The golden triangle; Dutch Defence Industrial Base

Early June of this year the Associated Press published an article about “the bigger nations that account for the bulk of Europe’s defence spending”. The Netherlands is amongst those countries, together with Britain, France, Germany, Italy, Poland and Spain. All of these countries forster their arms industries to arm their national defence forces, and all have policies to keep this industry afloat. In a time of shrinking defence budgets, innovative industrial products for military capabilities are even more important to keep armed forces in the lead.

Photo: Eurosatory arms fair, Paris

According to the Dutch MoD, the UK and France have, like the Dutch, selected specific defence technologies which they want to prioritise. They also use similar policies to support military R&D and innovation. Germany is operating for quite some time within a golden triangle between government, industry and research institutes, a working strategy which the Dutch have adopted more recently. The UK has selected centres of technology, and sets aside part of its acquisition budget for investments in R&D. Spain has its Material Resources Programme, in which all material resources are grouped under a common State Secretary vision. Poland recently declared that it will strengthen support for its defence industry. And one of the missions of Italy’s General Defence Secretary and National Armaments Director (SG/DNA) is to support its military industry to “be effective in competitive global markets”. Since 2007 the Dutch government also has a policy to support its defence industry, called the Defence Industrial Strategy (DIS).

On June 11, the Dutch ministers of Defence and Economic Affairs presented an updated DIS to the parliament. It was not exactly the trending topic of the day; only 3 MP’s participated in the parliamentary debate with the ministers of Defence and of Economic Affairs. All but one participants (Günal-Gezer, social democrats, PvdA) were members of the liberal party VVD, including both ministers. Not a single member of the opposition participated.

This meagre presence shows that the Dutch armed forces and arms industry are not seen as politically relevant to most parliamentarians. As long as the forces are run at minimal costs (after all budget cuts of recent years) it is not an issue they feel the need to get involved in. The defence industry is rather small (12.000 jobs involved ) and supposed to be looked after by the government. Running the defence-industry seems to be considered a mere management issue by most parliamentarians.

This is however a misunderstanding. The defence industry is highly relevant, not in the first place for economic reasons but foremost for reasons of international security. The mixing of economic and security interests is always a risky business. According to the DIS, the Netherlands should invite defence and security industry participation earlier in the acquisition process; even before the actual acquisition propositions. The choice for neccessary equipment should even be made together with industrial partners, although it is recognized that there is a ‘conspiracy of optimism’ on costs at the part of the industry. This topic of mixed interests is elaborated by William Harung in his book Prophets of War, on the policies of Lockheed Martin. It is amazing that while all indicators show that it is difficult to keep the weapon manufacturers on budget lease, the Dutch government wants to give them an important position in the decision making process.

The DIS brings to the surface the contradictions in the Dutch policy towards arms production and arms trade. Normally, the Netherlands government is a free market champion, but not when it concerns the arms industry. In the past, a great part of the Dutch defence production has been depending on offset deals (orders directly or indirectly connected to weapon orders abroad). When the European Commission decided offsets on defence orders where not longer allowed, the Dutch invented the ‘industrial participation’ approach (which can be over 60 percent of the value) when acquiring weapons. The name is different, but is has a great similiarity with offset production. The government uses the EU security exception to the free market rule, art. 346 of the EU Treaty, to defend Dutch arms manufacturers against free competition. According to the government, the Netherlands is forced to do so, because other countries support their arms industries as well. The Dutch consider themselves a ‘smart follower.’

Besides supporting the arms industry via the Commissariat on Military Production (part of Economic Affairs), the DIS also stresses that government support for the defence industry has the result that more weapons can be sold on the international market, because they are derivates of weapon systems first produced for the domestic market. A home market as launching costumer increases trust by foreign clients.

Between 55 and 70 percent of all Dutch military production is exported. The DIS is focusing on Asia, the Middle East and Latin America. “It suites those emerging economies to defend their interests also military. Because of this, a strong militarization of Asia (on the Indian Ocean) and also the Middle East is ongoing,” according to a report in preparation of the DIS.
While the European market is slightly shrinking and US companies are penetrating more and more, to make up for the reduction in Pentagon budgets, arms acquisitions in especially Asia are growing. The arms race in Asia started already in the eighties of the last century and is now taking off at full speed. The same situation appears in the Middle East. Although one should keep in mind that the combined military budget of the US and the EU is still counting for half of the worlds military spending in 2017, according to a IHS Jane’s projection.
Instead of a realisation that militarisation of the world is a dangerous development which needs carefulness and restraint, the Dutch government sees it as an opportunity for exports. This is not in line with a responsible arms export control regime which prioritizes security. In arms export, economic profit should not be the driving force. A responsible security policy and and a profits driven economic policy are a bad mix. For this reasons private industries should be kept at arms length from decision making tables on military acquisitions.

Martin Broek 16/06/2014