US embassy cable - 05TAIPEI2936

UNCLAS SECTION 01 OF 03 TAIPEI 002936 
 
SIPDIS 
 
STATE PLEASE PASS AIT/W AND USTR 
 
STATE FOR EAP/RSP/TC, EAP/EP 
 
USTR FOR WINTER AND WINELAND 
 
USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER 
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT 
TREASURY FOR OASIA/LMOGHTADER 
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, IPR, ESTH, Finance 
SUBJECT:  Economic Briefing for June 2005 
 
1.  This cable summarizes selected recent economic events in 
Taiwan in May 2005: 
 
-- Soft Economy Continues in Q2 
 
-- BenQ Acquires Siemens Cell Phone Unit 
 
-- EVA Air-Boeing Business Ties Remain Strong 
 
-- Taiwan Holds Energy Conference with Mixed Results 
 
-- EZPeer Not Guilty in P2P IPR Case 
 
-- CHT Postpones Privatization Plan 
 
-- Counterfeit Pharmaceutical Seller Nabbed 
 
-- Medical Devices Get Registration Extension 
 
Soft Economy Continues in Q2 
---------------------------- 
 
2.  Taiwan's soft economic performance from the first 
quarter of 2005 spilled over into the second quarter.  Weak 
world demand for Taiwan products has driven y-o-y export 
growth in May 2005 to its lowest and manufacturing to its 
most significant contraction since SARS attacked Taiwan in 
early 2003.  Higher petroleum prices and heavy rains 
together pushed up the inflation rate in May to a new 7- 
month high.  Nevertheless, inflationary pressure is not a 
concern in light of low money supply growth and declines in 
price levels for services industries.  The unemployment rate 
in May rose slightly from April, due mainly to new 
graduates' joining the labor market.  Local economists 
differ in their outlook of economic trends for Taiwan in the 
next six months.  Some suggest the government should 
stimulate domestic growth rather than relying on export 
growth. 
 
BenQ Acquires Siemens Cell Phone Unit 
------------------------------------- 
 
3.  BenQ, one of Taiwan's leading contract manufacturers of 
electronic consumer goods and a firm that is trying to build 
its own brand identity, on June 7 announced plans to acquire 
the cellular phone unit of Siemens, world's fourth largest 
cell phone brand name.  Many analysts have questioned BenQ's 
decision.  Siemens cell phone unit had USD 626 million in 
losses in 2004.  Press reports indicate that BenQ has lost 
customers for cell phone manufacturing, as other brand name 
firms take their business elsewhere now that BenQ is a more 
serious competitor.  However, the terms of the deal appear 
quite favorable to BenQ.  BenQ will acquire the Siemens unit 
without paying any cash.  In fact, Siemens will provide BenQ 
cash and service equal to 250 million euros (about USD 300 
million) and purchase 50 million euros (USD 60 million) 
worth of BenQ's shares as part of the deal.  BenQ will 
acquire the right to use the Siemens brand for 18 months and 
a BenQ-Siemens brand name for up to five years after the 
takeover.  BenQ Chairman Lee Kun-yao has announced a target 
of combined operations breakeven in with 2006 sales of US$10 
billion accounting for 11 percent global market share. 
 
EVA Air-Boeing Business Ties Remain Strong 
------------------------------------------ 
 
4.  At a June 27 press conference to unveil GE engines for 
its new 777-300ER aircraft that will arrive in July 2005, 
EVA Air President K.W. Chang revealed that the firm is 
considering replacing its current freighter fleet with 
Boeing's new 777-200LR cargo plane, which will be available 
in 2008.  EVA is already buying 15 passenger 777s and is 
looking for eventual replacements for its current cargo 
fleet of twelve McDonnell-Douglas MD-11s and four 747-400Fs. 
In addition, on June 29, EVA Air affiliate Evergreen 
Aviation Technologies Corporation (EGAT) held a ceremony 
marking the start of work on the conversion of three 747-400 
passenger jets into special cargo freighters that will be 
used to transport major assemblies used in the production of 
the Boeing 787 Dreamliner.  Modifications to enlarge the 
upper fuselage of the aircraft will increase the cargo 
capacity to over that of the 747-400 freighter.  Successful 
completion of the unique aircraft will be a major 
engineering accomplishment for EGAT.  The modified airplane 
is scheduled to enter service in 2007, and its timely 
completion will be essential to Boeing and its plans to 
produce the 787. 
 
Taiwan Holds Energy Conference with Mixed Results 
--------------------------------------------- ---- 
 
5. Taiwan held its second national energy conference June 20- 
21.  Many energy experts inside and outside the government 
had hoped that the conference would result in an agreement 
to rethink Taiwan's anti-nuclear policies in light of the 
Kyoto Protocol going into effect.  Prior to the conference, 
the appointment of the infamously anti-nuclear Chang Kuo- 
lung as the head of Taiwan's Environmental Protection Agency 
was a clear indication that the Chen Administration would 
remain firm in its anti-nuclear stance.  Although the 
conference agreed to support completion of the construction 
of the Fourth Nuclear Power Plant, anti-nuclear hardliners 
prevailed in preventing efforts to extend the lifecycle of 
existing nuclear power plants and building additional 
reactors at any of the existing facilities.  In addition, 
the conference made many claims about how Taiwan will reduce 
its carbon emissions.  Environmental groups view the claims 
as empty rhetoric in light of the fact that the conference 
did not decide to hinder the approval of controversial 
projects including a steel plant, a naptha cracker plant and 
three new coal-fired plants.  Combined these five projects 
will increase Taiwan's CO2 emissions by 20 percent. 
 
EZPeer Not Guilty in P2P IPR Case 
--------------------------------- 
 
6. Taipei's Shilin District Court on June 30 announced its 
decision on the criminal copyright infringement case based 
on a complaint brought by the International Federation of 
Phonographic Industries (IFPI) against peer-to-peer (P2P) 
software provider EZPeer.  The Court ruled that providing 
P2P service is not illegal under Taiwan law, that EZPeer did 
not illegally reproduce or transmit copyrighted materials, 
and that EZPeer is not guilty of copyright infringement. 
The Taiwan branch of IFPI vowed to appeal the decision.  The 
Court's decision did not address the matter of civil 
liability and stated clearly that EZPeer members who use P2P 
services to transmit copyrighted materials may be prosecuted 
for criminal copyright infringement.  The decision is a blow 
to efforts to protect copyrights in Taiwan and illustrates 
the difficulties rightsholders face when using Taiwan's 
judicial process to protect their intellectual property 
(IP). 
 
CHT Postpones Privatization Plan 
-------------------------------- 
 
7. Chairman HO-CHEN Tan told a Chunghwa Telecom (CHT) 
shareholders meeting on June 21 that continued concerns over 
employee benefits would delay until August the planned 
privatization of CHT through the sale of 17 percent of CHT 
shares.  However Ho-chen insisted that CHT remains committed 
to privatization, in spite of the Legislative Yuan's passage 
of a resolution calling on the government to suspend the 
share sale.  After Ho-chen's statement, CHT union leaders 
postponed a planned July 1 strike, but are still preparing 
to travel to the U.S. to protest during Chairman Ho-chen's 
upcoming roadshow.  Industry insiders agree that the sale 
will go forward despite the union's protests. 
 
Counterfeit Pharmaceutical Seller Nabbed 
---------------------------------------- 
 
8. Prompted by an investigative news report that some of the 
popular weight-loss drug Reductil (manufactured by Abbott 
Laboratories) sold over the internet was counterfeit, 
special agents f the Criminal Investigation Bureau raided a 
residence in Taipei County on May 24 and arrested one 
suspect.  The suspect told police that she had both 
purchased and sold the products online and was unaware that 
they were counterfeit.  Abbott's Taiwan manager estimated 
that as much as 20 percent of Reductil sales in Taiwan could 
be counterfeits. 
 
Medical Devices Get Registration Extension 
------------------------------------------ 
 
9. Unable to meet its own June 20 deadline for registering 
medical devices, the Taiwan Department of Health (DOH) 
issued an administrative notice allowing manufacturers and 
importers to continue to import medical devices for an 
additional six months.  Medical device manufacturers that 
have applied for registration of their products but have not 
yet received licenses will be allowed to continue to import 
their products until December 20, 2005.  Those manufacturers 
that did not apply for registration by June 20, 2005 will 
not benefit from this amendment.  Those products that have 
been registered and have received import licenses (as of 
June 17 barely 200 out of more than 4000 applications) can 
be imported without restriction. 
 
KEEGAN