Financial Times

June 16, 2003
By Mark Odell and Edward Alden

The US Congress is considering legislation that would throw US military procurement into chaos by effectively shutting foreign defence companies out of the market.

The House of Representatives last month quietly included in its $400bn (€337bn) defence authorisation bill provisions aimed at ensuring that major weapon systems have almost exclusive US content.

The amendment has drawn strong opposition from the White House and US defence contractors. "If this went through it would shut the US defence industry down," said Joel Johnson, vice-president of international affairs at the Aerospace Industries Association, which represents the main defence contractors.

While the Senate bill does not contain similar provisions, the industry remains concerned because House Republicans are pushing hard to maintain the language when the two chambers begin a conference shortly to iron out differences in the bills.

"The House people behind this are really pushing it," said John Etherton, the AIA's vice-president of legislative affairs.

The move is the latest protectionist measure adopted by US legislators to curb defence co-operation with allies in the wake of the Iraq war.

The House international relations committee last month blocked efforts by the administration to conclude defence trade agreements with its two closest military allies, the UK and Australia, fearing they would set a precedent that could allow sensitive US technologies to fall into the hands of potential adversaries.

Representative Duncan Hunter, chairman of the armed services committee and a long-time foe of free trade agreements, is championing the House bill.

The White House has vowed to fight the measure. It said in a statement last month that the proposals "are burdensome, counter-productive and have the potential to degrade US military capabilities".

In one of the starkest warnings, it said the bill could see the "termination" of the $200bn F-35 Joint Strike Fighter programme, which has extensive international co-operation. The US armed forces are relying on the F-35 to provide the bulk of their air power from the middle of the next decade.

The bill would define a list of "critical items" considered vital to each military system, and require the Pentagon to buy those items only from US-based suppliers. It would set up a $100m seed fund to help re-establish domestic production of critical components that are now bought abroad.

Canada, long considered part of the US defence industrial base, would be treated as a foreign supplier under the bill. "It obviously could have an enormous effect on our industry," said a Canadian embassy spokesman.

The measures would also be retroactive to all existing military contracts.

Mr Johnson said the proposed bill is unworkable. It prevents US defence contractors from giving off-set work to foreign countries buying US weapons, effectively shutting them out of the export market. This in turn would push up the unit cost to the US military as volumes would be much lower.

Another proposal requiring that all machine tools used on a military programme are made in the US would also push costs beyond an economical level.

"This would require each manufacturer to re-engineer entire production lines so instead of $40m aircraft, the Pentagon would find itself paying $100m," Mr Johnson said. Paris air show, second section

Copyright: The Financial Times Limited 2003