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

UNCLAS SECTION 01 OF 05 TAIPEI 000373 
 
SIPDIS 
 
     STATE FOR EAP/RSP/TC, EB/TPP/MTA, STATE PASS TO AIT/W AND 
     USTR FOR CHOOKER, SKI, CFREEMAN 
 
E.O. 12958: N/A 
TAGS: ECON TW ETRD
SUBJECT: WTO SERVICES NEGOTIATIONS: U.S. MARKET ACCESS 
    PRIORITIES IN TAIWAN 
 
 
     REF: 04 SECSTATE 270998 
 
     ¶1.   AIT has reviewed the reftel list of service sectors and 
     submits provides the following rankings in terms of: A) U.S. 
     market access priorities (1 being the highest, 5 the 
     lowest); and B) Taiwan's current level of market openness 
     for each sector (high, medium, low). 
 
     ¶2.   Taiwan's service sector accounted for approximately 67 
     percent of its GDP in 2004, with the finance, insurance, and 
     real estate sector accounting for 31 percent of the service 
     sector's total production.  Factors influencing the growth 
     of Taiwan's service sector include a highly skilled 
     workforce, access to venture capital, and government support 
     for key service industries including biotechnology, 
     pharmaceutical R&D, and digital content.  Taiwan authorities 
     are generally receptive to foreign investment in the 
     services sector, although foreign engineering and 
     construction firms continue to face significant market 
     access barriers in the public procurement sector. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.1  Legal Services              2           Medium 
 
     Only two major U.S. law firms have a presence in Taiwan.  Many 
     firms have chosen to establish their China regional practices 
     in the P.R.C., Singapore, and Hong Kong.  Following Taiwan's 
     accession to the WTO, foreign attorneys have been permitted to 
     practice law in Taiwan by setting up individual practices or by 
     entering into partnerships with local law firms.  In order to 
     practice domestic law, foreign attorneys must pass the local 
     bar and use Chinese language when appearing before a court or 
     submitting written briefs.  If the foreigner does not meet 
     these qualifications, local attorneys working for, or in 
     cooperation with the foreign attorney may represent the foreign 
     attorney's interests on domestic law issues.  When practicing 
     international or foreign law, foreign attorneys may practice 
     under the title "Attorney of Foreign Legal Affairs" (AFLA). 
     AFLA attorneys must be qualified to practice law in their home 
     countries, and have at least five years of experience 
     practicing law in their home jurisdiction.  Foreigners may 
     qualify to work as legal assistants to AFLAs if they are 
     college graduates who majored in a law-related subject, have at 
     least three years of work experience in the legal field, or 
     have passed the bar examination in their home country. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.2  Accounting, auditing &        2         Medium 
     bookkeeping services 
 
     2.3  Taxation                      2         Medium 
 
     2.4  Management consulting         2         High 
 
     Taiwan is home to several U.S. audit and tax firms including 
     Deloitte and Touche, KPMG, Ernst and Young, and PWC.  Major 
     U.S. consulting firms with operations in Taiwan include 
     McKinsey, Mercer, and Accenture.  Foreign accountants must pass 
     the Taiwan CPA certification exam, possess a minimum knowledge 
     of Mandarin, and register with the local government before 
     commencing practice.  No restrictions apply to management 
     consulting practices. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.5  Architectural services        3         Medium 
 
     2.6  Engineering and integrated    1         Low 
     engineering services 
 
     2.7  Urban planning and            1         Medium 
     landscape architectural 
     services 
 
     2.8  Construction and related      1         Low 
     engineering 
 
     2.9  Environmental services        1         Medium 
 
     2.10 Maintenance and repair        4         Medium 
     of equipment 
 
     2.11 Building cleaning services    5         Medium 
 
     Taiwan's demand for engineering, construction, and 
     environmental services in both the private and public sectors 
     is expected to grow rapidly as Taiwan builds new water 
     treatment facilities, hospitals, shopping malls, office 
     buildings, condominiums, and infrastructure.  In 2003, Taiwan 
     spent U.S. $21.6 billion (NT $693.2 billion) on publicly funded 
     construction and engineering projects (Taiwan Public 
     Construction Commission, Executive Yuan).  This total can be 
     divided into three categories: construction work (U.S. $11.31 
     billion), property (U.S. $7.03 billion), and service (U.S. 
     $3.26 billion).  Although spending on publicly funded 
     construction projects is on the rise, Taiwan authorities have 
     done little to improve market access for foreign firms 
     interested in bidding on public sector projects.  Taiwan 
     committed to acceding to the WTO Agreement on Government 
     Procurement (GPA) by January 2003.  It has not yet acceded to 
     the GPA, however, due to unresolved nomenclature issues.  Once 
     joining the GPA, Taiwan must announce and accept bids for 
     procurement projects over certain thresholds to both foreign 
     and domestic competitors. Currently, foreign engineering firms 
     seeking government procurement contracts face unfavorable 
     liability terms, bureaucratic delays, and strict rules 
     requiring them to appoint locally licensed professional 
     engineers as their managerial representatives in Taiwan. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.12 Computer and related          1         High 
     services 
 
     2.13 Audiovisual                   3         Medium 
 
     2.14 Photographic services         5         Medium 
 
     2.15 Printing, publishing          5         Medium 
 
     Taiwan's information and communications sector is one of the 
     most developed in Asia. Currently, Taiwan's 23 million people 
     have 8.01 million Internet accounts.  This includes 3.6 million 
     broadband connections, an increase of 24.8 percent since last 
     year.  Steady growth is expected in Internet-related services, 
     including high-speed networking, online security, and digital 
     content development.  Taiwan plans to establish itself as the 
     greater China region's leader in digital content development. 
     In 2004 Taiwan authorities designated digital content as a 
     "star" industry in its "Two Trillion, Two Stars" development 
     plan.  Valued at NT$153.7 billion (U.S. $4.8 billion) in 2002, 
     Taiwan authorities expect the digital content industry to reach 
     a target of NT$370 billion (U.S. $11.6 billion) by 2006. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.16 Telecommunications            3         Medium 
 
     Taiwan's telecommunications infrastructure is highly 
     developed.  As of November 2004, the number of mobile phone 
     accounts in Taiwan stood at 21.81 million in a market with a 
     total population of 23 million people.  Although Taiwan's 
     consumer demand for both mobile and fixed line services is 
     among the highest in the region, the market remains largely 
     unattractive to foreign companies.  Until recently, 
     aggregate foreign ownership of telecommunications companies 
     in Taiwan was limited to 20 percent.  The amended Telecom 
     Act increased this portion to 60 percent in 2003.  Chunghwa 
     Telecom (CHT), the state-owned former monopoly provider, 
     dominates the fixed line telecom market.  While CHT is 
     expected to be fully privatized by March 2005, Taiwan 
     authorities still control the majority of its shares.  Under 
     current regulations, telecom companies may file applications 
     for fixed line operating licenses on a biannual basis. 
     Minimum capital and telephone line building requirements 
     apply to foreign telecom firms; however, these requirements 
     may be lowered later in 2005.  To date, no U.S. firms have 
     applied for fixed line operating licenses in Taiwan. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.17 Banking and other             1         Medium 
     financial services 
 
     The financial services sector (including finance, insurance, 
     and real estate services) accounted for 31 percent of 
     Taiwan's total service sector production in 2004.  Taiwan 
     has encouraged foreign asset management companies to help 
     local banks dispose of their non-performing loans (NPLs). 
     In total, foreign banks, including GE Capital, Merrill 
     Lynch, GMAC, Salomon Brothers, and Lehman Brothers, have 
     invested over NT 27 billion (U.S. $843.8 million) in NPL 
     purchases. Taiwan has lifted restrictions on foreign 
     purchasing and selling of securities and bonds.  It has 
     further opened the market to foreign banks by allowing 
     mergers with local institutions and by permitting foreign 
     financial institutions to invest up to a 100 percent stake 
     in domestic banks.  Foreign banks have noted, however, that 
     Taiwan's financial services sector requires further 
     liberalization.  Some of the areas that require further 
     opening to foreign banks include, 1) foreign currency and 
     dual currency account services, and 2) derivative products 
     and investments in offshore funds that invest in 
     derivatives. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
     2.18 Insurance Services            1         High 
 
     The insurance market is extremely competitive in Taiwan, 
     with over 52 life and non-life insurance companies operating 
     on the island.  U.S. companies including Met Life, New York 
     Life, and Prudential are well-established in Taiwan. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
     2.19 Tourism and travel-           2         High 
     related services including: 
     hotels, restaurants, catering, 
     travel agencies, tour 
     operators, tourist guides 
 
     2.20 Convention Services           3         Medium 
 
     Taiwan has placed a strong focus on developing its domestic 
     tourism industry and declared 2004 "Visit Taiwan Year." 
     Tourism has also been targeted as a growth industry for 
     Taiwan's "Challenge 2008" development plan.  By 2008, Taiwan 
     aims to double its number of international visitors to 2 
     million per year.  Plans include the development of 
     performing and visual arts facilities, innovative tour 
     packages, and telephone access to foreign language tourist 
     information. Currently, U.S. hoteliers including Hyatt, 
     Sheraton, and Westin, have a solid reputation in Taiwan's 
     high-end lodging market.  To further attract foreign 
     tourists, Taiwan authorities are encouraging the development 
     of the mid-tier lodging market. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.21 Recreation and sporting       1         High 
     services, including: 
     entertainment, news agencies, 
     archives, museums, other 
     cultural services, sporting, and 
     other recreational services 
 
     Taiwan has a rapidly growing digital content industry. 
     Investment opportunities include digital gaming, multimedia 
     wireless applications and services, video data processing 
     and streaming, and interactive digital television 
     entertainment.  Digital animation has been identified as a 
     key industry in the Challenge 2008 six-year national 
     development plan. Industry support programs, tax breaks, and 
     government financial assistance are available to enterprises 
     investing in local digital animation and film productions. 
     In addition to online and computer based entertainment, 
     Taiwan consumers are fond of U.S. films, music, and sports. 
     Time Warner has been very successful in Taiwan's 
     entertainment market, establishing ten multiplex theatres 
     throughout the island. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.22 Real estate services          1         High 
 
     2.23 Rental and leasing            1         High 
     services 
 
     Taiwan applies few restrictions to foreign real estate and 
     related firms.  Foreign players dominate Taiwan's commercial 
     real estate management sector.  Of note, a multi-national 
     real estate management firm, Jones Lang LaSalle, is the 
     leasing agent for the new Taipei 101 office building. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
 
     2.24 Courier services              1         High 
 
     Foreign companies, including UPS, FedEx, and DHL, occupy 
     most of Taiwan's international air courier market.  Although 
     Taiwan authorities have encouraged air courier companies to 
     make Taipei a regional hub, most air couriers have chosen 
     Hong Kong or the Philippines over Taiwan due to Taiwan's 
     lack of direct air links to Mainland China. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.25 Distribution services         1         High 
     including: commission agents' 
     services, wholesale trade, 
     retailing, and franchising 
 
     2.26 Packaging services            4         Medium 
 
     Shopping malls and large scale supermarkets offering a 
     variety of locally produced and imported goods are 
     attractive to Taiwan's consumers, as demonstrated by the 
     rapid growth of European supermarket chains including Tesco 
     and Carrefour, as well as the U.S. warehouse chain, Costco. 
     Currently, Taiwan is home to over 58 department stores and 
     more than 6,851 chain convenience stores.  U.S. restaurant 
     franchises including Pizza Hut, McDonalds, Burger King, 
     Subway, Starbucks, Kentucky Fried Chicken, Domino's Pizza, 
     and Chili's are popular among Taiwan consumers. 
 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
     2.27 Energy services               5         Medium 
     including landsite 
     preparation, drilling, 
     and plugging 
 
     2.28 Services incidental           1         Medium 
to energy distribution 
 
     Taiwan imports 98 percent of its total energy supply.  The 
     local market is led by two state enterprises: Taiwan Power 
     Company (Taipower), and Chinese Petroleum Company (CPC). 
     Both Taipower and CPC are in the process of upgrading their 
     facilities.  The construction of the Fourth Nuclear Power 
     Plant, an LNG receiving terminal at the port of Taichung, 
     and petrochemical plant expansion in Mailiao present 
     opportunities for U.S. suppliers of construction services 
     and related services. However, as stated earlier in this 
     report, foreign bidders on public sector projects face 
     numerous difficulties. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.29 Education services,           1         High 
     including: higher education, 
     adult education, other 
     education services (i.e., 
     testing and computer or 
     language training) 
 
     Taiwan has a growing demand for e-learning, as well as on- 
     the-job training covering topics such as IT, English as a 
     Second Language (ESL), management, interpersonal skills, and 
     performance evaluation. Traditionally, the U.S. has been a 
     popular study abroad destination for Taiwan students. 
     Taiwan is currently the fifth largest source of 
     international students in the U.S.  In recent years however, 
     the U.K., Australia, and New Zealand have stepped up 
     marketing efforts and have gained a significant share of 
     Taiwan's undergraduates going abroad to study. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.30 Technical testing and         1         Medium 
     analysis services 
 
     Semiconductors, electronics, communications equipment, and 
     other high tech products form the backbone of Taiwan's 
     export-focused economy.  Taiwan's IC packaging and testing 
     market is the world's largest.  The market size for testing 
     services in Taiwan was U.S. $1.8 billion in 2004.  As 
     Taiwan's high tech manufacturing sector expands into newer 
     technologies, its demand for advanced testing services is 
     expected to rise. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
     2.31 Advertising services          1         High 
 
     2.32 Market research,              2         High 
     public opinion, polling 
     services 
     Foreign advertising and market research firms are well- 
     established in Taiwan. No restrictions apply to foreign 
     firms in these fields. 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.33 Placement and supply          2         High 
     services of personnel 
 
     Taiwan's executive search market grew steadily in 2004 after 
     hitting a low during the SARS crisis of 2003.  Continued 
     growth is expected, but will depend on ongoing political 
     stability. No restrictions apply to foreign firms in this 
     market, however, executive search firms have noted that 
     Taiwan's strict regulations on hiring foreign workers makes 
     it difficult for them to introduce prospective foreign 
     executives and engineers, particularly P.R.C. nationals, to 
     their local clients.  In general, foreign executive search 
     firms in Taiwan focus on introducing prospective local hires 
     to multinational corporations that are investing in Taiwan 
     or the P.R.C. 
 
 
                                   Priority  Market Openness 
                                   --------  --------------- 
 
     2.34 Research and development      1         High 
     services 
 
     Taiwan's well-educated population, venture capital 
     resources, and high-level government support have created a 
     wealth of investment opportunities for foreign R&D firms. 
     Foreign companies that invest in a regional headquarters or 
     R&D center through Taiwan's "Action Plan for Encouraging 
     Foreign Companies to Establish Regional Headquarters in 
     Taiwan" may be eligible for tax benefits, free or 
     inexpensive use of land in government-designated districts, 
     as well as research subsidies.  In addition, Taiwan has 
     established biotechnology as a growth industry in its "Two 
     Trillion, Twin Stars Plan" and its "Challenge 2008 National 
     Development Plan."  Taiwan authorities plan to attract U.S. 
     $4.34 billion in biotechnology-related investments and 
     achieve 25 percent annual growth in the biotechnology sector 
     by 2008. 
 
     PAAL