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