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May 1, 2005

Not Built in America

The Pentagon refuses to accept any sort of "buy American" policy or quota for the military. Given the Pentagon's ease with outsourcing, the question is whether the U.S. manufacturing sector will supply tomorrow's military.

A helicopter, even one designed to carry a U.S. president, might seem like a small item on the Pentagon's lengthy shopping list. But last January, when the Navy chose Lockheed Martin Corp. over United Technology Corp.'s Sikorsky Aircraft division as its contractor for the Marine One presidential helicopter, it opted for a product that would include roughly 46% foreign content versus one made entirely in the United States.

The $6.1 billion contract further inflamed a controversy over Pentagon foreign outsourcing that has fervent opponents among both Republicans and Democrats in Congress. The same controversy often has pitted large defense manufacturers against their domestic suppliers, unions and workers. Each side claims that the other could weaken this nation's security.

Those who want American weaponry to be made in America believe that foreign outsourcing means that leading-edge technologies will be developed overseas where they might fall into the wrong hands or, at the very least, enable foreign manufacturers to gain a competitive advantage over their U.S. rivals. Further, opponents point to the manufacturing and technical jobs rapidly heading offshore, and say the Pentagon's foreign outsourcing weakens the nation's industrial base all the more—and at a time when the War on Terror demands we respond quickly with the necessary weapons.

Dealing with a foreign supplier always raises the question, will they “sell it to us in a crisis,” says William Hawkins, senior fellow in national security studies with the U.S. Business and Industry Council Educational Foundation in Washington, D.C. Hawkins cites the example of a Swiss manufacturer that supplied the Pentagon with a type of crystal needed for America's precision-guided weapons. When the Iraq War erupted, the company delayed shipment of the crystals, claiming Switzerland's neutrality laws prohibited it from selling weapons-related materials to warring nations.

There are equally compelling arguments on the other side. If the Pentagon were required to procure all its weaponry domestically, the cost of those weapons would double and subsequently weaken America's economy because hefty tax increases would be required to pay the tab, says Jacques Gansler, who served as under secretary of defense during the second Clinton administration and who now directs the Center for Public Policy and Private Enterprise at the University of Maryland. The Pentagon envisions spending in excess of $77 billion on procurement during FY 2005.

Gansler believes a strict buy-American policy would likely backfire because it would prompt our European allies to stop buying American-made arms, weakening the export-dependent U.S. arms industry. Commercial arms sales directly from U.S. manufacturers totaled roughly $2.7 billion in FY 2003, says a report from the Defense Security Cooperation Agency. Total foreign military sales agreements signed that year were $12.4 billion, a number that can fluctuate by several hundred million dollars annually. The Europeans already are “heading in that direction,” he says, away from buying weapons made here, “because we're heading in that direction,” away from buying any weapons made there, he says. And that's all the more worrisome given the nature of war efforts today. “I can't imagine any conflict in the future in which we are not going to be in a coalition,” Gansler says. A Euro-U.S. trade war in weaponry, he adds, would likely result in incompatible weapons systems being developed by each side, hampering a future coalition's ability to fight.

WHAT'S IN A NAME?

While the U.S. military has always relied on the private sector to fulfill its needs, in recent years efforts have been made to make that process more competitive and cost effective, which inevitably means casting a wider net and eventually off-shoring. “There is a term often used, 'A-76,'” says Dr. Bud Baker, a former project manager on the Stealth bomber and now a management professor at Wright State University near Wright Patterson Air Force Base in Ohio. “An A-76 study is when someone decides to do a cost/benefit comparison to see if industry can do it cheaper/better/faster—but often just cheaper. They hold a big competition where the government agency … has to compete for their jobs with industry. Sometimes government wins; sometimes industry does.”

Current law requires that 50% of a U.S. weapons system be American made. There's “almost no weapons systems available today that doesn't have some critical components coming from offshore from our allies,” Gansler says. “Rip any system apart and you will find that some of the critical pieces, whether it's a semi conductor from Japan or precision glass from Germany, come from other countries.”

However, mere percentages don't tell the whole story. The Marine One helicopter, for example, reportedly will be 64% made in the United States. But California Republican Rep. Duncan Hunter, chairman of the House Armed Services Committee and a vigorous opponent of foreign outsourcing, says, “Those helicopter technologies of most competitive value will be designed and produced by the European partners.” Moreover, he says, “while the American helicopter industry 'atrophies,' manufacturers in Europe hold a commanding global position”—and again during a wartime period when “a competitive and viable American helicopter technology base remains of vital importance to U.S. national security.”

So what exactly will foreign companies contribute to Marine One? The design is based on a British-Italian helicopter, and the rotors and main transmission will be made offshore. Hawkins points out that $2.5 billion of the Navy contract is for research and development to be handled, he says, by our overseas allies, and that ultimately could hurt the U.S. economy. The R&D component of large contracts typically has an economic multiplier effect because knowledge gained from one project can be applied to other projects, both civilian and military. Thus, “When you pay it to a foreign supplier it's an expense,” he says. Pay it to an American company, by contrast, and it's an investment—because the new technology, it is hoped, will produce some valuable offshoots.

TECHNOLOGY LEAKS 

Gansler and others argue that America's service men and women deserve the best technology now—making questions about its origin secondary. Case in point: Gulf War II. The military wanted to purchase so-called reactive armor for Bradley Fighting Vehicles. Reactive armor is armor plating inlaid with explosives. The explosives destroy an incoming rocket-propelled grenade the instant before it penetrates the vehicle's armor walls. America lacked the technology, so the Pentagon turned to Israel, which had developed reactive armor systems, to augment its urban fighting capabilities.

Hawkins concedes that wartime necessity clearly justifies an exception to buy-American rules. Still, problems can arise when foreign contractors working for the U.S. military come into possession of sensitive technologies. Procuring from foreign sources means the Pentagon must redouble its oversight of exactly what contractors are at work on a project.

That's a tough task, as it turns out. The Center for Public Integrity, a private watchdog group, looked at the records of 737 Pentagon contractors, nearly 100 of which were foreign. Among the foreign companies were British-based BAE Systems, BP, Rolls-Royce and Maersk Inc., a large Danish shipping concern. “The accuracy of the U.S. Defense Department's records—particularly regarding the corporate ownership of its largest contractors—leaves much to be desired,” the group said in its report. “The Center found more than $35 billion in contracts where the ultimate corporate parent was misidentified.”

If the Pentagon doesn't know who owns the foreign companies it's buying from, it may be even less able to track the sensitive American military technology that goes along with them. The job of supervising the security measures in place at more than 11,000 government contractors falls to the Defense Security Service (DSS). A March 2004 report by the Government Accountability Office (GAO) charged that the “DSS cannot provide adequate assurances to government agencies that its oversight of contractor facilities reduces the risk of information compromise.” The reason is simple. “While DSS maintains files on contractor facilities' security programs and their security violations,” the report says, “it does not analyze this information.” In fact, to the horror of security advocates, the GAO report revealed that DSS information consists of paper files at locations throughout the United States.

THE CHINA CARD

China often tops analysts' lists of long-term potential security threats. The Chinese are working to acquire foreign-made weapons systems, which conceivably could be reverse-engineered and manufactured at home, Hawkins says. Meanwhile, with European governments reducing their own spending for weapons systems, defense manufacturers there are pressing to sell to the Chinese, raising the specter that technologies jointly developed with the Americans could migrate to China.

To prevent that from happening, Rep. Hunter and the House Armed Services Committee pushed for increased American content in weapons systems as part of last year's budget proposal. The provision was cut in the Senate version of the bill, but it's likely that Rep. Hunter and others will reintroduce the measure sometime this year.

Gansler believes a better way to protect America's defense industry and secure sensitive technology is to work more closely with allies. He cites the Joint Strike Fighter (JSF) aircraft under joint development by the United States and eight other nations (See chart below) as an example of how a cooperative project can accomplish both goals. For starters, by doling out contracts to foreign sources, the Pentagon gains the leverage needed to compel the foreign manufacturers not to let critical technologies reach the wrong hands.

Balance that prospect for increased military exports against the considerable cost and technical hurdles that must be overcome before this nation could hope to produce its critical defense needs domestically and it seems likely that the Pentagon will continue to procure weaponry from its allies around the globe. Add in the argument that America's fighting men and women deserve the best equipment in the shortest amount of time, and the argument favoring foreign procurement becomes even more compelling.

PUBLIC OPINION WINS OVER MILITARY PLANNING

During World War II, a finely tuned American industrial sector turned out roughly 2,700 freight-hauling Liberty Ships. Yet six decades later, the military appeared hard-pressed to furnish something as seemingly simple as armor plating for the Humvee vehicles used by our troops in Iraq—prompting many Americans to ask why.

The answer to that question is as complicated as the war America now finds itself fighting. And although the answer reveals serious miscalculations about the weaponry needed to fight in Iraq, it also reveals the quick response of industry and the military once a need was recognized.

As early as 1993, some members of the military realized that the Humvee was ill-equipped to deal with combat. Following the skirmish in Mogadishu, Somalia, that cost the lives of 18 American soldiers, a joint military task force sought to understand what had happened. Among the conclusions cited in an official study of the incident by Maj. Clifford E. Day was that the unarmed Humvee vehicles used in the conflict “needlessly put their troops in harm's way without the proper equipment to successfully complete the mission.”

Roughly a decade later, military planners recognized that Iraq and Somalia had certain similarities as the coalition's shock-and-awe campaign of regime change transformed into a prolonged guerrilla conflict. With the invasion successful, U.S. commanders opted for a transport mix of one-third armored vehicles and two-thirds wheeled vehicles, Marine Gen. Peter Pace told military analysts during a briefing late last year. Humvees were the vehicle of choice because they were small enough not to appear overly intimidating to Iraqi civilians.

But when the Iraqi insurgency commenced during the fall of 2003, the enemy began to use improvised explosives. Suddenly the military's fleet of Humvees became easy targets. Maintenance units set to work repairing the blood-stained vehicles arriving from combat patrols. The repair crews began welding pieces of whatever metal became available to the sides of the Humvees, MSNBC reported. Meanwhile, the Army recommended that units place sandbags on the vehicles' floorboards as protection against mines even as it stepped up efforts to transform the Humvee for its new fighting role.

Fortunately, a few Humvees designed for dangerous operations arrived on the battlefront with factory-installed armor. And as on-the-ground demand for the vehicles increased, production of armored Humvees in the United States ramped up from 15 to almost 500 vehicles per month, at a cost of about $140,000 each, roughly double an unarmored Humvee's price.

The military's true challenge, however, was to add armor to thousands more vehicles. The hastily developed solution is called Humvee Armor Survivability Kits (ASK). Work on the kits began in 2003, and overcame some significant engineering challenges in the process. “The typical add-on armor kit is just over a thousand pounds,” Army Maj. Gen. Stephen Speakes noted during a news conference. “And so you could imagine, if I took and put a thousand pounds more weight on the vehicle you drive back and forth to work, it would have secondary impacts in terms of your suspension and your power train.”

Thus, in addition to engineering the kits themselves, the Army had to test the ASK-enabled vehicles to make sure they could perform effectively with the added weight. One of the project leaders, Lt. Col. Craig Langhauser, says that field testing of the initial production-ready design began in October 2003.

“We deployed a team—an Army captain and two installers—to start the installation of the doors we had done. They were there from the beginning of November to the end of December.” The 40 prototype and 100 pilot production kits created the foundation for the thousands of kits now being produced. Factory-built armored Humvees incorporated a “suspension and drivetrain designed to support the heavy weight of that vehicle,” Maj. Gen. Speakes said. By the start of 2005, production was in full swing, and the military reported that in January the Kuwait-based 276th Maintenance Company and another unit reportedly had armored some 6,600 vehicles during a single month in a factory-like environment that routinely saw 300-vehicle days.

Although the military now claims to have a sufficient number of armored Humvees, it is looking at ways to make future light transport vehicles more adaptable to the conflicts they'll be required to fight. The Humvee contract with AM General is due to expire in 2007, and planners want any new vehicle to take into account lessons learned in Iraq.

The Pentagon's future transport fleet is liable to be quicker and more maneuverable, able to shed or take on armor plating like a football player donning pads before a game. Also, winning designs will put a premium on fuel efficiency, hauling ability and ease of service. Perhaps most important, future designs will be adaptable so as to incorporate new technologies as they are needed.