United States General Accounting Office

GAO Report to Congressional Requesters

March 1998 NATO

ENLARGEMENT

Requirements and

Costs for Commonly

Funded Budgets

GAO/NSIAD-98-113

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-279394 

March 6, 1998

The Honorable Ted Stevens

Chairman

The Honorable Daniel K. Inouye

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

On October 23, 1997, we testified before your Committee on a cost study

that had been developed independently by the Department of Defense

(DOD) regarding the enlargement of the North Atlantic Treaty Organization

(NATO).1

 We also provided you with NATO’s schedule for preparing its own

studies regarding the requirements and costs associated with the alliance’s

enlargement. This report responds to your request that we evaluate the

basis for NATO’s cost estimate for enlarging its membership. You also asked

for our views on DOD’s assessment of NATO’s estimate.

Background At the Madrid Summit in July 1997, NATO invited three countries, Poland,

Hungary, and the Czech Republic, to enter into negotiations to become

NATO members. At the summit, the NATO heads of state and government

also directed NATO’s managing body, the North Atlantic Council (NAC), to

prepare an analysis of the commonly funded costs of enlargement.

NATO member states provide resources to support the alliance in two ways.

First, countries, at their own expense, maintain forces and assets which

they pledge to NATO through the defense planning process. Second,

countries make contributions to NATO’s three commonly funded budgets.

The three budgets are the military budget, which primarily funds

operations and maintenance for NATO’s military headquarters and activities

(about $720 million planned for 1999); the NATO security investment

program (NSIP), which primarily funds infrastructure improvements (about

$734 million planned for 1999); and NATO’s civil budget, which primarily

funds the civilian headquarters and personnel in Brussels, Belgium, for

NATO’s political structure (about $164 million planned for 1999).

1

In our testimony, NATO Enlargement: Cost Implications for the United States Remain Unclear

(GAO/T-NSIAD-98-50, Oct. 23, 1997), we reported that we had assessed the DOD study and found its

key assumptions were generally reasonable, but DOD’s cost estimate was speculative and lacked

supporting documentation.

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At the direction of the NAC, the major NATO commanders prepared a study

of the military requirements. NATO’s Senior Resource Board then developed

cost estimates for those requirements eligible for common funding.2

 In

addition, the Civil Budget Committee prepared a study on the effects of

enlargement for NATO’s civilian personnel and facilities. These reports were

agreed to by all NATO members at the December 1997 ministerial meetings.3

NATO estimated that $1.5 billion would be needed to meet commonly

funded military requirements. Figure 1 shows a breakdown of the four

major cost categories: (1) command and control, which reflects an

extension of NATO’s communications links to the new members; (2) air

defense, which reflects the integration of new members into NATO’s air

defense systems; (3) reinforcement reception facilities, which reflect

upgrades to infrastructure, particularly airfields to receive NATO forces;

and (4) training and exercises.

Figure 1: Cost Breakout of NATO

Enlargement Estimate

Air defense

mmand and control

ining and exercis

Reinforcement recept

Air defense $581 million

Command and control $130 million

Training and exercises $42 million

Reinforcement reception $699 million

Source: DOD.

2

The Senior Resource Board is composed of senior national representatives and is tasked with military

resource allocation and identification of priorities.

3

NATO operates on a consensus basis. NATO cannot take action as an alliance without the

concurrence of all members.

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On February 23, 1998, DOD submitted to the Congress a report on the

requirements and costs of NATO enlargement.4

 This report included an

analysis of the NATO studies and presented DOD’s explanation for the

differences between NATO’s results and DOD’s February 1997 cost estimate.

For example, NATO’s study concluded that the infrastructure in the invitee

countries was in considerably better condition than assumed by DOD. DOD

concurred with the conclusions of the NATO studies.

Results in Brief The approach used by NATO in determining its estimated direct

enlargement cost of $1.5 billion for commonly funded requirements is

reasonable.5

 We found that NATO’s assessment was based on site visits,

historic data, and extensive dialogue with invitee officials. A key

assumption of the NATO cost estimate is that the current low threat

environment will continue for the foreseeable future. Any changes in the

threat environment could affect enlargement-related military requirements

and costs.

Based on our work at NATO and our prior analysis of enlargement

estimates, we conclude that DOD’s assessment of the NATO cost report was

reasonable. According to DOD, the U.S. Joint Staff validated the

requirements on which these costs were based as militarily sound.

Moreover, DOD emphasized that the NATO study was a more accurate

reflection of commonly funded costs than DOD’s 1997 study.6

NATO’s Requirement

and Cost Studies

As a result of direction received at the July 1997 Madrid Summit, NATO

military and civil officials prepared several requirement and cost studies to

address NATO enlargement issues. Reports on these studies were addressed

by the members’ defense ministers at their December 1997 meeting in

Brussels. The studies produced included (1) an assessment of military

requirements, (2) an estimate of the costs of meeting those commonly

funded requirements, and (3) a study of what additional forces existing

members would need to pledge to NATO. NATO’s military commanders

addressed the military requirements issues surrounding enlargement; the

4

This report was required by the fiscal year 1998 DOD Authorization and Appropriations Acts and the

fiscal year 1998 Military Construction Appropriations Act.

5

Commonly funded means the payment will come from NATO’s budgets, which are funded by

contributions assessed each member on a predetermined percentage basis. For example, the United

States pays about 25 percent of NATO’s common budget costs.

6

For our assessment of DOD’s study, see our report NATO Enlargement: Cost Estimates Developed to

Date Are Notional (GAO/NSIAD-97-209, Aug. 18, 1997).

Page 3 GAO/NSIAD-98-113 NATO Enlargement
B-279394 

international military and civilian staff developed cost estimates for the

commonly funded military requirements and other associated enlargement

costs; and the Defense Review Committee, the senior defense planning

body in NATO, reported on whether additional forces need to be pledged by

existing members.

The fundamental principle on which all military requirements were

based—both commonly funded and nationally funded—was NATO’s ability

to fulfill Article V of the treaty in the new member countries as of the

accession date.7 NATO’s military commanders’ requirements study

determined what alliance capabilities were needed upon accession of the

invitees and also determined what military upgrades were needed. Using a

model that scores force capabilities, NATO determined that the capability of

reinforcing NATO forces, combined with invitee forces was adequate to

meet current and projected future threats.8

 The threat to the invitees was

assessed to be low and is expected to remain low. NATO determined the

number of squadrons needed to provide combat air patrol over the

territory of new invitees to determine the number of collocated operating

bases needed. NATO also identified the necessary communications links

and minimal air defense requirements. The study also concluded that

current NATO exercise schedules could accommodate invitees at some

small incremental expense. NATO’s military commanders conducted site

visits of the invitees in developing their assessments.

At the direction of the Senior Resource Board, NATO’s international staff

then developed the cost estimates for the commonly funded requirements

that NATO’s military commanders had developed and determined eligibility

for common funding by applying standard NATO practices and procedures,

including NATO’s “over-and-above” principle.9 NATO’s engineers conducted

site visits of the invitees’ facilities that NATO expects to use and used cost

data from NATO projects to develop cost estimates for projects that would

need to be done in the invitees’ countries. According to officials at NATO,

some of the costs of enlargement may be absorbed in existing budgets, for

example, through the reprioritization of existing projects. NATO is expected

to complete a study detailing the budget implications of the enlargement’s

7

Article V of the treaty is the collective defense provision, which states that an attack on one member

is an attack on all.

8

This model assigns values to specific weapons systems and units to estimate combat capability,

permitting comparisons to be made of various forces.

9

Under this principle NATO will only pay for projects over and above the country’s own defense needs.

For example, it is a country’s responsibility to maintain the runway up to the standard needed for its

own aircraft; however, NATO will pay for modifications to the runway to accommodate reinforcing

NATO aircraft.

Page 4 GAO/NSIAD-98-113 NATO Enlargement
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cost, including an analysis of how much of the cost will be absorbed

within existing budgets, in the spring of 1998.

Because NATO officials used a conservative interpretation of the

over-and-above principle, NATO’s cost estimate for the commonly funded

military requirements may be lower than the cost actually incurred. For

example, the NATO study did not include the cost of repaving runways,

although NATO staff acknowledged that the runways, while up to national

standards, were not up to NATO standards. The staff said that they assumed

that the invitees would eventually purchase western aircraft and therefore

would have to bear the repaving costs themselves to meet necessary

standards for the aircraft. However, historically, NATO has sometimes

granted exemptions to its policies and procedures for items such as this

that would otherwise be a national responsibility, particularly for less

wealthy members. Such exemptions would add to the commonly funded

costs but would require approval by all NATO members. Based on our

analysis, we believe that NATO’s approach to estimating the $1.5 billion cost

for commonly funded budgets is reasonable.10

NATO’s study of nationally funded force commitments concluded that given

the threat to and capabilities of the invitees, existing members need not

undertake any increase to their existing force goals, that is, their

agreed-upon contributions of military capability.11 NATO is developing

target force goals for the invitees and these should be finalized in the

spring of 1998. NATO did not and will not estimate the cost of the nationally

funded military commitments for existing members or the invitees.

DOD’s Assessment of

NATO’s Studies

DOD’s February 1998 report did not develop a new cost estimate for NATO

enlargement; rather it assessed NATO’s cost and requirements studies and

provided some comparisons between NATO’s estimate and DOD’s

February 1997 estimate. DOD concluded that NATO’s cost estimates were

sound and reliable and emphasized that because NATO’s study had the

benefit of site visits, historic NATO cost data, and knowledge of NATO

common funding eligibility, it was a more accurate reflection of commonly

funded enlargement costs than DOD’s prior estimate.

10In commenting on our report, DOD noted that as details of implementation plans are finalized and

more detailed engineering surveys are developed, final costs could increase or decrease.

11However, as we noted in our report NATO Enlargement (GAO/NSIAD-97-209, Aug. 18, 1997), NATO

has long-standing shortfalls in meeting its force goals.

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DOD could not completely reconcile the differences between its 1997

estimate of $27 billion to $35 billion for enlargement and NATO’s estimate of

$1.5 billion. Several factors explain most of the difference. The most

prominent of these factors are that DOD’s 1997 report

• included two categories, new member modernization costs and existing

member reinforcement costs, that account for $18 billion to $23 billion of

the difference and are not commonly funded and are thus not included in

the NATO study;12

• assumed that more items in the direct enlargement category would be

eligible for common funding;

• included four countries, whereas NATO included only the three invitees;

• assumed that the new members’ infrastructure was in worse condition

than NATO surveys showed them to be; and

• differed in some requirements, as well as pricing.

We could not validate all the specific cost differences detailed in the 1998

DOD report because the DOD data provided was insufficiently detailed.

However, we believe that DOD’s assessment of the NATO cost report was

reasonable.

Scope and

Methodology

To address our objective, we interviewed officials and gathered and

analyzed information from the Department of State; the Office of the

Secretary of Defense; the U.S. Mission to NATO in Brussels, Belgium; and

Supreme Headquarters Allied Powers Europe (SHAPE) in Mons, Belgium.

We interviewed officials in Brussels during the Defense Ministerial

meetings in December 1997. We also reviewed Department of State and

U.S. Mission to NATO reporting cables, program and briefing documents,

and correspondence. In addition, this work built upon our prior

assessments of NATO enlargement cost studies.

To understand the basis for the NATO-developed military requirements, we

held discussions with the Policy and Requirements Division staff of SHAPE

and reviewed data on threat scenarios used and the analytical elements of

developing a force to meet the scenarios. We examined the criteria for

deciding on the number of airfields and reinforcement reception facilities

required in each new members’ country to receive reinforcing aircraft and

troops.

12DOD’s February 1997 report indicated that the United States would not be responsible for bearing

any of these costs.

Page 6 GAO/NSIAD-98-113 NATO Enlargement
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To understand the methodology for and to develop judgments on the

soundness of the NATO cost estimate, we held discussions with the NATO

engineers who had assessed the new members’ capabilities and needs. We

also examined the engineers’ cost analyses and engineering assessments,

and their historical cost data on comparable projects. The engineers also

presented their assessment methodology for each base and command,

control, communication, and air defense needs. NATO officials presented,

and we reviewed, the criteria used for determining what projects would

qualify for common NATO funding.

In order to review the procedures NATO followed in developing its reports

and to help us understand what the U.S. involvement in this process was,

we interviewed U.S. and NATO officials and obtained documentation

regarding the process involved in the development of NATO’s reports.

Finally, we discussed with, and obtained documentation from, DOD

officials to understand how they assessed the NATO studies.

We did not independently validate the condition of infrastructure in the

invitee states, NATO’s historic cost data, or the force calculation model

used by SHAPE.

We conducted our review between October 1997 and February 1998 in

accordance with generally accepted government auditing standards.

Agency Comments The Departments of State and Defense provided oral comments on a draft

of this report and generally concurred with our findings and conclusions.

We are providing copies of this report to the Secretaries of State and

Defense and other congressional committees. Copies will be made

available to other interested parties upon request.

Page 7 GAO/NSIAD-98-113 NATO Enlargement
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Please contact me on (202) 512-4128 if you or your staff have any

questions concerning this report. The major contributors to this report

were Jim Shafer, Muriel Forster, and Hynek Kalkus.

Harold J. Johnson, Associate Director

International Relations and Trade Issues

(711315) Page 8 GAO/NSIAD-98-113 NATO Enlargement
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