VZCZCXRO8569
RR RUEHGH
DE RUEHIN #1918/01 1570043
ZNR UUUUU ZZH
R 060043Z JUN 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 0523
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3292
RUEHBJ/AMEMBASSY BEIJING 5268
RUEHUL/AMEMBASSY SEOUL 7863
RUEHGP/AMEMBASSY SINGAPORE 6472
RUEHKO/AMEMBASSY TOKYO 7752
RUEHML/AMEMBASSY MANILA 9735
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RUEHKL/AMEMBASSY KUALA LUMPUR 3507
RUEHHI/AMEMBASSY HANOI 3078
RUEHBY/AMEMBASSY CANBERRA 4213
RUEHWL/AMEMBASSY WELLINGTON 1506
RUEHHK/AMCONSUL HONG KONG 6488
RUEHGH/AMCONSUL SHANGHAI 0180
RUEHGZ/AMCONSUL GUANGZHOU 9364

UNCLAS SECTION 01 OF 03 TAIPEI 001918 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
 
STATE FOR EAP/RSP/TC, EAP/EP 
 
USTR FOR ALTBACH 
 
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT 
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
SUBJECT:  Taipei Economic Brief for May 
REF: TAIPEI 1481 
 
¶1.  This cable summarizes selected recent economic events in Taiwan 
in May 2006: 
 
--TIFA talks 
--2006 economic growth 
--Cross-Strait cooperation 
--Taiwan IPR officials in Beijing 
--Taiwan relaxes PRC investment rules 
--Solar and biomass energy 
--Taiwan Sugar to produce bio-ethanol 
--Communications networks 
--Taiwan's cable TV industry 
--Taxes on foreign companies 
 
US-Taiwan Economic Consultations 
-------------------------------- 
 
¶2.  Trade and Investment Framework Agreement (TIFA) talks between 
the United States and Taiwan took place in Taipei May 25 - 26. 
Deputy USTR Karan Bhatia and Taiwan's Vice Economic Minister Steve 
Chen jointly presided over the negotiations.  The two sides agreed 
to set up a bilateral consultative committee on agricultural trade 
policy issues, and to discuss intellectual property rights issues 
once every six months.  On pharmaceutical issues, the two sides will 
cooperate to ensure a transparent, accurate and fair process in 
pharmaceutical pricing. 
 
Taiwan Optimistic on 2006 Economic Performance 
--------------------------------------------- - 
 
¶3.  The Directorate General of Budget, Accounting and Statistics 
(DGBAS) raised its estimated 2006 economic growth to 4.31% from 
4.25% estimated in February.  The DGBAS explained that developed 
economies such as the United States and EU have performed better 
than expected, and their strong demand is driving expansion of 
Taiwan's export sector.  Export orders in April grew nearly 20% from 
a year ago to the second highest record of US$25 billion.  Growth 
rates reached 26% for orders from the United States, 35% for orders 
from the EU, and 26% for orders from Greater China (PRC plus Hong 
Kong).  Y-o-y export growth in April reached 15%. 
 
¶4.  The DGBAS predicts private investment will switch from a decline 
of 1.3% in 2005 to growth of 3.6% in 2006.  Foreign investment 
approved in the first four months more than doubled from a year ago. 
 Taiwan's unemployment rate in April declined to a 63-month low of 
3.78%.  Its April inflation rate was barely above one percent, lower 
than about 3% in the United States and above 2% in Hong Kong and 
South Korea. 
 
Taiwan & PRC Cooperate on IT Standards ... 
------------------------------------------ 
 
¶5.  Economic cooperation between Taiwan and the PRC reached a new 
high on May 10 when PRC Information Industry Vice Minister Jiang 
Yao-ping led a 45-member delegation to attend a two-day cross-Strait 
information industry standards forum.  This forum, which has met 
three times since July 2005, has been a platform for Taiwan and the 
PRC to cooperate in development of common information technology 
standards. 
 
... And Discuss Cross-Strait IPR Protection 
------------------------------------------- 
 
 
TAIPEI 00001918  002 OF 003 
 
 
¶6.  Four high-ranking officials of the Taiwan Intellectual Property 
Office (TIPO) joined a delegation organized by Taiwan's Chinese 
National Federation of Industries to visit the PRC from May 23 to 
June 1.  Taiwan's TIPO officials spent five days in Beijing 
discussing intellectual property rights with counterparts from the 
PRC's Trademark Bureau, Patent Bureau, Copyright Bureau, and 
Trademark Screening Committee.  They discussed protection of 
Taiwan-registered trademarks and patents, PRC entities' use of 
famous Taiwan geographic names, and joint efforts to control 
commercial piracy and smuggling. 
 
Taiwan Relaxes Restrictions on PRC Investment 
--------------------------------------------- 
 
¶7.   On May 23, Taiwan's Ministry of Economic Affairs (MOEA) lifted 
a ban on Taiwan venture capital companies investing in the PRC.  On 
April 27, MOEA dropped semiconductor packaging and testing, and 
small flat panel displays from a list of industries in China closed 
to Taiwan investment (reftel).  Taiwan's Foreign Investment 
Commission has already approved Toppoly Optoelectronics' US$21 
million project to acquire a flat panel display plant in Shanghai 
from Philips (Netherlands). 
 
Taiwan to Develop Solar and Biomass Energies 
-------------------------------------------- 
 
¶8.  In response to higher oil prices, the Ministry of Economic 
Affairs (MOEA) has decided to promote solar energy and biomass 
energy.  According to MOEA, Taiwan's high-tech industry achievements 
offer enormous advantages in developing solar energy by integrating 
research teams across different agencies and organizations to pursue 
technology breakthroughs.  MOEA is promoting production of biomass 
diesel fuels by encouraging conversion of fallow farmlands to grow 
sunflowers, soy beans, and other crop-based energy sources.  In late 
April, the first biomass electric power plant, located in Chiayi, 
signed contracts with 12 farmers associations in Yunlin, Chiayi, and 
Tainan to supply its biomass production needs. 
 
Taisugar to Produce Bio-ethanol Fuel 
---------------------------------- 
 
¶9.  State-owned Taiwan Sugar Corporation (TSC) will expand its 
sugarcane production this year to produce bio-ethanol at existing 
refining facilities in Huwei, Nan'jing and Shanhua.  In addition, 
TSC will build a new bio-ethanol refinery in Pingtung.  The Pingtung 
 
SIPDIS 
plant will raise Taiwan's annual bio-ethanol production capacity to 
three million kiloliters, sufficient to meet 2.7% of total energy 
demand.  MOEA estimates that bio-ethanol production cost, excluding 
land, should be less than the cost of producing gasoline.  Taiwan 
authorities will pay a subsidy of NT$45,000 for every hectare of 
land used to produce bio-ethanol. 
 
Chunghwa Telecom to Build Next Generation Network 
--------------------------------------------- ------- 
 
¶10.  Chunghwa Telecom (CHT) recently announced a plan to build a 
Next Generation Network (NGN) at an estimated cost of between NT$120 
billion (US$3.7 billion) and NT$130 billion (US$4.1 billion). 
Construction is scheduled to be completed in 2013.  CHT believes 
convergence trends among telecom and Internet providers, will 
require new telecommunications equipment that supports combined 
fixed-line, cellular phone and internet services in a single network 
platform.  Given the huge construction costs, international 
 
TAIPEI 00001918  003 OF 003 
 
 
suppliers (including Lucent, Siemens, Nortel, Juniper, Cisco, and 
Alcatel) are competing for business opportunities. 
 
Taiwan's Cable TV Industry Welcomes Foreign Investment 
--------------------------------------------- --------- 
 
¶11.  Foreign and local companies are competing for the top spot in 
Taiwan's cable TV industry.  The Carlyle Group recently bought a 
majority stake in Eastern Multimedia.  Other recent notable 
activities in the market included Australian conglomerate Macquarie 
Media Group's acquisition of Taiwan Broadband Communications and 
Hong Kong StarTV's purchase of China Network Systems (CNS), Taiwan's 
largest multiple service operator (MSO).  Local MSOs welcome foreign 
companies because the fiercest competition is from recently 
privatized Chunghwa Telecom, which still holds an overwhelming 
market share. 
 
Uniform Tax Rate for Foreign Companies 
-------------------------------------- 
 
¶12.  On May 2, the Legislative Yuan passed a revised Income Tax Law 
which has a uniform tax withholding rate of 20% for dividends paid 
overseas.  In the past, the tax regulations imposed different tax 
rates on Taiwan-earned dividends distributed overseas depending on 
whether the companies operated through a branch, subsidiary, or 
local agent.  The new law excludes deductions previously permitted 
for local costs and expenses. 
 
KEEGAN