Direct Commercial Sales:

Program Description

The State Department's Direct Commercial Sales (DCS) program regulates private U.S. companies' overseas sales of weapons and other defense articles, defense services, and military training. DCS should be distinguished from the Foreign Military Sales (FMS) program, which manages government-to-government sales.

A direct commercial sale requires an export license, which is issued by the Office of Defense Trade Controls at the State Department's Bureau for Political-Military Affairs. The granting of a license does not necessarily mean that items will be delivered immediately; licenses are valid for four years, during which sales may be delayed or canceled. No reliable records of DCS deliveries exist, but the State Department estimates that about half of export licenses result in deliveries.

DCS versus FMS

According to the now-defunct Arms Control and Disarmament Agency (ACDA), DCS accounted for about 52 percent of all U.S. arms exports to the world between 1986 and 1996. Purchasing governments may choose DCS over FMS for several reasons:

• Unlike FMS sales, direct commercial sales are negotiated directly between the foreign government and the U.S. arms manufacturer without the Pentagon serving as an intermediary. DCS purchases avoid the surcharges for U.S. government administrative costs that are levied on FMS sales.


• FMS sales are often less expensive than DCS, though cost depends on many factors. For instance, less complex items or items produced by two or more companies are frequently cheaper when sold directly. DCS sales are usually quicker than FMS, as they avoid much "red tape" associated with the government-to-government program.


• DCS are also less transparent than FMS; some buyers are attracted to the program's relative lack of reporting requirements.


• Governments that have more experience in military procurement, and do not feel a need to have the U.S. government negotiate sales on their behalf, tend to choose DCS.

Direct Commercial Sales:

Law

The
DCS program is regulated by the Arms Export Control Act (P.L. 90-269,
or the AECA), as amended. Section 38 of the AECA deals most specifically
with the DCS program.

In
order to purchase weapons through a direct sale, countries must
meet all the eligibility requirements
contained in the Arms Export Control Act and the Foreign Assistance
Act of 1961 (P.L. 87-195, or the "FAA"), as amended.

Notification
and congressional power to disapprove

According
to section 36(c) of the AECA, Congress must be notified of a decision
to issue an export license if the items to be sold are:

• Defense
  articles or services valued at $50 million or more; or


• Major
  defense equipment valued at $14 million or more.

["Major defense equipment" means any item on the United
States Munitions List with a research and development
cost of at least $50 million or a total production cost of at
least $200 million.]

This
notification must:

1. Specify
   the foreign country or international organization to which the
   export will be made;



2. Specify
   the dollar amount of the items to be exported; and


3. Describe
   the items to be exported.

If
the Speaker of the House, House International Relations Committee
or Senate Foreign Relations Committee requests it, the President
must "promptly" submit a statement including:

1. A
   description of the capabilities of the items to be exported;



2. An
   estimate of the number of U.S. government personnel needed in
   the country in connection with the items to be exported; and


3. An
   analysis, prepared in consultation with the Secretary of Defense,
   of the export's arms-control impact.

These
requirements are significantly less exacting than those for a
similar statement that may be requested about a proposed FMS
sale.

Within
30 days after being notified, Congress may turn down a proposed
export license by enacting a joint resolution.

Reports

Every
February, the President must submit to Congress a report, known
popularly as the "Javits report," which includes:

1. An
   Arms Sales Proposal listing all probable Foreign Military Sales
   (FMS) or Direct Commercial Sales (DCS) exports
   for the current calendar year that exceed:
   
   
   
   
   • $7
     million for major weapons or weapons-related defense equipment;
     or
   
   
   • $25
     million for other weapons or weapons-related defense equipment;
   
   
   
   


2. An
   indication of which sales or licenses are most likely to be approved
   during the current year;


3. An
   estimate of the total amount of FMS sales and DCS licenses expected
   to be made to each foreign country; and


4. Several
   other pieces of information about the status and rationale
   of FMS and DCS sales.

Though
not classified, the Javits report has never been released to the
public.

As
part of a report submitted in accordance with section 655 of the
Foreign Assistance Act, each February the President must list the
dollar value and quantity of defense articles licensed for export
under DCS in the previous fiscal year.

Section
36(a) of the AECA requires the President to submit a quarterly unclassified
report to Congress:

1. Listing,
   by country, licenses and approvals for private exports of defense
   articles exceeding $1 million, together with the total of licenses
   for the current year. This listing must detail:
   
   
   
   
   • The
     items to be exported under the license;
   
   
   • The
     quantity and price of each item to be furnished; and
   
   
   • The
     name and address of the ultimate user of each item; and
   
   
   
   


2. Providing
   several other pieces of information
   about the status of FMS and DCS sales.

Click to read the text of section 36 of the AECA, also known as section 2776 of Title 22, U.S. Code. (From U.S. House of Representatives Internet Law Library)