US embassy cable - 05TAIPEI278

C O N F I D E N T I A L TAIPEI 000278 
 
SIPDIS 
 
DEPT FOR EAP/TC, NP/ECNP 
DEPT PLEASE PASS AIT/W 
 
E.O. 12958: DECL: 01/21/2015 
TAGS: ETTC, EINV, ETRD, ECON, PREL, CH, TW, Cross Strait Economics 
SUBJECT: ACTION REQUEST - U.S. SEMICONDUCTOR EXPORT CONTROLS 
 
 
Classified By: AIT Director Douglas H. Paal, Reason 1.5 (b/d) 
 
1. (U) This cable is an action request.  See paragraph 4. 
 
2. (C) Ministry of Economic Affairs (MOEA) Investment 
Commission Deputy Executive Secretary Emile Chang asked AIT 
to provide information on U.S. export regulations for 
semiconductor manufacturing equipment sold to entities in the 
PRC.  Taiwan currently prohibits any 
semiconductor-manufacturing investment in the Mainland for 
technology that produces chips with feature size below the 
0.25-micron level.  For investment at the 0.25-micron level 
or above, investment is allowed upon approval from the MOEA's 
Investment Commission.  Taiwan Semiconductor Manufacturing 
Corporation (TSMC) wishes to invest in more advanced 
manufacturing capability in the PRC and recently informed 
MOEA that the U.S. has allowed the export of manufacturing 
equipment capable of producing chips at the 0.18-micron level. 
 
3. (C) Based on informal consultation with NP/ECNP, AIT/T 
briefed Chang on the basic principles of U.S. export control 
regulations in this area.  We confirmed that the U.S. 
government had approved export licenses for 0.18-micron level 
manufacturing equipment destined for firms located in the 
PRC.  The Taiwan government is considering revision of its 
regulations governing semiconductor investment in the PRC to 
allow investment with more advanced technologies subject to 
review and approval by the Taiwan government.  It wants to 
maintain consistency with relevant U.S. regulations.  As a 
result, MOEA's Chang asked U.S. government views on Taiwan 
reducing its minimum feature size limit from 0.25 to 0.18 
microns.  All Taiwan investment to China, including 
investments involving 0.18-micron technology, would still 
require approval by the Taiwan government. 
 
4. (C) ACTION REQUEST: AIT/T asks Department to provide 
guidance on this request.  Please advise whether U.S. 
government would have any objections to Taiwan lowering its 
minimum feature size limit to 0.18 microns for semiconductor 
manufacturing investment in the PRC. 
 
Background on Taiwan's PRC Investment Control Regime 
--------------------------------------------- ------- 
 
5. (U) The Taiwan government has a fairly rigorous 
application process for investment in the PRC.  Standards for 
semiconductor manufacturing investment are even stricter. 
Semiconductor investment applications are reviewed by various 
government agencies, including the Investment Commission, the 
Bureau of Foreign Trade and the Mainland Affairs Council. 
Many of the factors considered relate to Taiwan's domestic 
economy.  Firms must have a certain level of investment in 
more advanced semiconductor manufacturing in Taiwan.  The 
Taiwan government also considers the plan's impact on 
Taiwan's labor situation. 
 
6. (U) Technology transfer is another key factor.  A Taiwan 
firm may only invest in Mainland entities if it will have 
controlling interest in the enterprise.  The Taiwan firm must 
keep the rights to all intellectual property developed by the 
Mainland enterprise.  In addition, after approval, the Taiwan 
firm must regularly submit a written report to the Taiwan 
government that includes any changes in the technology used, 
the acquisition of any intellectual property rights, the 
plant's capacity utilization, and details on domestic and 
export sales. 
PAAL