EXBS: TAIWAN MONTHLY REPORTING CABLE - AUGUST 2007

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