US embassy cable - 05TAIPEI1112

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 001112 
 
SIPDIS 
 
STATE PASS AIT/W 
 
E.O. 12958: DECL: 02/01/2015 
TAGS: PREL, MASS, MARR, PGOV, CH, TW 
SUBJECT: SPECIAL BUDGET POLITICS: NO PLAN TO SPLIT PACKAGE 
 
 
Classified By: AIT Deputy Director David J. Keegan, Reason: 1.4 (B/D) 
 
1. (C) Summary: National Security Council (NSC) officials 
denied March 11 press reports that the Ministry of National 
Defense (MND) is preparing to remove PAC-III anti-air systems 
from the special defense procurement budget package awaiting 
approval by the Legislative Yuan (LY).  The Chen 
administration is prepared to accept a reduction in the 
overall funding-levels for the package, on the assumption 
that shortfalls can be made up through the regular annual 
budget cycles.  However, NSC officials are adamant that they 
will resist calls from opposition legislators to restructure 
the substance of the package.  In order to address USG 
concerns, MND Minister Lee Jye has agreed to clarify publicly 
and in writing to the USG that the government is committed to 
moving ahead during the current LY session on all three 
programs in the special defense procurement budget package. 
End Summary. 
 
Bad Report? 
----------- 
 
2. (C) NSC aide Cmdr. Yu Hsiao-pin told AIT that March 11 
media reports stating that MND Minister Lee Jye had agreed to 
move the PAC-III missile procurement program from the special 
budget currently under review by the LY into the regular 
budget cycle were inaccurate.  Yu, following up to a March 11 
AIT request for clarification, said that MND Minister Lee 
explained to the NSC on March 12 that the Taiwan media 
reports were the result of a miscommunication.  According to 
Lee, during a March 10 press conference a reporter asked 
whether Lee supported the proposal by People First Party 
(PFP) Defense Committee Co-chair Lin Yu-fang to move the 
PAC-III anti-missile system portion of the special 
procurement budget into the regular budget cycle (Septel). 
This approach would entail breaking the package into parts, 
likely delaying the start of PAC-III procurement until the 
next regular MND procurement budget is submitted to the LY in 
two years.  Lee told the NSC that he did not hear the 
question, and proceeded to close the meeting with his 
standard "that's it" (jiu shi zheiyang).  According to Yu, 
the reporters apparently took Lee's comment as affirmation 
and proceeded to report the story accordingly. 
 
3. (C) Yu contacted AIT a second time on March 15 to add 
further information.  Yu said that NSC Deputy Secretary 
General Henry Ko urged Lee earlier in the day to clarify 
directly to the USG his commitment to keeping the PAC-III 
system in the special budget.  Yu said that Lee asked the NSC 
to convey to AIT his agreement to make the following steps to 
ease possible USG concerns: 1) Lee will find an early public 
forum to publicly clarify his position on the PAC-IIIs; 2) 
MND will instruct TECRO to deliver a formal clarification to 
OSD/ISA Gen. Allen; and 3) Lee will sign a letter to DUSD 
Lawless committing MND to moving forward on the entire 
three-program special budget package. 
 
All or Nothing 
-------------- 
 
4. (C) Yu further clarified that the government is firmly 
against the idea of separating funding for the PAC-III 
launchers from the missiles.  Yu said the government will 
move ahead on the entire PAC-III program -- launchers and 
missiles together -- as soon as it secures approval from the 
LY.  Yu added that the Chen administration has also decided 
against revisiting the earlier "2.2" proposal to use the 
current special budget funds to only support the full PAC-III 
and P-3C programs and the design and planning stages of the 
submarine program.  Under this proposal, a second special 
budget would then fund the remainder of the submarine 
program.  Noting the difficulty of engaging Taiwan's LY, Yu 
stated that no one in the government wanted to try to submit 
a second special budget request two years in the future.  As 
an aside, Yu asserted that it is President Chen Shui-bian who 
is most actively pushing submarine procurement rather than 
MND Minister Lee, despite Lee's submariner background. 
 
5. (C) Yu acknowledged that the government is resigned to 
accepting significant cuts in the proposed funding levels for 
the special budget package, but insisted that they would 
compensate for these through out-year injection of funds from 
the regular budget.  Yu acknowledged that moving any of the 
three programs, but particularly the PAC-III system, into the 
regular budget cycle would result in a two year delay.  For 
this reason, Yu said the government would reject demands by 
the Pan-Blue to fully move any of the three programs into the 
regular budget process. 
 
Improving Coordination 
---------------------- 
 
6. (C) Yu endorsed AIT suggestions that the government use 
the March 14 PRC passage of the Anti-Secession Law to enhance 
its case for accelerated action on the special procurement 
budget, noting that the NSC has advised President Chen along 
similar lines.  Yu noted that the MND, Executive Yuan (EY), 
and NSC have scheduled a lunch meeting on March 18 to 
formulate a PR strategy that will seek to leverage recent 
attention to the Anti-Secession Law.  Yu expressed 
disappointment, however, over the government's weak 
coordination on special budget strategy, noting that the NSC 
asked to hold the meeting earlier, but was unable to assemble 
the key players before March 18.  Yu also noted that 
coordination between the NSC, EY, and MND appeared to unravel 
while Ko and he were away from Taipei in early March.  Yu 
said, however, that after his return, Ko instructed the 
various players on the issue to communicate more actively 
with each other.  Yu said that MND and NSC are also eager to 
bring AIT more actively in on their LY strategy planning. 
 
Comment: On Notice 
------------------ 
 
7. (C) Even well-placed officials inside MND privately 
expressed suspicion that reports of Lee's endorsement for 
removing the PAC-IIIs from the special budget package may 
have been at least partially accurate.  However, quick 
intervention by the Taiwan NSC and AIT appears to have put 
MND on notice that Washington is watching closely for any 
signs that elements within MND, especially those representing 
Navy interests, might try to sacrifice the PAC-III systems in 
order to secure early Pan-Blue support for the submarines. 
AIT has also let the PFP leadership know that we do not look 
favorably on Defense Committee Co-Chair Lin's proposal to 
delay action on procuring anti-missile systems that would 
address an immediate Taiwan defense need. 
PAAL