The United States had demanded Taiwan pays a 333 million dollar advance to secure the multi-billion-dollar deal, guaranteed by George W. Bush, the Taipei-based China Times said.

The hefty downpayment demand drew complaints from Taipei, prompting reports that the plan could be killed or Taiwan could opt for second hand submarines from the international market.

Yet the deal was revived when "the US agreed to slash the advance payment to 7.5 million dollars," the China Times said.

It said the Taiwan navy has paid 3.0 million and will pay 4.5 million before the year's end.

The paper said that in October Washington would make a presentation to Taipei on the possible submarine types available.

Taiwan's defense ministry declined to comment on the report.

The paper did not provide details about how the eight electric-powered submarines would be built.

Bush in April 2001 approved the sale of eight conventional submarines to Taiwan as part of Washington's most comprehensive arms package to the island since 1992.

The US navy has briefed four potential US companies that have the capability to bid as prime contractors -- Lockheed Martin, Northrop Grumman's Newport News, General Dynamics' Electric Boat and Raytheon -- although only Northrop Grumman and General Dynamics are expected to offer bids.

But the United States has not built conventional submarines for more than 40 years and designing an entirely new one would be prohibitively expensive without foreign participation.

The US navy's submarine programme chief, Rear Admiral John Butler, has been quoted by Jane's Defence Weekly as saying no final request for proposals would be sent to potential builders until Taiwan signs a letter of offer and acceptance committing funds.

The Pentagon had previously rejected Taiwan requests for submarines because they were considered offensive weapons. It now argues the vessels would be the best defense against a growing Chinese submarine threat to Taiwan.

China and Taiwan split in 1949 at the end of a civil war, but Beijing has repeatedly threatened to invade Taiwan if it declares independence.

Taiwan navy's submarine fleet consists of two 50-year-old Guppy-class diesel-electric boats, which are both in very poor condition, and two Dutch-built Hai-Lung-class boats commissioned in 1987/88.

WAR.WIRE