In the Short Term, the United States Is Likely to Remain Strong in the World Market, but Further Growth Will Be Limited

While the global defense export market has declined since the late 1980s, the United States has become the world’s leading defense exporter. The market share of France, Germany, and the United Kingdom combined has increased from 26 percent of total arms deliveries in 1990 to  32 percent in 1993. Further growth in the U.S. market share will be limited by several factors, including U.S. national security and export control policies. For example, in order to reduce dangerous or destabilizing arms transfers, the United States does not sell its defense products to certain countries, as part of its national security objectives. Certain major foreign country buyers’ practices of diversifying weapons purchases among multiple suppliers further limits U.S. market share. These studies indicate that (1) each sale has its own unique set of circumstances and (2) the outcome is dependent on various factors. While the study was conducted to determine the need for defense export financing, it found that other factors influence defense sales, such as price, technical sophistication of the equipment, the cost and availability of follow-on support, system performance, lead time from placement of order to delivery, the availability of training, political influence, and the financial and economic conditions of purchasing countries. Governments Generally Provide the Same Types of Assistance to Defense Exporters

We found that France, Germany, the United Kingdom, and the United States generally provided the same types of assistance, but the extent and structure of the assistance varies. Government-Backed or -Provided Export Financing

All three European countries provide some form of government-backed export credit guarantees for both non-defense and defense exports as a means to provide security assistance and promote sales of their defense products. Scope and Methodology

Because of the continuing debate on how much support to provide to defense exporters, we reviewed conditions in the global defense export market and the tools used by France, Germany, the United Kingdom, and the United States to enhance the competitiveness of their defense exports. Specifically, we compared the U.S. position in the global defense market relative to its major competitors and analyzed the various factors that can contribute to a sale, including export financing and other types of government support. In 1993 these four countries represented 81 percent of the world’s total defense market. This group included officials from national governments, academia, and European defense companies. U.S. Defense Export Financing Primarily Provided Through the Foreign Military Financing Program

In the United States, most financing is provided through the government’s Foreign Military Financing (FMF) program, with limited financing provided by commercial banks. Moreover, the U.S. government has long recognized the positive impact that defense exports can have on the defense industrial base. At that time, the Secretary of State directed overseas personnel to assist defense companies in marketing efforts.
Why GAO Did This Study

GAO reviewed the global defense export market and on the tools used by the United States and three major foreign competitors to enhance the competitiveness of their defense exports.

What GAO Found

GAO found that: (1) the United States has been the world's leading defense exporter since 1990; by 1993 its market share had increased to 49 percent of the global market; (2) the increased U.S. market share occurred during a period of worldwide decreases in total defense exports; (3) the three European countries reviewed (France, Germany, and the United Kingdom) had in 1993 a combined global market share of about 32 percent of total defense exports, which also increased since 1990; (4) in the short term, at least, the United States will likely remain strong in the world market; however, further growth in its market share will be limited by a number of factors, including U.S. policies to reduce dangerous or destabilizing arms transfers to certain countries and certain major foreign country buyers' practices of diversifying weapons purchases among multiple suppliers; (5) government involvement in the defense industry's sales affects the position of defense manufacturers in overseas markets, but other factors also influencing defense sales include technical sophistication and performance, the cost and availability of follow-on support and training, price, financing, and offset arrangements; (6) government policies and programs can also affect these other factors; (7) because each sale has its own unique set of circumstances, it is not possible to quantify or rank the contribution of any one factor across the board; (8) the U.S. government has long recognized the positive impact that defense exports can have on the defense industrial base; (9) in 1990, the Secretary of State directed overseas missions to support the marketing efforts of U.S. defense companies as in all other areas of commercial activity; (10) governments in France, Germany, the United Kingdom, and the United States generally provide comparable types of support, including: (a) government-backed or -provided export financing; (b) advocacy on behalf of defense companies by high-level government officials; and (c) organizational entities that promote defense exports; (11) although all four countries generally provide comparable types of assistance to their defense exporters in these areas, the extent and structure of such assistance varies; (12) central organizations support defense exports in France and the United Kingdom, while in the United States several government agencies share in supporting defense exports; and (13) all three European countries provide government-backed guarantees for commercial bank loans, while in the United States, financing is provided primarily through the Foreign Military Financing Program in the form of grants and loans and available only to a small group of countries.