[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
EXPORT CONTROLS, ARMS SALES, AND REFORM: BALANCING U.S. INTERESTS,
PART II
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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
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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
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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
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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.]