New treaty could help stop arms companies exploiting nuke threat

Arms manufacturers such as Lockheed Martin, which makes the THAAD anti-missile defence system, are profitting from growing military tensions between North Korea and the United States.
September 29, 2017

Over the past three months, the world has watched the escalating tensions between North Korea and the United States with growing alarm. North Korea has continued to develop its nuclear weapons program since first testing an intercontinental ballistic missile (ICBM) on July 4.

The US has flown B1-B bombers in a simulated, live-fire attack on North Korea and conducted huge war games with South Korea. US President Donald Trump has threatened military annihilation from his golf course, his Twitter account and the United Nations.

It is unlikely either side is planning to start a nuclear war, but the situation could escalate out of control and lead to a conflict involving nuclear weapons. This would have unthinkable humanitarian and environmental consequences.

Yet the arms companies that make such a conflict possible are benefitting from the increased threat of nuclear war, along with their investors.

Boosting arms stocks

During his presidential election campaign, Trump promised to greatly increase military spending. Arms company stocks rallied after his victory last November and have been on a general upwards trajectory since.

The share prices of major nuclear weapons producers have gone up in line with each escalation in the US-North Korea crisis. Increased interest in missile defence technology has the potential to raise the sales and profits of companies such as Lockheed Martin and Raytheon.

The “vast amounts” of taxpayer money being spent on the US nuclear triad is another drawcard for investors: Trump is continuing Barack Obama’s trillion-dollar upgrade of US air, land and sea-launched nuclear weapons, with several major contracts announced in August.

On July 4, North Korea tested an ICBM, which it claimed could deliver a nuclear strike against the US. On August 8, after reports emerged that US intelligence agencies believed the claim, Trump warned that North Korea would be “met with fire and fury like the world has never seen” if it continued threatening the US.

After Trump’s inflammatory comments, shares in multinational arms giants Lockheed Martin, Northrop Grumman and Raytheon hit record highs.

Shares in the firms received a further boost after North Korea fired a ballistic missile over Japan on August 29 and Trump warned that “all options are on the table”. Another boost came on September 5 when North Korea claimed to have successfully tested a hydrogen bomb. That day, Raytheon shares hit another all-time high.

Major beneficiaries

Lockheed Martin is a key player in the nuclear weapons business in the US and Britain. It manufactured and now maintains the Trident nuclear missiles carried on US and British submarines.

Lockheed also builds the Terminal High Altitude Area Defence system (THAAD), which has been deployed by the US in South Korea and Guam and sold to the United Arab Emirates and Oman. After Trump’s “fire and fury” comments, a Lockheed representative told Reuters that interest in missile defence technology had grown, with discussions “now at the prime minister and minister of defense level”.

In August, Lockheed was awarded a US$900 million contract to develop the US Air Force’s new Long-Range Standoff (LRSO) nuclear missile.

Raytheon is a subcontractor involved in the manufacture of the THAAD missile defence system. It is also involved in maintaining the US’s Trident nuclear missiles and, like Lockheed, was recently awarded a $900 million contract to develop the LRSO.

On August 10, a senior Raytheon executive reportedly told financial analysts that “Raytheon's market areas are the hottest he's ever seen, even going back to Cold War days”.

Northrop Grumman is also heavily involved in the nuclear weapons industrial complex. It is developing the US’s new B-21 nuclear-capable stealth bombers, set to cost $550 million each. The company was recently awarded a $328.6 million contract by the US Air Force to develop a new ground-based ICBM. Northrop’s share price has risen 26% in the past year.

All three firms have a significant presence in Australia. Other firms involved in the production and maintenance of nuclear weapons in Australia include BAE Systems, Thales and Jacobs Engineering.

Financing the apocalypse

With high levels of government spending on nuclear weapons upgrades, many investors and financial analysts view investment in nuclear weapons producers as a “prudent choice”. But it is a choice that threatens to help cause mass humanitarian and environmental devastation.

We know the effects of dropping just one nuclear bomb on a city from the US bombings of Hiroshima and Nagasaki in 1945. In Hiroshima, about 80,000 people were killed within a few hours of the detonation. Tens of thousands more died later from the effects of radiation sickness, burns and other injuries.

There are nearly 15,000 nuclear weapons in the world right now, most of them considerably more powerful than the bombs used in Hiroshima and Nagasaki. A conflict involving North Korea and the US could draw in Russia and China. Combined, these four countries possess roughly 95% of the world’s nuclear weapons.

Authoritative research has shown that a “limited” nuclear war, fought with 100 Hiroshima-sized nuclear weapons, would cause a sharp drop in global temperatures and rainfall lasting years. This would make food production impossible in some regions, leading to a global famine putting two billion people at risk of starvation.

Nuclear ban treaty

Investing in companies that produce nuclear weapons also means financing activities that 122 countries recently voted to outlaw at the United Nations. The Treaty on the Prohibition of Nuclear Weapons, which was signed on September 20, prohibits states parties from possessing, developing, producing, testing and stockpiling nuclear weapons, and from stationing nuclear weapons on their territory.

The nine states that possess nuclear weapons boycotted the treaty negotiations, as did Australia.

The impetus for the treaty was growing awareness of the humanitarian consequences of nuclear conflict. The International Campaign to Abolish Nuclear Weapons, together with civil society organisations from around the world, convinced a majority of states that the only safe way of dealing with nuclear weapons is to eliminate them completely.

They said a global ban treaty was needed because nuclear weapons states have failed to live up to their disarmament obligations under the Nuclear Non-Proliferation Treaty.

Many of those groups wanted a provision explicitly banning the financing of nuclear weapons activities to be included in the treaty. This was endorsed by the UN working group established in 2015 to take the negotiations forward. However, more general language was agreed upon at the treaty negotiations, which were concluded in July.

Under the final text, states parties agree not to “[a]ssist, encourage or induce, in any way, anyone to engage in any activity prohibited to a State Party under this Treaty”. This is similar language to that used in other treaties, such as the Convention on Cluster Munitions.

According to Dutch NGO PAX, there is a growing understanding in the international community that “assisting” with prohibited activities includes financing. Several states made it clear that they will interpret the ban treaty provision in this way.

During the ratification process, states parties will incorporate the treaty into domestic law and may choose to explicitly prohibit financing at this stage.

PAX’s 2016 Don’t Bank on the Bomb Report on the global financing of nuclear weapons producers found $498 billion was invested by financial institutions in nuclear weapons producing companies between January 2013 and August last year. This figure does not include amounts invested by other institutions, such as governments and universities, nor by individuals.

Four Australian institutions featured in the report’s “Hall of Shame” because they had provided financing to companies involved in nuclear weapons production during this period: ANZ, Commonwealth Bank, Macquarie Group and Westpac.

They had financed the activities of Lockheed Martin, Raytheon, Northrop Grumman, Thales, General Dynamics and BAE Systems, among others, through share and bond-holdings, revolving credit facilities and corporate loans.

Critics of the nuclear weapons ban treaty argued it will be ineffective because the states possessing nuclear weapons are not party to the treaty and are therefore not bound by its prohibitions.

However, the ban on assistance provides a way for the treaty to have a direct practical impact on the activities of nuclear weapons states.

Nuclear divestment

In 2012, two years after the Cluster Munitions Convention entered into force, four major British banks and insurance companies, including Lloyds, stopped allowing shareholdings in companies that were involved in making or supplying cluster munitions. Royal Bank of Scotland banned new lending to the blacklisted companies, which included Lockheed Martin and US firm Textron.

This action was taken after intense pressure from human rights groups. The financial institutions cited the Cluster Munitions Convention as a reason for their new policies.

Lockheed Martin stopped producing cluster munitions components. Last year, the last remaining manufacturer of the weapons, Textron, said it would also cease production. In a statement to the US Securities and Exchange Commission lat year, Textron said that demand had diminished and the “current political environment has made it difficult” to obtain the government approvals necessary for sales of the weapons.

The nuclear ban treaty is therefore a potentially powerful tool that campaigners can use to build on existing efforts to persuade financial institutions to divest from nuclear weapons producers.

Australian financial institutions could be persuaded to follow the example of Australian Ethical, which has a policy against investing in any nuclear weapons associated companies, and the Amalgamated Bank, which became the first US bank to announce such a policy on the day the treaty was signed.

Divestment would cut off financing for nuclear weapons production and upgrades. As the example of cluster munitions shows, it would also further stigmatise nuclear weapons possession and force arms companies to think twice about their involvement in nuclear weapons production.

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