A documentary of recent changes in arms-transfer patterns to Latin America, this report explores the political, economic, and military forces of international supply and demand bearing on U.S. competitiveness, the relationship between arms transfers and U.S. interests, and the Latin American demand for increased modernity of weapons. Heretofore, U.S. policy toward arms transfer has been restrictive, causing Latin American resentment at U.S. paternalism and indifference. European nations are now willing and able to provide Latin America with suitable high-performance equipment for external/internal defense. U.S. policy of arms transfers to Latin America might better be based on the principle of unrestricted but also unsubsidized military sales. Such a policy would eliminate grant material aid, terminate legislative and other restrictions aimed specifically at Latin America, and provide sufficient government credit through the Foreign Military Sales system to increase the competitiveness of U.S. equipment in the market.