Globalization,Trade, and Security: Industrys Critical Nonproliferation Role

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Globalization,Trade, and Security Industrys
Critical Nonproliferation Role
Industry-Government Seminar on Strategic Trade
Management Bangkok, Thailand 22 October, 2008
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Outline

• Globalization Strategic Trade Controls Context
• Historical Proliferation Phases Acquisition
  Efforts through Suppliers and Global Trading
  Networks
• Brief Case Study Compliance at General Electric
  
• Summary Industry as Critical Component to
  Global Nonproliferation Efforts

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WMD Acquisition Threat and Export Control Response
COCOM Era
Post-Cold War Era
Iran?
France
USSR
Pakistan
USA
India
China
(Iraq)
UK
(Libya)
S. Africa?
DPRK
Technology Holders
1990
1980
1960
1950
2000
1940
1970
2006
2004
COCOM
UNSCR 1540
Nuclear Suppliers Group
Non-Proliferation Treaty Zangger Committee
NSG Part 2 (Dual-Use List)
NSG Part 1 (NSG Trigger List)
Zangger Trigger List
MTCR
Australia Group
Wassenaar Arrangement
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UNSC Resolutions 1540 (2004),1673 (2006),and
1810 (2008) Objectives

• Prevent and deter non-State actors from
  developing, acquiring, trafficking, or using
  weapons of mass destruction (WMD) and their means
  of delivery
• Prevent and deter illicit traffic in WMD, their
  means of delivery, and related materials,
  including by or to State actors

Universal Application UNSCR 1540 is applicable
to all states regardless of their membership in
multilateral agreements
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Globalization Trade Summary Points

• Nature of production, products, economic
  relations, and logistics has changed
  fundamentally in the past 50 years.
• The mode of production is now best characterized
  as a parallel rather than sequential process.
• The volume of international trade has increased
  dramatically, with technology enabling the rapid
  distribution of components and goods.
• The global supply chain depends upon
  transit/transshipment networking for expeditious
  trade and production.

These changes suggest the need for new approaches
to the management of trade in strategic items.
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Changes in the Global Trade EnvironmentThe
Mobility Diffusion of Production
Immobile Factors of Production
Before 1970s
Bulk point-to-point
Country A
Country B
Mobility of Factors of Production
1970s 1990s
Container shipping
Global Production Networks
1990s onward
Commodity chain
GlobalMarket
CommodityMarket
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Levels of Economic Integration
Political Union
Common government
Common currency, harmonized tax rates, common
monetary and fiscal policy EU (partial)
Economic Union
Level of integration
Common Market
Factors of production move freely between members
Customs Union
Common external tariffs
Free Trade
Free trade between members NAFTA, Mercosur,
ASEAN (partial)
Complexity
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Major Economic Blocs, 2007
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Merchandise Exports by Trade Agreement, Intra v
Extra, 2005
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Average Tariffs after the Uruguay Round ()
Tariff reduction has dramatically increased trade
flows.
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Industrial and Post-Industrial Production Systems
Industrial
Post-Industrial
Raw materials and parts
Manufacturing
Sales and distribution
The fragmentation of production complicates
strategic trade management, increasing pressure
on industry to self-regulate.
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Conventional and Contemporary Arrangement of
Goods Flow
Conventional
Raw Materials Parts
Manufacturing
Distribution
Customers
Local Distribution
Raw Materials
National Distribution
Regional Storage
Retailers
Storage
Contemporary
Supply Chain Management
Customers
Raw Materials
Distribution Center
Manufacturing
Retailers
Material flow (delivery)
Core component
Information flow (order)
The fragmentation of production complicates
strategic trade management, increasing pressure
on industry to self-regulate.
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Platform Corporation
Distribution
Marketing / Retail
RD
Platform
Manufacturers
Global production and distribution of goods,
particularly high technology commodities, have
trade management consequences.
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Dual-Use Dilemma
Categories 0-Nuclear Materials, Facilities and
Equipment and Miscellaneous 1-Materials,
Chemicals, "Microorganisms," and
Toxins 2-Materials Processing 3-Electronics 4-Comp
uters 5-Telecommunications and Information
Security 6-Lasers and Sensors 7-Navigation and
Avionics 8-Marine 9-Propulsion Systems, Space
Vehicles and Related Equipment
Commercial Use
WMD Use
Groups A-Equipment, Assemblies and
Components B-Test, Inspection and Production
Equipment C-Materials D-Software E-Technology
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Nuclear Fuel Cycle Weapon Development
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Globalization Defense Production
In some cases, the Pentagon has no choice but to
look overseas. "Our strong preference is always
to seek out American industrial partners first,"
said Mr. Trice at Lockheed Martin, which has
extensive subcontracting arrangements with
foreign suppliers. "But when we can't find them,
we try to do what's best for our customers.
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• Brief Case Study Compliance at General Electric
  (GE)

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Why are Export Controls Important?

• Purpose is to protect individual and collective
  national security interests, prevent the
  proliferation of weapons of mass destruction
  (WMD) and missile delivery systems, and restrict
  terrorist capabilities in certain destinations
• Diversion may be harmful to single or multiple
  countries interest
• As advanced technology becomes more global,
  multilateral controls are the most effective
• Increasing self-policing role put on companys
  compliance programs

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Impacts of Non-Compliance

• Fines and/or civil or criminal penalties, on
  individuals and company
• Loss or restrictions of GEs export privileges
• Loss of business or contracts
• Adverse publicity affects GEs reputation
• Loss of leverage in influencing public policy
• Loss of trust by governments in countries where
  GE operates

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What Libya Bought Centrifuge Components
Source Center for Nonproliferation Studies
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U.S. Dual-Use Export Control Violations
1996-2007
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Summary of Major Proliferation Issues

• States continue to build nuclear/WMD programs
  through illicit dual-use purchases by taking
  advantage of vulnerabilities in export control
  systems
• Acquisition threats also emerging from sub-state
  actors
• The globalization of production and corresponding
  diffusion of technology complicates strategic
  trade control efforts.

As supplier, developer and distributors of
strategic commodities and technology, Industry is
critical global to nonproliferation efforts.