US embassy cable - 05TAIPEI1026

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001026 
 
SIPDIS 
 
STATE PASS AIT/W 
 
E.O. 12958: DECL: 03/09/2015 
TAGS: PREL, PGOV, MASS, TW 
SUBJECT:  DEFENSE PROCUREMENT SPECIAL BUDGET: PREPPING FOR 
THE LY 
 
Classified By: AIT Director Douglas Paal, Reason: 1.4 (B/D) 
 
1.  (C) Summary.   The revised Defense Procurement Special 
Budget is still under discussion within the Executive Yuan 
(EY) in preparation for formal submission to the Legislative 
Yuan (LY).  The Special Budget proposal that the Ministry of 
National Defense (MND) sent to the EY in February reduced the 
original NT $610.8 billion (US $18 billion) package to NT 
$590 billion, based entirely on U.S. dollar depreciation, 
with a further reduction to $488 billion if the submarines 
are not manufactured in Taiwan.  Internal differences within 
the Chen administration, however, have slowed the review 
process and delayed finalization of the administration,s 
proposal.  In the meantime, government leaders are meeting 
with opposition legislators in an effort to build support and 
work out a compromise package.  For their part, Pan-Blue 
legislators continue to insist the package be further reduced 
to as low as NT $200-300 billion, either by splitting the 
tripartite package or by cutting the submarine component from 
the package.  A number of political leaders have told AIT 
that they believe the Special Budget will face less 
opposition in the new post-election LY, particularly after 
the February 24 joint statement by President Chen Shui-bian 
and PFP Chair James Soong endorsing the purchase of weapons 
to provide an adequate self defense.  MND, however, fears the 
legislative process could actually be more contentious in the 
new LY session, because the Pan-Blue opposition has been 
emboldened by its December LY election victory and is looking 
for opportunities to challenge the government.  End Summary. 
 
2.  (U) After three weeks, the Defense Special Procurement 
Budget is still under review within the Chen administration. 
In mid-February, MND forwarded its revised Special Budget 
request to the EY, reduced to NT $590 billion from the 
original NT $610.8 billion package that was submitted to the 
LY in 2004, with the difference due exclusively to 
depreciation of the U.S. dollar against the NT dollar.  At 
that time, the MND spokesman stated that the Special Budget 
could drop another NT $100 billion if the LY revoked its 2003 
resolution requiring domestic submarine production. 
 
Finalizing the Special Budget 
----------------------------- 
 
3.  (C) Government efforts to finalize the Special Budget 
proposal for submission to the LY and to devise a legislative 
strategy for passage have, according to Chen Wen-cheng, 
Special Advisor to Vice Minister of Defence Michael Tsai 
(Ming-hsien), been plagued by too many chiefs and too little 
coordination.  MND, EY, and NSC, he explained, each have 
their own competing Special Budget Task Forces -- MND headed 
by Vice Minister Tsai, EY by Cabinet SecGen Lee Ying-yuan, 
and NSC by Henry Ke.  The lack of coordination among the 
three, Chen said, had hampered efforts to finalize the 
Special Budget package for submission to the LY. 
 
4.  (C) Concerned by the lack of coordination, VMND Tsai held 
meetings the week of February 21-25 with Lee Ying-yuan and 
Henry Ke.  As a result, Chen said, interaction had improved 
considerably with clearer delineation of functions within 
government agencies.  NSC had been placed in charge of 
overall Special Budget policy and of assessing Taiwan and 
U.S. response, while PM Hsieh and the EY were responsible for 
negotiating with the LY, especially with Speaker Wang 
Jin-pyng, and for lobbying to rescind the legislative 
requirement for submarine construction in Taiwan.  Finally, 
MND was assigned to lobby individual LY members and to 
negotiate with the U.S. on details of the Special Budget 
package. 
 
LY Politics 
----------- 
 
5.  (C) Pan-Green officials have been telling AIT in recent 
weeks that they are increasingly confident the Pan-Blue would 
be more cooperative during the upcoming session.  LY Speaker 
and KMT Vice Chair Wang Jin-pyng told AIT in mid-February 
that the KMT would be ready to proceed if MND would reduce 
the Special Budget price tag.  KMT Chairman Lien Chan, 
however, is an unknown factor, who had earlier demanded that 
the package be funded at NT $300 billion, or half of the 
original proposal. 
 
6. (C) The DPP government appears to be placing its hopes for 
Special Budget passage in the February 24 "Bian-Soong 
meeting" between President Chen Shui-bian and PFP Chair James 
Soong, which included an agreement that "Taiwan must have 
adequate national defense . . . (and) should purchase the 
weapons it needs according to its strategic goals of ensuring 
national security and cross-strait stability."  NSC's Chiou 
I-jen and Ke Cheng-heng told the Director that they believe 
prospects for the Special Budget have improved because of the 
Bian-Soong meeting.  Sources close to Soong have told AIT 
that the Special Budget is high on the agenda of their 
discussions with the Presidential office in the wake of the 
Bian-Soong meeting.  (Comment.  This is not the first time we 
have heard Soong insist that he is committed to supporting 
the Special Budget and military preparedness generally.  Each 
time he has found a way to reverse course.  He may again. 
End Comment.) 
 
7.  (C) MND, however, believes the legislative process could 
actually be more complex and difficult in the new legislative 
session, because the Pan-Blue opposition has been emboldened 
by its December LY election victory and will be even less 
cooperative.  MND, Chen told AIT, faced two large 
&headaches8 over the Special Budget:  a number of retired 
military officers in the LY claim a corner on defense issues, 
and many neophyte LY members have little knowledge about 
defense issues and are open to influence by self-proclaimed 
defense experts. 
 
8.  (C) A specific problem, Chen noted, was PFP LY Member Lin 
Yu-fang, one of the most influential LY members on defense 
issues and a key player on the Special Budget.  Chen said 
that Lin -- who was Chen,s hhcollege Advisor -- was playing 
a fast political game, saying different things to different 
people.  Lin Yu-fang, for example, had told VMND Tsai last 
week that he would have liked to have supported the Special 
Budget, but that he had no choice and had to follow his 
party,s leadership.  Chen noted wrily that it was Lin who 
&is causing all the problems,8 as he virtually 
single-handedly determined the PFP position on the Special 
Budget.  Separately, a number of PFP LY Members have told AIT 
that Lin has set himself up as the resident PFP defense 
expert, and most PFP Members, with their limited knowledge of 
defense issues, take their lead from Lin.  Even Wang Jin-pyng 
has told AIT on several occasions that he would first have to 
see what Lin Yu-fang had to say on the Special Budget or 
other defense issue.  Until the government finalized an LY 
strategy for the Special Budget, Chen said, MND was keeping 
Lin at arm,s length. 
 
LY Strategy 
----------- 
 
9.  (C) Chen told AIT that PM Frank Hsieh insisted that the 
Special Budget must not be submitted to the LY until the way 
had been fully prepared.  MND was concerned, however, that 
this reflected Hsieh,s top political priority of avoiding 
conflict with the opposition parties in order to advance 
Hsieh,s &consultative and coexistence8 governing program. 
Differences were inevitable on the Special Budget, scoffed 
Chen, and could be avoided only by reducing the package until 
it was toothless.  Minister of National Defense Lee Jye, 
moreover, remained committed to the full Special Budget 
package, failing which he would almost certainly resign. 
 
10.  (C) For its part, MND is already at work lobbying key 
legislators to support the Special Budget once the government 
finalizes the bill and submits it to the LY.  MND leaders and 
experts are regularly meeting with legislators from all 
parties and providing information on the Special Budget 
weapons systems.  In response to AIT,s statement that many 
Pan-Blue legislators had complained to AIT about the lack of 
information from MND on the Special Budget, Chen replied that 
information was not the issue.  There was plenty of good 
information available, he insisted, rather the problem was 
that opposition legislators were using the Special Budget as 
a political weapon to attack the ruling DPP.  It was ironic, 
he noted, that the KMT had unreservedly supported advanced 
weapons procurement when it was in power before 2000, but now 
was merely &playing politics.8 
 
11.  (C) VMND Tsai is already meeting each day with LY 
members, lobbying them on the Special Budget.  Arriving at 
the office of KMT LY member Lin Nan-sheng, long-time LY 
Defense Committee member, on March 8, AIT ran into VMND Tsai 
leaving.  (The fact that Lin proceeded to confront AIT with 
the opposition charge that the U.S. is overcharging Taiwan, 
however, does not bode well for MND lobbying efforts.)  Last 
week, When Tsai met with LY Speaker Wang, Wang gave his usual 
explanation that the KMT and Pan-Blue were not the obstacle 
to the Special Budget, but rather only wanted the cost 
reduced.  For example, Wang suggested, submarines might be 
cut from the Special Budget package, bringing the cost way 
down.  When Tsai responded that the Taiwan government and the 
U.S. would not accept splitting the Special Budget package, 
Wang rejoined that DUSD Lawless had told PFP Chair James 
Soong in Washington in mid-January that the U.S. would have 
no problem with excision of the submarines.  (Note: Over the 
past several days, this refrain has been picked up by the 
Taiwan news media.)  Chen, however, told AIT that MND Lee Jye 
was absolutely committed to the full tripartite package, 
particularly the submarines.  He asked AIT whether Soong's 
account was accurate, explaining that the reports were 
complicating MND's Special Budget lobbying. 
 
12.  (C) Chen told AIT that MND believed the Pan-Blue 
coalition would probably be willing to accept the Special 
Budget if given a face saving reduction, which he defined as 
a price below the government,s formal Special Budget 
submission.  MND believed the KMT would likely counter the 
EY,s NT $590 billion proposal with its own NT $388 billion, 
to which the EY would then counter with its NT $488 billion 
&bottom line.8  After haggling, Chen said, the government 
could probably settle on the sub-rock bottom figure of NT 
$450 billion -- the NT $488 billion figure minus NT $38 or so 
billion for support operations, which would be shifted to the 
regular budget.  Later, however, Chen mused that MND could 
possibly go as low as NT $388 billion, a full NT $100 below 
its announced NT $488 billion bottom line, by shifting NT 
$100 billion into the regular defense budget for support 
items and on-shore facility maintenance. 
 
Comment 
------- 
 
13.  (C) The MND view anticipating an even rockier road in 
the new LY differs from that of a number of LY members who 
have told AIT that LY consideration of the Special Budget 
should go more smoothly in the new LY session.  The crucial 
determinant this go-round could be the success of PM Hsieh's 
proclaimed "conciliation and coexistence" style of 
government.  At Hsieh's insistence, MND is working to prepare 
the groundwork in the LY before bringing the final government 
Special Budget package to the LY.  This will provide the best 
chance for early submission and quick passage of the Defense 
Procurement Special Budget.  The Chen-Soong meeting, 
moreover, has improved LY atmospherics and possibly Special 
Budget prospects, though Soong and the PFP have not announced 
their final position on the Special Budget.  Nevertheless, 
the legislative process could still prove more contentious in 
the new LY session, because the Pan-Blue opposition has been 
emboldened by its December LY election victory and is looking 
for opportunities to challenge the government. 
PAAL