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Cablegate: Scenesetter for the Visit of Congressional

VZCZCXRO0192
OO RUEHCN RUEHGH
DE RUEHIN #1120/01 2131029
ZNR UUUUU ZZH
O 311029Z JUL 08
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9628
INFO RUEHBJ/AMEMBASSY BEIJING 8491
RUEHUL/AMEMBASSY SEOUL 9727
RUEHKO/AMEMBASSY TOKYO 0116
RUEHCN/AMCONSUL CHENGDU 2791
RUEHGZ/AMCONSUL GUANGZHOU 1362
RUEHHK/AMCONSUL HONG KONG 9707
RUEHGH/AMCONSUL SHANGHAI 2178
RUEHSH/AMCONSUL SHENYANG 6749
RUEKJCS/SECDEF WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RHHJJAA/JICPAC HONOLULU HI
RHHMUNA/USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 04 TAIPEI 001120

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PREL PGOV ECON ETRD MARR TW
SUBJECT: SCENESETTER FOR THE VISIT OF CONGRESSIONAL
DELEGATION LED BY REPRESENTATIVE COSTELLO

SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY.

This is a message from AIT Director Young to Representative
Costello and the members of his delegation.

1. (SBU) My AIT team and I are looking forward to your
visit, which will help underscore the importance of the
U.S.-Taiwan relationship. I will meet you upon arrival at
the airport Saturday afternoon, August 9, and, with my AIT
team, will provide you a briefing after your check-in at the
hotel. At that time, we can review details of your schedule,
discuss issues that might come up during your visit, and
answer any questions you might have. The people and leaders
of Taiwan, who view the U.S. as their most important
international partner, will highly appreciate your visit
here. While we are not planning any special press
activities, the media will be present at some of the events
in which you participate.

Taiwan: A Successful Democracy . . .
------------------------------------

2. (SBU) Taiwan today is a successful democracy and a
thriving economy. Ma Ying-jeou's inauguration on May 20
represents a milestone in democratic consolidation as it
marks the second peaceful transfer of power since Taiwan
instituted direct presidential elections in 1996. The
vigorous campaign, the remarkable voter turnout rate on March
22 -- 76 percent -- and the smooth and peaceful election
process all demonstrate the importance the people of Taiwan
attach to their hard-won freedom. Taiwan highly appreciates
the support provided by the U.S. for the shared value of
democracy, as well as U.S. support for Taiwan's security and
cross-Strait stability. In a congratulatory statement to
President-elect Ma after the March 22 election, President
Bush praised Taiwan as "a beacon of democracy to Asia and the
world," a phrase President Ma repeated in his May 20
inauguration speech.

. . . and a Thriving Economy
----------------------------

3. (SBU) In recent decades, Taiwan has also built one of the
world's most impressive economies, transforming a largely
agrarian economy into a manufacturing and high-tech
powerhouse. With only 23 million people, Taiwan ranks as the
world's 19th-largest economy, and enjoys a per capita GDP of
nearly USD 17,000, or around USD 30,000 at purchasing power
parity. On the back of strong technology exports to China
and other Asian economies, Taiwan posted 5.7 percent GDP
growth last year, and unemployment is under 4 percent.
Despite its prosperity, Taiwan faces increasing competition
from China and other low-cost producers, and has seen
substantial manufacturing job loss across the Strait. Real
wage growth has been low in recent years, and there is
widespread public concern about stagnant living standards,
increasing income disparity, and declining competitiveness.
Like the rest of Asia, Taiwan is also feeling the effects of
the current global slowdown.

Ma's Mandate and Challenges
---------------------------

4. (SBU) President Ma Ying-jeou came into office with a
strong mandate and high expectations, having defeated his
opponent by 17 percentage points. Ma's decisive victory
reflected his clean image and personal popularity, the
public's disillusionment with performance problems and
scandals of the Chen administration, and the desire of voters
for their government to focus on economic rather than
"national identity" initiatives. Ma's pledges to improve
economic performance and cross-Strait relations, especially
economic relations, were important factors in his election
victory.

5. (SBU) During the campaign, Ma touted the KMT's reputed
economic policy prowess, raising high public expectations for
rapid economic progress. Like others, however, Taiwan is now

TAIPEI 00001120 002 OF 004


confronting an increasingly difficult external economic
environment. The stock market has slumped in line with
global trends, and inflation, driven by spiraling energy
costs, may surpass 5 percent in 2008. This is relatively low
for the region but a significant increase over the 1.8
percent rate posted last year. Similarly, Taiwan's 4.78
percent 2008 GDP growth forecast marks a slowdown from 2007
and a disappointment for a Ma administration that campaigned
on a promise of 6 percent growth. Impatient for quick
results, the public feels let down that the new
administration has not produced the immediate economic
improvements they were expecting. According to mid-July
polling, public dissatisfaction with the administration has
increased progressively over its first two months in office,
with 60 percent of the people dissatisfied and just 27
percent satisfied with Ma's performance. Therefore, the
primary challenge facing Ma now is to improve the economy.
His administration has many plans on the boards, ranging from
energy conservation to infrastructure projects, with the
primary focus on attracting investment capital.

Cross-Strait Relations
----------------------

6. (SBU) Although the public faults Ma's early economic
performance, he receives relatively high marks for improving
cross-Strait relations. Taiwan has a major economic stake in
China, and there is broad though not universal support for
the Ma administration's policy to further expand economic
links with China, which already features over USD 100 billion
in cumulative investment from Taiwan. Also, there are
roughly one million Taiwan citizens resident in China. Under
the previous administration, cross-Strait progress seemed too
slow for many in Taiwan, and relations were marred by
continual political friction between the two sides. Since
Ma's inauguration in May, the administration has moved
quickly to restore the long-suspended cross-Strait dialogue,
implement regular weekend cross-Strait passenger charter
flights, allow PRC tour groups to come directly from the
mainland and raise the daily ceiling on the number of PRC
tourists permitted to visit Taiwan. The government has also
announced plans for further cross-Strait steps, including
relaxing restrictions on Taiwan investment in the PRC.
Although the majority generally welcomes cross-Strait
opening, some argue that the new steps will not produce the
rapid economic benefits to the people of Taiwan that they
have been led to expect.

7. (SBU) According to public opinion polling, the great
majority in Taiwan wish at a minimum to maintain the current
political status quo under which Taiwan completely runs its
own affairs in a democratic manner. Given the political
divisions within Taiwan, Ma understands the need to proceed
cautiously and also to reach out to the opposition. He will
continue to need positive responses from China in order to
move forward on his cross-Strait agenda. How quickly and how
far Beijing will be willing to go in accommodating Taiwan on
sensitive issues, such as Taiwan's quest for more
"international space," remains an important question. We are
encouraging both sides to expand dialogue and improve their
relationship, taking advantage of the new opportunity
presented by Ma's election. We particularly urge Beijing to
reduce its military threat and to take a flexible and
constructive approach on sensitive issues, such as Taiwan's
participation in international organizations.

U.S.-Taiwan Relations
---------------------

8. (SBU) One key task facing Ma is to rebuild the
traditional strong trust in U.S.-Taiwan relations that was
damaged by a series of controversial initiatives taken by the
previous administration. Your visit will help underscore the
importance the U.S. attaches to Taiwan and the U.S. desire to
strengthen U.S.-Taiwan relations. Ma, who studied in the
U.S. and speaks excellent English, has assured me of his
personal commitment to strengthen Taiwan's relations with the
U.S. Just after your visit, Ma departs on August 12 for a

TAIPEI 00001120 003 OF 004


trip to Paraguay and the Dominican Republic, and during this
trip he plans to make low-key transit stopovers in San
Francisco and Los Angeles. We are working to ensure Ma's
first transits go smoothly, which will help rebuild
confidence and strengthen our relationship.

U.S. Support for Meaningful International Participation
--------------------------------------------- ----------

9. (SBU) Despite the absence of formal diplomatic relations
since 1979, the U.S. maintains strong unofficial ties with
Taiwan through AIT, under the provisions of the Taiwan
Relations Act. The U.S. provides strong support to Taiwan's
democracy, self-defense, and economic prosperity. In
accordance with our one China policy, we do not support
Taiwan's membership in international organizations that are
limited to sovereign states, such as the UN. However, we do
support Taiwan's membership in other organizations, such as
WTO and APEC, and we also champion meaningful participation
by Taiwan in organizations where membership is not possible,
such as the WHO.

Taiwan's Security
-----------------

10. (SBU) For over 50 years, the U.S. has been Taiwan's
indispensable defense partner, and the only country willing
to supply major weapons systems in the face of PRC
objections. Security will continue to be an important
consideration as Taiwan moves to expand cross-Strait
relations. A strong-self defense capability gives Taiwan the
confidence it needs to engage China from a position of
strength rather than weakness, a point that Ma has repeatedly
emphasized since taking office.

U.S.-Taiwan Economic Relations
------------------------------

11. (SBU) U.S.-Taiwan economic relations are strong and
growing. Taiwan is our ninth-largest trading partner, with
nearly USD 64 billion in bilateral trade in 2007. The 2007
U.S. trade deficit with Taiwan was approximately USD 11.9
billion. The U.S. is the largest foreign investor in Taiwan,
with over USD 16 billion in cumulative investment. The U.S.
develops its trade and economic relationship with Taiwan
through a bilateral Trade and Investment Framework Agreement
(TIFA), established in 1994. Through TIFA, we have made
substantial progress in improving Taiwan's enforcement of
intellectual property rights, and are increasing market
access for U.S. pharmaceuticals. We are exploring the
possibility of negotiating a bilateral investment agreement
(BIA) with Taiwan, and are also urging Taiwan to accede to
the WTO Government Procurement Agreement (GPA).

12. (SBU) Taiwan is our sixth-largest market for
agricultural exports. Our current agenda is dominated by
efforts to open the Taiwan market to the full range of U.S.
beef imports, and to resolve ongoing import restrictions on
U.S. pork products. In your meeting with President Ma, it
would be helpful for you to underscore our interest in
progress on these two priority issues.

Cooperation on Maritime Cargo Security
--------------------------------------

13. (SBU) Since 2004, the U.S. and Taiwan have been working
together to strengthen security of international sea freight
through the Container Security Initiative (CSI), which is
being implemented at the ports of Kaohsiung and Keelung. As
one of our partners in this important global initiative,
Taiwan is helping to enhance the safety of sea cargo
transiting Asia, prevent smuggling of drugs and counterfeit
currency, and reduce violations of intellectual property
rights.

14. (SBU) Another noteworthy example is the Megaports
initiative to prevent the smuggling of nuclear or radioactive
materials. Since 2006, we have been working with Taiwan to

TAIPEI 00001120 004 OF 004


increase the security of a critical part of the global supply
chain. Taiwan's participation in the Megaports initiative is
clear proof of its commitment to countering international
terrorist threats.

High Speed Rail (HSR)
---------------------

15. (SBU) With a total construction value of USD 18 billion,
Taiwan's state-of-the-art High Speed Rail (HSR) system is the
largest build-operate-transfer (BOT) project in Taiwan's
history. Opened in January 2007, HSR now operates 70
northbound and 68 southbound trains daily, averaging about
85,000 passengers per day. Trains travel at up to 186 mph,
allowing travelers to make the 200 mile Taipei-to-Kaohsiung
trip in just over 90 minutes. Planned with the goal of
generating economic benefits for central and southern cities
that have lagged behind cities in the north, the new system
has more closely integrated Taiwan's densely populated
"western corridor", and it is affecting a variety of economic
and business patterns. For example, in the first four months
of operation, the HSR reduced demand for seats on Taiwan's
domestic air routes by 25 percent, while prices for land
adjacent to the HSR zoned for commercial use have surged 200
to 300 percent since 2004.

FTA
---

16. (SBU) You may hear official Taiwan support for launching
free trade agreement (FTA) negotiations with the U.S. Given
the pending U.S.-South Korea FTA, many here view a similar
agreement as essential for Taiwan's continued economic
competitiveness, as well as a more fundamental sign of U.S.
support. The U.S. is preoccupied with completing our pending
bilateral FTAs, however, and we are urging Taiwan to use the
TIFA forum as a vehicle for enacting the economic reforms
that would make it a more attractive potential FTA partner in
the future.

Deep Linkages Between Taiwan and the U.S.
-----------------------------------------

17. (SBU) Most people in Taiwan have a quite positive
attitude toward America, and many have either visited or
studied there. Students from Taiwan are the fifth largest
foreign student group in the U.S., and nearly half of the
incoming cabinet members hold advanced degrees from American
universities. Large communities of Taiwanese-Americans also
tie our two peoples together. With this reservoir of
goodwill and close connections, we are confident U.S.-Taiwan
relations will continue to develop robustly under the Ma
administration and beyond. Your visit will help strengthen
our traditional friendship with the people and leaders of
this beautiful island.
YOUNG

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