TAIWAN: AIT DIRECTOR MEETING WITH MINISTER OF

C O N F I D E N T I A L SECTION 01 OF 04 TAIPEI 002626

SIPDIS

SIPDIS

STATE PASS USTR AND USDA, STATE FOR EAP/TC,
USTR FOR STRATFORD, KATZ, BEHAR, O'CONNOR AND MILLER,
TREASURY FOR OASIA/TTYANG AND HAARSAGER,
USDA/OSEC FOR KEENUM, TERPSTRA, LAMBERT,
USDA/FAS FOR OA/YOST, OSTA/WETZEL, SHNITZLER, HAMILTON,
DAWSON, OCRA/RADLER, BEILLARD,OFSO/BREHM
USDA/APHIS FOR IS/SHEESLEY, CAPLEN

E.O. 12958: DECL: 10/09/2017
TAGS: ECON EAGR ETRD EFIN PREL TW
SUBJECT: TAIWAN: AIT DIRECTOR MEETING WITH MINISTER OF
ECONOMIC AFFAIRS STEVE CHEN


Classified By: AIT Director Stephen M. Young for reasons 1.5 (b),(c)


1. (C) Summary. During a December 18 meeting with Minister
of Economic Affairs Steve Chen, the Director raised the U.S.
proposal calling on Taiwan to lift all remaining restrictions
on beef. He noted that in recent discussions with the Vice
Premier, he had received indications that Taiwan may be able
to announce a market opening by the first week of February.
The Director also told Chen that Taiwan's actions on bone
fragments were not helping the process. In response Chen
implied that the inspection procedures had been toned down.
Chen stated that with only limited political opposition to
fully opening the market to U.S. beef, there is a real
possibility to make progress on this issue.


2. (C) The Director noted renewed momentum on the Trade and
Investment Framework Agreement (TIFA) agenda, with a Tax DVC
scheduled for Friday, December 21, Taiwan time, and a push
for a DVC on Investment early in the New Year. He urged
progress on IPR, especially in light of the 301 review next
spring, and noted with concern there has been little progress
on pharmaceuticals. The Director also asked Minister Chen to
encourage the Bureau of Foreign Trade to complete work on the
Textile Transhipment MOU. Chen suggested the next round of
TIFA talks should be held sufficiently after the May 20
inauguration of Taiwan's next president to allow the new
government to focus on this important process. Chen also
provided background on the recent resolution of Taiwan's
objection to the nomination of a WTO Appeals Judge and
pronounced the Taiwan economy in good shape. End Summary


3. (C) On December 18, AIT Director Stephen Young met with
Minister of Economic Affairs Steven (Ruey-long) Chen to
discuss bilateral economic issues. Director Young was
accompanied by Econ Deputy Chief and Agriculture Chief.

Where's the Beef?
--------------

4. (C) On agriculture, the Director raised the U.S.
proposal calling on Taiwan to lift all remaining restrictions
on beef, in exchange for receiving a high-level U.S. visitor
to launch the first session of the Consultative Committee on
Agricultue (CCA). He noted that in recent discussions with
the Vice Premier, he received positive indications that
Taiwan may be able to announce a decision by early February
(before Chinese New Year holiday commencing February 6).
However, the Director cautioned Chen that the U.S.
quid-pro-quo hinges on Taiwan being the first market in
Northeast Asia to fully open up on an OIE-consistent basis.
He indicated that South Korea is a wild card in that regard,
with some potential for moving ahead of Taiwan given interest
on both sides for the FTA. In terms of process toward a
comprehensive decision on beef, the Director acknowledged the
importance of the ongoing review by Taiwan's independent BSE
Risk Advisory Committee (RAC). This includes the travel next
week of several RAC members on a Department of Health
(DOH)-led team to conduct an On-Site Verification visit and
meetings with experts in the U.S. He told Chen the 3-day
program will be used effectively to reassure Taiwan about the
efficacy of U.S. BSE mitigation measures. Chen indicated
MOEA's support for the visit, and noted that his Ministry is
"subsidizing" the team's travel due to budget difficulties at
DOH.


5. (C) Even as broader discussions on U.S. beef access are
progressing, the Director told Chen that Taiwan's recent
actions on bone fragments are not helping the process. He
emphasized that the presence of fragments is not a health

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concern, but a product quality issue. Nevertheless, a number
of major U.S. establishments have been suspended from
exporting beef to Taiwan, and this could become a political
issue if left unresolved. The Director asked why the
inspections have been so aggressive and called for re-listing
the suspended beef plants quickly within the guidelines. He
added that "within the current climate, our relations could
use some good news." In response Chen implied -- "off the
record" -- that some inspectors may have been too precise in
their work, and that procedures have been toned down.


6. (C) The Director closed on beef by stating "that while
it's a tough issue, we're close to a breakthrough." He
encouraged Taiwan to be a "pioneer" regionally for resuming
full access, particularly given that our request respects the
safety of all consumers and is consistent with the
international standards set by OIE. While not directly
responsible for changing the regulations, the Director said
AIT sees MOEA as a leader for helping make this happen. As
AIT Chairman Raymond Burghardt said during his recent visit
to Taiwan, "every day Taiwan's market is not fully open, you
are implicitly saying to U.S. consumers that they are not
eating safe beef" -- which is simply not the case. The
Director added that the same could be said of Taiwan's
actions to disrupt imports of U.S. pork, where Taiwan's
farmers have pursued a very misguided strategy questioning
the safety of the U.S. product. The Minister responded that
MOEA is 100% supportive on beef, and would show this when the
time is right. Chen added that "only a limited number of
politicians are opposed (to opening the beef market),so
there is a real possibility to move on the issue."

The TIFA Agenda
--------------

7. (C) The Director took the opportunity to review the TIFA
agenda, noting that after a relatively slow period, there is
renewed momentum in several areas.

Tax Discussions - A DVC on a possible tax agreement is
scheduled for Friday, December 21, Taiwan time. This will be
an important opportunity to see how to proceed towards a
possible tax agreement. We understand, said the Director,
that Taiwan is ready to announce it is prepared to make the
regulatory and legislative changes to solve the
"deal-breakers" on arbitration, limitation of benefits, and
exchange of information.

Possible Investment Agreement - The next investment DVC has
not yet been scheduled, but the U.S. is hoping to be able
schedule a DVC as early as possible in the New Year to
discuss Taiwan's proposed list of non-conforming measures.

Government Procurement Agreement (GPA) - The U.S. still hopes
Taiwan will accede to the WTO GPA, and plans to raise this
issue with the future President-elect at an appropriate time.

Pharmaceuticals - Progress in this area had been "a little
slow," and the U.S. hopes a standard contract for
pharmaceutical purchases will be put in place soon. Progress
has not been made on the medium-term goals of actual
transaction pricing and separation of prescribing and
dispensing. U.S. pharmaceutical firms want a level playing
field.

Intellectual Property Rights (IPR) - With the 301 Review
process coming up in early spring, quick passage of strong
ISP liability legislation, effective on-campus IPR
enforcement, and progress on starting up the Intellectual

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Property Court would be helpful. Chen replied that Taiwan
has been making real progress over the last few years on the
IPR front. The Taiwan Intellectual Property Office, under
the Ministry of Economic Affairs, has been working closely
with the Ministry of Education over the past year to improve
the IPR environment on campus. Schools will now be evaluated
on their IPR efforts every year, he said.

Textile Transshipment MOU - The US would appreciate Chen's
"guidance" to the Bureau of Foreign Trade to wrap up this
relatively minor item quickly.

TIFA Timing - Let the New Administration Get Settled
--------------
-------------- --------------

8. (C) Chen suggested that both sides continue to work hard
on the TIFA agenda, and then turned to the issue of timing
for the next round of TIFA talks. He noted that Taiwan's
next president will be inaugurated on May 20th, and suggested
that it may be best to hold the next round of TIFA talks
later in the summer or the early fall to give the new
administration time to get settled. This will be especially
important if the U.S. wants the administration to take a
fresh look at the GPA issue. We don't know who will win, he
said, but there will be a cabinet reshuffle regardless.

Taiwan Makes a Point on China WTO Judge
-------------- --------------

9. (C) The Director then shifted the discussion to the WTO
and Taiwan's objection, later overcome, of the nomination of
a Chinese judge to the WTO Appeals Panel. Chen stated Taiwan
wanted to use its objection to guarantee that, even with a
judge from China, WTO rulings be confined to economic issues
and WTO rules. For example, Taiwan would not want to see as
part of a ruling a footnote commenting on Taiwan's status or
sovereignty. He noted that Taiwan had faced an "unreasonable
boycott" by China, stating that China objects whenever a
Taiwan candidate is put forward for any post, simply because
that candidate is from Taiwan. He also complained that
diplomatic titles for Taiwan's representatives to the WTO had
all been scrubbed from the WTO's "Bluebook" listing.


10. (C) To address Taiwan's concerns, WTO Director-General
Pascal Lamy provided a letter, even amending a first draft at
Taiwan's request, and personally telephoned Chen to assure
him that the WTO process would not be politicized. This
allowed Taiwan to lift its objection, even if, Chen stated,
Taiwan was not 100% sure that its concerns were completely
resolved. The Director replied that the USG was pleased that
Taiwan had "stopped where you did," noting that the USG
supported Taiwan's participation in international
organizations such as the WTO. Taiwan's recent push to enter
the WHO under the name "Taiwan," however, made it harder for
the U.S. to help.

Positive on the Economy
--------------

11. (C) Chen said that Taiwan's economic fundamentals are
very good, and highlighted the growing strength of the IT
sector overall, and semiconductors and TFT-LCD panel
manufacturers in particular. The solar energy sector is also
strong, with production doubling to NT$40 billion (about
US$1.2 billion) this year and expected to reach NT$450
billion (abut US$14 billion) by 2015. Some traditional
industries were also doing well, he said, with machine tools
growing at 9% this year. By 2009, Chen said, machine tool
production should reach NT$1 trillion (about US$31 billion) .
To retain Taiwan's competitiveness, Chen said that the

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Taiwan was opening a machine tool industrial park in Chiayi
and trying to assist small and medium enterprises.


12. (C) A significant weak point, he noted, is low domestic
consumption, which he attributed to the fact that significant
Taiwan consumption occurs abroad, with the high number of
Taiwan consumers on "long stays" outside Taiwan, mainly in
China. He also offered that political concerns may be
affecting spending patterns and the recent drop in the stock
market. Any economic slowdown in the U.S. next year would
also affect Taiwan, although he noted that the U.S. market is
taking a smaller and smaller share of Taiwan exports. Even
with its economic strengths, Taiwan, like many other nations,
faced an increasing divide between rich and poor.
YOUNG