(FORTUNE Magazine) – With defense expenditures shrinking faster than an un-Sanforized shirt, armsmakers around the globe are eager to export. U.S. companies, which offer the highest-tech weapons, excellent service, and plenty of spare parts, are leading the way. Since 1990, according to Richard Grimmett, an analyst with the Congressional Research Service, the U.S. has accounted for over one-half of the arms sales agreements struck with developing nations, up from one-sixth between 1984 and 1990. Experts predict that by the end of the decade, foreign sales will rise from 15% to roughly 25% of American arms production. Is this dangerous? Says Loral Corp. Chairman Bernard Schwartz: ''For sovereign nations, the ability to defend themselves is as fundamental as food, air, and sex are to humans. If countries don't buy our F-15s, they'll buy British Tornados.'' At Rockwell International, foreign sales have climbed from 5% of defense electronics revenues five years ago to 20%, and are headed toward 30%. ''Frankly, I look at this as an opportunity,'' says Rockwell Chairman Donald Beall. ''We have to have controls over selling arms to the crazies, but the government will take care of that.'' Will it? Distinguishing today's worthy ally from tomorrow's dangerous crazy can be tricky. When the Gulf war broke out, France, which exports more than half the weapons it makes, was still trying to collect $5 billion from former good customer Saddam Hussein, who suddenly began using French arms against French troops and planes. So far that hasn't happened to the U.S., whose controls, despite swelling sales, are the strictest of any major arms exporter. ''No American soldier has ever faced an American weapon,'' says Joel L. Johnson, a vice president with the Aerospace Industries Association. ''There is a big difference between selling subs to Iran and F-15s to Saudi Arabia. If you can't distinguish between the two, you shouldn't be in the foreign affairs business.'' But critics worry that the sheer volume of U.S. arms exports will eventually spark a blowup. Between May 1991, when he proposed a Mideast arms control initiative, and the time he left office, President Bush announced nearly $20 billion in new arms sales to the Mideast -- mostly to Saudi Arabia. The latest Saudi deal for 72 F-15s, coupled with the sale last fall of 150 F-16s to Taiwan and 256 M-1A2 tanks to Kuwait, should make fiscal 1993 a record year for U.S. arms exports. Says Gregory Canavan, a senior scientific adviser at Los Alamos National Laboratory: ''We are flooding the world with lethal technologies. That is going to catch up with us with a real jolt in the year 2000 or 2005.'' What's needed is formal limits on conventional arms sales akin to the international controls that the major powers have on nuclear, chemical, and biological weapons. Just five countries -- the U.S., Britain, France, Russia and China -- produced 86% of the weapons sold internationally in recent years. Getting Russia and China to fall in line won't be easy. The beleaguered % Yeltsin government is desperate for foreign exchange, and China has never paid much attention to arms control agreements. But America's new leadership in the global arms bazaar at least gives it substantial leverage. A top priority should be slowing the trend toward co- production arrangements, which give developing countries the ability to build advanced weapons themselves. The U.S. could discipline nations that fail to comply by withholding trade and aid. As Ethan Kapstein of Harvard's Olin Institute for Strategic Studies points out, ''If we dominate the marketplace, then we should be able to set the terms.''

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