Advertisement

Canada’s $3 billion frigate modernization program is just the latest example of a growing problem for American defense firms.

Major players in the defense industry have been pushing to change US ITAR export controls for years. Unfortunately, the USA’s use of export controls for protectionist and political purposes begins to have the predictable effect of making American defense components toxic to potential international customers. Even as cumbersome rules and a slow American bureaucracy add friction to important international deals and partnerships.

• Problems & Proposed Reforms
• The January 2008 Presidential Directives
• Recent Updates and Additional Developments (2009-) [updated]
• Additional Readings

Problems and Proposed Reforms

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. Many outside America also perceive the USA’s export regimes as tools used as often for protectionism and hindering business competitors, as for true security needs. American actions have sometimes fed and validated this perception. The result is a growing set of concerted efforts abroad to design American defense technologies out of foreign military systems, in order to avoid falling under ITAR controls.

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. Like President Bush, President Obama is taking up this issue. Unfortunately, cumbersome rules and a slow American bureaucracy are still costing the USA important international deals and partnerships. Even as the USA’s use of export controls for protectionist and political purposes begins to have the predictable effect of making American defense components toxic to potential international customers.

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.

At the moment, however, both treaties are languishing in a Senate that seems to have little interest in trade agreements.

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 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

(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 inter-agency 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.

Recent Updates and Additional Developments (2009-)

Tejas test
(click to view full)

Jan 25/10: David Pugliese of the Ottawa Citizen reports that ITAR-related delays have led Canada’s navy to modernize its Halifax Class frigates using as much non-American equipment as possible, in order to preserve both military flexibility and future export opportunities:

Technically, Canada’s DND didn’t ban ITAR-regulated equipment, just gave it a structural competitive disadvantage in its RFPs. This is so, even though Canada has some unique agreements with the USA designed to ease ITAR restrictions. The article adds quotes from Thales Canada’s Conrad Bellehumeur, who has noticed a rise in the desire for ITAR-free equipment “at the Defence Department and from military forces around the world.”

Jan 17/10: The Korea Times reports that US export approvals are creating problems for that country’s upgrade of its P-3 Orion maritime patrol aircraft. The problem centers around approval to export EDO/ITT’s AN/ALR-95 ESM technology, which detects electromagnetic signals and pinpoints their origin. This is especially useful for survival in congested and contested areas, like the waters around Korea, where enemy radars and missiles are naturally close, and armed clashes are not unknown.

The newspaper reports that the $550 million P-3CK (P-3C Korea) project, which aims to upgrade 8 existing P-3Bs to the most current P-3C Update III, is now almost 2 years late, and approval of the American ESM system remains in limbo. South Korea eventually decided that it would have to accept and deploy its P-3Cs without the ESM equipment, then wait for the export licenses and retrofit them later. The first P-3CK from L-3 and KAI is about to be handed over for tests, and KAI is trying hard to deliver all 8 by June 2010.

Other important P-3CK upgrades include electro-optical/infrared surveillance turrets with laser designators, tactical sights, and upgraded cockpit avionics. While these are useful, Korean Navy officials are complaining that without their ESM equipment, the P-3s lose a significant amount of their value.

Jan 11/10: The industry “Coalition for Security and Competitiveness” lobbying group sends its own letter to President Obama, on the subject of arms export reform. CSC Letter [PDF].

Dec 2/09: The American Aerospace Industries Association sends a letter to President Obama signed by more than 100 chief executive officers, urging export control modernization. AIA Release | AIA Letter [PDF] | AIA: “Recommendations for a 21st Century Technology Control Regime” [PDF].

Oct 28/09: Germany Leases Israeli Heron UAVs for Afghanistan. At least one report suggests that negative experiences with Foreign Military Sales rules tipped Germany away from an MQ-9 Reaper, which was the target of an Aug 1/08 DSCA request.

Oct 8/09: The DEW Line highlights a YouTube video of Brigadier Engineer Venancio Alvarenga Gomes, the director of projects for Brazil’s command-general for aerospace technology, expressing deep frustrations with the US government’s technology transfer policies during a presentation in December 2008. The video includes case studies, and even photocopied memos from US Navy and Department of State officials.

Note the comment which cautions that the some of the cases are older, and stemmed from a period of greater tension between Brazil and the USA. At the same time, some of the cases, like the 2-color infrared seeker and electrical conductor issues, were very recent. It’s also worth contemplating that people who come to prominence in tenser times reach leadership positions a decade or so later, and their opinions stand to affect projects in the her and now – like Brazil’s multi-billion dollar F-X2 fighter purchase.

Oct 5/09: Aviation Week reports that US firm FLIR systems may be looking to move more of their operations outside the USA, in order to avoid ITAR issues:

”....according to Bill Sundermeier, president of the company’s government systems unit. “Some international customers, even NATO countries, are purging their fleets of US equipment because of ITAR,” [emphasis DID’s] he said at the Association of the US Army show in Washington this morning. “I find it amazing, but it’s true, and it is making us think of how we invest in our international activities.”

In one case, FLIR Systems had delivered a sensor package to a European UAV company. “But they wanted to demonstrate it around the world and realized that, everywhere they wanted to demonstrate it, they had to apply for a US license. They finally bought Swedish kit from us, so it was OK.”

Concurrently, FLIR Systems reached agreement with France’s Sofradir to incorporate the latter’s 3rd-generation dual-band detectors and camera cores into its systems. This would remove another source of American technology that could be subject to international restrictions, and FLIR will insert them into systems destined for both the American and international markets. The dual-band systems will operate in the midwave and longwave bandwidths, allowing use of the longwave bandwidth at cooler temperatures or in the presence of dust, smoke or fog; midwave bandwidth enhances performance in high temperature and high humidity. The cameras will also provide for efficient image fusion between the 2 bands. Their collaboration comes at a point when dual-band detectors are just beginning to become available after a long period of materials development; applications include thermographic and scientific cameras, as well as military and law enforcement uses. Advanced Imaging Pro | Reliable Plant | Shephard Group.

Sept 28/09: India’s Business Standard reports that Lockheed Martin was selected in June 2009 as a consultant for developing the Naval version of the Tejas. Lockheed Martin has no serving carrier-borne fighters, but they’re developing the F-35B STOVL and F-35C Lightning II for use from carriers.

Unfortunately, delays in US government approval has led DRDO’s Aeronautical Development Agency to recommend that another consultant be chosen instead; Dassault (Rafale) and EADS (no carrier-borne aircraft) were recommended as alternatives. Lockheed Martin is still fighting to get through the red tape and salvage the contract, and may continue trying until V K Saraswat, India’s Scientific Advisor to the Defence Minister, makes a decision.

This has happened before, and recently. Boeing was the front-runner for a similar role with respect to the main (IAF) version, and would be a logical consultant for any naval version – but the Indian MoD awarded EADS that contract in early 2009, after the US government failed to grant Boeing a Technical Assistance Agreement clearance in time.

Sept 7/09: Brazil’s Ministerio Da Defesa announces that Dassault Aviation is now the $2-4 billion F-X2 fighter competition’s preferred bidder, and the country will order 36 Rafales subject to further negotiations.

Reports from Brazil indicate that the finalist F/A-18 E/F super Hornet may have been cheaper, but its candidacy was hurt by worries concerning American export controls and technology sharing. Saab’s JAS-39NG Gripen, which also uses GE’s F414 engine, was reportedly affected as well. All 3 aircraft are also competing in the $10 billion Indian MMRCA competition, and India has similar concerns about American technologies.

The Brazilian competition has a final bid and selection stage left; but it remains to be seen whether this turns out to be a real last chance, or just a formality. Read “Brazil Embarking Upon F-X2 Fighter Program” for more.

Aug 13/09: President Obama directs the National Security Council (NSC) and the National Economic Council (NEC) to undertake a comprehensive review of U.S. export controls. Senior State Department and NSC officials have already confirmed meetings with the US Aerospace Industries Association to discuss the pending study, and efforts are underway to schedule meetings with the NEC. White House statement | AIA report | AIA release | Politifact | Space Policy Online.

July 6/09: Israeli and Indian newspapers report that the USA has pressured Israel’s IAI not to partner with Sweden’s Saab in the MMRCA fighter competition against American firms. IAI would have offered integrated avionics and related systems, possible including an AESA radar.

The Jerusalem Post reported that the USA had expressed concern that “Western technology in Israeli hands would make its way to the Indians.” That’s a completely illogical “concern,” of course, given that Boeing and Lockheed Martin have been cleared to offer the most advanced versions of their Super Hornet and F-16E/F fighter jets, complete with AESA radars, to India in the same competition. The only logical conclusion is that the move is a pure political favor to Lockheed Martin and Boeing.

The Jerusalem Post report adds that Israel was also pressured out of Turkey’s $500+ million tank competition, in order to give American firms better odds. Turkey’s existing M-60 tanks were heavily modernized by Israeli firms, based on the same “Sabra” modification set Israel used on its own M60s. Israel’s current Merkava family tanks are purpose-built for the needs of warfare in the Middle East, with unique features for urban warfare and counter-terrorism conflicts. The pressure was ultimately useless – South Korea’s XK2 tank won, and will form the basis of Turkey’s “Altay” project. Jerusalem Post | Indian Express | Zopag.

Additional Readings

• US Department of State – Defense Trade Controls – The International Traffic in Arms Regulations (ITAR) [HTTPS connection]. See the official version, and an unofficial consolidated version that integrates recently-introduced amendments. Note that all documents here are in PDF format.

• USA’s International Trafficking in Arms Restrictions – excerpts in HTML. Warning: older version.

• US Department of Commerce – The Bureau of Industry and Security Presents Export Control Forum (March 17, 2008, Newport Beach, California) and Special Topics (March 18, 2008, Newport Beach, California)

• DID (Sept 22/08) – US-UK Treaty Aims to Ease ITAR Export Control Burdens. But it still needs to be ratified.

• DID (Dec 5/07) – Australia Signs Defense Trade Agreement With USA. But it still needs to be ratified.

• DID – US Industry Associations Pushing to Reform Export Controls. Includes the July 2007 GAO report.

• AIA Resources – Export Control Modernization

• The Hill (Jan 24/08) – Administration Seeks to Speed State Export Review Process

• US White House (Jan 22/08) – Statement on U.S. Export Control Reform Directives

• US Department of State (Jan 22/08) – President Issues Export Controls Directive to Reform U.S. Defense Trade Policies and Practices

• Coalition for Security and Competitiveness (Jan 22/08) – Coalition Commends President’s Action to Modernize Export Controls

• US Aerospace Industries Association (Jan 22/08) – AIA Supports White House Export Control Modernization Effort

• EE Times (Jan 22/08) – US Unveils New Export Controls

• Voice of America News (Jan 3/08) – Study Says Bush Policy on Tech Exports to China Threatens National Security

• Reuters (Jan 3/08) – New U.S. export controls on China too risky: report

• 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.”

• US GAO (July 26/07, #GAO-07-1135T) – Export Controls: Vulnerabilities and Inefficiencies Undermine System’s Ability to Protect U.S. Interests.

• AW Aerospace Daily & Defense (Sept 6/07) – Now Is Best Chance To Remake U.S. Export Controls

• 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….”

• AFP (Jan 24/07) – US predicts at least 80,000 military export licenses a year

• DID (Feb 14/06) – Love on the Rocks: CASA’s $600M Venezuelan Plane Sale In Heavy Turbulence. See esp. the op-ed section, which predicted global trouble for American defense-related components.

• DID (Dec 7/05) – ITAR Fallout: Britain to Pull Out of F-35 JSF Program? The threat was real, and Britain had a ‘Plan B’ – but an accord was eventually reached with all F-35 member countries.

• DID (Dec 1/05) – UK Warns USA Over ITAR Arms Restrictions. Describes what ITAR is, how it works, and some of the policy issues it presents.

• DID (Apr 19/05) – EU Stymied, Conflicted on Lifting China Weapons Embargo

• National Defense Magazine (August 2004) – Multinational Aircraft Program Tests Transatlantic Cooperation. They’re speaking of the F-35 JSF, and some of its ITAR-related snags and teething problems. Also addresses additional efforts to add restrictions contained in various US appropriations bills.

Tags: itarreform, itarusa