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Cablegate: Exbs: Taiwan Monthly Reporting Cable - August 2007

VZCZCXYZ0001
PP RUEHWEB

DE RUEHIN #2106/01 2560557
ZNR UUUUU ZZH
P 130557Z SEP 07
FM AIT TAIPEI
TO RHMFIUU/USCBP WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 6787
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
INFO RHMFISS/JOINT STAFF WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS AIT TAIPEI 002106

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR ISN/ECC - YWONG, ACHURCH AND KCROUCH
DEPT FOR EAP - SBREMNER
CBP/INA FOR RWATT AND JGOUGE
DEPT FOR ENERGY/NNSA FOR T. PERRY AND S. JONES

E.O. 12958: N/A
TAGS: ETTC MNUC PARM PREL KSTC KNNP TW
SUBJECT: EXBS: TAIWAN MONTHLY REPORTING CABLE - AUGUST 2007

I. BROAD ITEMS OF INTEREST TO ADVISORS AND AGENCY
MANAGERS:

(SBU) During the week of September 17, the EXBS Advisor will be in
Washington, D.C. for export control discussions.

II. COMPLETED ACTIONS FOR THE REPORTING PERIOD.

A. SITE ASSESSMENTS AND MEETINGS DURING REPORTING PERIOD:

(SBU) During the weeks of August 13 and 27, the EXBS Advisor
accompanied Bureau of Foreign Trade (BOFT) officials of the Taiwan
Ministry of Economic Affairs in Taiwan's outreach visits to select
Taiwan companies. The EXBS Advisor's participation focused on
internal export control systems, if any, of the companies. As a
general matter, while company officials we met with were aware of
export controls, the companies did not have systematic internal
control checks for exports. A summary, derived from presentations
by the companies and answers to questions posed by AIT and BOFT
officials, for each company follows:

Precision International Corporation - Precision was established in
1981. It became a publicly traded company in 2006. It has a branch
office in Kaohsiung, Taiwan, and eleven offices in China.
Precision's main business lines include testing and analyzing
instruments, professional training and consulting, and technical and
calibration services. Precision expects its 2007 revenue to be 19
million NTD (approximately 576,000 USD). 45% by value of its client
base is manufacturing, 25% schools and research institutions, 20%
government, 5% wholesale and distributors, and 5% other. It imports
certain items used in production; 70% imported from Europe, 20% from
the United States, and 10% from Japan. About 5% of imported items
are regime-controlled. All imported items are for its own use -
Precision does not re-export or transfer imported items.

DuPont Taiwan Limited - DuPont Taiwan is the Taiwan operation of
DuPont USA. It distributes DuPont's full chemical and material
product line. It imports DuPont chemicals and other products, and
exports Riston, Ryralux, Kapton, fungicide, titanium oxide, and
electronic inputs. DuPont's sales force is trained on export
controls by a local company official with materials provided by
headquarters. All export control policy and guidance is provided by
headquarters. Company officials raised issues related to stricter
controls placed on exports of DuPont items to Taiwan as compared to
Japan and South Korea. They stated that stricter controls put
DuPont Taiwan at a competitive disadvantage with companies in Japan
and Korea and with Taiwan companies that import from Japan and
Korea.

Yuan Sheng Aluminum Manufacturing Corp. - Yuan Sheng was established
in 1983 and produces and exports aluminum and aluminum alloy items.
The primary customer base for the company is bicycle, automotive
cooling system, architectural materials, and sports equipment
manufacturers. The company is on Taiwan's "watchlist" for
unlicensed exports to certain entities in Iran. Most of the
discussions centered on the company's exports to Iran.

Taiyo Nippon Sanso Taiwan, Inc. - This company is the Taiwan
operation of Taiyo Nippon Sanso, a Japanese firm. Taiyo Nippon is a
distributor of gas within Taiwan. Its primary clients are
semiconductor, basic metal, and precision instrument manufacturers.
The company imports gas, some of them regime-controlled, such as
arsine and phosphine, for direct sale to its Taiwan clients. It
does not export any of the imported items. Since it is not an
exporting company, it does not have an export control system in
place; rather, it provides the necessary information and documents
to the foreign exporter should any of the items it imports requires
an export license. During the discussion, the company officials
stated that most of its products are imported from Japan and some
from the United States. The officials also pointed out that U.S.
exports of arsine and phosphine require licenses to Taiwan but not
to Japan and South Korea, thus making it burdensome for Taiwan
companies to import these items from the United States.

Formosa Epitaxy Inc. - Formosa was established in 1999. The company
primarily manufactures light-emitting diodes and LED wafers and
chips. The company's largest client share is domestic sales but it
also exports to China, South Korea, and the United States. While
the company imports certain export-controlled items from the United
States for its production work, the items it exports are not
regime-controlled.

Praxair Chemax Semiconductor Materials Company Ltd. - Praxair Chemax
was established in 1999 and is the Taiwan operation of Praxair,
Inc., a U.S. firm. Praxair Chemax is a distributor of high-pressure
gas, some of it regime- controlled. Its customers include Arima and
Huga Optotech Inc. (This company's business line is very similar to
Taiyo Nippon Sanso.) Praxair Chemax imports gas, including arsine
and phosphine, from its parent in the United States. Praxair Chemax
is the largest arsine and phosphine distributor in Taiwan. Praxair
Chemax provides the necessary information and documentation to its
parent for the parent to obtain export licenses. Praxair delivers
orders directly to its customers in Taiwan and does not export.
Praxair Chemax relies on its parent for all export control related
policies and guidance. As with Taiyo Nippon Sanso, Praxair Chemax
raised concerns about license requirements for arsine and phosphine
for exports to Taiwan, but not to Japan and South Korea.
Huga Optotech Inc. - Huga is a publicly traded company that was
established in 1998. Huga manufactures and sells light-emitting
diodes and LED wafers and chips. (This company's product line and
customer base is similar to Formosa Epitaxy.) The company sells in
Taiwan as well as exports to Asia and the United States. It imports
certain controlled items from the United States, Germany and the
United Kingdom. For the imported items, it provides the requested
information and documents to foreign exporters. The company pointed
out that the processing time for export licenses from Germany and
the United Kingdom is about two weeks while the processing time for
the United States is two months.

She Hong - She Hong was established in 1965. It has over 400
employees and 25 overseas branch offices including 10 offices in
China. It makes machining centers under the brand name Hartford.
It makes about 2,000 machine tools per year, or about 146 per month.
It has been experiencing approximately 25% annual growth per year
since 2003; its target is 10 billion NTD (approximately 303 million
USD) in annual revenue by 2010. It has 17.30% of the machine tool
market share in Taiwan, and 20.42% of its business is accounted for
by exports. About 5% of its machine tools are controlled at the
regime level. About 0.01 or 0.02 % of its exports are to Iran. It
is the 485th company in Taiwan in terms of revenue. Its primary
customer base is automotive (70%), semiconductor, oil drilling, and
consumer goods. She Hong sources machine tools to make Hartford
products from Japan and Germany. The company stopped making 5-axis
machines in 2006 due to export control requirements by Japan and
Germany. Since receiving warning about its exports to Iran in 2006
from BOFT, the company no longer exports to Iran. However, the
company receives about two or three email inquiries a month on sales
to Iran which are then rejected. The company also does not provide
service or parts on previous exports to Iran.

Euma-Spinner - Euma was established in 1995 as a joint venture with
Spinner, a German firm. Euma is an original equipment manufacturer
for Spinner. Eighty percent of Euma's exports are to Spinner. The
second-biggest export client is its sales office in Nanjing, China.
Euma sources all of its machining parts from Germany. It has no
sales to North Korea or Iran. (The company pointed out that the
Middle-East market falls under Spinner, not Euma.) The primary
client base for the company is automotive and consumer goods
manufacturers.

Dah Lih - Hah Lih was established in 1960. It has 300 employees.
Its gross revenue in 2006 was 60 million NTD (approximately 1.8
million USD). Its monthly manufacturing capacity is about 70
machine centers and 5 milling machines. Its domestic sales are 30%
of its production and exports are 70%. Of overseas sales, the
biggest share goes to China. The company makes 70% of the
components it needs to make machine tools. The machine tools it
uses to make its own parts are imported from Japan, Germany and
Switzerland. It sources CNC from Fanuc of Japan. The company
provides a customer list to Fanuc on a monthly basis. The company
does not export to North Korea or Iran. The company did export to
North Korea in the past, but due to BOFT's denial of licenses, it no
longer sells to North Korea. The company officials stated that its
inability to sell to North Korea has had a huge impact on the
company. In the past, it had sold 3-axis machines used to
manufacture consumer goods to North Korea.

B. BLUE LANTERN CHECKS:

(SBU) On August 17 and 24, 2007, the EXBS Advisor visited two Taiwan
companies in Taipei County and one in Kaohsiung, respectively,
pursuant to Blue Lantern requests. The results of the visits were
reported to the Directorate of Defense Trade Controls (DDTC).

C. TRAINING CONDUCTED DURING REPORTING PERIOD:

(U) The End-User/End-Use training by the Department of Energy took
place on August 20 - 21, 2007. Forty representatives from various
Taiwan ministries and offices attended the training. In addition,
representatives of the Japan, South Korea, Canada, and Germany
offices in Taiwan attended the first day of the program.

III. UPCOMING TRAINING:

(U) The transit/transshipment training, implemented by the
Department of State through contractors, is being planned for the
week of October 29, 2007, in Taipei.

(U) The Targeting and Risk Management training, implemented by
Customs and Border Protection, is being planned for the week of
November 12, 2007, in Kaohsiung.
(U) Taiwan is planning a one-day industry outreach program with
Germany on October 5, 2007. Another one with Japan is planned for
the end of the current calendar year or early next year. These
programs are geared toward German and Japanese companies operating
in Taiwan and Taiwan companies importing strategic items from
Germany and Japan. The EXBS Advisor plans to attend both events.


IV. UPCOMING MEETINGS

(U) On September 12, 2007, the EXBS Advisor and an officer from the
Economic Section will meet with Bureau of Investigations (MJIB)
officials of the Taiwan Ministry of Justice to discuss MJIB's
investigations of export control violations. MJIB has been very
active in export control prosecutions of companies and individuals
according to Taiwan officials and press reports.

V. RED FLAG ISSUES:

None.

POC for this report is Mi-Yong Kim, EXBS Advisor.
Telephone +886 2 2162 2347.

YOUNG

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