Taiwan: 2004 INVESTMENT CLIMATE STATEMENT

UNCLAS SECTION 01 OF 16 TAIPEI 000153

SIPDIS

STATE PLEASE PASS AIT/W, USTR AND OPIC

STATE FOR EAP/RSP/TC AND EB/IFD/OIA

USTR FOR SCOTT KI

USDOC FOR 4430/ITA/MAC/AP/OPB/JKELLY/MBMORGAN

TREASURY FOR OASIA/WISNER

E.O. 12958: N/A
TAGS: EINV EFIN ECON TW
SUBJECT: Taiwan: 2004 INVESTMENT CLIMATE STATEMENT

REF:2004 STATE 250356


1. The following is the Taiwan Investment Climate Statement
for 2004, as requested reftel. A copy has been transmitted
by e-mail to EB/OIA.

--------------
A.1 Openness to Foreign Investment
--------------


2. Taiwan officially welcomes foreign direct investment,
which at the end of 2003 amounted to 20.8 percent of GDP.
Although authorities have taken steps to improve the
investment climate, U.S. firms report that impediments
remain in some sectors, especially services. Rules on local
licensing of professionals are cited as a barrier to foreign
providers of some services. Some foreign investors complain
of lengthy and non-transparent approval processes. Taiwan's
science-based industrial parks and export processing zones
by contrast offer streamlined procedures. While Taiwan has
made significant improvement in protecting intellectual
property, some foreign firms still cite inadequate
protection as a deterrent to investing.


3. As part of its efforts to improve the investment
climate, Taiwan no longer has a list of permitted
investments, but maintains a negative list of industries
closed to foreign investment (i.e., only those industries on
the list are not open to foreign investment).
Liberalization has reduced the list to less than one percent
of manufacturing categories and less than five percent of
service industries. Some foreign investors believe that
liberalization of investment regulations has proceeded
faster than corresponding adjustments in attitudes of
officials implementing the regulations. The latest
significant liberalization took place in February of 2003
when alcohol production, agricultural production, fishing,
and animal husbandry were opened to foreign investors,
although prior approval is still required from the Taiwan
authorities. To live up to its WTO accession commitments,
Taiwan opened private production of cigarettes in 2004
without any foreign ownership limit. Railway transport,
freight transport by small trucks, pesticide manufacture,
and real estate development, brokerage and leasing and
trading were all completely opened to foreign investment.
After its accession to the WTO in January 2002, Taiwan
opened imports of gasoline and liquid natural gas (LNG) to
the private sector, without any foreign ownership
restriction. It also permitted private wine and cigarette
imports. In April 2004, Taiwan dropped ordinary trucking
services from but included single-axle truck leasing in the
negative list.


4. Most foreign ownership limits have been removed, with a
few exceptions. Taiwan-flagged merchant ships are subject
to a foreign ownership limit of 66.66 percent. The foreign
ownership limit on wireless and wireline telecommunications
firms is 60 percent, including a direct foreign investment
limit of 49 percent. For the state-owned Chunghwa Telecom
Co., which controls 97 percent of the fixed line telecom
market, direct and indirect foreign investment is limited to
20 percent. In January 2003, Taiwan raised the foreign
ownership limit on cable television broadcasting services
from 50 percent to 60 percent, including a 20 percent limit
on foreign direct investment. A 50 percent foreign
ownership limit remains on onshore mining, satellite
television broadcasting services, power transmission and
distribution, piped distribution of natural gas, ground-
handling firms, air-cargo terminals, air-catering companies,
air-cargo forwarders, and high-speed railways. The foreign
ownership limit on airline companies is 33 percent.


5. Regulations governing foreign direct investment
principally derive from the Statute for Investment by
Foreign Nationals (SIFN) and the Statute for Investment by
Overseas Chinese (SIOC). These two laws permit foreign
investors to invest in foreign currencies as well as in NT
dollars. Companies reinvested by joint ventures with
foreign ownership below 33 percent are exempt from
limitations applicable to industries on the negative list.
Both the SIFN and the SIOC specify that foreign-invested
enterprises must receive the same regulatory treatment
accorded local firms. Foreign companies may invest in firms
undergoing privatization and are eligible to participate in
public-financed research and development programs.

6. The Foreign Investment Commission (FIC) of the Ministry
of Economic Affairs screens applications for investment,
acquisitions, and mergers. According to the FIC,
approximately 98 percent of projects with an investment
value less than NT$500 million (US$14.9 million) are
excluded from the negative list; the FIC estimates that
approval for these projects is generally granted within
three working days at the FIC division chief level. For
investments above NT$500 million excluded from the negative
list, approval authority rests with the FIC Executive
Secretary and normally is granted within one week. Approval

SIPDIS
of investments in industries on the negative list requires
several weeks because those investments must be referred to
the relevant supervisory ministries and, for investments
less than NT$500 million, require approval of the FIC
Chairman or FIC Executive Secretary. Listed investments
exceeding NT$500 million require screening at the monthly
meeting of an inter-ministerial commission.


7. Taiwan offers incentives to encourage investment,
including accelerated depreciation and tax credits for
investments in emerging or strategic industries, pollution-
control systems, production automation and energy
conservation. Equipment for R&D purposes can be brought
into Taiwan duty-free. Other incentives include low-
interest loans for developing new and/or cutting edge
products, upgrading traditional industries, and importing
automation or pollution-control equipment. A broad five-
year tax holiday for new investments was re-instituted in
January 1995. Other incentives for manufacturing firms to
locate factories in designated industrial parks include free
rent the first two years, 80 percent discount on rent in the
subsequent two years, and 60 percent discount in the fifth
and sixth years. As part of its financial reform, Taiwan
encourages banks, insurance companies, and securities firms
to merge or transform into financial holding companies.
Such mergers and transformations are eligible for
incentives.


8. In spite of the FIC and efforts to encourage investment,
many foreign investors, especially small investors in the
service sector, encounter cumbersome and non-transparent
procedures when trying to establish businesses in Taiwan.
Strict rules require foreign engineering firms to appoint
locally licensed professional engineers as their company
representatives in Taiwan. Professionals such as lawyers,
architects, accountants, and securities brokers all must
pass local licensing exams before they can practice.
Foreign investors report that a major attraction of
investing in Taiwan's science-based industrial parks is the
assistance provided in expediting needed approvals.
Investors outside of these areas must seek approval from
several central and local government offices. This can be
daunting for the small investor without a local partner or
agent.

--------------
A.2 Conversion and Transfer Policies
--------------


9. There are relatively few restrictions on converting or
transferring direct investment funds. Foreign investors
with approved investments can readily obtain foreign
exchange from a large number of designated banks.
Remittance of capital invested in Taiwan according to a
schedule submitted by the company to the FIC. Declared
earnings, capital gains, dividends, royalties, management
fees, and other returns on investments can be repatriated at
any time. Capital movements arising from trade in
merchandise and services, as well as from debt servicing,
are not restricted. No prior approval is required for
movement of foreign currency funds not requiring exchange
between the NT dollar and the foreign currency. No prior
approval is required if the cumulative amount of inward or
outward remittances does not exceed the annual limit of US$5
million for a person or US$50 million for a corporation.
There are no reported delays in remitting investment returns
or principal through legal channels.


10. An outbound investment may not exceed 40 percent of the
investing company's net worth or paid-in capital (whichever
is less),unless the company charter waived the 40 percent
limit or unless such investment is approved by shareholders.
A local company is not required to obtain prior approval for
overseas investments; however, such an approval exempts the
company from the annual capital outflow limit of US$50
million.


11. In April of 2002, Taiwan significantly relaxed
restrictions on Taiwan entities' direct investment in China
down to a negative list covering only about 100
manufacturing products and 430 agricultural products. In
August of 2002, Taiwan abolished a requirement for direct
investment in China to go through third nations or areas and
removed a direct investment limit of US$50 million. The
ceiling on small and medium enterprises' investment in China
was raised from NT$60 million to NT$80 million. For large
enterprises, the Chinese investment may not exceed 20
percent of the company's net worth exceeding NT$10 billion,
30 percent of net worth from NT$5 billion to NT$10 billion,
or 40 percent of the net worth below NT$5 billion. Prior
approval is not required for investments below US$200,000,
but these must be reported to FIC within six months. Taiwan
opened direct investment in eight-inch silicon wafer plants
in China with some restrictions. Taiwan authorities require
an investor to submit a quarterly financial report if the
cumulative investment in a project exceeds US$20 million.
Investors are encouraged to repatriate their capital and
earnings.


12. Taiwan authorities have actively encouraged investment
in Southeast Asian nations. Investments are also encouraged
in a number of countries with which Taiwan has diplomatic
relations, mainly in Central America. Incentives include
loans and/or overseas investment insurance with the Export-
Import Bank of ROC.

--------------
A.3 Expropriation and Compensation
--------------


13. No foreign invested firm has ever been nationalized or
expropriated in Taiwan. No examples of "creeping
expropriation" or official actions tantamount to
expropriation have been reported. Under Taiwan law no
venture with 45 percent or more foreign investment can be
nationalized for a period of 20 years after the venture is
established. Expropriation can be justified only for
national defense needs and "reasonable" compensation must be
given.

--------------
A.4 Dispute Settlement
--------------


14. Taiwan is not a member of the International Center for
the Settlement of Investment Disputes or the New York
Convention of 1958 on the recognition and enforcement of
foreign arbitrage awards. However, investment disputes are
not common. Normally, Taiwan resolves disputes according to
domestic laws and regulations.


15. Taiwan has comprehensive commercial laws, including
Company Law, Commercial Registration Law, Business
Registration Law, Commercial Accounting Law as well as laws
for specific industries. Taiwan's Bankruptcy Law guarantees
that all creditors have the right to share the assets of a
bankrupt debtor on a proportional basis. Secured interests
in property, both chattel and real, are recognized and
enforced through a registration system.


16. Taiwan's court system is generally viewed as
independent and free from overt interference by the
Executive Branch. Judges are generally over-worked. In
response to complaints about the slow pace of the judicial
decision-making, Taiwan authorities adopted measures in 2002
to monitor the case processing time. Simplified courts have
been set up to deal with minor cases that can be resolved
quickly. Special courts for intellectual property rights
(IPR) cases have been established. Unfortunately, the IPR
courts are required to hear all types of cases, thus
diluting their value. The judgments of foreign courts with
jurisdictional authority are enforced in Taiwan by local
courts on a reciprocal basis.

--------------
A.5 Performance Requirements and Incentives
--------------


17. All of Taiwan's performance requirements were removed
in January 2002 upon Taiwan's WTO accession except for
industrial offset arrangement for Taiwan's military
procurements. Like domestic firms, foreign invested-
invested companies must be located in areas zoned for
appropriate industrial or commercial use. Employment of
foreign white-collar employees is subject to prior approval,
and a requirement for such employment is a minimum capital
of NT$5 million and annual sales of NT$10 million. Tax
credits and tax breaks are offered to encourage the
introduction of new technology into Taiwan. Tax credits are
also offered to encourage companies to locate in less-
developed areas of Taiwan. Subsidies of up to one-half of
total expenditures are offered for R&D programs. Taiwan
does not require that firms transfer technology, locate in
specified areas, or hire a minimum of local employees as a
prerequisite to investment.


18. Manufacturing firms located in export-processing zones
and science-based industrial parks are required to export
all of their production in exchange for tariff-free
treatment of production inputs. However, these firms may
sell on the domestic market upon payment of relevant import
duties.


19. "Offsets," or requirements to make investments and/or
transfer technology as a condition of a public procurement
are generally not permitted under WTO guidelines that,
however, do not cover military procurements. Taiwan
authorities frequently impose offset obligations on
successful bidders for large military procurements under an
organized Industrial Cooperation Program (ICP) administered
by the Industrial Development Bureau of the Ministry of
Economic Affairs. Winning a Taiwan defense contract of
US$10 million or more triggers a direct or indirect offset
obligation of at least 40 percent. In some cases, the
offset ratio has reached 70% percent. Defense contractors
frequently complain of lack of transparency and
predictability in setting offset requirements. Although the
U.S. Government's Foreign Military Sales (FMS) program does
not recognize offset obligations, the successful vendor in
an FMS transaction may nevertheless face offset obligations
to the Taiwan authorities. Direct offsets are performance
requirements directly related to the goods or services
procured, such as a commitment to manufacture certain parts
of a weapon system in Taiwan. Indirect offsets are less
directly related, or even completely unrelated, to the sale.
For example, a firm selling military aircraft to Taiwan
might assume an obligation to introduce and/or invest in
technologies that are central to the island's industrial
policy such as biotechnology or nanotechnology. Most firms
with substantial offset obligations employ in-house
specialists or outside contractors to structure their offset
programs.
-------------- ---
A.6 Right to Private Ownership and Establishment
-------------- ---

20. Private investors have the general right to establish
and own business enterprises, except in a limited number of
industries involving national security and environmental
protection. Private entities have the right to freely
acquire and dispose of interests in business enterprises.
Private business firms have the same access as state-owned
companies to markets, credit, licenses, and supplies.
Taiwan authorities have eliminated state-owned monopolies in
such areas as power generation, oil refining, and
telecommunications.

--------------
A.7 Protection of Property Rights
--------------


21. In 2004, Taiwan continued to take measures to improve
enforcement of IPR, including stepping up raids against
manufacturing and retail outlets, legalizing previously ad
hoc task forces, and passing important revisions to the
copyright law that increase penalties for counterfeiters.
To prepare for its WTO accession in 2002, Taiwan amended its
Patent Law and Copyright Law in November 2001. The
amendments extended the term of protection from 18 years to
20 years for some patents and defined computer software as
literary works. To address the problem of CD/DVD piracy,
Taiwan passed an Optical Media Law in October 2001. The law
provides Taiwan authorities with a legal framework to manage
CD manufacturing plants through licensing and the use of
Source Identification (SID) codes in production. Offenders
can receive prison terms up to three years and be fined up
to NT$6 million (US$179,000). The Optical Media Law and the
Joint Optical Disk Enforcement (JODE) Task Force's night/day
inspection has led to a dramatic decrease in large-scale
factory production of counterfeit CD products produced by CD
plants. Taiwan again passed amendments to strengthen its
copyright law in 2003 and 2004. These amendments made
infringement a public crime, increased penalties for
counterfeiters and made it illegal to tamper with technical
protection measures.


22. Following its 2002 "IPR Action Plan", the Executive
Yuan adopted a fresh IPR Action Plan for 2003-2005. One
important measure within this "three-year IPR Action Plan"
framework was to establish in January 2003 an Integrated
Enforcement Task Force (IETF) consisting of 220 IP police
officers. The task force conducts raids on retail optical
media sales points to enforce IP rights and has led to a
significant decrease in the number of vendors of counterfeit
CDs and DVDs. Other enforcement measures include increasing
the reward (by ten times to NTD10 million (USD0.29 million)
to IPR informants for counterfeiting seizures and setting up
an anti-pirating CD export task force to strengthen
inspection on the border.


23. Taiwan's Legislature passed amendments to the Patent
and Trademark Laws in January and April of 2003,
respectively. The amendments abrogated the administrative
and legal procedures for opposing patent applications and to
add voice and 3-D shares as elements eligible for trademark.


24. In general, Taiwan is moving towards improved IPR
protection. Counterfeit goods from Taiwan seized by U.S.
Customs dropped from US$26.5 million in FY2002 to US$610,000
in FY2003, and to US$60,000 in the first half of FY 2004.
The Business Software Alliance (BSA) announced that software
piracy rate in Taiwan fell from 54 percent in 2002 to 43
percent in 2003. Despite these gains, areas for improvement
remain. Taiwan is facing a growing internet-based piracy
threat. Counterfeit and parallel imported pharmaceuticals
are common in the Taiwan marketplace. Although the LY
passed amendments to the pharmaceutical law in March 2004 to
strengthen the penalties for dealing in counterfeit
pharmaceuticals, enforcement remains relatively weak.
Rights owners continue to complain of slow progress in
judicial cases, or poor protection on trade dress
properties, such as unregistered marks, packing
configurations, and outward appearance features.

--------------
A.8 Transparency of the Regulatory System
--------------


25. Taiwan has a set of relatively comprehensive laws and
regulations regarding taxes, labor, health and safety.


26. Foreign investors note that in addition to tax
incentives one of attractions of Taiwan's science-based
industrial parks and export processing zones is that
bureaucratic procedures associated with investment
applications are relatively few and transparent. Outside
these areas, the Industrial Development and Investment
Center (IDIC) is supposed to function as the coordinator
between investors and all agencies involved in the
investment process. The Foreign Investment Commission (FIC)
is charged with reviewing and approving inbound and outbound
investments. However, especially for small investors in
services the investment approval process can be daunting.


27. Taiwan has made much effort to simplify the work-permit
issuance procedure for foreign white-collar employees. In
March 2004, the Council of Labor Affairs (CLA) set up a
single window to issue work permits for all white-collar
workers. It takes 7 to 10 days for CLA to issue work
permits. The work permit may be extended indefinitely as
long as the employer considers the employment necessary.


28. In December of 2002, Taiwan removed the job experience
requirement for employment of foreign management
professionals by global operational headquarters and R&D
centers in Taiwan as well as business firms of designated
industries. White-collar workers having a master's degree
or above are not subject to any job experience requirement.
Those with lower education levels are required to have job
experience. Foreign white- and blue-collar workers have the
right to obtain permanent residence status after they have
legally stayed in Taiwan for seven consecutive years with
the minimum time of residence of 180 days per year in
Taiwan. The seven-year requirement is waived for high-tech
personnel and those who have made "significant
contributions" to Taiwan.


29. The entry-visa issuance procedures for foreign white-
collar workers who work for foreign-invested companies are
relatively simple. A foreign executive who enters Taiwan
with a tourist visa is no longer required to leave the
island before the tourist visa can be transferred to an
employment visa. A foreign executive whose employment visa
expires is not required to exit before the visa can be
renewed.

-------------- --------------
A.9 Efficient Capital Markets and Portfolio Investment
-------------- --------------


30. A wide variety of credit instruments, all allocated on
market terms, are available to both domestic- and foreign-
invested firms. Legal accounting systems are largely
transparent and consistent with international standards.
The regulatory system is generally fair. Foreign portfolio
investors are no longer subject to the foreign ownership
limits or investment fund limits. In recent years, Taiwan
authorities have taken a number of steps to encourage more
efficient flow of financial resources and credit. The limit
on NT dollar deposits that a branch of a foreign bank may
take has been lifted. Non-residents are permitted to open
NT dollar bank accounts, which are subject to capital-flow
controls. After its accession to the WTO in January 2002,
Taiwan lifted restriction on residents' opening bank
accounts overseas. Limits on branch banking have been
lifted, although approval must be obtained to open new
branches. Restrictions on capital flows relating to
portfolio investment have been removed. The insurance and
securities industries have been liberalized and opened to
foreign investment. Access to Taiwan's securities markets
by foreign institutional investors has also been broadened.


31. Taiwan abolished the complicated regulatory system
governing foreign portfolio investment in October 2003. In
the past, only such approved "qualified foreign
institutional investors" (QFIIs) as large banks, insurance
companies, securities firms and mutual funds, were permitted
to engage in portfolio investment. Since then, any foreign
institutional investor is allowed to enter Taiwan's markets,
and registration has replaced prior approval. The minimum
asset requirement has been removed. Investment and capital
flows are not limited. On-shore foreign investors (like
other residents) are still subject to portfolio investment
limits of U.S. $5 million for an individual foreign investor
and US$50 million for a non-QFII foreign company.


32. In December of 2002, Taiwan removed all legal limits on
foreign ownership in companies listed on the Taiwan Stock
Exchange (TAIEX) except for certain industries, including
power distribution, telecommunications, mass media firms,
and airline companies. There have been no reports of
private or official efforts to restrict the participation of
foreign-invested firms in industry standards-setting
consortia or organizations.


33. Taiwan has a tightly regulated banking system. Since
the mid-1980s, the financial sector as a whole has been
steadily opening to private investment. Nevertheless, the
market share held by foreign banks remains relatively small
(below three percent). The establishment of new securities
firms, banks, insurance companies, and holding companies,
has underscored this liberalization trend and enhanced
competition. Four large state-owned banks were privatized
in early 1998, and anther four sold to the private sector in

1999. The only reinsurance company was privatized in 2002.
Privatization efforts have reduced the number of public
banks to five and cut the share of assets controlled by
public banks from 61 percent to 21 percent of total assets
of all domestic and foreign banks. The total assets of
these five public banks were NT$5.67 trillion (US$169
billion) as of September 2004.

--------------
A.10 Political Violence
--------------


34. Taiwan is a relatively young multi-party democracy with
still evolving, democratic political institutions. The
close margin in the 2004 presidential election resulted in
an attack on election offices and several large-scale
demonstrations. Nevertheless, these incidents were
peacefully resolved in a short time. There have been no
reports of politically motivated damage to foreign
investment. Both local and foreign companies have, however,
been subject to protests and demonstrations relating to
labor disputes and environmental issues.

--------------
A.11.a. Corruption
--------------


35. Taiwan has implemented laws, regulations, and penalties
to combat corruption. The "Corruption Punishment Statute,"
and the criminal code contain specific penalties for corrupt
activities. In January 2004, legislation doubled the
penalties for corruption by financial personnel, including
maximum jail sentences of up to ten years.


36. We are not aware of cases where bribes have been
solicited for investment approval. Both central and local
governments are offer investors incentives including free
rent on land for the first two years and discounts in
subsequent years. Taiwan authorities encourage foreign
investment and would take action against officials and
individuals convicted of profiting illegally from foreign
investors.


37. The Government Procurement Law promulgated in 1998 and
amended in February 2001 as an element of Taiwan's accession
to the WTO has brought significant improvements. The Public
Construction Commission (PCC) publishes all major government
procurement projects that require open bidding, in
accordance with WTO transparency requirements. The PCC
organizes inspection teams to monitor all public procurement
projects both at the central and local levels. It publishes
results of bidding and of inspections. A task force has
been organized to investigate complaints.


38. Authorities generally investigate allegations of
corruption and take action to penalize corrupt officials.
Since its inauguration in May 2000, the Chen Administration
has strengthened anti-corruption efforts. Prosecutors
indicted 5,958 persons for corruption, including 320 senior
officials (department director level and above) and 426
elected officials. Indicted elected officials included a
former speaker of the legislature and 19 legislators. In
2003, a heavy weight in the ruling party was forced to give
up her title as senior presidential advisor because of
allegations of corruption. In 2001, the Secretary General
of the executive branch was forced to step down for
corruption committed when he was Chairman of the state-owned
Taiwan Sugar Corp.


39. Attempting to bribe, or accepting a bribe from, Taiwan
officials constitutes a criminal offense, punishable under
the "Corruption Punishment Statute" and the "Criminal Code."
The Corruption Punishment Statute as amended in late 2002
treats payment of a bribe to a foreign official a criminal
act and makes such a bribe subject to criminal prosecution.
The maximum penalty for corruption is life imprisonment plus
a maximum fine of three million NT dollars (US$89,500). In
addition, the offender may be barred from public office.
The assets obtained from acts of corruption may be seized
and turned over to either the injured parties or the
Treasury.

--------------

B. Bilateral Investment Agreements
--------------


40. Taiwan has concluded bilateral investment guaranty
agreements with the following 25 countries: Argentina,
Belize, Burkina Faso, Costa Rica, Dominica, El Salvador,
Guatemala, Honduras, India, Indonesia, Liberia, Malaysia,
Macedonia, the Marshall Islands, Nicaragua, Nigeria, Panama,
Paraguay, the Philippines, Saudi Arabia, Senegal, Singapore,
Swaziland, Thailand, Malawi, and Vietnam. In addition,
there is an agreement to guaranty Taiwan's investment in
Malawi and another agreement to protect U.S. investment in
Taiwan. (An agreement with Latvia signed in 1992 was
revoked in August 2004.)


41. Under the terms of the 1948 Friendship, Commerce, and
Navigation Treaty with the United States, U.S. investors are
generally accorded national treatment and are provided with
a number of protections, including protection against
expropriation. Taiwan and the United States also have an
agreement, signed in 1952, pertaining to investment
guarantees that serve as the basis for the U.S. Overseas
Private Investment Corporation (OPIC) program in Taiwan. In
September 1994, representatives of the United States and
Taiwan signed a bilateral Trade and Investment Framework
Agreement (TIFA) to serve as the basis for consultations on
trade and investment issues. Consultations on a bilateral
investment agreement between the United States and Taiwan
began in 1996, but are currently on hold.

-------------- --

C. OPIC and Other Investment-Insurance Programs
-------------- --


42. OPIC programs are available to U.S. investors, though
U.S. investors have never filed an OPIC insurance claim for
an investment in Taiwan. Taiwan is not a member of the
Multilateral Investment Guaranty Agency.

--------------

D. Labor
--------------


43. As a result of Taiwan's changing industrial structure,
labor shortages exist in hi-tech fields including
semiconductor and computer chip design and production,
computer software design, and telecommunications
engineering. The law governing licensing hiring procedures
for professional engineering consulting firms continues to
place an unnecessary burden on foreign personnel. A two-
year work experience requirement for work permits restricts
companies from hiring foreign interns or recent graduates.
Taiwan began employment of foreign blue-collar workers in
1990 when Taiwan was a full employment economy with labor
shortages. However, in the early 2000s, the relatively high
unemployment rate prompted the government to restrict
employment of foreign workers, reducing foreign workers in
Taiwan by nearly ten percent between 2000 and early 2004.
Economic expansion prompted Taiwan's government to slightly
relax restrictions and foreign workers in Taiwan rose 3.6
percent from 298,392 persons in March to 309,339 persons in
October 2004.


44. There are no special hiring practices in Taiwan. Wages
typically include a one-month bonus at the end of a year.
Fringe benefits often include meals, transportation, and
dormitory housing. Dividend-sharing is common among high-
tech industries. A standard labor insurance program is
mandatory. The program provides maternity, retirement, and
other benefits. A separate retirement program requires
employers to grant employees with voluntary retirement at
age of 15 years and a length of service of 15 years. The
mandatory retirement age is 60 years. A new retirement
system to be implemented in July 2005 will require employers
to contribute six percent of the monthly wage to employees'
accounts at designated banking institutions, and the
accounts will follow employees transferred from one employer
to another. A universal national health insurance system
covers all employees and their family.


45. The Employment Insurance Law enacted in 2002 provides
unemployment relief practices with a legal basis.
Alternatives for unemployment pay include vocational
training allowance for jobless persons and employment
subsidy for employers to encourage employment of jobless
persons. The Labor Standard Law (LSL) sets a standard eight-
hour workday and a biweekly maximum of 84 hours.
Legislation adopted in late 2000 set a five-day workweek for
the public sector, effective January 2001. Nearly 40
percent of private firms have adopted the five-day workweek
system. The LSL restricts child labor and requires
employers to provide overtime pay, severance pay, and
retirement benefits. The LSL covers both manufacturing and
service sectors. Violators are liable to criminal penalties
(jail terms) and administrative punishments (fines).


46. The minimum wage is set at NT$15,840 (US$473) per
month. Current manufacturing sector wages average NT$41,512
(US$1,239). In principle, the minimum wage is adjusted in
August every year based on the results of collective
negotiation between the Chinese National Federation of
Industries and the Chinese Federation of Labor Unions.
However, for the past six years, the minimum wage has not
been adjusted.

47. Labor unions have become more active and independent
since Taiwan's martial law was lifted in 1987. In light of
economic expansion in 2003/2004, labor disputes dropped in
2003 and further declined in the first ten months of 2004.
Taiwan is not a member of the International Labor
Organization but generally adheres to the ILO convention of
protecting worker's rights.

--------------

E. Foreign Trade Zones/Free Ports
--------------


48. Taiwan's first free trade/free port zone began
operation at Keelung, Taiwan's northern port, in November

2004. The second free trade/free port zone will be
inaugurated at Kaohsiung Harbor, southern Taiwan, in January

2005. Plans call for another ten zones to be set up.
Taiwan authorities have relaxed restrictions on movement of
merchandises, capital and personnel into and out of such
zones. Foreign investors are accorded national treatment.

--------------

F. Foreign Direct Investment Statistics
--------------


49. Statistics on foreign direct investment in Taiwan are
available from two sources. The Foreign Investment
Commission (FIC) publishes monthly and yearly foreign
investment approval statistics by industry and by country.
The Central Bank of China (CBC) publishes foreign direct
investment arrivals on a quarterly and yearly basis. CBC
data, contained in balance-of-payments (BOP) statistics, are
not further classified by industry or country.


50. Economic expansion in 2003/2004 prompted Taiwan's
private investment to resume positive growth in the second
half of 2003, and the growth rate accelerated to nearly 30
percent in the first half of 2004. In the second half of
2004, excess inventory began to slow Taiwan's industrial
sector, particularly electronic, optical, and information
technology (IT) industries. For semiconductor firms,
facility utilization declined from 100 percent in late 2003
to 85 percent in late 2004. Consequently, real growth in
private investment is expected to slow to a single-digit
rate.


51. Foreign investment in Taiwan is concentrated in
electronics and electrical industries and the service
sector. The 2003 approved direct investment in electronics
and electrical industries including Semiconductor, TFT-LCD
and other optical electronic projects soared 45 percent from
2002, and 140 percent in the first half of 2004, but
declined of 20 percent in the third quarter. This category
accounted for a quarter of the cumulative approved inbound
direct investment. Sixty percent of the approved inbound
direct investment in Taiwan's electronics and electrical
industries came from the United States and Japan.


52. Approved inbound direct investment in the service
sector (including banking & insurance, wholesale & retail,
trade, and professional services),grew 17 percent in 2003
to US$1.9 billion, then leveled off in the first ten months
of 2004. This category constituted 44 percent of the
cumulative approved inbound direct investment.


53. The United States and Japan used to be the two main
sources of Taiwan's foreign investment, but they were
replaced by the tax havens in the British Territories in
America (BTA),which harbor a growing number of
multinational corporations (many originating in Taiwan).
Approvals for U.S. investment from 1952 to October 2004
totaled US$13 billion, or 22 percent of total foreign
investment. Of total U.S. investment, 34 percent was
directed toward the electronics and electrical industries,
and another 34 percent toward the service sector. Approvals
for Japanese investment amounted to US$12 billion, or 20
percent of total foreign investment, of which 28.5 percent
was in electronics and electrical industries and 31 percent
in the service sector.

54. Approvals for investment from the BTA surged steadily
from US$76 million in 1994 to US$1.2 billion in 1999 when
the BTA surpassed the United States and Japan to become the
largest source of foreign investment in Taiwan. Investment
from the BTA during 1999- October 2004 accounted for 27
percent of total approved investments, compared to 18.5
percent from the United States and 15 percent from Japan.
Twenty-seven percent of the investment from the BTA was
directed towards the banking and insurance industries and
another 21 percent to the electronic and electrical
industries.


55. As a relatively open and liberal economy, Taiwan
receives foreign investment while its businesses invest
overseas, especially in China, Southeast Asia and the
Americas. According to balance-of-investments statistics
compiled by the CBC, outbound direct investment has exceeded
inbound direct investment since 1988. According to FIC
statistics, by October 2004 cumulative approvals for
outbound investments totaled US$81 billion. One of the main
recipients of Taiwan investment has been China where
approved investments increased by 19 percent in 2003 and 52
percent in the first ten months of 2004.


56. Taiwan business firms started to relocate their
production bases to China in the late 1980s. Production
lines in China gradually shifted from cheap labor-oriented
industries in the late 1980s to products requiring lower-end
technologies, such as PC and motherboard, in the early
2000s. The WTO accession of China and Taiwan in 2002
prompted Taiwanese business firms to accelerate relocation
to China to sharpen their competitive edge in exports.
Taiwan factories based in China use the lower cost labor and
land there to process Taiwan-made production inputs into
finished goods for exports to such industrial markets as the
United States, Japan and Europe. Taiwan's direct investment
across the Taiwan Strait grew from US$1.25 billion in 1999
to US$5.4 billion in the first ten months of 2004. As a
result of this trend Greater China (China plus Hong Kong)
replaced the United States as Taiwan's largest export market
in 2001, and Greater China's share of Taiwan's exports in
the first ten months of 2004 reached 37 percent, much higher
than 16 percent for the United States and 13 percent for the
European Union.
Table 1
Foreign Investment Approvals by Year and by Area
(1952-2004) (unit: U.S. dollar million)

Central Hong
Year U.S.A. Japan Ameri. Europe Kong Other Total
-------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
52-89 3,067 2,983 341 1,312 1,198 2,049 10,950
1990 581 839 66 283 236 297 2,302
1991 612 535 60 165 129 277 1,778
1992 220 421 37 165 213 405 1,461
1993 235 278 38 214 169 279 1,213
1994 327 396 76 245 251 336 1,631
1995 1,304 573 151 338 147 412 2,925
1996 489 546 417 198 267 544 2,461
1997 491 854 659 401 237 1,625 4,267
1998 952 540 711 367 274 895 3,739
1999 1,145 514 1,216 462 161 733 4,231
2000 1,329 733 2,300 1,000 271 1,775 7,608
2001 940 685 1,397 1,182 145 780 5,129
2002 600 609 803 609 66 585 3,272
2003 687 726 919 635 44 565 3,575
Jan-Oct
2004 284 791 687 550 181 432 2,925
52-04 13,264 12,022 9,878 8,326 3,989 11,989 59,468
-------------- --------------
Source: Foreign Investment Commission
Table 2
Foreign Investment Approvals by Industry and Area
(1952-2004) (unit: U.S. dollar million)
Centr. Hong
Industry U.S.A. Japan Ameri. Eur. Kong Other Total
-------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total 12,980 12,022 9,191 7,776 3,989 11,989 59,468
Electronics
& Electrical 4,885 3,425 2,114 1,711 649 1,726 14,146
Banking
& Insurance 2,129 412 2,653 1,967 694 2,571 10,426
Services 942 1,446 1,507 876 503 1,553 6,827
Chemicals 1,511 878 305 1,090 278 386 4,448
Wholesale
& Retail 815 947 888 871 263 778 4,562
Trade 524 870 214 326 313 483 2,730
Basic Metal
& Products 355 790 192 129 128 946 2,540
Machinery 338 842 232 216 118 334 2,080
Food &
Beverage 254 263 109 245 127 404 1,408
Transportation 76 72 15 76 141 734 1,114
Transport
Equipment 101 531 88 68 97 70 955
Non-metallic
Minerals 257 268 40 96 81 166 908
Others 1,441 1,272 1,521 655 596 1,839 7,324
-------------- --------------
Source: Foreign Investment Commission

Table 3
Outbound Investment Approvals by Year and by Area
(1952-2004) (unit: U.S. dollar million)

Central
Year China Americ. U.S.A. ASEAN Others Total
-------------- -------------- -------------- -------------- -------------- -------------- --------------
1952-89 n.a. 76 865 429 155 1,525
1990 n.a. 170 429 567 386 1,552
1991 174 268 298 720 370 1,830
1992 247 239 193 309 146 1,134
1993 1,140 194 529 434 504 2,801
(2,028) (2,028)
1994 962 569 144 398 506 2,579
1995 1,093 370 248 326 413 2,450
1996 1,229 809 271 587 498 3,394
1997 1,615 1,051 547 641 655 4,509
(2,720) (2,720)
1998 1,519 1,838 599 478 381 4,815
(515) (515)
1999 1,253 1,359 445 522 943 4,522
2000 2,607 2,248 862 389 2,118 7,684
2001 2,784 1,693 1,093 523 1,083 7,176
2002 3,859 1,575 578 211 1,006 7,229
(2,864) (2,864)
2003 4,595 1,997 467 298 1,206 8,563
(3,104) (3,104)
Jan-Oct
2004 5,425 874 492 904 609 8,304
1952-04 39,734 15,330 8,059 7,736 10,440 81,299
-------------- --------------
Source: Foreign Investment Commission
Note: Figures in parentheses refer to investments made prior
to the specified year but not previously registered.

Table 4
Outbound Investment Approvals by Industry and by Area
(1952-2004) (unit: U.S. dollar million)

Centr.
Industry China Amer. U.S.A. ASEAN Others Total
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Total 39,734 15,330 8,060 7,736 10,439 81,299
Electronics
& Electrical 13,451 421 2,585 2,916 2,032 21,405
Banking
& Insurance 545 12,009 1,203 724 4,039 18,520
Services 1,219 1,087 1,161 192 648 4,307
Chemicals 2,663 68 1,091 552 342 4,716
Basic Metals
& Products 3,539 76 50 639 230 4,534
Trade 348 925 253 69 761 2,356
Plastic
Products 2,524 20 7 51 27 2,629
Food &
Beverage 1,906 2 162 253 99 2,422
Precision
Instrument 2,103 43 94 58 65 2,363
Wholesale &
Retail 726 318 761 201 378 2,384
Textiles 1,431 21 44 648 180 2,323
Non-metallic
Minerals 2,052 - 7 388 35 2,482
Others 7,228 340 642 1,045 1,603 10,858
-------------- --------------
Source: Foreign Investment Commission

Table 5
Technical Cooperation Projects by Year and by Area
(1952-1995) (unit: number of projects)

Year Japan U.S.A. Europe Others Total
-------------- -------------- -------------- -------------- -------------- --------------
52-89 1,996 728 412 103 3,221
1990 106 54 30 10 200
1991 80 65 33 8 186
1992 193 50 19 10 175
1993 85 50 34 12 181
1994 70 39 24 6 139
1995 50 29 10 5 94
52-95 2,483 1,015 562 136 4,196
-------------- --------------
Source: Foreign Investment Commission
Note: Taiwan ceased to compile statistics on technical
cooperation with foreign companies in 1996. Businesses have
not been required to report technical cooperation projects
to the FIC since the Statute for Technical Cooperation was
abolished.

Table 6
Technical Cooperation Projects by Industry and by Area
(1952-1995) (unit: number of projects)

Year Japan U.S.A. Europe Others Total
-------------- -------------- -------------- -------------- -------------- --------------
Total 2,483 1,015 562 136 4,196
Electronics &
Electrical 708 416 106 16 1,246
Chemicals 416 203 160 28 807
Machinery 368 68 97 9 542
Basic Metal &
Products 329 55 53 6 443
Other Services 111 106 27 42 286
Rubber Products 131 32 21 4 188
Non-metallic Minerals 97 22 24 2 145
Food and Beverage 80 38 13 9 140
Textiles 47 21 8 2 78
Construction 38 5 10 4 57
Garment & Footwear 18 14 4 3 39
Paper Products &
Printing 19 13 4 - 36
Transport Equipment 20 2 8 1 31
Others 101 20 27 10 149
-------------- --------------
Source: Foreign Investment Commission

Table 7 Major U.S. Investors in Taiwan
-------------- --------------
U.S. Investor/
Local Investment Major Products
-------------- --------------
NRG Energy/ power generation
Hsin Yu Energy Co.

Amkor Technology Ltd./
Amkor Technology Taiwan (Lungtan) IC packing
Ltd.
Amkor Technology Taiwan (Linkou) Ltd.

AIG/
Yageo Corp. electronic Component
Far East Air Transport Corp. airlines
Nan Shan Life Insurance Co. insurance


Citi Co./
Fu Bong Group banking/finance

Pruco Insurance Group/
Masterlink Securities Co. securities


Corning Inc./ mother glass for
Corning Glass Taiwan Co., Ltd. TFT/LCD


GTE-Verizon
Taiwan Fixed Network Telecom fixed-line and mobile
Taiwan Cellular Corp. phone service

Carlyle Group/
Taiwan Broadband Co. (TBC) cable TV

Ensite Limited (Ford Motor)/
Ford Lio Ho Motor Co. autos

Texas Instruments Inc.
Texas Instruments Taiwan Ltd. semiconductor

AMOCO Chemical Corp./
China American Petrochemical Co. petrochemicals

E.I. Dupont De Nemours/ industrial, electronic
Dupont Taiwan Ltd. agricultural goods

IBM Corp./ computers:
IBM Taiwan Ltd. sales and service

AETNA Life Insurance Co./
Taiwan Branch insurance

AT & T Inc./ telecommunication:
AT & T Communications Services sales and services
Taiwan Inc.
Far EasTone Telecommunications mobile phone service
Yuan-ze Telecommunications Ltd.

View Sonic Co./ mobile phone service
Taiwan PCS Network Inc.

Waner Village Cinema Co./
Waner Village Cinema (Taiwan) Co. movie theater
operation

United Parcel Service International
Inc. (UPS)/ world wide express
UPS, Taiwan Branch services

Intel Inc./InteX. Co. ADSL chipset

Applied Materials Ltd./ semiconductor mfg.
Applied Materials Taiwan Ltd. equipment
General Motor Co./ auto assembly &
Yulon GM Motor Co. sales

Table 8 Major Japanese Investments in Taiwan
-------------- --------------
Japanese Investors/Investment Major Products
-------------- --------------
Toppan Printing Co./ sales and produce
Toppan Electronics (Taiwan) Co. color filter
Toppan CFI (Taiwan ) Co.

Nippon Sheet Glass Co./
Taiwan Auto Glass Industry Co. Auto glass
Nippon Sheet Glass (Taiwan) Ltd. Mother glass

Asahi Glass Co. (AGC)/
Asahi Glass (Taiwan) Co. Mother glass

NTT DoCoMo/
KG Telecommunication Co Phone service

Taiwan Shinkansen Corp./
Taiwan High Speed Rail Corp. High speed rail

Sharp Corp./
Quanta Display Co. TFT-LCD

Nissan Motor/Yulon Motor autos

Toyota Motor/Kuozui Motor autos

Matsushita Electronic Co./ electrical
Matsushita Electronic (Taiwan) Co., Ltd. appliances

Hitachi Co./ electrical
Taiwan Hitachi Co., Ltd. appliance, and
Kaohsiung Hitachi electronics Co., Ltd. components

Yamaha Motor Co., Ltd./
Yamaha Motor Taiwan Co., Ltd. motorcycle

Sankyo Co./Sankyo Co. Taipei pharmaceuticals

Idemitsu Co./Shinkong Idemitsu Corp. petrochemicals

Mitsui Co./Mitsui (Taiwan) trading

Takashimaya Co./Ta-ya Takashimaya department store
Dept. store

Sumitomo Co./Sumitomo (Taiwan) trading

Toshiba Co./Toshiba Compressor (Taiwan) compressor

Sadagawa Steel Co./Sheng Yu Steel Co. steel

Shin-Etsu Handotai Co./Shi-Etsu Handotai
Taiwan Co. semiconductor

Komatsu Co./
Formosa Komatsu Silicon Co. silicon wafer

Fujitsu Hitachi Plasma Display Co./
Formosa Plasma Display Co. PDP

Mitsui Mining & Smelting Co./
Taiwan Copper Foil Co. copper foil

Kirin Brewery Co./
Taiwan Kirin Co. beer sales
-------------- --------------
Table 9 Major European Investments in Taiwan
-------------- --------------
European Investors/Investment Major Products
-------------- --------------
Saberasu Investments Co./ Assets Managemt.
Cerberus Asset Management Co. business

Goldman Sachs/ securities;
Goldman Sachs, Taipei Branch underwriting

Deutsche Telecom/ fixed-lien
Eastern Broadband Telecom service
Volkswagen Ag/Ching Chung Motor Co. autos

Dresdner Bank Ag/Grand Cathay Securities securities

Imperial Chemical Inc./ICI Taiwan Ltd. chemicals

N.V. Philips/Philips Eectronics (Taiwan) electronics

Alcatel Co./Alcatel Taisel Co. switch board

Internallianz Bank, Zurich/Kwang Hwa securities
Securities

Horwood Investment/Chi Mei Industry Co. petrochemicals

H.S. Development & Finance/ChinaTrust banking
Commercial Bank

Infineon Technologies Inc./
Promos Technologies Inc.
Inotera Co. DRAM
Siemens Telecommunications systems Ltd. switch system &
phone equipment
Isenbourg-sgp, Lda/
RT-Mart International Ltd. Shopping malls
-------------- --------------
End table.
PAAL