[K-Korean Defense Industry Myth] (Part 2) Europe's Full-Scale Containment... Strategies to Overcome It

The global defense market is changing. As the Russia-Ukraine war prolongs, the defense export market has fully opened. In addition, weapon demand is surging worldwide, from Middle Eastern countries such as Saudi Arabia, the United Arab Emirates (UAE), and Egypt to Asia-Pacific countries including Taiwan, Japan, and Australia. It is truly an era of the 'defense gold rush.' Experts say K-defense should target niche markets. It is time to discover new key export products and expand regional defense export hub countries to implement more challenging strategies. This is because only a few countries, including South Korea, possess the performance, quality, price, and rapid delivery capabilities required by weapon buyers.

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According to a report titled ‘Changes and Implications in the Global Defense Market after the Ukraine War’ released by the Korea Institute for Industrial Economics and Trade in March last year, global defense budgets over the next decade (2023?2032) are expected to increase by $2 trillion (2,600 trillion KRW) beyond previous forecasts, and weapon acquisition budgets by more than $600 billion (780 trillion KRW). The prolonged Russia-Ukraine war has expanded the market size further. The United States is deeply concerned about shortages of ammunition and missile stockpiles, while major weapon-exporting countries such as Germany, the United Kingdom, France, and Italy have no capacity to export as they need to fill gaps in their own forces due to weapon support for Ukraine.

Last year, at the request of the United States, our military provided the U.S. with 550,000 rounds of 155mm shells, among other items, from the War Reserve Stockpile of Ammunition-Korea (WRSA-K). WRSA-K refers to ammunition that the U.S. brought to Korea over five years starting in 1974 to prepare for wartime situations on the Korean Peninsula. The South Korean government owns the WRSA-K ammunition, making it difficult for the U.S. to supply shells to Ukraine without our government's consent. However, WRSA-K ammunition is not sent directly to Ukraine; instead, it is first replenished into U.S. military stockpiles, and then existing U.S. shells are supplied to Ukraine. Subsequently, the U.S. contracts domestic defense companies producing shells and reimburses our military accordingly.

As K-defense exports to Europe increased, Europe began to push back. Europe's efforts to check K-defense started last year. Norway purchased Germany’s ‘Leopard 2A7’ tank instead of Korea’s K2 ‘Black Panther’ tank for its next tank project last year. This year, the UK selected Germany’s KMW (Krauss-Maffei Wegmann) ‘RCH 155’ for its next self-propelled artillery project without issuing a separate bidding announcement. Hanwha Aerospace had planned to export the K9 self-propelled howitzer in a consortium with Lockheed Martin and Leonardo but did not even undergo local firing evaluations or competitive procedures. Although the K9 howitzer was evaluated as superior in quality, price, and overall capability, analyses suggest it may have lost out due to political dynamics.

In March, the European Commission announced the European Defence Industrial Strategy (EDIS), aiming to increase the share of European-made weapons from the current 20% to 50% by 2030 and expand joint weapon procurement. In April, French President Emmanuel Macron, speaking to European Union (EU) Parliament officials at Sorbonne University in Paris, stated, “(Since the outbreak of the Ukraine war) we have responded by purchasing American and Korean weapons. For Europe’s strategic autonomy, we must buy more European military equipment.” He emphasized, “If we do not take responsibility for enhancing the competitiveness of the European defense industry, can we build our sovereignty and autonomy?”

[Image source=Yonhap News]

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Defense experts point out that to respond to changes in the European market, K-defense should target niche markets created by the decline in Russia’s and China’s weapon market shares. Russia’s and China’s market shares decreased by 6 and 1 percentage points respectively from 2013?2017 to 2018?2022. This means expanding regional defense export hub countries established over the past decade in 15 countries including the U.S., Indonesia, the Philippines, Australia, T?rkiye, and the UAE. There are also calls to discover markets for new export products such as Hyungung (ATGM), ammunition, Bigung (ATGM), and military support ships, in addition to existing main export products like tanks, self-propelled artillery, light attack aircraft, and Chunmoo (multiple rocket launcher system).

Joint development was also recommended. It is necessary to actively engage in joint development with Europe and others to change the atmosphere in the long term. In particular, through the Korea-U.S. Reciprocal Defense Procurement Agreement (RDP-A) and the Supply Chain Security Agreement (SoSA), it is pointed out that joint development and production of major weapon systems with the U.S. and the establishment of a periodic defense supply chain investigation system are needed.

A defense industry official said, “Europe’s moves, which account for a large portion of domestic defense exports, are a risk point,” but added, “Rather than worrying, we need to focus on current growth. The EU’s plan to grow its internal defense market is based on concerns about potential weapon system shortages rather than reducing the share of external markets.”

Joint development with wealthy Middle Eastern countries is also essential. Our government plans to pursue joint development of a 6th-generation fighter jet (a fighter equipped with stealth beyond capabilities, artificial intelligence, and combined manned-unmanned functions) with Saudi Arabia. The plan is based on the Korean fighter KF-21 (4.5 generation), and if successful, it is expected to hold a significant share in the global aircraft export market.

While no joint development partner has been found for the 6th-generation fighter jet, other countries have accelerated their moves. Last month, the UK, Italy, and Japan signed the ‘Global Combat Air Programme (GCAP)’ treaty to jointly develop a 6th-generation fighter jet. GCAP plans to deploy a fighter with greatly enhanced supersonic performance and radar detection capabilities by 2035. In Europe, under Germany’s leadership, France and Spain are jointly developing the 6th-generation fighter ‘Future Combat Air System (FCAS),’ with the first test flight scheduled for 2029. This is why voices are calling for active diplomatic cooperation and comprehensive support at the government level starting now.

Jang Won-jun, a research fellow at the Korea Institute for Industrial Economics and Trade, emphasized, “To enter the ‘top four global defense exporters’ by 2027, as the government aims, a more challenging and proactive market entry strategy is necessary to maximize the benefits of the global defense gold rush era.”

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