TAIWAN CROSS-STRAIT POLICY EXPERTS HIGHLIGHT

C O N F I D E N T I A L AIT TAIPEI 000849


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

E.O. 12958: DECL: 07/13/2019
TAGS: ECON ETRD EINV PREL PGOV TW CH
SUBJECT: TAIWAN CROSS-STRAIT POLICY EXPERTS HIGHLIGHT
SIGNIFICANCE OF ECONOMIC NEGOTIATIONS WITH CHINA

Classified By: AIT Economic Chief Hanscom Smith for reasons 1.4 (b) and
(d).


1. (SBU) SUMMARY. In recent meetings with AIT officers,
senior staff at Taiwan's Mainland Affairs Council (MAC) and
Straits Exchange Foundation (SEF) underscored what they
characterize as generally favorable public perceptions of Ma
administration efforts to pursue closer economic integration
with the PRC. One contact cited the cross-Strait law
enforcement cooperation agreement between SEF and the
Association for Relations Across the Taiwan Strait (ARATS),
its PRC counterpart, as an example of Beijing's newly
pragmatic attitude toward Taiwan. Although our MAC and SEF
contacts cannot confirm if a cross-Strait Economic
Cooperation Framework Agreement (ECFA) will be on the agenda
for the next round of SEF-ARATS talks, they maintain that
Taiwan and the PRC will conclude such a pact by 2010. END
SUMMARY.

Context: Cross-Strait Economic Ties Strengthening
-------------- --------------


2. (C) According to MAC Director of Policy Planning, James
Chu (Chu Shi),Taiwan's export-driven economy will continue
to rely on greater access to the PRC's domestic market. Chu
said trade with China created a US$67 billion surplus for
Taiwan in 2008, and exports to the PRC accounted for nearly
40 percent of Taiwan's total exports. Chu noted that six of
the top ten exporters from the Mainland are Taiwan-owned
businesses. At the same time, he emphasized that the Ma
administration realizes Taiwan must not "put all its eggs in
one basket." Although Taiwan must compete with South Korea
and southeast Asian competitors for market share in the PRC,
it must also enhance its ability to compete globally, rather
than relying on exports to the PRC to drive long-term
economic growth.


3. (C) SEF Deputy Secretary General Maa Shaw-chang echoed
Chu's statements, telling us recently that Ma administration
cross-Strait economic policy reflects the reality that demand
for Taiwan's exports in the U.S. and Europe continues to be
depressed. Taiwan has no choice but to look to the PRC for
trade and investment, said Maa.

SEF-ARATS Agreements Benefit Taiwan
--------------


4. (C) Nine agreements on topics ranging from direct flights
to judicial and law enforcement cooperation and one joint
statement on liberalizing restrictions on Mainland investment
in Taiwan have resulted from the first three rounds of
negotiations between SEF and ARATS over the past year. A
fourth meeting will be held in Taiwan later this year, though
the date has yet to be agreed by both sides, according to
both MAC's Chu and SEF's Ma. (Note: In contradiction to
Taiwan media reports, our contacts have repeatedly told us
that the date and location for the fourth round of talks is
as yet undetermined) According to Chu, the agreements
establishing direct cross-Strait passenger and cargo flights
and shipping will make it easier for Taiwan firms to compete
with South Korean and ASEAN businesses in China.


5. (C) Regarding the law enforcement cooperation agreement,
Chu said the PRC was at first reluctant to address an issue
that relates to the larger issue of sovereignty. Judicial
cooperation, however, is a top priority for the population of
Taiwan and the Ma administration, said Chu. He cited MAC
polls that show 82 percent of Taiwan people consider judicial
cooperation with the PRC to be of utmost importance,
especially since many of Taiwan's economic criminals escape
to the PRC. Chu claims that the PRC monitors MAC's public
website, which posts the poll results, and because of this
Beijing officials realized the importance of judicial
cooperation to Taiwan. Therefore, they were willing to
negotiate an agreement, despite its sovereignty implications,
in order to show good will to the people of Taiwan and the Ma
administration, according to Chu. Chu said the agreement,
which focuses on information exchange and return of suspects,
benefits both Taiwan and the PRC by facilitating resolution
of often complex crimes.

ECFA Timing Uncertain
--------------


6. (C) Despite some opposition in Taiwan, the Ma
administration is pushing for ECFA to ensure Taiwan's
economic competitiveness, said MAC's Chu. Chu said that it
is unclear if ECFA will be on the agenda for the fourth round
of talks between SEF Chairman P.K. Chiang and ARATS Chairman
Chen Yunlin. SEF's Maa also said that, to his knowledge, no
decision has been reached about whether or not to address
ECFA in the SEF-ARATS forum.


7. (C) According to Chu, Taiwan is internally split, along
party lines, over the merits of ECFA. In order to appease
the island's farming community and supporters of the
opposition DPP, said Chu, the Ma administration has set three
conditions for negotiating ECFA: Taiwan will not open its
agricultural sector to imports from China; Taiwan will not
open its unskilled labor market to workers from China; and
only economic issues will be addressed in any ECFA
negotiations. Certain industry sectors, including
petrochemicals, machinery, and possibly textiles, will be the
focus of an "early harvest" program, said Chu. In a separate
meeting with Economic Chief, a senior Ministry of Economic
Affairs (MOEA) official said the Ma administration's pledge
not to allow PRC agricultural imports will only apply to the
first iteration of ECFA, and that agricultural market access
will be the topic of future ECFA-related discussions. The
MOEA official stressed that the administration will not make
this distinction public given widespread expected domestic
opposition to increased market access for PRC agricultural
products.


8. (C) Both MAC's Chu and SEF's Maa expressed confidence that
ECFA, or some form of broad economic cooperation agreement,
would be signed by Taiwan and the PRC by 2010. Maa told us
that concluding an agreement on economic cooperation with the
PRC is the highest priority of the Ma administration. MAC
officials continue to assert that 2010 is the target deadline
for signing ECFA, although none have been able to state
whether PRC officials concur on the timing. On a recent
visit to the U.S., MAC Chairwoman Lai Shin-yuan was quoted as
saying an ECFA will not be signed until 2010.

Comment
--------------

9 (C) Chu and Maa's comments reflect ongoing Ma
administration uncertainty about the timing, scope, and
content of ECFA. Both Chu and Maa were frank in assessing the
results of cross-Strait economic talks to date, and in
describing public perception of the Ma administration's
policies on economic cooperation with China. Chu
acknowledged that future talks between SEF and ARATS will
become more challenging as both sides move beyond fairly
straightforward issues to ones that have political overtones.
He also maintained that the PRC is often willing to back down
on some issues during negotiations in order to trade possible
economic gains for political advantage. End Comment.


WANG