Trade Policy Overview of Taiwan in 2023
Foreign trade plays a pivotal role in Taiwan’s economy, a fact underscored by the increase in its merchandise exports and imports. Taiwan’s merchandise exports amounted to US$ 479 billion in 2022, rising from US$ 454 billion in 2021. Meanwhile merchandise imports hit US$ 428 billion, generating a trade surplus of US$ 51 billion. Taiwan’s services balance recorded a US$12.5 billion surplus in 2021, up from a US$3.8 billion surplus the previous year.
A substantial part of Taiwan’s exports in 2022 comprised machinery and electrical equipment, communications equipment, basic metals, and plastic and rubber goods. These goods also dominated Taiwan’s imports during the same period. The most prominent destination for Taiwanese exports in 2021 was China, including Hong Kong. Other significant markets included the Association of South-East Asian Nations (ASEAN), the US, the EU, and Japan. Additionally, China was the largest supplier of Taiwan’s imports, followed by Japan, the EU, ASEAN, and the US.
The Bureau of Foreign Trade in Taiwan demands that applicants for export or import licenses provide nine items of information. Exporters and importers are required to register an English name with the bureau through its website. If the desired name is available, the bureau issues an export or import license within six months.
Despite the outbreak of the coronavirus pandemic in early 2020 and the ensuing risks to Taiwan’s international trade position, the demand for Taiwan-made electronics remained strong. This demand was bolstered by an accelerated digitalization in workplaces and schools as a response to the pandemic. The continuing rollout of fifth-generation (5G) telecommunications networks and the commencement of mass production of new smartphone models also added strength to Taiwan’s export industry. Furthermore, the crisis has prompted corporations and governments to expedite their technological upgrade plans, thereby ensuring sustained demand for Taiwanese technology goods.
US-China technological tensions could lead to sporadic disruption to Taiwan’s commercial opportunities in China, which remains its largest market. The US is likely to intensify its pressure on Taiwan to pick sides in this conflict. The situation will particularly affect Taiwan’s innovative technology firms, as US export controls restrict transactions involving advanced integrated circuits (ICs). In the long run, this could be advantageous for Taiwan, as Chinese companies might shift from their dependence on the US and lean towards Taiwanese component-makers, particularly in lower-end segments. Nevertheless, as China fosters its indigenous IC industry, Taiwanese producers may face competition from emerging Chinese rivals.
Import Taxes & Tariffs
Taiwan utilizes the Harmonized Commodity Description and Coding System issued by the Customs Co-operation Council as its tariff base. The Standard Classification of Commodities has been operative since 1989.
In 2022, over 98% of Taiwan’s tariffs were ad valorem, with duty applying to cost-insurance-freight value. Certain products, as detailed in the Additional Notes of Customs Import Tariff last amended in 2015, are exempt from import tariffs. Particularly, Articles 84–90 highlight various types of machinery that contribute to environmental protection efforts. Such machinery and equipment imported for air pollution prevention, water contamination control, noise or vibration reduction, or for environmental inspection and testing or waste disposal are included.
Alterations to the Customs Import Tariff and Import and Export Commodity Classification of the Republic of China were implemented in 2003. The changes transitioned the “tariff rate” from two to three columns. The first column applies to goods imported from WTO member countries or from countries or regions that reciprocate treatment with Taiwan. The second column applies to specific goods imported from certain developing or underdeveloped countries or regions, or from countries or regions that have signed free-trade agreements with Taiwan. If the first and second columns don’t accommodate the imported goods, the third column rate applies.
Following its accession to the WTO in 2002, Taiwan reduced approximately 4,500 tariffs. The country maintained its average nominal tariff rate at 5.53% from 2012 until mid-2022. Tariffs on 3,470 industrial products were reduced to 4.15% in 2012, and were maintained at this rate until mid-2022. Tariffs on 1,021 agricultural products were lowered to 13.98% (down from 20.02%) immediately upon WTO entry in 2002. These rates were further reduced to 12.86% by mid-2022.
Joining the WTO further liberalized Taiwan’s market, lifting restrictions on commodities that were previously banned or subject to strict import controls. These include rice, chicken meat, pork offal, and pork belly. Upon WTO accession, Taiwan established tariff-rate quotas for the formerly banned products. Chicken and red-meat products markets were fully liberalized by 2005, with tariffs capped at rates between 12.5–20%. In 2007, WTO-negotiated agreements led to the establishment of Country Specific Quotas for Australia, Egypt, Thailand, and the US, enabling them to commence rice exports to Taiwan.
Significant concessions were made in the automobile industry. By 2011, the import tariff on all small cars was set at 17.5%, a rate maintained until July 2022. The original 34.7% tariff on large cars dropped to 25% in 2008 and remained unchanged until mid-2022. The average customs duty on imported car parts was around 9–11.5%.
As part of the WTO-related tariff reductions, the tariffs on color televisions were reduced to 10%; compact-disc players to 10–12%; air conditioners to 5–8%; and computers and peripherals to 0–10%.
However, the WTO’s latest policy review of Taiwan, published in 2019, found that agriculture still enjoys a high level of protection. Thirty products attract tariff rates above 100%, with betel nuts showing an extreme out-of-quota tariff of 1,059.6%. Other average nominal tariffs include those for animals and animal products (18.4%); fruits, vegetables, and plants (21.0%); transport equipment (9.5%); textiles (7.6%); footwear (5.2%); electric machinery (3.8%); minerals and metals (2.8%); and chemicals (2.8%).
In 2002, tariffs were eliminated on ten types of spirits, including brandy and whiskey. The average tariff rate for all imported tobacco and alcoholic drinks decreased to 18.01% from 26.32%. Taiwan imposed a 20% duty on tobacco products upon its WTO accession, a tax also applicable to local tobacco manufacturers, termed as a health tax.
Taiwan eradicated tariffs on 201 different types of computer and telecoms products, following the signing of the International Technology Agreement in Singapore in 1996. Upon joining the WTO, Taiwan phased out tariffs on eight other categories of goods, including mobile phones, fiber-optic cables, and DVD players, allowing local industries more time to develop.
By the end of July 2022, Taiwan had admission-temporaire agreements with 41 countries, including Australia, Canada, the EU, Hungary, Japan, New Zealand, the Philippines, Singapore, South Africa, South Korea, Switzerland, and the US. These agreements allow tariff and tax exemptions for goods imported for processing and re-export.
Taiwan is actively seeking free-trade agreements (FTAs) with members of the Association of South-East Asian Nations (ASEAN) as well as other Asian countries. With the signing of the Economic Co-operation Framework Agreement (ECFA) in 2010, China tacitly agreed to Taiwan’s pursuit of international FTAs. However, China is likely to oppose Taiwan’s efforts to secure bilateral deals with other countries under its influence, such as Australia and the ASEAN members. The ECFA focuses on tariff-reduction measures and proposes steps to simplify cross-Strait investments for companies from either side. The agreement was set to expire by end-2020, but the Taiwan Affairs Office announced in September 2020 that the agreement would remain in effect as long as the general relationship between the two sides was smooth.
The Department of Customs Administration, under the Ministry of Finance, undertook more than 50 investigations into alleged dumping from 1984–2012. As of the end of July 2022, anti-dumping measures remained in place in several distinct cases. These include an antidumping duty of 204.1% on towel products from China, instituted in 2006; an antidumping duty of 0–43.46% on 48 Chinese footwear exporters, introduced in 2007; an antidumping duty of 91.58% on Portland cement and clinker products from China, imposed in 2011; and antidumping duties of 19.42–31.36% on aluminum foil from China, announced in September 2021.
Imports in Taiwan fall into three categories: prohibited, controlled, or permissible. Each of these requires specific licenses. To comply with the World Trade Organization (WTO) stipulations on import liberalization, authorities periodically transfer various goods from the controlled to the permissible list. Formerly, there were 190 items subjected to import bans and 164 subjected to restrictions. The WTO policy review, published in 2019, maintained that Taiwan still imposes import bans on 91 products, such as narcotics, toxic chemicals, and hazardous waste. This marks an increase from the 70 products cited in the 2015 review.
Further information on specific import restrictions can be obtained from the Directorate-General of Customs or the First Department of the Bureau of Foreign Trade. The Customs Import Tariff and Classification Schedule also provides detailed import-control requirements per classification.
For commodities not subject to import restriction, no import licenses are required. Importers can directly apply for customs clearance. This comes with a fee of NT$500. However, normal regulatory requirements related to certification, market licensing, or other approvals may still apply. If food products are imported from cholera-declared areas, a cholera-inspection fee of NT$2,000 is imposed.
The quarantine fee charged for imported animals and plants in Taiwan is 0.1% of the cost-insurance-freight (cif) value for imports and 0.1% of the free-on-board (fob) value for exports.
The import restrictions apply to three categories: WTO-consistent import-restricted items, items prohibited for agricultural protection, and items prohibited for industrial protection. The WTO-consistent category includes items like narcotics, toxic chemicals, fireworks, and toxic waste. The agricultural protection category includes dog meat, puffer fish, whale shark, and cannabis not for uses by practitioners of traditional Chinese medicine. The industrial protection category includes salt, coal, motorcycles, and motorcars.
Imports on the permissible list include raw materials, spare parts, and capital goods. Licenses for such imports can be readily obtained by end-users and manufacturers. For raw material imports, it is possible to obtain a blanket license covering all requirements for a six-month period. Some items, like compressors and internal-combustion engines, may ordinarily be imported only from the US. In special circumstances, officials may authorize imports of used machinery.
Despite these regulations, some non-tariff barriers persist in the Taiwanese market. For example, the system of taxing imports on a cif basis rather than on a fob basis creates a bias against more distant countries (excluding the US), favoring Japan due to freight rates. Several hundred items still have origin restrictions.
Since 2002, Taiwan has gradually lifted import restrictions on raw materials and finished goods from China. The market opened to Chinese products after Taiwan joined the WTO in 2002. Almost 90% of the items approved for import from China can enter Taiwan free of import permits. The market was significantly enhanced in 2008, with the establishment of direct shipping links between the two countries for the first time since 1949.
Taiwan mandates a commodity-labelling law, requiring the display of certain basic information in Chinese on all goods intended for sale. It stipulates that wording must be “primarily” in Chinese.
In 1998, Taiwan lifted a number of non-tariff import restrictions in line with its bid to join the WTO. A free-import system on sugar was implemented in 2002, and the market was further opened after Taiwan joined the WTO.
The market was also opened to American potatoes and Argentine beef in 1998. In 1999, Taiwan agreed to permit the import of 40 additional types of agricultural and livestock products after its WTO accession. Of these 40 items, 20 have no import volume restrictions, while the remaining 20 are subject to a TRQ system.
However, in its 2022 National Trade Estimate Report, the Office of the US Trade Representative criticized Taiwan over its ban on imports of US beef due to concerns over “mad-cow disease” and a feed additive, ractopamine. Taiwan also drew criticism for the enforcement of country of origin labelling requirements on a range of pork products in January 2021. Despite increased political pressure to lift the ban, particularly since the Taiwan Allies International Protection and Enhancement Initiative Act came into effect in 2020, the ban remained in Taiwan as of the end of July 2022.
In compliance with the UN Chemical Weapons Convention, Taiwan has been banned from importing B-class compounds since 2000. Taiwan has not signed the agreement as it is not a UN member. Finally, as of 2000, imports of rice liquor have been permitted.
Although Taiwan doesn’t impose any direct taxes on exports, it does levy a trade-promotion service fee, which amounts to 0.0425% of the trade value. This fee, designed to promote general import/export trade, could be considered a form of tax. Previously, there was a harbor-construction fee of 0.2% on the free-on-board price of all export (and import) items, which might be considered a tax. However, this fee was eliminated when Taiwan joined the World Trade Organization (WTO) in 2002. Moreover, a WTO-related amendment passed in 1997 assures national treatment for goods circulated internally through Taiwan’s ports in terms of paying harbor-construction fees, ensuring any such dues would be used exclusively for the development of commercial harbors.
Free Trade Zones (FTZs)
Export incentives in Taiwan include duty drawbacks on imported inputs, loans to finance imports, expenses of assembly, manufacturing and sale of exports, and an instalment system for paying customs duties. Furthermore, payment of import duties and taxes on machinery and equipment by exporting industries can be deferred for five years, thereby enhancing the competitiveness of these industries in international markets.
Taiwan is currently home to ten export-processing zones (EPZs), six of which are in the Kaohsiung area (Chengkung Logistics Park, Kaohsiung EPZ, Kaohsiung Aircargo Park, Kaohsiung Software-based Technology Park, Linkuang EPZ and Nantez EPZ). The Taichung area hosts two EPZs (Chungkang EPZ and Taichung EPZ), while one each is located in Touliu city in Yunlin county (Touliu EPZ) and in the Pingtung area (Pingtung EPZ).
All production within these zones is primarily intended for export, although special permission can be obtained for selling products domestically. Furthermore, operations within the EPZs enjoy exemption from import duties and commodity taxes, thus fostering a conducive environment for export-oriented manufacturing.
In 2021, the EPZs collectively generated a revenue of NT$450 billion, marking an increase of 12.6% from the previous year. As of end-May 2021, a total of 766 enterprises, employing over 80,000 people, had received approval to operate in the EPZs, according to the most recent data from the Ministry of Economic Affairs.
Taiwan’s first harbor-based EPZ, the Taichung Harbor Warehousing and Transshipment Centre (Chungkang EPZ), completed its development in two phases in 2002 and 2006. The centre, covering 177 hectares, is home to multinational companies and local manufacturers of high-tech goods. Manufacturers in the centre receive duty-free import of production equipment, raw materials, semi-finished products and fuel.
Since 2002, domestic companies have also been able to establish operations in Pingtung EPZ, in southern Taiwan. Constructed in three phases, with the last completed in 2007, this zone has also opened simple processing services to goods shipped directly from China since 2001 through the offshore transshipment zone in Kaohsiung Harbor.
Regulations for the zones stipulate a minimum investment capital of NT$20m for manufacturing, NT$5m for trading and NT$1m for services. They permit thirteen categories of industries including chemical products, consulting services, electric appliances, food, garments, information services, international trading, machinery, metal products, miscellaneous industrial products, precision machinery, vehicles and other high-tech, capital-intensive, high-quality or high value-added industries. Labor-intensive businesses are discouraged, and foreign banks may not operate in the zones.
As a facilitative measure, producers in the zone have been allowed to make tax-free sales of machinery and equipment used for at least five years since 1998. Moreover, in 2002, the Ministry of Transportation and Communications allowed companies to transport products made in mainland China to bonded factories in EPZs and science-based industrial parks via the Kaohsiung offshore shipping centre. This strategic move allows the goods to then be shipped to overseas destinations, including mainland China, thereby streamlining cross-strait trade and logistics.
The Foreign Trade Act of 1993 dramatically eased export restrictions and streamlined export procedures in Taiwan. As stipulated in Article 11 of the act, goods are generally allowed for export without control except for those dictated by international treaty or trade agreements, or those regulated due to national defense, social security, cultural, sanitary, environmental, or ecological concerns. As a result, exporters can now trade a significantly wider range of products without control. However, for certain items, licenses are still required if the exports are classified as prohibited, controlled, or permissible.
The Bureau of Foreign Trade (BOFT) maintains a List of Commodities Subject to Export Restriction and a List of Commodities Entrusted to Customs for Export Examination. These “negative lists” and “entrusted lists,” first introduced in 1994, are periodically updated. Certain “entrusted” items can only be exported through specific seaports or airports or require distinct certification from various government ministries, as detailed in other laws and regulations. Restricted items include garments and textiles, organic chemicals, pharmaceutical products, certain animal products, sugarcane, bamboo planting stock, opium products, military items, and antiques.
Regardless of an item’s inclusion in the List of Commodities Subject to Export Restriction, there are further restrictions on exports. No products are permitted to be exported to countries or areas subject to a UN-imposed embargo, no products may be exported directly to China, and products resulting from prison labor can only be exported to countries or areas designated by the BOFT and require pre-export permits. It’s also worth noting that as of the end of July 2022, the US had in place antidumping tariffs on stainless-steel pipes from Taiwan.
Export Insurance & Credits
The Export-Import Bank of the Republic of China (Exim Bank) mitigates political and some commercial risks by providing coverage for up to 90% of losses. As of the end of 2019, the bank’s outstanding loans totalled NT$117.5 billion, marking a 7.0% increase from the previous year. The Exim Bank offers ten types of export insurance, including comprehensive general D/P (documents against payment) and D/A (documents against acceptance) export, letter of credit (L/C) export, and comprehensive open-account export. Other types include safety export credit for small and medium-sized enterprises, medium- and long-term export insurance, and overseas investment insurance.
Several more insurance types cater to different needs: comprehensive export-finance, comprehensive general export, overseas construction, and GlobalSure credit insurance, the latter specifically designed for local companies, particularly small and medium-sized enterprises. For companies legally registered in Taiwan, the bank doesn’t differentiate between fully owned local and foreign-invested companies. The Exim Bank reduced insurance fees in 2000 to encourage exporters to penetrate markets such as Central and South America, the Middle East, and Eastern Europe.
Since 1999, the Ministry of Finance has allowed local insurance companies to offer trade-credit insurance, covering credit and political risks. This includes accounts receivables unpaid or delayed by foreign buyers, and foreign financial institutions unable to pay due to unforeseen circumstances. The Exim Bank, a government-owned entity established in 1979, offers long-term guarantees and financing for exporters, foreign buyers, and governments. The bank opened an offshore banking unit in 1991, specializing in longer-term financing. It removed the maximum credit line of US$1m in export insurance for any exporting company in 1999.
Old restrictions on export markets covered by the insurance program were abolished. For insurance contracts issued by private insurers, the maximum insurance contract for trade-credit insurance is NT$1.6 billion, with each buyer of an insurance policy insured up to NT$800m. The Ministry of Finance has been financing a programme since 1998 to help fund the cost of insurance for export shipments to countries hardest hit by the regional financial crisis of 1997 and 1998. Taiwan’s exporters now have a combined credit line of NT$11 billion for insurance coverage and export promotion to South-east Asian countries.
Exporting companies may also use letters of credit issued by foreign banks to apply for export insurance with the Exim Bank. In 1999, the Exim Bank expanded the type of products covered by its export insurance to include general industrial products and reduced the insurance rate for documents-against-acceptance arrangements, which increased the number of exporters buying policies. Medium- and long-term export credits are available for promoting the export of machinery, equipment, turn-key plants and other capital goods with a local content not less than 50% of the contract value.
The bank also offers overseas investment credits for investment projects that secure raw materials or promote co-operation with foreign nations. Other credits are available for syndicated loans, overseas construction, shipbuilding, fixed-rate re-lending, and short-term export financing. Long-term guarantees and financing are also available for imports of raw materials and spare parts that aid exporters in expansion.
The Exim Bank offers guarantees and financing for exporters’ foreign investments that help supply Taiwan with raw materials or expand export markets. Financing is available for engineering companies undertaking foreign construction projects. The bank also offers medium-term financing for capital-goods exports for foreign dealers or end-users in co-operation with foreign institutions and by means of a fixed-rate re-lending facility scheme. Finally, the Exim Bank provides fixed- and floating-rate re-lending by extending credit lines to local and foreign financial institutions to buy equipment and facilities.