A New Arms Race: Exports Booming for German Weapons Manufacturers
By Dietmar Hawranek, Markus Dettmer and Ralf Beste
REUTERS
For years, executives from German arms companies complained about the
competitive disadvantage they faced compared to rival companies in
France, Great Britain and the United States. They bemoaned the fact that
politicians from these countries didn't think twice about promoting
their arms manufacturers abroad, while German ministers and chancellors
steered clear from doing so. But, to the great joy of the German arms
industry, things have now changed.
As Zoller puts it, German arms manufacturers "need the support of the federal government in this global race." His company has high hopes in border security, a branch of the industry recently enjoying increased attention. The company has been contracted by Saudi Arabia to set up radars, sensors, cameras and other electronic gadgetry to safeguard 9,000 kilometers (5,600 miles) of border as well as air and sea ports.
Cassidian's success in landing the €2 billion contract was probably helped by the fact that the German government had just recently signed an agreement in Riyadh to collaborate with the Saudis on security issues, which involves having officers from Germany's federal police force train their border police. Zoller was recently quoted as saying that the Saudi government "had put the country's security in our hands to a major extent."
Since then, it has emerged that the Saudis aren't just depending on Cassidian, but also on Krauss-Maffei Wegmann, the manufacturer of the "Leopard 2" tanks.
Almost half of KMW's sales continue to come from the "Leopard 2," which was originally developed in the 1970s. But in most cases, modern armies need different kinds of tanks. As the website of KMW puts it, "the clearly defined frontlines of the Cold War era have been replaced by a multitude of globally dispersed hotspots as the primary deployment scenarios of modern armies." To respond to these changing needs, KMW has outfitted the "Leopard 2" with an "obstacle clearance blade," which can push either cars or demonstrators out of the way, as well as a mounted machine gun as a "secondary weapon."
With this "upgrade kit," the "Leopard 2" becomes the "Leopard 2A7+." This is the model that won over the Saudis, the model that is apparently superior to the tanks made by French and American competitors.
'The Export of Weapons of War Is Not Approved, Unless…'
Each December, Germany's federal government releases a report on the previous year's arms exports. The report includes a list of all the permits issued to export weapons and other military equipment. Since 2000, Saudi Arabia has numbered among Germany's top 20 clients for such goods. Deals involving the export of missile parts, machine guns, munitions and artillery shells to Riyadh were approved -- even in the years when Germany was led by a coalition government made up of the center-left Social Democrats and the Green Party (1998-2005).
The planned tank deal, however, would take things to a whole new level. In 2009, Germany's government green-lighted deals worth a total of €167.9 million in arms exports to Saudi Arabia. But a contract to supply 200 "Leopard 2A7+" tanks would be worth roughly €2 billion.
In total, Berlin approved about €7 billion in global arms exports in 2009. The most important buyers were the United States, followed by the United Arab Emirates and Great Britain.
German regulations on arms exports are found in the Foreign Trade and Payments Act (AWG) and the War Weapons Control Act (KWKG). There is a list of what the federal government defines as military equipment, which can range from software with military purposes to "lead beta resorcylat" chemicals. Exporting such goods requires a permit from the Federal Office of Economics and Export Control (BAFA). The rules are stricter for 62 items on the list of weapons of war, including tanks, missiles and attack helicopters. Decisions on the export of these items are usually made by the Federal Security Council, which is chaired by the chancellor.
The "political principles" that the federal cabinet last tightened on Jan. 19, 2000 are meant to provide guidelines which the Federal Security Council can base its decisions on. These guidelines are supposed to attach "particular weight" to the "observation of human rights in the destination country." This criterion alone would have been enough to block the export of tanks to Saudi Arabia.
The guidelines are also meant to block the approval of arms exports to countries "in which there is a risk of armed conflict breaking out." The Middle East is considered a trouble spot, so it would only seem logical that Saudi Arabia would not be allowed to receive tanks.
But these "political principles" also offer some loopholes, which usually start off along the lines of: "The export of weapons of war is not permitted, unless…" For example, an exception is possible when "special interests of foreign or security policy" argue in its favor. Indeed, this was the exception the Federal Security Council cited in justifying its approval of the tank deal with Saudi Arabia.
Redirecting Export Deals through Other Countries
Still, for many arms export deals, German companies do not have to get the government's blessing. Indeed, international collaborations allow members to redirect their deals through countries with more liberal export regulations.
The best example of this practice is the "Eurofighter," which was developed by a collaboration of Germany, Italy, Great Britain and Spain. Since each of these countries handles its own exports, Great Britain can close deals that wouldn't get the blessing of Germany's Federal Security Council -- but Germany benefits from the transaction either way. Indeed, the British closed a €6.4 billion deal with the Saudis for 72 of the fighter jets.
Since it is getting increasingly expensive to develop new weapons systems, this type of collaboration is becoming more common. Likewise, it's not just airplanes that German manufacturers are jointly developing with foreign partners; it's also helicopters and missiles. And these partners can take charge of the export deals at any time.
The potential consequences of this kind of structure can be seen in the conflict in Libya. When the UN Security Council voted on whether to establish a no-fly zone in Libya, Germany abstained. The stated reason for the abstention was the desire to not have German soldiers participate in the war.
Despite this desire, however, Germany is still playing a role in the fighting, with "Made in Germany" written on many of the weapons used -- by both sides. For example, the military transports ferrying Gadhafi's tanks to the frontline are made by Mercedes-Benz. His soldiers are using German jamming devices to disrupt communications between their opponents. And Gadhafi's troops can shoot down low-flying helicopters with the French-German "Milan 3" anti-tank missiles, whose launchers are manufactured at a factory in the Bavarian town of Schrobenhausen.
NATO troops also rely on German technology in the form of the "Eurofighters." And even the Libya rebel forces can make use of German engineering after having reportedly been supplied with "Milan 3" missiles by Qatar.
Fundamental Problems
All of this would seem to make the war in Libya good business for the makers of the "Milan 3." But the fact that three parties involved in the fighting are all using weapons made in Germany shows the fundamental problem of these kinds of arms export policies.
Tanks, helicopters, airplanes, missiles and guns can often be in service for several decades. This makes the chances slim that the buyer countries will only use them in this period for defensive purposes and not for attacking another country or suppressing the domestic population.
This is what makes each decision on whether to approve an export deal so difficult. And the debates on such issues will only increase.
Under these circumstances, Germany's federal government must avoid liberally handing out export permits in order to safeguard the survival of the domestic arms industry. Though most German arms manufacturers rely on exports, the health of German's export economy does not depend on the arms industry.
Roughly 80,000 people work in Germany's arms industry. In terms of sheer figures, this makes the wind-energy industry -- with its 100,000 jobs -- more important.
What's more, many of the weapon makers are also involved in producing items with non-military uses, and they could strengthen these activities if their arms business declines. Rheinmetall, for example, generates almost half of its sales with components for the automotive industry.
Indeed, Krauss-Maffei Wegmann is the only company whose well-being is solely dependent on military deals. At the moment, the company has declined to make any statement on the planned tank deal with Saudi Arabia and will only say that "the permit situation has not changed."
On the company's boss's world map, the Middle East is still marked in red.
As Zoller puts it, German arms manufacturers "need the support of the federal government in this global race." His company has high hopes in border security, a branch of the industry recently enjoying increased attention. The company has been contracted by Saudi Arabia to set up radars, sensors, cameras and other electronic gadgetry to safeguard 9,000 kilometers (5,600 miles) of border as well as air and sea ports.
Cassidian's success in landing the €2 billion contract was probably helped by the fact that the German government had just recently signed an agreement in Riyadh to collaborate with the Saudis on security issues, which involves having officers from Germany's federal police force train their border police. Zoller was recently quoted as saying that the Saudi government "had put the country's security in our hands to a major extent."
Since then, it has emerged that the Saudis aren't just depending on Cassidian, but also on Krauss-Maffei Wegmann, the manufacturer of the "Leopard 2" tanks.
Almost half of KMW's sales continue to come from the "Leopard 2," which was originally developed in the 1970s. But in most cases, modern armies need different kinds of tanks. As the website of KMW puts it, "the clearly defined frontlines of the Cold War era have been replaced by a multitude of globally dispersed hotspots as the primary deployment scenarios of modern armies." To respond to these changing needs, KMW has outfitted the "Leopard 2" with an "obstacle clearance blade," which can push either cars or demonstrators out of the way, as well as a mounted machine gun as a "secondary weapon."
With this "upgrade kit," the "Leopard 2" becomes the "Leopard 2A7+." This is the model that won over the Saudis, the model that is apparently superior to the tanks made by French and American competitors.
'The Export of Weapons of War Is Not Approved, Unless…'
Each December, Germany's federal government releases a report on the previous year's arms exports. The report includes a list of all the permits issued to export weapons and other military equipment. Since 2000, Saudi Arabia has numbered among Germany's top 20 clients for such goods. Deals involving the export of missile parts, machine guns, munitions and artillery shells to Riyadh were approved -- even in the years when Germany was led by a coalition government made up of the center-left Social Democrats and the Green Party (1998-2005).
The planned tank deal, however, would take things to a whole new level. In 2009, Germany's government green-lighted deals worth a total of €167.9 million in arms exports to Saudi Arabia. But a contract to supply 200 "Leopard 2A7+" tanks would be worth roughly €2 billion.
In total, Berlin approved about €7 billion in global arms exports in 2009. The most important buyers were the United States, followed by the United Arab Emirates and Great Britain.
German regulations on arms exports are found in the Foreign Trade and Payments Act (AWG) and the War Weapons Control Act (KWKG). There is a list of what the federal government defines as military equipment, which can range from software with military purposes to "lead beta resorcylat" chemicals. Exporting such goods requires a permit from the Federal Office of Economics and Export Control (BAFA). The rules are stricter for 62 items on the list of weapons of war, including tanks, missiles and attack helicopters. Decisions on the export of these items are usually made by the Federal Security Council, which is chaired by the chancellor.
The "political principles" that the federal cabinet last tightened on Jan. 19, 2000 are meant to provide guidelines which the Federal Security Council can base its decisions on. These guidelines are supposed to attach "particular weight" to the "observation of human rights in the destination country." This criterion alone would have been enough to block the export of tanks to Saudi Arabia.
The guidelines are also meant to block the approval of arms exports to countries "in which there is a risk of armed conflict breaking out." The Middle East is considered a trouble spot, so it would only seem logical that Saudi Arabia would not be allowed to receive tanks.
But these "political principles" also offer some loopholes, which usually start off along the lines of: "The export of weapons of war is not permitted, unless…" For example, an exception is possible when "special interests of foreign or security policy" argue in its favor. Indeed, this was the exception the Federal Security Council cited in justifying its approval of the tank deal with Saudi Arabia.
Redirecting Export Deals through Other Countries
Still, for many arms export deals, German companies do not have to get the government's blessing. Indeed, international collaborations allow members to redirect their deals through countries with more liberal export regulations.
The best example of this practice is the "Eurofighter," which was developed by a collaboration of Germany, Italy, Great Britain and Spain. Since each of these countries handles its own exports, Great Britain can close deals that wouldn't get the blessing of Germany's Federal Security Council -- but Germany benefits from the transaction either way. Indeed, the British closed a €6.4 billion deal with the Saudis for 72 of the fighter jets.
Since it is getting increasingly expensive to develop new weapons systems, this type of collaboration is becoming more common. Likewise, it's not just airplanes that German manufacturers are jointly developing with foreign partners; it's also helicopters and missiles. And these partners can take charge of the export deals at any time.
The potential consequences of this kind of structure can be seen in the conflict in Libya. When the UN Security Council voted on whether to establish a no-fly zone in Libya, Germany abstained. The stated reason for the abstention was the desire to not have German soldiers participate in the war.
Despite this desire, however, Germany is still playing a role in the fighting, with "Made in Germany" written on many of the weapons used -- by both sides. For example, the military transports ferrying Gadhafi's tanks to the frontline are made by Mercedes-Benz. His soldiers are using German jamming devices to disrupt communications between their opponents. And Gadhafi's troops can shoot down low-flying helicopters with the French-German "Milan 3" anti-tank missiles, whose launchers are manufactured at a factory in the Bavarian town of Schrobenhausen.
NATO troops also rely on German technology in the form of the "Eurofighters." And even the Libya rebel forces can make use of German engineering after having reportedly been supplied with "Milan 3" missiles by Qatar.
Fundamental Problems
All of this would seem to make the war in Libya good business for the makers of the "Milan 3." But the fact that three parties involved in the fighting are all using weapons made in Germany shows the fundamental problem of these kinds of arms export policies.
Tanks, helicopters, airplanes, missiles and guns can often be in service for several decades. This makes the chances slim that the buyer countries will only use them in this period for defensive purposes and not for attacking another country or suppressing the domestic population.
This is what makes each decision on whether to approve an export deal so difficult. And the debates on such issues will only increase.
Under these circumstances, Germany's federal government must avoid liberally handing out export permits in order to safeguard the survival of the domestic arms industry. Though most German arms manufacturers rely on exports, the health of German's export economy does not depend on the arms industry.
Roughly 80,000 people work in Germany's arms industry. In terms of sheer figures, this makes the wind-energy industry -- with its 100,000 jobs -- more important.
What's more, many of the weapon makers are also involved in producing items with non-military uses, and they could strengthen these activities if their arms business declines. Rheinmetall, for example, generates almost half of its sales with components for the automotive industry.
Indeed, Krauss-Maffei Wegmann is the only company whose well-being is solely dependent on military deals. At the moment, the company has declined to make any statement on the planned tank deal with Saudi Arabia and will only say that "the permit situation has not changed."
On the company's boss's world map, the Middle East is still marked in red.
- Part 1: Exports Booming for German Weapons Manufacturers
- Part 2: German Arms Manufacturers 'Need Government Support'
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