Much
diplomatic and journalistic ink has flowed recently
concerning China's efforts to get the European Union to
terminate its sanctions and resume arms sales to it.
France and Germany, too, have each expressed the desire
to persuade the European Commission, the EU's governing
authority, to lift the sanctions. On the other hand,
Washington weighed in strongly against this move,
creating substantial pressure on the EU. Therefore it is
not surprising that at its meeting on March 25-26, the
commission said nothing publicly about the entire issue.
However, the EU has already decided conclusively
to move in a big way into the Asian arms market, and not
only with China, at least for now. Instead, its flagship
arms company, the European Aeronautical Defense and
Space Company (EADS) is pushing joint ventures with
India, China's main continental rival in Asia.
The EU's motives are quite obvious. EADS
executives predict that 20 percent of its arms sales
will come from the Asia-Pacific by 2009, and 30 percent
by 2015, and that does not necessarily include China or
the Chinese defense market. Since current sales account
for 7 percent of its revenues, this means a tripling and
then quadrupling of current sales within a decade.
Moreover, India is increasingly viewed as a
promising market for all kinds of high-tech ventures.
Its economy is expected to grow nearly 10 percent this
year, and Indians hope that this means the breakthrough
to sustained long-term development, like China's
trajectory in the past decade. But even if the Indian
economy grows at about 6 percent annually, as it has
over the past decade, this opens up substantial
opportunities for foreign arms companies, especially as
India has recently undertaken a vast modernization of
its weapons systems, and is also trying to overhaul its
dysfunctional defense industry.
Although EADS
concluded an agreement in 2003 with China's state-owned
AVIC II aircraft manufacturing group, the sanctions
still in place inhibit military sales to China. No such
barrier exists regarding India. And it is highly
unlikely that Washington, which is itself expanding its
defense sales to India, will object on the same grounds
to EADS or the EU's presence in India, although the
commercial rivalry between them may cause tensions.
EADS' civilian center of gravity is the Airbus to deal
with an expected increase of Asian passenger traffic,
which will be considerably fueled by India and China.
But its defense sales to India are equally, if not more
interesting. The EU, like other sellers to India:
Russia, Israel and the United States, will move away
from "sub-contracting helicopters or selling missiles"
to a more elaborate system. As reported by Aviation Week
and Space Technology, this system entails long-term
partnerships with both state and privately owned Indian
defense firms.
This development is in line with
India's program for reforming its indigenous defense
industry through privatization and opening it up to
foreign competition so that it will be forced to become
more competitive and allow India to become a major
weapons exporter in its own right.
Thus
Hindustan Aeronautics Ltd, (HAL), India's major defense
company, will become a global supplier for EADS of
parts, components and assemblies. In other words, EADS
and HAL will become partners in designing, developing
and producing specific versions of helicopters, and this
relationship might then spread to other weapons plants.
In this respect, the development of EU relations with
India's defense industry will resemble the Indo-Russian
agreement to design, develop and produce a
fifth-generation fighter aircraft.
So this kind
of relationship is now becoming a common one in
international defense relationships. Similarly, other EU
members' firms are now submitting proposals to India's
Ministry of Defense to build engines and air-to-air, air
defense and anti-tank missiles. Undoubtedly, such
partnerships will spread to other weapons systems and
create a network that goes beyond leasing and
sub-contracting to encompass joint design, development,
production and marketing for a whole range of weapons.
This goes far beyond anything now possible with China.
And it certainly accords with the growing
diversification of India's foreign weapons purchases, a
process that has led to major contracts with France,
Israel, Great Britain and Italy, not to mention the US
and Russia. Indeed, Indian analysts suspect that India
will further Westernize its purchases due to the high
price and relatively low quality of Russian weapons,
parts and servicing compared to European, Israeli, and
American systems. While this does not mean suspension of
purchases from Russia, it does raise disturbing trends
for the Russian defense industry. Both official and
expert commentaries have expressed growing resentment
and concern over India's excessive dependence on Russian
arms, high prices, poor quality and service, and the
slow pace of negotiations with Russia. For example, the
negotiations for the Gorshkov aircraft carrier lasted
for 10 years, almost as long as it would take to build
one, and India ultimately had to pay dearly for the
retrofitting of the carrier's Mig-29 fighters, which are
no longer state of the art.
If India turns away
from Russia it will represent a major blow to Russia's
struggling defense industry, which gets 40 percent of
its foreign sales revenues from exports to India, its
largest customer. It will become even harder for that
industry to compete globally or to become a reliable
supplier to Russia's armed forces, a condition which it
has yet to achieve. In turn, this could seriously set
back Russia's industrial, defense industrial and overall
military modernization.
EU sales to China, if
they do materialize, will similarly affect Russian
defense manufacturers, who now sell about 30 percent of
their annual exports to China. Though China now buys
between US$2 billion and $2.5 billion annually from
them, increasingly it is buying technology and know-how
rather than new weapons. Certainly, China, too, would
prefer, all things being equal, to buy high quality
foreign systems that it could then indigenize as India
is now trying to do. Its track record with Russian
purchases suggests as much to foreign observers. Thus if
the EU lifts sanctions, not only will that seriously
affect its relations with Washington and US ties to
major EU producers like France and Germany, that
decision will also seriously hurt Russian interests.
Though the Russian angle has not been explored
publicly in the diplomatic moves and countermoves now
under way, one can rest assured that the Kremlin fully
understands what is at stake. Its efforts to obtain or
at least retain market share in these two countries will
necessarily increase, making the international arms
market even more of a buyers' market, where India and
China can make demands of sellers that would hitherto
have been unthinkable.
Moreover, if the
Asian-Pacific market becomes so much more competitive,
we can expect a renewed push by Russia elsewhere:
Southeast Asia, the Middle East, sub-Saharan Africa and
South America in particular. But it is by no means clear
that these areas can make up for what the Russian
defense industry might lose if these projects go through
and if sanctions are lifted. Nevertheless, the growth of
Asian-Pacific economies clearly coincides with growth in
their overall technological, and especially defense
technological, and defense capabilities. And these
growing capabilities may well come at the further
expense of Russia's already fragile economic and
strategic position in Asia.
Stephen
Blank is an independent security affairs analyst
residing in Harrisburg, PA.
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