Germany’s Defence Industrial Policy Dilemma

By Dr Henrik Heidenkamp, Research Fellow, Defence, Industries and Society Programme 

19/07/12: A ministerial draft bill on the modernisation of Germany's foreign trade legislation [1] - leaked to German news magazine Der Spiegel [2]- has once again put the spotlight on the German liberal-conservative Coalition Government's intent to 'purge' the German defence export control system.

According to the ministerial draft bill a revision of the 'Foreign Trade Act' (AWG) will 'implement the guideline of the Coalition agreement to simplify the foreign trade legislation and to abolish special German provisions, which discriminate against Ger­man exporters with regard to their European competitors'.[3] In terms of defence exports regulation, the draft mainly focuses on the simplification of trade within the European Union (EU). Under the pro­posed new legislation defence export from Germany to other EU-member states would not be classified as 'exports' but 'transfers' thereby reducing licence provisions.

Its public disclosure by last Sunday's Spiegel report instantly triggered strong concerns about a potential dilution - if not full alienation from - Germany's traditional restrictive approach to defence exports: geared to prohibiting those products that may have destabilising impacts on international security, particularly in crisis regions.

Controversial incidents, connected to German defence exports, have shocked the very foundations of political parties (Schreiber scandal), almost wrecked government coalitions (red-green coalition dispute over tank exports to Turkey) and threatened international co-operation (such as discussion on additional exports to finance the A400M military transport aircraft) in the past. [4]

The expected 'outrage' by the parliamentary opposition this time is best reflected by Claudia Roth's (Chairwoman of Bünd­nis 90 Die Grünen, German Green Party) character­i­sa­tion of the Government's plans as 'obnoxious policy' and a 'business of death'. [5]

Beyond the populist rhetoric

However, looking beyond the populist rhetoric of some politicians who are keen to gain public support in this contested political subject area, the fact is that the ministerial draft bill does not include any proposals to revise the highly restrictive control mechanisms for exports to 'third countries'. Accordingly, the respective regulations of the 'Federal Government's Political Principles governing Arms Exports' will remain in force, reading as follows:

'[T]he following applies for the group of third countries: The export of war weapons is approved only in excep­tional cases where, as justified by the individual situation, special foreign policy or security policy interests of the Federal Republic of Germany would support the gran­ting of a licence.' [6]

Moreover, Germany is a committed signatory of the 'Euro­pean Code of Conduct on Arms Exports' signed in 1998 and has completed the transposition of European Directive 2009/43/EC simplifying terms and conditions for transfer of de­fence-related products within the EU into national legislation. [7] Furthermore, Germany has actively campaigned for a strong and robust international Arms Trade Treaty (ATT). ^[8]

Therefore, Claudia Roth's critique that 'the Federal Government apparently seeks to facilitate the delivery of weapons into crisis and war zones' [9] does not pertain. The restrictive and reserved policy with respect to license issue for defence exports to third countries will continue. This continuity is also endorsed by the German defence industry as expressed by the Managing Director of the Federal Association of the German Security and Defence Industry (BDSV) Georg Wilhelm Adamowitsch in April 2012:

'The German security and defence industry sees no alternative to the compliance with the "Federal Government's Political Principles governing Arms Exports". Rightly, the Federal government only issues an export licence if tough requirements and criteria are met. ... From the BDSV's perspective there is no need to change the existing export licence policy.' [10]

Against this background, is this then 'a lot of fuss about nothing'? The answer to this question is absolutely not. The character of the public debate surrounding the ministerial draft bill - its emotional excess and populist exploitation - has highlighted clearly that the Government's efforts to take on a more proactive approach to support the German defence industrial base will instantly face public scrutiny if not outraged resistance by the German public and parliamentary opposition.

A defence export 'level playing field'

Here lies one of the fundamental problems for the German defence industrial base as well as Germany's security and defence policy. As exports have become a central element of many defence companies' commercial viability, mitigating the decreasing demand in the traditional home markets (see table 1), [11] the German defence industry requires substantial sponsorship by the German government to successfully exploit the highly competitive global defence market.

 

Table 1: Bundeswehr Procurement Projects

	Initial Order Size	Revised Order Size
Puma Infantry Fighting Vehicles	405	350
NH90 Light Transport Helicopters	122	80
Tiger Combat Support Helicopters	80	40
Typhoon Multirole Combat Aircraft	177	140
A400M Transport Aircraft	60	40
Multirole Combat Ships	8	6

Source: BMVg, 'Minister de Maizière billigt Umrüstung', 21.10.2011.

However, the current sponsorship role of the German government is quite limited in comparison with other European countries like the UK, France and Spain as well as with non-European coun­tries like the USA and Russia. Unlike Germany, these countries all provide their defence in­dus­trial base firms with considerable political and economic support in their export activities, embedding their defence export policy within the broader framework of their natio­nal foreign, security and economic interests.

The lack of a 'level playing field' - both at the European and global level - severely restricts the competitiveness of the German defence industrial base and presents it with a, potentially existential, strategic challenge. Against this background, the BDSV has urged the German government to advance its support of company's export activities through:[12]

• the strategic and cross-government positioning of the German security and defence industry within the frame­work of German economic, foreign and security policy,
• the creation of a Federal cross-government defence export support organisation, in order to accelerate governmental co-ordination processes,
• the simplification and acceleration of export market access through supporting international gov­ernmental agree­ments,
• the establishment of an institutionalised training support capability of the German Federal Armed Forces for export customers,
• the provision of attractive, state guaranteed terms of finance for export sales, and
• the acceleration of the license issuing process governed under the War Weapons Control Act (KWKG) and the Foreign Trade Act (AWG).

These proposed measures would indeed contribute to the creation of a 'level playing field' - at least at the European level - and would not weaken the restrictive and reserved German defence export policy. However, the existing socio-political climate makes it very difficult for policy makers to implement them, as any qualitative improvement of government sponsorship for defence exports is likely to be regarded as an threat to Germany's commitment to sustain peace and stability in the inter­national system.

A possible solution to this defence industrial policy dilemma should build on a clear communication by policy stakeholders of the linkage between defence exports, a healthy domestic defence industrial base, a capable German foreign, security and defence policy and Germany's efforts to sustain peace and stability in the inter­national system.

Policymakers must hitherto clearly state that the defence industry's commercial viability is not an end in its own regard. It is not the shareholder value the German government primarily cares about but the fundamental importance of a healthy domestic defence industrial base, which is able to sustain core defence industrial capabilities, for the national defence effort.

Furthermore, exports can also reduce the costs of pro­grammes - a political and fiscal imperative in an age of austerity. Moreover, Germany can only pro-actively parti­ci­pate in multinational develop­ments projects if it can con­tri­bute cutting-edge defence technologies. In addition, defence exports represent an opportunity to advance diplo­matic and economic relation­ships with the recipient coun­try. [13] In this sense the defence industrial sector is intrinsically different from other commercial sectors, as it constitutes a core com­ponent of Germany's foreign, security and defence policy.

In addition to an improved understanding of the defence export context, practical steps for a solution to the defence industrial policy dilemma could encompass an increased degree of transparency as well as legal and political accoun­tability within the German defence exports control system. Both are core demands by the critics of the existing system.[14]

Hereto, the Government's reporting duties on defence exports could be revised. To that end, the German Green party has proposed to increase the frequency of the Government's military equipment export report and to mandatorily determine its actual content. Further, the political criteria for the issue of defence export licences - as of now lacking juridical cohesion - could be elevated into Federal law. [15]

Moreover, the departmental responsibility for defence export controls could be transferred from the Federal Ministry of Economics and Technology (BMWi) to the Foreign Office (AA) and/or the Federal Ministry of Defence (BMVg) - a proposal that has been voiced by government officials and members of the parliamentary opposition alike.

Scope and limits of the global defence export market

The general market interest for German defence products remains strong as figures of the Stockholm Inter­national Peace Research Institute (SIPRI) for the top ten arms exporters in the period 2007-2011 show (see figure 1). [16]

 

Figure 1: Top 10 arms exporters, for the period 2007-2011

 

Source: SIPRI, 'The Top 10 Arms Exporters, 2007-2011', 19.03.2012.

As an illustration, consider the €400 million contract, signed in March 2012, between the govern­ment of Algeria and German company Thyssen Krupp Marine Systems for the delivery of two Meko A200 frigates including on-deck helicopters by 2017. [17]

Further, there is a strong demand for the German Leopard 2 Main Battle, built by Munich-based arms manufacturer Krauss-Maffei Wegmann. Saudi Arabia wants to sign a contract for the procurement of up to 270 Leopard 2 A7+ worth €5 billion including maintenance, training and replacement parts and Indonesia has informally declared its interest to buy 100 second-hand Leopard 2. Not surprisingly, both cases are highly controversial even within the government. [18]

German Chancellor, Angela Merkel, making implicit reference to the potential Saudi tank deal in October 2011, argued that 'it is generally not enough to send other countries and organisations words of encourag­ement if Germany shies away from military intervention'. Instead, she suggests that Germany must also provide the necessary means to those nations that are prepared to get involved. Specifically she emphasised that this includes arms exports. [19]

However, it must be noted that the export market does not present a 'silver bullet' for the defence industry's commercial viability. On the one hand, the market is becoming ever more competitive while potential customer countries them­selves frequently seek the acquisition of valuable technology so as to build up their own defence industrial skills.

On the other hand, the market's limited size and the distribution of the market shares will not allow German-/European-based defence companies to fully compensate for the continuously shrinking demand in the domestic market.

Therefore, a consolidation in the German/European defence industrial base appears inevitably. European policy makers face the challenge to actively participate in this con­soli­dation process to ensure that core defence industrial capabilities are sustained.

This will arguably require a sensible approach to the harmonisation of the European defence market - including the advancement of coherent European defence export controls - as well as the revision of national and multi­na­tio­nal acquisition systems [20] as part of the broader reform of armed forces' structures in Europe. 'Pooling and Sharing' and 'Smart Defence' are the well known buzz words in this regard.

The responsibilities of state

As this correspondent has argued in the March issue of RUSI Defence Systems, the future German approach to defence export policy 'has to balance the relevance of exports for a healthy German defence industrial base and as an instrument of German foreign, security and defence policy with Germany's interest for sustaining peace and stability in the international system'.

The key argument here is that a more proactive sponsorship role of the German government - with a concurrent increase of transparency and legal and political accountability in the defence export control system - is not opposed to the restrictive and reserved nature of the German defence export control policy.

Instead, a European defence exports 'level playing field' will help to sustain key domestic defence industrial capabilities, thereby ensuring Germany's ability to provide security for its citizens and its position as a reliable and capable partner for its allies in Europe and internationally.

Politicians must refrain from turning to populist, ideological rhetoric in this complex and sensitive subject area. The issue goes right to the core of the nation's foreign, security and defence policy. Germany requires a constructive, open debate on how to address the indeed significant existing challenges. 

NOTES

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[1] Bundesministerium für Wirtschaft und Technologie, 'Referentenentwurf: Gesetz zur Modernisierung des Außen­wirtschaftsrechts - Vereinfachung, Straffung und zielgenau­ere Fassung des Außenwirtschaftsrechts unter Beibehaltung seiner bewährten Grundstrukturen', June 2012. and: Bundesminis­terium für Wirtschaft und Technologie, 'Referentenentwurf: Neufassung der Außenwirtschaftsverordnung', June 2012.

[2] 'Widerspruch gegen Reformvorschlag: Röslers Pläne für Waffen­exporte sorgen für Wirbel', in Spiegel Online, 15. July 2012.

[3] Bundesministerium für Wirtschaft und Technologie, 'Referentenentwurf: Gesetz zur Modernisierung des Außen­wirt­schaftsrechts - Vereinfachung, Straffung und zielgenauere Fassung des Außenwirtschaftsrechts unter Beibehaltung seiner bewährten Grundstrukturen', June 2012, p. 1. and: 'Growth, Education, Unity: The coalition agreement between the CDU, CSU and FDP for the 17th legislative period', 26.10.2009, Berlin, p. 76.

[4] Bernhard Moltmann, 'Im Dunkeln ist gut munkeln - Oder: Die Not mit der Transparenz in der deutschen Rüs­tungs­­exportpolitik', HSFK Standpunkte (1/2011), p. 1.

[5] Claudia Roth as quoted in: 'Wirbel um angebliche Er­leich­te­rung von Rüstungsexporten', in Welt Online, 15. July 2012.

[6] BMWi, 'Report by the Government of the Federal Republic of Germany on Its Policy on Exports of Conventional Military Equipment in 2010 - 2010 Military Equipment Export Report', December 2011, p. 9.

[7] Council of the European Union, 'Code of Conduct on Arms Exports', 5 June 1998, Brussels. European Commission, 'Report on transposition of Directive 2009/43/EC simplifying terms and conditions for transfer of defence-related products within the EU', COM(2012) 359 final, 29.06.2012, Brussels. and: 'Directive 2009/43/EC Of The European Parliament and of the Council simplifying terms and conditions of transfers of defence-related products within the Community', 06 May 2009, Brussels.

[8] Permanent Mission of the Federal Republic of Germany to the United Nations New York, 'Statement by H.E. Ambassador Dr. Peter Wittig Permanent Representative of Germany to the United Nations at the High-level Segment of the United Nations Conference on the Arms Trade Treaty', 6 July 2012. and: William Hague, Laurent Fabius, Guido Westerwelle and Ewa Björling, 'Why this arms trade treaty is essential', in Guardian Newspaper, 02. July 2012.

[9] Claudia Roth as quoted in: 'Bundesregierung will Rüstungs­exporte lockern', on news.de, 15. July 2012.

[10] Georg Wilhelm Adamowitsch, 'Neues Rüstungsexport­gesetz?', in BDSV Newsletter (Ausgabe 02, April 2012), p. 1.

[11] See: BMVg, 'Minister de Maizière billigt Umrüstung', 21. October 2011, Berlin.

[12] BDSV, 'Sicherheit made in Germany: Zeit für Veränderungen - Chancen erkennen und nutzen', July 2010, p. 15.

[13] See Keith Hayward, 'The Globalization of Defence Industries', Survival, Vol. 42, No. 2, 2000, p. 127.

[14] See: Bernhard Moltmann, 'Im Dunkeln ist gut munkeln - Oder: Die Not mit der Transparenz in der deutschen Rüstungs­­exportpolitik', HSFK Standpunkte (1/2011).

[15] See: Bündnis 90 Die Grünen Bundestagsfraktion, 'Rüstungs­exporte Kontrollieren - Frieden Sichern und Menschen­rechte Wahren: Ein Neues Rüstungsexportgesetz', Franktionsbeschluss vom 28. Februar 2012.

[16] Data from the US Congressional Research Service (CRS) for the period 2003-2010 presents a similar distribution of global arms transfers: USA (34.8 per cent), Russia (14.4 per cent), UK (10.2 per cent), Germany (7.5 per cent), France (7.1 per cent) and China (4.3 per cent). See: CRS, 'Conventional Arms Trans­fers to Developing Nations, 2003-2010', 22 September 2011.

[17] Burkhard Uhlenbroich, 'Algerien kauft deutsche Fregatten für 400 Mio. Euro', in Bild am Sonntag, 15.07.2012.

[18] 'SPD kritisiert Bundeswehr-Hilfe für Panzer-Test', on Spiegel Online, 06.07.2012. and: Florian Gathmann and Matthias Gebauer, '"Leopard 2" für Indonesien: Panzer-Wunsch bringt Merkel in Erklärungsnot', on Spiegel Online, 10. July 2012.

[19] Angela Merkel as quoted in: Holger Stark, 'The Merkel Doctrine - Tank Exports to Saudi Arabian Signal German Policy Shift', on: Spiegel Online, 14.10.2011.

[20] Henrik Heidenkamp, 'Reform of German Defence Acqui­sition', RUSI Defence Systems (Vol. 14, No. 4, July 2012, forth­coming).