With the opening of the Defense Acquisition Program Administration, the specialized system has been abolished

[Kim Min-wook, Editor-in-Chief of Monthly Defense and Technology]The 18th Presidential Transition Committee for the inauguration of the Lee Myung-bak administration selected "Transforming the Defense Industry into a New Economic Growth Engine" as a national agenda in February 2008, with the aim of enabling the defense industry to play a new driving role in national economic growth. Subsequently, when reorganizing the 100 national agendas of the Lee Myung-bak administration on October 7, 2008, "Transforming the Defense Industry into a New Economic Growth Engine" was included as one of the 100 national agendas.

The main content was to foster the defense industry as a new growth engine, setting a goal to reach the level of the world's top seven countries in defense industry exports and defense technology by 2020, and to promote achieving annual defense industry production of 10 billion USD, annual exports of 4 billion USD, and employment of 50,000 people. This policy reflects the expectation and will that defense exports could become one of the new drivers of economic growth.

▲ Abolition of Specialization and Affiliation System and Introduction of a Fully Competitive System= Regarding the promotion of the defense industry, the most significant policy change during the improvement of the defense acquisition system and the establishment of the Defense Acquisition Program Administration (DAPA) was the abolition of the specialization and affiliation system.

The specialization and affiliation system played a pillar-like role in leading the growth of South Korea's defense industry, but its abolition marks a milestone for the Korean defense industry to move away from protection and nurturing toward openness and competition. The specialization and affiliation system is a unique defense industry protection and nurturing policy found only in South Korea. Although other advanced defense countries often grant exclusive rights to specific companies, this is usually due to market structure inevitabilities or policy decisions, and no other country is known to have explicitly designated and operated such a system by regulation as South Korea did.

The purpose of introducing the specialization and affiliation system was to secure a stable supply source for weapon systems, promote defense industry technology development, enhance expertise, and prevent redundant investments at the national level. In other words, it was expected that by entrusting specific companies with development and production tasks in certain fields for a long period, they would serve as stable supply sources while securing technological expertise.

However, from the mid-1990s to the early 2000s, awareness began to emerge that the protection and nurturing system of the defense industry was acting as a factor hindering the competitiveness of the defense industry. As a result of the long-term implementation of the specialization and affiliation system, companies designated as specialized or affiliated tended to rest on their vested interests, showing weak incentives for cost reduction efforts or technology development, and there was critical public opinion that the entry barriers for technologically capable small and medium-sized enterprises (SMEs) into the defense industry were high. To overcome these drawbacks of specialization and affiliation, the perception that a transition to a fully competitive system was necessary spread, but opposition was also significant, so the system was gradually opened up through prolonged debate.

Then, during the Roh Moo-hyun administration, as part of improving the defense acquisition system, the existing "Special Measures Act on Defense Industry" was abolished, and the "Defense Acquisition Program Act" was enacted in January 2006, deciding to abolish the specialization and affiliation system.

To mitigate the shock of sudden implementation, a three-year grace period was set, and the system was completely abolished as of December 31, 2008. Since then, the expansion of multiple designations of defense materials and other measures to increase openness and competition have been promoted, and the protection and nurturing policy stance has gradually declined. Especially, as bureaucrats from government economic departments began to enter the Defense Acquisition Program Administration, voices advocating that the defense industry should follow market economy principles increased, and policies have been promoted focusing on expanding competition up to recent times.

Ignoring the unique characteristic of the defense industry, where the state is the sole demand entity, the dominance of market economy logic from the civilian sector in policy began to appear. As a result, in some large projects such as wheeled armored vehicles and TICN, new companies entered or competition among related companies escalated to legal disputes. Additionally, policies were pushed to increase companies' investment and burden in defense research and development projects, including multiple development efforts, and institutional pressure was applied for companies to make financial contributions to state-led projects.

Meanwhile, from January 1, 2009, after entering a fully competitive system, the Korean defense industry introduced various measures to activate the participation of SMEs as a complementary measure. These included the introduction of SME bonus points in company selection, establishing grounds for designating preferential items for SMEs, and including excellent SME products in export support targets for offset trade.

In May 2012, the defense material and company designation system was improved to allow, as a policy, the designation of two defense companies for one defense material, instead of only one company per defense material as before. In June 2012, criteria for selecting multiple development projects were established and practically implemented.

This content was produced with the assistance of AI translation services.