Rethinking Transatlantic Trade and Export Controls: A European View

Mr. Giuseppe Orsi
Co-General Manager, Agusta

OPENING REMARKS

How to effectively control the transfer of advanced technology has challenged us since the dawn of civilization. My forebearers, the Romans, put into place an elaborate system aimed at keeping weapons technology out of the hands of their barbarian enemies. During North America's colonial period, the British did not allow the colonists to build their own kilns for making bricks, nor were the colonists allowed to learn the secrets of manufacturing cloth. Even today, under the so-called Berry Amendment, the American Congress restricts the importation, for military usage, of cloth and other textiles, including composite and fiberglass products, produced outside the United States.

Now, however, the restriction of technology transfer between the U.S. and Europe is of great commercial importance, particularly for those of us in the aerospace industry. This is evident when you consider that the U.S. Defense budget is equal to $278 billion and is almost entirely spent domestically, while the collective defense budget of the European countries with aerospace manufacturers (U.K., Italy, Germany, France, Spain, and Sweden) is $115 billion, a large portion of which is spent outside Europe.

As we know, during the Cold War, America and Europe agreed in general on the importance of keeping technologies from the Soviet bloc that would help build their weapons systems or improve their economies to support larger military establishments. At the same time, the licensing agreements put into place allowed Europe to acquire U.S. aerospace technology. The purpose was to limit the ability of the Soviet Union and its allies to improve their military capabilities while at the same time strengthening the European industry and keeping strict control of exports to third countries. This worked well until the so-called infant industries began to compete with their American licensors and until the dismantling of the Soviet Union. Since then, Europe has grown aware that its future economic welfare and security increasingly depend on its ability to compete in the global marketplace rather than on its belonging to a military alliance. High-tech industry competition is now vital for every industrialized country.

BLURRING THE LINE BETWEEN MILITARY AND COMMERCIAL PRODUCTS

We are also now aware that many of the advanced technologies that resulted from government-supported research, including advanced aerodynamics, thrust vectoring, radar, electro-optics, computers, lasers, sensors, satellites, and such advanced materials as composites and metal alloys, were first applied to military projects but now are applied to the commercial marketplace a well. This lack of distinction between military and commercial products has created a "gray area" of "dual-use technology" whose control has become more difficult. Military establishments worldwide are now increasing their budget percentages for such operations as communications, data processing, imaging, and simulation-all areas of accelerated commercial activity. To hold costs down, they are turning to standard, or near standard, commercial products to meet many of their needs. But lower costs and rapid technological innovation are more likely to occur in a climate that facilitates the transfer of critical technology, most often between international partners.

Increasingly, the U.S. Department of Defense is looking to commercial research, development, and products to meet its needs, and to foreign sales of military equipment to keep crucial defense lines open and reduce unit costs to the U.S. military. Ten years ago the U.S. aerospace industry exported only 7 percent of its military aerospace output; last year it exported nearly one-third. Analysts have predicted that many of the concepts for future warfare will depend on technologies originating in the commercial sector, and on coalitions with other countries. That trend is accelerating. Well-supported by the U.S. government, the U.S. aerospace industry is competing aggressively in the international market. But from our perspective, the U.S. appears to consider competition fair so long as Americans have a technological advantage. We at Agusta have experienced firsthand the DOD using its technology oversight responsibility not for national security reasons but to help an American company gain a competitive advantage in an international competition.

THE LINK BETWEEN ECONOMIC ISSUES AND FOREIGN POLICY

There is still no transatlantic consensus on how to deal with some of the Eastern European countries, some of the Arab countries, Russia, and China; the last two have become both purchasers and suppliers of advanced aerospace technology. China, in particular, has become an important market for Europeans, and is regarded as one that will steadily expand. The trade-off between security and economic benefits has become more complex for all of us, with different perceptions on the two sides of the Atlantic.

The recent publicized disputes between the U.S. Department of State and the U.S. Department of Defense over export controls stem in large part from the DOD recognizing that the old paradigm that security and foreign policy interests must be weighed against economic interests is increasingly obsolete. The new paradigm from the DOD's perspective is that the ability by the U.S. to maintain its lead in advanced technology is based on economic vitality underpinned by exports. If the European industry is not a customer, then it is viewed as a competitor.

There is a growing sense in Europe that the U.S. government is increasingly willing to use export control policy as a vehicle for broader, unconnected foreign policy issues-such as demonstrating executive or legislative displeasure with the actions of a third party. (Europeans have been recently penalized as a consequence of a policy dispute between the U.S. and Indian governments.) This trend has adversely affected transatlantic trade for both European and U.S. corporations.

In addition, political decisions made in Washington could limit the exportability of European technology-based products. Accordingly, some European aerospace, defense, and high-technology firms, sometimes pushed by their final customers, have advised their operating division to minimize as much as possible the inclusion of U.S. components in their systems. We are concerned that partnering with U.S. industry will limit our ability to control our own products. Foreign direct investment is also affected since the export to third parties of co-developed technology remains under the control of the U.S. Government.

The reality is that the United States' capability to effectively deny its competitors access to militarily useful technology will decrease substantially over the long term. While export controls on U.S. technologies, products, and services with defense/dual-use applications will continue to play a role in the pursuit of U.S. foreign policy objectives, the utility of export controls as a tool for maintaining the United States' global military advantage will diminish as the number of U.S.-controllable, militarily only useful technologies shrinks. A failure by U.S. leadership to recognize this fundamental shift could result not only in commercial losses but, more importantly, in the rupture of longstanding international relations. Clinging to a failing policy of export controls has undesirable consequences beyond self-delusion. It can also limit the special influence the U.S. might otherwise accrue as a global provider and supporter of military equipment and services.

REVISING EXPORT CONTROLS

What can be done to improve the situation? In my opinion there are three major steps to take:

1. The U.S. should focus export restrictions on those very few technologies that are available exclusively in the United States. If the same level of technology is available elsewhere (say, in Europe), there should be no limitations or restrictions on its export, particularly to Europe, where simple bilateral controls can be established or controls to handle transfer from Europe to third countries. In other words, there should be great security around a very few items.
2. The U.S. government should foster greater international collaboration. While it is agreed that there are many potential benefits to greater transnational (particularly transatlantic) defense-industrial integration, obstacles are currently in place that prevent this. The DOD should clarify its policy on cross-border defense-industrial mergers and product acquisitions. In other words, it should truly enable a "two-way street."
3. Finally, the U.S. should adopt a more streamlined approach to export licensing, consistent with the strategic purpose of maintaining strong transatlantic relations. Creating a list of proscribed items and materials is easy, but agreeing on the countries to be denied access to sensitive technologies, and the methods to control exports to them, is not. Approving export licenses on a strictly bilateral basis has become increasingly unfeasible, clumsy, and time consuming. In many cases it is almost impossible to get U.S. export licenses in place in time to meet a customer's bid schedule. It is time that the American government put into practice what it has long preached to Europe: open competition, cooperation, and mutually beneficial technology transfer.