President Donald Trump approved the way the US Department of State had implemented his administration’s plan to intensify the US arms export sale.
The United States of America for years have been unquestionable leader in exporting armament and military equipment, as well as defense services. In July, LtGen Charles Hooper, Director of the Defense Security Cooperation Agency for international cooperation, informed that in the first half of 2018 budget year, within the Foreign Military Sales program, the armament worth 46.9 billion dollars was sold abroad, which is almost as much as in the record year of 2015. In 2017, the amount reached 41.9 billion dollars. In the interview for Defense News portal, General said that the significant increase in export was the effect of the White House’s activity to facilitate selling weapons to the friends and allies of the United States. On April 19, 2018, President Donald Trump signed a memorandum defining a new conventional armament transfer policy in support of the USA’s economic and national security interests, being in accordance with the Arms Export Control Act of 1976. The increase in export is to reinforce the US defense industry, which is in good condition anyway.
According the Presidential Memorandum, the main goal of new policy on exporting conventional weapons is to maintain technological advantage of the USA over their potential enemies. Other important goal, which is to be achieved with the expansion of export, is the production growth and new jobs. Today, in the US aerospace and defense sector, about 2.8 million people already found their jobs. Greater production should translate into lower arms unit cost for the US armed forces, and their friends and allies. The Americans are going to improve options for financing purchases and sign more flexible contracts.
The export money will go to the support of advanced research and development on military technology. Selling armament to foreign customers is to reinforce the relations between the United States and other countries whose goal is to increase global influences of America. On the other hand, it also affects the potential of America’s partners and allies to counter external pressures or fight terrorism, as well as the capability of interoperability, essential for implementation of common security goals. It is no secret that the arms sale enforces the political influences of a seller. “The race we take part in is the race for global influences”, said Dak Hardwick, Assistant Vice President, International Affairs at the Aerospace Industries Association.
For that reason, the Memorandum called State Secretary to cooperate with the heads of the US Departments of Defense, Energy and Commerce on the development of the plan to satisfy national security needs, and define essential financial and personnel resources. Obviously, the memorandum also includes a recommendation to reach above goals with as low budget as possible.
The facilitations introduced to arms export do not mean resignation from any kind of control. Decisions on sale or transfer of arms will have to comply with the US law on exporting such products. Transactions are not to violate any international obligations of the United States of America, including those related to export restrictions on some armament categories. The Memorandum mentions, e.g.: Missile Technology Control Regime (MTCR) and the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies. Still, the countries whose international activity arouses fears will not have any chance to purchase US weapons.
Export As Addition
Last year, the US aerospace and defense industry produced about 2% GDP, which is 865 billion dollars. In American economy, this sector is the second-largest gross exporter, and has an extreme effect on trade balance of the entire country. The Defense News portal listed a hundred largest world companies (with the 2017 annual revenues), and the list included 40 American enterprises, five of them among the top ten: Lockheed Martin, Raytheon Company, Northrop Grumman, Boeing, and General Dynamics. The US companies acquired 59% of the total revenue, 375.4 billion dollars, earned by all companies on the list.
However, the largest defense companies secure their gross revenue, i.e. 70%, from domestic defense spending. This can be disadvantageous to them due to the increasing US budget deficit. At some point, such situation may force Washington officials to cut down on defense spending. By the same token, Pentagon will have less money for the purchase of new armament and military equipment or for modernization of the old one.
It must be kept in mind that, contrary to main rivals, Russia and China, which have a state-owned defense industry, American companies are private businesses operating by the market rules. This means their bosses are accountable to corporate boards, shareholders or investors, and companies must be profitable, otherwise they will perish as there is little prospect of getting help from the US government. Defense companies are aware of this threat, hence they take upon activities to increase export. Majority of them will be satisfied if it rises by 5-30% within five years, but there are also companies which would like to reach as high as 50% more export sales. This would be quite difficult without reforming current procedures on international weapons sale. The US arms industry representatives complain that the procedures are time-consuming and bureaucratic. Sectors responsible for issuing export consents are subordinate to the Departments of State, Defense, and Commercial. The media have recently reported that they were lacking employees, and it was suggested that they were in general badly organized.
Business Likes Silence
Another fears are related to trade disputes evoked by Donald Trump, including those with the United States’ old allies. Keith Webster in his article titled “It’s time to update US defense export policies” (www.defensenews.com) wrote that they are causing the cost of raw materials used by defense companies to rise by at least 40 percent. This, obviously, increases production cost, which makes the final products more expensive. As a result, the competitiveness of US arms on the world market may be undermined. There are also opinions that the cost of raw material is scarce compared to the total, so the fears are groundless. According to the media, what should in fact cause fears is that some US friends or allies – being in trade conflict with the USA – may in turn limit their purchase of the US weapons, or even cancel it at all.
American offer would definitely be more attractive if the restrictions related to sharing some armament systems be abolished. One of the examples can be large unmanned aerial vehicles (UAVs). These are covered by the Missile Technology Control Regime (MTCR), where drones are divided into two categories, according the same criteria as missile systems. The first category, subject to MTCR, includes drones with payload capability of 500kg and the range of over 300 km, the second one – the rest of the drones (not meeting those criteria). Out of all UAVs manufactured in the USA, MQ-9 Reaper, RQ-4 Global Hawk and MQ-4 Triton belong to the first category, and they so far have been sold to only some of the closest allies. The report produced by the RAND Corporation indicates that the MTCR restriction may cause more losses than benefits to the USA. Several other large UAV manufacturers, i.a. China, never joined the above-mentioned control system. Refusal to sell US products facilitated China to enter Middle-East markets, so far dominated by the USA, with their drones. It is said that some in the Trump administration wanted to soften the restrictive law by introducing the third criterion, i.e. speed, which means that all large drones of up to 650-km speed should fall into second category, and not fall under the MTCR. In the Presidential Memorandum, there was a recommendation for the Departments of Defense, State, Commercial and Energy to develop a program adjusting the policy of exporting UAVs to economic and national security interests of the United States.
The international security situation will also affect the quantity of the US arms export sale. The intensification of conflicts obviously will encourage many countries to spend more on defense. Some of these funds will surely go to the procurement of armament systems, which domestic producers are not able to deliver.
autor zdjęć: Lokheed Martin