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Arms Makers Lobby For A Level Battlefield

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Since the late 1980s, U.S. shipbuilders have watched glumly as coveted orders from Turkey for eight new naval frigates went to Germany's Blohm & Voss shipyard. Unable to offer the government financing available from German competitors, American yards weren't in the running. This time, as Ankara prepares to spend $4 billion on up to 10 more frigates, U.S. defense companies are lobbying to end the financial handicap they say has hurt contractors as they vie for business abroad.

The industry's push for $2 billion in loan guarantees comes just as the Clinton Administration is finishing a broad review of its policy on conventional-weapons sales. Contractors, backed by an Aug. 18 letter to the President from four senators, are urging that support for the program be included in the study, which is expected to reach Clinton's desk in September. But the issue has divided the Administration. And even if the industry wins the internal White House debate, defense contractors face a tough fight on Capitol Hill, where ideological opposition to financing weapons exports runs high.

The export financing drive comes at a fateful time for the industry. With Pentagon orders dwindling, exports are vital to keep production lines going. The Defense Dept.'s recent decision to consider delaying or canceling the F-22 fighter, the Comanche helicopter, and other military aircraft contracts makes foreign sales even more imperative.

But while European export-import banks offer concessionary financing to grease exports by European arms makers, the U.S. Export-Import Bank is legally barred from supporting arms sales. The defense industry bristles at the moralistic rationale for the ban. "Once a defense sale has gone through the rigorous export-licensing process and been approved, it should be treated like any other export," says Dan Howard, a vice-president with Unisys Corp.'s government systems group and former Navy Under Secretary.

RESERVE FUND. Unisys plans to team with Bath Iron Works to bid for the Turkish frigate order, a sale Howard says requires government loan guarantees. Likewise, Rockwell International Corp. has little chance of winning $200 million in fighter upgrade business from Greece without government support.

To mute opposition from arms-control advocates, defense contractors are proposing a loan-guarantee scheme that would apply only to sales to NATO allies and a few other industrialized countries. And the plan would not require that Congress appropriate funds to set up a reserve for defaults. Instead, a country applying to the Pentagon for a loan guarantee would make a 15% cash downpayment, a portion of which would help establish a reserve fund. In return, the country could receive a lower interest rate because of the loan guarantee.

The Pentagon is backing contractors, because exports help reduce the unit cost of weapons. But some top State Dept. officials get queasy at the notion of official support for arms exports. And others question the industry's need for help. According to Congressional Research Service figures, U.S. suppliers accounted for 70% of arms-sales agreements worldwide last year. "People will continue to want [Lockheed Corp.] F-16s and [McDonnell Douglas Corp.] F/A-18s without favorable financing," says one Administration official. Ultimately, support for export guarantees will depend on whether the Administration believes the political good will generated by preserving defense jobs in California and other vote-rich states outweighs the flak from arms-sales foes.Amy Borrus in Washington

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