PREMIER PROMISES ACTION ON SPECIAL BUDGET,

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 000555

SIPDIS

STATE PASS AIT/W

E.O. 12958: DECL: 02/01/2015
TAGS: PREL ECON ETRD EAGR ENRG PGOV CH TW
SUBJECT: PREMIER PROMISES ACTION ON SPECIAL BUDGET,
ECONOMIC AGENDA


Classified By: AIT Director Douglas Paal, Reason: 1.4 (B/D)


1. (C) Summary: During a February 14 meeting with the
Director, Premier Frank Hsieh (Chang-ting) promised a
pragmatic approach to domestic, cross-Strait, and economic
issues during his tenure in office. The Director highlighted
a number of pressing issues in the U.S.-Taiwan relationship,
including the Special Defense Procurement Budget, Taiwan's
ban on U.S. beef imports, intellectual property rights, and
pharmaceutical pricing. He also urged the Premier to
exercise caution on cross-Strait and nuclear energy policies.
Hsieh appealed for USG assistance on Taiwan's World Health
Assembly (WHA) observer bid and reiterated Taiwan's interest
in signing a U.S.-Taiwan Free Trade Agreement (FTA). Hsieh
warned that PRC moves to pass an Anti-Secession Law might
cause a strong reaction in Taiwan and asked the USG to urge
Beijing to reconsider its plans. End Summary.

New Approach to Governance
--------------


2. (C) During a February 14 courtesy call, the AIT Director
praised Premier Frank Hsieh's public commitment to inject
moderation into Taiwan's political discourse. Hsieh said
that his five main priorities as Premier were to establish
political stability, open dialogue with the opposition
legislative majority, de-politicize the public policy debate,
instill greater respect in government for the current "ROC"
constitution, and enhance Taiwan's economic performance. As
a first step towards accomplishing these goals, Hsieh said he
would avoid pursuing divisive issues, such as revisions to
the Referendum Law, that would endanger cross-partisan
cooperation.

Urgent Issues: Defense Budget and Beef
--------------


3. (C) The Director said he looked forward to moving ahead
with the new cabinet to resolve a range of irritants in the
U.S.-Taiwan relationship. The Director emphasized two major
issues that needed the Premier's immediate attention -- the
proposed Special Defense Procurement Budget and Taiwan's ban
on beef imports. On the first item, the Director warned that
failure to act during the current Legislative Yuan (LY)
session would cause serious and lasting harm to U.S.-Taiwan
relations. Hsieh responded that passage of the special
budget was critical to demonstrating Taiwan's commitment to
its self-defense and thus will be the government's number one
legislative priority. He stated that the government would
begin formal consultations with the opposition when the LY
reconvenes on February 25. Hsieh added that he was
encouraged by recent signs of flexibility on the Pan-Blue's
part over the special defense budget.


4. (C) On beef imports, Hsieh urged that health experts be
allowed to make the final determination in order to avoid
turning the issue into a partisan football in the LY. The
Director noted that there is wide-spread agreement within the
health community that the ban is not justified on scientific
grounds. The problem, he added, is that some ministries
appear to be slowing the process down for non-scientific
reasons. Hsieh said he would immediately follow up with the
Council on Agriculture (COA) on where the issue stands.

Trade Irritants: IPR, Pharmaceuticals
--------------


5. (C) Looking further ahead, the Director noted that Taiwan
needs to address a number of outstanding trade disputes
before the USG can consider starting FTA negotiations. The
Director advised Taiwan to focus on the enhanced consultative
role the U.S. Congress now plays in the FTA negotiating
process. Taiwan will need to demonstrate to a majority of
U.S. legislators that a U.S.-Taiwan FTA will bring real
benefits to their constituencies.


6. (C) The Director noted that a good first step towards an
FTA would be for Taiwan to prepare deliverables on IPR and
pharmaceutical pricing ahead of proposed Trade and Investment
Framework Agreement (TIFA) talks to be held later in the
year. The Director praised Taiwan's recent progress on IPR
enforcement, but cautioned that further action to stop
internet piracy would be necessary before the USTR would
consider taking Taiwan off the Special 301 Watch List. The
Director also welcomed the LY's recent passage of a Data
Exclusivity Law for pharmaceutical products. He urged the
Executive Yuan (EY) to vigorously enforce its provisions.


7. (C) The Director said that the USG still objects to the
different reimbursement levels for innovative versus generic
drugs under Taiwan's National Health Insurance (NHI) system.
Hsieh responded that the problem stems in large part from
under-funding in the NHI system. He added that he has
already authorized an injection of NTD 25 billion (USD 800
million) from EY discretionary funds into the NHI and would
seek further budgetary support from the LY to ensure that the
NHI has the flexibility needed to fully fund drug purchases
of all kinds.

Nuclear Power
--------------


8. (C) In addition to resolving existing disputes, the
Director underscored the importance of not reopening old ones
like the Fourth Nuclear Power Plant. Hsieh acknowledged that
the cabinet is under pressure from anti-nuclear groups to
stop construction on the plant, but he pledged that his
cabinet would honor the 2001 EY-LY agreement to complete the
project. Hsieh added that later this week he would
personally tell anti-nuclear activist and former Democratic
Progressive Party (DPP) Chairman Lin Yi-hsiung that the EY
remains bound by the LY resolution on the nuclear power plant
project. He added that the EY would only change its position
on the issue if the LY revised its resolution.

Cross-Strait: Avoiding Provocations
--------------


9. (C) Hsieh said he would also work to maintain stability in
cross-Strait relations in the coming years, but warned that
PRC moves to pass an Anti-Secession Law could provoke a
sharply negative reaction in Taiwan. While acknowledging
that no one in Taipei knows the contents of the law, Hsieh
asserted that 80 percent of Taiwanese polled expect it to be
harmful to Taiwan's interests. Hsieh urged the USG to
intervene with Beijing either not to pass the law in March,
or to rename it to make it appear less provocative. The
Director responded that the USG has advised Beijing that its
decision to press forward with the law is not helpful to
cross-Strait stability. However, the Director urged Taipei
to take a low-key public stance in order to avoid
strengthening the hands of those in Beijing seeking tougher
language. He added that until the contents of the bill are
known, it is premature to assess the law's longer term
implications.


10. (C) On a final note, Hsieh urged the USG to support
Taiwan's bid for WHA observer status. Hsieh said that WHA
participation would offer real benefits to Taiwan's public
health system. The Director noted that the U.S. is working
closely with Taiwan's delegation in Geneva on WHO-related
issues. He welcomed any new ideas Taiwan has for advancing
Taiwan's application at the upcoming WHA meeting.
PAAL