Fearing China, South Korea cracks down on firms building Taiwan navy submarines

South Korean authorities have 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 programme last year.

Police claimed they feared a repetition of the severe sanctions imposed by Beijing in 2016 after 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 lift those restrictions.

The affidavit said SI Innotec’s deal to supply Taiwan with submarine manufacturing equipment “directly impacts the overall security of South Korea” and police, who had consulted with the country’s arms sales regulator, were “concerned about a crisis similar to a second THAAD deployment, such as economic retaliation”.

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

According to a person familiar with the situation, the judge ordered Park’s detention on February 28 on the grounds that he posed a flight risk and would tamper with evidence.

Police referenced China’s enraged response to a 2021 Reuters article about defence contractors and experts from South Korea and six other countries working on Taiwan’s submarine programme in the sealed affidavit that Reuters examined.

Park, who received a suspended prison sentence, and SI Innotec, which was penalised 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 companies that were purportedly suppliers to Taiwan were also charged in November with violating trade regulations, and one of their senior executives was accused of industrial espionage.

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

An ongoing criminal case was verified by a KHNT official, who spoke to the media under the condition of anonymity because he was not entitled to do so. The business refuses to comment further. S2&K did not respond.

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

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 chose not to comment on the current court case. Through the office of a former assistant, Reuters attempted to get in touch with then-president Moon Jae-in. Questions were directed to the foreign ministry by the office.

The foreign ministry said it was aware the trials were underway and referred detailed questions to DAPA. DAPA said it follows the law when making decisions on exports, but had no further comment.

A police investigator, who spoke on condition of anonymity to discuss ongoing legal matters, said that there was no pressure from Moon’s liberal government, which left office in May 2022, to get tough on SI Innotec.

Asked by Reuters for comment, a Chinese Foreign Ministry spokesperson accused Taiwan’s ruling Democratic Progressive Party of “colluding with external forces”. The spokesperson did not address a question on whether Beijing pressed Seoul about the subcontractors.

Beijing told Reuters in 2021 that countries involved in Taiwan’s project were “playing with fire”.

Taiwan’s foreign and defence ministries had no comment.

Seoul has no formal diplomatic ties with Taipei and has avoided arming the democratically ruled island over which China claims sovereignty, even as its companies ink weapons deals with other Asian neighbours.

Taiwan President Tsai Ing-wen initiated the Indigenous Defense Submarine program in 2016.

The new vessels, which complement two delivered by the Netherlands in the 1980s, are a “strategic deterrent” that make it more challenging for China to project naval power in the Pacific, the Taiwanese admiral leading the project told an internal briefing in September.

An increased Taiwanese submarine force, according to many military experts, may make a possible invasion by Beijing more difficult. However, U.S. officials caution that such resources shouldn’t be sacrificed in favour of smaller arms that would enable Taiwan to engage in “asymmetrical warfare” with China’s much larger arsenal.

Taiwan benefited from the experience of retired South Korean naval officers, including managers at SI Innotec and KHNT, who are not needed to obtain authorization from the defence ministry before working abroad in accordance with the regulations.

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

According to four people familiar with the criminal proceedings, the regulator is also entrusted with encouraging exports, a mission that calls for officials to make difficult judgements on deals that could annoy China but are nonetheless profitable.

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