Taiwan Arms Sales: The Defense Industrial Alternative

With the Bush administration's indefinite deferment of at least seven Congressional notifications for major Foreign Military Sales (FMS) programs, observers and stakeholders are beginning to assess the implications. This week's U.S.-Taiwan Defense Industry Conference provides an initial opportunity for participants to evaluate the way ahead. In Taiwan, media reports have reflected optimism that the notifications could be forwarded soon. Other reports are harsh in their condemnation of the Ma Ying-jeou administration's performance in managing the issue. However, of most interest are initial indications of Taiwan's most likely response to a prolonged, indefinite freeze on major arms sales: a strategic shift away from FMS and toward direct commercial sales (DCS) and indigenous defense research and development (R&D) and production.

The U.S.-Taiwan Defense Industry Conference and the Minister of Defense Visit

First, the upcoming U.S.-Taiwan Defense Industry Conference is scheduled to begin on Monday in Amelia Island, Florida. As the seventh defense industry conference that the U.S.-Taiwan Business Council has sponsored, the arms sales freeze is almost certain to be on minds of most participants. Last year, Deputy Assistant Secretary of State Tom Christensen spoke at the conference and reaffirmed U.S. commitment to Taiwan Relations Act, argued for greater domestic debate regarding security issues, and placed responsibility on Taiwan's people for providing for their own defense:

The Administration's commitment to fulfillment of TRA requirements remains beyond question. The principal issue in Taiwan's defense, however, is not whether Taipei buys a particular weapon system or whether that system comes from domestic factories or from abroad. The principal issue is the substance of Taiwan's overall defensive strategy and the maintenance of core capacities to sustain it. And the decision on that strategy, once again, rests with the Taiwan people themselves.

The first conference in this series was the St. Petersburg, Florida event where former Minister of Defense Tang Yiau-ming gave the keynote address in March of 2002, and met privately with Deputy Secretary of Defense Paul Wolfowitz. Wolfowitz' attendance as a senior official at that first conference reflected the importance the Bush administration placed on its unofficial relations with Taiwan. For the first time in six years, an ROC Minister of Defense -- this time retired ROC Air Force General Chen Chao-min -- is said to be visiting the United States and attending the conference. The minister's travel is a positive sign of the Ma administration's continued confidence in the U.S. commitment to Taiwan's security. However, the Bush administration's response is less than inspiring. Senior officials are said to be stiff arming the minister, barring access to Washington DC to meet with counterparts, and limiting the Bush administration's representation to the level of a deputy assistant secretary. Presumably, the cool reception could be the result of Chinese protests over the minister's visit, which could be viewed as implying an official state-to-state relationship.

Recent Media Reporting on the Freeze

The continued arms sales freeze and the attendance by Minister Chen provides an interesting context for this year's conference. Over the weekend, Taiwan media outlets carried some of the first reactions to continued hold on Congressional notifications for at least seven Foreign Military Sales (FMS) programs.

Taiwan's United Daily News (UDN), normally considered sympathetic to the KMT and the People's First Party, carried a set of articles today that criticized senior officials in the Ma administration for misjudging the freeze. On the other hand, one report lauded the ROC Ministry of National Defense (MND) preparing for a worst case scenario, specifically assessing alternatives to procurement through FMS channels (see following section). In the first case, a UDN editorial blasted President Ma and his national security team for being naive or overly confident that they would be welcomed into Washington DC with open arms after eight years of the DPP. The editorial argues that the new national security team's misjudgment has resulted in an embarrassing setback. Other reporting from Taiwan shows that some officials still believe that the notifications will go through. The Taipei Times also has carried a critical editorial of the KMT's handling of the freeze.

A Strategic Shift toward a Defense Industrial Alternative?

During this week's U.S.-Taiwan Defense Industry conference, an entire session will be dedicated toward defense industrial cooperation. According to the agenda, the session "will assess the impact on Taiwan of defense industry globalization, including opportunities for partnerships with U.S. companies and for domestic production and R&D by Taiwan industry." The session will also "examine the changing views on Industrial Cooperation Programs (offsets), as well as the effects of Taiwan’s experience with private defense procurement company Taiwan Goal."

Coverage of defense industrial cooperation may be well-timed. Advocates in Taiwan for strengthening Taiwan's indigenous defense industry may be posturing to fill the vacuum created by the continuing freeze on major FMS programs. A UDN article published today outlined near term MND contingency plans for shifting a portion of the budgets authorized for the seven programs toward other related programs, mostly involving domestic industry. These include:

• E-2T upgrade (NT $6 billion - US $194 million): To be shifted toward mobile radars;
• PAC-3 (NT $118.5 billion - US $3.8 billion): To be shifted toward acceleration of on-going upgrades to the three existing ground systems and upgrade of existing PAC-2 Guidance Enhanced Missiles (GEM), presumably to GEM+;
• Submarine design (NT $11.7 billion - US $377 million): Still under evaluation;
• Sub-Launched Harpoons (NT $5.9 billion - US $190 million): To be shifted toward an unnamed National Science Council program;
• UH-60 utility helicopters (NT $71.8 billion - US $2.3 billion): To be pursued through Direct Commercial Sales (DCS) channels;
• AH-64D attack helicopters (NT $59.3 billion - US $1.9 billion): To be shifted toward upgrade of existing AH-1W attack helicopters;
• Anti-armor missiles (NT $1 billion - US $32 million): Unclear, since UDN report said the budget would be transfer from Marine procurement of missiles (ostensibly Javelin) to Army procurement;
• F-16C/D (NT $160 billion - US $5.16 billion): To be shifted to upgrade existing F-16A/B fighters.

The reported shifts in budget allocation presumably would need to take place before December 31st, when unallocated funds in this year's defense budget would be returned to the treasury.

Why a Shift Toward Greater Industrial Cooperation May be Inevitable

If prospects for arms sales through FMS channels continue to decline between now and beginning of the new U.S. administration, the ROC may seek to revert back to the model for defense industrial cooperation from the Reagan administration, and seek industrial partners in the U.S. and elsewhere to satisfy ROC defense requirements. Should the Congressional notification issue carry over into the next administration, there's a decent chance that a new administration would make no decision on releasing the notifications until at least May 2009, when the rumored 18-month Joint Defense Capabilities Assessment (JDCA) is said to be scheduled for completion.

One scenario is that an Obama or McCain administration's Asia policy team would want to conduct a Taiwan policy review as a first order of business, including an examination of arms sales policies. With the JDCA not scheduled for completion until May, a new policy team may opt to defer decision until the assessment is completed. It should be noted that since the 1950s, U.S. decisions on security assistance, including those made in 2001, have often depended upon military assessments of ROC military capabilities and future requirements. Unlike these previous assessments, which were managed by the Pacific Command or other agencies that report to the Secretary of Defense, the Institute of Defense Analysis (IDA), a commercial firm and Federally Funded R&D Center (FFRDC), was contracted to conduct the JDCA and render judgments on Taiwan's required capabilities.

As the UDN report above indicates, MND, while preferring procurement through FMS channels, may get tired of waiting for the U.S. side to find the perfect time to render judgments on what it will release and what it won't. As a result, going local, working directly with U.S. industry, may become an increasingly appealing option.

There's a precedent for significant U.S.-Taiwan defense industrial cooperation. In fact, during the 1980s, it was the way business was done. In the wake of the 1979 shift in diplomatic relations and subsequent 1982 Communique, Reagan administration officials encouraged licensed production, cooperative R&D, technical assistance, and sales of sub-systems, sub-assemblies, and components to Taiwan through direct commercial sales (DCS). Because these types of assistance don't require public Congressional notification, the Chinese response to media reports of commercial cooperation was relatively muted. Plus, DCS programs weren't included in the State Department's accounting exercise that could demonstrate a decrease in the total value of arms sales.

There may be other reasons, beyond the arms sales freeze, to increase reliance on an indigenous defense industry. As in the United States, Japan, the European Union, and almost every other developed economy, popular sentiment drives development of a viable defense industrial base as a means to create jobs, income at the local level, and R&D into dual use technologies that could be spun off to the commercial sector. The hollowing out of Taiwan's manufacturing base, a more assertive Legislative Yuan, and the need to diversify the U.S.-Taiwan economic relationship may provide additional rationales.

The Reagan Model: An Inconvenient Necessity

During the 10 years following the signing of the 1982 Communique, the United States executed much of its legal obligations under the Taiwan Relations Act through licensed production, co-development, and hybrid FMS/DCS arrangements that minimized the U.S. government footprint. Congressional notifications under section 36(b) of the Arms Export Control Act (AECA) traditionally have been the trigger for whatever punishment Beijing dishes out. Industrial partnerships, with the licensed consent of the U.S. government, succeeded in shoring up Taiwan's fragile defense position after the break in formal diplomatic relations with the Republic of China (ROC) in 1979 and signing of the 1982 Communique on arms sales. Before 1992, few if any FMS programs notified to Congress had a value that exceeded U.S. $500 million.

Taiwan’s defense industry has its roots in the 1969, when the Nixon Doctrine portended an eventual withdrawal of the United States from Taiwan. In that year, the Chungshan Institute of Science and Technology (CSIST), AIDC, and other defense industrial establishments were formed. Some of the first joint programs included co-production of 108 UH-1 utility helicopters and 308 F-5E fighters. In 1979, the commitment to indigenous production was strengthened after the formal break in diplomatic relations and the signing of the 1982 Communiqué. Following are the major programs from the 1980s:

Tienkung (TK) Surface to Air Missile. President Chiang Ching-kuo authorized the initiation of R&D into the TK surface to air missile system a year or two after the break in diplomatic relations in 1979, the retiring of the ROC's Nike/Hercules air defense systems, and failing to secure release of the the U.S. PATRIOT air defense system. With CSIST serving as the lead systems integrator, initial testing began in July 1985. Although not confirmed, one estimate is that approved technology assistance from the United States accounted for 85% of the program. The system’s Changbai radar is believed to be a derivative of the SPY-1 radar system used on AEGIS destroyers. {UPDATE, 10/01/08: One senior engineer who worked on the TK program in the early 1980s claims the the TK missile was almost entirely indigenous. Some of the materials, such as aluminum powder, did have to be imported. U.S. industry, however, provided licensed assistance on the radar, including sales of components}

Indigenous Defense Fighter (IDF). Chiang Ching-kuo is said to have authorized design work in August 1980, shortly after the break in diplomatic relations Failing to secure a new generation fighter (Northrop’s F-20 Tigershark) to replace Taiwan’s aging F-104 fighters and assured of U.S. industrial support, a decision was made in 1982 to proceed with an indigenous alternative. With AIDC, supported by CSIST, serving as lead systems integrator, General Dynamics (GD) played a key role in the design and systems integration. Housing for an estimated 200 GD and other U.S. contractors was built near CCK airport and AIDC in Taichung. In addition to GD (now Lockheed Aero), Hughes, Smiths Industries, Westinghouse, Allied Signal/Garrett (now Honeywell), and Litton all supported the program through supply and integration of sub-systems. With design reviews starting in 1985, roll-out of the first prototype took place in 1988 and it made its maiden flight in May 1989.

During the licensing review process, the Reagan administration, concerned about the aircraft’s potential to strike targets in China, placed provisos on export licenses that restricted the performance of the fighter’s engine and radar/avionics. With an estimated unit cost of U.S. $24 million, the fighter began coming off the production line in 1994 and began operations with the ROC Air Force in 1997. AIDC manufactured 130 of the fighters (250 were originally ordered, and the program was cut back to 130 in 1991).

The program also included development of an air-to-air missile, the Tienchien 1 and 2 (TC-1/TC-2), which incorporated sub-systems sold by Motorola and other U.S. companies. The TC-2 incorporates an active seeker that some believe had been considered but lost in a completion for the AMRAAM program.

S-70C(M). Although details are unavailable at the current time, Sikorsky and AIDC are said to have coproduced the S-70C, a civilian version of the UH-60 BLACHAWK utility helicopter. Initial deliveries took place in 1992. AIDC has been producing the S-70 cockpit/nose assembly under license.

PFG-2 Frigates. Initial concept for the PFG-2, reportedly a 10 year program for design and production of eight frigates at a cost of US $5 billion, began in the mid-1980s. Gibbs and Cox worked to develop a modified design of the FFG-7 that incorporated a CSIST-developed combat system (developed in partnership with Honeywell). Gibbs and Cox also assisted in the design of a modified version of the PFG-2, the Advanced Combat System, which incorporated an AEGIS-derived SPY-1F combat systems and radar. Bath Iron Works assisted with the hull work. Fowler International Group provided program management support to the ROC Navy under FMS contract with the U.S. Navy.

The 1990s Shift from DCS to FMS

Having sufficed as a matter of necessity, things changed toward the end of the first Bush senior administration in 1991/1992. The Chinese Communist Party's violent crackdown on students in Beijing in 1989, the fall of the Soviet Union in 1991, and subsequently sales of Russian weapons systems to the China all contributed to a long needed adjustment to U.S. arms sales policy. The relative strategic shift toward FMS -- or perhaps better described as a spike -- began in 1992 with the release of F-16A/Bs ($5.8 billion notified), PATRIOT air defenses ($1.3 billion notified), C-130H transports ($62o million notified), and E-2T airborne early warning aircraft ($700 million notified).

From 1992 until today, Taiwan has relied on FMS as a portion of its overall defense procurement perhaps more than any country, with the possible exception of Saudi Arabia. There have been a number of obstacles to increased reliance on a domestic defense industry. First is political, bureaucratic, and commercial inertia. Because in 2001 the door was opened wider than at any time since 1979, there’s been little impetus to change. For U.S. defense industry, sales to the DoD to support FMS programs offer a tried and true route, with a set margin, and U.S. government buffer.

Another impediment has been the lack of a professional acquisition corps. Management of large public projects, such as weapons acquisition - either domestic or foreign -- is complex. The uniformed military focuses on warfighting, and planning, programming, and budgeting or acquisition-related assignments tend to be temporary "touch and go's." Countries such as the U.S., Japan, Australia, UK, France, etc, tend to rely on a cadre of civil servants.

There’s also risk averse culture in Taiwan's defense establishment, especially in the wake of the Lafayette frigate scandal in 1993. High cost programs managed by the U.S. government, including selection of the prime contractor, relieves the military of having to take responsibility for the decision. No one wants to open themselves up to charges of corruption. Fact is, however, potential exists for corruption regardless of whether a program is FMS or otherwise since US federal acquisition regulations include Taiwan among a select group of customers in which “contingency fees” for FMS programs are an allowable expense. Despite these obstacles, reformers in the legislature and MND did begin to evaluate means to hedge against a sudden reversal of U.S. arms sales as early as 1999. The end result was enactment of the National Defense Law in 2003 and inclusion of a section (Article 22) that called for prioritization of indigenous R&D and production.

The Defense Industrial Cooperation Alternative?

So what happens if the hold on submarines, PAC-3, Apaches, UH-60s, and other programs continues indefinitely? Assuming Taiwan's defense authorities remain resolved to procure these capabilities, then the obvious answer is to seek other channels.

Submarines. Indigenous R&D and production of diesel electric submarines may be the logical starting point. The United States has no requirement for the manufacturing of conventional military submarines, although a few commercial entities, such as U.S. Submarines, do design, produce, and sell diesel electric submarines for commercial use in the United States and to a range of customers overseas. There has long been a strong faction in Taiwan that favors domestic build over procurement via FMS channels. In fact, media reporting indicates that the Bush administration's commitment to assist Taiwan in its acquisition of submarines based upon an expectation that the program be carried out via DCS channels. China Shipbuilding Corporation (CSBC) had been expecting to serve as prime contractor until the program was shifted to FMS shortly after the April 2001 announcement. Interruptions of plans resulted in a downsizing of CSBC.

The issue has been a subject of long and heated debate. Critics argue that Taiwan's shipbuilding industry is incapable of developing and manufacturing a submarine. Advocates counter by highlighting the fact that a number of less developed industries such as Yugoslavia, as well as commercial entites and universities around the world, have successfully fielded viable submarine platforms for both military and civilian purposes. In May 2008, CSBC was rumored to have sent a letter to President Ma advocating a shift toward domestic program and Taiwan's National Security Council and Ministry of Economic Affairs held a series of conferences on the issue over the next three months.

Critics also highlight written DoD policy that forbids Taiwan's domestic industry from manufacturing submarines. However, that policy was premised on the assumption that the program would be carried out via FMS channels, in which the U.S. Navy assumes liability and responsibilities for a seaworthy design and safe construction. A program carried out via DCS channels, or perhaps an FMS-managed, DCS-executed, in which the U.S. Navy is absolved of liability and responsbility, is an entirely different matter. In 2006, Taiwan's legislature earmarked funding for a domestic design feasibility study that hedged for the possibility of a shift toward domestic production.

Presumably, a shift toward a domestic program would be of interest to those in the Bush administration wanting to avoid problems with China, and to elements in the U.S. Navy wanting to keep conventional submarine assembly out of U.S. shipyards. While some may argue against such an approach based on export control concerns, a viable technology safeguard program would provide the basis for approving licenses.

PAC-3. Should the sale of PAC-3 missiles and new ground systems continue to be held in abeyance, the obvious alternative is Taiwan's own Tienkung program. CSIST has had a program to upgrade its TK system and fielding an upgraded interceptor. The motor and seeker likely would not be on a par with the PAC-3 missile. However, if it's the best that can be done, then that's the likely solution. However, local assembly of the PAC-3 missile as well as U.S. industrial assistance in upgrading the Changbai radar could be a viable alternative. In addition, similar to the case of the TC-2 air-to-air missile in which Motorola was authorized to transfer to Taiwan its version of the AMRAAM seeker that lost in the DoD competitive acquisition, transfer to Taiwan of the design that lost to the current PAC-3 interceptor could be another route. Again, export control considerations would need to be taken into account and technology safeguard plan developed.

Apache and UH-60. No commercial variant of the Apache exists, although licensed production could be an option. A precedent may exist in given South Korea's July 2008 decision to accept an offer for licensed production. The alternative, of course, is the AH-1Z, a variant of which the ROC Army already has in its inventory. With regards to the UH-60, the obvious solution is a shift toward its commercialized counterpart, the S-70, which the ROC Navy and Air Force already have in its inventory.

F-16s. Alth0ugh not part of the Congressional notification package being held up, the Bush administration has refused to accept an MND letter of request for price and availability data for follow-on buy 66 F-16s. For Taiwan, assuming there's still a requirement for a new fighter, the obvious solution to is to seek other sources. An upgraded variant of the IDF may be one candidate. Given concerns in some quarters about the survivability of Taiwan airfields and runways, a STOL/VSTOL capability could be worthy of consideration. AIDC had studied the feasibility of a STOL/VSTOL variant of the IDF in the late 1990s. Such an effort would require a major redesign of the IDF. However, given the obstacles in procuring additional fighters from the U.S., investment in a redesigned IDF may be a necessity should the ROC Air Force desire additional fighter aircraft. Hopes of acquiring the VSTOL variant of the Joint Strike Fighter, when it's available for the international market in the outyears, may be misplaced given the reluctance to release the less capable F-16C/D.

In sum, a prolonged delay in forwarding Congressional notifications may provide an impetus for Taiwan to re-examine its procurement strategy. The natural course would be a strategic shift toward indigenous R&D and production, with a much diminished reliance on acquisition through FMS channels. Recent media reports provide initial indications that some thought has been given to the issue. The Reagan administration's encouragement of U.S. industrial assistance may provide a model for future efforts to ensure compliance with legal requirements under the Taiwan Relations Act.

Taiwan Arms Sales: Naval War College Study Argues for Major Cut Back

A Naval War College study, perhaps the most meticulous condemnation of U.S. arms sales to Taiwan in history, provides an interesting context for a potentially dramatic decline in U.S. security assistance to a long time friend, non-NATO ally, and struggling democracy. The study (click here for link), entitled "Revisiting Taiwan's Defense Strategy," is authored by a recently retired U.S. Navy officer, William S. Murray, and published in the Summer 2008 edition of the Naval War College Review.

At a minimum, the study offers a well-developed starting point for a more detailed debate over Taiwan's legitimate defense requirements. However, the study's political conclusions, related to the 1982 Shanghai Communique and the Taiwan Relations Act, dilute its value as a sound yet debatable argument in favor of a ground-centric strategy.

The Naval War College (NWC) study develops a sophisticated set of tactical and operational arguments to justify its end conclusion: the United States should cap, reduce, and ultimately terminate arms sales to Taiwan. If the study were a simple academic treatise on Taiwan's defense, similar to those RAND, American Enterprise Institute (AEI), Center for Strategic and International Studies (CSIS), or other think tanks produce, then that's one thing. But this study is not just academic. On the surface, it appears to be a rational military judgment, presumably informed by modeling, which advocates Taiwan's adoption of a "Porcupine Strategy."

Many of the study's arguments, with some exceptions, appear compelling when viewed from an exclusive American military perspective. This by itself is one counter-argument: Taiwan's conceptual approach to defense differs markedly from the United States. But more important is that underneath the surface and from a broad political perspective, the NWC study strengthens the hand of authorities in Beijing, pro-unification elements within Taiwan, and American academics and policymakers who view Taiwan arms sales as an impediment to closer U.S.-China relations. Whether or not this was the study's intent is unclear. Nevertheless, the effects are the same.

The study's conclusions have become a clarion call for key figures in both Washington D.C. and Taipei. The study's army-centric arguments may appeal to some at the operational level, while others, who view Taiwan arms sales as a problem, may find its political implications appealing.

According to senior level civilian and military sources in Taiwan, a group of Washington DC-based academics urged President Ma Ying-jeou to carefully review the study during a visit to Taipei in July 2008, shortly after the study was published. This assertion was confirmed when a recent visit to Taiwan by a U.S.-China Economic Security Commission delegation met with President Ma. Since then, the senior KMT leadership has directed that the study become required reading for senior military officers. In doing so, the KMT administration has created discontent within some military ranks that not only mock the study's conclusions, but also resent perceived undue civilian interference in military affairs. Furthermore, it appears that the study may have inspired some of Taiwan's strongest advocates of unification with China. CV Chen (Chen Chang-wen), a Harvard educated lawyer and close confidente of President Ma, authored a prominent editorial in the China Times on September 15, 2008 that called for support for the Bush administration's hold on Congressional notifications, citing similar operational shortcomings of major systems that are referenced in the Naval War College study.

The ROC Army, of course, has a right to be happy since it is almost in 100% lockstep with long-standing Army views that the Air Force and Navy are support elements and not really needed. These kinds of debates, the result of organizational competition within a resource constrained environment, are common throughout defense establishments around the world. In addition, at the political level, the potential reversion back to traditional KMT favoritism of the Army is worthy of note.

Who would have thought that an ostensibly innocent study, authored by an operationally competent retired field grade officer with little Taiwan-related experience, could have created such a storm?

Here's the study in a nutshell:

The proper starting point can be found in the study's conclusion. Arms sales should be reduced significantly and US should adhere, by inference due to its omission of important preconditions that Beijing rejects, to the Chinese interpretation of 1982 Communique. In other words, the so-called "strategy" is singular in purpose - reduce and ultimately terminate US arms sales and let Taiwan fend for itself. With the political end in mind, the study pieces together an argument to support a reduction and possible eventual termination of arms sales.

The centerpiece is an argument that establishes the ineffectiveness of Navy and Air Force systems in light of what the study portrays as relatively new PLA capabilities. The Bush administration approved a major package of arms sales in 2001, but ostensibly did so before these new PLA capabilities came about. Therefore, the change in strategic situation warrants a relook at the package and its cancellation.

The study asserts that only valid high cost procurement is the Boeing AH-64D APACHE, because it's an army system. The study posits that diesel submarines are not only "offensive" and "destabilizing" for Taiwan (or any navy for that matter, except China), but also ineffective in countering other submarines. The study neglects to mention that a submarines could be effective tools of anti-submarine warfare (ASW) if part of a broader ASW architecture that includes an integrated undersea surveillance system for strategic cueing, airborne maritime surveillance, and associated communications and ASW operations centers.

The rest of the study's anti-Air Force and anti-Navy argument is built around the ballistic missile threat. China's growing arsenal of increasingly accurate and lethal conventional ballistic missiles are said to negate the operational utility of expensive F-16s, P-3s, PAC-3, and P-3s and frigates and destroyers, and even submarines. Only mobile Army assets that could resist an invasion on Taiwan are appropriate in light of the changed security environment.

Main problem with the study's operational arguments is that they ignore a whole range of coercive scenarios far short of a full scale amphibious invasion, supported by large scale ballistic missile raids that would prepare the battlefield and suppress air defenses and naval forces in port. The study gives only passing reference to coercive theory. Based upon the assumption that a full scale amphibious invasion is the only scenario for PRC use of force, the NWC study argues Navy and Air Force assets are no longer necessary because they are no longer effective. Also implied is that there is no longer a need for an Air Force and Navy that are independent of the Army.

The Taiwan Relations Act requires that the United States provide necessary defense articles and services. By extension, provision of unnecessary defense articles and services, as the study defines them, would be a violation of the Taiwan Relations Act. The net effect is that opponents of arms sales could draw from the study to counter criticism that a strict adherence to the 1982 Communique counters the Taiwan Relations Act. Beijing's goal is to resolve the Taiwan issue once and for all. Arms sales have been the main obstacle. This is not necessarily due to their operational value, but because they represent continued U.S. acknowledgement of Taiwan's unresolved international status and de facto independence.

Getting the U.S. to move toward its interpretation of the 1982 Communique framework, which appears to have been a success in light of the freeze on notifications, is Beijing's goal. And the NWC study certainly has given those who support Beijing's position the ammunition they believe is needed.

Taiwan Arms Sales: Congressional Notifications Remain Frozen

As the scheduled final day of this Congressional session, Friday has come and gone with no movement on Congressional notifications, as required by Section 36(b) of the Arms Export Control Act (AECA), for at least seven major Taiwan arms sales programs.

There was a glimmer of hope on Thursday, when a routine meeting of senior-level officials from the Department of State, National Security Council staff, and Department of Defense included the issue of notifications on the agenda (see CRS Report on notification process).

Hearsay was that there may have been a push to release a select few, perhaps lower dollar figure systems such as munitions. However, a last minute call by a senior Bush administration official scuttled the whole deal, presumably due to anticipated Chinese reaction.

Turns out, however, that the Congressional session has been extended at least through the weekend and perhaps into the early part of next week to address the financial-related legislation. In accordance with the AECA, the 36(b) notifications need to be sent over to Congress while it is officially in session.

Taiwan Arms Sales: Congressional Notification Issue Heats Up

Taipei Times reported today that chances appear slim that Congressional notifications will go forward this session. In response, Congress has sent two shots across the bow. The first is yesterday's passage of House Resolution (HR) 6646, which requires "the Secretary of State, in consultation with the Secretary of Defense, to provide detailed briefings to Congress on any recent discussions conducted between United States Government and the Government of Taiwan and any potential transfer of defense articles or defense services to the Government of Taiwan."

Hitting a nerve, the Bush administration didn't respond kindly. The Department of Justice already responded that the "bill would infringe upon the President's constitutional authority to conduct foreign diplomacy and to supervise and determine the timing and extent of the disclosure of diplomatic and national security information outside of the Executive branch."

In addition, Rep Tom Tancredo has prepared a bill that would require "in accordance with section 3(a)6 of the Taiwan Relations Act, the defense articles and defense services described in subsection (b) shall be transferred on a sales basis to Taiwan as soon as practicable after the date of the enactment of this Act. The proposed bill notes that "the unfulfilled elements of the request made by Taiwan and approved by President George W. Bush in 2001 that includes diesel electric submarines or relevant designs, Mark-48 ASW torpedoes, Harpoon submarine-launched anti-ship cruise missiles, PAC–3 missile defense systems, Paladin self-propelled howitzers, Apache helicopters, and mine-sweeping helicopters." It also highlights "66 F–16 C/D fighter planes that were requested by the Government of Taiwan in August 14 2007."

It further states that "the requirement to transfer defense articles and defense services under subsection (a) shall be carried out notwithstanding the provisions for congressional notification and approval of a proposed sale of defense articles or defense services in section 36(b) of the Arms Export 21 Control Act (22 U.S.C. 2776(b))."

Both probably aren't expected to go far, especially since Congress goes into recess tomorrow. However, it certainly sets the stage for a major battle when Congress reconvenes. However, there is reason to believe that the Bush administration should come out tomorrow with some annoucement.

There's sufficient reason to suspect that the hold on Congressional notifications is more than just a tactical expediency. Based on an interpretation of statements dating back the last couple of years, the delay, or freeze, whichever term one prefers, could represent a strategic shift toward Beijing's interpretation of the 1982 Shanghai Communique. This would be based on the Bush administration's belief that the security situation in the Taiwan Strait has changed in a fundamental way since May 2008. Or that a fundamental change could be imminent, and they want to buy some time to give Beijing a chance. In other words, they may be willing to take some hits now and then hope that Beijing responds by standing down a conventional Second Artillery brigade opposite Taiwan. This is all just based on a reading of the tea leaves.

Beijing almost certainly has been pressing the Bush administration to abide by its perceived commitment to the 1982 Communique. It has since signing of the communique. But with as much as US $11 billion in arms sales appearing to be imminent, Beijing authorities likely would be pressing its case harder than ever, together with credible threats. In the 1982 Communique, the United States stated that its arms sales to Taiwan would not qualitatively or quantitatively the level of those supplied in years preceding the establishment of diplomatic relations between the United States and China. Then, there's a stated intent to reduce gradually U.S. sales of arms to Taiwan, leading over a period of time to a final resolution.

If there has been a strategic shift -- a Presidential-level determination that there has been a fundamental shift in the security situation in the Taiwan Strait since May 2008 -- then it follows that there would be a reconsideration of the decisions that were made in the beginning of the Bush administration. It also follows that the Bush administration would deny there's a freeze on arms sales to Taiwan. Arms sales would continue, but at a much reduced level, in accordance with the 1982 Communique. As in 1982 and as stated in the Communique, there could be a renewed view that "the new situation which has emerged with regard to the Taiwan question also provides favorable conditions for the settlement of United States-China differences over the question of United States arms sales to Taiwan."

However, U.S. law under the Taiwan Relations Act (TRA) would remain the sticking point. The TRA requires that the United States provide Taiwan with necessary defense articles and services for sufficient self defense. In the 1982 Communique, U.S. agreement to limit and reduce its arms sales to Taiwan was premised on the assumption that Beijing would be commited to a peaceful approach in resolving its differences with Taiwan. However, the metric to assess whether or not Beijing's approach is peaceful is ambiguous. The only valid basis for providing Taiwan with necessary defense articles and services would be military judgments regarding Beijing's military posture opposite Taiwan (e.g., the annual DoD report to Congress on PRC Military Power). Theoretically, if Beijing's military capabilities increase, so should U.S. arms sales and other forms of assistance. If capabilities decrease, then so should arms sales and other forms of assistance. Beijing doesn't accept this interpretation. It doesn't like the annual DoD report to Congress either.

So the question that should guide decisions on arms sales is whether or not Beijing has sufficiently reduced its military capabilities that could be employed against Taiwan. There's been no indication that they have at all. The last DoD report to Congress certainly did give any indication that PRC military capabilities that could be directed against Taiwan are going down. The opposite is true. But if there's been some change, the Bush administration should give tangible evidence. Without any evidence of a diminished military posture -- a substantial reduction in military capabilities -- opposite Taiwan, any Bush administration conclusion that there's been a fundamental shift in the security situation is tenuous at best.

Taiwan Arms Sales: The Beginning of the End?

Two of Taiwan's English-language newspapers, Taiwan News and Taipei Times, reported today on issue of arms sales to Taiwan. Both offered reason to suspect that President Bush may have decided to reverse previous policy decisions and now deny as many as seven weapon systems to Taiwan. Rumor in Foggy Bottom is that President Bush may indeed have made a decision this week. The nature of that decision has not been made public yet, but these initial press reports offer a clue - things don't look good. We should know for sure next week. Three general scenarios are: 1) none of the seven weapon systems move forward; 2) all of the seven weapon systems go forward; or 3) a selected three or four go forward.


The specific systems that have been awaiting notification to Congress since Spring 2008 include:

• Design, and possible construction, of as many as eight diesel electric submarines


• Four PATRIOT PAC-3 fire units and as many as 384 PAC-3 missiles


• Thirty (30) AH-64D APACHE attack helicopters


• Sixty (60) UH-60 BLACKHAWK utility helicopters


• Submarine-launched HARPOON anti-ship missiles


• JAVELIN anti-tank guided missiles


• E-2T HAWKEYE upgrades


• F-16 A/B MLU spare parts package

Taiwan also submitted a letter of request (LOR) for a follow-on buy of 66 F-16 C/D fighters in Spring 2006, which the Bush administration, allegedly President Bush himself, refused to acknowledge. This case is different than the seven listed above, which have all been previously approved and blessed. However, there has been no consideration of Taiwan's requests for the F-16 C/Ds, and thus no commitment.

A Bush administration reversal on any single one of the seven systems could be viewed as bad policy. But a failure to forward the complete package of seven systems would be hard to fathom and would mark a major shift in U.S. policy toward Taiwan. Why would the Bush administration, which started off so committed to defending Taiwan's nascent democracy, make such a radical departure, not only from long-standing bipartisan policy but also from policy decisions made during its first term from 2001 to 2004?

The Anti-Taiwan Shift

While U.S. policy has been remarkedly consistent over the years, the Bush administration's attitude toward does appear to have shifted over the last four years. Much of this shift has been said to have been driven by the President's own dislike for President Chen Shui-bian. However, even with the change in administrations in Taiwan, there doesn't appear to have been a warming of relations. At least four explanations could be offered.

Shift in Factional Influence. The Bush administration began with a China/Taiwan strategy that had been formulated by a united coalition of Republican Party factions during the transition. One could debate the wisdom of that strategy, but there was a strategy. The strategy reflected the views of two of the three China factions within the Republican Party -- the moderates best represented by Richard Armitage, Torkel Patterson, Jim Kelly; and the hawks and so-called neoconservatives represented by Vice President Cheney, Secretary Rumsfeld, and Paul Wolfowitz (on China/Taiwan issues, Wolfowitz is perhaps best categorized as a moderate). In general, the theory was that Taiwan's democratic transition deserved to be rewarded, that China's increasingly ambitious military modernization programmed aimed against Taiwan needed to be countered decisively, that the U.S. would equip Taiwan with much needed military equipment; and that the U.S. would accelerate and strengthen its capacity to respond to contingencies and work with Taiwan as an ad hoc coalition partner.

The third faction -- the softliners represented by Condoleezza Rice and outside advisors such as Henry Kissinger, Alexander Haig, Brent Scowcroft, and Doug Paal -- held little sway in the formulation the new Bush administration's China/Taiwan strategy. As a general rule, they hold the view that China is a strategic partner that is needed to counter some of the world's most complex problems. Taiwan is an irritant and problem that needs to be managed. As the moderates left the scene between 2002 and 2004, implementation of policy became more complex with the remaining two factions -- the hawks/neoconservatives and the softliners -- battling for control over the policy agenda. Eventually, by 2005-2006, the soft liners were in control, who then began a rollback of the original strategies and policies and a containment of Taiwan.

Bureaucratic Propensity at State/NSC. A constant, enduring predisposition within the State and NSC bureaucracies is to avoid allowing Taiwan to become an irritant in U.S. relations with China. Without assertive leadership at the top, and guided by an instinctual desire to avoid pain and discomfort, State/NSC tend to be passive in dealings with Taiwan. China inflicts pain and discomfort on State and NSC, and as long as that pain level is greater than what pro-Taiwan elements can inflict, China gains the upper hand. State/NSC tends to react to initiatives and requests from DoD, Congress, or Taiwan. However, if no initiatives or pressure originates from DoD, Congress, or Taiwan, things generally don't get done.

No More Troublemakers in Taiwan. Related to bureaucratic propensities, the KMT, which has committed to not making trouble, is now in charge. As a result, there is no need to worry about Ma and his government stirring up the pro-Taiwan activists, lobbyists, and friends in Congress. In effect, it means that troublemakers stand up for their own interests and are generally listened to and respected, albeit grudingly. China certainly is a troublemaker. But the Ma administration has been weak, at best, in pressing for these notifications to go through.

A Passive DoD. DoD, and OSD in particular, appears to have become increasingly passive and distracted in minding China/Taiwan defense policy. The departure of the hawks, neocons, and experienced China/Taiwan hands over the last four years has created a vacuum in the interagency process. With no more troublemakers in Taiwan and no push from OSD, there's little if any reason for State or NSC to fear the blowback from an indefinite freeze on arms sales to Taiwan. For Congress to be effective and assertive, key staffers need to be aware that there's a problem and most input comes from Taiwan or from DoD. Initiatives associated with defense and arms sales generally come from DoD, specifically the Office of the Secretary of Defense (OSD). OSD sometimes has been characterized as the guardians and enforcers of the Taiwan Relations Act, and since the 1970s/80s, its responsibilities sometimes have lapsed.

U.S. Arms Sales to Taiwan: The Bedrock of a Unique Relationship

Because they are viewed as the symbol of America's sustained support for Taiwan in the aftermath of the switch in diplomatic relations in 1979, arms sales to Taiwan have long been controversial. After a 25-year alliance relationship and two years of negotiation, President Jimmy Carter authorized the formal derecognition of the Republic of China (ROC) and the diplomatic recognition of the People's Republic of China (PRC). The 1979 Communique was the formal policy agreement that announced the arrangement, including the abrogation of the U.S.-ROC Mutual Defense Treaty. As noted in media reports at the time, it was assumed that U.S. commitment to Taiwan's defense, including arms sales, would continue. Carter is said to have noted in his private diaries, "U.S. agreement to drop diplomatic recognition of Taiwan for China was conditional on Beijing's acceptance that the U.S. would continue to offer defense to its long-time ally in Taipei."

The framework for continuing arms sales was the Taiwan Relations Act. Under the law, the United States will "make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability."

The 1982 Communique was intended to put the U.S.-China relationship on a stable footing. The wording and interpretation was intended to balance the requirements of the Taiwan Relations Act with the need to maintain stable relations with the People's Republic of China (PRC). The key wording is:

Having in mind the foregoing statements of both sides, the United States Government states that it does not seek to carry out a long-term policy of arms sales to Taiwan, that its arms sales to Taiwan will not exceed, either in qualitative or in quantitative terms, the level of those supplied in recent years since the establishment of diplomatic relations between the United States and China, and that it intends gradually to reduce its sale of arms to Taiwan, leading, over a period of time, to a final resolution.

It's important to note that the U.S. agreement to reduce arms sales was contingent upon Beijing's commitment to a peaceful approach to resolving its differences with Taiwan. As noted in State Department testimony before the Senate Foreign Relations Committee in August 1982, the metric for a peaceful approach is the nature of China's military posture opposite Taiwan. If the military threat to Taiwan is reduced, then there would be less need for arms sales. On the other hand, should the threat increase, then the level of arms sales would go up. Because of this linkage and contrary to complaints from Beijing, there has been no "violation" of the 1982 Communique. And as long as Beijing continues to deploy increasingly sophisticated military capabilities opposite Taiwan, release of the seven systems in question would be consistent with the spirit and letter of the 1982 Communique. On the other hand, should Beijing reduce its posture opposite Taiwan in a meaningful, sustained, and certifiable manner, then there may be grounds for freezing a portion or all of the programs awaiting notification.

The Arms Sales Process

The process for arms sales can be confusing. In the aftermath of the 1982 Communique, Taiwan requested that its requests for weapon systems be given due consideration. The normal process begins with a written letter of request (LOR) for price and availability (P&A) data. Under normal circumstances, the requesting party is granted an answer within a couple of months. The release of P&A, specifically pricing data, implies a policy decision to release the system. However, in Taiwan's case, the 1982 Communique resulted in a fear that the military's requests would be ignored. Taiwan representatives pressed for a unique process in which the island's requests would be bundled and presented in person each year in meetings with U.S. policy officials. After three months, a delegation would return to receive the formal responses. However, the Bush administration, arguing that there was no longer need for this system, as evidenced by the release of the largest arms sales package in history. From that point on, Taiwan would become a normal security assistance partner and submit LORs as other defense establishments do.

With P&A data in hand and confident of U.S. willingness to release the system, Taiwan's defense establishment can proceed with its planning, programming, and budgeting process and seek legislative authorization of funding. Once that legislative approval is granted, Taiwan's defense establishment can proceed with an LOR for a letter of offer and acceptance (LOA), in effect a government-to-government contract for buying a weapon system. Before signing the LOA, however, DoD, through the State Department, must first send a formal notification to Congress in accordance with Section 36(b) of the Arms Export Control Act (AECA). Although there are other procedures, the most important requirement is to submit the notification while Congress is in session and wait 30 days to give Congress time to raise objections. If no objections, the LOA can be signed and the program started.

Several of these notifications that have been held up, such as JAVELINs, HARPOONs, F-16 spare parts, and E-2T, represent follow-on procurements or upgraded capabilities to what Taiwan currently has in its inventory. The KMT under President Lee Teng-hui generated initial requests for submarines and PAC-3 in the 1990s, specifically 1994 for submarines and 1998 for PAC-3. Following detailed military assessments of Taiwan's requirements, the Bush administration announced the release of these systems in April 2001. The Bush administration deferred a request for APACHE attack helicopters in 2001, but approved release in 2002. Taiwan has had a civilian variant of the UH-60 utility helicopter -- the S-70C -- since the 1980s. Submarine and PAC-3 procurement was bogged down in Taiwan domestic political wrangling, and finally resolved in 2007. Frustrated over a perceived lack of commitment on Taiwan's part, Bush administration officials repeatedly criticized Taiwan for not following through on procuring the systems approved in 2001.

So when Taiwan's domestic polity reached a consensus to move forward, the Legislative Yuan appropriated funding for procurement of these seven items in Fall 2007. With funding approved, Taiwan's Ministry of National Defense submitted its LORs for LOAs for the seven systems in early 2008. In accordance with regulations and legal procedures outlined in the Arms Export Control Act, DoD Army, Navy, and Air Force program managers sent draft notifications to the State Department to forward to Congress.

However, the routine bureaucratic process hit a snag in Spring 2008. As the notifications piled up, the bundled package likely was brought to the attention of the seniormost levels of the State Department. In turn, the package likely was taken to President Bush for a decision. He reportedly said no. While it's uncertain, possible reasons could have included a desire to give the new KMT administration time to review the proposed procurements, a desire to contribute to a conducive atmosphere that could lead to a breakthrough in cross-Strait relations, and perhaps to not spoil the atmosphere leading up the the Beijing Olympic games.

U.S.-Taiwan Business Council's Rupert Hammond Chambers first highlighted the problem in an editorial in the Congressional newspaper The Hill on June 5, 2008. Defense News Asia Bureau Chief Wendell Minnick broke the freeze story to a wider audience on June 9, 2008. Glenn Kessler from the Washington Post followed up with added assertions that Secretary of State Condoleezza Rice and Deputy Secretary John Negroponte had recommended to President Bush to hold the notifications. There also were reports that President Ma Ying-jeou's KMT administration had requested that the notifications be delayed until sensitive cross-Strait negotiations related to direct flights and tourism wrapped up on July 4th. On June 25, responding to inquiries stemming from the media reports, Assistant Secretary of Defense James Shinn told a congressional hearing that the Taiwan arms freeze “was driven, as far as I understand, by Taiwanese domestic politics.” Commander, U.S. Pacific Command Admiral Timothy Keating, presumably speaking on the fly during a Heritage Foundation event, confirmed the freeze, saying that "there is no pressing and compelling need for at this moment arms sales to Taiwan.”

Yet, State Department and National Security Council representatives have been vociferous in their denials. They have to deny the freeze, of course. Failure to provide Taiwan with necessary defense articles and services would counter U.S. legal statutes under the Taiwan Relations Act. For example, a State Department spokesman said "there is no change in U.S. government policy" and that "the administration faithfully implement the Taiwan Relations Act." During a July 28 press conference, NSC's Dennis Wilder said:

"There is no change in American policy toward Taiwan, toward arms sales to Taiwan. This term 'freeze,' I'm not sure where it came from, but it is not a term we have ever used in the administration. We have a commitment under the Taiwan Relations Act to help Taiwan with its own defense. We continue to live up to that commitment. There are many engagements between the United States military and Taiwan military. Those are ongoing. Nothing has been frozen in this relationship."

Semantic debates over the definition of a "freeze" aside, observers expected the notifications to go forward after the Olympics and after Congress came back in session after Labor Day. Former Deputy Secretary of Defense Paul Wolfowitz, presumably armed with reassurances from senior Bush administration officials that the package would go forward, went on record in a media event to say that "President Bush treats commitments as commitments," and that the notifications would go forward. If true that he had been assured by a senior Bush administration official before making those public remarks, it most likely wasn't the President himself.

But Wolfowitz wouldn't be the only one with egg on his face if President Bush doesn't live up to his commitments. Jason Yuan, Taiwan's new defacto ambassador to the United States, ridiculed the notion of an arms freeze, thereby ingratiated himself to senior Bush administration officials. Furthermore, and as his first order of business, he publicly expressed confidence that he'll deliver the goodies shortly after he assumes the post on August 4. So far, Jason hasn't delivered, although the Washington Times reported on Thursday that he's still optimistic.

The new Ma administration appears to have mixed feelings about the issue. Initial indications were that there had been a request to hold the notifications, at least until after July 4th. Since then, there has been little indication that the Ma administration has been pushing hard for the notifications to go forward. The beltway rumor mill indicates that President Ma gave a letter to NSC Secretary General Su Chi to deliver to President Bush on the arms sale issue, perhaps to outline their priorities if the President would be unable to forward all the notifications at once. A senior U.S. NSC official was rumored to have traveled to Taipei to follow up the arm sales and other issues last week.

Taiwan's United Daily News reported today that scholars from Columbia University and other institutions have been advocating abandoning arms sales and a backing away from legal requirements to maintain the capacity to intervene on Taiwan's behalf in a conflict in order enhance relations with China.

Implications of a Permafreeze on Major Arms Sales

A permanent freeze on major foreign military sales to Taiwan could have a number of consequences. These include: 1) further weaken Taiwan's ability to defend itself thus increasing the risk to the United States; 2) raise questions about U.S. credibility; 3) weaken the KMT's negotiation position in dealings with China and embarrass it at home; 4) create incentives to strengthen Taiwan's domestic defense industry; 5) lost jobs and income in the United States; and 6) embolden the PRC in its dealings with Taiwan and the United States.

A Weakened Taiwan Military. The most obvious consequence could be a further deterioration of Taiwan's self defense capabilities. This, of course, assumes that the notifications are forwarded next year after the new U.S. administration is in place. Putting submarines to the side, average time between LOA signing and delivery is at least three years, depending on U.S. industrial production schedules. So APACHEs, PAC-3, and the munitions would be kicked down the road for a year. The submarine notification is said to only be for Phase 1 of the program -- only up to conceptual design, which is expected to take about three years. The funds that the LY appropriated this year for the systems presumably would be returned to the treasury.

Beyond this, what effect would foregoing these systems have on Taiwan's defense? Most critical are the F-16 spare parts, with a rumored value of between $200-500 million. The planes can't fly long without them. However, the U.S. Air Force came up with a clever solution to this impasse by offering an alternative package valued at less than U.S. $50 million, thus falling below the notification threshold. The HARPOON sale would provide Taiwan's existing submarines with the ability to target surface ships at longer ranges than offered with conventional torpedoes. The JAVELIN would augment the Taiwan Army's current inventory of TOW missiles, both of which are needed to kill landing ships approaching Taiwan's beaches. The E-2T upgrade is associated with the aircraft's command and control function. But the software also could serve as the basis for modernizing Taiwan's aging strategic level command and control system that is centered deep inside Hengshan Operations Center.

The four new PATRIOT fire units and more than 350 PAC-3 missiles would undercut the coercive utility of the PLA's growing ballistic missile arsenal deployed opposite Taiwan. Taiwan currently has three PATRIOT fire units, and Guidance Enhanced Missiles that were designed to counter aircraft. Last year, an LOA was signed to upgrade the radar and other ground systems of Taiwan's existing three PATRIOT units around Taipei. The additional four units presumably would be deployed in the Taichung and Kaoshiung areas. With the missiles by themselves costing around $1.5-2 million each, the total program is likely at least $1 billion.

The APACHEs, equipped with the Longbow radar, would augment and eventually replace Taiwan's aging AH-1W attack helicopters and would enable the Army to operate over the Taiwan Strait and to the northwest of the island to destroy landing craft and ships further away from Taiwan proper. The APACHEs would be accompanied by a range of munitions, including HELLFIRE air-to-surface missiles and probably air-launched STINGER missiles to defend against PLA air threats.

The submarine design would be the first phase of a longer program that would introduce advanced underwater vehicle that would be largely immune to a disarming PLA first strike, able to destroy PLA surface vessels approaching or operating in Taiwan coastal waters to the northwest, southwest, and east of the island. The design phase is said to be $360 million. Should Taiwan opt for Phase 2 -- construction -- cost estimates range from $8 to 10 billion. However, Phase 2 may require a second Congressional notification. If employed as part of an integrated anti-submarine warfare (ASW) architecture, including an undersea surveillance system, P-3Cs, heliborne ASW assets, and an ASW operations center, submarines would offer a lethal counter to the PLA's increasingly sophisticated offensive submarine force.

Harm U.S. Credibility. An indefinite deferral of Congressional notifications could damage America's credibility as a trusted partner, friend, and guarantor of Taiwan's security. The previous release of price and availability (P&A) data for the systems on the table carried with it an implied commitment to release the systems. A reversal, particularly without a major reduction in the PRC military threat to Taiwan, would reduce U.S. credibility, particularly within Taiwan's defense establishment.

Views on U.S. arms sales to Taiwan are sometimes contradictory. On the one hand, critics railed against U.S. pressure to invest greater resources into defense modernization resentment among a large segment of Taiwan toward the United States already exists. Yet the same critics may view a decision to forego arms sales in an equally negative light. Latent anti-American sentiment sometimes simmers beneath the surface in Taiwan, and both heavy-handed pressure or neglect or abandonment can often alienate the general public. As one taxi driver remarked, after being asked his views of the firmness of the American commitment to Taiwan, that "America has sold us out three times already -- 1972, 1979, and 1982. Why should we trust America now?" Some could argue that a hold on notifications could increase pro-China sentiment. However, it may be equally true that the appearance of diminished U.S. support could galvanize pro-independence sentiment on the island. Regardless, an announcement of an indefinite freeze would prompt an emotional reaction and the effects could be unpredictable.

Weaken the KMT Administration. Arms sales have traditionally been viewed as a metric of U.S. commitment to Taiwan's security. A permanent freeze could be viewed domestically as a failure of the new Ma Ying-jeou administration to effectively manage relations with the United States. Further diminishment of public confidence in the KMT could widen divisions with the domestic polity, complicate the ability of the Ma Ying-jeou administration to govern effectively, and could serve as a rallying point for a DPP that has been reeling from the losses in the legislative and presidential elections.

Strengthen Prospects for Unification on Terms Favorable to Beijing. Domestically, a permafreeze likely would weaken the KMT administration. However, a freeze may help the KMT achieve a breakthrough in cross-Strait relations. In the spirit of Kissingerian realism that many in the predominantly softline Bush administration believe in, a decision to halt arms sales could be driven by a a belief that a freeze would faciliate a political accomodation between China and Taiwan. In order to put U.S.-China relations on firm ground, resolution of differences between China and Taiwan is critical, even on terms that Beijing proposes. The indefinite cessation of arms sales may send a clear signal that the United States believes that the autonomy or de facto independence of Taiwan has come to an end.

Encourage Domestic Defense Industry. Diminished confidence in the United States' willingness to offer defense articles could strengthen commitment to shoring up Taiwan's domestic defense industry. Taiwan had prioritized domestic programs in the aftermath of the 1982 Communique, which resulted in the development of a number of systems, including the Tien-kung surface-to-air missile system, Hsiungfeng anti-ship missiles, and the Indigenous Defense Fighter (IDF), just to name a few. Since 1992, however, Taiwan's procurement policy shifted toward the acquisition of systems through Foreign Military Sales channels.

More recently, Article 22 of Taiwan's National Defense Law, enacted in 2003, called for greater domestic content in the development and production of weapon systems. While implementation of this section of the law has been weak, diminished confidence in the U.S. commitment to sell arms could shore up the position of those advocating a stronger defense industry.

The submarines present perhaps the best example. There has long been a faction that has advocated an indigenous submarine program. As options for managing a submarine program were contemplated, the original US Navy position in late 2000/early 2001 was that a program be carried out through direct commercial sales channels. In other words, U.S. Navy had no objection to assisting Taiwan in its acquisition of diesel electric submarines, but advocated doing it at an arms length. The goal seemed to be to keep final assembly out of US shipyards.

However, the Taiwan Navy and the Chen Shui-bian administration insisted that the program be managed through FMS channels. In response, the US Navy has been cool to the idea, highballed price and timeline estimates, yet has still supported the program. In the meantime, a faction within Taiwan has pressed for an indigenous submarine program. Debates over whether to pursue the program via FMS vs indigenous channels have taken place as recently as August 2008.

Opportunity Costs for US Industry. The shelving of these programs likely would have an effect on portions of the US defense industry and, by extension, could have some influence over undecided voters in the November election. DoD contracts for the manufacturing of the seven systems affects workers in a wide swath of the United States.

The total value of the seven programs is estimated to be around U.S. $5 billion. If one includes F-16s, the estimate runs as high as $11 billion. If one includes the manufacturing of submarines, the estimate could run as high as $20 billion spread over a 10 year period. Many states would be affected. For example, the PAC-3 system sale is said to include up to 356 missiles, with a unit cost of between U.S. $1.5-2.0 million per missile (total $534-712 million). Lockheed Martin Missiles and Fire Control, headquartered in Dallas, Texas, is the prime contractor for the missile. Its Camden, Arkansas manufacturing facility, employing over 450 people, is responsible for missile integration and assembly.

Boeing’s Air & Missile Defense Systems in Huntsville Alabama, supported by its Anaheim, CA facility for program management and design support and its El Paso facility for circuit cards, is responsible for the missile seekers. Aerojet, headquartered in California and with facilities in Virginia and Arkansas, produces both the solid rocket motor for the missile boost and the individual attitude control motors for homing guidance maneuvers during flight. Most of the ground systems would be manufactured in Raytheon plants in Massachussetts, with a range of component suppliers scattered through the rest of the United States.

For Apaches, Boeing Defense in Arizona would serve as the leading systems integrator. Other players would be Lockheed Martin, along with Northrop Grummon, for the radar sub-system and General Electric for engines bring business to Florida, California, Maryland, and Ohio. The list could go on, but suffice it to say that U.S. companies, which would reflect anticipated revenues in projected quarterly earnings estimates, could take hits in their stock value if they fall short of projected earnings.

Stock prices and unfullfilled business expectations, by themselves, aren't major issues. However, with elections coming up in November, the loss of projected work in a number of states could blow back on President Bush's fellow Republican and Presidential candidate, John McCain. This could be politically magnified given the economic problems the United States is currently facing.

An Emboldened China. Finally, failure to notify Congress could embolden leaders in Beijing who would be increasingly confident in their ability to coerce, deter, and influence the United States. They also may be less willing to compromise on other issues involving Taiwan or other issues in which the United States has interests. At a time when Beijing has been gradually softening its position on cross-Strait issues, the PRC could feel sufficiently confident that it could successfully entrap or coerce Taiwan into accomodations it normally may have made. Arguably, Beijing's softer approach, increasingly noted since the ascendency of Hu Jintao in 2005, arguably could have been influenced by past strong US support of Taiwan.

In sum, while unclear at the current time, a decision to impose an indefinite freeze would be a sharp divergence from long standing U.S. policy. It likely would draw sharp criticism from Congressional representatives who would argue such a freeze constitutes a violation of the Taiwan Relations Act. It would diminish Taiwan's self defense capability, affect U.S. jobs through a wide swath of America, further alienate the general populace on Taiwan, and perhaps trigger the final collapse of Taiwan's will to resist PRC coercion. striking a blow to supporters of democracy around the world.

Annual State Department Guidelines on Relations with Taiwan

The recent release of State Department guidelines covering "unofficial" relations with Taiwan seems to have generated quite a bit of media coverage (see today's Taipei Times for one example). Henry Chen, spokesperson for the Ministry of Foreign Affairs (MOFA) has it about right:

“The same guideline is circulated around the same time each year to all the foreign embassies and US government posts. It was nothing new,” ministry spokesman Henry Chen (陳銘政) said, adding that Taiwan has suggested Washington stop repeating the same gesture each year to avoid misunderstandings. “Some people, when they hear there is a new guideline, they might misinterpret that the US has adopted new policies on Taiwan, which is not the case,” he said.

The MOFA spokesman has a good point. It is kind of silly to retransmit what in effect are the same guidelines year after year. The media quotes unnamed critics as saying this year's document is more restrictive than previous ones. One example: "the new guideline specifically bars the display of the Republic of China flag on US premises, a condition not listed in the 2001 guideline, critics said." Maybe true that the 2001 State Department guidance didn't have that restriction. But maybe the 1985, 1993, 1999, and 2004 versions did.

Anyway, most in the government who deal with Taiwan know the self imposed rules. They stick to them almost to a fault. Reason why a staff officer on the Taiwan Coordination staff may have put the language back in this year is to send a reminder to some organization that may have violated one of these long-established yet bizarre commandments sometime within the last several months. So, rule is "thou shalt not fly the ROC flag." Breaking these rules can be fun, by the way. If you get caught, though, prepare to be castigated by Guidelines Police.

Beyond this, here's a rough list of other dos and don'ts, whether in the guidelines or not.

1) Starting with the most basic, there will be no visits of officials with a rank of Deputy Assistant Secretary-level or higher from the Department of State and Department of Defense. And there will be no general/flag officer visits. Exceptions can be made with the approval of the Secretary of State, presumably in consultation with the National Security Advisor and probably the President himself these days.

And there have been plenty of exceptions. First, it should be noted that the under the Clinton administration, there were at least five Cabinet-level officials who visited Taiwan. This was an outcome from the 1994 Taiwan Policy Review. And how many under the Bush administration? None come to mind. Under the Clinton administration, there was a DoD Deputy Assistant Secretary who visited Taiwan - Andy Hoehn. And the Bush administration? None come to mind. However, State Department did send one Deputy Assistant Secretary level official under the Bush administration - Don Keyser. Whoops. Actually twice, but the second time time didn't count since it was a private visit. And State/NSC Staff did arrange to send one general officer to Taiwan in the Bush administration. Of course, what should have been cause for celebration turned out to be an unpleasant occasion. President Bush sent a two-star Marine - a great American - to send a warning to the DPP administration.

But the Senior Director for Asia within the National Security Council (NSC) staff, now Dennis Wilder, and before him Mike Green, Jim Moriarty, Torkel Patterson, Ken Lieberthal, Sandy Kristoff, Stanley Roth, Doug Paal, Jim Kelly, etc, etc before him, have been considered to be Assistant Secretary-level positions and have been able to travel to Taiwan with few restrictions. Of course, they all have had the President behind them, so that helps a bit.

2) Speaking of private visits, another rule has been that U.S. government people who do travel to Taiwan are indeed unofficial and private. In fact, they are there as AIT consultants. And all visits to Taiwan by U.S. government personnel must be scrutinized and approved by the Taiwan Coordination Staff.

3) There are no Taiwan "officials" - only "authorities."

4) It is the policy of the United States that there is no "Republic of China." Only "Taiwan." There used to be an ROC before 1979, but it disappeared. The implication is that the ROC is an illegitimate regime? Regardless, uttering words like "ROC officials said..." are enough to earn six months confinement by the Guidelines Police. And, by the way, Taiwan nor the ROC is a country. It may be a new democracy, but the ROC is not a country.

5) All correspondence should be on plain white paper and sent through AIT channels. And no formal titles. If for whatever reason a memo with letterhead and titles does get sent over to AIT for transmittal, it doesn't really matter. They can retype it onto AIT letterhead and delete the titles. They can even edit and correct misspellings. No biggie. One side rule to memos and correspondence. There shall be no formal thank you notes sent to senior Taiwan authorities for their contributions to America in the global war on terrorism. Nevermind that Taiwan gave more financial and other assistance in kind to the United States than China and most other members of the international community.

6) Minister of Foreign Affairs and Minister of Defense shall not come within 50 miles of Washington DC, if they can can get visas at all. And there are to be no meetings between Taiwan authorities (have to get that language right) in the White House or the main State Department building in Foggy Bottom. The Palestinian Liberation Organization's Yasser Arafat or Sinn Fein's Gerry Adams though? No problem and with honors.

I'm sure there are many more quirks in the unofficial U.S.-Taiwan relationship. They all demonstrate the strength of bureaucratic inertia and an amazing lack of courage, decency, and respect for a long time friend and democracy. And in some cases, restrictions such as not allowing general/flag officer visits to Taiwan have a direct relationship with Taiwan's ability to defend itself. The mentoring and knowledge diffusion that goes on with frequent senior-level interactions with counterparts in other military establishments around the world are invaluable. There is much, much more senior level military officer interaction with counterparts in the Chinese People's Liberation Army than with Taiwan. Which side of the Taiwan Strait needs frequent senior level interaction more?

No visits to Foggy Bottom, but meeting in a coffee shop a block down is OK. What difference does it make? No formal titles to memos? What is this - plausible deniability? And why does the Senior Asia Director within NSC -- an Assistant Secretary-level position -- get to travel to Taiwan but not his counterpart within State? And why would NSC/State direct a two-star general from the Pentagon to travel to Taiwan to dress down a democratically elected president, but not routinize such visits to bring Taiwan's defense establishment out of its isolated shell? Who knows, more senior level interaction may make a big difference in Taiwan's ability to defend itself.

Bottom line is that all these silly rules are self-imposed, based on subjective judgments, and intended to demonstrate the unofficial nature of our relationship with Taiwan. They are driven by fear of China. Would either an Obama or McCain administration be willing to review these rules? Probably not, but it's not too early to start putting a bug in their ears.

U.S. Food Exports to Taiwan Grow

U.S. AgNet is reporting that U.S. grain exports to Taiwan are on the rise in the wake of a breakthrough in negotiating a relaxation in Taiwan's regulatory regime on grain imports. Taiwan has been the U.S.' fourth largest customer -- behind Japan, Mexico, and South Korea -- of corn from America's heartland. Importing as much as 4-5 billion tons a year, most corn imports go to feed Taiwan's large number of pigs. Taiwan has been said to have the highest density of hog farms in the world. Over the least two years, China's Taiwan Affairs Office has been placing growing public pressure on Taiwan to loosen its restrictions on Chinese corn.

Change in Taiwan's Import Regs a Win For U.S. Corn Growers

USAgNet - 09/05/2008

A change in Taiwan's import regulations is affording U.S. farmers greater opportunities to increase corn exports to the country. At the same time, Taiwanese livestock producers are seeing easier access to feed grains supplies.

The U.S. Grains Council is calling this move a win-win for U.S. farmers and for end-users overseas."The Council has always worked with regulators in Taiwan and throughout the world to ensure fair, scientific and safe procedures are in place," said Clover Chang, USGC assistant director in Taiwan.

Taiwan's Bureau of Food Safety, which is a division of the Department of Health, separated the managements of imported corn for feed from corn imported for human consumption. Regulators will now only test imported feed-use corn for aflatoxins, which are mycotoxins produced by fungi, and not pesticide residues.

Until recently, there was only one commodity classification code for importing corn thus feed-use corn and food-use corn were facing the same standards, according to Chang. "Roughly 95 percent of imported corn is destined for feed use in Taiwan's vibrant livestock industry," Chang noted.

Taiwan imports of U.S. corn through the first six months of 2008 are on pace to exceed the record $753 million (4.2 million metric tons or 165 million bushels) of exports in 2007.

Taiwan's 2009 Central Government Budget

The Taiwan Journal reported on September 5, 2008 that the Executive Yuan sent its annual budget over to the Legislative Yuan last week. Not too many surprises, although the defense budget has some anomalies.

Taiwan has averaged between U.S. 7-10 billion a year on defense. About U.S. $750 million to $2 billion has been earmarked each year for buying weapons, at least based on the assumption that the bulk of secret part of the defense budget goes for foreign procurement of arms.

In the CY08 defense budget, however, a whopping NT $97 billion out of the overall NT $334 billion -- about U.S. $3.1 billion -- was classified. The EY's requested budget for next year (CY09), NT $52.7 billion (about US $1.7 billion) out of a projected NT $325 billion defense budget is classified - about 16.2% of the total budget.

Bottom line is that it has been a mistaken assumption to think that Taiwan has not been dedicating the proper resources to its defense. All too often, the metric of Taiwan's commitment is how much it buys from the United States. If the classified portion of the defense budget indeed does reflect expenditures for arms through the U.S. Foreign Military Sales (FMS) system, then U.S. $1 billion a year dedicated toward buying weapons seems pretty generous.

This does beg one question. Why wouldn't Taiwan taxpayers want its government to be transparent about how their tax dollars are being used? Couple of reasons, but one is that policy is running on inertia - USG wants all bilateral dealings to be handled with the utmost discretion. But, so much for democracy. In any case, just for comparison, the secret NT $50 billion portion of the defense budget by itself is more than the National Science Council's NT $42 billion budget; more than MOFA's budget of NT 31.3 billion; and close to the annual social insurance expenditure of NT $61 billion. But then again, Taiwan may not be so different than the U.S. While 16% of its defense budget is hidden, the Center for Strategic and Budgetary Analysis estimates that 19% of the U.S. FY09 defense budget is classified.

Here's a few excerpts from the Taiwan Journal article:

The ROC government's proposed budget for 2009 will total US$58 billion, marking a 6.9percent increase from 2008, the Cabinet-level Directorate-General of Budget, Accounting and Statistics announced Aug. 28. Education, science and culture will take up the largest pieces of the pie at 18.7 percent, followed by social welfare at 17.9 percent, and defense at 17.2 percent.

According to the DGBAS, the government's 2009 tax revenue is estimated at about US$54.2 billion, a shortfall of US$3.8 billion--the second deficit in a row. The government will issue state bonds and use surpluses accumulated from previous years to cover the shortfall. The budget has been approved by the Cabinet and submitted to the Legislature, which is expected to give its final approval before the end of the year.

The proposed 2009 budget for classified diplomatic missions was slashed to US$120.6 million from 2008's US$181 million and now stands at 6 percent of the Ministry of Foreign Affairs' total diplomatic allocations. The overall budget for MOFA slated for 2009 was US$995.2 million, up US$20.3 million from this year.

MOFA spokesman Henry Chen explained that the cut to ministry's classified diplomatic missions was in line with President Ma Ying-jeou's "flexible diplomacy" policy, which focuses on strengthening relations with the ROC's existing diplomatic allies. Other goals for MOFA in the coming year include forming cooperative relations with countries that Taiwan has no diplomatic ties and expanding humanitarian relief work.
Regarding national defense expenditure, a total of US$10 billion will be allocated for 2009. According to the defense budget plan, as of the end of next year, the number of military personnel will be reduced to a total of 275,000. A five-year national defense buildup plan for 2009 to 2013, roughly US$54.2 billion is expected to be allocated by the government as military expenditure, constituting 3 percent of the gross domestic product. Meanwhile, the plan also proposes a budget of US$2.95 billion allocated by the government in 2009 for the investing in necessary defensive weapons.

Education, scientific research and cultural development will take the biggest share of the government's budget for 2009. The draft budget allocates US$10.8 billion for these sectors in the coming year. Social welfare spending comes in second at US$10.4 billion, marking an increase of 9.8 percent from this year's total.