Defense Export Reform Plan Will Boost Industry Alliances

Closer ties between the United States and its military allies cannot be achieved by governmental activities only, said a top Pentagon official in charge of industrial policy. The participation of the private sector-in this case, the defense contractors-is vital to this endeavor, he asserted.

Jeffrey P. Bialos is the deputy undersecretary of defense for industrial affairs. He recently sat down with National Defense to discuss his role in bolstering industrial relationships between American and allied nations' defense firms and the consequences those partnerships have on U.S. national security.

To strengthen the NATO alliance, said Bialos, the United States needs "increased technology sharing with coalition partners." His beliefs reflect the changing ways of thinking at the Pentagon, where officials increasingly are more interested in ensuring military allies have technology that is compatible with U.S. systems and that U.S. defense contractors have access to allies' arms markets.

"We can't just do this government to government," Bialos said. "We need to have enhanced industrial linkages between firms in the United States and those of our coalition partners." These allies, however, should have technology-transfer policies that, like the United States, would preclude the sharing of sensitive technologies with potential enemy nations.

The goal, said Bialos, is to have healthy competition in the marketplace, but also security. Trans-Atlantic mergers, acquisitions or joint ventures will be endorsed by the Pentagon, he added, "when they are pro-competitive and pro-security."

International Partnerships
Bialos believes that the private sector often can be more effective than the government in developing long-lasting international partnerships. "Through industrial cooperation and technology sharing, you are more likely to end up with solutions that are commercially-driven, real solutions rather than top-down [government mandated] standards," he said.

But the biggest hurdle currently standing in the way of closer defense ties is the export licensing process required by the U.S. government, said Bialos. His comments echoed remarks delivered a week earlier by the Pentagon's principal deputy undersecretary for acquisition and technology, David R. Oliver Jr. He had told an industry audience that "export process reform" was the Defense Department's "number one priority." It turns out, said Bialos, that "export controls is the main impediment to enhanced industrial cooperation between the United States and Europe."

Unless the policies change, he said, it will become more difficult to convince European allies that it is worth enduring the delays and cumbersome bureaucracy that today prevail in the export-licensing business. "We have systems that are somewhat antiquated, designed with the Cold War in mind," Bialos said. Today's procedures do not take into account that a particular foreign country purchasing U.S. equipment might be an ally. Everyone gets the same level of scrutiny. Bialos believes there should be less restrictive licensing requirements for coalition partners such as the United Kingdom and Australia. About 30 percent of U.S. defense exports go to those two nations.

Under the Defense Department's plan, export control reform would be underpinned by three tenets:

• Extending the exemptions currently given to Canada (under the international traffic in arms regulations, or ITAR) to allies, such as NATO countries, assuming these allies agree to "level up on security."
• Developing a more flexible licensing system for NATO countries that would be a "one-stop" operation for government and industry projects.
• Implementing internal government reforms that would improve responsiveness to customers and provide more "transparency."

"The model we would like to see is greater technology with coalition partners, provided they are willing to level up on security and develop more stringent controls [to prevent technology sharing with] third parties," Bialos said. "If we do that, it would ease the export control burdens on our regulators looking at exports of mundane items to coalition partners, and frees up resources to focus on harder cases of sensitive exports to sensitive countries. Philosophically, that would be the model." As an incentive for allies to agree to tighter controls against transfers to third parties, he added, "we are willing to share more technology."

Bialos' office has been "working very closely" with the State Department during the past several months. The State Department issues all export licenses for military-related and defense equipment. He conceded that there is no commitment yet from the State Department on endorsing the Pentagon's reform proposal.

"There is not yet a U.S. government consensus" on this issue, Bialos said. "Some elements of the State Department would prefer to follow these other approaches that we have today."

If the reform measures go through, Bialos said, those countries interested in entering industrial relationships with the United States will have to meet the so-called "five pillars of compatibility and confidence," he explained. This means they must have common export control policies to the United States, a similar approach to industrial security, agreement to share intelligence, cooperation in law enforcement and guaranteed access to each others' defense markets.

'Five Pillars'
"We began down this road with the United Kingdom ... Now we will work on a comprehensive agreement," said Bialos. But nothing can move forward until there is an "interagency agreement" with the State Department. Bialos predicted there would be decisive action by June.

"The approaches I have outlined do not require new legislation," Bialos asserted. "They can be done by regulation. Right now, we only need State Department approval." European firms, he said, "are quite interested in this. They want collaboration and teaming with U.S. firms. Reforms can help facilitate that teaming."

According to Oliver, it will be "impossible" for the United States to help maintain world peace unless "we have a relationship with Europe and the Far East and have open communications ... Somehow, we have to break down the fortress and make sure we have relationships." U.S. industry, particularly, needs to have relationships with other nations' industries, Oliver said, because that is what "keeps governments interested."

Export reform also is needed for financial reasons, he said. The Defense Department, for example, currently buys more than $5 billion worth of products a year from the German conglomerate DaimlerChrysler. That company, Oliver said, "would rather lose that business than put up with U.S. export controls."

Topics: International, Defense Department, Export Control Reform