Arms Industry Transparency

The arms industry—armaments industry, weapons industry, military industry, or defence industry—supplies goods and services that have a crucial impact on relations between and within countries. It is therefore essential that the activities of the industry are subject to measures of regulation and control by governments and ultimately, to rules of public accountability. However, available information on the arms industry is generally very limited and certainly inadequate to support public accountability.

This page provides an overview of publicly available information on the arms industry and tries to assess its relevance to assisting public understanding of the role of the arms industry within broader economic and political dynamics. The first part discusses the particular characteristics of the arms industry. Available public information on the arms industry is presented in the second section and its limitations are discussed in part three. The final section briefly examines progress made with public transparency in one aspect of arms production, or arms transfers over the past decade.

Please contact the SIPRI Arms Production project with questions or comments.

What is the arms industry?

Armed forces procure a wide range of goods and services from industry. Some have been developed for military purposes—such as combat aircraft, combat ships, armoured vehicles, and guns—others are produced for military purposes but can also be used for civilian purposes, and vice-versa—such as certain transport and communications equipment, logistical services and a wide range of general–purpose goods—such as food, clothing, fuel, and office equipment..

Equipment specifically developed for military purposes often contains civilian technologies—or technologies developed for civilian applications. Civil-military integration of technologies, and in particular the use of civilian technologies in the military sector, has been supported over the past decade by two developments: (1) the reduced demand for weapons and the related shift in government spending away from weapon development and production programmes; and (2) the rapid advance in civilian technologies, in particular in the electronics field.

”As defence procurement agencies around the world pursue policies of ’commercial-off-the-shelf’ procurement; commercial – defence production integration; dual-use technology; and use of commercial standards and practices [in place of] military standards, the traditional demarcation between ’defence’ and ’non-defence’ products and services will continue to blur.”(1)

Companies supplying goods and services for military applications do not form a distinct industrial sector according to such generally accepted codes as the International Standard Industrial Classifications. What primarily distinguishes the military industry from the civilian industry is the application of its products and the particular relationship with national governments resulting from this.

“While there is no clearly defined ‘defence industry’ as a distinct industrial sector, it is evident that the production of armaments for use by national defence forces, and related activities, requires special control measures by governments and forms an identifiable cluster of activities which are recognisable globally and to which some specific economic and political processes apply.”(2)

Significant parts of arms production facilities in major arms-producing countries were managed and owned by national governments during the 20th century. A privatization wave that swept the arms industry in the 1990s has reduced the number of government-owned companies. However, national governments largely finance, regulate and control the development and production of arms within their countries. Often the primary customers of the arms industry, they also provide financial and political support for the sale of weapons to foreign governments.

A large number of governments support the indigenous development and production of weapons for foreign, military and industrial-policy reasons. A high level of domestic production of arms is perceived as an important factor for guaranteeing autonomy in foreign policy. Arms production is also believed to add to economic autonomy through its contribution to overall economic output, employment, and technological innovation. Similarly, support for weapon sales to foreign governments can be an instrument of military and foreign policy as well as industrial policy.

Is national autonomy enhanced through arms production—and if so, to what extent? Could such autonomy be achieved by employing alternative means? What is the relationship between national military requirements and national arms-producing capabilities, or between arms exports and foreign policy objectives? What role do arms-producing companies play in the formulation of military policies and related requirements for military equipment? What is the actual economic importance of arms production for national economies and the global economy?

In order to address these and related questions, and assess the validity of motives for setting up new or supporting existing national arms production capabilities, the general public needs access to valid information about the activities of the arms industry.

Different types of information and data can help to explain different aspects of arms production. Information on the type and volume of military goods and services produced provides an indication of their military importance. Information on the value of domestic and foreign arms sales, profits from arms producing activities and the number of people employed in arms production are indicators of the importance of the arms industry to the wider economy. Information about military, industrial and arms industry policy objectives and decisions are a necessary complement quantitative information.

Accountability demands that the information disclosed and the data provided is in a format that facilitates comparison not only across time, but also across countries and with production for civilian purposes.

Available information on the arms industry

Only a few governments provide comprehensive information about their national arms industry on a regular basis and in a format that is comprehensible to the general public. Valid information provided on a voluntary basis directly by the arms industry—either by single companies or by arms industry associations—is even more limited. In general, information is provided on an ad hoc basis, in a format that seldom facilitates international comparisons or comparison with civilian industrial activities. On the other hand, the rapid advances in information and communication technologies over the past decade do enable a swift and wide dissemination of the limited information that is available.

Information on the national arms industry provided by governments

Few governments provide regular and comprehensive information about the national arms industry. Various, sometimes conflicting, pieces of information are often provided in separate reports.

The government of the country with the world’s largest arms industry—the United States—has, since 1996, published an Annual Industrial Capabilities Report to Congress that provides information about the state of the arms industry and gives an overview of relevant policy developments. However, the US government does not provide any single comprehensive statistical report on the arms industry.

Comprehensive financial and employment statistics on arms production, albeit without information on arms industrial policy developments, are published as part of French and British government annual statistical surveys of the entire military sector—the French Annuaire statistique de la defense, published since 1999, and the UK Defence Statistics, published since 1992 (see: available statistics for France and available statistics for the UK).

Since 1998 the Spanish Ministry of Defence has been publishing an annual report on the state of the domestic arms industry—La industria de defensa en España—supported by some statistics. The Swedish Ministry of Foreign Affairs gives an overview of the state of the domestic arms industry in its annual report on arms exports to parliament. More limited information is provided in a similar report by the Dutch Ministry of Economic Affairs.

A relatively detailed account of the activities of the state-owned arms industry in India is provided in the Ministry of Defence Annual Report (3). The defence white papers of other governments, such as Japan, South Korea and Taiwan contain more limited information on arms industry developments and limited data on the size of domestic arms industries.

As the basis for a review of their strategic and policy options regarding the arms industry, the governments of Australia, Italy and South Africa commissioned one-off surveys of the state of their domestic arms industries in the 1990s (4).

Information provided directly by the arms industry

Arms–producing companies
The top layer of the world arms industry is made up of large corporations with international markets, internationally based production and a broad international shareholder base. These corporations provide a large amount of information on financial performance as well as non-financial aspects of their activities—such as measures taken to ensure environmental and social ‘sustainability’(5)—in their annual reports, company profiles, and press releases. However, scant information is provided on the value and volume of arms production.

Arms industry associations
Few of the national arms industry associations make comprehensive information on the activities of member companies available to the general public. Two national arms industry associations, the Canadian Defence Industries Association and the Association of Swedish Defence Industries, publish regular statistical surveys (6).

Limitations of available information

The information made available by the arms industry itself and by government organizations is of limited value for a number of reasons.

External rules for implementing the collection and dissemination of information are a necessary precondition for guaranteeing reliability. However, information on the arms industry is seldom provided in a regular or regulated way.

Individual companies or industry associations—established primarily for political lobbying on behalf of their member companies—do not have any obligation to provide information on the size and volume of arms production to the general public. Government organizations in a number of countries compile information on the activities of the domestic arms industry, including economic statistics, but few make them available to the general public.

Government regulation and control of the activities of the arms industry does not guarantee public accountability. Governments may allow or even suggest non–disclosure or limitations to the disclosure of national arms production activity on the grounds of military secrecy. Governments may also support industry requirements for commercial confidentiality. This is exemplified by the fact that while the US President is empowered to collect data on the domestic arms industry, there are severe limitations on the disclosure of this information.

All information that is deemed "confidential or with reference to which a request for confidential treatment is made by the person furnishing such information shall not be published or disclosed unless the President determines that the withholding thereof is contrary to the interest of the national defense"(7).

The British and French Governments have initiated efforts to assist public understanding of the role of the military sector in the wider economy and have significantly improved the dissemination of relevant information since 1990 (8). The annual statistical surveys on the economic importance of the military sector also provide detailed information on the arms industry.

The purpose of other government reports on the arms industry—such as the Spanish Ministry of Defence La industria de defensa en España and the arms production chapter of the Indian Ministry of Defence Annual Report—is more to support and promote the domestic arms industry than to promote public knowledge and understanding of its activities.

The lack of external rules for implementing the collection and dissemination of information results in a wide range of applied definitions and a large variety in the content and format of public reports. The limited information that is publicised is therefore not comparable across countries and seldom comparable across sectors or even over time.

As discussed above, there is no standard definition of the arms industry. Within the Canadian Defence Industry Association statistical survey a ‘defence firm is defined as any firm having annual defence revenues of $100,000 or more’(9) while the Dutch Ministry of Economic Affairs’ statistical survey of the domestic arms industry uses its own definition: companies with military sales of 5 per cent or more of total sales. Moreover, only few surveys provide clear information on definitions and methods of measurement.

Limited efforts have been initiated to standardize definitions of the arms industry and the collection of information about it. In one such initiative, in 2002, the Association of Swedish Defence Industries began to apply the definition used by their government’s National Inspectorate of Strategic Products in its compilation of financial statistics on the activities of its member companies (10). The discrepancy in applied definitions for two series of government statistics for British arms export deliveries—one provided within the UK Defence Statistics in 1997 and the other within the government arms export report to Parliament in 1998 (11)—was removed in 2000. Harmonized statistics based on data from the Customs & Excise however, differ radically from statistics where data are supplemented with information supplied by the Society of British Aerospace Companies (see available statistics for the UK). It is worth noting that within both of the above mentioned efforts, harmonization implied a common adoption of the more narrow definition.

Transparency in arms transfers

Progress with increasing the transparency of arms transfers at the national and international level has been made throughout the 1990s. Greater transparency in arms transfers received wide international support in the early 1990s as a first, albeit minor, step towards regulating and restraining the arms trade. The unrestrained build–up of Iraq's arsenals before the Persian Gulf War combined with the end of the cold war created a strong international consensus that it was necessary to monitor international flows of conventional weapons which can lead to de-stabilizing accumulations of such weapons (12).

A considerable number of countries report the amounts of specific categories of major conventional weapons transferred (with varying levels of detail) to the UN Register of Conventional Arms. Progress in reporting on the financial value of arms transfers has been significantly slower. In Western Europe, public transparency in arms transfers improved rapidly towards the end of the 1990s. In 1999 the EU published figures on the aggregate values of arms exports submitted by its members within the framework of the 1998 EU Code of Conduct for Arms Exports (13). A significant number of governments of major arms–producing countries have issued annual arms export reports to their national parliaments since the late 1990s (14).

However, despite the significant improvements made in the public accessibility of information, much work remains to be done to improve its validity and make arms transfers to foreign governments fully transparent. The wide range of applied definitions for arms or military equipment and dual use goods, and the differences in applied measures—from revenues to deliveries to licences—severely limit the comparability of available information.

Tables

Summary table of available financial and employment statistics on national arms production for the 20 largest arms–producing countries (source: SIPRI Yearbook 2002)

Available financial and employment statistics on national arms production by country:

Canada

France

India

Japan

Netherlands

South Africa

South Korea

Spain

Sweden

United Kingdom

USA

Notes

(1) Grover, Bernie, Canadian Defence Industry 1999: A Statistical Overview of the Canadian Defence Industry, Canadian Defence Industries Association (CDIA), December 1999; available at URL http://www.cdia.ca/newsite/whatsnew/fullreport.htm.

(2) National Conventional Arms Control Committee (NCACC), White Paper on the South African Defence Related Industries, December 1999, URL http://www.polity.org.za/govdocs/white_papers/defence/defenceprocure1.htm#intro.

(3) In addition to this the Indian Controller and Auditor-General (CAG) provides a very detailed annual account of the activities of the state-owned Ordnance Factories. Reports are available at the CAG Internet site at URL http://www.cagindia.org/reports/defence/.

(4) Department of Defence, Australia, Defence and Industry Strategic Policy Statement, June 1998, URL http://www.defence.gov.au/dmo/id/di_policy/di_policy.cfm. Ministry of Defence, Italy, Defence–Industry Committee, Lineamenti di Politica Industriale per la Difesa [Defence industry policy outlines], Oct. 1996. National Conventional Arms Control Committee (NCACC), White Paper on the South African Defence Related Industries, 1999, URL http://www.polity.org.za/govdocs/white_papers/defence/defenceprocure1.htm.

(5) The United Nations initiative Global Compact, launched in 2000, was instrumental in focusing attention on issues of corporate responsibility. Building on this, the Global Reporting Initiative aims to establish international reporting standards for economic, environmental and social performance of a wide range of organizations, including private companies. See Global Compact at URL http://www.unglobalcompact.org/; Global Reporting Initiative at URL http://www.globalreporting.org).

(6) Additional information is made available by sector associations, and in particular aerospace industry associations—such as the European Association of Aerospace Industries (AECMA, URL http://www.aecma.org/); the French Aircraft and Space Industry Association (GIFAS, URL http://www.gifas.asso.fr/); the German Aerospace Industries Association (BDLI, URL http://www.bdli.de/), the Society of British Aerospace Association (SBAC, URL http://www.sbac.co.uk/); the US Aerospace Industries Association (AIA, URL http://www.aia-aerospace.org/).

(7) United States Code, Title 10, chapter 148: National Defense Technology and Industrial Base, Defense Reinvestment, and Defense Conversion, section 2507: Data Collection Authority of President. It can be accessed via the US House of Representatives, Office of the Law Revision Counsel, URL http://uscode.house.gov/uscode.htm.

(8) Publication of the UK Defence Statistics was initiated in order to ‘improve the availability and presentation of statistical infor-mation on defence’, traditionally compiled in the Statement on Defence Estimates, which is presented annually to parliament by the Secretary of State of Defence. The decision followed a ‘detailed review of the dissemination of Defence statistics’. Ministry of Defence, Defence Statistics, 1992 Edition (Government Statistical Service: London, 1992).

(9) Grover, Bernie, Canadian Defence Industry 1999: A Statistical Overview of the Canadian Defence Industry, Canadian Defence Industries Association (CDIA), December 1999; available at URL http://www.cdia.ca/newsite/whatsnew/fullreport.htm.

(10) Association of Swedish Defence Industries, Statistics 2003, 9 April 2003, available at URL http://www.defind.se/statistik.htm.

(11) See Hagelin, B., Wezeman, P. D., Wezeman, S. T., ‘Transfers of major conventional weapons’, SIPRI Yearbook 2000, SIPRI, Oxford University Press, Oxford, 2000, p. 362.

(12) Laurance, Edward J., Wezeman, Siemon T., and Wulf, Herbert, Arms Watch: SIPRI Report on the First Year of the UN Register of Conventional Arms, SIPRI Research Report No.6, SIPRI, Oxford University Press, Oxford, 1993.

(13) Council of the European Union, Third annual report according to Operative Provision 8 of the European Union Code of Conduct on Arms Exports, November 2001, Brussels; available at URL http://register.consilium.eu.int/pdf/en/01/st13/13657en1.pdf.

(14) See Saferworld, Mariani, Bernardo, and Urquhart, Angus, Transparency and accountability in European arms export controls: Towards common standards and best practice, December 2000; available at the website of the Swedish Peace and Arbitration Society at URL http://svenska-freds.se/transparency/SafTraRep.PDF

Relevant literature:

A history of the global system of arms production and arms trade is provided in Keith Krause Arms and the State: Patterns of Military Production and Trade, Cambridge University Press, Cambridge, 1992.

A Briefing Book on the Military–Industrial Complex, or the concept of a conjunction between the vested interest of the military establishment and large arms producing companies, written by Gary Chapman and Joel Yudken and published by the (US) Council for a Livable World Education Fund in December 1992.

The economic aspects of the arms industry are discussed in Dunne, Paul, 'The Defence Industrial Base', pp. 399-430, Hartley, Keith and Sandler, Todd (eds.), Handbook of Defence Economics, Vol.I, Elsevier, Amsterdam, 1995.
See also: Molas-Gallart, Jordi, 'The Economic Aspects of Defence: The Theory', pp. 7-40, Molas-Gallart, Jordi, Military Production and Innovation in Spain, Harwood Academic Publishers, Chur, 1992.

The technological aspects of arms production are described in Walker, William; Graham, Mac; and Harbor, Bernhard; 'From Components to Integrated Systems: Technological Diversity and Interaction Between the Military and Civilian Sectors', pp. 17-37, Gummett, Philip, and Reppy, Judith (ed.s), The Relations Between Defence and Civil Technologies, Kluwer Academic Publishers, Dordrecht, 1988.