NO REAL PROGRESS ON CROSS-STRAIT ECONOMIC

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 003661 SIPDIS DEPT FOR EAP/TC, DEPT PASS AIT/W AND USTR FOR WINDELAND AND WINTER E.O. 12958: DECL: 09/02/2015 TAGS: ECON EAIR EINV EAGR PREL TW CH SUBJECT: NO REAL PROGRESS ON CROSS-STRAIT ECONOMIC INITIATIVES REF: A. TAIPEI 3100 ¶B. TAIPEI 2881 ¶C. TAIPEI 2732 ¶D. TAIPEI 2654 Classified By: AIT ACTING DIRECTOR DAVID KEEGAN, REASON 1.5 d ¶1. (U) Summary: Unofficial exchanges continue between Taiwan and China over economic initiatives launched in the wake of China visits by KMT and PFP leaders in May. Progress, however, remains slow as Taiwan continues to hold out for discussions between officials from Taiwan and China to finalize any arrangements. Further, Taiwan's election schedule may hinder progress before the December City and County elections. There seems to be some progress being made in unofficial aviation talks and there are prospects for movement in fruit exports from Taiwan, but little progress on increasing the number of PRC tourists traveling to Taiwan. China has reached out to a new constituency in Taiwan by offering reduced tuition at its universities. End Summary. Cross-Strait: Private Exchanges Continue -------------- ¶2. (SBU) The two sides of the Taiwan Straits continue unofficial discussions on three economic issues that were raised during the visits of former KMT Chairman Lien Chan and PFP Chairman James Soong to the PRC in April-May 2005 -- for liberalizing procedures for PRC tourists to visit Taiwan, permitting Taiwan to export fruit to the PRC and normalizing cargo/passenger charter flights. There has not, however, been concrete progress is any of these three issues to date. MAC Keeps Private-Sector Agents on Short Leash -------------- - ¶3. (U) In what it views as a major concession, Taiwan's Mainland Affairs Council (MAC) has designated three private organizations to undertake discussions on behalf of Taiwan. MAC has provided written instructions to the Travel Agent Association of Taiwan to engage on tourism issues; the Taipei Airlines Associations to discuss aviation exchanges; and TAITRA, a quasi-official trade promotion body, to discuss fruit exports. MAC has asked these agencies to keep discussions strictly confidential, saying that confidentiality is required in order to avoid interference SIPDIS and possible delays. ¶4. (C) MAC, however, remains very sensitive about the terminology used in discussing the private agencies. It asks AIT not to use the term &authorized8 and remains committed to establishing official channels of discussion to avoid the appearance of accepting the &One China8 principle. MAC Chairman Joseph Wu emphasized this point with his August 31 statement that aviation exchanges will require official negotiations. Wu's public statement suggests that prospects are not good for a breakthrough anytime soon. ¶5. (C) While MAC contacts have told AIT that MAC would like to hold bilateral discussion on the three issues as soon as possible, they have also indicated that the upcoming elections scheduled for December 3 could slow progress on these three issues. MAC comments suggest that once again Taiwan's political election schedule may hinder progress on economic integration across the Straits. SEF Pushing for a Role -------------- ¶6. (U) Taiwan's Straits Exchange Foundation (SEF) is the organization designated by Taiwan for private-sector discussions with the PRC. On August 11, President Chen appointed Chang Chun-hsiung, former DPP Secretary General and Premier in the first Chen Administration, to be the new Chairman of SEF. Chang has stressed in his public comments that he wants to promote resumption of cross-strait dialogue at a government-to-government level. ¶7. (C) On August 24, SEF Secretary General Michael You emphasized to AIT that the SEF is the only authorized private organization for handling cross-Strait exchanges that involve sovereignty issues. You also said that while the SEF has smooth relations with the Association for Relations Across the Taiwan Straits (ARATS),its PRC counterpart, it does not have contact with other PRC agencies and cannot establish offices in the PRC. Underscoring the Chen Administration's desire to have the SEF carry out official-level discussions with the PRC, the Executive Yuan has allocated and additional NTD100 million for the SEF to establish a Taiwan Investors Service Center. The SEF announced the opening of the Service Center on August 30. Initiatives -------------- ¶8. (C) To date, the PRC has not responded publicly to MAC's designating agencies to discuss tourists, flights and fruit. However, discussions continue behind the scenes. Shortly before emphasizing the need for official negotiations MAC Chairman Wu told AIT Director that unexpectedly good progress is being made on aviation issues, but that progress is quite slow on tourism exchanges. Press reports appear periodically announcing impending talks on one or more of the three issues and are regularly refuted by MAC. TaiTRA Chairman May discuss AGR in the PRC -------------- ¶9. (U) Taiwan turned down a PRC invitation to send a delegation to the PRC in late July to consult on Taiwan fruit exports to the PRC. On August 1, therefore, the PRC announced unilaterally began waiving import tariffs on 15 kinds of Taiwan fruit. TAITRA Chairman Hsu Chih-jen is scheduled to attend the coming World Trade Center Association (WTCA) conference in Shanghai (September 20-23) at the invitation of the PRC,s Promotion of Foreign Trade body in Shanghai. Hsu said that he would take any opportunities to consult on fruit trade with the PRC. Fruit Problems -------------- ¶10. (C) Continuing in the same negative vein that Presidential Deputy Secretary General, James Huang, earlier offered AIT, Council of Agriculture officials told AIT, during USDA Undersecretary Lambert's visit to Taiwan August 22-23, that they view the proposal on trade in fruit to be entirely politically motivated and of little economic benefit to Taiwan. COA officials are more interested in exporting fruit to the U.S. market than to the PRC. Leaving aside the political aspect of the fruit trade, Taiwan has little excess capacity for fruit production. In order for Taiwan to become a serious fruit trader, it will need to move land and other resources out of current production in commodity crops to significantly increase its fruit production. ¶11. (SBU) USDOC officials informed AIT that Malaysia has informally noted that China's unilateral tariff break may be an unfair trade practice under the Most Favored Nation trade principle of the world Trade Organization. The complaint is that China, a WTO member, is providing an exclusive tariff benefit to another WTO member ) Chinese Taipei. Taiwan Approves Carriers to Fly in China's Airspace -------------- -------------- ¶12. (U) On August 3, Premier Frank Hsieh Chang-ting announced that Taiwan would permit its airlines to fly through China's airspace. Subsequently, Taiwan's Ministry of Transportation and Communication (MOTC) announced operational procedures for its carriers to apply for permission to the PRC authorities for routes through China's flight information region (FIR). Four of Taiwan's six carriers, CAL, EVA Airways, UNI Airways, and Mandarin Airlines, applied to MOTC and have been approved by Taiwan for a total of 18 routes. The four carriers have now applied to China's Civil Aviation Authority for the overflight routes and are waiting for a response. ¶13. (SBU) These four airlines tell AIT that utilizing air routes through China can save NTD 400 million annually in operational costs compared to the current routes, which must now go around China's airspace. CAL and EVA Airways estimate they can save NTD 260 million and NTD 100 million, respectively. Most of the savings would be through less fuel required to fly the shorter routes. PRC Offers Tuition Cuts & Scholarships -------------- ¶14. (U) On August 24, the PRC offered a new inducement to burnish the PRC,s image on Taiwan. Starting in the fall 2005 academic semester, the PRC will now charge Taiwan students the same tuition and boarding fees paid by Mainland university students, cutting the current USD1,000 annual tuition by more than half. The PRC will also offer university scholarships to Taiwan students studying in the PRC. Informed speculation estimates that as many as 20 percent of Taiwan students may be granted a scholarship. Taiwan's official reaction to the PRC offer is mixed. The Ministry of Education stated that Taiwan will continue its practice of not recognizing degrees from PRC universities. However, MAC officials acknowledged that the PRC offer will be attractive to many Taiwan students and that there will be increasing pressure for Taiwan to recognize PRC degrees in the near future. ¶15. (C) Comment: While Taiwan has made a few counterproposals on cross-straits economic initiatives over the past several weeks and months, the PRC remains in the driver's seat. It has made significant proposals and extended unilateral offers on a number of issues that, if implemented, would bring immediate economic benefits to a wide range of Taiwan residents. The Chen Administration's public response to Beijing's overtures over the past month has consisted largely of denigrating them as economically unprofitable or politically devious ("united front" politics). In the context of Beijing's overtures and the opposition Pan-Blue parties' raft of cross-strait initiatives (reported septel),the DPP government has been left looking passive and ineffective. End Comment. KEEGAN