oversight

U.S.-Japan Codevelopment: Review of the FS-X Program

Published by the Government Accountability Office on 1990-02-06.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

U.S.-JA
COI>EV
ILeview of the FS-X
Pmgrm
   i ’


                   United States
                   General Accounting OfTice
                   Washington, D.C. 20548

                   National Security and
                   International Affairs Division

                   B-236070
                   February 6,199O

                   The Honorable Jeff Bingaman
                   The Honorable Alfonse M. D’Amato
                   The Honorable Alan J. Dixon .r.
                   The Honorable Wendell H. Ford
                   The Honorable JesseA. Helms
                   United States Senate
                                                 .“__,l. ._.
                   This is an/uncla&fied      ‘~~- version
                                 1rf.,Te-.“.*..’        I - of a,classified reportthat responded to
                                                     ^,.I,
                   your, r&iest,$o review the Support              _,.. Fighter
                                                                        .“._       (FS-x)codevelopmentpro-
                   gram between the U.S.government I.and~.the                  _. government of Japan. We
                   assessed(1) the extent to which the Department of Defense(DOD) coor-
                   dinated    and consulted 1.1I. with the Department of Commercewhen negotiat-
                           ,IXII.““l.-._.“II*.“_”
                                        ,_I_
                   ‘Ing%e F&Xagreement,(2) the principal provisions of the government-
                   to-government and commercial-^...”.           licensing agreements,(3) the processfor
                   transferring
                       .” “” .      U.S.    F-16    technology~      to Japan, (4) the Japanesecomposite
                   w@g andIphased..i*m
                                     .,..   array
                                       * I,__.l
                                             I_II,”  radar
                                                    _” .,I,
                                                         . _   techno!ogi,es,and
                                                            .“I^
                                                               ~                      US. requirements for
                   these technologies,and (6) costs and scheduled          _ ._I,* ., delivery dates for the
                   F‘S-xcompared to the cost of purch~ing an F-16. Between &larch and
                   May i989, we ‘briefed your staffs on the status of our work; this report
                   summarizes those briefings and presents the final results of our work.

                   Although the fiscal year 1989 DOD authorization legislation required DOD
Results in Brief   to consult with Commercein negotiating such agreements,DOD provided
                   only a cursory briefing on the %x agreementto-Commercepersonnel.
                   As negotiated and concluded,the U.S.-JapanFS-xarrangement involves
                   the joint development of an F-16 derivative &&e.r..&c~.,and       produc-
                   tion of six prototypes. Under the agreement,Japan will receive U.S.
                   design and development assistance,and the United States will receive a
                   40-percent work share of Japan’s estimated $1.2 billion F&X develop-
                   ment budget. The U.S. government is limiting the releaseof certain tech-
                   nical data to protect national security and industrial base interests.
                   The United States will have accessto (1) all F-16 derived technologies,
                   including composite wing technologies,at no cost, and (2) solely
                   Japanese-developedFS-xtechnologies,such as the active phased array
                   radar, at an undetermined price. While DOD did not consider accessto
                   the wing and radar technologiesto be a key issue in the arrangement, it
            Y      believed these technologies could be useful to the United States. Availa-
                   ble information indicates that the United States is currently superior in
                   composites and phased array radar technologies.


                   Page 1                                GAO/NSIAD-BO-77BR   U.S. Japan   FSX Codevelopment
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                         R-226070




                         The codevelopmentand production of 130 F&Xaircraft are estimated to
                         cost Japan about twice as much as an off-the-shelf purchase of F-169
                         from the United States would cost.

                                  iating the N-X agreement with the government of Japan, DOD did
     lnsultation and                      with or solicit the views of the Department of Commerce.
     Iordination                ational DefenseAuthorization Act of Fiscal Year 1989, approved
                         Sedember 29, 1988, requires DOD to consider the effects of each-Memo-
                         randum of Understanding on the US. industrial base and to regularly
                         solicit and consider information and recommendationsfrom the Secre-
                         tary of Commerce.In responseto the law, DOD provided a cursory brief-
                         ing to Commerceon the rs-x program in late October 1988 near the
                         conclusion of the bilateral negotiations.
                         In early 1989 Membersof Congressand the economic agencies,including
                         the Department of Commerce,expressedconcern about the equity of the
                         I%x agreement and technology to be transferred. In responseto these
                         concerns,the President commissionedan interagency review in Febru-
                         ary 1989, co-chaired by Defenseand Commerce,to study the arrange-
                         ment. Basedon the results of the review, the U.S. government sought
                         and received from Japan clarifications to the agreement,including a
                         commitment to about a 40-percent work share for the United States if
                         the program enters into a production phase. Proceduresare being devel-
                         oped by DOD and Commerceto ensure coordination and consultation on
                         future programs.

                         Although national security interests were said to be of paramount
lknefits to the United   importance in the FS-xprogram, during the negotiations, DOD recognized
States                   US. economicand industrial interests as well. The U.S. work share will
                         amount to 40 percent of Japan’s estimated $1.2 billion developmental
                         budget-about $480 million. Additionally, the United States will obtain
                         cost-free FS-xtechnology that is derived from U.S.-provided F-16 tech-
                         nology. For example, General Dynamics, the prime U.S. contractor, will
                         obtain from Japan the technology to produce four composite wings for
                         the program. The United States is also guaranteed the option of
                         purchasing technology that is solely developedby the Japanese.

            Y




                         Page 2                         GAO/NSIAD-QO-77BR   U.S.Japan   FS-X Codevelopment
                      B4a6o70




                      Unlike previous F-16 coproduction agreements,which have released
F-l i Technology      operations, maintenance, and production data, the FE-Xprogram will
Rel a--               releasecertain F-16 design and software data as well. The US. govern-
                      ment will limit the releaseof sensitive software source codesfor the
                      F-16’s avionics systems but will not releasesource codesfor the digital
                      flight control system.’ In addition, the United States will not release any
                      manufacturing or design data on the engines,which must be purchased
                      from a US. manufacturer during the developmental phase of the
                      program.
                      A joint U.S.-JapaneseTechnical Steering Committee was established to
                      monitor key aspectsof the FS-xprogram, including the transfer of tech-
                      nology. The Department of Commercewill have a representative on the
                      Committee. The Committee will consider requests from Japan for techni-
                      cal data.

                      DOD did not pursue the I%-xprogram with the primary objective of
Japanese FS-X         obtaining accessto Japanesetechnology; however, once Japan agreed in
Tedhnologies
   I                  principle to codevelopthe F&X,DOD stressedthe importance of obtaining
                      accessto the new aircraft’s technologies.DOD officials emphasizedthe
                      potential value of the Japanesetechnology, including compositesand
                      airborne radar. DOD believes that the F&Xprogram sets a precedent for
                      two-way exchangesof military technology.


Active Phased Array   Japan is developing an active phased array radar for the F&X,and DOD is
Radar Technology      interested in evaluating and possibly acquiring the manufacturing tech-
                      nology used to produce the radar’s transmitter/receiver modules. U.S.
                      industry is developing similar radar technology for the next-generation
                      fighter aircraft. The modules are very expensive to produce, and both
                      the United States and Japan are working to develop a manufacturing
                      processthat produces affordable, quality modules.
                      U.S. industry is making considerable progress toward reducing module
                      costs.According to one company’s estimates, the module’s unit cost has
                      declined from about $12,000 to about $8,300 (1985 dollars) over the
                      past 4 years. Anticipated full-rate production costs are estimated to be
                      about $400 per module by 1997 to 2005. According to U.S. government
             Y


                      ‘A sourcecodeis a seriesof human-readablestatementsthat describethe operations/functionsof a
                      particular computerprogram.The sourcecodeprovides accessand insight into the methodsand anal-
                      ysesusedto developa specificprogram.



                      Page 3                                  GAO/NSIAD=90-77BR    U.S.-Japan FSX &development
                       B-233070
                                                                                                          \,
                                                                                                          c




                       and industry sources,the United States is ahead of Japan in overall
                       radar development.


C mposite Technology   Japan is planning to produce composite wings for the I%-xusing a proc-
                       essknown as co-curing. This processreducesthe need for fasteners that
 ”                     hold the wing together. The Japaneseapproach appears to be high risk
                       becauseof manufacturing and quality control uncertainties and damage
                       repair problems. The United States expended significant research and
                       development efforts in the 1970sto test and evaluate the basic co-cured
                       composite design that will be used for the FS-X wing. Air Force engineers
                       told us that the designswere rejected for combat aircraft wings, which
                       carry fuel and withstand significant stress.
                       The US. industry’s basic knowledge of advanced compositesis superior
                       to Japan’s, The United States has a demonstrated and proven capability
                       in composite production and application to military aircraft. For exam-
                       ple, the U.S. AVSB has composite wings, but fasteners are used to
                       ensure high confidence in the joints. The United States uses co-curing
                       techniques on structures like tails, which are subject to less stress than
                       wings.
                       The U.S. trend is toward the use of thermoplastics, a different type of
                       composite material from that proposed for the FS-X. Thermoplastics are
                       more heat resistant than FS-xwing composites.Future U.S. military air-
                       craft will need the more heat resistant materials becauseof expected
                       performance requirements, The U.S. military requirement for the Japa-
                       nesecomposite technology appears to be modest at this time. The Air
                       Force has indicated that the prime use for this technology would be on
                       future versions of the F-16, if the wing proves affordable.

                       Developing the F&Xwill cost Japan more than purchasing F-16s from the
Cost
                       United States. According to an Air Force estimate, the most advanced
                       version of the F-16 produced in the United States would cost Japan
                       about $28.6 million per aircraft (U.S. 1988 dollars), if purchased
                       through foreign military salesprocedures. The unit cost of the I%-xis
                       estimated to be about $61 million (US. 1988 dollars).
                       These matters are discussedin more detail in sections 1 through 7.
         Y




                       Page 4                          GAO/NSlAD-90-77BR   US. Japan   FSX &development
xtcy Comments and   We obtained written commentson a draft of this report from the
                    Departments of Defenseand Commerce(see app. II and III). The Depart-
YEvaluation         ment of State had no comments.DOD agreed with the information and
                    conclusionspresented in the report but made technical commentsthat
                    have been included, as appropriate. Commerceagreed with most of the
                    information presented but reemphasizedthe successof the interagency
                    review processand noted the administration’s concernsabout trade,
                    economic,and industrial competitiveness implications of agreements
                    such as the FSX agreement.Commercealso emphasizedthat it remains
                    actively involved in reviewing technology releasein the program.
                    Finally, Commercestated that our analysis of the two Japanesetechnol-
                    ogies-composites and phased array radar-was speculative becauseit
                    remains to be seenwhether or not these technologies will be of value to
                    the United States.

                    Regarding this last point, we recognized,and noted in our draft report,
                    that somebenefits may be derived from these Japanesetechnologies.
                    Nevertheless,numerous U.S. government and industry aerospaceand
                    electronics engineersagreedthat the United States maintains an advan-
                    tage in the overall development and application of these technologies.
                    Copies of this report are being sent to interested congressionalcommit-
                    tees; the Secretariesof Defense,State, and Commerce;and other inter-
                    ested parties.
                    Major contributors to this briefing report are listed in appendix IV. If
                    you have further questions about this report, please call me on (202)
                    2754128.




                    Joseph E. Kelley
                    Director, Security and
                      International Relations Issues



      Y




                    Page 6                          GAO/NSIAD-90.77BR   U.S. Japan   FSX &development
   I
Leitter
Se(ction1                                                                                                  10
B ckground                  Summary                                                                        10
                            Japan’s FS-X Program StressedDomestic Development                              10
 ”                          DODConsideredJapaneseOff-The-Shelf Purchaseof U.S.                             10
                                Aircraft Unlikely
  I                         DOD Position Separated Trade IssuesFrom Defense                                11
                                Issues
                            DODQuestionedJapan’s FS-X Requirements                                         12
                            FS-X Not Pursued With Primary Objective of Obtaining                           12
                                Accessto JapaneseTechnology
                            DOD’sNegotiating Position StressedQuality and Quantity
                                Work-Share and Technology Flowback

                                                                                                           16
                                                                                                           16
                            DOD’sConsultation With CommerceWas Minimal                                     16
Cbordination                Previous U.S. Attention to Economic Implications of                            16
                                Coproduction WasInadequate

S&tion 3                                                                                                   18
Government-To-              Summary                                                                        18
                            Under the Agreement, Japan Will Take Lead in FS-X                              18
Government and                  CodevelopmentProgram
Commercial                  United States Will Receive40 Percent of Development                            19
Arrangements                    and About 40 Percent of Production Work Share
                            Technology Flowback Provisions Allow U.S. Accessto                             19
                                JapaneseTechnologies
                            Program Strives to Maintain Interoperability                                   19
                            Third-Party Salesof U.S.-Origin Technology Are                                 20
                                Restricted
                            Commercial Arrangement Implements Government-To-                               20
                                Government Agreements
                        I

Section 4                                                                                                  22
TechnologyII Transfer       Summary                                                                        22
                            FS-X Involves Greater Releaseof F-16 Technical Data                            22
                                Than Previous Coproduction Programs
                            Safeguarding Technology Posesa Challenge                                       23


                            Page 6                        GAO/NSIAD-96.77BR   U&Japan   FSX &development
                      Content.6




                      DOD Has Proceduresfor Reviewing Technology Release                               23
                          and Is Currently Reviewing Data Lists
                      DOD Plans to Limit Releaseof Flight Control and Avionics                         24
                          Software
                      Sanitized Fire Control Computer Software SourceCodes                             25
                          to Be Released
                      Physical SafeguardsAre Planned to ReducePotential for                            25
                          Inadvertent Disclosures
                      The Technical Steering Committee Will Monitor                                    26
                          Technology Flow
                      Commercial Application of FS-X Technology Is Uncertain                           26

Selction                                                                                               28
A4tive Phased Array   Summary                                                                          28
                      DOD Is Interested in JapaneseRadar Module Production                             28
RzfdarTechnology           Technology
                      U.S. Knowledge of JapaneseRadar                                                  28
                      U.S Industry Is Making Significant Advances in Reducing                          30
                           Module Cost
                      Benefits to the United States Are Questionable                                   30

Sektion 6                                                                                              31
Ctimposite Wiv?i      Summary
                      Japan Claims Its ProposedComposite Wing for the FS-X
                                                                                                       31
                                                                                                       31
Technology                Is 25 Percent Lighter Than a Metal Wing
                      JapaneseWing Has Potential Merits and Disadvantages                              32
                      The United States’ CompositesCapability Is Excellent and                         33
                          Superior to Japan’s
                      The United States Has Produced All Composite Wings but                           33
                          Has Chosento Employ Fastenersto Increase
                          Confidence
                      The U.S. Requirement for JapaneseTechnology Is Modest                            33

Section 7                                                                                              35
                      Summary                                                                          35
                      Off-The-Shelf PurchaseIs More Cost-Effective                                     35

Appendixes            Appendix I: Objectives,Scope,and Methodology                                     36
                      Appendix II: CommentsFrom Department of Defense                                  38
                      Appendix III: CommentsFrom the Department of                                     45
            b
                         Commerce
                      Appendix IV: Major Contributors to This Report                                   60



                      Page 7                        GAO/NSIAD-90-77BR   U.&Japan   FS-X &development
Abbreviations

DOD       Department of Defense
Fs-x      Support Fighter
JDA       Japan DefenseAgency


Page 8                       GAO/NSuD-ga77BR   U.S.Japan   F&X &development




                  .I
Y




    Page9   GAO/NSLUMO-77BR   U.S.Japan   ITS-X Chdevelopment
       I
Sectjon 1                                                                                                                  ,

Bbckground
                                                                                                                               1


Summary                  . Japan’s I%-xprogram stresseddomestic development.
                         . DOD consideredJapaneseoff-the-shelf purchase of US. aircraft unlikely.
                         l DOD position separated trade issuesfrom defenseissues.
                         l DOD questioned Japan’s B-x requirements,
   I                     l     not pursued with primary objective of obtaining accessto Japanese
                             FS-x

   /                       technology.
   /
   I                     . DOD’s negotiating position stressedquality and quantity work-share and
                           technology flowback.
   /
                             In the late 197Os,the Japan DefenseAgency (JDA) began considering
Jdpan’s FS-X Program         replacing its fleet of domestically produced F-l fighter support aircraft.’
StbessedDomestic             At about the sametime, JDA began funding next-generation fighter stud-
D ’velopment                 ies, primarily to identify requisite technologies.Attention was focused
 &                           on and funding provided for advancedmetallurgy, composite materials,
  I/                         stealth technology, and advanced avionics.
                             Japan considered various options for its replacement candidate, includ-
                             ing an off-the-shelf purchase and domestic development. Advocates of
                             domestic development organized quickly and included JDA’S Air Staff
                             Office, private industry, and JDA’S research and development arm, the
                             Technical Researchand Development Institute. In 1985, the Institute
                             announcedthat Japan possessedthe domestic capability to develop-
                             except for the engine- an advanced fighter for about $1 billion.


                             Starting in 1985 DOD, with the Department of State’s assistance,took
DOD Considered               steps to persuade the government of Japan not to develop its own air-
JapaneseOff-The-             craft. DOD preferred that Japan purchase an off-the-shelf U.S. aircraft
Shelf Purchase of U.S.       but recognizedthat such a purchase was highly unlikely. DOD made sev-
                             era1attempts to encourageJapan to buy a U.S. aircraft such as the F-16
Aircraft Unlikely            or F/A-18. At the sametime, WD recognizedthat Japan, as a sovereign
                             nation, could not be forced to purchase an aircraft from the United
                             States. In the past, Japan had rejected direct purchase marketing efforts
                             by US. airframe manufacturers. Further, Japan had been producing
                             U.S. aircraft under license since the mid-1960s including most recently
                             the F-16. In February 1989, DOD stated that there has never been any
                             realistic possibility that Japan would buy a U.S. aircraft off the shelf.

            Y




                             ‘The F-l was producedby Mitsubishi Heavy Industries from 1977to 1984.It is usedby the Japanese
                             Air Self-DefenseForcefor ground and ship attack.



                             Page 10                                 GAO/NSIAD90-77BR      US. Japan   FS-X &development
                     Section 1
                     Background




                     Japan considered economicfactors that precluded an off-the-shelf pur-
                     chase.DOD noted that Japan intended to keep its aerospaceindustry
                     active and ensure continued employment of its engineers.DOD officials
                     believed that from Japan’s perspective, it made no senseto buy current
                     U.S. aircraft or even produce them under license due to Japan’s invest-
                     ment in the research and development of componentssuch as radar, avi-
                     onics display systems, and composites.An additional factor was that
                     Japan had obtained considerable manufacturing know-how over the
                     years from various licensed production programs with the United
                     States. Through these programs, however, Japan had not acquired the
                     critical knowledge that is derived from designing and developing a
                     sophisticated military aircraft.
                     In 1986 DOD established a policy position that offered a compromise,
                     since Japan was not interested in purchasing a US. fighter aircraft or
                     producing one under license. The policy suggestedthat a cooperative
                     venture-codevelopment- between the United States and Japan could
                     be a viable alternative. DOD noted that Japan seemedto be interested in
                     codevelopmentif it could retain leadership of the project. The policy
                     statement set the tone for future government and industry discussions
                     with Japan.

                     DOD separated trade and economicissuesfrom national security issues
DOD Position         during preliminary FS-x discussions.DOD believed that Japan’s pursuit of
Separated Trade      the domestic development option would blur the distinction between
Is&es From Defense   trade and defense and elevate congressionalconcernsabout the pro-
                     gram. Further, DOD believed that domestic development would signal
Issues               Japan’s commitment to a program that would not be cost-effective,
                     would have considerable risks associatedwith the development of a new
                     aircraft, and would lead to potential delays in deployment.
                     In a series of meetings, high-level U.S. government and Japaneseoffi-
                     cials discussedthe need to keep trade and defense issuesseparate.
                     These discussionswere part of a continuing U.S. effort to encourage
                     Japan to reject domestic development. In August 1987 DOD and JDA
                     agreedto cooperate in the development of the B-X aircraft and to base
                     the new aircraft on a modified version of an existing U.S. fighter. In
                     October 1987 JDA selectedthe General Dynamics F-16 as the baseline air-
                     craft for the FS-x.




                     Page 11                        GAO/NSIAD-90-77BR   U.S. Japan   FS-X Codevelopment
                         Se&on 1
                         Background




                         and someof the proposed performance requirements unrealistic. Some
                         DQD officials believed that Japan had developed such performance goals
                         to exclude U.S. aircraft from consideration and justify domestic develop-
                         ment. These officials believed that Japan had designedthe FS-X in part to
                         accommodatevarious domestic technologieswithout adequately analyz-
                         ing other available options.

                         After considerable urging, JDA agreed to hear DOD'S presentation of its
                         assessmentof the threat and mission requirements and to consider U.S.
                         industry proposals for modifying an existing U.S. fighter aircraft to
                         meet Japan’s requirements. In April 1987, a DOD team presented its
                         assessmentof the threat and operational requirements to JDA. The team
                         advanced DOD'S position that an existing or modified U.S. fighter would
                         meet most of the FS-X'S mission and operational requirements and at the
                         sametime save a considerable amount of time and money.

                         The United States was primarily concernedwith finding a compromise
2  -X Not Pursued
 /ith Primary
Objective of Obtaining
                         solution for the IV-Xthat would maintain the overall bilateral security
                         relationship with Japan. According to DOD, its priorities were to
                         (1) ensure that the FS-xmaintained interoperability with U.S. forces in
                         the region and (2) maximize the capability Japan received for its
Akess to Japanese        defenseexpenditures. DOD officials recognized,however, that the pro-
Technology               gram would create the opportunity to gain insight into and derive poten-
                         tial benefits from Japanese&x-related technologies.
                         Becauseacquiring Japanesetechnology was not paramount, DOD did not
                         extensively review Japan’s m-x-related technologies,In April 1987 a DOD
                         team made a 3-day visit to various Japaneseindustries to learn more
                         about the technologies identified by Japaneseofficials as significant for
                         the FS-x.These technologies included the active phased array radar and
                         composites.The team concluded that these technologies were significant
                         and of high quality but not unique. (Seesections 6 and 6 for further
                         details about the Japaneseradar and composites.)




                         Page 12                        GAO/NSIALI-90-77BR   U.S.Japan   FS-X Codevelopment
                          Section 1
                          Background




                          Government-to-governmentnegotiations for the B-X program beganin
DQD’s Negotiating         November 1987. The primary objectives of the U.S. negotiating team
Po$ition Stressed         were to
Qublity and Quantity      obtain an adequate U.S. development work share, both in quantity and
W&k-Share and         ’   quality (an initial 40- to 60-percent goal was established);
Tebhnology
  /          Flowback .   obtain free and automatic flowback of any technical improvements that
                          Japan made to the baseline aircraft, for example, rights to F-16 derived
                          technology at no cost and accessto all Japanese-developedFS-x
                          technology;
                          establish a joint DOD-JDA steering group to implement, oversee,and man-
                          agethe program; and
                          obtain provisions for a 30- to ‘IO-percentU.S. production work share
                          (excluding the engine).

                          In a May 1988 report accompanying the Fiscal Year 1989 Defense
                          Authorization Act, the SenateArmed ServicesCommittee urged DOD to
                          obtain a meaningful work share for U.S. industry and acquire without
                          charge any technological improvements substantially derived from tech-
                          nology provided by the United States. Further, the report stated that the
                          US. government should not enter into a memorandum of understanding
                          with the Japanesegovernment on the m-x/F-16 that simply transferred
                          American technology and jobs to Japan with nothing more than a license
                          fee in return. According to a high-level DOD official, this recommendation
                          reinforced DOD'S negotiating position and emphasizedthe requirement to
                          obtain Japanesetechnologies.

                          Initially, Japan was unwilling to allow General Dynamics to produce any
                          composite wings, citing increased program costs and reduced program
                          efficiency. According to DOD, wing production becamethe symbol of a
                          meaningful two-way exchangeof technology. Additionally, the U.S. Air
                          Force believed that the Japaneseco-curedcomposite technology was the
                          single most important item of technology that would be created during
                          the FS-xprogram. Without transfer of this technology, the United States
                          would reap few benefits from participating in the program. A high-level
                          DOD official said that our government was prepared to walk away from
                          the program if there was no wing production in the United States. Japan
                          concededthis point and agreed to permit the U.S. contractor to partici-
                          pate in the production of wings.




                          Page 13                        GAO/NSlAD-BO-77BR   U.S.Japau   FS-X &development
Section 1
Background




The memorandum of understanding was signed on November 29,1988.
During later discussions,Japan agreedon the overall level of US. par-
ticipation in the development program, including the production of B-X
composite wings.




Page 14                       GAO/NSIAD-!Hl-77BR   U.S.Japan   FS-X &development
  3n 2

  bX Consultation and Coordination


                     l   DOD’S consultation with Commercewas minimal.
                     l   Previous U.S. attention to economicimplications of coproduction was
                         inadequate.

                          In negotiating the FS-xagreementwith the government of Japan, DOD did
DO D’sConsultation        not coordinate with or solicit the views of the Department of Commerce.
Wii #hCommerceWas            &on 824 of the National DefenseAuthorization Act, Fiscal Year 1989
Mb lima1                     .L. lOO-466),September 29, 1988, requires DOD to consider the effects
                         “of each government-to-governmentmemorandum of understanding on
                          the U.S. industrial base and to regularly solicit and consider information
                          and recommendations from the Secretary of Commerce.
                         In responseto the law, DOD provided a cursory briefing to Commerce
                         officials in late October 1988 near the conclusion of the bilateral negoti-
                         ations. In November 1988 DOD denied Commerce’srequests for a copy of
                         the memorandum. According to Commercerecords, DOD argued that the
                         briefing sufficiently allowed Commerceto comment on the project’s
                         effect on the industrial base and therefore satisfied the statutory
                         requirement for consultation. After a series of discussionsbetween DOD
                         and Commercelegal officials, the memorandum was forwarded to Com-
                         merce in mid-December 1988.

                         DOD officials
                                     told us that it was inappropriate to initiate full consultation
                         and coordination with Commerceon E-X becausethe negotiations were
                         virtually complete by October 1988.
                         Subsequentto the signing of the memorandum, Members of Congress
                         and the economic agencies,including Commerce,raised questions about
                         the equity of the proposed agreement and the technology to be trans-
                         ferred to Japan. In February 1989, the President commissionedan inter-
                         agency review of the F&Xarrangement, co-chaired by Defenseand
                         Commerce,to study the agreement.’ The review focused on the impact
                         that production of the FS-xwould have on the US. industrial base and
                         competitiveness and sought to establish interagency procedures for
                         coordination and consultation of defensecooperative agreements.
                         Basedon the review, DOD agreedto notify the Secretary of Commerceof
                         its intent to begin negotiations on a memorandum of understanding prior
         P

                         ‘Other membersof the interagencyreview included the Departmentsof State,Labor,and Energy;the
                         Office of the United StatesTrade Representative,the Office of Scienceand TechnologyPolicy; the
                         National Security Council; and the Central IntelligenceAgency.



                         Page 15                                  GAO/NSIADM-77BR      U.S.Japan   FS-X Codevelopment
                                                                                                                         ,
                        Sectlon 2
                        FS-X conrnltation       and Coordination




                        to the opening of discussionswith foreign governments. Throughout
                        future negotiations, Commercewill have full access(as an adviser) to
                        negotiations, documents,memorandums of understanding, industry-to-
                        industry agreements,and other relevant documents. Commercewill ana-
                        lyze the impact of the proposed agreementon the industrial base and
                        provide assessmentsto DOD on a continuing basis. No agreement will be
                        concluded until full consultation with Commercehas been completed. At
                        the time of our review, procedures to implement this processwere being
                        developed.
                        DOD is now  providing Commercewith proposed memorandums of under-
                        standing for comment. In commenting on our draft report, Commerce
                        stated that it has established a cooperative relationship with DOD on the
                        FB-xprogram and is reviewing other defense-relatedcooperative agree-
                        ments as well.

                        Prior to the fiscal year 1989 legislative requirement and the subsequent
Pkevious US.            interagency review of the B-X arrangement, major defenseitems were
Aktention to Economic   transferred without full consultation with the economic agencies.In
I$plications of         1982 we reported that when negotiating a coproduction agreement with
                        Japan on the U.S. F-16 aircraft-and on other military coproduction
Cbproduction Was        programs as well-non and State separated the US. defense and foreign
Inadequate              policy interests from the domestic economic,industrial, and labor con-
                        siderations.” DOD and State did not systematically draw upon the avail-
                        able expertise of other federal agencieswhen considering coproduction
                        requests or when negotiating and implementing these programs. On the
                        other hand, Japan and other countries included such interests in their
                        decisionsto coproduce rather than purchase off-the-shelf US. aircraft.
                        We stated that it is appropriate for U.S. allies to consider their economic
                        interests when addressing defenseissues,but it is just as appropriate
                        for the United States to do the same.
                        We noted that national security objectives were of prime consideration
                        when the United States entered into coproduction arrangements and did
                        not take exception to these objectives. We expressedthe view that DOD
                        and State had too narrow a perspective to adequately addressthe eco-
                        nomic, industrial, trade, and labor interests and concluded that
                        increased interagency and government-industry coordination was
                        neededprior to making coproduction commitments.
         Y



                        “U.S.Milita      CoproductionProgramsAssist Japanin DevelopingIts Civil Aircraft Industry
                        (II)-8&23,l%r.      18, 1982).




                        Page 16                                     GAO/NSlAD-90-77BR     U.&Japan   FS-X &development
    We recommendedthat the Secretary of State take the lead, in coopera-
    tion with DOD and pertinent civilian agencies,to form a clearer and more
    comprehensivemilitary coproduction policy that would fully recognize
    the trade and economicimplications of these arrangements, as well as
    the political and military goals to be achieved. We further recommended
    that these agencies(1) establish procedures to coordinate consideration
    of allies’ requests to coproducehigh-technology items; (2) develop, with
    input from industry, criteria for conducting economic assessments-to
    include the impact of impending transfers on US. industry-before
    approving and negotiating coproduction agreements;and (3) participate
    with DOD in determining the releasability of high’technology originally
    denied in memorandums of understanding.
    The Departments of Commerce,Treasury, and Labor and the Office of
    the U.S. Trade Representative generally agreed with our conclusions
    and recommendations.Although the State Department had somereser-
    vations about our analysis of the relationship between coproduction and
    Japan’s civil aircraft industry, it agreed that the US. government
    should more carefully consider the economic implications of coproduc-
    tion and that greater interagency coordination was needed.DOD agreed
    with the need for interagency coordination but noted that the existing
    system provided for careful review of all coproduction requests. DOD
    stated that a formal mechanism was neither necessarynor desirable.

    Our recommendations were not implemented. We believe that had these
    measuresbeen followed, someof the questions concerning technology
    transfer and the resultant economicimpact on the U.S. industrial base
    would have been considered and addressedbefore the FS-xmemorandum
    of understanding was negotiated and signed.




Y




    Page 17                       GAO/NSIAD-90-77BR   U.S.Japan   FSX &development




                        ‘I
&vernment-To-Government and
+
  mmercial Arrangements

                           Under the agreement,Japan will take lead in FS-xcodevelopment
        ary
                       l



    I                      program.
                       l   United States will receive 40 percent of development and about 40 per-
                           cent of production work share.
                       l   Technology flowback provisions allow U.S. accessto Japanese
                           technologies.
                       l   Program strives to maintain interoperability.
                       l   Third-party salesof U.S.-origin technology are restricted.
                       l   Commercial arrangement implements government-to-government
                           agreements.


Udder the Agreement,       The United States and Japan will cooperate to develop the FS-xaircraft.
                           The FS-x is to be based on the F-16 C/D aircraft, will incorporate U.S.
Japan Will Take Lead       and Japanesetechnology, and will be significantly modified to meet
id FS-X                    requirements established by JDA. Japan will develop and manufacture
                           the following advanced technology avionics systems: the active phased
C&development              array radar, the mission computer, the inertial reference system, and
Pbogram                    the integrated electronic warfare system. Japan will purchase the
                           enginesto be installed in the prototype aircraft from a U.S.
                           manufacturer.

                           U.S. industry, led by General Dynamics, will participate in development
                           of the wing and in the development and integration of the aircraft’s avi-
                           onics systems. Certain integration of systems is reserved solely for U.S.
                           industry becauseof the sensitivity of the data or techniques involved or
                           due to proprietary rights. In these instances,Japan can either integrate
                           the systems without U.S. assistanceor accept U.S. assistancewith cer-
                           tain technology transfer restrictions. For example, as discussedin sec-
                           tion 4, the United States has determined that source codesfor the F-16
                           flight control computer will not be releasedto Japan. Japan has the
                           option of accepting this restriction or developing the data on its own.
                           JDA is responsible for leading the FS-xprogram. It will have final author-
                           ity over the aircraft’s configuration, scheduling, cost, and other proce-
                           dures neededto meet system requirements. JDA plans to develop and
                           produce six prototype aircraft-four for flight testing and two for
                           ground testing. JDA will bear all the necessarycosts for the IB-x within
                           the amount of its budget authorization, estimated to be $1.2 billion, and
                           will pay the U.S. government a research and development recoupment
              Y            charge for each FSX manufactured. Nothing in the agreement obligates
                           the U.S. government to expend funds.



                           Page 18                         GAO/N&W-90-77BR   U.S. Japan   FS-X &development
                        Section 9
                        GwernmentTdiovernment          and
                        CommerehI Arrangements




                        Japan agreed that the U.S work share will reach 40 percent of the entire
United States Will      FSX development budget. For budgeting purposes, the U.S. work share is
R CCiVC 40 PCIXXnt Of   $480 million. The 40 percent remains constant despite any currency
D velopment and         fluctuations. The agreement did not make a firm production work share
                        commitment. In an exchangeof letters dated April 28, 1989, between the
A out 40 Percent of     Secretary of State and the JapaneseAmbassador to the United States,
Pr,
 i duction Work         Japan agreed that if the program entered into production, the United
                        States would receive approximately 40 percent of the value of the total
Sljare
   /                    production work.
  I
                        JDA will  transfer to the United States, at no cost, technology derived
T$chnology Flowback     from the F-16. DOD will also have accessto non-derived technology, that
Pdovisions Allow US,    is, data developed solely by Japan. Thesetechnologies can be purchased
A(xess to Japanese      through established procedures.1In the April 28, 1989, exchangeof let-
                        ters, Japan identified four non-derived technologies associatedwith the
Ttchnologies            project-radar, electronic countermeasures,inertial reference system,
   1I                   and mission computer hardware. If the use of U.S. technology is essen-
  II                    tial to the development of these Japanesetechnologies,they will be con-
                        sidered derived and available to the United States at no cost. Further,
                        Japan agreed that the United States will have accessto all technology
                        associatedwith the rs-x that it wishes to obtain,


                        Japan agreedthat the FS-xshould achieve, to the degreepossible, inter-
Program Strives to      operability with existing U.S. military systems. DOD believes that the I%-x
Maintain                will be interoperable with the F-16 and other U.S. weapon systems;that
Interoperability        is, it will use the sameground support equipment, have compatible com-
                        munications and data link systems, and be capable of in-flight refueling
                        from the sameequipment. Certain FS-xcomponents,such as the engines,
                        will be interchangeable with US. aircraft. DOD recognizesthat the major-
                        ity of the FS-xstructure and the major avionics systems, such as the
                        radar and the mission computer, will be different from those in the F-16.




                        ‘In November1983,the governmentof Japanagreedto permit the export of military technologyto
                        the United States.All U.S.requestsfor Japanesemilitary technologymust be addressedthrough
                        diplomatic channelsto a Joint Military TechnologyCommission.The Commissionconsistsof senior
                        representativesof the various Japanesegovernmentagenciesand U.S.Embassyofficials. According
                        to DOD,few transfers of Japanesemilitary technologyhave beenmadeunder this agreement.



                        Page 19                                 GAO/NSIAD-90-77BR    U.S.Jspan   FS-X Codevelopment




                                                 ‘.
                                                  .*
                          Section 8
                          Governmen~To-Govennt       and
                          Chnmercial  Arrangementi




                          Japan agreedthat all technical data, information, and documentation
Third-Party Salesof       provided by US. manufacturers or DOD will be used only for develop-
U.S.-Origin               ment and are prohibited from transfer to a third party without the U.S.
                          government’s prior approval. Further, no defensearticles or technical
                          data provided or developed from information provided by the United
                          States will be sold or transferred to a third party without prior
                          approval.

                          The memorandum of understanding has been implemented under a com-
Wnmercial                 mercial license and technical assistanceagreement,which was signed on
Atrangement               January 121989, by General Dynamics and Mitsubishi Heavy Indus-
Itiplements               tries. Mitsubishi will be the prime contractor, and General Dynamics will
                          provide technical assistanceand produce certain parts of the FS-x.Gen-
Gbvernment-To-            era1Dynamics’ work share will be 30 percent of the FS-xdevelopment
Gbvernment                cost. The remaining 10 percent is reserved for other U.S. contractors.
Apements                  Included in General Dynamics’ work share is a license fee of $60 million.
                          General Dynamics’ technical assistanceincludes (1) explaining the tech-
                          nical data provided under the agreement;(2) providing advice on the
                          design, development, and production of the F&X;and (3) making recom-
                          mendations on the effect of changesto the F-16 design. Other tasks
                          include

                      * leading in the design, development, and manufacture of the aft fuselage
                        and certain hardware and software systems;
                      l participating (extent still to be determined) in the development of the
                        modified F-16 digital flight control system’s hardware and software; and
                      . designing, developing, and manufacturing the wing’s leading edge flaps.
                          General Dynamics will provide qualified personnel to Mitsubishi for
                          engineering, design, and production support. Both contractors will
                          establish program offices in the United States and Japan to support the
                          technical representatives of their respective companies.General Dynam-
                          ics officials expect to have as many as 70 people in Japan during the
                          program.
                          General Dynamics will have an in-depth, fully integrated, and involved
                          role in all significant aspectsof the overall F&Xwing project, including
                          design, development, manufacture, and testing. Japaneseindustry will
         Y                be the overall project leader. General Dynamics will manufacture 4 of




                          Page 20                          GAO/NSIADW77BR   U.S.Japan   l%-X &development
 Bwtion 8
 Govenunentnt                  and
 Chunerdal    Arrangement.43




the 14 co-cured composite wing boxes.2The wing boxesmanufactured
by General Dynamics will be subjected to the samelevel of testing as the
Japanese-manufacturedwing boxes to ensure an equivalent level of
quality.




‘The wing box is the majorstructural portion of the stationary wing. It includesthe internal frame
and wing skins,or top and bottomcovers.



Page 21                                    GAO/NSLAD-BO-77BR      U.S.Japan   F’S-X Codevelopment
Section
   I 4                                                                                                         I

Thhnology
 I        Transfer


  /
                               involves greater releaseof F-16 technical data than previous
Summary                 l   FS-x


                          coproduction programs.
                        l Safeguarding technology posesa challenge.
                        l DOD has procedures for reviewing technology releasesand is currently
                          reviewing data lists.
                        l DOD plans to limit releaseof flight control and avionics software.
                        l Sanitized fire control computer software source codesto be released.
                        l Physical safeguards are planned to reduce potential for inadvertent
                          disclosures.
                        l The Technical Steering Committee will monitor technology flow.
                        . Commercial application of E-X technology is uncertain.

                            The E-X codevelopmentprogram will involve a greater releaseof F-16
F$-X Involves Greater       technical data than previous coproduction agreements.Previous F-16
R&easeof F-16               coproduction programs have releasedoperations, maintenance, and pro-
Tdchnical Data Than         duction data to Denmark, the Netherlands, Norway, Belgium, and Tur-
                            key. A key distinction between these coproduction programs and the
Pr/eviousCoproduction       ITS-X is that the E-X will require the releaseof certain F-16 design data,
Programs                    such as wind tunnel test data, used for wing design and development.
                            The releaseof the design data is required to enable Japan to develop an
                            aircraft basedon the F-16 design. During the interagency review, Com-
                            merce and DOD agreed to minimize the releaseof design data and jointly
                            developed a list of sensitive F-16 technical data to be withheld to protect
                            US. national security and industrial competitiveness.
                            The I%-xprogram will require the releaseof certain F-16 software that
                            will help the Japaneseincorporate their avionics systems into the air-
                            craft. General Dynamics will provide systems integration assistanceto
                            Japan to accomplish this complicated task. For example, General
                            Dynamics will help integrate Japan’s mission computer with other avi-
                            onics systems, such as the radar and inertial navigation system. This
                            integration assistancewill require a closeworking relationship between
                            U.S. and Japaneseengineers.According to DOD, the integration process
                            represents a significant departure from other aircraft coproduction pro-
                            grams, which generally involve the foreign country’s manufacturing
                            and/or assemblingexisting U.S.-designedand integrated components.




                            Page 22                         GAO/NSIAD-90-77BR   U.S.Japan   FSX &development
                         Section 4
                         Technology   Transfer




: Sa‘eguarding           Safeguarding the transfer of technology to Japan during the course of
                         the program posesa significant challenge. According to DOD, the volume
  Te :hnology Posesa     of data to be provided will be greater than would be transferred under
  Cl- Bllenge            coproduction or_.direct
                                             _ purchase.
                                                 _         The FS-xwill use the F-16 Block 40 air-
                         craft as a baseline for development. Someof the F-16 technical data that
                         will be provided to Japan include F-16 production drawings, perform-
                         ance data for the 376 square-foot wing considered for the Agile Falcon
                         (F-16 derivative), engineering changesadopted to enhancethe safety of
                         the Block 40 aircraft, and sanitized computer software interface and
                         integration data.
                         Becauseof US. security and proprietary reasonsand becauseJapan will
                         incorporate many of its own avionics componentsin the m-x, numerous
                         items and componentswill not be included in the F-16 technical data
                         package.Someof the excluded items include radios, landing gear, radar,
                         electronic warfare systems, an inertial navigation system, and a central
                         mission computer. For these items, only data that describescommunica-
                         tions between aircraft computer systems, known as interface data, will
                         be provided. Japan has the option of either developing these systems
                         and componentsor buying them from US. vendors.

                         Engines for the development phase aircraft will be sold as end items.
                         Only integration and cost data neededto select and install engineswill
                         be provided. DOD will consider releasing engine production technical data
                         after a production memorandum of understanding is negotiated. DOD will
                         not consider releasing certain technical data for parts of the engine,
                         such as the digital fuel control system and the “hot section” (where
                         combustion occurs).

                         DOD has established procedures for determining the releaseof military
  DOD Has Procedures     technology and data to foreign countries. Proceduresare in place to con-
  for Reviewing          sider the types of technical data eligible for releasebasedon industrial
  Technology Release     and security-related criteria. Within DOD, technology releasereviews are
                         conducted through a multilayered processthat includes the Defense
  and Is Currently       Technology Security Administration, the National Disclosure Policy
  Reviewing Data Lists   Committee, and the military services.’ These organizations established
                         guidelines for controlling the releaseof F-16 technical data.

                         ‘The DefenseTechnologySecurity Administration reviews the international transfer of defense-
            Y
                         relatedtechnology,goods,and services,consistentwith national security and foreign policy objec-
                         tives. The National DisclosurePolicy Committeeformulatesand administersspecificcriteria and con-
                         ditions that must be satisfied beforea decisionis madeto releaseclassifiedmilitary information to
                         foreign governmentsand international organizations.



                         Page 23                                   GAO/NSIAD-90-77BR     U.S.Japan   FS-X &development
                       Section 4
                       Technology   Transfer




                       The Air Force, in coordination with the DefenseTechnology Security
                       Administration, drafted a Delegation of Disclosure Authority Letter,
                       which provides criteria on what technical data can and cannot be
                       releasedto Japan in support of the program. A team of Air Force engi-
                       neers is reviewing the F-16 technical data list-item by item-to deter-
                       mine releasability of specific information. The team is identifying data
                       that must be sanitized to remove sensitive elements prior to release
                       basedon military security or industrial baseconcerns.Selectedkey data
                       will also be reviewed by technical personnel from the DefenseTechnol-
                       ogy Security Administration prior to its release.Commercealso
                       reviewed the releasibility guidelines and will continue to review technol-
                       ogy release issues.

                       The releaseof F-16 systems integration data has been closely scrutinized
D D Plans to Limit     by DOD and other executive branch agencies.Specifically, the releaseof
R lease of Flight      F-16 digital flight control and fire control computer software source
C%ntrol and Avionics   codeswas given special consideration.
Scjftware              The digital flight control computer software-the fly-by-wire system-
  t                    enablesthe F-16 to maintain stability and maneuver quickly and safely.
                       The flight control software is considered state of the art, is unique in its
                       sophistication, and can have direct application to commercial aircraft.
                       DOD has not released digital flight control software source codesto any
                       nation Japan is no exception. DOD and Commerceagreedthat if Japan
                       choseto request US. assistance,General Dynamics would develop the
                       flight control software for the m-x in the United States, and the resulting
                       software object codes2would be provided to Japan only as an end item.
                       A limited number of Japaneseengineerswill be permitted to observe the
                       development and tests of the software for the F&Xso that Mitsubishi
                       Heavy Industries can ensure the validity and readinessof the software
                       for the flight test, DOD plans to withhold source codesduring the devel-
                       opment stage and, more importantly, to deny hands-on experience and
                       participation in the development processof the software for the digital
                       flight control computer.
                       After completion of the FS-xflight test program and after a production
                       memorandum of understanding has been negotiated, releaseof the
                       source codesmay be reconsideredto allow Japan to maintain and
          Y            ‘The objectcodeis derived from the sourcecode.It consistsof a seriesof numbers(OSand 1s)that a
                       computerreadsto perform designatedfunctions and operations.The objectcodedoesnot provide
                       insight or accessinto analysesor methodsusedby software engineersto developa particular com-
                       puter program.



                       Page 24                                  GAO/NSIAJMO-77BR      U.S.Japan   F&X &development




                                                  y’,
                                                  .,
       i   .                                                             -
       I

I    . I
I                            Section 4                        ,
                             Technology   Transfer




                             update the developed software. At the time of our review, it was uncer-
                             tain whether or not Japan would agreeto these restrictions. If not,
                             Japan will probably develop its own software for the FS-xflight control
                             computer.

                             DOD will  releasesanitized F-16 fire control computer software source
    Sdnitized Fire Control   codesto help Japan develop and integrate its mission control computer
    Cdmputer Software        into the FS.X.The F&Xmission control computer performs the functions
    Schrce Codesto Be        of the F-16 Block 40 fire control computer. The fire control computer is
                             a critical part of the F-16 avionics system. It integrates various on-board
    R&eased                  systems that enable the pilot to effectively fire weapons at the target.
                             During the February-March 1989 interagency review of the FS-xpro-
                             gram, DOD and Commercedisagreed on releasing F-16 fire control com-
                             puter source codesto Japan. DOD believed certain portions of the source
                             codesshould be released,while Commercemaintained that all the source
                             codesshould be withheld, DOD'S position was acceptedby the National
                             Security Council.
                             In the April 28, 1989, exchangeof letters, the United States informed
                             Japan that it will receive accessto the source codesnecessaryto
                             develop the mission control computer. According to DOD, the source
                             codeswill be sanitized, giving Japan the “know what” but not the
                             “know why,” In other words, the sanitized source codesprovide the out-
                             comebut not the methods used to arrive at the outcome.
                             According to General Dynamics, its engineerswill work with Japanese
                             engineersduring the development and integration of the mission com-
                             puter. They noted that U.S. contractor assistancewill enable Japan to
                             develop the system more quickly, but the United States will gain access
                             to Japanesesystems as a result.

                             Physical safeguards are planned to minimize inadvertent disclosuresof
    Physical Safeguards      withheld technical data and know-how, General Dynamics and Mitsu-
    Ahe Planned to Reduce    bishi Heavy Industries engineerswill be located in a separate area of the
    Potential for            F-16 plant at Fort Worth, Texas. Contractor engineering teams will be
                             limited to using a reference library of releasable documents and will be
    Inadvertent              required to display distinctive badges.
    Disclosures
               Y             The U.S. engineerswill be given periodic disclosure awarenessbriefings
                             by Air Force representatives. The U.S. engineerslocated in Japan will be
                             similarly briefed by the Air Force I%-xliaison officers stationed there.


                             Page 25                         GAO/NSIAD-90.77BR   U.S.Japan   @‘S-X&development
                          &&ion    4
                          Technology   Transfer




                          General Dynamics will prepare a Technology Control Plan that will be
                          approved by DOD. The plan is designedto ensure that unauthorized data
                          or methods are not revealed at the General Dynamics facility in the
                          United States or by contractor personnel in Japan. General Dynamics
                          officials recognized,however, that it would be difficult to guard against
                          inadvertent disclosures becauseof the close working relationship among
                          the engineers.

                          A Technical Steering Committee was established to overseethe imple-
Tl ! Technical Steering   mentation of the FS-X program. The Committee, which is co-chaired by
CC nmittee Will           high-ranking U.S. and Japanesemilitary officers, will have a representa-
M Gtor Technology         tive from the Department of Commerce.U.S. membership primarily
                          includes technical/program managers from the F-16 System Project
Fl iv                     Office.
                          The Committee will, among other things, monitor the transfer of techni-
                          cal data to Japan. According to high-level DOD officials, the Committee
                          will be the forum for all requests for releaseof technical data made by
                          Japan during the course of the development program. The requests for
                          consideration will be channeled to the appropriate technical officials at
                          the Air Force’s System Project Office and Foreign Disclosure Policy
                          Office. Requeststhat fall within the guidelines of the Delegation of Dis-
                          closure Letter may be approved, Requeststhat are outside the estab-
                          lished guidelines will be staffed by the Air Force Vice Chief of Staff’s
                          Disclosure Policy Office and reviewed by Defenseand Commerce
                          Department officials. According to DOD officials, this processwill elevate
                          releasability issuesto better ensure full and complete review and reduce
                          the opportunities for imprudent disclosures.

                          Japan has targeted aerospaceas one of its key technologies for the 21st
Commercial                century. U.S. government officials informed us that the skills and
Application of FS-X       knowledge acquired from the F&Xprogram can generally be applied to
Technology Is             other aviation-related programs. Japaneseengineerswill gain valuable
                          experience in systems integration. Systemsintegration consists of com-
Uncertain                 bining various aircraft componentsto work with each other to perform
                          mission-related functions. Japan will integrate various avionics compo-
                          nents and subsystemsinto the FS-X. For example, if Japan decidesto
                          develop its own digital flight control system, significant integration
           6              skills will be acquired and applied to complete the task. DOD and civilian
                          agency officials stated that Japan has had limited experience in systems



                          Page 26                         GAO/NSIAD-90.77BR   U.S.Japan   FS-X &development
             I
--..L-   i
                 fbctlon4
                 Technology   ‘Ibander




-
                 integration, and these officials consider it an art learned only through
                 the “school of hard knocks.”
                 The extent to which these systems integration-related skills are directly
                 transferrable to commercial aircraft development is uncertain. Informa-
                 tion available to us indicates that no individual project in the series of
                 U.S.-Japancoproduction programs over the past 30 years gives Japan
                 the technological keys to bridge the competitive gap, However, the
                 cumulative knowledge gained from a broad range of successfuljoint
                 ventures between the United States and Japan may reduce the time and
                 expenseit will take Japanesefirms to catch up and becomemeaningful
                 competitors in the aerospace/aircraft manufacturing industry.




                 Page 27                         GAO/NSIAD-BO-77BR   U.S.Jepan   F’SX &development
S&ion 6

&tive Phased Array Radar Technology


                        .   DUD is interested in acquiring Japaneseradar module production
                            technology.
                        l   U.S. knowledge of Japaneseradar.
                        l   U.S. industry is making significant advancesin reducing module cost.
                        l   Benefits to the United States are questionable.

                            As part of the FS-xprogram, Japan has been developing an active
     Is Interested in       phased array radar that useselements called transmitter/receiver mod-
 Qmnese Radar               ules located in the radar’s antenna.’ These modules can improve range,
 Ipdule Production          increase the number of targets tracked simultaneously, reject jamming,
                            and enhancereliability. The critical challenge is to develop manufactur-
 ‘&chnology                 ing processesto produce efficient, quality modules that are affordable.
 /                          There are about 2,000 modules in a radar antenna, and each module cur-
 I
 /                          rently costs U.S. industry about $8,300 (fiscal year 1986 dollars) to pro-
 /                          duce. Thus, the cost of a single antenna would be about $16.6 million.
 /                          US, companiesare currently developing active phased array radars and
                            modules for advanced fighter aircraft-the Advanced Tactical Fighter
                            and the Advanced Tactical Aircraft. U.S. industry’s goal is to reduce
                            module costs to about $400 per module.
                            The active phased array radar technology is well known. The ability to
                            reduce the size of the modules and produce them at affordable costs is a
                            significant task that remains to be accomplished.DOD would like to
                            acquire from Japan the manufacturing technology for the radar’s mod-
                            ules. The government-to-governmentagreement enablesthe United
                            States to evaluate and purchase the radar technology that will be devel-
                            oped by Japan under the program. The United States doesnot know
                            what the cost of procuring the technology will be at this time.

                            DOD’S efforts to obtain adequate data to assessperformance of the Japa-
US. Knowledge of            neseradar, including test and evaluation results, have been largely
Japanese Radar              unsuccessful.In April 1987, a DOD team visited the Mitsubishi Electric
                            Corporation’s facility, which is producing the transmitter/receiver mod-
                            ules. The team saw the modules and described them as impressive,
                            although DOD did not have a radar specialist there. Part of the team also
                            visited the facility where the entire radar was being flight-tested,

                            ‘Transmitter/receiver modulesare comprisedof circuits using gallium arsenidesemi-conductorchips.
           Y                Although the production of gallium arsenidematerialsand devicesis still maturing, their usecan
                            surpassconventionalsilicon devicesin speed,power,efficiency, and resistanceto radiation effects.
                            Both the United Statesand Japanare using gallium arsenidetechnologyin the developmentof their
                            active phasedarray radar’s modules.



                            Page 28                                  GAO/NSIAD-@O-77BR     U.S.Japan   FS-X Codevelopment
‘.



     Section 6
,
     Active Phased Array   Radar Technology




     expecting to seethe radar. According to the DOD team leader, the Japa-
     neserefused the team permission to view the radar due to performance
     problems. The team requested test and evaluation data on the radar, but
     Japaneseofficials refused to releasethis information as well.

     In January 1988 DOD attempted to obtain additional information about
     Japaneseradar technology to assessits potential benefits. Detailed tech-
     nical questions were submitted prior to the trip, but little information
     was provided. A DOD technician was not permitted to seethe radar and
     was told by Japaneseindustry officials that the information was propri-
     etary, classified, and not releasable.
     In March 1989 the Air Force’s Wright Researchand Development Center
     described Japan’s radar as a “quick development aimed at drawing even
     with the U.S. technology base.” The Center stated that Japan appeared
     to have less radar experience than the United States and lacked vital
     knowledge in terms of defining module performance. U.S. industry rep-
     resentatives had told the Center that they had not witnessed any new
     Japaneseradar technology, only good engineering. In their view it was
     unlikely that any significant technology flow from Japan would result
     from the FS-xagreement.US. government and industry officials
     explained that the size of the modules must be reduced to fit in the nose
     of high performance interceptor aircraft. The Center noted, for example,
     that Japan’s modules were about 6 inches long, which resembled U.S.
     industry development in about 1983, In 1988, one U.S. company’s dem-
     onstration/evaluation modules were about 2-l/2 inches long.
     An official from the Center’s Electronic Technology Laboratory received
     information from a knowledgeable U.S. industry representative who had
     observed the Mitsubishi Electric Corporation’s production facility and
     had discussionswith its officials in March 1989. The industry represen-
     tative stated that Japan did not have a phased array radar module pro-
     duction facility similar to anything in the United States. He observed
     that the Japanesefacility was of “soldering iron vintage.” Mitsubishi
     established a cost goal of $1,260 per module for the array and a maxi-
     mum production rate, with a relatively low level of automation, of only
     1,000 modules per month. Mitsubishi officials admitted to the U.S.
     industry official that their prior claims of the radar’s successfuldevel-
     opment were “all hype” and that their concern was that if they did not
     make these claims, their own government would likely purchase an
     array from the United States.




     Page   29                                GAO/NSIAD-QO-77BR   U.S. Japan   FS-X &development
                        Section 5
                        Active Phased Array   Radar Technology




                        These observations parallel other U.S. government reports, which state
                        that Japan is having difficulty reducing the overall costs of the radar.
                        Indications are that high costs may limit the number of modules in each
                        Japaneseradar; limiting the number of modules will reduce the radar’s
                        capabilities. This information also contrasts sharply with earlier, opti-
                        mistic claims of the Japanesegovernment and industry.

                        From our discussionswith U.S. industry officials and observations of
UjS Industry Is         module production facilities, we concluded that the United States is
Making Significant      making significant advancesin reducing the cost of the modules. Offi-
A6lvancesin Reducing    cials from various U.S. companiessaid that the key will be to reduce the
                        modules’ cost through high-volume production. According to one com-
Mpdule Cost             pany’s estimates, the unit cost of the modules has been reduced from
  I                     about $12,000 to about $8,300 over the past 4 years, a decreaseof
  /                     31 percent. The companiesanticipate that the cost will continue to
  1                     decline steadily as production increases.For example, by 1992, the unit
  I
 I/                     cost should be about $3,100. Anticipated full-rate production costs are
 I                      about $400 per module by 1997 to 2005 for about 2.3 million modules.
 1                      This cost is generally acceptedby U.S. industry as the cost that would
 /                      make the antenna and radar affordable. These cost figures are in fiscal
                        year 1986 dollars.

                        According to DOD, Japan has becomea world leader in the design and
Bnefits to the United   manufacture of consumer electronics. Its ability to apply new designsto
States Are              production is well developed. If Japan’s knowledge of manufacturing
Questionable            technology is applied to the transmitter/receiver module production, sig-
                        nificant advancesare likely. Further, the Wright ResearchDevelopment
                        Center’s Deputy Director said it would be wrong to assumethat the
                        United States is significantly ahead of Japan. He stated that the Japa-
                        neseare extremely skilled and have a proven capability in electronics.
                        He stressedthe importance of obtaining accessto their module technol-
                        ogy to evaluate the manufacturing process.
                        Available information indicates that the United States is ahead of Japan
                        in developing the manufacturing technology necessaryto reduce the
                        costs of the radar’s transmitter/receiver modules. As a result, the Japa-
                        neseradar and associatedmanufacturing processesare of questionable
                        value to the United States in the near term.
          Y




                        Page 30                                  GAO/NSIAD-90.77BR   U.S.Japan   F’S-X &development




                                                   Is:                                                  ‘.    ‘..
                                                  I’               /’                               ;         ,I’
                                                  ,a.’    ,                                                   ’A
  Ccfnposite Wing Technology


                         9 Japan claims its proposed composite wing for the FS-xis 26 percent
                           lighter than a metal wing.
                         l Japanesewing has potential merits and disadvantages.
                         . The United States’ compositescapability is excellent and superior to
                           Japan’s
                         l The United States has produced all composite wings but has chosento
                           employ fasteners to increase confidence.
                         . The US. requirement for Japanesetechnology is modest.

                             Japan is offering critical compositestechnology related to the wing
i Ja j an Claims Its         structure, called the wing box. Japan proposesto make the long stiffen-
I Pr7posed Composite         ing pieces(spars) and the short cross pieces(ribs) out of strong plastics
  Wi g for the FS-X Is       called composites.The strength of the compositescomesfrom the
                             stringy filaments made of carbon fibers, which are held in place with an
  25 rPercent Lighter        epoxy glue.
  Tuan a Metal Wing
      I                      The top and bottom layers of the wing (skins) will also be of composites
     /I                      but will be made in a different way from the spars and ribs. The skins
                             will have thin composite “cloth,” or tape, laid in arranged directions
    !/                       with varying thicknesses.In someplaces there will be up to 160 layers.
                             Composite wing skins are built up, as contrasted with metal wings,
                             which are cut down from a thick piece of metal.
                             According to DOD and industry officials, the B-X wing spars, ribs, and
                             bottom skin will not be fastened together with bolts. Rather, the spars
                             and ribs will be carefully placed on the bottom skin. All of the parts
                             contain epoxy and are held in position with special tooling. The struc-
                             ture will be inserted into an oven (autoclave), where the pieceswill
                             becomebonded. This processis called co-curing; the epoxy becomeshard
                             and stiff. This composite is termed a thermoset. The upper skin also has
                             to be cured, either alone or in conjunction with the structure. If cured
                             alone, the upper skin would need to be fastened to the structure. With
                             this design, the Japanesehope to save 25 percent in weight compared to
                             a new, all-metal wing.
                             DOD and US.    industry officials do not have good information as to
                             whether or not the Japanesecan produce the wing as planned. Through
                             its participation in the FS-x program, General Dynamics will be able to
                             evaluate and verify the Japanesedesign and capability.
                             DOD noted that
                                          the Japaneseco-curedcompositestechnology had never
                             been demonstrated on a full-size, wet (fuel inside), contoured wing box.


                             Page 31                        GAO/NSIAD-90.77BR   U.S.Japan   F&X Codevelopment
  I
  I                    Section 6
  I                    Compo&e     Wing Technology




                       JDA admitted that the co-cured composite wing technology was not
                       mature and that Japaneseindustry could not manufacture the proposed
                       I%-xwing. JDA believes that the technology will becomemature enough to
                       be incorporated into the FS-xwing within 2 years. Although Japan
                       coproducessignificant parts of the F-15, the aircraft has very little in
                       the way of compositesand does not have a composite wing. Japan did
                       someresearch and development on the 757 tail under contract to Boeing.
                       Boeing planned the 757 as its next generation civil airliner. The tail was
                       to be a large structure made from composites,but Boeing postponed the
                       757 program becauseof changing commercial demand.
                       U.S. personnel have seenan F&Xwing specimen,US. government and
                       industry officials do not know exactly what compositeswill be used or
                       how the Japaneseplan to tool for the production operation. Further, the
                       Japanesehave not made data on design, manufacture, and testing avail-
                       able to the United States. This data would permit evaluation of the wing
                       or specimen.
                       According to U.S. government and industry design engineers,the Japa-
                       neseapproach is high risk. The United States expended significant
                       research and development effort in the 1970sto test the basic co-cured
                       composite designsnow being consideredby Japan for the FS-X wing.
                       According to Air Force engineers,the design-tested on small struc-
                       tures-was rejected becauseof manufacturing and quality control
                       problems.


                       The proposed Japanesedesign has both advantagesand shortcomings. If
JapaneseWing Has       Japan is successful,the composite wing may have advantagesover
Potential Merits and   metal wings: perhaps better performance in terms of reduced weight
Disadvantages          and increased durability, perhaps lower costs in the long run considering
                       there could be fewer parts. One of the merits of co-curing is the avoid-
                       ance of problems and complexities associatedwith drilling many holes
                       and using expensive fasteners. Co-curing also overcomesthe problem of
                       leaks that can occur when fasteners are used. There are potential prob-
                       lems: it is difficult to maintain quality control with respect to the bonds
                       over a long production run, tooling for production at low cost is very
                       complex, and production inspection of small corners and large areas
                       requires innovative procedures. Additionally, accessto fuel control
                       equipment is restricted, and damagerepair may be limited.
          Y




                       Page 32                         GAO/NSIAD4O-77BR   U.S. Japan   FSX Codevelopment
 #   (




                           Section 0
     I                     Composite   Wing   Technoloey




     I
    I1
                           Available evidence indicates that the U.S. industry’s basic knowledge of
Thd United States’         advanced compositesfor aerospaceis excellent and superior to Japan’s,
co&?oSiteS    Capability   The United States has many suppliers and fabricators and is skilled in
     xcellent and          aircraft applications. While fundamental principles of compositesare
                           available worldwide in handbooks, there are many “tricks to the trade,”
     erior to Japan’s      especially for manufacturing. These tend to be company proprietary.
                           There are varying levels of maturity in the U.S. industry. The consensus
                           among industry experts is that General Dynamics is behind someother
                           U.S. aircraft manufacturers in compositestechnology becausethe F-16
                           aircraft has few composite components.
                           The United States has a demonstrated and proven capability in the pro-
                           duction of composites.Industry has co-curedmany parts of aircraft,
                           especially “secondary” structures such as rudders and ailerons. The
                           United States currently produces composite rib/spar/skin secondary
                           structures for fighters and has co-curedthe large AV-8B horizontal tail,
                           a primary structure. The United States has manufactured large skins for
                           aircraft tails and for combat aircraft wings. The Marines have extensive
                           fleet experience with the AVSB under high stress. That aircraft has
                           wavy spars and a wet wing like those proposed by Japan.

                           The biggest difference between the U.S. work and that planned for the
Tlie United States Has     E-X lies in co-curing the substructure to the bottom skin. For example,
Produced All               while the AV-8B has composite spars and ribs, they are fastened to the
Composite Wings but        bottom and top skins. This practice is currently preferred to ensure high
                           confidence in the joints. While secondary structures and tails have been
Has Chosen to Employ       co-cured,wings of combat aircraft require a substantially different con-
Fasteners to Increase      sideration. The latter must withstand far more stress (g’s) and carry
Confidence                 fuel. The X-29 and the A-6, which have composite skins, were designed
                           with somemetal substructure becauseof their loads.

                           The US. requirements for Japanesecomposite technology for military
The U.S. Requirement       aircraft and civilian aircraft may be different. In the caseof military
for Japanese               aircraft, there is always a requirement if the wing can be made lighter
Technology Is Modest       and cheaper, and the trend is toward increased use of composites.The
                           US, Air Force has indicated that the prime use for co-curedthermoset
                           wings would be future versions of the F-16, if the wing proves afford-
                           able. The Japaneseco-curedthermoset technology may not be in much
           s               demand for the next generation of fighters, partly becausethe flight
                           schedulesfor the Air Force’s prototype Advanced Tactical Fighter and
                           the Navy’s Advanced Tactical Aircraft are ahead of the FS-xand partly


                           Page 33                         GAO/NSIAD4O-77BR   U.S.Japan   F&X Codevelopment
                                                                                )r

Section 6
Campoaite   Wing Temhology                                                           t
                                                                                     ir
                                                                                      t




becausethe Air Force’s performance requirements may pose problems
for thermosets.
To meet the higher temperature requirements for future aircraft, the
US. trend is toward the use of thermoplastics. This material is formed
under pressure in warm molds and becomeshard when cooled. Auto-
claves are not used to set the composites.According to industry experts,
thermoplastics currently have very high costs but will have some future
application.
Composite requirements for civilian airliners are more difficult to
assess,since there are many aircraft customers.It is not likely that the
Japanesecomposite technology would be applied to current airliners like
the MD-80 and the B-767/767, since they are already being produced at
a high rate. By the year 2000, compositesmay be useful in airliners like
the MD-91X and the B-7J7 propfan (for example, the tails) if the costs
are low. Thermoset compositesare not expected to be widely used for
the next generation of supersonic aircraft replacing the Concordedue to
the high temperatures at high speed.For the samereason, the ther-
mosetswould not be applicable to the future hypersonic aircraft, of
which the X-30 is a technical demonstration experiment program.




Page 34                        GAO/NSIAD-90-77BR   U.S.Japan   FS-X Codevelopment
      .
     !
Se&i& 7

               st
”
                          . Off-the-shelf purchase is more cost-effective.
s+w
          I

          ,I
                            Developing the FS-xwill cost Japan more than purchasing F-16s from the
Of&The-Shelf                United States would cost. The Air Force has estimated that it would cost
Pu ‘chase Is More cost-     t he J apaneseabout $28.6 million (U.S. 1988 dollars) to purchase each
Ef f’lective                F-16 Block 60 (most advancedversion) from the United States through
                            foreign military salesprocedures. Under these procedures,the total unit
                            flyaway cost of the F-16 is about $17.2 million per aircraft. This
                            includes a research and development recoupment charge of about $1.2
                            million. Additional support costs of about $11 million are factored into
                            the estimate. These support costs include spares,maintenance, and
      ,                     training. According to the U.S. Air Force, Japan would probably require
                            this level of support for the aircraft.
                            This cost estimate does not include any modifications that the Japanese
                            would want to meet performance requirements similar to those for the
                            FS-x.Most foreign countries like to have special modifications, which
                            add to the cost of the aircraft. (This estimate is like buying a car with no
                            options.) According to the Air Force, initial F-16 deliveries could occur
                            about 36 to 42 months after a government-to-government agreement is
                            signed. According to the contractor, delivery of all 130 aircraft would
                            take about 2 years.
                            According to DOD, Japan’s estimates of total FS-xprogram costs are pre-
                            liminary and subject to change as the program develops. These early
                            cost estimates include $1.2 billion for the development phase and about
                            $5 billion for the production phase. General Dynamics has roughly esti-
                            mated the FS-xunit cost to be about $61 million (U.S. 1988 dollars). The
                            procurement cost for each aircraft is anticipated to be about $46 million,
                            and the unit estimate for development, potential flight test, and program
                            growth is about $15 million per aircraft.




                            Page 35                         GAO/NSIAD-90-77BR   U.S.Japan   FS-X Codevelopment
     bendix I                                                                                         t

     Objectives,Scope,and Methodology


-i
                    In letters dated January 30, 1989, and March 21, 1989, Senators Jesse
                    Helms, Jeff Bingaman, Alan Dixon, Wendell Ford, and Alfonse D’Amato
                    expressedconcern about the proposed FS-xcodevelopment program
                    between the U.S. government and the government of Japan. They were
                    concernedthat the program signaled a greater Japaneseinterest in
                    obtaining research and development experience rather than in providing
                    effectively and efficiently for their own defense.

                    In responseto the Senators’ requests, we assessed(1) the extent to
                    which DOD coordinated and consulted with the Department of Commerce
                    when negotiating the FS-xagreement,(2) the principal provisions of the
                    government-to-government and commercial licensing agreements,(3) the
                    processfor transferring US. F-16 technology to Japan, (4) Japanese
                    composite wing and phased array radar technologies and U.S. require-
                    ments for these technologies, and (6) costs and scheduled delivery dates
                    for the FSXcompared to the purchase of an F-16.
                    In doing our work, we obtained information from various US. govern-
                    ment and industry sources.We primarily reviewed program files and
                    had extensive discussionswith DOD and U.S. Air Force program and
                    technical officials in Washington, D.C., and the F-16 System Project
                    Office, Dayton, Ohio. From these records and discussions,we obtained
                    background information, including the negotiating history; assessed
                    F-16 technology releasability issuesand procedures; analyzed cost data;
                    and reviewed the government-to-government and commercial licensing
                    agreements.
                    To assessthe technology issues,we met with structural, design, and
                    electronics engineers at the Air Force’s Wright Researchand Develop-
                    ment Center, Dayton, Ohio. We also met with industry representatives
                    from HughesAircraft Corporation, WestinghouseElectric Corporation,
                    Texas Instruments, Inc., McDonnell Aircraft, and General Dynamics Cor-
                    poration. In addition, we contacted numerous other industry technical
                    officials to further assessU.S. capabilities and obtain information, to the
                    extent available, about Japanesecapabilities.
                    We also met with officials from the Departments of State, Commerce,
                    Energy, Labor, and the National Aeronautics and SpaceAdministration
                    to obtain information on the consultation processand other general
                    background information on the FS-x.
                Y

                    Due to the continuing bilateral negotiations to clarify certain aspectsof
                    the program, we did not visit Japan to obtain the views of appropriate


                    Page 36                         GAO/NSLAMlO-77BR   U.S.-Japan PS-X &development
     //
’    /
     /    Appendix 1
    I/
    ,     ObJectbee, Boope, and Methodolo@




          government and industry officials. Further, we did not specifically
          assessthe commercial application of the FSXcodevelopmentprogram. In
          our discussionswith US, government and industry officials, we did,
          however, solicit their views on the issue.
          We conducted our review between February and May 1989 in accord-
          ante with generally acceptedgovernment auditing standards.




          Page 37                            GAO/NSlAD@O-7TRR   U.S.Japan   FS-X Development
 I
Ap&ndix II

Cbments From Department of Defense


    I
Notel: GAO comments
sup(Slementing those in the
repo t text appear at the
end bf this appendix.                        GAO DRAFT     REPORT- DATEDAUGUST29, 1989
                                                    (GAD CODX463776) OSD CASE 8000-G
                                      "U.S.-JAPAR CODXVXWPMEWJ!IREVIEWOF TIiB FS-X PROGRAM"
                                                      DEPARTMENT
                                                               OF DEFENSEC-S
                                                                 ******



                                                       D Enoov              to PuEEhape an Off-the-
                              @ykt:         lg&g.         The GAO reported that, in the late 19708,
                              Japan b,eqan to consider replacement of ita domestically             produced
                              fighter.       The GAO reported that the Japanese Technical Reeearch
                              and Development Institute,        the department responsible      for R&D
                              within the Japan Defense Agency, believed that Japan had the
                              domestic capability       to develop the new fighter--except        for the
                              engines.       The GAO observed that Japan considered economic
                              factors such as employment in its aerospace industry and the
                              knowledge gained from various licensed production programs with
                              the U.S. The GAO also observed that, while DODmade several
                              attempts to encourage Japan to buy a U.S. fighter           off-the-shelf,
                              it generally      assumed that there was not any realistic
                              possibility      of this occurring.    The GAO reported that,
                              ultimately,      as a compromise between U.S. and Japanese interests,
                              DODproposed a cooperative venture between the two countries.
                              The GAO noted that, in August 1987, the DODand the Japan
                              Defense Agency      agreed to cooperate on the development of the FS-
                              X aircraft--to      be based on a modified version of an existing
                              U.S. fighter.       The GAO found that DODanalysts influenced            Japan
                              to consider broader requirements for the aircraft          than Japan had
                              initially     defined --and also convinced Japanese officials          that an
                              existing     or modified U.S. fighter     could meet most of these
                              requirements.
Now on pp, 8.10.              (pp. 11-16/GAO Draft Report)
                              Mp Resoonsar          concur.



                              The GAO reported that the DODand the Department of State did
                              did not solicit   the views of the Department of Commerce or other
                              economic policy-making    agencies in negotiating the agreement--
                              despite the requirement to do so in the Defense Authorization
                              Act for Fiscal Year 1989. However, the GAOdid note that, in
                                                                                                   Enclosure




                                  Page 38                                 GAO/NSlAD-90-77BR   U.S. Japan   FS-X &development
                                                                                                                2
                              October 1988, the DODdid provide a cursory briefing           to
                              Commerce. The GAO reported that, subaequently,         in February
                              1989, the President commissioned an interagency review to study
                              the agreement --which was co-chaired by DODand Commerce. The
                              GAO found, based on the review, the U.S. Government sought and
                              received clarifications     to the agreement, including     the
                              stipulation   that the U.S. would receive     approximately     40 percent
                              of the workshare if the FS-X goes into production.          The GAO
                              reported that, for future agreements, the DODagreed           to  (1)
                              notify Commerce prior to initiating      discussions   on a Memorandum
                              of Understanding     with a foreign government, (2) provide full
                              access (as an advisor) to negotiations       and to relevant
                              documents, and (3) not to conclude agreements until consultation
                              with Commerce was completed.
Now     pp, 1-2, 13-14        (p. 1, p. 3, pp. 20-24/GAO Draft Report)
                              QQDResnonser       Concur.


                                                                                                                The
                                                                                                            a
                               relationship      with Japan. The GAO found that the highest U.S.
                              priorities       were (1) to ensure that the N-X maintained
                               interoperability       with U.S. forces in the region and (2) to
                              maximize      the capability    that Japan received from its defense
                              expenditures.         In the government-to-government     negotiations,     the
                              GAO noted the U.S. team's primary objectives            were (1) to obtain
                              an adequate development and production workshare and (2) to
                              establish      a joint DOD/Japan Defense Agency steering group to
                              manage the program. The GAO noted that, while access to
                              Japanese technology was not a primary consideration,               DOD
                              realized that the FS-X program provided an opportunity               to gain
                              insight     and access to Japanese FS-X related technologies.            The
                              GAO noted that the agreement established          that the U.S. workshare
                              shall reach 40 percent of the entire FS-X development budget--
                              and an April 28, 1989, exchange of letters           stated that, if the
                              program entered production,         the U.S. would receive approximately
                              40 percent of the total production workshare.             The GAO also
                              found that, under the Memorandum of Understanding,              the Japanese
                              Defense Agency will seek interoperability          with similar     U.S. Air
                              Force systems.         The GAOnoted that DODbelieves that the FS-X
                              will be interoperable        with the F-16 and other U.S. weapon
                              ayetema.
Now on pp. 1, 10-11, 17-18.   (p. 2, pp. 16-18, pp. 27-3O/GAO Draft Report)
                              DOD Reanoaz       Concur.




                                    Page 39                            GAO/NSIAD-99-77BR   U.S. Japan   FSX &development




                                                           ii’

                                                            .’
           Appendix II
           Cbnmentu From Department    of Defeme                                                       /




 /
-I
                                                                                          3
     BIWDIWa:         -v.          U.8. -
     wtb.BtoJppgII                             1
     previou8 F-16 coproduction           igreements which have made available
     operations,      maintenance, and production data, the FS-X program
     will also release certain F-16 design and software data that was
     not previouely       released.      However, the GAO found that, in order
     to protect U.S. national          security and industrial
     competitiveness,        during the interagency review the DODand the
     Department of Commerce agreed to minimize the transfer                      of F-16
     design data and other sensitive              technical     data to Japan. The
     GAO reported that the U.S. will not release any manufacturing                        or
     design data for the engines --although               the DODwill consider
     providing     some engine production          technical      data after a
     production Memorandum of Understanding is negotiated.                       The GAO
     also found that numerous items and components will not be
     included in the F-16 technical              data package. The GAO reported
     that the release of the F-16 digital               flight     control and fire
     control computer software source codes were given special
     consideration       by the DOD and other Executive Branch Agenciee.
     The GAO observed that the former is state-of-the-art                    and could
     have application        to commercial aircraft,           and that Commerce
     believed that the later would greatly aid Japan in system
     integration      of fighter    aircraft.        The GAO found that, because
     the integration       of Japanese avionics into the aircraft                requires
     the release of certain F-16 fire control computer software
     source codes, the U.S. Government decided that sanitized                       fire
     control computer source codes would be transferred                    to Japan--
     but, due to its commercial applicability,                  that the F-16 digital
     flight    control software source codes would not be transferred.
     The GAO also noted that, after a production Memorandum of
     Underetanding is negotiated,             tranefer of the digital        flight
     control computer software source codes may be reconsidered.
     The GAO also reported that a joint U.S.-Japanese Technical
     Steering Committee has been established,           with a Department of
     Commerce representative     as a member, to monitor key aspects of
     the program, including    technology transfer.          In addition,     the
     GAO found that DODtechnology        transfer/release      reviews are
     conducted through a multi-layered        process.      The GAO also noted
     that, for U.S. industry,     physical safeguards are planned which
     will minimize inadvertent     disclosures;       but, General Dynamics
     recognizes that it will be difficult          to prevent all such
     disclosures  because of the close working relationships              between
     U.S. and Japanese engineers.
     The GAO reported that under the terms of the agreement, all
     technical   data, information,   and documentation provided by U.S.
     manufacturers or the DODwill be used only for development of
     the FS-X and are prohibited    from transfer   to a third party
     without the U.S. Government's prior approval.




           Page 40                                 GAO/NSIAD-90-77BR   US. Japan   FSX Codevelopment
                                       Appendix II
                                       Comments From Department         of Defense




                                                                                                                           4

                                 Finally,    the GAO reported that Japan has targeted aerospace aa
                                 one of its key technologies      for the 21at century.    The GAO
                                 concluded that the Japanese will gain some aviation         system8
                                 integration     skills  from the program; however, the extent to
                                 which the systems integrated-related      skills  are directly
                                 traneferrable      to commercial aircraft development is uncertain.
                                 The GAO concluded that, over time, the cumulative knowledge
                                 gained during a broad range of successful joint ventures with
                                 the U.S. may reduce the time and expense required for Japan's
                                 aircraft    industry to become meaningful competitors to U.S.
                                 industry.
Now 01) pp. 3, 20-25.            (pp. 4-5, pp. 32-41/GAO Draft Report)
                                 DODResnonsgr        Concur.

                                 IrI#DIIIQs
                                 The GAO reported that, while the U.S. did not pursue the FS-);
                                 program with the primary objective     of obtaining      access to
                                 Japanese technology,    once Japan agreed in principle       to the
                                 program, the DOD stressed the importance of obtaining          access to
                                 the new aircraft's   technologies.    In addition,     the GAO pointed
                                 out that it is the DODposition     that the program sets a
                                 precedent for two-way exchanges of military        technology between
                                 the U.S. and Japan. The GAO noted the agreement provides that
                                 the U.S. will have access (1) to all F-16 derived technologies,
                                 including  composite wing technologies,    at no cost, and (2) to
                                 solely Japanese-developed FS-X technologies,         such as the active
                                 phaeed array radar, at an undetermined price.
                                        mArrav                       The GAO reported that Japan is
                                        developing an active phased array for the FS-X, and that
                                        the DOD is interested          in evaluating     and possibly acquiring
                                        the manufacturing        technology used to produce the radar's
                                        transmitter/receiver         modules. The GAO found both the U.S.
                                        and Japan are working to develop a manufacturing                    process
                                        that produces affordable,            quality modules--with        the U.S.
                                        induetry making considerable            progress.     The GAO observed,
                                        however, that to date, the DODefforts               to obtain adequate
                                        data to access performance of the Japanese radar, including
                                        test and evaluation         results,    have been largely
                                        unsuccessful.        The GAO reported that, based on the limited
                                        information      available,      current Japanese module technology
                                        is comparable to where U.S. industry's              technology was in
                                        about 1983. The GAO further observed that, according to
                                        the DOD, Japan's ability           to transition    new designs into
                                        production     is well developed and if Japan's knowledge of
                                        manufacturing      technology is applied to the
                                        transmitter/receiver         module production,       significant
                                        advances are likely.          Based on the available          information,
                                        the GAO concluded that the U.S. is ahead of Japan in




                                       Page 41                                       GAO/NSMD-90.77BR   U.S.Japan   FS-X Codevelopment




            :   ‘I.
                        ;   ,’   .,.                           .,.I
                                                                $,,.L     ’    :     ‘,,
                                       AppendlxII
                                       CommentaFromDepartmentofDefenae                                                 b
                                                                                                                       I
                                                                                                                       i
                                                                                                                       k




                                                                                                     5
                                    developing the manufacturing   technology necessary to reduce
                                    the costs of the radar's transmitter/receiver   modules. As
                                    a result,  the GAO also concluded that the Japanese radar
                                    and associated manufacturing   processes are of questionable
                                    value to the U.S. in the near-term.
                                    -*                      The GAO also reported that Japan is
                                    planning to produce composite wings for the FS-X using a
                                    process known as co-curing.         The GAOobserved that the
                                    Japanese approach appears to be high risk because of
                                    manufacturing     and quality    control uncertainties   and damage
                                    repair problems.        The GAO found that U.S. industry's     basic
                                    knowledge of advance composites is superior to that of
                                    Japan. Furthermore, the GAO found that future U.S.
                                    military   aircraft     will need more heat resistant    materials
                                    to meet expected performance requirements and noted that
                                    thermoplastics      are more heat resistant     than the composites
                                    used for the FS-X wing. The GAO reported that the U.S. Air
                                    Force indicated      that the prime use for the FS-X composite
                                    wing technology would be on future versions of the             F-16,
                                    if it proves to be affordable.          The GAO further noted that
                                    the Japanese have not yet released co-cured composite wing
                                    design, manufacture, and testing data to the U.S. The GAO
                                    concluded that, based on available         evidence, the U.S.
                                    industry's    basic knowledge of advanced composites for
                                    aerospace is excellent        and superior to Japan--and the U.S.
                                    military   requirements for the Japanese composite technology
                                    appears to be modest at this time.
Niw   on pp. 1, 3-4, IO, 26-        (p.2, pp. 5-7, pp. 16-19, pp. 25-32, pp. 42-54/GAO Draft
321                                 Report)
                               DODS               Even though the GAO concluded that the value of
                               the FS-X radar ia "questionable"       and the value of the FS-X
                               composite wing is "modest," one would have to assume that a
                               technically    advanced country like Japan has something to offer
                               the U.S. in these areas.       Both the DODand General Dynamics also
                               believe that, during the course of the program, there will be
                               other Japanese
                                     technologies    which will be of benefit to the U.S.


                                                                    0 Devq&p   the FS X    The GAO
                               reported that developing the FS-X will cost Japan-m&e than
                               purchasing F-168 from the U.S. The GAO observed that, according
                               to a U.S. Air Force estimate, the most advanced version of the
                               F-16 produced in the U.S. would cost Japan about $28.6 million
                               per aircraft  (in U.S. 1988 dollars)--assuming      that it were
                               purchased through Foreign Military     Sales procedures.    From
                               limited information  obtained during its review, the GAO




                                      Page 42                          GAO/NSIAD-90.77BR   U.S.JapanFSXCodevelopment
                        AppenruX II
                        Ckmmenta From Department   of Defembe




                                                                                                              6

                       estimated    that the unit coet of the            FS-X will      be about $61
                       million   (in U.S. 1988 dollars).
Now on hp. 2, 4, 33.   (p. 8, pp. 55-57/GAO Draft Report)
       /
                       POD   mt          Concur.




                        Page 43                                 GAO/NSL4D-BO-77BR    U.S.Japan   FS-X Chlevelopment
A&endix III

                        From the Department of Commerce‘ 1,
                                                         *



                                                                            wwtmo          m-rdwmm    O~PARTM~NT        oc CIOMM~RCIW
                                                                            l urrmu       of Export   Admlnlm8t-melon
                                                                            Wsehlngton,      DC. 20230




                         Mr.  Frank C. Conahan
                         Aaei8tant Comptroller General
                         National Security and International   Affairs                                Division
                         United States  General Accounting Office
                         Waehington, D.C. 20548
                         Dear    Mr. Conahan:
                                            is an unclassified            version of the off&&l    October 3.
                                                                            ta to      draft GAO reoort.
                                                                                       in the

                         (U) Thank you for your letter  requesting the Department's
                         comments on the draft General Accounting Office report entitled
                         "U.S. - JAPAN CO-DEVELOPMENT:  Review of the FS-X Program."
                          (V) I would like to compliment you and your staff for producing
                         a comprehensive and generally well-balanced    draft report which
                         refleCta a thorough review of the FS-X Memorandum of
                         Understanding.    while we believe the report presents an accurate
                         portrayal   of the negotiation  and subsequent interagency  review of
                         the FS-X Fighter Co-development agreement between the United
                         States and Japan, we do have a number of comments on the draft
                         report.
                          (U) Fir&,    we believe that the subsection entitled
                         "B            u S AmI0f.f          D,,       TO E,.O@JMICIMPLICATIONS OF
Now on   pp.   14-15.    COPRODUCTION  11 (seepages 22-24) does not present a balanced view
                         of the Administration~s        actions in reviewing the FS-X agreement.
See pp, 5, 14, and       It is not true, as the tone of this section suggests, that no
comment 1.               analyais of the technology transfer           or industrial    impacts of the
                         FS-X agreement was performed.           During the interagency review of
                         the agreement, a very detailed analysis of the technology
                         transfer   and industrial      competitiveness     impacts of the FS-X
                         program warn jointly      performed by Defense and Commerce with full
                         @upporting participation        from other civilian      agencies including
                         NASA, USTR, TreaSury, the Department8 of Energy and Labor, and
                         the Office of the Science Advisor to the President.
                          (U) Am a result of this process, Defense and Commerce agreed to
                         an extensive list of technologies   that would be withheld from the
                         Japanese to protect U.S. national   security  interests   and protect
                         the U.S. defense   industrial base. The Presidentially-mandated


                          7S Ycarr   Stimulrling   America’s
                                                                    UN&ASSlFlEB
                                                               Progrcrs   * 1913-1988




                                     Page44                                           GAO/NSIAD-90-77BRU.S.JapanFSXCodevelopment
       I)                                                                                               ,.
                                    Apwndlx II                                                          ‘”
                                    CommentsFromDepartmentof Defense
              /




                                                           UHASSIFIEII
                                                                  -2-

                              review procese did address technology transfer  and industrial
                              competitiveness concerns, and had a material effect in placing
                              limits on the scope of technology transfer.
j See p, !f                    (U)  We believe this section of the draft report would be more
                              balanced if it etated that since the earliest      days of 1989, the
          I                   trade, economic, and industrial    competitiveness   implications  of
                              defense cooperation agreements such as the FS-X have been a
                              central concern of the Administration.
  See p. j14 and comment 2.    (U) Defense and Commerce have established   a cooperative working
         I                    relationship  on the FS-X program, and are now jointly     reviewing
                              defense cooperation memoranda of understanding.     Commerce is also
                              participating  in the formulation  of the U.S. negotiating     position
                              for programs such as the FX Korean Fighter Program.
  Now or/ pp, 21-22           (U)    Our second comment relates to the subsection entitled         QQQ
                                               FOR m           TECBBOLOCY
                                                                                   REVS
                              U#-T.g@@ (oee pages 34-35).     This section fails to mention that
                              Defense has fully involved Commerce in overseeing technology
                              transfer   to Japan in the FS-X program, in keeping with the intent
                              of SeCtiOn 825 of the Defense Authorization       Act of 1988. At the
                              request of Defense, Commerce fully reviewed the Delegation of
                              Dinclosure Authority    Letter,   a comprehensive technical    document
                              which identifies   which specific    technologies   can and cannot be
                              disclosed to the Japanese under the FS-X program. This document
  See p, 22 and comment 3.    defines allowable technology transfer       under the FS-X program, and
                              is the guiding policy document for the team of Air Force
                              engineers who do the day-to-day work of technical        information
                              release to the Japanese. We believe the draft report would be
                              more balanced if it mentioned the fact that Commerce is fully
                              involved in reviewing technology release under the FS-X program,
                               (U) Our next comment relates to a technical         point'presented     in
                              the subsection of your draft report entitled         I'-
 Now on pp. 24-25.                                                IS -'I           (see page 40). This
                              subsection states:      "U.S. government officials       informed us that
                              the skills    and knowledge acquired from the FS-X program can
                              generally    be applied to other aviation-related        programs;
                              Japanese engineers will gain valuable experience in systems
                              integration.     DOD and civilian   agency officials       stated Japan has
                              had limited experience in systems integration          and these officials
                              consider it an art learned only through the O1school of hard
                              knocks".     This paragraph is misleading.



                                                          Ul(eLIISSlFlEC
                      Y




                                    Page45                          GAO/NSLAD90-77BRU.S.JapanFSXCodevelopment
                                   Appendix   III
                                   CommentsFromthe     Department
                                   of Commerce




                                                             UNMASSlFlEli
                                                                     -3-

                             (U) The FS-X program systems integration         of the digital  flight'
                            control system to the airframe of the FS-X will be performed by
                            the U.S. contractor,      General Dynamics, Unless the Japanese decide
                            to independently    develop their own digital      flight control system.
                            The Delegation of Disclosure Authority        Letter governing
                            technology transfer     from the United States to Japan specifically
                            prohibits  the transfer     of digital flight   control computer
                            hardware.
                             (U) Therefore, the Japanese will not gain any significant            systems
                            integration     knowledge or experience from the digital       flight
                            control computer.       The systems integration     experience gained by
Z/ee p. 24 and comment 4.   the Japanese in the program will be limited to either
                            unsophisticated     systems, or to those such as the mission control
                            computer (i.e.,     fire control computer), which have no direct
                            aommercial application.       We believe,   therefore,    that this
                            subsection of the draft report should be revised to reflect             this
                            substantive    correction.
                            (U)   The Department's comments on Section 5 of your draft report
                                 VE PHASEI)."                               (See pages 42-47) and
Iho; on pp, 26.28 and 29.   Section 6, "COMPOSITEWINGTECHNOLOGY"(See pages 48-54), are
                            necessarily   broad, because we believe the analyses presented in
                            these sections are speculative.         It remains to be seen whether or
                            not Japanese technologies      will be of value to the United States.
                            No one au yet detailed specific        knowledge of the state of
See p. 5 and comment 6.     development of Japanese phased array radar and composite wing
                            technologies.    We believe,    therefore,     that these sections should
                            be revised to clearly     state that assessment of Japanese phased
                            array radar and wing technologies         at this point in time is by
                            nature an exercise in speculation.
                             (U) Our final comment is that the draft report does not mention
See p. 16 and comment 5.    the fact that the U.S. Government will receive a research and
                            development recoupment cost fee.   This benefit of the program to
                            the U.S. taxpayer should be referenced in the discussion of
                            program costs and U.S. workshare.
                            (U) We appreciate        this   opportunity     to comment on the draft
                            report.
                                                                      Sincerely,
                                                                                    nh




                                                                 UNIIASSIFIED
                                  Page 46                                  GAO/NSL4D-90-77BR   U.S.Japan   FS-X &development
                Appendix III
                Comments From the Department
                of Commerce




                The following are GAO’S comments on the letter dated December28,
                1989, from the Department of Commerce.

                1. Although this section of the draft report was intended to provide a
GA(I)Comments   historical perspective on the matter, we have revised the languageto
                clarify and reiterate that coordination among the executive branch
                agenciesdid occur in early 1989. As we have noted in our report, how-
                ever, the coordination resulted only after considerable pressure was
                applied by membersof Congressand executive branch agencies,includ-
                ing Commerce.The interagency review of the FS-xarrangement was ulti-
                mately commissionedby the President of the United States. The
                objectives of the interagency study are discussedin the report.
                2. We note that a cooperative relationship now exists between DOD and
                Commerce.

                3. We revised the report to reflect Commerce’srole in reviewing the Del-
                egation of Disclosure Letter and noted that Commercewill continue to
                monitor and review technology releaseissues.
                4. We have modified the example of how Japaneseengineersmight
                obtain systems integration experience.If Japan decidesto develop its
                own digital flight control system, there may be direct commercial appli-
                cation This is why the U.S. government will withhold source codesand
                will require the U.S. contractor to develop the data with minimal Japa-
                neseparticipation. The B-X program will enable Japaneseindustry to
                buiid and integrate a sophisticated military aircraft. The extent to
                which specific systems integration skills acquired will be directly
                absorbed,assimilated, and transferred into commercial aircraft develop-
                ment is uncertain and impossible to quantify.
                5. We have revised the report to reflect that the U.S. government will
                receive a research and development recoupment fee for each FS-x air-
                craft manufactured.
                6. Our assessmentof the two Japanesetechnologies-composites and
                phased array radar- is basedon numerous discussionswith U.S. gov-
                ernment and industry aerospace,structural, design, and electronics engi-
                neers. We also reviewed documentary evidencethat was available from
                various US. government and industry sources.This information indi-
                cates that the United States is ahead of Japan in the development and
                overall application of these two advancedtechnologies.The potential


                Page 47                        GAO/NSIAD90-77BR   U.S.Japan   F’SX &development




                                                    ‘,,   ,
                                                                                ,        :.,   :’
I
I                                                                                      *
    Appendix III
    Comment9 From the Department
    of Commerce




    application and usefulness of these technologieswill be determined once
    they have been made available to the United States for testing and
    evaluation.




    Page 48                        GAO/NSIAD-90.77BR   U.S.Japan   PS-X &development
                j   l

i               !
,;I Appeqdix IV
1
: M ’ ‘or Contributors to This Report
   w

                                            Stewart L. Tomlinson, Assistant Director
     Nationa1           Security      and   Glen Levis Evaluator _in _Charge
    International Affairs                   Blake Ainiworth, Evaluator
    Division,           Washington,         Calvin Chin, Evaluator
                                            GeorgeSousa,Electronics Engineer Adviser
    DC.                                     Dr. John Barmby, AerospaceEngineer Adviser
                                            Richard Felner, Electronics Engineer Adviser




                           Y




    (46337783                               Page 49                      GAO/NSLAD-90.77BR   U.S. Japan   FS-X Codevelopment
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