[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
EXPORT CONTROLS, ARMS SALES, AND REFORM: BALANCING U.S. INTERESTS, 
                               PART II
=======================================================================


                                HEARING

                               BEFORE THE

                      COMMITTEE ON FOREIGN AFFAIRS

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 7, 2012

                               __________

                           Serial No. 112-127

                               __________

        Printed for the use of the Committee on Foreign Affairs


Available via the World Wide Web: http://www.foreignaffairs.house.gov/ 
                                  or 
                       http://www.gpo.gov/fdsys/





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                                 ______

                      COMMITTEE ON FOREIGN AFFAIRS

                 ILEANA ROS-LEHTINEN, Florida, Chairman
CHRISTOPHER H. SMITH, New Jersey     HOWARD L. BERMAN, California
DAN BURTON, Indiana                  GARY L. ACKERMAN, New York
ELTON GALLEGLY, California           ENI F.H. FALEOMAVAEGA, American 
DANA ROHRABACHER, California             Samoa
DONALD A. MANZULLO, Illinois         DONALD M. PAYNE, New Jersey
EDWARD R. ROYCE, California          BRAD SHERMAN, California
STEVE CHABOT, Ohio                   ELIOT L. ENGEL, New York
RON PAUL, Texas                      GREGORY W. MEEKS, New York
MIKE PENCE, Indiana                  RUSS CARNAHAN, Missouri
JOE WILSON, South Carolina           ALBIO SIRES, New Jersey
CONNIE MACK, Florida                 GERALD E. CONNOLLY, Virginia
JEFF FORTENBERRY, Nebraska           THEODORE E. DEUTCH, Florida
MICHAEL T. McCAUL, Texas             DENNIS CARDOZA, California
TED POE, Texas                       BEN CHANDLER, Kentucky
GUS M. BILIRAKIS, Florida            BRIAN HIGGINS, New York
JEAN SCHMIDT, Ohio                   ALLYSON SCHWARTZ, Pennsylvania
BILL JOHNSON, Ohio                   CHRISTOPHER S. MURPHY, Connecticut
DAVID RIVERA, Florida                FREDERICA WILSON, Florida
MIKE KELLY, Pennsylvania             KAREN BASS, California
TIM GRIFFIN, Arkansas                WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania             DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina
ANN MARIE BUERKLE, New York
RENEE ELLMERS, North Carolina
ROBERT TURNER, New York
                   Yleem D.S. Poblete, Staff Director
             Richard J. Kessler, Democratic Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Ms. Marion C. Blakey, president & chief executive officer, 
  Aerospace Industries Association...............................    11
Mr. Mikel Williams, chief executive officer, DDi Corp............    20
Ms. Patricia A. Cooper, president, Satellite Industry Association    27

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Ms. Marion C. Blakey: Prepared statement.........................    13
Mr. Mikel Williams: Prepared statement...........................    22
Ms. Patricia A. Cooper: Prepared statement.......................    29

                                APPENDIX

Hearing notice...................................................    56
Hearing minutes..................................................    57
The Honorable Ileana Ros-Lehtinen, a Representative in Congress 
  from the State of Florida, and chairman, Committee on Foreign 
  Affairs: Letter submitted for the record.......................    59
The Honorable Ileana Ros-Lehtinen and the Honorable Howard L. 
  Berman, a Representative in Congress from the State of 
  California: Letter submitted for the record....................    61
The Honorable Dana Rohrabacher, a Representative in Congress from 
  the State of California, and chairman, Subcommittee on 
  Oversight and Investigations: Prepared statement...............    65
The Honorable Brad Sherman, a Representative in Congress from the 
  State of California: Letter submitted for the record...........    67
The Honorable Gerald E. Connolly, a Representative in Congress 
  from the Commonwealth of Virginia: Prepared statement..........    69


EXPORT CONTROLS, ARMS SALES, AND REFORM: BALANCING U.S. INTERESTS, PART 
                                   II

                              ----------                              


                       TUESDAY, FEBRUARY 7, 2012

                  House of Representatives,
                              Committee on Foreign Affairs,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 o'clock a.m., 
in room 2172 Rayburn House Office Building, Hon. Ileana Ros-
Lehtinen (chairman of the committee) presiding.
    Chairman Ros-Lehtinen [presiding]. The committee will come 
to order.
    After recognizing myself and the ranking member, Mr. 
Berman, for 7 minutes each for our opening statements, I will 
recognize the chairman and ranking member of our Terrorism, 
Nonproliferation, and Trade Subcommittee for 3 minutes each for 
their statements. I will then recognize members who wish to 
speak for their 1-minute opening statements.
    We will then hear from our witnesses, and I would ask that 
you summarize your prepared statements in 5 minutes each before 
we move to the question-and-answer segment with members under 
the 5-minute rule.
    Without objection, the witnesses' prepared statements will 
be made a part of the record, and members may have 5 days to 
insert statements and questions for the record, subject to the 
length limitation in the rules.
    The Chair now recognizes herself for 7 minutes.
    Today our committee continues our examination of the 
Executive Branch's unilateral proposals to create a new 
framework for U.S. strategic export controls. Many of us on 
this committee want to help make commonsense improvements in 
our export control system that will enhance U.S. national 
security, protect critical technologies, and make our system 
easier to navigate for our American businesses.
    In this regard, there are some constructive elements of the 
current reforms. One of the most notable is the development of 
a shared information technology platform across our export 
control agencies.
    However, these initiatives have been peripheral to the main 
focus of the administration's efforts, which has essentially 
been a complete rewrite of the entire United States Munitions 
List (USML) and the transfer of a large number of defense 
articles to the Department of Commerce. This reform is supposed 
to lead to the creation of a single control list and a single 
licensing agency.
    There are elements of the USML review that have merit. 
However, its many complexities also demand close congressional 
scrutiny.
    First, a word about the process. Under Section 38(f) of the 
Arms Export Control Act, the President is required to give 
notice to the Congress of any item or items that are 
recommended for removal from the USML and to describe how they 
would be regulated under any other provision of law. However, 
because the administration has focused only on identifying what 
technologies are to remain on the USML, not what is to be 
removed, the administration has not identified nor informed 
Congress of the full range of items it seeks to transfer to 
Commerce.
    The ranking member and I have repeatedly stated that we are 
ready to work with the Executive Branch to reach an agreement. 
However, we will not accept unilateral actions that 
substantially infringe on or ignore congressional oversight 
over these important national security matters.
    I have proposed that the Executive Branch prioritize 
removal of the least sensitive parts and components, nuts, 
bolts, cable, and the like, which have been treated as defense 
articles only because they were modified for military end-use. 
One major defense contractor agrees with this approach, 
stating, ``Focusing on the numerous low-level parts and 
components could yield significant near-term benefits to U.S. 
manufacturers.''
    I have also introduced legislation, H.R. 2122, the Export 
Administration Renewal Act, that would help accomplish this 
goal of removing the least sensitive items from the USML and 
provide immediate relief to some of our companies. Provided 
that manufacturing for such items will not be outsourced to 
China for later introduction into the U.S. military supply 
chain, Congress could reach a quick agreement to approve their 
removal from the USML.
    The administration also proposes transferring to Commerce 
numerous military end-items, as well as thousands of other, 
more sensitive parts and components, including software source 
code and manufacturing know-how. These items would be regulated 
under the new Commerce Munitions List within the larger 
Commerce Control List (CCL).
    This proposed arrangement raises a number of questions, 
including the lack of a statutory basis for the proposed CML, 
the relationship of the CML to U.S. security assistance 
authorities, and the elimination of congressional notification 
and reporting requirements for the export or retransfer of such 
defense articles.
    While CML-controlled items would require a license for 
export and would be denied to countries subject to a U.S. arms 
embargo, they would also be eligible for a broad new license 
exemption to 36 countries deemed as friendly. To be effective, 
however, country exemptions for the export of defense articles 
must incorporate critical safeguards, including agreement on 
which foreign parties can have access to controlled items and 
on foreign cooperation in enforcement. These appear to be 
missing from the process set out by the administration.
    History has shown that, without such safeguards, country 
exemptions for defense articles are vulnerable to exploitation 
by gray market brokers, by foreign intelligence entities, by 
front companies, and even terrorists. China and Iran pose 
especially grave concerns. Both countries are actively seeking 
to acquire a wide range of U.S. technology through a myriad of 
illegal schemes that span the globe.
    Iran, in particular, is dependent on the illicit 
acquisition of a vast range of military spare parts for its 
inventory of U.S.-origin military equipment. These include 
fighter aircraft, tactical airlift, helicopters, corvettes, 
patrol ships, tanks, artillery, and trucks. With few 
exceptions, these spare parts and components will be eligible 
for the proposed new license exemption--with increased risk of 
diversion.
    More broadly, as the U.S. Congress assesses U.S. control on 
commercial satellites, it is crucial to recall that the 
European Union and China have launched an expansive space 
technology partnership, one that appears to include the illegal 
transfer of U.S.-controlled parts and components.
    We must also heed the lessons of the Loral-China case to 
avoid another situation where we have armed our enemies. 
Indeed, the reports this morning of a launch of an Iranian 
satellite using a missile launcher reminds us of the 
sophistication of their illegal procurement networks and the 
perils of loose controls on sensitive dual-use and military 
technologies.
    Lastly, we also await further details on a number of 
critical licensing issues, including the preparedness of the 
Executive Branch to implement and enforce such regulations and 
plans for outreach to industry. The committee shares concerns 
with industry regarding the length and the complexity of the 
process.
    We look forward to the expert testimony this morning of our 
distinguished witnesses, as we seek to develop legislative 
action to reform our export control mechanisms to balance 
security and trade interests.
    I now recognize the ranking member for his opening 
statement, Mr. Berman.
    Mr. Berman. Thank you very much, Madam Chairman, for 
calling this hearing.
    The reform of U.S. export controls on defense and defense-
related items is long overdue. Our current system of export 
controls was born amid the tensions of the Cold War when the 
United States was the dominant provider of defense-related 
technology. The Cold War is now a subject for the history 
books. Yet, the U.S. maintains the same fundamental export 
control system, one that inefficiently responds, if it responds 
at all, to changes in the international environment and the 
breakneck pace of technological innovation and diversification. 
Our out-of-date export controls are more unilateral and, 
therefore, less effective than they were in the past and are 
fast becoming a burden on our defense industrial base, our 
scientific leadership, and our national security.
    Three years ago, the National Research Council published a 
report which concluded that America's national security is 
highly dependent on maintaining our scientific and 
technological leadership. In stark terms, this report stated, 
``The current system of export controls now harms our national 
and homeland security, as well as our ability to compete 
economically. The United States now runs the risk of becoming 
less competitive and less prosperous. We run the risk of 
actually weakening our national security.''
    The Obama administration's Export Control Reform Initiative 
has taken on the Herculean, some would say Sisyphean, task of 
being the reform of the U.S. export control system. After 3 
years of work, the administration is now beginning to publish 
the draft changes it seeks to make in the U.S. Munitions List. 
These changes, once enacted, will mean that literally tens, if 
not hundreds, of thousands of defense items that the 
administration deems to be less militarily sensitive would be 
moved to a new sublist of the Department of Commerce's Commerce 
Control List.
    There is much that Congress can do to help this effort. The 
first would be to pass a new Export Administration Act to 
replace the lapsed EAA of 1979. Because Congress has failed 
over the course of two decades to enact a new statute, the EAA 
exists only as a result of the President's invocation of the 
International Emergency Economic Powers Act. It is a Cold War 
relic and on potentially shaky legal grounds for enforcement 
since it doesn't really exist.
    Last May I introduced H.R. 2004, the Technology Security 
and Antiboycott Act, to succeed the EAA. In contrast to the old 
EAA's focus on economic warfare against long-gone adversaries, 
my bill focuses on the current threats to U.S. security. It 
provides the President with the authority to regulate the 
transfer from the United States of goods, services, software, 
and technological information that could pose a threat to U.S. 
national security if obtained by hostile governments, terrorist 
groups, or threatening persons.
    Unlike the old EAA, my bill defines national security to 
include strengthening scientific and technological leadership, 
high-technology manufacturing, and the U.S. defense industrial 
base. In today's world, sustaining our cutting-edge 
universities, research establishments, high-tech companies, and 
skilled workforce is as essential to our security as is 
military superiority. Export controls must be calibrated to 
serve academic and technological excellence and support U.S. 
high-tech jobs.
    The second thing Congress can do to restore the President's 
authority is to move less sensitive satellites, related 
components, and technology from the U.S. Munitions List. In 
1998, in response to unlicensed technical assistance to China's 
Space Launch Program by two U.S. companies, Congress mandated 
that all U.S. satellites and components were to be moved from 
the Commerce Control List and become subject to licensing as 
weapons under the State Department's United States Munitions 
List, regardless of whether the proposed export was to China or 
a NATO ally. This well-intended restriction is now causing 
unintended consequences.
    European satellite manufacturers believe that U.S. 
Munitions List restrictions are too onerous to include U.S. 
components. Consequently, U.S. manufacturers are currently in 
danger of having their products designed out of foreign 
satellite systems. That has serious implications for the health 
of our space and defense industrial base. If smaller satellite 
component manufacturers lose market share and perhaps go out of 
business, then the Department of Defense will not be able to 
buy their products to meet our national security needs.
    Along with my colleagues Don Manzullo and Gerry Connolly, I 
introduced H.R. 3288, the Safeguarding United States Satellite 
Leadership and Security Act, last November. This bipartisan 
legislation would help restore America's global competitiveness 
in high-tech satellite technology and protect vital U.S. 
national security interests. It would also prohibit outright 
any such exports to China, the original concern that caused 
Congress to legislatively transfer all satellites to the 
Munitions List, and to Iran, North Korea, Syria, Sudan, or 
Cuba, the countries that pose the biggest risks to our national 
security. The bill would also prohibit any foreign satellite 
with a U.S. component from being launched on a Chinese rocket. 
This latter provision is actually tougher than current law, 
including the Tiananmen Square sanctions, which allow such 
exports.
    In closing, let me say that I think the administration's 
export control reform efforts are moving in the right 
direction. My only concern is that there may not be enough time 
to complete the review of all 21 categories on the U.S. 
Munitions List, publish the draft changes for comment, receive 
and reflect upon those comments, publish final changes, and, as 
the chairman mentioned, ensure that our committee and the 
Senate Foreign Relations Committee, the committees of 
jurisdiction, are able to conduct the necessary oversight of 
these changes.
    My preference would be for the administration to set 
priorities to make sure that two of the most important 
categories, aerospace and space systems, which now comprise 
Categories 8 and 15 of the U.S. Munitions List, could be 
completed in this Congress. I would like the witnesses' 
thoughts on this point.
    Thank you, Madam Chairman, for holding this hearing, and I 
yield back my--no time.
    Chairman Ros-Lehtinen. Thank you, Mr. Berman, and I 
appreciate it.
    Before I recognize the members for their opening statement, 
I would like to welcome to our committee a 2-week intern, Susan 
Ruby Paxton, who is the offspring of two former Members of 
Congress, Bill Paxton and Susan Molinari. She will be working 
under the direction of Eugene Patrone, who is the foreign 
policy expert of Congressman Turner. So, we welcome her. She 
used to be Suby, but now she is 15 and all grown up and goes by 
Susan Ruby.
    Thank you. Welcome. We will keep an eye on you. Behave. 
[Laughter.]
    And it is pleasure to recognize Chairman Royce, the 
chairman of the Subcommittee on Terrorism, Nonproliferation, 
and Trade, for his opening statement.
    Mr. Royce. Thank you very much, Madam Chairman.
    The Terrorism, Nonproliferation, and Trade Subcommittee has 
examined export control reforms over the years, and it is very 
important, of course, to our economic well-being and, also, to 
our national security. As you noted, Madam Chair, this process 
now has been running for some time. We have had reforms under 
the Bush administration. Those have continued under the Obama 
administration. And I think there is a bipartisan consensus 
that the system certainly is not efficient, that it is a legacy 
of a different era, and that our economy and national security 
is suffering as a result of this.
    We are waiting for specifics of the current 
administration's ambitious reform efforts, but, Madam Chairman, 
you raised some concerns in your statement that I share. Let me 
try to articulate those.
    The goal here in simple terms is to focus on the truly 
dangerous items. We have enemies determined to hurt us with our 
own technology. The challenge is establishing that focus, 
making a more workable system, bringing some measure of 
efficiency to this system. And we are operating in an ever more 
competitive and fast-paced world economy that, frankly, is 
leaving our bureaucracy far behind. So, I share our witnesses' 
sense of urgency about reform.
    Whether satellites are treated as a military or commercial 
export is an important issue that I have raised. The committee 
had hoped that the Defense Department's final report on the 
security implications of satellite exports would have been 
released by now. We are still awaiting that release.
    Finally, I would like to second one witness' point that 
printed circuit boards be treated as ITAR-controlled, whatever 
the reform process brings. This is a very important point. The 
bureaucracy has not understood how the central nervous system 
for all electronics is a unique part of critical defense 
systems here in the United States. To have such PCBs loosely 
controlled is to move this industry overseas and needlessly 
compromise our national security.
    So, I would like to close with that point, Madam Chairman, 
and I thank you very much. I yield back the balance of my time.
    Chairman Ros-Lehtinen. Thank you, sir.
    Mr. Sherman, the ranking member on that subcommittee, is 
recognized for his opening statement.
    Mr. Sherman. Thank you, Madam Chairwoman.
    During the 110th and 111th Congress, the Terrorism, 
Nonproliferation, and Trade Subcommittee held five hearings 
concerning export controls, beginning in July 2007, where we 
focused primarily on the massive backlog the State Department's 
licensing agency, the DDTC, was laboring under. In late 2006, 
the State Department had more than 10,000 pending license 
decisions on backlog.
    We found that the State Department had too few licensing 
officers. Licensing decisions that should have been resolved in 
weeks dragged on for months, and the number of licensing 
decisions made per individual officer was averaging several 
thousand. We found a system where massive defense firms paid 
the same $1,200 registration fee as tiny parts manufacturers 
that may not even have applied for a single license.
    I introduced, with Don Manzullo, the Defense Trade Controls 
Improvement Act of 2009, which called for a top-to-bottom 
review, a mandate that the DDTC hire licensing officers to 
ensure that there was one officer for every 1200 applications, 
and a mandate that the agency collect larger fees from those 
that submit more licenses.
    I also introduced other legislation, the Export Control 
Improvement Act, also cosponsored by Don Manzullo, which both 
of those have basically been adopted administratively. The 
system has been improved.
    In early 2010, the President announced that he would tackle 
the substantive issues involved in export control. I have urged 
the administration to be very diligent in examining the 
ramifications for our industrial base. We need to be certain 
that when we move something from the USML to the CCL, for 
example, we don't make it easier for multinationals to offshore 
the production.
    When we deny a license, we preserve secrecy. When we grant 
a license to export finished goods, we create jobs, we build 
the infrastructure here in the United States, and we prevent 
that purchase from building infrastructure in another country. 
But if, instead, we export technology, tools, dies, and 
blueprints, then we lose the secrecy; we lose the jobs; we 
don't build an infrastructure in this country, and we do build 
an infrastructure in another country which, even if it is a 
friend of ours, may disagree on who, then, they should sell 
those weapons to.
    That is why I ask unanimous consent to insert into the 
record here a letter showing the concerns of the International 
Association of Machinists. Without objection, I would hope so. 
Okay.
    We have to design a system where licenses necessary to 
export equipment are treated differently than licenses for the 
export of technology, tools, dies, blueprints, and 
manufacturing permission. The former should be processed 
quickly; the latter should be processed slowly, if at all, 
because there is a difference between exporting products and 
offshoring jobs.
    I yield back.
    Chairman Ros-Lehtinen. Thank you so much.
    And now we will recognize members for their 1-minute 
opening statement.
    Mr. Marino of Pennsylvania. Thank you.
    Mr. Turner of New York.
    Mr. Turner. Thank you, Madam Chair.
    Ms. Paxton, pay attention, please.
    Like the rest of my colleagues, I recognize the need to 
reform our export control system. Arms and the defense industry 
as well as associated industries account for billions of 
dollars in exports and comprise one of the largest parts of our 
industrial base and thousands of jobs.
    Our system is designed for the Cold War, and we all 
recognize it needs to be changed. But we must ensure the 
exports remain in line with our national security and strategy, 
and we must be flexible and fast. We must be able to respond to 
world events. The capture of a drone, the loss of a stealth 
helicopter has maybe many impacts that are just not accounted 
for. By the time we get around to it, it is far too late.
    I am interested in hearing what our expert witnesses have 
to say, and I yield back. Thank you.
    Chairman Ros-Lehtinen. Thank you so much.
    Ms. Bass of California, Speaker Bass.
    Ms. Bass. Thank you, Madam Chair and Ranking Member Berman.
    I want to offer my appreciation today for the panel and 
their upcoming remarks. I hope that the hearing will help 
clarify current efforts by the administration to strengthen 
policies regarding the United States Munitions and Commerce 
Munitions List and further spotlight the interest of these 
industries in these reforms.
    The Export Control Reform Initiative should take the time 
it needs to ensure that our national security is not 
compromised during the process and that we have future policies 
that improve upon what currently exists.
    I will be particularly interested in hearing the 
perspective of today's panel, how these reforms will create new 
opportunities for business, and where challenges still might 
exist.
    Thank you very much.
    Chairman Ros-Lehtinen. Thank you.
    My deepest apologies to Mr. Mujaha Dana Rohrabacher. How 
could I miss you, of all people? So, thank you. You are 
recognized.
    Mr. Rohrabacher. I submit my opening statement for the 
record and ask unanimous consent.
    Chairman Ros-Lehtinen. Without objection.
    Mr. Rohrabacher. Just to go along with Mr. Royce, we are 
talking about dangerous items going to dangerous countries. We 
have to remember that there are some countries that should be 
treated differently, and that has been one of the biggest hang-
ups that we have had, because a lot of American business is 
making huge money with China and various human rights abusers 
who may well be an enemy of the United States in the future. 
They want to make money from those countries with the same 
rules as they make money and deal with friendly countries and 
democratic countries. We should not be treating dictatorial 
potential enemies like China in the same way we treat Belgium 
or Brazil, for Pete's sakes. That has been one of the biggest 
stumbling blocks.
    Let me note we also need to be concerned about selling 
munitions and deadly pieces of equipment to even friendly 
countries. So that, for example, Mr. Maliki over in Iraq, who 
supposedly is a friendly country now, those weapons are not 
being used against the Kurds, as the weapons that we have 
already given them were used to murder people at Camp Ashraf 
who were unarmed. So, we have two levels of reasons for control 
here.
    Thank you very much.
    Chairman Ros-Lehtinen. Thank you. And I apologize again.
    Mr. Cicilline of Rhode Island.
    Mr. Cicilline. Thank you, Madam Chair and Ranking Member 
Berman.
    And thank you to our panelists for being here to discuss 
this very important issue today. I look forward to hearing your 
testimony and really learning how we can continue to improve 
this process, and particularly how we can help to streamline 
the notification process. This is especially important to my 
District in Rhode Island where several of the companies that 
are in my District are adversely affected by this very long and 
sometimes cumbersome process. I am deeply concerned about the 
economic consequences that this long and drawn-out process has 
on businesses in my District in Rhode Island.
    I think, like many of my colleagues here, I am, of course, 
interested in working to find a solution that expedites this 
process while also allowing Congress to exercise appropriate 
oversight in order to protect our national security.
    I want to apologize in advance that I am not going to be 
able to stay for the entire hearing, but I look forward to 
continuing to work with my colleagues and with all of you as we 
address this very important issue. And thank you again for 
being here today.
    Chairman Ros-Lehtinen. Thank you, sir.
    Mr. Duncan.
    Judge Poe.
    Mr. Poe. Thank you, Madam Chair.
    For nearly 50 years, Houston, Texas was the center of the 
world space exploration. The first word on the moon was 
``Houston.'' But our export regime has made it harder and 
harder for the space industry to compete with companies around 
the world. They have too much to process. There is too much 
paperwork to process. The wait is too long to get approval of 
legitimate business. And this puts them at an unfair 
disadvantage with their competitors. Now we are also threatened 
with losing our space superiority. It is clear the system is 
broken and something needs to be done to fix it.
    At the same time, we don't want our enemies to get 
sensitive technology. They love to steal American technology, 
especially what I call the Chinese Government's organized crime 
syndicate. They copy it and then they pretend they did it all 
by themselves. That hurts our companies who are trying to 
compete. It hurts our national security.
    Our goal when it comes to export control should be simple: 
Make sure our competitors/our enemies don't get our technology 
and help our businesses compete in a global way.
    I yield back.
    Chairman Ros-Lehtinen. Thank you, sir.
    Mr. Faleomavaega.
    Mr. Faleomavaega. Thank you, Madam Chair and Ranking 
Member, Mr. Berman.
    I want to associate myself with the opening statement and 
sentiments expressed by our ranking member, Mr. Berman, 
concerning the issue that we are discussing this morning.
    In the 23-years-plus that I have served as a member of this 
committee, I know no one, in my humble opinion, who understands 
more the implications of the seriousness of these issues of 
export controls, arms controls than Mr. Berman. I certainly am 
very happy that he is here to express that and those concerns.
    There is no question, Madam Chair, of the implications, 
just as we are confronted with whether or not we should be 
selling $6 billion worth of arms to Taiwan. One of the 
contradictions and some of the ironies that I observe, and I 
will ask certainly our panel of witnesses, it seems that we are 
either the No. 1 or the No. 2 largest seller of arms to other 
countries. The dangers and the implications of that issue, I am 
certainly looking forward to asking our witnesses for answers.
    Thank you, Madam Chair, and I yield back.
    Chairman Ros-Lehtinen. Thank you so much, sir.
    Mr. Kelly.
    Mr. Kelly. Thank you, Madam Chair.
    I am glad we are having this hearing because I know back in 
my District quite a few of the companies that are involved in 
this are also wondering about how difficult it is and how more 
difficult it is going to become for them to compete in the 
future. So, as we look into these things, it is great to have 
oversight on this. It is great to have the knowledge of it. But 
it is also important to understand how difficult we have made 
it for our people to compete in the global market.
    So, I thank you for having this and look forward to the 
testimony.
    Chairman Ros-Lehtinen. Thank you, sir.
    Mr. Keating.
    Mr. Keating. Thank you, Madam Chairman. I would like to 
thank you for holding this hearing and advocating for the 
measures to streamline the notification process. The topic is 
extremely important, not simply for the well-being of the 
industry and for preserving their competitiveness in the 
international arena, but for our national security as a whole.
    I know in Massachusetts that nearly 45,000 people rely on 
the aerospace and aviation industries for their employment. So, 
I am not just speaking for myself when I say that I thank you 
all for your attendance today and for the significant impact 
you will have on the Aerospace Industries Association.
    So, with that, I yield back.
    Chairman Ros-Lehtinen. Thank you very much.
    The Chair is pleased to welcome our witnesses. First, we 
will hear from Marion Blakey, who is the president and chief 
executive officer of the Aerospace Industries Association. AIA 
is the leading voice of the aerospace and defense industry, 
representing more than 150 leading manufacturers along with a 
supplier base of nearly 200 associate members.
    Ms. Blakey became the eighth full-time chief executive of 
the Association in 2007. Before that, she served a 5-year term 
as Administrator of the Federal Aviation Administration.
    We are honored to have you here.
    Next, we would like to welcome Mr. Mikel Williams, who has 
served as president and chief executive officer of the DDi 
Corp. since November 2005. Mr. Williams served as senior vice 
president and chief financial officer of the company from 
November 2004 to October 2005. Before joining, Mr. Williams 
served as the sole member of Constellation Management Group, 
providing strategic, operational, and financial capital 
advisory consulting services to companies in the telecom, 
software, and high-tech industries.
    Welcome, Mr. Williams.
    And finally, we would like to welcome Patricia Cooper, who 
joined the Satellite Industry Association as its president in 
November 2007 and has more than 17 years in the satellite 
industry and in government.
    Patricia joined SIA following a 5-year tenure in the 
Federal Communications Commission, where she managed the FCC's 
bilateral relationships with regulatory agencies across the 
world. She served as the lead author of the FCC's inaugural 
competition report to Congress on the communications satellite 
industry, and was Senior Satellite Competitor Advisor in the 
International Bureau.
    A high-level set of witnesses.
    We would like to remind our witnesses, as high level as 
they are, to keep their testimony to no more than 5 minutes.
    Without objection, your entire written testimony will be 
made a part of the record and will be inserted therein.
    Ms. Blakey, we start with you. Thank you.

STATEMENT OF MS. MARION C. BLAKEY, PRESIDENT & CHIEF EXECUTIVE 
           OFFICER, AEROSPACE INDUSTRIES ASSOCIATION

    Ms. Blakey. Thank you, Madam Chairman. I must say that I am 
delighted, also, Ranking Member Berman, and members of the 
House Committee on Foreign Affairs, to be here. The Aerospace 
Industries Association of America Appreciates the opportunity 
to testify today.
    Our industry consistently generates America's largest 
manufacturing trade surplus, projected to be more than $57.4 
billion in 2011, but continuing this track record of success 
cannot be taken for granted. Aerospace and its exports create 
and sustain high-skill, high-wage manufacturing jobs. These 
exports also preserve and increase the capacity of cutting-edge 
innovation and a robust industrial base that enables the U.S. 
military to be capable and valiant on the battlefield.
    With such uncertainty now surrounding the U.S. Federal 
budget, exports can be an important part of how we maintain our 
Nation's critical defense and aerospace industrial base. I 
would, therefore, like to particularly emphasize that the 
reauthorization of the U.S. Export-Import Bank prior to May 
31st is of paramount importance for exporters to complete on a 
level playing field in the commercial market, where current and 
future competitors continue to enjoy support from their 
country's export credit agencies.
    I would particularly like to thank you, Madam Chairman and 
Ranking Member Berman, for your leadership over the years 
trying to modernize our export control system.
    Another example of bipartisan leadership is H.R. 3288, a 
bill being championed by a number of members, including Ranking 
Member Berman and Congressmen Connolly and Manzullo. H.R. 3288 
aims to initiate practical, commonsense legislative reforms to 
address the issues that are outlined in AIA's new report, which 
I have before me, ``Competing for Space: Satellite Export 
Policy and U.S. National Security.'' With your permission, I 
would like to also submit that with my written testimony today.
    Chairman Ros-Lehtinen. Without objection.
    Ms. Blakey. The report surveys manufacturers of U.S. 
satellite systems and components about the challenges the space 
industrial base faces as a result of U.S. export policies; in 
particular, the legislative mandate to treat commercial 
satellites and related components as military technology, even 
though the rest of the world does not.
    We calculate a cumulative loss of $20.8 billion in U.S. 
satellite manufacturing revenue from 1999, the year COMSATs 
were moved to the U.S. Munitions List, to the year 2009. The 
direct job loss totals 8,710 jobs annually and 19,183 jobs in 
indirect and induced job losses. That is a total of 27,893 jobs 
lost annually because, in part, we have our current regime of 
export control policies.
    We urge the timely completion of the U.S. Munitions and 
Commerce List control reviews, including returning the 
authority to determine the jurisdiction of COMSATs back to the 
administration. The process should not change currently denied 
exports to approved exports. Instead, transactions that would 
be approved in the current system would be processed faster by 
deciding in advance that less sensitive items do not require 
ITAR-level scrutiny.
    Export licensing would also be cheaper since companies that 
manufacture USML technologies must pay an annual $2,250-a-year 
registration fee, plus $250 charge per export license. And this 
is really something. On that latter point, 68 percent of 
companies that have to register with the State Department 
because they make a product that is captured on the USML never 
export. I suspect many of them make the kinds of parts and 
components that we can all agree should be moved to Commerce 
control. Those parts and components manufacturers that do 
export have to incorporate that license charge of $250 per 
export license into their pricing. For small and medium-sized 
companies, there would be significant benefits in helping them 
minimize these regulatory burdens of the existing system.
    And finally, I must say this should be the first of many 
steps for reform, not the last. Previous reform efforts have 
met with varying degrees of success, as previously noted. 
Experience suggests that critical factors at enabling 
meaningful reform include sustained oversight by senior 
administration officials as well as effective consultation with 
Congress and the private sector.
    We stand ready to work with you and the administration to 
ensure that we continue to make meaningful progress toward a 
predictable, efficient, and transparent export control regime.
    Thank you.
    [The prepared statement of Ms. Blakey follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                              ----------                              

    Chairman Ros-Lehtinen. Thank you very much.
    Mr. Williams.
    She did it even in 5 minutes with a southern drawl. That's 
pretty good. [Laughter.]
    If you could punch the button there?

 STATEMENT OF MR. MIKEL WILLIAMS, CHIEF EXECUTIVE OFFICER, DDI 
                             CORP.

    Mr. Williams. Okay. Thank you. Members of the committee, I 
thank you for inviting me here today to testify.
    As introduced, I am Mikel Williams, CEO of DDi Corporation, 
a printed circuit board manufacturer headquartered in Anaheim, 
California, and founded more than 30 years ago. We have over 
1600 employees in six U.S. factories and one in Canada. 
Although the majority of our printed circuit boards go into 
commercial products, we are a trusted supplier to the U.S. 
Government.
    I am also on the Board of Directors and chairman of the 
Government Relations Committee for the IPC--Association 
Connecting Electronics Industries. IPC is a U.S.-headquartered 
global trade organization, representing all facets of the 
electronics industry, including companies that design, 
manufacture, and assemble printed circuit boards. The IPC has 
over 3,000 member companies, 1900 of which are here in the 
United States.
    I am here today on behalf of IPC to underscore the critical 
importance of establishing clear and proper U.S. export 
controls on printed circuit board designs for our military 
defense systems and equipment. But, first, it may be helpful to 
the committee if I briefly describe a circuit board and its 
role in the electronic system or end-product.
    The printed circuit board is the foundation of all 
electronic products. It mechanically holds and electrically-
connects a variety of components, semiconductors and 
transistors, for example, allowing that device to serve its 
intended function. In wireless applications, as an example, the 
printed circuit board for a radio-frequency and microwave 
designs contain printed components such as an antenna. And 
thus, the printed circuit board actually becomes part of the 
working product itself.
    Now using this catalog, if I can show this here, I can buy 
virtually any piece of electronic item except for one, and that 
is a printed circuit board. You won't find printed circuit 
boards in this catalog. Each and every printed circuit board 
needs to be custom designed and manufactured to meet the 
specific requirements of the end-item. Moreover, you can't 
design and manufacture a printed circuit board without access 
to sensitive information about the workings of the end-product. 
I cannot overstate this point.
    For example, improvised explosive devices, also known as 
IEDs or roadside bombs, have caused most of the American 
casualties in Iraq and Afghanistan. The design of U.S. military 
IED jammers and detectors, if they fall into enemy hands, would 
allow our enemies to shield their IEDs from our detection or 
jamming systems. This underlying technical data is not the kind 
of information we want our adversaries to have. Yet, current 
regulations fail to clearly control printed circuit board 
design and manufacturing. The complexity of the rules leads to 
interpretations that are far more liberal than the spirit and 
letter of the law.
    My company takes great pains and great expense to fully 
comply with U.S. export control laws. However, it is understood 
by many in the industry that foreign-made electronics, 
including printed circuit boards, are making their way into 
U.S. military applications.
    A recent IPC study reported that one-third, approximately 
one-third, of the printed circuit boards purchased by the 
Defense Department were made outside of the U.S. This threatens 
U.S. national security.
    First, there is the potential for intentional or 
unintentional sabotage of printed circuit boards and, thus, our 
defense systems.
    Second, it raises the possibility that the printed circuit 
boards for critical and classified defense systems can be 
reverse-engineered. It also enables the theft of our country's 
intellectual property, and this regularly occurs in the 
commercial markets.
    We are working with the State Department's DDTC, or the 
Directorate of Defense Trade Controls, to educate the 
manufacturing community about the existing controls on printed 
circuit boards, but more needs to be done. Given the confusion 
about these controls and the importance of printed circuit 
boards to military electronics, printed circuit boards should 
be explicitly addressed in a revised USML. If a defense article 
merits inclusion on the USML, so, too, should the printed 
circuit board designs. The draft revisions released by the DDTC 
appear to reflect this position, but not explicitly.
    Absent explicit regulations or guidance, confusion about 
export controls on printed circuit boards is likely to 
continue. The rulemaking for Category XI, which is the 
electronics category, offers DDTC the opportunity to clarify 
proper controls on printed circuit boards, and we urge the DDTC 
to seize this opportunity to bolster national security.
    IPC recognizes the health of our defense industrial base 
generally does not factor into export controls. However, I 
would be remiss if I did not emphasize the vital importance of 
the printed circuit board industry to the Nation's defense. In 
the last 5 years, the number of manufacturers in North America 
has fallen by close to 40 percent, even as worldwide production 
increased by 28 percent. The center of gravity for the global 
printed circuit board industry has shifted from the U.S. to 
China over the past decade. Further, industry pressures from 
low-cost regions mitigate the ability to invest in research and 
development for future technologies required for our Nation's 
defense.
    Without greater attention to the defense industrial base, 
our military in the years ahead may be forced to rely to a 
great degree on overseas manufacturing for sensitive 
electronics. There is no question that such a development would 
pose considerable risk to our national security.
    In closing, I would like to reaffirm IPC's support for 
reforming export control regulations. The current system 
neither adequately protects our national security nor 
facilitates export opportunities. We need to grow our economy. 
Reform is long overdue, but reform must safeguard our national 
security.
    On this issue, national security is the IPC's highest 
priority. It is the reason I am here today and the reason that 
the IPC has called on the U.S. Government to put in place clear 
and appropriate restrictions on the export of printed circuit 
board designs and manufacturing.
    I thank you for your time and look forward to answering any 
questions.
    [The prepared statement of Mr. Williams follows:]

    
    
    
    
    
    
    
    
    
    
                              ----------                              

    Chairman Ros-Lehtinen. Thank you so much, sir. We 
appreciate it.
    Ms. Cooper is recognized.

   STATEMENT OF MS. PATRICIA A. COOPER, PRESIDENT, SATELLITE 
                      INDUSTRY ASSOCIATION

    Ms. Cooper. Madam Chairwoman, Ranking Member Berman, 
distinguished members of the committee, thank you for inviting 
the Satellite Industry Association to testify today on U.S. 
export control reform. I commend the committee for your 
continued focus on improving the Nation's export control 
regime.
    As the president of SIA, I represent here the unified voice 
of the Nation's diverse satellite industry. Our members build 
and launch spacecraft for both the commercial and U.S. 
Government sectors, operate hundreds of commercial satellites 
ringing the globe, and provide voice, video, and data services 
for the U.S. military, public safety, media, and enterprise 
sectors. The industry represents about 60 percent of the 
overall space sector and operates one-third of all satellites 
currently on orbit. Our last statistics from 2010, our industry 
posted $168 billion in global revenue with an average annual 
growth rate of around 11 percent over the last 5 years.
    SIA speaks when our industry holds a common view on issues 
of importance to the satellite sector. Our members agree that 
the time is ripe for Congress to revisit and reform the U.S. 
export control laws governing satellites.
    I will address three themes here in my testimony. First, 
the existing satellite export control regime mandates 
overregulation by requiring that all satellites and related 
items be treated uniformly as munitions without regard to their 
technological sensitivity.
    Second, our export control regime harms the national 
security goals it was designed to fulfill by undercutting the 
satellite industry's competitiveness and injuring the 
underlying space industrial base.
    Finally, the time is ripe for Congress to restore to the 
Executive Branch the full authority to regulate satellites that 
they exercise for every other technology area.
    Satellites are the only category of products where Congress 
has mandated blanket inclusion under the U.S. Munitions List. 
Since 1998, every item in the satellite category has been 
legally required to be regulated as a munition. There is no 
mechanism to differentiate between items of the highest 
national security interest and those that are benign or widely 
available. It is this required overregulation that SIA asks 
Congress to correct.
    Appropriate restrictions, however, should be sustained for 
satellite exports to countries of concern, including China. SIA 
and its members do not seek any erosion of the substantial 
safeguards that have effectively prohibited satellite 
technology exports for sale to or launch by China. Violations 
should be vigorously enforced. Sensible satellite export 
control reform is fully consistent with the Nation's goal of 
protecting our most advanced technologies.
    There are persistent signs of warning of the unintended 
harmful consequences of the current satellite export control 
policies. While statistical smoking guns remain difficult to 
pinpoint, trends in market share show a troubling loss of U.S. 
dominance. The U.S. share of the global market for satellites 
dropped from around three-quarters before the 1998 rules to 
around one-half today. International buyers of spacecraft parts 
and components see ITAR regulations and licensing requirements 
as adding unnecessary time, cost, and risk.
    In fact, ITAR has become a market differentiator for our 
competitors. Since 2008, European manufacturers have sold 20 
satellites marketed as ITAR-free, up from just six when I 
testified in 2009. While I understand that questions have 
arisen about whether these ITAR-free satellites are truly 
without U.S. content, their marketplace success, often despite 
prices higher than our U.S. equivalents, underscores the 
powerful impact of the mandated ITAR treatment on our ability 
to compete internationally.
    I would also reiterate the concerns voiced by Ms. Blakey 
and the Aerospace Industries Association's recent study about 
the harms of overregulation to the U.S. space industrial base 
that supplies both the commercial satellite sector and the 
government space community. ITAR has deterred investment and 
innovation in critical space manufacturing capabilities, and 
the intelligence and national security space communities are 
voicing increasing alarm.
    Finally, SIA is concerned about the chilling effect that 
expansive ITAR rules have had on our universities' willingness 
to teach space-related subjects and on our research labs' 
ability to conduct cutting-edge space research. The U.S. age in 
space technology will surely erode if indiscriminate ITAR 
treatment forces the next generation of space engineers to 
learn, research, and experiment abroad.
    SIA has been gratified to see bipartisan support for 
satellite legislative reform. We applaud Ranking Member 
Berman's introduction last year of H.R. 3288, which SIA 
supports like AIA. We note that 12 additional Members, both 
Republicans and Democrats, have cosponsored this bill, 
including many members of this committee.
    SIA acknowledges that Congress still awaits this 
administration's expert guidance on the national security risks 
of moving satellites off the USML, as requested in Section 1248 
of the 2010 NDAA. Although an interim report has already 
identified six categories of satellite items that could safely 
be moved off the USML, SIA members eagerly await the full 
analysis that a final report would provide from our national 
security intelligence and export control experts. SIA urges the 
administration to deliver the final Section 1248 report to 
Congress expeditiously in order to pave the way for critical 
reforms.
    Our industry will not reap the benefits of export control 
reform without satellite-specific legislation. The 1998 
congressional mandate has regulated too broadly and eliminated 
discretion. It has harmed the satellite industry's 
international standing, dampened investment and innovation in 
our Nation's space manufacturing, and deterred training and 
advanced research. It is time to regulate satellites as we do 
for every other high-tech industry, and we look to this 
committee to act on needed satellite reform legislation.
    Thank you, Madam Chairwoman, Ranking Member Berman. This 
concludes my testimony. On behalf of the members of the 
Satellite Industry Association, thank you again, and I look 
forward to your questions.
    [The prepared statement of Ms. Cooper follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
                              ----------                              

    Chairman Ros-Lehtinen. Thank you so much. Excellent 
testimony from our three witnesses.
    I will start the question-and-answer period where members 
are recognized for 5 minutes.
    As I mentioned in my opening statement, I am concerned 
about the wisdom and enforceability of a proposed new exemption 
for the export of U.S. defense articles to our European allies 
and other friends abroad, because we must take into 
consideration: The refusal of the Government of France and a 
French company to cooperate with the U.S. in investigating 
illegal retransfer of U.S.-controlled space parts and 
components to the People's Republic of China; also, the fact 
that our European friends have been the most important source 
of high technology needed for China's military modernization 
program, and that Europeans have been providing technology to 
China that it cannot obtain from the U.S. or Japan; and, also, 
the findings of the unclassified 2011 report of the Defense 
Security Service which states that Europe and Eurasia are 
moving increasingly toward the pursuit of illegal or 
unauthorized access to U.S. defense technologies. To the extent 
that the region is a major arms exporter, third-party transfer 
of U.S. technology will likely be a concern. And I wanted your 
views on these issues.
    Related to that, the intersection of military and civilian 
interests in China's space program is well-known. What is also 
well-known is the extensive space relationship between the 
European Union that they share with China, including the 
sharing of considerable European technical expertise. So, I 
ask, how can the commercial satellites and related parts and 
components be transferred to the Commerce Control List without 
the risk that such technology would be retransferred by our 
friends to Beijing?
    So, anyone who wants to answer those questions?
    Ms. Cooper. I will be happy to respond, Madam Chairwoman.
    The Satellite Industry Association, our members do not seek 
any change in the considerable prohibitions that already exist 
to govern especially trade of satellites with China, both sale 
to Chinese customers and also transfer of satellites to China 
for launch by their launch vehicle. Although not a prohibition, 
the collective effect of these rules since 1998 has been an 
effective prohibition. No U.S. satellites have been launched 
from China since those days.
    We don't ask for any changes in those rules. We expect that 
any change in the export control reform structure overall, as 
well as satellite-specific legislation, would uphold those 
rules for China specifically.
    The question you raise of European manufacturers with 
third-party transfer from my perspective is an enforcement and 
prosecution question. If there are violations of laws, they 
should be vigorously enforced. It is our expectation that such 
third-party transfers of satellite items to China would remain 
illegal under a revised export control reform system and 
following any subsequent satellite legislation.
    Chairman Ros-Lehtinen. Ms. Blakey.
    Ms. Blakey. I would certainly echo Ms. Cooper's comments 
about that. I agree something that is illegal is illegal, and 
it should not be changed under the guise of reform. We don't 
see evidence that that would be the case at all.
    What we are looking for, of course, is a system that is 
more efficient and transparent and will ultimately, then, 
enable us to put more resources, both in terms of scrutiny 
initially and enforcement, behind the illegal activities and 
the bad actors out there.
    The kind of concern that you are voicing is certainly 
something that can happen under the current regime. I think we 
need more focus on the real risk that export control reform 
will give us.
    Chairman Ros-Lehtinen. Thank you.
    I don't have enough time for my next question, but let me 
just bring it up. That includes the close coordination, or lack 
thereof, between the Department of State and Commerce. The 
success of the proposed Export Control Reform Initiative is so 
dependent on significantly improved management measures for 
implementation, including close coordination between these two 
Departments. Some of us are concerned that, without this 
coordination, the anticipated benefits of the Export Control 
Reform Initiative may not outweigh the risk of unintended 
consequences and business disruption. We will leave that for 
another round.
    I am so pleased to recognize Mr. Berman for his questions 
and answers.
    Mr. Berman. Thank you, Madam Chairman.
    Ms. Blakey, the AIA report ``Competing for Space'' and your 
organization quotes a report by the National Reconnaissance 
Office, which operates our national intelligence satellites. 
That government agency says that ``second- and third-tier 
satellite vendors have an insufficiently diverse business and 
that this limited supplier base may compromise long-term 
availability of some critical components for national security 
needs.''
    It goes on to say that, ``Since many second- and third-tier 
vendors are responsible for highly specialized components, low-
volume government satellites do not provide sufficient market 
stability, especially when government acquisition plans 
fluctuate from year to year.''
    From that, basically, what I gather it is saying is, if our 
commercial satellites industry is not viable, the critical 
components we need for our military satellites become less and 
less available, both the raw materials and the component parts. 
Does the current process make this situation worse?
    Ms. Blakey. We surveyed our members and we found that they 
are representing 70 percent of the industry. Approximately 70 
percent said that, yes, they were losing significant sales 
opportunities because of the current requirements and the 
current USML control.
    The fact is that, with the defense budgets going down, with 
national security funds diminishing, this situation is going to 
get worse because small companies who have only one possible 
customer, and that customer can buy less and less, will not be 
able to stay in business unless we do give them some relief. 
Our technology is such that it can compete, if we allow for it.
    Mr. Berman. Isn't the logical conclusion, if the National 
Reconnaissance report is right, that we are going to end up 
having to import raw materials and components for our military 
satellites if we lose the commercial satellite manufacturing 
markets?
    Ms. Blakey. That certainly is a possibility, and one we 
should guard against.
    Mr. Berman. Part of your testimony says that we shouldn't 
stop just at the reforming of the U.S. Munitions List and the 
Commodity Control List, but there should be new management 
models for licensing. What does that mean? What specific kinds 
of changes would you like to see?
    This process of going through these lists and changing them 
is a laborious, as we have seen, process. Should the management 
licensing reforms be done first?
    Ms. Blakey. I think both are important. Certainly, this 
review of these lists, you're right, it has been very labor-
intensive and I think will ultimately produce a good end-
product.
    But the kind of changes that are also possible that could 
really make a major difference for some of our programs and 
weapons systems were attempted as far back as the Clinton 
administration, and this committee and others tried to help 
with licensing of programs and making a decision at one point 
that would then hold for repeated transactions. This is known 
as program licensing, and somehow the paperwork aspects of that 
got ahead of the good intentions. So, unfortunately, this has 
not been effective yet.
    But we do need to look at where you are going to be over 
and over again. The joint strike fighter, there is a great 
example of exporting that by intent. You don't want to have to 
license on a transaction-by-transaction, one-at-a-time basis. 
That is a sensible reform that we really could put into place.
    Mr. Berman. Well, why didn't it take hold?
    Ms. Blakey. You know, sometimes the bureaucracy stands in 
front of itself, and what was the intent in this did not get 
translated----
    Mr. Berman. Not in our Government.
    Ms. Blakey. I think it is one of those things that 
implementation can be hard. Sometimes people lay on a lot of 
paperwork requirements when you could make it really simple.
    Mr. Berman. Thank you very much, Madam Chair.
    Chairman Ros-Lehtinen. Thank you so much, Mr. Berman.
    Mr. Royce, the chair of the subcommittee, is recognized.
    Mr. Royce. Thank you. Thank you, Madam Chairman.
    Mr. Williams, as I said in my opening statement, I concur 
with your recommendation that printed circuit boards be treated 
as ITAR-controlled. I wanted to focus a little bit on the 2005 
National Research Council study on your industry. Could you 
explain the conclusion of that study?
    Just push that button.
    Mr. Williams. Yes, thank you.
    Mr. Royce. Thank you.
    Mr. Williams. Thank you for the question, Congressman 
Royce.
    For anybody else, I have a copy of the executive summary 
here.
    It is interesting. When I came into the industry, having 
previously worked in the telecommunications sector, and having 
lived and worked in Europe and been in China quite a bit, I had 
the benefit of having a recently completed study that was put 
together by a broad group of participants, including members 
from the DoD, from academia, from industry. It was a study 
entitled, ``Manufacturing Trends in Electronics Interconnect 
Technology,'' which specifically focused on the interconnect 
technology embedded in circuit boards.
    The conclusions there were simply that, given the state of 
the industry and the migration of the commercial markets to 
Southeast Asia, China in particular. Back in 1984, as a matter 
of fact, 42 percent of the global market was serviced out of 
U.S. factories. Today over 40 percent of the market is serviced 
by Chinese factories, and our market share here is about 6 
percent.
    So, we have seen a massive migration, the impact of which 
has been fairly devastating to the industry. There are several 
critical concerns that they cite: (1) the ability to continue 
to fund research and development, both today as well as in the 
future; and (2) the ability to continue to meet the 
requirements of the defense industry to build their products, 
both today and in the future.
    It put forth a few recommendations. Unfortunately, I have 
to report that it has had little, if any, attention since then. 
The study was completed in 2004 and published in 2005.
    So, it highlighted the critical concern that, again, we may 
need to go into foreign countries to source important elements 
of our supply chain, like cited here. But certainly the circuit 
boards are not components per se; they are commonly referred to 
as components, but every circuit board is unique. It has the 
electrical blueprints, if you will, of the device and how it 
works. Not to have a defense industrial base to support our 
requirements is really what the report focused on and made 
several recommendations about how to go forward.
    Mr. Royce. Well, I think in your testimony you said the 
health of the U.S. defense industrial base generally does not 
factor into export controls. My question is, should it? And how 
should it, if the answer is yes? What can we learn from your 
industry?
    Mr. Williams. Well, specifically, let me reiterate that the 
IPC, and DDi as well, supports export control reform. We 
support opening the global markets more liberally to our 
manufacturers here in the states.
    My understanding is the export control reform is focused on 
export reform controls, and other issues, such as sustaining a 
defense industrial base, might be effectively addressed through 
other initiatives, whether they are coming out of the 
Department of Defense or elsewhere.
    It has sat for quite some time not part of the export 
control reform discussion. So, maybe there could be some 
linkages to connect the issues, but I understand that that is 
not the primary motivation behind export control reform. We do 
agree that the reforms need to be streamlined, made more 
efficient, enabling of our members at the IPC and my customers 
at DDi to be able to sell into the global markets in a manner 
that is appropriate.
    Mr. Royce. But in the meantime, you have mentioned that the 
current export control rules are ambiguous regarding printed 
circuit boards. Of course, that ambiguity is a problem 
throughout the system.
    But you have had meetings, I suspect, with export control 
officials to lay out the case of what is happening here. Do 
they fully understand your industry? What could we do here to 
try to make certain that that industry doesn't dissolve here in 
the United States?
    Mr. Williams. A good question. One of the problems with 
printed circuit boards is that they get mentally lumped in with 
other components--screws, nuts, bolts. In fact, we have met 
with the Department of Commerce. As we have talked to them, I 
have realized that, as an example, there are many in government 
who don't really understand what the circuit board is.
    In fact, I will hold up an example here. This is a circuit 
board. They look fairly routine, not unlike anything you would 
find in your laptop or BlackBerry or anything else. But, 
really, this includes the schematic design of the electrical 
device or component or part. So, again, it is not a general 
component.
    So, getting everybody to understand that has been a huge 
effort of ours. I don't think that we are finished yet, but 
that is part of why I am here, and we would continue to do 
that.
    I think, as people in government at Commerce or the 
Department of Defense or elsewhere start to realize that this 
is really the schematic design of the device from which 
something can be easily copied, it is how we begin to lose our 
proprietary intellectual property, I think that it can start to 
be understood that it needs to be viewed differently than 
screws and nuts and bolts and things like that.
    Chairman Ros-Lehtinen. Thank you so much.
    Thank you, Mr. Royce.
    Mr. Royce. Thank you, Madam Chair.
    Chairman Ros-Lehtinen. Mr. Faleomavaega.
    Mr. Faleomavaega. Thank you, Madam Chair.
    I want to thank our witnesses for their presentations. I 
think they were very comprehensive and certainly welcomed.
    Claiming no expertise whatsoever in the aerospace, in the 
global electronics industry, and even our satellite industries, 
but I am aware of the fact that we are talking about hundreds 
and thousands of our fellow Americans who are employed under 
these three major areas of industry that we are discussing this 
morning.
    I guess I would like to generalize the whole picture by 
saying that in your involvement you are talking about economic 
benefits to our working people. We are also talking about 
national security implications and then our foreign policy as 
to whether or not the sales and the commercial basis, and even 
on national security issues, are in compliance with our foreign 
policy issues.
    Mr. Williams, I noticed that you mention about the printed 
circuit boards. I have no idea what you mean by printed circuit 
boards. But when you mentioned IED, it kind of bothers me, the 
fact that for years our men and women are killed in this 
terrible war in Iraq. Somehow it seems to me, why did we never 
take immediate action to go into this problem of IED 
explosions, which the vast majority of our men and women in 
uniform were killed by? I wonder if, commercially, were your 
printed circuit boards ever involved in trying to resolve the 
issues? And I am very curious why the military has taken years 
to try to figure out how to counter these IEDs. It is just 
simple to itemize what it is. But what was the problem?
    Mr. Williams. Well, I can't speak for the speed with which 
our military operates, but I can assure you that our company, 
as an example, is in the quick-turn business. So, two-thirds of 
our business is focused on the commercial markets, servicing 
companies that need of new boards in 2, 3, 4 days. So, we can 
respond quickly as an industry.
    We do build products that go into the devices that are 
being used to jam the IEDs to protect our soldiers.
    Mr. Faleomavaega. That is my point. Why has it taken us 
years to do this while our men and women are dying in the field 
for the last 7 years?
    Mr. Williams. Yes, and I can't address the process that 
came to the point that DoD decided that that was a product they 
wanted to build. But when they want a circuit board or a built 
device, our industry can respond very, very quickly.
    Mr. Faleomavaega. Does it just simply mean that we do not 
have the expertise in addressing the issues that are so basic? 
I don't think you have to be a rocket scientist to build an IED 
and just put it out in the dirt somewhere, and our soldiers get 
killed.
    As you said, the vast majority of our soldiers are killed 
and harmed by these IEDs more so than in the field of combat. I 
don't think you have to be a space scientist to figure this 
out.
    Mr. Williams. I share your concern. I would like to see our 
products get to their intended use more quickly.
    Mr. Faleomavaega. And, Ms. Cooper, I enjoyed your comments.
    Again, as a non-specialist in this area, you have 
commercial satellites and, then, we have military and spy 
satellites. You know, one of the satellites, a couple of years 
ago there was such a public outrage how it was possible for 
China, they had this satellite running around at 18,000 miles 
per hour, and trying to somehow figure out how to fire a 
missile to kill, or not to kill, but to dismantle the 
satellite. It was such an uproar in the public saying, how dare 
that China was doing this? And they said, well, they are just 
simply trying to catch up with the industry in terms of how the 
Russians and the Americans have far advanced in understanding 
the idea of getting rid of these space military and spy 
satellites.
    My question, how many spy satellites do we have up there 
anyway? [Laughter.]
    Ms. Cooper. I am probably not the best one to answer and 
probably wouldn't be permitted, if I knew. I will say that 
about a third of the satellites that are on orbit are 
commercial. Our point here is that the rules that govern the 
space orbit and the value of the commercial sector has a direct 
relationship on the health of the U.S. space industry and, 
also, has a linkage with our military, civil space, and 
intelligence space communities.
    I think my colleague, Ms. Blakey, was underscoring that, 
when a commercial satellite is purchased for manufacture, it 
engages many of the same companies to build parts, components, 
and subassemblies, in some cases the final----
    Mr. Faleomavaega. I have got 7 more seconds. I know the 
chairlady is very strict on this.
    Ms. Blakey, I wanted to ask you a question, but, 
unfortunately, I appreciate the fact that we need to modernize 
our export/import rules on this.
    Thank you, Madam Chair.
    Chairman Ros-Lehtinen. Thank you so much, Mr. Faleomavaega.
    Mr. Rohrabacher is recognized.
    Mr. Rohrabacher. I apologize for missing the guts of the 
hearing here. I was at a markup at the Science Committee. But I 
will read your testimony and take it to heart.
    I live in Southern California where we have so much to be 
grateful for to the aerospace industry. All of us know that the 
standard of living that ordinary people have in California can 
be tied directly to that industry. Without it, people wouldn't 
be able to have the value of homes that they have or the 
lifestyles that we have.
    Building high technology builds the economy, but it really 
helps people, is what we need to understand. And we also 
understand that the satellite part of the aerospace industry is 
a vital component of that industry and one of the major parts 
of the industry in which we are competitive overseas. We have 
got to make sure that we don't lose that industry.
    Let me just note that I know that some people suggest, 
well, we should be more open with technology transfers or the 
sale of those satellites. I believe that is true when it comes 
to democratic countries. That is not true when it comes to 
countries, especially like China that is a potential enemy and 
an adversary of our country.
    People are dumbfounded when they see the growth rate and 
the actual progress that China is making economically and 
technologically. I am not astounded at all. They have gotten 
all of their fundamentals from us. We have educated their 
children and PhDs. They come to our universities and they go 
home and they create economic entities that put us out of work. 
What's going on there? We are giving them all of our secrets, 
even right through their PhD programs at our major 
universities.
    Number 2, we are giving them our R&D. Our major 
corporations are going to China now, and some of them having 
received government grants from the American taxpayer to 
develop certain technologies. And what do they do? They start 
manufacturing plants in China. Well, of course, China is going 
to be able to progress if it is getting a subsidy for all of 
its R&D.
    We have got to make sure that, number 1, our satellite 
industry is the best satellite industry in the world, and we 
have got to make sure that we are not laying the foundation for 
our competitors 10-20 years down the road. I am appalled to see 
that General Electric and other aerospace companies are making 
their way toward Communist China.
    And so, Madam Chairman, we have with us a very perplexed 
issue because we do need to make sure that these companies are 
not weighted down and can actually compete in that two-thirds 
of the world where people are free and the countries they live 
in are not potential adversaries. But in that other third where 
you have got, whether they are North Korea or Iran or China, we 
have got to make sure that what the American taxpayer is paying 
for is not something that will come back and put our people out 
of work or come to threaten our national security.
    Maybe you would have a comment on some of those comments.
    Ms. Blakey. Well, certainly, the Aerospace Industries 
Association believes that we have a vital national security 
asset and an economic asset in the kind of companies and 
facilities that are right there in your District and around the 
country. But they do have to have opportunities to innovate, to 
advance technology, and to sell that technology. That is what 
our Export Control Reform Initiative that we share across the 
Executive Branch and with the Congress and industry really is 
all about. It is not about changing the rules of the road, the 
rules of the game, for countries that are not those that we 
should be sharing technology and providing high-tech resources 
to.
    So, we certainly are not advocating a change in our posture 
toward China, as far as that goes. What we do need, though, is 
a more streamlined and efficient process for working with our 
allies and friends and creating a much more robust trade, 
especially as resources here at home are going down.
    Mr. Rohrabacher. Thank you very much.
    Chairman Ros-Lehtinen. Thank you, Mr. Rohrabacher.
    Mr. Sherman, the ranking member on the Subcommittee on 
Trade.
    Mr. Sherman. Thank you.
    A lot of companies come before Congress and wrap their 
agenda in jobs or the national interest. And then, sometimes 
you find that the agenda they are fighting for is carefully 
tailored to maximize profits and that they fight tenaciously 
for provisions that maximize profits, even if they don't create 
jobs or otherwise serve the national interest. I am hoping very 
much that this panel is very different from that.
    When we transfer manufacturing technology, we transfer our 
most valuable secrets, how to make the materials involved. We 
lose the jobs. We hollow out our own defense plants, and we 
build up defense plants in other countries.
    Even if that country is a close ally, a few years down the 
road when we think Iran shouldn't get a particular weapons 
system, even one of our close allies might disagree or might 
think that they need the jobs involved in that manufacturing.
    So, let me ask each witness, would you support or would you 
oppose a reform where, whatever licensing agency it is, it has 
two separate standards, an expedited standard, perhaps slightly 
more liberal, for the export of American-made equipment and a 
separate queue, a separate timeline, and a separate, more 
stringent standard for permission to offshore manufacturing and 
export the capacity to make these items?
    Ms. Blakey?
    Ms. Blakey. Well, certainly, as we have looked at the shift 
of items from the USML to the Commerce List, we have actually 
advocated that there will be greater scrutiny of more sensitive 
items that may have come off the USML. So, we do think it is 
possible within the same list to have differing scrutiny for 
that.
    Mr. Sherman. Ms. Blakey, I am not sure you--I may not have 
phrased the question as well as I should have. Do you support a 
tougher standard where one of your members is not trying to 
export a product, but is trying to export blueprints, tools and 
dies, manufacturing technology, so that they can set up a 
factory overseas to actually make the product?
    Ms. Blakey. If they are militarily-sensitive items, we 
support the greatest scrutiny on that. If these are commercial 
items that are widely available, then that becomes a much more 
commercial consideration. The question of scrutiny, again, you 
can have greater scrutiny within both of those lists, 
gradations of scrutiny.
    Mr. Sherman. Mr. Williams?
    Mr. Williams. Yes, I would echo that. Frankly, for the 
commercial market, that is already gone. They are building the 
most sophisticated products offshore in China and elsewhere 
now. For the military, certainly we would recommend protecting 
our capability as well as the actual product itself.
    Mr. Sherman. So, you would support a tougher standard for 
exporting manufacturing knowhow, as opposed to the manufactured 
product?
    Mr. Williams. Yes. In fact, we are actually asking to have, 
with respect to circuit boards, again, the fundamental building 
block of all electronic devices, to be explicitly addressed in 
that regard.
    Mr. Sherman. Ms. Cooper?
    Ms. Cooper. Yes, it is a little hard for us to extrapolate 
how to draw the line when we don't have the right to draw the 
line in the satellite area. But I do think there are different 
gradations of technology.
    Mr. Sherman. Yes. Just so I clarify my question, the issue 
isn't are there more important and less important technologies; 
that is obvious. And more military and less military 
technologies; that is obvious.
    Do you support drawing a distinction between exporting 
manufacturing technology and tools and dies, on the one hand, 
and exporting finished products on the other?
    Ms. Cooper. I don't know. I haven't checked with my members 
on whether they have any expectation to do that. I do think 
there is a difference in manufacturing capability from other 
technological data.
    Mr. Sherman. Okay. Now that I have clarified the question, 
does anybody want to clarify their answer?
    [No response.]
    Seeing no further response, I yield back.
    Chairman Ros-Lehtinen. Thank you very much.
    Judge Poe----
    Mr. Poe. Thank you, Madam Chairman.
    Chairman Ros-Lehtinen [continuing]. The vice chair of the 
Subcommittee on Oversight, is recognized.
    Mr. Poe. Thank you.
    As I mentioned earlier, I am from Houston and we still 
consider it to be the space capital of the world. I am a little 
irritated that now for manned spacecraft we have to get a taxi 
from the Russians and pay them $60 million to $70 million to 
fly up in space. It seems to me we have yielded the space 
exploration over to the Chinese and the Russians, but that is a 
different issue--sort of.
    I want to talk about the little tyrant from the desert, 
Ahmadinejad, and his regime. Back in the days of the Shah when 
the United States left after the overthrow of the Shah, and he 
happened to have about 79 F-14s, the good Americans who left 
were smart enough to take the spare parts with them back to the 
U.S. Apparently, since those days, those F-14s have still been 
used in the Iraq-Iran war. Twenty of those planes were 
cannibalized for spare parts. Now we are coming up on another 
still crisis with the Iranian Government.
    My question is, do you believe that Iran could use items 
that end up on the Commerce Munitions List to get spare parts 
to repair not just the F-14s that they still have, but F-5s, C-
130s, helicopters, and other military equipment or not? Is that 
a concern or not?
    I will start with you, Ms. Blakey.
    Ms. Blakey. What you would be talking about would be 
patently illegal, certainly something that while there 
undoubtedly are bad actors out there that from time to time 
pass equipment that should not be passed, at the same time at 
this point the Commerce Control List really would not be the 
place for the kind of equipment, for the most part, that you 
are talking about. Most of this is militarily-controlled and it 
is on the USML.
    Mr. Poe. I understand that it is, but is it a concern or 
not? Do you think this is not a concern that we should have? 
You know, it is Iran getting spare parts from other entities.
    Ms. Blakey. Iran is an incredible bad actor. And with that 
said, I think we should be concerned about all sorts of 
problematic and dangerous activity that they may try to engage 
in. That is why I put a great deal of emphasis on effective 
enforcement and scrutiny in all of this, because I think that 
is critical.
    Mr. Poe. Mr. Williams, did you want to weigh-in on that?
    Mr. Williams. Yes, I agree. I think we do need to be 
concerned about that. I think we need to be concerned about our 
military product designs being copied. I think we need to be 
concerned about them being available to offshore manufacturing, 
with China now being the center of gravity for the electronics 
industry.
    And I think it is not just on the high-tech stuff, but also 
legacy programs that are kind of long in the tooth and old with 
respect to spare parts. A situation like you are describing is 
one that we should be concerned about, protecting our Nation's 
IP.
    Mr. Poe. Ms. Cooper?
    Ms. Cooper. I will say that spare parts for repair are not 
as big of an issue for on-orbit spacecraft, but I would echo 
the importance of enforcement for violations of any rules, 
particularly for countries where we have a sense of their bad-
faith action.
    Mr. Poe. Let me ask you one more question, and I will go in 
reverse order. Down the road, China; Mr. Rohrabacher made a lot 
of comments about the Chinese, how they are professional 
thieves. Where do you see them going in space technology in the 
future with all of the IP issues, technology, satellite 
technology? How do you see this playing out, unless we do 
something on this end, say, in 5 years?
    Ms. Cooper. I would, first, start by saying that the 
Chinese space program has been starved of U.S. satellite 
technology by the regulations that have been in place specific 
to China since 1998. That having been said, the Government of 
China certainly has voiced strong interest in space 
exploration, in commercial satellite manufacturing, and they 
have a robust satellite launch program. So, we would expect 
them to continue to be an aggressive player in the 
international marketplace.
    Our interest is in the areas, where U.S. satellite 
technology is not of national sensitivity, to ask that U.S. 
companies can return to the U.S. market, to the international 
marketplace elsewhere, and compete, then, head-to-head with the 
Chinese companies.
    Mr. Poe. So, you would echo, once again, what Ranking 
Member Sherman said earlier, that you need two different 
standards for private and military technology?
    Ms. Cooper. That is the foundation of our export control 
structure.
    Mr. Poe. I am out of time. I yield back.
    Chairman Ros-Lehtinen. Thank you so much. Thank you, Judge.
    Mr. Connolly is recognized.
    Mr. Connolly. Thank you, Madam Chairman. And thank you to 
our panelists for being here today.
    I guess the first thing, I would be interested in hearing 
your honest opinion, but as somebody who worked in the private 
sector subject to export controls, every year I had to take a 
course, as an officer of the company, to try to glean the 
meaning of the Export Control Act and what was and what wasn't 
subject and what the penalties were, and what you had to do if 
you suspected something might possibly fall within the penumbra 
of questionable export items, and so forth.
    I will just say to my colleagues and this panel, I wish 
everybody had to take that course in Congress to better 
understand what a Byzantine world we have created with the best 
of intentions in terms of export controls.
    It led me, and certainly being here in this committee over 
the last 3 years has led me, to ask the question about 
efficacy. With the best of intentions to protect national 
security, with the best of intentions to protect sensitive 
technology, are we doing that? Because I believe that the 
nature of today's technology and the pace of technological 
change, frankly, make it extremely difficult, except in some 
rare cases, to protect anything. Wish we could.
    I think the United States, as we look at reforms to this 
regime, we have to ask ourselves the painful and honest 
question, is it efficacious, what we are proposing? Because if 
it isn't, then it is a feel-good measure that is not, in fact, 
performing the desired function and we are presenting, not 
willfully, but a false security to the American public.
    So, that is a long-winded preference, but I would honestly 
be interested in your reactions to the whole question of the 
current regime's efficacy, protecting U.S. sensitive 
technology.
    Ms. Blakey?
    Ms. Blakey. Certainly I think it is fair to say that the 
current regime for the most sensitive technologies, the most 
dangerous if they fell into the wrong hands, has been 
effective. The problem is it is becoming increasingly less 
effective because there is the needle-in-the-haystack 
phenomena. You are trying to control so much that you cannot, 
as technology proliferates and innovates, continue to do it 
that way.
    Meanwhile, I mean, it is interesting to hear your comments 
about having to take that kind of course. Because what we 
haven't talked as much about this morning is the burden on 
small and medium-sized businesses, which are the source of a 
great deal of innovation. But, frankly, they can't afford the 
kind of costs that go into learning all of that and, then, 
their real cost, which is 68 percent of the companies that have 
military product have to register with the DDTC. They pay 
$2,250 a year and then never export because the difficulties, 
the barriers, are so great. So, they are real cash-out-of-
pocket, small-margin businesses.
    And again, are we benefitting the system that is supposed 
to control the highest technology when you are also trying to 
keep in bounds all of that on the same list, the same scrutiny? 
I don't think so.
    Mr. Connolly. Thank you.
    Mr. Williams?
    Mr. Williams. Yes, if you are asking about kind of the 
effectiveness and the intent of the parties, I think everybody 
means well. I agree it is very confusing when you get below the 
program level and into the component level. And again, I hate 
to refer to a circuit board as a component, but think of it for 
the moment as such. It gets very confusing on whether or not 
that specific item needs to be sourced in compliance with ITAR 
requirements, for example.
    As an association, we educate on ITAR requirements. We do 
that in our companies as well. It is with a cost and burden. It 
is part of doing business; fair enough. But we need to 
recognize our foreign competitors aren't so burdened. So, it 
is, in a sense, unfair on one plane, but on another I do think 
it is required. We want to be part of complying with the----
    Mr. Connolly. But, Mr. Williams, with due respect, that was 
not my question. My question was, is it efficacious? With all 
good intentions and the desire to be patriotic and to comply, 
what if we find ourselves unintentionally supporting a regime 
that, in fact, is not achieving its purposes? In fact, quite 
the opposite, it is filled with unintended consequences.
    Mr. Williams. I'm sorry. Again, that is why we are here 
supporting export control reform. Because we see examples of 
the ineffectiveness of the way it is being administered today, 
and we do believe that it could be significantly improved and 
support that.
    Mr. Connolly. Would the chairman indulge this Democratic 
ranking member to allow Ms. Cooper to answer this?
    Chairman Ros-Lehtinen. Absolutely.
    Mr. Connolly. I thank the chair.
    Chairman Ros-Lehtinen. I will collect later. [Laughter.]
    Ms. Cooper. I agree that the current system can be 
improved. I agree that it should not be focused on complexities 
that yield ``gotcha's'' for folks that are well-meaning and 
slip up because the rules are too complex.
    But I would point to, at least in our sector, another area 
where I think the rules have allowed technology to slip beyond 
control. That is by encouraging our competitors to invest and 
build capabilities that they did not previously have in order 
to capture the ITAR-free market. We have placed, actually 
placed, a target on certain technologies where U.S. companies 
had led the global marketplace, and now both European and other 
governments have incentives to develop competing technologies. 
That is not only an erosion of our international 
competitiveness, but it also means that that capability has 
proliferated, not been controlled.
    Thank you.
    Mr. Connolly. I thank the chair for her graciousness.
    Chairman Ros-Lehtinen. I prefer dark chocolate. [Laughter.]
    Mr. Duncan.
    Mr. Connolly. It is on its way, Madam Chairman.
    Mr. Duncan. Thank you, Madam Chairman, and thanks for the 
timeliness of this oversight and the policies. As a freshman 
Member, it is definitely educational to me to understand what 
the U.S. is doing or not doing with regard to selling 
technology around the world that could be used by our enemies 
to harm the U.S. interest or thwart our efforts to defend 
ourselves.
    So, the question I have is for Mr. Williams. Just this 
week, it was reported that the North Koreans were possibly 
using drones that were 1987 variants of MQM-107D Streakers, 
possibly using those to attach some sort of ordnance package 
and possibly use those in the South.
    And so, I think about the sales of items such as this, and 
taken with your testimony about printed circuit boards in your 
written testimony--I am not sure how much in your verbal 
testimony you touched on that--but what I would like for you to 
do is expound on the possibilities of our potential foes 
getting access to items which could, indeed, be used against 
either U.S. allies, U.S. assets, or thwart our efforts to 
defend ourselves, and possibly taking a printed circuit board 
or anything and reverse-engineering it to figure out the 
weapons system, integration, and how they may come up with 
things that would thwart our efforts. I am trying to learn.
    Mr. Williams. Well, it can be done. I mean, there are many 
cases of foreign competitors taking circuit boards and grinding 
them down layer-by-layer to expose the logic of the circuitry. 
There are so-called Gerber files, which are three-dimensional 
files that lay out all of the interconnect scheme. While it 
doesn't necessarily give somebody all the answers, it is 
certainly a head-start to how we build our systems and 
products.
    In fact, when I met with the Commerce Department, I 
provided what I personally pulled off the internet for one of 
our weapons systems. With a circuit board, one could get a 
pretty good set of roadmaps on how to replicate the part and 
the product. So, it is very important that we control the 
designs as well as the end-boards themselves.
    Mr. Duncan. Madam Chairman, there was a committee hearing 
in the Homeland Security Committee with Chairman King where we 
looked at U.S. vendors that were selling circuit boards and 
other computer hardware to the U.S. military, but also an 
ability, some of these old circuit boards would be sold outside 
of the military channels.
    The questions asked during that committee hearing were, 
could China possibly take and lift information off of some of 
those computer components? I guess my concern is, would they 
have the ability to utilize that technology that is freely out 
there to somehow figure out a way to implement or put a virus 
into U.S. military hardware? Is that a possibility?
    Mr. Williams. Well, with respect to components, 
semiconductors and things like that, it is possible that they 
could put non-compliant parts in there that might have such 
devices.
    For circuit boards per se, since they don't hold any 
software inside themselves, for example, the greater threat is 
that you could have a circuit board inserted into a weapons 
system that is specifically designed to not support the type of 
performance that it should have.
    So, for example, if it is in a rugged mission and under 
stress, the board would fail. Okay? And so, potentially, one 
could design a board that would not be reliable.
    When we build for DoD requirements, we are building to a 
standard that is going to last 20-30 years, right? And that is 
not what is typical in the consumer electronics field.
    So, it could happen if counterfeits are inserted into the 
supply chain that don't even have an intended sabotage effect. 
It could be inadvertent, but it is certainly possible to render 
our weapons systems as not reliable, certainly not within the 
spec of how they have been designed.
    Mr. Duncan. I appreciate the testimony.
    Madam Chairman, as you think about the Iranians capturing a 
drone, you think about the assault on Bin Laden's compound and 
the fact that they held the tail rotor of that helicopter, you 
think about what China did when they held a U.S. spy plane for 
a long period of time to investigate it, and how they are 
taking that and integrating normal sales of these components, 
it is alarming to me. I think it is important that the United 
States and this Congress continue to look at this.
    I will yield back the balance.
    Chairman Ros-Lehtinen. Yes, sir, I agree.
    Mr. Kelly, the vice chair of the Subcommittee on Asia and 
the Pacific.
    Mr. Kelly. Thank you, Madam Chair.
    This is a difficult situation. We talk about the effects of 
reverse-engineering and people taking technology from the 
United States and using it against us and some of the advanced 
technology that we are able to produce, but, yet, maybe not 
want to export.
    It goes back to the Oklahoma City bombing, where somebody 
can rent a Ryder truck, fill it with fertilizer and some other 
chemicals, and blow up a building and kill 169 people.
    So, I know that we are all very concerned with what it is 
that we allow to go outside our country and technology that is 
allowed to go out. I guess, Ms. Blakey, it would come to you 
because this is a member of your group. It is Rod Smith who has 
the Acutec Precision Company up in my District, Meadville, 
Pennsylvania.
    He wrote me. He said, ``In general, the rules and 
regulations of the U.S. Government have made it far easier to 
import from China than to export to anywhere from the U.S. Even 
exporting to Canada is a mountain of paperwork. The only 
companies that can succeed at exporting in the aerospace 
industry are those large enough to have the staff to deal with 
the paperwork, and then you can imagine the extra cost they 
occur.'' He says, ``Our export controls are based on 
assumptions of manufacturing and technology and the political 
framework of the fifties.''
    Now you mentioned small businesses, and I think this is 
where the difficulty comes in. Because when we enact these 
rules and we place this legislation into effect, we really 
don't understand the unintended consequences for those who 
actually do this.
    Mr. Smith's example, he makes shims. He told me he has to 
be so careful of where he sends these shims because it comes 
back to him. It is his responsibility to make sure that at some 
point in the supply chain or the link that it doesn't fall into 
somebody's hands who could use it against us.
    If you could just expand a little bit more on the costs 
involved in this? Looking at your figures, I mean, maybe again 
talk about the advantage we have in exporting, the billions of 
dollars advantage that we have now, but we may not have in the 
future, if we continue to make it more difficult for us to 
operate in a global market. So, if you could just expand on 
that a little bit and the cost, I would appreciate that.
    Ms. Blakey. I would be happy to, because Mr. Smith's 
experience, you can multiply his experience thousands and 
thousands and thousands of times, and the cost is enormous. The 
fact of the matter is that a lot of small businesses simply do 
not attempt to export at all because they are so afraid of the 
paperwork and inadvertently making a mistake which has real 
consequences. There are teeth in this enforcement program.
    People say all the time, why is our Government putting up 
barriers to having U.S. products compete? Shims are available 
worldwide. This is not something that is a unique product that 
could not be obtained elsewhere. So, why make it difficult for 
the American quality and technology to get out there when 
others can supply it?
    And yet, we see this over and over again. It is the cost of 
the actual licensing. It is the cost of the registration fee. 
It is the cost of the lawyers. Because, remember, smaller 
companies simply don't have people on staff who can make all 
this determination.
    It is interesting because, when you go to the State 
Department and you ask, is my item controlled or not, they 
won't give you a straightforward interpretation. They refer you 
to the regs, which have catchall clauses in them. Those, then, 
require either going out on a limb with your interpretation or 
submitting a request for them to give you a determination, a CJ 
on this. And the paperwork can be 4 or 5 inches high, most of 
it documents that lawyers generate. Now tell me what is right 
about that system.
    Mr. Kelly. And I understand that. I think that is where the 
disconnect is. As we continue to bring forward legislation and 
we continue to regulate businesses at every level, it is the 
overall cost of being able to compete that is now taking us out 
of the game. We have raised the cover charge so much that 
nobody wants to come into our place anymore to do business.
    Why don't we say we are going to develop a global strategy 
so that we compete, knowing that 95 percent of what we can 
achieve is outside our own borders and that is what we are 
going after? Then, on the other hand, we over regulate and make 
it so difficult that only a certain few can compete.
    So, I appreciate your testimony. Does anybody else want to 
weigh-in on that, because I know how difficult it is? Yes, Ms. 
Cooper.
    Ms. Cooper. I would like to make two points. One is that 
the satellite industry, the customers for completed spacecraft 
is an incredibly international community. It is not just about 
China. There are customers all around the world. Our ability to 
sell U.S.-made products, U.S.-made spacecraft to them is 
certainly affected by our ITAR designation, the ITAR 
designation that makes no differentiation between a satellite 
that delivers satellite TV and one that carries UAV traffic.
    I would also point to a study that the Department of 
Defense, Acquisition, Technology and Logistics, commissioned 
just this year. They identified five new satellite technology 
areas at high risk, those that have only one or no U.S. 
suppliers, and an additional nine areas with the potential to 
create bottlenecks or cost increases for government space 
programs. Companies are leaving the marketplace, and that 
leaves our military, civil space, and intelligence space 
programs at a disadvantage when they try to source 
domestically.
    Mr. Kelly. So, would it be fair to say, then, that we are 
going to start relying on people outside our own borders to 
supply us with technology that we need?
    Ms. Cooper. It is already happening.
    Mr. Kelly. Thank you.
    Chairman Ros-Lehtinen. Thank you so much, Mr. Kelly.
    Mr. Manzullo, the chairman of the Subcommittee on Asia and 
the Pacific, is recognized.
    Mr. Manzullo. Thank you, Madam Chair.
    I would like to echo, unfortunately, the story of what 
happened on the U.S. world share of machine tools, and it is 
also happening in satellites. Rockford, Illinois, the largest 
city in the District I represent, at one time was known as the 
machine tool center of the world. Unfortunately, with the 
Commodity Control List controlling any machine tool that has an 
excess of four axis to Tier 3 countries, we have gone to a 
market share now that is in the single digits.
    Sometimes you wonder what the export control people do when 
they even take a look at a machine with a mandrel and consider 
that to be an axis if it turns or moves in any degrees.
    What is particularly bothersome is the Tier 3 countries are 
China, Israel, India, Pakistan, et cetera. It is not that 
difficult to build a five-axis machine. The guys that are left 
in the United States--you have got Haas, you have got locally 
Bourn & Koch, and a handful of others--are always facing this 
situation where you don't have to worry about a license if you 
buy it from us.
    A German company that can establish a U.S. manufacturing 
facility can still manufacture five-axis machines and sell them 
anywhere, but a U.S. company cannot build a facility in Germany 
and sell because it is still bound by the Commodity Control 
List. This is insanity.
    What has happened is that the superiority that our Nation 
has had in machine tools is gone. We have to rely upon the 
Japanese, the Swiss, and the Italians, for those precision 
machines.
    The question I have of Ms. Cooper is twofold. If you think 
that is the same analogy that is going to happen to the 
satellite industry? And the second question would be, what 
happened to the satellite report that continues to be delayed?
    Ms. Cooper. I have heard references to the satellite 
industry's cautionary tale for overregulation. By regulating 
and requiring regulation that doesn't differentiate between the 
most sensitive and the most mundane, our industry has been 
hamstrung significantly in international marketplaces. It has 
drawn a target on technologies that had been U.S. lead items 
for our international competitors.
    I understand that there are some 50 studies that have been 
done on the space industrial base. I don't know of a single one 
that hasn't shown some level of alarm. The statistics that the 
AIA study underscores show lost jobs and lost revenues. The 
question is, at what point do you consider the harm is self-
evident and act to allow differentiation?
    I am enormously proud of the innovation and investment that 
U.S. companies bring to the satellite sector. I believe that 
their work with the U.S. military, civil space, and 
intelligence community certainly has allowed them a 
technological sophistication that their competitors may not 
enjoy.
    I would also say that the commercial satellite industry has 
required quite a lot of innovation in order to be able to bring 
consumer services and services to enterprises that require 
sophisticated spacecraft as well.
    I don't see U.S. companies, the U.S. sector, leaving the 
global marketplace, but I do see harms if we don't allow them 
to compete where their items are widely available.
    Mr. Manzullo. It is a similar question to Ms. Blakey. You 
will recall about 3 years ago I think I worked for 2 years on 
two sentences on Section 17(c)of the Export Administration Act. 
It was really absurd because we finally got that regulation 
changed, and that resulted in billions of dollars of additional 
exports of U.S.-made aircraft parts.
    Can you take that example, just one example, and show that 
as the need to reform these outdated export control laws?
    Ms. Blakey. Well, I think there is no question about the 
change that you all successfully made in Section 17(c) has made 
a significant difference. It is the sort of thing that was a 
commonsense, logical shift that, if the FAA is certifying these 
parts, that this indicates that they really do and should be 
considered under the commercial rubric. That has made a big 
difference.
    It would be a shame, however, to have to tackle on a onesy-
twosy basis reform in this system. What we need is a systemic 
reform. We need the kind of across-the-board changes that the 
three of us really are here advocating today.
    And it is critical from the standpoint of preserving our 
industrial base and U.S. capabilities. It is also critical for 
national security because we are not focusing adequately right 
now on the most sensitive technologies because the system is 
creaking under the weight of old regulation that really is 
forcing it to try to do too much. That does not make sense, 
certainly not anymore.
    Mr. Manzullo. Indeed.
    Ms. Blakey. Thank you.
    Mr. Manzullo. Could I have 10 seconds?
    Chairman Ros-Lehtinen. Yes.
    Mr. Manzullo. And the bill on which Mr. Berman and I are 
cosponsors to return the satellite industry back to the United 
States, that could only occur with a change in the regulations, 
is that correct?
    Ms. Cooper. That is correct.
    Mr. Manzullo. Thank you.
    Chairman Ros-Lehtinen. Thank you, Mr. Manzullo.
    Mr. Rivera, my Florida colleague.
    Mr. Rivera. Thank you, Madam Chair. My questions have been 
addressed. So, I will yield back my time.
    Chairman Ros-Lehtinen. Thank you so much.
    And I want to thank excellent witnesses for their 
testimony. Thank you to the audience for participating and our 
members as well.
    The committee is now adjourned.
    [Whereupon, at 11:57 a.m., the committee was adjourned.]
                                     

                                     

                            A P P E N D I X

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     Material Submitted for the Hearing RecordNotice deg.




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Material submitted for the record by the Honorable Ileana Ros-Lehtinen, 
 a Representative in Congress from the State of Florida, and chairman, 
                      Committee on Foreign Affairs





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Material submitted for the record by the Honorable Ileana Ros-Lehtinen, 
 a Representative in Congress from the State of Florida, and chairman, 
  Committee on Foreign Affairs, and the Honorable Howard L. Berman, a 
        Representative in Congress from the State of California










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  Material submitted for the record by the Honorable Brad Sherman, a 
        Representative in Congress from the State of California






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    [Note: The AIA Report, ``Competing for Space,'' dated January 2012, 
submitted for the record by Ms. Marion C. Blakey, president & chief 
executive officer, Aerospace Industries Association, and the Honorable 
Howard L. Berman, a Representative in Congress from the State of 
California, is not reprinted here but is available in committee 
records.]

                                 
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