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273. Memorandum From Secretary of State Vance to President Carter 1

SUBJECT

  • Lockheed’s Request for Amendment to the International Traffic in Arms Regulations Concerning C–130 Aircraft

This memorandum requests your decision on a request by Lockheed that the C–130 military transport aircraft manufactured by that firm be removed from the category of “significant combat equipment” on the United States Munitions List. This administrative designation causes the C–130 to be within the definition of “major defense equipment” contained in the Arms Export Control Act. That Act prohibits commercial sales to non-NATO countries of major defense equipment under contracts of $25 million or more, thus requiring that foreign sales of three or more C–130s be handled under the Foreign Military Sales (FMS) program. Lockheed complains that the FMS procedures are unduly protracted and that without commercial sales the production line may have to close before the company receives sufficient FMS orders to continue its operation. Also relevant, although not mentioned by Lockheed, is the Defense Department’s estimate that Lockheed receives approximately $500,000 more for a commercially sold C–130 than for one sold under FMS procedures.

Background:

Since January 1969, most major items on the Munitions List, including all listed military aircraft, have been designated as “significant combat equipment.” The original consequence of designation as “significant combat equipment” was that an export license would not be given for commercial sale of a designated item unless the foreign purchaser had given the Department of State direct assurances against retransfer.

Last year, the significant combat equipment designation was given additional legal significance by being made a part of the definition of “major defense equipment” in the Arms Export Control Act. Munitions List articles which, like the C–130, fall within the definition of major defense equipment are subject to additional controls under the Arms Ex[Page 683]port Control Act, including the limitation that export licenses may not be issued for commercial sales of $25 million or more to non-NATO countries.

Significant combat equipment designation has also been proposed as a criterion for determining which arms sales proposals by U.S. firms will require prior State Department approval.

Evaluation of Lockheed’s Request:

Our view, shared by the Department of Defense, is that Lockheed’s problem is a temporary one and is not as grave as the company describes it. There is little effective competition for the C–130 and foreign demand for this versatile, reliable aircraft remains high. The Secretary of Defense met with the President of Lockheed-Georgia, Mr. Robert Ormsby, on June 16,2 to discuss ways in which FMS procedures could be expedited and possibly inequitable features concerning cost reimbursements to the manufacturer could be improved. We understand that steps are being taken by the Department of Defense to offset some of the present slack and thus enable Lockheed to continue C–130 production, even though major foreign sales will have to be through FMS rather than commercial channels. Accordingly, a change in the International Traffic in Arms Regulations does not seem necessary.

If the regulations were changed as requested by Lockheed, we would doubtless receive many requests for equal treatment from other affected companies. Lockheed’s argument that the C–130 is “nonlethal” would apply equally to many other items of significant combat equipment. With respect to military aircraft alone, we could expect requests for similar relief from the manufacturers of tanker aircraft, helicopters, trainers and military aircraft designed for surveillance, reconnaissance, mapping, etc.

While we have received a number of expressions of Congressional interest on Lockheed’s behalf, we have not heard from those members of Congress who have no direct constituent interest in this matter, but who are advocates of arms transfer restraint and whose cooperation will be necessary for the successful implementation of your policy. Some of these members would probably be concerned with a decision that encouraged the use of the less stringently controlled commercial channels for sales of military aircraft.

In sum, we believe special relief for Lockheed is not warranted and would risk creating doubts in industry and Congress regarding the Administration’s resolve to control and restrain arms transfers.

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Options:

You could direct amendment of the International Traffic in Arms Regulations, either by deleting the C–130 from the Munitions List or by deleting it from the definition of significant combat equipment. For the reasons set out above, I believe that neither action should be taken at this time and that we should, instead, seek to remove any legitimate complaints by Lockheed through improvements in FMS procedures.

Recommendations:

That you authorize the Department of State to inform Lockheed that the C–130 will continue to be designated as “significant combat equipment” and that we will seek to improve FMS procedures concerning its sale.3

  1. Source: Carter Library, National Security Affairs, Staff Material, Global Issues, Mathews Subject File, Box 4, Arms Transfers: Policy (General): 6/77–4/79. No classification markings. In the upper right-hand corner of the first page of the memorandum, Carter wrote “To Cy. J.”
  2. A record of this conversation has not been found.
  3. Carter checked the “Approve” option, and wrote underneath “Cy—Let me know what specifically is done re FMS procedures. It seems to me that a non-weapon configuration would make it possible to sell C–130’s with minimum delay. It’s a good safety valve to retain friendly relations & not violate offensive weapons constraints. J.C.”