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C O N F I D E N T I A L AIT TAIPEI 000774 
 
SIPDIS 
 
 
SIPDIS 
 
E.O. 12958: DECL: 03/08/2031 
TAGS: ECON IO PREL TW
SUBJECT: AN ECONOMIC VIEW OF TAIWAN'S FUTURE, U.S. INTERESTS 
 
Classified By: AIT Acting Director David Keegan, 
Reasons: 1.4 (b/d) 
 
¶1. (SBU) Summary: Taiwan Minister-without-portfolio Ho 
Mei-yueh emphasized that Taiwan considers a Free Trade 
Agreement (FTA) with the United States to be its top economic 
and political priority in a February 23 meeting with the AIT 
Acting Director.  Ho also briefly discussed Taiwan's new 
cabinet and investment in China.  A thought-piece on the 
strategic outlook behind Ho's remarks will follow septel. 
End summary. 
¶2. (SBU) During a February 23 courtesy call, Acting AIT 
Director asked former Minister of Economic Affairs and now 
Minister-without-portfolio Ho Mei-yueh what she considered to 
be her top priority in her new position.  Without hesitation, 
Ho identified an FTA with the United States as her 
government's top priority.  She then launched into a detailed 
presentation on the benefits of an FTA for both Taiwan and 
the United States, strategies for promoting an FTA, and 
issues that need to be resolved prior to an FTA. 
 
U.S. Line of Strategic Defense Will Be Broken 
--------------------------------------------- 
 
¶3. (SBU) Minister Ho said she believed that a bilateral FTA 
would greatly benefit not only Taiwan but also the United 
States in terms of both economic and strategic interests. 
She said that without an FTA with the United States, Taiwan 
will have no option but to increase its already considerable 
economic integration with China, which would inevitably lead 
to a situation wherein Taiwan loses its ability to take 
independent economic or political action.  She argued that if 
Taiwan loses its ability to resist China's economic pressure 
this would render moot any military defense.  Without an FTA 
with the United States, she claimed, Taiwan will be forced by 
economics to tilt towards China, breaking the U.S. strategic 
defense line in the Far East, which goes through Japan, South 
Korea, Taiwan, and the Philippines.  Minister Ho's arguments 
were overwhelmingly geo-strategic rather than economic.  Like 
many high-ranking officials in the Chen Administration, she 
made no bones that she views China as a hostile country that 
intends to establish its hegemony in East Asia to the 
detriment of Japan (which many in Chen's government greatly 
admire) and other traditional U.S. allies in the region. 
 
Why Taiwan Should Come Before Korea 
----------------------------------- 
 
¶4. (SBU) Minister Ho said that Taiwan was very concerned 
about the damage to Taiwan industries that might result if 
the United States signed an FTA with South Korea, but not 
Taiwan. Taiwan, she said, would lose much of the U.S. market 
for high-tech products where Taiwan and South Korea are keen 
rivals.  As an example, she noted that the U.S. now charges 
7.5% import duty on LCD display screens, and that elimination 
of this duty through an FTA would hand this competitive 
sector to South Korea. 
 
¶5. (SBU) The United States would benefit more from an FTA 
with Taiwan than an FTA with South Korea, Ho claimed. Taiwan 
is one of the largest buyers of U.S. agricultural products, 
and could be buying even more, whereas an FTA with South 
Korea would lead to keen competition from South Korean 
business firms in automobiles, and iron and steel. 
 
¶6. (SBU) While an FTA with China is not in the interest of 
the United States, Ho maintained, an FTA with Taiwan would 
help prevent Taiwan's economic marginalization.  Despite 
extensive industrial relocation to China, Taiwan still 
produces a number of high-tech products important to the 
United States, and is a leader in some textile and chemical 
technologies.  Without an FTA beween the United States and 
Taiwan, these strategic industries will inevitably migrate to 
other countries, probably China, Ho claimed, thereby making 
the United States less secure and making Taiwan less 
prosperous. 
 
How Taiwan Pushes Its Policies 
------------------------------ 
 
¶7.  (SBU) Ho said that Taiwan has made great efforts to lobby 
 
officials in the United States, including state legislators. 
Ho said that over half of the U.S. state legislatures have 
passed resolutions to support a U.S. FTA with Taiwan. 
 
¶8. (SBU) The AIT Acting Director noted that U.S. business 
firms play a far greater role in FTA decisions than do 
states.  In response to Ho's expressed fear that such firms 
would remain silent to prevent PRC retaliation, he observed 
that U.S. firms likely have a variety of ways to communicate 
this message through non-public channels. 
 
Issues to be Resolved 
--------------------- 
 
¶9. (SBU) Ho identified four trade issues that she believes 
Taiwan needs to be resolved before an FTA between the United 
States and Taiwan can be considered: IPR, rice, 
pharmaceuticals, and U.S. beef.  She expressed optimism that 
differences on these issues could be resolved.  She claimed 
that Taiwan has made significant improvement in IPR 
protection over the past three years, and noted that Taiwan 
has re-opened to imports of U.S. beef. According to Ho, 
Taiwan's criteria for accepting U.S. beef were not as strict 
as Japan's.  Japan would only accept meat from cows younger 
than 20 months, while Taiwan allows meat from cattle up to 30 
months.  Ho said the re-opening to U.S. beef imports came in 
spite of heavy criticism from legislators.  She said that 
Chen Lu-hung had recently retired as Director General of the 
Department of Health Food Sanitation Bureau as a result of 
the criticism of re-opening U.S. beef imports. 
 
¶10.  (C) Note: Chen had told AIT prior to his retirement at 
the end of December that the political flap over beef did not 
push him to retire and he emphasized that his retirement 
would not change the Department of Health's rigorous, 
science-based approach to regulating food imports.  End Note. 
 
¶11. (SBU) Ho believes the rice issue is almost resolved. 
Taiwan has accepted U.S. requests on rice quota allocations. 
Ho anticipated heavy political pressure on rice may again 
lead to the resignation of a senior agriculture official. 
 
¶12. (SBU) On pharmaceuticals, Minister Ho thought that 
co-payment by patients for innovative pharmaceuticals might 
be a possible solution to differences on pricing and the use 
of generic drugs.  She suggested that patients could pay the 
difference between name-brand drugs and generic ones.  Ho 
said she will promote an amendment to the law making this 
possible. 
 
Taiwan Cabinet 
-------------- 
 
¶13. (SBU) During the meeting, Ho also discussed briefly the 
functioning of Taiwan's Executive Yuan (EY, composed of the 
Premier, Vice Premier, Secretary General, and 15 ministers). 
Eight of the 15 EY ministers are in charge of ministries, and 
the remaining seven are ministers without portfolio.  All of 
the cabinet members and heads of councils, commissions, and 
administrations attend cabinet meetings.  One of the main 
duties of ministers without portfolio is to coordinate all 
relevant ministerial agencies on issues assigned to them by 
the Premier or Vice Premier.  She has been assigned issues 
coming from the Ministry of Economic Affairs, the Council of 
Agriculture, the Fair Trade Commission, and the Consumer 
Protection Commission. 
 
Investment in China 
------------------- 
 
¶14. (SBU) Minister Ho mentioned that she had read of U.S. 
officials citing extremely high figures of Taiwan investment 
in China.  She said that Taiwan's investment in China is 
US$45 billion according to Taiwan data. She believed that the 
actual figure should be about US$70-100 billion; the 
difference mainly reflects reinvestment of earnings by Taiwan 
companies.  She noted Taiwan's law does not require 
registration of such reinvestment. 
 
Comment: 
------- 
¶15.  (C) Ho's polished hour-long presentation on the merits 
of an FTA with the United States clearly reflected a deep 
familiarity with the subject.  Ho has a well-deserved 
reputation for doing her homework.  She is unusual among 
high-level DPP officials in being a career government 
employee who worked her way up through the ranks.  She has a 
range of contacts and in-depth knowledge of Taiwan's 
government that most Chen Administration appointees lack. 
Her husband works for a Japanese company in China, a factor 
viewed with suspicion by some political factions.  Her 
comments in this meeting track very closely with those of 
Vice Premier Tsai Ing-wen during the Acting Director's call 
on her in late February.  We can expect that other Taiwan 
officials will draw on these same themes and points in 
pressing their case for a bilateral FTA with U.S. officials. 
KEEGAN