Taiwan Submarine Import and Export Behavior
Hai Lung-Class (Improved Zwaardvis) Submarine, R.O.C. Ministry of National Defense, www.mnd.gov.tw
For two decades, Taiwan has attempted to procure submarines from the United States and numerous European shipyards and navies, but Chinese pressure has prevented any sales since a Dutch submarine deal in the early 1980s.
Wilton Fijenoord Shipyard and Rotterdamsche Droogdok Maatschappij B.V. Submarines (RDM)
Contacts between the Wilton Fijenoord shipyard and Taiwan date back to 1981 when the Dutch company signed a contract for two Hai Lung-class (improved Zwaardvis) boats. In 1983, while these boats were under construction, the Taiwanese government expressed its interest in additional vessels.  However, China threatened the Netherlands with economic and diplomatic retaliation, illustrating its resolve through a temporary cessation of diplomatic relations and the downgrading of its embassy in Amsterdam to a representative office for three years.  In 1984, the Netherlands and mainland China issued a joint communiqué barring any future exports of "strategic" items to Taiwan, while China committed itself to increased imports from the Netherlands.
Nonetheless, believing that a sale of unarmed vessels would still be possible and encouraged by parliamentary support, another Dutch shipyard, RDM, engaged in negotiations on the licensed construction of Walrus-class boats in Taiwan with components to be delivered by RDM.  The shipyard's general optimism concerning the export of submarines was also illustrated by its 1988 agreement to partner with the Wilton Fijenoord shipyard on the construction of Hai Lung-class vessels were Taiwan to order additional vessels. While the latter company owned the design to the boats, it had ceased to built new units, leaving RDM as the only operational Dutch submarine builder. 
Despite pressure exerted by local trade unions, members of parliament and Taiwan, in 1992 the Dutch government decided not to grant a license for the export of 10 submarines.  In 1996, RDM changed owners and with it came a renewed determination to export submarines. The company acquired two decommissioned Zwaardvis-class vessels from the Dutch Navy, hoping to resell them.  In the same year, a planned visit by the Chinese prime minister to the Netherlands was cancelled, reportedly in response to a potential submarine sale to Taiwan.  Under pressure to find buyers for both its used Zwaardvis- and new Moray-class boats, RDM continues to be accommodating, offering to transfer blueprints and allow licensed production at U.S. yards for eventual export to Taiwan.  The Dutch government has repeatedly expressed its strict adherence to a "one China" policy, excepting however, the export of any submarine related material with Taiwan as the end user. 
HDW has been in negotiations concerning submarines for Taiwan since 1986, and a Letter of Intent was signed in 1987. The case was later submitted to Germany's Federal Security Council in 1993 and 1995.  It was rejected both times by the Helmut Kohl government, which was pursuing aggressive commercial diplomacy toward China at the time, increasing German foreign direct investment and putting an emphasis on the "one-China principle." Pressures by large German companies, which are interested in the Chinese market and fear retribution in the case of a submarine sale, have contributed significantly to the restrictive policy on arms exports to Taiwan.  Former Chancellor Gerhard Schröder pushed for the submarine sale to Taiwan when he was a state premier, but changed his position after becoming chancellor, instead continuing Kohl's pro-China approach. 
Schröder's policy may not have been entirely clear when President George W. Bush promised eight diesel-electric submarines to Taiwan in 2001 without consulting with the German government, whose submarines were favored by the Taiwanese.  Similarly, when acquiring HDW, Chicago-based Bank One seems to have been counting on a more relaxed interpretation of German arms export regulations. It had no previous experience with the defense market and entered the field with the purchase of a controlling stake and later complete ownership of the German submarine maker.  It was thus widely assumed that Bank One was acting in the interest of a U.S. defense company, which in turn was interested in the lucrative deal with Taiwan. 
HDW itself seems to have believed that the submarine sale would be granted a license. It formed a strategic alliance with Northrop Grumman in order to pursue the development and sale of submarines and surface vessels in new markets, such as Taiwan and Egypt.  The hulls and propulsion systems were to be produced at HDW in Germany, while weapons systems and electronic parts were to have been provided and installed by Northrop Grumman in the United States. HDW appears to have believed that this would be in compliance with German export regulations.  The German government's eventual explicit prohibition of arms exports to Taiwan led to decreased cooperation between HDW and Northrop Grumman. The collaboration between the two companies has been reduced to the development and sale of surface vessels.  Bank One's eventual sale of HDW also appears to indicate that it has given up on a sale to Taiwan.
The merger between HDW and ThyssenKrupp is likely to halt any further pursuits of the deal with Taiwan, as ThyssenKrupp has significant contracts in China. 
As exports by Germany and the Netherlands to Taiwan became increasingly unlikely, Taiwan requested help from the United States in 1995.  In 2001, President Bush expressed his commitment to help Taipei acquire eight submarines as part of an arms sale package.  Initially, it was thought that U.S. shipbuilders could obtain these boats through European producers, which have significantly more experience in constructing diesel-electric submarines. However, in accordance with their previous actions, Germany and the Netherlands refused to provide vessels that would be exported to Taiwan, even if the exchange was made through the United States.  Another option explored was for the United States to help Taiwan acquire used or refurbished boats, which would be significantly cheaper and quicker to obtain. The Italian Ministry of Defense reportedly agreed to sell four Sauro-class boats, as well as an additional four following their decommissioning by the Italian Navy. But Taiwan rejected this offer, preferring instead to acquire new submarines.  Taiwan also reportedly considered the purchase of Kilo-class submarines from Russia, although Taiwanese Navy officials denied these claims.  Finally, the United States considered building the submarines itself, with the most likely location being the Ingalls shipyard in Pascagoula, Mississippi, owned by Northrop Grumman.  This deal never materialized due partly to concern in the United States that constructing diesel-electric submarines would harm the nuclear submarine industry, and partly to political wrangling in Taiwan over the price.
Although Taiwanese officials have reiterated their commitment to purchasing submarines, the United States has remained noncommittal, and the Obama administration did not include the vessels as part of a 2010 arms package. 
Many in the Taiwanese legislature have supported the idea of increased technology transfer and domestic participation as part of a potential submarine sale from the United States. In May 2002 Taiwan's legislature passed a resolution requiring that at least six of the vessels be built in Taiwan. The following year, in October 2003, legislators in Taipei proposed that the state-run China Shipbuilding Corporation (CSBC) build one-third of the third and fourth submarines, two-thirds of the fifth and sixth and the final pair on its own. However, the Taiwanese National Security Council and legislature also indicated their concerns about price increases, schedule delays, and problems with quality standards that could potentially result from local construction.  Such plans also may not be fully supported by the navy and the Ministry of National Defense, due to their concern that they may not receive submarines at all, since the United States promised help with the acquisition of boats and not with the capability to construct them. 
There have been numerous calls for Taiwan to build the submarines solely with its domestic capability, although outside analysts believe that at least some foreign assistance would be necessary. 
While there is little doubt that the island country could join the ranks of South Korea, Turkey, Greece, India, Pakistan, Australia and other under-license submarine-producing countries, an indigenous program would run into difficulties over crucial technologies, especially command and combat systems. Since it is unlikely that Germany, Sweden, the Netherlands, Spain, and Australia, which ruled out direct and indirect submarine sales to Taiwan, will change their export policies, Taiwan would still have to rely on U.S. companies to supply the aforementioned systems.  In 2012, the CSBC Chairman argued that his company had the capacity to build the submarine platforms, but Taiwan would still have to acquire weapons and communications systems from abroad. 
The Republic of China on Taiwan is an importer of submarines and does not export them.
 Walter Ellis, "Australia ponders order for Dutch submarines," Financial Times, 12 December 1983, in Lexis-Nexis Academic Universe, www.lexis-nexis.com.
 "Dutch deliberating Taiwanese sub sale," United Press International, 13 February 1992, in Lexis-Nexis Academic Universe, www.lexis-nexis.com; T'ang Sheng, "Mainland strengthens prowess of submarines to deter 'Taiwan Independence' forces," Ching Pao, September 1, 2002; in FBIS Document "Taiwan's efforts to 'counter submarines with submarines' 'wishful thinking'," CPP20020905000021; "Groen licht Bush voor Wapenpakket Taiwan," De Telegraaf, 25 April 2001, in Lexis-Nexis Academic Universe, www.lexis-nexis.com.
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 Alan Dickey, "Special report on the Netherlands: shipbuilding orders down," Lloyd's List International, 18 February 1992, in Lexis-Nexis Academic Universe, www.lexis-nexis.com.
 "Holland offers to help ROC build submarines," Central News Agency, 28 January 1993, in Lexis-Nexis Academic Universe, www.lexis-nexis.com; "RDM in row over Taiwan subs bar," , 19 February 1992, in Lexis-Nexis Academic Universe, www.lexis-nexis.com.
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 Andreas Rinke und Michael Backfisch, "HDW's submarine cooperation criticized," Handelsblatt, 16 August 2002; in "German HDW Agreeing on Cooperation with Northrop Grumman," FBIS Document EUP20020816000196; Kay Moeller, "U.S.-German Relations and U.S.-China Irritations," American Institute for Contemporary German Studies, www.aicgs.org; "Kommission gerät wegen Genehmigung der HDW-Übernahme unter Druck," Frankfurter Allgemeine Zeitung, 4 June 2002, in Lexis-Nexis Academic Universe, www.lexis-nexis.com.
 Lien-Ho Pao Interview with Hannfried Haun by Chen Yu-Hui, "HDW will supply submarine hull to the United States for assembly," Lien-Ho Pao, 14 September 2002; in "Lien-Ho Pao interview with Germany's HDW on building submarines for Taiwan," FBIS Document CPP20020916000036; Kay Moeller, "U.S.-German Relations and U.S.-China Irritations," American Institute for Contemporary German Studies, www.aicgs.org.
 Kay Moeller, "U.S.-German Relations and U.S.-China Irritations," American Institute for Contemporary German Studies, www.aicgs.org.
 J.A.C. Lewis and David Mulholland, "Thales, DCN mull HDW buy," Jane's Defence Weekly, 16 July 2003, http://jdw.janes.com.
 David Mulholland et al., "US bank takeover of HDW raises technology issues," Jane's Defence Weekly, 20 March 2000, http://jdw.janes.com; Jürgen Erbe, "Germany fears HDW sale will yield technology to USA," Jane's Defence Weekly, 10 July 2002, http://jdw.janes.com.
 Jürgen Erbe, "Germany fears HDW sale will yield technology to USA," Jane's Defence Weekly, 10 July 2002, http://jdw.janes.com.
 Lien-Ho Pao Interview with Hannfried Haun by Chen Yu-Hui, "HDW will supply submarine hull to the United States for assembly," Lien-Ho Pao, September 14, 2002; in "Lien-Ho Pao interview with Germany's HDW on building submarines for Taiwan," FBIS Document CPP20020916000036; Meite Thiede, "Neuordnung im HDW-Aktionärskreis," Süddeutsche Zeitung, 25 September 2002; in Lexis-Nexis Academic Universe, web.lexis-nexis.com; "USA bieten Taiwan deutsche U-Boote an," Süddeutsche Zeitung, 22 July 2002, in Lexis-Nexis Academic Universe, web.lexis-nexis.com.
 "Kockums joins Northrop Grumman 'composite' team," Jane's Defence Industry, 1 December 2002, http://jdi.janes.com,.
 Ch'en Yu-hui, "The German Company Howaldtswerk Deutsche Werft May Fall into the Hands of Communist China," Lien-Ho Pao, August 6, 2003; in "Lien-Ho Pao: German-China Joint Venture Firm Threatens Taiwan Submarine Program," FBIS Document CPP20030806000086.
 Deborah Kuo, Central News Agency, 26 October 2003; in "CNA: U.S. Navy team arrives to report submarine procurement plan," FBIS Document CPP20031026000032.
 "Wade Boese, "Bush Approves Major Arms Deal to Taiwan, Defers to Aegis Sale," Arms Control Association, May 2001, www.armscontrol.org
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 J. Michael Cole, "Taiwan Giving Up on U.S. Subs, Eyeing Local Plan: Analyst," Taipei Times, 15 December 2011, www.taipeitimes.com; Wendell Minnick, "Submarine Decisions Show Lack of Creativity," Taipei Times, October 16, 2004; in Taiwan Security Research Website, taiwansecurity.org; Sofia Wu, Central News Agency, November 10, 2003; in "CNA: Taiwan defense minister reaffirms determination to buy submarines," FBIS Document CPP20031110000167.
 Jyh-Perng Wang, "Is Russia Helping Taiwan Build Submarines?" China Brief, Vol. 11, Issue 4, 10 March 2011, www.jamestown.org; Tiffany Wu, "Taiwan eyes submarines, anti-missile system," Reuters News Agency Website, www.reuters.com, August 30, 2003.
 Sharon Behn, "U.S. to Build 8 Subs in Deal with Taiwan," The Washington Times, 29 September 2004, www.lexisnexis.com; Pamela Hess, "Ingalls May Build Submarines for Taiwan," United Press International, 24 April 2001, www.lexisnexis.com.
 Shirley A. Kan, "Taiwan: Major U.S. Arms Sales Since 1990," CRS Report RL 30957, 21 May 2012, www.fas.org.
 Deborah Kuo, Central News Agency, October 26, 2003; in "CNA: CSBC capable of building subs: German consultants," FBIS Document CPP20031026000040; Hsu Shao-shuan, "The probability is low to realize local manufacturing of submarines," Tzu-Yu Shih-Pao, October 28, 2003; in "Taiwan daily notes problems likely to block domestic manufacturing of submarines," FBIS Document CPP20031031000115.
 Brian Hsu, Taipei Times, November 1, 2003; in "Taiwan: China Shipbuilding looks to expand defense production," FBIS Document CPP20031104000205; Taijing Wu, Taiwan News, November 3, 2003; in "Taiwan lawmaker threatens to freeze submarine budget if not built locally," FBIS Document CPP20031103000185; Brian Hsu, Taipei Times, November 4, 2003; in "Taiwan: domestic submarine construction plan support faltering," FBIS Document CPP20031104000133; Sofia Wu, Central News Agency, November 3, 2003; in "CNA: young reservists to be recalled first if cross- strait war erupts: Mnd," FBIS Document CPP20031103000159.
 "Submarine Forces, Taiwan," Jane's Underwater Warfare Systems, 16 June 2011.
 David Lague, "Coming about," Far Eastern Economic Review, 13 December 2001. Vol. 164, No. 49, pp. 19; in ProQuest Information and Learning Company, http://proquest.umi.com.
 "Defense Ministry Lambasted over Submarine Plans," Taipei Times, 30 March 2012, www.taipeitimes.com; "Taiwan May Build Its Own Submarines: Official," Agence France Presse, 29 March 2012, www.lexisnexis.com.
This material is produced independently for NTI by the James Martin Center for Nonproliferation Studies at the Monterey Institute of International Studies and does not necessarily reflect the opinions of and has not been independently verified by NTI or its directors, officers, employees, or agents.
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