As the debate on the globalization of the industrial base gains intensity at
the Pentagon and in corporate boardrooms, it is important for NDIA's membership
to know about a number of significant policy actions affecting our industrial
Sales of defense products overseas is one important area that comes to mind.
From NDIA's perspective, we believe that defense exports are critical to the
vitality of our industrial base. Overseas sales not only help to reduce the
prices the Pentagon pays for equipment but also allow companies to continue
to invest in new technologies for the future. Our goal is to support efforts
that aid the United States in retaining the world's most competitive defense
industry and ensuring that industry continues to lead in the world markets.
One example of how government rules can affect the health of the industrial
base is the defense export loan guarantee program (DELGP). Today, the DELGP
is hamstrung by restrictive financing rules and rates that make the program
less attractive. We support efforts to reform this program so that it operates
more like the successful Export-Important Bank. We are supporting efforts in
Congress for relief from these restrictions in the Fiscal Year 2000 defense
The issue of tax treatment of defense exporters is another NDIA concern. Currently,
defense firms receive only 50 percent of the tax exemption on foreign earned
income that other U.S. exporters receive. That means that, for example, a firm
that exports non-defense products can receive a tax exemption amounting to 15
percent of earned income from overseas sales. The exemption allowed for defense
firms, meanwhile, only amounts to 7.5 percent of foreign sales. This would seem
to classify defense firms as second-class citizens and diminish a company's
motivation to market its defense products globally. Fortunately, Congress this
month passed a tax bill which includes a provision to rectify this inequity.
However, it has not yet been signed into law.
Obtaining export licenses in a timely manner is another challenge for U.S.
defense industry. Currently, producers of U.S. weapon systems wait anywhere
from three months to two years to obtain an export license to sell their technology
abroad. That puts U.S. firms at a disadvantage vis-à-vis contractors
from other countries where the export process is less cumbersome. We are aware
that the State Department does not have enough resources to provide for more
expedient review and processing of export licenses. For that reason, NDIA has
been working to secure additional funds for the State Department. We are working
this issue with Congress to provide $6 million in supplemental funding so the
State Department can hire more staff and equip them with up-to-date computers.
Finally, the question of foreign military sales (FMS) administrative fees-charged
to purchasers of U.S. products-is with us again. Deputy Secretary of Defense
John J. Hamre has stated the FMS process must be revamped. To that end, the
FMS fee has been reduced from 3 percent to 2.5 percent of the value of the sale.
Although this makes U.S. products more competitive in the global market, U.S.
companies continue to lose business to foreign competitors because the remaining
FMS administration fees add to the price of U.S. goods.
Unfortunately, the House-passed defense appropriation bill includes language
that would reverse Hamre's initiative and result in increasing FMS fees to their
On another front, you should know about recent developments at NDIA's Procurement
Committee. A major issue to be addressed in the coming months is a recently
published Federal Acquisition Regulation that requires federal contractors'
compliance with labor laws be taken into account in determining eligibility
for future contract awards. Although space restricts going into this in full
detail, suffice to say that NDIA believes the new regulation would allow for
unfair "blacklisting" of companies. We are working with other associations
to develop a joint response to this regulation.
Other initiatives include a recent request to GAO that District Courts continue
to handle protests concurrently with the Court of Federal Claims in Washington,
D.C. If that is not allowed, many small businesses throughout the country would
be forced to bring their cases to the nation's capital-therefore making it prohibitively
expensive-as opposed to taking their cases to a District Court near their home
We also are addressing the concerns of small businesses. The Procurement Committee
continues its 32-year involvement with the Tri-Association Small Business Advisory
Panel (TRIAD). The June meeting brought together industry representatives and
small/disadvantaged business utilization officials from OSD, DLA, Army, Navy,
Air Force, SBA, NASA, Treasury and Transportation. Earlier in the year, the
committee established a "Small Business Resource Center," a web site
(which can be accessed from ndia.org) aimed at bringing members' attention to
recent legislative and regulatory actions.
While these activities by the Procurement Committee appear mundane, they constitute
the essence of our policy-related work. Our committees work the defense industrial
base issues-item by item, bit by bit. These efforts require both a dedicated
staff and enthusiastic volunteers to achieve success. Fortunately, NDIA has