Taiwan: 2005 INVESTMENT CLIMATE STATEMENT

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SUBJECT: Taiwan: 2005 INVESTMENT CLIMATE STATEMENT

REF: 2005 STATE 201904


1. The following is the Taiwan Investment Climate Statement
for 2005, as requested reftel. A copy has been transmitted
by e-mail to EB/IFD/OIA.

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


2. Taiwan officially welcomes foreign direct investment,
which at the end of 2004 amounted to 19.8 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. 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
(passenger and cargo),freight transport by small trucks,
pesticide manufacture, 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 mining and 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 former state-owned Chunghwa
Telecom Co., which still controls 97 percent of the fixed
line telecom market, the ceiling on direct and indirect
foreign investment was raised to 35 percent in August 2004.
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
satellite television broadcasting services, power
transmission and distribution, piped distribution of natural
gas, high-speed railways, ground-handling firms, air-cargo
terminals, air-catering companies, and air-cargo forwarders.
The 50 percent foreign ownership limit on ground-handling
firms, air-cargo terminals, air-catering companies, and air-
cargo forwarders was removed for investors coming from WTO

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members in November 2001. 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 in the range from NT$500 million to NT$1,500
million excluded from the negative list, approval authority
rests with the FIC Executive Secretary and normally is
granted within one week. Approval of investments in
industries above NT$1,500 million or on the negative list
requires several weeks because those investments must be
referred to the relevant supervisory ministries and require
approval of the FIC Chairman or FIC Executive Secretary.
Investments involving complicated terms such as merger and
acquisition 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. Incentives for manufacturing firms to locate
factories in designated industrial parks prior to the end of
December 2006 include free rent in the first two years, 40
percent discount on rent in the subsequent two years, and 20
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. The Taiwan government will slash investment tax
incentives as a part of a tax reform designed to reduce its
fiscal deficit and outstanding public debt. A ten-percent
alternate minimum tax on business firms is scheduled to be
implemented in 2006. Laws and regulations will be amended
to eliminate tax incentives for overseas operations of IC
design firms and IC product engineering service firms.
Taiwan government will cut the number of industries entitled
to tax incentives by one-third and double the thresholds in
annual R&D expenses for tax offset from NT$15 - 20 million
to NT$30 - 40 million. The tax offset for procurement of
automation equipment will be lowered from 11 percent to 7
percent and that for procurement of technologies reduced
from 10 percent to 5 percent. The tax offset for projects
in remote poor areas will be cut from 20 percent to 15

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percent.


9. 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.
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.

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


10. There are relatively few restrictions on converting or
transferring direct investment funds. Foreign investors
with approved investments can readily obtain foreign
exchange from a large number of designated banks. The
remittance of capital invested in Taiwan is made 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.


11. 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.


12. 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. For
investments below US$200,000, prior approval can be obtained
the same day the application is submitted. Taiwan has begun
allowing 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.


13. Taiwan authorities have actively encouraged investment
in Southeast Asian nations. Investments are also encouraged

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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.

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


14. 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.

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


15. 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.


16. 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.


17. Taiwan's court system is generally 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.

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


18. 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-
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 if the employing company has a life less than one
year or annual sales of NT$10 million if the life of the
employing company exceeds one year. 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

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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.


19. 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.


20. "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.

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A.6 Right to Private Ownership and Establishment
-------------- ---


21. 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,
telecommunications, cigarette, and wine production.

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


22. In 2005, Taiwan continued improving its IPR legal
regime and enforcement. In addition to raids against
manufacturers and retailers, transforming an ad hoc task
force into a permanent agency, and strengthening border
control inspection, the authorities initiated in May 2005 a
program to deter internet piracy. The Intellectual Property
Office (TIPO) has set up a joint task force to conduct
internet inspections and will cooperate with enforcement
agencies to implement this program over the next three
years. To prepare for its WTO accession in 2002, Taiwan
amended its Patent Law and Copyright Law in November 2001.

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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
may 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 and
day inspections have led to a dramatic decrease in large-
scale factory production of counterfeit CD products produced
by CD plants. Taiwan again strengthened 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. Following a 2004 amendment to the Pharmaceutical
Law with stiffer penalty on production, distribution and
sales of counterfeit medicines, Taiwan passed in January
2005 another amendment to the law to authorize
pharmaceutical data exclusivity for 5 years so as to prevent
unfair commercial data use.


22. Following its 2002 "IPR Action Plan", the Executive
Yuan adopted a fresh IPR Action Plan for 2003-2005. One
important measure within this "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 has frequently raided 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. Further, the government transformed the task force to
a permanent IP police squadron in November 2004. Other
enforcement measures include increasing the reward (by ten
times to NTD10 million (USD0.3 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 simplified the administrative
and legal procedures for opposing patent applications and
added sounds and 3-D shapes as elements eligible for
trademark.


24. In general, Taiwan is moving towards improved IPR
protection, but transshipment of counterfeit products from
China to the United States remains a problem. Counterfeit
goods from Taiwan seized by U.S. Customs dropped from
US$26.5 million in FY2002 to US$610,000 in FY2003, and
Taiwan's ranking in counterfeit goods seized by the U.S.
Customs dropped from "second" in 2002 to well below top ten.
However, a sharp increase in transshipment of counterfeit
goods from China in the past year has pushed the value of
seized counterfeit goods up to US$767,671 in the first half
of FY2005, and Taiwan's ranking climbed back to "seven" on
the U.S. Customs ranking in the six-month period. In
addition, 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.

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


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


27. 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.


28. 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.


29. 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.


30. 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.

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


31. 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

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by foreign institutional investors has also been broadened.


32. 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 capital flow limits of
U.S. $5 million for an individual foreign investor and US$50
million for an unregistered foreign company.


33. 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.


34. 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, four sold to the private sector in 1999, and
one in 2005. The only reinsurance company was privatized in

2002. Privatization efforts have reduced the number of
public banks to four and cut the share of assets controlled
by public banks from 61 percent to 16.7 percent of total
assets of all domestic and foreign banks. The total assets
of these four public banks were NT$4.64 trillion (US$138
billion) as of June 2005.

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


35. 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.

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


36. 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.


37. AIT is not aware of cases where bribes have been
solicited for investment approval. Both central and local
governments offer investors incentives including free rent
on land for the first two years and discounts in subsequent

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years. Taiwan authorities encourage foreign investment and
would take action against officials and individuals
convicted of profiting illegally from foreign investors.


38. 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.


39. Authorities generally investigate allegations of
corruption and take action to penalize corrupt officials.
Since its inauguration in May 2000, the Chen Administration
has strengthened anti-corruption efforts. Since then,
prosecutors have indicted 6,932 persons for corruption,
including 380 senior officials (department director level
and above) and 494 elected officials. Indicted elected
officials including 19 legislators. In September 2004, a
former speaker of the legislature was sentenced to jail for
four years on a charge of taking a NT$150 million (US$4.5
million) bribe. Two heavy weights in the ruling party were
forced to give up their titles as senior presidential
advisors, one in 2003 and the other in 2005, 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.


40. 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.

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


41. 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.)


42. 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

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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.

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


43. 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.

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


44. 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, flat panel and display
manufacturing, and telecommunications engineering. The law
governing 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 eight percent between
2000 and 2003. Economic expansion prompted Taiwan's
government to slightly relax restrictions and foreign
workers in Taiwan rose 6.8 percent from 298,392 persons in
March 2004 to 320,614 persons in October 2005.


45. 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 55 years and a length of service of 15 years. The
mandatory retirement age is 60 years. A new retirement
system implemented in July 2005 abolishes the voluntary
retirement scheme for workers regulated by the new system.
Employees hired after July 2005 must join the new retirement
system without any choice. The new system requires
employers to contribute six percent of the monthly wage to
employees' accounts at designated banking institutions, and
the accounts follow employees transferred from one employer
to another. A universal national health insurance system
covers all employees and their families.


46. 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 half 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

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terms) and administrative punishments (fines).


47. The minimum wage is set at NT$15,840 (US$473) per
month. Current manufacturing sector wages average NT$41,830
(US$1,249). 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 seven years, the minimum wage has not
been adjusted.


48. Labor unions have become more active and independent
since Taiwan's martial law was lifted in 1987. Economic
expansion in 2003 and 2004 led to a decline in labor
disputes in these two years, but economic slowdown in 2005
contributed to an increase in the first ten months of the
year. 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
--------------


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

2004. Another four have been established in 2005. These
four are located at CKS Airport in Taoyuan and Taiwan's
three international harbors in Kaohsiung, Taichung, and
Taipei. Several other zones are still under planning.
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
--------------


50. 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.


51. A sharp increase in foreign demand contributed to over
expansion of Taiwan's industrial sector in 2004 when
manufacturing growth set a 17-year high of 10.6 percent and
private investment growth reached a new record of 31
percent. However, excess inventory and excess production
capacity, together with continued industrial relocation
overseas, resulted in a contraction of 2.6 percent in
private investment in the second half of 2005. Private
investment is expected to see moderate growth of 3.2 percent
in 2006 as manufacturing firms have begun an upturn in their
business cycle in late 2005. For example, both
semiconductor and flat panel display firms, two backbones of
Taiwan's manufacturing sector, reported an increase in their
utilization of production facilities from 60-70 percent in
late 2004 to 90-95 percent in late 2005.


52. Foreign investment in Taiwan is concentrated in
electronics and electrical industries and the service
sector. Approved direct investment in electronics and
electrical industries including Semiconductor, TFT-LCD and
other optical electronic projects soared 45 percent in 2003,
and 140 percent 2004, but declined by 30 percent in the
first three quarters of 2005. This category accounted for a
quarter of the cumulative approved inbound direct
investment. Seventy percent of the approved inbound direct

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investment in Taiwan's electronics and electrical industries
came from the United States, Europe and Japan.


53. Approved inbound direct investment in the service
sector (including banking & insurance, wholesale & retail,
trade, and professional services),grew 17 percent in 2003,
then declined 10 percent in 2004, and surged 34 percent in
the first three quarters of 2005. This category constituted
41 percent of the cumulative approved inbound direct
investment.


54. 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 2004 totaled
US$13.3 billion, or 22 percent of total foreign investment.
Of total U.S. investment, 34 percent was directed toward the
electronics and electrical industries, and 35 percent toward
the service sector. Approvals for Japanese investment
amounted to US$12 billion, or 20 percent of total foreign
investment, of which 28.4 percent was in electronics and
electrical industries and 31 percent in the service sector.


55. 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 1999-2004 accounted for 27 percent of
total approved investments, compared to 18.2 percent from
the United States, 17.5 percent from Europe, and 14.7
percent from Japan. Twenty-seven percent of the investment
from the BTA was directed towards the banking and insurance
industries and another 21.5 percent to the electronic and
electrical industries.


56. As a relatively open and liberal economy, Taiwan
receives foreign investment while its businesses invest
overseas, especially in China, Southeast Asia and the
Americas. According to balance-of-payments statistics
compiled by the CBC, outbound direct investment has exceeded
inbound direct investment since 1988. According to FIC
statistics, by the end of 2004 cumulative approvals for
outbound investments totaled US$83.3 billion. One of the
main recipients of Taiwan investment has been China, which
has received over two-thirds of Taiwan's outbound
investment. Approved investments in China increased by 19
percent in 2003, and 51 percent in 2004, but declined 12.4
percent in the first three quarters of 2005.


57. 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$6.94 billion at the end of 2004. As a result of this
trend China-based Taiwan factories produced 40.5 percent of
export orders received by Taiwan headquarters by October
2005, up from 11.5 percent in early 2000, and the October
2005 ratio even exceeded 70 percent for electronic firms.
Greater China (China plus Hong Kong) replaced the United
States as Taiwan's largest export market in 2001, and
Greater China's share of Taiwan's exports in the first ten

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months of 2005 reached 38 percent, much higher than the 15
percent for the United States and 12 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 Amer. 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
2004 362 824 896 964 195 712 3,953
52-04 13,342 12,055 10,087 8,740 4,002 12,269 60,495
-------------- --------------
Source: Foreign Investment Commission

Table 2
Foreign Investment Approvals by Industry and Area
(1952-2004) (unit: U.S. dollar million)

Cent. Hong
Industry U.S.A. Japan Amer. Eur. Kong Other Total
-------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total 13,342 12,055 10,074 8,740 4,002 12,282 60,495
Electronics
& Electrical 4,567 3,427 2,167 1,904 655 1,805 14,525
Banking
& Insurance 2,379 416 2,684 2,143 696 2,639 10,715
Services 949 1,448 1,549 884 504 1,612 6,946
Chemicals 1,516 878 305 1,098 278 404 4,479
Wholesale
& Retail 822 957 930 874 268 782 4,633
Trade 524 880 216 326 313 482 2,741
Basic Metal
& Products 354 794 215 129 128 945 2,565
Machinery 380 842 232 216 118 299 2,087
Food &
Beverage 254 270 109 245 127 403 1,408
Transportation 76 72 17 75 141 737 1,118
Transport
Equipment 101 531 98 68 98 68 964
Non-metallic
Minerals 257 250 40 96 81 184 908
Others 1,405 1,290 1,512 682 595 1,922 7,406
-------------- --------------
Source: Foreign Investment Commission

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

Central
Year China Amer. 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

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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)
2004 6,941 1,155 557 966 704 10,323
1952-04 41,249 15,612 8,124 7,799 10,533 83,317
-------------- --------------
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)

Cent.
Industry China Amer. U.S.A. ASEAN Others Total
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Total 41,249 15,612 8,124 7,799 10,533 83,317
Electronics
& Electrical 14,044 429 2,597 2,925 1,779 21,774
Banking
& Insurance 407 12,247 1,210 764 4,045 18,673
Services 1,428 1,111 1,169 192 652 4,552
Chemicals 2,801 68 1,099 552 144 4,664
Basic Metals
& Products 3,704 76 50 639 231 4,700
Trade 352 931 259 69 765 2,376
Plastic
Products 2,585 20 7 51 33 2,696
Food &
Beverage 1,934 2 162 254 97 2,449
Precision
Instrument 2,202 43 101 59 66 2,471
Wholesale &
Retail 734 322 774 205 425 2,460
Textiles 1,446 21 43 651 180 2,341
Non-metallic
Minerals 2,145 - 7 388 35 2,575
Others 7,467 342 646 1,050 2,081 11,586
-------------- --------------
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

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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


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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.

Warner Village Cinema Co./
Warner 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

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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
-------------- --------------
Table 9 Major European Investments in Taiwan
-------------- --------------
European Investors/Investment Major Products
-------------- --------------
Saberasu Investments Co./ asset mgt
Cerberus Asset Management Co. business

Goldman Sachs/ securities;
Goldman Sachs, Taipei Branch underwriting

Deutsche Telecom/ fixed-line
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 Electronics (Taiwan) electronics

Alcatel Co./Alcatel Taisel Co. switchboards

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 systems/
phone equipment

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Isenbourg-sgp, Lda/
RT-Mart International Ltd. shopping malls
-------------- --------------
End table.
PAAL