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06TAIPEI1789 2006-05-25 08:04:00 CONFIDENTIAL American Institute Taiwan, Taipei
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1. (SBU) Summary: Taiwan Financial Supervisory Commission
(FSC) Department of International Affairs Acting (DIA)
Director General Mr. Andrea Lee told AIT on May 16 that
former KMT Chair Lien Chan's trip to China in April had set
the stage for improvements in cross-Strait economic issues,
and he expected a "breakthrough" in banking to occur soon.
Lee discussed new FSC duties, the upcoming Trade and
Investment Framework Agreement (TIFA) talks, and inquired
about the status of two pending MOUs on financial information
sharing. Action request para 7. End Summary.

Progress on Cross-Strait Economic Issues


2. (C) At a meeting on May 16 between officials from the FSC
DIA and AIT Economic Section, Acting Director General Andrea
Lee (a man) said he had come to the meeting directly from the
Taiwan Legislature (LY) where he had been answering questions
on cross-Strait financial exchanges. Lee said he sensed an
improvement in the tone of partisan discussion on
cross-Strait economic relations ever since former KMT Chair
Lien Chan led a business delegation to the KMT-CPC economic
forum in Beijing in April. Lee credited Lien's trip with
having served as a catalyst for the several subsequent small
moves to relax cross-Strait economic relations, including
recent expansions of the "mini-links" between Kinmen and the
PRC, as the Chen Administration strove to demonstrate that it
could deliver improvements in cross-Strait economic ties just
like the KMT.

"Breakthrough" Due in June


3. (C) Lee believed that the current mood of "competitive
relaxation" of cross-Strait economic restrictions would lead
to more dramatic opening measures after the Economic
Sustainable Development Conference (ESDC, reftel) scheduled
to be held in Taipei June 18-19. He predicted that there
would be a "breakthrough" allowing four PRC banks to set up
representative offices in Taiwan in exchange for seven Taiwan
banks being allowed to upgrade existing representative
offices in Mainland China into full-fledged branches. He was
optimistic that the two sides would sign an agreement
allowing regulatory inspections to be handled through private
channels, such as by certified public accountants, rather
than by official regulators.

Overseas Branches Most Profitable


4. (C) Lee said that currently the most profitable Taiwan
bank branches were ones located overseas, and indicated that
Taiwan banks believed the China market would be exceptionally
profitable due to the number of Taiwan companies located
there that would prefer doing business with a Taiwan bank.
He noted that China has a WTO commitment to permit foreign
banks to handle RMB savings deposits and other local business
starting next year. PRC banks in Taiwan might find business
opportunities among Taiwan business people posted in China,
or foreign exchange and fund transfers for trading firms
engaged in cross-Strait trade.

View of the Mainland Affairs Council (MAC)


5. (C) MAC Economic Affairs Deputy Director General Chien
Chuan-deng told AIT on May 23 that the MAC does not oppose
cross-Strait banking exchanges. However, he said, such
exchanges require (Taiwan and PRC) regulatory supervision,
and current PRC laws require an agreement on regulatory
issues with a foreign country before banks from that country
can set up branches in China. He added that MAC has no

TAIPEI 00001789 002 OF 002

objection to an MOU with the PRC to facilitate cross-Strait
banking, and with such an MOU the MAC would not oppose PRC
bank representative offices in Taiwan. Chien said that such
an MOU could be signed by the FSC, or by the (private) Taiwan
Bankers Association, on behalf of the FSC.

Currency Exchange, Tax Agreement, TIFA


6. (C) Lee said that Taiwan's central bank is currently
drafting regulations to expand NTD:RMB currency exchange to
various tourist areas in Taiwan where PRC tourists may visit.
He also said Taiwan wants to sign an agreement on avoidance
of double taxation with the United States. Taiwan believes
such an agreement will benefit businesses and financial
institutions in their international operations. Taiwan
attaches much importance to the upcoming Trade and Investment
Framework Agreement (TIFA) talks and high ranking officials,
including Vice Economic Minister Steve Chen, have instructed
all Taiwan agencies to "find solutions" and "resolve
outstanding issues."

FSC Expanding Duties, Reach


7. (SBU) Lee mentioned that at the beginning of May the FSC
DIA had assigned to take over from the FSC Banking Bureau
responsibilities related to international terrorist finance
and money laundering issues. Earlier this year, the DIA took
over from the Banking Bureau as an FSC point of contact on
general international and cross-Straits financial issues.
The DIA had recently received Executive Yuan permission to
establish a representative office in London, similar to the
one it established in New York last year. Lee said the new
office does not require additional approval from the UK
government since administratively it will come under the
Taiwan representative office in London. He said it should be
operational by the end of this year. (The Ministry of
Foreign Affairs confirmed to AIT that the FSC office in
London would administratively be a part of the Taiwan MOFA
representative office there.)

Two MOUs in Process


8. (C) Action request: Lee noted that the U.S. Commodity
Futures Trading Commission (CFTC) and the U.S. Federal
Reserve Board both were working on new information sharing
agreements with the FSC and he inquired about the status of
the pending MOUs. AIT/T requests guidance on how to respond
to Lee's question on the current status of these two MOUs.