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trade in these products. For example, stringent microbiological and chemical testing of imported food products such as turkey, pork, and game meat limits imports. Standards on preservatives for soft drinks preclude the import of certain beverages. Imported agricultural goods are routinely tested while local agricultural products usually are not. The authorities determine the purity of imported fruit juices using an amino nitrogen test, a purity standard that is uniquely stringent.

Investment Barriers: Taiwan welcomes reign investment, which it recognizes contributed to its development. It is reducing remaining investment barriers both as part of its GATT/WTO accession process and as part of its drive to become a regional operations center. Foreign investment is prohibited, however, in such industries as agriculture, basic telecommunications, broadcasting, cigarette manufacture and liquor distilling. Equity participation is limited in several other industries, including shipping, mining and securities trading. Local content requirements, phased out for most manufacturing industries, remain in place for the automobile and motorcycle industries. Foreign administrative personnel are limited to no more than five per company, with the exact number allowed dependent on business volume and the size of the investment. Foreign individuals are not allowed to purchase shares on Taiwan's stock market. An institutional investor may invest no more than $200 million on the stock market. A ceiling of $7.5 billion exists for all foreign institutional investment. A foreign institutional investor may only remit invested principal three months after his funds

have arrived in Taiwan. Capital gains may only be remitted one year after funds have arrived in Taiwan.

Procurement Practices: In theory, public procurement which exceeds NTD 50 million ($1.87 million) should go through the state-owned Central Trust of China. However, numerous exceptions to this policy have created a situation in which most procurement actions (by value) are not done by the Central Trust of China. In addition, each agency has its own set of procurement regulations and practices (often unwritten), making the process cumbersome, confusing, and lacking in transparency. Fur. thermore, Taiwan commissioning agencies frequently impose unprofitable contract terms such as lengthy warranties, unlimited potential damages and contingent liabilities, and expensive bond requirements. Short lead times on major tenders fur. ther tend to restrict foreign participation. Taiwan's Industrial Coope tion Programs (ICP8) represent a form of offset and are becoming more prevalent. The ICPs require foreign vendors to propose programs that transfer technology, procure locally, and assist with marketing, Taiwan has informed GATT members of its desire to negotiate adherence in the Uruguay Round Agreement on Government Procurement.

Customs Procedures: Taiwan has agreed to abide by the GATT customs valuation code, but still uses reference prices for certain agricultural imports. In order to simplify customs procedures, Taiwan's customs authorities have implemented an auto. mated clearance system for air cargo whereby firms and forwarders can process documents with customs by computer linkup. The authorities planned to implement a similar automated system for sea cargo in November 1994. Importers who open a deposit with customs can clear merchandise first and pay tariffs later. 6. Export Su Policies

The Taiwan authorities generally refrain from using subsidies and tax policies to subsidize exports, but exceptions do exist. Exports of rice and sugar enjoy indirect subsidies through guaranteed purchase prices higher than world prices. Producers of some fruit, poultry, and livestock receive financial assistance with packaging, storage, and shipping via marketing cooperatives and farmers associations. Rice exports are primarily humanitarian aid and the small amount of sugar exports (produced solely by a state-run company) virtually all go to the United States to maintain the U.S. quota for Taiwan. The TTWMB guarantees prices for products which are used as materials for tobacco and alcoholic goods. In addition, Taiwan authorities offer guaranty prices for a part of rice and other cereal crops produced by farm

ers.

7. Protection of U.S. Intellectual Property

Taiwan's protection of intellectual property rights (IPR) has improved substantially in the past few years. A series of important laws have been passed since 1992, including revised copyright, patent and trademark laws, a U.S.-Taiwan bilateral copyright agreement, and a cable television law. Together with new legislation currently under consideration to protect integrated circuits and trade secrets, these laws give Taiwan an IPR legal structure consistent with GATT TRIPS text standards. Improved enforcement efforts, including the establishment of computerized export monitoring systems for computer software and trademark goods, have led to a reduction in computer software, video, laser disc and compact disc piracy. Incon. sistent decisions by Taiwan's trademark and patent examiners highlight the need for better training and more standardized examination and registration procedures. Taiwan is on the Special 301 watch list. Taiwan is not a member of any major mul. tilateral intellectual property conventions.

Patents: The revised patent law replaced most criminal penalties for patent infringement with tougher civil penalties. U.S. companies are concerned that, in light of Taiwan's relatively undeveloped civil law system, penalties are insufficient to deter infringement.

Trademarks: Counterfeiting of famous name products has decreased, but remains a problem. Taiwan's voluntary export monitoring system for trademarked goods should help if enough U.S. firms choose to participate.

Copyrights: The export of counterfeit copyrighted goods has dropped markedly. The unauthorized copying of computer software and manufacture of counterseit video games remain problems.

New Technologies: Inspection and monitoring efforts by the authorities have sharply reduced the unauthorized use of copyrighted programming on cable television. Taiwan courts have not yet taken a clear position on the legality of the retransmission of unencoded satellite signals.

The International Intellectual Property Alliance estimated that the piracy of software, movies, music recordings and books in Taiwan cost U.S. companies $ 150 million in 1993. 8. Worker Rights

a. The Right of Association. As a democracy, Taiwan has a large number of independent labor organizations. Many of these organizations, however, lack a firm legal footing and the right to demand collective bargaining, because they are not registered under Taiwan's Labor Union Law (LUL). According to the LUL, all workers (except for civil servants, teachers, and defense industry workers) can organize trade unions, but only after obtaining the approval of the authorities. The LUL forbids the emergence of competing trade unions and confederations. Most of the 3,654 officially registered labor unions have close relations with management and the ruling Kuomintang (KMT) party.

b. The Right to Organize and Bargain Collectively. The LUL, the Law Governing the Handling of Labor Disputes, and the Collective Agreement Law give workers the right to organize and bargain collectively. These laws further stipulate that employers may not refuse employment to, dismiss, or otherwise unfairly treat workers on the basis of their union membership or participation in mediation and arbitration. In practice, however, employers have at times ignored these laws without suffering any legal action. As of June 1994, 293 formal collective agreements were in force, about the same number as in 1993. Collective bargaining agreements exist mainly in large-scale enterprises, which account for less than five percent of the enterprises on Taiwan.

c. Prohibition of Forced or Compulsory Labor.Under the Labor Standards Law (LSL), forced or compulsory labor is prohibited. Violation of the law is punishable by a maximum jail sentence of five years. The only reported cases of forced labor involved prostitution.

d. Minimum Age of Employment of Children.—The LSL stipulates that the minimum age for employment is 15 years (i.e., after compulsory education ends). Child labor is rare in Taiwan. As of October 1994, the authorities had approved the employment of 11,915 minors between 15 and 16 years old by manufacturing industries.

e. Acceptable Conditions of Work.—The LSL limits the work week to 48 hours (8 hours per day, 6 days per week). The LSL also has provisions for leave, overtime pay, retirement pay and minimum wages. In August of 1994, the authorities raised the minimum monthly wage by about 5 percent from the equivalent of $510 to $540. The average monthly wage in the manufacturing sector averaged the equivalent of $1,110 in 1993. In addition to wages, employers typically provide additional payments and benefits, including an 80 percent labor insurance premium, the distribution of labor welfare funds, and meal and transportation allowances to workers.

f. Rights in Sectors with U.S. Investment.-U.S firms and joint ventures generally abide by Taiwan's labor regulations. In terms of wages and other benefits, U.S. firms tend to provide model work conditions. Worker rights do not vary significantly by industrial sector. Working conditions, however, tend to be relatively better in the information and electronics industries and relatively worse in the footwear and sporting goods industries.

Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis—1993

(Millions of U.S. dollars)

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Income, Production and Employment:

Real GDP (1988 prices)
Real GDP Growth Rate (pct.)
GDP (at current prices)
By Sector:

Agriculture
Energy/Water
Manufacturing
Construction
Rents
Financial Services
Other Services
Government Health

Education
Net Exports of Goods & Services
Per Capita GDP (current USD)
Labor Force (000s)

Unemployment Rate (pct.)
Money and Prices (annual percentage growth):

Money Supply (M2)
Base Interest Rate
Personal Savings Rate
Retail Inflation
Wholesale Inflation
Consumer Price Index
Exchange Rates (B/USD avg.).

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Official
Parallel

25.40
N/A

25.32
N/A

2 25.22

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Key Economic Indicators Continued

(Millions of U.S. dollars unless otherwise noted)

1992

1993

19941

....................

6.4

Balance of Payments and Trade:
Total Exports, (FOB)

32,466 37,159 2 28,360 Exports to U.S.

7,284 7,287 26,046 Total Imports (CIF)

40,679 46,242 2 34,448 Imports from U.S.

4,772 5,373 23,985 Aid from U.S. (FY-DA obligation)

0.7

5.1 Aid from Other Countries (FY)

N/A N/A N/A External Public Debt (LT)

12,518 14,171 4 14,973 Debt Service Payments (paid)

4,713 5,391 * 1,658 Gold and Foreign Exch. Reserves

21.2
25.4

29.1 Trade Balance

-8,213 -9,083 2 -6,088 Trade Balance with U.S.

2,512 2,614 22,061 NA-Not available.

Preliminary estimates based on data available, October 1994. 3 January through August (eight months).

January through September (nine months). *First Quarter 1994. 5 June 1993 June 1994.

Sources Bank of Thailand, Thai Ministry of Commerce, Thai National Economic and Social Development Board, U.S. Department of Commerce and U.S. Embassy estimates. 1. General Policy Framework

Thailand's economic development policies are based on a competitive, export-ori. ented, free market philosophy. Its economy is in transition from an agricultural economy to a more open and broadly based one with a large manufacturing sector. Although the majority of the Thai labor force remains engaged in agricultural production, this sector now accounts for only 12 percent of GDP. Manufacturing, wholesale and retail trade and service industries are the most rapidly growing sectors and now account for almost two-thirds of Thailand's GDP.

Real economic growth averaged over 10 percent from 1987 to 1991 and has since hovered around eight percent. Economic growth and investment have slowed mod. estly and the political events of May 1992, which culminated in violence, tempo: rarily undermined domestic and foreign investor confidence. However, the Thai economy remains fundamentally strong and has rebounded in the intervening two years. Recorded flows of foreign direct investment fell to $1.5 billion in 1993, down from $2 billion in 1992. Exports continued to expand to record levels during the first eight months of 1994, to $28 billion. The Thai government estimates that total Thai exports for 1994 will reach almost $48 billion, up 18.5 percent over 1993. Barring further domestic or external shocks, Thailand should maintain solid economic growth in the seven to eight percent range for the foreseeable future.

The Chuan government, which took office following free elections in September 1992, has maintained the general direction of economic liberalization, making modest additions in some areas. It has also stressed addressing imbalances created through rapid industrialization by emphasizing rural development and reducing disparities in the distribution of income.

Rapid growth has had its drawbacks: infrastructure bottlenecks remain a problem and environmental degradation has worsened considerably in recent years. If unresolved, Thailand's infrastructure bottlenecks and shortages of skilled personnel will limit the pace of future growth. Metropolitan Bangkok's public works (communications facilities, roads and mass transit) are already overtaxed and will come under increasing pressure.

A drought in northern provinces during 1993 reduced agricultural output dependent on irrigation and reduced water supplies to the Bangkok metropolitan area in 1994. Abundant rainfall in 1994, however, has largely refilled reservoirs to capacity. Severe flooding in the north of Thailand during August 1994 destroyed some crops. Added to changes in Thai policies which reduced production, this has led to increased prices for agricultural goods in 1994.

The average amount of schooling for the Thai work force is less than six years, the lowest in the Association of Southest Asian Nations (ASEAN). The level of education of the work force will have to be raised to maintain Thailand's development pace and competitiveness with neighboring countries which have lower wage rates. The Thai government is fully aware of this problem and is in the process of expanding mandatory years of schooling from six to nine. Wage gains continue to outpace substantially the growth of the consumer price index.

For the past six years Thailand has experienced a substantial government budget surplus as revenues were fueled by growth and government investment expenditures for major infrastructure projects lagged. For 1993 the government's overall surplus reached $2.7 billion, 2.2 percent of GDP. 2. Exchange Rate Policy

Since November 1984 the Thai baht has been pegged to a basket of currencies of principal trading partners. The composition of the basket is a closely guarded secret, but the US dollar appears to represent well over half of the value of the basket. The Exchange Equalization Fund, chaired by a Deputy Governor of the Bank of Thailand, determines the exchange value of the baht each working day. There is no parallel market in Thailand. Global currency realignments since 1985, and especially the recent appreciation of the Japanese yen and the Thai baht against the U.S. dollar, have tended to make U.S. exports to Thailand more price competitive.

In May 1990 the Thai government announced a series of measures to liberalize significantly the exchange control regime. It accepted the obligations of the International Monetary Fund's Article VIII which prohibits members from restricting current international transactions. Commercial banks were given permission to process all foreign exchange transactions and substantial increases were allowed in ceilings on money transfers not requiring Bank of Thailand preapproval and on spending by Thai tourists and businessmen abroad. In April 1991 and May 1992 ad. ditional rounds of foreign exchange liberalization substantially simplified foreign exchange reporting requirements and allowed banks to offer foreign currency accounts to individuals and businesses. The central bank also raised limits on Thai capital transfers abroad and allowed free repatriation (net of taxes) of investment funds, dividends, profits and loan repayments. It allowed exports to be paid for in baht without prior permission and companies to transfer foreign exchange between sub. sidiaries without having to change those funds into baht. 3. Structural Policies

The appointment of the first Anand administration in March 1991 set the stage for a flurry of legislative and regulatory reforms. The Anand government reduced market distortions, made tax policies more transparent and, in general, liberalized the domestic market. Although the nation's trade and current account deficits are large in relation to total GDP, the overall balance of payments remains in surplus because of tourism earnings and large inflows of foreign capital. This payments surplus and a substantial budgetary surplus have allowed the Thai government to reduce customs duties and liberalize its import regime. A wider reform of the import regime, reducing the number of tariff rates and eliminating most tariffs above 30 percent, is being pursued. Thailand began implementing the ASEAN Free Trade Area's (AFTA) tariff reductions in January 1993. Although it began slowly, AFTA has picked up speed as the six member nations (Brunei, Indonesia, Malaysia, Phil. ippines, Singapore and Thailand) have started seeing results. At the September 1994 meeting of the ASEAN Economic Ministers in Chiang Mai, the AFTA members agreed to reduce the 15 year implementation schedule to 10 years, gradually to eliminate the exclusion list of protected items and generally to expand AFTA from a tariff reduction scheme into a real free trade area. Thailand has been one of the leading proponents of this effort. Thailand's trade relations have traditionally been oriented toward distant markets, particularly North America, Europe, and Japan, but the government sees the ASEAN Free Trade Area increasing intra-ASEAN trade as well.

Beginning in 1992 the Thai government implemented a major reform of its tax. ation system. In 1992 the government increased personal income tax deductions and lowered the top marginal tax rate to 37 percent and unified the corporate income tax rate at 30 percent. The government is considering a further reduction to 25 per. cent to attract more investment. On January 1, 1992 Thailand implemented a value added tax (VAT) system, replacing a multi-tiered business tax with a single rate of seven percent on value added. U.S. transportation and shipping companies in Thailand are at a competitive disadvantage vis-a-vis firms from third countries which "zero rate” Thai companies under their own VAT systems. Since the United States does not have a vat system, U.S. firms are "exempt” from the Thai system and unable to claim rebates for taxes paid on inputs. Firms which are "zero rated” are able to offset VAT paid on inputs in paying their own taxes. 4. Debt Management Policies

Domestic credit is expanding, helping fuel some of the growth in consumption in the economy. Domestic credit expanded

18 percent in 1992, 19.6 percent in 1993 and

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