What does the Arms Export Control Act authorize the United States to sell?

In general, the AECA authorizes two ways a country or international organization can purchase U.S. defense articles, services, or training. The first method is FMS through a government-to-government contract or the FMS Letter of Offer and Acceptance (LOA) case. This FMS case can be filled by sale from U.S. stock or a USG purchase from industry or by providing credit to fill the requirement either by sale from stock or by purchase from industry.

The second purchasing method is DCS, which allows the country or international organization to purchase directly from U.S. industry with an export license issued by the DOS.

The country agrees to pay the USG for defense articles and defense services sold from DoW and U.S. Coast Guard stocks as follows:

• The actual (stock-list) value for defense articles not intended to be replaced at the time of agreement to sell
• The replacement cost for defense articles intended to be replaced, including contract or production costs less any depreciation in value
• The full cost to the USG for defense services; in the case of a country that is concurrently receiving IMET assistance, only those additional costs that are incurred by the USG in furnishing such assistance will be charged
• The sales price shall also include appropriate charges for the following: administrative services (surcharge); a proportionate amount of any nonrecurring costs of research, development, and production of MDE (does not apply to FMS cases, which are wholly financed with U.S. provided grant funds); the recovery of ordinary inventory losses associated with the sale from stock of defense articles that are being stored at the expense of the purchaser. Unless the President determines it to be in the national interest, payment shall be made in advance of delivery or performance.

The USG may procure defense articles and services for sale to an FMS purchaser if the purchaser provides the USG with a dependable undertaking to pay the full amount of such contract, which will insure the USG against any loss and make funds available in such amounts and at such times as may be required by the contract (and to cover any damages/termination costs). Such foreign purchaser payments shall be received in advance of the time any payments are due by the USG. Interest shall be charged on the net amount by which such foreign purchaser (country or international organization) is in arrears under all of its outstanding unliquidated dependable undertakings, considered collectively.

The USG is authorized to finance procurements of defense articles, defense services, and design and construction services by friendly foreign countries and international organizations [Section 23, AECA]. This financial assistance is an FMFP grant or loan. Most FMFP has been grant assistance requiring no repayment.

Repayment of loans in U.S. dollars is required within twelve years, unless a longer period is authorized by statute [Section 23(b), AECA]. The FMFP loans authorized under Section 23, AECA, shall be provided at rates of interest that are not less than the current average market yield on outstanding marketable obligations of the U.S. of comparable maturities.

The President may sell design and construction services using the FMS process to any eligible foreign country or international organization if such country or international organization agrees to pay, in U.S. dollars, the full cost to the USG of furnishing such services. Payment shall be made to the USG in advance of the performance of such services.

The President may sell defense articles, e.g., government-furnished equipment (GFE) or government-furnished material (GFM) to a U.S. company for incorporation into end items (and for concurrent or follow-on support) that are, in turn, to be sold commercially DCS to a foreign country or international organization under Section 38, AECA, and to sell defense services in support of such sales of defense articles. Such services may be performed only if the following is true:

• The end item to which the articles apply is procured for the armed forces of a foreign country or international organization.
• The articles would be supplied to the prime contractor as GFE or GFM if they were being procured for the use of the U.S. armed forces.
• The articles and services are available only from USG sources or are not available to the prime contractor directly from U.S. commercial sources at such times as may be required to meet the prime contractor’s delivery schedule.

The President (delegated to the Secretary of State) is authorized to control the DCS of U.S. defense articles and services by U.S. industry [Section 38(a)(1), AECA]. Procedures for U.S. industry to obtain export licenses for DCS are codified by the DOS within the ITAR, 22 C.F.R. 120-130. Section 121.1, ITAR, is the U.S. Munitions List (USML), which defines, by category, what constitutes a defense article, service, and related technical data. This arms control authority by the President is similarly extended to include the import defense articles and services and has been delegated to the Attorney General.