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Foreign Corporate Participation in U.S. Defense Contracts

Foreign Corporate Participation in U.S. Defense Contracts. November 20, 2008. Overview. Defense Contracting: Foreign Corporate Ownership in U.S. Companies Overseas Production by Foreign Firms Sales to Foreign Organizations of U.S. Produced Defense Articles. U.S. National Interests.

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Foreign Corporate Participation in U.S. Defense Contracts

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  1. Foreign Corporate Participation in U.S. Defense Contracts November 20, 2008

  2. Overview • Defense Contracting: • Foreign Corporate Ownership in U.S. Companies • Overseas Production by Foreign Firms • Sales to Foreign Organizations of U.S. Produced Defense Articles

  3. U.S. National Interests • National Security Interests • Access to classified information and technologies • Partnerships with allies • Industrial Base and Know-How • Domestic Interests • American Jobs • Industrial Base and Know-How • Cost to taxpayer

  4. U.S. Policy Mechanisms • Exon-Florio • International Traffic in Arms Regulations • National Industrial Security Program • Buy America • Trade Agreements and Treaties • Defense Authorization Bills • Lack of Off-Set Policy

  5. Recent Political Pronouncements • Bush • Supports Free Trade in general • Australian and United Kingdom Defense Trade Agreements • Dubai Ports World • Obama • Supports less Free Trade in general • No clear comprehensive policy, but not opposed to Buy America and rejects calls to loosen its requirements

  6. Selected Issue Overseas Production by Foreign Firms • Controversial data regarding pros and cons • Politically relevant and current • Stronger national security and domestic issues

  7. Why It Is A Problem • Lack of comprehensive policy and coordination for intertwined interests of DOD, GAO, DOS, DOC, etc. • National Security (Industrial Know-How, Re-Exporting and Selling to unauthorized countries, Classified Information • Lowest Cost Producer (Taxpayer Issue) • Loss of American Jobs • Lack of Information and Transparency • Lack of Formal Reviews • Lack of Action

  8. Policy Options • Special Provisions to Defense Authorization Bills: • Illegal Subsidies • Impact on Domestic Industrial Base Factors • Certain processes done in America • Encourage American firms to directly invest in foreign countries (keep profits and know-how in American hands) • New Offset Policy: • Adopt an offset policy to take advantage of the benefits of off-setting. • Prohibit offsets in trade agreements. • Increase transparency and review of offset transactions. • Create a commission to deal with these issues.

  9. Policy Options • Trade Agreements and Treaties with Allies: • Reduce regulation to improve productivity and mitigate risk by trading with strong allies (Australia, Europe, Canada). • Independent Committee: • Represent stakeholder interests of DOD, GAO, DOS, DOC, etc. • Oversee big contracts or those that involve sensitive products.

  10. Pros Increases industrial base through new offset policy and higher level jobs. National security potentially increased through strengthened relationships with Allies, increased turn around of defense products, and reviews of the committee. Savings to taxpayers and reduction of debt through lower cost, higher quality products. Safeguarding of classified information through processes required in America. Cons Reduces Industrial Base of America in lost industries (specific states and sectors) and lower level jobs. National Security potentially harmed if technology is transferred to non-authorized countries. May not safeguard re-exporting. Pros and Cons

  11. References http://www.aflcio.org/issues/politics/mccain_trade.cfm http://www.archives.gov/isoo/policy-documents/eo-12829.html http://armedservices.house.gov/pdfs/fy09ndaa/FINAL051508.pdf http://www.azcentral.com/business/articles/2008/08/03/20080803biz-foreignsales0803.html http://www.cfr.org/content/publications/attachments/Exon_Florio.pdf http://www.defenseindustrydaily.com/australia-signs-defense-trade-agreement-with-usa-03758/ https://www.dss.mil/GW/ShowBinary/DSS/isp/industrial_sec.html http://www.fas.org/sgp/crs/natsec/RL33312.pdf http://www.fas.org/sgp/crs/natsec/RS22197.pdf http://www.fas.org/spp/starwars/offdocs/itar/p120.htm http://www.gao.gov/highlights/d06135thigh.pdf http://www.gao.gov/new.items/d07661t.pdf http://thehill.com/business--lobby/foreign-dod-contractors-under-lens-2008-04-16.html http://www.iie.com/publications/chapters_preview/3918/02iie3918.pdf http://www.iie.com/publications/chapters_preview/3918/06iie3918.pdf http://www.msnbc.msn.com/id/11474440 http://www.ndia.org/Content/NavigationMenu/Advocacy/Action_Items/PDFs29/FY2009NDAAHightlights.pdf http://www.ofii.org/docs/buyamerica.pdf http://www.ssd.com/files/tbl_s29Publications/FileUpload5689/9815/Defense.pdf http://www.treas.gov/offices/international-affairs/cfius/ http://www.vsb.org/docs/valawyermagazine/vl1206_foreign-own-def.pdf http://www.vsb.org/docs/valawyermagazine/vl1206_foreign-own-def.pdf

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