Taiwan’s presidential elections in March 2004 will influence the debate and color any government decisions throughout the next six months. Key issues in the upcoming elections include the overall state of the Taiwan economy, as well as the state of U.S.-Taiwan and cross-Strait relations.

The elections will also signal Taiwan’s long- term strategic approach to the relationship with China, either towards unification if the pan-Blue Kuomintang (KMT)-People’s First Party (PFP) coalition wins, or continuing de facto independence if the Democratic Progressive Party (DPP) and its pan-Green supporters retains the presidency. The election results will have serious consequences for the losing party in the short run, as it will likely undergo major restructuring in hopes of regaining relevance on the Taiwan political scene, while also having consequences for the terms of Taiwan’s existence in the long run.

Over the past quarter, Taiwan officials have continued to be concerned over apparent improvements in U.S.-PRC relations, and they are taking clear and definitive steps to reassure the Taiwan public that the island’s interests will not be sacrificed because of those improvements. The Chen Administration’s draft defense budget for 2004 and its proposed special defense budget are both designed to show the public its commitment to national security, an issue that has garnered particular attention because of the ongoing discourse on direct cross-Strait links. With the continued sluggish economy, however, the increased size of the proposed 2004 defense budget could also increase Taiwan’s budget deficit and may also become an issue in the election.

On a positive note, the state of Taiwan’s military relations with the United States has taken a turn for the better over the last quarter, with much of the uncertainty that characterized the relationship in the first half of the year dissipating. That uncertainty has been replaced with more and better communication, which has led to a better understanding of each side’s needs, priorities, and strategic direction. Expanding U.S.-Taiwan military ties and continued and significant developments in the progress of arms sales programs both bode well for U.S. defense contractors.

Executive Summary: Taiwan Defense & Security Report – Q3, 2003

Following the US-Taiwan Business Council’s Defense Industry conference this past February in San Antonio, Texas, one may have been left with the impression that the arms sales programs were stalled and the military-to-military relationship between the United States and Taiwan was strained. This appeared to be the case due to the differing assessments made by the two sides of the degree of seriousness of the Chinese threat facing Taiwan, and the level of urgency required to meet that threat. The United States sees the threat as more immediate — one that might impact the cross-Strait situation between 2005 and 2007 — while Taiwan believes that the threat will not become critical until at least the next decade. Consequently, the United States and Taiwan, while both sharing a long-term strategic interest in promoting peace and stability in the Taiwan Strait, each operate with a different sense of urgency, leading to different acquisition priorities and different perspectives on the need to commit resources to the problem. The United States is continuing to refine its set of strategic priorities for Taiwan, emphasizing improvements in missile defense capabilities, C4ISR, and anti-submarine warfare.

Furthermore, the dramatic impact of SARS also contributed to the sense that aspects of the US-Taiwan relationship were stalled. SARS affected the region by greatly restricting business travel, reducing face-to-face contacts, and directing most of the affected regions’ governments to focus on the crisis rather than on defense issues. Finally, with less than a year before Taiwan’s next presidential elections, the maneuvering for advantage in Taiwan’s domestic politics has picked up speed, particularly around the controversial issue of national referendums, which may also affect cross-Strait relations and consequently issues of national defense.

However, as we move into the third quarter of 2003, a brighter picture is emerging. SARS is under control for the time being, and dialogue with the U.S. government during recent visits to Washington by senior Taiwan officials has also helped to clarify priorities for arms sales programs.

Executive Summary: Taiwan Defense & Security Report – Q2, 2003

In February of 2003, the US-Taiwan Business Council held the second in a series of defense industry meetings focusing on the security relationship between the United States and Taiwan. Our goal was to build on the success of last year’s event in Saint Petersburg, Florida which featured Taiwan’s Minister of National Defense, Tang Yiau-ming, and Deputy Secretary of Defense Paul Wolfowitz as keynote speakers. This year’s keynote speakers were Taiwan’s Vice Minister of Armament & Acquisition, General Chen Chao-min, and the Deputy Assistant Secretary of Defense for East Asia and the Pacific Richard Lawless. Vice Minister Chen brought a delegation to San Antonio comprised of high-level military officials representing each branch of the military and several departments within the Ministry of National Defense (MND). By inviting such a large delegation from Taiwan to the United States, we hoped to provide ample opportunity for all of our members to interact with these officials and to build important relationships.

As was the case in 2002, the event was strictly off the record and all sessions were off-limits to the press. While the keynote speeches were made available to the media the actual sessions remained private, which allowed for a very high level of comfort for our speakers. In addition, it allowed for very candid question & answer periods following each of the sessions, and the dialogue between the audience and the panel participants was more extensive and productive than during the previous Saint Petersburg event.

The Council’s newly appointed Chairman, former Secretary of Defense William S. Cohen, opened the event with an introductory keynote speech. Attendees then spent a day and a half looking at the risks now apparent in the US-Taiwan-China relationship and the barriers to the stated goal of a robust and modern deterrent capability for the people on Taiwan. It is the Council’s view that America’s leading defense and security companies can play a vital role in building that deterrence, and can work with Taiwan to integrate the myriad of complex systems and platforms.

This analysis will summarize the three main topics covered during the conference, including Taiwan’s defense reorganization, the budgetary process in the Legislative Yuan and MND, and Taiwan’s future defense needs.

Executive Summary: Taiwan Defense & Security Report – Q1, 2003

The stability of U.S., China, and Taiwan relations constituted one of the relatively bright spots in the world in 2002, particularly given the turbulence and anxiety with which the year began in the aftermath of the horrific events of September 11th. There were no major domestic political crises impacting relations among the three, no severe national disasters or domestic disturbances to challenge the leadership in any of the three countries, and no serious international incidents threatening to throw the cross-Strait region into conflict.

Domestically, each economy placed greater emphasis on their economic challenges and internal political developments, while internationally the U.S.-led global war on terrorism drove the agenda. Cross-Strait political bickering took a back seat to increasing economic and social interactions, and the military components in the relationship – China’s steady military modernization and accompanying training and exercise program, Taiwan’s ongoing military reform, and the U.S.’s continuing provision of arms and defense services—took a back seat to the greater imperative economic development.

Within this context, this report reviews the major developments in China, in the U.S.-China and U.S.-Taiwan military relationships, cross-Strait dynamics, and, finally, the key arms sales programs during 2002.

Executive Summary: Taiwan Defense & Security Report – Annual Review, 2002