U.S. Government Stepping Up Advocacy of Arms Exports

At the 2015 Paris Air Show, U.S. defense industry executives should have a much sunnier disposition than they did at the last one in 2013, when the event was clouded by the prospect of steep budget cuts that were about to hit the Pentagon.

Although there are some notable industry no-shows in Paris, like Saab, BAE Systems and Northrop Grumman, the gloom and doom has dissipated in 2015. “In fact we actually see more aircraft that are going to be part of the U.S. Defense Department corral than we saw at Farnborough last year,” said Dak Hardwick, director of international affairs at the Aerospace Industries Association.

American companies are less concerned about a possible government shutdown later in the year, he said during a teleconference hosted by the consulting firm Avascent. “The industry sees the U.S. government continue to focus on international trade shows as an opportunity,” Hardwick noted. Government officials met with executives in advance of the show to coordinate plans to promote U.S. defense technology, he added. “There is an increased push on advocacy both on the defense and civilian aerospace side.”

The Paris Air Show will host more than 200 international delegations. The U.S. presence includes representatives from 20 states. “The U.S. government has recognized that there’s a need for greater advocacy, especially in defense trade,” said Hardwick. “There is growing recognition that international competition is fierce.”

Obama administration officials have insisted that while they champion U.S. exports, defense sales primarily are viewed as vehicles of American foreign policy. “We are acutely aware of the declining defense budget and the importance of U.S. companies making money so they can invest in research and development to help our military maintain their technology edge,” said Kenneth Handelman, deputy assistant secretary of State for defense trade controls.

“Just because we are regulators doesn’t mean we can’t be advocates,” he said during a Bloomberg Government conference call. But he cautioned that in the arms export arena, ”foreign policy is the number one priority.”

The State Department’s branch that oversees military exports has “re-energized our outreach to industry,” said Assistant Secretary of State for the Bureau of Political-Military Affairs Puneet Talwar.

“President Obama has put so much emphasis on strengthening our alliances and partnerships around the globe. Defense trade is an important tool for us to be able to do that,” Talwar said in a May speech to the AIA board of governors.

The defense market is tough, he noted. “Other governments can be more aggressive and often have fewer restrictions on what they are willing to sell and to whom. … We also realize that our licensing and regulatory system is imperfect … that sometimes the waits are too long or the process too opaque.”

The administration launched export control reforms in 2009 to simplify the licensing process, although many companies complain the system is still too cumbersome and puts U.S. manufacturers at a disadvantage.

In response, Talwar’s office created a “defense advocacy working group,” he said. Their efforts helped secure a potential $7 billion deal to supply Raytheon-made missile defense systems to Poland.

“Across every agency, we supported and advocated for U.S. solutions to Poland’s missile defense needs,” he said. Top officials traveled to Warsaw. “And we had senior-level engagement to help move the ball forward.”

The group now is “working to build on the success we saw with Poland elsewhere around the world,” Talwar said.

There should be better planning in advance of international trade shows, he added. “We in government need to project power in a more coordinated way at trade shows. Running into each other for the first time at the pavilions just doesn’t cut it. We need to do a better job coordinating our meetings, delivering consistent messages, and identifying areas we want to target.”

At the Paris Air Show, he said, “We’re looking forward to arriving ready with a common strategy for targeted outreach and advocacy.”

In the long term, administration officials said they intend to continue the export reforms even as they approach the end of Obama’s term in office.

As a presidential election approaches, sometimes regulations slow down so they are not misinterpreted as part of the electoral process, Handelman said.

The intent is to make sure the next administration picks up where this one left off, he added. The one major reform that is unlikely to happen is the proposed merger of what is today multiple entities into a single export licensing agency.

“Creating a new agency is really hard,” said Handelman. “Not sure where that is going to go. … The utility of a single agency is so obvious, I hope that the next administration would see its value and move in that direction.” More likely, there will be intense bureaucratic infighting. “Frankly, democracy is a contact sport. Everyone on the line has an interest in this. It’s going to be really important to demonstrate to the new team that it’s worth moving across the goal line.”

The idea is to “make exporting easier and more relevant to national security policy,” Handelman said.

Among the most significant outcomes of the Obama reforms, he said, is much reduced red tape for defense sales to close U.S. allies.

Also of note, a new Defense Department rule issued this month would ease DoD oversight of foreign military sales offset agreements. The governments of many countries where U.S. manufacturers market their products require foreign defense contractors to “offset” the value of a weapon acquisition with economic activity that benefits the buyer nation.

Under the new rule, indirect offset costs imposed in foreign military sales would be considered “reasonable without performing a cost reasonableness analysis,” explained R. Locke Bell, a government contracting attorney at McKenna Long & Aldridge. “This new rule should reduce transaction costs for contractors, as it removes some DoD oversight from FMS offset agreements.”

Topics: Defense Contracting, International, Procurement