On April 10, the Trump administration announced, through an executive order (EO), a new initiative to reform the defense sales system, with the goal of improving the speed and accountability of the system.
Last year, the United States exported approximately $318 billion worth of weapons through Foreign Military Sales (FMS), which are government-to-government sales, and Direct Commercial Sales (DCS), which are sales from U.S. companies to foreign governments or companies.
This memo outlines the key changes in the EO and also provides a detailed read-out of the EO.
Key Changes
The Trump executive order proposes significant changes to the current system designed to increase speed and reduce regulations and rules. Key changes include:
Prioritization of Countries and Weapons Systems: Within 60 days, the State Department and Department of Defense (DOD) must develop a list of priority countries and priority weapons systems.
Why does this matter? Given the demand for U.S. weapons and the current production backlog, prioritizing countries and weapons will: 1) speed up the internal State Department and DOD systems for specific partners/allies, and 2) refocus production on specific systems and potentially allow U.S. companies to focus on specific systems for export.
Questions: How will countries be prioritized and will certain countries lose their place in line? Will the prioritization only focus on future sales or will the Trump administration reorganize current sales? How will priority systems be determined—will it be based on demand from other countries or will it be based on what the United States is able to produce? As the United States prioritizes systems, how will it balance the Pentagon’s own need for the same systems?
Easier Export of Missile, Space and UAS Technology: Calls for 1) a reevaluation of the current policy on items governed by the Missile Technology Control Regime (MTCR) Category 1, and 2) potentially allowing those items to go to specific countries.
Why does this matter? The United States has been limited, under its interpretation of the MTCR, from exporting specific longer-range defense articles, particularly armed and unarmed drones. The Biden administration had already made some changes; this EO indicates the Trump administration plans to go further, potentially focusing on the sale of these weapons for key partners.
Questions: How far will the Trump administration go in making these changes and which countries will be prioritized for export? Will Congress support these changes?
Changes to Congressional Review of Arms Sales: Calls for 1) updating the thresholds for congressional review of arms sales, and 2) to start a process with Congress to make sure that sales are reviewed in a timely manner.
Why does this matter? The monetary thresholds that determine whether Congress must review arms sales have not been updated in years. If the thresholds are raised, fewer sales will have to go through congressional review and thus will move more quickly through the process.
Questions: How will Congress respond to this proposal? Will Congress be willing to reduce the number of sales it reviews? Will Congress want to make changes to the current review process, which includes both formal and informal review? Will the Trump administration decide to make changes to the process unilaterally, such as eliminating the informal review process?
Exportability, Financing and Contracting: Calls for integrating exportability into the design phase, improving financing for partners and increasing contracting flexibility.
Why does this matter? Each of the steps in the process can potentially slow down the export of weapons. On exportability, the United States often needs to go back and look at changes that need to be made to a weapon at the end of the process, rather than the beginning, which can cost more and slow down production.
Questions: How will the U.S. government work with companies to build in exportability at the beginning of the process? What steps will the Trump administration take to improve financing? Will they look at additional loans or grants to other countries? What steps will the administration take to improve contracting, which can often be the longest step in the Foreign Military Sales process?
System Changes: The EO proposes a series of changes to systems that are designed to speed up the process by reducing review and/or consolidating and improving systems. These changes include updating the list of items that are required to only be sold through Foreign Military Sales, annual updates to the U.S. Munitions List, consolidating the review of technology and foreign disclosure and updating technology systems.
Why does this matter? Each of these changes potentially reduces the amount of time it takes to review an arms sale. For example, having fewer items on the FMS list would allow sales through the direct commercial sale process, which can be quicker.
Questions: How will the administration balance these changes against the risk of weapons falling into the wrong hands? What will be the time frame for the administration to make these changes and will they have to reorganize or provide additional staffing to meet these goals?
Detailed Description of the Executive Order
The EO lists five key policies: 1) improving accountability and transparency to ensure reliable delivery of US weapons; 2) consolidating parallel decision-making on which countries get which capabilities; 3) reducing rules and regulations across the process; 4) increasing government-industry collaboration on Foreign Military Sales; and 5) improving U.S. companies’ ability to compete by focusing on exportability, improving financing options and increasing contracting flexibility.
On Implementation:
- Implement the previous Trump administration Conventional Arms Transfer policy (from April 19, 2018).
- Reevaluate Missile Technology Control Regime on Category I items and consider providing Category I items to specific countries.
- Submit a joint letter to Congress proposing updates to the thresholds and ensure “timely adjudication” of notified FMS and DCS cases.
- Within 60 days, have the secretary of state, in consultation with the secretary of defense:
- Develop a list of priority partners for arms transfers.
- Develop a list of priority items to transfer to those priority partners, while ensuring that those transfers don’t hurt military readiness, and advance burden sharing by sharing cost of production and increasing allies’ ability to meet capability targets.
- The secretaries of state and defense will review and update the list of priority partners and final products annually. The review will include:
- updating the list of FMS-only items and establishing clear criteria for why items are on those lists and,
- updating the United State Munitions List to focus protections only on the most sensitive and sophisticated items,
- Within 90 days, the secretaries of state and defense, in consultation with secretary of commerce, will submit a plan to: improve transparency by developing metrics for accountability, secure exportability in the early stages of the acquisition process, and consolidate technology and foreign disclosure of approvals.
- Withing 120 days, the secretary of defense, with assistance of the secretaries of state and commerce, shall submit a plan to develop a single electronic system to track all DCS export license requests and ongoing FMS efforts through the life cycle.
THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING EXECUTIVE ACTION ON DEFENSE EXPORT REFORM. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.