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TITLE:  TAIWAN ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE


                              TAIWAN

                     Key Economic Indicators
  (Billions of new Taiwan dollars (NTD) unless otherwise noted)

                                  Actual    Actual    Estimated
                                  1991      1992      1993 /1 
Income, Production,
  and Employment

Real GDP (at 1986 prices)         4,164.6   4,437.3   4,707.9
Real GDP Growth (pct.)              7.2       6.5       6.1
GDP (at current prices)           4,704.1   5,198.5   5,711.1
By Sector:
  Agriculture                       173.9     183.2     196.7
  Energy and Water                  131.5     148.4     167.8
  Mining & Quarrying                 18.6      27.5      40.0
  Manufacturing                   1,618.8   1,707.9   1,787.2
  Construction                      229.1     270.0     321.7
  Commercial Services               742.9     847.8     946.0
  Transport & Communications        289.7     326.7     366.2
  Financial Services                886.1     999.1   1,134.7
  Govt. & Other Services            613.6     688.0     750.8
Net Exports of
 Goods and Services                 237.8     128.9      97.4
Real Per Capita GDP
   (at 1986 prices) (NTD)         203,600   214,832   225,910
Labor Force (000's)               8,569     8,765     8,880
Unemployment Rate (pct.)            1.5       1.5       1.5


Money And Prices
 (Annual percentage growth)

Money Supply (M2)                  19.3      16.6      15.0
Base Interest Rate /2               9.5       8.2       7.9
Personal Savings Rate               1.5      -7.4      -0.5
Retail Inflation                    3.6       4.5       3.5
Wholesale Inflation                 0.2       1.0       2.2
Consumer Price Index (1991 base)  100.00    104.46    108.12
Exchange Rate (US$/NTD) /3
 Official                         0.03737   0.03975   0.03789
 Unofficial                       0.03730   0.03964   0.03777


Balance Of Payments And Trade
(billion U.S. dollars unless noted)

Total Exports (FOB) /4               76.2      81.5      86.3
 Exports to U.S.                     22.3      23.6      23.7
Total Imports (CIF) /4               62.9      72.0      78.3
 Imports from U.S.                   14.1      15.8      16.8
AID from U.S. ($ millions) /5        46.2      39.3      35.5
AID from other countries              0         0         0  
External Public Debt                  0.7       0.5       0.3
Debt Service Payments (paid)          1.9       2.1       1.5
Gold and FOREX Reserves              88.3      88.3      88.4
Trade Balance                        13.3       9.5       8.0
 Trade Balance with U.S.              8.2       7.8       6.9


Notes:

1/  Estimates are based on data from the Directorate General of
Budget, Accounting and Statistics, or extrapolated from data
available as of October 1993.
2/  Yearly average of the prime rate listed by the Bank of
Taiwan.
3/  Average of figures at the end of the month.
4/  Taiwan Ministry of Finance figures for merchandise trade.
5/  Outstanding debts owed.  AID disbursements stopped in 1968.



1.  General Policy Framework

    Taiwan's economy is in transition.  Such labor-intensive
industries as footwear, apparel and umbrellas that fueled the
island's earlier development have declined while capital- and
technology-intensive industries and services have grown. 
Personal savings rates, while still high, are lower than in the
past.  With per capita GDP exceeding $10,000, the people on
Taiwan can increasingly afford to emulate the lifestyles of
their counterparts in developed economies.  Satisfying the
needs of Taiwan's increasingly affluent consumers offers a
bright prospect for U.S. firms.

    Taiwan's trade flows reflect this transition.  The increase
in the volume of capital-intensive exports has offset the drop
in labor-intensive exports.  Due to large capital outflows in
1992, Taiwan ran its first balance of payments (BOP) deficit
($0.6 billion) in 12 years.  It also ran BOP deficits in the
second and third quarters of 1993.  The United States remains
Taiwan's largest trading partner, but the relative importance
of the transshipment trade to mainland China via Hong Kong is
increasing.  High tariffs and import barriers in several
sectors impede U.S. exports to Taiwan.  In response to Taiwan's
application to accede to the GATT as a separate customs
territory, a working party was established in September 1992. 
As of October 1993, the GATT working party had met four times
to discuss Taiwan's trade practices.

    Efforts by the local authorities to revive Taiwan's economy
through outlays on infrastructure have affected fiscal policy. 
In 1993, debt financing of the Six-Year (1991-1996) National
Development Plan approached statutory limits on bonded debt. 
This prompted the authorities to scale down the Plan and, for
the first time in years, to reduce the size of the regular
budget.  This reduction in the contribution to GNP by public
sector investment led the Taiwan authorities to lower their
prediction for economic growth from 7.0 to 6.2 percent for the
second half of 1993.  The Taiwan authorities hope to make
further spending possible by increasing the statutory limits
for bonded debt and by improving tax collection.  Even the
scaled-down, six-year plan, however, contains a number of major
projects that offer good prospects for U.S. vendors and
contractors.

    Partly to mitigate fiscal problems and partly in response
to complaints by political and business leaders about the
worsening local investment climate, the Central Bank of China
(CBC) relaxed its monetary policy in 1993.  In May 1993, the 
CBC began releasing savings from the Postal Savings System at
the rate of NTD 10 billion per month for one year.  These funds
are slated to promote domestic investments, particularly those
connected with the Six-Year National Development Plan.  In
September 1993, the CBC lowered reserve ratios for deposits at
commercial banks and announced its readiness to engage in open
market operations to expand the money supply.  One consequence
of the new CBC policy is that the Taiwan authorities have also
reduced somewhat restrictions on the inflow of foreign capital,
particularly that by foreign institutional investors.


2.  Exchange Rate Policy

    Taiwan has a floating exchange rate system in which bankers
and their customers independently set rates.  The Taiwan
authorities control the largest banks authorized to deal in
foreign exchange, but the number of private domestic banks
obtaining permits for foreign exchange dealing is increasing. 
In July 1993, the Taiwan authorities raised the ceiling for
foreign institutional investment from $2.5 billion to $5
billion.  In September 1993, the authorities lifted the
monopoly on the foreign exchange brokerage business.  In
October 1993, the authorities lifted the ban against converting
foreign exchange capital raised by issuing corporate bonds and
global depository receipts abroad into NTD.  The authorities
have not internationalized the NTD, however, and foreign
exchange controls still exist in the form of restrictions on
the amount of non-trade-related capital flows, ceilings on the
amount of foreign exchange liabilities that banks can incur,
and restrictions on the frequency of repatriation of capital
and earnings by foreign investors.

    Between January and October of 1993 the NTD depreciated
against the U.S. dollar from NTD 25.4 to NTD 26.88 per dollar. 
During this period, the foreign exchange reserves of the CBC
leveled off at $83.7 billion.  During 1993 the CBC occasionally
intervened in the foreign exchange market by selling U.S.
dollars to slow the depreciation of the NTD.


3.  Structural Policies

    In January 1992, the Taiwan authorities reduced tariffs on
a wide range of products.  As of October 1993, however, tariff
levels in Taiwan are still higher than levels that the
authorities promised to reach under the Trade Action Plan that
they launched in 1989.  Taiwan's tariff and pricing structures
on agricultural products in particular pose obstacles for U.S.
exports.  Tariffs on many agricultural goods run as high as 40
to 50 percent, and such products as rice, peanuts, small red
beans, sugar, chicken meat, duck parts, and some pork products
face de facto bans.  Further, a combination of high import
duties, commodity taxes on diluted fruit and vegetable juices,
protected agricultural production, and especially an
inefficient distribution system characterized by layers of high
mark-ups has generated retail food prices higher than those
that would prevail in a more liberalized market.  The Taiwan
Tobacco and Wine Monopoly Bureau (TTWMB), which has a monopoly
on the domestic production of cigarettes and alcoholic
beverages, guarantees artificially high prices for tobacco,
rice, grapes, and other products.

    Residents of Taiwan pay a tax rate that varies from 6 to 40
percent.  Nonresidents (i.e., residing in Taiwan for less than
183 days per year) pay a flat rate of 20 percent.  The maximum
tax rate for profit seeking enterprises is 25 percent.  Sales
of goods and services are subject to a five percent value added
business tax, and the average effective import duty was 5.12
percent in 1992.  To promote research and development and
further automation, the Taiwan authorities implemented the
Statute for the Promotion of Upgrading Industries in early
1991.  The Statute provides for investment tax credits and
accelerated depreciation.  The Taiwan authorities are
considering expanding the scope of the Statute to extend tax
holidays to investment in Taiwan.

    The authorities have set up the Fair Trade Commission to
thwart noncompetitive pricing systems, but state-run firms can
apply on a case-by-case basis to obtain five year exemptions
from that provision.  Large state-run enterprises account for
nearly one-third of the economy: electricity, water, petroleum
products, transportation, sugar, steel and the domestic
production of cigarettes and alcoholic beverages are all either
partly or entirely in the hands of state-owned firms.


4.  Debt Management Policies

    Taiwan is virtually free of foreign debt.  By the end of
June 1993, Taiwan's long-term outstanding external public debt
totaled $440 million, compared to its gold and foreign exchange
reserves in excess of $80 billion.  These international
reserves are sufficient to meet Taiwan's capital requirements
for 15 months of imports.  Taiwan's debt service payment in
1992 totaled $2 billion, accounting for only 2.3 percent of its
total exports of goods and services.  With these huge
international reserves, Taiwan's central authorities and
state-owned enterprises see little need to incur foreign debt,
even with the spending anticipated for the Six-Year National
Development Plan.  As of June 30, 1993 the outstanding external
public debt accounted for only three percent of the central
authorities' total outstanding public debt.  The difference
that exists between Taiwan's current foreign debt and the
authorities' statutory ceiling for such debt ($9.5 billion)
represents a large pool of funds that could be used to finance
U.S. exports.

    The Taiwan authorities have begun to supply credit to the
world.  Since its inception in 1988 as an aid agency, Taiwan's
International Economic Cooperation Development Fund has
approved $242 million in foreign loans.  In 1993, it offered
low interest loans for the Philippines to convert Subic Bay
into an industrial zone.  Through a re-lending arrangement, it
provided low interest loans to Vietnam to build highways and
finance small businesses' imports from Taiwan.  Taiwan has also
made contributions to the Inter-American Development Bank, the
European Bank for Reconstruction and Development, and the
Central American Bank for Economic Integration.  In addition,
Taiwan has permitted the Asian Development Bank to float bonds
in Taiwan.

5.  Significant Barriers To U.S. Exports

    Import Licenses:  Taiwan has continued to increase the
number of items that are exempt from import licenses.  As of
October 1993, 6,020 import items did not require a license.  Of
the 2,971 items that did require some kind of licensing, 2,201
required only pro forma import visas from commercial banks and
770 required import licenses from the Board of Foreign Trade
(BOFT).  Two hundred and twenty-three items remain banned
outright.  Of the 770 BOFT items, 78 require additional
approval by the Council of Agriculture and other agencies. 
When licenses are required, the importer often faces the
time-consuming task of obtaining additional approvals from
numerous concerned agencies.

    Following passage of the Trade Act by Taiwan's legislature
on February 14, 1993, Taiwan's trade authorities are drafting
regulations to implement a system of "negative lists" that
would reduce the number of items subject to licensing from
2,971 to no more than 800.

    Financial and Legal Services:  Foreign banks face
discriminatory limits in terms of branching and NTD
deposit-taking.  Funding limitations based on foreign banks'
local capitalization and ceilings on foreign exchange
liabilities restrict foreign banks' scope of business. 
Currently only U.S. insurance firms may establish branches in
Taiwan.  A maximum of three life and three non-life firms may
be approved each year (unused quota from one category may be
applied to the other).  Approvals for new products are lengthy
and cumbersome.  In the securities market, restrictions exist
as well.  Foreign ownership of companies listed on the Taiwan
Stock Exchange (Taiex) is limited to ten percent (no more than
five percent ownership is allowed for each institutional
investor), while foreign individuals are prohibited from
acquiring shares on the Taiex.  Foreign law firms must be
established as consulting firms or in partnerships with local
firsm.

    Motion Pictures:  Taiwan restricts the import of
non-Chinese film prints to 14 per title and the simultaneous
showing of such films to 6 theaters per municipality.

    Standards, Testing, Labelling, and Certification:  Taiwan
lacks an internationally accepted set of pesticide tolerance
levels for imported fruits and vegetables, which sometimes
impedes trade in these products.  For example, stringent
microbiological and chemical testing of imported food products
such as turkey, pork, and game meat limits imports.  Standards
on preservatives for soft drinks preclude the import of certain
beverages.  Imported agricultural goods are routinely tested
while local agricultural products usually are not.  The
authorities determine the purity of imported fruit juices using
an amino nitrogen test, a purity standard that is uniquely
stringent.

    Investment barriers:  Foreign investment is widespread and
generally welcome.  Foreign investment is prohibited in such
industries as agriculture, petroleum refining, cable
television, telecommunications, housing construction, and
cigarette and liquor manufacture.  Equity participation is 
limited in several other industries, including shipping,
mining, and securities trading.  Local content requirements,
phased out in most industries over the past several years,
remain in place for the automobile and motorcycle industries. 
Manufacturing firms in export-processing zones may sell up to
50 percent of their production on the local market after paying
import duties.  A ceiling of $5 billion exists for all foreign
institutional investment, with each individual institutional
investor being limited to $100 million.  A foreign
institutional investor can only remit capital three months
after his funds have arrived in Taiwan and can only remit
earnings once a year.

    Procurement Practices:  In theory, public procurement which
exceeds NTD 50 million ($1.87 million) must go through the
state-owned Central Trust of China.  However, numerous
exceptions to this policy have created a situation in which
most procurement (by value) is not done by Central Trust of
China.  In addition, each agency has its own set of procurement
regulations and practices (often unwritten), making the process
confusing, cumbersome, and lacking in transparency. 
Furthermore, Taiwan commissioning agencies frequently impose
unprofitable contract terms such as lengthy warranties,
unlimited potential damages and contingent liabilities, and
expensive bond requirements.  Short lead times on major tenders
further tend to restrict foreign participation.  In the form of
Industrial Cooperation Programs (ICP), the Taiwan authorities
are extending the scope of offset provisions.  The ICP require
foreign vendors to propose programs that transfer technology,
procure locally, and assist with marketing.

    Customs Procedure:  Taiwan has agreed to abide by the GATT
Customs Valuation Code.  In order to simplify procedures,
Taiwan's customs authorities have implemented an automated
clearance system for air cargo whereby firms and forwarders can
process documents with Customs by computer link-up.  The
authorities hope to implement a similar automated system for
sea cargo in 1994.  Importers who open a deposit with Customs
can clear merchandise first and pay tariffs later.


6.  Export Subsidies Policies

    Exports of rice and sugar enjoy indirect subsidies through
guaranteed purchase prices higher than world prices.  Producers
of some fruit, poultry, and livestock receive financial
assistance with packaging, storage, and shipping via marketing
cooperatives and farmers' associations.  Rice exports are
primarily humanitarian aid and the small amount of sugar
exported (produced solely by a state-run company) virtually all
goes to the United States to maintain the U.S. quota for
Taiwan.  The TTWMB provides price supports for tobacco at
prices four times higher than world market levels.


7.  Protection of U.S. Intellectual Property

    Taiwan has taken several steps in the past year to improve
its protection of intellectual property rights (IPR).  The
American Institute on Taiwan - Coordination Council for North
American Affairs (AIT-CCNAA) Bilateral Copyright Agreement, 
which Taiwan's legislature passed in April 1993, has greatly
enhanced the protection of U.S. copyright holders.  The Cable
TV Law, passed in July 1993, provides a legal basis for
regulation of the industry and for stronger enforcement actions
against stations which show copyrighted films without
authorization, a long-time problem in Taiwan.  Improved
enforcement efforts have sharply reduced the amount of pirated
and counterfeit goods available in the domestic market and have
helped decrease the amount of pirated software and compact
discs illegally exported from Taiwan.  These improvements in
IPR protection reflect efforts made by the Taiwan authorities
to implement the June 1992 AIT-CCNAA Memorandum of
Understanding (MOU) on the Protection of IPR.  Because the
authorities have not implemented some aspects of the MOU such
as passing a revised patent law, Taiwan remains on the Special
301 "Priority Watch List."  Taiwan is not a party to any
international IPR agreement but has stated its intention to
conform to international IPR standards, including those in the
Uruguay Round Agreement on the Trade Related Aspects of
Intellectual Property (TRIPs).

    Patent Issues:  Taiwan and the U.S. reached an agreement in
March 1993 on the protection of pharmaceutical and agricultural
chemical products patented in the United States prior to the
enactment of Taiwan's patent law in 1986.  Taiwan's legislature
is currently considering a draft of the revised patent law. 
AIT has expressed concern about changes made to the draft law
in legislative committee, such as allowing parallel imports of
patented goods, that would lower patent protection.

    Trademark issues:  Counterfeiting of famous name products,
while decreasing over the past several years, remains a
problem.  Taiwan has asked for and received assistance from the
U.S. Customs Service in setting up a monitoring system to
prevent the export of counterfeit trademarked products. 
Taiwan's legislature adopted a revised Trademark Law on
November 19, 1993.  In general the new law is an improvement
over the old one.  However, it reduced the maximum criminal
penalty for trademark infringement from 5 years to 3 years, a
change which concerns U.S. industry.  With the passage of the
law, Taiwan will discard its antiquated trademark
classification system and adopt the international system.

    Copyrights:  A computer software monitoring system,
established in accordance with the June 1992 MOU on IPR, has
helped to limit the export of pirated software from Taiwan,
once one of the world's primary sources of pirated computer
programs.  Similarly, the establishment of an export licensing
system for compact discs has led to a sharp reduction in
illegal compact disc exports from Taiwan.

    New technologies:  The unauthorized retransmission of
satellite signals by cable TV stations remains a problem. 
Taiwan courts have not yet taken a clear position on the
issue.  Taiwan is expected to complete draft legislation in
1994 to protect integrated circuit designs, industrial designs,
and trade secrets.

    The International Intellectual Property Alliance estimated
that the piracy in Taiwan of software, movies, music
recordings, and books cost U.S. companies $660 million in 1992.

8.  Worker Rights

    a.   Right of Association

    Taiwan's Labor Union Law (LUL) permits all workers to
organize unions except for civil servants, education personnel,
and defense industry workers.  Biased enforcement by the
authorities and antiunion measures taken by employers limit
this right.  Furthermore, the LUL and the Civic Organization
Law require all civic organizations, including labor unions, to
register.  Most of Taiwan's 3,656 officially registered labor
unions have close relations with management and the ruling
Kuomintang (KMT) Party.  The LUL restricts the emergence of
competing labor unions and confederations by permitting only
one confederation to be established in any one administrative
district.  In 1993, the authorities denied 17 unions in
Taiwan's banking sector permission to establish a national
federation.  Since the lifting of martial law in mid-1987, some
workers have defied the LUL and formed quasi-formal
federations, such as the "Taiwan Labor Front," the "Brotherhood
Alliance," and the "National Federation of Independent Labor
Unions."  Leaders of these unregistered unions can face a
maximum two-year jail sentence.

    b.   Right to Organize and Bargain Collectively

    According to the LUL, the Collective Agreements Law, and
the Law Governing the Handling of Labor Disputes, workers have
the right to organize and bargain collectively.  In practice,
however, employers reportedly fire and lock out workers who try
to exercise that right.  Legal restrictions on the right to
strike and regulations stipulating involuntary mediation and
arbitration further weaken workers' positions in collective
bargaining.  To overcome these restrictions, workers
occasionally resort to such technically illegal measures as
work-stoppages and mass leave-taking.  As of June 1993, only
294 formal collective agreements were in force.  Since only
large-scale enterprises make such agreements and less than five
percent of Taiwan's enterprises fall in this category, the
proportion of workers covered remains small.

    c.   Prohibition of Forced or Compulsory Labor

    Taiwan's Labor Standards Law (LSL) prohibits forced or
compulsory labor.  Violation of the law is punishable by a
maximum jail sentence of five years.  There are reports of
forced or compulsory labor involving prostitution.

    d.   Minimum Age of Employment of Children

    The LSL sets the minimum age for employment at 15 (i.e.,
after compulsory education ends).  As of May 1993, there were
reportedly about 9,000 child workers between the ages of 15 and
16 in manufacturing industries.

    e.   Acceptable Conditions of Work

    The LSL provides for a 48-hour work week (eight hours per
day, six days per week), leave, overtime pay, severance and
retirement pay, and a minimum wage.  On August 16, 1993, the
authorities raised the minimum monthly wage 7.97 percent from
NTD 12,365 ($461) to NTD 13,350 ($498).  In 1992, the average
industrial monthly wage was NTD 29,736 ($1,110).  In addition
to wages, employers often provide such fringe benefits as meal
and transportation allowances.  The law requires employers to
pay 70 percent of workers' insurance premiums.

    f.   Rights in Sectors with U.S. Investment

    In terms of wages and other benefits, U.S. firms generally
provide model work conditions.  Worker rights do not vary
significantly by industrial sector.  Working conditions,
however, tend to be relatively better in the textile and
electronics industries and relatively worse in the footwear and
sporting goods industries.



         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (millions of U.S. dollars)

Category                                    Amount

Petroleum                                                 D
Total Manufacturing                                   1,806
    Food & Kindred Products                    66
    Chemicals and Allied Products             608
    Metals, Primary & Fabricated                D
    Machinery, except Electrical               89
    Electric & Electronic Equipment           901
    Transportation Equipment                    D
    Other Manufacturing                        61
Wholesale Trade                                         469
Banking                                                 327
Finance and Insurance                                   158
Services                                                 59
Other Industries                                          D

TOTAL ALL INDUSTRIES                                  2,870


(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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