VZCZCXRO7562
RR RUEHCN RUEHGH RUEHVC
DE RUEHIN #1923/01 2350058
ZNR UUUUU ZZH
R 230058Z AUG 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 6489
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 TAIPEI 001923 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR, STATE FOR EAP/TC,USTR FOR STRATFORD, 
ALTBACH, AND BAHAR, TREASURY FOR OASIA/TTYANG, 
USDOC FOR 4431/ITA/MAC/AP/OPB/TAIWAN/PIERCE AND CARTER-NIXON 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ETRD PREL TW
SUBJECT: AIT/W'S RUZICKA REVIEWS BILATERAL ECON 
RELATIONSHIP IN TAIWAN 
 
 Summary 
------- 
 
¶1.  (SBU) Rick Ruzicka, Director of Trade and Commercial 
Programs at AIT/W, had a wide range of meetings with Taiwan 
counterparts and U.S. businesses during a visit to Taiwan 
from August 13 to 16. Ruzicka emphasized U.S. market-access 
interests in resolving MRLs, pharmaceutical, and other 
pending trade irritants, and outlined the current status of 
TIFA's investment and tax discussions for Taiwan officials. 
Taiwan officials pressed for an official launch of 
negotiations for a Bilateral Investment Agreement (BIA) 
negotiations as soon as possible and suggested the 
possibility of expanding the scope of the TIFA talks.  End 
summary. 
 
Eager for Bilateral Investment Agreement 
---------------------------------------- 
 
¶2. (SBU) Ruzicka's interlocutors stressed Taiwan's strong 
desire to launch BIA negotiations as soon as possible. 
Office of the Trade Negotiator (OTN) Chief Representative 
John Deng's first question was whether the United States and 
Taiwan could formally launch investment agreement talks, 
indicating his view that any investment agreement would have 
to be finished before the current Taiwan Administration 
leaves office next spring. Ruzicka explained that the U.S. 
side is reviewing Taiwan's revised list of non-conforming 
measures (NCMs) very carefully and would get back to Taiwan 
on next steps when this process was completed.  Deng 
suggested that perhaps the U.S. Congress should pass a law 
giving the president the authority to negotiate a trade 
agreement with TECRO on a narrow range of subjects, sort of a 
"fast-track lite" for Taiwan alone. More practically, he 
proposed that the TIFA agenda be expanded to include topics 
such as Sanitary and Phyto-sanitary (SPS) measures, technical 
barriers to trade (TBT), e-commerce, and competition policy 
(per Deputy U.S. Trade Representative Karan Bhatia,s 
proposal according to Deng). Finally, on the U.S./E.U. issue 
of the Information Technology Agreement (ITA) product 
coverage, Deng said that Taiwan was still considering the 
U.S. invitation to join a WTO dispute resolution process. 
 
¶3. (SBU) In a separate meeting devoted to the bilateral 
investment discussions, the Ministry of Economic Affairs 
(MOEA) Department of Investment Services Director General 
Berton Chiu also stressed Taiwan wants to move quickly to 
start negotiations on a bilateral investment agreement (BIA), 
which he said is now a top policy priority for all 
ministries.  Although he admitted that the latest list of 
Taiwan's non-conforming measures (NCMs) is still lengthy, he 
noted the list is shorter than the list that South Korea 
negotiated in its recently-concluded FTA with the United 
States, that the Taiwan side would like to keep several of 
the financial-sector NCMs as bargaining chips if negotiations 
begin, and asked for U.S. priorities among the NCMs.  Chiu 
said that the Taiwan side has not yet begun consulting with 
relevant private-sector trade groups and associations 
regarding the possible BIA, nor has his office consulted with 
the Legislative Yuan (LY).  He asked when Taiwan should start 
this private sector consultation process. 
 
¶4. (SBU) Financial Supervisory Commission (FSC) Chairman Hu 
Sheng-cheng, as part of a wide-ranging discussion of 
Taiwan,s economy, pressed the U.S. to move forward on FTA 
talks with Taiwan.  He argued that the U.S. - Korea Free 
Trade Agreement would damage Taiwan's competitiveness. 
Contrary to the perception that Taiwan exported only 
information technology items which are largely tariff-free, 
he noted that textiles are responsible for a larger portion 
of Taiwan's trade surplus than semiconductors.  (NOTE: 
Textiles and apparel together added USD 9 billion to Taiwan's 
trade surplus in 2006, while semiconductors accounted for 
only USD 4.2 billion, although the figure for semiconductors 
does not include semiconductors exported as components in 
other electronics.  End note.)  Ruzicka questioned the wisdom 
of allocating resources to sunset industries and noted that 
the TIFA process was achieving useful results in deepening 
and broadening the US-Taiwan economic relationship. 
 
 
Tin Ear on Drug Price Cuts 
-------------------------- 
 
¶5. (SBU) Mr. Ruzicka reinforced the concerns raised by AUSTR 
 
TAIPEI 00001923  002 OF 002 
 
 
Bhatia's August 6 letter to Minister of Health Hou Sheng-mou 
that during the July 11-12 TIFA talks in Washington, Hou 
failed to note Taiwan would announce the following week new 
drug price reductions which would go into effect on September 
¶1.  Ruzicka's interlocutors did not seem to understand U.S. 
concerns about the new price cuts. FSC Chairman Hu 
Sheng-cheng went so far as to dismiss U.S. complaints about 
Taiwan's drug pricing policies, and suggested that 
international pharmaceutical companies should set up research 
and development operations in Taiwan despite this issue, 
since the domestic market is so small and Taiwan offers such 
a good platform for production for the rest of the Asian 
market. 
 
¶6. (SBU) Council on Economic Planning and Development (CEPD) 
Chairwoman Ho Mei-yueh, in commenting on the problem of the 
pharmaceutical &black hole8 and lack of reimbursement at 
actual transaction prices, said that Taiwan authorities are 
considering ways to create more diverse income sources for 
Taiwan's medical care providers--such as pushing medical 
tourism to Taiwan--in order to wean hospitals away from using 
the pharmaceutical &black hole8 as one of their primary 
profit sources.  She mentioned as an example the promotion of 
Taiwan as a "liver island" specializing in the treatment of 
liver diseases.  She also said that Taiwan needs higher user 
premiums to increase NHI funding, but doubts that the LY 
would allow premiums to rise in line with health costs due to 
the potential political backlash. 
 
Beginning of End for Ractopamine Ban? 
------------------------------------- 
 
¶7. (SBU) Chief Trade Negotiator John Deng alerted Ruzicka 
that Taiwan was about to announce a "pre-notice" to establish 
a maximum residue level (MRL) for Ractopamine (PayLean). 
After a "short" public comment period, Taiwan would then 
establish a Ractopamine MRL based on the CODEX standard. 
National Security Committee (NSC) Senior Advisor Connie Yang 
stated that Deng was attempting to get an MRL in place before 
the LY comes back into session this fall to keep the LY from 
interfering in the process.  She noted that since the Taiwan 
authorities discovered that Japan has a domestic ban on 
Ractopamine but has also set an import MRL for it, the 
Executive Yuan (EY) decided to pursue this line of reasoning 
with the Bureau of Animal and Plant Health Inspection and 
Quarantine (BAPHIQ). (Note: Political pressure has continued 
to build, however, and it is far from clear when the proposed 
MRL will be implemented.  End note.) 
 
Bilateral Tax Discussions 
------------------------- 
 
¶8. (SBU) Connie Yang inquired about the possibility of 
reaching a bilateral tax agreement.  Ruzicka reviewed the 
bilateral consultations that had occurred to date and noted 
three issues had been identified as potential concerns: 
exchange of information, limitation of benefits, and 
arbitration.  Both sides were tentatively planning to confer 
in October to set out possible next steps. 
 
WTO GPA Going Nowhere 
--------------------- 
 
¶9. (SBU) Turning to Taiwan,s possible accession to the WTO 
plurilateral government procurement agreement (GPA), Yang 
reiterated Taiwan's position that any footnote reference with 
implications for Taiwan's sovereignty would be an 
unacceptable embarrassment to Taiwan, and said that the 
document should not include a footnote or cross-reference to 
Taiwan's status, or the authorities would never be able to 
convince the LY--and especially Taiwan Solidarity Party 
Legislator Lai Hsin-yuan--to accede to the agreement.  She 
lamented that the Chinese government seems intent on 
embarrassing Taiwan again by forcing references to Taiwan's 
status into the document, and urged the U.S. to convince the 
P.R.C. that repeating the nomenclature is not necessary. 
YOUNG