Air University Review, May-June 1986
Lieutenant Colonel William J. Frey
American arms transfers emerged from World War II as a means of assisting friendly countries while eliminating surplus weapons and equipment from the U.S. arsenal. As the world economy recovered through the 1950s, the United States attempted to shift more defense responsibilities to its allies. By the 1970s, the United States had moved almost entirely from military grants to sales, especially after the Foreign Military Sales Act of 1968. With the oil crisis and resulting global instabilities of the 1970s, arms sales boomed and American companies became increasingly dependent on foreign sales for their survival.1
During this period of growing foreign military sales (FMS), the Department of Defense (DOD) and the State Department eagerly cooperated to combine sound foreign policy with good economic benefits.2 While sales grew, however, neither the Nixon nor the Ford administration had a coherent FMS policy. The long-term strategic interests of the United States were never apparent within the context of these foreign sales.3
In 1977, President Carter made an attempt to restrain and control U.S. arms transfers with a new policy. He stated that the United States could not be "both the world's champion of peace and the world's leading supplier of the weapons war."4 Tied to this new transfer policy were multilateral talks with other arms suppliers to curb the spread of new weapons.5 These talks failed to achieve any positive results, however. Finally, in 1980, President Carter, realizing that his arms transfer policy was too restrictive to allow for foreign policy options, made an exception to the policy.6 His decision to allow production of an FX was a way of discouraging foreign purchases of highly sophisticated U.S. aircraft while still meeting the valid defensive concerns of friendly nations.7 This decision initiated the development of both the F-5G fighter aircraft by the Northrop Corporation, now redesignated the F-20 after many modifications, and the F-16/79 fighter aircraft by General Dynamics.8
President Carter's 1977 arms transfer policy specifically stated that the United States would not be the first supplier of advanced weapon systems into a region and that it would not allow deployment of any system not already in the U.S. inventory.9 Northrop's F-5E, which had been exported through FMS and was already in the U.S. inventory, met these criteria, so a development project was started to upgrade the aircraft to meet the changing nature of the Communist threat.10 DOD had, in fact, requested designs for a newer version of an aircraft like the F-5E to fill Taiwan's need for a new, low-cost fighter.11 According to a report to the Senate Foreign Relations Committee in the fall of 1977 (six months after President Carter's new policy had been implemented), the new policy was more rhetoric than fact because arms transfer had continued on a routine basis.12 The potential importance of the Northrop sale to Taiwan was seen as a very significant factor in maintaining Northrop's viability as a major aircraft producer; therefore, the continuation of arms sales abroad was encouraging to the company.13 Thus, Northrop was shocked when, in 1978, President Carter denied the proposed sale of F-5Gs, particularly since Taiwan already had some F-5Es in service. The Carter administration considered the newer F-5G to be too sophisticated for the defense needs of Taiwan.14 Northrop, realizing that the commercial incentive of the F-5G program was not being politically backed by the government, deemphasized the entire project. The Carter administration's inconsistent signals to Northrop resulted in a delay in the evolution of the new intermediate export fighter.
The next critical example of the Carter administration's failure to follow its own arms transfer policy came about as a means to clinch the Camp David agreement. The 1978 Middle East package dealwhich included the sale of 200 combat aircraft, mostly F-15s and F-16s, to Egypt, Israel, and Saudi Arabiaopened the door for Third World countries to request our front-line fighters. 15
To further complicate the export market, the multilateral talks on arms restraint had broken down with no agreements; and other suppliers, such as France, had simply filled in the void created by U.S. sales reductions.16 Northrop, which had sold more than 2500 F-5 fighters worldwide during the 1960s and 1970s, suddenly was without a competitive product.17 Barry N. Blechman, Assistant Director of the Arms Control and Disarmament Agency, testified before Congress that the U.S. reductions in foreign arms transfers had actually encouraged other nations and increased worldwide arms sales.18 The ultimate decision in any arms transfer policy was finally being recognized as necessarily political in nature.19
A State Department report in late 1979 concluded that a new export fighter was
absolutely necessary to stop more countries from turning to front-line aircraft. Also, the availability of such an aircraft would give the United States a more flexible foreign arms transfer policy to deal with friends and allies.20In January 1980, after months of interagency study, President Carter decided to waive part of his 1977 arms transfer policy to permit development of a new export fighter (FX).21 The new aircraft was to have capabilities between the F-5E and current U.S. front-line fighters such as the F-16A.22 As conditions to this development effort, the government would not provide funding support, and the contractor would assume all financial and market risks. In addition, the aircraft could be sold only on a government-to-government basis through existing FMS procedures.23The fact that President Carter's policy restricted the effort of front-line aircraft seemed to assure a market for the FX.24 In contradiction with this assumption, however, was the guidance to all U.S. government representatives abroad that they could not initiate discussions on FX purchases (standard policy) but only respond to requests for information.25This caveat should have been a good indicator of the limited government support for the FX program.
To meet the FX policy guidelines and be competitive in the FX arena, Northrop resurrected its dormant F-5G program.26 More guidance was received from the U.S. Air Force, which, in March 1980, was appointed by the Secretary of Defense as the executive agent to manage the FX program.27 The key factor in the developmental effort by Northrop was extensive research into newer avionics and engine technology, which was then used in the construction of the updated version of the F-5G. Totally financed by Northrop, this aircraft became the first major weapon system developed in more than half a century that was not directed and funded by the government.28
On 8 July 1981, President Reagan signed National Security Decision Directive No. 5, which superseded President Carter's arms transfer policy.29 Where President Carter preferred to view arms transfers as exceptional foreign policy implements, President Reagan chose to consider them an indispensable component of U.S. foreign policy and an essential element of our global defense posture.30 The FX policy was kept intact, and further development was even encouraged, with emphasis on less costly and sophisticated alternatives to our front-line fighters.31
An additional indication of the Reagan administration's support for the FX concept was given by Under Secretary of State James L. Buckley during testimony before the Senate Foreign Relations Committee in July 1981. His statements explicitly supported the FX concept and encouraged production of the aircraft.32 For the first time, however, concern about the potential viability of the FX program was expressed in a congressional report to the same committee.33 Countries such as Pakistan were requesting front-line fighters to counter perceived Soviet threats, and a "momentous policy reversal" was seen as a possible result.34 Late in 1981, this latter perception was magnified when South Korea signed a letter of offer for thirty-six F-16s, with delivery to begin in 1986.
Encouraged by President Reagan's new FX policy, however, Northrop actively pursued the potential sales of F-5Gs to Taiwan, which, in conformance with Carter administration preferences, had not agreed to buy more F-5Es. This time, President Reagan rejected the proposed sale because of the improving U.S. relations with the People's Republic of China. Northrop was still not able to open up its production lines.35
Secretary of Defense Caspar W. Weinberger, in March 1982, directed the Air Force and Navy to select one of the two FX aircraft jointly for purchase by October 1982. (This direction was later rescinded.) The Special Defense Acquisition Fund (SDAF) was proposed to be used for the purchase. While both Northrop and General Dynamics were developing FX aircraft, Weinberger's selection criteria closely paralleled the design characteristics of the F-5G, leading to speculation that Northrop would soon be
able to go into production.36 Even before the services could proceed very far with their selection process, the House Foreign Affairs Committee voted to preclude the use of SDAF funds for the FX.37 Once again, FX hopes dimmed.
Further complicating the support of both the FX and Northrop was an uncertainty within the government about its true role in the arms transfer arena. On one side was an effort to reduce the emphasis on exporting military aircraft. On the other side, Deputy Secretary of Defense Frank C. Carlucci was encouraging more sales. In the summer of 1982, Carlucci sent a memorandum to the Air Force and Navy charging them to actively encourage potential foreign customers to procure FX aircraft.38 Then, only four months after the first memo, Carlucci sent a classified memo to the services abandoning the FX policy and opening the door for the sale of front-line fighters to other countries.39
With these mixed signals coming from the Reagan administration, Northrop was obviously quite worried that its aircraft with the FX label would possibly have to compete with front-line fighters. In November 1982, Northrop requested that the F-5G be redesignated the F-20, reflecting the extensive changes since its inception and hoping to give it a new image.40 In December, Carlucci reversed himself again, after prompting from the White House, and directed the Air Force to fund a small number of F-20s in the fiscal year 1984 budget.41 This purchase was supposed to be enough to get the F-20 production line started while also displaying government backing for the aircraft.42 Once again, the FX was being pushed for export.
The question of possible favoritism toward Northrop was raised when General Dynamics, Northrop's FX competitor, complained about White House support for the F-20 and the drive for foreign orders. The Reagan administration reportedly was endorsing the F-20 because of the aircraft's anticipated simplicity of operation and lower maintenance costs.43
Directly on the heels of these developments came a blow to Northrop's program: approval for the sale of F-16As to Pakistan. In December 1982, President Reagan, reacting to the Soviet invasion of Afghanistan, agreed to an economic and military aid package for Pakistan that included the expedited delivery of F-16As. This decision was the first break in U.S. policy allowing front-line aircraft to be sold outside the circle of NATO, South Korea, and the Camp David agreement countries. The Third World saw the opening, and soon most U.S. friends and allies began requesting only "the very best."44 The perception that the "exceptions" to President Reagan's arms transfer policy were becoming the rule was reinforced when Venezuela was allowed to purchase F-16A aircraft in 1983.
As it became evident that arms sales were domestic, political, and foreign policy issues which were dissolving any viability left in the FX program, Northrop's dilemma continued.45 The company had remained committed to the development of the F-20, still totally at company cost, and had a prototype aircraft to prove how truly sophisticated an aircraft it was. In many respects, the F-20 was equal to or better than U.S. front-line fighters, yet it was stuck with the FX stigma.46
Northrop signed a Memorandum of Agreement with the Air Force in May 1983. This agreement appointed the Air Force as executive agent responsible for certifying the F-20's performance, air worthiness, and fixed-price program.47 Northrop hoped that this USAF involvement would help convince countries to purchase the aircraft. But another blow to Northrop's efforts came later that year: the U.S. government made a financial commitment to help Israel develop its own new fighter, the Lavi. Northrop objected to this assistance because the aircraft would be a potential competitor in the export market. Also, Northrop argued, while Northrop alone had funded its F-20 program, here the government was subsidizing a foreign competitor.48 Congressional support for Israel prevailed, however, and Northrop had lost yet another battle.
The F-20 program had progressed quickly, and by early 1984, the aircraft had proved itself to be an outstanding fighter. The F-20 displayed the fastest time of any fighter in the world.49 Why, then, were foreign countries refusing to purchase the aircraft? The answer lies in four factors: the lack of an active production line, the failure of the government to buy the aircraft, the availability of advanced foreign aircraft such as the Mirage 2000, and the potential availability of U.S. front-line aircraft.50 Without the aircraft in service somewhere, the question of logistics support was also unanswered. Because of all these uncertainties, countries were not ordering the aircraft.51
Congress got further involved in the FX issue by conducting hearings in March 1984. William Schneider, Jr., Under Secretary of State, for Security Assistance, Science and Technology, testified that continuation of the current FX policy might not result in future sales. He further stated that the government had been promoting the sale of FX aircraft and had also encouraged the FX manufacturers and their developmental efforts.52 The real caveat of his testimony, however, came when he confirmed that the sale of military equipment was not entirely a commercial venture but rather an instrument of foreign policy.53 An obvious question was not addressed: Why encourage manufacturers to risk their own funds when they have very little, if any, control over sales policies?
The Chairman of Northrop, Thomas V. Jones, voiced this and other concerns when he testified before the same congressional committee. Jones accused the government of not actively seeking out customers and not showing comparison data between the F-20 and other fighters to interested customers. His recommendation to the committee, given that
front-line aircraft would continue to be sold worldwide, was to discard the FX policy and let all aircraft compete for the foreign market.54At least such a move would give Northrop a chance to competesomething it felt it could not do under the FX stigma. Concluding congressional remarks from this committee accused the State Department and DOD of FX policy rhetoric that had not been actively supported.55
Additional support for Northrop's position came from Brigadier General Thomas Baker, Hq USAF Director of International Programs, who testified before Congress in March 1984. He stated that the U.S. Air Force was not actively marketing the export fighter.56 Reinforcing this statement was the fact that during the previous four years (1980-84) more than 1100 U.S. fighter aircraft had been sold to twenty-nine countries, yet not one had been an FX.57 As large as this total was, however, it represented only one-half of the total aircraft sold abroad during the Carter administration. Other countries, such as France, were supplying the rest.58
As a possible response to growing congressional pressure, the Air Force was directed in April 1984 to promote the FX more actively. Specific comparison briefings were given to several potential customers during May and June of 1984, detailing the excellent (but limited) performance and cost advantages of both the F-20 and F-16/79.59 Still, the Reagan administration's decision to make an exception to the FX policyas it had done for South Korea, Pakistan, and Venezuelamade the sale of an "export fighter" to countries difficult, regardless of the quantifiable benefits, when the possibility to purchase front-line aircraft existed.60
The Air Force, which had participated extensively in the operational testing of the F-20, published an internal report in late June 1984, summarizing the status of the program. The F-20 was characterized as having outstanding performance against all threats anticipated in the export market. It was a viable candidate for upgrading the tactical air force aggressor unitsa requirement that had been stated by the services earlier in 1984. The report also stated that the F-20 had been contractor-funded, totaling more than $750 million, compared to $60 million for the F-16/79. In addition, General Dynamics had leased from the Air Force a modified F-16B, which was then used for the developmental testing. The conclusion of the report was that the F-20 was an excellent aircraft but that the potential market was small to nonexistent.61
Through the fall of 1984, articles and news reports about the F-20 placed more pressure on the government to do something. The Department of Defense was accused of ignoring the F-20 and even trying to dissuade foreign customers from buying it because it had not been developed by the Air Force.62 Even Northrop complained a little, stating that although the F-20 had been produced at government invitation, the F-16A was being pushed by the Air Force for overseas sales. According to Northrop, the government receives money back from every buyer for each F-16A exported; these funds are a recoup of research and development costs, and they lower the unit cost for each U.S. purchased aircraft.63 Northrop did not complain too strongly, however, because the Air Force holds a trump card that Northrop very much wants. The new Stealth bomber contract is potentially worth billions more than the F-20 program. The company cannot afford to push too hard on the F-20 issue, or it might risk cancellation of its part of the Stealth contract.64
The Air Force, in explaining the lack of F-20 sales, says that the aircraft was developed as a private venture for export and was never intended for U.S. use.65 Of course, we should remember that front-line aircraft were to be restricted from foreign sales, thus creating a market for the FX. The frequent exceptions to policy may have implied changes in the other ground rules.
In one last effort to save the FX concept, Congress directed the Air Force and the Navy to
study the merits of a common purchase for a new aggressor aircraft.66 In November 1984, while the Navy asked for proposals and bids for its aggressor aircraft, the Air Force had not yet decided what to do. A potentially fatal blow was struck to Northrop when, in January 1985, the Navy selected a specially configured version of the General Dynamics' F-16 for its aggressor aircraft. The aircraft was rumored to have been sold at a loss just to keep Northrop's F-20 out of the U.S. market.67 Obviously, any joint purchase with the Air Force has now disappeared.68
One Air Force program in which the F-20 might still be considered is the Air National Guard (ANG). Older F-4s will soon be replaced in the air defense role, and the F-20 is a consideration; however, F-15s and F-16As are already in the out-year buys for the ANG. The possibility of changes now appears quite remote.69
The future of the FX policy and the F-20 is now unclear. As of March 1985, the Joint Chiefs of Staff and the Secretary of State were reconsidering the policy and their recommendation to President Reagan. The government's changing FX policy has obviously slowed acceptance of the F-20 by potential customers. President Carter's original arms transfer policy specifically placed the financial responsibility on the FX developer, yet the government's perceived encouragements to Northrop and inconsistent implementation of FX policy may very well lead some people to believe that the government is at least morally obliged to remedy the situation.
1. Anthony Sampson, The Arms Bazaar: From Lebanon to Lockheed (New York: Viking, 1977), p. 331.
2. Ibid., p.152.
3. Roger P. Labrie, John G. Hutchins, and Edwin W. A. Peura, U.S. Arms Sales Policy: Background and Issues (Washington: American Enterprise Institute for Public Policy Research, 1982), pp. 8-9.
4. David J. Louscher and Michael D. Solomon, "Set and Drift," Naval War College Review, November-December 1980, p. 82.
5. Labrie, Hutchins, and Peura, pp. 12-14.
6. Douglas Richardson, F-16, vol.2 of Modern Fighting Aircraft(New York: Arco,1983), pp. 53-54; Alvin J. Cottrell, Robert Hanks, and Michael Moodie, "Arms Transfers and US Foreign Military Policy," Significant Issues Series (Washington: Center for Strategic and International Studies, Georgetown University, 1980), p. 29.
7. Department of State, Munitions Control Newsletter, No. 77, January-March 1980.
8. Major John H. Campbell, USAF, International Sales Action Officer, Hq USAF/PRIP, telephone interview, 28 February 1985.
9. J. C. Appleyard, J. B. Goodwin, and T. Dean, "President Carter's Conventional Arms Transfer Policy," NATO's Fifteen Nations, June-July 1977, p. 67.
10. Sampson, p. 152. See also, Herbert Y. Schandler et al., Implications of President Carters Conventional Arms Transfer Policy (Washington: Congressional Research Service, 1977), p. 92.
11. Donald E. Fink, "Taiwan Offered F-5G with Sparrow," Aviation Week and Space Technology, 21 August 1978, p. 12.
12. U.S. Congress, Senate Foreign Relations Committee, Implications of President Carters Conventional Arms Transfer Policy (Washington: Government Printing Office. 1977), p. x.
13. A. Doak Barnett, The FX Decision: "Another Critical Moment" in U.S.-China-Taiwan Relations (Washington: Brookings Institution, 1981), p. 35.
14. "Carter Vetoes F-5G Sale to Taiwan," Aviation Week and Space Technology, 23 October 1978, p. 24.
15. "FX Fighter Clearance Erodes Carter's Arms Sales Policy," Interavia, February 1980, p. 113.
16. Louscher and Solomon, p. 85.
17. Sampson, p.152.
18. U.S. Congress, Senate Foreign Relations Committee, Fiscal Year 1980 International Security Assistance Authorization (Washington: Government Printing Office, 1979), p. 41.
19. Cottrell, p.12.
20. Department of State, Munitions Control Newsletter, op. cit.
21. Andrew J. Pierre, The Global Politics of Arms Sales (Princeton, New Jersey: Princeton University Press, 1982), pp. 60-61.
22. Gramam Warwick, "FXThe Export Fighter," Flight International, 14 February 1981, p. 416.
23. U.S. Congress, House Subcommittee on International Security and Scientific Affairs and on Asian and Pacific Affairs, Review of Administration Policy an Sales of Advanced Fighter Planes to ASEAN (Washington: Government Printing Office, 1984), p. 9.
24. Gregg Easterbrook, "The Airplane That Doesnt Cost Enough," Atlantic, August 1984, p. 47.
25. Department of State, Munitions Control Newsletter, op. cit.
26. Jane's All the World Aircraft, 1983-1984 (London: Jane's, 1984), p. 448.
27. House Subcommittee on International Security and Scientific Affairs and on Asian and Pacific Affairs, p. 9.
28. Stephen V. Cole, "The End of the F-20?" For Your Eyes Only, 21 January 1985, p. 3.
29. "New U.S. Conventional Arms Transfer Policy," DISAM Newsletter, Fall 1981, p. 1.
30. U.S. Congress, House Committee on Foreign Affairs, Changing Perspectives on U.S. Arms Transfer Policy (Washington: Government Printing Office, 1981), p. iii.
31. "New U.S. Conventional Arms Transfer Policy," p. 10.
32. U.S. Congress, Senate Foreign Relations Committee, Conventional Arms Sales Hearings (Washington: Government Printing Office, 1981), p. 7.
33. House Committee on Foreign Affairs, p. 47.
34. Pushpindar Singh, "F-16s for Pakistan: Reactions and Views," Asian Defence Journal, September 1981, p. 41.
35. Benjamin F. Schemmer, "Pressures Build for DOD to Buy and Help Sell Northrop F-5G as Its Business Prospects Look Bleaker Than Advertised," Armed Forces Journal International, September 1982, pp. 98, 104.
36. "Pentagon Will Buy Export Fighters This Year," Defense Week, 29 March 1982, pp. 1-4.
37. "House Panel Amends Arms Act: Quashes FX Funding," Defense Week, 3 May 1982, p. 13.
38. M. H. Starsiak, Implications of Moving Away from Formal Foreign Military Sales (FMS): Procedures for Aircraft Sales (Washington: ASD-XOR Project, U.S. Department of the Air Force, 1982), pp. 22-23.
39. Richard Barnard, "Carlucci Reverses FX Policy for Persian Gulf," Defense Week, 22 November 1982, p. 1.
40. House Subcommittee on International Security and Scientific Affairs and on Asian and Pacific Affairs, p. 10.
41. Richard Barnard, "Carlucci to AF: 'Buy the F-20'," Defense Week, 20 December 1982, p. 1.
42. Ibid., p. 14.
43. Clarence A. Robinson, Jr.. "Defense State Aid F-20 Sales Drive," Aviation Week and Space Technology, 13 December 1982, p. 19.
44. James P. Coyne, "Trials of the Tigershark," Air Force, January 1985, p. 74.
45. Andrew J. Pierre, "Arms Sales: The New Diplomacy," Current World Leaders, May 1983, pp. 270-71.
46. Coyne, p. 74.
47. Campbell, op. cit.
48. "Reagan Approves Credits to Israel for Lavi," Aviation Week
and Space Technology, 28 November 1983, p. 27.
49. "Northrop F-20,Tigershark," Strategy and Defense, February 1984, p. 25.
50. Ibid., p. 19. See also, Mark Lambert, "Is 1984 the Year of the Tigershark?" Interavia, April 1984, p. 363; Brian Wans, "The Affordable Fighter Market," Interavia, January 1984, p. 25.
51. Campbell, op. cit.
52. House Subcommittee on International Security and Scientific Affairs and on Asian and Pacific Affairs, pp. 14-15.
53. Ibid., p. 42.
54. Ibid., pp. 93-95.
55. lbid., p. 50.
56. Melissa Healy. "Government Not Vigorous Salesman for Northrop F-20," Defense Week, 2 April 1984, p. 2.
57. Eugene Kozicharow, "USAF Will Increase Export Fighter Role," Aviation Week and Space Technology, 9 April 1984, p. 20.
58. Richard F. Grimmett, Trends in Conventional Arms Transfers to the Third World by Major Supplier, 1976-1983 (Washington: Congressional Research Service, 1984), pp. 28-32.
59. Kozicharow, pp. 20-21.
60. Campbell, op. cit.
61. Hq USAF/PRIP, Policy Statement on FX, 20 June 1984, pp.1-9.
62. Easterbrook, p. 47. See also, Benjamin F. Schemmer, "Weinberger Letters Say F-20 Is OK for 'Impoverished' Allies, but Not Threat," Armed Forces Journal International,October 1984, p. 30.
64. Easterbrook, p. 56.
65. "USAF: No Plans to Buy F-20," Flight International, 17 November 1984, p. 1298.
66. Melissa Healy, "Another Shot at Selling Navy 'Red' Fighters," Defense Week, 13 November 1984, p. 10.
67. Cole, p. 3.
68. Healy, "Another Shot at Selling Navy 'Red' Fighters," p. 13.
69. "Guard Studies F-20," Aviation Week and Space Technology, 26 November 1984, p. 17.
Lieutenant Colonel William J. Frey (B.S. University of South Alabama; M.S., Air Force Institute of Technology) is Chief, Advanced Pilot Training Programs, Hq USAF. He has served as a squadron operations officer in Tactical Air Command and an instructor pilot in Tactical Air Command and Air Training Command. Colonel Frey is a graduate of Squadron Officer School, Air Command and Staff College, Air War College, and Armed Forces Staff College.
The conclusions and opinions expressed in this document are those of the author cultivated in the freedom of expression, academic environment of Air University. They do not reflect the official position of the U.S. Government, Department of Defense, the United States Air Force or the Air University.
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