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This fee is actually the same for every country
for all FMS deals, effective August 2006, and
is charged to facilitate discussions with the
US arms manufacturers, weapon tests, all government
clearances and to ensure that a customer gets
exactly what he pays for. “No more no less,”
sources told India Strategic.
FMS is administered by the US Defense Security
Cooperation Agency (DSCA), headed by a three-star
officer, at present Vice Admiral William Landay.
As per the US Congressional requirements, the
agency is neither supposed to make any profit
nor suffer loss. And says a DSCA statement: The
customer is assured that the acquisition process
will be subject to (Department of Defense) DoD’s
standards.
The price is generally what the US government
pays for acquisition by its Army, Navy or Air
Force, but may differ slightly as the DoD funds
the development of various systems by advancing
funds to companies like Raytheon, Boeing, Lockheed
Martin or Northrop Grumman.
Since 2007, India has purchased INS Jalashwa (formerly
USS Trenton) for the Navy, six C 130J Super Hercules
aircraft for the Air Force and discussions are
now on for buying 145 BAE Systems ultra light
howitzers for the Army and 10 plus six C 17 Globemaster
III heavy lift aircraft for the Air Force. Technically,
the deals would be between the Indian Army, Navy
and Air Force and the US Army, Navy and Air Force,
formalized though by the Indian Ministry of Defence
(Mo0D) and US DoD.
The first FMS deal with the US was for Raytheon’s
12 Firefinder AN-TPQ-37 Weapon Locating Radars
radars (WLRs) in 2002 for the Army. The FMS fee,
generally between two to five per cent, was then
lower.
The US at present is engaged in trying to sell
Lockheed Martin's F 16 IN Super Viper and Boeing's
F 18 Super Hornet combat aircraft to the Indian
Air Force (IAF) as well as CH 47F Chinook and
Apache Longbow AH 64D helicopters. The Indian
Army has also decided to buy Raytheon's Javelin
anti-tank missile. Whatever is selected, will
attract the 3.8 per cent administrative fee over
and above the agreed price of the deal.
The US sells weapons worth around $ 40 billion
annually, and the FMS fee is supposed to take
care also of the US Government officers assigned
to facilitate and supervise execution of a deal..
The only countries which do not pay the FMS fees
are those who get weapons as aid or assistance,
as in the case of Israel, Pakistan, South Korea
and Taiwan. The tab in such cases is picked by
the DoD and Department of State as the aid is
given in furtherance of perceived US interests.
Lt Gen Jeffrey Kohler, a former DSCA Director,
told India Strategic that while the FMS programme
helps strengthen US government’s military
ties with other countries, it also helps them
to get the best of the US technology. Not every
item is released though to foreign countries,
but once the extent of technology to be released
is accepted, DSCA facilitates the process.
Lt Gen Kohler is now a top Boeing executive.
A foreign country is expected to put in a written
request, preferably through what is called an
LoR, or Letter of Request, and after clearance,
the US Government also seeks approval from the
Congress to export the technology.
Arms transfer deals in the US are under intense
legislative scrutiny. The agreement to sell is
called LoA or Letter of Acceptance.
As for any difference between Direct Commercial
Sales (DCS) between a foreign country and a US
company, DSCA says that it is not possible to
make a comparison but industry sources told India
Strategic that by and large, there is not much
difference. However, DSCA says that “while
the US Government charges an administrative fee
on FMS, private contractors must also recoup their
costs within their contract.
The companies also have to take clearances to
sell, as that procedures is the same. But under
FMS, “the customer is assured that the acquisition
process will be subject to DoD’s standards.”
It may be noted that while most weapon supplying
countries might not charge any administrative
fees, but these would be built in the price structure
during negotiations. For instance, if a country
brings an aircraft, gun or helicopter to India
for demonstration, the costs are recovered through
the eventual sales.
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