US embassy cable - 04TAIPEI3093

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 003093 
 
SIPDIS 
 
STATE FOR EAP/RSP/TC AND EB/TPP/BTA, STATE PASS AIT/W AND 
USTR, USTR FOR KI AND FREEMAN, USDOC FOR 
4431/ITA/MAC/APOPB/MBMORGAN AND 
3132/USFCS/OIO/EAP/ABACHER/ADESARRAN 
 
E.O. 12958: DECL: 10/01/2014 
TAGS: ETRD, ECON, KIPR, EAGR, ECPS, PGOV, IPR 
SUBJECT: TAIWAN: TIME FOR TIFA 
 
REF: A. TAIPEI 0069 
 
     B. TAIPEI 0096 
     C. TAIPEI 0533 
     D. TAIPEI 1033 
     E. TAIPEI 1600 
     F. TAIPEI 1907 
     G. TAIPEI 1998 
     H. TAIPEI 2375 
     I. TAIPEI 2475 
     J. TAIPEI 2571 
     K. TAIPEI 2672 
     L. TAIPEI 2877 
     M. TAIPEI 2900 
     N. TAIPEI 2929 
 
Classified By: AIT Director Douglas Paal, Reason 1.4 b/d 
 
1. (C)  SUMMARY: Taiwan's recent change in attitude towards 
making efforts to resolve long-standing bilateral trade 
concerns with the U.S. has led to real improvements in the 
environment for intellectual property protection, 
agricultural trade, telecommunications liberalization, and 
pharmaceutical access requirements, and is about to pay 
dividends in the form of the establishment of a National 
Communications Commission and a data exclusivity regime for 
innovative pharmaceuticals.  Setting a schedule for TIFA 
discussions will reinforce this new "can do" attitude. 
Holding out for additional gains risks jeopardizing not only 
Taiwan's continued cooperation, but also the influence of 
those responsible for driving the return to engagement on the 
U.S. bilateral trade agenda.  END SUMMARY. 
 
2. (C)  Since Taiwan's entry into the WTO in January 2002, 
the US-Taiwan bilateral trade relationship has been marked by 
Taiwan foot dragging on implementation of WTO accession 
commitments and frustration on the part of US policy-makers 
over Taiwan's unwillingness to enact promised changes.  In 
August 2003, US Trade Representative Zoellick wrote a letter 
to Premier Yu Shyi-kun, laying out in detail our bilateral 
trade concerns and holding out the promise of high-level 
economic discussions, including resumption of discussions 
under the Trade and Investment Framework Agreement (TIFA), if 
Taiwan could demonstrate it was implementing its commitments 
in IPR, agriculture, pharmaceuticals, and telecommunications. 
 Over the past 12 months, Taiwan has made significant 
progress in resolving many of our outstanding bilateral trade 
questions, including significant improvements in the 
enforcement of intellectual property rights, liberalization 
of fixed line telecommunications, and moving to create data 
exclusivity protection for innovative pharmaceuticals and 
establish a workable rice quota regime. 
 
3. (C)  Even more significant than these positive steps is 
what appears to be a sea change in attitude among Taiwan 
officials responsible for trade policy.  The new cabinet, 
inaugurated in May, has moved with heretofore unseen purpose 
and coordination to push difficult changes through both the 
bureaucracy and the Legislative Yuan (LY).  Taiwan officials' 
cooperation has clearly been motivated by the promise of the 
resumption of high-level trade discussions under the TIFA. 
Taiwan officials view resumption of high-level economic talks 
with the United States (which they hope will lead to a Free 
Trade Agreement) both as a quid pro quo for their efforts to 
make difficult political decisions, and as a political 
strategy to counter their economy's growing entanglement with 
China.  We have made clear that restarting TIFA is a 
necessary precondition before the possibility of entering 
negotiations a US/Taiwan FTA could be considered.  Taiwan 
views the possibility of a FTA with the U.S. as the key that 
could unlock closer economic relations with other key 
regional trading partners.  The continued effectiveness of 
key policy makers essential in pushing the bureaucracy to 
address U.S. bilateral trade concerns will be heavily 
influenced by their ability to deliver economic engagement 
with the U.S. (refs H, I) 
 
------------------------------------- 
IPR Environment Dramatically Improved 
------------------------------------- 
 
4. (U)  AIT has reported extensively on Taiwan government 
actions to improve the IPR climate.  The frequency of 
inspections of Optical Disk (OD) factories continues to 
increase, while the number of infringing goods and equipment 
seized by Taiwan enforcement agencies has dropped to half 
2003 levels.  In December 2003, Taiwan officials, working in 
cooperation with rightsholders and in coordination with other 
enforcement authorities, broke up two major counterfeit 
software manufacturers.  The National Police have increased 
the frequency of their raids against manufacturers and 
sellers of pirated goods, leading to an increase in arrests. 
Four Taiwan enforcement agencies cooperated in the 
investigation, raid, and closure of a major OD counterfeiting 
operation in May that was suspected to account for as much as 
ten percent of illegal OD manufacturing in Taiwan. 
5.  (U)  Shipments of all counterfeit products from Taiwan 
seized by U.S. Customs in FY03 dropped to less than three 
percent of FY02 levels and fell even further in the first 
half of FY04.  After a concerted lobbying campaign by Taiwan 
government officials, Taiwan's legislature passed revisions 
to the copyright law that substantively meet the demands of 
U.S. based rightsholders groups for stiffer penalties for 
counterfeiters and protection for technical protection 
measures, adding to amendments from 2003 that made sale of 
counterfeit goods a public crime.  Taiwan has also moved to 
create a specialized IPR court that is scheduled to begin 
operation before the end of 2004. (refs B, C, E, and K) 
 
--------------------------------------------- -- 
Telecom Liberalization in Process - NCC Holding 
--------------------------------------------- -- 
 
6. (U)  Taiwan's Directorate General of Telecommunications 
(DGT) announced in September the opening of a one-month 
bidding period for new entrants into Taiwan's fixed line 
telecommunications market.  This is the result of legislation 
passed in December 2003 that mandated liberalization of the 
fixed line market by allowing new entrants to apply for 
licenses to enter the market twice yearly and by 
significantly reducing capital and build-out requirements. 
In December 2003, the legislature also passed a bill 
authorizing the establishment of a National Communications 
Commission modeled on the US FCC.  The implementation bill 
has been held hostage in the legislature by partisan 
wrangling, first over the number and composition of 
commissioners, and more recently over unrelated broadcast 
media licensing requirements.  The executive branch remains 
committed to pushing this bill through at the earliest 
possible opportunity. (refs A, G, and M) 
 
--------------------------------------------- - 
Pharmaceuticals: Engaging on DE and Validation 
--------------------------------------------- - 
 
7. (C)  In spite of bureaucratic obstinance and strong 
opposition from local industry, Premier Yu and the Minister 
of Health have forced a bill to protect pharmaceutical data 
through the Ministry of Health and Executive Yuan.  It is now 
awaiting action by the LY Environment and Health Committee. 
The bill provides five years of protection for new chemical 
entities and three years for new indications.  In response to 
industry's remaining concerns, the Department of Health has 
privately offered assurances that they will draft 
implementation regulations favorable to innovative 
pharmaceutical manufacturers.  In meetings with 
representatives from PhRMA in June 2004, the Board of Food 
and Drug Administration (BFDA) agreed to consult with 
industry in revising the methodology for determining Risk 
Priority Numbers (RPNs) used to identify companies for 
on-site inspections.  In March, the LY passed legislation 
that substantially increased penalties for manufacturers, 
distributors, and sellers of counterfeit pharmaceutical 
products.  (refs D, F, L, and N) 
 
------------------- 
Rice CSQ,s on Track 
------------------- 
 
8. (SBU)  Taiwan's Council of Agriculture (COA) recently 
recommended adopting U.S. supplied draft language on a 
country specific quota (CSQ) system for rice imports on the 
condition that we accept Taiwan's high out-of-quota duty rate 
and negotiate with Australia, Thailand, and Egypt on specific 
quota amounts.  Taiwan also agreed to abandon its proposal to 
leave ten percent of public imports open to all countries as 
a "global quota."  U.S. industry reportedly supports further 
discussions in TIFA talks.  Like the other economic 
ministries, Taiwan's COA has also recently evidenced a 
greater willingness to work with the U.S. to resolve 
bilateral trade issues.  Implementation of Taiwan's rice 
import commitments has dramatically improved.  For example, 
in 2004 no public tenders were cancelled because price bids 
exceeded a COA-imposed ceiling price.  In addition, COA has 
been fully cooperating in efforts to re-open Taiwan's market 
to U.S. beef. 
--------------------- 
Time to Engage is Now 
--------------------- 
 
9.  (C)  COMMENT: Taiwan's recent willingness to engage on 
our bilateral trade agenda is based on the belief that doing 
so will bring a positive return in the form of renewed 
high-level economic discussions under TIFA.  This 
understanding has been reinforced in our regular meetings 
with all levels of the Taiwan economic policy community. 
Taiwan officials will undoubtedly push for a U.S. commitment 
to future FTA negotiations, but understand that TIFA must 
come first, before any possibility of discussing an FTA can 
be considered.  The suspension of high-level economic 
discussions in 2002 was an effective strategy to force 
Taiwan's trade policy bureaucracy to stop basking in the warm 
afterglow of WTO accession and refocus attention on resolving 
U.S. bilateral trade concerns.  But this strategy is reaching 
the limits of its usefulness.  By committing now to a 
schedule for TIFA talks, we can reinforce Taiwan's 
willingness to engage and continue to make progress on 
bilateral trade issues, including dismantling non-tariff 
barriers to trade and reaching an agreement on a CSQ for 
rice.  Postponing TIFA discussions would deal a severe blow 
to those in the Taiwan government who have been the most 
forceful advocates of engagement with the U.S. to resolve 
concerns on IPR, pharmaceuticals, rice and telecoms.  Failure 
to deliver engagement with the U.S. will damage or even 
destroy their ability to be helpful in the future.  Now is 
the time to build on the positive momentum of the past 
several months by raising the level of engagement on economic 
issues. 
PAAL