Military Exports

Declining U.S. defense spending has placed defense-related jobs and some domestic industrial capabilities at risk. U.S. defense companies are using various strategies to adjust to the decline. One strategy is to boost defense export sales. Export proponents point out that such sales maintain industrial base capabilities and lower the cost of weapons to the U.S. government. They also argue that more government support for exports is needed to level the playing field against foreign competitors. Opponents of such support argue that it could delay restructuring of the defense industry and increase global weapons proliferation. This report reviews (1) conditions in the international defense export market and (2) the tools used by France, Germany, the United Kingdom, and the United States to enhance the competitiveness of their defense exports. GAO compares the U.S. position in the global defense market with those of its major competitors and analyzes the factors that can contribute to a sale.

GAO found that: (1) the United States has been the world's leading defense exporter since 1990; by 1993 its market share had increased to 49 percent of the global market; (2) the increased U.S. market share occurred during a period of worldwide decreases in total defense exports; (3) the three European countries reviewed (France, Germany, and the United Kingdom) had in 1993 a combined global market share of about 32 percent of total defense exports, which also increased since 1990; (4) in the short term, at least, the United States will likely remain strong in the world market; however, further growth in its market share will be limited by a number of factors, including U.S. policies to reduce dangerous or destabilizing arms transfers to certain countries and certain major foreign country buyers' practices of diversifying weapons purchases among multiple suppliers; (5) government involvement in the defense industry's sales affects the position of defense manufacturers in overseas markets, but other factors also influencing defense sales include technical sophistication and performance, the cost and availability of follow-on support and training, price, financing, and offset arrangements; (6) government policies and programs can also affect these other factors; (7) because each sale has its own unique set of circumstances, it is not possible to quantify or rank the contribution of any one factor across the board; (8) the U.S. government has long recognized the positive impact that defense exports can have on the defense industrial base; (9) in 1990, the Secretary of State directed overseas missions to support the marketing efforts of U.S. defense companies as in all other areas of commercial activity; (10) governments in France, Germany, the United Kingdom, and the United States generally provide comparable types of support, including: (a) government-backed or -provided export financing; (b) advocacy on behalf of defense companies by high-level government officials; and (c) organizational entities that promote defense exports; (11) although all four countries generally provide comparable types of assistance to their defense exporters in these areas, the extent and structure of such assistance varies; (12) central organizations support defense exports in France and the United Kingdom, while in the United States several government agencies share in supporting defense exports; and (13) all three European countries provide government-backed guarantees for commercial bank loans, while in the United States, financing is provided primarily through the Foreign Military Financing Program in the form of grants and loans and available only to a small group of countries.