Fortresses Fortresses Special Foreword by Dr. Jacques Gansler Fortresses & Icebergs Jeffrey P. Bialos • Christine E. Fisher • Stuart L. Koehl “The United States needs a new model of “globalized” national security for this changing world: we must realign longstanding policies away from go-it-alone approaches to coalition-building and cooperation in support of shared objectives with our allies. … [T]he Transatlantic relationship stands at the center of our approach to ensuring our future security. … Now, when we most need to re-examine our Transatlantic security model, this new two volume study by Jeff Bialos and his co-authors … provides key insights and a roadmap for the United States to leverage Transatlantic security opportunities.” & -Dr. Jacques Gansler, former Under Secretary of Defense for Acquisition, Technology & Logistics Icebergs This pathbreaking study is one of the most objective ever to examine the Transatlantic defense market and its implications for U.S. policy. On the demand side of the market, do “Fortresses” exist or are they developing on either side of the Atlantic? On the supply side, are the defense industries stand alone “Ice- bergs” or increasingly integrated? Fortresses This comprehensive two volume study has a rich data set—with nearly 231 Figures and Tables and in depth chapters on the United States and the seven European markets studied. The study: • uses disciplined metrics of determine to what extent defense markets are open and competitive. • examines the role of the European Union in the defense market—is an EU preference for buying & Icebergs European evolving and will it ultimately lead to a protected European market? The Evolution of the Transatlantic Defense Market The study makes important findings/recommendations on core issues: • the need for deeper defense relations with the EU—increasingly the focal point in Europe for low and the Implications for U.S. National Security Policy intensity warfare; • the criticality of export control reforms to the Transatlantic defense market and coalition war fighting capabilities; and • the need for market opening measures in defense trade and investment, including curbs on offsets, related industrial practices, and bribery in third country defense markets. JeffreyJeffrey P.P. BialosBialos The Center for Transatlantic Relations is a non-profit Union and U.S-EU relations. ACES has been recognized VOL ChristineChristine E.E. FisherFisher research center that engages international scholars, stu- by the European Commission as the EU Center of ents, government officials, parliamentarians, journalists, Excellence in Washington, DC. In 2009 the Center was II StuartStuart L.L. KoehlKoehl business executives and other opinion leaders on named by Foreign Policy magazine as one of the “Top contemporary challenges facing Europe and North 30 Go-To Global Think Tanks.” The Center is an integral America. The goal of the Center is to strengthen and part of John Hopkins University’s Paul H. Nitze School of reorient transatlantic relations to the dynamics of a Advanced International Studies (SAIS). Johns Hopkins is globalizing world. The Center serves as the coordinator one of the nation’s premier research universities, and SAIS for the American Consortium on European Union Studies is one of America’s leading graduate schools devoted to Christine E. Fisher Jeffrey P. Bialos Jeffrey P. (ACES), which is a partnership among five national-capital the study of international relations. Stuart L. Koehl area universities to improve understanding of the European CO-EDITOR AND CO-CONTRIBUTOR Christer L. Mossberg VOLUME II - COUNTRY STUDIES Fortresses and Icebergs The Evolution of the Transatlantic Defense Market and the Implications for U.S. National Security Policy By Jeffrey P. Bialos Christine E. Fisher Stuart L. Koehl Co-Editor and Co-Contributor Christer L. Mossberg Co-Contributors Giovanni Gasparini Andrew D. James Volume II Country Studies Bialos, Jeffrey P., Fortresses and Icebergs — The Evolution of the Transatlantic Defense Market and the Implications for U.S. National Security Policy, Volume II (Washington, D.C.: Center for Transatlantic Relations, 2009). © Center for Transatlantic Relations, The Johns Hopkins University and the U.S. Department of Defense 2009 Center for Transatlantic Relations The Paul H. Nitze School of Advanced International Studies The Johns Hopkins University 1717 Massachusetts Ave., NW, Suite 525 Washington, D.C. 20036 Tel. (202) 663-5880 Fax (202) 663-5879 Email: [email protected] http://transatlantic.sais-jhu.edu ISBN 13: 978-0-9841341-2-0 Table of Contents Volume I Study Findings and Recommendations Special Foreword . vii Dr. Jacques Gansler Foreword and Acknowledgments . xi Executive Summary and Detailed Overview . 1 Volume I Study Findings and Recommendations Chapter 1 The Study Context: The Unique Realities of the Defense Marketplace . 43 Chapter 2 The Study Methodology: A Disciplined Set of Diagnostics . 55 Chapter 3 Defense Market Access Realities: Continued Impediments But Gradually Better and More Open Buying Habits. 65 Chapter 4 Defense Market Outcomes: Measuring Traffi c on the Fabled “Two-Way Street” . 121 Chapter 5 The Role of the EU and Other “European” Arrangements in Defense Markets: Realities, Prospects and Implications . 171 Chapter 6 Policy Implications and Recommendations . 237 Appendix I Market Access Metrics and Trade Flow Analysis: A Methodological Note . 265 Appendix II Interviews Conducted. 279 Appendix III U.S. Footprints of Major European Defense Firms. 291 Appendix IV Proposed DoD Globalization Executive. 299 About the Authors. 301 Volume II Country Studies Chapter 7 France . 307 Chapter 8 Germany. 355 Chapter 9 Italy . 399 Chapter 10 Poland. 445 Chapter 11 Romania . 487 Chapter 12 Sweden. 527 Chapter 13 United Kingdom. 561 Chapter 14 United States . 627 VOLUME II Country Studies Chapter 7 Accessing the French Defense Market Like the United Kingdom (UK), France is one of the few European nations that seek to maintain full spectrum military capabilities and related defense technologies and pro- duction capabilities — due primarily to the longstanding strategy of military and political independence put in place by Charles de Gaulle. Under Gaullism, France was firmly in the Western bloc but not fully integrated into the North Atlantic Treaty Organization (NATO) Alliance. France only recently moved to rejoin NATO’s military command. Despite internal controversy that such a policy change would undermine France’s military and diplomatic independence, NATO re-integration won a vote of confidence by the French Parliament in March 2009. Prime Minister François Fillon announced that, in exchange for returning to the Alliance’s military command, France would “doubtless” be given a key command in Norfolk, Virginia. “We want to take our place where the future of NATO is discussed,” Fillon said.211 Consistent with its strong Gaullist policy, France developed and produced its own mili- tary platforms — often to specifications not necessarily compatible with NATO standards. While France and the United States have a long and deep history of military coopera- tion and coalition operations, they have not engaged in extensive defense trade. France was highly dependent on U.S. military assistance and Foreign Military Sales (FMS) financing in the early post-World War II era, but thereafter developed its own defense industrial base to maintain a high degree of autonomy in defense matters and to strengthen its largely stated- owned industry. As a result of this policy, today the United States and France have limited defense product or company presence in each other’s markets. As discussed in Chapters 4 and 14, however, French ownership of U.S. defense firms and the French market position in the United States have increased modestly in the last decade. The French government, focused on maintaining its defense autonomy, has generally not sought to achieve Transatlantic integration of defense markets. Overall, the French govern- ment has not acted overtly to either facilitate or hinder the evolution of more Transatlantic defense firms. In the past, the French government at times exerted some pressure behind the scenes to discourage acquisitions or joint ventures with U.S. firms that it felt might bring French industry too close to the U.S. orbit. In recent years, however, the French government has not interfered as French firms increasingly sought to acquire holdings in the United States. Still, several factors, including Franco-American geopolitical disputes and French policies on third-country exports have over the years limited prospects for technology shar- ing and more in-depth defense cooperation. In recent years, France has shifted from its traditional Gaullist policy of National Auton- omy to a neo-Gaullist policy of Strategic Autonomy centered on building a stronger European defense capability. Under Strategic Autonomy, France seeks to ensure its ability to choose where and when to operate militarily and its ability to operate independently if necessary. But this policy does not mean all industry sources must be French; only a few select areas must remain national (e.g., nuclear weapons capability). Strategic Autonomy is supported by 211 Associated Press, March 17, 2009. Available at: http://www.cbc.ca/world/story/2009/03/17/sarkozy-nato-france.html. 308 Fortresses and Icebergs an industrial policy of Competitive Autonomy wherein France establishes formal agreements of mutual interdependence and supply security with European