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South Asia Market Again Lucrative for U.S. Arms
The Washington Diplomat / June 2002

By Larry Luxner

India and Pakistan -- bitter enemies for the last 50 years -- are both impoverished, overpopulated countries that in 1998 somehow found the money to test nuclear bombs. As a result, both were banned from buying U.S. weaponry.

But in the wake of Sept. 11 and Washington's war in Afghanistan, the sanctions that outlawed weapons sales to India and Pakistan have been lifted, and U.S. defense contractors are once again flirting with the two countries.

Dick Grimmett is a specialist in national defense at Congressional Research Service. He noted that on Sept. 28, less than three weeks after the terrorist attacks in New York and Washington, the White House -- needing to curry favor with Afghanistan's neighbors -- issued a presidential determination waiving sanctions against India and Pakistan.

"The Glenn amendment, which prohibited U.S. assistance, government credit and other financial guaranteees, and barred export licenses for U.S. munitions, was waived entirely," said Grimmett. "So if companies wanted to sell something that was prohibited before, then they're now free to try to make a sale to the government in question."

There are, nevertheless, still a number of controls on technology transfer.

"Every case is reviewed, even to our closest allies," Grimmett explained. "Just because country X wants to buy a piece of equipment and they're not on a sanctions list, does that mean they can sell it? Not necessarily."

According to the State Department the total value of world arms exports between 1989 and 1999 came to $528 billion, of which the United States accounted for $275.6 billion, or 52%. Other leading weapons exporters were Russia ($62.4 billion, or 12%); Great Britain ($57.8 billion, or 11%); France ($38.1 billion, or 7%) and Germany ($18.4 billion, or 3.5%).

When it comes to India and Pakistan, however, U.S. armsmakers hardly make a dent.

"The United States has lost its market in the last two years," said Lalit Mansingh, India's ambassador in Washington, noting that sanctions were slapped against India and Pakistan in 1998 -- right after both countries tested nuclear weapons for the first time.

"The sanctions didn't hurt India as much as they hurt the U.S.," Mansingh told The Washington Diplomat. "India went shopping all over the world, and indigenized certain things that weren't available. It's been our policy to manufacture everything in India, but we have to modernize our armed forces, and we have to get technology from wherever we can."

In Pakistan's case, the sanctions were more serious. U.S. defense contractors were first banned from doing business with Pakistan in 1990, when President Bush ruled that Pakistan was pursuing a nuclear weapons program. The ban was partially lifted in 1996 under the Brown amendment, which allowed Pakistan to take possession of weapons it had purchased before the sanctions went into effect. In 1998, the ban was renewed once again after Pakistan tested a nuclear device.

Even so, Pakistan still have some American equipment in its inventory. This includes F-16s manufactured by General Dynamics, and armored personnel carriers made by United Defense. Both companies have shown interest in doing business with Pakistan once again.

"There is interest," said Asad Hayauddin, press attaché at the Pakistani Embassy. "We've got platforms that need to be serviced by the original supplier. It's a business transaction. The manufacturers have the spare parts, so it's plausible that at some time, demand and supply will meet."

According to embassy sources, Pakistan's defense budget is around $3 billion.

"We have a variety of sources from which we acquire weapons, mainly China and France," said Hayauddin. "We have never gone to the Russians."

That's not been the case with India, which "has historically bought Russian for a variety of reasons," according to Joel Johnson, vice-president/international at the Aerospace Industry Association.

"We've been out of that market for so long that most of what we're doing now is talking to the Indians about what they're interested in purchasing," said Johnson. "Most of our export licenses for India are sitting on the Hill. There was optimism in terms of rhetoric, but there's still been very little in the way of licenses actually issued. That takes time."

Mansingh says he's optimistic that U.S. armsmakers will eventually win back a piece of the Indian market.

"We faced sanctions after our nuclear test, but we had a very intense dialogue on strategic issues following our tests," said the ambassador. "At the end of these meetings, we succeded in convincing the United States that we both have the same strategic interests."

He adds: "Business was completely suspended, but now it's picking up. We're a large market, and we're interested in American technology. We have also made a significant change in our investment policy. Today, India's defense industries are open for private investment and foreign investment, so there is considerable interest."

Mansingh says Lockheed-Martin, Boeing and Litton Industries are among U.S. defense contractors most interested in doing business with India.

"We have a number of ongoing projects which were kept in suspense because of the sanctions. The most important project is a state-of-the-art fighter plane which we're producing in collaboration with the United States. It relies on American components and technology, and the engine of this plane is supplied by General Electric."

The GE-404 engines alone add between $200 million and $300 million to the project's total costs, said Mansingh.

"When the sanctions were declared, we had a choice of either scrapping the project or doing it ourselves, so we did it ourselves," he said. "The prototypes are ready and flying."

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