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This project provided the President's Advisory Board on Arms Proliferation Policy with background information and research on a number of topics, including a review of trends in the international arms market, instruments of restraint for use with weapons and weapons-related technologies, the economics of arms exports, and the implementation of arms and technology export-control regulations. This report documents the RAND research provided to the Board. As the document supporting the Report of the Presidential Advisory Board on Arms Proliferation Policy, this study does not contain overarching recommendations concerning arms proliferation policy. It does contain some analytical conclusions pertaining to the above issues.

The Board neither endorses nor rejects the detailed aspects of the RAND study that follows below. In key areas of both policy and process, however, the RAND approach is consistent with the Board's thinking and findings.

Overview

The control of conventional arms and technology transfers must become a more important and integral element of United States foreign and defense policy if the overall goals of nonproliferation are to succeed. Through improvements in precision, conventional weapons have attained degrees of military effectiveness previously associated only with nuclear weapons. Moreover, these conventional weapons can destroy military targets without the massive collateral casualties and damage that would result from use of weapons of mass destruction, making their military use less constrained by political factors.

Arms transfers can be expected to remain a central element of America's national security strategy. To mitigate their potential significant risks, however, policy decisions on trade in strategic technologies and advanced conventional weapons will continue to require an artful reconciliation of complex competing national priorities. Foreign policy, national security, and economic interests that are served by the approval or denial of particular weapons sales can be compelling, but often pull in different directions. Striking the right balance among cross-cutting priorities is the key to an effective weapons transfer policy. What makes this task particularly difficult is the need for consensus among the major weapons suppliers; in the absence of consensus, unilateral U.S. restraint in weapons transfers can be circumvented to the profit of other suppliers. This means that solutions must be found that accommodate the national security, foreign policy, and economic interests of other key supplier states as well.

The major suppliers remain in economic competition for the sales of conventional weapons, and this economic competition is perhaps the greatest remaining obstacle to developing a cooperative control regime among suppliers. Although the end of the cold war has brought the potential for increased cooperation among states, there is also a dampening of enthusiasm for restraint. In major supplier nations, shrinking federal budgets have increased the perceived importance of exports as a means of sustaining the financial viability of defense firms. Exports are similarly being viewed as a mechanism to maintain the defense industrial base, a rising concern as domestic weapons procurement is falling.[1] The heart of the problem is striking a balance between the preservation of advanced conventional military production capabilities and a healthy industrial base, on the one hand, and restraining exports that imprudently accelerate the diffusion of advanced conventional weapons and associated technologies.

U.S. conventional arms exports have averaged around $10 billion for the past eight years, although U.S. sales as a proportion of the world's total arms exports have increased from 25 percent in 1987 to a predicted share of almost 60 percent by the end of the century. During the same period, major European producers nearly doubled their arms sales, almost 24 percent of the world total in 1995. Some 60 percent of these sales were to countries outside Europe. The expansion of the U.S. and European nations' market share has displaced some of Russia's weapons exports (or deliveries), which have dropped dramatically in the past several years, although Russia's actual earnings from weapons transfers have remained relatively stable. Russia has recently become more aggressive in pursuing increased sales, particularly in Asia. In contrast to the United States and Europe, Chinese defense spending per person has remained at about the same level for the past decade. During this period China has displayed a willingness to sell to countries in unstable regions or to countries that have been identified as pariahs by other producers.

The result of the widespread decline in national weapons acquisition is substantial excess capacity for weapons production, which in turn has led to increased competition among the major suppliers. Not only is there competition in pricing but there is increased pressure to offer state-of-the-art equipment previously reserved for national or allied forces. Not all buyers can afford to buy new platforms, so some countries have pursued upgrades to improve their stocks.

The Middle East accounts for the majority of arms purchases, with Saudi Arabia expected to remain the largest single weapons buyer in the world for the remainder of the decade. The Europeans have also been major importers in the 1990s, although purchases are likely to tail off toward the end of the decade. Although arms exports to East Asia have been in relative decline since 1987, the region is expected to overtake Europe by the year 2000. This is a region where the indigenous arms industry has grown and where interest in collaboration with European and U.S. firms is on the rise. Arms exports in South Asia have declined since 1989; however both India and Pakistan plan major purchases in the next several years. Improved economic circumstances in South America are facilitating the purchase of arms, although U.S. transfer decisions are complicated by internal policy disputes.

Collaborative R&D and procurement programs are also on the rise in response to cuts in defense budgets. Coproduction agreements, or other offsets transferring production knowledge, can create potential new producers and may result in a loss of jobs at home. While industry's self-interest provides some check on the transfer of particularly sensitive processes or technologies, and foreign trade generally has a positive impact on employment, the government review process must continue to examine transfer agreements closely.

The emergence of new suppliers is a trend fueled by regional conflicts and an increased demand for items such as antitank weapons and artillery, which many less-industrialized countries can produce. Israel, South Africa, many East European countries, and states that were part of the Soviet Union are among the new suppliers competing for markets.

One result of the proliferation of producers and buyers is that concerns and interests are focused on particular regions rather than on global conventional proliferation. To gain support for global conventional nonproliferation goals may require greater cooperation on the part of the major suppliers to accommodate their respective national security concerns. An area of common concern is the need to control or prevent arms trade with so-called "rogue states" such as Iran, Iraq, Libya, and North Korea.

With greater leverage than in the past, buyers have been seeking and finding lower prices and other special-purchase arrangements. More worrisome, suppliers' pressing economic incentives to export are enabling regional arms buyers to acquire front-line, state-of-the-art military equipment and technologies that previously were not available to them. The value and effectiveness of high-technology weapons systems in the Persian Gulf War were clear and dramatic, and the desire to acquire these types of systems has sharply increased. Few such systems have actually been transferred thus far, but pressures are growing to do so. Thus, despite the worldwide quantitative reduction in the level of production and acquisition of conventional weapons in recent years, there is reason for renewed attention to the dangers of conventional weapons and technology proliferation. And there is opportunity in the momentum of new international initiatives, such as the Wassenaar Arrangement.

Domestic and International Arms Transfer Regimes and Regulations Currently in Place

The two primary U.S. acts that include general restrictions related to conventional arms transfers are the Arms Export Control Act (AECA) of 1976, as amended, and the Export Administration Act (EAA) of 1979, as amended. With antecedents dating to the Battle Act of 1954, the AECA outlines eligibility guidelines for arms recipients, and limits the sale (and resale) of military equipment. The Export Administration Act restricts the export of dual-use goods or technologies that could be used either for weapons of mass destruction or for conventional arms.

International arrangements relating to conventional weapons transfers include the Missile Technology Control Regime (MTCR), a voluntary regime created in 1987 to control the proliferation of missiles and related technologies; the UN Transparency in Armaments Initiative (TIA), also known as the UN Register of Conventional Arms, established in 1991 to promote "openness" or "transparency" in the transfer of arms; the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, which aims to control the export of both conventional weapons and dual-use technologies; and the Convention on Conventional Weapons (also known as the Inhumane Weapons Convention), which aims to restrict the wartime use of weapons fragments not detectable by x-ray, of land mines and booby traps, and of incendiary weapons.

A Regime to Control the Transfer of Conventional Weapons

Transparency is one approach to regulating the transfer of weapons, although such regimes do not bind participants to refrain from selling whenever and whatever they wish. A second approach is to specify formal and explicit limits on transfers on particular types or amounts of weapons. While formal agreements are more binding than transparency regimes, they are also more difficult to achieve. Successful implementation of an international regime to control conventional weapons will require recognition by the key suppliers that the benefits of accepting controls outweigh the benefits of continued sales. One set of criteria designed to increase the benefits of controls and decrease the costs would control only those weapons that have (1) high military effectiveness, (2) low substitutability, and (3) low opportunity cost.

Highly effective weapons are those that can threaten targets of value and for which there are few, if any, counters even when in the hands of a relatively unsophisticated user. Weapons that function autonomously can perform as well for unsophisticated as for sophisticated militaries, thereby offsetting inadequacies in training and organization. While some advanced systems require a few trained individuals to operate them, these capabilities are within the reach of most nations. Autonomous weapons that also have precision capabilities, such as long range and stealth, can attack targets with high confidence of success and resist defenses and other countermeasures. Some examples of weapons with these characteristics are submarines, stealth aircraft, advanced sea and land mines, advanced missiles and munitions, tactical ballistic missiles and cruise missiles with advanced conventional warheads, and directed-energy weapons.

Many types of autonomous, precise weapons currently have few, or no, substitutes. A related consideration is the speed with which states could develop substitutes to circumvent the controls. In both cases, the autonomous functioning characteristic is critical—it is what makes highly effective weapons useful to less capable armies, and the technical expertise needed to make such weapons is considerable.

Controlling highly advanced munitions and missiles rather than weapons platforms greatly reduces the costs of participating in a control regime. In the example of transfers to the Middle East, 85 to 90 percent of total revenues generated by first-tier suppliers to the region came from major end items such as tanks, aircraft, and ships. Missiles, munitions, and other highly effective weapons account for only a small portion of the revenues generated by arms sales.

Pressure to sell such highly effective weapons is increasing. Several types of autonomous, precise weapons are on the verge of being marketed. The Gulf War provided a powerful demonstration of the effectiveness of advanced weapons, and as existing arms stocks become obsolete countries will seek to replace them with these more modern weapons. Many of the advanced weapons soon to be available from the major suppliers are attractive to regional powers, including antiship and antitank missiles. Therefore, the time available to control some of these weapons before they are widely disseminated is decreasing.

Another approach to stimulating conventional arms control is to emphasize restraint in the sale of weapons that raise international concerns because of the risks they pose to noncombatants or because of their perceived repugnance, even when used on the battlefield. Examples of these "weapons of ill repute" include dumdum, exploding, or poisoned bullets, chemical and biological weapons, some fragmentation weapons, and some incendiary weapons and land mines. The advantage of focusing on these weapons is that the international opprobrium associated with their use may make efforts to discuss their control easier.

Regimes for Controlling Technology Transfers

It has long been recognized that controlling the technologies critical to the manufacture and functioning of weapons is an important component of controlling proliferation. Technology controls implemented during the cold war are no longer in place, and even before their demise, were under pressure from those wishing to loosen the rules on commercial trade. Increasing reliance on commercial technology for military applications has increased the number of dual-use technologies and the growing number of multinational corporations, with technological capabilities located in many nations, makes control of technology diffusion difficult. Political, economic, and technical developments have erased many of the lines separating commercial and military technologies, have increased the incentives to transfer technologies or develop them indigenously, and have decreased the sense of common threat that sustained controls in the past.

As with arms transfers, control of technology transfers must be based on an acceptable balance on effectiveness and opportunity costs. Controls of single-use technologies, such as the traveling-wave tubes (TWTs) used in the Advanced Medium Range Air-to-Air Missile (AMRAAM), can be based on straightforward export prohibitions, because they have no significant commercial applications. In addition to the monitoring and re-export restrictions that might be included in an export prohibition regime, control of related design skills might also be limited. Such knowledge-based technologies are generally transferred through joint programs. Such technologies are clearly transferred in codevelopment efforts, but some are even transferred in coproduction programs through the inevitable testing and rework involved.

Controlling dual-use technologies is more complex and should focus on the application of the technology to weaponry rather than on simple prohibitions on exports. The task is to devise a control regime that permits both increased trade in the commercial applications of a technology and effective limitations on military end users. Focusing controls on the application of a technology requires a general principle of full disclosure of the application in return for freer trade. This in turn requires confidence in the buyer's statements of intended application.

Assessing a buyer's performance may be done by nonintrusive or intrusive means. Nonintrusive verification would include memoranda of understanding and agreements, national technical means of verification, limitations designed into the transferred technologies, and transparency measures. Intrusive measures would include inspections and tagging, perhaps with the use of "smart" tags which report information back on the items' position or use. Controlling dual-use design skills becomes even more difficult as these may be transferred in the context of a commercial transaction. Because particular firms in industry are in the best position to identify the importance of the dual-use technologies they are "giving up," the government should work in partnership with industry to reinforce the coincidence of proprietary and military interests in restraint. Finally, no system of overseeing the applications of dual-use technologies is useful unless violations are punished.

Logically, the technologies to control first are the ones associated with the critical weapons characteristics discussed earlier⁠—autonomous operation, precision, stealth, and long range. Industry should be involved in efforts to classify technologies by their relationship to these characteristics.

Technologies so early in development they have no immediate specific application are not covered by the system described here, yet they may be used to make weapons in the longer term. Where a concept of operations can be defined by which technology could be used in a putative weapon, for example, antisatellite weapons, the key systems and subsystems can be identified and regulated appropriately. In fact, because such systems are not yet deployed, it may be easier to forge an international agreement on limits. The harder case is technologies with many potential applications but with no particular application yet evident. An example might be those technologies having a sweeping effect on the world, such as telecommunications and computing technologies or emerging biotechnologies. It is unclear how these technologies could be identified as candidates for limits, at least until their military applications become more sharply defined.

Implementation: International Instruments and Policy Proposals

Effective control over exports of key, high-leverage weapons and components requires multinational participation. The Board was presented with several proposals involving the participation of other key countries; only one proposal, the Wassenaar Arrangement, is currently being implemented. The proposals included: (1) a concept of an "Inner Circle" with "Concentric Circles" of participating countries, (2) a successor to the Coordinating Committee on Multilateral Exports (CoCom) regime—the Wassenaar Arrangement, (3) a computer-based registry system, and (4) a Market Stabilizing Mechanism.

Five criteria were used to evaluate these alternatives: (1) their consistency with U.S. foreign and defense policies; (2) their effectiveness in inhibiting proliferation of key, high-leverage weapons; (3) incentive effects on suppliers and buyers; (4) their general economic effects on U.S. defense industry (e.g., in forgone revenues); and (5) their administrative practicability.

The Inner Circle concept would provide U.S. allies with access to U.S. technology as an incentive for cooperation in the control of weapons and technology proliferation. Other countries would compose the Concentric Circles. The degree of restraint imposed on them would depend on a number of criteria, including the closeness of their alliance to the United States and the reliability of their own controls over re-exports.

The 28-member Wassenaar Arrangement is very different from the CoCom regime it nominally replaced. It is global in scope, and aims to implement restraint in dealing with current problems and to use transparency to address future ones. It encompasses both conventional arms and dual-use technologies. A small group, made up of the P-5[2] (minus China) plus Germany and Italy—all of the major weapons exporters—will deal exclusively with conventional arms sales. The potential for multilateral restraint is greater in this small group than anywhere else.

The computer-based registry is a disclosure-based regulatory system that would reduce or eliminate the information asymmetry between government regulators and industry suppliers of advanced and advancing technology. Currently, the pace of technological change enables industry suppliers and prospective arms buyers to negate a regime's effectiveness by decomposing proscribed systems or finding substitutes for them. The computer-based registry would require all companies involved in the exports of weapons or dual-use technologies to register and tag each item throughout its product cycle with essential information concerning its specifications, destination, recipient, and end use. By monitoring this information the government could interrupt transfers that failed to meet prescribed requirements.

A Market Stabilizing Mechanism (MSM) would operate under the aegis of an MSM Council consisting of both a suppliers' group and a buyers' group. The MSM Council would focus on prohibiting or severely limiting those weapons systems that tend to destabilize interregional or intraregional arms balances.

The types of control regimes described here differ widely from one another, but this does not imply mutual incompatibility. Linking the Wassenaar Arrangement with the computer-based registry and the MSM could be quite useful, although it would require a degree of attention in the policy community that is not easy to envisage in the near future.

The Economic Impact of Conventional Arms Exports

The economic and defense industrial base effects of arms sales are often raised in discussions of arms export policy. Three important issues are:

  • What is the evidence on the quantitative economic and industrial impact of arms exports?
  • What are the pros and cons of including economic considerations in decisions concerning arms exports?
  • What are the pros and cons of other policy options concerning arms exports, such as export financing and R&D recoupment charges?

The findings of this report on these issues can be summarized as follows:

  1. The post–cold war reduction in arms production (over 50 percent) has had major negative economic effects on workers and localities associated with defense industries. The arms export market is small relative to this reduction, however, and is not a potential source for major alleviation of these negative impacts. Other policies must be brought to bear.
  2. Whereas arms exports cannot alleviate the economic and industrial problems associated with the downsizing of the arms industry after the cold war, these exports can have strong positive local and regional economic impacts, as well as substantial industrial benefits for the U.S. Defense Department. Therefore, political pressures to approve arms exports to achieve these benefits are strong. However, there are also strong arguments for not permitting economic or industrial base considerations to override national security considerations in arms export decisions, especially when the arms export in question is governed by an international agreement.
  3. Changes in public policy toward arms exports are under way or are being considered. One recent change will permit the federal government to provide export finance guarantees for defense sales; another would repeal the recoupment charge for R&D expenditure currently assessed on foreign military sales (FMS) of major defense equipment. There are two arguments for these changes. The first is that, once it is determined that an arms sale is in the U.S. national security and foreign policy interest, these sales should have no additional burden put on them. Since other exports are eligible for export finance and free of any government-imposed R&D recoupment charge, this argument implies that arms exports should be accorded the same treatment. The second argument is that other arms-exporting nations financially support their industries' sales, and, therefore, current U.S. policy does not result in a neutral playing ground for U.S. exporters. There are several arguments against such changes, however. The first is that extending export financing to arms sales would provide politically unwise encouragement of such trade at a time when weapons proliferation poses detrimental security risks. (This argument presumably implies that the foreign policy and national security review of the sales is inadequate.) The second is that foreign arms purchasers should pay a fair share of U.S. government-financed R&D expenses. Other arguments in opposition are that U.S. exporters have been successful in the market and do not need an improved playing field, and that current U.S. budget stringency makes it unwise to risk any revenue losses or to incur any unnecessary new outlays.

U.S. Government Arms Export-Control Process

Weapons and dual-use export controls are a means of preventing the acquisition of threatening capabilities by our enemies and are tools of foreign policy. For as long as these controls have been in existence there has been a tension between industry desires to export and foreign policy or national security desires to control.

Weapons exports are administered and controlled by the State Department, whereas exports of dual-use items are administered and controlled by the Commerce Department. Weapons are controlled through the International Transfer in Arms Regulation, which lists proscribed export destinations, regulated weapons (the Munitions List), procedures for applying for export licenses, and penalties for failure to comply with the regulations. The Munitions List is compiled by the State Department with the concurrence of the Department of Defense. Weapons or munitions export-control implementation guidance is handled by several different offices in the State Department, depending on whether the export item is controlled through an international regime or simply according to U.S. interests. Criteria considered in making decisions are the potential impact of the transfer on regional stability, the military and other needs of the procuring country, and concerns over activities that might support terrorists and drug trafficking. Considerations of foreign availability of substitute weapons plays a role in these decisions, but it is not a decisive criterion.

Dual-use technology controls are administered by the Commerce Department through regulations that identify the commodities to be controlled (the Commodity Control List), countries for which certain items are controlled, and the justification for the control. The Commodity Control List is based on the Military Critical Technologies List, updated annually by the Defense Department in a process that includes industry and other agency representation. It also incorporates controls in accordance with various international regimes, such as the MTCR. In contrast, the Nuclear Referral List is updated only on an ad hoc basis. Unlike the Munitions List, the Commodity Control List is intended to be as limited as possible while still supportive of U.S. policy objectives.

The process for controlling dual-use technologies is in general perceived to be weaker than that for weapons because control of nonmilitary items is the exception rather than the rule and the criteria for denial of a dual-use technology export license are more narrowly defined than those for denying an arms export license.

Interagency groups meet frequently to discuss contentious cases in both the arms and dual-use categories; however, licensing decisions are left to the lead agency, with others able to appeal decisions with which they do not agree. Enforcement of the laws relating to exports of arms and dual-use technologies is also split among a number of agencies, with several of them having their own investigative branches.

As with many governmental processes, the output and outcomes of the export-control laws have both intended and unintended consequences. The decision to separate arms export controls from those on dual-use items made sense in the immediate postwar period when it was relatively easy to distinguish between the two and the United States was the world's technological leader and could single-handedly control technology proliferation. The increasing use of commercially developed technologies for military applications, the dissolution of a monolithic enemy (the Soviet Union), and the proliferation of capable technology competitors have fundamentally changed the environment in which the export-control process functions.

The separate interagency groups convened to discuss matters related to particular regimes will be ineffective in the future increasing need for cross-cutting analyses of trends and capabilities. Interagency groups will need to focus on linkages between civilian technologies and weapons and are likely to find that items previously associated with only one type of weapon now apply across the board. As the lines between civilian and military uses of technologies are blurred, the interagency process may become more contentious. The fact that agency roles for advocacy, review, and decisionmaking are often inseparable contributes to confusion over priorities and makes it difficult to achieve consistent decisions.

The problems outlined above are compounded by administrative inefficiencies. Lack of a common database leads to numerous inefficiencies in the use of staff time and impedes the establishment of historical case files to support license applications. With the increasing globalization of the arms industry, analyzing trends and sales is more complex than ever. Lack of information about allied and non-aligned nations' equipment and capabilities continues to hamper intelligence evaluations, and technical expertise has been difficult to recruit and retain in the government.

Among the steps that could be taken to improve the implementation of policies and streamline the process, the most critical may be the establishment of a common database, accessible by all in the community. Another important step would be to integrate technology and weapons controls into one legal and regulatory framework. This would help focus attention on the points of convergence between technologies and weapons and should ease jurisdictional disputes between arms and dual-use items. More aggressive attention on the part of the National Security Council (NSC) staff, and the establishment of a senior NSC official to guide the implementation of consistent conventional arms and dual-use technology export-control decisions are important features in creating a successful export-control process.

Arguments have been made in other reports about the need for a central administrator or even a central organization to manage arms and dual-use technology export controls. It is important to distinguish between a single administrator who would be responsible for assigning cases and moving them along to a decision, and a central organization that would be responsible for making the decisions, with interagency consultations as necessary. Strong arguments can be advanced for locating either role in any of several agencies. The choice of a location for either centralized function will require both further analysis and political judgment.

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Notes

  • [1] U.S. Department of Defense, Office of the Under Secretary of Defense (Acquisition and Technology), World-Wide Conventional Arms Trade (1994–2000): A Forecast and Analysis, Washington, DC, Department of Defense, December 1994.
  • [2] The five permanent members of the UN Security Council: the United States, United Kingdom, France, Russia, and China.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Overview and Trends

  • Chapter Three

    A Regime for Controlling the Transfer of Conventional Weapons

  • Chapter Four

    Regimes for Controlling Technology Transfers

  • Chapter Five

    Implementation of International Instruments and Policy Proposals

  • Chapter Six

    The Economic Impact of Conventional Arms Exports

  • Chapter Seven

    U.S. Government Arms Export-Control Process

  • Appendix A

    Meeting Participants, Briefers, and Other Contributors

  • Appendix B

    Documents

The research reported here was conducted within the International Security and Defense Policy Center of RAND's National Defense Research Institute (NDRI), a federally funded research and development center sponsored by the Office of the Secretary of Defense and the Joint Staff. The study was supported by the Under Secretary of Defense for Policy.

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