Avoiding Barriers to Greater Transatlantic Defense Cooperation
National defense is a bipartisan endeavor. Increasing the United States’ economic prosperity and maintaining U.S. competitiveness are also vital bipartisan efforts. Yet there is an idea gaining traction in both parties that, if not carefully bounded, could work against a strong national defense, economic prosperity, competitiveness, and our ability to cooperate with allies and partners: restrictive procurement rules.
In Congress and the wider policy community, the need to address great power competition is increasingly being paired with domestic content requirements—such as “Buy American,” “domestic sourcing”, or “onshoring”—intended to create jobs in the United States. New provisions are being designed to safeguard national security by ensuring security of supply and supply chains vis-à-vis adversaries.
China is the biggest concern in this regard. China’s unfair trade practices, intellectual property theft, and anti-democratic policies have led the United States and Europe to align regulations; diversify supply; and prevent monopolistic control over strategic minerals, telecommunications, and software. At present, many down-chain suppliers to the Department of Defense’s prime contractors in several Major Defense Acquisition Programs are reliant on components from China. Undoubtedly, this vulnerability should be addressed.
Unintended Consequences
Yet however well intentioned, restrictive procurement rules to secure supply chains and create jobs could have several unintended consequences. Arbitrary deadlines and domestic content requirements, for example, can lead to delays in delivery due to supply chain disruptions. This adds to project costs and impacts the ability to deliver critical capabilities to the warfighter on schedule and at a reasonable cost.
More broadly, new rules could have a detrimental effect on transatlantic security cooperation at a time when U.S. strategic documents, such as the 2017 U.S. National Security Strategy and 2018 National Defense Strategy, as well as policy decisions like the 2017 expansion of the National Technology and Industrial Base (NTIB) to include Australia and the United Kingdom, are working to “strengthen and evolve our alliances and partnerships” as a means for protecting U.S. national security interests. It is especially important to ensure that any new rules designed to guard against China or create domestic jobs do not harm existing U.S. programs that rely on foreign components, such as the F-35 Joint Strike Fighter and F/A-18 Super Hornet. In fact, many European companies not only offer top-of-the-line products, but also create U.S. jobs through their establishment of U.S.-based facilities. In terms of future acquisitions, strict domestic content requirements could prevent the United States from procuring high-end niche capabilities and technologies from U.S. allies and partners even when U.S. alternatives are inferior.
We should not assume that the “qualifying country” exceptions in the Buy America Act would convey to new regulations. In Fiscal Year 2018, nearly one-quarter of all U.S. arms sales were to Europe, but additional trade barriers would likely impact U.S. defense sales and market access to the continent. The ability to integrate their own systems into U.S. platforms is a major selling point for many European countries. Norway, for example, plans to carry the Joint Strike Missile (JSM)—a joint venture between Raytheon and Kongsberg Defense Aerospace—on its Joint Strike Fighter aircraft and hopes other F-35 countries will do the same. Whether the JSM will be designated as a domestic “end product” exempt from Buy America provisions is not yet clear. Likewise, Finland is on track to make a decision on its $12 billion fighter replacement program in 2021. As it weighs the European and U.S. contenders, Finland’s ability to be part of the supply chain is a major factor in its decision. Last, new restrictions could hinder cooperative initiatives along the lines of the trilateral P-8A Poseidon Maritime Patrol Aircraft program between the United States, United Kingdom, and Norway. The arrangement, which represents a coordinated approach to anti-submarine warfare from the High North to the Greenland-Iceland-UK gap, offers operational advantages as well as economies of scale and shared training, spares, and repair facilities. With adversaries challenging the United States in multiple theatres and domains, U.S. defense sales and cooperative endeavors amplify U.S. power projection capabilities and create domestic jobs. Why would we want to harm either?
Over the past few years, the U.S. Department of State and Department of Defense have expended significant diplomatic effort to ensure the European Union would allow third countries, such as the United States, to participate in its Permanent Structured Cooperation (PESCO) effort and the European Defense Fund (EDF). Washington’s main argument was that third-country participation in PESCO or EDF should be granted in order to ensure U.S. companies “free and fair access [to European markets] and the ability to compete.” On October 28, 2020, EU member states agreed to allow inclusion of third parties in PESCO as long as they provide “substantial added value” to the project and share “the values on which the EU is founded.” In short, Europe is opening the door for U.S. defense industry at the exact moment when the United States is finding ways to close it. The European Union could rethink its position, costing the United States economic growth and jobs at a time when we must urgently enhance growth.
A Better Approach
In light of these risks, how can the United States meet its goals of creating jobs, protecting national security, and securing supply chains without harming economic growth and transatlantic defense cooperation? The answer lies in an incremental approach closely tied to our national security and defense strategies.
A first step would be to survey the defense industrial landscape to determine what foreign content is already in the U.S. supply chain and assess whether the source is a U.S. ally or not. Thereafter, the Department of Defense, working with the private sector, could identify critical components that need to be considered for reshoring given national security and supply chain security concerns and those that can be maintained with allies. Parallel processes ongoing in NATO, the European Union, and individual member countries could accelerate and inform the U.S. process and set common standards going forward.
A second step is to ensure the rules applying to allies of the United States—to include NATO allies, Reciprocal Defense Procurement Memorandum of Understanding signatories, and NTIB countries—are clear. They could be placed on a so-called “allow list,” signaling that they are approved as part of the U.S. defense supply chain. This authorization would require a regular review mechanism to ensure approved countries retain their high standards and do not become more permissive with third parties in their own supply chains. This consultative mechanism, similar to an annual certification process, would be more efficient, effective, and up to date than case-by-case waivers, which risk inconsistent implementation.
Drawing on their enormous collective economic and regulatory power, the United States and European Union, working with partners in the Indo-Pacific, can set the rules and standards for robust defense supply chains. This network is also key to reducing risk and adding redundancy to our respective supply chains by widening the pool of available, trusted alternatives that are critical in countering Chinese predatory trade behavior.
What will better protect U.S. national security, American jobs, and the transatlantic defense industrial base is a strong, bipartisan allied approach to defense sourcing and supply chains, and not a sole focus on U.S. content requirements. Done right, the tools of economic security will support economic competitiveness, not undermine it.
Rachel Ellehuus is deputy director and senior fellow with the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies in Washington, D.C.
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