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F.A.S. Public Interest Report

Journal of the Federation of American Scientists (F.A.S.)

Volume 53, Number 2   March/April 2000

Spinning Out of Control: The Impact of Globalization on the Conventional Arms Trade

By Tamar Gabelnick

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Tamar Gabelnick is the Director of the Federation of American Scientists' Arms Sales Monitoring Project, which she joined in April 1998.

While the nuclear arms control community is decrying the possible disintegration of several arms control treaties, conventional arms control proponents are still trying to create an effective non-proliferation regime. The limited political consensus for arms sales restrictions that existed during the Cold War has evaporated, leaving no widely accepted norm of restraint in its place. Instead, global market forces are driving the arms trade, with governments' political and security interests often taking second place to the economic interests of the arms industry.

The phenomenon of globalization has reached the arms industry, and as the U.S. and its allies help build weapons production capabilities in more and more states, they are losing their ability to control the arms trade. Limits on military technology transfer are in order. In addition, the trend toward transnational weapons development and production will require states to make more joint decisions on exports of these co-developed arms. In order to avoid the temptation to adopt the lowest common export criteria, the international community urgently needs to adopt strict common standards for arms transfers.

The New Economics of the Arms Trade

From 1988 to 1996, the global volume of arms sales was cut in half, leaving weapons makers frantic to find new markets and outbid competitors. Few arms producers have converted to civilian goods, and the frenzy of mergers and acquisitions - first in the U.S. and now in western Europe - has done little to reduce the problem of over-capacity. Instead, the large and powerful arms industry is successfully lobbing for relaxed arms export policies and increased subsidies to support their overseas sales.

Governments have by and large accepted the arms industry's view, letting economic considerations hold sway in most arms export decisions. The rationale used to justify many exports is that overseas arms sales keep open lines of production in between domestic orders, maintaining critical skills and infrastructure. In addition, arms export proponents argue that having external buyers spreads out the fixed costs of research, development, and production, keeping down per unit costs for the host government. European states, with limited domestic markets, have long felt pressure to export to keep down costs. Russia, back in the weapons market after a long decline in sales, cares almost exclusively about earning foreign currency.

Yet the economic benefits of arms sales are largely overstated.

The U.S. government has also adopted the economic argument for arms exports. The Clinton administration was the first to explicitly identify economic factors as central elements of its conventional arms transfer policy. Presidential Decision Directive 34, signed in 1995, states that one of the goals of U.S. arms exports is "to enhance the ability of the U.S. defense industrial base to meet U.S. defense requirements and maintain long-term military technological superiority at lower costs," and that the export decision should be based in part on "the impact on U.S. industry and the defense industrial base."

Yet the economic benefits of arms sales are largely overstated. A 1999 GAO report challenged the notion that arms exports significantly lower U.S. procurement costs. Moreover, the U.S. spends roughly $8 billion a year in support of arms exports (about half the value of annual U.S. arms shipments). This sum includes grants and loans to foreign governments to buy U.S. arms, the salaries of U.S. staff who promote and process arms sales, and forfeited research and development "recoupment fees" from foreign buyers. In addition, the common practice of giving the purchasing country up to 100% of the purchase value in co-production, investment, or marketing assistance further reduces economic gains from arms exports.

No Holds Barred

The incorporation of arms industry profits and defense procurement savings into the arms export decision-making process has helped break down barriers to arms exports. In an alarming display of short-sightedness, the Clinton administration permits arms sales to all but a short list of "rogue" states. The U.S. weapons industry delivered arms to, signed new contracts with, or received export licenses for 155 out of 190 independent countries in fiscal year 1998. Over $18 billion of arms were shipped from the U.S. that year. Among the large number of arms importers are states that are involved or recently coming out of conflict, engaged in arms races with hostile neighbors, abusive of the rights of their own citizens, or forced to divert scarce resources to buy arms.

Profit motives often lead to arms export decisions that work against stated U.S. foreign policy goals, such as preserving stability in the Middle East and the Aegean or promoting democracy in Latin America. In the "profit-over-pragmatism" logic, Israel may receive up to $17 billion worth of weapons from the U.S. to seal a peace accord with Syria; Colombia is about to receive almost $1 billion worth of arms to fight leftist insurgents in the name of reducing drug consumption in the U.S.; and Turkey's failure to reduce human rights abuses or to negotiate an end to its 15-year-old conflict with Kurdish rebels may soon be rewarded with a $4 billion attack helicopter sale.

In addition to massive quantities of arms exports, the U.S. is selling increasingly sophisticated weaponry to a wider group of countries, introducing new technology into highly charged regions like the Middle East and the Aegean. For example, the United Arab Emirates just finalized a deal to buy 80 F-16s that will have better range, radar, and targeting accuracy than those used by the U.S. Air Force. Vice President Gore announced this controversial concession, a decision surely facilitated by the $6 billion-plus price tag and the fact that the jets will be built in electorate-rich Texas.

The Proliferation of Producers

The high-pitched race to export means that not just arms, but also the technology needed to produce arms are being sent to nations worldwide with scant reflection on the long-term consequences. In order to seal deals in this buyers' market, exporters must often provide importing states with a share in the production of the equipment. These "offset" arrangements can include local assembly work, sub-contracting agreements, joint weapons development, and technology transfers. Many importing states openly declare their intention to use the foreign technology and expertise to become independent producers and exporters of weapons systems. For instance, Turkey and South Korea now have F-16 plants that produce the jets for their own use, and Turkey also produced 46 jets for Egypt. Turkey is also demanding enough technology transfer for a pending attack helicopter deal to become an independent helicopter maker.

The U.S. government originally encouraged the export of arms production and associated technology to key allies to strengthen their defense industry and to encourage "interoperability" with U.S. systems. But with the arms industry leading the way, the U.S. and other exporting states are now engaged in some form of co-production or joint development with countries worldwide, including many newly industrialized and developing states. These governments have become complicit partners in the proliferation of weapons manufacturing capability, a strategy which disregards the potential long-term threat to international peace and security, let alone the competition from new producers.

Because even close U.S. allies have arms export standards that may be at odds with U.S. interests, Washington requires its permission for third party transfers of U.S.-origin arms and military technology. Yet the U.S. cannot easily prevent states from using American technology in locally developed systems exported to third parties. For example, Israel is negotiating a sale of an airborne early-warning radar system to China, which the U.S. fears will increase China's military advantage over Taiwan. The government of Israel claims that the U.S. cannot block the sale, however, because no U.S. technology is directly involved. But since the U.S. played a fundamental role in creating the Israeli military industry, this statement cannot be wholly accurate.

So far, the U.S. has protected its most sensitive technology with so-called "black boxes," physical or electronic barriers to reverse engineering. But U.S. allies are now demanding that this practice be stopped. For example, Israel and Turkey want U.S. companies to transfer software the fire-control radar source codes in order to win major attack helicopter contracts. Germany has also threatened to pull out of joint development of the Medium Extended Air Defense System (MEADS) because of the black boxes around U.S. technology.

So far, the Pentagon has resisted succumbing to this blackmail, but signs point to a reversal in policy. Recent reports state that Germany will gain access to the MEADS "black box" technology , and Israel is confident that it will be granted the source codes it requested. Once the precedent is set, it will be difficult to resist demands from other allies. Technology transfer at this level will not only enable states to incorporate U.S. technology into their exported arms, but also to adapt their own equipment in a way which may threaten U.S. interests. For example, source codes for fighter aircraft radars allow the user to change the pre-set friend or foe designator.

Licensed production of less sophisticated equipment, such as small arms and ammunition, also poses serious proliferation problems. Not only is it harder to prevent unauthorized retransfers of these easily concealed weapons, but licensed producers often get around U.S. law altogether by making small modifications to the design and selling them as domestic models. Moreover, although the United Nations has identified ammunition control as a potential chokepoint in the overly abundant small arms supply, United States sold $105 million worth of ammunition raw materials and manufacturing equipment to 66 countries in FY 98. Enlarging the body of states actively involved in producing this most basic tool of violence undercuts the U.S. government's work on limiting the deadly impact of small arms in conflicts worldwide.

A Race to the Bottom on Export Standards

Under a law passed in November 1999, the U.S. administration is required to work toward a multilateral "Code of Conduct" on arms transfers, which would establish common arms export standards based on the recipient state's respect for human rights and international law. Yet much of the administration's energy is currently devoted to reducing existing U.S. restrictions on arms exports and technology transfers, again for largely economic reasons.

The Pentagon is aggressively promoting the notion that the U.S. can greatly benefit from the process of "defense globalization," or increased transnational cooperative defense projects. But first, according to DoD, the U.S. must "modernize," or liberalize, U.S. arms export regulations. Strict rules on everything from technology transfers to third party exports are allegedly inhibiting closer defense links with foreign corporations.

The Pentagon's goal is to encourage European partnership with U.S. firms by eliminating arms export license requirements for favored allied partners, issuing program licenses for entire weapons systems (including spare parts and associated technology), and reducing restrictions on third-party transfers of jointly developed systems. While the State Department was initially reluctant to accept these proposals, it is being strong-armed into accepting almost all of them. The administration is now moving quickly toward agreement on the reforms in order to announce them at the May 2000 NATO ministerial.

In the meantime, the Pentagon has already begun to take steps to hasten its export approval process, placing time limits on license decisions in a move which favors quantity over quality. It also independently negotiated and agreed to a cooperative agreement on defense trade with the United Kingdom, without the approval of the State Department or Congress. The agreement, signed in February 2000, commits the parties to work toward reducing all barriers to free arms trade and technology transfer between them and to reducing impediments to third party transfers of jointly produced weapons. The agreement also calls on the parties to achieve greater "efficiency" in arms export decisions, and to "diminish legislative and regulatory impediments to optimizing market competition." In other words, the paper commits the U.S. to bring down its standards to the level of its trading partners rather than encouraging both parties to adopt the highest possible common standard.

A Better Model

In order to reverse the disturbing movement toward free trade in conventional arms, a fundamental shift must take place in the way such sales are viewed. Many governments aggressively promote weapons sales in the global market just as they do for other key industries. Yet like nuclear materials, narcotics, or other potentially destructive products, conventional arms should not be treated like any other commercial good. One need look no further than central Africa, South Asia, and the Middle East to witness the level of destruction and suffering that conventional arms can inflict. Economic profit must therefore be removed from governments' decisions about arms exports. Instead, the global norm governing arms sales should be the impact on international stability, regional security, and the protection of human rights.

Yet like nuclear materials, narcotics, or other potentially destructive products, conventional arms should not be treated like any other commercial good.

Unfortunately, there are currently no international regimes which establish common norms on arms transfers nor bind states in any way to limit arms exports. The successor to the Coordinating Committee for Multilateral Export Controls (COCOM) - the western states' Cold War agreement to prevent arms and dual-use technology from going to communist states - is a weak body called the "Wassenaar Arrangement." This group, which includes Russia and other Eastern European exporters, is primarily a post-facto mechanism for sharing information on arms and dual-use technology transfers. A more proactive role for the group is hampered by a consensus decision-making process and the strenuous opposition of states like Russia and France to go beyond a passive mandate.

The international community sorely needs more effective instruments to regulate the arms trade. With a congressional mandate to establish a multilateral Code of Conduct, the U.S. government must now take the lead on such an agreement. The Code of Conduct would commit major exporting states to preventing arms sales to countries involved in regional arms races, a history of aggression against other states, or with poor human rights records. In May 1998, the European Union agreed to use a similar set of principles when assessing arms transfers, to inform each other of sales denials based on these criteria, and to consult each other if planning to undercut such denials. Expanding this type of regime to as many major arms exporters as possible would reverse the current race to the bottom in arms export standards.

In addition, arms exporting states should take steps to reverse the diffusion of technology that allows increasing numbers of states to produce advanced weaponry. Increasing numbers of independent actors will make an international normative agreement on arms transfers even harder to enforce. A new conventional non-proliferation regime should be developed to prevent the transfer of military production technology to states which do not already have an autonomous capacity to manufacture such equipment.

In other areas of trade, these restrictions would be decried as an unfair system of protectionism.

But just as the World Trade Organization exempts military equipment from free trade rules on security grounds, arms importing states need to accept that it is more important to promote international peace and security by reigning in the arms trade than to "share the wealth" in this deadly market. [ PIR Sun tag ]


Also see the July/August 1997 Public Interest Report for Global Black-Market Arms Trade

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