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11. Arms production



I. Introduction

II. Trends in arms production

III. The impact of the war in Iraq on the arms industry

IV. The dynamics of internationalization

V. Technology transfer issues in transatlantic defence–industrial relations

VI. Conclusions


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In terms of value, the overwhelming share of the production of military goods and services takes place in China, Europe, Russia and the United States. The upper segment of the global arms industry, as represented in the SIPRI Top 100 list, is characterized by three dominant trends: (a) increasing arms sales; (b) continuing concentration; and (c) changing dynamics of growth and restructuring.


Concentration activities continue to take place. However, acquisitions are no longer driven by a need for downsizing but instead primarily by a need to adjust company capabilities to new national and international opportunities. A military–technological environment in which electronics, communications and IT are increasingly employed has led to greater use of commercial technology and privately supplied services. Many company acquisitions are oriented towards these sectors.


In a security environment in which the boundaries between military security and internal security, and between national security and international security, have become more blurred, the traditional arms industry is moving into a new range of security products in a grey zone between the military and commercial sectors. The military strategy environment is increasingly oriented towards international military activities—whether peacekeeping or international coalition wars—while the trend towards internationalization of company and ownership structures, and of international armaments collaboration, is being reinforced. These trends have fundamental implications for the control of technology transfer, in particular for IT, because they make it more difficult to implement controls.


Technology transfer issues have been a contentious point in transatlantic relations since the 1950s. However, it has become both more urgent and more difficult to find an effective approach to managing the problem. Production and transfer structures have changed through the internationalization of company and ownership structures, international armaments collaboration and increased transfers of ‘intangible’ technology through electronic means.


Successful defence–industrial collaboration between the USA and Europe will require policy adjustments on both sides of the Atlantic. This should include reform of restrictions governing armaments collaboration with friendly nations in the USA and a tightening of end-use and international technology transfer controls in Europe. The scales of control in current collaboration projects have been heavily tilted towards the USA.



Appendix 11A. The 100 largest arms-producing companies, 2002


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Appendix 11B. Table of acquisitions, 2003


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Appendix 11C. The arms industries of the Russian Federation, Ukraine and Belarus


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Since 1999 growth in the Russian arms industry has been export-led. Restructuring and reform have faltered and deep-rooted problems are beginning to threaten the industry’s future viability. In Ukraine arms industry leaders are anxious to strengthen developing relations with the EU and NATO. Ukraine might weaken its dependence on Russia and increase its links with West and Central European arms-producing companies. Arms industry plants in Belarus should be able to supply some upgraded Soviet-era weapons to the domestic armed forces but there is likely only to be modest procurement of new systems in the next five years. Possibilities for exporting old, surplus equipment are probably reaching exhaustion, although much will depend on the willingness of Belarus to export to countries which Russia and other major exporters do not trade with for political reasons.


Elisabeth Sköns (Sweden) is the Leader of the SIPRI Military Expenditure and Arms Production Project. Her most recent publications outside SIPRI include a chapter on military expenditure in New Millennium, New Perspectives: The United Nations, Security and Governance (UN University, 2000), The European Defence Industry, a case study for Columbia International Affairs On-line (CIAO, Columbia University, New York, June 2002), and a chapter on defence offsets in Arms Trade and Economic Development: Theory and Policy in Offsets (Routledge, 2004), edited by J. Brauer and J. P. Dunne. She is also the author of a chapter on the internationalization of the arms industry for the SIPRI volume Arms Industry Limited (1993). She has contributed to most editions of the SIPRI Yearbook since 1983.


Dr Sibylle Bauer (Germany) is a Researcher on the SIPRI Non-proliferation and Export Controls Project. She is the author of The Europeanisation of Arms Export Policies and its Impact on Democratic Accountability (SIPRI, forthcoming 2005). In her previous capacity as researcher with the Brussels-based Institute for European Studies (ULB), she contributed chapters on European export control and armaments policies to The Restructuring of the European Defence Industry (Office for Official Publications of the European Communities, 2001), Annuaire Français de Relations Internationales [French Yearbook of International Relations] (Bruylant, 2001) and The Path to European Defence (Maklu, 2003).


Eamon Surry (Australia) is a Research Assistant on the SIPRI Military Expenditure and Arms Production project. He is responsible for maintaining the project's databases and its Internet site. Prior to joining SIPRI, he worked as a researcher at a broadcast media consultancy in London.


Hannes Baumann (Germany) was from May 2002 to August 2003 a Research Assistant on the SIPRI Military Expenditure and Arms Production Project and was responsible for maintaining the SIPRI Arms Industry Database. He contributed to the SIPRI Yearbook in 2003.


Julian Cooper (United Kingdom) is Deputy Director (Director, 1990–2001) of the Centre for Russian and East European Studies (CREES), University of Birmingham, and Professor of Russian Economic Studies. He is the author of many publications on the economics of the military in Russia and other former Soviet republics, including ‘The military expenditure of the USSR and the Russian Federation, 1987–97’ in SIPRI Yearbook 1998; and ‘Russian military expenditure and arms production’ in SIPRI Yearbook 2001.


Reinhilde Weidacher (Italy) was until the autumn of 2003 a researcher on the SIPRI Military Expenditure and Arms Production Project. She is the author of a 1998 report for the Swedish Defence Research Establishment on the Italian arms industry and co-author (with Elisabeth Sköns) of a chapter on the economics of arms production for the Encyclopedia of Violence, Peace and Conflict (1999). She is currently working as an industry analyst for Ethix, an ethical investment research company, and the Geneva-based Small Arms Survey.

Dr Elisabeth Sköns and Dr Sibylle Bauer