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...viewed at the following web site: http://www.fas.org/sgp/crs/weapons/RL33696.pdf.]
Introduction and Overview
This report provides the Congress with official, unclassified background data from U.S. government sources on transfers of conventional arms to developing nations by major suppliers for the period 1998 through 2005. It also includes some data on worldwide supplier transactions. It updates and revises the report entitled Conventional Arms Transfers to Developing Nations, 1997-2004, published by the Congressional Research Service on August 29, 2005.
The data in this report provide means for Congress to identify existing supplier purchaser relationships in conventional weapons acquisitions. Use of these data can assist Congress in its oversight role of assessing whether the current nature of the international weapons trade affects U.S. national interests. Maintaining regional stability, and ensuring the security of U.S. allies and friendly nations throughout the world, for most of recent American history have been important elements of U.S. foreign policy. Knowing the degree to which individual arms suppliers are making arms transfers to individual nations or regions provides Congress with a context for evaluating policy questions it may confront. Such policy questions may include, for example, whether or not to support specific U.S. arms sales to given countries or regions or to support or oppose such arms transfers by other nations. The data in this report may also assist Congress in evaluating whether multilateral arms control arrangements or other U.S. foreign policy initiatives are being supported or undermined by the actions of foreign arms suppliers.
The principal focus of this report is the level of arms transfers by major weapons suppliers to nations in the developing world where most of the potential for the outbreak of regional military conflicts currently exists. For decades, during the height of the Cold War, providing conventional weapons to friendly states was an instrument of foreign policy utilized by the United States and its allies. This was equally true for the Soviet Union and its allies. The underlying rationale for U.S. arms transfer policy then was to help ensure that friendly states were not placed at risk through a military disadvantage created by arms transfers by the Soviet Union or its allies.
The data in this report illustrate how global patterns of conventional arms transfers have changed in the post-Cold War and post-Persian Gulf War years. Relationships between arms suppliers and recipients continue to evolve in response to changing political, military, and economic circumstances. Where before the principal motivation for arms sales by foreign suppliers might have been to support a foreign policy objective, today that motivation may be based as much on economic considerations as those of foreign or national security policy.
In this context, the developing world continues to be the primary focus of foreign arms sales activity by conventional weapons suppliers. During the period of this report, 1998-2005, conventional arms transfer agreements (which represent orders for future delivery) to developing nations have comprised 66.8 percent of the value of all international arms transfer agreements. The portion of agreements with developing countries constituted 64.3 percent of all agreements globally from 2001-2005. In 2005, arms transfer agreements with developing countries accounted for 68.4 percent of the value of all such agreements globally. Deliveries of conventional arms to developing nations, from 2002-2005, constituted 67.8 percent of all international arms deliveries. In 2005, arms deliveries to developing nations constituted 69.9 percent of the value of all such arms deliveries worldwide.
The data in this new report supersede all data published in previous editions. Since these new data for 1998-2005 reflect potentially significant updates to and revisions in the underlying databases utilized for this report, only the data in this most recent edition should be used. The data are expressed in U.S. dollars for the calendar years indicated, and adjusted for inflation. U.S. commercially licensed arms export delivery values are excluded. Also excluded are arms transfers by any supplier to sub-national groups. The definition of developing nations, as used in this report, and the specific classes of items included in its values totals are found in the following pages.
Calendar Year Data Used
All arms transfer and arms delivery data in this report are for the calendar year or calendar year period given. This applies to U.S. and foreign data alike. The United States government departments and agencies publish data on U.S. arms transfers and deliveries but generally use the United States fiscal year as the computational time period for these data. As a consequence, there are likely to be distinct differences noted in those published totals using a fiscal year basis and those provided in this report which use a calendar year basis. Details on data used are outlined in footnotes at the bottom of the tables.
Constant 2005 Dollars
Throughout this report values of arms transfer agreements and values of arms deliveries for all suppliers are expressed in U.S. dollars. Values for any given year generally reflect the exchange rates that prevailed during that specific year. The report converts these dollar amounts (current dollars) into constant 2005 dollars. Although this helps to eliminate the distorting effects of U.S. inflation to permit a more accurate comparison of various dollar levels over time, the effects of fluctuating exchange rates are not neutralized. The deflators used for the constant dollar calculations in this report are those provided by the U.S. Department of Defense (DoD). Unless otherwise noted in the report, all dollar values are stated in constant terms. The exceptions to this rule are all regional data tables that are composed of four-year aggregate dollar totals (1998-2001 and 2002-2005). These tables are expressed in current dollar terms. And where tables rank leading arms suppliers to developing nations or leading developing nation recipients using four-year aggregate dollar totals, these values are expressed in current dollars.
Definition of Developing Nations and Regions
As used in this report, the developing nations category includes all countries except the United States, Russia, European nations, Canada, Japan, Australia, and New Zealand. A listing of countries located in the regions defined for the purpose of this analysis Asia, Near East, Latin America, and Africa is provided at the end of the report.
Arms Transfer Values
The values of arms transfer agreements or deliveries in this report refer to the total values of conventional arms orders or deliveries as the case may be which include all categories of weapons and ammunition, military spare parts, military construction, military assistance and training programs, and all associated services.
Major Findings
General Trends in Arms Transfers Worldwide
The value of all arms transfer agreements worldwide (to both developed and developing nations) in 2005 was nearly $44.2 billion. This is a notable increase in arms agreements values over 2004, and is the highest total for arms agreements during the last eight years. (Chart 1).
[GRAPHIC 1 OMITTED]
In 2005, the United States led in arms transfer agreements worldwide, making agreements valued at nearly $12.8 billion (28.9 percent of all such agreements), down from $13.2 billion in 2004. France ranked second with $7.9 billion in agreements (16.8 percent of these agreements globally), up substantially from $2.2 billion in 2004. Russia ranked third, its arms transfer agreements worldwide standing at $7.4 billion in 2005, up significantly from $5.6 billion in 2004. The United States, France, and Russia collectively made agreements in 2005 valued at nearly $28.1 billion, 63.5 percent of all international arms transfer agreements made by all suppliers. (Figure 1 on page 50 of this text.)
For the period 2002-2005, the total value of all international arms transfer agreements ($145.3 billion) was lower than the worldwide value during 1998-2001 ($148.8 billion), a decrease of 2.4 percent. During the period 1998-2001, developing world nations accounted for 69.3 percent of the value of all arms transfer agreements made worldwide. During 2002-2005, developing world nations accounted for 64.3 percent of all arms transfer agreements made globally. In 2005, developing nations accounted for 68.4 percent of all arms transfer agreements made worldwide. (Figure 1)
In 2005, the United States ranked first in the value of all arms deliveries worldwide, making nearly $11.6 billion in such deliveries or 45.6 percent. This is the eighth year in a row that the United States has led in global arms deliveries. The United Kingdom ranked second in worldwide arms deliveries in 2005, making $3.1 billion in such deliveries. Russia ranked third in 2005, making $2.8 billion in such deliveries. These top three suppliers of arms in 2005 collectively delivered nearly $17.5 billion, 68.8 percent of all arms delivered worldwide by all suppliers in that year. (Figure 2 on page 56.)
The value of all international arms deliveries in 2005 was $25.4 billion. This is a notable decrease in the total value of arms deliveries from the previous year (a fall of $7.3 billion), and the lowest deliveries total for the 1998-2005 period. Moreover, the total value of such arms deliveries worldwide in 2002-2005 ($124.1 billion) was substantially lower in the value of arms deliveries by all suppliers worldwide from 1998-2001 ($162.3 billion, a decline of over $38 billion). (Figure 2, Charts 7, and 8).
Developing nations from 2002-2005 accounted for 67.8 percent of the value of all international arms deliveries. In the earlier period, 1998-2001, developing nations accounted for 68.6 percent of the value of all arms deliveries worldwide. In 2005, developing nations collectively accounted for 69.9 percent of the value of all international arms deliveries. (Figure 2)
The increase in weapons orders worldwide in 2005 was significant. The total of $44.2 billion was the largest for the entire period from 1998-2005. Global arms agreement values for the years other than 2005 ranged from $41.8 billion in 1999 to $29.3 billion in 2003. Various arms orders placed in 2005 include not only the sales by the traditional major suppliers, but also those of less noted suppliers in Eastern, as well as Western Europe. Some of the major weapons orders in 2005 reflect deferred purchases that were finally consummated by several nations.
Increasingly, developed nations have sought to protect important elements of their national military industrial bases by limiting arms purchases from other developed nations. However, several key suppliers have placed additional emphasis on joint production of various weapons systems with other developed nations as a more effective way to preserve a domestic weapons production capability, while sharing the costs of new weapons development. The consolidation of certain sectors of the domestic defense industries of key weapons producing nations continues, in the face of intense foreign competition. Meanwhile, a number of supplying nations has chosen to manufacture items for niche weapons where their specialized production capabilities give them important advantages in the evolving international arms marketplace.
[GRAPHIC 4 OMITTED]
The intensely competitive weapons marketplace has led several producing countries to focus sales efforts on prospective clients in nations and regions where individual suppliers have had competitive advantages resulting from well established military support relationships. Within Europe, arms sales to new North Atlantic Treaty Organization (NATO) member nations to support their military modernization programs have created new business for arms suppliers, while allowing these NATO states to sell some of their older generation, military equipment, in refurbished form, to other less-developed countries. While there are inherent limitations on these European sales due to the smaller defense budgets of many of the purchasing countries, creative seller financing options, as well as the use of coassembly, co-production, and counter-trade to offset costs to the buyers, have continued to facilitate new arms agreements here. The United States and European countries or consortia seem likely to compete vigorously for prospective arms contracts within the European region in the foreseeable future. These sales seem particularly important to European suppliers, as they can potentially compensate, in part, for lost weapons deals elsewhere in the developing world that result from reduced demand for new weapons.
Various developing nations have reduced their weapons purchases in recent years primarily due to their limited financial resources to pay for such equipment. Other prospective arms purchasers in the developing world with significant financial assets continue to exercise caution in launching new and costly weapons procurement programs. The general rise in the price of oil, while an advantage for significant oil producing states in funding their arms purchases, has, at the same time, caused economic difficulties for many oil consuming states, contributing to their decisions to defer or curtail new weapons procurements. The state of the world economy has induced a number of developing nations to choose to upgrade existing weapons systems in their inventories, while reducing their purchases of new ones. While such an approach may dampen sales of new weapons systems for a time, the weapons upgrade market can be very lucrative for some arms producers, thus partially offsetting the effect of loss of major new sales.
Finally, during recent years, new weapons sales have been limited, in part, by the practical need for some purchasing nations to absorb and integrated major weapons systems they have already purchased into their force structures. This requirement may increase the number of arms contracts related to training and for support services, even as it reduces the number of large orders for new military equipment.
More recently, although overall there appear to be fewer large weapons purchases being made by developing nations in the Near East and in Asia, when contrasted with sales activity over a decade In Latin America, and, to a much lesser extent, in Africa, some nations continue to express interest in modernizing important sectors of their military forces. Despite some large arms orders (by regional standards) by a few states in Latin America and Africa, most nations in these areas of the developing world are constrained in their weapons purchases by their limited financial resources. So long as there is limited availability of seller-supplied credit and financing for weapons purchases, and national budgets for military purchases remain relatively low, it seems likely that major arms sales in these regions of the developing world will continue to be limited.
General Trends in Arms Transfers to Developing Nations
The value of all arms transfer agreements with developing nations in 2005 was nearly $30.2 billion, a notable increase over the $26.4 billion total in 2004. This was the highest annual total, in real terms, for the eight year period since 1998. In 2005, the value of all arms deliveries to developing nations ($17.7 billion) was substantially lower than the value of 2004 deliveries (over $23.6 billion), and the lowest total for the 1998-2005 period. (Charts 1, 7 and 8, Figures 1 and 2)
Recently, from 2002-2005, the United States and Russia have dominated the arms market in the developing world. The United States ranked first for 3 out of 4 years during this period, while Russia ranked second for 3 out of 4 these years in the value of arms transfer agreements. From 2002-2005, the United States made $33.3 billion in arms transfer agreements with developing nations, 35.2 percent of all such agreements. Russia, the second leading supplier during this period, made $21.8 billion in arms transfer agreements or 24.3 percent. France, the third leading supplier, from 2002-2005 made $8.7 billion or 9.3 percent of all such agreements with developing nations during these years. In the earlier period (1998-2001) the United States ranked first with $41.5 billion in arms transfer agreements with developing nations or 40.2 percent; Russia made $19.7 billion in arms transfer agreements during this period or 19.1 percent. France made $11.6 billion in agreements or 11.2 percent.
During the years from 1998-2005, most arms transfers to developing nations were made by two to three major suppliers in any given year. The United States has ranked first among these suppliers for seven of the last eight years during this period, falling to third place in 2005. Russia has been a continuing strong competitor for the lead in arms transfer agreements with developing nations, ranking second every year from 1999 through 2004, and first in 2005. Despite its lack of the larger traditional client base for armaments held by the United States and the major West European suppliers, Russia's successes in obtaining new arms orders suggests that Russia is likely to continue to be, for the short term at least, a significant leader in new arms agreements with developing nations. Although, Russia's most significant high value arms transfer agreements continue to be with two Asian countries, China and India, Russia has had some recent success in securing arms agreements with clients beyond its principal two. In this...
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