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POLICIES AFFECTING TRADE IN GOODS

VI. POLICIES AFFECTING TRADE IN GOODS

16. Chinese Taipei undertook negotiations on market access in goods. The Schedule of Concessions reflecting the results of those negotiations is reproduced in Part I of Annex I of the Draft Protocol of Accession reproduced in the Appendix to this Report.

Import Regulations

Registration of Importers and Exporters

17. Some members of the Working Party noted that Chinese Taipei required a registered importer/exporter to clear all imports and exports through its customs. Further, Chinese Taipei conditioned registration as an importer or exporter on being an enterprise in Chinese Taipei and meeting a NT$5 million minimum capital requirement. These members of the Working Party stated that they considered that the minimum capital requirement was excessive and could act as a restraint on trade. They requested that the minimum capital requirement be eliminated and that registration should be automatic, open to all individuals and enterprises interested in engaging in import/export without regard to investment or establishment in Chinese Taipei and conform to WTO rules.

18. In response, the representative of Chinese Taipei stated that the purpose of the registration requirement was not to restrain trade, but to ensure that importers/exporters had sufficient financial resources to support their import/export operations. The precondition of NT$5 million minimum capital requirement had been abolished in September 1997. With the elimination of that capital requirement, the only condition for importer/exporter registration was that the enterprise list import and/or export activities in its profit-seeking enterprise registration certificate. No fee was charged for the registration. Chinese Taipei however would like to retain the registration system, which operated as an automatic licensing procedure pursuant to the Agreement on Import Licensing

19. The representative of Chinese Taipei stated that any enterprise including sole proprietorships, interested in importing and/or exporting and having included in its profit-seeking enterprise registration certificate export/import or buying/selling as a business item, would be permitted to register as an importer/exporter. Registration as a profit-seeking enterprise required maintenance of an address in Chinese Taipei, but did not impose minimum investment or similar requirements. The registration system to become an importer/exporter would conform to WTO rules, including the automatic licensing provisions of the Agreement on Import Licensing Procedures, and would not restrain trade. The Working Party took note of these commitments.

Advertising and Trade in Alcohol and Tobacco Products

20. Some members of the Working Party considered that the rules applying to the advertising of tobacco and alcohol products, which had a stronger effect on imports, should not be used to discriminate either de facto or de jure against imported products. The representative of Chinese Taipei stated that under current law, alcohol products could be advertised on television and radio during specified times. While beer and wine could be advertised in magazines and newspapers, spirits could not be advertised in these publications. New spirits products could be advertised in magazines for a period of one year following their release onto the market. The representative of Chinese Taipei also said that advertising of tobacco products was governed by the Tobacco Hazard Prevention Act, which came into force on 19 September 1997. The rules on the advertising of tobacco products were provided in Article 9 and 10 of the Tobacco Hazard Prevention Act. The rules set out in these two articles prohibit the use of certain methods for the promotion or advertising of tobacco products, restrict the use of periodicals as a medium for the promotion or advertising of tobacco products to 120 items per year in periodicals, the types of activities or sponsorship permitted under the name of a tobacco company, and the display of tobacco products.

21. The representative of Chinese Taipei confirmed that from the date of accession Chinese Taipei would not use advertising rules to discriminate against imported tobacco and alcohol products. The one-year limitation on advertising of alcoholic beverages would be eliminated upon accession. He also stated that, upon accession, Chinese Taipei would permit advertising for alcoholic beverages in all media, subject to regulation in relation to the content and timing of advertising. He further confirmed that the advertising rules for tobacco and alcohol products and implementation of those rules would be consistent with WTO requirements from the date of accession. The Working Party took note of these commitments.

22. Concerning the right to sell and trade in tobacco and alcoholic beverages, the representative of Chinese Taipei stated that, upon accession, enterprises engaged in the distribution and/or trade of imported alcohol and tobacco products would not be required to provide information beyond that requested of firms engaged in the distribution and/or trade of like domestic products in Chinese Taipei concerning their business plans or corporate structures and that such information would be requested on the same timetable as applied to the latter firms. He also stated that taxes and other charges of whatever character, including licensing and other administrative fees, related to trade and distribution of imported alcohol and tobacco products would not be applied in excess of those applied to firms dealing with like domestic products. The Working Party took note of these commitments.

Customs Tariff

23. Several members of the Working Party requested information on the tariff structure of Chinese Taipei, the existence of bilateral rates of duty, in particular the products covered by bilateral trade concessions, the existence of mixed duties, whether trade measures were being adopted on a MFN basis, the level of average effective rates of duty and the actual levels of protection in force. Some members noted that in 1992 some 413 agricultural and 21 non-agricultural products accounting for 5.4 per cent of total tariff lines were subject to duty rates ranging from 30 per cent to 50 per cent. In response, the representative of Chinese Taipei said that since 1 September 1980, Chinese Taipei's tariff had two columns of duty rates. The differential duty rates in Column II were applied to imports from countries or areas that granted reciprocal tariff treatment to Chinese Taipei's exports. At present, Column II duty rates applied to products from 154 countries or areas which amounted for almost 98 per cent of the total value of imports. Products from the following WTO Members did not fall within Column II: Angola, Cuba, Djibouti, Republic of the Congo, Estonia, Georgia, Lithuania, Mongolia, Gambia, Mauritania, Mozambique, Myanmar, Romania, Rwanda, Uganda, Zimbabwe and The Kyrgyz Republic. The representative of Chinese Taipei undertook that upon accession to the WTO, MFN treatment would be extended to all WTO Members applying the WTO rules to Chinese Taipei. He added that between 1984 and 1992, the tariff had been revised across-the-board and duty rates have been lowered by some 50 per cent. During that same period, 668 items had become duty free, and 13165 items had their duty rates reduced. An additional tariff reduction in 1995 had further reduced duty rates on 758 items, with an average duty reduction of 2.8 per cent. Besides, the duty rates of 1,358 items had been further reduced in 1998 including 289 items in accordance with the WTO Ministerial Declaration on Trade in Information Technology products on December 1996. Further reductions for 750 tariff lines were pending in the Legislature. At present, the highest nominal duty rate was 50 per cent, but this was levied only in a few agricultural product areas. The simple average of nominal duty rates had declined from 30.81 per cent in 1984 to 8.20 per cent in 2000.

24. In response to further questions, the representative of Chinese Taipei indicated that in 1998 out of a total of 8,399 dutiable items, 42 items were subject to specific duties and 114 items were subject to mixed duties. The remaining 8,243 dutiable items were subject to ad valorem duties. Some members of the Working Party stated that, in their view, Chinese Taipei should preferably adopt an ad valorem approach throughout the tariff in order to increase the predictability and transparency of the tariff régime. The representative of Chinese Taipei said that more than 98 per cent of the tariff lines were already subject to ad valorem duties. In future reviews of its tariff system, Chinese Taipei would take into account the views of members in this respect.

Tariff Rate Quotas

25. Members of the Working Party requested information on Chinese Taipei's proposed new tariff rate quota system. In response, the representative of Chinese Taipei stated that following revision of its system of import restrictions on certain imported products, Chinese Taipei had decided to introduce a system of tariff rate quotas as described in paragraphs 27-35 below. The representative of Chinese Taipei provided further information on that scheme in document WT/ACC/SPEC/TPKM/5/Rev.1. and WT/ACC/SPEC/TPKM/7 and Corr.1. He further noted that each tariff rate quota would be recorded in Part I of Annex I to the Draft Protocol of Accession).

26. The representative of Chinese Taipei stated that for the agricultural and fish products that were subject to a tariff rate quota regime after Chinese Taipei accedes to the WTO, the quota would be allocated according to the following methods described in paragraphs 27-35 below, which would be implemented consistently with relevant WTO rules.

27. The representative of Chinese Taipei stated that Tariff Rate Quota (TRQ) allocation certificates, as import licences, would be in compliance with the Agreement on Import Licensing Procedures. All commercial terms of trade, including product specifications, origin, pricing, packaging, etc. would be at the sole determination of the parties engaged in the transaction. Partial shipments against a single allocation would be permitted. Traders would be allowed to import any product or mixture of products subject to the same TRQ as noted in the tariff schedule. All products imported under the TRQ could be distributed freely within Chinese Taipei without further trade-based restrictions. Allocation certificates would be freely transferable and tradable, and certificate holders could have certificates reissued to combine or divide allocations.

28. The representative of Chinese Taipei stated that all applications for allocation of TRQ quantities would be submitted to the Ministry of Finance (MOF). Any enterprise registered as an importer/exporter in Chinese Taipei would be eligible to apply for certificates under each of the quota allocations systems. Any domestic or foreign enterprise, including a sole-proprietorship, meeting the requirements set out in paragraph 19 above would be permitted to register as an importer/exporter in Chinese Taipei. Specific conditions for applying for a TRQ allocation would be published in the official journal sixty days in advance of the start of the application period. The application period for initial allocations should be closed by 30 November of the previous year, unless the timing of accession necessitated a change in schedule for the first year. The application period for reallocations of unused quotas would be closed by 1 September. The MOF would grant allocations and publish and notify the names of recipients and allocations within two weeks of the close of the application period for the purpose of transfer.

System 1

29. The representative of Chinese Taipei stated that the allocation of tariff quotas would be made as follows. Under System 1 (for quotas of chicken meat, pork offal, poultry offal, deer velvet, fresh pears (excluding European pears), bananas, and pork belly), the initial distribution of allocations for the first two years, certificates would be issued on a first-come, first-served basis. Allocations would be established for commercially viable shipping quantities, but a ceiling of no more than 20 per cent of the total in-quota quantity would be established in advance and published as part of the allocation notification procedures. Allocation certificates would be valid for product arriving between 1 January and 1 September. The date of arrival would be defined in accordance with Article 5 of the implementing regulations of the Customs Law of Chinese Taipei as currently in place. Upon request and proof of signed contract before 1 September, MOF would automatically extend the validity date of the certificate to cover products arriving on or before 31 December.

30. With respect to the reallocation of unused allocations under System 1, the representative of Chinese Taipei stated that in any year, if the holder of a quota allocation certificate had not contracted for import of the holder's total allocation by 1 September, the unused portion of the allocation would be reallocated on a first-come, first-served basis. The date of re-issue would be no later than 15 September. The re-issued allocation certificates would be valid for products arriving on or before 31 December.

31. The representative of Chinese Taipei stated that after the first two years, and in each year in which allocations were made under System 1, applicants for an allocation of the quota would receive an allocation at least as large as the average of the amount actually imported by the applicant in the prior two years. Any remaining quota amounts or increases in the quota amount would be allocated on a first-come, first-served basis. any and all fees, charges, deposits, duties, etc. associated with the allocation process would be made explicit in the advance public notification process, and with the exception of ordinary customs duties, would be commensurate with the cost of the services rendered. A performance bond would be required to ensure complete utilisation of the allocations. The bond would be returned to the applicant after the applicant imports its allocation before its allocation certificate expires. The bond would not be set at a level which could deter full utilisation of the TRQ or otherwise restrict trade.

System 2

32. In relation to quotas of red bean, liquid milk and peanuts, under System 2, the representative of Chinese Taipei stated that the initial distribution of allocations would be distributed once a year. Allocations would be established for commercially viable shipping quantities, but a ceiling of no more than 20 per cent of the total in-quota quantity would be established in advance and published as part of the allocation notification procedures. Allocations would be made through a competitive process. An applicant would need to bid by mail in order to obtain its allocation. Bids submitted would be arranged in a priority order according to the premium of the bid, which was the amount a bidder was willing to pay for each unit of the allocation it bids for. Quota would be allocated in this order until filled. In situations where some bids offer the same amount of premium and the quota available were not sufficient to fill each of such bids, the quota would be allocated on a pro rata basis. Successful bidders for allocations would be required to obtain their allocation certificates by paying a non-refundable premium within thirty days. The MOF would re-allocate the allocations of those failing to pay the premium accordingly. Such reallocation process would commence immediately after a period of twenty-one days for notification. Allocation certificates would be valid for product arriving between 1 January and 1 September. The date of arrival would be defined in accordance with Article 5 of the implementing regulations of the Customs Law of Chinese Taipei as currently in place. Upon request and proof of signed contract before 1 September, MOF would automatically extend the validity date of the certificate to cover products arriving on or before 31 December.

33. Concerning the reallocation of unused allocations under System 2, the representative of Chinese Taipei stated that except otherwise provided for in the preceding paragraph, by 1 September, the unused portion of the allocation, would be reallocated through a competitive process. The date of re-issue would be no later than 15 September. The re-issued allocations would be valid for products arriving on or before 31 December.

System 3

34. Concerning quotas of garlic bulbs, dried shiitake, dried day lily, young coconut, betel nuts, pineapples, mangoes, shaddocks, persimmons, dried longans and longan pulp, sugar (private sector), mackerel, carangid, and sardine (herrings), under System 3, the representative of Chinese Taipei stated that the annual distribution of allocation would be divided into one to four segments for distribution. Allocations would be established for commercially viable shipping quantities, but a ceiling of no more than 20 per cent of each segment would be established in advance and published as part of the allocation notification procedures. In addition to the announcement made in the previous year on the number of segments and the quantity of each quota segment announcements would be made twenty-one days in advance of the start of the application period for each segment amount. Allocations would be made through a competitive process. An applicant would be required to bid by mail in order to obtain its allocation. Bids submitted would be arranged in a priority order according to the premium of the bid, which was the amount a bidder would be willing to pay for each unit of the allocation it bids for. Each segment of the quota would be allocated in this order until filled. In situations where some bids offer the same amount of premium and the segment of quota available were not sufficient to fill each of such bids, the segment of quota would be allocated on a pro rata basis. Successful bidders for allocations were required to obtain their allocation certificates by paying the non-refundable premium within thirty days. The MOF would re-allocate the allocations of those failing to pay the premium accordingly. Such re-allocation process would commence immediately after a period of twenty-one days for notification.

35. The representative of Chinese Taipei noted that except as otherwise provided for in the preceding paragraph, by 1 September, the unused portion of the allocation would be reallocated through a competitive process. The date of re-issue would be no later than 15 September. The re-issued allocations would be valid for products arriving on or before 31 December.

36. The representative of Chinese Taipei stated that the new Tariff Rate Quota system described in paragraphs 27-35 above would be implemented by the date of Chinese Taipei's accession to the WTO. The Working Party took note of this commitment.

37. The representative of Chinese Taipei stated that with a view to maintaining a transparent and open TRQ administration system, upon request from any WTO Member, Chinese Taipei would consult with the Member on the administration of TRQ to ensure that the quota would be allocated in a transparent, equitable, and non-discriminatory manner and the quota would be fully utilised. The Working Party took note of this commitment.

38. Some Members of the Working Party expressed concern that Chinese Taipei's intention to allocate tariff quota access by competitive processes may not be consistent with Chinese Taipei's tariff commitments. While acknowledging that there was discussion taking place within the WTO on the legality of auctioning or tendering of market access entitlements, these Members were of the view that premiums associated with this method of allocation represented charges imposed on or in connection with imports that were inconsistent with commitments undertaken by Members under Article II:1(b) of GATT 1994. These Members sought assurances that Chinese Taipei would modify its tariff quota allocation system should it be demonstrated in the WTO that charges associated with allocation by competitive processes were WTO inconsistent.

39. The representative of Chinese Taipei stated that should it be demonstrated in the WTO that charges associated with allocation by competitive processes were WTO inconsistent Chinese Taipei would promptly modify its tariff quota allocation system to bring it into conformity with WTO requirements. The Working Party took note of these commitments.

Other Duties and Charges (Article II:1(b))

40. The representative of Chinese Taipei stated that except as provided in the Schedule of Concessions on Goods (Part I of Annex I to the Draft Protocol of Accession of Chinese Taipei) all other duties and charges covered by Article II:1(b) of the GATT 1994 would be bound at the level of zero. The Working Party took note of this commitment.

Fees and Charges for Services Rendered

41. The representative of Chinese Taipei said that there were no taxes, charges or fees levied on imports only. The trade promotion fee authorized by the Foreign Trade Act had a ceiling of 0.0425 per cent, and was collected on all imports and exports exclusively to promote import and export trade. He stated that the Trade Promotion Fee was a very small charge, no more than 0.0425 per cent of customs value (currently only 0.0415 per cent), applied to both imports and exports to fund trade promotion activities. He added that in addition to import tariffs and taxes applied equally to imported and domestic products (e.g., the Commodity Tax, the VAT, and the Alcohol and Tobacco Tax), the Harbour Construction Dues and the Trade Promotion Fee were the only charges applied to imports. In response, some members of the Working Party stated that the Trade Promotion Fee did not appear to be consistent with Article VIII of the GATT 1994. In response to questions concerning the Harbour Construction Due, the representative of Chinese Taipei explained that the customs authorities collected a Harbour Construction Due for goods entering Chinese Taipei through ports. The levy, introduced in 1948 to fund harbour expansion and maintenance, was imposed at the fixed rate of 0.4 per cent and did not apply to inter-island trade.

42. Some members of the Working Party stated that they considered that this levy and fee were inconsistent with Article VIII(1)(a) of the GATT 1994. These members of the Working Party considered that the levy and fee discriminated against imports because they were only applied to imported goods and not to like domestic products and they were not in conformity with Article III of the GATT 1994. Some members of the Working Party pointed out that the ad valorem nature of the Harbour Construction Dues and the Trade Promotion Fee made it impossible for them to reflect the approximate cost of the services rendered. The representative of Chinese Taipei said that both the Harbour Construction Dues and the trade promotion fee applied to imports as well as exports. In his view, the Harbour Construction Dues could be treated as an internal tax or a service fee to improve port facilities and services. Chinese Taipei considered both the Harbour Construction Dues and the trade promotion fee to be service fees as contemplated under Article VIII of the GATT 1994. He acknowledged that 25 per cent of the Harbour Construction Dues proceeds were used to provide financial assistance to the cities where the harbours were located. Upon accession to the WTO, the revised Commercial Port Law would require that any revenue generated through the Harbour Construction dues be used exclusively for the development of commercial harbours.

43. Some members of the Working Party stated that the levy of 0.4 per cent was a revenue charge to fund harbour up-keep and expansion based on import taxation, and was not a charge for specific services rendered. This levy and the trade promotion fee should be brought into conformity with GATT 1994 in advance of Chinese Taipei's accession. The representative of Chinese Taipei stated that after reviewing the comments made by Working Party members, Chinese Taipei had decided to bring the Harbour Construction Dues into conformity with Article VIII of the GATT 1994. He added that the Trade Promotion Fee would not be revised because it was considered in conformity with GATT 1994 Articles III, and VIII. In addition, neither charge would be increased in its level of application, or included in the taxable base of imports for the purposes of applying domestic taxes such as the Commodity Tax. If requested, Chinese Taipei would consult with the Members concerning the effect of these measures on their trade. Some members reserved their position in relation to the Trade Promotion Fee which they considered incompatible with Chinese Taipei's WTO obligations. These members expressly reserved the right to pursue this issue pursuant to the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes.

44. The representative of Chinese Taipei confirmed that the Trade Promotion Fee would be applied in conformity with WTO obligations and would not exceed 0.0425 per cent of the customs value of the good. The Working Party took note of these commitments.

45. The representative of Chinese Taipei stated that Chinese Taipei would bring the Harbour Construction Dues into conformity with Articles III and VIII of the GATT 1994 upon accession. The Harbour Construction Dues would be based on the cost of the services provided and not applied on an ad valorem basis. The Harbour Construction Dues would also be applied to all trade, including inter-island trade. Within the same time-frame Chinese Taipei would exclude these charges from the valuation base for the application to imports of domestic taxes, such as the Commodity Tax and the Tobacco and Alcohol Tax. The current Harbour Construction Dues were 0.3 per cent of the taxable base. The Working Party took note of these commitments.

Internal Taxes Applied to Imports

46. In response to questions, the representative of Chinese Taipei stated that VAT, Commodity Tax, tobacco and alcohol monopoly tax were applied equally to imported and domestic products.

Commodity tax

47. Some Working Party members sought information from Chinese Taipei on the application of the special commodity tax. In response, the representative of Chinese Taipei said that the tax was imposed on imported goods at the time of importation, and on like domestic goods upon their release from the factory. For imported goods, the amount of the commodity tax was the taxable value established in accordance with the Customs Import Tariff, plus customs duties, plus harbour construction dues multiplied by the tax rate. For domestic goods, the amount of the tax was calculated on the basis of one of two methods. The first method applied when the manufacturer sold products through wholesalers or if the manufacturer was paid to manufacture the products for others. The second method considered a 12 per cent promotional expense. The goods subject to the commodity tax were: rubber tires, cement, machine-made cool drinks, flat glass, oil and gas, certain electric appliances and motor vehicles. Chinese Taipei believed that many Working Party members had similar practices. He noted that the 12 per cent promotional expense represented a manufacturer's typical promotion expense. The tax allowed a deduction of 12 per cent for promotional expenses when goods were circulated not through an exclusive wholesaler or distributor. Chinese Taipei considered that it treated imported goods the same as the goods sold through distributors, and did not discriminate against imports. The commodity tax was a special excise tax. The determination of the tax base had taken into account common practices. The 12 per cent deduction only applied if the domestic sales were not through a sole distributor. In response, some Working Party members noted that a critical consideration in the application of this internal tax was consistency with national treatment and other WTO obligations and the avoidance of subsidization.

48. Some members of the Working Party were of the view that the basis for the application of the commodity tax to imports was artificially inflated because the tax base of domestic and imported goods were different. Domestic goods were assessed on an ex factory basis, excluding the cost of delivery and transfer of the goods to the wholesale level whereas the base for imported goods was the import value plus transportation, insurance and other customs charges and customs duty. They also noted that domestic goods profited by having an additional 12 per cent deduction for promotional expenses prior to the calculation of the tax. These members of the Working Party considered that Chinese Taipei should address the central issue of equal application of the tax. The bases for calculation of the tax were inequitable, and the incorporation of a 12 per cent differential in the valuation of imports and domestic products based on the concept of promotional expenses could not be justified, and should be eliminated prior to accession. Those members considered that due to the different tax bases, the tax was applied in a manner that were not in conformity with Article III of the GATT 1994. They stated that Chinese Taipei should eliminate by the date of its accession any domestic tax measures or methods of applying domestic taxes whose applications vary according to whether the items were locally manufactured or imported.

49. The representative of Chinese Taipei stated that from the time of Chinese Taipei's accession, changes to the Commodity Tax would modify the base for the tax. From that date, the tax would be calculated on the basis of the sale price. The sale price was the manufacturer's wholesale price for the current month; if the manufacturer sold directly to retailers, wholesale profit could be deducted from the selling price. Deductible wholesale profit rate was determined on an industry-by-industry basis. Imported goods were taxed on the basis of their CIF value and therefore were not eligible for the tax adjustment. He further added that in order to equalise the treatment of domestic and imported products, prices of domestic manufactured goods sold directly to retailers contained elements of wholesale profits which were not included in the tax base. He further stated that the current practice of assessing the commodity tax based upon engine displacement of automobiles and the licence plate tax was fully consistent with Article III of the GATT 1994. Some members of the Working Party were of the view, however, that application of a tax based on characteristics such as engine displacement could de facto discriminate against imports.

50. The representative of Chinese Taipei stated that Chinese Taipei would amend its laws to remove the 12 per cent allowance provided when goods were circulated not through an exclusive distributor, and would use selling prices as the base for levying the commodity tax. He further stated that Chinese Taipei would eliminate by the date of its accession any domestic taxes, tax assessment methods or application of them which was inconsistent with Article III of the GATT 1994. The Working Party took note of these commitments.

Business Tax: Gross Business Receipt Tax and VAT

51. Some members of the Working Party asked Chinese Taipei to describe the application of the business tax, its scope and level of application, the portion of the tax revenue accounted for by imports, etc. In response, the representative of Chinese Taipei said that Business Tax applied to the sale of goods and the rendering of services. The tax was levied in two forms. The first form was a general sales tax which applied to the business of insurance, banking, investment trusts, securities, agricultural wholesale, pawn shops and small business operators. The second form, a VAT business tax, applied to all other businesses. The VAT was applied at the rate of 5 per cent, to both domestic and imported products. All goods, both domestically manufactured and imported, were generally taxed at the point of sale. Revenue from both kinds of tax imposed on imported goods had represented 1.24 per cent of total tax revenue in 1999 (1 July 1998 to 30 June 1999). Chinese Taipei considered that the imposition of the tax at the point of sale simplified the procedure by levying the tax on the taxable goods' imported value and the importers' added value jointly, rather than separately. However, in some cases, to minimise tax avoidance imported goods were subjected to business VAT at the time of importation. The reason for this was that if business VAT was levied at the time of sale, it was possible that certain imported goods with particular end uses could avoid payment of the tax, i.e. motor vehicles imported for personal use, or goods imported by a financial institution. He further noted that because the tax paid on inputs could be deducted from the tax paid on outputs collected from purchases, goods imported for use and goods imported for resale were not differentiated at the time of importation. In relation to the tax base for calculation of the amount of business VAT payable, the representative of Chinese Taipei noted that imported goods were taxed on the basis of the customs duty paid value plus the commodity tax, if applicable. The harbour construction dues would be removed from the tax base. If the commodity tax was payable, the commodity tax formed part of the value added, and was counted as the tax base for the business, whether the goods were imported or manufactured domestically. In addition, the business importer could deduct the input tax from the output tax and was only taxed for the value added to the goods. Therefore, there was no double counting or "tax-on-tax". He added that Chinese Taipei, after examining whether all goods could be taxed at the time of importation, had found that it was common practice in those economies which imposed VAT to levy the tax at the time of importation.

Monopoly tax on tobacco and wine

52. Some members of the Working Party sought information on the monopoly tax for tobacco, wine, spirits and beer. In their view, there was a serious transparency problem in this sector. In response, the representative of Chinese Taipei confirmed that imported tobacco and wine were subject to a Monopoly Tax, in lieu of customs duty, harbour construction fees, commodity tax and value-added business tax. The Monopoly Tax imposed on domestic tobacco and wine products was assessed on an ad valorem basis, equivalent to the operating revenue minus all relevant cost and expenses of the Taiwan Tobacco and Wine Monopoly Bureau (TTWMB) and was considered a sales tax. On average, imported tobacco and wines were subject to the Monopoly Tax at the rate of approximately 120 per cent of the import price. Some members of the Working Party requested that Chinese Taipei provide information on cost of production, and indicate how the TTWMB's methodology to determine the tax rate complied with the GATT 1994, in particular Articles I, III, X, XI, XVI, and XVII, a list of the taxes applied to imports, their negative rates, the value basis as well as the methodology used to determine that domestic tobacco, spirits and wine were subject to a tax rate of approximately 185 per cent of cost.

53. Some members of the Working Party reiterated their concerns in relation to the operation of the Monopoly Tax scheme, particularly in relation to the lack of sufficient transparency in its operation. Without the availability of data to calculate domestic costs, it was not possible to accurately determine whether the Monopoly Tax was equally applied to domestic and imported products. In their view the Monopoly Tax appeared to have a greater impact upon imported products. They did not consider Chinese Taipei's explanations of the methodology used to determine the Monopoly Tax adequate, substantiated and verifiable. It was not possible to conclude that domestic and imported products were taxed in an equivalent manner. As there were large discrepancies between the rates quoted by Chinese Taipei and the information available to national authorities, it also appeared that the tax system was discriminatory. Those members stated that no transition period would be appropriate. Chinese Taipei should either eliminate the Monopoly Tax on imports of wine and distilled spirits immediately upon accession or replace the Monopoly Taxes with reasonable ad valorem import duties, and ensure that internal taxes applied equally to domestic and imported wine and spirits. These members of the Working Party disagreed with the view that a system for the ad valorem taxation of domestic goods based on net profits of the TTWMB could be considered as equivalent to a specific tax on imported goods. It appeared to these members that due to the lack of transparency mentioned above, there were problems in assessing the consistency of the Monopoly Tax system with the GATT 1994. Nevertheless the Monopoly Tax for imported wine, cigarettes and distilled spirits was significantly higher than the effective tax rate for similar domestic products in breach of Article III of the GATT 1994. These members requested, therefore, that the operation of the TTWMB be altered prior to Chinese Taipei's accession, to enhance transparency and to operate in a manner consistent with the provisions of the GATT 1994. The official monopoly plan ought to be liberalised and the trade impact of the plan fully reviewed prior to accession. The representative of Chinese Taipei said that due to the alteration of the scheme over recent years, the Monopoly Tax on imported products tended to be lower than the tax applied to domestic products. In any event, the Legislature was determined to repeal the tobacco and wine monopoly system. Alcohol and tobacco products were classified according to production methods and other features, with different tariff rates and taxes applying to different products. Classification and tariff and tax rates were carefully monitored in order to ensure that no discrimination occurred between domestic and imported goods.

54. Some members of the Working Party asked that details be provided of the scheme which would replace the Monopoly Tax and reiterated that no transitional period was appropriate for a situation which was in clear breach of Article III of the GATT 1994. The representative of Chinese Taipei responded that public hearings had been completed, and a plan had been developed. He provided the Working Party with a summary of the reform plan and said that he considered that the future regime would improve trade in alcohol and tobacco products. The new scheme would be implemented upon Chinese Taipei's accession.

55. The representative of Chinese Taipei stated that, upon accession, the Monopoly Tax would be abolished and that tobacco and alcohol products would be subject to (i) import duties as reflected in Chinese Taipei's Schedule of Concessions (Part I of Annex I to the Draft Protocol of Accession) in the same manner as other imported products, (ii) the tobacco and alcohol tax, and (iii) business tax. The representative of Chinese Taipei also stated that from the date of accession internal taxes and charges of whatever character related to trade and distribution of alcohol and tobacco products would be applied equally to domestic and imported products, including with respect to domestic distribution and sales of these products without regard to the ownership of the enterprise. The Working Party took note of these commitments.

Quantitative Restrictions

Area restrictions

56. In the early stages of the Working Party, some members noted that discriminatory area restrictions were imposed on many products: (i) peaches: limited to imports from Europe and the United States; (ii) lemons and limes, grapes, plums, whole ducks, turkey cuts: issuance of import licenses was suspended except for imports from the United States; (iii) oranges and other mandarins, including tangerines and satsumas, and grapefruits: imports from the United States were free, imports from South Africa were limited in quantity; (iv) apples: imports from the United States and Canada were free; imports from other areas were subject to quantitative restrictions. In response to requests from Members for updated information on area restrictions, the representative of Chinese Taipei stated that as of May 1999, (i) peaches: limited to imports from Europe and the United States, imports from Australia and New Zealand were limited in quantity; (ii) lemons and limes: limited to imports from the United States; imports from Argentina, Australia and European Union were limited in quantity; (iii) grapes: limited to imports from the United States; imports from Chile were limited in quantity; (iv) plums: limited to imports from the United States; imports from Australia, Chile and New Zealand were limited in quantity; (v) whole ducks, turkey cuts: issuance of import licenses was suspended except for imports from the United States; (vi) oranges: imports from the United States were free, imports from Australia, European Union and South Africa were limited in quantity; (vii) other mandarins, including tangerines and satsumas: imports from the United States were free, imports from European Union and Japan were limited in quantity; (viii) grapefruits: imports from the United States were free, imports from Argentina, Australia and South Africa were limited in quantity; (ix) apples: imports from the United States and Canada were free; imports from Argentina, Australia, Chile, European Union, France, Japan, New Zealand and South Africa were limited in quantity; (x) young coconuts: imported from the Philippines, Malaysia and Thailand were limited in quantity. There were also restrictions on cigarettes and bilateral agreements on the importation of beer, wine and cigarettes. In the view of some members, the area restrictions and similar exclusive access accorded for additional agricultural products were discriminatory trade measures inconsistent with the GATT 1994 and, in particular, the MFN principle. Those members emphasized that there was no justification to permit the continuation of such discrimination. Chinese Taipei should eliminate those measures from the date of its accession to the WTO.

57. In response the representative of Chinese Taipei said that the area restrictions and similar measures operated to maintain the diversity in the origin of imports and to maintain trade balances with certain areas, or to facilitate agriculture restructuring. Only a small percentage of industrial and agricultural products were subject to these discriminatory restrictions. Area restrictions for alcoholic beverages and cigarettes had been eliminated on 1 September 1994. The tariff rate quota offered as a liberalization measure to be implemented after accession for young coconuts would be distributed as described in paragraphs 27-35 through procedures consistent with the relevant provisions of GATT 1994 and the Agreements on Agriculture and Import Licensing Procedures.

58. With regard to automobiles, some members noted that Chinese Taipei's Import Regulation 209, provided that only motor vehicles from "Europe and the American Continent" may be imported into Chinese Taipei. The representative of Chinese Taipei agreed that this restriction was discriminatory. It was imposed pursuant to the Automobile Industry Strategic Development Plan. Chinese Taipei's car industry was currently not a competitive one, as the size of the market was not substantial enough to allow for economies of scale. The total production value in 1992 was US$8.2 billion, representing 5 per cent of the total production value of the whole manufacturing sector. Workers directly employed in the car industry were in the number of 120,000. A sudden opening of the market would result in serious economic and social problems.

59. Some members of the Working Party stated that a transitional period was not appropriate, and that the area restrictions on automobiles should be eliminated prior to accession. In response, the representative of Chinese Taipei undertook to eliminate the area restrictions on automobiles. Up to now the liberalisation of car imports had proceeded as follows: (i) heavy trucks could be imported freely from February 1994; (ii) passenger cars could be imported without quantitative restrictions from North America and Europe (excepting Eastern Europe). Passenger cars from other areas were currently under either quantitative or area restrictions; (iii) light trucks and station wagons could be imported freely from North America and Europe. Imports of light trucks and station wagons from other areas were currently under either quantitative or area restrictions. He assured the Working Party that it was not the intention of Chinese Taipei to employ measures not permitted by the WTO Agreement, such as voluntary export restraints or other grey area measures to liberalise automobile imports.

60. At the request of some members of the Working Party, the representative of Chinese Taipei provided a comprehensive listing, covering both tariff and non-tariff measures, of all trade preferences in force. He added that once area restrictions were eliminated, there would remain no trade preferences extended on a bilateral basis. The representative of Chinese Taipei assured the Working Party that area restrictions would be brought into conformity with the requirements of the WTO Agreement. He confirmed that area restrictions for alcoholic beverages and cigarettes had been eliminated from 1 September 1994.

61. The representative of Chinese Taipei stated that area restrictions applying to imports of certain passenger cars and certain small commercial vehicles, certain automobile chassis and motorcycles would be eliminated upon Chinese Taipei's accession to the WTO. Passenger cars, light commercial vehicles and certain fish products were the only industrial products that would be subject to tariff-rate quotas after WTO accession. For passenger cars and light commercial vehicles, the tariff rate quotas would be increased at the annual rate of 20 percent. The transition period of the tariff rate quota system would be eight years after the accession year. Chinese Taipei also undertook that upon its accession, area restrictions on agricultural products, except young coconut which would be subject to tariff rate quotas, would be eliminated. These tariff rate quotas would be administered in a manner consistent with the requirements of the WTO Agreement, in particular the Agreement on Agriculture, the Agreement on Import Licensing Procedures and GATT 1994. The Working Party took note of these commitments.

Import Licensing

62. Several members of the Working Party noted that historically Chinese Taipei had maintained a complex network of non-tariff measures consisting of quantitative restrictions affecting some 27 items, non-automatic import licensing affecting some 246 items, including 27 items which were subject to quantitative restrictions and standards inspections, quarantine, labelling requirements, etc. These members requested detailed information on the schemes. Some members added that the bans on liquid milk, rice, passenger cars equipped with diesel engines and motorcycles of 150cc or more, applied by Chinese Taipei were inconsistent with WTO obligations and would have to be eliminated. These members requested that Chinese Taipei eliminate, prior to accession to the WTO, all import restrictions inconsistent with the GATT 1994 and the WTO Agreements, in particular the Agreements on Agriculture, Sanitary and Phytosanitary Measures and Technical Barriers to Trade.

63. In response, the representative of Chinese Taipei said that a system of licensing had been operating in relation to the importation of certain products that consisted of area restrictions, discretionary licensing and import controls. Automatic licensing operated to grant an import license without requiring the Customs to screen the goods. Discretionary licensing required that the Board of Foreign Trade issued import licenses for certain products, following approval by consent letter of the relevant agencies. In the case of such products, the Council of Agriculture, Industrial Development Bureau, Department of Health, Environmental Protection Administration and other agencies were required to consent to the issue of licenses for both import controls and discretionary licensing in respect of products falling within their respective jurisdictions. Once the importation was approved, the Board of Foreign Trade issued an import license.

64. The representative of Chinese Taipei stated that as a result of the concerns expressed by members of the Working Party, Chinese Taipei had decided to establish a "Negative List" system. The Negative List system would streamline the importation process and replace all pre-existing licensing requirements, except in cases where the product had essential security, public order, public health, or environmental protection implications. The Negative List would result in the issuing of licenses by the relevant agencies according to an objective standard, and in a transparent manner. He noted, however, that some items on the automatic license list would become subject to quantitative restriction or import ban under the Negative List system, due to the re-categorisation of those items. For products subject to import monopolies, consent letters would only be granted to importers enjoying an import monopoly. The procurement practices of the government agencies enjoying the import monopoly would be made consistent with Article XVII of the GATT 1994.

65. The representative of Chinese Taipei outlined the operation of its Negative List system under the June 1997 version as follows. Items were listed in either Table I (Table of Commodities Subject to Import Control) or in Table II (Table of Commodities Subject to Conditional Import). Items listed in Table I could not be imported unless specially approved by the Board of Foreign Trade or other relevant authorities, which were listed in Import Regulations 111/112. Items listed in Table II required that an import license be issued prior to importation, by the Board of Foreign Trade or its designated licensing banks i.e. Import Regulations 121/122. Tables I and II constituted the Negative List. In respect of items that had previously required a license issued by the Board of Foreign Trade but were not retained in the Negative List, if they were subject to administration requirement, which had no trade restriction effect, the Customs were required to carry out an inspection to determine that all requirements for importation were fulfilled. The items subject to that requirement were listed in the "List of Commodities Entrusted to Customs for Import Examination" ("the Entrusted List"). The Entrusted List was published together with the Negative List in a consolidated volume arranged by HS Code number. The Negative List and the Entrusted List each accounted for 8 per cent of tariff lines, the remaining tariff items were free of this requirement. Items contained in Table I were subject to general import bans, which in respect of most products were justified under Articles XX and XXI of the GATT 1994, whilst others were required to protect domestic sectors. In the case of bans necessary to protect domestic sectors, an entitlement to import the necessary quantity could be auctioned when domestic production fell short of demand. He stated that upon accession, the items listed in Table I could be moved to Table II if quotas or tariff quotas were used as transitional measures.

66. In response to further questions from members of the Working Party, the representative of Chinese Taipei explained that the decision whether a product should be included in the Negative List was taken by government agencies. The legal basis for including items in the negative list was Article 11 of the Foreign Trade Act, which permitted the imposition of a restriction if the restriction was necessary to fulfil obligations under international treaties or trade agreements, or for defence purposes, social security, culture, human health, environmental protection reasons or to implement specific policies. After accession the inclusion of new items would be subject to a review procedure to ensure WTO consistency. Although the legislation did not specifically provide for interested parties to make representations concerning the inclusion of an item in the negative list, existing practice permitted such representations to be made to decision makers. The practice of inviting interested parties to express their view when considering changes to the Negative List would be continued. Following accession to the WTO, the number of items included in the negative list would be substantially reduced; inclusion of new items would be subject to a review procedure to ensure WTO consistency. He also noted that the effect of the recent Foreign Trade Act was to limit the types of considerations required to be taken into account by administrators when deciding whether items were to be included in the Negative List as subject to new import licensing requirements. The Working Party took note of this commitment.

67. Several members of the Working Party indicated that all bans and restrictions set out in the Negative List, and the requirements for import licensing being issued by more than one regulatory agency should, be brought into full conformity with the WTO Agreement, especially the Agreement on Import Licensing Procedures. In particular, a member of the Working Party noted that some of Chinese Taipei's stated reasons for restrictions did not appear consistent with WTO requirements, e.g., restrictions required to protect domestic sectors. This member requested specific justifications for any import restrictions maintained or imposed in the future. A general statement that import bans, which in respect of most products were justified under Articles XX and XXI was insufficient to evaluate any commitment. In response, the representative of Chinese Taipei noted that although the Agreement on Import Licensing Procedures allowed Members to have more than one import licensing entity, Chinese Taipei would work towards a system that required import licenses to be obtained from one regulatory entity only. Some members of the Working Party said that all import bans, quantitative restrictions import licensing restrictions, and other non-tariff measures inconsistent with the requirements of the WTO Agreement would have to be eliminated prior to Chinese Taipei's accession. Some members of the Working Party said that if Chinese Taipei believed that certain of its import bans, quantitative restrictions and administrative requirements were not inconsistent with the provisions of the WTO, the onus was on Chinese Taipei to demonstrate this. They requested Chinese Taipei to modify this list to show: the precise description of the product affected by HS number, the measure or measures applied to each, the specific WTO provisions which justified the maintenance of the measure or measures and the responsible agency. If border measures were to be justified to enforce Technical Regulations or Sanitary and Phytosanitary Measures, the table should also show the relevant national standard(s) and any international standard(s). The Working Party would then be in a position to examine the matter further. The representative of Chinese Taipei stated that a table containing the justifications for placing items on the Negative List would be submitted to the Working Party.

68. The Consolidated List of Commodities Subject to Import Regulations and Commodities Entrusted to Customs Import Examination was referred to in Attachment C to this Report. The representative of Chinese Taipei undertook to notify any changes introduced to the Consolidated List in accordance with the Agreement on Import Licensing Procedures. The Working Party took note of these commitments.

69. In response to a request that Chinese Taipei produce a plan for the elimination of quantitative or other non-tariff measures on fish, the representative of Chinese Taipei stated that Chinese Taipei would eliminate all quantitative restrictions on these products from the date of accession, with the sole exception of import bans on mackerel, carangid and sardines. The existing import controls for mackerel, carangid and sardines would be replaced by tariff rate quotas which would be distributed, as indicated in paragraphs 27-35, through procedures consistent with GATT 1994 and the Agreement on Import Licensing Procedures. The Working Party took note of these commitments.

70. Some members of the Working Party noted the continued application of non-tariff measures to imports of certain yachts and recreational fishing vessels and a ban on the importation of motorcycles, including those with reciprocating internal combustion piston engines of a cylinder capacity exceeding 150cc. These members of the Working Party stated that the restrictions were not justified under the WTO Agreement. In addition, some members noted that Chinese Taipei had not developed appropriate emission standards for motorcycles over 150cc which in itself could preclude effective market access even if the formal ban was eliminated. Finally, those members noted that Chinese Taipei restricted motorcycle access on certain major highways in Chinese Taipei. These issues would need to be addressed at the time the ban was eliminated to ensure effective market access for these products.

71. The representative of Chinese Taipei stated that upon accession, Chinese Taipei would implement a licensing system for recreational fishing vessels that conformed to the automatic licensing provisions of the WTO Agreement on Import Licensing Procedures and would require importers to have an approved abandonment/replacement right as applicable to domestically built fishing boats. He also stated that Chinese Taipei would eliminate the import ban on motorcycles over 150cc six months after accession to the WTO and would permit their import. At that time, Chinese Taipei would implement emission standards for motorcycles over 700cc comparable to international standards. The representative of Chinese Taipei also stated that the restrictions on motorcycle access to roads would generally apply only to the two major cross-island motorways in Chinese Taipei. He stated that restrictions on motorcycle access to roads would not be barriers to market access and that Chinese Taipei would consult, upon request of a WTO member, regarding road access restrictions and their effects. The representative of Chinese Taipei further stated that Chinese Taipei would eliminate the import ban on passenger cars equipped with diesel engines two years after accession to the WTO. The Working Party took note of these commitments.

72. The representative of Chinese Taipei said that from the date of accession, Chinese Taipei would apply its import licensing and quantitative restrictions regime in strict conformity with WTO Agreements, in particular with the Agreements on Agriculture and Import Licensing Procedures. Chinese Taipei would also ensure that the distribution of import licenses, quotas, tariff-rate quotas, permits or any other means of approval for importation or the right of importation by all levels of government would not be conditioned on whether competing domestic suppliers of such products exist or on performance requirements of any kind, including but not limited to local content or mixing requirements, the transfer of technology, the conduct of research and development, minimum export requirements, or on the origin or nature of the enterprise. Chinese Taipei would ensure that price increases, if any, in respect of imports by state trading enterprises would be imposed in a manner consistent with the requirements of Article II:4 of GATT 1994 and Article 4.2 of the Agreement on Agriculture. The Working Party took note of these commitments.

73. The representative of Chinese Taipei said that Chinese Taipei also undertook to eliminate and not reintroduce or apply import bans, quantitative restrictions, licensing restrictions, or other non-tariff measures having similar effect which were not justified under specific provisions of the WTO Agreement. He also noted that Chinese Taipei would not use measures related to customs procedures and technical product or safety standards and sanitary and phytosanitary measures as disguised barriers to trade and that any measures applied would be no more restrictive than necessary to accomplish their legitimate goals. The Working Party took note of these commitments.

Customs Valuation

74. Some members of the Working Party requested information on the system of customs valuation in Chinese Taipei. In response, the representative of Chinese Taipei stated that paragraph 1 of Article 12-1 of the Customs Law reflected the situations in which the transaction price would not be used as the basis of customs value. The transaction value would not be used when the invoice price did not include the cost adjustments provided under Article 12 of the Customs Law and the importer failed to provide objective and quantifiable information to support the price calculation. In addition, if the Customs had any doubts concerning the adequacy or accuracy of an invoice, it normally requested the importer to provide an explanation or other evidence to substantiate the validity of the invoice. If the importer refused to give explanations or the evidence provided contradicted the facts, and further investigation proved that the invoice price was not the price actually paid or payable, the Customs could determine that the invoice price would not be accepted as the customs value. In such a circumstance, Article 12-2 to 12-6 of the Customs Law provided that the value was assessed in the following sequence: firstly, the transaction value of identical goods; secondly, the transaction value of similar goods; thirdly, the deductive value; fourthly, the computed value; and, fifthly, any other reasonable value.

75. Some members of the Working Party asked whether any minimum import values were used in Chinese Taipei. The representative of Chinese Taipei replied that although Article 12 of its Customs Law provided for use of a duty paying value list which provided a pre-determined value for imported products, the government, by administrative order, had eliminated the pre-determined values. The discretionary power had been eliminated as the result of the April 1997 amendment to the Customs Law.

76. Some members of the Working Party said that some aspects of the customs valuation regime of Chinese Taipei appeared to be inconsistent with the requirements of the Agreement on the Implementation of Article VII (Customs Valuation Agreement) in the following respects: the authority to use the duty paying value list or any reference price mechanisms or other arbitrary lists of prices used for customs valuation purposes on agricultural and other imports should be eliminated; and the selection of valuation methods outside the hierarchy provided in the Customs Valuation Agreement, particularly in the case of valuation of leased and rented goods, should be addressed. They also noted that precise WTO consistent rules on the determination of whether parties were related when dealing with the customs valuation of transactions between related parties were required; and provisions giving effect to the WTO Ministerial Decision on Customs Valuation should be enacted.

77. Some members of the Working Party also expressed concern regarding the practice of requiring importers to post bonds for prompt clearance of goods, in particular horticultural goods, based on pre-determined reference prices. These reference prices were not established in a transparent manner, were often changed without prior notice and no opportunity was provided for comment on the rate established. In the view of these members, this practice had the same effect as use of reference prices to calculate duties. In response, the representative of Chinese Taipei stated that its use of reference prices in determining the amount of the bond to be posted to facilitate prompt clearance of goods was not inconsistent with the WTO obligations, in particular, the obligation under the Agreement on Customs Valuation.

78. The representative of Chinese Taipei stated that Chinese Taipei would continue to improve its current practice of requiring importers to post bonds for prompt clearance of goods in order to make the bond amount a closer reflection of the actual value of the goods. Any bond paid would be refunded, if a post-clearance assessment of the customs value of the goods was less than the bond amount. Chinese Taipei would, by the date of accession, adopt an equitable, transparent Customs bonding system for any perishable fruits and vegetables subject to such requirements that allows for potentially frequent adjustment to the bond value to take account of prevailing market forces. The representative of Chinese Taipei stated that the Customs bonding system would have the following characteristics:

(i) specific bond values would be fixed for each supplier country. Upon request, Chinese Taipei Customs authorities would make available to any domestic or foreign interested party the data, the data source, and the methodology used in formulating the reference price upon which the value of the bond was based.

(ii) Adjustments would be made to the specific bond values, as frequently as necessary, to take account of prevailing international market prices, and seasonal quality consideration.

(iii) Alternative data sources would be considered, should representatives of an exporting country believe that more appropriate and accurate data exist beyond that being employed by Chinese Taipei in setting the bond values.

(iv) A mechanism would be established to provide, at the request of either an exporting country or Chinese Taipei authorities, for prompt consultations should a question or concern arise relative to an established bond value.

The Working Party took note of these commitments.

79. Responding to comments from some members of the Working Party detailing other areas where the customs valuation regime of Chinese Taipei did not concord with the provisions of the Agreement, the representative of Chinese Taipei indicated that these issues were addressed in the implementing legislation for WTO accession.

80. The representative of Chinese Taipei confirmed that amendments to bring the Customs Law into conformity with the Customs Valuation Agreement would be made prior to accession, either by eliminating the inconsistent practices or amending current laws and regulations to bring procedures into line with the Customs Valuation Agreement. He confirmed that Chinese Taipei would implement the Customs Valuation Agreement fully upon accession, without recourse to any transition period. He further committed that Chinese Taipei would, with a view to resolving specific problems, upon request, provide information to WTO Members on the methods for determination of customs valuation of specific products and consult concerning the effect of Chinese Taipei's customs valuation procedures on their trade. The Working Party took note of these commitments.

Rules of Origin

81. Some members of the Working Party requested information about the elaboration of rules of origin in Chinese Taipei whether in the context of free trade agreements or otherwise, and also requested Chinese Taipei to confirm that its rules of origin for both preferential and non-preferential trade complied fully with the WTO Agreement on Rules of Origin.

82. The representative of Chinese Taipei said that the Customs Law had been amended in April 1997 to provide a legal basis for the establishment of rules of origin fully consistent with the WTO Agreement. The Rules of Origin on Imported Goods set out the criteria for determining origin. The representative of Chinese Taipei stated that Chinese Taipei would ensure that its laws and regulations relating to rules of origin were consistent with the relevant WTO Agreements upon accession. The Working Party took note of this commitment.

Preshipment Inspection

83. Some members of the Working Party requested information on whether the services of a preshipment inspection firm were employed by Chinese Taipei. The representative of Chinese Taipei said that Chinese Taipei did not use pre-shipment inspection. The representative of Chinese Taipei noted however that Chinese Taipei had amended the Foreign Trade Act in April 1997 to provide the legal basis for the authority to regulate preshipment inspection activities of firms mandated by foreign governments.

84. The representative of Chinese Taipei stated that Chinese Taipei would ensure that its laws and regulations relating to preshipment inspection would be consistent with the relevant WTO Agreements, in particular, the Agreements on Preshipment Inspection and Customs Valuation. The Working Party took note of this commitment.

Anti-Dumping and Countervailing Duties

85. In response to questions from members of the Working Party the representative of Chinese Taipei said that in 1984 Chinese Taipei had enacted "The Implementing Regulation on the Imposition of Countervailing Duties and Anti-Dumping Duties". That Regulation provided that countervailing or anti-dumping duties could be levied on goods found to have received subsidies or to have been dumped and which threatened domestic industries. In the view of Chinese Taipei the implementing regulations had been in compliance with the requirements of the Tokyo Round Codes on Anti-Dumping and Subsidies and Countervailing Measures. In pursuance to the 1997 amendment to the Customs Law, Chinese Taipei undertook to revise the Regulations to make them consistent with the Uruguay Round Agreements prior to accession to the WTO and to submit them to the WTO.

86. The representative of Chinese Taipei stated that, Chinese Taipei would ensure that its legislation on anti-dumping and countervailing duties was in full conformity with the requirements of the WTO Agreement, in particular Article VI of GATT 1994 and the Agreements On the Implementation of Article VI and Subsidies and Countervailing Measures from the date of accession. Chinese Taipei would also ensure that any anti-dumping or countervailing duties imposed on any product after its accession were in accordance with the requirements of Article VI of GATT 1994 and the Agreements On the Implementation of Article VI and Subsidies and Countervailing Measures. The Working Party took note of these commitments.

Safeguards Regime

87. Some members of the Working Party noted that a provision in the Foreign Trade Act, referred to as the "trade imbalance clause" permitted Chinese Taipei to suspend trade from specific countries because of persistent trade deficits and did not specifically authorise the type of actions foreseen in the Understanding on Balance of Payments Provisions of GATT 1994. In response to requests for justification of this provision and measures taken pursuant to it, the representative of Chinese Taipei said that, in his view, Articles XI, XII, and XIX of the GATT 1994 authorized the maintenance of this particular provision of the Foreign Trade Act. Some members of the Working Party disagreed with this opinion and stated that the provision in question was not in conformity with the requirements of WTO Agreement, in particular GATT 1994 Articles I, II, XI, XII, XIII, XIV and XIX. Following further discussions in the Working Party, the representative of Chinese Taipei agreed that certain provisions of the Foreign Trade Act were inconsistent with the provisions of the WTO.

88. The representative of Chinese Taipei stated that in April 1997, the Foreign Trade Act had been revised to address members' concerns about the trade imbalance clause. This clause had been replaced with one that was consistent with Article XII of the GATT 1994. The representative of Chinese Taipei further confirmed that the provisions of the Foreign Trade Act would be implemented from the time of accession in a manner conforming to the provisions of the WTO Agreement. Moreover, the representative of Chinese Taipei stated that should a critical balance of payment situation develop, Chinese Taipei would give preference to those measures referred to in the Understanding on the Balance of Payments Provisions of GATT 1994 as price-based measures to address the situation and would maintain any measures only so long as necessary. In the circumstance that Chinese Taipei must resort to measures that were not price-based, Chinese Taipei would transform these measures into price-based measures within 6 months after implementing the initial measures. Moreover, any measures taken for balance-of-payment reasons would not be used to provide import protection for specific sectors, industries or products.

89. The representative of Chinese Taipei stated that, from the time of accession, the safeguards regime would be fully consistent with the WTO Agreement on Safeguards. The Working Party took note of these commitments.

Export Regulations

90. In response to requests for information on any restrictions maintained on exports, the representative of Chinese Taipei stated that no products were prohibited from export from Chinese Taipei. Ammunition, narcotics, protected wildlife, and strategic high-tech products were subject to strict export controls, and could only be exported under special export permits. As a result of measures adopted by importing countries, certain other items such as textiles were subject to an export licensing system. In document WT/ACC/TPKM/13 the representative of Chinese Taipei provided the Working Party with a list of all products subject to export licensing maintained to ensure:

(i) the implementation of quantitative restriction arrangements and voluntary restraint arrangements;

(ii) essential security, the security of supply of certain daily necessities and important industrial materials, including rice and salt;

(iii) social policies, including narcotics control;

(iv) protection of endangered species of wild fauna and flora, including Formosan land-locked salmon;

(v) hygiene and health, including eels;

(vi) agricultural development, including bananas, white skin sugar cane, and onions.

91. In order to streamline the granting of an export licence, an automatic electronic export licence had been adopted.

Export Processing Zones / Economic Processing Zones / Export subsidies

92. Some members of the Working Party requested information on the Export Processing Zones ("zones"), in particular, information on the total value of trade as well as the percentage of zone production. In response, the representative of Chinese Taipei said that the zones were established pursuant to the Statute for the Establishment and Management of Export Processing Zones. The Statute was amended in 1999 and thereafter renamed the Statute for the Establishment and Management of Economic Processing Zones. As a result, Export Processing Zones were also renamed Economic Processing Zones. Investors in the zones were entitled to the following incentives:

(a) exemption from the following duties and taxes:

(i) customs duties on imported machinery and equipment, raw materials, fuels, commodities, components, and samples;

(ii) commodity tax on the exported or imported products, machinery and equipment, raw materials, components, and samples; and

(iii) deed tax on newly built standard buildings acquired from the zone's Administration or the buildings legally acquired from the zone's Administration;

(b) no business tax on exported goods and their related labour services, as well as on the goods purchased by the export enterprises;

(c) due to the exemption from taxes or duties, there was an exemption from the requirement to keep certain documents and to pay tax deposits etc.. In addition, transfers of property to different enterprises within a zone were not subject to the business tax.

93. The representative of Chinese Taipei further added that the zones were managed by the Economic Processing Zones Administration, Ministry of Economic Affairs. Various products and services were produced in the zones. The representative of Chinese Taipei noted that there were four zones in Chinese Taipei. In 1994, 96 per cent of production in the zones was exported. Under Article 5 of the Statute for the Establishment and Management of Export Processing Zones, most of the production of the zones was required to be exported. A certain percentage of the production could be sold on the local market, provided that it was accorded the same treatment as imported products, and was subject to customs duties, commodity tax and business tax. The product of the zones sold in the domestic market was subject to customs duty on the final product, not on inputs into the product. If goods produced in the zones for local sale were less than 50 per cent of the annual production, the zone's Administration would automatically approve the domestic sale of the goods. If the goods produced for local sale were in excess of 50 per cent of annual production, the approval by the zone's Administration was discretionary. However, no such application for approval had ever been refused. The representative of Chinese Taipei added that there was no local content requirement for enterprises wishing to operate in the zones. In the past subsidiaries or branches of enterprises could not be located in the zones. In January 1990 Chinese Taipei had amended the Implementing Regulation in order to permit subsidiaries or branches of enterprises to be located in the zones. The product of zones which entered the domestic market accounted for only 3-4 per cent of the value of total zones production in 1994, 6-7 per cent in 1997, 8.19 per cent in 1998 and 11.34 per cent in 2000. In May 1997 Chinese Taipei had lifted the 50 per cent limit on local sales through amendments to the Statute. Domestic sales had exceeded 50 per cent of the production of crystal oscillators, electronics testers, voice synthesizers, capacitor parts, sensors, etc.. Around 41.6 per cent of zones' production had benefited from the tax exemption granted by the Statute for Upgrading Industries.

94. Some members of the Working Party noted that some of the arrangements providing for fiscal incentives for businesses located or operating in the zones appeared to be in conflict with the provisions of the SCM Agreement and the Agreement on TRIMS. They requested further information on the fiscal incentives offered. In response, the representative of Chinese Taipei indicated that investments in the zones were exempted from customs duties and the commodity tax on imported machinery, raw materials, fuels, commodities, components and samples, and the deed tax on the new buildings purchased from or otherwise acquired from the zones' Administration. No business tax was charged on the exported goods and their related services, nor was the business tax levied on purchases by those enterprises. These enterprises were also exempted from applying for tax exemption, guarantee, relevant bookkeeping, and paying provisional tax. He further stated that in Chinese Taipei's view those practices complied with the requirements of the WTO Agreement and did not constitute export subsidies. Their trade effect, if any, was minimal: 0.185 per cent of total exports.

95. Some members of the Working Party noted that import duty and tax exemptions on goods imported into the zones were provided for goods not directly incorporated into the exported product. Direct taxes on the profits from the exports of those enterprises were also exempted. In their view these practices appeared to be in conflict with the SCM Agreement. Those subsidies could also be countervailable. The representative of Chinese Taipei replied that the purpose of the zones was to create duty-free zones for the production of exports, in order to create an environment where exports manufactured from imported inputs need not obtain a refund of duties. This was consistent with the obligations contained in the WTO Agreement. The limitation on duty refunds/exemptions on inputs directly incorporated into exported products was applied by many developed economies, for the purpose of administrative expediency, rather than being based on the theory that refunds/exemptions of duties on imported inputs not directly incorporated into the exported products would unduly increase the exporters' competitiveness and should not be allowed. Because the products were primarily for export, it was therefore not necessary to limit exemptions or refunds to the extent of products directly incorporated into the products exported from the zones. In fact, in Annex II of the SCM Agreement, inputs consumed in the production process, for which drawback of import charges was allowed, were defined to cover energy, fuel and oil in the production process and catalysts which were consumed in the course of their use to obtain the exported product as well as the inputs physically incorporated. Because the exports from the zones did not receive "undue" amounts of refund or exemption the relevant practices did not constitute a subsidy. The representative of Chinese Taipei added that the SCM Agreement Annex I "Illustrative List of Export Subsidies" did not contain the requirement that the input be physically incorporated into the exported product. He stated that the exemption from corporate income tax for zones enterprises had been abolished together with the Statute for Encouragement of Investment at the end of 1990. The current tax exemption granted to zone's enterprises also applied to enterprises located outside the zones, whether or not they exported their products, provided that they met the requirements set forth in the Statute for Upgrading Industries. Consequently, the practice was neither a specific subsidy nor conditional upon export performance.

96. Some members of the Working Party reiterated that the incentives provided in the zones appeared to be incompatible with the SCM Agreement. They expected that Chinese Taipei would ensure that sales into the market of Chinese Taipei from the zones would be subject to normal taxes, tariffs, and other border measures. In addition, these members considered that Chinese Taipei should satisfy the Working Party that the regime of the zones was consistent with all the requirements of the WTO concerning the treatment of goods, services and intellectual property. The representative of Chinese Taipei replied that Chinese Taipei had decided to levy duties on zone products entering the domestic market on the basis of ex-factory prices minus value added resulting from manufacturing or processing activities in the zones, and would undertake to do so in the future. The formula to be used in calculating the value added by the zones would take into account the relevant practices of other economies. He added that Chinese Taipei hoped that the changes to the system would alleviate concerns that the current system operated as a disincentive for zone products entering the domestic market. In May 1997 the Statute was amended and after the amendment, it was renamed the Statute for the Establishment and Management of Economic Processing Zones. In the interim, elimination of the limits on sale of products into the domestic economy had removed the requirement to export products from a zone and the proportion of goods exported from the zones had declined over the first six months of 1998. While the fiscal incentives previously provided under the Economic Processing Zones statute could be considered by some members to constitute subsidies, elimination of the export requirement, in Chinese Taipei's view, resolved this issue.

97. The representative of Chinese Taipei confirmed that, from the date of its accession, all taxes, charges, and measures affecting imports, including import restrictions and customs and tariff charges, applied to imports from abroad into other parts of Chinese Taipei would be applied to zone products entering the domestic market. While customs duties would be applied on the basis of ex-factory prices minus value added resulting from manufacturing or processing activities in the zones, other taxes, charges and measures would be based on the ex-factory price. He further added that preferential arrangements provided to enterprises located within the zones would be extended to all enterprises whether domestic or foreign and maintained in a WTO consistent manner, in particular with regard to the principles of non-discrimination and national treatment. Furthermore, export requirements or incentives would not be reintroduced. The Working Party took note of these commitments.


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