VICE PRESIDENT TELLS DIRECTOR DALAI LAMA VISIT MAY

C O N F I D E N T I A L AIT TAIPEI 001076 STATE FOR EAP/TC STATE PASS USTR FOR STRATFORD AND ALTBACH, TREASURY FOR OASIA/WINSHIP AND PISA, NSC FOR LOI, COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN,USDA FOR FAS/OCRA RADLER AND BEILLARD; FAS/OSTA FOR BLUM, HAMILTON, AND SHNITZLER; FAS/ONA FOR BERTSCH AND FAS/OFSO FOR WAINIO E.O. 12958: DECL: 09/01/2019 TAGS: PGOV PREL ECON ETRD EAGR SENV EINV TW CH SUBJECT: VICE PRESIDENT TELLS DIRECTOR DALAI LAMA VISIT MAY AFFECT ECFA TIMETABLE, CALLS FOR STRONG ECONOMIC TIES WITH THE U.S. REF: TAIPEI 674 Classified By: William A. Stanton, AIT Director, for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY. During the Director's September 2 introductory call, Vice President Vincent Siew said Taiwan hoped to begin discussions with the PRC on a bilateral Economic Cooperation Framework Agreement (ECFA) in the fourth quarter of 2009, but noted it was unclear if the Dalai Lamai's visit to Taiwan would affect that timetable. Siew said that conclusion of an ECFA would be key to Taiwan's efforts to enhance economic ties with the U.S., ASEAN, and other major trading partners. The Director emphasized U.S. interest in building our bilateral economic relationship through an active Trade and Investment Framework Agreement (TIFA) dialogue, and urged prompt resolution of beef and other agricultural market access irritants. Taiwan had to foster future economic growth through new industries and increased private investment, the Vice President said, noting that Taiwan's economy had thus far seen little effect from relaxed restrictions on PRC investment. The Vice President said his recovery from recent cancer surgery was proceeding well. END SUMMARY. -------------- Participants -------------- ¶2. (SBU) The meeting took place at the Office of the Vice President. Vice President Vincent Siew was accompanied by Chief of Staff Francis Liang, Ministry of Foreign Affairs (MOFA) Secretary General Shen Szu-tsun, and MOFA North American Affairs Department Deputy Director Winston Chen. The Director was joined by the Deputy Director and econ chief (notetaker). -------------- -- Vice President Continues to Recover from Cancer -------------- -- ¶3. (C) In response to the Director's expression of concern over the Vice President's health after his lung cancer surgery in the spring, the Vice President said he was "very satisfied with my recovery" and had resumed all regular indoor activity. Under doctor's orders, he would begin outdoor activity later in the month, and would travel to Kaohsiung next week. "I am doing better than my doctor's expectations," he stated. (NOTE: Although a protocol aide advised that the Vice President would not be shaking hands for health reasons, he did in fact proffer his hand to his guests. Siew was alert and engaged throughout the 45-minute meeting, but appeared slightly thinner than during former Director Young's June 30 farewell call.) -------------- -------------- Typhoon Morakot Prompts Development Policy Review -------------- -------------- ¶4. (C) The Director relayed his condolences to the victims of Typhoon Morakot, noting that U.S. assistance in relief efforts was indicative of the close friendship between the U.S. and Taiwan. According to the Vice President, the reconstruction of disaster-stricken areas would take at least three years, and a special budget would be passed to help in that effort. He described the typhoon and its aftermath as "a bitter lesson" that had highlighted the need for "more long-term vision and planning for a sustainable development policy" to help avoid similar calamities in the future. On September 1, Siew noted, he had held a full-day meeting with environmental specialists and other experts who would help develop a new sustainable development plan. The Director expressed appreciation for Taiwan's help in the aftermath of Hurricane Katrina. -------------- -------------- Fostering Growth through New Industries and Investment -------------- -------------- ¶5. (C) Replying to the Director's question about Taiwan's efforts to foster future economic growth, the Vice President explained that Taiwan had to increase high value-added manufacturing while introducing service-related technology into the manufacturing sector. Both public and private research and development spending would be key in improving Taiwan's innovative capability, he added. Siew said Taiwan also had to enhance its branding abilities. The Ma administration had identified agriculture, tourism, "creative culture," biotechnology, medical services, and "green" energy as priority targets for future economic development. Unlike South Korea, the Vice President explained, Taiwan's economic strength lay in dynamic small- and medium-sized enterprises, rather than large conglomerates. President Ma's administration would also continue to use monetary and fiscal policy to facilitate recovery from the global economic downturn, continued Siew, as well as increase infrastructure spending and public investment. Noting that Taiwan's private fixed investment had declined from 15-20% to 11% of GDP in the wake of the global economic downturn, the Vice President said Taiwan had to increase efforts to encourage private investment. If Taiwan revitalized private investment, he maintained, GDP growth would rise. -------------- Dalai Lamai Visit May Affect ECFA timetable -------------- ¶6. (C) Provided that the visit of the Dalai Lama did not become "an impediment to the ongoing process" of cross-Strait dialogue, the Vice President said Taiwan expected to begin formal talks with the PRC on an Economic Cooperation Framework Agreement (ECFA) by the fourth quarter of 2009. He reiterated, however, that it was uncertain "if the Dalai Lama visit will delay the process or not." The administration, continued Siew, sensed that the PRC was still interested in negotiating an ECFA. The Ma administration hoped that conclusion of an ECFA would then facilitate more active bilateral trade talks between Taiwan and other major economic partners, with the U.S. the most important target. According to Siew, a bilateral FTA with the U.S. would allow investors and companies from both economies to cooperate in taking advantage of regional markets, particularly the PRC. -------------- Building U.S.-Taiwan Economic Ties -------------- ¶7. (C) The Director noted that the U.S. and Taiwan were close to resolving the beef market access issue, which he hoped would be completed as quickly as possible. The U.S. would like to resume the bilateral Trade and Investment Framework Agreement (TIFA) dialogue, he said. The Director highlighted the importance of progress on outstanding agricultural trade irritants, including setting maximum residue levels (MRLs) for pesticides and animal drugs used in pork and other agricultural products. Taiwan trade ties were important to the U.S., the Director emphasized, and Washington was interested in strengthening the overall bilateral relationship. The Vice President observed that three decades ago when he headed the Bureau of Foreign Trade, Taiwan was America's fifth-largest trading partner, and the U.S. was Taiwan's top trade relationship. Although trade relations had since diversified for both economies, the bilateral economic relationship remained very important. Siew noted Taiwan's ongoing interest in negotiating bilateral investment and taxation agreements with the U.S. The Director said he hoped to make progress on a range of initiatives to build the economic relationship. -------------- -------------- ECFA Key to Taiwan Efforts to Expand Overall Trade Ties -------------- -------------- ¶8. (C) In response to a question from the Director, the Vice President said he had little detailed information about PRC views on Taiwan's efforts to enhance its trade ties with ASEAN members and other major trading partners. In general, however, the Vice President believed that absent conclusion of the ECFA, the PRC would oppose Taiwan's attempts to build ties with other trading partners. If an ECFA was signed, however, the Vice President said "I see no reason why they (i.e., the PRC) would continue to oppose" such efforts. The Deputy Director observed that given likely PRC opposition to Taiwan concluding FTAs with major trading partners, the U.S. and Taiwan should be creative in exploring other means of increasing bilateral trade and investment, even in the absence of a formal FTA. Such measures would have a practical effect akin to an FTA, and could not be opposed effectively by the PRC. The Vice President noted that the PRC cared primarily about "face," and that Taiwan had more flexibility than the PRC in pursuing flexible options to achieve practical economic goals. -------------- Limited Impact of PRC Investment Thus Far -------------- ¶9. (C) Siew said Taiwan had thus far seen no major investment deals and limited investment activity since certain sectors of the economy were opened to PRC investment earlier in the summer (reftel). Opinion polls indicated that 60% of people in Taiwan approved of the opening to PRC investment, he added. ¶10. (C) COMMENT: Although he did not appear especially concerned about the impact of the Dalai Lama's visit on the cross-Strait economic agenda, Siew made it plain that the visit could ultimately affect at least the timetable for ECFA negotiations. END COMMENT. STANTON