William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.

        On September 3, another “international defense industry” conference was held in Washington. Its principle sponsors were European corporations trying to expand their exports to the Pentagon and their opportunities to win “outsourced” work from American prime contractors. Among the sponsors were BAE Systems from Great Britain, Italy’s state-owned “industrial group” Finmeccanica, the Canadian Commercial Corporation, and the Embassy of Sweden along with its Saab conglomerate. The main U.S. company sponsoring the event was Boeing, known for outsourcing as it has become more of a systems integrator than an actual producer of equipment. Raytheon was the other main American sponsor. As a leading provider of military electronics, Raytheon supplies the major weapon systems of all nations.

The theme of the conference was that there exists an international business community united in its regard for the “common defense” in an “age of persistent conflict.” The term “persistent conflict” comes from the Pentagon and so does the money to sustain this supposed “international community.” Oddly, this kind of terminology is quite new. During the Cold War, when there was a much stronger imperative for the common defense of Western Europe against the Soviet Union, each major nation had its own defense industry that supplied the bulk of its warships, armored vehicles, aircraft, and small arms. France, England and Sweden still build their own jet fighters and tanks, though the U.S. supplied many of the smaller NATO members with combat aircraft (in competition with its larger allies). In an era when interoperability should have been a top priority when facing the risk of World War III, every major government went its own way to sustain its own industrial base.

Since the end of the Cold War, the NATO alliance has deteriorated. There is not the same sense of a common danger, nor a shared world outlook. The once mighty NATO armies deployed to stop a Soviet blitzkrieg across Germany have melted away. Today, the Europeans can hardly maintain a few brigades in Afghanistan to fight lightly-armed insurgents.

In such as austere environment, European industrialists are desperate for American taxpayers to bail them out with military funding. They want to be counted as part of the U.S. industrial base when it comes to bidding on contracts, while still maintaining their national identity and commercial independence. Their one-way approach could be seen in the choice of topics at the September conference. As stated in the meeting’s introductory document, “Technology transfer issues remain at the forefront of challenges, closely followed by offset/industrial participation.”

Given that the United States spends four times as much on military research and development as does the rest of NATO, it is clear in which direction technology is to be transferred. On one panel, diplomats from the Netherlands, England, Australia, Sweden, Italy and Germany urged the United States to relax its export controls on sensitive technology. Indeed, Dutch defense attaché Gertie Arts proposed that U.S. allies be given blanket approval to buy and sell military items without having to apply for any licenses at all! But it is not just military technology that the Europeans want. At an offsets conference I spoke at in London last year, many foreign governments were calling for the use of military contracts as a way to gain access to medical and biotechnology where the U.S. has a competitive advantage.  

When an American firm sells military equipment in Europe, it must provide “offsets” against the cost of the contract. Such offsets include co-production, licensed production, subcontractor production, and technology transfer, counter trade, and mandated foreign investment. The object is for the buyer to recoup as much as possible from the seller. Offsets can extend into any commercial sector that the buyer may desire. According to a December 2007 report by the Commerce Department's Bureau of Industry and Security, “During 1993-2006, U.S. companies reported entering into 582 offset agreements with 42 countries related to export sales totaling $84.3 billion. These offset agreements were valued at $60 billion and equaled 71.2 percent of the export contract value.” For European countries, the offsets equaled 97.7 percent of contract value.
  
Whether through offsets when systems are sold in Europe or by winning contracts to supply weapons or components in U.S. projects, participating in American defense programs, has obvious benefits to foreign manufacturers. But such participation poses major risks to the United States. The most important question is whether an “international” defense industry can be trusted to serve the national security interests of America? Can the U.S. depend on a steady supply of production, including decades of space parts and upgrades, from foreign industries in decline where military investment is funded at only a fraction of the sum devoted to defense in America?

Another question is whether providing a lifeline to European defense production directly undermines U.S. security? Awarding contracts to foreign producers in competition with American firms clearly weakens the national defense industrial base which is the only truly secure and dependable source of weapons and supplies to the U.S. military. But funding the expansion of foreign defense firms may also help America’s adversaries.

Italy, for example, is considered a solid U.S. ally. It has sent troops to fight in Iraq, Afghanistan, and Lebanon. It cited this support when lobbying for the award to AugustaWestland of the contract for a new fleet of White House helicopters based on the EH-101 (renamed US-101 and marketed by Lockheed for PR purposes). At the conference, its military attaché Brig. Gen. Mirco Zuliani seconded Gertie Arts’ call for the U.S. to drop licenses for defense products.

Yet, Italy has also been lobbying for the European Union to lift its ban on arms sales to China, a change in policy that Washington has strongly opposed. Italy’s state-owned shipyard Fincantieri plans to buy U.S. shipbuilder Manitowoc, a company that builds Littoral Combat Ships for one of the Navy’s top programs. Yet, Fincantieri is also involved with Rubin, Russia’s largest submarine design bureau, in creating a new class of conventional submarines. An “international defense industry” will not be allied solely with the United States.

The longer term aim of the Europeans is to create a defense industrial base that can compete with the United States globally, and to provide as much equipment as it can for European forces to keep them free from foreign dependence. France, for example, has published a new White Paper on defense and national security. The defense industry section is within the chapter headed “European Ambition.” There is also a chapter on “Industrial and Technological Priorities to 2025,” with each section ending with "France will support the emergence of an integrated European industrial capability for.... [fill in the blank]," or similar wording.

Paris knows that due to the massive cuts in defense spending and force levels across the continent, “Individual European countries can no longer master every technology and capability at the national level. France must retain its areas of sovereignty, concentrated on the capability necessary for the maintenance of the strategic and political autonomy of the nation: nuclear deterrence; ballistic missiles; SSNs; and cyber-security are amongst the priorities. As regards the other technologies and capacities that it may wish to acquire, France believes that the European framework must be privileged: combat aircraft, drones, cruise missiles, satellites, electronic components etc., although procurement policy must include acquisitions on the world market.”

The term “privileged” is key. It means a bias to “Buy European” in defense contracting. The “etc.” in the list of high-end systems to be covered by this policy could be nearly limitless. The French attitude is not unique in Europe. Ake Svensson, president of both Saab and the Aerospace and Defence Industries Association of Europe, stated in a Defense News interview last July that the decline of European industry is destroying future job opportunities for skilled workers. “Once lost, these jobs and the know-how that goes with them are unlikely to return,” he said. This is true on both sides of the Atlantic, and makes it proper strategic policy to prevent industrial decline. If European firms are to be “privileged" within the EU, American firms should be privileged within the United States when bidding on military contracts. National security requires a national defense industry.

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