    [Senate Report 111-302]
    [From the U.S. Government Publishing Office]

                                                           Calendar No. 586
    111th Congress                                                   Report
                                     SENATE
     2d Session                                                     111-302

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

         DEFENSE TRADE COOPERATION TREATIES IMPLEMENTATION ACT OF 2010

                                    _______

                   September 23, 2010.--Ordered to be printed

              Mr. Kerry, from the Committee on Foreign Relations,
                            submitted the following

                                     REPORT

                             [To accompany S. 3581]

        The Committee on Foreign Relations, having had under
    consideration the bill S. 3581, to implement certain defense
    cooperation trade treaties, reports favorably thereon, with an
    amendment in the nature of a substitute and an amendment to the
    title, and recommends that the bill, as amended, do pass.

                                    CONTENTS

                                                                       Page

      I. Purpose..........................................................1
     II. Committee Action.................................................2
    III. Section-by-Section Analysis......................................3
     IV. Cost Estimate...................................................11
      V. Evaluation of Regulatory Impact.................................11
     VI. Changes in Existing Law.........................................11
    VII. U.S.-UK Implementing Arrangement................................17
    VIII.U.S.-Australia Implementing Arrangement.........................41

                                   I. Purpose

        The purpose of this bill is to provide a statutory basis
    for the President to implement the Treaty between the
    Government of the United States of America and the Government
    of the United Kingdom of Great Britain and Northern Ireland
    Concerning Defense Trade Cooperation, done at Washington and
    London on June 21 and 26, 2007 (Treaty Doc. 110-7) and the
    Treaty between the Government of the United States of America
    and the Government of Australia Concerning Defense Trade
    Cooperation, done at Sydney, September 5, 2007 (Treaty Doc.
    110-10). This is necessary to ensure that violations of the
    treaties, of their implementing arrangements, or of regulations
    issued pursuant to them would be subject to the criminal and
    civil sanctions enumerated for certain offenses under the Arms
    Export Control Act (22 U.S.C. 2751 et seq., hereinafter ``the
    AECA''). The bill also ensures the application to activities
    under the treaties of existing AECA provisions relating to,
    inter alia, the approval of third-country transfers, a ban on
    incentive payments, and a reporting requirement in the event
    that a United States person is discriminated against, in the
    license-free defense trade regime created under the treaties,
    on the basis of race, religion, national origin, or sex. In
    addition, the bill requires legislative approval before certain
    changes to implementing arrangements to the two treaties may
    enter into effect for the United States.

                              II. Committee Action

        The Treaty with the United Kingdom Concerning Defense Trade
    Cooperation was signed on June 21 and 26, 2007, and was
    received in the Senate and referred to the Committee on Foreign
    Relations on September 20, 2007 (Treaty Doc. 110-7). A nearly
    identical treaty with Australia was signed on September 5,
    2007, and was received in the Senate on December 3, 2007
    (Treaty Doc. 110-10).
        The committee held a public hearing on the treaties on May
    21, 2008. Senator Biden chaired the hearing. Testimony was
    received from the Honorable John C. Rood, Acting Under
    Secretary of State for Arms Control and International Security.
    On July 3, 2008, Senators Biden and Lugar also submitted in
    writing questions for the record to the Honorable Michael B.
    Mukasey, Attorney General of the United States, and the
    Honorable Michael Chertoff, Secretary of Homeland Security. The
    transcript of that hearing and the text of the executive
    branch's answers for the record are provided in S. Hrg. 110-
    651.
        On December 10, 2009, the committee held another public
    hearing on the treaties. Senator Kerry chaired the hearing.
    Testimony was received from the Honorable Andrew Shapiro,
    Assistant Secretary of State for Political-Military Affairs,
    and the Honorable James A. Baker, Associate Deputy Attorney
    General. On December 17, 2009, Senator Lugar submitted
    questions for the record to the Honorable John Merton,
    Assistant Secretary of Homeland Security for Immigration and
    Customs Enforcement, and Mr. Jayson P. Ahern, Acting
    Commissioner for Customs and Border Protection. The transcript
    of that hearing and the text of the executive branch's answers
    for the record are included in the executive report on the
    treaties.
        Among the issues discussed in the committee's hearings and
    correspondence with the executive branch was whether
    implementing legislation should be enacted to clarify the
    treaties' operation in U.S. law and to provide authorities
    related to their enforcement. On July 14, 2010, Senator Lugar
    introduced S. 3581, the Defense Trade Treaty Implementation Act
    of 2010. Although the executive branch originally envisioned
    that the treaties would be self-executing, and thus would not
    require implementing legislation, the executive branch
    subsequently revised this position and accepted that the
    treaties would be implemented through legislation. On September
    20, 2010, the Department of State transmitted to the committee
    an answer for the record stating the administration's revised
    position that, ``the Treaties are not self-executing. They will
    be implemented through legislation and regulations
    thereunder.''
        On September 21, 2010, the committee considered the
    treaties and ordered them favorably reported by a voice vote,
    with a quorum present and without objection. The committee
    recommended a resolution of advice and consent to ratification
    for each treaty. At the same meeting, the committee considered
    S. 3581, adopted by voice vote a Kerry amendment in the form of
    a substitute, and by a voice vote ordered the amended bill
    favorably reported.

                        III. Section-by-Section Analysis

    Section 1. Short Title.

        This Act may be cited as the ``Defense Trade Cooperation
    Treaties Implementation Act of 2010.''

    Section 2. Exemptions From Requirements.

        Section (2)(a) of the bill would amend section 3(b) of the
    AECA (22 U.S.C. 2753(b)), to include in the list of items for
    which the President's advance consent to a transfer to a third
    party is not required, those transfers that are permitted by
    one of the treaties without that advance consent. Section 3(a)
    of the AECA requires, among other things,\1\ that before
    agreeing to sell or lease a defense article or defense service
    to any country or international organization, the recipient
    must agree that it will not, without the advance consent of the
    President, (1) transfer title to or possession of the defense
    article or related training or other defense service to anyone
    not an officer, employee, or agent of that country or
    international organization, and (2) not use or permit the use
    of such article or related training or other defense service
    for purposes other than those for which it was furnished.
    Section 505(a) of the Foreign Assistance Act of 1961 (22 U.S.C.
    2314) contains a similar requirement prior to providing defense
    articles or related training or defense services on a grant
    basis. Section 3(b) of the AECA in turn exempts from those
    advance Presidential consent requirements certain types of
    retransfers of defense articles and services from the original
    recipient countries to a third party.
    ---------------------------------------------------------------------------
        \1\Section 3(a) requires, in full that ``No defense article or
    defense service shall be sold or leased by the United States Government
    under this Act to any country or international organization, and no
    agreement shall be entered into for a cooperative project (as defined
    in section 27 of this Act), unless-
        (1) The President finds that the furnishing of defense articles and
    defense services to such country or international organization will
    strengthen the security of the United States and promote world peace;
        (2) The country or international organization shall have agreed not
    to transfer title to, or possession of, any defense article or related
    training or other defense service so furnished to it, or produced in a
    cooperative project (as defined in section 27 of this Act), to anyone
    not an officer, employee, or agent of that country or international
    organization (or the North Atlantic Treaty Organization or the specific
    member countries (other than the United States) in the case of a
    cooperative project) and not to use or permit the use of such article
    or related training or other defense service for purposes other than
    those for which furnished unless the consent of the President has first
    been obtained;
        (3) The country or international organization shall have agreed
    that it will maintain the security of such article or service and will
    provide substantially the same degree of security protection afforded
    to such article or service by the United States Government; and
        (4) The country or international organization is otherwise eligible
    to purchase or lease defense articles or defense services.
    ---------------------------------------------------------------------------
        This provision is intended to make clear that transfers of
    title or possession permitted by the treaties are exempt from
    the AECA's advance Presidential consent requirements. For
    defense articles, services, and related technical data
    originally exported pursuant to the treaties, Article 7 of each
    treaty would permit transfers among members of that treaty's
    approved community of entities and individuals, including non-
    governmental entities. Such transfers would not require the
    consent of the United States Government. (Transfers to entities
    outside of each treaty's approved community, including to
    another recipient country, would continue to require advance
    U.S. consent.) In addition, Article 3(3) of each treaty permits
    the application of the treaty to defense articles, services,
    and related technical data that were originally exported
    pursuant to the Foreign Military Sales (FMS) program (that is,
    the program of government-to-government sales established under
    the AECA). As a result, the treaties would permit the UK or
    Australian Governments to transfer to other members of each
    treaty's approved community defense articles, services, and
    related technical data that had originally been transferred
    under the FMS program.
        Subsection (b) of this section would add new subparagraph
    (C) to section 38(j)(1) of the AECA (22 U.S.C. 2778(j)(1)) to
    exempt the treaties from a certain requirement in the AECA, and
    to establish limitations on the scope of each treaty. Section
    38(j)(1)(A) establishes that the President may use the
    regulatory authority of the AECA to exempt a country from the
    licensing requirements of the AECA only if the United States
    has concluded a bilateral agreement with the foreign country
    that meets certain requirements as stipulated in section 38(j)
    of the AECA. The committee recommends that the Senate give its
    advice and consent to ratification of the treaties, which were
    not designed to meet the requirements established by section
    38(j)(1)(A). The new clause (C)(i) would exempt the treaties
    with the United Kingdom and Australia from these requirements.
        The provision would also limit the scope of defense
    articles, services, and related technical data for which
    license-free exports and transfers under the treaties could be
    conducted. In its presentation of the treaties to the Senate,
    the executive branch expressed its intention to exempt from
    each treaty's scope certain defense articles, services, and
    related technical data that it regarded as too sensitive to be
    transferred license-free, including defense articles listed in
    the Missile Technology Control Regime (MTCR) Annex, the
    Chemical Weapons Convention (CWC) Annex on Chemicals, the
    Convention on Biological and Toxin Weapons, and the Australia
    Group (AG) Common Control Lists (CCL). The committee welcomes
    the assurances from the executive branch in this regard.
    Furthermore, the resolutions of advice and consent to
    ratification for each treaty that the committee has recommended
    would require as a condition of advice and consent that the
    executive branch notify the Committee on Foreign Relations in
    the Senate and the Committee on Foreign Affairs in the House of
    Representatives 30 days in advance of including within each
    treaty's scope a defense article, service, or related technical
    data that had previously been exempt from each treaty's scope.
        Nevertheless, the committee believes that there are certain
    items that are so sensitive that Congress should explicitly
    exclude them from the scope of the defense trade cooperation
    treaties. In particular, the committee believes that certain
    defense articles, defense services, and related technical data
    that are controlled in accordance with various international
    nonproliferation regimes must not be included in any license-
    free defense trade regime. The committee recognizes that the
    controls under these regimes may in some cases be subject to
    periodic technical changes by the participating governments of
    those regimes, which may result in technical updates to the
    lists of items controlled by those regimes.
        In particular, the new clause (C)(ii) would require that
    certain items listed on the Missile Technology Control Regime
    (MTCR) Annex (as that term is defined in section 74(a)(4) of
    the AECA (22 USC 2797c (a)(4)) be exempted from the scope of
    the treaties. New subclauses I and II would exempt from the
    treaties' scope all items in Category I of the MTCR Annex,
    while new subclause III would exempt from the treaties MTCR
    Category II defense articles and defense services that are for
    use in rocket systems (but not those items in Category II that
    are for use in unmanned aerial vehicles).
        In referencing certain items controlled under United States
    Munitions List (hereinafter ``USML'') Category XIV, a new
    subclause IV would require the President to exempt from the
    scope of the treaties:

       Chemical agents currently listed in USML Category XIV(a),
            which include certain nerve agents, vesicant agents,
            and incapacitating agents that are among the chemicals
            listed on Schedules 1 and 2 in the Annex on Chemicals
            of the Convention on the Prohibition of the
            Development, Production, Stockpiling and Use of
            Chemical Weapons and on their Destruction (the Chemical
            Weapons Convention);

       Biological agents and biologically derived substances
            specifically developed, configured, adapted, or
            modified for the purpose of increasing their capability
            to produce casualties in humans or livestock, degrade
            equipment or damage crops, controlled under USML
            Category XIV(b);

       Equipment and its components, parts, accessories, and
            attachments, as controlled under USML Category
            XIV(f)(1), specifically designed or modified for
            military operations and compatibility with military
            equipment, for the dissemination, dispersion or testing
            of the chemical agents, biological agents, tear gases
            and riot control agents, and defoliants listed in USML
            Categories XIV(a), (b), (d), and (e), as well as
            tooling and equipment specifically designed or modified
            for the production of such equipment, components,
            parts, accessories, and attachments;

       Modeling or simulation tools specifically designed or
            modified for chemical or biological weapons design,
            development or employment, controlled under USML
            Category XIV(i); and

       Technical data as it relates to all of the items above.

        By referencing USML Category XVI(a) and (b), proposed
    subclause IV would require the President to exempt from the
    scope of the treaties any article, material, equipment, or
    device, controlled under the USML, which is specifically
    designed or modified for the use in the design, development, or
    fabrication of nuclear weapons or nuclear explosive devices, as
    well as any article, material, equipment, or device controlled
    under the USML which is specifically designed or modified for
    use in the devising, carrying out, or evaluating nuclear
    weapons tests or any other nuclear explosions (including for
    modeling or simulating the employment of nuclear weapons or the
    integrated operational use of nuclear weapons). Subclause IV
    would also exempt from the scope of the treaties specifically
    designed or modified components and parts, accessories,
    attachments, and associated equipment for such items, as well
    as directly related technical data and defense services. The
    committee notes that the proposed subclause IV would not
    necessarily exempt from the scope of the treaties nuclear
    radiation detection and measurement devices specifically
    designed or modified for military applications.
        Finally, this section would require that the United States
    exempt from the scope of the treaties those defense articles
    and defense services that the United Kingdom or Australia
    cannot adequately protect and control on its control lists.
    Again, the executive branch has stated that it intends to
    exempt such items from the scope of the treaties, but the
    committee recommends formalizing this statement in law.

    Section 3. Enforcement.

        Section (3)(a) would amend section 38(c) of the AECA (22
    U.S.C. 2778(c)) to ensure that any person who willfully
    violates the treaties will be subject to the criminal penalties
    established by section 38(c). Subsection (a) would also make
    clear that a violation of any rule or regulation issued
    pursuant to the AECA to implement or enforce the treaties would
    also be a violation of section 38(c). (The executive branch
    intends to amend the International Traffic in Arms Regulations
    (22 CFR Chapter I, Subchapter M, Parts 120-130; hereinafter
    ``ITAR''), which are issued under the authority of section
    38(a)(1) of the AECA, to specify requirements to export,
    reexport, transfer, retransfer, or otherwise dispose of defense
    articles and defense services pursuant to the treaties.) The
    committee believes that this provision is required to provide
    authority to prosecute those who violate the treaties' terms.
    The Justice Department relies on section 38(c) as the basis for
    its criminal prosecutions of export control offenses under the
    AECA.
        Subsection (b) would amend section 38(e) of the AECA to
    further make clear that the authorities to levy civil penalties
    for violations of the AECA and regulations promulgated
    thereunder would also include carrying out functions under the
    AECA with respect to the export of defense articles and defense
    services exported or imported pursuant to the treaties. The
    committee believes that it is important, as with criminal
    penalties under section 38(c), to ensure that the President
    will have the authority to use the civil enforcement measures
    provided by the AECA to enforce regulations promulgated to
    implement and enforce the treaties.
        Subsection (c) would add a new paragraph (4) to section
    38(f), which would make clear that the limitations established
    in section 38(f)(2) on the exemption of a foreign country from
    the licensing requirements of the AECA would not apply with
    respect to the treaties, provided the President promulgates
    regulations to implement and enforce the treaties under
    sections 38 and 39 of the AECA. As noted above, the executive
    branch has indicated in testimony to the committee that it
    intends to promulgate regulations under the authority provided
    by the AECA to specify requirements to export, reexport,
    transfer, retransfer, or otherwise dispose of defense articles
    and defense services pursuant to the treaties.
        As currently written, section 38(f)(2) (22 USC 2778(f)(2))
    would require the President to notify the Committee on Foreign
    Relations of the Senate and the Committee on Foreign Affairs of
    the House of Representatives 30 days prior to authorizing a
    country-wide exemption from the licensing requirements of the
    AECA. Pursuant to section 38(f)(2)(B), the notification is to
    include a description of the scope of the exemption, as well as
    a determination by the Attorney General that the bilateral
    agreement establishing the exemption accomplishes certain
    things, namely:

              that the bilateral agreement concluded under
            subsection (j) requires the compilation and maintenance
            of sufficient documentation relating to the export of
            United States defense articles, defense services, and
            related technical data to facilitate law enforcement
            efforts to detect, prevent, and prosecute criminal
            violations of any provision of this Act, including the
            efforts on the part of countries and factions engaged
            in international terrorism to illicitly acquire
            sophisticated United States defense items.

        As with the exception to section 38(j)(1)(A) of the AECA
    that would be added by section 2 of this bill, the committee,
    in recommending that the Senate gives its advice and consent to
    ratification of the treaties, has already considered this
    issue. Amending section 38(f) in this way will make clear that
    the determination required by section 38(f)(2) is not necessary
    to authorize an exemption for the United Kingdom and Australia
    from the licensing requirements of the AECA in order to give
    effect to the treaties. The committee is satisfied that the
    bill contemplated by the committee in conjunction the
    amendments to the ITAR that will be promulgated to implement
    and enforce the treaties makes this certification unnecessary.
        Section 39A of the AECA (22 U.S.C. 2779a) prohibits any
    United States supplier of defense articles or services ``sold
    or licensed'' under the AECA, as well as any employee, agent,
    or subcontractor thereof, from making any incentive payments
    (as that term is defined by section 39A(d) of the AECA) for the
    purpose of satisfying, in whole or in part, any offset
    agreement with that country. Any person who violates that
    prohibition is then subject to civil penalties. Because defense
    articles and services that are exported to the United Kingdom
    or Australia pursuant to the treaties would not require a
    license to be issued by the State Department, United States
    suppliers of such defense articles or services could
    potentially make incentive payments in connection with exports
    under the treaties that would be barred for exports that were
    licensed pursuant to the AECA. Subsection (d) would therefore
    amend section 39A(a) to ensure that suppliers of defense
    articles or services exported pursuant to the treaties would be
    barred from making incentive payments to satisfy part or all of
    an offset agreement with the United Kingdom and Australia.

    Section 4. Congressional Notification.

        With certain exceptions, section 3(d)(3)(A) of the AECA
    requires the President to notify Congress 15 or 30 days
    (depending on the recipient country) prior to approving
    transfers to third parties of defense articles or services
    above certain thresholds of value, ``the [original] export of
    which has been licensed or approved under section 38'' of the
    AECA. The AECA then states that the President may not consent
    to the transfer to the third party if there is enacted a joint
    resolution prohibiting the transfer. The AECA establishes
    expedited procedures for Senate consideration of a joint
    resolution to block the transfer.
        Article 9 of each treaty requires that, with certain
    limited exceptions, the approval of the United States
    Government must be obtained before defense articles or defense
    services may be either retransferred to an entity in the same
    country that is not a member of that treaty's approved
    community or reexported to an entity outside of the UK or
    Australia. Because defense articles and services exported
    pursuant to the treaties would not be licensed or specifically
    approved pursuant to the section 38 (or would be transitioned
    into coverage by the treaty from an existing license or
    approval, as the treaties permit), current law would not
    require the President to notify Congress in advance of
    consenting to such retransfers or reexports of defense articles
    or services outside of the treaties' approved communities.
    Congress would in such a case lose the opportunity to prohibit
    retransfers or reexports outside of the approved communities
    defense articles that had been exported pursuant to the
    treaties (or that had been transferred into the treaty regime).
    The bill therefore would amend section 3(d)(3)(A) of the AECA
    to ensure that the President must notify Congress in advance of
    approving a transfer, provided it meets the same value
    thresholds applied to all other such transfers, of treaty-
    covered defense articles or services outside of the treaties'
    approved communities. This amendment would also ensure that a
    joint resolution prohibiting such a retransfer or reexport
    would enjoy the same expedited procedures provided for such
    resolutions to prohibit transfers of items originally licensed
    under the AECA.
        Section 5(c) of the AECA (22 U.S.C. 2755(c)) requires the
    President to notify the Speaker of the House of Representatives
    and the Chairman of the Committee on Foreign Relations promptly
    in any instance in which a U.S. person is prevented by a
    foreign government on the basis of race, religion, national
    origin, or sex, from participating in the performance of any
    sale or licensed transaction under the AECA. Subsection (b) of
    this section would amend section 5(c) of the AECA to make clear
    that such report must also be submitted in any case in which a
    U.S. person is prevented from carrying out an export or import
    under the treaties for the same discriminatory reasons.
        Section 25(a) of the AECA (22 U.S.C. 2765(a)) requires that
    the President annually submit a report forecasting the sales
    and licensed commercial exports that are eligible to be
    exported, and that are expected, in the coming year. Subsection
    (c) would amend this reporting requirement to ensure that
    defense articles and services that are expected to occur using
    the treaties' license-free mechanisms are also included in this
    annual report.
        Under section 36(c) of the AECA, for a direct commercial
    sale from a U.S. private company over a certain threshold of
    value to the United Kingdom or Australia, Congress must be
    formally notified 15 calendar days before the executive branch
    may issue a license for such an export. Licensed sales
    involving defense articles that are firearms controlled under
    category I of the USML and valued at $1 million or more must
    also be formally notified to Congress for review 15 days prior
    to the license for export being approved. After having been
    notified, Congress has an opportunity to enact a joint
    resolution prohibiting the proposed license for export. As with
    a joint resolution prohibiting a transfer to a third party of a
    previously exported defense article or service, the AECA
    establishes expedited procedures that would govern
    consideration of such a joint resolution in the Senate. Section
    36(d) similarly requires the President to notify Congress 15
    days in advance of licensing the manufacture of any item of
    significant combat equipment in the UK or Australia, and it
    similarly establishes expedited procedures for the
    consideration of any joint resolution prohibiting such license.
    In both cases, the President must provide certain information
    about the proposed license when notifying the Congress of the
    pending license.
        Because exports pursuant to the treaties are not licensed
    or specifically approved under the AECA, the President would
    not be required to provide the advance notification ordinarily
    required. The executive branch assured the committee that it
    would endeavor to provide some measure of advance notification.
    But a key purpose of the treaties is to expedite defense trade
    cooperation with these two allies. Subsection (d) would
    therefore amend sections 36(c) and 36(d) of the AECA require
    the President to notify the Congress 15 days in advance of an
    export pursuant to the treaty that would have met the
    thresholds established by the AECA. The notification is to
    include information ordinarily provided in such notifications.
    The amendment would not, however, provide for expedited
    procedures for a joint resolution prohibiting such a sale.
        Section 39(a) of the AECA (22 U.S.C. 2779(a)) (a separate
    section from the section 39A discussed above) directs the
    Secretary of State to require adequate and timely reporting on
    political contributions, gifts, commissions and fees paid, or
    offered or agreed to be paid, by any person in connection with,
    among other things, commercial sales of defense articles or
    services ``licensed or approved'' under the AECA. Again,
    because exports of defense articles or services pursuant to the
    treaties are not licensed or specifically approved under the
    AECA, the committee recommends amending section 39(a) to ensure
    that exports pursuant to the treaties are covered in the same
    way. The committee believes that this amendment is particularly
    important because section 38(c) of the AECA subjects persons
    who violate section 39 to criminal prosecution.

    Section 5. Limitation on Implementing Arrangements.

        Each of the treaties left various aspects of the treaty
    regime to separate ``Implementing Arrangements,'' which were
    concluded at a later date. Paragraph 1 of Article 14 of each
    treaty provides, in part: ``The Implementing Arrangements may
    be amended or supplemented as mutually determined by the
    Parties.''
        Unlike the treaties themselves, the executive branch did
    not submit the Implementing Arrangements to the Senate for its
    advice and consent. Rather, the executive branch provided the
    texts of the Implementing Arrangements to the Senate for its
    information only. The executive branch later was explicit in an
    answer to a question for the record that it was not seeking the
    Senate's advice and consent to the ratification of the
    Implementing Arrangements as part of the treaties. The
    Implementing Arrangement for the U.S.-UK Treaty was signed on
    February 14, 2008, in Washington, and was provided to the
    committee shortly thereafter; the Implementing Arrangement for
    the U.S.-Australia Treaty was signed on March 14, 2008. (While
    each treaty makes reference to ``implementing arrangements,''
    the executive branch stated in an answer to a question for the
    committee record that it did not anticipate additional
    Implementing Arrangements for the treaties.) Copies of both
    Implementing Arrangements are appended at the end of this
    report.
        Because changes to the Implementing Arrangements could have
    significant impacts on the nature and scope of the treaty
    regime, the committee believes that it would be inappropriate
    to permit such changes to be made without Congressional
    approval. Accordingly, the bill would require that any
    amendment to either of the Implementing Arrangements for these
    treaties, other than an amendment that addresses an
    administrative or technical matter, may enter into effect only
    if the Congress adopts, and there is enacted, legislation
    approving the entry into effect of that amendment for the
    United States.
        Paragraph (b)(2) contains a list of amendments to specific
    provisions within the U.S.-UK and U.S.-Australia Implementing
    Arrangements that, if such amendment had the effect described
    in the list, would not be considered merely administrative or
    technical, and would therefore require the enactment of
    legislation to allow such amendment's entry into effect. The
    list is illustrative only. Any amendment to the Implementing
    Arrangements that is not technical or administrative must
    receive legislative approval before it may enter into effect
    for the United States, regardless of whether the amendment
    falls into one of the specific categories contained in the
    list.
        Subsection (c) would require the President to notify the
    Committee on Foreign Relations of the Senate and the Committee
    on Foreign Affairs in the House of Representatives 15 days
    prior to the entry into effect of any technical or
    administrative amendment to one of the Implementing
    Arrangements. This provision would also permit the President to
    waive this requirement, and instead notify the committees
    within five days after an amendment came into effect, if the
    President determines and certifies to the committees that
    immediate entry into effect of such an administrative or
    technical amendment is important to maintain the viability and
    effectiveness of the treaty.
        Two conditions must exist for the exception to apply.
    First, an amendment to an implementing arrangement must be
    solely administrative or technical in nature. Second, bringing
    that amendment into effect immediately must be important to
    maintaining the viability and effectiveness of one of the
    treaties. The committee does not expect that solely
    administrative or technical amendments to the implementing
    arrangements will ordinarily be so significant as to impact the
    viability and effectiveness of one of the treaties.
    Accordingly, the committee expects that this exception will
    seldom be invoked. If exercised, the exception would delay by
    20 days the date by which the President is required to notify
    the relevant Congressional committees of the entry into effect
    of an administrative or technical amendment. The exception does
    not apply to any amendments that address matters other than
    administrative or technical matters, including any amendments
    of the sort described in subsection (b). Pursuant to subsection
    (a), such amendments will require legislative approval before
    they may enter into effect for the United States.

    Section 6. Implementing Regulations.

        This section gives the President the authority to issue
    regulations pursuant to the AECA to implement and enforce the
    defense trade cooperation treaties with the United Kingdom and
    Australia. It specifies that such regulations must be
    consistent with other applicable provisions of the AECA as
    amended by the bill, and with the terms of any resolution of
    advice and consent adopted by the Senate with respect to either
    treaty.

    Section 7. Rule of Construction.

        This section clarifies the intended scope in U.S. law of
    this bill and the defense trade cooperation treaties with the
    United Kingdom and Australia. Nothing in this Act, the U.S.-UK
    Treaty (and any implementing arrangement thereto), the U.S.-
    Australia Treaty (and any implementing arrangement thereto), or
    in any regulation issued to implement either treaty, shall be
    construed to modify or supersede any provision of law or
    regulation other than the AECA, as amended by this Act, and the
    ITAR. Thus, for example, regulations administered by the Bureau
    of Alcohol, Tobacco and Firearms regarding the importation of
    firearms will not be superseded.

                               IV. Cost Estimate

         Rule XXVI, paragraph 11(a) of the Standing Rules of the
    Senate requires that committee reports on bills or joint
    resolutions contain a cost estimate for such legislation. To
    date, the committee has not received the Congressional Budget
    Office cost estimate.

                       V. Evaluation of Regulatory Impact

        In accordance with paragraph 11(b) of rule XXVI of the
    Standing Rules of the Senate, the committee has considered the
    regulatory impact of this bill. The bill is intended to
    implement two defense trade cooperation treaties that will, if
    ratified, provide the opportunity for some U.S. arms exporters
    to export defense articles and defense services to certain
    entities in the United Kingdom and Australia without having to
    obtain an arms export license or other prior U.S. Government
    approval. By so doing, the treaties and this bill will ease
    somewhat the regulatory burdens imposed by the AECA (22 U.S.C.
    2751 et seq.) and the ITAR (22 CFR Chapter I, Subchapter M,
    Parts 120-130).

                          VI. Changes in Existing Law

        In compliance with Rule XXVI, paragraph 12 of the Standing
    Rules of the Senate, changes in existing law made by the bill,
    as reported, are shown as follows (existing law proposed to be
    omitted is enclosed in black brackets, new matter is printed in
    italic, existing law in which no change is proposed is shown in
    roman).

    THE ARMS EXPORT CONTROL ACT

               *       *       *       *       *       *       *

    Chapter 3. Military Export Controls

               *       *       *       *       *       *       *

        Sec. 3. Eligibility.--(a) * * *

               *       *       *       *       *       *       *

        (d)(1) * * *

               *       *       *       *       *       *       *

        (3)(A) Subject to paragraph (5), the President may not give
    his consent to the transfer of any major defense equipment
    valued (in terms of its original acquisition cost) at
    $14,000,000 or more, or of any defense article or defense
    service valued (in terms of its original acquisition cost) at
    $50,000,000 or more, the export of which has been licensed or
    approved under section 38 of this Act or has been exempted from
    the licensing requirements of this Act pursuant to section
    38(j) of this Act, unless before giving such consent the
    President submits to the Speaker of the House of
    Representatives and the Chairman of the Committee on Foreign
    Relations of the Senate a certification containing the
    information specified in subparagraphs (A) through (E) of
    paragraph (1). Such certification shall be submitted--

               *       *       *       *       *       *       *

        Sec. 36. Reports on Commercial and Governmental Military
    Exports; Congressional Action.--(a) * * *

               *       *       *       *       *       *       *

        (c)(1) Subject to paragraph (5), in the case of 187 an
    application by a person (other than with regard to a sale under
    section 21 or section 22 of this Act) for a license for the
    export of any major defense equipment sold under a contract in
    the amount of $14,000,000 or more or of defense articles or
    defense services sold under a contract in the amount of
    $50,000,000 or more, (or, in the case of a defense article that
    is a firearm controlled under category I of the United States
    Munitions List, $1,000,000 or more) 191 before issuing such
    license the President shall transmit to the Speaker of the
    House of Representatives and to the chairman of the Committee
    on Foreign Relations of the Senate an unclassified numbered
    certification with respect to such application specifying (A)
    the foreign country or international organization to which such
    export will be made, (B) the dollar amount of the items to be
    exported, and (C) a description of the items to be exported.
    Each such numbered certification shall also contain an item
    indicating whether any offset agreement is proposed to be
    entered into in connection with such export and a description
    of any such offset agreement. In addition, the President shall,
    upon the request of such committee or the Committee on Foreign
    Affairs of the House of Representatives, transmit promptly to
    both such committees a statement setting forth, to the extent
    specified in such request a description of the capabilities of
    the items to be exported, an estimate of the total number of
    United States personnel expected to be needed in the foreign
    country concerned in connection with the items to be exported
    and an analysis of the arms control impact pertinent to such
    application, prepared in consultation with the Secretary of
    Defense and a description from the person who has submitted the
    license application of any offset agreement proposed to be
    entered into in connection with such export (if known on the
    date of transmittal of such statement). In a case in which such
    articles or services are listed on the Missile Technology
    Control Regime Annex and are intended to support the design,
    development, or production of a Category I space launch vehicle
    system (as defined in section 74), such report shall include a
    description of the proposed export and rationale for approving
    such export, including the consistency of such export with
    United States missile nonproliferation policy. A certification
    transmitted pursuant to this subsection shall be unclassified,
    except that the information specified in clause (B) and the
    details of the description specified in clause (C) may be
    classified if the public disclosure thereof would be clearly
    detrimental to the security of the United States, in which case
    the information shall be accompanied by a description of the
    damage to the national security that could be expected to
    result from public disclosure of the information.

               *       *       *       *       *       *       *

        (5) In the case of an application by a person (other than
    with regard to a sale under section 21 or 22 of this Act) for a
    license for the export to a member country of the North
    Atlantic Treaty Organization (NATO) or Australia, Japan, or New
    Zealand that does not authorize a new sales territory that
    includes any country other than such countries, the limitations
    on the issuance of the license set forth in paragraph (1) shall
    apply only if the license is for export of--
              (A) major defense equipment sold under a contract in
            the amount of $25,000,000 or more; or
              (B) defense articles or defense services sold under a
            contract in the amount of $100,000,000 or more.
        (6) An export pursuant to a treaty referred to in section
    38(j)(1)(C) of this Act to which the provisions of paragraph
    (1) would apply absent an exemption granted under section
    38(j)(1) of this Act shall not take place until 15 days after
    the President has submitted a certification with respect to
    such export in a similar manner, and containing comparable
    information, as required under paragraph (1).
        (d)(1) In the case of an approval under section 38 of this
    Act of a United States commercial technical assistance or
    manufacturing licensing agreement 201 which involves the
    manufacture abroad of any item of significant combat equipment
    on the United States Munitions List, before such approval is
    given, the President shall submit a certification with respect
    to such proposed commercial agreement in a manner similar to
    the certification required under subsection (c)(1) containing
    comparable information, except that the last sentence of such
    subsection shall not apply to certifications submitted pursuant
    to this subsection.

               *       *       *       *       *       *       *

        (6) An export pursuant to a treaty referred to in section
    38(j)(1)(C) of this Act to which the provisions of paragraph
    (1) would apply absent an exemption granted under section
    38(j)(1) of this Act shall not take place until 15 days after
    the President has submitted a certification with respect to
    such export in a similar manner, and containing comparable
    information, as required under paragraph (1).

               *       *       *       *       *       *       *

        Sec. 38. Control of Arms Exports and Imports.--(a) * * *
        (c) Any person who willfully violates any provision of
    [this section or section 39, or any rule or regulation issued
    under either section] this section, section 39, a treaty
    referred to in subsection (j)(1)(C), or any rule or regulation
    issued under this section or section 39, including any rule or
    regulation issued under this section to implement or enforce a
    treaty referred to in subsection (j)(1)(C) or an implementing
    arrangement pursuant to such treaty, or who willfully, in a
    registration or license application or required report, makes
    any untrue statement of a material fact or omits to state a
    material fact required to be stated therein or necessary to
    make the statements therein not misleading, shall upon
    conviction be fined for each violation not more than
    $1,000,000,220 or imprisoned not more than ten years, or both.

               *       *       *       *       *       *       *

        (d) * * * [Repealed--1979]
        (e) In carrying out functions under this section with
    respect to the export of defense articles and [defense
    services,] defense services, including defense articles and
    defense services exported or imported pursuant to a treaty
    referred to in subsection (j)(1)(C), the President is
    authorized to exercise the same powers concerning violations
    and enforcement which are conferred upon departments, agencies
    and officials by subsections (c), (d), (e), and (g) of section
    11 of the Export Administration Act of 1979, and by subsections
    (a) and (c) of section 12 of such Act, subject to the same
    terms and conditions as are applicable to such powers under
    such Act, except that section 11(c)(2)(B) of such Act shall not
    apply, and instead, as prescribed in regulations issued under
    this section, the Secretary of State may assess civil penalties
    for violations of this Act and regulations prescribed
    thereunder and further may commence a civil action to recover
    such civil penalties, and except further that the names of the
    countries and the types and quantities of defense articles for
    which licenses are issued under this section shall not be
    withheld from public disclosure unless the President determines
    that the release of such information would be contrary to the
    national interest. Nothing in this subsection shall be
    construed as authorizing the withholding of information from
    the Congress. Notwithstanding section 11(c) of the Export
    Administration Act of 1979, the civil penalty for each
    violation involving controls imposed on the export of defense
    articles and defense services under this section may not exceed
    $500,000.
        (f)(1) The President shall periodically review the items on
    the United States Munitions List to determine what items, if
    any, no longer warrant export controls under this section. The
    results of such reviews shall be reported to the Speaker of the
    House of Representatives and to the Committee on Foreign
    Relations and the Committee on Banking, Housing, and Urban
    Affairs of the Senate.The President may not remove any item
    from the Munitions List until 30 days after the date on which
    the President has provided notice of the proposed removal to
    the Committee on International Relations of the House of
    Representatives and to the Committee on Foreign Relations of
    the Senate in accordance with the procedures applicable to
    reprogramming notifications under section 634A(a) of the
    Foreign Assistance Act of 1961. Such notice shall describe the
    nature of any controls to be imposed on that item under any
    other provision of law.
        (2) The President may not authorize an exemption for a
    foreign country from the licensing requirements of this Act for
    the export of defense items under subsection (j) or any other
    provision of this Act until 30 days after the date on which the
    President has transmitted to the Committee on International
    Relations of the House of Representatives and the Committee on
    Foreign Relations of the Senate a notification that includes--
              (A) a description of the scope of the exemption,
            including a detailed summary of the defense articles,
            defense services, and related technical data covered by
            the exemption; and
              (B) a determination by the Attorney General that the
            bilateral agreement concluded under subsection (j)
            requires the compilation and maintenance of sufficient
            documentation relating to the export of United States
            defense articles, defense services, and related
            technical data to facilitate law enforcement efforts to
            detect, prevent, and prosecute criminal violations of
            any provision of this Act, including the efforts on the
            part of countries and factions engaged in international
            terrorism to illicitly acquire sophisticated United
            States defense items.
        (3) Paragraph (2) shall not apply with respect to an
    exemption for Canada from the licensing requirements of this
    Act for the export of defense items.
        (4) Paragraph (2) shall not apply with respect to an
    exemption under subsection (j)(1)(A) to give effect to a treaty
    referred to in subsection (j)(1)(C) (and any implementing
    arrangements to such treaty), provided that the President
    promulgates regulations to implement and enforce such treaty
    under this section and section 39.

               *       *       *       *       *       *       *

        (j) Requirements Relating to Country Exemptions for
    Licensing of Defense Items for Export to Foreign Countries.--
              (1) Requirement for bilateral agreement.--
                      (A) In general.--The President may utilize
                    the regulatory or other authority pursuant to
                    this Act to exempt a foreign country from the
                    licensing requirements of this Act with respect
                    to exports of defense items only if the United
                    States Government has concluded a binding
                    bilateral agreement with the foreign country.
                    Such agreement shall--
                              (i) meet the requirements set forth
                            in paragraph (2); and
                              (ii) be implemented by the United
                            States and the foreign country in a
                            manner that is legally-binding under
                            their domestic laws.
                      (B) Exception for Canada.--The requirement to
                    conclude a bilateral agreement in accordance
                    with subparagraph (A) shall not apply with
                    respect to an exemption for Canada from the
                    licensing requirements of this Act for the
                    export of defense items.
                      (C) Exception for defense trade cooperation
                    treaties.--The requirement to conclude a
                    bilateral agreement in accordance with
                    subparagraph (A) shall not apply with respect
                    to an exemption from the licensing requirements
                    of this Act for the export of defense items to
                    give effect to any of the following defense
                    trade cooperation treaties, provided that the
                    treaty has entered into force pursuant to
                    Article II, Section 2, clause 2 of the
                    Constitution of the United States:
                              (i) The Treaty Between the Government
                            of the United States of America and the
                            Government of the United Kingdom of
                            Great Britain and Northern Ireland
                            Concerning Defense Trade Cooperation,
                            done at Washington and London June 21
                            and 26, 2007 (and any implementing
                            arrangement thereto).
                              (ii) The Treaty Between the
                            Government of the United States of
                            America and the Government of Australia
                            Concerning Defense Trade Cooperation,
                            done at Sydney September 23, 2007 (and
                            any implementing arrangement thereto).
                     VII. U.S.-UK IMPLEMENTING ARRANGEMENT

                 VIII. U.S.-AUSTRALIA IMPLEMENTING ARRANGEMENT