VP-ELECT VINCENT SIEW AND CHAIRMAN BURGHARDT

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 000473 SIPDIS SIPDIS E.O. 12958: DECL: 04/01/2018 TAGS: PGOV PREL ECON EAGR ETRD CH TW SUBJECT: VP-ELECT VINCENT SIEW AND CHAIRMAN BURGHARDT DISCUSS ECONOMIC STRATEGY AND BILATERAL ISSUES Classified By: AIT Director Stephen M. Young, Reasons: 1.4 (b/d) ¶1. (C) Summary: Vice President-elect Vincent Siew told Chairman Burghardt and DDIR Wang on March 28 that the Ma administration will end the current price freezes on oil and electricity, as well as take other steps to deregulate Taiwan's economy and lower barriers to investment in the PRC. The new administration will also permit weekend direct charter flights to PRC destinations by June 2008, with a goal of daily direct scheduled flights within one year. Siew promised to discuss with Ma the possibility of giving incumbent Chen Shui-bian the go-ahead to open Taiwan's market to all U.S. beef products before Chen leaves office. Siew said he hoped the U.S. would allow a Ma visit to Washington before his May 20 inauguration, which, he argued, would provide Ma more leverage with China in future cross-Strait negotiations. End Summary. Ma To End Price Freeze on Oil and Electricity -------------- ¶2. (C) In a March 28 meeting at KMT headquarters with AIT Chairman Burghardt and Deputy Director Wang, Vice President-elect Vincent Siew, accompanied by foreign policy advisor John Feng, outlined the Ma administration's top priorities upon taking office on May 20. First on the agenda, he said, is inflation control. Although the economy is performing well, benefits haven't accrued to everyday citizens, who believe inflation is higher than that suggested by official government statistics. At the same time, however, the administration will also have to act on price freezes for oil and electricity. The Chen administration froze these commodities over a year ago as an election ploy, and oil sells for about half its actual market price while electricity goes for one-third of its true value. Siew told the Chairman that if the price freezes continue, the China Petroleum Company (CPC) stands to lose 90 billion NTD and could go bankrupt. Siew and Ma Enjoy Close Partnership -------------- ¶3. (C) Siew said he had forged a very close partnership with Ma Ying-jeou during the presidential campaign. His role during the race was to explain and promote Ma's economic platform, based on his reputation and experience as an economic authority in the administration of Lee Teng-hui. Also, he capitalized on his Taiwanese ethnicity in the south, which had become a DPP stronghold in the previous two presidential elections. By campaigning in Taiwanese dialect, Siew helped win support for Ma, viewed with suspicion by many southern voters as an "outsider" and "mainlander". Finally, he took advantage of his strong ties in the business community to drum up their support, since Ma lacked significant connections with this important constituency. Siew to Have Expanded Vice Presidential Role -------------- ¶4. (C) Siew said Ma wants him to have a more substantial role in his administration than previous vice presidents, particularly in the areas of cross-Strait and economic issues. He told the Chairman he also intends to assist by familiarizing Ma with how the central government functions, as he is more experienced in government operations and how the various levels of the bureaucracy interact. Domestic and Cross-Strait Economic Strategies -------------- ¶5. (C) Siew discussed three long-term economic strategies of the Ma administration. First, the government will increase domestic demand with the "Love Taiwan" infrastructure plan, consisting of 12 large-scale construction projects. The total cost will approach four trillion NTD, with half to come out of the government budget, and half from private sector investment. Second, the Ma administration will enact a new industrial restructuring enhancement law upon expiration of TAIPEI 00000473 002 OF 002 the current law in 2009. Siew said the new law will provide tax breaks for innovation only, and will be WTO compliant. Third, the administration will encourage general deregulation in Taiwan and remove barriers to investment in the PRC, particularly in the financial sector. Siew said once Taiwan and the PRC negotiate an MOU for a financial supervision system, the path will be clear for Taiwan banks to open branches in China. ¶6. (C) The Ma administration also plans to encourage direct PRC investment in Taiwan, said Siew. He told the Chairman that mainland investors find Taiwan real estate particularly attractive. He added that the government will proceed on expanding direct charter flights beginning with weekend flights commencing from June of this year, extending these to daily charter flights, and finally, daily scheduled flights within one year. Siew Agrees to Discuss Beef Import Issue with Ma -------------- --- ¶7. (C) Burghardt then explained the two U.S. two goals on beef and pork imports to Taiwan: for beef, a general liberalization of all cuts and grades; and for pork, a return to the previously agreed upon Maximum Residue Level (MRL) of 1.0 ppb for ractopamine. The Chairman noted that in his meeting with President Chen Shui-bian, they had discussed Chen's commitment to open up Taiwan's beef market before the end of his term. Chen wanted to fulfill this pledge, he had told the Chairman, but because he considered himself to be in a "caretaker" role, he believed he did not have the power or right to act unless the incoming administration made clear it did not object. The Chairman suggested to Siew that Ma should clear this issue from the agenda so that the U.S. and Taiwan could devote the time to more substantive issues at the beginning of Ma's first term. The beef question is the highest priority for the White House, Burghardt stressed, adding that an agreement with Taiwan would also help pave the way for market access in South Korea. Siew promised to look into the issue and discuss it further with Ma. Ma's Request to Visit the U.S. -------------- ¶8. (C) Siew expressed hope that Washington will allow Ma Ying-jeou to visit the U.S. before he takes office on May 20. A visit would offer a good opportunity to "test the waters" of the cross-Strait relationship, Siew maintained. He doubted that Chinese President Hu Jintao would object to a Ma visit, noting the positive tone of Hu's phone conversation with President Bush. John Feng added that a Washington visit by Ma would demonstrate Taiwan enjoys strong ties with the U.S. and has its implicit backing, and would give Ma added leverage when approaching China. Siew concurred, stressing that the resumption of cross-Strait dialogue requires U.S. support. A visit to Washington would ensure that the USG fully understands the position of Ma and his administration. ¶9. (C) The Chairman said he would inform Washington of Siew's comments, and he added that new ways need to be found for Ma and other Taiwan officials to enjoy better communication with their U.S. counterparts. Although the framework set up thirty years ago makes this difficult, he acknowledged, adjustments over the years have made the situation better now than in the past. YOUNG