Sat, Dec 06, 2008 page8

• John Tkacik ON TAIWAN: Pricing Taiwan’s missile defense

  • By John John Tkacik
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  China’s missile deployments against Taiwan are the single most dangerous threat to the nation’s sovereignty, yet some insist that Taiwan either doesn’t need the Patriot Advanced Capability (PAC-3) missile defense system or that the US is trying to cheat Taiwanese taxpayers with hidden PAC-3 price tags — or both. Both charges are false and the latter borders on insulting.

  The fact is both Taiwan and the US have a vital interest in seeing that PAC-3 ballistic missile defense systems are deployed in Taiwan and neither can afford to allow political grandstanding to unhinge the historic bilateral security relationship. Both Washington and Taipei should approach the ongoing PAC-3 pricing consultations in a spirit of cooperation, maturity and a sense of common vulnerability to China’s ever-expanding missile threat.

  There is much misinformation and disinformation about the PAC-3 sale. Two Chinese Nationalist Party (KMT) legislators, Shuai Hua-min (帥化民), a former army general, and Lin Yu-fang (林郁方), said the US government has suddenly added US$800 million in hidden “research and development costs” to the PAC-3’s US$3.1 billion price tag. Both legislators are familiar with defense procurements, and both must be aware that “nonrecurring engineering” (NRE) costs are a fact of life in every order for advanced US weapons systems. But the US$800 million fee quoted by the legislators seems very high and I suspect it is exaggerated.

  

  Still, NRE fees are a line-item consideration in all new weapons systems that the US offers for export — and the PAC-3 system is one of the newest systems that the US shares with friendly and allied countries. Kuwait purchased the same missiles last year (80 missiles and launch systems), as have the Netherlands and Japan. The United Arab Emirates has a deal almost the same size as Taiwan’s. They all face NRE costs in one form or another (some in cash, some in kind) and they can be negotiated. In fact, Taiwan’s unit price for the actual PAC-3 missiles — about US$3 million — is considerably less than the US$4 million unit price that Japan paid in 2004. Taiwanese legislators should know that including NRE costs on major foreign military sales is nothing new.

  Behind the NRE fee is the fact that the Pentagon must try to normalize “asynchronous” order streams as new orders for advanced weapons come from the US’ friends and allies around the world. By “asynchronous” I mean that as each order for a particular new weapons system reaches the Pentagon, the system itself is at a new and distinct stage of maturity. Therefore, the associated quantities, delivery schedules and latest upgrades must be factored into each separate incoming order after the customer gets the initial pricing data. NRE costs can include special ordering of long-lead items, tooling, line expansion or anything else that is required to accommodate increased production lots beyond the orders from the Pentagon.

  In the case of the PAC-3 system, NRE costs can also be associated with the radar sets, tactical command stations, information and coordination centrals, communication replay groups, engagement control stations, the launch tubes and carriers and a series of other subsystems that are custom-made for each PAC-3 contract. As such, each new PAC-3 missile defense order from each new country is treated as a standalone case and each country has NRE costs associated with its individual order. In practice, once all of the individual sales cases are “normalized” there is a reconciliation of NRE charges.

  It is also possible that, if the Pentagon determines that the PAC-3 sale is in the interests of the US’ national security, it could waive NRE recoupment under authority granted by Congress several years ago.

  I strongly urge both US and Taiwanese defense specialists to take this seriously. After all, a robust Taiwanese missile defense capability is not just in Taiwan’s interests, but is also in the most vital national security interests of the US.

  A few weeks ago, the US Secretary of State’s International Security Advisory Board warned of the “emerging creep toward a Chinese assured [nuclear weapons] destruction capability” against the US and that the US “will need to pursue new missile defense capabilities” to counter the threat. Earlier this month, the chief of the US Missile Defense Agency, General Henry Obering, said that his agency had not fielded “missile defense components to counter a Chinese threat,” but that “we are certainly cognizant of what the Chinese are doing in their missile development program.”

  I have long pointed out that Taiwan’s unique geographic location (and its high mountains) offers great potential for US-Taiwan missile defense cooperation. An integral part of Taiwan’s PAC-3 missile defense system is the large phased-array missile defense radar (sometimes called “PAVE PAWS”) that Taiwan purchased last year (now under construction). It has the potential to be integrated into a global missile defense architecture shared by Asia’s democracies. The PAVE PAWS phased array radar can see 3,000km into China and give Taiwan, as well as Taiwan’s friends (the US, Japan and India among others), six full minutes of additional ballistic missile early warning. The intelligence from its radar telemetry can also support joint efforts to develop countermeasures against new Chinese ballistic missile and cruise missile threats. This alone should warm the Pentagon’s collective heart to the idea of mitigating a PAC-3 NRE price tag for Taiwan.

  The US has thus far only approved 330 PAC-3 missiles for Taiwan. That must be seen as just the initial order given Taiwan’s requirement for more than 1,000 — a number that must be commensurate with the Chinese deployments. Current pricing indicates that the unit price of a PAC-3 is declining to an amount closer to the unit costs of China’s offensive missiles.

  Frankly speaking, there are policymakers in both Washington and Taipei who are loath to see Taiwan’s continued reliance on the US and other Asian friends for security and who would prefer to have Taiwan’s security become Beijing’s responsibility. They will argue that any further sales or transfers of US weapons to Taiwan antagonizes Beijing and inhibits the rapidly unfolding process of economic, social and political integration of Taiwan into China.

  Of course, in Washington, that would mean abandoning the Taiwan Relations Act, which states “it is the policy of the United States ... to maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan.”

  China, in the meantime, sees its swelling ballistic and cruise missile forces as essential tools of coercion against Taiwan. Chinese leaders are determined to expand those forces despite the plaintive efforts of President Ma Ying-jeou (馬英九) to persuade China to reduce — or even to slow the growth of — the number of missiles targeting Taiwan. Taiwan’s lack of missile defense makes it essentially defenseless and leaves Taiwanese leaders with little capacity to resist Chinese threats.

  In the grand scheme of things, the more than 1,300 missiles deployed across the Taiwan Strait are a small part of Beijing’s overall economic as well as military ability to force or coerce Taiwanese into unwilling decisions about their relationship with China. But virtually all other tools of Chinese coercion can be resisted for some time or involve protracted costs for Beijing. Offensive missile attacks on Taiwan are virtually cost-free (except for the sunk costs of the missiles themselves) and can harm Taiwan in a matter of days. Taiwan, the US and the rest of Asia’s democracies have a vital interest in building defenses against that threat.

  Unless, of course, Americans, Taiwanese and other Asians are content with the idea of having China in charge.

  John Tkacik is a senior research fellow in Asian studies at the Heritage Foundation.
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