VIII. Trade and Project Financing The Banking System Taiwan has a Central Bank, 33 domestic banks (with 1,046 branch offices), eight "medium" business banks (with 362 branch offices), and 37 foreign banks (with 18 local branches). There are also 74 credit cooperatives, 285 farmers' credit units, and 27 fishermen's credit units on the island. These banks, cooperatives, and credit unions have traditionally played a dominant role in finance in Taiwan. The Central Bank performs all of the functions normally associated with central banks. It is entrusted with responsibility for issuing currency, managing foreign exchange reserves, handling treasury receipts and disbursements, setting interest-rate policy, overseeing the operations of other financial institutions, and serving as a lender of last resort. Taiwan's 33 commercial banks offer a wide range of services including receiving deposits, making loans, handling trade financing and providing guarantees, and discounting bills and notes. Most are also involved in the securities business, underwriting and trading securities and managing bond and debenture issues, as well as in providing savings-account facilities. The Chiao Tung Bank assists with long-term financing for industries and projects, while the Export- Import Bank and the Farmers' Bank focus respectively on trade financing and agricultural development. Foreign banking institutions are playing an increasingly important role on the financial scene. Foreign banks are essentially treated as domestic commercial banks -- are permitted to engage in trade financing, foreign exchange dealings, lending to individuals and corporations, and various kinds of trust business. Currently, many foreign institutions are concentrating on the development of consumer-loan and credit-card business in order to build greater overall market presence. Foreign Exchange Controls There are no foreign exchange (F/X) amount limitations for transactions for trade, insurance and authorized investment. Similarly, there are no F/X limitations on repatriating capital and profits, providing that the investment is approved by the Taiwan authorities. All other transactions involving inward or outward remittances for domestic firms have a USD10 million annual ceiling per account. Individuals are allowed to remit a maximum of USD 5 million yearly to or from overseas. Financing Availability Importers are usually responsible for arranging their own financing. The Taiwan Authorities' assistance is, however, available in certain cases. The Export-Import Bank, for instance, provides loans of up to 85 percent of the total contract value on sophisticated machinery and other high-technology items. Loans are also available for imports of natural resources, raw materials, and spare parts. Such loans can be granted for equipment and materials employed in the manufacture of goods for export, as well as for those used in the production of sophisticated equipment and the development of advanced technologies. Methods of Payment Bank-to-bank Letters of Credit (L/C) constitute Taiwan's most important import payment process. In 1993, Taiwan imported USD 77.1 billion, of which USD 52.1 billion were financed through L/C's. On a lesser scale, company to company payments are made via Open Account (O/A), documents against Payment (D/P) and Documents Against Acceptance (D/A). The AIT Commercial section recommends that U.S. exporters minimize financial risk by requiring their Taiwan trading partners to finance their imports through L/C's. A large majority of Taiwan's importers utilize usance L/C's with validity of up to 180 days. On the whole, U.S. companies find Taiwan's financing system to be efficient, and report no widespread pattern of deferred payment. Any banks authorized to handle foreign exchange may issue L/C's. This includes local banks (and their branch offices), 11 U.S. banks and their branches, and 27 third-country banks. All banks on Taiwan that are authorized to handle foreign exchange have extensive ties with one or more U.S. banks. This relationship includes test key exchanges. Types of Available Export Financing and Insurance In 1987 Taiwan's EXIMBANK (EXIMBANK/T) established a USD 200 million fund to assist U.S. firms exporting goods and services to Taiwan. EXIMBANK/T provides funds to commercial banks in the U.S. on a fixed interest rate basis. The U.S. banks then use this "loan" to finance U.S. exporters via such instruments as D/A, Usance L/C, Deferred Payment L/C, Standby L/C, or Letter of Guarantee. American exporters seeking competitive financing terms to export goods to Taiwan may contact U.S. commercial banks or their associates which are members of the Taiwan EXIMBANK Fixed Rate Relending Facility Program (FRRP). The program provides financial assistance for American exporters by extending trade credit to Taiwan importers. Because U.S interest rates tend to be lower that those offered through Taiwan's EXIMBANK, however, this resource is not heavily used by U.S. exporters. Project Financing Taiwan does not rely on money from multilateral institutions to facilitate investment projects. In the public sector, Taiwan authorities rely heavily on bond issuance to cover the huge outlays connected with the Six-Year Development Plan. In addition, the authorities also initiate an energy tax and a pollution tax to help protect the environmental problems. Private investment projects can be easily financed through banks on the island. Moreover, many Taiwan investors, especially large-sized companies, employ financial instruments to raise funds in capital markets both at home and abroad. List of Banks with Correspondent U.S. Banking Arrangement - Bank of Taiwan - Chang Hwa Commercial Bank, Ltd. - Chiao Tung Bank - Chinatrust Commercial Bank - Export-Import Bank - Farmers Bank of China - First Commercial Bank - Hua Nan Commercial Bank, Ltd. - International Commercial Bank of China - Land Bank of Taiwan - Shanghai Commercial & Saving Bank, Ltd. - Taipei Bank