The Link of Jobs to Foreign Arms Sales

By Lora Lumpe and Paul F. Pineo

The Sun
Sunday, November 28, 1993
Baltimore, Maryland

Washington. D.C.

Defense Secretary Les Aspin Is quick to cite Third World military aggression as a key rational for the Defense Department's $262 billion budget this year. Yet over the last 12 months the U.S. has sold a record $30 billion In weapons to Third World countries. Until now, few In Congress have dared take Issue with rising U.S. arms sales for fear of being accused of undermining American Jobs. Industry lobbyists routinely provide Congress with a district-by-district breakdown of the jobs tied to each sale. Last year, a "Jobs Now" coalition of arms manufacturers and labor unions calmed that 40,000 jobs would be lost If the United States government did not sell 72 F-15 fighter-bombers to Saudi Arabia. But new legislation Introduced by Sen. Russell Feingold, D-Wis., could finally burst the bubble of the arms sales-for-jobs advocates. Senator Feingold wants to require U.S. companies to disclose the hidden side agreements-"offsets"-sellers use to sweeten their deals. He argues that while these agreements may help arms manufacturers In an Increasingly competitive arms market, they may also result In a net loss of American jobs.

Indeed, sometimes the offset agreements are worth more than the actual value of the weapons sale: The $2.3 billion sale of F/A-18 fighter-bombers to Canada In 1982, for example, Included offsets which could total 150 percent of the contract value, according to the Office of Management and Budget. That contract require McDonnell Douglas to purchase Canadian office furniture, promote Canadian tourism and allow the Canadians to produce various McDonnell Douglas components. In other cases, U.S. workers get stuck paying the tab twice. Israel Is currently considering a $2 billion purchase of combat aircraft. McDonnell Douglas and Lockheed-two American arms manufacturing giants-are locked In fierce competition for the deal, each trying to outbid the other In terms of price, technology, and offset packages. To cinch the Israeli sale, the winning company will likely provide offsets benefitting Israeli Industry for up to 50 percent of the sale's value-Sl billion. At the same time, Israel will purchase the aircraft with U.S. military aid, which Is restricted to purchases from the United States. In this way, the U.S. taxpayer subsldlzes both foreign militaries and foreign industries at the expense of our own manufacturing base. The Pentagon, wary of promoting foreign goods, has a policy against negotiating offsets to Its arms sales. But the White House has opted not to regulate offsets negotiated by Industry, and only on rare occasions has Washington stepped In to limit escalating counterbids between American firms. For example, In 1990 the government Imposed a 30 percent cap on the value of offsets that McDonnell Douglas and General Dynamics could offer Korea on a $5.2 billion fighter sale. These offsets were In addition to the licensing of technology for prodding the aircraft.

Since the terms of arms-sales offsets are classified as "confidential business Information" and kept secret from Congress and the public, It is difficult to gauge their true Impact on U.S. employment. By requiring disclosure, Senator Feingold's legislation would remedy this. As the Canadian example demonstrates, jobs In fields far removed from armament manufacturing can be adversely affected by offset agreements. Other indirect offsets to U.S. arms sales have Involved the purchase of French fire engines, Polish hams and furniture and Swiss electrical generators. The marketing of these foreign products came at the expense of business for American firms. Senator Feingold became Interested In offsets when a Wisconsin company lost a contract to a Finnish competitor, resulting from offsets connected to the sale of F/A-18 fighter-bombers to Finland. In this case, a U.S. subcontractor Involved In the arms deal offered "Incentive payments" to U.S. companies to purchase materials from Finnish companies. American arms producers oppose Senator Feingold's amendment. These companies are rightly worried that the disclosure of offsets will expose the selective nature of their lobs claims. Since commercial considerations are now without doubt central to arms-sales decision-making, Congress needs all the relevant information to gauge the Impact these concession have on U.S. competitiveness, the industrial base and Amerlcan jobs.

Lora Lumpe and Paul F. Pineo run the Arms Sales Monitoring Project of the Federation of American Scientists. They wrote this article for Pacific News Service.

FAS Home | ASMP Home | Search | About ASMP
Publications | Sales Data | Issues | Resources