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Major findings.

General Trends in Arms Transfers Worldwide

The value of all arms transfer agreements worldwide (to both developed and developing nations) in 2010 was $40.4 billion. This was a substantial decrease in arms agreements values over 2009 of 38.1%, and the lowest worldwide arms agreements total since 2003 (Figure 1) (Table 31).

In 2010, the United States led in arms transfer agreements worldwide, making agreements valued at $21.3 billion (52.7% of all such agreements), a decline from $22.6 billion in 2009. Russia ranked second with $7.8 billion in agreements (19.3% of these agreements globally), down from $12.8 billion in 2009. The United States and Russia collectively made agreements in 2010 valued at over $29 billion, 72% of all international arms transfer agreements made by all suppliers (Figure 1) (Table 31, Table 32, and Table 34).

For the period 2007-2010, the total value of all international arms transfer agreements ($239.7 billion) was higher than the worldwide value during 2003-2006 ($203.2 billion), an increase of 15.2%. During the period 2003-2006, developing world nations accounted for 63.4% of the value of all arms transfer agreements made worldwide. During 2007-2010, developing world nations accounted for 78.9% of all arms transfer agreements made globally. In 2010, developing nations accounted for 76.2% of all arms transfer agreements made worldwide (Figure 1) (Table 31).

In 2010, the United States ranked first in the value of all arms deliveries worldwide, making nearly $12.2 billion in such deliveries or 34.8%. This is the eighth year in a row that the United States has led in global arms deliveries. Russia ranked second in worldwide arms deliveries in 2010, making $5.2 billion in such deliveries. Germany ranked third in 2010, making $2.6 billion in such deliveries. These top three suppliers of arms in 2010 collectively delivered nearly $20 billion, 57.1% of all arms delivered worldwide by all suppliers in that year (Table 2) (Table 36, Table 37, and Table 39).

The value of all international arms deliveries in 2010 was nearly $35 billion. This is a decrease in the total value of arms deliveries from the previous year (a decline from $38 billion). The total value of such arms deliveries worldwide in 2007-2010 (about $148 billion) was lower than the deliveries worldwide from 2003 to 2006 (about $156.6 billion, a decline of $8.6 billion) (Table 2) (Table 36 and Table 37) (Figure 7 and Figure 8).

Developing nations from 2007 to 2010 accounted for 55.9% of the value of all international arms deliveries. In the earlier period, 2003-2006, developing nations accounted for 66.2% of the value of all arms deliveries worldwide. In 2010, developing nations collectively accounted for 62.6% of the value of all international arms deliveries (Table 2) (Table 15, Table 36, and Table 37).

Worldwide weapons orders fell in 2010. The total of $40.4 billion was a significant decline from $65.2 billion in 2009, or 38.1%. While the United States' worldwide weapons agreements values decreased slightly in value from $22.6 billion in 2009 to $21.3 billion in 2010, its market share nonetheless increased significantly, from 34.7% in 2009 to 52.7% in 2010. Thus, while the demand for new weapons orders decreased substantially from 2009 to 2010, the United States retained its position as the leading arms supplying nation in the world. Meanwhile, Russia posted a significant decline in its global arms agreements values, falling from $12.8 billion in 2009 to $7.8 billion in 2010. But Russia experienced only a nominal decline in its market share of worldwide agreements, falling from 19.6% in 2009 to 19.3% in 2010. The collective market share of worldwide arms agreements for the four major West European suppliers--France, the United Kingdom, Germany, and Italy--fell significantly from 26.2% in 2009 to 11.4% in 2010.

Worldwide weapons sales declined generally in 2010 in response to the constraints created by the tenuous state of the global economy. In view of budget difficulties faced by many purchasing nations, they chose to defer or limit the purchase of new major weapons systems. Some nations chose to limit their buying to upgrades of existing systems or to training and support services. Others decided to emphasize the integration into their force structures of the major weapons systems they had previously purchased. That said, orders for weapons upgrades and support services can still be rather lucrative, and such sales can provide weapons suppliers with continued revenue, despite the reduction in demand for major weapons systems. Nonetheless, the international recession has clearly had a negative effect on the arms marketplace.

As new arms sales have become more difficult to conclude since the global recession began, competition among sellers has become increasingly intense. A number of weapons-exporting nations are focusing not only on the clients with whom they have held historic competitive advantages, due to well-established military-support relationships, but also on potential new clients in countries and regions where they have not been traditional arms suppliers.

With the market for weapons declining, at least in the short term, arms suppliers face the challenge of providing weapons in type and price that can provide them with a competitive edge. A key obstacle arms suppliers face in selling to developing countries is the limited budgets several of these nations have for defense procurement. As a result, arms suppliers have increasingly utilized flexible financing options, and guarantees of counter-trade, co-production, and co-assembly elements in their contracts to secure new orders.

Because there are some important limitations on significant growth of arms sales to developing nations--especially those that are less affluent--competition between European nations or consortia on the one hand and the United States on the other is likely to be especially intense where all these suppliers have previously concluded arms agreements with the more affluent states. These more affluent developing nations have been leveraging their attractiveness as clients by demanding greater cost offsetting elements in their arms contracts, as well as transfer of more advanced technology and provisions for domestic production options. Weapons contracts with the more wealthy developing nations in the in Near East and Asia appear to be especially significant to European weapons suppliers who have used foreign arms sales contracts as a means to support their own domestic weapons development programs, and need them to compensate, wherever possible, for declining arms orders from the rest of the developing world.

Nations in the developed world continue to pursue measures aimed at protecting important elements of their national military industrial bases by limiting arms purchases from other developed nations. This has resulted in several major arms suppliers emphasizing joint production of various weapons systems with other developed nations as an effective way to share the costs of developing new weapons, while preserving productive capacity. Some supplying nations have decided to manufacture items for niche weapons categories where their specialized production capabilities give them important advantages in the international arms marketplace. The strong competition for weapons contracts has also led to consolidation of certain sectors of the domestic defense industries of key weapons-producing nations to enhance their competiveness further.

While less affluent nations in the developing world may be compelled by financial considerations to limit their weapons purchases, others in the developing world with significant financial assets continue to launch new and costly weapons-procurement programs. The increases in the price of oil have provided a major advantage for major oil-producing states in funding their arms purchases. Yet, such oil price increases have also caused economic difficulties for many oil-consuming states, and contributed to their decisions to curtail or defer new weapons acquisitions.

Despite the volatility of the international economy in recent years, some nations in the Near East and Asia regions have resumed or continued large weapons purchases. These purchases have been made by a limited number of developing nations in these two regions. Most recently they have been made by India in Asia, and Saudi Arabia and the United Arab Emirates in the Near East. For the larger group of developing nations in these regions, the strength of their individual economies appears to be the most significant factor in their decisions to make major arms purchases.

Some developing nations in Latin America, and, to a much lesser extent, in Africa, have sought to modernize key sectors of their military forces. In the last few years, some nations in these regions have placed large arms orders, by regional standards, to advance that goal. Many countries within these regions are significantly constrained by their financial resources and thus limited to the weapons they can purchase. Given the limited availability of seller-supplied credit and financing for weapons purchases, and their smaller national budgets, most of these countries will be forced to be selective in their military purchases. Consequently, few major weapons systems purchases are likely to be made in either region, but particularly not in Africa.

General Trends in Arms Transfers to Developing Nations

The value of all arms transfer agreements with developing nations in 2010 was $30.7 billion, a substantial decrease from the $49.8 billion total in 2009 (Figure 1) (Table 1) (Table 3) (Table 4). In 2010, the value of all arms deliveries to developing nations ($21.9 billion) was an increase over the value of 2009 deliveries (nearly $19.2 billion), and the highest delivery total since 2006 (Figure 7 and Figure 8) (Table 2) (Table 15).

Recently, from 2007 to 2010, the United States and Russia have dominated the arms market in the developing world, with both nations either ranking first or second for all four years in terms of the value of arms transfer agreements. From 2007 to 2010, the United States made nearly $72 billion of these agreements, or 38%. During this same period, Russia made $37.1 billion, 19.6% of all such agreements, expressed in constant 2010 dollars. Collectively, the United States and Russia made 57.6% of all arms transfer agreements with developing nations during this four-year period. France, the third-leading supplier, from 2007 to 2010 made nearly $11 billion or 5.8% of all such agreements with developing nations during these years. In the earlier period (2003-2006) Russia ranked first with $41.5 billion in arms transfer agreements with developing nations or 32.2%; the United States made $30.5 billion in arms transfer agreements during this period or 23.7%. The United Kingdom made $14.7 billion in agreements or 11.4% (Table 4).

From 2003 to 2010, in any given year, most arms transfers to developing nations were made by two or three major suppliers. The United States ranked first among these suppliers for five of the eight years of this period, notably the last four. Russia has been a strong competitor for the lead in arms transfer agreements with developing nations, ranking first every year from 2004 through 2006, and second from 2007 through 2009. While Russia has lacked the larger traditional client base for armaments held by the United States and the major West European suppliers, it has been a major source of weaponry for a few key purchasers in the developing world. Russia's most significant high-value arms transfer agreements continue to be with India. Russia has also had some success in concluding arms agreements with clients in the Near East, and in Southeast Asia.

Russia has increased its sales efforts in Latin America with a principal focus on Venezuela. With the strong support of its President Hugo Chavez, Venezuela has become Russia's major new arms client in this region. Russia has adopted more flexible payment arrangements, including loans, for its prospective customers in the developing world generally, including a willingness in specific cases to forgive outstanding debts owed to it by a prospective client in order to secure new arms purchases. At the same time Russia continues efforts to enhance the quality of its follow-on support services to make Russian weaponry more attractive and competitive, attempting to assure potential clients that it will provide timely and effective service and spare parts for the weapons systems it sells.

France and the United Kingdom, among the four major West European arms suppliers, have been most successful in concluding significant orders with developing countries from 2003 to 2010, based on either long-term supply relationships or their having specialized weapons systems available for sale. Germany, however, has shown particular success in selling naval systems customized for developing nations. The United Kingdom has had comparable successes with aircraft sales.

Although the United States faces ongoing competition from other major arms suppliers, it appears likely to hold its position as the principal supplier to key developing world nations, especially with those able to afford major new weapons. Beginning in the Cold War period, the United States developed an especially large and diverse base of arms equipment clients globally with whom it is able to conclude a continuing series of arms agreements annually. It has also for decades provided upgrades, spare parts, ordnance and support services for the wide variety of weapons systems it has previously sold to this large list of clients. This provides for a steady stream of orders from year to year, even when the United States does not conclude major new arms agreements for major weapons systems. It also makes the United States a logical supplier for new generation military equipment to these traditional purchasers.

The major arms-supplying nations continue to center their sales efforts on the wealthier developing countries, as arms transfers to the less affluent developing nations remain constrained by the scarcity of funds in their defense budgets and the unsettled state of the international economy. From 2003 to 2008, the value of all arms transfer agreements with developing nations increased from year to year. These agreements reached a peak in 2008 at $54.6 billion. The increase in agreements with developing nations from 2003 to 2008 has been driven to an important degree by sales to the more affluent developing nations, particularly key oil-producing states, which were especially active in seeking new advanced weaponry during these years.

In recent years, the less traditional European and non-European suppliers, including China, have been successful in securing some agreements with developing nations, although at lower levels, and with uneven results, compared to the major weapons suppliers. Yet, these non-major arms suppliers have occasionally made arms deals of significance. While their agreement values appear larger when they are aggregated as a group, most of their annual arms transfer agreement values during 2003-2010 have been comparatively low when they are listed as individual suppliers. In various cases these suppliers have been successful in selling older generation or less advanced equipment. This group of arms suppliers is more likely to be the source of small arms and light weapons and associated ordnance, rather than routine sellers of major weapons systems. Most of these arms suppliers do not rank very high in the value of their arms agreements and deliveries, although some will rank among the top 10 suppliers from year to year (Table 4, Table 9, Table 10, Table 15, Table 20 , and Table 21).

United States

The total value--in real terms--of United States arms transfer agreements with developing nations fell slightly from $15.1 billion in 2009 to $14.9 billion in 2010. Nevertheless, the U.S. market share of the value of all such agreements was 48.6% in 2010, a substantial increase from a 30.3% share in 2009 (Figure 1, Figure 7, and Figure 8) (Table 1, Table 4, and Table 5).

In 2010, the total value of U.S. arms transfer agreements with developing nations was attributable to a couple of major new orders from clients in the Near East and Asia, but more broadly to the continuation of significant equipment and support services contracts with a broad number of U.S. clients globally. The $14.9 billion arms agreement total for the United States in 2010 illustrates dramatically the continuing U.S. advantage of having well-established defense support arrangements with many weapons purchasers worldwide, based upon the existing U.S. weapons systems that the militaries of these clients utilize. U.S. agreements with all of its customers in 2010 include not only sales of very costly major weapons systems, but also the upgrading and the support of systems previously provided. It is important to emphasize that arms agreements involving a wide variety of items such as spare parts, ammunition, ordnance, training, and support services can have significant costs associated with them.

Among the larger valued arms transfer agreements the United States concluded in 2010 with developing nations were: with Israel for 19 F-35 Joint Strike Fighter aircraft for $2.75 billion; with Taiwan for 60 UH-60M Blackhawk helicopters for $2.4 billion; with Saudi Arabia for M1A2 and M1AS tank support and spare parts for $384 million; with Saudi Arabia for maintenance, support, and spare parts for F-15 fighter aircraft for $250 million; with Egypt for one Fast Patrol Craft for $227 million, and for Harpoon Block II anti-ship missiles for $104 million; with Pakistan for mid-life upgrades and support for F-16 fighter aircraft for $220 million; with India for CBU-105 sensor fused bombs, and associated items, for $384 million; with Jordan for a M142 High Mobility Artillery Rocket system for $182 million, and for Javelin anti-tank missiles for $124 million. Other 2010 U.S. contracts include several score of missile, ordnance, and weapons systems support cases worth tens of millions of dollars each with U.S. customers in every region of the developing world.

Russia

The total value of Russia's arms transfer agreements with developing nations in 2010 was $7.6 billion, a substantial decrease from $12.6 billion in 2009, placing Russia second in such agreements with the developing world. Russia's share of all developing world arms transfer agreements also declined slightly from 25.3% in 2009 to 24.7% in 2010 (Figure 1, Figure 7, and Figure 8) (Table 1, Table 4, Table 5, and Table 10).

Russia's arms transfer agreement totals with developing nations have been notable during the last five years, reaching a peak total in 2006 with $16.1 billion. During the 2007-2010 period, Russia ranked second among all suppliers to developing countries, making nearly $37.1 billion in agreements (in current 2010 dollars) (Table 9). Russia's status as a leading supplier of arms to developing nations reflects a successful effort to overcome the significant problems associated with the dissolution of the former Soviet Union. The major arms clients of the former Soviet Union were generally less wealthy developing countries. In the Soviet era several client states received substantial military aid grants and significant discounts on their arms purchases. Confronted with a limited arms client base in the post-Cold War era, and stiff competition from Western arms suppliers for new markets, Russia adapted its selling practices in the developing world in an effort to regain and sustain an important share among previous and prospective clients in that segment of the international arms market.

Recently, Russia has made significant efforts to provide more creative financing and payment options for prospective arms purchasers. Russia has agreed to engage in counter-trade, offsets, debt-swapping, and, in key cases, to make significant licensed production agreements in order to sell its weapons. Russia's willingness to agree to licensed production has been a critical element in several cases involving important arms clients, particularly India and China. Russia's efforts to expand its arms customer base elsewhere have met with mixed results. Some successful Russian arms sales efforts have occurred in Southeast Asia. Here Russia has signed arms agreements with Malaysia, Vietnam, Burma, and Indonesia. Russia has also concluded major arms deals with Venezuela and Algeria. Elsewhere in the developing world, Russian military equipment continues to be competitive because it ranges from the most basic to the highly advanced. Russia's less expensive armaments have proven attractive to less affluent developing nations.

Aircraft and missiles have continued to provide a significant portion of Russia's arms exports. Nevertheless, the absence of substantial funding for new research and development efforts in this and other military equipment areas has hampered Russia's longer-term foreign arms sales prospects. Weapons research and development (R&D) programs exist in Russia, yet other major arms suppliers have advanced much more rapidly in developing and producing weaponry than have existing Russian military R&D programs, a factor that may deter expansion of the Russian arms client base. This was illustrated by Russia's decision to acquire French technology through purchase of the Mistral amphibious assault ship, rather than relying on Russian shipbuilding specialists to create a comparable ship for the Russian Navy.

Still, Russia has had important arms development and sales programs, particularly involving India and, to a lesser extent, China, which should provide it with sustained business for a decade. During the mid-1990s, Russia sold major combat fighter aircraft and main battle tanks to India, and has provided other major weapons systems through lease or licensed production. It continues to provide support services and items for these various weapons systems. Sales of advanced weaponry in South Asia by Russia have been a matter of ongoing concern to the United States because of long-standing tensions between Pakistan and India. One key U.S. policy objective is preventing a potentially destabilizing arms race in this region. To that end, the United States has recently expanded its military cooperation with and arms sales to India. (1)

One of Russia's key arms clients in Asia has been China, which purchased advanced aircraft and naval systems. Since 1996, Russia has sold China Su-27 fighter aircraft and agreed to their licensed production. It has sold the Chinese quantities of Su-30 multi-role fighter aircraft, Sovremenny-class destroyers equipped with Sunburn anti-ship missiles, and Kilo-class Project 636 diesel submarines. Russia has also sold the Chinese a variety of other weapons systems and missiles. Chinese arms acquisitions seem aimed at enhancing its military projection capabilities in Asia, and its ability to influence events throughout the region. One U.S. policy concern is to ensure that it provides appropriate military equipment to U.S. allies and friendly states in Asia to help offset any prospective threat China may pose to such nations. (2) There have been no especially large Russian arms agreements with China most recently. The Chinese military is currently focused on absorbing and integrating into its force structure the significant weapons systems previously obtained from Russia, and there has also been tension between Russia and China over efforts by China's apparent practice of reverse engineering and copying major combat systems obtained from Russia, in violation of their licensed production agreements. However, there is currently the prospect of Chinese purchases of new Russian fighter aircraft, if agreement on terms protecting Russian technology can be reached.

The most significant arms transfer agreements Russia made in 2010 were with India for 29 MiG-29K fighters for $1.5 billion. Algeria purchased 16 Su-30 MKI fighters and Uganda 6 Su30 MK2 fighters for a collective value of over $1.2 billion. Other arms contracts of varying sizes and values for Russian equipment were made with a number of traditional Russian clients in the developing world.

China

China did not become an important arms supplier until it proved able to provide weaponry during the Iran-Iraq war in the 1980s, when other major suppliers withheld sales to both belligerents. During that conflict, China demonstrated that it was willing to provide arms to both combatants in quantity and without conditions. Subsequently, China's arms sales have been more regional and targeted in the developing world. From 2007 to 2010, the value of China's arms transfer agreements with developing nations has averaged over $1.9 billion annually. During the period of this report, the value of China's arms transfer agreements with developing nations was highest in 2005 and 2007 at $2.8 billion and $2.7 billion, respectively. China's arms agreement total in 2010 ($900 million) was its lowest total since 2003. A significant portion of China's totals can be attributed to a significant contract with Pakistan, a key client, associated with the production of the J-17 fighter aircraft. Generally, China's sales figures reflect several smaller valued weapons deals in Asia, Africa, and the Near East, rather than one or two especially large agreements for major weapons systems (Table 4, Table 10, and Table 11) (Figure 7).

Relatively few developing nations with significant financial resources have purchased Chinese military equipment during the eight-year period of this report. Most Chinese weapons for export are less advanced and sophisticated than weaponry available from Western suppliers or Russia. China, consequently, does not appear likely to be a key supplier of major conventional weapons in the developing world arms market in the immediate future. That said, China has indicated that increasingly it views foreign arms sales as an important market in which it wishes to compete, and has increased the promotion of its more advanced aircraft in an effort to secure contracts from developing countries. China's weapons systems for export seem based upon designs obtained from Russia through previous licensed production programs. Nonetheless, China's likely client base will be states in Asia and Africa seeking quantities of small arms and light weapons, rather than major combat systems.

China has also been an important source of missiles in the developing world arms market. China supplied Silkworm anti-ship missiles to Iran. Credible reports persist in various publications that China has sold surface-to-surface missiles to Pakistan. North Korea and Iran have also reportedly received Chinese missile technology, which may have increased their capabilities to threaten other countries in their respective neighborhoods. Such activities reported by credible sources raise important questions about China's stated commitment to the restrictions on missile transfers set out in the Missile Technology Control Regime (MTCR), including its pledge not to assist others in building missiles that could deliver nuclear weapons. Because China has military products--particularly its missiles--that some developing countries would like to acquire, it can present an obstacle to efforts to stem proliferation of advanced missile systems to some areas of the developing world where political and military tensions are significant, and where some nations are seeking to develop asymmetric military capabilities. (3)

China has been a key source of a variety of small arms and light weapons transferred to African states. The prospects for significant revenue earnings from these arms sales are limited. Thus China likely views such sales as one means of enhancing its status as an international political power, and increasing its ability to obtain access to significant natural resources, especially oil. The control of sales of small arms and light weapons to regions of conflict, especially to some African nations, has been a matter of concern to the United States. The United Nations also has undertaken an examination of this issue in an effort to achieve consensus on a path to curtail this weapons trade comprehensively. The U.N. is also exploring the possibility of reaching agreement in 2012 on the text of an Arms Trade Treaty, aimed at setting agreed standards, among member states, regarding what types of conventional arms sales should be made internationally. (4)

Major West European Suppliers

France, the United Kingdom, Germany, and Italy--the four major West European arms suppliers--have supplied a wide variety of more highly sophisticated weapons to would-be purchasers. They are alternative sources of armaments for nations that the United States chooses not to supply for policy reasons. The United Kingdom, for example, sold major combat fighter aircraft to Saudi Arabia in the mid-1980s, when the United States chose not to sell a comparable aircraft for policy reasons. More recently, European aircraft suppliers were made finalists in the competition for a major sale of combat aircraft to India, while the U.S. aircraft was rejected. These four NATO allies of the United States have generally supported the U.S. position in restricting arms sales to certain nations during the Cold War era. In the post-Cold War period, however, their national defense export policies have not been fully coordinated with the United States as was the case previously.

Leading European arms supplying states, especially France, view arms sales foremost as a matter for national decision. Economic considerations appear to be a greater driver in French arms sales decision-making than matters of foreign policy. France has also frequently used foreign military sales as an important means for underwriting development and procurement of new weapons systems for its own military forces. The potential for policy differences between the United States and major West European supplying states over conventional weapons transfers to specific countries has increased in recent years because of a divergence of views over what is an appropriate arms sale. Such a conflict resulted from an effort led by France and Germany in 2004-2005 to lift the arms embargo on arms sales to China adhered to by members of the European Union. The United States viewed this as a misguided effort, and vigorously opposed it. In the end, the proposal to lift the embargo was not adopted. However, it proved to be a source of significant tension between the United States and some members of the European Union. The arms sales activities of major European suppliers, consequently, will continue to be of interest to U.S. policymakers, given their capability to make sales of advanced military equipment to countries of concern to U.S. national security policy. (5)

The four major West European suppliers (France, the United Kingdom, Germany, and Italy), as a group, registered a notable decrease in their collective share of all arms transfer agreements with developing nations between 2009 and 2010. This group's share fell from 24.5% in 2009 to 13.3% in 2010. The collective value of this group's arms transfer agreements with developing nations in 2010 was $4.1 billion compared to a total of nearly $12.2 billion in 2009. Of these four nations, Italy was the leading supplier with $1.7 billion in agreements in 2010. France, meanwhile registered $1.3 billion in arms agreements in 2010, down significantly from $7.9 billion in 2009 (Figure 7 and Figure 8) (Table 4 and Table 5).

The four major West European suppliers, collectively, held a 13.3% share of all arms transfer agreements with developing nations during 2010. In the period from 2003 to 2010 they have generally been important participants in the developing world arms market. Individual suppliers within the major West European group have had notable years for arms agreements during this period: France in 2009 ($7.9 billion) and in 2005 ($5.7 billion); the United Kingdom in 2007 ($10.1 billion) and 2004 ($4.8 billion); Germany (over $4.8 billion) in 2008, and in 2006 ($2.6 billion); and Italy in 2009 ($.2.7 billion). In the case of all of these West European nations, large agreement totals in one year have usually resulted from the conclusion of large arms contracts with one or a small number of major purchasers in that particular year (Table 4 and Table 5).

The major West European suppliers, individually, have enhanced their competitive position in weapons exports through strong government marketing support for their foreign arms sales. All of them can produce both advanced and basic air, ground, and naval weapons systems. The four major West European suppliers have competed successfully for arms sales contracts with developing nations against the United States, which has tended to sell to several of the same major clients. The continuing demand for U.S. weapons in the global arms marketplace, from a large established client base, has created a more difficult environment for individual West European suppliers to secure, on a sustained basis, large new contracts with developing nations. Yet, as the data indicate, the major West European suppliers continue to make significant arms transfer contracts each year.

Maintaining their market share of the arms trade in the face of the strong demand for U.S. defense equipment, among other considerations, was a key factor in inducing European Union (EU) member states to adopt a new code of conduct for defense procurement practices. This code was agreed on November 21, 2005, at the European Defense Agency's (EDA) steering board meeting. Currently voluntary, the EU hopes it will become mandatory, and through its mechanisms foster greater cooperation within the European defense equipment sector in the awarding of contracts for defense items. By successfully securing greater intra-European cooperation in defense program planning, and collaboration in defense contracting, the EU hopes that the defense industrial bases of individual EU states will be preserved, thereby enhancing the capability of European defense firms to compete for arms sales throughout the world. Some European arms companies have begun, and others completed the phasing out of production of certain types of weapons systems. These suppliers have increasingly sought to engage in joint production ventures with other key European weapons suppliers or even client countries in an effort to sustain major sectors of their individual defense industrial bases--even if a substantial portion of the weapons produced are for their own armed forces. Examples are the Eurofighter and Eurocopter projects. A few European suppliers have also adopted the strategy of cooperating in defense production ventures with the United States such as the Joint Strike Fighter (JSF), rather than attempting to compete directly, thus meeting their own requirements for advanced combat aircraft while positioning themselves to share in profits resulting from future sales of this new fighter aircraft. (6)

Regional Arms Transfer Agreements

Historically, the leading markets for arms in regions of the developing world have been predominately in the Near East and Asia. Latin American and African nations, by contrast, have not been major purchasers of weapons, with rare exceptions. The regional arms agreement data tables in this report demonstrate this. United States policymakers have placed emphasis on helping to maintain stability throughout the regions of the developing world. Consequently, the United States has made and supported arms sales and transfers it has believed would advance that goal, while discouraging significant sales by other suppliers to states and regions where military threats to nations in the area are minimal. Other arms suppliers do not necessarily share the U.S. perspective on what constitutes an appropriate arms sale, and in some instances the financial benefit of the sale to the supplier overrides other considerations. The regional and country specific arms-transfer data in this report provide an indication of where various arms suppliers are focusing their attention and who their principal clients are. By reviewing these data, policymakers can identify potential developments that may be of concern, and use this information to assist a review of options they may choose to consider, given the circumstances. What follows below is a review of data on arms-transfer agreement activities in the two regions that lead in arms acquisitions, the Near East and Asia. This is followed, in turn, by a review of data regarding the leading arms purchasers in the developing world more broadly.

Near East (7)

The principal catalyst for major new weapons purchases in the Near East in recent decades was the Persian Gulf crisis of August 1990-February 1991. This crisis, culminating in a U.S.-led war to expel Iraq from Kuwait, created new demands by key purchasers such as Saudi Arabia, Kuwait, the United Arab Emirates, and other members of the Gulf Cooperation Council (GCC) for a variety of advanced weapons systems. Subsequently, concerns over the growing strategic threat from Iran, which have continued into the 21st century, have become the principal basis of GCC states' advanced arms purchases. Because GCC states do not share a land border with Iran, their weapons purchases have focused primarily on air, naval, and missile defense systems. Egypt and Israel have also continued their military modernization programs by increasing their purchases of advanced weaponry, primarily from the United States.

Most recently, Saudi Arabia has been the principal arms purchaser in the Persian Gulf region. In the period from 2007 to 2010, Saudi Arabia's total arms agreements were valued at $28.9 billion (in current dollars). Also placing substantial orders during this same period was the UAE., making $15.1 billion in agreements (in current dollars) (Table 11 and Table 12).

The Near East has generally been the largest arms market in the developing world. However, in the earlier period (2003-2006), it ranked second with 42.3% of the total value of all developing nations arms transfer agreements ($49.4 billion in current dollars). The Asia region ranked first in 2003-2006 with 47.2% of these agreements ($55.1 billion in current dollars). But, during 20072010, the Near East region again placed first with 51.1% of all developing nations agreements ($91.3 billion in current dollars). The Asia region ranked second in 2007-2010 with $59.2 billion of these agreements or 33.2% (Table 6 and Table 7).

The United States ranked first in arms transfer agreements with the Near East during the 20032006 period with 32.5% of their total value ($16.1 billion in current dollars). Russia was second during these years with 24.5% ($12.1 billion in current dollars). Recently, from 2007 to 2010, the United States dominated in arms agreements with this region with $51.9 billion (in current dollars), a 56.8% share. The United Kingdom accounted for 11.7% of the region's agreements ($10.7 billion in current dollars). Russia accounted for 9.1% of the region's agreements in the most recent period ($8.3 billion in current dollars) (Figure 5) (Table 6 and Table 8).

Asia

In Asia, several developing nations have been engaged in upgrading and modernizing defense forces, and this has led to new conventional weapons sales in that region. Beginning in the mid-1990s, Russia became the principal supplier of advanced conventional weaponry to China for about a decade--selling it fighters, submarines, destroyers, and missiles--while establishing itself as the principal arms supplier to India. Russian arms sales to these two countries have been primarily responsible for much of the increase in Asia's overall share of the arms market in the developing world during the period of this report. Russia has also expanded its client base in Asia, securing aircraft orders from Malaysia, Vietnam, Burma, and Indonesia. It is notable that India, while the principal Russian arms customer, during recent years has sought to diversify its weapons supplier base, purchasing the Phalcon early warning defense system aircraft in 2004 from Israel and numerous items from France in 2005, in particular six Scorpene diesel attack submarines. In 2008 India purchased six C130J cargo aircraft from the United States. In 2010, the United Kingdom sold India 57 Hawk jet trainers for $1 billion. In 2010 Italy also sold India 12 AW101 helicopters. This pattern of Indian arms purchases indicates that it is likely that Russia will face strong new competition from other major weapons suppliers for the India arms market, and it can no longer be assured that India will consistently purchase its major combat systems. Indeed, Russia was eliminated by India in 2011 from the international competition to supply a new-generation combat fighter aircraft.

In other major arms agreements with Asia more recently, the United States concluded a multibillion dollar sale to Pakistan in 2006 of new F-16 fighter aircraft, weapons, and aircraft upgrades, while Sweden sold it a SAAB-2000 based AWACS airborne radar system. In 2007, Pakistan contracted with China for production of J-17 fighter aircraft; in 2008 it purchased an AWACS aircraft from China. In 2009, Pakistan also purchased J-10 fighters from China. Meanwhile, in 2010 the United States sold 60 UH-60M Blackhawk helicopters to Taiwan. The data on regional arms-transfer agreements from 2003 to 2010 continue to reflect that Asia and the Near East are the regions of the developing world that are the primary sources of orders for conventional weaponry.

Asia has traditionally been the second-largest developing-world arms market. In 2007-2010, Asia ranked second, accounting for 33.2% of the total value of all arms transfer agreements with developing nations ($59.3 billion in current dollars). Yet in the earlier period, 2003-2006, the Asia region ranked first, accounting for 47.2% of all such agreements ($55.1 billion in current dollars) (Table 6 and Table 7).

In the earlier period (2003-2006), Russia ranked first in the value of arms transfer agreements with Asia with 36.5% ($20.1 billion in current dollars). The United States ranked second with 17% ($9.4 billion in current dollars). The major West European suppliers, as a group, made 22.5% of this region's agreements in 2003-2006. In the later period (2007-2010), Russia ranked first in Asian agreements with 30.7% ($18.2 billion in current dollars), primarily due to major combat aircraft and naval system sales to India and China. The United States ranked second with 25.6% ($15.2 billion in current dollars). The major West European suppliers, as a group, made 15% of this region's agreements in 2007-2010. (Figure 6) (Table 8).

Leading Developing Nations Arms Purchasers

Saudi Arabia was the leading developing world arms purchaser from 2003 to 2010, making arms transfer agreements totaling $44.3 billion during these years (in current dollars). In the 2003-2006 period, India ranked first in arms transfer agreements at $21.1 billion (in current dollars). In 2007-2010 Saudi Arabia ranked first in arms transfer agreements, with a substantial increase to $28.9 billion from $15.4 billion in the earlier 2003-2006 period (in current dollars). These increases reflect the military modernization efforts by both Saudi Arabia and India, underway since the 1990s. The total value of all arms transfer agreements with developing nations from 2003 to 2010 was $284.6 billion (in current dollars). Thus Saudi Arabia alone accounted for 15.5% of all developing-world arms-transfer agreements during these eight years. In the most recent period, 2007-2010, Saudi Arabia made $28.9 billion in arms transfer agreements (in current dollars). This total constituted 16.6% of all arms transfer agreements with developing nations during these four years ($174.1 billion in current dollars). India ranked second in arms transfer agreements during 2007-2010 with $17.4 billion (in current dollars), or about 10% of the value of all developing-world arms-transfer agreements (Table 3, Table 6, Table 12, and Table 13).

During 2003-2006, the top 10 recipients collectively accounted for 65.7% of all developing world arms transfer agreements. During 2007-2010, the top 10 recipients collectively accounted for 66.5% of all such agreements. Arms transfer agreements with the top 10 developing world recipients, as a group, totaled $8.1 billion in 2010 or 59% of all arms transfer agreements with developing nations that year. These percentages reflect the continued concentration of major arms purchases by developing nations among a few countries (Table 3, Table 12, and Table 13).

India ranked first among all developing world recipients in the value of arms transfer agreements in 2010, concluding $5.8 billion in such agreements. Taiwan ranked second in agreements with $2.7 billion. Saudi Arabia ranked third with $2.2 billion in agreements. Six of the top 10 recipients were in the Near East region; four were in the Asian region (Table 13).

India was the leading recipient of arms deliveries among developing world recipients in 2010, receiving $3.6 billion in such deliveries. Saudi Arabia ranked second in arms deliveries in 2010 with $2.2 billion. Pakistan ranked third with $2.2 billion (Table 24).

Arms deliveries to the top 10 developing nation recipients, as a group, were valued at $13 billion, or 59.4% of all arms deliveries to developing nations in 2010. Six of these top 10 recipients were in the Near East; four were in Asia (Table 14 and Table 24).

Weapons Types Recently Delivered to Near East Nations

Regional weapons delivery data reflect the diverse sources of supply and type of conventional weaponry actually transferred to developing nations. Even though the United States, Russia, and the four major West European suppliers dominate in the delivery of the 14 classes of weapons examined, it is also evident that the other European suppliers and some non-European suppliers, including China, are capable of being leading suppliers of selected types of conventional armaments to developing nations (Tables 25-29) (pages 63-67).

Weapons deliveries to the Near East, historically the largest purchasing region in the developing world, reflect the quantities and types delivered by both major and lesser suppliers. The following is an illustrative summary of weapons deliveries to this region for the period 2007-2010 from

Table 27:

United States

* 339 tanks and self-propelled guns

* 71 APCs and armored cars

* 3 minor surface combatants

* 38 supersonic combat aircraft

* 35 helicopters

* 397 surface-to-air missiles

Russia

* 270 tanks and self-propelled guns

* 250 APCs and armored cars

* 40 supersonic combat aircraft

* 20 helicopters

* 3,850 surface-to-air missiles

* 10 surface-to-surface missiles

* 40 anti-ship missiles

China

* 40 tanks and self-propelled guns

* 160 APCs and armored cars

Major West European Suppliers

* 100 APCs and armored cars

* 30 minor surface combatants

* 20 supersonic combat aircraft

* 20 helicopters

* 400 surface-to-air missiles

* 50 anti-ship missiles

All Other European Suppliers

* 80 tanks and self-propelled guns

* 300 APCs and armored cars

* 4 minor surface combatants

* 7 guided missile boats

* 50 supersonic combat aircraft

* 250 surface-to-air missiles

* 30 anti-ship missiles

All Other Suppliers

* 10 tanks and self-propelled guns

* 200 APCs and armored cars

* 16 minor surface combatants

* 30 helicopters

* 10 surface-to-surface missiles

* 20 anti-ship missiles

Notable quantities of major combat systems were delivered to the Near East region from 2007 to 2010, specifically tanks and self-propelled guns, armored vehicles, minor surface combatants, supersonic combat aircraft, helicopters, and air defense and anti-ship missiles. The United States, Russia, and European suppliers made deliveries of supersonic combat aircraft to the region. The United States, China, and the European suppliers delivered anti-ship missiles. The United States, Russia, and European suppliers in general were the principal suppliers of tanks and self-propelled guns, APCs and armored cars, surface-to-air missiles, as well as helicopters. Three of these weapons categories--supersonic combat aircraft, helicopters, and tanks and self-propelled guns--are especially costly and are a large portion of the dollar values of arms deliveries by the United States, Russia, and European suppliers to the Near East region during the 2007-2010 period.

The cost of naval combatant vessels can be high, and the European suppliers, in particular, had their delivery values increased due to their transfers of such vessels during this period. Some of the less expensive weapons systems delivered to the Near East are nonetheless possess significant deadly capabilities and can create important security threats within the region. For example, from 2007 to 2010, the four major West European suppliers collectively delivered 50 anti-ship missiles to the Near East region, Russia delivered 40, and the other European suppliers delivered 30. Russia delivered 10 surface-to-surface missiles. The United States delivered three minor surface combatants to the Near East, while the four major West European suppliers collectively delivered 30 of them. The other European suppliers collectively delivered 90 tanks and armored cars, 300 APCs and armored cars, 50 supersonic combat aircraft, 4 minor surface combatants, 7 guided missile boats, 250 surface-to-air missiles and 30 anti-ship missiles. Other non-European suppliers collectively delivered 200 APCs and armored cars, 16 minor surface combatants, 30 helicopters, 20 anti-ship missiles, as well as 10 surface-to-surface missiles.
UNITED STATES COMMERCIAL ARMS EXPORTS

United States commercially licensed arms deliveries data are not
included in this report. The United States is the only major arms
supplier that has two distinct systems for the export of weapons:
the government-to-government Foreign Military Sales (FMS) system,
and the licensed commercial export system. It should be noted that
data maintained on U.S. commercial sales agreements and deliveries
are incomplete, and are not collected or revised on an ongoing
basis, making them significantly less precise than those for the
U.S. FMS program--which accounts for the overwhelming portion of
U.S. conventional arms transfer agreements and deliveries involving
weapons systems. There are no official compilations of commercial
agreement data comparable to that for the FMS program maintained on
an annual basis. Once an exporter receives from the State
Department a commercial license authorization to sell--valid for
four years--there is no current requirement that the exporter
provide to the State Department, on a systematic and ongoing basis,
comprehensive details regarding any sales contract that results
from the license authorization, including if any such contract is
reduced in scope or cancelled. Nor is the exporter required to
report that no contract with the prospective buyer resulted.

Annual commercially licensed arms deliveries data are obtained from
shipper's export documents and completed licenses from ports of
exit by the U.S. Customs and Border Protection Agency which are
then provided to the U.S. Census Bureau. The Census Bureau takes
these arms export data, and, following a minimal review of them,
submits them to the Directorate of Defense Trade Controls in the
Political-Military Bureau (PM/DDTC) of the State Department, which
makes the final compilation of such data--details of which are not
publicly available. Once compiled by the Directorate of Defense
Trade Controls at the State Department, these commercially licensed
arms deliveries data are not revised. By contrast, the U.S. Foreign
Military Sales (FMS) program data, for both agreements and
deliveries, maintained by the Defense Department, are
systematically collected, reviewed for accuracy on an on-going
basis, and are revised from year-to-year as needed to reflect any
changes or to correct any errors in the information. This report
includes all FMS deliveries data. By excluding U.S. commercial
licensed arms deliveries data, the U.S. arms delivery totals will
be understated.

Some have suggested that a systematic data collection and reporting
system for commercial licensed exports, comparable to the one which
exists now in the Department of Defense, should be established by
the Department of State. Having current and comprehensive agreement
and delivery data on commercially licensed exports would provide a
more complete picture of the U.S. arms export trade, in this view,
and thus facilitate Congressional oversight of this sector of U.S.
exports.
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Title Annotation:Conventional Arms Transfers to Developing Nations, 2003-2010
Author:Grimmett, Richard F.
Publication:Congressional Research Service (CRS) Reports and Issue Briefs
Article Type:Report
Geographic Code:0DEVE
Date:Sep 1, 2011
Words:8328
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