GAO-06-319R Defense Trade Data 

United States Government Accountability Office

Washington, DC 20548 

January 27, 2006 

The Honorable John Warner 

Chairman 

The Honorable Carl Levin 

Ranking Minority Member 

Committee on Armed Services 

United States Senate 

Subject: Defense Trade Data 

Defense trade impacts many issues of importance to the 

Department of Defense (DOD), including maintaining a healthy 

supplier base, protecting critical technologies, ensuring access 

to a secure supply of defense-related items and services, 

managing technology transfers, and increasing interoperability 

with allies. A critical element to guide decision makers is 

access to comprehensive and reliable data. The Committee, 

through its report on the National Defense Authorization Act 

for Fiscal Year 2006, directed GAO to identify and assess 

defense trade data. In response, we (1) identified defense trade 

data available from U.S. government sources and their 

limitations, and (2) determined defense trade balances as 

indicated by the data for years 2000 through 2004. 

For this review, we defined defense trade as the buying and 

selling of defense articles and services between the United 

States and foreign entities. To identify data sources and 

limitations, we interviewed agency officials of the Departments 

of Defense, State, Commerce (Census Bureau and Bureau of 

Economic Analysis), and Homeland Security (Customs and 

Border Protection) and reviewed past GAO and agency reports. 

To determine defense trade balances, we analyzed data from 

the Departments of Defense, Commerce, and State and 

considered their limitations. To assess data reliability, we 

performed electronic testing of required data elements, 

interviewed knowledgeable agency officials, and reviewed 

existing information about the data system. In addition, where 

applicable, we compared data to published data. Those data 

sets that we determined to be sufficiently reliable indicators of 
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defense trade were used to calculate the defense trade balance 

for the years 2000 to 2004. 

We performed our review from May 2005 to January 2006 in 

accordance with generally accepted government auditing 

standards. 

In brief, we found that several agencies collect data that can be 

used as indicators of defense trade, such as the Census 

Bureau’s data on U.S. imports and exports and DOD’s foreign 

military sales and prime contracts data. While there are other 

related data sources, such as the State Department’s export 

licensing data, Bureau of Economic Analysis’ defense service 

data, and DOD’s foreign subcontractor data, we found them to 

be of limited use as defense trade indicators. However, data 

from Census and DOD sources were sufficient to assess 

defense trade at an aggregate level. Based on the data we 

analyzed from these agencies, we found that for each of the 

years 2000 through 2004, the United States sold significantly 

more defense articles and services to foreign entities than it 

bought from them. 

On November 1, 2005, we briefed the results of our study to 

your staff. These results are included as an enclosure to this 

letter. 

The Departments of Defense, Commerce, and State provided 

technical comments to a draft of this letter and enclosure, 

which we have incorporated as appropriate. 

Should you or your staff have any questions concerning this 

report, please contact me at (202) 512-4841. Copies of this 

report are also available on GAO’s Web site at www.gao.gov. 

Key contributors to this report were John Neumann, Assistant 

Director; John Ting; Bradley Terry; and Mark Gribbin. 

Ann Calvaresi-Barr 

Director, Acquisition and Sourcing Management 

Enclosure 
ENCLOSURE 

BRIEFING TO SENATE COMMITTEE ON ARMED SERVICES 

Defense Trade Data 

Background 

Defense trade data provides national security decision makers with vital 

information on transfers of defense articles and services between the 

United States and foreign entities. These transfers are made through 

government-to-government programs such as the Foreign Military Sales 

(FMS) program, or directly by companies selling to foreign entities under 

an approved export license. In addition, DOD and U.S. companies 

purchase defense articles and services from foreign entities. 

Objectives 

The Senate Armed Services Committee report on the National Defense 

Authorization Act for FY 2006 directed GAO to identify and assess 

defense trade data. In response, this briefing evaluates the following: 

1. What defense trade data is available from U.S. government 

sources and what are their limitations? 

2. What does the available data indicate about the U.S. defense trade 

balance from 2000 to 2004? 

Engagement Scope

Our definition of defense

articles and services is based

on the U.S. government’s

International Traffic in Arms

Regulations. This regulation

defines a defense service as

the furnishing of assistance to

foreign persons, which

includes the design,

engineering, manufacture,

operation, and maintenance of

defense articles. Based on this

definition, services paid for by

the Department of Defense

(DOD) to support military

bases overseas, such as

payments for wages to foreign

nationals, foreign contractual

services, and construction

expenditures abroad are not

included in our analysis of

defense trade.

Methodology

To identify U.S. government

data sources, we researched

past GAO reports and agency

reports and documents, and

interviewed agency officials at

DOD and the Departments of

Commerce, Homeland

Security, and State. To show

the defense trade balance for

the years 2000 to 2004, we

analyzed data from DOD,

Commerce, and State covering

2000 to 2004.

DOD, Commerce, and State

provided technical comments

to a draft of this letter and

enclosure, which we have

incorporated as appropriate.

Summary

Several agencies collect data that can be used as indicators of defense 

trade. The Department of Commerce collects data on U.S. imports and 

exports. Additionally, DOD collects data on its own sales and 

purchases. Data from these sources were sufficiently reliable to assess 

defense trade at an aggregate level. Other related data on balance of

payments, export licenses, and foreign subcontractors were of limited

use as indicators of the level of defense trade. 

The United States sells significantly more defense articles and services 

to foreign entities than it buys. Between 2000 and 2004, U.S. defense 

exports averaged $11.5 billion a year, versus imports of $1.8 billion a

year; DOD military sales averaged $12.6 billion a year, versus purchases 

of $1.5 billion a year. During the same period, DOD purchases of 

defense articles and services from foreign companies have decreased 

from 2.4 percent to 1.7 percent of all such DOD purchases. 

GAO-06-319R Defense Trade Data 

 

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ENCLOSURE 

BRIEFING TO SENATE COMMITTEE ON ARMED SERVICES 

Defense Trade Data 

Objective 1 Data Available from Federal Agencies 

What defense trade 

data is available from 

U.S. government 

sources and what are 

their limitations? 

DOD and the Departments of Commerce and State are the principal 

agencies that collect data related to defense trade. 

• The Department of Commerce’s Census Bureau collects export and 

import data on actual shipments and deliveries of goods, which 

includes defense articles, as part of its U.S. foreign trade statistics. 

This data is mostly collected by the Department of Homeland 

Security’s Customs and Border Protection at ports of entry and exit, 

which is then reported to Census. Separately, Commerce’s Bureau of 

Economic Analysis (BEA) assembles estimates of imports and 

exports of a range of services as a part of its Balance of Payments 

Accounts. 

• DOD collects data on contractual sales and purchases of defense 

articles and services through its FMS and prime contract data 

systems. FMS data include all defense articles and services sold by 

DOD to foreign governments, while prime contract data include DOD 

purchases from foreign entities. This data differs from Commerce 

import and export data as it reflects signed contracts for goods and 

services rather than actual deliveries. Another DOD office separately 

collects data from U.S. contractors on defense subcontracts 

performed overseas, based on certain dollar thresholds and reporting 

criteria.

• The State Department collects data on proposed direct commercial 

sales of defense articles and services by U.S. companies to foreign 

persons as part of its export licensing program. License data are 

based on the authorized value of export licenses and agreements. 

Export licenses authorize U.S. companies to sell defense articles and 

services directly to foreign persons. Agreements, such as 

manufacturing license agreements and technical assistance 

agreements, allow the transfers of technical knowledge, production 

rights or manufacturing know-how from U.S. companies to foreign

persons. 

GAO-06-319R Defense Trade Data 

 

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ENCLOSURE 

BRIEFING TO SENATE COMMITTEE ON ARMED SERVICES 

GAO-06-319R Defense Trade Data 

 

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Defense Trade Data 

Objective 1 (cont.) Commerce Department Data Observations and Limitations 

• Census data reflect the movement of goods crossing U.S. borders. 

Consequently, the data may count movements even when they do not 

result in changes of ownership. For example, if goods are 

temporarily exported to the manufacturer for repair or maintenance, 

they will be counted as exports even though no purchase or sale is 

being made. However, as these goods are likely to be imported back 

into the United States, these transfers do not significantly impact the 

data’s usefulness in assessing defense trade. 

• BEA service import and export data was limited for the purpose of 

assessing defense trade because it captures data that was outside our 

definition of defense services. 

BEA captures U.S. company exports of services under 

technical assistance agreements and manufacturing license 

agreements, but it does not separate them into defense and 

non-defense sectors. While BEA data include defense services 

associated with the FMS program, this information is not 

complete without data on defense services exported by U.S. 

companies. 

BEA’s Direct Defense Expenditures account captures service 

import data that is outside our definition of defense services. 

This account primarily measures expenditures incurred 

abroad by U.S. military agencies, including wages for foreign 

nationals, foreign contractual services, and construction

expenditures in support of military bases overseas.
ENCLOSURE 

BRIEFING TO SENATE COMMITTEE ON ARMED SERVICES 

Defense Trade Data 

 

Defense Department Data Observations and Limitations Objective 1 (cont.) 

• FMS data includes sales financed by U.S. government grants and 

loans to foreign countries. Grant-funded sales are the practical 

equivalent of sales from U.S. industry to U.S. government.1

• Our analysis of the FMS data showed discrepancies in the value of 

some FMS agreements. According to a DOD official, one possible 

reason for the discrepancies is that amendments representing 

additional sales for some of the agreements were not entered into the 

data, thus underreporting sales. However, even if all the 

discrepancies result in underreporting of sales, they amounted to 

only 5 percent of total sales for the years 2000 through 2004 and, 

therefore, were not significant enough to impact the reliability of the 

data for determining the aggregate level of sales. 

• DOD prime contract data defines a foreign contractor as a company 

that is not incorporated in the United States. Therefore, DOD does 

not consider purchases from a company that is incorporated in the 

United States but owned by a foreign parent company to be foreign. 

• DOD foreign subcontractor data was not used in our analysis as it 

only captures a segment of foreign subcontracts and is of limited use

as an indicator of aggregate defense trade. It does not capture: 

 

-- Subcontracts beyond the second tier. 

-- Subcontracts worth under $500,000. 

-- Subcontracts where under $100,000 of work is performed 

 abroad. 

-- Subcontracts let under prime contracts where (1) the 

principal place of performance is abroad; and (2) foreign 

place of performance is indicated in the contractor’s offer.2

In addition, GAO has previously identified contractor compliance 

problems with the requirement to report foreign subcontracts to 

DOD (GAO/NSIAD-99-8; GAO-04-381). While DOD has taken actions 

1

FMS data includes equipment paid for by U.S. military grants. From fiscal years 2000-2004, U.S. military grants to foreign 

governments averaged $4.5 billion per year. 

2

 DOD contracts where the principal place of performance is abroad can be identified through DOD’s DD-350 database. 

GAO-06-319R Defense Trade Data 

 

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ENCLOSURE 

GAO-06-319R Defense Trade Data 

 

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BRIEFING TO SENATE COMMITTEE ON ARMED SERVICES 

Defense Trade Data 

 

Objective 1 (cont.) 

to address this issue, such as sending letters to the top 100 defense 

contractors to remind them of the reporting requirement, we have 

not evaluated whether these actions have improved contractor 

compliance.

State Department Data Observations and Limitations

• State Department license data does not represent actual orders 

placed or deliveries3

 made by companies, only the amounts they are 

authorized to export. Therefore, license values cannot be used to 

quantify the actual value of trade and were not used in our analysis 

of defense trade.4

 

• State Department license data also has reliability issues. 

Previous GAO work noted that the State Department data 

double-counts the value of export licenses stemming from 

manufacturing license and technical assistance agreements 

(GAO-05-156R). 

License values given in the State Department’s licensing

database include the values of terminated agreements. 

 

3

 On October 18, 2003, use of the Automated Export System (operated by Census and the Bureau of Customs and Border

Protection) by exporters became mandatory for all shipments of State Department controlled hardware. After some data

problems are resolved, State Department data could become useful for our analysis. 4

Data on actual exports of goods resulting from export licenses is captured in the Census data used in our analysis. 
ENCLOSURE 

BRIEFING TO SENATE COMMITTEE ON ARMED SERVICES 

Defense Trade Data 

 Defense Trade Balance: U.S. Exports versus Imports Objective 2 5

What does the available 

data indicate about the 

U.S. defense trade 

balance from 2000 to 

2004? 

Based on our analysis of Census data, U.S. defense exports averaged 

$11.5 billion a year, versus imports of $1.8 billion a year. U.S. exports of 

defense articles ranged from $10.7 to $11.9 billion while imports ranged 

from $1.5 to $2.1 billion. 

$0

$2

$4

$6

$8

$10

$12

$14

2000 2001 2002 2003 2004

Calendar year

D

ollars (billions) 

Exports Imports

Source: GAO analysis of U.S. Census Bureau data. 

Another measure of the defense trade balance shows that imports 

averaged only 15 percent of exports during the period 2000-2004. 

Calendar 

year 

Defense exports 

(billions) 

Defense imports 

(billions) 

Imports as % 

of exports

2000 $10.7 $1.5 14 

2001 11.6 1.6 14 

2002 11.8 1.9 16 

2003 11.6 1.7 15 

2004 11.9 2.1 18 

Source: GAO analysis of U.S. Census Bureau data. 

 5

 Data are all in nominal values, unadjusted for inflation. Data represent actual deliveries and shipments of defense articles 

for calendar years 2000-2004. As noted on page 5, BEA service trade data was not used in our analysis because it did not 

allow us to present defense service data in accordance with our definition.

GAO-06-319R Defense Trade Data 

 

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ENCLOSURE 

BRIEFING TO SENATE COMMITTEE ON ARMED SERVICES 

Defense Trade Data 

Defense Trade Balance: D DOD Sales versus Purchases Objective 2 (cont.) 6

Based on our analysis of DOD sales and purchase contract data, FMS 

averaged $12.6 billion7 a year, versus foreign military purchases of $1.5 

billion a year. FMS ranged from $11.1 to $13.8 billion between 2000 and 

2004, while foreign military purchases ranged from $0.9 to $2.0 billion. 

$0

$2

$4

$6

$8

$10

$12

$14

$16

2000 2001 2002 2003 2004

Fiscal year

Dollars (billions)

FMS (Sales)

DD-350 (Purchases)

Source: GAO analysis of DOD’s FMS and prime contract data. 

Another measure of the defense trade balance shows that purchases 

averaged only 12 percent of sales during the period 2000-2004. 

Fiscal 

year 

DOD FMS 

(billions) 

DOD Foreign Military

Purchases (billions) 

DOD Foreign Military

Purchases as % of FMS 

2000 $11.1 $1.7 15 

2001 12.8 0.9 7 

2002 12.2 1.6 13 

2003 12.9 1.4 11 

2004 13.8 2.0 14 

Source: GAO analysis of DOD’s FMS and prime contract data. 

 6

 Data are all in nominal values, unadjusted for inflation. Data represent DOD’s contractual obligations for sales and 

purchases of defense articles and services for fiscal years 2000-2004, not actual shipments or deliveries. As deliveries and 

shipments are not necessarily completed in the same year that a contract is made, DOD sale and purchase data are not

directly comparable to the Census export and import data presented in the preceding section. 7

 Total U.S. military sales is likely higher because, as stated on page 7, we did not include State Department’s licensing

values in our analysis of defense trade. 

GAO-06-319R Defense Trade Data 

 

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ENCLOSURE 

BRIEFING TO SENATE COMMITTEE ON ARMED SERVICES 

Defense Trade Data 

Additional Observation8

Based on our analysis of DOD’s prime contract data, the percentage of 

DOD purchases of defense articles and services from foreign companies 

as compared to all DOD purchases of defense articles and services, 

decreased from 2.4 percent in fiscal year 2000 to 1.7 percent in 2004. 

DOD Foreign Military Purchases as %

of all Military Purchases

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2000 2001 2002 2003 2004

Fiscal year

P

ercent

Source: GAO analysis of DOD’s prime contract data. 

Fiscal 

Year 

DOD Foreign Military

Purchases (billions) 

DOD Foreign Military Purchases as 

a % of All Military Purchases 

2000 $1.7 2.4

2001 0.9 1.2 

2002 1.6 1.8 

2003 1.4 1.4 

2004 2.0 1.7 

Source: GAO analysis of DOD’s prime contract data. 

 8

 Data presented in this section are all in nominal values, unadjusted for inflation. 

(120420) 

GAO-06-319R Defense Trade Data 

 

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