[Senate Hearing 110-831]
[From the U.S. Government Publishing Office]
S. Hrg. 110-831
BEYOND CONTROL: REFORMING EXPORT
LICENSING AGENCIES FOR NATIONAL
SECURITY AND ECONOMIC INTERESTS
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HEARING
before the
OVERSIGHT OF GOVERNMENT MANAGEMENT,
THE FEDERAL WORKFORCE, AND THE
DISTRICT OF COLUMBIA SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
APRIL 24, 2008
__________
Available via http://www.gpoaccess.gov/congress/index.html
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana TOM COBURN, Oklahoma
BARACK OBAMA, Illinois PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri JOHN WARNER, Virginia
JON TESTER, Montana JOHN E. SUNUNU, New Hampshire
Michael L. Alexander, Staff Director
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE, AND THE
DISTRICT OF COLUMBIA SUBCOMMITTEE
DANIEL K. AKAKA, Hawaii, Chairman
CARL LEVIN, Michigan GEORGE V. VOINOVICH, Ohio
THOMAS R. CARPER, Delaware TED STEVENS, Alaska
MARK L. PRYOR, Arkansas TOM COBURN, Oklahoma
MARY L. LANDRIEU, Louisiana JOHN WARNER, Virginia
Richard J. Kessler, Staff Director
Joel C. Spangenberg, Professional Staff Member
Thomas J.R. Richards, Professional Staff Member
Jennifer A. Hemingway, Minority Staff Director
Thomas A. Bishop, Legislative Aide
Jessica K. Nagasako, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Akaka................................................ 1
Senator Voinovich............................................ 2
WITNESSES
Thursday, April 24, 2008
Stephen D. Mull, Acting Assistant Secretary for Political
Military Affairs, U.S. Department of State..................... 4
Beth M. McCormick, Acting Director, Defense Technology Security
Administration, U.S. Department of Defense..................... 7
Matthew S. Borman, Acting Assistant Secretary of Commerce, Export
Administration, U.S. Department of Commerce.................... 8
Ann Calvaresi Barr, Director, Acquisition and Sourcing
Management, U.S. Government Accountability Office.............. 10
William A. Reinsch, President, National Foreign Trade Council.... 22
Daniel B. Poneman, Principal, The Scowcroft Group................ 25
Edmund B. Rice, President, Coalition for Employment Through
Exports, Inc................................................... 28
Alphabetical List of Witnesses
Barr, Ann Calvaresi:
Testimony.................................................... 10
Prepared statement........................................... 54
Borman, Matthew S.:
Testimony.................................................... 8
Prepared statement........................................... 48
McCormick, Beth M.:
Testimony.................................................... 7
Prepared statement........................................... 44
Mull, Stephen D.:
Testimony.................................................... 4
Prepared statement........................................... 37
Poneman, Daniel B.:
Testimony.................................................... 25
Prepared statement........................................... 74
Reinsch, William A.:
Testimony.................................................... 22
Prepared statement........................................... 70
Rice, Edmund B.:
Testimony.................................................... 28
Prepared statement........................................... 78
APPENDIX
Background....................................................... 84
Subject: ``Background for Hearing on U.S. Export Controls,'' CRS
report by Ian F. Fergusson and Richard f. Grimmett............. 89
Subject: ``United Arab Emirates: Political Background and Export
Control Issues,'' CRS report by Kenneth Katzman and Ian F.
Fergusson...................................................... 100
Copy of Executive Order 12981 submitted by Mr. Poneman........... 105
``Combating Proliferation of Weapons of Mass Destruction,''
Report of the Commission to Assess the Organization of the
Federal Government to Combat the Proliferation of Weapons of
Mass Destruction, containing Chapter 4, Export Controls,
submitted by Mr. Poneman....................................... 109
Questions and Responses for the Record from:
Mr. Mull..................................................... 117
Ms. McCormack................................................ 138
Mr. Poneman.................................................. 139
Mr. Reinsch.................................................. 140
Mr. Borman................................................... 141
Ms. Barr..................................................... 147
BEYOND CONTROL: REFORMING EXPORT
LICENSING AGENCIES FOR NATIONAL
SECURITY AND ECONOMIC INTERESTS
----------
THURSDAY APRIL 24, 2008
U.S. Senate,
Subcommittee on Oversight of Government
Management, the Federal Workforce,
and the District of Columbia,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:33 p.m., in
room 342, Dirksen Senate Office Building, Hon. Daniel K. Akaka,
Chairman of the Subcommittee, presiding.
Present: Senators Akaka and Voinovich.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. This hearing will come to order. This is a
hearing of the Subcommittee on Oversight of Government
Management, the Federal Workforce, and the District of
Columbia. I want to welcome our witnesses to this Subcommittee
hearing and thank you very much for being here today.
This is the first in a series of hearings that the
Subcommittee is holding to explore the effectiveness and
efficiency of government management in various aspects of
national security. Today's hearing focuses on the management of
export controls for licensing military as well as commercial
and military use, or dual-use, technology for export.
Our export controls regime struggles against the challenges
of a globalized world. Too often, dual-use technology falls
into the wrong hands. We do stop some of it. For example,
Commerce Department enforcement officers recently arrested two
men boarding a plane bound for China. These men had in their
possession sensitive thermal imaging equipment that was not and
would not have been licensed to them.
On the other hand, as you know, much gets through. At
bazaars in the United Arab Emirates, sensitive dual-use
technology is counted among the many items for sale. Three
aircraft protected as dual-use technology were diverted
illegally by a British company to Iran. At my request, Kenneth
Katzman and Ian Fergusson of the Congressional Research Service
produced an excellent background report on issues relating to
the UAE, which, without objection, I will introduce into the
record.\1\
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\1\ The CRS report by Kenneth Katzman and Ian Fergusson appears in
the Appendix on page 100.
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Today's hearing will examine key Federal Government
agencies responsible for licensing exports, how their processes
help or hinder the licensing process, and the role of the
Federal workforce. My goal is to identify possible
recommendations for improving the export controls process. If
our export control systems are not supported by adequate
bureaucratic structures, processes, and people, our national
interests will be harmed. Export controls are critical to
achieving the right balance in America's national and economic
security.
In fiscal year 2006, dual-use technology licensing covered
approximately $36 billion in exports, or 1.4 percent of total
U.S. exports. Nearly 19,000 dual-use export license
applications were reviewed in 2006. This was more than any
other year in the past decade.
The Departments of State and Commerce have the lead in
managing the export control system. The Department of
Commerce's Bureau of Industry and Security manages dual-use
export licensing. The State Department's Directorate of Defense
and Trade Controls handles arms export licensing. Without
objection, I would ask to insert into the record an excellent
CRS analysis by Ian Fergusson and Richard Grimmett on export
controls.\2\
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\2\ The CRS report by Ian Fergusson and Richard Grimmett appears in
the Appendix on page 89.
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In several reports, the Government Accountability Office
has expressed its concern about export licensing delays, an
absence of systematic analysis, unclear jurisdiction over
controlled exports, and the lack of efficiency gained from
automated licensing systems. We will also examine today some
recommendations to address these and other export control
system problems.
Some of the reforms I want to explore are revising the
multilateral coordination and enforcement aspects of export
controls; addressing weaknesses in the interagency process for
coordinating and approving licenses; reviewing alternative
bureaucratic structures or processes that may eliminate
exploitable seams in our export control system; and ensuring
that there are enough qualified licensing officers to review
license applications in an efficient manner.
It is difficult for our national security, foreign policy,
and economic interests to be met if they are weighed down by an
inefficient export control system. Today's hearing will help us
identify ways that the agencies responsible for this system can
work together to provide the economic and national security we
need.
I would like to now defer to our Ranking Member, Senator
Voinovich, for his statement.
OPENING STATEMENT OF SENATOR VOINOVICH
Senator Voinovich. Chairman Akaka, thanks for convening
today's hearing to review the management of the Federal
Government's export licensing process. Sadly, our export
control system is a relic, unable to adapt to current threats
to our national security while similarly impeding our economic
competitiveness.
Each year, the Department of Defense and its industrial
partners spend billions of dollars to maintain our national
security and military technological advantage. Preserving this
advantage requires a balance between allowing defense and dual-
use items to be exported to our friends and allies while
similarly doing all in our power to prohibit the transfer of
such goods to those with malicious intent.
To avoid the transfer of security and dual-use technology
to our enemies, watch lists must be comprehensive and regularly
updated based on real-time data. Incomplete or differing watch
lists have opened the door for malevolent end users to skirt
the process designed to protect our national security.
Agency coordination must go beyond basic information
sharing. The Departments of Commerce and State must reach
agreement on uniform guidelines for all aspects of our export
control system, ending the current practice of forum shopping
for a preferred answer, which does nothing more than waste
taxpayer dollars and open loopholes in our national security.
The Department of Defense must undertake the same task,
creating uniformity across all branches with respect to how
they classify what is military technology.
One would have hoped this management challenge would have
been resolved in light of our increased efforts to thwart
terrorism. Instead, GAO has added this challenge to the high-
risk list. Six years after September 11, 2001, it is critical
that our allies in the War on Terror be given access to
technology they need to save lives and protect their citizens.
Similarly, American entrepreneurs must have the ability to more
rapidly meet our allies' demands for needed goods. All of this
must be conducted under strict scrutiny. Countries who are
uncooperative simply must be regulated.
Congress shares part of this blame. Expired legislation has
left our enforcement and oversight agencies ill prepared to
deal with current problems in the export industry.
Additionally, the number of employees needed to get the job
done has not kept pace with the growing demand of license
requests, as in many other cases throughout the government.
Senator Akaka, as a little editorial here, you know the
greatest excuse that one can give not to perform their jobs is
the fact that you don't give them the resources to get the job
done. Over and over again, we seem to be having examples of
cases where we are asking people to do things and we don't give
them the people to get it done. And then they say, well, I
can't get it done. That is the way it is.
Rapid globalization over the last few decades has left
current export controls extremely outdated. Technology gaps
with foreign nations are rapidly shrinking and the United
States must adjust to this to not only better understand the
capabilities of other nations, but to avoid denying private
companies the ability to compete on the open market with their
goods, which may be readily available from other nations. By
regulating exports with outdated lists, we are effectively
ignorant of what exists elsewhere in the world, thereby denying
benefits to the U.S. economy.
The United States would be naive, however, to think it is
the only supplier for military critical technologies. Rapidly,
industrializing nations in other parts of the world produce
goods similar or identical to our own through ingenuity, hard
work, and sometimes economic espionage.
While this hearing calls into question the efficiency of
our own export control system, I have no doubt it is more
accountable and more scrupulous than many other nations who
might provide similar technologies to countries we would seek
to deny access. The world has changed. This only compounds the
need for the United States to be the preferred marketplace for
such goods. As a favored supplier, we become not only aware of
who is purchasing military and dual-use technologies, but our
economy becomes the beneficiary.
I would like to thank the witnesses for being here today to
share their perspectives on where we are and where we should be
going. Thank you, Mr. Chairman.
Senator Akaka. Thank you very much, Senator Voinovich.
I welcome the first panel of witnesses to this hearing:
Ambassador Stephen Mull, Acting Assistant Secretary for
Political-Military Affairs, Department of State; Beth
McCormick, Acting Director, Defense Technology Security
Administration, Department of Defense; Matthew Borman, Deputy
Assistant Secretary, Bureau of Industry and Security,
Department of Commerce; and Ann Calvaresi Barr, Director of
Acquisition and Sourcing Management, U.S. Government
Accountability Office.
It is the custom of this Subcommittee to swear in all
witnesses and I would ask all of you to stand and raise your
right hand.
Do you swear that the testimony you are about to give this
Subcommittee is the truth, the whole truth, and nothing but the
truth, so help you, God?
Mr. Mull. I do.
Ms. McCormick. I do.
Mr. Borman. I do.
Ms. Barr. I do.
Senator Akaka. Thank you. Let it be noted for the record
that the witnesses answered in the affirmative.
Before we start, I want you to know that your full written
statements will be part of the record. I would also like to
remind you to keep your remarks brief given the number of
people testifying this afternoon.
Ambassador Mull, will you please proceed with your
statement.
TESTIMONY OF STEPHEN D. MULL,\1\ ACTING ASSISTANT SECRETARY FOR
POLITICAL-MILITARY AFFAIRS, U.S. DEPARTMENT OF STATE
Mr. Mull. Mr. Chairman and Ranking Member Voinovich, thank
you very much for the invitation to appear with my colleagues
here before you today. The invitation comes on a really timely
occasion. There is a great deal of ferment and, I think,
innovation going on in defense trade controls at the State
Department right now.
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\1\ The prepared statement of Mr. Mull appears in the Appendix on
page 37.
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We view our mission as three-fold in the Directorate of
Defense Trade Controls at the State Department. One, is to give
our allies, especially in wartime, what they need to fight
alongside with us.
Two, we have to protect our technology and our capabilities
from falling into the hands of our enemies or of being used by
recipients who might not have our best interests at heart or
may be pursuing things that are inconsistent with our values.
And three, we have an important obligation to work with our
customer base, the U.S. industrial base, to serve them and help
make sure that they realize every opportunity they can in a
very competitive global marketplace.
Now, these three missions are very often in conflict with
one another, and frankly, there is a lot of tension that exists
among them, and so we work very hard to carry out all of them
as conscientiously and as effectively as we can. I won't hide
that the work has become much more complicated and much more
difficult since September 11, 2001, as both of you mentioned,
Mr. Chairman and Ranking Member Voinovich, with the threats
that our country faces in this decade. And the workload has
become much heavier in the Directorate of Defense Trade
Controls.
In fiscal year 1998, we had 44,000 applications for export
of defense goods, and today, or rather at the end of fiscal
year 2007, that number had grown to 79,000 applications,
representing nearly $100 billion of defense trade in the last
fiscal year. As I mentioned, many of these cases, they have not
only grown in number, but they have grown seriously in
complexity as our own technology becomes more complex.
In fiscal year 2007, the situation had reached crisis
proportions, as was well documented in the GAO's report that
came out a year ago. We had a standing case log of 10,000
cases. Many hundreds of them were unresolved for well over 60
days, some of them well over 100 days. Actually, my first week
on the job as Acting Assistant Secretary, the GAO launched
their investigation to look into the problems and causes that
led to this situation. But we also had well-justified
complaints about delays in commodity jurisdiction disputes, the
processing time, and also many comments from our customers in
industry that we had insufficient people and other resources
devoted to the problem.
Fifteen months later, I am proud to say that I think we are
in a much better place. Our case log is now at about 3,500
cases, which is about, given the hundreds of cases we receive
every day, about the lowest it can possibly get, and we are in
the midst of instituting some major new reforms that I think
will enable us to exceed our past performance and to carry out
all three of our missions more effectively and more quickly.
This results from several factors. Over the course of the
past year, we have consulted very closely within the national
security community, our colleagues in the Defense Department
and the Commerce Department, as well as the business community,
and of course here in the Congress, as well. We have filled
significant gaps that existed in our organization with new and
very experienced leadership that are already taking our
organization into a much better direction.
In January, President Bush signed a series of Presidential
Directives for our defense trade control operation that enable
us to institute many new business process reforms. We now have
a 60-day deadline for carrying out all of our licensing
decisions with regular monitoring. If a case isn't resolved
within a certain amount of time, it gets escalated higher and
higher in the organization so that we can meet that 60-day
deadline.
At the direction of the White House, we are developing a
new plan so that we can become an at least 75 percent self-
financed entity. That will enable us to increase our operating
budget, our information technology, and most importantly, the
number of people that we have doing this job.
We have put fewer licensing restrictions on third-country
nationals from countries with whom we already have licensing
arrangements to remove a lot of the red tape for getting our
allies what they need. We are in the process of reforming the
commodity jurisdiction process to make sure that these disputes
are resolved much more quickly and much more transparently.
We have enhanced our enforcement cooperation with the
Department of Justice and have seen gradually increasing
successful prosecutions of those who violate our procedures.
And we are moving to a fully electronic system to process
defense trade controls that will substantially increase our
efficiency, as well.
There are a number of other initiatives that we have
implemented that I will just quickly review. We have
established a fast track system to take care of those cases
that affect our allies in war situations in Iraq and
Afghanistan to make sure that every such license is adjudicated
within 7 days. We have managed to succeed at that.
We have negotiated in record time treaties to approach our
defense exports to the United Kingdom and Australia. Instead of
requiring a license for every piece of technology that goes to
these excellent allies, we have created a trusted community, an
approved community of government entities and defense
industries about which we have no concern about their misuse of
our technology and they will be able to get this technology
without a license. This will reduce our workload by as much as
and even more than 20 percent, enabling us to devote even more
resources to the problem cases. These treaties have been
submitted to the Senate and we very much urge their rapid
ratification by the Senate.
In the weeks ahead, we hope to work with your staffs,
Senators, as well as other Congressional staff to make the
Congressional notification process more transparent and more
efficient.
I think we have accomplished much, but we have a long way
to go and we look forward to consulting with this Subcommittee
and hearing your thoughts during today, as well as the other
expert witnesses, as well as our authorizing committees here in
the Congress, and working with our interagency partners, our
friends in the GAO and the business community, as well as our
international partners to construct and manage the very best
system to serve our customers in the business community while
strictly protecting America's defense technology.
So thank you very much for this opportunity. I look forward
to learning even more about how we can improve. Thank you.
Senator Akaka. Thank you very much, Mr. Ambassador. Ms.
McCormick.
TESTIMONY OF BETH M. McCORMICK,\1\ ACTING DIRECTOR, DEFENSE
TECHNOLOGY SECURITY ADMINISTRATION, U.S. DEPARTMENT OF DEFENSE
Ms. McCormick. Thank you, Mr. Chairman, and Senator
Voinovich. I appreciate the opportunity to be here today to
discuss the Department of Defense's role in the export control
process.
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\1\ The prepared statement of Ms. McCormick appears in the Appendix
on page 44.
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Simply stated, the Department of Defense's role is to
provide the national security perspective to the Departments of
State and Commerce in their responsibilities in the export
control process. In our role, the Department of Defense
possesses unique capabilities to provide technical expertise,
develop and validate coalition and interoperability
requirements, and provide program insight necessary to ensure
exports and technology security controls protect U.S. national
security.
Our mission involves two inherent tensions, maintaining the
U.S. military technological advantage while supporting
interoperable coalition forces, and protecting critical U.S.
technology while ensuring the health of the U.S. industrial
base. In this era of uncertainty and surprise, these two
tensions will continue to intensify and require us to remain at
the forefront of technological advancements and to build
partnership capacity to meet the challenges of the ever-
changing global security environment.
The strategic goals of my agency summarize it best. First,
preserve critical U.S. military technological advantages.
Defense-related technology is a valuable and limited national
security resource that must be controlled as part of the U.S.
military and defense strategy. DTSA ensures items and
technologies important to U.S. national security interests are
adequately controlled by reviewing export control lists and
regulations and assisting the U.S. Government's efforts to
enforce export controls through safeguards. We must ensure our
fighting men and women not only have the best equipment, but
have a significant technological edge that provides them an
advantage over any potential adversary.
Second, we support legitimate defense cooperation with
foreign friends and allies. The United States must engage in
bilateral partnerships and multilateral regimes with allies and
international partners to meet the challenges of today's
dynamic security environment. My agency annually processes over
40,000 export licenses and roughly 75 percent of those export
licenses reflect direct commercial sales to our closest foreign
friends and allies.
The third goal of my agency is to assure the health of the
defense industrial base. U.S. national security depends on a
strong U.S. industrial base that can easily mobilize to support
military capabilities and deter potential adversaries. The
United States must maintain a technological superiority and
highly competitive defense industrial base to thwart increased
global competition. This will continue to balance national
security interests while being receptive to the needs of the
U.S. industrial base.
Our fourth goal is to prevent proliferation and diversion
of technology that could prove detrimental to U.S. national
security. DTSA's ability to support the United States in
preventing hostile States and terrorist groups from acquiring
and using weapons of mass destruction and defense-related
technology is critical to ensuring U.S. national security. DTSA
works with government agencies and with friendly nations to
impede weapons of mass destruction-related trafficking and
improve controls over existing weapons materiel and expertise.
DTSA coordinates the Department of Defense's review of
Department of State license applications for the export of
defense-related goods and services under the International
Traffic in Arms Regulation and the Department of Commerce
license application for the export of sensitive dual-use goods
and technologies under the Export Administration Regulations.
DTSA's critical role in reviewing these requests for export
licensure and the conditions attached to those licenses is
instrumental in ensuring U.S. national security is not
jeopardized.
The export control initiatives announced by President Bush
in January 2008 address the need to reform the defense trade
and dual-use export control processes to ensure proper levels
of control for continued U.S. economic competitiveness and
innovation while protecting national security. We are committed
to working with our colleagues at the Departments of Commerce
and State to implement these initiatives.
Mr. Chairman, this concludes my opening statement. I look
forward to your questions. Thank you.
Senator Akaka. Thank you very much, Ms. McCormick. And now
we will hear from Mr. Borman.
TESTIMONY OF MATTHEW S. BORMAN,\1\ ACTING ASSISTANT SECRETARY
OF COMMERCE, EXPORT ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE
Mr. Borman. Thank you, Mr. Chairman. It is a pleasure to be
here to testify before you and Ranking Member Voinovich once
again. I actually testified before a slightly earlier
incarnation of this Subcommittee several years ago on export
control systems of other countries, so it is a pleasure to be
here again. As you have already heard from my colleagues, we
all share the critical mission of protecting U.S. national
security and economic interests.
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\1\ The prepared statement of Mr. Borman appears in the Appendix on
page 48.
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Much of our export control system was built during the Cold
War, when the world, while still dangerous, was in some ways a
simpler place. The West confronted a clearly defined enemy and
we also held a significant technological advantage over our
adversary. We maintained our technological superiority over our
enemies then largely through a strategy of denying exports of
technology to specified countries. This system was based on the
assumption that we and our allies had technology not available
to our adversary from other sources.
Dramatic changes in the economic and security landscape,
however, have challenged this assumption. As markets become
increasingly integrated, production and supply chains for
single goods now span the globe. Defenses we constructed in the
past to preserve our technological superiority can no longer
afford us the same level of protection. At the same time, we
face more and varied national security risks from a range of
nation states as well as non-state actors. Furthermore, our
allies, in addition to being economic competitors, do not
always share our security views.
To meet today's challenges, BIS's highest priority
continues to be the effective and efficient operation of the
U.S. dual-use export control system. This system covers
products that have both civilian and military applications,
including use in weapons of mass destruction and related
delivery systems. We must ensure, however, that the system does
not impose unreasonable burdens on innovation and commercial
activity.
Interagency and international cooperation are critical to
BIS's activities. Fulfilling the Bureau's mission depends
heavily upon cooperation with a range of departments, including
but not limited to the Departments of Defense and State, as
well as engagement with our principal trading partners and
other countries of strategic importance.
BIS carries out four major functions: Policy, licensing,
outreach, and enforcement. BIS works closely with the
Departments of State, Defense, and Energy in developing
policies and implementing those policies through the Export
Administration Regulations. BIS also works closely with those
agencies and the intelligence community in licensing exports of
controlled items.
Keeping U.S. industry informed of its obligations under the
regulations is another critical part of ensuring that the dual-
use export control system is effective and efficient. BIS
conducts a wide range of outreach activities domestically and
abroad on an annual basis. BIS also prioritizes its enforcement
activities on cases involving the proliferation of weapons of
mass destruction, terrorism, and military diversion.
In fiscal year 2007, BIS special agents made 23 arrests,
resulting in 16 convictions and $25 million in criminal fines.
In addition, BIS settled 65 cases administratively with final
orders totaling $5.8 million in fines.
One of the most significant challenges for BIS is the
longstanding lapse of the Export Administration Act of 1979.
This lapse hinders the ability of BIS to employ up-to-date
authorities to enforce the dual-use export control system,
despite the ever-changing criminal landscape. The Export
Enforcement Act, S. 2000, introduced by Senator Dodd, directly
addresses this challenge and we support its prompt enactment.
BIS is continually reviewing, revising, and updating its
policies to ensure the system remains effective. In this
regard, there are three recent developments I would like to
highlight. First, the President issued a Dual-Use Export
Control Reform Directive on January 22 along with the Defense
Trade Directive that Ambassador Mull has already mentioned to
further adapt the dual-use export control system to today's
challenges. The directive focuses on three objectives: First,
moving to a more end-user-based system; second, ensuring
continued U.S. global technological and economic
competitiveness; and third, enhancing procedural transparency
in the licensing process.
I would also like to point out that we are reviewing and
implementing many of the recommendations contained in the
December 2007 report of Secretary Gutierrez's Deemed Export
Advisory Committee. Deemed exports, of course, are transfers of
controlled technology to foreign nationals in the United
States.
And finally but certainly not least, in addition to the
numerous existing measures of effectiveness of the different
parts of the dual-use export control system, we have
established a program for systematically evaluating compliance
with the Export Administration regulations based on actual
export data that is now available to us. This measure will
further address issues raised in the Government Accountability
Office's January 2007 report.
In conclusion, the United States faces unprecedented
challenges from a varied set of threats and increasing
worldwide diffusion of high-technology in global markets. BIS,
in conjunction with other agency partners, is continually
evaluating and revising the dual-use export control system to
effectively meet those challenges.
I thank you again for the opportunity to testify and I, of
course, would be happy to answer questions you might have.
Senator Akaka. Thank you very much, Mr. Borman. And now we
will hear the testimony of Ms. Barr.
TESTIMONY OF ANN CALVARESI BARR,\1\ DIRECTOR, ACQUISITION AND
SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Ms. Barr. Mr. Chairman and Members of the Subcommittee,
thank you for inviting me to discuss the U.S. export control
system, a key component of the government's larger safety net
of programs designed to protect critical technologies while
allowing legitimate defense trade.
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\1\ The prepared statement of Ms. Barr appears in the Appendix on
page 54.
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As you know, significant vulnerabilities in export controls
as well as in other safety net mechanisms, such as Committee on
Foreign Investment in the United States and the foreign
military sales program, prompted GAO in 2007 to designate the
effective protection of technologies critical to U.S. national
security interests as a new high-risk area, an area that
warrants strategic reexamination.
To start, let me briefly describe some longstanding
vulnerabilities in the export control system. These
vulnerabilities primarily relate to the licensing process and
interagency coordination.
Specifically, procedural and technology weaknesses, along
with human capital challenges, have contributed to backlogs in
the processing of export license applications submitted to the
State Department. In less than 4 years, the State Department's
caseload increased almost 20 percent, median processing times
nearly doubled, and the number of pending applications jumped
to an all-time high of 10,000 in 2006. Yet the number of
licensing officers remained unchanged.
At the same time, D-Trade, the State Department's IT system
for processing cases, has not turned out to be the panacea it
was promised to be. State's backlog created the risk that the
government's export control focus will shift to expediting
cases at the expense of national security interests, a concern
the State Department officials raised.
And although the Commerce Department reviews comparatively
fewer applications than the State Department, the Commerce
Department also needs to ensure its processes are efficient.
Poor coordination among the State and Commerce Departments,
and other Departments has created additional risks. Of
particular concern are disagreements over the control of
certain items. In one case, Commerce determined that an item
was subject to less restrictive exporting requirements when, in
fact, it was State Department controlled. In other cases, there
were disputes over the jurisdiction of certain sensitive items,
such as missile-related technologies. Left unresolved, these
disputes increased the risk of sensitive items being exported
without appropriate protections and create an unlevel playing
field because some companies may gain access to markets that
others will not.
Poor coordination and communication extends beyond the
Commerce and State Departments. Specifically, there has been a
lack of understanding between the State Department and DOD on
whether contractors working in direct support of defense
activities are exempt from certain licensing requirements.
Further, the Departments did not until recently receive
information from the Justice Department regarding export
control-related indictments and violations, information that is
needed to determine whether or not to approve a license in the
first place.
Despite these known vulnerabilities, neither the State nor
Commerce Departments has taken the basic steps needed to ensure
their controls and processes are sufficient and appropriate for
protecting U.S. interests. Notably, neither Department has
assessed its controls over the past decade or seen the need for
such an assessment, despite dramatic changes in the security
and economic environment. Additionally, we have made numerous
recommendations to address weaknesses in their controls,
recommendations that have largely been ignored.
We are encouraged by the State Department's recent
attention to some of the issues we have identified, including
analyzing licensing data and determining the workforce
structure needed. Similarly, the Commerce Department has
updated its watch list on known export violators.
In the past, we have reported that export control
initiatives not grounded in analyses have generally failed to
achieve desired results. For example, in 2000, we determined
that the Defense Trade Security Initiatives, an earlier effort
to revise the U.S. export control system, were not grounded in
analysis of the problems that the initiatives were intended to
remedy. Ultimately, the initiatives proved to be solutions in
search of problems and as such were generally unsuccessful.
To protect critical technologies while allowing legitimate
defense trade, it is imperative that the export control system
function both efficiently and effectively, and let me also say
in conjunction with the other safety net programs. Yet our work
has consistently revealed disconcerting gaps in this safety
net. Only when the Departments work together to reach agreement
on jurisdiction and control and make meaningful and sustainable
improvements can we be assured that we have a system that
supports all U.S. interests.
Mr. Chairman, Members of the Subcommittee, I would like to
thank you for holding today's hearing as it contributes to the
reexamination that our high-risk designation calls for. This
concludes my prepared statement and I am happy to answer any
questions that you may have.
Senator Akaka. Thank you very much, Ms. Barr.
Mr. Borman, I understand that currently there is a BIS
official assigned to the United States Mission to the
Organization for the Prohibition of Chemical Weapons, but that
the Commerce Department has cut funding for that person and
there is concern that if this technical advisor is removed, it
will affect the United States' compliance obligations under
OPCW. This, of course, is deeply disturbing and I wonder if you
could comment on that.
Mr. Borman. I would be happy to comment on this issue. A
little context, I think, would be helpful. Under the
President's budget for fiscal year 2008, the Commerce
Department, Bureau of Industry and Security, was due to be
appropriated about $78 million and both the House and the
Senate Appropriations Committees approved that amount. But in
the omnibus appropriations bill, that amount was cut to $72
million. That is a very significant cut for us and we have had
to do some very significant belt-tightening.
Our representative supports the State Department's
representation of the U.S. Government at the OPCW. His term was
due to expire in November. We looked at the potential cost
savings of bringing that person back a few months earlier and
we concluded, based on all of our other priorities, that was an
appropriate use of our significantly limited funding. We still
have the slot open, and pending funding becoming available, we
would certainly look to consider to put someone back there. But
certainly if we are operating under a continuing resolution in
fiscal year 2009, still at the $72 million mark, that is going
to have very severe budget circumstances for us.
I would also point out that in terms of U.S. obligations
under the CWC, our person performs an important role
representing industry interests because that treaty affects
U.S. industry. But a lot of that work can be done from the
United States, probably not as efficiently as having someone on
the ground, but that work can still be carried out.
Senator Akaka. Thank you. Ambassador, in your testimony,
you stated that you will soon provide a plan to the Office of
Management and Budget outlining the resources to carry out
National Security Presidential Directive 56 without an increase
in budgeted funds. When do you expect to present your plan to
OMB?
Mr. Mull. Thank you, Mr. Chairman. I reviewed what I think
is the final version of all of our internal coordination of
this plan last week. It is now with our Under Secretary for
Management, Mr. Kennedy. I expect he will approve that within
the next few days and we hope still within this month to
communicate that to OMB.
Senator Akaka. Thank you. How do you intend to meet the
requirements of NSPD-56 without an increase in budgeted funds?
Mr. Mull. It does sound like a feat of magic, I will allow
you that. But, in fact, some of the procedures that we have
been studying elsewhere in the government we think have been
very instructive for us. For example, in the State Department,
in our Consular Affairs Bureau for some years now, we have
administered our consular and visa programs through a
management of a fee-for-service system in which applicants for
visas must pay an application fee and that in turn runs the
program.
In Defense Trade Controls, for many years, we have had a
registration fee for all defense companies, regardless of
whether or not they export. And over time, this has resulted in
a system where essentially smaller companies, and about 60
percent of all our registered firms export less than $100,000
worth of goods per year, they pay the same registration fee as
those companies that export billions of dollars a year and
require many licenses. So it is an inequity in which the
smaller businesses of our country are, in effect, financing the
work for the larger businesses in our country.
So we are looking at restructuring our registration fee
structure to try and remove some of that inequity. I am afraid
I can't go into detail yet because we will want to get OMB's
approval, and I think we will want to consult very carefully
with the Congress, as well, before we announce this. But that
is the general philosophy that we have been taking and we think
that this will increase produced revenue in keeping with the
President's instruction for us to become at least 75 percent
self-financed.
Senator Akaka. Thank you for that.
Ms. Barr, in a November 2007 report and in your testimony,
you identified a number of human capital problems at the DDTC.
Could you please elaborate as to what those human capital
problems are and if you have seen any corrective steps taken by
this date?
Ms. Barr. Yes. I would be happy to, Mr. Chairman. Thank
you. First and foremost, I would like to reiterate what
Ambassador Mull just said, as we certainly have recognized the
renewed and spirited leadership that has come into DDTC now,
having aligned itself with some very capable leadership that is
committed to responding to our recommendations and thinking
through the process that has to be in place.
With that being said, I think the first issue that we
recognized overall with regards to staffing as the inequities
and overall staffing ratios of licensing officers to the number
of cases processed. And I believe the numbers that we stated
back then, if you look at the State Department, you had
approximately 31 officers looking at 63,000 cases. Compare that
to what Commerce had, 48 officers who are reviewing 22,000
cases. So clearly there is an inequity in the ratio of the
number of people needed to handle the volume of cases coming
in.
In addition, the State Department is to receive 10 military
detailees to support DDTC operations and we found that those
military detailees were not always at their full contingent.
These are often individuals who have the requisite expertise to
assist in the more complex types of cases and reviews and
represent those individuals that are needed and have the
ultimate signature authority for approving licenses. These
detailees were not staffed and operating at the full
contingent.
The third point that I would make is that many of the
licensing officers--as you noted here--these are complex
licensing applications oftentimes, and when they are, you need
to have the right training and the skill set. What we found is
that many of the licensing officers had less than 1 year
experience to apply to complex licensing applications.
So I would say those are the main things that we were
pointing to in terms of some of the critical human capital
challenges.
Senator Akaka. Thank you. Before I call on Senator
Voinovich for his questions, let me ask the Ambassador, do you
agree with GAO's human capital assessment?
Mr. Mull. I do in some measure. When I first took the job,
it was clear to me, if by nothing else, that the intolerable
level of caseload, standing caseload that we had at the 10,000
mark, that more people were clearly going to be an essential
ingredient to chipping away and removing that backlog. But I
also think that--I also don't want to fall into the trap of
saying we need more people to fix everything. It was clear,
also, that there were no business practices that we could
implement immediately without another dime of taxpayer money
that would substantially help. And so that has been an
important part of our improvement over the past year, as well.
We also need to invest more in some technological solutions. We
are hoping our new budget plan will allow us to do that.
But yes, sir, people are an important part of the problem
and I think when we get our new plan implemented, we will
significantly increase the number of licensing officers that we
have.
Senator Akaka. To determine the problem, Mr. Ambassador,
have you completed a management assessment to determine how
many staff are adequate for the job, and if so, how many?
Mr. Mull. Yes. What we did--actually, my first week in the
job, I brought in--again, it was from in-house, but I brought
in some management consultants to spend a month as the GAO
study was getting started to look at all of those things--
budget levels, staffing levels, business processes--and I
received a report on how we could begin to improve that
situation within a month.
We have constant monitoring of the number of pending
licensing cases that we have. We have constant monitoring of
the average time it takes to adjudicate each of those cases. As
I mentioned earlier, we have alarm bells in our system. When a
license isn't acted on within a fixed period of time, it will
automatically bump up to a higher level for engagement so we
can meet that ultimate 60-day deadline. And a number of other
constant evaluations that we are performing on our workload and
how quickly we are getting through it, and recently we have
begun posting this on our Website so that the business
community and the public can see the progress that we are
making.
Senator Akaka. Thank you. Senator Voinovich.
Senator Voinovich. Do you have a strategic plan on how you
intend to remedy this situation? Is it in writing and with
deadlines, a pert chart, and all the things you need to do in
order to get where you want to get?
Mr. Mull. The plan that we are going to be submitting to
OMB, sir, I am satisfied will do that. It provides the
strategic context of where we need to grow the organization,
where we need more people, how we need to allocate them among
our different functions, which include developing policies,
participating in the commodity jurisdiction dispute, of course
processing licenses, and enforcement, which is an important
part. And so we believe that we have targeted all of these in
our plan, both on a strategic level as well as a solid business
plan.
Senator Voinovich. When did you submit that?
Mr. Mull. Again, this is still within the State Department.
I hope it will be submitted to OMB----
Senator Voinovich. The fact of the matter is, it is
submitted--and you do that through the State Department, that
is not going to be reflected in this budget that we have right
now. The State Department has already put their budget in
place, so we are now talking about hopefully being included in
the 2010 budget.
Mr. Mull. Yes. Well, one of the features of our plan, sir,
is that this will be a self-financing mechanism that will be
independent of getting appropriations from the Congress. And so
we will be able to grow the organization to the required levels
without extra reliance on the budget that we have sought from
the Congress this year.
Senator Voinovich. Have you sat down at all with GAO to get
their input and whether or not they think that the plan you put
together is going to get the job done?
Mr. Mull. I have not, sir, but once it is approved by OMB
as the official administration position, I would be delighted
to do that.
Senator Voinovich. Once you submit it, it is going to be
pretty well done. I mean, how much change are you going to make
in it after you have submitted it?
Mr. Mull. Well, what I want to do certainly is the very
best possible job that we can do. I think this plan will be a
good foundation to do precisely that. But it is not going to be
the end of the line. I, and I expect my successors, will
continue to welcome inputs not only from GAO but----
Senator Voinovich. Are you a regular State Department
employee?
Mr. Mull. I am.
Senator Voinovich. How long have you been with the
Department?
Mr. Mull. I have been a Foreign Service officer for 26
years.
Senator Voinovich. You have been acting in this capacity
for how long?
Mr. Mull. For 15 months.
Senator Voinovich. Fifteen months, and your predecessor was
an appointee?
Mr. Mull. It was a non-career appointee, yes, sir.
Senator Voinovich. How do we know that this plan you are
putting in place is going to follow through in the next
Administration and that we won't be back here a year and a half
from now doing the same thing over again?
Mr. Mull. Well, we put together a plan that I think will be
self-evidently good business sense in such a way that no one
would disagree with it, not even my friends in the GAO. But
again, we will welcome input from all of the stakeholders in
the process. But I trust that you will find it to be a solid
plan that you will find much to like about.
Senator Voinovich. Ms. McCormick, do you have a plan to
remedy some of the things that you are dealing with?
Ms. McCormick. Well, sir, first off, I have a very
comprehensive strategic plan for my organization and very
detailed implementation plans and metrics. In fact, I just met
yesterday with all my division chiefs and on a quarterly basis
we review our performance metrics. I think we have also--we
have implemented a variety of business processes that I think
make us a relatively effective organization. We have some
things like standing tiger teams that in the mornings we try to
go through and try to do our best to determine what licenses we
can turn, and I am pleased to report we do turn about 25
percent of the munitions licenses and about a third of the
dual-use licenses, we are able to turn those around in about 1
to 2 days.
Senator Voinovich. Are you a political appointee?
Ms. McCormick. No, I am not.
Senator Voinovich. So you are going to be around to
continue to carry this out.
Ms. McCormick. I am, sir. I have been serving soon 25 years
and will continue to do it for a while longer.
Senator Voinovich. One of the things that has been laying
around for a while is that in the January 2007 high-risk list
update, GAO notes that the Commerce and State Departments have
yet to reach an agreement on which agency has jurisdiction over
certain missile technologies. Given the importance of the issue
to our national security, why the delay and is there going to
be an agreement in place prior to the transition?
Mr. Borman. Maybe I will start on that and Ambassador Mull
may have something to add. We already had, in fact, some years
ago actually published a regulation that dealt with this issue
in part. Another piece of this that I think is important to
keep in mind is that the missile technology control regime
items that are on our list have technical parameters. The State
Department list, of course, covers things that are specifically
designed for military application and so there is a commodity
jurisdiction process if exporters are unsure whether their item
is subject to our jurisdiction or the State Department's. There
is not really a possibility, though, that exporters could self-
determine that their item is subject to our jurisdiction and
just ship it without government oversight.
Senator Voinovich. Was there an agreement? Ms. Barr, are
you familiar with this issue?
Ms. Barr. I am familiar with this issue, and if Mr. Borman
wants to continue, I would like to comment on this afterwards.
Mr. Borman. So, if exporters have an item and they think it
is subject to our jurisdiction because of our controls on the
export of missile technology items, they have to come into the
Commerce Department for a license and under our Executive Order
process we have to refer that to both the Defense and State
Department for their review. And in that process, if either
agency thinks that item is actually subject to State
Department's jurisdiction, they stop that process and we put it
in the commodity jurisdiction realm.
So I think part of the GAO concern was that an exporter
could sort of self-classify and ship without government
authorization. But under the system, they either have to go
into the State Department or they have to come in to us for any
missile technology item.
Senator Voinovich. Ms. Barr.
Ms. Barr. The comment that I would like to make with
regards to that is lets put ourselves in the seat of the
exporter. I think it needs to be very clear up front whether
these items are either on the USML or on the CCL list. I would
not want to be an exporter who comes through a system only to
find out after months elapsed and after it has been staffed out
for review that you don't fit under the Commerce Department
anymore, but instead, you are under the State Department. Now
you have to come back in under a different set of reviews with
a different set of compliance requirements and costs. That is
just not the way to do business. Items should appear on one
list or the other and it should be clear from the get-go.
Senator Voinovich. When you were putting your plans in
place, how much input did you get from your external customers?
We have some people representing industry here. Did you sit
down with them and say, what are your problems? Did you get
their input so that you could at least find out how the
customers feel and what you could do to satisfy them?
Mr. Mull. Yes, sir. At the State Department, we have a
group called the Defense Trade Advisory Group in which the
defense industry regularly participates and provides advice to
the Secretary of State and all of us who work on these issues
at the State Department.
In addition, and I should have paid tribute to this in my
opening statement, the Coalition for Competitiveness and
Security, a very high-level group, a consortium group of
leading defense industrialists, made some very important
recommendations to the Administration last year that had a
really important impact on--they made a series of 10 to 12
recommendations about how we could improve and we have
implemented almost every one of their recommendations. There
are a few that we were not able to because of legal problems or
philosophical differences, but the vast majority, we did
implement.
Senator Voinovich. In other words, if I got them in a
corner and said, what do you think about it, they would come
back and say, I think they have done a pretty good job of
putting it in place, or would they have some strong
reservations yet?
Mr. Mull. Well, sir, we have gotten very positive feedback,
but I do encourage you to ask them because if they have a
different view that they haven't shared, I would love to hear
it.
Senator Voinovich. Well, they have all got to deal with
you. Senator Akaka.
Senator Akaka. Thank you. We will have a second round.
Ms. Barr, in your testimony and in a 2006 report, GAO found
that the Commerce Department did not have measures of
effectiveness to assess its performance. Will you please
elaborate on this and how this situation can cause problems?
Ms. Barr. What we found in the case of the Commerce
Department, there were certain measures that looked at their
system in terms of how long it took for a license to actually
be processed, and those measures focused on primarily the up-
front part of the process, how long it took to staff a case
out. But there weren't measures in place to actually come back
and report to them on how long it took for the whole process if
it was staffed out. We had indicated that it would be important
to know at each stage of the process. For example, how long
does it take to get outside of the Commerce Department, how
long does it take with the other agencies, and what are the
overall processing times.
Now, efficiency measures are just one part of
effectiveness. I also think that it is absolutely critical for
any agency with any goal, with any mission, particularly as
important as this, to analyze data to look at what applications
have come in, which have required licenses, which have gone out
without licenses, what items have we shipped to where, and what
intelligence information do we have regarding the cumulative
impact of what we are shipping to certain countries under
certain commodities. These are the kind of effectiveness
measures and studies that we are calling for and some of the
due diligence that we are asking for.
And I think, as Mr. Borman indicated, there are new
initiatives in place now to expand the assessments that they
are doing. We have not yet had an opportunity to look at that.
But we are aware that there are some initiatives underway.
Senator Akaka. Mr. Borman, do you agree with GAO's
assessment about the status of your measure of effectiveness
and have any comment on that?
Mr. Borman. Well, we certainly agree with GAO that it is
very important to be able to measure as many pieces of your
system and then measure it overall, as well, and as I mentioned
in my statement, we have added additional effectiveness
measures. Just to touch on two pieces that were just mentioned,
under our Executive Order, we have 9 days to process internally
a license application and then it goes to the agencies. They
have 30 days to review. By our metrics, we know that the
Commerce Department averages 2 days to review. The agencies
generally do their reviews in 12 to 14 days, and our average
overall processing time is 28 days. So we now have a system in
place to track all those pieces.
We also have added a new way of measuring effectiveness
compliance with our regulations now that we have access to
actual export data. We can analyze the filings in the Automated
Export System against the regulations, and this is something
that GAO has not had a chance yet to look at and review, but
this is another very useful new tool to measure whether our
U.S. exporters are really complying with our regulations.
Senator Akaka. Mr. Borman, in Mr. Poneman's testimony, he
proposed the creation of an export control career path for
Bureau of Industry and Security (BIS) staff. Could you comment
on that? Is there such a career path now, in your view?
Mr. Borman. Well, in our Bureau, we are, of course, headed
by political leadership at the Under Secretary and the
Assistant Secretary levels, but at the Deputy Assistant
Secretary and below, we are all career civil servants and
certainly in our licensing ranks, we have a range of GS levels
so that someone could certainly and have come in, say, at GS-12
level and by gaining experience and taking different jobs,
could move all the way up to the GS-15 level, which is the
highest in the General Schedule. So I think we do have a good
system in place to allow people to stay in, and we have quite a
few licensing officers who have been at this a very long time
and are really experts in their subject areas.
Senator Akaka. Mr. Borman, in your testimony, you stated
that since the Export Administration Act has not been updated,
the enforcement authorities of BIS's special agents have not
kept pace with the challenges of proliferation and
globalization. Could you explain how BIS's special agents work
with DHS's Immigration and Customs Enforcement and Customs and
Border Patrol agents?
Mr. Borman. Yes. Our agents have a very close working
relationship with both those units of the Department of
Homeland Security. On the Customs and Border Protection side,
for example, on a daily basis, we send them updates of
licensing decisions. So at the ports and borders, the
inspectors have the most up-to-date information on what
transactions are approved under the Commerce Department
licenses so they can check shipments efficiently and
effectively.
On the investigative side, we often do joint cases with our
Customs colleagues and we have an MOU that we have had in place
for many years to make sure that functions very smoothly, and
quite a few of our cases, particularly on the criminal side,
are joint cases with Immigration and Customs Enforcement, as
well as the Department of Justice.
Senator Akaka. Mr. Borman, in an April 2, 2008 article in
the New York Times entitled, ``U.S. Alarmed as Some Exports
Veer Off Course,'' reporter Eric Lipton identified that U.S.
exports to the United Arab Emirates were diverted to countries
like Iran and Syria. I am concerned that there may not be
enough staff monitoring exports to the UAE. What is the current
number of export control officers assigned to the UAE?
Mr. Borman. We have one attachment stationed in Abu Dhabi
who covers the UAE, and the way that we are getting at that
issue--there are several ways, of course. One is close
cooperation with the government of the UAE. They recently
passed their own export control law and I was there with an
interagency delegation 2 months ago and they are, in fact,
enforcing that law, they have told us. They continue to need to
do more to implement that system.
We also imposed specific additional controls on a whole
range of foreign trading companies, including some in the UAE,
over the last few years where we had strong reason to believe
that they were importing low-level uncontrolled items that were
showing up in Iraq and Afghanistan. So we have several ways to
get at that issue.
Senator Akaka. Let me ask, how do you determine if there is
a sufficient number of staff to keep up with the potential
violations and transshipment activity in the UAE?
Mr. Borman. Well, it is a constant process of monitoring
what trade goes through there, looking at the relevant
classified information, and having agents assigned. Now, some
of the enforcement authorities that are in Senator Dodd's bill
would also get at that because that goes to foreign
investigative authority.
Senator Akaka. Thank you. Ms. McCormick, the DDTC,
Directorate of Defense and Trade Controls, faced an almost 20
percent increase in the number of licensing cases between 2003
and 2006. The Foreign Relations Authorization Act of Fiscal
Year 2003 states that the Secretary of Defense should ensure 10
military officers are on detail to DDTC. In a 2007 report, GAO
revealed that DOD provided only three to seven military
officers to DDTC at any given time. Is DOD currently assigning
the mandated number of military officers to DDTC?
Ms. McCormick. Well, Mr. Chairman, it is obviously--you can
imagine under the current circumstances we are, where our
military is serving in so many operational assignments, we have
a lot of shortfalls in our personnel, and to be perfectly
frank, I actually have in my own organization, don't even have
the number of military officers that were assigned to my
organization. I have had some vacancies in my own organization
upwards of 3 years where the military services have not
assigned officers to me.
But I understand here recently there has been some movement
to provide some additional military staff to the Defense Trade
Controls, the State Department, I believe right now, and I can
check this for the record then to make sure, but I think right
now we are up to eight officers that are assigned over at the
State Department.
Senator Akaka. Thank you. Mr. Reinsch in his written
testimony proposed the idea of a unitary--handling both arms
and dual-use technology--export licensing system that operates
in an interagency framework. How do you feel about Mr.
Reinsch's idea for a single interagency coordinating body?
Ambassador Mull.
Mr. Mull. Thank you, Mr. Chairman. The State Department
does not have an official position on that idea. My personal
view is that, as I mentioned in my opening statement, there are
inherent tensions in this entire function of government in
which we have to balance our national security interests
against our economic and commercial interests, and some of the
frustration that users of this system encounter results from
the tensions bubbling up to higher and higher levels, where it
takes longer than the consumer might like to resolve what
particular factor is more important, the national security or
the economic and commercial dimension.
I think those institutional tensions are going to exist
regardless of how we organize ourselves as a government. If
there were one agency doing all of this, you would find the
same tensions and disputes that we have now, just given rise in
a different kind of setting.
I think what is important is to make sure that we as a
government have as efficient a way as possible of managing
those natural differences and tensions in a way that is quick
and transparent to the user of the system, and I hope certainly
by the end of this year with the President's Directive we will
be in a much better place than we have been.
Senator Akaka. Thank you. Ms. McCormick.
Ms. McCormick. Thank you, Mr. Chairman. It is probably a
little easier for me to say this since my agency doesn't have a
regulatory role here, so I sort of sit between the two agencies
that have the regulatory responsibility. But I think one of the
things I see is we actually are organized--and maybe the way we
are organized is an interesting comment on this--in my
organizational structure, the technical workforce that I have,
because I have got a very solid technical staff of engineers
and scientists, we have chosen in that particular case to
organize along technology lines, and so my engineers and
scientists actually review both dual-use and munitions licenses
because we believe what is important for us to understand is
the technology, how that technology is evolving, and what are
the implications for the Department of Defense for that
technology.
But then my licensing officers, while I have one licensing
shop, I have it divided between munitions and dual-use
predominately because of the different regulatory regimes that
we need to deal with and the fact that we need to interact with
different people.
But I think some of the initiatives that we are pursuing
right now collectively as part of the President's initiatives
are really aimed at having the overall system be more
transparent, and I can tell you the two gentlemen who are
sitting on either side of me, the relationships, the
professional relationships we have and the orientation we have
to making change, I think it is very strong and I think that
collaboration right now and the agencies working together in a
more predictable and transparent manner is happening and can
only get better.
Senator Akaka. Thank you very much. Mr. Borman.
Mr. Borman. Mr. Chairman, I would like to answer this in
two parts. One is, as with the State Department, the Department
of Commerce does not have an official position on that
proposition.
I can tell you, as a career civil servant in this area, we
have spent a lot of effort doing our interagency coordination
focusing on the functions and the principles. To the extent
that there would be an effort to create a unitary entity, I
think that would divert a lot of attention and focus from the
functioning to the structure and the process and inevitably
that would be a fairly long undertaking. So I would just add
that note to anyone who is thinking of pursuing that line, that
there would be a lot involved just on the functional part,
which by definition I think would take away from the current
work that is being done because there are only so many hours in
the day that each of us has.
Senator Akaka. Thank you. Ms. Barr.
Ms. Barr. I think your question goes to the heart of our
recommendation in the high-risk series, which calls for a
strategic reexamination of what is needed. These programs have
been in place, and I think in one of the opening statements are
referred to as relics. They have been around for a long time. I
think what this calls for is a reevaluation of the programs,
ask some questions basically about the relevance of the
program, the missions, the goals, what is it that we need to
control, what is it that we can share with others, and then
what is the framework that we need to best equip us to do that.
Clearly, any interagency process is messy from the get-go.
So, when there is not clear communication and coordination, it
further exacerbates the problem. Those are issues that I think
can be resolved with the current structure.
I would also make just one other comment. If you look
abroad, at other countries' systems for export controls, I
think it is quite interesting that you will find that in many
other countries, they have single licensing agencies for export
control. So it is just an interesting point of comparison.
There could be some things to be learned from that.
Senator Akaka. Thank you very much. I want to thank this
panel very much for your testimonies, your responses. It will
be helpful to us, and again, I thank you and we will have our
second panel. Thank you.
Mr. Borman. Thank you, Mr. Chairman.
[Pause.]
Senator Akaka. This hearing will be in order.
I want to welcome the second panel of witnesses. They are
the Hon. William Reinsch, President of the National Foreign
Trade Council and former Under Secretary of Commerce for the
Export Administration, Department of Commerce. Also, Daniel
Poneman, Principal of the Scowcroft Group and former Senior
Director for Nonproliferation and Export Controls, National
Security Council, and Edmund Rice, President, Coalition for
Employment Through Exports.
As you know, it is the custom to swear you in, so I ask you
to rise and raise your right hand.
Do you swear that the testimony you are about to give this
Subcommittee is the truth, the whole truth, and nothing but the
truth, so help you, God?
Mr. Reinsch. I do.
Mr. Poneman. I do.
Mr. Rice. I do.
Senator Akaka. Thank you. Let it be noted in the record
that our witnesses answered in the affirmative.
Let me call for your testimony, and let me call on the Hon.
William Reinsch for his testimony first.
TESTIMONY OF WILLIAM A. REINSCH,\1\ PRESIDENT, NATIONAL FOREIGN
TRADE COUNCIL
Mr. Reinsch. Thank you, Mr. Chairman. I think we decided a
few minutes ago this is the geezer panel. All of us have been
involved in this issue for a long time, in my case for more
than 30 years, and we have a wealth of experience from
different perspectives, both inside and outside the system. My
own statement provides a little bit of detail about my
background.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Reinsch appears in the Appendix
on page 70.
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Consistent with the Subcommittee's jurisdiction, I want to
focus on management and organizational issues that have
impacted export control administration. My fundamental
conclusion from having observed the system from both inside and
outside is that it does not function well despite efforts over
the years to clarify and simplify the process.
From the perspective of users of the system, the main
problems are delay and uncertainty in decisionmaking, and in
the case of weapons, repetitive licensing requirements.
Applicants can face these problems initially if there is
uncertainty or interagency disagreement over whether their
proposed export is a dual-use item or a weapon, and then
subsequently in the licensing process itself. In addition,
failure to keep the control list up to date by removing lower-
level items that have become widely available has led to a
constantly increasing number of applications, which puts a
growing burden on the bureaucracy to process them.
The fundamental characteristic of export control
administration, whether dual-use or weapons, is that both
policy and specific licensing decisions inherently involve
multiple equities. Selling the controled item is a foreign
policy decision, a national security decision, a commercial
decision, and often a nonproliferation or energy policy
decision. Those equities are invested in different Federal
agencies, all of which deserve to be part of the process.
My experience has been that the government makes the best
decisions when all relevant agencies are involved in the
process and each plays the role assigned to it as part of its
mission. That, however, creates a cumbersome bureaucracy
because it means the various departments as well as the
intelligence community need to work together.
The need to cooperate at both the technical and policy
levels has been the weak point of this system for years. On the
dual-use side, the system is effective on paper, thanks to an
Executive Order of December 1995 that set up a ``default to
decision'' process that established rules for the referral of
applications to different agencies and then permitted decisions
to be made at the senior career level by a single agency after
extensive consultation, but allowed them to be appealed to
political levels where agencies vote. Mr. Poneman is largely
responsible for that Executive Order, so he may want to spend a
little bit more time on it.
In reality, things do not always work quite so smoothly.
Making the wheels turn requires persistence and discipline.
Deadlines become meaningless if they are not enforced. Deciding
an application, or more likely a number of them, raises a
policy issue that can take the matter out of the system
entirely and leave the license applications hanging while the
agencies haggle over the underlying policy.
On the weapons side, the State Department has been its own
worst enemy, largely by resisting transparency and information
sharing with other agencies and by insisting on a system that
requires a separate license and thus a separate decision for
each piece of a transaction or each part of a technology
collaboration instead of issuing project licenses that cover
all transactions relevant to a specific program.
As a result, the number of applications has been growing 8
to 10 percent annually and is now nearing 100,000 cases. A
significant portion of this increase is attributable to U.S.
Government defense and security initiatives that involve close
collaboration between the U.S. and its allies. Successful
execution of those collaborative programs requires appropriate,
timely sharing of technical data and technology over the entire
life cycle of a project. Requiring separate licenses for each
transaction within a project after the government has already
made the policy decision to go forward places an enormous
bureaucratic burden on the State Department, frustrates our
allies who have been told we want to work cooperatively with
them, only to find that basic decision second-guessed over and
over again, and creates inevitable delays for the companies
seeking to bring these projects in under budget and on time.
In such cases, a project licensing approach that authorizes
an entire project within specified parameters, along with
reliance on trusted or validated foreign parties whose
technical and security credibility has been established, would
obviate the need for licensing of certain components of a
collaborative program, or at least reduce the number of
licenses required for activities that are predictable and
repeatable. This would eliminate a major bottleneck, support
effective program management, and strengthen cooperation with
our allies.
Probably the most unsatisfactory aspect of the current
system, and the previous panel discussed this, is the commodity
jurisdiction process, the process by which the State Department
determines whether an item is military, subject to its
licensing, or dual-use, subject to Commerce Department's
licensing. This authority belongs to the State Department,
which over the years has not only refused to share it, but has
been reluctant to take advice from other agencies, even though
it has no technical expertise of its own and has been
particularly opaque in explaining the reasoning behind its
decisions.
This has become much more important in the past decade
because the line between military and dual-use items is
increasingly blurred, thanks in large part to civilian spin-
offs of military technology. These decisions could have
significant effects on a company's business strategy, since
determining that a license is military subjects it to more
restrictive licensing.
Another major issue is list reduction. The last time the
dual-use list was significantly updated was in 1994. Occasional
changes have occurred since then, but periodic regular reviews
have been frequently promised, occasionally begun, and never
completed. The result is a control list that has not been
reviewed in light of rapidly changing technology and
increasingly widespread foreign availability and as a result
has been growing when it should be shrinking. This, in turn,
means more licenses are required in cases where our foreign
competitors are not similarly constrained, resulting in loss of
competitive advantage for American companies and no damage done
to the end user, who simply buys a comparable European or
Japanese product.
Now, over the years, there have been a variety of proposals
for reform. There are essentially three approaches that I want
to comment on. The first is tweaking the increasingly creaky
current system, applying duct tape and wire to keep it
operating. The Coalition for Security and Competitiveness, of
which my organization is a member, has proposed a set of
administrative changes for both licensing systems that would be
helpful in making them more efficient, and we support those
strongly and are glad to see that the Administration is
proceeding to implement them. They are not, however,
fundamental reforms.
The second way to go is to eliminate interagency squabbles
by creating a unitary independent agency to administer both
dual-use and weapons programs called the Office of Strategic
Trade in legislation proposed in the 1980s and 1990s. My
written statement, Mr. Chairman and Senator Voinovich, provides
some detail about why that won't work.
To save time, I will skip to the proposal that I think will
work, which is an approach to create a unitary system that
operates within an interagency framework. In it, the
distinction between military and dual-use items as far as
licensing is concerned would be abolished. All would be subject
to the same procedure, thus eliminating the commodity
jurisdiction issue that has plagued the current system while
still ensuring that all relevant parties are able to
participate in the process.
The system would be modeled on the Executive Order I
referred to. One agency would act as the mailbox, receiving
applications and circulating them to other relevant agencies
for comment, creating deadlines for submission of agency
positions. In the event of consensus, licenses would be granted
quickly. In the event of conflict, the default to decision
process I described would be used. By including the innovations
I mentioned, like project licenses and the identification of
trusted end-users eligible for streamlined treatment, we could
reduce the volume of applications that are routinely approved
and thereby significantly increase efficiency.
I have not in my comments, Mr. Chairman, addressed the
question of resources and I want to make clear that is not an
oversight. A plea for more resources is the standard response
of every Federal agency to every problem. When I ran BIS, I
made the same plea. More money in this case would no doubt be
helpful, particularly after the significant BIS budget cuts
this year that Mr. Borman referred to. I do not, however,
believe it is the most critical issue. Competent dedicated
civil servants labor in a system whose problems are self-
imposed, or in some cases imposed by Congress. Adding money
will not clear away the obstacles to efficient Export Control
Administration. It will simply allow more people to be
inefficient. I would encourage the Subcommittee to address the
fundamentals, however difficult that might prove to be, rather
than settle for palliatives.
Finally, Mr. Chairman, let me congratulate you and the
Subcommittee on your examination of this issue and let me urge
you to continue with it. During my time working on export
controls, I have been involved in one way or another in 13 or
14 efforts to rewrite the EAA. I have lost count. Only five of
those succeeded and the last one was 20 years ago. This is
admittedly a difficult area. It is complicated and
controversial. I hope your oversight efforts will lead you to
some useful conclusions and that you will then work with the
Banking Committee on legislation to implement them. Thank you.
Senator Akaka. Thank you very much. I should mention to you
that your full statements will be included in the record.
Mr. Poneman.
TESTIMONY OF DANIEL B. PONEMAN,\1\ PRINCIPAL, THE SCOWCROFT
GROUP
Mr. Poneman. Thank you, Mr. Chairman, and Ranking Member
Voinovich. I am delighted to be here. I will try to be
succinct.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Poneman appears in the Appendix
on page 74.
---------------------------------------------------------------------------
I believe that the U.S. export control system is an
anachronism. It was designed for a world that no longer exists.
When the last rewrite of the Export Administration Act was
signed by a President into law, the hammer and sickle still
rose above the Kremlin, CoCom still existed, the Berlin Wall
stood tall. All that has changed. CoCom's successor doesn't
have the strength that CoCom had. In fact, it seems almost
quaint to recall that under CoCom, the United States had the
right to reject an export from an allied country to a third
country; and that worked.
Meanwhile, Federal structures have not been updated to
accommodate this new reality. They have not accounted for the
changing role of technology. They have not accounted for the
globalization of technology. They have not adequately accounted
for the increasing availability overseas of the same technology
that we seek to control. And meanwhile, the internal stresses
and strains that you heard reported in the earlier panel
continue to plague our export controls.
What is to be done? For years, as Mr. Reinsch has reminded
us, we have tried unsuccessfully to fix the system. Reviewing
for this afternoon's testimony, I looked at a panel I
participated in mandated by the Congress in the late 1990s, and
I will submit a copy of the export control chapter for the
record.\1\ It still makes good reading. Unfortunately, it is
still relevant. In other words, it has not been implemented.
---------------------------------------------------------------------------
\1\ The copy of the Export Control Chapter 4 submitted by Mr.
Poneman appears in the Appendix on page 109.
---------------------------------------------------------------------------
So let us go to first principles. Why do we have export
controls? I dwell on a few reasons in my written submission. I
will just note here the prevalent one, in my view, is to
protect U.S. and allied military advantage over our
adversaries. That means we have got to protect the source of
our military superiority. That is increasingly innovation and
the technology that keeps our fighting forces the best-equipped
in the world. And over time, as we all know, that technology
has come increasingly from the civilian sector and from
investments financed by retained earnings, and therefore we
need to encourage that kind of investment in advanced
technology. Many of these companies that make these investments
rely on exports for their health.
Therefore, to the extent that we throttle those companies
by unnecessary--an important qualification--export controls, we
are throttling our own source of innovation and our own source
of military strength. The commonplace that you hear--national
security versus economic security--is false dichotomy. Economic
strength drives military strength.
What would I do? First of all, reform is way overdue. We
need to rewrite the Export Administration Act. It has
distinctions that are rooted in the CoCom system that is gone
and what it should do is, in place of talking about national
security controls and foreign policy controls and anachronisms
from the past, it should focus on multilateral controls versus
unilateral controls. That actually matters. And it should be
harsh on unilateral controls because to a first order, my view
is that unilateral controls tend to fail and therefore they
should be subjected to some rigorous disciplines and oversight
by the Congress to see if they are going to achieve their
stated mission.
Second, under this new law, all U.S. export controls should
be implemented pursuant to what I would call generally accepted
standards of good government. Mr. Reinsch referred to these.
They were codified for the dual-use system in Executive Order
12981, which I would also like to see included in the
record.\1\ I don't want to run over time, so I will summarize
by saying that they are characterized by certain principles:
---------------------------------------------------------------------------
\1\ Copy of Executive Order 12981 submitted by Mr. Poneman appears
in the Appendix on page 105.
---------------------------------------------------------------------------
One, transparency. All agencies get to look at the license
applications or commodity jurisdiction submissions.
Two, deadlines, and a deadline means if you don't meet the
deadline, it defaults to a decision, not to paralysis.
Three, accountability. Whoever is responsible for enforcing
these controls should speak to the Congress and the President,
and explain how they are implementing these reforms.
Now, when this is first put into place, this kind of a
system, I think you will need an overall list review. It seems
to me when you were talking about the tens of thousands of
applications that we heard in the earlier panel, that says to
me there is something wrong about the size of our effort versus
the size of the problem, and I think we need to address that
head-on. Presumably, it would produce a result of higher fences
around fewer items, but we should go through that exercise.
But second, once that review was complete, I think we
should let the process decide which items should be controlled
and should not be controlled, and this would be my last point
so I will just dwell on it for a moment. Many of us were
involved in discussions in the 1990s about whether
communication satellites should shift from the munitions list
to the dual-use list and back, and we had endless conversations
among people who knew very little about the underlying
technologies.
And I remember that for me, the penny dropped in talking
with my interagency colleagues when I said, let us just say on
the nine parameters defining which satellites were munitions,
baseband processors and embedded encryption and so on, if we
agree on this today, how long would that solution last? Six
months? Eighteen months, max? We don't need a point solution.
We don't need to write that in a regulation. It took us longer
to write the regulations than it took the companies to come up
with the next-generation technology.
What we need is to have a process as you have in common
law. You have a case in controversy. You look at this item
coming up for consideration and say, does this present a threat
if exported? And you let, if you will, a common law system
replace what we now have more of a civil code, line-drawing,
definition-drawing kind of approach to export controls.
Now, I do not suggest this is the only solution, but I do
think that when we have a new Administration coming up of
either party, it is a rare opportunity and an important time,
given the stakes for our Nation and its security, to really go
back to first principles and try to do it right. And in that
respect, as my colleagues before me, I would like to commend
and welcome the Subcommittee's efforts to participate in that
effort and I am sure all of us would be grateful for further
opportunities to assist in any way we can. Thank you, sir.
Senator Akaka. Thank you, Mr. Poneman. And now we will hear
from Mr. Rice.
TESTIMONY OF EDMUND B. RICE,\1\ PRESIDENT, COALITION FOR
EMPLOYMENT THROUGH EXPORTS, INC
Mr. Rice. Mr. Chairman and Senator Voinovich, thank you.
You asked us to use the GAO high-risk report as the jumping-off
point for our testimony, so let me make four quick points
summarizing my written statement.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Rice appears in the Appendix on
page 78.
---------------------------------------------------------------------------
The first is that the GAO report traces export control
problems to weak interagency coordination and inefficiencies. I
think the Subcommittee should take a broader and more
fundamental look than that. I believe the weaknesses stem from
more basic policy issues which are not being addressed and
those are then reflected through the operations of these export
control systems.
My second point is that in the dual-use system, the U.S.
Government, and that is both the Executive Branch and the
Congress, is having difficulty in adjusting U.S. policy and
export controls to global forces, which you both noted in your
opening statements. Dual-use technologies diffuse. There is
almost nothing on the dual-use control list that is U.S.-only
sourced. Almost everything now can be purchased globally. There
is a growing disparity between the U.S. and other governments'
policies on export controls, leading the United States to
increasingly move toward unilateral controls, as the previous
witnesses have also mentioned. And military capability
increasingly depends on commercial technology, which is
changing the make-up of the defense industrial base and the
responsibility of the export control systems to take that into
account in their licensing decisions and policies.
My third point is that these global forces are working
against U.S. controls, particularly when they are unilateral.
In the most recent control initiatives by the U.S. Government,
that is the recontrol of certain technologies to China to try
to prevent the Chinese military from getting these items, and
the new rulemaking that is just underway to attempt to control
the transfer of technological knowledge to certain foreign
nationals when they are in the United States are both
unilateral controls and are destined, as Mr. Poneman just
indicated, to not be successful.
My fourth point is that in the munitions area, the export
licensing system has not kept up with the direction of U.S.
defense policy, again as Bill Reinsch first mentioned.
Multinational defense cooperation and joint operations in the
field have not been adequately supported by the licensing
system, and in fact, that has been one of the major impetuses
for the Executive Branch to take on the reforms that they
described in their testimony because of the rising chorus of
complaints from the acquisitions people at the Pentagon and our
combatant commanders.
So my conclusion is that the Executive Branch is moving to
address some aspects of the logjam through their reform efforts
and these efforts have been underway since the January 2007
high-risk report was issued. But more resources and greater
efficiency cannot address the global dynamics without a more
fundamental look at policy and policy changes and that is a
management issue at a higher level than the GAO has analyzed.
Thank you.
Senator Akaka. Thank you, Mr. Rice. And now, Senator
Voinovich for your questions.
Senator Voinovich. Thank you, Mr. Chairman.
This has been around a long time, hasn't it, this whole
issue? As a member of the Senate Foreign Relations Committee, I
am always concerned with who is paying attention to management.
Dick Armitage paid a lot of attention to it, and then Zoellick
came in and he toured the world, and we had Henrietta Fore and
now we have Patrick Kennedy there. I just don't think they pay
enough attention to management in the State Department. From
what I have heard, the GAO has come back with a nice report,
but you really think you ought to junk the thing and come up
with a whole new system that is relevant to being in a global
marketplace and how everything has changed.
Would any of you be willing to sit down with the other
people who are at this table and come back with a comprehensive
recommendation from the users on how this thing could be
improved and share it with this Subcommittee? I understand you
represent the private sector, but you are the customers. I
mean, you are coming to the shop, and when I was governor, when
I was mayor, if I had lots of complaints from people out there,
what I did was get my folks together with them. The other thing
I found out is a lot of times, people in the agencies are not
happy with the system, either. They have some ideas on how
things can be improved.
But would you be willing to sit down and come back with
recommendations on how you really think this thing could get
done properly and maybe have that available to the next person
over there so that maybe we can make some headway with it and
try and get somebody in a new Administration to be in charge of
the transformation because you know very well it is not going
to happen in a year. It is going to take a couple of years to
get--more than that, probably, if you are going to really get
the job done.
Mr. Poneman. Oh, yes. I might just say, Senator, I suspect
I was joking beforehand, none of us had gray hair when we
started working on export controls. Now, I won't say how much
came from export controls, but some. But I think, speaking for
myself, I would be willing to work with anyone who is committed
to trying to improve this system because I genuinely believe we
have already paid some price in our security for lack of
reform. I don't want to see us pay a higher price, and my
assessment from having seen so many of these efforts fail,
Senator, is that each President gets about one shot and that
shot lasts about 1 year. And now would be the time to lay the
intellectual groundwork, and frankly the stakeholder buy-in,
that could allow any President come January 20 to say, OK, we
are going to fix this. I would be happy to participate.
Senator Voinovich. Gentlemen, I would be interested if you
folks would get together and share that with us, come back, get
everybody at a table and say, this is what we think is a
consensus on how we really straighten this out. I am sure that
Senator Akaka and I would be glad to work with you and maybe
get somebody from the Department there and get GAO at the table
and work out a strategic plan and set some goals. Mr. Reinsch,
you don't think that they need more people there, or----
Mr. Reinsch. I think more money would be useful. I know
more about BIS than the State Department. Certainly, more
resources would be welcome. However, as long as the system is
the way it is and the number of licenses are growing the way
they are, you can give them all the money in the world and it
is not going to improve the functioning of the system. You need
to get a handle consistent with what Mr. Poneman suggested of
what it is you are trying to control, and if you do that, then
you can operate more efficiently. My guess is, if you do that,
you can do it with the number of people they have now.
I am happy to participate and am very much interested in
doing exactly what you have suggested. Mr. Rice and I
periodically convene a group that consists of, as near as I can
tell, most of the companies who care about this, and we are
happy to enlist them.
I would add a cautionary note, Senator, that we have been
down this road before and our experience is that the proposals
that industry comes up with and submits to the Congress tend to
be the high-water mark from our point of view. The criticism
and the attacks come always from only one side, from the people
that want to have more controls, and the amendments in Congress
come only from one side, from the people who want to have more
controls, and the business community generally starts with high
hopes and ends up being disappointed with the process. The
result has been that there is, frankly, in the business
community, some cynicism about going down this road again
because they have been disappointed in the past.
Senator Voinovich. Well, I don't think there is any other
option.
Mr. Reinsch. Well, that said, I think we are happy to
undertake it, but I just want to----
Senator Voinovich. I just think that we are vulnerable
right now and I think that we need to get on it.
It is the management here. In so many areas, it is archaic,
an anachronism, you name it. And if we don't get it right one
of these days, we are in really deep trouble because other
people have these technologies. I think what you were saying is
if I am a business person today and I have to come up with
technology and I know it is not going to have to abide by
certain restrictions, then I am going to go with the more
relaxed level of regulation rather than get involved with
regulations that could be very important to our national
security, but are less convenient for my business. So I will
say, well, here is where I am putting my money and I will go
that direction. So, in effect, what I think you are saying is
that stymies people from going forward because they figure, I
have to make some money and if I am going to go over here, I
may not ever be able to get it off the ground.
Mr. Rice. Senator, you identified the critical element for
moving forward, and that is leadership by the White House,
usually a new White House. When President Bush came into
office, he was seized with this issue and spent a lot of time
on it in the first 8 months of 2001 and a great deal of
progress was made. But then, of course, September 11, 2001, and
the efforts were eclipsed. But they said to me at the time that
it can be done.
Senator Voinovich. And you need somebody at the State
Department that pays attention to management and
transformation.
Mr. Rice. That is right.
Mr. Reinsch. And in that regard, Senator, they are a lot
better than they used to be. To give the State Department
credit, I think the current management is a significant
improvement over previous management in both this
administration and the previous one.
Senator Voinovich. Well, I have to say that I was impressed
with the first 4 years and what Armitage did, and Condoleezza
Rice is a very fine woman, but I think that there wasn't
anybody over there that was paying enough attention to
management and getting up early in the morning and moving the
system along. I think we fell down. Thank you.
Senator Akaka. Well, thank you, Senator Voinovich.
Mr. Poneman, you recommended the creation of an export
controls career path. Could you please elaborate on this? You
mentioned some things, but can you elaborate on this,
describing what it would look like?
Mr. Poneman. It is a concept, Mr. Chairman, that is rooted,
again, in the changing world that we live in, and my own
personal experience is that the private sector, by definition,
pays some significant premium over salaries that are paid in
the government and you end up with technologies, sir, that are
being analyzed by people who might have had their training many
years ago and they are trying to, frankly, keep up with the
private sector, and it is hard to do.
I was not speaking specifically about the Commerce
Department. I would say probably the Commerce Department is the
one place where that is more of a defined career path in export
controls, but there are other parts of the interagency where
you need to do the analytical work that says, this technology,
that is too dangerous. This one, no, that is really available
in six other countries and so on. That is the kind of agency
that requires a career path that says, if you get into this,
there are promotion opportunities and they could be SES slots
or whatever is done inside the Federal Government to ensure
that you get the best and the brightest and that they are
invested with a mission that they believe in.
I don't have a detailed proposal, sir, but I think
something that would enable the Federal Government to have at
its disposal first-line, first-rate technologists to be good
enough to analyze the technologies that may or may not be
dangerous going out the door because if you don't have people
who are good enough to do that kind of analysis, then the whole
system starts to break down.
Senator Akaka. Mr. Poneman, isn't there an export controls
or licensing officer career path now, and if not, why not?
Mr. Poneman. Well, first of all, I have been out of
government for a number of years. As I said, my impression is
that in the Commerce Department, there is. But I think that in
some parts of the extended complex, in different agencies to
which these licenses are referred within the first 9 days, the
license is, I think, understandably referred to people who have
technological expertise wherever they may be found. They may be
found in parts of agencies that aren't committed to export
control itself but may be, if you will, the U.S. custodian of
those kinds of technologies, and it is in those kinds of
circumstances that I think there just need to be ways to
compensate and advance those people to show that they are
valued in the U.S. Government system and so that they are
attracted to serve.
Mr. Reinsch. May I comment on that, Mr. Chairman?
Senator Akaka. Yes, Mr. Reinsch.
Mr. Reinsch. I think you have hit on something important,
but I would frame it a little bit differently. At the
Department of Commerce, within that Bureau, the only mission is
export controls and the people there are, therefore, committed
to it and they are trained to do that. At the Department of
Defense and Department of State, this is a minor matter
compared to the many other missions that they have.
One of the problems I have always observed at the Defense
Department, for example, is at the political management level,
everybody is too busy to spend much time on this. I mean,
functionally, despite lines of authority, functionally, there
really isn't anybody between Ms. McCormick, who is a Director,
and the Deputy Secretary who focus on this with any large
percentage of their time.
In the State Department, this is not a path to career
success, being in DDTC. It is something that you do if you
don't want to travel and you are not a Foreign Service officer.
How you upgrade, if you will, these units and make the
function more important within their Department, it seems to
me, is what it would be useful to focus on, and that in part
relates to something that Senator Voinovich said, which is how
do you get senior management in these Departments to prioritize
this problem, take it on board and invest their own time and
energy into managing it and making clear to their people that
it is a valued part of the mission and the people there have a
career path upwards beyond it.
Senator Akaka. Mr. Reinsch, in your written testimony, you
described two different unitary systems, approaches to reform
the export control system. In one case, an independent agency
would administer both the dual-use and arms export control
systems. If such an independent agency was created, who do you
think would or should administer it?
Mr. Reinsch. Well, that is why it probably won't be created
because we won't be able to reach agreement on that question.
The original idea, which was proposed by Senator Garn and
Senator Heinz, for whom I worked, and Senator D'Amato in the
1980s was to create an independent agency by basically ripping
this function out of the existing agencies, simply abolishing
BIS, abolishing DTSA, abolishing DDTC, and creating an
independent agency over here that reported to the NSC and the
President, thus eliminating the interagency squabbles by
eliminating the interagency involvement.
I explained in my statement why I think that won't work,
but simply put, what will happen, if you embark down that road,
is at a key point in the process, the Secretary of State,
Secretary of Commerce, Secretary of Defense will all come in,
not to you but to their authorizing committees and say, well,
this has promise, but there is this small universe of licenses
that we simply have to have a veto over. They are just too
important for us not to have oversight. And their authorizing
committees will agree with that and exceptions will be built
into this new office. In 5 years, the bureaucracy will be back
to normal and those small little exceptions will have grown
into offices that are about the size of the current bureaus.
That is why I ended up suggesting that a better approach is
not to try to cut the agencies out of the process. They all
have equities. They all should be at the table. I think the
system works well--works best when they all are at the table
and playing the roles they are assigned. The salient thing is
if you abolish the difference between dual-use and weapons and
put everybody into the same system, then you eliminate half the
squabbles. You don't get these long arguments, well, is it a
weapon or is it a dual-use item? It is what it is and subject
to the same process.
You use the process that Mr. Poneman described in order to
default to decision and use a series of deadlines and invest in
responsibility in agencies and accountability in agencies to
get to where you want to be at the end. That way, you don't
stick it to any agency, frankly. You leave them as part of the
process, but you do it in a framework where they argue about
what is important, which is should this item be controlled or
not to this end user, and not what is increasingly irrelevant,
is it a weapon or is it a dual-use item. That doesn't matter
anymore. In fact, most of the things they argue about are both.
Why waste time on it?
Senator Akaka. Mr. Reinsch, the first panel did respond to
the question of your recommendations.
Mr. Reinsch. They were unusually polite. [Laughter.]
Senator Akaka. I just wanted to ask you whether you had any
comment on the first panel's response to your recommendation.
Mr. Reinsch. They were more polite than I thought they
would be. I thought Ms. McCormick had it right when she
explained how her unit is organized. They focus on
technologies, which is what they should do. To the extent they
have different people on State and Commerce Department's
licenses, it is because they have a system that forces them to
report in different directions and to deal with different
processes. If they had only one process and one reporting
structure, they could dispense with that and focus on what is
more important, the technologies.
That is the main comment I have. I don't know what they
would say if you got them in the back room and asked them off
the record. It might be an interesting exercise. Mr. Kessler
can do that sometime and see what they say.
Senator Akaka. Mr. Rice, National Security Presidential
Directive 56 put a 60-day ceiling, with some exceptions, on
DDTC's license processing time. According to Ambassador Mull's
written testimony, DDTC has already lowered average processing
time for each license from 36 to 18 days. What, if any,
potential risk does this stated 60-day licensing processing
requirement pose to our economic interests?
Mr. Rice. Well, Mr. Chairman, the 60-day target, and it is
a target in the NSPD, is subject to exceptions where there is a
need for more information, interagency disputes, etc. So it is
really not a hard deadline and I don't think it should be
because as your question infers, there are going to be
instances when difficult issues come up about end uses, end
users, the reliability of information, and more time needs to
be taken, and so some of those cases inevitably will take
longer.
As Bill Reinsch just indicated, though, having some
discipline in the system that is imposed externally on these
agencies is a good thing because it keeps them focused on the
job at hand and ultimately under this new system will require
them to show cause as to why, if there is a pattern of delays,
why those are occurring, and I think that is a good thing.
But your question goes to the heart of the need to take an
adequate time to make the right decision and that is the most
important thing, not a specific time frame.
Senator Akaka. Yes. Mr. Rice, you recommended that we
approve a project or program license for munitions transfers to
a defense project with an ally, but you also testified that we
do not have a common agreement with our allies on dual-use
exports and a common set of policies on munitions sales to
third parties. Why not make one conditional on the other? That
is, why not grant a program license only with States with whom
we have worked out a common policy on dual-use and munitions
sales?
Mr. Rice. I certainly agree with that because again, as
your question infers, if the United States were to simply enter
into these projects willy-nilly with unreliable partners, then
it would increase the proliferation threat, and I think that is
what the United States is doing with these intergovernmental
projects.
The problem that I was trying to elucidate, which I believe
Mr. Reinsch also mentioned in his testimony, is that under the
current licensing system, if the United States enters into one
of these projects, for example, with the United Kingdom or with
Australia, to take two examples of close allies, there is still
a requirement in some instances for thousands of individual
licenses then to be processed for transfers of individual items
or technologies pursuant to a project that the U.S. Government
has already entered into with these other governments.
That is one of the major problems in this explosion of
licensing, which this fiscal year, left untreated, is going to
reach 85,000 or 90,000, and it is one of the reasons why the
heads of state in both the United Kingdom and Australia, went
to President Bush at various times last year and complained
about the munitions licensing system here as interfering with
existing defense cooperation projects.
My point is that if the defense establishment here has
decided and it has been approved to have such cooperation, then
the licensing system should not be an obstacle to completing
that, and some of the companies that are trying to carry out
responsibilities for the United States under contract under
these cooperative agreements have found a significant barrier
just as then-President Howard and Prime Minister Blair found in
reviewing this with their own governments.
So to me, the decision of going to a project or program
license is really going to be a key test of whether these
reforms that were testified to earlier are going to have any
real relevance to fixing the problems. Time tables on license
processing are one thing. Resources are another. But one of the
central elements of real reform, and I think one of the
criteria that some committee ought to use in judging progress
on this, is whether this area is fixed. And since the NSPDs are
classified, as you well know, we haven't been able to see the
black and white, so we don't know. We are hopeful that when
they are finally unveiled that this will be included.
Senator Akaka. Thank you all for your responses. I have one
final question to all of you. You have all recommended ways to
reform the export control system, so my question to you is
please identify your top three recommendations. Mr. Reinsch.
Mr. Reinsch. Well, for my part, eliminating the commodity
jurisdiction problem, the distinction between weapons and dual-
use, list--reviewing and reducing the number of items on the
list, I think those two are overwhelmingly the more important.
Probably the third one would be putting in streamlining devices
like the project license that Mr. Rice talked about and the use
of a trusted end user or validated end user approach where the
credentials or bona fides of end users could be established,
and once established, there could be a stream of technology
flow to that person, that entity, without separate licensing
because they have been vetted. I think those would be my three.
Senator Akaka. Mr. Poneman.
Mr. Poneman. Since I had 2 minutes to think about it, I am
grateful for Mr. Reinsch. I would say my first recommendation
is, and this really falls into the category of what we really
just ought to do to clean this up, we should have a law. We
should have an Export Administration Act under which we can go
around and tell people, this is how a law ought to be defined,
and that law, I think, should not merely tinker at the edges of
the old system. Your able staff should start with a blank sheet
of paper and talk to all their relevant colleagues and
committees. And to my way of thinking, the division should be
unilateral versus multilateral controls because I think that is
where so many of these pivotal decisions get made.
Second, I would strongly urge that the same procedural
disciplines that were codified by Executive Order 12981 be made
generally applicable across the systems, commodity
jurisdictions, licensing, munitions. They are good disciplines.
I think they should apply.
And third, I think we should, again, in terms of
reconceptualizing, think more in terms of a common law
approach. I think, to be honest, it is chasing a will-o'-the-
wisp to say, the regulations just have to be clearer. Just
write it clearer. Just get that last n-th detail, and it is
0.0001 centimeters, not 0.01 centimeters. This approach would
be disaster. What we need to do is to get transparency among
the agencies. If everybody is not included but rather we try to
get the real experts to say, ``this one is dangerous, this one
is not,'' because of an overly prescriptive, if you will, have
a civil code of approach to this thing, I think it is going to
produce mountains of paper and mountains of conflict without a
benefit to our national security.
Senator Akaka. Mr. Rice.
Mr. Rice. Mr. Chairman, I will identify two. One is to
reestablish a high-level policy management of both the dual-use
and munitions systems at the policy level within the White
House. That is far and away, I think, the most important thing.
The second is to give much greater attention to our
diplomacy with our allies on trying to harmonize, to the extent
possible, export control policies between the United States and
other countries because as we move increasingly toward
unilateral controls, which we are doing, we are destined to
have even greater problems with these systems.
Senator Akaka. Well, I want to thank all of you and all of
our witnesses today. It is my hope that the work each of your
organizations is doing will help U.S. export controls systems
become more efficient and effective at balancing national
security, foreign policy, and economic interests.
As with all complex systems, there is always room for
improvement. I believe that our discussion today highlighted
many of the fundamental improvements that can be implemented
now and also when the next Administration takes office early
next year. I intend to follow up with some of the suggestions
you have already made.
This Subcommittee will continue to focus on reforms to
critical aspects of our national security. Over the next few
months, we will examine and seek recommendations for
improvements to our arms control and nonproliferation, foreign
assistance, and public diplomacy bureaucracies and processes.
The hearing record will be open for 1 week for additional
statements or questions other members may have, and again, I
thank you for your valuable contribution. We will continue to
work together on this.
This hearing is adjourned.
[Whereupon, at 4:37 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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