RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/165 
16 May 2006  
 
(06-2312) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
SEPARATE CUSTOMS TERRITORY 
OF TAIWAN, PENGHU, KINMEN 
AND MATSU 
 
 
 
 
This report, prepared for the first Trad e Policy Review of the Separate Customs 
Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei), has been 
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has, 
as required by the Agreement establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification from Chinese Taipei on its trade policies and 
practices. 
 
Any technical questions arising from this report may be addressed to 
Mr. Masahiro Hayafuji (tel:  022 739 5873). 
 
Document WT/TPR/G/165 contains the policy statement submitted by 
Chinese Taipei. 
 
 
 
Note: This report is subject to restricted ci rculation and press embargo until the end of the 
 first session of the meeting of the Trade Policy Review Body on Chinese Taipei. Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu WT/TPR/S/165 
 Page iii 
 
 
CONTENTS 
Page 
SUMMARY OBSERVATIONS ix 
 (1) E CONOMIC ENVIRONMENT  ix 
 (2) T RADE POLICY REGIME :  FRAMEWORK AND OBJECTIVES  ix 
 (3) T RADE POLICIES AND PRACTICES BY MEASURE  x 
 (4) T RADE POLICIES BY SECTOR  xi 
 (5) O UTLOOK  xii 
I. ECONOMIC ENVIRONMENT  1 
 (1) M ACROECONOMIC PERFORMANCE   1 
 (2) M ACROECONOMIC POLICIES   3 
 (i) Monetary and exchange rate policy  3 
 (ii) Fiscal policy  5 (3) S
TRUCTURAL POLICIES   5 
  (i) Tax reform  5 
  (ii) Financial reform  6   (iii) Corporate governance  6 
  (iv) Industrial policy  7 
  (v) Privatization  7 
 (4) D
EVELOPMENTS IN TRADE   7 
 (i) Overview  7  (ii) Composition of merchandise trade  8 
 (iii) Direction of merchandise trade  8 
 (iv) Trade in services  8  (v) Inbound and outbound direct investment 11 
 (5) P
ROSPECTS  13 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 14 
 (1) I NTRODUCTION  14 
 (2) D EVELOPMENT AND ADMINISTRATION OF TRADE POLICY  14 
 (i) Main trade laws 14  (ii) Agencies involved in trade policy implementation 14 
 (iii) Transparency 16 
 (3) T
RADE POLICY OBJECTIVES  17 
 (4) T RADE AGREEMENTS AND ARRANGEMENTS  17 
 (i) Multilateral agreements 17 
 (ii) Regional and bilateral agreements 18 
 (5) T RADE DISPUTES AND CONSULTATIONS  19 
 (i) Dispute settlement in the WTO 19 
 (ii) Other 19 
 (6) I NVESTMENT REGIME  19 
 (i) Direct investment 19  (ii) Cross-strait investment 23 
 (iii) Measures to encourage investment 23 WT/TPR/S/165 Trade Policy Review 
Page iv 
 
 
Page 
III. TRADE POLICIES AND PRACTICES BY MEASURE 25 
 (1) I NTRODUCTION  25 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  26 
 (i) Registration, documentation, and procedures 26 
 (ii) Customs valuation and rules of origin 27 
 (iii) Tariffs 28  (iv) Other charges affecting imports 39 
 (v) Import prohibitions, restrictions, and licensing 40 
 (vi) Contingency measures 41  (vii) Government procurement 43 
 (viii) State-trading activities 46 
 (ix) Countertrade 46 
 (3) M
EASURES DIRECTLY AFFECTING EXPORTS  47 
 (i) Registration, documentation, and procedures 47 
 (ii) Export taxes, charges, and levies 47  (iii) Export prohibitions, re strictions, and licensing 47 
 (iv) Export operations of state-owned enterprises 48 
 (v) Export finance, insurance, and guarantees 48 
 (vi) Export promotion and assistance 48 
 (vii) Free zones (export processing zones, science-based industrial parks and 
free-trade zones) 49 
 (4) M
EASURES AFFECTING PRODUCTION AND TRADE  50 
 (i) Taxation and tax-related assistance 50  (ii) Subsidies 52 
 (iii) Trade-related investment measures 53 
 (iv) Standards and other technical requirements 53  (v) Intellectual property rights 57 
 (vi) Privatization of state-owned enterprises 63 
 (vii) Competition policy 63 
IV. TRADE POLICIES BY SECTOR 66 
 (1) I
NTRODUCTION  66 
 (2) A GRICULTURE  66 
 (i) Overview 66 
 (ii) Border measures 67 
 (iii) Domestic measures  and support programmes 68 
 (3) E NERGY AND UTILITIES  70 
 (i) Overview 70 
 (ii) Petroleum, petroleum products, and natural gas 70 
 (iii) Electricity 72 
 (4) M ANUFACTURING  72 
 (i) Overview 72 
 (ii) Border measures 73 
 (iii) Domestic support measures 73  (iv) Main subsectors 74 
 (5) S
ERVICES  75 
 (i) Features 75  (ii) Financial services 76 
 (iii) Telecommunications and postal services 80 Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu WT/TPR/S/165 
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Page 
 (iv) Transport 82 
 (v) Tourism 84 
 (vi) Legal services 84 
REFERENCES   85 
APPENDIX TABLES  89 
 
 
 WT/TPR/S/165 Trade Policy Review 
Page vi 
 
 
 CHARTS 
Page 
I. ECONOMIC ENVIRONMENT 
 I.1 Product composition of merchandise trade, 2001 and 2004 9 
I.2 Direction of merchandise trade, 2001 and 2004 10 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 MFN tariff averages by HS section, 2002 and 2005 32 III.2 Distribution of MFN tariff rates, 2002 and 2005 33 
III.3 Tariff escalation by 2-digit ISIC industry, 2002 and 2005 36 
  
TABLES 
 
I. ECONOMIC ENVIRONMENT 
 
I.1 Performance of Chinese Taipei's economy, 2001-05 1 
I.2 GDP by major sector and service sub-sector, 2001-05 3 
I.3 Share of employment by sector, 2001-05 3 I.4 Composition of trade in services, 2001-04 11 
I.5 Inbound and outbound flows of direct investment (approval basis), by source and 
 destination, 2001-04 12 I.6 Inbound and outbound flows of direct investment (approval basis), by activity, 2001-04 12 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES  
II.1 Chinese Taipei's main trade-related laws and regulations 15 
II.2 Industries in which inbound direct investment is prohibited or restricted in Chinese Taipei 21  
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 III.1 Tax revenues, 2001-04 29 
III.2 Structure of the MFN tariff, 2001-05 31 
III.3 Summary analysis of the Chin ese Taipei's MFN tariff, 2002-05 33 
III.4 Adjustment of customs duties in 2004 (for the period 4 October 2004-3 October 2005) 37 
III.5 Commercial port dues, 2005 39 
III.6 Customs service fees and charges, 2005 40 
III.7 Anti-dumping measures in force, December 2005 42 
III.8 Procurement share by type of procedure, 1999-04 44 III.9 Procurement by origin, 1999-04 45 
III.10 Bid-challenge cases, 2002 to September 2005 46 
III.11 Government support for export promotion, 2002-05 49 III.12 Tobacco and alcohol tax, 2005 51 
III.13 Domestic standards and their equivalence to international standards, end-October 2005 54 
III.14 Commodity inspection, by type, 2000-04 56 III.15 IPRs applications and approvals, 2001-04 58 
III.16 IP cases investigated and concluded by district public prosecutors' offices, 2001-04 62 
III.17 IP adjudication findings, 2002-05 62 III.18 Enforcement statistics related to competition policy, 2001-04 65 
 
 Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu WT/TPR/S/165 
 Page vii 
 
 
Page 
IV. TRADE POLICIES BY SECTOR 
 
IV.1 Composition of agricultural production, 1999-04 67 IV.2 Taxes and fees on energy, 2005 72 
IV.3 Weighted average interest rates on deposits and loans, 2001-04 77 
IV.4 Insurance business assets, 2000-04 78 IV.5 Telecommunications market, 1997-04 81 
 
APPENDIX TABLES 
 
I. ECONOMIC ENVIRONMENT 
 
AI.1 Exports by product group, 2001-04 89 
AI.2 Imports by product group, 2001-04 91 
AI.3 Exports by destination, 2001-04 93 AI.4 Imports by origin, 2001-04 94 
 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 
AII.1 Principal notifications under WTO Agreements, end-March 2006 95 
 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
AIII.1 Tariff rate quotas and their utilization, 2004 97 AIII.2 Prohibited imports, 2005 98 
AIII.3 Imports subject to licensing, 2005 100 
AIII.4 Prohibited exports, 2005 101 AIII.5 Products subject to export licensing, 2005 103 
AIII.6 Goods subject to commodity tax, 2006 104 
AIII.7 Main intellectual property laws and regulations (as last amended), 2006 105 AIII.8 State-owned enterprises, November 2005 106 
 
 IV. TRADE POLICIES BY SECTOR 
 
AIV.1 Main laws regulating services, 2006 107 
 Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu WT/TPR/S/165 
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SUMMARY OBSERVATIONS 
 (1) E
CONOMIC ENVIRONMENT  
1. The economy of the Separate Customs 
Territory of Taiwan, Penghu, Kinmen, and 
Matsu (Chinese Taipei) has grown steadily.  Growth averaged 6.4% in the decade to 2000.  GDP declined slightly in 2001 but has since recovered, to average some 4.0% in the period 
2001-2005;  it was just over 4% in 2005, 
against the background of slower world growth together with higher energy prices and interest rates.  After recording negative rates for several years, inflation was 1.6% in 2004 and 2.3% in 2005.  The unemployment rate 
was 4.1% in 2005, down from its most recent 
peak of 5.2% in 2002.  Per capita GDP in 2005 was US$15,270, compared with US$13,090 in 2001.  Chinese Taipei's external current account surplus narrowed from a peak 
of around 10% of GDP in 2003 to 5.7% in 
2004 and 4.7% in 2005, reflecting the declining gap between domestic saving and investment.  
2. The central bank, with economic 
recovery and an increase in food and energy 
prices, began to  tighten monetary policy in 
September 2004 with a view to pre-empting inflationary expectations.  Since October 2004, the bank has raised the discount rate six times, to 2.25% in December 
2005.  According to the authorities, 
independence of the central bank has been respected, although the bank remains an agency of the government.  The exchange rate regime of Chinese Taipei involves a "managed 
float";  the bank may intervene in the event of, 
for example, significant volatility.   
3. The government's overall budget 
deficit was around 2.5% of GDP in 2004 (down from 3.5% in 2003), and overall government debt continued to increase over 
2001-05, to about 37.6% of GDP.   The 
government aims to achieve fiscal balance by 2011.     
4. Trade has played an important role in 
the economy.  The shares of imports and exports are each around 62% and 59% of 
GDP, respectively.  The surplus on merchandise trade narrowed to around 5% of GDP in 2004 and 2005, compared to over 8% 
in 2002 and 2003, while the deficit on services 
has grown to almost 2%, compared to around 1.2% on average in the previous three years.  Foreign exchange reserves have continued to increase over the past five years, to 
US$253.3 billion at the end of 2005 
(equivalent to some 15 months of merchandise imports).  Underpinned by its accession to the WTO on 1 January 2002, Chinese Taipei has substantially liberalized its trade and related regimes.  
5. Continued strong growth would 
appear to hinge on Chinese Taipei's continued implementation of trade liberalization and structural reforms, as the government recognizes.  This would improve the efficiency 
of Chinese Taipei's economy and its 
attractiveness to inbound direct investments.   
(2) T
RADE POLICY REGIME :  
FRAMEWORK AND OBJECTIVES  
6. The Separate Customs Territory of 
Taiwan, Penghu, Kinmen and Matsu (Chinese 
Taipei) acceded to the WTO on 
1 January 2002.  It is party to the plurilateral Trade Agreement on Civil Aircraft.  Main trade policy objectives of Chinese Taipei include:  active participation in the WTO;  
building bilateral and regional economic and 
trade relationships;  strengthening trade promotion activities;  and implementing trade liberalization and facilitation.  In order to achieve these objectives, Chinese Taipei seeks 
a further strengthening of the multilateral 
trading system under the WTO and to promote Chinese Taipei's linkage with its trading partners in Asia and elsewhere.  
7. Since its accession to the WTO, 
Chinese Taipei has continued to take steps to 
improve transparency.  Most laws and 
regulations are made available through government publications and websites;  legislation aimed at tr ansparent administrative 
procedures entered into force in 2001.  WT/TPR/S/165 Trade Policy Review 
Page x 
 
 
 Various anti-corruption laws have also been 
enacted.   
8. Almost all of Chinese Taipei's trade is 
on an MFN basis;  for example some 98% of 
its imports are subject to applied MFN tariffs.  
However, Chinese Taipei prohibits inbound cross-strait trade involving some 2,200 tariff lines. Chinese Taipei has started to participate in preferential trade agreements.  In 2004, a 
free-trade agreement entered into force 
between Chinese Taipei and Panama.   
9. Most sectors are open to inbound 
direct investment, if approved by the Ministry of Economic Affairs.  However, inbound direct investment is prohibited in several major 
sectors (notably, certain toxic chemicals, and 
television and broadcasting) for reasons of security and public health.  In certain other sectors, inbound direct investment requires approval by authorities other than the Ministry 
of Economic Affairs.  As regards cross-strait 
direct investment, little inbound investment has been allowed, and out bound investment, if not 
prohibited, requires the approval of the relevant Chinese Taipei authorities.  Various incentives, including tax incentives, are 
provided to encourage investment, including 
inbound direct investment. 
(3) T
RADE POLICIES AND PRACTICES BY 
MEASURE  
10. Since its accession to the WTO, the 
Separate Customs Territory of Taiwan, 
Penghu, Kinmen and Matsu (Chinese Taipei) has continued to liberalize its trade regime;  this liberalization has involved tariffs as well as non-tariff measures, such as prohibitions 
and licensing.  
11. The tariff is Chinese Taipei's main 
trade policy instrument and a significant source of tax revenue (5.8% of total taxes collected in 2004).  Most products are subject to applied MFN tariffs not higher than 10%, 
and about 31% of all tariff lines are duty free.  
In 2005, the simple average applied MFN tariff rate was 7.8%, down from 9.5% in 2002.  All tariff lines are bound and most applied 
rates coincide with bound rates, thereby imparting a high degree of predictability to Chinese Taipei's tariff;   the current average 
bound MFN rate is 8.1%, compared with the 
final bound rate of 7.7%.  Non-ad valorem duties are an element of the tariff, particularly in agriculture.  Such duties, which account for 1.8% of all lines, tend to involve high ad 
valorem equivalents.  About 130  tariff lines, 
including certain agricultural products, passenger cars and chassis, were subject to tariff rate quotas in 200 5.  Under its bilateral 
free-trade agreement with Panama, Chinese Taipei grants preferential access to imports 
from Panama, the simple average preferential 
tariff rate being 3.9%;  zero rates applied to 74.5% of all tariff lines in 2005, and are to apply to 97% of all tariff lines by 2014.  Additional charges, such as a trade promotion 
service fee and harbour service dues, are 
imposed on Chinese Taipei's imports and exports.  Harbour-service dues on domestic trade are 60% lower than those for overseas routes.  
12. Chinese Taipei’s non-tariff measures 
involve mainly prohibitions and licensing 
requirements.  Since 2002, Chinese Taipei has substantially reduced the number of products subject to these measures;  56 tariff lines are currently subject to import prohibition, and 
24 lines, including certain metal products, to 
import licensing (February 2006).  There are no quantitative import restrictions. 
13. Chinese Taipei has not used 
countervailing or safeguard measures since its 
accession to the WTO;  however, it does 
maintain anti-dumping measures on two products.  Special safeguards are applied in agriculture.   
14. In government procurement the 
relevant legislation allows a margin of 
preference to local suppliers of up to 3% and 
procuring entities may request tenderers to purchase locally produced goods.  However, these preferences appear to be little used.  Non-Chinese Taipei suppliers accounted for Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu WT/TPR/S/165 
 Page xi 
 
 
around 17% of the total value of government 
procurement in 2004 and around 11% of the total number of contracts awarded.  About 25% of all procurement is awarded through 
selective and limited tendering procedures.  
15. State trading in Chinese Taipei 
involves rice and banknote paper. 
16. Chinese Taipei maintains prohibitions 
and licensing requirements on some exports, 
mainly for security and public health reasons.  
Exports of some fish, including trout and salmon, is prohibited.  Chinese Taipei has not notified any export subsidies to the WTO.  Nonetheless, various forms of assistance, including subsidies, are provided for 
agriculture, fisheries and industrial products 
and activities.  
17. In 2005, about 25% of Chinese 
Taipei’s standards were aligned to international standards.  Non-Chinese Taipei 
test data are accepted on the basis of 
reciprocal arrangements.   
18. Chinese Taipei adopted various laws 
and regulations to ensure the protection of intellectual property rights;  it has intensified efforts to enforce laws and regulations in this 
regard.  
19. Competition policy in Chinese Taipei 
has, by and large, remained unchanged since its accession to the WTO.  Statutory monopolies exist in petroleum, electricity, 
sugar, steel, and water supply industries.  
Certain activities, such as export and import cartels, may be exempted from the application of the Fair Trade Law, if approved by the Fair Trade Commission.  Engaging in prohibited 
anti-competitive practices incurs penalties 
including imprisonment.     
(4) T
RADE POLICIES BY SECTOR  
20. Since its accession to the WTO, the 
Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei) 
has continued to pursue trade liberalization 
and structural reform, especially in the services sector, where shares in GDP and 
employment have continued to increase and labour productivity is substantially higher than the rest of the economy.  By contrast, 
there has been a relative decline in the 
contributions of agriculture to GDP and employment.   
21. Labour productivity in agriculture is 
substantially lower than elsewhere in the 
economy, and the sector receives relatively 
high border and domestic support compared with other sectors.  In 2005, the average applied MFN tariff on agricultural products (WTO definition) was 22.3% whereas that on non-agricultural products was about 5%.  The 
highest applied MFN rate in agriculture was 
1,069.9% (ad valorem equivalent of a mixed tariff) for certain rice products.  The government of the Separate Customs Territory has implemented a range of support and 
adjustment programmes for agriculture, 
including price stabilization measures for rice and sugar, and income support programmes for elderly farmers.  
22. About 98% of energy demand in 
Chinese Taipei is met by imports.  State-owned 
enterprises are among th e main suppliers in 
the petroleum and electric power generation industries.  
23. The share of manufacturing in GDP 
was about 21% in 2005, down from around 
23% in 2001.  The government provides tax 
incentives and subsidies for R&D and "newly emerging, important and strategic" industries,  which mainly include machinery and electronics.  Passenger cars and chassis are 
subject to tariff rate quotas.  Office machines, 
telecommunication equipment, and other electrical machines acc ounted for about 41% 
of Chinese Taipei's merchandise exports (in value) in 2004.  
24. The services sector was the largest 
contributor to the economy, accounting for 
about 74% of GDP in 2005.  The government has pursued various liberalization measures to facilitate domestic st ructural reform and 
provide better market access for non-Chinese WT/TPR/S/165 Trade Policy Review 
Page xii 
 
 
 Taipei firms;  such measures include the 
recent privatization of dominant carrier in telecommunications.  Postal and railway transportation services are fully owned by the 
government.  The government intends to 
proceed with further reforms, such as the privatization of state-owned banks.  The state-owned postal savings system had the largest share of deposits among all financial 
institutions in Chinese Taipei in 2004.  
Chinese Taipei's Schedule of Specific Commitments under the GATS covers about 120 of around 160 sectors.  MFN exemptions in Chinese Taipei's services commitments involve land acquisition and air 
transportation.   
(5) O
UTLOOK  
25. The economy of the Separate Customs 
Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei) appears to be on a 
steady growth path, given the ongoing 
implementation of private and public investment projects, the recovery of share prices, and upward trend in capacity utilization.  The government forecasts GDP growth of 4.25% in 2006.  However, growth 
may be adversely affected by several factors, including expected rises in world oil prices 
and U.S. interest rates, persistent fiscal deficits, further shifting overseas of Chinese Taipei's production base, and an aging 
population.  The government recognizes the 
need to continue with trade liberalization and structural reform, and attract inbound direct investment, which remains substantially lower than outbound direct investment, by further 
improving Chinese Taipei's investment 
environment.  The growing importance of cross-strait movement of goods in Chinese Taipei's economy would seem to indicate the need for further liberaliz ation of cross-strait 
traffic;  such liberalization would contribute to 
improving the efficiency of Chinese Taipei's 
economy and its attractiveness to inbound direct investment.  Of great importance to Chinese Taipei's longer-term growth prospects will be its efforts to implement structural and 
other economic reforms to boost competition;  
these reforms would include continued tax and financial reform, strengthening of corporate governance, and trade liberalization, particularly in agriculture.