India will pay 3.8 percent on all FMS deals with US

WASHINGTON - India would be paying 3.8 percent as an administrative fee for all military hardware 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 from August 2006, and is charged to facilitate discussions with US arms manufacturers, weapon tests, securing all government clearances and to ensure that a customer gets exactly what he pays for. “No more no less,” according to sources quoted by the India Strategic defence magazine (www.indiastrategic.in) in its coming edition.

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 any loss. As a DSCA statement says: “The customer is assured that the acquisition process will be subject to DoD (Department of Defense) standards”.

The price is generally what the US government pays for acquisitions by its own army, navy and 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 and Northrop Grumman.

Since 2007, India has purchased the troop carrier INS Jalashwa (formerly USS Trenton) for the navy and six C-130J Super Hercules airlifters for the air force. 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, Indian Navy and Indian Air Force and the US Army, US Navy and US Air Force, formalized though by the Indian Ministry of Defence (MoD) and the US DoD.

The first FMS deal with the US was for Raytheon’s 12 Firefinder AN-TPQ-37 Weapon Locating 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 F-16IN Super Viper and Boeing F-18 Super Hornet combat aircraft to the Indian Air Force 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 transaction.

The India Strategic report says that the US sells weapons worth around $40 billion annually, and the FMS fee is supposed to take care of the US government officers assigned to facilitate and supervise the execution of a deal.

The only countries which do not pay the FMS fees are those that get weapons as aid or assistance, as in the case of Israel and Pakistan for instance. The tab in such cases is picked by the DoD and the 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 the 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.

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 Congress to export the technology.

Arms transfer deals in the US are under intense legislative scrutiny.

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. Under FMS, the customer is assured that the acquisition process will be subject to DoD’s standards”.

Most other weapon supplying countries do not charge any administrative fee but these are built in the price structure during negotiations.

(Gulshan Luthra can be contacted at gulshan.luthra@indiastrategic.in)