Taiwan Arms Deals Open Doors to Civilian Contracts : Trade: Cold War weapons sales were often linked to ideology. Now they are yoked to jobs and exports.

When former President George Bush announced during his 1992 reelection campaign that he was permitting the sale of F-16 warplanes to Taiwan, he justified it as a way of enhancing Taiwan’s security. The fact that the $6-billion deal kept General Dynamics factories running in Texas didn’t hurt either.

And the sale had a third, less obvious purpose: American officials and trade representatives hoped that the military deal would give U.S. firms the inside track in landing some big commercial contracts in Taiwan, including the multimillion-dollar job of building a nuclear power plant.

“If we didn’t get a nuclear contract, it would be a bitter pill,” David N. Laux, president of the U.S.-Republic of China (Taiwan) Trade Council, observed in the wake of the sale of the jet fighters.

France, which had itself sold Mirage jet fighters to Taiwan, also had its eye on civilian contracts, including its own bid for the nuclear plant. But Laux said that the Americans figured: “Let the French have the high-speed rail contract. We want the nuclear project.”

The U.S. and French maneuvering for contracts in Taiwan illustrates one of the most important but often overlooked points about arms sales in the new era of post-Cold War economic competition: For countries such as the United States and France, arms exports are economically important not only in their own right but also as a lever for landing purely civilian contracts.

During the Cold War, arms sales were usually linked to ideology; the United States sold arms to countries that would help in the struggle against the Soviet Union and communism. Occasionally, Western allies competed with one another for arms sales, but such clashes were moderated by the broader concerns of the Cold War.

Now arms deals, still a tool of foreign policy, are increasingly linked to commerce and civilian exports. The nation that sells the guns has the chance to sell the butter too: to build the dams, lay the subway rails and fire up the nuclear plants.

These connections influence both the selling and the buying nations in arms deals. Exporting nations offer high-tech weaponry partly in hopes of winning commercial business, or they throw in commercial contracts to land an arms deal. Purchasing nations dangle the prospect of civilian contracts to get good deals on the weapons systems they want to buy.

The linkages between arms and commerce can be found throughout the world. In the Middle East, for example, President Clinton recently intervened with King Fahd to make sure that Saudi Arabia bought commercial aircraft from the United States, its main protector and arms supplier.

In Southeast Asia, the Russian government not long ago offered to accept up to $1 billion worth of Malaysian palm oil, a commodity increasingly hard to sell in the diet-conscious markets of the United States and Western Europe, if Malaysia would buy Russian MIG-29 jet fighters. The deal has not yet gone through.

Nowhere is the connection between arms sales and commerce more evident than in Taiwan.

With about $87 billion in foreign-exchange reserves, Taiwan is one of the world’s wealthiest governments. And with the Chinese People’s Liberation Army, the world’s largest, poised on the mainland nearby, Taiwan believes that it has a continuing need for advanced weaponry.

At the beginning of this decade, Taiwan unveiled an eye-catching $300-billion, six-year public works program. The shopping list included $7.1 billion for a nuclear plant; $13 billion for a highway; $11.9 billion for a high-speed railroad, and two mass-transit systems worth $7.4 billion and $6.2 billion.

It was, observed Laux, “the biggest single infrastructure program in the world.” American companies were interested, and the Commerce Department quickly began lobbying in Washington to win active support from the U.S. government.

The lure of $300 billion in contracts attracted interest from other companies as well--particularly in Western Europe, where Taiwan had long been treated as an American preserve.

“Businesses go where the money is,” noted a French business executive in Taiwan. “And the money is here.”

Taiwan’s big spending program began to spur foreign policy changes in a number of European capitals.

France had kept Taiwan at arm’s length since 1964, when President Charles de Gaulle established diplomatic relations with Beijing. But three years ago, France altered course by dispatching a Cabinet-level minister to Taiwan at the head of a large trade delegation.

Other European countries soon dispatched their own high-level officials to Taiwan and subtly signaled a new willingness to do business. Even former British Prime Minister Margaret Thatcher--who while in office had courted Beijing with a vigor from which her successor, John Major, has retreated--joined the parade to Taiwan, talking as if the British government had always encouraged trade with the island.

“We must not fall into the mistake of thinking that it is America that trades with Taiwan, or Europe that trades with Asia,” Thatcher said last year. “The truth is that it is American companies that trade with Taiwanese companies, and European companies that trade with Asian companies.”

In 1991, the French government opened the way for arms sales to Taiwan, and by the following year it was offering its top-of-the-line Mirage jets to the Nationalist regime. At the same time, French companies were lining up for commercial contracts in Taiwan’s new infrastructure program.

The French firm Matra embarked upon a project to build a subway system in the capital city, Taipei, and the French nuclear manufacturer Framatome began laying the groundwork to win the contract for Taiwan’s fourth nuclear plant. Legislators from Taiwan began traveling to France to scout out Framatome’s facilities and management.

“In Paris, they really hoped that the military sales would lead to big commercial contracts,” explained one French official.

Officials of Taiwan’s Nationalist government say there has never been any direct linkage between arms deals and the infrastructure contracts.

“I have no doubt that the French, as well as American businesses, are interested in our six-year development program,” said Foreign Minister Frederick Chien in an interview. “There’s nothing wrong with that. . . . All companies can participate in the bidding. We don’t favor any one firm over another.”

By 1992, the United States was scrambling to keep up with France and other European countries in improving its ties with Taiwan.

A huge American trade delegation visited Taipei at the beginning of the year. That summer, Bush gave his approval for the sale of 150 F-16s to Taiwan, which had been seeking the high-tech jet fighters for a decade.

Finally, late that year, then-U.S. Trade Representative Carla Anderson Hills became the first American Cabinet official to visit Taiwan since the United States broke off diplomatic relations at the beginning of 1979.

These moves were strongly supported by private American companies, particularly by the three U.S. firms--Westinghouse, General Electric and Combustion Engineering--that have spent the last several years trying to win the contract to build Taiwan’s fourth nuclear plant.

GE since has dropped out of the competition, but Westinghouse and Combustion Engineering submitted formal bids at the beginning of this year. So did Framatome, the French firm. The contract will probably be awarded later this year.

Executives of American nuclear firms maintain that the Taiwan contract is especially valuable because there are so few other opportunities to build nuclear plants elsewhere in the world.

“This is the only game in town right now,” said Bob Gross, the Westinghouse representative in Taipei. “From an American industry point of view, it’s important for this to go forward while there is still an active (nuclear) industry in the United States. . . . When the jobs go, they go for good.”

Westinghouse estimates the nuclear contract is worth 20,000 man-years of jobs in the United States.

Ironically, France recently turned around and gave up the diplomatic advantage it had gained in Taiwan several years ago by being the first nation to offer advanced warplanes to the Nationalist government.

In early January, France promised in a joint communique with China “that in the future, it will refrain from authorizing French businesses to participate in the arming of Taiwan.”

Why did France reverse course? Because officials in Beijing had learned so well the lessons taught by Taiwan about the links between arms sales and commerce that they were able to wield their own considerable commercial clout to good advantage.

After France sold the Mirage jets to Taipei, China clamped down on French companies, prohibiting French firms, for example, from bidding for the right to build a subway system for Guangzhou.

In Paris, French companies with more potential business at stake in China than in Taiwan--such as Alcatel, which makes telecommunications equipment--successfully lobbied the new conservative government of Prime Minister Edouard Balladur for a change in Taiwan policy.

As a consequence, the same country that led the way in the flood of new arms sales to Taiwan has now promised to stop doing so. “This whole (recent) French exercise was calculated to be able to get commercial business from the mainland,” said Chien, Taiwan’s foreign minister.

China may now try to use the French agreement as a wedge to persuade other Western governments, including the United States, to curb their arms sales to Taiwan.

Mann was recently on assignment in Taiwan.