Although Taiwan is increasing its defence budget under President Tsai Ing-Wen, there are challenges faced by the international defence industry trying to ply their wares on the island.
In August, Tsai approved a defence budget request for a 5.2% increase; from US$11Bn to US$11.4Bn (US$558M increase from 2019). The allocation will be divided three ways. First, US$5.2Bn for personnel costs; second, US$3Bn for equipment maintenance and facilities; third, US$3Bn will go to technology in defence technology investment and training. Taiwan plans to increase the overall defence budget from the US$11.4Bn to US$13.1Bn in 2027.
Problems for international arms dealers arises from Taiwan’s new indigenous defence industry policy, mandated by Tsai after her inauguration in 2016, as part of an overall strategy to develop and build arms in-country. The policy is meant to wean Taiwan off its dependence on foreign-made arms. Tsai is also gambling that the high costs of indigenous weapons development will be offset by offering arms to the international market. Taiwan has already marketed its wares at the Paris Airshow and defence exhibitions in Asia, including DSA in Malaysia.
Taipei Aerospace and Defence Technology Exposition in August 2019 communicated the same message to international arms marketeers eager to fill Taiwan’s military requirements with every gadget and gizmo imaginable. That is, indigenous build programmes are now the rule and any attempt at selling entire kits will be difficult. The primary message was that the international defence industry should look at support hardware and software beyond Taiwan’s reach.
These plans face tough challenges. Pentagon supply chains, particularly from external supplies, are already clogged with first-class suppliers. There is also a certain prejudice against equipment that has never been battle tested. Though Taiwan might attempt to sell arms to developing countries, there are fears that some of the weapons, such as missiles, might anger the US.
Despite Tsai’s strong mandate to develop and manufacture defence items locally and reduce Taiwan’s dependence on unpredictable foreign suppliers, the island still has weak areas that can be exploited by overseas suppliers.
These include the Indigenous Defence Submarine programme, stealth aircraft and maritime vessel technologies, electronic surveillance and countermeasure systems, and information, communication and electronic warfare capabilities in both defensive and offensive categories.
The Taiwan defence market centres around two government entities that foreign defence companies must accommodate: the Armaments Bureau under the Ministry of Defence (MoD) and the Legislature’s Foreign and Defence Committee. Besides the Bureau and the Committee, foreign defence suppliers will need a locally licensed agent to represent the product and push sales.
Without the proper introductions to government bodies, via only the local agents, little of anything can be accomplished. The government is paranoid of becoming involved in scandals that have rocked the MoD over the past thirty years.
This paranoia was fostered and later set in stone after the 1991 sale of six LAFAYETTE frigates that led to a scandal that resulted in numerous mysterious deaths and around US$500M missing. Though corruption still exists within Taiwan government institutions, the frigate scandal, as well as a missing funds scandal involving the purchase of 60 Dassault MIRAGE 2000-5D/E fighter jets in 1992, seriously damaged European opportunities in Taiwan’s defence market.
Because of the close relationship between Taipei and Washington, the main defence suppliers are American. However, there have been some European success stories in the recent past, including Eurocopter and the Indigenous Defence Submarine (IDS) programme. Though for the most part, the MoD prefers to deal directly with the US Defence Security Cooperation Agency’s (DSCA) Foreign Military Sales (FMS) Programme Office. Taiwan’s military brass believes that the FMS programme is more transparent and therefore politically safer.
In 2019 alone, Taiwan secured a US$8Bn package for 66 new F-16V Block 70 fighter aircraft, with an estimated 30% offset opportunities for technology transfer, domestic procurement and personnel training. The US also released a US$2Bn deal for 108 refurbished M1A2 ABRAMS main battle tanks (MBT) from the US to replace its ageing M-48/M-60 PATTON MBTs.
US defence companies have a powerful ally that facilitates military sales to the island. The DC-based US-Taiwan Business Council should be renamed the “US-Taiwan Defence Council”, as it does little else than promote arms deals.
In May of each year, the Council and the Taiwan Defence Industry Development Association (TW-DIDA) co-host the Taiwan-US Defence Business Forum. This conference is the ultimate meeting for networking, and though it is billed as a US business and government “tier one” event, European defence companies are also in attendance.
Taiwan’s Minister of Defence and other senior military leaders are normally in attendance. The head of the US DSCA and other US military organisations, along with CEOs of major defence companies, pack the event.
There are other important organisations that foreign defence industrial newcomers must connect with, depending on their area of expertise. These include the Taiwan Aerospace Industry Association, Taiwan Space Industry Development Association, Taiwan Drone Association (TDA), and the government-run Committee for Aviation and Space Industry Development (CASID) under the Ministry of Economic Affairs.
Taiwanese companies, including government-owned, that produce military equipment are the Aerospace Industrial Development Corporation (AIDC), National Chung-Shan Institute of Science and Technology (NCSIST), and China Shipbuilding Corporation (CSBC). Partnering with these entities is a common strategy of foreign defence companies looking to penetrate the market.
Local agents are required as direct sales to the MoD are largely unheard of without them. The most famous and reputable is U&U Engineering, Inc., which undergoes numerous due diligence and stress checks via the US de facto embassy in Taiwan, the American Institute of Taiwan (AIT). Check with AIT’s Commercial Section for assistance.
Advice for European Companies
Competition via Japan and Singapore for what was once considered Western domination of advanced defence technologies now appears gone. Advice for European competitors? Hard-to-find components and systems are the best pathway to securing Taiwan arms deals. Looking for opportunities within the export restrictions the US government enforces on Taiwan has proven effective in the past.
Advice on visiting Taiwan should be carefully coordinated with your local agents. Never during Ghost Month, when business deals are cursed to fail. Forget visiting during the long Chinese New Year. The days these holidays fall on can be confusing due to the quirky lunar calendar; so double check.
Customs include gift giving such as bottles of spirits, golf and dinners as business expenses. Avoid Karoke (KTV) Bars where the girls can provide “special services” all recorded by ceiling security cameras. If there are problems, contact the local embassy’s regional security officer on no-go areas.
Despite US dominance, European companies have had some success.
In 2010, Eurocopter secured a US$111M deal for three EC225 medium-lift helicopters for search and rescue missions (SAR) for Taiwan’s air force. The deal included a future option for additional aircraft. The announcement created a shock amongst US defence contractors in Taipei, beating US-based Sikorsky’s S-92 HELIBUS. Sikorsky has had a long relationship with Taiwan’s military that included the S-70C helicopter for the air force’s SAR missions and the navy’s anti-submarine warfare missions. The S-92 disaster does not appear to have deeply damaged Taiwan’s relationship with Sikorsky. Taiwan’s army later selected the Sikorsky UH-60M BLACKHAWK to replace its aging UH-1H HUEY fleet.
Tsai’s domestic defence build policy did destroy a 2014 deal between AIDC and Leonardo-Finmeccanica to co-build the M-346 Advanced Jet Trainer (AJT) for the air force’s requirement for 66 aircraft to replace aging AIDC AT-3 TZU CHUNG attack/trainers and F-5 Tiger fighter trainers. The deal included a teaming agreement for the transfer of technology, co-production and technical assistance.
At the time, Taiwan’s AIDC did not appear to have the expertise needed to design AJT. However, AIDC was conducting upgrades for the Indigenous Defence Fighter (IDF) and has since used the same design parameters to development a local replacement for the AT-3/F-5s. Operational deployment is scheduled for 2026.
Midlife upgrades for its remaining 142 F-16A/B Block 20 and AIDC F-CK-1 CHING-KUO Indigenous Defence Fighter (IDF) fighter aircraft procured from the 1990s are ongoing and offsets have already been allocated.
The area of naval indigenous programmes there are big problems. Taiwan’s minelaying vessel faces delays due to a 2017 corruption scandal involving Ching Fu Shipbuilding in late 2017. Taiwan’s navy has a requirement for six vessels under the Project Kuang Ping (Phase III). The 700-ton vessel’s blueprint include OTO Melara 72mm gun and mine detection hardware provided by Lockheed Martin.
Taiwan’s Submarine Programme
Taiwan’s Indigenous Defence Submarine (IDS) programme is now cracking on after almost two decades of inertia. However, the effort has raised eyebrows in Taipei media and political circles due to the strange origins of the consultancy hired for the programme. The programme is a lesson on how many hoops the European defence industry must jump through to avoid angering Beijing.
The IDS programme has become an all-European joint venture with China Shipbuilding Corporation (CSBC). Tsai’s policy to build 8-12 IDS platforms, with plans to continue builds for the export market, faces serious competition on the international market from European and Russian builders, and there are real fears an indigenous build of a complex platform like a submarine would face serious safety issues.
Few countries in the region are in desperate need for submarines built by Pilgrims. The Europeans and Russians offer regional countries opportunities not only for rugged attack submarines, but also co-build options and technology transfer.
The European angle is demonstrated by the creation of Gavron Limited, which is registered not in Taiwan, but on Gibraltar on the Iberian Peninsula. Though a British Overseas Territory, the outcrop is well known for business activities outside the sphere of normality. According to Gavron’s website, its role in the IDS is “to review submarine concept designs to assess technical balance and safety.”
Taiwanese employees are not identified, but the head of Gavron is described in a local media report as a man with ties to a former senior officer in Taiwan’s navy. Local media reports are full of conspiracy and innuendo about Gavron, including suggestions that senior Taiwan managers are tied to the infamous LA FAYETTE scandal.
Though the website states it has six employees, only four are identified – all European with strong submarine experience.
They include Juan Errero Valero, who is the leader of the IDS technical advice team and substructure engineer. Previous experience includes Spain’s S80 submarine for Techno Pro Hispania and Sirena. Darryn Ambage is the IDS principal systems engineering consultant. Past employment includes UK Ministry of Defence, BMT Defence Services, AMEC and Sellafield, and ten years in the Royal Navy Submarine Service. Jim Fishburn is the IDS project lead. Before Gavron, Fishburn worked for Qonect International Consulting and KCOM in telecommunications, with a 24-year career in the Royal Navy.
Vincent Quigley is the IDS combat systems integration engineer. Previously, Quigley worked for RB Safety Consultants on the United Kingdom ‘Future Submarines Whole Boat Spatial Governance’ assurance checks of the tactical weapon system for Astute-class submarines and combat systems group, common missile compartment and strategic weapons project team. Quigley served in the Royal Navy as a submarine weapon engineering manager, including as a crewmember of the HMS ARTFUL.
Areas that Taiwan has some limited capabilities, and European companies might take advantage, include high-performance surface vessels, air-dropped sea mines, enhanced minelaying capabilities, unmanned vehicles/vessels for both air and sea, upgrades for older naval ships, air defence missile capabilities, long-range strike firepower (anything that can cross the Taiwan Strait, i.e. 130-220 km), and shore-based mobile missile technologies.
Specialty areas that enhance Taiwan’s ability to tip-toe across the razor’s edge of the Missile Technology Control Regime (MTCR) are possible. The MTCR has been violated by China with the development and fielding of cruise missiles and unmanned aerial vehicles that violate its restriction of delivering a payload of 500 kg and ranges of 300 km. Though Taiwan continues to adhere to the MTCR, while facing off with an enemy that has clearly violated every term of the agreement, Taipei is not a signatory.
European companies must also contend with Beijing’s lobbying efforts within the European Union (EU) to stop all contact with Taiwan. Contrasting the billions spent on trade between China and the EU, a multi-million-dollar defence contact with Taiwan seems puny and unnecessarily dangerous in economic terms.
The European Chamber of Commerce – Taiwan (ECCT) can be of helpful, as well as their de facto embassies. Warning: steer clear of non-governmental organisations that contrive their influence. The most infamous is the European Business Association in Taiwan (EBAT).
Wendell Minnick is a defence and security journalist specialised in military and security issues in Asia.