US embassy cable - 04TAIPEI3343

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 003343 
 
SIPDIS 
 
DEPT FOR EAP/TC 
DEPT PLEASE PASS AIT/W 
 
E.O. 12958: DECL: 10/20/2014 
TAGS: ECON, EAIR, PREL, CH, TW 
SUBJECT: CHEN SURPRISES HEWLETT-PACKARD CHAIRMAN ON 
CROSS-STRAITS 
 
Classified By: AIT Director Douglas H. Paal, Reason 1.4 (B/D) 
 
Summary 
------- 
 
1.  (C) In what Hewlett-Packard (HP) Taiwan has described 
privately as an &ambush,8 President Chen publicly called on 
visiting HP chairman Carly Fiorina to promote cross-Strait 
direct charter flights with Beijing.  HP responded by 
publicly declining any role in dealing with political matters 
such as cross-Strait relations.  HP had understood that the 
meeting would not include press and would only be a courtesy 
call.  However, HP should not have been surprised by Chen's 
desire to use the event to further the cause of direct links 
and may have worsened the situation by attracting further 
media attention.  HP told AIT/T econ and comm officers that 
the row may cause HP to reexamine future plans for business 
in Taiwan.  End summary. 
 
Dueling Statements 
------------------ 
 
2.  (U) On Friday, October 15, Hewlett-Packard's visiting 
chairman and CEO Carly Fiorina paid a courtesy call on Taiwan 
President Chen Shui-bian.  During the meeting, Chen read a 
statement to the press calling on Fiorina and HP to send a 
message to Beijing promoting direct cross-Strait charter 
flights.  The meeting received broad media coverage in 
Taiwan.  A few hours after the meeting, HP released a short 
statement explaining that businessmen should concentrate on 
business, and political questions should be solved by 
politicians.  The statement said HP would not participate in 
any political discussions.  On Saturday, the Presidential 
Office released its reaction to HP's rebuttal.  The 
President's spokesman said that HP had misinterpreted Chen's 
speech.  He said Chen had not intended to solicit Fiorina's 
help as an intermediary; he had only wanted to underscore the 
benefits of direct transportation links to both the public 
and private sector.  The spokesman noted that the President 
doesn't need a private sector go-between to deal with 
cross-Strait relations. 
 
HP Angry and Frustrated 
----------------------- 
 
3.  (C) HP was angry about the way the meeting was handled 
and the content of the President's statement.  According to 
Rosemary Ho, Managing Director of HP Taiwan, the Presidential 
Office had requested the meeting and gave HP no warning that 
the content would be so political and sensitive.  When HP 
scheduled the meeting they provided a list of 
business-related topics for discussion.  The Presidential 
Office told them that there was no time for so much substance 
and the meeting should instead be a friendly exchange of 
courtesies.  HP also believes it had a clear understanding 
with the Presidential Office that there would be no press at 
the meeting.  Ho said that she had confirmed the no press 
conditions several times before the meeting.  Furthermore, 
reporters and cameras left immediately after the President's 
statement, giving Fiorina no opportunity to respond publicly. 
 
4.  (C) Ho stated that although HP had previously called 
privately for direct charter flights, they have never done so 
publicly.  She noted that in earlier discussions with 
Ministry of Economic Affairs officials they have maintained 
that they would deny promoting charter flights if exposed 
publicly.  HP may fear difficulty doing business in the PRC 
if it becomes too closely linked to Chen Shui-bian and his 
cross-Strait agenda.  HP is particularly sensitive to PRC 
concerns on cross-Strait issues right now, so soon after the 
PRC's cool reaction to Chen's overtures in his October 10 
National Day speech.  HP is the biggest foreign buyer of 
Taiwan products.  In Chen's own statement he pointed out that 
HP accounted for one third of the total value of Taiwan 
products sold to foreign firms.  So, HP was especially 
dismayed that the President would treat Taiwan's biggest 
customer in this way. 
 
Presidential Office Offers Different Version of Events 
--------------------------------------------- --------- 
 
5. (C) Presidential Office aide Liu Shih-chung offered a very 
different version of events.  Liu said it was HP that asked 
for the meeting, and denied that there was any intention to 
"ambush" Fioirina.  "Frankly, we treated this just as one of 
the other many courtesy calls the president has each day," 
Liu remarked, adding that little effort was put into 
preparing the president to discuss substantive issues.  Liu 
attributed HP's reaction to hyper-sensitivity on Ho's part. 
Liu asserted that Ho met with President Chen in 2003 and 
offered to "use her contacts in Beijing" to help jumpstart 
direct charter flights.  Liu said that Chen humored her by 
saying that he welcomed her efforts, but it appeared in 
retrospect that Ho left convinced she was authorized by the 
president to serve as a special channel.  Liu suggested that 
Ho, witnessing recent PRC discrimination against pro-DPP 
business people on the Mainland, feared that Chen's comments 
on direct links might remind Beijing of her past efforts as a 
self-appointed "secret envoy" for the Chen administration. 
Separately, Mainland Affairs Council (MAC) Senior Vice 
Chairman Chiu Tai-san offered a similar assessment.  "Chen's 
public remarks at the meeting were simply a rehash of the 
same points he has used in every single meeting with business 
leaders or Taishang (Taiwan investors) over the past three 
weeks," Chiu asserted. 
 
HP Reevaluating Taiwan Plans 
---------------------------- 
 
6.  (C) After the spate of media coverage of the 
controversial meeting caused in large part by HP's public 
rebuke of the President, HP is keeping quiet for now.  They 
have not made any public statement since Friday evening's 
short press release, and will wait until media attention is 
fully drawn to other issues.  However, Ho told AIT/T that HP 
would now reexamine its plans for business in Taiwan in light 
of the run-in with the President. 
 
7.  (C) HP has a strong interest in establishing charter air 
cargo flights from its factories in Shanghai to Taipei.  HP 
has been developing a plan that would expand the use of 
Taipei as a logistics hub for notebook computer deliveries 
around the world.  HP ships 36,000 tons of notebook computers 
every year by airfreight primarily from Eastern China -- 
enough to fill 366 planes. According to Ho, HP estimates it 
can save USD 30 million per year by shipping notebook 
computers from assembly plants near Shanghai to the U.S. and 
Europe via Taipei instead of directly from Shanghai.  Because 
cargo space on flights out of Shanghai is so costly and 
unpredictable, HP believes that it can achieve these savings 
if it can take advantage of reliable charter flights from 
Shanghai to Taipei.  Ironically, the President's effort to 
promote this key element in HP's plan may lead HP to 
reconsider its strategy to Taiwan's detriment economically. 
 
Comment ) Impact on Business and Cross-Strait Relations 
--------------------------------------------- ---------- 
 
8.  (C) In the meeting with AIT/T, HP's Ho was clearly 
frustrated and angry at Chen's office.  The perception that 
Chen "ambushed" Fiorina has compromised HP Taiwan within the 
firm and damaged HP's goodwill toward Taiwan.  In addition, 
the executive director of the American Chamber of Commerce in 
Taiwan told AIT/T that the effects may well spread to other 
multi-nationals in Taiwan who may think twice before meeting 
with the President and possibly other high-level officials as 
well.  Ho expressed dismay at the President's motivation for 
taking this approach, noting that it could actually harm 
efforts to establish direct links by alienating businesses 
that would otherwise be natural allies. 
 
9.  (C) However, HP must share some blame.  Ho and her 
associates should not have been surprised by the change in 
ground rules for the meeting, which may have been due in part 
to miscommunication.  The Presidential Office may have 
mistakenly understood that HP's concern about the press 
applied only to certain business-sensitive issues that were 
included in HP's original suggested topics for discussion. 
Furthermore, Chen's frequent use of the press at high-level 
meetings to pursue his public relations goals is well known. 
Even after confirmation of &no press8 ground rules, HP 
Taiwan executives should have been prepared for the 
possibility that they would be ignored.  They may also have 
overreacted to the content of his statement, which did not 
break new territory for Chen.  Their press statement in 
response only attracted more media attention to the incident. 
 It is likely that this was just a miscalculation on the part 
of the Presidential Office.  Taiwan officials have 
consistently told AIT/T that making progress on Taiwan's 
terms on direct air links and charter flights in particular 
is one of the President's highest priorities.  Unfortunately, 
this latest maneuver was probably counterproductive. 
PAAL