The two-edged sword

The fact that Boeing lost a multi-billion dollar military contract to a European organisation, EADS, has caused near apoplexy among some Congressmen. This must be because they are ignorant of how today's military hardware market operates. It is also deeply hypocritical.

The $35 billion deal for airborne tankers went to a consortium of EADS and US firm Northrop Grumman. The aircraft itself will be based on an Airbus airframe.

The most immediate sign of hypocrisy comes from Boeing itself. It has long railed against what it seems as unfair state subsidies that it says Airbus receives from the French and German governments. These, they claim, give Airbus an unreasonable advantage in the civil aircraft market. But Boeing has always refused to acknowledge that it is itself sustained by its own government. Military contracts have often kept Boeing afloat and overseas competitors know that they can't compete with the Seattle-based firm in that market. Until now.

And, of course, the first time Boeing is beaten in such a competition it starts whining and demanding the same kind of protectionism it has so often denounced in Europe. 

There are other double standards at play here, too.

For many years, the US has been selling - some might say pushing - its military systems to foreign countries. That's why you see US fighters being flown by Dutch or Spanish pilots. And it's not just the big stuff, such as planes and missiles. Communication systems, command and control systems, sensors, right down to component sub-systems, have found their way from the US into military forces around the world.

Indeed, the US relies on this. Foreign sales don't just bring in foreign currency, they also help achieve economies of scale, so that America's own military can better afford these systems. Some products, like the upcoming F-35 Joint Strike Fighter (which has attracted many millions in foreign investment) would be prohibitively expensive otherwise.

It's not quite as simple as flogging foreign armies some kit. There are plenty of items that US firms are not allowed to export, for simple and understandable reasons of national security. Or they can export them only to certain countries. These restrictions are covered by the International Traffic in Arms Regulations (ITAR) which have been known to cause immense frustration and irritation among the allies of the US - but mostly when they are prevented from obtaining some useful piece of equipment they would dearly love to buy.

In addition, most deals involve some - often quite considerable - 'offset'. This is the principle by which at least some portion of the money paid by the foreign government gets to stay in their own country. Typically, a local subcontractor will be given the task of manufacturing parts, assembling systems or acting as a consultant or integrator. There are times when the offset reaches 100 per cent, but the US vendor still benefits from the sustainment of jobs in the US through support and development contracts, as well as those economies of scale. 

So it's a complex picture, but one from which the US has greatly benefited for years. Occasionally, this has been at the expensive of indigenous defence companies who find themselves outpriced or simply outmanoeuvred politically. Home-grown technologies have sometimes been sacrificed for no better reason than maintaining some perceived 'special relationship' with the US. And there are those who fear that this reliance on US-based technology undermines the ability of a country's armed forces to act in an independent manner. In fact, such 'sovereign capability' is now very high on the agenda of most governments: the UK, for example, is making very sure that, even if it does buy some F-35 aircraft, it will be able to maintain and develop them itself.

For some people in the US to complain that the flow of arms has been reversed is therefore somewhat arrogant. It is also somewhat too late.

The US is the bastion of globalisation, and one effect of this is to erode protectionism - the very kind some Congresscritters seem keen to maintain. And the US armed forces already shop abroad. The Stryker armoured vehicle, for example, is a mainstay of the US Army. And while it might be built and sold by General Dynamics, it actually originates from MOWAG, a Swiss firm.

Similarly, the US President (whoever he or she may be) will soon be dropping on to the White House lawn in an Italian helicopter. Lockheed Martin won the contract to replace the current, ageing 'Marine One' helicopters with the US101. And while they trumpeted its benefits for US industry (and it will be largely US-made), one can't escape the fact that it is, at heart, an Agusta EH-101. That airframe, as part of a joint venture between Agusta and the UK's Westland,  also formed the basic platform for the Merlin helicopter, operated by the British Army and Royal Navy. And the development of that project created skills and jobs in the UK which will be used to support the US101. So the US programme is good news for both British and Italian jobs.

Boeing itself, made a huge number of offset deals for both the 777 and 787 Dreamliner. Large parts of these aircraft are now made outside the US. Airlines, many of them part- or wholly-owned by foreign governments, see no reason why the millions or billions of dollars they're spending on the aircraft should not go some way to supporting their own jobs and industries.

Offset and multinational projects are a fact of life and the inevitable outcome of globalisation. It's about time some people in the US woke up to the fact that they can no longer dictate terms - they are members of a global market, not its owner.