NEW PREMIER CHANG CHUN-HSIUNG ON POLITICS AND

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001204

SIPDIS

SIPDIS

E.O. 12958: DECL: 05/29/2032
TAGS: PGOV PREL ETRD TW
SUBJECT: NEW PREMIER CHANG CHUN-HSIUNG ON POLITICS AND
U.S.-TAIWAN RELATIONS


Classified By: AIT Director Stephen M. Young,
Reasons: 1.4 (b/d)


1. (C) Summary: New Premier Chang Chun-hsiung told the
Director on May 25 that he did not expect a breakthrough in
cross-Strait relations this election year, but was still
hoping for progress on charter flights and allowing PRC
tourists to come to Taiwan. Chang noted the increasing local
pressure on the KMT to allow passage of the annual budget,
which includes the defense budget. Observing that Deep Green
independence-related initiatives will raise concerns among
the swing voters that Frank Hsieh is hoping to attract, Chang
emphasized the need for DPP leaders to reconcile differences
and unite in the run up to the 2008 presidential election.
The Director stressed to Chang that holding a referendum on
joining the UN under the name "Taiwan" could damage
U.S.-Taiwan relations. Chang promised to discuss this issue
with DPP Chairman Yu Shyi-kun, noting that there are
different views within the party on the advisability of
holding a UN referendum. End Summary.

Cross-Strait Relations
--------------


2. (C) The Director met with new Premier Chang Chun-hsiung
on May 25 to discuss the new cabinet's political and economic
priorities over the coming year. Chang, who was head of the
Straits Exchange Foundation before his recent reappointment
as premier, told the Director he did not expect a
breakthrough in cross-Strait relations in the run up to the
2008 presidential election. Beijing plans to give full
support to the pan-Blue and so will not want to take steps
for which President Chen Shui-bian and the DPP could take
credit, Chang argued. Nonetheless, he hoped there could be
progress on issues such as cargo charter flights, allowing
PRC tourists to come to Taiwan, and having the Olympic torch
pass through Taiwan.

TIFA and FTA
--------------


3. (C) Chang told the Director he fully understood that
negotiating a Free Trade Agreement with Taiwan at this time
would be difficult for the U.S., though Taiwan hopes to have
an FTA in the future. For the present, Taiwan is looking
forward to continuing the TIFA process, including negotiating
bilateral agreements on tax and investment.

Standoff over the Annual Budget
--------------


4. (C) The Director asked Chang about the ongoing standoff
in the Legislative Yuan and its failure to pass the annual
budget, including the critical defense budget. Chang
predicted that the pan-Blue will be damaged by its refusal to
pass the budget, which has a negative effect on the economic
growth rate. Even KMT-controlled local governments are
feeling pressure because the lack of a budget affects
infrastructure projects and other local programs. On the
military side, the recent crash of an old F-5 aircraft
highlights the lack of funds for military modernization
resulting from the pan-Blue's obstruction of the defense
budget. The KMT will have to pay attention to such issues in
the run up to legislative and presidential elections, Chang
observed.


5. (C) The KMT is holding the annual budget hostage to its
bill on reorganizing the Central Election Commission (CEC),
Chang observed. The DPP will not yield to the KMT plan to
appoint members of the CEC in accordance with party strength
in the Legislative Yuan (LY) because such a plan is
unconstitutional. While the KMT may try to use the pan-Blue
majority to force the CEC bill through the LY, it is unlikely
to call in the police, which would cause long-term damage and
has only happened once in over twenty years. If the KMT did
manage to pass the CEC bill, the government could request a
revote, seek a constitutional ruling, or take other legal
measures. (Note: The Taiwan media is reporting that DPP and
KMT caucus leaders reached a preliminary compromise agreement

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on May 30 on the CEC issue, which, if no further problems
develop, may pave the way for passage of the annual budget,
including the defense budget. End Note.)

A More Harmonious Political Atmosphere
--------------


6. (C) Chang noted that Taiwan is still going through a
period of adjustment, following the changeover from KMT to
DPP rule in 2000. In 2000, he observed, neither the DPP nor
the KMT were prepared to play their new roles as ruling and
opposition parties respectively. Effective democracy needs
benign competition between political parties within the
framework and law, Chang suggested, adding that both the KMT
and DPP need to become more mature in their approach to each
other. As an example of cross-party cooperation, Chang
recalled how he had brought the New Party's Hau Long-bin into
his cabinet as environmental protection administrator and how
he had found a new position for Hau's assistant when Hau
later left the DPP government.

Upcoming Elections
--------------


7. (C) Frank Hsieh will need to attract moderate swing
voters to win the 2008 presidential election, Chang observed.
If Deep Green fundamentalists push an independence-related
agenda, however, that will worry the swing voters. So, the
question is how to allay such concerns and attract the swing
voters. Heading into the 2008 election, the DPP will need to
unify internally, including finding ways to reconcile
differences between Frank Hsieh, President Chen, and DPP
Chairman Yu Shyi-kun, Chang stressed.


8. (C) Many different factors could affect the outcome of
upcoming elections, Chang noted, including whether the LY and
presidential elections are held separately or jointly,
possibly together with a referendum. When there were
separate presidential and legislative elections in 2004,
Chang recalled, the DPP won just over 50 percent in the
presidential election, but the combined pan-Green vote
percentage fell by almost 10 percent in the subsequent LY
elections. Whether it would be better to hold the LY and
presidential elections together or separately this time is a
very complicated issue. For example, if the elections are
combined, they would be held on January 19 or 20. That is
the coldest time of the year, so one question is which groups
would be likely to vote or not vote during cold weather.


9. (C) One year ago, people were saying no one could compete
with the KMT's Ma Ying-jeou, Chang observed. Now, however,
even within the KMT, many people are saying that the DPP may
win the 2008 presidential election. Nonetheless, Chang said,
it is not clear at this point what the final election result
will be.

UN Referendum Issue
--------------


10. (C) The Director stressed that, although the U.S. does
not take a position on the DPP's plan to hold a referendum on
KMT party assets, holding a referendum on joining the UN
under the name Taiwan could damage U.S.-Taiwan relations.
Emphasizing that the U.S. is Taiwan's best friend, Chang said
he would convey the U.S. view and discuss this issue with DPP
Chairman Yu Shyi-kun, adding that within the DPP there are
different opinions on the advisability of holding a UN
referendum.

Comment
--------------


11. (C) While former Premier Su Tseng-chang was a demanding
and effective administrator, his status as a potential DPP
presidential candidate exposed him to a great deal of
attention and criticism that complicated efforts to work with
the opposition-controlled LY. Chang, who is experienced,
close to President Chen, and has no ambitions beyond his
current position, is low key and projects a conciliatory

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image, important attributes which will help the DPP
government maneuver through the upcoming contentious election
year
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