Arms Sales to Taiwan: A Flashpoint Issue

John Gershman

0103taiwan.pdf

China's vice premier Qian Qichen met with President George W. Bush last week to discuss a range of issues, most critically the pending U.S. decision on arms sales to Taiwan. Qian is the highest-ranking Chinese official to visit Washington since Bush took office. While the issues covered in the discussions included China's ongoing negotiations to join the WTO, human rights, and developments on the Korean peninsula, arms sales to Taiwan stood out as the primary issue.

China has always seen Taiwan as the central issue in its relations with America. At present, China is engaged in a diplomatic campaign to stop U.S. sales to Taiwan of advanced weapons systems, notably destroyers equipped with the Aegis battle-management radar system and upgraded Patriot anti-missile systems. Washington is obliged by U.S. law to sell Taiwan sufficient weapons to defend itself, but what that actually entails is up for debate. Acquiring the warships would be a significant diplomatic and military coup for Taiwan. During the Clinton years, Washington declined or deferred Taiwanese requests for submarines and destroyers for fear of provoking China and an arms race.

The Bush-Qian meeting came on the heels of recent efforts by Senate Republicans to strengthen U.S.-Taiwan military ties and a more confrontational posture toward China by the Bush administration. A report from the Senate Foreign Relations Committee released earlier this month advocated selling Taiwan the Aegis-equipped destroyers and other advanced weaponry, and argued that continuing the current U.S. policy toward the island would "guarantee" Taiwan's destruction. The report advocates that direct communications be established between the militaries of Taiwan and the United States—establishing a de facto military alliance between the U.S. and Taiwan.

In line with its increasingly confrontational stance toward China, the Bush administration has retreated from the Clinton administration's policy regarding Taiwan. State Department spokesman Richard Boucher said that, while the U.S. adheres to the "one China policy," the Bush administration does not necessarily follow Clinton's principles known as the "three noes." During a 1998 trip to China, Clinton made clear his support for the three noes policy by saying: "We don't support independence for Taiwan; or 'two Chinas' or 'one Taiwan, one China'; and we don't believe that Taiwan should be a member in any organization for which statehood is a requirement."

The Bush administration has created ambiguity in its Taiwan policy by not specifying what type of military systems it will allow Taiwan to purchase. Similarly, the new administration has not yet clarified Taiwan's projected role in the proposed theater missile defense system. By declining to endorse the three noes policy, the Bush administration provides encouragement for both military hardliners in China and independence advocates in Taiwan. Two other issues--the rising Chinese military budget, and recent U.S accusations that Chinese companies have violated UN sanctions against Iraq--have also figured into the new policy debate about U.S. arms sales to Taiwan.

An Iraq Connection?

At a March 5 meeting with U.S. Ambassador Joseph Prueher, Chinese officials acknowledged that three Chinese telecommunications firms had violated UN sanctions against Iraq by selling and installing fiber-optic communication cables, but they rebuffed Pentagon allegations that the companies were upgrading Iraq's air defense system. They said the three companies were doing civilian work, albeit without clearance from the United Nations. China has told the United States that it ordered the companies to follow UN sanctions and stop doing business in Iraq. At the center of this controversy is Huawei Technologies, China's largest telecommunications equipment company.

Huawei, founded by a former officer of the People's Liberation Army in 1988, is an emerging global powerhouse with powerful internal backers and strong global alliances. Huawei has targeted emerging markets where China has long-standing relationships and where competition from the dominant global players is more limited. Huawei is now competing with the likes of Cisco and Lucent, recently beating out both for a contract to supply equipment to Thailand's second-largest Internet service provider.

Military Spending

China will boost its official military budget by 17.7% this year, the third-highest increase since 1990. (China's actual defense spending is estimated to be in the neighborhood of three to five times the official budget.) Despite hand-waving from Senate Republicans like Jesse Helms, the Pentagon noted that the spending increase is unlikely to have a major impact on U.S. national security, in part because the proposed U.S. military budget of $310 billion defense budget dwarfs Beijing's $17 billion.

The spending increase is widely viewed as China's response to several recent developments. The Persian Gulf War and the Kosovo bombing campaign exposed the military power of high-tech weapons, an area in which the Chinese military lags behind the West. Other considerations include U.S. efforts to construct national and theater missile defense systems. Finally, new spending would enable to Chinese military to pay higher salaries and train more soldiers, as well as address some of shortfalls in the military budget caused by the army's divestiture of most of its business interests in 1998.

The Destabilizing Effects of Liberalization

The Huawei case illustrates the ironic effects that increased liberalization and privatization may have on U.S. concerns regarding technology transfer and proliferation. China's economy is increasingly dominated by enterprises not controlled by the central state. An International Finance Corporation report released last year (available online at http://www.ifc.org/publications/china_private_ent.pdf) estimates that one-third of the Chinese GDP is produced by private sector enterprises--a proportion that rises to more than 50% if the agricultural sector and the Town and Village enterprises not owned by the national state are included. These numbers must be treated with some caution given that many companies are controlled by or have close links with local party officials. Clearly, however, the extent to which the image of the Chinese economy as one dominated by the state sector is of declining utility.

The Chinese state does not have the resources to monitor all firms. The challenge for the U.S. government will be to work with the Chinese government to strengthen its regulatory framework and the monitoring and enforcement capacities necessary to achieve nonproliferation and other security-related goals. Such objectives are more likely to be achieved with an engaged rather than a confrontational posture on these issues. Similarly, China sees the issues of nonproliferation as linked with the issue of Taiwan and missile defense, whereas the U.S. aims to compartmentalize them.

The Huawei case reveals an ongoing tension and conflict both within the administration and among Republicans on the Hill. While some U.S. firms might be tempted to support sanctions against Huawei as a means of undercutting this emerging competitor, most recognize that the company offers access to China's telecom and data communications market--the fastest growing communications market in the world outside the United States. Cooperating with Huawei can help foreign firms meet local requirements for manufacturing facilities. The list of American companies aggressively courting Huawei include 3Com, AT&T, Cisco, IBM, Intel, Lucent, and Motorola. These linkages between U.S. and Chinese firms increase the resistance in the U.S. to a hard-line China policy and stand in direct conflict with the "China threat" forces increasingly dominant in the Bush administration.

John Gershman <john@irc-online.org> is FPIF's Asia-Pacific editor and the codirector of the Global Affairs Program at the Interhemispheric Resource Center.