Italy - Arms Export

Since 1992 the reduction of Italy's defense budget has created an urgency to turn to exports as a means of keeping supporting Italian defense industrial infrastructure. In the past, Italy has been a major exporter of armaments. In the 1970's and early 1980's Italy achieved significant success in the export of naval vessels. In subsequent years, however, due to a series of political, legal, financial and technological factors, Italy became progressively unable to maintain its previous market positions against the competition.

Italy's defense export profile declined significantly in the 1990s under three principal influences. The first was Italy's current export regulation, Defence Export Law No. 185. This was passed in 1990, triggered by political decisions to withdraw Italian commitments to provide naval forces to Iraq in the mid-1980's. The law contains many ambiguities and a complex set of approval and reporting procedures. The four years it took to pass the law also created a waiting period that curbed Italian defense industry's international activities.

The second factor of influence was the abrupt decline in international demand, coupled with the changes in global defense industries and markets that followed and the new era of a buyer's market supported by strong international competition. Italian industry was not prepared for the new market requirements and furthermore was the weakest of the European defense industries. The third factor was the glacial pace of transformation of the Italian Armed Forces to meet the new security conditions.

As of 2001 the United States was Italy's main customer. In addition to the United States, at that time Italy's top five arms export clients were the UK, France, Germany, the Netherlands and Sweden. Most sales were concentrated in the sectors of aircraft, heavy armaments and missiles. This concentration was a worrisome feature to Italian exporters who saw that the key to a healthier and more resilient arms industry resides in a significant expansion of exports into the non-NATO countries. Even with relative large volume of defense sales, Italy was the weakest among the four main European arms producers.

Both the Italian defense ministry and Italian industry were actively pursuing new external markets. Finmeccanica developed a cooperative relationship with Russian defense industry, signing an agreement in November 1995. The agreement initially focused on helicopters, jet trainers, and avionics, but is planned to be extended to include aircraft manufacture, satellite communications systems, defense industry conversion, radar technologies, and electro-optic sensors. The Italian armaments director visited Israel to explore the possibility of high-technology defense industrial cooperation. And, unknown to the Italian armaments ministry until it happened, Augusta separately signed an agreement with Israeli Aircraft Industries to bid on the Turkish attack helicopter procurement.

Part of Italy's new arms export initiatives focus on the training market. For example, in 1999, the Italian and Russian governments signed an agreement for joint development of an advanced trainer aircraft by Aermacchi SpA, the Yakovlev Design Bureau, and Sokol. The aircraft would be sold on the global market. The trainer reportedly can train pilots to fly the Russian Mig-29 and Su-27, the French Mirage-2000, and the US F-15 and F-16 fighters. The new trainer was competing in the short term against a trainer designed by Russia's VPK MAPO to supply the Russian Air Force. Italy's Alenia also had a joint venture with Lockheed Martin to produce C-27J Spartan tactical transports. By 2001 twenty seven aircraft had been sold to the Italian Air Force with additional purchases being considered by Australia, Greece, Switzerland, Malaysia, and Poland.

Italy has signed more than three dozen bilateral cooperative agreements in the 1990s. These included not only the NATO countries, but also those of Eastern Europe, the Middle East, North Africa and the Asian-Pacific region. The Asian-Pacific market is one of Italy's main targets. Naval customers include Malaysia, Thailand, Australia, and South Korea.

A significant risk to Italy's defense industry in terms of its ability to expand its participation in the global armament system lies in the complex approval process for the transfers of Italian arms to most non-NATO countries. Italy's arms export rules establish a long and complex approval process and this puts them at a disadvantage vis-a-vis their European competitors. As an example of how constraining Italy's export regulations are, Italy cannot authorize a partner in a joint cooperation program to export a final product. This means that Brazil, for instance, could not export the AMX light fighter with which it is engaged with Italy in a co-production effort without receiving Italian approval. These regulations, among the most restrictive of the European nations, prevent the Italians from being considered reliable partners in arms transfer agreements, joint ventures, and co-production agreements outside of the NATO community. NATO has learned to accommodate the Italian export regulations although such accommodation has cost Italy significant participation in the development of some systems for export to consumers outside NATO.

Italy also experienced problems stemming from US export control regulations. In June 1999 Alenia Aerospazio signed a contract with Eutelsat to deliver the Atlantic Bird I satellite to orbit by June 2001. Subsequently, Alenia contracted with China's Great Wall Industry Corporation to launch the satellite. US suppliers experienced delays in providing needed satellite components to Alenia because of US export control procedures. This prompted Alenia to start to switch to European or Japanese suppliers.

In 1998, the Italian defense ministry began to rethink the entire situation of Italian defense exports, resulting in the identification of several problems that are currently trying to be resolved. These are: difficulty in participating in European defense integration, whether via government-to-government agreements for cooperative developments, industrial mergers and acquisitions, or coordination of defense export policies; industrial difficulties stemming from the complexity and ambiguities of the export approval process; and inconsistent interpretation of export regulations by successive Italian governments, causing problems with fulfilling agreements previously made. Since then, some new procedures were introduced to simplify the export process, the government became involved in the development of offset packages to meet the requirements of international competition, and Italy strongly supports European defense integration. However further streamlining was still required if Italy's defense industry was to maximize its participation in the global defense market.