Defense Industry

President Tsai and the DPP proposed in 2016 develop the domestic defense industry in the interest of both national security and economic growth. The government must “transform the current dynamic of competition for resources between defense and economic growth into a mutually beneficial relationship,” Tsai wrote in the forword to the DPP’s Defense Policy Blue Paper No. 12: Preparing the Development of Indigenous Defense Industry issued in May 2015. But skeptics consider the DPP defense-industry policy initiative to be aimed simply at garnering political support from small and medium-sized manufacturers who might be led to believe they would benefit from the plan.

Taiwan has a strong private-sector industrial base, but domestic production of defense equipment has traditionally been dominated by organizations run directly by the Ministry of National Defense and the Ministry of Economic Affairs. Domestic production has been concentrated in three organizations: The Chung Shan Institute of Science and Technology (CSIST), the Combined Service Forces (CSF), and the state-run Aerospace Industrial Development Corporation (AIDC). Academic institutions and public enterprises, most notably the China Shipbuilding Corporation, have also played an important role in the production of defense equipment.

The Army Ordnance Readiness and Development Center handles R&D, production, and maintenance of armored vehicles. The Army Missile Service Division has the depot maintenance capability for the Hawk and Patriot missiles. 14 private satellite factories are contracted to produce parts and components for armored vehicles.

Taiwan has traditionally relied heavily on U.S. suppliers for its defense equipment needs. From World War II through 1979, when diplomatic relations shifted to recognition of the Peoples Republic of China, the U.S. and Taiwan enjoyed a strong military alliance. At the same time the United States recognized the PRC, the Taiwan Relations Act was put in place by Public Law, obligating the U.S. to provide defensive support through military equipment sales. Since then, the U.S. Government and U.S. defense contractors have continued to sell defensive military equipment and supplies to Taiwan.

While the United States retains the largest market share of the Taiwan military's business, recent procurements from other countries have strengthened new international friendships for Taiwan. For example, France has established a clear presence in the sale and delivery of six Lafayette Frigates and 60 Mirage 2000-5 Fighters, and regularly competes for individual weapons systems and support equipment. In addition, Taiwan procured two submarines from Holland and minesweeper ships from Germany. This has resulted in a slight decrease in dependence on the United States for support, and more international competition for Taiwan's budget among the world's defense contractors.

Research and development of national defense technology is often in direct proportion to the degree of a nation's industrialization. While the ROC industrial sector has made considerable progress over the past decade, most of it has in fact been confined to machining components and light manufacturing. The MND has long made use of the National Defense Industrial Development Fund to assist public and private enterprises in cultivating qualified technical personnel and purchasing facilities, transferring advanced technology, and developing a more sophisticated production base that one day promises a fully self-reliant defense industry.

The MND issued the Defense Science and Technology Development Plan to strengthen cooperation between the academic and industrial sectors, and has, along with several cabinet-level institutions such as the National Science Council, the Ministry of Education, and the Ministry of Economic Affairs, set up the Executive Committee for the Development of Defense Science and Technology (ECDDST). With its two subdivisions, the Academic Cooperation Group and the Industrial Cooperation Group, the ECDDST taps academic resources for researching defense technology and makes use of the industrial sector to develop and manufacture weaponry and armaments.

The primary weapon systems of Taiwan's military include IDF, F-16, and Mirage 2000-5 fighters; significant numbers of attack and other helicopters; E-2 reconnaissance planes; Sidewinder, Maverick, Sparrow, Mica, and Magic missiles; and Sky Sword I and II missiles. The First, Second and Third Air Force Logistics Commands are responsible for maintaining fighters, trainers, carriers, and helicopters, as well as overhauling the parts and of components of missiles, avionics systems and aircraft. There are 10 private factories contracted to produce parts and components for the Air Force.

As a result of the lifting of restrictions on outsourcing contracts for military suppliers, qualified private satellite plants for manufacturing and maintenance have been established under a market mechanism. Over 200 private firms accept contracts to develop and manufacture roughly 1,000 parts for military aircraft, missiles, avionics, and armored vehicles.

The First, the Second, and the Third Local Logistic Commands of the Air Force are capable of maintaining existing fighters, trainers, carriers, and helicopters, as well as overhauling the parts and component of missiles, avionics systems, and aircraft. There are 10 private factories contracted to produce parts and components for the Air Force.

In 2003, the military started opening the military aircraft maintenance market to the civilian sector and plans to further convert the Second Air Logistic Depot to "Government-Owned, Contractor-Operated" (GOCO) in 2004. It is estimated that Taiwan's military maintenance market will have a value of more than US$500 million by 2005.