Center for Strategic Decision Research

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U.S. Export Controls and the Future Transatlantic Marketplace

Dr. Robert H. Trice
Senior Vice President for Corporate Business Development,
Lockheed Martin

My comments on the environmental factors that promote and deter greater defense industrial cooperation are based on two fundamental premises: first, that a healthy transatlantic industrial base is essential to a robust, unified NATO, and second, that privately owned aerospace and defense companies will transform themselves to adapt to the realities of the transatlantic marketplace, whatever those realities turn out to be. The companies will either grow, shrink, consolidate, or evaporate as market conditions and shareholder demands warrant.

STRENGTHENING TRANSATLANTIC COOPERATION

The first issue to consider is the overall health of the marketplace. A significantly more liberal export-control regime will be irrelevant if countries are not buying any goods. After 10 years of steadily declining U.S. procurement budgets and after the shedding of more than a million workers, a consolidated group of half a dozen or so large American defense companies now sees a stable and probably moderately increasing annual procurement account of $55 to $60 billion. This account is supplemented by an R&D budget of $30+ billion, about two-thirds of which is addressable by U.S. companies. The Operations and Maintenance account adds another $20 to 30 billion in opportunities, for a total addressable U.S. market of around $100 to $110 billion per year.

In contrast, defense spending in the other NATO countries continues to decline. Despite years of rhetoric that European procurement budgets must be increased, they have not been. As a result, our European industry colleagues have responded in at least four ways:

  • They have consolidated and significantly reduced the number of defense workers and, to the maximum extent possible, reduced or eliminated government ownership and control.
  • The largest companies have demanded national and/or European Union guarantees that, for industrial base purposes, European-only R&D and production programs will proceed, whether or not a comparable or superior U.S. system or alternative exists.
  • When there is no national alternative system and U.S. systems are procured, European companies and governments receive unprecedented levels of technology transfer and industrial offsets from American companies.
  • European services are going where the money and new technologies are-the U.S. And they are increasing their American market share the old-fashioned way-they are buying it. In April 2000, 26 European-headquartered companies owned nearly 200 defense subsidiaries in the U.S. BAE Systems, the reigning British national defense champion, correctly and proudly noted that it is now the fifth largest U.S. defense company, with more sales and workers in America than in the U.K.

Because of these changes, the current transatlantic industrial landscape is a hodgepodge of conflicting interests, policies, and actions. We must determine the best way to transform the most traditionally nationalistic industrial institutions-those originally developed to provide the means for protecting national sovereignty-into forward-looking, vibrant, high-technology companies that can effectively and efficiently deliver the systems and services required to advance the security interests of all NATO and major non-NATO Allies.

TRANSFORMING THE SYSTEM

To our mind, our government customers need to do three things:

  • Align military requirements so that multiple NATO governments can agree on how best to operate together to support mutual defense interests.
  • Once the governments agree on these common standards, they must follow through on commitments to fund the relevant programs at adequate and predictable levels during their developmental and production cycles.
  • The U.S. and its allies must agree on workable, common-sense mechanisms for ensuring that all industrial partners have access to the technologies necessary to compete effectively for these programs. Whichever partners win, they should be able to fulfill their commitments to their government customers.

If these three conditions are met, we in industry guarantee that we can and will form competing transatlantic teams to provide our military customers with viable alternatives for making weapon system solutions. The Medium Extended Air Defense System (MEADS), the Joint Strike Fighter (JSF), and TRACER/Future Scout Vehicles are illustrating how this new industrial model might work.

The new system would be substantially different from the industrial participation/offset regime that currently accompanies defense sales within NATO. Guarantees of limited work packages to local industries, sometimes irrespective of their competitiveness, will gradually be replaced by higher-risk, much higher-reward teaming arrangements in which those with the best technology and the most creative and cost-effective solutions will prevail and prosper.

We also would expect these transatlantic partnerships to sort out how they will compete with and against each other in third-country markets. We need NATO governments and industries to get serious about setting up a multilateral export-control regime to ensure two things: first, that NATO's most sensitive technologies do not end up in the wrong hands and, second, that we all conduct our business according to the highest legal and ethical standards.

Currently, the U.S. spends twice as much every year on procurement and three times as much on R&D as all the rest of NATO. In the absence of agreed-to system requirements and mutually shared funding commitments among Allies, it is unlikely the Americans will give the Europeans a "free ride" by providing access to technologies that might be used to drive European-only system solutions or that could find their way to enemies of the U.S., NATO, or their Allies. However, if the Alliance is to mature and the transatlantic market is truly to develop, the U.S. must fundamentally reform its export-control system in at least four ways. The American regime needs to be more 1) transparent, 2) consistent, 3) timely, and, above all, 4) limited to controlling only genuinely critical technologies.

CONCLUDING REMARKS

Last year, over 50% of Lockheed Martin's export license and technical assistance agreement requests were to NATO countries. When we add major non-NATO Allies (e.g., Japan, Australia, and New Zealand), the figure increases to 73% of our total applications. From our perspective, if we can focus on facilitating improved defense trade among America, NATO, and their major allies, we will establish the basis for conducting reasonable business with all other U.S. defense partners.

Building on last year's Defense Trade Security Initiative (DTSI), U.S. industry is prepared and ready to work with the new administration and Congress on a number of specific initiatives. We believe the timing is right for such an overhaul as the new administration sets its first-term priorities. If U.S. industry and the U.S. government, working within an alliance context, can take the first steps in making technological cooperation with NATO more predictable and less frustrating for Europeans, we may, in turn, create incentives for more joint planning and systems development. These positive steps, in turn, might make it easier for European governments to explain to skeptical parliaments and publics why it makes sense to spend more on defense. Otherwise, we fear the capabilities gap across the Atlantic will only increase, with potentially serious consequences for the industrial and military strength of NATO.

 

 


 

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