TAIWAN: 2006 NATIONAL TRADE ESTIMATE

UNCLAS SECTION 01 OF 12 TAIPEI 004697

SIPDIS

DEPT PASS TO AIT/W AND USTR

DEPT FOR EAP/RSP/TC AND EB/MTA

USTR FOR TIM WINELAND AND GBLUE

E.O. 12958: N/A
TAGS: ETRD ECON KTDB TW
SUBJECT: TAIWAN: 2006 NATIONAL TRADE ESTIMATE
REPORT

TRADE SUMMARY
--------------


1. The U.S. trade deficit with Taiwan was $12.9
billion in 2004, a decrease of $1.3 billion from
$14.2 billion in 2003. U.S. goods exports in 2004
were $21.7 billion, up 24.6 percent from the
previous year. Corresponding U.S. imports from
Taiwan were $34.6 billion, up 9.6 percent. Taiwan
is currently the 9th largest export market for
U.S. goods. U.S. exports of private commercial
services (excluding military and government) to
Taiwan were $5.5 billion in 2004, and U.S. imports
were $5.7 billion. The stock of U.S. foreign
direct investment (FDI) in Taiwan in 2004 was
$12.1 billion, up from $11.0 billion in 2003. U.S.
FDI in Taiwan is concentrated largely in the
finance, manufacturing, and wholesale sectors.


IMPORT POLICIES- TARIFFS
--------------


2. 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 2005 was approximately 5.67
percent and is expected to fall to 5.5 percent by

2007. To comply with WTO commitments, Tariff-Rate
Quotas (TRQs) on certain items including chicken
meat, pork bellies, and poultry and pork variety
meats, were lifted on January 1, 2005. In
addition, Taiwan voluntarily lifted the sugar TRQ
effective January 1, 2005 to meet Taiwan's
domestic needs. However, U.S. industry continues
to request that Taiwan lower tariffs on imports of
many goods, including large motorcycles, wine,
canned soups, cookies (sweet biscuits),savory
snack foods, vegetable juices, potato and potato
products, table grapes, apples, fresh vegetables,
and citrus products.


3. Upon Taiwan's accession to the WTO in January
2002, Taiwan implemented tariff-rate quotas (TRQs)
on small passenger cars, three categories of fish
and fish products, and a number of other
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.


4. 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. Taiwan has not imposed any
safeguard provisions and none of the imports of
subject products have reached the safeguard
ceiling in 2005, although SSGs have been
previously triggered on several products,
including chicken legs and wings, and several
types of offal. Products generally continue to be
imported in spite of the safeguard tariff.


5. To meet WTO commitments, Taiwan has eliminated
99.27 percent import controls of 10,921 official
import categories. Currently, there are 80
product categories requiring import permits from
the Board of Foreign Trade (BOFT) including 56
categories that are prohibited and 24 that can
only be imported under special conditions. Most
of the permit-required categories are related to
public-sanitation and national-defense concerns
and include ammunition and some agricultural
products. In addition, Taiwan maintains a lengthy
list of products that are banned if made in China,
including chocolate confectionary and meters for
medical equipment. However, the Ministry of
Economic Affairs recently informed AIT that
imports of certain unfilled chocolate from China
will be allowed no later than June 1, 2006.


6. Agricultural and Fish Products: Prior to its
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 bellies and offal, and poultry
offal) were eliminated on January 1, 2005.


7. Rice: Before Taiwan's WTO accession, imports of
rice were banned. During 2002, rice imports were
subject to an absolute quota that covered both
public and private sector imports. In 2003, Taiwan
changed its rice import regime to a tariff-rate
quota system 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's
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, the U.S. has been able
to supply a majority of Taiwan's imported rice
every year since accession. In 2004, Taiwan's
implementation of its import commitments improved
significantly, but the price ceiling issue
resurfaced in 2005. Also, during 2004 and 2005
the United States and Taiwan made substantial
progress in resolving outstanding differences on
Taiwan's rice procurement arrangements. However,
certain rice suppliers to the Taiwan market other
than the United States have not agreed to proposed
modifications to Taiwan's rice import system. As a
result, Taiwan will continue its current system
while working toward final resolution of the rice
import issue.


8. 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. 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
repeatedly postponed and there is no target date
for implementing privatization.


9. 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 - making insurance and financing
difficult to obtain. 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 rather than finalizing a fire code
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.


10. 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 the U.S. motorcycle industry
supported. Small motorcycles (below 250cc) are
prohibited on expressways. Larger motorcycles are
restricted from most expressways but are allowed
on two national highways. The Ministry of
Transportation and Communications (MOTC) has
entrusted the Institute of Transportation (IOT)
with conducting an evaluation to determine whether
to lift the restriction on large motorcycles on
expressways. IOT is scheduled to announce the
result in June 2006. The U.S. 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
-------------- -


11. As of October 31, 2005, the Bureau of
Standards, Metrology & Inspection (BSMI) had
13,981 separate existing standards. The rate of
harmonization with international standards (both
identical and modified) was 72 percent, up from 69
percent on December 31, 2004.


12. Industrial and Home Appliance Products:
Industrial and home appliance products (such as
air-conditioning and refrigeration equipment) are
subject to safety and Electo-magnetic
Compatability (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
"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 EMC Mutual Recognition
Agreement (MRA). 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 method most appropriate to them when
applying for registration under the RPC scheme.


13. Several new standards were announced in 2005
for electronic and household appliances and toys.
The revised Chinese National Standards (CNS) 12574
on household pressure-cooking pots was published
on September 27, 2004. This revised standard was
used to conduct inspections of such products
beginning in May 2005. Starting August 1, 2005,
18 additional types of toys were required to pass
inspection before entering the market. This makes
a total of 38 types of toys that require
inspection. In July 2005, The Ministry of
Economic Affairs proposed that television
receivers must include the capability to receive
over-the-air digital television (DTV) broadcast
signals, in addition to the existed EMC and safety
requirements for television receivers that are
already subject to inspection. The DTV receiving
capability schedule will be based on the size of
the screen with larger TV's required to comply as
of January 1, 2006 and the smallest by January 1,

2008.


14. 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 U.S. continues to be
concerned that some Taiwan plant and animal
quarantine measures are not always based on sound
science and are more trade restrictive than
required.


15. Beverage Alcohol Products: On July 1, 2004,
the Ministry of Finance (MOF) eliminated
ingredient-labeling requirements for alcoholic
beverages. However, product labels must include a
warning label stating overdrinking is harmful to
health. Taiwan will implement new "Regulations
Governing the Inspection of Imported Alcohol",
beginning January 1, 2006 for wine, fruit wine,
beer, and brewed cereal beverages; and on July 1,
2006 for all alcoholic beverage imports.
Importers of alcoholic beverages can submit
documentation of sanitary inspection or safety
assurance issued by official in charge of alcohol
product inspection or professional alcohol
associations of exporting countries to replace
product inspection upon customs clearance.


16. 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 the
Department of Health (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 domestic regulatory
infrastructure, delays in approvals have become
more frequent.


17. Labeling of biotechnology food: Taiwan
requires warning labels on foods containing
biotechnology corn or soybeans. All food products
containing 5 percent or more bio-engineered
soybean or corn ingredients by weight must be
labeled as "Genetically Modified (GM)" or
"Containing Genetically Modified."


18. 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 extensive
documentation, sometime arbitrary demands for
additional information and redundant testing.
Changes in the registration requirements mean
manufacturers must register Class 1 devices for
the first time and re-register previously approved
products. In most cases, this requires companies
to submit additional documentation, even when
products are based on previously approved devices,
are identical products made in different quality
system documentation (QSD) manufacturing sites, or
have changes in the product's outer package. The
Department of Health was forced to extend a
registration deadline of June 20, 2005 when it
became clear that DOH lacked the staff to process
applications for the majority of devices by the
deadline. DOH is optimistic that most products
will be registered by December 20, 2005. In
addition, regulations are vague on 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. Taiwan has identified both the
medical device and pharmaceutical sectors as
priorities for local development, resulting in
Taiwan agencies often favoring the interests of
local companies over foreign firms.


19. Pharmaceuticals: Taiwan's lengthy
pharmaceutical registration process slows market
entry for new drugs that have already received
regulatory approval in advanced economy markets
and imposes unnecessary costs on drugs that have
been approved in Taiwan. Product registration
requires submission of plant master files,
validation documentation as well as local clinical
trials. Following extensive negotiations, Taiwan
agreed in August 2003 to replace submission of
full-scale validation documentation with an
overview template/certificate of pharmaceutical
products (CPP) issued by relevant authority from
the source country. DOH retains the right to
conduct overseas site inspections based on risk
factors. Despite intensive consultations, US
industry remains concerned that these inspections
will unfairly target manufacturers that provide
abridged data. Discussions between the United
States and Taiwan to resolve remaining issues,
especially requirements for computerized
validation data, have led to the development of
mutually agreeable standards.


20. Taiwan uses various methods to lower assigned
prices on innovative drugs, including "reference
pricing" and periodic lowering of 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. Article 49 of Taiwan's National Health
Insurance law mandates reimbursement of healthcare
providers at actual transaction costs, but this
law is not enforced. Discussions between the
United States and Taiwan on this issue are
ongoing.


21. In July 2002, Taiwan introduced a "global
budget" in selected locations in which hospital
reimbursements are capped by the National Health
Insurance system. The goal is to increase
efficiency and encourage cost-cutting measures.
In practice, this has led to increased pressure on
pharmaceutical suppliers to provide discounted
products. Despite reports of negative effects on
patient care, DOH has announced plans to extend
global budgeting to all medical centers in January

2006.


22. On September 1, 2005, BNHI introduced
guidelines to discourage improper use of
pharmaceuticals. For instance, duplication of
anti-acid prescriptions will no longer be
reimbursed. In an effort to cut costs, BNHI
stopped reimbursing for some over-the-counter
medicines in July 2005.


23. Other issues: Taiwan reimposed its import
suspension on U.S. beef in June of 2005, after the
discovery of a second case of Bovine Spongiform
Encephalopathy (BSE) in the U.S. Taiwan initially
reopened the market to U.S. beef in April 2005,
after banning imports of U.S. beef in December
2003 following the detection of the first positive
case in the State of Washington. As of the
publication of this report, the U.S. Government 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. Limited exceptions are
only approved after a very slow case-by-case
review or plant clearance process.

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
public procurement market.


25. 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. U.S. participation in
Taiwan's government procurement projects is
discouraged by clauses in some contracts that
exclude foreign tenders as well as Taiwan's
refusal to implement liability caps and exclusions
for consequential damages. The Public
Construction Commission often requests U.S. firms
to provide U.S. relevant practices and
international cases for reference. The United
States continues to encourage the Taiwan
government to abide by the provisions of the GPA
in spite of difficulties in accession.

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


26. 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
--------------


27. IPR protection continues to be an important
issue in the U.S.-Taiwan trade relationship. The
U.S. recognizes Taiwan's continuing efforts to
take measures to improve enforcement of IPR in
2005, including intensifying raids against
manufacturers and retailers. The U.S.
International Intellectual Property Alliance
estimates that losses due to IPR infringement in
Taiwan will cost U.S. industry $320 million in

2005. The U.S. Government also continues to be
concerned with the prevalence of counterfeit
pharmaceuticals in Taiwan despite several large
raids against manufacturers and the passage of
amendments strengthening the pharmaceutical law.
Another area of concern is the lack of adequate
protection for the packaging, configuration, and
outward appearance of all products - known as
trade dress. U.S. industry has also complained
about delays in court cases and the Taiwan
judiciary's difficulty in handling technical
cases. Generally, U.S. IPR holders find that court
procedures themselves constitute barriers and
penalties for intellectual property violations are
inadequate to deter violators.


28. In December 2004, Taiwan was moved from the
U.S. Special 301 Priority Watch List to the Watch
List after an out-of-cycle review determined that
Taiwan had made sufficient progress to warrant an
improved status. In addition, soon after the
results of the out-of-cycle review were announced
in January 2005, Taiwan's legislature approved a
bill to prevent unfair commercial use of
pharmaceutical test data. Despite these
improvements, the United States will continue to
monitor Taiwan authorities' development of
implementing regulations for the protection of
pharmaceutical test data. Taiwan needs to take
further effective actions against piracy of
copyrighted works over the Internet and to
continue strengthening of enforcement efforts so
that piracy and counterfeiting are effectively
reduced. The United States also will continue to
follow with interest Taiwan Customs efforts to
stop exports of counterfeit materials to ensure
that these efforts are as effective, or more
effective, than Taiwan's recently abolished Export
Monitoring System.


29. To improve Taiwan's ability to protect IPR,
the government formulated a three-year (2003-2005)
IPR Action plan. Measures included establishing
the Integrated Enforcement Task Force (IETF) with
a force of 220 police officers in January 2003;
opening three warehouses for storing
counterfeiting seizures; raising informant rewards
to up to approximately $310,000 per counterfeiting
seizure; strengthening border control inspection
for optical media exports; and increasing day and
night inspections on optical media production
facilities, night markets, and retail shops.
Counterfeit goods seized by the U.S. Customs
Service from shipments of Taiwan origin dropped
from $26.5 million in FY2002 to $767,671 in the
first half of FY 2005. The Business Software
Alliance (BSA) also announced that the software
piracy rate in Taiwan fell from 54 percent in 2002
to 43 percent in 2003, this rate remained
unchanged in 2004.


30. Trademark piracy, particularly clothing and
luxury goods is a growing concern. Much of the
counterfeit product is allegedly smuggled from
China. Rightsholders claim Taiwan is both a
transshipment point and a market for this pirated
material. Taiwan Customs makes regular seizures
of counterfeit apparel and handbags, but
rightsholders complain that investigation and
prosecution remains hampered by an overworked and
disinterested bureaucracy and light sentences do
not deter trademark pirates.


31. Internet piracy and illegal peer-to-peer
downloading are serious concerns for IP
enforcement in Taiwan. Infringers use the Internet
to market illegal goods and allow the unauthorized
downloading of music, movies, and software from
Internet service providers. To deter internet
piracy, the Taiwan Intellectual Property Office
(TIPO) in May 2005 initiated an "implementation
plan for strengthening preventive measures against
internet infringement". TIPO created a joint
internet infringement inspection special task
force to conduct internet inspections, and has
made efforts to strengthen cooperation with
enforcement agencies in other nations to tackle
cyber crime. In addition, TIPO is coordinating
with ISPs and rightsholders' associations to
establish code of conduct for ISPs and is working
with the Ministry of Education to enhance internet
management at schools. Efforts to use the legal
system to shut down or restrict the activities of
such services have met with mixed success. In
June 2005, peer-to-peer (P2P) company EZPeer was
found not guilty of allowing users to download
copyrighted material through their site. However,
in September 2005, another popular P2P site, Kuro,
was found guilty of the same charge.
Rightsholders groups call on Taiwan to further
amend the Copyright Law or other regulations to
clarify secondary liability of ISPs and other
intermediaries. Taiwan's 2001 Optical Media law
and night and day inspections have led to a
dramatic decrease in large-scale factory
production of counterfeit optical media products.

32. The U.S. remains concerned with the growing
incidence of counterfeit pharmaceutical products
in the Taiwan market. The Taiwan government in
March 2004 revised the pharmaceutical affairs law
to increase penalties for pharmaceutical
counterfeiting and the Ministry of Justice, the
Taiwan Coast Guard and Taiwan Customs have had
some success in intercepting imports of
counterfeit pharmaceuticals. Nevertheless,
counterfeit products continue to be a threat to
public health and Taiwan's DOH enforcement
mechanism is not strong. In January 2005,
Taiwan's legislature approved a bill to provide
data protection for pharmaceutical products, a
TRIPS commitment, and an incentive for innovative
pharmaceutical manufacturers to introduce new
products into the Taiwan market but final
implementing regulations are still pending. The
United States will monitor Taiwan's development of
implementing regulations to ensure that
commitments made by Taiwan regarding the period of
protection are adequately codified.


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. 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.

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 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 GDRs
for equity stocks after a GDR is issued. In July
2003, the SFEC lifted the ceiling limit of $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.


35. Foreign portfolio investors are required to
complete registration rather than seek advance
approval, and in December 2003, the registration
could be done through 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
investments in 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.


36. Morgan Stanley Capital International (MSCI)
raised the weight for Taiwan stocks in its index
over the past year, attracting a large volume of
foreign investment funds to flow into Taiwan in
early 2005. In addition to liberalization, Taiwan
plans to set up a securities market international
board where both listing and trading will be
denominated in U.S. dollars. The planned
international board is designed to attract foreign
companies to list here as well as foreign
portfolio investors to trade on the board.


37. 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. All non-life insurance
companies were permitted to set loading expenses
(including commissions) for all insurance
products. The second stage of premium
liberalization began in April 2005. After that
date, non-life insurance firms meeting government-
set requirements were not required to obtain prior
approval for pure premiums except for car and fire
insurance. For car and fire insurance, they were
allowed to set pure premiums within a range
between the government-approved benchmark rate and
10% below the benchmark. The target date for total
liberalization may be advanced to 2006 from
January 2008 when the insurance policy review
procedure is deregulated.


38. 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
either to the standard versions published by the
government or to the existing products of other
companies. New products are subject to prior
approval. Taiwan's Insurance Bureau (formerly the
Department of Insurance) adopted a negative list
system in January 2005. Under the new system, new
products subject to prior approval from the Bureau
will be sharply reduced. The processing time will
be cut from 90 days to 75 days for life insurance
products and 60 days for non-life products. The
Insurance Bureau plans to further deregulate the
insurance policy review procedure in 2006.
Insurance companies with a rating above a set
level will be permitted to determine their own
premium rates, and will not need to seek approval
for 90% of their new products.


39. Taiwan's Insurance Bureau has allowed market
access for Taiwan's reinsurance market, and the
Central Reinsurance Corporation Statute was
revoked in June 2004. The Central Reinsurance
Corporation, the only local reinsurance firm in
Taiwan, was privatized in July 2002. In August
2002, the Bureau lowered the capital requirement
for entering the reinsurance market. 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.

Telecommunications Services:

40. 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
services was reduced to NT$16 billion from NT$40
billion and system capacity requirements were
lowered from one million to 400,000 subscriber
lines. Since that time there has been only one
bidder (October 2005) for a license to provide
integrated network services. DGT also opened the
local, long-distance and international call
businesses in March 2005. A new formula based on
local population will be used to calculate the
capital requirements for each of the new service
licenses; for instance, 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.


41. 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 that it would share the
local loop with the three private providers, CHT
set two limitations; non-CHT service providers
access to CHT's local loop can only be initiated
by end users and only voice service in three
metropolitan areas is open to non-CHT operators.
Taiwan's 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 plan, part of a
number of telecommunications-related investment
proposals called "Mobile Taiwan," 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
formerly state-owned CHT.


42. Until 2005, Taiwan's telecommunications
regulator (DGT) and the largest telecom operator
(CHT) were both under the control of the Ministry
of Transportation and Communication (MOTC),
creating an obvious conflict of interest.
Privatizing CHT and establishing an independent
regulator were two of Taiwan's WTO accession
commitments. In August 2005, MOTC officially
privatized CHT by selling an additional 17 percent
of its CHT stock --3 percent domestically and 14
percent on the New York Stock Exchange. These
sales brought the percentage of CHT stock in
government hands to below 50 percent. However,
CHT still retains close ties to the government.
In November 2005, Taiwan's Premier announced a CHT
rate cut on the floor of the Legislative Yuan,
calling into question CHT's independence. The
Legislative Yuan in October 2005, finally approved
the independent regulatory body called the
National Communications Commission (NCC) after
heated political debate. The political compromise
necessary to pass the legislation raise concerns
that the NCC could be subject to political
pressure. The new body will have 13 commissioners
selected by political parties and will be staffed
by employees of the former DGT and Government
Information Office. It is expected to begin
operation by the beginning of 2006.


43. In August 2003, DGT amended regulations to
open Taiwan's mobile virtual network operator
(MVNO) market and began licensing in September

2003. The MVNO market 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. Cellular carriers KG
Telecom and Far EasTone merged in October 2003.
The merger has created a mobile service market
equally divided between FarEasTone, CHT and Taiwan
Cellular. 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
started October 15, 2005. In November 2004 DGT
began to solicit comments for a proposal to
facilitate development in the voice over Internet
protocol (VoIP) services. DGT is expected to open
VoIP to telecom operators in November 2005. The
United States continues to monitor Taiwan's
progress in the telecommunications sector.

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


44. Taiwan continues to relax investment
restrictions in a host of areas, but foreign
investment remains prohibited in a handful of
industries such as agriculture, public utilities,
and postal services. Taiwan dropped oil
exploration from the negative list of industries
in May 2004. 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. Foreign investors can own
minority stakes in cable and satellite
broadcasters, but are prohibited from owning
terrestrial broadcasters. In February 2003,
Taiwan lifted its ban on foreign investment in
liquor production, although prior approval is
required. Similarly, in January 2004, foreign
investment restrictions on cigarette production
were removed, although prior approval is required.
The 50 percent foreign ownership limit on air
cargo forwarders and air cargo terminals was
eliminated when Taiwan became a WTO member. The
limit on foreign ownership of 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. In October 2003,
Taiwan set a foreign ownership limit of 49 percent
on high-speed railway transportation.

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


45. In the cable TV market, U.S. program providers
contend that the island's three dominant multi-
system operators (MSOs) frequently collude to
inhibit fair competition. Control by the 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 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
equity shares in broadcast media.


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


46. Taiwan's approach to electronic commerce and
related issues is still evolving. According to
the Institute for Information Industry, over 90
percent of Taiwan's companies have corporate
networks and a network infrastructure, while 61
percent of 5.2 million household computer users
link their computer to networks -- mainly by
broadband digital subscriber line (DSL). 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.
The Taiwan government has passed several laws and
regulations governing electronic commerce since

2003. In May 2005, the Ministry of Finance
announced a guideline to impose a business tax on
internet vendors who sell products for profit and
have monthly sales over NT$60,000. In addition to
a business tax, the authorities discussed a
proposal to assess import 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 United States at APEC in
advocating for a permanent moratorium on taxation
of Internet transactions.

KEEGAN