Export Controls: Improvements to Commerce's Dual-Use System	 
Needed to Ensure Protection of U.S. Interests in the Post-9/11	 
Environment (26-JUN-06, GAO-06-638).				 
                                                                 
In regulating exports of dual-use items, which have both	 
commercial and military applications, the Department of 	 
Commerce's Bureau of Industry and Security (BIS) seeks to allow  
U.S. companies to compete globally while minimizing the risk of  
items falling into the wrong hands. In so doing, BIS faces the	 
challenge of weighing U.S. national security and economic	 
interests, which at times can be divergent or even competing. In 
light of the September 2001 terror attacks, GAO was asked to	 
examine BIS's dual-use export control system. In response, GAO is
reporting on BIS's (1) evaluations of and changes to the system, 
(2) screening of export license applications against its	 
watchlist, and (3) actions to correct weaknesses previously	 
identified by GAO.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-638 					        
    ACCNO:   A55943						        
  TITLE:     Export Controls: Improvements to Commerce's Dual-Use     
System Needed to Ensure Protection of U.S. Interests in the	 
Post-9/11 Environment						 
     DATE:   06/26/2006 
  SUBJECT:   Dual-use technologies				 
	     Export regulation					 
	     Licenses						 
	     Systems evaluation 				 
	     Technology transfer				 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-06-638

     

     * Results in Brief
     * Background
     * BIS Has Not Systematically Evaluated the Dual-Use Export Con
          * BIS's Assessment of the Dual-Use Export Control System Has B
     * Omissions and Weaknesses Undermine BIS's Screening of Applic
          * BIS's Watchlist Is Incomplete
          * BIS's Process Does Not Ensure That All Parties Are Screened
     * BIS Has Not Corrected Some Weaknesses Identified In Prior GA
     * Conclusions
     * Recommendations for Executive Action
     * Agency Comments and Our Evaluation
     * Scope and Methodology
     * GAO Comments
     * GAO Contacts
     * Staff Acknowledgments
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

Report to the Chairman, Committee on International Relations, House of
Representatives

United States Government Accountability Office

GAO

June 2006

EXPORT CONTROLS

Improvements to Commerce's Dual-Use System Needed to Ensure Protection of
U.S. Interests in the Post-9/11 Environment

GAO-06-638

Contents

Letter 1

Results in Brief 3
Background 4
BIS Has Not Systematically Evaluated the Dual-Use Export Control System to
Ensure Its Effectiveness and Efficiency 8
Omissions and Weaknesses Undermine BIS's Screening of Applications against
the Watchlist 12
BIS Has Not Corrected Some Weaknesses Identified In Prior GAO Reports 15
Conclusions 16
Recommendations for Executive Action 17
Agency Comments and Our Evaluation 18
Scope and Methodology 20
Appendix I Trends in Dual-Use Export Licensing 23
Appendix II Prior GAO Reports on the Dual-Use Export Control System and
the Status of Recommendations (Fiscal Years 2001-2004) 31
Appendix III Comments from the Department of Commerce 41
GAO Comments 67
Appendix IV GAO Contact and Staff Acknowledgments 73
Related GAO Products 74

Tables

Table 1: Changes in Top Five Countries of Destination for Approved and
Rejected License Applications, Fiscal Years 1998 and 2005 27

Figures

Figure 1: Overview of BIS's Export Licensing Process and Time Frames 6
Figure 2: Total Number of Dual-Use License Applications Processed, Fiscal
Years 1998 to 2005 23
Figure 3: Percent of Applications Referred to Other Agencies, Fiscal Years
1998 to 2001 and 2002 to 2005 24
Figure 4: Percent of Applications Approved, Returned without Action, and
Rejected, Fiscal Years 1998 to 2001 and 2002 to 2005 25
Figure 5: Median Processing Times for License Applications, Fiscal Years
1998 to 2005 26
Figure 6: Median Processing Times for Referred and Nonreferred License
Applications, Fiscal Years 1998 to 2005 28
Figure 7: Number of Commodity Classifications Processed by BIS, Fiscal
Years 1998 to 2005 29
Figure 8: Median Processing Times for Commodity Classifications, Fiscal
Years 1998 to 2005 30

Abbreviations

BIS Bureau of Industry and Security CIA Central Intelligence Agency EAA
Export Administration Act EAR Export Administration Regulations MTCR
Missile Technology Control Regime OMB Office of Management and Budget PSV
Postshipment Verification UAV Unmanned Aerial Vehicle

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

United States Government Accountability Office

Washington, DC 20548

June 26, 2006

The Honorable Henry J. Hyde Chairman Committee on International Relations
House of Representatives

Dear Mr. Chairman:

Each year companies in the United States export billions of dollars worth
of dual-use items that have both commercial and military applications. For
example, dual-use materials can be incorporated into golf clubs but can
also help missiles evade radar detection. The Department of Commerce's
Bureau of Industry and Security (BIS) is responsible for regulating the
export of thousands of dual-use items. In so doing, BIS faces the
challenge of weighing U.S. national security, foreign policy, and economic
interests, which at times are divergent or even competing, to achieve an
appropriate balance that allows U.S. companies to compete globally while
minimizing the risk that exported items could be used against U.S.
interests. This challenge has been heightened by shifts in the security
and economic environment since the late 1970s, when the current statutory
framework for dual-use export controls was put in place. Perhaps most
notably, in the aftermath of the September 2001 terror attacks, the
threats facing the United States have been redefined. Also, over the
decades, trade in rapidly advancing technologies has increased as the
economy has become more globalized.

BIS administers the dual-use export control system through the
requirements contained in the Export Administration Regulations (EAR).1
Under these regulations, exporters are to either obtain prior government
authorization in the form of a license from BIS or determine that a
license is not needed before exporting dual-use items.2 Multiple factors
govern whether an exporter needs a license, including the item to be
exported and the country of ultimate destination. Within the dual-use
export control system, BIS heads an interagency process for reviewing
export license applications. The decision to approve an application is
based, in part, on how the exported item is to be used and who plans to
use it. During the license application review process, BIS screens
applications against its own watchlist of individuals and companies to
identify applications involving parties that are either ineligible or
warrant additional scrutiny to minimize the risk of dual-use items being
used against U.S. interests.

115 C.F.R. S:S: 730-774.

2BIS controls exports of dual-use commodities, software, and technology,
which are collectively referred to as "items" in this report.

In light of the September 2001 terror attacks, you requested that we
examine BIS's dual-use export control system and whether BIS has made
changes to the system. In response, we (1) assessed whether BIS has
evaluated the dual-use export control system and made changes to the
system, (2) evaluated BIS's screening of export license applications
against its watchlist, and (3) determined the extent to which BIS has
taken corrective actions in response to weaknesses previously identified
by GAO.

In assessing BIS's evaluations of the system's effectiveness and
efficiency, we compared BIS's annual reports, performance plans, and
budget submissions with performance management and internal control
standards.3 Through discussions with BIS officials and reviews of
regulatory notices, we identified evaluations conducted by BIS and
resulting changes to the system after the events of September 2001. We
also analyzed data on export license applications, which we determined to
be sufficiently reliable for our purposes. To evaluate BIS's watchlist
screening process, we compared BIS's watchlist with government documents
to assess the list's completeness, reviewed BIS's internal guidance for
adding parties to the watchlist and screening applications, and discussed
with BIS officials reasons parties were not included on the list and BIS's
screening process. To determine what actions BIS has taken during the last
5 years in response to previously identified weaknesses, we reviewed
regulatory changes and information provided by BIS and other agency
officials. We performed our review from July 2005 through May 2006 in
accordance with generally accepted government auditing standards.

3For additional information regarding GAO's work on improving government
performance, see GAO, Executive Guide: Effectively Implementing the
Government Performance and Results Act , GAO/GGD-96-118 (Washington,
D.C.:, June 1996); GAO, Managing for Results: Enhancing Agency Use of
Performance Information for Management Decision Making, GAO-05-927
(Washington, D.C.: Sept. 9, 2005); and GAO, Standards for Internal Control
in the Federal Government, GAO/AIMD-00-21 .3.1 (Washington, D.C.: November
1999).

                                Results in Brief

BIS has not systematically evaluated the dual-use export control system to
determine whether it is achieving its goal of protecting U.S. national
security and economic interests. In managing the dual-use export control
system, BIS has not comprehensively analyzed available data to determine
what dual-use items have actually been exported. Further, BIS has not
established performance measures to assess how effectively the system is
achieving its goal, as called for under government performance management
standards. Instead it relies on limited measures of efficiency to
determine whether its goal is being achieved. Specifically, BIS measures
the timeliness of the initial steps in the license application review
process and has reported meeting its licensing time frames. However, BIS
does not measure the efficiency of other aspects of the system, such as
commodity classifications4 that represent a significant part of its
workload. Absent systematic evaluations, BIS relies on intelligence
reports and anecdotal information to gauge how the system is operating.
After the events of September 2001, senior BIS officials told us they
conducted an ad hoc review of the system and determined that no
fundamental changes were needed. The officials, however, identified the
review as the impetus for some regulatory adjustments, such as increased
restrictions on exports related to chemical and biological agents. We were
unable to assess the sufficiency of the review or resulting changes
because BIS did not document how it conducted the review or reached its
conclusions.

The effectiveness of BIS's watchlist screening process is questionable.
BIS has not ensured that certain parties of concern appear on its list of
approximately 50,000 names and that all parties on license applications
are screened. We found that the BIS watchlist does not include 147 parties
that have committed export control violations or are known terrorists,
which are reasons cited by BIS for adding parties to its watchlist. Of
these, five are barred by BIS from exporting dual-use items. These
omissions in the watchlist are attributable to a lack of specific criteria
as to who should be on the watchlist and BIS's lack of regular reviews to
determine whether parties are missing from the list. Further, a technical
limitation in BIS's computer system results in some parties on license
applications not being screened against the watchlist. We identified at
least 1,187 license applications with parties that would not have been
automatically screened against the watchlist over the last 8 years. Though
aware of the screening limitation, BIS officials have not conducted their
own analyses to determine the extent of the problem.

4If an exporter has determined that the item it wishes to export is
Commerce-controlled, but is uncertain of export licensing requirements,
the exporter can request a commodity classification determination from
BIS. For additional information on the commodity classification process,
see GAO, Export Controls: Processes for Determining Proper Control of
Defense-Related Items Need Improvement, GAO-02-996 (Washington, D.C.:
Sept. 20, 2002).

While BIS has implemented several GAO recommendations made over the last 5
years, it has not implemented others. BIS has not addressed
recommendations related to ensuring that export controls on sensitive
items protect U.S. interests and are consistent with U.S. law. For
example, BIS has not taken recommended steps to ensure that items are
properly classified to guard against the improper export of
defense-related items.

We are making four recommendations to the Secretary of Commerce to use
available data and develop performance measures in consultation with other
agencies to systematically evaluate the effectiveness and efficiency of
the dual-use export control system in achieving the goal of protecting
U.S. interests. We are making three additional recommendations to the
Secretary of Commerce to correct omissions in the watchlist and weaknesses
in the screening process. We are also recommending that the Secretary of
Commerce take action to address our prior unimplemented recommendations.
In commenting on a draft of this report, the Commerce Department did not
address our recommendations and disagreed with the report's findings and
characterizations of the dual-use export control system. The Departments
of Defense, Energy, and State had no comments on the draft report. After
considering the Commerce Department's comments, we stand by our findings
and recommendations.

                                   Background

In regulating dual-use exports, the Commerce Department's BIS faces the
challenge of weighing various U.S. interests, which can be divergent or
even competing, so U.S. companies can compete globally while minimizing
the risk of controlled dual-use items falling into the wrong hands. Under
the authority granted in the Export Administration Act (EAA),5 BIS
administers the EAR that require exporters to either obtain a license from
BIS or determine government authorization is not needed before exporting
controlled items. Even when a license is not required, exporters are
required to adhere to the provisions of the EAR when exporting controlled
dual-use items. Whether an export license is required depends on multiple
factors including the

550 U.S.C. App. S:S: 2401-2420. The EAA is not permanent legislation.
Authority granted under the act lapsed in August 2001. However, Executive
Order 13222, Continuation of Export Control Regulations, which was issued
in August 2001 under the authority provided by the International Emergency
Economic Powers Act (50 U.S.C. S: 1702), continues the controls
established under the act and the implementing EAR.

           o  item being exported,
           o  country of ultimate destination,
           o  individual parties involved in the export,
           o  parties' involvement in proliferation activities, and
           o  planned end use of the item.

Dual-use items specified in the EAR's Commerce Control List are controlled
for a variety of reasons, including restricting exports that could
significantly enhance a country's military potential, preventing exports
to countries that sponsor terrorism, and limiting the proliferation of
chemical, biological, and nuclear weapons and their delivery systems. The
U.S. government controls many of these items under its commitments to
multilateral export control regimes, which are voluntary agreements among
supplier countries that seek to restrict trade in sensitive technologies
to peaceful purposes.6

For those exports requiring a license, Executive Order 129817 governs the
dual-use license application review process and establishes time frames
for each step in the review process (see fig. 1).

6The four principal export control regimes are the Australia Group, which
focuses on trade in chemical and biological items; the Missile Technology
Control Regime; the Nuclear Suppliers Group; and the Wassenaar
Arrangement, which focuses on trade in conventional weapons and related
dual-use items. The United States is a member of all four regimes. For
additional information on the multilateral regimes, see GAO,
Nonproliferation: Strategy Needed to Strengthen Multilateral Export
Control Regimes, GAO-03-43 (Washington, D.C.: Oct. 25, 2002).

7Exec. Order No. 12,981, 15 C.F.R. S: 750.4.

Figure 1: Overview of BIS's Export Licensing Process and Time Frames

Note: Under the executive order, the entire license application review
process-including escalation-is to be completed within 90 days, unless an
agency appeals the decision to the President who is not given a time
limit. However, few applications are escalated through the interagency
dispute resolution process. For example, in fiscal year 2005, of the
almost 17,000 applications processed by BIS, only 143 were escalated and
none reached the President for final resolution.

One of the first steps in the license application review process is the
screening of parties on the application, such as the planned exporter or
end user, against BIS's internal watchlist to identify ineligible parties
or parties that warrant closer scrutiny. Neither the EAA nor the EAR
provide specific criteria as to which parties are to be included on the
watchlist. However, under the EAR, BIS may deny export privileges to
persons convicted of export violations, and the watchlist serves as a
mechanism for identifying parties that have been denied exporting
privileges. This screening process can also serve as a tool for
identifying proposed end users sanctioned for terrorist activities and,
therefore, ineligible to receive certain dual-use items. BIS has the
discretion to add other parties to the watchlist. A match between the
watchlist and a party on an application does not necessarily mean that the
application will be denied, but it can trigger additional scrutiny by BIS
officials, including BIS enforcement officials, during the license
application review process.

While BIS is responsible for administering the dual-use export control
system and licensing dual-use exports, other federal agencies play active
roles. As provided for under Executive Order 12981, the Departments of
Defense, Energy, and State have the authority to review any export license
applications submitted to BIS.8 These departments specify through
delegations of authority to BIS the categories of applications that they
want to review based, for example, on the item to be exported. License
applications can also be referred to the Central Intelligence Agency (CIA)
for review. After reviewing an application, the agencies are to provide
the BIS licensing officer with a recommendation to approve or deny the
application.9 In addition to reviewing license applications, the Defense,
Energy, and State Departments are also involved in the regulatory process.
Before changes are made to the EAR and the Commerce Control List, such as
the addition of an item to the list, proposals are reviewed through an
interagency review process. BIS is responsible for issuing the regulatory
changes related to dual-use exports.

For fiscal year 2005, BIS had a budget of $67.5 million, of which $33.9
million was for the administration of the export control system.10 Of the
414 positions at BIS in fiscal year 2005, 48 were licensing officers.
These officers are responsible for developing the Commerce Department
position as to whether an application should be approved and responding to
exporter requests for commodity classifications as well as performing
other duties related to administering the dual-use export control system.

8Executive Order 12981 also provides that BIS may refer applications to
other departments or agencies as appropriate. For example, license
applications involving encryption technology are referred to the
Department of Justice.

9If agencies do not provide their recommendations within 30 days after the
application is referred by BIS to them, it is deemed that they concur with
BIS's recommendation. While the CIA reviews applications, it does not
provide recommendations on whether they should be approved or denied.

10In addition to administering the dual-use export control system, BIS is
responsible for enforcing dual-use export control regulations and law,
along with the Departments of Homeland Security and Justice. BIS is also
responsible for monitoring the viability of the defense industrial base,
ensuring industry compliance with arms control treaties, enforcing
antiboycott laws, and assisting other countries in developing effective
export control systems.

BIS Has Not Systematically Evaluated the Dual-Use Export Control System to
                    Ensure Its Effectiveness and Efficiency

BIS has not systematically evaluated the overall effectiveness and
efficiency of the system to determine whether its stated goal of
protecting U.S. national security and economic interests is being
achieved. Specifically, it has not comprehensively analyzed key data on
actual dual-use exports, including unlicensed exports that represent the
majority of exports subject to its controls. Further, contrary to what is
called for under government management standards, BIS has not established
performance measures to assess how effectively the system is protecting
U.S. interests in the existing security and economic environment. While
BIS has established some measures related to the system's efficiency,
those measures focus on narrow aspects of the licensing process. BIS
officials also rely on intelligence reports and meetings with industry
officials to provide insight into how the system is operating. After the
events of September 2001, BIS conducted an ad hoc review of the system to
determine if changes were needed. According to BIS officials, no
fundamental changes to the system were needed, but they cited the review
as the basis for some adjustments-primarily related to controls on
chemical and biological agents. However, because BIS did not document its
review, we could not assess the sufficiency of the review and the
resulting changes.

BIS's Assessment of the Dual-Use Export Control System Has Been Limited

In managing the dual-use export control system, BIS has not conducted
comprehensive analyses of available data on items under its control that
have been exported. 11 According to BIS officials, they recently began
conducting limited analyses of export data to evaluate the potential
effects of proposed regulatory changes on U.S. industry. While BIS is
cognizant of dual-use exports authorized through the license application
review process, it has not analyzed export data to determine the extent to
which approved licenses resulted in actual exports. BIS also does not
routinely analyze data on the items and destinations for unlicensed
exports, which represent the majority of exports subject to BIS's
controls.

BIS has not established measures to assess whether it is effectively
achieving its goal of protecting national security and economic interests.
Under the performance management framework established by the Government
Performance and Results Act of 1993,12 federal agencies are to develop
objective performance measures for assessing how well they are achieving
their goals over time. These measures should focus on an agency's outcomes
as opposed to its processes. BIS's lack of effectiveness measures was
noted in a 2005 review by the Office of Management and Budget (OMB). In
response to OMB's review, BIS indicated plans for developing measures to
assess the system's effects on national security and economic interests in
consultation with the other agencies involved in the export control
system. BIS officials informed us that their attempt to devise
effectiveness measures did not succeed due to a lack of cooperation and
that they opted not to independently pursue the development of
effectiveness measures.

11Data on actual licensed and unlicensed dual-use exports are maintained
by the Commerce Department's Bureau of the Census. The Census Bureau
collects data on U.S. foreign trade under the authority provided in 13
U.S.C. S:S: 301-307.

Without measures of effectiveness to assess it performance, BIS relies on
measures related to the efficiency of the dual-use export control system.
These efficiency-related measures generally focus on the first steps in
the license application review process-how long it takes to review a
license application internally and refer an application to another
agency.13 Over the last 3 fiscal years, BIS has reported meeting its
licensing-related time frames. However, BIS does not have
efficiency-related measures for other steps in the license application
review process, such as how quickly a license should be issued or denied
once other agencies provide their input, or for the review process as a
whole. BIS also does not evaluate the efficiency of other aspects of the
system. Most notably, it does not measure whether it is meeting the
regulatory time frame for the processing of commodity classification
requests, of which there were 5,370 in fiscal year 2005 or about 24
percent of licensing officers' workload (see app. I for additional
information on BIS's processing times).14

BIS officials acknowledged that they have not systematically evaluated the
dual-use export control system. Instead, BIS officials informed us that
they regularly review intelligence reports and meet with industry
officials to gauge how well the system is working. A senior BIS official
stated there are no anecdotal indications that the system is not
effective. The official added that "it stands to reason" that BIS's
controls have limited various parties' access to U.S. dual-use
technologies but that it is difficult to determine how controls are
affecting U.S. industry. Also, as evidence of how the system is operating,
BIS officials referred us to BIS's annual report on its foreign
policy-based controls.15 This report summarizes various regulatory changes
from the previous year and what the newly imposed controls were intended
to achieve. However, this report does not contain an assessment of the
impact these controls have had on U.S. interests. To address its lack of
evaluations, BIS officials informed us that they are in the process of
establishing an Office of Technology Evaluation. BIS is hiring analysts to
evaluate topics including how dual-use items should be controlled and how
export controls have affected industry.

12The Government Performance and Results Act of 1993, Pub. L. No. 103-62,
107 Stat. 285, was enacted to help resolve long-standing management
problems that undermine the government's effectiveness and efficiency and
provide greater accountability for results.

13BIS's other measure of efficiency addresses the amount of time BIS takes
to issue draft regulations.

14Per 15 C.F.R. S: 750.2, BIS is to complete commodity classifications
within 14 calendar days.

Absent systematic evaluations, BIS conducted an ad hoc review after the
September 2001 attacks to determine what changes, if any, needed to be
made to the system in light of the new security environment. However,
according to BIS officials, they did not produce a report or other
documentation regarding their review. Therefore, we could not assess the
validity or sufficiency of BIS's review and the resulting changes. BIS
officials told us they determined that, other than some adjustments to its
controls, no fundamental changes to the system were needed because they
already had controls and procedures in place to deny terrorists access to
dual-use technologies. Of the hundreds of regulatory changes made since
September 2001, BIS officials identified the following specific changes as
stemming from their ad hoc review

           o  establishing a worldwide licensing requirement for exports of
           biological agents;
           o  changing the licensing requirement for biological agent
           fermenters from fermenters larger than 100 liters to those larger
           than 20 liters;
           o  controlling components that can be used in the manufacture of
           chemical agents;
           o  including additional precursors for the development of chemical
           agents on the Commerce Control List;
           o  revising licensing requirements to further restrict U.S.
           persons from designing, developing, producing, stockpiling, or
           using chemical or biological weapons;
           o  requiring licenses for exports of equipment related to the
           production of chemical or biological agents to countries that are
           not members of the Australia Group;16 
           o  imposing controls on exports of unmanned aerial vehicles
           capable of dispersing more than 20 liters of chemical or
           biological agents; and
           o  adding amorphous silicon plane arrays, which can be used in
           night vision or thermal imaging equipment, to the Commerce Control
           List.

15BIS controls some dual-use items to further U.S. foreign policy or
fulfill its international obligations. Items controlled for foreign policy
reasons include crime control and detection equipment, missile technology,
and chemical and biological agents and related equipment. Exports to
designated terrorist states and embargoed countries are also controlled
for foreign policy reasons. Pursuant to the International Emergency
Economic Powers Act (50 U.S.C. S:S: 1701-1706), the President has
authorized the system of controls established under the EAA, including
export controls maintained for foreign policy purposes that require annual
extensions made through reports to Congress.

According to BIS officials, their review did not result in changes to the
license application review process after the events of September 2001.
However, decisions by other agencies-namely the Energy Department and the
CIA-have resulted in BIS referring more license applications to them.
Specifically, in response to Energy's request, BIS began referring
applications related to missile technologies and chemical or biological
agents, in addition to the nuclear-related applications Energy was already
reviewing. Similarly, based on discussions between BIS and the CIA, the
decision was made to refer more applications to the CIA for review to
determine whether foreign parties of concern may be involved in the
proposed export (see app. I for information on BIS referral rates).

Additionally, in response to the changing security environment after
September 2001, BIS reprioritized its enforcement activities.17
Specifically, BIS enforcement officials are to give highest priority to
dual-use export control violations involving the proliferation of weapons
of mass destruction, terrorist organizations, and exports for unauthorized
military or government uses. Further, senior BIS officials noted that they
have made regulatory changes to reflect the dynamic geopolitical
environment, such as changing licensing requirements for exports to India,
Iraq, Libya, and Syria.

16There are currently 40 members of the Australia Group.

17GAO is currently conducting a separate review of export control
enforcement efforts.

 Omissions and Weaknesses Undermine BIS's Screening of Applications against the
                                   Watchlist

BIS's watchlist is intended to facilitate the identification of license
applications involving individuals and companies representing an export
control concern. However, BIS's watchlist is incomplete, as numerous
export control violators and terrorists are not included on the list.
Further, BIS's process for screening applications does not ensure that all
parties on all applications are screened against the watchlist. As a
result, the watchlist's utility in the license application review process
is undermined, which increases the risk of dual-use items falling into the
wrong hands.

BIS's Watchlist Is Incomplete

BIS's watchlist does not include certain companies, organizations, and
individuals that are known entities of export control concern and,
therefore, warrant inclusion on the watchlist. Based on our comparison of
the watchlist to publicly available U.S. government documents, including
ones available through BIS's Web site, we identified 147 parties that had
either violated U.S. export control requirements, been determined to be
suspicious end users, or committed acts of terror but were not on BIS's
watchlist. BIS officials confirmed that, at the time of our review, the
parties we identified were not on BIS's watchlist. Specifically, we
identified

           o  5 export control violators that have been denied dual-use
           export privileges by BIS;
           o  60 companies and individuals that had committed export control
           violations and were, therefore, barred by the State Department
           from being involved in the export of defense items;
           o  52 additional companies and individuals that have been
           investigated, charged, and, in most cases, convicted of export
           control violations;
           o  2 overseas companies whose legitimacy as end users could not be
           established by BIS; and
           o  28 organizations identified by the State Department as
           committing acts of terror.

The above individuals and companies we identified as not being on the BIS
watchlist include those that have exported or attempted to export weapons
to terrorist organizations, night vision technologies to embargoed
countries, and materials that can be used in biological and missile
programs. The terrorist organizations include one that has staged attacks
against U.S. and coalition forces in Afghanistan and another that has
attacked and abducted large numbers of civilians, including children.

BIS's standard for including a party on its watchlist is that the party
represents an export control concern. BIS does not have an official
definition or explanation as to what constitutes an export control
concern. As a result, the decision as to whether a party should be added
to the watchlist is left to the judgment of the BIS personnel responsible
for maintaining the watchlist. The only specific guidance BIS provides is
that parties under investigation by BIS enforcement officials must be
added to the watchlist. BIS officials told us that the reasons a company,
organization, or individual should be added to the watchlist include
previous violations of U.S. export control regulations, inability to
determine a party's legitimacy, possible support of international
terrorism, and possible involvement with missile programs of concern. The
147 parties we identified fall within these categories. In addition, BIS
officials do not regularly review the watchlist to ensure its
completeness. BIS officials said they do not conduct periodic checks as to
whether particular parties have been added to the list. They also do not
compare the BIS watchlist to other federal agencies' lists or databases
used for similar purposes to determine whether the BIS watchlist is
missing pertinent parties.

BIS officials offered several explanations for why the 147 parties were
not on the watchlist. First, they acknowledged it was an oversight on
their part not to include several of the parties on the watchlist. For
example, at least two parties were not added to the watchlist because the
BIS personnel involved thought they had been added by someone else.
Second, for some of the parties, BIS did not receive information from
another agency about export control-related investigations. However, these
parties could have been identified through publicly available reports.
Third, BIS relies on limited sources to identify parties involved in
terrorist activities. The officials explained that their primary source
for identifying terrorist organizations is the Treasury Department's
public listing of designated terrorists.18 While Treasury maintains a list
of terrorists, its list is not exhaustive and therefore, does not include
all known terrorist organizations. Finally, BIS officials noted that many
of the parties we identified were individuals and that they do not
typically add individuals to the watchlist because applications generally
contain names of companies. However, we found numerous individuals
included on the watchlist and individuals can and do appear on license
applications.

18The Treasury Department maintains a list of individuals and companies
owned or controlled by, or acting for or on behalf of, targeted countries,
such as Cuba and North Korea. It also lists individuals, groups, and
entities, such as terrorists and narcotics traffickers designated under
programs that are not country-specific. Collectively, such individuals and
companies are called "Specially Designated Nationals," whose assets are
blocked and U.S. persons are generally prohibited from dealing with them.

BIS's Process Does Not Ensure That All Parties Are Screened against the
Watchlist

BIS's process for screening applications does not ensure that all parties
are screened against the watchlist. To screen parties on applications
against the watchlist, BIS relies on a computerized process. The computer
system recognizes parties that are identified in one of five specified
fields and automatically screens the parties identified in those fields
against the watchlist. If there are multiple parties, BIS's regulations
direct the applicant to list the additional parties in the "Additional
Information" field. However, the computer system does not recognize the
parties listed in that field, which means the parties are not
automatically screened against the watchlist. While BIS officials told us
that they may identify applications involving multiple parties and
manually screen them against the watchlist, they do not have a systematic
means of identifying applications involving parties listed in the
"Additional Information" field. As a result, BIS cannot ensure that all
parties on all applications have been screened. Based on our review of
licensing data for the past 8 years, we identified at least 1,187
applications involving multiple parties that would not have been
automatically screened. BIS officials informed us that they are aware of
this limitation, but have not conducted reviews to determine the number of
applications affected.

According to BIS officials, since most applications are reviewed by other
agencies, the risk of not screening all parties is lessened. However, a
senior BIS official acknowledged that by not screening all applications
against the BIS watchlist, applications involving parties that are the
subject of BIS enforcement investigations would not be identified as that
information only resides on the BIS watchlist. Defense and State
officials, to whom most license applications are referred, stated that
they do not maintain watchlists for the screening of dual-use export
license applications and expect BIS to have already screened all parties
before referring applications to them. BIS officials informed us of their
plans to develop a new computerized screening system to ensure that all
parties on applications are screened against the watchlist. However, the
new system will not be operational for several years.

     BIS Has Not Corrected Some Weaknesses Identified In Prior GAO Reports

In the years since the September 2001 terror attacks, GAO has issued a
number of reports identifying weaknesses in the dual-use export control
system. The weaknesses identified in many of the prior reports relate to
ensuring that export controls on sensitive items protect U.S. interests
and are consistent with U.S. law. Some of our recommendations to correct
those weaknesses remain unimplemented (see app. II for more detailed
information on these reports and the status of recommendations).

Among the weaknesses identified in prior GAO reports is the lack of
clarity as to which items are controlled and whether they are controlled
by the Commerce Department or the State Department. A lack of clarity as
to whether an item is Commerce-controlled or State-controlled19 increases
the risk that defense-related items will be improperly exported and U.S.
interests will be harmed as a result. In most cases, State's controls over
arms exports are more restrictive than Commerce's controls over dual-use
items. 20 For example, a State-issued license is generally required for
arms exports, whereas many dual-use items do not require licenses for
export to most destinations. Further, most arms exports to China are
prohibited, while dual-use items may be exported to China.

In 2002, we reported that BIS had improperly informed exporters through
the commodity classification process that their items were subject to
Commerce's export control requirements, when in fact the items were
subject to State's requirements.21 BIS made improper determinations
because it rarely obtained input from the Departments of State or Defense
during the commodity classification process on which department had
jurisdiction over the items in question. We recommended that the Commerce
Department, together with the Departments of State and Defense, develop
agreed-upon criteria for determining which classification requests should
be referred to the other departments, which would minimize the risk of
improper determinations. However, BIS has not implemented our
recommendation and continues to refer only a few commodity classifications
to the Departments of State and Defense. In fiscal year 2005, BIS
processed 5,370 commodity classification requests and referred only 10 to
State and Defense. Additionally, in 2001, we reported that export control
jurisdiction between the Departments of State and Commerce had not been
clearly established for almost 25 percent of the items the U.S. government
has agreed to control as part of its commitments to the multilateral
Missile Technology Control Regime.22 The two departments have yet to take
action to clarify which department has jurisdiction over these sensitive
missile technology items. As a result, the U.S. government has left the
determination of jurisdiction to the exporter, who by default can then
determine which national policy interests are to be considered and acted
upon when defense-related items are exported.

19The State Department regulates arms exports under the authority of the
Arms Export Control Act (22 U.S.C. S:S: 2751-2799aa-2).

20For additional information on the arms export control system, including
processing times for arms export license applications, see GAO, Defense
Trade: Arms Export Control Vulnerabilities and Inefficiencies in the
Post-9/11 Security Environment, GAO-05-468R (Washington, D.C.: Apr. 7,
2005) and GAO, Defense Trade: Arms Export Control System in the Post-9/11
Environment, GAO-05-234 (Washington, D.C., Feb. 16, 2005).

21GAO, Export Controls: Processes for Determining Proper Control of
Defense-Related Items Need Improvement, GAO-02-996 (Washington, D.C.:
Sept. 20, 2002)

BIS has taken actions to address other weaknesses identified in GAO
reports. For example, in response to a 2004 GAO report, BIS expanded its
licensing requirements for the export of missile technology items to
address missile proliferation by nonstate actors.23 Similarly, BIS
implemented GAO's recommendation to require exporters to inform end users
in writing of any conditions placed on licenses to help ensure that the
end users abide by those restrictions.24

                                  Conclusions

Exports of dual-use items are important to a strong U.S. economy, but in
the wrong hands, they could pose a threat to U.S. security and foreign
policy interests. However, BIS has not demonstrated whether the dual-use
export control system is achieving its goal of protecting national
security and economic interests in the post-September 2001 environment.
Without systematic evaluations, BIS cannot readily identify weaknesses in
the system and implement corrective measures that allow U.S. companies to
compete in the global marketplace while minimizing the risk to other U.S.
interests. Further, the absence of known parties of concern on the BIS
watchlist and limitations in the screening process create vulnerabilities
and are illustrative of what can happen when there is not an emphasis on
evaluating how well a system is operating and taking corrective action to
address known deficiencies. Also, the weaknesses and associated risks
identified in prior GAO reports will persist until the remaining
recommendations are implemented. Until corrective actions are taken, the
United States will continue to rely on BIS's management of the dual-use
export control system with known vulnerabilities and little assurance that
U.S. interests are being protected.

22GAO, Export Controls: Clarification of Jurisdiction for Missile
Technology Items Needed, GAO-02-120 (Washington, D.C.: Oct. 9, 2001).

23GAO, Nonproliferation: Improvements Needed to Better Control Technology
Exports for Cruise Missiles and Unmanned Aerial Vehicles, GAO-04-175
(Washington, D.C.: Jan. 23, 2004).

24GAO, Export Controls: Post-Shipment Verification Provides Limited
Assurance That Dual-Use Items Are Being Properly Used, GAO-04-357
(Washington, D.C.: Jan. 12, 2004).

                      Recommendations for Executive Action

To ensure that the dual-use export control system is effective as well as
efficient in protecting U.S. interests, we recommend that the Secretary of
Commerce direct the Under Secretary for Industry and Security to take the
following four actions

           o  identify and obtain data needed to evaluate the system;
           o  review existing measures of efficiency to determine their
           appropriateness and develop measures that address commodity
           classifications;
           o  develop, in consultation with other agencies that participate
           in the system, measures of effectiveness that provide an objective
           basis for assessing whether progress is being made in achieving
           the goal of protecting U.S. interests; and
           o  implement a plan for conducting regular assessments of the
           dual-use export control system to identify weaknesses in the
           system and corrective actions.

To ensure that BIS has a process that effectively identifies parties of
concern during the export license application review process, we recommend
that the Secretary of Commerce direct the Under Secretary for Industry and
Security to take the following three actions

           o  develop criteria for determining which parties should be on the
           watchlist;
           o  implement regular reviews of the watchlist to help ensure its
           completeness; and
           o  establish interim measures for screening all parties until the
           planned upgrade of the computerized screening system eliminates
           current technical limitations.

To mitigate the risks identified in prior GAO reports related to the
dual-use export control system, we recommend that the Secretary of
Commerce direct the Under Secretary for Industry and Security to report to
Congress on the status of GAO recommendations, the reasons why
recommendations have not been implemented, and what other actions, if any,
are being taken to address the identified weaknesses.

                       Agency Comments and Our Evaluation

We provided a draft of this report to the Departments of Commerce,
Defense, and State. In its comments on the draft, the Commerce Department
did not respond to any of our recommendations and disagreed with our
findings and characterizations of the U.S. dual-use export control system
following the September 2001 terror attacks. The Departments of Defense
and State had no comments on the draft report. The Energy Department
declined the opportunity to review and comment on the draft report.

In introducing its overall comments, the Commerce Department raises
concerns regarding the report's scope. Commerce states that we expanded
the initial scope of our audit from narrowly looking at BIS's response to
the September 2001 terror attacks to the three issues we address in our
report. In fact, the scope of our audit has remained the same. To examine
BIS's dual-use export control system and whether changes to the system
were made, we focused on three specific issues related to how well the
system is operating in the post-September 2001 environment. Based on our
examination of these issues, we concluded that there are vulnerabilities
in the dual-use export control system and that BIS can provide few
assurances that the system is protecting U.S. interests in the current
environment. After considering the Commerce Department's extensive
comments, our report's findings, conclusions, and resulting
recommendations remain unchanged.

In commenting on our findings, the Commerce Department states that our
report presumes BIS must develop a national security strategy to
administer the dual-use export control system. Our report does not presume
this as our recommendations address the need for BIS to develop
performance measures and conduct systematic evaluations for determining
the extent to which the system is meeting its stated goal of protecting
both national security and economic interests. The Commerce Department
further states that BIS represents the "gold standard" for its rigorous
process of defining priorities, implementing plans, and measuring success.
To support this statement, Commerce lists several actions that BIS has
taken since September 2001 and cites BIS's "Game Plan" as identifying
BIS's priorities and providing a basis for measuring BIS's performance.
However, BIS has not evaluated what effects these actions have had on U.S.
interests. Also, the "Game Plan" provided to us at the end of our review
did not contain performance measures for assessing how dual-use export
controls affect national security or economic interests. Further, OMB
determined in its 2005 Program Assessment Rating Tool that BIS lacked
measures related to its fundamental purpose. Absent performance measures
and systematic evaluations, it is unclear what the basis was for the
various actions taken by BIS, what the impact of these actions has been on
national security and economic interests, whether these actions are
sufficient to protect U.S. interests in the current environment, or how
BIS represents the gold standard.

The Commerce Department also comments that our report is misleading and
does not provide sufficient context for our findings related to BIS's
watchlist. According to Commerce, the 147 parties we identified as not
being on the list should be placed in the context of the approximately
50,000 names that are on BIS's watchlist, and no licenses were issued to
the 147 parties. Commerce's comment does not address our basic point. It
was not our intent to identify every party that should be on BIS's
watchlist. Nor did we seek to determine whether licenses were issued to
parties not on the watchlist, in part, because BIS's regulations permit
the approval of license applications involving parties on the watchlist.
Instead, the point of our finding and our related recommendations is that
BIS does not have mechanisms for ensuring a robust watchlist and screening
process. To provide additional context, we adjusted the text to reflect
the number of names on the watchlist. The Commerce Department also notes
that the watchlist is only one check during the license application review
process and that there are multiple layers and agencies involved-a fact we
address in our report. According to Commerce, the built-in redundancies in
the review process minimize the possibility of a party slipping through
the cracks. We agree that having multiple layers of review can create an
effective system of checks and balances, but only if each agency is
fulfilling its responsibilities at each stage in the review. The other
agencies involved in the process clearly expect BIS to have a robust
watchlist screening process. BIS's stated reliance on others to compensate
for weaknesses in its watchlist creates gaps in the review process and,
therefore, undermines the ability of the system to effectively protect
U.S. interests. While the Commerce Department cites some measures BIS has
taken recently to refine the watchlist, these measures do not address the
weaknesses created by the lack of criteria and reviews of who should be on
the watchlist or the technical limitations that result in some parties not
being screened against the watchlist.

Regarding its implementation of GAO's prior recommendations, the Commerce
Department states that BIS has met most of the recommendations and
maintains that none of the outstanding recommendations puts BIS's mission
at risk. We disagree since BIS has not implemented recommendations that
address the most basic aspects of the export control system. Specifically,
BIS's failure to implement recommendations that would provide for clear,
transparent decisions about export control jurisdiction increases the risk
that sensitive defense-related items will be improperly exported and that
some exporters will be placed at a competitive disadvantage-undermining
BIS's goal of protecting national security and economic interests.

The Commerce Department also provided technical comments, which we
incorporated into our report as appropriate. Commerce's comments are
reprinted in appendix III, along with our supplemental responses.

                             Scope and Methodology

To assess BIS's evaluations of the dual-use export control system's
efficiency and effectiveness after the events of September 2001, we
compared BIS's annual reports, performance plans, and budget submissions
with performance management and internal control standards. These
standards call for federal agencies to develop results-oriented goals,
measure progress toward achieving those goals, and have procedures that
provide reasonable assurances about the agency's effectiveness and
efficiency. We also spoke with senior BIS officials to identify
evaluations they conducted of the system, particularly those conducted
after the 2001 terror attacks, and discussed how those evaluations were
conducted. To identify changes made to the system, we interviewed BIS
officials and reviewed BIS regulatory notices issued since September 2001.
Additionally, we interviewed officials from the CIA and the Departments of
Defense, Energy, and State to determine changes to the system based on
their participation in the dual-use licensing and regulatory processes. We
also examined existing data on the system. Specifically, we analyzed data
from BIS's Export Control Automated Support System on applications and
commodity classification requests closed between fiscal years 1998 and
2005. To assess data reliability, we performed electronic testing of
relevant data elements, interviewed knowledgeable agency officials, and
reviewed system documentation. We determined the data were sufficiently
reliable for the purposes of our review.

In examining the BIS watchlist, we reviewed BIS's internal guidance for
adding parties to the watchlist and discussed with BIS officials the
various sources and reasons they use to add parties to the watchlist.
Using the reasons they identified, we compared BIS's watchlist, dated
January 2006, to documents publicly available through U.S. government Web
sites to assess the list's completeness. These documents included BIS's
Denied Persons List, Unverified List, and Major Cases List;25 the State
Department's Debarred Parties List and Patterns of Global Terrorism
report;26 and the Homeland Security Department's fact sheet on arms and
strategic technologies investigations.27 We confirmed with BIS officials
that the parties we identified were not on the watchlist and discussed
reasons they were excluded. We also discussed BIS's process for screening
applications with BIS officials and reviewed BIS's internal guidance.

To determine the status of GAO's prior recommendations to correct
weaknesses in the system, we identified reports issued between fiscal
years 2001 and 2005 regarding the dual-use export control system and their
recommendations. We reviewed BIS's regulatory notices to determine whether
BIS made regulatory changes in response to GAO's recommendations. We also
followed up on the status of recommendations through interviews with
Commerce, Defense, and State officials and reviews of supporting
documentation they provided.

We requested data for fiscal years 2004 and 2005 on actual exports of
dual-use items from the Bureau of the Census. As discussed with your
staff, we requested the data in October 2005 and did not receive the data
in time for inclusion in this report after multiple attempts to obtain the
data. The delays from Census prevented us from reporting on actual
dual-use exports as planned.

As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution of it until 30 days
from the date of this letter. We will then send copies of this report to
interested congressional committees as well as the Secretaries of
Commerce, Defense, Energy, and State; the Director, Central Intelligence
Agency; the Director, Office of Management and Budget; and the Assistant
to the President for National Security Affairs. In addition, this report
will be made available at no charge on the GAO Web site at
http://www.gao.gov .

25The Denied Persons List identifies parties that have been denied
exporting privileges by BIS. The Unverified List identifies parties in
foreign countries that were parties in past transactions for which a
prelicense check or a postshipment verification could not be conducted for
reasons outside the control of the U.S. government. The Major Cases List
highlights BIS enforcement activities.

26The Debarred List identifies parties that have been convicted of
violating or conspiracy to violate the Arms Export Control Act and,
therefore, denied exporting privileges by the State Department. The
Patterns on Global Terrorism report, which was last issued in 2003,
identifies terrorist organizations and groups that have committed acts of
terrorism in the United States and other countries.

27The Homeland Security Department, which enforces both arms and dual-use
export control laws, maintains a listing of its major export control
investigations.

Please contact me at (202) 512-4841 or [email protected] if you or
your staff have any questions concerning this report. Contact points for
our Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix IV.

Sincerely yours,

Ann Calvaresi-Barr Director Acquisition and Sourcing Management

Appendix I: Trends in Dual-Use Export Licensing

The number of dual-use export license applications processed by the
Department of Commerce's Bureau of Industry and Security (BIS) has
increased over the last several years. These applications were generally
for the export of items in the following categories: materials, chemicals,
microorganisms, and toxins; nuclear materials, facilities and equipment
and miscellaneous items; telecommunications and information security; and
other items subject to BIS's controls but not specified on the Commerce
Control List.28 As shown in figure 2, from fiscal years 1998 through 2005,
the number of applications processed increased by over 50 percent.

Figure 2: Total Number of Dual-Use License Applications Processed, Fiscal
Years 1998 to 2005

28The Commerce Control List is divided into 10 categories. In addition,
items subject to BIS's controls but not specified on the control list are
designated "EAR99."

Additionally, BIS has been referring a larger percentage of applications
to other agencies for their review. From fiscal year 1998 to 2005, the
total percentage of applications referred to other agencies increased from
about 85 percent to about 92 percent. As shown in figure 3, the greatest
increases were in the percent of applications referred to the Department
of Energy and the Central Intelligence Agency (CIA).

Figure 3: Percent of Applications Referred to Other Agencies, Fiscal Years
1998 to 2001 and 2002 to 2005

Note: An application can be referred to more than one agency.

After the license application review process is completed, BIS can approve
an application, return it without action, or reject it. The majority of
applications processed since fiscal year 1998 have been approved, as shown
in figure 4.

Figure 4: Percent of Applications Approved, Returned without Action, and
Rejected, Fiscal Years 1998 to 2001 and 2002 to 2005

Although the number of applications processed by BIS increased over the
last several years, the overall median processing times have remained
relatively stable and consistent with time frames established by executive
order,29 as shown in figure 5.

Figure 5: Median Processing Times for License Applications, Fiscal Years
1998 to 2005

29Exec. Order No. 12,981, 15 C.F.R. S: 750.4.

As shown in table 1, there have been changes over the years in the top
countries of destination for approved and rejected license applications.
However, applications for dual-use exports to China have consistently
represented a significant portion of BIS's licensing workload.

Table 1: Changes in Top Five Countries of Destination for Approved and
Rejected License Applications, Fiscal Years 1998 and 2005

      Approved license applications               Rejected license applications
  Fiscal year 1998     Fiscal year 2005      Fiscal year 1998      Fiscal year 2005
           Number of            Number of              Number of             Number of 
        applications         applications           applications          applications 
Country     approved Country     approved  Country      rejected Country      rejected 
China            638 China          1,303  India             213 India              69 
India            476 Japan          1,187  China              37 China              44 
Russia           426 Canada           938  Israel              9 Cuba               36 
Mexico           418 Taiwan           725  Pakistan            8 Syria              32 
Taiwan           398 India            694  Russia              6 Pakistan           18 

Source: BIS (data); GAO (analysis).

As shown in figure 6, referring applications to other agencies increases
the time it takes to process license applications. Between fiscal years
1998 and 2005, referred license applications took about 24 more days to
process than those applications that were processed solely by BIS.

Figure 6: Median Processing Times for Referred and Nonreferred License
Applications, Fiscal Years 1998 to 2005

BIS's workload related to commodity classifications has also increased in
recent years. As shown in figure 7, the number of commodity
classifications almost doubled from fiscal year 1998 to 2005.

Figure 7: Number of Commodity Classifications Processed by BIS, Fiscal
Years 1998 to 2005

BIS continues to exceed the 14-day time frame established in the Export
Administration Regulations30 for processing commodity classifications, as
shown in figure 8.

Figure 8: Median Processing Times for Commodity Classifications, Fiscal
Years 1998 to 2005

3015 C.F.R. S: 750.2

Appendix II: Prior GAO Reports on the Dual-Use Export Control System and
the Status of Recommendations (Fiscal Years 2001-2004) Appendix II: Prior
GAO Reports on the Dual-Use Export Control System and the Status of
Recommendations (Fiscal Years 2001-2004)

Export Controls: System for Controlling Exports of High Performance Computing Is
Ineffective (Dec. 18, 2000, GAO-01-10 )
Background: Exports       GAO recommendations          Action taken
of high performance                                           
computers exceeding a     Commerce Department          The Commerce Department
defined performance                                    has implemented our
threshold require an         o  in consultation with   recommendation.
export license from          other relevant agencies,         
the Commerce                 convene a panel of        The Defense Department
Department. As               experts to                has not implemented our
technological                comprehensively assess    recommendation.
advances in high             and report to Congress on 
performance computing        ways of addressing the    
occur, it may become         shortcomings of computer  
necessary to explore         export controls.          
other options to                                       
maintain the U.S.         Defense Department           
lead in                                                
defense-related              o  determine what         
technology. As a step        countermeasures are       
in this direction,           necessary, if any, to     
the National Defense         respond to enhancements   
Authorization Act for        of the military or        
Fiscal Year 1998a            proliferation             
required the                 capabilities of countries 
Secretary of Defense         of concern derived from   
to assess the                both licensed and         
cumulative effect of         unlicensed high           
U.S.-granted licenses        performance computing.    
for exports of                                         
computing                                              
technologies to                                        
countries and                                          
entities of concern.                                   
It also required                                       
information on                                         
measures that may be                                   
necessary to counter                                   
the use of such                                        
technologies by                                        
entities of concern.                                   
                                                       
Main issues: The                                       
current system for                                     
controlling exports                                    
of high performance                                    
computers is                                           
ineffective because                                    
it focuses on the                                      
performance level of                                   
individual computers                                   
and does not address                                   
the linking or                                         
"clustering" of many                                   
lower performance                                      
computers that can                                     
collectively perform                                   
at higher levels than                                  
current export                                         
controls allow.                                        
However, the act does                                  
not require an                                         
assessment of the                                      
cumulative effect of                                   
exports of unlicensed                                  
computers, such as                                     
those that can be                                      
clustered.                                             
                                                       
The current control                                    
system is also                                         
ineffective because                                    
it uses millions of                                    
theoretical                                            
operations per second                                  
as the measure to                                      
classify and control                                   
high performance                                       
computers meant for                                    
export. This measure                                   
is not a valid means                                   
for controlling                                        
computing                                              
capabilities.                                          
Export Controls: State and Commerce Department License Review Times Are Similar
(June 1, 2001, GAO-01-528 )
Background: The U.S.      GAO recommendations          Action taken
defense industry and                                          
some U.S. and allied      No recommendations.          Not applicable.
government officials                                   
have expressed                                         
concerns about the                                     
amount of time                                         
required to process                                    
export license                                         
applications.                                          
                                                       
Main issues: In                                        
fiscal year 2000,                                      
State's average                                        
review time for                                        
license applications                                   
was 46 days while                                      
Commerce's average                                     
was 50 days.                                           
Variables identified                                   
as affecting                                           
application                                            
processing times                                       
include the commodity                                  
to be exported and                                     
the extent of                                          
interagency                                            
coordination. Both                                     
departments approved                                   
more than 80 percent                                   
of license                                             
applications during                                    
fiscal year 2000.                                      
Export Controls: Regulatory Change Needed to Comply with Missile Technology
Licensing Requirements (May 31, 2001, GAO-01-530 )
Background: Concerned     GAO recommendations          Action taken
about missile                                                 
proliferation, the        Commerce Department          Our recommendations have
United States and                                      not been implemented.
several major trading        o  revise the Export      However, the Commerce
partners in 1987             Administration            Department has a
created an                   Regulations to comply     regulatory change pending
international                with the MTCR export      that, once implemented,
voluntary agreement,         licensing requirements    will require licenses for
the Missile                  contained in the National the export of dual-use
Technology Control           Defense Authorization Act missile technologies to
Regime (MTCR), to            for Fiscal Year 1991, or  Canada.
control the spread of        o  seek a statutory       
missiles and their           change from Congress to   
related technologies.        specifically permit MTCR  
Congress passed the          items to be exempted from 
National Defense             licensing requirements.   
Authorization Act for        o  if Commerce seeks a    
Fiscal Year 1991 to          statutory change, revise  
fulfill the U.S.             the Export Administration 
government's MTCR            Regulations to comply     
commitments. This act        with the current statute  
amended the Export           until such time as a      
Administration Act of        statutory change occurs.  
1979, which regulates                                  
the export of                                          
dual-use items, by                                     
requiring a license                                    
for all exports of                                     
controlled dual-use                                    
missile technologies                                   
to all countries. The                                  
National Defense                                       
Authorization Act                                      
also amended the Arms                                  
Export Control Act,                                    
which regulates the                                    
export of military                                     
items, by providing                                    
the State Department                                   
the discretion to                                      
require licenses or                                    
provide licensing                                      
exemptions for                                         
missile technology                                     
exports.                                               
                                                       
Main issues: The                                       
State Department's                                     
regulations require                                    
licenses for the                                       
exports of missile                                     
technology items to                                    
all                                                    
countries-including                                    
Canada, which is                                       
consistent with the                                    
National Defense                                       
Authorization Act.                                     
However, the Commerce                                  
Department's export                                    
regulations are not                                    
consistent with the                                    
act as they do not                                     
require licenses for                                   
the export of                                          
controlled missile                                     
equipment and                                          
technology to Canada.                                  
Export Controls: Clarification of Jurisdiction for Missile Technology Items
Needed (Oct. 9, 2001, GAO-02-120 )
Background: The           GAO recommendations          Action taken
United States has                                             
committed to work         Commerce and State           The Departments of
with other countries      Departments                  Commerce and State have
through the MTCR to                                    not implemented our
control the export of        o  jointly review the     recommendations despite
missile-related              listing of items included initially agreeing to do
items. The regime is         on the MTCR list,         so.    
a voluntary agreement        determine the appropriate 
among member                 jurisdiction for those    
countries to limit           items, and revise their   
missile proliferation        respective export control 
and consists of              lists to ensure that      
common export policy         proposed exports of       
guidelines and a list        regime items are subject  
of items to be               to the appropriate review 
controlled. In 1990,         process.                  
Congress amended                                       
existing export                                        
control statutes to                                    
strengthen                                             
missile-related                                        
export controls                                        
consistent with U.S.                                   
commitments to the                                     
regime. Under the                                      
amended statutes, the                                  
Commerce Department                                    
is required to place                                   
regime items that are                                  
dual-use on its list                                   
of controlled items.                                   
All other regime                                       
items are to appear                                    
on the State                                           
Department's list of                                   
controlled items.                                      
                                                       
Main issues: The                                       
Departments of                                         
Commerce and State                                     
have not clearly                                       
determined which                                       
department has                                         
jurisdiction over                                      
almost 25 percent of                                   
the items that the                                     
U.S. government                                        
agreed to control as                                   
part of its regime                                     
commitments. The lack                                  
of clarity as to                                       
which department has                                   
jurisdiction over                                      
some regime items may                                  
lead an exporter to                                    
seek a Commerce                                        
license for a                                          
militarily sensitive                                   
item controlled by                                     
the State.                                             
Conversely, an                                         
exporter could seek a                                  
State license for a                                    
Commerce-controlled                                    
item. Either way,                                      
exporters are left to                                  
decide which                                           
department should                                      
review their exports                                   
of missile items and,                                  
by default, which                                      
policy interests are                                   
to be considered in                                    
the license review                                     
process.                                               
Export Controls: Issues to Consider in Authorizing a New Export Administration
Act (Feb. 28, 2002, GAO-02-468T )
Export Controls: Department of Commerce Controls over Transfers of Technology to
Foreign Nationals Need Improvement (Sept. 6, 2002, GAO-02-972 )
Background: To work with  GAO recommendation                  Action taken
controlled dual-use                                             
technologies in the       Commerce Department                 Our
United States, foreign                                        recommendations
nationals and the firms      o  use available Immigration and have been
that employ them must        Naturalization Service data to   implemented.
comply with U.S. export      identify foreign nationals       
control and visa             potentially subject to deemed    
regulations. U.S. firms      export licensing requirements.   
may be required to           o  establish, with the Defense,  
obtain what is known as      Energy, and State Departments, a 
a deemed export license      risk-based program to monitor    
from the Commerce            compliance with deemed export    
Department before            license conditions. If the       
transferring controlled      departments conclude that        
technologies to foreign      certain security conditions are  
nationals in the United      impractical to enforce, they     
States. Commerce issues      should jointly develop           
deemed export licenses       conditions or alternatives to    
after consulting with        ensure that deemed exports do    
the Defense, Energy, and     not place U.S. national security 
State Departments. In        interests at risk.               
addition, foreign                                             
nationals who are                                             
employed by U.S. firms                                        
should have an                                                
appropriate visa                                              
classification, such as                                       
an H-1B specialized                                           
employment                                                    
classification. H-1B                                          
visas to foreign                                              
nationals residing                                            
outside of the United                                         
States are issued by the                                      
State Department, while                                       
the Immigration and                                           
Naturalization Servicec                                       
approves requests from                                        
foreign nationals in the                                      
United States to change                                       
their immigration status                                      
to H-1B.                                                      
                                                              
Main Issues: In fiscal                                        
year 2001, Commerce                                           
approved 822 deemed                                           
export license                                                
applications and                                              
rejected 3. Most of the                                       
approved deemed export                                        
licenses allowed foreign                                      
nationals from countries                                      
of concern to work with                                       
advanced computer,                                            
electronic, or                                                
telecommunication and                                         
information security                                          
technologies in the                                           
United States. To better                                      
direct its efforts to                                         
detect possible                                               
unlicensed deemed                                             
exports, in fiscal year                                       
2001 Commerce screened                                        
thousands of                                                  
applications for H-1B                                         
and other types of visas                                      
submitted by foreign                                          
nationals overseas. From                                      
these applications, it                                        
developed 160 potential                                       
cases for follow-up by                                        
enforcement staff in the                                      
field. However, Commerce                                      
did not screen thousands                                      
of H-1B change-of-status                                      
applications submitted                                        
domestically to the                                           
Immigration and                                               
Naturalization Service                                        
for foreign nationals                                         
already in the United                                         
States. In addition,                                          
Commerce could not                                            
readily track the                                             
disposition of the 160                                        
cases referred to field                                       
offices for follow-up                                         
because it lacks a                                            
system for doing so.                                          
                                                              
Commerce attaches                                             
security conditions to                                        
almost all licenses to                                        
mitigate the risk of                                          
providing foreign                                             
nationals with                                                
controlled dual-use                                           
technologies. However,                                        
according to senior                                           
Commerce officials,                                           
their staff do not                                            
regularly visit firms to                                      
determine whether these                                       
conditions are being                                          
implemented because of                                        
competing priorities,                                         
resource constraints,                                         
and inherent                                                  
difficulties in                                               
enforcing several                                             
conditions.                                                   
Export Controls: Processes for Determining Proper Control of Defense-Related
Items Need Improvement (Sept. 20, 2002, GAO-02-996 )
Background: Companies     GAO recommendations                 Action taken
seeking to export                                               
defense-related items     Commerce Department                 With a limited
are responsible for                                           exception, our
determining whether          o  promptly review existing      recommendations
those items are              guidance and develop criteria    have not been
regulated by the             with concurrence from the State  implemented. In
Commerce Department or       and Defense Departments for      responding to our
the State Department and     referring commodity              report, the State
what the applicable          classification requests to those Department
export requirements are.     departments.                     indicated it
If in doubt about            o  work with State to develop    partially agreed
whether an item is           procedures for referring         with our
Commerce or                  requests that are returned to    recommendations,
State-controlled or when     companies because the items are  while the
requesting a change in       controlled by State or because   Departments of
jurisdiction, an             they require a commodity         Commerce and
exporter may request a       jurisdiction review.             Defense agreed to
commodity jurisdiction                                        implement our
determination from        Commerce, Defense and State         recommendations.
State. State, which       Departments                           
consults with Commerce                                           o  Commerce and
and Defense, is the only     o  revise interagency guidance      Defense have
department authorized to     to incorporate any changes to       added staff to
change export control        the referral process and time       assist with
jurisdiction. If an          frames for making decisions.        their
exporter knows an item       o  assess the resources needed      respective
is Commerce-controlled       to make jurisdiction                processes.
but is uncertain of the      recommendations and              
export requirements, the     determinations within            
exporter can request a       established time frames and      
commodity classification     reallocate them as appropriate.  
from Commerce. Commerce                                       
may refer classification                                      
requests to State and                                         
Defense to confirm that                                       
an item is                                                    
Commerce-controlled.                                          
                                                              
Main issues: The                                              
Commerce Department has                                       
improperly classified                                         
some State-controlled                                         
items as                                                      
Commerce-controlled                                           
because it rarely                                             
obtains input from                                            
Defense and State before                                      
making commodity                                              
classification                                                
determinations. As a                                          
result, the U.S.                                              
government faces an                                           
increased risk that                                           
defense items will be                                         
exported without the                                          
proper level of                                               
government review and                                         
control to protect                                            
national interests.                                           
Also, Commerce has not                                        
adhered to regulatory                                         
time frames for                                               
processing                                                    
classification requests.                                      
                                                              
In its implementation of                                      
the commodity                                                 
jurisdiction process,                                         
the State Department has                                      
not adhered to                                                
established time frames,                                      
which may discourage                                          
companies from                                                
requesting jurisdiction                                       
determinations. State                                         
has also been unable to                                       
issue determinations for                                      
some items because of                                         
interagency disputes                                          
occurring outside the                                         
process.                                                      
Nonproliferation: Strategy Needed to Strengthen Multilateral Export Control
Regimes (Oct. 25, 2002, GAO-03-43 )
Background: Multilateral  GAO recommendations                 Action taken
export control regimes                                          
are a key policy          State Department                    The State
instrument in the                                             Department has not
overall U.S. strategy to     o  as the U.S. government's      implemented our
combat the proliferation     representative to the            recommendations.
of weapons of mass           multilateral regimes, establish  
destruction. They are        a strategy to strengthen these   
consensus-based,             regimes. This strategy should    
voluntary arrangements       include ways for regime members  
of supplier countries        to                               
that produce                                                  
technologies useful in               o  improve               
developing weapons of                information-sharing,     
mass destruction or                  o  implement regime      
conventional weapons.                changes to their export  
The regimes aim to                   controls more            
restrict trade in these              consistently, and        
technologies to prevent              o  identify              
proliferation. The four              organizational changes   
principal regimes are                that could help reform   
the Australia Group,                 regime activities.       
which controls chemical                                       
and biological weapons       o  ensure that the United States 
proliferation; the MTCR;     reports all license application  
the Nuclear Suppliers        denials to regimes.              
Group; and the Wassenaar     o  establish criteria to assess  
Arrangement, which           the effectiveness of the         
controls conventional        regimes.                         
weapons and dual-use                                          
items and technologies.                                       
All four regimes expect                                       
members to report                                             
denials of export                                             
licenses for controlled                                       
dual-use items, which                                         
provides members with                                         
more complete                                                 
information for                                               
reviewing questionable                                        
export license                                                
applications. The United                                      
States is a member of                                         
all four regimes.                                             
                                                              
Main issues: Weaknesses                                       
impede the ability of                                         
the multilateral export                                       
control regimes to                                            
achieve their                                                 
nonproliferation goals.                                       
Regimes often lack even                                       
basic information that                                        
would allow them to                                           
assess whether their                                          
actions are having their                                      
intended results. The                                         
regimes cannot                                                
effectively limit or                                          
monitor efforts by                                            
countries of concern to                                       
acquire sensitive                                             
technology without more                                       
complete and timely                                           
reporting of licensing                                        
information and without                                       
information on when and                                       
how members adopt and                                         
implement agreed-upon                                         
export controls. For                                          
example, GAO confirmed                                        
that the U.S. government                                      
had not reported its                                          
denial of 27 export                                           
licenses between 1996                                         
and 2002 for items                                            
controlled by the                                             
Australia Group. Several                                      
obstacles limit the                                           
options available to the                                      
U.S. government in                                            
strengthening the                                             
effectiveness of                                              
multilateral export                                           
control regimes. The                                          
requirement to achieve                                        
consensus in each regime                                      
allows even one member                                        
to block action in                                            
adopting needed reforms.                                      
Because the regimes are                                       
voluntary in nature,                                          
they cannot enforce                                           
members' compliance with                                      
regime commitments. For                                       
example, Russia exported                                      
nuclear fuel to India in                                      
a clear violation of its                                      
commitments under the                                         
Nuclear Suppliers Group,                                      
threatening the                                               
viability of this                                             
regime. The regimes have                                      
adapted to changing                                           
threats in the past.                                          
Their continued ability                                       
to do so will determine                                       
whether they remain                                           
viable in curbing                                             
proliferation in the                                          
future.                                                       
Nonproliferation: Improvements Needed to Better Control Technology Exports for
Cruise Missiles and Unmanned Aerial Vehicles (Jan. 23, 2004, GAO-04-175 )
Background: Cruise        GAO recommendations                 Action taken
missiles and unmanned                                           
aerial vehicles (UAV)     Commerce Department                 The Commerce
pose a growing threat to                                      Department has
U.S. national security       o  assess and report to the      addressed our
interests as accurate,       Committee on Government Reform   recommendation by
inexpensive delivery         on the adequacy of the Export    revising its
systems for                  Administration Regulations'      licensing
conventional, chemical,      catch-all provision to address   requirement for
and biological weapons.      missile proliferation by         missile technology
Exports of cruise            nonstate actors. This assessment exports.
missiles and military        should indicate ways the           
UAVs by U.S. companies       provision should be modified.    While the Commerce
are licensed by the                                           Department has
State Department while    Commerce, Defense and State         taken some actions
government-to-government  Departments                         to address our
sales are administered                                        recommendations,
by the Defense               o  as a first step, each         the others
Department. Exports of       department complete a            departments have
dual-use technologies        comprehensive assessment of      not done so.
related to cruise            cruise missile, UAV, and related 
missiles and UAVs are        dual-use technology transfers to 
licensed by the Commerce     determine whether U.S. exporters 
Department.                  and foreign end users are        
                             complying with the conditions on 
Main issues: U.S. export     the transfers.                   
control officials find       o  as part of the assessment,    
it increasingly              each department conduct          
difficult to limit or        additional postshipment          
track dual-use items         verification visits on a sample  
with cruise missile or       of cruise missile and UAV        
UAV-related capabilities     licenses.                        
that can be exported                                          
without a license. A gap                                      
in dual-use export                                            
control authority                                             
enables U.S. companies                                        
to export certain                                             
dual-use items to                                             
recipients that are not                                       
associated with missile                                       
projects or countries                                         
listed in the                                                 
regulations, even if the                                      
exporter knows the items                                      
might be used to develop                                      
cruise missiles or UAVs.                                      
The gap results from                                          
current "catch-all"                                           
regulations that                                              
restrict the sale of                                          
unlisted dual-use items                                       
to certain national                                           
missile proliferation                                         
projects or countries of                                      
concern, but not to                                           
nonstate actors such as                                       
certain terrorist                                             
organizations or                                              
individuals. Catch-all                                        
controls authorize the                                        
government to require an                                      
export license for items                                      
that are not on control                                       
lists but are known or                                        
suspected of being                                            
intended for use in a                                         
missile or weapons of                                         
mass destruction                                              
program.                                                      
                                                              
The Departments of                                            
Commerce, Defense, and                                        
State have seldom used                                        
their end use monitoring                                      
programs to verify                                            
compliance with                                               
conditions placed on the                                      
use of cruise missile,                                        
UAV, or related                                               
technology exports. For                                       
example, Commerce                                             
conducted visits to                                           
assess the end use of                                         
items for about 1                                             
percent of the 2,490                                          
missile-related licenses                                      
issued between fiscal                                         
years 1998 and 2002.                                          
Thus, the U.S.                                                
government cannot be                                          
confident that                                                
recipients are                                                
effectively safeguarding                                      
equipment in ways that                                        
protect U.S. national                                         
security and                                                  
nonproliferation                                              
interests.                                                    
Export Controls: Post-Shipment Verification Provides Limited Assurance that
Dual-Use Items Are Being Properly Used (Jan. 12, 2004, GAO-04-357 )
Background: The U.S.      GAO recommendations                   Action taken     
government's policy                                                              
regarding exports of      No recommendations.                   Not applicable.  
sensitive dual-use                                              
technologies seeks to                                           
balance economic,                                               
national security,                                              
and foreign policy                                              
interests. The Export                                           
Administration Act                                              
(EAA) of 1979, as                                               
amended, has been                                               
extended through                                                
executive orders and                                            
law. Under the act,                                             
the President has the                                           
authority to control                                            
and require licenses                                            
for the export of                                               
dual-use items, such                                            
as nuclear, chemical,                                           
biological, missile,                                            
or other technologies                                           
that may pose a                                                 
national security or                                            
foreign policy                                                  
concern. In 2002,                                               
there were two                                                  
different bills                                                 
before the 107th                                                
Congress-H.R. 2581                                              
and S. 149-that would                                           
enact a new EAA.b                                               
                                                                
Main issues: A new                                              
EAA should take into                                            
consideration the                                               
increased                                                       
globalization of                                                
markets and an                                                  
increasing number of                                            
foreign competitors,                                            
rapid advances in                                               
technologies and                                                
products, a growing                                             
dependence by the                                               
U.S. military on                                                
commercially                                                    
available dual-use                                              
items, and heightened                                           
threats from                                                    
terrorism and the                                               
proliferation of                                                
weapons of mass                                                 
destruction.                                                    
Export Controls: Rapid Advances in China's Semiconductor Industry Underscore
Need for Fundamental U.S. Policy Review (April 19, 2002, GAO-02-620 )
Background:                             GAO recommendations     Action taken     
Semiconductor                                                                    
equipment and                           Commerce Department     After initially  
materials are                                                   disagreeing with 
critical components                        o  in consultation   our              
in everything from                         with the Defense and recommendations, 
automobiles to                             State Departments,   the Commerce     
weapons systems. The                       reassess and         Department has   
U.S. government                            document U.S. export cited our        
controls the export                        policy on            recommendations  
of these dual-use                          semiconductor        as the basis for 
items to sensitive                         manufacturing        increased        
destinations, such as                      equipment and        resources so it  
China. Exports of                          materials to China:  can conduct the  
semiconductor                                                   recommended      
equipment and                                      o  complete  analyses.        
materials require a                                the analyses 
license from Commerce                              needed to    
Department. Other                                  serve as a   
departments, such as                               sound basis  
Defense and State,                                 for an       
assist Commerce in                                 updated      
reviewing license                                  policy;      
applications. The                                  o  develop   
United States is a                                 new export   
member of the                                      controls, if 
multilateral                                       appropriate, 
Wassenaar Arrangement                              or           
on Export Controls                                 alternative  
for Conventional Arms                              means for    
and Dual-Use Goods                                 protecting   
and Technologies.                                  U.S.         
                                                   security     
Main issues: Since                                 interests;   
1986, China has                                    and          
narrowed the gap                                   o            
between the U.S. and                               communicate  
Chinese semiconductor                              the results  
manufacturing                                      of these     
technology from                                    efforts to   
approximately 7 years                              Congress and 
to 2 years or less.                                U.S.         
China's success in                                 industry.    
acquiring                                                       
manufacturing                                                   
technology from                                                 
abroad has improved                                             
its semiconductor                                               
manufacturing                                                   
facilities for more                                             
capable weapons                                                 
systems and advanced                                            
consumer electronics.                                           
The multilateral                                                
Wassenaar Arrangement                                           
has not affected                                                
China's ability to                                              
obtain semiconductor                                            
manufacturing                                                   
equipment because the                                           
United States is the                                            
only member of this                                             
voluntary arrangement                                           
that considers                                                  
China's acquisition                                             
of semiconductor                                                
manufacturing                                                   
equipment a cause for                                           
concern.                                                        
Additionally, U.S.                                              
government policies                                             
and practices to                                                
control the export of                                           
semiconductor                                                   
technology to China                                             
are unclear and                                                 
inconsistent, leading                                           
to uncertainty among                                            
U.S. industry                                                   
officials about the                                             
rationale for some                                              
licensing decisions.                                            
Furthermore, U.S.                                               
agencies have not                                               
done the analyses,                                              
such as assessing                                               
foreign availability                                            
of this technology or                                           
the cumulative                                                  
effects of such                                                 
exports on U.S.                                                 
national security                                               
interests, necessary                                            
to justify U.S.                                                 
policies and                                                    
practices.                                                      
Export Controls: More Thorough Analysis Needed to Justify Changes in High
Performance Computer Controls (Aug. 2, 2002, GAO-02-892 )
Background: High                        GAO recommendations     Action taken     
performance computers                                                            
that operate at or                      No recommendations.     Not applicable.  
above a defined                                                 
performance                                                     
threshold, measured                                             
in millions of                                                  
theoretical                                                     
operations per                                                  
second, require a                                               
Commerce license for                                            
export to particular                                            
destinations. The                                               
President has                                                   
periodically changed,                                           
on the basis of                                                 
technological                                                   
advances, the                                                   
threshold above which                                           
licenses are                                                    
required. The                                                   
National Defense                                                
Authorization Act of                                            
1998 requires that                                              
the President report                                            
to Congress the                                                 
justification for                                               
changing the control                                            
threshold. The report                                           
must, at a minimum,                                             
(1) address the                                                 
extent to which high                                            
performance computers                                           
with capabilities                                               
between the                                                     
established level and                                           
the newly proposed                                              
level of performance                                            
are available from                                              
foreign countries,                                              
(2) address all                                                 
potential uses of                                               
military significance                                           
to which high                                                   
performance computers                                           
between the                                                     
established level and                                           
the newly proposed                                              
level could be                                                  
applied, and (3)                                                
assess the impact of                                            
such uses on U.S.                                               
national security                                               
interests.                                                      
                                                                
Main issues: In                                                 
January 2002, the                                               
President announced                                             
that the control                                                
threshold-above which                                           
computers exported to                                           
such countries as                                               
China, India, and                                               
Russia-would increase                                           
from 85,000 to                                                  
190,000 millions of                                             
theoretical                                                     
operations per                                                  
second. The report to                                           
Congress justifying                                             
the changes in                                                  
control thresholds                                              
for high performance                                            
computers was issued                                            
in December 2001 and                                            
focused on the                                                  
availability of such                                            
computers. However,                                             
the justification did                                           
not fully address the                                           
requirements of the                                             
National Defense                                                
Authorization Act of                                            
1998. The December                                              
2001 report did not                                             
address several key                                             
issues related to the                                           
decision to raise the                                           
threshold: (1) the                                              
unrestricted export                                             
of computers with                                               
performance                                                     
capabilities between                                            
the old and new                                                 
thresholds will allow                                           
countries of concern                                            
to obtain computers                                             
they have had                                                   
difficulty                                                      
constructing on their                                           
own, (2) the U.S.                                               
government is unable                                            
to monitor the end                                              
uses of many of the                                             
computers it exports,                                           
and (3) the                                                     
multilateral process                                            
used to make earlier                                            
changes in high                                                 
performance computer                                            
thresholds.                                                     
Background: The Commerce  GAO recommendations                 Action taken
Department conducts                                             
post-shipment             Commerce Department                 Our
verification (PSV)                                            recommendations
checks to ensure that        o  improve technical training    have been
dual-use items arrive at     for personnel conducting PSV     implemented.
their intended               checks to ensure they are able   
destination and are used     to verify compliance with        
for the purposes stated      license conditions.              
in the export license.       o  ensure that personnel         
To conduct PSV checks,       conducting PSV checks assess     
Commerce personnel visit     compliance with license          
foreign companies to         conditions.                      
verify the use and           o  require that the exporter     
location of exported         inform the end user in writing   
items. PSVs serve as one     of the license conditions.       
of the primary means of                                       
checking whether end                                          
users are complying with                                      
conditions imposed by                                         
the license. Commerce                                         
placed conditions on                                          
nearly all approved                                           
licenses for exports to                                       
countries of concern for                                      
fiscal years 2000 to                                          
2002.                                                         
                                                              
Main issues: In fiscal                                        
years 2000 to 2002, the                                       
Commerce Department                                           
approved 7,680 licenses                                       
for dual-use exports to                                       
countries of concern,                                         
such as China, India,                                         
and Russia. However, we                                       
found that during this                                        
time Commerce completed                                       
PSV checks on only 428                                        
of the dual-use licenses                                      
it approved for                                               
countries of concern.                                         
                                                              
We identified three key                                       
weaknesses in the PSV                                         
process that reduce its                                       
effectiveness. First,                                         
PSVs do not confirm                                           
compliance with license                                       
conditions because U.S.                                       
officials often lack the                                      
technical training                                            
needed to assess                                              
compliance and end users                                      
may not be aware of the                                       
license conditions by                                         
which they are to abide.                                      
Second, some countries                                        
of concern, most notably                                      
China, limit the U.S.                                         
government's access to                                        
facilities where                                              
dual-use items are                                            
shipped, making it                                            
difficult to conduct a                                        
PSV. Third, PSV results                                       
have only a limited                                           
impact on future                                              
licensing decisions.                                          
Companies receiving an                                        
unfavorable PSV may                                           
receive greater scrutiny                                      
in future license                                             
applications, but                                             
licenses for dual-use                                         
exports to these                                              
companies can still be                                        
approved. In addition,                                        
according to Commerce                                         
officials, past PSV                                           
results play only a                                           
minor role in future                                          
enforcement actions.                                          

Source: GAO analysis of prior work.

aPub. L. No. 105-85, S:1211, 111 Stat. 1932-34 (1997).

b Neither H.R. 2581 nor S. 149 was enacted.

cFunctions performed by the Immigration and Naturalization Service are now
divided between U.S. Citizenship and Immigration Services and U.S.
Immigration and Customs Enforcement, both of which are within the
Department of Homeland Security.

Appendix III:
Comments from the Department of Commerce

Note: GAO comments supplementing those in the report text appear at the
end of this appendix.

See comment 2.

See comment 1.

See comment 4.

See comment 3.

See comment 6.

See comment 5.

See comment 8.

See comment 7.

See comment 11.

See comment 10.

See comment 9.

See comment 13.

See comment 12.

See comment 15.

See comment 14.

See comment 18.

See comment 17.

See comment 16.

See comment 22.

See comment 21.

See comment 20.

See comment 19.

See comment 28.

See comment 27.

See comment 26.

See comment 25.

See comment 24.

See comment 23.

See comment 29.

See comment 31.

See comment 30.

See comment 32.

See comment 34.

See comment 33.

                                  GAO Comments

           1. The scope of our review has remained unchanged. We examined
           BIS's dual-use export control system and whether changes were made
           to the system by focusing on three specific issues related to how
           well the system is operating in the post-September 2001
           environment.

                        2. Our report is not premised on a need for BIS to
                        develop a national security strategy, which is
                        outside of BIS's mission. BIS's stated goal is the
                        protection of national security and economic
                        interests. In its comments, BIS appears to define
                        "national security interests" in terms of the
                        administration's National Security Strategy, but BIS
                        has not developed performance measures to evaluate or
                        determine whether the dual-use export control system
                        is supporting and furthering that strategy.
                        Commerce's comments also do not address what effects
                        the dual-use export control system has had on U.S.
                        economic interests.

                        3. The eight specific measures cited in our report
                        are not "samples" of steps taken by BIS. Rather, they
                        represent all of the changes identified by BIS
                        officials as a result of their ad hoc review to
                        determine what changes, if any, should be made to the
                        system after the September 2001 terror attacks.
                        4. Our report accurately depicts what BIS officials
                        told us regarding the ad hoc review they conducted in
                        the aftermath of the 2001 terror attacks. Given that
                        BIS officials did not document their review, we can
                        neither confirm what the review consisted of nor
                        determine the sufficiency of this review and the
                        resulting changes.
                        5. Our report acknowledges that BIS made adjustments
                        to its enforcement efforts in response to the
                        changing security environment. Also, GAO is currently
                        conducting a separate review of export control
                        enforcement efforts.
                        6. Our report identifies  the specific changes BIS
                        officials stated were the result of their
                        post-September 2001 ad hoc review and acknowledges
                        that BIS has reprioritized its enforcement efforts
                        and taken other actions as a result of various
                        geopolitical changes. However, without performance
                        measures and systematic evaluations, BIS is not in a
                        position to readily identify weaknesses in the
                        dual-use export control system, implement corrective
                        measures, and determine whether those measures are
                        having the intended effects of protecting U.S.
                        national security and economic interests.
                        7. Commerce's characterization of BIS's annual
                        foreign policy report is misleading. BIS's annual
                        report summarizes export control changes and
                        describes what those changes were intended to
                        achieve. BIS's report does not contain an assessment
                        of the actual impact foreign policy-based controls
                        have had on U.S. interests.
                        8. Our report acknowledges that there have been over
                        100 amendments to the EAR since September 2001.
                        However, based on our review of those amendments, the
                        specific basis for many of these revisions is not
                        clear and given BIS's lack of evaluations, the impact
                        of these revisions is unknown. Also, it should be
                        noted that many of the regulatory amendments made
                        since September 2001 consisted of administrative
                        changes and technical corrections as opposed to
                        revisions of export requirements for dual-use items.
                        9. The quotes from senior BIS officials' speeches do
                        not address whether the dual-use export control
                        system is protecting U.S. interests nor do they
                        provide other evidence that BIS has developed
                        performance measures or conducted systematic
                        evaluations. While these speeches outline BIS's
                        mission and the role of export controls, the lack of
                        performance measures and systematic evaluations
                        precludes a determination as to whether that mission
                        and role are being successfully fulfilled. It is also
                        unclear how changing the bureau's name is an example
                        of a successful adaptation to the current
                        environment. Further, the increased scrutiny of
                        license applications was not the result of BIS's
                        actions as one of the quotes implies. As discussed in
                        our report, increases in the referral of license
                        applications resulted from decisions by other
                        agencies involved in the application review process.
                        10. Absent any documentation to the contrary,
                        particularly when BIS officials repeatedly
                        acknowledged that BIS had not undertaken systematic
                        evaluations, we stand by our finding that BIS has not
                        systematically evaluated the overall effectiveness
                        and efficiency of the dual-use export control system.
                        Regarding BIS's ad hoc post-September 2001 review, we
                        could not assess the validity and sufficiency of the
                        review and resulting changes due to the lack of
                        documentation.
                        11. Commerce's description of BIS's Game Plan is
                        misleading and inaccurate. First, BIS's mission and
                        priorities as summarized in the Game Plan are not
                        consistent with the mission and goals stated in
                        Commerce's official performance management documents,
                        such as the annual performance plan. The Game Plan
                        may represent BIS's thoughts for how to align
                        activities and priorities in the future, but it does
                        not depict what has been in place since the September
                        2001 terror attacks. Second, the Game Plan does not
                        contain measures of effectiveness. When we discussed
                        the Game Plan with BIS officials, they acknowledged
                        that they had not developed measures for evaluating
                        how well the dual-use export control system is
                        protecting national security and economic interests.
                        12. We agree that the development of measures for
                        determining the effectiveness of the dual-use export
                        system would be difficult. However, BIS's existing
                        performance measures, which focus on processing
                        times, fall far short of government management
                        standards since they do not provide a basis for
                        determining whether the system is protecting U.S.
                        interests.
                        13. Our report presents BIS's position that it was
                        unable to obtain assistance from other agencies to
                        develop performance measures for assessing the
                        dual-use export control system's effects on national
                        security and economic interests. The two examples of
                        performance measures provided in Commerce's comments
                        do not relate to BIS's administration of the export
                        controls system, which was the focus of our review,
                        but rather to BIS's export enforcement efforts and
                        assistance to other countries. Also, it is not clear
                        how these two measures would provide BIS with a basis
                        for determining the security and economic impact of
                        its controls on dual-use exports. Additionally,
                        Commerce's statement that BIS is assigning staff to
                        develop a methodology for evaluating the system's
                        effectiveness indicates that BIS does not yet have a
                        systematic evaluation process in place.
                        14. Our report discusses that, in the absence of
                        systematic evaluations, BIS officials obtain
                        information from industry to gauge how the dual-use
                        export control system is operating. However, the
                        collection of data from industry does not constitute
                        a measure or evaluation of how the dual-use export
                        control system is affecting U.S. economic interests.
                        Also, BIS officials repeatedly informed us that they
                        do not have measures for determining the impact of
                        dual-use export controls on economic interests.
                        15. The Office of Management and Budget determined in
                        its 2005 review that BIS lacked measures related to
                        the fundamental purpose of the dual-use export
                        controls system. Given this and our evaluation as
                        well as BIS's limited measures of efficiency and lack
                        of comprehensive analyses as to which items under its
                        control have actually been exported, BIS is not
                        meeting government performance management standards
                        and, therefore, does not represent the gold standard.
                        16. We examined the completeness of the watchlist and
                        the thoroughness of BIS's watchlist screening process
                        and found omissions in the list and weaknesses in the
                        process. Our intent was not to determine whether
                        licenses were approved for parties not on the
                        watchlist. As our report explains, a match between an
                        application and the watchlist does not necessarily
                        mean that the application will be denied but that the
                        application will be more closely scrutinized during
                        the license application review process.
                        17. Our report places BIS's watchlist in the context
                        of the larger license application review process. A
                        process built on multiple layers and multiple
                        agencies is only as strong as its weakest link. Other
                        agencies that participate in the license application
                        review process expect BIS to thoroughly screen all
                        parties on all applications against the watchlist
                        before referring applications to them. Given the
                        omissions we identified in the watchlist and the
                        weakness in the screening process, BIS's watchlist is
                        not serving its intended purpose of helping identify
                        those license applications that warrant additional
                        scrutiny. We identified many of the 147 parties not
                        on the watchlist by using the lists cited in
                        Commerce's comments. While BIS expects exporters to
                        check these publicly available lists, we found that
                        BIS failed to include all of the publicly-listed
                        parties on its watchlist. It is reasonable that BIS
                        would focus its licensing and enforcement efforts on
                        the "truly bad actors." However, given that the
                        watchlist is supposed to help BIS identify parties of
                        export control concern, BIS's ability to focus on
                        "bad actors" is undermined by the omissions we
                        identified in the watchlist.
                        18. The 147 parties we identified should not be
                        regarded as an exhaustive list of every party of
                        export control concern that should be on BIS's
                        watchlist. Our intent was not to identify all parties
                        but rather to evaluate the process that BIS uses to
                        determine which parties should be on the list.
                        Therefore, the 147 parties represent examples that
                        illustrate weaknesses in BIS's management of the
                        watchlist. However, to provide additional context, we
                        revised the text to include the number of names on
                        the BIS watchlist.
                        19. The measures listed in Commerce's comments do not
                        address the underlying weaknesses we identified or
                        our corrective recommendations.
                        20. Our report accurately reflects that several, but
                        not all, of GAO's prior recommendations regarding the
                        dual-use export control system have been implemented.
                        BIS's disagreement with the conclusions of GAO's
                        report on China's semiconductor industry does not
                        change the fact that BIS continues to cite that
                        report and its recommendations as justification for
                        requested increases in resources. However, BIS has
                        not implemented the report's recommendations. The
                        continued failure to address GAO's recommendations
                        regarding the commodity classification process and
                        export control jurisdiction places BIS's mission of
                        protecting national security and economic interests
                        at risk. Improper decisions regarding jurisdiction
                        and the lack of clear jurisdiction create the risk
                        that defense-related items will be exported without
                        the proper level of government review and control to
                        protect national interests. These weaknesses can also
                        result in companies seeking to export similar items
                        under the different controls of the Departments of
                        State and Commerce, which places some companies at a
                        competitive disadvantage.
                        21. As discussed in our report's scope and
                        methodology, we reviewed BIS's documents, such as its
                        performance plans, that contain BIS's official
                        performance measures. None of these documents
                        contains performance measures related to the
                        processing of commodity classifications. During
                        meetings with BIS officials, they did not identify
                        additional measures for evaluating the system's
                        effectiveness. Also, Commerce's comment is
                        misleading, as our report does not cite BIS
                        statistics on commodity classifications. Our report
                        contains GAO's analyses of BIS's data on commodity
                        classification processing times and shows that BIS
                        has exceeded regulatory processing time frames.
                        22. We are not revising the graphic because it
                        depicts what can occur in the license application
                        review process under different circumstances.
                        23. Text revised to further clarify the CIA's role in
                        the license application review process.
                        24. The examples provided by Commerce are limited to
                        BIS's analyses of licensing data. However, BIS has
                        not comprehensively analyzed data on actual exports,
                        particularly on unlicensed exports that represent the
                        majority of exports subject to BIS's control.
                        25. Our report states that Executive Order 12981
                        provides time frames for the entire license
                        application review process. However, none of BIS's
                        performance measures addresses the timeliness of the
                        entire process. Also, BIS has not reported overall
                        timeframes consistently in its annual reports.
                        26. Our draft report cited changes in BIS's licensing
                        policy for dual-use exports to Iraq as an
                        illustrative example; however, we have revised our
                        report to include the other countries listed in
                        Commerce's comments.
                        27. Despite Commerce's comment regarding its sources,
                        some of the 147 parties we identified as not being on
                        the watchlist appear on publicly available documents
                        from the State Department's Directorate of Defense
                        Trade Controls and the Homeland Security Department's
                        Immigration and Customs Enforcement.
                        28. We are not revising the text based on Commerce's
                        comment because our report accurately reflects how
                        the Treasury Department characterizes the list it
                        maintains on individuals and companies.
                        29. Despite Commerce's comment that it adds
                        individuals to its watchlist, we identified many
                        individuals who were not on the list but should have
                        been.
                        30. Our report explains that BIS has a regulatory
                        change pending that once implemented will address
                        this recommendation from 2001.
                        31. Commerce's actions regarding production equipment
                        for missile technology items do not resolve the lack
                        of clear jurisdiction between State and Commerce as
                        to which department controls the export of almost 25
                        percent of the missile technology items the U.S.
                        government agreed to control as part of its
                        commitments to the Missile Technology Control Regime.
                        As a result, GAO's recommendations regarding this
                        matter remain unimplemented.
                        32. See comment 20.
                        33. The memorandum contained in Commerce's comments
                        does not address GAO's recommendations that BIS
                        develop criteria, with the concurrence of the State
                        and Defense Departments, for the referral of
                        commodity classification requests and develop
                        procedures for referring other commodity
                        classification requests to the State Department. As a
                        result, GAO's recommendations regarding this matter
                        remain unimplemented.
                        34. We revised the report text to more clearly
                        reflect BIS's actions.

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contacts

Ann Calvaresi-Barr (202) 512-4841 or [email protected]

Staff Acknowledgments

In addition to the contact named above, Anne-Marie Lasowski, Assistant
Director; Johana R. Ayers; Lily Chin; Arthur James, Jr.; Megan Masengale;
Margaret B. McDavid; Bradley Terry; Karen Thornton; and Joseph Zamoyta
made key contributions to this report.

Related GAO Products

Defense Trade: Arms Export Control Vulnerabilities and Inefficiencies in
the Post-9/11 Security Environment. GAO-05-468R . Washington, D.C.: April
7, 2005.

Defense Trade: Arms Export Control System in the Post-9/11Environment.
GAO-05-234 . Washington, D.C.: February 16, 2005.

Nonproliferation: Improvements Needed to Better Control Technology Exports
for Cruise Missiles and Unmanned Aerial Vehicles. GAO-04-175 . Washington,
D.C.: January 23, 2004.

Export Controls: Post-Shipment Verification Provides Limited Assurance
That Dual-Use Items Are Being Properly Used. GAO-04-357 . Washington,
D.C.: January 12, 2004.

Nonproliferation: Strategy Needed to Strengthen Multilateral Export
Control Regimes. GAO-03-43 . Washington, D.C.: October 25, 2002.

Export Controls: Processes for Determining Proper Control of
Defense-Related Items Need Improvement. GAO-02-996 . Washington, D.C.:
September 20, 2002.

Export Controls: Department of Commerce Controls over Transfers of
Technology to Foreign Nationals Need Improvement. GAO-02-972 . Washington,
D.C.: September 6, 2002.

Export Controls: More Thorough Analysis Needed to Justify Changes in High
Performance Computer Controls. GAO-02-892 . Washington, D.C.: August 2,
2002.

Export Controls: Rapid Advances in China's Semiconductor Industry
Underscore Need for Fundamental U.S. Policy Review. GAO-02-620 .
Washington, D.C.: April 19, 2002.

Export Controls: Issues to Consider in Authorizing a New Export
Administration Act. GAO-02-468T . Washington, D.C.: February 28, 2002.

Export Controls: Clarification of Jurisdiction for Missile Technology
Items Needed. GAO-02-120 . Washington, D.C.: October 9, 2001.

Export Controls: State and Commerce Department License Review Times Are
Similar. GAO-01-528 . Washington, D.C.: June 1, 2001.

Export Controls: Regulatory Change Needed to Comply with Missile
Technology Licensing Requirements. GAO-01-530 . Washington, D.C.: May 31,
2001.

Export Controls: Inadequate Justification for Relaxation of Computer
Controls Demonstrates Need for Comprehensive Study. GAO-01-534T .
Washington, D.C.: March 15, 2001.

Export Controls: System for Controlling Exports of High Performance
Computing Is Ineffective. GAO-01-10 . Washington, D.C.: December 18, 2000.

Export Controls: Statutory Reporting Requirements for Computers Not Fully
Addressed. NSIAD-00-45 . Washington, D.C.: November 5, 1999.

Export Controls: Better Interagency Coordination Needed on Satellite
Exports. NSIAD-99-182 . Washington, D.C.: September 17, 1999.

Export Controls: Change in Licensing Jurisdiction for Commercial
Communications Satellites. T-NSIAD-98-222 . Washington, D.C.: September
17, 1998

Export Controls: National Security Issues and Foreign Availability for
High Performance Computer Exports. NSIAD-98-200 . Washington, D.C.:
September 16, 1998.

Export Controls: Issues Related to Commercial Communications Satellites.
T-NSIAD-98-208 . Washington, D.C.: June 10, 1998.

China: Military Imports From the United States and the European Union
Since the 1989 Embargoes. NSIAD-98-176 . Washington, D.C.: June 16, 1998.

Export Controls: Change in Export Licensing Jurisdiction for Two Sensitive
Dual-Use Items. NSIAD-97-24 . Washington, D.C.: January 14, 1997.

Export Controls: Sensitive Machine Tool Exports to China. NSIAD-97-4 .
Washington, D.C.: November 19, 1996.

Export Controls: Sale of Telecommunications Equipment to China. NSIAD-97-5
. Washington, D.C.: November 13, 1996.

(120475)

GAO's Mission

The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.

Obtaining Copies of GAO Reports and Testimony

The fastest and easiest way to obtain copies of GAO documents at no cost
is through GAO's Web site ( www.gao.gov ). Each weekday, GAO posts newly
released reports, testimony, and correspondence on its Web site. To have
GAO e-mail you a list of newly posted products every afternoon, go to
www.gao.gov and select "Subscribe to Updates."

Order by Mail or Phone

The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent. Orders should
be sent to:

U.S. Government Accountability Office 441 G Street NW, Room LM Washington,
D.C. 20548

To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061

To Report Fraud, Waste, and Abuse in Federal Programs

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: [email protected]
Automated answering system: (800) 424-5454 or (202) 512-7470

Congressional Relations

Gloria Jarmon, Managing Director, [email protected] (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125 Washington,
D.C. 20548

Public Affairs

Paul Anderson, Managing Director, [email protected] (202) 512-4800 U.S.
Government Accountability Office, 441 G Street NW, Room 7149 Washington,
D.C. 20548

www.gao.gov/cgi-bin/getrpt? GAO-06-638 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Ann Calvaresi-Barr at (202) 512-4841 or
[email protected].

Highlights of GAO-06-638 , a report to the Chairman, Committee on
International Relations, House of Representatives

June 2006

EXPORT CONTROLS

Improvements to Commerce's Dual-Use System Needed to Ensure Protection of
U.S. Interests in the Post-9/11 Environment

In regulating exports of dual-use items, which have both commercial and
military applications, the Department of Commerce's Bureau of Industry and
Security (BIS) seeks to allow U.S. companies to compete globally while
minimizing the risk of items falling into the wrong hands. In so doing,
BIS faces the challenge of weighing U.S. national security and economic
interests, which at times can be divergent or even competing.

In light of the September 2001 terror attacks, GAO was asked to examine
BIS's dual-use export control system. In response, GAO is reporting on
BIS's (1) evaluations of and changes to the system, (2) screening of
export license applications against its watchlist, and (3) actions to
correct weaknesses previously identified by GAO.

What GAO Recommends

GAO recommends that the Secretary of Commerce systematically evaluate the
dual-use export control system; correct omissions in BIS's watchlist and
weaknesses in the screening process; and take action to address GAO's
prior unimplemented recommendations. Commerce disagreed with the report's
findings and characterizations of its system but did not address GAO's
recommendations. GAO maintains that the report fairly represents BIS's
actions and the need for an overall evaluation framework.

Lack of systematic evaluations. Although BIS made some regulatory and
operational changes to the dual-use export control system, it has not
systematically evaluated the system to determine whether it is meeting its
stated goal of protecting U.S. national security and economic interests.
Specifically, BIS has not comprehensively analyzed available data to
determine what dual-use items have actually been exported. Further,
contrary to government management standards, BIS has not established
performance measures that would provide an objective basis for assessing
how well the system is protecting U.S. interests. Instead, BIS relies on
limited measures of efficiency that focus only on narrow aspects of the
license application review process to assess the system's performance. BIS
officials use intelligence reports and meetings with industry to gauge how
the system is operating. Absent systematic evaluations, BIS conducted an
ad hoc review of the system to determine if changes were needed after the
events of September 2001. BIS officials determined that no fundamental
changes were needed but opted to make some adjustments primarily related
to controls on chemical and biological agents. GAO was unable to assess
the sufficiency of the review and resulting changes because BIS officials
did not document their review.

Omissions in BIS's watchlist. GAO found omissions in the watchlist BIS
uses to screen export license applications. This screening, which is part
of the license application review process, is intended to identify
ineligible parties or parties warranting more scrutiny. The omissions
undermine the list's utility, which increases the risk of dual-use exports
falling into the wrong hands. GAO identified 147 parties that had violated
U.S. export control requirements, had been determined by BIS to be
suspicious end users, or had been reported by the State Department as
committing acts of terror, but these parties were not on the watchlist of
approximately 50,000 names. Reasons for the omissions include a lack of
specific criteria as to who should be on the watchlist and BIS's failure
to regularly review the list. In addition, a technical limitation in BIS's
computerized screening system results in some parties on license
applications not being automatically screened against the watchlist.

Some prior GAO recommendations left unaddressed. BIS has implemented
several but not all of GAO's recommendations for ensuring that export
controls on sensitive items protect U.S. interests. Among weaknesses
identified in prior GAO reports is the lack of clarity on whether certain
items are under BIS's control, which increases the risk of defense-related
items being improperly exported. BIS has yet to take corrective action on
this matter.
*** End of document. ***