Arms Embargo: No Lift in Sales

March 7th, 2005

By Rana Forhoohar

Why European business can follow the U.S. lead on China, without really embarrassing the EU.

March 7 issue - No matter what Jacques Chirac and Gerhard Schröder may say, it's clear that European defense contractors plan to follow George Bush's lead and maintain the arms embargo on China. Mike Turner, the CEO of British firm BAE Systems, Europe's largest defense company, said his company "will do nothing that will jeopardize our position with the U. S. They are a very, very important customer." EADS, the Franco-German conglomerate, has made similar statements. Dassault of France, which makes the Rafale fighter jet coveted by Beijing, said "military sales to China are not on the agenda."

It's not hard to figure out why. The United States spends as much money on defense as the rest of the world combined, and there's still room for more. Homeland Security programs have bolstered demand for things like helicopters and electronic security equipment. "The European firms have to choose between the U.S. and China," says Andrew Dorman, a defense expert at King's College London.

That so many of Europe's top firms are following America's lead might seem an embarrassment to Brussels. The reality is more complicated. Last December, when the European Council announced its intention to lift the embargo, it also stated that the result should be neither a "quantitative nor qualitative" increase of arms exports to China. So why lift the ban if that has no impact? The embargo was imposed in 1989 after the Tiananmen massacre, and the Chinese "understandably, don't like being lumped in" with other embargoed countries like Burma and Zimbabwe, says Emma Udwin, an EU spokesperson. "This is about removing... an irritant to EU-Chinese relations."

But will Beijing be satisfied with a mere gesture? European officials seem confident that China will take the long view, and see lifting the embargo as a good start. A U.S. congressional analyst agrees: to date China has been buying most of its imported fighters and subs from Russia, and has no plans to buy the "big stuff" from Europe, anyway. What concerns Washington is the transfer of technology, like command-and-control systems. China has already committed 200 million euro to the Galileo satellite navigation system, Europe's answer to America's Global Positioning System.

Brussels is trying to soothe U.S. fears with a new code of conduct for EU exports to China. But the document doesn't clearly cover many items of concern, such as "dual-use" equipment that could have either commercial or military applications. Meanwhile, Congress is preparing to rule on British access to sensitive military technologies, and whether Boeing or EADS will get a major new Air Force tanker contract. No wonder Europe's defense companies are listening to Bush.

With Tracy McNicoll in Paris