The Arms Export Control Act authorizes the President to control the export and import of defense articles and defense services. The statutory authority of the President to promulgate regulations with respect to exports of defense articles and defense services and designate those items to be considered defense articles and defense services for export control purposes has been delegated to the Secretary of State. State administers the arms export control system through requirements contained in the International Traffic in Arms Regulations (ITAR) and designates the articles and services deemed to be defense articles and defense services. These designations are made by State, with the concurrence of DOD, and constitute the United States Munitions List (USML), which comprises 21 major categories—for example Aircraft, Spacecraft, Military Electronics, and Guns and Armament—and more detailed subcategories. The ITAR also designates defense services subject to export controls, including furnishing assistance, technical data, or training to foreign entities. As defense exports are part of U.S. foreign policy, Congress requires reports to enable its oversight, including annual reports under the Foreign Assistance Act of 1961, as amended, Section 655 on defense exports, commonly referred to as Section 655 reports. U.S. defense articles and services generally can be exported to foreign entities in two ways—by FMS or DCS. Under FMS, the U.S. government procures defense articles and services on behalf of the foreign entity. Countries approved to participate in this program may obtain defense articles and services by paying with their own funds or with funds provided through U.S. government-sponsored assistance programs. While State has overall regulatory responsibility for the FMS program and approves the export of defense articles and services, DOD’s DSCA directs the execution of the program, and the individual military departments implement the sale and export process. DOD bills foreign entities and tracks the export of articles and services through its financial systems. For FMS, an approved Letter of Offer and Acceptance authorizes the export. Under DCS, U.S. companies obtain permanent export licenses generally valid for 4 years from State’s DDTC, which authorizes the export of defense articles and services directly to foreign entities. State also licenses defense articles for temporary export—when the article will be exported for a period of less than 4 years and will be returned to the United States without transfer of title. While most defense articles and services require a license for export, the ITAR contains numerous exemptions from licensing requirements that have defined conditions and limitations. For both FMS and DCS, the actual export of defense articles or services may occur years after the authorization—or may not take place at all. In addition to State and DOD, other U.S. government entities are involved with oversight of defense exports and management of export data. CBP oversees exports of defense articles leaving the country for compliance with export control laws and regulations and collects information on those exports through AES. AES is jointly managed and operated by CBP and Census, and the data it collects are used by State and other federal agencies. It is the central point through which export data required by multiple agencies are filed electronically to CBP. Foreign Trade Regulations and the ITAR require AES filings for all articles on the USML that are sent, taken, or transported out of the United States, and the exporter must provide either a license number or a citation of the license exemption. The data obtained through AES are maintained by Census’s Foreign Trade Division and CBP for the purpose of developing merchandise trade statistics and enforcement of U.S. export control laws, but also are provided to State for reporting purposes. DCSA information on the FMS program identifies several considerations for foreign entities in choosing between FMS and DCS. Under FMS, DOD procures defense articles and services for the foreign entity under the same acquisition process used for its own military needs, and recipients may benefit from economies of scale achieved through combining FMS purchases with DOD’s. In addition, DOD provides contract administration services that may not be available through the private sector. To recover its administration costs, DOD applies a surcharge to each FMS agreement that is a percentage of the value of each sale. Under DCS, foreign entities may have more direct involvement during contract negotiation with U.S. defense companies, may obtain firm-fixed pricing, and may be better able to fulfill nonstandard requirements. However, according to State officials, some types of defense articles, such as certain types of missiles, can only be exported through FMS. In addition, DOD administers other programs through which defense articles can be exported to foreign governments. For example, the fiscal year 2006 National Defense Authorization Act provides funding authorities for DOD to jointly formulate and coordinate with State in the implementation of security assistance programs, which can include the export of U.S. defense articles and services. DOD also may export certain defense articles deemed “excess” to our national security needs to foreign governments or international organizations on a reduced or no-cost basis. From calendar years 2005 through 2008, the value of U.S. exports of defense articles remained relatively stable, from about $19 billion and $20 billion, with an increase to about $22 billion in 2009. Of the approximately $101 billion total in U.S. defense articles exported from 2005 through 2009, about 60 percent were exported through DCS, as shown in figure 1. This figure also shows that exports through DCS increased from $10.6 billion to $13.3 billion during this period—an increase of about 25 percent—while the value of FMS exports remained relatively stable. Although there are currently no data available on the export of defense services through DCS, we found that the value of defense services exported through FMS was also relatively stable over the last 5 calendar years, ranging from about $3.8 billion to $4.2 billion annually from 2005 through 2009. Overall, services account for about one-third of the value of all FMS exports annually. Over the last 5 years, aircraft and their related parts and equipment accounted for about 44 percent of the value of all defense articles exported. The second largest category was satellites, communications, and electronics equipment and their related parts—accounting for about 20 percent of defense articles. We also found differences in the method of export for defense articles, with values for some types of articles higher through FMS versus DCS and vice versa. As shown in figure 2, of the approximately $26 billion in aircraft equipment and parts exported over the 5-year period, almost 66 percent (about $17.2 billion) was exported through DCS. A much larger value of other equipment and parts; satellites, communications and electronics equipment, and related parts; and firearms were also exported through DCS. On the other hand, a larger value of missiles, ships, and their related parts were exported through FMS. For two categories—aircraft and vehicles, weapons, and their parts—export values were about evenly divided between DCS and FMS. Although defense articles and services are exported to hundreds of countries, we found that exports of defense articles were highly concentrated in a few countries. Over the past 5 years, the top three recipient countries—Japan, the United Kingdom, and Israel—accounted for almost one-third of the value of defense article exports. The top seven recipient countries, which include South Korea, Australia, Egypt, and the United Arab Emirates, accounted for about half of the value of all U.S. defense article exports. We also identified differences by the method of export through either FMS or DCS. In general, the value of FMS exports was higher for developing countries, while the value of DCS exports was higher for developed countries. State officials noted that developing countries may benefit from the FMS logistics, infrastructure, and other support that come with the FMS program. As shown in figure 3, of the $13 billion in defense articles that Japan imported, 85 percent ($11.15 billion) was exported through DCS. Similarly, of the $8.3 billion that the United Kingdom imported, 82 percent (about $6.8 billion) was exported through DCS. On the other hand, Israel and Egypt import a higher value of their U.S. defense articles through the FMS program. Israel and Egypt receive annual U.S. security assistance funding that according to DOD and State officials, generally is used to purchase U.S. defense articles and services through the FMS program. FMS exports of defense services were also concentrated in a relatively few countries, with Saudi Arabia, Japan, and Egypt accounting for over one-third of the value over the last 5 years. Although Congress requires reporting on various aspects of U.S. defense exports, State’s and DOD’s annual reports on “military assistance and military exports”—as required by Section 655 of the Foreign Assistance Act of 1961, as amended—do not provide a complete picture of the magnitude and nature of defense exports because the agencies use different reporting methodologies and have information inconsistencies and gaps—in part, because of the separate purposes of their data systems. Although the data we obtained and analyzed were sufficiently reliable to develop high-level, overall information on the magnitude and nature of defense exports, the differences in agencies’ data—including the lack of information for defense services exported under DCS licenses, differences in agencies’ item and country categorizations, and the inability to separate some permanent and temporary exports—hinder the ability to provide a comprehensive and transparent picture of defense exports. Current export reform discussions acknowledge that the proliferation of individual data systems make export licensing and enforcement more difficult; however, the FMS system has not been specifically cited in these proposals. Because defense exports are used for furthering U.S. foreign policy objectives, there are legislatively mandated reporting requirements to enable congressional oversight. State has overall responsibility to report on exports of defense articles and defense services. DOD also reports on defense exports under FMS and other programs.