09 May 03. The F.T. reported that the US Congress is refusing to waive restrictions on the sale of military items to allow the administration to enter into defence trade agreements with its two closest allies in the war on Iraq, Britain and Australia.

The powerful House international relations committee this week rejected an administration request for such a waiver, saying that it could set a precedent for future agreements that might allow US weaponry to be diverted from Europe to US adversaries. In a strongly worded letter to Colin Powell, the secretary of state, Henry Hyde, the committee’s chairman and a Republican, said that proposals to ease US export controls “seem unwise and particularly incongruous with the increased threats to US security and foreign policy interests since the attacks of September 11, 2001”.

In the May 5 letter, obtained by the Financial Times, Mr Hyde said that recent evidence of arms sales to Iraq in violation of the international embargo “suggest very strongly the need for the United States to maintain a comprehensive and stringent system of control over all military exports, and to insist that other governments, particularly our friends and allies in Europe, do the same”. The committee’s action jeopardises defence trade deals with the UK and Australia that have been nearly three years in the making. The State Department said that without a waiver it would be “very difficult, if not impossible, to conclude an agreement”. Both countries have said that closer defence co-operation with the US on projects such as the Joint Strike Fighter is seriously impeded by the difficulty US defence companies face in exporting even routine military items such as engine components. In addition, foreign defence companies are barred from the documents needed to bid for most Pentagon weapons contracts, while export licences are required before even unclassified military information can be shared with foreign nationals working in defence companies. The administration is in the middle of a review of defence trade controls, to be completed in June, in whhich the White House had beenpushing for an easing of restrictions on trade with other US allies as well, possibly including France, Germany, Italy, Sweden and Spain. A report from the Centre for Strategic and International Studies said the current control system “expends enormous resources on trivial and unimportant security risks”.

A British official said he was “extremely disappointed” by the congressional action. He said that while Congress might be concerned about the precedent, “I do not see it as a justification for putting a block that will take at least a year to unscramble”.An Australian official said that, as an “enduring ally” of the US, “we expect to be treated well as opposed to being treated as antagonists in the process”.

An aide to Mr Hyde said that the committee did not want to block the deals with the UK or Australia, but wanted instead a narrowly crafted waiver that would minimise any deviations from current export control laws. But he said Mr Hyde was determined “to ensure that the broader relaxation of export controls contemplated by the administration does not come to pass”.

Comment: This report in the F.T. and Scott’s piece on increased R&D spend confirms our worries expressed in the April issue that the R&D gap between the U.S. and Europe is widening. This announcement by the U.S. will worry participating nations in the F-35 JSF contract who have put up large sums up front, in the UK’s case, $1.5bn, for a share in the project. If the IP is left solely in U.S hands, these sums would be nothing more than up front payments with little hope of any in-country build in the UK in particular.