Is the CPSP Failure Due to the 'NATO Wall'? The 'K-Defense Crisis' Has Quietly Become Reality

On May 28, I met with executives from major defense companies. At the time, I made three prophetic observations regarding defense industry issues: (1) Hanwha Ocean will win the KDDX project; (2) the stock price of a certain defense company, a representative of K-defense, will fall below a specific price; and (3) Germany's TKMS will win the Canadian Patrol Submarine Project (CPSP). Although these claims were backed by their own evidence and logic, the defense executives only agreed with the first point and were reluctant to believe the second and third.

On the afternoon of Friday, July 3, I confirmed the direction of the CPSP preferred bidder from three different sources. The information was that "an informal notification had been received from the Canadian government regarding the selection of Germany's TKMS as the preferred bidder". I asked senior executives at Hanwha and key officials at the Defense Acquisition Program Administration (DAPA) if they were aware of this, but they all shook their heads in doubt. Some refuted my reporting by sending Friday afternoon articles that were optimistic about Hanwha Ocean's victory. Feeling drained, I shared the news of Hanwha Ocean's narrow defeat in my team's group chat and wrapped up the day.

On July 6, just a day before the Canadian government's announcement of the CPSP preferred bidder, Hanwha Ocean's stock price surged by over 15% before closing up 8%. I wondered why the stock market, which is said to anticipate good and bad news with animal instincts, was moving in the exact opposite direction. Articles and YouTube content painting a rosy outlook for the CPSP continued to pour in. Until the very last moment, the government and Hanwha Ocean kept chanting the mantra of a "tight 50-50 race." It was almost chilling to think, "There is no way they don't know, so why are they saying these things?"

In the early morning of July 7, the Canadian government officially announced that Germany's TKMS had been selected as the preferred bidder for the CPSP. Despite this being a single overseas project, DAPA Commissioner Lee Yong-chul took the unusual step of voluntarily holding a briefing at the Ministry of National Defense press room. This was proof of how massive the shock was. The primary theme of Commissioner Lee's remarks was that "we could not overcome the NATO security alliance". He looked for the cause of defeat from the outside. Experts and the media likewise pointed to external factors, specifically the "NATO wall". But are there really no internal factors behind the CPSP defeat? And is the situation any better for other sectors of K-defense?

The submarine proposed by Hanwha Ocean for the CPSP is the Dosan Ahn Chang-ho-class. It is a heavy 3,000-ton class non-nuclear conventional submarine capable of launching submarine-launched ballistic missiles (SLBMs). Rather than chasing scattered enemies in the open ocean, it was developed to counter North Korean submarines in the East, West, and South Seas and strike North Korean ground targets.

The submarine proposed by Germany's TKMS for the CPSP is the 212CD-class. Armed with surface-to-air missiles and anti-torpedo torpedoes, it can defend against anti-submarine helicopters and enemy torpedoes. At 2,500 tons, it is smaller than the Dosan Ahn Chang-ho-class and is a stealth submarine that extremely reduces sonar detection rates by applying a diamond-shaped hull design.

The submarine Canada wants for the CPSP, as indicated by the "PS" (Patrol Submarine) in the project name, is a patrol submarine. The lifeblood of a patrol submarine is stealth—characterized by low noise and a small detection area—and reconnaissance capability to see far and wide. From the broad category of the Royal Canadian Navy's requirements, the German 212CD-class was a perfect fit. In the performance category, which accounted for 20% of the CPSP evaluation points, TKMS's dominance was a foregone conclusion.

Follow-up logistics support, which accounted for 50% of the CPSP evaluation points, was an area of absolute disadvantage for Hanwha Ocean. TKMS emphasized the absolute advantage of having three nations—Germany, Norway, and Canada—operate the exact same model with identical parts. This structure allows maintenance to be performed at any port in these three countries. Furthermore, TKMS pledged to establish depot maintenance and support centers on both the east and west coasts of Canada. In comparison, Hanwha Ocean's pitch of "the merit of South Korea and Canada jointly operating the Dosan Ahn Chang-ho-class across the Pacific" was simply meager.

The South Korean government and Hanwha Ocean seemed to bet everything on the fact that the 212CD-class is a "paper submarine" with no physical model in existence. However, Germany is a submarine superpower that has built 1,700 submarines to date. Even if the delivery timeline might be slightly delayed due to a backlog of submarine construction orders, the timely creation of TKMS's latest stealth submarine was a given. Yet, the South Korean government and Hanwha Ocean comforted themselves and avoided reality. Claiming that the "NATO wall was too high" is closer to a lame excuse.

The failure of K-defense in Canada's CPSP is not the first of its kind. KAI could not even participate in the U.S. Navy trainer jet project. South Korea also drank from a bitter cup in the Australian frigate project and the Polish submarine project. Ground weapons have also failed to deliver any good news recently. Excluding the follow-up exports from the Polish jackpot, K-defense's overall performance has been sluggish. The industry is left staring at the wallets of Saudi Arabia and the UAE, waiting for them to open at some unknown time.

In truth, the Polish jackpot was a rare case where coincidence met coincidence. Poland was trembling with security anxiety due to the Russia-Ukraine war, but European NATO members had relied on the U.S. for security and failed to foster their own defense ecosystems. Meanwhile, K-defense had steadily built up its export capabilities to escape the limitations of a rain-dependent domestic market and the stigma of defense corruption. The fateful encounter between Poland, which could not obtain weapons in Europe despite its security anxiety, and K-defense, with its robust export capacity, resulted in the Polish jackpot.

It will be difficult to encounter a situation like the Polish jackpot again in the future. With the strong wind of America-first policies, European NATO members have also jumped into self-reliant defense. They have revived their weapon production lines and begun to achieve cost-effectiveness. Japan has also declared its entry into arms exports. Traditional conventional weapons—such as tanks, self-propelled howitzers, multiple rocket launchers, light combat aircraft, and interception systems, which are the mainstays of K-defense—are easy prey for the slowly awakening defense industries of Europe and Japan. Because weapons are geopolitical commodities and Europe and Japan are heavyweights in international politics, securing future competitiveness for K-defense will become an increasingly difficult task.

For K-defense, developing a single weapon takes more than 10 years. Starting with the military's requirement proposal, preliminary procedures in the form of paperwork—such as project verification, exploratory research, and feasibility studies—consume more than 5 years. Following that, exploratory development, systems development, and prototype development led by the Agency for Defense Development (ADD) quickly eat up another 4 to 5 years. This is a method where the government selects weapons with its own eyes and develops them with its own hands. Quick-witted defense companies only take the initiative in earnest starting from the mass production stage after development.

Defense companies are thoroughly tamed by the K-defense equation of government R&D, company production, and joint government-company export marketing. They dare not attempt challenging defense initiatives by proactively investing in and conducting R&D. On the other hand, European and Japanese companies, feeling a sense of security urgency, have entered a speed war based on independent capital and technology that K-defense can hardly match. In the field of state-of-the-art, cutting-edge weapons suitable for modern battlefields, K-defense is highly likely to lose ground to European and Japanese defense industries.

Among the three observations I made on May 28, points (1) and (3) have already become reality. Point (2), that the stock price of a certain defense company representing K-defense would fall below a specific price, is also close to becoming a reality. Point (2) signifies that a crisis has arrived for K-defense, serving as a precursor to the bursting of a bubble. Slogans like "K-defense's bold challenge" alone cannot prevent a repeat of the CPSP outcome. A senior figure in the South Korean defense industry advised me, "The constitution and competitiveness of K-defense have reached their limits," and "It is time to seek the path of 'Post-K-Defense' by drastically overturning the way K-defense operates." The challenge of Post-K-Defense, innovating structure and constitution! It may feel a bit late, but that is all the more reason to hurry.

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