In 1986, then-President Ronald Reagan concluded that the machine tool industry was vital to national security. He had seen the results of a study revealing that the U.S. machine tool industry had been weakened by five years of steady domestic-market erosion caused by inexpensive machine tool imports. Commerce Secretary Malcolm Baldrige urged Reagan to invoke the powers to limit imports granted him by the Trade Act of 1962. That act gave the president broad authority to limit the importation of any product to protect the defense industrial base of the United States.
Instead, Reagan directed his trade negotiators to initiate talks with the principal machine tool suppliers to the United States with the objective of reaching a voluntary restraint arrangement (VRA) regarding their machine tool exports.
Reagan believed machine tools were critical to the health of our defense industrial base. However, the Trade Act of 1962 was invoked only one other time to limit imports for national security purposes — to place a restraint on oil importation in the 1970s. The act is considered exempt from the restraints of the World Trade Organization and by its predecessor, the General Agreement on Tariffs and Trade. This was because there is a general understanding that every nation has a right to limit imports critical to their national security.
Within half a year, agreements to limit such exports into the United States market were reached with Japan and Taiwan — the two nations with the fastest growing machine tool sales in the U.S. In addition, Germany and Switzerland were notified that their machine tool exports into the U.S. market would be monitored to ensure they did not take advantage of Japan's and Taiwan's restraint. The five-year (subsequently extended to seven-year) VRAs — justified by the threat to our national security that the loss of the machine tool industry would cause — were successfully negotiated with both Japan and Taiwan.
Such an effort to protect the U.S. machine tool industry would be out of the question today, despite the fact that foreign machine tools now have approximately 70 percent of the domestic market, in contrast to the 50-percent market share at the time of the original VRAs. What has happened in the intervening two decades? The premises underlying defense planning are now entirely different.
Twenty years ago our defense strategy contemplated the need for U.S. Armed Forces to be able to fight two and onehalf wars simultaneously. That was the calculation underpinning the VRAs. It was assumed that without a substantial domestic machine tool base, there would be insufficient surge capacity to respond to an emergency mobilization.
Current defense planning no longer contemplates those needs. Bush administration defense officials have stated that the current war-fighting scenario is based on a "come-asyouare" war, with re-supply dependent on whatever happens to be in current supplies at the time of hostilities, aided by the manufacturing capacity of our allies.
I would argue that the Iraq War has brought into question the new premises of current defense industrial-base planning. Other nations have refused to supply us with weapons components or manufacturing equipment, as happened briefly with the Swiss early on in the Iraq conflict. In this situation, the president has no power to compel a country to produce the needed product because the authority of the Defense Production Act ends at our borders.
Some Bush administration officials believe that it might be wise to review the current assumptions about what ought to be included in the defense industrial base. Rep. Duncan Hunter (R-Calif.), Chairman of the House Armed Services Committee, has voiced similar concern. Hopefully, such a review will occur before a future conflict finds us unable to obtain key warfighting materials in a timely manner.
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