SEF CHAIRMAN PREVIEWS NEXT ROUND OF TALKS WITH

C O N F I D E N T I A L AIT TAIPEI 000188 STATE PASS USTR, STATE FOR EAP/TC,USTR FOR STRATFORD AND ALTBACH,NSC FOR LOI, TREASURY FOR OASIA/CWINSHIP AND MPISA,COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN E.O. 12958: DECL: 10/24/2018 TAGS: PREL PGOV ECON ETRD EINV EAIR CH TW SUBJECT: SEF CHAIRMAN PREVIEWS NEXT ROUND OF TALKS WITH CHINA REF: A. TAIPEI 00180 ¶B. TAIPEI 00183 Classified By: AIT Director Stephen M. Young, reasons 1.4 (b) and (d). ¶1. (C) Summary. Straits Exchange Foundation (SEF) Chairman P.K. Chiang discussed the status of cross-Strait economic relations and previewed Ma administration objectives for the next round of talks with China's Association for Relations Across the Taiwan Strait (ARATS) during a February 19 meeting with the Director. Lower demand in the U.S. and China has hit Taiwan manufacturers, particularly of consumer electronics, he said. Nevertheless, China's domestic market was a relatively bright spot in the global economic downturn and Taiwan needs to evaluate how it might take advantage of this, while seeking greater investment and tourist inflows. The next SEF-ARATS talks could take place as soon as late April, he said, while admitting that the two sides had not agreed on timing and that scheduling could be affected by Taiwan's effort to gain WHA observer status. Chiang confirmed that the four main items on the agenda will be expanding daily cross-Strait charter flights to regularly scheduled flights, an agreement on financial services integration, mainland investment in the "Love Taiwan" infrastructure projects, and law enforcement cooperation. The pace of these negotiations would be deliberate, Chiang said, both because of the range and complexity of the technical issues involved as well as sensitivity within the Ma administration to public wariness of too rapid expansion of cross-Strait ties. End Summary. Cross-Strait Economics -------------- ¶2. (C) The Director called on SEF Chairman P.K. Chiang (Chiang Ping-kun) February 19 to solicit his views on the status and future direction of cross-Strait relations. In response to the Director's query about the impact of the global economic downturn on Taiwan's economic ties with China, Chiang focused on the inter-relation between the economies of the U.S., China, and Taiwan. Since most of Taiwan's exports to China are re-exported to the U.S., Chiang said, contraction of U.S. consumer demand for electronic goods has seriously hurt Taiwan's manufacturing sector. The relative health of China's domestic market meant Taiwan has to re-evaluate its ability to take advantage of this opportunity. Chiang cited GDP growth in cities like Shanghai and Chongqing that significantly exceed PRC national growth rates as factors in the IMF's forecast that, despite overall lower domestic growth, China will account for 37 percent of global economic growth in 2009. In Chiang's view, though, rising unemployment will pose major challenges for leaders in Beijing. ¶3. (C) Two of the Ma administration's primary economic objectives are to attract more investment and tourism, including from the Mainland, Chiang said. Cross-Strait charter flights average around 70 percent of capacity, although flights from Taipei to Shanghai and Beijing are still heavily booked. Many passengers feel the direct flights, although more convenient, are still too expensive, compared to those routed through Hong Kong. The increase in the number of PRC travel agencies authorized to submit applications for travel to Taiwan would contribute to a gradual up-tick in the number of Chinese visiting the island. (Note: China's Cross-Strait Tourism Association announced on February 16 that 113 additional travel agencies will be allowed to arrange tours to Taiwan, for a total of 146 authorized agencies in the PRC. End Note.) However, he admitted, Taiwan's tourist infrastructure still cannot accommodate the Ma administration's target of 3,000 PRC tourists per day. ¶4. (C) Chiang said the Ma administration is considering the merits of some type of economic cooperation arrangement with the PRC, generally called a Comprehensive Economic Cooperation Agreement (CECA) (Ref. A). CECA would not be on the agenda for the next SEF-ARATS talks, although he acknowledged that some preliminary discussion of a CECA might take place during the talks. He underscored that Taiwan was unsure of how Beijing would respond to overtures about CECA, but suggested that reaching agreement in principle might not be difficult. One possible model for CECA is the PRC's free trade agreement with ASEAN. A simpler approach, and less politically controversial than a CECA, would be to agree to a general framework or statement of principles, under which any number of commercial or economic agreements could be reached. SEF - ARATS Talks -------------- ¶5. (C) The PRC has suggested that next formal talks between Chiang and his counterpart, ARATS Chairman Chen Yunlin, could occur as early as late April, Chiang said. May seemed more likely, Chiang believes, but admitted that the two sides have yet to agree on the actual dates. One factor to consider was Taiwan's effort to gain observer status at the May meeting of the World Health Assembly (WHA),Chiang said, suggesting that Taiwan would prefer to hold the SEF-ARATS talks after the WHA meeting, since holding the talks before the WHA meeting would take pressure off Beijing to agree to a favorable resolution in Geneva. Chiang also noted that the subsequent SEF-ARATS meeting, slated to be held on Taiwan, might well fall during the period of scheduled local elections on the island. Given the politically-charged protests during Chen Yunlin's last visit to Taiwan, he said, these would almost certainly have to wait until after the early December local elections are over. ¶6. (C) While dates are not yet set, Chiang said, the agenda largely is: expansion of the daily cross-Strait charter flight regime to a system of regularly scheduled flights, cooperation in financial services integration, Mainland investment in Taiwan, and cooperation on law enforcement. Chiang said that he expects to sign a memorandum of agreement (MOU) on financial services at the next round of talks. The MOU, however, would simply establish a framework for integration in areas such as banking, investment, and insurance. After signing the MOU, both sides would then need to agree on timeframe for implementation, targets, etc. Chiang said reciprocity issues, particularly the extent of market access, will require time and extensive negotiations to resolve. In this context, Chiang noted that next week a group of technical experts will travel from Taiwan to the PRC for meetings with counterparts as part of an iterative process to address complex aspects of integrating the two sides' financial services systems. Chiang said many of these issues may not be addressed until next year. ¶7. (C) On Mainland investment in Taiwan, Chiang said the PRC is interested in investing in the "Love Taiwan" infrastructure projects, but the Ma administration is still evaluating to what extent it will allow such investment. Chiang claimed he was not familiar with the details of the administration's assessment, saying the Ministry of Economic Affairs has the lead in this area. ¶8. (C) Establishing regularly scheduled cross-Strait passenger flights will definitely be discussed during the next SEF-ARATS talks, Chiang said, although he indicated the focus would be on expanding the existing system of daily charter flights. He was not aware if both sides would consider granting reciprocal Fifth Freedom rights. The Ministry of Transportation and Communication is preparing the detailed agenda for this topic. ¶9. (C) Taiwan and China have a history of informal cooperation in law enforcement and educational and cultural exchanges, so expanding the scope of interaction should not be a problem. At the same time, Chiang noted, the friction inherent in cross-Strait relations requires gradually building mutual trust before historically sensitive issues can be addressed. He cited the example of discussions on loaning artwork from Taiwan's National Palace Museum to the PRC's National Museum. Beijing was unlikely to cause problems by not returning objects loaned, he said, since doing so would utterly undermine trust in all areas of the relationship. Domestic Political Implications -------------- ¶10. (C) The Director, noting his recent meeting with DPP Chairwoman Tsai Ing-wen (Ref. B),asked Chiang about the political sensitivity of expanding cross-Strait ties and whether the Ma administration was re-assessing the pace and scope of expansion. Chiang responded that there are multiple areas where closer ties benefit Taiwan, particularly in regard to the economy, for example allowing PRC investment in Taiwan. The speed of negotiations is partly driven by the complexity of many of the issues being addressed and the need for extensive consultation between experts on both sides. He acknowledged, though, that politicization of the SEF-ARATS talks was unavoidable and that domestic political considerations would influence the pace of progress. President Ma is certainly aware that segments of the Taiwan public are concerned that cross-Strait relations not evolve too quickly or in a manner that disadvantages Taiwan. Chiang emphasized repeatedly that progress toward the Ma administration's cross-Strait objectives would be gradual and carefully considered. The Director underscored U.S. support for efforts to reduce tensions in cross-Strait relations, and support for whatever measures both sides agree are in their mutual interest. Comment -------------- ¶11. (C) Chiang at times played down his influence on the administration's cross-Strait policies, although his role in the SEF-ARATS negotiations is critical and his relationship with Chen Yunlin affords Ma another channel of communication with the PRC outside of party-to-party channels or official exchanges. End Comment. SYOUNG