The FS-X Agreement

Testimony of

FRANK J. GAFFNEY, JR.,
Director of the Center for Security Policy

Before The HOUSE OF REPRESENTATIVES
COMMITTEE ON SCIENCE, SPACE AND TECHNOLOGY

11 May 1989

Introduction:

Mr. Chairman, Members of the Committee, I appreciate very much the opportunity to participate in your deliberations on the revised U.S.-Japanese agreement governing co-development and co-production of the FS-X fighter aircraft.

As a point of departure for my testimony, I would like to ask that a paper recently prepared by the Center for Security Policy concerning the pro’s and con’s of the original FS-X arrangement entitled "The U.S.-Japan FS-X Agreement: Assessing the Stakes" be inserted in the record in its entirety at this point. I will use some of the concerns it identified to illuminate the more significant of the improvements made in the revised agreement and to point out some persistent problem areas.

Shortcomings of the Original Agreement:

There are four issues that the Center raised as concerns with the original FS-X agreement that continue to warrant careful review:

• The clearly defective internal U.S. government process whereby the United States found itself faced with a signed international agreement before a thorough interagency review had been undertaken to determine whether this agreement was in the U.S. national interest;

 

• The sophistication of the technology to which Japan would have access under the FS-X agreement and its impact if applied to other industrial activities on the overall competitiveness of the United States;

 

• The relative value to the United States of Japanese technology intended to "flow-back" as a result of this agreement; and

 

• The FS-X deal’s precedential aspects.

The Internal U.S. Government Process

As a former government official, as a citizen and as a taxpayer, I was appalled at the situation in which our country found itself at the beginning of this year. As the Committee knows, in the preparation of the original agreement, representatives from agencies other than the Defense Department were excluded from the negotiations for all intents and purposes until the talks were completed.

I wish that I could say this were a unique, if unfortunate, episode. Regrettably, I believe it is the norm rather than the exception. As I testified last February before a subcommittee of the House Energy and Commerce Committee, this view was confirmed by my own experience in negotiating an agreement with the Japanese concerning Japan’s participation in the Strategic Defense Initiative. I had to overcome strenuous opposition from some of my colleagues at Defense and at State — and, ironically, the somewhat more muted concerns expressed by the Japanese counterparts from MITI and the Foreign Affairs Ministry — even to get a representative from the U.S. Trade Representative’s Office into the negotiating room!

What the Committee should appreciate, however, is that this abuse of a preeminent role in international negotiations is not an exclusive failing of the Department of Defense. In my personal experience, the same behavior has been exhibited at one time or another by nearly every agency charged with negotiating responsibility. The State Department chronically displays such high-handedness, for example, in the drafting of communiques and bilateral agreements with the Soviet Union. NASA has been known to do so in its pursuit of space cooperation accords (e.g., the space station agreement). Similarly, Treasury, HUD, and other government entities chronically fall prey to the same hubris: "We know what is best for the United States and we will negotiate its realization — provided other agencies who may not understand the objective as well are not permitted to interfere."

I must tell you that, in this connection, I am extremely concerned about the "solution" a number of Members of Congress have come up with in light of the FS-X experience. As I understand it, they intend to enact legislation making the Commerce Department a statutory member of the National Security Council. The expectation appears to be that, by so doing, Commerce will effectively enjoy primer inter pares status in future defense cooperation and similar negotiations. To my certain knowledge, the Commerce Department has proven no more able to resist the opportunities for abusing the interagency process in those international negotiating areas where it enjoys primacy (notably East-West trade and technology transfer policies) than has any other agency.

My feeling is that the only real solution to this problem is to ensure that there is an effective interagency process at work on every single one of these international negotiations. Only by guaranteeing that the full array of expertise and perspectives on the national interest available to the U.S. government are brought to bear, from before the negotiations begin through to their conclusion, can one be reasonably assured that the petty parochialism of one or another department will not produce undesirable results.

Congress should, if it does anything with regard to "fixing the process" in the aftermath of the FS-X deal, ensure that an honest broker is created. In my view, this requires an organization that has no parochial interest — other than to see to it that the President and the Nation are fully and faithfully served. The logical locus for such an organization would be as an element of the National Security Council.

What is urgently needed is a strong NSC office responsible for coordinating and overseeing international economic, financial and technology security affairs. This office would not replicate the expertise properly reposed elsewhere in the U.S. government; it would, instead, ensure that all such expertise is brought to bear on key negotiations and policy decisions. It should be manned by individuals not seconded from interested agencies — and therefore, inevitably, saddled with a potential conflict of interest between, on the one hand, providing the President with impartial, independent advice and, on the other, satisfying those who will determine the future career paths of such NSC staffers. I urge members of the Committee to consider the creation of such an organization within the National Security Council as an essential response to — and means of avoiding replication of –the FS-X negotiating fiasco.

Technology Out-flow

At the heart of the debate to date about the FS-X agreement have been various claims and counter-claims concerning the effect of the F-16 technology and manufacturing know-how the United States will supply Japan on the latter’s competitive industrial position. I believe that, as a result of the Bush Administration’s reworking of the original deal, there is good news and bad news to report on this front.

First, the good news: The Administration appears to have taken to heart the serious problems the original, open-ended commitment to transfer F-16 technology to Japan would have entailed. Three specific features of the new arrangement go quite far toward alleviating the concerns we at the Center and others expressed on this point: (1) the establishment of a technical data list; (2) the stipulation of a date (31 March 1990) beyond which advanced F-16 technology will not be transferred except as provided for by (3) an interagency Technical Steering Committee created to operate for the life of the program, i.e., the year 2000.

Unfortunately, I believe there is still some bad news concerning the technology out-flow. The Administration acknowledges that probably roughly 10% of the F-16 technology the United States expects to share with Japan could be applied to commercial aerospace endeavors. It appears likely that an even greater percentage could be of use in Japanese efforts to develop a space shuttle, and perhaps even their counterpart to the U.S. National Aerospace Plane. My own feeling, however, is that the principal area in which we will see Japanese products derived from the F-16 competing with American ones will be when Japan enters the military aircraft export market in the next decade or so. Such sales are currently precluded by Japanese national policy — not by statute; while doing so would entail a significant departure from post-war tradition, exports of military to countries other than the United States could occur quickly.

There are two points on which Congress should now focus. First, the unchanged language of the FS-X agreements provides essentially no definition for technical data. The deal also stipulates that information must be provided to any officer of a "competent" Japanese agency if it is "required" to proceed with the FSX program. Absent express clarifications and clear guidelines, such ambiguous language may offer the Japanese ample basis for obtaining more information and technology than the United States would otherwise wish to share.

Second, there is very little reason to believe that adequate preparations have been made for the secure handling of the enormous volume of technical data — some of it classified — that will unquestionably be provided to Japan. I am advised that within two years of the agreement to have Japan produce F-15’s under license, it was apparent that the system established for protecting sensitive information related to that program had broken down. It does not seem to me sufficient for the Japanese simply to assure us that F-16-related data will be protected in the same manner we stipulate in the United States. In the supercomputer agreement with Japan, we stipulated very specific measures that had to be utilized to protect information security; there is no reason why such arrangements should not also apply here.

A Fair Return to the United States

To the extent that the United States is making available technology that can help Japanese industry become more competitive with our own, it seems eminently reasonable to ensure that in return we will be properly compensated. In several respects the modified FS-X deal improves significantly upon the original deal on this score.

Particularly noteworthy in this regard are new, express commitments to percentage shares of the co-development and co-production phases of the FS-X program. These, combined with stipulated research and development recoupment and royalty charges, will amount to substantial sums coming back to the United States.

In addition, the revised deal gives the United States access to Japanese technology — both that derived from transferred F-16 data and that arising from four FS-X development areas where the Japanese do not intend to — or cannot — obtain U.S. equipment or software. The former is to be supplied at no charge; the United States will pay for the latter if it wants such technology.

While such arrangements hold out the prospect for an acceptable return on the U.S. investment, final judgment about the relative value of the outflow of Japanese technology can only be rendered when the answers to several tough questions are provided:

• In the past, the United States has found it difficult to obtain Japanese military technologies it wished to have transferred to this country — despite existing, bilateral arrangements for doing so. Is there reason to believe things will be different with respect to technologies sought pursuant to the FS-X deal?

 

• To the extent that such technologies will be forthcoming, will they be provided in a timely way? What assurance is there that undue delay (among other devices) will not be used by the Japanese to ensure that the technology transferred remains less than Japan’s state-of-the-art?

 

• What arrangements have been made to ensure that the costs the United States is asked to pay for non-derived technology — whose transfer we are entitled to seek — are reasonable?

In addition to ensuring that these questions are satisfactorily answered, I think it incumbent on Congress to consider one other dimension in terms of "flow-back." Where it makes sense for us to help the Japanese develop an indigenous capability that will compete with our own in the future, we should be extracting from them comparable benefits for our national industrial base (e.g., high definition television, electronics process-engineering and manufacturing technology, etc). I, for one, am not persuaded that even the new understandings on U.S. access to Japanese military technology meet that test.

Ameliorating the Precedential Aspects of the FS-X Deal

If the revised FS-X deal represents a substantial improvement over the original agreement, it nonetheless amounts to a vastly inferior arrangement for providing for Japan’s defense than would outright Japanese procurement of American weapon systems. The serious concerns about ill-advised technology transfer aside, it is in neither Washington’s nor Tokyo’s interest to have limited (although substantial) Japanese defense resources utilized inefficiently.

We were told, of course, that the optimal means of meeting Japan’s air defense commitments in the 1990’s — namely, an off-the-shelf purchase of F-16’s — had been categorically rejected by the Japanese and that the FS-X deal was the best of the remaining options. Interestingly, many of those who have made this argument also maintained that Japan would never agree to negotiate improvements to the original agreement. As one who argued last February that the reasons that prompted the Japanese to agree to co-development of the FS-X in the first place (commercial self-interest, not altruism) would continue to govern, I am gratified that it proved possible to revisit and improve some of the points in the original deal. My own view is that we should never accept at face value the excuse heard all too often from U.S. negotiators that a defective agreement must be accepted because it was the best we could hope to get. If the FS-X negotiations served no other purpose but to establish firmly such a precedent, they would have been well worth the aggravation.

Unfortunately, it is much more likely that the FS-X arrangement will be cited as a precedent in a less desirable way. I fear that, all other things being equal, this approach to U.S.-Japanese defense cooperation may be adopted as a model for future, indigenous Japanese development programs in instances where Tokyo would rather buy our technology than our weapon systems.

Whatever one makes of the FS-X deal, I think it obvious that it is neither in the interest of American industry or security to have such an approach become the norm in future programmatic collaboration with Japan. In the aftermath of the FS-X experience, I believe it imperative that the principle be established that, henceforth, Japan will buy American systems off-the-shelf where doing so would make the most efficient use of Japanese defense resources in meeting agreed, collective security needs.

The fastest and most tangible way of establishing this principle would be for the Japanese to announce forthwith their intention to buy U.S.-produced AWACS and tanker aircraft (a sale worth over $5 billion). Japan must have the kind of air- and maritime-surveillance capabilities afforded by such an acquisition if it is ever to fulfill the commitment it made in May 1981 to defend an area 1,000 miles in radius from the Home Islands. It is a travesty that Tokyo has not acted before now to effect this procurement and yet, if left to their own devices, the Japanese probably will try to defer it still further.

I believe the widespread unease in Congress about the FS-X sale offers an extraordinary opportunity to encourage the Japanese to make a formal commitment to such an off-the-shelf purchase from the United States. Were the AWACS/tanker procurement to be publicly announced in the near future, it would not only permit the needed, near-term enhancement of mutual defense forces in the Western Pacific. It would also go quite a ways toward alleviating concerns that the FS-X deal will become an undesirable precedent for future collaborative defense efforts with Japan.

Conclusion:

In conclusion, Mr. Chairman, I am pleased to congratulate the Bush Administration for conducting, albeit belatedly, a serious review of the merits of the FS-X agreement. I very much hope that the executive branch will apply to all such important international negotiations in the future the sort of rigorous interagency process used to fix some of the manifest problems with the original FS-X deal.

As a result of this effort, I am persuaded that many of the serious shortcomings with the first FS-X deal have now been addressed, if not eliminated. Still others remain, notably those concerning the definition of technical data, Japanese provisions for its secure management and the scope of Japan’s technologies to which the United States has been assured access. I commend you and your colleagues for delving into the adequacy of the revised agreement. I am confident that, if the Congress agrees that still further improvements (such as those I have identified) are warranted, most — if not all — of them can be achieved.