HELSINKI — A Swedish government plan to introduce a new legislative bill that would restrict arms exports to so-called non-democracies is causing disquiet within Sweden's international sales-dependent defense sector.

The country's leading defense group, Saab, has warned that proposed export-tightening legislation could "force" the company to move some or all of its research and development out of Sweden.

The minority coalition government — which is supported by the Green Party — of Swedish Prime Minister Kjell Löfven, a Social Democrat, has been working on the arms export controls bill since the administration took office after general elections in 2014.

"Sweden will maintain strict and effective export controls of military equipment. The government will present a bill on this in the first half of 2017 to tighten the export regulations to non-democracies," said Margot Wallström, Sweden's foreign affairs minister.

Sweden's arms exports rose in value by 45 percent to $1.21 billion in 2016. About 88 percent of total exports were sold to European Union and Western "partner" countries, according to data from the Inspectorate of Strategic Products, the state-run agency responsible for export-related control and compliance of defense material and dual-use products. 

Defense sector unease over the planned tightening of arms export legislation is reinforced by the expanding market for Swedish weapons systems from outside the EU and Western customer loop. 

In this regard, Sweden's military exports to Thailand, Qatar, Pakistan, Saudi Arabia, Oman, Brunei, Indonesia and the United Arab Emirates have been growing steadily since 2012. Sweden's defense industry chiefs believe that Swedish arms exports to these countries could be negatively impacted by stricter export controls.

As the Swedish defense industry's leading player, the planned legislation threatens to curb Saab's overall growth and sales globally, particularly for the company's flagship Gripen fighter aircraft and its air defense and underwater systems product offerings.

"If politicians reduce export opportunities for Swedish defense, we will not be able to develop some products. The Swedish Armed Forces will need to purchase them from other countries. This will then be more expensive for our defense, but Saab's competitors will naturally be happy," said Håkan Buskhe, Saab's president and CEO.

New curbs in the arms export controls bill could also make Swedish defense companies less attractive as international partners, said Eric Walum, a Brussels-based industry analyst.

"Everything depends on the detail in the new bill and how this translates as stricter rules on the export side. Joining international partnerships might become difficult for companies like Saab if they are unable to export freely and globally," Walum said.

Saab's CEO would be "most reluctant" to relocate its R&D outside Sweden. The Saab CEO wants harmonized arms export rules across the EU that would deliver a level playing field for all defense equipment producers and exporters operating from within the economic union.

Saab has 5,000 staff engaged in R&D activities. About 4,500 of these are based in Sweden.

New export controls should be flexible enough to allow for the sale of offensive weapons to support groups fighting the Islamic State group, said Allan Widman, chairman of the Swedish parliament's Committee on Defence.

"I would support efforts by Sweden to supply weapons to the Kurdish peshmerga who are fighting ISIS to liberate Mosul. This group's need, for rocket-propelled grenades and machine guns in particular, is great," Widman said.

The Swedish government's desire to support export growth by defense industry companies is likely to produce a new arms export control law that carries a narrow definition of what military equipment may not be sold to "non-democracies," Walum said. "It is probable that stricter export controls will be placed on battlefield and offensive weapons systems while a more relaxed attitude will be taken, on the rules side, to products such as battle-management systems, radar systems, military communications and systems training."

In the event that the new arms export control law adheres to this narrow definition of equipment that can be exported to "non-democracies," it is likely that export licenses, such as that given to Saab in the sale of the GlobalEye early warning and control radar system to the United Arab Emirates, would also be granted under future rules.

The importance with which the Swedish government still views long-term arms trade development with nations, such as those in the Middle East, was highlighted during a high-level trade delegation led by Sweden's prime minister in Saudi Arabia last October.

Significantly, the trade delegation included several high-power defense industry leaders. These included Marcus Wallenberg, chairman of the board at Saab.

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