APPENDIX
B

Report of the Subpanel on Commercial Aircraft and Jet Engines*

This report provides an overview of the U.S. and world civil aircraft industry, describes the increased globalization of and competition within the industry, and briefly assesses critical Western and Soviet aircraft technology. The report then examines export controls and the civil aircraft industry—in particular, the impact of export controls on U.S. firms, industry characteristics that inhibit or enhance the effectiveness of export controls, and specific problems with the export control system—and offers recommendations for change.

SYNTHESIS OF MAJOR FINDINGS

The major findings of the subpanel are as follows:

  1. U.S. export controls imposed for foreign policy reasons have had a far greater impact on the export of commercial aircraft and jet engines than have national security export controls.

*  

The Subpanel on Commercial Aircraft and Jet Engines was appointed by the Committee on Science, Engineering, and Public Policy to work in conjunction with the main panel to examine the impact of both current policy and alternative future policies on its specific industrial sector. The subpanel was not asked to consider the full range of issues addressed by the main panel; rather, it was given a specific set of tasks to undertake. The subpanel met less frequently than—and independently of—the main panel, and it had considerable latitude in conducting its discussions.

Thus, it should be noted that the conclusions and recommendations of this subpanel report, while providing valuable input to the deliberations of the main panel, do not necessarily reflect the main panel's views and, therefore, should not be considered to be a part of its findings.



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Finding Common Ground: U.S. Export Controls in a Changed Global Environment APPENDIX B Report of the Subpanel on Commercial Aircraft and Jet Engines* This report provides an overview of the U.S. and world civil aircraft industry, describes the increased globalization of and competition within the industry, and briefly assesses critical Western and Soviet aircraft technology. The report then examines export controls and the civil aircraft industry—in particular, the impact of export controls on U.S. firms, industry characteristics that inhibit or enhance the effectiveness of export controls, and specific problems with the export control system—and offers recommendations for change. SYNTHESIS OF MAJOR FINDINGS The major findings of the subpanel are as follows: U.S. export controls imposed for foreign policy reasons have had a far greater impact on the export of commercial aircraft and jet engines than have national security export controls. *   The Subpanel on Commercial Aircraft and Jet Engines was appointed by the Committee on Science, Engineering, and Public Policy to work in conjunction with the main panel to examine the impact of both current policy and alternative future policies on its specific industrial sector. The subpanel was not asked to consider the full range of issues addressed by the main panel; rather, it was given a specific set of tasks to undertake. The subpanel met less frequently than—and independently of—the main panel, and it had considerable latitude in conducting its discussions. Thus, it should be noted that the conclusions and recommendations of this subpanel report, while providing valuable input to the deliberations of the main panel, do not necessarily reflect the main panel's views and, therefore, should not be considered to be a part of its findings.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment The dynamism, innovative nature, and increasing internationalization of the aircraft and jet engine industry render export controls difficult to administer and maintain. The critical technology related to commercial aircraft and jet engines lies in the design, materials, and manufacturing processes, not in the end products. The competitive and technological position of the United States relative to West European and Japanese commercial competitors may be of greater future importance than its military standing vis-à-vis the Soviet Union. Unilaterally imposed foreign policy and national security export controls on commercial aircraft and jet engines should be sharply limited. If controls are to be imposed, they should be imposed on a multilateral basis. U.S. management of export control lists has been characterized by inconsistent administration, discrepancies between U.S. and CoCom (Coordinating Committee for Multilateral Export Controls) lists, and use of overly broad export controls. U.S AND WORLD CIVIL AIRCRAFT INDUSTRY Major Companies The West's commercial aircraft industry is a global enterprise comprising a few large, integrated airframe and engine producers that draw from a large and varied U.S. and international base. The industry has five prime airframe contractors: Airbus Industrie, a consortium composed of Aerospatiale (France), British Aerospace, Construcciones Aeronauticas (Spain), and Daimler-Benz (Germany); Boeing (U.S.); British Aerospace; Fokker (the Netherlands); and McDonnell Douglas (U.S.).* The historic rise in market share of the largest commercial transport companies, in terms of aircraft orders, is shown in Figure B-1. In addition to the prime airframe contractors, there are major subcontractors in the United States, Japan, Germany, France, the United Kingdom, Italy, Spain, and Canada. Suppliers in the People's Republic of China, Sweden, and Indonesia are playing increasingly larger roles. Three principal manufacturers in the West design and build engines for large commercial aircraft: General Electric Aircraft Engines, Pratt & Whitney Group, and Rolls-Royce. *   There is one other major player in the industry, namely, the huge Soviet civilian aircraft industry. It may eventually become a major factor on the international commercial market.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment FIGURE B-1 Increase in market share of largest commercial air transport companies Features of the Civil Aircraft Industry Among the characteristics peculiar to the civil aircraft industry are the complexity, high unit costs, and low-volume production of commercial transports. Market supply and demand are such that relatively few aircraft are manufactured. From 1952 to 1989, for example, the largest number of jet transports produced in the non-Communist world in any single year—1968—was only 742. Another reason for the relatively low production rates is the long product life of most civil aircraft. A new computer may become relatively obsolete in two or three years, but a commercial aircraft may be 10 years in development and then stay in service for 20 to 35 years. While in operation, aircraft systems undergo continual improvements to the technology embodied in them. These improvements occur in far shorter cycles than the product life itself. New navigation and communications equipment and changes to the composition of high-strength metal alloys are among the ongoing enhancements. The aircraft industry is a volatile, highly competitive business that involves extraordinary risks in bringing new products to market. As an example, it takes about 12 to 14 years to reach a break-even point, and relatively few commercial airplane programs have become profitable. As with civil trans-

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment ports, engine development is fraught with large front-end investments; long lead times and a production run of at least 2,000 units over a 10-year period are required for a successful program. In both the aircraft and engine segments of the industry, it typically takes 3 1/2 to 4 1/2 years from design go-ahead to first delivery. And significant product improvements may still be introduced 3 to 10 years after first delivery. The industry's innovative dynamism makes it all but impossible for any one firm to hold a lead indefinitely in a particular technological area. Aircraft technology is a perishable commodity; efforts to stand still or to control change are likely to prove futile. Much know-how diffuses rapidly throughout the industry by way of product sales, patents, licensing, publications, and competitive research and development (R&D). Effect on U.S. Economy and National Security In 1989, the U.S. commercial jet aircraft industry employed 304,000 people, including 35,000 engineers and scientists, and it had a positive trade balance of $10 billion. Exports of civil transports in 1989 reached $12.8 billion; turbine engines, $1.9 billion; and aircraft and engine parts, $9.9 billion. By the end of 1990, the transport industry was expected to have reached nearly $31.9 billion in sales, and new orders were expected to have added significantly to its backlog of $76.6 billion in orders.*1 In 1989, the major U.S. airframe and engine manufacturers let subcontracts valued at nearly $20 billion to U.S. firms and over $3 billion to foreign suppliers.† Approximately 10,000 supplier firms, both domestic and foreign, contribute 60 to 70 percent of the value of the airframe. Suppliers provide subassemblies, components, parts, and other goods and services for civil aircraft and engine manufacturers. The U.S. civil aircraft industry serves as a production and transportation base in the event of national emergency and provides military derivatives of commercial airplanes and engines. In addition, Boeing, General Electric, McDonnell Douglas, and Pratt & Whitney together spend well over $2 billion a year in commercial R&D. Much of the industry's research efforts are concentrated on leading-edge technology, such as electronics, aerodynamics, propulsion, advanced materials, and manufacturing design. CONTINUING TREND TOWARD GLOBALIZATION AND FOREIGN COMPETITION For much of the post-World War II period, U.S.-based firms dominated the manufacture of civil aircraft. Today, far from being a one-nation *   Over the next 15 years, the commercial aircraft industry is expected to try to meet an estimated $626 billion in additional orders. †   Annexes B1 and B2 list domestic and foreign purchase orders, respectively, for 1989.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment industry, the aircraft business is becoming increasingly globalized, which has attendant negative implications for control by any single nation of the export of production technology. The customer base is spread across nearly every country in the world and is made up of about 600 airlines, leasing companies, and foreign governments. At the same time, the global aircraft industry is being transformed by a wave of consolidation among companies within and among various nations—68 percent of all civil aircraft is purchased by about 5 percent of the non-Communist world's airlines. The trend toward a truly worldwide industry is illustrated by the growing number of recent major international joint ventures.* In April 1990, for example, Japan's Mitsubishi Heavy Industries and Germany's Daimler-Benz (which controls the aircraft firm Messerschmitt-Bolkow-Blohm) signed an agreement on joint aerospace research.† Also in 1990, West Germany's Bayerische Motor Werke (BMW) and the United Kingdom's Rolls-Royce, the major European manufacturer of jet airplane engines, agreed to collaborate on the development and construction of new jet engines. These and other transnational activities are in addition to the well-established joint ventures in the engine field between General Electric and SNECMA (Société Nationale d'Etude et de Construction de Moteurs de Aviation) and the International Aero Engines venture involving Pratt & Whitney, Rolls-Royce, MTU (Motoren-und Turbinen-Union GmbH), Fiat Aviazione, and a Japanese consortium.‡ A useful indicator of dispersion of technical expertise throughout the world is the number of domestic and foreign facilities able to perform extensive aircraft maintenance. According to figures compiled by the major U.S. aircraft and engine manufacturers, there are 52 maintenance facilities in the United States, 15 of which are capable of heavy maintenance.§ There are 220 maintenance facilities overseas, about 40 of which can do heavy maintenance.|| Another indicator of how internationalized the aircraft industry has become is the geographical breadth of the companies that supply parts and components to major manufacturers. The industry's five prime contractors obtain a large *   A customer base for Western aircraft has already been established in the Soviet Union and Eastern Europe. General Electric, for example, has conducted negotiations to sell engines in the Soviet Union, Poland, and Czechoslovakia. Airbus Industrie has taken orders for aircraft from the Soviet Union and Romania. And Boeing aircraft are operated by Polish, Hungarian, and Romanian airlines. †   Officials at Japan's Ministry of Trade and Industry (MITI) have suggested that the two companies cooperate to build a new midsize commercial airliner, the initial research for which is being sponsored by the Japanese government. ‡   Annex B3 lists recent foreign partnerships involving Boeing, General Electric, McDonnell Douglas, and Pratt & Whitney. §   Heavy maintenance refers to the capability to tear down a system and completely rebuild it. ||   Annex B4 lists nations with a heavy maintenance capability.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment percentage of their aircraft content from thousands of different suppliers, some of whom sell to multiple prime contractors. More than 5,000 firms, both foreign and domestic, are suppliers to just one firm—U.S. engine maker Pratt & Whitney; 3,800 suppliers from 33 countries provide parts for Boeing commercial aircraft. With the increasing globalization of the civil aircraft industry, foreign aircraft manufacturers are mounting an increasingly effective competitive challenge to the United States. The share of the global aircraft market held by U.S. firms steadily dropped during the 1980s from about 85 percent to about 65 percent. The stated goal of Airbus Industrie is to achieve a 43 percent global market share by the mid-1990s, leaving the rest to be split among the remaining four competitors. U.S. civil aircraft and engine manufacturers are private companies competing without special government assistance or subsidies, but some foreign competitors receive large-scale financial and marketing support from their governments. From the time of its inception in 1970, for example, it is estimated that Airbus Industrie has received $25.9 billion in subsidies.2 In contrast, U.S. firms must recover the immense cost of development and production themselves, while returning a profit to shareholders and retaining sufficient earnings to fund research and the development of successive generations of new aircraft. The products of Airbus Industrie, moreover, are being steadily ''Europeanized." The company's earliest aircraft, the A300, had a U.S. content of 30 to 35 percent of total manufacturing cost in the 1970s. But a 1989 report of the French Senate tracked a decline in U.S. content for various Airbus Industrie aircraft.3 Apart from engines, the newer A330 and A340 series will depend almost entirely on non-U.S. suppliers. An assessment of the technological standing of U.S. versus foreign commercial rivals reveals a narrowing U.S. lead in many technological areas. According to the Defense Department's 1990 Critical Technologies Plan, for example, Japan has comparable technology in composite materials and a lead in semiconductor materials and microelectronic circuits, areas of relevance to commercial aircraft.4 An overview of foreign aerospace technology by Operations Research, Inc. (ORI) lends support to the widely held view that European firms now hold a lead in some aspects of aerospace technology application and manufacturing, and that the once commanding U.S. lead in technology has been significantly reduced.5 It is widely believed the United States has a small but shrinking edge in technology over the West European countries and now lags the Europeans and, to a lesser extent, Japan, in areas of aerospace manufacturing and technology application. In subsonic transports, Airbus Industrie is now considered competitive in high-lift systems and equal or ahead in transonic wing design. In the advanced materials area of advanced carbon-epoxy composites, the U.S. position is

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment roughly comparable to that of its trading partners and competitors in analysis and design, fiber/resin system qualification, and automated manufacturing processes. In flight systems, the United States is at least even in overall technology, but it is behind in certain applications and has become dependent on foreign companies for some components. The United States leads in overall propulsion technology, but foreign competitors are growing stronger in applications and in components. Engine controls is one particular area in which the Europeans are gaining ground. According to ORI, European and U.S. capabilities in computational methods and turbine engine digital controls are even. (In the former category, the Soviets have compensated for a relative lack of computational power with innovative mathematics.) In aerodynamics, the construction of planned research centers in Europe could add to the lead the British and French hold in some applications.* In short, it would be a mistake to maintain the long-held assumptions of easy and continued U.S. dominance in aerospace technology. The most significant trend in U.S. aerospace technology may not be the U.S. position vis-à-vis the Soviet Union but the narrowing margin of superiority the United States has over its Western commercial competitors. CRITICAL WESTERN AND SOVIET AIRCRAFT TECHNOLOGY Aircraft and Jet Engine Technology The technology of commercial jet aircraft and jet engines can be examined in a number of ways. One approach is to break down the aircraft into its major components. Figure B-2 shows the systems, subsystems, and components of a typical commercial jet aircraft. The figure highlights the critical design and production technologies inherent in a commercial jet aircraft, which is made up of millions of pieces. The first level shown in the figure is the end product—the commercial transport. The end product is a combination of processes constituting the know-how of the manufacturer making the end product. This know-how consists of various techniques for design integration, materials selection and processing, and manufacturing and assembly procedures critical for production. The product that results is not in itself critical technology but the result of a combination of processes constituting the know-how of the end product's manufacturer. *   The British also are competitive with the United States in several areas of supercritical wing design, and they have undertaken a joint effort with the Germans to overtake the United States in research for laminar-flow wing design.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment FIGURE B-2 Aircraft breakdown, by systems

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment The second level consists of the aircraft's subproducts—propulsion engines and major components and systems—which are, in most cases, end products in their own right. As with the aircraft as a whole, subproducts should not be considered technology but the end product of technology. Thus, they typically have little in themselves that would add significantly to the military capabilities of a controlled country.* Given that commercial aircraft and their subproducts are not technology, but the end products of technology, the subpanel makes the following recommendation: * The products of commercial aircraft and associated jet engines should no longer be subject to national security export controls. Another way to view aircraft "technology" is to examine its major process technologies—design, materials, and manufacturing. Examples of design technologies are performance and structural analyses and structural and aerodynamic testing. Examples of materials processing technologies are turbine blade castings of single crystals and design of metal matrix composites. Examples of aircraft manufacturing technologies are detailed parts fabrication and flexible automated assembly. Figure B-3 depicts the dynamic interaction of the three processes. The most important technology is found where these three processes overlap. The "know-how" is much more important than the end product, and this know-how is not transferred with the export of the end product. "Aircraft and engine technology" is made up of all three processes. Each element is often not critical in itself; its success typically is highly dependent on the success of the others. For example, a manufacturing process may only be as good as the design process that determines the required quality of composite material used in production. The key to product superiority is not the acquisition of any single technique or associated product but the integration of all relevant systems. † Technologies Critical to Western Military Lead To help explain the know-how illustrated in Figure B-3 and to assist in identifying technologies critical to maintaining the military lead of the West, the subpanel constructed separate tables identifying representative critical technologies for commercial jet transports (Table B-1) and engines (Table B-2). *   The principal military benefit of the end product is additional airlift capacity. However, purchase of large transports in excess of purely commercial requirements would be readily apparent due to the documentation and tracking that accompany commercial sales. If the quantity of the purchase seems to fit true commercial needs, prohibitions on sales would be difficult to justify. †   From the standpoint of the manufacturer, these highly proprietary processes often make up the most important part of a firm's competitive advantage.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment FIGURE B-3 Dynamic interaction of major aircraft process technologies The technologies in each table represent know-how; none is simply an "end item." Commercial aircraft and jet engines are designed and manufactured against demanding standards of safety, reliability, and cost. Many of the technologies involved can contribute to the needs of both commercial and military aircraft. For example, process technologies that produce cooled turbine hardware for improved fuel consumption in commercial aircraft also result in better thrust-to-weight ratios in military aircraft. The process technologies listed in Tables B-1 and B-2 are available to some degree in controlled countries. Few are unilaterally controllable. The great majority of "end items" in commercial aircraft and jet engines are not "enabling" technologies,* and thus, they are inappropriate targets of controls. In determining whether to control the export of a product, an assessment of the criticality of the product and associated technology should be made and should answer the following questions: What is the level of criticality or importance to national security of the product itself, its separable subproducts, subsystems, subcomponents, or piece parts? Does the product or its components provide an enabling technology for the advancement of critical products? What is the level of criticality or importance of any associated enabling technology? *   For the purpose of this report, an enabling technology is the know-how required to design and produce a product or its separable subproducts, subsystems, subcomponents, or piece parts. This includes know-how regarding design systems, materials processes, manufacturing processes, or components thereof.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment TABLE B-1 Representative Critical Technologies for Commercial Aircraft   Relative Rank Technology Non-U.S./ Non-Communist World Controlled Countries Criticality Process (design) systems       Software technology - - IV Higher order language       Artificial intelligence       Neural networks       System architecture = - IV Common models       Multiprocessing architecture - - III Data/fusion processing = - IV Computer-aided design/manufacturing (CAD/CAM) = - III Carbon/carbon composites = - IV Design and analysis techniques       Control technologies - - IV Touch, voice, programmable switches       Advanced computational fluid dynamics (CFD) methods = = III Advanced test facilities/CFD verification = - III Materials and materials processing       Aluminum-lithium alloy applications = + IV Machining, forming       Carbon/carbon composite applications = - IV Fiber/resin system qualification       Resin transfer molding       Metal matrix composite applications - - IV Properties, machining, forming       Superplastic forming = = IV Aluminum, titanium       Fiberall-aluminum/carbon composite sandwich + - IV Advanced manufacturing processes       Electronic chip manufacture + - III Superconductivity, LSI/VLSI       Automated carbon-carbon composite = - IV Automated layup       Automated aircraft assembly + - IV NOTES: Each technology within a group has been assigned a relative order of "criticality"; I is the most critical and IV is the least critical. An equals sign means countries have capability in that technology that is essentially equal to that of the United States. A minus sign signifies less advanced capability relative to the United States, and a plus sign denotes more advanced capability than the United States. These technology rankings are approximations based on the best available estimates of technological capability. They should be considered as somewhat subjective evaluations of relative capabilities.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment FIGURE B-4 Payload-range comparison at given take-off gross weight (TOGW): B-757–200 and TU-204 percritical wing design with winglets, full-span leading edge slats, double-slotted trailing edge flaps, carbon composite structure, carbon brakes, triplex fly-by-wire control systems, and high bypass ratio turbofan engines. One measure of capability—payload-range performance for a given take-off gross weight (TOGW)—permits a rough comparison of the two aircraft. Figure B-4 shows the payload-range capability of the TU-204 and the 757–200, the latter at three TOGW values. As shown in Figure B-4, the 757–200 has greater range capability than the TU-204 at their respective maximum TOGW. However, comparing the aircraft at the same TOGW provides a rough idea of the aerodynamic, structural, and propulsion system technology inherent in the two aircraft. This stems from the fundamental relationship for payload-range performance, which says that for a given TOGW, the range is defined by the product of aerodynamic efficiency, the structural efficiency (weight empty + payload/TOGW), and propulsion efficiency. If published data on the TU-204 reflect true capabilities, the result of equal range with equal payload at equal TOGW would suggest that the aerodynamic efficiency, structural efficiency, and propulsion efficiency are similar or offsetting in the two aircraft. This admittedly restricted analysis does not extend to all technologies and other factors related to reliability and operating costs, in which Western transports have traditionally had the advantage over Soviet models. For example, the

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment FIGURE B-5 Payload-range comparison at given take-off gross weight  (TOGW): C-5B and AN-124 direct operating costs related to either Soviet fuel consumption or maintenance are not thought to be comparable to those for Western aircraft. The subpanel performed the same analysis on two military transport aircraft: the Soviet AN-124 and the U.S. C-5B. Advanced features of the AN-124 include fly-by-wire controls, advanced airframe composites, and 24-wheel undercarriage.9 The product availability of the AN-124 trails that of the C-5B by about five years. Figure B-5 compares the two aircraft. Given that the payload-range performance for the two sets of aircraft is approximately equal at the same TOGW, it may be inferred that the aerodynamic and structural technologies are reasonably close. In engine technology, and particularly in thrust efficiency, however, the U.S. aircraft have the advantage. In sum, it appears the Soviets have aircraft technologically comparable in many aspects of basic performance to their advanced U.S. counterparts, although they lag in general efficiency. Based on this analysis, the subpanel recommends the following: When the technologies of the Soviet Union and other controlled countries are comparable to those available in the West, the U.S. government as a general rule should seriously reconsider controls over such items.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment IMPACT OF EXPORT CONTROLS ON U.S. FIRMS The subpanel found that U.S. export controls, and in particular foreign policy controls, can have a generally deleterious effect on the export sales of the U.S. civil aircraft industry. Export controls affect the industry in the following ways: Loss of sales Loss of follow-on sales Loss of U.S. jobs Labeling of U.S. firms as unreliable suppliers De-Americanization of products Encouragement of foreign competitors' products Imposition of direct and indirect costs of implementing export control safeguards Lost or reduced investment in R&D Conservative estimates are that for every $50 million of lost sales, the United States suffers a $30 million trade loss and a decrease of 3,500 person-years in employment. Once an airline has chosen an aircraft model, it may continue to buy airplanes from the producer of that model over several decades. Thus, the loss of one sale can bring about the loss for an extended time of all or most of the market for a given customer. The decision whether to purchase U.S. or foreign aircraft is often a narrow one in which export controls can tip the balance. The long-term ability of U.S. firms to provide product support in the face of unpredictable U.S. government export control policies can become a determining factor. Further, unilateral embargoes not only make sales impossible but can encourage foreign competitors to establish relationships with the airlines of the embargoed countries. Controls on technical data increase business uncertainty and make it more difficult for foreign suppliers to obtain technical data. As joint ventures and co-development arrangements become more common, U.S. regulations inhibiting the exchange of detailed data and functional information required for cooperative ventures will increasingly drive foreign suppliers to avoid using U.S.-made components or parts. The direct and indirect costs associated with complying with export controls are also significant. Large companies must establish dedicated staffs to deal with the bureaucratic procedures involved in obtaining export licenses and to keep track of changing laws and regulations. Moreover, in the event of delayed deliveries of aircraft or engines due to suspended and/or pending licenses, the manufacturer can incur significant inventory costs and interest expense from deferred deliveries. The seller also may be subject to legal action for nonperformance of contract.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment INFLUENCE OF INDUSTRY STRUCTURE ON EFFECTIVENESS OF CONTROLS The international aspects of the commercial aircraft industry inhibit the effectiveness of export controls. The industry has a worldwide customer base and a cross-national network of suppliers. Competitive concerns and considerations of cost and market access lead to a sharing of technology through subcontracts, licenses, joint ventures, and other cooperative arrangements. The growing number of joint ventures between U.S. and non-U.S.-based companies is leading to increased technology transfer.* Extensive information sharing among manufacturers and airlines is indispensable to safety and efficiency. To this end, there is open communication across national boundaries among engineers, manufacturers, and suppliers. A variety of technical publications, conferences, and symposiums are also available to the public. Offsets—the mandatory placement of subcontracts with a foreign country's industry—also contribute to the transfer of technology overseas. As a condition of making a sale, some foreign governments impose offset demands to gain access to higher technology or to increase the business base of their industry. Nearly all offsets involve lower level technology, however, and thus they do not constitute a significant technology transfer concern. Several characteristics heighten industry's ability to protect critical technology without the imposition of export controls. Most important, the high costs and risks associated with new product development help drive the major competitors into protecting critical technologies from their business rivals. Provisions for the protection of proprietary data are routinely included in contracts, supplier subcontracts, and joint venture and offset arrangements. And because all the major aircraft and engine manufacturers and most of their first-and second-tier subcontractors have considerable experience with military contracts, carefully developed security controls are routine. Technology protection and transfer have also been influenced by the changing competitive nature of the industry. In earlier decades, many airlines making equipment purchases emphasized acquisition of the latest technology. Today, technology must ''buy its way" onto an aircraft by offering more than just a technical edge. It must have a demonstrated operational, safety, or reliability advantage to overcome its acquisition and maintenance costs. Another important consideration in determining the effectiveness of export controls is the recognition that the complexity of aircraft technology makes *   Corporations enter into joint venture agreements for such diverse reasons as risk sharing, obtaining new technology, and gaining or retaining access to markets that might otherwise be closed.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment it difficult to reverse-engineer aircraft and engine products. Although individual parts can be measured and analyzed for mechanical reproduction and materials content, such scrutiny is unlikely to reveal the design, manufacturing, or materials know-how necessary to produce an acceptable duplicate or substitute product. Finally, the relatively low volume of aircraft and engine sales improves the ability of U.S. companies to protect technology. Unlike the situation prevailing in low-cost, high-volume industries, it is practical to do after-sale tracking on aircraft and engines sold to controlled countries and to perform extensive maintenance on controlled-country sales at facilities in Western countries.* SPECIFIC PROBLEMS WITH THE EXPORT CONTROL SYSTEM Broadly speaking, the subpanel concluded that CoCom controls played a positive role in protecting the West's military lead during the Cold War. More specifically, however, in examining pertinent areas of the U.S. Commodity Control List (CCL) and Munitions List (ML), the subpanel found that similar items are placed on different lists or are administered by different agencies in often unpredictable fashion. The failure to update the lists regularly and consistently has resulted in control of items that have been superseded by newer technologies or that have diffused into the public domain. The subpanel examined export commodity control numbers (ECCNs) of the CCL pertaining to commercial aircraft and engines and found controls that were overly broad or inappropriate in each category examined. † For example, in comparing ECCN 1460A (aircraft and helicopters, aero-engines, and aircraft and helicopter equipment) against the equivalent category in the CoCom Industrial List (dual use items), the subpanel determined that the United States has various, tighter restrictions relating to foreign policy controls and treatment of technical data than its CoCom partners. In category 1485A (inertial navigation systems), controls are imposed on various flight instruments, automatic pilots, accelerometers, and gyroscopes that can be classified as commodities, not critical know-how. The basis of controls for inertial navigation systems should lie in performance criteria that focus on militarily significant as opposed to civil applications. *   Such maintenance agreements are currently typical of leases or sales to East European operators, although the political changes in the region may lead to a loosening of these requirements. †   It should be noted that the subpanel's examination took place before the end of the effort within CoCom to reduce the Industrial List ("core list exercise").

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment A comparison of the U.S. Munitions List with CoCom's International Munitions List (IML) reveals an array of categories considered dual use by CoCom allies but controlled by the United States under the International Traffic in Arms Regulations (ITAR) for military-related items. In the following aerospace categories, the United States controls items that are not on the IML: Aircraft modified or equipped, but not specially designed, for military equipment. Aircraft engines not specially designed or adapted for military aircraft. Airborne equipment not specially designed for military aircraft. Components not specially designed for military aircraft or equipment. Inertial navigation systems. Spacecraft and satellites, including all related equipment. The more difficult licensing of these items required by ITAR constitutes a disadvantage to U.S. firms because their CoCom competitors administer these items through CoCom's less exacting Industrial List. Consequently, the subpanel recommends the following: Items on the U.S. Munitions List that are on the CoCom Industrial List should be transferred to the U.S. dual use Commodity Control List. Administrative steps consistent with the ones outlined above would help to alleviate the confusion among the different control lists. However, such actions are unlikely to prevent similar confusion from recurring in the future. Therefore, the subpanel concludes that, for the sake of clarity, the United States should endeavor to integrate the U.S. control lists into a single list. In the increasingly important area of foreign policy restrictions, the subpanel believes that unilateral U.S. controls are too frequently used to "punish" or signal U.S. disaffection with both controlled and noncontrolled countries. It is the subpanel's strong sense that foreign policy restrictions affect U.S. trade significantly more than national security controls. In some cases, foreign countries have refused to comply with such restrictions or have not maintained sufficient controls to prevent unauthorized transfers. Unilateral controls are ineffective unless they are soon accompanied by timely, full, and effective multilateral controls. In general, unilateral U.S. controls are ineffective, particularly in the growing number of areas in which competitor nations have attained technological parity or superiority. This is partly because many U.S. foreign policy controls engender little support from other countries. The subpanel supports efforts to treat generally available technical data with a general license (Part 779.3 of the Export Administration Regulations) and recommends similar treatment for sales and operational data.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Controls properly placed on technical data related to manufacturing processes—a truly important component of an effective control regime—should not include essentially descriptive information necessary to the efficient and safe operation of aircraft systems. Finally, any policy on export controls must include, along with the objective of denying militarily useful items to controlled countries, the objectives of avoiding undue constraints on U.S. trade and permitting a free flow of technology and technical information. To this end, the subpanel recommends the following: The importance of the economic benefits of trade should be given greater weight in designing an effective export control system. NOTES 1.   Aerospace Industries Association, 1989 Year-End Review and Forecast: An Analysis (Washington, D.C., 1989), p. 5. 2.   U.S. Department of Commerce, An Economic and Financial Review of Airbus Industrie (Washington, D.C.: U.S. Government Printing Office, 1990), p. 2-2. 3.   Rapport Général, French Senate, November 21, 1989, p. 44. 4.   U.S. Department of Defense, Critical Technologies Plan (for the Committees on Armed Services, U.S. Congress) (Washington, D.C., March 15, 1990), pp. A-16 and A-209. 5.   National Aeronautics and Space Administration, Foreign Technology Assessment (Operations Research Inc., NASA A138) (Washington, D.C., 1988). 6.   U.S. Department of Defense, Office of the Director of Defense Research and Engineering, An Analysis of Export Control of U.S. Technology—A DoD Perspective Report of the Defense Science Board Task Force on Export of U.S. Technology) (Washington, D.C.: U.S. Government Printing Office, 1976). 7.   Export Administration Act, Section 5(d)(6). 8.   Aviation Week & Space Technology, July 2, 1990, p. 30. 9.   Michael J.H. Taylor, Commercial Transport Aircraft (London: Tri-Service Press, 1990), p. 121.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Annex B1 DOMESTIC AIRCRAFT-RELATED PURCHASE ORDERS, BY STATE, 1989 Listed below, by state, are 1989 aircraft-related purchase orders for Boeing, General Electric, McDonnell Douglas, and Pratt & Whitney. The amounts listed are in thousands of dollars. Alabama $ 3,963 Missouri $ 38,471 Arizona 779,745 Montana 276 Arkansas 1,236 Nebraska 976 California 4,157,992 Nevada 7,549 Colorado 23,281 New Hampshire 38,908 Connecticut 3,827,347 New Jersey 169,393 Delaware 28,912 New Mexico 22,813 District of Columbia 1,518 New York 788,733 Florida 169,183 North Carolina 97,237 Georgia 93,638 North Dakota 76,087 Hawaii 20 Ohio 5,153,423 Idaho 4,205 Oklahoma 47,361 Illinois 390,403 Oregon 117,664 Indiana 212,775 Pennsylvania 234,105 Iowa 144,849 Rhode Island 15,769 Kansas 104,863 South Carolina 11,477 Kentucky 32,868 South Dakota 1,235 Louisiana 18,156 Tennessee 11,132 Maine 7,421 Texas 634,123 Maryland 47,826 Utah 73,385 Massachusetts 457,142 Vermont 37,413 Michigan 413,152 Virginia 59,865 Minnesota 54,480 Washington 990,920 Mississippi 25,353 West Virginia 3,024     Wisconsin 89,686     TOTAL $19,721,353

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Annex B2 FOREIGN AIRCRAFT-RELATED PURCHASE ORDERS, BY COUNTRY, 1989 Listed below, by country, are 1989 aircraft-related purchase orders for Boeing, General Electric, McDonnell Douglas, and Pratt & Whitney. The amounts listed are in thousands of U.S. dollars. Argentina $ 2 Italy $ 688,610 Austria 4,178 Japan 157,854 Australia 83,894 Mexico 2,156 Belgium 26,395 The Netherlands 10,417 Brazil 62 New Zealand 395 Canada 173,481 Norway 15,321 China 20,114 Pakistan 437 Denmark 367 Scotland 2,710 England 1,400,885 Singapore 925 Finland 269 South Korea 54,180 France 44,242 Spain 177,676 Germany 59,801 Sweden 25,774 Hong Kong 22 Switzerland 32,859 Hungary 4 Turkey 1,234 India 1 Venezuela 14 Indonesia 15,188 Wales 2,448 Ireland 11,619 Yugoslavia 4,398 Israel 141,565         TOTAL $3,159,497

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Annex B3 FOREIGN PARTNERSHIPS Boeing, General Electric, McDonnell Douglas, and Pratt & Whitney have recently entered into or strengthened partnerships with the following foreign companies: Aeritalia—Italy Eldim—The Netherlands Fabrique National —Belgium Fiat Aviazione—Italy Japanese Aircraft Development Corporation—Japan Kawasaki Heavy Industries—Japan Mitsubishi Heavy Industries—Japan MTU (Motoren-und Turbinen-Union GmbH)—Germany Norsk Jetmotor—Norway Rolls-Royce—The United Kingdom Samsung—South Korea Singapore Aircraft Industries—Singapore SNECMA (Société Nationale d'Etude et de Construction de Moteurs d'Aviation)— France Volvo Flygmotor—Sweden

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Annex B4 NON-COMMUNIST NATIONS WITH HEAVY MAINTENANCE CAPABILITY Listed below are non-Communist nations that have the capability to perform aircraft-related heavy maintenance. Argentina Indonesia South Africa Australia Italy South Korea Austria Japan Spain Brazil Jordan Sweden Canada Kenya Switzerland Denmark Malaysia Taiwan Egypt Mexico Thailand Ethiopia The Netherlands Turkey Finland New Zealand The United Kingdom France Norway United States Germany Pakistan Tunisia Greece Philippines Venezuela Hong Kong Portugal Yugoslavia India Singapore