VP TSAI ON TRADE, CROSS-STRAIT, CHAD

C O N F I D E N T I A L AIT TAIPEI 002678

SIPDIS

SIPDIS

DEPT FOR EAP/TC




DEPT PASS USTR
USTR FOR STRATFORD, ALTBACH, WINELAND

E.O. 12958: DECL: 08/08/2016
TAGS: ETRD EINV ECON PREL CH TW
SUBJECT: VP TSAI ON TRADE, CROSS-STRAIT, CHAD


CLASSIFIED BY: AIT DIRECTOR STEPHEN M. YOUNG, REASONS 1.4 B/D


1. (C) SUMMARY: THE AIT DIRECTOR MET WITH TAIWAN VICE
PREMIER TSAI ING-WEN, NATIONAL SECURITY COUNCIL (NSC)
SECRETARY GENERAL CHIOU I-JEN, AND THE NEWLY APPOINTED

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MINISTER OF ECONOMIC AFFAIRS (MOEA) STEVE CHEN (RUEY-LONG)
ON AUGUST 8 TO DISCUSS TRADE ISSUES IN PREPARATION FOR THE
VISIT OF AUSTR STRATFORD TO TAIWAN. ON THE WTO GOVERNMENT
PROCUREMENT AGREEMENT (GPA),TSAI CALLED THE PROPOSED
COMPROMISE FOR TAIWANS ACCESSION "VERY DIFFICULT, ALMOST
IMPOSSIBLE." THE DIRECTOR AND TSAI ALSO DISCUSSED
PHARMACEUTICALS, AGRICULTURE, CROSS-STRAIT INVESTMENT
RESTRICTIONS, TAIWAN'S LOSS OF CHAD AS A DIPLOMATIC ALLY
AND MILITARY SALES. END SUMMARY.


2. (C) THE AIT DIRECTOR MET WITH VICE PREMIER TSAI, NSC
CHIOU, AND MINISTER CHEN ON AUGUST 8 TO DISCUSS THE
UPCOMING TRIP OF AUSTR TIM STRATFORD AND TEAM TO TAIWAN
AND OTHER ISSUES. IN EACH OF THESE MEETINGS THE DIRECTOR
DELIVERED USG POINTS ON THE GPA, PHARMACEUTICALS,
AGRICULTURE AND URGED TAIWAN OFFICIALS TO BE PREPARED TO
DISCUSS THESE TOPICS WITH AUSTR STRATFORD ON AUGUST 16.
THE DIRECTOR AND TSAI REVIEWED IN DETAIL SEVERAL UNRESOLVED
TRADE TOPICS FROM MAY'S TRADE AND INVESTMENT FRAMEWORK
AGREEMENT TALKS LED BY DUSTR KARAN BHATIA.

GPA
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3. (C) ON THE WTO GOVERNMENT PROCUREMENT AGREEMENT (GPA),
TSAI SAID IT WOULD BE "VERY DIFFICULT, ALMOST IMPOSSIBLE"

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TO ACCEPT THE CURRENT PROPOSAL FOR TAIWANS ACCESSION.
TSAI EXPLAINED THAT COMMERCIALLY TAIWANS ACCESSION TO THE

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GPA MAKES SENSE, BUT IN ADDITION TO OPPOSITION FROM THE
TAIWAN SOLIDARITY UNION, THE CHEN ADMINISTRATION WAS
DIVIDED INTERNALLY ON THE ISSUE. SHE ELABORATED THAT
TAIWAN HAD NO OBJECTION TO THE GPA'S DOCUMENT NUMBER 87
BECAUSE IT DID NOT DIRECTLY PARTICIPATE IN THE DRAFTING
OF THAT DOCUMENT. HOWEVER, THE PROPOSED FOOTNOTE LANGUAGE
FOR TAIWAN'S ACCESSION WAS A VERY DIFFERENT MATTER. ACCORDING
TO TSAI, THE LANGUAGE OF THE FOOTNOTE IMPLIES THAT TAIWAN
INSTITUTIONS ARE NOT SOVEREIGN. THE DIRECTOR SUGGESTED
THAT TAIWAN COULD INTERPRET THE FOOTNOTE IN ITS OWN WAY
AND ARGUE THAT THE LANGUAGE HAD NO BEARING ON TAIWAN'S
SOVEREIGNTY. HOWEVER, TSAI WAS ADAMANT THAT THE LANGUAGE
WAS UNACCEPTABLE, AND THE CHEN ADMINISTRATION WOULD BE
UNABLE TO DEFEND IT TO THE TAIWAN PUBLIC. SHE COMPLAINED
THAT THE PRC INSISTED ON REOPENING SOVEREIGNTY ISSUES THAT
TAIWAN BELIEVES WERE SETTLED ON ITS ACCESSION TO THE WTO IN

2002. SHE URGED THE UNITED STATES TO "STAND UP" TO THE
PRC AND INSIST THAT SOVEREIGNTY ISSUES HAD BEEN RESOLVED.


4. (C) IN A MEETING LATER IN THE DAY MOEA CHEN INDICATED
THAT ANY DECISION ON GPA WAS UP TO VP TSAI AND THE
PRESIDENT. HOWEVER, HE SAID THAT HE PERSONALLY WOULD
PREFER TO SEE A BILATERAL GPA WITH THE UNITED STATES THAN
TO ACCEPT THE CURRENT CONDITIONS. THE DIRECTOR ALSO RAISED
THIS SUBJECT BRIEFLY WITH NSC SECRETARY GENERAL CHIOU I-JEN,
WHOSE RESPONSE CLOSELY PARALLELED TSAI'S. COMMENT: IT SEEMS
CLEAR THAT TSAI IS A KEY SOURCE OF OPPOSITION TO THE GPA
PROPOSAL WITHIN THE CHEN ADMINISTRATION. SHE IS LIKELY
ADVISING THE PRESIDENT TO REJECT THE PROPOSAL. A U.S.
STRATEGY TO CONVINCE TAIWAN TO ACCEPT IT MOST LIKELY MUST
OVERCOME TSAI'S OBJECTIONS. END COMMENT.

PHARMACEUTICALS
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5. (C) MOVING TO OTHER TRADE ISSUES, THE DIRECTOR
COMMENTED THAT THE U.S. AND TAIWAN HAD REACHED AN
UNDERSTANDING ON THE COMMENT PERIOD FOR THE PRICE VOLUME
SURVEY (PVS). TSAI AGREED, NOTING THAT THE TAIWAN SIDE
HAD CLARIFIED THAT THE TWO-WEEK DEADLINE APPLIED ONLY TO
VERIFICATION OF PRICE DATA AND THAT INDUSTRY COMMENTS ON
POLICY WERE SUBJECT TO A TWO-MONTH DEADLINE, I.E. UNTIL
MID-SEPTEMBER.

AGRICULTURE
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6. (C) THE DIRECTOR TOLD TSAI THAT HE HAD MET WITH COUNCIL
OF AGRICULTURE CHAIRMAN SU CHIA-CHYUAN, WHO HAD SAID THAT
TAIWAN SHOULD BE ABLE TO REVIEW THE MEMORANDUM OF
UNDERSTANDING ON THE CONSULTATIVE COMMITTEE ON AGRICULTURE
(CCA) BY THE END OF OCTOBER. THIS SHOULD PERMIT THE CCA

TO MEET BEFORE THE END OF THE YEAR OR EARLY NEXT YEAR.
TSAI ALSO MENTIONED THAT THE EXECUTIVE YUAN WAS CONCERNED

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ABOUT REPORTS THAT SHIPMENTS OF U.S. BEEF TO TAIWAN HAD
INCLUDED BEEF FROM CANADIAN CATTLE. THE DIRECTOR ASSURED
HER THAT WE WOULD LOOK INTO THIS ISSUE.

CROSS-STRAIT POLICY
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7. (C) THE DIRECTOR PRAISED THE RESULTS OF TAIWAN'S JULY
27-28 SUSTAINABLE ECONOMIC DEVELOPMENT CONFERENCE, WHICH
PRODUCED MANY RECOMMENDATIONS FOR LIBERALIZATION OF CROSS-
STRAIT ECONOMIC RESTRICTIONS. HE POINTED OUT U.S. SUPPORT
FOR THIS EFFORT AS HIGHLIGHTED BY DUSTR BHATIA DURING HIS
VISIT TO TAIWAN. TSAI DESCRIBED HERSELF AS "NOT ALL-OUT
FOR OPENING" UP TO THE PRC. HOWEVER, THE ADMINISTRATION
WANTS TO GIVE INDUSTRY THE FLEXIBILITY IT NEEDS. THE EY
WILL LOOK AT PERMITTING SOME FIRMS TO EXCEED THE CURRENT
LIMITS ON TOTAL INVESTMENT IN THE PRC. SHE EXPLAINED THAT
THE CONTROVERSIAL "40 PERCENT" CEILING ON INVESTMENT IN
THE PRC IS ACTUALLY A GRADUATED SCALE OF RESTRICTIONS THAT
LIMITS LARGE FIRMS TO SUBSTANTIALLY LESS THAN 40 PERCENT.
THE EY WILL ALLOW SOME LARGE FIRMS TO INVEST UP TO THE
FULL 40 PERCENT LIMIT THAT APPLIES ONLY TO SMALLER FIRMS
UNDER THE CURRENT REGULATIONS. HOWEVER, SHE SAID THAT
THERE IS NO URGENCY TO INCREASING THE UPPER LIMIT BEYOND
40 PERCENT AT THIS TIME.


8. (C) FOR A LONGER TERM STRATEGY, TAIWAN IS LOOKING AT
EXPANDING INVESTMENT IN OTHER AREAS. TSAI POINTED OUT
THAT TAIWAN HAD PREVIOUSLY BEEN A LARGE INVESTOR IN
SOUTHEAST ASIA, BUT AFTER THE ASIAN FINANCIAL CRISIS, MUCH
OF TAIWAN'S INVESTMENT HAD BEEN DIVERTED TO THE PRC. THE
TAIWAN AUTHORITIES WILL SEEK TO EXPAND INVESTMENT IN
SOUTHEAST ASIA AGAIN, AS WELL AS IN INDIA. HOWEVER, TSAI
NOTED THOSE AREAS WERE STILL UNABLE TO COMPETE WITH THE
PRC ON LOW WAGES. TAIWAN CAN ONLY SLOW DOWN THE PACE OF
INVESTMENT IN THE PRC, NOT STOP OR REVERSE IT, TSAI
COMMENTED. THE PROBLEM FOR TAIWAN IS NOT SO MUCH THE
ABSOLUTE AMOUNT OF INVESTMENT IN THE PRC, BUT RATHER THE
HIGH PROPORTION OF TAIWAN'S TOTAL FOREIGN INVESTMENT THERE.
TSAI SAID THAT WITH 70 PERCENT OF TAIWAN'S INVESTMENT

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FLOWING TO THE MAINLAND IT IS DIFFICULT TO DEFEND THE
POSITION THAT FURTHER OPENING IS NECESSARY.

CHAD
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9. (C) THE DIRECTOR ASKED IF CHAD'S CHANGE OF DIPLOMATIC
RECOGNITION FROM TAIWAN TO THE PRC WOULD AFFECT THE AGENDA
FOR CROSS-STRAIT LIBERALIZATION IN TAIWAN. TSAI SAID THAT
DISCUSSIONS OF CROSS-STRAIT CHARTER FLIGHTS AND TOURISM
WOULD NOT BE AFFECTED. HOWEVER, SHE POINTED OUT THAT
DELAYS IN OPENING TAIWAN FURTHER TO MAINLAND TOURISTS WERE
THE FAULT OF THE PRC. TSAI COMMENTED THAT IF THE PRC
WANTED TO MAKE THE NECESSARY CONCESSIONS IT COULD GAIN
RECOGNITION FROM ALL OF TAIWAN'S DIPLOMATIC ALLIES
OVERNIGHT. WHAT HOLDS THE PRC BACK, TSAI HYPOTHESIZED, IS
THE FEAR THAT SUCH A MOVE WOULD GENERATE RADICALISM IN
TAIWAN. THE DIRECTOR EMPHASIZED THE RELATIVE IMPORTANCE
OF THE UNITED STATES, JAPAN, THE EUROPEAN UNION AND TAIWAN'S
OTHER UNOFFICIAL INTERNATIONAL PARTNERS. TSAI ACKNOWLEDGED
THAT CHAD WAS NOT IMPORTANT IN COMPARISON, BUT COMPLAINED
THAT THESE ISSUES MATTER MORE TO AN UNPOPULAR ADMINISTRATION
LIKE PRESIDENT CHEN'S.

MILITARY SALES
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10. (C) DISCUSSING MILITARY SALES, THE DIRECTOR TOLD TSAI
THAT TAIWAN NEEDS TO SHOW THAT IT IS PREPARED TO DEFEND
ITSELF. URGING TAIWAN TO ACT SOON, HE UNDERSCORED THE
FACT THAT THE POLITICAL ENVIRONMENT FOR PASSAGE OF
MILITARY PURCHASE LEGISLATION WOULD BE EVEN MORE DIFFICULT
IN 2007. TSAI OBSERVED THAT PRESIDENT CHEN SHUI-BIAN,
LEGISLATIVE YUAN PRESIDENT WANG JIN-PYNG, AND KMT CHAIRMAN
MA YING-JEOU ARE THE KEY PLAYERS IN THE MILITARY PURCHASE
ISSUE AND THAT EACH HAS HIS OWN CALCULATION. IT IS EASIER
FOR CHEN AND WANG TO SUPPORT THE ARMS PURCHASE PACKAGE
BECAUSE THEIR SUPPORTERS WANT IT, BUT MA FACES A DIFFERENT
SITUATION. TSAI URGED THE DIRECTOR TO TELL MA TO BE
STRONG, NOTING THAT THE JAPANESE SAY HE'S "A LEADER
WITHOUT LEADERSHIP." SHE SAID THAT HE HAS THE POLITICAL
CAPITAL TO BE A GOOD LEADER, BUT HE IS AFRAID TO USE IT
BEFORE THE 2008 PRESIDENTIAL ELECTION.

YOUNG