(D)-Suppressed to avoid disclosing data of individual companies Source: U.S. Department of Commerce, Survey of Current Business August 1991, Vol. 71, No. 8, Table 11.3 405 3,541 TAIWAN Key Economic Indicators (In Billions of New Taiwan Dollars (NTD) Unless Noted) Balance of Payments and Trade (US$ Million) 1/ 5,700 7/ Estimated by the Directorate General of Budget, Accounting and Statistics. 2/ Estimates based on the first three quarters. 3/ Assume November interest rate to prevail to 1991 year-end. 4/ Average of month-end figures for the year. Rates at the end of the last two months of 1991 are estimated at 26.10:1. 5/ Based on historical patterns and actual performance for first ten months of 1991. 6/ Excluding US$18 million in gold imported by Taiwan's Central Bank from England in 1989. 7/ Based on the first two quarters. 1. General Policy Framework TAIWAN Although remaining an export-oriented economy, Taiwan has made many changes since 1986 to redress its large trade surplus, in particular its surplus with the U.S. It has revalued its currency (the New Taiwan Dollar, or NTD), promoted capital flow, reduced import barriers, and encouraged the purchase of U.S. goods. In mid-1987 Taiwan removed all restrictions on foreign exchange transactions arising from trade in goods and services. The NTD/USD exchange rate rose 54 percent from 40.55 in September 1985 to 26.28 in October 1991. In the first 10 months of 1991, the exchange rate fluctuated between 26.28 and 27.45. After peaking at USD 17 billion in 1987, the U.S. trade deficit with Taiwan has been falling steadily, reaching USD 11 billion in 1990, but it was still the second largest bilateral deficit for the U.S. According to preliminary U.S. Department of Commerce data, the U.S.-Taiwan trade gap fell again in the first eight months of 1991, to USD 6.0 billion for the period. The People's Republic of China (PRC) has replaced Taiwan as the second largest source of the U.S. trade deficit. Taiwan has more than met the goal of its 1989-1992 Trade Action Plan (TAP) to reduce its trade imbalance with the United States by 10 percent annually. Early in 1990, Taiwan opened its market to the direct import of distilled spirits. Taiwan's current economic focus appears to be its Six-year Plan to develop Taiwan's infrastructure and upgrade its industries. But Taiwan did not meet its TAP tariff targets in 1990, and it did not meet the 1991 tariff targets either, although its legislature passed a Tariff Reduction Bill in December 1991 which is expected to reduce the average nominal and the effective tariff rates to 8.9 percent and 3.9 percent, respectively. Tariffs on many agricultural imports remain as high as 40 to 50 percent. There are import bans for animal offals and de facto bans for other agricultural items, which are permitted entry but never given approval, such as rice, peanuts, small red beans, fresh potatoes, and certain poultry and pork products. The process of obtaining import permits for medicines and some cosmetics and agricultural products remains complicated. Imported cigarettes and alcoholic beverages (wine and beer) are subject to high taxes and a low profit margin, whereas contraband Japanese cigarettes, sold everywhere untaxed and exempt from margin restrictions, enjoy a distinctive competitive advantage. Despite some small changes, the banking sector remains a highly protected industry, with foreign banks subject to many restrictions, such as those in deposit taking, branching, and foreign exchange operations. Maritime issues, such as intermodal trucking, and off-dock container yard operations, that have been under discussion since 1989 or earlier, continue to be unresolved, despite the Coordinating Council for North American Affairs (CCNAA's) commitment to the American Institute in Taiwan (AIT) to do so in 1989. Enforcement of the protection of intellectual property rights (IPR) lacks vigor. Proposed liberalization of the telecommunications sector will discriminate against foreign companies. TAIWAN Fiscal Policy: Following three consecutive fiscal surpluses, Taiwan suffered a fiscal deficit estimated at NTD 136 billion (USD 5 billion) in FY91 (July 1, 1990 to June 30, 1991) when the island experienced an economic slowdown. The public authorities are anticipating a growing fiscal deficit for the several years to come when Taiwan's six-year development plan requires a total of over USD 300 billion investment in public infrastructural construction projects and in upgrading industries. To finance the fiscal deficits in the future, the authorities plan to issue a rising amount of public bonds, from NTD 75 billion in FY91 to NTD 250 billion and NTD 350 billion in the next two fiscal years, respectively. A consequence of the continued growth in bond issuance is a steady rise in the debt servicing burden from 2.5 percent of the central budget in FY91 to 5.8 percent in FY92 and 10 percent in FY93. Monetary Policy: Taiwan controls money supply mainly through open market operations, adjustments in the reserve requirement and rediscount rate, and various bank credit regulations. The amended banking bill promulgated in July 1989 decontrolled interest rates. The tight money supply policy, slowing the money supply expansion from a double- to a single-digit rate in 1989 and leading to a contraction in M1B in 1990, has been under reconsideration by the authorities in 1991. In the third quarter of 1991, the Central Bank lowered the bank reserve requirements three times and rediscount rates twice in order to narrow the interest gap between NTD and overseas accounts, hoping to reduce the pressure on appreciation of the NTD. As the interest rates on NTD accounts remain higher than those on overseas accounts, the smaller interest gap is not likely to cause massive capital exodus, draining the capital resources available for the six-year plan. Meanwhile, lower interest rates should stimulate currently weak domestic private investment. 2. Exchange Rate Policies Taiwan removed most restrictions on forex transactions in July 1987, leaving two limits in place on non-trade oriented capital flow. In March 1991, while the annual limit on outward remittance per entity was reduced from USD 5 million to USD 3 million, the limit on annual inward remittance per entity was raised to USD 3 million, up from the original ceiling of USD 50,000. An interbank forex call market was set up in August 1989, with the transaction currency expanded from only the USD to include a dozen other major foreign currencies in February 1991. The market was linked to Singapore's in February 1991 and to Hong Kong's in August 1991. The Central Bank opened currency swap and forex margin trading in June 1991. The forward forex market, opened on October 1, 1987 and closed two days later, was reopened at the beginning of December 1991, but it is subject to a number of restrictions. With less constraints on the forex market, the NTD/USD exchange rate, following a 3.6 percent depreciation in 1990, appreciated 3.8 percent from 27.12 to 26.10 in the first eleven months of 1991. As of the end of September 1991, Taiwan's forex reserves amounted to USD 76 billion, the highest in the world. Pricing Policies: Prices for most commodities are set largely via market mechanism. While Taiwan pays prevailing international prices for most imports, final retail prices are sometimes inflated by commodity taxes, traditional consumer psychology (the more expensive the better), and cartel arrangements in the domestic distribution system. False invoicing by small or intermittent importers also has the effect of subverting normal competition and supporting cartel-like arrangements by middlemen to inflate consumer price levels, particularly for imported food products. Import bans, de facto bans, and other restrictions on rice, peanuts, small red beans, sugar, certain poultry and pork products including animal of fals, together with high tariff rates on many of Taiwan agricultural import items, all contribute to high local retail food prices. Since State-run enterprises are estimated to supply one-third of the GDP, the authorities have the power to influence prices for key commodities such as power, water, petroleum products, transportation, sugar, and steel. Taiwan passed a Fair Trade Law (FTL) in January of 1991. When the FTL becomes effective in February 1992, a fair trade committee will be set up to replace the price supervisory board to monitor and regulate cartel pricing activities. However, state-run enterprises will be exempt from FTL regulations for five years after the FTL goes into effect. Domestic and overseas official procurement is by open tender, restricted tender, or negotiation. Tax Policy: With the fiscal deficit looming larger and larger in the wake of the six-year (1991-1996) development plan, the public finance authorities have been trying to broaden Taiwan's tax base. The authorities raised various types of fees for public services in 1991, including postage in July, tap water in August, and freeway tolls in September. It also submitted a proposal to eliminate the tax-exempt status of military and educational personnel in 1990 and another proposal to levy a capital gains tax on land transactions. However, these two proposals have been shelved due to strong opposition and to concern that these new taxes might cost the ruling party in the upcoming elections (including legislator elections in December 1992 and county magistrate elections in December 1993). With new taxes becoming infeasible, the public finance authorities cracked down on tax evasion and claim to have recovered over NTD 20 billion (or 2.6 percent of the annual tax revenue) in the first ten months of 1991. AIT and CCNAA have begun negotiating a tax agreement. In January 1990, the Taiwan authorities eliminated the commodity tax on nine products and lowered the commodity tax by 16 50 percent on 16 other products. Following the August 1989 tariff reduction round, the average nominal and real effective tariff rates dropped to 9.65 percent and 6.25 percent, respectively, compared to 26.0 percent and 7.6 percent in 1986. Following a period of over two years without tariff cuts, Taiwan plans to further reduce the average |