Cost Waivers Under the Foreign Military Sales Program

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.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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