Although the deal will safeguard up to 10,000 UK aerospace jobs, it means that one third of all regional jet assembly will shift to Taiwan.
In addition to continuing the manufacture of BAe's new 70-110-seat regional jet range, based on the BAe146 'whispering' jet, the 50- 50 joint venture being formed by the two groups will examine the feasibility of launching a new 120-seater, twin-engined jet, the RJX.
The deal with Taiwan will cut BAe's production costs and enable it to share future development costs at the same time as giving it access to the Pacific Rim - the fastest-growing aerospace market. Total demand for 70-130- seat jets is put at 2,500 between now and 2010.
In the first half of last year BAe's regional jet business lost pounds 167m but John Cahill, BAe's chairman, predicted that the new joint venture company, Avro International Aerospace, would be profitable from day one.
'The biggest benefit is the market this deal opens up for the aircraft,' he said. 'We are in pole position to develop in the Far East and it is the Far East which is growing fastest.'
Mr Cahill forecast that the deal would safeguard 4,000 jobs at BAe plants in Manchester, Bristol, Prestwick and elsewhere involved in the regional jet programme and a further 6,000 jobs among supplier companies.
Avro Interational - named after Alliot Verdun Roe, the pioneering aircraft designer whose company built the Vulcan bomber - will have a workforce of 3,500 and net assets of pounds 250m.
Up to 500 will be employed in Taiwan once a second final assembly line is in operation at TAC's Taichung plant in 1994.
BAe announced plans to sell a half-share in its regional jet business to Taiwan last September when it announced a half-year loss of pounds 129m, the closure of its Hatfield plant in Hertfordshire with 3,000 job losses and a pounds 1bn provision against rationalisation of its commercial aircraft business.
Mr Cahill yesterday sought to play down fears that the deal with TAC could eventually lead to the running down of its UK regional jet assembly line at Woodford, Manchester, and the transfer of component work abroad. The deal could mean more work, not less, for BAe's UK plants, he said.
BAe will receive pounds 120m from TAC in staged payments over the next nine months and a further dollars 25m on delivery of the first regional jet assembled in Taiwan.
If BAe and TAC decide to go ahead with development of the RJX at a cost of up to pounds 500m they are almost certain to seek other partners in Europe and elsewhere.
Mr Cahill refused to be drawn on the future of BAe's other commercial aircraft operations, which make the Jetstream range and the Advanced Turbo Prop aircraft at Prestwick, Scotland.
But there is speculation that BAe will also seek partners for these. 'We are open for business,' he said.
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