Cablegate: Economic Briefing for June 2005

This record is a partial extract of the original cable. The full text of the original cable is not available.







E.O. 12958: N/A
SUBJECT: Economic Briefing for June 2005

1. This cable summarizes selected recent economic events in
Taiwan in May 2005:

-- Soft Economy Continues in Q2

-- BenQ Acquires Siemens Cell Phone Unit

-- EVA Air-Boeing Business Ties Remain Strong

-- Taiwan Holds Energy Conference with Mixed Results

-- EZPeer Not Guilty in P2P IPR Case

-- CHT Postpones Privatization Plan

-- Counterfeit Pharmaceutical Seller Nabbed

-- Medical Devices Get Registration Extension

Soft Economy Continues in Q2

2. Taiwan's soft economic performance from the first
quarter of 2005 spilled over into the second quarter. Weak
world demand for Taiwan products has driven y-o-y export
growth in May 2005 to its lowest and manufacturing to its
most significant contraction since SARS attacked Taiwan in
early 2003. Higher petroleum prices and heavy rains
together pushed up the inflation rate in May to a new 7-
month high. Nevertheless, inflationary pressure is not a
concern in light of low money supply growth and declines in
price levels for services industries. The unemployment rate
in May rose slightly from April, due mainly to new
graduates' joining the labor market. Local economists
differ in their outlook of economic trends for Taiwan in the
next six months. Some suggest the government should
stimulate domestic growth rather than relying on export

BenQ Acquires Siemens Cell Phone Unit

3. BenQ, one of Taiwan's leading contract manufacturers of
electronic consumer goods and a firm that is trying to build
its own brand identity, on June 7 announced plans to acquire
the cellular phone unit of Siemens, world's fourth largest
cell phone brand name. Many analysts have questioned BenQ's
decision. Siemens cell phone unit had USD 626 million in
losses in 2004. Press reports indicate that BenQ has lost
customers for cell phone manufacturing, as other brand name
firms take their business elsewhere now that BenQ is a more
serious competitor. However, the terms of the deal appear
quite favorable to BenQ. BenQ will acquire the Siemens unit
without paying any cash. In fact, Siemens will provide BenQ
cash and service equal to 250 million euros (about USD 300
million) and purchase 50 million euros (USD 60 million)
worth of BenQ's shares as part of the deal. BenQ will
acquire the right to use the Siemens brand for 18 months and
a BenQ-Siemens brand name for up to five years after the
takeover. BenQ Chairman Lee Kun-yao has announced a target
of combined operations breakeven in with 2006 sales of US$10
billion accounting for 11 percent global market share.

EVA Air-Boeing Business Ties Remain Strong

4. At a June 27 press conference to unveil GE engines for
its new 777-300ER aircraft that will arrive in July 2005,
EVA Air President K.W. Chang revealed that the firm is
considering replacing its current freighter fleet with
Boeing's new 777-200LR cargo plane, which will be available
in 2008. EVA is already buying 15 passenger 777s and is
looking for eventual replacements for its current cargo
fleet of twelve McDonnell-Douglas MD-11s and four 747-400Fs.
In addition, on June 29, EVA Air affiliate Evergreen
Aviation Technologies Corporation (EGAT) held a ceremony
marking the start of work on the conversion of three 747-400
passenger jets into special cargo freighters that will be
used to transport major assemblies used in the production of
the Boeing 787 Dreamliner. Modifications to enlarge the
upper fuselage of the aircraft will increase the cargo
capacity to over that of the 747-400 freighter. Successful
completion of the unique aircraft will be a major
engineering accomplishment for EGAT. The modified airplane
is scheduled to enter service in 2007, and its timely
completion will be essential to Boeing and its plans to
produce the 787.

Taiwan Holds Energy Conference with Mixed Results
--------------------------------------------- ----

5. Taiwan held its second national energy conference June 20-
21. Many energy experts inside and outside the government
had hoped that the conference would result in an agreement
to rethink Taiwan's anti-nuclear policies in light of the
Kyoto Protocol going into effect. Prior to the conference,
the appointment of the infamously anti-nuclear Chang Kuo-
lung as the head of Taiwan's Environmental Protection Agency
was a clear indication that the Chen Administration would
remain firm in its anti-nuclear stance. Although the
conference agreed to support completion of the construction
of the Fourth Nuclear Power Plant, anti-nuclear hardliners
prevailed in preventing efforts to extend the lifecycle of
existing nuclear power plants and building additional
reactors at any of the existing facilities. In addition,
the conference made many claims about how Taiwan will reduce
its carbon emissions. Environmental groups view the claims
as empty rhetoric in light of the fact that the conference
did not decide to hinder the approval of controversial
projects including a steel plant, a naptha cracker plant and
three new coal-fired plants. Combined these five projects
will increase Taiwan's CO2 emissions by 20 percent.

EZPeer Not Guilty in P2P IPR Case

6. Taipei's Shilin District Court on June 30 announced its
decision on the criminal copyright infringement case based
on a complaint brought by the International Federation of
Phonographic Industries (IFPI) against peer-to-peer (P2P)
software provider EZPeer. The Court ruled that providing
P2P service is not illegal under Taiwan law, that EZPeer did
not illegally reproduce or transmit copyrighted materials,
and that EZPeer is not guilty of copyright infringement.
The Taiwan branch of IFPI vowed to appeal the decision. The
Court's decision did not address the matter of civil
liability and stated clearly that EZPeer members who use P2P
services to transmit copyrighted materials may be prosecuted
for criminal copyright infringement. The decision is a blow
to efforts to protect copyrights in Taiwan and illustrates
the difficulties rightsholders face when using Taiwan's
judicial process to protect their intellectual property

CHT Postpones Privatization Plan

7. Chairman HO-CHEN Tan told a Chunghwa Telecom (CHT)
shareholders meeting on June 21 that continued concerns over
employee benefits would delay until August the planned
privatization of CHT through the sale of 17 percent of CHT
shares. However Ho-chen insisted that CHT remains committed
to privatization, in spite of the Legislative Yuan's passage
of a resolution calling on the government to suspend the
share sale. After Ho-chen's statement, CHT union leaders
postponed a planned July 1 strike, but are still preparing
to travel to the U.S. to protest during Chairman Ho-chen's
upcoming roadshow. Industry insiders agree that the sale
will go forward despite the union's protests.

Counterfeit Pharmaceutical Seller Nabbed

8. Prompted by an investigative news report that some of the
popular weight-loss drug Reductil (manufactured by Abbott
Laboratories) sold over the internet was counterfeit,
special agents f the Criminal Investigation Bureau raided a
residence in Taipei County on May 24 and arrested one
suspect. The suspect told police that she had both
purchased and sold the products online and was unaware that
they were counterfeit. Abbott's Taiwan manager estimated
that as much as 20 percent of Reductil sales in Taiwan could
be counterfeits.

Medical Devices Get Registration Extension

9. Unable to meet its own June 20 deadline for registering
medical devices, the Taiwan Department of Health (DOH)
issued an administrative notice allowing manufacturers and
importers to continue to import medical devices for an
additional six months. Medical device manufacturers that
have applied for registration of their products but have not
yet received licenses will be allowed to continue to import
their products until December 20, 2005. Those manufacturers
that did not apply for registration by June 20, 2005 will
not benefit from this amendment. Those products that have
been registered and have received import licenses (as of
June 17 barely 200 out of more than 4000 applications) can
be imported without restriction.


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