[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

=======================================================================

                                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

                                 ------                                
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\
---------------------------------------------------------------------------
    \1\ The CRS report by Kenneth Katzman and Ian Fergusson appears in 
the Appendix on page 100.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \2\ The CRS report by Ian Fergusson and Richard Grimmett appears in 
the Appendix on page 89.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Mull appears in the Appendix on 
page 37.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. McCormick appears in the Appendix 
on page 44.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Borman appears in the Appendix on 
page 48.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.]


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