REGIONAL ECONOMIES MIXED VIEWS ON TAIWAN FTA

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 002599

SIPDIS

EAP/RSP/TC, EB/TPP/BTT, STATE PASS AIT/W AND USTR, USTR FOR
FREEMAN, WINTER AND WINELAND, GENEVA FOR USTR

E.O. 12958: DECL: 06/13/2015
TAGS: ETRD ECON TW
SUBJECT: REGIONAL ECONOMIES MIXED VIEWS ON TAIWAN FTA
PROSPECTS

REF: TAIPEI 2477

Classified By: AIT Director Douglas Paal, Reason 1.4 (d)


1. (C) Summary: Taiwan officials agree that a Free Trade
Agreement with the United States would have only a small
economic impact for Taiwan, but believe that such an
agreement will open the door to other, more economically
meaningful trade agreements. However, representatives from
trade offices in Taipei have mixed opinions on whether a
US/Taiwan agreement would make it easier for others to
negotiate with Taiwan. Australia and Canada are most
negative, while Singapore and New Zealand suggest they would
follow the U.S. lead. Japan has no official position, but
Taipei-based representatives suggest a Japanese FTA with
Taiwan isn't in the cards. End Summary.


2. (C) Taiwan authorities use every opportunity to raise the
benefits of a FTA with American interlocutors. Although
economists in both the U.S. and Taiwan have questioned the
economic utility of a FTA, Taiwan officials regularly lament
Taiwan,s increasing economic isolation as countries in the
region sign bilateral and regional trade agreements that
exclude Taiwan. One oft-cited benefit for Taiwan of a
US/Taiwan FTA is that it would open the door for other
regional economies to sign agreements with Taiwan, mitigating
fears of Chinese retribution against private companies.
Taiwan would then benefit from expanded regional trade and
closer links to regional trading partners. Taiwan
authorities regularly refer to FTA negotiations with
Singapore in 2001 they claim were broken off due to Chinese
pressure and a 2001 statement by then Chairman of the Taiwan
Institute for Economic Research, Wu Rong-yi (now Vice
Premier),who insisted that unnamed Japanese officials had
told him that Japan would be willing to sign an FTA with
Taiwan if the U.S. would do so first.


3. (C) In fact, Taipei-based representatives from larger
countries with strong or potentially strong trade ties with
China tell AIT they are unlikely to sign bilateral trade
agreements with Taiwan, regardless of U.S. action. The
smaller, more open economies are more willing to consider
bilateral trade agreements with Taiwan if the U.S. leads the
way.


4. (C) Australian Deputy Representative Ben Gray told AIT
that Australia had so adamantly refused to discuss the issue
with Taiwan interlocutors over the past two years that in the
outgoing Australian Trade Representative's courtesy calls on
the Taiwan Minister of Economics, the head of the Council for
Economic Planning and Development, the National Security
Council and the Council of Agriculture, none of them dared to
raise the possibility of an FTA. Australia's ongoing
preparatory FTA negotiations with China are in a delicate
stage now and the Foreign Ministry would not want anything to
upset that process. Australian Foreign Minister Downer is
very focused on improving Australian relations and increasing
trade with China and has little patience for Taiwan,s
political gamesmanship, according to Gray.


5. (C) Canadian Deputy Director Sumeeta Chandavarkar allowed
that Canada currently has only one economic policy issue in
Taiwan: reopening the Taiwan market to Canadian beef. There
has been no discussion of a free trade agreement with Taiwan
and no such discussion will take place, regardless of U.S.
policy, until the ban on Canadian beef is lifted. Even then,
Chandavarkar was doubtful that there was a domestic
constituency in Canada for a Taiwan/Canada FTA.


6. (C) Representatives from Singapore and New Zealand were
warmer to the possibility that a U.S./Taiwan agreement could
pave the way for them to negotiate with Taiwan. Singapore
Assistant Trade Representative Eleanore Kang told AIT that
Singapore had previously approached Taiwan in 2000 to open
discussions on a Free Trade Agreement, but that those
discussions had broken down over nomenclature issues. If the
U.S. were to negotiate an agreement with Taiwan that included
a creative way to finesse Taiwan,s name and sovereignty
issues, Singapore would be likely to follow the U.S. example.


7. (C) New Zealand's Economic and General Affairs Officer
Raylene Liufalani echoed Kang's view that some type of
bilateral trade agreement with Taiwan might be possible but
only if the name and sovereignty questions were creatively
handled. Liufalani noted that Taiwan raises FTA negotiations
in every meeting with N.Z. officials and legislators, but
serious concerns about Taiwan,s protectionist agricultural
trade policies and membership in the protectionist G10 in the
WTO make it difficult to predict fruitful trade related
negotiations with Taiwan.


8. (C) Masahiko Sugita, Director of Economic Affairs of the
Interchange Association, Japan's trade office in Taiwan said
that Taiwan officials regularly raise the possibility of FTA
negotiations with Japan with Interchange officials as well as
visiting Japanese legislators. Although Japan has no
official position on the possibility of negotiating a Free
Trade Agreement with Taiwan, Sugita noted that there was
little incentive for Japan to do so. Taiwan tariff rates for
most Japanese imports are already very low and Japanese
industries prefer private negotiations with Taiwan officials
to resolve trade-related problems. In addition, Japanese
companies worry that access to the Chinese market will be
constrained if the Japanese government signs an agreement
with Taiwan, according to Sugita. Although Japan wouldn't
rule out FTA negotiations if the U.S. were to first sign an
agreement with Taiwan, Sugita was skeptical that such a
policy would generate support in Tokyo, especially given
recent moves to begin discussions with regional partners on
an ASEAN 3 trade agreement.


9. (C) Comment: In none of our discussions with the
Taiwan-based representative community was there any real
enthusiasm for Free Trade negotiations with Taiwan.
Representatives expressed frustration at what they saw as the
Chen administration's unfortunate tendency to turn every
bilateral discussion into a domestic political tool at the
cost for them of needlessly antagonizing China. Ongoing
efforts by Australia and Japan to develop closer official
trade ties with the mainland would seem to clearly dampen
enthusiasm for trade negotiations with Taiwan, regardless of
U.S. policy. All noted that stable relations with China were
a priority and see Taiwan as a potential problem, rather than
a reliable partner. (Note: for the political dimension of
this problem, see reftel. End Note.) Even if Singapore and
New Zealand were to follow a hypothetical U.S./Taiwan Free
Trade Agreement with agreements of their own, the real
economic impact for all concerned would be small. The
consensus view was that Taiwan would be better served by
curbing its inclination to make political hay from its
infrequent contacts with foreign partners and focusing on
building a reputation as a trustworthy interlocutor. End
Comment.
PAAL