DEFENSE PROCUREMENT SPECIAL BUDGET: PREPPING FOR

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