 Good morning. I'm David Burto. I'm the Director of Defense Industrial Initiatives here at the Center for Strategic and International Studies. CSIS is pleased to welcome you this morning and present to you the launch of an impressive body of work called Fortresses and Icebergs. I want to begin by expressing the regrets of our CEO, Dr. John Hamery, who was scheduled to be your host this morning, but unfortunately is unable to be here on his behalf. First of all, I extend his regrets. And secondly, I welcome all of you to our event this morning. We're here to learn what the two volumes of this book I once had a hearing in front of the Senate Armed Services Committee in which Senator John Glenn said, Mr. Burto, you have met the bulk requirement. I will tell you that Jeff Bialos has met the bulk requirement here along with his co-authors. We'll hear a short presentation from Mr. Bialos and those of you who know him know what a challenge that is for him to do. That is to use the word short in the presentation. And because there's so much here, it really is a challenge to condense it. And then we'll hear some commentary from Dr. Jacques Gansler. And then we'll entertain questions and comments from you here in the audience. I would note for you that this event is being taped and it will be available on our website shortly after we conclude this morning. I say that so that you will be suitably judicious in your questions and commentary and will comport yourselves as if you know you're going to be on television, unlike most in Washington. And I also would note for you that copies of the book are available for purchase this morning at a table, I think, out in the foyer and they're also available at Brookings Online. Let me start by making a couple of observations. One is how much we here in our work appreciate the release of these volumes. They will help our work. We have spent countless hours trying to make sense of the data and information from a variety of disparate and inconsistent sources. We publish an annual volume on European defense spending. And we're on the verge of releasing our 2009 update there. As a result of that, I know how difficult it is to find reliable data, to compare those data across countries in overtime, and to reconcile the differences among the ways that data about defense are collected and retained. It's really a tough challenge and that makes me appreciate the work that Jeff Bialos and Chris Fisher and Stuart Cole have done here. It makes it all the more impressive because I know what a monumental task it was for them to have undertaken. I think it also provides a very serious resource for ongoing research that we conduct here and that others do as well, which here we combine the results of the work of our defense industry team with our Europe program. I don't know if Heather Connolly is here today. I don't see her out there, but she will probably be down later. So it gives us a much better framework to work. The second observation I would make is that these issues are persistent and important and hard to solve. You can go back in time. In fact, I look out in the audience for Jack and Jeff. This is a little bit like Old Home Week in terms of many of the folks who were wrestling with these folks on these issues when they were in the Pentagon or here today. They faced in three challenges. One is inadequate interoperability amongst the allies, and that requires investment and effort to fix. The second was declining defense budgets, and the third was reduced competition in industry. The reason those challenges sound familiar to you is, in fact, we sort of seem to be facing them potentially again. One solution, obviously, to some of those challenges was to encourage transatlantic cooperation in defense industry. And we all know there are a lot of barriers to that expansion, not the least of which is export controls, which is another issue back with us today. So when I look at this book, I see a book that's timely and can help point the way towards greater solutions for those very challenges. I'll come back to that theme in my closing remarks. Now I would like to lay out our agenda. I'm going to introduce Mr. Bialos. He's going to make his presentation. I'll then introduce Dr. Gansler, who will provide some commentary, and as I said, then we'll open it up for questions. Jeff Bialos is the former deputy undersecretary of defense for industrial policy in the Department of Defense. He is now a partner with Sutherland, Aspill and Brennan, where he represents a variety of defense issues and defense industries. He's also a fellow with the Johns Hopkins School of Advanced International Studies at the Center for Transatlantic Defense Relations. And he's got a computer. He's got a briefing. He's got power. And with that, I'll turn the podium over to Mr. Bialos. Thank you. Make sure I don't fall over anything. Thank you all for being here today. And Dave, I'd like to thank you for that very nice introduction. And I think it was only fitting that we released this in the presence of Jack Gansler, at least the spirit of John Hamery. And I see Dave Oliver in the office. These are my colleagues that depending on that, really bosses actually, but colleagues sounds better. Who really were the intellectual architects of a whole idea of promoting transatlantic supplier linkages among industries in European countries in an effort to promote interoperability and also competition in consolidating defense markets. And as Dave really precisely pointed out, here we are a decade later with a similar, somewhat different dynamics, different threat, but a lot of other underlying similarities. And the question is to what degree this paradigm makes sense today and what do you do to promote it? But before we get to the substance of this, I wanted to briefly thank some people here because as Dave pointed out, this is a two-volume, 600-plus-page, 200-sharp effort. And be sure I did not do this alone. So if I can ask Chris Fisher, Stuart Cole, and Krister Mosberg to stand, just briefly. These are the colleagues who really are Chris and Stuart were the co-authors, and Krister was an editor and contributor. I really want to appreciate their efforts for this. Second, this grew out of a Defense Department-funded study. This is a third of a Defense Department-funded study. There are two other pieces that aren't represented, believe it or not, in this book. And I just want to thank my colleagues, Joe Schneider of JSA Partners, who did a piece for the government on industry, which is not part of this, and Dick Weiland, who at the time was with James, who was here somewhere, and Documental Solutions provide the underlying data for this. So thank you. Third, I want to thank the Department of Defense's Office of Industrial Policy. I see Don Biermeier here somewhere in the audience. And they are the sponsor of this project, and I thank them for their support and help. And Al Volkman is not here today, but those offices were very critical of the ODC around the world, because as we did this, we went to every Office of Defense Corporation in the country we studied, met with those people, and they were able to review what we did and validate it. I also want to thank briefly the foreign contributors to this volume. In most of the main countries, we had the leading defense industrial analyst in the country, either draft the country chapter or review what we did, and so we had a lot of validation from different people. Like most Defense Department-funded efforts, this study was over-budget and exceeded the schedule. And unfortunately for us, it was a fixed-price effort. Fortunately, we had Johns Hopkins as our backer to support us, and I want to thank Dan Hamilton who is here in the audience from the Center for Transatlantic Relations who is standing in the back. They allowed us to finish this and even exceed our performance goals. Again, like most defense programs. But let me turn to the substance. In the short time available, what I want to do briefly is a couple things. One, tell you what we studied. Two, tell you how we studied it because it's a little different. Three, the core themes and last briefly some of the recommendations. The title is Fortresses and Icebergs. Why is it Fortresses and Icebergs? What we studied here was the two-way street and transatlantic defense market, trying to measure first the degree of market access for European firms in the United States and vice versa, U.S. firms in Europe. Second, we looked at the evolving European institutions relating to defense in the defense industry. Is there traction there? And what are the implications for the United States? Are there preferences emerging to buy European as distinct from buying national? The Fortresses concepts I think most of you can relate to. It's the concept of, you know, is there a Fortress America, which historically many would say there has been, and is there now emerging a Fortress Europe as distinct from national Fortresses? The Iceberg concept probably is a little less known to people. And it's the concept, you can see it there on that little chart from, that's a vintage late 1990s chart from DOD. And, you know, what it shows you is the notion of primes on two sides of the ocean, the industry side, the supply side, that are not as connected at the top and connected at the bottom to a common supplier base. And so, in effect, the study is looking at demand Fortresses. Is there a Fortress-like behavior in supply? You know, to what degree the defense industrial integration has emerged? Recognize these are caricatures of more complicated realities, but the concepts we thought made sense. So that's what we're studying. What we did, this study fundamentally was designed to try to bring some objectivity to an inherently subjective concept. A lot of the studies done in this area are pretty soft. And we tried to do this in a way that brought in data and made it as objective, as conceivable. Briefly, we studied the five major defense subsystem products. We didn't look at space, we didn't look at IT, because that's not what our sponsor had within the scope of the study. And so if you looked at those things, which are more commercial in nature, you might get a little different picture. We studied eight countries because we didn't have resources to study them all. And so they're the list of countries, France, Germany, the LOI-6, minus Spain, and two in the East, Romania, Poland, and the United States to do a good cross comparison. And we used data. We had a data set of data from Documental Solutions, which really was all the procurements in the last three calendar years. Now, I would have liked to have a five-year time series and compared it to a five-year time series before, but we just didn't have that. But that said, this is more than most people have had when they've done these studies. So on balance, it's pretty good. But I would say this is art, not science, and this shows tendencies. This is not the scientific proof. But the data is pretty good among the universe of data. As Dave said, frankly, the data in this area, when you look at the trade flow data and a lot of the data out there, is not very good. What we did in the study is we really used three methodologies, two to look at market access and one to look at the European Union side. In the market access, we think of it as one is looking at the barriers to market access, sort of input analysis, if you will. What are the factors that read on whether you can access a market? And here I drew on my trade law background where we took the classic trade barriers and tailored them to this market. How open and transparent is the competition market in that country? Do they have domestic content rules? Districtions on foreign investment and defense firms? The role of iCar, ethics and foreign payments? In each of these areas, we gave each country a score. In each of these areas, we used data where it was available. And when it wasn't available, we interviewed about 200 market participants, the M.O.D. buyers, the key foreign companies and the key U.S. companies in each market. So we pretty much got everybody. And again, we lied on data. I call this the qualified judgment method because we relied on data where we had it and where we didn't. We used our own judgment informed by 200 interviews of people. We then looked at outcomes to sort of check our own work and looking at trade flows and volumes. What did the trade flows look like transatlantic? Let's look at the outcomes in terms of the footprints of the companies across the Atlantic. Finally, we looked at the EU and we asked a series of more subjective questions focusing on is the European demand developing in defense? Where is that headed? And we also looked at the ultimate question is what are the implications for this for us, meaning is there a preference emerging to buy European as distinct to the United States? The ultimate question is sort of the fortress question I outlined. So that's what we studied. That's how we did it. So what did we find? What we found, let me say as I start this, I remember giving a talk on this about ten years ago in a NATO context and after I finished somebody in the audience they said, you know, that was a really good speech on transatlantic defense industrial development. I heard pretty much that speech ten years ago. And the point of that call for you is obviously that things change pretty slowly in defense markets because you have long programs with sole source incumbents but I'm here to tell you that, you know, ten years later the change actually is in the air in this marketplace and the historic norm, which is one of largely closed defense, national defense markets really is changing and all the markets we studied are transitioning to more open and competitive markets driven by basic core underlying economics and some degree of geopolitics. The drive for innovation to meet 21st century needs, the need for affordability with constrained budgets, all of these are forcing change in a globalizing economy. So what did we find specifically? If you look at Europe, this sort of chart reads left to right and the blue is the national sole source buying in Europe and so when you look at the trend line across time what you see is in the older legacy programs 85% sole source today, 63% and the chart on the right is new programs in the shade of the last three years what do you see? You only see roughly 20% sole source nearly half of those programs are competed today in Europe and that is a change, a material change from the past when much of Europe was national sole source and so you can really see here this is in a sense the core of the findings on Europe. Now these changes are revolutionary in nature as I said when you look at the data 60% of the spending today is on the old programs because the programs started more than three years ago and when you look at the legacy programs not surprisingly what you see is a lot of the money went to sole source champions I have a chart I'm not showing here today where we indexed each country and it's in the book by sole source champions you can see in Italy Fin Mechanica it still gets 70% of the defense budget in the UK BAE gets a significant portion and so forth and that is because a lot of the programs are dominated by the old legacy programs they've been around a long time but change is coming as the world transitions to newer programs the study also shows if you look at the track record of buying in these programs what you see in both the UK and the United States and in the continent is movement toward inter-European buying either directly or through cooperative programs and the UK already had begun to move in this direction in the 90s about 25% of all UK awards new UK awards in the years we looked at go to other European suppliers from other countries there also is significant movement in this direction in continental Europe as well not much US buying on this chart particularly in the continent where US won 7% of the awards that were competed this reflects I think what we've seen is there are new industrial policies in place in a number of these countries kind of developing defense industrial policies there's been a cottage industry in European MODs in the last couple of years and what you see there is a tendency toward buying in the European direction and you do see that in the data and you see that in the policies so the paradox of all this is that yes it's a good thing and it's constructive and healthy European markets are opening and becoming more competitive less source buying the paradox is it's not so good for American companies why? a couple of reasons one we used to do a lot of our selling soul source that's moving away two in this new competition it's just life there are other robust competitors out there some Europeans, some Israeli three there is this preference that has emerged to some extent for buying from other Europeans that's distinct from us there are also a couple other factors and just to touch briefly I'll come back to that and on the supply side I think the dynamics also favor buying European as the consolidation has moved forward essentially a European consolidation has moved forward in Europe and it creates enormous incentives for the buyers to buy from these large European entities that have been created so our bottom line in this is in the absence of some strategic action by the United States the position of US firms in Europe is likely to erode over time there will be occasional buying for exigent needs where we have the only widget but I don't think you're going to see any real growth here for the United States the exception to that is in Central Europe where what you see here is unlike the rest of Europe they ditched all their legacy programs so the predominant programs in Central Europe is new about 90% new rather than legacy which is different than the rest of Europe or the United States for that matter so basically on the right the United States has won 70% of the awards the new awards in the last couple of years there combination of geopolitics and we offer the most attractive financial packages fundamentally is the driver of that so that's a little different dimension to the overall picture but the dollars there of course are nowhere near the dollars in the rest of Europe the United States interestingly the data and the interview show and in contrast to Europe the United States is trending in a more positive direction for European suppliers now we've always had a history of competitive procurement but limited competition for the most part meaning that foreigners were one way or the other excluded either through a formal mechanism or some informal type approach but the data and the available information from the interview shows that this is changing and you can see on the left here in terms of competition some 41% of programs new programs in the last few years in the United States in the market as we looked at what competed now of them 26% I can't read my old number were won by primes where one of the primes was a European firm or the sole prime was a European firm it's mostly the big co-primes so you do see change here in the United States and the interviews confirm that most of the large European companies told us that whereas 10 years ago there would have been no foreign on programs it's different today and you compete if you had a classified facility in the United States to be sure the U.S. market is hard all the firms we must have interviewed 50, 60 firms that compete in the United States they all told us the same things about what the problems are the need for a better or a unique widget to compete it's so expensive to compete here you're not going to compete unless you have some real opportunity because you know it's going to cost you a lot of money and the non-adventure syndrome and the institutional resistance to buying foreign all of them consistently told us that among all the market participants we interviewed so it's not easy but it's better than it was this is an eye chart I know you can't see the data on it but I wanted to put it up there because this is the result of our first methodology where we did a cross comparison of the country on each variable and what it showed is and this is all in the book by the way 20 charts on each of these countries full explanation of how we arrived with all this data but what it shows from this is we were able to rank order the markets in Europe based on this analysis and you know on the bottom line Sweden was the most accessible market of the country studied by a real margin no matter how you did it on an absolute basis on a comparative basis we did raw data, we normalized it didn't much matter by the way no matter how you did it, it came out this way largely open and competitive procurement market doesn't have bi-national rules no state-owned companies a lot of foreign investment in the defense industry and its procurement strategy has shifted over time from a very independent oriented strategy to a strategy that says first, we'll upgrade second, we'll buy off the shelf international solutions we'll only do cooperative development where we can't do with any other we can't find something off the shelf and we'll only do a national program in extremely limited circumstances where it doesn't make sense for some reason and we'll do it cooperatively Italy and Romania come from very different places and fall at the bottom they're not mixed because they're different universes but there are reasons for both situations Romania made a lot of strides as I showed you before a clean procurement slate got rid of the old legacy problems but their implementation of new rules and competition policies are kind of a work in progress let's say and their commitment to, you know, rule of law and these things are also working probably they have very high offsets in Romania and that sort of explains it Italy is a bit of a paradox why, you know it's counterintuitive in a way we have a strong bilateral relationship with Italy a lot of cooperation in this field a good number of Italian purchases over time but what you see is that the American defense sells to Italy a largely sole source when Italy has a specific need in contrast to the U.S. firm seeks to enter the Italian market it's uphill it's uphill sledding and they only really can get there for the company and for the most part that's been Mechanica and the offsets are very high as well the other countries fall in the middle between them somewhere the UK is the best of the group in terms of openness, long history of opening compared to procurement it's changed those some and brought it down because it now balances under a new industrial policy competition with partnership for long sustainment programs it's put more emphasis on operational sovereignty which really signals a desire not to rely on ITAR components this is our closest ally who is now telling us we want operational sovereignty on major programs and there's one big program where they told the U.S. Prime we want UK engineers at the top level, no ITAR alright the U.S. UK also encouraged foreign companies into their new policies to essentially do more on-shore activities and so it's really a policy in effect this on-shore thing it's essentially an offset policy with a velvet glove it's not a formal offset but it's more informal in nature the United States I showed you what's happening on the demand side what's also happened is European firms have bought in to the U.S. market in a big way the UK through large acquisitions the others through a combination of green field operations small acquisitions and ventures and partnerships with firms in the bull market of the last five years European firms have gotten their share whether that will continue in the future remains to be seen France, Poland and Germany quickly are clustered together but in different directions France and Poland in a positive direction Germany I would say status quo would be the charitable way to put it France historically considered a closed market is a pretty interesting story it's an opening market with a bunch of new pro-competitive policies and while the data doesn't quite show it all the market participants told us enough for us to feel that there has been open movement in their procurement system there's also the data shows in France a lot of European buying on a cooperative basis really what's happened in France is you have an emerging Eurocentric policy in effect Gaulism has sort of transmuted into the neo-Gaulist approach of Pan-Europeanism if you follow that that's sort of the new French approach to this so France showed us a series of concentric circles they said we'd like to buy if you'll think of three circles the small circle will buy national that's like nuclear bio a big swath we'd like to buy European a small amount we'd like to compete internationally now when pressed they'll tell you that you know if the economics isn't there to buy European if the European product just isn't close to being as good or it's much more expensive the economics will probably take it over their aspirations of sort of a more Eurocentric approach Germany on the other hand shows little evidence of movement a lot of national buying and just to give you the vignette Germany established a defense industrial policy together with its trade association for the industry and they have a long list of sectors they want to protect and be a leader but they don't have much today now we asked them about that and they said well this is really from negotiation with the EU because we expect some of these will fall away but we wanted to have a long list for negotiating purposes so you can see this tension in Germany between nationalism and sort of becoming European in the approach what does the study show in terms of which factors were the most significant in markets really three in the end governments want to spend money at home and they find a way to do it they do it through offsets in smaller countries in Europe they do it through more informal and implicit work share in the larger European countries and in the United States in the United States we have buy America rules but they are largely waived for our European allies and so this is done through implicit and informal mechanisms and companies self select if they bring something on shore they're not even necessarily told to do it the other thing we found is on the ITAR of the 200 people we interviewed I'd say all but a handful raised that as a significant barrier to transatlantic defense trade now we didn't come here to study ITAR there have been 40 odd studies CSIS has done a number but in studying the defense industry market you can't do it without looking at the impact of ITAR and it's pretty plain from everybody we talked to that everybody tells us that ITAR slows the speed of obtaining licenses limits the release of technology creates business uncertainty and makes the process very difficult fairly or not European countries are very concerned about their operational autonomy being limited by not having access to technology by having a black box and not being able to change it during an excingency they're worried about program delays and risks and limiting their export flexibility and we found that the years of talk about design around it really translated into action the governments are seeking it and some of the governments explicitly others implicitly to use non-ITAR things the companies at the prime level in Europe are all trying to design that ITAR where they can now they can't always do it but they will they can in European contracts will avoid using ITAR to the detriment of our subsystem suppliers so look maybe not all of these criticisms are probably legitimate I would say when you sort of parse through them and ITAR isn't the root of all evil there's a legitimate place for export controls in the United States I don't want to be viewed as not saying otherwise but the reality is that this is an issue that needs to be looked at and the bomb administration fortunately is doing that finally foreign investment defense firms very different postures the United States despite sort of the sippiest process to become more rigorous has been allowed a lot of foreign investment in this field in recent years a few of the countries in Europe are pretty open the UK for example Germany, France and Italy fairly closed to US defense investment now you don't see our investment there for a number of reasons one we don't see a lot of companies don't see a lot of opportunity there you know and there's a whole variety of other reasons but foreign investment policy is one of it so that's the first methodology briefly on the second one I'm going to flip a little for time one a lot of what we found when we looked at trade flows was consistent with the analysis I just gave you of Europe what I want to show you is on the iceberg part of this what we found is two distinct patterns that have emerged over the years European firms you know have adopted multi domestic strategies we want to be at home in multiple countries because their home markets are so small and they have to do this to survive and they all sought in the US to be at home and a number of the large ones are now at home in the United States they have serious amount of sales a number of them have a billion dollars plus the US defense sales they have a real on the ground presence and they have classified facilities pretty much all the large European firms have classified facilities and the defense firms have 10 billion in US revenues and 73,000 employees here the US it's a different picture why? because the target rich environment here and Europe looks hard and small hard, small, long gestation periods risk fixed price development the US firms have not by and large sought to do significant investments in Europe so what you see is US firms have been modest footprints in the UK growing modest and lighter than the US UK industrial policy they want to put more there but really not much systems capability and very little in the economy in effect the US strategy of the large US firms is go for the low hanging fruit if you have a good capability you can sell it try it do it mostly through local agents and partnerships and that's the pattern to merge so the European part of the iceberg has been more integrated in the United States the US one I would say by and large has not the EU what we found on the EU is quite interesting this is sort of really in defense parlance people don't think about the EU much and when we did the study we went to the EDA European defense agency and the commission talked about defense they brought out lots of people it was sort of like we were the first people to come there from the United States you had that sensation in the long time I would say this well NATO is certainly a major part of our security apparatus the only part going forward and the EU's role in defense is emerging the Europe is coming together it fits and starts in a lumpy period but they're coming together and developing a defense identity through the European Union now the glass is half empty in this area or half full depending on your perspective it's sort of process oriented but my own view is this is moving forward if you look at all the things on this chart what the Europe is doing and what it means to have a defense identity from having a strategy having operations, having requirements they are doing all these things now in the EU the focus is on low intensity operations homeland security and space low intensity I mean a regular warfare Petersburg tasks there was no doubt that the center of gravity emerging in Europe for low intensity warfare is not through NATO where the Europeans have essentially not allowed NATO to be involved it is through the European Union and that reflects a sort of European appetite for defense they are comfortable in an environment where there's a lot of Europe has not been willing to increase its defense budgets material they've not been going to do high level capabilities but there is more of a focus on this low intensity effort and my own hope is that through the EU there may be some chance of getting budget increments in the low intensity field European involvement in the defense market has grown there is now a Europe is developing institutional framework for developing a defense market all three major European entities are now involved in the defense marketplace the commission which has now put in place two very important directives both governing defense procurement and developing transfers the European defense agency which has code of conduct in place that governs defense sales and countries have signed up voluntarily to allow more competition in certain defense sales and the European court of justice which has limited the ability of European countries over time to opt out of the disciplines of the European Union and so the combination of all this is going to facilitate the movement I showed you before in national defense markets in Europe and accentuate that with the directives being the most important piece of the effort I mean it's really a milestone in the commission's effort to create a regulation of a defense market and to bring the rules meaning allowing more openness and competition within Europe that have applied in the civil sector to the defense sector and pretty much everybody we talk to in Europe thinks this is going to be important and the fundamental reason is because it's now the rule of law, it's now a law it will be a law at the end of this year and it will have teeth in the first thing in the United States generally speaking this is a good thing as I said before all of this and it's really mostly focused inwardly in Europe but there's always a mix of motivations when you have many countries involved of why this is happening and I would say oh sorry I didn't there we go I would say that there are some in Europe who have a different motivation for this motivation to develop their internal market and eliminate redundancies but to develop an autonomous European defense industrial capability in support of a very European strategy and sort of perceived as a wedge against American hegemony and so forth and to create more balance in trans-linked defense but you hear this as you go through parts of Europe and the commission and there are some who say let's get our own house in order with these directives to negotiate with the United States to rebalance trade and seek risk possibly so I think there are a mix of motivations and there is some impulse in that sort of protectionist direction like there was here frankly in the congress the new EU directives don't contain national preferences that are explicit at all however there are implicit preferences on this and let me leave you with this example there's a security of supply rubric say buying countries can essentially discriminate against cost-sellers bidders on the basis of security supply so what does that mean? imagine a circumstance where let's say Italy is holding a competition there was a French prime bidding which has a European supply chain with export license under this new EU directive which are broad and clear and give a lot of certainty versus they're competing against a Swedish prime with a largely US supply chain because a lot of Swedish companies do have US supply chains in that circumstance Italians would be allowed under these rules to discriminate against the Swedish supplier on the basis of ITAR because that imposes more risk and that's not unintentional now on one level you perhaps can't blame people for that and it is up to the national authority whether to use this or not but I think that sort of poses a question for you in the implicit way in which you see a sort of preference that could potentially emerge now the United States is going to have to take this into account we do have defense procurement MLUs with these countries that essentially call for national treatment and I'm sure the DOD and I hope will have a dialogue with European firms over this in the future let me close by touching on what do we do about all this in the first level it really depends on do you think transatlantic opening a more open developing transatlantic arms market is useful from a policy perspective going forward my own view is yes even though we're in a different era than the late 90's I think that the defense autarky model which gave us supremacy in the past it just doesn't cut it anymore in a world where coalition warfare is very important it also in a world where we're in a world in a market place we really need competition from foreign sources and there are a whole range of reasons why I think it still makes sense to do it's hard to do but I think it's really a clean slate and the Obama administration has to decide whether they want to put effort and time into this what I would say is that there are few lessons learned if they want to do it from the past one is try to do something earlier in the administration we did it late and it's hard to do resources from the top because you've got to overcome some powerful institutional resistance to change in this era second I wouldn't just do it on the supply side as we did in the late 90's I would focus on the demand side of the market as well I think one of the lessons learned is it's nice to form global supply chains but if you don't have buyers who are open to that kind of demand it doesn't work well and third I think a big lesson for the United States is the EU is here in defense markets and we need to engage with the EU we can't hide behind the the ESTP NATO conflict to not engage my own view is that hopefully that set of issues will get resolved and the United States will engage with the EU in the areas where the EU has competences involved in defense and defense markets because there are things we couldn't do there together now I know DOD is saying we're open to it but I think we're going to go beyond open and engage with the EU I'm not going to go through this list in detail but in the book there's a 40 page section on what we ought to do and here's the highlight I think the Pentagon has some internal problems in this area the disconnects between our armaments cooperation, our export controls and other elements that relate to this agenda and we ought to assign one executive to put some of these things together I think the export control system with the Pentagon is fractured itself I think we ought to step up armaments cooperation in support of coalition warfare and this market development I think we're going to do it by focusing on the low intensity side and on interoperability rather than focusing on large programs I think we need to do some internal work I'm glad the Obama administration has taken on the export control agenda the other areas beside export controls we need to focus on to make sure we don't live in the cocoon going forward there are a series of US laws and policies that together each makes sense on its own from immigration to buy America to export controls to Scythias but if you look at the QE level it's sort of tending to build walls and we need to look at that and we also need to engage with the EU and all the European countries on these issues of these procurement directives to make sure their preferences don't emerge and the final two points are in this study we looked a little bit about the propensity for foreign bribery we've done a lot in the supply side of that market through the OECD anti-bribery convention but it is an impediment in defense markets of significance and we ought to look more at demand side measures in the buying countries because that's where the problem really is and finally the thought was maybe we ought to develop a transatlantic defense dialogue modeled after the TABD in the civilian area look let me just sum up by saying this is a hard agenda there's nothing about this that is easy and developing an open and competitive transatlantic defense market is really not a panacea it's just one effort of an overall mosaic but I think if you look at this together with a lot of other things it could make a contribution to arming the coalition and providing it with more affordable and innovative weaponry so thank you very much thank you Jeff I would add one other comment to your observation that if the administration is going to try to do something rather than late there are some in this room who had the experience also don't necessarily assume you have 8 years it's another good reason to start early I want to welcome our commenter on fortresses in icebergs Dr. Jacques Gansler for most of you of course he needs no introduction I've been learning about defense from him since I came to Washington nearly 30 years ago and I'm not finished yet I don't believe he's a successful engineer manager public servant educator researcher and leader and he has a unique perspective from which to comment on this book and on the issues which it tackles I would ask you to please join me in welcoming the former undersecretary defense for acquisition technology and logistics Dr. Jacques Gansler it's very complex let me point out that I think this book is extremely timely and extremely important and I think it's important not only for the US national security future but European national security future it is full of a lot of critical data and as Jeff pointed out that data has largely been absent data that would be useful for decision makers both in government and in industry a lot of people in industry I think will draw on this but also particularly for policy analysts and the people who are going to be having to address this issue in the coming years in the current administration one of the things that's very important about it is it addresses both sides of the barriers clearly there are import barriers and export barriers and these exist on both sides of the Atlantic and this stresses those distinctions import, export, US Europe and I think when you get down to it there's really a three headed challenge that hasn't been as widely accepted until people have started suddenly realizing that the EU is the sort of third head here we've had US bilateral negotiations going on for many years bilateral negotiations going on with NATO and now we have both bilateral and multilateral linkages with the European Union nations and that complicates the issue but I think it's necessary to address it up front now I think there really are four reasons why this transatlantic industrial based issue really matters to US security first one is just in terms of weapons effectiveness today there is not a single US weapon system not a single one that doesn't have foreign parts in it and they're selected because they're better not because they're cheaper so if we didn't have that then our basic national security strategy which over the last 50 years has been technological superiority if we didn't have these high performance weapons systems using European or Asian or South African even parts then we would not maintain our technological superiority in many areas the second area affecting significantly our national security is our mission effectiveness I can't imagine and no one has argued with me about this point that it is inconceivable that any future military operations that the US gets involved with they're all going to be multinational you can't address anything from terrorism to insurgents to pirates or whatever you pick on a single nation basis it's going to be for geopolitical reasons more than even military reasons a multinational activity well if that's the case and under coalition operations then to get maximum force effectiveness our allies have to have state of the art equipment and it has to be interoperable with ours and the best and the easiest I would argue way to assure that interoperability and state of the art on both sides mutual performance is with transatlantic industrial linkages coming from the supply side if you will third reason and the obvious one I think in this case the historic one for the transatlantic industrial linkages is cost effectiveness now here's where the big impact the next few years is going to occur because I think everybody universally believes that the dollars available for the US national security are going to be shrinking whether it's in terms of supplemental disappearing whether it's the budget leveling out or shrinking no matter how you look at it societal demands are going to require the shrinkage of the US defense budget and as a result we need to get still higher performance at lower cost how do we do that well I think one of the main ways we're going to do it is with increased international competition that means transatlantic industrial teams competing and industrial linkages again are the way to bring this about and so we've got to move in that direction to be cost effective in the future and lastly and I think this is probably the one I would emphasize the most and Jeff just highlighted it as well I tend to disagree with Jeff a little bit in the sense of the trends I actually think we have a protectionist movement more than we do an openness movement taking place in the US and in Europe and that is harming our national security I mean I'll give you a couple of examples not that many years ago the house armed services committee passed through the house the whole house passed a law requiring that every part of every US weapon system must be built in America on US machine tools now we don't have a US machine tool industry much anymore and the DOD would have had to create one with DOD dollars and since we utilized foreign parts on our weapons systems because they're better we would have to then have set up expensive new production lines for small quantities of these parts and they would be lower performing so now I have to think about with the smaller quantities of systems that we would buy because it cost more and the lower performance of the systems that is not in our national security interest but that law has passed for the purposes of national security I just don't see that similarly when recently the Air Force selected a European designed tanker that was going to be built in Alabama and I think that's still part of the United States the best of my knowledge then why was there such crying and screaming taking place in Congress about something that was going to be built in the U.S. and world class system that won in a competition because of this protectionist direction so I think it's still there personally now how do we benefit from globalization well U.S. and Europe have to as Jeff just pointed out revise our export control provisions ITAR, ER, so forth they have to change the U.S. and Europe have to change the import rules by American Barry amendments, SCOTAC, so forth but what's shocking is when you look at the dates that those laws were written I mean 50 years ago in some cases now do any of you think the world is still the same as it was 50 years ago today in terms of globalization I don't and I think therefore one has to say why don't we change industry has changed industry is globalized technology is globalized Congress isn't globalized there's a saying going around town here that in fact Congress is a leading trailing indicator and you know if you think about it that's probably true we need to be trying to take a real push from the executive branch direction to show how this is hurting U.S. national security in order to get that change made it's not going to start from within the Congress I'm sure but it is harming U.S. national security for the 21st century so if I step back and look at the literature that exists now on culture change and I think this is a culture change thinking differently, thinking globalized it says that in order to benefit from globalization two things would be required and this book highlights those two things first is a widespread recognition of the need for change if you don't have that then change isn't going to be able to be sold and secondly leadership that has a vision, a strategy a set of actions an ability to achieve alignment and motivation to bring about that change this book provides a lot of the data that's needed and a lot of the policy direction that's required for the change so I would encourage you actually I'd encourage you of course to read the truly outstanding special forward that I wrote but besides that I'd suggest you read the book too you know because it does have in its content a lot of very important data that will help I believe in moving this change forward and I think America's future security depends on that answer you're now a lot smarter on what this book offers and if you took very very good notes you could probably study for and pass a pop quiz which we're not going to give you but I think more importantly you can see that the problems that it illuminates are very much worth the effort of tackling and you also see some new elements coming into play and I want in my closing remarks to open up to questions to take opportunity to comment on some of that the EU is clearly taking action and the political dynamic in which this action takes place is not only has all the characteristics that our two speakers this morning have noted but it also has an additional one the deployment of European forces over the past few years into parts of the world in which they actually get shot at and killed has changed what Europeans are thinking about defense and where that change leads us we're not quite sure because of course it could lead you in a direction not only of protectionism but of isolationism our own opinion here is that the geopolitical situation in the world is not going to permit or sustain that that Europe will in fact remain engaged on a global scale and the European forces will actually deploy into conflict zones and put themselves at risk and will create a demand because in fact the mothers and fathers of the sons and daughters who are put at risk ask legitimately the question why aren't our men and women as well protected as they can be and the immediate reaction tends to drive you towards body armor and armored vehicles and that sort of thing but the reality is in fact the very thing we talked about today the capability to acquire and use data across the spectrum in an interoperable way in a real-time basis is in fact the best protection that you can provide forces that are deployed in conflict zones and in harm's way and that's going to create opportunities for both supply and demand I think just focus on the demand side of this is very appropriate that could reshape the way Europeans both think about what they're going to buy and actually buy it we heard comments about the potential combined effect of the EU procurement directive and the transfers directive now we know it's one thing for the EU to actually issue a directive it's another thing to implement it and both the implementation schedule and the fidelity of the implementation that is the degree to which it's true to the intent of the directive over history gives us pause that we actually can predict the future here but they could have a very dramatic effect on the defense market inside Europe and the perspective where additional research is clearly called for is the impact of those directives on first of all the US subsidiaries of European firms and secondly on the European subsidiaries of US firms the directives themselves and in our conversations with those who wrote them are very imprecise on these points and there's a lot of opportunity for an implementation for that to go in one direction or the other and it may be the opportunity for increased transatlantic defense cooperation obviously the defense budget pressures both here and in Europe are going to continue as well one other bellwether worth watching of course is the treaties that have been reinvigorated in their consideration in the US senate the US UK treaty and the US Australian treaty the administration has indicated that they're pushing and they're back on the table I don't actually see how you can say you're going to tackle export controls unless you put a lot of effort on moving those treaties through in a very timely way and I would note that it is the end of October so timeliness is perhaps running out all of these are issues that will demand our attention and our best efforts to address and resolve them and so I want to commend the authors for this comprehensive work and I think we all welcome the chance to continue tackling these issues and open the floor for your questions we have a procedure do we have microphones ready you raise your hand Jeff I think what we'll do is let you recognize folks because presumably you're going to answer these questions and Jeff we'll recognize you you wait for the microphone to arrive and then you actually use it it would be most helpful to us if you would identify yourself and your affiliation before you ask your question Jeff the podium is yours Honour the boroughs yes I asked what percentage of Europe's armies today would you say have been re-equipped for out of area operations and if they are not designed to be out of area what are they really designed to do well this is a study of defense markets so I can't say we look thoroughly at that issue which is not an unimportant one because there has been an evolution in that direction in Europe but my other counter vellings I think the notion of fixed forces in Europe the notion of expeditionary warfare has entered the European culture but I would say the degree to which Europe has operational forces for out of area expeditionary warfare is pretty limited it's largely two countries there are a few specialized efforts in some of the others and this relates to a point I made before which was Europe has largely become de-bellicized un-warlike and you see in Europe not much appetite for high intensity warfare other than two countries and you see this in the budgets which are chronically low shrinking to some degree you see this in all these capability initiatives in Europe in a certain sense we spent years in government a lot of people in this room telling Europe to buy more capabilities but we also tended to focus on the high intensity capabilities and the track record is not great there and I think it reflects that you have a European culture that doesn't have a lot of appetite today for out of area expeditionary warfare and only has pretty limited capabilities which is why I think we should stop rolling stones uphill that is to say the burden sharing we're doing is likely to be a burden sharing where Europe's contribution is going to be more in the low intensity side of the equation and more through the EU Stuart Cole is a colleague of mine I think might have something to add to that Stuart do you have something to add and as recently come out I would say that there is a movement on paper at least to shift from territorial defense posture to one which is more interventionist and expeditionary oriented but Jeff is correct in many ways the preference there is for the lower end of the conflict of spectrum of conflict than to engage in high intensity operations they're very interested in doing peacekeeping instability operations reconstruction operations not so much in fighting major wars outside of their own area at the same time they're hindered in their ability to implement this shift in policy that they've identified Germany is a good example where they have a new defense strategy paper out which tells them that they might essentially downshift get rid of a lot of their heavy forces which are designed for Europe at the same time they have programs in place by the MRAV several other army vehicle programs which are not really connected to that expeditionary some things are driven by domestic politics and industrial policy which is disconnected from the strategy that they've identified but other countries are moving exclusively into this I will say that there has been one slight change in emphasis mostly on the eastern borders of Europe where after the Russian incursion into Georgia Sweden, Poland, Romania and a number of other countries began reexamining their priorities and indicated that they might be retaining more in the way of territorial defense at the expense of their expeditionary capabilities thanks Stuart at some risk I'm going to call Dave Oliver Dave Oliver, me, a DS, North America let me take that concept a little bit further I try to imagine myself as in a European political that's trying to pass money for defense and I'm thinking about how I do this and maintain my constituency etc and I say if I'm going to do that then I need to if you what you say is true if there's not a a great wellspring of enthusiasm to go conquer new lands because the Vikings have died off then I must have then I must have people who believe in the concept of collateral defense etc and they are not going to want my soldiers my men and women to die in inferior equipment and so I must outfit them in the best equipment and I cannot and I must have jobs because that's what we have you have to have it must produce jobs for let's say Norwegians if I'm a Norwegian politician because that's what we use in the United States it's going to produce jobs for locals because that's how they're going to pay the taxes and I can't have my sons and daughters killed because they have inferior equipment so I have to have first line equipment for the people I send to do things and it has to come from Norwegian jobs I'm really worried about how our policies result in Norwegian jobs in this case vice buying things from Americans and so I'm really interested in reading your data because I'm worried right now that the flow of opening up in Greece and opening up in Europe an increase in trade is countered except for peace I have to think about that one for a while put a question mark in thanks look I think it's certainly I mean I come back to the notion governments want to spend money at home and governments want superior equipment I think that's all true today I don't think we're going to end up with an open market where there's no European capability that's unrealistic our policies I think what you're suggesting is the degree we push hard on open markets that's where we end up to some extent it's a tough balance I think what you are seeing in Europe though you know they have more industrial capacity today than they do demand and so they're at a balance in aerospace there's been consolidation to some degree and the rest of the markets in Europe there's not been enough consolidation one of the things the Europeans have to do to ensure that they can provide the best equipment is to further create some consolidation now hopefully that will be more transatlantic in orientation the realities of the things you mentioned or it may go the other way I mean Europe really needs in some sectors less sufferers and one of the things we picked up in the inner people all over Europe excuse me if you look at naval armored vehicle markets some of the other things they all know this is a problem and they all have to recognize that they're going to have to create some centers of excellence and that will help to ensure eventually some future existence of a European a capable European defense industrial capability that can supply those needs given that and if you accept the fact that the US is not ahead in every area and in fact in many areas the Europeans are ahead of us and there are many critical future technologies for which we're not the world's leader I mean even quantum computing picking up an example where we both have to share this world class technology then you get the jobs when you build the stuff after you decide what it is the tanker example was one of a design as contrasted to where it's built the jobs shouldn't be the deciding factor it should be the best technology that you can get and what we need to do is to create transatlantic industrial teams that allow us whether it's US investment or European investment and where it is these transatlantic teams then can compete against each other transatlantic teams in order to get the best capability anywhere and still have it built locally but it's a technology that's going to drive the performance let me add one other thing to that before we go to the next question I think that one of the fundamental analytical issues that in our minds is probably resolved but in the minds of DOD is not resolved is this very question of whether or not we still have the technology lead in the US as recently as two weeks ago I heard a fairly senior defense technology official opine in a private setting that 95% of the future technology we need will still come from the US as long as you have that view and I actually don't believe that to be the case I think that's a very narrow view of what critical technology is and a very uninformed view of from where it's going to come but as long as that mentality is in place it's very easy to fall into a protectionist syndrome at our end and of course that fosters the same at the other end the other difficulty is there's clearly benefits that accrue from competition we all know that it's been proven over and over again decade after decade and yet competition in the future clearly refies competition on a global basis and so the analytical framework and the policy framework in which we weigh on the one hand the benefits of competition and on the other hand the potential risk both political and substantive of globalization is an analytical framework that we don't really have our arms fully around yet let me add one more point that I really think is critical and it's because much of the future technology comes from the commercial world and the kinds of things that we're talking about in that central warfare advanced sensors whatever pick new materials and so forth they're going to come from the commercial world they're not going to be U.S. only in fact they may be U.S. global corporations that come up with great ideas in China or South America or elsewhere where our current barriers our ITAR barriers particularly prohibit almost commercial firms from wanting to do defense work that is really dangerous for our future national security because adversaries don't have to deal with ITAR and as a result we're putting ourselves behind with our own commercial firms not wanting to do Boeing got had to pay a $15 million fine recently because they had a commercial part inside of one of their avionics equipment I think was on the 767 that also happened to be in a missile they were violating ITAR by shipping their 767s overseas I mean that's foolish we have just not updated our laws in order to take advantage of worldwide technology and I think the commercial one is the one that's the hardest hit not just the military worldwide young lady in front they probably can state their name in affiliation I'm Sheila Ronas with the project on national security reform building on what Dr. Gansler and Dave Bertuk just said it has been our observation that the defense industrial base globally is a subset of the global industrial base and unless you understand where that is going on a global basis it doesn't necessarily just make sense to look at the Atlantic US European US equation without at least some look at the context within which that exists including I think the whole issue of the erosion of both bases to Asia and how that is going to be influencing how we make all of these decisions both together the Europeans and us our allies and in other ways and the issue is if you don't understand where the commercial base is going which is in fact the BRIC countries with a huge emphasis on China I don't know that I mean I liked what you did but I don't I hope you at least put it within the context of the global environment absolutely I think those of us up here couldn't agree more if you look at what are the shaping forces of the marketplace globally in the last few years the globalization of the economy and it's the information revolution or two of the underlying shaping forces of what we have in the national security area you also have to look at the threat and the demand and that's moving too globalization has two edges to it here one edge is as increasingly India and China are online the fact is the United States needs to not live in a cocoon in the defense world why? because we need to get access to the best technology abroad to inform our own competitiveness and our own national security one of the secrets of the last 50 years is we take some of these ideas from abroad in national security we use them and we improve them and we implement them and in a world where a lot of innovation is going to come from abroad in the future we can't be cut off at the same at the same time globalization has its risks it makes it easy for an agile enemy to get his hands on a missile technology that Hamas or whoever a non-state actor can improve and improve and we do have to operate in the defense world within a community of friends we can't share with everything so I agree with your premise completely you do have to recognize some limitations because we operate in a world where we need to get access and mine a lot of things from abroad but we need to make sure when we share very sensitive technologies we have to share it with trusted countries and trusted partners so I would say that I think clearly what she was talking about is a lot of the software coming from China and India of course and we are going to have to accept that and live with it and that's a major issue in terms of vulnerability but it's also a major opportunity in terms of getting world class state of the art stuff especially because it's commercial it tends to be built in higher volume at state of the art and lower cost that's the direction we have to move so we really want to not have enemies and if you think about it China has terrorists on the Northwest China has an environmental problem China has an energy problem China has a water problem so forth we should work on trying to share those problems and solutions with them rather than trying to put out an annual report the Chinese are coming we got to prepare for them which is what we have been doing I recently gave a talk to these government officials first question I got is do you publish an annual report about every country or just us you know that tells you something why are we trying to make them into an enemy gentlemen in the back Anthony Skirbo independent analyst to follow on to the last question and to touch on your fifth recommendation relative to the illicit foreign payments can you briefly inform on the shape scope and depth and the role that competition in the non-transatlantic markets has on the evolving policy relationship on both sides of the Atlantic relative to competition in the non-US and non-European markets between the firms what role that's having on impacting the policy debate on both sides I'm sorry do that again I lost the flow of that I apologize competition elsewhere not in the US and not in Europe between the European and American firms what role is that having in terms of shaping the fortresses and the icebergs coming down or just changing their shape my perception is that the shape is not so much that they're coming down or going away but that they're changing and this potential move toward protectionism is partly being informed by competition elsewhere not so much competition to get into the European market or to get into the US market but how it's being impacted by competition further abroad the lesser included well yeah again I think that you see two different sorts of strategies being employed as I said before the Europeans worldwide are looking to make themselves at home in major defense markets and for them that means developing more defense presence you see that in Australia you see that in some other places and for them that means really being very much on the ground our companies less so I mean exports are a percentage of our companies work but it's a much less of a percentage than these European countries or Israeli countries for that matter there's pretty robust competition in third country markets between us the worry is it leads to proliferation the worry is that that's why as Jack has said we'd rather have translate teams competing against each other and it may lead to let them compete here and have less proliferating effect we worry about the effect of the competition abroad in third countries what you do worry about is the proliferation implications I don't know if that fully answers your question but that's my shot at it good morning can you hear me? Tom Trimble with SAIC you and your co-authors have mentioned several recommendations predominantly for government and underscored the fact that they take several years to implement there's one on the bottom there the transatlantic defense industry dialogue that Dr. Ganslin mentioned also but are there other were there in your study other relatively near term actions that US based firms might want to take whether supporting legislation ITAR related otherwise that you think we should be considering well I think the role you know look I think there are two sets of roles for the industry in this one is to you know really push the government for change it's our government and it's their governments and the idea of the transatlantic defense industry dialogue is precisely that impetus the idea for those who don't know and I'll flesh that a little bit is here would be the way it would work that the leaders of the European and US firms would get together and say we're going to have a dialogue and we invite to it the EU, NATO and maybe the five or six leading arms producing countries ministries of defense and we're going to come to you with proposals for change next month meeting up to it internally with transatlantic groups of companies working on recommendations and developing them and bringing them to government to try to catalyze this and push this and that's the way the transatlantic business dialogue is worked in the commercial sector and I think the time has come to catalyze this in this sector but companies can help by working with Congress I think companies can shape the help shape the protections environment by working with Congress in some ways I do think companies then the idea here is for government to create a facilitating environment ultimately for more transatlantic collaboration so it's up to the companies to promote and seek that a lot of companies say this stuff is hard it's hard to team with a foreign partner you see that a lot and when US Primes look at supply chains and supply chain management this is difficult they got to get ITAR licenses but I do think they can push the envelope further and work further within the existing system Jeremy again north of Grumman thanks Jeff for your comment your report and I want to build on your last comment because there is a real challenge with building this collaboration between companies I see that when I work with a lot with our UK business there is sort of conventional wisdom we have a high defense market in the US so companies seek international but they're not often necessarily seeking going to Europe because the challenges that are with it they look at the European markets and they say well there's no money there the defense budgets are going down and so the problems with the uncertainty of the defense directives and the industrial strategies and so on they say maybe that's too hard let's go to simpler markets where we can do FMS in Middle East and so on so it seems to me that I'm speaking and supporting your report that the government really can play a big facilitating role here and this is why getting these treaties done between the US UK, US Australia and other kinds of activities will help create that framework and a business dialogue would help as well because if you don't have that companies it's really hard internally to make the case for the investment that much juice coming out from the squeeze so the more that we can as industry support these kind of efforts the stronger we can build this kind of dialogue and one final point is on the if the European markets or European governments go more and more toward the lower end that makes it harder again for the bigger firms to build that case internally because if they're not buying those big high technology markets or systems then it's harder to justify some of the investments I agree we were talking for me to get business development funds for a European project because I don't have any real potential to be in crime I'm going to be down to the second and third tier and my margins, my return on investment will be small so unless there's a major opportunity to again as Jeff said earlier go for the low hand route rather than to make a concerted effort to develop market share and a business presence in Europe American firms just don't do it because from their perspective Europe is small beer I would just say look in the late 90's when the budgets here were lower when the governments the United States government was actively promoting this there were much more of this industry to look European in that way and maybe it will happen again in the next number of years we do see absolute decline in budget let me check Hello I'm Manuel LaFontaine I'm a visiting fellow here at CSAS for the Europe program first I wanted to say it's always a pleasure from being a European to hear so much nice comments about ESDP and European defense and yet there is this sort of European ambivalent feeling that you're more often taken seriously when Europe is considered as a market when it is considered as an operation contributor but my point is you mentioned the French ideas about the second circle which was European and actually that comes from the white paper on defense and national security and there was a debate at the time which was limited to some a few people but there was a debate and I would map the debate that way there was some people but a minority that did argue for a transatlantic market that would be either the second circle or the third more limited more narrow but yet existing circle and well obviously they didn't prevail then there are two kind of let's do a European circle so far the first approach to this is this is a transition we need further industrial consolidation as you pointed to we need to go further on the single markets integration as you mentioned and also there are further efforts for European armies transformation to be done before we can go to that kind of transatlantic market but there's a transition and we're aiming at that at a later stage and the other transitional approach is basically it has nothing to do with industry or economic issues it's political it's whether the US is willing to consider Europe in a balanced way on the defense industry market and more broadly on the defense and security issues and obviously being in France there was a huge talk about the C-17 contracts with NATO and everything and the last part of the map is about the people who do believe that we have two our agendas are two different some people say our security agendas are different and you mentioned the high intensity, low intensity issue some people say our economic agenda are different because of the globalization of market and the fact that US defense firms are looking elsewhere than Europe as just been mentioned another kind of perspective on this but basically our agendas are two different so it wouldn't really make sense to go in that direction how would you map the debate this discussion here in the US thank you well thanks first of all for the evolution of what's going on in France I think that's very helpful I guess you're asking me what's the debate over the evolution of our defense industrial policy here in the United States I think that's your question because you've laid out a series of impulses in France I think you have I don't think you have a lot of articulated debate frankly in the United States on this issue today I think if you ask senior defense department leaders they would say we are open to good foreign solutions and I think on the other hand you have the countervailing tendency Jack pointed out in congress especially in more difficult economic times to move in their protectionist direction but one of the things we haven't had in the last eight or nine years is an articulated defense industrial policy in the United States we've had ad hoc actions across services across different parts of the US government we haven't had that hopeful one will now emerge in the next period the Obama administration has a lot of things on its agenda but I think this is certainly one of them I think a key part of that question though is trying to define what is a European firm or what is a US firm I mean if you think about it depending upon which day it is BAE systems is either owned by US or owned by European if they move the headquarters from London to Paris does that make them French if they move it to New York does it make them US even if they're owned by the US and if you think about the trends in technology and industry they now are globalized firms and globalized technology and in terms of taking full advantage of state of the art technologies around the world for our national security we should be taking advantage of who has that capability and then you get into where it's built question where the labor force is maybe you have some multinational firms that happen to be located in a different location but that's not the issue it seems to me that we want to separate here the national security issues of trying to make sure we have the best capabilities in all countries especially our allies and that's the principal thing we should be trying to address is interoperability of the equipment even exercises and training together because we're going to be fighting together and being able to look at then the industrial base that supplies that from a security perspective but also an economic perspective those are the broader industrial base strategy questions that I think you're raising which are the right questions to be addressing and we need to think about it in the 21st century environment though not in the 20th one more question good morning good morning I'm sorry Matthew Clarkson from National Center for Scholars my question sort of regards market changes across the Atlantic what I have in mind for instance is the upcoming meeting in Copenhagen if the European mindset moves to more sort of a carbon based economy at least within the consumer market and that translates sort of into the defense sector there so how can that be reconciled within the transatlantic market if say for example America is more reluctant to move in that way I haven't really thought about that one but I think what you're saying is how do we on the one hand promote a more open and competitive defense marketplace while we're reluctant to do that in the global warming arena in terms of the carbon based market if I understand your question requirements about sort of certain carbon emissions and obviously as you're aware we spend a mass amount of resources and we have a moving fuel for example a huge huge operation how can we reconcile that if there's this sort of cultural divide between the two sides of the economy? Thanks I'm one of my colleagues First I'd note that the military has had a number of green initiatives going on for some time and in particular looking to move away from petroleum fuels and so on they're doing it for operational reasons as well as for environmental reasons but I think the point here can be made much broader which is how does the emergence of a European regulatory regime affect the potential for greater cooperation in arms development and the arms industry and we looked at that and we found that where they can the EU does use can use and does use regulations in what can be considered a discriminatory factor there's some potential for that this is an area where the United States has to be willing to negotiate the hard way to get some sort of carbonization of requirements and standards the European Defense Agency is presently developing a handbook of military standards beginning with the NATO Stain Ags which cover all military areas but they want to extend this into where there are gaps they want to develop their own standards which may be broader or more specific than the standards that the United States adheres to so this is an area where we have to and where we have to work with Europe in order to harmonize the regulations that we have if we don't do that we could very well find ourselves shut out of certain markets because there was a tendency in the rest of the world where the EU has a major commercial presence to impose EU standards to adopt EU standards as local standards the defense the defense procurement procurement directive adding it a hierarchy of standards in which they said well first we're going to have international standards then we're going to have EU standards and then we're going to have national standards and what's interesting there is that there's no place really shown there for US standards or US risks unless they're adopted and integrated into some sort of you know that brings us back to the discussion we had much earlier about the sharing because the standards question is a very critical if you remember in Kazabo when the Dutch and US planes are flying along next to each other they couldn't talk to each other in secure mode so our pilots are vulnerable but those standards both met NATO standards lowest common denominator in other words and that's not the right answer we need to be able to bring world-class standards into the environment including the environmental ones including the energy and so forth but it strikes me that this is one of the areas that we need to be making some significant steps forward in establishing so we can have interoperability establishing world-class standards across not only NATO and EU but with all of our allies that we're going to be involved with which goes to your question of what about with India you know or what about with other allies that we have that we need to be sharing with we're going to bring this to a conclusion here I have a couple of final observation points and an additional thank you earlier in the discussion Mr. Bialos thank those from the Defense Department who had provided support and comfort to him as he and his colleagues in comfort may not be the word he would have used but as he and his colleagues engaged on the journey of producing this work here I would like to recognize that Brett Lambert who's arrived here at the beginning and extend I think the gratitude as well to him because he's in charge of this now I'm not going to put him on the spot and ask him to respond to the question about what is the US industrial policy need to be for this administration but I will tell you that that's clearly a dialogue that needs to be sustained and continued and we here at CSIS along with most of you will continue to engage in and foster that dialogue as we go forward I would also encourage my European colleagues to not leap too fast to the conclusion that everything we do is knowingly connected to everything else we do in an organized and constructive fashion and it might not be wise to read too much into our approach to an integrated way of dealing with these issues it's awful easy to assume that the left hand knows what the right hand is doing when they're not in fact connected to the same neural network finally I would point out that I think the ability to take these defense related issues and translate them into the larger universe of issues that America faces is clearly a daunting task and I would ask Mr. Bialo Sif for his next book he would undertake the lessons learned from the transatlantic defense trade for American and European health care reform and so with that I would like to thank you all for being here today thank you for your attention thank you for your contributions and thank for your continued interest