US embassy cable - 04TAIPEI3483

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 003483 
 
SIPDIS 
 
STATE FOR EAP/TC AND NP/ECC 
STATE PASS USTR KI 
STATE PASS AIT/W RUZICKA 
 
E.O. 12958: DECL: 11/02/2024 
TAGS: ETTC, KSTC, PARM, TW 
SUBJECT: BOFT PROVIDES MORE INFO ON EXPORT CONTROLS 
 
REF: A. A) STATE 213006 
     B. B) TAIPEI 3114 
     C. C) STATE 215802 
 
Classified By: AIT Deputy Douglas Paal; Reasons: 1.4 (b/d) 
 
1. (C) Summary: Taiwan,s Board of Foreign Trade (BOFT) 
officials relayed to AIT on November 1 new information that 
shows the Ching Hwee Company (which we discussed earlier with 
Taiwan, see ref B) has played a dominant role in Taiwan's 
machinery exports to North Korea.  BOFT investigations (per 
ref C request) into the Royal Richard Company revealed little 
trading activity, and no imports from China or exports to 
North Korea.  AIT notified BOFT the U.S. will not provide 
EXBS training November 2-5.  End summary. 
 
Restricted Customs Data Gives Insights 
-------------------------------------- 
 
2.  (C) BOFT Import-Export Administration Director Peter Ho 
provided AIT with restricted Taiwan Customs data from 2001 
through May of this year on all imports and exports of the 
Ching Hwee Trading Company, a Taiwan company known to export 
sophisticated machine tools to North Korea.  The data makes 
it clear that Ching Hwee has negligible imports.  Over half 
of all Ching Hwee exports, by value, go to North Korea.  Its 
exports to North Korea in the first five months of 2004 
totaled USD 666,468, accounting for 65 percent of its total 
export sales.  Over 95 percent of Ching Hwee's exports to 
North Korea are machine tools. In some machine tool tariff 
categories, Ching Hwee accounts for 100 percent of Taiwan,s 
exports to North Korea, and in some other tariff categories 
it accounts for the majority of Taiwan,s exports to North 
Korea by value.  In 2002, for example, Ching Hwee alone 
accounted for all of Taiwan's exports to North Korea of 
machining centers, numerically controlled lathes, and 
numerically controlled shearing machines.  Ching Hwee also 
exports to Australia, China, Iran, Jordan, Pakistan, 
Singapore, South Korea and Vietnam. 
 
3.  (C) Director Ho said the owners of Ching Hwee denied 
having any joint venture with the Ryonha Machinery J/V 
Corporation of North Korea, as reported in ref A talking 
points.  The owners told BOFT that they believed Ryonha had a 
joint venture with a Japanese company.  Most of the machine 
tools sold by Ching Hwee use Mitsubishi computer numerical 
controller (CNC) panels.  BOFT has determined that Ching Hwee 
is only a trading company that does not actually produce any 
of the products it trades (ref B).  As part of its 
investigation into machine tool exports to North Korea, BOFT 
has identified five local companies that manufacture the 
machine tools exported by Ching Hwee, and it is looking into 
the nature of the relation between Ching Hwee and these five 
manufacturers to see if there are any common owners or other 
significant links.  Ching Hwee told BOFT that contrary to the 
usual practice in machine tool sales, it does not provide any 
warranty or after sales service to the machines it sells to 
North Korea. 
 
AIT, BOFT and Taiwan Customs Visit Machine Tool Factories 
--------------------------------------------- ------------ 
 
4.  (C) BOFT has recently begun organizing export control 
training for Taiwan Customs officials.  Two AIT 
representatives joined a training tour of machine tool 
factories in central Taiwan (reported septel).  The factories 
that the Customs officials visited on this training tour were 
not suspected of any illegal activity, but were requested to 
provide basic information on how to identify high performance 
machine tools.  The factory executives emphasized the 
importance of software and the CNC panel as decisive in 
determining the capabilities of any machine tool.  They also 
noted that warranty and after-sales service, including 
periodic software updates, were normally key considerations 
in machine tool sales. 
 
Ho Notes that Critical Parts Not of Taiwan Origin 
--------------------------------------------- ---- 
 
5.  (C) While discussing the lessons learned from the joint 
AIT/BOFT/Customs training tour, Director Ho noted that Taiwan 
did not manufacture any sophisticated CNC panels; rather, it 
invariably imported these components from Japan and Germany. 
Before these products can be exported to Taiwan from Japan or 
Germany, high-tech CNC panels must have export licenses and 
end-user verifications issued by the country of origin. 
Director Ho said it was unclear whether imported high-tech 
CNC panels were already installed on the machine tools that 
Ching Hwee had exported to North Korea.  He agreed with the 
AIT suggestion that this issue should be investigated 
further.  Ho said the Taiwan Industrial Research Institute 
(ITRI) is currently assisting BOFT in determining if past 
Ching Hwee exports included controlled items.  In the cases 
researched so far by ITRI, the item descriptions provided by 
Ching Hwee indicated that a less sophisticated type of 
control was shipped with the machine tools sent to North 
Korea. 
 
Royal Richard Not a Major Trading Company 
----------------------------------------- 
6. (C) BOFT reported that in response to ref C demarche, it 
had investigated the Royal Richard Taiwan Company Limited and 
found that it has made only two international transactions in 
2004.  According to Taiwan Customs data, in May, Royal 
Richard imported a single item from South Korea valued at USD 
180 and in August, it exported a single item to Ghana worth 
USD 411.  The value of these items did not meet the threshold 
for recording the item description in regular reports, but 
BOFT is currently seeking additional information.  Director 
Ho clarified that while Taiwan has a law against brokering 
military-use items, and has pending legislation covering the 
transfer of sensitive technologies, it does not have any law 
against brokering dual-use chemicals if the item never 
transits Taiwan.  He pointed out that in this case, it was 
the responsibility of the PRC law enforcement agencies to 
enforce their laws against exporting the chemical to North 
Korea.  Director Ho also indicated that Taiwan has provisions 
for maintaining export controls even for items transiting 
through free trade zones. 
 
7. (C) Comment: That BOFT has provided us with restricted 
Customs data shows again a willingness to go beyond the 
letter of the law in cooperating on export controls.  That 
BOFT would on its own organize export training for Taiwan 
Customs shows initiative.  BOFT seemed to take in stride our 
notification that the EXBS training will not be held November 
2-5.  End comment. 
PAAL