American Enterprise Institute

April 5, 2006

[Edited transcript from audio tapes]

7:45 a.m.	Registration and Breakfast
8:00	Welcome:	Dan Blumenthal, AEI
	Keynote Remarks:	The Honorable Rob Simmons, U.S. House of Representatives
	Discussant:	Mark A. Stokes, Quantum Pacific Enterprises, Ltd.
9:30	Adjournment

Proceedings:

Mr. Blumenthal:  Well, good morning, everyone.  I’d like to welcome you and thank you for coming out to discuss this very important issue.  It’s been ten years since the initial crisis of 1996 and about a year since China passed the anti-secession law, so it’s a very opportune time to discuss issues of Taiwan security.

My name is Dan Blumenthal.  I’m with the American Enterprise Institute.  And the title of today’s event is actually “Repairing the U.S.-Taiwan Security Relationship,” which, of course implies that there’s some repair work to do.  And I think that is accurate.  I think there’s a host of reasons that the relationship has had problems that have developed over the last years, and part of those have to do with the fact that Taiwan is still a transitional democracy and still trying to sort through the best means of an international security strategy and come to some consensus under some very difficult circumstances.  Part of that is very high expectations that were given by the Bush Administration about what Taiwan was able to absorb in terms of arms sales.  But I think there’s a danger of conventional wisdom that has set in, and a lot the conventional wisdom is not true.  And conventional wisdom essentially goes Taiwan is unwilling to do much for its own defense and will enmesh the United States in a conflict and not take its defense seriously.

So we have two excellent speakers.  One is Congressman Thomas Simmons, and the other is one of America’s leading experts on Taiwan and national security, Mark Stokes who was in the Air Force and worked at the DoD dealing with the Taiwan security issue, and will challenge some of the conventional wisdom, what’s been going on, what Taiwan has been doing itself, and also a lot more of the story of why it is a lot of the arms package of 2001 has been rejected by Taiwan.  And I think they’ll identify there’s been some problems on the American side as well as on the Taiwan side going forward with Taiwan’s defense.   

Without further ado, I’m going to turn it over to Congressman Simmons for a few minutes, and then Mark Stokes, and then we’ll open it up to questions and answers. 

Mr. Simmons:  Thank you all very much for coming this morning.  It’s a real treat for me to be here today to talk about Taiwan and its relationship with the United States, and in particular its relationship in the area of defense.  I had the privilege many years ago of serving in the U.S. embassy in Taiwan as an economic officer.  I lived there with my wife and my beautiful daughter, Jane.  She was born in Taiwan back in 1977.  I left a few months before relations with were normalized with China and the atmosphere was tense.  But during that difficult period, I came to admire all of China and Taiwan, the people who lived there.  I admired their industry, their love of freedom, and the relationships that we established back then were an important part of our lives.

If you fast-forward a little bit to the year 2001, when I was first elected to Congress, I had a unique opportunity to observe the Bush Administration in April of 2001, as it was preparing to put together a defense package, and actually authorized a defense package that was very comprehensive and was probably, I think, the largest defense package ever approved by any president in the post-World War II period to Taiwan.

I was particularly interested in the package because it included eight diesel submarines.  I think as some of you know, diesel submarines have been on the wish list for Taiwan for quite a long time.  And you may know not that I represent eastern Connecticut, the second congressional district of Connecticut, where we design and build the very best submarines in the world, and in fact we have a center of excellence in southeastern Connecticut that includes Electric Boat.  It includes the R&D research center in Ambury Point.  It includes the activities of Robert Balor, who the foremost subsurface explorer and the best marine scientists in the world today.  And it includes our submarine base.  In fact Connecticut has been building submarines since the Revolutionary War where they designed and built the subs that were deployed and used against the British in New York Harbor.  So that seemed to me to be a unique conjunction where I’m present in Taiwan with my administration promoting a diesel submarine program.  And in fact, because of my representation of the submarine center of excellence here in the United States, I can honestly play some role to help Taiwan in its own defense, and that was my motivation, and that was my interest.

I traveled to Taiwan that year, I should say, at my own expense for those of you who are keeping track of that sort of thing.  I did pay for the tickets.  I did pay for the hotel rooms.  I took my wife and both my children with me, and it was somewhat of a sentimental journey.  But I scheduled visits on two days with the officials to include President Chen Shui Bian and the head of the Navy at the time, Admiral Lee, who is now Minister of Defense Lee.  And we talked at some length about the opportunity of developing and designing a program for diesel submarine construction.

Things seemed to be going fairly well over the intervening years, although every time I approach the Navy for an update of the program, I was told that the deadline kept moving out and moving out. 

On or about January of 2004, I was told that most of the work on our side was completed, but we couldn’t seem to get the State Department to issue a letter of notification.  And speaking for myself, we were involved in other issues of 2005, namely the base realignment and closure of the Groton Submarine Base.  And so the issue of diesel submarines was not on my mind at the time.

However, last year, last fall, I decided to go back to Taiwan and see if I could reinvigorate interest in this program.  What I was hearing was that there was reluctance on this side of the Pacific to move forward, and certain individuals in the Navy were dragging their feet.  What I was told was high level, high ranking officials who you might associate with the nuclear Navy felt that if the United States designed and built diesel submarines, it might have some adverse impact on the nuclear Navy, the strategic Navy. 

I disregarded those arguments because I felt that as long as the United States is a world power, we will need a strategic, nuclear subsurface capability which we get from our Virginia class and sea wolves and some of their predecessors.  And if the diesel submarines are going to operate primarily in the literals, we’ll never really accomplish our strategic goals.  And so the design of a new or a modified diesel sub should not cause the strategic nuclear Navy to have a concern.  Nonetheless, those concerns were out there.

What I was hearing on the other side of the Pacific was that the legislative Yuan, the brokered majority of the legislative Yuan, was working politically in the partisan fashion against the administration of Chen Shui Bian to embarrass him by not accommodating this part of the program.  As well, some individuals were saying that they thought the sale of submarine to Taiwan was provocative because they were not defensive in nature.  They were offensive systems.  But once again I can’t speak to the politics of the legislative Yuan.  I think there are probably in the audience that know as much about that as I do.  But with regard to the idea of submarines and staying offensive, somehow I can’t imagine half a dozen diesel submarines steaming into Beijing, and the hatch opens, and the people jump out and say, hands up.  I just don’t visualize that, especially when you consider the dramatic growth of the Communist Chinese navy, and in particular the focus on their sub surface capability.  I’ll speak to that in one moment. 

What I do visualize is that a well-designed and well-built diesel submarine in the hands of the Taiwanese navy, deployed in the literals, creates uncertainty to any war planning that might involve a blockade or even invasion.  So I do visualize these systems as being very effective defensive systems, and defensive systems that might complicate the war planning of the People’s Republic of China.

Let me speak briefly to the issue of the growth of the People’s Republic of China navy, and particularly their sub surface capabilities.  They currently have 25 submarines under contract.  We estimate 16 to 18 of these submarines are under construction right now.  Half of them are state of the art aggression kilo class diesel submarines, being built in three separate Russian shipyards.  Think about it.  Think about it. 

We all remember the Sino-Soviet block, and we’ve lived in a time of Sino-Soviet rift or split.  Well, Russia is keeping its shipyards and its submarine industrial base open and hot by designing and building submarines for China.  And it’s an amazing partnership.  It’s not something that I would have imagined as recently as five years ago. 

These submarines are in four different classes, freer fast attack classes.  One is the strategic nuclear ballistic missile class.  And those who say that China is simply and deploying a sub surface fleet to protect its shores and to provide some security in the Taiwan Straits, why do they plan six nuclear submarines which of their very nature are strategic?  And why are they outfitting at least some of those with strategic ballistic missiles with a range of over 11,000 kilometers?  I don’t think Taiwan is that far away.  What else could they have in mind?  And we can save that for the discussion.

Over the last year, I have engaged in a letter writing campaign with the Secretary of State asking for their commitment with regard to the Taiwan arms package, and I received a letter back last February essentially saying the Department of State fully supports the President’s decision.  I’ve written to Chairman Nyein Chan of the National Party of the Kuomintang in May of last year -- he’s since been replaced by Mayor Ma as head of the party -- asking if in fact they are committed to this program.  I’ve had over 30 members of Congress to sign the letter.  I got a very interesting response back that essentially involved pointing fingers at different people and blaming others for the lack of progress. 

But then at the end of the next session, he said we’re expecting, I hope, I hope, the legislative Yuan will tackle the bill.  I have a letter that I have sent Admiral Fallon, who’s the commander of the U.S. Pacific Command because certain public comments that he made, certainty about his commitment to the program.  This letter was signed a dozen or so members of Congress.  I got a response back from him in November of last year stating in part, “let me assure you that I fully support U.S. policy regarding China and Taiwan, and the U.S. government stands ready to fulfill the President’s wholesale commitment to Taiwan in all its elements - in all its elements.” 

I read that to be the eight diesel submarines.  And then just before I went on my trip, I received a letter from the State Department again stating the U.S. commitment to help Taiwan maintain its self-defense capabilities.  “It’s probably rooted in law, U.S. national interests, and shared values.  President Bush in April approved the sale to Taiwan of a robust package, and looks forward to their funding.” 

The letters speak for themselves.  We all know that there are occasions when those who are embedded in bureaucracy work against policy.  There may be some elements of that.  And when I arrived in Taiwan in February, the Taipei Times said, “U.S. blocking sale of subs.”  So the issue of whether certain folks in the U.S. government were continuing to drag their feet is an important one.

During my visit to Taiwan, I was briefed by the Taiwanese navy on the issue of the China threat.  I have a number of slides on that, that lay out pretty much the courses that you can also find in Jane’s if you’re so inclined, there’s no classification on these things.  Part of the concern was, of course, that the PLA had a plan for a naval blockade against Taiwan and its impact on the region.  And when they concluded, they put in President Chen Shui Bian, the purpose is to build a force for sufficient self-defense, not to engage in an arms race with Communist China.  I think that’s an important point that we all understand.  We’re not talking about an arms race here.  We’re talking about deploying a limited defensive capability. 

I’ve met with Minister Lee and with President Chen.  Over the 10 years, the budget has been, the defense budget has been on a fairly substantial decline.  And what I learned in my statistics course a few years ago is that a trend is more data points in the same direction, okay?  We got one of the four data points in the same direction here, and these numbers are the percentage of GDP, and they’re not good numbers, and something has to be done about that. 

Let me conclude with just a thought, and then we can hear from Mark Stokes.  When the package was presented, it was presented in total as a complete package.  The costs were undetermined, although experts agree between six and 12 billion.  It appears that the Navy was sticking to the $12 billion figure and was saying they anticipated that Taiwan would vote that package in total.  That’s never made sense to me.  And if I was a legislator in Taiwan, I would have resisted that.  Usually when you have a foreign military sale, you’re buying a system that you already know and understand.  If it’s an F16, you know what an F16 is.  If it’s a kid class frigate, you know what it is.  You can see it and touch it.  It’s there.  But we’re talking about here is designing and building a diesel submarine that doesn’t exist, and, therefore, the proposal that I made, the proposal that I think is going to go forward this spring, is to break out the design line as a separate piece of the package. 

My father was an architect, and he never estimated the cost of a house until the detailed designs were completed.  Once the detailed designs were completed -- how many bathrooms, how many bedrooms, how big a hot tub, what’s the size of the kitchen, how many fireplaces.  Until you know the nature of the design in detail, you don’t know the cost.  Are the floors going to be hardwood or are they going to be carpet?  There’s a difference.  You put plywood under carpet, and if it’s hardwood it costs more. 

So it’s incumbent upon Taiwan and the United States to come to an agreement on the design and who’s going to do the design before we talk about production costs.  That’s just logical to me.  And I have senior members of the U.S. Navy on record as saying that they support that.  Admiral Bowne testified that he would support that.  Others have testified that they would support that.  Minister Lee and President Chen Shui Bian said that they were interested in the idea, and I believe that idea is moving forward. 

In my discussions with Mayor Ma, I made the point numerous times -- he’s a politician; he’s never committed one way or another.  During his visit to the United States, I invited him to come join me in Connecticut as he went from Washington to New York, and his schedule was a little too tight for that.  But I’ll tell you this, at some point or another the president of the KMT has to make a decision, has to make a decision yes or no.  The leadership, the KMT leadership, the party leadership in China cannot continue to tap dance on the issue.  They can’t have it both ways.  Either you’re going to fund your defense, or you’re not. 

I’ll conclude by showing a photograph of myself and President Chen when I met him before I departed.  I gave him this model of a submarine.  I’ll have to admit he seems to be smiling; he seems to like it.  We have plans for something a little bit bigger and a little bit better.  But for those analysts, those intelligence officers in mainland China, if they look carefully they will see the model is a Virginia class submarine.  I hope that doesn’t upset them too much. 

Thank you all very much. 

Mr. Stokes:  Dan, Chris, and others who helped to put on this event.  I appreciate it.  It’s an honor to be here.  It’s an honor to be sitting next to Representative Simmons.  I have to admit this is my first time actually sitting next to a Congressman. 

Mr. Simmons:  It’s okay. 

Mr. Stokes:  But what I’m going to do, I’m going to take a slightly different approach than Representative Simmons, his remarks.  When I say an alternative approach, what I’m going to do is start big picture and then get way down in the weeds; that’s what I have in mind.  For example, I spent seven years in Taipei handling Taiwan’s defense policy.  After seven years I went into the weeds, the coast, deep into the Taiwan society, the business for almost two years.  I found that absolutely fascinating, a learning experience.  I loved every minute of it.  I’m back now, it’s good to be back, but still have Taiwan at heart.  Another great experience, I learned what it’s like to be a Taiwan taxpayer, an American taxpayer and a Taiwan taxpayer.  Representative Simmons, if you can do something about dual taxation.  I just thought I would take advantage of this opportunity.

Congressman Simmons:  I’ll keep it in mind. 

Mr. Stokes:  But what I’m going to do, another thing that I’ve learned in the art of numeration.  I learned this in my first couple of years in ISA in terms of the three nodes.  This presentation is going to be the three misperceptions, the three shared values, the three challenges, and three considerations. 

So let me first start off by highlighting something in terms of the big picture, and that big picture resides in the national security strategy that President Bush just signed on, I believe, a month ago, something like that.  And I want to highlight a theme that was throughout the national security strategy, and that theme was enlarging the community of democracies.  And so when I start with the big picture, this is where I’m going to start because democracy is important. 

To quote Michael Green from a presentation that he gave last week, former senior director for President Bush - “What we’re looking at, the center of gravity in many ways is how I view this democracy.”  It’s a comparative advantage in many ways.  And so when I look at the issue of Taiwan security, the theme of this presentation, I look at security in a broad sense, security in the sense of political security, economic security, and military security.  You also could add in psychological security, but I think we sort of put that in with all three. 

I also want to highlight very quickly something that Dan raised, it had never occurred to me, but it is.  It has been 10 years since the 1996 missile crisis.  I just got back from Beijing, China where I spent three years and my focus was on the missiles.  And then to come back for two days in summer of 1995, the first run of the tests.  And then March 1996, at the time I was working as a planner, a military planner.  Very interesting time.  And following that one year ago, the anti-secession law. 

But let me first start off with what I call misperceptions -- the four myths of Taiwan and U.S.-Taiwan security relations. 

What’s the first myth?  The first myth, that it’s not just a myth, it’s also a paradigm, a paradigm in the sense that it’s what everybody thinks.  Everybody thinks Taiwan does not take its defense seriously; it doesn’t matter if you’re Anne Green or [inaudible].  But spending time in Taiwan for a couple of years and talking to [inaudible] guys, and more importantly talking with Fa Ba Shing, anyone in Taipei, in Taijo, [inaudible], different places.  Anybody with homes and families in Taiwan takes defense seriously.  And let me quote [inaudible], and that’s that “defense spending, well, the reason why this is a myth is related to defense spending, the perception that Taiwan’s defense spending is going down, steadily going down.”

But defense spending by itself is not a sufficient measure in itself for the country’s commitment to defense.  It’s one metric, but it’s not the story in and of itself.  To make this even more complicated, though, is how much does Taiwan spend on defense a year on average?  This year has it just under $8 million U.S. dollars.  That’s not correct.  Taiwan’s defense spending is at least 12 billion a year, three-fourths, six percent, GDP. 

Now why did I say that?  Because everybody, when they look at Taiwan’s defense budget, they take it at face value.  They look at what state it’s in.  But why do people look at the PRC budget, they don’t take that at face value, they add in other things?  The reason why Taiwan’s defense spending is 12 billion is because it’s not paying attention to retired military officers’ salaries.  They’re outside the regular budget.  That’s another three billion a year.  Let’s look at another special budget for military housing.  Let’s look at other budgets that are contained within Taiwan’s SNT, not in the main budget.   All bundled together, and this just simple stuff-- 12 billion.  And then you can even get into more fancy stuff by adding purchasing power parity, para-military forces. 

The bottom line is we don’t know how much Taiwan’s defense budget is.  And I’ve never seen any evidence of anyone even bothering to look, and that could lead to another misperception, and that’s that some people, many people, don’t tend to look at these things because people tend write Taiwan off as if it’s a burden or it’s a troublemaker.  But in this myth number two is people looking at Taiwan as a free rider.  This is associated with myth one; Taiwan’s a free rider.  They don’t spend money on defense because they’re expecting, or anticipating, or assuming U.S. intervention or seeking to enmesh the United States in some nefarious plot in pursuit of ensuring independence.  This is a myth, this is a myth, for a very simple reason and a very logical reason.

In 1979 with the demise of the U.S.-ROC mutual defense treaty, Taiwan can no longer assume U.S. intervention or commitment.  The Taiwan Relations Act, if you take a very look quick look at it, the Taiwan Relations Act spelled out very quickly and very clearly U.S. law to resist the use of force, and it does not commit.  And, therefore, Taiwan has a basic operational planning assumption, this is for military planners, military guys, operational planning assumptions drive force planning.  It is part of the chain of events that drives everything.  Taiwan’s fundamental planning assumption is independent, if I have the correct Chinese word it’s tse fung wei, independent defense.  And this was just reinforced by the Ministry of National Defense’s senior official, who also confirmed that Taiwan’s not assuming U.S. intervention. 

And it’s important point when you’ve got submarines because many people believe Taiwan should not have submarines because the more submarines you have in the water, the more complicated U.S. intervention becomes.  In Taiwan, they don’t think that way.  Taiwan, again, the assumption of their self-defense, they’re not going to base their planning and assumptions on U.S. intervention.  That’s why like submarines.  They’re not that concerned about the problems caused for the U.S.

Myth number 3, the ROC is a liability to the United States.  Many people think this.  It is a troublemaker; it’s a terd in the punchbowl.  It’s not actually; Taiwan has significant value.  It has significant value to the United States; I’ll get to this later.  Taiwan is often viewed as dependent or a threat to an illusionary status quo, which in all actuality over the last 50 years, the Republic of China in Taiwan has been an asset.  And actually its full potential for the United States has really not even been actualized in terms of shared value and the potential it has in terms of working together with the United States for the common goals.

So those are the three myths.  Then we move down to shared values, again, three.  Shared values with the United States.  With a population of just over 20 million, the power -- depending on how you define power -- but the power of this island is roughly on a par of the Netherlands, and its influence and its shared values is significant.  Let’s start simply with democracy.  As outlined in President Bush’s national security strategy, democracy is the trend of the future.  It is a fundamental aspect of the U.S. policy, and American interests lie in the promotion of democratic ideals. 

And we can’t meet our strategic interests in most democracies and democratic values by ourselves.  We need help.  And in the Asia-Pacific regions we have Taiwan.  Their shared interest in the promotion of democratic values that America was founded upon and that Taiwan has matured toward.  Taiwan has a new democracy; they have a prominent role to play.  It is a political entity that transitioned from authoritarianism to democracy.  It is nascent but also vibrant.  They formed one of the first organizations dedicated to the promotion of democracy that is Taiwan Foundation for Democracy modeled on the National Endowment for Democracy; they have a very close relationship.  Taiwan stands at the pointy end of the spear in many ways, let me put it this way, the pointy end of the spear of the community of democracies that are arranged against the legacy of the authoritarian regime.  That is Taiwan’s value is at the pointy end of the spear. 

A second shared value -- that’s support for U.S. causes as the military leader of the world, government and non-government.  Over the last 50 years the ROC has been one of America’s most loyal allies.  A quick look back in their history, Representative Simmons will remember this, because he had a very active role in this quite a while ago.  Look at the sacrifices the ROC made on behalf of the United States during the Cold War.  I don’t think we’ve ever really looked at the number of lives that were lost of ROC pilots, missions over China, reconnaissance missions in Tibet and in other places, the mercenary forces, the volunteer forces in Vietnam. 

In many ways, I am submitting that Taiwan was one of the best and most loyal allies that we had.  The situation’s changed a bit, but they are still loyal and support American causes around the world.  What have they done in Afghanistan?  A lot, much more than China, whichever you want to look at it.  In terms of monetary amounts, at least a hundred million.  That much we know.  My guess is more because sometimes you can’t track private funds. 

What have they done in Iraq?  They’ve done things in Iraq.  They’ve done things the U.S. hasn’t been able to do.  And it’s not just this, but look at the private organizations, look at an organization called Tse Chi Foundation.  These guys have a motto of first in and first out.  Every single disaster that happens in the world, first in, first out, whether it’s a tsunami, whether it’s floods in New Orleans.  They’re everywhere.  There’s been surveys taken on the tsunami where they had a survey taken of between 50 and 70 percent of Taiwan people contributed to tsunami relief.  This is an entity that has a spirit of giving without asking for very much in return. 

Third, shared value is free trade and promotion of prosperity.  Again, when I talk about power, I tend to talk in economic terms.  Taiwan’s size belies its power, particularly in terms of driving a lot of its prosperity that we see here in America.  It’s driving in many ways international, global information revolution.  Look at the, for example, computer, the laptop.  Taiwan has the number one market in this area.  It is a key supplier in the U.S. in terms of trade.  The United States is the eighth largest country, and folks have to work together in improving intellectual property rights.

Then we go to the third theme, challenges.  Taiwan, they have a lot of value, but they also face significant challenges, three.  Critical first.  Taiwan does have a lot of to be proud of in terms of their democratic achievements.  One has to remember, though that the democracy needs, first, the transition of power at the senior level only occurs in security, and this is a relatively new democracy that maybe people forget about that sometimes.  And it is also true that  transformation and foundation is still in the process of developing the bipartisan spirit in certain areas. 

On the international front, the PRC is marginalizing Taiwan.  In fact they’re doing it everywhere.  And if you look at it at a personal level, most policy people these days and a lot of your business people as a senior get their training in PRC issues, China issues, and they tend to look at things -- and it’s not a political statement; it’s just the way it is in China.  They tend to look at things through a Chinese lens.  They look at Taiwan as an appendage.  Not a political statement.  This is a trend.  There are various people that focus on Taiwan and look at the key issues through Taiwan’s lens.  But this is an issue, and actually it’s getting worse and not better because we can’t forget the DoD has more and more officers that are sent to Taiwan for any training. 

Another challenge, economics.  Taiwan’s economy are (indiscernible).  However, it is having problems. Their statistics, they lie.  The GDP figures don’t really reflect what tends to go on in terms of the economic situation in Taiwan.  The growing debt, for example.  Having difficulties in drawing the necessary revenue in order to support the state. 

Migration on the industrial sector to mainland China. Why is this happening?  This leads to a second challenge.  It’s happening, at least in part, because of the PRC strategy.  The idea is to form an economic box around Taiwan, suck Taiwan in economically, provide as many incentives as you can whether it’s tax breaks or whatever to be able to bring people in to mainland economy.  Well, what happens is after a certain point Taiwan becomes too overly reliant upon China for its economic growth.  This, to me, is a problem.

Third challenge, among the consumers the PRC is developing its series of options. To me it is a matter of time. The PRC has been doing this as reported in DoD and Congress. They have been doing this take Taiwan down. They have the ability to take Taiwan down, to occupy Taiwan, bar US internvention. But it could mean them cost. They are going to touch extremely high costs. They will stick to it. But their costs will diminish something to watch. 

So with this in mind, there is other issue as well. Taiwan is still in profound transformation. People are in significant transformation. Thirdly is that Taiwan is an initial force in democracy, and government spending is accountable to the people.  And, therefore, better cases have to be made to have to support certain systems.

Okay.  So with all this in mind, here are three proposals (indiscernible) on democracy quite a bit.  And I hadn’t got (indiscernible) run into a piece of legislation from last year that I would have a fascinating and, to me, it would be the best thing that ever could be done, and that is recognize --

[END OF SIDE A.]

[START OF SIDE B.]

Mr. Stokes:  -- and then look again at the Democracy Act of 2005, and perhaps look at designating the American (indiscernible) and the Asia-Pacific World Democracy (indiscernible).  Why do this?  So (indiscernible) basically encourage and endorse Taiwan (indiscernible), ensure the (indiscernible).

Second proposal.  Enhance Taiwan’s security for the initiation of a free trade agreement.  This is not a political issue.  It’s straight economic and the security element.  I mentioned before one way in order to be able to break this lock (indiscernible) is to look at issues like a STA (phonetic sp.).  Those are a couple of things that’s worthwhile to look into.

Proposal number three is to enhance Taiwan’s (indiscernible), but I tend to use the word “revitalize” security relationship.  And I’ve only got a couple of suggestions here.  I’m going to cut it kind of short for the question and answer session.  But the best way to do this is to look at and recognize Taiwan’s democracy (indiscernible) economics could be important is to shift the paradigm.  That means more strategic partnerships recognizing Taiwan’s status as a major ally, looking at the way we do business with Japan and Eritrea, and applying the (indiscernible) Taiwan (indiscernible) that shows the sales, and to look at the way we do our own business in terms of (indiscernible), but you’re also buying jobs, income, and technology and economic development (indiscernible) be a great initial case to try this on. 

And so with this, I will end, and see if you have any questions. 

[APPLAUSE]. 

Mr. Blumenthal:  Thank you both very much, and (indiscernible) proposals (indiscernible) have some Q&A for Representative Simmons, and then, if we have time, to do Q&A with Mark (indiscernible).  Okay.  Please identify yourself and ask a question.

Male Voice:  (Indiscernible).  My question is for Congressman Simmons.  (Indiscernible). 

Mr. Simmons: I certainly have no objection to that in answering your question of the sale of second hand submarines or the sale of pre-existing submarines from other country, has it already been tried.  Yes, it has.  And no sooner have those discussions and those negotiations been made public that the PRC intervened and has been able to suppress and interrupt those negotiations through economic pressures.  I believe that was the case in Italy, and I think that was the case in the Netherlands. 

It’s true, of course, that any sophisticated weapons system takes time to develop and deploy.  It takes time to train sailors to manage these things.  But when I went to Saiying (phonetic sp.) to observe the existing submarines, which would be W class (phonetic sp.) and two sea dragons, and the guppy class should really be in a museum.  I mean, it should be in a museum.  But from my observation, and I’m not a sailor, but I have spent a lot of time on submarines.  These submarines were immaculately maintained.  The maintenance scheduled that I was briefed on was very sophisticated, very up to date.  The sailors that I met are very professional.  The training programs were all in place.

I traveled with a Navy officer on my trip who happened to be a submariner.  He was very impressed by what he saw.  And I think that we all know Minister Li was trained as a submariner in London many years ago, back in the 70s.  So I am very confident that Taiwan has the capacity to ramp up the training, the maintenance, the repair, and all of the other components that would be necessary for this kind of program.

The argument that it takes time to me is a false argument because what does that mean, that we shouldn’t do it at all?  No.  I think what it means to me is that we should do it on an emergency basis.  We should move quickly.  And that is my message to the members of the legislative Iwan.  How can you delay when the growing threat is so obvious to everybody?  At what point are you going to step up and assume responsibility for your security, or are you simply going to preside over a program of appeasement and eventual reunification on PRC terms?  Is that what your plan is?  I hope not. 

I hope that the Canti (phonetic sp.) and the legislative leadership have a better plan than that.  So I worry when high level officials pay visits to the mainland, go back to the (indiscernible) to appear in public events.  That suggests to me something other than working to build an adequate defense capability for the future. 

Male Voice:  (Indiscernible) the subs are out there.  They’re out there for better or for worse (indiscernible).  But there are things that are not being done right now that are absolutely critical (indiscernible) liaison with the U.S. Navy (indiscernible).  But neither of you has mentioned that, and I think today we get the sense that (indiscernible) what you’ve recommended and what you’ve (indiscernible).

Mr. Simmons:  I think I made it clear at the beginning that I have a special interest in submarines obviously.  There are 435 members of the House of Representatives.  There are 100 senators.  As representatives, we tend to advocate the issues that reflect our districts.  That’s the nature of what this institution is all about.  It’s a fit for me because I did serve for many years in Taiwan and I have a great interest in what’s going on over there.  Other members of the Armed Services Committee, other members of Congress, are involved in other systems and know them pretty well, and I value their expertise.

But let’s step back for a minute and say strategically what is the PRC saying about its development of a naval capability?  Captain Lin Shin, a strategist from the Chinese Navy Research Institute, predicted in 1996 that the most powerful naval weapon in future work there would be the submarines, and I will quote a translation from his article.  “After the First World War, the (indiscernible).  In the Second World War it was the aircraft carrier.  If another global war breaks out, the most powerful weapon will be the submarine.”  The most powerful - why?  Well, for the same reason that Trident submarines were so significant in the Cold War, because you don’t know where they are, they’re highly lethal, and you cannot plan offensive activities without targeting the confidence of both systems.  And they can’t be targeted with confidence. 

And so, you see, if you apply that thinking to Taiwan’s defense, once again if you have half a dozen or a dozen subsurface systems that are stealth (phonetic sp.), that are properly equipped but are lethal, that increases the cost of any military adventure in the Straits.  I think Mike pointed out that from the standpoint of sheer numbers, the PRC has a top capability today to launch a very substantial attack on Taiwan. 

But the costs will be high politically, economically, militarily.  I suspect that in the next year the Olympics will be off.  I don’t know, maybe not.  It’s hard to say.  But I kind of have a feeling that some athletes probably wouldn’t show up.  But we all joke about, well, what’s going to happen after the Olympics?  We have to think about what might happen after the Olympics.

So you’re correct.  I (indiscernible), but I think it’s very important. 

Male Voice:  (Indiscernible). 

Mr. Simmons:  I believe that the Administration is planning to place design dollars, design money, into the regular budget to move that initiative forward to regular alert.  That’s my understanding.  In my discussions with (indiscernible) as recently as last week, I got the impression that he was going to promote a similar idea in the April-May time frame.  I asked him to be more specific, and he was not more specific.  But I will continue to lobby for that. 

Once again I can understand completely why Chinese legislators, the Chinese legislators and the Chinese people would be reluctant to commit $12 billion to something that they can’t even see or understand as a package.  But for me, it’s completely understandable that a figure of a couple of hundred million dollars for the design work should go through a regular order (sounds like).  It’s not that large an amount of money. 

I’m reminded of the story of the pygmy in Africa who shot an elephant, and they gathered the tribe around to look at this elephant.  And his wife said, how do you expect us to eat that?   And the answer was, one bit at a time.  I would say that that’s my answer to this program.  This is a sophisticated program.  It’s an important program.  It could be a large program.  But if we’re not willing to take the first bite, then that says to me that it’s over for that aspect of Taiwan’s defense, and I think that’s a serious message to the United States. 

My staff says that I have to leave.  It’s designed to inject a little bit of excitement --

[LAUGHTER].

Mr. Simmons:  -- into this event. 

Male Voice:  (Indiscernible) build submarines for Taiwan if and when Taiwan decides --

Mr. Simmons:  Oh, absolutely.  I’ve got some great ideas.

[LAUGHTER].

Mr. Simmons:  But more seriously, if you go to an electric boat today, 200 designers have been laid off.  They’ve already received their pink slips.  Another 700 could receive pink slips throughout the course of this year.  As anticipated, the 2000 workers in the shipyards will be laid off this year because of inadequate funding.  Now Senators Dodd, Lieberman, and myself are working very hard with our colleagues on the Armed Services Committee to get the early procurement for a second contingent class into this year’s budget.  So we are looking at that as a way of stemming some of the time in the lay offs.  Electric boats operate throughout Connecticut, but they also have a major facility in Quantis Point (phonetic sp.), Rhode Island. 

One of the issues that’s come up is we build the diesel submarines in the Croton (phonetic sp.) facility, which is a controlled industrial area.  That means you need a secret clearance to walk in the gate.  That’s an important issue.  That applies there, but the Quantis Point facility is not a controlled industry.  It’s got substantial space, and it’s not a controlled industrial area.  This is where they do all of the whole sections and the packaging of the whole sections.  And the way you build submarines today, you build them in pieces, in components, and then put them together.  And so I would argue that the United States is not afraid to build these systems for Taiwan, and that we have the capability of doing so.

Male Voice:  One brief follow up.  (Indiscernible) $12 billion.  Is that the price tag (indiscernible). 

Mr. Simmons:  Not in my opinion.  Somewhere in the pile I have a detailed estimate that comes out around eight billion, and other estimates are around six billion.  And that goes back to my earlier point.  If you don’t have a design, you don’t know what the cost is.  That door behind you is made of solid wood.  It’s pretty expensive.  The specification for the door was solid wood with floating panels.  It could have been made an extruded plastic product for a fraction of the price, but it still serves as a door.  So the point I’m trying to make is we need a design.  We need a design that is prepared conceptually and in detail in consultation with the Taiwan navy and their defense forces, so it suits the particular circumstances that they face in that part of the world. 

This is not a submarine that is going to be operating outside the littorals (sounds like).  It’s a submarine that’ll be operating in a purely defensive fashion.  You’re not going to put certain systems on it.  You are going to have other systems on it.  But until you work out that design, conceptually and then specifically, you can’t estimate the cost.  So that’s an important first step. 

And I can tell you personally a few years ago I employed an architect who designed a small house on a piece of property that I have in Vermont.  I spent about $8,000 on the design.  And when we costed it out, it was going to cost a quarter of a million dollars to build this house.  Well, guess what?  I decided not to proceed.  I decided not to proceed because I realized how much it was going to cost.  But I wouldn’t have know that if I hadn’t bought the design. 

So once you work on your design, then you can begin to assess what your costs are, and then you can decide it’s eight submarines or six or more than eight, in which case you have to get another approval from the Administration.  Maybe five or whatever.  You can make a decision based on more detailed information.  But at this point in time there’s no detailed information.  So until you have the design, most of the rest of the discussion is really hot air. 

Male Voice:  (Indiscernible).  I’ve had conversations with the chairman of the Armed Services Committee on this issue, and we’ve talked about other things as well.  But I’ve conversations with him on this issue.  He’s intrigued by the project.  He’s expressed to me that he would like to meet with the Secretary of the Navy specifically on this issue.  And so what I am trying to do on this side of the Pacific is to move the issue forward.  I look to my friends in Taiwan to engage in due diligence on that side of the Pacific.  I look to the legislative Iwan [phonetic] to show interest and to show support. 

And once again, I can understand why they wouldn’t be buying $12, billion, but if they can’t get $200 million, then I would say that that sends an important message.  But on our side of the Pacific we’re working very hard with the State Department, the Defense Department, and members of Congress to move this forward. 

Male Voice:  (Indiscernible).  You know, when you sail on the ocean, you encounter waves.  No big deal.  You move forward.  The issue of the reunification came up when I was in Taiwan and had no impact whatsoever on what I was trying to accomplish.  Since that time, nobody from the State Department or the Defense Department has called me to say we think you should slow down on this because we’re concerned about the unification council issue.  It’s a complicated world.  There are a lot of things going on, and you have to focus on what you think is important and what your priorities are and then move them.  I would say that that was yesterday’s news.  I’m looking to tomorrow. 

Male Voice:  (Indiscernible). 

Mr. Simmons:  Hopefully the Chinese.  I should probably withhold comment on that.  I think that these visits are carefully constructed, and I don’t want to predict what’s going to come out of that.  But I certainly will be looking forward to that. 

Mr. Stokes:  (Indiscernible).  Actually what I’ll do is address (indiscernible).  Let me start off by saying it to you like this.  When you look at what Taiwan is doing (indiscernible) defense budget, and look at the (indiscernible) budget, not (indiscernible) other aspects.  You’re looking at about, let’s ay for example, $8 billion.  About 50 percent of this is dedicated toward personnel expenses.  Fifty percent.  I think roughly 25 is dedicated (indiscernible) new systems and spare parts sort of thing.  Yet another 25 percent is dedicated toward national (indiscernible) or what’s called operations and maintenance, OAM. 

So you’ve got this break-out.  Out of the 25 percent of the eight billion, you’re looking at about two billion a year support for (indiscernible), and these are very, very rough figures.  But you’ve got is two billion.  You’ve got at least about one billion (indiscernible) anywhere from 10 million to 15 million to 1.2 million (indiscernible).  But it’s depending on systems products, American products.  So the notion of Taiwan not buying something (indiscernible) compare (indiscernible) control $1.4 million (indiscernible) the 700 or 800 million (indiscernible) the large (indiscernible) again 800 million (indiscernible) which is a diversification of defense systems (indiscernible).  There’s a lot going on, a lot.  (Indiscernible) mentioned about, yeah, I’ve been working on submarine issues since 1998. 

1998 is when we first started to move away from (indiscernible) not just saying no, but hell no (indiscernible).  We had two Navy groups that went and did surveys, came back and determined that (indiscernible).  And then (indiscernible).  It is standard practice not to launch one phase until you (indiscernible).  And when do a phase program (indiscernible).  But my prediction is the submarine is not going to go forward until the (indiscernible) change the policy (indiscernible).

[LAUGHTER]. 

Male Voice:  (Indiscernible). 

Mr. Simmons:  Let me just thank everybody.  I do have a (Indiscernible) and I’m running a few minutes late for that.  Let me just thank everybody for being here this morning, and let me thank you for hosting this and thank Mark for being here.  This is a very interesting and important topic.  And I will simply that when I listen to President Bush speak his second inaugural address, it reminded in many respects of President John F. Kennedy’s first inaugural address, and I heard both of them.  And there was a commitment to freedom in that address, in both of those addresses. 

I think it is very important to those of us who believe in freedom, and who believe in democracy, and who believe that this is God-given right of all human beings no matter where they are, no matter who they are.  And I think that as an American and as a member of Congress, I am committed to defense of free China.  But at the same time, I know that we have an all volunteer force, and I know that military forces require the support of the American people.  And American moms and dads across the country are willing to commit their sons and daughters to fight for freedom and democracy with others who also are willing to stand up for freedom and democracy. 

But if there’s a perception that we are to do the fighting and others are not, then that undermines the political base and support of our military, and that’s a reality that we have to understand.  And so that’s why this program has become almost symbolic of our defense relationships and why I think it’s so important.

Again, thank you all very much for being here.  I appreciate it. 

[APPLAUSE]. 

Mr. Blumenthal:  (Indiscernible) anything else to say in sum. 

Female Voice:  (Indiscernible).  

Mr. Blumenthal:  A few more questions for Mark Stokes. 

Male Voice:  (Indiscernible). 

Mr. Stokes:  Let me first address the readiness issue.  (Indiscernible) we have an opportunity (indiscernible).  There are issues as to the recommendation for Taiwan, and there are issues associated with some of the logistics issues.  Part of it is understandable.  Again it goes back to the transformation issue that I mentioned before (indiscernible).  As of 1 January they completely shifted their logistics construction, significantly reducing the power of each individual service and consolidating a lot of logistic functions in terms of spare (indiscernible) benefit to the (indiscernible). 

They’re also beginning to, what’s called “outsource” a lot of the repair and maintenance of (indiscernible) fighter, navy combatants, and army equipment as well.  It’s in a state of flux, and there is help that’s needed in the (indiscernible) funding made available for readiness.  I’m not an expert in (indiscernible).

[END OF SIDE B.][END OF SESSION.]