A Prisoner’s Dilemma: The Eu’s China Arms Embargo

In April, the European Union (EU) dodged a bullet by refusing to take up the issue of overturning its 15-year-old ban on selling arms to China. Supporters of lifting the embargo, led by France and Germany, are unlikely to abandon their quest, however, and the issue will likely come up again for review, perhaps as early as this summer. If it lifts the ban, the EU risks further damaging a transatlantic alliance already strained over Iraq and other issues, with very little likelihood that its defense industry would see much, if any, benefit.

Advocates of ending the arms embargo – implemented, along with the United States, in the wake of the 1989 Tiananmen Square massacre – base their case on two arguments. The first is that China has “changed” – that Beijing has significantly reformed its system of government and its economy, moderated its aggressive tendencies in the Asia-Pacific, and that it should be rewarded. Paris in particular has led the charge, terming the arms embargo “outdated.” In January of this year, French President Jacques Chirac stated that the ban “no longer corresponds to the political reality of the contemporary world,” and therefore “makes no sense today.” German Chancellor Gerhard Schroeder, during a state visit to China, echoed Chirac’s sentiments that the ban should be lifted, and by June of this year British Prime Minister Tony Blair appeared to be coming around to the same position.

And yet, as recently as December 2003, the EU Parliament condemned China’s human rights’ record, while the president of the EU Commission stated in April of this year that Beijing still needs to do more to show that it was making progress on human rights. At the same time, China continues to pursue double-digit increases in defense spending and to build up its military forces, particularly along the Taiwan Strait

Supporters of overturning the ban usually argue that the EU Code of Conduct on arms sales and normal national arms export policies and controls will still apply, thereby preventing abuses when it comes to exporting arms to China. But the Code of Conduct – which is not legally binding – explicitly restricts arms sales to countries that might use these weapons for internal repression, for external aggression, or where human rights are being seriously violated. Such descriptors would seem to apply aptly in the case of China. Moreover, “normal national arms export policies and controls” failed in the case of Indonesia, which was able to purchase tanks and fighter aircraft from Britain, surface-to-air missiles from France, and helicopters from Germany while it brutally occupied East Timor during the 1990s.

The second argument is more cynical but at least more honest – that China is a huge, largely untapped market for Europe’s beleaguered arms producers. Beijing has nearly trebled defense spending over the past decade, and consequently China has in recent years been on a major shopping spree for foreign weapons. According to the Congressional Research Service, China has signed new arms import agreements worth in excess of $11 billion since 1999; in 2002 alone, it purchased $3.6 billion worth of foreign weapon systems.

Most of these sales have gone to Russia, which does not observe the arms embargo on China. Russia supplies more than 80 percent of Beijing’s foreign-sourced arms, and between 1995 and 2002, for example, China imported some $9 billion worth of arms from Russia, including Su-27 and Su-30 fighter aircraft, Kilo-class submarines, and Sovremenny-class destroyers. More important, Moscow is a critical source of foreign technological-industrial assistance to China’s defense industry; China, for instance, is currently producing up to 200 Su-27 fighters from under license from Russia.

Obviously, Europe would love to get in on the gravy train. To Europe’s arms manufacturers and their governments, China – and indeed, the whole of the Asia-Pacific – is just another market. It is, in fact, an increasingly critical market for a European defense industry that increasingly depends on exports for the bulk of its revenues. The UK’s BAE Systems, for example, typically does 70 to 75 percent of its business outside the United Kingdom, as does Thales of France. Overseas sales comprise nearly half of the Swedish defense company Saab’s revenues, while the Franco-German-Spanish European Aeronautic, Defense and Space Company (EADS) is also heavily dependent upon exports; for example, Eurocopter, a subsidiary of EADS, exports more than two-thirds of its output.

In a sense, therefore, the EU arms embargo is a classic “prisoner’s dilemma”: Europe has largely ceded the Chinese arms market to Russia and other countries not participating in the ban. And the European defense industry clearly suffers much more from the embargo than do U.S. arms producers, who have the benefit of a domestic defense market four times larger than all of Europe combined, as well as the fact that U.S. defense firms regularly capture around half of a $40-billion-a-year business in international arms exports.

But ending the arms embargo is unlikely to result in Beijing buying German submarines or French fighter jets. European defense firms cannot hope to compete with Russia’s sweetheart pricing or technology-transfer arrangement. And the fact remains that Russian weapons are simply a better fit when it comes to the Chinese People’s Liberation Army (PLA), based as it is on Soviet designs and technology. More likely, European arms producers would mainly provide the PLA with competing bids in order to extract better deals from Moscow.

Of course, Europe might be able to sell components or subsystems that could greatly contribute to the modernization of the PLA and fill critical technology gaps, particularly in such areas as command and control, communications, or sensors. But in that case the EU does not need to overturn the arms embargo in order to export these items to China. The 1989 EU declaration gives individual European governments considerable wiggle room in interpreting the arms ban, and subsequently EU member-states such Britain, Italy, and France have continued to permit the transfer of non-lethal and dual-use equipment to China, including helicopters, radars, jet engines, and satellite technology. When London agreed to transfer up to 90 used Spey jet engines for use in China’s JH-7 fighter-bomber program, it responded to criticism that this transfer at the very least violated the spirit of the post-Tiananmen arms embargo by asserting that these engines comprised old technology and thus did not convey any “new capability.” Immediately after Tiananmen, France went ahead with a sale of ship-based missiles and radar to China, arguing that these constituted equipment that was “in no way of a ‘repressive’ character.” Finally, it is worth pointing out that China is already a risk-sharing partner in Europe’s Galileo satellite navigation project.

So what does the EU possibly stand to gain from ending the arms embargo? In fact, Europe’s large commercial enterprises stand a far better chance of benefiting than its defense sectors. Lifting the arms ban would basically amount to a political rehabilitation of China, in return for which Beijing could reward Europe by buying more passenger jets from Airbus, satellites from Astrium, or telecommunications systems from Ericsson or Nokia. China might also turn to Europe in the future for nuclear power plants or high-speed rail systems.

Of course, all this EU-China coziness comes at the potentially high price of adding further stress to an already tense U.S.-European relationship. The United States still strongly supports the continued Western ban on arms sales to China. Moreover, the U.S. House of Representatives recently passed a bill that would restrict military exports and technology-sharing with European countries that sell arms to China, as well as barring the Defense Department from doing business with any European company that engages in defense business with China. While this bill is unlikely to become law, it is clear that lifting the arms ban would deal a major blow to the transatlantic alliance. Even if Europe fails to make any large arms sales to China, the damage done by explicitly overturning the embargo and visibly fracturing the once-unanimous Western stance on this policy issue will be enormous. And it will hand Beijing a significant victory – in effect, a de facto recognition of its post-Tiananmen human rights policy.

The fact of the matter is, however, momentum against the embargo is growing, and the EU is on course toward eventually overturning it, if not this year then probably sometime in 2005. The irony is that Europe’s defense industry is unlikely to gain much from lifting the arms ban, while the transatlantic relationship will almost certainly suffer greatly. So long as Europe views weapons sales to China in strictly an economic sense, it will clash with Washington, which has to deal with the regional military and strategic repercussions of these sales.

The opinions expressed in this paper are strictly the author’s own.