THIRD WORLD ARMS EXPORTERS: RECENT DEVELOPMENTS AND PATTERNS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84S00558R000400100003-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 38
• Document Creation Date: December 22, 2016
• Document Release Date: January 7, 2011
• Sequence Number: 3
• Publication Date: June 1, 1983
• Content Type: REPORT

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Directorate of
Intelligence
r
~til ~t 1
Third World Arms Exporters:
Recent Developments
and Patterns
GI 83-10154
June 1983
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Directorate of Secret
Intelligence
Third World Arms Exporters:
Recent Developments
and Patterns
This paper was prepared b
the International Security Issues Division, Office of
Global Issues. It was coordinated with the
Directorate of Operations.
Comments and queries are welcome and may be
directed to the Chief, Weapons Proliferation Branch,
OGI
Secret
G183-10154
June 1983
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Summary
Information available
as of 10 June 1983
was used in this report.
and Patterns
Recent Developments
Third World Arms Exporters:
The increased presence of Third World weapons on world battlefields and
the attention paid to Third World defense industries by arms trade journals
have given an exaggerated impression of the manufacturing capabilities
and export potential of Third World arms suppliers:
? Third World countries remain heavily dependent on traditional suppliers
for weapons designs and production technology.
? Third World efforts to develop indigenous weapons have been retarded
by budgetary and technical problems.
? Most Third World suppliers have been unable to provide the follow-on
support, financing, and security commitments that often accompany
arms sales.
Because of these constraints, we do not expect Third World suppliers to
make major inroads into the global arms market. Last year Third World
suppliers accounted for about 5 percent of the world arms trade with sales
approaching $3 billion. During the next several years, we anticipate that
these suppliers will increasingly find themselves in competition with
traditional suppliers even for sales of less advanced armaments. To
preserve their markets, we believe Third World suppliers will continue
their laissez faire sales policies while slowly increasing the technological
sophistication of their offerings.
Even if their share of world arms sales shrinks, Third World suppliers will
continue to play several important roles:
? Supplying used and new military equipment to maintain or rebuild the
armed forces of belligerent nations.
? Helping poorer less developed countries modernize their arsenals with
moderately sophisticated weapons.
? Providing other Third World countries with experienced military advisers
and instructors.
? Supporting both insurgents and governments combating insurgents with
appropriate weapons and support.
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G183-10154
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In particular, several countries bear watching:
? Israel will continue to combine foreign technology with indigenous design
efforts and skilled labor forces to produce high-quality weapons systems.
? Brazil should move beyond the production of light armored vehicles and
trainer aircraft to the manufacture of fighter aircraft and tactical
missiles.
? Singapore will complement its small arms industry with the assembly and
refurbishment of jet attack aircraft, missile patrol boats, and armored
vehicles.
? South Korea will energetically seek exports of small arms and crew-
served weapons to sustain its underutilized defense industries.
We doubt that these or other Third World suppliers will produce sophisti-
cated weapons which are directly competitive with advanced US systems.
Nevertheless, they will export weapons that are less than state of the art
but give recipients new capabilities to threaten their neighbors, US
interests, or US allies.
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Implications for the United States
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Third World Arms Exporters:
Recent Developments
and Patterns
Recent international conflicts have highlighted the
role of Third World countries as arms producers and
suppliers.' Israel's successful use of domestically pro-
Figure 1
Third World Arms Sales
duced, remotely piloted vehicles in Lebanon, Libya's 7
transfer of SA-9 surface-to-air missiles to Syria, and
Argentina's widespread search for Exocet missiles
during the Falklands war attracted media coverage.
Trade journals have recently published numerous
articles on Third World defense industries, often
basing their analyses on promotional information
provided by Third World manufacturers. This exten-
sive media coverage has generated the impression that
Third World countries have substantial arms manu-
facturing capabilities and export potential.
This report examines that impression, looking closely
at the roles Third World arms suppliers play in the I
global arms market. Particular attention is paid to the
way Third World states acquire production technol-
ogy, the amount and types of equipment and services
they provide, and their prospects for future arms
sales. A series of appendixes provides more detailed
information on the motivations, offerings, and pros-
pects of these arms suppliers.
Market Share
Third World arms suppliers have sold $14 billion
worth of military equipment and services during the
past seven years (figure 1).2 After a record year in
1981-when the Iran-Iraq war boosted sales by Third
World suppliers to almost $6 billion, or 17 percent of
' For the purposes of this paper, Third World will refer to all
countries except members of the Warsaw Pact and NATO as well
as Australia, Austria, China, Finland, Ireland, Japan, New Zea-
land, Switzerland, and Sweden. The term arms sales refers to all
agreements to provide arms, support equipment, military construc-
tion, training, and related services.
' Information on specific sales and aggregate data are from coordi-
nate We
regar these figures as minimum estimates because of the d1ifliculty
world arms-market sales in 1982 slipped to less than
$3 billion, returning Third World arms suppliers to
their traditional 3- to 5-percent market share (tables I
and 2). During 1976-82:
? Middle Eastern countries accounted for 61 percent
of known Third World arms sales, as Brazil, Yugo-
slavia, North Korea, and Egypt cultivated ties with
wealthy oil-producing states (figure 2).
? Latin American buyers turned to Brazil and Israel
for ground forces equipment and aircraft, absorbing
20 percent of all sales.
? Asia and the Pacific became primary arms export
markets for South Korea and Singapore, accounting
for 9 percent of all Third World sales.
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Table 1
Shares of the International Arms Market
a Austria, Ireland, Finland, Sweden, Switzerland, Japan, New
Zealand, and Australia.
Table 2
Major Third World Suppliers: Arms Sales
Brazil 2,205 3
0
82 260 81 89 1,220 443
South Korea 2,200 20
6
88 133 168 240 1,247 118
Israel 1,786 7
9
86 246 212 121 534 508
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Figure 2
Third World Arms Sales,
by Region, 1976-82
Middle East
8.4
Latin America
2.7
Figure 3
Third World Arms Sales,
by Equipment, 1976-82
Other
0.8
Equipment
The bulk of Third World arms exports consists of
unsophisticated products (figure 3).3 Nearly one-half
of Third World sales are for ground forces equipment
and consumables such as quartermaster supplies and
spare parts:
? Brazil has built its arms export business by selling a
family of light armored vehicles. Israel, India, and
South Africa have produced heavier main battle
tanks using foreign technology and components but
have not yet exported them.
? Israel and Singapore have exported locally designed
assault rifles closely resembling Soviet and US
models.
? South Korea, North Korea, and Yugoslavia produce
a variety of small arms and ammunition that they
export throughout the Third World.
' Many of the vehicles and aircraft produced by Third World
nations are assembled from parts provided by US, Soviet, and West
European manufacturers under licensing agreements. See appendix
B for a detailed listing of weapons produced by Third World
High-priced items, such as aircraft and naval vessels,
account for 25 percent of total Third World arms
sales (figure 3). Most of the value of these sales lies in
propulsion, electronic, and weapons systems, many of
which have been purchased from Western suppliers
and installed by Third World manufacturers. Only a
handful of indigenously designed aerospace and naval
weapons systems have been marketed:
? Israel and Yugoslavia have exported locally de-
signed jet combat aircraft. The Israeli Kfir and
Yugoslav Gastreb contain, respectively, US and
British engines.
? Israel, Singapore, and South Korea export fast
missile attack boats, and Yugoslavia offers a locally
designed submarine.
? Israel and South Africa offer the Shafrir and Kukri
air-to-air missiles and the Gabriel/Scorpion anti-
ship missile.
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The quality of Third World military manufactures
varies considerably. Well-designed and carefully pro-
duced weapons are available, as are cheap imitations
characterized by shoddy workmanship.
? Trade publications acknowledge that pistols pro-
duced by Taurus of Brazil are high-quality copies of
Italian models, but imitations produced by Egypt
are poorly manufactured.
? Attache reports indicate that the light armor and
limited mobility of armored vehicles designed and
produced in Brazil make them capable of perform-
ing only internal security missions, while Israel's
Merkava tanks have been designed to survive on
modern battlefields.
? The Indian Marut fighter aircraft has been pro-
duced in limited numbers because its low thrust-to-
weight ratio limits performance; in contrast, the
Israeli Kfir has performed well in combat and has
been successfully exported.
In addition to equipment produced domestically,
Third World suppliers sell used foreign equipment.
We estimate transfers of such equipment, mostly
sophisticated weapons produced in the United States,
USSR, and Western Europe, account for 10 percent
of all sales by Third World suppliers. Used equipment
is often attractive because of its relatively low cost,
short delivery time, proven performance, and compat-
ibility with existing inventories. Even in small quanti-
ties, such weapons can have an immediate impact.
Israel, Libya, and Saudi Arabia have transferred used
aircraft-Mirage Ills, MIG-23s, and F-5 Tigers-
from their own inventories to Argentina, Syria, and
North Yemen, respectively, during times of crisis.
Third World countries perform important roles in the
international arms market by providing an alternative
source of war supplies, equipment for military mod-
ernizations, support for insurgent groups, and train-
ing. Many customers, including Argentina, Libya,
Iran, and Iraq, have turned to Third World arms
suppliers to diversify their sources of armaments and
to circumvent restrictions and embargoes imposed by
traditional suppliers.' Indeed, we have few indications
that Third World suppliers attach broad restrictions
to their arms sales.
US Embassy reporting indicates that Egypt, Saudi
Arabia, and Libya sometimes consider individual
sales in terms of regional balances of power:
? Egypt has provided weapons and training to Sudan,
Somalia, Oman, and Morocco, in large part to
protect moderate Islamic states against radical re-
gimes supported by the Soviet Union.
? Saudi Arabia has given financial and material
assistance to Tunisia, Egypt, and Iraq to counter
threats from Libya and Iran.
? Libya has supplied Chad, Upper Volta, Central
African Republic, and Ghana with advisers and
small amounts of military equipment to develop a
wider base of support for its policies in Africa.
In many cases, however, these broad political consid-
erations give way to economic concerns. For example,
Brazil's Foreign Minister recently stated in a press
interview that Brazil never supplies arms if doing so
would upset a local balance of power, but Brazil's
sales to Iraq and Libya underscore Brazil's overriding
commercial interest.
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War Supplies
Third World suppliers play an important role during
and after conflicts by supplying new and used military
equipment and consumables. Deliveries have helped
belligerents both to continue fighting and to rebuild
their inventories quickly.
Defense Modernization
Most Third World suppliers sell weapons of moderate
sophistication, which are attractive to many poorer
Insurgencies
Third World suppliers also have become actively
involved in providing military assistance to insurgent
and dissident groups
with training and materiel support.
Although data is incomplete, we suspect this assist-
ance amounts to several hundred million dollars each
year. most of the major Third
World military suppliers support one or more such
groups because of immediate security threats and
opportunities to destabilize other regimes. For exam-
ple, we estimate that Libya alone spent $200 million
on military assistance and training for subnational
groups between 1977 and 1981.5 Other Third World
arms suppliers support insurgents out of ideological
solidarity. North Korea and Yugoslavia, for example,
have provided the Palestine Liberation Organization
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Third World suppliers also provide arms and assist-
Training
We estimate that Third World arms suppliers have
traditionally held some 20 percent of the global
training market, a disproportionately large share com-
pared with their share of the arms market (figure 4).
We believe that Third World training assistance is in
demand because:
Figure 4
Foreign Students Training
In-Countrya
Thousand persons
30
Data rounded to nearest IUO
b Austria, Ireland, I inland, Sneden, Switzerland. Japan,
New Lealund, Australia.
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LJA I
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Motivations
Security considerations have been the primary impe-
tus behind the development of most Third World
arms industries, according to US Embassy reporting
and academic experts. Third World arms producers
(table 4).6
Non-US NATO
Otherb
Non-Societ
Warsaw Pact
China
Third World
apparently believe that reducing their dependence on
foreign arms suppliers, particularly for the production
of consumables and for the maintenance of major line
items, will permit them greater freedom of action in
times of crisis and conflict. Indeed, in Third World
nations such as Brazil, Egypt, India, Israel, Pakistan,
and South Africa the fear of an embargo or actual
embargoes appear to have been catalysts for the
development and expansion of arms industries
Economic considerations often combine with security
concerns in justifying the production of conventional
arms. We believe these considerations are usually of
threats also stockpile weapons and diversify sources of supply to
protect their security interests. These alternatives are less expensive
than manufacturing arms because they do not involve expenditures
for capital equipment, industrial training programs, raw materials,
and royalty payments, but stockpiling and diversification lack the
tangible economic and political benefits that Third World leaders
associate with defense industries, according to Embassy reporting.
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Table 4
Embargoes on Third World Arms Suppliers
Suppliers
Date
Embargoing
Countries
Egypt
1948
United States, United Kingdom,
Tripartite Agreement after 1949 war
France
1974
Soviet Union
Suspension of sales and spare parts
Israel
1949
United States, United Kingdom,
Tripartite Agreement after 1949 war
France
1973
France, United States
End of sales of major items, temporary withholding of
battlefield replacements
Temporary suspension of F-16 deliveries after attack
on Iraqi reactor
Temporary suspension of F-16 deliveries after
invasion of Lebanon
Suspension of spares and defense industries
equipment
Reassessment of sales
1981
France
Following Libyan invasion of Chad
1982
United States
Support for terrorism and regional insurgencies
1979
United States
Nuclear proliferation violations
1967
UN General Assembly
Recommended embargo
1977
UN Security Council
Mandatory embargo
secondary importance, at least initially. Over time, ? Reduce unit costs. Most Third World militaries
however, they often become the dominant reason for present a very limited market for domestic defense
continuing production. Arms manufacturing and industries. South Africa, for example, is attempting
exports: to increase its foreign arms sales to achieve efficient
production runs,
? Reduce imports. Brazil, for example, has reduced its
arms imports by 75 percent since 1975, according to
Embassy reporting.
? Utilize idle industrial capacity. Singapore has reori-
ented its commercial aircraft industry to compete
for military aircraft service contracts within South-
east Asia, according to media reports.
? Open new markets for commercial goods and serv-
ices.
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Figure 5
Licensing Agreements for Major
Weapons Systems (Annual Average)
Naval, Air,
and Other
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Indeed, some of the more notable Third World weap-
ons have been produced with considerable foreign 25X1
assistance. 25X1
Direct Foreign Assistance. Manufacturing technology
and modified weapons designs have also been ac-
quired directly from foreign arms industries. This
usually occurs when licensed production of an existing
weapon system does not fully meet a military require-
ment and when design and development by the Third
World state is either impossible or prohibitively ex-
pensive
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We expect the size of the international arms market
to remain constant or decline slightly in real terms
through the mid-1980s, largely as a result of the
present global economic slowdown and the completion
of military modernizations by oil-rich states. In this
environment, competition among the major suppliers
will increase; we expect them to pay greater attention
and offer better terms to even minor customers in
order to secure sales for domestic industries. Although
this competition will probably prevent Third World
suppliers from expanding beyond their traditional
market share, they are likely to have annual sales in
the $3 billion range during the next few years.
We believe Third World military suppliers will be
able to compete in the market because their weapons:
? Do not carry the stigma of great power intervention.
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? Are of appropriate sophistication and cost for less
wealthy Third World states.
? Can be purchased through barter agreements unac-
? Can be obtained when traditional suppliers impose
embargoes. Many customers are likely to maintain
ties to Third World suppliers as a hedge against
future embargoes. Similarly, we expect recipient
nations to patronize Third World suppliers as part
of their longstanding policy of diversifying arms
purchases.
Some Third World suppliers will fare better than
others. Brazil, North and South Korea, and Yugosla-
via will probably preserve some of the recent gains
they have made, in part because they produce ammu-
nition and ground forces equipment compatible with
Soviet and US weapons. Egypt and Israel should
maintain their current sales levels, in part by dispos-
ing of surplus Soviet and US equipment. Sales by
other suppliers are likely to slip. Overall, we expect
competition among Third World suppliers exporting
the same type of equipment to increase. Those that
lose out may be forced to close inefficient defense
The technological sophistication of arms offered by
Third World suppliers will incrementally improve
during the next few years as additional manufactur-
ing technologies are acquired, primarily through li-
censing agreements. For example, according to trade
journals:
? Brazil will begin producing jet attack aircraft and
possibly antiship missiles.
? Israel will upgrade its tanks, drones, and missile
offerings.
? India will launch its first indigenously designed
frigate.
? South Korea plans to develop an antiship missile.
? South Africa will probably begin producing replace-
ments for its jet combat aircraft.
Third World suppliers will continue to insist on
licensing agreements when purchasing weapons from
major suppliers. Such agreements provide production
technology and the promise of greater military self-
sufficiency. We doubt, however, that these agree- 25X1
ments will lead to a dramatic increase in self-suffi- 25X1
ciency or in the technological sophistication of Third
World arms. Rather, we expect that Third World
manufacturers will continue to depend on defense
industries in the developed world for technical assist-
ance, capital equipment, and major subassemblies like
electronics and propulsion systems. In our judgment,
the development of advanced weapons of indigenous
design will also continue to be plagued by inadequate
funding and poor management.
The slow diffusion of military production technology
to the Third World and the resulting proliferation of
conventional arms will reduce the ability of the
United States and other developed states to influence
the duration and outcome of regional arms races and
conflicts. Iran and Iraq, for example, have been able
to continue their war despite sales embargoes and
reductions in deliveries by the United States, the
USSR, and some West European states, in part
because of arms delivered by Third World states. In
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phisticated arms are of minimal use, the availability 25X1
of arms from Third World suppliers is likely to permit
hostilities to continue. Similarly, the potential of
Third World states to supply arms will impede US
efforts to use the provision or denial of security
assistance as a foreign policy instrument.
We believe the presence of Third World arms on the
international market will also:
? Reduce US exports of trainer aircraft, light ar-
mored vehicles, infantry weapons, and quartermas-
ter items. Such sales make up a small portion of the
total value of the international arms market, but
individual US manufacturers are highly dependent
on such sales.
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? Increase the number of requests for third-party
transfers and more concessionary marketing ar-
rangements in future licensing agreements. With
US security assistance funds declining, many US
allies in the Third World will also request US
assistance in promoting their arms exports in lieu of
funds. Singapore and South Korea have already
raised this issue in bilateral decisions.
It is doubtful that Third World industries will pro-
duce sophisticated weapons competitive with US air-
craft, naval systems, and ground forces equipment at
the high end of the capability spectrum. The Israeli
Lavi fighter, one of the most advanced pieces of
equipment to be manufactured in the Third World in
the next few years, is not expected to perform as well
as the US F- 16, according to trade journals. Third
World nations, however, will retain an ability to
threaten US and allied forces by transferring sophisti-
cated arms, purchased from the West or the Soviet
Bloc, to potential Third World adversaries. British
worries about third-party transfers of Exocet missiles
to Argentina during the Falklands conflict serve as an
example of this potential danger. Moreover, as compe-
tition in the international arms market intensifies,
Third World suppliers will be tempted to expand the
range of military assistance they can provide to
potential customers. In some cases, this may include
introducing less than state-of-the-art weapons into a
region, giving recipients new capabilities which are
threatening to their neighbors, to US interests, or to
US allies.
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Appendix A
Defense Industries of Major Third World Arms Suppliers
Principal Employment Export
Manufacturers (Number of Persons) Regulation
AVIBRAS, ENGESA, EMBRAER, 38,000 Presidential authorization
IMBEL
Egypt Arab Industrial Authority 45,000 High Committee for Industry/Military;
Committee for Defense Industry
Hindustan Aeronautics, Ltd. 250,000 Ministry of Defense
Bharat Electronics
Ministry of Defense factories (32)
Koor Industries 80,000 Special Ministerial
Israeli Aircraft Industries Committee on Arms Exports
Pakistan Ministry of Defense facilities NA Defense Production Division/ Ministry of
Defense
Charter Industries Singapore Aircraft NA
Singapore Shipbuilding and Engineering
Singapore Automotive Engineering
South Africa ARMSCOR companies (8) 105,000 Ministry of Defense
Private firms (700)
Daewoo Corporation NA Defense Industry Bureau, Ministry of
Asia Automotive Co. National Defense
KAI Industrial Co.
Korean Airlines
Federal Secretariat for National Defense NA Directorate of Supply and Procurement,
facilities (FSND) FSND
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Appendix B
Egypt
India
HJT-16 Kiran India
MKI
Remotely piloted
vehicles/decoys
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Selected Weapons Produced in the Third World (continued)
Egypt
India
SA-7 b
SA-2
9-mm Beretta b
Brazil, Israel
7.65-mm Type 64/68
North Korea
7.65-mm M70
Yugoslavia
Submachineguns
9-mm PA3-DM
SAG
0.45 INA SMG
Brazil
9-mm BSM/9
M-3 SMG
Brazil
9-mm IMBEL
MD-I SMG b
Brazil
9-mm Mekanika
Uru SMG
Brazil
7.62-mm M49/57
SMG
Yugoslavia
7.62-mm M56
SMG
Yugoslavia
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Selected Weapons Produced in the Third World (continued)
5.56-mm and Israel
7.62-mm Galil
5.56-mm R4 b South Africa
(Galil)
5.56-mm M16 b South Korea, Philippines, Singapore
5.56-mm K-1 South Korea
7.62-mm Yugoslavia
M59/66/70/70A
7.62-mm Mekanika Brazil
Uirapuru GPMG
7.62-mm and 5.56-mm Israel
Galil ARM
5.56-mm Ultimax 100
5.56-mm M60 b
7.62-mm M72 LMG
81/120-mm India
52-mm/60-mm/ Israel
64/81/120
India
Israel
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Selected Weapons Produced in the Third World (continued)
Other armored
EE-17 Sucuri TD
Brazil
vehicles
EE-9 Cascavel AC
Brazil
EE- 11 Urutu APC
Brazil
Artillery
Naval warships
(more than 500 tons)
Fiat 6614 APC b
South Korea
M60 APC
Yugoslavia
M980 APC
Yugoslavia
105 mm
Egypt
75 mm, 105 mm
India
Israel
South Korea
105 mm, KH 179
(155 mm)
South Korea
FSS 2/3/4
Brazil
108R
Brazil
Wolf
Israel
130-mm MRL
South Korea
Nike-Hercules
South Korea
Yugoslavia
Saar-5 (850)
Israel
Niteroi (2,300)
Brazil
Godavari (3,000)
India
Ulsan (1,600)
South Korea
Meko 140 (1,200) b
Argentina
X (1,600)
Brazil
India
Type 209 (1,150) b
Brazil
Type 1500 (1,500) b
India
Yugoslavia
a Codeveloped with foreign partners.
b Produced under license; may involve the manufacture of small
components and the assembly of imported major subsystems.
Marketing restrictions probably in effect.
c An X denotes a weapon under development that lacks
nomenclature.
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Appendix C
Israel and South Africa:
Innovative Pariahs
Israel and South Africa face regional security prob-
lems and arms embargoes that have led to similarities
in the development of their arms industries and export
programs. Both have combined foreign technology,
acquired primarily through licensing agreements,
with indigenous design efforts and skilled labor forces
to produce high-quality and sometimes unique weap-
ons systems. The reported success of these systems in
combat, however, has created exaggerated images of
Israeli and South African production capabilities and
export potential. Moreover, most Third World nations
refuse to purchase arms openly from either regime or
prefer more sophisticated equipment offered by tradi-
tional suppliers. These buyer attitudes-and the
tighter world arms market we anticipate-will limit
Israeli and South African sales.
Israel, with sales totaling $1.8 billion during 1976-82,
ranks fourth among Third World arms suppliers.
Deprived of access to the lucrative Middle Eastern
market by its status as a regional pariah, Israel has
concentrated its sales efforts elsewhere:
? Latin America accounts for more than half of all
Israeli sales. Sales of reconditioned Mirage aircraft
have been Israel's biggest earner, although Tel Aviv
made an important breakthrough last year when
Ecuador purchased 12 Kfir fighters. Gabriel anti-
ship missiles and Galil rifles have also been popular
items.
? In Asia, Indonesia has been Israel's biggest custom-
er, purchasing more than 35 used A-4 Skyhawks.
Some of these were sold through the United States,
thus avoiding a direct link between Israel and a
predominantly Muslim state. Tel Aviv also sold
small quantities of spare parts to Iran after the fall
of the Shah. the pur-
pose of these transfers is to maintain friendly con-
tacts with the Iranian military.
? Africa has been a limited market for Israel with
Kenya, Zaire, and South Africa the most notable
customers.
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? Sales in Europe and North America have been
almost nil. Israel has sold some antitank ammuni-
tion to West Germany and is currently marketing
its Kfir aircraft as a combat training aircraft for the
US Navy.
~rade journals note that Israel's 25X1
narrow borders and open terrain have driven its
defense industries to specialize in the development
and manufacture of early warning, reconnaissance,
armor, and aerospace systems that compensate for
these geographical disadvantages. When possible, Is-
raeli industry has modified equipment purchased
abroad to meet the needs of the Israeli armed forces,
according to media Recent exam- 25X1
ples include a reconnaissance version of the F-15
fighter and the conversion of a Boeing 707 into a
boom-equipped refueling tanker.
Indigenous designs for complete weapons systems
have been pursued on a limited basis when foreign
weapons do not satisfy military requirements and
when an opportunity exists for employing domestic
industry. Even in these cases, foreign technology has
been exploited. The Kfir fighter incorporates a US
engine and French fuselage, and the Galil rifle was
developed by reverse engineering the Soviet AK-47
tank and Scout and Mastiff remotely piloted vehicles
are being developed as is an air-launched version of
the Gabriel III antiship missile. The latter has a
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longer range than its ship-launched counterpart, and
Israel will probably exploit the publicity surrounding
the use of the air-launched Exocet during the Falk-
lands crisis.
Israeli officials are outwardly optimistic about pros-
pects for increasing defense sales. They have told US
officials they expect annual sales to reach over
$2 billion by 1983. We believe these estimates are
unrealistically high. Israeli officials have probably
inflated their estimates to convince US officials that
Tel Aviv will be able to return a profit on FMS funds
used to purchase US subcomponents for weapons such
will also be handicapped by the unwillingness of many
Third World states to jeopardize their relations with
wealthy Arab benefactors by purchasing arms from
We believe Israeli arms exports will increase only at a
modest pace during the next few years, largely in
Latin America where Israel will take advantage of
US restrictions and a French reputation for poor
follow-on support. According to US Embassy reports,
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Israel has sold additional Mirages to Argentina and
has expressed an interest in selling A-4s but has
refrained from officially requesting US permission)
edia reports indicate that South Africa
has recently begun an arms export drive with an
annual sales target of $150 million. The purpose of
the campaign, according to edia re-
ports, is to find additional work for South Africa's
defense industry in the wake of defense budget cuts
and to help cover the costs of military operations in
Namibia and Angola. South Africa, however, has sold
only $150 million in arms and military services in the
past seven years.
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Appendix D
Brazil and Singapore:
Economic Motivations
Despite vastly different sizes, the arms export pro-
grams of Brazil and Singapore have a common-
primarily economic-motivation. Neither country
faces an immediate security threat, and both have
geared their largely state-owned defense industries
toward foreign markets by pursuing liberal export
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Brazil and Singapore have also enhanced their securi- continue to expand because oil-rich Middle Eastern
ty and foreign policy interests-including their roles states see Brazil as an important alternative to major
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In our judgment, Brazil's principal goal in expanding
its arms exports has been to reduce its balance-of-
payments deficits with oil-exporting nations. Iraq and
Libya purchased more than $1.5 billion worth of
weapons during 1976-82-nearly 70 percent of Bra-
zil's total arms sales. Recently, Brazil's important
arms-oil relationship with Libya was a major factor in
an incident involving the illegal transit of Brazilian
territory by Libyan planes carrying military cargoes
to Nicaragua.
The development of Brazil's arms industry has fre-
quently been justified by Brazilian leaders as a neces-
sary step toward military self-sufficiency and regional
leadership. State and media reports confirm that
Brazil has used its arms industries to pursue these
objectives by touting new weapons sytems as symbols
of success and by selling equipment to needy coun-
tries, such as Guyana, on concessionary terms.
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In our judgment, future Brazilian arms sales will be
limited by production delays and project failures.
According to US Embassy reporting, Brazil has had
difficulty meeting delivery schedules to Iraq, and
recent sales of new trainer aircraft to Libya may
suffer the same fate. Attache reports note that certain
Brazilian projects for helicopters and air-to-air mis-
siles have been troubled by technical problems and
mismanagement. Finally, Brazil's strategy of produc-
ing less sophisticated military vehicles may backfire if
these weapons are consistently defeated in battle by
more capable systems built to high US, Soviet, and
West European military standards.10 According to
attache reports, for example, Libya recently deter-
mined that Brazilian armored vehicles would be of
little value in a ground conflict with Egypt.
Singapore's less than $140 million in sales during
1976-82, while small, represents the effort of an arms
industry dedicated primarily to exports. Prime Minis-
ter Lee Kwan Yew has stated publicly that Singapore
hopes to emulate Switzerland in the manufacture and
export of arms by selling freely to a wide number of
nations regardless of their regional and political affili-
ations. Thus far, sales have been directed mainly at
the Southeast Asian market, but in 1981 more than
$40 million in arms were sold to Middle Eastern
states. Overall, we expect Singapore's arms sales to
grow slowly as additional agreements are concluded
with Association of Southeast Asian Nations
(ASEAN) and Middle Eastern states.
Sales of reconditioned armored vehicles and patrol
craft produced under license have been and will
probably continue to be the mainstay of Singapore's
export program. Late in 1982 Singapore landed a
contract to recondition 100 Thai armored vehicles
with US engines. In recent years Singapore has sold
several British-designed small patrol boats, incorpo-
rating West German diesel engines, to Oman and
10 Brazilian weapons, which are designed for export, incorporate
simple designs and substantial amounts of parts manufactured to
civilian specifications. This allows Brazil to undersell its competi-
tors but results in an inferior product. Armored vehicles destined
for export are sometimes equipped with armaments and sensors not
Brazilian EE-9 Cascavel armored personnel National Defense 0
carrier
Saudi Arabia. In the future we expect Singapore to
expand its product line through this type of assembly
operation.
Licenses have also been obtained from Israel, Finland,
and the United States for the production of small
arms, but efforts to manufacture indigenous assault
rifles and ammunition have not been successful. The
SAR-80 derivative of the M-16 built by Charter
Industries is not well regarded, and ammunition
produced by this state-owned corporation has a repu-
tation for breech explosions,
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Charter Industries of Singa-
pore's rifle plant
Singapore hopes to become a major service and repair
facility for military aircraft in the region, according to
attache and press reports. Last year, following the
reorganization of the Singapore Aircraft Industry
(SAI), a contract to overhaul Malaysia's A-4 Sky-
hawks was signed. According to attache reports, the
agreement was secured through political persuasion
and appeals to regional cooperation since SAI's price
was not competitive. Despite Singapore's reputation
for quality repair work, earnings from such activity
will be limited by the restricted defense budgets of
neighboring countries.
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Appendix E
The Koreas: Self-Sufficiency
and Political Competition
The defense industries of North and South Korea are
in large part the products of mutual hostility and
doubts about the reliability of their superpower pa-
trons. P'yongyang began to develop an arms industry
immediately after the Korean war, when the Soviet
Union demonstrated that it would not become actively
involved in defense. North Korean efforts to produce
weapons accelerated in the 1960s after the Cuban
missile crisis and the Sino-Soviet split. Seoul's efforts
in the 1970s were prompted by the North Korean
buildup, US plans to reduce the military presence in
the area following the Vietnam war, and Washing-
ton's encouragement for South Korea to become more
militarily self-sufficient.
Although their principal markets are for the most part
mutually exclusive, North and South Korea have used
arms exports in their competition for political support
among nonaligned nations. Both countries have prac-
ticed "military diplomacy" by selling or giving small
amounts of military equipment and services to Sub-
We expect this activity to continue as
long as the international legitimacy of both countries
remain in doubt. Both North and South Korea should
be able to maintain, if not expand, their sales in the
next few years with the Persian Gulf as their most
important market.
North Korea has focused its marketing activities
almost exclusively on countries with inventories of
Soviet-style weapons. During 1978-80 Libya was
P'yongyang's major customer with more than $450
million in purchases. A two-year hiatus in sales may
have ended late in 1982 with the signing of a Friend-
ship Treaty that calls for the exchange of military and
South Korea has sold more than $2 billion in arms
and military services in the past seven years, a
remarkable record for a country that 10 years ago did
not have a significant arms industry. Even with the
phenomenal growth in exports, South Korean officials
overestimated the arms market, and now many South
Korean defense industries are operating at 20- to 40-
percent capacity, according to US Embassy reports.
Seoul has in part blamed Washington for its difficul-
ties, citing the marketing restrictions and lengthy
review process involved in exporting weapons pro-
duced under US license. US Embassy reporting indi-
cates that South Korea has violated US restrictions in
a few isolated cases, but Seoul seems unwilling to risk
a major confrontation with Washington on this point.
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To bring its manufacturing capacity in line, South
Korea has announced a plan coupling the consolida-
tion of its arms industry with a new export drive.
cient and minor producers will be allowed to go out of
business. At the same time, South Korea will begin to
manufacture and market a "K" series of small arms
and crew-served weapons which have been under
development and whose sale is not restricted by US
law. The Ministry for National Defense (MND), for
example, may push sales of the KH- 179 howitzer once
suspicions that it is a cosmetically altered version of
the 155-mm artillery piece produced under US license
are resolved.
already has military construction contracts with Sau-
di Arabia, and Riyadh may reward South Korean
assistance to Iraq with additional arms purchases.
South Korea also stands to gain Arab contracts if it
limits its dealings with Iran.
South Korea will also continue to rely on its tradition-
al market in Southeast Asia. Seoul has a military
production agreement with Malaysia and has sold a
variety of ground forces and naval equipment to other
ASEAN states. However, economic difficulties facing
these states have forced them to curtail purchases.
Other regional markets are less promising. Attache
reports indicate that President Chou's recent trip to
Sub-Saharan Africa, which some media reports de-
scribed as an arms promotion tour, was not successful
from an arms sales standpoint. Only Nigeria appears
to have been persuaded to purchase any arms, a $20
million package covering artillery and ammunition.
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Appendix F
Egypt and Yugoslavia:
Replacing Moscow
Egypt and Yugoslavia are continuing their efforts to
reduce their dependence on Soviet arms by purchas-
ing Western arms and developing sizable domestic
defense industries. Arms sales by Cairo and Belgrade
are in large part a byproduct of their diversification
and self-sufficiency policies. As leaders of the Non-
aligned Movement and influential actors in the Mid-
dle East and Africa, Egypt and Yugoslavia have also
used arms exports to further their political interests.
Egypt has become an alternative supplier to countries
with Soviet equipment-Iraq, Somalia, Sudan, Tan-
zania, and Zambia. Yugoslavia has similarly hoped to
maintain the nonaligned status of Libya and Iraq by
We expect Egyptian sales to continue at their present
levels for the next few years. The proposed sale of 35
F-4 Phantoms to Turkey will guarantee about $600
million in 1983, and Egyptian plans to dispose of
surplus Soviet weapons should result in similar sales.
According to media reports, AIA hopes to produce a
tank and frontline aircraft before the end of the
decade, but we doubt these plans will materialize. The
prime candidate for the fighter is the F-20, but fiscal
and technical problems remain. This project, as well
as the rest of Egypt's plans for expanding its defense
industry, remain totally dependent on Saudi financial
support.
selling them arms.
Egypt, Saudi Arabia, and the Gulf states established
the Arab Organization for Industries (AOI) in 1975 to
reduce Arab dependence on outside suppliers for
military items. The AOI was to upgrade Egypt's
defense industries using Arab oil money. Saudi and
Kuwaiti refusal to fund the project after the 1978
Camp David agreements halted the program.
many of the workers and a
good deal of the production equipment at the five
plants designated for the AOI were left standing idle.
Egypt redesignated the AOI as the Arab Industrial
Authority (AIA)~-a wholly Egyptian-owned and op-
erated entity-and renegotiated for the assembly and
licensed production of British, French, and US weap-
ons. Currently the AIA is only assembling Alpha Jet
Yugoslavia is the largest Third World arms supplier
with sales totaling almost $3 billion since 1975. Iraq is
Belgrade's biggest customer, accounting for 70 per-
cent of arms sales. Yugoslavia has also sold small
arms and crew-served weapons and aircraft to Libya,
Ethiopia, Zambia, and Mozambique-which have
also received most of their military equipment from
Moscow.
currency markets.
Belgrade began to focus its defense industries on the
international market in 1974 when it created the
Directorate for Supply and Procurement in the Feder-
al Secretariat for National Defense to oversee arms
sales. Five years later, new laws were passed to unify
Yugoslavia's regionally controlled arms industries un-
der federal management. Prices for armaments were
set in accordance with the international market, and
provisions were made for foreign investment in the
defense sector. An arms exhibit in Nikinci was also
established to attract foreign buyers. According to
media reports, the current five-year plan calls for
increases in the domestic production of arms in
anticipation of exporting additional weapons to hard
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Recent reductions in funding for domestic defense
procurement have made arms sales a more important
source of revenue for defense industry modernization.
Yugoslavia, which produces 80 percent of its own
armaments and offers a wide variety of weapons jet
attack aircraft, armored vehicles, and submarines-to
foreign customers, remains dependent on the Soviet
Union for high-technology air defense weapons in-
cluding electronics, fighter aircraft, and tactical mis-
siles, Plans to
reduce this dependence include purchases from the
West and the indigenous development of more sophis-
ticated weapons. A new supersonic fighter, for exam-
ple, is being designed as well as a follow-on to the
Orao I attack aircraft codeveloped with Romania.
Problems with the production of the Orao, including
restrictions on the export of Western technology to
Romania, have led Belgrade to decide to produce
these two new planes independently
We expect Yugoslavia to remain a significant Third
World supplier, but it probably will not be able to
increase its market share even though it will continue
its aggressive marketing efforts. Recently, for exam-
ple, Yugoslavia has been in competition with Italy for
the sale of trainer aircraft and training to Zimbabwe.
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Appendix G
Libya and Saudi Arabia:
National Arsenals
Libya and Saudi Arabia export arms exclusively by
drawing on equipment stockpiled in their national
arsenals. Neither has an arms industry capable of
manufacturing weapons or the ability to provide
military or logistic support to its clients. Moreover,
both depend heavily on expatriate technicians to
maintain their inventories. In the past, Tripoli and
Riyadh have given weapons to regional clients. While
these shipments have not been large, many occurred
during international conflicts or after domestic coups,
thereby magnifying their importance. These two
countries have also provided financial assistance to
clients seeking arms from other suppliers,
Recent declines in oil revenues will probably not
affect the ability of both countries to make deliveries
of weapons and military equipment. We believe,
however, that cash-flow problems and a reluctance to
draw on reserves will reduce Libyan and Saudi will-
ingness to make major new aid commitments. More-
over, they may delay the purchase of new equipment
for their own inventories until their oil export pros-
pects improve, which would reduce the amount of
used equipment available for export.
Libya's principal recipients have been Syria and Iran.
Several Sub-Saharan states-Burundi, the Central
African Republic, Ethiopia, Ghana, Rwanda, and
Uganda-have also been the beneficiaries of Tripoli's
to Latin America by sending helicopters, light air-
craft, and munitions to Nicaragua. The IL-76 inci-
dent this spring was Libya's latest attempt to provide
Managua with military assistance. This pattern points
to Qadhafi's willingness to use such transfers to
patronize regimes with radical and revolutionary for-
eign policies.
We doubt that Libya has acquired any permanent
political gains through arms exports. Most recipients
probably welcome Libyan arms as a free good and
take a dim view of Libyan attempts to interfere in
structors in Ghana are reportedly escorted to and
from training areas, and there has been little fraterni-
zation with Ghanaian trainees after classroom hours.
Libyan ability to transfer arms is not directly related
to the size of its arsenal. In our judgment, an increas-
ing amount of the equipment Libya has purchased is
no longer in operational condition because of poor
storage and maintenance practices. Libya is unlikely
to develop the skilled manpower and procedures nec-
essary to arrest this problem and appears unwilling to
hire an adequate number of foreign technicians for
this purpose.
Libya is attempting to build an arms industry by
buying whole facilities on a turnkey basis. According
to our estimates, Libya has signed agreements to
purchase arms factories from Turkey and the Soviet
Union. Technical assistance from North Korea is also
likely following an agreement signed late last year. It
will be several years, however, before any of the
projects become operational. The creation of a cadre
of skilled labor for even a modest defense industry will
be a major problem for Libya.
We believe Tripoli is likely to continue to subsidize
arms industries in other Third World countries. Ac-
cording to trade journals, Libya financed the develop-
ment of the Italian S-211 jet trainer
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Saudi officials are also probably wary of endangering
It is possible that their own arms suppliers by making significant illegal
i ya might expect to receive a share of future transfers.
production from these projects in exchange for its
capital investment.
Saudi Arabia has exported $670 million in arms-
mostly small arms and ammunition-since 1975.
North Yemen has been the largest recipient of mate-
riel to date, having received F-5 aircraft, armored
vehicles, and other equipment to combat insurgents
backed by South Yemen. Infantry weapons and am-
munition were sent directly to Somalia in 1977-78
during the Ogaden war. Riyadh has only sent a few
artillery pieces to Iraq since 1979 but has played a
more important role of financier and conduit for arms
from other suppliers.
US Embassy reporting indicates that Saudi officials
believe that in noncrisis situations their arms transfers
and financing of arms purchases are less useful in
meeting the needs of states like Somalia than the
training and logistics programs which can be offered
by US and West European suppliers. We believe
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Appendix H
India and Pakistan:
Spares and Seconds
India and Pakistan will continue to play a modest, but
unique, role in the international arms market. Even
though neither state sold more than $160 million
worth during 1976-82, efforts to upgrade their de-
fense industries and to diversify their arms suppliers
have made them important conduits in the global
transfer of weapons technology. Moreover, their
armed forces modernization programs will probably
allow them to dispose of a larger quantity of surplus
weapons than they have in the past. Pakistan will also
continue to transfer advisers and entire military units
from its own military forces to friendly Arab states as
a means of financing its arms purchases
India has the Third World's largest armaments indus-
try but is not a major arms exporter. New Delhi's
armed forces consume almost all of the production of
its defense sector, which was built on the basis of
licensing agreements with the Soviet Union and the
West. In our judgment these agreements have been
necessary, in part, because of the consistent failure of
Indian industry to produce successful indigenously
designed weapons systems. The H-24 Marut fighter,
for example, underwent a 20-year design, develop-
ment, and production cycle that resulted in the manu-
facture of 100 underpowered, obsolescent aircraft,
according to media sources. Efforts to develop a main
battle tank, helicopter, and howitzer in the past few
years have been erratic and disappointing, according
to attache reports.
Prime Minister Gandhi
has initiated a new policy aimed at acquiring the
latest in technology for India's defense modernization
programs. This has resulted in the purchase of French
Mirage 2000 aircraft and West German submarines.
It has also caused the Soviet Union to offer license
production arrangements for its MIG-27 fighters and
T-72 main battle tanks. To help New Delhi pay for
these new agreements, Moscow has offered to allow
India to produce components and spare parts that can
be sold to the Soviet Union and its allies. The absence
of such provisions in previous license production
agreements had been criticized in the Indian press.
Such buy-back clauses and exclusive subcontacting
clauses may become a standard Indian demand in
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Pakistan has a comparatively small defense industry
that primarily manufactures small arms and ammuni-
tion. Sales of this equipment in the past have mainly
gone to other Islamic countries with which Islamabad
hopes to maintain close ties. Pakistan's biggest export
item, however, is its advisers and seconds which have
been dispatched throughout the Persian Gulf and
North Africa." More than 7,000 have been sent to
Saudi Arabia as an armored brigade in exchange for
Saudi financing of Pakistani arms purchases. More-
over, students from over 25 countries regularly attend
Pakistani military schools.
" Seconds serve in the military of the recipient nations while
maintaining their status as regular members of the armed forces of
Pakistan is upgrading its defense industries, but we
doubt this program will significantly improve Islam-
abad's arms sales prospects. Construction is nearly
complete on several vehicle and aircraft maintenance
centers which could perform work for other states in
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