Memorandum from the Royal Aeronautical
Society
SUMMARY
— The US and the UK have been seeking
to reform US technology trade regulations for many years. Both
sides, including the vast majority of defence companies in the
US and the UK, were in favour of reforming a US system that was
largely no longer "fit for purpose".
— Reform would benefit both sides,
leading to increased interoperability, more effective and efficient
operations for multinational defence companies with potential
improvement in procurement.
— The Implementing Arrangements should
recognise the new industrial landscape of European defence companies
and the importance of foreign-owned but UK located and operated
companies to the British defence industrial base.
— The Treaty would in time further
re-enforce the already strong trans-Atlantic axis in the UK defence
industrial base carrying some increased risk of dependence on
US technology.
— The risks of dependence can be contained
by an adequate investment in UK technology acquisition and valued
links with the European defence community can be maintained by
participation in joint programmes.
— The window for ratifying this Treaty
will be very narrow and the Society urges the Defence Committee
to impress their American parliamentary colleagues with its importance
to the mutual security of both countries.
MEMORANDUM
1. The Royal Aeronautical Society (RAeS)
is the Learned Society for the Aerospace and Aviation community.
Based in London, it has a worldwide membership of over 19,000,
with over 13,000 in the UK. Its Fellows and Members represent
all levels of the aeronautical community both active and retired.
Through its various Boards and Committees, it can draw upon considerable
experience and expertise in aviation matters. In addition, the
Society has over 160 Corporate Partners.
2. Attempts to improve the regulatory framework
governing US-UK cooperation in Defence Trade have a long history.
The most recent phase began with the Declaration of Principles
of 2000 under the Clinton Administration and subsequently picked
up by President Bush and his team. Initially, the main focus of
negotiations was to secure for the UK a waiver to the US International
Traffic in Arms Regulation (ITAR). This waiver would have applied
only to unclassified technology and data.
3. Both sides, including the vast majority
of defence companies in the US and the UK, were in favour of reforming
a US system that was largely no longer "fit for purpose".
The ITAR regulations not only hampered the free flow of trade
between two closely aligned nations and defence companies increasingly
operating as trans-Atlantic if not globalised entities, but also
deleteriously affected inter-operability between the armed services
of the two countries. However entrenched opposition from a small
number of influential Congressmen and some elements of the US
government blocked even these modest attempts to reform the process.
It will thus be important to ensure that the Treaty does not simply
act as a vehicle for the US to seek to apply a version of ITAR
extraterritoriality.
4. Failure to reform the ITAR system has
not, however prevented the development of closer ties between
UK and US defence companies. Indeed, the degree of interpenetration
has steadily increased over the last five years. The UK is by
far and away the largest source of inward investment in the US
defence industrial base. This is headed by BAE Systems and Rolls-Royce,
but every leading UK-based defence company has some direct stake
in the US market. The Treaty will need to recognise the new landscape
of defence companies in Europe with those such as Thales and Finmeccanica
making very significant inward investment in the UK where they
operate as on-shore companies. Similarly, US firms have taken
advantage of the relatively open regime for ownership of UK defence
industrial assets to invest here and to participate in MoD contracts.
5. Equally, the UK has a substantial stake
in the F-35/JSF programme with British firms obtaining on merit
substantially more work than the UK's notional share. However,
while technology transfer on the JSF is covered by a wider programme
based on a set of regulations (the so called Global Projects Licence)
this has still required negotiating a series of individual agreements
that have been increasingly fraught as the transfers required
access to more sensitive materials.
6. In short, while the US has gradually
relaxed some of the rules governing the operation of UK subsidiaries,
a more comprehensive approach to ITAR reform would improve industrial
efficiency to the benefit of governments and taxpayers on both
sides of the Atlantic.
7. The Treaty approach has been designed
to take account of concerns within Congress in relation to earlier
proposed ITAR reforms and to reassure the Hill that its provisions
will safeguard US technology. The UK government appears confident
of obtaining the necessary two-third majority of the Senate needed
to ratify the Treaty. It is understood that steps have been taken
to keep the House of Representatives informed and to maintain
support for reform in the Lower House. It also appears to be the
case that all key US agencies, including elements hitherto opposed
to reform, are working hard to secure agreement on the necessary
implementing arrangements which will have to define very clearly
details of processes, procedures and authorisation to be undertaken
by the MoD to conform to US law and practice.
8. The timetable for ratification is extremely
tight; given the US electoral cycle will absorb most political
energies from March onwards. Formulating Implementing Arrangements
acceptable to both parties clearly involve detailed negotiations
around the practical arrangements for the new bilateral regime
and these must be completed before the Senate Foreign Relations
Committee examines the Treaty. A comparable Treaty directed at
Australia may complicate matters, adding further pressure to pass
through Senate Foreign Relations Committee hearings and to reach
the Senate floor by the end of February. With the best will in
the world, this appears to be a very challenging target.
9. Assuming that the Treaty placed before
the Senate does broadly satisfy UK interests, ratification would
significantly improve relations between the defence communities
on both sides of the Atlantic. At a governmental level, it would
further deepen the already close relationship that links the US
and UK defence science establishments—a relationship that
already includes cooperation on some of the most sensitive aspects
of defence technology. The Treaty would further improve the interoperability
of US and UK armed forces by removing most of the restrictions
on the transfer of information and technology for use in time
sensitive contexts. Overall, it should fulfil most of the requirements
demanded by the MoD to ensure operational sovereignty of US sourced
equipment and technology.
10. The implications for the UK located
defence industry would be equally profound. The Society understands
that the MoD will be expected to approve and to vouch for companies
allowed to operate within the terms of the Treaty. Once within
the approved community, the Treaty would allow companies a much
freer exchange of technology, information and cleared personnel.
This would include both UK and foreign-owned UK domiciled companies,
although it is not entirely clear what specific restrictions the
US may expect to be put in place to ensure adequate controls over
transfers to third parties. Any transfer from the UK to a third
party would continue to require US ITAR approval.
11. The Treaty would in time further re-enforce
the already strong trans-Atlantic axis in the UK defence industrial
base. There are still several important established European programmes,
but with a few exceptions (notably the naval shipbuilding programme),
there are few new European ventures in the offing. In the aerospace
sector, the JSF will have an increasingly dominant role in UK
business plans. The Treaty may not make it harder to cooperate
with Europe, but given the relative size of the markets, the availability
of R&D money and a more straight forward political context,
the UK defence business default position would inevitably tend
even more towards American options. It would create an assured
defence industrial and technological community on both sides of
the Atlantic within which the prospects cooperation would be more
easily explored and solutions identified that would inevitably
create a momentum for more specific, hardware related activity.
12. This would have several advantages for
both the UK and the US, as the Treaty is a two-way process. UK
located firms should certainly be better placed to access the
US market, as well as adding to the confidence with which the
MoD could negotiate with US companies. It would help all transnational
defence firms within the approved community more effectively to
deploy corporate resources in an optimal manner. This is potentially
a significant competitive advantage for these companies. The existence
of the Treaty might also take some of the pressure off UK firms
to locate R&D investment in the US and to create employment
overseas. Assuming the restrictions on non-UK owned but UK located
companies were not too stringent, the Treaty could encourage even
more inward investment into the UK as a means of accessing the
US market.
13. On the other hand, ever closer ties
with the US, particularly if they are at the expense of cooperating
on a more equal basis on technology acquisition with European
partners, could increase the UK's reliance on the US and its potential
vulnerability to near total dependence on the US for core defence
technologies. This would not happen overnight, but with the US
option set as the default position, the continuing temptation
to turn away from Europe would build as a consequence of a series
of individual corporate choices.
14. However, on balance the Society believes
that the Treaty will enhance the defence industries of the US
and the UK, as well as contributing to the improvement of procurement
options for both sets of armed services. The risks of dependence
can be contained by an adequate investment in UK technology acquisition
and valued links with the European defence community can be maintained
by participation in joint programmes, as has historically been
the case. The window for ratifying this Treaty will be very narrow
and the Society urges the Defence Committee to impress their American
parliamentary colleagues with its importance to the mutual security
of both countries.
14 November 2007
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