The security of defense trade with allies: Enhancing contact, contracts, and control in supply chains

Defense Industry Defense Policy Defense Technologies Iraq Japan Mexico National Security Northern Europe Taiwan Trade United States and Canada

Issue Brief

July 28, 2021

The security of defense trade with allies: Enhancing contact, contracts, and control in supply chains

By James Hasik

FORWARD DEFENSE

ISSUE BRIEF RELEASE

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What is security of supply?

Security of supply is a conviction that crucial goods and services will be available when a government’s foreign and military policies demand action. Around NATO, the European Union, and in other contexts, governments have entered into various forms of agreements designed to ensure that security in a crisis. The United States has such agreements of varying enforceability and reciprocity with twenty-eight countries. These include the legislated designations of the national technology and industrial base (NTIB), security of supply arrangements (SOSAs), reciprocal defense procurement memoranda of understanding (RDP MOUs), reciprocal government quality assurance agreements (RGQAAs), and commercial contracts with foreign suppliers.

Protectionism has recently been rising around the world and particularly in the United States, where enthusiasm for rewarding domestic producers has often been conflated with the actual demands of national security.
James Hasik

Why is this issue critical now?

Why discuss these now? Protectionism has recently been rising around the world and particularly in the United States, where enthusiasm for rewarding domestic producers has often been conflated with the actual demands of national security. During the COVID-19 pandemic, several countries initially restricted exports of medical supplies on which trading partners depended. The United States was at times on both sides of that problem. Even now, there is rising US enthusiasm for rewarding domestic producers. These trends beg the question: Would even the SOSAs, the more reciprocal and salient of these agreements, be honored in a national military crisis?

A foundational study

To answer that question, this issue brief considers the text of the arrangement documents, interviews with Washington-based diplomats and defense officials, and a historical analysis of the few contemporary cases in which US security of supply has been tested. The paper concludes that the SOSAs themselves say little, and that in practice, they have almost never been tested. Nevertheless, the agreements, though unenforceable, have value as easily arranged signals of underlying, enduring relationships between governments. They are thus worth reinforcing and perhaps extending to several other important US partners.

Recommendations for the United States

The issue brief provides several actionable and timely recommendations for improving the way in which US policymakers contact potential foreign suppliers and market their security requirements, contract with those suppliers to negotiate deals and divide proceeds, and control these relationships by monitoring and enforcing deals.

Contact: The assistant secretaries of defense for acquisition and industrial policy should facilitate awareness within the acquisition community of how to leverage agreements undergirding defense trade with allies to secure access to supplies from comparatively advantaged sources.
Contracts: Contracts with foreign sources of supply should employ stockpiling and licensing to hedge against the potential for disruptions of supply arising from circumstances beyond the control of allied governments.
Control: The US government should explore whether security of supply arrangements can be extended to allies and partners whose industrial bases are important to US defense, such as Japan, Taiwan, and Mexico. Doing so could enhance a conviction that goods and services sourced from these countries are secure.