 
RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/ACC/SPEC/TPKM/8 
9 February 1999 
 (99-0474) 
Working Party on the Accession  
of Chinese Taipei  
 
ACCESSION OF CHINESE TAIPEI 
 
Responses to questions concerni ng document WT/ACC/TPKM/8 and 9  
  The following responses to questions raised by members concerning document 
WT/ACC/TPKM/8 and 9 (regarding notifications) have  been received from the Representation of the 
Separate Customs Territory of Taiw an, Penghu, Kinmen and Matsu (hereina fter referred to as "Chinese 
Taipei"). 
_______________ 
 
Table of Contents
 
 Page Question 
WT/ACC/TPKM/8:  NOTIFICATION PURSUANT TO ARTICLE 28.1 OF 
THE AGREEMENT ON SUBSIDIES AND COUNTERVAILING 
MEASURES 2 1-2 
WT/ACC/TPKM/9:  NOTIFICATION PURSUANT TO ARTICLE XVI.1 OF 
THE GATT 1994 AND ARTICLE 25 OF THE AGREEMENT ON  
SUBSIDIES AND COUNTERVAILING MEASURES   
A. TAX CREDITS OR TAX EXEMPTIONS FOR DESIGNATED 
 ENTERPRISES   
 Five-year Tax Exemption for Designated Enterprises 
 - Statute for Upgrading Industries  
2  
3-10 
 Tax Credits for the Creation of Internationally Recognized Brands 6 10-11 
 Tax Deduction for Self-Designed Components of Automobiles 6 12-18 B. LOANS FOR SMALL AND MEDIUM ENTERPRISES (SME'S) 8 19-20  Medium and Long Term Loans fo r Product Marketing and Loans for 
 Overseas Investment and Construction Projects 9 21-23 
C. DUTY AND TAX EXEMPTIONS GRANTED TO ENTERPRISES 
 LOCATED WITHIN A  DESIGNATED ZONE   
 Duty and Tax Exemptions for High-technology Industries 
 - Statute for the Establishment and Administration of a    Science-based Industrial Park  
10  
24 
 Duty and Tax Exemptions for In-zone Enterprises 11 25-35 
D. RESEARCH AND DEVELOPMENT 16 36-37 
E. OTHER ISSUES 18 38-42 ATTACHMENT I: Expenditure of the R&D Assistance for the Ten  Emerging Industries 20  
ATTACHMENT II:   Critical Components and Product List 21  
ATTACHMENT III:   Notification - Tax credit for investment in 
 disadvantaged  regions 22  
ATTACHMENT IV:  Statistics for Speci fic Programs: Loaned by the Fund 
 for the Development of SMEs 24  
ATTACHMENT V:   Interest Rates on Various Financing Programmes of 
 the Export-Import Bank 29  
ATTACHMENT VI:  OECD Export Credit Reference Rates (US$) 30  
ATTACMENT VII:   Statistics for Sc ience-based Industrial Park  31  
ATTACHMENT VIII:   Statistics for EPZ 33  WT/ACC/SPEC/TPKM/8 
Page 2  
 
WT/ACC/TPKM/8: NOTIFICATION PURSUANT TO ARTICLE 28.1 OF THE 
AGREEMENT ON SUBSIDIES AND COUNTERVAILING  MEASURES 
 
Question 1. 
Chinese Taipei states that the notified program me, tax credits for the purchase of automation 
and environmentally-friendly equipment, will be eliminated upon Chinese Taipei’s accession to 
the WTO. Can more detail be given about the modalities of eliminating this scheme- for 
instance, how will the scheme be repealed a nd how will outstanding credits be dealt with? 
Reply
: 
Chinese Taipei is committed to eliminate the ex isting discrepancy of the rate of investment 
credit between the procurement of domestic and foreign equipment, upon its accession to the WTO. 
Question 2. 
Which other schemes under the Statute for Upgrad ing Industries are contingent upon the use of 
domestic goods, in that they provide more genero us benefits to recipients which domestic goods 
rather than imported ones? 
Reply : 
Apart from the differential tax credits for the purchase of automation equipment notified under 
Article 28.1 of the SCM Agreement, the Statute fo r Upgrading Industries has no other measures that 
are contingent upon the use of domestic goods. 
 
WT/ACC/TPKM/9: NOTIFICATION PURSUANT TO ARTICLE XVI.1 OF THE 
GATT 1994 AND ARTICLE 25 OF THE AGREEMENT ON  SUBSIDIES AND 
COUNTERVAILING MEASURES 
A. TAX CREDITS OR TAX EXEMPTIONS FOR DESIGNATED ENTERPRISES 
Five-year Tax Exemption for Designated Enterprises 
- Statute for Upgrading Industries  
Question 3. The investment tax credit provided under Article 6 of the Statute for Upgrading Industries 
(SUI) that Chinese Taipei has notified provides a higher credit (20 per cent) for domestically 
manufactured equipment and only 10 percent fo r foreign manufactured equipment. This 
appears to be a violation of Article III of GATT 1994 as well as Article 3 of the Agreement that 
will be eliminated upon Chinese Taipei’s accessi on to the WTO. We welcome this commitment 
and suggest that it be reflected in the draft working party report. 
On the issue of specificity, we understand that under the scope of application and the tax credit 
rate is prescribed by the Executive Yuan and is subject to adjustment every two years. What are 
the criteria and standards used by the EY to decide these issues?  WT/ACC/SPEC/TPKM/8 
 Page 3 
 
 
Reply : 
During the bi-annual review of the scope of app lication and tax credit rate, the Executive Yuan 
will consider the existing economic climate, includi ng economic outlook and infl ation rate, as well as 
factors such as government revenue, level of inv estment by enterprises and whether the incentives 
adopted are generally acceptable by small and medium enterprises. 
Question 4. 
We note that Chinese Taipei has not notified th e investment tax credit under Article 7 of the 
SUI. What is the purpose and scope of this meas ure and if it relates to providing support for 
distressed regions, please provide additional information on the nature of the program and 
criteria for qualification for this subsidy. 
Reply : 
Chinese Taipei agrees to notify the investment tax credit provided under Article 7 of the SUI. 
The draft notification is enclosed as herewith as Attachment III. 
Question 5. 
Investors in "important technology-based enterp rises", "important invested enterprises", and 
"venture capital investment enterprises" benefi t from investment tax credits under Article 8 of 
the SUI, credits that appear to be intended to increase the demand for and price for relevant 
stock issues. Such price increases appear to bene fit the stock-issuing company. Chinese Taipei 
should, therefore, notify these investment tax credits. 
Reply : 
The legislative intent of Article 8 of the SUI, which provides for shareholder’s tax credit, was to 
account for the numerous hurdles faced by emerging indus tries, such as high uncertainty, market risks 
and the difficulty of raising the needed capital. In order to assist these industries in raising capital in 
the capital market, Article 8 of the SUI provides that an investor who holds their stocks for more than 
two years may enjoy the benefit of tax credit. Howe ver, according to the statistics of the Securities 
and Futures Commission, the Ministry of Finance,  the turnover rate of shares is 400 per cent for 
Chinese Taipei in 1997, which is far above the 65  per cent for New York and 43 per cent for Tokyo 
during the same period.  These figures show that investors in Chinese Taipei buy and sell stocks 
frequently for higher returns, and these decisions ar e not dictated by tax credit incentives based on 
long-term holding. Under these circumstances, it is difficult to assess the real effects of such 
incentives. 
The SCM Agreement regulates government’s provision of subsidies specific to enterprises, and 
the definition of a subsidy as provided in Article  1.1(a)(1)(ii) of the Agreement includes equity 
infusion by the government.  It should be noted that  Article 8 of the Statute for Upgrading Industries 
is to provide tax deduction for stoc ks held by the shareholders, rather than for the stock issuing 
company. Such tax deduction should not be consid ered as a subsidy in nature and therefore, not 
included in the notification.  
Question 6. 
Article 8-1 of the SUI refers to "important tec hnology-based enterprises," "important invested 
enterprises," and "venture capital investment ent erprises," terms, the scope of application of 
which Article 8 states shall be prescribed by th e Executive Yuan and subject to review every 
two years. In Chinese Taipei’s notification of Article 8-1 benefits, Chinese Taipei states that it is WT/ACC/SPEC/TPKM/8 
Page 4  
 
not possible to determine trade effects of these bene fits. However, Article 8-1 benefits are tied to 
new production or expansion of existing produc tion. We request detailed information on (i) the 
specific industries that benefit under Article 8-1 and (ii) the market -- domestic or global -- to 
which any increased in production may be market ed.  Have exports of these products increased 
since receipt of Article 8-1 benefits. 
Question 7. 
Are there any objective criteria of "important technology-based enterprise" and "important 
invested enterprise" for the purposes of this progr amme or the criteria of eligibility are subject 
of arbitrary decision of the responsible authority? 
Replies 6 and 7
: 
To qualify for "important technology-based ente rprises", the following three criteria should be 
met: 
(i) products to be produced under the investment  plan should belong to the ten emerging 
industries; 
(ii) the paid-in or increased paid-in capital for the investment plan should be over 
NT$ 200 million; and 
(iii) the amount of the fund available for the purchase of brand-new machinery/equipment 
in the investment plan should be over NT$ 100 million. 
"Important invested enterprises" include enterp rises in the manufacturing as well as services 
industries. In other words, the products to be produced under the investment plan are not limited to 
those of the ten emerging industries. The criteria for paid-in or increased paid-in capital and the 
amounts of funds for purchasing brand new equipm ent/machinery are different from industry to 
industry: 
Unit: NT$ billion 
Industries Paid-in capital $or increased paid-in 
capital $ Machinery purchase $ 
Manufacturing 2 2 
Shopping mall 2 2 
Transportation 2 2 
Audio-visual service 0.2, 0.3, 0.6 or 1.2 for different 
enterprises 0.2, 0.3, 0.6 or 1.2 for different 
enterprises 
The information on exports of specific industries that benefit under Article 8-1 and the market - 
domestic or global - to which any increase in producti on may be marketed before and after receipt of 
Article 8-1 benefit are not available. 
Question 8. Please explain why the merger (tax) benefits under Article 13 of the SUI are not included in the 
notification?  WT/ACC/SPEC/TPKM/8 
 Page 5 
 
 
Reply : 
The relevant measures provided under Article 13 of the SUI are not reserved for specific 
enterprises or industries and are therefore not included  in the notification. Provisions in this Article 
are applicable to any mergers between companie s established under the Company Law of Chinese 
Taipei, whether it is in the agricultural, industria l or services business. This is not limited to any 
specific enterprise and therefore, has no speci ficity as required by the SCM Agreement. 
In addition, the objective of Article 13, "[w] here a company specifically approved by the 
Ministry of Economic Affairs to go into merger or  consolidation…" is to deter the possibility that 
companies will evade tax by claimi ng false mergers. Therefore, a lthough companies are required to 
seek approval from the Ministry of Economic Affairs for approval of the merger, the Ministry does not have specific criteria for the review of company mergers, since the aim of the approval process is 
to prevent tax evasion. 
Question 9. 
What are the terms and conditions attached to loans provided under Article 21 of the SUI? In 
1996, Chinese Taipei extended $400 million in loans on preferential terms to two large 
semiconductor producers. Were these loans grante d under Article 21 of the SUI, or were they 
granted to these producers as part of Chinese Taipei’s Strategies and Measures for the 
Development of the Top Ten Emerging Industries?  
Reply
: 
According to Article 21 of "Statute for Upgr ading Industries", the Development Fund of the 
Executive Yuan provides loans to a ll industries with a focus on functions and "external" economies; 
as the scheme does not require the purchase of dom estically produced goods or services, it does not 
constitute an incentive or inducement to purchase do mestically goods or services over imported goods 
or services. The loans granted include loans for th e procurement of automation equipment, loans to 
assist in the upgrading of small and medium ente rprises and loans to priv ate enterprises for the 
procurement of pollution control facilities. All of  these loans provided are medium to long term 
financing and are provided at lower interest rates. With the exception of the rate difference, the terms 
and conditions of these loans are generally the same as other medium and long-term loans that are 
commercially available. 
According to information provided by banks, to build a semiconductor plant usually costs more 
than US$400 million. For these plant-building project s, banks offer medium to long-term loans on 
commercial terms and conditions, and each semiconduc tor producer can apply for preferential-rate 
loans only to the extent of NT$400 million.  Theref ore, the statement referring to the US$400 million 
loan to two large semiconductor producers should be referring to loans made on commercial terms 
and conditions rather than preferential rates. 
In addition, all loans with preferential rat es provided by the Development Fund are granted 
under Article 21 of "Statute for Upgrading Industri es" rather than granted under "the Strategies and 
Measures of the Development of the Top Ten Emerging Industries," and therefore are not provided 
only to the ten emerging industries. WT/ACC/SPEC/TPKM/8 
Page 6  
 
Tax Credits for the Creation of  Internationally Recognized Brands 
Question 10. Chinese Taipei has notified tax credits for the c reation of internationally recognized brands. 
Based on the objective of this measure, we are concerned that the tax credits effectively 
constitute an incentive to export. Please provide information on the specific products that have 
benefited from this subsidy and trade data for these products before and after the subsidy was 
granted. 
Reply
: 
The regulation on creation of inte rnational brands will be amende d to be consistent with WTO 
requirements, upon accession, without any recourse to a transition period. Any future programme in 
this area would be consistent with WTO requireme nts and would not reintroduce prohibited subsidies. 
Question 11. 
This subsidy appears to be directly linked to improving export performance and may therefore 
be prohibited by Article 3.1(a). When does Chin ese Taipei have any comments on this assertion 
and does intend to remove it? 
Reply : 
The regulation on the creation of international br ands will be amended to  be consistent with 
WTO requirements, upon accession, without any recourse to a transition period. Any future programme in this area would be consistent with  WTO requirements and prohibited subsidies will not 
be introduced. 
Tax Deduction for Self-Designed Components of Automobiles 
Question 12. 
Please explain in detail the eligibility conditions for receipt of this subsidy. To what extent are 
the components in questions required to be designed and manufactured locally? 
The tax deduction is applied to automotive engine, body or chassis. The   eligibility for this tax 
incentive is approved jointly by the Ministry of Finance, the Ministry of Economic Affairs, the 
Industrial Technology Research Institute, the Auto motive Research and Testing Center, and the 
Society of Automotive Engineers. The approval is based on the evaluation of the design/development 
process, including the engineering design, computer simulation, prototype testing, and certification to 
determine whether it meets the self-design requirement. 
Chinese Taipei will repeal the relevant provisions  of its laws relating to the tax incentives 
provided for domestic design and use of certain  automotive parts by December 31, 2000. 
Question 13. 
Program on commodity tax reduction for the desi gn and manufacturing of auto parts appears 
to be an import substitution subsidy and t hus could constitute a prohibited subsidy.  WT/ACC/SPEC/TPKM/8 
 Page 7 
 
 
Reply : 
This Strategy was designed to encourage the R& D of local automotive industries regarding new 
types of automobiles and engines. In Chinese Taipei’s view, the R&D programs fall under non-
actionable subsidies of the SCM Agreement. Howe ver, Chinese Taipei will repeal the relevant 
provisions of its laws relating to the tax incentiv es provided for domestic design and use of certain 
automotive parts by 31 December 2000. 
Question 14. The policy includes measures to support vehicle and component parts export programs. Please 
provide additional information on the types of measures that are used to support these export 
programs. 
Reply
: 
The measure promoting the export of automobiles and their parts/components, as stipulated in 
the Automobile Industry Development Strategy, is pa rt of the development strategy toward achieving 
scale economy. The main feature of the measure is to publish the names of the top three domestic 
manufacturers through news media once every thr ee months based on sales by domestic auto 
manufacturers to Japanese companies which had originally provided the technologies. No 
financial/tax incentive or other similar measure is provided in the Strategy. 
Question 15. 
Our reading to the policy indicates that it incl udes significant R&D funding of component parts 
development and government funding of worker trai ning that benefits the auto industry that 
should be included in the notification. 
Reply : 
The Automobile Industry Development Strategy is  merely a policy statement to encourage the 
development of Chinese Taipei’s auto industry. The financial/tax incentives mentioned therein are 
those generally provided for in the Statute for Upgrading Industries, Statute of Commodity Tax, and 
Measures for Assistance in the Development of Ne w Leading Products, which have been included in 
the notification. The incentives provided are not  specific subsidies for the auto industry. 
The R&D funding for auto parts/components, as refe rred to by the United States, was applied to 
only one case - the engine development project of  China Engine Co., Ltd., in which case R&D was 
jointly funded by the government and the company, w ith the results transferred to the company. All 
other R&D funding is provided according to the M easures for Assistance in the Development of New 
Leading Products, which has been included in the notification. 
To improve the technical skills of workers as  well as labour employment condition, Chinese 
Taipei provides both pre-job and on- the-job training. A variety of training classes are made available 
to employees of the manufacturing, agricultural and services businesses with interest in attending the 
courses. The funding of worker training is allocat ed pursuant to the "Industrial Technical Human 
Resources Development Program" and given directly to  the trainees. The funding is not a subsidy to 
the auto industries only, nor is it a specific subs idy within the meaning of the SCM Agreement. WT/ACC/SPEC/TPKM/8 
Page 8  
 
Question 16. 
On what terms and conditions did ITRI transfer the engine and transmission 
designs/technology to China Engine Co. Ltd.? What other Projects/components have been or will be funded? 
Reply
: 
The terms and conditions on which the engi ne and transmission design/technology was 
transferred to China Engine Co., Ltd. were: 
- the government holds equity interest in China Engine Co., Ltd. To the extent of 
NT$89 million; and 
- China Engine Co., Ltd. paid the government 1 per cent of its annual sales as royalty. 
Chinese Taipei does not have other projects similar to the China Engine Co., Ltd. case. 
Question 17. 
Assistance under the Industrial Technical Hu man Resource Development Program for "pre-
job" and on–the-job training in product deve lopment, quality upgrades, industrial design, 
production automation, and manufacturing. 
Reply : 
To improve the technical skills of workers as  well as labour employment condition, Chinese 
Taipei provides both pre-job and on-the-job training. A variety of training classes are available to employees of the manufacturing, agricultural and ser vices industries with interest in attending the 
courses. The funding is given directly to the tr ainees. The "Industrial Technical Human Resources 
Development Program" is part of the vocational trai ning and is not a subsidy to the auto industries, 
nor is it a specific subsidy within the meaning of the SCM Agreement. 
Question 18. Please provide additional information on these pr ograms and include them in your notification. 
B. LOANS FOR SMALL AND MEDIUM ENTERPRISES (SME'S) Question 19. What is the definition of an SME? 
Reply
: 
According to the "Standards for Recognition as SM E", published by the Ministry of Economic 
Affairs, SME refers to an enterprise which is a company or commercial enterprise registered in 
accordance with the law with capitalization or business volume below the following thresholds: 
- for enterprises engaged in manufacturing, c onstruction, mining, or excavating business, 
paid-in capital of less than NT$60 million.  WT/ACC/SPEC/TPKM/8 
 Page 9 
 
 
- for enterprises engaged in agriculture, logging, fishing, the raising of livestock, utilities, 
commerce, transport, warehousing, communica tions, finance, insurance, real estate, 
commercial, social or individual services, business volume of less than NT$80million in the previous year. 
Question 20. 
Regarding loans to SMEs, Chinese Taipei’s notifica tion explains that all enterprises meeting the 
definition of "SME" are eligible for loans, and that 98 per cent of all enterprises in Chinese Taipei meet the definition. What is the number and range of enterprise/industries that do, in 
fact, receive these loans?  
Reply
: 
 The numbers and a breakdown of the enterprises that have received these loans are enclosed 
herewith as Attachment IV. 
Medium and Long Term Loans for Product Mark eting and Loans for Overseas Investment and 
Construction Projects 
Question 21. 
Are the subsidies available for the establishment of  sales subsidiaries in third countries? With 
regard to any foreign investments, is there any requirement to export a certain percentage of 
goods sold or components used? 
Reply : 
The current medium and long-term export loans ar e not available for the establishment of sales 
subsidiaries in third countries.  There is no re quirement of local content on loans for overseas 
investment.  
Question 22. 
Could you please define small and medium enterprise providing that such official definition 
exists in law? 
Reply : 
According to the "Standards for Recognition as SM E", published by the Ministry of Economic 
Affairs, SME refers to an enterprise which is a company or commercial enterprise registered in 
accordance with the law with capitalization or business volume below the following thresholds: 
- for enterprises engaged in manufacturing, c onstruction, mining, or excavating business, 
paid-in capital of less than NT$60 million. 
- for enterprises engaged in agriculture, logging, fishing, the raising of livestock, utilities, 
commerce, transport, warehousing, communica tions, finance, insurance, real estate, 
commercial, social or individual services, with annual business volume of less than NT$80million in the previous year. 
Question 23. 
Could you provide some more details as to th e terms of loans under these two programmes? WT/ACC/SPEC/TPKM/8 
Page 10  
 
Reply
: 
The interest rate on loans for enhancing compe titiveness: the maximum interest rate is not to 
exceed the 1 per cent above the prime rate of the Ba nk of Taiwan (the current rate is 7.4 per cent, 
published early November 1998). 
The interest rate on loans for plant site relo cations under government’s guidance: the maximum 
interest rate is not to exceed 1 per cent above the pr ime rate of the Bank of Taiw an (the current rate is 
7.4 per cent, published early November 1998). 
The interest rate on loans for urgent financing for the provision of working capital during 
periods of significant financial crisis and recession: the maximum interest rate is not to exceed the 
prime rate of the Bank of Taiwan (the current ra te is 7.4 per cent, published early November 1998). 
The interest rate on loans for urgent financing fo r major natural disasters: the maximum interest 
rate is not to exceed the prime rate of the Bank of Taiwan (the current rate is 7.4 per cent, published 
early November 1998). 
The interest rate on medium and long term loans for financing exports, overseas investment and 
construction projects: according to the regulation on  the publication of interest rate of the Export-
Import Bank, different interest rate s are applied according to the maturity of the loan. (The interests 
rates on the various financing programs of the E xport-Import Bank and OECD export credit reference 
rates are enclosed herewith as Attachments V and VI.) 
C. DUTY AND TAX EXEMPTIONS GRANTED TO ENTERPRISES LOCATED 
 WITHIN A DESIGNATED ZONE 
Duty and Tax Exemptions for High-technology Industries 
- Statute for the Establishment and Administration of a Science-based Industrial Park 
Question 24. Under our reading of Article 18 of the Statute for the Establishment and Administration of a 
Science-Based Industrial Park, ma chinery and equipment procured  domestically and sold by 
suppliers outside of the Park to enterprises insi de the Park is considered an export commodity 
and thus exempt from commodity and business tax.  However, if a domestic enterprise outside 
the Park procures an imported product for sale to an enterprise in the Park, that product is not 
exempt from these taxes. In our view, this provid es a benefit for procuring domestically since it 
will provide the procuring company a larger margin . We believe that this measure should be 
notified and discussed. 
We note that under Articles 1 and 2 of both the Commodity Tax and the Business Tax Laws, 
commodity tax and business taxes are, as a general rule, imposed on relevant imports. 
Moreover, Chinese Taipei’s notification of the EPZ tax benefits states that direct imports of 
machinery and equipment into EPZs are exempt from import duty, commodity tax and business 
tax. Such exemptions would not be necessary if  these taxes were not imposed on imports.  WT/ACC/SPEC/TPKM/8 
 Page 11 
 
 
Reply : 
In Article 18 of the Statute for the Estab lishment and Administration of a Science-Based 
Industrial Park, the second part of  Paragraph 1 provides that no refund for "tariff and commodity tax" 
shall be made. However, the current English transl ation mistakenly missed the words of "tariff and 
commodity" in that sentence, which caused some conf usion. We would like to clarify and correct the 
English translation. 
Regarding the levy of commodity tax, according to Articles 5 to 12 of the Statute for 
Commodity Tax, only eight categories of products are subject to such tax: tobaccos & alcoholic 
drinks, rubbers, cements, soft drinks, flat-glasses, o ils, electric appliances, and vehicles. It is clear 
from these provisions that machinery and equipment is not subject to commodity tax. Thus, "no commodity tax refund shall be made for imported machinery and equipment which have been duly 
taxed" provided for in Article 18 of the Statute is actually not implemented. Chinese Taipei would 
consider to amend the provision by deleting the refe rence to commodity tax to provide greater clarity 
should the inclusion of the phrase "commodity tax" in the provision give false impression that 
machinery and equipment are subject to commodity tax. 
 With respect to the levy of business tax, th e business tax is, in fact, exempted on machinery 
and equipment that is imported for resale. Such imports are covered by the very broad exemption 
from business tax under Article 41 of the Busin ess Tax Law for goods imported by businesses for 
"business operations purposes." The provisions of Artic le 18 of the Statute for the Establishment and 
Administration of a Science-Based Industrial Park  and Article 17 of the EPZ Law are redundant to 
Article 41 paragraph 2 of the Business Tax Law in respect of the business tax. 
Most of the machinery and equipment utilized by Park enterprises tend to be of high technology 
and of high precision nature which are not manufact ured by local manufacturers. Therefore, these 
machinery and equipment are mostly directly importe d from abroad by Park enterprises. To illustrate, 
in 1997, the total amount of machinery and equipment imported by Park enterprises was 
US$3.4 billion and only US$32 million worth of m achinery and equipment are procured locally, 
which indicates that there is no profit incentive for Park enterprises to procure machinery and 
equipment locally. 
Chinese Taipei does not permit the refund of customs duty unless clearly mandated by the laws 
in order to ensure the stability and predictability of  the tax regime. This is  not an uncommon practice 
in the world. The laws provide for very few situa tions for duty refund. One example is Article 36 of 
the Customs Law. 
Duty and Tax Exemptions for In-zone Enterprises 
Question 25. 
Is it a prohibited subsidy within the meaning of Article 3 of the SCM Agreement? If yes, and as 
there are no time limits attached to the program , we would like to know if Chinese Taipei takes 
into consideration provisions of Article 27.4 of the SCM Agreement? If no, why it is not a prohibited subsidy? 
Reply
: 
 In 1997, the Statute for Establishment and Administration of Export Processing Zones was 
amended. After the amendment, export performance is not a condition on producers located in the 
zone. The program thus does not constitute prohibit ed subsidy as defined in Article 3 of the SCM 
Agreement. WT/ACC/SPEC/TPKM/8 
Page 12  
 
Question 26. 
Please provide more details as to the criteria of eligibility under this programme. 
Reply
: 
The restriction on the local sale percentage  was lifted on 7 May 1997.  Application for 
establishment in the EPZ should meet the requirements set out in "Category of Industry Permissible to 
be Established in Export Processing Zones" and be reviewed for approval in accordance with 
"Measures for the Screening of Application for Es tablishment of Enterprises in Export Processing 
Zones".  A screening panel will be established to re view the proposal submitted by the applicant.  The 
panel will take into account the foll owing factors, which will be used in setting the priority: high-tech, 
high-production value, economical use of land, water, and electricity, and pollution-free. 
Question 27. 
In the context of this scheme, commodity and bus iness tax are exempted on exported goods. Are 
these exemptions specific to ent erprises located in the zones? 
According to Section 2, Paragraph 1, Article 3 of the Commodity Tax Statute and Article 7 of 
the Business Tax Statute, exports can be exempt from commodity tax, and the business tax rate 
on exported goods is zero. These tax treatments are not specific to enterprises located in the 
designated zones, as they are generally availa ble for exported goods, regardless of whether the 
manufacturers are located in the zones. 
Do companies located in the zones have to meet any export obligations? 
Reply : 
There are no export obligations for companies located in the zones. 
Question 28. 
If a company is located in an export processing zone, what percentage of its output is required 
to be exported? List all the eligibility criteria whic h have to be met if a company wishes to locate 
in such a zone. 
Reply : 
The restriction on the local sale percentage w as lifted on 7 May 1997 through amendment to the 
Statute for Establishing the EPZs. Following the amendment, manufacturers in EPZs are free to 
decide whether their products are to be exported or sold on the local market. 
Application for establishment in the EPZ should meet the requirements set out in "Category of 
Industry Permissible to be Established in Export Processing Zones" and be reviewed for approval in 
accordance with "Measures for the Screening of A pplication for Establishment of Enterprises in 
Export Processing Zones". A screening panel will be established to review the proposal submitted by 
the applicant.  The panel will take into account the following factors, which will be used in setting the 
priority: high-tech, high-production value, economic u se of land, water, and electricity, and pollution-
free.  WT/ACC/SPEC/TPKM/8 
 Page 13 
 
 
Question 29. 
If a firm does not export most of its production, what is the rationale for granting it subsidies 
which are not available to other companies producing the same product? 
Reply : 
All in-zone enterprises will be granted the sa me preferential treatments and will not be 
discriminated by product. As indicated in the draf t Working Party Report, after the amendment to the 
Statute for Establishing EPZs for the adjustment of certain measures, subsidy elements of the EPZ 
regime have been reduced to the minimum. The purpose of EPZs is to provide a sound and efficient 
administrative regime for firms located in the zones. 
Question 30. 
In the existing export zones, what percentage of production of the companies currently located 
there is exported? 
Reply : 
The export ratio of EPZs declined from 90.55 pe r cent in 1993 to 80.74 per cent during the Jan-
July period of 1998 as a result of the elimination of the export requirement in May 1997. This 
indicates the gradual decline in the export ratio following the amendment of the Statute for the 
Establishment and Management of Export Processing Zones. 
Question 31. 
Please provide a list and explanation of the crite ria for receiving authorization or approval for 
locating in an EPZ. 
Reply : 
Application for establishment in the EPZ should meet the requirements set out in "Categories of 
Industry Permissible to be Established in Export Processing Zones" and is reviewed for approval in 
accordance with "Measures for the Screening of A pplication for Establishment of Enterprises in 
Export Processing Zones". A screening panel will be established to review the qualification of the 
proposal submitted by the applicant.  The panel will take into account the following factors, which 
will be used in setting the priority: high-tech, hi gh-production value, economical use of land, water, 
and electricity, and pollution-free. All in-zone en terprises will be granted the same preferential 
treatments and will not be discriminated by product, nationality or manufacturing sector. 
The selection criteria or the requirements that a fi rm must meet to locate in an EPZ may include 
de facto  export/production requirements. The export/production ratio for EPZ enterprises is 
consistently high, 96 per cent in 1994 and 93 per cent in 1997. 
The export ratio of EPZ declined from 90.55 per cent in 1993 to 80.74 per cent  during the Jan-July 
period of 1998, with the elimination of the limit on sales to the local market. This indicates the 
gradual decline in the export ratio following the am endment of the Statute for the "Establishment and 
Management of Export Processing Zones" just over a year ago. Since the amended Statute has only 
been enforced for a short time, a certain period of time is required to fully prove the effect of the 
revision. Therefore, the current high export ratio shou ld not be viewed as indication of the existence 
of export subsidies. The calculation method af ter amendment is the percentage of export 
value/production value. WT/ACC/SPEC/TPKM/8 
Page 14  
 
Question 32. 
Do EPZs account for all domestic production of the goods and products made in EPZs?  If the 
answer is yes, what were the product-specific hi storical production/export rations prior to 
establishment of the EPZs? If no, how do produc tion/export shares of firms in EPZs compare 
with those outside EPZs? 
Reply
: 
No. Statistics show that in 1996, export/pr oduction ratio of EPZ was 89.91 per cent whereas 
export/production ratio of manufacturing of nation-wi de was 52.53 per cent. Alternatively, a better 
comparison can be made using the top industry  in the EPZ, electric and electronics machinery 
manufacturing, which makes up 82.60 per cent of  EPZ business volume. In this area, the 
export/products ratio of EPZ was 89.51 per cent and the ratio of nation-wide was 75.65 per cent. This 
clearly shows that there is no significant differe nce in the export/production ratio between EPZ and 
nation-wide production. 
Question 33. 
If exporting is not a  de facto  requirement for locating in EPZs, we would like to know what 
factors give rise to such high, sustained export /production ratios. We are not persuaded that 
this phenomenon exists only due to the nature of the firms that have applied to locate in the 
EPZ. 
Reply : 
The following factors contribute to the high exporti ng rate of the products manufactured in these 
zones: 
- the restrictions imposed on export ratios in the past, the enterprises set up in the past 
primarily targeted their products on the foreign market; 
- most of the in-zone enterprises take orders a nd instructions from foreign buyers (OEM).  
Their products are designed for the foreign market; 
- some in-zone enterprises are the subsidiaries of multinational enterprises which in general 
focused on exports.  For example, Philips’ ex port/production ratio is 95 per cent to 96 per 
cent; 
- the export processing zones have the edges of high administrative efficiency, superior 
location, access to transportation and so on.  These factors are great appeals to the 
investors which are export oriented in design. 
Moreover, EPZ has always attracted investments for ma ny reasons. First of all, the application process 
to establish an in-zone enterprise is essentially  a "one-stop" service. This means the EPZ 
Administration is the sole government agency r esponsible in processing applications, corporate 
registration and the issuance of building permit, minimizing bureaucratic red tape. 
Second, agencies crucial to trade such as Cust oms, National Tax Administration and banks all 
have operations in the zone to  facilitate every-day business. 
Third, a "satellite" network of technical support is located in and around the EPZ, providing easy 
access to down and upstream industries for suppliers.  WT/ACC/SPEC/TPKM/8 
 Page 15 
 
 
In addition, EPZs are established near ports a nd airports, providing further convenience with 
transportation in conducting businesses. 
The easy access to government agencies and fina ncial services, as well as conveniences in 
transportation are key factors which attract local a nd foreign investors to the EPZ. Currently, there are 
223 enterprises established in the EPZ, with 104 owned by local investors, 44 by foreign investors and 
75 joint ventures. Local investment accounts for 59.8  per cent, foreign investment 39.8 per cent, and 
overseas Chinese 0.40 per cent, of the total investment in these zones. 
All these factors contribute to the high exporting rate of the products manufactured in these 
zones. 
Question 34. 
According to Chinese Taipei’s notification, in-zone enterprises benefit from duty and tax 
exemptions on imported machinery and equipm ent.  Since machinery and equipment are not 
inputs consumed in the production process as specified in the Agreement, the duty and tax 
exemptions on the machinery and equipment could constitute prohibited subsidies under 
Chinese Taipei’s EPZ regime. 
Reply : 
Export performance is not a condition for in-zone enterprises to enjoy benefits from duty and tax 
exemptions on imported machinery and equipment. This practice thus does not constitute prohibited 
subsidies. In actual practice, in-zone enterpri ses enjoying tax exemption on imported machinery and 
equipment are no different from out-zone enterprises. According to Article 7 of the Business Tax 
Law, an EPZ is not considered to be within national boundaries, hence goods imported into an EPZ 
are not viewed as imports and are thus exempt fro m business tax. Moreover, Article 13 of the Statute 
for the Establishment and Management of Export Pr ocessing Zones contains stipulations of business 
tax exemption. As to businessmen outside the EPZ importing machinery and equipment, they are 
exempt from business taxes according to Article 41 of the Business Tax Law. However, although 
machinery and equipment is exempt from business ta x at import, a business tax is levied when the 
imported machinery is resold. Thus, in actual pr actice at the import stage, in-zone and out-zone 
enterprises enjoy the same business tax exempti on on imported machinery and equipment. 
Question 35. 
We seek additional information on the nature of the exemption from the deed tax.  Is the deed 
tax an indirect tax, such as a VAT, or a direct tax, such as an income tax. 
Reply : 
According to Article 13 of the "Statute for the Establishment and Management of Export 
Processing Zones", newly built standard buildings acquired from the EPZ Administration or buildings 
acquired from the EPZ Administration by the laws ar e exempted from deed tax. The deed tax is 
similar to a transaction tax, levied at the time the title of property is transferred; therefore deed tax 
should be an indirect tax according to the defin ition of the SCM Agreement. The tax authority of 
Chinese Taipei, however, treats the deed tax as a di rect tax when it does statistics compilation. The 
amount of exemption of deed tax represents only 0.000414 per cent of the total ex/imported value in 
1996 and 1997. The exemption of deed tax is not expected to occur again as all buildings of the Administration have been sold out, and in the futu re, new buildings will be constructed by means of 
BOT. WT/ACC/SPEC/TPKM/8 
Page 16  
 
D. RESEARCH AND DEVELOPMENT 
Question 36. Chinese Taipei’s notification of subsidies to th e "top-ten emerging industri es" is limited to R&D 
funding. We request additional detailed info rmation on the nature, scope, objectives and 
expenditure items of this R&D assistance. 
Reply
: 
Chinese Taipei’s land and other natural resources are li mited, with a high density of population. In 
order to resolve development bottle-necks in th e manufacturing sector and to assist structural 
adjustment of the industries, Chin ese Taipei has selected, based on six selection criteria, ten emerging 
industries for industrial development. The six selection criteria are: 
- great market potential 
- high linkage with other industries 
- high added value 
- advanced technical level 
- low pollution 
- less dependence on energy supply 
Based on these six selection criteria, Chinese Ta ipei has selected the following ten emerging 
industries for development: 
- communications 
- information 
- consumer electronics 
- semiconductors 
- precision machinery and automation 
- aerospace 
- advanced materials 
- specialty chemical and pharmaceuticals 
- medical and health care 
- pollution control and treatment 
Expenditure as R&D assistance for the ten emergi ng industries is provided in Attachment I. 
Question 37. 
We understand that these top-ten emerging industries,  individually or collectively, also benefit 
from several other subsidies that Chinese Taipei has not included in its draft notification. These 
measures include: 
(a) Low-interest loans to finance machinery  and equipment purchases for production 
automation. 
(b) Preferential financing for investment in th e production of products like HDTV, LCDs 
and CRTs is granted to manufacturers under the Program for the Development of 
Critical Components and Products (of which there are sixty-two).  Please provide 
information on the other components a nd products covered by this program.  
(c) Funding of worker training that is pro duction-process specific, such as plastic 
processing training, and the training of t echnicians, under "Human Resources Training 
Program in the Steel Industry", in refin ing, rolling and drawing, and the heat 
treatment, casting, forging and heavy -duty electro-mechanical industries.  WT/ACC/SPEC/TPKM/8 
 Page 17 
 
 
(d) Assistance to semiconductor producers, under the "Upgrading the Quality and 
Reliability of Electronic Products Plan," in obtaining certification from the IECQ " to establish an international quality image for products".  
(e) Government guarantee (endorsement) of financing used by airline companies to lease 
aircraft 
(f) Reduction of the tax rate on key additives used in the production of engineering plastics. 
We seek additional information on each of these measures and believe that they should be added 
to the draft notification. We understand, for e xample, that Chinese Taipei provides tax credits 
and preferential financing for companies that  purchase domestically produced automatic 
mechanical equipment. Receipt of tax, interest ra te subsidies and other benefits appear to be 
contingent on the use of domestic over impo rted goods and thus would constitute import 
substitution subsidies. We also note that under Article 2.3 of the Agreement import substitution 
subsidies (and all other prohibited subsidies) are,  by definition, specific within what meaning of 
Article 2.1 of the Agreement. 
Reply
: 
(a) According to Article 21 of the "Statute for Upgrading Industries", the government may 
provide loans to enterprises with a view to prom oting the sound development of industries. The 
financing is not limited to the producers in the te n emerging industries; instead, it is provided to 
enterprises of all industries. The loans are granted by financial institutions based on the investment 
benefit of the concerned products. The "low-inter est loans to finance machinery and equipment 
purchases for production automation" is offered to any public or private enterprise within the territory 
of Chinese Taipei; this means all firms, no matter in  the manufacturing, agricultural or services sector, 
are qualified for the low-interest loans when pur chasing machinery or equipment for automation. 
(b) The list of products and components covered by  the "Program for the Development of Critical 
Components and Products" is provided in Attachment II. The 62 items listed fall within the scope of 
the ten emerging industries. On the other hand, pr eferential financing under the Program are contained 
in the "Measures for Assistance in the Development of New Leading Products". The objective of the 
Program is to help the industries understand the t echnologies needed in the development of the ten 
emerging industries and encourage R&D for such technologies. 
(c) Chinese Taipei provides both pre-job and on-the -job training in order to improve the technical 
skills of workers as well as labor employment conditi ons. A variety of training courses is available to 
employees of the manufacturing, agricultural and services industries. The funding is given directly to the trainees. The "Human Resources Training Program  in the Steel Industry" is one of the many 
programs under the "Industrial Technical Human Resources Development Program", which in turn is 
part of the vocational training. The Program is not a subsidy to the steel industries, nor is it a specific 
subsidy within the meaning of the SCM Agreement. 
(d) To assist manufacturing and agricultural enterp rises in obtaining international certification, 
funds are allocated to private associations or or ganizations to help the industries improve their 
operational system. The funding available is not limited to a specific industry or enterprise. 
The IEC Quality Assessment System for Electronic Components (IECQ) is the only worldwide 
certification system for electronic components at present. Since Chinese Taipei is currently not a 
member of the International Electrotechnical Commi ssion, the goal of this program is to encourage 
participation of Taiwan Electronics Testing Ce nter and Chinese Taipei Electronic Components 
Certification Board in IECQ. The program consis ts of sponsoring IECQ seminars, assistance in 
electronics component certification, assistance in  factory diagnosis, providing information of WT/ACC/SPEC/TPKM/8 
Page 18  
 
certification techniques and other relevant areas. Th e purpose thereof is to help the industries meet 
international standards. 
(e) In the past, the government had intended to  introduce a program for providing support to air-
transport or air-craft leasing companies which seek to acquire financing for purchase of aircraft, as 
part of the "Aerospace Industry Development Prog ram". However, due to the lack of financial 
resources, the regulations required to implement th e necessary financing were never established; and 
the program was never implemente d. At present, loans for firm s in the aerospace industry are 
provided in accordance with Article 21 of the "Statu te for Upgrading Industries", which is a general 
provision applicable to all industries. 
(f) The wording "tax rate" is a mistranslation of  "tariff". The quoted sentence should read as, 
"Review the overall tariff structure regarding ra w materials for engineering plastics and make 
appropriate tariff
 (emphasis added) adjustments for key additives." Chinese Taipei offers no 
preferential tax treatment to the engineering plastics industry. 
E. OTHER ISSUES 
Question 38. 
Science-based industrial park (page 16).  Expo rt processing zones (page 18).  Tax credits  for 
the creation of internationally recognized brands  (page 7):  why is there no dada about the 
amount of the subsidy provided in the document? 
Reply : 
Statistics for Science-based indus trial park and EPZ are enclosed herewith as Attachments VII 
and VIII.  The statistics of tax credits for the cr eation of internationally recognized brands are as 
follows: 
Unit: thousand NT 
Year No. of Cases Tax Deduction Amount 
1994 16 16,304 
1995 31 31,574 
1996 34 18,987 
Total 81 66,865 
Question 39. 
Regarding the "Regulations Governing Revenue , Expenditure, Custody, and Use of Trade 
Promotion Fund."  What is the nature and scope of expenditures under Articles 5.7, 5.8, 5.11 
and 5.13?  Which industries/products benefit from these expenditures? 
Reply : 
 The purpose of the trade promotion fund (herei nafter the "fund") is to provide services to 
exporters/importers. The fees are users’ fees and fall on beneficiaries of the services provided under 
the fund. The amount of the fee charged is 0.0425 per cent of the value of the exported/imported 
goods. The amount approximates the cost of servi ces rendered and does not represent an indirect 
protection to domestic products, or taxation on im ports or exports for fiscal purposes. The fees 
collected are used solely for the purpose of pr oviding services to exporters/importers and are 
therefore, consistent with Article VIII of the GATT.  WT/ACC/SPEC/TPKM/8 
 Page 19 
 
 
The fund, as mentioned earlier, is used so lely for providing services, available on a 
non-discriminatory basis to all exporters/ importers of goods. In order to meet the rapidly changing 
trading environment, services provided under this fund include trade promotion projects, assistance 
during incidences of unfair trade practices and progr ams for the protection of intellectual property 
rights. 
Question 40. Chinese Taipei has not notified its regional ai d programme. Regional aid is by definition 
specific. Therefore, even if the programme were  to be non-actionable under Article 8.2(b), it 
should still be notified. Will Chinese Taipei include it in the notification? 
Reply
: 
Chinese Taipei agrees to notify the investment tax credit provided under Article 7 of the SUI. 
The draft notification is enclosed as Attachment III. 
Question 41. 
Chinese Taipei’s notification does not contain in formation on subsidies granted at sub-federal 
level. Does Chinese Taipei intend to id entify any of these and notify them? 
Reply : 
According to the laws of Chinese Taipei, the assessment, reduction and exemption of tax are 
within the authority of the central government; the local governments have no authority to enact 
provisions relating to the reduction or exemption thereof. Therefore, it is not possible for local governments to provide tax incentives to industries.  Chinese Taipei is not aware of any instance 
where governments at sub-central level provide subs idies that fall within the coverage of the SCM 
Agreement. 
Question 42. 
With regard to the notified subsidies, to what  extent does Chinese Taipei have discretion to 
improve the benefits on offer for companies which undertake to export a certain percentage of their output, or to use domestic goods? 
Reply
: 
With regard to the notified subsidies, Chinese Ta ipei does not have any discretion to improve the 
benefits on offer for companies which undertake to e xport a certain percentage of their output, or to 
use domestic goods.  WT/ACC/SPEC/TPKM/8 
Page 20  
 
ATTACHMENT I 
Expenditure of the R&D Assistance for the Ten Emerging Industries
 
Since the programme's inception, the accumula ted grant is NT$5,266,646,560 as at the end of 
fiscal year 1998 fiscal years 1992-1998 and the accumu lated interest-free loan is NT$5,484,898,090.  
Fiscal year 1998: NT$882,038,000** of grant and in terest free loan respectively. A  breakdown 
of the products involved is as follows: 
(Unit: thousand NT) 
Name Of Project(or Sector) Grant Interest-Free Loan 
Precision Machinery and Automation 214,938 214,938 
Communication 69,230 69,230 
Information 40,670 40,670 
Consumer electronics 177,460 177,460 
Aerospace 0 0 
Medical and health care 0 0 
Pollution control 0 0 
Advanced materials 59,700 59,700 
Semi-conductors 36,250 36,250 
Specialty chemicals and pharmaceuticals 223,790 223,790 
TOTAL 882,038 882,038 
Note : 
*In addition to the repayment of the interest-free loan, a manufacturer w ho receives assistance from the Program 
is also required to pay a feedback contribution in an amount equal to 1 per cent to 4 per cent of its sales derived 
from the sale of the newly developed products. 
**Exchange rate on June 1998 is USD1=NT$34.39  WT/ACC/SPEC/TPKM/8 
 Page 21 
  
 
ATTACHMENT II 
Critical Components and Products List
  
Critical Products  
1. Improved/Enhanced Definition TV 
2.  Digital Audio Tape Recorder 
3.  Projection TV 
4.  Electronic Still Camera 5.  Multifunction Clinical Automatic Analyzer 6.  Ultrasonic Automatical Diagnostic & Medical Equipment 
7.  Engineering Workstation 
8.  Multi-processor System 9.  High Resolution Page Printer 10.  Optical Disk Drive  
  
11.  Micro Disk Drive 12.  Digital Mobile Phone 
13.  Aircraft 
14.  IC Memory 15.  Digital Storage Oscillator, >100M 16.  Wire Cutting Machines 17.  Robots 18.  Numerically Controlled Injection 
Moulding Machines 
19.  Co-generation Equipments 20.  Multimedia System & Server 21. β-carotene 
22.  Breathable Fabric & Product 
Critical Components
 
1.  FUZZY IC 
2.  Converter 3.  Above 25inch Ca tch Ray Tube; 16x9 
 Widescreen Cathode Ray Tube 
4.  Silicon Wafer 
5.  Liquid Crystal Display 6.  Digital Audio Tape Recorder Mechanism 7.  Dynamic RAM, >4M 
8.  Static, RAM, >1M 
9.  Af-zoom Camera Lens 10.  Watch Movement 11.  Digital Signal Process IC 12.  Radio Frequency Module IC 
13.  Parts for Aircraft 
14.  Etching Aluminum Foil 15.  Thin Film Disk 16.  Charged Couple Device 17.  Light Emitting Diode Dice 18.  High Resolution Laser Engine 
19.  Spherical Moulding Lens 
20.  Built-in Main Spindle 21.  Jet Engine Compressor Blade/Turbine  Blade 22.  Transmission/Brake System for 
Bicycle  Products 
23.  Electronic Control System for  Automobile  
 24.  4-Stroke Gas Engine for Automobile 25.  Lithium Battery 26.  Micro Motor 
27.  32 Bit CPU 
28.  System Software & Software Tool 29.  Thermal Printer Head 30.  ISDN Interface IC 31.  Silicon-Electrical Steel Sheetin 
Coil 
32.  Linear Guide 33.  Read/Write Head for Disk DriverThin  Film Head 34.  p-Hydroxyl Phenyl Glycine 
35.  CNC Controller 
36.  Copper Alloy Plate & Sheet for Lead  Frame 37.  Broadband Communications IC 38.  Laser Diode Chip 39.  Scroll Refrigerant Compressor 
40.  IC Packaging Resin WT/ACC/SPEC/TPKM/8 
Page 22 
  
  ATTACHMENT III 
Notification
 
1.  Title of the program   
Tax credit for investment in disadvantaged region. 
2.  Period covered by the notification  
The fiscal year 1997 (July 1996 to June 1997). 
3.  Policy objective and/or purpose  
With the aim of achieving balanced economic grow th within the territory of Chinese Taipei, the 
means of tax credit is used to encourage i nvestment in disadvantaged geographic regions. 
4.  Background and authority  
(i). Law: 
Statute for Upgrading Industries (hereinafter  referred to as the "SUI"), Article 7. 
(ii) Responsible authority 
The Industrial Development Bureau, Ministry of Economic Affairs. 
Note : The SUI was promulgated on 29 December 1990 follo wed by an amendment on 10 January 1995, and will 
cease to be effective on  December 31, 1999. 
5.  Form   
Tax credit against corporate income tax. 
6.  To whom and how assistance is provided  
Any company incorporated under the Company La w, which makes investment in designated 
industries in a region with scanty natural resources or  with slow development, may gain credits of up 
to twenty per cent of the total amount of its investme nt against the corporate income tax levied in the 
then current year, provided it meets the threshold of  capital or the threshold number of employees.  If 
the amount of corporate income tax levied in that year  is less than the tax credit, the balance of the tax 
credit may be applied against the corporate inco me tax levied in the ensuing four years. 
The eligible geographical regions are the last  ranking eight counties in Chinese Taipei in 
terms of population, employment rate, communicati on facilities, tax revenue, average regular income 
per household, infrastructure, and other indices, plus Kinmen County and Lien-chiang County. The 
latter two Counties are two small offshore islands  with slow economic development. They would 
always be eligible if the aforementioned criteria are applied on them. 
The designated industries referred to above in clude all manufacturing industries and several 
service industries.  WT/ACC/SPEC/TPKM/8 
 Page 23 
  
 The threshold capital means the total amount used in procuring brand-new machinery, 
equipment and building aggregates to NT$25 million. The minimum number of employees means the monthly average of the number of newly employed employees in a full year amounts to fifty  persons 
or more. 
The criteria used by Chinese Taipei are more st ringent than those under Article 8 of the SCM 
Agreement. The reason for Chinese Taipei’s adop tion of factors other than the two economic 
indicators prescribed by the SCM Agreement is main ly based on the consideration that these criteria 
reflect the real condition of scanty resources a nd the slow economic development in the areas 
concerned. If the SCM’s index were applied, more regional zones would be eligible for tax credits. 
7. Amount
 
(i) Since the program's inception, the total accumulated amount is: 
NT$700,929,000 (fiscal years 1993-1997 )US$1=NT$27.81, June 1997 rate 
(ii) For the fiscal year 1997: 
NT$316,056,000 
(iii) Statistical data available for the three most recent years: 
FY 1995 FY 1996 FY 1997 
239,173,000 143,173,000 316,056,000 
8. Duration  
The program was initiated in 1993. The Statute fo r Upgrading Industries will expire in 1999, at 
which time Chinese Taipei will conduct a review of the Program. WT/ACC/SPEC/TPKM/8 
Page 24 
  
  ATTACHMENT IV 
Statistics for Specific Programs: Loaned by the Fund for 
 
the Development of SMEs July 1996 to June 1997  
Unit:  thousand NT 
Loans Approved Loans Executed Title of Program 
Number of 
Cases Total 
Amount Total 
Amount Amount provided 
by the Fund 
Specific financing for enhancing competitiveness 241 3,183,304 3,174,975 793,744 
Loans for helping enterprises restructure 
and plant site relocation 185 2,810,458 2,650,849 662,712 
Urgent financing for the provision o f 
working capital during periods o f 
significant financial crisis, recession 0 0 0 0 
Urgent financing for major na tural disasters 23 139,990 139,990 34,998 
Specific loans for mutual cooperation 0 0 0 0 
Medium and long term loans for product 
marketing, and loans for overseas 
investment and construction projects 28 396,134 303,312 303,312 
Total 477 6,529,886 6,269,126 1,794,766 
 
 
Statistics for Specific Programs: Loaned by the Fund for  
the Development of SMEs July 1995 to June 1996  
Unit:  thousand NT 
Loans Approved Loans Executed Title of Program 
Number of 
Cases Total 
Amount Total 
Amount Amount provided 
by the Fund 
Specific financing for enhancing 
competitiveness 268 3,821,080 3,857,813 964,453 
Loans for helping enterprises restructure 
and plant site relocation 264 3,595,715 3,608,715 902,179 
Urgent financing for the provision o f 
working capital during periods o f 
significant financial crisis, recession 0 0 0 0 
Urgent financing for major natural 
disasters 10  58,740  78,040 19,510 
Specific loans for mutual cooperation 0 0 0 0 
Medium and long term loans for product 
marketing, and loans for overseas investment and construction projects 9  46,210  35,711  35,711 
Total 551 7,521,745 7,580,279 1,921,853 
  WT/ACC/SPEC/TPKM/8 
 Page 25 
  
 Statistics for Specific Programs: Loaned by the Fund for 
 
the Development of SMEs July 1994 to June 1995  
Unit:  thousand NT 
Loans Approved Loans Executed Title of Program 
Number of 
Cases Total 
Amount Total Amount Amount provided 
by the Fund 
Specific financing for enhancing competitiveness 226 3,458,662 3,350,722 837,681 
Loans for helping enterprises restructure 
and plant site relocation 299 4,597,424 4,558,034 1,139,509 
Urgent financing for the provision o f 
working capital during periods o f 
significant financial crisis, recession 0 0 0 0 
Urgent financing for major natural 
disasters 71 389,740 366,240 91,560 
Specific loans for mutual cooperation 0 0 0 0 
Medium and long term loans for product 
marketing, and loans for overseas 
investment and construction projects  4  54,317  12,518  12,518 
Total 600 8,500,143 8,287,514 2,081,267 
  
 WT/ACC/SPEC/TPKM/8 
Page 26 
Statistics by Industry for Specific Programs: Loaned by the Fund for the Development of SMEs July 1996 to June 1997  
 
Unit:  thousand NT 
Specific financing for 
enhancing competitiveness Loans for helping 
enterprises restructure 
and plant site relocationUrgent financing for major 
natural disasters Medium and long term loans 
for product marketing, and 
loans for overseas investment 
and construction projects Total Title of Program 
Industry 
Cases Amount Cases Amount Cases Amount Cases Amount Cases Amount Percentage 
A. Manufacturing & 
Construction 230 3,063,604 178 2,647,868 22 134,990 25 370,526 455 6,216,988 95.21 
1. Manufacturing 230 3,063,604 177 2,637,738 20 127,100 24 310,526 451 6,138,968 94.01 
(a) Machinery and 
Metal Products 79 1,012,419 85 1,151,760 2 12,500 20 241,380 186 2,418,059 37.03 
(b). Electric 
Machinery & 
Electronics 48 626,030 23 243,260 1 1,500 3 56,555 75 927,345 14.20 
(c) Plastics 26 423,090 15 171,090 4 22,400   45 616,580 9.44 
(d) Other 
Manufacturing 77 1,002,065 54 1,071,628 13 90,700 1 12,590 145 2,176,984 33.34 
2. Construction   1 10,130 2 7,890 1 60,000 4 78,020 1.19 
B. Mining & 
Excavation 1 4,200 2 77,400     3 81,600 1.25 
C. Commerce & 
Service 10 115,500 5 85,190 1 5,000 3 25,608 19 231,298 3.54 
1. Commerce 4 25,500 2 39,900 1 5,000 3 25,608 10 96,008 1.47 
2. Transport   1 5,000     1 5,000 0.08 
3. Warehousing           
4. Communications 1 50,000       1 50,000 0.77 
5. Other Services 5 40,000 2 40,290     7 80,290 1.23 
D. Others           
Total 241 3,183,304 185 2,810,458 23 139,990 28 396,134 477 6,529,886 100.00 
  
  WT/ACC/SPEC/TPKM/8
 Page 27Statistics by Industry for Specific Programs: Loaned by the Fund for the Development of SMEs July 1995 to June 1996  
 
Unit:  thousand NT 
Specific financing for 
enhancing 
competitiveness Loans for helping 
enterprises restructure 
and plant site relocationUrgent financing for major 
natural disasters Medium and long term loans 
for product marketing, and 
loans for overseas investment 
and construction projects Total 
 Title of Program Industry
Cases Amount Cases Amount Cases Amount Cases Amount Cases Amount Percentage 
A. Manufacturing & 
Construction 263 3,766,000 260 3,563,355 10 58,740 9 46,210 542 7,434,305 98.84 
1. Manufacturing 262 3,756,000 260 3,563,355 10 58,740 9 46,210 541 7,424,305 98.70 
(a) Machinery and Metal 
Products 88 1,218,390 134 1,625,950 2 6,000 4 22,999 228 2,873,339 38.20 
(b). Electric Machinery & 
Electronics 72 1,042,830 44 574,220   1 3,210 117 1,620,260 21.54 
(c) Plastics 27 371,860 20 318,610     47 690,470 9.18 
(d) Other Manufacturing 75 1,122,920 62 1,044,575 8 52,740 4 20,002 149 2,240,237 29.78 
2. Construction 1 10,000     1 10,000 0.13 
B. Mining & Excavation   1 3,000     1  3,000 0.04 
C. Commerce & Service 5 55,080 3 29,360     8  84,440 1.12 
1. Commerce 3 38,680 2 15,360     5 54,040 0.72 
2. Transport   1 14,000     1 14,000 0.19 
3. Warehousing        
4. Communications        
5. Other Services 2 16,400     2 16,400 0.22 
D. Others        
Total 268 3,821,080 264 3,595,715 10 58,740 9 46,210 551 7,521,745 100.00 
  
 WT/ACC/SPEC/TPKM/8 
Page 28 
Statistics by Industry for Specific Programs: Loaned by the Fund for the Development of SMEs July 1994 to June 1995  
 
Unit:  thousand NT 
Specific financing for 
enhancing 
competitiveness Loans for helping 
enterprises restructure 
and plant site relocationUrgent financing for major 
natural disasters Medium and long term loans 
for product marketing, and 
loans for overseas investment 
and construction projects Total 
 Title of Program Industry
Cases Amount Cases Amount Cases Amount Cases Amount Cases Amount Percentage 
A. Manufacturing & 
Construction 220 3,329,062 293 4,532,134 62 277,740  4    54,317 579 8,193,253 96.39 
1. Manufacturing 220 3,329,062 293 4,532,134 62 277,740 4  54,317 579 8,193,253 96.39 
(a) Machinery and Metal 
Products 87 1,258,606 156 2,279,124 37 187,880 3  46,980 283 3,772,590 44.38 
(b). Electric Machinery & 
Electronics 35 604,640 29 372,850 2 11,500    66 988,990 11.63 
(c) Plastics 21 313,870 30 532,670 3  8,600   54 855,140 10.06 
(d) Other Manufacturing 77 1,151,946 78 1,347,490 20 69,760 1  7,338 176 2,576,534 30.31 
2. Construction          
B. Mining & Excavation 1 50,000  2 8,500   3 58,500 0.69 
C. Commerce & Service  5  79,600 6 65,290 5 74,500   16 219,390 2.58 
1. Commerce 5 79,600 6 65,290 4 59,500   15 204,390 2.40 
2. Transport         
3. Warehousing         
4. Communications         
5. Other Services    1 15,000   1 15,000 0.18 
D. Others    2 29,000   2 29,000 0.34 
Total 226 3,458,662 299 4,597,424 71 389,740 4 54,317 600 8,500,143 100.00  WT/ACC/SPEC/TPKM/8 
 Page 29 
  
 ATTACHMENT V 
The Interest Rates on Various Financing Programs of the Export-Import Bank
 
1. On an NT Dollar Basis (Annual Rate): 
19 September 1997 
Program Within 
3 years 3-7 
YearsOver 
7 YearsNote 
Over 180 to 360 Days Export 
Credits 
 B/A Rate Minus The interest rate will be adjusted 
on a quarterly basis. 
Medium and Long-term Export Credits 6.25 per 
cent 6.5 per 
cent 6.75 per 
cent The interest rate is on a fixed 
basis. 
Overseas Construction Credits for During The Construction Period 
Credits and Deferred Payment Credits 7.0 per 
cent 7.375 
per cent7.625 
per centDuring the construction period: 
The interest rate will be adjusted 
on a semi-annual basis.  After construction: The interest rate is on a fixed basis. 
Overseas Investment Credits 6.50 per 
cent 
 6.75 per 
cent - The interest rate will be adjusted 
on a semi-annual basis. 
Medium and Long-Term Import Credits 7.75 per 
cent 8.0 per 
cent 8.25 per 
cent Ditto 
 
2. On a US Dollar Basis (Annual Rate): 
24 February 1997 
Program Within 
1 Year 1-3 
Years3-5 
Years5-8.5 
YearsOver 
8.5 
YearsNotes 
Over 180 to 360 days Export 
Credits - After  Shipment Only LIBOR PLUS The interest rate is adjusted on
a quarterly basis. 
Post-Shipment Short-Term Export Credits LIBOR The interest rate is fixed at 
six-month LIBOR. 
Medium and Long-Term Export Credits - 6.5 per 
cent 6.5 
per 
cent 7.25 
per 
cent 7.75 
per 
cent The interest rate is on a fixed 
basis. 
Fixed Rate Relending Facility for Foreign Importers 5.5 per 
cent 5.75 
per 
cent - - - The relending bank may 
charge a maximum spread2.5 per centp.a. 
Overseas Construction Credits for During The Construction Period Credits and Deferred 
Payment Credits LIBOR PLUS The interest rate will be 
adjusted on a semi-annual basis. 
Overseas Investment Credits Ditto Ditto WT/ACC/SPEC/TPKM/8 
Page 30   
  Medium and Long-Term 
Import Credits Ditto Ditto 
Note : The interest rates shown above are subject to change.  WT/ACC/SPEC/TPKM/8 
 Page 31 
  
 ATTACHMENT VI 
OECD Export Credit Reference Rates (US$)
 
 per cent per annum. 
1998 5 years 5 to 8.5 years 8.5 years 
1/15  2/14 6.74 6.77 6.83 
2.15  3/14 6.38 6.42 6.53 
3/15  4/14 6.43 6.49 6.60 
4/15  5/14 6.57 6.61 6.71 
5/15  6/14 6.65 6.58 6.66 
6/15  7/14 6.61 6.63 6.72 
Average 6.563 6.583 6.675 WT/ACC/SPEC/TPKM/8 
Page 32   
  ATTACHMENT VII 
1.   1995-1996 Corporate Income Tax Exemption in Science-Based Industrial Park (By Sectors)
 
Unit: US$ 1 million 
Sector FY1995 FY1996 
Integrated circuit 314 182 
Computer 7 22 
Telecom 6 3 
Opto-electronics 1 2 
Machinery 0.27 2 
Biotechnology   
Total 328 211 
Note 1 : Exchange rate 
FY1995: US$1=NT$26.16 FY1996: US$1=NT$27.08 
Note 2
:  
FY1995: July 1995 ~ June 1996 FY1996: July 1996 ~ June 1997 
Note 3
: The assistance hereof is granted based on Article 15 of the Statute for the Establishment and 
Administration of a Science-Based Industrial Park. 
2. 1995-1996 Tax Credit against Corporate Income  Tax in Science-Based Industrial Park (By 
 Sectors)  
Unit: US$ 1 million 
Sector FY1995 FY1996 
Integrated circuit 70 59 
Computer 16 15 
Telecom 2 2 
Opto-electronics 0.23 1 
Machinery 0.15  
Biotechnology   
Total 89 77 
Note 1 : Exchange rate 
FY1995: US$1=NT$26.16  FY1996: US$1=NT$27.08   WT/ACC/SPEC/TPKM/8 
 Page 33 
  
 Note 2 : 
FY1995: July 1995 ~ June 1996 
FY1996: July 1996 ~ June 1997 
Note 3 : The assistance hereof is granted based on Article 6 of the Statute for Upgrading Industries. Therefore, 
the assistance is not available only for Park Enterprises. All firms meeting the requirements of the said Article 6 
are eligible for the assistance. However, the amount provided hereof only represents the tax credit enjoyed by Park enterprises under such assistance. 
3. 1995-1997 Duty & Business Tax Exemption for Imported Machinery and Equipment  
Unit: US$ 1 million 
Fiscal Year Import Value for M&E Amount of Import Duty 
Exemption Amount of Business Tax 
Exemption 
1995 1,513  113 76  
1996 3,287  247 164  
1997 3,359  252 168  
Note 1 : The amount of duty and business tax exemption for imported machinery and equipment are calculated 
by multiplying the import value of such products with an  average duty rate for machinery and equipment at 7.5 
per cent and a business tax rate at 5 per cent. 
Note 2 :  Exchange rate in FY 1995: US$1=NT$26.16 
FY 1996: US$1=NT$27.08 FY 1997: US$1=NT$27.52 
Note 3
:  The amount of import duty exemption for various tariff lines other than machinery and equipment is not 
available because of the lack of statistics for imports into the Park by tariff line. Since the duty rate applied against each tariff line differs, we can not calculate the exempted duty amount for all the imports into the Park unless we have the import statistics of the Park by tariff line. 
4. 1995-1997 Business Tax Exemption for All Imports  
Unit: US$1million 
Fiscal 
Year Total Import Value Total Amount of Business Tax 
Exemption 
1995 4,478 224 
1996 8,020 401 
1997 7,462 373 
Note 1 : Exchange rate in FY 1995: US$1=NT$26.16 
FY 1996: US$1=NT$27.08 WT/ACC/SPEC/TPKM/8 
Page 34   
  FY 1997: US$1=NT$27.52 
Note 2 :  Business tax is exempted for certain exports acco rding to Article 7 of th e Business Tax Statute. 
Whether exports are from the Park does not affect their eligibility for the exemption. Therefore, we would like to correct the information provided on page 16 of document WT/ACC/TPKM/9, which shall not include the business tax exemption for exports into the assistance of the program.  
5. Commodity Tax Exemption for Exports: Amount not available.  
Unless Park enterprises sold products to dom estic market, the Customs would not levy 
commodity tax on the products entering or leaving the Park, and therefore there are no statistics compiled for the exempted commodity tax for imports . In addition, there are no statistics compiled for 
various items imported by Park enterprises. Since the commodity tax rate applied on various items 
differs, we cannot calculate the exempted commodity tax amount without the statistics for each of the 
tariff line imported by Park enterprises. 
Note :  We also wish to correct the information provided on page 16 of document WT/ACC/TPKM/9, which 
has incorrectly included commodity tax exemption for exports into the assistance of the program. According to Article 3 of the Commodity Tax Statute, all exports ar e exempted from commodity tax. Whether exports are 
from the Park does not affect their eligibility for exemption. 
ATTACHMENT VIII 
  
Table of Percentage of EPZ Payable Tax to Export Value
 
 
Unit:US$ 
Year Item 
1996 (Jan.-Dec.) 1997 (Jan.-Dec.) 
Imported Machinery Equipment  200,446,759.49 545,365,346.82 
Imported Machinery Equipment Custom 
Duty 5,011,168.99 13,634,133.67 
Export Value Total 6,897,065,368.00 7,934,117,500.00 
Percentage 0.07 0.17 
Average Percentage 0.12 
   
Raw Material 3,786,605,222.51 4,560,542,713.18 
Raw Material Custom Duty 189,330,261.13 228,027,135.66 
Export Value Total 6,897,065,368.00 7,934,117,500.00 
Percentage 2.75 2.87 
Average Percentage 2.81 
  WT/ACC/SPEC/TPKM/8 
 Page 35 
  
  
Table of Percentage of EPZ  E xport Value to Production Value
 
 
Unit:US$ 
Year Item 
1996 (Jan.-Dec.) 1997 (Jan.-Dec.) 
Export Value Total 6,897,065.00 7,934,118.00 
Production Value Total 7,671,238.00 8,792,324.00 
Percentage  89.91 90.24 
Average Percentage 90.07 
 
__________ 