TAIWAN: RESULTS OF BLUE LANTERN PRE-LICENSE CHECK ON

UNCLAS AIT TAIPEI 001975 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/TC, ISN/MTR, AND PM/DTCC FOR BLUE LANTERN COORDINATOR MICHAEL ROMERO, AIT/W E.O. 12958: N/A TAGS: ETTC KOMC TW SUBJECT: TAIWAN: RESULTS OF BLUE LANTERN PRE-LICENSE CHECK ON APPLICATIONS 050054652 AND 050055297, AND POST-SHIPMENT CHECK ON APPLICATION 050037854 REF: A. 2007 STATE 105206 ¶B. 2007 AIT TAIPEI 1041 ¶C. 2006 AIT TAIPEI 3583 ¶1. (SBU) Per reftel A. request, AIT/T visited the foreign consignee, Dong Chin Co., and contacted the end user, ROC Taiwan Navy - Naval Magong Logistics Support Command Penghu Shipyard. Based on the site visit and the information collected by AIT/T, transactions related to pre-license check request appear to be legitimate. The contract related to application number 050055297 has been cancelled by the Taiwan Navy, however, due to lack of delivery by Dong Chin. AIT/T confirmed receipt of the item subject to the post-shipment check by the Taiwan Navy. AIT/T also confirmed the bona fides of Lieutenant Commander Liang, Tao-hung Liang, Tao-Hung ¶2. (SBU) AIT/T confirmed the bona fides of Liang, Tao-Hung, Lt. Commander, Procurement Office, Taiwan R.O.C. Navy, Naval Magong Logistics Support Command in Peng Hu. Taiwan Navy ¶3. (SBU) AIT/T contacted Mr. Liang. Mr. Liang stated that Dong Chin is a long-standing contractor with the Taiwan Navy. Mr. Liang verified the contract numbers, items, and the end-uses of the items as stated in the two pre-license checks requests (DTC number 050054652 for alarm switchboards, and DTC number 050055297 for VRC antennas). Dong Chin: ¶4. (SBU) On August 17, 2007, AIT/T officer visited Dong Chin in its Kaohsiung City office located on No 665, Jio-Ru 2nd Rd., San Min District, Kaohsiung City. The company has another office located at No. 7, Lane 15, Ling Shen Rd., Magong City, Peng Hu, as indicated on the license application. Peng Hu is also the place of registration for Dong Chin. Dong Chin representatives stated the Taiwan Navy in Peng Hu is its sole customer. ¶5. (SBU) AIT/T reviewed Dong Chin's contract with the Taiwan Navy for the alarm switch board, Taiwan Navy's end-use statement, and Dong Chin's purchase order with the U.S. supplier. The contract number, commodity, and quantity matched on all documents. ¶6. (SBU) AIT/T reviewed Dong Chin's contract with the Taiwan Navy for the antenna, Taiwan Navy's end-use statement, and Dong Chin's purchase order with the U.S. supplier. The contract number, commodity, and quantity matched on all documents. However, Dong Chin officials stated that the due to Dong Chin's inability to deliver this item within the contract time frame, the Taiwan Navy cancelled this particular purchase order for AS-1729/VRC Antenna (DTC License number 050055297.) AIT/T confirmed the cancellation of the order with the Taiwan Navy. ¶7. (SBU) Dong Chin officials explained the storage and handling procedure for items Dong Chin imports. First, items arrive in Dong Chin's Kaohsiung office and are directly delivered to the Taiwan Navy storage facility in Peng Hu for inspection; after the items are inspected and accepted by the Taiwan Navy, they are then shipped to the specific Taiwan Navy end-user warehouse for installation. AIT/T confirmed this handling process with the Taiwan Navy. ¶8. (SBU) For the post-shipment check on license 050037854, Dong Chin officials stated that the subject inverter was delivered to the Taiwan Navy in April 2007. Dong Chin officials said it does not keep copies of delivery receipts when goods are delivered to the Taiwan Navy. AIT/T confirmed delivery of the inverter with the Taiwan Navy and its use, and also confirmed with Navy officials that companies that supply items for the Navy normally do not take receipts of delivery when items are delivered directly to the Navy. AIT/T obtained from the Taiwan Navy and reviewed the delivery note, inspection report, and test results for the inverter. All information reconciled. ¶9. (SBU) Dong Chin was established in Peng Hu in 2002 to take advantage of a business investment tax incentive offered by the county government. When it was first established, its primary business was distribution of such items as general machinery, electrical tools, precision instruments, painting materials, and fire fighting equipment. In 2006, Dong Chin added import and government contract as business lines. Dong Chin officials stated that one of the reasons for adding government contract and import as business lines was because its previous import request through Likung failed. When asked if the U.S. supplier explained why the previous license application was denied, Dong Chin officials stated that the U.S. supplier did not provide an explanation. ¶10. (SBU) When asked to explain its relationship with Likung, Dong Chin officials stated that Likung is a separate company with same ownership as Dong Chin. Likung's primary business line is import. Likung is registered and located at No 665, Jio-Ru 2nd Rd., San Min District, Kaohsiung City. ¶11. (SBU) The company officials stated that two other companies, Dong Yi and Tai Chuan also have the same ownership as Dong Chin and Likung. Dong Yi and Tai Chuan are contractors with the Taiwan Navy. All are owned by the Lu family and are co-located in Kaoshiung. ¶12. (SBU) AIT/T met with the following principals of the companies: -Mr. Lu, Yo-Tsuen, the father -Mr. Lu, Dong Ming, the brother -Mrs. Lu, Yeh Yu, the mother In addition to the family members who are also principals in the businesses, the family has one full-time employee in its Kaoshiung office. Mr. Lu, Dong Ming, splits his time between the Peng Hu and Kaoshiung offices. Lastly, Ms. Lu, Jia-Ling Rebecca, the daughter, who resides in Ohio, United States, acts as a liaison between the companies and U.S. suppliers. ¶14. (SBU) Dong Chin officials stated that they are aware of restrictions on USML items, especially prohibitions against unauthorized re-transfers and re-exports of such items. REF B. 07 State 1041 ¶15. (SBU) AIT/T reached Mr. Liang Tao-Hung through the phone number on the license application. AIT/T confirmed bona fides of Mr. Liang directly with the Taiwan Navy. The first time AIT/T called the number, we experienced the same result; i.e., an older sounding female who stated that there is no Mr. Liang. AIT/T called again and asked for Mr. Liang using a slightly different way of pronouncing his name. This time, AIT/T was able to contact Mr. Liang. Also, AIT/T found out that the number on the license application is a general number on Taiwan Navy's website to call for information to bid on government contracts. AIT/T obtained a main switchboard number and Mr. Liang's cell number both of which worked as proper contact numbers for Mr. Liang. REF C. 06 State 3583 ¶16. (SBU) Based on information from AIT/T contacts and the site visit, we believe Likung and Tung Yi (also Romanized as Dong Yi) have the same ownership but have different roles in transactions; Tung Yi bids on contracts with the Taiwan Navy, and Likung imports the goods. It appears that when Mr. Liang of Taiwan Navy was contacted, he may not have known of the bifurcation of duties by the companies nor the relationship because he was new at his job. (Note: This bifurcation of responsibilities is common practice among small businesses in Taiwan. End note.) AIT/T obtained a copy of Tung Yi (or Dong Yi) company registration with the Peng Hu County government. Tung Yi however does not appear on BOFT website because that website lists importers and exporters only. However, this new information does not clarify the discrepancy on the quantity and timing of the order by the Taiwan Navy noted in Reftel C. YOUNG