WASHINGTON -- Barely three months after taking office, President Bush reversed three
decades of American foreign policy in Asia by opening the way for Taiwan to
buy eight diesel submarines.

It was an impressive action, the centerpiece of a huge package of new arms supplies that
 appeared to make good on Bush's campaign promise to help Taiwan defend itself.

There was one catch: There are no submarines to sell Taiwan.

When the White House made the announcement, the Bush administration had
little or no idea how it could carry through on its promise. Some of the
information on which the administration relied turns out to have been wrong.

And ever since then, U.S. officials have been struggling to figure out where
Taiwan's submarines will come from.

"I don't get any sense at all that in making this decision the administration
gamed it out in advance," said Jonathan Pollack, chairman of strategic
research at the U.S. Naval War College in Newport, R.I.

At stake are not only billions of dollars in defense contracts but also the
military balance between China and Taiwan. If Taiwan doesn't get new
submarines, the United States may have to come up with some other way of
helping the island nation to offset China's growing naval power--or else face
the prospect that China might be able to impose a blockade on Taiwan's ports.

"The Department of Defense is looking at several different options" for
helping Taiwan obtain its submarines, Mary Ellen Countryman, the White House
spokeswoman for national security affairs, said Friday.

The story behind the nonexistent submarines shows what can happen when major
foreign policy decisions are made in a crisis atmosphere and without careful planning.

The problem, in a nutshell, is this: The United States hasn't manufactured
diesel submarines for decades--not since the 1950s, when the Navy, under the
prodding of Adm. Hyman Rickover, decided to rely exclusively on nuclear submarines.

The United States produces nuclear subs but doesn't export them; the Navy
doesn't want U.S. technology spread around the world.

But the two countries that are the world's principal exporters of diesel
submarines, Germany and the Netherlands, refuse to build submarines or even
sell sub designs that will go to Taiwan. They are unwilling to offend China,
which considers Taiwan part of its own territory.

The Bush administration did not check with either the Germans or the Dutch
before its decision.

"We read about it in the newspapers," said Henrik Schuwer, deputy chief of
mission at the Dutch Embassy in Washington. "We went in [to the
administration] and said, 'What is this?' "

Hans Dieter Lucas, a spokesman for the German Embassy in Washington, confirms
that his government was left in the dark too. "There were no talks whatsoever."

In the weeks since Bush's decision, his administration has been exploring
several scenarios to get Taiwan submarines, all of them problematic:

* Persuade the Europeans. In theory, at least, the German or Dutch government
might reverse course and allow Taiwan to obtain their submarines, perhaps
under pressure from the Bush administration. Yet that would require a major
diplomatic campaign by the United States, one with a high risk of failure.

* All-American Sub. The United States might design and build a new diesel sub
for Taiwan. But an American-designed sub would be considerably more expensive
and take longer to build than obtaining the off-the-shelf European versions.
Taiwan may balk at this more costly option.

* No Questions Asked. The U.S. government might simply contract with an American
defense company to build the submarines and leave it up to the private company to obtain
German or Dutch designs under the table. But doing that could be illegal if the European
governments don't want the designs to go to Taiwan.

"My sense is that they [the Bush administration] thought that there was a
chance the Dutch or the Germans might go along," said former U.S. Ambassador
to China James Lilley, who served in the first Bush administration. "Or that maybe we
could do it on our own. Or if that didn't work, maybe the problem would disappear."

"I have my doubts those submarines will ever be delivered," said Damon
Bristow, an Asian defense specialist at the Royal United Services Institute in London.

The following account is based in part upon interviews with seven U.S.
government officials who participated in the Bush administration's meetings
regarding the submarines. The officials spoke to a reporter on condition they
would not be identified by name.

Clandestine Submarines

In January, Bush and his new foreign policy team took office knowing that
they confronted a major decision within months about arms sales to Taiwan.

Once a year, Taiwan military officials come to Washington with a shopping
list of defense items, and each April, the U.S. government decides which
weapons Taiwan will be allowed to buy. The United States is Taiwan's leading
supporter and its most dependable arms supplier.

Taiwan's shopping list has included submarines since the 1970s. Year after
year, the requests were rejected on grounds that submarines were offensive
weapons and could fuel an arms race between Taiwan and China.

But after China launched military exercises and fired ballistic missiles into
the waters near Taiwan on the eve of Taiwan's 1996 presidential election, the
climate in Washington began to shift.

For the first time in decades, the Pentagon was forced to take seriously the
prospect that it might have to help protect Taiwan against Chinese attack.
Military leaders began to reexamine the old assumptions that China had
neither the intent nor the ability to invade Taiwan.

A year ago, the Pentagon sent a survey team to study Taiwan's maritime defenses.
The team concluded that Taiwan could use considerable help--including submarines.

Early this year, Chinese leaders seemed obsessed with the possibility that
the new administration might sell destroyers equipped with the sophisticated
Aegis radar system to Taiwan, a possible first step toward including Taiwan
in an American missile defense system.

The issue of submarines largely escaped China's notice, to the relief of some
Pentagon officials, who were eager to arrange for the sale of subs "in a clandestine
manner, so as not to alert Beijing that this was an option," a Pentagon source said.

Then on April 1, just weeks before a decision on Taiwan's annual weapon request,
China downed a U.S. reconnaissance plane, setting off Bush's first foreign policy crisis.

Amid the furor over the spy plane, approving the Aegis radar for Taiwan was
sure to inflame America's tense relations with Beijing. But the administration also
needed to show it was not caving in to China either. Increasingly, U.S. officials spoke
of the need for a "robust" package of arms for Taiwan.

And so the administration settled on submarines as a middle ground. The
Pentagon had said Taiwan needed them, and China hadn't raised the red flag
about the subs as it had with the Aegis.

White House spokesman Ari Fleischer told reporters that Bush had approved the submarines
and other weapon systems because of "the threat that is posed to Taiwan by China."

As it turned out, it would have been easier for the U.S. to deliver on a promise to
provide the high-tech Aegis systems than to provide a handful of diesel submarines.

The Aegis technology is owned by American companies. Not so with the diesel
submarines. How would the United States arrange for Taiwan to obtain these
eight submarines? The Bush administration didn't have a plan when the arms
offer was presented to Taiwan in April. And it has no plan today.

Bad Information

The first and most obvious solution was to have Taiwan buy the submarines
from Germany or the Netherlands.

But that approach has a stormy history. In 1981, Taiwan purchased two diesel submarines
from the Netherlands. They remain, to this day, the only modern submarines Taiwan owns.

Furious, China retaliated by downgrading its diplomatic relations with the
Netherlands. In 1984, the Dutch relented and signed a communique in which the
government promised not to sell Taiwan any more weaponry. Germany now has a
similar policy in effect.

Nonetheless, Bush administration officials still harbored hopes. They had
been told by U.S. defense contractors that the German or Dutch companies
might be able to turn around their governments.

According to one account that circulated through the administration, Dutch
firms were claiming in Washington that the Dutch government couldn't control
what they did.

Such claims were questionable. Schuwer, a senior Dutch diplomat, points out
that RDM Holding Inc., Holland's main submarine builder, is 50% owned by the
Dutch government.

"We [the Dutch government] are part-owner of the plant," Schuwer asserted in
a recent interview. "So RDM can never give or sell the [submarine] plans to
the United States because the Dutch government would have to give its
consent, and the government won't do that."

Within days after Bush's decision, Germany and the Netherlands both
reaffirmed in public that they would not permit their companies to build
Taiwan's submarines.

Buy American

The second possible solution was to have Taiwan's submarines built in the United States.

Such an approach has weighty political support--above all from Sens. Trent
Lott and Thad Cochran of Mississippi, both Republicans, whose state includes
the Litton Ingalls Shipbuilding yards in Pascagoula.

"Ingalls is one of the best [shipbuilding firms] in the country," Cochran
said. ". . . I think we can build [submarines] for Taiwan if they need them.
I hope if they choose to buy some ships, I hope they'll buy them from us."

However, this option faces two obstacles: the resistance of the U.S. Navy and
the lack of U.S. submarine blueprints.

In the past, the Navy has been a powerful adversary blocking any attempt to
produce diesel submarines in the United States, even for export.

Navy representatives argued that if diesel subs were exported, important
secrets--such as the quieting technology that makes U.S. subs hard to
detect--might be leaked and become available around the world.

But critics say the Navy has historically been motivated by another factor
too: an unwillingness to let American leaders compare diesel subs, which cost
about $300 million apiece, with the nuclear submarines the Navy buys for
about $2 billion each.

Nuclear submarines can travel farther and stay under water longer than diesel
subs. For that reason, diesel submarines are useful primarily for coastal
defense and other short-range tasks. The Navy no longer operates any diesel
submarines; its last one, stationed at Subic Bay in the Philippines, was
taken out of service two decades ago.

"Their [the Navy's] real fear is that a member of Congress will go aboard one
of these diesel submarines and say, 'Hey, this costs only $300 million, we
should have a couple of these' " instead of a pricier nuclear vessel, said
Norman Polmar, an independent submarine analyst. "They are afraid Congress
will force the Navy to buy some diesel submarines and take the money out of
the nuclear program."

Any attempt to build a new all-American diesel sub would mean either pulling out old
blueprints that date to the 1950s or, more probably, coming up with a new U.S. design.

"It would be more costly," said retired Adm. Michael McDevitt of the Center for Naval
Analyses. "God knows, we know how to build submarines. We just haven't built that kind."

An American-designed submarine also would take much longer to produce. By the
administration's estimates, Taiwan would have to wait eight to 10 years to get a
submarine newly designed in the United States. Taiwan could get submarines in as
little as five years if existing Dutch or German blueprints are used.

And so administration officials have increasingly concentrated on this hybrid
possibility: that a U.S. company could build Taiwan's submarines with designs
licensed from the Germans or Dutch.

Recently, the United States arranged for two diesel submarines to be built at
the Pascagoula shipyard using a Dutch design. But these subs are for Egypt, a
country that doesn't carry nearly as much diplomatic baggage as Taiwan.
Neither Germany nor the Netherlands will allow its sub designs to be used to
build vessels for Taiwan.

"Any applications for issuing licenses to allow submarine sales to Taiwan
will be rejected based upon Holland's 'one China' policy," Dutch Foreign
Minister Jozias van Aartsen told the Dutch parliament May 29. Van Aartsen
said this policy applies to either "direct or indirect" submarine sales to Taiwan.

License to Steal?

That raises the third possible solution--that somehow an American company can
find a roundabout way to build a diesel submarine based on the Dutch or
German designs, even though these European governments haven't licensed the
plans for use in Taiwan.

In other words, the U.S. government might simply ask an American company to
build Taiwan a submarine and not ask any questions about where the design came from.

Getting Taiwan a submarine "is going to involve some sleight of hand," said
Larry M. Wortzel, director of the Asian studies center at the Heritage
Foundation, a conservative think tank in Washington.

This option has been under serious consideration within the U.S. government.

"Maybe industry could just do this. We could leave it in their hands, and
Berlin and Amsterdam wouldn't be involved at all," said a U.S. official who
has taken part in the intragovernment discussions.

Under this scenario, an American company might get blueprints from a third
country--that is, one of the many other nations that have bought German or
Dutch diesel submarines.

In such a transaction, whoever gives those designs to the United States might
not even know that the submarines would go to Taiwan. That way, said one U.S.
official, the Germans or Dutch and the third country "would have plausible deniability."

Such an arrangement could prove to be of questionable legality.

In cases involving blueprints or other proprietary technology, "the options
are that you own it, you license it or you steal it--and we have laws against
stealing," noted Lucinda Low, a Washington lawyer who is a former chairman of
the American Bar Assn.'s section on international law.

There are two U.S. companies likely to be involved in building submarines for Taiwan.

One is Northrop Grumman Corp., which recently purchased the Litton Ingalls
shipyards in Pascagoula. The other is Lockheed Martin Corp., which sells
advanced electronics systems used on submarines.

Both companies make clear they would be eager to work on submarines for
Taiwan. Spokesmen for both companies emphasize, though, that the decision is
in the hands of the Bush administration.

"Lockheed Martin would certainly welcome the opportunity to be the systems
integrator for any diesel-powered submarine the Taiwan government may decide
to buy," said Tom Jurkowsky, the company's vice president for communications.

"We stand prepared to help in any way we can," said Randy Belote, a spokesman
for Northrop Grumman.

In a statement about the possibility of a Taiwan sale, Northrop Grumman
pointedly noted that its Litton Ingalls shipyard "has, in the past, had
business relationships with both the Dutch and German submarine designers."

When reminded that the Dutch and Germans have said again this year they will
not let their designs be used for Taiwan, Northrop Grumman's Belote questioned
whether the European opposition is the final word. "They [the Dutch and Germans]
have said that," Belote answered. "But how serious is that?"

The Bush administration consulted with Northrop Grumman executives in the
weeks leading up to its submarine decision, Belote said.

Asked whether Northrop Grumman might go along with a scenario in which the
Dutch or German designs might be used without any license, Belote sidestepped
the question: "I really don't know. . . . I can't imagine the U.S. government
would get involved in a situation where it would bypass the will of another government."

Jurkowsky said this licensing issue won't arise with Lockheed Martin because it won't
serve as the prime American contractor for Taiwan's submarines. It will merely supply
the electronics systems put on submarines that some other company will build.

Some within the U.S. government make it clear they would be eager to help out
American industry and to please Mississippi's two powerful senators, if they can.

"Whatever option [for building Taiwan's submarines] is decided upon, something's going
to happen in Mississippi--I feel certain about that," quipped a Pentagon official.

Slow Going

Bush's decision has so far had one tangible result.

Bowing to the Bush administration's desire to help Taiwan and to the
political and commercial pressures, the Navy has shifted ground. In public
statements, the Navy now says it is willing to countenance the possibility
that diesel submarines will be made in this country for export.

"While the U.S. Navy does not have a requirement for diesel submarines, we do
not object to U.S. industry participation in the diesel submarine market,"
said Lt. Cmdr. Cate Mueller, a Navy spokeswoman.

The change is not just one of public relations. Inside the U.S. government
too, the Navy has changed its tune. "The Navy is on board now," asserted one
surprised U.S. official a few weeks after Bush's announcement. "It seems a
decision has been made to be supportive."

During the nearly three months since Bush approved the submarine sale, his
administration has held a flurry of meetings to work out where and how they
will be produced. But there is no solution yet.

"This is going very slowly," admitted one administration participant. "I can
tell you the ball hasn't moved very far since April."

Already, there are signs Taiwan and some of its Washington supporters are
becoming impatient.

"It seems apparent that while the offer [of submarines] was made in April,
there's been insufficient follow-through," said Gerald Warburg, a lobbyist
for Taiwan from Cassidy & Associates Inc.

The obstacles remain so formidable that some skeptics have wondered whether
Bush's April announcement was a political ploy--an action that would
dramatize American support for Taiwan but would never be put into effect.

"I hope this was not a cynical operation [by the Bush administration]. It's
not clear how this whole thing is going to happen," said William S. Triplett,
a conservative Republican Senate aide who identifies himself as a member of a
"blue team" of congressional staff members who favor tougher policies toward China.

Those who favor a strong U.S. relationship with Beijing similarly voice doubt
about the prospects for Taiwan's submarines.

"I just right now don't see how that's going to occur," said former U.S.
Ambassador to China Joseph Prueher, who stepped down in April.

"What we did was to please both Taipei and Beijing," asserted Eric McVadon, a
former U.S. military attache in China. "We promised the submarines to Taipei,
and Beijing knows they will never be built."

The Bush administration insists that such claims are off base--that Taiwan's
submarines will eventually be delivered.

"We didn't intend for this to be a cosmic joke," said one State Department
official. "We intend for this to happen--but how, that hasn't been decided yet."