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RUEHGZ/AMCONSUL GUANGZHOU 0847

UNCLAS SECTION 01 OF 24 TAIPEI 000079 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EB/IFD/OIA/HATCHER, KAMBARA, and TRACTON, EAP/RSP/TC, 
EAP/EP 
USTR FOR KATZ, STRATFORD and BEHAR 
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT 
TREASURY FOR OASIA/TTYANG AND HAARSAGER 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN, AND NEW YORK FRB 
MARI BOLIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR OPIC KTDB USTR KIPR TW
SUBJECT: Taiwan's 2008 Investment Climate Statement 
 
REF: State 158802 
 
TAIPEI 00000079  001.2 OF 024 
 
 
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PLEASE CANCEL ENTIRE MESSAGE. 
CABLE WAS TRANSMITTED CORRECTLY AS 
2008 TAIPEI 76 
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TAIPEI 00000079  002 OF 024 
 
 
the SIFN and the SIOC specify that foreign-invested enterprises must 
receive the same regulatory treatment accorded local firms.  Foreign 
companies may invest in state-owned firms undergoing privatization 
and are eligible to participate in publicly-financed research and 
development programs. 
 
¶5.  The Investment Commission (IC) of the Ministry of Economic 
Affairs screens applications for investment, acquisitions, and 
mergers.  According to the IC, approximately 98% of projects with an 
investment value less than NT$500 million (US$15.4 million at an 
exchange rate of NT$32.5 per US$) are excluded from the negative 
list; the IC estimates that approval for these projects is generally 
granted within two working days at the IC division chief level.  For 
investments in the range of NT$500 million (US$15.4 million) to 
NT$1,500 million (US$46.2 million)   excluded from the negative 
list, approval authority rests with the IC Executive Secretary and 
normally is granted within three working days.  Approval of 
investments in industries above NT$1,500 million or on the negative 
list requires two weeks because those investments must be referred 
to the relevant supervisory ministries and require approval of the 
IC Chairman or IC Executive Secretary.  Investments involving 
complications such as mergers and acquisitions require screening at 
the monthly meeting of an inter-ministerial commission. 
 
¶6.  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.  Incentives for 
manufacturing firms to locate factories in designated industrial 
parks to include free rent the first two years, 40% discount on rent 
the next two years, and 20% discount on rent in the fifth and sixth 
years has been extended to December 2008.  Under another incentive 
program, state-owned land is available for investors rent-free for 
the first four years and 50% off for the next six years.  As part of 
its financial reform plan, Taiwan encourages and provides incentives 
for banks, insurance companies, securities firms, and financial 
holding companies to merge. 
 
¶7.  In 2005 and 2006, Taiwan authorities slashed some investment tax 
incentives as a part of a tax reform designed to reduce the fiscal 
deficit.  A new law to levy a ten-percent alternative minimum tax on 
business firms became effective in January 2006.  Since early 2005, 
Taiwan authorities have cut the number of industries entitled to tax 
incentives by one-third and doubled the thresholds in annual R&D 
expenses for tax offsets from NT$15-20 million (US$462 thousand to 
US$615 thousand) to NT$30-40 million (US$923 thousand to US$1.23 
million).  The tax credit for procurement of automation equipment 
has been lowered from 11% to 7% and that for procurement of 
technologies reduced from 10% to 5%.  The tax credit for projects in 
remote poor areas has been cut from 20% to 15%. 
 
------------------------------------ 
A.2 Conversion and Transfer Policies 
------------------------------------ 
 
¶8.  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.  The remittance of capital 
invested in Taiwan must be reported in advance to the IC, but IC 
 
TAIPEI 00000079  003 OF 024 
 
 
approval is not requited.  Declared earnings, capital gains, 
dividends, royalties, management fees, and other returns on 
investments can be repatriated at any time.  For large transactions 
requiring the exchange of NT$ into foreign currency which could 
potentially disrupt Taiwan's shallow foreign exchange market, the 
central bank may require the transaction to be scheduled over 
several days.  There is no written guideline on the size of such 
transactions, but amounts in excess of US$100 million may be 
affected.  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 an individual or US$50 million for a corporate 
entity. 
 
¶9.  Total outbound investment may not exceed 40% of the investing 
company's net worth or paid-in capital (whichever is less), unless 
the company charter waived the 40% 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.  Investments in China are subject to additional 
restrictions. 
 
¶10.  Taiwan has significantly relaxed restrictions on Taiwan 
entities' direct investment in China down to a negative list 
covering about 100 manufacturing products and 430 agricultural 
products.  Taiwan has 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 is NT$80 million (US$2.5 million). 
For large enterprises, total China investment may not exceed 20% of 
the company's net worth exceeding NT$10 billion, 30% of net worth 
from NT$5 billion to NT$10 billion (US$308 - 615 million), and 40% 
of the net worth below NT$5 billion (US$154 million).  For 
investments below US$200,000, approval can be issued on the same day 
of submitting the application.  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. 
 
¶11.  Taiwan authorities have actively encouraged investment in 
Southeast Asia and India.  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 from Taiwan's Export-Import Bank. 
 
---------------------------------- 
A.3 Expropriation and Compensation 
---------------------------------- 
 
¶12.  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% 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 
---------------------- 
 
 
TAIPEI 00000079  004 OF 024 
 
 
¶13.  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. 
Investment disputes with the Taiwan authorities are not common. 
Normally, Taiwan resolves disputes according to domestic laws and 
regulations. 
 
¶14.  Taiwan has comprehensive commercial laws, including the 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. 
 
¶15.  Taiwan's court system is generally viewed as independent and 
free from overt interference by the other official branches.  Judges 
are generally over-worked.  In response to complaints about the slow 
pace of judicial decision-making, Taiwan authorities adopted 
measures in 2002 to monitor case processing time.  Simplified courts 
have been set up to deal with minor cases that can be resolved 
quickly.  The legislature enacted a bill to set up special courts 
for intellectual property rights (IPR) cases in March 2007, and the 
courts are scheduled to start reviewing cases in July 2008.  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 
------------------------------------------- 
 
¶16.  All of Taiwan's performance requirements were removed in 
January 2002 upon Taiwan's WTO accession.  Like domestic firms, 
foreign-invested companies must be located in areas zoned for 
appropriate industrial or commercial use.  Taiwan does not require 
that firms transfer technology, locate in specified areas, or hire a 
minimum number of local employees as a prerequisite to investment. 
 
¶17.  Manufacturing firms located in export-processing zones and 
science-based industrial parks are required to export all of their 
production to obtain tariff-free treatment of production inputs. 
However, these firms may sell on the domestic market upon payment of 
relevant import duties. 
 
¶18.  When acceding to the WTO in January 2002, Taiwan promised to 
accede to the Government Procurement Agreement (GPA).  Taiwan also 
promised to phase out industrial offset requirements (IOR) for 
non-military public procurement upon signing the GPA.  Taiwan has 
yet to accede to the GPA, but even without GPA membership, Taiwan 
started reducing the IOR coverage of non-military procurements in 
¶2004.  Currently, only railway and power generation projects are 
subject to IOR.  For these two categories, a contract of US$10 
million or more triggers an offset obligation of at least 33%.  For 
military procurements, the threshold is US$5 million, and the 
minimum offset obligation is 40%.  In some military cases, the 
offset ratio has reached 70% due to legislative pressure.  Since the 
first industrial offset contract (IOC) was signed in 1988, Taiwan 
has signed IOCs with 51 suppliers from 12 foreign countries. 
Commitment value of these contracts total US$8.4 billion, and 
realized contracts amounted to US$5.3 billion.  Forty-six percent of 
the total realized value was directed to transfer of technologies, 
27% to foreign direct investment in Taiwan, 15% to procurement from 
Taiwan, 5% to trade promotion, 4% to personnel training, and 2% to 
assessment certification.  Taiwan has published industrial offset 
rules in both Chinese and English to which readers can access 
 
TAIPEI 00000079  005 OF 024 
 
 
online. 
 
--------------------------------------------- --- 
A.6 Right to Private Ownership and Establishment 
--------------------------------------------- --- 
 
¶19.  Private investors have the right to establish and own business 
enterprises, except in a limited number of industries involving 
national security and environmental protection.  Private entities 
can freely acquire and dispose of interests in business enterprises. 
 Private firms have the same access as state-owned companies to 
markets, credit, licenses, and supplies.  Taiwan authorities have 
eliminated state-owned monopolies. 
 
--------------------------------- 
A.7 Protection of Property Rights 
--------------------------------- 
 
¶20.  Taiwan has continued efforts to improve its IPR legal regime 
and enforcement.  The Intellectual Property Office (TIPO) under the 
Ministry of Economic Affairs as well as other relevant agencies have 
adopted programs to crack down on Internet and physical piracy.  In 
addition, the Ministry of Education (MOE) announced a campus IPR 
action plan in October 2007 to strengthen management of academic 
computer networks and restrict illegal textbook coping by students. 
Taiwan has amended laws and regulations to meet international 
standards and requirements.  Taiwan has also amended the Patent Law 
and Copyright Law to extend the term of protection from 18 years to 
20 years for some patents and to define computer software as 
literary works.  Taiwan has enacted the Optical Media Law to address 
CD/DVD piracy problems.  The law has established a legal framework 
for regulation of CD manufacturing plants through licensing and the 
use of Source Identification (SID) codes in production.  Convicted 
violators may receive prison terms of up to three years and fines of 
up to NT$6 million (US$184,600).  The Optical Media Law, together 
with effective enforcement, has led to a dramatic decrease in 
large-scale production of counterfeit CD products.   Amendments to 
the Copyright Law in 2003 and 2004 made copyright infringement a 
public crime, increased penalties for counterfeiters and made it 
illegal to tamper with technical protection measures.  The 
Pharmaceutical Law as amended in 2004 and 2007 stiffened penalties 
for production, distribution and sale of counterfeit medicines.  A 
2005 amendment to the Law to authorized pharmaceutical data 
exclusivity for five years to prevent unfair commercial data use 
--the same data-exclusivity period as in the United States--but U.S. 
original-drug manufacturers complain that Taiwan authorities 
unfairly allow generic-pharmaceutical makers to apply for a license 
and a Bureau of National Health Insurance reimbursement price for 
their knock-off drugs even before the original drug's 
data-exclusivity period has expired.  A June 2007 amendment to the 
Copyright Law subjects illegal file sharing, such as P2P, to a 
maximum jail term of two years.  In March 2007, Taiwan completed 
legislation of the IP Court Organization Law for establishment of a 
specialized IP court which is scheduled to start reviewing cases in 
July 2008. 
 
¶21.  In 2003, Taiwan established  the Integrated Enforcement Task 
Force (IETF), which consists of 220 IP police officers.  In 2004, 
the task force was transformed to a permanent IP police squadron. 
The IP police have frequently raided retail optical- media sales 
points.  This has led to a significant decrease in the number of 
counterfeit CD and DVD vendors. Other enforcement measures include 
increasing the reward by ten times to NT$10 million (US$300,000) to 
IPR informants for counterfeit -goods  seizures ,  and setting up an 
anti-pirating CD export task force to strengthen inspection of 
 
TAIPEI 00000079  006 OF 024 
 
 
commodities entering or leaving Taiwan. 
 
¶22. While Taiwan has improved IPR protection, transshipment of 
counterfeit products from China to the United States remains a 
problem.  Counterfeit goods from Taiwan seized by U.S. Customs 
dropped from $26.5 million in 2002 to $1.1 million in 2005.  The 
value of seized counterfeit goods was $1.8 million in 2006 and $2.8 
million in the first half of FY2007.  In addition, Taiwan is facing 
a growing Internet-based piracy threat.  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.  Although 
counterfeit and parallel imported pharmaceuticals are still found in 
the Taiwan marketplace, the legislature passed amendments to the 
Pharmaceutical Law in 2004 and 2007 to increase the penalties for 
dealing in counterfeit pharmaceuticals, resulting in marked 
increases in fines and jail terms over the past several years. 
 
----------------------------------------- 
A.8 Transparency of the Regulatory System 
----------------------------------------- 
 
¶23.  Taiwan has a set of comprehensive laws and regulations 
regarding taxes, labor, health and safety. 
 
¶24.  Foreign investors note that in addition to tax incentives, 
Taiwan's science-based industrial parks and export processing zones 
have simple and transparent bureaucratic procedures for the 
investment application process.  Outside of these areas, the 
Department of Investment Services (DOIS) functions as the 
coordinator between investors and all agencies involved in the 
investment process.  The Investment Commission (IC) is charged with 
reviewing and approving inbound and outbound investments. 
 
¶25.  Taiwan has simplified work-permit procedures 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 the CLA to issue 
work permits.  The work permit may be extended indefinitely as long 
as the employer considers the employment necessary. 
 
¶26.  Taiwan has removed the job experience requirement for 
employment of foreign management professionals by global operational 
headquarters and R&D centers 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. 
 
¶27.  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 changed to an employment visa.  A foreign executive whose 
employment visa expires is not required to exit before renewing the 
visa. 
 
--------------------------------------------- -------- 
A.9 Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- -------- 
 
TAIPEI 00000079  007 OF 024 
 
 
 
¶28.  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 foreign 
ownership limits or investment fund limits.  In recent years, Taiwan 
authorities have taken a number of steps to encourage a 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 which limit 
each remittance to US$100,000.  There are no restrictions on 
residents opening bank accounts overseas.  Limits on branch banking 
have been lifted.  A freeze on new bank branches to encourage 
consolidation was removed in 2007.  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. 
 
¶29.  Taiwan abolished a complicated regulatory system governing 
foreign portfolio investment in October 2003.  Since then, any 
foreign institutional investor is allowed to enter Taiwan's markets. 
 Subsequent registration has replaced the need for prior approval. 
There is no minimum asset requirement.  Investment and capital flows 
are not limited.  On-shore foreign investors (like other residents) 
are still subject to capital flow limits of US$5 million for an 
individual foreign investor and US$50 million for an unregistered 
foreign company. 
 
¶30.  Taiwan has removed all legal limits on foreign ownership except 
for investors from China in nearly all companies listed on the 
Taiwan Stock Exchange (TAIEX).  These exceptions include 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. 
 
¶31.  Taiwan has a tightly regulated banking system.  Since the 
mid-1980s, the financial sector as a whole has been steadily opening 
to private investment.  The market share held by foreign banks had 
been relatively small until four foreign banks and three foreign 
private equity funds completed their acquisitions of Taiwan banks in 
¶2007.  The market share of all foreign banks in Taiwan (including 
the seven acquired by foreign investors in 2007) increased from 8% 
in 2006 to 15% in terms of assets in 2007, or from below 3% to 
nearly 7% in terms of loans.  The establishment of a number of new 
securities firms, banks, insurance companies, and holding companies 
has underscored this liberalization trend and enhanced competition. 
Over the past decade, nine state-owned banks have been privatized. 
The only Taiwan-based reinsurance company was privatized in 2002. 
State-controlled banks still dominate the banking sector, however, 
and hold a market share of 51% in terms of assets and 56% in terms 
of loans.  This share has been falling in recent years as Taiwan has 
begun privatization efforts. 
 
----------------------- 
A.10 Political Violence 
----------------------- 
 
¶32.  Taiwan is a relatively young multi-party democracy with 
democratic political institutions that are still evolving.  The 
close margin in the 2004 presidential election resulted in an attack 
on election offices and several large-scale demonstrations. 
 
TAIPEI 00000079  008 OF 024 
 
 
Nevertheless, these incidents and other protests 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 
------------------ 
 
¶33.  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. 
 
¶34.  We are not aware of cases where bribes have been solicited for 
investment approval.  Both central and local governments offer 
investors incentives, including free rent on land for the first 
several 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. 
 
¶35.  The Government Procurement Law promulgated in 1998 and amended 
in February 2001 was an element of promised significant improvements 
upon WTO accession.  The Public Construction Commission (PCC) now 
publishes all major state 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, and publishes results 
of bidding and of inspections.  A task force has been organized to 
investigate complaints. 
 
¶36.  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.  Since then, prosecutors have indicted 
10,807 persons for corruption, including prominent personalities, 
632 senior officials (department director level and above) and 623 
elected officials.  Indicted elected officials included 21 
legislators.  In 2006, the Taiwan High Court upheld a district 
court's four-year jail sentence for a former speaker of the 
legislature on a charge of taking a NT$150 million (US$4.6 million) 
bribe.  In 2007, prosecutors indicted a serving minister and a vice 
minister for receiving bribes, while district courts convicted 
another two vice ministers with jail terms of up to 16 years. 
 
¶37.  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 as 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 NT$3 million dollars 
(US$92,300).  In addition, the offender may be barred from holding 
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 
---------------------------------- 
 
 
TAIPEI 00000079  009 OF 024 
 
 
¶38.  Taiwan has concluded bilateral investment guaranty agreements 
with the following 26 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 other agreements to protect U.S. investment in Taiwan 
(see next paragraph).  (An agreement with Latvia signed in 1992 was 
revoked in August 2004.) 
 
¶39.  The terms of the 1948 Friendship, Commerce, and Navigation 
Treaty between the Republic of China and the United States are still 
in force, and under the terms of the agreement 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, and 
the latest round took place in Washington in 2007. 
 
--------------------------------------------- -- 
¶C. OPIC and Other Investment-Insurance Programs 
--------------------------------------------- -- 
 
¶40.  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 
-------- 
 
¶41.  Unemployment, at just under 4%, has declined since 2002, but is 
still above the 1.45% to 2.99% range in the 1990s.  Taiwan's aging 
population, however, has prompted greater demand for foreign 
caregivers.  The percentage of the population aged 65 and above has 
increased from below 4% in the 1970s to above 10% in late 2007.  In 
response, the number of foreign caregivers has grown to 160,000 and 
accounts for 45% of blue-collar foreign workers in Taiwan.  In the 
industrial sector, despite relaxation of employment restrictions, 
the number of the sector's blue-collar foreign workers declined 13% 
from 228,000 in 2000 to 197,770 in November 2007. 
 
¶42.  There are no special hiring practices in Taiwan.  Wages 
typically include a one-month bonus at the end of a year.  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 paid 
maternity leave, a lump-sum or annuity retirement plan, and other 
benefits.  A new retirement system implemented in July 2005 
abolishes the voluntary retirement scheme under an old system which 
still covers 30% of total employment population.  The old system 
grants employees voluntary retirement at age 55 with 15 years of 
service.  Employees hired after July 2005 must join the new system, 
with a retirement age of 60.  The new system requires employers to 
contribute six percent of their monthly wage to accounts at 
designated banking institutions.  The accounts follow employees as 
they move from one employer to another.  A universal national health 
 
TAIPEI 00000079  010 OF 024 
 
 
insurance system, to which employers contribute, covers all Taiwan 
residents. 
 
¶43.  Taiwan provides unemployment relief based on the Employment 
Insurance Law enacted in 2002.  Alternatives for unemployment pay 
include vocational training allowance for jobless persons and 
employment subsidies to encourage employment of jobless persons. 
The Labor Standards 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.  Over half of private firms have adopted the five-day 
workweek.  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). 
 
¶44.  In July 2007, Taiwan raised the minimum monthly wage by 9.1% to 
NT$17,280 (US$532) and the minimum hourly wage from NT$66 (US$2) to 
NT$95 (US$2.9).  Monthly manufacturing sector wages in the first ten 
months of 2007 averaged NT$43,704 (US$1,345) including overtime, 
allowances and bonuses. 
 
¶45.  Labor unions have become more active and independent since 
Taiwan's martial law was lifted in 1987.  Privatization and the new 
retirement system contributed to an increase in labor disputes over 
the past three years.  Taiwan is not a member of the International 
Labor Organization (ILO) but adheres to the ILO Conventions in 
protection of worker's rights. 
 
--------------------------------- 
¶E. Foreign Trade Zones/Free Ports 
--------------------------------- 
 
¶46.  The first free trade/free port zone began operation at Keelung, 
Taiwan's northern port, in November 2004.  Another four were 
established in 2005.  These four are located at Taoyuan 
International Airport and the international harbors in Kaohsiung, 
Taichung, and Taipei.  Taiwan authorities have relaxed restrictions 
on movement of merchandise, capital and personnel into and out of 
such zones.  Foreign investors are accorded national treatment. 
 
--------------------------------------- 
¶F. Foreign Direct Investment Statistics 
--------------------------------------- 
 
¶47.  Statistics on foreign direct investment in Taiwan are available 
from two sources.  The Investment Commission (IC) publishes monthly 
and yearly foreign investment approval statistics by industry and by 
country.  The Central Bank of the ROC (Taiwan) (CBT) publishes 
foreign direct investment arrivals on a quarterly and yearly basis. 
CBT data, contained in balance-of-payments (BOP) statistics, are not 
further classified by industry or country. 
 
¶48.  In 2006, strong recovery of Taiwan's export sector far offset 
adverse effects of delinquent credit/cash card debt problems which 
dampened private consumption in the first half of the year.  Growth 
in exports, which account for over 60% of Taiwan's GDP, accelerated 
from 8.8% in 2005 to 13% in 2006, driving Taiwan's 2006 real GDP 
growth to nearly 5%, from 4.2% in 2005. 
 
¶49.  Unexpectedly strong economic performance in the second half of 
2007 prompted both domestic and foreign forecasters to raise 
Taiwan's 2007 real GDP growth estimates to 5.2-5.5%.  The official 
estimate is 5.46%.  Year-on-year export growth increased from 7.6% 
 
TAIPEI 00000079  011 OF 024 
 
 
in the fourth quarter of 2006 to 14.4% in October-November 2007. 
Meanwhile, growth in export orders rose from 9.6% to 17.6%, and 
growth in manufacturing production accelerated from 0.5% to a 
three-and-a-half-year high of nearly 15%.  Most Taiwan forecasters 
anticipate that Taiwan's economic growth in 2008 will slow to below 
4.5%.  They believe that the U.S. sub-prime mortgage problem, as 
well as higher international prices for oil and grains, will dampen 
world economic performance and reduce demand for products from the 
export-oriented economy of Taiwan.  In the first eleven months of 
2007, approved FDI increased 20% year-on-year to US$14 billion. 
Approved FDI was concentrated in banking, trade, electronics, basic 
metal, and nonmetallic products.  These five categories accounted 
for nearly 80% of total approved FDI. 
 
¶50.  Approved direct investment in electronics industries (including 
communications, semiconductor, TFT-LCD and other optical electronic 
projects) increased from 6.4% of total approved FDI prior to 1995 
and 19% in 1996-2000 to 24.5% in 2001-2005 and further to 47% in 
¶2006.  Meanwhile, the percentage share for financial services 
increased from 7.6% prior to 1995 and 22% in 1996-2000 to 25.6% in 
2001-2005 and 34% in 2006.   Nearly 80% of the approved inbound 
direct investment in Taiwan's electronics industries came from the 
United States, Europe and Japan. 
 
¶51.  The United States and Japan used to be the two main sources of 
Taiwan's foreign investment, but have been replaced by the tax 
havens in the British Territories in America (BTA), which harbor a 
growing number of multinational corporations (many with roots in 
Taiwan).  According to official Taiwan statistics, approvals for 
U.S. investment from 1952 to 2006 totaled US$15 billion (US16.1 
billion according to official U.S. figures), or 19% of total foreign 
investment.  Of total U.S. investment, 32% was directed toward the 
electronics and electrical industries, and 44% toward the service 
sector.  Approvals for Japanese investment amounted to US$14 
billion, or 18% of total foreign investment, of which 31% was in 
electronics and electrical industries and 34% in the service sector. 
 In 2006, new EU investment exceeded that of the United States or 
Japan due to a major holdings transfer by the Philips Company. 
 
¶52.  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 
1999-2005 accounted for 27% of total approved investments, compared 
to 18% from the United States, another 18% from Europe, and 15% from 
Japan.  In 2006, a holdings transfer by the Philips Company drove 
down the BTA's share to 16.5%, the United States' share to 19% and 
Japan's share to 18%, while Europe's share reached 21.6%.  One 
quarter of the investment from the BTA was directed towards 
financial services and another quarter to the electronic and 
electrical industries. 
 
¶53.  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-payments statistics compiled by the central bank, 
outbound direct investment has exceeded inbound direct investment 
every year since 1988.  According to IC statistics, by 2006, 
cumulative approvals for outbound investments totaled US$103.7 
billion.  The main recipient of Taiwan investment has been China, 
which has received over half of Taiwan's outbound investment. 
Approved investments in China increased by 27% in 2006 when 64% of 
Taiwan's new overseas investment went to China. 
 
¶54.  Taiwan business firms started to relocate their production 
 
TAIPEI 00000079  012 OF 024 
 
 
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 PCs and 
motherboards, 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 labor and land costs 
to process Taiwan-made production inputs into finished goods for 
exports to such industrial markets as the United States, Japan and 
Europe, and also for final sale in China.  Rising labor and land 
costs in China have prompted some Taiwan firms to move from China to 
nations in South and Southeast Asia, including Vietnam. 
 
¶56.  Taiwan's annual registered direct investment across the Taiwan 
Strait grew from US$1.25 billion in 1999 to US$6.0 billion in 2005 
and US$7.6 billion in 2006.  As a result of this trend Taiwan 
factories, primarily those based in China and Vietnam, produced 
nearly 50% of export orders received by Taiwan companies' 
headquarters by November 2007, up from 11.5% in early 2000, and 2007 
ratio reached 85% for information technology (IT) firms.  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 11 months of 2007 reached 41%, much higher than 
the 13% for the United States and 11% for the European Union. 
 
Table 1 
Foreign Investment Approvals by Year and by Area 
(1952-2006) (unit: US$ million) 
 
                       Central        Hong 
Year    U.S.A.  Japan  America  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 
UNCLASSIFIED 
 
SIPDIS 
PROG 01/15/2008 
ECON:HSMITH 
ECON:YSWANG 
ECON:MCAVANAUGH 
ECON1 
 
AIT TAIPEI 
SECSTATE WASHDC 
DEPT OF TREASURY WASHDC 
INFO USDOC WASHDC 
CIMS NTDB WASHDC 
AMEMBASSY BANGKOK 
AMEMBASSY BEIJING 
AMEMBASSY SEOUL 
AMEMBASSY SINGAPORE 
AMEMBASSY TOKYO 
AMEMBASSY MANILA 
AMEMBASSY JAKARTA 
AMEMBASSY KUALA LUMPUR 
AMEMBASSY HANOI 
AMEMBASSY CANBERRA 
AMEMBASSY WELLINGTON 
AMCONSUL HONG KONG 
AMCONSUL SHANGHAI 
AMCONSUL GUANGZHOU 
 
SIPDIS 
 
TAIPEI 00000079  013 OF 024 
 
 
 
STATE PLEASE PASS USTR 
STATE FOR EB/IFD/OIA/HATCHER, KAMBARA, and TRACTON, EAP/RSP/TC, 
EAP/EP 
USTR FOR KATZ, STRATFORD and BEHAR 
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT 
TREASURY FOR OASIA/TTYANG AND HAARSAGER 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN, AND NEW YORK FRB 
MARI BOLIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR OPIC KTDB USTR KIPR TW
SUBJECT: Taiwan's 2008 Investment Climate Statement 
 
REF: State 158802 
 
---------------------------------- 
A.1 Openness to Foreign Investment 
---------------------------------- 
 
¶1.  Taiwan officially welcomes foreign direct investment.  Taiwan's 
science-based industrial parks, export processing zones, and free 
trade zones offer streamlined procedures.  Taiwan has made 
significant improvement in protecting intellectual property. 
 
¶2.  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 to 
maintain security and environmental protection.  Liberalization has 
reduced that list to less than one percent of manufacturing 
categories and less than five percent of service industries.  The 
latest significant liberalization took place in February of 2003 
when alcohol production, agricultural production, fishing, and 
animal husbandry were opened to foreign investors.  Prior approval 
is required, but this requirement will be dropped for projects with 
an investment below NT$8 million (U$246,000) if legislation pending 
before the legislature passes into law.  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, 
real estate development, brokerage, leasing, and trading are all 
completely open to foreign investment.  After its accession to the 
WTO in January 2002, Taiwan started permitting imports of gasoline 
and liquid natural gas (LNG) by the private sector, without any 
foreign ownership restriction.  It also permitted private wine and 
cigarette imports.  In April 2004, Taiwan dropped mining and 
ordinary trucking services from the negative list but added 
single-axle truck leasing. 
 
¶3.  Most foreign ownership limits have been removed.  The foreign 
ownership limit on wireless and wireline telecommunications firms is 
60%, including a direct foreign investment limit of 49%.  For the 
state-owned Chunghwa Telecom Co., which controls 97% of the fixed 
line telecom market, the limit on direct and indirect foreign 
investment was raised from 49% to 55% in December 2007.  There is a 
20% limit on foreign direct investment on cable television broadcast 
services, but foreign ownership of up to 60% is allowed through 
indirect investment via a Taiwan entity.  Foreign investors now 
control three of the five largest cable TV networks in Taiwan. 
Foreign ownership limits are 49.99% for satellite television 
broadcasting services and piped distribution of natural gas and 49% 
for high-speed railways.  A 50% foreign ownership limit remains on 
Taiwan-flagged merchant ships, power transmission and distribution, 
ground-handling firms, air-cargo terminals, air-catering companies, 
 
TAIPEI 00000079  014 OF 024 
 
 
and air-cargo forwarders.  The 50% foreign ownership limit for 
ground-handling firms, air-cargo terminals, air-catering companies, 
and air-cargo forwarders was removed for investors from WTO members 
in November 2001.  In July 2007, the foreign ownership limit on 
airline companies was raised from 33.33% to 49%, with a separate 
limit of 25% for any single foreign investor. 
 
¶4.  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 use either foreign currencies 
or NT dollars.  In mid-2006, Taiwan authorities started permitting 
NT dollar loans obtained from local banks to serve as sources of 
foreign direct investment.  Companies with foreign ownership below 
one-third are exempt from limitations 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 state-owned firms undergoing privatization 
and are eligible to participate in publicly-financed research and 
development programs. 
 
¶5.  The Investment Commission (IC) of the Ministry of Economic 
Affairs screens applications for investment, acquisitions, and 
mergers.  According to the IC, approximately 98% of projects with an 
investment value less than NT$500 million (US$15.4 million at an 
exchange rate of NT$32.5 per US$) are excluded from the negative 
list; the IC estimates that approval for these projects is generally 
granted within two working days at the IC division chief level.  For 
investments in the range of NT$500 million (US$15.4 million) to 
NT$1,500 million (US$46.2 million)   excluded from the negative 
list, approval authority rests with the IC Executive Secretary and 
normally is granted within three working days.  Approval of 
investments in industries above NT$1,500 million or on the negative 
list requires two weeks because those investments must be referred 
to the relevant supervisory ministries and require approval of the 
IC Chairman or IC Executive Secretary.  Investments involving 
complications such as mergers and acquisitions require screening at 
the monthly meeting of an inter-ministerial commission. 
 
¶6.  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.  Incentives for 
manufacturing firms to locate factories in designated industrial 
parks to include free rent the first two years, 40% discount on rent 
the next two years, and 20% discount on rent in the fifth and sixth 
years has been extended to December 2008.  Under another incentive 
program, state-owned land is available for investors rent-free for 
the first four years and 50% off for the next six years.  As part of 
its financial reform plan, Taiwan encourages and provides incentives 
for banks, insurance companies, securities firms, and financial 
holding companies to merge. 
 
¶7.  In 2005 and 2006, Taiwan authorities slashed some investment tax 
incentives as a part of a tax reform designed to reduce the fiscal 
deficit.  A new law to levy a ten-percent alternative minimum tax on 
business firms became effective in January 2006.  Since early 2005, 
Taiwan authorities have cut the number of industries entitled to tax 
incentives by one-third and doubled the thresholds in annual R&D 
expenses for tax offsets from NT$15-20 million (US$462 thousand to 
 
TAIPEI 00000079  015 OF 024 
 
 
US$615 thousand) to NT$30-40 million (US$923 thousand to US$1.23 
million).  The tax credit for procurement of automation equipment 
has been lowered from 11% to 7% and that for procurement of 
technologies reduced from 10% to 5%.  The tax credit for projects in 
remote poor areas has been cut from 20% to 15%. 
 
------------------------------------ 
A.2 Conversion and Transfer Policies 
------------------------------------ 
 
¶8.  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.  The remittance of capital 
invested in Taiwan must be reported in advance to the IC, but IC 
approval is not requited.  Declared earnings, capital gains, 
dividends, royalties, management fees, and other returns on 
investments can be repatriated at any time.  For large transactions 
requiring the exchange of NT$ into foreign currency which could 
potentially disrupt Taiwan's shallow foreign exchange market, the 
central bank may require the transaction to be scheduled over 
several days.  There is no written guideline on the size of such 
transactions, but amounts in excess of US$100 million may be 
affected.  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 an individual or US$50 million for a corporate 
entity. 
 
¶9.  Total outbound investment may not exceed 40% of the investing 
company's net worth or paid-in capital (whichever is less), unless 
the company charter waived the 40% 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.  Investments in China are subject to additional 
restrictions. 
 
¶10.  Taiwan has significantly relaxed restrictions on Taiwan 
entities' direct investment in China down to a negative list 
covering about 100 manufacturing products and 430 agricultural 
products.  Taiwan has 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 is NT$80 million (US$2.5 million). 
For large enterprises, total China investment may not exceed 20% of 
the company's net worth exceeding NT$10 billion, 30% of net worth 
from NT$5 billion to NT$10 billion (US$308 - 615 million), and 40% 
of the net worth below NT$5 billion (US$154 million).  For 
investments below US$200,000, approval can be issued on the same day 
of submitting the application.  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. 
 
¶11.  Taiwan authorities have actively encouraged investment in 
Southeast Asia and India.  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 from Taiwan's Export-Import Bank. 
 
---------------------------------- 
 
TAIPEI 00000079  016 OF 024 
 
 
A.3 Expropriation and Compensation 
---------------------------------- 
 
¶12.  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% 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 
---------------------- 
 
¶13.  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. 
Investment disputes with the Taiwan authorities are not common. 
Normally, Taiwan resolves disputes according to domestic laws and 
regulations. 
 
¶14.  Taiwan has comprehensive commercial laws, including the 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. 
 
¶15.  Taiwan's court system is generally viewed as independent and 
free from overt interference by the other official branches.  Judges 
are generally over-worked.  In response to complaints about the slow 
pace of judicial decision-making, Taiwan authorities adopted 
measures in 2002 to monitor case processing time.  Simplified courts 
have been set up to deal with minor cases that can be resolved 
quickly.  The legislature enacted a bill to set up special courts 
for intellectual property rights (IPR) cases in March 2007, and the 
courts are scheduled to start reviewing cases in July 2008.  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 
------------------------------------------- 
 
¶16.  All of Taiwan's performance requirements were removed in 
January 2002 upon Taiwan's WTO accession.  Like domestic firms, 
foreign-invested companies must be located in areas zoned for 
appropriate industrial or commercial use.  Taiwan does not require 
that firms transfer technology, locate in specified areas, or hire a 
minimum number of local employees as a prerequisite to investment. 
 
¶17.  Manufacturing firms located in export-processing zones and 
science-based industrial parks are required to export all of their 
production to obtain tariff-free treatment of production inputs. 
However, these firms may sell on the domestic market upon payment of 
relevant import duties. 
 
¶18.  When acceding to the WTO in January 2002, Taiwan promised to 
accede to the Government Procurement Agreement (GPA).  Taiwan also 
promised to phase out industrial offset requirements (IOR) for 
non-military public procurement upon signing the GPA.  Taiwan has 
yet to accede to the GPA, but even without GPA membership, Taiwan 
started reducing the IOR coverage of non-military procurements in 
 
TAIPEI 00000079  017 OF 024 
 
 
¶2004.  Currently, only railway and power generation projects are 
subject to IOR.  For these two categories, a contract of US$10 
million or more triggers an offset obligation of at least 33%.  For 
military procurements, the threshold is US$5 million, and the 
minimum offset obligation is 40%.  In some military cases, the 
offset ratio has reached 70% due to legislative pressure.  Since the 
first industrial offset contract (IOC) was signed in 1988, Taiwan 
has signed IOCs with 51 suppliers from 12 foreign countries. 
Commitment value of these contracts total US$8.4 billion, and 
realized contracts amounted to US$5.3 billion.  Forty-six percent of 
the total realized value was directed to transfer of technologies, 
27% to foreign direct investment in Taiwan, 15% to procurement from 
Taiwan, 5% to trade promotion, 4% to personnel training, and 2% to 
assessment certification.  Taiwan has published industrial offset 
rules in both Chinese and English to which readers can access 
online. 
 
--------------------------------------------- --- 
A.6 Right to Private Ownership and Establishment 
--------------------------------------------- --- 
 
¶19.  Private investors have the right to establish and own business 
enterprises, except in a limited number of industries involving 
national security and environmental protection.  Private entities 
can freely acquire and dispose of interests in business enterprises. 
 Private firms have the same access as state-owned companies to 
markets, credit, licenses, and supplies.  Taiwan authorities have 
eliminated state-owned monopolies. 
 
--------------------------------- 
A.7 Protection of Property Rights 
--------------------------------- 
 
¶20.  Taiwan has continued efforts to improve its IPR legal regime 
and enforcement.  The Intellectual Property Office (TIPO) under the 
Ministry of Economic Affairs as well as other relevant agencies have 
adopted programs to crack down on Internet and physical piracy.  In 
addition, the Ministry of Education (MOE) announced a campus IPR 
action plan in October 2007 to strengthen management of academic 
computer networks and restrict illegal textbook coping by students. 
Taiwan has amended laws and regulations to meet international 
standards and requirements.  Taiwan has also amended the Patent Law 
and Copyright Law to extend the term of protection from 18 years to 
20 years for some patents and to define computer software as 
literary works.  Taiwan has enacted the Optical Media Law to address 
CD/DVD piracy problems.  The law has established a legal framework 
for regulation of CD manufacturing plants through licensing and the 
use of Source Identification (SID) codes in production.  Convicted 
violators may receive prison terms of up to three years and fines of 
up to NT$6 million (US$184,600).  The Optical Media Law, together 
with effective enforcement, has led to a dramatic decrease in 
large-scale production of counterfeit CD products.   Amendments to 
the Copyright Law in 2003 and 2004 made copyright infringement a 
public crime, increased penalties for counterfeiters and made it 
illegal to tamper with technical protection measures.  The 
Pharmaceutical Law as amended in 2004 and 2007 stiffened penalties 
for production, distribution and sale of counterfeit medicines.  A 
2005 amendment to the Law to authorized pharmaceutical data 
exclusivity for five years to prevent unfair commercial data use 
--the same data-exclusivity period as in the United States--but U.S. 
original-drug manufacturers complain that Taiwan authorities 
unfairly allow generic-pharmaceutical makers to apply for a license 
and a Bureau of National Health Insurance reimbursement price for 
their knock-off drugs even before the original drug's 
data-exclusivity period has expired.  A June 2007 amendment to the 
 
TAIPEI 00000079  018 OF 024 
 
 
Copyright Law subjects illegal file sharing, such as P2P, to a 
maximum jail term of two years.  In March 2007, Taiwan completed 
legislation of the IP Court Organization Law for establishment of a 
specialized IP court which is scheduled to start reviewing cases in 
July 2008. 
 
¶21.  In 2003, Taiwan established  the Integrated Enforcement Task 
Force (IETF), which consists of 220 IP police officers.  In 2004, 
the task force was transformed to a permanent IP police squadron. 
The IP police have frequently raided retail optical- media sales 
points.  This has led to a significant decrease in the number of 
counterfeit CD and DVD vendors. Other enforcement measures include 
increasing the reward by ten times to NT$10 million (US$300,000) to 
IPR informants for counterfeit -goods  seizures ,  and setting up an 
anti-pirating CD export task force to strengthen inspection of 
commodities entering or leaving Taiwan. 
 
¶22. While Taiwan has improved IPR protection, transshipment of 
counterfeit products from China to the United States remains a 
problem.  Counterfeit goods from Taiwan seized by U.S. Customs 
dropped from $26.5 million in 2002 to $1.1 million in 2005.  The 
value of seized counterfeit goods was $1.8 million in 2006 and $2.8 
million in the first half of FY2007.  In addition, Taiwan is facing 
a growing Internet-based piracy threat.  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.  Although 
counterfeit and parallel imported pharmaceuticals are still found in 
the Taiwan marketplace, the legislature passed amendments to the 
Pharmaceutical Law in 2004 and 2007 to increase the penalties for 
dealing in counterfeit pharmaceuticals, resulting in marked 
increases in fines and jail terms over the past several years. 
 
----------------------------------------- 
A.8 Transparency of the Regulatory System 
----------------------------------------- 
 
¶23.  Taiwan has a set of comprehensive laws and regulations 
regarding taxes, labor, health and safety. 
 
¶24.  Foreign investors note that in addition to tax incentives, 
Taiwan's science-based industrial parks and export processing zones 
have simple and transparent bureaucratic procedures for the 
investment application process.  Outside of these areas, the 
Department of Investment Services (DOIS) functions as the 
coordinator between investors and all agencies involved in the 
investment process.  The Investment Commission (IC) is charged with 
reviewing and approving inbound and outbound investments. 
 
¶25.  Taiwan has simplified work-permit procedures 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 the CLA to issue 
work permits.  The work permit may be extended indefinitely as long 
as the employer considers the employment necessary. 
 
¶26.  Taiwan has removed the job experience requirement for 
employment of foreign management professionals by global operational 
headquarters and R&D centers 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 
 
TAIPEI 00000079  019 OF 024 
 
 
year in Taiwan.  The seven-year requirement is waived for high-tech 
personnel and those who have made "significant contributions" to 
Taiwan. 
 
¶27.  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 changed to an employment visa.  A foreign executive whose 
employment visa expires is not required to exit before renewing the 
visa. 
 
--------------------------------------------- -------- 
A.9 Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- -------- 
 
¶28.  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 foreign 
ownership limits or investment fund limits.  In recent years, Taiwan 
authorities have taken a number of steps to encourage a 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 which limit 
each remittance to US$100,000.  There are no restrictions on 
residents opening bank accounts overseas.  Limits on branch banking 
have been lifted.  A freeze on new bank branches to encourage 
consolidation was removed in 2007.  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. 
 
¶29.  Taiwan abolished a complicated regulatory system governing 
foreign portfolio investment in October 2003.  Since then, any 
foreign institutional investor is allowed to enter Taiwan's markets. 
 Subsequent registration has replaced the need for prior approval. 
There is no minimum asset requirement.  Investment and capital flows 
are not limited.  On-shore foreign investors (like other residents) 
are still subject to capital flow limits of US$5 million for an 
individual foreign investor and US$50 million for an unregistered 
foreign company. 
 
¶30.  Taiwan has removed all legal limits on foreign ownership except 
for investors from China in nearly all companies listed on the 
Taiwan Stock Exchange (TAIEX).  These exceptions include 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. 
 
¶31.  Taiwan has a tightly regulated banking system.  Since the 
mid-1980s, the financial sector as a whole has been steadily opening 
to private investment.  The market share held by foreign banks had 
been relatively small until four foreign banks and three foreign 
private equity funds completed their acquisitions of Taiwan banks in 
¶2007.  The market share of all foreign banks in Taiwan (including 
the seven acquired by foreign investors in 2007) increased from 8% 
in 2006 to 15% in terms of assets in 2007, or from below 3% to 
nearly 7% in terms of loans.  The establishment of a number of new 
securities firms, banks, insurance companies, and holding companies 
has underscored this liberalization trend and enhanced competition. 
 
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Over the past decade, nine state-owned banks have been privatized. 
The only Taiwan-based reinsurance company was privatized in 2002. 
State-controlled banks still dominate the banking sector, however, 
and hold a market share of 51% in terms of assets and 56% in terms 
of loans.  This share has been falling in recent years as Taiwan has 
begun privatization efforts. 
 
----------------------- 
A.10 Political Violence 
----------------------- 
 
¶32.  Taiwan is a relatively young multi-party democracy with 
democratic political institutions that are still evolving.  The 
close margin in the 2004 presidential election resulted in an attack 
on election offices and several large-scale demonstrations. 
Nevertheless, these incidents and other protests 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 
------------------ 
 
¶33.  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. 
 
¶34.  We are not aware of cases where bribes have been solicited for 
investment approval.  Both central and local governments offer 
investors incentives, including free rent on land for the first 
several 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. 
 
¶35.  The Government Procurement Law promulgated in 1998 and amended 
in February 2001 was an element of promised significant improvements 
upon WTO accession.  The Public Construction Commission (PCC) now 
publishes all major state 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, and publishes results 
of bidding and of inspections.  A task force has been organized to 
investigate complaints. 
 
¶36.  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.  Since then, prosecutors have indicted 
10,807 persons for corruption, including prominent personalities, 
632 senior officials (department director level and above) and 623 
elected officials.  Indicted elected officials included 21 
legislators.  In 2006, the Taiwan High Court upheld a district 
court's four-year jail sentence for a former speaker of the 
legislature on a charge of taking a NT$150 million (US$4.6 million) 
bribe.  In 2007, prosecutors indicted a serving minister and a vice 
minister for receiving bribes, while district courts convicted 
another two vice ministers with jail terms of up to 16 years. 
 
¶37.  Attempting to bribe, or accepting a bribe from, Taiwan 
 
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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 as 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 NT$3 million dollars 
(US$92,300).  In addition, the offender may be barred from holding 
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 
---------------------------------- 
 
¶38.  Taiwan has concluded bilateral investment guaranty agreements 
with the following 26 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 other agreements to protect U.S. investment in Taiwan 
(see next paragraph).  (An agreement with Latvia signed in 1992 was 
revoked in August 2004.) 
 
¶39.  The terms of the 1948 Friendship, Commerce, and Navigation 
Treaty between the Republic of China and the United States are still 
in force, and under the terms of the agreement 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, and 
the latest round took place in Washington in 2007. 
 
--------------------------------------------- -- 
¶C. OPIC and Other Investment-Insurance Programs 
--------------------------------------------- -- 
 
¶40.  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 
-------- 
 
¶41.  Unemployment, at just under 4%, has declined since 2002, but is 
still above the 1.45% to 2.99% range in the 1990s.  Taiwan's aging 
population, however, has prompted greater demand for foreign 
caregivers.  The percentage of the population aged 65 and above has 
increased from below 4% in the 1970s to above 10% in late 2007.  In 
response, the number of foreign caregivers has grown to 160,000 and 
accounts for 45% of blue-collar foreign workers in Taiwan.  In the 
industrial sector, despite relaxation of employment restrictions, 
the number of the sector's blue-collar foreign workers declined 13% 
from 228,000 in 2000 to 197,770 in November 2007. 
 
 
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¶42.  There are no special hiring practices in Taiwan.  Wages 
typically include a one-month bonus at the end of a year.  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 paid 
maternity leave, a lump-sum or annuity retirement plan, and other 
benefits.  A new retirement system implemented in July 2005 
abolishes the voluntary retirement scheme under an old system which 
still covers 30% of total employment population.  The old system 
grants employees voluntary retirement at age 55 with 15 years of 
service.  Employees hired after July 2005 must join the new system, 
with a retirement age of 60.  The new system requires employers to 
contribute six percent of their monthly wage to accounts at 
designated banking institutions.  The accounts follow employees as 
they move from one employer to another.  A universal national health 
insurance system, to which employers contribute, covers all Taiwan 
residents. 
 
¶43.  Taiwan provides unemployment relief based on the Employment 
Insurance Law enacted in 2002.  Alternatives for unemployment pay 
include vocational training allowance for jobless persons and 
employment subsidies to encourage employment of jobless persons. 
The Labor Standards 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.  Over half of private firms have adopted the five-day 
workweek.  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). 
 
¶44.  In July 2007, Taiwan raised the minimum monthly wage by 9.1% to 
NT$17,280 (US$532) and the minimum hourly wage from NT$66 (US$2) to 
NT$95 (US$2.9).  Monthly manufacturing sector wages in the first ten 
months of 2007 averaged NT$43,704 (US$1,345) including overtime, 
allowances and bonuses. 
 
¶45.  Labor unions have become more active and independent since 
Taiwan's martial law was lifted in 1987.  Privatization and the new 
retirement system contributed to an increase in labor disputes over 
the past three years.  Taiwan is not a member of the International 
Labor Organization (ILO) but adheres to the ILO Conventions in 
protection of worker's rights. 
 
--------------------------------- 
¶E. Foreign Trade Zones/Free Ports 
--------------------------------- 
 
¶46.  The first free trade/free port zone began operation at Keelung, 
Taiwan's northern port, in November 2004.  Another four were 
established in 2005.  These four are located at Taoyuan 
International Airport and the international harbors in Kaohsiung, 
Taichung, and Taipei.  Taiwan authorities have relaxed restrictions 
on movement of merchandise, capital and personnel into and out of 
such zones.  Foreign investors are accorded national treatment. 
 
--------------------------------------- 
¶F. Foreign Direct Investment Statistics 
--------------------------------------- 
 
¶47.  Statistics on foreign direct investment in Taiwan are available 
from two sources.  The Investment Commission (IC) publishes monthly 
and yearly foreign investment approval statistics by industry and by 
country.  The Central Bank of the ROC (Taiwan) (CBT) publishes 
 
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foreign direct investment arrivals on a quarterly and yearly basis. 
CBT data, contained in balance-of-payments (BOP) statistics, are not 
further classified by industry or country. 
 
¶48.  In 2006, strong recovery of Taiwan's export sector far offset 
adverse effects of delinquent credit/cash card debt problems which 
dampened private consumption in the first half of the year.  Growth 
in exports, which account for over 60% of Taiwan's GDP, accelerated 
from 8.8% in 2005 to 13% in 2006, driving Taiwan's 2006 real GDP 
growth to nearly 5%, from 4.2% in 2005. 
 
¶49.  Unexpectedly strong economic performance in the second half of 
2007 prompted both domestic and foreign forecasters to raise 
Taiwan's 2007 real GDP growth estimates to 5.2-5.5%.  The official 
estimate is 5.46%.  Year-on-year export growth increased from 7.6% 
in the fourth quarter of 2006 to 14.4% in October-November 2007. 
Meanwhile, growth in export orders rose from 9.6% to 17.6%, and 
growth in manufacturing production accelerated from 0.5% to a 
three-and-a-half-year high of nearly 15%.  Most Taiwan forecasters 
anticipate that Taiwan's economic growth in 2008 will slow to below 
4.5%.  They believe that the U.S. sub-prime mortgage problem, as 
well as higher international prices for oil and grains, will dampen 
world economic performance and reduce demand for products from the 
export-oriented economy of Taiwan.  In the first eleven months of 
2007, approved FDI increased 20% year-on-year to US$14 billion. 
Approved FDI was concentrated in banking, trade, electronics, basic 
metal, and nonmetallic products.  These five categories accounted 
for nearly 80% of total approved FDI. 
 
¶50.  Approved direct investment in electronics industries (including 
communications, semiconductor, TFT-LCD and other optical electronic 
projects) increased from 6.4% of total approved FDI prior to 1995 
and 19% in 1996-2000 to 24.5% in 2001-2005 and further to 47% in 
¶2006.  Meanwhile, the percentage share for financial services 
increased from 7.6% prior to 1995 and 22% in 1996-2000 to 25.6% in 
2001-2005 and 34% in 2006.   Nearly 80% of the approved inbound 
direct investment in Taiwan's electronics industries came from the 
United States, Europe and Japan. 
 
¶51.  The United States and Japan used to be the two main sources of 
Taiwan's foreign investment, but have been replaced by the tax 
havens in the British Territories in America (BTA), which harbor a 
growing number of multinational corporations (many with roots in 
Taiwan).  According to official Taiwan statistics, approvals for 
U.S. investment from 1952 to 2006 totaled US$15 billion (US16.1 
billion according to official U.S. figures), or 19% of total foreign 
investment.  Of total U.S. investment, 32% was directed toward the 
electronics and electrical industries, and 44% toward the service 
sector.  Approvals for Japanese investment amounted to US$14 
billion, or 18% of total foreign investment, of which 31% was in 
electronics and electrical industries and 34% in the service sector. 
 In 2006, new EU investment exceeded that of the United States or 
Japan due to a major holdings transfer by the Philips Company. 
 
¶52.  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 
1999-2005 accounted for 27% of total approved investments, compared 
to 18% from the United States, another 18% from Europe, and 15% from 
Japan.  In 2006, a holdings transfer by the Philips Company drove 
down the BTA's share to 16.5%, the United States' share to 19% and 
Japan's share to 18%, while Europe's share reached 21.6%.  One 
quarter of the investment from the BTA was directed towards 
financial services and another quarter to the electronic and 
 
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electrical industries. 
 
¶53.  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-payments statistics compiled by the central bank, 
outbound direct investment has exceeded inbound direct investment 
every year since 1988.  According to IC statistics, by 2006, 
cumulative approvals for outbound investments totaled US$103.7 
billion.  The main recipient of Taiwan investment has been China, 
which has received over half of Taiwan's outbound investment. 
Approved investments in China increased by 27% in 2006 when 64% of 
Taiwan's new overseas investment went to China. 
 
¶54.  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 PCs and 
motherboards, 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 labor and land costs 
to process Taiwan-made production inputs into finished goods for 
exports to such industrial markets as the United States, Japan and 
Europe, and also for final sale in China.  Rising labor and land 
costs in China have prompted some Taiwan firms to move from China to 
nations in South and Southeast Asia, including Vietnam. 
 
¶56.  Taiwan's annual registered direct investment across the Taiwan 
Strait grew from US$1.25 billion in 1999 to US$6.0 billion in 2005 
and US$7.6 billion in 2006.  As a result of this trend Taiwan 
factories, primarily those based in China and Vietnam, produced 
nearly 50% of export orders received by Taiwan companies' 
headquarters by November 2007, up from 11.5% in early 2000, and 2007 
ratio reached 85% for information technology (IT) firms.  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 11 months of 2007 reached 41%, much higher than 
the 13% for the United States and 11% for the European Union. 
 
Table 1 
Foreign Investment Approvals by Year and by Area 
(1952-2006) (unit: US$ million) 
 
                       Central        Hong 
Year    U.S.A.  Japan  America  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