Defense industry not sold on Trump's drone export deregulation efforts

July 31, 2020

By Sara Sirota

The Trump administration is touting its export policy for unmanned aerial systems as a win for American companies, but some industry representatives say the government still hasn't fixed ongoing restrictions that hinder business.

Last week's announcement reversing decades-long arms control policy came with much uncertainty about drone exports -- especially to countries where competition with Chinese providers is greatest -- and didn't lessen co-production regulations or address other demands.

Seeking more export freedom as militaries worldwide shift away from manned aircraft -- and with higher stakes now that the Air Force looks to end MQ-9 Reaper purchases and looming budget cuts -- defense industry advocates are continuing to exert pressure to have greater access to the international market.

The July 24 announcement said the government will no longer follow the Missile Technology Control Regime's "strong presumption of denial" standard when considering transfers of a specific subset of Category I drones -- those that can travel up to 800 km per hour. Instead, it will review potential sales of these high-speed systems on a case-by-case basis.

Members of the 1980s-era MTCR abide by its guidelines limiting proliferation of unmanned vehicles, including both missiles and drones, that can deliver weapons of mass destruction on a voluntary basis since the international body is not a legally binding treaty.

Category I systems, which can carry a payload of at least 500 kg to a range of at least 300 km, have the hardest restrictions. That has resulted in the government mostly refusing to approve transfers of General Atomics' MQ-9 Reaper and Northrop Grumman's RQ-4 Global Hawk, among others, frustrating American manufacturers.

Many in the defense industry saw a promising opportunity when the Trump administration's 2018 UAS export policy pledged to ease sales to military partners abroad. Despite the Pentagon's efforts to streamline internal procedures, trade advocates two years later still haven't seen the uptick in international business deals they had anticipated.

There's been resistance inside the government to actually implement the policy, according to Keith Webster, president of the Defense and Aerospace Export Council at the U.S. Chamber of Commerce. That's why the defense industry had been pressuring the Trump administration to make a formal announcement and motivate the bureaucracy to align itself, he told Inside Defense in an interview earlier this week.

But given that it took the State Department two years to make this announcement and the holds on outstanding sale requests awaiting approval, companies are pushing for more than just messaging, a defense industry source said.

For example, the Trump administration has boasted since 2018 that easing UAS exports defends American companies against Chinese competitors in the global marketplace. However, the State Department hasn’t authorized sales to countries where Chinese manufacturers are the primary rivals, such as in the Middle East, where concerns about human rights and technology release to third-party actors may deter approvals.

Instead, the Trump administration has only authorized sales to allies elsewhere, such as in Europe, where the largest competition comes from Israeli companies, the source said.

Webster acknowledged the White House's MTCR decision could result in more rivalry with companies from Israel, which although not a member of the regime, has historically followed the United States' lead in interpreting guidelines.

"As this administration rightly did agree very early on to sell Sea Guardian to India, then that opens the door diplomatically for Israel to go in as a competitor and be aggressive," he said, referring to a variant of the MQ-9 drone.

Beyond the pace of implementation and questions about anti-China messaging, the White House's transition from a "strong presumption of denial" to a "case-by-case" standard when considering UAS exports could have minimal difference in practice, according to one international trade attorney.

"Within the State Department and the Commerce Department, I know plenty of instances where case-by-case are effectively administered with the same degree of strictness as a presumption of denial," Clif Burns, senior counsel at Crowell & Moring LLP, an international law firm, told Inside Defense Thursday. "The proof is in the pudding. We don't know yet."

A July 24 White House press statement said the new MTCR interpretation will "increase our economic security by opening the expanding UAS market to United States industry," but the policy announcement didn't address the regime's ban on installing production facilities in other countries -- another limitation that defense industry advocates want to overturn.

Per MTCR guidelines, this activity is "prohibited absolutely" -- a harsher restriction than on the transfer of drones themselves. The rule means American manufacturers can't rely on shared investments afforded to other arms sale programs or meet the co-production offsets that some foreign countries demand when purchasing weapons.

Many companies have strong interests in co-development and co-production and asked several questions about such opportunities during a July 24 meeting with State Department officials about the MTCR policy announcement, according to the industry source, but the government said the update doesn’t mitigate regulations.

Webster had been pushing the Trump administration to enable cooperative arrangements with foreign customers’ defense industrial bases and will continue to lobby for this moving forward, he said, noting the government could at least start with its Five Eyes partners, referring to the U.S.’s closest intelligence allies -- Canada, the U.K., Australia and New Zealand.

He defended the push to allow such joint ventures, saying, “Look at the F-35, it’s a multinational program and the F-35 can deliver a nuclear capability, so why are we denying the ability of our industries and our Department of Defense to capitalize on innovation in this platform space on the global market?”

A State Department official told Inside Defense in an email earlier this week that the July 24 announcement “doesn’t speak to co-production or co-development because that is not its focus” and declined to say if the department will consider opening up such business opportunities in the future.

Burns said he could see the government being cautious about co-development and co-production, noting, “It’s one thing to allow the transfer of the system, and it's another thing to allow the transfer production facilities, because you can't control to the same extent the systems that are made by those production facilities.”

Moving forward, Webster doesn’t just want to ease MTCR restrictions but remove UAS exports from the regime entirely, particularly as militaries are increasingly relying on drones to fight their wars.

“Decades ago, it made sense to include . . . the capability in MTCR, but the world has drastically changed, especially with the conflict in Iraq and Afghanistan and the proliferation of unmanned surveillance aircraft and other platforms, as well as global competition,” he said.

“Our position has been, and we're not alone, that ideally, given what we know today and where we think the technology is going tomorrow, to include fighter aircraft that will most likely be unmanned post Joint Strike Fighter, so why are we continuing to keep this capability in the MTCR? It makes no sense,” he added.

In addition to shifts toward unmanned systems overall, Webster acknowledged the Air Force’s decision to end the MQ-9 Reaper production line early “ramps up the anxiety for the campaign to try to be a bit more positive in transfer decisions.”

That loss in sales is compounded by future defense budget cuts and uncertainty surrounding the impact of the COVID-19 pandemic on military spending.

“The question is 2022 and out, how big of a cut do we see, whether it's Trump or Biden,” Webster said. “Our industries will then look and say on average 70% of their sales are domestic, 30% are international, so if it's now 65% domestic, they're going to want plus 5% international to just . . . maintain workforce, to maintain profitability, to maintain [research and development] investments.”