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DE RUEHIN #1120/01 2131029
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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