Skip to content

Paikin: The Obama Administration and Export Control

August 16, 2011

By Zach Paikin

On August 31st, 2010, U.S. President Barack Obama outlined the foundation of a new export control system designed – in the words of the White House’s press release – to “strengthen national security and the competitiveness of key U.S. manufacturing and technology sectors”.[1] The clearly outlined purpose of reforming the export control system is to increase the transparency and decrease the complexity of the current system while decontrolling or altering the control level of items currently situated on the Munitions List.

At first, however, one would assume that the Obama administration would have prioritized the signing of free trade agreements with other states in order to achieve its goal of increasing exports. President Obama’s most significant achievement so far during his presidency when it comes to facilitating trade has likely been the “Beyond the Border” perimeter deal signed with Canada, which has the goal of increasing Canada-U.S. cooperation on issues concerning North America’s border security in order to reduce restrictions on the flow of goods over the Canada-U.S. border. However, Mr. Obama has yet to complete a free trade agreement (FTA) during his presidency and has yet to have Congress ratify three FTAs negotiated by the George W. Bush administration with Colombia, Panama and South Korea, respectively.

[Pres.] Obama has yet to complete a free trade agreement (FTA) during his presidency and has yet to have Congress ratify three FTAs negotiated by the George W. Bush administration with Colombia, Panama and South Korea.

When looking deeper, however, it becomes clear that the President’s goal of doubling exports over five years through “conventional” means will be quite difficult. First, such a goal appears only to be possible following considerable inflation, and inflation will have to be controlled significantly if the President wants to promote savings, create jobs and, of course, win re-election. Second, the manufacturing sector contributed to 25% of American output three decades ago while it only represents 12% today, which means that the President’s most prominent recession bailouts protect industries that are unlikely to contribute to his goal of doubling exports.[2] Third, many of America’s key trading partners in Asia – China, Japan, South Korea and Taiwan, for instance – are export driven economies that have often sought to limit imports in the past.[3] This means that increasing exports would necessitate a considerable reorientation of America’s trade priorities. Furthermore, China’s artificially depreciated currency makes altering the Sino-American trade balance even more difficult.

Hence, decontrolling certain military products appears to be a logical way for America to increase exports, which explains why the Obama Administration has outlined such an ambitious program to reform the country’s export control system. The question remains, however, how much will these reforms actually increase exports?

According to the President’s reforms, all items are ranked by objective criteria (i.e. technical parameters) and then ranked into one of three tiers. The highest tier, composed of those items which provide the most critical intelligence or military advantage to the United States, generally requires a license for the items that belong to it. As the tier lowers, the criticality of the items in question decreases, with the final tier being composed of broadly-available weapons. Allies can be exempt from needing a license for second-tier items whereas third-tier items generally do not require a license.[4]

The ultimate goal of these reforms is to increase and facilitate exports. (The President’s state of the union address in 2010 announced the goal of doubling American exports within five years.[5]) Hence, seeing as the ultimate effect of these reforms is to remove obstacles to exporting arms, we can expect that those defense sectors that produce the types of weapons that are most broadly available around the world and that pose that smallest threat to American supremacy to be the prime beneficiaries.

Concern over the timing and cost of Lockheed Martin’s F-35 Joint Strike Fighter (JSF) threatens to derail the image of America’s ability to sell fifth-generation jets effectively.

So far, this has been the case. The immediate beneficiaries of the reforms, as announced by the U.S. Department of Defense between August and December 2010, have been U.S. firms successfully securing sales contracts for conventional arms over foreign rivals peddling similar wares. For instance, 150 AMRAAM missiles manufactured by Raytheon were sold to Switzerland at a price of up to $358 million in December. Sixty of Boeing’s AH-64D Apache attack helicopters were sent to the United Arab Emirates for as much as $5 billion in the preceding month. Boeing further benefited from the American sale of 84 F-15 Strike Eagle jets to the Saudis for up to $29.4 billion in October. In November, 12 MH-60R Seahawk helicopters produced by Sikorsky Aircraft went Denmark’s way for nearly $2 billion. Lockheed Martin secured a contract for 18 F-16 Fighting Falcon jets for Iraq in a package worth as much as $4.2 billion.[6]

According to the CIA’s World Factbook, American exports stood at roughly $1.27 trillion in 2010 when the President outlined his strategy to double exports over five years. Meanwhile, arms production represents merely 10% of America’s manufacturing output, which now stands at 12% of total output.[7] Hence, arms production represents only 1.2% of American exports. Preliminary estimates issued by the White House suggest that 74% of items currently controlled on the munitions list will be either moved to the Commerce Control list or will be decontrolled completely under the administration’s new policy.[8] This is a considerable figure and should significantly increase the contribution that defense contractors can make to America’s balance of trade. Furthermore, NATO allies needing to update much of their worn-out defense products combined with a likely increase in India-U.S. defense and counter-terrorism cooperation over the years ahead provides America with good timing for its project to augment defense exports.

The Senate is less than likely to be comfortable with the [White House’s] unified approach to export control.

Obstacles remain, however. Certain states traditionally considered to be American allies or partners, fearing that the Obama Administration is incapable of or uninterested in completely ensuring their security, have begun to look elsewhere for their defense needs. Saudi Arabia has begun to cultivate even closer ties with Russia and China whereas Sino-Pakistani relations continue to strengthen.

Furthermore, concern over the timing and cost of Lockheed Martin’s F-35 Joint Strike Fighter (JSF) threatens to derail the image of America’s ability to sell fifth-generation jets effectively. Israel has been forced to purchase used F-15s due to the arrival of the F-35s being postponed until 2018.[9] Meanwhile, reports have surfaced in Canada suggesting that the cost of a planned purchase of 65 F-35 JSFs had skyrocketed progressively from $9 billion to $30 billion.[10] Even U.S. Senator John McCain has publicly expressed second thoughts about the jet.[11]

The most considerable obstacle to the president’s export control reforms, however, may be Congress. The Senate is less than likely to be comfortable with the unified approach to export control, seeing as many feel there aren’t enough safeguards to ensure against enemy acquisition of arms from American-based companies, whereas the Republican-dominated House generally cannot be counted on to support President Obama’s initiatives.[12]

Large elements within both chambers have rebuked the president over many aspects of his foreign policy before, from his lack of support for American allies to his inability to reorient America’s energy needs toward more ethical sources. If Congress does not adopt supporting legislation, another key tenet of the Obama administration’s foreign policy – namely the considerable increase of American exports – could become a failure.

Zach Paikin is a research associate at the Jewish Institute for National Security Affairs, where this analysis originally appeared.


[1] Office of the Press Secretary of the White House. August 30, 2010: http://www.whitehouse.gov/the-press-office/2010/08/30/president-obama-lays-foundation-a-new-export-control-system-strengthen-n

[2] Thompson, Loren B. “White House Export Goals Require More Weapons Sales”, Lexington Institute; June 8, 2010: http://www.lexingtoninstitute.org/white-house-export-goals-require-more-weapons-sales?a=1&c=1129

[3] Thompson, Loren B. “White House Export Goals Require More Weapons Sales”, Lexington Institute; June 8, 2010: http://www.lexingtoninstitute.org/white-house-export-goals-require-more-weapons-sales?a=1&c=1129

[4] Office of the Press Secretary of the White House. August 30, 2010: http://www.whitehouse.gov/the-press-office/2010/08/30/president-obama-lays-foundation-a-new-export-control-system-strengthen-n

[5] “In Obama’s Words”, The Washington Post, January 27, 2010: http://projects.washingtonpost.com/obama-speeches/speech/169/

[6] Entire paragraph: Kimes, Mina. “The new arms boom: Who’s buying what”, CNN Money; February 11, 2011: http://money.cnn.com/galleries/2011/news/international/1102/gallery.new_arms_boom.fortune/index.html

[7] Thompson, Loren B. “White House Export Goals Require More Weapons Sales”, Lexington Institute; June 8, 2010: http://www.lexingtoninstitute.org/white-house-export-goals-require-more-weapons-sales?a=1&c=1129

[9] Katz, Yaakov. “With F-35 delay, IAF looking at purchase of used F-15s”, The Jerusalem Post; April 13, 2011: http://www.jpost.com/Defense/Article.aspx?id=216357

[10] Fitzpatrick, Meagan. “F-35 jets cost to soar to $29 billion: watchdog”, CBC News; March 10, 2011: http://www.cbc.ca/news/politics/story/2011/03/10/pol-pbo-page-fighterjet.html

[11] Bennett, John T.  “Aide: McCain will oppose Pentagon plan to pay for new F-35 fighter cost spike,” The Hill; July 14, 2011: http://www.thehill.com/news-by-subject/defense-homeland-security/171601-aide-mccain-will-oppose-pentagon-plan-to-pay-for-new-f-35-cost-spike

[12] Spring, Baker. “The Obama Administration’s Ambitious Export Control Reform Plan”, The Heritage Foundation; September 20, 2010: http://www.heritage.org/Research/Reports/2010/09/The-Obama-Administrations-Ambitious-Export-Control-Reform-Plan
Advertisements
No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

%d bloggers like this: