In a February 1995 fact sheet, the White House cited "control, restraint and transparency" as critical elements of the Clinton administration's arms transfer policy. The following year, Congress passed H.R. 3121, a law that increased the level of openness around U.S. arms exports. Listed below are ten steps Congress could take this year to build on that progress and further assist the Clinton policy.

The ten reforms outlined in these pages--

• promote American participatory democracy by increasing the amount of information available to Congress, the media and the public on U.S. arms exports and related policies;
  

• streamline U.S. weapons export programs, making them easier to monitor and oversee; and
  
• save millions of dollars in government subsidies.

Click on a specific issue title in the table below to go directly to it or simply scroll down through the document.

Issue 1. Establish an annual reporting requirement by the Department of Defense on all U.S. training programs involving foreign defense forces and personnel.

Background/rationale. The Department of Defense trains foreign militaries through several different programs, some funded by the Pentagon's annual budget and others by State Department-administered foreign aid. The increasing number of programs has made it difficult for Congress and the interested public to know the extent of, or to oversee adequately, this activity.

The International Military Education and Training (IMET) program, funded through the annual foreign aid appropriations act, is the best known and most transparent of these programs. Every year, the administration presents the foreign aid committees of Congress with an estimate of anticipated funding and troop training levels, and a justification for each country's program. For fiscal year 1999, the administration is seeking $50 million to train 8,744 troops in 117 countries. The Pentagon has historically used IMET to train foreign troops in the use of U.S.-supplied equipment and in U.S. military doctrine and tactics. In recent years, however, and at the urging of Congress, the Department of Defense has offered "expanded" IMET courses in civil-military relations, human rights training and English. These classes are also open to civilian administrators of the military and legislators with military oversight responsibilities.

Congress has prohibited or restricted IMET for some governments with poor human rights records, including Indonesia in 1992, in order to distance the U.S. government from abuses being committed. The New York Times recently revealed, however, that the Pentagon has been circumventing Congress' intent, by providing military training to Indonesia through another training program, sponsored by the Joint Chiefs of Staff. Special Operations Forces and combatant commands also conduct specialized military training and joint (U.S. and foreign forces) exercises. In addition, the Defense Department conducts foreign military training as part of counter-narcotics assistance, and the Pentagon has created the Joint Contact Team Program to train "Partnership for Peace" militaries in Central and Eastern Europe and former Soviet republics.

These programs are funded out of the opaque Pentagon operations and maintenance budget. Annual reports to Congress are required for some of these programs, but they are directed to the defense committees of Congress, rather than the foreign aid committees (see sections 2010 and 2011 of Title 10 of the U.S. Code).

The administration should report to Congress annually on all military training activities (whether for counter-narcotics, peacekeeping or other purposes) conducted in the previous year, as well as those planned for the upcoming year, for each foreign country. The report should include the purposes, types and cost of the training provided, and the number of foreign troops trained for the preceding year and anticipated for the future year. The annual comprehensive report should be unclassified and submitted to both the foreign aid and defense oversight committees of Congress.

Cost/savings to taxpayers. Preparing this report would entail some cost; however, it would also provide a much truer picture of the amount of military aid being provided to foreign countries. Once Congress has a firm understanding of how (and how much of) these funds are being programmed, this information might result in reductions in training aid, potentially saving millions of dollars per year.

Issue 2. Reinstate section 28 of the Arms Export Control Act.

Background/rationale. From 1979-1995, section 28 of the Arms Export Control Act required the executive branch to provide quarterly reports to Congress on all "price and availability" estimates furnished to foreign governments during the preceding three months. These "P&A" reports supplied early notice to Congress and the public of the U.S. government's potential willingness to sell major military equipment to a foreign government, and indicated the model, quantity and price of equipment under consideration for sale. The National Defense Authorization Act for fiscal year 1996 (P.L. 104-106) repealed this section of law.

These reports, which were released in declassified form to the public under the Freedom of Information Act (FOIA), were the only readily available source of early information on potential weapons deals in the works. This type of advance information is essential to allow the mobilization of Congressional and public opposition to particularly dangerous or ill-conceived sales.

As it now stands, Congress and the public are not alerted to pending sales until formal notification from the executive branch of its plan to sign a sales contract or issue an export license. At this stage an arms deal has a high degree of momentum and is practically impossible to stop.

Cost/savings to taxpayers. The additional costs incurred in the production of these typically 6-10 page Congressional reports would be marginal. The information which would be incorporated into them is already collected by the relevant government agencies. The cost in staff time resulting from responses to multiple FOIA requests for this information would be greatly reduced and would likely offset the report production costs.

Issue 3. Hold hearings on arms export licensing and end-use monitoring programs.

Background/rationale. In recent years, export licenses for industry-direct arms sales have increased dramatically, now averaging over $20 billion per year. At the same time, several government reports have sharply criticized the State Department's management of its export program, in particular citing inadequate end-use checks to protect against diversion or misuse of U.S.-origin arms.

In recent legislation (H.R. 3121) Congress required both the Defense and State Departments to produce an annual report on their efforts to verify export licenses and to monitor the end-use of American weapons. This requirement is particularly important given growing concern about the illicit traffic in arms and military technology in recent years. In addition, there are concerns that U.S.-supplied arms are being used in the commission of human rights abuses in several countries.

Congress should increase its oversight role with hearings on current licensing and monitoring programs to determine how effective the oversight practices are and to assess whether additional procedures are necessary. The Senate last held such hearings in 1994 (A Review of Arms Export Licensing, Sen. Hearing 103-670).

Cost/savings to taxpayers: There would be very minimal cost. Holding and publishing oversight hearings is a routine and central function of Congress.

Issue 4. Amend the reporting requirement in section 655 of the Foreign Assistance Act to include information on deliveries of weapons sold through the Direct Commercial Sales (DCS) program during the preceding year.

Background/rationale. Until 1980, annual reports mandated by section 657 of the Foreign Assistance Act provided a detailed breakdown of U.S. arms exports (both FMS and commercial deliveries) during the preceding year. The Reagan administration repealed this provision of law in 1981. In 1996 Congress reinstated it as section 655 of the Foreign Assistance Act.

The first iteration of this report was released in 1997, and it provided important and highly specific information on Pentagon-negotiated Foreign Military Sales shipments made during the preceding year to individual recipient countries. The State Department, however, interpreted section 655 as applying only to Direct Commercial Sales licenses, not actual shipments of weapons. The licensing information is important, but it is impossible to make anything but qualified assessments of what was actually delivered abroad.

Inclusion of information in the section 655 report on commercially-negotiated arms exports would force the State Department to compile this data in a timely manner, facilitating government and public oversight of the commercial export program.

The only other way to obtain this data is through individual requests under the Freedom of Information Act (FOIA), but the State Department has long refused to release any information under a FOIA request to the public on arms sales it has licensed.

Cost/savings to taxpayers. There would likely be some substantial cost to the State Department to expedite and regularize the collection and computerization of completed export licenses so that this information could be published in the annual section 655 report. But the security benefits of doing so, in order to better ensure that U.S.-licensed arms are not being diverted or misused, would seem to justify and necessitate this expenditure.

Issue 5. Consolidate the State Department's DCS licensing program sales into the Pentagon's Foreign Military Sales program.

Background/rationale. The United States has two separate channels for selling weapons abroad--Foreign Military Sales (FMS) and Direct Commercial Sales (DCS). In FMS, the government (represented by the Defense Security Assistance Agency) negotiates arms sales with foreign governments, buys the weapons from manufacturers and oversees shipment. In DCS, arms manufacturers broker deals directly with foreign corporations or governments, and the State Department's Office of Defense Trade Controls licenses the exports.

FMS have historically accounted for the majority of U.S. arms exports. In recent years, however, the dollar volume of DCS licenses has skyrocketed, with multi-billion dollar deals of sophisticated weapons cleared for export, as well as vast quantities of small arms. In fiscal year 1989, more arms were exported through DCS than FMS. Buyers are turning to DCS because the commercial route is quicker ("less red tape," according to one seller), cheaper, more covert and entails less government oversight.

The Pentagon is much more open about FMS than the State Department is about DCS. Specific information on DCS (such as the manufacturer, items and value of the contract) is considered "confidential business information" and, while not classified, is unavailable to the general public. Information on actual deliveries of weapons through this program is nearly impossible to come by (see issue no. 4).

Direct Commercial Sales--as the name implies--are treated basically as business deals: If the licensing paperwork is filled out properly, and if there is no overriding foreign policy or national security reason to block an export, a license will be granted. By definition, the U.S. government performs less oversight on DCS than FMS (see issue no. 3).

In addition, the industry and State and Defense Departments have played regulatory differences between the two programs off each other to bring legal restrictions down to the lowest, and government assistance and subsidies up to the highest, common level.

Having two separate sales channels also increases the difficulty of accurately quantifying U.S. arms exports in a given year. DCS are routinely omitted from arms trade statistics. For example, the Congressional Research Service, which annually publishes the most detailed and timely information on arms exports, does not include DCS in its figures for U.S. sales because of the difficulty of obtaining this data.

Finally, having two separate sales programs--run by two entirely different bureaucracies--is unnecessarily costly. For all of these reasons, the State Department's licensing function for Direct Commercial Sales should be ended, and all U.S. arms exports should be run through the FMS program.

Cost/savings to taxpayers. This provision would save several millions of dollars per year, which the State Department currently spends to review arms export license applications. The Defense Security Assistance Agency is self-financed through a small surcharge on weapons sales.

Issue 6. Require publication of all notifications to Congress of excess defense article transfers and leases of military equipment.

Background/rationale. The Pentagon exported $500 million of excess defense articles to foreign militaries in 1997, and it has hundreds of millions of dollars of equipment on loan around the world. No specific information on these deals is readily available to most members of Congress, their staff or the public prior to, or at the time of the transfer.

Lease and excess defense article transfer notifications are currently referred by the Speaker of the House to the House International Relations Committee and by the President Pro Tem of the Senate to the Senate Foreign Relations Committee. This means in effect that only 48 members out of 435 in the House and 18 out of 100 in the Senate might possibly know what the U.S. government is planning to give or lease to whom.

The public currently can only find out that the Pentagon has transmitted notice of a proposed excess defense articles transfer (either grant or sale) or lease of equipment to a particular country for some unnamed "defense articles and services." Placing a Freedom of Information Act request with the Defense Department to receive the specifics contained in the unclassified Congressional notification will take well over a month, by which time the Congressional review period for the sale will have elapsed.

In 1996, Congress required that the executive branch publish notices to Congress of proposed Foreign Military Sales and Direct Commercial Sales license approvals in the Federal Register in a timely manner. As a follow-up, Congress should amend section 62 of the Arms Export Control Act (for leased equipment) and section 516 of the Foreign Assistance Act (for excess defense equipment) to require that these notifications also be printed in the Federal Register, which is available on the Internet, or on the Pentagon's web site.

Cost/savings to taxpayers. There would be no appreciable cost entailed in publishing or posting the notices to Congress. The reduction in staff time necessary to respond to multiple FOIA requests for this information would be substantial.

Issue 7. Consolidate all government financing of weapons sales into the Foreign Military Financing program.

Background/rationale. Since the 1970s, the United States has financed export sales of American-made weaponry through the Foreign Military Financing (FMF) program. FMF is administered by the Pentagon and State Department and funded by Congress annually in the foreign operations appropriation bill. Through FMF, the United States will finance more than $3 billion of arms exports in fiscal year 1998. The vast majority of this aid will be in the form of outright grants, but nearly $200 million of loans will also be provided.

General opposition to foreign aid has increased in the past few years, resulting in reductions in outlays and restricting this year's $4 billion of FMF to only a handful of countries. The arms industry's response has been to seek new channels for financing arms sales. It has sought and achieved increased financing by the Export-Import Bank for foreign sales of dual-use equipment (those articles such as radar systems, certain planes, boats, or general technologies which have both military and civilian uses), as well as the creation of a new weapons export loan guarantee program at the Pentagon. The latter is separate from the FMF program, which already has the authority to guarantee loans.

Industry argues that government guarantees for commercial loans through the Defense Export Loan Guarantee program and Ex-Im Bank would finance arms exports on the cheap. But guarantees are needed precisely because the recipient is a credit risk, unable to obtain affordable commercial loans on its own. Many past weapons loans financed by the government have gone bad, resulting in much higher costs to taxpayers than initially stated. In fact, the DOD shifted from loans into a largely grant military aid program in the early 1980s because U.S. allies were not able to meet their debt payments. As of October 1997, the Pentagon had $13.2 billion in outstanding loans, and several countries were nearly $1 billion in arrears at that time. Under the Defense Export Loan Guarantee program, U.S. taxpayers could get stuck with up to $15 billion more in bad debt.

These two new financing channels create potential large liabilities for U.S. taxpayers. Moreover, it is smoke and mirrors to bury new military aid programs in the Pentagon budget and in the Ex-Im Bank budget, while at the same time cutting such funds from the foreign assistance budget. All arms export financing should be consolidated in one program, providing conformity permitting better oversight.

Cost/savings to taxpayers. The consolidation would save money by eliminating redundant bureaucracies and protect taxpayers from potential future defaults of hundreds of millions or billions of dollars.

Issue 8. Repay taxpayers for public funds expended to research and develop weapons which are exported abroad. Require recoupment fees on all sales of major military equipment.

Background/rationale. American taxpayers underwrite research and development costs of weapons systems for U.S. forces. The Pentagon spends over $30 billion of public money annually to develop arms.

Beginning in the 1960s, as a matter of policy, the executive branch added a "recoupment" charge to both industry-negotiated Direct Commercial Sales and to government-negotiated Foreign Military Sales (FMS) in order to recover part of the cost to the public of developing the weapons. The fees averaged five percent of the weapon's value, and the recouped money was returned to the Treasury as general revenue (deficit reduction). In 1976, the requirement that these fees be added to FMS of major equipment was enacted into law (Arms Export Control Act, section 21(e)(1)(B)). There was no similar requirement legislated for Direct Commercial Sales, and in 1992 the Bush administration ended the practice of collecting recoupment fees on such sales.

Following that, the administration and industry argued that recoupment fees on FMS must be abolished in order to restore equal treatment between the two U.S. arms sales programs. Maintaining recoupment fees on FMS but not on Direct Commercial Sales made government-negotiated sales more expensive. The Pentagon successfully argued that without equal treatment, customers would buy directly from industry, which entails less government oversight. In 1996, Congress passed a broad Presidential waiver authority for section 21(e).

A more fiscally sound way to restore equal treatment--and to channel buyers back toward government-negotiated sales--would be to reinstate recoupment fees on commercial sales, as well as applying the fees to all FMS of major military equipment.

Recoupment fees are not a tax on arms exports; they are a reimbursement to taxpayers for subsidized R&D costs. Because they do not have to absorb R&D costs and the cost of establishing the production line, arms manufacturers make a handsome profit on exports of weapons systems. Because they do not have to pay any portion of the weapon development costs, foreign customers also receive a substantial benefit, at the expense of U.S. taxpayers.

Industry lobbies against recoupment fees by arguing that the fees raise the price of U.S. weapons and make them less competitive on the international market. However, according to the Congressional Research Service, the U.S. cornered 70 percent of the arms sales market in 1993. This figure included only government-negotiated sales, which had a recoupment fee applied to them, indicating that the fees did not threaten U.S. competitiveness.

Cost/savings to taxpayers. The exact amount of savings in a given year would depend on the amount of arms sales made. However, the General Accounting Office has estimated that if recoupment fees were charged on all sales of major military equipment, at least $500 million per year would be returned to the Treasury.

Issue 9. Prohibit offsets on exports financed by U.S. military aid.

Background/rationale. Offsets are side-deals used by arms manufacturers to attract customers and clinch deals. They return some economic benefit--usually jobs--back to the customer country. Typical offsets are production of the weapon system or its components in the purchasing country, investment in non-military industries in the purchasing country, or assistance marketing the foreign country's goods and services in the United States or elsewhere. Organized labor and the subcontracting base strongly oppose offsets because they have a negative impact on employment in the United States.

Every year, the U.S. government gives away nearly $3.5 billion in Foreign Military Financing (FMF) grants and loans. Except for $475 million of Israel's annual $1.8 billion of aid, all of this must be spent on American-made weapons, meaning that such sales are not subject to international competition--the usual rationale for offsets. Nevertheless, current laws and policies do not prohibit offsets on FMF-related sales.

In 1994 the General Accounting Office (GAO) examined 48 sales to the four largest FMF recipients--Israel, Egypt, Turkey and Greece over an unspecified time period. These contracts, valued at $11.6 billion and paid for with U.S. military aid, included offsets worth at least $4.7 billion, effectively increasing the assistance to $16.3 billion. [GAO/NSIAD-94-127]

GAO also reported that, according to knowledgeable Pentagon officials, "No other arms supplier has a program that provides a combination of grant aid and allows offsets." Therefore, "it is unlikely U.S. contractors would lose sales to foreign competitors if they could not provide offsets in sales funded with U.S. grant aid." As such, GAO suggested that Congress consider amending the relevant laws "to prohibit the use of FMF grants [and possibly FMF concessional-rate loans] to pay for or request, require, obtain or provide offsets in connection with sales of U.S. military goods and services." This prohibition could be enforced, said GAO, by requiring U.S. contractors to certify that they will not provide offsets, and by requiring FMF recipients to certify, as a condition of the aid, that they will not require offsets.

Permitting offsets on sales financed in whole or in large part with taxpayer funds is grossly unfair to the general public, which is already being called upon to underwrite the development of the weapons being exported and to pay for the foreign government's purchase of the weapons. When offsets are permitted on these deals, some American workers are also being asked to sacrifice their jobs. Because information on offsets is hidden from the public, it is impossible to estimate how many jobs are being negatively affected by offsets on taxpayer-financed arms exports.

Cost/savings to taxpayer. This provision would not cost anything to enact. It would save American workers' jobs.

Issue 10. Prohibit the use of government funds at international arms bazaars.

Background/rationale. Up until 1991, U.S. arms manufacturers paid the U.S. Treasury to borrow, transport and insure Pentagon-owned weapons for marketing display to foreign customers. However, since the 1991 Paris Air Show, the military services have flown or shipped U.S. military equipment to shows for the benefit of U.S. arms corporations at no cost to the industry.

The General Accounting Office reported in March 1993 that Pentagon participation in six arms bazaars since 1991 cost taxpayers over $3.5 million. And taxpayers picked up the $18.9 million tab when the Marines crashed an AV-8B aircraft returning from the 1992 Singapore air show. The Department of Defense estimated that it spent $2.5 million on air shows in 1997, but these totals are kept artificially low by coordinating training missions and troop assignments with air show schedules. This practice meets the needs of the U.S. weapons industry by providing equipment for display and personnel to explain its uses and features, while allowing the Pentagon to write off most of the expenses as training or otherwise "business" related. Never explained is what relevance--if any--overflying the Paris Air Show has to combat training.

Opposed to the use of taxpayer funds for arms marketing, Rep. Howard Berman and Sen. Joseph Biden sponsored a provision in the fiscal year 1993 DOD authorization bill requiring a "national security" certification before direct Pentagon participation at arms bazaars is permitted. Rep. Berman's original language would have banned government funding and participation in arms shows, with no "national security" certification/waiver. His position was weakened in the House-Senate conference on the issue.

The Defense Department now routinely makes the spurious claim to Congress that marketing weapons overseas is a matter of U.S. national security. According to the Pentagon, participation at these marketing shows "will contribute to foreign policy and defense objectives by underscoring our continuing interest in maintaining a strong political and military presence in the region."

Cost/savings to taxpayers. This provision would save taxpayers at least $2-3 million per year. The actual savings could be much higher, but the Pentagon Comptroller has been unwilling to release accurate, after the fact, costs resulting from Department of Defense participation at these marketing events.