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Of the 122 nations around the world that purchase advanced U.S. weaponry, Korea has become the first to minutely analyze the factors that determine the prices of such weapons to save on purchasing costs - a move that has enabled it to trim tens of millions of dollars in spending by cutting out unnecessary administrative costs.
In the course of its study, the Defense Ministry pored over U.S. law regarding military sales and analyzed some 20,000 factors that went into determining the cost of each weapons system.
As of late 2003, the Defense Ministry was able to save US$19.23 million (W20.2 billion), and in the future, it expects to save a further $25 million on a range of projects including its E-X plan to acquire Airborne Early Warning and Control aircraft, the KDX-III project to acquire third-generation destroyers, and its aim of purchasing Joint Direct Attack Munitions (JDAMs).
The sector in which Korea was able to reduce the costs of its weapons purchases is known as the "Foreign Military Sale" (FMS) method of arms acquisitions, in which the U.S. government guarantees the sales of its hardware.
The system calls for administration fees to be added onto the price of U.S. military hardware when it is sold to an allied nation. In the case of Korea, FMS acquisitions account for 60 percent to 83 percent of its arms purchases from the United States, with 600 projects worth $9.9 billion currently being run through the program.
An FMS price is composed of the U.S. military supply price and administration fees - and it was the latter that the ministry was able to make substantial savings on.
Of all the factors that go into determining the administration fees, it was able to save the most on support-based costs, slicing off $11.17 million in this area alone. Before exporting its weapons, the United States usually adds 3.1 percent to the cost of the weaponry for storing them in portside warehouses.
A Defense Ministry official said that, "We considered how in the case of advanced weaponry, it was not kept in warehouses, but transferred directly to buyer nations, and were able to reduce the prices by consulting legal articles related to U.S. munition sales."
The Defense Ministry also saved $4.1 million in non-recurring costs (NRC), or development costs levied on buyer nations when they purchase advanced weaponry.
It was revealed, however, that because Korea is not one of America's "core allies," such as NATO, Japan, Australia or New Zealand, or a nation with which it jointly develops weapons, it was still being charged high rates for contract administration services (CAS).
(Jang Il-hyeon, ihjang@chosun.com )
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