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Future challenges in the monitoring of international arms transfers

Dr Aude Fleurant

The global arms market is changing. Western governments and defence companies are adapting to the effects of the 2008 economic crisis by devising new strategies to increase international sales. Major buyer states are using an advantageous market position to get more out of their defence transactions. This dynamic is reshaping key dimensions of international arms transfers, in a process that may have major consequences for both the distribution of the world’s arms production capabilities and international arms transfers. The new SIPRI Arms Transfers and Arms Production Programme is well placed to address the interplay of these dynamics and issues.

The decline in military expenditure in North America and Western Europe that began in 2010 is furthering changes in the arms industry that date back to the 1990s and the 2000s. First, the decline sustains a process of greater dissemination of arms production capabilities in countries that did not previously have significant defence industrial assets. Second, it leads states to adjust their arms export control mechanisms and policies in order to support domestic companies’ efforts on the international stage. Third, it makes the monitoring of some aspects of the arms trade more difficult, therefore raising issues of transparency and accountability.

 

The shift to a buyer’s market

Recent trends in the distribution of world military expenditure have consolidated buyer states’ leverage on suppliers in the international arms market. This process commenced with the end of the cold war, which led to a persistent reduction of roughly 40–45 per cent in the volume of international arms transfers from the peak of the 1980s. This heralded an era of greater competition in the global arms market, as most arms firms sought to counteract shrinking national orders by increasing foreign market shares. The uneven impacts of the economic crisis on national economies—and the mixed policies in response to the crisis—are currently strengthening the shift to a buyer’s market for arms and related equipment.

Western countries were severely affected by the 2008 crisis. Faced with fast-rising sovereign debts, governments in North America and Western Europe had to re-evaluate their financial priorities, a process which led them to curtail their defence budgets, including the portion dedicated to military equipment. This led many officials to express concerns about maintaining domestic defence capabilities and autonomy of supply, as current and future orders are considered insufficient to sustain national firms’ activities.

In other regions of the globe that were less impacted by the crisis, the situation presented itself differently. Taking advantage of significant growth in gross domestic product (GDP) in the 2000s, countries such as Brazil and India launched ambitious military equipment modernization programmes, designed to build indigenous arms production capabilities. Awards of major contracts to foreign suppliers came with demands to develop and implement local activities directly linked to the military system or platform acquired, as well as for transfers of technologies and training for engineers and workers.

For the defence industries in Western states, shrinking domestic markets translated into a greater push to win major international contracts. West European firms’ quest to gain international market shares started in the 2000s, with strong budgetary pressure on national procurement accounts constraining state orders to domestic firms. These companies therefore sought to counterbalance this trend by increasing their foreign sales. Defence companies located in the United States—by far the world’s largest arms supplier, according to SIPRI data—have more recently announced their intention to increase international sales as they face volatile budget circumstances. In such a context, competition between Western companies for major contracts will be fierce, making it easier for buyer states to formulate demands that will enable them to obtain greater arms production capabilities.
 

Changes in export policies

Western governments, concerned by the possible loss of domestic defence capabilities, have more actively supported their defence companies’ international arms sales efforts. Many European governments and the European Union (EU) are reviewing the procedures governing arms exports. The overarching goal is to expedite and simplify licencing grant decisions. At the EU level, the idea is also to ease transfers between member countries. One aspect of the process involves shifting part of the burden for monitoring and compliance to the defence firms. However, it remains unclear how many resources the companies will be willing to provide for this while the size of their international footprints increase.

In the USA, the Obama administration is implementing a number of initiatives to help US arms-producing companies achieve higher international sales. First, a significant overhaul of the USA’s export control mechanisms has been underway for a number of years. As officials present it, on the one hand, the reform deregulates several formerly controlled goods, thus making access to more ‘generally available’ components easier. On the other hand, it applies tighter rules for new items considered critical to national security. Second, the USA is exempting its closest defence trade partners from current restrictions and the tighter rules when they come into force, creating a multi-tiered approach. Third, in an effort to expedite the weapons export process, the US Government is exploring the possibility of integrating features related to export criteria into goods at the point of development.

 

Future transparency and monitoring challenges

These general trends signal the possibility of a greater availability of arms and arms-related goods and technologies in the future. They also raise concerns about the transparency of international arms transfers, as well as the effectiveness of monitoring capabilities. This is true for transfers processed under facilitating measures such as licence exemptions (in the case of the US ITAR facilitations mentioned above) or global licences in the case of the EU legislation in intra-community transfers. It is also true in cases where offset demands in major foreign contracts require local industry participation.

Although most control regimes cover intangible exports, what is created in the recipient country in terms of capabilities and expertise through the transfer of knowledge and information is not easily measured by independent observers, and not often reported by exporting or importing governments. Recipient countries do not always have a history of oversight and, moreover, commitments made by companies in terms of local development are not publicly available and make it difficult to assess the part of activities devoted to enhancing the military industrial base of the buyer state.

In the context of the current defence market changes, it is important to simultaneously look at the evolving interactions between the arms industry and international arms transfers, as these may affect issues of transparency and accountability of arms export and require new tools for monitoring.

In April 2014 SIPRI merged its Arms Transfers Programme and its Arms Production Project. Under one umbrella, the new SIPRI Arms Transfers and Arms Production Programme is well placed to address the interplay of these dynamics and issues related to them and, at the same time, to maintain the quality and integrity of the data for which each programme has historically been known.
 

ABOUT THE AUTHOR(S)

Dr Aude Fleurant is the Director of the SIPRI Arms and Military Expenditure Programme.