Why the UN Arms Trade Treaty will be Good for Exporters

Alisa DiCaprio

The global arms trade is a lucrative business. In 2010, total arms transfers were estimated at US$40 billion. Despite the global recession, top producers in this highly concentrated industry continued to see a sales increase. Since 2002, global sales have grown by 60 per cent.

But it is also a shady business. During 2007-2011, Russian sales to Syria drove a 580 per cent increase in Syrian arms imports. From a human rights perspective, this decision was certainly questionable, but it was not illegal. That may soon change. At the United Nations last month, global leaders conducted negotiations towards an Arms Trade Treaty (ATT). If passed, it will introduce mandatory standards for weapons transfers. For example, by forbidding a sale if there is a ‘substantial risk’ of arms being used for illicit purposes.

Though July’s talks ended without an approved treaty text among all 193 countries involved, it is likely that negotiations will continue into a second round. There was wide agreement on the text, but for political reasons the US requested more time after domestic right-to-arms groups raised the alarm. Russia and China then also requested the same. The decision to move forward will be made in September’s General Assembly. This offers the opportunity to reflect on the opportunities the ATT presents to producers.

The global arms trade

In much the same way as the Agreement on Sanitary and Phyto-sanitary Measures of the WTO has increased food safety by standardizing some regulatory requirements, having one international standard for weapons sales makes good economic sense for exporters, who currently face multiple domestic and international regulations.

Figure 1: Top five arms exporting countries (2000-2011)

 Source: SIPRI Arms Transfers Database.

The dynamics of trade in arms is somewhat different from other manufactured goods. In 2011, the top five exporting countries (see Figure 1) accounted for more than 75 per cent of international arms transfers. Domestically, the sector requires a small, but highly skilled labour force, and is often a source of important technological innovations. And yet, arms exports ultimately provide limited revenue even for the largest producers (see Figure 2).

Figure 2: Total arms exports as a percent of total trade

Source: SIPRI Arms Transfers Database and UN Comtrade.

Are there economic gains from tighter regulation for arms producers?

The answer, in short, is yes. The first benefit is that one international standard will streamline the existing regulatory burden. Major exporters maintain domestic export control regimes. Since parts may be sourced internationally, producers need to understand and adhere to a variety of regulations. The ATT would introduce harmonization, thus facilitating trade.

The second benefit is that the ATT requirements would make it easier to assess the security repercussions of sales. In the case of trade in arms, the welfare of the producer is a function not only of income, but also of security outcomes.  Because weapons are durable goods rather than consumable, like bananas, the ability to accurately assess the intentions and legitimacy of the end user can improve welfare outcomes beyond just the date of sale. Arms sales have impacts in the long term, both because of the continuous demand for ammunition and repairs, and also because of the potential security threats. By requiring signatories to report assessments to a third party, information sharing will both make this process cheaper and make it clearer what needs to be assessed.

The third economic gain from an ATT is that, in the aggregate, it solves the co-ordination problem between governments, and provides a global public good. It is clear that regulating arms trade, like regulating intellectual property, has gains for both suppliers and consumers. But national regulations alone will not facilitate the outcomes sought by legitimate traders. A stronger regulatory environment will set out a coherent framework for all exporters to follow.

This is not the first time that attempts to limit trade in potentially deadly goods have been brought up on the global stage. In 1998, France attempted to prohibit asbestos-based insulation imports from Canada due to their cancer-causing qualities. Canada took up the issue at the WTO and argued that when used correctly, that outcome was impossible. They ultimately lost.

In this way, trade in arms is similar to asbestos. It is a legitimate feature of the global trade architecture, but the end use can upend the utility calculations made by the seller. The ATT will allow the UN to provide a public good to exporters that the WTO has been unable to provide.

Alisa DiCaprio, Asian Development Bank, and a former UNU-WIDER Research Fellow.

WIDERAngle newsletter
August 2012
ISSN 1238-9544