WASHINGTON ― For the greater part of a year, the defense industry has been eagerly awaiting a wave of new rules for defense exports that would ease regulations and open up potential sales for U.S. weaponry, particularly for drones.

While the new policy, released April 19, does indeed ease the way for drone manufacturers to sell more of their wares abroad, it falls short of what had been anticipated by industry.

And when it comes to the conventional arms transfer policy, analysts are struggling to find major differences between the Trump policy and that of his predecessors.

Peter Navarro, White House National Trade Council head, said the new language will allow allies and partners “to more easily obtain” American security goods, which in turn improves the security of the Untied States while “reducing” the need for them to buy Chinese and Russian systems.

“For too long we have hamstrung ourselves and limited our ability to provide our allies and partners with the defensive capabilities they require, even when in the U.S.,” Navarro said.

Rhetorically, the conventional arms policy does indeed emphasize the industrial base more than previous documents ― a welcome change for industry, which is looking toward using a 60-day feedback period to push for their top priorities.

“This is a really big deal. These are issues that had typically been relegated to the second tier,” said Remy Nathan, vice president of the Aerospace Industries Association, which is planning to push for, among other things, an all-of-government National Security Cooperation strategy.

But where major growth for the defense industry could come from is unclear to analysts. According to numbers from the Stockholm International Peace Research Institute, America accounted for 34 percent of total arms exports from 2013–17, with 98 countries buying American goods. The second-largest exporter in the world, Russia, accounted for 22 percent of weapon exports during that same period, with 47 countries as clients; China, the fifth-ranked exporter, represented only 5.7 percent of global exports, with 48 countries.

Joel Johnson, an industry analyst with the Teal Group, said the conventional arms policy looks less like a game-changer and more “simply an extension of U.S. policy since [President] Jimmy Carter.”

“I don’t see anything dramatic here, nor do I see any great untapped demand out there for additional sales ― the current U.S. backlog is huge,” Johnson added.

Said Rachel Stohl of the Stimson Center: “What does it actually do that will change anything? I’m unclear because we were already selling more weapons than ever before, the Trump administration has already put human rights on the back burner. So in practical terms, I don’t know what the impact will be or what will actually change.”

And Byron Callan of Capital Alpha Partners said he suspects any impact from the new policy will be “below the radar screen,” with small goods like communications gear or munitions. “It’s a sentiment positive, but does it entail a surge in U.S. defense exports? I doubt it.”

Drone changes

But where the U.S. is indeed seeing a steep rise in competition is in the unmanned vehicle sector, particular from China, which has made inroads into the traditionally U.S.-dominated Middle East with its cheaper UAVs.

According to analytics firm Avascent, between 2013 and 2018 there were 56 countries that invested in a non-U.S.-made unmanned system, with the majority of the systems coming from Israel, China, the United Kingdom or indigenous suppliers. Investment in non-American military UAS amounted to $1.9 billion in 2013 and grew to $3.5 billion in 2018 ― an estimate that may be low due to a lack of transparency from Israeli and Chinese firms.

President Donald Trump, right, has made arms exports a key part of his industrial policy. (Mandel Ngan/AFP via Getty Images)
President Donald Trump, right, has made arms exports a key part of his industrial policy. (Mandel Ngan/AFP via Getty Images)

Overall demand for non-Russian, Chinese or U.S. unmanned systems is expected to reach $4.1 billion in 2025, $1.6 billion of which is not yet under contract, said Avascent’s Doug Berenson, who added “the majority of the value in the opportunity space lies in MALE/HALE systems, Combat UAS, and Tactical UAS. The new regulations should let U.S. firms access [the] first two markets more easily.”

Tina Kaidanow, principal deputy assistant secretary for political-military affairs at the U.S. State Department, said the drone rule change represents “efforts to do things a little bit more strategically. We need to do, the U.S. government, a better job of strategic advocacy for some of our companies. We need to think about those areas where we can really enable sales overseas.”

The drone policy change included two important changes. The first is opening up the opportunity for companies to sell systems via the Direct Commercial Sales process, under which a company and another nation can directly negotiate, rather than requiring a more formal Foreign Military Sales process, where the U.S. government acts as a go-between. DCS sales are seen as faster than FMS sales.

Secondly, the government is eliminating rules that marked unarmed systems with laser-designator technology as “strike enabling,” which put them in the same category as armed drones, and hence received higher scrutiny.

Kaidanow said the goal was to make sure “U.S. industry faces fewer barriers and less confusion when they are attempting to compete against other countries and marketing and selling those similar systems to our partners. “

While those changes will be welcomed by the UAV industry, they fall short of what was expected and hoped for by major producers of military drones. Industry was looking for the administration to reinterpret the “strong presumption of denial” clause in the Missile Technology Control Regime, an international arms control agreement among 35 nations that governs the export of missiles and drones.

The current clause makes it difficult to approve the sale of category-1 drones capable of carrying 500-kilogram payloads for more than 300 kilometers. The Obama administration had set a standard of how it interprets the MTCR language that some in industry have complained is too strict, and had expected to see changed with this policy a “presumption of approval” for a specific set of allies and partners in Europe, the Middle East and the Asia-Pacific region.

“U.S. drone export policy had gotten out of sync with both the technology and the realities of Chinese and Israeli exports,” said Michael Horowitz, a former Pentagon official now with the University of Pennsylvania who has studied drone issues. He added that the new drone policy seeks to balance the realities of ongoing drone proliferation and the growing international market with U.S. responsibilities under the MTCR,” but warned that future opening up of drone sales will likely require dealing with the MTCR directly.”

Kaidanow acknowledged an intent to try and reform MTCR, without details. But American officials in October floated a whitepaper to allies proposing that any air vehicle that flies under 650 kilometers per hour would drop to “category-2” and thus be subject to approval on a case-by-case basis, as opposed to having to follow the more strict “category-1” policies.

Human rights groups had also been bracing for a major shift in how drone sales were handled, with an expected de-emphasis on monitoring how systems were used by foreign customers. Instead, the language largely remains, although Stohl notes it has been deemphasized in favor of economic priorities.

“Human rights are clearly not at the forefront of this policy. This is a policy about the economy. It is a policy about America first,” Stohl said.