International Defense Sales

AuthorJade C. Totman and Brian C. Baldrate
Chapter 2
International Defense Sales
Jade C. Totman and Brian C. Baldrate
Exports of US defense articles and services to foreign allies are a pillar of US national
security and foreign policy. The US government used arms export programs in the late 1940s and
early 1950s to fortify a common defense against the Soviet Union, largely through grants of
surplus military equipment to Western Europe. From the 1960s to the 1980s, the US export
portfolio broadened to include sales of advanced equipment, technology, and technical
assistance. These exports solidified alliances, standardized US weapons systems, and mobilized
the US defense industrial base. Today, the US government is using export programs to
strengthen partnerships and to build international coalitions capable of confronting major threats
to regional and global security.1
Many arms export programs have been authorized as foreign “security assistance” under
Title 22 of the US Code,2 putting them under the continuous supervision and general direction of
the US Department of State (“State”). Such security assistance programs include Foreign
Military Sales (FMS) and Direct Commercial Sales (DCS), as well as financing through Foreign
Military Financing (FMF). In this chapter, after an Executive Summary (Section I), we survey
the legal foundation for these programs (Section II). We provide focused overviews of FMS
(Section III); DCS (Section IV); variations of FMS and DCS, including “hybrid” sales
(Section V); and FMF (Section VI). We summarize the relevance of these programs to
contractors (Section VII), and we conclude by suggesting several practical tips for practitioners
(Section VIII).
I. Executive Summary
FMS transactions are government-to-government sales overseen by State, yet
administered day-to-day by DoD’s Defense Security Cooperation Agency (DSCA). The
contracting parties are the US government (i.e., the seller) and a foreign government (i.e., the
buyer/recipient). An FMS contract is called a “Letter of Offer and Acceptance(LOA), but
common shorthand references are “FMS case” and “case.” The US government can sell items
that it pulls from DoD stocks or that it acquires from a contractor using a procurement regulated
by the Federal Acquisition Regulation (FAR) and Defense FAR Supplement (DFARS). By law,
the buyer/recipient pa ys all costs of an FMS case, even the US government’s procurement costs,
except in limited instances involving a “Pseudo-LOA” (explained in Section III) or FMF
(explained in Section VI) .
A DCS transaction is a direct commercial sale. The contracting parties are defense
contractors (i.e., the sellers) and foreign governments (i.e., the buyers/recipients). State’s
Directorate of Defense Trade Controls (DDTC) vets and monitors DCS transactions pursuant to
the licensing and registration requirements found in the International Traffic for Arms
Regulations (ITAR),3 regulations promulgated under the Arms Export Control Act of 1976
(AECA).4 Financing generally comes from the buyer/recipient, except for when DSCA approves
the use of FMF.
Often, FMS and DCS are not equally available. The US government can assign an “FMS
Only” designation, which prohibits the use of DCS. Conversely, a defense contractor can request
a “DCS Preference”a pledge by DSCA to decline FMS inquiries and to direct prospective
buyers towards using DCS. Some multi-item sales combine an FMS portion and a DCS portion,
resulting in a hybrid transaction.

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