RDP MOU, the FTA in defense?
The author is CEO of Delta One LLC, a consulting firm on industrial cooperation between the United States and Korea.
On Dec. 13, 2021, U.S. Secretary of Defense Lloyd Austin signed a Reciprocal Defense Procurement (RDP) memorandum of understanding (MOU) with his Lithuanian counterpart to promote mutual industrial cooperation, improve acquisition of defense items, and increase interoperability between the two countries. This made Lithuania the 28th “qualifying” country with which the United States has signed an RDP MOU. Among the 28 countries, however, South Korea is found nowhere, while the Korean government is rigorously pursuing equal defense cooperation with and defense exports to the United States. Why has South Korea, a so-called blood tied ally, not yet signed an RDP MOU?
An RDP MOU provide a framework for communication regarding market access and procurement matters that enhance effective defense cooperation, promoting defense research, development, and production. Countries that have signed RDP agreements include the United States’ traditional NATO allies such as Canada, the United Kingdom, Germany, and France, as well as major non-NATO allies, such as Japan, Australia, Israel, and Egypt. In the 21st century, Eastern Bloc country such as Poland and the Czech Republic and former Soviet Union countries such as Estonia and Latvia have joined the RDP MOU club, standing shoulder to shoulder with the United States’ traditional allies.
The RDP MOU, so-called an FTA in defense, was first addressed by the Korean government in the late 1980s. The two governments have discussed it since then but could not narrow their differences between the U.S.’ demand for reciprocal, full access to the Korean defense procurement market and Korea’s concerns that its weaker defense industrial base would collapse under an RDP MOU. Thirty years later, some Korean government officials and defense companies still express fear and anxiety that the Korean defense industry will become subordinate to the U.S. under an RDP MOU. Their reasoning is that just as the Korea-U.S. Free Trade Agreement (FTA) took a toll on sectors such as agriculture, the more vulnerable defense industry of Korea would be severely hit under the RDP MOU.
However, the conclusion of the Korea-US RDP MOU cannot be delayed any longer.
First, unlike FTAs, the customer of defense products is the government. The Korean government, which pursues economic feasibility in the government procurement, opts for more economical products if the required performance is met. Therefore, even in a situation where Korean defense companies have to compete with U.S. companies, it is unlikely that Korean products, which have met the requirement performance and been delivered to the military, will give way to expensive American products. Of course, it would be a different story if the competing Korean products were of low quality and exorbitantly expensive while the American products had excellent quality and price competitiveness.
Second, an RDP MOU promotes joint development and production. This is the most programmatic and practical reason why an RDP MOU must be in place. Let’s take the example of Japan. The need for an RDP MOU emerged as the United States and Japan were pursuing joint development and production of advanced missiles. Such joint effort was being hindered by a U.S. federal law requiring domestic contents to a certain percentage and Japan’s policy restricting overseas arms exports. The U.S. and Japan signed an RDP MOU in 2016, which facilitated joint development and production of SM-3 missiles between Raytheon company of the U.S. and Mitsubishi Heavy Industries of Japan. It is because that the U.S. has determined it inconsistent with the public interest to apply restrictions of Buy American statute to the acquisition of qualifying country end products from the qualifying countries that signed the RDP MOU, and that joint development or joint production does not violate Japan’s three principles on arms exports. Japan is now co-developing a fighter jet with the United States. It is the RDP MOU that has played a pivotal role in removing the barriers to joint development and production. Korea boasts a strong and long-standing ROK-U.S. alliance, as strong as the U.S.-Japan alliance, but the reality is that there is no joint development or joint production project between Korea and the United States. An RDP MOU signed will contribute to the advancement of Korea’s defense technology as well as strengthening of its defense industrial base by accumulating national intellectual property through joint development with the U.S.
Third, there are political, diplomatic, and security effects. The United States does not simply use RDP MOUs to facilitate procurement on an equal footing with its allies. The three Baltic states that recently signed RDP MOUs — Estonia (2016), Latvia (2017), and Lithuania (2021) are ranked 108th, 94th, and 95th respectively in terms of military power as of 2022, according to the Global Fire Power. It is highly unlikely that the United States would have expected any substantial reciprocal benefits from these countries. Majority opinion is that the United States signed them to show off the strong relationship between these countries and to hold Russia and China in check. Therefore, the RDP MOU signing is also a symbolic political and diplomatic act that can strengthen and promote the alliance externally beyond the level of opening the defense procurement market.
Fourth, as the number of RDP MOU countries increases, the United States is expanding its defense supply chain worldwide. The United States does not have to look to Korea as the number of allies with which it can collaborate to develop and produce defense systems grows. Moreover, in order to maximize the use of U.S. goods, products and materials, the United States finalized the Buy American rule change in March 2022, which will require any goods purchased with taxpayer money to contain 75 percent U.S.-made content by 2029 in phase. This will make it more difficult for foreign products to enter the U.S. market. Despite criticism that such a change would increase costs and complicate businesses, Congress and the federal government responded that RDP MOU signatories could bypass the BAA and more positive partnerships with allies would be promoted. In such an environment, Korea “standing alone” will likely face a situation where it cannot move forward, blocked by the huge entry barrier although it desperately wants to enter the U.S. defense procurement market.
Back in February, Minister Eun-ho Kang, the Defense Acquisition Program Administration (DAPA), shared the vision for the development of Korea-U.S. defense cooperation during the CSIS — DAPA Conference on the U.S.-Korea Defense Cooperation in the Biden Administration in Washington, DC. “The U.S. and Korea should move toward the third generation industrial cooperation,” stated Mr. Kang. Following the first generation Military Assistance Program (MAP) and grants and the second generation industrial cooperation characterized by Korea’s arms purchases and technology development through technology transfer and technical assistance, and Korean companies’ supplies of parts to U.S. contractors under programs such as offsets, the third generation industrial cooperation refers to an extended partnership where the U.S. and Korea industrial bases and companies partner for joint R&D, production, and marketing so that the two countries can achieve a win-win. A RDP MOU signed, while strengthening the alliance and breaking down the barriers of BAA, will open the toll gate wide open for the two countries to enter the highway of the 3rd generation industrial cooperation envisioned by the Korean government.