TAIWAN: TIME FOR TIFA

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 003093 SIPDIS STATE FOR EAP/RSP/TC AND EB/TPP/BTA, STATE PASS AIT/W AND USTR, USTR FOR KI AND FREEMAN, USDOC FOR 4431/ITA/MAC/APOPB/MBMORGAN AND 3132/USFCS/OIO/EAP/ABACHER/ADESARRAN E.O. 12958: DECL: 10/01/2014 TAGS: ETRD ECON KIPR EAGR ECPS PGOV IPR SUBJECT: TAIWAN: TIME FOR TIFA REF: A. TAIPEI 0069 ¶B. TAIPEI 0096 ¶C. TAIPEI 0533 ¶D. TAIPEI 1033 ¶E. TAIPEI 1600 ¶F. TAIPEI 1907 ¶G. TAIPEI 1998 ¶H. TAIPEI 2375 ¶I. TAIPEI 2475 ¶J. TAIPEI 2571 ¶K. TAIPEI 2672 ¶L. TAIPEI 2877 ¶M. TAIPEI 2900 ¶N. TAIPEI 2929 Classified By: AIT Director Douglas Paal, Reason 1.4 b/d ¶1. (C) SUMMARY: Taiwan's recent change in attitude towards making efforts to resolve long-standing bilateral trade concerns with the U.S. has led to real improvements in the environment for intellectual property protection, agricultural trade, telecommunications liberalization, and pharmaceutical access requirements, and is about to pay dividends in the form of the establishment of a National Communications Commission and a data exclusivity regime for innovative pharmaceuticals. Setting a schedule for TIFA discussions will reinforce this new "can do" attitude. Holding out for additional gains risks jeopardizing not only Taiwan's continued cooperation, but also the influence of those responsible for driving the return to engagement on the U.S. bilateral trade agenda. END SUMMARY. ¶2. (C) Since Taiwan's entry into the WTO in January 2002, the US-Taiwan bilateral trade relationship has been marked by Taiwan foot dragging on implementation of WTO accession commitments and frustration on the part of US policy-makers over Taiwan's unwillingness to enact promised changes. In August 2003, US Trade Representative Zoellick wrote a letter to Premier Yu Shyi-kun, laying out in detail our bilateral trade concerns and holding out the promise of high-level economic discussions, including resumption of discussions under the Trade and Investment Framework Agreement (TIFA),if Taiwan could demonstrate it was implementing its commitments in IPR, agriculture, pharmaceuticals, and telecommunications. Over the past 12 months, Taiwan has made significant progress in resolving many of our outstanding bilateral trade questions, including significant improvements in the enforcement of intellectual property rights, liberalization of fixed line telecommunications, and moving to create data exclusivity protection for innovative pharmaceuticals and establish a workable rice quota regime. ¶3. (C) Even more significant than these positive steps is what appears to be a sea change in attitude among Taiwan officials responsible for trade policy. The new cabinet, inaugurated in May, has moved with heretofore unseen purpose and coordination to push difficult changes through both the bureaucracy and the Legislative Yuan (LY). Taiwan officials' cooperation has clearly been motivated by the promise of the resumption of high-level trade discussions under the TIFA. Taiwan officials view resumption of high-level economic talks with the United States (which they hope will lead to a Free Trade Agreement) both as a quid pro quo for their efforts to make difficult political decisions, and as a political strategy to counter their economy's growing entanglement with China. We have made clear that restarting TIFA is a necessary precondition before the possibility of entering negotiations a US/Taiwan FTA could be considered. Taiwan views the possibility of a FTA with the U.S. as the key that could unlock closer economic relations with other key regional trading partners. The continued effectiveness of key policy makers essential in pushing the bureaucracy to address U.S. bilateral trade concerns will be heavily influenced by their ability to deliver economic engagement with the U.S. (refs H, I) -------------- IPR Environment Dramatically Improved -------------- ¶4. (U) AIT has reported extensively on Taiwan government actions to improve the IPR climate. The frequency of inspections of Optical Disk (OD) factories continues to increase, while the number of infringing goods and equipment seized by Taiwan enforcement agencies has dropped to half 2003 levels. In December 2003, Taiwan officials, working in cooperation with rightsholders and in coordination with other enforcement authorities, broke up two major counterfeit software manufacturers. The National Police have increased the frequency of their raids against manufacturers and sellers of pirated goods, leading to an increase in arrests. Four Taiwan enforcement agencies cooperated in the investigation, raid, and closure of a major OD counterfeiting operation in May that was suspected to account for as much as ten percent of illegal OD manufacturing in Taiwan. ¶5. (U) Shipments of all counterfeit products from Taiwan seized by U.S. Customs in FY03 dropped to less than three percent of FY02 levels and fell even further in the first half of FY04. After a concerted lobbying campaign by Taiwan government officials, Taiwan's legislature passed revisions to the copyright law that substantively meet the demands of U.S. based rightsholders groups for stiffer penalties for counterfeiters and protection for technical protection measures, adding to amendments from 2003 that made sale of counterfeit goods a public crime. Taiwan has also moved to create a specialized IPR court that is scheduled to begin operation before the end of 2004. (refs B, C, E, and K) -------------- -- Telecom Liberalization in Process - NCC Holding -------------- -- ¶6. (U) Taiwan's Directorate General of Telecommunications (DGT) announced in September the opening of a one-month bidding period for new entrants into Taiwan's fixed line telecommunications market. This is the result of legislation passed in December 2003 that mandated liberalization of the fixed line market by allowing new entrants to apply for licenses to enter the market twice yearly and by significantly reducing capital and build-out requirements. In December 2003, the legislature also passed a bill authorizing the establishment of a National Communications Commission modeled on the US FCC. The implementation bill has been held hostage in the legislature by partisan wrangling, first over the number and composition of commissioners, and more recently over unrelated broadcast media licensing requirements. The executive branch remains committed to pushing this bill through at the earliest possible opportunity. (refs A, G, and M) -------------- - Pharmaceuticals: Engaging on DE and Validation -------------- - ¶7. (C) In spite of bureaucratic obstinance and strong opposition from local industry, Premier Yu and the Minister of Health have forced a bill to protect pharmaceutical data through the Ministry of Health and Executive Yuan. It is now awaiting action by the LY Environment and Health Committee. The bill provides five years of protection for new chemical entities and three years for new indications. In response to industry's remaining concerns, the Department of Health has privately offered assurances that they will draft implementation regulations favorable to innovative pharmaceutical manufacturers. In meetings with representatives from PhRMA in June 2004, the Board of Food and Drug Administration (BFDA) agreed to consult with industry in revising the methodology for determining Risk Priority Numbers (RPNs) used to identify companies for on-site inspections. In March, the LY passed legislation that substantially increased penalties for manufacturers, distributors, and sellers of counterfeit pharmaceutical products. (refs D, F, L, and N) -------------- Rice CSQ,s on Track -------------- ¶8. (SBU) Taiwan's Council of Agriculture (COA) recently recommended adopting U.S. supplied draft language on a country specific quota (CSQ) system for rice imports on the condition that we accept Taiwan's high out-of-quota duty rate and negotiate with Australia, Thailand, and Egypt on specific quota amounts. Taiwan also agreed to abandon its proposal to leave ten percent of public imports open to all countries as a "global quota." U.S. industry reportedly supports further discussions in TIFA talks. Like the other economic ministries, Taiwan's COA has also recently evidenced a greater willingness to work with the U.S. to resolve bilateral trade issues. Implementation of Taiwan's rice import commitments has dramatically improved. For example, in 2004 no public tenders were cancelled because price bids exceeded a COA-imposed ceiling price. In addition, COA has been fully cooperating in efforts to re-open Taiwan's market to U.S. beef. -------------- Time to Engage is Now -------------- ¶9. (C) COMMENT: Taiwan's recent willingness to engage on our bilateral trade agenda is based on the belief that doing so will bring a positive return in the form of renewed high-level economic discussions under TIFA. This understanding has been reinforced in our regular meetings with all levels of the Taiwan economic policy community. Taiwan officials will undoubtedly push for a U.S. commitment to future FTA negotiations, but understand that TIFA must come first, before any possibility of discussing an FTA can be considered. The suspension of high-level economic discussions in 2002 was an effective strategy to force Taiwan's trade policy bureaucracy to stop basking in the warm afterglow of WTO accession and refocus attention on resolving U.S. bilateral trade concerns. But this strategy is reaching the limits of its usefulness. By committing now to a schedule for TIFA talks, we can reinforce Taiwan's willingness to engage and continue to make progress on bilateral trade issues, including dismantling non-tariff barriers to trade and reaching an agreement on a CSQ for rice. Postponing TIFA discussions would deal a severe blow to those in the Taiwan government who have been the most forceful advocates of engagement with the U.S. to resolve concerns on IPR, pharmaceuticals, rice and telecoms. Failure to deliver engagement with the U.S. will damage or even destroy their ability to be helpful in the future. Now is the time to build on the positive momentum of the past several months by raising the level of engagement on economic issues. PAAL