United States General Accounting Office
GAO Report to Congressional Requesters
May 1998
NATO
History of Common
Budget Cost Shares
GAO/NSIAD-98-172
GAO
United States
General Accounting Office
Washington, D.C. 20548
National Security and
International Affairs Division
B-279904
May 22, 1998
The Honorable Ted Stevens
Chairman
The Honorable Daniel K. Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate
The debate regarding the enlargement of the North Atlantic Treaty
Organization (NATO) raised questions about how NATO apportions costs
among its members for expenditures the organization has agreed to
commonly fund. This report responds to your request that we provide
information on how the apportionment of those shares has changed over
the years and identify how NATO determines what the members’ cost
shares will be for its three common budgets.
Background NATO member states provide resources to support the alliance in two ways.
First, countries, at their own expense, maintain forces and assets that they
pledge to NATO through a defense planning process. Second, countries
make contributions to NATO’s three commonly funded budgets. These three
budgets are the civil budget, which primarily funds the civilian
headquarters and personnel in Brussels, Belgium, for NATO’s political
structure (about $164 million planned for 1999); NATO’s military budget,
which primarily funds operations and maintenance for its military
headquarters and activities (about $720 million planned for 1999); and the
NATO Security Investment Program (NSIP) budget,1
which primarily funds
infrastructure improvements (about $734 million planned for 1999). Each
member contributes an established percentage of each budget. Changes to
the cost share require alliance consensus, as do all decisions in NATO.
Appendix I identifies the apportionment of current cost shares to NATO
members for each of the common budgets.
Results in Brief NATO does not routinely evaluate members’ cost shares for any of its three
commonly funded budgets. Rather, NATO has adjusted the shares based on
comprehensive reviews occurring at no specific interval and/or in
response to discrete events, such as entry of a new member. Cost shares
1
Prior to December 1994, the NSIP budget was known as the Common Infrastructure Program. For
ease of publication, this report will refer to the NSIP and its predecessor programs as the NSIP or
infrastructure budget.
GAO/NSIAD-98-172 NATOPage 1
B-279904
for the NSIP budget, most recently reviewed in 1990, have been subject to
comprehensive reviews more frequently than the civil budget—last
reviewed in 1955, or the military budget—last reviewed in 1966. NATO has
adjusted cost shares due to discrete events infrequently—in 1966, when
France withdrew from NATO’s military structure; in 1982, when Spain
joined NATO; and in 1994, when Canada sought to decrease its NSIP share.
NATO has used various methods to adjust cost shares. For example, in 1955,
NATO used expenditures to comprehensively review and adjust shares for
its civil and military budgets. In contrast, changes to NSIP cost shares in
1990 were based on negotiations among members that considered factors
such as each nation’s capacity to pay and the expected benefits from
NSIP-funded projects. NATO has also relied on negotiations to adjust cost
shares in response to discrete events. For example, when Spain joined
NATO in 1982, its share was determined through high-level negotiations and
the other members’ shares were adjusted on a prorated basis. In 1997, the
United States’ actual cost-share across all the common budgets was
28.45 percent.2
Comprehensive
Reviews of Cost
Shares
NATO’s review of cost shares related to the civil and military budgets have
similar histories from 1950 to 1965.3
In 1951, NATO used a grouping method
whereby countries of similar economic strength or potential were assigned
identical cost shares derived from country contributions to the United
Nations and the predecessor to the Organization for Economic
Cooperation and Development. When the budget shares were reexamined
in 1952, the three largest countries (the United States, the United Kingdom,
and France) remained grouped and were assigned identical cost shares of
22.5 percent. However, the other countries’ cost shares were based on
their capacity to pay, that is, the relative size of their gross national
products (GNP). When NATO adjusted civil and military budget cost shares
in 1955, it used an expenditure-based method and agreed not to continue
reviewing cost shares annually. Under the expenditure method, NATO
determined each country’s actual expenditures for civil and military
budget expenses from 1950 to 1955 and then assigned each country a cost
share equal to its percentage of NATO’s total expenditures. Since 1955, the
civil budget has not been comprehensively reviewed and has remained
essentially unchanged; the military budget cost shares have been modified
once since then.
2
Effective U.S. cost shares for each commonly funded budget are shown in detail in appendix I.
3
Originally the civil budget had operating and capital elements with differing cost shares. The 1955
review resulted in assigning a single cost share per country for all elements of this budget.
GAO/NSIAD-98-172 NATOPage 2
B-279904
At the request of the United Kingdom, in 1965, NATO reviewed the cost
shares for the military budget. The United Kingdom believed that
economic changes in member countries in the previous decade,
particularly the uneven growth of GNP, would for reasons of equity warrant
a review of cost shares. Further, the United Kingdom asked that NATO take
into account member countries’ per capita GNP trends and global defense
efforts that could be regarded as serving the general interest of the
alliance. This review and the resulting negotiations were concluded in
January 1966, but very few changes in cost shares were made; for
example, the United Kingdom’s share was reduced by 1.28 percentage
points, from 19.5 percent to 18.22 percent. To allow for this change,
smaller adjustments were made in other countries’ shares. ( See app. II for
historic cost-share tables for the civil and military budgets.)
While the members’ cost shares for NATO’s civil and military budgets were
infrequently reexamined, the shares for its infrastructure budget were
looked at more often. The actual changes in cost shares resulting from
these reviews are documented, but the reasoning behind them is not.
In the early 1950s, sharing the costs of NATO’s infrastructure requirements
was the subject of annual negotiations; however, to avoid overly frequent
discussions of cost shares, NATO opted to review cost shares every few
years. According to officials at NATO, the last review of the infrastructure
cost shares occurred about 1990.
From NATO’s inception, the basic principle applied to infrastructure cost
sharing was to achieve as equitable a distribution as possible of the entire
NATO defense burden—including commonly funded infrastructure—among
members of the alliance. The main factors that underlie the negotiations
for an infrastructure cost-sharing arrangement are: (1) the capacity of the
member countries to contribute, (2) the advantage each country would
gain as a user of the facilities to be financed, (3) the net economic benefits
that would accrue to a host country from the construction of the facilities
on its soil, (4) the services each country renders to the common defense
interests of the alliance in ways other than infrastructure, and (5) various
political and economic factors. Since these guidelines for cost sharing are
broad and subject to wide interpretation, the setting of cost shares is
essentially accomplished through negotiations. Attempts have been made
from time to time to determine a cost-sharing formula on the basis of an
objective factor such as GNP or a combination of several such factors.
However, NATO has been unable to develop consensus on this issue. (See
GAO/NSIAD-98-172 NATOPage 3
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app. III for historic information on the NSIP and app. IV for current gross
domestic products (GDP) of alliance members.)
Event-Driven
Cost-Share Changes
Members’ cost shares for all of NATO’s common budgets have been affected
by specific events. For example, in 1966, France withdrew from the
alliance’s military structure; in 1982, Spain joined NATO;4
in 1994, Canada
unilaterally decided to reduce its participation in the NSIP by 50 percent;
and in 1999, the Czech Republic, Poland, and Hungary are expected to join
NATO.
Cost shares for the NATO budgets were adjusted in different ways in
response to these events. For example, when the French withdrew from
the military structure, France’s shares in the military and infrastructure
budgets were prorated among the remaining 14 nations.5
When Spain
joined the alliance in 1982, other members wanted to base Spain’s
contribution on GDP and capacity to pay, which would have made its cost
share about 5 percent, more than the shares of Belgium or the
Netherlands. Spain believed, however, that since its GDP per capita was
lower than that of Belgium or the Netherlands, it should pay less than
5 percent. Through negotiations, it was determined that Spain’s share of
the civil and military budgets would be 3.5 percent.
In 1994, Canada unilaterally decided to reduce its contribution to the NSIP
budget by 50 percent. Canada did not formally request a renegotiation of
its cost share but, instead, negotiated separately with other members6
to
assume a portion of its share and presented the results to the alliance.
NATO officials noted, however, that had Canada not been successful in
convincing other countries to assume that portion of Canada’s cost share,
Canada would have had to either maintain its contribution level or
withdraw from the alliance. No agreement has yet been reached on how
cost shares for existing members will change with the anticipated
accession of the Czech Republic, Hungary, and Poland to NATO in 1999.
These countries have agreed to cost shares of 0.9 percent, 0.65 percent,
and 2.48 percent, respectively.
4
Spain’s participation in the common budgets has evolved since joining the alliance in 1982. It has
always participated fully in the civil budget, and partially in the military budget. It had no participation
in the infrastructure program until 1994, and has indicated it will fully participate in the NSIP in 1999.
5
France did not withdraw from the alliance, and it continues to share in NATO’s civil budget. It also
continues to participate in some infrastructure projects and part of the military structure funded by the
military budget.
6
The United States, the United Kingdom, and Germany were not among these countries.
GAO/NSIAD-98-172 NATOPage 4
B-279904
Scope and
Methodology
To obtain information about how NATO member costs shares have changed
over the years, we interviewed officials from the Department of State; the
Office of the Secretary of Defense; and the U.S. Mission to NATO in
Brussels, Belgium. We also interviewed NATO international staff and
reviewed NATO documents. We collected and analyzed historical U.S. and
NATO documents and tables related to cost shares for each of the three
commonly funded budgets from 1951 to the present. We examined the
effects of various events, such as new accessions, on members’ cost
shares to explain these changes where possible. We reviewed Department
of State and U.S. Mission to NATO reporting cables, program and briefing
documents, and correspondence.
To identify how NATO determines what the members’ cost shares will be
for its three commonly funded budgets, we interviewed officials from the
Department of State, the Office of the Secretary of Defense, and the U.S.
Mission to NATO. We reviewed the various methods used to determine cost
shares from the inception of the alliance to the present and were briefed
by NATO international staff on the history and logic of those methods. We
collected and analyzed data on member countries economic indicators,
such as GDP and per capita GDP as expressed by purchasing power parity,
to understand the basis for some cost-share methods. We reviewed State
Department and U.S. Mission to NATO reporting cables that detailed the
negotiations for the invitation and accession of the Czech Republic,
Hungary, and Poland. In addition, this work built upon our prior work on
NATO enlargement issues.
We conducted our review between March and April 1998 in accordance
with generally accepted government auditing standards.
Agency Comments The Departments of State and Defense provided oral comments on a draft
of this report and concurred with our findings and conclusions.
Department officials indicated that the report provides a documented
record of the changes that occurred in how NATO costs have been shared
over the years, a history that had not been previously compiled.
We plan no further distribution of this report until 30 days after its issue
date. At that time, we will send copies of this report to the Secretaries of
State and Defense and appropriate congressional committees. Copies will
be made available to other interested parties upon request.
GAO/NSIAD-98-172 NATOPage 5
B-279904
Please contact me on (202) 512-4128 if you or your staff have any
questions concerning this report. The major contributors to this report
were Jim Shafer, Muriel Forster, and Hynek Kalkus.
Harold J. Johnson, Associate Director
International Relations and Trade Issues
GAO/NSIAD-98-172 NATOPage 6
GAO/NSIAD-98-172 NATOPage 7
Contents
Letter 1
Appendix I
Current North Atlantic
Treaty Organization
Common Budget Cost
Shares
10
Appendix II
Historic Information
About NATO’s Civil
and Military Budgets
12
Appendix III
Historic Information
About NATO’s
Infrastructure Budget
14
Appendix IV
Current Gross
Domestic Product for
NATO Members
15
Tables Table I.1: Current Cost Shares for NATO’s Common Budgets 11
Table II.1: Historic Cost-Share Changes to the NATO Civil Budget 12
Table II.2: Historic Cost-Share Changes to the NATO Military
Budget
13
Table IV.1: NATO Nations’ Estimated GDPs, Adjusted by PPP 15
Abbreviations
NATO North Atlantic Treaty Organization
PPP purchasing power parity
AWACS Airborne Warning and Control System
NSIP NATO Security Investment Program
GDP gross domestic product
GNP gross national product
GAO/NSIAD-98-172 NATOPage 8
GAO/NSIAD-98-172 NATOPage 9
Appendix I
Current North Atlantic Treaty Organization
Common Budget Cost Shares
Not all North Atlantic Treaty Organization (NATO) members participate in
all aspects of the commonly funded budgets.1
Although all 16 members
participate fully in the civil budget, Spain and France do not participate in
all aspects of the military budget or the NATO Security Investment Program
(NSIP). Further, the NATO Airborne Warning and Control System (AWACS)
program, funded through the military budget but with its own negotiated
cost shares, does not include France, Spain, and Iceland, and the United
Kingdom only partially participates in it. Finally, although Iceland is
counted as a participant in the NSIP, its cost share is zero. Table I.1 shows
the current cost shares for each member at each level of participation. In
1997, the actual cost shares for the United States were 23.35 percent for
the civil budget, since all 16 nations participate fully in this budget;
28.08 percent for the military budget, exclusive of the AWACS program;
41.48 percent for the AWACS program; and 26.46 percent of the NSIP budget.
The total U.S. cost share is 28.45 percent across all the budgets.
1
When a nation does not participate in some aspect of a budget, its cost share is apportioned among
those participating.
GAO/NSIAD-98-172 NATOPage 10
Appendix I
Current North Atlantic Treaty Organization
Common Budget Cost Shares
Table I.1: Current Cost Shares for NATO’s Common Budgets
AWACS
Civil
budget Military budget
NATO Security Investment
Program
Numbers in percent
Country
At
16a
At
16a
At 15b
France
At 15c
Spain
At
14d
At
13e
At
12f
At
16a
At 15b
France
At 15c
Spain
At
14d
United States 23.35 24.12 25.00 28.89 30.16 32.62 41.53 23.27 24.06 26.77 27.82
Belgium 2.76 2.85 2.95 3.41 3.56 2.66 3.39 4.13 4.26 4.76 4.96
Canada 5.60 5.60 5.80 6.71 6.99 7.40 9.43 2.75 2.80 3.00 3.20
Denmark 1.59 1.68 1.74 2.01 2.10 1.57 2.00 3.33 3.42 3.79 3.94
France 16.50 16.50 17.10 g g g g
12.90 13.34 g g
Germany 15.54 15.54 16.10 18.61 19.42 22.10 28.14 22.40 23.16 25.74 26.76
Greece 0.38 0.38 0.39 0.46 0.47 0.49 0.62 1.00 1.01 1.05 1.07
Iceland 0.05 0.04 0.05 0.05 0.06 g g
0 0 0 0
Italy 5.75 5.91 6.12 7.08 7.38 5.71 7.26 7.75 8.09 9.10 9.40
Luxembourg 0.08 0.08 0.09 0.10 0.11 0.08 0.11 0.20 0.21 0.23 0.24
Netherlands 2.75 2.84 2.94 3.40 3.55 2.94 3.75 4.58 4.72 5.27 5.48
Norway 1.11 1.16 1.20 1.39 1.45 1.15 1.46 2.83 2.94 3.27 3.38
Portugal 0.63 0.63 0.65 0.75 0.78 0.55 0.70 0.35 0.37 0.39 0.41
Spain 3.50 3.50 g
4.19 g g g
3.29 g
3.78 g
Turkey 1.59 1.59 1.65 1.90 1.99 1.28 1.63 1.04 1.08 1.13 1.17
United Kingdom 18.82 17.58 18.22 21.05 21.98 21.45 g
10.19 10.54 11.72 12.18
Total 100 100 100 100 100 100 100 100 100 100 100
Legend
AWACS = Airborne Warning and Control System
Note: Totals may not add due to rounding.
a
Cost share when all 16 members of the alliance participate.
b
Cost share when France participates and Spain does not.
c
Cost share when Spain participates and France does not.
d
Cost share when both Spain and France do not participate.
e
Cost share for AWACS when Spain, France, and Iceland do not participate but the United
Kingdom does participate.
f
Cost share for AWACS when the United Kingdom, Spain, France, and Iceland do not participate.
g
Country does not participate.
Source: NATO.
GAO/NSIAD-98-172 NATOPage 11
Appendix II
Historic Information About NATO’s Civil and
Military Budgets
Table II.1 provides information on the methods used and the cost shares
agreed to for the civil budget. Initially, NATO attempted to revise these
shares annually; however, from 1952 through 1954, the alliance was unable
to agree on any changes. The 1955 cost-sharing formula was permanently
adopted, barring the intervention of new factors.
Table II.1: Historic Cost-Share Changes to the NATO Civil Budget
Grouping Grouping and capacity to pay
1951 1952
1955 1982
Numbers in percent
Country Current Capital Current Capital
Expenditure and
addition
of Germany
Spain negotiated
and others
prorated
United States 22.50 40.00 22.50 45.00 24.20 23.35
United Kingdom 22.50 22.50 22.50 22.50 19.50 18.82
France 22.50 17.00 22.50 10.73 17.10 16.50
Germany 16.10 15.54
Canada 8.00 5.10 10.00 6.70 5.80 5.60
Italy 8.00 5.10 7.65 5.36 5.96 5.75
Spain 3.50
Belgium 5.00 3.10 4.00 2.68 2.86 2.76
Netherlands 5.00 3.10 3.50 2.18 2.85 2.75
Denmark 2.00 1.30 2.25 1.51 1.65 1.59
Turkey 2.12 1.42 1.65 1.59
Norway 2.00 1.30 1.30 0.84 1.15 1.11
Portugal 2.00 1.30 1.00 0.64 0.65 0.63
Greece 0.50 0.33 0.39 0.38
Luxembourg 0.25 0.10 0.13 0.08 0.09 0.08
Iceland 0.25 0.10 0.05 0.03 0.05 0.05
Total 100 100 100 100 100 100
Source: NATO.
GAO/NSIAD-98-172 NATOPage 12
Appendix II
Historic Information About NATO’s Civil
and Military Budgets
Table II.2 details methods used and the cost shares agreed to for the
military budget, with all members participating. These shares were
identical to the civil budget until 1966, when new cost shares resulted from
a request by the United Kingdom to renegotiate military budget cost
shares. The United Kingdom based its argument on its weaker gross
national product (GNP) growth over the preceding decade compared to
most other member countries.
Table II.2: Historic Cost-Share Changes to the NATO Military Budget
1951
1952
1955
1966
1982
Numbers in percent
Country Grouping
Grouping and
capacity to pay
Expenditure
and addition
of Germany Renegotiation
Spain negotiated
and others
prorated
United States 22.50 22.50 24.20 25.00 24.12
United Kingdom 22.50 22.50 19.50 18.22 17.58
France 22.50 22.50 17.10 17.10 16.50
Germany 16.10 16.10 15.54
Canada 8.00 10.00 5.80 5.80 5.60
Italy 8.00 7.65 5.96 6.12 5.91
Spain 3.50
Belgium 5.00 4.00 2.86 2.95 2.85
Netherlands 5.00 3.50 2.85 2.94 2.84
Denmark 2.00 2.25 1.65 1.74 1.68
Turkey 2.12 1.65 1.65 1.59
Norway 2.00 1.30 1.15 1.20 1.16
Portugal 2.00 1.00 0.65 0.65 0.63
Greece 0.50 0.39 0.39 0.38
Luxembourg 0.25 0.13 0.09 0.09 0.08
Iceland 0.25 0.05 0.05 0.05 0.04
Total 100 100 100 100 100
Source: NATO.
GAO/NSIAD-98-172 NATOPage 13
Appendix III
Historic Information About NATO’s
Infrastructure Budget
In 1951, NATO inherited its infrastructure program from the Western Union
Defense Organization. Initially the program’s cost shares were negotiated
annually for groups of projects; however, to manage the financing of these
projects more efficiently, cost shares for multiyear programs were
adopted. According to officials at NATO, from the mid-1950s until 1990,
NATO reviewed infrastructure cost shares about every 5 years.
The effective U.S. cost share for infrastructure projects has been reduced
from over 43 percent in 1960 to under 27 percent in 1997. The U.S. share in
percentage terms has been affected by both permanent reductions in the
established U.S. cost share and by other means. Due to the nature of the
program, effective costs for a member can be changed without
permanently adjusting the cost share. For example, between 1971 and
1975, NATO implemented the European Defense Improvement Plan. This
plan funded infrastructure projects to improve physical protection
installations for aircraft on NATO airfields. It was financed by a one-time
special European contribution from member nations except Canada,
France, Portugal, and the United States. Between 1975 and 1979, NATO
implemented the United States Special Program, which was designed to
reduce to 20 percent the effective U.S. cost share by the allocation of a
small portion of infrastructure funds to special U.S. projects. These
projects were generally not eligible for infrastructure funding. This group
of projects was funded by all members except Turkey. The effective U.S.
cost share will also decrease due to the greater participation in the military
aspects of the alliance and infrastructure projects by Spain and possibly
France.
GAO/NSIAD-98-172 NATOPage 14
Appendix IV
Current Gross Domestic Product for NATO
Members
Table IV.1 presents all NATO nations’ gross domestic products (GDP)
converted into dollars through the use of purchasing power parity (PPP).
PPP is a technique using standardized international dollar price weights
applied to the quantities of goods and services produced in an economy,
rather than using exchange rates to compare economies. We are
presenting this information because GDP is an economic indicator that has
been considered when assessing a nation’s capacity to pay in alliance
cost-share negotiations. For example, GDP was used in negotiations on cost
shares with Spain in 1982.
Table IV.1: NATO Nations’ Estimated
GDPs, Adjusted by PPP (1996) Dollars in billions
Country PPP GDP
Percent of total
NATO PPP GDP
United States $7,610 48.99
Germany 1,700 10.94
France 1,220 7.85
United Kingdom 1,190 7.66
Italy 1,120 7.21
Canada 721 4.64
Spain 593 3.82
Turkey 379 2.44
Netherlands 318 2.05
Belgium 205 1.32
Portugal 122 0.79
Denmark 118 0.76
Norway 114 0.73
Greece 107 0.69
Luxembourga
10 0.06
Iceland 5 0.03
Total $15,532 100
Note: Totals may not add due to rounding.
a
Luxembourg’s GDP is based on a 1995 estimate.
Source: The World Factbook 1997.
(711332) GAO/NSIAD-98-172 NATOPage 15
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