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Cablegate: Taiwan Economic Review for November 2004

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 TAIPEI 003991

SIPDIS

STATE PLEASE PASS AIT/W AND USTR

STATE FOR EAP/RSP/TC, EAP/EP AND EB/IFD/OIA

USTR FOR SCOTT KI

USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT
TREASURY FOR OASIA/ZELIKOW AND WISNER
TREASURY PLEASE PASS TO OCC/AMCMAHON
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN

E.O. 12958: N/A
TAGS: EINV EFIN ECON TW
SUBJECT: Taiwan Economic Review for November 2004


1. This cable summarizes selected economic events in Taiwan
in November 2004:

- S&P Rating

- China-ASEAN FTA

- Economic Performance

- WTO

- Cross-Strait Economic Normalization

- Environment

S&P Downgrades Taiwan's Debt Outlook
------------------------------------

2. At the end of November Standard & Poor's downgraded the
its outlook for Taiwan's debt from "stable" to "negative."
The rating on the debt remains at AA-, but S&P changed its
outlook based on a growing budget deficit and increased
cross-Strait tension. Taiwan officials reacted quickly to
express continued confidence despite the downgrade.
Taiwan's debt rating remains second only to Singapore in
Asia, higher than South Korea and Hong Kong and four steps
above China. Earlier in November, Morgan Stanley increased
its weighting for Taiwan as a destination for investment
funds, and its well-connected office manager called the
Standard & Poor announcement "a non-event."

Impact of China-ASEAN FTA on Taiwan
-----------------------------------
3. The November 29, 2004 announcement that China and 10
Association of Southeast Asian Nations (ASEAN) member
countries signed a free trade agreement (FTA) fueled local
concerns about Taiwan being marginalized politically as well
as economically. In response, both Minister of Economic
Affairs Ho Mei-yueh and Council for Economic Planning and
Developments Vice Chairman Yeh Ming-feng quickly issued
statements downplaying the short-term importance of the
agreement. Ho noted that there were still many difficulties
for China and ASEAN to overcome before they could achieve
free trade. Yeh noted Taiwan's sound economic fundamentals
and strength in international trade and investment as
reasons Taiwan would not be ignored. Kung Ming-hsin, the
Director of Mainland Affairs Division at Taiwan Institute of
Economic Research, said that the type and scale of
production in Taiwan is different from that of China and
ASEAN, and the short-term economic impact on Taiwan would be
slight.
Economic Performance Thru October 2004
--------------------------------------

4. According to official forecasts released in November,
Taiwan's economic growth is expected to slow from 7.3
percent in the first half to 4.7 percent in the second half
of 2004 and drop further to 4.5 percent in the second half
of 2005. The slowdown follows declines in the growth of
exports, industrial production, and private investment.
Factors behind the economic slowdown include lower U.S.
demand for Taiwan's exports and higher oil prices. Export
orders continue to grow, albeit at a slower rate than
earlier in the year, but Taiwan's overseas production bases
in China now fill a large share of these orders.
WTO
---

5. At the APEC Ministerial Meeting in Santiago, Chile on
November 19 Taiwan Economic Minister Ho Mei-yueh and her
Russian counterpart completed bilateral negotiations on
Russia's WTO accession. In the first eight months of 2004,
the two-way trade between Taiwan and Russia amounted to 1.93
billion US dollars, exceeding the 2003 total for the entire
year. In 2003, the two-way trade totaled 1.61 billion US
dollars, 35.7 percent growth over 2002 and 5.9 percent of
Taiwan's total external trade.

6. Taiwan's representative office in Geneva filed a motion
with the WTO Dispute Settlement Body (DSB) on November 18
against India's anti-dumping tariffs on seven Taiwan
products. Jeremy Shen, Director of the Multilateral Trade
Affairs Division in the Ministry of Economic Affairs (MOEA),
claimed that the Indian government did not conduct any
investigation prior to levying the tariffs and that the
tariffs were unfair and unjustified. This is the first time
Taiwan has used the WTO DSB mechanism.

PRC Blocks Cross-Strait Investment
----------------------------------

7. In late November 2004, the Mainland Affairs Council
(MAC) announced a plan to permit securities firms to set up
subsidiaries in China. The plan set a minimum capital
requirement of NT$7 billion, a minimum capital adequacy
ratio of 200% and stipulated that the investment in China
may not exceed 10% of the net worth of the securities firm.
Sixteen securities firms met these requirements and were
deemed qualified for investment in China. China requires
economies to sign a memorandum of understanding (MOU) before
allowing that economy to invest in China's securities firms.
Such an MOU between Taiwan and China is unlikely. China is
therefore unlikely to allow Taiwan securities firms to
establish subsidiaries in China.

Environmental
-------------

8. At the annual International Commission on the
Conservation of Atlantic Tuna (ICCAT) meeting in New Orleans
(Nov 14-21), ICCAT warned that Taiwan needed to improve its
adherence to fishing allocations next year, or risk losing
its "cooperating non-contracting party" status. Taiwan's
Deputy Administrator James Sha who attended the meeting
agreed that his fleet had a problem and set out a multi-year
payback scheme, whereby Chinese Taipei would harvest fewer
bigeye tuna than its share, in order to pay back its
overharvest.

9. AIT ESTOFF attended theThe American Institute in Taiwan
and the Taiwan Economic and Cultural Office held AIT/TECRO
technical environmental talks in San Francisco from November
21-23. The two sides reviewed Oongoing cooperative projects
were reviewed and it was agreed to establish criteria for
deciding on future cooperative projects. Participants also
agreed that two priority areas for future cooperation are
assessing mercury levels in Taiwan's air, food and water and
analyzing levels of air pollution from the Mmainland. in
Taiwan were two priority areas for future cooperation.
KEEGANPAAL

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