Dr. Peter Lock
European Association for Research on Transformation e.V.

Transaction deposit

Export control bureaucracies and custom services are regularly confronted with fraudulent documentation which is not easy to detect. It is not known how often licensed arms exports are converted into an illicit commoditiy during the transaction and end up in wrong hands. The increasing number of cases in which attempted fraud is detected may reflect improved scrutiny of the controlling institutions, but it is also possible that fraud is generally on the increase.

While major weapon systems have a certain visibility which makes an eventual detection of a fraudulent transaction likely, this condition does not pertain to small arms, ammunition and spare parts. Throughout the Cold War SIPRI data on transfers of major weapon systems were the only independent source. The recent institution of a voluntary transfer register within the United Nations allowed a comparison between the two transfer registers generated by different methods, on the one hand by governmental reports to the United Nations and on the other hand based on open information in the media. The comparison of the data showed only minimal differences proving the case of visibility of major weapons.

However, the case of smaller arms is different. SIPRI never attempted to cover small arms because data were difficult to come by and the issue could be dealt with as a ceteris paribus matter. While the latter is certainly not the case given the fact that most on-going wars are predominantly fought with small arms, it remains a sad reality that very little is known on the trade of small arms. This category is so far neither included in the register of arms trade nor has any indepedent institute seriously started to systematically study the transfers of small arms, licit or illicit.

Additionally the economic crisis throughout large parts of the Third World since the eighties has weakened governmental bureaucracies in a significant number of countries to such an extent that it has apparently become easy to corrupt them and obtain fraudulent documents. Black market traders are thus able to produce perfect documents even without exploiting the sophisitication of modern copy machines. But a similar observation refers to some of the smaller transition countries where the capacities of the export control administration are limited. They seem to have difficulties to control the correct execution of the transacion., not least because their diplomatic representation is limited to a limited number of countries only.

The known cases of fraud using a third party country as an entrepôt suggest that a certain class of countries is developing where the agreed rules of international relations do not apply any longer. This has serious implications for the procedure of surveying arms transfers. . . It is embarrassingly on the increase. wrongdoing

Ever since the Secretary General of the United Nations launched his Agenda for Peace, many fora discuss the proliferation and diffusion of small arms and their devastating effects. However, only a few practical measures to reduce the pervasive availability have emerged so far, fewer even are already being implemented. Some measures like post-conflict disarmament and buy-back programs are under way in some places. While it is certainly too early to fully evaluate their success, it is obvious that these activities are not sufficient to curb the on-going illicit trade and constant resupply of war-torn regions. To the contrary it seems that a robust international network of illicit trade has emerged with no indications at present that serious obstacles at the supply end of the market exist.

In view of this trend a majority of nations seems resolved to strengthen controls both at regional and global levels. Several political initiatives are under way to install international regulations for an improved control of small arms among others. The G-8 summit is likely to discuss improved controls of illicit trafficking in the context of combatting transnational crime.

It is to be hoped that this political rhetoric, echoed by an alliance of non-governmental organisations, will have some effect on the volumes of small arms traded, if only that governments will be have second thoughts before contriving covert trade operations or turning a blind eye on shady deals in violation of existing embargos. However, it is also obvious that at present most governments do not command a comprehensive knowledge of how the illicit trade networks operate. It is therefore unrealistic to expect that the proposed improvements of controls are likely to instantly undermine the existing illegal trade networks. One has just to look at international efforts to control drug trafficking to predict that these measures alone will not reduce the availability of small arms over the next years.

Additional measures are needed to reduce the pervasive availability. Many observers would agree that the supply of ammunition is a key factor in most on-going armed conflicts. In many conflicts the warring parties depend on the efficiency of the logistics of the black market , in order to proceed with fighting. This reliance on the black market to resupply the fighting forces introduces an economic dimension into the political equation which determines the level of fighting and the disposition to seek a political solution of the conflict. Moreover, in some protracted conflicts fighting has virtually developed into a "mode of production", there the calculation of the "fighters" should be particularly sensitive to the prices of their "inputs", not least because illicit trade networks operate on cash basis and prices can be volatile depending on the circumstances. In general, however, prices are low, quite often below the cost of manufacture as huge stocks of surplus are being cascaded in a chain reaction which increases the likelihood of leaks filtering into black markets. In contrast to the creation of new jobs in the regular economy being virtually unaffordable in the context of war-torn economies, the economic threshhold of turning armed violence into a profitable business is rather low due to the pervasive availability of cheap small arms.

The long shelf-life of most small arms suggests to additionally explore the control of ammunition supplies as a means to effectively reduce the availability of operational small arms at least in medium term. Both the shorter shelf-life of ammunition and the definitive consumption when used promise an impact on the availability through improved controls and significant price increases. Against this background it is proposed to lobby governments to levy a significant (consumer) tax on all ammunition fitting small arms. Such a tax would be absolutely consistent with the historical evolution of taxes and their legitimacy. An important element in the evolution of taxes are levies on demeritorial goods, like alcohol, tobacco. A tax on ammunition would follow in this tradition where the state acts on the basis of a consensus that a certain commodity has negative external effects and affects the common welfare. The current international discussion indicates that this consensus is rapidly maturing with respect to small arms. Though the conversion of this consensus into a consumer tax is unfortunately not yet on the political agenda. A tax on ammunition would be a non-fiscal tax aiming at changing consumtion patterns and the behaviour of the consumers. In changing the relative price of this commodity the government explicitely wants to discriminate against the potential (mis)use of this commodity. Small arms being an increasingly important public health issue require a health-oriented steering of consumption patterns. To make an impact the tariff should be collected at the source and the rate should between 100% and 500%, in order to truly discriminate against the use of ammunition.

The tariff must be levied for all ammunition produced.This is perfectly acceptable because the tax is neutral for the government as a legitimate customer. The higher prices its agencies have to pay are fully balanced by tax income. All private users of small arms would have to pay a premium for their hobby or for the privilege of presumed self-defence. This is perfectly justified given the risks of inevitable health-hazzards due to the illegitimate use of privately owned firearms, like the risk of theft and other ensuing negative external effects.

With respect to international trade in cases of certified deliveries to legitimate governmental recipients the consumer tax would be relinquished. In all other cases of export the tax would be levied at the source. The additional tax income would help to cover the social costs of the misuse of firearms which are presently shouldered by the general tax payer. Whether this tax should rather be dedicated to an international trust fund charged with coping with the disasterous consequences of reckless proliferation of small arms in the past, will be a matter of future discussion.

There are, of course, also arguments against such a consumer tax. At the principle level neo-liberal economists argue that any consumer tax infringes the liberty of the consumer, but this tax intervention must be weighed against the negative externalities of the diffusion of small arms. "If we don't, others will do"(sell and export cheap, duty free ammunition), this standard argument against national initiatives, will be advanced by the different lobbies associated with the ammunition business. This argument is not valid as can be easily understood, when applied to the cultivation of marijuana and other drugs, in order to create additional jobs for farmers. It will certainly be argued that the stocks presently in the hands of the black market will earn windfall profits as a result of the institution of such a tax. This will inevitably so, before black markets will begin to be crowded out. But most importantly the history of demeritional taxing shows a surprising convergence between different cultures and continents. The most important factor bringing the international community in line in a process of strictly applying a hefty consumer tax on ammunition is the emerging consensus on the dangers of small arms diffusion and the need to counteract this tendency.

From a security perspective the control of ammunition and its taxing is by far more efficient at the source than at the level of ultimate consumer. It also allows for a rigourous accountability of those legitimate international transactions which are not subject to taxation. Higher prices for ammunition lower the risk of unlawful approriation of ammunition, because all actors will be less inclined to overstock ammunition. Finally if the major international suppliers (G-8 and NATO member states among others) could agree on a concerted tax on ammunition, they would easily be able to muster sufficient pressure to bring most other suppliers to conform to such an international tax regime.

This note does not yet present a fully coherent project. Before entering the political stage detailed discussions must refine the basic idea.

Comments are most welcome.