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Cablegate: Exbs: Taiwan Monthly Reporting Cable - August 2008

VZCZCXYZ0000
PP RUEHWEB

DE RUEHIN #1325/01 2490843
ZNR UUUUU ZZH
P 050843Z SEP 08
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 9902
RHMFIUU/USCBP WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS AIT TAIPEI 001325

SENSITIVE
SIPDIS

STATE FOR ISN/ECC - YWONG, ACHURCH, AND ROWEN
STATE FOR EAP/TC - MTOYRYLA
STATE FOR ISN/MTR - PDURHAM, SBOYER, JMAYES, AND RPALMIERO
DHS/CBP/INA FOR DKING
DOE/NNSA/INECP FOR TPERRY AND SJONES

E.O. 12958: N/A
TAGS: ETTC MNUC PARM PREL KSTC KNNP TW
SUBJECT: EXBS: TAIWAN MONTHLY REPORTING CABLE - AUGUST 2008

REF: A. 08 TAIPEI 1305
B. 08 STATE 91796

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

A. (SBU) On August 22, the Advisor briefed officials of the
U.S.-China Economic and Security Review Commission on the current
status of Taiwan's export control system. The commissioners were
particularly interested in Taiwan's relaxation of caps for
investments in China by Taiwan companies, and rules related to
export controls of semiconductors destined for China.

B. (SBU) On August 28, the Advisor and Econoff met with officials of
the Mainland Affairs Council of the Executive Yuan to discuss
Taiwan's plan to relax export controls rules on semiconductor
equipment to China. See reftel A.

II. COMPLETED ACTIONS FOR THE REPORTING PERIOD.

A. SITE ASSESSMENTS AND MEETINGS DURING REPORTING PERIOD:

1. (SBU) On August 14, the Advisor met with officials of the Taiwan
External Trade Development Council (TAITRA) to discuss trade
promotion activities in North Korea and Burma. TAITRA is a
non-governmental organization funded partly by the Ministry of
Economic Affairs (MOEA). TAITRA works closely with the Trade
Development Division of the Bureau of Foreign Trade of the MOEA in
its trade promotion activities.
NORTH KOREA:
(SBU) TAITRA officials stated that the trade relationship with
North Korea began in 2000. At that time, Taiwan and North Korea
formed the North Korea-Taiwan Committee for Promotion of Private
Sector Economy and Technology. This Committee is headed by TAITRA.
During the initial engagement period, Taiwan visited and received
information from the China Council for the Promotion of
International Trade based in Jilin province of China, located just
above North Korea. However, until recently, the Committee was fairly
dormant in its trade promotion activities. TAITRA organized a trade
mission in February 2008 and in the Pyongyang International Trade
Fair in May 2008. The Trade Fair was attended by representatives of
22 Taiwan companies.
(SBU) Also in 2000, North Korean officials visited Taiwan at the
invitation of Taiwan companies but did not meet with TAITRA.
Following the company visit, a North Korean Government-Taiwan
industry committee was formed, also called the North Korea-Taiwan
Committee for Promotion of Private Sector Economy and Technology.
As with the official committee, TAITRA officials stated that this
committee exists in name only and has not been used to facilitate
trade between Taiwan and North Korea. Since then, North Korean
Government officials have continued to visit Taiwan companies
several times a year. TAITRA officials added that TAITRA is not
involved in these visits and that neither North Korean officials nor
Taiwan company representatives have reached out to TAITRA for
official meetings during the visits.
(SBU) Taiwan's major import from North Korea is coal. Taiwan's major
exports to North Korea are uncombed synthetic fiber and cotton,
oxygen-function amino-compounds, petroleum and oils obtained from
asphalt, electrical products and electronics. (Source: 2006 Taiwan
trade statistics.) As the trade relationship develops, Taiwan is
looking at the following industries for trade promotion: mineral;
machinery and manufacturing equipment; electrical products and
electronics; base metal; fibers; plant oil; prepared food; animal
products; chemicals; raw plastics and plastics products; and
transportation vehicles. For the manufacturing equipment sector,
the focus would be on exports of equipment to produce toothpaste,
soap, cosmetic containers, construction material (cement, brick,
paint, glass) and general consumer merchandise. North Korea has 56%
of the world's natural magnesium carbonate deposits as well as 300
different types of mineral deposits. TAITRA said North Korea has
been courting Taiwan companies for form joint ventures and seeking
other types of investments.
(SBU) China is the leading exporter of goods to North Korea, mostly
by companies in the North East part of China. (The Republic of
Korea is the leading importer of goods from North Korea, mostly
manufactured goods from economic zones established just across the
Demilitarized Zone.) The fact that all travel to North Korea must
transit through Beijing or Shenyang has worked to China's advantage.
China has also taken advantage of its lead position by paying lower
than market value for commodities, such as coal, imported into
China. This has made North Korea aggressively explore trade
opportunities with other countries.
(SBU) Currently, all North Korean companies are state-owned. Since
North Korea does not have tradable currency, barter trade is the
main form of exchange. For example, North Korea proposed that it pay
Taiwan companies with finished products made with the equipment
imported from Taiwan rather than purchasing the equipment with
currency. Regardless of North Korea's overtures, according to
TAITRA, it would be difficult for Taiwan companies to invest in
North Korea until North Korea transforms its way of doing business.
TAITRA added that establishing special economic zones for
manufacturers and developing legal norms would be a good starting
point in attracting foreign investments.
(SBU) In summary, TAITRA officials said North Korea is being looked
at as the next Vietnam in terms of establishing a manufacturing base
for Taiwan companies. However, North Korea has strong structural
impediments which prohibit development of a viable, long-term trade
relationship. The officials emphasized that the biggest political
hurdle for North Korea to overcome is trade restrictions imposed by
many countries around the world. The officials added that future
trade development for Taiwan greatly depends on the outcome of the
Six-Party talks.
BURMA:
(SBU) Taiwan has had a long trade relationship with Burma. All of
Taiwan's investments, however, are made through third countries,
such as Singapore and Thailand, due to political issues between
China and Taiwan. The officials stated that any trade activity by
Taiwan business people is strictly controlled. Taiwan business
people cannot use the word "Taiwan" in any document for business
purposes. In the past, approximately 500 Taiwan companies operated
in Burma; now, the number has been reduced to approximately 100.
There is only one high technology Taiwan company, a maker of optical
lenses, in Burma. That company's products are exported back to
Taiwan or other countries through neighboring countries like
Singapore and Thailand. There is great potential for trade with
Burma but Burma needs to change its relationship with Taiwan before
that potential can be realized, the officials added.

B. BLUE LANTERN:

(SBU) One blue lantern check was conducted during the reporting
period. The results of the check have been reported to PM/DDTC.

III. TRAINING CONDUCTED DURING REPORTING PERIOD:

A. (SBU) From August 6-7, along with an official from ISN/CTR, the
Advisor briefed Singapore interagency officials on changes to the
Wassenaar Arrangement control list and U.S. implementation of those
changes. This was the same update provided to Taiwan officials in
March. See reftel B.

B. (SBU) On August 18, the EXBS Advisor, ISN/ECC official, and a
contractor from a Department of Energy laboratory reviewed Republic
of Korea's YesTrade, an internet-based license processing and
internal control system. ISN/ECC is exploring the use of YesTrade
as a baseline for developing an electronic license processing system
for certain cooperating countries.

III. UPCOMING TRAINING:

A. (SBU) From September 22-26, the Advisor will be in Seoul to
participate in the Fourth Regional Assistance and Protection Course
for Asian States Parties hosted by the ROK and the OPCW (September
22-24), attend an industry outreach event sponsored by the Korea
Strategic Trade Institute (September 25), and meet with officials of
the Ministries of Knowledge Economy and Foreign Affairs and Trade
(September 26).

B. (U) During mid-December, an Industry-Government Outreach program,
implemented by the Department of Energy, is being planned in
Taichung. This program will follow the same format as the July
program but for companies located in Central Taiwan. Many machine
tool manufacturers are located in Taichung.

V. UPCOMING MEETINGS:

A. (SBU) On September 4, the Advisor is scheduled to meet with
TAITRA officials to discuss Taiwan's trade promotion activities in
the Middle East, with a particular focus on Iran and the United Arab
Emirates.

B. (SBU) On September 4, the Advisor will meet with Kang Da, the
local subcontractor for ICP software development, and the Bureau of
Foreign Trade to review the progress of the software development.

C. (SBU) On September 9, the Advisor plans to meet with Ministry of
Justice Investigation Bureau agents to review recent export control
enforcement efforts.

D. (SBU) On September 10, the Advisor will participate in the
Australia Group's briefing on its recent activities to Taiwan
officials. Representatives from Japan and the Czech Republic are
also expected to attend. The meeting is hosted by the Ministry of
Foreign Affairs.

E. (U) During the week of September 9, the Advisor plans to attend
parts of SEMICON 2008 in Taipei, a trade show of integrated circuit
design, manufacture, supply, and application.

VI. RED FLAG ISSUES:

None.

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

YOUNG

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