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Cablegate: Taiwan: 2008 Investment Climate Statement

VZCZCXRO3341
PP RUEHCN RUEHGH RUEHVC
DE RUEHIN #0076/01 0160945
ZNR UUUUU ZZH
P 160945Z JAN 08
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 7872
RUCPCIM/CIM NTDB WASHINGTON DC PRIORITY
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHBK/AMEMBASSY BANGKOK 3980
RUEHBY/AMEMBASSY CANBERRA 4723
RUEHHI/AMEMBASSY HANOI 3456
RUEHJA/AMEMBASSY JAKARTA 4199
RUEHKL/AMEMBASSY KUALA LUMPUR 3877
RUEHML/AMEMBASSY MANILA 0281
RUEHUL/AMEMBASSY SEOUL 9219
RUEHGP/AMEMBASSY SINGAPORE 7149
RUEHKO/AMEMBASSY TOKYO 9459
RUEHWL/AMEMBASSY WELLINGTON 1989
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 19 TAIPEI 000076

SIPDIS

SIPDIS

STATE PLEASE PASS USTR
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EAP/RSP/TC, EAP/EP
USTR FOR KATZ, STRATFORD AND BEHAR
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT
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TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN, AND NEW
YORK FRB MARI BOLIS

E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD TW
SUBJECT: TAIWAN: 2008 INVESTMENT CLIMATE STATEMENT

REF: STATE 158802

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

1. Taiwan officially welcomes foreign direct investment.
Taiwan,s science-based industrial parks, export processing
zones, and free trade 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. Prior approval
is required, but this requirement will be dropped for
projects with an investment below NT$8 million (U$246,000) if
legislation pending before the legislature passes into law.
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. 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 49% to 55% in December 2007. There is a 20%
limit on foreign direct investment on cable television
broadcast services, but foreign ownership of up to 60% is
allowed through indirect investment via a Taiwan entity.
Foreign investors now control three of the five largest cable
TV networks in Taiwan. Foreign ownership limits are 49.99%
for satellite television broadcasting services and piped
distribution of natural gas and 49% for high-speed railways.
A 50% foreign ownership limit remains on Taiwan-flagged
merchant ships, power transmission and distribution,
ground-handling firms, air-cargo terminals, air-catering
companies, and air-cargo forwarders. The 50% foreign
ownership limit for ground-handling firms, air-cargo
terminals, air-catering companies, and air-cargo forwarders
was removed for investors from WTO members in November 2001.
In July 2007, the foreign ownership limit on airline
companies was raised from 33.33% to 49%, with a separate
limit of 25% for any single foreign investor.

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,

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Taiwan authorities started permitting NT dollar loans
obtained from local banks to serve as sources of foreign
direct investment. Companies with foreign ownership below
one-third are exempt from limitations on the negative list.
Both the SIFN and the SIOC specify that foreign-invested
enterprises must receive the same regulatory treatment
accorded local firms. Foreign companies may invest in
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 of NT$500 million
(US$15.4 million) to NT$1,500 million (US$46.2 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 mergers and acquisitions
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 to 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 has been
extended 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 plan, Taiwan encourages and provides
incentives for banks, insurance companies, securities firms,
and financial holding companies to merge.

7. 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 (US$462
thousand to US$615 thousand) to NT$30)40 million (US$923
thousand to US$1.23 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%.


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------------------------------------
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 must be reported in advance to the
IC, but IC approval is not requited. Declared earnings,
capital gains, dividends, royalties, management fees, and
other returns on investments can be repatriated at any time.
For large transactions requiring the exchange of NT$ into
foreign currency which could potentially disrupt Taiwan's
shallow foreign exchange market, the central bank may require
the transaction to be scheduled over several days. There is
no written guideline on the size of such transactions, but
amounts in excess of US$100 million may be affected. Capital
movements arising from trade in merchandise and services, as
well as from debt servicing, are not restricted. No prior
approval is required for movement of foreign currency funds
not requiring exchange between the NT dollar and the foreign
currency. No prior approval is required if the cumulative
amount of inward or outward remittances does not exceed the
annual limit of US$5 million for an individual or US$50
million for a corporate entity.

9. Total 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 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 is NT$80 million (US$2.5 million). For large
enterprises, total 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 (US$308 - 615
million), and 40% of the net worth below NT$5 billion (US$154
million). For investments below US$200,000, approval can be
issued on 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

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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
Taiwan authorities 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, 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 official
branches. Judges are generally over-worked. In response to
complaints about the slow pace of judicial decision-making,
Taiwan authorities adopted measures in 2002 to monitor case
processing time. Simplified courts have been set up to deal
with minor cases that can be resolved quickly. The
legislature enacted a bill to set up special courts for
intellectual property rights (IPR) cases in March 2007, and
the courts are scheduled to start reviewing cases in July
2008. The judgments of foreign courts with jurisdictional
authority are enforced in Taiwan by local courts on a
reciprocal basis.

-------------------------------------------
A.5 Performance 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 to obtain 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 accede to the Government Procurement Agreement
(GPA). Taiwan also promised to phase out industrial offset
requirements (IOR) for non-military public procurement upon
signing the GPA. Taiwan has yet to accede to the GPA, but
even without GPA membership, Taiwan started reducing the IOR
coverage of non-military procurements in 2004. Currently,
only railway and power generation projects are subject to

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IOR. For these two categories, a contract of US$10 million
or more triggers an offset obligation of at least 33%. For
military procurements, the threshold is US$5 million, and the
minimum offset obligation is 40%. In some military cases,
the offset ratio has reached 70% due to legislative pressure.
Since the first industrial offset contract (IOC) was signed
in 1988, Taiwan has signed IOCs with 51 suppliers from 12
foreign countries. Commitment value of these contracts total
US$8.4 billion, and realized contracts amounted to US$5.3
billion. Forty-six percent of the total realized value was
directed to transfer of technologies, 27% to foreign direct
investment in Taiwan, 15% to procurement from Taiwan, 5% to
trade promotion, 4% to personnel training, and 2% to
assessment certification. Taiwan has published industrial
offset rules in both Chinese and English to which readers can
access online.

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

19. Private investors have the right to establish and own
business enterprises, except in a limited number of
industries involving national security and environmental
protection. Private entities can 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.

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

20. Taiwan has continued efforts to improve its IPR legal
regime and enforcement. The Intellectual Property Office
(TIPO) under the Ministry of Economic Affairs as well as
other relevant agencies have adopted programs to crack down
on Internet and physical piracy. In addition, the Ministry
of Education (MOE) announced a campus IPR action plan in
October 2007 to strengthen management of academic computer
networks and restrict illegal textbook coping by students.
Taiwan has amended laws and regulations to meet international
standards and requirements. Taiwan has also amended the
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
has established a legal framework for regulation of 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, together with effective enforcement, has led to a
dramatic decrease in large-scale production of counterfeit CD
products. Amendments to the Copyright Law in 2003 and 2004
made copyright infringement a public crime, increased
penalties for counterfeiters and made it illegal to tamper
with technical protection measures. The Pharmaceutical Law
as amended in 2004 and 2007 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 --the same data-exclusivity period as in the United
States--but U.S. original-drug manufacturers complain that
Taiwan authorities unfairly allow generic-pharmaceutical
makers to apply for a license and a Bureau of National Health
Insurance reimbursement price for their knock-off drugs even

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before the original drug's data-exclusivity period has
expired. A June 2007 amendment to the Copyright Law subjects
illegal file sharing, such as P2P, to a maximum jail term of
two years. In March 2007, Taiwan completed legislation of
the IP Court Organization Law for establishment of a
specialized IP court which is scheduled to start reviewing
cases in July 2008.

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

22. While Taiwan has improved IPR protection, transshipment
of counterfeit products from China to the United States
remains a problem. Counterfeit goods from Taiwan seized by
U.S. Customs dropped from $26.5 million in 2002 to $1.1
million in 2005. The value of seized counterfeit goods was
$1.8 million in 2006 and $2.8 million in the first half of
FY2007. In addition, Taiwan is facing a growing
Internet-based piracy threat. 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. Although counterfeit and parallel imported
pharmaceuticals are still found in the Taiwan marketplace,
the legislature passed amendments to the Pharmaceutical Law
in 2004 and 2007 to increase the penalties for dealing in
counterfeit pharmaceuticals, resulting in marked increases in
fines and jail terms over the past several years.

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

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

24. 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) functions 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.

25. 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 the
CLA to issue work permits. The work permit may be extended
indefinitely as long as the employer considers the employment
necessary.

26. 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

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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.

27. 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
--------------------------------------------- --------

28. 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 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 which limit each remittance to US$100,000. There
are no restrictions on residents opening bank accounts
overseas. Limits on branch banking have been lifted. A
freeze on new bank branches to encourage consolidation was
removed in 2007. 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.

29. Taiwan abolished a complicated regulatory system
governing foreign portfolio investment in October 2003.
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.

30. Taiwan has removed all legal limits on foreign ownership
except for investors from China in nearly all companies
listed on the Taiwan Stock Exchange (TAIEX). These
exceptions include 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.

31. 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 had been relatively small until four
foreign banks and three foreign private equity funds

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completed their acquisitions of Taiwan banks in 2007. The
market share of all foreign banks in Taiwan (including the
seven acquired by foreign investors in 2007) increased from
8% in 2006 to 15% in terms of assets in 2007, or from below
3% to nearly 7% in terms of loans. The establishment of a
number 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
Taiwan-based reinsurance company was privatized in 2002.
State-controlled banks still dominate the banking sector,
however, and hold a market share of 51% in terms of assets
and 56% in terms of loans. This share has been falling in
recent years as Taiwan has begun privatization efforts.

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

32. Taiwan is a relatively young multi-party democracy with
democratic political institutions that are still evolving.
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
------------------

33. 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.

34. 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.

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

36. 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 10,807 persons for corruption,
including prominent personalities, 632 senior officials
(department director level and above) and 623 elected

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officials. Indicted elected officials included 21
legislators. In 2006, the Taiwan High Court upheld a
district court's four-year jail sentence for a former speaker
of the legislature on a charge of taking a NT$150 million
(US$4.6 million) bribe. In 2007, prosecutors indicted a
serving minister and a vice minister for receiving bribes,
while district courts convicted another two vice ministers
with jail terms of up to 16 years.

37. 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.

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

38. 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.)

39. The terms of the 1948 Friendship, Commerce, and
Navigation Treaty between the Republic of China and the
United States are still in force, and under the terms of the
agreement 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 Washington in 2007.

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

40. 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
--------


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41. Unemployment, at just under 4%, has declined since 2002,
but is still above the 1.45% to 2.99% range in the 1990s.
Taiwan's aging population, however, has prompted greater
demand for foreign caregivers. The percentage of the
population aged 65 and above has increased from below 4% in
the 1970s to above 10% in late 2007. In response, the number
of foreign caregivers has grown to 160,000 and accounts for
45% of blue-collar foreign workers in Taiwan. In the
industrial sector, despite relaxation of employment
restrictions, the number of the sector's blue-collar foreign
workers declined 13% from 228,000 in 2000 to 197,770 in
November 2007.

42. There are no special hiring practices in Taiwan. Wages
typically include a one-month bonus at the end of a year.
Benefits often include meals, transportation, and dormitory
housing. Dividend-sharing is common among high-tech
industries. A standard labor insurance program is mandatory.
The program provides paid maternity leave, a lump-sum or
annuity retirement plan, 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 voluntary retirement at age 55 with 15 years
of service. Employees hired after July 2005 must join the
new system, with a retirement age of 60. The new system
requires employers to contribute six percent of their monthly
wage to accounts at designated banking institutions. The
accounts follow employees as they move from one employer to
another. A universal national health insurance system, to
which employers contribute, covers all Taiwan residents.

43. 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).

44. In July 2007, Taiwan raised the minimum monthly wage by
9.1% to NT$17,280 (US$532) and the minimum hourly wage from
NT$66 (US$2) to NT$95 (US$2.9). Monthly manufacturing sector
wages in the first ten months of 2007 averaged NT$43,704
(US$1,345) including overtime, allowances and bonuses.

45. 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 over the past three years. Taiwan
is not a member of the International Labor Organization (ILO)
but adheres to the ILO Conventions in protection of worker,s
rights.

---------------------------------
E. Foreign Trade Zones/Free Ports
---------------------------------

46. The first free trade/free port zone began operation at
Keelung, Taiwan,s northern port, in November 2004. Another
four were established in 2005. These four are located at

TAIPEI 00000076 011 OF 019


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

47. 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. The Central Bank of
the ROC (Taiwan) (CBT) publishes foreign direct investment
arrivals on a quarterly and yearly basis. CBT data,
contained in balance-of-payments (BOP) statistics, are not
further classified by industry or country.

48. 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 13% in
2006, driving Taiwan's 2006 real GDP growth to nearly 5%,
from 4.2% in 2005.

49. Unexpectedly strong economic performance in the second
half of 2007 prompted both domestic and foreign forecasters
to raise Taiwan's 2007 real GDP growth estimates to 5.2-5.5%.
The official estimate is 5.46%. Year-on-year export growth
increased from 7.6% in the fourth quarter of 2006 to 14.4% in
October-November 2007. Meanwhile, growth in export orders
rose from 9.6% to 17.6%, and growth in manufacturing
production accelerated from 0.5% to a three-and-a-half-year
high of nearly 15%. Most Taiwan forecasters anticipate that
Taiwan's economic growth in 2008 will slow to below 4.5%.
They believe that the U.S. sub-prime mortgage problem, as
well as higher international prices for oil and grains, will
dampen world economic performance and reduce demand for
products from the export-oriented economy of Taiwan. In the
first eleven months of 2007, approved FDI increased 20%
year-on-year to US$14 billion. Approved FDI was concentrated
in banking, trade, electronics, basic metal, and nonmetallic
products. These five categories accounted for nearly 80% of
total approved FDI.

50. 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 and 19% in 1996-2000 to 24.5% in
2001-2005 and further to 47% in 2006. Meanwhile, the
percentage share for financial services increased from 7.6%
prior to 1995 and 22% in 1996-2000 to 25.6% in 2001-2005 and
34% in 2006. Nearly 80% of the approved inbound direct
investment in Taiwan,s electronics industries came from the
United States, Europe and Japan.

51. 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). According to
official Taiwan statistics, approvals for U.S. investment
from 1952 to 2006 totaled US$15 billion (US16.1 billion
according to official U.S. figures), or 19% of total foreign
investment. Of total U.S. investment, 32% was directed
toward the electronics and electrical industries, and 44%

TAIPEI 00000076 012 OF 019


toward the service sector. Approvals for Japanese investment
amounted to US$14 billion, or 18% of total foreign
investment, of which 31% 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.

52. 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. In 2006, a
holdings transfer by the Philips Company drove down the BTA's
share to 16.5%, the United States' share to 19% and Japan's
share to 18%, while Europe's share reached 21.6%. One
quarter of the investment from the BTA was directed towards
financial services and another quarter to the electronic and
electrical industries.

53. 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 central bank, outbound direct investment has
exceeded inbound direct investment every year since 1988.
According to IC statistics, by 2006, cumulative approvals for
outbound investments totaled US$103.7 billion. The main
recipient of Taiwan investment has been China, which has
received over half of Taiwan,s outbound investment.
Approved investments in China increased by 27% in 2006 when
64% of Taiwan's new overseas investment went to China.

54. 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. Rising
labor and land costs in China have prompted some Taiwan firms
to move from China to nations in South and Southeast Asia,
including Vietnam.

56. Taiwan's annual registered direct investment across the
Taiwan Strait grew from US$1.25 billion in 1999 to US$6.0
billion in 2005 and US$7.6 billion in 2006. As a result of
this trend Taiwan factories, primarily those based in China
and Vietnam, produced nearly 50% of export orders received by
Taiwan companies, headquarters by November 2007, up from
11.5% in early 2000, and 2007 ratio reached 85% for
information technology (IT) 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 2007 reached 41%, much
higher than the 13% for the United States and 11% for the
European Union.

Table 1
Foreign Investment Approvals by Year and by Area
(1952-2006) (unit: US$ million)


TAIPEI 00000076 013 OF 019


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 491 854 659 407 237 1,618 4,267
1998 952 540 711 371 275 890 3,739
1999 1,145 514 1,216 462 161 734 4,231
2000 1,329 733 2,300 1,213 271 1,762 7,608
2001 940 685 1,397 1,184 145 778 5,129
2002 600 609 803 612 66 582 3,272
2003 687 726 920 644 45 555 3,576
2004 362 827 897 965 192 710 3,952
2005 804 724 1,094 685 104 817 4,228
2006 883 1,591 1,786 7,510 119 2,080 13,969
52-06 15,028 14,374 12,967 16,973 4,223 15,125 78,691
--------------------------------------------- ---------
Source: Investment Commission

Table 2
Foreign Investment Approvals by Industry and Area
(1952-2006) (unit: US$ million)

Central Hong
Industry U.S.A. Japan America Europe Kong
Other Total
-------- ------ ----- ------- ------ ----
----- -----

Total 15,028 14,374 12,967 16,973 4,223
15,125 78,691

Electronic Parts
and Components 1,758 1,526 1,512 5,871 53 919 11,638

Trade 1,406 1,501 1,373 1,373 421 1,486 7,561

Banking 1,102 221 1,253 2,195 367 2,407 7,544

Professional,
S&T Services 716 1,353 1,226 651 386 1,478 5,810

Electrical
Machinery 2,166 1,708 376 462 382 370 5,463

Information &
Communications 930 1,167 1,483 169 253 986 4,988

Chemicals 1,554 984 324 1,154 288 412 4,717

Financing
Investment 252 323 1,939 985 41 1,122 4,662

Transportation,
Storage and
Communications 845 135 663 170 262 1,811 3,886

Insurance 1,176 266 3 1,336 232 143 3,156

Basic Metal
Fabricating 395 798 222 129 119 907 2,569


TAIPEI 00000076 014 OF 019


Machinery Equipment 434 931 302 223 135 374
2,400

Electricity, Gas,
Water and
Construction 233 493 502 397 163 288 2,076

Hotels &
Restaurants 267 640 94 296 274 186 1,758

Foods 262 281 118 347 127 419 1,554

Securities and
Futures 357 59 125 341 82 101 1,065

Transport Equipment 102 551 115 74 98 71
1,012

Real Estate 116 176 134 137 10 146 719

Others 958 1,259 1,205 667 528 1,495 6,112

Source: Investment Commission

Table 3
Outbound Investment Approvals by Year and by Area
(1952-2006) (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. 170 429 567 387 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 3,395
1997 1,614 1,051 547 641 654 4,508
(2,720) (2,720)
1998 1,520 1,838 599 478 381 4,816
(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 1,207 8,563
(3,104) (3,104)
2004 6,941 1,155 557 966 704 10,323
2005 6,007 1,262 315 264 607 8,454
2006 7,633 1,822 485 1,065 943 11,949
1952-06 54,890 18,696 8,923 9,127 12,086 103,721
--------------------------------------------- --------
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
(1952-2006) (unit: US$ million)

Central
Industry China America U.S.A. ASEAN Other Total
-------- ----- ------- ------ ----- ----- -----


TAIPEI 00000076 015 OF 019


Total 54,890 18,696 8,923 9,127 12,086
103,721

Banking 29 9,383 713 635 3,098 13,858

Electronic
Parts and
Components 7,934 383 1,272 2,465 1,217 13,271

Information
& Communi-
cations 6,967 162 949 498 490 9,066

Financing
Investment 30 4,306 207 60 1,170 5,773

Trade 1,676 1,416 1,029 423 1,201 5,745

Electrical
Machinery 4,979 129 123 249 136 5,617

Chemicals 3,695 141 1,033 309 322 5,499

Basic Metal
Fabricating 4,295 81 96 227 228 4,927

Textiles 2,359 29 489 1,514 386 4,777

Plastics 2,770 599 413 90 441 4,312

Non-metallic
Minerals 2,711 97 202 213 241 3,465

Professional
& S&T
Services 978 807 887 74 306 3,052

Machinery 2,821 27 50 79 30 3,008

Transport
Equipment 1,903 53 173 166 363 2,657

Foods 2,087 8 51 316 120 2,582

Transport 454 173 117 269 1,356 2,369

Precision
Equipment 1,770 20 102 57 50 1,998

Paper
Products 1,141 7 16 156 46 1,365

Wood
Products 247 5 403 549 146 1,350

Leather
Products 918 107 0 60 5 1,090

Real Estate 314 83 35 44 168 644

Securities
and Futures 2 340 3 82 171 598

Insurance 202 0 0 0 34 236

Others 4,605 338 561 593 360 6,457

Source: Investment Commission

TAIPEI 00000076 016 OF 019

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./ integrated circuit
Amkor Technology Taiwan packaging and testing

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

TAIPEI 00000076 017 OF 019

GTE-Verizon
Taiwan Fixed Network Telecom fixed-line and mobile
Taiwan Cellular Corp. phone service

Carlyle Group/
Eastern Technology cable TV
Ta Chong Commercial Bank banking

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.

UPS International/ worldwide express
UPS, Taiwan Branch service

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.

Citibank/ banking
Citibank (Taiwan)
Bank of Overseas Chinese

Oaktree Capital Management Co./ golf club head &
Fu Sheng Industrial Co. compressor

Fairchild Semiconductor Co./ power management
System General Corp. products

AIU Insurance Co./ insurance
Central Insurance Co.
--------------------------------------------- --------

Table 8 Major Japanese Investments in Taiwan
--------------------------------------------- --------
Japanese Investors/Investment Major Products
------------------------------------- ----------------
Toppan Printing Co./ color filter
Toppan Electronics (Taiwan) Co. sakes and
Toppan CFI (Taiwan ) Co. production

TAIPEI 00000076 018 OF 019

Nippon Sheet Glass Co./ auto glass
Taiwan Auto Glass Industry Co. and substrate
Nippon Sheet Glass (Taiwan) glass Ltd.

Asahi Glass Co. (AGC)/
Asahi Glass (Taiwan) Co. substrate glass

NTT DoCoMo/
Far Eastone Telecom. 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. 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

Sumco Techxiv Co./ silicon wafer
Formosa Sumco Technology Co.

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

Nippon Life Insurance Co./ banking
Shin Kong Financial Holdings Co.
--------------------------------------------- --------

Table 9 Major European Investments in Taiwan
--------------------------------------------- --------
European Investors/Investment Major Products

TAIPEI 00000076 019 OF 019


------------------------------------- --------------
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/ securities
Grand Cathay Securities

Imperial Chemical Inc./ICI Taiwan Ltd. chemicals

N.V. Philips/ electronics
Philips Electronics (Taiwan)

Alcatel Co./Alcatel Taisel Co. switch boards

Horwood Investment/ petrochemicals
Chi Mei Industry Co.

H.S. Development & Finance/ChinaTrust banking
Commercial Bank

Qimonda Inc./
Inotera Co. DRAM

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

Standard Chartered Bank/ banking
Standard Chartered Bank, Taiwan

SKF Co./ ball screw,
ABBA Liner Tech Co. liner guideway

Longreach Edith Investment Co./ banking
En Tie Commercial Bank

CVC Capital/ custom-made
NienMade Enterprise Co. shutter/blinds

CMA CGM/ shipping service
CNC Line
--------------------------------------------- --------
YOUNG
YOUNG

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