[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















































































                                    

      
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