TAIWAN'S IMPORT INSPECTION REGIME FOCUSES ON CHINA

C O N F I D E N T I A L SECTION 01 OF 04 TAIPEI 002279 SIPDIS SIPDIS STATE PASS USTR, STATE FOR EAP/TC. EEB/TPP/ABT PAUL SAXTON, USTR FOR STRATFORD AND KATZ, TREASURY FOR OASIA/TTYANG, COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN, AGRICULTURE FOR OCRA/RADLER AND BEILLARD, OSTA/BRANT, AND OFSO/BREHM E.O. 12958: DECL: 10/03/2012 TAGS: ECON EFIN ETRD PREL CH TW SUBJECT: TAIWAN'S IMPORT INSPECTION REGIME FOCUSES ON CHINA REF: STATE 114788 Classified By: ROBERT S WANG, AIT DEPUTY DIRECTOR, FOR REASONS 1.4 (B) AND (D) ¶1. (C) SUMMARY. Global concern about Chinese product safety has focused Taiwan regulatory attention on imports from the PRC, especially food products. Recent conversations with agencies in charge of formulating policy, NGOs, and local and foreign importers give a better sense of how the regulatory regime is implemented and how it affects importers. The Department of Health (DOH) has overall authority for food imports, but delegates the inspection process to the Bureau of Standards, Metrology and Inspection (BSMI) under the Ministry of Economic Affairs (MOEA),and also works with consumer protection groups to gather information on suspect imports. Companies with Taiwan operations that import from China believe import restrictions can be arbitrary, and are sometimes driven more by protectionism than real safety concerns. Local importers claim closer monitoring of the production process at factories in the PRC will help ensure that Chinese products conform with Taiwan safety requirements. Regional organizations such as APEC may be a good forum for exchange of ideas on this subject. END SUMMARY. -------------- Regulatory regime: DOH in charge -------------- ¶2. (SBU) In Taiwan, the Department of Health (DOH) delegates import inspection and testing authority to the Bureau of Standards, Metrology and Inspection (BSMI),which has a staff of 1,200. In addition, based in part on a Japanese model, BSMI also uses over 300 unpaid non-government personnel to assist with product inspections. According to BSMI Director General Chen Jay-san, BSMI conducts border inspections before products enter Taiwan, as well as random inspections of products already on the market. He noted that BSMI regularly collects information on flawed goods from the U.S. Consumer Product Safety Commission, Taiwan's overseas representative offices, and press reports. BSMI maintains a list of 2,420 products subject to compulsory inspection at the border. Of these, 1,000 are food items. If products do not pass inspection at the border, BSMI instructs the importer to stop imports. If follow-up inspections reveal continued problems, BSMI then denies an import permit under MOEA authority until the problem is corrected. ¶3. (SBU) Chen explained that increased concern over the safety of Chinese imports has prompted Taiwan to strengthen its inspection procedures over the past year. BSMI inspection statistics indicate that Chinese imports have a product inspection failure rate of approximately five percent, of which four percent is based on mislabeling, and one percent is flawed product content. This rate is the highest of all import source countries, followed by imports from Southeast Asian countries such as the Philippines, Vietnam and Thailand. Among recent imports from China and Southeast Asia, major concerns include problems with rice, seafood additives, veterinary drugs and chemical residue in agricultural products. ¶4. (SBU) During a recent meeting, DOH Food Safety Bureau Chief Cheng Huei-wen maintained that based on chemical residue levels, Taiwan's food safety criteria are 20 times more stringent than their Chinese counterparts, a fact he believes helps limit the amount of sub-standard food that the PRC exports to Taiwan. Cheng noted that Taiwan has used the Hazard Analysis and Critical Control Point (HACCP) food safety control standard for the past ten years. BSMI carries out inspection of food products on behalf of DOH. He stated TAIPEI 00002279 002 OF 004 that Taiwan inspects approximately ten percent of food imports at the border, and cited Chinese coriander, frozen shrimp, and crabs as recent food safety problems. Imports of the Chinese mitten crab, which have been found to contain traces of nitrofuran, a carcinogenic antibiotic, have highlighted weak spots in Taiwan's import regulatory regime. Although DOH was aware of the problem in October 2006, it did not take immediate action to ban the sale of the crabs, resulting in a public outcry. DOH subsequently raised the inspection bar on the crabs, effectively barring its entry into Taiwan. -------------- -------------- Taiwan industry: a positive influence on the PRC? -------------- -------------- ¶5. (SBU) Based on information provided by the Food Safety Bureau's Cheng, Taiwan companies account for three of China's top five food manufacturers: Uni-President, Want Want Group, and Master Kong, a subsidiary of Wei Chuan Corporation. In Cheng's analysis, China's food industry is deeply influenced by Taiwan's more stringent quality control measures, especially in the processed food, agricultural products, seafood, and tea sectors. Taiwan food companies use their China operations to supply the domestic Chinese market, for export overseas, and for export to Taiwan via Hong Kong or another third country. ¶6. (C) Taiwan prohibits a significant number of Chinese food products, nominally on "national security" grounds, but in reality aimed at protecting certain industries. A representative of the Taiwan Confectionery, Biscuit, and Flour-Based Food Industry Association, for example, told us that Taiwan bans Chinese foods imports in this sector. As a result, a large quantity of such foods are smuggled into Taiwan, or imported illegally by importers who lie about the country of origin. The only chance for illegally imported goods to be caught is in the random inspection process. The Association representative complained that such smuggling is sometimes linked to organized crime syndicates, and is therefore especially difficult to control. ¶7. (SBU) Taipei-based Red Box Toys, formerly a manufacturer, now acts as an import agency for toys manufactured by Hong Kong firms in China. Red Box General Manager Frank Su told us that Taiwan is one of few economies in which the safety inspection standard for toys is at the same level as electronic equipment. Unlike in the U.S. or the EU, where companies use a government-approved label to certify that their product conforms with the regulations, the Taiwan authorities are directly involved in inspecting toy imports that bear an official safety label. Su noted that two out of every five toy items are inspected by Customs upon entering Taiwan. Inspection takes five days, after which a certified inspection report is issued. According to Su, Wal-mart evaluates the labor and manufacturing conditions at its Chinese suppliers. Taiwan importers, in contrast, tend to focus on a company's reputation, and rely on pre-sampling results (i.e., whereby a sample product is sent to the prospective buyer for inspections),to choose suppliers. ¶8. (SBU) According to Su, Red Box tries to limit safety risks by not using Chinese sources for toys targeted at children under the age of three. He noted that some Korean toy manufacturers have responded to recent product safety problems by adding a "Designed in Korea" label to "Made in China" toys. By his reckoning, 70 percent of Taiwan toy manufacturers have shut down their Chinese manufacturing operations, as Taiwan's traditional small- and medium-sized companies have found it difficult to make the transition to large manufacturing operations. Su explained that Taiwan toy manufacturers specialize in high-end production, providing components such as integrated circuits, servers, and engines, TAIPEI 00002279 003 OF 004 and toys with sophisticated design. These components are then shipped to the mainland for assembly. Some manufacturers, he observed, have abandoned low-cost production in China and returned to Taiwan, where they specialize in high-end toys. The "Made in Taiwan" label now has higher marginal profits than its "Made in China" counterpart, Su continued. These companies outsource some manufacturing to Southeast Asia or China, but produce high-end core components in Taiwan. -------------- NGOs influence official policy -------------- ¶9. (SBU) Founded in 1980, Taiwan's Consumer Foundation is funded by publishing revenue, private donations, and income from product inspections requested by consumers. The non-partisan Foundation is a watchdog for consumers and has 29 paid positions, but relies primarily on approximately 200 volunteers. According to Chairman Chen Jen-hung and other Foundation officials, unclear labeling is now Taiwan's biggest consumer safety problem. In some cases, products are clearly labeled in English but not in Chinese. He noted that there have been increasing problems with Chinese products mislabeled as having been produced somewhere else. Chen also observed that the Foundation met with Chinese counterpart NGOs in 2006, and reached a consensus that Taiwan consumers can use the services of China's consumer NGOs, and vice versa. Chen said the regulatory agencies often consult the Foundation before decisions on policy. -------------- Importers: too many import restrictions -------------- ¶10. (SBU) At Mars Taiwan, the local subsidiary of U.S.-based Mars Inc., Corporate Affairs Director Josephine Chen and Finance Director Scott Mien noted that China is an extremely important production outsourcing location for Mars' Taiwan operation. Mars imports the Dove chocolate bar from its mainland plants, for example. Chen and Mien complained, however, that Taiwan's "national security" import regulations prevent the import of Chinese-manufactured Snickers bars. They implied that "national security" is invoked as a spurious grounds for protecting Taiwan's peanut farmers. Chen said Taiwan's strict quarantine regulations are sometimes used as a non-tariff barrier to limit Chinese imports, and cited pet food as an example. These complaints echo concerns raised by foreign importers through Amcham. ¶11. (SBU) According to Chen, Mars' Mainland manufacturing operations use the company's "integrated manufacturing" scheme to ensure product quality and safety. Mars controls all aspects of production involving the raw materials and ingredients used to make its products, she explained, while companies that rely on third party suppliers and other local contractors run the risk of encountering quality lapses. -------------- International/regional cooperation -------------- ¶12. (SBU) The Food Safety Bureau's Cheng said Taiwan participates in regional food safety cooperation through its memberships in APEC and the Asian Productivity Organization (APO). He observed that Japan's influence on Taiwan food safety practices has decreased in recent years as Japan's relative importance as an export market declines. Taiwan, he observes, exports primarily high-end food products to Japan. The China market, in contrast, is much more important for Taiwan exporters, and absorbs a full range of products. Regarding problems with imports of TAIPEI 00002279 004 OF 004 PRC food products that violate Taiwan safety standards, Cheng recently indicated in a separate meeting with AIT Agriculture Chief his Department's interest in sharing information with relevant USG agencies and vice-versa. -------------- Comment -------------- ¶13. (C) Taiwan has the regulatory and legal apparatus needed to carry out inspections for food and other imports, but is not necessarily increasing resources commensurate with a growing workload. Given the increasing volume of cross-Strait trade, and the uneven nature of PRC product quality, Taiwan's import safety inspections will retain a focus on PRC imports. Import policy is, however, sometimes also used to protect local industry. Uneven enforcement of regulations is a recurring problem, and encourages smuggling, mislabeling and other illegal activity. In addition to existing cross-Strait NGO cooperation, participation in regional organizations such as APEC could help Taiwan share import safety expertise with others in the region, including China. YOUNG