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Cablegate: Taiwan: Part Two of 2009 National Trade Estimate Report

P 070819Z NOV 08
FM AIT TAIPEI
TO SECSTATE WASHDC PRIORITY 0298
INFO CHINA POSTS COLLECTIVE
AMEMBASSY SEOUL
AMEMBASSY TOKYO
USDOC WASHDC

UNCLAS AIT TAIPEI 001575


STATE FOR EAP/TC, EB/TBB/BTA
STATE PASS TO USTR/BLUE AND WINELAND AND AIT/W
COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN

E.O. 12958: N/A
TAGS: ETRD ECON EFIN TW
SUBJECT: TAIWAN: PART TWO OF 2009 NATIONAL TRADE ESTIMATE REPORT

REF: STATE 88685

PHARMACEUTICALS AND MEDICAL DEVICES
------------------------------------

1. Taiwan has identified both the medical device and pharmaceutical
sectors as priorities for development, resulting in Taiwan agencies
sometimes appearing to favor the interests of local companies over
foreign firms. In addition, Taiwan bans imports from China of about
30 medical products. Due to global manufacturing plans, however,
many U.S.-designed medical devices are produced in China, and the
foreign medical device industry has suggested that Taiwan lift
import bans for these products. In response, the Ministry of
Economic Affairs (MOEA) recently announced that it would
conditionally allow the import of blood glucose meters made in
China.

2. Improvements have occurred in the registration and approval
process for less risky medical devices in recent years. However,
registration and approval procedures for higher risk medical device
imports are complex and time consuming, and continue to be the
subject of longstanding complaints by U.S. firms. The registration
process requires extensive documentation and sometimes arbitrary
demands for additional information and redundant testing.

3. DOH officials are therefore continuing to work with industry to
improve the medical device registration process, primarily
concerning identical products made in different quality system
documentation manufacturing sites, or with outer packaging changes.
In order to make product registration more efficient, the DOH
recently adopted more flexible product registration procedures for
in-vitro diagnostic medical devices that allow importing companies
to follow U.S. or EU procedures, rather than demand extensive
documentation and redundant testing for products made in Europe by
U.S. companies. Regulations are vague on when local clinical trials
are required for the review process or whether industry is allowed
to provide additional input in response to questions posed by DOH
officials reviewing the clinical trial submissions.

4. A continuing concern in the pharmaceutical sector in Taiwan
involves pharmaceutical pricing and management. Through the TIFA
process, the United States has been encouraging Taiwan to adopt a
system of actual transaction pricing (ATP) in order to address the
significant gap between the amount that the Bureau of National
Health Insurance (BNHI) reimburses for a pharmaceutical product and
the price actually paid to the provider of that product. This gap
distorts pharmaceutical trade and prescription patterns in Taiwan.
These distortions are worsened by hospital doctors' ability to both
prescribe and dispense pharmaceuticals. Separating these functions
would help to resolve the long term pricing problem.

5. In addition, Taiwan's lengthy pharmaceutical registration process
imposes unnecessary costs and slows market entry for new drugs that
have already received regulatory approval in advanced economies.
For example, the Taiwan Department of Health (DOH) Bureau of
Pharmaceutical Affairs (BOPA) requires a company that wants register
a drug for sale in Taiwan to provide Certificates of Pharmaceutical
Product (CPP) certifying the drug for sale in two separate markets
outside Taiwan. BOPA, however, is considering new registration
procedures that would reduce the current requirement to one CPP,
which would help speed introduction of new
pharmaceuticals--especially U.S.-made drugs--into the Taiwan
market.

6. The reimbursement price gap noted above for pharmaceuticals is
also an issue for medical devices offered in the Taiwan market. In
addition, BNHI pricing criteria currently specifies a single
purchase price for all medical devices that treat the same
indication. This policy effectively subsidizes lower quality, often
domestically-made devices while forcing producers of high-priced,
high-value devices to be reimbursed at an insufficient level. Unless
the policy is modified, this may lead to significant market
distortion in favor of lower quality products over time.

7. Through the TIFA process, the United States is encouraging
Taiwan's Ministry of Justice and DOH to work together to take action
to resolve pharmaceutical pricing and reimbursement problems. The
DOH has agreed to set up working groups to study options to bring
more transparency and fairness to drug pricing, including requiring
standard contracts for all drug purchases, implementing ATP, and
separating dispensing and prescription. In September 2007, Taiwan's
Executive Yuan approved a proposed amendment to the National Health
Insurance (NHI) Law that would increase pricing transparency by
requiring all hospitals to use a common standard contract for
pharmaceutical purchases; the amendment is pending approval by the
Legislative Yuan.

GOVERNMENT PROCUREMENT

----------------------

8. Taiwan committed to accede to the GPA as soon as possible after
it became a WTO Member, but it has not yet acceded due to
differences with GPA Parties regarding nomenclature issues. To
prepare for accession, Taiwan implemented a new government
procurement law in mid-1999, an important first step toward
establishing a transparent and predictable environment for Taiwan's
multi-billion dollar public procurement market. In August 2001,
Taiwan and the United States signed a Memorandum of Understanding on
Government Procurement (MOU). The MOU calls for Taiwan to implement
certain procedural commitments immediately, with others to be
implemented upon accession to the GPA. The United States continues
to work with the Taiwan authorities to resolve nomenclature issues
and permit Taiwan accession.

9. Many Taiwan procurement contract clauses specifically exclude
foreign tenders. In addition, Public Construction Commission
(PCC)-determined terms and conditions for model public procurement
projects impose large indirect and unforeseeable liabilities on
contractors and thereby prevent U.S. firms from bidding on projects.


EXPORT SUBSIDIES
----------------

10. Taiwan provides incentives to industrial firms in export
processing zones and to firms in designated "emerging industries."
Taiwan has notified the WTO of these programs and, as part of its
WTO accession, committed to amend or abolish any subsidy programs
inconsistent with WTO rules. When it became a WTO Member, Taiwan
amended relevant laws, such as the Statute for Establishment and
Management of Economic Processing Zones and the Statute for
Establishment of Scientific Industrial Parks. The United States
continues to monitor Taiwan's compliance with the commitments it
undertook as part of its WTO accession, including those obligations
associated with the Agreement on Subsidies and Countervailing
Measures.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
---------------------------------------------

11. IPR protection continues to be an important issue in the United
States-Taiwan trade relationship. The United States recognizes
Taiwan's continuing efforts to improve enforcement of IPR in 2008,
but continues to be concerned with a number of issues, including the
availability of counterfeit pharmaceuticals in Taiwan, Internet
infringement, illegal textbook copying on and around university
campuses, and inadequate protection for the packaging,
configuration, and outward appearance of products (trade dress). The
U.S. International Intellectual Property Alliance estimates that
losses due to IPR copyright piracy in Taiwan cost U.S. industry
$327.8 million in 2007. Transshipment of counterfeit products from
China is also a problem. Counterfeit goods from Taiwan seized by
U.S. Customs dropped from $26.5 million in 2002 to $3.4 million in
2007 and to $1.3 million in the first half of 2008.

12. Trademark counterfeiting, particularly of clothing and luxury
goods, is still a concern. Much of the counterfeit product is
reportedly smuggled from China. Rights holders state that Taiwan is
both a transshipment point and a market for this counterfeit
material. Taiwan Customs and IP police make regular seizures of
counterfeit apparel and handbags, but rights holders complain that
investigation and prosecution remain hampered due to inadequate
resources and personnel and that light sentences issued for
convictions do not deter trademark counterfeiters.

13. Internet piracy and illegal peer-to-peer (P2P) downloading
remain serious concerns for IP enforcement in Taiwan, and the sale
of counterfeit goods over the Internet - resulting in part from
increased raids on traditional sales venues - is also a concern.
Taiwan has made efforts to combat such Internet-related IPR
violations, including strengthening cooperation with foreign
enforcement agencies and passing an amendment to the Copyright Law
in June 2007 that subjects illegal file sharing to a maximum jail
term of two years. Also, the authorities are amending the Taiwan
Copyright Law to require Internet service providers (ISP) to
undertake more effective notice-and-takedown actions against online
infringement. To improve Taiwan's ability to protect IPR on college
campuses, Taiwan continued its Campus IPR Action Plan to strengthen
management of academic computer networks and illegal textbook
copying by students.

14. The United States remains concerned about counterfeit
pharmaceutical products in the Taiwan market. The recent revision of
the Pharmacist Law increased penalties for pharmaceutical
counterfeiting, and the Ministry of Justice, the Taiwan Coast Guard,
and Taiwan Customs have had some success in intercepting imports of
counterfeit pharmaceuticals. Nevertheless, counterfeit products
continue to be a threat to public health in Taiwan, and may
undermine confidence in legitimate products.

15. U.S. rights holders report that court procedures and delays can
constitute impediments to effective IPR enforcement and that
penalties for intellectual property infringement are inadequate to
deter violators. In addition, Taiwan's judiciary continues to
experience difficulties handling technically challenging IPR
infringement cases. To improve this situation, Taiwan established a
specialized IP court in July 2008, and the United States continues
to assist Taiwan to remedy weaknesses in the judicial system by
providing training and holding seminars on different criminal
enforcement issues.

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