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C O N F I D E N T I A L SECTION 01 OF 03 SINGAPORE 003124 
 
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STATE PASS TREASURY FOR SECRETARY PAULSON 
 
E.O. 12958: DECL: 09/26/2016 
TAGS: EFIN ECON ETRD EINV PREL IMF IBRD ETTC SN
SUBJECT: SECRETARY PAULSON DISCUSSES CHINA AND SOUTHEAST 
ASIA WITH SINGAPORE'S SENIOR LEADERS 
 
Classified By: Economic and Political Chief Ike Reed. 
Reasons 1.4 (b) (d) 
 
¶1.  (C) Summary:  Singapore's senior leaders urged the United 
States to stay engaged in Southeast Asia, particularly in 
terms of strategic/military and trade issues, during meetings 
with Secretary Paulson on September 18.  On China, Prime 
Minister Lee Hsien Loong told the Secretary that the U.S. 
Government (USG) needed to engage state-owned enterprise and 
political leaders, and not just technocrats like People's 
Bank of China Governor Zhou.  Senior Minister Goh Chok Tong 
offered to reinforce with Chinese officials the need to work 
with us on the currency issue.  He agreed that the Chinese 
should be willing to allow some additional appreciation of 
the Yuan.  PM Lee claimed that previously stalled 
Singapore-China Free Trade Agreement (FTA) discussions were 
back on track.  Both PM Lee and SM Goh expressed optimism 
about Vietnam's prospects, although SM Goh warned that 
failure by the private sector to generate adequate employment 
could derail reform efforts.  Citing Indonesia as key to 
Southeast Asia's stability and economic growth prospects, SM 
Goh cautioned the USG not to embrace the GOI too publicly, 
which could generate political difficulties for moderate and 
secular officials.  Both PM Lee and SM Goh raised Singapore's 
desire to conclude a tax treaty with us.  End Summary. 
 
¶2.  (U) During his participation in the G7 and 
Singapore-hosted IMF/World Bank meetings, Secretary Paulson 
on September 18 met separately with Singapore Prime Minister 
LEE Hsien Loong, Senior Minister GOH Chok Tong (both meetings 
reported here), and Minister Mentor LEE Kuan Yew. 
 
Southeast Asia Focus: Strategic/Military 
---------------------------------------- 
 
¶3.  (SBU) Asked what could be working better in our bilateral 
relationship, PM Lee highlighted three issues.  He said that 
it was important for the United States to appreciate its 
strategic role in the region.  He noted that the United 
States and Singapore shared a very broad perspective, 
particularly on terrorism matters.  PM Lee, like SM Goh, 
stressed that no other country (e.g. Japan) could play the 
same military/strategic role and that the United States 
provided much needed stability and predictability. 
 
Trade 
----- 
 
¶4.  (SBU) PM Lee commented that the U.S.-Singapore FTA had 
worked well and resulted in other countries negotiating FTAs 
of their own.  He asserted that Malaysia, Thailand, and South 
Korea would not have started their respective FTA 
negotiations had Singapore not done so initially.  He 
cautioned that concluding FTAs with these countries would not 
be as easy as with Singapore because of agricultural and 
preferential procurement issues. 
 
Tax Treaty 
---------- 
 
¶5.  (C) PM Lee underscored Singapore's desire to conclude a 
bilateral tax agreement with the United States.  He noted 
that a team would meet in Washington this November to discuss 
at least two technical issues that needed to be addressed 
before negotiations could be considered.  Acknowledging the 
importance of information exchange to the United States, PM 
Lee said that Singapore did not have a problem sharing 
information with the USG; however, if Singapore agreed to do 
so in a treaty, it would receive similar requests from 
others, including the EU, Japan and neighboring states. 
Nonetheless, Singapore was willing to agree to this 
requirement as part of a package that finalized the deal, he 
explained.  (Comment: it was not clear whether PM Lee was 
suggesting Singapore would agree to information exchange as a 
provision of the tax treaty or as a side arrangement.  End 
comment.) 
 
¶6.  (C) On the issue of coverage, PM Lee said he understood 
that the United States wanted a tax treaty that would apply 
to both U.S. and Singaporean firms.  For the treaty to be 
valuable to Singapore, however, it also needed to cover 
foreign firms (that comprise a large part of the local 
 
SINGAPORE 00003124  002 OF 003 
 
 
economy) that were legitimately based in Singapore, he said. 
PM Lee suggested that there should be ways to ensure these 
firms were operating legitimately and not using Singapore 
solely to take advantage of a treaty.  SM Goh encouraged 
Secretary Paulson not to consider the tax treaty agreement in 
 
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isolation, but rather in light of Singapore,s special role 
in the region.  He argued that Singapore should get better 
treatment than other countries because it was "small, fragile 
and vulnerable."  He asserted that the United States should 
want to "help keep Singapore open," given worrisome trends in 
some of its neighboring countries.  Secretary Paulson was 
non-committal, but agreed to look into PM Lee's and SM Goh's 
requests. 
 
China 
----- 
 
¶7.  (C) PM Lee advised Secretary Paulson that it would be 
good for the United States to engage China at a senior level 
and to think beyond the next party Congress.  This meant 
state-owned enterprise leaders and other political leaders, 
not just technocrats such as PBOC Governor Zhou, he said. 
Secretary Paulson concurred that in order to get change, he 
 
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would have to get the Chinese political leadership to agree. 
Secretary Paulson noted that he would be meeting with Premier 
 
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Wen Jiabao and President Hu Jintao in Beijing after leaving 
Singapore.  PM Lee commented that, while China's leaders were 
not "as good as" predecessors such as Premier Zhu Rongi, they 
did enjoy broader support and could get things done. 
Secretary Paulson observed that it now took more time in 
 
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China to achieve consensus, but that older leaders could 
still wield influence. 
 
¶8.  (C) In response to SM Goh's offer to help reinforce any 
messages, Secretary Paulson said that the currency issue had 
become a symbol and a flash point in the U.S.-China 
relationship.  SM Goh advised that, so long as the United 
States did not pressure the Chinese, they would listen.  SM 
Goh said the Chinese remained concerned about the effect a 
revaluation of the Yuan would have on state-owned enterprises 
and employment, but agreed with Secretary Paulson that the 
Chinese should be willing to "float a bit more."  SM Goh 
commended Secretary Paulson for not "bashing the Chinese," 
observing that this approach would help speed change; the 
Chinese were "not rigid" and "want to learn."  SM Goh said 
that he would ensure that the GOS passed a message of support 
to the Chinese government. 
 
Singapore-China FTA 
------------------- 
 
¶9.  (SBU) PM Lee noted that Singapore had been trying to 
negotiate a free trade agreement with China, but that his 
trip to Taiwan just a few months before he became prime 
minister in August 2004 had, among other things, delayed this 
process after China ceased talks to show its displeasure.  PM 
Lee asserted that these discussions were now back on track. 
 
Vietnam 
------- 
 
¶10.  (C) Secretary Paulson observed that the mood in Vietnam 
was "receptive" to economic reform.  The country was "going 
with the current" but not fast enough due to its sluggish 
bureaucracy, corruption, and inconsistent laws and courts. 
Secretary Paulson told SM Goh he was not as optimistic about 
 
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Vietnamese economic prospects after it entered the WTO. 
Although Vietnam's leaders were knowledgeable and said the 
right things, they needed to keep pushing reform, he said; 
the university system also needed help.  PM Lee responded 
that Vietnam used to be worse; it was still harder than China 
to do business, but cheaper.  Vietnam's leaders were focused 
and recognized the need to catch up, he said.  PM Lee 
emphasized that Singapore was "bullish" on Vietnam, citing 
its investment in an industrial park there 10 years ago.  SM 
Goh said that Vietnam was too often overlooked and the United 
States should be encouraging economic growth.  SM Goh 
cautioned, however, that Vietnam's reforms could falter 
unless the private sector generated a sufficient number of 
jobs.  Secretary Paulson agreed that Vietnam had improved 
since his last visit in 1994, but that it would still be some 
time before the economy took off.  He expressed concern that 
 
SINGAPORE 00003124  003 OF 003 
 
 
many business students with whom he met during the APEC 
Finance Ministers' meeting in September believed life would 
"instantly change" after WTO entry. 
 
Indonesia 
--------- 
 
¶11.  (C) SM Goh encouraged Secretary Paulson to become more 
involved in Southeast Asia.  He urged the United States to 
pay particular attention to Indonesia since its failure to 
grow would prove "troublesome" for the region as a whole. 
Secretary Paulson reiterated our strong commitment to ASEAN 
 
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and the region, noting that this was one of the main reasons 
he attended APEC and met Indonesian Minister of Finance Sri 
Mulyani.  SM Goh praised the Indonesian government,s 
moderate public statements to date, but cautioned Secretary 
Paulson to not embrace the GOI too publicly since this might 
create domestic political problems for Indonesia's more 
moderate and secular officials. 
 
¶12.  (U) Secretary Paulson's staff cleared this message. 
HERBOLD