TALKS WITH THE PRC ON TRACK AMIDST CONCERN ABOUT

C O N F I D E N T I A L AIT TAIPEI 001445 STATE FOR EAP/TC STATE PASS USTR FOR STRATFORD AND ALTBACH, TREASURY FOR OASIA/WINSHIP AND JEWELL, NSC FOR LOI, COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN E.O. 12958: DECL: 12/07/2019 TAGS: ECON ETRD EINV PREL PGOV TW CH SUBJECT: TALKS WITH THE PRC ON TRACK AMIDST CONCERN ABOUT THE PACE OF ENHANCING CROSS-STRAIT ECONOMIC TIES REF: A. TAIPEI 1396 AND PREVIOUS ¶B. TAIPEI 1378 Classified By: AIT Economic Chief Hanscom Smith for reasons 1.4 (b) and (d). ¶1. (SBU) SUMMARY: The fourth round of talks between Taiwan's Straits Exchange Foundation (SEF) and the PRC's Association for Relations Across the Taiwan Strait (ARATS) remain on track to take place in Taichung on December 21-23. The talks are expected to produce bilateral agreements to enhance cross-Strait cooperation on food safety, double taxation, fisheries, and industrial standards. On the margins of the formal talks, Taiwan also plans to organize a conference on attracting additional PRC investment. Although Taiwan and the PRC will also discuss plans for a bilateral Economic Cooperation Framework Agreement (ECFA) during the upcoming talks, formal ECFA negotiations are not expected to begin until early 2010. Recent discussions with two respected Taiwan academics underscored the range of opinions many here have about President Ma Ying-jeou's cross-Strait economic policies. In particular, their worries about the long-term impact of the ECFA are offset by the perception that some kind of trade liberalization agreement is inevitable. End SUMMARY. -------------- -------------- PREPARATIONS NEARLY COMPLETE FOR NEXT ROUND OF TALKS -------------- -------------- ¶2. (C) According to Mainland Affairs Council (MAC) Vice Chairman Kao Charng, the next round of talks between Taiwan's Straits Exchange Foundation (SEF) and the PRC's Association for Relations Across the Taiwan Strait (ARATS) will take place in Taichung as scheduled December 21-23. SEF Deputy Secretary General Kao Kong-lian, who is slated to travel to Fuzhou on December 9 to finalize plans for the talks, confirmed this information in a separate December 4 conversation with Political Chief. ¶3. (C) The MAC's Kao said both sides have agreed on the texts of the four agreements to be signed during the talks, and are expected to ink final agreements on agricultural inspection and quarantine, industrial standards, double taxation, and fisheries practices (ref a). Reinforcing statements made by other Taiwan officials that the talks were unlikely to produce unanticipated results, Kao indicated the four agreements would be the only deliverables planned. -------------- -------------- TAIWAN WILL SEEK TO BOOST CROSS-STRAIT INVESTMENT -------------- -------------- ¶4. (C) Kao said the Ma administration has proposed holding a conference during the December 21-23 talks to discuss PRC investment in Taiwan. Kao said the administration was concerned by the relative lack of incoming Mainland capital, which has thus far totaled less than NTD 200 million (USD 6.25 million) since restrictions on PRC investment were relaxed earlier this year. (Note: Although Taiwan relaxed certain restrictions on Mainland investment on July 1, investment in many industrial sectors is limited to 50% of stock shares, and some sectors remain off-limits to PRC investors. End Note.) ¶5. (C) Some of our contacts, however, question the utility of such a conference. Chung-hwa Institution for Economic Research (CIER) Senior Research Fellow Sophie Shih, for example, believes the planned conference is not likely to produce any significant new injection of Mainland capital into the island's economy because investors currently see few attractive opportunities here. Rather, she said, the conference would simply allow the administration to claim it put the interests of the Taiwan people foremost in its dealings with Beijing. ¶6. (C) Taiwan Normal University Professor Tsai Horng-ming said he believed the Ma administration's current push to attract more Mainland capital to the island was short-sighted, at best, and could ultimately cause Taiwan to fall into the trap of having large portions of the economy dominated by Chinese firms. Such a development would give Beijing undeniable leverage to press for concessions on political issues. For this reason, he added, the Ma administration's cross-Strait economic policies should be subject to greater scrutiny by the Legislative Yuan and the general public. -------------- ECFA: MORE THAN JUST TRADE? -------------- ¶7. (C) Echoing statements made by other administration officials, the MAC's Kao confirmed that the Taichugn talks would include discussion of the cross-Strait Economic Cooperation Framework Agreement (ECFA),although formal ECFA negotiations would likely begin in January. However, National Security Council Deputy Secretary General John Deng, who is responsible for cross-Strait issues, told Economic Chief that no firm date had been set for when the negotiations would actually start, although it would very likely be early in 2010. In a December 7 meeting with Acting APEC Senior Official Kurt Tong (septel),Kao noted that the fifth round of SEF-ARATS talks, to take place at an unscheduled date in 2010, may focus on ECFA. ¶8. (C) According to CIER's Shih, Beijing wanted to show support for President Ma by enhancing cross-Strait economic ties, and saw signing an ECFA as the most effective way to do so. In Shih's analysis, ECFA would allow both sides flexibility to decide what types of tariff reductions or other trade liberalization measures would benefit them most. She emphasized, though, that the Ma administration needed to be careful to ensure that ECFA would not expose Taiwan to charges of unequal treatment by other WTO members. Shih added that most in Taiwan accepted that the Ma administration had no choice but to negotiate some type of trade agreement with the PRC, in light of the ASEAN-plus-one FTA that will take effect next year. ¶9. (C) CNFI's Tsai told us he saw ECFA talks, as well as the on going SEF-ARATS meetings, as part of a process of political dialogue. Regarding the opposition Democratic Progressive Party's criticism of the Ma administration's position on ECFA, Tsai said the DPP was undermining its credibility in the eyes of the island's electorate by not offering any viable policy alternative. (Note: Criticism of ECFA was a major campaign issue for the DPP, which was seen to be the winner of the December 5 elections. Immediately afterward, however, the government insisted SEF-ARATS talks would go on as planned, and said it remained committed to ECFA (ref C). End Note) Tsai said he believed the economic liberalization measures that have resulted from the SEF-ARATS talks to date have benefited Taiwan. ¶10. (C) COMMENT: As in previous rounds of talks, the content of the agreements to be signed has been thoroughly worked out in advance. To a degree, the views of professors Shih and Tsai on the Ma administration's cross-Strait economic policies reflect public disagreement about the pace of the opening to the PRC, and in particular the negotiation of ECFA. Despite their misgivings, however, these academics generally appeared to agree that Taiwan had no alternative but to further expand the dialogue with the PRC. END COMMENT. STANTON