Vol. 1, Issue 12
Global Taiwan Brief – Volume 1, Issue 12
A Phone Call Heard Around the World
By: Russell Hsiao
Who Would Buy Taiwan’s Arms Exports?
By: David An
President Tsai Ing-wen’s Economic Reform Agenda Beyond TPP
By: Jinji Chen
“Cold Peace” and the Nash Equilibrium in Cross-Strait Relations (Part 1)
By: David W.F. Huang
Alternate Models and Procurement Methods for Taiwan’s Submarine Program
By: Michael Reilly
A Phone Call Heard Around the World
Russell Hsiao is the Executive Director of the Global Taiwan Institute and Chief Editor of the Global Taiwan Brief.
On Friday, December 2nd at 10:00 am (ET), President-elect Donald Trump received a phone call from President Tsai Ing-wen of Taiwan (ROC). In what was widely referred to in the mainstream media as a significant policy shift, the two world leaders spoke on the phone for a little over ten minutes, during which President Tsai congratulated the president-elect on his election victory and exchanged views about the economy and regional issues.
While no US president or president-elect has reportedly had face-to-face or telephone conversation with the leader of Taiwan since 1979, nothing in the Taiwan Relations Act of 1979—which legally governs both the content and conduct of unofficial relations between the United States and Taiwan—or the three Joint Communiques prohibit the president-elect from receiving a congratulatory phone call from the democratically-elected leader of Taiwan.
Notwithstanding this fact, the media and pundits sounded the alarm about how the phone call represented an earth shattering break in US policy. Yet, nothing in the president-elect’s act of taking the phone call represents such a break in the policy per se of the United States. There is nothing explicit in the United States’ “One China” policy that prohibits the president-elect from taking a congratulatory call from the democratically elected leader of Taiwan (if there is I encourage the critics to produce the evidence). The long-standing practice is a matter of conduct and not content, and a president or president-elect’s decision to forego taking a call is not legally prescribed but rather a norm in how the executive branch carries out policy prescribed by law.
The former senior director for Asian affairs on the National Security Council in the Obama Administration, Jeff Bader, underscores the implicit and self-imposed nature of the restrictions by pointing out that “[t]here have been quiet, non-visible written communications between the top leaders of the United States (including presidents and presidents-elect) and Taiwan, but it has always been understood that direct conversations would cross a line not worth challenging.” So the concern is not that the two top leaders communicated but how they communicated. Hardly a dispute over substance.
After news about President-elect Trump’s with Tsai broke, the White House correctly noted that there was “no change” to the United States’ longstanding “one China” policy. This is an obvious statement of fact because the phone call changed nothing in terms of content prescribed by law in unofficial relations between the United States and Taiwan. Of course, this has not restrained Beijing’s leaders from taking the opportunity to define the United States “One China” policy by asserting that, “One China policy is the cornerstone of the sound development of Sino-US relations and we don’t want this political basis to be interfered with or damaged in any way.”
Yet, in the clearest articulation of the United States’ “One China policy” to date, then-Assistant Secretary of State for East Asian and Pacific Affairs James Kelly made US policy explicitly clear at a hearing in 2004: “I can tell you what it is not. It is not the One-China policy or the One-China principle that Beijing suggests, and it may not be the definition that some would have in Taiwan. But it does convey a meaning of solidarity of a kind among the people on both sides of the straits that has been our policy for a very long time.”
While the long-term impact of the Trump-Tsai phone call remains to be seen, on its own, the phone call changes little to nothing about the content of unofficial relations between the United States and Taiwan. In terms of conduct, however, the call was meaningful and represents a positive trajectory in future relations between United States and Taiwan.
All sides would be wise not to read too much substance into a phone call between two world leaders. While it is an important gesture made by incoming administration, the Tsai administration would be smart and also cautious enough to acknowledge the great gesture as it is, and not a signal of a policy change by the president-elect and not over-interpret its meaning. Relations are not going normalize because of a phone call.
Lastly, if the president of the People’s Republic of China, Xi Jinping, is able to meet with the democratically elected leader of Taiwan, why should Washington restrict itself from taking a phone call from its top leader? Moreover, if President Obama is applauded for ending decades of isolation by establishing diplomatic relations with a cold-war foe such as Cuba, then certainly President-elect Trump should also be applauded for taking a phone call from a longstanding democratic friend of the United States.
The main point: All sides would be wise not to read too much substance into a phone call between two world leaders. While it is an important gesture made by incoming Trump administration, the Tsai government would be smart and also cautious enough to acknowledge the great gesture as it is, and not a signal of a policy change by the president-elect and not over-interpret its meaning.
An earlier version of this article was published on The National Interest entitled “Trump Was Within His Rights to Talk to Taiwan.”
Who Would Buy Taiwan’s Arms Exports?
David An is a Senior Research Fellow at the Global Taiwan Institute. He was previously a political military officer at the US State Department.
In previous articles, I proposed a model for Taiwan’s arms industry, since a key component of President Tsai’s policy is to revitalize Taiwan’s economy by growing its national defense industry as one of five innovative industries. It is not a leap of the imagination to picture Taiwan as a significant arms exporter, since it already manufactures its own modern naval vessels, missiles, and small arms. Furthermore, it would be following in the footsteps of its neighbors South Korea, Singapore, Japan, and many other countries in pursuing arms sales abroad. But who will Taiwan’s consumers be?
There are three potential markets for Taiwan’s weapons: first, the United States and NATO+4 countries; second, Taiwan’s current diplomatic allies; and third, all other countries, if Taiwan establishes an arms export presence at military conventions. It is widely known that the United States sells advanced military technology to Taiwan in accordance with the Taiwan Relations Act; but the United States and NATO+4 countries (comprised of NATO countries in Europe plus Japan, South Korea, Australia, New Zealand) and others would benefit if they could buy items from Taiwan that Taiwan can manufacture better and more cheaply. It is a classic example of David Ricardo’s economic theory of comparative advantage, except with the ammunition and high-tech electronics components of today, instead of Ricardo’s cloth and wine of 1817.
The United States is already Taiwan’s customer. In 2007, the US military purchased one billion rounds of rifle ammunition from Taiwan for around $18 million. In the context of a total of $565 million in arms that the United States imports per year, $18 million amounts to 3 percent, and there is room for Taiwan to grow. In addition, Taiwan’s ammunition is already currently available on the US civilian market, with a 1,000-round case of Taiwan’s Wolf brand NATO-standard 5.56 mm rifle rounds selling online for $339. In addition to small arms, Taiwan could try to become a subcontractor and offer electronics components to integrate into prime contractors’ systems located in these Western countries.
Taiwan’s next logical customer base is its diplomatic allies. Taiwan is rumored to have sold T65 assault rifles to the Paraguayan Army, T86 assault rifles to Jordan, and small arms to several diplomatic allies and countries in Africa, such as Burkina Faso, Chad, Malawi, Senegal, Swaziland, and Sao Tome and Principe, among others. However, when arms sales are used as a diplomatic tool to improve bilateral relations, it is tempting to gift them to the country or sell at cost without profit. Such an approach would defeat the purpose of establishing a demand-driven defense economy focused on generating profits, boosting Taiwan’s economy, and creating jobs. Therefore, Taiwan should strive to leverage its formal diplomatic relations and even informal relationships to create a profitable demand for its products.
Finally, Taiwan could expand its customer base to all other countries by promoting its arms industry at international arms conventions like the Association of the US Army (AUSA) annual conference and arms exhibition in Washington, DC, the Sea-Air-Space Expo in National Harbor, MD, the Armed Forces Communications and Electronics Association (AFCEA)-WEST in California, and exhibitions in Singapore, Paris or elsewhere. Taiwan regularly hosts an impressive Taipei Aerospace & Defense Technology Exhibition defense convention, but it should also make an extra effort to bring Taiwan’s defense industry presence overseas. The Republic of Korea government has already set up a booth at AUSA that touts its arms exports to military and government officials from around the world, and Taiwan could do the same.
With these three groups of customers, a demand driven approach will first seek to profit from existing defense items before investing in new technologies. Taiwan can sell any ammunition, hardware components, or naval, land, or missile platforms for which it has complete ownership of intellectual property rights. The profit could then be used to drive the industry forward through research and development. It will be tempting for policymakers to do the opposite—to feed investments into developing an impressive repertoire of components and platforms in hopes that supply will later draw demand. If Taiwan focuses on supply first, which is to develop more technology before making significant sales, then it will quickly deplete government and investment funds with no guarantee of sales on the back end. In contrast, focusing on demand by generating income first will be a more sure-footed way to move the domestic defense industry and economy forward.
In subsequent articles, I will systematically explore the supply side of what Taiwan could sell, and explain the geopolitical considerations of becoming a significant arms exporter of military platforms. The other option of integrating Taiwan’s electronic components into another NATO+4 country’s tanks and aircraft would not be as politically sensitive a decision, since it could defer to that other country’s policies and arms sales decision-making process. However, for Taiwan to become an exporter of its own military platforms will be a more complicated decision, because there are lives at stake, sometimes on the other side of the world, and Taiwan would bear responsibility and reputational costs, depending on how Taiwan-origin weapons platforms are used by others. In addition, I recommend that Taiwanese officials consider China’s views and the opinions of its neighbors, and consult with the United States as it carefully moves forward in this direction.
The main point: Taiwan should move forward cautiously, refine its policies, and consider geopolitical consequences as it decides whether to export its own military platforms. Countries that would buy Taiwan’s arms exports include the United States, NATO+4 countries, Taiwan’s diplomatic allies, and others.
 David Ricardo, “7.4 On Foreign Trade,” in On the Principles of Political Economy and Taxation (London: John Murray Publisher, 1817).
President Tsai Ing-wen’s Economic Reform Agenda Beyond TPP
Jinji Chen is an advisor to Taiwan’s Executive Yuan, Deputy Executive Director of the New Frontier Foundation, and Chair of the Department of Business Administration, CTBC Financial Management College in Taiwan. He was GTI’s visiting fellow in Fall 2016.
Taiwan’s economy is export-oriented.
Exports account for around 70 percent of Taiwan’s Gross Domestic Product (GDP). Taiwan’s stagnant economy over the past few years is correlated with a global slowdown as well as the structural problems with Taiwan’s industries in transition. Additionally, a few international factors have affected Taiwan’s economic growth.
First, China, Taiwan’s biggest export partner (39 percent including Hong Kong), has been undergoing a major economic transition, and slower growth has become the new norm. Second, the slowdown in global trade and investment is also a contributing factor. Further, uncertainty after the US presidential election, the murky outlook for the Trans-Pacific Partnership (TPP), growing protectionism and anti-globalization have all added to economic uncertainty. Despite the aforementioned issues, Taiwan is proactively adjusting its economic and industrial structure to prepare for liberalization.
Recent economic indicators published by Taiwan’s National Development Council reveal an upward trend in the past eight months, which shows that Taiwan’s economy is gradually improving. However, the global economy’s slow recovery as well as the new US government’s trade policy and Brexit are all factors injecting uncertainty into Taiwan’s export sector. Since taking office in May, Taiwan’s President Tsai Ing-wen has been actively trying to improve Taiwan’s investment environment, which will help increase domestic investment. Such policy initiatives would also allow the unemployment rate to decrease, increasing domestic consumption and gradually stimulating future economic growth. President Tsai believes this is a good beginning for Taiwan’s economic growth.
Nonetheless, one should be cautious about the local economic outlook, as wage growth is still weak, consumer confidence is relatively conservative and investment appears to be tepid. That said, one does not have to be overly pessimistic, given that the global economic outlook for 2017 is more positive than 2016, since the global economy continues to recover and exports are expected to improve. For an export-oriented economy such as Taiwan, a global economic recovery will bring about a rebound in exports and thus help to reinvigorate Taiwan’s economy.
With the new model for economic development, Taiwan’s government has formulated specific policies to boost innovation in key sectors and promote industrial transformation. President Tsai Ing-wen has launched innovative development projects across five industrial sectors, which consist of flagship programs to upgrade and transform different industries. Such flagship programs include the “smart machinery industry project” and the “Asian Silicon Valley initiative,” both of which were recently approved by Taiwan’s Executive Yuan. The key will be how to implement this innovation-driven model to boost transformation and find a driver for Taiwan’s sustainable growth.
The Tsai administration is also promoting the “New Southbound” policy, to engage South Asian and ASEAN countries in economic, cultural, and social exchanges and establish cooperative and reciprocal relations. The Executive Yuan has created an economic and trade negotiation office (行政院經貿談判辦公室), with the aim to integrate resources from the public and private sectors to enhance Taiwan’s links with the global market. In addition to moving forward with negotiations for the Trade in Services Agreement and Environmental Goods Agreement under the WTO framework, the Tsai administration is prepared to participate in negotiations related to the TPP, the Regional Comprehensive Economic Partnership (RCEP) and free trade agreements (FTA) with other countries.
In particular, FTAs, TPP and other regional economic integration frameworks are not only crucial to Taiwan’s economic and trade footprint, but will also be the catalyst for Taiwan’s economic transformation. After years of adopting a more pro-China stance, joining TPP was the core of a “rebalancing” policy for Taiwan’s trade strategy. Taiwan still seeks to participate in the second round of TPP negotiations, which will help to strengthen ties with developed countries such as Japan, Australia, Canada, and possibly the United States, and to open up markets to attract foreign investment, and further create job opportunities domestically. Encouraging competition and enticing foreign investment to Taiwan will help to modernize all sectors, especially if advanced technology firms come to Taiwan, in which case Taiwan’s local sectors will likely benefit from the spillover effect. A focus on innovation will drive the new formula for economic development.
Donald Trump’s victory in the 2016 US presidential election is viewed largely outside the United States as a harbinger of trade protectionism. Rules governing international trade and investment frameworks will need to be adjusted and updated, especially given President-elect Trump’s announcement that he will withdraw from the TPP. In order to keep his campaign promise, President-elect Trump will likely focus on bilateral free trade agreements. How would other signatories to the TPP, including Japan, Australia, New Zealand, Singapore, redefine a TPP without US participation? Does Trump’s intended withdrawal from the TPP also signify the rejection of the US “pivot to Asia” geopolitical policy, which ostensibly hoped to utilize regional free trade agreements to strengthen regional cooperation? This deserves attention as it may increase China’s influence in the Asia-Pacific region.
As Taiwan seeks to join regional economic integration frameworks, including the TPP, aside from urging the United States to take more substantive actions to support Taiwan’s bid, the Taiwanese government should step up its preparations and put forward a concrete solution for trade liberalization, industry adjustment and transformation.
Although trade protectionism is on the rise, this may be a golden opportunity for Taiwan, whose economy is dependent on foreign trade, and the United States to work more closely together bilaterally. Moreover, Taiwan may utilize this uncertain period to reevaluate its economic structure, adjust its industrial makeup, and reevaluate its competitive strengths and weaknesses internationally.
The main point: Although trade protectionism is on the rise, Taiwan still seeks to participate in the second round of TPP negotiations. Despite the United States’ possible withdrawal from TPP, this may be a golden opportunity for Taiwan, whose economy is dependent on foreign trade, and the United States to work closer together bilaterally.
“Cold Peace” and the Nash Equilibrium in Cross-Strait Relations (Part 1)
Dr. David W.F. Huang has a DPhil from Oxford University and is an Associate Research Fellow of the Institute of European and American Studies, Academia Sinica, and an Adjunct Associate Professor in the Graduate Institute of National Development, National Taiwan University. Among his various government posts, Dr. Huang previously served as the Vice Chairman of the Mainland Affairs Council and Deputy Representative of the Taipei Economic and Cultural Office in Washington, DC.
“Cold peace” is a term often used to define cross-Strait relations after May 20, 2016. The essential parameters of “cold peace” are a set of policies carried out by both China and Taiwan. On the one hand, Beijing has indicated or implied—since long before Tsai Ing-wen’s election as president of the Republic of China (ROC)—that, unless she accepted the People’s Republic of China’s (PRC) precondition of the “1992 Consensus,” there would be no official or semi-official communications between China and Taiwan, no international space for Taiwan, and no more “economic handouts” to Taiwan.
On the other hand, Tsai was reluctant to accept the term “1992 Consensus” during the electoral campaign. Rather, she was elected president with an ambiguous pledge to maintain the status quo across the Taiwan Strait. In her inauguration speech, President Tsai stated that her government would respect the “historical fact” of the 1992 meetings and all developments thus following; would abide by the ROC constitution, and implement existing cross-Strait law and agreements as the previous administration had; and would construct a “consistent, predictable, and non-provocative” framework of interactions with mainland China. More specifically, in her National Day speech, President Tsai reiterated her pledge with “four noes:” there will be no change of good will toward China, no change of her previous promises, no succumbing to China’s pressure, and no return to old ways of cross-Strait confrontation.
As a result of the implementation of China’s “three noes” policy and Taiwan’s “four noes” policy, cross-Strait relations have evolved into a sort of deadlock, in which communication channels in the public sector are cut off and exchanges in the private sector reduced. However, the status of “cold peace” is not a static concept. Rather, it is an unstable, suboptimal, Nash equilibrium; a result of both Chinese and Taiwanese “no” strategies.
For China, the dominant strategy is to increase diplomatic, economic, and military pressures on Tsai’s government, in the hope that Tsai will make a mistake and retaliate, thus escalating tensions across the Taiwan Strait to a tipping point where the US would have no choice but to rein in Taiwan. If Tsai is smart enough not to retaliate, China will continue to strangle Taiwan’s international space and weaken Taiwan’s economy up to a point where regime change in Taiwan would allow China to have a quick political settlement with Taiwan under a “One-China” framework.
Such a strategy is premised on Xi’s commitment to his previous remark: that is, the political difference across the Taiwan Strait cannot be left unresolved from generation to generation. Notice that Xi’s remark does not necessarily imply a complete unification between China and Taiwan. Rather, a political settlement that legally implies both mainland China and Taiwan “belong to” or “commit to” one and the same China (or country) could be sufficient to establish Xi’s historical legacy. Supposing a political settlement with Taiwan is what Xi intends, what would he do to realize this objective within his tenure as the president of PRC? Xi is correct to elevate the Taiwan issue as part of national security strategy, which will be decided by Xi’s office, rather than by the Taiwan Affairs Office. The top priority for Xi now is to consolidate his own power in the 19th CCP Congress. In order to secure this objective, he cannot afford to be criticized by his opponents for being soft on Taiwan. That is why Xi allows the TAO and Chinese media to appear hawkish on Tsai’s government, while officially still not writing her off by defining her as a die-hard independence leader on par with Chen Shui-bian or Lee Teng-Hui.
If Taiwan is part of China’s national security strategy, then Xi’s initial objective is to seek Taiwan’s strategic neutrality in East Asia, in the hope that Tsai’s government will follow Ma’s policy of maintaining equal distances in Taiwan’s relations with the United States, China, and Japan. Xi understands that Tsai and the DPP have a natural inclination to rely on the US-Japan alliance. So, for Xi, if Tsai can be pressed to accept the term of the so-called “1992 Consensus,” it would solve China’s geo-strategic problem as well.
Given that China has implemented its dominant strategy, Tsai is smart enough to keep sending olive branches to China, while not accepting the term “1992 Consensus.” Tsai knows that maintaining the status quo inherited from Ma’s government will at least fulfill Beijing’s initial strategic objective in Asia. This would build up some trust between Xi and Tsai. This is why Tsai’s government was, at first, optimistic about attending ICAO. Tsai’s government believes that it has done a good job, and Beijing should reciprocate with goodwill. However, Beijing has nothing to lose by pressing harder on Tsai, and knows that she has few cards to play against China. If Tsai punches above Taiwan’s weight, leading to an unwanted spiral of tensions, then the United States will presumably rein in Taiwan. Moreover, if Tsai loses her patience and acts against China before the 19th CCP Congress, Xi would have no choice but take drastic measures against Taiwan. Therefore, the best strategy for Tsai is to keep her promise of maintaining the status quo as long as possible, even under the circumstances of increasing pressure from China.
But such counter-strategy only works in the absence of domestic pressure on Tsai. Unfortunately, due to a series of publicly exposed instances of domestic policy mismanagement, Tsai’s approval rating has dropped precipitously since May 2016. At this moment, survey data reveals that 41.4 percent of Taiwanese people approve of Tsai’s performance, while 42.6 percent of them disapprove.
The recent decline in Tsai’s approval rating has little to do with her cross-Strait policy. A Mainland Affairs Council poll shows that a plurality of respondents feel that the current speed of cross-Strait interactions is just about “right.” But Tsai’s domestic challenges will constrain her, limiting the options for a more moderate policy toward China. In response to the widespread disappointment that followed China’s sabotaging Taiwan’s participation in ICAO, and perhaps in an effort to alleviate pressure from DPP supporters, Tsai’s recent remarks seem to suggest that her government would resist and counter China’s pressure by all means, if China continues to bully Taiwan. Yet, Tsai will be able to maintain her earlier, moderate policy toward China, if she demonstrates sound management of Taiwan’s economy and good results from her reform programs.
China certainly understands Tsai’s domestic constraints and is leveraging its power to make Tsai’s economic strategy fail and domestic pressure increase, so that either a regime change in Taiwan is made possible or Tsai mistakenly provokes China. Contrary to the the conventional wisdom that China will step up military posturing, China will probably downplay its military threat. Neither will China carry out explicit measures against Taiwan’s economy such as imposing sanctions. China will probably concentrate most of its efforts on depriving Taiwan of international space and containing Taiwan’s trade diversion measures. The reduction in Chinese tourists visiting Taiwan and delegations purchasing Taiwan’s products are simply two face-saving measures to signal China’s displeasure. They will be partially restored, once China again finds them useful for propaganda.
The main point: President Tsai Ing-wen faces increasing domestic constraints, which China is leveraging to make the new administration’s economic strategy fail, with the objective of regime change or prompting Tsai to mistakenly provoke China.
Alternate Models and Procurement Methods for Taiwan’s Submarine Program
Michael Reilly is currently a Visiting Fellow in the Institute of European and American Studies at Academia Sinica in Taipei under the auspices of the Taiwan Fellowship program. A former British diplomat, from 2009 – 2015 he was a senior representative of UK defense company BAE Systems.
In a recent series of articles in the Global Taiwan Brief on the importance of new submarines for Taiwan’s defense capability, GTI Senior Fellow David An argued that, rather than seeking to develop submarines entirely on its own, Taiwan would be better off buying some of the more high-tech components needed. He suggested that this might be possible through discreet international cooperation. The case for doing so is strong. Unfortunately, it understates the political, technical and economic challenges involved.
That Taiwan badly needs new submarines is not in doubt. But new submarines do not come cheap. The United Kingdom is currently rolling out its new Astute class submarines, nuclear-powered but conventionally armed. The country has a long history of submarine building. It launched its first submarine in 1901 and its first nuclear submarine in 1960; but, despite this experience, the Astute program has been plagued by delays and cost overruns. The first vessel was launched more than 3 and a half years behind schedule and, according to Defense Industry Daily, the first three vessels cost more than US $1.5 billion each.
At 7,400 tons, the Astute class is much bigger than Taiwan’s requirements, for which a more appropriate comparison is probably the Republic of Korea’s KSS-III program. This is planned as a successor to the KSS-II class now entering service, which is a locally built version of Germany’s successful U-214 class of diesel-electric submarines. At around 1,800 tons, the KSS-II are less than half the size of the Astute class; the KSS-III program anticipates a larger design of around 3,000 tons. Work on the KSS-III program started in 2007, but like the Astute program in the UK, it has been beset by delays. Although the first submarine was originally planned to be in service by 2017, the date has been pushed back at least twice and is currently set for 2025. So far, a budget of one trillion won (US $850 million) has been committed, and each vessel is expected to cost about this amount when it enters into service. But, with entry into service nearly a decade away, the final cost is almost certain to rise.
By the time the first KSS-III enters service, Korea will have built 18 vessels under the KS-I and KS-II programs, giving it valuable experience in submarine construction. For Taiwan, new to building submarines, overall costs will inevitably be higher. The design and construction skills required are of a different order of magnitude than those for a conventional surface vessel, so it would seem prudent to budget on the basis of a minimum cost of around US $1 billion per vessel. Are Taiwanese politicians willing to commit to spending on this scale? The history of defense procurement in the country is a litany of projects that were delayed or never proceeded because insufficient funds were allocated at the outset. It is essential that legislators fully understand and accept the real costs involved from the outset if the submarine program is not to suffer the same fate. So far, just NT $3 billion (US $93 million) has been committed to the program.
Despite Korea’s experience in submarine construction, it still needed to seek overseas advice on the KSS-III program, especially on the design technology. And while the overall final design is likely to have been developed indigenously, it will more likely than not continue to rely heavily on foreign suppliers for many of the specialized components. Herein lies the second and greater challenge for Taiwan. David An suggests this could be possible through discreet arrangements made on a Direct Commercial Sales (DCS) basis. But any sale of defense technology, including dual-use technology (suitable for both civil and military use) requires an export license from the manufacturer’s host government. After the US government agreed to help Taiwan acquire conventional submarines in 2001, China quickly realized that the United States no longer had the capability to build such submarines and lobbied successfully to secure undertakings from other governments that their industries would not be involved in the program in any way. No major defense contractor would dare consider assisting Taiwan without the clear approval of its government to do so. And, as David An rightly suggests, no European government is currently willing to stand up to China and authorize such sales.
FMS sales, by contrast, are US government-mandated and accord the suppliers a degree of protection against Chinese retaliation, as they can legitimately claim that they are complying with US government obligations by supplying the equipment. This approach has allowed major US defense manufacturers to continue to undertake civil business in China while helping meet Taiwan’s defense needs. Honeywell, Rockwell Collins, and Lockheed Martin for example, all of whom have been significant suppliers to Taiwan over the years, also have successful operations in China. But perhaps the best example is Sikorsky Helicopters. Owned until 2015 by United Technologies, the scale of its business in China meant that its sale to Lockheed Martin required Chinese regulatory approval (which was granted).
So, rather than seeking specific technology through the DCS route, Taiwan’s submarine developers would be better advised to agree at the outset what specific technology is likely to be beyond the scope or capability of domestic production, then seek procurement of these through FMS contracts for individual components. Assuming this approach can be agreed upon by the US government, the Korean experience has shown that outside advice on the design and other aspects will remain essential going forward. In current circumstances, it is highly unlikely that European governments would be willing to agree even to this. Nor would the Korean government be likely to risk incurring Chinese anger by doing so. Japan, however, has a submarine building program, losing out recently to France in a competition to supply Australia. Japan and Taiwan also have a shared interest in resisting any threat from China to the freedom of navigation in the East China Sea and a history of discreet military contact and exchanges. There are, therefore, good strategic reasons for Japan discreetly to help Taiwan develop its own submarines.
As a final thought for Taiwanese policymakers, a submarine program may seem expensive, whether bought from elsewhere or built domestically. But civil society abounds with technology that originated in military programs, GPS navigation technology being just one example. The Taiwanese government already commits considerable sums to R&D programs and to supporting domestic industry. Encouraging domestic industry to work in this area would encourage the spread of innovation, new ideas and new product lines for Taiwan manufacturers, thereby bringing wider and longer term benefits to the economy.
The main point: In undertaking an indigenous submarine program, Taiwan needs to be aware of the extremely high cost and the large amount of time it will require to complete. In addition, while some argue that buying components from other countries would be more cost effective, Taiwan faces significant amounts of political obstacles from working with other countries, with the possible exception of Japan.