CD-Adapco

USA Moves to Improve Arms Export Regulation Process

23-Jan-2008 21:25 EST

Related Stories: Alliances, Contracts - Awards, Issues - Political, Legal, Lobbying

IDGA
Advertisement
GOV_US_State_Dept_Seal_No_Border.gif

“US Industry Associations Pushing to Reform Export Controls” covered a push from major players in the US defense industry to change US ITAR export controls. ITAR processes make it difficult to share information with their own international subsidiaries, to include American technology in bids for foreign contracts, or even to explore collaboration with foreign firms in allied nations. They have also led to concerted efforts abroad to design American technology out of foreign military systems, in order to avoid falling under US export regimes that many perceive as being about protectionism and hindering business competitors, as well as true security needs. American actions have sometimes fed and validated this perception, which has not helped its causes abroad.

At the same time, however, proliferation of advanced military technologies is nothing to be casual about. “Cut out” transfers via foreign subsidiaries and partnerships are more than possible, and the age of the rogue state appears imminent. What to do?

Fortunately, the answer of “nothing” no longer applies. Step one was a pair of draft treaties with close allies Britain and Australia, establishing unique arrangements with approved firms in their defense industries. If approved by the US Senate, they would have advantages that almost reach the level of Canada’s ITAR exemption. That special arrangement has existed for decades, as part of a long-standing goal of creating an integrated North American arms industry that leverages and acknowledges the two nations’ close alliance and deeply interlinked economies.

Step 2 appears to be limited reform and improvements. Did the industry get the liberalization that it wanted in those areas? Not exactly, no – even as other recent changes appear to be making it easier for China to obtain military-related items…

The Proposed Reforms

Coalition Partners

The two draft treaties will be timely. The US State Department processed 13,000 military export control licenses for Britain within the last 2 years, with a 99.9% approval rate. Australia contributed another 4,000 applications within the same period, out of 100-120 thousand license requests from American and foreign firms. John Rood, the US State Department’s Under Secretary for Arms Control and International Security, told reporters that he expects to process 80,000 licenses in 2008, about a 10% growth rate from last year.

That 10+% per year growth rate has been sustained since 2003, however, and the magic of compound interest makes it a minimum 60% explosion in licensing during that 5-year period (at 12% per year, it’s 75%).

Now recall the key complaints from industry and the Congressional Government Accountability Office: slow processing times, repeat processing required for even trivial additional items, confusion re: which department (Commerce or State) is responsible for regulating specific items, and no real assessment of whether these measures are in fact working.

In addition to asking for fixes in these areas, the industry “Coalition for Security and Competitiveness” also requested changes like greater freedom of technology transfer within multinational firms, changes to some re-export restrictions on approved items, and a major revamp of the encryption controls process.

Reps. Brad Sherman [D-CA] and Don Manzullo [R-IL] co-chair the bipartisan Congressional export control working group, and Mazullo introduced a 2007 bill that sought to improve defense trade controls. He told reporters that several of the bill’s provisions were included in President Bush’s directives, and that he and other lawmakers had worked with the White House on the January 2008 changes.

What were those changes?

The January 2008 Presidential Directives

GEO White House Back
(click to view full)

On Jan 22/08, President George W. Bush signed a package of directives. They amount to a proposed speed up of the approval process, and better coordination on the government side of the table. The treaties this President has signed with Britain and Australia will address many of the defense industry’s other requests if they are ratified in the Senate, but with respect to those 2 countries only. This narrowness of focus was deliberate. As the White House release was careful to note:

“The United States continues to face unprecedented security challenges, including terrorist threats from the proliferation of weapons of mass destruction and advanced conventional weapons to unstable regions of the world. The United States also faces economic challenges from the increasing worldwide diffusion of high technology and global markets. As a result, the Administration will continue to ensure that our export control system is focused to meet these challenges.”

The specific actions directed by the President include:

  • Additional financial resources and intelligence support for the adjudication of defense trade licenses
  • Guidelines that require a decision within 60 days absent a strong reason for additional time (i.e. requirement for Congressional notification).

The GAO’s July 2007 report had noted that previous efforts in this regard had failed, and “guidelines” can easily slip into non-action. The State Department’s Jan 22/08 announcement, however, claims that initial efforts in this regard “have resulted in a nearly 50 percent reduction since April 2007 in the number of export license applications pending with the Department of State.” Meanwhile, Matthew Schroeder, of the Strategic Security Program at the Federation of American Scientists, pointed out that if the promised resources don’t materialize, the 60-day limit will put pressure on licensing officers in ways that could reduce scrutiny and oversight.

  • Upgrade of the electronic licensing system “to permit the submission of all types of defense trade licenses and to enable all agencies to access the same electronic information.” This should definitely help.
  • A formal interagency dispute mechanism will be created to help resolve Commodity Jurisdiction (CJ) process jurisdiction issues between the Departments of State and Commerce.
  • A multi-agency working group will be established to improve procedures for conducting export enforcement investigations. Sometimes this sort of thing helps, sometimes it doesn’t.
  • A commitment that the Secretary of State “will update U.S. controls on exports involving dual and third country nationals from NATO and other allied countries” at some time in the future. This topic was the subject of a 2007 agreement with Canada, whose ITAR exemption did not cover some of its defense personnel who were Canadian residents but not yet citizens. The exact outline of the new policy remain to be seen, but the agreement with Canada may prove to be a model.

With respect to dual-use items that are technically civilian but could be used for military purposes, a key part of the USA’s ongoing export reforms is a validated end-user program. Special regimes of this type would operate under the British and Australian treaties, but a less generous form of this approach is also being used with less trusted nations. A new “validated end-user” policy makes it easier for Chinese firms to receive dual-use technology, for instance, if the U.S. government says they are trusted to use it for civilian and not military purposes. In October 2007, 4 computer chip makers operating in China were added under that proviso. This policy was put in place in the wake of lobbying from a different set of US firms, who feared being locked out of the Chinese market.

The Wisconsin Project on Nuclear Arms Control released a related report in early January 2008, however, which sharply criticized these October 2007 changes regarding the export of sensitive technologies to China. In the case of the chip firm approvals, the report says that 2 of firms benefiting from the new policy have ties to the Chinese military, which could use the technology in order to modernize.

These kinds of gaps were not addressed by the President’s January 2008 directives.

The US Commerce Department’s Bureau of Industry and Security, which oversees U.S. export controls, has scheduled a forum on March to explain the new export control guidelines.

Meanwhile, reaction within the industry has been somewhat positive. The industry’s “Coalition for Security and Competitiveness” (CfSC) acknowledged the limited scope of the improvements, praising them as “an important step in a long-term process to achieve meaningful reform in the way the United States regulates defense trade and advanced technology exchange.” Translation: “we’ll take it while we lobby for more.” Founding CfSC member the US Aerospace Industries Association also supported the move, but other than supporting the idea of improvement its release commits it to nothing.

Additional Readings

  • EE Times (Oct 19/07) – Updated: Four chip makers in China added to U.S. export list. Notes at the end that: “critics of the initiative…. point to a recent directive by China’s Ministry of Commerce requiring that companies in China must receive goverment approval before submitting to U.S. on-site audits. The rub, critics said, is that validated end-users have already agreed to U.S. audits.”
  • Aviation Week’s Ares (June 5/07) – US Technology? No Thanks! “The only way to resolve technology access and U.S. government export restrictions imposed by ITAR is by “not including any U.S.-sourced technology into our products,” [Dassault CEO Charles Edelstenne] the President of the Aerospace and Defense Industries Association of Europe (ASD) said yesterday…. In the context of space programs, steps are already being made towards completely excluding U.S. input in order to stay clear of the ITAR restrictions, adds Francois Gayet, the permanent Secretary-General of the ASD….”