US embassy cable - 05TAIPEI3105

C O N F I D E N T I A L SECTION 01 OF 06 TAIPEI 003105 
 
SIPDIS 
 
STATE FOR EAP/RSP/TC, EB/TCC/BTA, STATE PASS USTR AND 
AIT/W, USTR FOR FREEMAN, WINELAND AND WINTERS, USDOC FOR 
4431/ITA/MAC/AP/OPB/TAIWAN/MBMORGAN, GENEVA FOR SHARK 
 
E.O. 12958: DECL: 07/20/2015 
TAGS: ECON, ETRD, TW, Trade 
SUBJECT: USTR TOURS THE HORIZON WITH TAIWAN OFFICIALS 
 
 
Classified By: AIT Director Douglas Paal, Reason 1.4 b/d 
 
1. (C) Summary: Newly appointed USTR Taiwan Director Tim 
Wineland, accompanied by AIT/T and AIT/W, met with the full 
range of Taiwan's trade policy players during his first visit 
to Taipei July 11 and 12.  Discussions touched on 
agricultural trade policy, prospects for passage of 
telecommunication regulatory reform, pharmaceutical pricing, 
and the potential for negotiations under the U.S./Taiwan 
Trade and Investment Framework Agreement (TIFA).  Wineland 
thanked Taiwan for its science-based approach to handling 
concerns over BSE, raised concerns about pharmaceutical and 
medical device trade, and assured interlocutors that TIFA 
discussions would be high on the agenda once a new Deputy 
USTR is appointed.  Interlocutors told Wineland Taiwan had 
not changed its support for a science-based approach to BSE 
after discovery of a second case in the U.S.  Interlocutors 
repeatedly suggested that progress on other aspects of trade 
liberalization in the Doha Round could lead to G10 
concessions on agriculture.  Taiwan much prefers to pursue 
government procurement within the WTO and remains committed 
to telecom liberalization.  An FTA with the United States 
remains at the top of policymakers' agenda.    End Summary. 
 
2. (C) Newly appointed USTR Director for Taiwan Tim Wineland, 
accompanied by AIT/W's Rick Ruzicka, conducted two intensive 
days of meetings July 11 and 12 with the full range of Taiwan 
trade policy interlocutors, including Council of Agriculture 
(COA) Vice Minister Lee Jen-chyuan, former Premier Vincent 
Siew, Minister of Economic Affairs (MOEA) Ho Mei-yueh and 
Deputy Minister Steve Chen, Department of Health (DOH) 
Counselor Hsiao Mei-ling, the Director Generals of the Bureau 
of Foreign Trade (BOFT) Franco Huang, the Taiwan Intellectual 
Property Office (TIPO) Tsai Lien-sheng and the Ministry of 
Transportation and Telecommunications (MOTC) Tony Teng, 
Council for Economic Planning and Development (CEPD) Chairman 
Hu Sheng-cheng, the National Security Council,s Connie Yang, 
Managing Director of the Taipei AmCham Richard Vuylsteke, and 
a representative from the International Research 
Pharmaceutical Manufacturer's Association (IRPMA). 
 
COA Supports Science on BSE, Asks about Poultry Access 
============================================= ========= 
 
3. (C) COA Vice Minister Lee reported on the state of 
Taiwan's efforts with the Thai and Egyptians to negotiate a 
country specific quota for public purchases of rice.  Lee 
told Wineland that Taiwan had been talking to the Thai WTO 
delegation about a proposal to increase the Thai share of 
private rice imports in exchange for its agreement on a 
public sector quota.  Taiwan has proposed negotiations in 
Geneva, said Lee, but those are still not scheduled.  COA 
also raised the recent USDA inspection and asked when the 
draft poultry equivalency report would be ready.  Wineland 
told COA that the report had already been forwarded to them 
and that the U.S. was still waiting for Taiwan's comment. 
Wineland suggested a follow-up inspection might be possible 
in late 2005. 
 
4. (C) Wineland expressed his appreciation for Taiwan's 
regional leadership in adopting a science-based response to 
the dangers of BSE and noted that the discovery of a second 
cow in the U.S. and the subsequent closure of the local beef 
market gave Taiwan another chance to lead.  VM Lee noted the 
political furor over BSE but assured AIT that Taiwan would 
continue to take a science-based approach.  Wineland relayed 
USDA Assistant Secretary Penn's pledge that Taiwan would have 
full access to all relevant information from the U.S. 
Turning to Taiwan's concerns about sanitary and 
phyto-sanitary (SPS) standards, Wineland noted that USDA had 
extended an invitation to Taiwan's quarantine agency BAPHIQ 
to visit U.S. apple orchards in August 2005. 
 
COA on WTO Agriculture Liberalization 
===================================== 
 
5. (C) Finally, Wineland raised the inconsistency of Taiwan's 
position on agricultural trade liberalization and its 
participation in the liberalization-averse WTO negotiating 
group G10, given Taiwan's reliance on trade.  Lee replied 
that he had attended the most recent meeting of the G10 in 
Paris in May and that there were many issues in the Doha 
Development Round (DDA) that were implicitly linked together. 
 Lee hoped the concerns of the food importing countries, 
especially in sensitive sectors such as rice, could be 
addressed in the DDA and implied that progress in other areas 
(Non-Agricultural Market Access -- NAMA -- for example) would 
free Taiwan's hands to make productive concessions on 
agriculture.  (Note: this message was repeated in a later 
meeting with BOFT DG Huang, see para 25.) 
 
FTA Always on MOEA's Mind 
========================= 
 
6. (C) MOEA Deputy Minister Chen wasted no time in raising 
Taiwan's case for a Free Trade Agreement (FTA) with the 
United States.  Wineland responded that U.S./Taiwan trade 
relations seem to be on an even keel at the moment and that 
the U.S. would like to schedule another TIFA meeting soon 
after a new Deputy USTR is appointed.  Chen pressed for a 
TIFA before the end of 2005 and said that he believes all the 
necessary elements for an FTA are on the table already. 
Wineland told Chen that the future U.S. FTA strategy would be 
deeply influenced by the outcome of the CAFTA vote, but no 
matter whether CAFTA passes or fails, recently appointed USTR 
Portman is likely to thoroughly reassess U.S. planning for 
future FTAs.   Chen replied that U.S. trade priorities would 
best be discussed in an FTA negotiation, including government 
procurement policy, the potential signing of a bilateral 
investment treaty, agricultural liberalization, or others. 
Wineland noted the importance of clear U.S. business and 
Congressional support for any FTA, suggesting that such 
support was not yet apparent. 
 
7. (C) Chen supported the need for a science-based response 
to concerns about U.S. beef and noted that the Department of 
Health had been under attack by legislators and consumer 
groups for its stance but that, in spite of the negative 
publicity, many Taiwan consumers still preferred U.S. beef. 
 
MOEA: Health Care Issues Require Consultation 
============================================= 
 
8. (C) Wineland raised the U.S. pharmaceutical industry's 
concerns about the draft implementing regulations for 
Taiwan's new data protection law and a proposal to amend the 
pharmaceutical law to nullify a requirement to base National 
Health Insurance reimbursements on actual transaction prices. 
 He encouraged MOEA to work with DOH to promote transparency. 
 Chen assured Wineland that U.S. comments were welcome and 
that although pricing and reimbursement issues had long been 
problems, DOH would continue to consult with international 
and domestic groups.  Chen noted that health care policy 
problems are difficult to resolve, competing interests 
including patients, doctors, hospitals, and suppliers all 
have different goals.  Doing so will require extensive 
consultations by all parties, said Chen. 
 
WTO GPA Best for Taiwan 
======================= 
 
9. (C) Wineland proposed that a bilateral government 
procurement agreement (GPA) would go a long way towards 
building the kind of confidence needed to proceed with closer 
trade discussions.  He noted that the multilateral process 
appeared to be stuck and suggested that a bilateral agreement 
would not hurt Taiwan's chances of acceding to the WTO GPA. 
Chen insisted that MOEA believes the WTO process is best for 
Taiwan and that negotiation with numerous bilateral partners 
would be too difficult.  Taiwan was ready to live up to its 
accession commitments but that the way was being blocked by 
inappropriate political interference from China, he said. 
Chen urged the U.S. to work with the EU to push forward 
Taiwan's GPA accession.  Chen pointed out that Taiwan's 
procurement agencies welcomed bids by U.S. companies and that 
GPA accession would have little impact on Taiwan's degree of 
market openness.  He suggested that a bilateral GPA might be 
a good topic for discussion as part of an FTA, proposing that 
a "WTO plus" access to Taiwan's market might interest U.S. 
companies.  Wineland proposed that a bilateral GPA could be a 
good stepping-stone to an FTA process, but Chen insisted that 
a bilateral GPA would be better as an incentive than as a 
precondition for an FTA discussion. 
 
NSC Steals US Points on Beef 
============================ 
 
10. (C) NSC Advisor Connie Yang reiterated Taiwan's 
commitment to a science-based approach to dealing with food 
safety issues, particularly U.S. beef.  She noted that she 
had advised President Chen Shui-bian that the discovery of a 
second cow stricken with BSE was actually irrelevant given 
the U.S. food safety process and the absence of any bone, 
brain, or spinal tissue in Taiwan's beef imports from the 
U.S.  She was surprised that the U.S. had agreed to the 
COA/DOH proposal to close Taiwan's market while further 
inspections were conducted, and noted that the market might 
be harder to open a second time.  DOH had assured her, 
however, that reopening the market to U.S. beef would be 
easier this time once the necessary documents had been 
collected.  The agreement by U.S. and Taiwan experts on the 
scientific process was giving the President sufficient cover 
to quietly support the reopening of the market, Yang said. 
She had made similar points to the Japanese during a recent 
trip to Tokyo, she claimed, but the Japanese were still 
unwilling to base their decision on the scientific evidence. 
 
Prefers WTO GPA over Bilateral Agreement 
======================================== 
 
11. (C) Wineland updated Yang on the status of TIFA 
negotiations and promised that USTR would recommend to the 
new DUSTR that s/he resume TIFA meetings as soon as possible. 
 Yang noted that policy surrounding TIFA discussions is 
supervised by NSC SecGen Chiou I-jen and that the high level 
of attention demonstrates how important eventual FTA 
discussions are to Taiwan's leadership.  In response to 
Wineland's question on the possibility of negotiating a 
bilateral GPA, Yang encouraged the U.S. to be more active in 
Geneva and to work closely with the EU.  She insisted that 
Taiwan wanted to live up to its WTO accession commitments and 
join the GPA and endorsed the EU-proposed "two-step 
approach," insisting that any bilateral process would only 
complicate Taiwan's efforts in the multilateral arena.  Yang 
said the EU was puzzled by the U.S., apparent lack of 
enthusiasm for Taiwan's GPA bid and had accused Taiwan of 
negotiating a secret deal with the U.S. 
 
DOH Confused About USDA Process, Requests Training 
============================================= ===== 
 
12. (C) Referring to the recent Taiwan decision to resume the 
ban on U.S. beef imports, DOH Counselor Hsiao Mei-ling told 
Wineland that one of her goals is to improve communication 
between DOH, Washington, and the Taiwan public.  She was 
puzzled by the USDA process that preceded the announcement of 
the discovery of a second BSE infected cow in the U.S. and 
felt that DOH,s credibility had been damaged when it 
approved reopening the market, only to have to close it again 
a short time later.  She asked if Taiwan should wait until an 
OIG review process is completed before considering reopening 
the market again.  AIT's Acting Ag Chief reassured Hsiao that 
the case was an unusual one, that U.S. beef is safe for 
Taiwan consumers, and thanked DOH for its support of a 
science-based approach to food safety issues.  Wineland 
repeated USDA U/S Penn's assurance that Taiwan would have 
full access to all information about this case.  Hsiao hoped 
the U.S. and Taiwan could improve communication on general 
health issues, noting that while the U.S. and Taiwan CDCs 
worked well together and U.S. experts often came to Taiwan, 
no other DOH employees had been to the U.S. for training in 
the past three years. 
 
DE Implementing Regulations Due in August 
========================================= 
 
13. (C) Wineland thanked DOH for its support of the Data 
Protection law, passed by the Legislative Yuan (LY) in 
January 2005 and inquired about the status of implementing 
regulations.  Hsiao replied that the regulations were 
currently being drafted by DOH.  She assured Wineland that 
all interested parties would have an opportunity to provide 
comments.  Bureau of Pharmaceutical Affairs (BOPA) staff, Dr. 
Yu, noted that IRPMA had participated in three meetings since 
the beginning of June coordinated by DOH to discuss the type 
of information to be publicly released under the new law.  A 
draft of the implementing regulations should be available in 
early August, interested parties would have 60 days to 
comment.  Dr. Yu said he was hopeful that DOH,s close 
consultation over the previous months would lead to few 
comments during the open comment period. 
 
BNHI Defends Price Cuts 
======================= 
 
14. (C) Wineland then turned to the issue of pharmaceutical 
reimbursements and BNHI's July 1 price cuts.  He noted 
industry's concern that price cuts would have the unintended 
consequence of limiting the availability of innovative 
medicines.  BNHI Senior Researcher Tseng Chien-fang responded 
that the pharmaceutical companies had submitted their pricing 
and volume information in June 2004.  The reimbursement 
prices of over 600 of the 872 items surveyed were adjusted 
based on the price/volume data.  The pharmaceutical 
manufacturers would be informed by July 15.  Hsiao noted that 
all national health insurance systems have periodic price 
adjustments and that DOH had briefed IRPMA extensively on 
BNHI's methodology. 
 
15. (C) Tseng responded to questions about proposed 
amendments to the pharmaceutical law to revise reimbursement 
policy by noting that the key provision would ask consumers 
to pay a portion of the cost for higher-priced innovative 
pharmaceuticals.  Under this "balanced billing" proposal, 
BNHI would reimburse hospitals at a set price, but hospitals 
would be free to charge patients the difference between the 
BNHI reimbursement price and the actual cost.  BNHI's dire 
fiscal situation is forcing DOH to seek additional patient 
revenues, Hsiao said.  The draft is still circulating in DOH 
and Hsiao expects considerable LY opposition to the plan. 
Wineland noted that such a plan could discourage consumers 
from purchasing innovative medicines. 
 
CEPD Reviews Economy, Joins Push for FTA 
======================================== 
 
16. (C) The Chairman of the Council for Economic Planning and 
Development, Dr. Hu Sheng-cheng predicted that the Taiwan 
economy will become more dependent upon service industries 
such as tourism and financial services.  He noted that growth 
in the tourism sector was far outstripping the rest of the 
economy and that Taiwan expected over three million foreign 
visitors in 2005, one million from Japan alone.  Hu also 
expected that the government would be able to reduce the role 
of state-owned banks in the economy by half, to about 20% of 
the financial market, in the hope that doing so would spur 
mergers and innovation. 
 
17. (C) Hu believes Taiwan has two primary economic 
weaknesses: an over-reliance on China and over-investment in 
the integrated circuit sector.  The government hopes to 
encourage diversification in both areas.  He claimed Taiwan's 
exports to Southeast Asia had increased 36% over the last 
year and that exports to the EU were also higher.  Although 
CEPD favors stable and peaceful development of economic 
relations with China, including the negotiation of a direct 
air cargo flight, Hu said the government was encouraging and 
guiding Taiwan companies to do business in places other than 
China.  Hu painted a U.S./Taiwan FTA as a necessary first 
step to allow Taiwan to confidently open up to China. 
Wineland responded that USTR was currently focusing its 
attention on CAFTA and had little energy to pursue other 
bilateral trade initiatives.  Hu countered that a U.S./Taiwan 
FTA would be very different from CAFTA in that a Taiwan 
agreement would likely reduce the U.S. trade deficit as 
Taiwan further liberalized its economy. 
 
18. (C) Hu claimed that both the U.S. and Taiwan were in 
danger of being economically marginalized in Asia.  An FTA 
with Taiwan would ease the path for the U.S. to build closer 
trade relations with other East Asian economies, he said.  Hu 
also said that any Taiwan/ASEAN FTA would be impossible 
before a U.S./Taiwan FTA was initialed.  Many Taiwan 
companies are active in Southeast Asia, but would fear 
retaliation from China if Taiwan were to take the initiative 
to begin FTA negotiations with these countries. 
 
NCC This Year Says MOTC 
======================= 
 
19. (C) Wineland discussed the potential for passage of the 
National Communications Commission (NCC) organizational 
legislation with MOTC Director General Tony Teng.  The bill 
was originally proposed in 2003 and the LY passed legislation 
authorizing the creation of a NCC in December 2003.  The 
organizational statute has been debated several times, but 
parties have been unable to reach consensus on the number of 
commissioners and how they will be appointed.  Teng noted 
that the bill had passed its first reading in April 2005 and 
after a particularly contentious debate the parties had 
agreed to a six-month moratorium on LY discussion of the bill 
to allow all parties to informally reach an agreement.  Teng 
was optimistic that the bill would pass before the end of 
2005 and the NCC would begin operations by mid-2006.  Teng 
requested assistance from the U.S. to train NCC staff and 
commissioners. 
 
CHT Will Be Privatized 
====================== 
 
20. (C) Teng then turned to the impending privatization of 
Chunghwa Telecom (CHT).  He noted that the LY had passed a 
non-binding resolution in May but suggested that the 
resolution itself contravened the budget law requiring CHT,s 
privatization.  Teng said the CHT union saw this as their 
last chance to negotiate a generous collective agreement with 
the government and would press aggressively to protect their 
pension system.  CHT has already agreed that there will be no 
layoffs or salary cuts for five years after privatization but 
Teng didn't see how CHT would be able to fund the current 
generous pension plan.  Instead, he said all employees with 
qualifying years of service would receive a lump sum payment 
at the time of privatization and another upon retirement. 
Teng predicted CHT Chairman Ho-chen Tan would leave for a 
U.S. "roadshow" very soon after the Securities and Exchange 
Commission approve CHT,s ADR application.  He hoped the ADR 
sale could be complete by mid-August to allow investors to 
take advantage of CHT,s dividend issuance and to avoid LY 
pressure to delay the sale. 
 
MOTC Committed to VOIP 
====================== 
 
21. (C) Finally, Teng discussed the current thinking within 
MOTC regarding Voice over Internet Protocol (VOIP) 
regulations.  Noting police concerns about their inability to 
tap into VOIP calls, Teng nevertheless believes that Taiwan 
will have regulations in place by October 2005 that will 
allow the government to assign telephone numbers to be used 
by VOIP service providers.  Teng insisted that Taiwan will 
not restrict the market for VOIP and expressed confidence 
that the police could "catch up" with the technology.  He 
predicted that VOIP would have little effect on the domestic 
telephone market but would likely have a significant impact 
on revenues of long-distance/international service providers. 
 Long-distance providers like CHT will be affected but 
increased demand for broadband services, also provided by 
CHT, should help that company offset the loss of revenue. 
 
Minister Ho Repeats FTA Push 
============================ 
 
22. (C) Wineland reassured MOEA Minister Ho Mei-yueh that the 
U.S. remains committed to continuation of trade discussions 
under the current TIFA framework.  Ho agreed that the TIFA is 
very important to Taiwan/U.S. economic relations, adding that 
if South Korea announces FTA negotiations with the U.S. it 
would have an outsized impact on Taiwan due to the direct 
competition between the two economies in many categories of 
manufactured goods.  Ho requested that the U.S. consider the 
importance of Taiwan in the global economy and the need to 
protect the security and viability of the Taiwan economy. 
Taiwan needs to decrease its dependence on China, she said, 
and pointed to an FTA with the U.S. as the only means to 
balance the pressure to rely more heavily on China.  Ho noted 
that Taiwan's current FTAs with Central American partners 
were not enthusiastically embraced by Taiwan companies faced 
with long supply chains and small markets.  Southeast Asian 
nations also were reluctant to risk closer relations with 
Taiwan for concern over loss of valuable opportunities in 
China.  Ho insisted that Taiwan would lose economic 
competitiveness if it faced less favorable market access 
provisions than its regional competitors.  Wineland responded 
that any FTA negotiation would have to have strong support 
from the U.S. business community and encouraged Minister Ho 
to enlist the support of U.S. firms. 
TIPO on IPR Court, EZPeer Next Steps 
==================================== 
 
23. (C) The Director General of TIPO, Tsai Lien-sheng, told 
Wineland that Premier Frank Hsieh is currently working on the 
new government's IPR policy and that improved IPR protection 
remained a priority for the government.  One of TIPO's 
priorities for this year is to discourage piracy on 
university campuses.  Deputy DG Jack Lu announced that the 
Judicial Yuan had agreed upon a framework for a proposed IPR 
Court that would include criminal cases (although only at the 
appellate level) and that the JY would push for legislative 
approval of the new court by the end of 2005.  Once the law 
passes, the JY will consider training programs for judges 
tapped to sit on the new court.  Wineland offered 
congratulations and volunteered to work with the Taiwan 
government to ensure the IPR Court judges have the 
opportunity to participate in training in the U.S. 
 
24. (C) Wineland noted the recent Shilin District Court 
decision acquitting EZPeer of copyright infringement and 
asked what the next steps might be to protect rightsholders 
against peer-to-peer (P2P) users illegally swapping 
copyrighted files.  Lu responded that the rightsholders (the 
International Federation of Phonographic Industries -- IFPI) 
could consider civil suits against users, but that to do so 
would be an expensive process.  In response to a question 
about whether Taiwan would consider introducing additional 
legislation to protect rightsholders from P2P based 
violators, the Chief of TIPO's Copyright division Margaret 
Chen replied that she believes the current law is sufficient 
to deal with the threat and that submitting a new proposal to 
the LY would open a Pandora's box of counter-legislation.  Lu 
added that the EZPeer verdict specifically placed the burden 
of liability on the users of P2P services and that pursuing 
users directly might be a potential next step for the 
government. 
 
BOFT: Room to Move on G10 Stance? 
================================= 
 
25. (C) Wineland met with BOFT Director General Franco Huang 
to discuss the current state of U.S./Taiwan bilateral trade 
relations and Taiwan's views on WTO-related issues.  Huang 
said that he had met USTR Portman at a recent APEC meeting in 
Korea and that he was aware of the USTR's planned trip to 
Geneva to participate in WTO negotiations related to the Doha 
Round.  Huang hoped that Portman would be able to convince 
the Indian delegation and others to accept the "Swiss 
Formula" for reduction of agricultural tariffs as agreed by 
the APEC economies in time for progress to be announced at 
the Hong Kong Ministerial in December. Wineland noted that 
Taiwan's participation in the G10 was not consistent with 
Taiwan's broader trade liberalization agenda.  Huang 
responded that he believes the G10 is likely to adjust its 
position as the agriculture negotiations progress and that 
concessions on agriculture were likely to follow progress in 
other areas under discussion.  No one wants to take the first 
step, said Huang. 
PAAL