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CHAPTER ELEVEN


Key U.S. Security Policy Issues

Pursuing World-Wide Control Efforts
Developing Regional Approaches to Arms Control
Safeguarding Weapons
Dealing with Cooperative Programs
Promoting U.S. Defense Sales
Resolving the Disposition of Excess Equipment
Exploring Organizational Alternatives


The executive branch has spent two years attempting to formulate a conventional arms transfer policy for the post-Cold War period, and the 104th Congress is likely to attempt a rewrite of the Arms Export Control Act. The most important question for both is how to keep certain weapons from aggressive or irresponsible states. At the same time, it is in the U.S. interest to encourage friendly governments to provide for their defense needs by cooperating with Washington in developing new systems or purchasing their equipment from U.S.-based companies.

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Pursuing World-wide Control Efforts

Almost all weapons systems and technology are available from non-U.S. sources. Thus, only multilateral efforts to control arms transfers can be effective in the long run.

The first multilateral approach is to increase the transparency of trade in arms so as to bring greater pressure on suppliers and purchasers to limit such trade. The second is to stimulate all significant suppliers of weapons systems to agree on what will and will not be made available to purchasing countries. The third is to encourage regional groups of countries to oppose the introduction of certain classes of weapons into the region.

Increasing transparency. As already noted, only the U.S. makes available large amounts of information about its exports of defense equipment. The U.S. has strongly supported an effort to provide the world more information through a U.N. register of conventional arms. The first edition of the register, covering trade in 1992, was published in late 1993.

However, the U.N. register has some serious limitations. It collects data only on trade in seven weapons categories: battle tanks, armored combat vehicles, large caliber artillery systems, combat aircraft, attack helicopters, missiles and missile launchers, and warships. It does not include data on small arms, transfers of production technology, or domestic production of defense systems.

Thus, this register does not cover many of the weapons often used in civil wars, nor does it provide information on efforts to increase domestic weapons production. And the register lists transfers only after they are completed, when it is too late to affect the event itself. As such, the register reveals little new information, although it may highlight to the international community those countries that are accumulating weapons.

While continuing to work with supplier governments on controlling the transfer and production of weapons platforms, particularly surface-to-surface missiles, Washington may wish to devote additional resources to monitoring trade in portable weapons, and to examining new ways for troops and equipment to defend against such systems.

Supplier agreements. A suppliers' group could cover most major weapons systems. For example, the five permanent members of the U.N. Security Council account for roughly 85 percent of all arms transfers. Alternatively, multilateral efforts can focus on specific classes of weapons systems and their suppliers, as has been attempted with such multilateral approaches as the Coordinating Committee for Multilateral Strategic Export Controls (COCOM), which lapsed in April, 1994.

In addition, there are some specialized international regimes such as the Missile Technology Control Regime (MTCR), and the Australia Group on chemical and biological weapons. These and other specialized arrangements are discussed in the chapter on weapons of mass destruction.

After COCOM. The U.S. has proposed a far-reaching diplomatic strategy to its Western allies to engage Russia and other former Warsaw Pact members in a new global arrangement for controlling transfers of arms and dual-use technologies. Two high-level diplomatic meetings were held in the Hague in November 1993 and March 1994, which endorsed the U.S. initiative and established the political framework for the new regime and a work program for bringing it into place.

Support for the initiative has broadened from the original seventeen COCOM members to twenty-three states, with the participation of neutral European countries and New Zealand. Consultations are underway with Russia, Ukraine, and a number of Eastern European countries about their membership. The National Security Strategy of Engagement and Enlargement indicates that a replacement for COCOM remains a high priority objective.

The success of the new regime depends on Russia's participation, and this has indeed been a central focus of President Clinton's initiative, dating back to his discussions with President Yeltsin at Vancouver about partnership in strategic trade. At the G-7 Summit in Naples, Russia joined the political statement calling attention to Iran's terrorism and President Yeltsin remarked publicly that Russia was attempting to limit trade with terrorist countries.

Problems With Multilateral Arrangements. The biggest obstacle to these efforts has been the differing interests of arms suppliers. First, the U.S. is one of the few global powers that must worry about facing transferred weapons in any part of the globe. Supplier states that are less likely to face such a problem--China, for example--are likely to take a more relaxed view toward arms transfers.

President Bush, in conjunction with the effort to establish a U.N. register of conventional arms, launched an effort in May 1991 to secure agreement among the five permanent members of the U.N. Security Council to limit their weapons sales to the Near East. This negotiation collapsed in late 1992, when China dropped out after the large U.S. aircraft sale to Taiwan. Worldwide interests clearly tend to constrain the actions of the major suppliers, but regional approaches are still on the agenda.

As already noted, defense industries in other countries are generally more dependent on foreign sales, and frequently less competitive than U.S. producers in selling to noncontroversial countries. Hence, there is a greater reluctance by such countries to limit sales. In fact, it is precisely those markets that have been out of bounds to U.S.-based companies which have provided much of the marketplace for other vendors.

Generally, multilateral controls are more likely to be effective if only a modest number of carefully defined products are controlled, and if the countries subject to controls are also limited in number. Furthermore, countries are more likely to participate in supplier control mechanisms if they see benefits, as well as costs, for doing so.

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Developing Regional Approaches to Arms Control

Countries with sufficient financial,
industrial, and human resources can eventually obtain most weapons systems they desire, either by purchasing the systems themselves or by obtaining the technology needed to produce such weapons. For this reason, the most effective means of keeping certain weapons out of a region is to convince all the countries in that region to abstain from acquiring such systems. Coercion by the supplier countries has not proved to be very effective.

The National Security Strategy of Engagement and Enlargement notes:

The U.S. is prepared to promote, help negotiate, monitor, and participate in regional arms control undertakings compatible with American national security interests. We will generally support such undertakings but will not seek to impose regional arms control accords against the wishes of affected states.

The U.S. might, for example, encourage countries in Latin America and Southeast Asia to reach agreements on prohibiting the importation or production of certain weapons systems such as surface-to-surface missiles, cluster weapons, and certain types of mines.

In order to make such agreements more attractive, countries might be told that foregoing certain destabilizing weapons systems would make the U.S. more amenable to providing other weapons systems that are more defensive in nature and less threatening to regional balance. In Latin America, for example, the U.S. might indicate a willingness to provide, replace, or upgrade fighter aircraft in a fashion designed to maintain, not destabilize, the regional military balance.

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Safeguarding Weapons

It may be impossible to stop the spread of some weapons. However, more can probably be done to limit the danger of such weapons falling into the hands of terrorists or unfriendly governments, and to limit the long term damage done by such transfers. For example, the U.S. is pursuing ongoing negotiations to stem the trade in and production of land, sea, and anti-personnel mines, booby traps and similar devices that are not equipped with a self-neutralization device. The U.S. might also consider making such self-neutralization technology available to all producers in exchange for an agreement to incorporate such technology into all mines.

Similarly, the U.S. might work with the producers of portable ground-to-air missiles to design imbedded software or hard wired devices that would render missiles inoperable unless the original producer, or the purchasing government, performed some function on it at regular intervals. This would at least reduce the hazards of such weapons falling into the hands of terrorists. Similar approaches might be examined for other classes of weapons systems.

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Dealing With Cooperative Programs

The U.S. government has, over the years, provided considerable rhetorical support for cooperative programs. Financial and program support have generally not matched the rhetoric.

Such programs can be of two types. They can be government-driven, in which case governments collectively identify and administer programs, awarding contracts to participating firms. Or they can be company-driven, in which case firms identify partners for a variety of reasons--technology, risk sharing, financing, or access to markets, for example. The C-130J transport aircraft program, involving a number of British companies, is a good example of this latter type.

The theoretical advantages of cooperative programs are clear. Countries may save money by using technology already available in another country rather than reinventing the wheel. Alternatively, development costs can be held down if two or more countries pay for or participate in the research. Economies of scale can be generated if a common weapons system is produced, rather than each country producing its own system.

The drawbacks associated with cooperative programs are also apparent. Costs for cooperative projects often exceed those for a single national project, although they are usually less than the costs for two separate national projects. Partners must compromise on the performance characteristics of a system. Politics rather than technology and economics can determine work share. One of the partner governments may change its mind in midstream about some aspect of the project. From an arms transfer perspective, prior agreements may have to be reached on sales to third countries, which can create friction between parties. Licensing of technology may slow the project, and at times cripple it altogether.

Nevertheless, it is likely that companies will seek out more cooperative approaches in the future if they are allowed to do so, both for reasons of obtaining needed technology and as a means of gaining political access to other countries' procurement processes. If U.S. companies are to be successful at this tactic, close cooperation will be needed among companies, the uniformed services, and the arms transfer bureaucracies.

The Executive Branch may wish to review the circumstances under which company-initiated cooperative programs will be supported, and their implications for export licensing policy. Such implications include questions related to national disclosure policy, how to treat proposals for foreign government funding of a new system by U.S. companies, and how to reach advance agreement with foreign partners on third country transfers.

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Promoting U.S. Defense Sales

How much government support should be provided for the marketing efforts of defense contractors? This has been a controversial area in both the Executive Branch and the Congress for years. Some argue that any support whets the appetites of would-be purchasers and makes it more difficult to convince other defense producers to pursue responsible defense sales policies. This was essentially the formal position of the Carter Administration, which prohibited government support for defense contractor sales efforts, and erected a number of generic policies which inhibited all arms exports.

Industry, on the other hand, argues that once the executive branch has made a decision that the sale of a defense system to a certain country is consistent with U.S. foreign policy interests, it is inconsistent to treat the ensuing sales effort less favorably than any other major export sales campaign, as is currently the case in some areas such as export finance and tax incentives for exports.

All other U.S. manufactured products have access to official U.S. export credits or export credit guarantees through the Export Import Bank. Yet that institution is prohibited from providing credits or guarantees for defense items. While military assistance programs were never intended as export promotion devices, there was a time when they did serve the function of providing credits or grants for military purchases to a wide range of countries. Today, for all practical purposes, only Israel and Egypt receive grants for military acquisitions, and only Turkey and Greece receive loans.

Industry and Congress have explored various possibilities to provide some form of export credit guarantee system for defense products. In 1994, a $1 billion credit guarantee facility to be administered by the Department of Defense was authorized, but the $25 million subsidy element required for the program was not appropriated. Industry associations are currently examining whether such a facility could be structured so that loan origination fees paid by the buyer and/or vendor could be used for the subsidy element. In such a scheme, Congress would not need to appropriate monies in order for the guarantee program to begin.

Similarly, a tax incentive program known as the Foreign Sales Corporation (FSC), which provides some tax relief for profits related to export sales, provides only half benefits to profits from sales of defense products. Most industrial countries rely much more heavily on a value added tax (VAT) for revenue than on corporate income tax. When products are exported, the VAT is rebated, allowing companies to price lower in international markets (or make higher profits) than in the home market. The FSC is intended to offset that advantage. Defense exporters are at a unique disadvantage relative to all other exporters in using this tax incentive. The administration may wish to review such legal and administrative practices that discriminate against defense exports.

Other financial issues unique to defense exports deserve attention. For example, for both financial and legal reasons, defense firms generally do not own defense equipment. Thus, when equipment is needed for demonstrations to potential foreign customers or for trade shows, such equipment must be obtained from the military. Until recently, the military required commercial lease rates, plus the company had to transport and insure the equipment. The bill to industry can be substantial. Obtaining an F-18 or F-16 aircraft for a demonstration in Finland, or an M1A2 tank for a demonstration in Saudi Arabia, each cost the companies involved roughly $1 million.

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Resolving the Disposition of Excess Equipment

The issue of how to dispose of defense equipment in excess of U.S. service requirements is a complex one. Storing, transporting, converting to civilian purposes, or scrapping military equipment all cost money. Selling such equipment to foreign customers can be an attractive alternative. However, such sales may undercut marketing efforts of U.S. firms, thereby reducing industrial base capacity and increasing unit costs of new equipment purchased by U.S. forces. For example, if excess F-16s are disposed of in a way that substantially reduced or eliminated new F-16 sales, and the line were shut down, the cost of new F-16s would surely increase if and when more were needed, as would the cost of assembling a contractor base for F-22 aircraft production.

Industry and DOD have already held discussions on this subject, and some efforts at coordination are under way. More recently, the Air Force has explored the idea of selling surplus F-16s to foreign customers and using the receipts to finance the purchase of new aircraft for the Air Force. Furthermore, upgrades of the used equipment are often required, most of which would be undertaken by U.S. firms. In a recent campaign to sell new M1A2 tanks to Sweden, the Army agreed to throw in a number of older M1A1 tanks to sweeten the deal. The Germans did something similar and won the contract.

There may be ways to make excess equipment available to foreign customers without undercutting U.S. marketing efforts. DOD may wish to consider a major review of this subject, including the services, procurement agencies, and industry in the process of examining various options to make positive use of excess equipment.

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Exploring Organizational Alternatives

During the Cold War, conventional arms transfers were treated as a foreign policy issue and, because of their relatively small size, were generally irrelevant to procurement or industrial base concerns. DOD organization still reflects that period. The Defense Security Assistance Agency and the Defense Technology Security Administration are both administered by the Under Secretary of Defense for Policy, while cooperative programs and industrial base questions fall under the Under Secretary of Defense for Acquisition and Technology. The military services have a similar pattern.

Yet today only two countries receive substantial military assistance. All other countries are paying cash, and many demand technology transfer and licensed production as part of the sale. Equipment sales have an increasing impact on the price and even the availability of equipment for U.S. forces. New programs and upgrades for existing U.S. systems increasingly involve foreign technical or financial participation. Decisions on national disclosure policy, technology transfer, and foreign participation will increasingly have an impact on the viability of defense firms and weapons programs both in the U.S. and overseas.

DOD may wish to review whether the current administrative structure for dealing with conventional arms transfers is appropriate for the post-Cold War period.

Typical Space Traffic (Top View)

Typical Space Traffic (Side View)


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