US embassy cable - 05TAIPEI3778

C O N F I D E N T I A L SECTION 01 OF 04 TAIPEI 003778 
 
SIPDIS 
 
STATE PASS AIT/W 
 
E.O. 12958: DECL: 09/09/2015 
TAGS: PGOV, PREL, MARR, TW, Military Issues, Foreign Policy, Domestic Politics, Cross Strait Politics 
SUBJECT: TAIWAN'S DEFENSE SPECIAL BUDGET:  MOVEMENT EVERY 
WHICH WAY BUT FORWARD 
 
REF: A. TAIPEI 3551 
     B. TAIPEI 3284 
 
Classified By: AIT A/Director David J. Keegan, Reason(s): 1.4 (B/D) 
 
1.  (C) Summary.  Taipei's decision to shift PAC-III missiles 
from the Defense Procurement Special Budget into the regular 
defense budget was intended to enhance prospects for 
legislative passage of both the Patriots and the reduced 
Special Budget package of P-3C's and submarines.  This 
appeared a logical political decision, given opposition 
"Pan-Blue" parties' criticism of the Special Budget process 
and urging an enhanced regular defense budget.  Logical 
though it may have been, the revised funding package quickly 
ran into the brick wall of Taiwan politics.  After weeks of 
signaling greater willingness to consider the weapons triad 
in its new configuration, Pan-Blue parties KMT and PFP have 
backpedaled furiously over the past few days, to the point 
that the revised Defense Special budget appears as gridlocked 
as ever, and now even the regular defense budget with its new 
PAC-III addition may be in trouble.  Perhaps more troubling, 
expanded defense procurement is beginning to be identified 
with defending Taiwan independence and opposing cross-Strait 
reconciliation.  End Summary. 
 
Shifting Patriots into the Regular Budget 
----------------------------------------- 
 
2.  (C) Taipei's decision to shift PAC-III's out of the 
Defense Procurement Special Budget into the regular defense 
budget was intended, MND officials tell AIT, to enhance 
prospects for Legislative Yuan (LY) passage of all three 
weapons systems.  Presidential Senior Advisor Liu Shih-chung 
told AIT that President Chen personally made the decision to 
break up the Defense Special Budget and shift the PAC-III's 
(Ref A).  Ministry of National Defense (MND) Vice Minister 
Michael Tsai explained to AIT that this decision responded 
directly to Pan-Blue criticisms that (1) the NTD 480 billion 
(USD 15 billion) Special Budget was "excessive," (2) that 
some or all of the Special Budget weapons systems should be 
funded through the regular budget, and (3) that the regular 
defense budget should be beefed up for long-term Taiwan 
security. 
 
3.  (C) These changes were a direct response to demands by 
Pan-Blue parties.  Some of the more defense-savvy Pan-Blue 
legislators, for example, had publicly stated that missile 
defense should be one of Taiwan's top defense priorities. 
The government's decision to shift the PAC-IIIs to the 
regular budget was intended, MND officials tell AIT, to 
prioritize Patriot missiles over P-3C aircraft and diesel 
electric submarines.  The changes also respond to Pan-Blue 
legislators' public calls for enhancing the regular defense 
budget, insisting that large weapons systems not be funded 
through what they called the fiscally irresponsible Special 
Budget mechanism. 
 
4.  (C) Initial public response to Taiwan Premier and 
Executive Yuan (EY) President Frank Hsieh's announcement last 
month of the Special Budget revision was generally positive. 
KMT legislators spoke approvingly of the move and indicated 
or implied support for the revised Special Budget and the 
PAC-III shift.  As recently as September 6, in fact, KMT 
Chairman Ma Ying-jeou and LY Speaker Wang Jin-pyng publicly 
endorsed moving the Special Budget out of the Procedure 
Committee, where it has been gridlocked for a full year, into 
the LY Defense Committee for discussion and debate.  People 
First Party (PFP) legislators were also generally positive, 
though qualifying their statements with the caveat that the 
Party would have to carefully review the final EY budget 
proposal after its submission before deciding the official 
PFP position.  This was apparently a play for time in the 
absence of PFP Chairman James Soong, an outspoken Special 
Budget critic, who was on one of his long visits to the U.S. 
Raytheon representatives in Taipei (please protect) were also 
upbeat about the EY announcement decision to revise the 
Special Budget when they met with AIT two weeks ago, 
explaining that they saw the shift &as a positive happening 
for Patriot, and potentially also for the subs and P-3Cs.8 
 
The Taiwan Three-Step -- One Step Forward, Two Back 
--------------------------------------------- ------ 
 
5.  (C) The EY has already submitted the revised defense 
budget and Defense Special Budget to the LY, and 
consideration of the regular budget will begin on September 
13, the first day of the new LY session.  Any expectation 
that there has been a fundamental change in the Special 
Budget situation, however, was quickly dispelled by the first 
Procedural Committee meeting on September 6, which once again 
-- the 27th time -- rejected the now two-item (P-3Cs and 
submarines) Defense Special Budget (along with rejecting 
three other bills). 
 
KMT Backpedaling 
---------------- 
 
6.  (U) On September 6, Ma and Wang met for an hour, after 
which they publicly endorsed moving the Special Budget out of 
the Procedure Committee, where it has been gridlocked for a 
full year, into the LY Defense Committee for discussion and 
debate.  The next day, however, Wang took a big step 
backward, telling the press that he and Chairman Ma had 
agreed the day before that, before the Kuomintang Party (KMT) 
could support acquisition of PAC-III,s, the Chen government 
would have to resolve the issue of the March 2004 referendum 
which had rejected purchase of PAC-III,s (see Ref B for a 
detailed explanation of the debate over the referendum).  KMT 
efforts to use the highly controversial March 2004 referendum 
against the PAC-III missiles threatens to block the regular 
defense budget, which now houses the PAC-III missiles. 
(Comment.  Neither Blue nor Green sides have yet offered any 
clear prescription for how the DPP Government might be able 
to overcome the KMT objections.  End Comment.) 
 
PAC-III's in the LY 
------------------- 
 
7.  (C) LY Rules Office Secretary Wang Yuan-sen told AIT that 
the LY Procedure Committee "traditionally does not boycott a 
regular fiscal budget," since budgets involve basic items 
such as salaries and government operations.  Legislators, 
moreover, can only "propose" changes "in committee," the LY 
Defense Committee, in this case.  The final decision on 
changes and passage is made by consensus in inter-party 
conference or, failing that, by a plenary LY session.  While 
LY rules do not allow legislators to add or delete budget 
items, the LY can decide to change the amount proposed. 
PAC-III missiles, Wang noted, would almost certainly trigger 
strong debate in conference, forcing a full floor debate and 
vote. 
 
Special Budget Limbo 
-------------------- 
 
8.  (C) Meanwhile, the current Defense Special Budget (now 
just P-3C,s and submarines) remains in deep limbo.  With the 
September 6 Procedural Committee rejection, the real test 
will likely come at the first regular Procedural Committee 
meeting next Tuesday, September 13.  While many Pan-Blue 
legislators, including Speaker Wang, went on record stating 
they will now vote &yes8 in the Procedure Committee, this 
was a commitment only to allow the Special Budget to be 
discussed in the LY Defense Committee.  Speaker Wang 
restricted this support even further on September 7, telling 
the press that he is concerned not with whether the Special 
Budget passes, but whether the LY formally reviews the bill 
so that the LY cannot be criticized for ignoring its 
responsibility to review major bills.  Thus, this slight 
concession to the Special Budget could be largely pro forma 
and more for avoiding political blame than supporting 
procurement of the two weapons systems. 
 
9.  (C) Even this minimal commitment is now in question, 
since PFP Chairman James Soong adamantly stated September 7 
his opposition to any Defense Special Budget just before his 
highly publicized meeting with KMT Chairman Ma to discuss 
defense procurement.  This almost certainly kills any chance 
for an inter-party consensus in support of the Special Budget 
being passed by the Procedural Committee, approved by the 
Defense Committee, and finally approved by the full LY during 
the fall LY session (see Ref A). 
 
Clinching KMT Opposition 
------------------------ 
 
10.  (C) On September 8, KMT Policy Committee Deputy Director 
and LY member Ting Shou-chung told AIT that the KMT sees the 
triad of weapons systems as "useless," because they will be 
delivered too late to be of use against the PRC's constantly 
improving weapons, and as entirely too expensive.  Rather, he 
argued, Taiwan should focus its defense budget on upgrading 
its F-16s to match PRC SU-30s, and on developing offensive 
missile capability to deter the PRC.  A Taiwan counterstrike 
capability to hit deep in PRC territory, he said, would 
increase the cost of, and make the PRC pause before 
initiating, military action against Taiwan.  Unable to afford 
to purchase enough defensive weapons to keep pace with 
China,s military expansion, he continued, Taiwan's best hope 
is to develop an offensive missile capability to deter PRC 
attack. 
 
11.  (C) Ting dismissed the possibility that pointing 
missiles at Mainland China might increase cross-Strait 
tensions and undermine Chairman Ma Ying-jeou's stated 
priority of lowering tensions.  Rather, he argued, Taiwan 
(read: KMT) would be able to maintain stability by continuing 
its program of cross-Strait economic, political, and cultural 
exchanges.  Later the same afternoon, Ting told a press 
conference that rather than buying "unreliable anti-missile 
missiles," Taiwan should allocate more funds to upgrade F-16s 
and to develop cruise missiles to counter the PRC military 
threat.  (Comment:  The fact that Ting announced his ideas at 
a KMT Policy Committee press conference suggests his 
proposals have been vetted with Party leaders, despite the 
obvious contradictions with Ma's peace priorities.  To what 
extent Ma was one of those party leaders is unclear.  Despite 
his twenty-year friendship with Ma and overlapping with Ma at 
Harvard, Ting did not publicly support of Ma for Chairman 
race and Ma, in turn, did not include Ting in his nominations 
for the KMT Central Standing Committee.  End Comment.) 
 
Comment:  Politics, Ideology and Defense Procurement 
--------------------------------------------- ------- 
 
12.  (C) The two sides have been mired for the past year in a 
zero-sum political duel.  Both sides appear to be coming to 
agreement in support of a counterstrike capability, despite 
our clear and repeated objections.  Beyond that, each has 
insisted that the other side is to blame for the lack of 
movement on defense procurement.  The growing Pan-Blue 
insistence that President Chen had created a constitutional 
impediment to missile defense with the March 20, 2004 
referendum is the latest round of this duel. 
 
13.  (C) The Chen government continues to lobby the 
opposition Pan-Blue, but it has never put the full efforts of 
the government behind the bill.  Last week, Presidential 
Deputy Secretary General James Huang handed the Deputy 
Director a five-page list of President Chen's speeches in 
which, Huang said, the President had lobbied for the Defense 
Special Budget.  In most of these speeches, support of 
defense procurement was subsidiary to other agendas.  Few if 
any have sought to persuade the Taiwan public of the 
importance of the budget or the importance the President 
attaches to it.  The one thing that is missing from the list 
is any examples of the President lobbying the LY opposition. 
 
14. (C) Over the last few weeks, however, a new trend has 
emerged.  The political clash between Green and Blue over 
defense procurement has begun shaping into an ideological 
confrontation.  President Lee Teng-hui and other Taiwan 
independence advocates have begun arguing that the Special 
Budget is part of advancing Taiwan independence.  Ma 
Ying-jeou has countered that expanded defense procurement 
will make cross-Strait reconciliation more difficult and will 
be rendered unnecessary as Pan-Blue reconciliation efforts 
take hold.  It is possible that both sides are establishing 
these ideological positions in order to strengthen support in 
the island-wide series of local elections in December. 
However, identifying defense with such deeply partisan and 
ideologically driven agendas may make it impossible for 
either side to compromise in support of any defense 
improvements at all. 
KEEGAN