Europe to open defense markets over French “non”

posted at 11:45 am on March 5, 2008 by Ed Morrissey

The irony abounds in this development from Europe. The EU will move to open its defense contracting market to foreign bidders, including those in the US, in a series of economic reforms. This comes over the objection of France, which wants to protect its own defense contracting industry — although it just won a lucrative American defense contract:

Efforts to bring large swathes of the arms business under European law will deliver competitive advantages to US firms and discourage research and development spending, European defence companies warned yesterday.

The attempt by the European Commission to extend common market rules to the defence business is expected to make progress today with the publication of two draft directives, one aimed at streamlining export control procedures and the other governing rules for defence procurement.

Until now, well over 90 per cent of the European defence procurement market, worth €80bn ($118bn, £57bn) annually, has been excluded from European competition. Governments have done this using article 296 of the European Community’s founding treaty, which says member states’ essential security interests trump competition law. The commission has argued article 296 has been abused and a year ago published a new interpretation that tried to narrow its scope. However, that interpretation has not been tested in the absence of the new defence procurement rules.

A partnership between American contractor Northrop-Grumman and French Airbus producer EADS won a multi-billion contract last week for a new fleet of refueling craft, the KC-45A. That award created a large amount of criticism directed at the Air Force, which decided against the smaller but less expensive Boeing aircraft. Although EADS will do most of its work in the US to fulfill the contract, politicians in the Northwest and in DC objected to the reliance on foreign suppliers for critical defense systems.

The French have now objected over the same issues in reverse, despite winning the American contract last week. Unfortunately, they may have little sympathy from their EU partners. France has a history of competing against EU consortiums rather than joining them, such as with the Eurofighter Typhoon two decades ago. Their large defense export industry relies on French insularity, not cooperation. They want to use their upcoming EU presidency to force other nations to shut out international competitors, but they may find that a lonely task.

The US needs to press the point with the EU. If the French pressure them to close their market rather than open them, then the US needs to announce a re-think of the Air Force award last week.

CORRECTIONS: Typhoon, not Tycoon. Needed coffee and not tea this morning, I see… And “contract” should have been “aircraft”, too.

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EU needs the curative effects of open markets. Great win for the US and ultimately good news for all sides!

moxie_neanderthal on March 5, 2008 at 11:51 AM

such as with the Eurofighter Tycoon Typhoon two decades ago

Fixed it, unless that was a joke, in which case, carry on…

If the French pressure them to close their market rather than open them, then the US needs to announce a re-think of the Air Force award last week.

Yup. If we can’t try and sell you our stuff, then we ain’t buyin’ your stuff.

Frozen Tex on March 5, 2008 at 11:52 AM

That award created a large amount of criticism directed at the Air Force, which decided against the smaller but less expensive Boeing contract.

Actually, it was the aircraft which was smaller, not the bid. Northrop won not only on the capability front but on the cost front too.

From the LA Times:

“Boeing didn’t manage to beat Northrop in a single measure of merit,” Loren Thompson, an analyst with the Lexington Institute, said in a report. The Northrop-Airbus “offering was deemed much better in virtually all regards.”

The Northrop proposal would have the Airbus tankers assembled in the United States. Since over half of the parts used in the Airbus already come from here, that makes the plane much more of an American job generator. Before Congress puts on its protectionist hat, it needs to examine both bids from the prospect of how many of the parts that go into the respective aircraft are built overseas. The international nature of the aircraft industry will then become quite apparent to the examiners.

unclesmrgol on March 5, 2008 at 12:19 PM

Even if they do “open” their defense markets it doesn’t mean they’ll actually award anything to U.S. companies.

TooTall on March 5, 2008 at 12:46 PM

Actualy have to agree with the FRENCH on this…

Any country who outsources major defense components has never bothered to read any history.

It takes YEARS to set up production chains for modern weapons… no way you could do today what we did in WWII taking auto plants and turning them into Tank production facilites… or aircraft factories… we no longer have the heavy plant equipment to do so.

But in Democracies, a major change in attitude between “allies” can come in a single election. Crap, look at our Iraq stance, and what hinges on the Presidential election here… or look at France, and their seeming turnaround.

Allowing ANY country to hold your defense systems supply hostage is not a smart idea.

Romeo13 on March 5, 2008 at 12:47 PM

Thales and MBDA are run by crooks. They never have had to compete for contracts. They always behave like Boeing did for this tanker contract.

The Lahoud brothers who run EADS also are slime.

Win Win Win on March 5, 2008 at 12:52 PM

Although EADS will do most of its work in the US to fulfill the contract, politicians in the Northwest and in DC objected to the reliance on foreign suppliers for critical defense systems.

If this applies to the KC-45, will said suppliers still be in existence for the 50+ year lifespan of the airplane? I know that this question also applies to American corporations, but it seems to me that relying on foreign suppliers for “critical defense systems” is the epitome of foolishness – especially when “multi-billions” of dollars are involved.

If at all possible, and I see no reason why it’s not always possible, the American military should be supplied by American manfacturing and technology.

Or, is this just another facet of America’s desire for international cooperation and trade, at the expense of American security?

OhEssYouCowboys on March 5, 2008 at 12:52 PM

Protectionism is not good for the country exercising it.

Tzetzes on March 5, 2008 at 1:29 PM

France has a history of competing against EU consortiums rather than joining them, such as with the Eurofighter Typhoon two decades ago.

Right, with their Dassault Rafale that to my knowledge hasn’t won a foriegn sale yet except possibly Libya. The French have good products – just bad salespeople.

HotAirJosef on March 5, 2008 at 1:41 PM

Eurofighter has secured lots of export orders, but the competitor Rafaele has not as of yet, so the French seem not such a threat in reality.

pseudonominus on March 5, 2008 at 1:42 PM

Tzetzes on March 5, 2008 at 1:29 PM

Really? is that why America has such a HUGE trade deficit?

We’ve been exporting the wealth we produced for a couple of generations, problem is that we are no longer producing wealth at the same rate, because we are importing too many goods.

Add the wasteage our government creates, and the amount of foreign aid (why the heck do we give money to Saudi Arabia? when they are making so much from oil…)…

And there is no one left to look out for the American Worker.

Needs to be a balance… and right now there is not.

Romeo13 on March 5, 2008 at 1:46 PM

Romeo13 on March 5, 2008 at 1:46 PM

You’ll never hear me defending government waste, let a long handouts to “Saudi” Arabia.

If a country as whole can get X cheaper by buying it than by producing it, then it is in that country’s interest to do so. The interest of that country as a whole.

Tzetzes on March 5, 2008 at 1:50 PM

let alone

Tzetzes on March 5, 2008 at 1:50 PM

Protectionism is not good for the country exercising it.

Tzetzes on March 5, 2008 at 1:29 PM

For defense, you’re wrong.

If we treated defense manufacturing the same way we treated every other good then half our stuff would be made in China, India, Malaysia, etc. What happens if we have to go to war with China? Well, they use the factories we paid to build and train the workers in to make those weapons against us. Or what happens when those countries don’t like a war we’re fighting and decide to cut off spare parts or new weapons coming to us? We’d be screwed, don’t you think?

Having said that, I have no problem with the EADS contract for the tankers simply because A) the planes will be manufactured in this country, meaning we could seize the factory in time of war, B) the contract was essentially between which commercial plane was a better fit for a military application; we’re not paying for much development here and Boeing will still make its planes for commercial uses, and C) Northrup will be designing, building, and equipping all the military components for the tankers.

As for Europe opening their markets, I’ll believe it when I see it. Europe has a long history of mercantilism disguised in the language of capitalism and free trade. But a lot of Europeans already buy American systems, most notably the F-16 and Apaches. I wouldn’t be surprised if this new rule was designed more to keep the status quo for those countries that which to buy from us (and already do) than to expand the market.

Nessuno on March 5, 2008 at 2:04 PM

Right, with their Dassault Rafale that to my knowledge hasn’t won a foriegn sale yet except possibly Libya. The French have good products – just bad salespeople.

HotAirJosef on March 5, 2008 at 1:41 PM

It’s not the salespeople; it’s the planes. Dessault’s Mirage, line which was widely exported and used, has a terrible track record in war. They were used by both Israelis and Arabs during various wars, and served neither very well. They were used by Iraq to no effect, etc etc. The Rafale is actually a pretty good little fighter, but countries now have the option to buy the F-35, Eurofighter, or the Russian systems. Why would you go with Dessault Rafale when you know the Mirage’s track record over the F-35 which is made by the makers of the F-16?

Also, the Rafale has really bad timing. It is essentially a last generation fighter coming out just as the next generation is here. They are scrambling to put in avionics and weapons systems post manufacturing that will be standard on the F-35 but are having trouble with implementation.

Nessuno on March 5, 2008 at 2:12 PM

Nessuno on March 5, 2008 at 2:04 PM

Fair enough, by all means, when you talk about war and a hostile nation like China. But, whatever jokes we and the French (or other Europeans) may make about one another, we’re not going to go to war with each other any time soon.

If American companies can provide better equipment to the EU, then it’s in the EU’s interest to buy them, and if they don’t then they’re working against their own interests, the interests of the EU as a whole. (If French companies can equip the EU better, then let them.)

So the story here is really not one of France’s hurting American companies (understanding, obviously, that the latter would like to get those contracts), but of France’s putting possibly disadvantageous restrictions on the rest of the EU.

Tzetzes on March 5, 2008 at 2:22 PM

Tzetzes on March 5, 2008 at 1:29 PM

Sigh… simplistic viewpoint.

When you buy somthing from another country, you pump wealth into that economy. That wealth floats around, helping THAT economy, not the buyers.

As things are consumed by the buyer, they are lost to the economy… and if there is no reciprical trade, so the balance of trade is equal, you have a permanent transfer of wealth from the buyer, to the seller.

As long as the origional buyer has an expanding economy, as the US has had for many years, that transfer of wealth is sustainable… BUT… in a recesion situation that transfer of wealth cannot be sustatained, as the wealth needed for the economy to function, is continueing to be exported.

Problem is that America is NOT producing wealth as fast as it was, and that America has some major drains on the economy (foreign aid, war, trade deficit, Soc Sec, oil imports…), ie things which drain capital without creating wealth.

Other countries ARE protectionist… and even have government funded and owned companies… it is NOT a level playing field.

And you also do not address that fact that if you give your defense needs over to another country, you are then at the mercy of THAT countrys politics….

Romeo13 on March 5, 2008 at 2:28 PM

Tzetzes on March 5, 2008 at 2:22 PM

OK, scenario from the FRENCH perspective.

Chad continues to erupt, and France decides its in its interest to fight the Islamics there…

Ah, but in the American election, Obama wins, and is President, and with the support of the whackos who are even trying to stop our OWN troops from getting equipment (Tacoma?), decides we will not allow those exports to continue, and embargoes arms… like Clinton did to support Kosovo.

Ah, but France has a Major component of its military supplies coming from the US.

Do you see the point?

Romeo13 on March 5, 2008 at 2:33 PM

Romeo13, I’m sorry to say that your understanding of economics is severely lacking.

When you buy somthing from another country, you pump wealth into that economy. That wealth floats around, helping THAT economy, not the buyers.

Any purchase is by definition a mutually beneficial exchange. If it wasn’t, then the buyer wouldn’t buy it. Both the buyer and the seller receive an economic benefit. As the price of good decreases relative to the price that the buyer would be willing to pay, then the relative benefit of the buyer to seller increases.

So, to apply this to international trade, an Indonesian widget can be sold at $10 but an American made one for $20. In a free market, the cost of the widget will hover close to $10, as Indonisian and other forien suppliers compete. At that price point, each American buyer gets 10 dollars richer than he would have been under a protectionist system. That $10 could then be spent on other goods, invsested, or leisure (less hours spent working).

You argument, as I take it, emphasizes the fact that the $10 going to Indonesia increases their wealth when it could increase our wealth. Well, as I pointed out, you’ve ignored the wealth created by not buying an inefficient good. Also, you are ignoring the wealth created from more people being able to purchase the good at the lower price. Third, a $20 American widget doesn’t necessarily create wealth even for the producers of the widget. The $20 widget would have to be at cost (since it’s so much more expensive than alternatives). So you have a factory tying up capital and labor creating an object that is not making a profit. If the factory was overseas, the capital used to build the factory and the man hours used to build the widgets in America can be used to make something that Americans can make efficiently.

That last concept is called comparative advantage. The notion is that certain countries or regions can make things cheaper than others, and that if you allow free trade, both countries benefit if they only make their specialty. Comparative advantages can naturally from resource allocation, climate, or geography, or they can be created from educational and culutral advantages. The states of Washington and the Florida can both make apples and oranges. But if Washington uses its labor and land to only make apples and Florida does the same with oranges, more apples and more oranges will be produced. If they trade (and they will, because an excess of oranges will make apples more valuable to Florida, and vice versa), they will both be more wealthy than under a protectionist regime.

Finally, Romeo, you misunderstand the nature and cause of America’s trade deficit. First, the deficit is a lot smaller than it seems because a large portion of the deficit is made up of money transfers resulting from dividend payments and bond payments. Yep. That’s right. It’s all the foreign money in our stock market and buying our bonds. This is not the result of our trade policies, but rather a result of America’s very low savings rate. American’s don’t save a lot of their income so companies and the government draw upon foreign sources of capital to get the money they need to build factory equipment or fund or ridiculous government programs. This is why as our stock market, currency, and bond rate has decreased, so has the trade deficit.

Second, trade deficits (when excluding the money transfers issue) are an indication that our economy is creating an excess of wealth. Our economy and our workers are so efficient that we cannot produce enough goods to satisfy our own spending habits. This is why as our economy grows quickly it always sees a ballooning of the trade deficit.

And third, even if you look at individual national trade deficits, like with China, the deficit is usually exaggerated because of the way it is measured. If we buy something from China, the cost of that entire good is added to the deficit measure. But the reality is that the good is most likely assembled in China with parts from a number of nations (including oftentimes America). They take in parts from all over (and spend money on them), assemble it, then sell it to us. But that entire cost that is added to the trade deficit doesn’t go to China, a large part of it (often a majority) goes to the countries that supplied the parts.


So, I’m sure no one actually read this whole post, but to the extent that anyone might, my hope is just to do my part in spreading the good news of free trade and capitalism and dispel the myths of protectionism.

Nessuno on March 5, 2008 at 3:28 PM

Romeo13 on March 5, 2008 at 2:33 PM

Yeah, what Nessuno said.

You can raise my own eggs at home (at what cost?) or you can “pump money” out of your own pocket and into the egg-growing industry. Which do you think is really the better deal for you?

Tzetzes on March 5, 2008 at 4:18 PM

Nessuno on March 5, 2008 at 3:28 PM

Read your entire post, and the problem with your assertion is a simple one.

If you had a totaly closed system you would be correct, problem is that wealth, through goods or resources expended also leave the sytem.

If I buy a Lighbulb from China, the wealth expended to buy that bulb goes to China… BUT… once the bulb burns out it must be replaced. It leaves no capital here in America, that wealth, which has transfered to China is NOT put back into the American system. Add in that the parts are manufactured in other systems, and you have wealth flowing in a consistant manner to China, with every bulb that burns out.

The bulb itself may help a business make money… or like the bulb in my cloathes closet, be essentialy a waste (no wealth even potentialy generated by it).

This “wealth’ is replaced into the system by companies either creating products, or through gathering Natural resources for use… As long as a country creates enough products (real or intellectual) from scratch, the system is sustainable. Problem is that through our own Politics, we are limiting our ability to produce.

From: asia.news.yahoo.com/070213/ap/d8n8sgm00.html

The biggest factor in last year’s increase was a surge in America’s foreign oil bill, which rose to a record $302.5 billion as the average price of a barrel of crude oil rose to an annual high of $58,

Thats from 2006. We are exporting BILLIONS in wealth, which may or may NOT be coming back into America. Other countries are using this capital to finance their own infrastructure costs, which feeds no wealth back to America…

IN 2006 763 BILLION dollars left our economy… and some of it was invested back into foreign ownership of stocks and bonds… so, in essence, we are selling American Property and assets to foreigners to sustain that dynamic.

Key here is that we don’t generate enough internal “things” to sustain this export of wealth.

Romeo13 on March 5, 2008 at 4:27 PM