NARRATOR: Madrid, July 1997. Leaders of the sixteen nations of the North Atlantic Treaty Organization agree to invite three Central and Eastern European states to join the alliance. How will this decision affect you?

WILLIAM HARTUNG: I think the US taxpayers are going to lose from NATO expansion first of all because I believe there's going to be hundreds of millions, if not billions of dollars of taxpayer subsidies for arms sales to the region.

Dr. IVAN ELAND: The other thing I think the American taxpayer should ask is whether the NATO expansion is actually increasing or decreasing the security of the United States. I mean, you may be actually paying money to get the United States involved in a European war.

ADM. JACK SHANAHAN (USN, Ret.): I'm Vice Admiral Jack Shanahan, director of the Center for Defense Information.

The United States Senate will soon have to decide whether to expand NATO boundaries eastward into Central and Eastern Europe. Such a decision could involve considerable financial, political, economic and military commitment on the part of all Americans. Our program today examines how much taxpayers' money NATO expansion will take and which nations will or will not pay.

NARRATOR: In July 1997, the sixteen leaders of NATO met in Madrid to invite three Central European states to join the alliance. The decision came after years of deliberation over the fate of the military alliance in the wake of the Cold War.

Although the first round of the expansion would add only three new members -- Hungary, Poland and the Czech Republic -- many more nations have indicated interest in future membership. The proposed expansion is not final until ratified by the legislatures of all sixteen current members of NATO. The ratification process is expected to produce a heated debate as the plan has attracted criticism for a variety of reasons, not the least of which is the cost.

Jamie Shea is a spokesperson for NATO.

JAMIE SHEA: Well, NATO enlargement does involve some cost because we are dealing with countries that were part of a different military system and, at the moment, they are not compatible with the NATO system. They have different types of equipment, different types of command structures, different communications. So, we need to spend some money in modernizing those military systems and in integrating them into the NATO system, so that we will be able to operate together in the future in all kinds of military operations.

NARRATOR: COL Sergiu Medar is the defense attache of Romania in the United States.

COL SERGIU MEDAR: We have to build, for example, airports to be capable to receive fighter jets from NATO countries and, in the same time, to assure their maintenance, their -- to build roads, to build communications systems, to have military bases capable for receiving -- for training of the projected force.

NARRATOR: The costs of NATO expansion have been the subject of several studies in the US. The Department of Defense, the California-based RAND Corporation, and the Congressional Budget Office all have produced their own estimates. But the studies come to very different conclusions, with estimates running from $27 billion to $125 billion.

Dr. Ivan Eland is a co-author of the Congressional Budget Office study and currently director of Defense Policy Studies at the CATO Institute, a private research institute in Washington, D.C.

DR. ELAND: Well, there's a lot of different estimates out there and they all have different ranges, and it's a very hard thing to estimate as far as cost estimates go because you do have to make some assumptions about what's going to happen and improvements that would be needed.

NARRATOR: Uncertainties about the extent of changes NATO expansion requires are only one of the problems complicating cost studies.

Ambassador RICHARD HOLBROOKE (9 Sept. '97 New Atlantic Initiative press conference):

"There's several reasons the cost estimates are divergent right now. One is that the cost estimates are being used -- let's be honest about it -- as a polemical device by some people. Some of the high-end estimates are being produced by people who want to create arguments against NATO enlargement. They are just phony numbers."

NARRATOR: While Amb. Holbrooke points fingers at opponents of NATO expansion, they argue the Pentagon is underestimating the costs for political purposes. The official figures used by the Clinton administration are supplied by the Department of Defense. The Pentagon estimates that the US share of the costs of NATO expansion will be between $1.5 and $2 billion. But the Department of Defense estimate is by far the lowest of all existing cost studies. It is much criticized by independent analysts.

DR. ELAND: Oh, I think they came up with an estimate that they felt would pass congressional muster. I think the Department of Defense, in some cases, simply chose numbers -- "levels of effort," as they call them -- without any analytical basis. They would choose a level of effort and they say, 'Well, this covers' -- For instance, logistics. They would say, 'This covers tactical radios and fuel nozzles.' Then you would ask them, 'Well, how many fuel nozzles? How many radios, etc.?' and they wouldn't be able to tell you. So, they're imposing an affordability check.

NARRATOR: In addition to disagreements over the direct costs of NATO expansion, there is little consensus on what should be included in the cost estimates. The Pentagon estimates take a narrow view and don't cover a whole array of other expenses.

MR. HARTUNG: Well, I think, basically, the administration is just looking at very basic costs, things like common infrastructure of a very basic nature, inter-operable communications and air defense systems.

NARRATOR: William Hartung is a Senior Fellow at the World Policy Institute and author of "And Weapons for All," a book about the sale of American weapons abroad.

MR. HARTUNG: One of the great myths of the Clinton administration estimate of NATO expansion is they've been talking about $150- to $200 million-a-year. That's an outright lie because basically what they're saying is any modernization of the forces in the region is going to be paid for by the countries of the region. And yet, there's already a whole series of programs in the US budget designed precisely to subsidize US arms sales to Eastern and Central Europe.

NARRATOR: Most modern military equipment, however, is out of reach of the new European democracies. So, the United States has begun giving money to Central and Eastern European governments who use the funds to buy weapons from US manufacturers.

MR. HARTUNG: That money is going to go straight out of the pockets of taxpayers straight to Lockheed Martin, McDonnell Douglas, these other companies that are already getting billions of dollars in federal money.

NARRATOR: However, many candidate countries have been forced to cut back on their ambitious plans to purchase Western weapons. For example, increasing budget deficits forced delays of Romania's planned production of US-designed helicopters and Hungary's purchase of advanced fighters, as well as many other deals.

William Hartung says that defense manufacturers are still very much in the picture.

MR. HARTUNG: They're starting with kind of what I'd call innovative subsidy mechanisms, things that appear not to cost anything up front, but are likely to cost down the road. So, they're offering things like free five-year leases of F-18s and F-16s, but they've basically admitted that the idea is to get Eastern and Central European countries hooked on US technology, so that they will later buy major systems of the United States. And when they get around to buying those systems, you can rest assured that those will be subsidized sales, because countries in the region don't have the money to spend to buy 24, 36 or even -- Poland has talked about buying several hundred new, top of the line fighter planes.

NARRATOR: These weapons, together with NATO membership, are supposed to guarantee peace and stability of Central and Eastern Europe. But not everybody agrees that NATO can prevent or solve problems plaguing the region.

Tasos Kokkinides is an analyst with the British American Security Information Council, an independent research group based in London.

TASOS KOKKINIDES: Well, NATO expansion could, under certain circumstances, improve stability and security in Central and Eastern Europe. However, as the recent conflicts, in Bosnia and Albania especially, have demonstrated, the capability of the alliance to project stability to the east are very limited. Albania, for example, was one of the first countries to apply for NATO membership, was a very active member of the PFP program, the Partnership for Peace. However, NATO is totally uninvolved in Albania and it was not able to stop the conflict which engulfed the country for six months. So, the idea that NATO projects stability to the east, we should very seriously question it.

MR. HARTUNG: Selling F-16s and F-18s is going to have very little to do with solving ethnic conflict or with really promoting enduring democratization in Eastern and Central Europe.

NARRATOR: William Hartung also believes that NATO expansion may actually increase chances of a conflict, one that eventually would force the United States and the West to spend more, rather than less, on security.

MR. HARTUNG: Also, you're going to cause tensions with Russia as NATO gets closer and closer to Russia's borders. Even if it just means that there's bases where US strike aircraft can be placed in a crisis, that's going to make the Russian military nervous, which could either lead to further disintegration of the Russian military or even have a nuclear confrontation, where they feel like nuclear weapons are sort of their last, best attempt to sort of hold even with this new NATO. They could put us back in kind of a Cold War hair-trigger situation with nuclear weapons.

So, I think those risks of NATO expansion far outweigh any kind of benefits of dampening ethnic conflicts. There's other ways to do that.

NARRATOR: The United States is only one member of NATO, albeit the most powerful and richest one. Considering that the US expects to pay only $200 million a year for NATO expansion, the logical question is who pays the rest.

MR. SHEA: New members of NATO have to pay their way. They cannot be free riders. This is not a charitable exercise or a football club. They have said that they want to be full allies and they will shoulder the same burdens as existing allies.

NARRATOR: The new members' share of the costs of modernizing their militaries and upgrading them to NATO standards is estimated to be as high as $34 billion.

COL. MEDAR: The first round of enlargement will prove that all the countries who were invited can afford to pay their cost for being part of NATO.

NARRATOR: Other observers are skeptical that new members can afford the costs.

MR. KOKKINIDES: Well, the Central Europeans, the Central European countries are, I think, generally speaking, very willing to pay as much as the Americans will tell them to pay. They are so keen to become NATO members that the question of cost, unfortunately for their economies, is not at the top of the agenda in Central and Eastern European countries.

NARRATOR: Virtually all Central and Eastern European economies are in a state of flux. The transition to a free market economy is still underway and the standard of living in these countries remains below Western European standards. The costs associated with NATO membership will put pressure on the Central and Eastern European governments to divert more money to the military.

DR. ELAND: I think the new members may have a problem affording it because at least by the CBO estimate, they would have to spend 50 to 60 -- well, have 50 to 60 percent increases in their defense budgets.

MR. SHEA: They have to make an effort, that's clear. It's very difficult to defend countries which make no effort to defend themselves. But at the same time, if they were not in NATO, if they were all alone, if they had to look after their own security, they would probably have to spend a lot more. An individual insurance policy is always more expensive than a group insurance policy.

MR. KOKKINIDES: I think this argument is slightly misleading. I think that, first of all, the Central and Eastern European countries do not face any considerable threat to their military security. So, to argue that they will eventually spend more for their defense if they do not join NATO, it is misleading. There's no considerable military threat to their security and for the next 20, 30 years, nobody can seriously argue that they will be threatened by anybody.

NARRATOR: Experts disagree on the impact of NATO membership on the economies of Central and Eastern European states. The ultimate costs of NATO accession to the new members may be lower if NATO membership brings in foreign investment. Some experts say that NATO accession will bring in enough money from abroad to offset the costs.

Amb. HOLBROOKE (9 Sept. '97 press conference):

"Individual companies don't quite realize the connection when they make an investment decision. I know of no company which says we'll invest here because they're NATO and we won't invest here because they're not. And yet, the political stability factors permeate the business investment decisions."

MR. SHEA: It will create a climate of confidence not only for their own domestic politics, but also for business. There is no doubt that those countries which are part of NATO will attract greater long-term business investment because their identity will have been fixed.

NARRATOR: Not everyone in the Clinton administration agrees with the investment argument, however. At a recent Senate hearing, US Secretary of State Madeleine Albright, an ardent supporter of NATO expansion, denied this professed link.

Secretary MADELEINE ALBRIGHT (Senate testimony):

"I think that there is no proof of the fact that NATO status confers better investment. If you just look, for instance, at what we have seen in Western Europe. NATO membership has not been used over the past half-century to draw investment, let's say to Norway or Sweden. I think that there is no historical evidence of the fact that NATO provides economic benefits."

NARRATOR: Rather than improving their economies, experts are worried that membership in NATO would strain the Central and Eastern European countries' budgets with weapons purchases.

MR. HARTUNG: If we really want to support democracy in Eastern and Central Europe, we should be supporting programs that encourage public participation, that help build stable economies. The last thing we should be doing is trying to remilitarize their economies just as they're kind of getting a breather from the militarization of the Cold War period. I think it's really pushing in the wrong direction.

NARRATOR: Another huge question mark in the multi-billion dollar NATO enlargement cost equation is how much support our current European NATO allies will provide. The Clinton administration estimates have kept the US contribution to the expansion low by assuming that current European members will carry a much larger burden.

Officially, all parties are committed to pay their share of NATO expansion costs. But in reality, leaders of some of the largest European nations have already indicated unhappiness with the US proposals. They see NATO expansion as an American idea and have openly hinted they will not pay the share the US assigned to them.

MR. KOKKINIDES: All Europeans are operating within very tight defense budgets at the moment and they are very reluctant to increase their contribution to the NATO integrated budgets to pay towards expansion. I think that no European country will be happy to increase its own contribution for NATO expansion.

NARRATOR: To complicate the situation even further, many European nations are striving to meet the tough fiscal requirements for the European Monetary Union. Like the balanced budget agreement in the United States, the Monetary Union is forcing the European governments to curb their spending.

DR. ELAND: There's budgetary agreement here in the United States and there's also the European Monetary Union, which is constraining the increases of defense spending in European countries. In fact, their defense spending has been dropping. And so, at the margins, that's where you really have the trouble in affording this. It's not the absolute amounts, it's 'Where are we going to find the money? What are we going to cut?'

NARRATOR: The US administration continues to insist that the Europeans pay the share allocated to them. If the European nations stick to their position and decline to pay, the US Senate may refuse to support NATO expansion. Many experts foresee a political conflict developing between the United States and its European allies.

MR. KOKKINIDES: I expect that in the next seven, eight months, during the ratification process, that's going to happen in the European parliaments and also Washington, I expect there's going to be lots of transatlantic conflicts over who is going to pay towards NATO expansion. The cost-sharing arrangements that exist now of NATO are not satisfactory.

DR. ELAND: I think there is going to be a burden-sharing debate, a can of worms opened up with this, and I think you're already seeing those countries criticizing the US estimates because they aren't too enthusiastic about paying for it. And so, some countries may say, 'Well, you know, this is US-generated expansion, so maybe the United States should pick up more of the costs.'

NARRATOR: NATO would like to expand in less than two years, but the questions of costs and who will pay for them have not been resolved. What happens if NATO expands without an agreement on the costs?

DR. ELAND: The three options are either the existing countries, the existing NATO members would pay more in bilateral aid. Number two is that they would stretch out the expenses over a longer period of time; that is, for military infrastructure and improving their forces. Or, number three, they just don't make the changes in their infrastructure or forces and it just becomes a political commitment. New members are admitted to NATO and really the Article V defense commitment is only on paper.

MR. KOKKINIDES: This is a very likely, a very likely scenario. I think that, on the one hand, the United States is very keen to integrate militarily the Central and Eastern Europeans very soon. However, the Europeans have been saying for a number of months now that the artificial deadlines that the US administration is imposing, in terms of NATO expansion, will not be met if there are not adequate cost-sharing arrangements within the alliance. So, if Washington and the Europeans do not agree, then the money will not be made available to integrate this condition to NATO.

NARRATOR: Moreover, critics are concerned that the cost-sharing question may stop further expansion of NATO after the first round, creating new lines of division in Europe.

MR. KOKKINIDES: I think that the future of this first round of enlargement will define what happens next. If they are successful in keeping down the financial costs for NATO expansion, then I think that by 1999, the Europeans and Washington, of course, will be maybe ready for a new round of enlargement. However, if the financial costs of this first round exceed expectations, then I think that the project of further enlargement is going to be kept on hold for years to come.

NARRATOR: It is also important to keep in mind that the costs of enlargement being debated cover only the first three most advanced members from Eastern and Central Europe. Future rounds, which would include less developed countries could drive the costs up substantially.

DR. ELAND: The ones that could increase the costs if they decided to let other countries into NATO, particularly Romania, I think would increase the costs dramatically. And the Baltics could be very challenging to defend them, in the absence of nuclear weapons, of course. So, who knows what kind of preparations they would make for that.

NARRATOR: NATO allies made a commitment at their Madrid meeting to include all democracies in Europe that meet the alliance's criteria and needs. How to pay for such extensive expansion, however, is even less clear that the question of the costs of the first round of expansion.

MR. KOKKINIDES: I think that no official study has been made of how much it would cost to expand to everybody. However, I think that independent analysts at the moment say that the financial cost of expanding to everybody in Central and Eastern Europe and perhaps in the former Soviet republics is very prohibitive and the alliance will not be able to accommodate such costs.

NARRATOR: Although "who pays" has become the touchstone of the debate on NATO expansion, the real question is whether NATO spending is a wise investment in post-Cold War Europe.

COL. MEDAR: We think that's it's a very, let's say, profitable for the United States to be involved now to create a security system in Europe than to be involved later to manage the conflicts and so on.

MR. SHEA: What is the alternative? The alternative of not enlarging NATO, the alternative of leaving Eastern Europe in a security vacuum with a sense of being neglected would encourage nationalism, would encourage uncertainty and unrest, even more the Yugoslav-type situations. And we all know how expensive it can be when you have to send peacekeepers somewhere because you have not managed to prevent a crisis.

DR. ELAND: Things that the taxpayer needs to consider when considering the costs are where are you going to get the money. As I mentioned, at the margins, there's not much spare money laying around. I mean, if you get it out of the defense budget, what weapons are you going to cancel? Are you going to reduce the amount of forces that we have? Are you going to reduce the readiness of the forces? What sorts of tradeoffs do you have to make to pay for this?

MR. HARTUNG: To the extent that NATO expansion kind of institutionalizes a Cold War approach, military bloc system, arms race mentality, then the $260 billion a year that we're spending on the military, which is far too high, is likely to go up instead of down. So, in the coming years, we could spend tens or even hundreds of billions of dollars sustaining a Cold War-level military budget for no real reason. And NATO expansion pushes us in that kind of wrong direction of increased militarization, kind of consolidation of military blocs instead of dismantling those blocs, looking at preventive diplomacy, other ways to solve our security problems that don't involve spending $260 billion a year of taxpayers' money.

ADM. SHANAHAN: Today's program has been about the cost of NATO expansion in terms of dollars, but there are other costs and they could well be far greater. Our rush to expand NATO is damaging relations with our European allies and others. Bilateral relations with Russia are at a low point. Russia is reviewing its nuclear weapons policy and posture. As George Kennan points out, NATO expansion could well push Russian foreign policy in a direction decidedly not to our liking.

Perhaps we should take time out, review the options, as there could well be other more suitable means of achieving stability and security in Europe instead of this haphazard expansion of an outmoded military alliance.

For "AMERICA'S DEFENSE MONITOR," I am Jack Shanahan.