Identifier
Created
Classification
Origin
05TAIPEI3105
2005-07-22 06:04:00
CONFIDENTIAL
American Institute Taiwan, Taipei
Cable title:  

USTR TOURS THE HORIZON WITH TAIWAN OFFICIALS

Tags:  ECON ETRD TW 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 06 TAIPEI 003105 

SIPDIS

STATE FOR EAP/RSP/TC, EB/TCC/BTA, STATE PASS USTR AND
AIT/W, USTR FOR FREEMAN, WINELAND AND WINTERS, USDOC FOR
4431/ITA/MAC/AP/OPB/TAIWAN/MBMORGAN, GENEVA FOR SHARK

E.O. 12958: DECL: 07/20/2015
TAGS: ECON ETRD TW
SUBJECT: USTR TOURS THE HORIZON WITH TAIWAN OFFICIALS


Classified By: AIT Director Douglas Paal, Reason 1.4 b/d

C O N F I D E N T I A L SECTION 01 OF 06 TAIPEI 003105

SIPDIS

STATE FOR EAP/RSP/TC, EB/TCC/BTA, STATE PASS USTR AND
AIT/W, USTR FOR FREEMAN, WINELAND AND WINTERS, USDOC FOR
4431/ITA/MAC/AP/OPB/TAIWAN/MBMORGAN, GENEVA FOR SHARK

E.O. 12958: DECL: 07/20/2015
TAGS: ECON ETRD TW
SUBJECT: USTR TOURS THE HORIZON WITH TAIWAN OFFICIALS


Classified By: AIT Director Douglas Paal, Reason 1.4 b/d


1. (C) Summary: Newly appointed USTR Taiwan Director Tim
Wineland, accompanied by AIT/T and AIT/W, met with the full
range of Taiwan's trade policy players during his first visit
to Taipei July 11 and 12. Discussions touched on
agricultural trade policy, prospects for passage of
telecommunication regulatory reform, pharmaceutical pricing,
and the potential for negotiations under the U.S./Taiwan
Trade and Investment Framework Agreement (TIFA). Wineland
thanked Taiwan for its science-based approach to handling
concerns over BSE, raised concerns about pharmaceutical and
medical device trade, and assured interlocutors that TIFA
discussions would be high on the agenda once a new Deputy
USTR is appointed. Interlocutors told Wineland Taiwan had
not changed its support for a science-based approach to BSE
after discovery of a second case in the U.S. Interlocutors
repeatedly suggested that progress on other aspects of trade
liberalization in the Doha Round could lead to G10
concessions on agriculture. Taiwan much prefers to pursue
government procurement within the WTO and remains committed
to telecom liberalization. An FTA with the United States
remains at the top of policymakers' agenda. End Summary.


2. (C) Newly appointed USTR Director for Taiwan Tim Wineland,
accompanied by AIT/W's Rick Ruzicka, conducted two intensive
days of meetings July 11 and 12 with the full range of Taiwan
trade policy interlocutors, including Council of Agriculture
(COA) Vice Minister Lee Jen-chyuan, former Premier Vincent
Siew, Minister of Economic Affairs (MOEA) Ho Mei-yueh and
Deputy Minister Steve Chen, Department of Health (DOH)
Counselor Hsiao Mei-ling, the Director Generals of the Bureau
of Foreign Trade (BOFT) Franco Huang, the Taiwan Intellectual
Property Office (TIPO) Tsai Lien-sheng and the Ministry of
Transportation and Telecommunications (MOTC) Tony Teng,
Council for Economic Planning and Development (CEPD) Chairman
Hu Sheng-cheng, the National Security Council,s Connie Yang,
Managing Director of the Taipei AmCham Richard Vuylsteke, and

a representative from the International Research
Pharmaceutical Manufacturer's Association (IRPMA).

COA Supports Science on BSE, Asks about Poultry Access
============================================= =========


3. (C) COA Vice Minister Lee reported on the state of
Taiwan's efforts with the Thai and Egyptians to negotiate a
country specific quota for public purchases of rice. Lee
told Wineland that Taiwan had been talking to the Thai WTO
delegation about a proposal to increase the Thai share of
private rice imports in exchange for its agreement on a
public sector quota. Taiwan has proposed negotiations in
Geneva, said Lee, but those are still not scheduled. COA
also raised the recent USDA inspection and asked when the
draft poultry equivalency report would be ready. Wineland
told COA that the report had already been forwarded to them
and that the U.S. was still waiting for Taiwan's comment.
Wineland suggested a follow-up inspection might be possible
in late 2005.


4. (C) Wineland expressed his appreciation for Taiwan's
regional leadership in adopting a science-based response to
the dangers of BSE and noted that the discovery of a second
cow in the U.S. and the subsequent closure of the local beef
market gave Taiwan another chance to lead. VM Lee noted the
political furor over BSE but assured AIT that Taiwan would
continue to take a science-based approach. Wineland relayed
USDA Assistant Secretary Penn's pledge that Taiwan would have
full access to all relevant information from the U.S.
Turning to Taiwan's concerns about sanitary and
phyto-sanitary (SPS) standards, Wineland noted that USDA had
extended an invitation to Taiwan's quarantine agency BAPHIQ
to visit U.S. apple orchards in August 2005.

COA on WTO Agriculture Liberalization
=====================================


5. (C) Finally, Wineland raised the inconsistency of Taiwan's
position on agricultural trade liberalization and its
participation in the liberalization-averse WTO negotiating
group G10, given Taiwan's reliance on trade. Lee replied
that he had attended the most recent meeting of the G10 in
Paris in May and that there were many issues in the Doha
Development Round (DDA) that were implicitly linked together.
Lee hoped the concerns of the food importing countries,
especially in sensitive sectors such as rice, could be
addressed in the DDA and implied that progress in other areas
(Non-Agricultural Market Access -- NAMA -- for example) would
free Taiwan's hands to make productive concessions on
agriculture. (Note: this message was repeated in a later
meeting with BOFT DG Huang, see para 25.)

FTA Always on MOEA's Mind
=========================


6. (C) MOEA Deputy Minister Chen wasted no time in raising
Taiwan's case for a Free Trade Agreement (FTA) with the
United States. Wineland responded that U.S./Taiwan trade
relations seem to be on an even keel at the moment and that
the U.S. would like to schedule another TIFA meeting soon
after a new Deputy USTR is appointed. Chen pressed for a
TIFA before the end of 2005 and said that he believes all the
necessary elements for an FTA are on the table already.
Wineland told Chen that the future U.S. FTA strategy would be
deeply influenced by the outcome of the CAFTA vote, but no
matter whether CAFTA passes or fails, recently appointed USTR
Portman is likely to thoroughly reassess U.S. planning for
future FTAs. Chen replied that U.S. trade priorities would
best be discussed in an FTA negotiation, including government
procurement policy, the potential signing of a bilateral
investment treaty, agricultural liberalization, or others.
Wineland noted the importance of clear U.S. business and
Congressional support for any FTA, suggesting that such
support was not yet apparent.


7. (C) Chen supported the need for a science-based response
to concerns about U.S. beef and noted that the Department of
Health had been under attack by legislators and consumer
groups for its stance but that, in spite of the negative
publicity, many Taiwan consumers still preferred U.S. beef.

MOEA: Health Care Issues Require Consultation
=============================================


8. (C) Wineland raised the U.S. pharmaceutical industry's
concerns about the draft implementing regulations for
Taiwan's new data protection law and a proposal to amend the
pharmaceutical law to nullify a requirement to base National
Health Insurance reimbursements on actual transaction prices.
He encouraged MOEA to work with DOH to promote transparency.
Chen assured Wineland that U.S. comments were welcome and
that although pricing and reimbursement issues had long been
problems, DOH would continue to consult with international
and domestic groups. Chen noted that health care policy
problems are difficult to resolve, competing interests
including patients, doctors, hospitals, and suppliers all
have different goals. Doing so will require extensive
consultations by all parties, said Chen.

WTO GPA Best for Taiwan
=======================


9. (C) Wineland proposed that a bilateral government
procurement agreement (GPA) would go a long way towards
building the kind of confidence needed to proceed with closer
trade discussions. He noted that the multilateral process
appeared to be stuck and suggested that a bilateral agreement
would not hurt Taiwan's chances of acceding to the WTO GPA.
Chen insisted that MOEA believes the WTO process is best for
Taiwan and that negotiation with numerous bilateral partners
would be too difficult. Taiwan was ready to live up to its
accession commitments but that the way was being blocked by
inappropriate political interference from China, he said.
Chen urged the U.S. to work with the EU to push forward
Taiwan's GPA accession. Chen pointed out that Taiwan's
procurement agencies welcomed bids by U.S. companies and that
GPA accession would have little impact on Taiwan's degree of
market openness. He suggested that a bilateral GPA might be
a good topic for discussion as part of an FTA, proposing that
a "WTO plus" access to Taiwan's market might interest U.S.
companies. Wineland proposed that a bilateral GPA could be a
good stepping-stone to an FTA process, but Chen insisted that
a bilateral GPA would be better as an incentive than as a
precondition for an FTA discussion.

NSC Steals US Points on Beef
============================


10. (C) NSC Advisor Connie Yang reiterated Taiwan's
commitment to a science-based approach to dealing with food
safety issues, particularly U.S. beef. She noted that she
had advised President Chen Shui-bian that the discovery of a
second cow stricken with BSE was actually irrelevant given
the U.S. food safety process and the absence of any bone,
brain, or spinal tissue in Taiwan's beef imports from the
U.S. She was surprised that the U.S. had agreed to the
COA/DOH proposal to close Taiwan's market while further
inspections were conducted, and noted that the market might
be harder to open a second time. DOH had assured her,
however, that reopening the market to U.S. beef would be
easier this time once the necessary documents had been
collected. The agreement by U.S. and Taiwan experts on the
scientific process was giving the President sufficient cover
to quietly support the reopening of the market, Yang said.
She had made similar points to the Japanese during a recent
trip to Tokyo, she claimed, but the Japanese were still
unwilling to base their decision on the scientific evidence.

Prefers WTO GPA over Bilateral Agreement
========================================


11. (C) Wineland updated Yang on the status of TIFA
negotiations and promised that USTR would recommend to the
new DUSTR that s/he resume TIFA meetings as soon as possible.
Yang noted that policy surrounding TIFA discussions is
supervised by NSC SecGen Chiou I-jen and that the high level
of attention demonstrates how important eventual FTA
discussions are to Taiwan's leadership. In response to
Wineland's question on the possibility of negotiating a
bilateral GPA, Yang encouraged the U.S. to be more active in
Geneva and to work closely with the EU. She insisted that
Taiwan wanted to live up to its WTO accession commitments and
join the GPA and endorsed the EU-proposed "two-step
approach," insisting that any bilateral process would only
complicate Taiwan's efforts in the multilateral arena. Yang
said the EU was puzzled by the U.S., apparent lack of
enthusiasm for Taiwan's GPA bid and had accused Taiwan of
negotiating a secret deal with the U.S.

DOH Confused About USDA Process, Requests Training
============================================= =====


12. (C) Referring to the recent Taiwan decision to resume the
ban on U.S. beef imports, DOH Counselor Hsiao Mei-ling told
Wineland that one of her goals is to improve communication
between DOH, Washington, and the Taiwan public. She was
puzzled by the USDA process that preceded the announcement of
the discovery of a second BSE infected cow in the U.S. and
felt that DOH,s credibility had been damaged when it
approved reopening the market, only to have to close it again
a short time later. She asked if Taiwan should wait until an
OIG review process is completed before considering reopening
the market again. AIT's Acting Ag Chief reassured Hsiao that
the case was an unusual one, that U.S. beef is safe for
Taiwan consumers, and thanked DOH for its support of a
science-based approach to food safety issues. Wineland
repeated USDA U/S Penn's assurance that Taiwan would have
full access to all information about this case. Hsiao hoped
the U.S. and Taiwan could improve communication on general
health issues, noting that while the U.S. and Taiwan CDCs
worked well together and U.S. experts often came to Taiwan,
no other DOH employees had been to the U.S. for training in
the past three years.

DE Implementing Regulations Due in August
=========================================


13. (C) Wineland thanked DOH for its support of the Data
Protection law, passed by the Legislative Yuan (LY) in
January 2005 and inquired about the status of implementing
regulations. Hsiao replied that the regulations were
currently being drafted by DOH. She assured Wineland that
all interested parties would have an opportunity to provide
comments. Bureau of Pharmaceutical Affairs (BOPA) staff, Dr.
Yu, noted that IRPMA had participated in three meetings since
the beginning of June coordinated by DOH to discuss the type
of information to be publicly released under the new law. A
draft of the implementing regulations should be available in
early August, interested parties would have 60 days to
comment. Dr. Yu said he was hopeful that DOH,s close
consultation over the previous months would lead to few
comments during the open comment period.

BNHI Defends Price Cuts
=======================


14. (C) Wineland then turned to the issue of pharmaceutical
reimbursements and BNHI's July 1 price cuts. He noted
industry's concern that price cuts would have the unintended
consequence of limiting the availability of innovative
medicines. BNHI Senior Researcher Tseng Chien-fang responded
that the pharmaceutical companies had submitted their pricing
and volume information in June 2004. The reimbursement
prices of over 600 of the 872 items surveyed were adjusted
based on the price/volume data. The pharmaceutical
manufacturers would be informed by July 15. Hsiao noted that
all national health insurance systems have periodic price
adjustments and that DOH had briefed IRPMA extensively on
BNHI's methodology.


15. (C) Tseng responded to questions about proposed
amendments to the pharmaceutical law to revise reimbursement
policy by noting that the key provision would ask consumers
to pay a portion of the cost for higher-priced innovative
pharmaceuticals. Under this "balanced billing" proposal,
BNHI would reimburse hospitals at a set price, but hospitals
would be free to charge patients the difference between the
BNHI reimbursement price and the actual cost. BNHI's dire
fiscal situation is forcing DOH to seek additional patient
revenues, Hsiao said. The draft is still circulating in DOH
and Hsiao expects considerable LY opposition to the plan.
Wineland noted that such a plan could discourage consumers
from purchasing innovative medicines.

CEPD Reviews Economy, Joins Push for FTA
========================================


16. (C) The Chairman of the Council for Economic Planning and
Development, Dr. Hu Sheng-cheng predicted that the Taiwan
economy will become more dependent upon service industries
such as tourism and financial services. He noted that growth
in the tourism sector was far outstripping the rest of the
economy and that Taiwan expected over three million foreign
visitors in 2005, one million from Japan alone. Hu also
expected that the government would be able to reduce the role
of state-owned banks in the economy by half, to about 20% of
the financial market, in the hope that doing so would spur
mergers and innovation.


17. (C) Hu believes Taiwan has two primary economic
weaknesses: an over-reliance on China and over-investment in
the integrated circuit sector. The government hopes to
encourage diversification in both areas. He claimed Taiwan's
exports to Southeast Asia had increased 36% over the last
year and that exports to the EU were also higher. Although
CEPD favors stable and peaceful development of economic
relations with China, including the negotiation of a direct
air cargo flight, Hu said the government was encouraging and
guiding Taiwan companies to do business in places other than
China. Hu painted a U.S./Taiwan FTA as a necessary first
step to allow Taiwan to confidently open up to China.
Wineland responded that USTR was currently focusing its
attention on CAFTA and had little energy to pursue other
bilateral trade initiatives. Hu countered that a U.S./Taiwan
FTA would be very different from CAFTA in that a Taiwan
agreement would likely reduce the U.S. trade deficit as
Taiwan further liberalized its economy.


18. (C) Hu claimed that both the U.S. and Taiwan were in
danger of being economically marginalized in Asia. An FTA
with Taiwan would ease the path for the U.S. to build closer
trade relations with other East Asian economies, he said. Hu
also said that any Taiwan/ASEAN FTA would be impossible
before a U.S./Taiwan FTA was initialed. Many Taiwan
companies are active in Southeast Asia, but would fear
retaliation from China if Taiwan were to take the initiative
to begin FTA negotiations with these countries.

NCC This Year Says MOTC
=======================


19. (C) Wineland discussed the potential for passage of the
National Communications Commission (NCC) organizational
legislation with MOTC Director General Tony Teng. The bill
was originally proposed in 2003 and the LY passed legislation
authorizing the creation of a NCC in December 2003. The
organizational statute has been debated several times, but
parties have been unable to reach consensus on the number of
commissioners and how they will be appointed. Teng noted
that the bill had passed its first reading in April 2005 and
after a particularly contentious debate the parties had
agreed to a six-month moratorium on LY discussion of the bill
to allow all parties to informally reach an agreement. Teng
was optimistic that the bill would pass before the end of
2005 and the NCC would begin operations by mid-2006. Teng
requested assistance from the U.S. to train NCC staff and
commissioners.

CHT Will Be Privatized
======================


20. (C) Teng then turned to the impending privatization of
Chunghwa Telecom (CHT). He noted that the LY had passed a
non-binding resolution in May but suggested that the
resolution itself contravened the budget law requiring CHT,s
privatization. Teng said the CHT union saw this as their
last chance to negotiate a generous collective agreement with
the government and would press aggressively to protect their
pension system. CHT has already agreed that there will be no
layoffs or salary cuts for five years after privatization but
Teng didn't see how CHT would be able to fund the current
generous pension plan. Instead, he said all employees with
qualifying years of service would receive a lump sum payment
at the time of privatization and another upon retirement.
Teng predicted CHT Chairman Ho-chen Tan would leave for a
U.S. "roadshow" very soon after the Securities and Exchange
Commission approve CHT,s ADR application. He hoped the ADR
sale could be complete by mid-August to allow investors to
take advantage of CHT,s dividend issuance and to avoid LY
pressure to delay the sale.

MOTC Committed to VOIP
======================


21. (C) Finally, Teng discussed the current thinking within
MOTC regarding Voice over Internet Protocol (VOIP)
regulations. Noting police concerns about their inability to
tap into VOIP calls, Teng nevertheless believes that Taiwan
will have regulations in place by October 2005 that will
allow the government to assign telephone numbers to be used
by VOIP service providers. Teng insisted that Taiwan will
not restrict the market for VOIP and expressed confidence
that the police could "catch up" with the technology. He
predicted that VOIP would have little effect on the domestic
telephone market but would likely have a significant impact
on revenues of long-distance/international service providers.
Long-distance providers like CHT will be affected but
increased demand for broadband services, also provided by
CHT, should help that company offset the loss of revenue.

Minister Ho Repeats FTA Push
============================


22. (C) Wineland reassured MOEA Minister Ho Mei-yueh that the
U.S. remains committed to continuation of trade discussions
under the current TIFA framework. Ho agreed that the TIFA is
very important to Taiwan/U.S. economic relations, adding that
if South Korea announces FTA negotiations with the U.S. it
would have an outsized impact on Taiwan due to the direct
competition between the two economies in many categories of
manufactured goods. Ho requested that the U.S. consider the
importance of Taiwan in the global economy and the need to
protect the security and viability of the Taiwan economy.
Taiwan needs to decrease its dependence on China, she said,
and pointed to an FTA with the U.S. as the only means to
balance the pressure to rely more heavily on China. Ho noted
that Taiwan's current FTAs with Central American partners
were not enthusiastically embraced by Taiwan companies faced
with long supply chains and small markets. Southeast Asian
nations also were reluctant to risk closer relations with
Taiwan for concern over loss of valuable opportunities in
China. Ho insisted that Taiwan would lose economic
competitiveness if it faced less favorable market access
provisions than its regional competitors. Wineland responded
that any FTA negotiation would have to have strong support
from the U.S. business community and encouraged Minister Ho
to enlist the support of U.S. firms.
TIPO on IPR Court, EZPeer Next Steps
====================================


23. (C) The Director General of TIPO, Tsai Lien-sheng, told
Wineland that Premier Frank Hsieh is currently working on the
new government's IPR policy and that improved IPR protection
remained a priority for the government. One of TIPO's
priorities for this year is to discourage piracy on
university campuses. Deputy DG Jack Lu announced that the
Judicial Yuan had agreed upon a framework for a proposed IPR
Court that would include criminal cases (although only at the
appellate level) and that the JY would push for legislative
approval of the new court by the end of 2005. Once the law
passes, the JY will consider training programs for judges
tapped to sit on the new court. Wineland offered
congratulations and volunteered to work with the Taiwan
government to ensure the IPR Court judges have the
opportunity to participate in training in the U.S.


24. (C) Wineland noted the recent Shilin District Court
decision acquitting EZPeer of copyright infringement and
asked what the next steps might be to protect rightsholders
against peer-to-peer (P2P) users illegally swapping
copyrighted files. Lu responded that the rightsholders (the
International Federation of Phonographic Industries -- IFPI)
could consider civil suits against users, but that to do so
would be an expensive process. In response to a question
about whether Taiwan would consider introducing additional
legislation to protect rightsholders from P2P based
violators, the Chief of TIPO's Copyright division Margaret
Chen replied that she believes the current law is sufficient
to deal with the threat and that submitting a new proposal to
the LY would open a Pandora's box of counter-legislation. Lu
added that the EZPeer verdict specifically placed the burden
of liability on the users of P2P services and that pursuing
users directly might be a potential next step for the
government.

BOFT: Room to Move on G10 Stance?
=================================


25. (C) Wineland met with BOFT Director General Franco Huang
to discuss the current state of U.S./Taiwan bilateral trade
relations and Taiwan's views on WTO-related issues. Huang
said that he had met USTR Portman at a recent APEC meeting in
Korea and that he was aware of the USTR's planned trip to
Geneva to participate in WTO negotiations related to the Doha
Round. Huang hoped that Portman would be able to convince
the Indian delegation and others to accept the "Swiss
Formula" for reduction of agricultural tariffs as agreed by
the APEC economies in time for progress to be announced at
the Hong Kong Ministerial in December. Wineland noted that
Taiwan's participation in the G10 was not consistent with
Taiwan's broader trade liberalization agenda. Huang
responded that he believes the G10 is likely to adjust its
position as the agriculture negotiations progress and that
concessions on agriculture were likely to follow progress in
other areas under discussion. No one wants to take the first
step, said Huang.
PAAL