US embassy cable - 05TAIPEI2599

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 002599 
 
SIPDIS 
 
EAP/RSP/TC, EB/TPP/BTT, STATE PASS AIT/W AND USTR, USTR FOR 
FREEMAN, WINTER AND WINELAND, GENEVA FOR USTR 
 
E.O. 12958: DECL: 06/13/2015 
TAGS: ETRD, ECON, TW 
SUBJECT: REGIONAL ECONOMIES MIXED VIEWS ON TAIWAN FTA 
PROSPECTS 
 
REF: TAIPEI 2477 
 
Classified By: AIT Director Douglas Paal, Reason 1.4 (d) 
 
1.  (C) Summary: Taiwan officials agree that a Free Trade 
Agreement with the United States would have only a small 
economic impact for Taiwan, but believe that such an 
agreement will open the door to other, more economically 
meaningful trade agreements.  However, representatives from 
trade offices in Taipei have mixed opinions on whether a 
US/Taiwan agreement would make it easier for others to 
negotiate with Taiwan.  Australia and Canada are most 
negative, while Singapore and New Zealand suggest they would 
follow the U.S. lead.  Japan has no official position, but 
Taipei-based representatives suggest a Japanese FTA with 
Taiwan isn't in the cards.  End Summary. 
 
2.  (C) Taiwan authorities use every opportunity to raise the 
benefits of a FTA with American interlocutors.  Although 
economists in both the U.S. and Taiwan have questioned the 
economic utility of a FTA, Taiwan officials regularly lament 
Taiwan,s increasing economic isolation as countries in the 
region sign bilateral and regional trade agreements that 
exclude Taiwan.  One oft-cited benefit for Taiwan of a 
US/Taiwan FTA is that it would open the door for other 
regional economies to sign agreements with Taiwan, mitigating 
fears of Chinese retribution against private companies. 
Taiwan would then benefit from expanded regional trade and 
closer links to regional trading partners.  Taiwan 
authorities regularly refer to FTA negotiations with 
Singapore in 2001 they claim were broken off due to Chinese 
pressure and a 2001 statement by then Chairman of the Taiwan 
Institute for Economic Research, Wu Rong-yi (now Vice 
Premier), who insisted that unnamed Japanese officials had 
told him that Japan would be willing to sign an FTA with 
Taiwan if the U.S. would do so first. 
 
3.  (C) In fact, Taipei-based representatives from larger 
countries with strong or potentially strong trade ties with 
China tell AIT they are unlikely to sign bilateral trade 
agreements with Taiwan, regardless of U.S. action.  The 
smaller, more open economies are more willing to consider 
bilateral trade agreements with Taiwan if the U.S. leads the 
way. 
 
4.  (C) Australian Deputy Representative Ben Gray told AIT 
that Australia had so adamantly refused to discuss the issue 
with Taiwan interlocutors over the past two years that in the 
outgoing Australian Trade Representative's courtesy calls on 
the Taiwan Minister of Economics, the head of the Council for 
Economic Planning and Development, the National Security 
Council and the Council of Agriculture, none of them dared to 
raise the possibility of an FTA.  Australia's ongoing 
preparatory FTA negotiations with China are in a delicate 
stage now and the Foreign Ministry would not want anything to 
upset that process.  Australian Foreign Minister Downer is 
very focused on improving Australian relations and increasing 
trade with China and has little patience for Taiwan,s 
political gamesmanship, according to Gray. 
 
5.  (C) Canadian Deputy Director Sumeeta Chandavarkar allowed 
that Canada currently has only one economic policy issue in 
Taiwan: reopening the Taiwan market to Canadian beef.  There 
has been no discussion of a free trade agreement with Taiwan 
and no such discussion will take place, regardless of U.S. 
policy, until the ban on Canadian beef is lifted.  Even then, 
Chandavarkar was doubtful that there was a domestic 
constituency in Canada for a Taiwan/Canada FTA. 
 
6.  (C) Representatives from Singapore and New Zealand were 
warmer to the possibility that a U.S./Taiwan agreement could 
pave the way for them to negotiate with Taiwan.  Singapore 
Assistant Trade Representative Eleanore Kang told AIT that 
Singapore had previously approached Taiwan in 2000 to open 
discussions on a Free Trade Agreement, but that those 
discussions had broken down over nomenclature issues.  If the 
U.S. were to negotiate an agreement with Taiwan that included 
a creative way to finesse Taiwan,s name and sovereignty 
issues, Singapore would be likely to follow the U.S. example. 
 
7.  (C) New Zealand's Economic and General Affairs Officer 
Raylene Liufalani echoed Kang's view that some type of 
bilateral trade agreement with Taiwan might be possible but 
only if the name and sovereignty questions were creatively 
handled.  Liufalani noted that Taiwan raises FTA negotiations 
in every meeting with N.Z. officials and legislators, but 
serious concerns about Taiwan,s protectionist agricultural 
trade policies and membership in the protectionist G10 in the 
WTO make it difficult to predict fruitful trade related 
negotiations with Taiwan. 
 
8.  (C) Masahiko Sugita, Director of Economic Affairs of the 
Interchange Association, Japan's trade office in Taiwan said 
that Taiwan officials regularly raise the possibility of FTA 
negotiations with Japan with Interchange officials as well as 
visiting Japanese legislators.  Although Japan has no 
official position on the possibility of negotiating a Free 
Trade Agreement with Taiwan, Sugita noted that there was 
little incentive for Japan to do so.  Taiwan tariff rates for 
most Japanese imports are already very low and Japanese 
industries prefer private negotiations with Taiwan officials 
to resolve trade-related problems.  In addition, Japanese 
companies worry that access to the Chinese market will be 
constrained if the Japanese government signs an agreement 
with Taiwan, according to Sugita.  Although Japan wouldn't 
rule out FTA negotiations if the U.S. were to first sign an 
agreement with Taiwan, Sugita was skeptical that such a 
policy would generate support in Tokyo, especially given 
recent moves to begin discussions with regional partners on 
an ASEAN 3 trade agreement. 
 
9.  (C) Comment:  In none of our discussions with the 
Taiwan-based representative community was there any real 
enthusiasm for Free Trade negotiations with Taiwan. 
Representatives expressed frustration at what they saw as the 
Chen administration's unfortunate tendency to turn every 
bilateral discussion into a domestic political tool at the 
cost for them of needlessly antagonizing China.  Ongoing 
efforts by Australia and Japan to develop closer official 
trade ties with the mainland would seem to clearly dampen 
enthusiasm for trade negotiations with Taiwan, regardless of 
U.S. policy.  All noted that stable relations with China were 
a priority and see Taiwan as a potential problem, rather than 
a reliable partner.  (Note: for the political dimension of 
this problem, see reftel. End Note.)  Even if Singapore and 
New Zealand were to follow a hypothetical U.S./Taiwan Free 
Trade Agreement with agreements of their own, the real 
economic impact for all concerned would be small.   The 
consensus view was that Taiwan would be better served by 
curbing its inclination to make political hay from its 
infrequent contacts with foreign partners and focusing on 
building a reputation as a trustworthy interlocutor.  End 
Comment. 
PAAL