Fri, Jun 02, 2023 page9

• South Korea’s race to become a top arms dealer

  • By Joyce Lee and Josh Smith / Reuters
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  South Korea is using a US$13.7 billion arms deal with Poland — Seoul’s biggest ever — to lay the groundwork for a military-industrial juggernaut that the two nations’ defense companies hope can feed Europe’s hunger for weapons far into the future.

  South Korea’s arms sales jumped to more than US$17 billion last year from US$7.25 billion a year earlier, the South Korean Ministry of National Defense said, as Western countries scrambled to arm Ukraine and tensions rose in other hot spots such as North Korea and the South China Sea.

  The arms deal with Poland, a key NATO member, last year included hundreds of Chunmoo rocket launchers, K2 tanks, K9 self-propelled howitzers and FA-50 aircraft.

  The deal’s value and the number of weapons involved made it stand out even among the world’s biggest defense players.

  South Korean and Polish officials have said their partnership would help them conquer the European arms market beyond the Ukraine war, with Seoul providing high-quality weapons faster than other countries, and Poland offering manufacturing capacity and a sales pipeline into Europe.

  Reuters spoke to 13 company executives and government officials, including those directly involved in the deal, who said that the arrangement provides a blueprint for using international public-private partnerships and consortiums to extend Seoul’s reach and achieve its ambition to be one of the world’s biggest weapons suppliers.

  “The Czech Republic, Romania, Slovakia, Finland, Estonia, Latvia, Lithuania and others were thinking of buying defense products only in Europe, but now it is more well known that you can buy at a low price and have it delivered quickly from Korean companies,” said Oh Kyeahwan, a director at Hanwha Aerospace who was involved in the Poland deal.

  South Korean companies do not disclose the unit prices for their weapons, which are often sold with support vehicles and spare parts.

  Hanwha Aerospace already had a 55 percent share of the global howitzer market — a number that would rise to about 68 percent with the Poland deal, NH Research & Securities research showed.

  The deal established consortiums of South Korean and Polish companies that would build the weapons, maintain the jets and provide the framework to eventually supply other European states, Polish Armaments Group Export Projects Office director Lukasz Komorek said.

  That would include building South Korean arms on license in Poland, officials in Seoul and Warsaw said.

  Plans call for 500 of 820 tanks and 300 of 672 howitzers to be built in Polish factories starting in 2026.

  “We don’t want to just play the role of subcontractor, technological transfer provider and the purchaser,” Komorek said. “We can both create the synergy and use our experiences to conquer the European markets.”

  UK-based Agency Partners defense and aerospace analyst Sash Tusa said that although both countries have well-established defense industries, the long-term plans would face hurdles.

  Political winds could shift, reducing demand for weapons such as howitzers and tanks, he said.

  Even if production and demand hold up, European countries might want deals of their own with South Korea along the lines of what Poland has — coproduction agreements that could create jobs and stimulate industry, Tusa said.

  “It may work for some countries at very, very low volume,” he added, referring to Polish-brokered South Korean weapons sales and the challenges the joint operation might face.

  At a Hanwha Aerospace factory on South Korea’s southern coast, six huge automated robots and more than 150 production workers are churning out 47-tonne K9s destined for Poland.

  The self-propelled guns use NATO-standard 155mm ammunition, have computerized fire-control systems, are designed to easily integrate into command and control networks, and offer performance comparable to more expensive Western options. Major powers such as Australia and India operate them.

  To meet demand, the company expects to add about 50 more workers and more production lines, production manager Cha Yong-su said.

  The robots handle about 70 percent of the welding work on a K9 and are key to expanding capacity, he said.

  They operate an average of eight hours per day, but can work around the clock if needed.

  “Basically, we can meet any amount of order you want,” Cha said.

  South Korea’s offer to provide weapons faster than almost anyone was a key consideration, Polish officials said.

  The first shipment of 10 K2s and 24 K9s arrived in Poland in December last year, just months after the deals were signed, and at least five more tanks and 12 howitzers have been delivered since.

  By contrast, Germany, another major arms manufacturer, has yet to deliver any of the 44 Leopard tanks Hungary ordered in 2018, Polish Institute of International Affairs senior analyst Oskar Pietrewicz said.

  “Countries’ interest in South Korea’s offer may only grow considering the limited production capacity of Germany’s defense industry, which is a major arms supplier in the region,” he said.

  Executives in South Korea’s arms industry have said that would be a selling point for clients.

  A close relationship between South Korea’s military and its arms industry allows them to rearrange domestic orders to make room for export production and expand production in the country’s highly industrialized manufacturing base, officials said.

  “They put things together in weeks or months that would take us years,” a European defense industry executive said, speaking on condition of anonymity because of the sensitivity of the matter.

  Constant tensions with North Korea mean that the South’s military production lines are running and its weapons have been developed, tested and upgraded in high-pressure situations, Korea Aerospace Industries global business and strategy vice president Cho Woo-rae said.

  South Korea had promoted its weapons to Poland before the war, but the invasion of Ukraine — which Russia calls a “special operation” — increased Poland’s interest, Defense Acquisition Program Administration deputy director Kim Hyoung-cheol said.

  After Polish Minister of National Defense Mariusz Blaszczak’s visit in May last year to observe South Korean weapons, and South Korean President Yoon Suk-yeol met with Polish President Andrzej Duda on the sidelines of the NATO summit in June that year, the stage was set for the huge deal that was finalized a month later, Kim said.

  South Korea’s weapons are designed to be compatible with US and NATO systems — another selling point.

  The country is the third-largest supplier of weapons to NATO and its member states, accounting for 4.9 percent of arms purchases, the International Peace Research Institute said.

  That is far behind the US, which accounts for 65 percent, and France at 8.6 percent.

  Officials in Seoul told Reuters that they pitched Poland on producing South Korean weapons there to make it easier to deliver to European customers.

  “The Korean government is promoting military diplomacy and defense cooperation, so that the relationship with the purchasing country can develop into various partnerships beyond just a seller-buyer relationship,” the South Korean Ministry of National Defense said in a statement.

  The Polish Ministry of National Defense did not respond to a written request for comment.

  Hanwha Aerospace operates successful technology-sharing arrangements in India, Egypt and Turkey, Oh said.

  “Because of that, I don’t think there’s much to worry about regarding capacity,” he said.

  Last year’s arms deal began with South Korean companies signing a framework agreement with the Polish government.

  Those companies formed consortiums with the Polish Armaments Group and its subsidiaries, which signed the final deal with the Polish government, he said.

  “We have the one entity only, one big consortium that is representing the whole project from the perspective of the industry,” Komorek said, adding that the deal encompassed many projects.

  In the past year, South Korea has launched its first home-grown space rocket, initiated the maiden flight of its domestically designed KF-X fighter and announced billions of US dollars in deals.

  “For most other countries, that would be an agenda for a decade,” one executive at a European defense firm told Reuters, speaking anonymously because of the sensitivity of the matter.

  “We’ve underestimated Korea for a long time,” they said.

  Yoon last month said that South Korea might extend its support for Kyiv beyond humanitarian and economic aid if Ukraine comes under a large-scale civilian attack.

  Seoul has since approved at least some South Korean weapons components for use in Ukraine.

  The country’s sales in Asia — which accounted for 63 percent of its defense exports from 2018 to last year, the Stockholm International Peace Research Institute said — come amid regional arms buildups driven by security concerns and US-China tensions.

  South Korea is developing its KF-X jet with Indonesia, and Polish leaders have signaled interest in that project. Malaysia this year bought nearly US$1 billion in FA-50s, and Seoul is in the running to win a US$12 billion deal to supply Australia’s next infantry fighting vehicle.

  “Asian countries see us as a very attractive partner for defense deals as we all seek to hedge against the rising tensions,” a diplomat in Seoul said. “We’re a US ally, but not the US.”
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