The US-Japan FS-X Fighter Agreement: Assessing The Stakes

In January 1989, General Dynamics signed a licensing agreement with Mitsubishi Heavy Industries to create Japan’s next-generation fighter aircraft. Under the terms of the agreement, Japan will modify an existing F-16 design to produce by the late 1990s a new aircraft, designated the FS-X (Fighter Support Experimental). The transfer of advanced U.S. technology and arrangements for some "flow-back" of Japanese innovations were authorized by a bilateral agreement between the two governments concluded in November 1988 after years of negotiation.

The FS-X project raises a number of concerns from both U.S. security and trade perspectives. Critics maintain that while in the short run some benefits would accrue to the United States, the project may in the longer-term fundamentally undermine the competitiveness of the U.S. aerospace industry. Proponents argue that the agreement offers significant opportunities for the United States and that failure to abide by its terms, painstakingly negotiated, could drastically worsen U.S.-Japan defense relations. On both sides there is agreement that the stakes are high.

Sometime in the near future, the Administration is expected to submit to Congress, under the provisions of the Arms Export Control Act, a certification announcing its intention to approve General Dynamics’ export license application for codevelopment participation in the Japanese FS-X project. The export license will be automatically approved following a 30-day waiting period unless Congress specifically prohibits such action by joint resolution. This paper is designed to illuminate the arguments in favor and against the FS-X project, to pose questions that should be considered in the course of congressional deliberations, and to suggest a possible approach.

Security Considerations: A Critic’s Perspective:

• Improving Japan’s maritime and air defense capabilities has been an urgent allied priority for many years. And yet, the arrangement by which Japan will obtain new fighter aircraft appears less than optimal from several security perspectives:
  • As opposed to the near-term improvement an off-the-shelf procurement of modern U.S. aircraft could have afforded, the FS-X will not enter service until the late 1990s.

   

  • At present, it is not clear to what degree the FS-X will be interoperable with other assets in the area (e.g., the F-15s, F-16s and F-18s).

   

  • It is also uncertain that the technologies ostensibly to be "flowed-back" to the United States in exchange for the F-16 technical data, etc. will be of comparable value to the U.S. defense industry as will, for example, insights provided to the Japanese into U.S. sophisticated design and manufacturing techniques.

 

 

• The FS-X arrangement stands in stark contrast to the planned outright purchase by Japan of U.S.-manufactured AWACS and tanker aircraft.
  • The AWACS and tanker procurement (with a possible value in excess of $5 billion) will permit early action on a crucial deficiency in Japanese early warning capabilities and significant progress toward meeting Japan’s 1981 commitment to the defense of the littoral sea lanes out to 1000 nautical miles.

   

  • As an essentially off-the-shelf purchase, the AWACS and tankers will also provide fully interoperable capabilities with U.S. forces in the region (and possibly with other allies operating AWACS and AWACS-compatible aircraft).

 

Security Considerations: A Proponent’s Perspective:

• Originally, the Japanese had chosen to develop and produce their own fighter. The negotiations and resulting agreement successfully shifted Japan from a course set on the design and manufacture of their own indigenous aircraft, exclusive of U.S. involvement. The Japanese have asserted that they will revert to their original plan if the FS-X deal is derailed.

 

• In exchange for Japanese access to F-16 technology, the U.S. government and industry will have access to valuable Japanese technology that would otherwise be unavailable. The agreement contains FS-X technology flow-back guarantees, including U.S. participation in the manufacture and testing of new technology components such as advanced co-cured composite wings, new avionics, and phased-array radar. These development efforts will be undertaken at no cost or risk to the United States.

 

• There will be no U.S. Advanced Tactical Fighter (e.g., low observables or "Stealth") technology involved in building the FS-X.

 

• Moreover, some significant constraints have been placed upon the U.S. technology that will be released to Japan under the FS-X agreement:
  • The data to be transferred in connection with the FS-X is currently available to other U.S. allies who already participate in F-16 manufacturing.

   

  • Such data will be screened and cleared for release to the Japanese by defense technology experts from the U.S. Air Force and Department of Defense.

   

  • The airframe technology to be transferred is roughly equivalent to the F-15 technology, which the Japanese received from the United States roughly 10 years ago.

   

  • The Japanese have been put on notice that they will not be able to obtain access to information pertaining to certain areas of avionics integration.

   

  • The FS-X agreement does not provide for the transfer of manufacturing technology for engines to power the new aircraft. Before any coproduction of engines (and, indeed, any coproduction of the aircraft itself) could occur, separate memoranda of understanding would need to be negotiated between the United States and Japan.

 

 

• The data that is provided to the Japanese will form the base from which additional technical advancements will be jointly developed by Japanese and U.S. industry.

 

• Proponents of the agreement believe that failure to implement the FS-X transaction could seriously impair U.S.-Japan defense relations and adversely affect Japan’s willingness to make major purchases from the United States in the future.

Trade Considerations: A Critic’s Perspective:

• Aerospace technology is one of the few remaining areas of distinct U.S. comparative advantage. The United States is today virtually universally regarded as the world’s best manufacturer of advanced aircraft — both commercial and military.

 

• It is widely known that Japan has set creation of a world-class indigenous aerospace manufacturing capability as part of its industrial targeting strategy.
  • Not surprisingly, the Japanese Ministry of Trade and Industry (MITI) was a key player in the FS-X negotiations.

   

  • By contrast, the U.S. Commerce Department (roughly MITI’s counterpart) was unable to play a corresponding role despite the spirit of then-pending legislation (the Bingaman amendment to the FY1989 DOD Authorization Act) requiring Defense to consult with Commerce in the negotiation of bilateral memorandums of understanding.

 

 

• Military aviation: The technology transferred to Japan under the FS-X project could ultimately enable Japan to develop a capability to produce and export fighter aircraft to third countries — thereby becoming a formidable U.S. competitor in yet another area.
  • While doing so would require not only the establishment of a significant industrial base but also the departure from long-standing Japanese policies against the export of weapon systems to countries other than the United States, such developments cannot be ruled out.

   

  • Should such a capacity be coupled with the existing Japanese ability to out-finance U.S. sales through far more generous terms, the United States could stand to lose a substantial share of the military aerospace and related markets.

 

 

• Commercial aviation: There are, in addition, possible Japanese advantages stemming from this sale insofar as it may accelerate the capacity of the Japanese to compete with the American commercial aircraft industry.
  • Critics argue that, while it is true some of the high performance technologies essential to advanced fighter aircraft would not directly translate, the skills and industrial capabilities required to produce such specialized systems, however, could have considerable applicability to civil aircraft production.

   

  • Particularly, if Japan engages in dumping or other unfair trade practices, as it has in certain past circumstances, the health of the U.S. aerospace industry could be undermined over time.

 

 

• U.S. Benefits: There are, moreover, real questions to be asked concerning some of the putative near-term benefits. Apart from a possible $440 million award in subcontracting work for General Dynamics, there are as yet no guarantees that Mitsubishi will direct any other subcontracting work to U.S. suppliers.

 

• Learning Curve: The FS-X project will enable Japan to take advantage of years of U.S. research and development investment, jumping into their own development program substantially up the "learning curve."
  • The sunk cost for the U.S. investment in the F-16 technology is estimated by the U.S. Air Force to be on the order of $3 billion. While the U.S. government will under the agreement recoup $700,000 per FS-X aircraft for F-16 airframe R&D costs, it is not clear that the total of such recoupments would be comparable to the benefits to Japan in costs avoided.

 

 

• Space launch: Technologies codeveloped by the FS-X project may contribute to Japanese efforts to build an indigenous space launch industry — again in competition with America’s own developing commercial launch capabilities.

Trade Considerations: A Proponent’s Perspective:

• Trade Benefits: The FS-X will help the U.S. trade balance in the short-term. General Dynamics estimates that the FS-X will result in $2.5 to $3 billion in benefits and jobs.
  • According to General Dynamics, the agreement sets a 35-45 percent share of the $1.2 billion FS-X development budget for U.S. firms and a comparable U.S. share for the $5 billion-plus FS-X production phase.

   

  • Had the Japanese decided to exclude the U.S. from participation in the development and production of the FS-X, no trade, technology transfer, or employment benefits would accrue to the United States.

 

 

• Independent Capability: Proponents contend that, given the fact that the Japanese have already designed the FS-X predecessor (the F-1) and have coproduced the F-4 and F-15 fighter aircraft with McDonnell-Douglas, the Japanese have an independent capability, with time, to design and produce the FS-X.
  • They argue that recent aerodynamic, electronic and material development advances in Japan point to the existence of the appropriate technical skills necessary for Japan to build the FS-X without U.S. participation.

 

 

• Non-transferability: According to General Dynamics, the FS-X program transfers neither technology nor methodology especially useful to a Japanese competitor in the commercial aerospace market. Proponents of the FS-X contend that wide-body aircraft design and production technology necessary for commercial aircraft manufacturing — and not already in Japanese hands (e.g., 767 fuselage) — is unlikely to be obtained from codeveloping a fighter airplane.

 

• Recoupment: The United States has already recouped $425 million from the F-16 R&D costs of the $3 billion invested. It is expected that the U.S. government will recover on the order of an additional $175 million as a result of the production of the FS-X.

 

• Policy Restrictions on Exports. Japan does not currently export fighter planes as a matter of policy. To do so would require a significant metamorphosis in Japan’s present political scene.

Congressional Situation:

Although technically the FS-X codevelopment project is not subject to the 30-day congressional waiting period under the Arms Export Control Act, the Bush Administration — evidently for political reasons — has decided to treat the matter as though it were subject to the 36(c) provisions of the Act. That is, the project will not go forward until Congress has had at least 30 days to review the specifics of the FS-X proposal. At the end of that time, the project may proceed unless a congressional resolution of disapproval has been enacted.

The Bush Administration has, however, chosen to conduct an intensive review of the prospective impact of the FS-X agreement on American competitiveness. This review is being undertaken on an accelerated basis; it is expected to be completed within the next month. As a result, the Administration has yet to transmit formal notification of the proposed codevelopment project and, accordingly, the Congressional clock for consideration of this deal has not started running.

Opponents in both Houses have, nonetheless, begun to express serious reservations about the FS-X deal, principally on the grounds that the long-term implications for U.S. competitiveness have not been adequately factored into the arrangement. In the House of Representatives, Congressman Mel Levine (D-CA), a member of the Foreign Affairs Committee, has circulated two "Dear Colleague" letters critical of the FS-X agreement. The effort produced a letter to the President signed by 24 Members of Congress signalling their intention to introduce a resolution of disapproval.

On the Senate side, Senator Alan J. Dixon (D-IL), a member of the Armed Service Committee, is — together with 20 cosponsors — the author of a resolution calling for a sixty-day delay in submission of the sale to Congress and a re-evaluation of the entire enterprise, involving numerous executive agencies. He and ten of his colleagues have previously written the President questioning the wisdom of going forward with the project. Of particular concern to the signatories was the absence from the Administration’s internal deliberations of a rigorous competitiveness assessment.

Questions to be Raised:

• Will the Congress have an opportunity to examine the underlying agreement between General Dynamics and Mitsubishi Heavy Industries in addition to the Memorandum of Understanding between the two governments?

 

• What are the specific prospects under the MoU and the implementing agreement for guaranteed work to U.S. enterprises in connection with the future coproduction of the FS-X?

 

• If the United States goes along with the agreement, will the FS-X deal establish a precedent that will embolden the Japanese to move away from future off-the-shelf purchases in favor of codevelopment and coproduction arrangements?

 

• Alternatively, if the United States fails to implement the agreement, would such action result in Japan backing away entirely from U.S. defense-related purchases?

 

• Will the experience of the FS-X debate lead to a more orderly and disciplined U.S. interagency process on future projects of a similar nature, in particular the systematic involvement of Commerce and the U.S. Trade Representative in negotiations over defense sales with the Japanese?

 

• Is Japan willing to consider offsetting the codevelopment arrangement on the FS-X with a substantial off-the-shelf defense purchase to demonstrate Japanese willingness to buy American when it is sensible to do so?

Conclusions:

• The FS-X project raises complex and legitimate security and trade concerns. Congress will soon decide whether to approve, delay, or block the sale of General Dynamics technology for the codevelopment of the FS-X project. All of these courses of action, to varying degrees, have attendant risks.

 

• On both sides of the Pacific, anxieties related to the FS-X deal are running high.
  • The Japanese may not fully appreciate that the FS-X is fast becoming a symbol for a broader fear of declining U.S. competitiveness.

   

  • Americans may not fully appreciate the extent to which strong constituencies in Tokyo who are demanding a totally indigenous fighter aircraft industry are being bolstered by delays and efforts on Capitol Hill to block the sale. For example, on February 20, a former Japanese transport minister and a leader of the conservative wing of the Liberal Democrat party reportedly advocated scrapping the codevelopment project and embarking on an indigenous program.

 

 

• In addition, the handling of the FS-X project by the executive branch has illustrated deplorable internal disarray and evidenced inadequate procedures for resolving competing views of various government agencies (i.e., State and Defense on the one hand versus Commerce, Treasury, Energy, the Office of Science and Technology, and the Office of the U.S. Trade Representative on the other).

 

• In light of these considerations, there is an obvious need for a rapid assessment of the long-term implications of the project on the competitiveness of the U.S. aerospace industry. The Bush Administration is to be commended for undertaking this review and the Congress encouraged to give great weight to that assessment’s conclusions in its subsequent deliberations on the FS-X deal.

 

• The merits of urging the packaging of the FS-X project with a major off-the-shelf purchase from the United States should also be seriously examined.

 

• On balance, absent clear and direct evidence that the agreement will seriously and adversely affect the U.S. aerospace industry, the United States should fulfill its commitment and proceed expeditiously with the codevelopment arrangement.

*See Center director Frank Gaffney’s testimony on the FS-X Agreement before the House Subcommittee on Commerce, Consumer Protection, and Competitiveness, 23 February, 1989, or his testimony before the House Committee on Science, Space, and Technology, 11 May, 1989.