Defense Trade: European Initiatives to Integrate the Defense Market
(Letter Report, 10/29/97, GAO/NSIAD-98-6).

GAO reviewed the changes that have taken place in the European defense
market over the past 5 years, focusing on: (1) what actions European
governments and industry have taken to unify the European defense
market; (2) how key European countries' defense procurement practices
have affected U.S. defense companies' ability to compete on major
weapons competitions in Europe; and (3) how the U.S. government and
industry have adapted their policies or practices to the changing
European defense environment. GAO's review focused on the buying
practices of five European countries--France, Germany, Italy, the
Netherlands, and the United Kingdom.

GAO noted that: (1) pressure to develop a unified European armament
procurement policy and related industrial base is increasing, as most
nations can no longer afford to develop and procure defense items solely
form their own domestic companies; (2) European governments have taken
several initiatives to integrate the defense market, including the
formation of two new organizations to improve armament cooperation; (3)
European government officials remain committed to cooperative programs,
which have long been the impetus for cross-border defense cooperation at
the industry level; (4) some European defense companies are initiating
cross-border mergers that are not tied to government cooperative
programs; (5) although some progress toward regionalization is
occurring, European government and industry officials told GAO that
national sovereignty issues and complex ownership structures may inhibit
European defense consolidation from occurring to the extent that is
needed to be competitive; (6) until European governments agree on a
unified armament policy, individual European countries will retain their
own procurement policies; (7) like the United States, European countries
tend to purchase major defense equipment from their domestic companies
when such options exist; (8) when national options do not exist, key
European countries vary in their willingness to buy major U.S. weapon
systems; (9) trans-Atlantic industrial partnerships appear to be
evolving more readily than trans-Atlantic cooperative programs that are
led by governments; (10) U.S. defense companies have established these
trans-Atlantic partnerships largely to maintain market access in Europe;
(11) U.S. defense company officials say they cannot export major defense
items to Europe without involving European defense companies in the
production of those items; (12) some U.S. defense companies are seeking
long-term partnerships with European companies to develop a defense
product line that will meet requirements in Europe or other defense
markets; (13) they believe such industrial interdependence can also help
counter any efforts toward U.S. or European protectionism and may
increase trans-Atlantic defense trade; and (14) the U.S. government has
taken several steps over the last few years to improve defense trade and
trans-Atlantic cooperation, but some observers point to practical and
cultural impediments that affect U.S.-European cooperation on major
weapon programs.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-98-6
     TITLE:  Defense Trade: European Initiatives to Integrate the 
             Defense Market
      DATE:  10/29/97
   SUBJECT:  Foreign military arms sales
             Defense industry
             Foreign governments
             Foreign trade agreements
             Defense procurement
             International trade
             Procurement policies
             International cooperation
             Defense agreements
IDENTIFIER:  NATO
             France
             Germany
             Italy
             Netherlands
             United Kingdom
             
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Cover
================================================================ COVER


Report to the Secretary of Defense

October 1997

DEFENSE TRADE - EUROPEAN
INITIATIVES TO INTEGRATE THE
DEFENSE MARKET

GAO/NSIAD-98-6

Defense Trade

(707230)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  OCCAR - Organisme Conjoint de Coopï¿½ration en Matiï¿½re d'Armement
  NATO - North Atlantic Treaty Organization
  WEAO - Western European Armaments Organization
  WEU - Western European Union

Letter
=============================================================== LETTER


B-276450

October 29, 1997

The Honorable William S.  Cohen
The Secretary of Defense

Dear Mr.  Secretary: 

With decreasing U.S.  defense procurement budgets since the end of
the Cold War, U.S.  defense companies have been looking for sales in
foreign markets, and the Department of Defense (DOD) has been
attempting to increase cooperative programs with its major European
allies.  At the same time, partly in response to their own reduced
defense budgets, many European countries have taken steps to develop
a common armament policy and consolidate their defense industrial
base to become more efficient and competitive in world markets.  To
provide some insights and perspective on the implications these
European efforts have on future U.S.  military procurement options,
we have reviewed the changes that have taken place in the European
defense market over the past 5 years.  Specifically, our objectives
were to examine (1) what actions European governments and industry
have taken to unify the European defense market, (2) how key European
countries' defense procurement practices have affected U.S.  defense
companies' ability to compete on major weapon competitions in Europe,
and (3) how the U.S.  government and industry have adapted their
policies or practices to the changing European defense environment. 
Our review focused on the buying practices of five European
countries--France, Germany, Italy, the Netherlands, and the United
Kingdom. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Global exports of defense equipment have decreased significantly
since the end of the Cold War in the late 1980s.  Major arms
producing countries, such as the United States and those in Western
Europe, have reduced their procurement of defense equipment by about
one-quarter of 1986 levels based on constant dollars.  Overall,
European nations have decreased their defense research and
development spending over the last 3 years, which is one-third of the
relatively stable U.S.  research and development funding.  Defense
exports have declined over 70 percent between 1987 and 1994.  In
response to decreased demand in the U.S.  defense market, U.S. 
defense companies have consolidated, merged with other companies, or
sold off their less profitable divisions, and they are seeking sales
in international markets to make up lost revenue.  These companies
often compete with European defense companies for sales in Europe and
in other parts of the world. 

The U.S.  government, led by DOD, has maintained bilateral trade
agreements with 21 of its allies, including most European countries,
to address barriers to defense trade and international cooperation. 
No multilateral agreement exists on defense trade issues.  Bilateral
agreements have been established to provide a framework for
discussions about opening defense markets with those countries as a
way of improving the interoperability and standardization of
equipment among North Atlantic Treaty Organization (NATO) allies. 
The United States has enjoyed a favorable balance of defense trade,
which is still an issue of contention with some of the major arms
producing countries in Europe.\1

This trade imbalance was cited in a 1990 U.S.  government study as a
justification for European governments requiring defense offsets.\2
However, because European investment in defense research and
development is significantly below U.S.  levels, a Department of
Commerce official stated that European industry is at a competitive
disadvantage in meeting future military performance requirements. 

Reciprocal trade agreements recognize the need to develop and
maintain an advanced technological capability for NATO and enhance
equipment cooperation among the individual European member nations. 
A senior NATO official stated that Europe's ability to develop an
independent security capability within NATO and meet its fair share
of alliance obligations is contingent on its ability to consolidate
its defense industrial base.  This official indicated that if such a
consolidation does not occur, then European governments may be less
willing to meet their NATO obligations. 


--------------------
\1 According to a DOD official, data showed that the balance of
defense trade with Europe was about 2 to 1 in the U.S.  favor. 
Although the accuracy of DOD's defense trade estimates has been
questioned, alternative estimates support a U.S.  trade advantage. 
See European Initiatives:  Implications for U.S.  Defense Trade and
Cooperation (GAO/NSIAD-91-167, Apr.  4, 1991). 

\2 Offsets are defined as the entire range of industrial and
commercial compensation benefits provided to foreign governments and
firms as inducements or conditions for the purchase of military goods
and services. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

Pressure to develop a unified European armament procurement policy
and related industrial base is increasing, as most nations can no
longer afford to develop and procure defense items solely from their
own domestic companies.  European governments have taken several
initiatives to integrate the defense market, including the formation
of two new organizations to improve armament cooperation.  European
government officials remain committed to cooperative programs, which
have long been the impetus for cross-border defense cooperation at
the industry level.  Some European defense companies are initiating
cross-border mergers that are not tied to government cooperative
programs.  Although some progress toward regionalization is
occurring, European government and industry officials told us that
national sovereignty issues and complex ownership structures may
inhibit European defense consolidation from occurring to the extent
that is needed to be competitive. 

Until European governments agree on a unified armament policy,
individual European countries will retain their own procurement
policies.  Like the United States, European countries tend to
purchase major defense equipment from their domestic companies when
such options exist.  When national options do not exist, key European
countries vary in their willingness to buy major U.S.  weapon
systems.  For example, the United Kingdom and the Netherlands have
often selected U.S.  products over European products, while France
has only purchased major U.S.  defense items when a comparable French
or European option was not available. 

Transatlantic industrial partnerships appear to be evolving more
readily than transatlantic cooperative programs that are led by
governments.  U.S.  defense companies have established these
transatlantic partnerships largely to maintain market access in
Europe.  U.S.  defense company officials say they cannot export major
defense items to Europe without involving European defense companies
in the production of those items.  Some U.S.  defense companies are
seeking long-term partnerships with European companies to develop a
defense product line that will meet requirements in Europe or other
defense markets.  They believe such industrial interdependence can
also help counter any efforts toward U.S.  or European protectionism
and may increase transatlantic defense trade.  The U.S.  government
has taken several steps over the last few years to improve defense
trade and transatlantic cooperation, but some observers point to
practical and cultural impediments that affect U.S.-European
cooperation on major weapon programs. 


   EUROPE HAS TAKEN STEPS TO
   INTEGRATE ITS DEFENSE INDUSTRY,
   BUT PROGRESS IS SLOW
------------------------------------------------------------ Letter :3

European governments have made slow gradual progress in developing
and implementing unified armament initiatives.  These initiatives are
slow to evolve because the individual European nations often have
conflicting goals and views on implementing procedures and a
reluctance to yield national sovereignty.  In addition, the various
European defense organizations do not include all of the same member
countries, making it difficult to establish a pan-European armament
policy. 

European officials see the formation of a more unified European
defense market as crucial to the survival of their defense industries
as well as their ability to maintain an independent foreign and
security policy.  Individual national markets are seen as too small
to support an efficient industry, particularly in light of declining
defense budgets.  At the same time, mergers and consolidations of
U.S.  defense companies are generating concern about the long-term
competitiveness of a smaller, fragmented European defense industry. 

In the past, European governments made several attempts to integrate
the European defense market using a variety of organizations.  The
Western European Union (WEU), the European Union, and NATO are among
the institutions composed of different member nations that have
addressed European armament policy issues (see fig.  1).  For
example, in 1976, the defense ministers of the European NATO nations
established the Independent European Program Group as a forum for
armament cooperation.  This group operated without a legal charter,
and its decisions were not binding among the member nations.  In
1992, the European defense ministers decided that the group's
functions should be transferred to WEU, and the Western European
Armaments Group was later created as the forum within WEU for
armament cooperation. 

   Figure 1:  Organizations
   Addressing European Armament
   Policy Issues

   (See figure in printed
   edition.)

In 1991, WEU\3 called for an examination of opportunities to enhance
armament cooperation with the goal of creating a European armaments
agency.  WEU declared that it would develop as the defense component
of the European Union and would formulate a common European defense
policy.  It also agreed to strengthen the European pillar within
NATO.  Under WEU, the Western European Armaments Group studied
development of an armaments agency that would undertake procurement
on behalf of member nations, but agreement could not be reached on
the procurement procedures such an agency would follow.  Appendix I
is a chronology of key events associated with the development of an
integrated European defense market. 


--------------------
\3 WEU, which was established in 1955, serves a unique role between
the European Union and NATO in addressing defense and security
matters since it is the only European organization that can carry out
military operations. 


      TWO ARMAMENT AGENCIES
      CREATED
---------------------------------------------------------- Letter :3.1

In 1996, two new armament agencies were formed.  OCCAR\4 was created
as a joint management organization for France, Germany, Italy, and
the United Kingdom, and the Western European Armaments Organization
(WEAO) was created as a subsidiary body of WEU.  As shown in table 1,
the two agencies are separate entities with different functions. 



                                Table 1
                
                 Selected Characteristics of OCCAR and
                                  WEAO

                    OCCAR                           WEAO
------------------  ------------------------------  ------------------
Principles/goals     Consolidate program           Promote European
                    management.                     armament
                     Coordinate long-term          cooperation,
                    requirements and develop a      strengthen the
                    common investment policy.       European defense
                     Improve European industrial   technology base
                    base competitiveness.           and create a
                     Replace the program specific  European defense
                    "juste retour" concept (work    market. Offer an
                    share in proportion to funds    appropriate legal
                    contributed) with an equitable  framework for a
                    balance over multiple programs  future European
                    and years.                      armament agency.
                     Open membership to European
                    countries that accept these
                    principles and plan to
                    participate in a major
                    cooperative program.
                     Give preference to equipment
                    to whose development a country
                    has contributed within OCCAR.

Programs            Milan and Hot antitank missile  Existing defense
to be administered  systems, Roland surface-to-     research and
                    air missile system, Tiger       technology
                    combat helicopter, and Brevel   projects.
                    surveillance and
                    reconnaissance drone program.

Membership          France, Germany, Italy, and     Belgium, Denmark,
                    the United Kingdom.             France, Germany,
                                                    Greece, Italy,
                                                    Luxembourg,
                                                    Netherlands,
                                                    Norway, Portugal,
                                                    Spain, Turkey, and
                                                    the United
                                                    Kingdom.

Organizational      A management organization       A WEU subsidiary
status              located in Bonn, Germany, with  located in
                    no legal charter to administer  Brussels, Belgium,
                    contracts.                      with legal
                                                    authority to
                                                    administer
                                                    contracts.
----------------------------------------------------------------------
Source:  Our analysis of OCCAR and WEU documents. 

OCCAR was created as a result of French and German dissatisfaction
with the lack of progress WEU was making in establishing a European
armaments agency.  Joined by Italy and the United Kingdom, the four
nations agreed on November 12, 1996, to form OCCAR as a management
organization for joint programs involving two or more member nations. 
OCCAR's goals are to create greater efficiency in program management
and facilitate emergence of a more unified market. 

Although press accounts raised concerns that OCCAR member countries
would give preference to European products, no such preference was
included in OCCAR's procurement principles.  Instead, it was agreed
that an OCCAR member would give preference to procuring equipment
that it helped to develop.  In establishing OCCAR, the Defense
ministers of the member countries agreed that OCCAR was to have a
competitive procurement policy.  Competition is to be open to all 13
member countries of the Western European Armaments Group.  Other
countries, including the United States, will be invited to compete
when OCCAR program participants unanimously agree to open
competitions to these countries based on reciprocity.  OCCAR
officials have indicated that procedures for implementing the
competition policy, including criteria for evaluating reciprocity,
have not yet been defined.  According to some U.S.  government and
industry officials, issues to consider will include whether U.S. 
companies will be excluded from OCCAR procurement or whether OCCAR
procurement policy will be consistent with the reciprocal trade
agreements between member countries and the United States. 

OCCAR's impact on the European defense market will largely depend on
the number of programs that it manages.  OCCAR members are discussing
integrating additional programs\5 in the future but are expected to
only administer joint programs involving participating nations,
thereby excluding transatlantic, NATO, or European cooperative
programs involving non-OCCAR nations.  Some European nations, such as
France and Germany, are committed to undertaking new programs on a
cooperative basis.  While intra-European cooperation is not new,
French Ministry of Defense officials have indicated that this
represents a change for France because they no longer intend to
develop a wide range of weapon programs on their own. 

On November 19, 1996, a week after OCCAR was created, the WEU
Ministerial Council established WEAO to improve coordination of
collaborative defense research projects by creating a single
contracting entity.  As a WEU subsidiary body, WEAO has legal
authority to administer contracts, unlike OCCAR, which operates
without a legal charter and has no authority to sign contracts for
the programs it is to administer.  WEAO's initial task is to manage
the Western European Armaments Group's research and technology
activities, while OCCAR is to manage the development and procurement
of weapon systems.  The WEAO executive body has responsibility for
soliciting and evaluating bids and awarding contracts for common
research activities.  This single contracting entity eliminated the
need to administer contracts through the different national
contracting authorities.  According to WEAO documentation, the
organization was intentionally designed to allow it to evolve into a
European armaments agency.  However, it may take several years before
the effect of OCCAR and WEAO procurement policies can be fully
assessed.  Some European government officials also told us that
OCCAR's ability to centrally administer contracts is curtailed until
OCCAR obtains legal authority. 

U.S.  government and industry officials are watching to see whether
OCCAR and other initiatives are fostering political pressure and
tendencies toward pan-European exclusivity.  As membership of the
various European organizations expands, pressure to buy European
defense equipment may increase.  For example, according to some
industry officials, the new European members of NATO are already
being encouraged by some Western European governments to buy European
defense products to ease their entry into other European
organizations. 


--------------------
\4 OCCAR is the French acronym for Organisme Conjoint de Coopï¿½ration
en Matiï¿½re d'Armement. 

\5 These programs include a range of products, including a counter
battery radar, armored vehicles, an antiship weapon system, a
satellite communication system, an observation satellite,
surface-to-air missiles, and a self-propelled howitzer. 


      EUROPEAN DEFENSE INDUSTRY
      BEGINS TO RESTRUCTURE
---------------------------------------------------------- Letter :3.2

While European government initiatives appear to be making slow,
gradual progress, the European defense industry is attempting to
consolidate and restructure through national and cross-border
mergers, acquisitions, joint ventures, and consortia.  European
government and industry observers have noted that European defense
industry is reacting to pressures from rapid U.S.  defense industry
consolidation, tighter defense budgets, and stronger competition in
the global defense market.  Even with such pressures, other observers
have noted that European defense companies are consolidating at a
slower pace than U.S.  defense companies. 

The combined defense expenditures of Western Europe are about 60
percent of the U.S.  defense budget, but Western Europe has two to
three times more suppliers, according to a 1997 Merrill Lynch
study.\6 For example, the United States will have two major suppliers
in the military aircraft sector (once proposed mergers are approved),
while six European nations each have at least one major supplier of
military combat aircraft.  In terms of defense revenues, U.S. 
defense companies tend to outpace European defense companies.  Among
the world's top 10 arms producing companies in 1994, 8 were U.S. 
companies and 2 were European companies. 

While economic pressures to consolidate exist, European defense
companies face several obstacles, according to European government
and industry officials.  For example, national governments, which
greatly influence the defense industry and often regard their defense
companies as sovereign assets, may not want a cross-border
consolidation to occur because it could reduce the national defense
industrial base or make it too specialized.  National governments
further impede defense industrial integration by establishing
different defense equipment requirements.  Complex ownership
structures also make cross-border mergers difficult because many of
the larger European defense companies are state-owned or part of
larger conglomerates. 


--------------------
\6 Barnaby Wiener, British Aerospace, Merrill Lynch, Pierce, Fenner
and Smith Limited (Mar.  1997). 


         RESTRUCTURING WITHIN
         NATIONAL BORDERS
-------------------------------------------------------- Letter :3.2.1

To varying degrees, defense industry restructuring has occurred
within the borders of major European defense producing nations,
including France, Germany, Italy, and the United Kingdom.  In France,
Thomson CSF and Aerospatiale formed a company, Sextant Avionique,
that regrouped and merged their avionics and flight electronics
activities.  The French government initiated discussions in 1996
about the merger of the aviation companies Aerospatiale and Dassault,
but negotiations are ongoing.  In Germany, restructuring has
primarily occurred in the aerospace sector.  In 1995, Deutsche
Aerospace became Daimler-Benz Aerospace, which includes about 80
percent of German industrial capabilities in aerospace.  In Italy, by
1995 Finmeccanica had gained control of about three-quarters of the
Italian defense industry, including Italy's major helicopter
manufacturer Agusta and aircraft manufacturer Alenia.  In the United
Kingdom, a number of mergers and acquisitions have occurred.  For
example, GKN purchased the helicopter manufacturer Westland and GEC
purchased the military vehicle and shipbuilder VSEL in 1994. 


         RESTRUCTURING ACROSS
         BORDERS
-------------------------------------------------------- Letter :3.2.2

European companies have long partnered on cooperative armament
programs for the development and production of large complex weapon
systems in Europe.  Often, a central management company has been
created to manage the relationship between partners.  For example,
major aerospace companies from the United Kingdom, Germany, Italy,
and Spain have created a consortium to work on the Eurofighter 2000
program.  Another cooperative venture is the development of the
European military transport aircraft known as the Future Large
Aircraft.  Companies from a number of European nations are forming a
joint venture company for the development and production of this
aircraft.  Project based joint ventures are typically industry led,
but they are established with the consent of the governments
involved.  (See table 2 for examples of European defense company
cooperative business activities for major weapon programs.)



                                Table 2
                
                  Examples of European Defense Company
                  Transnational Cooperative Activities

Joint         Company participants and      Countries
company       percentage shareholding\a     involved      Product
------------  ----------------------------  ------------  ------------
Airbus        Aerospatiale (37.9%),         France,       Future Large
Military      Daimler-Benz Aerospace        Germany,      Aircraft
Company       (37.9%), British Aerospace    Italy,        (planned)
              (20%), CASA (4.2%), Alenia    Spain, and
              (Associate Member)            the United
                                            Kingdom

Eurocopter    Aerospatiale (60%), Daimler-  France and    Tiger
Holding       Benz Aerospace (40%)          Germany       helicopter
                                                          and various
                                                          military and
                                                          civilian
                                                          helicopters

Eurodrone     Matra Hachette (50%), STN     France and    Brevel
              Altas Elektronik (50%)        Germany       surveillance
                                                          and
                                                          reconnaissan
                                                          ce drone

Eurofighter   Daimler-Benz Aerospace        Germany,      Eurofighter
Jagdflugzeug  (30%), Alenia (19.5%),        Italy,        2000
              British Aerospace (37.5%),    Spain, and
              CASA (13%)                    the United
                                            Kingdom

Eurojet       MTU (33%), Fiat Avio (21%),   Germany,      Turbo jet
Turbo         Industria de Turbo            Italy,        engines for
              Propulsores (13%), Rolls      Spain, and    the
              Royce (33%)                   the United    Eurofighter
                                            Kingdom       2000

Euromissile   Aerospatiale (50%), Daimler-  France and    Milan and
              Benz Aerospace (50%)          Germany       Hot antitank
                                                          missiles and
                                                          Roland air
                                                          defense
                                                          missile

European      Agusta (50%), GKN Westland    Italy and     EH-101
Helicopter    Helicopters (50%)             the United    helicopter
Industries                                  Kingdom

Eurosam       Thomson-CSF (33.3%),          France and    Future
              Aerospatiale (33.3%), Alenia  Italy         surface-to-
              (33.3%)                                     air family
                                                          of missiles

GTK/MRAV/     Two competing consortium:\b   France,       Family of
VBCI          (1) GKN Defense, Krauss-      Germany, and  wheeled
              Maffei Wehrtechnik, Giat      the United    armored
              Industries, Wegmann & Co.,    Kingdom       vehicles
              MaK System (2) Henschel
              Wehrtechnik, Alvis, Vickers
              Defense Systems, Panhard &
              Lavassar, KUKA Wehrtechnik

Horizon       Direction des Constructions   France,       Horizon
Internationa  Navales (33.3%),              Italy, and    frigate
l Joint       Fincantieri (33.3%), GEC-     the United
Venture       Marconi Naval Systems         Kingdom
              (33.3%)

NH            Eurocopter (66.4%), Fokker    France,       NH-90
Industries    Aerostructures (6.7%),        Germany,      helicopter
              Agusta (26.9%)                Italy, and
                                            the
                                            Netherlands

Panavia       Daimler-Benz Aerospace        Germany,      Tornado
Aircraft      (42.5%), British Aerospace    Italy, and    combat
              (42.5%), Alenia (15%)         the United    aircraft
                                            Kingdom
----------------------------------------------------------------------
\a Company participants and shareholdings obtained from Forecast
International. 

\b Data on shareholdings are not available. 

Although most cross-border industry cooperation is project specific,
European defense companies are also acquiring companies or
establishing joint ventures or cross-share holdings that are not tied
to a particular program.  Some cross-border European consolidation
has occurred in missiles, defense electronics, and space systems. 
For example, in 1996, Matra (France) and British Aerospace (United
Kingdom) merged their missile activities to form Matra BAe Dynamics. 
Both companies retained a 50-percent share in the joint venture, but
they have a single management structure and a plan to gradually
integrate their missile manufacturing facilities.  Figure 2
highlights some examples of consolidation in specific defense
sectors. 

   Figure 2:  Examples of European
   Defense Company Cross-Border
   Consolidation

   (See figure in printed
   edition.)


   KEY EUROPEAN COUNTRIES VARY IN
   THEIR WILLINGNESS TO PURCHASE
   MAJOR U.S.  DEFENSE ITEMS
------------------------------------------------------------ Letter :4

Despite attempts to develop a unified European armament policy,
individual European governments still retain their own defense
procurement policies.  Key European countries,\7 including France,
Germany, Italy, the Netherlands, and the United Kingdom, vary in
their willingness to purchase major U.S.  defense equipment.  These
countries have been involved in efforts to form a unified European
defense market, which some observers believe may lead to excluding
U.S.  defense companies from participating in that market.  However,
U.S.  defense companies continue to sell significant defense
equipment to certain European countries in certain product lines. 

Europe has a large, diverse defense industrial base on which key
European nations rely for purchases of major defense equipment.  As
in the United States, these European countries purchase the majority
of their defense equipment from national sources.  For example, the
United Kingdom aims to competitively award about three-quarters of
its defense contracts, with U.K.  companies winning at least 90
percent of the contracts over the past several years.  According to
French Ministry of Defense officials, imports represented only 2
percent of France's total defense procurements over the past 5 years. 
Germany and Italy each produced at least 80 percent of their national
requirements for military equipment over the past several years. 
Despite its relatively small size, the Dutch defense industry
supplied the majority of defense items to the Netherlands. 

Notwithstanding European preference for domestically developed
weapons, U.S.  defense companies have sold a significant amount of
weapons to Western European countries either directly or through the
U.S.  government's Foreign Military Sales program.  These sales
tended to be concentrated in certain countries and products.  U.S. 
foreign military sales\8 of defense equipment to Europe accounted for
about $20 billion from 1992 to 1996.  Europe was the second largest
purchaser of U.S.  defense items based on arms delivery data,
following the Middle East.  The leading European purchasers of U.S. 
defense equipment were Turkey, Finland, Greece, Switzerland, the
Netherlands, and the United Kingdom.  U.S.  defense companies had
greater success in selling aircraft and missiles to Western Europe
than they did for tanks and ships.  Of the almost
$20 billion of U.S.  foreign military sales, about $15 billion, or 75
percent, was for sales of military aircraft, aircraft spares, and
aircraft modifications.  About $3 billion, or 13 percent of total
equipment sales, was for sales of missiles.  Ships and military
vehicles accounted for $552 million, or less than 3 percent of the
total U.S.  defense equipment sales.  Figure 3 shows U.S.  defense
equipment sales to Western Europe by major weapon categories. 
According to U.S.  defense company officials, sales of military
aircraft to Europe are expected to be important in future
competitions, particularly in the emerging defense markets in central
Europe.  Competition between major U.S.  and European defense
companies for aircraft sales in these markets is expected to be
intense. 

   Figure 3:  U.S.  Defense
   Equipment Sales to Western
   Europe by Major Weapon
   Categories

   (See figure in printed
   edition.)


--------------------
\7 France, Germany, and the United Kingdom have the largest defense
budgets in Europe and their defense industries comprise 85 percent of
European defense production.  Italy and the Netherlands are also
significant defense producers and buyers of defense equipment. 

\8 Only data on sales made through the Foreign Military Sales program
were available by weapons category.  Direct commercial sales data,
which is tracked by the Department of State through export licenses,
were not organized by weapon categories.  However, we reviewed
congressional notification records for direct commercial sales over
$14 million for the last 5 years to supplement our analysis of
foreign military sales data.  While direct commercial sales amounts
can be significant for certain countries that prefer this purchasing
method, exports sold through the Foreign Military Sales program still
make up the majority of U.S.  defense export sales. 


         UNITED KINGDOM AND THE
         NETHERLANDS
-------------------------------------------------------- Letter :4.0.1

U.S.  defense companies varied in their success in winning the major
European defense competitions that were open to foreign bidders.  The
Netherlands and the United Kingdom have bought major U.S.  weapon
systems over the last 5 years, even when European options were
available.  The United States is the largest supplier of defense
imports to both the Netherlands and the United Kingdom.  Both of
these countries have stated open competition policies that seek the
best defense equipment for the best value.  In the major defense
competitions in these countries in which U.S.  companies won, U.S. 
industry and government officials stated that the factors that
contributed to the success included the uniqueness and technical
sophistication of the U.S.  systems, industrial participation
opportunities offered to local companies, and no domestically
developed product was in the competition.  For example, in the sale
of the U.S.  Apache helicopter to the Netherlands and the United
Kingdom, there was no competing domestically developed national
option, the product was technically sophisticated, and significant
industrial participation was offered to domestic defense companies. 

In the major defense competitions in which U.S.  companies competed
in the United Kingdom over the last 5 years, the U.K.  government
tended to chose a domestically developed product when one existed. 
In some cases, these products contained significant U.S.  content. 
For example, in the competition for the U.K.  Replacement Maritime
Patrol Aircraft, the two U.S.  competing products lost to a British
Aerospace developed product, the upgraded NIMROD aircraft.  This
British Aerospace product, however, contained significant U.S. 
content with major components coming from such companies as Boeing. 
In the Conventionally Armed Standoff Missile competition, Matra
British Aerospace Dynamics' Stormshadow
(a U.K.-French developed option) won.  In this case, the competing
U.S.  products were competitively priced, met the technical
requirements, and would have provided significant opportunities for
U.K.  industrial participation.  Table 3 provides details on some
U.K.  major procurements in which U.S.  defense companies competed. 



                                     Table 3
                     
                       U.K. Defense Procurement Policy and
                              Selected Procurements

        Major Defense Competitions In Which U.S. Companies Participated
--------------------------------------------------------------------------------
Defense item   Year awarded   Competitors               Outcome\a
-------------  -------------  ------------------------  ------------------------
Attack         1995           (1) Apache (Westland,     Westland/McDonnell
helicopter                    McDonnell Douglas)        Douglas team won.
                              (2) Cobra-Venom (GEC-     Contributing factors
                              Marconi, Bell Textron)    were the technical
                              (3) Tiger (British        capability of the
                              Aerospace, Eurocopter)    product, company
                                                        partnership, and the
                                                        industrial participation
                                                        package offered.

Transport      1995           (1) C130J (Lockheed       Lockheed was selected.
aircraft                      Martin)                   It had the only existing
                              (2) Future Large          product in the
                              Aircraft (Airbus          competition. The Future
                              Military Company)         Large Aircraft has yet
                                                        to be developed.

Transport      1995           (1) Chinook CH-47         The United Kingdom
helicopter                    (Boeing)                  bought 22 helicopters
                              (2) EH-101 (Westland,     from the U.K.-Italian
                              Agusta)                   joint venture that
                                                        produces the EH-101 and
                                                        14 Chinook helicopters
                                                        from Boeing.

Air-launched   1996           (1) Brimstone (GEC        GEC Marconi won with a
anti-armor                    Marconi)                  low cost, technically
weapon                        (2) JSOW (Texas           competitive bid. The
                              Instruments)              company spent several
                              (3) Typhoon (British      years developing a
                              Aerospace)                product to meet the U.K.
                              (4) SWARM (Hunting        requirement. Rockwell is
                              Aviation)                 a subcontractor to GEC
                                                        Marconi.

Conventionall  1996           (1) Stormshadow (Matra    Matra British Aerospace
y Armed                       British Aerospace         Dynamics won. This
Standoff                      Dynamics)                 British/French joint
Missile                       (2) Tomahawk (Hughes)     venture company had a
                              (3) SLAM (McDonnell       competitive product that
                              Douglas)                  they will jointly
                              (4) JSOW (Texas           produce.
                              Instruments)
                              (5) Pegasus (GEC
                              Marconi)
                              (6) Taurus (DASA)
                              (7) Popeye (Rafael
                              Armaments)

Replacement    1996           (1) Nimrod 2000 (British  British Aerospace won
Maritime                      Aerospace)                with its low-cost
Patrol                        (2) Atlantique III        domestically developed
Aircraft                      (Dassault Aviation)       product. Boeing will
                              (3) P3 Orion 2000         provide the mission
                              (Lockheed Martin)         suite and perform the
                              (4) P3 Upgrade (Loral)    avionics integration
                                                        work.


The U.K.'s Defense Procu for money--which means t Industrial participation case-
by-case basis from
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
\a The factors that contributed to the outcome of these competitions
were those identified by U.S.  industry and government officials. 


         FRANCE
-------------------------------------------------------- Letter :4.0.2

France has purchased major U.S.  defense weapon systems when no
French or European option is available.  In contrast to the
Netherlands and the United Kingdom, the French defense procurement
policy has been to first buy equipment from French sources, then to
pursue European cooperative solutions, and lastly to import a
non-European item.  Recently, French armament policy has put primary
emphasis on European cooperative programs, recognizing that it will
not be economical to develop major systems alone in the future.  The
procurement policy reflects France's goal to retain a defense
industrial base and maintain autonomy in national security matters. 
As illustrated in table 4, the French government made two significant
purchases from the United States in 1995 when it was not economical
for French companies to produce comparable equipment or when it would
have taken too long to develop. 



                                     Table 4
                     
                      French Defense Procurement Policy and
                              Selected Procurements

              Recent Major Procurements of U.S. Defense Equipment
--------------------------------------------------------------------------------
                          Year
Defense item              purchased      Company        Reasons for purchase\a
------------------------  -------------  -------------  ------------------------
KC-135 tanker aircraft    1995           Boeing         The European Airbus
                                                        consortium offered the
                                                        only other option, but
                                                        it lacked the range,
                                                        duration, and payload of
                                                        the KC-135, and would
                                                        have taken 5 to 10 years
                                                        to build.

E-2C Hawkeye Airborne     1995           Northrop       No other U.S. or
Early Warning Aircraft                   Grumman        European companies
                                                        produced this type of
                                                        specialized aircraft.


France's Defense P sophisticated weap France will buy no national or Europe
required on non-Eu
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
\a The factors that contributed to the outcome of these competitions
were those identified by U.S.  industry and government officials. 


         GERMANY AND ITALY
-------------------------------------------------------- Letter :4.0.3

Germany and Italy have made limited purchases of U.S.  defense
equipment in recent years because of significantly reduced defense
procurement budgets and commitments to European cooperative projects. 
Both countries now have an open competition defense procurement
policy and buy a mixture of U.S.  and European products.  The largest
share of these countries' defense imports is supplied by the United
States.  In recent major defense equipment purchases from the United
States, both Germany and Italy reduced quantities to reserve a
portion of their procurement funding for European cooperative
solutions.  For example, Italy purchased the U.S.  C-130J transport
aircraft but continued to provide funding for a cooperative European
transport aircraft program.  As in the other European countries,
Germany and Italy encourage U.S.  companies to provide opportunities
for local industrial participation when selling defense equipment. 
Table 5 highlights German defense procurement policy and a selected
major procurement. 



                                     Table 5
                     
                      German Defense Procurement Policy and
                               Selected Procurement

              Recent Major Procurement of U.S. Defense Equipment\a
--------------------------------------------------------------------------------
                          Year
Defense item              purchased      Company        Reasons for purchase
------------------------  -------------  -------------  ------------------------
Advance Medium Range      1995           Hughes         No other option existed
Air-to-Air Missile                                      that met military
(AMRAAM)                                                requirements, but
                                                        quantity purchased was
                                                        reduced to have funds
                                                        available for a future
                                                        European alternative.


Germany's Defense Pr competition on most commitment to Europe reductions in the
de that are primarily s defense equipment.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
\a According to German Ministry of Defense officials, the German
government has not purchased many major defense end items in the last
5 years.  Its defense equipment spending has primarily consisted of
modernization of existing defense equipment or coproduction programs. 


   U.S.  INDUSTRY IS TAKING THE
   LEAD IN FORMING TRANSATLANTIC
   TIES
------------------------------------------------------------ Letter :5

As European nations work toward greater armament cooperation,
competition for sales in Europe is likely to increase.  To mitigate
potential protectionism and negative effects on U.S.-European defense
trade, both the U.S.  defense industry and government have taken
steps to improve transatlantic cooperation.  U.S.  defense companies
are taking the lead in forming transatlantic ties to gain access to
the European market.  The U.S.  government is also seeking
opportunities to form transatlantic partnerships with its European
allies on defense equipment development and production, but some
observers point to practical and cultural impediments that affect the
extent of such cooperation. 


      U.S.  COMPANIES FORM
      INDUSTRIAL PARTNERSHIPS WITH
      EUROPEAN INDUSTRY TO SELL
      DEFENSE EQUIPMENT
---------------------------------------------------------- Letter :5.1

U.S.  defense companies are forming industrial partnerships with
European companies to sell defense equipment to Europe because of the
need to increase international sales, satisfy offset obligations, and
maintain market access.  Most of these partnerships are formed to bid
on a particular weapon competition.  Some, however, are emerging to
sell products to worldwide markets. 

According to U.S.  defense companies, partnering with European
companies has become a necessary way of doing business in Europe. 
U.S.  government and defense company officials have cited the
importance of industrial partnerships with European companies in
winning defense sales there.  Many of these partnerships arose out of
U.S.  companies' need to fulfill offset obligations on European
defense sales by providing European companies with subcontract
work.\9 When U.S.  companies had to find ways to satisfy the
customary 100-percent offset obligation on defense contracts in
Europe, they began to form industrial partnerships with European
companies. 

With the declining U.S.  defense budget after the end of the Cold
War, many U.S.  companies began to look for ways to increase their
international defense sales in Europe and elsewhere.  According to
some U.S.  company officials, they realized that many European
government buyers did not want to buy commercially available defense
equipment but wanted their own companies to participate in producing
weapon systems to maintain their defense industrial base.  Forming
industrial partnerships was the only way that U.S.  companies
believed they could win sales in many European countries that were
trying to preserve their own defense industries.  In addition,
several U.S.  company officials have indicated that European
governments have been pressuring each other in the last several years
to purchase defense equipment from European companies before
considering U.S.  options.  These officials stated that even
countries that do not have large defense industries to support were
being encouraged by other European countries to purchase European
defense equipment for the economic good of the European Union.  U.S. 
company officials believe that by forming industrial partnerships
with European companies, they increase their ability to win defense
contracts in Europe. 

U.S.  defense companies form a variety of industrial partnerships
with European companies, including subcontracting arrangements, joint
ventures, international consortia, and teaming agreements.  The
various examples of each are discussed in table 6. 



                                Table 6
                
                Types of Industrial Partnerships Formed
                       by U.S. Defense Companies

Type                       Definition     Comments       Examples
-------------------------  -------------  -------------  -------------
Subcontracting             Company        U.S. prime     Hughes
arrangement                agrees to      contractors    Aircraft is a
                           provide parts  are often      subcontractor
                           or services    willing to be  for British
                           for another    subcontractor  Aerospace's
                           company's      s to European  Advanced
                           weapon system  companies to   Short Range
                           in a defense   get sales in   Air-to-Air
                           procurement.   Europe.        Missile
                                                         program.

Joint venture/             Two or more    Can be formed  As one of two
International consortia    companies      in response    competing
                           agree to work  to             teams,
                           on a           government-    Raytheon,
                           particular     to-            Hughes,
                           project        government     Alenia,
                           together.      cooperative    Siemens, and
                                          defense        DASA formed a
                                          programs.      company to
                                                         jointly
                                                         produce the
                                                         Medium
                                                         Extended Air
                                                         Defense
                                                         System--a
                                                         cooperative
                                                         program
                                                         between
                                                         Germany,
                                                         Italy, and
                                                         the United
                                                         States.

Teaming agreement          Agreement      Can take many  Textron is
                           between        forms,         teamed with
                           companies to   including      VSEL to
                           jointly        those listed   produce the
                           produce and    above.         Howitzer for
                           bid for a      Sometimes can  the United
                           particular     extend beyond  States.
                           defense        a specific     Companies
                           contract.      competition    will also
                                          to future      work together
                                          sales of the   to sell the
                                          item or other  Howitzer to
                                          items.         the United
                                                         Kingdom.
----------------------------------------------------------------------
According to some U.S.  defense company officials, most of U.S. 
industrial partnerships with European companies, whatever the form,
are to produce or market a specific defense item.  Some U.S.  defense
companies, however, are using the partnerships to create long-term
alliances and interdependencies with European companies that extend
beyond one sale.  For example, Lockheed Martin has formed an
industrial partnership with the Italian company Alenia to convert an
Italian aircraft to satisfy an emerging market for small military
transport aircraft.  This arrangement arose out of a transaction
involving the sale of C-130J transport aircraft to Italy.  Some U.S. 
defense company officials see the establishment of long-term
industrial partnerships as a way of improving transatlantic defense
trade and countering efforts toward European protectionism. 


--------------------
\9 For more information on offsets, see Military Exports:  Offset
Demands Continue to Grow (GAO/NSIAD-96-65, Apr.  12, 1996). 


      CHANGES TO U.S.  POLICIES
      SUPPORT DEFENSE TRADE AND
      TRANSATLANTIC COOPERATION
---------------------------------------------------------- Letter :5.2

DOD has taken a number of steps over the last few years to improve
defense trade and transatlantic cooperation.  For example, it has
revised its guidance on considering foreign suppliers in defense
acquisitions and has removed some of the restrictions on buying
defense equipment from overseas.  In addition, senior DOD officials
have shown renewed interest in international cooperative defense
programs with U.S.  allies in Europe and are actively seeking such
opportunities.  Despite some of these efforts, some observers have
cautioned that a number of factors may hinder shifts in U.S.-European
defense cooperative production programs on major weapons. 

The following U.S.  policy changes have been made that may help to
improve defense trade: 

  -- A DOD directive\10 issued in March 1996 sets out a hierarchy of
     acquiring defense equipment that places commercially available
     equipment from allies and cooperative development programs with
     allies, ahead of a new U.S.  equipment development program. 
     According to some U.S.  government and defense industry
     officials, many military program managers traditionally would
     have favored a new domestic development program when deciding
     how to satisfy a military requirement. 

  -- In April 1997, the Office of the Secretary of Defense announced
     that DOD would favorably consider requests for transfers of
     software documentation to allies.  In the past, such requests
     were often denied, which was cited by U.S.  government officials
     as a barrier to improve defense trade and cooperation with the
     United States. 

  -- In April 1997, the Under Secretary of Defense (Acquisition and
     Technology) waived certain buy national restrictions for
     countries with whom the United States had reciprocal trade
     agreements.\11 This waiver allows DOD to procure from foreign
     suppliers certain defense equipment that were previously
     restricted to domestic sources.  European government officials
     have cited U.S.  buy-national restrictions as an obstacle in the
     improvement of the reciprocal defense trade balance between the
     United States and Europe. 

DOD is also seeking ways to improve international cooperative
programs with European countries through ongoing working groups and a
special task force under the quadrennial review.  Senior DOD
officials have stated that the United States should take advantage of
international armaments cooperation to leverage U.S.  resources
through cost-sharing and to improve standardization and
interoperability of defense equipment with potential coalition
partners. 

The U.S.  government has participated in numerous international
defense equipment cooperation activities with European countries,
including research and development programs, data exchange
agreements, and engineer and scientist exchanges, but these
activities only occasionally resulted in cooperative production
programs.  More recently, senior DOD officials have provided
increased attention to armaments cooperation with U.S.  allies.  In
1993, DOD established the Armaments Cooperation Steering Committee to
improve cooperative programs.  In its ongoing efforts, the Steering
Committee established several International Cooperative Opportunities
Groups in 1995 to address specific issues in armaments cooperation. 
In addition, the 1997 Quadrennial Defense Review to identify military
modernization needs included an international cooperation task force
to determine which defense technology areas the United States could
collaborate on with France, Germany, and the United Kingdom.  In
March 1997, the Secretary of Defense signed a memorandum stating that
"it is DOD policy that we utilize international armaments cooperation
to the maximum extent feasible."

The U.S.  government has a few ongoing cooperative development
programs for major weapon systems, but most cooperative programs are
at the technology level.\12 Some observers indicated to us that there
may be some impediments to pursuing U.S.-European defense cooperative
programs on major weapon systems because (1) European procurement
budgets are limited compared to the U.S.  budget; (2) the potential
that U.S.  support for a program may change with each annual budget
review may cause some European governments concerns; (3) despite
changes in DOD guidance, many military service program managers may
be reluctant to engage in international cooperative programs due to
the significant additional work that may be required and potential
barriers that may arise, such as licensing and technology sharing
restrictions; (4) many U.S.  program managers may not consider
purchasing from a foreign source due to the perceived technological
superiority of U.S.  weapons; and (5) European and U.S.  governments
have shown a desire to maintain an independent ability to provide for
their national defense. 


--------------------
\10 DOD Directive 5000.1. 

\11 Fiscal Year 1997 Defense Authorization Act (P.L.  104-201, sec. 
810, amending 10 U.S.C.  sec.  2534 (d)) provided the Secretary of
Defense with the authority for this waiver. 

\12 As of July 1996, DOD had several hundred ongoing cooperative
programs at the technology level, including cooperative research and
development programs, data exchange agreements, and engineer and
scientist exchanges. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

Efforts have been made to develop a more unified European armament
policy and defense industrial base.  As regional unification efforts
evolve, individual European nations still independently make
procurement decisions, and these nations vary in their willingness to
buy major U.S.  weapon systems when European options exist.  To
maintain market access in Europe, U.S.  defense companies have
established transatlantic industrial partnerships.  These industrial
partnerships appear to be evolving more readily than transatlantic
cooperative programs led by governments.  Although the U.S. 
government has recently taken steps to improve defense trade and
cooperation, some observers have indicated that practical and
cultural impediments can affect transatlantic cooperation on major
weapon programs. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

In commenting on a draft of this report, DOD concurred with the
report and the Department of Commerce stated that it found the report
to be accurate and had no specific comments or recommended changes. 
The comments from DOD and the Department of Commerce are reprinted in
appendixes II and III, respectively.  DOD also separately provided
some technical suggestions, which we have incorporated in the text
where appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

To identify European government defense integration plans and
activities, we examined European Union, WEU, OCCAR, and NATO
documents and publications.  We developed a chronology of key events
associated with the development of an integrated European defense
market.  We interviewed European Union, Western European Armaments
Group, OCCAR, and NATO officials about European initiatives affecting
trade and cooperation and their progress in meeting their goals.  We
also discussed these issues with officials at the U.S.  mission to
NATO, the U.S.  mission to the European Union, and U.S.  embassies in
France, Germany, and the United Kingdom.  We interviewed or obtained
written responses from officials from six major defense companies in
France, Germany, and the United Kingdom about European industry
consolidation.  We identified relevant information and studies about
European government and industry initiatives and discussed these
issues with consulting firms and European think tanks. 

To assess how procurement polices of European nations affect U.S. 
defense companies' market access, we focused our analysis on five
countries.  We selected France, Germany, and the United Kingdom
because they have the largest defense budgets in Europe and their
defense industries comprise 85 percent of European defense
production.  Italy and the Netherlands were selected because they are
significant producers and buyers of defense equipment.  These five
countries are also current members or seeking membership in OCCAR. 
We interviewed officials from 13 U.S.  defense companies on the basis
of their roles as prime contractors and subcontractors and range of
defense products sold in Europe.  Most of these companies represented
prime contractors.  Eight of these were among the top 10 U.S. 
defense companies, based on fiscal year 1995 DOD prime contract
awards.  We also discussed the major defense competitions that U.S. 
companies participated in over the last 5 years and the factors that
contributed to the competitions' outcome with officials from these
companies and with U.S.  government officials. 

We discussed procurement policies with European and U.S.  government
officials.  We met with Ministry of Defense officials in France,
Germany, and the United Kingdom, as well as U.S.  embassy officials
in those countries.  We did not conduct fieldwork in Italy or the
Netherlands, but we did discuss these countries' procurement policies
with officials from their embassies in Washington, D.C.  We also
reviewed documents describing the procurement policies and procedures
of the selected countries and U.S.  government assessments and cables
about major defense contract awards that occurred in these countries
and discussed factors affecting these procurement awards with U.S. 
government and industry officials.  We did not review documentation
on the bids or contract awards. 

We collected and analyzed data on defense budgets and defense trade,
including foreign military and direct commercial sales to identify
buying patterns in Western Europe over the past 5 years.  We only
used the foreign military sales data to analyze sales by weapons
category for the five countries and Western Europe.  Direct
commercial sales data, which are tracked by the State Department
through export licenses, were not organized by weapon categories for
the last 5 years.  However, we reviewed congressional notification
records for direct commercial sales over $14 million for the last 5
years to supplement our analysis of foreign military sales data. 

To determine actions the U.S.  industry and government have taken in
response to changes in the European defense environment, we
interviewed defense company and U.S.  government officials within DOD
and the Departments of Commerce and State.  With U.S.  defense
companies, we discussed their business strategies and the nature of
the partnerships formed with European defense companies.  We obtained
and analyzed recently issued DOD directives and policy memorandums on
defense trade and international cooperation and discussed the
effectiveness of these policies with U.S.  and foreign government
officials and U.S.  and European defense companies. 

We performed our review from January to September 1997 in accordance
with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to interested congressional
committees and the Secretaries of State and Commerce.  We will also
make copies available to others upon request. 

Please contact me at (202) 512-4181 if you have any questions
concerning this report.  Major contributors to this report were Karen
Zuckerstein, Anne-Marie Lasowski, and John Neumann. 

Sincerely yours,

Katherine V.  Schinasi
Associate Director
Defense Acquisitions Issues


CHRONOLOGY OF EUROPEAN DEFENSE
INITIATIVES
=========================================================== Appendix I



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)




(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
=========================================================== Appendix I



(See figure in printed edition.)Appendix III

*** End of document. ***