The Majority of U.S. Defense Articles Are Exported through Direct Commercial Sales, with About Half Going to Relatively Few Countries

From calendar years 2005 through 2008, the value of U.S. exports of  defense articles remained relatively stable, from about $19 billion and   $20 billion, with an increase to about $22 billion in 2009. Of the  approximately $101 billion total in U.S. defense articles exported from  2005 through 2009, about 60 percent were exported through DCS, as  shown in figure 1. The second largest category was satellites, communications, and  electronics equipment and their related parts—accounting for about 20  percent of defense articles. State officials noted that developing  countries may benefit from the FMS logistics, infrastructure, and other  support that come with the FMS program. Egypt

Although Congress requires reporting on various aspects of U.S. defense  exports, State’s and DOD’s annual reports on “military assistance and  military exports”—as required by Section 655 of the Foreign Assistance  Act of 1961, as amended—do not provide a complete picture of the  magnitude and nature of defense exports because the agencies use  different reporting methodologies and have information inconsistencies  and gaps—in part, because of the separate purposes of their data systems. Although the data we obtained and analyzed were sufficiently reliable to  develop high-level, overall information on the magnitude and nature of  defense exports, the differences in agencies’ data—including the lack of  information for defense services exported under DCS licenses, differences  in agencies’ item and country categorizations, and the inability to separate  some permanent and temporary exports—hinder the ability to provide a  comprehensive and transparent picture of defense exports. State has overall responsibility to report  on exports of defense articles and defense services. For example, one difference between State’s and DOD’s reporting is the  lack of data on defense services exported under DCS licenses. However, State does not report on the value of  defense services exported under license authorizations because it does not  have such information. Conclusions

A complete picture of defense exports—including which method of export  is used more often by individual countries or for certain types of items—is  not available under current reporting to Congress. Gaps and limitations in  these data—including the lack of information on defense services  exported under DCS, which could be substantial given the high dollar  value of such services authorized by State—may inhibit congressional  oversight and transparency into the entirety of U.S. defense exports. Matter for Congressional Consideration

In order to obtain a more complete picture of defense exports, Congress  should consider whether it needs specific data on exported defense  services similar to what it currently receives on defense articles and, if so,  request that State provide such data as appropriate. Recommendation for Executive Action

To improve transparency and consistency of reporting on defense exports  required by the Foreign Assistance Act, we recommend that the Secretary  of State direct the Directorate of Defense Trade Controls to coordinate  with the Departments of Defense and Commerce to identify and obtain  relevant defense export information under existing agency data systems  and provide a consolidated report to Congress on DCS and FMS that    specifies articles exported using a common category system;    separates U.S. government end users from foreign entities;    separates permanent and temporary exports;  incorporates all defense exports, including U.S. government-funded  programs; and  is made public through the Internet. However, State did not agree with our  recommendation to report consolidated defense export data on FMS and  DCS in a consistent manner. We also reviewed relevant laws and regulations regarding the export of  defense articles and requirements for reporting export information  through AES.
Why GAO Did This Study

The U.S. government exports billions of dollars of defense articles and services annually to foreign entities, generally through direct commercial sales (DCS) from U.S. companies under licenses issued by the State Department (State) or through the Department of Defense (DOD) Foreign Military Sales (FMS) program. GAO has previously reported on weaknesses in the export control system. As requested, GAO (1) identified the magnitude and nature of defense articles and services exported and (2) assessed information currently reported on defense exports and any gaps and limitations in defense export data. To conduct this work, GAO analyzed export data from DOD for FMS and the Department of Commerce's U.S. Census Bureau (Census) for DCS for 2005 through 2009; reviewed relevant laws and regulations; assessed State and DOD reports on defense exports; reviewed agency data systems documentation; and interviewed officials from State, DOD, Homeland Security, and Census.

What GAO Found

U.S. exports of defense articles--such as military aircraft, firearms, and explosives--ranged from about $19 billion to $22 billion annually in calendar years 2005 to 2009. Of these defense articles, about 60 percent have been exported by companies to foreign entities through DCS licenses, while the remaining 40 percent were exported under the FMS program. Aircraft and related parts constitute the largest category of such exports--about 44 percent--followed by satellites, communications, and electronics equipment and their related parts. U.S. exports of defense articles were concentrated in a few countries: about half went to Japan, the United Kingdom, Israel, South Korea, Australia, Egypt, and the United Arab Emirates. Although no data are available on the export of defense services--such as technical assistance and training--provided through DCS, exports of defense services through FMS were stable, accounting for about one-third of the value of FMS exports. Congress does not have a complete picture of defense exports under current reporting--including which method of export is used more often by individual countries or for certain types of items. State--which has overall responsibility for regulating defense exports--and DOD, report to Congress in response to various requirements. However, their annual reports on DCS and FMS exports have several information gaps and inconsistencies--in part, because of the differing purposes of the agencies' data systems and different reporting methodologies. For example, State does not obtain data from U.S. companies on the export of defense services under DCS licenses, although it authorizes several billion dollars of such exports annually. State officials noted that they do not have an operational requirement to collect such information and doing so could be burdensome on exporters. Other limitations on defense export data include differences in agencies' item and country categorizations and the inability to separate data on some permanent and temporary exports. Further, while State's report is available on its Web site, DOD's is not. These differences and limitations may inhibit congressional oversight and transparency into the entirety of U.S. defense exports. GAO suggests that Congress consider whether it needs specific data on exported defense services and is recommending that State publicly report consolidated defense export data on DCS and FMS in a consistent manner. In the absence of additional direction and resources from Congress, State did not agree. GAO believes the recommendation remains valid.