As the Donald Trump administration decided to impose a non-recurring cost (NC) when major allies purchase U.S. weapons through foreign military sales (FMS), a government-to-government contracting method, the amount the Korean military would have to shoulder under the policy change was estimated at 12.2 billion won. However, because this is a projected amount before receiving a U.S. estimate and Korea has decided to purchase $25 billion (about 37 trillion won) worth of weapons, the burden could expand to several tens of billions of won. Voices inside and outside the military say negotiations with the United States are needed.
According to the "report on the review of the impact of the U.S. NC policy change" that the office of Yu Yong-weon of the People Power Party received from the Defense Acquisition Program Administration (DAPA) on the 21st, the U.S. War Department (Ministry of National Defense) Defense Security Cooperation Agency (DSCA) changed its policy to impose 5% of the NC amount on new FMS programs received on or after July 1. Since 2008, this amount had been exempted for the North Atlantic Treaty Organization (NATO), Korea, Australia, Japan, Israel, and New Zealand, but the position has shifted. This was communicated to the Korean government in August.
NC refers to the expense by which the U.S. government recovers development costs or production investment for defense articles from the purchasing country under the U.S. Arms Export Control Act. The U.S. War Department (Ministry of National Defense) Defense Security Cooperation Agency (DSCA) sets and announces the NC amount in consideration of the purchasing country's quantities and other factors. Between about 3% and 13% of the total value of a contract to be introduced via FMS is set as NC, and the core of the U.S. government's policy change is to impose 5% of this NC amount.
There are five U.S.-made weapons systems that the Korean military has finalized to introduce via FMS. They are: the second-phase Patriot missile performance upgrade (2.2059 trillion won), the long-range ship-to-air guided missile SM-6 (412.5 billion won), the ship-based ballistic missile intercept guided missile SM-3 (803.9 billion won), the maritime operational helicopter II (3.2433 trillion won), and the joint direct attack munition (284.7 billion won). Of the five programs totaling 7.8 trillion won, the military authorities see three as subject to NC imposition, with 12.2 billion won to be levied. The second-phase Patriot missile performance upgrade and the SM-6 program have been excluded because DAPA has already requested an NC exemption.
The military authorities believe the impact on Korea will not be significant even if the U.S. government's policy changes. They say this is because the amount imposed due to the NC policy change is less than 1% of the scale of the Korean military's FMS introduction programs. A DAPA official said, "It is only a very small portion because it is imposed only for administrative expenses, such as U.S. government officials coming to Korea to proceed with FMS introduction programs," adding, "It amounts to just 0.16% of the scale of the programs for which the military has finalized FMS introduction."
However, the key is that it could exceed 12.2 billion won at this point. The military authorities have not yet received the full estimate from the United States. In addition, the "joint fact sheet" released by Korea and the United States on tariffs and security on the 14th also specifies the purchase of $25 billion worth of U.S. military equipment by 2030. A military official said, "The amount we have currently estimated could itself increase," and added, "We will have to keep bringing in U.S. weapons going forward, so the purchase expense is bound to grow."
Fortunately, among the $25 billion worth of weapons Korea has to purchase, commercial purchases that put multiple defense companies into competitive bidding outside of FMS are included. When weapons are introduced through commercial purchases, the NC amount is not imposed.
Inside and outside the military, there are calls for exemption talks with the U.S. government, since an amount that does not have to be paid is being imposed. Yu Yong-weon said, "Hundreds of billions of won in taxpayer money are set to be spent unexpectedly," and pointed out, "It could grow from hundreds of billions to 100 billion won, so active government action is needed to prevent such expense from being charged excessively."
DAPA plans to confirm and consult on the possibility of exemptions through multiple channels, such as the Security Consultative Meeting (SCC) or high-level Korea-U.S. meetings.