US embassy cable - 05TAIPEI4598

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 004598 
 
SIPDIS 
 
STATE PASS AIT/W 
 
E.O. 12958: DECL: 11/16/2015 
TAGS: PGOV, PREL, MARR, MASS, TW 
SUBJECT: TAIWAN'S DEFENSE BUDGET AND ELECTION POLITICS 
 
REF: A. TAIPEI 4415 
     B. TAIPEI 3778 
 
Classified By: AIT Director Douglas H. Paal, Reason(s): 
1.4 (B/D) 
 
1.  (C) Summary.  The cancellation last week of funding for 
PAC-III missiles and of preparatory funds for the Defense 
Special Budget was in part a product of the increasingly 
contentious political campaign for Taiwan's December 3 
elections.  There is still scattered talk of possible forward 
movement on the Defense Special Budget (P-3C surveillance 
aircraft and diesel electric submarines) after the election 
on December 3, but few government officials give much 
credence, having been burned several times by such promises. 
End Summary. 
 
2.  (C) The opposition pan-Blue coalition (Kuomintang-KMT and 
People First Party-PFP) used its parliamentary majority in a 
November 9 classified meeting of the Joint Budget-Defense 
Committee to slash two budget items in the regular defense 
budget:  NT $10.9 billion (US $320 million) for PAC-III 
missiles and NT $273 million (US $12 million) for preparatory 
funds for all three weapons systems.  Reduction of funding is 
the only way legislators can make changes in the regular 
budget proposal (Ref A), and Pan-Blue legislators took that 
power to the limit, effectively "zeroing out" these two 
budget items. 
 
Blue Promises, Election Politics 
-------------------------------- 
 
3.  (C) Immediately after the vote on November 9, pan-Blue 
legislators began calling for revision of the Defense 
Procurement Special Budget, consisting of P-3C surveillance 
aircraft and diesel electric submarines.  Several 
specifically urged that the P-3C aircraft be shifted into the 
regular defense budget via an "extra budget" (Ref A), and 
that the government reconsider its proposed acquisition of 
diesel electric submarines.  KMT legislator and LY Defense 
Committee member Su Chi insisted to AIT that the KMT is not 
opposed to defense procurement per se, but had "no choice" 
but to block the PAC-III's because the March 2004 defense 
referendum had "vetoed" acquisition of "additional 
anti-missile equipment."  (Comment: Su was the developer and 
main proponent of the referendum rejection argument. End 
Comment.)  Su pointed out that immediately after the November 
9 LY vote, he signed a petition drafted by ruling Democratic 
Progressive Party (DPP) legislators Lee Chung-wen and Shen 
Fa-hui calling for the government to shift 58 defense budget 
items, which had been crowded out of the 2007 regular defense 
budget by the PAC-III missiles, back into the defense budget. 
 (Comment:  Legislator Shen Fa-hui told AIT that he and Lee 
do not know the identity of the 58 items, which is classified 
at this time.  MND officials, he explained, had privately 
told Lee and him that MND had removed "58 defense items" from 
the original draft of the 2007 defense budget in order to 
make way for the PAC-III missiles after President Chen 
decided to shift them into the regular budget, as reported in 
Ref B.  After discussions with LY staffers and several 
legislators, it appears the only way the "58 defense items" 
could be put back into the regular defense budget is through 
an "extra budget"  submitted by the Executive Yuan to the 
spring LY session, as described in Ref A.) 
 
4.  (C) Su, apparently one of KMT Chairman Ma Ying-jeou's 
closest foreign policy advisors, told AIT that he felt 
"pretty sure" Chairman Ma would agree to support an increased 
regular defense budget with the 58 omitted items.  Ma, Su 
added, might even support funding for the P-3C surveillance 
aircraft, but not for the submarines to which Su himself is 
opposed.  Su said that he has argued within the KMT 
legislative caucus that P-3C's would be useful to Taiwan, are 
available and relatively cheap, and can link to U.S. 
anti-submarine warfare (ASW) systems.  (Comment:  Shuai 
Hua-min, another KMT legislator influential on defense 
matters but of uncertain influence with Chairman Ma, however, 
holds precisely the opposite view on these two weapons 
systems.  End Comment.) 
 
Low-Key Green Response 
---------------------- 
 
5.  (C) MND has taken a low-key response to the opposition 
cancellations of the PAC-III and preparatory budgets.  Noting 
that opposition legislators had slashed the PAC-III missiles 
because of the March 2004 defense referendum rather than 
because they oppose procurement to meet Taiwan's defense 
needs, Defense Minister Lee Jye announced that MND will wait 
the requisite three years before reinserting the PAC-III 
missiles into the regular defense budget.  (Note: Taiwan's 
Referendum Act requires a three-year delay from the date of 
publication of referendum results before a "vetoed" item can 
be revived, which would appear to mean the MND could not 
raise the PAC-III missiles until the 2008 budget which will 
be submitted in September 2007, after the March 2008 
presidential election. End Note.) 
 
6.  (C) MND Special Advisor York Chen (Wen-cheng), however, 
told AIT that MND Lee is deeply frustrated by the November 9 
vote and "just plain tired."  In spite of Lee's 
best-face-forward response, Chen said, neither Lee nor anyone 
in MND held out any hope that the opposition will change its 
tune on the Defense Special Budget weapons systems, 
regardless of who wins the December 3 elections.  Rather, he 
surmised that the KMT will just wait until after the 2008 
presidential elections to make any substantive moves on 
Taiwan defense.  Meanwhile, he noted ruefully, the real 
winner is Beijing, which has achieved everything it could 
have hoped for:  U.S. defense cooperation with Taiwan has 
been interrupted and the Defense Special Budget has been 
blocked. 
 
Way Forward 
----------- 
 
7.  (C) MND and the Chen government put all of their eggs in 
the Defense Special Budget and its spin-off, the PAC-III 
shift into the regular budget.  There appears to be little 
planning for alternatives.  Vice Defense Minister Michael 
Tsai (Ming-hsien) acknowledged to the Deputy Director that 
 
SIPDIS 
Taiwan has no "Plan B" if the Defense Special Budget weapons 
systems package remains blocked, other than its vague promise 
to work to increase the regular defense budget to three 
percent of GDP by 2008, a promise that will require 
legislative support from the opposition Pan-Blue. 
 
Comment:  Once Bitten 
--------------------- 
 
8.  (C) LY cancellation of the PAC-III budget had been a 
possibility since the beginning of the current LY session in 
September, when it became clear that Pan-Blue promises of 
support for the PAC-III's if moved to the regular defense 
budget would not materialize.  The vote at this time, 
however, is probably a product of the growing contentiousness 
between KMT and DPP with just three weeks remaining before 
the December 3 elections.  VMND Tsai acknowledged to the 
Deputy Director that the election strategy of his ruling DPP, 
particularly President Chen's broadside against PFP Chairman 
James Soong in late September, had increased antagonism 
between DPP and the Pan-Blue opposition and reduced the 
likelihood of cooperation.  The suggestion that MND should 
move the P-3C's into the regular budget has not elicited much 
interest in the government -- MND moved the PAC-III missiles 
into the regular budget at the behest of the Pan-Blue 
opposition, which then used its majority to delete the 
missiles from the regular defense budget. 
 
9.  (C) Nor does MND expect or advise any USG moves in 
support of the Defense Special Budget; as Special Advisor 
Chen put it, "We used to think U.S. intervention would have 
immediate results, but now we see that on this issue too much 
support can prove counterproductive (fanxiaoguo) with 
Pan-Blue legislators."  VMND Tsai did tell the Deputy 
Director that after the December 3 election the Defense 
Special Budget might be able to move forward in the LY, a 
hope that both President Chen Shui-bian and LY Speaker Wang 
Jin-pyng have publicly voiced.  The key on the KMT side could 
be, as Su Chi intimated, Chairman Ma, whose position and 
influence in turn may depend on the election outcome.  In the 
meantime, the "zeroing out" of all preparatory funding means 
further, open-ended delay in the Defense Special Budget 
weapons systems. 
 
Paal