American Enterprise Institute

July 25, 2006

[Edited transcript from audio tapes]

9:15 a.m.	Registration
9:30	Keynote Speaker:	Steve Ruey-Long Chen, Ministry of Economic Affairs of Taiwan
10:00	Speakers:	Claude Barfield, AEI Rupert Hammond-Chambers, U.S.-Taiwan Business Council
		Webster Wei-Ping Kiang, Chinatrust Commercial Bank
		Chun-Der Wu, Institute for Information Industry
	Moderator:	Dan Blumenthal, AEI
Noon	Adjournment

Proceedings:

Dannielle Pletka:  I’m Dannielle Pletka.  I'm the Vice President for Foreign and Defense Policy Studies here at the American Enterprise Institute.  Some of you may be wondering why we chose this very lovely July day to have a conference on Taiwan and free trade.  We have two reasons.  The first is to bring attention to an important issue that has received surprisingly little attention in Washington in recent months.  Many of you in the audience are aware that during a May visit to Taiwan, Deputy US Trade Representative Karan Bhatia notified his host, that it would be “extremely difficult for us to take on any additional FTA partners during the next year.”  I guess they are very busy at the office of the USTR.  Naturally, this comment was the focus of intense speculation in the Taipei press. 

What did it signify for US-Taiwan relations?  For American support of President Chen Shui-Bian?  For the relative prioritization of US economic relations with Taiwan versus other Asian countries, with which it is also conducting free trade agreement talks?  I think I can suggest a simple answer.  It signifies a major mistake in American strategy in Asia.  Taiwan is a major trading partner of the United States, and by its location and open market, stands to serve as a hub of commerce in Asia. 

A US-Taiwan free trade agreement would do a great deal to strengthen this vital economic relationship.  A US-Taiwan free trade agreement would also be an important opportunity to reframe bilateral relations in terms of a well-defined common interest instead, as it too often is, of bilateral and regional tensions.  Also, to be honest, a US-Taiwan FTA will be a boon for the US-Taiwan’s strategic relationship.  The People’s Republic of China pursues a strategy towards Taiwan that it openly describes as encirclement by business as a means to press the government through the citizens. 

While Taiwan’s rapidly growing economic relationship with the mainland has been a boon for both countries - and I think we recognize that - it is absolutely necessary to balance Taipei’s economic dependence on the mainland with ever-closer ties elsewhere, and, I would suggest, particularly with the United States.  On that note, I hope our speakers today will address the balance of purely economic and strategic interests that should inform the US government’s approach to the question of an FTA with Taiwan. 

The second reason that we decided to hold this event today was in order to welcome Mr. Steve Chen, the Deputy Minister of Economic Affairs of Taiwan, and Taipei’s chief trade negotiator in the Doha round of the World Trade Organization talks and in the FTA talks with the United States.  Mr. Chen has extensive experience in Taiwan’s Ministry of Economic Affairs, including service as Taiwan’s representative at the WTO in Geneva, Vice-Minister, and the Director-General of Taiwan’s Board of Trade.  It is a pleasure for us to have him speak here today.  Mr. Chen has also graciously agreed to join the panel following his remarks so that he can participate in Q&A following the presentations of the panel. 

So without further ado, let me welcome Mr. Steve Chen.

Steve Ruey-Long Chen:  Thank you, Madam Vice-President.  Well, distinguished speakers and distinguished guests, ladies and gentlemen, I am very delighted to be in Washington to meet so many friends here today.  It is always a joy for me to visit this beautiful city.  Even the weather is so nice to give me such a warm welcome. 

For my presentation today I would like to talk about the prospect for a free trade agreement between Taiwan and United States.  I will try to cover this subject from a different angle.  Firstly, I will very briefly provide a profile on Taiwan’s economy.  I will then address the current US-Taiwan economic relationship and underline the importance of an FTA between Taiwan and the United States.  I will explain why Taiwan is a very strong FTA partner of US, and finally, I will come to the conclusion that certainly an FTA will be the logical next step in the US-Taiwan relationship. 

Actually Taiwan has been very fortunate because over the past 50 years Taiwan had been able to benefit from a very favorable trade environment created by the GATT and WTO.  As you can see 50 years ago, foreign trade was only about $300 million.  But through the concerted efforts of the government and private sector, after 50 years foreign trade grew to US $371 billion last year.  The situation is the same for the foreign direct investment - it was expanded from $1 million to $4.2 billion today.  It certainly indicates the confidence of foreign investors on the economic development of Taiwan. 

We also achieved another milestone:  Today, the per capita income, or per capita GDP, stands at $15,273.  Also, you can see that foreign exchange reserves ballooned from US $34 million to US $253 billion.  This kind of performance is remarkable.  Even if you take a company as an example, after 50 years of operation, if the turnover of this company can be increased by more than 100 times, that means this company certainly is a very good one.  We are very grateful for the very favorable trade environment created by the [indiscernible] trading system. 

So the transformation of our economy has been remarkable.  As you can see in the early stages of our economic development, we relied on three products for exports.  And as you may be aware today, Taiwan’s economy is export-driven.  Fifty years ago, rice, sugar, and banana were the three of Taiwan’s major export items.  Sugar is particularly very sweet for Taiwan.  At one point, more than 70 percent of our foreign exchange reserves were coming from sugar exports. 

Well, today, we have evolved.  Now we are in the so-called IT age.  Three major products have replaced the previous three products.  Today, we produce 79 percent of the world’s PDAs and 72 percent of its notebook computers.  When it comes to LCD monitors, we actually control more than 68 percent of the world market.  So this is a tremendous transformation of our economy.

As you can see today, there are still many countries who continue to rely on rice, sugar, and banana for their economic development.  Take banana as an example.  Let us say [indiscernible] between EU and many Central American countries even today.  Because of this transformation of the economy, you are probably aware that in a special report by BusinessWeek, Taiwan was referred to as the hidden center of the global economy.  This magazine even said that the global economy will not function without Taiwan.  The reason is very simple:  Taiwan is a key player of the world economy.  We are one of the very important parts of the global supply chain of many IT products.  That is why we believe we are in such an important position. 

I still recall back in 1999 when there was a power outage in one of our science parks in the northern part of Taiwan.  This resulted in a sharp decline of share price in the NASDAQ in the United States.  As you can see, this interdependence of the IT sectors of Taiwan and United States has been so close.  This kind of relationship is very important and very indispensable for the two countries.  So let me take a few moments to introduce the current US-Taiwan economic relationship. 

As you can see, last year, the bilateral trade between US and Taiwan amounted to $57 billion.  This means that Taiwan is the eighth largest trading partner of the US.  Our exports to the US amounted to $35 billion.  In terms of agricultural products, we are the fifth largest market for the US agricultural products.  On a per capita basis, Taiwan is actually the number one consumer of US agricultural products in Asia.  Today, the US is Taiwan’s largest supplier of high-quality agricultural products such as corn, soybeans, wheat, apples, cherries, and beef.  Much more important is the fact that as a market for US goods and services, Taiwan is actually much bigger than Australia, Chile, and Singapore put together. 

On the other side, the US is also a very important trading partner of Taiwan.  Currently, the US is the third largest trading partner of Taiwan.  Export to Taiwan from the US amounted to US $22 billion.  And I have to point out one very important fact.  As I just mentioned very briefly a moment ago, Taiwan and US jointly have created the most dynamic IT global supply chain in the world.  So in terms of investment, you can see that in the [indiscernible] of bilateral investments between the two countries have been also very close. 

From Taiwan’s side, we have invested at the moment US $350 million in the United States.  You can see most of the big companies in Taiwan, including Formosa Plastic, and so and so forth, have huge investments in the United States.  On the other way around, US investments in Taiwan are worth $804 million.  Many household names such as IBM and Microsoft have set up their operations and R&D centers in Taiwan because they realize that Taiwan has a very good environment for multinationals - the high quality of human resources and the incentives provided by the government essential for Taiwan to attract multinationals. 

So in summing up, we can say that the economic relationship between the US and Taiwan is one of the world’s most important economic and strategic relationships.  Much more important is that the two countries share a lot of common interests and common barriers [??], including democracy, human rights, and free market principles.  That is why during a visit to Japan back in November, President Bush mentioned that strong ties with the United States have allowed Taiwan to evolve into a free and democratic Chinese society.  This is certainly a very good complement and a very good explanation of the current economic and trade relationship between Taiwan and United States. 

So then, I will now go to the subject of the advantages and benefits of an FTA.  Well, we always joke by saying FTA stands for “For Taiwan and America.”  And indeed, I do believe that this agreement could bring a lot of economic and trade benefit to the two countries.  It is certainly a mutually beneficial arrangement that the two countries can very favorably consider.  According to a study by the USITC, if there will be an FTA between the two countries, the export of the US to Taiwan could grow by $3.4 billion.  That represents almost 16 percent of growth rate.  Particularly in the area of agriculture and industrial products, we do foresee there will be increased market share of US products.  There will be more number one products in Taiwan that can be very well expected.  On the other hand, the US products will be able to replace some of the [indiscernible] by Taiwan from the other suppliers. 

Of course, the benefit of FTA goes beyond trading goods.  In trading services we do believe that with an FTA, the US will become the first country to enjoy complete access to Taiwan’s market.  US service providers will be much more competitive in Taiwan’s market, particularly versus Japan and EU.  According to another study by the IEE [sounds like], you can see that IEE believes that US export will be increased by $6.6 billion, and the overall wealth gain of the US will be much bigger than the other 10 US FTA partners.  So that really underlines the importance of an FTA with Taiwan. 

Going to more details, as you can see in the agricultural sector many products will have much better market access to Taiwan.  We do believe the high quality of US agricultural products will enjoy a very good market share in Taiwan, particularly US beef.  Taiwan is the first country to reopen the market after a PSE [sounds like].  Consumers in Taiwan do appreciate the high quality of the US beef because it is grain-fed, very juicy, and with very beautiful marbling.  So we do believe that this product certainly will continue to enjoy very good market in Taiwan. 

In the industrial sector, you can see the automobiles, machinery, electronic equipment, and even textile.  They will be able to find very good market in Taiwan.  I already mentioned the service sector, particularly financial service, telecommunication, transportation, and healthcare will find a very good market in Taiwan.  And much more than that, in other areas that are very hard to measure you can see the inclusion of the enhancement of protection of IPR and cooperation in the high-tech R&D area.  There will be greater economic efficiency and there will be increased growth of two-way investments.  Those will be the benefits that we can further expect. 

So in summing up, we do believe an FTA between US and Taiwan will enhance the existing bilateral economic and trade relationship, and it certainly will promote higher-level investment ties.  Much more important, the innovation-driven partnership between the two countries can be further strengthened.  Also, we believe that the customs and security cooperation between the two countries can be further promoted, and it will certainly deepen strategic and economic engagement with the world on the most dynamic region, which is Asia.  Asia probably will be the center of the world economic development in the next century, and we can say that Taiwan will be the center of Asia. 

Certainly, the signing of FTA can demonstrate the common commitment to further trade liberalization.  For our efforts in FTA, we are very grateful that we do have Congressional and private sector support in the US.  Here, as you can see, we have support from more than a hundred members of Congress.  Senator Baucus mentioned that concluding a free trade agreement with Taiwan is a concrete step towards supporting an ally that shows US values.  There are resolutions passed by a total of 45 Senates and Assemblies from 27 States, and we also have the endorsement of more than 120 companies coming from 30 States.  Even the President of the IIPA, Mr. Eric Smith [phonetic], has voiced his strong support for a US-Taiwan FTA.  He recognized the efforts, the accomplishment that the Taiwanese government has made over the past year to improve the protection of IPR in Taiwan. 

So let me repeat again that we do see that there is growing support from the US Congress.  We hope that through our continued efforts there will be more of this support, which we believe will be very important.  Private sector support will be the focus of the next six months’ efforts.  So here, I want to emphasize again that Taiwan certainly will be a very strong FTA partner for United States. Both countries have already signed more than 140 bilateral agreements, so why not add one more to make it 141?  It is good for the two countries.  Both are WTO members and APEC members.  We have also through the [indiscernible] meetings resolved many bilateral issues between the two countries including agricultural issues, IPR, pharmaceutical issues, and telecommunication issues.  And we do believe that a TUFTA [phonetic] would also extend the trade liberalization of the WTO. 

So in conclusion, I would like to say that Taiwan is ready to enter into FTA negotiation with United States anytime.  We do believe that before the end of this year will be the best window of opportunity for the two countries to initiate the process. Timing is very important for the two countries to start to work on the FTA.  There will be a lot of economic and commercial benefits resulting from this agreement, as I explained previously.  The benefits will be even extended to the area that the two countries can work together - to broaden trade liberalization in the world.  And we do believe FTA will be compatible with US interests.  We certainly will continue to seek Congressional and private sector support because we do believe an FTA is in the best interest of the US business, and we certainly would like to seek the support from the private sector here in the United States. 

That is my presentation on today’s seminar.  I would like to take this opportunity to express my appreciation to Dan Blumenthal and Claude Barfield for organizing this seminar and for providing me this opportunity to talk about this important subject of FTA between Taiwan and United States.  I would like to thank you also for your attention.  Thank you.

Dan Blumenthal:  Thank you very much for a very informative presentation, Minister Chen.  We are going to go through the panelists, and then open it up to a Q&A.  That is our way of keeping you here for the entire session. 

Danny Pletka mentioned the comments of our Trade Office, which I think were very disappointing to many in the sense that, of course, you saw many of the economic benefits that the US and Taiwan would gain from a free trade agreement.  The issue is strategic and political, as well.  In the IIE study that Mr. Chen referenced, the analyst concluded that in fact it would not just benefit the US and Taiwan - a more liberalized Taiwan in terms of its trade regime would have greater benefits multilaterally, and throughout the region as well. 

So I think in terms of our trade goals, it has a lot of long-term advantages.  One can look at the US-Taiwan relationship right now and say that there really is not a lot that is positive on the bilateral agenda.  Too often, the relationship is put in terms of how not to provoke China, rather than how the United States and Taiwan can build a positive bilateral relationship.  Obviously Taiwan has so much to offer the United States in the region.  The US long-term interest in the region is a prosperous Taiwan that can negotiate for its future from a position of strength.  There are a lot of issues involved in the FTA that, unfortunately, our government now is not thinking about. 

We have a very distinguished panel here to cover the many dimensions of this issue.  We have with us from Taiwan, Mr. Webster Wei-Ping Kiang, and a Senior Advisor to the Chinatrust Commercial Bank, with long experience in matters of finance and banking service on a number boards of chambers of Asian Bankers Association as well as Asia-Pacific Chambers Of Commerce and Industry.  He has held a number of positions both in government as a legislator, as well as in private business as a banker. 

To his right, we have Dr. Claude Barfield from the American Enterprise Institute, a very well-known trade economist and specialist who has written a number of books.  He is writing another one on the economic regionalization of Asia where Taiwan might fit into, as well as issues of China and Taiwan’s ascension to the WTO. 

To his right we have Mr. Chun-Der Wu of the Institute for Information Industry.  You saw what a strong role the information industry plays in US-Taiwan relations, as well as in Taiwan’s economy.  Mr. Wu is part of the association that promotes that particular industry in Taiwan. 

To my far right, we have Rupert Chambers of the US-Taiwan business council who has been heavily involved in matters relating to promotion of the US-Taiwan FTA on behalf of US businesses.  When our trade representatives say that US businesses are not interested in an FTA, you will hear that is not the case.  Rupert has a very good understanding of on-the-ground US business interests in this type of relationship. 

I think we are really going to cover the gamut here.  I ask the panelists to keep their remarks to 12 minutes so that we have enough time for discussion in question-and-answer afterwards.  Mr. Kiang, please.

Webster Wei-Ping Kiang:  Thank you, Dan.  Good morning dear panelists, distinguished guests, ladies and gentlemen.  In view of all the regional and free trade agreements being signed by various countries in which Taiwan is excluded, being businessmen in Taiwan, we do fear of being marginalized.  The place I work, Chinatrust Commercial Bank, is a mid-sized bank with 10,000 employees, 111 branches in Taiwan, 67 locations overseas.  Among the 67 locations we have 23 branches in a subsidiary in America.  We are the largest issuers of credit cards and have the most units of ATM machines in Taiwan.  But we are just one of the 49 banks in Taiwan with a market share of less than four percent.  Let me repeat what the Deputy Minister Chen had mentioned earlier. 

Taiwan is the eighth largest trading partner of the United States.  I repeat, number eight, which is among the top 10.  Taiwan’s bilateral trade with the US was $49.5 billion.  If the FTA agreement is signed the amount of trade is expected to increase by 16 percent, i.e., $3.4 billion, according to the estimation made by the USITC.  Therefore, I support the signing of a bilateral free-trade agreement between the US and Taiwan.  In the next few minutes, I would like to highlight the current status of service industries in Taiwan, with focus on the financial industry. 

Also, Taiwan is famous for its IT sector.  With ongoing financial reforms, the financial service industry in Taiwan has also come to play an indispensable role in the region.  The financial market performance is summarized as follows:  first, at the end of April 2006, total assets for the banking sector stood at the $1.18 trillion.  The sum of total deposits equaled $757 billion and the total loans ended up at $540 billion.  The nonperformance ratio in the broader definition of domestic banks in Taiwan has reduced [indiscernible] from 11.76 two years ago to 2.48 in April of 2006. 

Second, in 2005, the total value of share trading of Taiwan’s stock market reached number three in Taiwan.  The turn-over rate is number two in Asia and number seven globally.  Government-bound outright trading values as of 2004 ranked number two in Asia.  Cumulative net inward remittance since 1991 for overseas securities investors reached $100 billion as of the end of 2005.  Furthermore, the Morgan Stanley composite index has upgraded the limited investability [sounds like] factor of Taiwan’s stock market from 2.75 to 1.0 in 2005. 

Third, according to the statistics provided in the Swiss publication Sigma, the number five issue in 2006, the [indiscernible] of Taiwan’s insurance market totaled $49 billion, ranked 4 in Asia and 13 globally.  The insurance penetration measured by the premium as a percentage of GDP is 14 percent, which is ranked number one in the world.  Over the past few years, the annual premium income had been growing at a double-digit basis.

 And lastly, as you might already know, as part of reforms in the financial industry, a new Cabinet-level agency, the Financial Supervisory Commission was established in July of 2004 after the passage of the law permitting banking securities and insurance to be operated by a single financial holding company. 

I would just like to mention that in the year 2005, Rupert, the US-Taiwan Business Council and [indiscernible] USA Business Council held a joint seminar in New York.  Twenty-four people from Taiwan participated, while 70 New York business people from the financial industry participated.  That was a good sign of financial services collaboration between the two countries. 

Next, I would like to comment on the anticipated the benefits for US business sectors should the US-Taiwan FTA be signed.  We have made some assumptions in calculating the benefits to the FTA.  We assume that after the signing of FTA, any a barrier to services or the agricultural products shall be reduced by 25 percent, and the productivity of the industrial sector shall increase by one percent.  In that calculation, the USA will gain $800 million in the agricultural exports to Taiwan.  The industrial exports will increase by US $2.9 billion, and the service sectors will increase by $684 million. 

The American business people had expressed interest in portfolio management, maritime insurance service, intermediation insurance, and auxiliary services in the 2005 Taipei-American Chamber White Book.  There is also a request to reduce trade barriers and increase market access.  Furthermore, there is a great interest in pension fund management.  I believe after the US-Taiwan FTA, all those requested improvements in the liberalization of regulations could be realized to favor American business. 

I will [indiscernible] the number four-point in the banking industry.  American business opportunities lie in the overseas management share of the labor insurance fund, labor pension fund, and the civil service pension fund.  The opportunities are also available in the senior citizens’ annuity insurance, index funds, fixed income financial products, et cetera, should the USA-Taiwan FTA be signed.  The US companies will be the first to enjoy the above-newly generated opportunities.  To quantify these opportunities, the balance for the national savings in Taiwan totaled US $6 billion. 

Next is number five, the insurance industry.  The insurance needs increased significantly due to the portion of people above 65 years of age.  This portion will increase from 31 percent to 38 percent in the next five years.  The insurance intermediation and the auxiliary services amounts were increased significantly.  Number six, on the security industry.  The FSC launched a series of improvements on further deregulating and internationalizing the market to encourage foreign investment in Taiwan security markets.  Therefore, at the end of December 2005, the market capitalization of the shareholdings of foreign investors was 31 percent of the total market cap. 

This is a historical high for the service sector, as a whole.  Even though I had only mentioned the three categories of the service sectors, the entire gain by the US will be an increase of $684 million per year.  The gains are in financial services, telecommunication industries, express delivery, medical services, IPR license fee under the government procurements, et cetera. 

What will be the impact on China?  The FFC in Taiwan amended the regulation governing the approval of financial operation dealings between China and Taiwan on March 3, 2005.  The amendments not only ease the remittance to China and the credits to Taiwanese business people in China, but also allow overseas bank subsidiaries of Taiwanese financial holding companies to establish representative offices in China.  The FSC also amended the regulations governing the approval of the security and future operation dealings between China and Taiwan in February of 2005, which creates excess of security firms in Taiwan that can set up new security firms in China. 

The financial operation dealings between China and Taiwan amounted to $170 billion dollars in 2004.  It was an increase of 42 percent from the year previous.  The banking system resembles the blood circulation system within a human body.  The blood supplies the required oxygen to all parts of the body for carrying on activities.  Currently, there are over 70,000 Taiwanese companies with either manufacturing or logistic operations in Mainland China, as estimated.  An estimated 700,000 Taiwanese middle-management staff works in the mainland.  The number of main flights in a year is estimated to be above 3 million flights between China and Taiwan. 

With such magnitude of activities, those Taiwanese companies are eager for financial services to be provided by the Taiwanese banks with the aid of the American banks.  However, the opening of the full banking services is slow.  It is hoped that the signing of FTA between the USA and Taiwan will serve as a catalyst for speeding up the opening of banking services across Taiwan’s strait. 

And finally, as a concluding remark, the US government has now started to work towards an additional list of candidate countries for free trade agreement.  I would like to point out that the size of the benefit for the US-Taiwan FTA will be no less than those benefits for those candidates chosen.  As I mentioned earlier, the benefits for the American business community will be an increase of US $3.4 billion of trade each year. 

Let us all join forces to try and to figure out a way in promoting the US-Taiwan Free Trade Agreement.  Thank you.

 Dan Blumenthal:  Thank you very much, Mr. Kiang.  I think you are being kind in comparing the FTA and others that we have signed up with in terms of economic benefits to the United States.  I will not name any particular countries, but I think it is clear that there are probably greater economic benefits for the US in terms of the Taiwan FTA than some of the other countries we were negotiating with. 

Dr. Claude Barfield is going to make his presentation now on - well, I guess we will see on what exactly.

 Claude Barfield:  Thank you, Dan.  Mr. Chen, thank you for taking the lead here.  I should say that Dan and his assistant, Chris Griffin, did a lot more than I did in putting this together.  I would like to go over some of the same territory and end up with support for US-Taiwan FTA, but in a very nuanced fashion, and I would say not as a last resort, but as a resort that I think is not as beneficial to Taiwan as other potential resorts.  So whether or not or there are other potential options, whether or not they are possible, we can discuss. 

Let me start off by talking about the Bush administration trade policy.  I’ll make two points briefly.  One, in terms of recent administrations, while there was continuity, for instance, our priorities remain with the World Trade Organization.  I should say as a footnote, I should have started with this; we did not plan it this way.  But this is a very interesting day for us to have this session.  With the collapse of the Doha Round, a whole new set of trends and events and policy changes or advances will come as a result of that, not the least of which I think the United States will turn increasingly to look to East Asia for its economic, trade and investment ties.  That has major implications for what we are talking about today. 

But let me go back just briefly to the Bush administration trade policy and its novel features.  One, just briefly, was the so-called “competitive liberalization.”  Now we associate this with Robert Zelleck, but I think his successors at the USTR had picked up on the same theme.  I would predict that whether we have a Democratic or Republican president in 2009, that will continue.  By competitive liberalization the United States said, “Yes, the WTO is our main priority, but we will negotiate bilaterally, regionally, trilaterally, pluralaterally [sounds like], any lateral you want to get to global free trade.”  We can talk about whether that is realistic or not in a minute, but that is their policy. 

The second thing, which ties directly to the US [indiscernible] for US-Taiwan free trade that we see - “we” being the Bush administration - trade policy as a part of a subset of our larger security, political, and diplomatic goals.  We will choose our trading partners partly on the basis of their support for us in our foreign policy goals and our security goals. 

Several years ago, Zelleck laid down a series of 12-13 conditions.  I am not going to explain in more detail what I just said.  I am not going to go over them all, but let me just say that in terms of Taiwan and those conditions, Taiwan should be really close to the top of the list.  Taiwan is a democracy.  It has a significant economic relationship with the United States, as the other panelist pointed out.  It is willing to negotiate - this is key - a comprehensive agreement, including services, including investment, including intellectual property.  It is willing [sounds like] to go beyond WTO liberalization.  It is also a staunch diplomatic and security ally of the United States. 

Finally the agreement, as one of the speakers just said, does enjoy already substantial bipartisan support in Congress.  [Indiscernible] for others, I have a feeling that even though you trotted out some numbers about the US business meeting - we got somebody from the US-Taiwan business meeting - I suspect that the US business community is with a mixed mind here.  Let us be clear - I will come to this - whatever economic and investment interests they have in Taiwan are dwarfed by what they either have or hope to have in China.  So it would be understandable that they are not going be the lead here.  On the other hand, I think the administration and the Congress has been in the lead.  So let’s just put that down. 

The other thing to note before I go on to look at East Asia was mentioned by the last speaker:  We are now either negotiating or have signed agreements, with some 18 countries.  In terms of economic impact and benefits to each side, I would say probably only Korea and Malaysia, if both work, would be right up there. 

Now, let me talk just a minute about some additions to what was said about the economic impact of the US - Taiwan FTA.  The truth of the matter is that the benefits in terms of total - if you look at the US economy, that even though this is the top one or two of the 18, the benefits in terms of the modeling that Congress have done to the US economy are miniscule.  It is not because the [indiscernible] is not important, but it is just not - if you look at the totality of US investment abroad, it is positive, but it is very small, and in some models it is very hard to really distinguish in terms of the impact on US GDP. 

Obviously, the positive benefits for Taiwan are much larger because you have a smaller economy hooking up with a larger economy so that the results are positive, but small one both sides.  The other thing to keep in mind and the reason that I’m going into this - because my conclusion at the end is that it is also true that the positive benefits, without getting to the economic weeds [sounds like] here, in the US-Taiwan FTA are likely to come from what the Congress called “trade diversion.”  In other words, other countries will be diverted to trade more with and invest more in Taiwan basically because of the different tariff structure. 

The benefits are not so much in terms of increased productivity.  This means that there is going to be a negative impact - potentially, I do not think it will be large - in terms of the political impact on other countries for the signing of this agreement.  I’ll come back to that in a minute. 

Now, let me then turn now to the rest of East Asia.  We had some numbers about the growth of US-Taiwanese trade investment, and it has grown tremendously.  Taiwan is very important, the eighth largest trading partner for the United States.  But let me just - I took some numbers from trade last year in terms of total trade of Taiwan.  The United States [indiscernible] North America is where about 15 percent of the total trade took place.  For Taiwan, if you look at the totality of these trades, almost 60 percent of Taiwan’s trade is in East Asia.  Here is where the big results would be.  Here is where the big impact or a big history will be.  Somebody mentioned a lot of this is trade back and forth with the PRC. 

So, yes, we are an important trading partner but much more important for Taiwan’s future is the embedding in a regional community.  We have to keep that in mind in terms of what the best policies are for trade between Taiwan and the United States.  Secondly, we have had over the last half-decade a wave that East Asia was very late getting into, a wave of bilateral free trade agreements.  There are some 50 in East Asia, and I should add that as late as 1999 no East Asian country had bilaterals with other countries, in other words, with Japan, with Korea, with the other countries, except for the ASEAN, which I count just as an internal hopeful free trade agreement.  But around the region and with countries outside, the Nineties saw a big increase in FTAs around the world.  East Asia was late, but it has really moved to catch up. 

And so what you are seeing now, as I say, is a wave of bilateral agreements, the theory being – like the theory in the Bush administration - that this could lead to a regional free trade agreement, and then to global free trade.  But just as the Bush administration has found in terms of its hopes to go from bilateral to regional, there are major political as well as economic and trade issues that come up once you go beyond bilateral.  The United States has not been able to go beyond a few bilaterals and with CAFTA in Central America to a Free Trade of the Americas agreement. 

In terms of Asia, there was the hope in the Nineties that APEC would lead to some sort of free trade agreement for the trans-Pacific.  But what you find is that the same problems in the WTO of getting forward - as we have just seen, it collapsed - begin to come up when we go beyond bilateral agreements, wherever you are around the world.  What we are left with in East Asia now are 50, and another 50 planned, free trade agreements around the region.  To bring this back to Taiwan, because of China’s heavy and unwavering bullying of nations in East Asia, all nations in East Asia till today have refused to sign FTAs with Taiwan.  Therefore, Taiwan is increasingly becoming isolated economically within the region. 

Let me finish by noting the following in terms of policy and in terms of the US-Taiwan FTA.  What the Chinese have said is that signing an agreement with Taiwan is a step towards recognizing Taiwan as a sovereign nation, and this breaks the compromise which had been in place for some decades.  I think this is nonsense in terms of the PRC. 

To go back to something Dan said, we have looked at Taiwan-US relations in terms of whether or not we would provoke or not provoke the PRC.  In general I am not in favor of sticking a finger in the PRC’s eyes.  I am not in favor of provoking them.  But in this case, it seems to me, in the case of dealing with whether or not we sign an FTA with Taiwan, these are the other policies.  I think the United States has been weak for this reason.  In international law and custom, China, in allowing Taiwan to enter the WTO, has basically given away the ballgame.  They have agreed that there is a different status that is internationally recognized. 

Taiwan came in to the WTO as a customs territory.  It is outrageous for the Chinese to say that this definition could not be used if Taiwan signed an FTA with Japan or Korea or Brazil or the couple of FTAs in Central and South America.  It seems to me that the PRC is really just out of order.  It is time for the United States, to live up to the international obligations that we have assumed and taken, in terms of the WTO and in terms of Taiwan. 

That leads me to the final thing.  In my mind, for reasons I have just given in terms of the realities of the economic relationships that Taiwan has and will have in the future, and that is tied so much to East Asia and so much to the PRC, and I do not think that is going to change, I think the best thing for the United States to do would be quietly but firmly tell the PRC either they back off and stop this bullying of other nations in trying to stop them from concluding FTAs with Taiwan, or we will sign an FTA with Taiwan in which the economics is important, but much more important is that we would stop the isolation - at least assuage it to some degree or turn it around to some degree -of Taiwan within the region, but also strategically [indiscernible] important. 

It seems to me a perfectly reasonable position for the United States to take.  It should, it probably will, invoke the PRC because what has happened is over the last decade we have allowed the PRC to pressure other nations without saying anything.  I am sure they will scream and yell, but we are on very solid ground I think and it should not provoke them.  I think others may disagree with this and I can understand symbolically why a US-Taiwan FTA is important, but in terms of Taiwan’s economic future and where it is today, it is much more important from a trade and investment point of view that Taiwan be integrated into the East Asian region. 

We talked a little about the whole new production sharing model, of which Taiwan is very much a part.  It will need to remain ever more integrated in that production sharing model.  A big part of it, obviously, is with the PRC, but Taiwan ought to have the ability to be part of production sharing models that include Japan, Korea and the ASEAN countries as they come forward, and not be a production model that begins and ends with the mainland. 

So I will happy to take any questions.  I have a slightly different point of view, but I end up the same place, possibly.

 Dan Blumenthal:  Thank you, Claude.  We will open it up to questions and discussions for everyone after we get through the other presentations.  And now let us turn it over to Chun-Der Wu for a look at the communications industry and information industry and the possible benefits to be gained from both countries in that particular sector.

 Chun-Der Wu:  [Inaudible] and two of them had [indiscernible] grade or maybe did appear heavier on the economic index.  Those are Korea and Malaysia.  But actually in Taiwan, I would look at it in a different way.  If you look at those countries, if those countries have very sophisticated engineering manufacture, and they are looking for a [indiscernible], but if you look at very unique [indiscernible] of the Taiwan industry, especially telecommunication industry, most of their products are either in format or ODM by the major vendor in the US or European country, and that means the US and the Taiwan, their industries are in the complimentary set.  It is not in a competitive marketplace so that impacts the benefits to those countries are more profound than other combination of US and the other countries and that comes back to my talk.  Why? 

The Taiwan telecommunication industry is concerned about this free trade agreement because, very simply, we are part of the value chain in a total solution of telecommunication.  Telecommunication is a little bit different from other industries.  When you approach your customer, you are not selling a box.  You are not selling a product alone.  You are selling a complete package, the total solution, which includes the hardware, software, but also more importantly integration. 

Furthermore, right now, we approach the industry.  We approach our customer.  We are guaranteed.  They can make money not only selling the product and service.  We are selling the way how they can make money.  So that is a total package.  And the US is very good in sales and marketing and system integration.  And Taiwan is very good at making a box.  So combine these two forces.  It would be very strong in the market place.  So let me go back to my former presentation. 

My talk consists of four parts.  I will introduce the status of the Taiwan communication industry economy and then I will talk about what that means to the US industry and the business.  What kinds of opportunities are there for you?  Then I will talk about some work that has to be done, that restriction [sounds like], and if possible those resolutions can be worked out through the FTA.  Then, I will make my final remark. 

Communication equipment produced by Taiwanese companies reached about $15.5 billion with a growth rate of 23 percent.  Most of them, as I said, more than 60 percent of them are in a format of ODM.  The total revenue for the 2006 estimate would be around $20 billion.  So that is a lot.  Most of those products are manufactured outside of the Taiwan, mostly in China.  Taiwan controls the logistics, engineer [sounds like] and can find the best place for the manufacturer, and that would be the very best partner for a US vendor.  If you look at the product category, the Taiwan companies are very good at local area network, and also the terminal, which occupies about 25.9 percent and 58.6 percent of the revenue, respectively. 

As I mentioned earlier, the entire value chain, Taiwanese manufacturers are very good in logistics, engineering, and manufacturing.  However, they need Americans to participate in some areas: technology innovation, defining technical specification and also testing and certification in order for a good to sell around the globe, more importantly, sales and marketing.  As I mentioned, in telecommunications you are not selling a box.  You are selling the entire solution to make sure your client, your customer, can use your solution to make money.  So that is sales and marketing.  The US can help the Taiwanese companies do that. 

For the service sector, the penetration of the 23-million mobile subscribers has already reached 100 percent.  People will say, “Wow, then your market is saturated.  There are no more players who can come into your market.”  That is totally wrong.  If you look at the profit made by this industry in one year, it is about US $2.5 billion.  That simply says the market is not saturated.  A lot of people use a cellular phone.  You will not get the new subscriber, but certainly there are lots of other profit that can be made in the market. 

The same goes for the broadband subscription, which has reached 50 percent, and this market is still very primitive.  I’m not talking about a subscription.  I’m talking about the new services to get into, the broadband service, the IPTV, the video phone.  Those are the new areas.  Nobody has gotten into that market yet.  So that is a new territory for everyone. 

And here, I just talked about the revenue of the service market, which is about US $12 billion now, and we expect a growth rate about three or four percent.  And most of the service revenue came from the mobile cellular service.  So we in the cellular industry right now are talking about data communication, data service, and multi-media service.  Those are new areas we can get into. 

Besides the current market situation, the government is promoting a program called “M-Taiwan program.”  It is a national program and its goal is to have a million broadband subscribers by 2008.  Government will fund $1 billion for a broadband pipeline for infrastructure and also $220 million for wireless access.  Government hopes the infrastructure will draw private investment for application and service, and also complete the entire wireless infrastructure, which expects to be around $6 billion by 2008. 

What kind of application and service?  They are very interesting.  First, the common [sounds like] related service like surveillance, like traffic, like Medicare, and also the campus education-related services.  More importantly, the service to improve everyday citizen life, like IPTV, the VOIP, the voice phone, those kinds of applications and service.  We expect a lot of investment will pour into those areas.  And the predominant result of that promotion comes out at Taipei City. 

Who is the winner of the intelligent community of 2006?  Just two weeks ago, Taipei City held a convention for the World Wide International Digital City in Taipei.  By the way, the Taipei City, the infrastructure was build by North Rail [sounds like].  So that means a great opportunity for US.  As I mentioned, for the new tech knowledge like WIMAX and FTTH, we need a partner to co-define [sounds like] the technical specification, create an innovative broadband application like the IPTV, the video, surveillance security, and also the network element. 

The other areas like certification and modification.  Actually, I’m setting up, testing that in Taiwan now.  And I just found out the gross margin is very high.  It is 30-40 percent of the gross margin, much bigger than manufacturing.  Manufacturing right now is under 10 percent of gross margin, but the testing for a certification of modification enjoys 30-40 percent of margin.  Those are the areas we welcome, and we need some foreign expertise and capital to come in, as well as other areas like sales and marketing to provide a telecommunication network system integration to provide a total solution with the US network system and Taiwan [indiscernible].  And we expect the total [indiscernible] market for this to be around $40 billion. 

And the other area is service.  We need our foreign partner to jointly venture as a network operator.  Network operator like the new WiMAX opportunity, which will operate 10 or 20 operators in [indiscernible] Taiwan [indiscernible].  The license for [indiscernible] spectrum is due on the first quarter of 2007.  And also the existing Type I operator.  Type I operator who owns the facility for the transmission in central office equipment like providing the full service, the local service, long distance service, and international service.  And also we have Type II operator need the foreign investment like resale, the voucher [sounds like] network operator, like Virgin Mobile.  He is very successful as I know in the US. 

And value added-service provider, the internet SS provider like Clearwire.  And the other area like the content applicator [sounds like], the [indiscernible] of this provider, companies like Disney Mobile, Yahoo Mobile, ESPN, the broadcast media and content like Disney, Time Warner.  Those kinds of companies. 

Those are the kinds of branding that we need to create an opportunity in the Taiwan market.  And we expect the total market size in 2008 to be around US $30 billion.  Even though there are so many opportunities, still there are some limitations and government has tried very hard in recent years to remove those telecommunications restriction for the foreign investment and we hope the current limitation will be resolved [sounds like] through the FTA. 

The limitation I can mention here like the foreign investment for a Type I communication service, fixed line, cables, and satellite were included.  Right now, the direct investment limitation had been [indiscernible], 120 [sounds like] percent to 49 percent and for a total foreign investment limitation can reach up to 60 percent.  And even though there are still some limitations, but if you look at the current Type I operator foreign investment situation, two out of 60 only service or company only reached 60 percent of the [indiscernible] and additional three operators had reached 20 percent of the foreign investment limitation.  And more than 50 percent of those 60 Type 1 operators had no any foreign investment at all.

 And also the government is removing the constraint on the nationality of the board of the director.  For a Type 1 fixed line service restriction, the government had opened up a lot.  Their operation permit for a full service has been lifted in 2004 for individual service like long distance, local, international, has been removed in 2005.  And there is no limitation on the Type II service like internet access, MVNO, and value added service. 

In the broadcasting site, for a cable broadcasting, the foreign investment limitation had been increased up to 60 percent and 33 percent of the board of directors can be a foreigner.  For satellite broadcasting, can be invest up to 49.99 percent.  Besides those foreign investment limitations, also government had done a lot to clarify the regulation for converging, broadcasting, media, and telecommunication.  Because, as we know, right now that the cable company can offer telephone service and telephone service can offer TV.  Those kinds of converging require a lot of clarification on the regulation and rule.  Like US formed FCC, the Taiwan also formed a so-called “National Communication Commission,” NCC.  The goal is to streamline the rules and regulations governing the converging of these two industries. 

So, finally I will make several remarks to conclude what I just said.  First of all, US strength is in creativity, the sales and marketing, system integration, those kinds of things.  And Taiwan is very good in engineering, logistics, and manufacturing, in everywhere where you can find the best place for a manufacturer.  So if we can combine both countries’ strengths, US-Taiwan will be an unbeatable force in the market place.  Taiwan will serve the US as a gateway to export her product and service to the Asia-Pacific region and the rest of the globe.  M-Taiwan program promoted to buy the industry and government in Taiwan now and also the deployment of the wireless city.  Taiwan will create $7 billion worth of equipment and service market by 2008.  Then although Taiwan telecommunication penetration is high, the net profits for a service market are still very lucrative. 

Think about it:  $2.5 billion per year in a 23-million population.  That is a lot of profit to be made.  And foreign investment in the capital and expertise is more than welcome to increase the competition in the marketplace.  And finally, the government had done a lot to ease the regulation constraint and also NCC has been formed to clarify the rule for converging the broadband, broadcast, and communications.  And we believe those actions will move the industry to a more friendly free trade environment and this is my talk and I will entertain any question after the panel discussion.

 Dan Blumenthal:  Thank you very much.  We now turn to Rupert Hammond-Chambers, the President of the US-Taiwan Business Council.  He has been with the council for over a decade now, and has brought experience in the area of US-Taiwan Business in economic relations.  You will notice when he starts talking that he has a Scottish accent, which is important because there are statistics that I came across saying that Taiwan is the fifth largest importer of scotch in the world.  I do not know if that is what got him interested in this business to begin with, but an interesting fact.

Rupert Hammond-Chambers:  Thank you Dan.

Dan Blumenthal:  Yes, sure.  Go ahead Rupert.

Rupert Hammond-Chambers:  It is a perfect storm, Taiwan scotch.  Thank you very much.  I want to thank you and Cris, Dr. Barfield and AEI for including the Council in this morning’s session to welcome Steve.  It is good see him and Webster who I have worked with over the years, and Professor Wu.  I have been asked to talk about political obstacles.  I have to profess that it goes completely against the grain of what I have been up to over the last year in respect to the Taiwan FTA. 

I want to take every opportunity, including this one, to state that the US-Taiwan business council is in fact very much in favor of the US-Taiwan free trade agreement.  Indeed, we believe it is at the center of the future of the economic relationship between Taiwan and the United States.  As Steve pointed out in his presentation, Eric Smith at IIPA, and he did not have it up there but Tom Johnson and Rick Vuylsteke at AmCham Taipei have also made positive statements in favor of the US-Taiwan free trade agreement.  There is business support out there. 

Dan, thanks for your comments earlier about some who have suggested that is not the case, but Karan Bhatia last week in his testimony up on Capitol Hill in front of Mr. Hyde and his colleagues actually went on to say, “I believe there needs to be a continued strengthening of support for a US-Taiwan free trade agreement.”  So we are making progress, and that is very useful indeed. 

Political obstacles, perhaps it would be useful for us just to quickly run through obstacles here in United States, talk about some obstacles in Taiwan.  Obviously we have the China issue as well.  Dr. Barfield suggests that possibly there is some ambiguity or maybe some even opposition within the US business community here.  I would suggest that any ambiguity or opposition is not economic in nature. 

Taiwan’s exclusion from regional integration is an issue for all businesses that have invested in Taiwan’s economic future, but possibly, I do not know if you all agree with me, this town has more than one Assistant Secretary of East Asia and the Pacific.  As a consequence, you have a community of people who have very nuanced well-developed views on what US-China policy should be.  Taiwan is a big part of that, and that goes for the business community as well.  So please bear that in mind as we move through the months ahead.  You are going to hear increasingly more noise from the community that we represent and others on this really very important issue. 

Political obstacles, well first and foremost an economic case, an imperative that can be developed in such a way that we all understand why this is economically important.  We had a very important moment in late May, and I believe the person who is most responsible for that positive and important moment is in this room right now, Steve Chen.  Karan Bhatia and his colleagues went out to Taiwan, and we had our most recent TIFA [sounds like] meeting, a meeting that went extremely well, both in substance as well as in form.  That is important because we need to make substantive progress in our TIFA deliberations, but in form as well because we need to feel as if the economic relationship is tracking in the right direction, and it is. 

Steve and his colleagues in Taiwan, not just the Ministry of Economic Affairs but throughout the government worked extremely hard to make substantive progress on those issues that presently are an obstacle to a US-Taiwan free trade agreement.  We have, I believe, every reason to remain optimistic that through the rest of this summer and into the autumn, MOEA and the USTR will continue to make substantive progress on our trade-related issues.  It is critical.  Without that progress the obstacle remains, and, quite frankly, we are not going to get to where we want to be, which is the announcement of an intention to negotiate a free trade agreement. 

If you take the next step, the USTR-MOEA staff and you look at the inter agency obstacle here in the US, it is important that that also have a positive flow of news in respect to the US-Taiwan relationship.  The TEEFA meeting was important.  Karan Bhatia comes back, Tim Stratford, Eric Holpbuck [sounds like], they report positively substantive progress that filters into this system and everybody is excited.  Everybody is cautiously optimistic.  It changes two or three years of difficult relations and the way in which that impacted the inter agency process.  We have some positive news to talk about.  But it is not just economic, that inter agency process.  All issues that impact are relationship Taiwan-United States impact that inter agency process and they all need to be based … well, they do not all need to be, but there needs to be a general feeling that those big issues within the relationship are being addressed. 

I will name one because those of us who follow Taiwan have been wrestling with this issue now since the President made his April 2001 statement on the arm sales package.  We have to move forward in some way that is [indiscernible] and his colleagues in the Defense Department, the State Department and others in a positive direction on Taiwan’s intention to offer a robust self- defense that includes movement on those items that the President released to Taiwan in April 2001.  It is important.  It is not just the optics; it is the substance as well.  That is an obstacle right now.  We do need to see some progress so that can be filtered into this system, and so that the administration can feel positive about the direction the relationship is heading. 

Next obstacle overseas:  The political decision, a decision on the part of the President.  I believe that is how high this decision will go if we see substantive progress - economic, military-to-military, and also, I might add, communication-wise, the communication between our government and the Chen administration that needs to continue to track in a positive direction.  Then I believe the White House for the reasons that my colleagues up here on the dais have stated … I think particularly Dr. Barfield’s comments at the end were very interesting, about how little substantive reason there is not to do this, the WTO membership and how an FTA fits in that.  Those comments were excellent and very appropriate in this respect.  The White House would feel empowered to make a decision for an FTA with Taiwan. 

Then once that decision is made obviously we have the Congressional obstacles.  We have TPA.  Well, actually before we get to next year I think the Congressional elections this fall are relevant here.  Whether you are Republican or Democrat it is neither here nor there.  I would argue that particularly in the House of Representatives, if there is a change to Democratic leadership any hope for even TPA light [sounds like] or a number of economies that may be separated and we may just do enough [indiscernible] on just those FTAs, I think that is unlikely.  So what happens this fall is going to be important in respect to the attitude of our Congressional leadership on free trade agreements. 

And then, of course TPA next year.  I am an incurable optimist, never say never, but it looks like a serious uphill struggle to see TPA extended beyond the end of June 2007. That clearly is an obstacle.  It creates a sense of urgency.  That should not, however, for those of us who feel this is a good idea, stop us from keeping our eye on the ball.  The ball for us is an announcement of an intention to negotiate a free trade agreement between the United States and Taiwan, to get that decision made, and then let the rest of the issues play out as those dynamics fall into place. 

Those of you out there - and I can see many in this room who participated in Taiwan’s ascension to the World Trade Organization -understand that this requires patience at times to allow the chips to fall where they may.  While we would very much like to see a free trade agreement between United States and Taiwan announced as soon as is possible.  That is the goal, and issues like TPA extension need to fall into places they will. 

Very quickly, Taiwan obstacles.  The American Chamber of Commerce, the excellent white paper that Richard and Tom and their colleagues do out there annually talked a great deal about - in the past anyway - the importance of cross-trade economic integration.  To talk solely about the US-Taiwan free trade agreement is only in my view to talk about half of this.  Really what we are talking about here is Taiwan’s regional, but really, Taiwan’s global role, as Professor Wu eloquently pointed out in his presentation on telecom. 

Yes, we are talking about trade, but, really, what we are talking about is investment.  And this sort of environment can be created in Taiwan to attract investment, both in respect to domestic reform which is in the hands of Steve and the EY [sounds like] and, of course, the Legislature, and also Taiwan’s ability to compete against its regional competitors [indiscernible].  In that respect we are talking about Taiwan’s need to be able to participate in regional free trade agreements, to avoid trade and investment diversion as a function of their exclusion.  So cross-trade is important. 

It is not just enough, however, for us to say Taiwan needs to do more on cross-trade economic integration.  Taiwan’s integrated economic relationship with China is breathtaking as is its investment.  But clearly there are things that Taiwan’s government can do, and I would argue they are doing them.  President Chen’s decision to allow the premiere Su [sounds like] to take on more economic management, I think, is a very significant step.  And I would suggest to you all today that what we are going to see is more incremental change on cross-trade economic liberalization.  But we have a quiet role to play in that, and that role is to press the Chinese to continue quietly if that is what it takes to engage Taiwan in negotiations. 

I’ll give you a literal example.  Ray Burghardt, great guy, the Chairman of the American Institute in Taiwan takes a visit out to Taiwan in the last month or two.  He has a meeting with President Chen.  President Chen reiterates the four no’s [sounds like].  The next day in Macau, we have a deal on transportation links.  It is an incremental step in the right direction.  It is not everything all at once but it is an incremental step in the right direction. 

What role did our government play?  I would like to think we did play a role. We played a role in pressing the Chinese to quietly act in good faith to engage Taiwan and to look for opportunities to use trade as a way to reduce risks and to increase economic liberalization.  This is significant.  I would also add importantly that the China Airlines flight that recently took off from Taiwan to China had semi-conductor equipment for TSMCs 8-inch fab [sounds like] in Shanghai.  Again I do not believe in coincidences.  I think that was planned, and it sends an important message to us, anyway, that we can expect more incremental liberalization not just in cross-trade transportation but in tech investment in other areas as well.   And we look forward to hearing more of that from Steve and his colleagues on that front. 

So there are political obstacles.  None of them are… this is just a few, but I think it sort of helps frame some of the barriers that we have in the coming months in respect to securing this.  But I would argue that the pieces are in place, though there is momentum both here in United States as well as in Taiwan tracking our economic relationship in the right direction so that at some point I hope in the near future our leadership here in US would feel empowered to make a commitment to Taiwan and announce an intention to negotiate a free trade agreement. 

I’ll stop there. Thank you, Dan. 

Dan Blumenthal:  Thank you very much, Rupert.  That is way too optimistic for my own liking.  I wonder - this is a comment - I wonder if the Administration, when you say they need to be empowered, I wonder whether you can keep putting up obstacles and saying if Taiwan funds a special budget, then we will go forward with the FTA.  I wonder if you can keep doing that just [indiscernible], do you really don’t want to provoke China?  It seems to me that we can have a multi-faceted relationship with Taiwan that is not reliant upon any one track, but perhaps others disagree. 

Before I open it up to questions, I would like to ask the first one.  It relates to something that Claude said about Taiwan’s role in the region, and also about the sort of the new production networks within the region.  And I’m wondering how… I guess I would flip it around and say how would the region lose out if Taiwan will shut out, given the patterns that are emerging in terms of production networks?  And how would the rest of the region lose out from a Taiwan that has shut out of general trade agreements, whether it is through FTAs or a more multi-lateral framework?  A question for Claude, but anyone else can jump in.

Claude Barfield:  The degree to which the FTAs are going to discriminate, or you somehow lessen economic activity of which Taiwan is a part, is to agree that the region is dependent, and this is really a fascinating story the last 10 years, and I will go back to what was said in IT.  What the Taiwan government has done is what governments all around the region have done, and that is they have unilaterally opened up.  They have lowered trade barriers, and they are wide open to investment.  And so this production network, which is all over - I mean Taiwan is a piece of it, but all the countries are a piece of it - has come about through, as I say, very pragmatic opening up. 

The problem you are facing, and here is where you do get back to free trade agreements, is that this is all informal.  Malaysia, Taiwan, and others have lowered their trade barriers but this is just what had been done by the government.  They are not bound to keep this.  They are not bound in the WTO.  So if you had a crisis again or if you had some disruption, then the government can pull all this back.  And I think it is the security that Taiwan, as well as other countries, would get from these FTAs that is important. 

In terms of the economics you just said, yes, it would be… I mean, Taiwan is an important cog but it is only a cog in this East Asian regional - in these arrangements, so it is not going to be a disaster.  They can get along fine.  They would be hurt because what you have lost, though, is the very top in terms of technology with Taiwan in the key electronic areas.  And so the degree that Taiwan has either Taiwanese-based or US-based or owned so-called headquarters companies, where the brain of whatever the electronic system is hurt, it hurts the region.  But it could get along, let’s be very clear. 

And clearly, the other thing to point out, the case again that was mentioned in information technology is a case only in the second order for an FTA.  Taiwan has already done all this, and is thriving for it.  Often it is hard for us to make this case, and we have just seen the crash of the Doha Round because people will not sign up to things that they are doing already.  That is, the nations around the world are liberalizing but they do not want to get caught in some sort of legal system, and I think that is what is working out there.

Dan Blumenthal:  Anyone else would comment on that or on anything else anyone said?

Steve Ruey-Long Chen:  Let me add one more comment.  Actually trade investment relationships between Taiwan and Asian countries have been very close.  In terms of trade actually, more than probably 60 percent of our exports are going to Asian markets.  And in terms of investment, in addition to China, we are either number one or number two, and in some cases number three as a foreign investor in many Southeast Asian countries, including Vietnam, Indonesia, Malaysia, Thailand, and the Philippines. 

So I agree with Dr. Barfield, that it will be a pity that Taiwan cannot be part of the Asian integration because, of course, Taiwan would be suffering, but the other Asian countries will be even suffering more as a result of this kind of situation.  Maybe there will be no continuation of our investment, our technology, and our management skills to be transferred to those countries.  And I do believe that the reason why Asia could become so dynamic, it is because there are some countries like Taiwan who are playing a kind of locomotive law to promote the economic development, to provide the necessary technology and capital and human resources, and I do believe that eventually Asia without Taiwan, it will not be as it is today.  Thank you.

Dan Blumenthal:  Rupert.

Rupert Hammond-Chambers:  As I mentioned in formal comments, FTAs are in a large way about investment, the ability of particularly service companies to be able to invest in sections of the economy.  What we would hope to see in Taiwan’s future is an increasingly open and robust service economy.  And certainly, that would have a significant benefit on US companies participating in that.  But if Taiwan is unable to continue its impressive role in regional investment as a function of exclusion from trade agreements that have important investment criteria as part of that, I would argue that not only will that be bad for Taiwan’s companies and investors, but it will also be bad for the region because Taiwan brings so much to the table.

Dan Blumenthal:  Thank you.  We will open it up [audio skips] question rather than comment.  You and I broke the rule in the beginning, but I’m the moderator.  Please wait for the microphone and state your name and affiliation.  So where is the microphone?  Okay, there we go.  Let’s start here and work backwards.

Daniel Newman:  Thank you.  Dan Newman, Inside US Trade.  Mr. Minister, as Rupert pointed out earlier in the week, Karan Bhatia testifying before the House said that continued strengthening among US businesses in supporting an FTA needed to occur before FTA negotiations could begin.  While he was in Taiwan on his visit and prior to that, he also said that there would not be enough time before TPA expired.  Rupert seemed to think that his recent comments are optimistic.  One could also say that it is another reason why they are not ready yet to begin negotiations. 

At what point do you find that the USTR’s continued ambiguity about their willingness to open up negotiations sort of becomes crystal clear that they are not willing to do it and decide to move beyond working towards an FTA and maybe working towards an enhancement of current TIFA or some sort of other lesser bilateral negotiations.  Or the politics of being able to say you having an FTA with the United States is so important that you are going to continue to push forward for that over all other options or at some point, or the economic benefits of maybe an enhanced TIFA worth examining that instead of an FTA?

Steve Ruey-Long Chen:  Thank you for the question.  Well, actually, during his visit in Taipei, Ambassador Bhatia did mention that due to the concern of the US resources, it is difficult for the moment to put Taiwan on a list.  But he did also say that he did not take it off the table to be quoted in his remarks.  So that means he did not exclude the possibility that there will be eventually an FTA negotiation between Taiwan and USA. 

Well, actually, I mentioned that US business support will be important, and I entirely agree with him that, anyway, FTA is a kind of economy and trade agreement to bring economy and trade benefits to the business communities of the two countries.  That is why, in the future, we certainly will work together with the US business community, including Rupert’s organization and US-Taiwan Business Council to see whether we can really build up the momentum of support from the US business community.  We will continue to convince your business community that it is really in the interest of the US business to see an FTA with Taiwan as early as possible. 

Anyway, the early bird has the worm and we have only three FTA up to the moment.  So if US will be the number four FTA partner with Taiwan, I do believe US will benefit a lot from this arrangement.  Thank you.

Daniel Newman:  [Inaudible]

Steve Ruey-Long Chen:  Well, I think for the moment we are aiming at free trade agreement to cover a very comprehensive market access agreement, because we do believe that only through this way can we really generate the benefit for the business communities of the two countries.  Thank you.

Theresa Hsu:  Theresa Hsu, Washington Observer Weekly.  Many in Taiwanese and American business communities have been calling for a more open policy, especially trade investment policies toward the mainland.  When Representative Bhatia visited Taiwan earlier this year, he pretty much expressed the same sentiment toward the restrictions.  So my question for Minister Chen, and open to other panelists as well, do you personally believe that it is beneficial to Taiwan’s economies to have a more open policy, including regular direct cargo and passenger flights across the strait?  And do you think it would be also helpful for Taiwan to get the US on the negotiation table for the FTA?  Thanks.

Steve Ruey-Long Chen:  Oh, thank you.  Actually, Taiwan is already very open in this area.  Let me just give you some facts.  Probably 33 percent of our exports are going to China.  According to our recent statistics, more than 70 percent of our investments are going to China.  For the moment, only very limited items of investment are still subject to restriction because of the different considerations.  So from most figures, you can see that, actually, the trade and economic relationship between the two sides of the Taiwan Strait is already very close. 

But talking about air link as Rupert just pointed out, we would like to see the setting up of the direct air link as soon as possible with China.  But for this particular issue, since some administrative authority are involved in the process, we have to sit down together with China to discuss a lot of details about the possible air link to be set up.  So far, we regret that China still does not want to sit down with Taiwan to talk about this issue, but still, even in the face of this kind of situation, we continue to see whether we can get some incremental measure to improve that situation. 

The charter flight for the air cargo, for example, is already in operation, and there will be charter flights for passengers as well.  So this will be a kind of measure that we will adopt for a moment in the run-up to the eventual air link to be set up.  But again, we have to sit down together to talk with China about all the administrative arrangements to make it become a reality. 

Theresa Hsu:  [Inaudible]

Steve Ruey-Long Chen:  That will be possible eventually, but it takes two to tango, so we do need China to be cooperative in this area.

Dan Blumenthal:  You have to [audio skips] flights [audio skips].  I wonder if it is not the other way around when we talk about political obstacles in Taiwan.  Of course, the salience of the concern among the public of over-reliance in the mainland in the absence of an FTA is actually a political obstacle within Taiwan to some of these things.  I wonder if is not the other way around that the FTA, in fact, will be able to give Taiwan the confidence that it has diversified in terms of its investment and trade and will actually facilitate some of these things.  I wonder if any of you had a comment on that.

Rupert Hammond-Chambers:  To make a comment about… to come back to an issue about Taiwan’s future, whether it is in the context of a free trade agreement, whether it is in a context of its economic relationship with China, or generally its role in the global economy, they are all part of the same focus, the same drive, the same interest that we all have, which is an economically vibrant Taiwan that serves the interest of its people, and that it is a good trading partner and general partner in the IT supply chain for US companies. 

What is interesting at this juncture, and we have got a little way to go yet, is in Taiwan, domestically, the trade associations like ours only talk about China.  Certainly that is the way the media presents it, but I think there is a lot of fairness in that.  It is very China-focused.  It is very, very much focused on how to liberalize further, how to open up to China further.  And we have a debate here on the importance and imperative of a US-Taiwan FTA, and really what needs to happen is a sort of consolidation of those two issues into one, which is what steps do we all need to take to make sure that Taiwan has a vibrant and active future? 

And the United States has an incredibly important role to play in that because without us, Taiwan is hugely limited in what it can do:  Defend itself, interact with its neighbors in a proactive way, join the World Trade Organization.  I mean, there are myriad examples over the past few decades where without that critical dynamic of US leadership, Taiwan has been unable to represent its equities in bilateral, multilateral, or global environments.

Claude Barfield:  I would like to follow up.  I would like to go what I had assumed the implication your question, and that is, has the battle of ideas or the battle about the future within Taiwan now have been won by the side that thinks, “Well, there is just not a lot of danger in ever closer economic ties.”  I thought that was a fight that this President had.  Has he just given up?  Is there no longer concern that whether you have an FTA with the United States or not, did you say the word sort of economic [indiscernible] phrase is not an issue?  I mean that is the political… I mean at least I thought … I’m not [indiscernible]… [cross-talking] behind this question, it seemed to me at least in my view was that particular question, and maybe it is gone now.

Dan Blumenthal:  My question was, I wondered if it would not be easier to make improvements in the China-Taiwan investment trade relationship, big as it is, if Taiwan did not fear, which I think there is a fear within the populace that it is getting overly reliant on China.  But again, I do not know if…

Steve Ruey-Long Chen:  Actually, we all agreed do not put all our eggs in one basket, and actually, more than 70 percent of investment in a country, whether it is China or not, is certainly not healthy.  That is why we do believe that we have to diversify our investment, especially in the age of globalization.  We really have to make that real global deployment.  That is why currently, for example, we are encouraging more investment to the Central American countries, especially after the CAFTA was approved by the US Congress.  There will be a lot of opportunity for our companies to set up their operation in the region.  I think eventually some sort of diversification will be necessary, and of course FTA will be useful to facilitate this kind of diversification.

Dan Blumenthal:  The real place that you need to be embedded, and you already are embedded but to me it is secure, is in East Asia.  That is why my point about that, if you guys say it is going to put pressure on the PRC, is to back off on the others.  Now, I do not have any problem when I say that, but this does not mean I’m opposed to a US-Taiwan FTA, but you are not going to have, as a result of a US-Taiwan FTA, some sort of a new rush of trade and investment.  It is just not going to happen.  If you look at the numbers, your trade at any rate is very much a part of this East Asian region.  And that is where you need to secure things, and that is where the diversity to some degree already is and should be protected. 

One way to protect that is to have people formally agree they are not just going to screw around with Taiwan in terms of tariffs or changing investment rules or whatever.  I mean, look, Central to South America, give me a break, in terms of the trade numbers and GDP and where investment is going to go, particularly Central America.  I mean I’m not suggesting, yes, you have to go or you can get somebody to sit down at the table and it is [indiscernible].  I’m not opposed to that, but it has no meaning economically.  It is only a symbolic thing, which I would do but let’s be careful about what you think the results are going to be. 

Dan Blumenthal:  In the back, your hand and card up.  Remember, your prepared question or statement.

Male Voice:  [indiscernible] with Agence France Presse.  Minister, could I ask you directly, do you think the US administration is dragging its feet after what you presented as compelling case for an FTA because it does not want to provoke China?

Steve Ruey-Long Chen:  Thank you.  Well, actually, I do understand there are so many countries that are killing for an FTA with the United States.  That is fully understandable that if we want to be on the top of the waiting list of the US, we have to make more efforts to have the strong support from both the US business community and the US Congress, and eventually I do believe that certainly the US government will have to look to the business community to see whether they do see opportunity or they do see benefit of an FTA with Taiwan.  So precisely in the next six months, this will be the area of focus of our efforts to promote FTA with the United States.  Thank you.

Dan Blumenthal:  Did anyone else have a comment?

Claude Barfield:  I will second that.  That is why it is really… I mean to talk about what … Mr. Bhatia is a very able civil servant.  He is engaging.  He knows his portfolio, but his portfolio has little to do with the decision on whether or not I’m going to have the FTA with Taiwan.  If you would look at where Taiwan is, vis-à-vis other FTA partners just in terms of their opening, they are the obvious candidates economically.  Look at where Korea was when we started some months ago, or Malaysia.  So I feel for him, he has to answer these questions but he is irrelevant it seems to me, and this idea that somehow I think you should keep opening up and doing the things you are doing because it is for your benefit anyway.  But the decision, really, is very much a decision on foreign policy [indiscernible].

Rupert Hammond-Chambers:  With all due respect to Dr. Barfield, I would not describe USTR as irrelevant.  For us, they have to be persuaded.  They have to be on board with this for us to make progress.  I know that [audio skips, indiscernible] I believe they are not persuaded.  I just do not believe it.  If they, they are fools and I do not think they are fools.  I just look at where Taiwan is, just in terms of … yes, I'm sure our business community has some things that they gripe and bitch about that we still need to do.  But just look at this economy versus other economies, and some for the - I feel for Mr. Bhatia because he has to sort of [indiscernible] there is this and that to do, but he knows that the decision, I think, at any rate is not that they are irrelevant.  I should not have said that.  But the final decision is going to be one that has gone far beyond USTR it seems to me, on Taiwan.

Dan Blumenthal:  A word on this, and then we will move on.

Rupert Hammond-Chambers:  Yes, thank you.  Just to go back for a few more comments, I mean again, that is why there is a step-by-step process, if you will.  You have USTR interagency, White House.  It marches not in the general direction towards the political dynamic that you are all talking about, and there is only one issue in that, and that is China and how our country decides how to manage that issue. 

We had a luncheon with Chris Hill at the beginning of this year, and we talked about FTA within that luncheon and Chris said, “We have a mechanism for dealing with China on bilateral issues, whether or not we should go with your dynamic [sounds like] and say we are just not going to do it because of that.”  I'm an optimist.  I believe that we can act in our own interest and well in this instance.

Dan Blumenthal:  Thank you.  One question, over here.

Steve Landy:  Steve Landy, Manchester Trade.  Claude and I are maybe the only people in this room who go back to 1978, when we did the original negotiation with Taiwan after President Carter had made a decision to break the relationships.  Through creativity, we were able to develop some ideas that keep the relationship going, give Taiwan the injury test and the kind of [indiscernible] duty I remember, et cetera.  What I have found so far in so much as to what is happening now is almost a lack of creativity.  I do not see new ideas. 

Taiwan has, for the last 15 years, gone through the same exercise of opening its markets in order to perhaps [indiscernible] settlement kind of areas and so on, coming here and giving us the arguments why this is the greatest thing since sliced bread, or those sliced bread I guess is not good anymore to eat.  But in any case, it has been moving in direction.  I just want to put some ideas out for thought to see how they develop. 

One, use APEC as its cover.  It was a big deal to get into APEC.  It was finally arranged and so on, et cetera, whatever the particular ideas are and so on.  Number two, possibly Taiwan could take some actions on its own to reduce duties absolutely unilaterally, something the Cato Foundation may even think is in your interest, but some interest on…

Claude Barfield:  Sort of saying… [indiscernible]

Steve Landy:  What?  I did not speak to you since you were here, Claude, but I agree on that.  But maybe some duties on products of direct interest to the United States that just really show you are willing to go that next step and so on further.  I do not rule out in this complicated world of dealing with China as well since you have changed the name at least officially, although I'm happy to see that I still see Taiwan written on your slides and everything.  But perhaps it was something where this could be viewed as the first step towards a free trade agreement with China, perhaps using Taiwan, maybe Hong Kong as perhaps beginning points. 

I guess my response at the end of the most recent discussion is I agree with both points.  You need USTR support, but USTR by itself is not enough to carry it through when in the meantime you wish they will continue to give you a lot of excuses without willing the power to deliver it.  But I really would hope that a creative solution may be useful, and the comment I usually make when I go to seminars with four or five speakers on it is, it would be nice maybe to focus on one or two specific issues such as the [indiscernible] rather than to spend a lot of time as we did today - very educational, very useful. 

I forgot most of it discussing all of the individual advantages from this.  I think what we really need is a new strategy.  Thank you.

Dan Blumenthal:  I wonder why we would need a new strategy if these arguments are so compelling.  I think we probably need a new policy.

Steve Landy:  I think he said that China is the reason you need a new strategy.

Dan Blumenthal:  Right.  But again, is China going to dictate our relations with Taiwan?   Yes, right here in front.

Male Voice:  Thank you.  Last week at a similar seminar such as this that was held on Capitol Hill, a former US Trade Representative characterized the Administration’s outreach to Taiwan with regards to a free trade agreement as depending on your cross-strait relations with China coming first, and that greater effort had to be made on Taiwan’s part towards opening up economically as much as Taiwan has to China.  And I just wonder where the security aspect of this relationship comes into play, especially on our end, were you have a country that is pointing 600 missiles at you on the one hand, and the need if we have shared values. 

Taiwan is a democracy.  Where does that come into play as far as this whole FTA equation is concerned?  And I would just like to open that up to any of the panelists.

Rupert Hammond-Chambers:  We talked about the importance of the US relationship to Taiwan in providing for Taiwan’s security.  So we have in the past looked to that principally through the [indiscernible] prism, where we look to sell Taiwan weapons to provide for its own self-defense so that it may feel confident enough to engage China in any conversations that China may deem are appropriate. 

I would absolutely argue, also say that that is clearly important in the economic realm, too.  It is in America’s interest to see a vibrant, healthy, strong, outwardly looking Taiwan, one that is willing and able to engage its partners.  The security concerns are relevant here because the military balance, and Dan knows more about this than I do, is not tipping in a favorable direction as a function of China’s rapid military transformation and modernization and, sadly, Taiwan’s somewhat haphazard attitude towards its own self-defense.  But the economic leadership necessary to ensure that Taiwan has a role is very important. 

Earlier, we were talking a little bit about 60 percent of Taiwan’s trade is within the region.  That is absolutely right.  If the region is undertaking bilateral and multilateral integration as a function of trade agreements, and Taiwan is on the outside of that, how does Taiwan represent its equities?  How does Taiwan ensure that its companies are receiving the same source [??]`of access?  And if it is undermining Taiwan, that is a security concern because it weakens Taiwan economically, and therefore in its ability to do the things that it needs to do.

Dan Blumenthal:  I would add that if you look at the criteria that the US government has laid out that Claude mentioned before, it very much now takes into account things like the fact that Taiwan is a democracy, that Taiwan supports the United States on foreign affairs and security issues.  You look at Taiwan’s support for the United States.  It does not get much mentioned, but on issues of Iraqi and Afghan reconstruction, the war on terrorism, the very criteria that the US government has laid out, Taiwan needs in just about every respect as Claude has mentioned before. 

So by our own criteria, we should be signing it up in FTA, especially in a time where as Claude also made reference to, for reasons of supporting other countries who are helping us in the war on terrorism.  Where the economic arguments are less compelling, we have gone ahead and set up those FTAs.  I think that the USTR that you mentioned [indiscernible] Freedman, Jr. - he did not mention his name, I did - said something to the effect of most people in US government just would wish that the problem would go away.  I do not think that is a very long-term view in a sense that the problem would not just “go away.”  You have a Taiwan that is sort of [indiscernible] has all kinds of implication for US security, including US relations with Japan and so on and so forth.

Nadia Tsao:  Thank you.  Nadia Tsao with the Liberty Times, Washington correspondent.  I just have one question for Mr. Chen.  Since you mentioned there will be, in the last few six months, a window to put this on agenda, or maybe initiate a momentum to talk with the US, with some little time left, I wonder could you share with us what is the strategy of Taiwan.  We have heard so many obstacles, maybe some progress, but with so much time left what will be the effective strategies you are thinking about?  Thanks.

Steve Ruey-Long Chen:  Well, thank you, Ms. Tsao.  For the [indiscernible] six months it is a very crucial for Taiwan.  And well, on one hand, we certainly will encourage our private sector in Taiwan to launch a kind of campaign to get in touch with their partner in the US to jointly support the FTA between Taiwan and USA.  And we are also trying to see whether we can set up a kind of business coalition.  Through this coalition, we can build up much more support from the US-based community.  Those will be the major work that we will undertake in the next six months. 

And, of course, I do believe maybe we can also encourage the scholars from our experts from both countries to establish a kind of mechanism to move FTA forward between the two countries.  The AEI and the other think-tank probably will be in a position to provide ideas and share this with Taiwan as to how we should build up the momentum, build up the consensus support, and also USA and Taiwan business council would be in a position to the [indiscernible].  We certainly will work together to see how we can achieve that goal, and the essential strategy will be that we have to convince the US business community that it is really in the interest of the US. 

Well, actually, the interdependence of Taiwan and US has been so close, and we do see further integration through, and FTA will be necessary.  If you, today, look at a Dell computer, probably there will be an indication of Intel Inside, but actually Taiwan is also inside because most of the notebook computers are made in Taiwan.  And so that kind of relationship is very important not only for Taiwan but also for the US.  So if further integration could be made through an FTA, I do believe that we will have the support of the US business.

Nadia Tsao:  [Inaudible]

Steve Ruey-Long Chen:  Yes, and then the other sector will be the US administration.  Last May, we did have a very successful TIFA meeting as Rupert just mentioned, and this exercise is very important because TIFA is a kind of platform in the round-up to the eventual FTA.  TIFA is a kind of mechanism that we can use on the one hand solve some bilateral issues.  But on the other hand, we can only do work on the area of bilateral cooperation on economy and trade.  So we certainly will come here to follow up the outcome of the TIFA meeting, and certainly we will also talk with different agencies of the US Federal government in the hope that somehow we can convince the US government that it is about time for an FTA. 

And I also would like to mention that the US Congress will be the other target that we will work on during the next six months.  So we will continue, so this is the support from members of the Congress, and that will be a major work.  Thank you.

Claude Barfield:  I think, probably, prayer is the best strategy.  But on the TIFA, I do not think it is in the cards.  I refer to Rupert on this to get this in if you were depending on that deadline.  But I would like to ask this question.  I think Taiwan, given - you are not the business community for the moment.  I'm assuming that we will be neutral to positive [indiscernible].  But Taiwan, of all the potential FTA partners, is the one agreement that you might be able to go through Congress on a regular legislative process.  I say that because the key Democrats have been very supportive.  You got [indiscernible] and Charlie Rangle I think, and others.  So you are not getting that reaction of the Democrats in case the Democrats win or even if they - even with the Republican’s hold house, you still have to get through the Democratic side of the house, and it may very well be. 

And here is where the strategy would come into play.  I mean increasingly east [sounds like] states of the United States are going to have to because we are moving in the wrong direction on trade.  We are going to have to play the China card if you want to get things forward, and the Congress might very well be amendable to an argument that, from a security point of view or political point of view, this is something necessary and we are not to be bound in this case by the trade promotion authority.  I say that is a question to what you, you are up there, you talk to these guys all the time, and I do not.

Rupert Hammond-Chambers:  Thank you, Dr. Barfield.  You are absolutely right, not surprisingly.  I could not agree with you more on this.  Taiwan is a very unique unifier in Congress, and it brings together many different communities and constituencies who support Taiwan mostly for the right reasons.  There are some who are doing this, but a lot of them are supporting Taiwan for the right reasons. 

And for that, I would go back to a point I made in formal presentation about keeping our eye on the ball here.  It is always uphill work getting the Administration, any administration to do things positively for Taiwan, but securing the commitment is what we are looking for, and then working the issue post-