Foreign Military Sales and Offsets

Testimony was given on GAO reports which concern the impact of offset agreements associated with U.S. overseas sales of military equipment and U.S. policy for coping with foreign demands for increasingly large offsets. GAO reported that: (1) although certain national interests may be affected by offset commitments, no single agency monitors offset activities; and (2) no mechanism exists for incorporating the views of involved government agencies and private industry in offset decisions. Since these reports were issued, GAO found that: (1) several government agencies have been studying the effects of offsets on various national interests; (2) in 1984, Congress passed legislation requiring the President to report the impact of offsets on U.S. defense preparedness, industrial competitiveness, employment, and trade; and (3) the International Trade Commission has completed an assessment to determine the extensiveness of offsets in military and civilian sales. GAO believes that, without a mechanism to collect and analyze data on offsets, it will be difficult to determine their economic impact and make effective offset decisions. However, GAO has taken the position that offsets should not be used when foreign military sales credits are involved because, in these cases, the foreign buyer receives a double benefit.