VZCZCXYZ0527
PP RUEHWEB

DE RUEHIN #2536/01 3320904
ZNR UUUUU ZZH
P 280904Z NOV 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 7459
INFO RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS AIT TAIPEI 002536 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR, STATE FOR EAP/TC AND EEB/IFD/OIA; USTR FOR 
STRATFORD AND KATZ, COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ETRD TW
SUBJECT: TAIWAN:  TIME TO MOVE FORWARD ON A BILATERAL 
INVESTMENT AGREEMENT 
 
REF: A. A) TAIPEI 2505 
     ¶B. B) TAIPEI 2303 
 
Summary 
------------- 
¶1. (SBU)  U.S. investment flows into Taiwan are significant 
and accelerating.  With both of Taiwan's presidential 
candidates calling for more economic opening to China, we 
expect even greater interest by U.S. firms in Taiwan.   While 
U.S. firms see a number of investment opportunities in 
Taiwan, they cite critical problems with the current 
investment climate and are strong proponents of a bilateral 
investment agreement.    While bilateral discussions on a 
possible bilateral investment agreement advanced this summer, 
they have progressed little since early August.  We see such 
an agreement as key to further expanding U.S. access in a 
number of major sectors in the Taiwan market. 
 
U.S. Direct Investment Increasing Fast 
--------------------------------------------- ------ 
¶2.  (U)  Taiwan, which attracted US$16 billion in U.S. direct 
investment through 2006, remains a major destination for U.S. 
investment.  In 2006 alone, U.S. investments in Taiwan 
increased by more than US$1.5 billion, according to USG 
figures.  The actual number is probably larger, since U.S. 
firms are also likely investing in Taiwan via subsidiaries 
outside the U.S. These investments are not captured in these 
figures. (ref A) 
 
¶3.  (U)  This year, U.S. direct investment appears to be 
accelerating dramatically.  Although we do not have U.S. data 
split out from aggregate figures, in the first nine months of 
this year, Taiwan has attracted $10 billion in foreign direct 
investment (from all sources worldwide).  According to local 
investment contacts a significant portion is from U.S. 
investors. 
 
¶4.  (SBU)  We expect that these numbers will continue to grow 
over the next few years.  Regardless of who wins the 
election, next May will bring a new Taiwan president with a 
more open, pragmatic attitude toward cross-Strait economic 
integration.  Improved cross-Strait business links will 
reinforce Taiwan's attractiveness as a destination for U.S. 
investment, and we are likely to see an upswing in investment 
activity and business opportunities for U.S. firms. 
 
Problems with the Investment Climate 
--------------------------------------------- ----- 
¶5.  (U)  Although Taiwan's investment climate is relatively 
open to foreign investment compared with many economies in 
the region, U.S. firms confront specific regulatory issues 
that limit U.S. investors' ability to take full advantage of 
business opportunities in Taiwan.  In a number of sectors, 
Taiwan has statutory limits on the participation of foreign 
investors.  Restricted lines of business include 
telecommunications, radio and television broadcasting, 
electricity, gas and water supply, air and water 
transportation, air cargo and catering services, airport 
ground services, truck leasing and rental, and parts of the 
educational sector. 
 
¶6.  (SBU)  Outside of these restricted sectors, Taiwan's 
investment climate is sometimes less than ideal.  Based on 
the difficulties many U.S. and other foreign investors are 
having in obtaining approvals, Amcham has expressed concern 
about the transparency and predictability of Taiwan's 
investment approval process. 
 
¶7.  (SBU)  The most high-profile recent case is Carlyle 
Group's failed bid for ASE, the world's largest semiconductor 
packaging and testing firm.  The regulator insisted that 
differences over price scuttled the deal, but the deal fell 
through only after the regulator delayed the deal for months. 
 This was likely due in part to the political sensitivity of 
one of Taiwan's leading high tech firms being bought by 
foreigners and facing the possibility of de-listing from the 
Taiwan Stock Exchange.  In another case, a cable television 
investment was recently approved, but only after a six month 
delay.  Many of Taiwan's relatively new regulatory 
commissions, not the relatively more experienced bureaucracy, 
Amcham reps argue, are causing these problems.  They have 
claimed that the commissions "operate by press conference, 
not by regulation." 
 
Other Problems on the Agenda 
----------------------------------------- 
¶8.  (SBU)  Amcham is a strong advocate of a bilateral 
investment agreement and hopes that bilateral investment 
 
discussions will provide a context in which to raise a number 
of regulatory difficulties faced by U.S. firms.  These issues 
include: 
 
--Industry associations, without foreign participation, 
exercise regulatory power.  Taiwan industry associations, 
such as the Bankers Association or the Securities Investment 
Trust and Consulting Association, have been given regulatory 
power to supplement official Taiwan regulators with respect 
to approval of financial products, sanctions for regulatory 
violations and other matters.  Foreign firms are frequently 
barred from leadership positions in these associations and 
sometimes even from membership.  U.S. firms have charged that 
association leaders routinely formulate protectionist 
policies at closed-door meetings with Taiwan officials. 
 
--Limits on Capital Outflows.  Although Taiwan's central bank 
denies any such activity, U.S. financial services firms argue 
that the bank uses its political leverage to informally 
"discourage" American companies from providing 
legally-permitted financial services.  New offshore 
investment funds registrations are delayed arbitrarily, and 
the marketing of global investments is actively discouraged. 
U.S. firms have a significant competitive advantage in 
managing offshore portfolio investments. (ref B) 
 
--Prohibition of PRC shareholders. Taiwan prohibits any 
direct or indirect investment by a company having PRC 
shareholders.  U.S. firms applying for approval of a new 
investment are often required to certify that none of its 
beneficial owners is a PRC citizen or company.  A U.S. 
publicly listed company has no way to control or even to 
know, who owns its shares. 
 
--Visas and Work permits for key staff and managers.  The 
Council of Labor Affairs informally requires that a company 
employ at least five Taiwan nationals for every non-citizen 
it wishes to hire. Firms are also unable to hire foreign 
staff with less than two years of experience, which means 
that firms can not hire recent MBA graduates from abroad. 
Significant barriers exist for companies wanting to bring PRC 
citizen employees to Taiwan to work or as short-term business 
visitors.  This is a serious challenge to any firm with an 
integrated regional operation. 
 
Moving Forward on a BIA 
---------------------------------- 
¶9.  (SBU)  The proposed bilateral investment agreement (BIA) 
is the centerpiece of our efforts to expand market access and 
business opportunities for U.S. firms under TIFA.  Despite 
encouraging progress earlier in the year, in which Taiwan 
agreed in principle to the U.S. model agreement and tabled a 
draft list of non-conforming measures (NCMs), recent progress 
has been slow.  Taiwan submitted an initial list of proposed 
NCMs on June 15.  Our last bilateral exchange occurred on 
August 2 via DVC.  Following that meeting, Taiwan submitted a 
revised NCM list on August 10.  There has been no substantive 
exchange since that time.  Washington has yet to comment on 
Taiwan's draft list of NCMs. 
 
¶10.  (SBU) We are concerned that the current pace of 
preparation and exchange will not allow our business 
constituency to take full advantage of the opportunities 
likely to be offered with the advent of the new Taiwan 
administration.  We would therefore like to work closely with 
Washington to explore strategies for moving the BIA process 
forward, possibly to include: 
 
--accelerating the completion of the NCM review in Washington, 
 
--scheduling a DVC before the Christmas/New Year holidays to 
address Taiwan's NCMs and other pending U.S. concerns, and/or 
 
--arranging a visit to Taiwan, probably in January, by USTR, 
State, and other Washington-based staff to discuss investment 
concerns with Taiwan and U.S. business counterparts in more 
detail. 
 
Comment 
------------- 
¶11.  (SBU)  No one from State or USTR has visited Taiwan to 
address TIFA-related issues since June.  We think that an 
interagency visit in the next month or two would be useful, 
including by many of those new to the Taiwan account from 
USTR and State.  In addition to finding a way forward on BIA 
discussions, such a visit would be most welcome and add 
traction to our efforts to advance the TIFA process in other 
areas. 
 
YOUNG