US embassy cable - 05TAIPEI2526

UNCLAS SECTION 01 OF 03 TAIPEI 002526 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/RSP/TC AND EB/TPP, STATE PASS AIT/W AND USTR 
FOR KI AND GRIER, USDOC FOR 
4431/ITA/MAC/AP/OPB/TAIWAN/MBMORGAN 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, TW 
SUBJECT: TAIWAN'S TAKE ON GOVT PROCUREMENT AND GPA 
 
1.  Summary:  AIT met with Deputy Director General Su 
Ming-tong of Taiwan,s Public Construction Commission (PCC) 
June 3 to discuss their reaction to criticisms raised by U.S. 
business in the AmCham annual White Paper, Taiwan,s efforts 
to enter the WTO GPA and the effect of planned privatization 
on the procurement policy of Chunghwa Telecom (CHT).  The PCC 
expressed frustration with what they viewed as inaccurate and 
unfair criticism of Taiwan,s public procurement policy and 
plan to respond to the AmCham by mid-June.  Taiwan is 
counting on the EU to win support for a two-step approach to 
resolving nomenclature issues in the WTO Agreement on 
Government Procurement (GPA) Committee but the EU has thus 
far failed to convince China.  Since CHT is listed in 
Taiwan,s GPA accession offer, privatization is not expected 
to result in an immediate change in procurement practices. 
End Summary. 
 
============================================= ===== 
AmCham White Paper Lists Complaints on Procurement 
============================================= ===== 
 
2.  Taiwan,s PCC is not only responsible for administering 
public procurement law, but is also charged with mediating 
and adjudicating disputes and as such is a key venue for 
American companies seeking to bid on government contracts. 
The annual AmCham White Paper issued in May listed a number 
of issue areas where U.S. companies believe Taiwan,s 
procurement system fails to live up to international 
standards.  A trend towards decentralization of government 
procurement and the resulting inefficiencies as each locale 
develops its own requirements has led international companies 
to complain that they are being shut out of the procurement 
market.  U.S. companies also complain that Taiwan contracts 
fail to meet important internationally recognized standards 
for limits on liabilities, including for consequential 
damages, and do not give contractors the right to terminate 
the contract for cause.  Taiwan contracts also allow 
compensation adjustments only when the scope of work exceeds 
planned work by a certain level.  U.S. contractors believe 
this places an undue burden on contractors to provide 
uncompensated service beyond the original scope of work.  The 
complete text of the Taiwan White Paper can be found at the 
AmCham Taipei website: www.amcham.com.tw 
 
==================================== 
Taiwan Preparing Response to Critics 
==================================== 
 
3.  PCC Deputy Director General Su Ming-tong expressed 
disappointment that the AmCham Infrastructure Committee had 
again this year raised liability-related issues, noting that 
the PCC had amended the regulations regarding terms and 
conditions in October 2004.  He said he had requested sample 
government contracts from the U.S. and the EU that cap 
liability for consequential damages, but had never received 
such examples, implying that such examples did not exist.  Su 
referenced several articles in the Taiwan government 
procurement law that he claimed addressed the AmCham 
complaints and promised that his office would prepare a 
written response to the AmCham,s criticisms by mid-June. 
 
4.  In response to AmCham,s concern that Taiwan government 
procurement is being decentralized, leading to inconsistent 
regulations and requirements, Su acknowledged that some large 
infrastructure projects, especially for municipal water and 
sewage, were being devolved to the local level and tendered 
as Build-Operate-Transfer (BOT) projects because the Ministry 
of the Interior (MOI) lacks the staff and budget to properly 
manage them.  As BOT projects, there is no centralized 
procurement process, and they are not covered by the 
requirements of the government procurement law.  Su said that 
the WTO GPA Committee is currently considering whether to 
include BOT projects under government procurement laws, but 
that several countries, including the US, opposed doing so. 
 
====================================== 
Taiwan's View of GPA Accession Process 
====================================== 
 
5.  Turning to the current status of Taiwan,s efforts to 
accede to the WTO Agreement on Government Procurement (GPA), 
Su said he understood that the EU had proposed a two-phase 
plan.  The Government Procurement committee would first be 
asked to agree to a resolution defining nomenclature for all 
members in a way that would make no mention of sovereignty. 
Once agreed, the second step would be to admit Chinese Taipei 
to the committee without additional language on sovereignty. 
According to Su, the EU tried and failed to win PRC support 
in May for this two-step proposal.  China continues to insist 
that language spelling out Taiwan,s lack of sovereignty be 
included in any Chinese Taipei accession annex.  Su believes 
the EU is asking the US, Japan and Canada to pressure the 
Chinese to relent and that an EU representative will soon 
visit Beijing to discuss this issue.  However, Taiwan is 
concerned that the newly appointed Korean chair of the GPA 
may be more susceptible to pressure from Beijing. 
6.  Su acknowledged that a bilateral government procurement 
agreement would be a way around the WTO nomenclature issue, 
noting that the EU had also proposed a bilateral agreement. 
But he insisted that Taiwan should maintain its focus on 
entering the WTO GPA committee, suggesting that bilateral 
agreements would remove any incentive for the EU and US to 
push for WTO GPA accession on behalf of Taiwan.  Other Taiwan 
officials have echoed Su's concern that a bilateral GPA would 
dampen U.S. interest in pushing for Taiwan's participation on 
the WTO GPA. 
 
============================================= === 
Privatization Unlikely to Affect CHT Procurement 
============================================= === 
 
7.  Chunghwa Telecom,s (CHT) plans to "privatize" by selling 
American Depository Receipts on the New York Stock Exchange 
has led to questions about whether CHT will continue to 
follow the requirements of Taiwan,s government procurement 
law after it becomes a "private" company.   According to the 
PCC, a privatized CHT would not normally be subject to the 
requirements of this law.  However, CHT was listed in 
Taiwan,s WTO GPA accession offer.  To withdraw CHT from the 
offer would require the consent of all GPA members. 
According to Su, Nippon Telephone and Telegraph (NTT) was not 
withdrawn from Japan,s accession offer when the U.S. and EU 
protested. 
 
8.  Su opined that Chinese Taipei would not want to revise 
its accession offer prior to acceding to the GPA committee 
and therefore, CHT would continue to be bound by the 
requirements of Taiwan,s government procurement law.  He 
suggested also that the company management might feel 
comfortable with the current procurement procedures and be 
reluctant to make changes.  CHT designed Taiwan,s government 
procurement database and electronic bidding system, and 
continues to operate it and provide technical support.  CHT 
gains some advantages from this position and might see 
continued value in voluntarily following government 
procurement practices. 
 
===================== 
Comment: PCC Spinning 
===================== 
 
9.  (SBU) Comment: Most of the advocacy requests that come to 
AIT's Commercial Section relate to government procurement 
issues.  Although U.S. companies do win some government 
tenders, firms complain that the Taiwan procurement process 
lacks transparency and that the process for dispute 
resolution is tilted in favor of local entities.  The PCC has 
a reputation for using the government procurement law to 
throw obstacles in the path of U.S. companies interested in 
Taiwan government tenders.  Su cited several articles of the 
government procurement law in response to complaints raised 
in the White Paper, but when pressed to confirm that these 
provisions truly addressed specific issues, he was unable to 
do so.  He also sidestepped questions about decentralization 
by pinning the blame on increased numbers of BOT projects. 
In fact, BOT projects do not figure in most of the complaints 
raised by U.S. companies.  Su's complaint that AmCham has not 
recognized the PCC's efforts to amend terms and conditions 
also rings hollow in that the amendments Su touts are 
advisory only and that the situation for U.S. companies 
bidding on government contracts has not changed.  AIT 
welcomes the PCC's plan to provide written comments in 
response to the White Paper and will use these comments to 
engage the PCC in a discussion about how to address the 
criticisms raised by U.S. companies. 
PAAL