AmCham Calls for Taiwan Defense Reform

Amid rising cross-Strait tensions and unprecedented arms sales with the United States, the American Chamber of Commerce in Taiwan has called for urgent reforms to its defense procurement policies, warning that recent regulatory changes may deter foreign contractors and undermine the island’s security objectives.

In its newly released Taiwan White Paper, AmCham commended President Lai Ching-te’s commitment to raise defense spending to over 3% of GDP, describing it as a necessary response to regional threats.

The report highlights Taiwan’s evolving defense strategy, marked by major arms purchases — including a combined $2.385 billion in U.S. weapons packages approved in October and November 2024 — and increasing emphasis on co-developing next-generation capabilities, such as drones and submarines.

But the Chamber cautioned that Taiwan’s revised Industrial Cooperation Policy — also known as the offset policy — risks eroding Taiwan’s attractiveness as a defense market. The reforms replaced the prior fixed offset requirement of 40% with a case-by-case model and eliminated indirect offsets, while introducing cost disclosure mandates that some foreign suppliers say threaten proprietary information.

“While the government’s intention to boost local industry and strategic autonomy is laudable, the current policy environment introduces significant uncertainty and disincentives,”  AmCham stated.

The offset policy changes have drawn particular concern over their timing. Under Taiwan’s new framework, contractors must submit offset agreements shortly after a Letter of Offer and Acceptance (LOA) under the U.S. Foreign Military Sales (FMS) system — often well before final contracts are signed. This misalignment exposes firms to financial risk without assurance of contract awards, the report noted.

Recommendations:

To mitigate these risks and retain access to advanced defense technologies, the Chamber proposed:

• Reinstating a minimum offset percentage (20–30%) to improve predictability.
• Allowing contractors to finalize offset plans after FMS contract award milestones.
• Introducing confidentiality protections for cost disclosures.
• Reinstating limited indirect offsets for broader economic benefits.

Supply Chain Vigilance Against Chinese Components

Separately, the White Paper raised alarms over the use of Chinese-origin components in Taiwan’s defense sector. Citing espionage threats, cybersecurity vulnerabilities, and potential supply disruptions, the Committee emphasized the need for tighter controls and regulatory clarity.

“Taiwan’s dependence on Chinese-sourced components poses unacceptable risks to national security and operational readiness,” the report warned.

Taiwan already prohibits Chinese-made systems in defense and critical infrastructure under laws such as the Cyber Security Management Act. However, the report identified significant challenges in enforcing these rules, particularly in defining what constitutes “Made in China” amid globalized supply chains.

To address these challenges, the Committee urged the government to:
• Adopt a tiered classification system for Chinese-origin content.
• Require full supply chain mapping and third-party verification for high-risk components.
• Clearly define prohibited sources in all defense contracts.
• Align Taiwan’s policies with U.S. regulations such as the National Defense Authorization Act (NDAA) and Federal Acquisition Regulation (FAR).

The Committee concluded that while Taiwan’s policy direction reflects strategic foresight, further reforms are essential to safeguard supply chain integrity, maintain access to global defense markets, and advance domestic industrial development in support of national defense.

AmCham Taiwan White Paper