Identifier
Created
Classification
Origin
07TAIPEI74
2007-01-11 01:35:00
UNCLASSIFIED
American Institute Taiwan, Taipei
Cable title:  

Taiwan's 2007 Investment Climate Statement (Part I)

Tags:  EINV EFIN ECON PINR OPIC KTDB USTR TW 
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FM AIT TAIPEI
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INFO RUCPDOC/USDOC WASHDC
RUCPCIM/CIM NTDB WASHINGTON DC
RUEHBK/AMEMBASSY BANGKOK 3531
RUEHBJ/AMEMBASSY BEIJING 6189
RUEHUL/AMEMBASSY SEOUL 8383
RUEHGP/AMEMBASSY SINGAPOR 6754
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RUEHML/AMEMBASSY MANILA 9899
RUEHJA/AMEMBASSY JAKARTA 3986
RUEHKL/AMEMBASSY KUALA LUMPUR 3636
RUEHHI/AMEMBASSY HANOI 3200
RUEHBY/AMEMBASSY CANBERRA 4420
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RUEHHK/AMCONSUL HONG KONG 7421
RUEHGH/AMCONSUL SHANGHAI 0697
RUEHGZ/AMCONSUL GUANGZHOU 9878
UNCLAS SECTION 01 OF 08 TAIPEI 000074 

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 I)

REF: 06 STATE 178303

This is the first part of Taiwan's 2007 Investment Climate
Statement. The second part will follow septel.

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

UNCLAS SECTION 01 OF 08 TAIPEI 000074

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 I)

REF: 06 STATE 178303

This is the first part of Taiwan's 2007 Investment Climate
Statement. The second part will follow septel.

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


1. Taiwan officially welcomes foreign direct investment. Taiwan's
science-based industrial parks and export processing zones offer
streamlined procedures. Taiwan has made significant improvement in
protecting intellectual property.


2. 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 to
maintain security and environmental protection. Liberalization has
reduced that list to less than one percent of manufacturing
categories and less than five percent of service industries. The
latest significant liberalization took place in February of 2003
when alcohol production, agricultural production, fishing, and
animal husbandry were opened to foreign investors, although prior
approval is still required from the Taiwan authorities. To live up
to its WTO accession commitments, Taiwan opened private production
of cigarettes in 2004 without any foreign ownership limit. Railway
transport, freight transport by small trucks, pesticide manufacture,
real estate development, brokerage, leasing and trading are all
completely open to foreign investment. After its accession to the
WTO in January 2002, Taiwan started permitting imports of gasoline
and liquid natural gas (LNG) by 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 the negative list but added

single-axle truck leasing.


3. Most foreign ownership limits have been removed. Taiwan-flagged
merchant ships are subject to a foreign ownership limit of
two-thirds. The foreign ownership limit on wireless and wireline
telecommunications firms is 60%, including a direct foreign
investment limit of 49%. For the state-owned Chunghwa Telecom Co.,
which controls 97% of the fixed line telecom market, the limit on
direct and indirect foreign investment was raised from 20% to 35% in
August 2004 and to 49% in August 2006. In January 2003, Taiwan
raised the foreign ownership limit on cable television broadcasting
services from 50% to 60%, including a 20% limit on foreign direct
investment. As a result, foreign investors now control three of the
top five cable TV networks in Taiwan. A 50% 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% foreign
ownership limit on ground-handling firms, air-cargo terminals,
air-catering companies, and air-cargo forwarders was removed for
investors from WTO members in November 2001. The foreign ownership
limit on airline companies is 33%, which Taiwan plans to raise to
49% in the near future.


4. 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 use either foreign currencies
or NT dollars. In mid-2006, Taiwan authorities started permitting
NT dollar loans obtained from local banks to serve as sources of
foreign direct investment. Companies with foreign ownership below
33% are exempt from limitations on the negative list. Both the SIFN
and the SIOC specify that foreign-invested enterprises must receive

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the same regulatory treatment accorded local firms. Foreign
companies may invest in state-owned firms undergoing privatization
and are eligible to participate in publicly financed research and
development programs.


5. The Investment Commission (IC) of the Ministry of Economic
Affairs screens applications for investment, acquisitions, and
mergers. According to the IC, approximately 98% of projects with an
investment value less than NT$500 million (US$15.4 million at an
exchange rate of NT$32.5 per US$) are excluded from the negative
list; the IC estimates that approval for these projects is generally
granted within two working days at the IC 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
IC Executive Secretary and normally is granted within three working
days. Approval of investments in industries above NT$1,500 million
or on the negative list requires two weeks because those investments
must be referred to the relevant supervisory ministries and require
approval of the IC Chairman or IC Executive Secretary. Investments
involving complications such as merger and acquisition require
screening at the monthly meeting of an inter-ministerial
commission.


6. 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 the first
two years, 40% discount on rent the next two years, and 20% discount
on rent in the fifth and sixth years. A three-year development
program adopted in late 2006 has extended this incentive to December

2008. Under another incentive program, state-owned land is
available for investors rent-free for the first four years and 50%
off for the next six years. As part of its financial reform, Taiwan
encourages and provides incentives for banks, insurance companies,
securities firms, and financial holding companies to merge.


7. However, in 2005 and 2006, Taiwan authorities slashed some
investment tax incentives as a part of a tax reform designed to
reduce the fiscal deficit. A new law to levy a ten-percent
alternative minimum tax on business firms became effective in
January 2006. Since early 2005, Taiwan authorities have cut the
number of industries entitled to tax incentives by one-third and
doubled the thresholds in annual R&D expenses for tax offsets from
NT$15-20 million to NT$30-40 million. The tax credit for
procurement of automation equipment has been lowered from 11% to 7%
and that for procurement of technologies reduced from 10% to 5%.
The tax credit for projects in remote poor areas has been cut from
20% to 15%.

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


8. 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 IC. Declared earnings, capital gains, dividends,
royalties, management fees, and other returns on investments can be

TAIPEI 00000074 003 OF 008


repatriated at any time. Capital movements arising from trade in
merchandise and services, as well as frm 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.


9. An outbound investment may not exceed 40% of the investing
company's net worth or paid-in capital (whichever is less),unless
the company charter waived the 40% 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. Investments in China are subject to additional
restrictions.


10. Taiwan has 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. Taiwan has 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 China investment may not
exceed 20% of the company's net worth exceeding NT$10 billion, 30%
of net worth from NT$5 billion to NT$10 billion, and 40% of the net
worth below NT$5 billion. For investments below US$200,000, prior
approval can be issued within the same day of submitting the
application. 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.


11. Taiwan authorities have actively encouraged investment in
Southeast Asia and India. Investments are also encouraged in a
number of countries with which Taiwan has diplomatic relations,
mainly in Central America. Incentives include loans and/or overseas
investment insurance from Taiwan's Export-Import Bank.

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


12. 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% or more foreign investment can
be nationalized for a period of 20 years after the venture is
established. Expropriation can be justified only for national
defense needs and "reasonable" compensation must be given.

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


13. 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.
Investment disputes with the government are not common. Normally,
Taiwan resolves disputes according to domestic laws and
regulations.


14. Taiwan has comprehensive commercial laws, including the Company
Law, Commercial Registration Law, Business Registration Law,

TAIPEI 00000074 004 OF 008


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.


15. Taiwan's court system is generally viewed as independent and
free from overt interference by the other government branches.
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. The legislature is considering a bill to set
up special courts for intellectual property rights (IPR) cases. The
judgments of foreign courts with jurisdictional authority are
enforced in Taiwan by local courts on a reciprocal basis.

--------------
A.5 Performace Requirements and Incentives
--------------


16. All of Taiwan's performance requirements were removed in
January 2002 upon Taiwan's WTO accession. Like domestic firms,
foreign-invested companies must be located in areas zoned for
appropriate industrial or commercial use. Taiwan does not require
that firms transfer technology, locate in specified areas, or hire a
minimum number of local employees as a prerequisite to investment.


17. 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.


18. When acceding to the WTO in January 2002, Taiwan promised to
phase out industrial offset requirements (IOR) for non-military
public procurement upon signing the Government Procurement Agreement
(GPA). Even without the GPA membership, Taiwan started reducing the
IOR coverage of non-military procurements four years ago.
Currently, only railway and power generation projects are subject to
IOR. For these two categories and military procurements, a contract
of US$5 million or more triggers an offset obligation of at least
33%. In some military cases, the offset ratio has reached 70% due
to legislative pressure. Over the past 18 years since the first
industrial offset contract (IOC) was signed in 1988, Taiwan has
signed IOCs with 46 suppliers from ten foreign countries.
Commitment value of these contracts total US$6,998 million, and
realized contracts amounted to US$4,882 million. Half of the total
realized value was directed to transfer of technologies, 19% to
foreign direct investment in Taiwan, 17% to procurement from Taiwan,
6% to trade promotion, 4% to personnel training, and 3% to
assessment certification. Taiwan has published industrial offset
rules in both Chinese and English languages to which readers can get
internet access. However, some contractors still complain of lack
of transparency and predictability in setting offset requirements.

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


19. 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 firms have the same access as
state-owned companies to markets, credit, licenses, and supplies.
Taiwan authorities have eliminated state-owned monopolies in such

TAIPEI 00000074 005 OF 008


areas as power generation, oil refining, telecommunications, and
cigarette and wine production.

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


20. Over the past year, Taiwan has continued efforts to improve its
IPR legal regime and enforcement. The Intellectual Property Office
(TIPO) has set up a joint task force to conduct internet monitoring
and has coordinated with enforcement agencies to implement this
program. Taiwan has amended its Patent Law and Copyright Law to
extend the term of protection from 18 years to 20 years for some
patents and to define computer software as literary works. Taiwan
has enacted the Optical Media Law to address CD/DVD piracy problems.
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. Convicted
violators may receive prison terms of up to three years and fines of
up to NT$6 million (US$184,600). The Optical Media Law and the
Joint Optical Disk Enforcement (JODE) Task Force's night/day
inspections have led to a dramatic decrease in large-scale
production of counterfeit CD products. Taiwan passed additional
amendments to strengthen its copyright law in 2003 and 2004. These
amendments made infringement a public crime, increased penalties for
counterfeiters and made it illegal to tamper with technical
protection measures. A 2004 amendment to the Pharmaceutical Law
stiffened penalties for production, distribution and sale of
counterfeit medicines. A 2005 amendment to the Law to authorized
pharmaceutical data exclusivity for five years to prevent unfair
commercial data use.


21. Taiwan established in 2003 an Integrated Enforcement Task Force
(IETF) consisting of 220 IP police officers. The task force was
transformed in 2004 to a permanent IP police squadron. The IP
police have frequently raided retail optical media sales points to
enforce IP rights, leading to a significant decrease in the number
of vendors of counterfeit CDs and DVDs. Other enforcement measures
include increasing the reward (by ten times to NT$10 million
(US$300,000) to IPR informants for counterfeiting seizures and
setting up an anti-pirating CD export task force to strengthen
inspection of commodities entering or leaving Taiwan.


22. Taiwan's Legislature (LY) passed amendments to the Patent and
Trademark Laws in January and April of 2003 which abrogated the
administrative and legal procedures for opposing patent applications
and added voice and 3-D shapes as eligible for trademark
protection.


23. While Taiwan has improved IPR protection, transshipment of
counterfeit products from China to the United States remains a
problem. Taiwan's ranking in counterfeit goods seized by the U.S.
Customs dropped from second highest in 2002 to well below the top
ten during 2003-2004. However, an increase in transshipment of
counterfeit goods from China pushed up Taiwan's ranking back to
ninth in 2005. 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
increase the penalties for dealing in counterfeit pharmaceuticals,
enforcement remains relatively weak. Rights owners continue to
complain of slow progress in judicial cases, or poor protection on
trade dress properties, such as unregistered marks, packing
configurations, and outward appearance features.

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

TAIPEI 00000074 006 OF 008


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


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


25. Foreign investors note that in addition to tax incentives,
Taiwan's science-based industrial parks and export processing zones
have simple and transparent bureaucratic procedures for the
investment application process. Outside of these areas, the
Department of Investment Services (DOIS) is supposed to function as
the coordinator between investors and all agencies involved in the
investment process. The Investment Commission (IC) is charged with
reviewing and approving inbound and outbound investments.


26. Taiwan has simplified work-permit procedures 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.


27. Taiwan has removed the job experience requirement for
employment of foreign management professionals by global operational
headquarters and R&D centers 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.


28. 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 changed to an employment visa. A foreign executive whose
employment visa expires is not required to exit before renewing the
visa.

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


29. 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 a 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. Taiwan has
lifted restriction on residents opening bank accounts overseas.
Limits on branch banking have been lifted. (Currently, there is a
freeze on new bank branches to encourage consolidation.)
Restrictions on capital flows relating to portfolio investment have
been removed. The insurance and securities industries have been
liberalized and opened to foreign investment. Access to Taiwan's
securities markets by foreign institutional investors has also been
broadened.


30. Taiwan abolished a complicated regulatory system governing

TAIPEI 00000074 007 OF 008


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.
Subsequent registration has replaced the need for prior approval.
There is no minimum asset requirement. Investment and capital flows
are not limited. On-shore foreign investors (like other residents)
are still subject to capital flow limits of US$5 million for an
individual foreign investor and US$50 million for an unregistered
foreign company.


31. Taiwan has removed all legal limits on foreign ownership
(except PRC) in companies listed on the Taiwan Stock Exchange
(TAIEX) except for 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.


32. Taiwan has a tightly regulated banking system. Since the
mid-1980s, the financial sector as a whole has been steadily opening
to private investment. The market share held by foreign banks
remains relatively small (three percent),but will increase to ten
percent after a number of foreign investors acquired local banks in

2006. The establishment of new securities firms, banks, insurance
companies, and holding companies has underscored this liberalization
trend and enhanced competition. Over the past decade, nine
state-owned banks have been privatized. 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% to 16% of total assets of all
domestic and foreign banks. The total assets of these four public
banks were NT$4.8 trillion (US$148 billion) as of June 2006.

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


33. 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 and other protests were peacefully resolved in a short
time. There have been no reports of politically motivated damage to
foreign investment. Both local and foreign companies have, however,
been subject to protests and demonstrations relating to labor
disputes and environmental issues.

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


34. 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.


35. We are 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
several years and discounts in subsequent years. Taiwan authorities
encourage foreign investment and would take action against officials
and individuals convicted of profiting illegally from foreign
investors.

TAIPEI 00000074 008 OF 008




36. The Government Procurement Law promulgated in 1998 and amended
in February 2001 was an element of promised significant improvements
upon accession to WTO. The Public Construction Commission (PCC) now
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 now publishes
results of bidding and of inspections. A task force has been
organized to investigate complaints.


37. 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
8,720 persons for corruption, including prominent personalities, 467
senior officials (department director level and above) and 542
elected officials. Indicted elected officials included 21
legislators. In September 2006, the Taiwan High Court upheld a
district court's four-years-in-jail sentence for a former speaker of
the legislature on a charge of taking a NT$150 million (US$4.6
million) bribe. Over the past year, two deputy secretary generals
of the Presidential Office stepped down due to corruption charges.
The chairman of the Financial Supervisory Commission (FSC) was
discharged of his duties and indicted for corruption when he was a
chief executive officer of a state-owned enterprise.
Anti-corruption efforts have contributed to an increase in Taiwan's
corruption perception index compiled by the Transparency
International from 5.3 in 1998 and 5.5 in 2000 to 5.6 in 2004 and
5.9 in 2005.


38. 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 as 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 NT$3 million dollars
(US$92,300). In addition, the offender may be barred from holding
public office. The assets obtained from acts of corruption may be
seized and turned over to either the injured parties or the
Treasury.

YOUNG