USA Moves to Improve Arms Export Regulation Process

Canada’s $3 billion frigate modernization program, which specifically aimed to exclude American technologies from key areas, was just one example of a growing problem for American defense firms. Major players in the defense industry have been pushing for years to change US ITAR export controls. Unfortunately, the USA’s use of export controls for protectionist and political purposes has had a predictable effect, and made American defense components toxic to some potential export customers. Even as cumbersome rules, and a slow American bureaucracy, add additional layers of export control across more than 3 different agencies. The end product is significant friction for important international deals, impediments to partnerships with friends and allies, and erosion of global market share for American defense products.

On April 20/10, American Secretary of Defense Robert Gates, backed by several other departments, crystallized a reform push that has been underway for years. The proposed “4 singles” approach would make significant changes to American technology export controls. Nor is that the only initiative underway:

Export Controls’ Persistent Problems

RAF at Kandahar
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Right now, American technology export controls are scattered across 3 major agencies.

The Department of Commerce’s Bureau of Industry and Security (BIS) is responsible for implementing and enforcing Export Administration Act regulations, which pertain to the export and re-export of “dual-use” commercial items. There are several lists associated with this effort, but the Commerce Control/ Critical Commodities List (CCL) is the most prominent.

The Department of State is technically responsible for approving explicitly military sales. They enforce International Traffic in Arms Regulations (ITAR) sales, which are governed by the Arms Export Control Act (22 U.S.C. 2778). Items governed by ITAR relate to the United States Munitions List (USML).

Those 2 agencies, and lists, are the main agencies involved with regulating American technology and military exports, but they are not the only ones. The Department of the Treasury’s Office of Foreign Assets Control, for instance, administers and enforces economic and trade sanctions, under the authority of both Presidential national emergency powers and specific legislation. Sanctions can apply to specific companies as well as specific countries, and proliferating subsidiaries often make effective administration, and timely compliance, very difficult.

The idea was that various agencies, with different agendas, would create a system of “checks and balances” that would be more difficult to defeat. It has not worked out that way, and the associated costs have been high. There are several obvious problems with these arrangements, and some that are not so obvious.

The most obvious problem involves overlapping jurisdictions. A Washington lawyer told DID that it is not always clear where a specific item falls, even to the agencies involved. A company that wants to act ethically may not be clear about where to submit its application, may go to one agency to be told that they must now go to a different agency, or even be approved by one agency and denied by another. The flip side is that especially savvy companies can also decide to “forum shop” their application, picking the regulator they believe is most likely to say yes.

The problem of multiple forums is made worse by long processing times. These departments have limited funds, and the State Department is reportedly still mostly paper-based. Commerce is only slightly ahead, with an IT systems installed in 1987, and not updated very much. Wasn’t 20 megabytes a lot of hard drive space back then? The net effect is long processing times – 4-6 months is considered typical for an application. In that time, it’s very possible for the American company to find that the foreign bid competition that it was trying to enter is closed and done. Or that the firm is unable to make the required up-front commitment that the contract can be performed in a timely fashion.

The US State Department processed 13,000 military export control licenses for Britain from 2006-2008, 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. The issue is not confined to Britain and Australia, however. John Rood, the US State Department’s Under Secretary for Arms Control and International Security, told reporters that he expected to process 80,000 licenses in 2008, about a 10% growth rate from 2007. That 10+% per year growth rate has been sustained since 2003, 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%). That kind of growth will stress any system, let alone a technology-poor system that was already under-staffed.

The 3rd difficulty builds on the first 2. America’s system makes more work for itself by requiring approval at the level of individual components. Just because you were approved to buy an advanced F-16 fighter jet apparently doesn’t mean that you’re approved when you ask for parts to maintain it. Or to transfer parts to another US ally, whose F-16s are operating from the same base to support an American-led operation. That exacerbates the processing strain on the American side, and makes for very poor service on the buyer side.

Jennifer Stewart, a foreign embassy staffer who is also head of the 33-nation Foreign Procurement Group, cited the number of required export approval transactions as the group’s #1 complaint. In response, they recommended a bundling approach. At an individual level, it would mean that nations approved for American equipment should be automatically approved for maintenance and replacement parts, unless that permission is explicitly revoked. At the community level, it would automatically authorize transfers of parts and materials between allies who have been approved. SecDef Gates himself alluded to these issues in his April 20/10 speech:

“Not too long ago, a British C-17 spent hours disabled on the ground in Australia – not because the needed part wasn’t available, but because U.S. law required the Australians to seek U.S. permission before doing the repair. These are two of our very strongest allies for God’s sake! Similarly, close, long-standing allies and partners like South Korea have bought U.S. aircraft only to encounter difficulties and delays in getting spare parts – something that weakens our bilateral relationships, our credibility, and ultimately American security.”

Speaking to DID, Ms. Stewart expressed her hope that the American reform efforts would go beyond informal consultations to date, and include formal consultation with the Foreign Procurement Group and related organizations, in order to bring a customer perspective into what is and is not working.

Export control regulation are even affecting weapons development programs around the world, an area that is not a primary focus for the Foreign Procurement Group, but is of great concern to many American defense firms.

ITAR processes make it difficult for firms like Raytheon, General Dynamics, et. al. 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. This can shut American firms out of foreign weapons programs at the very earliest stages.

Worse, many people outside America 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 to design American defense technologies out of foreign military systems, in order to avoid falling under ITAR controls. This is especially visible in the space field, where companies are specifically advertising satellite-related technologies and platforms as “ITAR-free.” Those chickens are coming home to roost. Recent years have included GAO reports that cite a decline in expected commercial satellite orders as a major contributor to cost growth on key American military satellite programs.

If that same trend begins to pick up in other areas – and there is evidence that this is happening – the consequences for the American defense industrial base, and the cost of American weapons purchases, will be dire.

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 took up up this issue, even as cumbersome rules, perceptions of improper American use, and a slow bureaucracy continued to cost the USA important international deals and partnerships.

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. And even if they are passed, those draft treaties are best described as timely but insufficient. That’s why Step 2 is a broader set of reforms and improvements.

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.

The January 2008 Presidential Directives

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Reps. Brad Sherman [D-CA] and Don Manzullo [R-IL] co-chaired the bipartisan Congressional export control working group in 2007, when Mazullo introduced a 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?

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 included:

• 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. Other efforts included:

• 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.”

• 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 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.

• 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. In this case, it laid the groundwork for subsequent reforms, announced in 2010.

These recommendations were applauded by many industry groups. The US Commerce Department’s Bureau of Industry and Security, which oversees U.S. export controls, scheduled a forum in March 2008 to explain the new export control guidelines; and 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.

These moves also attracted some controversy.

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. Even as the multi-agency working group quietly churned ahead in the background.

The April 2010 “4 Singles” Reforms

Gates in Iraq
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In April 2010, Secretary of Defense Robert Gates stood up to announce a far-reaching set of broad reform recommendations, as a result of inter-agency work and high-level support. Key players on board also included the American Secretaries of State, of Commerce, and of Homeland Security, as well as the Director of National Intelligence and the national security advisor.

In addition to lobbying for ratification of drafted ITAR treaties with Britain and Australia, Gates and other supporting agencies propose a new American system based on “4 singles”. They include:

# A single, tiered export control list, instead of 2 major (State’s USML & Commerce’s CCL) and some minor lists, which do not really differentiate. It will feature “higher fences around fewer items,” and allow items to progressively move down the tiered list as technologies become more widespread.
# A single, newly-created export licensing agency, instead of 3 or more.
# A single agency to coordinate enforcement instead of several.
# A single unified IT system. It would replace the current mix of newer IT systems (Defense), older systems (Commerce, built in 1987 and not modified much), and mostly paper-based systems (State Department).

Implementation is expected to have 3 phases.

Phase 1 is mostly an inter-departmental effort. It includes making sure that people have a clear understanding of what is and isn’t controlled on their current list, agreeing on the criteria for tiers on a single list, doing the groundwork to put together the coordination center for enforcement, and the initial groundwork for the envisioned. That effort needs to be backed by Executive Branch approval, to move the process forward and give it momentum.

Phase 2 is expected to begin later in 2010. Backed by Executive Branch directives, and by Congressional funding approvals, the agencies would work at several tasks. These would include getting the single IT system into place and working through its issues; getting the coordination enforcement up and running; beginning preparations for moving towards a single agency; and moving towards actually applying a tiered single concept for export control, reaching across both the State Department’s USML munitions list, and Commerce’s CCL controlled items list. At this point, the 2 main systems are not integrated yet, but most of the groundwork is laid.

Phase 3 would be the actual move from 2 licensing agencies to a single licensing agency and a single control list, with the single IT system up and running, and single enforcement mechanisms working and in place. That will require explicit Congressional approval, since the USML and CCL lists come from different pieces of legislation, which would have to be amended to allow a single list. Congress would also need to give authority to the president to create a single licensing agency, while also enacting legislation to create higher penalties and uniformity of penalties; and appropriating funds for maintaining and running the licensing agency, the enforcement agency, and maintenance of the list.

Recent Updates and Additional Developments (2009-)

L-3’s Spydr
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July 15-19/11: The US government continues to move ahead with export control reform. The latest step forward is new rules from the Bureau of Industry and Security proposing that after appropriate inter-agency review, technologies with low or no military or intelligence sensitivity will be moved off of the U.S. Munitions List to the Commerce Control List, which is faster and offers potential license exemptions.

Further, end items, parts and components that are not “specially designed” for the military will now be subject to the same export control requirements as their commercial market equivalents. For instance, the M1 tank’s transmission, which is also featured in some commercial trucks. New rules on Mondaq | White House | US AIA | US National Association of Manufacturers.

July 13-18/11: L-3’s Mission Integration Division (MID) displays a Spydr King Air 350-ISR surveillance plane, similar to the popular MC-12W Liberty, but a technological step ahead. L-3 is the technology integrator for the MC-12W, but the firm tells Defense News that they’re also working on versions built with key technologies from non-American suppliers, in order to avoid ITAR issues. SELEX Galileo’s PicoSAR radar, optics from Zeiss, and other choices yet to be announced are specifically designed to minimize export clearance requirements.

The Spydr Spiral 1 unveiled by L-3 at the UK’s RIAT featured a fuselage-mounted electro-optical/infrared turret, a fuselage pod with a 100-pound payload, a tactical data link, satellite communications, a full signals intelligence system, 4G cellular, and other options. Spiral 2 will add 2 feet to the plane’s nose, to house a 2nd sensor turret. Saudi Arabia and the United Arab Emirates are seen as potential customers in the near term, and L-3 expects to compete in other locations as well – including the USA – against offerings from Raytheon, Boeing, and Lockheed Martin. Like Lockheed’s Dragon family of systems, L-3 sees its equipment suite as transferable to a number of different aircraft types. L-3 MID | Defense News | defpro re: PicoSAR selection.

June 10/11: DSCA director Vice Adm. William E. Landay III says that they’re looking to improve foreign military sales program administration. One concept they’re looking to test is pre-approvals of high-demand technologies, so the list of approved countries would be known in advance.

In response to pressure from foreign customers for fast delivery, the DSCA is even considering buying some of the highest-demand FMS items in advance, so they’re available for delivery on request. DSCA actually has the authority to start a Special Defense Acquisition Fund now, but not the funding. Funding for advance buys of big-ticket items is unrealistic, but it might be worthwhile for night-vision devices, body armor, radios, etc.

At present, these efforts are just just a full review, but that review’s final suggestions and the results of early experiences are expected to lead to changes. US DoD.

March 7/11: The US GAO releases report #GAO-11-354, “Export Controls: Improvements Needed to Prevent Unauthorized Technology Releases to Foreign Nationals in the United States.” While the page says Feb 2/11, the report was released in March:

“The Department of Commerce (Commerce) may require employers to obtain a “deemed export” license before they can transfer these technologies to foreign nationals in the U.S. The State Department also requires foreign nationals to obtain specialty occupation visas to work in the U.S. in occupations such as engineering, computers, and biotechnology. GAO was asked to examine the risk that foreign nationals in the U.S. may gain unauthorized access to controlled technologies, and the extent to which Commerce and other agencies implemented recommended changes to the deemed export licensing process and enforcement system.”

The GAO wants Commerce to be more proactive in informing employers of licensing requirements, Some figures:

“…during fiscal years 2004 through 2009, Commerce suspended the export privileges of three violators and fined 14 U.S. companies about $2.3 million for allowing foreign nationals unauthorized access to controlled technologies. Third, Commerce’s screening of overseas visa applications for potential unlicensed deemed exports dropped from 54,000 in fiscal year 2001 to 150 in fiscal year 2009. Fourth, from fiscal years 2004 to 2009, the United States issued about 1.05 million specialty occupation visas in high-technology fields to foreign nationals from 13 countries of concern to work in the United States, while Commerce issued deemed export licenses authorizing transfers of technology to about 3,200 foreign nationals from these countries.”

The report also urges the department to do more in the areas of monitoring license compliance, using immigration data for deemed export enforcement, and improving coordination with other agencies on export control investigations, including those of foreign nationals subject to deemed export controls. On the other hand, the significant shifts in American export control processes are likely to keep the Commerce Department busy for some time on other priorities.

Jan 24/11: The U.S. Commerce Department says it’s easing restrictions on exports of high-technology goods to India. Its Bureau of Industry and Security will add India as a Missile Technology Control Regime adherent. It will also publish a new rule changing how India was treated under Export Administration Regulations (EAR), including removal of Indian space and defense-related organizations from the U.S. Entity List imposing extra export licensing requirements. Removed companies include Bharat Dynamics Limited, 4 subordinates of the Indian government’s DRDO, and 4 subordinates of the All Indian Space Research Organization.

This is an example of a bilateral move o improve export control dealings with a friendly country, rather than a template for wider reform. Nor is it a solution to the broader End Use Monitoring disagreements between the USA and India. On the other hand, as wider export reforms ripple through, these changes will give India a greater ability to take advantage of them. US DoC | Reuters.

Gripen: brakes applied…
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Dec 9/10: The White House announces that the US Departments of State and Commerce take the next next steps under the “4 singles” plan:

1. The State Dept. publishes a rewrite of U.S. Munitions List (USML) Category VII, Tanks and Military Vehicles. It contains only 26% of the items previously in that category, with the other 74% set to be transferred to the jurisdiction of the Export Administration Regulations instead. It’s meant to be used as a model, and focus only on key items and technologies that must be controlled.

Once public comments have been received and the Administration completes its final version, the Department of State will begin working with Congress to transfer items to the jurisdiction of the Export Administration Regulations. At that point, the agencies will begin a process to determine which of those items should remain on the EAR’s Commerce Control List (CCL) and which do not need to be listed on the CCL. At the end of this process, it’s expected that most of the items transferred off of the USML would become exportable without a license.

2. The State Dept. publishes a companion notice detailing U.S. Government’s methodology for generating the revised, positive Category VII, to be used as a model for other categories. The notice also solicits public input for virtually all the remaining categories on the USML. The Administration has an aggressive schedule to complete its rewrite of the entire USML in 2011.

3. The Commerce Dept. publishes a similar notice requesting public input on entries on the Commerce Control List, as well as requesting non-ally foreign availability information on a wide range of controlled items.

4. The Commerce Dept. publishes a proposed regulation that offers an initial set of new licensing policies, allowing exports of controlled items (consistent with statutory and treaty requirements) to countries that are members of all 4 multilateral export control regimes, or other regime members that also are members of NATO. It would also allow exports of items controlled on the Wassenaar Arrangement’s Basic List to countries that are members of or adherents to all 4 multilateral export control regimes, members of NATO, or for civil end-uses in destinations that have not historically represented a significant diversion or proliferation risk. The exception would impose new requirements, however, to provide safeguards against possible unauthorized re-exports, including notification, destination control statement and consignee statement requirements.

Dec 3/10: Wikileaks documents reveal that the Norway’s F-16 replacement competition was a sham, and that the USA used its weapons export laws as a way of hindering competition. The contents of the leaked cables include a 2008 meeting between Sweden’s defence minister Sten Tolgfors and US ambassador Michael Wood, where Tolgfors asked for permission to buy an American-made Active Electronically Scanned Array (AESA) radar system for the Gripen. In response, US diplomatic cables included a recommendation that the USA use its weapons export laws. A July 8/06 cable reportedly reads:

“Given this potential impact of AESA releasability on the Norway competition, and possibly the Denmark competition… we suggest postponing the decision on AESA releasability for the Gripen until after Norway’s decision in December.”

Such a clear revelation of export controls used as an unfair competitive weapon can only accelerate efforts around the world to remove American defense products from foreign weapons systems, even as international defense supplier options globalize. Sweden’s Aftenposten [in Swedish] | Sweden’s The Local | Stockholm News | Swedish Wire | Aviation Week Ares | Flight International | Fort Worth Star-Telegram Sky Talk blog (incl. Cablegate URLs).

Oct 18/10: Reports surface that President Obama’s visit to India in November 2010 may see key Indian units removed from the banned ‘Entities List,’ and technology clampdowns imposed after India developed nuclear weapons could be relaxed.

At present India is denied technology in 11 of the 16 categories, just one short of both Pakistan and China. By comparison, most European nations figure in about 4 categories, and Canada in just 2. India is on the Commerce Department’s export control list on all 3 counts of chemical and biological weapons, 2 of national Security, 1 of missile technology, and 2 of regional stability, plus 1 of 2 nuclear non-proliferation reasons, and 2 of 3 crime control. It gets a pass regarding a firearms convention and 2 anti-terrorism criteria. Economic Times of India | TechEye.

Sept 21/10: The US GAO issues #GAO-10-952, “Defense Exports: Reporting on Exported Articles and Services Needs to Be Improved.” An excerpt:

“U.S. exports of defense articles–such as military aircraft, firearms, and explosives–ranged from about $19 billion to $22 billion annually in calendar years 2005 to 2009. Of these defense articles, about 60 percent have been exported by companies to foreign entities through DCS licenses, while the remaining 40 percent were exported under the FMS program. Aircraft and related parts constitute the largest category of such exports–about 44 percent–followed by satellites, communications, and electronics equipment and their related parts. U.S. exports of defense articles were concentrated in a few countries: about half went to Japan, the United Kingdom, Israel, South Korea, Australia, Egypt, and the United Arab Emirates. Although no data are available on the export of defense services–such as technical assistance and training–provided through DCS, exports of defense services through FMS were stable, accounting for about one-third of the value of FMS exports. Congress does not have a complete picture of defense exports under current reporting–including which method of export is used more often by individual countries or for certain types of items. State–which has overall responsibility for regulating defense exports–and DOD, report to Congress in response to various requirements. However, their annual reports on DCS and FMS exports have several information gaps and inconsistencies–in part, because of the differing purposes of the agencies’ data systems and different reporting methodologies.”

Aug 30/10: President Obama announces steps to reform the USA’s export control system, and signs an executive order establishing an Export Enforcement Coordination Center.

Technical experts across the government have already completed the overhaul of one category of controls on the U.S. Munitions List, and the corresponding entries on the Commerce Control List, restructuring USML Category VII (Tanks and Military Vehicles) into a positive, tiered list. The administration’s preliminary analysis is that of the 12,000 USML Category VII items licensed in 2009 under the Munitions List category, 26% will remain on the list, 42% will move to the Commerce Control List, and 32% will be decontrolled altogether. As an example of complete decontrol, they cite brake pads for the M1A1 Abrams tank:

“These brake pads are virtually identical to brake pads for fire trucks but the tank brake pads require a license to be exported to any country around the world, while the fire truck brake pads can be exported to virtually all countries without a license. Still, under our current system, we devote the same resources to protecting the brake pad as we do to protecting the M1A1 tank itself.”

See: WhiteHouse.gov | White House Fact Sheet [PDF] | AIA release.

June 30/10: US National Security Advisor Gen. Jones discusses export control reform [PDF] at the Senate Aerospace Caucus luncheon, and lays out the Phase I, II and III implementation plans. Progress to date:

• New commodity jurisdiction guidelines issued re: the US Munitions List vs. the Commerce Control List (CCL);
  
• Developed “independent objective criteria to create a tiered control list structure”;
  
• Creation of “holding” entries on the Commerce List for non-munitions items that don’t fit a CCL entry, but may need to be restricted. This was an AIA recommendation;
  
• Developed a single application form that would be used by all 3 licensing agencies;
  
• In the process of standing up the Export Enforcement Fusion Center;
  
• Published initial encryption reform regulations that eliminate reviews of things like commercial cell phones and household appliances;
  
• Iran sanctions legislation includes some broader reform provisions, harmonizing maximum export control criminal penalties across 4 different statutes, adding a new civil penalty provision to the United Nations Participation Act, and commissioning a study by the U.S. Sentencing Commission re: mandatory minimum criminal sentence for export control violations;
  
• Completed an initial review to migrate all licensing agencies to the Pentagon’s 2033 USXPorts system that was deployed in 2003, and tanding up a review to build a single interface for exporters. The State Department’s munitions licensing organization is already in the process of migrating, with Commerce, Treasury and others to follow;
  
• Regulation changes regarding dual- and 3rd-country nationals will be published “soon.”

Notable excerpts:

“You may be surprised to learn that, as part of our review, we uncovered a copy of the very first Munitions List, dated 1935, that includes military railway trains. What may surprise you even more is that these trains remain on the Munitions List today.”

“There is growing friction between our two control lists, the U.S. Munitions List and the Commerce Control List… The jurisdictional problem is exacerbated by the completely different structures of our two lists -the Commerce List is generally a positive list, which means that an item is only controlled if it is on the list. For each item on the list, the Commerce List contains detailed technical parameters that are used by exporters to determine if their items are controlled. Most of the Munitions List, however, is not a positive list. Instead, it is based on broad general descriptions, which results in capturing every nut, bolt and screw of a munitions item… Currently a bracket or screw used in an F-18 is treated the same for control purposes as the aircraft itself. I think we can all agree that an advance fighter jet poses a much higher threat than a screw that is merely cut to a specific length.”

“We have seen cases where one agency has initiated an investigation, only to spoil an undercover operation by another agency.”

Tejas test
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May 20/10: Existing ITAR processes look like they’ve just cost Lockheed Martin an important contract in a critical future market – India. Livefist:

“Top officials associated with the Light Combat Aircraft naval variant (LCA-Navy) have confirmed to LiveFist that Lockheed-Martin’s inability to obtain US State Department clearances to consult with the programme have introduced a “significant delay component” into the schedule of the first aircraft roll-out. In the next few days, ADE is likely to officially hire the services of EADS, which lost the original bid in 2009.”

See also Sept 28/09 entry.

April 20/10: US Secretary of Defense Robert Gates announces the broad outlines of a revised approach to export controls, which goes farther than observers had expected. That’s partly because Gates is joined by the American secretaries of State, of Commerce, and of Homeland Security, as well as the Director of National Intelligence and the national security advisor.

In time, Gates hopes that better US leadership and clarity can win back more cooperation from allies, citing the collapse of the lower-level cooperation that was common under the Cold War’s COCOM restrictions. In addition to lobbying for ratification of drafted ITAR treaties with Britain and Australia, he proposes a new American system based on “4 singles”:

# A single, tiered export control list, instead of 2 major (State’s USML & Commerce’s CCL) and some minor lists that do not really differentiate;
# A single, newly-created export licensing agency, instead of 3 or more;
# A single agency to coordinate enforcement instead of several;
# A single unified IT system instead of the current mix of newer IT systems (Defense), older systems (Commerce, built in 1987 and not modified much), and mostly paper-based systems (State Department).

A senior Us defense official adds:

“The United States is thought to have one of the most stringent export regimes in the world, but stringent is not the same as effective… A number of lapses in recent years – from highly sensitive materials being exported to vital homeland security capabilities being delayed – have underscored the flaws of the current approach… its rules, organizations and processes are not set up to deal effectively with those situations that could do us the most harm in the 21st century – a terrorist group obtaining a critical component for a weapon of mass destruction, or a rogue state seeking advanced ballistic missile parts… Most importantly, the current arrangement fails at the critical task of preventing harmful exports while facilitating useful ones… The real-world effect is to make it more difficult to focus on those items and technologies that truly need to stay in this country.”

Gates announcement video [Flash] | DoD AFPS article | DoD briefing transcript | Military.com DoD Buzz.

March 15/10: In the wake of a revised aerial tanker RFP that essentially disqualified the A330-based tanker that won in round 1, European firms are looking at American protectionism and export controls with an especially jaundiced eye. A Defense News article covering this phenomenon says that export controls were a major factor behind Europe’s most advanced aerial missile program:

“U.S. export control is cited as a factor for the launch of the European Meteor [long range air-to-air] missile program. The U.S. denied export clearance for the Advanced Medium-Range Air-to-Air Missile (AMRAAM) for the Saab Gripen fighter jet for sale to Finland, and then sold Boeing’s F/A-18 fighter with the AMRAAM to the Finnish Air Force, an analyst said.”

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:

“It was a desire (by the customer),” Don McClure, Lockheed Martin Canada’s vice- president of business development, said of the decision to use technology that wasn’t controlled by ITAR. “The primary thing is during the life of a warship there is the need to modify certain tactics or add certain sensors and the navy didn’t want to be restricted to having to ask permission (from the U.S.) for that.”…will also allow [the Canadian firm] to market the system to other navies without having to seek U.S. permission… privately, some Canadian defence industry officials complain that the U.S. selectively uses ITARs to give equipment being provided by American-based companies an advantage in export situations. They say there have been cases where the U.S. State Department has used ITARs to prevent Canadian products from being sold overseas because those items have some American-technology in them, while at the same time giving approval to U.S. firms to sell the same components in the same foreign market.”

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

Basic Background

• Export.GOV – Export Control Reform.

• US Department of State – The International Traffic in Arms Regulations (ITAR). From their Directorate of Defense Trade Controls; there’s also a specific page for Export Control Reform.

• US Bureau of Industry and Security – Commerce Control List. For comparison, see this 2012 snapshot of their Introduction to Commerce Department Export Controls. “Commerce Department” must have been an insufficiently Soviet name; glad that was fixed.

• US Bureau of Industry and Security – Export Administration Regulation Downloadable Files

• 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)

• US Treasury Department – Office of Foreign Assets Control. Administers and enforces economic and trade sanctions.

• DID – US-UK Treaty Aims to Ease ITAR Export Control Burdens. Signed June 22/07, didn’t come fully into effect until April 13/12.

• DID – Australia Signs Defense Trade Agreement With USA. Signed Sept 5/07, didn’t come fully into effect until May 16/13.

Official Reports

• US GAO (March 7/11, #GAO-11-354) – Export Controls: Improvements Needed to Prevent Unauthorized Technology Releases to Foreign Nationals in the United States

• US GAO (Sept 21/10, #GAO-10-952) – Defense Exports: Reporting on Exported Articles and Services Needs to Be Improved

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

News & Views

• AIA Resources – Export Control Modernization. October 2012 snapshot; it’s no longer a priority area for AIA.

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

• 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. The policies would loosen controls.

• 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 government 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.”

• 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