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Treasury for a portion of the "nonrecurring

that would have gone to the U.S. Treasury to

research and development costs" incurred by

reimburse the taxpayer funds that went into

the government for major systems like the

developing U.S. weapons systems.

F-16 fighter or the M-1 tank. The debate over

In 1996 the industry finally won congres-

recoupment fees is an example of how the

sional approval for a provision that would

arms industry has managed to win favorable

allow the president to waive recoupment fees

treatment for itself and its clients by misrep-

on any FMS sale, as long as provisions were

resenting the facts about government subsi-

made to find an alternative source of revenue

dies. As far back as November 1988, the

equivalent in value to the fees that were

industry-dominated Defense Policy Advisory

waived. The first installment of those alter-

Committee on Trade broached the subject of

native revenues was provided by William

pursuing changes in the prices of weapons

Cohen. Prior to assuming his current post as

exports that "would have reduced or elimi-

secretary of defense, Cohen was a pro-defense

nated research and development surchar-

senator from Maine who regularly went to

ges."25 The industry followed up that sugges-

bat for the interests of weapons makers in his

tion with a multiyear lobbying effort that

home state. Late one night in the summer of

convinced the Bush administration to elimi-

1996, Senator Cohen quietly slipped a provi-

nate the recoupment fees for R&D on com-

sion into a defense bill that authorized the

mercial arms sales, which involve sales of

Department of Defense to sell items from the

items on the U.S. munitions list that are

strategic stockpile, a Pentagon-administered

licensed for export by the U.S. Department of

reserve of critical raw materials that was

State. Commercial arms sales have been an

established during the Cold War, and to use

average of roughly 25 percent of U.S. arms

the proceeds to offset the costs of waiving

exports over the past decade.

recoupment fees on foreign arms sales.27

The arms industry also successfully

A recent GAO report demonstrated that

sought repeal of recoupment fees for arms

even when recoupment fees had not been

sales under the Pentagon's FMS program.

waived, the Pentagon had been remiss in col-

But since the fees on those deals were written

lecting them. The report identified $183 mil-

into law, it took longer to get them repealed.

lion in uncollected recoupment fees on FMS

Because the other 75 percent of U.S. arms

deals administered by the Air Force and the

sales are supplied through FMS channels,

Navy, including a case involving the delivery

repealing recoupment fees on FMS sales was

of 48 F-16 aircraft to South Korea for which

a particularly lucrative accomplishment.26

no fees were collected.28

Three-quarters

In FMS deals the Pentagon acts as a bro-

The cumulative result of waiving (or failing

ker (in commercial sales, the supplier sells to

to collect) recoupment fees has been a loss to

of the federal

the buyer without a broker). The Pentagon's

the U.S. Treasury of hundreds of millions of

government's

responsibilities in an FMS deal include nego-

dollars per year. And even those arms deals for

tiating the terms of the deal with the foreign

which forgone recoupment fees were "offset"--

R&D budget is

client, collecting funds from the foreign

by selling off materials from the strategic

devoted to mili-

client, disbursing them to U.S. contractors as

stockpile--represented a transfer of wealth

tary projects. The

the work proceeds, and supplying logistics

from the taxpayers to particular companies.

and spare parts for the weapons system.

Because arms manufacturers are rarely asked

bulk of those

As a first step toward eliminating the

to open their books to public scrutiny, there is

funds goes to pri-

charges on FMS deals, the arms industry was

no way of knowing for sure whether those

vate contractors.

successful in obtaining a provision that

reduced fees have resulted in lower prices for

allowed the president to waive recoupment fees

the buyers of U.S. arms or higher profits for

on FMS sales to close allies--NATO members,

U.S. weapons exporters. What is clear is that

Japan, Australia, and New Zealand. From 1991

those fee reductions were not needed to "level

to 1994, over $773 million was waived in fees

the playing field" for U.S. manufacturers. New

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