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Commerce in Advanced Military Technology and Weapons

Commerce in Advanced Military Technology and Weapons

Chapter 7 The Developing Defense Industrial Nations: South Korea, Brazil, India, Taiwan, Australia, Indonesia, and Singapore Contents Page COLLABORATION AND DEFENSE INDUSTRIAL PROLIFERATION ...... 123 Conventional Arms Trade Among Developing Nations ...... 126 Naval Arms Proliferation ...... 127 Missile Proliferation ...... 127

Figure Figure Page 7-1. Estimated Licensed Production of Major Conventional Systems in Selected Developing Nations, 1960-88...... 124

\ Chapter 7 The Developing Defense Industrial Nations: South Korea, Brazil, India, Taiwan, Australia, Indonesia, and Singapore

COLLABORATION AND DEFENSE appears to complement its regional aspirations within Southeast Asia. INDUSTRIAL PROLIFERATION Increasingly, economic incentives play an impor- During the period 1970-90, several of the devel- tant role in motivating the newly industrialized oping nations achieved remarkable growth in their nations to undertake extensive arms production. defense production capabilities. The expansion of These countries argue that indigenous production the defense industries has been accompanied by the increasing sophistication of their products can lead to cost reductions and potential foreign exchange earnings through exports. Additionally, —advanced fighter aircraft, tanks, armored person- defense programs are believed to contribute to the nel carriers, missiles, and naval craft. Brazil has civilian economy indirectly by providing spin-offs demonstrated its marketing capabilities by exporting intermediate-level weapon systems to many devel- to other industrial sectors, and by upgrading the skills and productivity of the industrial labor force. oping countries as well as to the United Kingdom. The production and R&D capabilities of the devel- The ability of these states to establish indigenous oping countries have been augmented by licensed defense production capacity is conditioned by sev- production agreements and other forms of military eral factors. Large amounts of capital are necessary transfer from U. S., Soviet, and European to establish such a technologically intensive indus- defense companies (see figure 7-l). try. Massive investments are required to build manufacturing facilities, create R&D centers, and to This chapter provides an overview of the various pay for imports. Additionally, government expendi- methods that the developing nations have used to tures, through domestic defense procurement budg- acquire defense production capabilities. Subsequent ets, are often a prerequisite, given the small size of chapters (chs. 8-11) examine the defense industries local markets. Australian defense production, for and policies of South Korea, Brazil, India, Australia, 1 instance, has been severely hampered due to its Singapore, Indonesia, and Taiwan. These chapters small domestic procurement budget. provide a comparison of the differing manufacturing and export capacities of these counties. The analysis A second component is a diversified industrial also reviews substantially increased involvement by base. Defense productiom, particularly in the aero- U.S. companies in the defense industrial bases of the space sector, is one of the most complex manufactur- developing nations. ing activities, and requires extensive industrial inputs from such sectors as steel, metallurgy, ma- Defense production in these countries stems from chinery, and electronics. The recent increase in arms an amalgam of strategic, political, and economic production among such defense industrializing coun- motivations. Strategic considerations—improved tries as Singapore and Indonesians explained in large self-reliance, ensured security of supply, regional part by their growing manufacturing capabilities. power aspirations, and local arms races—have often initiated the development of arms industries in the A third factor relating to the arms-producing newly industrializing countries. India’s extensive capabilities of developing countries is the status of military buildup has been tied to its regional arms domestic scientific and educational facilities. As race with China and Pakistan. Taiwan’s develop- evidenced in the subsequent chapters, the arms ment of an indigenous fighter airplane may have industries of India, Singapore, and Taiwan have been motivated by its desire for self-reliance in view provided the impetus for the creation of institutions of U.S. refusals to sell it sophisticated aircraft. for scientific research and applied technology. Indonesia’s recent effort to build an However, the majority of the developing countries

IFor ~ ~y~is of defense pr~uction ~ tie newly ~dus~~fig ~~~es see Cwol Evms, D#ense l%duction in the NZCS: The Case Studies From Brazil andhdia (London: London School of Economics, Spring 1991), passirn. –123– 124 ● Global Arms Trade

Figure 7-l—Estimated Licensed Production of Major Systems in Selected Developing Nations,* 1960-88

35 Licensed systems in production** 30 ...... Number of major 25 ...... systems 20 ......

15 ...... 1I f Number of systems licensed annually

1960 1964 1968 1972 1976 1980 1984 1988 Year license granted

‘Brazil, India, South Korea, Indonesia, Taiwan, Singapore, and Australia. ● “Estimates based on the assumption that an average system is produced under license for 12 years. SOURCE: Office of Technology Assessment, from data in Stockholm International Peace Research Institute, SIPRI Yearbooks, 1970 through 1990, World Armaments and Disarmament. do not possess advanced R&D programs or institu- industries. In fact, the ability of the developing tions for educating technicians and . countries to tailor defense production to external Among the developing nations, strong state involve- demand, and to compete aggressively in the interna- ment through direct ownership of the defense tional arms market distinguishes those with long- industries is frequently a means of ensuring the term production potential. viability of domestic defense firms. Governments Most nations with developing defense industries have also provided various fiscal and trade incen- have followed a common process to establish tives to help both domestic and foreign defense domestic defense production. The acquisition of an companies reduce their defense production costs. indigenous manufacturing capability, or the import The state-controlled aircraft industries in India, of technology or technological know-how, is often Indonesia, Singapore, and Taiwan are good exam- a continuation of direct arms imports. Domestic ples. The Singaporean case also demonstrates that if production may begin with the assembly under a country does not have a sizable government or license of knocked-down and the manufac- private aircraft industry, it can create one by ture of components. Sophisticated equipment, how- attracting foreign investment. ever, continues to be imported. At a more advanced stage, developing countries design and produce their The final factor affecting arms production is weapon systems domestically, including compo- access to export markets, primarily in the developing nents, while still relying on imports of the more world. Arms producing countries like Brazil and advanced , for example, avionics. Australia, which suffer from bottlenecks created by the high costs of production and the small size of A number of factors reconfigured the interna- their peacetime domestic requirements, must export tional arms trade in the 1980s. The cumulative effect to maintain the economic viability of their defense of these changes has reinforced the arms production Chapter 7—The Developing Defense Industrial Nations . 125 activities of and technology acquisitions by these In the past 5 years, defense collaboration has defense industrializing states. The most important moved into the early research and predevelopment shift was the erosion of U.S. and Soviet market stages with companies cooperating on design, fabri- shares in the international arms trade in the face of cation, and application of advanced technologies. growing competition from West European defense This approach, however, is restricted to relatively suppliers. 2 As one U.S. defense executive noted, advanced arms producers. Brazil’s aircraft industry, “Not only are the numbers of players increasing, but for example, has various collaborative international through processes of technology transfer and na- arrangements with Italy’s Aeritalia and Aermacchi tional commitment, we are finding more aggressive as well as with Argentina’s aircraft industry, Fubrica competitors out there. ’ The subsequent emergence Argentina de Materials Aerospaciales. in the 1980s of a buyers’ market for arms, and the enhanced technological capabilities of developing Another means to supplement a developing coun- arms producers, provided the latter with the addi- try’s defense industrial sector is through sub- tional leverage to secure licensed production and contracts with large international defense compa- offset agreements. Moreover, transfers increasingly nies. Many U. S.- and European-based companies consisted of military technology, not simply the have established production lines in the countries provision of finished military weapon systems. belonging to the Association of Southeast Asian Nations (ASEAN) to take advantage of their low Licensed production arrangements have been wages and skilled labor. Companies are also at- heavily favored by most developing arms producers. tracted to these countries because their location In return for the production of proven weapon provides market access in the Far East. The develop- systems, governments can conserve foreign ex- ment of arms production programs in the ASEAN change and upgrade their countries’ technological states of Singapore and Indonesia has been greatly bases. Licensing is also attractive because of its aided by the defense manufacturing operations of inherent flexibility. Agreements can be secured to such companies as United Scientific Holdings of the allow for a broad range of manufacturing activities United Kingdom, and General Dynamics of the including components, subassemblies, or the pro- . duction of a complete weapon system and its components.4 Of the developing countries consid- Since the 1980s, defense firms have been forced ered in this report, South Korea, India, Taiwan, increasingly to provide offsets to secure sales. Singapore, and Indonesia have relied extensively on Although there are many kinds of offset agreements, licensed production from foreign companies as a the most common are direct offsets in which the means of acquiring and expanding their defense purchasing country manufactures and supplies com- industrial capabilities. ponents in connection with the purchase of a foreign weapon system. These have stimulated the develop- A second, less frequently used means to acquire ment of new arms industries, particularly when the defense-related technologies is through joint venture foreign company supplies technical data and trains agreements and company-to-company teaming with local technicians. The offset arrangements between U.S., European, and increasingly other developing General Dynamics and Singapore and Indonesia for defense industrial nations. The economic advan- the acquisition of the F-16 enabled these countries to tages of collaborative arrangements are threefold: save foreign exchange and to provide work and 1. risk sharing and reduction of technical and valuable production technology for their domestic commercial processes inherent in the develop- defense industries. Experience gained in such trans- ment of new weapon systems; actions often leads to future licensed production and even to attempts at indigenous development. 2. access to partner’s technology and capital re- sources; and An analysis of defense industrialization in Brazil, 3. marketing and reputation benefits. India, and South Korea and among several Western

*or data relating to these shifting market shares see Richard Grimme% “Trends in Conventional Arms Transfer to the Third WorlL by Major Supplier, 1982-1989,” CRS-9@298-F (Washington DC: Library of Cong-mss, Congressional Research Service, 1990). ~uoted in Richard W. Stevenso~ “No Imnger the Only Game in Tow” The New York Times, Dec. 4,1988, p. F7. 4Trevor Taylor, “Defenee Industries in International Relations,” Review of International Studies, vol. 1, 1990, p. 61. 126 ● Global Arms Trade

Pacific countries shows differing levels of defense The Western Pacific countries (reviewed in ch. manufacturing and export capabilities. During the 11) are also heavily involved in defense industriali- 1980s, Brazil ranked first or second (after Israel) in zation. The development of arms industries in terms of defense production and exports among the Australia, Singapore, Indonesia, and Taiwan has developing countries. Building on international been conditioned by reductions in security assist- collaborative and licensing agreements, Brazil’s ance provided by the United States and the United defense industries became highly diversified and Kingdom, for example, the British decision in 1971 sophisticated producers of military equipment. The to withdraw its defense forces from Malaysia and Persian Gulf and Middle East states such as Iraq and Singapore, and the U.S. military from Libya have been the largest purchasers of Brazilian Indochina in 1975. Financial and technological arms. In the Brazilian case, the acquisition of dual limitations have led Indonesia and Singapore espe- civil and military technologies enabled some Brazil- cially to concentrate their defense production activi- ian firms (e.g., Embraer) to compete successfully in ties on overhaul, modernization, and international the U.S. and European aircraft markets. However, subcontracting, mainly for the aircraft sector. While while the Brazilian model has encouraged the the juxtaposition of Australia and Taiwan reveals defense production activities of other new entrants, significant differences in strategic priorities, both it is unlikely to be duplicated successfully. More- countries have sought to improve the future self- over, the international embargo against Iraq has sufficiency of their arms industries through collabo- damaged the export viability of Brazil’s arms ration with foreign defense firms. industry. U.S. defense companies are involved in the India provides a paradoxical example of a country defense industries of all the Western Pacific nations that possesses the largest military-industrial- examined in this report. This involvement includes research complex of the developing nations, and at transfers of technology through licensed production, the same time depends disproportionately on trans- joint ventures, and direct foreign investment. As a fers of foreign defense technology. Its failed policy result, the defense industries of the Western Pacific of self-sufficiency (because of overly ambitious countries are highly import dependent. Nonetheless, attempts to produce sophisticated weapon systems) these countries are likely to exploit foreign defense has necessitated substantial imports from and licens- companies’ growing interest in the Asia-Pacific ing agreements with the and more region and to secure transfers of technologies that recently with West European states. will enable them to move from primarily subcon- tracting and direct offsets into licensed production of South Korea’s heavy reliance on U.S. foreign finished weapon systems. military assistance to meet its security requirements and to finance U.S. arms imports is gradually being The ramifications for U.S. foreign policy arising replaced by collaboration and coproduction agree- from defense production and exports by the defense ments with U.S. defense companies. Similar to the industrializing countries are far-reaching. The rela- experiences of other developing countries with tively unrestrained spread of conventional arms, as larger defense sectors, the growth of South Korea’s well as naval and proliferation, has arms industry since the 1970s has been closely been facilitated by U.S. and West European technol- linked to a strategy that emphasizes the expansion of ogy transfers. International efforts such as the the shipbuilding, machinery, and electronics indus- Missile Technology Control Regime will have only tries. However, unlike many of the other developing limited countervailing effectiveness because of the countries, South Korea has pursued partnership with growth of defense cooperation between developing U.S. and foreign defense firms rather than self- nations. sufficiency. Future government efforts to strength- Conventional Arms Trade Among en South Korea’s partnership strategy, such as Developing Nations supplying components to major U.S. aerospace defense firms and increasing defense exports, greatly Arms production and exports by countries like depend on continued U.S. willingness to transfer Brazil have had an important effect on the growth of military-related technologies. defense trade among the developing nations.s As

5SW ~ol v. Ev~, “Rwppr&@ -d world AIDS RO&ICtiO~” SWViVUZ, VO1. 28, No. 2, ~C~APril 1986, PP. 99-118. Chapter 7—The Developing Defense Industrial Nations ● 127 discussed in the subsequent chapters, developing Over the past 10 years, Indonesia and Taiwan have countries are increasingly purchasing military equip- either licensed-produced or purchased fast attack ment and technology from the defense industrializ- craft and patrol vessels from West German and ing countries. Many of these recipients are countries Israeli sources, respectively. (As discussed later, that are diversifying their sources of weapons supply Indonesia’s naval expansion is linked to its monitor- in order to circumvent arms embargoes or simply to ing and policing of its Exclusive Economic Zone.) reduce the influence of their traditional suppliers. According to the Stockholm International Peace Examples of such recipients among the developing Research Institute: countries are Iraq, Iran, and Taiwan. Many of these craft share the following character- In addition to military hardware, some developing istics: twin propulsion systems for economical patrol nations are beginning to transfer the technology and with greater speed; . . . sizable and separated storage infrastructure necessary to develop defense areas located where they can become magazines;. . . products. In October 1984, for example, Brazil and helicopter facilities; communications systems; ex- tensive crew quarters to allow increases in the ’s Saudi Arabia signed a 5-year military cooperation company if helicopter, anti- warfare (ASW), agreement for the technical training of Saudi work- or (EW) operations should ever be ers in weapons assembly and the joint manufacture undertaken and hard points for the attachment of of the Astros II multiple- launcher. Another equipment such as sonars or missile systems.8 important example is the 1984 licensed production agreement between Brazil and Egypt for the Tucano In addition, changes in submarine technology trainer. Of the 120 planes assembled in Egypt, 80 have had a profound impact on current naval were delivered to Iraq and 40 were retained by the balances. The development of air-independent pro- Egyptian Air Force. In both cases, financing was pulsion systems for , which could then be provided by Saudi Arabia through the Gulf Coopera- armed with a missile capability, could threaten 9 tion Council. aircraft carriers. India’s lease of a Charlie I-class, nuclear-powered submarine, and its purchases of This trend in conventional weapons trade among West German 209, Soviet Kilo and Foxtrot subma- nations of the developing world has significantly rines mark a significant jump in India’s naval undermined control over weapons trade and regional capabilities. India would now be better able to conflicts. For example, the Brazilian Government’s counter the threat it faced in its 1971 with ban on arms exports to Iran during the Iran-Iraq war Pakistan, when the U.S. Navy deployed its Seventh did not deter or prevent Libya—Brazil’s second Fleet into the Bay of Bengal. These acquisitions, largest arms importer-from supplying Brazilian 6 along with the induction of a second aircraft carrier, spare parts to Iran. have raised concern about India’s regional ambi- l0 Naval Arms Proliferation tions. Similarly, Indonesia, which is planning to build a large naval base on Sumatra for quick access As indicated in the chapters that follow, India, to the Bay of Bengal, is worried about the Indian Taiwan, and Indonesia have been expanding their Navy. naval capabilities through indigenous defense pro- duction efforts or through off-the-shelf purchases. Situated along strategic sea lanes or at choke points, Missile Proliferation each of these countries has arrived separately at the A relatively new development is the proliferation same hardware solutions to their sea-denial defense of ballistic missile programs by the newly industrial- postures: missile-firing fast attack craft, helicopters, izing countries. Nine countries possess or are maritime surveillance aircraft, and submarines.7 developing indigenously surface-to-surface missiles

6veja, Sao Paulo, ()(X. 22, 1986 P. 590 TCo_odore K. R. Meno@ ~~n Navy, “~ World Navies R~c~” Proceedings of the U.S. Naval Insfiwte, -h 1989, p. 89. sIan Anthony, “TheNavalArms Trade and Implications of Changes in Maritime Law,” SIPRI Yearbook 1988, WorldArmaments andDisarmam.ent (Oxford: Oxford University Press, 1988), p. 275. %fenou op. cit., footnote 7, p. 94. l~oss H. Munro, “SuWrpoWWI Mm@,” Time (Intermtional edition), vol. 133, No. 14, Apr. 3, 1989, p. 13. 128 ● Global Arms Trade with ranges of 600 to 2,000 km.11 Central to this medium-range missiles being retired from Soviet study are the countries of Brazil, India, and Taiwan. and NATO inventories. Various countries, including Iran and Iraq, have sought foreign assistance to In addition to heightening international tensions modify and extend the range of the Scud-B missile. and further spurring regional arms races (especially in South Asia), these countries’ missile programs Cooperation among the developing nations in have prompted concern by the United States, its ballistic missile technology continues. In 1988, European partners, and the Soviet Union regarding Argentina, Egypt, and Iraq formed a consortium to the potential deployment of nuclear, chemical, or produce the Condor II ballistic missile. Over the last biological warheads. The U.S. response to this 5 years Brazil has been actively involved in Iraq’s missile proliferation was to restrict the export of ballistic missile program and has reportedly helped sensitive technology with the establishment in 1987 Iraq extend the range of its Scud-B missiles.l5 Israel of the multilateral Missile Technology Control assisted Taiwan’s development of the Hsiung-Feng Regime (MTCR). Seven nations (the United States, surface-to-surface missile. the United Kingdom, Japan, West Germany, France, Missile cooperation has also contributed to re- Italy, and Canada) initially agreed to ban the export of complete missiles or components for missiles gional arms races. The sale of East Wind CSS2 missiles in 1988 by China to Saudi Arabia sent with ranges of more than 300 km and of payloads 12 ripples throughout South and East Asia. The Saudi over 500 kg. deal alarmed Taiwan particularly. China had made a Nonetheless, as evidenced by India’s test of its bold inroad into a country with which Taiwan has Agni intermediate-range missile, missile programs enjoyed strong diplomatic relations. Furthermore, continue, despite the restrictions of the MTCR. these missiles were capable of hitting Israel, a Ironically, one of the main reasons for the relative country that has provided both Taipei and Beijing failure of the MTCR is the continued assistance by with high-technology defense equipment.l6 Doubt- regime members to these countries’ civilian space less Taiwan’s own development of its 1,000 km programs. For example, the French-led Arianespace range missile, Sky Horse, has been spurred by the has offered to provide Brazil’s space program with Beijing’s missile sale. India’s concern has been Viking rocket engine technology and training for more muted as these missiles-though capable of Brazilian technicians.l3 Similarly, West Germany is reaching the Indian west coast—are deployed against reputed to have aided India’s missile capabilities by Iran. Still, as a prominent Indian defense analyst assisting its space research program.14 Another wrote in the Times of India, “these developments factor weakening the MTCR is the ready availability highlight the need for India to expedite its own of the 300 km Soviet Scud-B and other short- and missile programs. ’ ’17

1l..me ~~~fle ~ce Hots Up,” SOWh, Au~t 1989, p“ IWO lzF~r anove~iew of the ~Wtivenc~~ of the MTm see J-C E. No~@ “Bfistic Mi@es in ~ ~d Worl&’l”he L~ts to Non.proM~tioU” Arms Control To&y, vol. 19, No. 9, November 1989, pp. 9-14. ‘3’’U.S. Objects to Deal on French Missile Know-How,” bath American Regional Reports: Brazil, Nov. 23, 1989, p. 8. 14Jo~J. F- ~tSp~C~ReXh fiels ~ ~olife~on: ~~n ~sfle su~es~ U. S., west e~pmnthood,” The WalfSrreetJournal, Jdy 6, 1989, p. A8. ls’’cientis~ &S Ardia.s,” Veja, Oct. 3, 1990, pp. 48-50. 16Nayan ~d~ “me Md world Race for Bidlistic MkSileS,” Far Eastern Econon”c Review, June 2, 1988, p. 22. ITKO su~-ny~ “C~ese ~sdes ad ~dim s~uri~,” Times of Ztiia, quoted in Itiia Weekly, Apr. 22, 1988, p. 10.

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