ABSTRACT
Accelerated movement toward economic, political and social integration of the European Community (EC) and the practical disappearance of a major Soviet and Warsaw Pact threat have taken place in an environment of worldwide excess defense production capability. Notwithstanding the eventual overall success of the EC in achieving higher rates of economic growth, one sector—defense—faces a clearly shrinking market. How the European defense industry adapts to this rapidly changing, uncertain environment could have far-reaching consequences for both Europe and the United States. For individual European countries, the fate of their arms producers will affect employment and export levels, perceptions of international competitiveness, and the ability to be self-sufficient in the production of major weapons systems. The success or failure of Europe’s defense industry in adapting to the changing international environment will also have a direct impact on the level of U.S. arms exports to Europe and other areas of the world. Western Europe is the largest export market for the U.S. defense industry; in the period 1983–1987, about 78 percent of the defense imports of NATO-Europe came from the United States.
240Because of the close linkage between arms production and sovereignty, problems in the defense area that in other sectors might be resolved primarily on economic grounds have been—and remain—heavily politicized. In addition, there exists a long tradition in Europe of direct state intervention in many economic matters, not just defense. Thus, recent proposals by the EC Commission, by the Independent European Program Group (IEPG), and by the United States through the North Atlantic Treaty Organization to rationalize arms production and trade and to open up the sector to greater competition have faced significant obstacles.
In keeping with the very general language agreed to at the December 1991 Maastricht EC summit concerning the “eventual” creation of a common European defense policy, it appears that for now the EC Commission will concentrate on harmonizing the treatment by member states of dual-use commodities. While even this step is controversial, it is more likely to be accepted than earlier proposals to extend EC-wide tariffs to all defense imports or to abolish completely the special status accorded the defense industry and trade under article 223 of the Treaty of Rome.
The steps by the IEPG to create a European defense market are—in addition to opening up trade opportunities among European suppliers—leading to the rationalization and concentration of the European defense industry. From a U.S. perspective, the main danger is that these policies may lead to the creation of a closed market favoring European producers. The loss of the European defense trade—estimated at more than $4 billion a year—would strongly affect U.S. arms producers in this period of shrinking defense markets worldwide.
The proposals to create a “defense GATT,” first made in March 1990 by U.S. Ambassador to NATO, William Taft, led to the creation of a special group of experts which issued an interim report on limitations to the defense trade among NATO countries. The special group is currently examining more detailed steps needed to create an open, market-based, trading system among NATO allies. Among the issues under discussion are the wisdom and content of a “Code of Conduct’’ for defense trade. Because of the resistance of some Europeans, particularly the French, to unregulated defense trade, the final outcome of the discussions in NATO is uncertain.
