US embassy cable - 05TAIPEI962

UNCLAS SECTION 01 OF 03 TAIPEI 000962 
 
SIPDIS 
 
STATE PLEASE PASS AIT/W AND USTR 
 
STATE FOR EAP/RSP/TC, EAP/EP AND EB/IFD/OIA 
 
USTR FOR SCOTT KI 
 
USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER 
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT 
TREASURY FOR OASIA/ZELIKOW AND WISNER 
TREASURY PLEASE PASS TO OCC/AMCMAHON 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN 
 
E.O. 12958: N/A 
TAGS: EINV, EFIN, ECON, PINR, TW 
SUBJECT:  Economic Briefing for February 2005 
 
1.  This cable summarizes selected recent economic events in 
Taiwan in February 2005: 
 
--Cross-Strait charter flights for cargo 
 
--WTO and anti-dumping measures 
 
--Key economic indicators for January 2005 
 
--NT dollar appreciation 
 
-- High-tech firms post huge sales growth 
 
--Boeing contracts Taiwan aerospace firm to refit 747's 
 
Cross-Strait Charter Flights for Cargo 
-------------------------------------- 
 
2.  During the Taiwan Investors Spring Festival on February 
16, 2005, President Chen Shui-bian announced government 
plans to promote cross-Strait cargo flights.  Cargo flights 
would follow the pattern of the non-stop passenger charter 
flights during the 2005 Lunar New Year Holiday and pass 
through Hong Kong or Japanese airspace but without any 
intermediary stop.  In addition, Premier Frank Hsieh 
expressed his interest in expanding cross-Strait marine 
cargo transportation to and from Kaohsiung's Free Trade Port 
Zone.  The expanded program would permit imports from China 
and processing of such imports for re-exports from the zone. 
In response, China's Taiwan Affairs Office (TAO) offered to 
consider another round of holiday charter flights, but did 
not reply to the offer of regular cargo flights.  On 
February 25, Taiwan's Mainland Affairs Office rejected the 
TAO call to consider another round of holiday charter 
flights and criticized the lack of any "substantive" 
response to Taiwan's offer of regular cargo flights.  (Note: 
Hu Jintao's March 4 "Four Points" speech on Taiwan included 
the statement that "Non-governmental trade organizations on 
both sides of the Taiwan Strait may exchange views on 
providing cross-Strait cargo charter flight service."  End 
note.) 
 
Taiwan's Role in FAN 
-------------------- 
 
3.  Taiwan has been an active participant in activities 
organized by the "Friends of Anti-Dumping Negotiation" 
(FAN), an informal group of WTO members formed three years 
ago opposed to the excessive use of anti-dumping measures. 
FAN seeks to remedy what it sees as overly relaxed criteria 
used by some economies in assessing import damages to 
domestic industries.  A Taiwan delegation headed by Deputy 
Director General of the Board of Foreign Trade James Wu 
attended a FAN brainstorming meeting at the South Korean 
Mission in Geneva prior to a WTO Anti-Dumping Committee 
session February 22-25.  The FAN agenda included an action 
plan for 2005 designed to reduce frequency, magnitude, 
scope, and duration of anti-dumping measures.  Also covered 
in the agenda were efforts to win support from non-FAN 
members and methods of dispute settlement. 
 
4.  FAN includes 17 members -- Hong Kong, Japan, South 
Korea, Singapore, Thailand, Chinese Taipei, New Zealand, 
Norway, Switzerland, Turkey, Canada, Brazil, Chile, 
Columbia, Costa Rica and Mexico.  South Korea, Chinese 
Taipei and Japan have each been the target of over 100 anti- 
dumping investigations over the past decade. 
 
January Statistics Skewed by Seasonal Factors 
--------------------------------------------- 
5.  Taiwan's exports and industrial production statistics 
for January show substantial year-on-year growth.  This 
apparent growth resulted mainly from the fact that in 2004 
the Lunar New Year holiday fell in January, while in 2005 
this nine-day holiday fell in February.  Dr. Chou Chi, 
Director of the Economic Forecasting Center of the Chunghua 
Institution for Economic Research (CIER), predicted that 
exports and industrial production in February 2005 would 
post drastic drops because of the long holiday.  Dr. Chou 
indicated that this "seasonal factor" could be removed by 
comparing combined statistics for January and February 2005 
with corresponding figures a year earlier. 
 
Economic Slowdown to Continue 
----------------------------- 
 
6.  In late February 2005, the Directorate General of 
Budget, Accounting and Statistics (DGBAS) adjusted downward 
Taiwan's 2004 economic growth from 5.93% estimated in 
November 2004 to 5.71%.  The DGBAS also reduced its forecast 
for 2005 economic growth from 4.56% forecast in November 
2004 to 4.21%.  Deputy Director of the DGBAS Statistical 
Bureau Tsai Hung-kun attributed the downward adjustments 
mainly to appreciation of the NT dollar (NTD) which rose 
from over NT$34 per US dollar (USD) in the middle of 2004 to 
NT$31 per USD in late February 2005.  According to Director 
General Tsai, China's currency peg to the USD has prompted 
some Taiwan manufacturing firms to shift production from 
their plants on Taiwan to production bases in China.  He 
anticipated export growth would slow from a double-digit 
rate in 2004 to a single-digit level in 2005.  He also 
expected private investment growth to slow from over 30% in 
the first half of 2004 to 8% in Q3 2005 and 4% in Q4 2005. 
The real GDP growth forecast for the first half of 2005 is 
now 4.1%, compared with 7.3% real GDP growth achieved in the 
first half of 2004. 
 
HSIP Keeps Laying Golden Eggs 
----------------------------- 
 
7.  Manufacturing firms located at Taiwan's Hsinchu Science- 
based Industrial Park (HSIP) reported a whopping growth of 
27% in their combined sales revenues to reach a total of 
NT$1,859 billion in 2004.  Integrated circuit (IC) companies 
generated the bulk of the park's sales revenues accounting 
for 68.5% or NT$744.1 billion.  Among the six component 
industry categories in the park, precision machinery 
manufacturers posted the highest growth of 60%. 
Optoelectronics makers and IC companies enjoyed the second 
highest growth of 39%.  Computer and computer peripheral 
makers and telecom manufacturers saw growth of 3% and 10%, 
respectively. 
 
8.  Exports from HSIP in 2004 grew 27% to NT$495.8 billion 
while imports shot up 77% to NT$392.8 billion.  The top five 
export destinations in 2004 were: China 20%; Hong Kong 20%; 
Japan 12%; the United States 11%; and South Korea 9%.  Major 
sources of imports to HSIP remained the United States and 
Japan, accounting for 37% and 20% of the HSIP's total 
imports.  The other top sources were Singapore 8%, Hong Kong 
7%, and South Korea 3%. 
EVA Subsidiary to Refit 747's for Boeing 
---------------------------------------- 
 
9.  Boeing has contracted Evergreen Aviation Technologies 
Corporation (EGAT), a subsidiary of the EVA Airways 
Corporation, to refit three 747 passenger planes as special 
747-400 large cargo freighters (LCFs).  These LCF's will be 
used to transport large components of Boeing's newly 
designed 787 Dreamliners from France, Japan, and the United 
States to the 787's assembly site in Spain.  This deal marks 
a significant advance for Taiwan's aerospace industry and 
establishes a foundation for future aircraft refitting 
projects.  The design of the 747 LCF is considered one of 
Boeing's most valuable corporate secrets.  Boeing's decision 
to work with EGAT not only reflects Boeing's confidence in 
Taiwan's technological capabilities but also in EGAT's 
ability to protect the intellectual property involved. 
 
10.  The refitting will be carried out at the EGAT 
facilities at Taipei International Airport.  A Boeing press 
release estimated the cost of refitting each aircraft at 
US$25 million.  The first of the 747's slated for refitting 
was just purchased by Boeing from Taiwan's China Airlines in 
December 2004.  EGAT and Boeing signed a refitting contract 
on February 18 in Taipei. 
PAAL