Thursday, September 2, 2010

India will pay 3.8 percent on all FMS deals with US

India would be paying 3.8 per cent as administrative fee on all arms and systems acquired from the United States under its Foreign Military Sales (FMS) programme.

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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