NATOS VALUES AND THE IMPORTANCE OF TRANSPARENT AND EFFICIENT DEFENCE PROCUREMENT1

1
NATOS VALUES AND THE IMPORTANCE OF TRANSPARENT
AND EFFICIENT DEFENCE PROCUREMENT1

• Adrian Kendry
• Senior Defence Economist and Acting Deputy
  Director
• Defence and Security Economics Directorate
• Political Affairs and Security Policy Division
• NATO HQ
• 1 This presentation reflects personal and not
  NATO official views

2
NATOS VALUES

• NATOs Values support
• Democratic governance and the protection of human
  rights constitute the cornerstone of sustainable
  political progress
• the recruitment of competent and credible
  professionals to public service on the basis of
  merit
• establish a more effective, accountable and
  transparent administration at all levels of
  Government
• and implement measurable improvements in fighting
  corruption, upholding justice and the rule of law
  and promoting respect for the human rights

3
BUILDING EFFECTIVE INSTITUTIONS

• Reforming the justice system is a priority
• Legislative reforms for the public as well as the
  private sector
• Building the capacity of judicial institutions
  and personnel
• Promoting human rights and legal awareness
• Developing judicial infrastructure.

4
COMBATTING CORRUPTION AND IMPROVING GOVERNANCE

• The Costs of Corruption
• According to the World Bank, 1 trillion was paid
  in bribes globally during the period 2001-2002.
  The size of the world economy was approximately
  30 trillion at this time
• Countries that tackle corruption and improve the
  rule of law can increase their national income by
  400 in the long-term and can experience a 75
  decline if corruption is not tackled and the rule
  of law is not implemented
• The World Bank Recommendations
• Corruption must be understood in the context of
  governance
• Data and Information Collection and Use must be
  transparent
• Globalisation helps to control corruption through
  increased transparency and competition
• Anti-corruption agencies are not sufficient.
  There must be systemic institutional and
  regulatory reform with incentives for prevention

5
NATO AND TRANSPARENCY INTERNATIONAL

• NATOs values (democracy, the rule of law,
  transparent and effective governance) in the
  development and deepening of Euro-Atlantic
  security and stability, are entirely consistent
  with, and supportive of, the aims and values of
  Transparency International
• NATO supports the vital contributions to be made
  by democratically based NGOs in the building of
  effective and accountable institutions in the
  Euro-Atlantic area

6
NATO AND THE FUTURE OF CROATIA

• We will see the day in which Croatia reaches the
  end of the road, which is at the same time
  stepping on the threshhold and oast the
  threshold of NATO membership
• Jaap de Hoop Scheffer, Secretary General, NATO
  (December 2006)

7
NATO AND THE FUTURE OF CROATIA

• Membership Action Plan countries (Croatia,
  Albania, the former Yugoslav Republic of
  Macedonia1 may be invited to join the NATO
  Alliance in 2008
• Meeting NATOs performance-based standards and
  contributing to Euro-atlantic security and
  stability are critical requirements for
  membership
• During this decade, Croatia has become a security
  provider
• NATO and Croatia continue to address key issues
  such as public support for membership, judicial
  and defence reform
• 1Turkey recognises the Republic of Macedonia with
  its constitutional name

8
NATOs RESOURCE REQUIREMENTS

• For Crisis Response Operations
• For Capabilities necessary to meet objectives and
  priorities
• For operating and maintaining civil and military
  headquarters
• For sustaining its activities and programmes
  (partnership for peace, research and development,
  science, education and training)

9
THE FUNDING OF NATO

• Resources of the Alliance come from nations
• 95 or more of national defence budgets remain
  under exclusive national control
• National spending is the norm NATO is not a
  supranational organisation
• Multinational forms of allocating defence
  resources remain the exception and not the rule

10
TYPES OF NATO FUNDING

• Multinational Funding
• Bilateral/Multilateral arrangements substantially
  under national control
• Joint Funding
• Structured form of multinational funding within
  terms of agreed NATO Charter and with NATO
  oversight
• Common Funding
• Allies provide the funding and NATO authorities
  determine priorities and requirements for the
  Civil (181 mill. Euros) Military (954 mil. Euros)
  and NATO Security Investment programme (640.5
  mill.euros) budgets
• NSIP has a main elements Air C2, NATO-wide C3
  support, Deployability/mobility and Sustainability

11
THE CHALLENGE OF DEFENCE BUDGETS AND DEFENCE
REFORM

• Need to redirect savings from restructuring back
  into investment in transformational capabilities
• Need to stabilise defence budgets by creating
  separate funds for operations and developing
  defence planning on a multiyear rather than
  yearly cycle
• Challenges confronting the Euro-Atlantic area in
  defence procurement and defence sustainability
• Challenges confronting Croatia in its defence
  procurement plans during the remainder of this
  decade
• 25 of annual budget directed toward RD and
  procurement?
• 40 of budget allocated to personnel?

12
DEFENCE BUDGETS

• Budgets Too much money in individual defense
  ministries to promote international defence
  cooperation?
• The quest for interoperability and
  standardisation reduce divergence if not
  convergence
• Transformation, Information Exchange and
  Obstacles to Coordination

13
THE REVOLUTION IN DEFENCE RESOURCE MANAGEMENT
14
MAJOR INFLUENCES ON THE PROCUREMENT FROM DEFENCE
INDUSTRY I

• The Revolution in Military Affairs and Changing
  Threat Perceptions
• Network Centric Warfare
• Battlefield Digitization
• Jointness in C4ISR
• The Revolution in Industry/Technology Affairs
• Platforms, Software and Systems Integration
• Traditional and New Firms entering the Defence
  Supply Chain
• Consolidation and Reorganization within the
  Defence Industrial Base

15
MAJOR INFLUENCES ON THE PROCUREMENT FROM DEFENCE
INDUSTRY II

• The Revolution in Business Affairs
• Modernization in Acquisition
• Competitive Sourcing
• Outsourcing
• Public-Private Partnerships and PFI
• The Revolution in Procurement Affairs
• Multi-sourced environment
• Incentives for timely delivery with quality
  assurance
• Promoting Interoperability
• Increasing competitiveness in the supplier base

16
WHAT ARE THE EURO-ATLANTIC CHALLENGES?

• SECURITY
• Globalisation of Insecurity
• Terrorism
• Resource Conflicts
• Nuclear Proliferation and CBRN
• Borders
• Trafficking of Instability

• ECONOMIC
• Economic Integration and Globalisation
• Employment Sustainability
• Aging and Demography
• Pensions and Health Care
• Energy Sustainability
• Resilience

17
THE ECONOMIC AND SECURITY CHALLENGES OF THE
ANTI-TERRORISM ERA

• The paradox of defence and security in the new
  Euro-Atlantic area.
• Borders and security and the desirable/undesirable
  flow of financial capital,goods and people
• Strengthening of defence and security
  capabilities without weakening commitment to
  globalisation and democracy
• Structural economic and social change the
  decline in traditional economic activity and the
  growth of the information economy

18
THE GLOBAL SECURITY CHALLENGES OF THE
ANTI-TERRORISM ERA

• The transatlantic consensus global terrorism,
  proliferation of WMD, regional conflicts, failed
  states and organised crime
• The transatlantic remedy wide engagement of
  states to manage regional conflicts and tackle
  root problems by improving governance and
  implementing economic reforms
• The transatlantic divergence Catastrophic
  terrorism necessitates vigorous prevention of WMD
  proliferation and pre-emptive, offensive military
  attacks VERSUS Persistent terrorism requires
  security policies and structures directed toward
  the amelioration of WMD proliferation and state
  failure

19
THE SOCIAL AND RISK MANAGEMENT CHALLENGESOF THE
ANTI-TERRORISM ERA

• Removal of obstacles and barriers to expression,
  trade and mobility and the consequences for
  meeting disparate and unpredictable threats
• Social transformation and the importance and
  complexity of systems, networks and pervasive
  uncertainty
• Risk Management and the role and responsibilities
  of International Organisations, the State,
  Individuals, Businesses, Science and Technology
  Community, Defence and Security forces

20
? Renew Strategic Concept? ? Revitalize
US-European Dialogue ? Streamline
Decision-making in NATO ? Re-investment
Common funding
US
NATO
EU
Expeditionary Forces
Forward Deployed
Constabulary Forces
European Rapid Reaction Force
Battle Groups
SR Force
Other High Readiness Forces
Spec Ops Response Force
Use US forward forces and exercises for
transformation
Improve institutional ties. Coordinate NRF and
Battle Groups
SR Capability
Civilian Nation Building
Civilian Nation Building
Defense Sector Reform
21
DEFENCE PROCUREMENT AND THE DIVISION OF DEFENCE
SPENDING
OF DEFENCE EXPENDITURES 2003
22
THE FINANCING OF PERSONNEL

• Incentives for military recruitment
• Contract forces and competitive wages
• Funding the reduction and re-organisation of
  military personnel
• Realistic assessment of the funding of personnel
  in the context of the overall budget

23
FINANCING OPERATIONS AND MAINTENANCE

• Improving the supply chains
• National and trans-national consolidation of
  industry
• Improving the armaments regulatory framework
• Continuous improvement strategy for ensuring that
  the tail does not undermine the teeth

24
FINANCING RD AND DEFENCE TRANSFORMATION
OFF-THE-SHELF No Indigenous Development or
Production
LICENSED PRODUCTION / CO-OPERATION No
Indigenous RD Indigenous Manufacture
COLLABORATION Joint Research, Development and Pr
oduction
25
TRANSATLANTIC CO-OPERATION AND DEFENCE INDUSTRIAL
INTEGRATION

• Accelerate Technology Transfer Policy and Export
  Licensing Reforms
• The US should implement modest reforms while
  embracing the comprehensive and fundamental
  restructuring of arms export controls
• The entire Munitions List should be reviewed
  every year following 9/11 with the goal to
  modernize NATO capabilities
• Greater priority and faster processing of
  licenses or technical assistance agreements for
  NATO Agencies

26
TRANSATLANTIC CO-OPERATION AND DEFENCE INDUSTRIAL
INTEGRATION

• Highest priority to be accorded to the Prague
  Capabilities Commitment package
• Global project license authorization on e.g. AGS
  and SEAD
• Complete ITAR exemption negotiations with UK and
  other allies
• Recognize multilateral basis of US arms
  cooperation through NATO
• Develop framework agreement with LoI countries

27
EUROPEAN NATIONAL SECURITY

• Italys defense spending in 2006 projected to be
  0.84 of GDP (Personnel Costs at 63 of Budget)
• Resurgence of French protectionism? (Thales and
  Atlas Elektronik)
• Role of the EDA and Article 296
• Europe spends some 60 of US defense budget
  (440bn) and derives some 20 of effectiveness
• US RD some 5x greater than Europe
• NATO-EU Relations
• US-EU Relations and Export and Technology
  Controls

28
US NATIONAL SECURITY

• Andy Marshall report to Gordon England and senior
  military leaders
• Cut tactical air forces by 30 (JSF/F-35)
• Cancel Navy DDC future destroyer
• Delay Army FCS
• Develop conventional theater ballistic missiles
• Build more fast sealift ships and nuclear subs
• Develop new long-range bomber
• QDR and the 4 threat areas how to fund
  capabilities for irregular threats

29
ASIAN NATIONAL SECURITY

• Asian defense spending projected to grow 4.5
  p.a. from 2006-2010. China 20.8, Japan 27.7,
  India 12.3, South Korea 11.6
• By 2040, US procurement will be some 1.01
  trillion (36 of global demand) China 295bn
  (2005 120bn)
• Chinese demand for European defense electronics,
  avionics and helicopters future of the EU Export
  ban on defense exports to China

30
V. THE FUTURE OF COOPERATION

• Strategic and Holistic Approach to Cooperation
• Plugging the critical gaps
• Removing the obstacles to Cooperation
• Strengthening the Partnership of Common Interests
  and Values