TAIWAN'S TAKE ON GOVT PROCUREMENT AND GPA

UNCLAS SECTION 01 OF 03 TAIPEI 002526

SIPDIS

SENSITIVE

STATE FOR EAP/RSP/TC AND EB/TPP, STATE PASS AIT/W AND USTR
FOR KI AND GRIER, USDOC FOR
4431/ITA/MAC/AP/OPB/TAIWAN/MBMORGAN

E.O. 12958: N/A
TAGS: ECON ETRD TW
SUBJECT: TAIWAN'S TAKE ON GOVT PROCUREMENT AND GPA


1. Summary: AIT met with Deputy Director General Su
Ming-tong of Taiwan,s Public Construction Commission (PCC)
June 3 to discuss their reaction to criticisms raised by U.S.
business in the AmCham annual White Paper, Taiwan,s efforts
to enter the WTO GPA and the effect of planned privatization
on the procurement policy of Chunghwa Telecom (CHT). The PCC
expressed frustration with what they viewed as inaccurate and
unfair criticism of Taiwan,s public procurement policy and
plan to respond to the AmCham by mid-June. Taiwan is
counting on the EU to win support for a two-step approach to
resolving nomenclature issues in the WTO Agreement on
Government Procurement (GPA) Committee but the EU has thus
far failed to convince China. Since CHT is listed in
Taiwan,s GPA accession offer, privatization is not expected
to result in an immediate change in procurement practices.
End Summary.

============================================= =====
AmCham White Paper Lists Complaints on Procurement
============================================= =====


2. Taiwan,s PCC is not only responsible for administering
public procurement law, but is also charged with mediating
and adjudicating disputes and as such is a key venue for
American companies seeking to bid on government contracts.
The annual AmCham White Paper issued in May listed a number
of issue areas where U.S. companies believe Taiwan,s
procurement system fails to live up to international
standards. A trend towards decentralization of government
procurement and the resulting inefficiencies as each locale
develops its own requirements has led international companies
to complain that they are being shut out of the procurement
market. U.S. companies also complain that Taiwan contracts
fail to meet important internationally recognized standards
for limits on liabilities, including for consequential
damages, and do not give contractors the right to terminate
the contract for cause. Taiwan contracts also allow
compensation adjustments only when the scope of work exceeds
planned work by a certain level. U.S. contractors believe
this places an undue burden on contractors to provide
uncompensated service beyond the original scope of work. The
complete text of the Taiwan White Paper can be found at the
AmCham Taipei website: www.amcham.com.tw

====================================
Taiwan Preparing Response to Critics
====================================


3. PCC Deputy Director General Su Ming-tong expressed
disappointment that the AmCham Infrastructure Committee had
again this year raised liability-related issues, noting that
the PCC had amended the regulations regarding terms and
conditions in October 2004. He said he had requested sample
government contracts from the U.S. and the EU that cap
liability for consequential damages, but had never received
such examples, implying that such examples did not exist. Su
referenced several articles in the Taiwan government
procurement law that he claimed addressed the AmCham
complaints and promised that his office would prepare a
written response to the AmCham,s criticisms by mid-June.


4. In response to AmCham,s concern that Taiwan government
procurement is being decentralized, leading to inconsistent
regulations and requirements, Su acknowledged that some large
infrastructure projects, especially for municipal water and
sewage, were being devolved to the local level and tendered
as Build-Operate-Transfer (BOT) projects because the Ministry
of the Interior (MOI) lacks the staff and budget to properly
manage them. As BOT projects, there is no centralized
procurement process, and they are not covered by the
requirements of the government procurement law. Su said that
the WTO GPA Committee is currently considering whether to
include BOT projects under government procurement laws, but
that several countries, including the US, opposed doing so.

======================================
Taiwan's View of GPA Accession Process
======================================


5. Turning to the current status of Taiwan,s efforts to
accede to the WTO Agreement on Government Procurement (GPA),
Su said he understood that the EU had proposed a two-phase
plan. The Government Procurement committee would first be
asked to agree to a resolution defining nomenclature for all
members in a way that would make no mention of sovereignty.
Once agreed, the second step would be to admit Chinese Taipei
to the committee without additional language on sovereignty.
According to Su, the EU tried and failed to win PRC support
in May for this two-step proposal. China continues to insist
that language spelling out Taiwan,s lack of sovereignty be
included in any Chinese Taipei accession annex. Su believes
the EU is asking the US, Japan and Canada to pressure the
Chinese to relent and that an EU representative will soon
visit Beijing to discuss this issue. However, Taiwan is
concerned that the newly appointed Korean chair of the GPA
may be more susceptible to pressure from Beijing.

6. Su acknowledged that a bilateral government procurement
agreement would be a way around the WTO nomenclature issue,
noting that the EU had also proposed a bilateral agreement.
But he insisted that Taiwan should maintain its focus on
entering the WTO GPA committee, suggesting that bilateral
agreements would remove any incentive for the EU and US to
push for WTO GPA accession on behalf of Taiwan. Other Taiwan
officials have echoed Su's concern that a bilateral GPA would
dampen U.S. interest in pushing for Taiwan's participation on
the WTO GPA.

============================================= ===
Privatization Unlikely to Affect CHT Procurement
============================================= ===


7. Chunghwa Telecom,s (CHT) plans to "privatize" by selling
American Depository Receipts on the New York Stock Exchange
has led to questions about whether CHT will continue to
follow the requirements of Taiwan,s government procurement
law after it becomes a "private" company. According to the
PCC, a privatized CHT would not normally be subject to the
requirements of this law. However, CHT was listed in
Taiwan,s WTO GPA accession offer. To withdraw CHT from the
offer would require the consent of all GPA members.
According to Su, Nippon Telephone and Telegraph (NTT) was not
withdrawn from Japan,s accession offer when the U.S. and EU
protested.


8. Su opined that Chinese Taipei would not want to revise
its accession offer prior to acceding to the GPA committee
and therefore, CHT would continue to be bound by the
requirements of Taiwan,s government procurement law. He
suggested also that the company management might feel
comfortable with the current procurement procedures and be
reluctant to make changes. CHT designed Taiwan,s government
procurement database and electronic bidding system, and
continues to operate it and provide technical support. CHT
gains some advantages from this position and might see
continued value in voluntarily following government
procurement practices.

=====================
Comment: PCC Spinning
=====================


9. (SBU) Comment: Most of the advocacy requests that come to
AIT's Commercial Section relate to government procurement
issues. Although U.S. companies do win some government
tenders, firms complain that the Taiwan procurement process
lacks transparency and that the process for dispute
resolution is tilted in favor of local entities. The PCC has
a reputation for using the government procurement law to
throw obstacles in the path of U.S. companies interested in
Taiwan government tenders. Su cited several articles of the
government procurement law in response to complaints raised
in the White Paper, but when pressed to confirm that these
provisions truly addressed specific issues, he was unable to
do so. He also sidestepped questions about decentralization
by pinning the blame on increased numbers of BOT projects.
In fact, BOT projects do not figure in most of the complaints
raised by U.S. companies. Su's complaint that AmCham has not
recognized the PCC's efforts to amend terms and conditions
also rings hollow in that the amendments Su touts are
advisory only and that the situation for U.S. companies
bidding on government contracts has not changed. AIT
welcomes the PCC's plan to provide written comments in
response to the White Paper and will use these comments to
engage the PCC in a discussion about how to address the
criticisms raised by U.S. companies.
PAAL