US embassy cable - 05TAIPEI2654

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 002654 
 
SIPDIS 
 
STATE PASS AIT/W 
 
E.O. 12958: DECL: 02/01/2015 
TAGS: PREL, PGOV, ETRD, CH, TW, Cross Strait Economics, Cross Strait Politics 
SUBJECT: CROSS-STRAIT CONTACTS: TESTING THE WATERS 
 
REF: A. BEIJING 9506 
     B. TAIPEI 2595 
     C. TAIPEI 2596 
 
Classified By: AIT Director Douglas Paal, Reason: 1.4 (B/D) 
 
1. (C) Summary: Taiwan officials are cautiously optimistic 
over the PRC State Council Taiwan Affairs Office (TAO) 
response to Premier Frank Hsieh's June 13 offer to designate 
non-governmental bodies to start talks on cross-Strait 
economic links.  The Mainland Affairs Council (MAC) issued a 
statement on June 15 reaffirming Taiwan's willingness to 
discuss the three issues (fruit, tourism, and flights) raised 
by Hsieh via non-official channels, but noted that the 
process would need to have official sanction.  MAC officials 
say they are waiting to see if Beijing will respond to the 
Premier's designation of the Taipei Airline Association as 
the island's representative for talks on cross-Strait 
flights.  Taiwan National Security Council (NSC) Senior 
Advisor for cross-Strait affairs Chen Chung-hsin told AIT 
that both sides seem to be using the air transport issue to 
test each other's sincerity before contemplating broader 
contacts on other issues.  While attempts by the KMT to 
restart party-to-party talks with Beijing and threats from 
pro-independence leaders may complicate the process, this 
week's public exchange appears to have ratified the first 
real positive momentum in cross-Strait relations since 
February.  End Summary. 
 
Small Step Forward 
------------------ 
 
2. (C) Taiwan officials say they are cautiously optimistic 
that the PRC TAO's June 15 press conference (Ref A) signals a 
willingness on Beijing's part to consider Premier Frank 
Hsieh's June 13 proposal on modalities for starting 
cross-Strait talks on economic exchanges (Ref B).  While 
officials describe the PRC's statement over Hsieh's specific 
suggestions for negotiating channels as "ambiguous," they say 
that Beijing's willingness to avoid insistence on purely 
private sector talks is a step forward.  NSC Senior Advisor 
Chen Chung-hsin noted that ambiguity is positive at this 
stage.  "We have been stuck for too long in this cycle of the 
PRC saying talks have to be private and we insisting they be 
official," Chen noted, "both sides know that in the end we 
will use something in between."  MAC officials tell AIT that 
the next step will be to see whether the PRC makes a concrete 
response on the Premier's designation of the Taipei Airline 
Association as Taiwan's authorized negotiating entity for 
direct cargo/passenger charter flights. 
 
Testing the Waters 
------------------ 
 
3. (C) The NSC's Chen noted that both sides appear to remain 
wary of the other's real objectives, and may need a few more 
weeks to test each other's reactions.  Chen said that PRC 
academic and media contacts called him immediately after the 
Hsieh speech to ask whether the Premier was freelancing or 
was truly conveying the President's position.  Chen said that 
he answered emphatically that it was the latter, and urged 
his Beijing contacts to press the TAO not to reject Taipei's 
June 13 proposal out of hand. 
 
4. (C) Chen noted that while Hsieh's offer was real, Taipei 
remains similarly suspicious of PRC motives (Ref C).  Chen 
said optimism over the TAO statement has been tempered by 
reports that the KMT and Chinese Communist Party (CCP) are 
preparing for a round of policy talks that will touch on such 
sensitive issues as military confidence building measures. 
Chen said it was his personal view that the PRC may try to 
have it both ways, reaching out to the government on 
technical and economic issues on the one hand while 
continuing to use the opposition to pressure the Democratic 
Progressive Party (DPP) administration to make concessions on 
political issues.  Chen warned that this tactic could 
backfire by handing DPP skeptics ammunition to oppose 
flexibility on economic dialogue.  Chen added that Taipei has 
tried to make it clear to Beijing through various channels 
that "we are willing to seek stability and expand economic 
contacts, but don't think you can pressure us to surrender on 
sovereignty issues." 
 
Fruit and Tourism: Secondary Priorities 
--------------------------------------- 
 
5. (C) NSC and MAC officials say their main focus at the 
moment is starting a process on cross-Strait air transport 
that will create momentum towards full fledged direct air 
links.  Premier Hsieh's June 15 recommendation that the two 
sides discuss cargo and passenger flights at the same time is 
being credited by observers as a providing a face-saving way 
out of the months-long debate over which set of talks must 
come first.  Chen administration officials say they are also 
serious about talking about opening the tourist market, but 
insist that this will require a step-by-step process that may 
start by allowing residents of major cities like Beijing and 
Shanghai to visit. 
 
6. (C) Taiwan External Trade Development Council (TAITRA) 
Chairman Hsu Chih-jen told the AIT Director on June 14 that 
his organization is making preparations for technical 
discussions with Beijing on tourism and agriculture.  The 
June 15 MAC statement noted that TAITRA and the PRC's 
"Cross-Strait Economic and Trade Association" (Haixia liangan 
jingmao xiehui) would make a natural channel for 
quasi-official negotiations on fruit and other "WTO-related" 
issues.  Nevertheless, the Taiwan government continues to 
reject Beijing's stated preference for using the 
KMT-dominated Provincial Agricultural Association as Taiwan's 
representative in fruit talks.  President Chen Shui-bian and 
other senior leaders have also made a series of high-profile 
appearances in recent days touting the government's success 
in opening "high-value" markets like Japan for Taiwan's fruit 
exports, contrasting these markets with the limited and "low 
margin" potential of the Mainland. 
 
Comment: Regaining Momentum 
--------------------------- 
 
7. (C) The June 13 Hsieh announcement and Beijing's June 15 
response could mark a turning point in cross-Strait 
atmospherics, offering the first real sign of potential 
progress since relations soured in March over the 
Anti-Secession Law.  Near term progress appears likely on 
transportation links, while agricultural and tourism industry 
pressure is growing on the government to seize opportunities 
on offer by Beijing in those areas.  Nevertheless, follow-on 
steps could still be endangered by actions on both sides of 
the Strait.  The KMT is clearly seeking to arrange early 
KMT-CCP talks in order to regain lost momentum for its 
post-Lien Chan visit drive to set the cross-Strait agenda. 
PRC agreement to play the KMT card once again could undermine 
the case being made by moderates within the Chen 
administration that the time is right to move forward. 
Pro-independence heavyweights tell AIT that they plan to 
mount a challenge to Hsieh's recent olive branch from the 
government's left flank.  This group could potentially 
leverage negotiations between the DPP and Taiwan Solidarity 
Union (TSU) over nominations for the December local election 
campaign to slow the opening process.  Nonetheless, President 
Chen and Premier Hsieh appear committed to moving ahead on 
technical contacts and should be able to resist domestic 
pressures as long as the PRC is willing to maintain the 
forward momentum. 
PAAL