Impact of Raising or Repealing the Commercial Arms Sales Ceiling

A review of the impact of raising or repealing the commercial arms sales ceiling was discussed. Specifically, the review was directed toward a comparison of foreign military sales (FMS) and the effect of such controls on U.S. firms engaged in the international arms trade. Under the ceiling, no commercial sales to foreign countries of major defense equipment in excess of $35 million are permitted, except to the 14 NATO allies, Japan, Australia, and New Zealand. In a FMS sale, the Department of Defense acts as a middleman between foreign governments and American manufacturers with the United States essentially buying the equipment and selling it to the foreign government. In a commercial sale, negotiations and payments are made directly between the purchasing country and the U.S. manufacturer, with the Government approving the manufacturer's request to promote or sell his product and an export licence to deliver the equipment to the foreign country. The ceiling has not significantly altered executive branch controls over commercial sales. Although industry wants the flexibility of using the commercial channel when practical, only a few companies have been directly affected by the ceiling. The ceiling could be eliminated if Congress believes the commercial controls exercised by the executive branch are adequate. While elimination would probably not affect sales of most equipment, Congress would be giving up its veto authority over a few types of high-dollar value equipment which are currently forced into the FMS channel by the ceiling. However, Congress could eliminate the ceiling and retain its veto power by subjecting sales over a certain amount to the reporting procedures of the Arms Export Control Act. In addition, Congress could keep the ceiling and provide for exceptions, or it could raise the ceiling, which industry has said would solve most of its problems. GAO believes that the question of maintaining, increasing, or eliminating the current ceiling on commercial arms sales depends largely on the extent to which Congress desires to be directly involved in the control process.