VZCZCXRO6238
RR RUEHCN
DE RUEHIN #0942/01 0800846
ZNR UUUUU ZZH
R 210846Z MAR 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 9229
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 1724
RUEHBJ/AMEMBASSY BEIJING 4928
RUEHUL/AMEMBASSY SEOUL 7691
RUEHKO/AMEMBASSY TOKYO 7549
RUEHHK/AMCONSUL HONG KONG 6121
RUESLE/AMCONSUL SHANGHAI 8515
RUEHGZ/AMCONSUL GUANGZHOU 9124
RUEHCN/AMCONSUL CHENGDU 1128
RUEHSH/AMCONSUL SHENYANG 5074

UNCLAS SECTION 01 OF 02 TAIPEI 000942 
 
SIPDIS 
 
DEPT FOR EAP/TC 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD TW
SUBJECT:  Taiwan Contemplates First WTO Safeguard Action Against 
PRC 
 
 
¶1. (U) Summary: For the first time since its accession to the WTO in 
2002, Taiwan has initiated import relief and dumping investigations 
against the PRC.  Taiwan's towel manufacturers have requested relief 
in the face of rising PRC imports and Taiwan's International Trade 
Commission (ITC) and Ministry of Finance (MOF) have initiated 
separate investigations.  The PRC sent a delegation that included 
government officials to attend the ITC hearing March 2 on possible 
import relief measures.  This, too, marked a first in cross-Strait 
official contact.  The ITC announced March 17 that it had found 
market disruption and would submit suggested remedies to the 
Ministry of Economic Affairs (MOEA) by April 16.  Some Taiwan 
industries are reportedly considering whether to follow the towel 
manufacturers example, while others fear that the PRC may take 
retaliatory action against Taiwan exports.  That some Taiwan 
legislators have seized on the opportunity to politicize the issue 
for a domestic audience will not help Taiwan's ability to resolve 
the dispute through WTO consultations with the PRC.  End summary. 
 
PRC Towel Exports Rise 
---------------------- 
 
¶2. (U) PRC exports of towels to Taiwan have almost doubled, 
increasing their share of the Taiwan towel market by 25 percentage 
points since 2002.  According to Taiwan trade data, Taiwan imported 
6,800 tons of towels from the PRC in 2004, accounting for 70 percent 
of the local market.  By comparison, Taiwan imported 3,700 tons of 
towels from the PRC in 2002, a 45 percent share of the market. 
Meanwhile, the market share for Taiwan-made towels dropped from 14 
percent in 2002 to 8 percent in 2004.  The number of towel 
manufacturers in Taiwan has dropped from 200 firms at its peak to 60 
firms today and some in the industry fear that the survival of the 
remaining manufacturers is threatened. 
 
Two Cross-Straits Firsts 
------------------------ 
 
¶3. (U) At the prompting of Taiwan's Yulin Towel Association, the 
ITC, under Taiwan's Ministry of Economic Affairs (MOEA), initiated 
an import relief investigation against PRC towels in September 2005. 
 This is the first such investigation against a PRC product since 
Taiwan's ITC was founded in 1982.  The ITC held its first 
investigative hearing on March 2.  On the same day, more than 1000 
workers in Taiwan's towel manufacturing industry protested at the 
Presidential Office, the Executive Yuan, the Legislative Yuan and 
the Ministry of Economic Affairs to publicize their concerns about 
the industry's inability to compete with cheaper imports. 
 
¶4. (U) ITC Committee Member Huang Chih-dan, who presided over the 
hearing, said that the ITC is required by law to make a decision on 
whether towel makers have been injured by Chinese imports by March 
25, 2006.  Huang suggested the ITC might hold another hearing before 
deciding whether to recommend that Taiwan request WTO consultations 
with China that could lead to safeguard measures.  If Taiwan were to 
initiate consultations under the WTO's safeguard provisions it would 
be the first time Taiwan has done so. 
 
¶5. (U) MOEA Deputy Minister Steve Chen (Ruey-long) met with 
legislators March 7 to explain the ITC decision-making process.  At 
that hearing, Taiwan Solidarity Union legislators Lai Hsin-yuan and 
Ho Ming-hao asked Chen to ask the ITC to announce its findings on 
March 14, noting that this date is the anniversary of the PRC 
passing the "Anti-succession Law."  However, MOEA announced March 14 
that the ITC decision would be announced March 17.  On that day, the 
ITC ruled that Chinese towels had disrupted the local industry and 
that recommendations for relief would be submitted to MOEA within 30 
days. 
 
¶6.  (U) Separately, MOF's Department of Customs Administration 
announced on March 1, 2006 that it would formally begin a dumping 
investigation against PRC towels.  This is the first time that 
Taiwan has initiated an anti-dumping investigation against a Chinese 
product, although not the first time Chinese Taipei has initiated an 
anti-dumping investigation.  The PRC has conducted a total of nine 
dumping investigations against Taiwan exports, including 
polybutylene terephthalate (PBT) resin, iron and steel, spandex, 
polyurethane, and unbleached kraft liner-board.  MOF officials plan 
to visit the PRC to conduct an investigation on towel manufacturing 
 
TAIPEI 00000942  002 OF 002 
 
 
in August 2006.  They expect to be able to reach an initial decision 
on whether to impose a temporary anti-dumping tax on PRC towels in 
June and a final decision by late September 2006.  In conjunction 
with the ITC decision, MOF announced that it would decide by May 26 
whether Chinese towel imports were dumped on the Taiwan market.  If 
dumping duties are to be imposed, Taiwan's Towel Industrial 
Technology Development Association has suggested an increase in 
import tariffs on Chinese-made towel imports from 10.5 percent to 50 
percent. 
 
PRC Sends Officials to Hearings in Taiwan 
----------------------------------------- 
 
¶7. (U) Four PRC Ministry of Commerce (MOC) officials and three 
members of the China Chamber of Commerce for Import and Export of 
Textiles (CCCT) came to Taiwan in the capacity of CCCT supervisory 
board members to attend the ITC hearing.  The MOC officials included 
Fair Trade Bureau Director Chen Yongru, Taiwan Affairs Department 
Official Yang Tao, and Foreign Trade Office in Charge of Textiles 
Exports Director Huang Yuefeng.  They attended the hearing but did 
not participate in the proceedings.  CCCT Vice Chairman Cao Xinyu 
made comments in the hearing but refused to respond to some Taiwan 
inquiries.  An attorney and an accountant appointed by the PRC took 
the lead in arguing the case for PRC manufacturers. 
 
Towel Case Causes Hope and Fear for Other Industries 
--------------------------------------------- ------- 
 
¶8. (U) Labor-intensive traditional industries, including other 
textile manufacturers, as well as soap, furniture, ceramics and tile 
producers, are reportedly watching closely the outcome of the ITC 
investigation and, if the towel-manufacturers are successful, may 
consider filing similar complaints against PRC imports.  However, 
Taiwan's iron and steel producers fear that the PRC will retaliate 
against any anti-dumping measures by restricting or harassing Taiwan 
iron and steel producers doing business in China.  Taiwan's iron and 
steel exports have faced similar dumping charges from their Mainland 
competitors in the past. 
 
Comment: Communication Continues on Economic Issues 
--------------------------------------------- ------ 
 
¶9. (SBU) Despite rising cross-Strait tensions since President Chen 
Shui-bian's announcements on the National Unification Council and 
Guidelines, the attendance of PRC officials at the ITC's hearing 
demonstrates that cross-Strait exchanges on economic issues 
continue.  It is another example of how the two sides have the 
capacity to communicate on a broad range of economic issues when 
politics are kept out of the picture.  Taiwan's MOF and ITC began 
looking at this case last year in response to domestic complaints 
from towel manufacturers and AIT sees no indication that the process 
to date has been manipulated by the administration to target China. 
However, given the eagerness of some politicians to seize on this 
issue as a means to burnish their domestic political credentials, 
the Taiwan government may find it difficult to keep discussions on a 
purely technical level. 
 
¶10. (SBU) The ITC is widely expected to recommend that the MOEA 
request consultations with China under the WTO framework.  It is not 
clear whether China would agree to WTO consultations with Chinese 
Taipei in any case, but if the announcement of the ITC's findings 
had been linked to the anniversary of the anti-succession law, it 
would have made consultations more difficult.  MOEA's decision to 
wait until March 17 to announce the ITC findings suggests they are 
trying to keep this dispute on a technical level as much as 
possible.  If consultations are unable to resolve the issue 
successfully, Taiwan could initiate safeguard measures as early as 
June 2006.  This would coincide with the Ministry of Finance's 
expected June decision on whether to impose preliminary anti-dumping 
duties on imports of Chinese towels. 
YOUNG