TITLE: DIVERSIFICATION AND DEFENSE TRADE OPPS.
SUBJECT COUNTRY(IES): TAIWAN
POST OF ORIGIN: TAIPEI
SERIES: INDUSTRY SECTOR ANALYSIS (ISA)
ITA INDUSTRY CODE: DFN
DATE OF REPORT (YYMMDD): 990101
DELETION DATE (YYMMDD): 020101
AUTHOR: PETER YEN
APPROVING OFFICER: WILLIAM BREKKE
OFFICER'S TITLE: SENIOR COMMERCIAL OFFICER
NUMBER OF PAGES: 21
INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND
U.S. DEPARTMENT OF STATE, 1999. ALL RIGHTS RESERVED OUTSIDE OF
THE UNITED STATES
SUMMARY
Defense Industry Environment
1. Defense Budget Information
Taiwan's National Defense budget amounted to New Taiwan Dollars
(NTD) 274.78 billion or approximately USD 9.46 billion, for
fiscal year 1998. The National Defense Budget accounted for
22.43 percent of the total budget of the Central Authorities, a
0.08 percent reduction from its 22.51 percent share of the total
FY 97 budget. Defense spending's share of Taiwan's GDP has been
steadily decreasing over the past several years. The National
Defense Budget for FY 1998 represented 3.26 percent of Taiwan's
overall GDP.
The national defense budget for FY 1999 amounted to NTD 284.5
billion (approx. USD 8.89 billion), or 22.7 percent of the total
budget of the Central Authorities. The National Defense Budget
for FY 1999 is projected to account for 3.06 percent of Taiwan's
overall GDP. The budget for weapons purchases reportedly is NTD
60 billion (about USD 1.88 billion).
2. Taiwan's Domestic Industry
Taiwan has a strong private-sector industrial base, but domestic
production of defense equipment has traditionally been dominated
by organizations run directly by the Ministry of National Defense
and the Ministry of Economic Affairs. Domestic production has
been concentrated in three organizations: The Chung Shan
Institute of Science and Technology (CSIST), the Combined Service
Forces (CSF), and the state-run Aerospace Industrial Development
Corporation (AIDC). Academic institutions and public
enterprises, most notably the China Shipbuilding Corporation,
have also played an important role in the production of defense
equipment.
The star of Taiwan's defense industry is the Chung Shan Institute
of Science and Technology (CSIST). Established in 1968, the
Institute employs over 6,000 scientists, and more than 8,000
technicians. It has four major research divisions: aeronautics.
missiles and rockets, electronics, and chemistry. The CSIST has
six centers for systems development, system maintenance, quality
assurance, materials research and development, aeronautic
development and missile manufacturing. Each research division or
research center has a director in charge of the research and
development of its specialty, while planning units have project
chairmen responsible for research program management and system
integration. To date, a number of weapon systems have been
domestically designed, tested, and produced on a mass scale by
CSIST. These include the Kung-feng 6A rocket, the Hsiung-feng I
and Hsiung-feng II SAMs, artillery fire control systems, naval
sonar systems, and naval electronic and warfare systems. CSIST
has produced or plans to produce Tien-Kung I and Tien-Kung II
SAMs, the Tien-Chien I and Tien-Chien II AAMs. CSIST is also
developing Hsiung-feng III cruise missiles. The authorities will
turn a portion of the Institute into the Chung Shan Science based
Industrial Park, which could accommodate local and
foreign-invested firms engaged in high-tech product research,
development and manufacturing.
The Aerospace Industrial Development Corporation (AIDC),
previously known as the Aero Industry Development Center, was
established in March 1969 under the Ministry of National Defense.
In July 1996 the military-run AIDC was restructured as a
state-run enterprise under the Ministry of Economic Affairs.
This conversion from military to public enterprise status is
intended to facilitate the transfer of Taiwan's military
aeronautic technology to the private sector while enabling AIDC
to form joint ventures with high-tech foreign manufacturers.
This in turn is expected to bring advanced aviation technology
into Taiwan to accelerate the growth of its aerospace industry.
AIDC was founded to secure an aerospace manufacturing capability
in Taiwan. AIDC began with the co-production of UH-1 helicopters
and F-5 fighters and has since developed two indigenous jet
aircraft, the AT-3 jet trainer and the Indigenous Defense Fighter
(IDF). AIDC is the leading aircraft and aircraft engine
manufacturer. AIDC, with a workforce of 5,000 highly skilled
employees, has four major entities comprising an engineering
department, an aircraft factory, an avionics factory, and an aero
engine factory. Through joint ventures, technology transfers and
assistance programs with foreign aerospace companies, AIDC has
been able to manufacture and assemble a total of more than six
hundred military aircraft and over three hundred aircraft
engines. AIDC has successfully developed an indigenous defense
fighter (IDF), now in full production. AIDC has joined a
Sikorsky led team to co-produce the S-92 helicopter. Other
cooperative programs include the MD-95 empennage development,
601k industrial engine and Ae-270 utility aircraft. AIDC has
obtained quality-assurance and testing certificates for more than
200 aircraft parts from European and American aerospace
companies.
The Combined Service Forces (CSF) serves as the logistical
command responsible for the production of ordinance, military
maps, and communications equipment for Taiwan's Armed Forces.
CSF also provides support and services commonly needed by all
Armed Forces services, such as finance, surveying, engineering,
rear echelon administration, and armament appraisal and testing.
CSF and CSIST have jointly developed the following weapons:
Tanks and armored vehicles: CM armored personnel carrier series
have been developed and will continue to be mass-produced.
Research and development of communication command vehicles,
artillery observation vehicles and ambulances are on the way.
Artillery: XT86A1 howitzers, Type 2000 multi-barrel rockets,
M32K1 tank gun, and 20mm T82F cannon have been developed and test
fired. Some of them are in the process of production.
Small arms: 66mm T-85 launchers and 40mm T-85 howitzer launchers
have been developed and test-fired. They are scheduled to be
produced.
Other weapons: TC-85 20mm high-explosive ammunition, XTS-85
reflective sights, night vision monitoring system, soft
bullet-proof vests have been developed and are in the process of
production.
The state-run China Shipbuilding Corporation (CSC), with 5,200
employees, was contracted to build the Navy's second-generation
ships: Missile Frigates and Missile Patrol Boats. Taiwan
originally planned to build eight missile frigates. To-date,
seven PFG-2 (Perry Class) frigates have been produced by CSC and
turned over to Taiwan's Navy. The construction of the last
missile frigate was canceled. The first 500-ton missile patrol
boat was turned over to the Navy in December 1995. Construction
of the remaining 11 missile patrol boats is underway.
3. Traditional Suppliers of Defense Equipment
Taiwan has traditionally relied heavily on U.S. suppliers
for its defense equipment needs. From World War II through 1979,
when diplomatic relations shifted to recognition of the Peoples
Republic of China, the U.S. and Taiwan enjoyed a strong military
alliance. At the same time the United States recognized the PRC,
the Taiwan Relations Act was put in place by Public Law,
obligating the U.S. to provide defensive support through military
equipment sales. Since then, the U.S. Government and U.S.
defense contractors have continued to sell defensive military
equipment and supplies to Taiwan.
While the United States retains the largest market share of the
Taiwan military's business, recent procurements from other
countries have strengthened new international friendships for
Taiwan. For example, France has established a clear presence in
the sale and delivery of six Lafayette Frigates and 60 Mirage
2000-5 Fighters, and regularly competes for individual weapons
systems and support equipment. In addition, Taiwan procured two
submarines from Holland and minesweeper ships from Germany. This
has resulted in a slight decrease in dependence on the United
States for support, and more international competition for
Taiwan's budget among the world's defense contractors.
II. Defense Opportunities
1. Potential Upgrades and New Systems
Taiwan's detailed plans for upgrades and new system
procurements are closely guarded secrets, but some information is
generally available through existing publications, including the
bi-annual defense report issued by the Ministry of National
Defense. Until the late 1980's, Taiwan's military equipment
included primarily vintage U.S. military equipment, such as the
C-119, F-5E, and F-104 aircraft, Towed Artillery, M41 Tanks,
Fletcher, Sumner, and Gearing Class destroyers, and World War II
LST, LSD, PF and MSC ships. Efforts to maintain and upgrade
these platforms have given way to replacement programs, thereby
generating billions of dollars of new construction and
procurement projects.
Over the past seven years, Taiwan has procured and produced
numerous new weapons systems. For example, Taiwan's Air Force
(TAF) has ordered 150 U.S. built F-16 fighters, 60 French built
Mirage 2000-5 fighters, four U.S. E2Ts, and a number of C-130H
aircraft. Additionally, they have designed, developed and are
now producing 130 Indigenous Defense Fighters (IDF) through one
of the largest Taiwan defense contractors, Aerospace Industrial
Development Corporation (AIDC). The Taiwan Navy (TN) has
procured eight KNOX class frigates, two Newport class LSTs, and
one salvage and rescue (ARS) ship from the U.S., plus six
Lafayette frigates from France. Also, through a cooperative
agreement with the USG, U.S. defense contractors and the China
Shipbuilding Corporation (CSBC), seven PFG-2 frigates have been
constructed. The PFG-2 is virtually identical to the Perry Class
FFG-7 in use in the U.S Navy. Taiwan's Army (TA) and Air Force
have purchased from the United States AH-1W and OH-58D
helicopters, Patriot-based air-defense missile systems, Dual
Mounted Stinger surface-to-air missiles, Harpoon, advanced
targeting and radar systems for fighter jets, electronic warfare
devices, and M60A3 tanks. All services are upgrading radar
systems and introducing new Command, Control, Communications and
Computer (C4I) equipment. Much of this new equipment is now
being delivered, requiring fielding and logistic support as the
Taiwan military puts the new systems to use.
On the horizon, and as a matter of public record, are the
intended purchases of additional ships in the LST, LSD, and ARS
classes, CH-47 helicopters, additional missile systems and
Electronic Warfare systems. The Taiwan Army plans to purchase
Bell 412EP, Eurocopter AS-532 or Sikorsky S-70C to replace its
existing UH1H helicopters. CSBC, the only viable military
shipbuilder in Taiwan continues construction of the 500 ton
Patrol Gun Boat. A debate continues on the necessity and
potential procurement of a Maritime Patrol Aircraft capable of
multiple missions including ASW, SAR and coastal protection,
aimed at replacing the aging fleet of S-2Ts in Taiwan inventory.
The Chung Shan Institute of Science and Technology (CSIST)
continues development and testing of missile and weapon control
systems. Discussion of a National Defense system and the
possible inclusion of Taiwan in a U.S. sponsored Theater Missile
Defense Program in the Pacific Region continue to make headlines,
but have not yet been decided.
As the Legislative Yuan (LY) assumes more control of the MND
budget, procurement plans require more staffing and approvals are
slow. This adds to the frustrations felt by the Taiwan military,
U.S. defense contractors and the U.S. Military Departments. Even
with the difficulties encountered, the U.S. will continue to
support the Taiwan military with defensive military equipment,
technology, training and assistance in the years to come.
2. MND's Defense Plan
Taiwan's military strategy and future procurements over the
next five years can be categorized in the following areas:
Control of the Air: Provide for the fielding, training,
operation and maintenance of 150 F-16 fighters, 130 IDF, and 60
Mirage fighters; modernize C4I systems to digitally link TAF
systems between command control stations, E-2T command aircraft
and the consolidated fighter fleet; procure and upgrade
electronic warfare and countermeasures systems; and modernize the
aviation logistics support for all systems.
Sea Control: Construct and deploy the seven PFG; acquire
and support additional amphibious mission ships; continue the
maintenance and modernization of the KNOX class frigates and
associated ASW capabilities; develop self-sufficiency in the
collection of electronic data to generate self-defense tactics
against hostile threats; design and build a suitable replacement
for the aging DD fleet; and build the next generation surface
combatants.
Counter-landing Operations: Upgrade basic weapons and C4I
capabilities from Corps to Company level; procure and overhaul
M60A3 tanks and buy new armored vehicles, including the potential
production of main battle tanks and fighter vehicles; replace
troop carrying capabilities to enhance the marine rapid
deployment capabilities; and procure additional and upgraded
missile systems.
Software Initiatives: Develop an enhanced capability of
deploying the recently acquired systems, focusing on doctrine and
tactics development; organization, training, procedures and
techniques of joint warfare; improvement of logistics support
systems; generation and employment of modeling and simulation
efforts to reduce acquisition and research/development costs; and
improved C4I capabilities. Particularly important will be the
ability to tailor existing proven techniques and systems to meet
the demands of Taiwan's specific situation and conditions.
3. Procurement Methods and Procedures
a. Overview
The Procurement Bureau (PB) of the Ministry of National Defense
and the Defense Procurement Division (DPD) of the Taipei Economic
and Cultural Office (TECRO) in Washington, D.C. are Taiwan's two
largest and most important official military purchasing agencies.
They purchase most of the military equipment and supplies
required by Taiwan's defense organizations. Other military
procurement bodies, such as the military services' logistics
commands and the Chung Shan Institute of Science and Technology
play a relatively minor role in military purchasing abroad.
Military organizations may purchase imported items without PB or
DPD tendering bids, but all equipment and supplies with a
purchase amount exceeding the designated audit ceiling of NTD 30
million for domestic purchase, and USD 500,000 for overseas
purchase, must be purchased through PB or DPD tenders.
b. Types of Military Procurement
There are two categories of military procurement in Taiwan:
domestic purchase and overseas purchase. Both must be done in
accordance with pertinent provisions of the Law of Audit. Under
the Law of Audit, procurement can be made by open tender,
restricted tender (selective tenders), or negotiation. Taiwan
military purchasing agencies (except DPD/TECRO) usually solicit
foreign bids through open tenders. Restricted tenders may be
used for smaller purchases when the Executive Yuan specifies that
the project should be awarded to entities in select geographical
regions, or there is another policy reason for not holding an
open tender. Restricted tenders, usually awarded on a
price-comparison basis, require at least two bidders. Negotiated
purchases require special authorization from the Ministry of
Audit. Such authorization is granted only when the purchasing
entity can demonstrate that there is only one qualified supplier
or that the need is too urgent to conduct a competitive tender.
c. Open Tenders
When less than three qualified bidders compete for an open
tender, the bids will not be opened and the agency in charge will
announce the cancellation of the tender. However, if there are
only one or two bids and the agency has confirmed that only those
bidders have the capability to take on the project, the
procurement may be changed to a restricted tender or a negotiated
purchase. This normally happens only on the third round of a
tender (i.e. after the tender has twice failed to attract the
mandatory three qualified bidders.)
d. Tender Reviews
Procurements can be classified into "single review" and "divided
review" tenders, based on differences in the procedures used to
review the bids. Tender documents usually ask the bidders to
provide three main items: qualifications of the supplier,
specifications of the commodity, and price. If these three items
are reviewed at the same time, the tender is defined as a "single
review" tender. If the item to be procured is expensive and
technically complex, the qualifications of the bidders and the
specifications of the product(s) they propose to supply are
usually reviewed before price proposals are opened. These
tenders are defined as "divided review" tenders.
Bid Bonds
The bidder must have its own copy of the invitation to bid,
available at a modest cost from PB/Taipei or DPD/Washington,
D.C., to tender a bid. A bid bond of three percent of the total
bid value in the form of cash, bank, draft, certified check, bank
guarantee, or letter of credit is required at the time of
submission and will be refunded if the bid is unsuccessful.
Unless otherwise stipulated in the contract, within 18 days after
receiving the minutes of award, the seller must deposit a
performance bond of five percent of the contract value.
f. Pursuing Business Opportunities
Taiwan agents or designated representatives of foreign suppliers
that wish to participate in the bidding are required to register
with the Procurement Bureau, Ministry of National Defense.
New-to-market vendors interested in presenting their product line
to Taiwan's military branches should first contact the
Procurement Bureau to schedule a presentation.
A primary function of the Procurement Bureau is the compilation
of data and supplier lists which are made available to Taiwan's
military branches, so defense contractors are strongly encouraged
to submit product literature and promotional material to the
Bureau's Second Division, which is also charged with making this
information available to the various military service
headquarters.
g. Contact Information
To begin the procurement procedure, the military purchasing
agencies (except DPD/TECRO Washington) must publicly announce the
invitation-to-bid in the Government Procurement Gazette published
by the Central Trust of China, 49 Wu Chang Street, Sec. 1,
Taipei, Taiwan, Tel: (02)2314-9701 Fax: 886-2-2312-1277. In
case of restricted tenders or negotiated purchases, invitation
letters will be sent to specific firms. An invitation to bid is
attached to the letter. Product literature and all inquiries
should be addressed to:
Procurement Bureau
Ministry of National Defense
172-1 Po Ai Road
Taipei, Taiwan
Contact: Lt. Colonel Liang-Chih Yu, Procurement Officer
Second Division
Tel: 886-2-2382-6073
Fax: 886-2-2389-2587
Lt. Colonel Yi-Chang Lu, Procurement Officer
Second Division
Tel: 886-2-2382-6078
Fax: 886-2-2389-2587
4. Barriers to U.S. Firms
There are no known barriers to U.S. firms receiving
solicitations, submitting offers, or obtaining contracts. The
Taiwan offices or Taiwan representatives of U.S. firms may
participate in domestic tenders and U.S. firms may participate in
international tenders and invitations to bid. The specifications
for international tenders are written in English and the
tendering firms' proposals are expected to be in English.
The Taiwan authorities have imposed offsets and technology
transfer requirements on successful bidders for large military
procurements, often after tenders have been awarded and contracts
signed. Although no regulations stipulate that large projects
must have local participation, the Taiwan authorities prefer to
have domestic industry participation, especially in major
procurements can help local firms acquire foreign technology and
high technology manufacturing experience. In addition, these
industrial benefits make procurement more politically palatable.
5. Other Agencies with Jurisdiction over Defense Trade
The main push to require foreign suppliers to sign Industrial
Cooperation Programs (ICP) agreements comes from Taiwan's
Legislative Yuan (LY), with strong support from the Ministry of
Economic Affairs (MOEA). The first free election for the LY in
over 40 years was held in December 1992 and the newly
democratized and energized body is challenging the Executive Yuan
on many fronts. Taiwan's historically independent military did
not previously require offsets on military purchases, but
obtaining an economic share for local businesses on multi-million
dollar contracts with foreign firms is good politics, and
pressure from the LY to obtain even larger offsets will continue.
MOEA is responsible for coordinating the Taiwan authorities'
efforts to upgrade Taiwan's industrial base, and as many defense
products require sophisticated manufacturing capabilities, MOEA
is interested in using LY-required ICP programs to assist Taiwan
firms in moving into high value-added manufacturing. The
Ministry of Foreign Affairs has jurisdiction over defense trade
in accordance with Taiwan's foreign policy.
A key player in Taiwan's procurement process is the Ministry of
Audit, which is not part of the Executive Yuan (which reports to
the Premier), but of the Control Yuan, an independent branch of
Taiwan's pentapartite government. The Ministry of Audit's job is
to ensure that the taxpayer's dollars are spent wisely and that
there is no corruption in the procurement process. The Ministry
of Audit monitors the procurement process to ensure that it is
conducted in accordance with Taiwan laws and regulations and has
the power to decide when a tender can be awarded on a negotiated
or restricted (only two bidders) basis.
III. Diversification/Commercial Opportunities
1. Privatization
Privatization has gained momentum over the past year. Equity
shares in a number of state-owned enterprises (including China
Steel Corp., Taiwan Fertilizer Co., Ltd., Taiwan Navigation Co.,
Ltd., BES Engineering Corp., etc.) have been listed on the stock
exchange and sold to private investors. The three largest
state-owned firms (i.e., Chinese Petroleum Corporation, Taiwan
Power Company and Chunghwa Telecom Corp.) will be privatized in
three to five years. However, few of these firms operate in the
defense sector. The Taiwan authorities are reluctant to allow
significant foreign equity participation in the newly privatized
firms. Although the privatization and removal of many special
privileges from the large, state-owned firms will open up new
markets in Taiwan for U.S. competitors, U.S. firms will have to
look very carefully at the cost of investments in these newly
privatized firms.
One organization whose potential privatization has attracted a
great deal of interest from the U.S. defense community is the
Aerospace Industrial Development Corporation (AIDC). The AIDC
owns an advanced aerospace manufacturing center, has several
thousand skilled workers on the payroll and is one of the few
organizations in Taiwan with actual aerospace manufacturing
experience. In July 1996 the military-run AIDC was restructured
as a state-owned enterprise under the Ministry of Economic
Affairs. However, this conversion did not privatize AIDC, but
restructured it from a non-profit research center to a
profit-seeking, but still state-owned corporation, which would
operate on a commercial basis. This will enable the AIDC to form
joint ventures with high-tech foreign manufacturers. While U.S.
firms may find opportunities to cooperate with AIDC on specific
projects, there is little to no chance that Taiwan would allow
foreign entities to hold a significant equity stake in a
corporatized AIDC.
2. Dual Use or Defense-Related Technologies
Opportunities for U.S. firms looking to sell dual-use or
defense-related high technology products in Taiwan are excellent.
Taiwan is seeking foreign suppliers and partners on a number of
high technology products/projects, including the following
industry sectors:
Process Controls - Industrial
Taiwan manufacturers' continuing drive to modernize their
production equipment is spurred by the island's labor shortage
and rising labor costs as well as by the Taiwan authorities'
active promotion of industrial upgrades to improve
competitiveness in world markets. Consequently, Taiwan's demand
for industrial process controls is growing and is expected to be
sustained through tax and R&D incentives for private investment
in industrial upgrading and factory automation.
Laboratory Scientific Instruments
Taiwan has made great efforts to improve its R&D
environment. Public R&D expenditure on a wide range of projects
has increased yearly. By 2002, more than USD13.8 billion, almost
quadruple 1992's USD3.6 billion R&D budget, will be devoted by
the authorities to science and technology development. The
authorities have also provided the private sector with attractive
R&D tax incentives and other support. Sales of laboratory
scientific instruments have risen in the computer, semiconductor
and telecommunications sectors. With a number of on-going and
proposed high-tech investment projects and increasing production
of advanced electronic products/components and telecommunications
products, the demand for laboratory scientific instruments will
be further stimulated.
Computers/Peripherals
The local market for computers and peripherals offers
substantial sales opportunities for U.S. suppliers due to the
rapid development and popularity of the Internet, local awareness
of the importance of computerization and information automation,
and various promotional programs of the Taiwan authorities.
Also, local industry, financial institutions, academic research
institutes and public schools are actively modernizing their
computer and networking systems to enhance production capability,
office productivity and management efficiency. Public sector
outsourcing and automation projects also provide substantial
business opportunities for U.S. firms.
Electronic Components
Taiwan electronic firms are importing leading-edge
components -- especially integrated circuits (ICs) -- from
foreign suppliers to maintain the competitiveness of their
products. The expected expansion in the use of advanced
components will lead to increased imports from U.S. companies
because of their superior technology. U.S.-made semiconductors
are very competitive, ICs in particular. American firms face
their stiffest competition from Japanese companies, which lead
the passive component and display/tube markets. Taiwan-produced
components are suitable mainly for low-end consumer electronic
product applications.
Telecommunications Equipment
Through a series of network-modernization projects undertaken
between 1991-1997, Taiwan's telecommunication infrastructure has
been upgraded significantly, creating substantial business
opportunities for U.S. suppliers of telecommunications equipment,
particularly mobile telephone handsets. Tenders for
satellite-and- wireline-network services will offer substantial
business opportunities for interested U.S. equipment suppliers.
Telecommunications services
Taiwan authorities are privatizing both basic
telecommunication services and value-added network services.
Value-added network-service providers are allowed up to 100
percent foreign investment and have widely defined business
coverage, including high-speed broadband network services and
virtual private network services. In addition, Taiwan is
liberalizing banking and other aspects of its financial industry,
as well as promoting electronic commerce, commercial automation,
and Internet applications. U.S. suppliers have an excellent
opportunity to profit from continued telecommunications
liberalization and commercial automation. Due to superior
high-speed broadband value-added network services, the U.S.
should be able to maintain its market position.
Electronics Industry Production/Test Equipment
With several on-going and proposed high-tech investment
projects and growing production of advanced electronic products
and components, sales prospects for advanced EIPT equipment are
bright. Most advanced EIPT equipment must be imported to meet
domestic demand, since Taiwan-produced equipment is still limited
to simple, low-value-added products. The United States leads the
market for semiconductor EIPT equipment, while Japan controls the
EIPT markets in finished electronic products and passive
components. Japanese EIPT firms are taking a very aggressive
approach to the fast-growing and lucrative semiconductor market.
Nevertheless, U.S. EIPT suppliers are expected to continue as a
major source of specialized EIPT equipment.
Pumps, Valves/Compressors
Continued expansion of such industries as chemical materials,
chemical products, and textiles is bolstering the market growth
for pumps, valves and compressors. Proposed capital investment
in the three industries is over USD15 billion before the year
2000. Foreign firms are expected to gain the largest share in
this growing sector since local competition remains only in the
less complex and small-medium-sized product areas. Aggressive
marketing efforts are essential for American suppliers to improve
their market position in Taiwan.
Pollution Control Equipment
The market for pollution-control equipment in Taiwan is
suffering from the same problem as in the rest of the region,
namely that environmental protection is considered a luxury. In
fact, Taiwan authorities are under pressure to limit impediments
to growth (such as tightened environmental standards) so that
industry can weather the current regional crisis. Water
discharge standards have been relaxed, and other laws are being
poorly implemented in a bid by the authorities to assist local
industries. However, despite the current situation, market
watchers still expect this sector to grow five to seven percent
in 1998 and 1999, with many product areas (such as equipment to
control air pollution, solid waste, and hazardous waste, as well
as recycling technologies) experiencing growth. Best prospects
for Taiwan will be high-technology pollution-control equipment
and cleaner production technologies for the semiconductor,
petrochemical, pulp and paper, and electroplating industries.
The state-owned Chinese Petroleum Corporation has proposed a
Pollution Prevention Continuation Project to improve the exhaust
and effluent quality of the Kaohsiung Refinery Plant. This
project is designed to address the problem of air and noise
pollution, ground and underground water contamination, and also
the disposal of solid waste. With a total investment of NTD 2.9
billion, the project is scheduled for completion by June 2000.
Computer Software
The Taiwan software industry is in its infancy; thus the
market relies heavily on imported software. American software
vendors dominate, and will continue to dominate the Taiwan market
in coming years. High-demand U.S.-origin software includes
operation systems, internet/networking software, suite software,
system tools for PCS platform/operation systems and software
tools for workstations and above workstation platforms. Strong
demand for personal computer installations by households and
private businesses is propelling the market expansion of PC-based
software products. It is important for U.S. suppliers to note
that product localization for Chinese language users is essential
in this market.
Taiwan's Ministry of Economic Affairs (MOEA) will have an annual
budget of NTD 100 million to conduct research and promote CALS
(Continuous Acquisition and Life-Cycle Support) in the next two
years. Corporate Synergy Development Center, ITRI and III are
key organizations for CALS promotion.
Taiwan is grappling with new policy changes arising from the
growth of the internet, and with it, electronic commerce
(E-Commerce). Determined to reap the economic and political
benefits afforded by full participation in the information age,
the Commerce Department, MOEA, will also have an annual budget of
NTD 100 million for development of the Electronic Commerce
program.
Transportation/Aerospace
Taiwan's airport projects include the expansion and modernization
of the Chiang Kai Shek (CKS) International Airport and the
renovation of domestic airports. All projects in this sector are
the responsibilities of the Civil Aeronautics Administration
(CAA), within the Ministry of Transportation and Communications
(MOTC).
While local firms can undertake basic design work and civil
construction, opportunities for American firms are limited to the
sale of specialized equipment, or overall management.
The CKS Third Phase Expansion Project consists of one passenger
terminal. The USD 900 million project involves the construction
of an additional terminal, aprons for additional wide body jets,
a multi-level parking structure, installation of a domestic
transfer terminal and expansion of related support facilities.
Taiwan's CAA is now undertaking the preliminary planning. The
project is expected to be completed in the year 2007.
The existing international airport in Kaohsiung City will be
fully saturated in terms of passenger and cargo capacity after
four years. Therefore, Taiwan plans to build a third
international airport in southern Taiwan but has yet to decide
the airport site. Meanwhile, Taiwan's CAA plans to expand
domestic airports in Taipei, Tainan, Taichung, and Hualien.
Taiwan has finalized plans to open its skies to commercial
helicopter transportation for passengers, cargo and mail, thus
spurring the demand for commercial helicopters. In line with
this new policy, Taiwan will build eight heliports in Ilan,
Miaoli, Taichung County, Nantou, Youlin, Tungyin Island, Kinmen
and Chu-kwang.
For further information regarding trade opportunities in these
commercial sectors, please contact the following Ministries
and/or the American Institute in Taiwan.
Contact for Airport Expansion Projects:
George C.C. Feng, Director
Airport Expansion Construction Division
Civil Aeronautic Administration
Ministry of Transportation & Communications
340 Tunhwa N. Road, Taipei Taiwan
Tel: 886-2-2514-2530
Fax: 886-2-2514-2582
Contact for Purchases of Helicopters:
Joseph Tien, Director
Planning, Legal & International Affairs Division
Civil Aeronautics Administration
340 Tunhwa N. Road, Taipei Taiwan
Tel: 886-2-2349-6015
Fax: 886-2-2349-6031
Contact for Law Enforcement:
Ting Yuan-Chin (Surname Ting)
Director General
National Police Administration
7 Chunghsiao E. Road, Sec. 1
Taipei, Taiwan
Tel: 886-2-2357-8600
Fax: 886-2-2396-6822
Contacts for Related Technology Fields:
Hsung-Hsiung Tsai (Surname Tsai)
Administrator
Environmental Protection Administration
41, Sec. 1, Chung-HWA Road
Taipei, Taiwan
Tel: 886-2-2311-7888
Fax: 886-2-2311-6071
Chan Chi-Shean, M.D
Director-General
Department of health, Executive Yuan
100 Aikuo H. Road
Taipei, Taiwan
Tel: 886-2-2396-7166
Fax: 886-2-2341-8994
David R.C. Chu
Office Director
Office of Committee for Aviation & Space
Industry Development (CASID)
International Trade Building, Suite 1712
333 Keelung Road, Sec. 1, Taipei, Taiwan
Tel: 886-2-2757-6157
Fax: 886-2-2757-6043
IV. Country Specific Business Strategies
1. Doing Business in Taiwan
Many books have been written on doing business in Asia and it is
expected that many more will be written in the future. Doing
business in Taiwan is different from doing business in the United
States, but U.S. firms are best served by using common sense and
sticking to certain fundamental rules which are briefly discussed
below.
* Learn as much as possible about the market, competitors and
the people with whom you will be doing business with by obtaining
as much written information as possible.
* Know the strengths and capabilities of your products and the
capabilities of your company.
* Communication is paramount. If necessary, hire a
professional interpreter/translator to communicate your message
effectively. Respond promptly and thoroughly to all requests for
information or assistance.
* Be honest and considerate. Productive long-term business
relationships are built on a foundation of honesty and mutual
respect. U.S. firms should make an effort to learn about Taiwan
business and cultural practices such as business-card giving,
banqueting, and the importance of titles. Taiwan business people
and government officials will readily forgive small mistakes in
Chinese etiquette if they believe the offender is honest and
sincere.
2. The Regulatory Environment
The Ministry of Economic Affairs had recently announced measures
governing imports and exports of high-tech equipment and
supplies. The measures stipulate that when a local importer is
required by the government of the exporting country or the
foreign exporter to submit an International Import Certificate
(IC) and a Delivery Verification Certificate (DV) for an export
controlled product valued over $5,000, the importer shall apply
for such certificates in accordance with the procedures outlined
by MOEA. The measures also require a local exporter to apply for
an export license from the board of Foreign Trade in order to
export high-tech equipment and supplies.
Import licensing requirements are being phased out on most
civilian products, but importers must obtain an import license
from MND to import munitions and armaments. MND must also
approve the export of such products.
Taiwan agents or designated representatives of foreign suppliers
that wish to participate in the bidding are required to register
with the Procurement Bureau, Ministry of National Defense. The
names of qualified representatives/agents will be distributed to
all military agencies for reference. Foreign firms are
prohibited by law from making investments in Taiwan's defense
industries. As noted above, the Taiwan authorities have recently
begun requiring "industrial cooperation programs (ICP) ", which
normally contain offset provisions as a condition of all large
government procurements, including defense equipment. The
percentage for ICP (or offsets) is determined at the planning
stages and will be no less than 30 percent of the purchase price.
The authorities have traditionally encouraged co-production of
many weapon systems.
U.S. firms should note that Taiwan procurement regulations
specifically prohibit foreign suppliers or their representatives
or local agents to grant gratuities, gifts, or other illegal
benefits to the Taiwan military officers, nor shall they
illegally solicit or secure an award or contract, or violate such
laws as (Foreign Corruption Act( promulgated by the country of
the foreign supplier. Remuneration paid to the in-country
representative or agent should be appropriate and reasonable in
accordance with applicable market practices and may not infringe
upon the procurement interests of Taiwan military agencies. This
measure was adopted to reduce the possibility of corruption on
military procurements.
V. U.S. Government Points of Contact
AIT Commercial Section
The following is a list of useful contacts for U.S. firms
interested in doing business in Taiwan.
AIT Commercial Section
Suite 3207, 32/F, No. 333 Keelung Road, Sec. 1, Taipei, Taiwan
Tel: 886-2-2720-1550
Fax: 886-2-2757-7162
Rosemary Gallant
Deputy Chief
Christina Harbaugh
Commercial Officer
Peter Yen
Commercial Specialist
AIT Technical Section
7, Lane 134, Hsin Yi Rd., Sec. 3, Taipei, Taiwan
Tel: 886-2-2709-2000
Fax: 886-2-2701-4216
Richard E. Ames
Chief
Robert Van Horn
Army Logistics/Programs
R. Chuck Holloman
Air Force Logistics/Programs
Gerald Cook
Navy & Marine Logistics/Programs
AIT Technical Liaison Section
7, Lane 134, Hsin Yi Rd., Sec. 3, Taipei, Taiwan
Tel: 886-2-2709-2000
Fax: 886-2-2702-7675
Larry Mitchell
Chief
Roger Dong
Deputy Chief
AIT Economic Section
7, Lane 134, Hsin Yi Rd., Sec. 3, Taipei, Taiwan
Tel: 886-2-2709-2000
Fax: 886-2-2706-3023
Mary Tarnowka
Science and Technology Officer
AIT Washington
Suite 1700, 1700 North Moore Street
Arlington, Virginia 22209 USA
Tel: 703-525-8474-6
Fax: 703-841-1385
Gary Weis
Director, Political Military Affairs
Postscript: The American Institute in Taiwan is a private
non-profit corporation established to carry out relations between
the people of the United States and the people on Taiwan. AIT's
Commercial Section is charged with the mission of helping U.S.
firms export their goods and services to Taiwan. To accomplish
this mission, we conduct a number of services on behalf of the
U.S. Department of Commerce. AIT's Commercial Section offers a
variety of resources and services (including market research,
agent distributor searches, advocacy, trade missions and trade
shows) to assist U.S. companies entering the Taiwan market.
AIT Commercial Section can be contacted at Tel: 886-2-2720-1550,
Fax: 011-886-2-2757-7162. AIT Commercial Section is also on the
World Wide Web at the following address: WWW.AIT.ORG.TW. If this
report has alerted you to a commercial opportunity in Taiwan and
you subsequently pursue it with successful results, please let us
know. We track U.S. successes and want to know how our market
reports and services are being used.
ISA Customer Satisfaction Survey
U.S. Department of Commerce
* International Trade Administration*
The Commercial Service
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The U.S. Department of Commerce would appreciate input from U.S.
businesses that have used this ISA report in conducting export
market research. Please take a few moments to complete the
attached survey and fax it to 202/482-0973, or mail it to QAS,
Rm. 2002, U.S. Department of Commerce, Washington, D.C. 20230, or
Email: Internet[Opfer@doc.gov].
-----------------------------------------------------------------
* * * About Our Service * * *
1. Country covered by report: _______________________________
Commerce domestic office that assisted you (if applicable):
________________________________________________________
2. How did you find out about the ISA service?
__Direct mail
__Recommended by another firm
__Recommended by Commerce staff
__Trade press
__State/private newsletter
__Department of Commerce newsletter
__Other (specify): _______________________________
3. Please indicate the extent to which your objectives were
satisfied:
1-Very satisfied 2-Satisfied
3-Neither satisfied nor dissatisfied
4-Dissatisfied 5-Very dissatisfied
6-Not applicable
__Overall objectives
__Accuracy of information
__Completeness of information
__Clarity of information
__Relevance of information
__Delivery when promised
__Follow-up by Commerce representative
4. In your opinion, did using the ISA service facilitate any of
the following?
__Decided to enter or increase presence in market
__Developed an export marketing plan
__Added to knowledge of country/industry
__Corroborated market data from other sources
__Decided to bypass or reduce presence in market
__Other (specify): _______________________________
5. How likely would you be to use the ISA service again?
__Definitely would
__Probably would
__Unsure
__Probably would not
__Definitely would not
6. Comments:
________________________________________________________
* * * About Your Firm * * *
1. Number of employees: __1-99 __100-249 __250-499
__500-999 __1,000+
2. Location (abbreviation of your state only):______
3. Business activity (check one):
__Manufacturing
__Service
__Agent, broker, manufacturer's representative
__Export management or trading company
__Other (specify):_______________________________
4. Export shipments over the past 12 months:
__0-1 __2-12 __13-50 __51-99 __100+
May we call you about your experience with the ISA service?
Company name: _______________________________________________
Contact name: _______________________________________________
Phone: ______________________________________________________
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Thank you--we value your input!
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This report is authorized by law (15 U.S.C. 1512 et seq., 15
U.S.C. 171 et seq.). While you are not required to respond, your
cooperation is needed to make the results of this evaluation
comprehensive, accurate, and timely. Public reporting burden for
this collection of information is estimated to average ten
minutes per response, including the time for reviewing
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information. Send comments regarding this burden
estimate or any other aspect of this collection of information,
including suggestions for reducing the burden, to Reports
Clearance Officer, International Trade Administration, Rm. 4001,
U.S. Dept. of Commerce, Washington, D.C. 20230, and to the Office
of Information and Regulatory Affairs, Office of Management and
Budget, Paperwork Reduction Project (0625-0217), Washington, D.C.
20503.
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FORM ITA 4130P-I (rev. 5/95)
OMB. No. 0625-0217; Expires 09/30/98
Source: U. S. Department of Commerce - National Trade Data Bank, June 22, 2000
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