Consequently, as the executive branch report stated, its analysis of enlargement costs should “be seen as purely illustrative and designed to provide an approximation of the costs of enlargement.” As the basis for its analysis, DOD made the following key assumptions:
Specific nations would be invited to join NATO in the first round of enlargement. Using these assumptions, DOD estimated that the cost of enlarging NATO would range from about $27 billion to $35 billion from 1997 through 2009.The estimate was broken down as follows: about $8 billion to $10 billion for improvements in current NATO members’ regional reinforcement capabilities (e.g., addressing shortfalls in deployable support capabilities), about $10 billion to $13 billion for restructuring and modernizing new members’ militaries (e.g., selectively upgrading self-defense capabilities), and about $9 billion to $12 billion for costs directly attributable to NATO enlargement (e.g., ensuring that current and new members’ forces are interoperable and capable of combined NATO operations and upgrading or constructing facilities for receiving NATO reinforcements). DOD’s Pricing of Cost Elements Could Not Be Verified

Many of DOD’s estimates for specific cost elements could not be verified. DOD officials did not consistently document their analyses. Estimates Include Some Costs That Are Not Directly Related to Enlargement

Substantial portions of DOD’s total estimate consist of costs that are not directly related to enlargement, in contrast to those costs included in the direct enlargement category. DOD’s decision to include $8 billion to $10 billion as the estimated cost to enhance current members’ reinforcement capabilities is questionable. We also question whether all of the $10 billion to $13 billion DOD included for new members’ military modernization and restructuring are enlargement costs. Additional Costs May Be Associated With NATO Enlargement

Various additional costs may be incurred by the United States in connection with NATO enlargement that were not specifically quantified in DOD’s cost study. According to U.S. and NATO officials, the United States, NATO, and other NATO members may increase their Partnership for Peace and related assistance as a consolation to those countries. However, DOD’s cost estimate addressed only a first round of invitations and did not take into account a second or third round of invitations to join NATO. Differences in Estimates Are Due to Various Factors

Several factors account for the differences between DOD’s estimate and the CBO and RAND estimates, even those that employed defense strategies similar to DOD’s. Table 1 illustrates the major results and key assumptions of the three estimates. CBO’s cost estimate is significantly higher than DOD’s, even for a similar defense strategy, for several reasons. RAND’s cost estimate is somewhat higher than DOD’s, although both were based on similar threat assessments. Agency Comments

DOD and the Department of State agreed with our principal conclusion that the uncertainties associated with the military implications of NATO enlargement and DOD’s estimating procedures resulted in cost estimates that were notional and that could differ substantially from actual enlargement costs. We agree that until military requirements for new members are identified through NATO’s defense planning process, it will be difficult to develop more reliable estimates of the cost of enlargement. To determine if there were any additional costs that could affect enlargement costs but were not included in the DOD estimate, we reviewed other analyses of NATO enlargement, including the CBO and RAND cost studies, and interviewed relevant officials and analysts. In comparing the executive branch’s estimate with those of CBO and RAND, we interviewed the analysts at CBO and RAND who conducted the studies and reviewed source information they provided or suggested. U.S. General Accounting Office P.O.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the executive branch's estimate of the cost of expanding the North Atlantic Treaty Organization (NATO), focusing on: (1) the reasonableness of the study's key assumptions; (2) verifying the pricing of individual cost elements and identifying the basis for the pricing; (3) whether the estimate's major cost categories and elements should be ascribed to NATO enlargement; (4) factors that were not included in the study's cost estimate that could affect enlargement costs; and (5) comparing the executive branch's cost estimate with the Congressional Budget Office (CBO) and Rand Corporation estimates. GAO did not independently estimate the cost of enlarging NATO.

What GAO Found

GAO noted that: (1) its analysis of the Department of Defense's (DOD) cost estimate to enlarge NATO indicates that its key assumptions were generally reasonable and were largely consistent with the views of U.S., NATO, and foreign government officials; (2) however, DOD's lack of supporting cost documentation and its decision to include cost elements that were not directly related to enlargement call into question its overall estimate; (3) because of the uncertainties associated with enlargement and DOD's estimating procedures, the actual cost of NATO enlargement could be substantially higher or lower than DOD's estimated cost of about $27 billion to $35 billion; (4) GAO's comparison of DOD's estimate with the RAND and CBO estimates does not indicate that the RAND and CBO costs estimates are more reliable than DOD's; (5) GAO could not verify DOD's pricing of many individual cost elements because DOD officials did not develop sufficient supporting documentation; (6) DOD included two major cost categories that cannot be directly attributed to NATO's enlargement; (7) GAO found no direct link between the cost of remedying current shortfalls in NATO's reinforcement capabilities and enlargement of the alliance; (8) GAO questions whether all of DOD's new member modernization and restructuring costs are attributable to NATO enlargement; (9) DOD's third cost category, direct enlargement, contains elements appropriately attributed to NATO enlargement, based on GAO's analysis; (10) NATO enlargement could entail additional costs beyond those included in the DOD estimate; (11) these costs could include assistance, such as enhanced Partnership for Peace or other bilateral assistance provided as a consolation to countries not invited to join NATO in July 1997; (12) there will also be additional costs associated with subsequent decisions to invite additional countries to join NATO; (13) in addition, the United States may provide assistance to help new members restructure and modernize their forces, which DOD acknowledged but did not include in its estimate of the U.S. cost share; (14) CBO and RAND developed a range of cost estimates for NATO enlargement, including estimates that employ a defense strategy similar to DOD's; and (15) several factors account for the differences between DOD's estimate and the CBO and RAND estimates, including those estimates that employed defense strategies similar to DOD's.