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