Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu WT/TPR/S/165 
 Page 1 
 
 
I. ECONOMIC ENVIRONMENT 
(1) MACROECONOMIC PERFORMANCE  
1. The economy of the Separate Customs Terr itory of Taiwan, Penghu, Kinmen, and Matsu 
(Chinese Taipei) has grown steadily.  Between 1991 a nd 2000, the average annual growth rate of real 
GDP was about 6.4%.  After negative growth, for th e first time, in 2001, the economy recovered to 
steady growth, and in 2004 real GDP grew by 6.1% (Table I.1).  The main components of demand that contributed positively to real GDP growth in 2004 included private fixed investment and private 
consumption;  net inflow of trade in goods and services contributed negatively to growth.  In 2005, 
growth was just over 4%, against the background of slower world growth and higher energy prices 
and interest rates.  The inflation rate was 1.6%  in 2004, after recording negative rates for several 
years, and reached 2.3% in 2005.  The unemploym ent rate decreased from 4.4% in 2004 to 4.1% in 
2005, after a recent peak of 5.2% in 2002.  Per capita GDP in 2005 was about US$15,270, compared 
with about US$14,270 in 2004 and US $13,090 in 2001.  As regards the external sector, Chinese 
Taipei's current account surplus d ecreased from 5.7% of GDP in 2004 to around 4.7% in 2005 (from a 
peak of around 10% in 2003), reflecting the narro wing gap between domestic saving and domestic 
investment. 
Table I.1 
Performance of Chinese Taipei's economy, 2001-05  
 2001 2002 2003 2004 2005 
Real economy (% change)      
Real GDP (2.2) 4.3 3.4 6.1 4.1 
Domestic demand (4.8) 1.7 0.8 7.0 1.7 
Private consumption 0.7 2.3 0.9 3.9 3.0 
Government consumption 0.5 2.1  0.6 (0.5) 0.7 
Fixed capital formation (19.9) (0.6) (0.9) 17.5 0.5 
Private (26.8) 4.1 (0.3) 31.0 (1.3) 
Government (6.4) (12.8) (1.1) (5.7) (0.3) 
Public enterprises 1.4  (1.3) (4.1) (18.2) (17.2) 
Real exports of goods and services (8.1) 10.5 10.9 14.8 (6.9) 
Real imports of goods and services (13.5) 5.7 6.7 18.6 3.2 
Nominal GDP per capita (US$) 13,093 13,163 13,327 14,271 15,271 
Unemployment rate 4.6 5.2 5.0 4.4 4.1 
Interest rates (discount rate of the central bank) 2.125 1.625 1.375 1.75 2.25 
 (year-on-year rate of change) 
M1B (end of year) 11.9 9.3 19.3 12.4 6.8 
Inflation (consumer prices) -0.0 -0.2 -0.3 1.6 2.3 
 (per cent of GDP) 
Saving-investment       
Gross capital formation 18.4 17.5 17.4 21.5 20.2 
Gross domestic savings 24.6 26.1 27.6 27.2 25.7 
Fiscal balance      
Revenue 19.2 17.5 17.4 18.3 .. 
Table I.1 (cont'd) WT/TPR/S/165 Trade Policy Review 
Page 2 
 
 
 2001 2002 2003 2004 2005 
Expenditure 23.4 21.0 21.4 20.8 .. 
Government overall balance (3.8) (3.5) (3.5) (2.5) .. 
Government overall debt 31.3 31.7 34.7 36.1 37.6 
Balance of payments      
Merchandise trade (US$ b illion) 19.88 24.2 24.9 16.1 18.0 
(% of GDP) 6.8 8.2 8.3 5.0 5.2 
Services trade (US$ billion) (4.6) (3.1 ) (2.5) (4 .9) (6.5) 
(% of GDP) (1.6) (1.1) (0.8) (1.5) (1.9) 
Exports of goods and services (% of GDP) 48.7 51.4 55.6 61.8 62.0 
Imports of goods and services (% of GDP) 43.4 44.2 48.1 58.3 58.7 
Current account balance (US$ billion) 18.3 25. 6 29.3 18.5 16.4 
Current account (% of GDP) 6.3 8.7 9.8 5.7 4.7 
GDP (NT$ billion) 9,862.2 10,194.3 10,138.6 10,770.4 11,131.6 
GDP (US$ billion) 291.7 294.8 299.8 322.2 345.9 
Foreign exchange reserves (US$ billion:  end of 
year) 122.2 161.7 206.6 241.7 253.3 
Population (million persons) (end of year) 22.4  22.5 22.6 22.7 22.8 
.. Not available. 
Note: Parenthesis indicate negative figures. 
Source:  Information provided by the Chinese Taipei authorities.  
2. The merchandise trade surplus was equivalent to  some 5.2% of GDP in 2005 (compared with 
5% in 2004 and a recent peak of 8. 3% in 2003).  In contrast, services trade was in deficit, equivalent 
to about 2% of GDP (1.5% in 2004);  the servi ces trade deficit decreased between 2001 and 2003, 
when it was equivalent to about 0.8% of GDP.  Fo reign exchange reserves have continued to increase 
over the past five years, amounting to US$253.3 billion at the end of 2005 (equivalent to 15.0 months of merchandise imports
1), up from US$122.2 at the end of 2001 (14.3 months of imports).  
Underpinned by its accession to the WTO on 1 January  2002, Chinese Taipei has generally resisted 
protectionist pressures and substantially liberalized its trade and related regimes. 
3. Over the past five years, the shares of servi ces in GDP and total employment have continued 
to grow, mainly at the expense of agriculture and manufacturing (Tables I.2 and I.3).  The growth of services' share in GDP has occurred mainly in wholesal e, retail, and catering;  and banking, insurance, 
and real estate.  Agriculture accounts for a ge nerally declining share of GDP and employment
2;  
labour productivity remains low in agriculture  compared with manufacturing and services. 
                                                      
1 Based on trade statistics provided by the authorities of Chinese Taipei. 
2 Agriculture's share in GDP increas ed slightly between 2004 and 2005, from 1.7% to 1.8%.  The share 
of manufacturing in GDP increased slightly in 2002, and its share in employment increased slightly in 2004 and 2005. Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu WT/TPR/S/165 
 Page 3 
 
 
Table I.2 
GDP by major sector and service sub-sector, 2001-05 
(per cent) 
 2001 2002 2003 2004 2005 
Agriculture 1.9 1.8 1.7 1.7 1.8 
Manufacturing 22.7 23.1 22.5 22.0 21.1 
Construction 2.6 2.2 1.8 1.7 1.6 
Electricity, gas and water 2.0 2.0 1.9 1.7 1.6 
Services 70.5 70.7 71.8 72.7 73.6 
Wholesale, retailing & cater ing 18.3 18.4 18.6 19.6 20.4 
Transport, storage & communication 6.5 6.5 6.3 6.5 6.4 
Banking, insurance & real estate 19.0 18.9 19.3 19.2 19.2 
Professional, scientific & techni cal services 2.3 2.3 2.3 2.4 2.4 
Educational services 1.8 1.8 1.9 1.9 1.9 
Health care and social welfare services 2.9 3.0 3.0 3.0 3.1 
Government services 11.4 11.2 11.7 11.4 11.3 
Other services 8.3 8.6 8.7 8.7 8.9 
Source: Information provided by the Chinese Taipei authorities. 
Table I.3 
Share of employment by sector, 2001-05 
('000 persons and per cent) 
 2001 2002 2003 2004 2005 
Employment 9,383 9,454 9,573 9,786 9,942 
Agriculture 7.5 7.5 7.3 6.6 5.9 
Industry 36.0 35.2 34.8 35.2 35.8 
Mining 0.1 0.1 0.1 0.1 0.1 
Manufacturing 27.6 27.1 27.1 27.3 27.4 
Construction 8.0 7.7 7.3 7.5 8.0 
Utilities 0.4 0.4 0.4 0.4 0.3 
Services 56.5 57.3 57.9 58.2 58.3 
Trade and accommodation and eating-dr inking places 23.5 24.0 23.8 23.8 23.7 
Transportation 5.2 5.0 5.1 5.0 4.8 
Other services 27.8 28.3 29.0 29.4 29.8 
Source:  Information provided by the Chinese Taipei authorities.  
(2) MACROECONOMIC POLICIES  
(i) Monetary and exchange rate policy 
4. The central bank formulates and implements monetary policy by regulating money supply 
mainly through open market operations and by changing discount rates.3  The relevant legislation 
stipulates that the bank's primary objectives include  promoting financial stability, maintaining the 
stability of the internal and external value of cu rrency, and fostering econom ic development within 
the scope of these stated objectives. 
                                                      
3 All banks that hold reserve accoun ts with the central bank have access to the discount window;  a 
bank may apply for discounts by sending the eligible  bills (e.g. banker's accepta nces, trade acceptances, and 
promissory notes collateralized against Treasury bills or government bonds) to the central bank to secure the WT/TPR/S/165 Trade Policy Review 
Page 4 
 
 
5. Against the background of economic recovery at  the beginning of 2004 and a gradual increase 
in food and energy prices since the third quarter of 2004, the bank began to tighten its monetary policy in September 2004, as decided in its board m eeting in the same month, with a view to pre-
empting inflationary expectations.  The bank has ra ised the discount rate six times since October 2004 
(from 1.375% to 1.625% on 1 October 2004), to 2. 25% on 23 December 2005.  The bank has also 
increased "issued rates" of its certificates of de posit (CDs) and negotiable certificates of deposit 
(NCDs) in tandem with the raising of discount rat es, as it considers that the issued rates play an 
important role in guiding market rates.
4 
6. According to the authorities, the government of the Separate Customs Territory has respected 
the independence of the central bank in making m onetary policy, as stipulated in the relevant 
legislation, although the bank remains an agency  under the government.  The decision-making body 
of the bank is the board of directors,  which consists of 11 to 15 members.5  Five to seven of these 
directors comprise the execu tive board of directors. 
7. Chinese Taipei's exchange rate regime involves a "managed float".  In pr inciple, the exchange 
rate of the currency, the NT dollar, is determined  by market forces;  the central bank may, however, 
intervene in the market if "the supply and demand for non-Chinese Taipei currencies is distorted by 
seasonal or irregular factors" (for example, larg e and sudden short-term capital movements, or 
significant volatility).6  The nominal exchange rate of the NT dollar against the U.S. dollar has 
gradually appreciated since October 2002, when the monthly average of the nominal exchange rate 
was NT$34.95 to the U.S. dollar.  In 2002, the av erage rate was NT$34.58 to the U.S. dollar;  the 
average for 2005 was NT$32.17 to the U.S. dollar.  The NT dollar hit a recent peak at NT$31.16 per 
U.S. dollar in March 2005.  On the other hand, the real effective exchange rate (REER) of the 
NT dollar, according to the Taipei Foreign Ex change Market Development Foundation, has been  
depreciating, perhaps because the appreciation of th e NT dollar against the U.S. dollar was less than 
that of other currencies in the basket (e.g. Japanese yen and euro).7 
8. Residents in Chinese Taipei may hold and use proceeds from exports or make payments for 
imports without restriction.  Chinese Taipei retain s certain regulations imposed on remittances related 
to capital account transactions for prudential reaso ns.  Since 30 April 2003, the limits for annual 
foreign exchange settlements by residents and fo r each transaction by non-residents have been 
abolished.  Remittances not involving the convers ion of NT dollars and remittances involving the 
conversion of NT dollars relating to merchandise and services trade as well as to portfolio or direct 
investments are not subject to any restrictions.8 
                                                                                                                                                                     
loan, or apply for short-term accommodation by drawing pr omissory notes payable to the bank.  The bank can 
also change required reserve ratios and thereby change the ability of the banking system to extend credit or 
loans.  The authorities indicate that this policy measure is rarely adopted. 
4 For example, the rate on 30-day  certificates of deposit has increased from 1.05% in September 2004 
to 1.45% (February 2006).  CDs and NCDs are the ma in instruments for the central bank open market 
operations 
5 The governor of the central bank  is the chairperson of the board of directors.  The governor is 
responsible, inter alia,  for executing decisions made by the board.  The governor is appointed for a term of 
five years and may be reappointed.  The central bank is responsible for issuing bank notes and coins. 
6 In the event of such distortions, the central bank can intervene at its discretion. 
7 The REER indexes (where the average in 2000 = 100) were 93.0 in December 2002, 
88.6 in December 2003, 92 .3 in December 2004, and 90.4 in December 2005. 
8 For remittances relating to other transactions (involving the conversion of NT dollars), central bank 
approval is required for total annual remittances ex ceeding US$50 million by a company, total annual 
remittances exceeding US$5 m illion by an individual or an associa tion, and a single remittance exceeding 
US$100,000 by a non-resident. Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu WT/TPR/S/165 
 Page 5 
 
 
9. Chinese Taipei is a member of the Asian Development Bank, the Central American Bank for 
Economic Integration, and the Conference of Gove rnors of South East Asian Central Banks.  In 
addition, the central bank participates in activiti es of the Inter-American Development Bank, the 
European Bank for Reconstruction and Developmen t, and the Bank for International Settlements.9 
(ii) Fiscal policy 
10. In 2003, government expenditures rose by 2.9% , mainly owing to increases in spending on  
public works (e.g. involving community developm ent and environmental protection) under the 
"Public Works Expansion Program";  subsidies for e ducation, medical care, and social welfare;  and 
expenditure on civil servant insu rance programmes under the "Public Service Employment Program".  
The government's overall deficit was around 2.5% of GDP in 2004 (down from 3.5% in 2003 and 
3.8% in 2001).  The government projects a deficit of around 2.8% for 2005 and 2006.  Chinese Taipei's public debt (overall government debt) c ontinued to increase over 2001-05, to about 37.6% of 
GDP (36.1% in 2004 and 31.3% in 2001). 
11. Fiscal consolidation and reforms would reduce Chinese Taipei's persistent budget deficits.  
With a view to achieving fiscal balance and reducing public debt, the government has been 
implementing measures to reform its expenditure an d revenue (section (iii)(a)), in accordance with the 
"Fiscal Reform Plan".
10  In this regard, the government aims to achieve fiscal balance by 2011.  The 
authorities consider that the Fiscal Reform Plan h as attained certain preliminary results to date;   e.g. 
actual tax revenue in 2004 exceeded expected revenue .  The government also plans to continue the 
privatization of state-owned enterprises (Chapter III(4)(vi)).   
12. The 2006 budget amounted to NT$1,572 trillion or  13.6% of GDP (16.6% in 2001).  A 
budget deficit of about NT$198 billion (1.7% of GDP ) is expected in 2006 compared with an 
expected deficit of about NT$275 billion in 2005. 
(3) STRUCTURAL POLICIES  
13. Tax reform (as part of the broader Fiscal Re form Plan) and financia l reform are among the 
"core reforms" of the government's "development plans" for Chinese Taipei's economy;  other key 
reforms include privatization of state-owned enterprises and corporate reform.  
(i) Tax reform 
14. As a part of tax reform, the government aims to :  repeal certain tax exemptions, including the 
income tax exemption on proceeds from life insurance; replace the  territoriality principle of taxation 
of cross-border income flows with world-wide princi ple;  and review the scope and extent of existing 
tax incentives stipulated in the subordinate regulati ons of the Statute for Upgrading Industry, which 
currently encourage investment  in selected industries, including high-tech enterprises 
(Chapter III(4)(i)).  At the same time, as the Minist ry of Finance considers that such incentives might 
have contributed to tax avoidance, and thus losses of tax revenues, Chinese Taipei adopted the Income 
Basic Tax Law, which entered into force on 1 January  2006;  this provides for what is essentially an 
alternative minimum tax, which would, to some  extent vitiate the effects of such incentives.11  
                                                      
9 The central bank hosts conferen ces, provides training programmes , and attends annual meetings 
hosted by these organizations. 
10 The Fiscal Reform Plan was approved by the government on 22 April 2003.  The Plan covers, 
inter alia,  tax revenues, non-tax revenues and expenditures. 
11 Under the Income Basic Tax Law, a profit-seekin g enterprise must pay the higher of:  (1) the 
"regular income tax", in accordance with the Income Tax Act,  and (2) the "basic tax" under the Income Basic WT/TPR/S/165 Trade Policy Review 
Page 6 
 
 
Furthermore, a task force has been set up to ad dress transfer pricing problems associated with 
multinational enterprises.12 
15. In 2003, the government introduced a new cost-b enefit analysis mechanism for evaluating tax 
expenditures, particularly those concerning ta x incentives to encourage investment and upgrade 
industries.  Under the mechanism, any agency proposing bills containing tax incentives with potential 
tax losses higher than NT$50 million annually must submit a cost-benefit evaluation report to the Ministry of Finance for final review.  Total tax revenue forgone due to the implementation of the 
Statute for Upgrading Industries amounted to NT $53.1 billion in 2004 (NT$ 65.3 billion in 2001). 
(ii) Financial reform 
16. An efficient capital market, through which savings  are channelled into profitable investment,  
is important for raising productivity.  The Asian financial crisis of 1997 and challenges faced by 
Chinese Taipei's enterprises have prompted the governme nt to consider reform of its financial sector.  
The first financial reform started in 2002;  the ma in targets included eliminating fraudulent practices 
and reducing non-performing loans (NPLs).  Data pr ovided by the authorities indicate that the share 
of non-performing loans in total loans outstanding decreased from 11.8% in 2002 to 2.2% at the end 
of 2005.  The second reform process to run from 2003 to 2008 focuses on regulatory reform to make 
Chinese Taipei a "regional financial services cent re".  The government intends, for example, to 
facilitate mergers and acquisitions of banks, and encourage higher shareholdings by non-
Chinese Taipei investors (to about 25% of overall market capitalization).
13  
(iii) Corporate governance 
17. In 2003, a Taskforce for Reforming Corporat e Governance completed a Policy Agenda and 
Action Plan to Strengthen Corporate Governance.14  The government aims to:  improve the overall 
management of enterprises, including internal cont rol systems;  introduce a system of independent 
directors and supervisors;  strengthen informati on disclosure;  improve the accounting system;  and 
protect the interests of investors.15  Under the Plan, the government has implemented a number of 
specific measures, including the adoption of "best practice" principles for ba nks, listed companies, 
                                                                                                                                                                     
Tax Act.  Profit-seeking enterprises have to pay certa in "basic tax" even if they receive tax incentives 
(Chapter III(4)(i)) in order to "uphold tax equity", among other things.  Questions may arise as to whether 
elimination of such incentives may be a more efficient means of achieving the same objective. 
12 The Ministry of Finance issued the Regulations Governing Assessment of Profit-seeking Enterprise 
Income Tax on Non-Arm's-Length Tran sfer Pricing on 28 December 2004.  These regulations stipulate:  the 
types of transactions governed by the regulations;  prin ciples of arm's-length transactions to be followed by 
taxpayers and tax authorities;  methods of arm's-length tr ansactions;  documentation;  and application procedure 
for "advance pricing arrangements", investiga tion, assessment, and related adjustments. 
13 If a financial institution acquires another financial institution and, as a result, its market share 
increases to 10% (or higher) of the total, the acquiring financial institution is entitled to priority approval to 
establish branches overseas and acquire  non-Chinese Taipei financial institutions.  Such an acquiring financial 
institution is granted automatic approval for re-establishing or relocating the acquired bank's branch units.  Non-
Chinese Taipei financial companies may hold more than 25% of a bank's issued shares provided that such 
companies meet requirements stipulated in the Financial Holding Company Act for qualified non-Chinese Taipei financial holding companies. 
14 The legal basis for corporate governance in Ch inese Taipei includes:  the Company Law, which 
stipulates the protection of shareholder and creditor righ ts;  the Securities and Exchange Law, which governs the 
disclosure and transparency requirem ents of listed companies;  and the Certified Public Accountants (CPA) 
Law, which delineates services and liabilities of CPAs. 
15 Since 2002, listed companies have been required to nominate at least two independent directors and 
one independent supervisor. Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu WT/TPR/S/165 
 Page 7 
 
 
insurance companies, and financial holding companies.16  Since 2005, listed companies are required to 
publish half-year consolidated fina ncial statements with a view to promoting transparency, and new 
accounting standards in line with internationa l accounting standards have been introduced.17 
18. An amendment to the Securities and Exchange Law entered into force on 13 January 2006.  
Under the amendment:  listed companies must esta blish their own audit committees or independent 
supervisors;   juridical person shareholders may not be select ed as directors or supervisors;  and the 
chairperson, manager, and accounting officer must sign or stamp financial reports and a declaration 
that the reports contain no misrepresentations or  nondisclosures.  The amendment also establishes 
upper limits for the percentage or number of direct ors and supervisors that have kinship with each 
other, and authorizes competent authorities to set up regulations regarding qualifications of chief 
accountants.  In addition, the authorities are drafti ng amendments to the Company Law to introduce, 
for example, an electronic proxy voting system at  shareholders meetings  of listed companies. 
(iv) Industrial policy 
19. The government provides various incentives main ly in accordance with the "Statute for 
Upgrading Industries" (Chapter II(6)(iii), and Chapte r III(4)(i)).  Under the Statute, tax incentives are 
accorded, in particular, to "newly emerging, im portant and strategic" industries, including 
manufacturing of semiconductors and colour-image  displays, and to certain activities including 
research and development, human resource developmen t, and environmental protection.  With these 
support measures, the government intends to increase value-added and employment in these sectors.  
According to the authorities, these measures have not entailed intervention or other attempts to 
"picking winners", because most of the measures are directed at small and medium-sized enterprises.  
Both domestic and non-Chinese Taipei firms are eligible for these incentives.  Additional tax 
incentives are accorded to industries situated in science parks, export processing zones, industrial 
parks, and free-trade zones (Chapter III(3)(vii)). 
(v) Privatization 
20. Since 1989, the government has been implemen ting a programme to privatize state-owned 
enterprises.  By September 2005, 34 state-owne d enterprises had been privatized;  15 more 
enterprises, including in the areas of petroleum,  shipbuilding, water supply, tobacco and liquor, 
banking, and chemical manufacturing, are lis ted for privatization. (Chapter III(4)(vi)). 
(4) DEVELOPMENTS IN TRADE  
(i) Overview  
21. In 2004, Chinese Taipei was the world's tenth largest exporter and ninth largest importer of 
merchandise, and world's 12th largest exporter and tenth largest importer of services.18  The ratios of 
exports and imports of goods and services to GDP increased to 65.1% and 61.5%, respectively in 
2004.  A larger increase in imports compared with exports contributed to a fall in the current account 
surplus in 2004. 
                                                      
16 The government adopted corporate governance best-practice principles for banks, financial holding 
companies, and "bills finance" companies in Decembe r 2003, June 2004, and Ju ly 2005, re spectively. 
17 The new accounting standards are aligned to intern ational standards, particularly in respect of 
consolidated financial and accounting statements, fair value evaluation, and accounting standards for handling 
the loss of enterprises' assets. 
18 WTO (2005), based on data excluding intra-EU(25) trade. WT/TPR/S/165 Trade Policy Review 
Page 8 
 
 
(ii) Composition of merchandise trade  
22. Manufactures accounted for about 93% of Chin ese Taipei's merchandise exports in 2004, 
down slightly from 2001 (Chart I.1).  Machinery a nd transport equipment accounted for the largest 
share in exports, with 53% of total merchandise expo rts in 2004 (Table AI.1).  Within machinery and 
transport equipment, the value of exports of elect ronic integrated circuits and micro-assemblies has 
increased every year since 2001.  Shares of other ma jor items, such as textiles,  have been declining 
since 2001, while the share of liquid crystal devices in  all exports has been increasing, to reach 5.2% 
in 2004. 
23. The share of manufactures in Chinese Taipei's  merchandise imports has declined slightly 
since 2001, to 75.4% in 2004 (Table AI.2).  On the other hand, the share of primary products in 
imports increased, from 22% in 2001 to 24% in 2004.  Th is is attributed to an increase in imports of 
fuels, perhaps reflecting the rising price of petrol eum and petroleum products.  Machine and transport 
equipment account for the largest share of mercha ndise imports with 43% in 2004, down from 48% in 
2001. 
(iii) Direction of merchandise trade 
24. The main destinations of Chinese Taipei's merc handise exports were East Asia (particularly 
China;  Hong Kong, China;  and Japan), the United States, and the European Communities (Chart I.2).  
The share of East Asia in Chinese Taipei's exports has been increasing since 2001 against the 
background of a substantial increase in exports to China;  China accounted for 20% of Chinese 
Taipei's total merchandise exports in 2004 (Table AI.3 ).  In contrast, the relative shares of the United 
States and the European Communities (EC 15) declined between 2001 and 2004. 
25. Chinese Taipei's main sources of imports in 2004 were East Asia, the United States, and the 
European Communities, which together accounted for 79% of the total (Table AI.4).  Among East Asia, Japan was the main supplier of imports, acc ounting for 26% of the total merchandise imports.  
The share of China in the total imports increased significantly, from 5.5% in 2001 to 10% in 2004.  
The relative importance of East As ia has increased since 2001, while the shares of the United States 
and the European Communities (EU15) have declined. 
26. Cross-strait flows of goods amounted to  US$34 billion from Chinese Taipei and 
US$17 billion to Chinese Taipei in 2004.
19 
(iv) Trade in services 
27. According to the balance-of-payments statis tics, Chinese Taipei's cross-border sales and 
purchases of services both increased in 2004 (Table I.4).  The total credit (sales)  in services trade was 
around US$25.8 billion in 2004, compared with about US$19.9 billion in 2001;  total debit 
(purchases) was around US$30.7 billion in 20 04 (about US$24.5 billion in 2001). 
 
 
                                                      
19 Cross-strait trade can only be undertaken by indirect shipment through a third port, usually 
Hong Kong, China. Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu WT/TPR/S/165 
 Page 9 
 
 
Chart I.1
Product composition of merchandise trade, 2001 and 2004
2001 2004
(a)    Exports (f.o.b.)
Other consumer goods
10.1
Manufactures
94.5
Total:   US$122.9 billion Total:  US$173.5 billion
(b)    Imports (c.i.f.)
Chemicals
11.3Iron & steel
2.8Transport  equip.  4.3
Manufactures
76.1
Office machines &
telecommunication 
equipment
27.1Other electrical
machines  
5.9
Non-electrical 
machinery
10.6Textiles & clothing  1.8
Other mining
 4.5Fuels
11.0
Non-electrical
machinery
11.4Other
0.5
Other electrical 
machines
5.7Office machines & 
telecommunication equipment
32.6
Other semi-manuf.   
3.7Transport equip.  3.6
Chemicals
12.4Manufactures
75.4
Office machines &
telecommunication
equipment
22.0
Total:   US$107.2 billion Total:   US$166.4 billionPer cent
Manufactures
92.8Transport equip.  
4.1
Other electrical
 machines
8.4Iron & steel 
 4.4
Other electrical 
machines
7.8
Other consumer goods     
10.0Other
1.8Mining
4.7
Office machines & 
telecommunication equipment
37.1Other semi-
manuf.  6.8
Non-electrical 
machinery
7.5Agriculture
2.5
Iron & steel 
3.1
Source :  UNSD, Comtrade database (SITC Rev.3).Other  consumer goods
8.5
Mining
18.7Other consumer goods
12.7
Textiles & clothing   
6.9
Transport equip.   
4.0Other semi-manuf.
7.5
Non-electrical
machinery
7.7
Other semi-manuf.
  3.7Mining
2.7Agriculture
2.6
Agriculture
5.4Agriculture
6.5
Mining
15.5
Iron & steel
5.3Textiles & clothing
10.1Chemicals
7.1Chemicals
9.3Other 
0.2
Textiles  & clothing  1.3
Other mining
5.8Fuels
12.9
 WT/TPR/S/165 Trade Policy Review 
Page 10 
 
 
Chart I.2
Direction of merchandise trade, 2001 and 2004
2001 2004
(a)    Exports (f.o.b.)
Other East Asia  
9.1
East Asia
51.3
Total:   US$122.9 billion Total:  US$173.5 billion
(b)    Imports (c.i.f.)
Other  2.6Other East Asia  
9.6
EC15
12.0Other Europe  2.1Singapore
     3.1
United States
17.0
EC15
9.7Other 
Europe
3.1Singapore
        2.5
United States
12.6
Total:   US$107.2 billion Total:   US$166.4 billionPer cent
East Asia
60.9Other East Asia  
9.9
Middle East
1.5Japan
10.4
Other Middle East  4.9Korea,
  Rep. of
7.0Korea, 
Rep. of
6.3United States
22.6Other
4.4
Other East Asia  
7.6United States
16.2Other 
4.5
Source :  UNSD, Comtrade database (SITC Rev.3).Japan
26.1Other 
Europe
1.8EC15
12.2Middle East   1.6
East Asia
56.5East Asia
52.6Japan
24.1
Other  2.4Africa  2.5Hong Kong,
China
17.1
EC15
15.0Hong Kong, 
China
21.9Japan
7.6
Other America
2.9
Malaysia  3.2Malaysia   3.9
Australia  2.9Other 
America
3.8Korea, Rep. of  3.1Korea, Rep. of   2.7
Other America
2.3Other America
2.8Other Europe  1.3
Other Middle East   3.5Australia  2.1
Saudi Arabia  3.3Saudi Arabia  2.6China
5.5China
10.0China
19.6China
3.9Singapore  3.6Singapore  3.3
Africa  2.5
 Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu WT/TPR/S/165 
 Page 11 
 
 
Table I.4 
Composition of trade in services, 2001-04 
(US$ million and per cent)  
 2001 2002 2003 2004 
Total credit  (US$ mil lion) 19,895 21, 635 23,166 25,789 
Transport 18.0 17.3 18.9 20.5 
Travel 21.8 21.2 12.8 15.7 
Other services 60.2 61.5 68.2 63.8 
Communications 1.3 1.3 1.5 1.3 
Insurance 2.0 2.6 1.9 1.5 
Financial services  2.6 3.5 3.7 4.4 
Royalties and license f ees 1.7 1.2 0.9 1.1 
Other business services 50.4 51.1 58.4 53.3 
Total debit (US$ millio n) 24,465 24, 719 25,635 30,731 
Transport 25.0 24.1 26.2 26.5 
Travel 29.9 28.1 25.3 6.5 
Other services 45.1 47.7 48.5 47.0 
Communications 1.8 1.9 1.8 1.6 
Insurance 3.0 3.9 4.8 3.9 
Financial services  2.9 3.5 4.3 2.9 
Royalties and license fees  6.1 7.0 6.6 5.5 
Other business services 23.6 23.9 24.2 26.9 
Source: Information provided by the Chinese Taipei authorities.  
(v) Inbound and outbound direct investment 
28. Inbound direct investment in Chinese Taipei has traditionally been lower than outbound direct 
investment.  According to the balance-of-payments statistics (realized (net) basis), Chinese Taipei's 
total outbound direct investment was US$7.1 b illion, while inbound direct investment was 
US$1.9 billion in 2004. 
29. Based on Chinese Taipei's data on direct invest ment on an approval basis, investments from 
Europe were largely responsible for the growth of  inbound direct investment in 2004, while inflows 
from Japan were the main source of growth in 2003.20  The annual outflow of direct investment from 
Chinese Taipei declined in 2004, reflecting a declin e in Chinese Taipei's direct investment into 
America (Table I.5).  Outbound cross-strait direct  investment amounted to US$6.0 billion in 2005, 
accounting for about 66% of Chinese Taipei's outbound direct investment.  Inbound cross-strait direct 
investment amounted to US$30,000 in 2005;  ther e was no recorded inbound cross-strait direct 
investment between 2000 and 2004.  
30. About 50% of inbound direct investment was in  manufacturing and 20% in financial services 
in 2004 (Table I.6)  Since 2001, more than half of Chinese Taipei's  outbound direct investment has 
been manufacturing. 
                                                      
20 Detailed data are not available for direct investment by origin/destination and industry on a realized 
(net) basis. WT/TPR/S/165 Trade Policy Review 
Page 12 
 
 
Table I.5 
Inbound and outbound flows of direct investment (a pproval basis), by source and destination, 2001-04 
(US$ million and per cent) 
 2001 2002 2003 2004 
Inbound direct investment     
Total (US$ million)  5,128.5  3,271.8  3,575. 7  3,952.8  
By source (percentage)       
Citizens of Chinese Taipei residing overseas  0.9  1.4  0.4  0.3  
United States  17.9  17.5  19.0  8.9  
Japan  13.4  18.6  20.3  20.8  
Europe  23.0  18.6  17.8  24.4  
Others  44.8  43.9  42.6  45.5  
Outbound direct investment      
Total (US$ million)  7,175.8  10,093.1  11,667. 4  10,322.7  
By destination (percentage)       
America  48.2  24.5  23.4  18.2  
Asia 50.16  71.8  75.1  79.6  
China 38.8 66.6 66.0 67.2 
Europe  0.6  1.2  0.7  0.6  
Others 1.0  2.4  0.8  1.6  
Source:  Information provided by the Chinese Taipei authorities. 
Table I.6 
Inbound and outbound flows of direct investme nt (approval basis), by activity, 2001-04  
(US$ million and per cent) 
  2001 2002 2003 2004 
Inbound direct investment     
Total (US$ million)  5,128.5  3,271.8  3,575. 7  3,952.8  
By activity (percentage)       
Agriculture, hunting, forestry & fishing  0.4  0.1  0.5  0.4  
Mining and quarrying  0.8  0.0  0.1  0.2  
Manufacturing  34.5  37.7  41.1  50.3  
Services  64.3  62.2  58.3  49.2  
Construction  2.1  2.9  1.1  3.4  
Trade and eating-drinking places   16.7  12.3  12.8  15.5  
Transport and storage  0.3  2.9  0.7  0.4  
Finance and insurance  28.8  26.9  21.1  20.5  
Others  16.5  17.3  22.7  9.4  
Outbound direct investment      
Total (US$ million)  7,175.8  10,093.1  11,667. 4  10,322.7  
By activity (percentage)       
Agriculture, hunting, forestry & fishing  0.1  0.3  0.3  0.0  
Mining and quarrying  0.0  0.1  0.2  0.3  
Manufacturing  59.6  68.8  64.8  75.8  
Table I.6 (cont'd) Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu WT/TPR/S/165 
 Page 13 
 
 
  2001 2002 2003 2004 
Services  40.3  30.8  34.7  23.9  
Construction  0.4  0.1  0.3  0.2  
Trade and eating-drinking places   4.6  4.4  4.0  4.3  
Transport and storage  2.3  1.9  1.7  1.1  
Finance and insurance  23.0  17.9  23.2  13.4  
Others  10.0  6.5  5.5  4.9  
Source:  Information provided by the Chinese Taipei authorities.  
(5) PROSPECTS  
31. The latest estimates of GDP indicate that in th e first half of 2005, real GDP grew by 2.7% 
year on year, mainly as a result of the slowing world economy;  in the latter half of 2005, Chinese Taipei's economy appeared to be on a steady gr owth path, given the ongoing implementation of 
private and public investment projects, the recove ry 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 exp ected rises in world oil prices and U.S. interest 
rates, further shifting overseas of Chinese Taipei's production base, persistent fiscal deficits, and an 
aging population.  The recent strengthening of the NT dollar, which has appreciated gradually against 
the U.S. dollar since late 2002, could cause exports  to fall further (and imports to rise), possibly 
weakening growth. 
32. 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 i nvestment environment.  The authorities consider 
that the growing importance of cross-strait move ment of goods in Chinese Taipei's economy would 
require further liberalization of cross-strait traffic
21;  such liberalization would contribute to improving 
the efficiency of Chinese Taipei's economy and its a ttractiveness to inbound direct investments.  Of 
great importance to Chinese Taipei's longer-term grow th prospects will be its efforts to implement 
structural and other economic refo rms to boost competition;  these reforms would include continued 
tax and financial reform, strengtheni ng of corporate governance, and trade liberalization, particularly 
in agriculture. 
                                                      
21 Council for Economic Planning and Development (2005).