Prepare mechanisms to deal with defense contract violations

Korea’s KF-21 supersonic fighter jet development project has hit a snag after Indonesia refused to pay some of the development costs it agreed to pay on the condition that it participates in the project. Indonesia said it cannot pay 1 trillion won ($733.1 million), citing a lack of budget. An official from the Defense Acquisition Program Administration (DAPA) said, “Indonesia proposed a readjustment of the money to 600 billion won until the project ends in 2026.” He added that DAPA is discussing with related ministries whether to accept the proposal from Indonesia.

The Korean government originally planned to develop the 4.5-generation fighters employing stealth technology with an 8.1-trillion-won budget to replace outmoded F-4 and F-5 Phantoms. The Defense Ministry intended to cover some of the development cost with exports of the new fighter jets. In the process, the government, the Korea Aerospace Industries (KAI) and Indonesia agreed to pay 60 percent, 20 percent and 20 percent of the development cost, respectively.

But Indonesia wants to reduce its share of the cost to one-third now that the KF-21 fighters are awaiting their deployment for real battles. International trade should be based on mutual trust. Indonesian engineers were even found to have attempted to steal sensitive technology from KAI’s factory in Sacheon, South Gyeongsang. Indonesia said it wants Korea to transfer technology just as much as it pays. That prompted concerns about the possibility of Indonesia having stolen the blueprint for KF-21 fighter jets.

The government said it’s not a big deal as it already saved 500 billion from the total cost, and the rest of the money can be covered by the government and KAI. But an inevitable increase in the production cost can weaken the price competitiveness of the fighters for export, not to mention more tax from the people.

The government must review all aspects of its weapons export policy. Last year, Korea received orders from foreign countries to supply them with 17.3 billion won worth of weapons, including the famous K-2 Black Panther tanks. The feat effectively elevated Korea to the ranks of top 10 weapons export countries for two consecutive years. The government even offered loans to foreign countries to help their purchase of weapons from Korea, followed by the National Assembly’s lifting of the upper limit of the loans to 25 trillion won from 15 trillion won per year.

But if an importer does not repay its loan after buying Korean weapons, the country may end up having the upper hand later. The government should naturally expand weapons exports, but it must also prepare mechanisms to prevent technology leaks and deal with importers’ abrupt refusal to pay the sum they agreed to pay.