TRADE: Supporing Arms Trade May Violate Market Principles

By IPS Correspondents Reprint | | Print |

Abid Aslam

WASHINGTON, May 7 1998 (IPS) - U.S. government support for the arms industry violates the first rule of market competition – concentrate resources on growth opportunities – say campaigners for converting defence resources to civilian use.

“On economic grounds alone, we are backing a loser by continuing to invest so heavily in a shrunken arms market while neglecting stronger opportunities,” says Miriam Pemberton, director of the National Commission for Economic Conversion and Disarmament.

Washington would do better to back the rapidly-growing environmental technologies industry, yet it has “quietly bestowed on the arms industry virtually its entire wish list of new export supports,” argues Michael Renner, senior researcher at the Worldwatch Institute here.

A report Thursday labelled ‘A Tale of Two Markets: Trade in Arms and Environmental Technologies’, released by Pemberton’s Commission and the Institute for Policy Studies, comes as:

– U.S. arms manufacturers eye 35 billion dollars in potential contracts as the North Atlantic Treaty Organisation (NATO) is expanded over the next few years, starting with membership for the Czech Republic, Hungary, and Poland.

– Industry giants Boeing and Lockheed Martin vie for the 100- billion-dollar ‘Joint Strike Fighter’ programme, aimed at replacing the U.S. Air Force’s F-16 and Harrier jump-jets used by the U.S. Marines and Britain’s Royal Navy.

– Companies seek to capitalise on Washington’s reversal last year of the ‘presumption of denial’, under which it generally would refuse to authorise sales of advanced weapons to Latin American countries. Deals could amount to 5.2 billion dollars per year, officials hoped.

World military spending has been in decline since the end of the Cold War and sank to 864 billion dollars in 1995 – the lowest level since 1967, according to the U.S. government’s Arms Control and Disarmament Agency.

Arms imports have fallen more dramatically – driving down the arms trade by 68 percent between 1987 and 1995. Employment in the arms industry fell by 38 percent to 10.9 million jobs worldwide. During the same period, military spending fell everywhere but in East and South Asia and Oceania, according to the agency.

Chile, Spain, Greece, Egypt, Kuwait, Sri Lanka, Taiwan, South Korea, Malaysia, and Thailand were among the handful of countries to increase their arms imports but, the latter three – hit hardest by Asia’s economic woes – were forced to cut back drastically.

Procurement by NATO countries fell from a peak of 120.9 billion dollars in 1987 to 81.1 billion dollars in 1996. The combined defence industrial output of the four leading producers – the United States, France, Britain, and Germany – fell by about one- third between 1987 and 1995, with U.S. production falling 37 percent.

“Since their domestic market has also been shrinking, U.S. arms manufacturers face three options: close factories, convert to civilian production, or push harder in the export market,” Pemberton and Renner say in their report.

Most have opted to push exports, and the U.S. government has backed them with defence aid programmes, export credits, loan write-offs, and free leases. These deal-sweeteners amounted to nearly seven billion dollars in 1995.

Sales have see-sawed as a result and, although some “substantial” increases have occurred, current levels remain well below earnings in the 1980s. Not even the government expects the arms industry to regain its former fortunes, the report says.

Buyers are becoming bolder as the market shrinks. Third World customers now insist on co-production deals aimed at transferring military technology to them.

Exporting governments also are pressed to broker reciprocal imports so buyers can offset the cost of their weapons. Such deals cost U.S. makers up to half the jobs created by the original sales contracts, according to official estimates cited in the report.

Fees charged to recoup the cost of government support for weapons research and development were reduced in 1995, costing the U.S. taxpayer 500 million dollars in lost revenue, according to industry analysts.

“The bottom line is…the arms market is not a growth opportunity,” the report argues.

In contrast, the worldwide market for environmental technologies has been growing rapidly, nurtured by international treaties and agreements. As with arms, the size of the global market is hard to measure with accuracy but estimates put this at 408 billion dollars. The value of exports worldwide is believed to be greater than that of arms exports.

U.S. spending for environmental purposes has grown faster than the gross domestic product (GDP). Measured in constant 1995 dollars, ‘green’ spending rose from 32 billion dollars in 1970 – when federal and local legislatures began to pass environmental laws – to 197 billion dollars in 1995. The industry now is believed to support some 4.3 million U.S. jobs, compared to 2.3 million arms workers.

Yet government export and financial assistance for the industry amounted to around 600 million dollars – one-twelfth the support thrown behind the arms industry in 1995.

“By the measure of our values, the choice between arms and environmental technologies as priorities for our export industrial policy could hardly be clearer,” the report declares. “But our main point here is that even if we set such considerations aside, and constructed our policy based solely on our self-interest, the choice would be the same.”

Market opportunities abound – especially in developing countries, analysts at the World Bank told IPS. But so does controversy, say environmentalists – especially over trading in permits to emit greenhouse gases, and medical waste incinerators, which dispose of potentially dangerous hospital wastes but produce cancer-causing dioxin in the process. None suggested arms were preferable, however.