In 1999 the US Department of Defense (DoD) spent more than $36.5 billion on research and development (R&D), a figure greater than reliable estimates of the entire defence budget of any given country.

The gap between US R&D and that of its NATO allies can be highlighted by the fact that other European NATO countries combined spend about one-ninth of the US figure on R&D. This gap is aggravated by individual national agencies or companies duplicating the R&D activities of neighbouring countries. The concern is that while, to draw an analogy, individual countries are not re-inventing the wheel, they are each building identical wheels for a similar car.

It is this situation, in addition to smaller overall defence budgets, which some in the USA believe is creating a three-tier NATO, with the USA as top tier; the UK and France next; and finally the remaining NATO European countries. If this is occurring - and such a scenario is supported by the fact that, excluding France and the UK, NATO European governments spend only $1.9 billion annually on R&D - then full NATO interoperability is further away than feared and a new approach to industrial R&D is required.

NATO European defence budgets have been falling for the past decade. Since 1995 defence expenditure for these countries, excluding new members, plummeted by $32 billion from $167.3 billion in 1995 to an estimated $135.2 billion in 1999. R&D for the same group of countries fell from $11.9 billion to $8.9 billion and there is no sign that this trend is about to be reversed. The situation accentuates difficulties already faced by many European companies trying to keep pace with the USA and widens the gap between indigenous and US-exported technology operated in these countries.

Based on the premise that none of the lagging countries is planning to inject more funds into R&D in the medium term, an alternative solution may already be coming to fruition through the broad brush, seismic industrial consolidation that began early last year. The merger of DaimlerChrysler Aerospace (Dasa), CASA and Aerospatiale Matra to create the European Aeronautic Defence and Space (EADS) company, and the creation of BAE Systems through the merger of British Aerospace and Marconi Electronic Systems could both improve how R&D is carried out in Europe, but for different reasons.

EADS should provide the opportunity to reduce identical or similar research previously carried out by individual companies and remove duplication. One example of such work is the Taurus and Scalp EG/Storm Shadow long-range air-to-surface missiles, which were originally developed by Dasa's LFK and Matra BAe Dynamics respectively but offer similar capability. R&D funding for Taurus, which is still in development phase, could be re-directed to other programmes, removing one example of duplicated R&D within Europe.

In comparison, BAE Systems has stronger defence links with US companies and the DoD has said it will be considered as a US company because of its extensive operations in the USA, allowing it greater access to US technology. This co-operation with the USA to provide access to technology, and also a larger customer base for developed subsystems, is an alternative to releasing R&D funds through the removal of duplication.

The challenge of multinational European programmes requiring R&D was highlighted in the Horizon Project, which was to provide the platform for a common new-generation frigate (CNGF) for the UK, France and Italy. Project Horizon was ultimately scuppered as a trinational programme because of difficulties over industrial and management structures of the programme. Development of the CNGF ultimately floundered because of differing government perspectives, reducing the possibility of common R&D funding. The silver lining to the programme's failure is the commitment of the three governments to the CNGF's Principal Anti-Air Missile System (PAAMS), which was developed through joint R&D.

UK Ministry of Defence (MoD) Chief of Defence Procurement Sir Robert Walmsley said the government was confident that R&D investment in Horizon would not be wasted, with most of it to be carried through to the Type 45 programme, which has taken over from Horizon as a replacement for the UK Royal Navy's Type 42 frigates (Jane's Defence Weekly 7 July 1999).

The US DoD and US companies have also become more willing to allow greater access to technology, particularly its transfer to the UK. This is demonstrated by Northrop Grumman's failed bid for the UK's Airborne Stand-Off Radar (ASTOR) requirement; Raytheon's bid for the UK Royal Air Force's (RAF's) Beyond-Visual-Range Air-to-Air Missile (BVRAAM) requirement; and the continuing competition for the USA's Joint Strike Fighter programme, which has seen leading UK companies co-opted on to US bidding consortia as partners to boost the chance of sales into the UK.

The Northrop Grumman-led Wizard consortium offered access to the latest radar technology in its ASTOR bid and co-operative development of new radar systems. Wizard had offered UK companies the opportunity to take part in the Radar Technology Insertion Programme, which was being carried out as an upgrade for deployment on the US Air Force's Joint Surveillance and Target Attack Radar System as part of its ASTOR bid (JDW 30 September 1998).

Raytheon has taken a similar approach in its bid for BVRAAM, which will arm the RAF's Eurofighter multirole aircraft. Raytheon has offered to make UK companies equal partners in the future development of the ERAAMplus (Extended-Range Air-to-Air Missile plus), which it is offering for the requirement.

The greater openness of US companies comes in the face of shrinking budgets and follows increased pressure from industry lobby groups in the USA for the DoD to release more technology and improve the export approvals process.

Despite the possibilities of Europe-wide or transatlantic procurement, this is only likely to alleviate rather than solve the problem of a transatlantic gap in capability.

Chief Executive of the UK's Defence Evaluation and Research Agency (DERA) John Chisholm said the situation of a "three-tier" coalition described by some in the USA could still deteriorate further.

"The technology of the digitised battlefield could make this worse, with much of NATO unable to join in rapid manoeuvre warfare alongside the USA," Chisholm said. He added that the technological capability gap, caused by lower R&D funding, has led "some in the USA to argue that to overcome this the US government may need to give European defence industries significantly more access to US military technologies".

Chisholm said a major concern in such a circumstance is that it could lead to an equivalent problem to the "humanitarian aid dilemma" where providing "needy people with free food destroys the local cash crop economy".

"US technology handouts could undermine national innovative industries and inhibit their ability to grow respectable capabilities," he said.

Chisholm said the end of the Cold War reduced the urgency to develop systems to defend against perceived threats from the Warsaw Pact and the issue of casualty-free war has increased in the importance of where R&D is spent.

"In the world of 2000 the dilemma of industry over R&D is whether the investment needed to develop the next-generation products, both by industry and governments, can actually be afforded and profitably recovered," Chisholm said. In this scenario, according to Chisholm, the days of defence spending that could develop the B-2 bomber are gone, "unaffordable under today's lean defence budgets".

(Jane's Defence Weekly April 5, 2000)