US embassy cable - 04TAIPEI3114

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 003114 
 
SIPDIS 
 
STATE FOR EAP/TC AND NP/ECC 
STATE PASS USTR/KI 
STATE PASS AIT/W/RUZICKA 
 
E.O. 12958: DECL: 07/19/2014 
TAGS: ETTC, KSTC, PARM, TW 
SUBJECT: DEMARCHE ON TAIWAN'S EXPORT CONTROLS 
 
REF: A. A) STATE 213006 
 
     B. B) TAIPEI 3001 
     C. C) TAIPEI 3019 
     D. D) TAIPEI 3051 
 
Classified By: AIT Economic Chief Daniel Moore; REASONS 1.4 (B,D) 
 
1. (C) Summary:  AIT Econ delivered ref A talking points to 
BOFT on October 5, and to NSC on October 6.  BOFT reported 
that on September 30, Taiwan Customs stopped two shipments of 
machine tools being shipped by Ching Hwee to "COSCO 
Logistics" in Dalian, China (across the bay from North 
Korea). NSC stated that unless there was proof machine tools 
would be used to produce arms, there was no legal basis to 
stop their export.  End Summary. 
 
Shipments Stopped as Result of U.S. Information 
--------------------------------------------- -- 
 
2.  (C) After AIT delivered ref A talking points on October 
5, BOFT reported that on September 30, Taiwan Customs had 
acted on the instructions contained in the BOFT-DGC letter 
reported ref B (Taipei 03051) and stopped two Ching Hwee 
shipments of machine tools leaving Taichung Harbor bound for 
"COSCO Logistics" in Dalian City, Liaoning Province, China (a 
major container port just across the bay from North Korea). 
In response to Ching Hwee,s complaints over this action, 
BOFT informed Ching Hwee executives that the action was taken 
due to suspicions that the machine tools were destined for 
North Korea, and for use in arms production.  BOFT explained 
that according to Taiwan,s export control &catch-all8 
provisions, although the machine tools are not on any 
sensitive high-tech commodity (SHTC) list, the possibility 
that the goods could be used in weapons manufacturing made 
them subject to export controls. 
 
Taiwan,s Ching Hwee and North Korea,s Ryonha 
-------------------------------------------- 
 
3.  (C) BOFT noted that Ching Hwee does not export any goods 
on the SHTC list and has never applied for an SHTC permit. 
In fact, according to BOFT,s investigation, Ching Hwee does 
not product any goods at all, but is only a trading company. 
According to BOFT, Ching Hwee has a total capitalization of 
only about US$ 1 million and is owned by four private 
individuals, who also serve as company executives. If true, 
this raises the question of what Ching Hwee would have to 
offer in a joint venture with the Ryonha Company.  BOFT said 
it will continue and deepen its investigation of Ching Hwee 
and compile information on all of the company,s exports and 
imports. 
 
Strange Information 
------------------- 
 
4.  (SBU) A quick search of the internet shows that the 
Ryonha Machinery Joint-Venture Company can be contacted 
through its office in Pyongyang, North Korea.  According to 
Taiwan Customs, shipping documents, the Ryonha Company is 
one of the main purchasers of Ching Hwee,s machine tool 
exports.  However, strangely, the Ryonha Company website 
indicates that it manufactures and exports sophisticated CNC, 
electric discharge, and machining center machine tools 
similar to those that it imports from Ching Hwee.  In fact, 
according to press reports, the Ryonha Company exhibits its 
machine tools, which have been certified by the International 
Standards Organization to meet ISO 9002 standards, at an 
international industrial exhibition held in Pyongyang each 
year.  While the Korean letters in the Ryonha name are 
phonetic and without exact Chinese equivalents, the same 
letters are used by Koreans to phoneticize the main Chinese 
character in Dalian.  The name Ryonha could be taken to mean 
&little Dalian.8  If Washington agencies know the Chinese 
characters used to write Ryonha, this information would be 
useful to AIT in further researching the company. 
 
How the United States Can Champion Strict Export Control 
--------------------------------------------- ----------- 
 
5.  (C) BOFT indicated they would like to see further 
restrictions on exports of machine tools from Taiwan to North 
Korea, but needed support from the United States in the 
interagency struggle within the Taiwan government. 
Specifically, BOFT repeated its request for information on 
the restrictions that Japan, South Korea, Italy, Germany, and 
other countries place on machine tool exports to North Korea. 
 If these countries restrict machine tool exports to North 
Korea, that would be a strong argument in persuading Taiwan 
agencies to agree to do likewise.  Second, BOFT mentioned the 
P2S5 chemical that was seized earlier this year in Kaohsiung 
at the request of U.S. agencies.  BOFT indicated that U.S. 
assistance in helping to get rid of the stuff would be a 
criterion in determining future cooperation.  BOFT said 
Taiwan,s Environmental Protection had refused to dispose of 
the chemical.  BOFT was unaware if the United States has 
provided instructions on disposal. 
 
NSC Response to Talking Points 
------------------------------ 
 
6.  (C) The NSC response to the Ref A talking points on 
delivered on October 6 was cordial, but not as forthcoming. 
In response to the suggestion that Taiwan should stop machine 
tool to North Korea the NSC officials said that there were no 
legal grounds for stopping these shipments.  When AIT 
suggested that Taiwan,s &catch-all8 provisions provided a 
legal basis, NSC officials said even with the products send 
to North Korea, there was no proof the machines were procured 
to produce weapons.  It would be even more difficult to prove 
that shipments to third territories or front companies were 
intended for weapons production.  The NSC officials suggested 
better information sharing with the United States and 
international export control agencies might help address this 
issue of proof.  They seemed interested in attending the 
planned EXBS workshop on export control laws and regulations 
that will be held in Taipei in November. 
 
7.  (C) Comment: Export control is apparently a hotly debated 
issue within the Taiwan government, with BOFT and Customs 
already going well beyond what the NSC sees as the limits of 
current legislation.  AIT believes that providing BOFT with 
the arguments it needs to prevail in the interagency debate 
would be an effective tactic in getting stronger exports 
control in Taiwan.  End comment. 
 
PAAL 
PAAL