MARCH 1998 � VOLUME 19� NUMBER 3

by William D. Hartung

While the mainstream media has been preoccupied with the issue of White House affairs at the expense of foreign affairs, the largest U.S. military contractors have been aggressively promoting a scheme that could cost U.S. taxpayers up to $250 billion between now and the year 2010: NATO expansion.

While Lockheed Martin and Boeing did not dream up the idea, they have been among its most enthusiastic supporters, and for good reason: enlarging NATO could pave the way for the creation of a huge new subsidized outlet for U.S. weaponry, including $8 billion to $10 billion in sales of fighter planes and a total weapons market of $35 billion over the next decade.

With Saudi Arabia still digging out from the debts it ran up during the 1991 Persian Gulf War and Asian arms customers reeling from that region's ongoing currency crisis, East and Central Europe is one of the few potential bright spots for U.S. weapons exporting companies in the coming years. New sales to the economically weak region will only move forward if the industry can convince the U.S. government to pick up the tab, however.

WHY ENLARGE NATO?

NATO expansion will promote "more democracy, stability and prosperity in Europe," U.S. Secretary of Defense William Cohen said last July in justifying the decision to add Poland, Hungary and the Czech Republic to NATO (a decision which will be put to vote in the U.S. Senate this spring). But other approaches, including a vigorous program of economic aid conditioned on progress towards fair elections and a free press, would seem likely to better promote democracy and prosperity in East and Central Europe than selling F-16s and advanced missiles. Similarly, there is no strategic rationale for enlarging NATO, given that the Russian military is a shadow of its former self and the most demanding U.S. mission in Europe (peacekeeping in Bosnia) utilizes only a few thousand troops.

The absence of compelling rationale for NATO expansion, however, is more than offset by powerful interests' strong desire to see the alliance broadened. While military contractors are looking for new markets, the Pentagon is seeking a new mission.

The Cold War may be over, but at $270 billion per year, the Pentagon budget is still at Cold War levels. This poses a serious public relations problem for the Department of Defense and its allies in the weapons industry, since, as Colin Powell noted a few years back, the United States is "running out of enemies." The military-industrial complex needs a mission to justify its continued hold on the public purse, and NATO expansion is the latest candidate to fill that role, and an expensive candidate at that.

EXPANSION COSTS: RHETORIC AND REALITY

The Clinton Administration has put forth a lowball estimate of the costs of expanding NATO of $27 billion to $35 billion between now and the year 2010, with a modest U.S. share of $1.5 billion to $2 billion -- small change by Pentagon standards. Bruce L. Jackson, a vice president at Lockheed Martin who has been one of the Clinton Administration's most energetic allies in promoting NATO expansion, has even gone so far as to claim that the price of expanding NATO will be equivalent to the cost of "buying a candy bar for every U.S. taxpayer." The only problem with these rosy projections is that they vastly understate the likely costs of NATO expansion for U.S. taxpayers, which could be as much as 100 times higher that the administration's estimates.

The Clinton administration's calculations of the cost of NATO expansion assume no more than four new countries will be added to the alliance -- even though there could be a dozen or more new members added under the terms of NATO's current planning. The administration estimates also assume that other countries will cover the overwhelming share of the costs of expansion -- even though the leaders of France, Germany, and the United Kingdom have already indicated that they are not willing to pay a dime more than they are currently spending to support NATO. That means the U.S. share of the total cost of expansion could easily reach one-third to one-half, not the optimistic 6 to 15 percent share contained in official estimates.

If a dozen new members join NATO instead of just three, the Congressional Budget Office's current top-line estimate of expansion costs could jump from $125 billion to $500 billion over the next dozen years or so. And if the U.S. pays one-third to one-half of this cost, the total bill for U.S. taxpayers could hit $170 to $250 billion.

These billions in new military expenditures will go towards upgrading the military bases and communications facilities of new member states, developing the capability to project NATO forces into these countries and -- most costly of all -- to outfit NATO wannabes with top-of-the-line Western combat aircraft, tanks and other advanced weaponry in the name of making their forces "interoperable" with the rest of the Alliance.

DESPERATELY SEEKING SUBSIDIES: THE ARMS LOBBY WEIGHS IN

Even before the first three new candidates for NATO expansion were selected, the arms industry lobby was already hard at work, pressing Congress and the Pentagon for billions of dollars in federal subsidies for the arming of potential NATO members. Major new NATO-related subsidies include:

• The Pentagon's Defense Export Loan Guarantee Fund (DELG), which is available to 10 nations in East and Central Europe and recently made a loan to Romania for the purchase of pilotless drones from the U.S.-based AAI Corporation;
  
  
• The Central European Defense Loan fund (CEDL), which is authorized to make $647 million in taxpayer-backed loans for exports of U.S. military equipment to Poland, Hungary and the Czech Republic; and
  
  
• The creation of new military aid programs for 19 East and Central European states and former Soviet Republics to help them "prepare for NATO membership."

Other U.S. government subsidies linked directly to enlarging NATO include tens of millions of dollars of weapons giveaways under the Pentagon's Excess Defense Articles (EDA) program and major loans under the Export-Import Bank's "dual use" loan program, including a recent $90 million loan to Romania for the purchase of a Lockheed Martin radar system. These subsidies add up: from fiscal year 1995 through fiscal year 1997, the U.S. government committed more than $1 billion in grants and loans for military exercises and weapons transfers involving potential new NATO members.

Creation of the Pentagon's $15 billion arms export loan fund illustrates how relatively small investments by arms manufacturers in the political process yield gigantic returns in the form of government subsidies.

Industry executives had long sought this fund. The Defense Policy Advisory Committee on Trade (DPACT), an official government advisory commission chaired at the time by Norman Augustine, then CEO of Martin Marietta and now part of the top management team at Lockheed Martin, first recommended the fund to the Bush administration in a 1988 report. Lockheed Martin and its allies in the Aerospace Industries Association struggled mightily to get the Executive Branch and the Congress to approve the fund, finally pushing it through in 1995 with the aid of a record outpouring of political spending.

Major arms exporting firms spent a record $11.8 million in campaign donations during the 1995-96 election cycle, and members of Congress who voted with the industry on issues like the arms export loan fund were handsomely rewarded. A last-gasp amendment introduced by Senator Dale Bumpers, D-Arkansas, to strip the arms export loan fund proposal out of the fiscal year 1996 Pentagon appropriations bill was defeated by a 58-to-41 vote. The 58 senators who voted to defeat the Bumpers amendment received over $1 million from arms exporting companies during the 1995-96 election cycle, an average of $18,113 per senator. The 41 senators who voted to block this new subsidy for weapons exporting companies received over $316,000 from the arms industry during 1995-96, or an average of $7,731 per Senator.

PLAYING THE ETHNIC CARD

Now the arms lobby has turned its sites on the more dramatic effort to win NATO expansion. The industry's pro-expansion lobbying campaign is spearheaded by Lockheed Martin's Vice President for Strategic Planning Bruce L. Jackson, who has been moonlighting as president of the U.S. Committee to Expand NATO. The Committee's lobbying efforts have included meeting individually with over one-third of the members of the Senate, testifying and distributing slick brochures at congressional hearings on NATO, and taking out full page advertisements touting expansion in Roll Call, a weekly paper that is widely distributed on Capitol Hill.

But Jackson's most effective pitch may have come at a dinner sponsored by the U.S. Committee to Expand NATO in the summer of 1997. Twelve senators were wined and dined as they listened to Secretary of State Madeleine Albright sing the praises of a bigger NATO alliance. On the guest list for the evening was Bernard R. Schwartz, who has the dubious distinction of being the top individual donor of soft money to Democratic Party committees during the 1995-96 election cycle, with total donations of $601,000. Schwartz, CEO of defense contractor Loral until it merged into Lockheed in 1996, is now part of Lockheed Martin's management team. Schwartz's presence no doubt helped focus the attention of the senators at the pro-NATO briefing, especially given the fact that he made an additional $366,000 in soft money contributions to Democratic committees in 1997, including $100,000 to the Democratic Senatorial Campaign Committee (DSCC). Schwartz forwarded $50,000 to the DSCC just a few weeks after the U.S. Committee to Expand NATO's dinner meeting.

U.S. weapons manufacturers have also attempted to gain political leverage by financing the activities of ethnic-based lobbying groups that have been pressing for NATO expansion. Lockheed Martin and Bell Helicopter/Textron are among a number of U.S. weapons makers supplying funds to a pro-NATO expansion foundation set up by the Romanian embassy in Washington, reports the New York Times. Romanian Ambassador Mircea Geoana notes that "the most interested corporations are defense corporations, because they have a direct interest in the issue." Boeing, whose McDonnell Douglas unit is competing to sell F-18 fighters to the Czech Republic, is a corporate funder of the American Friends of the Czech Republic (AFoCR), another pro-expansion group, according to the Washington-based National Security News Service.

Ronald Bartek, one of the five directors of AfoCR, works at a consulting firm, Mehl & Associates, that is setting up joint ventures between Czech companies and U.S. weapons manufacturers such as Lockheed Martin, Textron-Bell and Northrop Grumman. Bartek claims that although his lobbying efforts have "some nice overlays with our commercial interests," he supports NATO expansion strictly out of "personal conviction."

If anything, the arms industry's lobbying efforts in East and Central Europe have been even more blatant than its campaigns in Washington. In April 1997, then-Lockheed Martin CEO Norman Augustine made a whirlwind tour of Hungary, Poland, the Czech Republic and Slovenia to generate support for NATO expansion -- and to hawk his wares. In Romania, Augustine even went so far as to promise to support that nation's bid for NATO membership as a quid pro quo for the Romanian purchase of an $82 million radar system from Lockheed Martin.

Well before Augustine's spring 1997 marketing trip, Lockheed Martin had already launched a multi-pronged promotional offensive in the region. One of the company's most innovative tactics was to offer a series of free "defense planning seminars" for government and military officials in Poland, Hungary and the Czech Republic in October 1996. Lockheed Martin's Gordon Bowen claims that the seminars "are not marketing operations -- we were not handing out pamphlets explaining why the F-16 is the best fighter in the world." But Bowen does admit that the seminars "allow us to know who the decision makers are, what their value structures are, and what their needs are; to build relationships with these people."

The main goal of the seminars seemed to be to scare the hell out of military officials in the region so that they would be likely to buy as many fighter planes as they could afford. For example, one page of the seminar outline is a map of Poland entitled "postulated military threats," with menacing arrows converging on the country's borders and itemizing specific numbers of fighter planes (860), attack helicopters (360) and surface-to-air missiles (1,700) that Polish forces might have to contend with in a future conflict. Later in the outline, Lockheed Martin presents a "Best Acquisition Plan" for Poland that includes leasing seven free fighter planes and buying 24 more on a "12-year loan" (provided, no doubt, by the U.S. government).

Prior to the procurement seminars, in September 1996, Lockheed Martin executive Dain Hancock made pitches for the F-16 to military officials in Prague, Budapest and Warsaw. Hancock promised "economic cooperation equal to 100 percent of aircraft purchases" and "up to 100 percent financing." Hancock's tempting offer was supplemented by an opportunity for Polish pilots to fly U.S. Air Force F-16s at the August 1996 Bydgoscza Air Show, and a series of F-16 flights for senior Hungarian officials at an October 1996 air show in Keckskemet Air Base in Hungary. The planes that were used for the F-16 test flights were U.S. air force planes that were provided to Lockheed Martin at no or low cost and flown to the shows from Germany at U.S. taxpayer expense.

Perhaps the most enticing element of the sales pitch made by Lockheed Martin and other U.S. weapons manufacturers to prospective clients in East and Central Europe has been the promise of lucrative "offsets" for the purchasing nation. Offsets involve steering production and investment to the client nation in an arms deal to help "offset" the costs of buying big-ticket weaponry. A 1997 report by the Commerce Department indicates that offsets now amount to more than 80 percent of the value of U.S. arms sales, which means that most of the economic benefits of these deals are now being farmed out to overseas customers, not to workers and communities in the United States. A 1996 Commerce Department survey of 204 small and medium-sized U.S. military subcontracting firms in the United States found that 83 percent of them reported losing significant business to foreign companies as a result of offsets.

The race to provide offsets to East and Central Europe as part of NATO expansion will only make matters worse. Lockheed Martin has already held a series of "Industrial Cooperation Team Conferences" in Poland, Hungary and the Czech Republic, at which 11 Lockheed Martin units and 39 major Lockheed Martin subcontractors met with representatives of 136 East and Central European companies. Lockheed Martin has already made a deal with the Polish firm WSK PSL-Mielec to produce F-16s at its facilities if the Polish government opts to buy the aircraft, and Textron is trying to rework the financing on a $1.4 billion deal to build Cobra helicopters (renamed "the Dracula") in partnership with the Romanian company IAR Brasov.

THE PENDING ARMS RACE

Unless the public and the press stand up and take notice soon, the result of all this furious marketing activity will be a new arms race in East and Central Europe in which U.S. taxpayers foot the bill and Lockheed Martin, Boeing, Textron and their corporate partners in the region cash in. If the Senate lacks the political will to vote "no" on the expansion of NATO to include Hungary, Poland and the Czech Republic, the least it could do is put a cap on the levels of U.S. government subsidies to promote enlargement of the alliance. A good starting point for the negotiations would be $1 billion -- the amount that has already been authorized for NATO-related arms sales and military activities, behind the backs of U.S. taxpayers.

William D. Hartung is the Director of the Arms Trade Resource Center at the World Policy Institute at the New School for Social Research. This article is adapted from Hartung's February 1998 report, "Welfare for Weapons Dealers 1998: The Hidden Costs of NATO Expansion," which was produced in cooperation with his colleague Jennifer Washburn.