance.  Effective January 1, 2002, insurance firms were 
allowed to set premium rates for large face-value fire 
insurance policies and fire insurance policies sold to 
multinational corporations.  The target date for total 
liberalization is January 2008, but the liberalization date 
for an individual insurance firm can be advanced if it has a 
good credit reputation and its capital adequacy ratio 
reaches 300 percent. 
 
¶36.  Taiwan adopted a transparent approval procedure for 
insurance policies in January 2001.  Prior approval is not 
required for products whose policy clauses are identical or 
very similar to existing products of other companies.  New 
products are subject to prior approval.  Taiwan's Insurance 
Bureau will adopt a negative list system in January 2005. 
Under the new system, new products subject to prior approval 
will be deeply cut, down from 50 percent to 25-30 percent 
for life insurance and to 10-20 percent for non-life 
insurance.  The processing time will be cut from 90 days to 
75 days for life insurance and 60 days for non-life 
insurance.  The Department of Insurance has opened its 
reinsurance market, and the Central Reinsurance Corporation 
Statute was revoked in June 2004.  The Central Reinsurance 
Corporation, the only reinsurance firm in Taiwan, was 
privatized in July 2002.  In August 2002, the DOI lowered 
the capital requirement for entering the reinsurance market, 
strongly in favor of foreign reinsurance firms over domestic 
competitors.  In response to the liberalization, the Swiss 
Reinsurance Co. became the first foreign reinsurance firm to 
set up a branch in Taiwan in early 2004. 
 
LEGAL SERVICES 
-------------- 
 
¶37.  Following Taiwan's accession to the WTO, foreign 
lawyers are permitted to practice law in Taiwan either by 
setting up individual practices (single lawyer) or entering 
into partnerships with local counterparts.  In order to 
practice domestic law, foreign lawyers must pass the local 
bar examination and use the Chinese language when appearing 
before the court or submitting written briefs.  If the 
foreigner does not meet these qualifications, local lawyers 
working for, or in cooperation with, the foreign lawyer may 
represent the foreign lawyer's interests on domestic law 
issues.  When practicing international or foreign law, 
foreign lawyers do not need to pass the language or bar 
examinations and are not required to hire or partner with 
local lawyers. 
 
TELECOMMUNICATIONS SERVICES 
--------------------------- 
 
¶38.  Following the issuance of licenses to three fixed-line 
telecommunications service providers in 2000, the 
Directorate General of Telecommunications' (DGT) again 
opened applications for integrated network licenses in 
September 2004.  The capital requirement for integrated 
network service was reduced to NT$16 billion from NT$40 
billion and system capacity requirements were lowered from 
one million to 400,000 subscribers' lines.  However, the 
September's open season failed to generate any bids.  DGT 
also announced in September 2004 that it would launch a 
biannual licensing schedule in March and September beginning 
this fall.  According to DGT's plan, local, long-distance 
and international call businesses will be added to the 
licensing schedule under less restrictive conditions in 
March 2005.  A new formula based on local population will be 
used to calculate the capital requirements for each of the 
new service license.  As low as NT$1.2 billion may be 
required for a local call license in Taipei City and NT$2 
billion for long-distance and international service 
licenses. 
 
¶39.  Existing fixed-line operators still face serious 
difficulties in negotiating reasonable interconnection 
arrangements at technically feasible points in the network 
of the dominant carrier, Chunghwa Telecom (CHT).  Despite 
its announcement in May 2004 to share the local loop with 
the three private providers, CHT set two limitations.  A 
change to allow non-CHT service providers access to CHT's 
local loop can only be initiated by end users.  Only voice 
service in three metropolitan areas is open to non-CHT 
operators.  The Premier announced in November 2003 that the 
government would invest a total of NT$35 billion in the next 
five years to help local governments resolve "last mile" 
problems for telecommunications end-users.  This "Mobile 
Taiwan" plan will also include the construction of a second 
broadband network around Taiwan to be jointly used by 
telecommunications service companies.  These new investment 
projects are expected to help break the monopoly of the 
telecommunications network by state-owned CHT.  Taiwan's 
telecommunications regulatory body, DGT and the state-owned 
former monopoly CHT are under the purview of the MOTC, 
creating a potential conflict of interest.  DGT lacks the 
full authority, independence, and resources to effectively 
resolve telecommunications-related disputes.  Two draft 
laws, "Communications and Broadcasting Basic Law" and the 
statute for the organization of the proposed Cabinet-level 
"National Communications and Broadcasting Commission (NCC)", 
have been introduced by the Cabinet.  The Basic Law was 
passed in December 2003 and the reorganizing statue is 
currently pending in the legislative process.  The NCC will 
be an independent regulatory body that will unify regulatory 
authority now split between DGT for wired or wireless 
communications and the Government Information Office for 
radio and television broadcasting. 
 
¶40.  Taiwan's telecommunications market is transforming.  In 
June 2003 the DGT announced regulations governing equal 
access service, allowing Type I subscribers to select the 
long distance and international network service of other 
providers.  In August 2003 the DGT amended regulations to 
open Taiwan's mobile virtual network operator (MVNO) market 
and began licensing in September 2003.  The MVNO opening 
offers an alternative third-generation (3G) wireless service 
to local consumers and allows service providers to operate 
without a 3G license by partnering with existing 3G 
operators.  In November 2003 the DGT announced the 
regulations governing number portability service, enabling 
subscribers to retain their existing telephone numbers when 
switching from their original Type I enterprise to another 
Type I enterprise engaging in the same business.  Actual 
implementation of the number portability service is likely 
to be postponed from January to December 2005 due to delay 
by an industrial alliance in completing a central database. 
In November 2004 DGT began to solicit comments for a 
proposal to facilitate development in the voice over 
Internet protocol (VoIP) services.  DGT plans to adopt the 
¶E. 164 numbering plan and help safeguard the 
interconnectivity between VoIP providers and fixed-line 
operators as given by the Telecom Act, but has not finalized 
the interconnectivity between VoIP providers.  Legislative 
amendment to the Telecom Act would be required for 
compulsory interconnectivity between VoIP providers. 
Supported by the central government's "Mobile Taiwan" plan 
toward a wireless island, the three metropolitan areas have 
seen progress in the wireless network infrastructure in 
¶2004.  Taichung City currently leads Taipei City and 
Kaohsiung City in reaching the goal of 80 percent coverage. 
International submarine cable firms remain limited to only 
one gateway for their links from the cable-landing site to 
network providers while they are permitted to build their 
own backhaul facilities. 
 
¶41.  Taiwan's telecommunications market saw a merger of KG 
Telecom and Far EasTone in October 2003.  The merger has 
created a mobile service market equally divided between Far 
EasTone, CHT and Taiwan Cellular.  The United States 
continues to monitor Taiwan's progress in the 
telecommunications sector. 
 
INVESTMENT BARRIERS 
------------------- 
 
¶42.  Taiwan continues to relax investment restrictions in a 
host of areas, but foreign investment remains prohibited in 
a handful of industries such as agriculture, wireless 
broadcasting, oil exploration of Taiwan's coastal area, 
public utilities, and postal services.  Foreign investors in 
the telecommunications sector are subject to a 60 percent 
ownership limit, with the limit on direct foreign investment 
raised from 20 percent to 49 percent in 2002.  In February 
2003, Taiwan lifted its ban on foreign investment in liquor 
production, though prior approval is required.  Similarly, 
in January 2004, foreign investment restrictions on 
cigarette production were removed, though prior approval is 
required.  Foreign ownership in airlines is limited to 33 
percent.  The 50 percent foreign ownership limit on air 
cargo forwarders and air cargo terminals was eliminated when 
Taiwan became a WTO member.  Foreign ownership on power 
plants has been removed, while foreign investment in 
electricity transmission and distribution remains subject to 
a 50 percent ownership limit and approval by the Executive 
Yuan.  Imports of gasoline and liquid natural gas were 
opened to the private sector in January 2002.  In October 
2003, Taiwan set a foreign ownership limit of 49 percent on 
high-speed railway transportation. 
 
ANTICOMPETITIVE PRACTICES 
------------------------- 
 
¶43.  In the cable TV market, U.S. program providers contend 
that the island's two dominant multi-system operators (MSOs) 
frequently collude to inhibit fair competition.  Control by 
the two MSOs of upstream program distribution deterred U.S. 
program providers from negotiating reasonable program fees. 
In December 2003, Taiwan's legislature passed a new 
broadcasting law combining the Radio and Television 
Broadcasting Law, the Cable Television Broadcasting Law, and 
the Satellite Television Broadcasting Law.  Following the 
legislative passage of the law, Taiwan officials are working 
to eliminate political interference in the television 
broadcasting industry by monitoring public releases of state- 
owned and party-owned stocks. 
 
ELECTRONIC COMMERCE 
------------------- 
 
¶44.  Taiwan's approach to e-commerce and related issues is 
still evolving.  A law protecting personal on-line data was 
approved in 2001.  The Electronic Signature Law, passed by 
the Legislative Yuan in late October 2001, adopts the 
principles of the United Nations Commission on International 
Trade Law's Model Law on Electronic Commerce and recognizes 
the legal validity of electronic contracts, records, and 
signatures.  Still under discussion is a proposal to assess 
duties for software sold and downloaded over the Internet. 
If implemented, such a policy would appear to run counter to 
the Doha Declaration that WTO Members would maintain their 
current practice of not imposing customs duties on 
electronic transmissions.  Taiwan has refused to join the US 
at APEC in advocating for a permanent moratorium on taxation 
of Internet transactions. 
PAAL