January 1, 2007  

Freeing bolts and gear knobs

Industry hopes new Congress will untie some export-restriction knots

Used to be that Aerospace Industries Association president John Douglass carried around a metal bracket and a length of hydraulic hose. When it came time to speak, Douglass would hold the bracket aloft and waggle the hose and complain that overzealous U.S. export regulations designed to keep military weapons out of the hands of U.S. enemies were also stifling the sales of these more mundane items.

The bracket and hose were parts for military aircraft. But they were identical to parts for tractors and earthmovers.

To export these items — and various other “nuts, bolts and tubing” — U.S. manufacturers must first obtain a license from the U.S. State Department. That can take months. Meanwhile, manufacturers elsewhere in the world can make and sell these products at will.

Outdated U.S. arms-exporting rules make it difficult for U.S. companies to compete in the global marketplace, Douglass would say.

It made for a memorable speech, but proved not especially effective at changing the export control rules, which remain rigidly in place.

In a recent address at a defense industry forum, Douglass signaled a shift in tactics. He announced he is organizing a major lobbying campaign aimed at persuading the administration, Congress and the 2008 presidential candidates to overhaul export controls. Douglass said he has met with the chief executives of major defense companies, “and we have decided that we’re going to make another run at” reforming export controls. For starters, the bracket and hose demonstration has been replaced by the “landing gear knob” example.

Douglass told the defense industry gathering about a company that “can’t get an export license for a landing gear knob” because it is a controlled military export. It doesn’t make sense, he said. “If we gave all the landing gear knob technology to Osama bin Laden, what the hell would he do with it?” To clear the way for exporting landing gear knobs, brackets, hoses and more significant military items, Douglass said he is starting “a major new push to educate the new Congress,” members of the Bush administration and even presidential candidates.

“There is a window of political opportunity with the 2008 election coming up,” Douglass said. “We’re going to make this a big deal, as big as we can make it.”

But “we can’t just whine,” he said. To secure reforms, the defense industry must develop an alternative to the current export licensing system. “We’re developing an alternative,” Douglass told the gathering.

The AIA effort is being augmented by the National Association of Manufacturers and the Electronic Industries Alliance.

But if the thought of new industry-written rules to govern U.S. arms exports pleases Douglass’ colleagues, it causes alarm among arms-control advocates.

“In terms of nonproliferation, and from a national security perspective, the system we have seems to work pretty well,” said Matthew Schroeder, manager of the Arms Sales Monitoring Project at the Federation of American Scientists. “We’re one of the only countries that does extensive post-sale monitoring” to ensure that arms sold to one country are not then transferred to a second one, Schroeder said.

“The current system is one of the best in the world at keeping defense materials out of the hands of people we don’t want to get them,” he said.

“We have one of the best export control systems in world,” agreed Rachel Stohl, an arms-control specialist at the Center for Defense Information.

“Whether it’s an M16 or F-16, it’s our responsibility to make sure weapons go to who they were intended for,” and not to others, she said. “The industry always wants to sell more stuff more quickly. They always find something to bellyache about.”

“Foreign military sales are up,” Stohl said. “The United States is still the world’s number one arms exporters. And when countries are given a choice, they want to buy American.”

Even as he decried the hardships U.S. arms-export rules impose on U.S. defense companies, Douglass noted that business has never been better. The U.S. aerospace industry exported “well over $50 billion” worth of goods in 2006 compared to about $40 billion worth in 2005, he said. “That’s a huge amount of growth in just one year.”

The U.S. aerospace industry exports “40 percent of everything we produce,” Douglass said.

It was an extraordinary year as well for U.S. companies that participate in the Defense Department’s foreign sales program. The Pentagon reported foreign military sales for 2006 of $20.9 billion — nearly double the $10.6 billion total for 2005.

Countries spooked by bellicose Iran and North Korea with nuclear missiles turned to the U.S. to buy Patriot air defense missiles, command and control systems, mobile artillery rockets, helicopters, surveillance planes, radars and other arms.

U.S. defense companies are selling so much overseas now it’s hard to imagine that they could suddenly sell substantially more if the export rules were relaxed, Stohl said.

But defense companies worry as much about maintaining the market share they already have as about expanding it. Competition in the industry is increasing in part because the marketplace is contracting. While defense spending in the U.S. hovers around 4 percent of the gross domestic product, in most European countries, it has fallen to 1 percent or even less. With shrinking markets at home, foreign companies have begun competing keenly for a share of U.S. defense spending. European aircraft maker EADS, for example, wants to build the U.S. Air Force’s next aerial refueling tanker. It is building the next Army utility helicopter and is battling with Italy’s Alenia to build a light cargo aircraft for the Army and Air Force. Anglo-Italian AgustaWestland is building a fleet of new helicopters to transport future U.S. presidents.

In each instance, these foreign companies have opened U.S. production plants and teamed up with U.S. industry partners. This intermingling is evidence that the defense industry is increasingly globalized, Douglass and others in the defense industry say.

In this milieu, knowledge, technology and materiel must be allowed to flow more freely, they say.

Amidst globalization, U.S. arms export regulations — which date from the Cold War and were designed to prevent the Soviet Union from acquiring superior U.S. technology — have become an impediment, industry leaders insist.

The AIA envisions a two-part campaign to change export controls.

Phase one: “We try to do what we can within the law to change policy that is having a negative effect on industry,” Douglass said. To that end, the three industry associations will try to persuade officials in the State Department and elsewhere in the Bush administration to make administrative changes in the way existing trade restrictions are enforced, said an industry source familiar with the plan.

For example, exporting could be made much easier, an association source said, if companies did not have to get a new license each time they sold the same part to the same foreign buyer. “If I sell a close ally an item that’s approved and cleared already, why do I have to apply for a new license every time I want to ship a replacement part?” the source asked.

Thus the trade groups hope to persuade the State Department to let defense companies file reports of sales after the first one, rather than having to obtain licenses for each transaction. “It would make the whole system much less clogged,” the source said.

Douglass has a more ambitious plan to ease licensing requirements: The State Department should develop a ranking system for U.S. trading partners, he said. Defense companies could sell weapons to the most trusted allies — “the top tier” — without having to get a license at all, he said. For less-trusted nations, licenses would be required for some defense exports. Only for “bottom tier” countries would export licenses be required for defense sales.

The idea “will never fly,” predicted Stohl. “Governments are loath to rank other governments. It is rife with political turmoil.”

Ultimately, the trade associations hope to achieve “a complete modernization of export controls,” Douglass said. “We want the current law set aside and new law put in its place,” he said. The defense industry wants change that’s “as bold as politically feasible.”

That’s where the second phase of the campaign comes in. It will focus on “trying to educate the new Congress” and the 2008 candidates for president, Douglass said.

“There are some glimmers of hope” in the incoming Democrat-controlled Congress. “Many of those assuming leadership positions have a more enlightened view of American national security and economic interests as it relates to our allies,” Douglass said.

And the 2008 presidential contest presents “a window of political opportunity” to make arms-export reform a much higher profile issue, he said.

The arms-control advocates, however, also see reason to be optimistic. “I was surprised to hear [Douglass] say that the Democrats might be more open” to arms-export reforms, Stohl said. “I’m not sure the Democrats are going to be any easier on the industry” than were their Republican predecessors.

Rep. Tom Lantos, D-Calif., will take over as chairman of the House International Relations Committee, where efforts to ease arms export controls frequently foundered under the gavel of Rep. Henry Hyde, R-Ill.

“I think Lantos is going to be just as tough on this stuff as Hyde,” Schroeder said.