19 Jun

TTIP, the free trade agreement that is currently being negotiated between the United States and the European Union, if successfully concluded by both parties will create the single most important common market in the world where more than one third of the world economic output is already being produced in these two sovereign blocks. A possible establishment of such a significant common market with its specific emphasis on legal compliance across the Atlantic between these two jurisdictions, will inevitably have wider legal and economic consequences for several different business sectors. The issue has already been on the agenda for the American Defense industry which has been keeping a keen eye on the latest developments in the TTIP negotiations.

Wider Implications for the American Defense Industry

It is likely that the defense industry will not be part of the negotiations between the Americans and the Europeans in TTIP agreement. However a general impetus, brought by the initiation of a common market, for increased cooperation in transatlantic trade will inevitably spill over to the defense industries. As the Defense policy analyst Steve Williams elaborated on the possible impact of TTIP on American defense industry, “TTIP would create a “favorable environment” from which greater defense cooperation could emerge.”

Such a free trade agreement between these two giants, will have a boost for the transatlantic defense industries community. Currently the EU 28 average for national defense spending stands around 1.5% of the EU 28 GDP. The uninhibited transatlantic economic transactions is expected to increase the defense spending in EU by an annual USD$ 2 to 2.5 billion which the American defense industry is well positioned to benefit.

How to Tackle the Issue of Export Control?

Despite the likely absence of defense industry in TTIP negotiations, one of the expectations usually mentioned by the Europeans is at least the relaxation of some export control rules regulating the defense industry items following the official signing of the TTIP. Pundits like Leo Michel of the Atlantic Council states that the proponents of the TTIP especially on the European side, “”hope the TTIP will knock down various US legal and administrative obstacles to a more balanced transatlantic defense industrial trade and technology partnerships”.

However the U.S export regime that regulates the export of defense industry items is a stringent one that involves various different bodies for the final authorization of the related items which only be realized through the obtainment of the export license. Not only the American President himself, is empowered to wield a substantial influence on defense related exports by the Arms Export Control Act of 1976, but also bodies like State and Commerce Departments which are vulnerable to political influences have an important say on the issue. Moreover International Traffic in Arms Regulation (ITAR) imposes controls for the export of the defense related items enumerated in the U.S Munitions List.

Conclusion

A possible free trade agreement between the United States and the European Union will have serious consequences for many of the industries in these two jurisdictions. A special emphasis has already been put on harmonizing two economic blocs’ laws. Hence a closer cooperation between several industries across the Atlantic is expected. However when it comes to the defense industry the benefits like closer cooperation or removal of legal and bureaucratic obstacles, that the TTIP is expected to bring should be seen through the lens of the U.S export regime. Since the export of defense related items are regarded as a sensitive issue keenly connected with national security concerns, a stringent export regime imposes severe legal requirements to the export of such defense related items. Since the export of such items involve highly sensitive issues like technology transfer to the third parties, a relaxation of aforementioned regime or a boost for export licenses due to the positive impact brought by TTIP seems unlikely. However it is highly likely that an increased economic cooperation between the United States and the European Union as a result of a possible free trade agreement will provide the European countries with more leeway to increase their defense spending which will benefit the American defense industry.


Herdem Law Firm, Istanbul Turkey

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