In 1995, the United States trade deficit with Taiwan was $9.7 billion, $47 million larger than in 1994. U.S. merchandise exports to Taiwan in 1995 were $19.3 billion, up 13 percent from 1994. Taiwan was the United States' seventh largest export market in 1995. U.S. imports from Taiwan were $29 billion in 1995, 8.5 percent more than imports in 1994.

The stock of U.S. foreign direct investment in Taiwan was $3.9 billion in 1994, 24.1 percent more than that in 1993. U.S. direct investment in Taiwan is largely concentrated in manufacturing and banking.

In 1995, Taiwan's real GDP grew by 6.1 percent, down by less than one-half percent from 1994's 6.5 percent. Momentum behind the growth came from two sources -- brisk exports by technology/capital intensive industries -- more than 30 and 40 percent for electronic and information products, respectively -- and a substantial expansion in private domestic and foreign investment.

IMPORT POLICIES

Tariffs

Many agricultural tariffs were lowered as part of Taiwan's 1995 unilateral tariff reductions. U.S. exporters, nevertheless, consider many of the reduced tariffs as well as other agricultural tariffs to be high enough to create a significant barrier to exports. Problem areas include: Fresh fruits including grapes, pears, apples, citrus, peaches, and kiwi fruit (40-42 percent tariff), avocados (28 percent), and cranberries (23 percent); processed fruit including fruit juices (40-50 percent), figs (35 percent), canned peaches (20 percent), fruit cocktail (34 percent), and raisins (NTD 3 per kg); processed vegetables including vegetable juices (35-40 percent), frozen peas and corn (25-27 percent), frozen french fries and hash brown potatoes (17 and 32 percent); soups and broths (25 percent); breakfast cereals (25 percent); sunflower seeds and oil (21-24 percent); chocolate (15 percent); non-chocolate confectionery (30-32 percent); processed popcorn (25 percent); and ice cream (22.5 percent).

Certain industrial products are also subject to high tariffs. On automotive parts, there is an average nominal duty of 20 percent, while the effective duty and tax rates for passenger cars and trucks range from 60-100 percent. The actual duty rate for passenger cars is presently 30 percent. It is 35-42 percent for commercial vehicles. The tariffs placed on some commodities have made market access difficult, according to U.S. industry sources. The products reported as affected are home appliances (4.5-15 percent), camera film (five percent), and wine ($4.40/liter ).

In addition, U.S. agricultural exporters have increasingly reported instances in which the customs authorities on Taiwan have reclassified import items to lines with higher tariffs, often after years of trade history. This practice is most prominent in agricultural commodities, such as mixed feed stuffs, tallow and grease and intermediate ingredients. Such a practice negates some of the tariff concessions made by Taiwan.

As part of bilateral negotiations in connection with Taiwan's WTO accession application, the United States tabled in November 1993 aggressive tariff requests of Taiwan appropriate for a developed economy. During the course of 1995, Taiwan made substantive progress in agreeing to reduce upon accession the tariff level of many products of interest to the United States. As of February 1996, Taiwan and the United States had not completed bilateral WTO accession negotiations. Discussions continued, but some key areas remain unresolved.

Licensing and Restrictions

Taiwan has greatly reduced the number of imported items requiring import licenses. The percentage of import categories exempt from control was increased from 34 percent to 85 percent with the introduction of a"negative list" in July 1994 and its expansion in 1995. At present, there are 828 categories that require approval documentation from the relevant authorities for customs examination during customs clearance. Another 425 items are imported under special conditions: 138 require pro-forma notarization from local banks and 287 require import permits from the Board of Foreign Trade (BOFT).

Imports on another 239 items are restricted; they may not be imported without special permission from Taiwan authorities. Included in this category are agricultural items that can only be imported pending the agricultural authorities' prior approval (a defacto ban). Quarantine requirements also block imports of certain plant and animal products. Items under defacto bans or unreasonable quarantine restrictions include chicken (fresh and frozen), certain cuts of pork, peanuts, live dairy cattle vaccinated against brucellosis, and adzuki beans. Rice and rice products are exceptional items requiring approval from Taiwan's Provincial Food Bureau (a de facto ban). Imports of animal offal (beef, pork, and poultry), sugar, and selected dairy products are banned outright.

In addition to these bans on agricultural items, the Council of Agriculture maintains a de facto ban on the importation of fishing boats (including sport fishing boats), which has frustrated the efforts of several U.S. firms. In some cases where licenses are required, the importer may be required to obtain first theauthorization of numerous relevant agencies, such as Taiwan's Department of Health for medical equipment, the Council of Agriculture for certain fertilizers, and the Department of Environmental Protection for waste and scrap copper, aluminum, lead, and zinc. Often these additional approvals and documentary requirements add to the administrative burdens of importing the products into Taiwan or make importation effectively impossible for small exporters without the appropriate connections with the relevant authorities.

The U.S. pharmaceutical industry has reported that import licenses are not granted for certain products such as generic drugs. The industry notes that Taiwan's Department of Health and Board of Foreign Trade retain the right to cease issuing import licenses for certain pharmaceutical products that require no special manufacturing technology and can be produced locally.

These and other barriers are being discussed in the course of Taiwan's WTO accession. The United States has requested that Taiwan eliminate import bans, quotas, and other non-tariff restrictions that are prohibited by WTO rules, including the provisions on import licensing and customs valuation.

Commodity tax

The commodity tax is a domestic excise tax applied to 29 domestic and imported products. The rates range from 2-60 percent. The tax is assessed on the C.I.F. and duty-paid value of affected imports. The 29 items included rubber tires, cement, beverages, oil and gas, electric appliances, and automotive products. In January 1990, the Legislative Yuan adopted an amendment to the commodity tax law, exempting or reducing the commodity tax on 61 percent of taxable goods. Nine products previously subject to 7 to 80 percent tax rates (including cosmetics) now are exempt from those taxes. Tax rates have been reduced on another 15 categories. In contrast to these improvements, the amendment also changed the base price on which the tax is applied to domestic products from the wholesale price to the ex-factory cost. This change lowers the base price, reducing the commodity tax burden on domestic products by about 10 percent and correspondingly placing imports at a comparative disadvantage.

On a few important products, most notably autos, Taiwan imposes commodity taxes at higher rates for certain types of products not produced locally. For example, cars with engines smaller than 2,000 cc face a 25 percent commodity tax. Those with engine displacements of 2,001 cc to 3,600 cc are taxed at a 35 percent rate, and those above 3,600 cc at 60 percent. The largest locally made car has an engine displacement of 3,600cc. In addition, a license plate tax is assessed on Taiwan domestic and imported cars that also escalates by engine displacement. All products entering Taiwan are subject to a 0.5 percent harbor tax. Taiwan is once again in the process of revising its commodity tax law. The United States is seeking in the context of Taiwan's WTO accession negotiations to ensure that these changes are consistent with WTO rules.

STANDARDS, TESTING, LABELING, AND CERTIFICATION

Industrial products (such as air-conditioning and refrigeration equipment) are required to undergo testing to verify energy efficiency and capacity before clearing customs. Recent efforts to enforce compliance of some imported products with Taiwan standards have resulted in long delays at Customs for some U.S. products entering the market, as testing facilities are inadequate and testing procedures slow and inefficient.

Arbitrary enforcement or non-enforcement of existing regulations creates uncertainty for U.S. exporters. For example, the consumer protection law, which went into effect on January 11, 1994, requires-all imported products to have "Chinese language labels and instructions whose content shall not be less complete than those from the place of origin." This law is not observed in the market and not enforced, creating difficulties for firms that wish to follow the law but need to compete in the marketplace. This issue was discussed during the March 1995 meeting of the Bilateral Trade and Investment Council and is the subject of continuing discussions with the Taiwan authorities.

U.S. medical manufacturers contend that Department of Health (DOH) product registration procedures are particularly onerous because the DOH does not use quality standards such as GMP or ISO 9000 to evaluate applications. Foreign manufacturers must also re-register second or third generation versions of previously approved products. U.S. medical device manufacturers also contend that DOH regulations are not consistently applied, particularly with regard to clinical trial data requirements.

The most prevalent restrictive standards and testing requirements exist for agricultural goods. Taiwan's lack of an internationally accepted set of pesticide tolerance levels for imported fruits and vegetables sometimes impedes trade in these products. Stringent microbiological and chemical residue 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. Registration procedures for imports of pharmaceuticals, medical devices, and cosmetics are both complex and time consuming, and have been the subject of a number of complaints by U.S. firms. Taiwan will be obliged to adhere to the WTO agreement on technical barriers to trade as part of its WTO accession.

GOVERNMENT PROCUREMENT

Under current Taiwan law, all public enterprises and administrative agencies must procure locally if the Taiwan goods and services can be manufactured in Taiwan or if acceptable domestic substitutes are available. It is not possible to calculate how much more U.S. firms could sell if all public tenders in Taiwan were open to international suppliers. In the telecommunications area, to cite one example, local U.S. industry sources believe that they might be able to sell up to $100 million more per year to the Directorate General for Telecommunication (DGT) if the "buy Taiwan" policy were eliminated. U.S. Industry has also been hindered in the bidding on major projects by non-transparent procurement procedures, which include the use of invisible ceiling prices on bid tenders and unlimited potential damages and contingent liability requirements which are inconsistent with international practices. Other problems include: expensive bond requirements, short lead times on major tenders, non-transparent and lengthy warranty provisions, unclear payment requirements, pre-qualification requirements that include experience on the same type of project on Taiwan and disqualify related overseas experience, a requirement that foreign firms have a local construction license or else establish a local subsidiary in order to bid on public projects, and liberal suspension of work provisions.

The Taiwan authorities have drafted a new construction business law which would make it possible for foreign firms to obtain "Class A" construction licenses by using their overseas experience. It is uncertain when this draft law will be passed by the legislature.

The Taiwan authorities are extending the scope of offset provisions by imposing requirements for Industrial Cooperation Programs (ICPs). The ICPs require foreign vendors to propose programs that, for example, transfer technology, procure locally, or assist with marketing. A key ICP example is the "aeronautics and space industries development program", announced in 1990, which mandates industrial cooperation and aerospace technology transfer in order to receive favorable Government loan subsidies and other benefits. The development program is an acknowledged form of industrial targeting aimed at technology transfer to the Taiwan aerospace sector.

Taiwan has agreed to adhere to the WTO Government Procurement Agreement upon acceding to the WTO, a point the United States insisted on as a condition for Taiwan's WTO accession. Since April 1995, Taiwan has actively conducted bilateral negotiations concerning the procurement agreement, including with the United States. Taiwan expects to complete these negotiations by June 1996. In preparation for membership in the agreement, Taiwan has already started a radical and comprehensive reform of its procurement practices and policies, which should substantially increase U.S. export opportunities in the Taiwan procurement market. The United States is also asking Taiwan to sign the Tokyo Round Agreement on Civil Aircraft, which would, among other commitments, discipline aircraft related ICPs and other forms of government mandated aircraft offsets.

LACK OF INTELLECTUAL PROPERTY PROTECTION

In 1995, Taiwan made major strides in its continued efforts to improve the protection of intellectual property rights (IPR). Taiwan has completed the drafting of many of the revisions of laws on intellectual property rights needed to meet the requirements of the WTO agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). Further revisions to the Copyright Law, Trademark Law, and Patent Law are expected in 1996.

Taiwan has also made significant progress in IPR enforcement and education. Taiwan passed an Integrated Circuit (IC) Layout Protection Law in July 1995 and a Trade Secrets Law in December 1995. The IC Layout Protection Law protects an integrated circuit layout for ten years once it is registered with the Taiwan authorities. The law provides a grace period of six months to allow local IC manufacturers time to come into compliance with the law's provisions. The Trade Secret Law protects the method, know-how, formula, design, and/or other information that is useful in the production, sale, or management of a business.

The Protection of Computerized Individual Data Act, passed in July 1995, prevents any government or non-government entity from abusing personal data information. While passage of the Act was welcomed, U.S. business representatives in Taiwan have been concerned that some of its provisions -- such as broad requirements for disclosure and prior consent -- are unintentionally overly restrictive. Taiwan officials are working with U.S. business to mitigate adverse effects as the law is implemented.

While Taiwan has made strides in 1995 in terms of the legal structure protecting IPR, there is significant concern in the U.S. business community about Taiwan's IPR enforcement record. U.S. Customs seizures of counterfeit IP products from Taiwan in 1995 were the third largest of any economy. There was significant concern expressed about twenty major seizures by customs authorities world wide of counterfeit video game products from Taiwan.

More remains to be done in the area of CD-ROM protection. Taiwan's piracy rate for software has declined but remained in 1994 at 74 percent. Counterfeit software continues to be widely available in retail outlets in Taiwan, including some CD-ROMs containing thousand of dollars of U.S. business software. Trademark violations involving holograms used to authenticate CD packages has been a recurrent issue.

Concerns have also been raised about the contribution by Taiwan's firms to IPR piracy in the PRC.

AIT-Tecro Memorandum of Understanding

After lengthy negotiations, the United States and Taiwan are expected to sign a Memorandum of Understanding (MOU) in early 1996 to provide priority filing rights for patents and trademarks on a reciprocal basis. The United States will be the first country to have signed such an MOU with Taiwan on trademarks. Germany and Australia have signed MOUs with Taiwan on priority filing rights for patents.

Copyrights

Since the signing of the 1993 AIT(American Institute in Taiwan)-Tecro Agreement on Copyright Protection, Taiwan has reduced the production and export of pirated products, according to many U.S. industry representatives. In addition, the Executive Yuan is further revising Taiwan's Copyright Law in 1996 to conform to WTO TRIPs requirements. The Ministry of Interior (MOI) has stated in principle that Taiwan will abide by the TRIPs 50-year retroactive copyright requirement upon accession to WTO; the revised law will reflect this change. Other major changes to make the Copyright Law conform to TRIPs requirements are the inclusion of WTO-consistent definitions for public performance and broadcasting and the removal of compulsory licensing for translated works. The Executive Yuan hopes to submit the revised law to the legislative yuan for approval in 1996.

Patents

The Patent Law, as amended in 1994, established a priority filing rights system, protected microorganisms and foodstuffs, partially limited compulsory licenses to uses, and placed the burden of proof on defendants in patent infringement cases. Taiwan plans to amend the patent law again as part of its omnibus law package for WTO accession. This amendment will include several other provisions that will move Taiwan closer to conformity with WTO TRIPs requirements. The amended law will, upon Taiwan's accession to WTO, remove all discrimination against the United States and other WTO members; offer to the patent owner the right to destroy or take other compensation for pirated goods; offer early publication; and establish a domestic priority system.

Trademarks

The amended Trademark Law together with improved enforcement, such as the creation of a Trademark Export Monitoring System, have reduced the production and export of counterfeit products. In a draft revision to the Trademark Law, Taiwan intends to provide priority filing rights to other countries on a reciprocal basis in accordance with TRIPs requirements. The revision would incorporate the protection of famous trademarks; prolong the time period to 6 months for the renewal of the trademark after the expiration of protected period; and enlarge the punishment for violations.

SERVICES BARRIERS

Financial Services

Insurance: In 1995, Taiwan's Ministry of Finance (MOF) lifted a one-year representative office requirement that had been imposed on newcomers to the market. Also abolished was a requirement that representative offices first have five years of insurance business with Taiwan. These requirements had effectively kept U.S. firms without extensive prior experience in Taiwan from entering the market. The MOF also abolished in 1995 a requirement that an insurance firm be organized in the form of a company whose liability is limited to shares. Officially, a ban on foreign mutual insurance firms was also lifted.

In practice, foreign mutual insurance firms are still unable to establish in Taiwan because the MOF has not yet promulgated regulations for such firms. U.S. insurance branches are not permitted to hold real estate in their investment portfolio, a denial of national treatment.

The average time required for approval of standard products has been shortened from two months to one month. The approval process for new insurance products is still relatively time-consuming, however, discouraging the introduction of such products to the Taiwan market.

Taiwan regulations require that no more than ten percent of an insurance firm's working capital can be deposited in any one bank. Although beginning in 1995 insurance companies have been allowed a two-week adjustment period, the ten percent limit complicates accounting procedures for U.S. insurance firms and makes it difficult for them to obtain good service from local banks.

In the past, Taiwan's complicated procedures for bringing in skilled foreign personnel made it difficult for U.S. insurance firms to staff their operations adequately. Restrictions on employment for skilled foreign personnel have now been relaxed. Insurance companies are no longer required to produce a statement that they are unable to hire from the domestic labor market. They are also no longer required to advertise positions through the local media.

Taiwan imposes a fixed tariff schedule for insurance premiums and commissions. Domestic firms routinely ignore the tariff, placing U.S. branches that obey the law at a competitive disadvantage.

Banking: Taiwan has continued to make significant progress in liberalizing its banking sector. In 1994, the Taiwan authorities had lifted the ban on foreign investment in local banks, rescinded numerical and geographical limits on foreign bank branching, and removed the ceiling on NT dollar deposits that foreign banks can take. In 1995, the Taiwan authorities removed a requirement that a foreign bank's first branches could only be opened after a representative office had been open for two years. Additional branches may open after the first branch has been open for two years; previously, the minimum was five years. The authorities in 1995 raised the capital requirement for new branches to $6 million, a requirement that a number of U.S. branches find onerous although most have managed to meet it.

U.S. and other foreign and domestic banks are also subject to foreign exchange liability ceilings that are to be replaced with reserve requirements as soon as a new banking law is enacted. Pending passage of the new law, the Taiwan authorities have in practice raised the limits when foreign banks have reached or nearly reached their ceilings. Foreign and domestic banks are subject to oversold position and overbought position limits which are based on their business volumes. Oversold positions for U.S. banks, previously limited to $6 million for small banks to $10 million for large banks, were raised to the same levels as already-permitted overbought positions -- which range from $20 million for small foreign banks to 40 million for the largest ones. (Some larger local banks are permitted to have even greater overbought/oversold positions, based on their greater business volume.)

Securities: In 1994, the Taiwan authorities expanded national treatment for U.S. securities firms by lifting all restrictions on foreign ownership of domestic securities firms and shortening the two year representative office requirement to one year. The requirement to open a representative office first was abolished in 1995. U.S. securities firms can engage in the same activities as local securities firms. The Taiwan authorities, however, continue to ban foreign individuals from investing on the local stock market, although Taiwan's Securities Exchange Commission has said it plans to permit foreign individuals to make portfolio investments in early 1996. In 1995, Taiwan raised the amount foreign institutional investors can bring in from $200 million to $400 million each. A foreign institutional investor is permitted to exceed this limit by investing over 70 percent of his or her fund in equity shares and holding this investment for over one year. In 1995, Taiwan removed an overall ceiling of $7.5 billion for all foreign institutional investors. The limits on foreign ownership in a listed company were raised to 7.5 percent for each foreign investor and fifteen percent for all foreign investors together, up from 5 and 10 percent, respectively. In late December 1995, Taiwan removed all restrictions on capital flows by qualified foreign institutional investors (QFIIs). Prior to the change, a QFII could not remit the principal of its portfolio investment out of Taiwan within three months of its remittance into Taiwan; capital gains from such portfolio investments could only be remitted out of Taiwan once a year. With the implementation of the changes, a QFII can now remit in and out of its investment fund and capital gains any time it considers appropriate.

Telecommunications

New telecommunications legislation enacted in January 1996 represents a major step towards liberalization of the telecommunications sector and offers significant opportunities for U.S. business. The legislation (actually three related laws) strips the Directorate General of Telecommunications (DGT), current monopoly provider of services, of operating responsibilities and establishes a state-run operating company called China Telecommunications Company (CTC). The law also opens up the telecommunications sector to foreign investment for the first time. Implementing regulations for the law -- not yet issued as of the end of January 1996 --will clarify the management of issues such as licensing and the distribution of frequencies.

Under the new legislation, foreign investment will be allowed in the provision of certain type one services such as cellular, paging, trunking radio, and wireless data. Foreign investment shares in these services will be limited to no more than 20 percent. The new legislation allows 100 percent U.S.- and other foreign-owned firms to provide basic or type two value added network (VAN) services, i.e., voice services, information storage and retrieval, information processing, remote transactions, and electronic data interchange. The new law dropped provisions included in earlier draft legislation that would have required private international and domestic VAN providers to wait two and four years, respectively, to provide services. Also dropped from the new law were provisions which would have contained a "positive list" of allowed VAN services. The law instead allows companies to provide VANs not specifically restricted by the Ministry of Transportation and Communications (a "negative list"). The legislation prohibits a provider of type one services to use profits from such services to subsidize its VANs, a major concern of U.S. companies. The legislation does, however, allow cross-subsidization of type one services open to competition with revenues from monopoly type one services such as local, long distance, and international long distance telephone.

Passage of the telecommunications legislation opens up Taiwan's $5.34 billion market to U.S. and other foreign participation. Even more significantly, the legislation will create a vastly expanded market for all participants as consumers respond to improved services and lower prices. U.S. industry sources estimate that by the year 2000, the cellular telephone market will more than double to two million subscribers, while the paging market will double from 2.5 million to five million. The market for switching equipment and handsets for that period is estimated at $1.8 billion for cellular and $565 million for paging.

Maritime

In September 1989, Taiwan agreed to amend Article 35 of its Highway Law so that U.S. carriers would be able to own and operate trucking for land transportation of containers as part of the intermodal movement of cargo. To date legislation to this effect has not been implemented. The United States is seeking this action as part of Taiwan's schedule of service commitments under the GATS as part of its accession to the WTO.

Air Express Service

In the area of courier or air express services, U.S. industry reports that the air express facility recently established by the Taiwan authorities does not fully respond to the special requirements for the transportation and customs clearance of express shipments. U.S. companies are reluctant to use the new facility because of its high fees. Because of this obstacle, U.S. air express companies are forced to continue to operate much like the less efficient and outmoded Taiwan air freight forwarders. Other limitations listed by the U.S. industry as obstacles to expedited service include: the requirement of an original power of attorney, or a confirmed telefax of the original for all formal entries; restricted customs clearance hours; and a strictly enforced weight limit of 32 kilograms per package. U.S. industry believes that these limitations slow down and reduce business for U.S. air express companies.

Motion Pictures

Taiwan increased in June 1995 the number of prints per title which can be imported from 24 to 28, and the number of cinemas in Taipei and Kaoshiung which may show the same foreign film from 9 to 11. For all other cities and jurisdictions, the number of cinemas which may show a foreign film remains at six, according to Taiwan's information office.

Legal Services

Foreign law firms that wish to operate in Taiwan must either set up as a consulting firm or work with local law firms. Qualified foreign attorneys can, as consultants to Taiwan law firms, provide legal advice to their employers only.

Contracting

Taiwan took a positive step last year when its construction and planning administration announced that it would allow foreign construction firms to purchase more than 49 percent of an existing Taiwan "Class A" construction license holder. A new construction business law that would allow foreign contractors to use their foreign experience when applying for a new "Class A" license is pending. Contractors that are not "Class A" cannot bid on major projects. The United States is requesting that Taiwan undertake developed economy obligations and commitments under the GATS as part of Taiwan's accession to the WTO.

INVESTMENT BARRIERS

In 1995, Taiwan reduced by twenty-five percent the list of industries in which foreign investment is prohibited. Among the 54 industries originally included on the prohibited list, 13 were removed, increasing from 86 to 90 percent the share of Taiwan industries now open to foreign investment. Taiwan has removed most barriers to foreign investment, abolishing export performance and local content requirements (except in areas such as the automobile and motorcycle industries) and liberalizing earnings and capital repatriation. In 1994, power generation was opened to foreign investment. Foreign ownership limits in insurance, securities, and banks were removed although such limits remain for leasing (90 percent), mining (50 percent), shipping (33 percent), securities investment and trust companies (49 percent for all and 25 percent for single foreign investors), trust companies (40 percent for total foreign investors), and offshore future brokering firms (40 percent for all and 10 percent for single foreign investors).

Industries still effectively closed to foreign investment include agricultural production, trucking, cigarette and liquor manufacture, and defense related industries. In early 1995, Taiwan reinstalled a five year tax holiday, which had been abolished in early 1991, for all domestic investment. The coverage of tax incentives for major investment projects was expanded from the industrial sector to include some agricultural industries and the service sector. The U.S. pharmaceutical industry has complained about discriminatory treatment of foreign invested pharmaceutical companies in Taiwan. When using a third party manufacturer, a foreign invested company must submit a complex plant master file. In addition, plant master files must be submitted to the DOH for all imported pharmaceutical products. Plant master files must be re-submitted if production is shifted to other plants not on file with DOH. Industry sources report that even though these third party manufacturers are recognized by the OECD, this tedious and expensive procedure must be undertaken. Foreign invested companies with local manufacturing operations face discriminatory treatment compared to local manufacturers with regard to what products they can produce. Foreign invested firms with manufacturing operations cannot manufacture generic drugs, while Taiwan firms may produce what they wish.

ANTICOMPETITIVE PRACTICES

The Taiwan Tobacco and Wine Monopoly Bureau (TTWMB) controls the production and distribution of alcoholic beverages and tobacco produced in Taiwan. Under a 1986 bilateral agreement on beer, wine and cigarettes, U.S. exporters of those products won the right to deal directly with commercial importers and retail outlets. Further market opening measures were introduced in early 1991, when, under threat of section 301 action by U.S. producers, the Taiwan authorities unilaterally opened their market to imports of distilled spirits, except in bulk.

Tobacco market opening measures implemented in September 1994, and the destruction of seized contraband cigarettes, has helped to reduce the problem of smuggled cigarettes.

Despite such piecemeal efforts to satisfy the concerns of the United States and other trading partners, in general U.S. alcohol and tobacco producers find the Taiwan import system to be cumbersome and costly. Domestic production of beer and tobacco is fully controlled by TTWMB, although imports of these items are allowed. Repackaging of bulk alcohol imports is banned. Advertising of alcohol is restricted. On September 20, 1995, the Executive Yuan promulgated a regulation which allows limited advertising of alcoholic beverages on cable television. This regulation may be overridden, however, by a draft TTWMB administration law which would ban all broadcast media advertisement of alcohol, as well as restrict alcohol advertisement in other media.

In 1992, the Taiwan authorities announced plans to reform the TTWMB within approximately a three year period, a deadline they have now missed. The United States has also insisted that Taiwan bring TTWMB into WTO-conformity as part of Taiwan's WTO accession. The Ministry of Finance (MOF) has indicated that it will eliminate the TTWMB monopoly system. The MOF has drafted two laws to enable TTWMB reform: a tax law and an administrative law. The draft tax law on tobacco and alcoholic beverages would replace the monopoly system with taxes on tobacco products and alcoholic beverages. The draft administrative law would establish a new framework to regulate production, importation, and marketing of tobacco products and alcoholic beverages. It would also drop the ban on establishment of private brewers and distillers.