Export Controls: State and Commerce Have Not Taken Basic Steps to
Better Ensure U.S. Interests Are Protected (24-APR-08,		 
GAO-08-710T).							 
                                                                 
In controlling the transfer of weapons and related technologies  
overseas, the U.S. government must limit the possibility of	 
sensitive items falling into the wrong hands while allowing	 
legitimate trade to occur. Achieving this balance has become more
challenging due to redefined security threats and a globalized	 
economy. The export control system is a key component of the	 
safety net of programs intended to balance multiple U.S.	 
interests. The export control system is managed primarily by the 
State Department, which regulates arms exports, and the Commerce 
Department, which regulates dual-use exports that have military  
and civilian applications. Unless an exemption applies, arms	 
exports require licenses, while many dual-use exports do not	 
require licenses. Based on GAO's extensive body of work on the	 
export control system, this testimony focuses on export licensing
inefficiencies, poor interagency coordination, and limits in	 
State's and Commerce's ability to provide a sound basis for	 
changes to the system. In prior work, GAO made recommendations to
address vulnerabilities in the export control system, but many	 
have not been implemented. Because of these vulnerabilities and  
others identified in the larger safety net of programs, GAO has  
designated the effective protection of technologies critical to  
U.S. national security interests as a high risk area warranting  
strategic reexamination.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-710T					        
    ACCNO:   A81866						        
  TITLE:     Export Controls: State and Commerce Have Not Taken Basic 
Steps to Better Ensure U.S. Interests Are Protected		 
     DATE:   04/24/2008 
  SUBJECT:   Arms control					 
	     Arms control agreements				 
	     Combating terrorism				 
	     Data integrity					 
	     Export regulation					 
	     Exporting						 
	     Foreign trade policies				 
	     Interagency relations				 
	     Internal controls					 
	     International trade regulation			 
	     International trade restriction			 
	     Jurisdictional authority				 
	     Licenses						 
	     Performance measures				 
	     Restrictive trade practices			 
	     Risk management					 
	     System vulnerabilities				 
	     Systems analysis					 
	     Systems monitoring 				 
	     Trade regulation					 
	     Weapons industry					 
	     Weapons systems					 
	     Policies and procedures				 
	     GAO High Risk Series				 

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GAO-08-710T

   

     * [1]Summary
     * [2]Background
     * [3]Inefficiencies in the Processing of License Applications Hin
     * [4]Poor Interagency Coordination Creates Vulnerabilities
     * [5]Absence of Assessments Limits Ability to Identify Problems a
     * [6]Conclusions
     * [7]GAO Contacts and Acknowledgments
     * [8]GAO's Mission
     * [9]Obtaining Copies of GAO Reports and Testimony

          * [10]Order by Mail or Phone

     * [11]To Report Fraud, Waste, and Abuse in Federal Programs
     * [12]Congressional Relations
     * [13]Public Affairs

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Testimony Before the Subcommittee on Oversight of Government 
Management, the Federal Workforce, and the District of Columbia, 
Committee on Homeland Security and Governmental Affairs, U.S. Senate: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 2:00 p.m. EDT:
Thursday, April 24, 2008: 

Export Controls: 

State and Commerce Have Not Taken Basic Steps to Better Ensure U.S. 
Interests Are Protected: 

Statement of Ann Calvaresi Barr: 
Director: 
Acquisition and Sourcing Management: 

GAO-08-710T: 

GAO Highlights: 

Highlights of GAO-08-710T, a testimony before the Subcommittee on 
Oversight of Government Management, the Federal Workforce, and the 
District of Columbia, Committee on Homeland Security and Governmental 
Affairs, U.S. Senate. 

Why GAO Did This Study: 

In controlling the transfer of weapons and related technologies 
overseas, the U.S. government must limit the possibility of sensitive 
items falling into the wrong hands while allowing legitimate trade to 
occur. Achieving this balance has become more challenging due to 
redefined security threats and a globalized economy. The export control 
system is a key component of the safety net of programs intended to 
balance multiple U.S. interests. 

The export control system is managed primarily by the State Department, 
which regulates arms exports, and the Commerce Department, which 
regulates dual-use exports that have military and civilian 
applications. Unless an exemption applies, arms exports require 
licenses, while many dual-use exports do not require licenses. 

Based on GAOï¿½s extensive body of work on the export control system, 
this testimony focuses on export licensing inefficiencies, poor 
interagency coordination, and limits in Stateï¿½s and Commerceï¿½s ability 
to provide a sound basis for changes to the system. 

In prior work, GAO made recommendations to address vulnerabilities in 
the export control system, but many have not been implemented. Because 
of these vulnerabilities and others identified in the larger safety net 
of programs, GAO has designated the effective protection of 
technologies critical to U.S. national security interests as a high 
risk area warranting strategic reexamination. 

What GAO Found: 

State and Commerce have not managed their respective export licensing 
processes to ensure their effective operations. In November 2007, GAO 
reported that procedural and automation weaknesses, along with 
workforce challenges, created inefficiencies in Stateï¿½s arms export 
licensing process. In less than 4 years, median processing times for 
license applications nearly doubled, with Stateï¿½s backlog of open cases 
peaking at 10,000. According to State officials, the department has 
begun analyzing its licensing data and implementing actions that will 
allow it to better manage its workload and determine the most effective 
workforce structure. While Commerceï¿½s license application processing 
times for dual-use exports have remained relatively stable, the overall 
efficiency of its process is unknown. This is due in part to Commerceï¿½s 
lack of performance measures for all steps in its process and analyses 
that would allow it to identify opportunities for improvement. 

Poor coordination among State, Commerce, and the other departments 
involved in the export control system has created vulnerabilities. 
State and Commerce have disagreed on which department has jurisdiction 
over the export of certain items. In one case, Commerce determined that 
an item was subject to its less restrictive export requirements when, 
in fact, it was State-controlled. Such improper determinations and 
unclear jurisdiction not only create an unlevel playing fieldï¿½because 
some companies may gain access to markets that others will notï¿½it also 
increases the risk that sensitive items, such as missile-related 
technologies, will be exported without the appropriate review and 
resulting protections. Further, State and Defense took almost 4 years 
to reach agreement regarding when certain arms export licensing 
exemptions could be used by exporters in support of Defense-certified 
programs. This lack of agreement could have resulted in export 
requirements being applied inconsistently. Also, in response to a GAO 
recommendation, State and Commerce only recently began regularly 
receiving information on criminal enforcement actionsï¿½information that 
is important to consider upfront when reviewing license applications 
for approval. 

Despite dramatic changes in the security and economic environment, 
State and Commerce have not undertaken basic management steps to ensure 
their controls and processes are sufficient and appropriate for 
protecting U.S. interests. Notably, neither department has assessed its 
controls in recent years. Nevertheless, State and Commerce maintained 
that no fundamental changes to their export control system were needed. 
Earlier this year, the White House announced that the President signed 
directives intended to ensure that the export control system focuses on 
meeting security and economic challenges. Similarly, legislation to 
make changes to the export control system has been introduced. However, 
few details about the basis for these initiatives are known. In the 
past, GAO has found that export control initiatives not grounded in 
analyses have generally not resulted in the desired improvements to the 
system. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-710T]. For more 
information, contact Ann Calvaresi Barr at (202) 512-4841 or 
[email protected]. 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

It is my pleasure to be here today to discuss the U.S. export control 
system--one component of the government's safety net of programs 
designed to protect critical technologies while allowing legitimate 
defense trade. In controlling the transfer of weapons and related 
technologies to other countries and foreign companies, the U.S. 
government must consider and strike a balance among multiple and 
sometimes conflicting national security, foreign policy, and economic 
interests. Achieving this balance has become increasingly difficult 
given the evolving security threats we face, the quickening pace of 
technological innovation, and the increasing globalization of the 
economy. GAO has examined not only the export control system but also 
other components of the safety net, such as the foreign military sales 
program, reviews of foreign investments in U.S. companies, and a 
program for identifying militarily critical technologies. Within each 
component and across the safety net, we identified significant 
vulnerabilities and threats that prompted us in 2007 to designate the 
effective protection of technologies critical to U.S. national security 
interests as a new high-risk area warranting strategic reexamination. 
[Footnote 1] I believe that today's hearing contributes to that 
reexamination. 

The export control system is a particularly complex component of the 
government's safety net. The system is managed primarily by the 
Departments of State and Commerce, though other departments such as 
Defense, Homeland Security, and Justice play active roles in the 
system. State regulates arms exports,[Footnote 2] while Commerce 
regulates exports of dual-use items, which have both military and 
civilian applications. Exports subject to State's regulations generally 
require a license, unless an exemption applies. Many Commerce- 
controlled items do not require a license for export to most 
destinations. However, in managing their respective systems, both 
departments are responsible for limiting the possibility of export- 
controlled items and technologies falling into the wrong hands while 
allowing legitimate trade to occur. 

Over the last decade and most recently in November 2007, we have 
reported on various aspects of the U.S. export control system and the 
weaknesses and challenges that affect the system's overall 
effectiveness.[Footnote 3] My statement today focuses on: (1) 
inefficiencies in the export licensing processes, (2) poor interagency 
coordination, and (3) limits in State's and Commerce's ability to 
identify problems and provide a sound basis for making changes to the 
system. 

My statement is based on GAO's extensive body of work on the export 
control system. We have made a number of recommendations to address the 
weaknesses and challenges we identified, but many of them have yet to 
be implemented. We conducted these performance audits in accordance 
with generally accepted government auditing standards. Those standards 
require that we plan and perform audits to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. 

Summary: 

State and Commerce have not managed their export licensing processes to 
ensure their effective operation. In 2007, we found that State's export 
licensing process was hindered by procedural weaknesses, problems with 
a key electronic processing system, and human capital challenges. These 
inefficiencies contributed to State's median processing times nearly 
doubling from 14 days in fiscal year 2003 to 26 days in 2006 and a 
significant increase in State's backlog of open cases. According to 
State officials, the department has begun analyzing its licensing data 
and implementing measures that will allow it to better manage its 
workload and determine the most effective workforce structure. For the 
small percentage of dual-use exports that require licenses, Commerce's 
median processing times have remained relatively stable at about 40 
days. However, the overall efficiency of Commerce's application review 
process is unknown. This is due in part to Commerce's lack of 
performance measures for all steps in its review process. 

Our prior work has also found that poor coordination among State, 
Commerce, and other departments involved in export controls has further 
weakened the system. For example, State and Commerce have disagreed on 
which department controls the export of certain items. In one case, 
Commerce determined that an item was subject to its less restrictive 
export requirements when it was, in fact, State-controlled. Such 
improper determinations and unclear jurisdiction not only create an 
unlevel playing field because some companies may gain access to markets 
that others will not, it also increases the risk that sensitive items, 
such as explosive detection devices, will be exported without the 
appropriate review and resulting protections. Further, State and 
Defense took almost 4 years to reach agreement regarding when certain 
licensing exemptions could be used by exporters in support of Defense- 
certified programs. This lack of agreement could have resulted in 
export requirements being inconsistently applied. Finally, in response 
to our prior recommendation, State and Commerce only recently began 
regularly receiving information on criminal enforcement actions from 
Justice--information that is important to consider upfront as part of 
the license application review process. 

State and Commerce have not undertaken basic steps to ensure their 
controls and processes are sufficient and appropriate to protect U.S. 
interests. Notably, neither department has systematically assessed its 
controls in recent years--despite dramatic changes in the security and 
economic environment. Nevertheless, State and Commerce have maintained 
that no fundamental changes to the export control system were needed. 
Earlier this year, the White House announced the President signed 
directives intended to ensure that the export control system focuses on 
meeting security and economic challenges. Legislation has also been 
introduced to make changes to the export control system. However, few 
details about the basis for these initiatives are known. In the past, 
we have reported that export control initiatives not grounded in 
analyses have generally not resulted in the desired improvements to the 
system. 

Background: 

The U.S. government has a myriad of laws, regulations, policies, and 
processes intended to identify and protect critical technologies so 
they can be transferred to foreign parties in a manner consistent with 
U.S. national security, foreign policy, and economic interests. 
Advanced weapons and militarily useful technologies are sold by U.S. 
companies for economic reasons and by the U.S. government for foreign 
policy, security, and economic reasons. Yet, the technologies that 
underpin U.S. military and economic strength continue to be targets for 
theft, espionage, reverse engineering, and illegal exports. As a 
result, the safety net of programs, many which were put in place 
decades ago, not only has to protect critical technologies but it also 
has to do so in a manner that allows legitimate trade with allies and 
other friendly nations. 

The U.S. export control system for defense-related items involves 
multiple federal agencies and is divided between two regulatory bodies-
-one managed by State for arms and another managed by Commerce for dual-
use items (see table 1). 

Table 1: Roles and Responsibilities in the Arms and Dual-Use Export 
Control Systems: 

Principal regulatory agency: State Department's Directorate of Defense 
Trade Controls; 
Mission: Regulates export of arms by giving primacy to national 
security and foreign policy concerns; 
Statutory authority: Arms Export Control Act of 1976[A]; 
Implementing regulations: International Traffic in Arms Regulations. 

Principal regulatory agency: Commerce Department's Bureau of Industry 
and Security; 
Mission: Regulates export of dual-use items by weighing economic, 
national security, and foreign policy interests; 
Statutory authority: Export Administration Act of 1979[B]; 
Implementing regulations: Export Administration Regulations. 

Other federal agencies: Department of Defense; 
Mission: Provides input on which items should be controlled by either 
State or Commerce and conducts technical and national security reviews 
of export license applications submitted by exporters to either State 
or Commerce; 
Statutory authority: [Empty]; 
Implementing regulations: [Empty]. 

Other federal agencies: Department of Homeland Security; 
Mission: Enforces arms and dual-use export control laws and regulations 
through border inspections and investigations[C]; 
Statutory authority: [Empty]; 
Implementing regulations: [Empty]. 

Other federal agencies: Department of Justice; 
Mission: Investigates any criminal violations in certain 
counterintelligence areas, including potential export control 
violations, and prosecutes suspected violators of arms and dual-use 
export control laws; 
Statutory authority: [Empty]; 
Implementing regulations: [Empty]. 

Source: Cited laws and regulations. 

[A] 22 U.S.C. 2751 et seq. 

[B] 50 U.S.C. App. 2401 et seq. Authority granted by the act terminated 
on August 20, 2001. Executive Order 13222, Continuation of Export 
Control Regulations, issued August 2001, continues the export controls 
established under the Act and the implementing Export Administration 
Regulations. Executive Order 13222 requires an annual extension and was 
recently renewed by Presidential Notice on August 15, 2007. 

[C] Homeland Security, Justice, and Commerce investigate potential dual-
use export control violations. Homeland Security and Justice 
investigate potential arms export control violations. 

[End of table] 

State's and Commerce's implementing regulations contain lists that 
identify the items and related technologies each department controls 
and establish requirements for exporting those items. Exporters are 
responsible for determining which department controls the items they 
seek to export and what the regulatory requirements are for export. The 
two departments' controls differ in several key areas. In most cases, 
Commerce's controls over dual-use items are less restrictive than 
State's controls over arms. Many items controlled by Commerce do not 
require licenses for export to most destinations, while State- 
controlled items generally require licenses for most destinations. 
Also, some sanctions and embargoes only apply to items on State's U.S. 
Munitions List and not to those on the Commerce Control List. For 
example, Commerce-controlled items may be exported to China while arms 
exports to China are generally prohibited. 

Even when items are exempt from licensing requirements, they are still 
subject to U.S. export control laws. Responsibility for enforcing those 
laws and their associated regulations largely rests with various 
agencies within Commerce, Homeland Security, Justice, and State. These 
enforcement agencies conduct a variety of activities, including 
inspecting items to be exported, investigating potential export control 
violations, and pursuing and imposing the appropriate penalties. 
Punitive actions, which are either criminal or administrative, can be 
taken against violators of export control laws and regulations. Justice 
can prosecute criminal cases, where the evidence shows that the 
exporter willfully and knowingly violated export control laws. 
Prosecutions can result in imprisonment, fines, and other penalties. 
State or Commerce can impose fines, suspend export licenses, or deny 
export privileges for administrative violations. 

Inefficiencies in the Processing of License Applications Hinder the 
Export Control System: 

Reviews of export license applications require time to deliberate and 
ensure that license decisions are appropriate. Such reviews, though, 
should not be unnecessarily delayed due to inefficiencies or be 
eliminated for efficiency's sake--both of which could have unintended 
consequences for U.S. security, foreign policy, and economic interests. 
However, State and Commerce have not managed their respective export 
licensing processes to ensure their efficient operation. 

As we have previously reported, inefficiencies have contributed to 
increases in State's processing times for license applications and 
related cases and its inability to keep pace with a growing workload. 
[Footnote 4] State's processing times for arms export cases began 
increasing in fiscal year 2003--with median processing times nearly 
doubling from 14 days to 26 days by fiscal year 2006 (see fig. 1). 
During this period, State's workload increased by 20 percent, from 
about 55,000 to 65,000 cases. State was unable to keep pace with this 
growing number of cases, which resulted in a significant number of open 
cases awaiting review and final action. At the end of fiscal year 2006, 
this so called "backlog" reached its peak at over 10,000 open cases, 
prompting State to undertake extraordinary measures--such as extending 
work hours and canceling training and industry outreach--to reduce the 
number of open cases. However, such measures were not sustainable and 
did not address underlying inefficiencies. Concerns were also raised 
that these measures could have the unanticipated effect of shifting the 
focus from the mission of protecting U.S. interests to simply closing 
cases to reduce the number of open cases. 

Figure 1: Median Processing Times for Arms Export Cases, Fiscal Year 
1999 through April 2007 (in days): 

[See PDF for image] 

This figure is a line graph depicting the following data: 

Median Processing Times for Arms Export Cases, Fiscal Year 1999 through 
April 2007 (in days): 

Fiscal year: 1999; 
Processing time in days: 26; 

Fiscal year: 2000; 
Processing time in days: 25. 

Fiscal year: 2001; 
Processing time in days: 15. 

Fiscal year: 2002; 
Processing time in days: 13. 

Fiscal year: 2003; 
Processing time in days: 14. 

Fiscal year: 2004; 
Processing time in days: 18. 

Fiscal year: 2005; 
Processing time in days: 19. 

Fiscal year: 2006; 
Processing time in days: 26. 

Fiscal year: 2007; 
Processing time in days: 27. 

Source: GAO analysis of State data. 

[End of figure] 

At the time of our 2007 review, we found that State had not analyzed 
licensing data to identify inefficiencies and develop sustainable 
solutions to manage its review process and more effectively structure 
its workforce. Through our extensive analysis of State's data, we 
determined that the overall trend of increased processing times and 
open cases was attributable to several factors, including procedural 
weaknesses, problems with its new electronic processing system, and 
human capital challenges, many of which had gone unnoticed and 
unaddressed by State. 

* Procedural Weaknesses: State lacked screening procedures to promptly 
identify those cases needing interagency review. As a result, cases 
often languished for weeks in a queue awaiting assignment or initial 
review before being referred to another agency, such as Defense, for 
further review. State also lacked procedures to expedite certain cases. 
We found that processing times in fiscal year 2006 for exports to the 
United Kingdom and Australia, which by law were to be expedited, did 
not differ significantly from processing times for other allied 
countries.[Footnote 5] Similarly, processing time goals for 
applications in support of Operations Iraqi Freedom and Enduring 
Freedom were not being met. 

* Electronic Processing Problems: State officials have cited D-Trade-- 
its new automated system for processing cases--as the most significant 
effort to improve efficiency. However, State's implementation of D- 
Trade has been problematic and has not been the promised panacea for 
improving processing times. Our analysis showed that there was no 
significant difference in processing times for similar cases whether 
they were submitted via D-Trade or the traditional paper-based system. 
State relied on this automated solution without reengineering the 
underlying processes or developing tools to facilitate the licensing 
officer's job. For example, D-Trade has limited capabilities to 
reference precedent cases that would allow licensing officers to 
leverage work previously done on similar cases, which could not only 
help to expedite the processing of a case but could also ensure greater 
consistency among similar cases. Further, D-Trade experienced 
performance problems that State officials attributed to poorly defined 
requirements and a rush to production. For example, because of a glitch 
in January 2007, 1,300 cases received during a 3-day period had to be 
resubmitted by exporters, which resulted in rework. 

* Human Capital Challenges: State has also faced human capital 
challenges in establishing and retaining a sufficient workforce with 
the experience and skills needed to efficiently and effectively process 
arms export cases. For example, the number of licensing officers on 
board was at the same level in fiscal years 2003 and 2006, despite an 
almost 20 percent increase in cases over that period. As a point of 
comparison, in fiscal year 2005, State had 31 licensing officers who 
closed approximately 63,000 cases while Commerce had 48 licensing 
officers who closed approximately 22,000 cases. Additionally, Defense 
had not been providing State with its full complement of detailed 
military officers, who are generally assigned to review complex 
agreements.[Footnote 6] State officials have acknowledged that more 
work was falling on fewer experienced staff. According to these 
officials, in the summer of 2006, about half of State's licensing 
officers had less than a year of experience, and many lacked the 
authority needed to take final action on cases. 

These findings prompted us to recommend that State conduct analyses of 
its licensing data to assess root causes of inefficiencies and then 
identify and implement actions that would allow it to better manage its 
workload, reexamine its processes, and determine the most effective 
workforce structure. We are encouraged to learn that, under the 
direction of new leadership responsible for managing the arms export 
control system, State has recently committed to implementing these 
recommendations and taking actions to address the issues we identified. 
Specifically, State has informed us that it (1) has implemented 
procedures to more quickly determine whether cases should be referred 
to other agencies or State bureaus for review and instituted senior 
level reviews of cases that are over 60 days old, (2) is planning 
future D-Trade upgrades that are expected to facilitate case reviews by 
licensing officers and allow managers to better oversee the processes, 
and (3) has restructured its licensing divisions to ensure a more 
equitable distribution in the workload and skill level of licensing 
officers based on our analysis. While these recently reported actions 
are encouraging, we have not yet examined them to determine their 
effects. 

Concerns about efficiency have largely focused on State's processing of 
applications for arms exports, in part, because few dual-use exports 
subject to Commerce's controls require licenses. In 2005, for example, 
98.5 percent of dual-use exports, by dollar value, were not licensed. 
[Footnote 7] While few dual-use exports are licensed, the number of 
license applications processed by Commerce has increased in recent 
years--increasing by over 50 percent from fiscal years 1998 through 
2005.[Footnote 8] During that time period, Commerce's overall median 
processing times have remained stable, around 40 days, and are 
consistent with time frames established by a 1995 executive 
order.[Footnote 9] However, the overall efficiency of Commerce's 
licensing process is unknown in part because Commerce lacks efficiency- 
related measures and analyses that would allow it to identify 
opportunities for improvement. For example, to determine the efficiency 
of its license application review process, Commerce only measures its 
performance in terms of how long it takes to refer an application to 
another agency for review. Commerce does not have efficiency-related 
measures for other steps in its review process, such as how quickly a 
license should be issued once other agencies provide their input, or 
for the entire process. During the course of our prior reviews, 
Commerce did not provide us with evidence that would indicate it has 
undertaken analyses of licensing data to determine if previously 
established time frames are still appropriate or to identify the 
drivers of its workload or the bottlenecks in its processes that would 
allow it to implement actions to improve efficiency. 

Poor Interagency Coordination Creates Vulnerabilities: 

Since multiple departments have a role to play in the export control 
system, its effective operation depends on those departments working 
together. However, we have identified instances related to export 
control jurisdiction, the use of license exemptions, and the 
dissemination of enforcement information when poor coordination among 
the departments has created vulnerabilities in the system's ability to 
protect U.S. interests. The departments have taken action to address 
some--but not all--of these vulnerabilities. 

Given the different restrictions State and Commerce have on the items 
subject to their controls, the determination of which items fall under 
State's export jurisdiction and which fall under Commerce's is 
fundamental to the U.S. export control system. However, we have 
previously reported that State and Commerce have disagreed on which 
department has jurisdiction over certain items. In some cases, both 
departments have claimed jurisdiction over the same items, which was 
the case for certain missile-related technologies.[Footnote 10] In 
another case, for example, Commerce improperly determined that 
explosive detection devices were subject to Commerce's less restrictive 
export control requirements when they were, in fact, State- 
controlled.[Footnote 11] Such jurisdictional disagreements and problems 
are often the result of minimal or ineffective coordination between the 
two departments and the departments' differing interpretations of the 
regulations. Despite our recommendations to do so, the two departments 
have not yet come together to resolve these jurisdictional disputes or 
develop new processes to improve coordination. Until these 
disagreements and coordination problems are resolved, exporters--not 
the government--will continue to determine which restrictions apply 
and, therefore, the type of governmental review that will occur. Not 
only does this create an unlevel playing field and competitive 
disadvantage--because some companies may gain access to markets that 
others will not--but it also increases the risk that critical items 
will be exported without the appropriate review and resulting 
protections. 

Even when jurisdiction over an export-controlled item is clearly 
established, there is not always agreement among the departments on 
when an export license is required. While State generally requires a 
license for most arms exports, its regulations exempt exports that meet 
specific criteria from licensing requirements. For a limited number of 
licensing exemptions, Defense may confirm that the export qualifies for 
the use of an exemption in support of Defense activities, such as 
sharing of technical data related to defense acquisition programs and 
defense cooperative agreements with allies and friendly nations. 
However, our work revealed that State and Defense had different 
interpretations of the exemptions and what exports could be certified 
by Defense.[Footnote 12] For example, State officials maintained that 
one exemption was only for use by U.S. government personnel, while 
Defense officials stated it was available for use by contractors 
working in direct support of Defense activities. For approximately 4 
years, the lack of a common understanding of the exemption created a 
vulnerability as regulations and licensing requirements could have been 
inconsistently applied. Further, we found that State and Defense lacked 
comprehensive data to oversee the use of these exemptions. Such data 
would allow the departments to identify and assess the magnitude of 
transfers certified for exemption use. Specifically, Defense's 2006 
annual report to State on the use of the exemptions provided data on 
161 certifications, but we identified 271 additional certifications 
that were not included in Defense's report because they were not 
entered into a centralized Defense database. We understand that, in 
response to our recommendation, State and Defense established a working 
group and recently reached agreement to resolve the issues identified 
in our report. 

When an exporter applies for a license, both State and Commerce are to 
consider whether the parties to the proposed export are eligible to 
sell or receive controlled items and technologies. Individuals or 
companies indicted or convicted of violating various laws may be denied 
from participating in proposed exports. Therefore, information on 
criminal export control prosecution outcomes should help inform the 
export control process by providing State and Commerce with a complete 
picture of the individual or company seeking an export license. 
Prosecuting export cases can be difficult, since securing sufficient 
evidence to prove the exporter intentionally violated export control 
laws can represent unique challenges, especially when the item being 
exported is exempted from licensing or the case requires foreign 
cooperation. We reported in 2006 that while Justice and the other 
enforcement agencies have databases that capture information on their 
enforcement activities, the outcomes of criminal cases were not 
consistently shared with State and Commerce.[Footnote 13] Instead State 
and Commerce relied on informal processes to obtain information on 
indictments and convictions, which created gaps in their knowledge. For 
example, we found that the watchlist used by Commerce to screen 
applications was incomplete as it did not contain 117 companies and 
individuals that had committed export control violations. Prompted by 
our recommendation, Justice began providing State and Commerce with 
quarterly reports on criminal enforcement actions so that such 
information can be considered upfront during the license application 
review process. 

Absence of Assessments Limits Ability to Identify Problems and Make 
Improvements to the System: 

To adapt to the accelerating pace of change in the global security, 
economic, and technological environment, federal programs need to 
systematically reassess priorities and approaches and determine what 
corrective actions may be needed to fulfill their missions.[Footnote 
14] For example, to meet the challenges of the 21st century, agency 
leaders need to reexamine their programs, asking questions related to 
their program's relevance and purpose, how success should be measured, 
and whether they are employing best practices. Given the two 
departments' missions of controlling defense-related exports while 
allowing legitimate trade, State and Commerce should not be exceptions 
to this basic management tenet. Although dramatic changes have occurred 
in the security and economic environment since the start of the 21st 
century, State and Commerce have not conducted systematic assessments 
to determine whether their controls and processes are sufficient and 
appropriate or whether changes are needed to better protect U.S. 
interests. Despite providing us with no basis for their positions and 
the existence of known vulnerabilities, both departments informed us 
that no fundamental changes to their respective systems were needed. 

Earlier this year, the President signed a package of directives that, 
according to the White House, will ensure that U.S. export control 
policies and practices support national security while facilitating 
economic and technological leadership. Relatively few details about the 
directives or the basis for particular initiatives have been publicly 
released, though they reportedly incorporate recommendations provided 
by industry. We have not had an opportunity to review the specifics of 
the directives, how they were formulated, or how they will be 
implemented. Legislation has also been introduced to make changes to 
the export control system.[Footnote 15] 

While we have not had an opportunity to evaluate the new directives, a 
note of caution may be drawn from our work regarding a prior set of 
initiatives that were also designed to improve the export control 
system. In 2000, the Defense Trade Security Initiatives (DTSI), which 
was characterized as the first major post-Cold War revision to the U.S. 
export control system, was unveiled. DTSI was comprised of 17 different 
initiatives developed by State and Defense to expedite and reform the 
U.S. export control system. At the time, we determined that no analysis 
of the problems that the initiatives were intended to remedy or 
demonstration of how they would achieve identified goals had been 
conducted.[Footnote 16] It turned out that the justifications for the 
initiatives was, in part, based on anecdotes that were factually 
incorrect or only told part of the story. In one example cited by 
Defense, the lengthy processing time for an export license caused a 
foreign firm to cancel its contract with a U.S. aerospace company, but 
upon closer examination, we learned that U.S. government had denied the 
license because of concerns regarding the foreign firm's ties with the 
Chinese military. Because there was little assurance that DTSI would 
result in improvements to the system, we were not surprised during our 
subsequent work when we found that the initiatives had generally not 
been successful. For example, D-Trade was one of the initiatives, but 
as already discussed, its anticipated efficiencies have not yet been 
realized. Additionally, processing time goals established in DTSI for 
applications to assist allies in increasing their military capabilities 
have not been met. Other initiatives have not been widely used by 
exporters. For example, we reported that between 2000 and 2005, State 
had only received three applications for comprehensive export 
authorizations for a range of exports associated with multinational 
defense efforts, including the Joint Strike Fighter.[Footnote 17] 
According to Defense and contractor officials, while such 
authorizations were intended to lessen the administrative burden and 
improve processing times for routine export authorizations, companies 
have opted not to use them because of the extra costs associated with 
their compliance requirements. 

Conclusions: 

The government's safety net of programs is intended to protect critical 
technologies while still allowing legitimate trade. Therefore, the 
components of that system must address known vulnerabilities and be 
able to adapt to a changing global environment if they are to 
individually and collectively protect and promote U.S. national 
security, foreign policy, and economic interests. Our past work 
demonstrates that State and Commerce have not managed the export 
control system to better ensure its overall effectiveness in protecting 
U.S. interests. Recent actions taken by the departments to begin 
addressing some of the management issues and vulnerabilities identified 
in our prior reports are encouraging. However, other recommendations, 
most notably those related to export control jurisdiction, remain 
unimplemented. While the implementation of our recommendations is an 
important first step for improving the efficiency and effectiveness of 
the export control system, a sustained commitment on the part of the 
departments to engage in a continuous process of evaluation, analysis, 
and coordination is needed. It is only then that meaningful and 
sustainable improvements to the export control system can be developed 
and implemented to ensure the efficiency and effectiveness of the 
system in protecting U.S. interests. 

Mr. Chairman this concludes my statement. I would be happy to answer 
any questions you or other members of the subcommittee may have. 

GAO Contacts and Acknowledgments: 

For questions regarding this testimony, please contact me at (202) 512- 
4841 or [email protected]. Johana R. Ayers, Assistant Director; 
Marie Ahearn, Jennifer Dougherty, Karen Sloan, and Anthony Wysocki made 
key contributions to this statement. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this statement. 

[End of section] 

Related GAO Products: 

Defense Trade: State Department Needs to Conduct Assessments to 
Identify and Address Inefficiencies and Challenges in the Arms Export 
Process. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-89]. 
Washington, D.C.: November 30, 2007. 

Defense Trade: Clarification and More Comprehensive Oversight of Export 
Exemptions Certified by DOD Are Needed. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-1103]. Washington, D.C.: 
September 19, 2007. 

Export Controls: Vulnerabilities and Inefficiencies Undermine System's 
Ability to Protect U.S. Interests. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-1135T]. Washington, D.C.: July 26, 2007. 

High Risk Series: An Update. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-310]. Washington, D.C.: January 2007. 

Export Controls: Challenges Exist in Enforcement of an Inherently 
Complex System. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-
265]. Washington, D.C.: December 20, 2006. 

Analysis of Data for Exports Regulated by the Department of Commerce. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-197R]. Washington, 
D.C.: November 13, 2006. 

Export Controls: Agencies Should Assess Vulnerabilities and Improve 
Guidance for Protecting Export-Controlled Information at Universities. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-70]. Washington, 
D.C.: December 5, 2006. 

Export Controls: Agencies Should Assess Vulnerabilities and Improve 
Guidance for Protecting Export-Controlled information at Companies. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-69]. Washington, 
D.C.: December 5, 2006. 

Defense Technologies: DOD's Critical Technologies Lists Rarely Inform 
Export Control and Other Policy Decisions. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-06-793]. Washington, D.C.: July 
28, 2006. 

Export Controls: Improvements to Commerce's Dual-Use System Needed to 
Ensure Protection of U.S. Interests in the Post-9/11 Environment. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-638]. Washington, 
D.C.: June 26, 2006. 

Defense Trade: Arms Export Control Vulnerabilities and Inefficiencies 
in the Post-9/11 Environment. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-05-468R]. Washington, D.C.: April 7, 2005. 

21st Century Challenges, Reexamining the Base of the Federal 
Government. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-
325SP]. Washington, D.C.: February 2005. 

Defense Trade: Arms Export Control System in the Post-9/11 Environment. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-234]. Washington, 
D.C.: February 16, 2005. 

Nonproliferation: Further Improvements Needed in U.S. Efforts to 
Counter Threats from Man-Portable Air Defense Systems. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-04-519]. Washington, D.C.: May 
13, 2004. 

Nonproliferation: Improvements Needed to Better Control Technology 
Exports for Cruise Missiles and Unmanned Aerial Vehicles. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?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. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-04-357]. Washington, D.C.: 
January 12, 2004. 

Joint Strike Fighter Acquisition: Cooperative Program Needs Greater 
Oversight to Ensure Goals Are Met. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-03-775]. Washington, D.C.: July 21, 2003. 

Defense Trade: Better Information Needed to Support Decisions Affecting 
Proposed Weapons Transfers. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-03-694]. Washington, D.C.: July 11, 2003. 

Nonproliferation: Strategy Needed to Strengthen Multilateral Export 
Control Regimes. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-
43]. Washington, D.C.: October 25, 2002. 

Export Controls: Processes for Determining Proper Control of Defense- 
Related Items Need Improvement. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-02-996]. Washington, D.C.: September 20, 2002. 

Export Controls: Department of Commerce Controls over Transfers of 
Technology to Foreign Nationals Need Improvement. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-02-972]. Washington, D.C.: 
September 6, 2002. 

Export Controls: More Thorough Analysis Needed to Justify Changes in 
High Performance Computer Controls. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?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. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-02-620]. Washington, D.C.: April 
19, 2002. 

Defense Trade: Lessons to Be Learned from the Country Export Exemption. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-63]. Washington, 
D.C.: March 29, 2002. 

Export Controls: Issues to Consider in Authorizing a New Export 
Administration Act. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-
02-468T]. Washington, D.C.: February 28, 2002. 

Export Controls: Reengineering Business Processes Can Improve 
Efficiency of State Department License Reviews. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-02-203]. Washington, D.C.: 
December 31, 2001. 

Export Controls: Clarification of Jurisdiction for Missile Technology 
Items Needed. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-
120]. Washington, D.C.: October 9, 2001. 

Export Controls: State and Commerce Department License Review Times are 
Similar. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-528]. 
Washington, D.C.: June 1, 2001. 

Export Controls: Regulatory Change Needed to Comply with Missile 
Technology Licensing Requirements. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-01-530]. Washington, D.C.: May 31, 2001. 

Defense Trade: Analysis of Support for Recent Initiatives. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-00-191]. Washington, D.C.: 
August 31, 2000. 

Defense Trade: Status of the Department of Defense's Initiatives on 
Defense Cooperation. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/NSIAD-00-190R]. Washington, D.C.: July 19, 2000. 

Export Controls: Better Interagency Coordination Needed on Satellite 
Exports. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-99-
182]. Washington, D.C.: September 17, 1999. 

Export Controls: Change in Export Licensing Jurisdiction for Two 
Sensitive Dual-Use Items. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/NSIAD-97-24]. Washington, D.C.: January 14, 1997. 

[End of section] 

Footnotes: 

[1] See GAO, High Risk Series: An Update, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-310] (Washington, D.C.: 
January 2007). 

[2] "Arms" refers to defense articles and services as specified in 22 
U.S.C. ï¿½ 2778. 

[3] See list of related GAO products at the end of this statement. 

[4] GAO, Defense Trade: State Department Needs to Conduct Assessments 
to Identify and Address Inefficiencies and Challenges in the Arms 
Export Process, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-
89] (Washington, D.C.: Nov. 30, 2007). 

[5] Ronald W. Reagan National Defense Authorization Act for Fiscal Year 
2005, Pub. L. No. 108-375, ï¿½ 1225 (2004). 

[6] The Foreign Relations Authorization Act, Fiscal Year 2003 (Pub. L. 
No. 107-228, ï¿½ 1401(c) (2002)) states that the Secretary of Defense 
should ensure that 10 military officers are continuously detailed to 
State's Directorate of Defense Trade Controls. 

[7] This amount reflects only the export of items specifically 
identified on Commerce's control list. If an item is not listed on the 
control list but is subject to Commerce's regulations, it falls into 
the category know as EAR 99. In 2005, 99.98 percent of EAR99 items were 
exported without licenses. Amounts do not include data for exports to 
Canada. 

[8] GAO, Export Controls: Improvements to Commerce's Dual-Use System 
Needed to Ensure Protection of U.S. Interests in the Post-9/11 
Environment, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-638] 
(Washington, D.C.: June 26, 2006). 

[9] Under Executive Order No. 12981 and 15 C.F.R. ï¿½750.4, the entire 
dual-use license application process--including an interagency 
escalation process if agencies cannot reach agreement--is to be 
completed within 90 days, unless an agency appeals the decision to the 
President who is given no time limit. However, few applications are 
escalated through the interagency dispute resolution process, which 
means that reviews of most applications are completed within 40 days. 

[10] GAO, Export Controls: Clarification of Jurisdiction for Missile 
Technology Items Needed, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-02-120] (Washington, D.C.: Oct. 9, 2001). 

[11] GAO, Export Controls: Processes for Determining Proper Control of 
Defense-Related Items Need Improvement, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-02-996] (Washington, D.C.: Sept. 
20, 2002). 

[12] GAO, Defense Trade: Clarification and More Comprehensive Oversight 
of Export Exemptions Certified by DOD are Needed, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-1103] (Washington, D.C.: Sept. 
19, 2007). 

[13] GAO, Export Controls: Challenges Exist in Enforcement of an 
Inherently Complex System, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-265] (Washington, D.C.: Dec. 20, 2006). 

[14] GAO, 21st Century Challenges: Reexamining the Base of the Federal 
Government, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP] 
(Washington, D.C.: February 2005) and 21st Century Challenges: 
Transforming Government to Meet Current and Emerging Challenges, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-830T] (Washington, 
D.C.: July 13, 2005). 

[15] S. 2000, the Export Enforcement Act of 2007, was introduced in 
August 2007 and H.R. 4246, the Defense Trade Controls Performance 
Improvement Act of 2007, was introduced in November 2007. 

[16] GAO, Defense Trade: Analysis of Support for Recent Initiatives, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-00-191] 
(Washington, D.C.: Aug. 31, 2000). 

[17] GAO, Defense Trade: Arms Export Control System in the Post-9/11 
Environment, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-234] 
(Washington, D.C.: Feb. 16, 2005). 

[End of section] 

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