Fearing China, South Korea targets firms building Taiwan navy submarines

According to a police document seen by Reuters and two people familiar with the situation, South Korean authorities cited the possibility of Chinese economic retaliation when they accused marine technology company SI Innotec of breaking trade laws for its work on Taiwan’s new military submarine program last year.

Police said they feared a repetition of the severe penalties imposed by Beijing in 2016 when Seoul agreed to install THAAD, a U.S. anti-missile system, in an affidavit to a judge on February 17, 2022, calling for the arrest of SI Innotec executive director Park Mal-sik. Late in 2017, China consented to relax such restrictions.

The affidavit says that SI Innotec’s deal to give Taiwan equipment for making submarines “directly impacts the overall security of South Korea.” After talking to the country’s arms sales regulator, police were “concerned about a crisis similar to a second THAAD deployment, such as economic retaliation.”

According to the affidavit, the Defense Acquisition Program Administration (DAPA) regulator informed an unnamed subcontractor that the government had “export concerns” about Taiwan and “takes a very cautious stance” on such licenses.

According to a source familiar with the situation, the court ordered Park’s detention on February 28 because he presented a flight risk and would tamper with evidence.

Police referenced China’s enraged response to a 2021 Reuters article on defense contractors and specialists from South Korea and six other countries working on Taiwan’s submarine program in the sealed document Reuters read.

Park, who received a suspended jail term, and SI Innotec, who was penalized in August 2022, both maintain their innocence and have filed appeals. Park opted out of commenting through a business attorney.

According to court documents and four persons with knowledge of the situation, two more South Korean businesses that were purportedly suppliers to Taiwan were also charged in November with violating trade regulations, and one of its senior executives was accused of industrial espionage.

The names of the co-defendants in their secret trial have not previously been disclosed, nor have the names of the defense engineering subcontractors Keumha Naval Technology (KHNT) and S2&K. Reuters could not ascertain if the ongoing procedures covered geopolitical problems.

A KHNT officer confirmed an ongoing criminal case while speaking to the media anonymously because he had no right to do so. The business refuses to speak further. S2&K did not respond.

Taiwan debuted its first indigenous submarine on September 28 in the southern port city of Kaohsiung amid escalating military tensions with China. The ship is about to start sea testing.

Interviews with seven individuals with connections to the military, shipbuilding, and judicial systems and the SI Innotec affidavit demonstrate how political worries about a trade war with China, Seoul’s biggest trading partner, have affected South Korea’s investigations into the three businesses. The individuals discussed ongoing judicial processes with ramifications for national security under the condition of anonymity.

According to an individual acquainted with the subcontractor, Seoul’s foreign ministry was “completely against” KHNT’s involvement with Taiwan and informed DAPA of its dissatisfaction.

According to the affidavit, several companies with submarine knowledge shied away from assisting Taiwan because they did not anticipate official permission given the possibility of “bigger damage to (the) economy than benefits,” including a potential Chinese export embargo to South Korea.

Police cited worries over national security in their refusal to speak. The three subcontractors were accused, but the prosecutor’s office did not comment on the current court case. Through the office of a former assistant, Reuters sought to get in touch with then-president Moon Jae-in. The office asked questions and directed them to the foreign ministry.

The foreign ministry claimed to be aware of the ongoing proceedings and forwarded specific inquiries to DAPA. DAPA has no more remarks except that it adheres to the law when making export judgments.

According to a police detective who requested anonymity to discuss current legal proceedings, Moon’s liberal administration departed office in May 2022. It was under no obligation to take action against SI Innotec.

Beijing may have pressured Seoul to crack down on the enterprises, although Reuters could not confirm this.

A representative for the Chinese Foreign Ministry accused Taiwan’s Democratic Progressive Party of “colluding with external forces” in response to a request for comment from Reuters. The official did not respond to a question about whether Beijing pressured Seoul regarding the subcontractors. Beijing stated to Reuters in 2021 that nations supporting Taiwan’s initiative were “playing with fire.”

The foreign and defense ministries of Taiwan declined to comment.

While its businesses sign arms agreements with other Asian neighbors, Seoul has no official diplomatic connections with Taipei. It has refrained from arming the democratically run island that China claims sovereignty over.

GLOBAL EXPERTISE

Taiwanese President Tsai Ing-wen launched the Indigenous Defense Submarine Initiative in 2016.

The new ships, which complement two that the Netherlands provided in the 1980s, are a “strategic deterrent,” according to the Taiwanese admiral in charge of the project, making it more difficult for China to project naval might in the Pacific.

According to many military analysts, an increased Taiwanese submarine force may make a possible invasion by Beijing more difficult. However, U.S. officials caution that such resources shouldn’t be sacrificed in favor of smaller arms that might enable Taiwan to engage in “asymmetrical warfare” with China’s much bigger arsenal.

Taiwan benefited from the experience of retired South Korean navy officers, including managers at SI Innotec and KHNT, who do not need authorization from the defense ministry before working abroad by law.

The Foreign Trade Act, which necessitates DAPA’s consent to transfer various “strategic goods” for military purposes, is allegedly broken by SI Innotec.

According to four people familiar with the criminal proceedings, the regulator is also entrusted with encouraging exports. This mission calls for officials to make difficult judgments on agreements that might annoy China but are nonetheless lucrative.

According to contracts submitted at trial, SI Innotec and Taiwanese shipbuilder CSBC reached an agreement in 2019 to provide and install $12 million in welding and assembly equipment to produce submarine pressure hulls.

According to SI Innotec, who spoke to Reuters, the equipment wasn’t made specifically for military use and didn’t use sensitive technologies.

According to SI Innotec, CSBC requested that the equipment’s principal application be described as wind energy generation in the contract. According to it, Taiwanese clients are cautious about defense activity, and dual-use equipment contracts are “customary” to be “signed for industrial use, not exposing military use,” according to Reuters.

Offshore wind power is a business for CSBC, which is in charge of building the submarines. Regarding its contracts, it refuses to comment.

According to court records, DAPA proposed SI Innotec contact it in April 2020 to see whether the equipment would be classified as military products and require export authorization.

In response to inquiries from Reuters, the subcontractor claimed that it had informed DAPA that it was exporting dual-use items, which are subject to a self-certification procedure that the regulator does not supervise. According to SI Innotec, the findings of the self-certification revealed that no export clearance was required, and DAPA was notified.

The Changwon District Court imposed a 14 billion won ($10.42 million) punishment against SI Innotec in August 2022.

“The accused were fully aware that the subject equipment would be used to manufacture a military submarine,” the judge found.

After a “subjective and opaque” discussion with DAPA that depended on “limited data,” SI Innotec claimed that police had classified their equipment as “military goods.” If not for Taiwan, it claimed to have “strong doubts” about whether its shipments would be regarded as military-grade.

According to two people familiar with his activities, SI Innotec CEO Park Moo-sik, who was not directly accused, is still working on the project in Taiwan. He declined to respond by way of the company’s attorney.

PERMISSION QUESTION
According to two persons acquainted with the subcontractor’s arrangement, KHNT and its chief executive, former navy commander Yang Hyang-Kwon, are accused of illegally transferring a submarine component to Taiwan.

According to court documents, Yang was jailed last year and freed on bond in March. Yang did not reply to requests for comment.

According to two persons acquainted with KHNT’s operation, the component was connected to a torpedo launching tube. S2&K, a co-defendant of KHNT, has expertise in these systems.

According to three people who knew the situation, KHNT went through the DAPA procedure. However, when it pushed forward to deliver specific plans to meet a deadline and needed a response, according to two people, it got none.

One claimed that this was when Seoul’s foreign ministry informed DAPA that the transaction was unfavorable.

Defense diplomacy expert and former military attaché in Taipei and Beijing, Cho Hyeon Gyu, remarked, “There are many things that South Korea can help Taiwan with but can’t in practice. He emphasized that Seoul’s relationship with China and the difficulty of covertly assisting Taiwan severely limited its ability to help.