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Taiwan Defense & Security Reports

Taiwan Defense & Security Report – Q1, 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

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Taiwan Defense & Security Reports

Taiwan Defense & Security Report – Q3, 2001

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

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Taiwan Defense & Security Reports

Taiwan Defense & Security Report – Q1, 2001

Typically, coverage of Taiwan in general – and of US-Taiwan military matters in particular – is sparse and infrequent. Who could have foreseen therefore the combined effects of the EP-3E incident and the surprisingly detailed public dissemination of the Bush Administration’s US-Taiwan Arms Sales Talks decisions? As a result of these virtually consecutive but quite coincidental events, US-Taiwan military ties, US-PRC relations and the overall security situation in the Taiwan Strait area and Western Pacific suddenly have received an unprecedented amount of coverage in all forms of public media.

The year 2001 dawned with the Taiwan political and military leadership, and Taiwan’s supporters in the U.S., hoping that the incoming Bush administration would be an improvement over the preceding eight years of what many believed had been lukewarm support, particularly in the area of critically needed arms sales. There had been no major arms sales released for Taiwan since the outgoing Bush I administration had approved the sale of 150 F-16s in 1992.

On April 25, 2001, at the 20th annual US-Taiwan Arms Sales Conference, they got a clear and unmistakable answer. The new administration reportedly approved release of 4 ex-USN Kidd Class destroyers, 12 P-3C Orion ASW aircraft, M-109A6 SP howitzers, AAV-7 amphibious assault vehicles, CH-53 mine sweeping helicopters, other equipment, technical support and training, and agreed, after more than two decades of emphatic turn-downs, to assist Taiwan in obtaining up to eight diesel-electric submarines.

Although AEGIS destroyers, the priority request of greatest long-term importance for Taiwan, were again deferred, this is being described as the largest – potentially valued at close to $5 billion — arms sales package since the F-16 sale. However, in terms of the number and significance of the major weapons systems included in the decision, it is arguably the largest arms talks approval since diplomatic de-recognition in 1979. President Bush characterized the approvals as “the right package for this moment,” and made it clear that his administration would continue to ensure that Taiwan’s defensive needs would be met in the face of a growing threat from China. He also indicated that the annual arms sales conference with Taiwan would be phased out, and that in the future, Taiwan’s defensive arms requirements would be addressed as needed on a case-by-case basis.

And, as icing – sweet or bittersweet, depending on one’s perspective — on the cake, President Bush stated categorically during a nationwide television interview a few days later that the United States would come to Taiwan’s aid in the event of an attack from the People’s Republic with “whatever it takes.” The verdict is still out as to whether this was an inadvertent slip and that “strategic ambiguity” is still alive and well – the president modified his statement the following day and administration officials insisted that US policy had not changed. But, slip up or not, taken in context with Candidate Bush’s campaign rhetoric, the EP-3E incident, the arms talks decisions, and the reported contents of Secretary of Defense Rumsfeld’s strategic review, it appears that the U.S. relationship with Beijing is shifting to one of strategic competition. And, relations with Taiwan, while still unofficial, are moving towards closer cooperation, particularly in the military arena.

Given the size, significance and context of this arms sales package, it deserves closer examination. Specifically, attention needs to be focused on what reportedly was approved; what was deferred or disapproved; what was decided in conjunction with the Talks; and what the implications are for Taiwan and the US.

 

Executive Summary: Taiwan Defense & Security Report – Q1, 2001

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U.S. Government

Information: U.S. Department of State

The State Department was created in 1789, making it the first Executive department established in the United States. It is the lead foreign affairs agency responsible for the international relations of the U.S.
2201 C Street, NW
Washington, D.C. 20520
Phone: (202) 647-4000
Website: www.state.gov

Bureau of East Asian & Pacific Affairs (EAP)

The Bureau of East Asian & Pacific Affairs (originally the Office of Chinese Affairs) is charged with advising the Secretary of State and the Under Secretary for Political Affairs on matters concerning the Asia-Pacific Region.

2201 C Street, NW
Washington, D.C. 20520
Phone: (202) 647-9596

Office of Taiwan Coordination

The Office of Taiwan Coordination is the equivalent of a country desk for the Republic of China.

2201 C Street, NW
Washington, D.C. 20520
Phone: (202) 647-7711

Bureau of Political-Military Affairs

The Bureau of Political-Military Affairs bridges the Department of State with the Department of Defense. It provides policy guidance in the areas of international security, military operations, defense trade, and security assistance. The Bureau is also responsible for coordinating the participation of coalition combat and peacekeeping forces.

2201 C Street, NW
Washington, D.C. 20520
Phone: (202) 647-9022

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U.S. Government

Information: U.S. Department of Defense

DoD is the federal department that coordinates and supervises all agencies and function directly related to national security and the armed forces (Army, Navy, Air Force, Marine Corps). It is the parent agency for the U.S. military, as well as for several U.S. intelligence agencies. The department is headed by the U.S. Secretary of Defense.

Office of the Secretary of Defense
1000 Defense Pentagon
Washington, D.C. 20301-1000
Phone: (703) 692-7100
Website: www.defense.gov/osd

Asian & Pacific Security Affairs (APSA)

2700 Defense Pentagon, Room 5D688
Washington, DC 20301-2700
Phone: (703) 695-4175
Website: policy.defense.gov/apsa/

Defense Security Cooperation Agency (DSCA)

The DSCA provides financial and technical assistance; transfer of defense materiel, training, and services to allies; and promotes military-to-military contacts. The DSCA’s mission is to lead, direct, and manage security cooperation programs to support U.S. national security objectives that strengthen America’s alliances and partnerships.

2800 Defense Pentagon
Washington, DC 20301-2800
Phone: (703) 601-1646
Email: ipa-web@dsca.mil
Website: www.dsca.mil

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Taiwan Government

Information: Taiwan Ministry of Economic Affairs

MOEA is the ministry within Taiwan’s government that is tasked with managing the island’s economy. The ministry devotes its efforts not only to guiding Taiwan’s economy through the short-term obstacles it faces, but also to laying a solid foundation for long-term economic growth. Much of the framework that fostered Taiwan’s rapid economic growth was created and implemented by this organization.

15 Fuzhou Street
Taipei 11015, Taiwan
Phone: (886) 2 2321-2200
Email: minister@moea.gov.tw
Website: www.moea.gov.tw

Industrial Development Bureau (IDB)

41-3 Hsin-yi Road, Section 3
Taipei 106, Taiwan
Phone: (886) 2 2754-1255
Email: service@moeaidb.gov.tw
Website: www.moeaidb.gov.tw

Committee for Aviation and Space Industry Development (CASID)

5F, 162-20 Hsin-yi Road, Section 3
Taipei 10658, Taiwan
Phone: (886) 2 2755-6157
Email: jackftang@casid.org.tw
Website: www.casid.org.tw

Industrial Cooperation Program (ICP)

Industrial Cooperation programs, commonly known as “offset” programs, are an obligation imposed on a foreign contractor under a government procurement project, where the contractor agrees to undertake local investment, local procurement, or technology transfer activities amounting to a certain percentage of the overall project. In Taiwan, the Industrial Cooperation Program (ICP) under the Industrial Development Bureau (IDB) within the Ministry of Economic Affairs (MOEA) manages the government’s outstanding offsets.

When Taiwan acceded to the Agreement on Government Procurement (GPA) under the WTO in 2009, it agreed to phase out industrial offset requirements for non-military public procurement. Taiwan therefore fully eliminated offset practices for non-military procurement in 2012. Since 2010, military procurements contracts from Taiwan that exceed the threshold of US$5 million produce offsets requirements, with the minimum offset amount for these contracts at 40%. That ratio can increase beyond 40% – the offset ratio in 2009 reached 70% in several military procurement cases due to legislative pressure.

The Taiwan government, unlike many European governments, does offer multipliers (between 1 and 10, generally), depending on the project. In the Taiwan ICP Office, three working groups manage five categories of offset programs: national defense, aerospace, consumer electronics/computer & communication (3C), transportation & precision machinery, and environmental & biological technology.

Generally speaking, ICP proposals from the foreign contractors is prefered to be consistent with Taiwan Government’s industrial policies as well as the needs of domestic industries. The foreign contractor may choose to carry out any one of, or a combination of, the categories of eligible ICP transactions as described below. Any other ICP transactions that are conducive to the development of domestic industries can be executed upon the approval from the Executive Committee.

1.Technology Transfer
Foreign contractors may transfer technologies to local institutions or companies that are conducive to the development or upgrade of domestic industries. Relevant examples include bogies for the railway vehicles, small turbine engine design, and Photo Inkjet Printer. The credits to be granted for technology transfer will be the sum of the following items: (i) the estimated fair market value of the technology to be transferred multiplied by a factor ranging from one(1) to ten(10); and (ii) the actual direct time-material costs plus other direct costs for the activities of technology transfer, multiplied by a factor ranging from one(1) to ten(10).

2.Research and Development
Foreign contractors may initiate joint R&D projects with local institutions and/or companies or establish R&D centers that are conducive to the development or the upgrade of domestic industries. For example, the development of computerized training for CBT, research on acoustic suppression of fan blade flutter, and the 16G seat development. The credits to be granted for research and development will be the actual direct time-material costs and other actual R&D direct costs shared by the Contractor, multiplied a factor ranging from one(1) to ten(10).

3.Local Investment
Foreign contractors may set up a sole proprietorship or subsidiary in Taiwan or participate in a joint venture with government entities or private companies in Taiwan; for example, the investment in ACX and the investment in Pacific Communications Services Co., Ltd. The credits to be granted for direct local investment will be the amount of the Contractor’s paid-in equity investment, multiplied by a factor ranging from one(1) to ten(10).

4.Training
Foreign contractors may provide personnel training programs to local institutions or companies in engineering, management, operation, examinations, testing as well as services. The FAA test flight pilot training is one such program; and so are the training programs for composite boarded structure fabrication, precision casting of engines, incinerator operation, management and industrial safety technology, quality assurance and certification, and environmental protection, health and safety. The credits to be granted for training will be the sum of the following items: (i) the estimated fair market value of the training to be given, multiplied by a factor ranging from one(1) to five(5); and (ii) the actual direct time-material costs plus other direct costs for the activities of training, multiplied by a factor ranging from one(1) to five(5).

5.International Marketing and Trade Promotion Assistance
Foreign contractors may provide local manufacturers with assistance in international marketing such as market research, market survey, establishment of a price evaluation system, drafting of sales contracts, and expansion of sales channels. In addition, foreign contractors may make unrestricted gifts to independent organizations recognized to be dedicated to expanding and enhancing trade with Taiwan. Through these activities, the competitive edge of local enterprises in the international market is enhanced. Relevant examples include the evaluation of the Asia-Pacific maintenance center, and the manufacture of composite interpolators. The credits to be granted for international marketing assistance will be the actual direct costs incurred by the Contractor for such assistance, multiplied by a factor ranging from one(1) to five(5).

6.Local Procurement
Foreign contractors may procure locally manufactured products designated or approved by the Executive Committee. In principle, locally procured products must be exported; however, products approved by the Executive Committee for use in the procurement projects are not subject to this restriction. Examples of local procurement include purchase of CNC engines, liquid crystal displays, F-16 jet fighter components. The credits to be granted for local procurement will be the sum of value of purchase orders accepted and performed, multiplied by a factor ranging from zero point two five(0.25) to two(2), depending on the technology level required for the product procured.

7.Consortium
Foreign contractors may jointly manage procurement projects with local institutions. The total credits can be deducted in proportion with the actual contract value the local consortium members take, while the execution of key items in the contract scope executed by the local consortium members can apply for eligible ICP projects, subject to the approval of Executive Committee.

8.International certification
Foreign contractors may provide local institutions with assistance in verification, validation or certification for products design, manufacturing, and maintenance, or other relevant document of potential suppliers review.

Sources:
ICP Transaction Categories
U.S. Department of State 2014 Investment Climate Statement

3F, 162-13 Shin-Yi Road, Section 3
Taipei 10658, Taiwan
Phone: (886)2 2754-0266
Email: trudy@icpo.org.tw
Website: www.icpo.org.tw/

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Taiwan Government

Information: Taiwan Ministry of National Defense

The MND is responsible for formulating military strategy, setting military personnel policies, formulating draft and mobilization plans, delineating supply distribution policies, arranging the research on and development of military technology, compiling the national defense budget, setting military regulations, conducting court martial proceedings, and administering military law. Within the MND is the General Staff Headquarters (GSH), under which are the various services, including the Army, Navy, Air Force, Armed Forces Reserve Command/Coast Guard Command, and Military Police Command. The ministry also has other subordinate agencies such as military academies, military courts, prosecutorial bureaus, and jails.

172 Bo-Ai Road, Jhongjheng District
Taipei 10048, Taiwan
Phone: (886) 2 2311-6117
Email: mnd@mnd.gov.tw
Website: www.mnd.gov.tw/

Army General Headquarters

The Army General Headquarters is responsible for developing and maintaining the Army’s combat power, commanding and supervising all subordinate troops and units. Under its command are the Army Logistics Command, Army Commands, and the Airborne and Special Operations Command. Also under its command are the various Army units.

P.O. Box 90620, Longtan
Taoyuan County, Taiwan
Phone: (886) 3479-2111
Website: army.mnd.gov.tw/

Air Force General Headquarters

The Air Force General Headquarters is responsible for the Air Force’s combat strength and commands and supervises all subordinate troops and units. The units include the Air Force Operations Command, the Air Force Logistics Command, the Air Defense Artillery Command, and various tactical wings.

55 Ren Ai Road, Section 3
Taipei 106, Taiwan

Phone: (886) 2 2711-1101
Website: air.mnd.gov.tw/

Navy General Headquarters

The Navy General Headquarters is in charge of developing and maintaining the Navy’s combat readiness, as well as commanding and supervising its entire subordinate fleets and ground units. Under its command are the Naval Fleet Command, the Marine Corps Headquarters, the Navy Logistics Command, Headquarters of the Naval Area Command, the Area Service Office, the Naval Base Command, and the Bureau of Maritime Survey. The subordinate Navy units are under the direct supervision of the Naval Fleet Command and are organized into the fleet, group, and ship levels. The Marine Corps units, like those of the Army, extend from the Marine Corps Headquarters.

305 Bei-an Road
Taipei 104, Taiwan
Phone: (866) 2 2533-3181
Website: navy.mnd.gov.tw/

Reserve Command

The Reserve Command is the operating body responsible for the control of personnel under reserve status in the Taiwan military. In the event of a crisis is issues the call for active reserves to report for duty.

Taipei City Reserve Command General Headquarters
365 Jinhu Rd., Neihu District
Taipei 114, Taiwan
Phone: (886) 2 2266-9025
Website: afrc.mnd.gov.tw

National Chung Shan Institute of Science and Technology (CSIST)

As the leading institution for the research, development, and design of defense technology in Taiwan, CSIST employs some 6,000 scientists and more than 8,000 technicians. CSIST is divided into four major research divisions: aeronautics, missiles, electronics, and chemistry, with six centers for systems development, systems maintenance, quality assurance, materials R&D, aeronautic development, and missile manufacturing. Each research division or research center has a Director in charge of the research and development of its specialty, while planning units have project chairmen responsible for R&D program management and system integration.

CSIST was spun off from the Ministry of National Defense in April of 2014, added “National” to its name, and became NCSIST.

481 Jia-an Section, Zhongzheng Road
Taoyuan County 325, Taiwan
Phone: (886) 2 2673-9638
Website: www.ncsist.org.tw
Email: occso@csnet.gov.tw

Categories
U.S. Government

Information: American Institute in Taiwan (AIT)

The American Institute in Taiwan (AIT) is a non-profit, private corporation. It was established as part of the Taiwan Relations Act1, and continues to conduct commercial, cultural, and other relations between the United States and Taiwan following the switch in U.S. diplomatic recognition to the PRC in 1979. Funding and operational guidance is provided by the U.S. Department of State, and the U.S. Congress also provides oversight over AIT’s operations and budget.

U.S. – Taiwan defense relations are handled through AIT’s Technical and Liaison Affairs sections, as well as by the Political/Military Affairs officer stationed in Washington, D.C.

Washington Headquarters Office

1700 North Moore Street, Suite 1700
Arlington, Virginia 22209
Phone: (703) 525-8474
Fax: (703) 841-1385
Web: www.ait.org.tw/en/

Taipei Main Office

No. 7, Lane 134, Hsin Yi Road, Section 3
Taipei 106, Taiwan
Phone: (886) 2 2162-2000
Fax: (886) 2 2162-2251
Web: www.ait.org.tw/en/

Kaohsiung Branch Office

5th Floor, No.2, Chung Cheng 3rd Road
Kaohsiung Taiwan
Phone: (886) (07) 238-7744
Fax: (886) (07) 238-5237
Web: kaohsiung.ait.org.tw

1Public Law 96-8, Taiwan Relations Act (Washington, D.C.: 96th Congress, January 1, 1979)