CROSS-STRAIT TRADE IN RESTRICTED CHEMICALS

S E C R E T SECTION 01 OF 02 TAIPEI 000078 SIPDIS SIPDIS STATE FOR EAP/TC, ISN/CB AND ISN/MTR E.O. 12958: DECL: 01/11/2027 TAGS: CN CW ETTC KNNP PARM TW SUBJECT: CROSS-STRAIT TRADE IN RESTRICTED CHEMICALS REF: A. TAIPEI 72 ¶B. MIKULAK-NEELY EMAIL OF 1/9/2006 ¶C. 06 TAIPEI 66 ¶D. 05 STATE 3573 Classified By: AIT Deputy Director Robert Wang, 1.4 B/C ¶1. (S) Summary: During the January 8 meeting reported ref A, the Taiwan Bureau of Foreign Trade (BOFT) Export Control Task Force Head Wally Su (Shi-hwa) also provided AIT Econ with details and documents related to Taiwan's ongoing trade with the PRC in Chemical Weapons Convention (CWC)-restricted schedule 2 and schedule 3 chemicals. End summary. Taiwan Imports Both Schedule 3 and 2 Chemicals from China -------------- -------------- ¶2. (S) BOFT's Su provided AIT with copies of end-user certificates issued by BOFT and with Taiwan Customs documents showing CWC-restricted chemicals imported from China. The Taiwan Customs documents showed five different types of schedule 2 and four different types of schedule 3 chemicals had been imported from China into Taiwan within the past couple years. Su explained that BOFT is the only agency that issues end-user certificates. State-owned Companies Export Restricted Chemicals to Taiwan -------------- --- ¶3. (S) The end-user certificate Su provided to AIT was for a Taiwan company to import 10,000 kg of phosphorous oxychloride from Sinochem International Corporation in Shanghai, China. BOFT had issued the certificate on November 28, 2006. Su said that BOFT investigates the importing company before issuing an end-user certificate by searching its own database for information on the company. BOFT then contacts the Industrial Development Bureau (IDB) in the Ministry of Economic Affairs to verify that the import is an appropriate chemical for the company to import. Su added that sometimes the IDB will contact one of the chemical trade associations (Taiwan Chemical Industry Association, TCIA, or Taiwan Specialty Chemical Association, TSCA) for a written confirmation that the requested import is appropriate. Su said Taiwan Customs will not/not allow CWC-restricted chemicals into Taiwan without an end-user certificate issued by BOFT, but left inspection of the export license up to the exporting country's officials. In addition to China, Taiwan imports schedule 3 chemicals from the United States, Malaysia, India, and Japan. ¶4. (S) Note: The written confirmation sometimes provided by the chemical trade associations may be the document that PRC CWC officials are referring to in ref B. End note. Taiwan Also Exports Restricted Chemicals to China -------------- ¶5. (S) BOFT's Wally Su said that BOFT also grants export licenses for schedule 3 chemicals to be exported to China, Hong Kong, Singapore, Thailand, and other destinations. According to BOFT, Taiwan does not produce any schedule 2 chemicals. He cited the penalties imposed on BOC Lien Hwa for re-exporting restricted chemicals to China as an example of Taiwan's effective control of these exports (reported ref C). U.S. Interests Involved -------------- ¶6. (S) Comment: China's efforts to block Taiwan's international trade in CWC-restricted chemicals has resulted in China becoming Taiwan's major trading partner in these restricted chemicals, at least according to official Taiwan trade statistics. This partly explains why the TCIA and its PRC counterpart, the China Petroleum and Chemical Industry TAIPEI 00000078 002 OF 002 Association (CPCIA) have held annual meetings for the past several years, with the venue alternating between Taiwan and mainland China (ref B),even though the CPCIA continues to block TCIA participation in the International Council of Chemical Associations. ¶7. (S) Although PRC officials are willing to allow exports (referred to as "internal transfers" by the PRC) of schedule 3 and schedule 2 chemicals to Taiwan, they do not require an end-user certificate from BOFT, and do not have an ability to inspect, regulate, or check the bona fides of the importing company. This inability to inspect or monitor highlights ongoing concerns about Taiwan's possible biological/chemical weapons programs, plans to develop satellite space launch capability, and expressed interest in building retaliatory measures to deter a PRC attack. The PRC also apparently lacks any mechanism to verify the exports actually enter Taiwan and are not being transshipped to terrorist entities. ¶8. (S) The current situation also leaves some of Taiwan's most advanced industries (specialty glass, fire-resistant fabrics, semiconductors, LCD monitors, etc.) increasingly dependent on China for supplies of chemicals critical in the manufacturing process. This brings increased PRC control over Taiwan's high-tech economy that can be used to speed the migration of these industries to China or to disrupt the supply of these high-tech produsts to global markets. ¶9. (S) Given the current absence of any outside monitoring of chemicals in Taiwan, AIT believes it would be in U.S. interests to urge Taiwan to accept U.S. inspection and monitoring of its production, use, and trade in CWC-restricted chemicals, just as it now accepts post-shipment, end-user license, blue lantern and other inspections and verifications. In return, the U.S. could offer to make available to Taiwan industry the restricted chemicals needed in legitimate manufacturing. Following our current practice with non-U.S. origin nuclear reactor components, we could consider non-U.S. origin chemicals to be covered under the same inspection and monitoring arrangements. ¶10. (S) AIT believes that one possible extra-CWC framework for such an inspection and monitoring arrangement would be the Export Control Gameplan developed by ISN/MTR in August 2005 (ref D). This program, in which Australia, Germany, Japan, and the UK also participate, was designed to provide training and other resources to help Taiwan strengthen its control over imports, exports, transits and transshipments of sensitive commodities. End comment. YOUNG