Wayzata World Factbook 1996

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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