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Cablegate: Ait/W's Ruzicka Reviews Bilateral Econ

VZCZCXRO7562
RR RUEHCN RUEHGH RUEHVC
DE RUEHIN #1923/01 2350058
ZNR UUUUU ZZH
R 230058Z AUG 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 6489
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 TAIPEI 001923

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USTR, STATE FOR EAP/TC,USTR FOR STRATFORD,
ALTBACH, AND BAHAR, TREASURY FOR OASIA/TTYANG,
USDOC FOR 4431/ITA/MAC/AP/OPB/TAIWAN/PIERCE AND CARTER-NIXON

E.O. 12958: N/A
TAGS: EFIN ECON ETRD PREL TW
SUBJECT: AIT/W'S RUZICKA REVIEWS BILATERAL ECON
RELATIONSHIP IN TAIWAN

Summary
-------

1. (SBU) Rick Ruzicka, Director of Trade and Commercial
Programs at AIT/W, had a wide range of meetings with Taiwan
counterparts and U.S. businesses during a visit to Taiwan
from August 13 to 16. Ruzicka emphasized U.S. market-access
interests in resolving MRLs, pharmaceutical, and other
pending trade irritants, and outlined the current status of
TIFA's investment and tax discussions for Taiwan officials.
Taiwan officials pressed for an official launch of
negotiations for a Bilateral Investment Agreement (BIA)
negotiations as soon as possible and suggested the
possibility of expanding the scope of the TIFA talks. End
summary.

Eager for Bilateral Investment Agreement
----------------------------------------

2. (SBU) Ruzicka's interlocutors stressed Taiwan's strong
desire to launch BIA negotiations as soon as possible.
Office of the Trade Negotiator (OTN) Chief Representative
John Deng's first question was whether the United States and
Taiwan could formally launch investment agreement talks,
indicating his view that any investment agreement would have
to be finished before the current Taiwan Administration
leaves office next spring. Ruzicka explained that the U.S.
side is reviewing Taiwan's revised list of non-conforming
measures (NCMs) very carefully and would get back to Taiwan
on next steps when this process was completed. Deng
suggested that perhaps the U.S. Congress should pass a law
giving the president the authority to negotiate a trade
agreement with TECRO on a narrow range of subjects, sort of a
"fast-track lite" for Taiwan alone. More practically, he
proposed that the TIFA agenda be expanded to include topics
such as Sanitary and Phyto-sanitary (SPS) measures, technical
barriers to trade (TBT), e-commerce, and competition policy
(per Deputy U.S. Trade Representative Karan Bhatia,s
proposal according to Deng). Finally, on the U.S./E.U. issue
of the Information Technology Agreement (ITA) product
coverage, Deng said that Taiwan was still considering the
U.S. invitation to join a WTO dispute resolution process.

3. (SBU) In a separate meeting devoted to the bilateral
investment discussions, the Ministry of Economic Affairs
(MOEA) Department of Investment Services Director General
Berton Chiu also stressed Taiwan wants to move quickly to
start negotiations on a bilateral investment agreement (BIA),
which he said is now a top policy priority for all
ministries. Although he admitted that the latest list of
Taiwan's non-conforming measures (NCMs) is still lengthy, he
noted the list is shorter than the list that South Korea
negotiated in its recently-concluded FTA with the United
States, that the Taiwan side would like to keep several of
the financial-sector NCMs as bargaining chips if negotiations
begin, and asked for U.S. priorities among the NCMs. Chiu
said that the Taiwan side has not yet begun consulting with
relevant private-sector trade groups and associations
regarding the possible BIA, nor has his office consulted with
the Legislative Yuan (LY). He asked when Taiwan should start
this private sector consultation process.

4. (SBU) Financial Supervisory Commission (FSC) Chairman Hu
Sheng-cheng, as part of a wide-ranging discussion of
Taiwan,s economy, pressed the U.S. to move forward on FTA
talks with Taiwan. He argued that the U.S. - Korea Free
Trade Agreement would damage Taiwan's competitiveness.
Contrary to the perception that Taiwan exported only
information technology items which are largely tariff-free,
he noted that textiles are responsible for a larger portion
of Taiwan's trade surplus than semiconductors. (NOTE:
Textiles and apparel together added USD 9 billion to Taiwan's
trade surplus in 2006, while semiconductors accounted for
only USD 4.2 billion, although the figure for semiconductors
does not include semiconductors exported as components in
other electronics. End note.) Ruzicka questioned the wisdom
of allocating resources to sunset industries and noted that
the TIFA process was achieving useful results in deepening
and broadening the US-Taiwan economic relationship.


Tin Ear on Drug Price Cuts
--------------------------

5. (SBU) Mr. Ruzicka reinforced the concerns raised by AUSTR

TAIPEI 00001923 002 OF 002


Bhatia's August 6 letter to Minister of Health Hou Sheng-mou
that during the July 11-12 TIFA talks in Washington, Hou
failed to note Taiwan would announce the following week new
drug price reductions which would go into effect on September
1. Ruzicka's interlocutors did not seem to understand U.S.
concerns about the new price cuts. FSC Chairman Hu
Sheng-cheng went so far as to dismiss U.S. complaints about
Taiwan's drug pricing policies, and suggested that
international pharmaceutical companies should set up research
and development operations in Taiwan despite this issue,
since the domestic market is so small and Taiwan offers such
a good platform for production for the rest of the Asian
market.

6. (SBU) Council on Economic Planning and Development (CEPD)
Chairwoman Ho Mei-yueh, in commenting on the problem of the
pharmaceutical &black hole8 and lack of reimbursement at
actual transaction prices, said that Taiwan authorities are
considering ways to create more diverse income sources for
Taiwan's medical care providers--such as pushing medical
tourism to Taiwan--in order to wean hospitals away from using
the pharmaceutical &black hole8 as one of their primary
profit sources. She mentioned as an example the promotion of
Taiwan as a "liver island" specializing in the treatment of
liver diseases. She also said that Taiwan needs higher user
premiums to increase NHI funding, but doubts that the LY
would allow premiums to rise in line with health costs due to
the potential political backlash.

Beginning of End for Ractopamine Ban?
-------------------------------------

7. (SBU) Chief Trade Negotiator John Deng alerted Ruzicka
that Taiwan was about to announce a "pre-notice" to establish
a maximum residue level (MRL) for Ractopamine (PayLean).
After a "short" public comment period, Taiwan would then
establish a Ractopamine MRL based on the CODEX standard.
National Security Committee (NSC) Senior Advisor Connie Yang
stated that Deng was attempting to get an MRL in place before
the LY comes back into session this fall to keep the LY from
interfering in the process. She noted that since the Taiwan
authorities discovered that Japan has a domestic ban on
Ractopamine but has also set an import MRL for it, the
Executive Yuan (EY) decided to pursue this line of reasoning
with the Bureau of Animal and Plant Health Inspection and
Quarantine (BAPHIQ). (Note: Political pressure has continued
to build, however, and it is far from clear when the proposed
MRL will be implemented. End note.)

Bilateral Tax Discussions
-------------------------

8. (SBU) Connie Yang inquired about the possibility of
reaching a bilateral tax agreement. Ruzicka reviewed the
bilateral consultations that had occurred to date and noted
three issues had been identified as potential concerns:
exchange of information, limitation of benefits, and
arbitration. Both sides were tentatively planning to confer
in October to set out possible next steps.

WTO GPA Going Nowhere
---------------------

9. (SBU) Turning to Taiwan,s possible accession to the WTO
plurilateral government procurement agreement (GPA), Yang
reiterated Taiwan's position that any footnote reference with
implications for Taiwan's sovereignty would be an
unacceptable embarrassment to Taiwan, and said that the
document should not include a footnote or cross-reference to
Taiwan's status, or the authorities would never be able to
convince the LY--and especially Taiwan Solidarity Party
Legislator Lai Hsin-yuan--to accede to the agreement. She
lamented that the Chinese government seems intent on
embarrassing Taiwan again by forcing references to Taiwan's
status into the document, and urged the U.S. to convince the
P.R.C. that repeating the nomenclature is not necessary.
YOUNG

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