Flurry of Association Activities Prompted By Critical Government Policy Initiatives

By Lawrence F. Skibbie

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 base.

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 appropriations act.

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 former levels.

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 base.

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 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 both.

Topics: Government Policy, Budget, Contracting

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