Cost Waivers Under the Foreign Military Sales Program:

More Attention and Control Needed

FGMSD-78-48A: Published: Sep 26, 1978. Publicly Released: Sep 26, 1978.

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The Arms Export Control Act provides that charges for nonrecurring research, development, and production costs and for the use of government-owned assets can be waived or reduced if the sale would significantly advance either U.S. interests in North Atlantic Treaty Organization (NATO) standardization or foreign procurement in the United States under coproduction arrangements. The Department of Defense (DOD) is not required to obtain congressional approval before authorizing waivers, nor is it required to report to Congress on the reasons for and amounts of waivers.

In some cases, planned waivers will comply with congressional intent, but in other cases it is difficult to measure whether standardization would be advanced. DOD has not developed specific criteria for granting cost waivers because it believes this would place the Secretary of Defense at a disadvantage in negotiations. However, Congress should be informed of the amounts being waived and the reasons for granting waivers. DOD authorized the waiver of royalty fees for use of a U.S.-developed technical data package. Although the act does not require that the fees be charged, the waiver results in subsidies to foreign governments which is inconsistent with a purpose of the act. In addition to cost waivers, there were instances in which foreign governments were undercharged, and thus subsidized, by millions of dollars.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: Congress should amend the Arms Export Conrol Act to require that DOD include the value of and explanation for cost waivers in the required notification reports on foreign military sales and that royalty fees be charged on such sales, with Congress deciding under what circumstances DOD would be permitted to waive the charges. The Secretary of Defense should, until legislative changes have been considered, include the value of and explanations for cost waivers when he submits notification reports to Congress and direct that the military services make reasonable efforts to recover applicable costs identified as not being charged to foreign governments. He should also direct that the Army take actions to improve its depot accounting systems and determine whether improper cost transfers have taken place and, if so, attempt to bill foreign governments for undercharges.


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