US embassy cable - 05TAIPEI1708

C O N F I D E N T I A L SECTION 01 OF 06 TAIPEI 001708 
 
SIPDIS 
 
STATE FOR EAP/RSP/TC, STATE PASS AIT/W AND USTR, USTR FOR 
KI AND FREEMAN 
 
E.O. 12958: DECL: 04/07/2015 
TAGS: ETRD, ECON, KIPR, EAGR, TW, IPR 
SUBJECT: USTR CALLS ON TAIWAN 
 
Classified By: Acting Director David Keegan, Reason 1.4 b/d 
 
1.  (C) Summary: The USTR Director for Taiwan and Hong Kong 
met with government officials and US business representatives 
in Taipei to discuss ongoing bilateral trade concerns and the 
delay of proposed meetings under the Trade and Investment 
Framework Agreement (TIFA).  Eliminating barriers to 
agricultural trade dominated the discussions, but USTR also 
raised registration and protection of pharmaceuticals, 
praised Taiwan for progress made in the protection of IPR and 
suggested consideration of a bilateral government procurement 
agreement.  Taiwan officials were forthcoming on rice 
negotiations and willing to work with the US on beef exports, 
but other items on our agriculture trade agenda saw little 
progress.  DOH officials promised consultation on 
implementing regulations for data protection and blood use, 
but were unable to offer a plan to address pharmaceutical 
pricing issues.  US overtures on a bilateral government 
procurement agreement were met with skepticism.  Taiwan 
officials were uniformly eager to resume TIFA meetings as 
soon as possible.  USTR informed Taiwan officials that the US 
is committed to continued trade dialogue with Taiwan but 
personnel changes in USTR make it impossible to confirm a 
time for TIFA talks.  COMMNENT: Taiwan officials continue to 
restrict ag trade in ways not consistant with WTO membership 
and push a US/Taiwan FTA as a means of balancing Chinese 
rather than expanding trade.  Taiwan officials fear they are 
too open to trade with the US thus derailing plans for a 
hoped for FTA.  We can expect Taiwan to resist adding new 
items to our bilateral trade agenda in the hope that the US 
will agree to open FTA discussions.  End Summary and Comment. 
 
 
2. (C)  USTR Director for Taiwan and Hong Kong Scott Ki met 
with officials from the Ministry of Economic Affairs (MOEA), 
Bureau of Foreign Trade (BOFT), Department of Health (DOH), 
Council of Agriculture (COA) the National Security Council 
(NSC), and representatives of the American Chamber of 
Commerce in Taipei on March 30 and 31 to discuss bilateral 
trade issues.  He was accompanied by AIT/W Economic Director 
Rick Ruzicka and AIT/T staff.  FAS/USDA Taiwan Desk Officer 
Lori Smith also attended meetings on agriculture and trade 
issues. 
 
MOEA Deputy Minister Chen: Ag Trade Reciprocity 
============================================= == 
 
3.  (C) Ki noted that agricultural trade concerns topped his 
current agenda and that Taiwan's restrictive agricultural 
trade policies were at odds with more liberal regimes for 
other goods.  Chen responded that the COA and DOH were slowly 
changing their attitudes on trade but that there was a sense 
in the Taiwan government that the US agriculture market was 
also restricted, especially to Taiwan poultry.  MOEA Deputy 
Minister Steve Chen appeared to be unaware of the provision 
in the March 24 DOH announcement that would require US beef 
exporters to certify that cattle had been born, raised, and 
slaughtered in the US.  He suggested that the language might 
have been lifted directly from the Taiwan/Panama Free Trade 
Agreement where it was included to prevent transshipment of 
non-Panamanian cattle.  Chen suggested that since the 
requirement appeared to be unrelated to health concerns it 
would be easier to modify and suggested that AIT raise the 
issue directly with DOH Food Safety Bureau Director General 
Chen Lu-hong. 
 
4.  (C) Turning to issues long on the bilateral trade agenda, 
Ki requested that Taiwan take the lead in negotiations with 
Thailand and Egypt of country specific quotas (CSQ) for rice. 
 After noting that US farmers would likely lose market share 
after the imposition of CSQ, Chen referred the issue to COA. 
In response to a question on the progress of the National 
Communications Commission (NCC) bill, Chen said the 
government was still pushing for a massive reorganization and 
that he expected the NCC would be passed as part of that 
package.  Chen asked whether Taiwan could begin active 
promotion of a Free Trade Agreement with the US and suggested 
that a bilateral government procurement agreement could be 
one aspect of an FTA negotiation.  Otherwise, Taiwan would 
still prefer to join the WTO Agreement on Government 
Procurement and will continue to ask for US and EU assistance 
to achieve that goal. 
 
AmCham Airs Concerns on Med Reimbursements, Registration 
============================================= =========== 
 
5.  (C) In a meeting attended by the Executive Director of 
the American Chamber of Commerce in Taipei and the heads of 
committees on IPR, Infrastructure, Medical Devices, 
Pharmaceuticals and Telecommunications, Ki heard a litany of 
US business concerns as well as praise for the Taiwan 
government in IPR enforcement.  The head of the IPR committee 
said that many of the concerns of the past several years had 
been or were in the process of being addressed including the 
mitigation of an onerous power of attorney requirement and 
improved enforcement against optical media piracy.  Judicial 
sentences were dismissed as too weak and internet sales and 
trade dress were raised as problems without suggested 
solutions.  Counterfeit and parallel imported pharmaceuticals 
were noted as a major concern that the Taiwan government 
seemed unable to address. 
 
6.  (C) Unfair pharmaceutical pricing/reimbursement by 
Taiwan's National Health Insurance (NHI) remains at the top 
of AmCham's list of complaints, but the industry was 
encouraged by the passage of a data protection law in January 
and is eagerly awaiting a chance to comment on the 
implementing regulations.  Medical Device manufacturers 
raised their concern about a DOH requirement that mandates 
registration of Class one, two and three medical devices by 
June 20 and the unwillingness of DOH to provide import 
licenses even if the process cannot be completed in a timely 
fashion.  Manufacturers shared concerns about NHI 
reimbursement and the common practice of reusing single-use 
products, a practice they attributed in part to Taiwan's 
perverse reimbursement policy. 
 
7.  (C) Telecommunications committee members noted that there 
has been little change in the past six months in the Taiwan 
telecom market.  A long promised sale of Chunghwa Telecom 
shares might again be postponed, discouraging competition in 
the fixed line market.  The NCC organization bill was once 
again about to be submitted to the Legislative Yuan but 
political disagreements over the appointment of commissioners 
made passage uncertain.  The Infrastructure committee praised 
Taiwan for agreeing to a liability cap in the standard public 
works contract but complained that terms and conditions still 
did not allow for arbitration and that more contracts were 
being tendered at the county level where practices were even 
more inconsistent.  A Taiwan conference on energy policy to 
be held in June was expected to include an AmCham speaker on 
energy security.  The AmCham Executive Director noted that 
Taiwan's list of banned Chinese imports remained substantial 
and that this violated Taiwan's WTO commitments. 
 
COA Willing to Take on Rice... 
============================== 
 
8.  (C) In a meeting with COA, Vice Minister Lee Jen-chyuan 
agreed that Taiwan would take leadership in negotiations with 
Thailand and Egypt over CSQ for rice.  Ki assured COA that 
the US was willing to consider creative ways to resolve the 
quota issue, including increasing the percentage of allocated 
rice imports in the private sector.  Lee noted that Thailand 
and Egypt should be motivated to reach an agreement since 
Vietnam and China were poised to enter the Taiwan market and 
take market share aware from them.  Lee asked the US to 
consider withdrawing its WTO objection on Taiwan,s rice 
regime in order to increase pressure on Thailand to agree to 
the CSQ proposal.  Ki replied that USTR believes it is 
premature to withdraw the objection before the CSQ and tariff 
schedule issues are resolved. 
 
...But Regulations Rule on other Ag Trade Issues 
============================================= === 
 
9.  (C) On the issues of Taiwan restrictions on blood, 
tallow, and meal, Ki emphasized that transparency and 
adherence to international standards were crucial.  Taiwan 
regulations are often inconsistent with international 
standards and are more trade restrictive than necessary.  The 
representative from Taiwan,s quarantine bureau (BAPHIQ), Dr. 
Yeh, responded that in the case of tallow, relevant documents 
had been received and were currently under review, in the 
cases of pork and poultry meal relevant documents and lists 
of producers had been requested but not yet received by 
BAPHIQ.  Only when all documents had been received would 
BAPHIQ conduct a risk assessment.  Ki suggested that current 
regulations were more restrictive than international norms 
and that a risk assessment was unnecessary.  Nevertheless, 
BAPHIQ insisted that Taiwan regulations required it and 
requested the US provide them with relevant documentation. 
 
10.  (C) AIT Agriculture Chief noted that World Organization 
for Animal Health (OIE) practice allowed a risk assessment 
only if there was shown to be some risk.  Yeh responded that 
BAPHIQ needed to assess the level of US risk before setting 
appropriate restrictions.  BAPHIQ insisted on inspecting 
processing facilities in the US prior to certification.  FAS 
Taiwan desk officer Smith noted that the US doesn,t request 
to inspect every foreign facility, but BAPHIQ again responded 
that such inspections are required by Taiwan regulation.  Lee 
noted that Taiwan producers had been waiting several years 
for approval of Taiwan poultry exports, contrasting it with 
the relative speed of Taiwan,s process to reopen the market 
to US beef exports and suggested that reciprocity should be 
applied.  (COMMENT: This tying together of unconnected SPS 
issues is becoming more common in BAPHIQ.  This practice 
further undermines their claim that their practices are based 
in sound science. END 
COMMENT) 
 
11.  (C) Turning to apple imports, AIT AgChief said that he 
understood the BAPHIQ inspection team had released its report 
and hoped that it could be adopted in time for the apple 
market to be reopened this year.  He asked that the report be 
sent to APHIS as soon as possible and that it contain no new 
requirements.  Yeh responded that the requirements of the 
apple work plan were not a problem; rather the problem lay in 
compliance.  The inspection team found that some US packers 
were not following the protocol.  BAPHIQ planned to send a 
letter to APHIS suggesting that the current protocols be 
better enforced.  BAPHIQ would like to discuss perceived 
shortcomings of the current workplan with APHIS prior to 
reopening the market.  Ki noted that the discussions on 
issues other than rice had been disappointing.  Vice Chairman 
Lee agreed but suggested the US should show as much patience 
as Taiwan had in its quest to export orchids and poultry to 
the US. 
 
NSC Seeing the World Through Red Tinted Glasses? 
============================================= === 
 
12.  (C) In a meeting with NSC Connie Yang Guang-hwa, Ki 
again emphasized that Taiwan,s agricultural import standards 
were not consistent with accepted international standards in 
trade restrictive ways.  Yang insisted that the Taiwan public 
needed to be reassured that decisions were being made for 
technical, not political reasons and that US agricultural 
products were safe.  But now every policy decision was being 
interpreted through the prism of China,s anti-succession law 
and there were those who would accuse the government of 
selling out Taiwan,s public health in an attempt to win US 
support versus China, she said.  AIT AgChief replied that 
there was ample scientific evidence to support lifting of the 
ban on US beef ban and that the birthplace of individual 
cattle had no relevance to potential for BSE transmission. 
Yang wondered why, if the age of the cattle were known, the 
birthplace could not also be determined.  AIT AgChief 
explained that there were other practices and techniques 
short of requiring a birth certificate to determine the age 
of cattle and that he was cooperating on ways to overcome the 
problem with DOH Vice Minister Chen.  Yang agreed that the 
agricultural sector in Taiwan needed to be liberalized but 
said that all consideration of those reforms had been halted 
as the government considered how best to respond to China,s 
anti-succession law. 
 
13.  (C) Ki explained to Yang the need to postpone TIFA talks 
until it was clear who will be appointed Deputy USTR.  Yang 
expressed disappointment with DUSTR Shiner's inability to 
travel to Taiwan and with the lack of enthusiasm for a 
US/Taiwan FTA among US industry groups.  Ki noted that the US 
business community was concerned that Taiwan may want to use 
a US/Taiwan FTA as a tool against China rather than as an 
opportunity to develop closer cooperative links with China. 
Yang replied that Taiwan saw an FTA as a means of 
diversifying trade patterns away from China as a means to 
counter Chinese influence over Taiwan's economy and that US 
support was needed before others would consider including 
Taiwan in regional trading arrangements.  In a separate 
dinner with Ruzicka, AIT Deputy Director and Econ Chief, DPP 
Legislator Tsai Ing-wen also raised the FTA issue.  She 
echoed Yang in saying Taiwan needs an FTA to strengthen its 
economic relations with the West and to encourage other 
countries, like Korea, Singapore and Japan, to enter into 
FTAs with Taiwan. 
 
GPA: Waiting for the WTO 
======================== 
 
14.  (C) Government procurement issues continued to be a 
concern for US industry, noted Ki.  The US remained committed 
to supporting Taiwan,s accession to the WTO GPA, but 
progress in Geneva appeared to be stalled.  Ki suggested the 
possibility of a bilateral GPA as specified in Taiwan,s WTO 
accession agreement with the US.  Yang dismissed concerns 
about unfairness and lack of transparency in the Public 
Construction Commission, contrasting Taiwan,s procurement 
market with China.  She insisted that government procurement 
issues should be addressed multilaterally through the WTO and 
opined that the second quarter of 2005 was Taiwan,s best 
chance if the US and EU were willing to push. 
 
Taiwan's IPR Protection Continues to Improve 
============================================ 
 
15.  (C) Meetings with the Taiwan Intellectual Property 
Office (TIPO) were positive and reflected Taiwan,s improved 
efforts at IPR enforcement and the recent decision to shift 
Taiwan from the Special 301 Priority Watch List to the 
standard Watch List.  TIPO Director General Tsai Lien-sheng 
appreciated the decision but announced that Taiwan would not 
be satisfied.  He noted that the Executive Yuan required 
relevant agencies to meet quarterly to report on IPR 
protection.  The Ministry of Justice (MOJ) was coordinating 
enforcement bodies to increase inspections.  Tsai noted that 
movie box office revenues were up 20% over the same period in 
2004.  Government use of illegal software had been eliminated 
while penalties for use of pirated software had increased. 
Tsai announced that 50,000 computer shops in Taiwan had 
 
SIPDIS 
qualified to display a sticker announcing they do not sell 
pirated software. 
 
16.  (C) TIPO Deputy Director Jack Lu added that Taiwan is 
taking steps to address internet piracy including setting up 
a task force to track down sales of fakes on-line and by 
working with ISPs to enforce takedown notices when illegal 
content is discovered.  TIPO continues to work with the MOJ 
to encourage the Judicial Yuan to include criminal cases in 
its proposed IP Court.  A public/private working-group to 
discuss controversial "fair use" guidelines has been unable 
to reach consensus and negotiations have been suspended.  The 
duties of the Export Monitoring System (EMS) have been 
officially transferred to Taiwan Customs, which has been 
conducting a series of training sessions for staff sponsored 
by rightsholders.  Customs has already made several seizures 
of counterfeit products.  The EMS budget has been transferred 
to IP enforcement bodies to support additional computer 
technology purchases and a study of regional IPR enforcement 
systems.  Ki applauded TIPO for its recent efforts and urged 
that they be continued. 
 
BOFT, MOEA Still Pushing for FTA 
================================ 
 
17. (C) The Bureau of Foreign Trade Director General Franco 
Huang Chih-peng was disappointed to hear that DUSTR Shiner 
would not be able to travel to Taiwan as had been suggested 
in November.  He was eager to continue the dialogue at a high 
level.  Huang echoed Chen and Yang's comments on government 
procurement, noting that Taiwan was committed to accede to 
the WTO GPA and worried that the US would lose interest in 
supporting Taiwan,s goal if a bilateral arrangement were in 
place.  Ki reassured Huang that US support for Taiwan,s 
entry into the GPA would not be diminished and offered to 
draft a proposal to consider bilateral government procurement 
and investment treaties between Taiwan and the US.  Huang 
noted that the Public Construction Commission (PCC) had 
explicitly identified a bilateral GPA as a bargaining chip in 
an FTA negotiation, but added that BOFT would be happy to 
discuss the idea. 
 
18.  (C) MOEA Minister Ho Mei-yueh welcomed USTR's visit and 
thanked USTR for downgrading Taiwan from the Special 301 
Priority Watch List.  Ki again raised our concerns over 
agricultural trade issues, especially the lack of progress on 
apples and concerns about the lack of a final agreement on 
beef imports.  Ho noted that the technical problems were 
easier to solve than the political ones.  Ho pressed for a 
TIFA meeting before the end of the year and mentioned that 
when she had meet with DUSTR Shiner in December 2004, they 
had discussed ways to attract US business support for an FTA. 
 Ho then turned to the benefits of a US/Taiwan FTA for 
Taiwan,s textile industry, noting that Taiwan,s economy is 
shifting out of manufacturing and into high tech and 
services, but that these manufacturing jobs were still 
necessary for Taiwan,s lower skilled laborers. 
 
DOH Promises Consultation on Regs 
================================= 
 
19.  (C) At the Department of Health, Ki praised DOH's 
science-based approach to assessing BSE risk and agreeing to 
open to US beef exports and to work with AIT to ensure that 
US beef could come into Taiwan as announced March 24.  Hsiao 
Mei-ling, Counselor to the Minister of Health, agreed that 
Taiwan was also eager to see US beef enter the market. 
Turning to pharmaceutical related issues, Ki noted that the 
US was pleased to see that the Data Protection bill had been 
passed by the Legislative Yuan and that we strongly 
encouraged DOH to include US pharmaceutical manufacturers in 
discussions of implementing regulations.  Dr. Yu from the 
Bureau of Pharmaceutical Affairs (BOPA) replied that BOPA was 
setting up a consultative committee comprised of Taiwan,s 
six active pharmaceutical associations; much like the one 
that had been created to discuss the original draft data 
protection bill.  Implementing regulations are to be 
announced by August 2005.  Yu noted that bio-products will be 
considered new chemical entities and be eligible for full 
protection under the law. 
 
20.  (C) Implementing regulations for the National Blood law 
are also in the process of being drafted.  Dr. Qu from the 
Bureau of Medical Affairs (BOMA) welcomed comments from US 
companies but noted that the regulations could not subvert 
the intent of the law.  Ki responded that the law appeared to 
violate WTO national treatment commitments and that there was 
no clear process or timeline for the drafting of these 
regulations.  Counselor Hsiao committed to discuss the 
implementing regulations with interested US companies as soon 
as they were drafted.  On registration and validation issues, 
Ki was assured by the Bureau of Food and Drug Analysis (BFDA) 
that discussions with PhRMA would continue and that US 
concerns would be fully considered in the assignment of risk 
profile numbers and the drafting of methodology. 
 
Still Looking to Cut Costs 
========================== 
 
21.  (C) Turning to the National Health Insurance (NHI) price 
volume survey, Ki asked for an explanation of how the 802 
surveyed items were chosen.  NHI staff reported that the 
majority were chosen based on allegations of illegal pricing 
from competitors, most of the rest were the result of NHI 
monitoring for unusual pricing behaviors.  NHI believed this 
regular practice was the only way to ensure that 
reimbursement prices more accurately reflected transaction 
prices.  Ki told Hsiao that the US industry believed that 
price cuts fall most heavily on their products and that the 
price volume survey data was flawed.  He suggested NHI find 
another means to address the pricing gap commonly referred to 
as the black hole.  Hsiao replied that DOH was aware of the 
fiscal problems but had been constrained by politics from 
increasing premiums, cutting benefits, or making other 
changes to improve the health of the healthcare system. 
 
COMENT: Restricting Trade to Encourage FTA Negotiations? 
============================================= =========== 
 
22.  (C) Discussions of continued restrictions on US Beef 
exports were intentionally kept to a minimum in an attempt to 
avoid politicizing the issue, instead keeping it at a 
technical level where it could be more easily resolved.  This 
strategy appears to have been successful.  COA's willingness 
to take the lead on rice CSQ negotiations with Thailand and 
Egypt is encouraging; with the imminent entry of Vietnam into 
the market both should be willing to come to an agreement. 
However, BAPHIQ, Taiwan's quarantine agency, continues to 
restrict agricultural trade in ways that run counter to WTO 
principles by using excessive regulation not backed by sound 
science to restrict market access.  Several Taiwan officials 
noted the speed with which Taiwan had moved to reopen to US 
beef and suggested that the US should reciprocate by moving 
more quickly to approve Taiwan pork and poultry exports. 
Taiwan's policy leaders continue to see an FTA with the US as 
a means to diminish China's influence rather than as an 
opportunity to expand trade, a myopic tendency seemingly 
exacerbated by China's passage of the Anti-Succession Law.  A 
frequent comment from our Taiwanese interlocutors was that 
Taiwan was too open to trade and therefore the US did not see 
an FTA as a priority.  Their reluctance to discuss a 
bilateral GPA appears to be based on this belief.  If so, we 
can expect Taiwan to be reluctant to consider adding anything 
new to our bilateral trade agenda in the near future.  End 
Comment. 
KEEGAN