VZCZCXRO0432
RR RUEHCN RUEHGH
DE RUEHIN #1288/01 1020852
ZNR UUUUU ZZH
R 120852Z APR 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 9662
INFO RUEHBJ/AMEMBASSY BEIJING 5049
RUEHUL/AMEMBASSY SEOUL 7757
RUEHKO/AMEMBASSY TOKYO 7619
RUEHCN/AMCONSUL CHENGDU 1184
RUEHGZ/AMCONSUL GUANGZHOU 9216
RUEHHK/AMCONSUL HONG KONG 6240
RUEHGH/AMCONSUL SHANGHAI 0025
RUEHSH/AMCONSUL SHENYANG 5137
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHGV/USMISSION GENEVA 1730

UNCLAS SECTION 01 OF 02 TAIPEI 001288 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/RSP/TC AND EB/TPP, STATE PASS USTR FOR 
ALTBACH, WINELAND, AND STRATFORD, USDOC FOR 
4431/ITA/MAC/AP/OPB/TAIWAN/DUTTON, GENEVA FOR SHARK 
 
E.O. 12958: N/A 
TAGS: ETRD TW
SUBJECT: TAIWAN TAKES NEXT STEP TOWARDS WTO SAFEGUARDS ON 
CHINESE TOWELS 
 
REF: TAIPEI 942 
 
¶1.  Summary: Taiwan's International Trade Commission (ITC) 
held a public meeting April 7 to hear industry opinions on 
whether to recommend Chinese towel imports be subject to 
trade restrictions.  Taiwan's towel industry argued that 
safeguard measures are necessary to save them from imminent 
collapse, while China's towel manufacturers countered that 
the Taiwan's towel industry's imminent demise is not a result 
of Chinese exports.  The ITC will determine by April 17 
whether to recommend safeguards.  Taiwan could then decide 
whether or not to seek consultations with China in the WTO. 
Taiwan trade officials say they prefer to deal with the 
matter on a technical level, but the prospect of confronting 
China in the WTO may appeal to authorities wishing to 
demonstrate Taiwan's sovereignty.  End Summary. 
 
================================== 
The Decline of Taiwan Towel-makers 
================================== 
 
¶2.  On March 17, ITC released its findings that the Taiwan 
towel manufacturing industry had been injured by competition 
from imported products.  Since 2002, Taiwan's towel makers 
have seen their share of the domestic market drop from 14% to 
8%.  In 2006, only 60 Taiwan firms produced towels for the 
domestic market, down from 200 in 2002.  China exported 3,700 
tons of towels to Taiwan when the market was opened to 
Chinese exports in 2002, accounting for 45% of the market. 
In 2005, Chinese imports increased to 6,700 tons and a 70% 
market share. 
 
¶3.  The ITC public meeting is the first step in determining 
whether to recommend that the Ministry of Economic Affairs 
(MOEA) impose safeguard measures and which safeguard measures 
would best protect local industry.  Representatives from the 
Taiwan towel manufacturers associations requested Taiwan 
authorities impose a 189% tariff on Chinese towel imports 
(the current tariff is 10.5%) and set an annual import quota 
of 3,300 tons.  The Chinese towel industry, represented by a 
Mainland lawyer (Lin Chien-hwei) and a Taiwanese towel 
importer, argued that the Taiwan towel industry had been in 
decline for over ten years, with many producers moving 
abroad.  The local towel market was dominated by imports even 
before China began exporting in 2002, argued Lin. 
 
============================= 
Safeguards or Dumping Duties? 
============================= 
 
¶4.  Bureau of Foreign Trade (BOFT) staff expect the ITC will 
submit its recommendations to MOEA by April 17.  Minister of 
Economic Affairs Huang must then decide whether to request 
consultations with China in the WTO that could lead to the 
imposition of safeguard measures.  On April 12, press reports 
suggested that the ITC would recommend increasing tariffs on 
Chinese towels but that the suggested rate had not been 
determined. 
 
¶5.  At the same time, the Ministry of Finance (MOF) is 
currently investigating whether Chinese towel manufacturers 
are engaged in dumping.  This is the first time Taiwan has 
initiated an anti-dumping investigation against China, 
although other investigations have led to anti-dumping 
measures against other trading partners.  MOF previously 
announced it would conclude its investigation by May 26. 
 
¶6.  Taiwan towel manufacturers hope MOEA will agree to pursue 
safeguard measures because such measures do require evidence 
to show uncompetitive practices on the part of Chinese 
exporters, only that Taiwan towel manufacturers have been 
injured by competition from imports.  BOFT experts tell AIT 
they would prefer anti-dumping measures, if appropriate, in 
light of the temporary nature and eventual cost of 
safeguards.  However, they added an additional benefit of a 
safeguard action would be to establish the WTO consultation 
mechanism between Chinese Taipei and China as equal WTO 
members.  According to BOFT, there has been no discussion of 
 
TAIPEI 00001288  002 OF 002 
 
 
this case between Chinese and Taiwan officials. 
 
================================== 
Tweaking China too good to Resist? 
================================== 
 
¶7.  Comment: If ITC recommends safeguard actions, Chinese 
Taipei is within its rights as a WTO member to request 
consultations with China on this issue.  If so, it would be 
the first time Chinese Taipei and China would enter 
consultations under the WTO.  In 2003, Chinese Taipei 
requested to join as a third party a U.S.-filed case against 
China's semi-conductor VAT.  That request was rejected by 
China.  Given China's political sensitivities about Taiwan 
sovereignty, it is not clear that China would agree to enter 
consultations with Chinese Taipei on the towel import issue. 
BOFT staff are keen to manage this dispute on a technical 
level and are wary of directly confronting China in the WTO. 
If the ITC officially recommends safeguards, the final 
decision will be made by MOEA Minister Huang, a political 
appointee without a strong technocratic background, in 
consultation with the Mainland Affairs Council and the 
National Security Council.  The temptation to confront China 
in the WTO to demonstrate Taiwan sovereignty may be too great 
to resist.  End Comment. 
YOUNG