International Procurement:

NATO Allies' Implementation of Reciprocal Defense Agreements

NSIAD-92-126: Published: Mar 18, 1992. Publicly Released: Mar 18, 1992.

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Pursuant to a congressional request and a legislative requirement, GAO reviewed how various North Atlantic Treaty Organization (NATO) countries were implementing their reciprocal defense procurement memoranda of understanding (MOU) with the United States, focusing on: (1) how the United States and its allies viewed and implemented MOU; (2) whether MOU provide opportunities for U.S. firms to freely and fairly compete in allied defense markets; (3) the extent to which allied governments' tariff practices affected contract selections; (4) allied contract award grievance procedures; and (5) the Department of Defense's (DOD) efforts to monitor MOU.

GAO found that: (1) MOU obligate signatories to evaluate bids without considering national laws and regulations regarding tariff costs and seek to eliminate buy-national laws and tariffs relating to defense procurements; (2) the DOD method of meeting MOU obligations by waiving the Buy American Act has permitted European firms to compete with U.S. firms for costly defense contracts; (3) although DOD estimated that it had opened at least 44 percent of its procurement market to foreign competition in fiscal year 1990, European governments stated that the United States has limited their access to the U.S. defense market; (4) allied officials stated that they seek to maximize competitive opportunities, but reserve the right to limit competition or direct contracts to national or other European sources; (5) U.S. industry officials stated that such factors as lessening U.S. technology transfer controls, understanding foreign defense procurement practices, and maintaining a substantial in-country presence are required to successfully compete for defense-related contracts in Europe; (6) although DOD added procurement procedure annexes to existing MOU to promote equal treatment for U.S. contractors and promote more openness and accountability in European defense procurement, DOD has not followed up on other recent MOU-related initiatives; (7) although European countries pay tariffs on U.S. defense imports, most concerned parties believe that tariffs are an insignificant factor in contract selections; and (8) U.S. contractors rarely appeal European contract awards, since many countries' grievance procedures were cumbersome and contractors fear losing future contract opportunities.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD is obtaining documented information on the procurement rules and procedures of the five countries that have signed procurement annexes: France, Germany, Italy, the Netherlands, and Norway. DOD has completed documentation on France and Norway to date. DOD obtained information on procurement rules and procedures of France and Norway. However, it does not intend to obtain information on Germany, Italy, and the Netherlands because the Department of Commerce has a similar effort ongoing worldwide. DOD's Office of Foreign Contracting believes it implements the spirit of the recommendations in its periodic meetings with the MOU countries and in tracking defense trade between these countries and the United States. Nevertheless, theses and Commerce's efforts do not appear to clearly fulfill the intent of the recommendations, since they do not include evaluation of the countries' defense procurement rules and procedures and actions to ensure they are implementing all the annex provisions.

    Recommendation: The Secretary of Defense should request that the foreign signatories of procurement annexes provide specific information demonstrating how they are implementing all the provisions of these annexes. Furthermore, in future annexes, mutually agreed upon language should be included that would enable both governments to periodically review progress made in implementing the provisions of the annexes.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: 14 MOU countries have designated ombudsmen. Responses have not yet been received from five countries. One country declined to designate an ombudsman.

    Recommendation: The Secretary of Defense should strongly encourage MOU signatories to promote greater reciprocal defense market access by designating ombudsmen to assist U.S. contractors. These ombudsmen should provide services similar to those provided by the DOD ombudsman.

    Agency Affected: Department of Defense


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