Does Defense Industry Really Need 'Welfare'? Eliminating 'Recoupment' Fees on Arms Sold Abroad Could Cost US Treasury Hundreds of Millions

By Anne H. Cahn. Anne H. Cahn is a scholar . | The Christian Science Monitor, May 15, 1995 | Go to article overview

Does Defense Industry Really Need 'Welfare'? Eliminating 'Recoupment' Fees on Arms Sold Abroad Could Cost US Treasury Hundreds of Millions


Anne H. Cahn. Anne H. Cahn is a scholar ., The Christian Science Monitor


WHEN a defense contractor wins a contract to produce a weapon for Uncle Sam, American taxpayers pay for all the research, development, and production costs. When the company exports the weapon, it thus makes a handsome profit. Uncle Sam charges the contractor "recoupment" fees, from 5 to 25 percent of the sales value of the exported items, depending on the quantity procured by United States forces. The rationale is that the taxpayers, not Company X, paid to develop the weapon. These fees generate hundreds of millions of dollars annually.

Would taxpayers want to lose this money by ending the recoupment payments? The House of Representatives is proposing to eliminate a tax on foreign arms sales, currently required by law. HR 1038, the Federal Acquisition Reform Act of 1995, was introduced by Rep. William Clinger (R) of Pennsylvania, chairman of the Government Oversight Committee, in February. The bill would end the recoupment tax on foreign military sales (FMS), direct government-to-government transactions accounting for about half of US arms sales.

Who do you suppose is pushing for this? Defense industry lobbyists. And their argument? "Leveling the playing field" with direct commercial sales.

There are two avenues for exporting US arms. One is the government-to-government, or FMS, route and the other is commercial sales -- direct sales by a US defense company to a foreign country or company. Each avenue accounts for roughly half of total US military sales. Until June 1992 recoupment fees were levied on all US weapons exports, both direct commercial and FMS sales. But the recoupment policy on commercial sales was embodied only in Pentagon regulations that the Bush administration, in an election year ploy, repealed without legislation.

First we need to ask, why would we want the playing field to be leveled between FMS and commercial sales? What difference does it make whether US arms are exported via one program or the other? Historically, the playing field was never level. Until 1989, FMS accounted for about three-fourths of total sales. Only in recent years have commercial sales approximated FMS sales. …

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