Identifier
Created
Classification
Origin
05TAIPEI1376
2005-03-25 04:13:00
CONFIDENTIAL
American Institute Taiwan, Taipei
Cable title:  

CROSS-STRAIT LIBERALIZATION ON HOLD UNTIL MAY

Tags:  ECON EINV EAIR ETTC EFIN CH TW 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001376 

SIPDIS

DEPT FOR EAP/TC
DEPT PLEASE PASS AIT/W

E.O. 12958: DECL: 03/23/2015
TAGS: ECON EINV EAIR ETTC EFIN CH TW
SUBJECT: CROSS-STRAIT LIBERALIZATION ON HOLD UNTIL MAY

REF: A. STATE 15626

B. TAIPEI 709

C. TAIPEI 1080

Classified By: AIT Director Douglas H. Paal, Reason 1.5 b/d

Summary
-------

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001376

SIPDIS

DEPT FOR EAP/TC
DEPT PLEASE PASS AIT/W

E.O. 12958: DECL: 03/23/2015
TAGS: ECON EINV EAIR ETTC EFIN CH TW
SUBJECT: CROSS-STRAIT LIBERALIZATION ON HOLD UNTIL MAY

REF: A. STATE 15626

B. TAIPEI 709

C. TAIPEI 1080

Classified By: AIT Director Douglas H. Paal, Reason 1.5 b/d

Summary
--------------


1. (C) Mainland Affairs Council (MAC) Department of Economic
Director Fu Don-cheng confirmed that cross-Strait economic
liberalization and government-sponsored exchanges are on hold
until at least May. He said that the recent goodwill
measures offered by the PRC on passenger charter flights,
agricultural imports, and the employment of PRC fishermen
were not enough. Fu emphasized that Taiwan was disappointed
the PRC has not responded to Taiwan's proposal on cargo
charter flights. Taiwan's implementation of a currency
exchange pilot program and investment liberalization in IC
packaging and testing and small-size TFT-LCD panel
manufacturing are likely to be announced in May. Other
possible Taiwan liberalization measures have additional
problems that require further study. This is consistent with
expectations among many outside observers, but MAC officials
fear that private sector agricultural interests may move
ahead of the government in responding to Beijing's
agricultural import proposal. The delay in unilateral
liberalization until May indicates that Taiwan won't be using
such measures to restore goodwill and reinforces the fact
that Taiwan expects the PRC to make the next move. End
summary.


2. (C) In a March 22 meeting with econoff, Mainland Affairs
Council (MAC) Economics Department Director Fu Don-cheng
clarified the Taiwan government's plans on cross-Strait
economic and exchange policies in light of the PRC's passage
of the Anti-Secession Law. Fu confirmed that economic
liberalization continues to be a long-term policy, but
further relaxation at this point would create "the wrong
impression." Unilateral economic liberalization measures are
on hold. In addition, Taiwan officials' participation in any
sort of cross-Strait exchange, including participation in

conferences held in the Mainland has been cancelled
temporarily. Public funding for exchanges by private
institutions has also been frozen.

Petty Favors
--------------


3. (C) Fu commented that the three goodwill measures recently
proposed by the PRC were not enough to bring Taiwan closer to
a dialogue or allow further progress on unilateral relaxation
measures. He disparaged these offers as "petty favors" (xiao
en xiao hui). Fu noted that Taiwan airlines are not
interested in the PRC's proposal for additional holiday
passenger charter flights, primarily because of the greater
potential in regularly-scheduled flights elsewhere. On the
PRC's offer to legalize agricultural imports from Taiwan, Fu
pointed out problems that the PRC must correct before such a
measure will have any impact, namely high tariffs on
agricultural goods, complicated sanitary inspection and
quarantine procedures, and closed distribution channels in
the PRC. Furthermore, Fu said the PRC's expression of
interest in legalizing the employment of PRC fisherman on
Taiwan fishing boats was all talk and no action. He
explained that the PRC had unilaterally forbidden employment
on Taiwan fishing boats in 2002, and if it was serious about
reversing the policy, it must act first.


4. (C) Fu emphasized the PRC's lack of response to Taiwan's
proposal for cross-Strait cargo charter flights. He
mentioned some of the reasons why the PRC is less interested
in cargo flights -- PRC airlines don't have the capacity to
compete with Taiwan carriers and don't need access to Taiwan
to take advantage of the rapid growth in China's air cargo
traffic. He also acknowledged that PRC President Hu Jintao
had indicated in his speech at the start of the National
People's Congress (NPC) that industry groups could discuss
such charters. Fu called this a sign that there was hope,
but insisted that the PRC had not yet provided Taiwan with a
real response to the proposal.

Look for Progress in May
--------------


5. (C) Fu indicated that several liberalization measures,
which had been very near approval before the controversy
surrounding the Anti-Secession Law (described ref C),would
likely receive final approval and be announced in May 2005.
He said that Taiwan would legalize investment in the Mainland
in integrated circuit (IC) packaging and testing and
small-size TFT-LCD panel manufacturing. In addition, it will
move forward with the Renminbi-New Taiwan Dollar exchange
pilot program in Kinmen and Matsu.

Other Problems
--------------


6. (C) Other measures on the drawing board still have
problems that will require further examination. These
include Taiwan investment in the PRC in naptha crackers, and
permission for PRC banks to set up representative offices in
Taiwan. Fu said that Taiwan agencies would resume discussing
timing for these measures in May.


7. (C) On the proposal for a dollar-denominated offshore
capital (stock) market recently floated by Taiwan's Financial
Supervisory Commission (FSC),Fu explained that concerns
about adequate liquidity means that more extensive study of
the proposal is required. The concerns revolve around the
question of whether local investors would be allowed to
participate in the market. Fu said that if local investors
are allowed to buy stocks on the offshore market, it could
draw too much capital away from the local board. (Note: BNP
Paribas Managing Director Peter Kurz recently told econoff
that if local retail investors are excluded there won't be
adequate liquidity in the offshore market and the proposal
would be &desperate and doomed to failure.8 End note.)


8. (C) Fu said the plan to relax the technology restrictions
for semiconductor manufacturing investment also needs more
study. Taiwan has been considering lowering the minimum
feature size allowed from 0.25 microns to 0.18 microns. Such
a change would make Taiwan's regulations more consistent with
U.S. export regulations and the Wassenaar Agreement.
However, Fu reported that the nonpaper AIT/T had recently
provided the Taiwan government on U.S. regulations (ref A)
appeared to differ from more restrictive guidance that
Taiwan's National Security Council had received some years
ago from U.S. government officials. (Comment: Fu said that
MAC was preparing some questions to submit to AIT in order to
clarify this possible discrepancy. Fu cited no connection to
the controversy surrounding Taiwan semiconductor
manufacturing firm United Microelectronics Corporation's
(UMC) relationship with Mainland firm He Jian (ref B),but
this is probably also having an impact on liberalization in
semiconductor manufacturing. End comment.)

Private Sector Expectations
--------------


9. (C) Taiwan government plans appear consistent with the
expectations of many outside observers. Chairman of
Powerchip Semiconductor Corp., predicted to AIT/T that the
setback in cross-Strait relations caused by the
Anti-Secession Law would be only temporary. He foresaw a
delay in cross-Strait liberalization measures of about three
months altogether. Huang went further to say that in the
final analysis the law would help reduce cross-Strait tension
by clarifying the PRC's reaction to possible steps Taiwan
might take toward independence.


10. (C) MAC officials express concern also that their
attempts to put the onus on Beijing may be undercut by
opposition and private sector initiatives, especially in the
agriculture section. MAC Chief Secretary Jan Jyh-horng told
AIT that MAC has tried gently to dissuade Taiwan Agricultural
Cooperative leaders from engaging in talks with the Mainland
on possible duty-free imports of Taiwan agricultural
products. Jan said that MAC is concerned that the PRC plans
to open its agriculture market in order to increase Taiwan's
dependency on Mainland trade. He said that MAC has cautioned
Agricultural Cooperative leaders that incentives Beijing
offers today may be arbitrarily withdrawn in the future if
cross-Strait relations sour.


11. (C) People First Party (PFP) Policy Chief Vincent Chang
told AIT that the PFP plans to lead a delegation of
Agricultural Cooperative leaders to the PRC in April to
negotiate 1) duty-free access for Taiwan agricultural
exports; 2) a ban on imports of PRC agricultural products
into Taiwan; and 3) establishment of an agricultural
technology exchange mechanism. Chang said that the PFP might
press the Chen administration to endorse the delegation's
visit as a condition for holding a second meeting between
President Chen Shui-bian and PFP Chairman James Soong. While
the PFP has downgraded the level of the proposed agricultural
delegation in light of the enactment of the Anti-Secession
Law, Chang asserted that it would proceed with or without a
formal official blessing.

Comment ) Still in the PRC's Court
--------------


12. (C) Fu clearly emphasized the Taiwan government believes
that the PRC had not adequately responded to the Taiwan cargo
charter proposal and that its offers so far were all but
meaningless. With the rhetoric about the Anti-Secession Law
in Taiwan already beginning to cool, putting off further
progress on unilateral liberalization measures until at least
May would reaffirm that Taiwan wants the PRC to make the next
move. Unilateral measures will eventually be implemented,
but the Taiwan government won't be using them as a goodwill
gesture to restore the positive pre-Anti-Secession Law
atmosphere and jump start progress toward a dialogue.
Through all of Fu's presentation runs the familiar MAC theme
that it will decide what is best for Taiwan business and that
it will keep business subordinate to cross-Strait political
concerns. End comment.
PAAL