BOFT PROVIDES MORE INFO ON EXPORT CONTROLS

1. (C) Summary: Taiwan,s Board of Foreign Trade (BOFT)
officials relayed to AIT on November 1 new information that
shows the Ching Hwee Company (which we discussed earlier with
Taiwan, see ref B) has played a dominant role in Taiwan's
machinery exports to North Korea. BOFT investigations (per
ref C request) into the Royal Richard Company revealed little
trading activity, and no imports from China or exports to
North Korea. AIT notified BOFT the U.S. will not provide
EXBS training November 2-5. End summary.

Restricted Customs Data Gives Insights


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2. (C) BOFT Import-Export Administration Director Peter Ho
provided AIT with restricted Taiwan Customs data from 2001
through May of this year on all imports and exports of the
Ching Hwee Trading Company, a Taiwan company known to export
sophisticated machine tools to North Korea. The data makes
it clear that Ching Hwee has negligible imports. Over half
of all Ching Hwee exports, by value, go to North Korea. Its
exports to North Korea in the first five months of 2004
totaled USD 666,468, accounting for 65 percent of its total
export sales. Over 95 percent of Ching Hwee's exports to
North Korea are machine tools. In some machine tool tariff
categories, Ching Hwee accounts for 100 percent of Taiwan,s
exports to North Korea, and in some other tariff categories
it accounts for the majority of Taiwan,s exports to North
Korea by value. In 2002, for example, Ching Hwee alone
accounted for all of Taiwan's exports to North Korea of
machining centers, numerically controlled lathes, and
numerically controlled shearing machines. Ching Hwee also
exports to Australia, China, Iran, Jordan, Pakistan,
Singapore, South Korea and Vietnam.



3. (C) Director Ho said the owners of Ching Hwee denied
having any joint venture with the Ryonha Machinery J/V
Corporation of North Korea, as reported in ref A talking
points. The owners told BOFT that they believed Ryonha had a
joint venture with a Japanese company. Most of the machine
tools sold by Ching Hwee use Mitsubishi computer numerical
controller (CNC) panels. BOFT has determined that Ching Hwee
is only a trading company that does not actually produce any
of the products it trades (ref B). As part of its
investigation into machine tool exports to North Korea, BOFT
has identified five local companies that manufacture the
machine tools exported by Ching Hwee, and it is looking into
the nature of the relation between Ching Hwee and these five
manufacturers to see if there are any common owners or other
significant links. Ching Hwee told BOFT that contrary to the
usual practice in machine tool sales, it does not provide any
warranty or after sales service to the machines it sells to
North Korea.

AIT, BOFT and Taiwan Customs Visit Machine Tool Factories


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4. (C) BOFT has recently begun organizing export control
training for Taiwan Customs officials. Two AIT
representatives joined a training tour of machine tool
factories in central Taiwan (reported septel). The factories
that the Customs officials visited on this training tour were
not suspected of any illegal activity, but were requested to
provide basic information on how to identify high performance
machine tools. The factory executives emphasized the
importance of software and the CNC panel as decisive in
determining the capabilities of any machine tool. They also
noted that warranty and after-sales service, including
periodic software updates, were normally key considerations
in machine tool sales.

Ho Notes that Critical Parts Not of Taiwan Origin


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5. (C) While discussing the lessons learned from the joint
AIT/BOFT/Customs training tour, Director Ho noted that Taiwan
did not manufacture any sophisticated CNC panels; rather, it
invariably imported these components from Japan and Germany.
Before these products can be exported to Taiwan from Japan or
Germany, high-tech CNC panels must have export licenses and
end-user verifications issued by the country of origin.
Director Ho said it was unclear whether imported high-tech
CNC panels were already installed on the machine tools that
Ching Hwee had exported to North Korea. He agreed with the
AIT suggestion that this issue should be investigated
further. Ho said the Taiwan Industrial Research Institute
(ITRI) is currently assisting BOFT in determining if past
Ching Hwee exports included controlled items. In the cases
researched so far by ITRI, the item descriptions provided by
Ching Hwee indicated that a less sophisticated type of
control was shipped with the machine tools sent to North
Korea.

Royal Richard Not a Major Trading Company


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6. (C) BOFT reported that in response to ref C demarche, it
had investigated the Royal Richard Taiwan Company Limited and
found that it has made only two international transactions in


2004. According to Taiwan Customs data, in May, Royal
Richard imported a single item from South Korea valued at USD
180 and in August, it exported a single item to Ghana worth
USD 411. The value of these items did not meet the threshold
for recording the item description in regular reports, but
BOFT is currently seeking additional information. Director
Ho clarified that while Taiwan has a law against brokering
military-use items, and has pending legislation covering the
transfer of sensitive technologies, it does not have any law
against brokering dual-use chemicals if the item never
transits Taiwan. He pointed out that in this case, it was
the responsibility of the PRC law enforcement agencies to
enforce their laws against exporting the chemical to North
Korea. Director Ho also indicated that Taiwan has provisions
for maintaining export controls even for items transiting
through free trade zones.



7. (C) Comment: That BOFT has provided us with restricted
Customs data shows again a willingness to go beyond the
letter of the law in cooperating on export controls. That
BOFT would on its own organize export training for Taiwan
Customs shows initiative. BOFT seemed to take in stride our
notification that the EXBS training will not be held November
2-5. End comment.
PAAL