Trading Jobs for Votes

By John Haldane

On November 12, the House of Representatives gave final Congressional approval to legislation blocking President Reagan's proposed sale of arms to Jordan through March 1, unless direct peace talks between Jordan and Israel begin before then. This action came on the heels of an October 24th 97-to-1 Senate vote shelving the $1.9 billion arms sale proposal. These strong rejections of an Administration policy decision came despite a Presidential memorandum provided to the Speaker of the House and the Chairman of the Senate Foreign Relations Committee certifying that "Jordan is publicly committed to the recognition of Israel and to negotiate promptly and directly with Israel under the basic tenets of United Nations Security Council Resolutions 242 and 338." The memorandum also declared that "it is in America's interest to bolster Jordan's security and stability independent of the peace process; without a secure, confident Jordan, there will be no peace process."

With their votes, the House and Senate have placed short-run domestic political considerations over the very important long-run economic benefits which would have accrued to the American industrial sector at a time when exports of U.S. civilian goods and services have been dropping drastically.

Would the arms deal threaten Israel's security, as the Israel lobby and its Congressional allies maintained? The Administration is proposing to provide the Jordanians with 40 advanced fighter aircraft, 300 infrared-guided air-to-air missiles, 12 surface-to-air missile firing units with associated support equipment, 14 missile command posts and sets of conversion equipment to make mobile the missiles bought by Jordan in 1976, 72 shoulder-fired surface-to-air missiles, and 32 M-3 Bradley armored vehicles. In a recent update to his book Jordanian Arms and the Middle East Balance, Anthony Cordesman, the preeminent American expert on Middle Eastern military affairs, concluded that "A properly balanced mix of U.S. arms transfers will preserve Jordan's ability to deter without in any way raising its ability to threaten Israel." Cordesman also observed that "Jordan is important to Gulf security. Jordan has trained over 11,000 military and security personnel from Gulf and Red Sea states since 1974. It is also emerging as a consultant in weapons selection and organization in the smaller Gulf states. Jordan is providing a critical alternative to Soviet military advisors in North Yemen." Furthermore, one need not be a military expert to realize that the loss of American influence in Jordan will seriously reduce our influence with the nations of the Gulf area just when they are desperately trying to build up their defense capabilities in the face of perceived threats from Iran.

British Gain, Americans Lose on Saudi Arms Deal

Though the Congressional ban on defensive arms to Jordan is a serious enough matter in and of itself, the fact that it follows hard on the recent Saudi Arabian purchase of 132 military aircraft from Great Britain increases its economic significance. The Saudi contract—for 48 Tornado bombers, 24 Tornado fighter interceptors (jointly built by Britain, West Germany and Italy), 30 PC-9 defense planes and 30 Hawk trainers—is estimated to be worth at least $4.5 billion. British officials feel the deal eventually could be worth twice that amount, after factoring in the cost of spare parts, support facilities and periodic updating and refitting of the Tornados during the plane's expected 15-20 year lifespan. British Aerospace Corporation Chairman Austin Pearce called the sale "an extremely important export opportunity" that would soon translate into more jobs for Britain's faltering economy. Other British officials agree, estimating that the Tornado contract alone will preserve 25,000 to 30,000 jobs in Britain's aircraft industry and help keep British aerospace production lines open at least until 1992. One British aerospace industry association analyst predicted the sale will sustain the European aircraft manufacturing industry in its competition with the United States for the next three decades.

Officials of leading U.S. aircraft and aerospace firms, as well as U.S. Government aerospace experts, emphasize that the sale of the British planes is in itself only the tip of the iceberg. The many follow-up opportunities for related equipment, training, procurement and storage facilities, air defense systems, etc., mean that the Middle Eastern countries buying the aircraft will be bringing in teams of foreign technicians to advise on operations, maintenance and other aircraft-related activities for the next 20 years. Even before the Tornado sale, British and other European firms had been active throughout the Middle East. The British-based GEC Marconi Defense Systems, for example, is one of several international firms preparing a strong bid for a contract to integrate a Saudi-funded GCC air defense system with a central command and control headquarters in Riyadh. Another British company has two of its mechanized combat vehicles on trial with the Saudi armed forces. As senior U.S. military officers who have served with our various Military Assistance Advisory Groups (MAAG) can well testify, a myriad of selling opportunities arise once an arm of a Western military force gets its men into a developing country's air force or army.

As the British sit back and contemplate the blessings of the Saudi arms package for their economy—and, we suspect, quietly discuss what can be done to develop new sales to Jordan—we in the United States need to reflect on what has been lost to the American economy. The U.S. Department of Commerce estimates that $1 billion in exports supports 25,000 jobs in direct and indirect employment in the U.S. manufacturing sector. Therefore, the loss of the Saudi contract and the ban on American sales to Jordan could possibly mean a loss of over 175,000 jobs to American industry. Individual states hardest hit by the ban on sales to Jordan will be California, Massachusetts, Texas, Indiana, and—to a lesser degree—Maryland, New York, Connecticut and Ohio. American aerospace specialists believe that these job losses almost certainly underestimate the loss in economic activity, since in most cases each military component and subcomponent is itself a collection of individual parts each originating in a different state, and components for these parts may in turn come from plants in several other locations.

Arab Arms and the Deficit

If American sales of civilian goods and services were booming, it could be said that the loss of military sales was not really that important to the U.S. economy. Unfortunately, the U.S. merchandise trade deficit surged to $15.5 billion in September, its highest level in history, with the manufacturing sector—in the black as recently as 1981—bearing the brunt of the deficit. Secretary of Commerce Baldridge has called the trade problem "serious" and predicted no letup in soaring deficits until at least mid-1986. Senate Democrats, blaming the civilian goods and services deficit for the loss of an estimated 340,000 jobs in manufacturing and for the wave of factory closings throughout the country, have called for tougher trade laws. These gentlemen should know that our long experience in international trade negotiations has clearly revealed that protectionism is no answer to poor export performance. Rather, spirited efforts to find and exploit new overseas markets for American goods are the answer. Aggressive salesmanship and attractive financing has enabled Japan to announce yet another record trade surplus for the first half of its current fiscal year, while the U.S. continues to run up record trade deficits.

Continually declining exports to the Middle East and North Africa account for a significant part of the U.S. trade deficit. The latest Department of Commerce figures reveal that from January through September of this year U.S. exports to the region fell to $10.1 billion from the $11.7 billion recorded for the same period last year, with sales to Saudi Arabia, Egypt, the United Arab Emirates and Iraq experiencing the sharpest declines. The U.S. market share in Middle East sales, which stood at 7.1 percent a year ago, has now plunged to only 6.3 percent. Clearly, any new sales of military goods to Jordan, Saudi Arabia and the GCC countries would be a shot in the arm for American industry.

It may not be too late to save the Jordanian defense market for American military equipment, since King Hussein may be unable to arrange the financing necessary to contract with alternative sources of arms. This factor alone may save the day for American manufacturers by providing Congress an opportunity to reconsider its rashness. However, given our real interest in the security of the Gulf states, we should not tarry too long in providing the defensive weapons Jordan feels it needs if we value Jordan's ability to help us secure profitable arms contracts with the GCC states.

John Haldane is a specialist in Middle East affairs who has served as a foreign service officer in Baghdad, Beirut and Cairo, and as an international economist in the Departments of Commerce and Treasury.