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AMERICA STILL NEEDS A STRONG DEFENSE INDUSTRIAL BASE DESPITE SHIFT IN THREAT, SAYS EIA PRESIDENT

AMERICA STILL NEEDS A STRONG DEFENSE INDUSTRIAL BASE DESPITE SHIFT IN
 THREAT, SAYS EIA PRESIDENT
 /ADVANCE/ WASHINGTON, Feb. 5 /PRNewswire/ -- Despite the shift in security threat, a downsized but capable U.S. defense industrial base is still a critical element in fulfilling America's national security goals, according to Peter F. McCloskey, president of the Electronic Industries Association (EIA).
 McCloskey testified today on behalf of the major U.S. defense industry associations before a special panel of the House Committee on Armed Services on the structure of the U.S. defense industrial base.
 In his testimony, McCloskey pointed out that the nation must ensure that any restructuring results in a technically superior and financially strong defense base. He suggested that in order to avoid the mistakes of past restructurings, all partners in the system, Congress, the administration and industry, must contribute in a coordinated and equitable fashion.
 McCloskey discussed preserving the U.S. technology base, and said, "Industry must have the incentives to continue the fundamental R&D that will sustain the technology needed for the next generation of defense systems. Historically, defense R&D has been threat- driven. The single Soviet threat is gone, yet we still face high technology weapons systems that are now in the hands of the Commonwealth Republics, and the risk of migration of new weapon technology or weapon designers to Third World countries. As the threat evolves, we must identify those technologies and advanced manufacturing processes which will be critical to the future base and continue to support their development by private sector firms."
 Revitalizing the U.S. manufacturing base was another area McCloskey emphasized during his testimony. "With disheartening frequency, foreign firms have taken technology developed in the U.S., transformed it into marketable products and sold it back to us. Loss of market share, entire industry sectors and industry jobs have resulted.
 "In order to regain market share we need a viable manufacturing industrial base capable of quickly bringing competitive products to market. The Congress and DoD must sustain their support for the manufacturing technology programs in the Services, for the Industrial Modernization Incentives Program and for Title III of the Defense Production Act," said McCloskey.
 The EIA president emphasized, "We must support process technology to the same degree as we support product technology."
 In explaining production policy alternatives, McCloskey said: "The impending changes in our national defense program clearly will result in new approaches to acquisition policy. DoD has announced its intention to pursue an approach that will emphasize reliance on R&D or prototyping without ever transitioning systems to production. It is important to understand from the outset that there are two types of prototyping. The first is a technology demonstrator that takes the program through concept validation but never enters production. The second example of prototyping takes the validated concept and builds enough low-rate initial production items to ensure that the laboratory concept functions in a real world environment. In this transition to limited production, performance problems are identified and resolved. Feedback is received from the user community and the mature system design is fixed before moving to full rate production."
 McCloskey added, "Prototyping must move through this second phase to permit these technical challenges to be overcome."
 In his testimony McCloskey also offered a number of cautionary notes concerning the diversification of defense firms. First, given the significant differences between defense business practices and those in the commercial world, previous diversification efforts frequently have resulted in program failures at huge costs to the sponsoring firms. Second, defense-unique capabilities should be so identified and must remain an integral part of the national defense program.
 "The theory that the defense base can be readily converted to a commercial base only to be reconstituted in a time of military need is a siren song that must be avoided. Once transformed to a commercial base, technologies, production procedures and the skilled work force unique to defense could not be reconstituted in a timely way to meet national security surge requirements," McCloskey said.
 The testimony points out that despite the weak track record of diversification, many defense firms are exploring commercial opportunities which will build on their existing strengths. To facilitate this process, the government must change the legislation and regulations which currently force an artificial separation between commercial and military business.
 McCloskey also pointed out a number of legislative and regulatory remedies which if enacted would aid greatly in creating a business environment that was stable, predictable and one which offers a reasonable return on investment. He called for an export-driven international defense trade policy as well as an improved environment for foreign sales.
 In the area of tax policy, McCloskey recommended that Congress should act to offset the impact of the phase out of the completed contract method of tax accounting.
 He also noted that DoD has within its authority a number of other actions it can take administratively to promote a successful restructuring of the defense industrial base. Among these issues is an overhaul and simplification of the progress payment system and the elimination of fixed price development contracts.
 In addition to EIA, McCloskey testified before the House Armed Services Committee on behalf of the Aerospace Industries Association, Contract Services Association, Manufacturers' Alliance for Productivity & Innovation, National Security Industrial Association and the Shipbuilders Council of America.
 -0- 2/5/92/1400
 /CONTACT: Mark V. Rosenker of the Electronic Industries Association, 202-457-4980/ CO: Electronic Industries Association ST: District of Columbia IN: ARO SU:


DC-MH -- DC034 -- 6805 02/04/92 15:12 EST
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Date:Feb 4, 1992
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