The U.S. sells roughly $47 billion worth of defense materials and services annually to foreign governments to advance American security and economic interests, but recent global foreign military sales contracts pose a serious risk to the nation’s market share.
Eastern Europe is looking to restock defense weapons in the wake of the Ukraine war, and while they would normally turn to the U.S., countries such as South Korea are closing in on multi-billion dollar deals promising they can deliver weapons faster and cheaper.
The U.S. Department of Defense is well aware of the rising global competition in FMS. If the $1.94 trillion defense budget isn’t enough to distance the U.S. from its competition then throwing more money at this issue is clearly not the answer.
The current FMS process is highly procedural for good reasons, but a side effect of this is a lack of collaboration and transparency with allied nations that can negatively impact their overall experience. Most of this can be corrected through better communication surrounding letter of requests, or LORs, and letters of acceptance, or LOAs.
Drafting and submitting letters of requests
To begin the FMS process, foreign ministries of defense must submit a LOR to the DoD. The LOR should include specific defense items or training that supplements their existing capabilities and address their near- and long-term goals. The executive branch then reviews it, notifications are made to Congress, and the US government responds and replies with a LOA. This details the estimated cost of the sale and provides an itemized list of the defense equipment and services.
The problem is that allied nations often don’t know what they need to solve their problem or what the U.S. has to offer them, which can lead to LORs lacking the necessary information to ensure the right equipment and services are secured. This disconnect is at the heart of the issue and slows down the FMS process.
Improving the accuracy of LOR submissions
Communication and open dialogue is a simple, yet understated component of ensuring successful LORs. There are a lot more of these transactions between the U.S. and allies than most would think, but allied nations and the DoD don’t often speak during the process unless it is a truly mission critical event that attracts global attention.
To solve this issue, the greater U.S. defense industry and foreign military leaders must engage in recurring meetings to learn what purpose-built defense solutions are available to fit their unique needs and anticipate the potential technical or program issues in future requests. These organized discussions should include a variety of industry players responsible for much of the defense industry innovation beyond just the big contractors (i.e. Boeing and Raytheon) that are often left out of the conversation.
In the end, this saves a considerable amount of time and ensures the allied nation receives a LOA from the U.S. government much quicker.
Improving clarity around offset investments
Another area of the FMS process that needs improvement is the LOA implementation and case execution, where the purchaser is billed, defense articles are delivered and services are performed. Specifically, there are issues with the mismanagement and opaque communication around offset investments.
The DoD includes offsets in addition to the defense equipment, such as co-production, licensed production, exporting jobs overseas, subcontracting, technology transfer, purchasing, and credit assistance. The contract will specify the percentage of the total defense-related export sale to be offset and the forms of industrial compensation required.
This is a frequent inclusion found in the majority of FMS with defense contractors reportedly entering into 25 new offset agreements with nine countries in 2020, valued at $5.7 billion. However, once the contracts are signed, there is often no clear plan or direction on how the recipients can spend these offset investments. U.S. defense industry players need to develop strategic roadmaps to clearly outline how foreign allies can properly utilize what the U.S. has offered, and make this information readily available. If offsets are challenging to use, they become a depreciated asset in the eyes of our allies.
Since communication is the primary source of challenges surrounding FMS, Arizona is leading the charge in optimizing the current process by offering Ministries of Defense and FMS Offset Managers from foreign allies a tailored tour of industry assets. This will help connect foreign allies with a robust network of thousands of industry members and research institutions dedicated to building defense solutions for critical allies.
This collaborative approach must be adopted by other defense industry-leading states in order to streamline the FMS process nationwide and reduce the FMS holding pattern that is deterring nations from contracting with the U.S.
Lynndy Smith is president of the Arizona Defense and Industry Coalition, a grouping of regional organizations, comprising the defense and mining industries, military, veterans and more, to advocate for regional and national security efforts.
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