1. (C) Summary: The Tokyo Sankei Shimbun reported on April
12 that China is using a large number of Taiwan-made
numerically-controlled high-precision lathes in its weapons
programs aimed at Taiwan. The report could tarnish
perceptions of Honorary KMT Chairman Lien Chan's economic
summit in China, and will certainly be seized upon by the
Chen administration as a justification for its "active
management, effective opening" efforts to gain better control
over Taiwan trade and investment in the PRC. End summary.

Japan News Story with Political Implications


--------------------------





2. (SBU) The Tokyo Sankei Shimbun (internet version) carried
a report on April 12 that "at least dozens" of Taiwan-made
machine tools with tolerances of 1 micron (a human hair is
50-100 microns in width) that were exported to the PRC were
being used to "process stainless (steel) parts for missile
launchers" designed for use on new attack helicopters being
developed "with an eye on amphibious landings on Taiwan."
The Sankei report cited "Taiwan defense authorities" as the
source of the information. The basic story was re-printed in
Taiwan newspapers on April 13, 2006 (see AIT Taiwan Economic
Press Summary for 13 APR 06 available via FBIS). AIT's
export control contacts in Taipei were already busy tracking
down the facts behind the articles when we began making calls
early on April 13. Taiwan's Ministry of Justice
Investigation Bureau even called us to ask for details before
we could call it. Taiwan's Ministry of Economic Affairs
Bureau of Foreign Trade is sifting through export records to
try to find which company might have exported the machines.
They promised to provide to AIT details on the companies
involved and the source of the story as soon as further
information becomes available.

Taiwan Technology Threatening East Asian Security


--------------------------

--



3. (SBU) The original Sankei article struck an alarmist tone
by noting that machine tools of this type can be used for a
wide variety of military purposes, and warned "the
possibility is high that Taiwan's industrial technology is
(being) used not only for weapons production by the Chinese
navy but also by the entire military." It then quoted a
Japanese official saying "the outflow of Taiwanese (sic)
firms' technology contributes to China's military expansion
to increase independent production of modern weapons and, as
a result, has the danger of threatening East Asia's
security."

Interesting News


--------------------------





4. (S) The article did not mention that most Taiwan machine
tools use Japanese computer numeric control (CNC, the most
critical component) devices. This information, which would
have been easy for a Japanese journalist to find out, would
have added interest to the story for Japanese readers. The
report mentions only Taiwan's machine tool exports to China,
but does not mention its machine tool exports to other
countries of concern. If the report had mentioned Taiwan's
machine tool exports to North Korea, rather than China, it
would have had a very different impact (i.e., on Taiwan-Japan
relations, but little impact on Taiwan domestic politics).

Considerable Domestic Political Impact


--------------------------





5. (C) The source and timing of the apparent leak are also
interesting. It is sourced by Sankei to Taiwan defense

TAIPEI 00001321 002 OF 002


authorities, who, it might easily be assumed, have access to
sensitive military information and are genuinely concerned
about Taiwan's security. The timing of the leak will strike
some observers as a suspicious coincidence -- hitting the
Taiwan papers the same day Lien Chan is scheduled to begin
his trip to Beijing for a much heralded "KMT-CCP Trade and
Economic Forum."



6. (C) Even before the news broke, anti-China demonstrators
were protesting the trip with signs that read "Protest the
KMT and CCP joining hands to annihilate Taiwan." The Sankei
article provides support for the protesters' allegations at
the precise time when it can have the most impact on the KMT.


The Usual Investigation Results: No Wrongdoing


--------------------------



--------------------------





7. (S) BOFT told AIT and then the media late on April 13
that its investigation into the allegations in the Sankei
report showed that from January 2005 to January 2006 Taiwan
exported NT$230 million (US$7.2 million) worth of machine
tools to China, including six cases that required export
licenses because the items were on international lists of
Strategic High-Tech Commodities. BOFT added that in none of
these six case was the end-user thought to be involved in
weapons development (i.e., the names of the end-users did not
appear on any "blacklist"). However, as the United States
has found in several other export control investigations
involving Taiwan, the lack of BOFT records for matching
export licenses does not mean the export did not happen.
There are several ways to avoid the BOFT export license
requirement, such as by exporting the machine tools without
the CNC devices (which require licenses, but which can be
attached later). There is also the fact that many Taiwan
machine tool companies, like much of Taiwan's manufacturing
industry, now have production facilities in China, and so
would not need to export the machine tools from Taiwan. The
investigations into the source of the Sankei report has also
turned up nothing. AIT regards both the report and the
investigation as plausible but, as of now, unsubstantiated.
It remains possible that Taiwan machine tools have benfitted
Chinese military through one or another route, possibly in
conjunction with unlicensed exports from elsewhere.

Comment:


--------------------------





8. (C) The Sankei report could color perceptions in Taiwan
of the entire "KMT-CCP Trade and Economic Forum" in Beijing
by directly correlating economic exchanges with China with
the military theat from China, and thereby tarnish the
appeal of the core KMT message of calling for enhanced trade
with China. At the same time, the news can be interpreted as
supporting President Chen's much-criticized call for better
regulation of cross-Strait trade and investment (i.e., active
management effective opening). The Sankei report describes
an actual worst-case scenario of the sort of strategic danger
that Chen's policy (and the pending "Sensitive Technology
Protection Law", now stuck in the LY) is intended to address.
We can expect there will be more media coverage and comments
on the allegations and their possible implications.
YOUNG