In late 2007, the administration of then Taiwanese President Chen Shui-bian decided to invest public funds into the creation of a private entity, Taiwan Goal, to help facilitate Taiwan’s arms procurement and development. However, in early 2008, Chen’s government reversed its decision after serious questions were raised about the validity of such a move and suspicions arose that the company would be used to enrich Chen and his supporters. Although administration officials argued that Taiwan Goal was legally established and that its purpose would be to improve Taiwan’s ability to coordinate defense acquisitions and exports, the controversy increased the rancor between rival Taiwanese political factions in an already heated election year. To quiet the criticism, Defense Minister Lee Tien-yu resigned and the company was disbanded. [1]

Although the Taiwan Goal controversy revolved primarily around concerns of legislative oversight and graft, it also pointed to a number of issues with regard to Taiwan’s defense spending and development that could raise concerns about foreign technology transfers to Taiwan. The controversy apparently created doubt in Washington about Taiwan’s defense procurement and development practices; soon after the story about Taiwan Goal emerged, the U.S. government tightened technology transfer-related restrictions on an earlier agreement to sell military aircraft to Taiwan. [2] From a wider perspective, if Taiwan Goal or another private firm were to operate as originally perceived — outside the purview of the Taiwanese legislature — the risk of proliferation of sensitive technologies, particularly missile-related technologies, could increase.

Taiwan Goal and Election-Year Politics
The timing of the Taiwan Goal scandal could not have been worse for Chen’s party, the Democratic People’s Party (DPP). With an approval rating hovering around 20 percent, Chen saw his party lose its legislative majority in January 2008; more recently the Koumingtang (KMT or Nationalist Party) candidate Ma Ying-jeou easily defeated his DPP rival Frank Hsieh for the presidency on March 22, 2008. The DPP’s losses to the KMT were largely predicted due to the growing unpopularity of Chen and his government. Chen’s administration has been blamed for the lagging Taiwanese economy and increased tensions with China, but the electorate was also reacting strongly to a number of public examples of corruption coming from the DPP-led administration, including the Taiwan Goal case. [3]

Taiwan Goal was officially established in early January 2008 with about NT$1 billion ($31.15 million) in capital; the largest share of the capital – 45 percent – came from the Ministry of National Defense (MND), with formerly state-owned China Steel Corporation providing 25 percent of the total amount, and parastatals Yao Hua Glass and Chunghwa Telecom each investing 15 percent. [4] According to the Chen administration, Taiwan Goal was created to oversee Taiwan’s defense-related research and development, indigenous defense manufacturing, and the import and export of military-related materials and equipment. [5] Administration officials argued that the purpose of creating the company was to improve coordination between international military suppliers and local defense firms in order to better cooperate on military system maintenance and manufacturing. [6] Coordination by a private entity, according to DPP officials, was important because the Taiwanese government often encounters difficulties in dealing directly with other governments due to the island’s ambiguous political status. One official noted that Taiwan’s current inability to undertake joint development projects with other countries forces the Taiwanese military to purchase foreign arms, without gaining technical expertise that would allow indigenous production and maintenance. [7] The official further observed that creation of a private coordinating entity would allow Taiwanese firms to overcome this problem and increase local industry’s ability to export domestically developed technologies or weapons. [8]

Despite these claims, commentators, particularly from the rival KMT, were suspicious of the motives of the Chen administration in setting up the firm. The decision to create and invest in the firm appears to have been kept secret and the Legislative Yuan (Taiwan’s parliament) did not become aware of the establishment of the company until after it’s registration was formalized by the Ministry of Economic Affairs. [9] Taiwanese law specifies that “state-owned companies” are subject to oversight by the Legislative Yuan. However, since Taiwan Goal was established as a private enterprise, it could act independently of the legislature, even though the MND and two parastatals were three of the four largest shareholders. Of the seven-member board of directors, only three seats had been allotted to the government; the other seats were reserved for DPP supporters and officials. The chairmanship of the board was given to long-time Chen supporter, Wu Nai-jen. Many in the KMT, as well as other outside analysts, saw the establishment of Taiwan Goal as an overt maneuver by Chen and his supporters to remain involved in Taiwan’s defense procurement even after the elections, as well as to gain financially from future arms sales. [10] To pressure the DPP government, KMT officials threatened to put through a resolution in the Legislative Yuan to forbid the MND from signing any contracts with Taiwan Goal. [11]

Taiwan Goal Gone, but Questions Remain
Due to the controversy, the Taiwan Goal board of directors dissolved the company as of March 19, 2008. Although the company has been disbanded, the controversy surrounding the firm has affected scheduled arms sales from the United States. The MND had, according to some reports, planned to have Taiwan Goal coordinate the most recent arms deal with Washington. The deal was to include the sale of a number of military helicopters, as well as 12 P-3C anti-submarine aircraft, with eight of the P-3Cs to be assembled in Taiwan. Had this arrangement gone through, the company would have reportedly garnered a significant commission on the deal. [12] However, after controversy about the company surfaced, Washington retracted its offer to allow eight of the anti-submarine aircraft to be assembled in Taiwan, increasing the costs to Taiwan and severely restricting the amount of expertise that could have been gained from assembling the aircraft domestically. [13]

The creation of a private Taiwanese firm like Taiwan Goal, especially if the company lacks significant legislative oversight, should also raise some concern in Washington and elsewhere about the security of sensitive military technologies. Under Chen, Taiwan had moved forward with development of longer-range cruise missiles, namely the Hsiung Feng-2E (HF-2E). Although this missile has only been tested up to 600 kilometers (km), many analysts estimate that the HF-2E could reach up to 1,000 km with a payload capacity of 400 kilograms (kg). [14] While the recent win by the rival KMT should improve relations with China, it is unlikely that the new government will significantly slow work on Taiwan’s missile programs. As Taiwan’s missile capabilities improve, so will the ability of local firms to export related technologies and equipment.

The U.S. government has been concerned about Taiwan’s export control capabilities in the past and has raised the issue on several occasions with Taiwanese officials. [15] Due to Taiwan’s ambiguous international status, Taipei cannot join export control regimes such as the Wassenaar Arrangement or the Missile Technology Control Regime (MTCR). This exclusion has limited Taiwan’s ability to sustain a strong and effective export controls system. [16] Taiwanese companies have previously been sanctioned by the U.S. government for trade with Iran; likewise Taiwanese officials have found it difficult to control the flow of sensitive commodities to China, despite extra restrictions in place on exports to the mainland. [17] Taiwan has reacted to international concerns about proliferation by increasing restrictions on trade to Iran and North Korea.[18] However, creation of a Taiwanese private firm with significant autonomy to undertake transactions with foreign suppliers and customers could have seriously strained the capabilities of the Taiwanese export control system.

Conclusion
The election of the KMT candidate Ma Ying-jeou may have completely put to rest the Taiwan Goal controversy, since the officials involved in the creation of the company will depart from the government with the change of administration. However, with a majority in the legislature and control of the presidency, the KMT may also be interested in reestablishing such an organization in the near future. Considering the complicating factors involved in Taiwan’s procurement and development of military equipment and materials, the arguments set forth by DPP officials defending the creation of Taiwan Goal have merit. However, the existence of an autonomous entity may complicate the Taiwanese government’s ability to control the transfer of technology and equipment, making Taiwan a possible target for proliferation networks.

Stephanie Lieggi – Monterey Institute James Martin Center for Nonproliferation Studies