PREFACE This study is the result of the belief of the Committee on Foreign Relations that the problems and responsibilities the United States has acquired with its ever increasing arms exports are of prime concern to the Congress. The complex nature of these arms sales, as well as their implications for national and foreign policy encourages the belief that this study can serve a useful purpose. It should be emphasized that this study does not necessarily reflect the views of the committee or any of its members. J. W. FULBRIGHT, Chairman. III CONTENTS Preface.... Arms sales and foreign policy: I. The changing pattern of American military assistance_ III. The military export markets.. IV. Financing_military exports. Private banking facilities. The military assistance credit account.. V. Policy control of arms sales_ VI. Policy implications of arms sales.. VII. Concluding comment and recommendations.. Page m 1 3 4 7 8 12 ARMS SALES AND FOREIGN POLICY I. THE CHANGING PATTERN OF AMERICAN MILITARY ASSISTANCE Since the Second World War the United States has recognized that it is in the national interest to give military support to friendly countries to enable them to defend themselves against the threat of aggression. The military assistance programs beginning in 1949 with congressional approval of the Mutual Defense Assistance Act have provided various kinds of grant military aid to countries unable to pay for their own defense needs. Over the years the Congress has paid particularly close attention to the military assistance programs with an eye to withdrawing such aid from countries having sufficient resources to maintain their own forces and preventing U.S. military aid from either being misused or overburdening struggling economies. In recent years both the President and the Congress have become increasingly aware of another responsibility directly related to the use of military assistance. This is the question of conventional arms control in the developing regions of the world. In his message of last January to the Eighteen Nation Disarmament Conference, President Johnson reminded the delegates: As we focus on nuclear arms, let us not forget that resources are being devoted to nonnuclear arms races all around the world. These resources might be better spent on feeding the hungry, healing the sick and teaching the uneducated. The cost of acquiring and maintaining one squadron of supersonic aircraft diverts resources that would build and maintain a university. We suggest therefore that countries, on a regional basis, explore ways to limit competition among themselves for costly weapons often sought for reasons of illusory prestige. Despite President Johnson's concern, the pursuit of "illusory prestige" has recently quickened throughout the developing regions of the world. For example, the United States has agreed to sell to Iran a squadron of F-4 Phantoms, its most sophisticated operational supersonic aircraft. Morocco has purchased 12 F-5's, among the United States most modern fighter-interceptors. The international record of such sales is long: American F-104's interceptors to Jordan, British Hawker Hunter jet fighters to Chile, American A-4B tactical attack aircraft to Argentina, Soviet Mig 21's to Iraq, Czechoslovakian armored cars and bazookas to Cyprus-to cite some recent examples. What is clearly in process is a competition among the industrial nations to sell arms to the developing nations of the world. In the Indian subcontinent and the Middle East these sales have contributed to an intense arms race; while in North Africa, sub-Saharan Africa and most of Latin America the situation is still, in Lincoln Bloomfield's words, that of an "arms walk." But the arms pace, even where it still remains a "walk," shows every sign of accelerating, unless the major powers take a stronger interest in slowing the pace. This growing problem of arms competition in the underdeveloped world and the diversion of scarce resources is directly related to a dramatic shift in the composition of U.S. military assistance and sales programs. It seems that at a moment of increasing congres 1 60-050 - 71 - 2 2 sional oversight of the military grant assistance, emphasis has shifted from these programs to a concentration on military sales. In the fiscal years 1952 to 1961 the U.S. military grant aid programs and military sales amounted to a total value of $22 billion $17 billion in grant aid and $5 billion in sales. According to the Defense Department, the comparative amounts will be radically altered in the 1962-71 period that is $15 billion in military sales, and $7 billion in grant aid. (In fiscal year 1961, for example, sales were 43.4 percent of grant aid; in fiscal year 1966, sales stood at 235.1 percent of aid.) Since 1962 the Defense Department has already obtained $11.1 billion in foreign military orders and commitments. The average of all military export sales in the 1952-61 period was around $300 million annually. In fiscal year 1961 military export sales rose to $600 million; they were $1.3 billion in fiscal year 1963; $1.26 billion in fiscal year 1964; $1.97 billion in fiscal year 1965; and were around $1.93 billion in fiscal year 1966. That is a total of some $6 to $7 billion in the past 4 years. Of the $9 billion in orders and commitments the United States received between 1962 and 1965 almost $5 billion has been received in cash receipts, an amount offsetting almost 40 percent of the dollar costs of maintaining U.S. forces abroad during that period. Furthermore, these sales offsets have risen from 10 percent of oversea expenditures in 1961 to 44 percent in 1965. Secretary of Defense McNamara made it very clear in 1965 that he considered military grants and the increasing military sales as an important instrument of American foreign policy: I think it is extremely important to understand that in our military assistance program and in our military sales program we face two extremes. In the one case we face nations, our allies, who for a variety of reasons may not have developed their defense program to a level commensurate with their economic strength, their obligations to their own people, and their obligations to the alliance of which we are a part. Nations that fall in that category are the developed countries, the countries which have had a remarkable economic growth, in the last decade or two, economic growth in many cases stimulated by Marshalĺ plan aid. In these instances it is very much in our interest to work with those nations to expand their defense program, to increase their military personnel strength, to add to their equipment, and where it can be done to our mutual advantage to insure that they buy their equipment from U.S. producers. This we do. The result has been very substantial increases in the defense budgets of many of the Western nations, Australia, the Federal Republic, to name two. This is ultimately in their interest. It is very much in our interest. In no way does it conflict with economic development and economic strength which I want to emphasize as Secretary of Defense I consider to be the foundation ultimately of national security. In any case, that is one extreme. The other extreme is represented by those underdeveloped nations which have not yet met the minimum needs of their people for social and economic progress but who nonetheless are inclined to divert an unreasonable share of their scarce human and materiel resources to defense. In those cases our first objective is to use the influence that we gain through the military assistance programs and occasionally through the military export sales programs to work with them to reduce the share of their resources devoted to defense and to increase the portion of their human and material capital that is allocated to economic and social programs.* It is difficult to fault the objectives and the logic of such an approach to the military assistance and sales programs. But the developing nature of the arms competition seems to defy the best intentions of Mr. McNamara's reasonable explanation of how the United States * News conference, Sept. 16, 1965. |