CROSS-STRAIT CONTACTS: TESTING THE WATERS

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 002654

SIPDIS

STATE PASS AIT/W

E.O. 12958: DECL: 02/01/2015
TAGS: PREL PGOV ETRD CH TW
SUBJECT: CROSS-STRAIT CONTACTS: TESTING THE WATERS

REF: A. BEIJING 9506

B. TAIPEI 2595

C. TAIPEI 2596

Classified By: AIT Director Douglas Paal, Reason: 1.4 (B/D)


1. (C) Summary: Taiwan officials are cautiously optimistic
over the PRC State Council Taiwan Affairs Office (TAO)
response to Premier Frank Hsieh's June 13 offer to designate
non-governmental bodies to start talks on cross-Strait
economic links. The Mainland Affairs Council (MAC) issued a
statement on June 15 reaffirming Taiwan's willingness to
discuss the three issues (fruit, tourism, and flights) raised
by Hsieh via non-official channels, but noted that the
process would need to have official sanction. MAC officials
say they are waiting to see if Beijing will respond to the
Premier's designation of the Taipei Airline Association as
the island's representative for talks on cross-Strait
flights. Taiwan National Security Council (NSC) Senior
Advisor for cross-Strait affairs Chen Chung-hsin told AIT
that both sides seem to be using the air transport issue to
test each other's sincerity before contemplating broader
contacts on other issues. While attempts by the KMT to
restart party-to-party talks with Beijing and threats from
pro-independence leaders may complicate the process, this
week's public exchange appears to have ratified the first
real positive momentum in cross-Strait relations since
February. End Summary.

Small Step Forward
--------------


2. (C) Taiwan officials say they are cautiously optimistic
that the PRC TAO's June 15 press conference (Ref A) signals a
willingness on Beijing's part to consider Premier Frank
Hsieh's June 13 proposal on modalities for starting
cross-Strait talks on economic exchanges (Ref B). While
officials describe the PRC's statement over Hsieh's specific
suggestions for negotiating channels as "ambiguous," they say
that Beijing's willingness to avoid insistence on purely
private sector talks is a step forward. NSC Senior Advisor
Chen Chung-hsin noted that ambiguity is positive at this
stage. "We have been stuck for too long in this cycle of the
PRC saying talks have to be private and we insisting they be
official," Chen noted, "both sides know that in the end we
will use something in between." MAC officials tell AIT that
the next step will be to see whether the PRC makes a concrete
response on the Premier's designation of the Taipei Airline
Association as Taiwan's authorized negotiating entity for
direct cargo/passenger charter flights.

Testing the Waters
--------------


3. (C) The NSC's Chen noted that both sides appear to remain
wary of the other's real objectives, and may need a few more
weeks to test each other's reactions. Chen said that PRC
academic and media contacts called him immediately after the
Hsieh speech to ask whether the Premier was freelancing or
was truly conveying the President's position. Chen said that
he answered emphatically that it was the latter, and urged
his Beijing contacts to press the TAO not to reject Taipei's
June 13 proposal out of hand.


4. (C) Chen noted that while Hsieh's offer was real, Taipei
remains similarly suspicious of PRC motives (Ref C). Chen
said optimism over the TAO statement has been tempered by
reports that the KMT and Chinese Communist Party (CCP) are
preparing for a round of policy talks that will touch on such
sensitive issues as military confidence building measures.
Chen said it was his personal view that the PRC may try to
have it both ways, reaching out to the government on
technical and economic issues on the one hand while
continuing to use the opposition to pressure the Democratic
Progressive Party (DPP) administration to make concessions on
political issues. Chen warned that this tactic could
backfire by handing DPP skeptics ammunition to oppose
flexibility on economic dialogue. Chen added that Taipei has
tried to make it clear to Beijing through various channels
that "we are willing to seek stability and expand economic
contacts, but don't think you can pressure us to surrender on
sovereignty issues."

Fruit and Tourism: Secondary Priorities
--------------


5. (C) NSC and MAC officials say their main focus at the
moment is starting a process on cross-Strait air transport
that will create momentum towards full fledged direct air
links. Premier Hsieh's June 15 recommendation that the two
sides discuss cargo and passenger flights at the same time is
being credited by observers as a providing a face-saving way
out of the months-long debate over which set of talks must
come first. Chen administration officials say they are also
serious about talking about opening the tourist market, but
insist that this will require a step-by-step process that may
start by allowing residents of major cities like Beijing and
Shanghai to visit.


6. (C) Taiwan External Trade Development Council (TAITRA)
Chairman Hsu Chih-jen told the AIT Director on June 14 that
his organization is making preparations for technical
discussions with Beijing on tourism and agriculture. The
June 15 MAC statement noted that TAITRA and the PRC's
"Cross-Strait Economic and Trade Association" (Haixia liangan
jingmao xiehui) would make a natural channel for
quasi-official negotiations on fruit and other "WTO-related"
issues. Nevertheless, the Taiwan government continues to
reject Beijing's stated preference for using the
KMT-dominated Provincial Agricultural Association as Taiwan's
representative in fruit talks. President Chen Shui-bian and
other senior leaders have also made a series of high-profile
appearances in recent days touting the government's success
in opening "high-value" markets like Japan for Taiwan's fruit
exports, contrasting these markets with the limited and "low
margin" potential of the Mainland.

Comment: Regaining Momentum
--------------


7. (C) The June 13 Hsieh announcement and Beijing's June 15
response could mark a turning point in cross-Strait
atmospherics, offering the first real sign of potential
progress since relations soured in March over the
Anti-Secession Law. Near term progress appears likely on
transportation links, while agricultural and tourism industry
pressure is growing on the government to seize opportunities
on offer by Beijing in those areas. Nevertheless, follow-on
steps could still be endangered by actions on both sides of
the Strait. The KMT is clearly seeking to arrange early
KMT-CCP talks in order to regain lost momentum for its
post-Lien Chan visit drive to set the cross-Strait agenda.
PRC agreement to play the KMT card once again could undermine
the case being made by moderates within the Chen
administration that the time is right to move forward.
Pro-independence heavyweights tell AIT that they plan to
mount a challenge to Hsieh's recent olive branch from the
government's left flank. This group could potentially
leverage negotiations between the DPP and Taiwan Solidarity
Union (TSU) over nominations for the December local election
campaign to slow the opening process. Nonetheless, President
Chen and Premier Hsieh appear committed to moving ahead on
technical contacts and should be able to resist domestic
pressures as long as the PRC is willing to maintain the
forward momentum.
PAAL