US embassy cable - 05TAIPEI3661

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 003661 
 
SIPDIS 
 
DEPT FOR EAP/TC, DEPT PASS AIT/W AND USTR FOR WINDELAND AND 
WINTER 
 
E.O. 12958: DECL: 09/02/2015 
TAGS: ECON, EAIR, EINV, EAGR, PREL, TW, CH, Foreign Policy, Cross Strait Economics, Finance 
SUBJECT: NO REAL PROGRESS ON CROSS-STRAIT ECONOMIC 
INITIATIVES 
 
REF: A. TAIPEI 3100 
     B. TAIPEI 2881 
     C. TAIPEI 2732 
     D. TAIPEI 2654 
 
Classified By: AIT ACTING DIRECTOR DAVID KEEGAN, REASON 1.5 d 
 
1.  (U) Summary:  Unofficial exchanges continue between 
Taiwan and China over economic initiatives launched in the 
wake of China visits by KMT and PFP leaders in May. 
Progress, however, remains slow as Taiwan continues to hold 
out for discussions between officials from Taiwan and China 
to finalize any arrangements.  Further, Taiwan's election 
schedule may hinder progress before the December City and 
County elections.  There seems to be some progress being made 
in unofficial aviation talks and there are prospects for 
movement in fruit exports from Taiwan, but little progress on 
increasing the number of PRC tourists traveling to Taiwan. 
China has reached out to a new constituency in Taiwan by 
offering reduced tuition at its universities.  End Summary. 
 
Cross-Strait: Private Exchanges Continue 
---------------------------------------- 
 
2.  (SBU) The two sides of the Taiwan Straits continue 
unofficial discussions on three economic issues that were 
raised during the visits of former KMT Chairman Lien Chan and 
PFP Chairman James Soong to the PRC in April-May 2005 -- for 
liberalizing procedures for PRC tourists to visit Taiwan, 
permitting Taiwan to export fruit to the PRC and normalizing 
cargo/passenger charter flights.  There has not, however, 
been concrete progress is any of these three issues to date. 
 
MAC Keeps Private-Sector Agents on Short Leash 
--------------------------------------------- - 
3.    (U) In what it views as a major concession, Taiwan's 
Mainland Affairs Council (MAC) has designated three private 
organizations to undertake discussions on behalf of Taiwan. 
MAC has provided written instructions to the Travel Agent 
Association of Taiwan to engage on tourism issues; the Taipei 
Airlines Associations to discuss aviation exchanges; and 
TAITRA, a quasi-official trade promotion body, to discuss 
fruit exports.  MAC has asked these agencies to keep 
discussions strictly confidential, saying that 
confidentiality is required in order to avoid interference 
 
SIPDIS 
and possible delays. 
 
4.    (C) MAC, however, remains very sensitive about the 
terminology used in discussing the private agencies.  It asks 
AIT not to use the term &authorized8 and remains committed 
to establishing official channels of discussion to avoid the 
appearance of accepting the &One China8 principle.  MAC 
Chairman Joseph Wu emphasized this point with his August 31 
statement that aviation exchanges will require official 
negotiations.  Wu's public statement suggests that prospects 
are not good for a breakthrough anytime soon. 
 
5.    (C) While MAC contacts have told AIT that MAC would 
like to hold bilateral discussion on the three issues as soon 
as possible, they have also indicated that the upcoming 
elections scheduled for December 3 could slow progress on 
these three issues.  MAC comments suggest that once again 
Taiwan's political election schedule may hinder progress on 
economic integration across the Straits. 
 
SEF Pushing for a Role 
---------------------- 
6.  (U) Taiwan's Straits Exchange Foundation (SEF) is the 
organization designated by Taiwan for private-sector 
discussions with the PRC.  On August 11, President Chen 
appointed Chang Chun-hsiung, former DPP Secretary General and 
Premier in the first Chen Administration, to be the new 
Chairman of SEF.  Chang has stressed in his public comments 
that he wants to promote resumption of cross-strait dialogue 
at a government-to-government level. 
 
7.  (C) On August 24, SEF Secretary General Michael You 
emphasized to AIT that the SEF is the only authorized private 
organization for handling cross-Strait exchanges that involve 
sovereignty issues.  You also said that while the SEF has 
smooth relations with the Association for Relations Across 
the Taiwan Straits (ARATS), its PRC counterpart, it does not 
have contact with other PRC agencies and cannot establish 
offices in the PRC.  Underscoring the Chen Administration's 
desire to have the SEF carry out official-level discussions 
with the PRC, the Executive Yuan has allocated and additional 
NTD100 million for the SEF to establish a Taiwan Investors 
Service Center.  The SEF announced the opening of the Service 
Center on August 30. 
Initiatives 
----------- 
8.    (C) To date, the PRC has not responded publicly to 
MAC's designating agencies to discuss tourists, flights and 
fruit.  However, discussions continue behind the scenes. 
Shortly before emphasizing the need for official negotiations 
MAC Chairman Wu told AIT Director that unexpectedly good 
progress is being made on aviation issues, but that progress 
is quite slow on tourism exchanges.  Press reports appear 
periodically announcing impending talks on one or more of the 
three issues and are regularly refuted by MAC. 
 
TaiTRA Chairman May discuss AGR in the PRC 
----------------------------------------- 
9.  (U) Taiwan turned down a PRC invitation to send a 
delegation to the PRC in late July to consult on Taiwan fruit 
exports to the PRC.  On August 1, therefore, the PRC 
announced unilaterally began waiving import tariffs on 15 
kinds of Taiwan fruit.  TAITRA Chairman Hsu Chih-jen is 
scheduled to attend the coming World Trade Center Association 
(WTCA) conference in Shanghai (September 20-23) at the 
invitation of the PRC,s Promotion of Foreign Trade body in 
Shanghai.  Hsu said that he would take any opportunities to 
consult on fruit trade with the PRC. 
 
Fruit Problems 
-------------- 
10.  (C) Continuing in the same negative vein that 
Presidential Deputy Secretary General, James Huang, earlier 
offered AIT, Council of Agriculture officials told AIT, 
during USDA Undersecretary Lambert's visit to Taiwan August 
22-23, that they view the proposal on trade in fruit to be 
entirely politically motivated and of little economic benefit 
to Taiwan.  COA officials are more interested in exporting 
fruit to the U.S. market than to the PRC.  Leaving aside the 
political aspect of the fruit trade, Taiwan has little excess 
capacity for fruit production.  In order for Taiwan to become 
a serious fruit trader, it will need to move land and other 
resources out of current production in commodity crops to 
significantly increase its fruit production. 
 
11.  (SBU) USDOC officials informed AIT that Malaysia has 
informally noted that China's unilateral tariff break may be 
an unfair trade practice under the Most Favored Nation trade 
principle of the world Trade Organization.  The complaint is 
that China, a WTO member, is providing an exclusive tariff 
benefit to another WTO member ) Chinese Taipei. 
 
Taiwan Approves Carriers to Fly in China's Airspace 
--------------------------------------------- ------ 
12.    (U) On August 3, Premier Frank Hsieh Chang-ting 
announced that Taiwan would permit its airlines to fly 
through China's airspace.  Subsequently, Taiwan's Ministry of 
Transportation and Communication (MOTC) announced operational 
procedures for its carriers to apply for permission to the 
PRC authorities for routes through China's flight information 
region (FIR).  Four of Taiwan's six carriers, CAL, EVA 
Airways, UNI Airways, and Mandarin Airlines, applied to MOTC 
and have been approved by Taiwan for a total of 18 routes. 
The four carriers have now applied to China's Civil Aviation 
Authority for the overflight routes and are waiting for a 
response. 
 
13. (SBU)  These four airlines tell AIT that utilizing air 
routes through China can save NTD 400 million annually in 
operational costs compared to the current routes, which must 
now go around China's airspace.  CAL and EVA Airways estimate 
they can save NTD 260 million and NTD 100 million, 
respectively.  Most of the savings would be through less fuel 
required to fly the shorter routes. 
 
PRC Offers Tuition Cuts & Scholarships 
-------------------------------------- 
14.  (U) On August 24, the PRC offered a new inducement to 
burnish the PRC,s image on Taiwan.  Starting in the fall 
2005 academic semester, the PRC will now charge Taiwan 
students the same tuition and boarding fees paid by Mainland 
university students, cutting the current USD1,000 annual 
tuition by more than half.  The PRC will also offer 
university scholarships to Taiwan students studying in the 
PRC.  Informed speculation estimates that as many as 20 
percent of Taiwan students may be granted a scholarship. 
Taiwan's official reaction to the PRC offer is mixed.  The 
Ministry of Education stated that Taiwan will continue its 
practice of not recognizing degrees from PRC universities. 
However, MAC officials acknowledged that the PRC offer will 
be attractive to many Taiwan students and that there will be 
increasing pressure for Taiwan to recognize PRC degrees in 
the near future. 
 
15.  (C) Comment:  While Taiwan has made a few 
counterproposals on cross-straits economic initiatives over 
the past several weeks and months, the PRC remains in the 
driver's seat.  It has made significant proposals and 
extended unilateral offers on a number of issues that, if 
implemented, would bring immediate economic benefits to a 
wide range of Taiwan residents.  The Chen Administration's 
public response to Beijing's overtures over the past month 
has consisted largely of denigrating them as economically 
unprofitable or politically devious ("united front" 
politics).  In the context of Beijing's overtures and the 
opposition Pan-Blue parties' raft of cross-strait initiatives 
(reported septel), the DPP government has been left looking 
passive and ineffective.  End Comment. 
KEEGAN