Type of Arms Trade

Licensing

The term 'Licensing' refers to the case where the production takes place on the basis of licensing agreement between 2 companies if 2 different countries whereas the term “Unlicensed” production boot out the original holder of technology as well as the cases where the right of production is inherited by another legal entity(in case of successor states of USSR).

Also, term licensed or unlicensed merely indicate whether the production is based on licensed agreement or not; it didn’t say anything about whether the company is authorized by its government to produce weapons in question.

Licensed production in the defense sector is now the staple of a modern trade agreement. The reason behind can range from an anticipated increase in market share, assisting in the development of domestic defense industry and creating jobs in the licensee’s market to providing an incentive for joining a certain alliance or strategic partnership.
According to WIPO (World Intellectual Property Organization), ‘a license agreement is a partnership between an IP [intellectual property] owner (licensor) and another who is authorized to use such rights (licensee) under certain conditions’ whereas in unlicensed production there is an absence of agreement between the IP owner and the other party.
In case of small and light firearms, the licensing agreement brings the licensor and incense (a foreign country which provides the technical data, prototype, and blueprint of the weapons in questions).Often the small arms production licenses are undivided in nature i.e. the licensor retains the right to use the licensed property itself and to attribute further licenses to 3rd parties. In fact, the majority of the largest small arms production companies have their licensing agreement with several manufacturers around the world for their different models.

For example Heckler & Koch, for example, used to produce its G3 assault rifle in its own production facilities in Germany along with their various variant. The G3 rifle is or was produced under license in the following countries: Brazil, France, Mexico, Turkey, Portugal, Sweden, Norway, Greece, Pakistan, Myanmar and Iran. 

G3 Assault Rifle
Source: Wikimedia

• G3P3: Model number for the Pakistani-made version of G3A3. 
• G3P4: Model number for Pakistani-made version of G3A4. 
• G3A5: HK assigned model number for the HK-made Danish version of the G3A3. It differs in that it has a silent bolt-closure device. In Danish service, it is known as the Gv M/66. The Gv M/66 was originally intended for use with optics as a designated marksman rifle, while the rest of the squad was issued M1 Garands. 
• G3A6: HK assigned model number for the Iranian-made version of the G3A3. It differs in having a dark-green hand-guard, stock, and trigger pack. 
• G3A7: HK assigned model number for the Turkish-made version of the G3A3. 
• G3A7A1: HK assigned model number for the Turkish-made version of the G3A4. 
• HSG1: HK assigned model number for the Luxembourg-made version of the G3A3. 
• BA63: Model number for Myanmar-made version of G3A 

Source: Wikipedia/ Heckler & Koch G3

Sole license which is less frequent is where the licensor holds the use of licensed property with itself and cannot forward the license to the 3rd parties
Example: cutting edge weapons technology-F22 Raptor.

License contracts/agreements may also contain the agreement/provisions restricting the weapon production after a particular period of time or quantity, beyond which the further production will be considered illegal. Restriction or limitation may also be placed on the final end use of the weapon system
Example: The Russian Federation has granted a production license for Kalashnikov rifles to India, whose stated purpose is the supply of the Indian Army and law enforcement bodies

Besides the above condition the two most basic and mostly implicit conditions underlying the licensing agreement are:

• licensor must have ownership of the relevant IP 
• the IP must be protected by law [e.g. covered by a patent law] 

In the area of small arms production, licensing agreements contain the voluntary and conscious transfer of technology. Such an agreement may involve several different types of technology transfer.

Costs and benefits for the licensor

Licensing weapons provides licensor an additional income (royalty payments) that can later help in recouping research and development costs incurred. Apart from direct export licensing is vital for small arms industry in countries where domestic demand is too small to sustain the industry. By granting a license the original producers of small arms may indirectly access foreign market in a cost-effective way as the licensee knows the local market much better and able to make necessary changes like the translation of labels and instructions, and the adaptation of the product to local regulations. Example: 9 x 19 mm Model 92FS self-loading pistol, produced by Fabbrica d'Armi Pietro Beretta in Italy, is produced under license by the US company Beretta as the M9. It has been modified slightly in order to fit US requirements like 100% interchangeable design parts to simplify maintenance for large government organizations., modified the front of the trigger guard, recurved the forward base of the grip to aid aiming, hard chromed the barrel bore to protect it from corrosion and to reduce wear, new surface coating on the slide called Bruniton (corrosion resistance).

Source: Wikipedia/Beretta M9

Key Notes

• Only 57%of weapons produced by technology acquirers are produced under license
• States that originally own technology are easily outnumbered by those that acquire it. Moreover, most original owners are themselves, acquirers of production technology,
• Man-portable air defense systems (MANPADS) technology is quite strictly controlled, even though there is some unlicensed production.
• Production based on former Soviet Union (USSR) technology represents a disproportionately high share if unlicensed production worldwide.
• Approximately 60% to 80% total annual production of assault rifles, military rifles and carbines are under license or unlicensed copies.

Source: Small Arms Survey/

Multiplying the Sources :Licensed and Unlicensed Production

Co-Production/Joint Production
As per Business Dictionary, “Distributed-production arrangement or Joint Prodcution in which different firms (often located in different countries) produces different parts of the same end product. Engines, fuselage, tail-section, and wings of the Airbus, for example, are coproduced in different countries of the European Union. Coproduction may involve transfer of technology as well as of key personnel, especially in the early stages of the agreement”

BrahMos: Hypersonic cruise missile is a joint production of India & Russia
Source:Wikimedia

It allows the recipient to enter the foreign market at a minimum investment cost along with its trademark protection. It enables the company to impart its technical knowhow and assistance to the recipient country without making adjustment according to the market
Co-production differs from licensing as in latter case production is done in recipient country via formal entry in the recipient country’s domestic market thus the primal difference between the two is the location of production and mode of entry in the market.

Benefits of international co-production
As a response to internationalization, co-production offers both benefits and drawbacks. The ability to pool financial resources;

• access to the partner government's incentives and subsidies;
• access to the partner's market, or to a third market;
• access to a particular project initiated by the partner;
• access to a desired location; or to cheaper inputs;
• the opportunity to learn from the partner

Drawbacks of international co-production

• increased co-ordination and shooting costs; 
• increased costs of dealing with government; 
• loss of control and specificity; and 
• opportunistic behavior by production partners 

Source: Wikipedia/Coproduction

Projects

⧭Reliance Defence forms JV with Rafael, to take up projects worth $10 billion 

⧭Joint venture between Saab, Adani group to produce UAVs, military choppers
Joint Strike Fighter (JSF) is a development and acquisition program intended to replace a wide range of existing fighter, strike, and ground attack aircraft for the United States, the United Kingdom, Turkey, Italy, Canada, Australia, the Netherlands and their allies.

F35: A JSF Program

Participant nations:

Primary customer: United States
Level 1 partner: UK
Level 2 partner: Italy and the Netherlands
Level 3 partner: Turkey, Canada, Australia, Norway and Denmark
Security Cooperative Participants (SCP): Israel and Singapore

⧭Eurofighter Typhoon's development effectively began in 1983 with the Future European Fighter Aircraft programme, a multinational collaboration among the UK, Germany, France, Italy and Spain

⧭BrahMos Aerospace was formed as a joint venture between Defence Research and Development Organisation (DRDO) of India and Military Industrial Consortium NPO Mashinostroyenia of Russia through an Inter-Governmental Agreement on February 12, 1998.

⧭Barak 8 was jointly developed by Israel Aerospace Industries (IAI), India's Defence Research & Development Organisation (DRDO), Israel's Administration for the Development of Weapons and Technological Infrastructure, Elta Systems, Rafael and other companies. Bharat Dynamics Limited (BDL) produce the missiles

Iron Dome: Co-development project
(USA&Israel)
Source:Wikimedia

Co-Development
Co-Development is an approach to industrial R&D to deliver new product to the market. The potential for weapon development via co-development is significant as the traditional approach for the weapons development has always been from internal research and development and then producing, marketing and selling it in the market but use of a partner (especially in R&D) can significantly reduce R&D input and expand the innovation output along with new market which may not accessible earlier.

Generally, co-development agreements often focus on core capabilities of the partner which are company/state’s distinct advantage along with value-added benefits
Co-development agreements are a common factor in NATO and other strategic alliance. They depend upon the satisfactory identification of bilateral or multilateral hardware and politico-military requirements early in research and development production cycle. Here there is one principal and predominant supplier i.e. one supplier have supply 60% to 74% of a particular weapon system while others too may be supplying it in a small proportion reason being the degree and capability of specialization achieved by a dominant supplier

Projects

⧭The multibillion-dollar development program of the Arrow is undertaken in Israel with the financial support of the United States. When the development program began, the projection for the total cost of its development and manufacture – including the initial production of missiles – was an estimated $1.6 billion. The price of a single Arrow missile was estimated at $3 million. Between 1989 and 2007 some $2.4 billion had been reportedly invested in the Arrow program, 50–80 % of which was funded by the United States. Israel contributes approximately $65 million annually. The Arrow 2 is able to intercept its targets above the stratosphere, high enough so that any nuclear, chemical or biological weapons do not scatter over that country.

⧭The initial funding and development of the Iron Dome system was provided and undertaken by Israel. This allowed for the deployment of the first two Iron Dome systems. Subsequently, funding for an additional eight Iron Dome systems—along with funding for a supply of interception missiles—is currently being provided by the United States, with two of these additional systems having been delivered by 2012.Funding for the production and deployment of these additional Iron Dome batteries and interceptor missiles was approved by the United States Congress( $205 million). In comparison with other air defense systems, the effectiveness rate of Iron Dome is very high. Defense consultant Steven Zaloga stated that Iron Dome's destruction of 90 percent of missiles which is very high on current market standards.                                                                                     

Source: Wikipedia/Iron Dome