Defense Trade Data
Gao ID: GAO-06-319R January 27, 2006Defense trade impacts many issues of importance to the Department of Defense (DOD), including maintaining a healthy supplier base, protecting critical technologies, ensuring access to a secure supply of defense-related items and services, managing technology transfers, and increasing interoperability with allies. A critical element to guide decision makers is access to comprehensive and reliable data. The Committee on Armed Services, through its report on the National Defense Authorization Act for Fiscal Year 2006, directed GAO to identify and assess defense trade data. In response, we (1) identified defense trade data available from U.S. government sources and their limitations, and (2) determined defense trade balances as indicated by the data for years 2000 through 2004.
We found that several agencies collect data that can be used as indicators of defense trade, such as the Census Bureau's data on U.S. imports and exports and DOD's foreign military sales and prime contracts data. While there are other related data sources, such as the State Department's export licensing data, Bureau of Economic Analysis' defense service data, and DOD's foreign subcontractor data, we found them to be of limited use as defense trade indicators. However, data from Census and DOD sources were sufficient to assess defense trade at an aggregate level. Based on the data we analyzed from these agencies, we found that for each of the years 2000 through 2004, the United States sold significantly more defense articles and services to foreign entities than it bought from them.
GAO-06-319R, Defense Trade Data
This is the accessible text file for GAO report number GAO-06-319R
entitled 'Defense Trade Data' which was released on January 27, 2006.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
January 27, 2006:
The Honorable John Warner:
Chairman:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:
Subject: Defense Trade Data:
Defense trade impacts many issues of importance to the Department of
Defense (DOD), including maintaining a healthy supplier base,
protecting critical technologies, ensuring access to a secure supply of
defense-related items and services, managing technology transfers, and
increasing interoperability with allies. A critical element to guide
decision makers is access to comprehensive and reliable data. The
Committee, through its report on the National Defense Authorization Act
for Fiscal Year 2006, directed GAO to identify and assess defense trade
data. In response, we (1) identified defense trade data available from
U.S. government sources and their limitations, and (2) determined
defense trade balances as indicated by the data for years 2000 through
2004.
For this review, we defined defense trade as the buying and selling of
defense articles and services between the United States and foreign
entities. To identify data sources and limitations, we interviewed
agency officials of the Departments of Defense, State, Commerce (Census
Bureau and Bureau of Economic Analysis), and Homeland Security (Customs
and Border Protection) and reviewed past GAO and agency reports. To
determine defense trade balances, we analyzed data from the Departments
of Defense, Commerce, and State and considered their limitations. To
assess data reliability, we performed electronic testing of required
data elements, interviewed knowledgeable agency officials, and reviewed
existing information about the data system. In addition, where
applicable, we compared data to published data. Those data sets that we
determined to be sufficiently reliable indicators of defense trade were
used to calculate the defense trade balance for the years 2000 to 2004.
We performed our review from May 2005 to January 2006 in accordance
with generally accepted government auditing standards.
In brief, we found that several agencies collect data that can be used
as indicators of defense trade, such as the Census Bureau's data on
U.S. imports and exports and DOD's foreign military sales and prime
contracts data. While there are other related data sources, such as the
State Department's export licensing data, Bureau of Economic Analysis'
defense service data, and DOD's foreign subcontractor data, we found
them to be of limited use as defense trade indicators. However, data
from Census and DOD sources were sufficient to assess defense trade at
an aggregate level. Based on the data we analyzed from these agencies,
we found that for each of the years 2000 through 2004, the United
States sold significantly more defense articles and services to foreign
entities than it bought from them.
On November 1, 2005, we briefed the results of our study to your staff.
These results are included as an enclosure to this letter.
The Departments of Defense, Commerce, and State provided technical
comments to a draft of this letter and enclosure, which we have
incorporated as appropriate.
Should you or your staff have any questions concerning this report,
please contact me at (202) 512-4841. Copies of this report are also
available on GAO's Web site at www.gao.gov. Key contributors to this
report were John Neumann, Assistant Director; John Ting; Bradley Terry;
and Mark Gribbin.
Signed by:
Ann Calvaresi-Barr:
Director, Acquisition and Sourcing Management:
Enclosure:
November 2005:
BRIEFING TO SENATE COMMITTEE ON ARMED SERVICES:
Defense Trade Data:
Engagement Scope:
Our definition of defense articles and services is based on the U.S.
government's International Traffic in Arms Regulations. This regulation
defines a defense service as the furnishing of assistance to foreign
persons, which includes the design, engineering, manufacture,
operation, and maintenance of defense articles. Based on this
definition, services paid for by the Department of Defense (DOD) to
support military bases overseas, such as payments for wages to foreign
nationals, foreign contractual services, and construction expenditures
abroad are not included in our analysis of defense trade.
Methodology:
To identify U.S. government data sources, we researched past GAO
reports and agency reports and documents, and interviewed agency
officials at DOD and the Departments of Commerce, Homeland Security,
and State. To show the defense trade balance for the years 2000 to
2004, we analyzed data from DOD, Commerce, and State covering 2000 to
2004.
DOD, Commerce, and State provided technical comments to a draft of this
letter and enclosure, which we have incorporated as appropriate.
Background:
Defense trade data provides national security decision makers with
vital information on transfers of defense articles and services between
the United States and foreign entities. These transfers are made
through government-to-government programs such as the Foreign Military
Sales (FMS) program, or directly by companies selling to foreign
entities under an approved export license. In addition, DOD and U.S.
companies purchase defense articles and services from foreign entities.
Objectives:
The Senate Armed Services Committee report on the National Defense
Authorization Act for FY 2006 directed GAO to identify and assess
defense trade data. In response, this briefing evaluates the following:
1. What defense trade data is available from U.S. government sources
and what are their limitations?
What does the available data indicate about the U.S. defense trade
balance from 2000 to 2004?
Summary:
Several agencies collect data that can be used as indicators of defense
trade. The Department of Commerce collects data on U.S. imports and
exports. Additionally, DOD collects data on its own sales and
purchases. Data from these sources were sufficiently reliable to assess
defense trade at an aggregate level. Other related data on balance of
payments, export licenses, and foreign subcontractors were of limited
use as indicators of the level of defense trade.
The United States sells significantly more defense articles and
services to foreign entities than it buys. Between 2000 and 2004, U.S.
defense exports averaged $11.5 billion a year, versus imports of $1.8
billion a year; DOD military sales averaged $12.6 billion a year,
versus purchases of $1.5 billion a year. During the same period, DOD
purchases of defense articles and services from foreign companies have
decreased from 2.4 percent to 1.7 percent of all such DOD purchases.
Objective 1:
What defense trade data is available from U.S. government sources and
what are their limitations?
Data Available from Federal Agencies:
DOD and the Departments of Commerce and State are the principal
agencies that collect data related to defense trade.
The Department of Commerce's Census Bureau collects export and import
data on actual shipments and deliveries of goods, which includes
defense articles, as part of its U.S. foreign trade statistics. This
data is mostly collected by the Department of Homeland Security's
Customs and Border Protection at ports of entry and exit, which is then
reported to Census. Separately, Commerce's Bureau of Economic Analysis
(BEA) assembles estimates of imports and exports of a range of services
as a part of its Balance of Payments Accounts.
DOD collects data on contractual sales and purchases of defense
articles and services through its FMS and prime contract data systems.
FMS data include all defense articles and services sold by DOD to
foreign governments, while prime contract data include DOD purchases
from foreign entities. This data differs from Commerce import and
export data as it reflects signed contracts for goods and services
rather than actual deliveries. Another DOD office separately collects
data from U.S. contractors on defense subcontracts performed overseas,
based on certain dollar thresholds and reporting criteria.
The State Department collects data on proposed direct commercial sales
of defense articles and services by U.S. companies to foreign persons
as part of its export licensing program. License data are based on the
authorized value of export licenses and agreements. Export licenses
authorize U.S. companies to sell defense articles and services directly
to foreign persons. Agreements, such as manufacturing license
agreements and technical assistance agreements, allow the transfers of
technical knowledge, production rights or manufacturing know-how from
U.S. companies to foreign persons.
Commerce Department Data Observations and Limitations:
Census data reflect the movement of goods crossing U.S. borders.
Consequently, the data may count movements even when they do not result
in changes of ownership. For example, if goods are temporarily exported
to the manufacturer for repair or maintenance, they will be counted as
exports even though no purchase or sale is being made. However, as
these goods are likely to be imported back into the United States,
these transfers do not significantly impact the data's usefulness in
assessing defense trade.
BEA service import and export data was limited for the purpose of
assessing defense trade because it captures data that was outside our
definition of defense services.
BEA captures U.S. company exports of services under technical
assistance agreements and manufacturing license agreements, but it does
not separate them into defense and non-defense sectors. While BEA data
include defense services associated with the FMS program, this
information is not complete without data on defense services exported
by U.S. companies.
BEA's Direct Defense Expenditures account captures service import data
that is outside our definition of defense services. This account
primarily measures expenditures incurred abroad by U.S. military
agencies, including wages for foreign nationals, foreign contractual
services, and construction expenditures in support of military bases
overseas.
Defense Department Data Observations and Limitations:
FMS data includes sales financed by U.S. government grants and loans to
foreign countries. Grant-funded sales are the practical equivalent of
sales from U.S. industry to U.S. government.[Footnote 1]
Our analysis of the FMS data showed discrepancies in the value of some
FMS agreements. According to a DOD official, one possible reason for
the discrepancies is that amendments representing additional sales for
some of the agreements were not entered into the data, thus
underreporting sales. However, even if all the discrepancies result in
underreporting of sales, they amounted to only 5 percent of total sales
for the years 2000 through 2004 and, therefore, were not significant
enough to impact the reliability of the data for determining the
aggregate level of sales.
DOD prime contract data defines a foreign contractor as a company that
is not incorporated in the United States. Therefore, DOD does not
consider purchases from a company that is incorporated in the United
States but owned by a foreign parent company to be foreign.
DOD foreign subcontractor data was not used in our analysis as it only
captures a segment of foreign subcontracts and is of limited use as an
indicator of aggregate defense trade. It does not capture:
--Subcontracts beyond the second tier.
--Subcontracts worth under $500,000.
--Subcontracts where under $100,000 of work is performed abroad.
--Subcontracts let under prime contracts where (1) the:
principal place of performance is abroad; and (2) foreign place of
performance is indicated in the contractor's offer.[Footnote 2]
In addition, GAO has previously identified contractor compliance
problems with the requirement to report foreign subcontracts to DOD
(GAO/NSIAD-99-8; GAO-04-381). While DOD has taken actions to address
this issue, such as sending letters to the top 100 defense contractors
to remind them of the reporting requirement, we have not evaluated
whether these actions have improved contractor compliance.
State Department Data Observations and Limitations:
State Department license data does not represent actual orders placed
or deliveries[Footnote 3] made by companies, only the amounts they are
authorized to export. Therefore, license values cannot be used to
quantify the actual value of trade and were not used in our analysis of
defense trade.[Footnote 4]
State Department license data also has reliability issues.
Previous GAO work noted that the State Department data double-counts
the value of export licenses stemming from manufacturing license and
technical assistance agreements (GAO-05-156R).
License values given in the State Department's licensing database
include the values of terminated agreements.
Defense Trade Balance: U.S. Exports versus Imports[Footnote 5]
Objective 2:
What does the available data indicate about the U.S. defense trade
balance from 2000 to 2004?
Based on our analysis of Census data, U.S. defense exports averaged
$11.5 billion a year, versus imports of $1.8 billion a year. U.S.
exports of defense articles ranged from $10.7 to $11.9 billion while
imports ranged from $1.5 to $2.1 billion.
[See PDF for image]
Source: GAO analysis of U.S. Census Bureau data.
[End of figure]
Another measure of the defense trade balance shows that imports
averaged only 15 percent of exports during the period 2000-2004.
[See PDF for image]
Source: GAO analysis of U.S. Census Bureau data.
[End of table]
Defense Trade Balance: DOD Sales versus Purchases[Footnote 6]
Based on our analysis of DOD sales and purchase contract data, FMS
averaged $12.6 billion[Footnote 7] a year, versus foreign military
purchases of $1.5 billion a year. FMS ranged from $11.1 to $13.8
billion between 2000 and 2004, while foreign military purchases ranged
from $0.9 to $2.0 billion.
[See PDF for image]
Source: GAO analysis of DOD's FMS and prime contract data.
[End of figure]
Another measure of the defense trade balance shows that purchases
averaged only 12 percent of sales during the period 2000-2004.
[See PDF for image]
Source: GAO analysis of DOD's FMS and prime contract data.
[End of table]
Additional Observation[Footnote 8]
Based on our analysis of DOD's prime contract data, the percentage of
DOD purchases of defense articles and services from foreign companies
as compared to all DOD purchases of defense articles and services,
decreased from 2.4 percent in fiscal year 2000 to 1.7 percent in 2004.
[See PDF for image]
Source: GAO analysis of DOD's prime contract data.
[End of figure]
[See PDF for image]
Source: GAO analysis of DOD's prime contract data.
[End of table]
FOOTNOTES
[1] FMS data includes equipment paid for by U.S. military grants. From
fiscal years 2000-2004, U.S. military grants to foreign governments
averaged $4.5 billion per year.
[2] DOD contracts where the principal place of performance is abroad
can be identified through DOD's DD-350 database.
[3] On October 18, 2003, use of the Automated Export System (operated
by Census and the Bureau of Customs and Border Protection) by exporters
became mandatory for all shipments of State Department controlled
hardware. After some data problems are resolved, State Department data
could become useful for our analysis.
[4] Data on actual exports of goods resulting from export licenses is
captured in the Census data used in our analysis.
[5] Data are all in nominal values, unadjusted for inflation. Data
represent actual deliveries and shipments of defense articles for
calendar years 2000-2004. As noted on page 5, BEA service trade data
was not used in our analysis because it did not allow us to present
defense service data in accordance with our definition.
[6] Data are all in nominal values, unadjusted for inflation. Data
represent DOD's contractual obligations for sales and purchases of
defense articles and services for fiscal years 2000-2004, not actual
shipments or deliveries. As deliveries and shipments are not
necessarily completed in the same year that a contract is made, DOD
sale and purchase data are not directly comparable to the Census export
and import data presented in the preceding section.
[7] Total U.S. military sales is likely higher because, as stated on
page 7, we did not include State Department's licensing values in our
analysis of defense trade.
[8] Data presented in this section are all in nominal values,
unadjusted for inflation.
(120420)
