US embassy cable - 05TAIPEI4742

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 004742 
 
SIPDIS 
 
STATE FOR EAP/RSP/TC AND H, H PASS SENATOR ALLEN'S STAFF 
 
E.O. 12958: DECL: 11/28/2015 
TAGS: OREP, TW, ECON, PREL, Foreign Policy, Military Issues, IPR, Trade 
SUBJECT: SENATOR ALLEN'S MEETINGS IN TAIPEI 
 
REF: STATE 210950 
 
Classified By: AIT Director Douglas Paal, Reason 1.5 b 
 
1.  (U) Summary: On November 26, Senator George Allen 
discussed U.S.-Taiwan relations with President Chen 
Shui-bian.  The Senator and his staff also met with Taiwan 
Semi-Conductor Manufacturing Corp. (TSMC) President Rick Tsai 
and Chief Legal Counsel Dick Thurston, and representatives 
from Corning, IBM, Powerchip, Motorola and Tsing Hua 
University for an in-depth discussion of the climate in 
Taiwan for high-tech companies.  End Summary. 
 
Democracy and Military Procurement 
---------------------------------- 
 
2.  (SBU) President Chen praised Senator Allen's support in 
the Senate for Taiwan's democracy and repeated a suggestion 
made in a phone call with Allen during Chen's transit in 
Miami, that a joint letter from U.S. Senators could help to 
push the Taiwan opposition Kuomintang (KMT) and People First 
Party (PFP) toward support for the military procurement 
package.  Allen responded that it was important that the 
Taiwan people have the capability for self-defense and that 
he would continue to make this point to his congressional 
colleagues.  Referring to President Bush's recent speech 
praising Taiwan's democracy, Allen offered that Taiwan could 
serve as a democratic model not just for China but for all of 
Asia. 
 
3.  (C) Chen expressed his determination to pass the military 
procurement bill but told Allen that the government had 
recently failed in its 38th attempt to get the bill out of 
the Legislative Yuan Procedural Committee.  Chen said that 
the failure of the bill to gain committee support had no 
relation to security or military policy, but was entirely 
political and he accused the opposition of opposing just for 
the sake of opposing.  Chen vowed to seek a meeting with LY 
speaker Wang Jyn-ping to discuss the bill after the upcoming 
December 3 city and county elections.  He suggested that a 
piecemeal approach might be more effective, but promised to 
strengthen Taiwan's defense capability no matter the fate of 
the special procurement bill.  Chen reiterated Taiwan's 
desire to increase the defense budget to 3% of GDP by 2008, 
noting it is important to be able to negotiate with China 
from a position of strength. 
 
Trade Policy: IPR and Beef 
-------------------------- 
 
4.  (SBU) Senator Allen also expressed concern about Taiwan's 
ability to protect intellectual property rights (IPR).  He 
recognized Taiwan's efforts to protect IPR in recent years, 
but noted that the challenges of protecting IPR continue to 
evolve and urged Taiwan to take steps to more rapidly respond 
to changes in technology.  Chen responded that Taiwan 
understands the threat of IPR piracy and that intellectual 
property theft runs counter to Taiwan culture.  He noted that 
improved IPR protection had led to the resumption of trade 
talks under the U.S.-Taiwan Trade and Investment Framework 
Agreement (TIFA).  He hoped that continued efforts would 
smooth the way for a U.S.-Taiwan Free Trade Agreement. 
 
5.  (SBU) In response to Senator Allen's question about 
re-opening the Taiwan market to U.S. beef, Chen recalled that 
Taiwan had first opened to U.S. beef in April 2005 but had to 
backtrack when a second case of bovine spongeform 
encephalitis (BSE) was discovered in an American cow.  This 
had led to serious criticism from the leaders of the 
opposition parties, he claimed.  While he did not regret his 
previous decision, Chen said Taiwan this time would wait 
until Japan had officially announced that it would reopen to 
U.S. beef before making a decision.  Japan's health standards 
are very strict, Chen said, and if Japan were to reopen its 
market before December 25, Taiwan would also make a 
science-based determination as soon as possible.  Chen also 
praised USDA for its assistance.  Allen noted that the 
announcement that Japan would consider dropping its ban on 
U.S. beef meant that Taiwan had lost a chance to show 
leadership on this issue.  He asked Chen to consider moving 
as quickly as possible to allow the resumption of U.S. beef 
imports. 
 
High Tech Taiwan 
---------------- 
 
6.  (SBU) Allen also met with TSMC to discuss semi-conductor 
and high tech manufacturing in Taiwan.  TSMC President Rick 
Tsai noted that semiconductors are the bedrock of Taiwan 
 
SIPDIS 
industry and that Taiwan is still several years ahead of 
anything that can be done in China.  He pointed to the cost 
structure, supply chain, and supply of good engineers and R&D 
support as reasons to stay in Taiwan, noting that labor is a 
small part of their costs.  TSMC Chief Counsel Dick Thurston 
noted that IPR concerns also give companies pause when 
considering whether to move operations to China.  Despite 
these factors, Tsai felt that TSMC has to have a presence in 
China in order to serve the large number of customers there. 
Tsai lamented the Taiwan LY's proposal to institute a 20% 
 
SIPDIS 
alternative minimum tax and said such a tax would have a 
bigger negative impact on their business than would moving to 
China, given that Taiwan does not currently tax income in the 
high-tech sector. 
 
7. (SBU) In a dinner attended by Rick Tsai, President 
Motorola Taiwan; Frank Huang, CEO of Powerchip; Hans Huang, 
VP Taiwan of Corning; Robert Wang, IBM Government Relations; 
and former Industrial Technology Research Institute (ITRI) 
head Chintay Shih, now a professor at Tsing Hai University, 
Senator Allen discussed the state of Taiwan's high technology 
market and the prospects for continued success in Taiwan. 
Those present were optimistic that Taiwan's industry would be 
strong enough to compete with China for the immediate future, 
but criticized Taiwan government policies, including taxes 
and restrictions on cross-strait trade, that had a negative 
effect on their business. 
 
8.  Senator Allen's staff has not cleared this message. 
Paal