Sequestration could force industry to skirt export controls

With defense budgets expected to decline over the next few decades, American arms manufacturers have increasingly set their sights on foreign military markets, specifically in Asia and the Mideast. 

{mosads}Pressure to open up those foreign sectors to U.S. defense firms has only increased due to a $500 billion budget cut to DOD coffers set to go in place under the so-called sequestration plan. 

Despite congressional efforts, those cuts are expected to go into effect next January. And that growing pressure could force some defense firms to tap into potential foreign markets by any means necessary. 

“There could be a tendency to do that,” defense analyst and former DOD chief of international programs Frank Cevasco told The Hill on Monday. 

Mid-level industry officials could be tempted to circumvent or break outright federal restrictions on international weapons sales “in the interest of [bolstering] sales,” often times without the knowledge of the company’s leadership, according to Cevasco. 

Most recently, United Technologies and its two subsidiaries, Pratt & Whitney Canada and Hamilton Sundstrand Corp., admitted to providing sensitive weapons technologies to China, as part of the country’s effort to build a new attack helicopter. 

U.S. government officials found United Technologies (UTI) had consistently violated a number of U.S. export control laws over decades as part of their cooperation with the Chinese military, according to Reuters. 

United Technologies and their subsidiaries were fined $75 million as part of the company’s plea deal with the Justice Department. 

Company officials were also required to pay $55 million as part of a separate deal reached with the State Department, which oversees international military sales, Reuters reported. 

The United Technologies case, according to Cevasco, was “well, well, well over the line” and likely done without the blessing of the company’s senior executives. 

While Cevasco said the tendency to exploit export control loopholes could increase, American defense firms are likely to become more vigilant against such breaches in light of the UTI case. 

The U.S. defense industry might now see “a bit of self correction” within its offices that handle international sales.

“This may have been a bit of a wake up call,” he added. 

That said, the willingness of UTI to flaunt federal regulations in its dealings with China could also be a wake-up call for Congress and help push export control reforms across Capitol Hill. 

Defense industry giants such as Northrop Grumman and Boeing have been lobbying the White House and Capitol Hill to ease federal restrictions on how and to whom those companies can sell their weapons. 

Administration officials have unveiled a new export reform strategy that is designed to double military and commercial exports over the next five years that includes reducing the list of what sensitive military hardware cannot be sent overseas. The plan will also outline new parameters for information technology systems.

Finally, all military and commercial exports will be overseen by a single licensing agency and export enforcement coordination center, according to the White House.

But that effort continues to move at a snail’s pace, drawing the ire of congressional lawmakers. 

A special House defense panel, led by Reps. Bill Shuster (R-Pa.) and Rick Larsen (D-Wash.), issued a report in May demanding federal export controls for military-specific equipment be loosened, with an eye toward supporting smaller defense firms. 

The report also called upon the Department of Defense to increase the percentage of business it awards to these firms from 23 to 25 percent.

Even if significant changes in foreign weapons sales are codified into law, that will not stop individual defense industry officials from making bad decisions in the name of profits, Cevasco said. 

And if fiscal pressures, such as those being imposed under sequestration, are put into play, people could “start doing things that are stupid [but] that happens in every profession.”