Cablegate: Ait Chairman and Austr Stratford Hear Amcham

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OO RUEHWEB

DE RUEHIN #1419/01 1730459
ZNR UUUUU ZZH
O 220459Z JUN 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5748
INFO RUEHC/DEPT OF AGRICULTURE WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS AIT TAIPEI 001419

SIPDIS

SENSITIVE
SIPDIS

STATE PASS AIT/W AND USTR
STATE FOR EAP/TC, EAP/MLS,
USTR FOR BOLLYKY, ALTBACH AND STRATFORD
USDOC FOR 4431/ITA/MAC/AP/OPB/TAIWAN/MCHOI

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV KIPR TW
SUBJECT: AIT CHAIRMAN AND AUSTR STRATFORD HEAR AMCHAM
SUPPORT FOR THREE AGREEMENTS

1. (SBU) Summary. At an Amcham breakfast in honor of
visiting AIT Chairman Ray Burghardt, which was also joined by
AIT Director Steve Young and Assistant USTR Tim Stratford,
Amcham leadership stated its firm support for bilateral
agreements on tax, investment and government procurement.
Calling the current Taiwan administration "light on
competence," Amcham members complained that Taipei is
backsliding on transparency and rule of law. Stratford
assured Amcham that the US was committed to the Taiwan
relationship. He said he would also encourage Taiwan to
reconsider WTO GPA accession, since with China's rising
clout, terms are likely to be less favorable in the future.
End Summary.

2. (U) The American Chamber of Commerce in Taipei held a June
14 breakfast in honor of AIT Chairman Raymond Burghardt. He
was joined by AIT Director Young, as well as by Timothy
Stratford, Assistant USTR and Eric Altbach, Deputy Assistant
USTR, who were in Taipei to preview the upcoming Trade
Investment Framework Agreement (TIFA) talks. Amcham hosts
included:

--Bill Bryson, Partner, Jones Day
--Tai-Chin Tung, Managing Director, Fidelity International
--Jenny Cheung, Managing Director, Blockbuster BEI Taiwan
--Thomas McGowan, Legal Consultant, Russin & Vecchi

Also attending from AIT were Hanscom Smith, Econ Chief; Greg
Wong, Commercial Section Chief; Mike Cavanaugh, Econ Officer;
and Rick Ruzicka, Director of Trade and Commercial Programs,
AIT/W.

Backsliding and Political Infighting
------------------------------------
3. (SBU) Chairman Burghardt observed that Amcham's 2007
White Paper, which was formally released a few days ago, was
basically the same as last year. Amcham reps agreed, noting
that many of the issues have seen little progress. At the
political level, while all of the infighting might be
entertaining, they said, economic issues, which political
leaders are largely ignoring, are of real interest and
importance to the people of Taiwan. They went on to complain
that the current Taiwan administration was "light on
competence" and needed to do economic planning in terms of
"years, not days." They further argued that Taiwan has been
backsliding on rule of law and transparency. One
businessperson stated that the Central Bank was "at it
again," by slowing down applications from foreign financial
service firms.

4. (SBU) As an example of how it can be difficult to work
with Taiwan regulators, Tai-Chin Tung, of Fidelity, expressed
frustration about her firm's efforts to move a service center
from Hong Kong to Taiwan. She said that these plans were
abandoned, however, when Taiwan regulators demanded her firm
provide access to all accounts and register all products in
Taiwan. The problem, she said, was that Taiwan did not see
this investment as an administrative and processing center,
which is how Japan, for example, views such investments.
Instead Taiwan authorities sought to regulate it as financial
service business. When Fidelity raised the case with the
Chairman of the Financial Services Commission, he offered to
"do a deal." Tung said she would much prefer to follow a
clear, transparent set of rules and guidelines. In the end,
Fidelity did not move the center to Taiwan.

5. (U) Another businessperson said Taiwan produces many
"Taiwan-centric regulations and guts international
standards." He also complained that it was difficult to
bring in talent, especially from China. Furthermore,
companies are unable to obtain work permits for individuals
who have less than two years experience. This precludes them
from bringing recent MBA grads, for example.

6. (U) Amcham reps also complained about the large number of
products manufactured in China, which are banned in Taiwan.
Although Taiwan has claimed these bans are for national
security reasons, it is hard to argue that items like potato
chips and medical devices would affect national security,
they said. Many of these items are produced by the China
operations of U.S. firms.

Pessimistic about the Election
------------------------------

7. (SBU) Amcham reps were largely negative about the
upcoming presidential election and two candidates. One
businessperson acidly noted that this election would be a
race of "the two indictees" since DPP candidate Frank Hsieh,
like his KMT counterpart Ma Ying-jeou, was being scrutinized
for his special allowance expenditures as Mayor of Kaohsiung.
Another described Ma as a personal friend, but worried that
he had not developed grassroots support and was having
trouble finding a strong running mate, which would be crucial
to the race. One called Ma "a poll-follower." As the
election draws closer, politics trumps economics, complained
another businessperson. The officer expressed disappointment
that the Legislative Yuan increased the minimum wage by up to
44% for hourly workers effective July 1. This was far too
fast and far too large an amount for companies to absorb.
Chairman Burghardt made clear that the U.S. would not take
sides during what he and everyone at the table expected would
be a very close race.

Amcham Wants the Three Agreements, Especially GPA
--------------------------------------------- ----
8. (U) Amcham reps stated that Amcham fully supports the
three agreements - on tax, on investment, and on government
procurement - which are currently being considered under the
TIFA framework. Amcham was most interested in a bilateral
government procurement agreement, they said, which would
bring U.S. firms back to Taiwan.

9. (SBU) Amcham reps also stressed the importance of a
strong bilateral investment agreement. Many Amcham members
had become concerned that the investment approval process,
which had been considered predictable, was in fact not, after
the difficulties that many foreign investors were having in
obtaining approvals. They raised the case of the Carlyle
Group's failed bid for ASE, the world's largest semiconductor
packaging and testing firm, and said that a cable television
investment was recently approved after a delay of six months.
Many of the regulatory commissions, not the bureaucracy,
Amcham reps argued, are causing these problems. They claimed
that the commissions "operate by press conference, not by
regulation."

10. (SBU) Amcham also strongly supported a tax agreement,
but asserted that such an agreement would likely run into
trouble in a future KMT-led government. Any tax agreement
would contain a reporting provision, which would be strongly
opposed by a number of powerful individuals in Taiwan who
hold both Taiwan and U.S. passports. Many of these
individuals, whose worldwide income is taxable in the U.S.,
have no interest in Taiwan sharing tax information with the
U.S. and would fight hard against any such agreement, they
believed.

Stratford: Technical Obstacles, But Progress
---------------------------------------------
11. (SBU) Assistant USTR Stratford stated that the U.S. is
committed to working on all three agreements, but noted they
have proven more challenging than originally thought. We
have made considerable progress on the investment side and
some progress on the tax side, he said. From a technical
perspective, we now fully appreciate the difficulty of a
bilateral GPA as opposed to the multilateral WTO approach.
The U.S. Trade Agreement Act, for example, does not provide
any mechanism to implement a GPA outside the WTO or an FTA,
he noted. In addition, it would also be necessary to extend
obligations from AIT/TECRO, which would be the organizations
signing any bilateral GPA, to relevant government entities.
This may require specific legislation and could open the door
for other unwelcome legislative changes.

12. (SBU) It would be preferable, Stratford stated, to
figure out how to get Taiwan into the WTO multilateral GPA.
There would be complications, i.e. with the PRC, but they may
be easier to overcome than those surrounding a bilateral GPA.
Amcham noted that the GPA is the most important of the three
agreements and that a bilateral agreement would give U.S.
firms an advantage over EU and Japanese firms. Although
Amcham would prefer a bilateral agreement, a multilateral
agreement would also be helpful.

13. (SBU) The Amcham reps stated Taiwan's main goal was an
FTA, so that it preferred bilateral building blocks through
the TIFA process to give political cover. Chairman Burghardt
pointed out that this was not inconsistent with what the U.S.
side had told them. Stratford replied that "we have a

meeting of the minds" on this issue, but that it was also
important for Taiwan to understand that China's leverage was
growing, and so was its willingness to use it against Taiwan.
Multilateral arrangements now offered to Taiwan, may be
difficult to obtain in the future, which argues for Taiwan
accepting the WTO GPA deal as it stands.

14. (SBU) COMMENT: This meeting occurred as Amcham's
leadership was pursuing its annual "Door Knock" in
Washington, but USTR's Altbach had sat in on a meeting with
the group before leaving Washington for Taipei.
YOUNG

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