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| August 30, 2001 |
Bipartisan Budget Battles
Colonel Daniel Smith, USA (Ret.), Chief of Research, dsmith@cdi.org
Vacation's over. School's back in session -- and next week so will Congress. It's time for both students and legislators to break out the slide rules and confront one of the three "R's" -- ‘rithmatic.
Congress' primary business will be the thirteen spending bills that fund the federal government in Fiscal Year 2002 (FY'02), which begins October 1. In case it slipped your attention while on vacation, Congress has not yet sent any appropriations measures to the President.
Congressional tardiness hasn't escaped the attention of the White House, however. On August 18, the President, in a speech to the Veterans of Foreign Wars, called on Congress to "have responsible spending from Day 1 [the first day back in session] and put the national security and education of our children first in line when it comes to the appropriations process."
Congress will have to act, but it should not be stampeded. After all, one reason no spending bills have been enacted is that details of the administration's spending plan for defense were not revealed until June. That delay is proving significant.
In an attempt to meet the October 1 start date for the new fiscal year, Congress enacted the FY'02 budget resolution [House Concurrent Resolution 83] in May. The resolution, based on the administration's request, provides a blueprint for spending across the federal government. Under the resolution, which seeks to match projected spending to anticipated revenues, an increase in spending by one department has to be offset by cuts in another. Failure to do so "busts the budget."
Rather than have the entire Congress engaged in re-balancing the numbers when a department's appropriation exceeds the amount allocated in the budget resolution, Congress empowered the chairmen of the two budget committees to make needed adjustments as long as the budget ceiling was not breached.
In setting the defense total at $325 billion in the budget resolution, Congress had used the administration's March "placeholder" budget which pegged defense spending at $324.8 billion. But in June, when defense budget details were released, the White House wanted $343.2 billion, $18.4 above its original estimate and 50.5% of all discretionary spending.
In June this didn't seem to be a problem; after all, there was a large surplus even without counting excess Medicare and Social Security trust fund income. The obvious way around the dilemma was simply to dip into the surplus.
Then economic reality hit. The $1.3 trillion tax cut, along with a weaker than expected economy and lower tax revenues, foreclosed this option. In early August, the non-partisan Congressional Budget Office (CBO) estimated that the federal government ran a $1 billion deficit in July. The administration's Office of Management and Budget tried to counter gloomy predictions of a zero surplus by forecasting an "on-budget" (excluding excess Social Security revenues) surplus of $1 billion for FY'01 and FY'02. But on August 28, CBO weighed in again. It changed the on-budget FY'01 "surplus" to a $9 billion deficit. Moreover, it estimated FY'02 would have a $2 billion surplus but FY'03 and FY'04 would have deficits of $18 billion and $3 billion, respectively, before surpluses returned.
In the Senate, budget chairman Sen. Kent Conrad (D-ND) observed that the President had "not proposed any way to pay for [the extra $18.4 billion for defense]. That means the money will come right out of the trust funds for Medicare and Social Security if his proposal were to be adopted."
The proposed defense increase fared no better in the House. Budget committee chairman Rep. Jim Nussle (R-IA) said he was unhappy about being asked to approve a major increase for defense with the Pentagon's Quadrennial Defense Review still incomplete. Saying it was "unacceptable" to pass a budget on "guestimates," Nussle vowed, "We're not just going to throw money at defense again."
Indeed, in a remark pointedly at odds with the President's plea that defense spending get top priority (if it's last, there may not be any money available above the budget resolution's $324.8 billion), Nussle refused the premise that defense spending, even in a Republican administration, is any "different from a number of other requests out there."
It's clear there's no money for the extra $18.4 billion for defense. Congress could cut other programs, but this can too easily mortgage the nation's future (collapsing infrastructure, inadequate schools, underfunded cutting-edge research) beyond the burden of a huge national debt. It could try fiscal sleight-of-hand, declaring certain spending an "emergency" and therefore not subject to budget ceilings. Or it could simply bust the budget.
Oh yes. It could apply the elegant solution of holding the defense budget to the original $324.8 billion. One doesn't need a slide rule to figure that out.
U.S. Leads World In Arms Exports
Rachel Stohl, Senior Analyst, rstohl@cdi.org
The Congressional Research Service (CRS) has released its annual report, "Conventional Arms Transfers to Developing Nations, 1993-2000," detailing trends in global arms transfers. The report revealed that the United States again leads the world in arms exports and that global arm sales have increased for the third consecutive year.
The CRS report (also known as the Grimmett Report after its author, Richard Grimmett) defines developing nations as all countries except the United States, Russia, the European nations, Canada, Japan, Australia, and New Zealand. The report examines the export of fourteen categories of conventional weapons: tanks and self-propelled guns, artillery, armored personnel carriers and armored cars, major surface combatants, minor surface combatants, submarines, guided missile patrol boats, supersonic combat aircraft, subsonic combat aircraft, other aircraft, helicopters, surface-to-air missiles, surface-to-surface missiles, and anti-ship missiles.
Worldwide, the United States ranked first in arms transfer agreements, making nearly $18.6 billion worth of agreements in 2000 for 50.4% of all agreements globally (1999 agreements were valued at $12.9 billion). Russia was second with $7.7 billion in agreements globally for 20.9% of the world total, and France was third with $4.1 billion in agreements. Arms agreements by these three countries totaled $30.4 billion, approximately 82.4% of the world total of nearly $36.9 billion. The United States also had the most arms transfer agreements with developing nations at $12.6 billion (49.7%). Russia ranked second at $7.4 billion (29.1%), and France was third with $2.1 billion (8.3%). Of particular note was the value of China's arms transfer agreements. These fell to $400 million last year, after a peak year of $2.7 billion in 1999. Pakistan remains China's main customer.
The United States led the world with arms deliveries as well. Globally, the United States made nearly $14.2 billion in deliveries (48.3%). The report notes that the United States has led this category for eight years in a row, "reflecting, in particular, implementation of arms transfer agreements made during and in the aftermath of the Persian Gulf War." The United Kingdom was second in global arms deliveries with $5.1 billion and Russia was third with $3.5 billion. The report points out that these three countries delivered approximately $22.8 billion worth of weapons in 2000, 77.5% of the world total (the total value of arms deliveries in 2000 was $29.4 billion). The United States was also first in terms of total arms deliveries to the developing nations with $8.7 billion (44.8%). The United Kingdom was second with $4.4 billion (22.7%) and Russia was third with $2.4 billion (12.4%) of deliveries to the developing world.
Arms transfer agreements with the developing world totaled over $25.4 billion in 2000, the highest in real terms since 1994, according to the report. Arms agreements with the developing world made up 69% of the world total in 2000. The United Arab Emirates led the developing world in arms transfer agreements in 2000 with $7.4 billion worth of agreements. This total includes the $6.4 billion deal the U.A.E. made with the United States for 80 F-16 fighter jets. India was second in the developing world with $4.8 billion worth of agreements and South Korea was third with $2.3 billion.
Arms deliveries to the developing world were valued at $19.4 billion in 2000, a decrease from 1999 when the developing world took delivery of $26.2 billion worth of arms. The developing world received 66% of the world's arms deliveries. Saudi Arabia ranked first in arms deliveries in the developing world, receiving $7.3 billion in weapons, for 37.1% of the developing world total. China was second with $1.6 billion in arms deliveries, and Egypt was third with $1.3 billion. The report points out that six of the top ten recipients of arms transfer agreements in the developing world in 2000 were from Asia and four were in the Near East.
While increased U.S. arm sales mean profits for U.S. industry, there are negative effects of increased U.S. arms sales. The World Policy Institute reports that the "United States has supplied arms or military technology to parties to 39 of the 42 active conflicts worldwide, more than 92%" and that "while in some cases the levels of U.S. arms and training were relatively modest, in well over one-third of the conflicts -- 18 of 42 -- the United States was a major supplier, providing anywhere from 10% to 90% of the arms imported by the government party to the dispute." Further, the World Policy Institute estimated that approximately $6.8 billion of U.S. arms deliveries in 1999 violated the basic standards of the congressionally-mandated International Code of Conduct on Arm Sales. In addition, when developing nations spend their resources on sophisticated weapons, it means less money for other projects, such as strengthening their social, political, and economic infrastructures.
For more information on the CRS report see, "U.S. Still Number One Arms Exporter," Weekly Defense Monitor, August 24, 2000, "Developing World Receives $28.6 Billion in Conventional Arms in 1997," Weekly Defense Monitor, August 28, 2000, and "Developing World Remains Attractive Arms Market," Weekly Defense Monitor, August 12, 1999.
Taiwan To Open Links with the Mainland: A Major Turning Point in Relations
Nicholas Berry, Senior Analyst, nberry@cdi.org
"In 20 or 30 years, we'll look back at this as the day it all began to change," said a Taiwanese official commenting on his government's decision to open wider and direct economic links with mainland China.
Taiwan's overall relations with China are on the threshold of a new era. The process of change will begin with closer economic ties and will likely end with political ties so close that in 20 or 30 years reunification across the Taiwan Strait could become painless.
How did this major turning point come about?
Under considerable pressure from Taiwan's business community, President Chen Shiu-bian in early summer appointed a 120-member Economic Development Advisory Council charged to review economic relations with the mainland. Since the "no haste, be patient" policy of the previous president -- in fact since the establishment of the Republic of China on Taiwan in 1949 -- trade, direct investments, transportation, communications, and other links with the People's Republic of China have been highly restricted. Taiwan officials feared that a heavy dependence on the mainland's economy would erode the island's autonomy and subvert its government.
A combination of factors influenced Chen's decision to reverse policy. Pressure by Taiwan's business leaders has grown as Taiwan's economy weakened. Taiwan's gross domestic product contracted 2.35 percent in the last quarter and is not expected to recover in the current quarter. Unemployment continues to rise. The stock market has tanked. In contrast, China's booming economy, its inexpensive and technologically-talented labor pool, cheap land, and the imminent adherence of both parts of China to the legal framework of the World Trade Organization (WTO) have made expanding economic relations highly attractive. Chen undoubtedly saw the policy shift as helping Taiwan's economy move out of recession, and thus helping reverse his slide in the popularity polls. In addition, the United States for years has urged Taipei to expand relations across the Strait.
Chen pledged that if the Advisory Council -- consisting of entrepreneurs, scholars, officials, parliamentarians, and labor leaders -- produced recommendations by consensus then he would approve them. On August 26 the Council did just that. It recommended 300 measures to improve Taiwan's economy. Chen immediately endorsed the panel's specific recommendations for removing a long list of restrictions on trade and investments with the mainland, including:
Many of the changes will require negotiations with Beijing, whose officials were apparently caught off-guard by the sudden reversal of Taipei's policy. Early reports from the mainland indicated that Chen's acceptance of the "one-China principle" and rejection of Taiwan independence would be pre-conditions for closer economic ties, but that position has so far not been repeated. One senior Chinese official stated that Beijing will take a wait and see attitude, perhaps indicating that no consensus yet exists on how to respond.
Beijing is certainly in somewhat of a dilemma. It has called for closer ties under the one-China principle, believing that economic integration would eventually produce political unification. But Taiwan is taking the initiative. More Taiwanese -- now numbering perhaps over a half million -- will live and work on the mainland, and they will represent and exhibit values of freedom, the rule of law, and cosmopolitanism that would inevitably infect the mainlanders. Still, a long-range perspective would likely convince the mainland's leadership that Taiwan's new policy should be accepted.
Proof that an acceptance would promote integration comes from statements by the Taiwanese themselves. As reported by Tyler Marshall of the Los Angeles Times, officials in Taipei are well aware "that Sunday's decisions constituted a watershed in the island's relations with the mainland." Tyler cited Tsai Ing-wen, chairwoman of Taiwan's Mainland Affairs Council, who understands the stalemate-breaking implications of the new policy. "This is a clear demonstration from our side that we are prepared to take the risk and take a positive attitude toward China," said Tsai. "It is a significant step." Koo Chen-fu, Taiwan's chief negotiator with the mainland, expressed similar views. "Starting with economic integration, the two sides can increase their exchanges on other fronts."
The benefits are clear. China will find Taiwan drawing closer, providing technology, investments, and jobs, and strengthening the Chinese identity of the Taiwanese (and pride in Chinese achievements). Taiwan will expand its market, reduce the military threat across the Strait, and help modernize and transform China.
Perhaps it is too early to call Taipei's "active opening" a turning point in Chinese history, but it has that potential.
FACT SHEET: U.S. Forces in Macedonia
For more information contact Tomas Valasek, Senior Analyst, tvalasek@cdi.org
On August 22, 2001, NATO ordered the deployment of a 3,500-strong mission in Macedonia. Operation "Essential Harvest" is tasked with collecting weapons from ethnic Albanian insurgents under the terms of an agreement between the fighters and the government of the Republic of Macedonia. NATO troops arrived at the invitation of the Macedonian government, and are scheduled to complete their weapons collection within 30 days.
Operation Essential Harvest is commanded by Danish Major General Gunnar Lange and manned primarily by troops from European NATO allies. United Kingdom leads the contributions with over 1,900 troops in Macedonia.
The United States is only acting in a support role, putting at NATO's disposal a portion of U.S. personnel and facilities in neighboring Kosovo. These include:
U.S. troops in Macedonia also include around 550 personnel at Camp Able Sentry near Skopje, Macedonia. Camp Able Sentry is actually a part of NATO's peacekeeping operation in Kosovo and not the disarmament mission in Macedonia. It serves as a staging base for U.S. troops in Kosovo and an entry point for all supplies and equipment for U.S. peacekeepers there. The primary unit assigned to Camp Able Sentry is an element of the 101st Airborne Division, around 200 strong. Camp Able Sentry provides only limited logistical support for NATO troops in Macedonia.
Sources: NATO, U.K. Ministry of Defence, U.S. European Command
Not All Treaties Are Equal -- During a press discussion on August 28, Assistant Secretary of Defense for International Security J. D. Crouch said: "START I is a treaty that is in force, and the United States has absolutely no intention of leaving START I or changing its parameters in any way." he later said: "The ABM Treaty...ensconces an adversarial relationship. It's based on the idea that there is stability in the ability of the United States and Russia to blow one another up." Given that START I left each side with approximately 6,000 deployed warheads, it would seem that it too "ensconces an adversarial relationship." On the other hand, the ABM is also "a treaty in force." It's also the one keeping the Bush Administration from fully pursuing its pet project -- developing and deploying a national missile defense system.
Communities Dealing Successfully With Base Closures -- According to Barry Holman, the General Accounting Office's (GAO) Director of Defense Capabilities and Management, most communities affected by military base closings are "fairing well," although some may need as much as 20 years to recover. GAO found that seven of ten communities hit by base closures have unemployment rates at or below the national average. GAO also found that environmental cleanup at former military facilities often takes longer and costs more than expected to complete. See Mr. Holman's testimony, "Military Base Closures: Overview of Economic Recovery, Property Transfer, and Environmental Cleanup," (GAO-01-1054T), August 28, 2001.
Newport News Acquisition Okayed? -- According to The Wall Street Journal, Pentagon sources are saying that the Defense Department is willing to allow the sale of Newport News Shipbuilding, despite the potential loss of competition in the submarine industry. Both General Dynamics, the nation's other builder of nuclear submarines, and Northrop Grumman have tendered bids for Newport News, which builds nuclear aircraft carriers as well as submarines. DoD sources indicate that potential cost savings from the Newport News sale outweigh the competition issue. While the government has yet to okay the deal, the majority of Newport New's shareholders have already tendered their shares for sale to General Dynamics.
DoD Certifies Three Civil Support Teams -- The Defense Department has certified three National Guard Weapons of Mass Destruction Civil Support Teams (WMD-CST), in California, Illinois and Pennsylvania as "proficient in all mission requirements." The teams are intended to assist civilian authorities in responding to a domestic incident involving weapons of mass destruction. These three units are part of ten originally authorized by Congress in 1999, nine of which have now been certified. In all, Congress has authorized 32 WMD-CSTs.
Quotation of the Week -- "I am very worried that in all this rhetoric about the budget, we're not going to take care of national security when we have a surplus. It should be the number one priority of this nation. Nussle and Conrad are budget guys. Their expertise is on the budget, and both of them are wrong," Rep. Norm Dicks (D-Wash.) on the unwillingness of Budget Committee Chairmen Rep. Jim Nussle (R-Iowa) and Senator Kent Conrad (D-N. Dak.) to use a portion of the Social Security surplus to fund the Administration's proposed $36 billion Pentagon spending increase, The Washington Post, August 29, 2001.
This Week on America's Defense Monitor: "Is China a Military Threat?"
The United States put China back into the strategic war plan last year after a hiatus of two decades. Now the two countries view each other as potential nuclear adversaries. How did we arrive at this juncture and are we headed toward a nuclear show-down?
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