MA TO CODEL ISSA: CROSS-STRAIT TIES ON RIGHT

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001748

CODEL
SIPDIS

H - PLEASE PASS TO REPRESENTATIVE ISSA

E.O. 12958: DECL: 12/16/2038
TAGS: CH EAGR ECON EFIN ETRD INT PGOV PINR PREL TW
SUBJECT: MA TO CODEL ISSA: CROSS-STRAIT TIES ON RIGHT
TRACK, BUT CHALLENGES AHEAD

Classified By: AIT Director Stephen M. Young for
Reasons 1.4(B) and (D).


1. (C) Summary. As the new U.S. administration reviews its
approach on trade issues, Taiwan hopes to work with the U.S.
to put in place the building blocks for an eventual bilateral
FTA, Taiwan President Ma told Congressman Darrell Issa during
a December 17 meeting. Taiwan appreciates U.S. security
assistance as it works to improve relations with China, first
by securing peace and prosperity across the Straits and
resolve urgent problems while leaving more difficult issues
for later. The mainland is sophisticated and pragmatic
enough to understand this approach. Improving economic ties
with the mainland will provide increased investment
opportunities for both sides and help address the
deterioration of Taiwan's economic competitiveness caused by
previous isolationist policies. Backing away from earlier
optimism regarding WHO/WHA observership, Ma expressed hope
only that Taiwan could "make it" to the WHA meeting in May

2009. Congressman Issa urged President Ma to quickly resolve
the beef issue. End Summary.

Trade, Arms Top Wishlist for Congress
--------------


2. (C) Taiwan President Ma Ying-jeou and Rep. Darrell Issa
(R-CA) discussed cross-Strait relations, U.S.-Taiwan ties,
economic issues and prospects for China's political
development in the course of a cordial one-hour December 17
meeting. AIT Director and Taiwan NSC Senior Advisor Yang
Yung-ming also participated in the meeting. Asked what
issues Congress should raise with the new administration, Ma
said he hoped U.S. policy toward Taiwan would remain
unchanged. While he understood USG concerns about fully
opening the Taiwan market to U.S. beef, Taiwan was still
dealing with heightened public sensitivities about food
safety in the aftermath of the melamine scare from the
mainland. In Ma's view, the Obama administration would be
lukewarm to FTAs, so Taiwan was focused instead on putting in
place "building blocks" that would eventually lead to an FTA.
The first such step would be a bilateral investment
agreement, hopefully followed by a tax-avoidance agreement.


3. (C) Ma noted that improvements in the cross-Strait
relationship were accompanied by some increased risks. In
particular, the missile threat is very different from 10
years ago. As dialogue with China moves forward, it was
essential that Taiwan maintain a strong defense capability
and continue its intelligence sharing relationship with the
United States. Taiwan appreciated U.S. support in the form
of military hardware, as well as technical assistance and
other "software." Congressman Issa reassured Ma that the
U.S. would use its resources to make sure that Taiwan was not
caught off-guard and would provide the intelligence analysis
needed to counter any threats that might arise.

WHO/WHA
--------------


4. (C) Taiwan stood a better chance than in the past of
securing some form of participation in the WHA or WHO in
2009, Ma said. He pointed to Lien Chan's participation at
the APEC meeting in Lima, the six agreements signed between
SEF and ARATS in 2008, and ARATS Chair Chen Yunlin's visit to
Taiwan as signs of Beijing's growing trust and grounds for
cautious optimism. However, despite this good start,
difficult work remained. It could not be accomplished
"overnight." (Comment: Ma appears to have stepped back
slightly from his previous statements on his WHO/WHA goals.
In the past, he called for securing a deal with Beijing on
WHA observership by the May 2009 meeting. In this meeting
and in a recent Washington Post interview, the President said
only that he hoped to "make it" to the WHA. End comment.)

Taiwan Economy
--------------


5. (C) Taiwan had not taken advantage of its position at the
geographic center of East Asia, Ma said and, by waiting too
long to improve cross-Strait ties, had closed some doors for
its economic competitiveness. The results were clear.
Kaohsiung harbor, once the world's third-busiest port, had
dropped to eighth. The Chen administration's isolationist
policies had exacerbated Taiwan's trade problems, but the
business environment on the mainland had also changed and

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Taiwan was looking at incentives to encourage Taiwan
businessmen to return home. For example, Ma said, Kaohsiung
was adding a new container terminal to capture more
transshipment traffic.


6. (C) Just twenty years ago, Taiwan had to send Buy America
missions to the U.S. every year to look at California
oranges, Washington apples, and other products. Now, said
Ma, there was no need to educate the Taiwan business
community on American products. The U.S.-Taiwan trade
relationship is vibrant and, because the U.S. is the largest
consumer market in the world, its financial situation affects
world markets. Congressman Issa warned that U.S. orders of
consumer electronics were likely to drop in the first quarter
of 2009, affecting Taiwan's exports and economic performance
in the first half. However, if the new Obama administration
takes the fiscal policy measures anticipated, he continued,
we should see a positive effect in the second half of 2009.
Congressman Issa also urged President Ma to quickly resolve
outstanding issues involving U.S. beef.


7. (C) Despite the limited global exposure of its banks, Ma
said, Taiwan still had economic problems, exacerbated by
years of isolationist policies under the Chen administration.
Taiwan would be "getting fiscal," boosting the economy by
funding infrastructure projects, encouraging increased
consumption, and providing employment opportunities. To
increase consumption, by Chinese New Year the government
would issue consumer vouchers which could be used to buy
almost anything. The administration had also encouraged the
business community to come up with innovative strategies to
get people to buy more. Asked about currency exchanges
between Taiwan and the mainland, Ma said these had occurred
for more than six years and, since July 30, they had taken
place on a nationwide basis despite the lack of a settlement
agreement. Currency swaps might be on the agenda of future
cross-Strait discussions, he noted.


8. (C) While some criticized him for "kowtowing" to China, Ma
said, a significant majority of the people on Taiwan were in
favor of expanding ties with the mainland. The agricultural
sector, in particular, would benefit greatly from decreased
transportation times and increased markets on the mainland.
Produce prices were highly volatile due to Taiwan's frequent
heavy rains and typhoons and its relatively small market. If
China could take just a few thousand tons of produce each
year, it would greatly relieve these pricing pressures.


9. (C) Congressman Issa asked if Taiwan was looking at the
photovoltaic market for the future. Taiwan's flat screen
technology could serve as a basis for future photovoltaic
production. The synergies were there and California, said
Issa, would much rather spend its money on green technology
than purchasing carbon credits.

China's Path to Social and Political Reform?
--------------


10. (C) The gap between rich and poor in Taiwan was quite
low, Ma said, making it easier to attain social harmony.
Congressman Issa noted that if there was an equitable
distribution of opportunities, then wealth would follow.
Common prosperity was only possible in free societies like
Taiwan. The PRC will never make the jump Taiwan has made
until they have rule of law, said Issa. Allowing some people
to get rich first was the only way the mainland could achieve
such phenomenal economic growth, Ma noted, expressing hope
for China,s future democratic development. While the USSR
seldom sent students to the West, after 1978 China followed
the Taiwan model and sent hundreds of thousands. In Taiwan,
initially only 17 percent of Taiwan students abroad returned.
Ten years later, though, 70 percent (including Ma) had done
so because Taiwan had changed and economic opportunities had
increased. As Chinese students return from studying in the
West, Ma argued, they will bring back the democratic values
to which they were exposed. Ma admitted that the process
would inevitably take longer in a country as vast as China.


11. (C) If prosperity could spread from the few coastal
cities, such as Shanghai and Hong Kong, to the rest of China,
Congressman Issa asked, could change follow? A few years
ago, Ma noted, Beijing had a plan to develop the northeast
hinterland, but there was not enough incentive for coastal
companies to move. There needed to be more investment in
infrastructure, expanding rail lines and highways. The

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current global economic situation, however, would probably
delay this type of investment.


12. (U) Delegation has not cleared.
SYOUNG