TAIPEI - Taiwan is chronically in need of advanced weaponry that the US is hesitant to supply. One solution is that the island build its own, and the prospect of keeping much of the US$9.2 billion defense budget within the economy is much to the liking of the Taiwanese government.

A recent report on the impact a sale to Taiwan of 66 tactical fighter aircraft would have on the US economy illustrates how much the US gains by exporting arms to Taiwan, and in turn, how much the island misses out on by importing them.

The tactical fighter deal might fail to materialize as Washington shies away from upsetting Beijing, but the economic figures are telling. Perryman Group, a US economic and financial analysis firm, predicts that hundreds of communities across the US would benefit substantially through the production of the F-16C/Ds requested by Taiwan, as the project involves the manufacture of numerous parts and equipment.

Close to $8.7 billion in gross product would be created in the US, and 16,000 annual jobs. About $1.4 billion would end up as tax revenues in US coffers, according to the report.

Support in Taiwan for the view that as much of the defense budget as possible should be spent on the island is being strengthened by signs that the next release of brand-new US-made arms won't happen soon, if at all.

President Ma Ying-jeou's policy now "aims at boosting the local defense industry", Wang Jyh-perng, an associate research fellow at the Association for Managing Defense and Strategies, told Asia Times Online. "His mindset was revealed when he inaugurated locally manufactured missile boats last year and upgraded Indigenous Defense Fighters (IDF) recently. On both occasions, Ma expressed a telling degree of approval and satisfaction."

The stealthy Kuang Hua VI class missile boats Wang refers to are being built domestically and equipped with Taiwan-made weapon systems, the most notable of which is the subsonic HF-2 anti-ship missile. The HF-2's successors will be the supersonic HF-3, estimated to cost Taiwanese taxpayers over $3 million each.

The domestically built IDFs were introduced to the air force in 1994. They have now been given a Taiwan-made mid-life upgrade involving improvements to avionics and flight control systems, and new triple-color heads-up displays and anti-electronic jamming functions.

In another "Made in Taiwan" item of interest to potential overseas buyers, the Taiwanese navy has developed an absorbent paint that can provide stealth capabilities.

Local production of defense equipment has been dominated by organizations run directly by the government, with the Chung Shan Institute of Science and Technology (CSIST) and the state-run Aerospace Industrial Development Corp (AIDC) at the forefront.

CSIST designs and mass-produces a range of military equipment, from missiles and rockets to products for corrosion prevention. AIDC is connected to CSIST, mainly handling the upgrades of Taiwan's IDF fleet. Formerly state-owned CSBC Corporation, which was privatized in 2008, makes ships for civilian use, patrol frigates, combat support ships and fast-attack craft, most of which coming with guided missile systems.

Given that two decades ago Taiwan produced what was then a top-notch fighter aircraft and continues to make advanced weapon systems (while also now being a major exporter of small arms and ammunition even the US military relies on), the question arises why the Taiwanese remain in need of US help for larger and advanced platforms.

A second question concerns how this might change in the event that US support for Taiwan weakens under Beijing-friendly US President Barack Obama.

"As for the Taiwan defense industry in general terms, there is plenty of promise in what may be accomplished by the industry as a whole, particularly in the area of missile technologies, communications, cyber warfare and smaller platforms that can be outfitted with indigenous capabilities such as the HF-3 on the Kuang Hua No 6 missile boats," Rupert Hammond-Chambers, president of the US-Taiwan Business Council, told Asia Times Online.

The council functions as a go-between between Taipei, Washington and the US defense industry, and Hammond-Chambers arguably is among the most often quoted Western experts on Taiwan military matters.

Hammond-Chambers was more skeptical on Taiwan's ability, even though it had produced IDFs, to build substitutes for the US-made F-16C/Ds.

"Taiwan certainly has some technologies that were developed for the production of the IDF," he said.

"However, this airplane [the IDF] was built almost 20 years ago, and the technologies required need to have been developed over that time to produce a fourth- or fifth-generation fighter now that would adequately replace the F-5s and Mirage 2000s" at present used by Taiwan's air force. While the Taiwanese can and are upgrading their IDFs, the upgrades are relatively modest, he said.

"Ideally, their domestic platform is best used now as a replacement trainer not as an adequate response to China's People's Liberation Army's [PLA] fourth- and fifth-generation fighter deployment.”

Taiwan's US-made F-5s are to undergo gradual decommissioning, while the French-made Mirages are expected to retire earlier than had been expected due to maintenance problems. The PLA's fourth generation fighters are mainly J-10s and Su-27s. A prototype of the fifth generation J-20, a stealth fighter, was revealed earlier this year.

There are also shortcomings in the Taiwanese system of developing military equipment, Hammond-Chambers said.

"A considerable amount of money is wasted pursuing programs that have chronic problems, such as the CM-32 Clouded Leopard [an eight-wheel-drive armored infantry fighting vehicle]," he said. "This is well into its second full decade of development, and the CSIST, legislature and other interested parties are basically forcing the army and marines to buy it when there is a far superior cost effective solution in General Dynamics' Stryker [a comparable US-produced vehicle in use by the US Army].

"This may sound self-serving, but I believe it makes a good point," said Hammond-Chambers. "There are things Taiwan can develop itself, but there are also capabilities that are more cost effective to purchase and possibly co-produce. There are the platforms that are too complex and expensive to start from the ground up, such as the F-16 C/D or Apache helicopter.”

In Hammond-Chambers' eyes, the CSIST is most intriguing to watch, as the institution is being positioned as a systems integrator - a highly complex and skilled role, he says - as well as a research and development arm, all that on top of being a producer.

The Ma government wishes to privatize CSIST by selling a stake while leaving the government as largest single stakeholder and therefore keeping effective control.

"However, as in the end CSIST is not up to the task of being all things to the military and the politicians, the decision to put CSIST in the middle will result in programs such as the CM-32," Hammond-Chambers warned.

In June, it was revealed that the Legislative Yuan and the Ministry of National Defense are to scale back the amount of money budgeted for the high-profile purchases Washington is reluctant to release, such as the F-16C/D and diesel-electric submarines. The objective is to prevent the scarce funds available for all of the military's needs being sent back unused to the Taiwan treasury.

That leaves the question of where the money is to go if not to US defense industry and not back to the treasury, Hammond-Chambers pointed out. The Taiwanese defense industry would likely get its share.

"US political inaction [concerning the release of arms] will have program ramifications as Taiwan expands the research, development and production of programs that can have an asymmetric effect, complicating PRC intentions, or reap strong value for money such as the Kuang Hua missile boats," said Hammond-Chambers. "It [the money originally earmarked for the procurement of US weapons] is being spent on the move to an all-volunteer force and on ensuring that domestic research and development and production remains consistent."

In the 2008 presidential election campaign, Ma pledged to introduce all-volunteer force during his term. The change has since been postponed to 2014 due to shortage of funds, and recently 2015 was mentioned as a deadline.  

Meanwhile, the military in Taiwan may not be so keen on the local substitutes for US equipment, according to Wendell Minnick, Asia bureau chief with Defense News.

"The military wants US defense products," he said. "The Ministry of National Defense views these products as more reliable, since they've been tested in combat."

Jens Kastner is a Taipei-based journalist.

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