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Russian arms deal halted

Sven Pöhle / mshAugust 4, 2014

Stopping an arms deal with Russia worth millions could end up costing the German government dearly. However, Economy Minister Gabriel said the sometimes uneasy coalition was acting unanimously on the issue.

Computer screens in a Bundeswehr training facility. (Photo: dpa - Bildfunk)
Image: picture-alliance/dpa

Even before the tension in Ukraine, arms exports were a core issue for German Economy Minister Sigmar Gabriel. The Social Democrat had pledged, on entering into a coalition with Chancellor Angela Merkel's rival Christian Democrats, to tighten Germany's standards when selling weapons of war. The vice chancellor and economy minister, who had long cited concerns about exporting arms to crisis regions outside of the EU or NATO, continued in this vein when announcing that a Rheinmetall deal with Russia would stop.

"It is not about money, it is a question of human lives," Gabriel said in Wildau on Monday.

Sigmar Gabriel. (Photo: Daniel Bockwoldt/dpa)
Gabriel, who wants to seem tougher than Merkel on arms exports, said this decision was mutualImage: picture-alliance/dpa

All German arms exports from private companies must first be approved by a special government committee including Gabriel and Merkel. Defense and auto parts maker Rheinmetall's deal to construct a combat training center in Russia was formally stopped on Monday, as Gabriel cited concerns over continued unrest in Ukraine.

"By delivering this combat training center to Russia, I'd risk an escalation of the military expansion and military quarrels," Gabriel said. "This cannot be justified." Yet the Social Democrat was keen to stress that this decision transcended party politics, that his economy ministry made the discussion "in consultation with the chancellery."

This German response is tougher than strictly necessary: sector-wide EU sanctions imposed on Russia last week forbid future arms deals, but allowed for pre-agreed ones to go through.

Approved, frozen, then scrapped

Rheinmetall and Russia formally penned the deal for the field simulator back in 2011, with the blessing of Angela Merkel's last coalition government, which did not include Gabriel's Social Democrats. By 2014 "the most modern training facility in all the world with simulator-supported training" was scheduled to be completed in Mulino, some 350 kilometers (217 miles) east of Moscow.

Anatoliy Serdyukov in a Bundeswehr training facility. (Photo
The order dates back to 2011 - here, Russia's then-Defense Minister Anatoliy Serdyukov is visiting a Bundeswehr training facility in June of that yearImage: DW

The facility was designed to train up to 30,000 troops per year. Rheinmetall, Germany's largest weapons manufacturer by revenue if you exclude Franco-German giant Airbus, celebrated "managing to break onto the Russian market in a meaningful way for the first time" on reaching the deal, saying it hoped for "good chances for follow-up contracts with the Russian Federation." Germany's arms exports report for 2011 put the deal's value at around 120 million euros.

Gabriel already suspended the deal in March of this year, a response to the annexation of Crimea by Russia, saying at the time that the agreement was no longer tenable. At the time, Rheinmetall boss Armin Papperger sought to look on the bright side, saying the contract was nearing completion and was also almost completely paid-up.

Rheinmetall said on Thursday that it was informed several weeks ago that the deal would be stopped completely, adding that the company was in talks with the federal government, seeking a solution. Neither side would go into detail on these issues, however.

Nearly complete, but is it functional?

What remains unclear is whether the nearly-completed project is of any use to Russia without the finishing touches. Neither the German economy ministry nor Rheinmetall issued a categorical statement on the issue.

"The combat training facility in Russia is not functional," a ministry spokeswoman said when asked. "The most qualitatively key parts have not yet been delivered." A Rheinmetall spokesman said this included operating software for the simulator, saying: "Training cannot currently take place in Russia with Rheinmetall products." But officials in Mocow saw the lacking components as rather less crucial.

"In fact this has no effect on the deadline for these objects to start operations," Russia's deputy defense minister, Yuriy Borisov, told the domestic RIA Novosti news agency. Borisov was quoted as saying that domestic manufacturers could fill the gaps, while the defense ministry said it was considering a breach of contract lawsuit against Rheinmetall.

Rheinmetall to sue, too?

Gabriel even acknowledged on Thursday that Rheinmetall might seek to challenge the government's decision by legal means, saying the next step lay "in the company's hands."

To qualify for damages, Rheinmetall would have to prove that the government did not legally revoke its previous license for the deal to go ahead. But perhaps more importantly, the company might be generally disinclined to sue: any future Rheinmetall exports of weapons or military equipment will be dependent on the government's approval.

Warship. (Photo: dpa - Bildfunk)
France has a much larger deal outstanding with Russia for two large warshipsImage: picture alliance/dpa

The case will have caught the interest of Germany's weapons industry. Speaking to DW, the managing director of the Federation of German Security and Defense Industries (BDSV), Georg Wilhelm Adamowitsch, said Thursday's development was "not ideal" for Rheinmetall itself. But Adamowitsch said the arms embargo on Russia as a whole was not a larget threat to the German industry, calling sales levels to Russia marginal.

Instead, Adamowitsch said a more general principle will have caught the industry's eye: "What affects us is this one-of-a-kind ruling by the federal government in connection with a previously approved contract." Some military suppliers - often working with long lead times between the initial order and completion - might wonder what other existing deals could come into question.