SENATOR ALLEN'S MEETINGS IN TAIPEI

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 004742

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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

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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%

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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