VAGUE CONSENSUS, MINORITY OPINIONS, POSITIVE

UNCLAS AIT TAIPEI 002590

SIPDIS

SENSITIVE
SIPDIS





DEPT FOR EAP/TC

E.O. 12958: N/A
TAGS: ECON EFIN EAIR EINV PREL CH TW
SUBJECT: VAGUE CONSENSUS, MINORITY OPINIONS, POSITIVE
SIGNALS - SUSTAINABLE ECONOMIC DEVELOPMENT CONFERENCE
CONCLUDES

REF: A. TAIPEI 2307


B. TAIPEI 2365

C. TAIPEI 2462

D. TAIPEI 2488

E. TAIPEI 2493

F. TAIPEI 2542


1. (SBU) SUMMARY: TAIWAN'S SUSTAINABLE ECONOMIC DEVELOPMENT
CONFERENCE CONCLUDED JULY 28 PRODUCING NUMEROUS VAGUE
CONSENSUS RECOMMENDATIONS. MORE CONTENTIOUS AND CONCRETE
RECOMMENDATIONS WERE RELEGATED TO THE CATEGORY OF "OTHER
OPINIONS," ON WHICH NO CONSENSUS WAS POSSIBLE. HIGHLIGHTS
INCLUDED FINANCIAL SECTOR RECOMMENDATIONS, WHICH SEEM TO
REFLECT A NEW APPROACH BY THE ADMINISTRATION TO FINANCIAL
SECTOR REFORM. HOWEVER, THE MOST IMPORTANT RESULT OF THE
CONFERENCE WAS THE SIGNAL PREMIER SU SENT OF HIS
DETERMINATION TO PROCEED WITH ADDITIONAL CROSS-STRAIT
OPENING MEASURES THAT COULD HAVE A STRONG POSITIVE IMPACT
ON TAIWAN'S ECONOMY OVERALL. END SUMMARY.


2. (SBU) TAIWAN'S LONG-AWAITED SUSTAINABLE ECONOMIC
DEVELOPMENT CONFERENCE CONCLUDED JULY 28 AFTER REACHING
CONSENSUS ON 516 RECOMMENDATIONS. HOWEVER, MOST OF THE
CONSENSUS RECOMMENDATIONS AMOUNTED TO LITTLE MORE THAN
VAGUE STATEMENTS ON WIDELY-ACCEPTED PRINCIPLES THAT SHOULD
GUIDE TAIWAN'S ECONOMIC POLICY. MORE ATTENTION WAS FOCUSED
ON "OTHER OPINIONS" IN THE REPORT, WHICH REPRESENTED THE
VIEWS OF SOME OF THE PARTICIPANTS BUT NOT A CONSENSUS. THE
CONFERENCE REPORT INCLUDED 166 "OTHER OPINIONS". SINCE THE
CONFERENCE, TAIWAN OFFICIALS HAVE INDICATED THAT THEY WILL
TAKE ACTION IMMEDIATELY TO IMPLEMENT CONSENSUS
RECOMMENDATIONS AND WILL GIVE THE "OTHER OPINIONS"
RECOMMENDATIONS FURTHER STUDY.


3. (U) THE CONFERENCE WAS DIVIDED INTO FIVE SESSIONS, WHICH
ADDRESSED THE FINANCIAL SECTOR, INDUSTRIAL COMPETITIVENESS,
GOVERNMENT EFFICIENCY, THE SOCIAL SECURITY SYSTEM, AND
GLOBALIZATION AND CROSS-STRAIT ECONOMIC RELATIONS. EACH
SESSION PRODUCED ITS OWN REPORT OF RECOMMENDATIONS.

FINANCE - REFORM AND STATE-OWNED INSTITUTIONS
--------------


4. (SBU) IN THE FINANCIAL SECTOR SESSION, THE MOST
IMPORTANT CONSENSUS ITEMS FOCUSED MAINLY ON THE TAIWAN
AUTHORITIES HANDLING OF STATE-OWNED FINANCIAL INSTITUTIONS.
THE RECENT CONTROVERSY OVER CHINATRUST'S EFFORTS TO TAKE
OVER STATE-OWNED MEGA FINANCIAL HOLDING COMPANY (REPORTED
REFS A AND E) HIGHLIGHTED PUBLIC CONCERN OVER THIS ISSUE.
SOME OF THE CONFERENCE RECOMMENDATIONS ENCOURAGED THE
AUTHORITIES TO FOCUS MORE ON IMPROVING THE MANAGEMENT OF
STATE-OWNED FINANCIAL INSTITUTIONS RATHER THAN RAPID
PRIVATIZATION. THE RECOMMENDATIONS ALSO ENDORSED LIFTING
SOME RESTRICTIONS ON THE OPENING OF NEW BANK BRANCHES IN
TAIWAN. THESE REFLECT A SHIFT IN THE ADMINISTRATION ON ITS
APPROACH TO FINANCIAL SECTOR REFORM. THERE WAS ALSO
CONSENSUS TO ALLOW INVESTMENT FUNDS TO PURCHASE MAINLAND
CHINESE SECURITIES. THE "OTHER OPINIONS" FOCUSED MAINLY ON
CROSS-STRAIT RESTRICTIONS AS WELL. THEY INCLUDED A
RECOMMENDATION TO LIFT THE 40 PERCENT CEILING ON TAIWAN
INVESTMENT IN THE PRC (REF F),OPENING THE WAY FOR TAIWAN
BANKS AND OTHER FINANCIAL INSTITUTIONS TO OPEN BRANCHES OR
EXPAND OPERATIONS IN THE MAINLAND, AND PERMITTING PRC BANKS
TO OPEN REPRESENTATIVE OFFICES IN TAIWAN.

INDUSTRY - GDP TARGETS AND FOREIGN LABOR
--------------


5. (SBU) THE SESSION ON INDUSTRIAL COMPETITIVENESS PRODUCED
MORE RECOMMENDATIONS THAN ANY OTHER WITH 148 CONSENSUS
ITEMS AND 88 "OTHER OPINIONS". HOWEVER, MANY ITEMS
ADDRESSED VERY SPECIFIC PROBLEMS IN A PARTICULAR INDUSTRY.
OTHERS FOLLOWED THE LARGER PATTERN OF THE CONFERENCE BY
SETTING BROAD GOALS WITHOUT MUCH DIRECTION ON HOW TO
ACHIEVE THEM. FOR EXAMPLE, ONE RECOMMENDATION SET THE GOAL
THAT TAIWAN'S GDP PER CAPITA REACH US$ 30,000 BY 2015 AND
THAT UNEMPLOYMENT BE MAINTAINED BELOW 4 PERCENT. SEVERAL
OF THE RECOMMENDATIONS ADDRESSED THE PROBLEM OF THE RISING
COST OF UNSKILLED LABOR. THERE WAS CONSENSUS TO REVIEW THE
POLICY ON FOREIGN LABOR IN TAIWAN, BUT ONE OF THE "OTHER
OPINIONS" WAS A RECOMMENDATION TO GRADUALLY REDUCE THE
NUMBER OF FOREIGN WORKERS IN TAIWAN. THE PARTICIPANTS WERE
UNABLE TO REACH CONSENSUS ON OTHER KEY ITEMS AS WELL. THE
PROPOSAL TO DELAY IMPLEMENTING A 10 PERCENT CORPORATE TAX



ON UNDISTRIBUTED PROFITS WAS INCLUDED UNDER "OTHER
OPINIONS". ALTHOUGH THE CONFERENCE REACHED CONSENSUS ON
THE NEED TO CONTROL GREENHOUSE GAS EMISSIONS, THERE WAS NO
CONSENSUS ON STANDARDS. A RECOMMENDATION TO RESTRICT
EMISSIONS FOR HIGH-POLLUTING INDUSTRIES BASED ON THE
AVERAGE RATE OF OECD NATIONS IN 2000 WAS RELEGATED TO
"OTHER OPINIONS".

GOVERNMENT EFFICIENCY - DEALING WITH SCANDALS
--------------


6. (SBU) DISCUSSIONS OF GOVERNMENT EFFICIENCY REFLECTED
CONCERNS GENERATED BY HIGHLY-PUBLICIZED POLITICAL SCANDALS.
ONE CONSENSUS RECOMMENDATION PROPOSED THE ESTABLISHMENT OF
A SPECIAL AGENCY TO INVESTIGATE CORRUPTION AMONG PUBLIC
OFFICIALS. ANOTHER CALLED FOR A REVIEW OF THE RETIREMENT
SYSTEM FOR OFFICIALS. RECOMMENDATIONS UNDER "OTHER
OPINIONS" INCLUDED A REVIEW OF THE METHODS USED TO FREEZE
THE BUDGETS OF PARTICULAR AGENCIES.

SOCIAL SECURITY - DAY CARE, PENSIONS, HEALTH INSURANCE
-------------- --------------


7. (U) THE SESSION ON SOCIAL SECURITY WAS AMONG THE LEAST
CONTENTIOUS. THE CONFERENCE WAS ABLE TO REACH CONSENSUS ON
107 RECOMMENDATIONS WITH ONLY FIVE "OTHER OPINIONS". THE
CONFERENCE MADE CONSENSUS RECOMMENDATIONS TO COMPLETE
LEGISLATION ON THE PENSION SYSTEM, IMPROVE DAY-CARE AND
LEAVE OPTIONS FOR WORKING PARENTS, AND CALCULATE INSURANCE
PREMIUMS BASED ON CUMULATIVE FAMILY INCOMES.

CROSS-STRAIT - "OTHER OPINIONS" ABOUND
--------------


8. (SBU) SOME OF THE RECOMMENDATIONS UNDER THE TOPIC OF
GLOBALIZATION AND CROSS-STRAIT ISSUES WERE DESCRIBED REF F.
THE HIGHLIGHTS INCLUDED CONSENSUS ENDORSEMENT OF CROSS-
STRAIT CONSULTATIONS ON BANKING AND SECURITIES AIMED AT
OPENING THE PRC TO TAIWAN FIRMS, AND FURTHER OPENING TAIWAN
TO PRC TOURISTS AND PRC EMPLOYEES OF TAIWAN AND
MULTINATIONAL FIRMS. BOTH SIDES OF THE DEBATE WERE ABLE TO
INSERT CONTROVERSIAL AND OFTEN CONTRADICTORY "OTHER
OPINIONS" ON CROSS STRAIT ISSUES. PRO-LIBERALIZATION
PARTICIPANTS ADDED RECOMMENDATIONS TO EASE THE 40 PERCENT
INVESTMENT CEILING AND PROMOTE CROSS-STRAIT PASSENGER AND
CARGO CHARTERS. INDEPENDENCE-LEANING ANTI-LIBERALIZATION
PARTICIPANTS ADDED "OTHER OPINIONS" CALLING ON TAIWAN TO
MAINTAIN THE CEILING ON INVESTMENT, OPPOSE REGULAR CHARTER
SERVICES AS AN INTERIM STEP TOWARDS DIRECT LINKS, AND STOP
DELEGATING CROSS-STRAIT DISCUSSIONS TO INDUSTRY GROUPS
ACCORDING TO THE "MACAU MODEL" USED TO NEGOTIATE CHARTER
FLIGHTS. WE WILL PROVIDE MORE INFORMATION ON THE
ADMINISTRATION'S PLANS TO IMPLEMENT THE CROSS-STRAIT
RECOMMENDATIONS SEPTEL.

CONSENSUS IS DISAPPOINTMENT
--------------


9. (SBU) THE REACTION TO THE RESULTS OF THE CONFERENCE
AMONG INDUSTRY LEADERS AND OTHER OBSERVERS HAS BEEN MOSTLY
ONE OF DISAPPOINTMENT. IN GENERAL, TAIWAN BUSINESS LEADERS,
WHO FOCUSED PRIMARILY ON CROSS-STRAIT LIBERALIZATION, FEEL
THE CONFERENCE DID NOT GO FAR ENOUGH. MANY HOPED THE
CONFERENCE WOULD PRODUCE A CONSENSUS TO LIFT THE 40 PERCENT
CEILING ON INVESTMENT IN MAINLAND CHINA BUT WERE
DISAPPOINTED THAT IT WAS ONLY INCLUDED UNDER "OTHER
OPINIONS". JEFF CHANG, PRESIDENT OF CATHAY SECURITIES
INVESTMENT TRUST SAID "THE WHOLE CONFERENCE IS LIKE A SHOW,
IN WHICH WE DO NOT EXPECT ANY SUBSTANTIAL RELAXATION OF
CROSS-STRAIT RESTRICTIONS OR IMPRESSIVE CHANGES IN ECONOMIC
POLICY." GARY WANG, CHAIRMAN OF THE GENERAL CHAMBER OF
COMMERCE SAID "WE ARE NOT SATISFIED WITH THE CONFERENCE,
BUT THERE IS NOTHING WE CAN DO BUT ACCEPT IT."
NEVERTHELESS, FOUR MAJOR INDUSTRY GROUPS ISSUED A JOINT
PRESS RELEASE AFTER THE CONFERENCE COMMENDING THE RESULTS.


10. (SBU) PRO-INDEPENDENCE "DEEP GREEN" SUPPORTERS,
ESPECIALLY TAIWAN SOLIDARITY UNION (TSU) PARTICIPANTS IN
THE CONFERENCE, HAVE BEEN HIGHLY CRITICAL OF THE OUTCOME.
THE TSU WALKED OUT OF THE CONFERENCE ON THE SECOND DAY (REF
F) AND FORMER PRESIDENT LEE TENG-HUI GAVE A SCATHING SPEECH
THE DAY AFTER THE CONFERENCE ENDED SAYING THAT INDUSTRY HAD
"KIDNAPPED" THE ADMINISTRATION AT THE CONFERENCE.
ENVIRONMENTAL PROTECTION GROUPS WERE ALSO OUTRAGED AND MANY



WALKED OUT OF THE CONFERENCE THE SECOND DAY. TAIWAN
ENVIRONMENTAL PROTECTION UNION CHAIRMAN CHEN CHIAO-HUA SAID
THE CONFERENCE WAS "MEANINGLESS" BOTH IN TERMS OF
"SUSTAINABILITY" AND "DEVELOPMENT." LABOR GROUPS WERE
VOCAL IN THEIR CRITICISM OF PLANS TO RELAX CROSS-STRAIT
TRADE AND DISSATISFIED WITH THE RESULTS.

COMMENT - THE REAL IMPACT
--------------


11. (SBU) REACTIONS TO THE CONFERENCE HAVE BEEN CONSISTENT
WITH THE PREDICTION OF COUNCIL FOR ECONOMIC PLANNING AND
DEVELOPMENT CHAIRMAN HU SHENG-CHENG, WHO TOLD AIT BEFORE
THE EVENT THAT IF EVERYONE WAS DISSATISFIED WITH THE
RESULTS IT WOULD MEAN THAT THE CONFERENCE HAD STRUCK A
BALANCE THAT APPROXIMATES A CONSENSUS. THE UNHAPPY BALANCE
ACHIEVED SEEMS TO HAVE FAVORED BUSINESS INTERESTS OVERALL.
HOWEVER, THE REAL NEWS OF THE CONFERENCE WAS NOT APPARENT
IN THE RECOMMENDATIONS. MANY OF THE CONSENSUS
RECOMMENDATIONS WILL BENEFIT THE TAIWAN ECONOMY IN SOME
WAYS, BUT THE MOST IMPORTANT RESULT WAS THE SIGNAL PREMIER
SU SENT THAT HE INTENDS TO PROCEED WITH CROSS-STRAIT
LIBERALIZATION EVEN IN THE FACE OF VOCAL OPPOSITION FROM
THE DEEP GREEN. LIFTING THE INVESTMENT CEILING, MOVING
TOWARD DIRECT TRANSPORTATION LINKS AND OPENING THE PRC TO
TAIWAN BANKS AND OTHER FINANCIAL INSTITUTIONS, IF AND WHEN
IMPLEMENTED, WILL HAVE A MAJOR POSITIVE EFFECT ON TAIWAN'S
ECONOMY OVERALL AND ITS COMPETITIVENESS IN THE REGION.
THEY WILL BE IMPORTANT STEPS IN STAVING OFF THE ECONOMIC
MARGINALIZATION SO MANY IN TAIWAN FEAR.
YOUNG