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The Role of the Defense Industry in Transatlantic Strategic Choices

The Role of the Defense Industry in Transatlantic Strategic Choices

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This policy brief argues that a more open and integrated transatlantic defense market would largely benefit both Europeans and Americans.
This policy brief argues that a more open and integrated transatlantic defense market would largely benefit both Europeans and Americans.

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Published by: German Marshall Fund of the United States on Nov 25, 2013
Copyright:Attribution Non-commercial


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The transatlantic defense market remains highly fragmented and character-ized by a lack of trust between transatlantic actors. This paper argues that a more open and integrated transatlantic defense
market would largely benet
both Europeans and Americans, as it would generate economies of scale, foster positive industrial competition, and limit the risk of technology gaps between part-ners. It also provides concrete recommendations to overcome the current obstacles to transat-
lantic cooperation in the eld of
the defense industry, and there-fore strengthen the transatlantic relationship.
Transatlantic Security Task Force Series
Policy Brie 
 The Role of the Defense Industry in  Transatlantic Strategic Choices
by Clara M. O’Donnell
German Marshall Fund o the United States-Paris 71 Boulevard Raspail 75006 Paris : +33 1 47 23 47 18 E: inoparis@gmus.org
November 2013
Americans and Europeans would greatly benefit rom more open deense markets across the Atlantic. Governments would pay less or better military equipment, their armed orces would find it easier to operate in the field, and the transat-lantic relationship would be strength-ened. Yet the transatlantic deense market remains highly ragmented. In what can only be characterized as a striking absence o strategic thinking, U.S. and European governments buy primarily rom their national suppliers and use unnecessarily cumbersome rules to regulate their deense sectors. Tis paper reviews the principle reasons or this state o affairs. It also provides some policy recommendations so that transatlantic leaders may partly remedy it.
Missed Economic Opportunities
Even prior to the deense spending cuts introduced across much o Europe in response to the economic crisis, EU governments had acknowl-edged that their military budgets were insufficient to sustain technologically cutting-edge deense industries at a national level. As a result, member-states have repeatedly stressed the need to integrate European deense markets and consolidate their indus-tries. But some military capabili-ties — such as certain space assets or manned and unmanned combat aircraf — are becoming so expensive to develop that even together, Euro-peans will struggle to generate the demand needed to support several suppliers. Meanwhile, in the United States, industrial consolidation in recent decades has lef the Depart-ment o Deense with a restricted number o domestic suppliers or certain capabilities. Balanced transatlantic deense trade would enable Europeans and the United States to generate the econo-mies o scale required or the most expensive military capabilities. It would also increase pressure on suppliers on both sides o the Atlantic to offer competitive prices. But despite the talk amongst EU governments o the need to integrate their deense industries, Europeans — and the United States — continue to buy military equipment primarily rom their national suppliers. In 2009, the Pentagon awarded around
Transatlantic Security Task Force Series
Policy Brief
98 percent o its procurement budget to U.S. companies.
 Between 2011 and the spring o 2013, France, Germany, and Italy awarded 2 percent or less o their contracts to oreign firms when using new EU rules on deense procurement — despite the act that the new rules are designed to increase the amount o intra-EU competition.
Governments preer equipment to be made at home partly because they want to ensure access to, and control over, sensitive weapons systems and technologies. But or many transatlantic allies, buying deense capabilities is also a way to support the national economy. Te procurement choices o ministries o deense are ofen influenced by the number o jobs a deense company can create or the amount o technology it transers to the country. As a result, even when a government does buy military equipment rom a company based in a transatlantic ally, the kit is not always the most cost-effective. Americans and Europeans also curtail the economic bene-fits o transatlantic deense trade through their complex and mostly uncoordinated regulations — be it in relation to export controls or rules governing oreign investments. Governments must ensure that sensitive equipment and inormation do not all into the wrong hands. But given the closeness o military ties amongst transatlantic allies and the globalized nature o today’s deense industry, some o the current checks are disproportionate — notwithstanding recent efforts by both the EU and the United States to streamline their export controls. In some European countries, controls on oreign invest-ment are so heavy that it is hard or deense companies based there to accept benign investments rom transat-lantic allies. Deense firms with plants in countries on both sides o the Atlantic ofen need to request time-consuming authorizations to move a relatively non-sensitive compo-nent between plants. Similarly, when a U.S. and European deense company merge, their home governments ofen ask or security firewalls that are so extensive that the merged company needs to maintain separate research departments and production lines or their U.S. and European markets.
1 Jeffrey Bialos, Christine Fisher, and Stuart Koehl, “Fortresses and icebergs,” Center for Transatlantic Relations, Johns Hopkins University, 2009.2 European Commission, “Commission staff working document on defence, Accompa-
nying the document: Communication, towards a more competitive and efcient defence
and security sector,” July 24, 2013.
Missed Military Opportunities
Te limited integration o the transatlantic deense market also hampers allied orces in combat operations. o begin, armed orces rom across Europe and the United States miss out on the technological breakthroughs in military equipment that could have occurred i large U.S. and European suppliers had been able to take advantage o the market’s economies o scale. In addition, because o the importance many governments attribute to job creation when buying military capabilities, some armed orces operate equipment that is less effective than the kit used by their allies. Finally, because transatlantic allies ofen do not consult each other when buying their military equip-ment rom their national suppliers, they sometimes use different technical standards. As a result, their armed orces can struggle to communicate on the battlefield, or cannot provide each other with spare parts. ransatlantic military cooperation is also hamstrung by the complex web o export controls upheld by allies. As discussed above, a certain amount o export controls is essential. And even within the transatlantic alliance there is significant mistrust amongst countries. Some worry that their allies lack the technical capacity to stop mili-tary equipment illegally leaving their territory. Others are uneasy about the willingness o certain allies to export to countries the ormer consider unsae, such as Russia and China. But in the same way that Europeans and Ameri-cans maintain excessive export controls on their deense companies, they impose too many checks on their transat-lantic allies. For example, when a European country buys sophisticated U.S.-made equipment or its armed orces, Washington requently does not share the technical inor-
Because transatlantic allies often do not consult each other when buying their military equipment from their national suppliers, they sometimes use different technical standards.

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