In an era of declining defense budgets and growing instability abroad, U.S. policymakers are increasingly looking to improve how our forces operate with allies and partners. This emphasis on what is called security cooperation is focused on improving the capabilities of key international partners so they can make stronger contributions to the international security environment. Recent examples include the Paris Air Show, where government officials and senior aerospace and defense executives from around the world gathered, and U.S. visits from Japanese Prime Minister Shinzo Abe and Indian Prime Minister Narenda Modi, where discussions to improve defense cooperation played a central role. And the U.S. Defense Security Cooperation Agency (DSCA) recently articulated its Vision 2020 strategy to improve U.S. security cooperation.
The current U.S. defense exports and foreign military sales system, however, is not optimized to efficiently export defense products to allied and partner nations. While U.S. officials need to appropriately balance the sharing of defense technology with the imperative to protect the American military’s technological edge, there are a number of steps that the U.S. government can take to improve important aspects of the security cooperation system and expand opportunities for defense trade.
Streamlining Export Controls and Technology Release
The U.S. export control system is well known for its complexity. Building on recent efforts, the Obama administration’s Export Control Reform Initiative has taken a new approach by reclassifying a large number of items on the U.S. Munitions List and transferring them to the Commerce Control List, which is generally less restrictive for exporters. While these changes have had a positive impact in areas such as aircraft parts, the new Commerce Control List categories have also made the system more complex for defense exporters ― making the overall impact difficult to judge. Exports are further slowed by the State Department’s licensing process, which is handled on a case-by-case basis regardless of whether the underlying program has already been approved for export. On major collaborative programs, such as the F-35 Lightning II fighter aircraft, for example, exporters may need thousands of licenses. In addition, the U.S. government’s technology security and foreign disclosure processes remain slow and lack transparency despite attempts at reform.
Given the significant reform of the control lists under Export Control Reform, there should be an independent evaluation of the impact of this initiative to determine what further reforms are appropriate. This would be important because, while the changes have made clearer which rules apply to which products, and have appropriately focused the strictest controls on the most sensitive items, the changes have also increased the complexity of the export controls system for many companies. This evaluation should consider the positive and negative impacts on national security and the defense industrial base. The U.S. government can also make significant improvements to the export control system by expanding an existing program that allows responsible companies to receive exports of many items without a license. Right now this program is only available for China and India, but many other countries could benefit as well.
Furthermore, the State and the Defense Departments should develop a true “program licensing” approach to improve and expedite licensing for key defense programs. This approach should involve (1) faster license processing through “tiger teams,” (2) developing mechanisms to approve large volumes of parts in a single approval, (3) providing general guidance to industry for better predictability of outcomes, and (4) providing better transparency regarding the status of cases under review. This would reduce the need for individual licensing for programs where there is a regional security demand and a national security interest.
Improving U.S. Competitiveness in the International Market
The international marketplace for defense articles has become dramatically more competitive in recent years. Some foreign competitors can now produce defense materials that are on par with or nearly equivalent to U.S. systems, while others provide lower cost options for countries with limited defense budgets. Joe Katzman highlighted this trend in his Wall Street Journal article on “The Hyundaization of the Global Arms Industry.” Due to this growing competition, “buying America” through Foreign Military Sales (FMS) is often no longer viewed as the best option by many foreign customers.
To improve the exportability and, thereby, the competitiveness of U.S. systems, the Pentagon should work closely with Congress and industry to dramatically expand efforts such as the Defense Exportability Features pilot program. This program allows industry to assess, design, develop, and incorporate defense exportability features into systems earlier in development, while sharing 50 percent of the cost with government. The Department of Defense should also emphasize innovative business models for international defense sales, such as hybrid offerings that contain both FMS and Direct Commercial Sales (DCS) components. Given the challenges that FMS offerings have had in recent fighter competitions, improving DoD’s approach to hybrid sales will offer the DCS benefits of greater flexibility on cost, schedule, and solution packaging, while maintaining the contract guarantees available under FMS.
Lastly, the United States should also strengthen efforts to provide technical assistance to foreign nations’ procurement systems, building off recent efforts where we have worked with partners on reforming and harmonizing defense procurement systems to maximize benefits for both parties.
Consolidate Executive Branch Organization and Enhance Advocacy
There are a dizzying number of stakeholders in the U.S. security cooperation community, which spans three separate Departments: Commerce, Defense, and State. Although these organizations work together daily, the sheer number of stakeholders makes it extremely difficult to navigate. Not surprisingly, international partners are often unclear about whom to approach in the U.S. government. Further, industry often lacks good information about U.S. priorities and policies for building partner capacity: Transparency varies widely among the combatant commands and Offices of Defense Cooperation. Another area for improvement is in how the U.S. government advocates for U.S. systems in the international defense marketplace. Today, U.S. government advocacy is often dependent on an individual company’s interest rather than a structured process. As a result, foreign competitors often outgun U.S. companies in international competitions. Developing a reliable and engaged U.S. government partner is critical to the successful execution of international defense sales.
To address these challenges, DoD needs to significantly streamline its organizational apparatus to more clearly identify roles and responsibilities and improve the performance of its myriad stakeholders. The recent Presidential Policy Directive on Conventional Arms Transfer Policy is a good first step in clearly articulating U.S. priorities for defense trade and security cooperation, but significant work remains. DoD should also create a regular industry–government defense trade roundtable, co-chaired by State and DoD, to help align priorities, or at least convey them to industry.
While advocacy efforts have improved, DoD, State, and Commerce need to continue to strengthen their support of defense trade matters by ensuring that specific defense trade topics are on the agenda during high-level and senior leader bilateral engagements with key U.S. allies and partners. In addition, the Department of Commerce’s Advocacy Center should continue to bolster its new defense advocacy role, and work closely with DoD and State to refine how the government supports defense trade efforts around the world.
Industrial participation and technology transfer requirements, more generally known as offsets, play an increasingly larger role in the selection decisions of many foreign buyers. While U.S. defense firms have accepted this new reality, the U.S. government continues to take a narrow view of its role in offsets. This policy makes it difficult to align offset efforts with program priorities and it severely limits Washington’s ability to advance industry-offset priorities with other nations. The situation is further complicated by the requirement that the contracting officer determine the “reasonableness” of an offset cost as part of the overall assessment of costs. Reasonableness can be difficult to define in situations lacking approved projects or that involve vague articulations of the offset requirements. This requirement has also been misinterpreted, as some contracting officers have focused on the overall merit of the offset versus its cost reasonableness.
The United States should revise its offsets policy and revive the inter-agency task force on offsets with the explicit purpose of making offsets work better for the partner country and U.S. industry. Specifically, the interpretation of the Presidential Policy on Offsets should be modified to restrict U.S. officials from advocating for offsets instead of restricting officials from participating in any offset discussions. In addition, DoD should develop a more consistent approach to evaluate cost reasonableness, and contracting officers should be given systematic training on such an approach to assure consistency of its application.
Implementing these recommendations would make important strides on improving how the United States operates and shares technology with key allies and partners, thereby strengthening our defense relationships and improving our security engagements around the world. Moreover, these efforts to build partnership capacity will create increased opportunities for U.S. defense companies in the international marketplace.
Peter Lichtenbaum is a partner at Covington & Burling LLP and co-chairs the firm’s international practice. He formerly served as Vice President at BAE Systems, Inc. and as Assistant Secretary of Commerce for Export Administration.
John G. McGinn, Ph.D. is President of McGinn Defense Consulting LLC. He has held numerous senior roles in industry, government, think tanks, and the military during the course of his career in national security affairs.
Matthew Breen is an Associate at Avascent, where he leads engagements centered on international market expansion, global competitive dynamics, and strategic growth for Fortune 500 clients and investors in the aerospace and defense industry.
Adam Cushing is a graduate of Georgetown’s Security Studies Program and has held various strategy and policy analysis positions within the defense industry.
Photo credit: Dysanovic