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U.S. DEPARTMENT OF STATE
TAIWAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                              TAIWAN

                     Key Economic Indicators
        (Billions of U.S. dollars unless otherwise noted)


                                     1992      1993     1994 1/

Income, Production and Employment:

Real GDP (1991 prices)              176.3     178.6     188.6
Real GDP Growth (pct.)                6.5       6.2       6.2
GDP (at current prices)             206.6     216.4     234.2
By Sector:
  Agriculture                         7.3       7.8       7.9
  Energy/Water                        5.9       6.0       6.4
  Mining/Quarrying                    1.1       1.3       0.8
  Manufacturing                      67.9      68.5      72.5
  Construction                       10.7      11.9      13.2
  Commercial Services                33.7      35.7      15.4
  Transport/Communications           13.0      13.9      15.4
  Financial Services                 39.7      43.3      49.5
  Government/Other Services          27.3      28.0      29.4
  Net Exports of Goods & Services     5.1       4.0       3.4
Real Per Capita GDP (USD - 1986 prices)
                                    8,538     8,568     8,936
Labor Force (000s)                  8,765     8,864     9,100
Unemployment Rate (pct.)              1.5       1.5       1.5

Money and Prices:  (annual percentage growth)

Money Supply (M2)                    16.6      15.1      15.0
Base Interest Rate 2/                 8.2       7.9       7.6
Personal Savings Rate                -7.4      -1.6      -2.9
Retail Inflation                      4.5       2.9       3.8
Wholesale Inflation                  -3.7       2.5       1.9
Consumer Price Index (1991 base)   104.47    107.54    111.66
Exchange Rate (Dollar/NTD) 3/
  Official                        0.03946   0.03787   0.03789
  Unofficial                      0.03964   0.03779   0.03794

Balance of Payments and Trade:

Total Exports (FOB) 4/               81.5      85.1      90.5
  Exports to U.S.                    23.6      23.6      23.9
Total Imports (CIF) 4/               72.0      77.1      83.5
  Imports from U.S.                  15.8      16.7      18.0
Aid from U.S. 5/                     43.0      34.2      26.5
Aid from Other Countries                0         0         0
External Public Debt                  0.5       0.4       0.3
Debt Service Payments (paid)          2.1       1.8       1.7
Gold and Foreign Exch. Reserves      88.3      89.3      97.0
Trade Balance                         9.5       8.0       7.0
  Trade Balance with U.S.             7.8       6.9       5.9


1/ 1994 figures are estimates based on data from the
Directorate General of Budget, Accounting and Statistics, or 
extrapolated from data available as of September 1994.
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 debt owed.  AID disbursements stopped in 1968.



1.  General Policy Framework

    Over the past four decades, Taiwan has produced one of the
world's major economic success stories, achieving annual
economic growth averaging nine percent between 1952 and 1993. 
Real gross national product (GNP) increased six percent in 1993
and is expected to expand by another six percent in 1994.  Per
capita GNP was $10,553 in 1993.  Taiwan holds foreign exchange
reserves of about $91 billion, more than any country except
Japan.  Prices rose 2.9 percent in 1993 and are expected to
rise about 3.5 percent in 1994.

    Taiwan's increasing economic prosperity has been
accompanied by a major structural transformation.  Appreciation
of the New Taiwan Dollar (NTD) and rising labor and land costs
have led many manufacturers of labor intensive products such as
toys, apparel and footwear to move offshore, mainly to
southeast Asia and mainland China.  Industrial growth is now
concentrated in capital and technology intensive industries
such as petrochemicals, computers, and electronic components,
as well as consumer goods industries such as food processing. 
Taiwan's economy continues to be export oriented, with exports
accounting for 44.5 percent of GNP.  In the past several years,
GNP growth has been driven by increases in domestic
consumption, increased public spending on infrastructure, and
private investment.

    Falling official savings and growing public expenditures
have caused public debt to increase steadily.  This has
compelled the local authorities to rely more on bonds and bank
loans to finance major expenditures.  Consequently, outstanding
public debt has climbed, fast reaching almost 109 percent of
the total central budget for Taiwan's fiscal year of 1995 (July
1, 1994 to June 30, 1995).  While defense spending still
accounts for the largest share of public expenditures, it is
falling in both absolute and relative terms.  The greatest
pressure on the budget currently comes from growing demands for
social welfare spending.

    In the course of multilateral General Agreement on Tariffs
and Trade (GATT) negotiations, Taiwan has committed to
liberalize its trading regime in many sectors:  manufactured
products, agricultural products, and services.  Taiwan hopes to
accede to the GATT and its successor organization, the World
Trade Organization (WTO), by early 1995.


2.  Exchange Rate Policy

    Taiwan has a floating exchange rate system in which bankers
and their customers set rates independently of the
authorities.  Taiwan authorities, however, control the largest

banks authorized to deal in foreign exchange.  Foreign banks
account for one-quarter of foreign exchange business, and the
number of private domestic banks obtaining permits for foreign
exchange dealing is increasing steadily.  The exchange rate has
been fairly stable at about one U.S. dollar equals 25-27 NT
dollars since the major appreciation from one U.S. dollar
equals 40 NT dollars in 1985.

    The Central Bank of China (CBC) intervenes in the foreign
exchange market when it feels that speculation or "drastic
fluctuations" in the exchange rate may impair the normal
function of the market.  Two tools the CBC uses to influence
the foreign exchange market are restrictions on banks'
overbought and oversold positions and limits on the foreign
liabilities banks can incur.  Trade-related funds flow freely
into and out of Taiwan, although the CBC maintains restrictions
on the movement of funds in capital accounts.  In the past year
the local authorities have, however, relaxed a number of
restrictions on capital account transactions.


3.  Structural Policies

    The Taiwan authorities have committed themselves to further
reducing state direction of the macroeconomy and to pursuing a
policy of privatization.  At present, however, large state-run
enterprises still account for nearly one-third of the economy. 
Electricity, water, petroleum products, transportation, sugar,
steel, the domestic production of cigarettes and alcoholic
beverages, and banking are all either partly or entirely in the
hands of state-owned firms.  To meet the goal of accession to
the GATT, the authorities said they will reduce the scope of
state control by permitting private firms to generate up to
20 percent of electricity.  A private firm has already begun to
build a naphtha cracker.

    Pricing is generally left to the private sector, but is
distorted by high tariffs on some sectors.  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.

    In March 1994, the Taiwan authorities cut tariffs on
industrial products at the behest of the United States, the
latest in a series of tariff cuts Taiwan has implemented in
recent years.  The authorities have not, however, reduced
tariffs on another 758 items requested by the United States. 
Taiwan's tariff and pricing structure on agricultural products
in particular pose obstacles for U.S. exports, with tariffs on
some agricultural goods running as high as 40-50 percent, and
imports of products such as rice, peanuts, small red beans,
sugar, chicken meat, duck parts and some pork products being
banned.  Retail food prices are higher than those that would
prevail in a more liberalized market due to high import duties,
commodity taxes on diluted fruit and vegetable juices,
protected agricultural production, and an inefficient
distribution system characterized by layers of high markups. 
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.


4.  Debt Management Policies

    Taiwan is virtually free of foreign debt.  By the end of
June 1994, Taiwan's long term outstanding external public debt
totaled $389 million, compared to gold and foreign exchange
reserves of nearly $96 billion.  These international reserves
suffice to meet Taiwan's capital requirements for 15 months of
imports.  Taiwan's debt service payment in 1993 totaled
$1.8 billion, accounting for only 1.9 percent of exports of
goods and services.  With these huge international reserves in
hand, 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 and
growing demands for domestic welfare spending.  As of June 30,
1994, the outstanding external public debt accounted for less
than one percent of the central authorities' total outstanding
public debt.

    Loans committed by the Taiwan authorities to the world
exceeded $1 billion at the end of 1993.  This number includes
credit supplied by the Ministry of Foreign Affairs and the
International Economic Cooperation Development Fund (IECDF) but
does not include credit from state-owned banks.  In 1993 and
1994, the IECDF offered low-interest loans to the Philippines
to convert Subic Bay into an industrial zone.  Through a
relending arrangement, it provided low-interest loans to
Vietnam to build highways and industrial parks and finance
small business firms' imports from Taiwan.  Taiwan has also
made contributions to the Central American Bank for Economic
Integration, European Bank for Reconstruction and Development,
and Asian Development Bank (ADB).  In addition, the ADB has
floated bonds in Taiwan.


5.  Significant Barriers to U.S. Exports

    The persistent U.S. trade deficit with Taiwan has been
steadily shrinking.  Taiwan's accession to GATT/WTO will open
markets for goods and services in which the United States is
competitive but will also remove area restrictions which
favored U.S. suppliers by restricting some other nations'
imports to Taiwan.

    Import licenses:  On July 1, 1994, Taiwan simplified its
import procedures for its 8,500 import categories by
implementing a negative list.  This list increases the
percentage of import categories exempt from controls from 34
percent to 85 percent.  There are 765 items that require
approval documentation from relevant authorities for Customs
examination during customs clearance.  Another 474 items are
imported under special conditions:  320 items require import
permits from the Board of Foreign Trade (BOFT) and 154 require
pro forma notarization by banks.  Imports are banned for 247
items, including ammunition, rice, chicken meat and some fruits
(bananas, papayas, guavas, pineapples and mangoes).

    Services Barriers:  In the past one and a half years,
Taiwan has removed many discriminatory limits on foreign
securities firms, insurance companies, and banks, including 
those affecting branching, NT dollar deposits, and scope of
business.  Remaining services barriers include:

    Financial:  The local authorities limit foreign ownership
of securities investment and trust companies, local brokerage
firms dealing in offshore futures, and local companies listed
on the Taiwan Stock Exchange (TAIEX).  Foreign individuals are
prohibited from trading in shares on the TAIEX.

    Legal:  Foreign law firms that wish to operate in Taiwan
must either set up as a consulting firm or enter into a
partnership with a local firm.

    Insurance:  Taiwan prohibits mutual insurance companies. 
Under current regulations, setting up a branch for a foreign
newcomer can be a lengthy process:  the foreign applicant must
have one year of experience in Taiwan as a representative
office before applying to become a branch, and it needs five
years of experience dealing with Taiwan before it can establish
a representative office.

    Transportation:  Taiwan does not permit foreign ocean
carriers to truck containers to their ultimate destinations on
the island.

    Telecommunications:  U.S. firms are not allowed to provide
basic or "type II" value-added network (VAN) services such as
information storage and retrieval, information processing,
remote transactions, and electronic data interchange.

    Motion Pictures:  Taiwan restricts the import of foreign
film prints to 24 per title (up from 16 as of October 1,
1994).  No more than nine theaters in any municipality may show
the same foreign film simultaneously.

    Standards, Testing, Labeling, and Certification:  Taiwan
has committed to join the GATT Code on Technical Barriers to
Trade as part of its GATT/WTO accession process.  Among the
existing requirements which particularly affect U.S. products
are those pertaining to agriculture.  Taiwan's lack of an
internationally accepted set of pesticide tolerance levels for
imported fruits and vegetables 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:  Taiwan welcomes foreign investment,
which it recognizes contributed to its development.  It is
reducing remaining investment barriers both as part of its
GATT/WTO accession process and as part of its drive to become a
regional operations center.  Foreign investment is prohibited,
however, in such industries as agriculture, basic
telecommunications, broadcasting, cigarette manufacture and
liquor distilling.  Equity participation is limited in several
other industries, including shipping, mining and securities
trading.  Local content requirements, phased out for most 
manufacturing industries, remain in place for the automobile
and motorcycle industries.  Foreign administrative personnel
are limited to no more than five per company, with the exact
number allowed dependent on business volume and the size of the
investment.  Foreign individuals are not allowed to purchase
shares on Taiwan's stock market.  An institutional investor may
invest no more than $200 million on the stock market.  A
ceiling of $7.5 billion exists for all foreign institutional
investment.  A foreign institutional investor may only remit
invested principal three months after his funds have arrived in
Taiwan.  Capital gains may only be remitted one year after
funds have arrived in Taiwan.

    Procurement Practices:  In theory, public procurement which
exceeds NTD 50 million ($1.87 million) should go through the
state-owned Central Trust of China.  However, numerous
exceptions to this policy have created a situation in which
most procurement actions (by value) are not done by the Central
Trust of China.  In addition, each agency has its own set of
procurement regulations and practices (often unwritten), making
the process cumbersome, confusing, 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.  Taiwan's Industrial Cooperation Programs (ICPs)
represent a form of offset and are becoming more prevalent. 
The ICPs require foreign vendors to propose programs that
transfer technology, procure locally, and assist with
marketing.  Taiwan has informed GATT members of its desire to
negotiate adherence in the Uruguay Round Agreement on
Government Procurement.

    Customs Procedures:  Taiwan has agreed to abide by the GATT
customs valuation code, but still uses reference prices for
certain agricultural imports.  In order to simplify customs
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
linkup.  The authorities planned to implement a similar
automated system for sea cargo in November 1994.  Importers who
open a deposit with customs can clear merchandise first and pay
tariffs later.


6.  Export Subsidies Policies

    The Taiwan authorities generally refrain from using
subsidies and tax policies to subsidize exports, but exceptions
do exist.  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
exports (produced solely by a state-run company) virtually all
go to the United States to maintain the U.S. quota for Taiwan. 
The TTWMB guarantees prices for products which are used as
materials for tobacco and alcoholic goods.  In addition, Taiwan
authorities offer guaranty prices for a part of rice and other
cereal crops produced by farmers.


7.  Protection of U.S. Intellectual Property

    Taiwan's protection of intellectual property rights (IPR)
has improved substantially in the past few years.  A series of
important laws have been passed since 1992, including revised
copyright, patent and trademark laws, a U.S.-Taiwan bilateral
copyright agreement, and a cable television law.  Together with
new legislation currently under consideration to protect
integrated circuits and trade secrets, these laws give Taiwan
an IPR legal structure consistent with GATT TRIPS text
standards.  Improved enforcement efforts, including the
establishment of computerized export monitoring systems for
computer software and trademark goods, have led to a reduction
in computer software, video, laser disc and compact disc
piracy.  Inconsistent decisions by Taiwan's trademark and
patent examiners highlight the need for better training and
more standardized examination and registration procedures.
Taiwan is on the Special 301 watch list.  Taiwan is not a
member of any major multilateral intellectual property
conventions.

    Patents:  The revised patent law replaced most criminal
penalties for patent infringement with tougher civil
penalties.  U.S. companies are concerned that, in light of
Taiwan's relatively undeveloped civil law system, penalties are
insufficient to deter infringement.

    Trademarks:  Counterfeiting of famous name products has
decreased, but remains a problem.  Taiwan's voluntary export
monitoring system for trademarked goods should help if enough
U.S. firms choose to participate.

    Copyrights:  The export of counterfeit copyrighted goods
has dropped markedly.  The unauthorized copying of computer
software and manufacture of counterfeit video games remain
problems.

    New Technologies:  Inspection and monitoring efforts by the
authorities have sharply reduced the unauthorized use of
copyrighted programming on cable television.  Taiwan courts
have not yet taken a clear position on the legality of the
retransmission of unencoded satellite signals.

    The International Intellectual Property Alliance estimated
that the piracy of software, movies, music recordings and books
in Taiwan cost U.S. companies $150 million in 1993.


8.  Worker Rights

    a.  The Right of Association

    As a democracy, Taiwan has a large number of independent
labor organizations.  Many of these organizations, however,
lack a firm legal footing and the right to demand collective
bargaining, because they are not registered under Taiwan's
Labor Union Law (LUL).  According to the LUL, all workers
(except for civil servants, teachers, and defense industry 
workers) can organize trade unions, but only after obtaining
the approval of the authorities.  The LUL forbids the emergence
of competing trade unions and confederations.  Most of the
3,654 officially registered labor unions have close relations
with management and the ruling Kuomintang (KMT) party.

    b.  The Right to Organize and Bargain Collectively

    The LUL, the Law Governing the Handling of Labor Disputes,
and the Collective Agreement Law give workers the right to
organize and bargain collectively.  These laws further
stipulate that employers may not refuse employment to, dismiss,
or otherwise unfairly treat workers on the basis of their union
membership or participation in mediation and arbitration.  In
practice, however, employers have at times ignored these laws
without suffering any legal action.  As of June 1994, 293
formal collective agreements were in force, about the same
number as in 1993.  Collective bargaining agreements exist
mainly in large-scale enterprises, which account for less than
five percent of the enterprises on Taiwan.

    c.  Prohibition of Forced or Compulsory Labor

    Under the Labor Standards Law (LSL), forced or compulsory
labor is prohibited.  Violation of the law is punishable by a
maximum jail sentence of five years.  The only reported cases
of forced labor involved prostitution.

    d.  Minimum Age of Employment of Children

    The LSL stipulates that the minimum age for employment is
15 years (i.e., after compulsory education ends).  Child labor
is rare in Taiwan.  As of October 1994, the authorities had
approved the employment of 11,915 minors between 15 and 16
years old by manufacturing industries.

    e.  Acceptable Conditions of Work

    The LSL limits the work week to 48 hours (8 hours per day,
6 days per week).  The LSL also has provisions for leave,
overtime pay, retirement pay and minimum wages.  In August of
1994, the authorities raised the minimum monthly wage by about
5 percent from the equivalent of $510 to $540.  The average
monthly wage in the manufacturing sector averaged the
equivalent of $1,110 in 1993.  In addition to wages, employers
typically provide additional payments and benefits, including
an 80 percent labor insurance premium, the distribution of
labor welfare funds, and meal and transportation allowances to
workers.

    f.  Rights in Sectors with U.S. Investment

    U.S firms and joint ventures generally abide by Taiwan's
labor regulations.  In terms of wages and other benefits, U.S.
firms tend to provide model work conditions.  Worker rights do
not vary significantly by industrial sector.  Working
conditions, however, tend to be relatively better in the
information 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--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                               (1)
Total Manufacturing                                   1,896
  Food & Kindred Products                    80
  Chemicals and Allied Products             802
  Metals, Primary & Fabricated              (1)
  Machinery, except Electrical               87
  Electric & Electronic Equipment           775
  Transportation Equipment                  (1)
  Other Manufacturing                        72
Wholesale Trade                                         454
Banking                                                 401
Finance/Insurance/Real Estate                           144
Services                                                 79
Other Industries                                        (1)
TOTAL ALL INDUSTRIES                                  3,096    

(1) Suppressed to avoid disclosing data of individual companies
Source: U.S. Department of Commerce, Bureau of Economic
Analysis

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