DAUSTR STRATFORD DISCUSSES TIFA & FTA WITH TAIWAN

C O N F I D E N T I A L SECTION 01 OF 04 TAIPEI 000124

SIPDIS

SIPDIS

STATE PASS USTR
STATE FOR EAP/TC,
USTR FOR STRATFORD AND ALTBACH
TREASURY FOR OASIA/LMOGHTADER
USDA FAS FOR OCRA/SMITH

E.O. 12958: DECL: 01/12/2010
TAGS: ETRD ECON PREL TW
SUBJECT: DAUSTR STRATFORD DISCUSSES TIFA & FTA WITH TAIWAN

REF: A. 2006 TAIPEI 4164


B. 2006 TAIPEI 3288

Classified By: AIT ECON CHIEF DANIEL K. MOORE FOR REASONS 1.5 (b),(c)


1. (C) Summary: Taiwan reiterated its strong desire to
enter into an FTA with the U.S. Senior economic officials
indicated they are prepared to work diligently on the Trade
and Investment Framework Agreement (TIFA) agenda, including
the bilateral investment and tax agreements, the Consultative
Committee on Agriculture and the Textiles MOU. Taiwan is not
yet prepared to move forward on the WTO Government
Procurement Agreement (GPA) and could not say when they might
be prepared. Assistant U.S. Trade Representative Stratford
said he would consult on this issue in Washington with a view
towards requesting talks on a bilateral GPA. End Summary.


2. (C) Assistant U.S. Trade Representative for China,
Mongolia, Hong Kong and Taiwan Timothy Stratford visited
Taipei December 18-19 to follow-up on the Trade and
Investment Framework Agreement Council meeting held in May

2006. They discussed bilateral trade relations with Vice
Premier Tsai Ing-wen, Minister of Economic Affairs (MOEA)
Steve Chen (Ruey-long) and National Security Council (NSC)
Senior Advisor Connie Yang on December 19 in Taipei,
following additional meetings (reported septel) on December

18. Stratford was accompanied by AIT Acting Director Robert
Wang for the meetings with Tsai and Chen; Deputy Assistant
USTR Eric Altbach accompanied Stratford on all visits along
with AIT/T Econ Chief and AIT/T Econ Officer. VP Tsai had
her chief of staff, Chang Hsieng-hwei (Zhang Xiang-hui),
accompany her; Minister Chen had numerous officials from
various parts of MOEA participate in a one hour meeting prior
to lunch, but only Deputy Minister Hsieh Fa-dah and Board of
Foreign Trade Director General Franco Huang (Chih-peng)
joined him for the lunch he hosted for Stratford; Connie Yang
(Guang-hwa) was accompanied by Connie Huang (Yu-ching).


3. (C) By the time Stratford met with VP Tsai at the end of
the two day visit, it was apparent Tsai had been intimately
involved in preparations for the visit and ensured Taiwan
officials all spoke with a consistent voice. The delegation
found the Taiwan side well prepared and fully cognizant of
U.S. interests and concerns on the various issues. Our
interlocutors clearly described what they were doing to
address U.S. concerns and those areas where they would like
assistance from the U.S.

Free Trade Agreement
--------------


4. (C) All three officials reiterated Taiwan's strong
interest in pursuing an FTA with the U.S., putting forth both
political and economic arguments. In the past, Taiwan
officials have generally emphasized political arguments (an
FTA will provide domestic political support for economic
opening to the PRC while also encouraging other countries in
the region to sign FTAs with Taiwan to counter China's
efforts to sign an FTA on the ASEAN Plus 3 model) more than
economic ones, so this set of discussions was somewhat
refreshing. Chen spent the most time on the FTA, using
points echoed later by Tsai. He said Taiwan stands to be
disadvantaged by the U.S.-Korean FTA, because Taiwan and
Korea are at similar stages of development and their hi-tech
firms compete directly in manufacturing identical products:
flat panel displays and semiconductor chips. He cited as
evidence that Korea's share of U.S. imports is rising while
Taiwan's share is decreasing. (Note: While he did not cite
particular data, we found the argument unconvincing because
so many Taiwan firms utilize China as a manufacturing base
for shipments to the U.S. A closer analysis might well show
that the share of U.S. imports of goods made by Taiwan firms
is rising. End Note.)


5. (C) Stratford observed that U.S. firms' do not view a

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U.S.-Taiwan FTA as a high priority. Rather, they are focused
on the linkages between Taiwan and China and the need for
liberalization of restrictions Taiwan imposes on regional
integration. Chen suggested Taiwan is liberalizing its
restrictions by saying he had approved three major
investments the day before, two semiconductor fabs of 8-inch
wafers and an acquisition by Taiwan's ASE corporation of a
semiconductor packaging and testing facility in Shanghai.
(See Ref A for a report on the approvals, two of which had
been pending at MOEA for two years without any action.)

China's Stance on Taiwan FTAs
--------------


6. (C) Chen urged the U.S. to be prepared to take quick
action on an FTA largely because of expected opposition by
China. Seemingly echoing remarks on September 21 Vice
Premier Tsai made to AIT Director Young (Ref B),Chen said
the U.S. and Taiwan should establish working groups within
the Trade and Investment Framework Agreement (TIFA) process
to work towards an FTA agreement. He said both Taiwan and
the U.S. recognize China will oppose an agreement, but he
said in the end China will be pragmatic and, comparing it to
China's acceptance of Taiwan being a WTO member, will accept
such an FTA as a fact of life. Chen said Taiwan, with its
large stock of investment in the Mainland, understands China
better than any other country and is confident the U.S.
should not be concerned about Chinese threats and posturing.
He said the U.S. is the only country in the world that can
withstand any possible pressure from China.


7. (C) Stratford said the U.S. could not contemplate
launching any new FTAs in the near term because Trade
Promotion Authority (TPA) expires in June and the FTA
notification requirements alone would take up all remaining
time prior to expiration. He said USTR intends to push for
renewal of TPA, though cautioned it will be an uphill battle
with the new Congress, which may well impose new requirements
for any FTAs. Over the longer term, if Taiwan wants to make
the best cause for consideration as an FTA partner, Stratford
said it will be important to take into account possible
Chinese reactions, including the possibility of China
pressuring both U.S. and Taiwan firms. Recalling that Deputy
USTR Bhatia had previously asked Chen for studies on the
economic impact on Taiwan of the U.S.-Korean FTA, Stratford
also asked for Chen's thoughts on strategies to ameliorate
China's concern over a U.S.-Taiwan FTA and even demonstrate
to China the advantages such an agreement might bring to
China. Chen said his ministry is still preparing the report
for Bhatia and that he would look into the question of ways
to satisfy China's concerns. Stratford also asked both Tsai
and Yang for their thoughts on ways to blunt China's
potential objections to a U.S.-Taiwan FTA. While they agreed
it was important to prepare a China strategy, neither had any
specific suggestions at this time.

Government Procurement Agreement
--------------


8. (C) Stratford carefully explained why the U.S. believes
membership in the WTO GPA would be significant to Taiwan and
the downside risks minimal. He said membership would give
Taiwan international visibility in another high profile
international forum, open up new markets for Taiwan firms and
that China's planned application to join the GPA in December
2007 could complicate efforts to get Taiwan in at a later
time. Tsai, Chen and Yang said they fully understood these
arguments, but explained they simply could not move forward
at this time. Chen noted Taiwan firms have displayed little
interest in access to foreign government markets and noted
they don't express much interest in the FTA with the U.S.
either or respond to his efforts to encourage investment in
other countries, like Central America or Africa, instead of
China. Stratford said he would take this position back to
Washington for further consultations, but expected the U.S.

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would move forward with its request to initiate talks on a
bilateral GPA as soon as possible.


9. (C) Tsai, Chen and Yang were in complete agreement that
political considerations are driving Taiwan's position on the
Government Procurement Agreement (GPA). All three were firm
that they could not even suggest a timeline for a decision on
whether or not Taiwan would find any language acceptable in
footnotes for WTO GPA accession. Yang was the most expansive
in saying she personally was in favor of moving ahead with
the WTO GPA on economic grounds, but that her boss (NSC
Secretary General Chiou I-jen) and others in Taiwan's

SIPDIS
interagency process had all joined to convince her that
Taiwan independence supporters would take any agreement with
the footnotes for Taiwan's WTO GPA accession and create a
political firestorm for President Chen's Administration. Yang
also suggested that Taiwan found the footnote language in the
stage I decision to be completely unacceptable and therefore
was having a very difficult time contemplating any further
language that might possibly be used to refer to the Stage I
decision.


10. (C) Frederic LaPlanche, EU representative in Taipei
called AIT/T December 21 requesting a readout of the GPA
discussions. We told him Taiwan had been absolutely firm in
not being willing to move forward on WTO GPA at this point
and not able to offer any kind of a timeline on the subject.
He asked if the U.S. would then pursue a bilateral GPA
agreement and we told him the USTR delegation had told Taiwan
there would be further consultations on this in Washington.
LaPlanche said he would consult with Brussels and would be
recommending that the EU continue to try for a WTO GPA by
having the stage II decision not have any footnotes at all
and that there should not be discussions with China in
advance because it would not want to compromise its existing
position. He believes China would, however, accept, after
some protest, such a decision by the GPA Committee.

TIFA AGREEMENTS
--------------


11. (C) Stratford described the state of play on the
outstanding TIFA agreements for Tsai and Chen. On the
Bilateral Tax Agreement, he noted there has been a great deal
of discussion in Washington on the modalities required to
implement such an agreement with the debate being over the
need for unicameral or bicameral approval in Congress. He
said Treasury is following up this week or next with further
consultations with the Senate and the House and, while the
issue remains extremely challenging, he is hopeful of some
progress. On the Bilateral Investment Agreement, he said the
U.S. side is waiting for comments from Taiwan on the draft
texts presented earlier and believes implementation of the
BIA will be less complex than that for the BTA. He noted
there appears to be agreement in principle on the text for
the Consultative Committee on Agriculture (CCA),though the
Council of Agriculture is still waiting for confirmation from
the Department of Health that it will participate in the
forum to cover food safety issues. Finally, Stratford said
we are finalizing a proposed text for the MOU on countering
textile transshipments. Tsai and Chen expressed appreciation
for the progress on these agreements, with Tsai hinting she
was already aware of how close the CCA is to completion.
Both of them commented that the tax agreement should be a
benefit to firms from both sides. Chen assured Stratford of
Taiwan's interest in controlling textile transshipments.

TIFA Meeting
--------------


12. (U) Tsai suggested she would prefer April for the next
TIFA meeting. Stratford stated that with the timing of many
upcoming events not yet finalized, it is not yet possible for
us to propose a TIFA date. Stratford did note that USTR's
schedule is extremely busy for the first six months of the

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year and that June would likely be the earliest possible
timeframe.


13. (U) This message cleared by USTR.
YOUNG