Taiwan's 2007 Investment Climate Statement (Part II)

UNCLAS SECTION 01 OF 09 TAIPEI 000073 SIPDIS SIPDIS STATE PLEASE PASS USTR STATE FOR EB/IFD/OIA, EAP/RSP/TC, EAP/EP USTR FOR ALTBACH and Stratford USDOC FOR 3132/USFCS/OIO/EAP/WZARIT TREASURY FOR OASIA/LMOGHTADER TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN E.O. 12958: N/A TAGS: EINV EFIN ECON PINR OPIC KTDB USTR TW SUBJECT: Taiwan's 2007 Investment Climate Statement (Part II) REF: 06 STATE 178303 This is the second part of Taiwan's 2007 Investment Climate Statement. The first part has been sent septel. -------------- ¶B. Bilateral Investment Agreements -------------- ¶39. Taiwan has concluded bilateral investment guaranty agreements with the following 26 countries: Argentina, Belize, Burkina Faso, Costa Rica, Dominica, El Salvador, Guatemala, Honduras, India, Indonesia, Liberia, Malaysia, Macedonia, the Marshall Islands, Nicaragua, Nigeria, Panama, Paraguay, the Philippines, Saudi Arabia, Senegal, Singapore, Swaziland, Thailand, Malawi, and Vietnam. In addition, there is an agreement to guaranty Taiwan's investment in Malawi and other agreements to protect U.S. investment in Taiwan (see next paragraph). (An agreement with Latvia signed in 1992 was revoked in August 2004.) ¶40. Under the terms of the 1948 Friendship, Commerce, and Navigation Treaty with the United States, U.S. investors are generally accorded national treatment and are provided with a number of protections, including protection against expropriation. Taiwan and the United States also have an agreement, signed in 1952, pertaining to investment guarantees that serve as the basis for the U.S. Overseas Private Investment Corporation (OPIC) program in Taiwan. In September 1994, representatives of the United States and Taiwan signed a bilateral Trade and Investment Framework Agreement (TIFA) to serve as the basis for consultations on trade and investment issues. Consultations on a bilateral investment agreement between the United States and Taiwan began in 1996, and the latest round took place in Taipei in 2006. -------------- -- ¶C. OPIC and Other Investment-Insurance Programs -------------- -- ¶41. OPIC programs are available to U.S. investors, though U.S. investors have never filed an OPIC insurance claim for an investment in Taiwan. Taiwan is not a member of the Multilateral Investment Guaranty Agency. -------------- ¶D. Labor -------------- ¶42. 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, network-related technology, and telecommunications engineering. To address this issue, Taiwan has removed the job experience requirement for foreigners with graduate degrees and relaxed restrictions on hiring foreign students or recent graduates as interns. 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 authorities to restrict employment of foreign workers, reducing foreign workers in Taiwan by eight percent between 2000 and 2003. Economic expansion in 2004 prompted Taiwan authorities to slightly relax restrictions and foreign workers in Taiwan rose 4.6% to 314,034 persons in 2004 and 4.2% to 327,396 persons in 2005. ¶43. 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. TAIPEI 00000073 002 OF 009 Dividend-sharing is common among high-tech industries which, however, will be reduced in response to foreign portfolio investors' request. A standard labor insurance program is mandatory. The program provides maternity, retirement, and other benefits. A new retirement system implemented in July 2005 abolishes the voluntary retirement scheme under an old system which still covers 30% of total employment population. The old system grants employees with voluntary retirement at age of 55 years and a length of service of 15 years. Employees hired after July 2005 must join the new system with the retirement age being 60. The new system requires employers to contribute six percent of their monthly wage to accounts at designated banking institutions. The accounts follow employees transferred from one employer to another. A universal national health insurance system covers all employees and their families. ¶44. Taiwan provides unemployment relief based on the Employment Insurance Law enacted in 2002. Alternatives for unemployment pay include vocational training allowance for jobless persons and employment subsidies to encourage employment of jobless persons. The Labor Standards Law (LSL) sets a standard eight-hour workday and a biweekly maximum of 84 hours. Legislation adopted in late 2000 set a five-day workweek for the public sector, effective January ¶2001. Over half of private firms have adopted the five-day workweek. The LSL restricts child labor and requires employers to provide overtime pay, severance pay, and retirement benefits. The LSL covers both manufacturing and service sectors. Violators are liable to criminal penalties (jail terms) and administrative punishments (fines). ¶45. The minimum wage is set at NT$15,840 (US$487) per month. Current manufacturing sector wages average NT$43,958 (US$1,353). 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 eight years, the minimum wage has not been adjusted. ¶46. Labor unions have become more active and independent since Taiwan's martial law was lifted in 1987. Privatization and the new retirement system contributed to an increase in labor disputes in ¶2005. Taiwan is not a member of the International Labor Organization (ILO) but generally adheres to the ILO convention in protection of worker's rights. -------------- ¶E. Foreign Trade Zones/Free Ports -------------- ¶47. The 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 Taoyuan International Airport and the international harbors in Kaohsiung, Taichung, and Taipei. Taiwan authorities have relaxed restrictions on movement of merchandise, capital and personnel into and out of such zones. Foreign investors are accorded national treatment. -------------- ¶F. Foreign Direct Investment Statistics -------------- ¶48. Statistics on foreign direct investment in Taiwan are available from two sources. The Investment Commission (IC) publishes monthly and yearly foreign investment approval statistics by industry and by country. Taiwan's 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. TAIPEI 00000073 003 OF 009 ¶49. In 2005, excess inventory worldwide (particularly electronic products) caused Taiwan's export growth to decline to a single-digit rate from over 20% in 2004. Taiwan's private investment declined in 2005 after over 30% growth in 2004. Consequently, Taiwan's real GDP growth slowed from 6.1% in 2004 to 4.0% in 2005. ¶50. In 2006, strong recovery of Taiwan's export sector far offset adverse effects of delinquent credit/cash card debt problems which dampened private consumption in the first half of the year. Growth in exports, which account for over 60% of Taiwan's GDP, accelerated from 8.8% in 2005 to 12% in the first quarter and further to 19% in the third quarter. Taiwan authorities estimate economic growth for 2006 will rise to 4.4%, and private investment will grow in the second half of the year. In 2006, approved FDI in the first ten months nearly tripled over the same period of 2005 to US$11.23 billion. Approved FDI so far this year was concentrated in electronics, banking, science and technology services, and trade. These four categories accounted for nearly 90% of total approved FDI. ¶51. Approved direct investment in electronics industries (including communications, semiconductor, TFT-LCD and other optical electronic projects) increased from 6.4% of total approved FDI prior to 1995 to 19% in 1996-2000 and further to 24.5% in 2001-2005. Meanwhile, the percentage share for financial services increased from 7.6% prior to 1995 to 22% in 1996-2000 and 25.6% in 2001-2005. Sixty percent of the approved inbound direct investment in Taiwan's electronics industries came from the United States, Europe and Japan. ¶52. The United States and Japan used to be the two main sources of Taiwan's foreign investment, but have been replaced by the tax havens in the British Territories in America (BTA),which harbor a growing number of multinational corporations (many with roots in Taiwan). Approvals for U.S. investment from 1952 to 2005 totaled US$14 billion, or 22% of total foreign investment. Of total U.S. investment, 33% was directed toward the electronics and electrical industries, and 42% toward the service sector. Approvals for Japanese investment amounted to US$13 billion, or 20% of total foreign investment, of which 28% was in electronics and electrical industries and 34% in the service sector. In 2006, new EU investment exceeded that of the United States or Japan due to a major holdings transfer by the Philips Company. ¶53. Approvals for investment from the BTA surged steadily from US$76 million in 1994 to US$1.2 billion in 1999 when the BTA surpassed the United States and Japan to become the largest source of foreign investment in Taiwan. Investment from the BTA during 1999-2005 accounted for 27% of total approved investments, compared to 18% from the United States, another 18% from Europe, and 15% from Japan. One-quarter of the investment from the BTA was directed towards financial services and another quarter to the electronic and electrical industries. ¶54. 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 every year since ¶1988. According to IC statistics, by 2005, cumulative approvals for outbound investments totaled US$92 billion. One of the main recipients of Taiwan investment has been China, which has received over half of Taiwan's outbound investment. Approved investments in China increased by 19% in 2003, and 51% in 2004, but declined 13% in ¶2005. In recent years, over 70% of Taiwan's new overseas investment has gone to China. TAIPEI 00000073 004 OF 009 ¶55. Taiwan business firms started to relocate their production bases to China in the late 1980s. Production lines in China gradually shifted from cheap labor-oriented industries in the late 1980s to products requiring lower-end technologies, such as PCs and motherboards, in the early 2000s. The WTO accession of China and Taiwan in 2002 prompted Taiwanese business firms to accelerate relocation to China to sharpen their competitive edge in exports. Taiwan factories based in China use the lower labor and land costs to process Taiwan-made production inputs into finished goods for exports to such industrial markets as the United States, Japan and Europe and also for final sale in China. ¶56. Taiwan's annual registered direct investment across the Taiwan Strait grew from US$1.25 billion in 1999 to US$6.94 billion in 2004 and US$6.0 billion in 2005. As a result of this trend China-based Taiwan factories produced over 40% of export orders received by Taiwan companies' headquarters by December 2005, up from 11.5% in early 2000, and the 2005 ratio exceeded 70% for electronic firms. Greater China (China plus Hong Kong) replaced the United States as Taiwan's largest export market in 2001, and Greater China's share of Taiwan's exports in the first 11 months of 2006 reached 40%, much higher than the 15% for the United States and 11% for the European Union. Table 1 Foreign Investment Approvals by Year and by Area (1952-2005) (unit: US$ million) Central Hong Year U.S.A. Japan America Europe Kong Other Total -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 52-89 3,067 2,983 341 1,312 1,198 2,049 10,950 1990 581 839 66 283 236 297 2,302 1991 612 535 60 165 129 277 1,778 1992 220 421 37 165 213 405 1,461 1993 235 278 38 214 169 279 1,213 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 2005 804 459 1,094 947 104 820 4,228 52-04 14,146 12,514 11,181 9,687 4,106 13,089 64,723 -------------- -------------- Source: Investment Commission Table 2 Foreign Investment Approvals by Industry and Area (1952-2005) (unit: US$ million) Centr. Hong Industry U.S.A. Japan Ameri. Eur. Kong Other Total -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total 14,146 12,514 11,181 9,687 4,106 13,089 64,723 Trade 1,320 1,326 1,231 1,216 390 1,226 6,709 Electronics 1,597 1,380 1,053 1,478 51 803 6,362 Electrical Machinery 2,159 1,704 305 461 382 348 5,359 Banking 915 208 1,191 796 360 1,524 4,994 Professional S&T Services 635 1,244 1,051 540 382 1,098 4,950 TAIPEI 00000073 005 OF 009 Chemicals 1,529 921 314 1,108 287 402 4,561 Transportation & Comm. 845 135 649 161 259 1,802 3,851 Inform & Tech 875 407 1,244 114 231 838 3,709 Food & Financing Investment 168 109 1,597 129 27 986 3,016 Insurance 1,116 266 3 1,137 232 140 2,894 Metal Prod. 388 779 203 128 118 897 2,513 Machinery 393 918 271 218 129 362 2,291 Others 2,206 3,117 2,069 2,201 1,258 2,663 13,514 -------------- -------------- Source: Investment Commission Table 3 Outbound Investment Approvals by Year and by Area (1952-2005) (unit: US$ million) Central Year China America U.S.A. ASEAN Others Total -------------- -------------- -------------- -------------- -------------- -------------- -------------- 1952-89 n.a. 76 865 429 155 1,525 1990 n.a. 170 429 567 386 1,552 1991 174 268 298 720 370 1,830 1992 247 239 193 309 146 1,134 1993 1,140 194 529 434 504 2,801 (2,028) (2,028) 1994 962 569 144 398 506 2,579 1995 1,093 370 248 326 413 2,450 1996 1,229 809 271 587 498 3,394 1997 1,615 1,051 547 641 655 4,509 (2,720) (2,720) 1998 1,519 1,838 599 478 381 4,815 (515) (515) 1999 1,253 1,359 445 522 943 4,522 2000 2,607 2,248 862 389 1,578 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 2005 6,007 1,262 315 264 606 8,454 1952-05 47,256 16,874 8,439 8,063 11,140 91,772 -------------- -------------- Source: 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 (1952-2005) (unit: US$ million) Centr. Industry China Amer. U.S.A. ASEAN Others Total -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total 47,256 16,874 8,439 8,063 11,139 91,772 Banking & Finance 29 9,229 713 635 3,097 13,703 Electronics 6,356 200 1,244 1,762 1,204 10,766 Inform & Tech 5,828 161 937 486 473 7,885 Trade 1,363 1,226 972 274 1,121 4,956 Electrical Machinery 4,315 119 121 221 124 4,900 Chemicals 3,147 140 818 278 284 4,667 Textiles 2,194 25 488 1,478 377 4,562 Metal Products 3,852 77 76 212 222 4,439 Plastics 2,550 598 411 68 438 4,065 TAIPEI 00000073 006 OF 009 Financing Invest. 30 3,064 106 39 546 3,785 Non-metallic Mineral Products 2,324 97 202 213 241 3,077 S&T Services 746 801 853 74 274 2,748 Machinery 2,433 26 50 75 21 2,605 Transport Equip. 1,762 53 168 156 352 2,491 Food Processing 1,987 3 51 313 120 2,474 Precision Instr. 1,346 20 97 57 47 1,567 Others 6,994 1,035 1,132 1,722 2,199 13,082 -------------- -------------- Source: 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: Investment Commission Note: Taiwan ceased to compile statistics on technical cooperation with foreign companies in 1996. Businesses have not been required to report technical cooperation projects to the IC 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 0 36 Transport Equipment 20 2 8 1 31 Others 101 20 27 10 149 -------------- -------------- Source: Investment Commission Table 7 Major U.S. Investors in Taiwan -------------- -------------- U.S. Investor/ Local Investment Major Products -------------- -------------- Amkor Technology Ltd./ Amkor Technology Taiwan (Lungtan) IC packing TAIPEI 00000073 007 OF 009 Ltd. Amkor Technology Taiwan (Linkou) Ltd. AIG/ Yageo Corp. electronic components Far East Air Transport Corp. airlines Nan Shan Life Insurance Co. insurance Pruco Insurance Group/ Masterlink Securities Co. securities Corning Inc./ substrate 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/ Eastern Technology cable TV Ensite Limited (Ford Motor)/ Ford Lio Ho Motor Co. autos Texas Instruments Inc. Texas Instruments Taiwan Ltd. semiconductor AMOCO Chemical Corp./ China American Petrochemical Co. petrochemicals E.I. Dupont De Nemours/ industrial, electronic, Dupont Taiwan Ltd. agricultural goods IBM Corp./ computers: IBM Taiwan Ltd. sales and service AETNA Life Insurance Co./ Taiwan Branch insurance View Sonic Co./ mobile phone service Taiwan PCS Network Inc. Warner Village Cinema Co./ Warner Village Cinema (Taiwan) Co. movie theaters 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 Motors Co./ auto assembly & Yulon GM Motor Co. sales GE Consumer Finance/ banking Cosmos Bank Jabil Circuit Inc./ telecom components Taiwan Green Point Enterprise Co. -------------- -------------- Table 8 Major Japanese Investments in Taiwan -------------- -------------- TAIPEI 00000073 008 OF 009 Japanese Investors/Investment Major Products -------------- -------------- Toppan Printing Co./ Toppan Electronics (Taiwan) Co. color filter Toppan CFI (Taiwan ) Co. sales and production Nippon Sheet Glass Co./ Taiwan Auto Glass Industry Co. auto glass Nippon Sheet Glass (Taiwan) Ltd. substrate glass Asahi Glass Co. (AGC)/ Asahi Glass (Taiwan) Co. substrate glass NTT DoCoMo/ KG Telecommunication Co phone service Taiwan Shinkansen Corp./ Taiwan High Speed Rail Corp. high speed rail Nissan Motor/Yulon Motor autos Toyota Motor/Kuozui Motor autos Matsushita Electronic Co./ electrical Matsushita Electronic (Taiwan) Co., Ltd. appliances Hitachi Co./ electrical Taiwan Hitachi Co., Ltd. appliances and Kaohsiung Hitachi electronics Co., Ltd. components Yamaha Motor Co., Ltd./ Yamaha Motor Taiwan Co., Ltd. motorcycles 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 Mitsui Mining & Smelting Co./ Taiwan Copper Foil Co. copper foil Kirin Brewery Co./ Taiwan Kirin Co. beer sales Nomura Securities/ banking Taishin Financial Holdings Shinsei Bank/ banking Jih Sun Financial Holdings TAIPEI 00000073 009 OF 009 -------------- -------------- Table 9 Major European Investments in Taiwan -------------- -------------- European Investors/Investment Major Products -------------- -------------- Saberasu Investments Co./ assets Cerberus Asset Management Co. management 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. switch boards 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./ Inotera Co. DRAM Siemens Telecommunications Systems Ltd. switch systems & phone equipment Isenbourg-sgp, Lda/ RT-Mart International Ltd. shopping malls Standard Chartered Bank/ banking Hsinchu International Bank -------------- -------------- YOUNG