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Disarmament Diplomacy

Issue No. 18, September 1997

Partnership and Profits:
NATO Membership at a Price
By Lucy Amis and Tasos Kokkinides

Introduction

NATO expansion has turned central and eastern Europe into a lucrative arms market worth in excess of US $35 billion.(1) To boost their membership prospects in the lead up to the NATO Madrid Summit in July 1997, Poland, Hungary, the Czech Republic, Romania and Slovenia frantically began talks into purchasing offensive Western military hardware. Despite NATO assurances that such military buildups would not secure membership, pressure continues to be placed on central and east European (CEE) elites to buy new weapons. At a time when there is no external threat to CEE security, this strategy endangers the very stability that NATO expansion is supposed to promote.

Partnership for Peace (PfP) members in central and eastern Europe are clearly justified in modernising their defence forces. Improvements in command, control and communication equipment, are needed to help these countries achieve inter-operability with NATO partners and participate effectively in current and future peacekeeping operations in Europe. The planned increases in offensive capabilities are unnecessary and could undermine the region's fragile security and also alarm the Russians. Introducing high-tech weapons into CEE, would signify a substantial increase in the qualitative power of the armed forces in countries bordering the former Soviet Union. Moscow may conclude that a new effort to modernise its own armed forces is required.

Politics, Pressure and Duress

Pressure to buy advanced weaponry is evident in CEE policy decisions that contradict their budgetary constraints. In April 1997, the Hungarian air force announced that it was retiring from active service much of its Soviet fleet of fighter and trainer aircraft. Hungarian Defence Minister, Gyoergy Keleti argued that these aircraft were too expensive to maintain in the absence of an immediate threat to Hungarian security. Yet with no change in the international climate, Hungary is now considering purchasing new Western fighters. (2)

Duress from the West is apparent elsewhere in CEE. In September 1997, Poland announced that the Israeli companies Rafael and Elbit, had headed off a challenge by Boeing to equip its Huzar military helicopters with both missiles and avionics.(3) American and British envoys to Warsaw immediately entered heated discussion with Poland's National Security Advisor, Marek Siwiec. Within the week, President Aleksander Kwasniewski issued a statement denying that the decision on avionics had been made. It was claimed that the Israeli missiles needed to be tested in Poland's harsher climate. An American military source has suggested that the Polish embassy in Washington also brought pressure to bear. The Poles feared that choosing the full Israeli package to the exclusion of the American Boeing offer, would antagonise the Senate before the NATO vote. It seems the problems surrounding the pro-Israeli deal stemmed from an initial Polish desire to mollify Jewish Americans and end their reputation for anti-Semitism.(4)

For CEE countries excluded from the first round of NATO enlargement, the pressure to militarise is equally intense. Romania was told several years ago by American officials and the manufacturer Bell Helicopter Textron, that a deal for 96 Cobra attack helicopters would convince Washington of Bucharest's commitment to join NATO. Due to IMF insistence that Romania's economy cannot withstand the $1.4 billion Bell deal, the plan has been postponed indefinitely. Such is the strength of Romania desire to impress NATO though, that Bucharest is looking for ways to overcome the IMF's ruling. Bell chairman, Webb Joiner is also exploring financial avenues to revive the deal.(5) Bulgaria meanwhile has rejected an attractive Russian offer to pay off its debt through military equipment transfers. Sofia feared that a MiG deal might reduce its chances of being invited to join NATO; currently Bulgaria's top foreign policy objective.(6)

Western manufacturers who are not content to sure up the NATO enlargement process through arms deals alone, have entered the political fray. Several prominent business figures have joined political leaders in establishing the US Committee to Expand NATO. Formed in November 1996, the Committee has the express purpose of lobbying the US Senate for the enlargement of NATO into central and eastern Europe. The acting President of the Committee's Board of Directors in none other than Lockhead Martin Corporation executive, Bruce Jackson.

Although CEE defence bills are rapidly increasing, their budgets are still too limited to withstand expensive weapons procurements from the West. If CEE countries default on payment, Western governments and taxpayers may yet end up footing the bill. To surmount the problem a flood of financial incentives have been devised by Western suppliers to help finance the weapons transfers. The schemes include selling off second-hand weapons, offering "no-cost leases" and negotiating offset agreements. Offset agreements, where suppliers compensate recipient countries for weapons purchases by "offsetting" the costs through investing in the country or buying other products, are particularly popular. CEE countries perceive them as a means to stimulate foreign investment and trade. When Poland announced its intention to purchase 250 fighters in April 1997, the Polish Defense Ministry specified that the agreement should provide for a maximum number of offsets.(7) A Czech Ministry of Defence report, due out this autumn, is said to stipulate offset agreements amongst the criteria it will use to choose between competing arms companies. The Czechs are also likely to favour bids from Western firms who promise to bail out the heavily indebted Czech Aero Vodochody company.(8)

Competition amongst Western arms manufacturers is so strong that CEE countries are allegedly starting to play one off against the other. Julian Scopes, Vice President of British Aerospace (BAe), says they "have to be able to offer a comprehensive industrial co-operation package - which in our terms will be for a very long-term benefit to the countries in question - and we have to be able to offer a very attractive and competitive finance deal with it as well, in order to spread out the costs over a period of time, to make it more affordable." BAe are jointly negotiating bids with Saab to supply CEE countries with Gripen fighter aircraft. Stiff competition is coming from American rivals, Lockhead Martin and McDonnell Douglas, manufacturers of the F-16 and F-18 fighters respectively.(9)

Conclusion: Who is Supporting Who?

While offsets appear to reduce the financial burden on the purchasers by stimulating investment, the burden instead shifts to supplier nations.(10) Providing military aid to CEE is a high priority for the United States. In December 1996, Poland, Hungary and the Czech Republic were added to the Pentagon's Defense Export Loan Guarantee (DELG) programme.(11) DELG is a self-financing programme which permits the Pentagon to guarantee up to $15 billion in private sector loans to underwrite the sale or lease of US weapons or services. Although the programme entails no direct expense to the American taxpayer, in the case of default or non-payment American taxpayers will be liable for the repayment of both the principal and the interest.(12)

The focus on military financing means less funds are available for economic packages to CEE. In 1996, the United States withdrew $7.8 million from two economic assistance programmes and shifted them to defense programmes for a total of US$15.6 million.(13) America's 1996 NATO Enlargement Facilitation Act, which authorises $20 million in Foreign Military Financing (FMF), also covers up to $242 million in loans to Poland, Hungary and the Czech Republic(14), money that could be better spent on economic development. Resources are being diverted away from the development of the structures that will genuinely ensure stability in Europe in the post cold war era.

Central and eastern Europeans are wasting their precious limited financial resources for weapons they do not need and cannot afford. It makes much more sense to invest in the domestic civilian economy to prepare these countries for EU accession. EU enlargement has long been the ultimate goal of these countries, and increased military spending on unnecessary offensive equipment will diminish their ability to meet high EU economic standards.

It is often argued that even in the absence of NATO expansion, these countries would westernize their militaries. This argument is misdirected and misinformed. In the absence of direct military threats to CEE security, the questions that Western governments should be asking are: What is the purpose of these transfers? Are these transfers destabilizing? Instead, the West is using weapons transfers as a foreign policy tool for a region that has in recent history been tension-ridden. One question remains elusive in the entire debate about NATO expansion. Given the absence of a direct military threat, the marketing objectives of suppliers to ensure "product loyalty" and the legitimacy that NATO expansion confers on the transfers of advanced offensive weaponry: whose interests are being secured?

Notes

1. "Military Buildup in Central and Eastern Europe: NATO Membership For Sale," BASIC Paper No. 22, July 1997, by Kirsten Ruecker.
2. "Hungarian economising compels air force cuts," Jane's Defence Weekly, 16 April 1997
3. "Poles reject US missiles," Financial Times, 8 September 1997.
4. "For Poles, Arms Deal Hid Political Mine Field," New York Times, 20 September 1997.
5. "At IMF's Urging, Romania Shelves Copter Deal," New York Times, 13 September 1997.
6. "Bulgaria to Snub Russia's Reworked MiG-29 Offer," Jane's Defence Weekly, 23 July 1997.
7. "Central Europeans to Call For New Fighter Bids By End-1997," reprinted at http://defence-data.com/page528.htm, May 13, 1997.
8. "Czech Republic: Criteria for Selection of Supplier of Fighters Disclosed," Prague Lidove Noviny, 9 September 1997.
9. "Plans to Expand NATO into Eastern Europe Have Lead to a Race to Sell Arms in the Region," BBC Television 9 O'clock News, 15 September 1997.
10. For a good discussion of the effects of offset agreements on the American economy, see William D. Hartung, Conflicting Values, Diminishing Returns: The Hidden Costs of the Arms Trade, Arms Transfer Control Project, World Policy Institute at the New School for Social Research, February 1994.
11. "State Grants Loan Nod to C. Europe Nations," Defense News, 2-8 December 1996.
12. For a good discussion of the variety of US military financing programs and recent figures, see Federation of American Scientists, Arms Sales Monitor, No. 34, 30 April 1997.
13. See "1997 US Military Assistance to Central Europe," reprinted at http://www.cdi.org/issues/Europe/$ceeaid.htm.
14. "Interoperability Becomes Prime Concern for New NATO Members," Jane's Defence Weekly, 6 August 1997.

This paper was written by Lucy Amis with Tasos Kokkinides. Lucy Amis is a Research Assistant and Tasos Kokkinides a Senior Analyst with the British American Security Information Council (BASIC).

© 1998 The Acronym Institute.

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