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Mr. HALPERIN. I agree with that.
Chairman PROXMIRE. Mr. Whitson.

Mr. WHITSON. Yes.

Chairman PROXMIRE. Do you see any arguments against doing this? The argument that I have heard from time to time as a member of the Appropriations Committee is that these countries then would be, they would say now, you are giving this much to Peru or you are giving this much to Argentina, you are giving this much to Israel or something and, therefore, you have got to give us something. They know anyway, don't they.

Mr. HALPERIN. I think they know, Let them say this. We just say, "It is our judgment that our interests suggest that we should give more to one than the other." We do that with economic aid.

Chairman PROXMIRE. Certainly any competent embassy is going to be able to find that out without any trouble.

Representative BROWN. They won't find out from Congress. [Laughter.]

Chairman PROXMIRE. I am sure they won't. That's right.

Well, gentlemen, thank you very much. You did an excellent job. It is most useful and we are very grateful to you for giving us your time and this very helpful information.

The subcommittee will stand in recess until tomorrow morning at 10 o'clock. We will hear Deputy Assistant Secretary of Defense Selden and General Warren, Deputy Assistant Secretary of Defense. (Whereupon, at 4:05 p.m., the subcommittee was recessed until 10 a.m., Wednesday, January 6, 1971.)

ECONOMIC ISSUES IN MILITARY ASSISTANCE

WEDNESDAY, JANUARY 6, 1971

CONGRESS OF THE UNITED STATES,
SUBCOMMITTEE ON ECONOMY IN GOVERNMENT
OF THE JOINT ECONOMIC COMMITTEE,

Washington, D.C.

The Subcommittee on Economy in Government met, pursuant to notice, at 10:10 a.m., in room S-407, the Capitol, Hon. William Proxmire (chairman of the subcommittee) presiding.

Present: Senator Proxmire and Representative Brown.

Also present: John R. Stark, executive director; Richard F. Kaufman, economist; and George D. Krumbhaar, Walter B. Laessig, and Leslie J. Barr, economists for the minority.

OPENING STATEMENT OF CHAIRMAN PROXMIRE

Chairman PROXMIRE. The subcommittee will come to order. Most of us in Washington have seen a lot of mismanagement in Government programs. But military assistance is the first program I have come across that appears to be characterized by unmanagement. The problem here seems to be that no one is in charge. In some respects the United States has been transformed from the "arsenal of Democracy" to a gigantic discount supermarket with no checkout counters, no cash registers, no store manager; only clerks who blithely deliver to foreign governments of practically any political persuasion whatever they happen to see and like. For most of the stuff there is no charge and no return.

So far in these hearings we have heard from witnesses who, despite their present or former responsibilities for military assistance, have been unable to agree on the total annual costs of the program, and have been shocked to discover that hundreds of millions of dollars of Food for Peace funds have been used to purchase arms for foreign governments, that the Defense Department cannot account for hundreds of millions and perhaps billions of dollars worth of so-called excess and surplus materials and military construction given away to our allies, and that have expressed their own disappointment and frustration with the present state of affairs.

The hidden costs of military assistance the fact that about $4 billion is spent on this program annually rather than the few hundred million dollars advertised in official Government statistics is perhaps the most revealing commentary on what happens to taxpayers money in Washington.

Hopefully, this morning's witnesses will enlighten us on some of

these matters. Armistead I. Selden is a former Member of Congress and a distinguished Member of Congress who served for 16 years in the House of Representatives, a very able man. He is presently the Deputy Assistant Secretary of Defense for International Security Affairs. He is accompained by Lt. Gen. Robert H. Warren of the U.S. Air Force, Deputy Assistant Secretary of Defense for Military Assistance and Sales.

Gentlemen, you may proceed in any way you wish. I presume that perhaps Mr. Selden would go first and then General Warren. STATEMENT OF ARMISTEAD I. SELDEN, JR., DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR INTERNATIONAL SECURITY AFFAIRS, ACCOMPANIED BY LT. GEN. ROBERT H. WARREN, U.S. AIR FORCE, DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR MILITARY ASSISTANCE AND SALES

Mr. SELDEN. Thank you, Mr. Chairman and members of the committee.

On behalf of the Department of Defense, I am appearing today to discuss the roles of the Military Assistance Program and Foreign Military Sales in support of the foreign policy objectives of the United States. Both the President and the Secretary of Defense have repeatedly stressed the crucial importance of these two instruments of foreign policy because of their unique and fundamental contribution to the implementation of the Nixon Doctrine. Mr. Chairman, with your indulgence, I shall restrict my opening remarks to the overall policy considerations of these activities and, in compliance with your request, provide a more comprehensive prepared statement for inclusion in the record.

There are, as you know, a number of U.S. programs that may, in a somewhat indirect manner, contribute to the defense efforts of foreign nations. Virtually any type of assistance designed to develop the economy or industrial base of a foreign country will eventually permit that country to devote more of its resources to the improvement of its defensive posture. Economic aid to Western Europe under the Marshall plan following World War II is a good example of the enhancement of military capabilities as an eventual by-product of actions taken, and funded, to achieve a different objective. Because of these many and varied forms of indirect assistance impacting beneficially upon military capabilities, it is extremely difficult, indeed, if not altogether impossible, to place a dollar value on the total of all U.S. military assistance, within the broadest definition of that somewhat imprecise term.

Accordingly, I propose to limit my discussion this morning primarily to those two specific forms of direct military assistance which the Department of Defense is responsible for administering the Military Assistance Program (MAP) under the authority conferred by the Foreign Assistance Act and Foreign Military Sales (FMS) under the Foreign Military Sales Act.

In the 21 years since their inception in fiscal year 1950:

Grant aid under MAP totaling $34.9 billion has been provided to 78 different countries;

Material excess to DOD mobilization requirements totaling $3.9 billion, and this is the acquisition cost, has been provided foreign countries under MAP without reimbursement to the Department of Defense;

Foreign Military Sales have totaled $13 billion-$11.1 billion on a cash basis and $1.9 billion on a credit basis.

In order that these figures may be fully meaningful, there are several clarifying points to be emphasized:

First, these amounts represent programs or orders rather than actual deliveries.

Second, the actual or utility value of the excess material provided is considerably less than acquisition cost. For the most part, excess equipment used in this way has served the original purpose for which it was procured by the United States and is obsolescent by U.S. standards-but, at the same time, it is extremely valuable in meeting valid needs of foreign countries whose requirements and standards differ from those of the United States.

Third, it should be noted that Foreign Military Sales data do not include direct transactions between U.S. industry and foreign governments, which do not involve participation by the Department of Defense.

Fourth, all sales under current legislation--whether cash or credit-are paid for by the foreign country in U.S. dollars; and, in the case of credit sales, payments are made with interest.

Fifth, with but few exceptions and then only when found to be in the best interest of the United States, the total of grant aid and sales represent dollars spent in the United States for articles and services. Funds are not disbursed to the foreign government but, instead, and with the rare exceptions noted, are disbursed by the Department of Defense for procurement here in the United States.

There is one final point that warrants separate and special mention in any evaluation of military assistance accomplishments. I refer to the training provided as grant aid to foreign military personnel. Since the end of World War II, we have trained some 320,000 officers and enlisted men from over 70 countries-220,000 of them here in the United States and 100,000 overseas. The Military Assistance Training Program is especially important to the attainment of U.S. foreign policy objectives because it affords many foreign military men-a number of whom are destined to become influential in their countries' future courses of action-an exposure to all that is inherent in what we think of as the American Way, and to the separate roles of civilian and military authority we consider appropriate in a democratic society.

The executive branch firmly believes, Mr. Chairman, that military assistance and foreign military sales have been instrumental throughout the 1950's and the 1960's in solidifying and bolstering the will and ability of the free world to deter the encroachments and resist the aggressions of Communist nations. These programs will continue to be absolutely essential if the United States is to continue its adherence to the principles of the Nixon Doctrine. Because they engage the entire structure of U.S. relations with individual foreign countries, each of which presents a unique array of political, economic

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