Bloomberg News

Jobs at Home Drive Obama Administration’s Egypt Aid Decision

March 23, 2012

Soldiers of the Bco. 2/69 Armor Unit based out of Ft. Benning, atop their M1A1 Abrams tank as a Bradley Armoured vehicle rushes by during a battle exercise between two American-Egyptian teams in the desert north of Cairo. Photographer: Enric Marti/AP Photo

Soldiers of the Bco. 2/69 Armor Unit based out of Ft. Benning, atop their M1A1 Abrams tank as a Bradley Armoured vehicle rushes by during a battle exercise between two American-Egyptian teams in the desert north of Cairo. Photographer: Enric Marti/AP Photo

The Obama administration’s decision to begin releasing $1.3 billion in annual military aid for Egypt will avert a disruption in arms sales that might have cost thousands of U.S. jobs and as much as $2 billion in contracting penalties for the U.S. government.

Secretary of State Hillary Clinton, invoking U.S. national security interests, today used her authority to waive congressional conditions on the aid that require Egypt to demonstrate democratic progress. Her decision, assailed by human rights advocates, also took account of domestic factors that are important in an election year.

The administration considered the potential loss of U.S. jobs in Ohio, Texas and elsewhere generated by Egyptian military contracts with companies such as General Dynamics Corp. (GD), which sells M1A1 tanks, and Lockheed Martin Corp. (LMT), which sells F-16 jets, according to State Department officials who briefed reporters on the condition of anonymity. In addition, under the contracting terms, the U.S. government might have been liable for as much as $2 billion if the Egyptian aid money were withheld, according to one of the officials.

“It’s actually quite difficult to shut down that aid because it means jobs for Americans here,” said Ken Pollack, an analyst at The Brookings Institution, a Washington policy group.

National security concerns, including Arab-Israeli peace and the desire to encourage Egypt’s democratic advances, were cited in the waver announcement from State Department spokeswoman Victoria Nuland. The U.S. military is able to fly over Egypt on missions, and the Navy has priority access through the Suez Canal, a conduit for 8 percent of the world’s shipping traffic, including oil tankers bound for the U.S. and Europe.

‘Security Partner’

The waiver decision is “designed to demonstrate our strong support for Egypt’s enduring role as a security partner and leader in promoting regional stability and peace,” Nuland said in her e-mailed statement.

The jobs factor played a primary role as well, according to administration officials who spoke on condition of anonymity. As President Barack Obama campaigns for re-election, he has focused on raising employment.

The Bureau of Labor Statistics reported in early March that 227,000 jobs had been created in February, capping the best six months of job growth since 2006. Yet unemployment remains at 8.3 percent and no modern president has been re-elected with unemployment above 7.2 percent.

“The U.S. economy is trying desperately to get in gear and get moving and there’s a lot of money” involved in the Egypt aid, said Pollack.

U.S. Jobs

While tying domestic economic and political considerations to a foreign policy agenda is nothing new, Clinton has stressed it as a priority during her State Department tenure. Much of her foreign travel involves events to promote U.S. trade, investment and market access, issues she has directly related to the creation of jobs at home.

The Egyptian aid is directly tied to U.S. jobs, as most of the money goes to U.S. defense contractors.

An aid cut-off would disrupt work by Lockheed Martin to build 20 F-16 fighters for Egypt with delivery scheduled this year, Laura Siebert, a spokeswoman for the company, said in an e-mail. The Bethesda, Maryland-based company has been delivering F-16s to Egypt since the early 1980s, she said.

Seibert estimated that there are approximately 570 employees working on the F-16 program at Lockheed Martin, plus workers at suppliers across the U.S.

M1A1 Tanks

A cut-off in the aid also would affect Egypt’s contracts to buy 125 M1A1 tanks, which are assembled outside Cairo from “kits” made in the U.S. by General Dynamics with Honeywell International Inc. (HON) of Morris Township, New Jersey, and Allison Transmission Holdings Inc. (ALSN) of Indianapolis, Indiana.

General Dynamics, based in Falls Church, Virginia, is working under a $395 million contract awarded in November for parts deliveries to start in July, according to spokesman Peter Keating. The co-production program began in 1988.

Keating estimates that 107 employees in Michigan, Ohio, Pennsylvania and Florida would be directly affected. Beyond those 107 people are other companies that make and supply parts that General Dynamics uses.

In February 2012, the company conducted a study of the economic impact of its Egyptian contract. Beyond the jobs created and the suppliers employed, the study estimated that the Egyptian contract generates millions of dollars a year in indirect income in Michigan, Indiana, Ohio, New York, Pennsylvania, Oklahoma and California.

Cash-Flow Arrangement

The U.S. provides Egypt and Israel with military assistance under a cash-flow arrangement that lets the nations make purchases in one year and pay for them over succeeding years rather than all at once, according to the U.S. Government Accountability Office. “The U.S. government would be liable for the payments” if Egypt were unable to pay for contracts because the Pentagon executes the awards on Egypt’s behalf, the GAO said.

The way the defense contractors spread the work throughout many states creates a built-in lobbying constituency of lawmakers who don’t want to lose jobs in their districts, said Pollack. “Defense contractors are not stupid, they think very carefully about where their products are built,” he said.

In December, Congress said the military aid could be released only if Clinton certifies that the Egyptian government is supporting the transition to a democratic, civilian government or if she waives the provision on the basis of national security factors.

Rights Groups Object

Rights groups and some lawmakers, such as Senator Patrick Leahy, the Vermont Democrat who authored the provision, urged Clinton to withhold aid due to the Egyptian government’s criminal prosecution of 43 pro-democracy workers from four non- governmental organizations for illegally accepting foreign funds and operating without a license.

“Egypt’s transition to democracy is not yet complete, and more work remains to protect universal rights and freedoms,” Nuland said.

While citing “significant progress” toward democracy in the last 15 months, Nuland said “we remain deeply concerned regarding the trials of civil society activists -- non-Egyptians and Egyptians alike -- and have raised these concerns at the highest levels, urging an end to harassment.”

To contact the reporter on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net or Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net


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