TAIWAN WORKING OUT CHARTER FLIGHT IMPLEMENTATION

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 000222

SIPDIS

DEPT FOR EAP/TC
DEPT PLEASE PASS AIT/W

E.O. 12958: DECL: 01/19/2015
TAGS: EAIR ECON PREL CH TW
SUBJECT: TAIWAN WORKING OUT CHARTER FLIGHT IMPLEMENTATION

REF: A. A) 04 TAIPEI 3523


B. B) 05 TAIPEI 43

C. C) 05 TAIPEI 130

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

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


1. (C) Taiwan authorities and airlines are moving quickly to
implement the agreement reached by Taiwan and PRC negotiators
January 15 on cross-Strait Lunar New Year charter flights.
Only Taiwan investors in the PRC, their families and Taiwan
employees will be able to buy tickets, despite protests from
Taiwan students on the Mainland. According to Taiwan
negotiator, Civil Aeronautics Administration Director General
Billy Chang (Kuo-cheng),the negotiations proceeded more
quickly than expected; the number of flights and the
destinations were the only items that required real
discussion. Quick resolution of these issues as well as
political concerns that turned out to be non-issues highlight
the fact that lack of political will is the real obstacle to
further cross-Strait economic liberalization. (End Summary.)

Moving Forward
--------------


2. (U) On January 15 in Macao, Taiwan and PRC negotiators
agreed to allow 96 direct cross-Strait charter flights -- 24
round trips each -- to carry Taiwan businessmen and their
families for the Lunar New Year. The flights will connect
Taipei and Kaohsiung with Beijing, Shanghai and Guangzhou.
Although the aircraft will not be required to land in Hong
Kong, as during the 2003 Lunar New Year charter flights, they
must pass through the Hong Kong flight information region.
Direct flights should cut more than an hour from travel time.
Although few fares have been announced, analysts predict the
flights will be about 20 percent cheaper than regular
flights. Shanghai Airlines has already announced a
Taipei-Shanghai fare that is more than one-third lower than
the usual rate for flights connecting through Hong Kong.


3. (U) Six airlines from each side of the Strait will be
allowed to participate. All of the Taiwan airlines ) China
Airlines (CAL),Eva Air, Mandarin Airlines, Uni Air, Far
Eastern Air Transport (FAT),and TransAsia ) will
participate. The PRC's aviation authorities announced on
January 18 that Air China, China Eastern, Shanghai Airlines,
China Southern, Hainan Airlines, and Xiamen Airlines from the
PRC side would provide flights. Each airline must coordinate
with one or more from the other side of the Strait to provide
ticketing and airport ground services. For example, CAL
executives have indicated that CAL will provide ground
services in Taiwan for Hainan Airlines and Air China. Air
China will provide these services in Beijing for CAL and
Mandarin Air. China Southern will be their agent in
Guangzhou.


4. (U) Taiwan's Civil Aeronautics Administration (CAA) should
announce charter flight application procedures January 19,
but Taiwan firms have already begun to divvy up the flights
among themselves and announce schedules. Each plans four
roundtrips. CAL and EVA will both fly from Taipei to
Beijing, Shanghai and Guangzhou. Mandarin Air will provide
Taipei-Shanghai and Taipei-Guangzhou service. UNI will fly
from Kaohsiung to Shanghai and Guangzhou. FAT will service
Guangzhou and Shanghai from Taipei, and TransAsia will only
fly Taipei-Guangzhou routes.

Just for Taishang
--------------


5. (C) The two sides agreed that the charter flight tickets
would be available only to Taiwan investors in the Mainland,
their families and the Taiwan employees of their Mainland
facilities, and then only if the investment had been approved
by Taiwan's Ministry of Economic Affairs. Airlines and
travel agents will rely on Taiwan business associations to
verify that travelers meet the qualifications. Many have
complained that Taiwan students studying in the PRC were
excluded, but the Taiwan government has remained firm that
only Taiwan investors, their employees and families will be
allowed to buy tickets. These restrictions will limit
profitability for airlines and may make it especially
difficult to fill PRC-bound planes before the Lunar New Year
and Taiwan-bound planes afterward. The Taiwan government's
determination to restrict charter flight passengers appears
to be aimed at maintaining control of the process of further
liberalization of cross-Strait air links and limiting
expectations and momentum that are emerging with charter
flights.

Few Items of Contention
--------------


6. (C) CAA Director General Billy Chang, who participated in
the Macao negotiations, told AIT/T that the two sides reached
an agreement very quickly. They had planned a two-hour
meeting, but only needed an hour. They quickly consented to
most of the terms, which had largely been worked out by the
KMT-led delegation to Beijing a week earlier and other
indirect or informal channels. According to Chang only three
items required real discussion. For instance, Taiwan
proposed that each side be permitted to fly 36 round trips,
but the PRC insisted on limiting the number to 24.


7. (C) The other two disagreements concerned which airports
would be served by the flights. The PRC proposed that
flights to both Xiamen and Taichung be included in the
agreement. Taiwan rejected both. For Xiamen flights to pass
through a third territory's airspace and remain feasible,
they would have to pass through Japanese instead of Hong Kong
airspace. Taiwan rejected this north-south path for security
reasons. The Taiwan side also noted the mini-links as a
convenient option available to Xiamen travelers. Taiwan
refused to include Taichung because the airport serves both
civil and military purposes. CAA officials also pointed out
that the civil facility is inadequate with a small terminal
and limited space for larger planes. (Note: Taichung Mayor
and former Foreign Minister under the KMT Jason Hu in a
speech to AmCham on January 19 lamented that Taichung was
left of the list of Taiwan points to be served. He said that
there were thousands of Taichung natives working in Fujian
across the Strait that would be inconvenienced by the DPP
government declining to let flights land in Taichung.
Further, Hu said the military area of the Taichung airport,
formerly a USAF SAC base, is "quite small." End Note.)

"One China"
--------------


8. (C) There has been much speculation regarding how the
charter flight framework would handle various sensitive
cross-Strait concerns. Most of these issues seemed to have
been worked out with little difficulty. CAA's Chang told us
that during the discussions in Macao there was no reference
to the flights as "international," "domestic," or "special"
routes. All discussions used the term "charter flights."
Furthermore, both sides agreed to accept aircraft and pilot
certifications provided by civil aviation authorities from
the other side of the Strait. MAC and CAA officials have
assured us that PRC aircraft with the PRC flag would be
allowed to participate. Some had predicted that Air China
would not be permitted by the PRC to provide charter flight
service; because a direct translation of it's Chinese name is
China International Airlines. Nevertheless, Air China will
participate.

Comment ) Details Follow Easily with Political Will
-------------- --------------


9. (C) Rapid negotiations, the easy handling of issues that
Taiwan officials have previously described as very sensitive,
and the speed of implementation all show that the technical
barriers for improved cross-Strait economic relations are
very small. As working-level contacts have told us
repeatedly, if the political leaders on both sides of the
Strait want to work together, a framework for cooperation can
be established almost instantly. The 2005 Lunar New Year
charter flights underscore once again that across a range of
areas that includes not just travel and transportation, but
also finance, telecommunications, trade and investment, the
real obstacle to further cross-Strait economic liberalization
is politics. (End comment.)
PAAL