TAIWAN: 2005 NATIONAL TRADE ESTIMATE REPORT

UNCLAS SECTION 01 OF 10 TAIPEI 000017

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SUBJECT: TAIWAN: 2005 NATIONAL TRADE ESTIMATE REPORT


TRADE SUMMARY
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1. The U.S. trade deficit with Taiwan was $14.2 billion in
2003, up $385 million from 2002. U.S. goods exports during
the same period were $ 17.4 billion, down 5.1 percent from
the previous year. Corresponding U.S. imports from Taiwan
were $31.6 billion, down 1.7 percent. Taiwan is the 9th
largest export market for U.S. goods and 6th largest market
for agricultural products.


2. U.S. exports of private commercial services (i.e.,
excluding military and government) to Taiwan were $4.8
billion in 2002 (latest data available),and U.S. imports
were $5 billion. The stock of U.S. foreign direct
investment (FDI) in Taiwan in 2003 was $ 11 billion, up from
$ 10.1 billion in 2002. U.S. FDI in Taiwan is concentrated
largely in the finance, manufacturing, and wholesale
sectors.

OVERVIEW
--------------


3. Taiwan experienced an economic boom in 2004, prompting
its estimated real GDP growth to post a seven-year high of
nearly six percent. However, excess inventory, higher oil
prices and a steady increase in interest rates dampened
Taiwan's major export markets and contributed to a slowdown
in Taiwan's economic expansion in the second half of 2004.
Taiwan's real GDP growth is expected to decline from 7.3
percent in the first half of 2004 to 4.7 percent in the
second half and further down to 4.5 percent in 2005. Export
growth declined steadily from 29 percent in the second
quarter to 21 percent in the third quarter and 17.5 percent
in October 2004. Meanwhile, industrial growth dropped from
15 percent in the second quarter to 8.6 percent in the third
quarter and merely three percent in October. A chronic
trade surplus has enabled Taiwan to hold the third largest
foreign exchange reserves of US$235 billion and made Taiwan
a net capital supplier to the world. Taiwan is one of the
major sources of foreign direct investment in China.
Financial reforms adopted in late 2001 prompted local banks
to write off NT$1.3 trillion of bad debt, cutting the
average ratio of non-performing loans (overdue for over
three months) from nearly 12 percent in early 2002 to 4.5
percent in October 2004.

IMPORT POLICIES
--------------

TARIFFS
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4. Taiwan promulgated a comprehensive tariff revision
schedule on January 1, 2004 in compliance with Taiwan's Free
Trade Agreement with Panama, and Taiwan's accession
commitments to the WTO. Tariffs on pharmaceuticals,
pulp/paper, iron/steel, construction equipment, agricultural
equipment, medical equipment, furniture and toys were
eliminated starting on January 1, 2004. As a result, the
average nominal tariff rate on imported goods in 2004 was
approximately 5.7 percent and is expected to fall to 5.5
percent by 2007. However, U.S. industry continues to
request that Taiwan lower tariffs on imports of large
motorcycles, wine, canned soup, biscuits, cookies, snack
foods, mixed vegetable juices, potato and potato products,
table grapes, apples, citrus products and polylactic acid,
which is used to make recyclable plastics.


5. Upon Taiwan's accession to the WTO in January 2002,
Taiwan implemented a tariff-rate quota (TRQ) system on small
passenger cars, three categories of fish and fish products,
and a number of agricultural products. On January 1, 2004,
in accordance with its WTO accession commitments, Taiwan
made additional tariff cuts and increased TRQ amounts on
these products. Some items of interest to U.S. exporters,
including chicken meat, pork belly, and poultry and pork
variety meats, will be fully liberalized in 2005. In May
2004, Taiwan increased TRQ on sugar from 205,000 tons to
255,000 tons to meet Taiwan's domestic market shortage.


6. Taiwan has notified the WTO that it maintains Special
Safeguards (SSGs) for a number of agricultural products
covered by TRQs. SSGs, permitted under Article 5 of the
Agreement on Agriculture, allow Taiwan to impose additional
duties when import quantities exceed SSG trigger volumes or
import prices fall below SSG trigger prices. As Taiwan has
not imported many of these products previously, SSG trigger
volumes are relatively low. SSGs will also come into play
once imports of certain commodities are fully liberalized in
2005 and will likely have the greatest effect on U.S.
poultry exports. The United States has raised concerns over
Taiwan's use of SSGs in both Taipei and Geneva.

Licensing and Other Restrictions
--------------


7. In order to comply with its WTO commitments, Taiwan
eliminated import controls on over 99 percent of 10,912
official import product categories. Currently, 24 product
categories require import permits from the Board of Foreign
Trade. Imports of 65 categories are "restricted", including
ammunition and some agricultural products. These items can
only be imported under special circumstances, and their
importation is effectively banned.


8. Agricultural and Fish Products: Prior to WTO accession,
Taiwan banned or restricted imports of 42 agricultural and
fish items. In January 2002, Taiwan liberalized imports of
18 of these agricultural and fish categories and implemented
TRQs on the remaining 24 items. TRQs on a number of products
of interest to the United States (chicken meat, pork belly
and offal, and poultry offal) will be eliminated on January
1, 2005 when trade is fully liberalized.


9. Rice: Before Taiwan's WTO accession, imports of rice
were banned. During 2002, rice imports were subject to a
minimum market access quota that covered both public- and
private sector imports. In 2003, Taiwan changed its rice
import regime from a minimum market access quota to a tariff-
rate quota without consultation with its trade partners. As
a result, in January 2003 the United States, as well as
Australia and Thailand, formally objected to Taiwan's
proposed rice import system at the WTO. Since then, the
United States has also raised concerns regarding Taiwan
implementation of its rice import system, including
cancellation of mark-up price reductions for several private
sector tenders, and the use of a "ceiling price" for public
sector tenders. Despite these difficulties, U.S. suppliers
were able to gain a majority of the rice import market in
2002 and 2003. In 2004, Taiwan's implementation of its
import commitments improved significantly, allowing the
United States to secure the largest import market share. At
the same time, both sides made substantial progress in
resolving outstanding bilateral differences in 2004, paving
the way for final resolution of the issue.


10. Tobacco and Alcohol Products: As a condition of
Taiwan's WTO accession, a new tobacco and alcohol management
and tax system went into effect on January 1, 2002. In
place of the previous tax on imports administered by the
former monopoly authority, the Taiwan Tobacco and Wine
Monopoly Bureau (TTWMB),Taiwan agreed to impose an excise
tax and to eliminate tariffs on imports of most spirits. In
2003, some legislators proposed lower excise taxes on salt-
added cooking wine, contrary to Taiwan's WTO commitments,
but these legislators failed.


11. Taiwan also liberalized private alcohol production upon
its accession to the WTO and private cigarette manufacturing
in 2004. TTWMB became a state-owned corporation, Taiwan
Tobacco and Liquor Corporation (TTLC),in July 2002.
However, primarily due to resistance by organized labor, the
privatization of the TTLC has been postponed until 2005.


12. Wood Products: Taiwan has revised building codes in
line with international practices. However, Taiwan has not
yet completed a companion fire code. This delay means that
while a wood frame structure may be built, approval by fire
inspection authorities is contingent on review and comment
by a special committee on details, such as design and usage.
U.S. wood products companies have raised concerns that this
practice is restrictive and does not encourage wood use in
construction. The continued use of a special committee
unnecessarily delays construction of wood structures and
raises the cost of using wood materials significantly beyond
that of other materials such as concrete and steel.


13. Automobiles and Motorcycles: Local content requirements
in the automobile and motorcycle industries were lifted as
part of Taiwan's WTO accession. The importation of
motorcycles with engines larger than 150 cc was liberalized
in July 2002 as part of Taiwan's WTO commitments. In mid-
2003 Taiwan agreed to set emissions standards for
motorcycles over 700 cc in line with international
standards, a step that the U.S. motorcycle industry
supported. The U.S. Government remains concerned with
Taiwan's tariffs and other taxes on large motorcycles as
well as Taiwan's restrictions on motorcycle access to
highways.
STANDARDS, TESTING, LABELING AND CERTIFICATION
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14. Industrial and Home Appliance Products: Industrial and
home appliance products (such as air-conditioning and
refrigeration equipment) are subject to safety and
electromagnetic compatibility (EMC) testing requirements
before clearing customs. The manufacturers or importers can
choose tests on each shipment "batch-by-batch inspection"
(BBI) with Type Approval or apply "registration of product
certification (RPC)". All safety testing for end products
must be done in Taiwan by-Taiwan accredited laboratories.
Taiwan accepts EMC testing by NIST accredited laboratories
if they are in the U.S. only for IT equipment based on the
1999 EMC Mutual Recognition Agreement (MRA) signed between
the American Institute in Taiwan (AIT) and the Taipei
Economic and Cultural Representatives Office (TECRO) in the
United States. For those products that adhere to the ISO
9000 quality management system, an alternative factory
inspection module was introduced. The manufacturers or
importers may choose the module most appropriate to them
when applying for registration under the RPC scheme.


15. Sanitary and Phytosanitary Measures: As a member of the
WTO, Taiwan must abide by the WTO Agreement on the
Application of Sanitary and Phytosanitary Measures
(including notification of such measures). In 1998, Taiwan
agreed to accept meat and poultry imports from plants
approved by the USDA Food Safety Inspection Service. In 1999
and 2000, Taiwan agreed to accept Codex Alimentarius or U.S.
pesticide residue standards for some chemicals used on
imported fruits and vegetables. However, the United States
continues to be concerned that some Taiwan plant and animal
quarantine measures are not always based on sound science
and are not the least trade-restrictive measures available.


16. Alcohol Beverage Products: On December 31, 2001,
immediately before its WTO accession, Taiwan implemented new
regulations requiring major ingredient labeling for alcohol
beverages. Although these regulations relate to
international trade, the United States was not informed by
Taiwan in advance of their implementation. Bilateral
meetings were conducted in 2002 to discuss this requirement
and as a result, enforcement of the ingredient-labeling
requirement was delayed until July 2003. In December 2003,
Taiwan's legislature passed the Tobacco and Alcohol
Administrative Law (TAAL),which enabled the Ministry of
Finance (MOF) to eliminate ingredient-labeling requirements
for alcohol beverage products. Beginning July 1, 2004,
alcoholic beverage product labels do not need to include a
list of ingredients.


17. Agricultural Biotechnology Products: Taiwan authorities
generally have taken a cautious, but fairly rational
approach to trade in agricultural biotechnology products.
Risk assessment documentation on agricultural biotechnology
corn and soybeans were required to be submitted to DOH
before April 30, 2002, and mandatory labeling on certain
corn and soybean products commenced in 2003. In October
2003, DOH announced its intention to require registration of
agricultural biotechnology products other than corn and
soybeans in 2004, but offered an opportunity for life
science companies to obtain interim approval for those
products currently commercialized. No disruptions to trade
have resulted from Taiwan's biotechnology regulations.
However, with a number of products entering the regulatory
approval pipeline and a lack of investment in a strong
regulatory infrastructure, delays in approvals have become
more frequent.


18. Labeling of Genetically Modified (GM) food: Taiwan's
bioengineered food safety approval and labeling regulation
took effect on January 1, 2003. Mandatory labeling of
bioengineered food was phased in over a two-year period,
beginning with certain soybean and corn products. By 2005,
the label will be required for all processed corn and
soybean products. Taiwan uses a 5 percent tolerance for
bioengineered food labeling. All food products containing 5
percent or more bioengineered soybean or corn ingredients by
weight must be labeled as "Genetically Modified (GM)" or
"Containing Genetically Modified".


19. Medical Devices: Registration and approval procedures
for medical device imports are complex and time-consuming,
and have been the subject of long-standing complaints by
U.S. firms. The registration process requires redundant
testing, and foreign manufacturers must re-register new
products even though they are based on previously approved
devices. In addition, it is unclear when local clinical
trials are required for the review process or whether
industry is allowed to provide additional input in response
to questions posed by DOH officials reviewing the clinical
trial submissions. The adoption of the U.S. Food and Drug
Administration's medical device classification system in
June 2000 was welcomed by industry. However, Taiwan's
implementation of this system in 2004 was faulted by
industry for requiring re-registration of previously
approved products. Taiwan has identified both the medical
device and pharmaceutical sectors as priorities for local
development, resulting in Taiwan's agencies often favoring
the interests of local companies over foreign firms.


20. Pharmaceuticals: Taiwan's lengthy pharmaceutical
registration process slows market entry for new drugs that
have already been approved in other economies and also
imposes unnecessary costs on drugs that have been approved
in Taiwan. In May 2001, the DOH announced a requirement for
firms to submit voluminous amounts of proprietary
manufacturing data as part of the registration and approval
process for both new drugs and those already on the market.
The amount of such "validation" data requested by Taiwan far
exceeded international norms. In response to concerns
raised by the United States and its industry, the DOH had
postponed implementation of this requirement. In December
2002, the United States and Taiwan exchanged letters in
which Taiwan affirmed its commitment to adhere to
international practices as applied in advanced economies,
and agreed that firms can demonstrate validation status by
providing documentary evidence, including abridged
registration applications. In August 2003, DOH and the U.S.
industry reached agreement on validation data resolutions.
However, DOH has announced plans to assign risk based
"priority numbers" that will be used to determine which
manufacturers are inspected by DOH. US industry is
concerned that these risk priority numbers are based on non-
transparent criteria and inspections will unfairly target
manufacturers that provide abridged data. Discussions
between the United States and Taiwan to resolve remaining
issues are ongoing.


21. Taiwan uses various methods to lower assigned prices on
innovative drugs, including "reference pricing" (assigning a
lower price when a drug is approved for an additional use)
and lowering assigned prices without a transparent process.
In addition, Taiwan continues to restrict consumer choice
and limit U.S. market access through disproportionate
reimbursement of domestically manufactured generic drugs.
To address these outstanding concerns of foreign
pharmaceutical firms, Taiwan announced a reimbursement-
pricing plan in March 2003. In this plan, the DOH and the
Bureau of National Health Insurance agreed to find ways to
include a "reward for innovation" component in its pricing
mechanism for new drugs. However, industry representatives
have criticized the new drug pricing mechanism as non-
transparent and believe the reimbursement prices will not
achieve the stated objective. Discussions between the
United States and Taiwan on this issue are ongoing.


22. In July 2002, Taiwan introduced a "global budget"
system in which hospitals receive lump sums from the
National Health Insurance system to cover the cost of
providing all services. The goal is to increase efficiency
and encourage cost-cutting measures, but critics contend
that the global budget system primarily encourages hospitals
to seek discounts on pharmaceuticals in order to make up for
losses in providing medical services. In addition, critics
say the system discourages use of innovative drugs.


23. Other issues: Taiwan banned imports of U.S. beef in
December 2003 with the detection of one positive case of
Bovine Spongiform Encephalopathy (BSE) in the State of
Washington. As of the publication of this report, the U.S.
government is taking aggressive action and is working
intensively to re-open the market as quickly as possible.
Non-ruminant products for feed use, such as tallow, lard,
poultry and porcine meal are banned with few exceptions that
are only approved after a very slow case-by-case review or
plant clearance process. A few products such as bovine
serum and pet food are allowed entry.
GOVERNMENT PROCUREMENT
--------------


24. Taiwan committed to accede to the WTO Agreement on
Government Procurement (GPA) as part of its WTO accession.
While Taiwan has applied for accession to the GPA, its
accession has not yet been completed due to differences
regarding nomenclature issues. To prepare for accession,
Taiwan implemented a new Government Procurement Law in mid-

1999. This was an important first step toward establishing
a transparent and predictable environment for Taiwan's multi-
billion dollar market for public procurement projects. In
August 2001, Taiwan and the United States signed a
Memorandum of Understanding on Government Procurement. The
MOU calls for Taiwan to implement certain procedural
commitments immediately, while others will be implemented
upon accession to the GPA. Taiwan agreed to establish new
procedures providing for the independent review of
complaints that arise during the tendering process, to
encourage its procuring entities to make use of mediation
procedures, and to cooperate fully when such procedures are
invoked. Despite these commitments, Taiwan officials have
continued to incorporate provisions in its public
procurement tenders that appear to be inconsistent with the
GPA, although Taiwan is not yet a party to that agreement.
Further, the lack of transparency in the government
procurement process as well as the review process for
complaints remains a serious issue. U.S. participation in
Taiwan's government procurement market continues to decline
as a result of these practices. The United States continues
to remain concerned with the government procurement
environment.

EXPORT SUBSIDIES
--------------


25. The Taiwan Government provides incentives to industrial
firms in export processing zones and to firms in designated
"emerging industries." Some of these programs may have the
effect of subsidizing exports. Taiwan has notified the WTO
of these programs and, as part of its WTO accession,
committed to amend or abolish any subsidy programs
inconsistent with WTO rules. Amendments of relevant laws,
such as the Statute for Establishment and Management of
Economic Processing Zones and the Statute for Establishment
of Scientific Industrial Parks, to eliminate improper
subsidies, went into effect upon Taiwan's WTO accession.
The United States continues to monitor Taiwan's compliance
with the commitments it undertook as part of its WTO
accession, including those obligations associated with the
Agreement on Subsidies and Countervailing Measures

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
--------------


26. IPR protection continues to be an important and serious
issue in the US/Taiwan trade relationship. In 2004, Taiwan
continued to take measures to improve enforcement of IPR,
including stepping up raids against manufacturing and retail
outlets, legalizing previously ad hoc task forces, and
passing important revisions to the copyright law that
increase penalties for counterfeiters. The U.S.
International Intellectual Property Alliance estimates that
Taiwan's IPR infringements caused trade losses to the United
States of USD464 million in 2003. Despite several large
raids against manufacturers and passage of amendments
strengthening the pharmaceutical law, the U.S. Government
continues to be concerned with the prevalence of
counterfeits in the Taiwan pharmaceutical market and the
lack of adequate data protection for innovative
pharmaceuticals. U.S. industry has complained about delays
in court cases and the difficulty Taiwan's judiciary has in
handling technical cases. In April 2004, Taiwan was placed
on the U.S. Special 301 Priority Watch List for the fourth
year in a row, but was -given an out of cycle review at the
end of 2004.

27. To improve Taiwan's ability to protect IPR, the
government formulated a three-year (2003-2005) IPR Action
plan. Measures included the establishment of the Integrated
Enforcement Task Force (IETF) with a force of 220 police
officers in January 2003; opening of three warehouses for
counterfeiting seizures; the raising of the informant reward
to up to NT$10 million per counterfeiting seizure;
strengthening of border control inspection for CD exports;
and increasing day/night inspection on disc plants, night
markets, and retail shops selling optical media. Taiwan's
counterfeit goods seized by the U.S. Customs dropped from
US$26.5 million in FY2002 to US$610,000 in FY2003, and to
US$60,000 in the first half of FY 2004. The Business
Software Alliance (BSA) also announced that software piracy
rate in Taiwan fell from 54 percent in 2002 to 43 percent in

2003.


28. Amendments to the Copyright Law passed by the
Legislative Yuan in June 2003 lifted the requirement that
rights-holders file a complaint before police can conduct
enforcement actions. But provisions to allow ex officio
seizure by Customs officials and prohibiting the
circumvention of technical protection measures were
eliminated and minimum sentences were repealed. In
addition, provisions to address Internet piracy were removed
from the final bill. After concerted lobbying by industry
and the Taiwan Executive Yuan, the Legislative Yuan in
August 2004 passed additional amendments to the Copyright
Law including a) technological protection measures, b)
heavier penalty for infringement, and c) giving Customs the
authority to take ex officio action.


29. Internet piracy and illegal peer-to-peer downloading
are becoming serious concerns for IP enforcement in Taiwan.
Infringers are using the Internet to market illegal goods
and illegally download music, movies, and software from
indicted peer-to-peer Internet service providers (ISC).
Efforts to use the legal system to shut down or restrict the
activities of P2P platforms has met with limited success
thus far.


30. In response to U.S. and industry requests to improve
protection of optical media products and curtail the illegal
manufacture of such goods, Taiwan passed an optical media
law on October 31, 2001. Manufacturers must apply for
production licenses and report any changes to the
authorities. Violators face a maximum three-year jail
sentence and a fine of approximately $86,000. The law was
fully implemented effective May 2002. The Optical Media Law
and IETF's night/day inspection has led to a dramatic
decrease in large-scale factory production of counterfeit CD
products produced by CD plants.


31. The U.S. Government also is concerned with the growing
incidence of counterfeit pharmaceutical products in the
Taiwan market and the lack of adequate data protection for
these products. The Taiwan government in March 2004 revised
the pharmaceutical affairs law to increase penalties for
pharmaceutical counterfeiting. Nevertheless, counterfeit
products continue to pose a threat to public health and
Taiwan's Department of Health enforcement mechanism is not
strong. Although a bill is pending in the Legislative Yuan,
Taiwan has not yet fully provided data exclusivity for
pharmaceutical products, a TRIPS commitment and a
disincentive for pharmaceutical producers to introduce new
products into the Taiwan market.


32. The lack of adequate protection for the packaging,
configuration, and outward appearance of products, an area
of IPR known as "trade dress," is another area of concern.
Despite provisions in Taiwan's Fair Trade law designed to
protect unregistered marks and other packaging features,
misleading copying of U.S. products by local manufacturers
remains a problem.


33. Taiwan's judiciary continues to experience difficulties
in handling technical cases, and U.S. industry has
complained about long delays in court cases. Often
conflicting or unclear lines of bureaucratic authority
stymie IPR enforcement efforts. Generally, U.S. IPR holders
find that judges and court procedures themselves constitute
barriers and that penalties for intellectual property
violations are inadequate to deter violators. The United
States continues to assist in remedying the weaknesses of
the judicial system by holding seminars on criminal
enforcement and encourages Taiwan to set up IP courts with
experienced judges to handle the case.

SERVICES BARRIERS
--------------

Financial Services
--------------


34. Taiwan continues to liberalize its financial market
beyond its WTO accession commitments. In January 2001, the
Securities and Futures Exchange Commission (SFEC) lifted the
restriction on employment of foreigners by domestic Taiwan
securities firms. Also in January 2001, the SFEC removed
the 50-percent foreign ownership limit on listed companies.
In June 2003, the SFEC phased out a minimum two-year period
for foreign holders of global depository receipts (GDRs) to
exchange GDR for equity stocks after the GDR is issued. In
July 2003, the SFEC lifted the ceiling limit of US$3 billion
on inward remittances by a qualified foreign institutional
investor (QFII). It also abolished the requirement for a
QFII to inwardly remit its investment fund within two years
after it receives approval. In early October 2003, the
Taiwan government voluntarily abolished the QFII system.
Foreign portfolio investors are required to complete
registration rather than seek advance approval, and as of
December 2003, the registration could be done on the
Internet. In late 2003, Taiwan allowed foreign portfolio
investors to trade in the futures and money markets as a
part of financial management prior to actual portfolio
investment. However, futures, money market funds and bank
deposits are subject to a limit of 30 percent of total
inward remittances. All offshore foreign portfolio
investors may trade in Taiwan's stock market regardless of
their size, except for investment by hedge funds and
investors from the PRC. However, foreign individual
investors are still subject to an investment limit. Onshore
foreign individuals and institutional investors are also
subject to annual inward/outward limits.


35. Taiwan continues to work towards fulfilling its May
1997 commitment to liberalize insurance premium rates and
policy clauses. It voluntarily opened the reinsurance
market. In November 2001, Taiwan permitted life insurance
companies to sell investment-linked products. Taiwan began
to allow life insurance companies to set their own premium
rates in January 2002 if the companies had their own
actuaries to determine such rates. Taiwan adopted a three-
stage premium rate liberalization program for non-life
insurance. Effective January 1, 2002, insurance firms were
allowed to set premium rates for large face-value fire
insurance policies and fire insurance policies sold to
multinational corporations. The target date for total
liberalization is January 2008, but the liberalization date
for an individual insurance firm can be advanced if it has a
good credit reputation and its capital adequacy ratio
reaches 300 percent.


36. Taiwan adopted a transparent approval procedure for
insurance policies in January 2001. Prior approval is not
required for products whose policy clauses are identical or
very similar to existing products of other companies. New
products are subject to prior approval. Taiwan's Insurance
Bureau will adopt a negative list system in January 2005.
Under the new system, new products subject to prior approval
will be deeply cut, down from 50 percent to 25-30 percent
for life insurance and to 10-20 percent for non-life
insurance. The processing time will be cut from 90 days to
75 days for life insurance and 60 days for non-life
insurance. The Department of Insurance has opened its
reinsurance market, and the Central Reinsurance Corporation
Statute was revoked in June 2004. The Central Reinsurance
Corporation, the only reinsurance firm in Taiwan, was
privatized in July 2002. In August 2002, the DOI lowered
the capital requirement for entering the reinsurance market,
strongly in favor of foreign reinsurance firms over domestic
competitors. In response to the liberalization, the Swiss
Reinsurance Co. became the first foreign reinsurance firm to
set up a branch in Taiwan in early 2004.

LEGAL SERVICES
--------------


37. Following Taiwan's accession to the WTO, foreign
lawyers are permitted to practice law in Taiwan either by
setting up individual practices (single lawyer) or entering
into partnerships with local counterparts. In order to
practice domestic law, foreign lawyers must pass the local
bar examination and use the Chinese language when appearing
before the court or submitting written briefs. If the
foreigner does not meet these qualifications, local lawyers
working for, or in cooperation with, the foreign lawyer may
represent the foreign lawyer's interests on domestic law
issues. When practicing international or foreign law,
foreign lawyers do not need to pass the language or bar
examinations and are not required to hire or partner with
local lawyers.

TELECOMMUNICATIONS SERVICES
--------------


38. Following the issuance of licenses to three fixed-line
telecommunications service providers in 2000, the
Directorate General of Telecommunications' (DGT) again
opened applications for integrated network licenses in
September 2004. The capital requirement for integrated
network service was reduced to NT$16 billion from NT$40
billion and system capacity requirements were lowered from
one million to 400,000 subscribers' lines. However, the
September's open season failed to generate any bids. DGT
also announced in September 2004 that it would launch a
biannual licensing schedule in March and September beginning
this fall. According to DGT's plan, local, long-distance
and international call businesses will be added to the
licensing schedule under less restrictive conditions in
March 2005. A new formula based on local population will be
used to calculate the capital requirements for each of the
new service license. As low as NT$1.2 billion may be
required for a local call license in Taipei City and NT$2
billion for long-distance and international service
licenses.


39. Existing fixed-line operators still face serious
difficulties in negotiating reasonable interconnection
arrangements at technically feasible points in the network
of the dominant carrier, Chunghwa Telecom (CHT). Despite
its announcement in May 2004 to share the local loop with
the three private providers, CHT set two limitations. A
change to allow non-CHT service providers access to CHT's
local loop can only be initiated by end users. Only voice
service in three metropolitan areas is open to non-CHT
operators. The Premier announced in November 2003 that the
government would invest a total of NT$35 billion in the next
five years to help local governments resolve "last mile"
problems for telecommunications end-users. This "Mobile
Taiwan" plan will also include the construction of a second
broadband network around Taiwan to be jointly used by
telecommunications service companies. These new investment
projects are expected to help break the monopoly of the
telecommunications network by state-owned CHT. Taiwan's
telecommunications regulatory body, DGT and the state-owned
former monopoly CHT are under the purview of the MOTC,
creating a potential conflict of interest. DGT lacks the
full authority, independence, and resources to effectively
resolve telecommunications-related disputes. Two draft
laws, "Communications and Broadcasting Basic Law" and the
statute for the organization of the proposed Cabinet-level
"National Communications and Broadcasting Commission (NCC)",
have been introduced by the Cabinet. The Basic Law was
passed in December 2003 and the reorganizing statue is
currently pending in the legislative process. The NCC will
be an independent regulatory body that will unify regulatory
authority now split between DGT for wired or wireless
communications and the Government Information Office for
radio and television broadcasting.


40. Taiwan's telecommunications market is transforming. In
June 2003 the DGT announced regulations governing equal
access service, allowing Type I subscribers to select the
long distance and international network service of other
providers. In August 2003 the DGT amended regulations to
open Taiwan's mobile virtual network operator (MVNO) market
and began licensing in September 2003. The MVNO opening
offers an alternative third-generation (3G) wireless service
to local consumers and allows service providers to operate
without a 3G license by partnering with existing 3G
operators. In November 2003 the DGT announced the
regulations governing number portability service, enabling
subscribers to retain their existing telephone numbers when
switching from their original Type I enterprise to another
Type I enterprise engaging in the same business. Actual
implementation of the number portability service is likely
to be postponed from January to December 2005 due to delay
by an industrial alliance in completing a central database.
In November 2004 DGT began to solicit comments for a
proposal to facilitate development in the voice over
Internet protocol (VoIP) services. DGT plans to adopt the

E. 164 numbering plan and help safeguard the
interconnectivity between VoIP providers and fixed-line
operators as given by the Telecom Act, but has not finalized
the interconnectivity between VoIP providers. Legislative
amendment to the Telecom Act would be required for
compulsory interconnectivity between VoIP providers.
Supported by the central government's "Mobile Taiwan" plan
toward a wireless island, the three metropolitan areas have
seen progress in the wireless network infrastructure in

2004. Taichung City currently leads Taipei City and
Kaohsiung City in reaching the goal of 80 percent coverage.
International submarine cable firms remain limited to only
one gateway for their links from the cable-landing site to
network providers while they are permitted to build their
own backhaul facilities.


41. Taiwan's telecommunications market saw a merger of KG
Telecom and Far EasTone in October 2003. The merger has
created a mobile service market equally divided between Far
EasTone, CHT and Taiwan Cellular. The United States
continues to monitor Taiwan's progress in the
telecommunications sector.

INVESTMENT BARRIERS
--------------


42. Taiwan continues to relax investment restrictions in a
host of areas, but foreign investment remains prohibited in
a handful of industries such as agriculture, wireless
broadcasting, oil exploration of Taiwan's coastal area,
public utilities, and postal services. Foreign investors in
the telecommunications sector are subject to a 60 percent
ownership limit, with the limit on direct foreign investment
raised from 20 percent to 49 percent in 2002. In February
2003, Taiwan lifted its ban on foreign investment in liquor
production, though prior approval is required. Similarly,
in January 2004, foreign investment restrictions on
cigarette production were removed, though prior approval is
required. Foreign ownership in airlines is limited to 33
percent. The 50 percent foreign ownership limit on air
cargo forwarders and air cargo terminals was eliminated when
Taiwan became a WTO member. Foreign ownership on power
plants has been removed, while foreign investment in
electricity transmission and distribution remains subject to
a 50 percent ownership limit and approval by the Executive
Yuan. Imports of gasoline and liquid natural gas were
opened to the private sector in January 2002. In October
2003, Taiwan set a foreign ownership limit of 49 percent on
high-speed railway transportation.

ANTICOMPETITIVE PRACTICES
--------------


43. In the cable TV market, U.S. program providers contend
that the island's two dominant multi-system operators (MSOs)
frequently collude to inhibit fair competition. Control by
the two MSOs of upstream program distribution deterred U.S.
program providers from negotiating reasonable program fees.
In December 2003, Taiwan's legislature passed a new
broadcasting law combining the Radio and Television
Broadcasting Law, the Cable Television Broadcasting Law, and
the Satellite Television Broadcasting Law. Following the
legislative passage of the law, Taiwan officials are working
to eliminate political interference in the television
broadcasting industry by monitoring public releases of state-
owned and party-owned stocks.

ELECTRONIC COMMERCE
--------------


44. Taiwan's approach to e-commerce and related issues is
still evolving. A law protecting personal on-line data was
approved in 2001. The Electronic Signature Law, passed by
the Legislative Yuan in late October 2001, adopts the
principles of the United Nations Commission on International
Trade Law's Model Law on Electronic Commerce and recognizes
the legal validity of electronic contracts, records, and
signatures. Still under discussion is a proposal to assess
duties for software sold and downloaded over the Internet.
If implemented, such a policy would appear to run counter to
the Doha Declaration that WTO Members would maintain their
current practice of not imposing customs duties on
electronic transmissions. Taiwan has refused to join the US
at APEC in advocating for a permanent moratorium on taxation
of Internet transactions.
PAAL