No. 29 (20 March 1995)
While selectively routing out waste and subsidies in the federal budget, the House of Representatives is proposing to grant U.S. arms manufacturers a new subsidy worth hundreds of millions of dollars annually.
H.R.1038, the "Federal Acquisition Reform Act of 1995," would eliminate a tax on foreign arms sales, currently required by law, to recover in part taxpayer-funded research and development (R&D) expenditures. The Clinton administration supports the proposal.
Taxpayers finance the development, production and procurement of weapons systems for the U.S. armed services. The DOD spends about $35 billion of public money annually on weapons R&D. Manufacturers make a handsome profit when they sell these weapons abroad, since they do not pay for research or establishment of the production line.
To recover some of this taxpayer subsidy, section 21(e)(1)(B) of the Arms Export Control Act (AECA) requires that "recoupment" fees be charged on Foreign Military Sales (FMS) of "major defense equip-ment." (Such fees are not required by law on smaller, "non-major" weapons systems developed with public monies.) The fees range from 5-25 percent of the weapon's sales value; the variance depends on the quantity procured by U.S. forces. The money is returned to the Treasury as general revenue (deficit reduction).
Section 21(e)(2) of the AECA allows the DOD to waive recoupment fees if the export would promote standardization of forces with NATO or major non-NATO allies. In 1994, DOD waived $272 million of recoupment fees on arms sales to NATO member countries and Japan.
Until June 1992 recoupment fees were also levied on direct commercial sales, negotiated by industry and licensed by the U.S. government. Unlike the FMS requirement, this policy was embodied only in DOD regulations, which the Bush administration was able to repeal without legislation.
Since then, the administration and industry have argued that the fee on FMS be abolished in order to "level the playing field" with the direct commercial sales program. Another way to level the playing field would be to reinstate recoupment fees on commercial sales. In Reducing the Deficit: Spending and Revenue Options (1995), the Congressional Budget Office estimates that reinstating recoupment costs on direct commercial sales would reduce the deficit by $110 million in fiscal year 1996 and by $920 million over five years. Extending recoupment fees to sales of all weapons developed with taxpayer funds would further reduce the deficit.
Industry has lobbied against all recoupment fees since at least 1991, arguing that the fees raise the price of U.S. weapons, making them uncompetitive on the international market. U.S. market dominance belies these claims; according to the Congressional Research Service, the United States secured 73 percent of all new sales agreements with developing countries in 1993.
Nevertheless, consecutive administrations have worked with industry to eliminate the fees. In September 1993, the Clinton administration sent Congress a bill to repeal the recoupment fee law. Congress did not act on the bill, but friends of industry in-serted the same language into last year's federal acquisition reform bill. House Armed Services Committee Chairman Ron Dellums stripped it out. Now, both the GOP and administration versions of this year's acquisition reform bill contain a provision to repeal the recoupment law, and Rep. Dellums is no longer in a position to block the effort.
Rep. William Clinger (R-PA), Chairman of the Government Oversight Committee, introduced the bill on 24 February, along with the Chairmen of the International Relations and National Security Committees. The Government Oversight Committee has held two hearings on the acquisition reform bill and will mark it up later in the Spring or early Summer. Committee staff say the bill will be voted on this year.
Comments on the legislative proposal to repeal recoupment fees should be addressed to Rep. Clinger and to Rep. Cardiss Collins (D-IL), the ranking Democrat on the Government Oversight Committee, and to the Chairman and ranking minority members on the House National Security, International Relations and Judiciary Commit-tees, to which the bill was also referred.
It must be the "why" which is holding things up, because the numbers have already been decided. According to the FY 1996 Congressional Presentation Summary Tables, prepared by the Agency for International Development, the administration wants to give away $6,113,989,000 worth of weapons and related training in FY 1996.
The administration is seeking $260 million more for military aid than it requested last year (see ASM No. 25 p. 1) and $425 million more than Congress appropriated for FY 1995 (see ASM No. 27 p. 8). Much of the increase comes in Foreign Military Financing, where the administration proposes several new programs for Eastern European countries and former Soviet republics.
The request is broken down in the accompanying box.
FOREIGN MILITARY FINANCING
$3,351,908,000 FMF finances the purchase of U.S. weapons and
services. The
majority is in the form of outright grants.
(Grants) Cambodia 3,000,000 Egypt 1,300,000,000 Israel $1,800,000,000 Jordan $30,000,000 Baltics $5,000,000 Central Europe Defense Infrastructure $20,000,000 Warsaw Initiative $60,000,000 Haiti $7,000,000 Caribbean Peacekeeping $3,000,000 De-mining $10,000,000 (Loan Subsidies) $89,888,000 Greece (to underwrite loans of $315,000,000) Turkey (to underwrite loans of $450,000,000) (Administrative Costs) $24,020,000 ECONOMIC SUPPORT FUND $2,494,300,000 ESF grants are given to developing countries considered strategically important. The funds are generally not intended for military expenditures, but they are untargeted, allowing the recipient to free up other funds for military expenditures. Grants to Israel are explicitly for repayment of past military debt. The ESF request comprises in part: Egypt $815,000,000 Israel $1,200,000,000 Jordan $7,200,000 Turkey $100,000,000 Administration of Justice/ICITAP $10,000,000 Crime Initiative $12,000,000 INTERNATIONAL MILITARY $39,781,000 EDUCATION AND TRAINING IMET grants provide professional education on military management and technical training on U.S. weapons systems. They promote military-to-military contacts, which are said to expose foreign military and civilian officials to U.S. values and democratic process. IMET funds are proposed for 119 different countries in FY 1996. Some of the larger IMET program requests are: Colombia $900,000 Egypt $1,000,000 Hungary $950,000 Indonesia $600,000 Jordan $1,200,000 Mexico $1,000,000 Morocco $800,000 Philippines $1,400,000 Poland $950,000 Russia $1,075,000 Senegal $600,000 Thailand $1,600,000 Tunisia $800,000 Turkey $1,000,000 INTERNATIONAL NARCOTICS CONTROL $213,000,000 This program provides military equipment and training to combat the production of narcotics overseas. This program is in addition to the counternarcotics activities funded by DOD, the DEA and others. Asia/Near East $7,500,000 Europe/Former Soviet $4,400,000 Latin America/Caribbean $150,600,000 International Organizations $11,500,000 Law Enforcement, Other Training $11,500,000 Program Development, Support $6,500,000 Interregional Aviation Support $21,000,000 ANTI-TERRORISM ASSISTANCE $15,000,000 This program provides military equipment and training to combat international organized crime and to help emerging democracies strengthen their national law enforcement capabilities.
White House Releases `Business as Usual' Policy
Without fanfare (or much press coverage), President Clinton finally signed off in February on his administration's policy on conven-tional arms transfers (see ASM No. 27 p. 5). The White House released a six page fact sheet on the classified policy on 17 February. After two years of reviewing the roles and dangers of conventional weapons exports in the post-Cold War era, the adminis-tration found that the times called for...more of the same. The Clinton policy reiterates previous administrations' views that "transfers of conventional arms [are] a legitimate instrument of U.S. foreign policy deserving U.S. government support when they enable us to help friends and allies deter aggression, promote regional stability, and increase interoperability of U.S. forces and allied forces." But the Clinton policy goes one better, saying the government will now explicitly consider the impact on the arms industry when deciding whether to approve an export. In its opening paragraph, the statement inexplicably claims that the policy "promotes restraint, both by the U.S. and other suppliers, in transfers of weapons systems that may be destabil-izing or dangerous to international peace." While formulating this statement, the administration approved $38 billion of arms exports (see below). Nowhere does the policy state that limiting the global spread of conventional weapons is a goal of the administration; nor does it offer a single innovative proposal for control. Instead of restraint, the policy emphasizes "transparency" and "responsible" exports: the U.S. will continue to export only to those countries which it favors and seek to discourage exports by others to those it disfavors. The Administration did not, as was expected, take a position on the establishment of a new loan guarantee program to underwrite arms exports. While arms controllers welcomed the lack of overt support for loan guarantees, the fact that the policy does not oppose a new financing program leaves the door open for Congress to add such a program to this year's Pentagon budget bills. To obtain a copy of the factsheet call 202-395-7332. U.S. Approves Over $38 Billion of Exports in FY 1994 The U.S. government approved the export of $38.5 billion of military equipment and related services to over 150 countries in fiscal year 1994. When discussing U.S. exports, the government and media usually focus only on deals made through the government- negotiated Foreign Military Sales (FMS) program. The Pentagon finalized $12.8 billion of such sales last year, down from a record $33 billion in fiscal year 1993. These sources routinely neglect to mention, however, that during the same time, the State Department granted export licenses for an additional $25.6 billion of weapons sales negotiated directly by U.S. arms manufacturers. Such deals have increased in the past few years, as more customers prefer to by-pass the bureaucracy, oversight and costs of the FMS program. These direct commercial sales (DCS) are largely hidden from public scrutiny (see ASM No. 27 p. 2). The DCS figures below do not necessarily represent final deals, but they do represent official permission for the sale to be completed. The State Department estimates that 40-60 percent of the licenses it issues will result in actual exports. In the case of FMS, the figures represent actual contracts. --------------------------------BOX----------------------------- data deleted Source: Defense Security Assistance Agency; International Affairs Committee Note: FMS figures include military construction sales. ------------------------END BOX------------------------------ >> State Department Report Downplays Thai-Khmer Rouge Connection << In mid February the State Department sent Congress an unclassified summary report on Thai government support for the genocidal Khmer Rouge. The Secretary of State's report required by last year's foreign aid appropriations act (P.L. 103-306) downplays allegations of Thai support. The same law also called for the termination of U.S. aid to "any country or organization...cooperating, tactically or strategically, with the Khmer Rouge in their military operations." The United States gave Thailand $5.5 million of military and development aid in fiscal year 1995 and provided $10 million of prepositioned weapons for use in joint U.S.-Thai military training exercises. The administration is requesting similar amounts for next year. "Although Thailand has provided some support to the Khmer Rouge (KR) in the past" the report begins, the Thai government "does not currently support, as a matter of policy or practice, the outlawed guerrilla organization." Unofficial contacts "still occur at a diminished level between the KR and some Thai military personnel, generally in the context of business transactions." Critics claim that these economic relations sustain Khmer Rouge combat capabilities. Former U.S. ambassador to Thailand Morton Abramowitz wrote in the Washington Post last year that "by graft or state-craft, Thailand has become Pol Pot's best ally." The full report is classified. Anticipating this, Oxfam America prepared a 19 page pamphlet documenting extensive press reporting of Thai collaboration with the Khmer Rouge. Single copies of the report, "Cambodia: Still Waiting for Peace," are available by calling Kathy Knight at Oxfam (617-728-2416). The complete, verbatim text of the summary report follows. ---------------------------BOX----------------------------- Summary of the Secretary of State's Report to Congress on Thai Military Support for the Khmer Rouge Although Thailand has provided some support to the Khmer Rouge (KR) in the past, the Thai government does not currently support, as a matter of policy or practice, the outlawed guerrilla organiza-tion. Official Thai policy explicitly prohibits furnishing arms and military material to the Khmer Rouge, and there is no evidence since the arms cache incident in December 1993 that the Thai military has supplied either weapons or ammunition to the KR. Unofficial contacts, not sanctioned by the Thai government, still occur at a diminished level between the KR and some Thai military personnel, generally in the context of business transactions. To the extent that Thai contact with the Khmer Rouge still occurs, it is primarily in the context of private sector activity. Unauthorized and occasional shipments of rice, fuel, medicine, and small consumer goods to KR- controlled areas, much of which probably goes to civilians, still occur. The Thai government has begun efforts to stop such contacts and trade. The logging industry, which is partially conducted in or requires transit through KR- controlled territory, and the gem mining industry, which is centered around Pailin, are areas for significant Thai investment and have been the most important sources of revenue for the Khmer Rouge. The Clinton administration has raised the issue of alleged Thai-KR links on numerous occasions with senior Thai officials, including in a meeting between President Clinton and Prime Minister Chuan on October 6, 1994. At that meeting, Prime Minister Chuan stated flatly that the Royal Thai Government provides "no support" to the Khmer Rouge. The Royal Cambodian Government confirms that the Thai government is making genuine efforts to enforce this policy. ----------------------------END BOX------------------------- >>State Seeks Quick Ratification of 1980 Convention<< On 7 March the Senate Foreign Relations Committee heard testimony from the State Department on the Convention on Conventional Weapons (also known as the Inhumane Weapons Convention). The 1980 treaty and its protocols restrict the use in warfare of weapons fragments which are not detectable by X-ray, landmines and booby traps, and incendiary weapons. The administration is seeking Senate ratification of the treaty by the end of March, so that the United States can be a full participant at a review conference to be held in September. (Under the terms of the convention, states become party to the treaty six months after the instrument of ratification is deposited.) The United States signed the treaty in 1982 but never ratified it because of concerns over protocol III's provisions on incendiary weapons. The Clinton administration shares these concerns and is not seeking ratification of this protocol, which, according to Michael J. Matheson, the Principal Deputy Legal Adviser to the State Department, "imposes restrictions on the use of inendiary wapons, particularly in populated areas." Matheson said, "there are concerns about the acceptability of these restrictions from a military point of view." The administration is seeking ratification of the treaty now so that it may propose several amendments to protocol II, concerning landmines, at the review conference. Most major military powers and nearly all NATO members have ratified the convention. The Senate Foreign Relations Committee is expected to recommend ratification on 21 March, with a Senate floor vote following. MARKET OPPORTUNITIES >>Exports to Peru, Ecuador Suspended<< Effective 9 February until further notice, "It is the policy of the U.S. Government to deny all requests for licenses and other approvals to export or otherwise transfer defense articles and defense services to Ecuador or Peru." This action was taken in response to the border war between the two nations that erupted on 26 January. Peru and Ecuador previously fought over the border demarcation in 1941 and, briefly, in 1981. <23 February 1995, Federal Register, p. 10138> >>Admin. Cuts Off IMET for Guatemala<< On 10 March the Clinton administration suspended the last of U.S. military aid to Guatemala; the action was taken because of continuing human rights abuses by government forces. More than 100,000 people have died in the forty-year old civil war. The United States had suspended most military aid and government-negotiated arms sales in 1990. However, $200,000 was allocated in the fiscal year 1995 foreign aid budget to bring 20 Guatemalans to the United States for military training, and the State Department approved $9.4 million of industry-negotiated arms exports in fiscal year 1994. Prior to the 10 March decision, the government was seeking $250,000 for International Military Education and Training (IMET) for fiscal year 1996. >>Admin. Seeks to Resume IMET for Indonesia<< The Clinton administration is seeking $600,000 of IMET funds for the Indonesian armed forces in fiscal year 1996. Congress has prohibited IMET for Jakarta since 1992, in response to Indonesia's massacre of 271 civilians in East Timor the previous year and continuing repression. >>State, DOD Want Increased Military Ties with Pakistan and India<< Testifying before a Senate Foreign Relations Subcommittee on 9 March, State and Defense Department officials said the administration wants to modify a provision of law which bans many forms of U.S. aid to Pakistan. The provision commonly known as the "Pressler Amendment," after its Senate sponsor Larry Pressler (R-SD) became law in 1985 and resulted in the cutoff of U.S. weapons aid to Pakistan in 1990. At that time, President Bush was unable to certify that Pakistan did not have a nuclear weapon, as required by the law. The ban prevented the delivery of 28 F-16 fighters for which Pakistan had paid $650 million (in part with U.S. military aid). The planes are currently sitting in storage at an Air Force base in Arizona. Joseph Nye, Assistant Secretary of Defense for International Security Affairs, told the subcommittee that the "DOD perceives South Asia as an increasingly important region, an area in which DOD interaction with its counterpart organizations in India and Pakistan can be supportive of a number of U.S. interests and objectives, including a primary interest, which is non-prolifera-tion." Robin Raphel, Assistant Secretary of State for South Asian Affairs, testified that "since the [Pressler] sanctions have been invoked, we've had little leverage with which to pursue our non-proliferation goals." Nye said the DOD is not looking to get back into arms transfers to Pakistan right away (except for delivery of the F-16s), but he suggested that conventional arms embargoes may prompt countries to pursue nuclear weapons. "You have to ask how they [conventional and nuclear arms] interact with each other," Nye said. Indeed, the CIA testified in 1993 that the U.S.-supplied F-16s already in Pakistan's arsenal provide the most likely means of delivery for a Pakistani nuclear weapon. Of India, Nye testified that while it "is not subject to sanctions under the Pressler Amendment, it is affected indirectly. Given the history of animosity between India and Pakistan, we must be cautious not to provide arms transfers to India that would contribute to a regional military imbalance." The implication is that if it weren't for the Pressler Amendment, we could arm both Pakistan and India to maintain influence against proliferation and create our own regional arms balance! >>Gov't Considers Combat Equipment to E. Europe, Baltics<< In mid February the administration announced that it will now consider "on a case-by-case basis" exports of major combat equipment to ten East European countries: Albania, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Slovakia. Since the fall of the Berlin Wall, Cold War restrictions on arms transfers have been lifted, but thus far primarily defensive equipment has been transferred. The need to standardize their equipment with that of NATO forces is the justification cited for arms transfers to these already heavily militarized, economically depressed countries.DEALS IN THE WORKS During February-March, the administration notified Congress of the following proposed government-negotiated Foreign Military Sales (FMS), export licenses for industry- negotiated Direct Commercial Sales (DCS), leases and grant Excess Defense Article (EDA) transfers to the developing world. The Arms Export Control Act requires the administration to notify Congress of FMS or DCS valued at $14 million or more; Congress has thirty days within which to block the proposed exports (fifteen days for NATO member countries and major non-NATO allies). To do so, both houses of Congress must pass a resolution of disapproval by a two-thirds majority. If Congress does not oppose the below listed transfers, an FMS letter of offer and acceptance (a formal contract) may be signed or a DCS license may be issued. The Foreign Assistance Act requires that Congress be notified of all proposed EDA transfers thirty days before actual delivery of the items. (table deleted) RECENT GOVERNMENT PUBLICATIONS Bottom-Up Review: Analysis of Key DOD Assumptions, Government Accounting Office [NSIAD-95-56], January 1995, 69 pp. Challenges to U.S. Security in the 1990's (hearings of the House Foreign Affairs Subcmte. on International Security, March-August 1994) US GPO: 1994. Conflict Resolution in Africa: Recent Developments (hearing of House Foreign Affairs Subcmte. on Africa, 8 June 1994) US GPO: 1995, 59 pp. Crisis in Central Africa (hearing of the Senate Foreign Relations Subcmte. on African Affairs, 26 July 1994) US GPO: 1994. Developments in Cambodia (hearing of the House Foreign Affairs Subcmte. on Asia and Pacific Affairs, 27 October 1993) US GPO: 1994, 100 pp. Developments in the "Other" South Asia: Afghanistan, Bangladesh, Nepal and Sri Lanka (hearing of the House Foreign Affairs Asia and the Pacific Subcmte., 11 August 1994) US GPO: 1995, 43 pp. The DISAM Journal of International Security Assistance Management, vol. 17 no. 2 (winter 1994-95). Global Trade in Satellites and Launch Services (hearing of the Science, Space and Technology Subcmte. on Space, 29 September 1994) US GPO: 1994. Honduras: Continuing U.S. Military Presence at Soto Cano Base Is Not Critical, Government Accounting Office [NSIAD-95-39], February 1995. A National Security Strategy of Engagement and Enlargement, The White House, February 1995, 33 pp. Peacekeeping Budget, Plans and Actions (hearing before the House Armed Services Oversight and Investigations Subcmte., 12 April 1994) US GPO: 1995, 49 pp. Peace Operations: Information on U.S. and U.N. Activities, Government Accounting Office [NSIAD-95-102BR], 13 February 1995. Rewrite of the Foreign Assistance Act of 1961 and Fiscal Year 1995 Foreign Assistance Request part 6, 7, US GPO: 1995. Somalia: Prospects for Peace and Stability (hearing of the House Foreign Affairs Subcmte. on Africa, 16 March 1994) US GPO: 1995, 55 pp. South Asia Policy (roundtable before the House Foreign Affairs Subcmte. on Asia and the Pacific, 21 September 1994) US GPO: 1994, 127 pp. A Time for Peace (Promoting Peace: The Policy of the United States), White House, February 1995, 22 pp. [On multilateral peacekeeping.] U.S. Military Operations in Somalia (hearings of the Senate Armed Services Cmte., 12 & 21 May 1994) US GPO: 1994, 141 pp. U.S. Relations with Colombia (joint hearing of House Foreign Affairs Subcmtes. on International Security and the Western Hemisphere, 3 August 1994) US GPO: 1995. U.S. Security Strategy for the East Asia-Pacific Region, Department of Defense, Office of International Security Affairs, February 1995, 32 pp. World-Wide Conventional Arms Trade (1994-2000): A Forecast and Analysis, Department of Defense, December 1994 [released on 22 February 1995]. Zaire: A Country in Crisis (hearing of the House Foreign Affairs Subcmte. on Africa, 26 October 1993) US GPO: 1995, 91 pp. TO OBTAIN REPORTS For Congressional reports and hearings, contact the Committee or Subcommittee which issued them [House (202) 225-3121; Senate (202) 224-3121], or order them from the Government Printing Office [(202) 783-3238] for a small charge. Request (free) Congressional Research Service (CRS) reports through your Congressional Representative's office [(202) 225-3121]. For Government Accounting Office (GAO) reports, phone (202) 512-6000. For White House publications, phone (202) 395-7332. For Department of Defense publications, phone (703) 697-3189. FAS Homepage | Arms Sales | Arms Sales Monitor | Index | Search | Join FAS