NATO Archives

The Annual Review

The two words 'Annual Review' are probably heard more frequently in the offices of NATO Headquarters than any other combination of words in the English language. It will be recalled that the North Atlantic Council decided at Lisbon in February, 1952, that there should be 'comprehensive Annual Reviews of the requirements for building and maintaining adequate defensive strength on a realistic foundation of politico-economic capabilities', and that the International Staff/ Secretariat should be so organized as to carry out these Annual Reviews. Thus, what is now known as the Annual Review is a normal outgrowth, and continuation, of the process first undertaken by the Temporary Council Committee in the autumn of 1951. It has become an essential part of the NATO defence build-up.

There is nothing new in the process itself: indeed it is normal practice on a national level. The budget of each of the member governments is framed on the basis of separate estimates of expenditures compiled by each department in accordance with planning directives from cabinet level. These separate estimates must then be adjusted on the basis of an assessment of the maximum budget suitable for the country in the prevailing economic and political situation. So far as the Defence Budget is concerned, the first step is for the Chiefs-of-Staff to recommend, within the framework of their directives, a defence programme which they consider militarily desirable. Before being put to the national parliament for acceptance, this programme must be brought into line with other demands on the national economy and a realistic assessment of what the economy can stand.

The NATO Annual Review is precisely the same in principle; its novelty lies in the fact that for the first time in history it is being conducted on an international basis. It is also remarkable because the character and extent of information exchanged by the fourteen member governments on the details of their national military, production and fiscal programmes is more complete than allies have ever before exchanged either in war or in peace. The Annual Review can, in this sense, be described as the merging of the separate provisions of Articles 2 and 3 of the Treaty, for it has always been recognised that the strength of NATO depends as much on the economic and social well-being of the individual countries as upon the aggregate strength of the military forces.

The conduct of the Annual Review, dealing as it does with the defence, production and economic programmes of fourteen different countries, is obviously much more difficult and complicated than the same process within a single government. Despite differences in national fiscal accounting practices, figures that are entirely comparable the ones with the others must be secured from each government. This has required the formulation of agreed NATO definitions covering categories of forces, and methods of listing expenditures and costs for various aspects of the national defence programmes.

Aims of the exercise

The primary purpose of an Annual Review is to produce goals for the build-up of military forces which are within the political and economic capabilities of the member governments and which are accepted as national commitments. These goals are developed on the basis of recommendations for improvements in national forces put forward by the NATO military authorities - recommendations which seek to overcome any weaknesses which may have developed, and to ensure that the total forces of the Alliance are kept in balance as to service and type across the entire NATO front. In the course of the Review the military recommendations are adjusted in the light of assessments made of the total available resources, such as possible budgetary expenditures, indigenous production of equipment and availabilities under mutual aid programmes. This process is called the 'reconciliation of defence requirements with politico-economic capabilities'. The word 'reconciliation' implies that, where at first sight the resources offered fall short of those demanded, changes will be negotiated both in the supply and in the demand. The Annual Review, as we know it today, provides the occasion for this operation.

A defence programme is by its very nature a relatively long-term undertaking, since it is clear that any planning in connection with the collective NATO programme which does not extend at least two to three years into the future makes little sense. At the same time, no democratic government can definitely commit itself to a programme extending over a longer period of time than that for which it has legislative authority. Although, therefore, an Annual Review covers a period of at least three years, governments are asked only for firm commitments for the following year and for 'the present state of thinking' about plans for later years. The actual terms used are: 'firm goals' for the following year, 'provisional goals' for the second year and 'planning goals' for the third year.

Each Annual Review starts with an assessment of accomplishments in reaching the firm goals for that year. Provisional goals of the previous Review are refined in the light of experience and changing circumstances to become the firm goals proposed in the current Review. Planning goals of the previous exercise are refined to become provisional goals, and planning is then projected one year further ahead. In this way, the Review process has become a continuous examination, and the goals set for the second and third years in each Review provide a direction and order of magnitude around which national and NATO military and civilian planning can be based.

It should be noted in passing that provisional and planning goals for the second and third years are essential to the adequate programming of production for equipment and any other facilities requiring a long construction period. For example, NATO infrastructure programmes (1) must be agreed for the forces which will exist at the end of the second year, in order to allow sufficient construction time to ensure that the facilities will be available. This is equally true of major items of equipment, of collective production and of mutual aid programmes(2). The yardstick by which the need for these programmes is measured is the force goals emerging from an Annual Review.

How the annual review works

The Annual Review process is essentially multilateral in character. The same questions are asked of all member governments at the same time, and the replies of each are made available to the thirteen other members of the Alliance as well as to the International Staff and the NATO military authorities. It will be recalled that at the Lisbon Conference in February, 1952 (3), the Council directed that 'the Council and the International Staff/Secretariat should in particular be so organized as to perform the functions of reconciling the NATO programmes with politico-economic capabilities'. Accordingly, one of the first acts of the Council after moving to Paris was to set up an Annual Review Committee and to organize the International Staff with special sections on defence expenditures, cost analysis, economic capabilities and defence production for the purpose of conducting these reviews. Military advice is supplied continuously by the Standing Group Liaison Officer. The searching cross-examination of governments on their programmes, which was first done by the Temporary Council Committee, is now conducted by both the Annual Review Committee and the International Staff. It has become an accepted part of the work of NATO.

Annual Reviews have not only become continuous in that each successive Review builds on the foundation and within the framework of the previous Review, but the process itself extends over practically the whole year. Included within this process are the following separate components:

It is therefore most desirable that the Annual Review for any one year should be completed not later than December of that year. Of the three exercises conducted so far, this has proved possible once only. The TCC produced its first report by December, 1951, but force goals were not finally agreed until two months later. In 1952, in conducting the first of the Annual Reviews, important policy issues were put to the Council in December, but force goals were not finally agreed until April, 1953. The delay in both cases was mainly attributable to the difficulties of developing techniques, standard definitions and accurate information for so immense an operation. With the development of these techniques, and with improved collective knowledge of the NATO forces and resources, it proved possible to complete the 1953 Review by mid-December. The 1954 Review should be the first that more or less follows the ideal time schedule. The various activities are planned to take place as follows :

The questionnaire

The fundamental requirement for any operation which demands an act of judgement is good information on which to base that judgement. In order to enable each member country to appreciate the defence efforts of its fellows and to make recommendations for necessary modifications, a clear description of those efforts is essential. An important part of the Annual Review process has therefore been the development of a system for the presentation of information on a countrywide basis. The document devised for this purpose is called the 'Questionnaire', though it has little in common with forms more commonly known to private citizens as questionnaires. The Annual Review Questionnaire consists of about 16 forms only, with various blank columns. Some forms need be completed once only, others separately for each service, some for each major formation, and one for possibly as many as 80 different items of equipment. With these forms there are approximately 200 pages of instructions and definitions, set forth in great detail in an effort to ensure that comparable information is received from each country.

Countries are asked in the Questionnaire to describe their defence efforts along the following lines: the actual programme in military terms of the forces they propose to raise; the materiel which is expected to be available, whether from home production, foreign purchase or mutual aid deliveries, and steps being taken to fill any deficiencies; the financial aspects of their plans and their relation to the economic capabilities of the country.

So far as the military part of the Questionnaire is concerned, the main problem has been to determine the precise amount of detail which each country can usefully be asked to supply. The course which was adopted in 1953, and which is being maintained for 1954, is to ask for a minimum of broad general information for the use of all concerned; this is supplemented by certain technical data for the use of the military authorities in assessing the efficiency of the forces. From this group of technical tables, it is possible to judge the make-up and condition of many individual units in the forces. For each army and air force unit and naval vessel, information is requested in respect of the personnel available, the state of training, the proportion of equipment to hand and other such details.
The equipment section of the Questionnaire concentrates on major items of equipment, selected because of their special importance from the many thousands of items in use by NATO forces. On these major items the Questionnaire attempts to bring out deficiencies, deliveries from new production and end-item aid, prospective losses from wear and obsolescence, and adjustments through changes in the units to be equipped. This information provides a major part of the reconciliation equation used to determine force goals and constitutes an important contribution towards other aspects of production and logistics planning.

In the economic field, NATO relies primarily on information collected by other international organizations for general economic background to the Annual Review. The Questionnaire does ask for certain additional information dealing specifically with the economic impact of the defence effort.

The financial section of the Questionnaire is mainly concerned with securing information on the financial aspects of the defence programme. For this purpose it has been necessary to agree on standard definitions of defence expenditures and financial procedure, so that the information provided by different countries can be readily compared.

Analysis of replies

When replies to the Questionnaire are received, they are distributed to all other national delegations, the Standing Group and Supreme Commanders and the appropriate sections of the International Staff. The military tables are studied by the Standing Group and Supreme Commanders and particular attention is paid to those units in which weaknesses have previously been observed. In the light of this analysis, detailed comments and revised recommendations from the military standpoint are prepared, setting out the views of the NATO military authorities as to the next steps for each country to take in the military field.
The equipment tables are analysed by the Production and Logistics Division of the International Staff and by the military authorities. The main object here is to identify what progress has been made in meeting deficiencies both in individual countries and as a whole, and to plan how best to use available resources to meet the requirements of the forces. The information obtained from these tables is an invaluable guide to those concerned with correlated production planning and mutual aid programmes.

The financial tables enable the International Staff to analyse the defence budgets of member countries and to relate them to planned forces. This analysis also provides the basis for a comparative study of each country's defence outlays.
Simultaneously an economic appraisal of the country is under way. For this purpose NATO makes use of general data collected by other international organizations, and of the specific information concerning defence outlays, as provided to NATO by member countries. Armed with this information and with the results of discussions with country representatives, the International Staff form a tentative conclusion about the ability of each country to support its proposed defense programme. In some cases they may decide that the country is doing the utmost that its economic circumstances will permit; in other cases, they may suggest that the programme put forward is well within the country's capabilities and that an increase would cause no hardship.

We have seen in Chapter V that in the early days of the Alliance, it was hoped to evolve some formula for expressing accurately the relative capacity of each country to bear defence burdens and, on that basis, to organize the provision of assistance from stronger to weaker nations. This, however, proved impossible. Attention has therefore shifted from the search for such a formula to the study of points of special strain in the economy of each country, which may indicate whether the burden being borne is heavier or lighter in proportion to that of other countries. It is the open, multilateral discussion of the details of each country's defence efforts in the course of the Annual Review which permits such assessments being made, first by the International Staff and then by fellow members of the Alliance.

Military recommendations

The original criterion of the NATO defence build-up was a definition of the minimum requirements necessary for adequate defence of the NATO area. This definition, based on the agreed strategic plan, is constantly revised in the light of changing external circumstances and estimates of the effectiveness of new weapons. In a broad sense, however, the requirements remain an absolute and are not altered by goals agreed annually; the latter are interim targets or steps up the ladder towards the ultimate requirements.

In agreeing on the first set of force goals at Lisbon in February, 1952, the Council gave first priority to the rapid establishment of the largest possible front-line force. At their meeting in Paris the following December the Council directed that, while the build-up should continue, primary emphasis should be placed for the future on improving the quality rather than the quantity of the NATO forces. By this the Council meant that it was more important to create such support forces as artillery and anti-aircraft battalions, signals and tank companies, service and logistic support units, than to increase the number of front-line divisions, if sufficient resources were not available for both tasks. It also meant that the level of training and percentage of personnel and equipment on hand was to be raised in existing units before new units were created.

It is on the basis of such guidance, and within the general framework of the provisional and planning goals of the previous Review, that the military authorities approach each year the task of submitting recommendations for improvements in forces. These recommendations also draw from the conclusions of any general studies which may have been conducted across the entire NATO front, such as the requirements for a satisfactory system of air control and warning networks - and from the experience of Supreme Commanders with respect to forces assigned to, or earmarked for, their commands. This experience is carefully buttressed by the use of high-ranking 'visiting teams' which go to each NATO country from the Supreme Headquarters during the period that governments are completing their replies to the Questionnaire. These teams know the military recommendations put to each government in the previous Annual Review as well as such adjustments as may be desirable in the pattern of forces to achieve better balance, and are able to discuss these first-hand with the national Chiefs-of-Staff. In their replies to the Questionnaire, governments submit proposals or comments on each of these recommendations.

In the Questionnaire, as has been pointed out above, each major unit is reported on separately, with information on the number of regular and reserve personnel, state of training and percentage of equipment on hand. No overall standard is applied in analysing these replies, but each unit is studied separately in the light of general directives, availability of equipment and capabilities of the country concerned. For example, one division may be reported in a given year as possessing 90 per cent of its required equipment, while another is reported as having 60 per cent only. In the first case the military authorities may recommend that the level of equipment be raised to 100 per cent in the following year, while in the second case successive increases to 75 per cent, 85 per cent and 90 per cent may be proposed over a three-year period. Similarly each of the many other problems involved in the development of the navy, army and air forces is studied separately and recommendations are put forward for consideration in the so-called 'reconciliation' process.

Reconciliation

The essential element of an Annual Review is what is called the 'reconciliation' between the number of improvements or changes in national plans considered desirable by the NATO military authorities and an assessment of the capability of the country concerned to implement these various recommendations. In the first instance, this reconciliation takes place among the experts who separately examine the military, production and economic sections of the national replies and agree upon the recommendations for additional action which, in their opinion, can validly be put before the government concerned. Next, these proposals are discussed by the International Staff and military advisers with that government. Draft recommendations to all fourteen governments are then tabled before the Annual Review Committee for multilateral discussion and analysis in the light of all information elicited during the Review, as to those changes which can be accepted by or addressed to each government in the final report.

A necessary link between the work of the military team and of the economic staff is provided by the analysis of the actual and comparative costs of all aspects of the defence programme. These analyses range from a table reconciling the total of defence expenditures with the individual entries in the country's own budget documents, to detailed estimates of the cost of military recommendations. In between these extremes lie tables asking for forecasts of defence expenditures under a considerable number of headings. The review of these tables by the NATO staff provides indispensable indications of the nature of the strains which the defence programme is laying upon the country concerned. Enquiries are directed, where they appear necessary, to verify that the defence expenditures reported do, in fact, correspond to the forces proposed, and to ascertain the cost of any marginal changes in those forces which may, in the course of the Review, be suggested by the military authorities or accepted by the country concerned.

From this point onwards, the work of an Annual Review is focused on the physical result of the exercise - which is the voluminous report submitted to governments. The 1953 report contained some 360 pages of typescript, and was divided into three main parts. Part I was a short introduction and summary, designed to highlight the major considerations which emerged from the Review. Part II, some 50 pages in length, consisted of a series of chapters on the NATO-wide aspects of different topics which appeared of special importance. For example, one chapter was devoted to military problems, another to major equipment deficiencies and a third to the long-range problems of the maintenance of NATO forces. Part III consisted of fourteen country chapters describing the defence effort, the unsolved military problems and the economic situation of each country, and concluding with a series of recommendations.
The preparation of such a report clearly calls for two kinds of syntheses of the data collected. On the one hand, the country chapters require a careful presentation of the problems and possibilities in each separate country. On the other, there emerges from these national studies a wider view of NATO problems as a whole, to be brought together under subjects for the earlier chapters.

The crucial element in the chapters is the series of recommendations. These are based upon the comments and recommendations of the NATO military authorities limited by the staff to those which, in their judgement, the political and economic circumstances of the country would enable it to undertake. Most but not all the recommendations necessarily involve additional expenditure. An estimate of their cost, prepared as described above, together with a list of the order of priority in which they are regarded by the military authorities, are the foundations on which the staff work. Nearly all the recommendations will prove to be of a military character, but in a few cases some with an industrial or economic bearing may be included.

Significance of the review

The Annual Review is one of the most important tasks performed by NATO. It is indeed the main instrument for co-ordinating the defence effort of the Alliance. It has proved an efficient means for collecting precise information, sifting it, drawing conclusions from it and then acting. Through the Annual Review, deficiencies in equipment, units below the required standard, bottlenecks in production and other weaknesses can be quickly identified; the cost and economic impact of proposed remedies can be estimated, and a means provided for reaching agreement on what is both desirable and practicable.
Only the agreed force goals for the following year are firm national commitments. The other recommendations are not regarded as national commitments until accepted by the government to which they are addressed. In many respects it might be argued that the main results from an Annual Review are obtained when governments complete their replies to the Questionnaire with the knowledge that these replies will be examined by their thirteen allies - and, long afterwards, when the various additional recommendations put forward are used as guidance in shaping long-term national plans. But increasingly, as governments have come to place confidence in the process of assessment that leads to the recommendations, they have shown a tendency to accept recommendations which at first they opposed. In the final report on the 1953 Annual Review there were 84 separate recommendations addressed to various governments; nearly half of these had been accepted before the end of the Ministerial session which adopted the new force goals.

The Annual Review has a significance beyond that of its immediate objectives. Here are fourteen member countries voluntarily exposing to the scrutiny of fellow members the details of their individual defence efforts and budgets, and then explaining and defending their plans in open discussion with their colleagues. As a result, all member governments are acquiring the habit of working together on a very intimate basis and learning to appreciate their respective problems.

Furthermore, the civilian staff of NATO, delegations and national administrations are now becoming well acquainted with the details of military requirements in a form relevant to their work, while military staffs both national and international, are obtaining valuable experience in civilian procedures. In this respect it is stimulating to see how countries have adapted their own modes of work to meet the demands of the Annual Review. Mention has already been made of the question of common definitions of defence activities; these are, of course, used in the Review itself, but they are gradually being adopted for general use. Methods of accounting for defence expenditures to fit in with the definitions and the time-table of the Review have been evolved, and countries have readily exchanged ideas with each other and with visiting teams from the International Staff on these matters. As staff changes take place, both in NATO itself and in national administrations, the number of officials with experience of this type of co-operative work and with a broad international outlook is steadily increasing.

In its present form the Annual Review will continue to serve a valuable purpose in focusing this process of mutual scrutiny and in enabling defence efforts to be dovetailed with increasing efficiency.