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American Defense Industry: Does the Legal Regime Hamstring the Business?

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The United States is still by far the leading country in defense spending, allocating a sizable portion of its GDP to produce cutting edge military technologies. However recent reports indicate a decline in American exports in military hardware. There are not only reports that point to an under-funding of procurement around USD$ 50 billion on an annual basis but also a general complaint on the part of the key players of the industry regarding the restrictive export regime that impedes the sale of military equipment to the non-American parties.

The Components of the Legal Export Regime and the Problems Attached

The export of the sensitive military technologies in the United States is basically regulated by two well known regulations; the Arms Export Control Act and the International Traffic in Arms Regulation, better known by its acronym ITAR. Quite understandably these two pieces of legislation aim to prevent sensitive military technologies to be falling in to the wrong hands that can threaten the national security. However the legislations have the unintended effect of curbing down the American defense industry exports. Either the demanding legal regime blocks the export of the items enumerated in the U.S munitions list to other countries or the third parties themselves do not prefer the U.S military hardware in the first place on the face of the deterring export regime. One way to cope with this is to delist some items that need not to be restricted anymore. Successive U.S Administrations had already taken steps in that direction but there is still more to be done.

Buy American provisions is another obstacle for the defense industry. The underlying reason behind the Buy American provisions is to secure the access to the critical sources for the U.S industries and to protect those respective industries. However such provisions usually lead to reverse effects of declining American industries and job losses. Hence rather than imposing a Buy American approach to the critical U.S defense industries it is better to design a more competitive approach for the health of the U.S defense industry.

The authorities should also address the laws that impede the new producers to enter the market. The production of cutting edge technologies requires substantial sums to be invested during the initial stages. The high levels of taxation both in terms of corporate income and capital gains might impede the possible new comers in to the industry like the nano-technology components producers. Therefore reduction of taxes in those two accounts might serve as incentives for the new investments that will revitalize the industry. Federal authorities should look for new ways and incentives to promote new and state of the art technologies.

The United States is still the undisputed leader in the defense industry worldwide, as the clout of its defense budget and the quality of its military products demonstrate. However there is a growing concern that the American defense industry has lately been suffering a setback for variety of reasons. The single most important reason for the U.S defense industry to decline in exports is the legal framework that regulates the export regime related with the defense items. The national security concerns are quite understandable however it should not be allowed to damage the exports of the industry. Already some of the countries aired their concerns about the stringent U.S export regime and indicated that they will be looking for another country for their defense related purchases. Moreover a new arrangement in the U.S Munitions List might strengthen the hand of the U.S defense industry which will find itself in a more liberal state where it doesn't need the authorization of some of its export items. A new approach that will bring more competition to the industry rather than protectionist measures like "Buy American" provisions will revitalize the U.S defense industry and bring forth global collaboration which is the very thing any industry that is based on huge R&D budgets needs. Finally a tax regulation that would create more incentives for the new comers to the market will make the industry to continue its leading position in the world as the producer of top notch military technologies around the world.

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