Taiwan WTO Survey: Getting a Head Start on Reform

It was through negotiation of 26 bilateral agreements that Taiwan accomplished much of what was required for entry well in advance of formal accession. In many of these negotiations Taiwan made "down payments" to trading partners that would become part of Taiwan's multilateral accession offer. In addition, over the past 10 years Taiwan has undertaken major fundamental economic reforms that were neither part of the WTO agreements nor in Taiwan's bilateral commitments. Examples of "down payments" to the 26 countries with whom Taiwan held bilateral WTO negotiations include significant pre-accession decreases on tariffs, major telecommunications and intellectual property reforms, equalization of taxes on European spirits and removal of import restrictions on a wide range of agricultural products and consumer goods. Recent and extensive privatization measures have opened up many areas of Taiwan's economy to foreign competition. All of this supports the assertion that Taiwan's accession will require only a low level of activity in terms of liberalizing its markets further and modifying its legal framework.

Why WTO?

Aside from additional opportunities to address cross straits friction (opportunities that China denies while Taiwan casually notes), one might question why Taiwan, already among the top 15 trading economies in the world with consistently high growth and over 160 trading partners, would be so anxious to join the WTO. As noted above, many of the reforms required have taken place or are well underway. Nevertheless, WTO membership has dominated national policy in Taiwan for the past ten years and is one point of agreement on which nearly all Taiwanese politicians agree.

It has been suggested that benefits of Taiwan's WTO membership, including more leverage in bilateral negotiations, an economic stimulus from heightened international trade and greater economic liberalization after WTO, bode well for Taiwan to make every effort to achieve and maintain full compliance with the letter and spirit of WTO agreements. Despite some areas of divergence, Taiwan enters WTO with almost no resistance from the public sector. Although some private sector interests may seek to thwart needed changes, overall, changes in attitudes in the public sector (e.g., the decline of the nationalist party with its extensive influence on the domestic economy through its own or controlled investments), are grounds for optimism.

We now turn to some of the major sectors that have seen major reforms in recent years or in which we can expect further and imminent reforms. Some of these are directly related to specific bilateral or multilateral WTO commitments. Others have a connection to WTO as perceived by the Taiwan government, and consist of initiatives aimed at smoothing the transition to a fully developed and globally integrated economy.

Tariff and Non-tariff Barriers

Taiwan made substantial progress in addressing its restrictive tariffs through reductions, both immediate and progressive, and elimination. The pre-accession average nominal tariff rate is approximately 8.2%; Taiwan is committed to reduce that rate to around
4.15% upon full implementation of tariff reductions. WTO entry will result in the reduction of tariffs on imported goods, nearly 3,500 industrial goods and over 1,000 agricultural products, and the lifting of some import restrictions including 41 categories of agricultural products. The average nominal tariff rate on agricultural products, around 15.5% on accession, will eventually be lowered to around 13%. Likewise, the average nominal tariff rate for imported industrial products will be 6.15% at accession, to be reduced to about 4.3% after full implementation of WTO concessions on market access.

Quotas, import licences, product standards, product testing and labeling, import bans, sanitary and phytosanitary restrictions, and subsidy programmes are among the myriad of non-tariff measures (NTM) that are essentially regulatory and significantly impact foreign imports. Taiwan has pledged to phase out NTMs and open related markets now "regulated" by these measures, which are most prevalent in the agriculture sector.

Taiwan has made significant headway in living up to its commitment to open 11 service sectors including professional, communication, financial services, education, tourism, transportation, express delivery services, advertising, computer services, construction, wholesale and retail distribution, franchising, recreation, health, and environmental. Let's look at changes in some specific areas.

Services

Government Procurement

Taiwan has agreed to join the WTO-affiliated Government Procurement Agreement (GPA). Its offer has been accepted and formal adoption is expected to occur during the first quarter of 2002. Other signatory countries will be afforded greater participation in Taiwan's US$6-8 billion per year government procurement sector. Government construction and installation projects and products and services from 32 government organizations, 57 public-operated agencies, state-run enterprises, and national universities valued over a certain threshold will be open to bidding by GPA members. Estimates are that 42% of government procurement projects in local construction, 75% in the service sector, and 80% in the merchandise sector will be open to GPA members. A mediation and binding arbitration resolution mechanism will also be implemented in the hopes of avoiding long-standing problems with contract administration. Taiwan's Public Construction Commission, the competent authority for government procurement, has committed to establishing clear guidelines and to insuring transparency and uniformity.

The construction industry in Taiwan has been plagued by a 50-year tradition of corruption, favouritism and collusion between local politicians and government or nationalist party-owned enterprises. While the new government campaigned extensively on eliminating these problems, political considerations often seem to obstruct real progress in this regard. Nevertheless, public commitments are now generally followed by action, and there is a clear trend toward transparency and fairness. Extending this to the foreign industry will be a major challenge but the opportunities in Taiwan are significant and the coming years are expected to see a large increase in foreign participation in public infrastructure projects.

In order to bring Taiwan's government procurement regime in line with principles of the GPA, Taiwan's parliament is now reviewing amendments to the existing Government Procurement Law, first adopted in May 1999. The amendments are expected by the end of 2001.

The current Government Procurement Law addresses dispute resolution for procurement contracts, requires that all government procurement projects valued at over NT$1 million (approximately US$35,000) use open and transparent bidding, and contractors convicted of violence or offering bribes are subject to being barred from government bidding for up to three years and face imprisonment for up to seven years. The amendments include abolishing the existing 14-day time limit for submission of tenders and additional fraud prevention measures and penal provisions to curtail the common practice of "name lending".

Intellectual Property

Intellectual property protection has been one of the major focal points for Taiwan's trade talks with the US, its seventh largest trading partner, since the latter adopted the "special 301" measures in 1989. Taiwan seems to take the "black listing" process much more seriously than other countries and goes through an annual exercise that appears to be (unnecessarily) excruciating to many outsiders. Although the threat of the unilateral sanctions available to the US against Taiwan (and China) will be somewhat tempered by Taiwan's and China's accession to the WTO, for Taiwan at least, it is expected that improvement of intellectual property protection will remain a top priority. It is also expected that this may be an area where Taiwan has the potential to make significant contributions to the world body's rules.

Long before accession was within sight Taiwan began a major overhaul of its IP laws. Major revisions to the Copyright, Trademark and Patent Laws were effected in 1992, 1993 and 1994, respectively. A Fair Trade Law, including provisions on unfair competition (e.g., protection for unregistered marks and passing off) also took effect in February 1992 and soon thereafter Taiwan passed sui generis laws on semiconductor layout design protection and protection of trade secrets. Things looked reasonably good for Taiwan's IP laws vis-¨¤-vis TRIPS. However, as Taiwan's accession continued to be delayed, foreign interests continued to find new problems in Taiwan's IP laws and the trading partners who requested bilateral negotiations appeared to the Taiwanese to be changing the rules. With regard to geographic indications, a relatively obscure area of IP, Taiwan has always provided for general protection under the Criminal Code and the Fair Trade Law, and special protections for wine and spirits are provided under the new laws regarding tobacco and beverage alcohol (see below).

Additional WTO-related revisions to the Patent and Trademark Laws were passed in 1996, and Taiwan went ahead with implementation of the amendments to the Trademark Law well ahead of accession. Considerable efforts were made on these laws and the Copyright Law in the last few months leading up to accession. Many industries saw Taiwan's WTO accession as a golden opportunity to gain leverage by applying pressure on the US government to seek concessions from Taiwan on issues that were neither in a bilateral agreement nor Taiwan's initial WTO accession package.

At the last minute, and long after the US and European governments had closed their negotiations with Taiwan, it was discovered that the term of patent protection for inventions under Taiwan law might not comport with TRIPS. This was discovered following the US/Canada dispute before the WTO and Taiwan was urged to amend the relevant provisions of its Patent Law. The amendments were quickly proposed and passed by Taiwan's legislature.

From Taiwan's perspective, the WTO allows entry into a number of international agreements "through the back door" as most of the major IP agreements (e.g., Berne, Paris, Rome) are administered by the United Nations, which adamantly refuses to allow any participation by Taiwan. The impact of accession is most significant in the area of copyright and will be most visible in regards to film, books and visual arts.

Telecommunications and Media

Major tariff reductions on telecommunications and other IT equipment were committed to in Taiwan's bilateral agreement with the US concluded in August 1998, and these items will see elimination and/or further reductions upon and following accession; tariffs on IT products will fall from a range of 4.2% to 15% to 0 to 10%. For example, tariffs on mobile phones will drop from 7.5% to 0 to 4%. More impressive, however, has been the rapid liberalization of the telecommunications and broadcasting/film industries in Taiwan, particularly in light of the extremely tight controls over these sectors during the long period of martial law and the very high level of government and former ruling party investment.

While Taiwan and the US have differed over the terms and interpretation of Taiwan's commitment on telecommunications liberalization, generally speaking, the trend favours market access. The cap on direct foreign investment will be raised to 49% (direct plus indirect will be 74%) as early as the first quarter of 2002, and the integrated fixed network telecom business will be opened further to foreign companies to compete with government-owned Chunghwa Telecom (for example, via the further liberalization of the undersea cable circuit leasing business).

The slowdown in the global IT industry has resulted in less pressure being applied by the industry on Taiwan to further liberalize; so whereas the commitments are very broad, without foreign industry participation, Taiwan may not move as quickly to fully open the market as initially expected. This cautionary fact should be noted.

Another long standing point of friction in trade talks between the US and nearly all of its trading partners is in the area of cinema. Taiwan has made necessary amendments to its Motion Picture Law and related regulations that commit to further opening the market to foreign films upon accession.

The new law however may allow the government to take measures to ensure the continued existence and "development" of the industry in instances where local producers are seriously threatened