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Analysis-How a U.S. budget dispute imperils funding for Taiwan weapons

By Patricia Zengerle and Michael Martina

WASHINGTON (Reuters) - U.S. congressional efforts to counter China's military threats toward Taiwan could stumble over a problem much closer to home: partisan battles in Washington imperiling billions of dollars in security assistance for the self-governed island.

Last year, both the Senate and House of Representatives voted overwhelmingly for a defense policy bill authorizing up to $10 billion in security assistance and fast-tracked weapons procurement for Taiwan. That money was to be given in $2 billion annual installments of Foreign Military Financing, or FMF, grants over five years.

But the plan was stymied by disagreement over spending.

An appropriations bill passed in late December included only loans for Taiwan that must be paid back within 12 years, not the grant plan, alarming some members of Congress who fear it will delay money Taiwan needs urgently to prepare for any attack by China.

"We need to find (the money). National security is the most important responsibility of the federal government," Senator Todd Young, a Republican member of the Foreign Relations Committee, told Reuters after a recent visit to Taipei.

Lawmakers said they are watching to see whether the Biden administration includes FMF grants for Taiwan in its budget request for the fiscal year ending in September 2024, which they expect from the White House around March 9.

Some wrote the president last week asking him to include the money in his request

FUNDING WOES

Anxiety about China's growing military strength has become a rare point of bipartisan agreement in Washington. Lawmakers are especially focused on the fate of Taiwan, the democratically governed island Beijing considers a breakaway province.

The United States has no formal ties with Taiwan but is bound by law to help provide it with the means to defend itself.

Among both Democratic and Republican leadership there is broad consensus that the United States needs to increase its military aid sharply.

"If we are serious about advancing U.S. interests in Asia and competing with (China), we must match ambitious policy with ambitious resourcing," said Senator Bob Menendez, the Democratic chairman of the Foreign Relations Committee.

There is less agreement about where to find that money, especially as a showdown looms between House Republicans and Biden's Democrats over the federal debt ceiling.

FMF is part of the State Department's foreign aid budget, which many Republicans want to cut. Democrats say giving the grants to Taiwan would require cuts to humanitarian assistance programs.

Republicans accused Biden's administration of failing to advocate strongly enough for the Taiwan grants, given that his fellow Democrats controlled both the Senate and House last year.

"Securing FMF funding is always a challenge given the tight budget constraints, even for priority partners like Taiwan," said Eric Lee of the Project 2049 Institute think tank.

PORCUPINE STRATEGY

U.S. officials have been pushing Taiwan to create an asymmetric "porcupine" defense to protect itself with mines and anti-aircraft and anti-ship missiles, rather than submarines, heavy tanks and F-16 aircraft, which military analysts warn could be destroyed in a first attack by China.

Analysts say Taiwan's political leadership has largely accepted the need to shift to the defensive strategy - especially after seeing Ukraine's success against Russia - but that lingering resistance within its defense establishment has slowed implementation.

Those pushing Taiwan funding point to several reasons to approve grants and not loans. First, grants can be deployed quickly, avoiding the long process of applying for and securing loans.

Taiwan's government also historically has resisted foreign loans, which experts note could appear to some Taiwanese voters as the United States profiting from the island's security predicament.

"I would prefer to see a revival of FMF grants, but with clear strings attached," said Michael Hunzeker, a Taiwan military expert at George Mason University.

Grants to buy specific weapons could be made on condition of Taiwan showing further moves toward asymmetric defense, he said.

"When we give a country the money to buy weapons, we have more influence over what they buy," one congressional aide said, requesting anonymity to speak freely about what can be delicate negotiations.

Some supporters of the grants remain optimistic. "Many key members in both parties of Congress are now supporting (grants for Taiwan), which shows how far we have come," said Eric Sayers, an Asia policy expert and non-resident fellow at the American Enterprise Institute, adding that it Is possible Congress will revive the effort this year.

"If this is an urgent issue and conflict over Taiwan is as serious to U.S. interests as we all now agree, then all options, including grants, need to be on the table."

(Reporting by Patricia Zengerle and Michael Martina; Editing by Don Durfee and Daniel Wallis)