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

The summer quarter was a remarkable period in the evolution of Taiwan-China-U.S. relations. A number of events transpired that just a year ago might have led to the brink of a cross-Strait war, but this year raised only mild reactions in Beijing. Taiwan President Chen Shui-bian’s August remarks on Taiwan “walking its own road,” First Lady Wu Shu-chen’s highly publicized visit to the United States, and several well reported exchanges of military delegations – particularly Vice Minister of National Defense (MND) Kang Ning-hsiang’s early September visit – all evoked only muted responses from China. Beijing, apparently, is fully focused on its leadership transition in the lead-up to the 16th Party Congress, while Washington continues with the war on terrorism, Afghanistan, and preparations for a potential conflict in Iraq.

Against this backdrop, China steadily continues its modernization program which is producing a visible increase in military capabilities. In turn, Taiwan is carrying out a modernization program that places priority on streamlining and reducing costs, with questionable results in terms of operational capabilities. To close the triangle, the U.S. marches forward with arms sales and enhanced military-to-military relations across the board with Taiwan. This quarterly report will attempt to clarify this complex picture as we look at future developments in the arms sales area and in the cross-Strait political dynamic.

Executive Summary: Taiwan Defense & Security Report – Q3, 2002

The US-Taiwan Business Council’s Defense Summit in March 2002 was an important event that signaled some changes in the way the US-Taiwan defense relationship is conducted. The conference also raised a number of important issues that will continue to attract our interest over the next few years. This quarterly report will explore developments in the military-to-military relationship after the conference, and present updates on major defense system sales and programs.

This report will also provide some background information on a critical aspect of the arms sales program approval process known as the “national disclosure policy”, and will identify changes in the key players involved in the relationship between the U.S. and Taiwan. Finally, we will identify some upcoming events in China that are of interest to those living and working in the cross-Strait arena.

Executive Summary: Taiwan Defense & Security Report – Q2, 2002

It has been projected that Taiwan will spend in excess of US$26 billion over the next ten years on its defense needs, and the defense industry is also one of the largest sectors represented in the US-Taiwan Business Council’s membership. To better serve those members, the Council hosted a defense conference entitled the “US-Taiwan Defense Summit” in Saint Petersburg, Florida, in early March of 2002. The objective of the event was to bring together all of the principals in the US-Taiwan defense relationship, both from U.S. and Taiwan industry and from both governments.

Unlike in most other industries, the defense relationship between Taiwan and the U.S. is one that is highly sensitive. Because of that sensitivity, the Council determined that the entire event should be considered off-the-record, and the event was also off-limits to the media. We wanted all of our attendees to feel comfortable talking about these sensitive issues, and to focus on issues related to furthering the commercial relationship between our two economies.

Rather than discussing specific arms sales, the focal point of the event was on the process itself, as we wanted to bring clarity and transparency to the often-complex defense procurement process. That is not, of course, a task that could be accomplished with one conference. In fact, the Council feels that this event was merely the beginning of a long road towards normalizing defense procurement so that less attention will be paid to it, with less media hype, hopefully resulting in a more efficient and productive process.

The planning for this conference began more than a year ago with the decision to invite Taiwan’s Minister of National Defense to speak. It was to be the first time since 1962 that a Minister of National Defense from Taiwan would visit the United States for anything other than a transit stop. In addition, Taiwan’s Premier Yu Shyi-kun tapped Chief of the General Staff General Tang Yao-ming to be the new Minister of National Defense only a matter of weeks before the scheduled start of the conference. This made for a fortuitous meeting, as Minister Tang could benefit from being introduced to U.S. industry leaders so soon after his appointment.

The purpose of this analysis is to focus on what took place during those three days in Florida. We will attempt to clarify the objectives of the conference, while summarizing the four main topics of the meeting, including Taiwan’s defense procurement process, offset requirements, Taiwan’s defensive position and military strategy, and the outlook for future military sales to Taiwan.

Executive Summary: Taiwan Defense & Security Report – Q1, 2002

In April of this year, the new Bush administration announced the approval of an extraordinary package of arms to Taiwan at what appeared to be the last formal US-Taiwan Arms Sales Meetings. Tied to the list of approvals was a decision by the new president to do away with these annual talks and instead handle Taiwan’s legitimate defense requirements in a routine, case-by-case manner as is done with other friends and allies of the United States. This and the arms sales decisions, which included breakthrough support for the sale of diesel electric submarines to Taiwan, generated speculation as to the direction the new administration would take in its relationships with Taiwan and the PRC.

In the following weeks and months, some answers began to emerge. The Bush administration allowed President Chen Shui-bian of Taiwan to make transit stops in New York and Texas, en route to and on his return from an official visit to South America. Rather than being strictly constrained in his activities during these transit stops as had been the case in previous instances, the administration allowed Chen significant freedom to tour the host cities and meet with local and national political leaders. On the military front, indications were that military-to-military relations were becoming much closer and more substantive in recognition of and in response to the inexorably growing threat posed by Chinese ballistic missile deployments, military modernization, and unabated use-of-force rhetoric. At the same time, imminent WTO accession by both the PRC and Taiwan, Beijing’s being awarded the 2008 Olympics, and steadily deepening concerns about an economic recession appeared to mitigate against the possibility of conflict in the Taiwan Strait at least in the short term.

The focus of this report is to provide some thoughts on where the US-Taiwan military relationship stands; summarize the progress to date on the arms sales decisions of April 2001 and certain other key programs; and offer some brief concluding comments on Taiwan’s economic situation and potential budget problems and on the effects of the defense reorganization program and upcoming leadership changes.

Executive Summary: Taiwan Defense & Security Report – Q3, 2001