U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 002431

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/18/2031
TAGS: PGOV PREL TW
SUBJECT: U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION
TAIWAN VISIT: POLITICS


Classified By: Director Stephen M. Young, Reason(s): 1.4 (B/D).


1. (C) Summary: Foreign Minister James Huang told the USCC
delegation that the recent PRC-Taiwan joint announcement of
cross-Strait charter flights was "the most significant
breakthrough in cross-Strait relations of the past six
years," and that prospects for further progress are good.
Huang said Taiwan hoped to start "formal FTA talks" before
fast-track authority expires in 2007, but he acknowledged
that an FTA is not possible before then. Deputy Minister of
Defense Henry Ke argued that the KMT has blocked arms
procurement because they wish to make the DPP government
appear ineffectual. KMT Vice-Chair Chiang Ping-kun and LY
Defense Committee Chair Su Chi said the KMT supports
purchasing the P-3C anti-sub aircraft, remains undecided on
submarines, and is opposed to buying PAC-III until the
alleged referendum-imposed ban expires in March 2007. End
Summary.


2. (U) From June 27-29, USCC Commissioners Patrick Mulloy
and Kerri Houston and Executive Director Scott Bunton met
with Chen administration officials, ruling and opposition
party leaders, prominent Taiwanese and American business
people, and political and economic specialists from Taiwan's
academic community. AIT officers accompanied the delegation
to all of their meetings. This cable covers political
highlights and economic issues are addressed septel.

Foreign Minister James Huang
--------------


3. (C) Foreign Minister James Huang told the USCC delegation
that he believes relations with the United States are moving
in a positive direction, as indicated by the recent visits of
Deputy U.S. Trade Representative Bhatia and AIT Chairman
Burghardt. In particular, Huang expressed Taiwan's
appreciation for Washington's positive response following
President Chen's reiteration of the "four nos." Taiwan would
like to further strengthen ties with the United States
through the eventual establishment of a FTA, at least in
substance if not in name. He commented that Taiwan must
continue to be able to compete effectively economically in
the Asia-Pacific region, because "if the balance is tipped on
the economic side, eventually the political balance in the
region will be altered, threatening Taiwan's survival."
Huang acknowledged that completion of an FTA would not be
possible before fast-track authority expired next year, but
expressed hope that "formal FTA talks" could begin before
then. When asked about whether Taiwan is prepared to agree
to services and agriculture concessions in order to obtain an
FTA, he responded that "Taiwan understands the requirements."


4. (C) Huang said he was optimistic about cross-Strait
relations. Contrary to some expectations, President Chen had
not resorted to provocative statements or actions to shore up
his popularity during the recall crisis, and in fact had
renewed his call for cross-Strait reconciliation.
Cross-Strait relations had not deteriorated during President
Chen's tenure, he argued, adding that the June 14 Taiwan-PRC
announcement of cross-Strait charter flights was "the most
significant breakthrough in cross-Strait relations of the
past six years." Huang contended Beijing's willingness to go
forward with the charter flights agreement indicated an
increasing understanding that former KMT Chairman Lien Chan
and PFP Chairman James Soong do not represent mainstream
opinion in Taiwan, and that greater cross-Strait progress
could be realized by working with Taiwan's elected government
instead of just the opposition.

KMT Vice-Chair Chiang Pin-kung and
LY Defense Committee Chair Su Chi
--------------


5. (SBU) KMT Vice Chairman and legislator Chiang Ping-kun
said the KMT favors maintaining the status quo because the
majority of the people of Taiwan do. The KMT also favors
reducing restrictions on Taiwan investment in the PRC, which
would benefit both sides. The way to keep businesses in
Taiwan, Chiang argued, is to improve the Taiwan investment
climate and facilitate direct cross-Strait travel links, not

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to impose investment and travel restrictions.


6. (C) Chiang said the KMT is committed to increasing
Taiwan's defense capability but believes that arms
procurement should be part of the regular annual budget
rather than a special budget. KMT legislator and LY Defense
Committee Chair Su Chi repeated his contention that Taiwan is
legally barred from purchasing the PAC-3 missiles until the
ban allegedly imposed by the failed referendum expires in
March 2008. The KMT remains undecided about purchasing
submarines because of concerns over their expense and the
lengthy delay before their deployment. Su said the KMT is
very interested in acquiring the P-3C ASW aircraft because
they are affordable and would quickly fill gaps in Taiwan's
defense capabilities. If the P-3C purchase request is
submitted separately to the LY when it convenes in September,
Su said he is confident that it would be passed quickly. Su
also emphasized that the KMT generally believes Taiwan's
military ought to be focused on "defensive defense," not
weapons systems and plans designed to attack China or its
forces, which would give China a possible excuse to attack
Taiwan.

Deputy Minister of Defense Henry Ke
--------------


7. (C) Deputy Defense Minister Henry Ke blamed the KMT-led
opposition for stalling arms procurement, and said the Chen
administration was considering including the entire arms
package in its next annual budget proposal, in order to force
the opposition into an up-or-down vote. Ke added that the
government planned to raise defense spending to 3 percent of
GDP to allow for the modernization of the Taiwan military,
particularly C4ISR and battle management integration,
facilities hardening, next-generation fighter aircraft,
improved ASW capability, and improved military education.


8. (C) According to Ke, Taiwan recognizes that China is using
economic ties, diplomatic pressure and military strategy to
pursue its Taiwan and Asia policy agendas. Ke urged the
U.S., Japan, and Taiwan to think clearly about how to respond
to China's plan. He dismissed the idea that China could
bring about unification through economic means alone, but
said President Chen's "effective management" policy was
necessary to keep the pace of cross-Strait economic
integration within manageable bounds. Ke said that
U.S.-Taiwan cooperation would improve if American flag
officers were allowed to visit Taiwan, and senior Taiwan
officers were afforded increased participation in U.S.
exercises. Ke also suggested establishing a direct means of
communication between U.S. and Taiwan political and military
leaders to coordinate crisis response. Citing recent PLA
purchases from Israel and Russia, Ke also expressed hope that
the U.S. would be willing to sell more advanced weapons to
Taiwan. The United States, he suggested, should be more
concerned that the military balance continues to shift in
China's favor than that increased military capability might
"lead Taiwan to become an agitator." Ke complained that
China is working to increasingly isolate Taiwan
internationally, and said that Taiwan needs U.S. support to
participate in all appropriate international organizations.

Cross-Strait Think Tank
--------------


9. (SBU) Dr. Lin Chong-pin from the blue-leaning Foundation
on International and Cross-Strait Relations (FICS) told the
USCC delegation that he believed the greatest crisis facing
Taiwan is not a PRC attack, but the corrosion of Taiwan's
economy. Lin argued that China is using a charm offensive to
improve its image abroad and to squeeze Taiwan out of the
international arena. The PRC is also siphoning off Taiwan's
economic growth and will continue to do so until Taiwan's
government replaces its paralysis with a coherent, responsive
Mainland policy. Lin suggested that Washington apply a
"double-pronged" strategy to help Taiwan counter China's
regional agenda: continuing to encourage Beijing to engage in
dialogue with Taiwan's elected officials, while strengthening
U.S. military and political ties with Japan, Vietnam, and
others to increase the number of air bases encircling the PRC.

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This cable was reviewed and cleared by the USCC delegation.
YOUNG