What Would Be the Impact of Raising or Repealing the Commercial Arms Sales Ceiling?

ID-80-9: Published: Jan 4, 1980. Publicly Released: Jan 11, 1980.

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The ceiling on commercial arms sales was raised in 1979. The rationale for imposing the ceiling was to gain greater control and influence over arms sales to all but the closest allies of the United States. However, although the ceiling has complicated firms' marketing and sales activities, its impact on sales has been limited and it has directly effected only a few manufacturers. Traditionally, significant sales have been on a Foreign Military Sales (FMS) basis keeping such sales in the government-to-government channel. Some State and Defense Department officials felt that the ceiling was important because it provided the Government with an opportunity for greater involvement in arms sales and deterred significant sales to nonexempt countries from the commercial channel. Others disagreed that FMS controls were better or that the ceiling was forcing sales into the FMS channel.

GAO felt that Government influence over the sales process was greater when the Government was involved in the sale from the beginning, but did not believe that the ceiling guaranteed such involvement. FMS is essentially a contracting method under which foreign governments negotiate with the U.S. Government rather than a commercial firm for price and delivery. The record shows that most exempt and nonexempt sales have been made on this basis. In addition, all significant commercial sales reviewed were split sales involving both FMS and commercial contracts. They were made with Government approval and often encouraged. Controls over arms sales generally did not distinguish between FMS and commercial sales, so the same officials reviewed both and the same criteria applied to both. A control added in 1977 required firms to seek approval before promoting significant defense equipment. This should provide the Government with an opportunity to either prevent a sale or to stipulate that the sale be negotiated on an FMS basis. Alternatives to the current ceiling include (1) raising it substantially or eliminating some equipment from the limitation; or (2) eliminating the ceiling but subjecting significant commercial sales to congressional review. Language could be added stating a preference for, but not requiring, FMS sales of major defense equipment.

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