US embassy cable - 05TAIPEI61

C O N F I D E N T I A L SECTION 01 OF 04 TAIPEI 000061 
 
SIPDIS 
 
STATE FOR EAP/RSP/TC 
STATE PLEASE PASS TO AIT/W 
 
E.O. 12958: DECL: 01/07/2015 
TAGS: PGOV, TW 
SUBJECT: TAIWAN'S PLANNED GOVERNMENT REORGANIZATION 
 
REF: A. 2004 TAIPEI 02879 
     B. 2002 TAIPEI 03912 
 
1. (SBU) Summary.  Taiwan is undertaking a massive 
reorganization of its government.  The plan is to reduce 
Taiwan,s current 36 ministries down to 13 with 4 councils 
and 5 independent commissions over the next year.  Major 
changes include consolidating the administration of 
state-owned enterprises from multiple agencies to one (the 
Ministry of Finance) and eliminating the Examination Yuan. 
Top officials are confident that the plan can be implemented 
quickly and smoothly.  That confidence may be overly 
optimistic.  End Summary. 
 
Meeting/Background 
------------------ 
 
2. (U) On December 23, AIT Deputy Econ Chief met with 
Chairman of the Research, Development and Evaluation 
Commission (RDEC), Yeh Jiunn-rong, to follow up on press 
reports suggesting that new legislation to implement a major 
restructuring might occur within the current Legislative Yuan 
(LY) session, scheduled to recess on January 21.  Until 
recently, it was unclear what the new government structure 
would look like.  Interlocutors either did not have or were 
not willing to share draft plans with AIT.  Yeh provided a 
general outline of the proposed reorganization.  Also present 
at the meeting were RDEC Director Sung Yu-hsieh, AIT EconOFF 
and Econ Specialist. 
 
History of Decision 
------------------- 
 
3. (SBU) Yeh said that 8 former Premiers had tried to push 
through similar reforms, but encountered major resistance due 
to special interests who were loathe to give up preferential 
treatment that had essentially become guaranteed under the 
single party KMT rule.  Yeh informed AIT that the idea to try 
again was based on a consensus decision to reorganize the 
government made at an August 2001 cross-sectoral/all-party 
meeting called "Jing Fa Da Hui" (Economic Development 
Advisory Conference).  Yeh insisted that the goal is to 
improve Taiwan's performance and was not one born out of 
partisan politics.  (Comment.  While the idea for the 
reorganization is not new, the current plan is.  Premier Yu 
Shyi-kun initiated the idea and Minister Yeh has been in 
charge of its development and implementation.  End Comment). 
 
Justification for Reorganization 
-------------------------------- 
 
4. (SBU) Yeh explained the goal of the reorganization is to 
simplify Taiwan,s bureaucracy to make it more 
"user-friendly" and enhance the efficiency of Taiwan's 
government institutions.  He said the hope is to empower the 
people through devolution and deregulation.  A handout 
provided stated the reasons for the reorganizations were to: 
1) offer quick and efficient services to the public through 
streamlining; 
2) generate capacity-building to cope with new issues in a 
global era 
3) reduce overlapping of administrative resources and to 
effectively control the scale of public spending; 
4) clarify the roles and responsibilities of government 
organs to improve their functions and efficiency. 
 
Basic Structure 
--------------- 
 
5. (U) Under the plan, the Executive Yuan (EY) would 
supervise all Ministries, make final decisions, remain headed 
by a premier and   coordinate cross-ministerial affairs and 
policies.  The plan also reduces the number of 
ministries/departments under the EY from 36 to 13.  There 
would also be 4 councils and 5 independent regulatory 
commissions.   The councils would have cross-ministry policy 
planning and coordination roles. 
 
6. (U) The thirteen ministries would be as follows: 
1) the Ministry of Interior and Homeland Security 
2) Ministry of Foreign and Expatriate Affairs 
3) Ministry of National Defense and Veteran Affairs 
4) Ministry of Finance 
5) Ministry of Education and Sports 
6) Ministry of Justice 
7) Ministry of Economic and Trade Affairs 
8) Ministry of Transportation and Public Construction 
9) Ministry of Health and Social Security 
10) Ministry of Agriculture 
11) Ministry of Culture and Tourism 
12) Ministry of Labor and Human Resources 
13) Ministry of Environment and Resources 
 
7. (U) The four councils would be as follows: 
1) Council of National Development and Technology 
2) Council of Mainland Affairs 
3) Council of Indigenous People's Affairs 
4) Council of Hakka Affairs 
 
8. (SBU) While Yeh did not indicate what the five commissions 
would be, he did indicate that the commissions would be 
independent from both the ministries and councils in order to 
regulate them without bias.  One current example of a 
Commission is the Financial Supervisory Commission (FSC) 
established on July 1 this year.  It is the independent 
regulator of financial institutions.  There is also an 
independent commission in the works in the form of the 
National Communications Commission (NCC), which the LY is 
currently considering to be the independent regulator of 
telecommunications firms.  Under the current plan, the heads 
of the commissions would be picked for life rather than 
serving at the will of the President in hopes of keeping the 
commissions apolitical.  Yeh noted that there is great 
reluctance to let the President appoint heads to the 
commissions, but insisted that he was working hard to resolve 
this. 
 
9. (SBU) The plan also proposes to dismantle the Examination 
Yuan.  Taiwan still operates under an exam-based civil 
service.  In order to work for the federal government, 
individuals must pass rigorous exams.  According to Yeh, this 
system has proved cumbersome and ineffective, often 
preventing the most qualified candidates from attaining jobs 
in the civil service.  The plan specifically proposes to 
discuss the elimination of the Examination Yuan at a 
conference scheduled to discuss amending Taiwan's 
constitution in the summer of 2005. As the Examination Yuan 
is established under the constitution, its abolishment would 
require a constitutional amendment.  The EY hopes the summer 
conference on the constitution will lead to such an 
amendment. 
 
Mainland Affairs Council 
------------------------ 
 
10. (C) Part of the reorganization plan originally included 
merging the Mainland Affairs Council (MAC) into the Premier's 
office.  Reftel A reports on how Premier Yu won President 
Chen Shui-bain's approval for such a merger by circumventing 
NSC objections to the proposal.  Reftel also reports on the 
backlash the EY proposal evoked from the National Security 
Council (NSC) and MAC.  As it turns out, MAC and the NSC have 
won their battle on this front.  On Tuesday, January 4, the 
LY agreed that the MAC would not be merged with the EY and it 
would maintain its current independent cabinet status. 
 
11. (SBU) To implement this decision, the LY has consequently 
decided not to establish a new Council for Maritime Affairs 
as called for in the original EY proposal.  The original 
proposal limits the number of councils to four.  In order for 
MAC to maintain its status, one of the other newly proposed 
councils needed to be eliminated.  Apparently, the Maritime 
Affairs Council drew the short straw.  In its stead, the EY 
plans to establish a ministerial-level task force on maritime 
affairs to handle important cross-ministerial maritime policy 
issues.  That task force will likely be headed by a Minister 
Without Portfolio. 
 
Ministry of Finance to Consolidate Financial Holdings 
--------------------------------------------- -------- 
 
12. (SBU) News reports indicate that the Ministry of Finance 
(MOF) submitted a state-owned enterprise (SOE) management 
consolidation proposal to the Executive Yuan for approval on 
December 28.  Apparently, MOF has proposed to first take over 
administration of SOEs, which have less than 50 percent 
government ownership and then to later also take over SOEs 
with public ownership greater than 50 percent.  If approved, 
MOF would end up taking over 40 SOEs currently being 
administered under six other ministerial agencies. 
 
13. (U) The only two SOEs that have not been specifically 
identified to move to MOF within a specific time-frame are 
Chunghwa Telecom and the public water Utility.  The Ministry 
of Transportation has successfully made the case for 
maintaining supervisory control of Chunghwa Telecom for as 
long as it takes it to privatize due to the complexity of the 
privatization process.  Once it is privatized, however, it 
too is slated to move to MOF control.  The other exception is 
Taiwan's public water utility.  Under the reorganization 
proposal, it will move from the Ministry of Economic Affairs 
to the new Ministry of Natural Resources where it will stay 
as long as it remains public.  Taiwan is undecided as to 
whether it will privatize its public water utility at any 
time. 
 
14. (SBU) MOF is also proposing that it be given the 
authority to sell SOE equity shares and to appoint new board 
directors and major executives of SOEs.  Premier Yu Shyi-kun 
has instructed the MOF to study the feasibility of setting up 
state-owned financial holding companies to centralize the 
ownership of all state-owned enterprises.  AIT asked Yeh if 
the planned consolidation of all SOEs under MOF is a 
precursor to privatizing them all.  Yeh said that, at this 
time, it was simply a plan to put one government agency in 
charge of all government property. 
 
15. (SBU) Comment. Many ministries are strongly opposed to 
giving up their authority over SOEs currently under their 
supervision, particularly those SOEs that are profitable such 
as Taipower and the Chinese Petroleum Corporation (both 
currently under the Ministry of Economic Affairs). 
Consolidation of the SOEs under MOF would have little impact 
on their day-to-day operations and most SOEs face eventual 
privatization even under the current arrangement.  It appears 
therefore that the issue is more turf, personnel, and perks 
than economics.  Due to the resistance, the consolidation is 
highly controversial and is facing significant opposition in 
the LY.  It could undermine successful LY passage of the 
entire reorganization package.  End Comment. 
 
Ministry of Economic and Trade Affairs 
-------------------------------------- 
 
16. (SBU) Yeh gave a brief explanation about the 
reorganization of the Ministry of Economic Affairs (MOEA) 
into the Ministry of Economic and Trade Affairs (MOETA).  He 
explained that the new ministry would put economic affairs 
under a single authority and that the MOETA would ensure that 
economic and trade affairs were implemented in accordance 
with WTO regulations.  The MOETA would be responsible for: 
industries, commerce, trade investment, intellectual 
property, standards and inspection, energy, medium and small 
businesses, science-based industrial parks, and business 
start up counseling.  Under the plan, in addition to MOEA 
losing control of the State Owned Enterprises (SOEs) 
including Taiwan Power, Taiwan Sugar and China Petroleum, the 
Board of Foreign Trade also would be downgraded from a Bureau 
to a Department and the Administration of the science parks 
would move from the National Science Council to the new 
MOETA. 
 
Policy Planning Function 
------------------------ 
 
17. (SBU) Under the reorganization the government's three 
primary research, development and strategic planning 
councils, the Council on Economic Planning and Development 
(CEPD), the National Science Council (NSC) and the Research, 
Development and Evaluation Commission (RDEC) Council would 
all be incorporated into the Council for National Development 
and Technology.  Currently, the three Councils are 
independent. CEPD provides policy guidance on Economic 
issues; NSC provides policy guidance on science issues and 
RDEC provides policy guidance on social issues.  As the 
distinctions between these fields are often indistinct, the 
goal is to combine all three into one council to improve 
cross-sectoral policy planning. 
 
Nuclear Commission 
------------------ 
 
18. (SBU) While many of the current regulatory bodies would 
remain independent, the Atomic Energy Commission (AEC) would 
not.  Under the new plan it would be placed under the 
Ministry of Environment and Natural Resources.  Yeh claimed 
that putting nuclear regulatory agencies under Environment 
Protection Agencies was the wave of the future and that 
Taiwan's decision was based on the German model. (Comment. 
Taiwan, like Germany, has committed to a nuclear-free energy 
policy.  Minister Yeh is in charge of both Taiwan's 
governmental reorganization and making Taiwan nuclear free. 
The decision to place AEC under the Environmental Ministry 
may be part of the overall plan to rid Taiwan of nuclear 
energy (see Reftel B).  End Comment). 
 
Status of Project 
----------------- 
 
19. (SBU) The LY passed a "Central Government Agency 
Organizational Basis Law" committing to government 
reorganization in general terms on June 11, 2004.  The 
president then promulgated that law on June 23, 2004. 
Currently, the following three bills to implement the law are 
pending in the LY: 
1) a bill to amend the Executive Yuan (EY) organization law 
to reorganize the EY as outlined in paras 5-9; 
2) a bill to amend the Central Government overall staffing 
law, which proposes to reduce the overall number of 
government employees from 198,000 to 185,000 over six years 
(RDEC claims this would be done through attrition and hiring 
freezes-- not by a reduction in force, but press reports 
indicate otherwise as they disclose federal employee protests 
against proposed staffing cuts); and 
3) a bill to provide provisional authorization for movement 
of budgets, assets and staff during the transitional period 
of implementation of the reorganization (before all of the 
rules to implement the more detailed restructuring of each 
individual ministry's are finalized and approved). 
 
 
20. All of the EY ministries have already drawn up plans for 
implementing the proposed reorganization.  If the LY approves 
the three reorganization bills, they would be implemented on 
January 1, 2006. 
 
Optimistic About Prospects 
-------------------------- 
 
21. (SBU) Yeh was quite optimistic about the chances of these 
three bills passing this session.  He indicated that there is 
strong bipartisan support for the bills.  Yeh believes that 
all parties are committed to making the reorganization a 
reality.  He said part of his optimism was based on the fact 
that the KMT Vice President of the LY, P.K. Chiang, has 
pledged his support for the reorganization.  Press reports 
also indicate that top business leaders are supporting prompt 
approval of the bill. 
 
Comment: Hurdles Remain 
----------------------- 
 
22. (SBU) Yeh's confidence in the smooth passage of the 
reorganization bills is likely overly optimistic.  This 
reorganization is massive, many details are unclear and 
serious challenges remain.  If the past is any indication, 
change will not come easily.  The last eight Premiers have 
each tried to phase out Taiwan's Youth Affairs Council, which 
most Taiwan citizens are not aware exists and most who are 
familiar with agree serves little useful purpose. 
Nonetheless, largely due to the Youth Affairs Council 
employee opposition, no Premier, including Premier Yu, has 
had success in phasing out this small and rather 
inconsequential commission. 
 
23. (SBU) Other hurdles also remain.  First, with only a few 
weeks remaining in this LY session, the ruling and opposition 
parties have yet to work out their differences on their top 
priority, the 2005 central budget.  Furthermore, seemingly 
less controversial bills such as the bill to increase funding 
for the financial reconstruction fund have run into a 
political deadlock.  In addition, Premier Yu is also hoping 
for LY passage of several economic bills and Free Trade Zone 
legislation.  Premier Yu still might decide to hold off on 
pushing the reorganization bills in favor of some of his 
other priority bills.  Any bills that have not passed a first 
reading during this LY session will need to be resubmitted 
from scratch in the next session.  Premier Yu is expected to 
step down before the next LY session.  It is not clear the 
next Premier will take the initiative to resubmit bills not 
passed this session.