SENATOR ALLEN'S MEETINGS IN TAIPEI

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 004742 SIPDIS STATE FOR EAP/RSP/TC AND H, H PASS SENATOR ALLEN'S STAFF E.O. 12958: DECL: 11/28/2015 TAGS: OREP TW ECON PREL IPR SUBJECT: SENATOR ALLEN'S MEETINGS IN TAIPEI REF: STATE 210950 Classified By: AIT Director Douglas Paal, Reason 1.5 b ¶1. (U) Summary: On November 26, Senator George Allen discussed U.S.-Taiwan relations with President Chen Shui-bian. The Senator and his staff also met with Taiwan Semi-Conductor Manufacturing Corp. (TSMC) President Rick Tsai and Chief Legal Counsel Dick Thurston, and representatives from Corning, IBM, Powerchip, Motorola and Tsing Hua University for an in-depth discussion of the climate in Taiwan for high-tech companies. End Summary. Democracy and Military Procurement -------------- ¶2. (SBU) President Chen praised Senator Allen's support in the Senate for Taiwan's democracy and repeated a suggestion made in a phone call with Allen during Chen's transit in Miami, that a joint letter from U.S. Senators could help to push the Taiwan opposition Kuomintang (KMT) and People First Party (PFP) toward support for the military procurement package. Allen responded that it was important that the Taiwan people have the capability for self-defense and that he would continue to make this point to his congressional colleagues. Referring to President Bush's recent speech praising Taiwan's democracy, Allen offered that Taiwan could serve as a democratic model not just for China but for all of Asia. ¶3. (C) Chen expressed his determination to pass the military procurement bill but told Allen that the government had recently failed in its 38th attempt to get the bill out of the Legislative Yuan Procedural Committee. Chen said that the failure of the bill to gain committee support had no relation to security or military policy, but was entirely political and he accused the opposition of opposing just for the sake of opposing. Chen vowed to seek a meeting with LY speaker Wang Jyn-ping to discuss the bill after the upcoming December 3 city and county elections. He suggested that a piecemeal approach might be more effective, but promised to strengthen Taiwan's defense capability no matter the fate of the special procurement bill. Chen reiterated Taiwan's desire to increase the defense budget to 3% of GDP by 2008, noting it is important to be able to negotiate with China from a position of strength. Trade Policy: IPR and Beef -------------- ¶4. (SBU) Senator Allen also expressed concern about Taiwan's ability to protect intellectual property rights (IPR). He recognized Taiwan's efforts to protect IPR in recent years, but noted that the challenges of protecting IPR continue to evolve and urged Taiwan to take steps to more rapidly respond to changes in technology. Chen responded that Taiwan understands the threat of IPR piracy and that intellectual property theft runs counter to Taiwan culture. He noted that improved IPR protection had led to the resumption of trade talks under the U.S.-Taiwan Trade and Investment Framework Agreement (TIFA). He hoped that continued efforts would smooth the way for a U.S.-Taiwan Free Trade Agreement. ¶5. (SBU) In response to Senator Allen's question about re-opening the Taiwan market to U.S. beef, Chen recalled that Taiwan had first opened to U.S. beef in April 2005 but had to backtrack when a second case of bovine spongeform encephalitis (BSE) was discovered in an American cow. This had led to serious criticism from the leaders of the opposition parties, he claimed. While he did not regret his previous decision, Chen said Taiwan this time would wait until Japan had officially announced that it would reopen to U.S. beef before making a decision. Japan's health standards are very strict, Chen said, and if Japan were to reopen its market before December 25, Taiwan would also make a science-based determination as soon as possible. Chen also praised USDA for its assistance. Allen noted that the announcement that Japan would consider dropping its ban on U.S. beef meant that Taiwan had lost a chance to show leadership on this issue. He asked Chen to consider moving as quickly as possible to allow the resumption of U.S. beef imports. High Tech Taiwan -------------- ¶6. (SBU) Allen also met with TSMC to discuss semi-conductor and high tech manufacturing in Taiwan. TSMC President Rick Tsai noted that semiconductors are the bedrock of Taiwan SIPDIS industry and that Taiwan is still several years ahead of anything that can be done in China. He pointed to the cost structure, supply chain, and supply of good engineers and R&D support as reasons to stay in Taiwan, noting that labor is a small part of their costs. TSMC Chief Counsel Dick Thurston noted that IPR concerns also give companies pause when considering whether to move operations to China. Despite these factors, Tsai felt that TSMC has to have a presence in China in order to serve the large number of customers there. Tsai lamented the Taiwan LY's proposal to institute a 20% SIPDIS alternative minimum tax and said such a tax would have a bigger negative impact on their business than would moving to China, given that Taiwan does not currently tax income in the high-tech sector. ¶7. (SBU) In a dinner attended by Rick Tsai, President Motorola Taiwan; Frank Huang, CEO of Powerchip; Hans Huang, VP Taiwan of Corning; Robert Wang, IBM Government Relations; and former Industrial Technology Research Institute (ITRI) head Chintay Shih, now a professor at Tsing Hai University, Senator Allen discussed the state of Taiwan's high technology market and the prospects for continued success in Taiwan. Those present were optimistic that Taiwan's industry would be strong enough to compete with China for the immediate future, but criticized Taiwan government policies, including taxes and restrictions on cross-strait trade, that had a negative effect on their business. ¶8. Senator Allen's staff has not cleared this message. Paal