VZCZCXRO7147
RR RUEHGH
DE RUEHIN #2364/01 1940024
ZNR UUUUU ZZH
R 130024Z JUL 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 1073
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3327
RUEHBJ/AMEMBASSY BEIJING 5397
RUEHUL/AMEMBASSY SEOUL 7922
RUEHGP/AMEMBASSY SINGAPORE 6501
RUEHKO/AMEMBASSY TOKYO 7816
RUEHML/AMEMBASSY MANILA 9752
RUEHJA/AMEMBASSY JAKARTA 3881
RUEHKL/AMEMBASSY KUALA LUMPUR 3520
RUEHHI/AMEMBASSY HANOI 3090
RUEHBY/AMEMBASSY CANBERRA 4238
RUEHWL/AMEMBASSY WELLINGTON 1522
RUEHHK/AMCONSUL HONG KONG 6605
RUEHGH/AMCONSUL SHANGHAI 0223
RUEHGZ/AMCONSUL GUANGZHOU 9405

UNCLAS SECTION 01 OF 03 TAIPEI 002364 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/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 June 
 
 
¶1.  This cable summarizes selected recent economic events 
in Taiwan in June 2006: 
 
--Inflationary pressure building 
--Cross-Strait integration fuels trade expansion 
--Taipei AmCham issues white paper 
--MOEA's white paper response 
--Cross-Strait agreement on charter flights 
--Restrictions on foreign student interns relaxed 
--FDI up 196% 
--Efforts to reduce carbon dioxide emissions 
--Semiconductor association forced to change name 
 
Inflationary Pressure Building 
------------------------------ 
 
¶2.  Consumer prices in May rose by 1.58%, the highest 
increase in four months.  Inflation is expected to 
accelerate because higher oil prices and higher metal 
import costs have driven the wholesale price index in May 
up 6.2% from the same month a year ago, the largest 
increase in the past year and a half.  Rising oil prices 
have caused the state-owned Chinese Petroleum Corporation 
(CPC) and Taiwan Power Company (TPC) to suffer losses in 
2005 that appear to be growing in 2006.  Consequently, CPC 
and its competitors in the private sector raised gasoline 
prices in February and April by 12.3% and again by 3.6% to 
NT$28.6 per liter (about US$3.27 per gallon) on July 7. 
TPC, Taiwan's monopoly power supplier, increased power 
charges by an average of 5.8% on July 1. 
 
Cross-Strait Integration Contributes to Trade Expansion 
--------------------------------------------- ---------- 
 
¶3.  Taiwan's exports and imports in May both expanded by 
double-digit rates to new monthly highs of US$18.9 billion 
and US$18.2 billion.  In the first five months of the year, 
exports grew 12% to US$87.9 billion, and imports rose 9% to 
US$81.4 billion.  The growth was mainly due to rising 
levels of cross-Strait trade.  Taiwan's exports to China 
(including Hong Kong) in the first five months increased 
from 38% of Taiwan's total exports a year ago to 40%, 
compared to a 14.8% share for the United States and 7.4% 
for Japan.  Taiwan's exports to China are mainly production 
inputs shipped to Taiwan-owned factories and then assembled 
into consumer goods that are re-exported to the United 
States, Japan, and Europe.  Taiwan investment in Mainland 
China continues to grow.  Approved investment in the first 
five months grew 46% from the same period of last year. 
 
¶4.  During the same period, imports from China also 
increased from 12% of Taiwan's total imports a year ago to 
12.5%, still less than the 23% for shipments from Japan but 
higher than the 10.8% from the United States.  The 
percentage share for imports from China will continue to 
increase as Taiwan further relaxes restrictions on imports 
from China.  Recent relaxation of restrictions on apparel 
and cell phone imports from China caused imports in these 
two categories to shoot up by 440%. 
 
AmCham's 2006 Taiwan White Paper 
-------------------------------- 
 
¶5.  The Taipei American Chamber of Commerce (AmCham) issued 
its 2006 Taiwan White Paper on May 30.  In the report, 
AmCham affirmed: (1) most economic indicators are better 
than they were several years ago; (2) Taiwan authorities 
 
TAIPEI 00002364  002 OF 003 
 
 
are displaying a more proactive attitude towards direct 
cross-Strait passenger and cargo flights; (3) Taiwan 
authorities are paying more attention to financial reform, 
opening government procurement to foreign suppliers, better 
protection of intellectual property rights, and 
rationalizing the pharmaceutical pricing system.  However, 
AmCham reminded Taiwan's authorities that restrictions on 
flow of manpower, capital, and merchandise across the 
Taiwan Strait diminish Taiwan's natural advantages of 
proximity and cultural affinity with Mainland China and 
drive businesses to relocate.  AmCham urged Taiwan to 
implement the following improvements: (1) reduce 
restrictions on business hiring decisions; (2) upgrade 
Taiwan's public health and healthcare system; (3) further 
improve intellectual property protection; (4) accelerate 
economic integration with China; (5) thoroughly eradicate 
corruption; (6) establish a world-class infrastructure; and 
(7) complete essential financial reforms. 
 
Taiwan Authorities' Respond 
--------------------------- 
 
¶6.  As in the past, Taiwan authorities responded quickly to 
AmCham's white paper.  The Ministry of Economic Affairs 
(MOEA) said that it had addressed many of AmCham's past 
recommendations, coordinated with other government agencies 
to seek solutions, and done its utmost to press for 
recommended reforms.  MOEA noted that during the past year, 
it had (1) promoted establishment of an intellectual 
property court to better protect intellectual property 
rights; (2) lifted bans on foreign investment in financial 
institutions, land transportation, and the leasing industry; 
and (3) allowed employment of foreign students as interns. 
MOEA said it would continue to actively implement other 
reforms proposed by AmCham. 
 
Cross-Strait Charter Flights 
---------------------------- 
 
¶7.  Taiwan and the PRC reached an agreement on cross-Strait 
charter flights which was announced on June 14.  For 
passengers, charter flights will be available during Lunar 
New Year (late January/February), Tomb Sweeping Day (April 
5), Dragon Boat Festival (late May/June), and Mid-Autumn 
Festival (September/early October) holidays.  There will be 
168 charter flights a year, and each carrier will operate 
14 flights.  The agreement also included special charter 
flights for emergency medical and humanitarian needs. 
Cargo flights will also be approved on a case-by-case basis 
for capital equipment shipped to Taiwan firms in the 
Mainland.  Taiwan's carriers praised the agreement as a 
first step in the right direction but called the number of 
charter flights insufficient to meet demand. 
 
Restrictions on Foreign Student Interns Relaxed 
--------------------------------------------- -- 
 
¶8.  In response to AmCham's request, MOEA announced on May 
25 that it was lifting restrictions on foreign students 
serving short-term paid internships in Taiwan.  State-owned 
enterprises, foreign companies, and foreign chambers of 
commerce are eligible to hire foreign student interns. 
Private Taiwan companies are eligible only if their sales 
exceeded NT$10 million (US$312,500) the previous year. 
Interns must be students at the university level or higher. 
They will be granted a six-month stay which may be extended 
once by another six months.  MOEA's Investment Commission 
 
TAIPEI 00002364  003 OF 003 
 
 
will establish a dedicated service window to handle 
applications for hiring foreign student interns. 
 
FDI Up 196% 
----------- 
 
¶9.  According to statistics compiled by MOEA, foreign 
direct investment (FDI) approved in the first five months 
of this year amounted to US$6.64 billion.  FDI excluding 
Philips' recent purchase of Philips Taiwan's shares in 
Taiwan Semiconductor still registered an increase of 196% 
over the same period a year ago.  The approved investment 
projects include foreign participation in mergers and 
acquisitions in Taiwan's financial services, logistics and 
other service industries. 
 
Efforts to Reduce Carbon Dioxide Emission 
----------------------------------------- 
 
¶10.  On June 16, MOEA set up the Taiwan Industrial 
Greenhouse Office (TIGO) with the goal that Taiwan's 
greenhouse gas emissions in 2015 will be reduced to 90% of 
the 2000 level (from 25.76 kg per NT$1,000 GDP to 23.20 kg). 
In 2005, MOEA signed greenhouse gas emissions reduction 
voluntary agreements with manufacturers associations of the 
iron & steel, petrochemical, man-made fibers, cement, paper, 
and textiles & dyeing industries.  In 2006, electronics, 
semiconductors, and flat-panel display industry 
associations signed similar voluntary agreements with MOEA. 
Under these agreements, carbon dioxide emissions in 2008 
should be reduced to 95.5 percent of 2004 levels, a decline 
of 4.02 million metric tons. 
 
Semiconductor Association Forced to Change Name 
--------------------------------------------- -- 
 
¶11.  With the entry of the China Semiconductor Industry 
Association into the World Semiconductor Council (WSC), the 
WSC has forced the Taiwan Semiconductor Industry 
Association (TSIA) to change its name to the Semiconductor 
Industry Association in Chinese Taipei (SIACT).  TSIA 
Chairman Frank Huang commented that the organization will 
continue to use the TSIA name, but will be called SIACT in 
certain international events. 
 
YOUNG