TAIWAN PUSHING FOR FTA

C O N F I D E N T I A L AIT TAIPEI 000900

SIPDIS

SIPDIS

STATE PASS USTR
STATE FOR EAP/TC,
USTR FOR ALTBACH AND WINELAND,
USDOC FOR 4431/ITA/MAC/AP/OPB/TAIWAN/JDUTTON
USDA/FAS FOR SHEIKH/MIRELES
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF GOVERNORS,
AND SAN FRANCISCO FRB/TERESA CURRAN

E.O. 12958: DECL: 01/25/2010
TAGS: ETRD ECON PREL PGOV TW
SUBJECT: TAIWAN PUSHING FOR FTA

REF: TAIPEI 774

Classified By: AIT Acting Director David Keegan for reasons
1.5 (b),(d)


1. Summary: (C) Taiwan has stepped up its campaign for a
Free Trade Agreement with the U.S. While Taiwan often cites
economic rationales, its primary motivation continues to be
its political desire to trumpet an FTA as a sign of its
independence from China. US business interests would want an
FTA to boost integration across the Straits while the Chen
Administration seeks it to curb ties. As such, Taiwan would
be happy to begin formal talks and not actually conclude an
FTA. This way it could reap the benefits of the perception
that is has strengthened ties with the U.S., and it could
still avoid the inevitable protests that would erupt over the
prospect of opening its rice and other agricultural markets
to the United States. End summary.

Pushing for an FTA
--------------


2. (U) Taiwan has been pushing for talks with the U.S. on a
Free Trade Agreement for several years. It has publicly
called for such talks, regularly raised it as a bilateral
trade issue and commissioned studies to provide an economic
rationale for an FTA. Over the past year, the issue has
taken on a new urgency for the Chen Administration, and it
has begun a campaign across several fronts to urge the U.S.
to conclude (or at least announce talks for) a bilateral FTA.


3. (U) Following lobbying efforts by Taiwan supporters in
the U.S., Congress passed 'sense of the Congress' resolutions
that urge the Administration to begin FTA talks with Taiwan.
According to Taiwan officials more than half of US state
legislatures have passed resolutions supporting an FTA with
Taiwan. As AIT has been meeting with Taiwan's newly
appointed officials following President Chen Shui-bian's
latest cabinet shuffle, each official has pointedly called
for the U.S. to engage in FTA talks as soon as possible. The
list of these officials include: Vice Premier Tsai Ing-wen,
Minister without Portfolio Ho Mei-yueh, Minister of Foreign
Affairs James Huang, Presidential Office Secretary General
(and former FonMin) Mark Chen, and Minister of Finance James
Jyu. We are also receiving a full-court press on FTA from
the working level. In a lunch hosted March 2 by AIT's
counterpart, TECRO, the first topic of conversation was FTA.

Economic Reasons
--------------


4. (SBU) Vice Premier Tsai told us February 20 that a
bilateral FTA with the US is at the top of her agenda and
that she was told by Premier Su Tseng-chang to deal with this
issue as a matter of priority. She pointed to economic
reasons for an FTA, citing FTA talks between the US and South
Korea as putting Taiwan in a less competitive position. Tsai
said Taiwan is willing to grant the US access to its
agricultural market and suggested that this would give the US
a dominant position vis-a-vis Australia and New Zealand in
Taiwan's competitive agricultural products market.


5. (SBU) Minister without Portfolio Ho Mei-yueh, former
Minister of Economic Affairs, laid out a comprehensive
rationale for an FTA, echoing the same points that Tsai used
while also commenting on geo-political motivations for
securing a bilateral FTA (reftel and septel). The rest of
the senior interlocutors echoed Vice Premier Tsai's points in
urging the US to engage in FTA talks.

Counterbalance to China
--------------


6. (C) National Security Council Senior Adviser Lin
Chin-wei told AIT March 9 that FTA negotiations with the U.S.
would make it easier for Taiwan to liberalize trade with
China by removing some of the fear of economic domination by
China. We questioned Lin's assertion, but have found that
many in the Pan-Green camp find his logic compelling.
Minister Ho, to cite just one example, said that she sees an
FTA as a counterbalance to China's dominance of Taiwan's
economy. She is well aware that China is Taiwan's top
trading partner and favorite destination for investment.
Vice Premier Tsai is generally credited as originating the
idea of seeking an FTA, when she was the Chairman of the
Mainland Affairs Council during Chen's first term in office,
and her goal was to use the US as a counterbalance to China's
powerful attraction to Taiwan's business sector.

COMMENT: Understanding Motivations

--For Green Politicians & the Chen Administration
-------------- --


7. (C) Comment cont.: Taiwan's main motivation for an FTA
continues to be as a political symbol of acceptance in the
international community. It seeks recognition from the US as
an independent entity and will use any such agreement that
results to trumpet its independence and separate identify
from China. It would seek to use such an agreement as an
argument for other countries, such as Japan, Australia and EU
members, to enter into FTAs with Taiwan. On the domestic
political front, the Chen Administration would declare that
FTA talks with the US demonstrate its competence in the
economic arena and serves to counterbalance economic ties
with China.

-- For Taiwan Business
--------------


8. (C) Tsai and Ho are perfectly aware that an FTA with the
US will not significantly alter China's attraction for
Taiwan's business community (much as President Chen's Green
supporters might wish otherwise). Taiwan has a wealth of
benefits to offer China, including management expertise,
manufacturing excellence, technological capability and
experience in world markets, and it has the additional
advantages of shared language, culture and location to make
excellent use of its benefits. Taiwan firms certainly ship a
great deal of high-tech products to the US and want to
continue doing so, but the prospects for sustained real
growth for Taiwan firms lie in finding beneficial linkages
with China (and other Asian economies). The current basis
for growth is using China as a manufacturing platform to
export to the world, but China's internal market is becoming
an increasingly important draw for Taiwan firms. Taiwan
chain stores are already a presence all over China. In the
future, Taiwan firms (from both the Blue and the Green camps)
want to have greater integration to make use of professional
and technical talent in China to develop and market
innovative products in China and worldwide.


-- For US Firms
--------------

9. (C) The Taiwan market is a large and important
destination for US firms. However, it pales in comparison to
the size and growth of the Mainland market. US firms
individually and the American Chamber of Commerce in Taiwan
regularly tell us that their firms want to operate in the
Greater China (China plus Hong Kong, Macau, and Taiwan)
market and to see increased integration across the Straits,
rather than the increased tensions that have been evident
since President Chen's New Year's Days speeches on January 1
and 28. For an FTA to be beneficial for US business, it
would need to help US firms operate in Greater China rather
than serve the ruling party's desire to counterbalance
economic ties with China.

Talks Are More Important to Taiwan than an Agreement
-------------- --------------


10. (C) It is not at all clear that Taiwan is prepared to
conclude an FTA. Taiwan's primary motivation for an FTA is
political and the primary political gain would be engaging in
formal talks. We do not believe that the Chen Administration
views the expiration of US Trade Promotion Authority in July
2007 as a deadline for concluding an agreement. While trade
officials and a number of analysts clearly understand that an
FTA would require Taiwan to completely open its agricultural
market, this requirement has not been part of the public
discussion. Taiwan activists participated in denouncing the
WTO Ministerial in Hong Kong and will undoubtedly become more
active in Taiwan should FTA talks commence. The Chen
Administration could experience a change of heart when
Taiwan's rice farmers turn out in numbers to oppose access to
Taiwan's rice market. End Comment.
KEEGAN