BASIC PAPERS

JULY 1997 • NUMBER 22 • ISSN 1353-0402

Military Buildup in Central and Eastern Europe:  NATO Membership for Sale

By Kirsten Ruecker

Executive Summary
In preparation for NATO expansion, central and eastern European countries such as Poland, Hungary, the Czech Republic, Romania and Slovenia are purchasing offensive military hardware such as F-16 and F-18 fighter aircraft and attack helicopters in order to improve their prospects for membership.

NATO expansion has turned central and eastern Europe (CEE) into a lucrative arms market worth at least US$35 billion.¹ While the limited financial resources of these countries may prevent them from buying weapons "off the shelf," it has not deterred suppliers. Instead, with the assistance of western governments, arms suppliers have creatively devised a number of alternative financial arrangements. Military aid programs, offset agreements, coproduction, and "no-cost" leases may lessen the burden on CEE countries, however, it also appears western governments and taxpayers may foot part of the bill for this unnecessary and irresponsible militarization.

• Despite statements by NATO officials that a military buildup will not secure membership, central and eastern European elites are being pressured into buying these weapons and weapons systems in order to improve their chances for membership.
• By prioritizing the military component of aid to the region, western governments are facilitating the transfers of heavy weaponry. This includes the recent shifting of US funding from economic and political development to military aid programs.
• No external military threat to central and eastern European security exists.
• The selective arming of countries with advanced offensive weaponry is destabilizing to the region and counterproductive to NATO's security objectives.

Arms Suppliers' Interests in Central and Eastern Europe
Global military spending has reduced substantially since the end of the Cold War, with total exports declining almost 73 percent since 1990.² Cost estimates for NATO expansion range from US$27-$125 billion over the next 10-15 years alone.³ In this context, the emergence of a new market in central and eastern Europe is seen as lucrative business for manufacturers such as Lockheed Martin, McDonnell Douglas, Dassault and Saab. Manufacturers have already demonstrated their eagerness to establish an early market presence through aggressive marketing strategies in the region.

NATO expansion has secured CEE as a market for western manufacturers by claiming that NATO standards of interoperability should be met. While new members should contribute to peacekeeping and peace support operations, the qualitative militarization that is occurring is not in synch with these Alliance objectives. Prospective new NATO countries are being pressured to purchase advanced weaponry that will not meet their legitimate security needs and that will instead jeopardize stability in the region. Western suppliers are benefiting immeasurably from this erroneous assumption and falling over themselves to arm NATO's new partners to the teeth.

In the run-up to the Madrid Summit, suppliers have established permanent offices in the region, courted defence ministries and participated in sizeable arms fairs. Brno, the second largest city in the Czech Republic, was the site of a recent arms fair where over 300 manufacturers from 20 countries participated.

Recent and Future Tenders

• In April 1997, the Polish Defense Ministry announced that it would "issue invitations to tender" for 250 new multi-role fighters in October or November, with selection due in May or June 1998.⁴
• In June 1997, the Polish government awarded a helicopter upgrade contract worth US$600 million to Israel. The upgrades are expected to include avionics, missiles and fire-control systems.⁵

The Czech Republic

• In February 1997, the US Navy offered a 5-year "no-cost lease" of F/A 18s to the Czech Republic. The lease gives the Czechs use of the fighter jets for free but they are expected to pay for spare parts, support equipment and training-related items.⁶ Similar deals between the US Navy and Poland and Hungary are expected to follow.
• In April 1997, the Czech government made inquiries to defense manufacturers regarding the purchase of multi-role aircraft.⁷

• Hungary is expected to announce bids to modernize its aging fleet of MiG-21s and MiG-23s. This bid for advanced fighter aircraft is reputed to be worth US$1.2 billion. The "usual suspects" are all in line to compete for this deal.⁸

Slovenia

• In June 1997, Slovenia announced that it is discussing the purchase of 12 advanced Super Cobra attack helicopters.⁹ Valued at approximately US$300 million, the helicopters would be equipped with anti-tank missiles. Bell Helicopter Textron Inc. is reported to have already applied for the marketing license.¹⁰

Romania

• In April 1997, the Romanian Ministry of Defense announced plans to purchase used fighter aircraft and transport planes. This announcement was followed by a letter to the US Defense Department that stated Romanian intentions to purchase 12 F-16 or F-18 fighter jets and 9 Hercules C-130 transport aircraft.¹¹

The pressure to ensure transfers is also occurring on western soil. Arms manufacturers understand that transfers to CEE under the auspices of NATO expansion will prevent the scrutiny that transfers of high-tech offensive weaponry traditionally elicit. As such, manufacturers have initiated a strategy to influence US foreign policy. For example, Lockheed Martin Director of Global and Corporate Development Bruce Jackson has co-founded the US Committee to Expand NATO, a group which is attempting to influence Senate ratification of NATO expansion.¹²

CEE Pressured to Buy Advanced Weaponry
The pressure to buy advanced weaponry is reflected in policy decisions that contradict budgetary constraints in CEE countries. For example, in April 1997, the Hungarian air force announced that it was retiring from active service its fleet of MiG-23MF, MiG-21MF fighters and Sukhoi Su-22M-3 attack and trainer aircraft. This was justified as a "cost-cutting measure." Hungarian Defence Minister Gyoergy Keleti stated that these aircraft were too expensive to maintain in the absence of an immediate threat to Hungary. Ironically, the Hungarian air force is now considering purchasing new fighters, with the Saab JAS 39 Gripen, McDonnell Douglas F/A-18 and Lockheed Martin F-16 emerging as contenders for the contract.¹³

In some instances, the pressure has been even more explicit. In April 1997, the Polish Defense Ministry announced it would "issue invitations to tender" for 250 new multi-role fighters in October or November, with selection due in May or June 1998.¹⁴ Soon after, Poland announced its intention to delay plans to purchase new fighter aircraft for the next five years.¹⁵ The next day, in response to western pressure, the Polish government reversed its decision.¹⁶

Financing the Transfers
To finance the extensive transfers, the West has developed a variety of schemes, including selling off second-hand weapons, offering "no-cost leases" and negotiating offset agreements.

Through offset agreements, suppliers compensate recipient countries for weapons purchases by "offsetting" the costs through investing in the country or buying other products. These deals are perceived by CEE countries as a means to stimulate foreign investment and trade. Therefore, deals in this market are increasingly being negotiated on these terms. Hungary, for example, in its negotiations for a fighter jet contract with Lockheed Martin and McDonnell Douglas has signed offset framework agreements.¹⁷ In its April 1997 announcement of its intention to purchase 250 fighters, the Polish Defense Ministry stipulated that the agreement should provide for a maximum number of offsets.¹⁸ While offsets appear to reduce the financial burden on the purchasers by stimulating investment, the burden is instead shifted to supplier nations.¹⁹ In the end, this diverts the amount that CEE countries can directly invest in their civilian economies.

The smaller profit margins that manufacturers are accepting due to no-cost leasing and offset agreements are perceived as part of long-term strategies designed to secure product loyalty and establish market presence. In an interview with BASIC, one Central European official stated that weapons manufacturers marketing their products in CEE are "like drug dealers. First you give it to them for free."²⁰ Lockheed Martin's former President Norman Augustine said "If you can establish yourself in a part of a market, it makes the next competition easier."²¹ Obviously, Lockheed Martin envisions CEE as a long-term market, not simply as one solely concerned with modernization of forces to meet NATO standards.

Military Aid to CEE
Providing military aid to CEE has become a top priority for the United States. In December 1996, Poland, Hungary and the Czech Republic were added to the Pentagon's Defense Export Loan Guarantee (DELG) program.²² DELG is a self-financing program which permits the Pentagon to guarantee up to $15 billion in private sector loans to underwrite the sale or lease of US weapons or services. Although this program entails no direct expense to the American taxpayer, in the case of default or non-payment American taxpayers will be liable for the repayment of both the principal and interest.²³

These aid programs are directly linked to the ability of CEE to become NATO members. As Page Hoeper, US Deputy Undersecretary of Defense for international and commercial programs said, "We see a tremendous opportunity in using this facility to help ease some of the financial and cash flow burdens of enlarging NATO."²⁴

The focus on military financing has translated into reduced funds available for economic packages to CEE. In 1996, the United States withdrew $7.8 million from two economic assistance programs and shifted them to defense programs for a total of US$15.6 million.²⁵

Between the increased military aid and the generous purchasing agreements it is little wonder that central and eastern European countries believe that selling advanced offensive weaponry is at the top of the West's agenda in the region.

Meeting New Security Risks
While western suppliers and recipient countries are aggressively pursuing these deals, evidence of a threat necessitating the purchases of offensive weaponry remains unspecified. The new "risks" to European security cited by NATO in its 1991 New Strategic Concept include regional instability, ethnic rivalry and access to vital resources. NATO has consistently failed to provide scenarios which outline how sophisticated weaponry will be used to combat these "risks." Specifically, how will advanced fighter aircraft meet the challenge of "ethnic rivalries and territorial disputes," the "disruption of the flow of vital resources" and "actions of terrorism and sabotage"?²⁶ In the current environment, the proposed transfers fail to address the legitimate security concerns in the region.

Moreover, increased attention must be paid to the destabilizing consequences of selective transfers of heavy offensive weaponry to CEE. US President Bill Clinton's recent announcement that the first phase of enlargement will consist solely of Poland, the Czech Republic and Hungary will exacerbate the destabilizing factor that the transfer of offensive weaponry will have on the region. Excluded countries may very well wonder to what end neighboring NATO countries' fighter jets and attack helicopters will be used. The procurement of offensive military equipment, which may be of limited use in the age of new security "risks," may ironically jeopardize the security of countries that NATO claims membership will ensure.

Conclusion
It is often argued that even in the absence of NATO expansion, these countries would westernize their militaries. This argument is misdirected and misinformed. In the absence of direct military threats to these countries' security, the questions that western governments should be asking are: What is the purpose of these transfers? Are these transfers destabilizing?

Instead, the West is using weapons transfers as a foreign policy tool for a region that has in recent history been tension-ridden. One question remains elusive in the entire debate about NATO expansion. Given the absence of a direct military threat, the marketing objectives of suppliers to ensure "product loyalty" and the legitimacy that NATO expansion confers on the transfers of advanced offensive weaponry: whose interests are being secured?

Recommendations

• Establish a moratorium on the transfer of advanced offensive weapons to CEE countries. Such a policy could be patterned after the "presumption of denial" policy on US transfers of high-technology weapons to South America initiated under President Carter. Such a moratorium would promote long-term stability in the region by preventing a new arms race, and could be pursued as part of a larger package of confidence- and security-building measures.
  
• Undertake a regional impact study for all transfers of offensive weaponry to CEE. The US Congress has reportedly put the transfer of attack helicopters to Slovenia on hold citing the need to explore the impact this selective transfer will have on the region.²⁷
  
• Reinstate US economic assistance programs to CEE. These programs were initiated with the objective of rebuilding their economies and polities, not for the purchase of advanced aircraft and attack helicopters.
  
• Develop a policy on transferring the appropriate command, control, communications and intelligence equipment sufficient to enable CEE countries to effectively participate in peacekeeping and peace-support operations.
  
• Require CEE and NATO defense planners to publicly explain the role that advanced fighter aircraft and attack helicopters would play in a defense plan, specifically addressing how advanced offensive weaponry meets the challenges to central and eastern European countries' security.
  
• Modify NATO's proposed adaptation of the Treaty on Conventional Armed Forces in Europe (CFE) to account for increases of Treaty-limited equipment (TLE) after NATO enlargement. The agenda of current CFE negotiations in Vienna includes placing lower limits on the military holdings of participating states, but excludes air power reductions. Such a modified treaty would commit NATO to air power reductions and prevent further increases, such as those occurring in CEE.
  

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Endnotes

1. "Biggest Arms Fair in Europe Opens in Czech Republic," reprinted at http://www.centraleurope.com/ceo/news/10.html, May 07 1997. For a good discussion of the relationship between NATO expansion program and the military buildup in central and eastern Europe, see "Arming NATO's Partners," BASIC Paper No. 6, December 1994 (in .pdf) and "Arming Central and Eastern Europe," BASIC Paper No. 12, 27 September 1995.
   
2. World Military Expenditures and Arms Transfers 1995, US Arms Control and Disarmament Agency, July 1996, p.15.
   
3. There have been various cost estimates on the total cost of NATO enlargement. The recent US Department of State "Report to the Congress on the Enlargement of the North Atlantic Treaty Organization: Rationale, Benefits, Costs and Implications," 24 February 1997, estimates that the total costs of NATO enlargement will be between US$27-$35 billion from 1997 to 2009. This includes the costs of new members' military restructuring to new members for a total of US$10-$13 billion over the same time frame. However, another study conducted by the Congressional Budget Office which included various scenarios estimated that the costs of NATO enlargement could run up to US$125 billion over the next 10-15 years.
   
4. "Central Europeans To Call For New Fighter Bids By End-1997," reprinted at http://defence-data.com/page528.htm, May 13, 1997.
   
5. "Israel wins $600m. Polish helicopter contract," The Jerusalem Post, Internet edition, reprinted at http://www.jpost.com:80/com/Archive/05.Jun.1997/News/Article-2.html June 05, 1997. The article reported that although the Polish government and the Israeli consortium have agreed to the deal, no contract had been signed.
   
6. "C. Europe Fighter Contest Intensifies," Defense News, 3-9 February 1997.
   
7. 7."Czechs to sign for L-159s, seek fighter bids," Jane's Defence Weekly, 09 April 1997.
   
8. "Contenders vie for Hungary fighter deal," Financial Times, 26 May 1997.
   
9. "Critics Rap Possible Chopper Sale to Slovenia," Defense News, 2-8 June 1997.
   
10. ibid.
    
11. "Romania Eyes Purchase of Used U.S. Fighter Planes," reprinted at http://www.centraleurope.com/ceo/news/01.html, April 18, 1997.
    
12. "Weapons, Anyone?" Business Week, reprinted at http://www.businessweek.com:80/1997/22/b3529171.htm, June 02, 1997.
    
13. "Hungarian economising compels air force cuts," Jane's Defence Weekly, 16 April 1997.
    
14. "Central Europeans To Call For New Fighter Bids By End-1997," reprinted at http://defence-data.com/page528.htm, May 13, 1997.
    
15. "Poles put off buying new fighters," Financial Times, 18 April 1997.
    
16. "Poland confirms fighter plans," Financial Times, 19 April 1997.
    
17. "Contenders vie for Hungary fighter deal," Financial Times, 26 May 1997.
    
18. "Central Europeans to Call For New Fighter Bids By End-1997," reprinted at http://defence-data.com/page528.htm, May 13, 1997.
    
19. For a good discussion of the effects of offset agreements on the American economy, see William D. Hartung, Conflicting
    Values, Diminishing Returns: The Hidden Costs of the Arms Trade, Arms Transfer Control Project, World Policy Institute at the New School for Social Research, February 1994.
    
20. Central European official quoted in NATO Expansion: Time to Reconsider, British American Security Information Council and Centre for European Security and Disarmament, 25 November 1996, p. 5.
    
21. "Trading up from a MiG," Business Week, May 20, 1996.
    
22. "State Grants Loan Nod to C. Europe Nations," Defense News, 2-8 December 1996.
    
23. For a good discussion of the variety of US military financing programs and recent figures, see Federation of American Scientists, Arms Sales Monitor, No. 34, 30 April 1997.
    
24. "Pentagon Touts Loan Guarantees," Defense News, 16-22 June 1997.
    
25. See "1997 US Military Assistance to Central Europe," reprinted at http://www.cdi.org/issues/Europe/$ceeaid.htm.
    
26. These are the security risks specified by NATO in its current strategic formulation, "The Alliance's Strategic Concept," Agreed by the Heads of State and Government participating in the meeting of the North Atlantic Council in Rome on 7-8 November 1991.
    
27. There are conflicting reports on the status of this transfer. "Critics Rap Possible Chopper Sale to Slovenia," Defense News, 2-8 June 1997, it was reported that the House International Relations Committee has put a hold on any such sale. However, an aide to the Committee told BASIC that no such hold had occurred.