-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO/NSIAD-00-191		

TITLE:     DEFENSE TRADE: Analysis of Support for Recent Initiatives

DATE:   08/31/2000 
				                                                                         
----------------------------------------------------------------- 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** 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/NSIAD-00-191

Report to the Chairmen, Committee on International Relations and Committee
on Armed Services, House of

Representatives

August 2000 DEFENSE TRADE Analysis of Support for Recent Initiatives

GAO/ NSIAD- 00- 191

Letter 3 Appendixes Appendix I: Examples of Export Control Problems 22

Appendix II: The Defense Trade Security Initiative 27 Appendix III: Comments
From the Department of Defense 30 Appendix IV: Comments From the Department
of State 31 Appendix V: GAO Contacts and Staff Acknowledgments 36

Tabl es Table 1: Summary of DOD's 81 Defense Cooperation Initiatives 7 Table
2: DOD's Export Control Examples and GAO's Analysis 23

Abbreviations

DOD Department of Defense

National Security and International Affairs Division

Lett er

B- 285761 August 31, 2000 The Honorable Benjamin A. Gilman Chairman,
Committee on International Relations House of Representatives

The Honorable Floyd D. Spence Chairman, Committee on Armed Services House of
Representatives

Last year, the Department of Defense (DOD) compiled a list of 81 defense
cooperation initiatives in an effort to enhance cross- border defense trade
and investment. Thirty- four of these initiatives were part of an ongoing
effort to reinvent the Foreign Military Sales Program. 1 Forty- seven of the
initiatives were intended to streamline processes and/ or change policies in
several areas considered important for defense cooperation, including

export controls, release of classified information to foreign countries,
procurement from domestic and foreign companies, and industrial security.
DOD senior officials saw these defense cooperation initiatives as necessary
to achieving three desired outcomes: to improve interoperability in
coalition warfare scenarios, to reduce a gap in military capabilities

between the United States and North Atlantic Treaty Organization allies, and
to ensure that U. S. defense companies successfully compete abroad. Since
the initial compilation of these initiatives, most of DOD's attention has
been focused on export controls. Because the State Department has primary
responsibility for controlling the export of defense articles and services,
the State Department and DOD formed a working group to develop proposals to
change the export control process. As a result of State Department and DOD
discussions, on May 24, 2000, the administration announced 17 proposals,
known as the Defense Trade Security Initiative, to adjust the U. S. defense
export control system. As with DOD's initiatives, these proposals are
intended to achieve the three desired outcomes

identified above. 1 The Foreign Military Sales Program facilitates the
purchase of defense articles and services from the U. S. government by
eligible foreign governments and international organizations.

Because of your concern about the potential national security implications
of DOD's efforts to modify policies and procedures for regulating defense
trade and investment, we reviewed as requested the status and basis for
DOD's defense cooperation initiatives. In July 2000, we provided a
description and status of the 81 initiatives. 2 As agreed with your offices,
in this report we have focused on the basis for DOD's 47 initiatives dealing

with defense trade and investment. Specifically, we examined (1) the data
and analysis supporting the 47 initiatives and (2) the likelihood that the
initiatives will achieve DOD's desired outcomes. Since the administration's

Defense Trade Security Initiative was developed in response to industry and
foreign government concerns (as were DOD's initiatives), we are also
providing information for you to use in upcoming deliberations on the
potential effects of the administration's modifications to the U. S. export
control system.

Results in Brief To develop its defense cooperation initiatives, DOD largely
relied on incomplete data and did not perform the analysis necessary to
determine

the underlying causes for problems it identified. Some of the initiatives
addressed known problems, such as those that had been identified through
efforts to modernize DOD's existing computer systems. However, for others
DOD had very little data or analysis demonstrating the underlying problems
and how best to resolve them. For example, the Department identified
initiatives to reduce the time it takes to process export licenses. To
streamline the process, DOD largely relied on data collected on the average
processing time to develop timesaving initiatives, but it did not examine
the reasons for lengthy processing time on particular cases. As a

result, the initiatives to shorten the processing time may not address any
underlying problems in the decision- making process. In addition, DOD
justified its initiatives using examples of situations depicting problems
with the export control system, but many of the examples were either not
accurate or did not include information needed to understand the reasons the
situation arose.

It is unclear whether DOD's initiatives will achieve the desired outcomes of
improving U. S. and foreign forces ability to operate together in coalition
warfare scenarios, reducing a gap in military capabilities between the
United States and its allies, and ensuring that U. S. companies successfully

2 Defense Trade: Status of the Department of Defense's Initiatives on
Defense Cooperation (GAO/ NSIAD- 00- 190R, July 19, 2000).

compete in overseas markets. DOD has not clearly demonstrated how its
defense cooperation initiatives, for instance, will improve interoperability
between U. S. and foreign forces. In fact, the after action report on the
recent Kosovo coalition operation did not identify U. S. export controls,

which were a major focus of the Department's initiatives, as a major
impediment to interoperability. While the DOD's initiatives may help some
companies share technology or successfully compete in overseas markets, they
do not address many relevant factors that fall outside of the Department's
sphere of influence and control. For example, national governments have
traditionally tended to purchase major defense equipment from their domestic
companies or when buying foreign

products require domestic production as a condition of sale. A preference
for domestic production appeared to influence a recent competition involving
a European and a U. S. product. The European government selected the
European product even though the U. S. government provided assurances that
access to U. S. technology would not be inhibited. The effects on desired
outcomes of the administration's Defense Trade Security Initiative proposals
remain uncertain. The Departments of State and Defense have not agreed on
how to implement some proposals such as exempting exports to certain allies
from licensing requirements. For example, the Departments have not agreed on
criteria or parameters for assessing comparability of allied countries'
export control regimes. Once the Departments agree, the administration will
have to negotiate changes

to the export control systems of the affected countries. In addition, the
Departments of State and Defense have agreed in principle on the need to
enhance computer interconnectivity between the departments but have not

agreed on how best to accomplish this objective. In commenting on a draft of
this report, DOD disagreed with our findings because the Department believes
it performed adequate analysis of the underlying problems. The State
Department agreed with our critique of DOD's export control examples.
However, the State Department disagreed with our characterization of the
computer enhancement proposal because it believes that the Departments have
already agreed that the implementation of the proposal is limited to
improving communications and data exchange connectivity between the State
Department and DOD.

Because the Departments did not provide any additional supporting
information, we did not revise our report.

Background International defense cooperation has become increasingly
important to governments and defense companies since the end of the Cold
War. The U. S. government has identified international cooperation as a
major part of its national security strategy for the 21st century since many
security challenges can no longer be addressed by a single nation. Further,
shrinking defense budgets and rapid technological changes have changed the
current business environment for defense companies. Looking to

replace declining domestic sales, defense companies have been motivated to
seek cross- border industrial partnerships to gain access to each other's
markets. However, companies and foreign customers are concerned about some
U. S. government restrictions that they believe have impeded

industry's ability to partner and cooperate internationally. DOD's
identification of its initiatives was an attempt to improve conditions for
cross- border defense cooperation.

DOD identified several outcomes it wants to achieve with its defense
cooperation initiatives, including improving interoperability, reducing the
military capabilities gap, and ensuring that U. S. defense companies
successfully compete abroad. These desired outcomes are not new, but DOD
leadership has determined that addressing them in a post- Cold War

era requires greater cross- border defense industrial cooperation and
increased interaction with U. S. allies. DOD officials recognize that
promoting a global defense market presents both benefits (such as increased
interaction with allies) and security risks (such as the loss of the U. S.
technological edge or the potential spread of weapons). As a result, in
1998, DOD commissioned several studies on these benefits and risks, and

in the following year formed a senior- level working group to identify
initiatives to facilitate cross- border cooperation among defense companies
while protecting U. S. security interests. The working group compiled a list
of 81 defense cooperation initiatives. Table 1 provides a summary of the
initiatives and their overall objectives. Thirty- four of the initiatives
were part of an ongoing effort to reinvent the Foreign Military Sales
Program and have not been fully implemented. Forty- seven of the initiatives
were intended to streamline processes and/ or change policies in several
areas, including export controls, release of

classified information to foreign countries, procurement from domestic and
foreign companies, and industrial security. DOD has completed implementing
about one- third of its 47 initiatives, but the majority are ongoing, with
no established timetable for completion.

Table 1: Summary of DOD's 81 Defense Cooperation Initiatives Categories of
initiatives and selected examples Objectives

Thirteen Foreign Disclosure Initiatives, a such as To reduce the time
associated with releasing

establishing guidelines for training in international security and
disclosure and classified information to foreign entities and to initiating
reviews to decrease time to approve foreign visits and/ or access to ensure
that personnel have training and guidelines classified information. to
release information only when it is appropriate and authorized.

Eleven Automation Initiatives such as To facilitate expedited license
processing; protect replacing several systems and databases, such as the
Foreign Disclosure

agency sensitive information; reduce repetitive System Classified Military
Information Database and the Technology Protection submission of technical
data; provide a standard System Munitions Database and user interface for
the submission and review of developing a new computer system for the
Departments of Defense, State, supporting documentation; and comply with the

Commerce, and other federal agencies involved in the export control process.
Government Paperwork Elimination Act and the Clinger- Cohen Act.

Twelve Export Control Initiatives such as To improve the timeliness and
quality of the export

developing a DOD plan to improve effectiveness of the export licensing
review review process; facilitate cooperation with trusted process,

allies by reducing burdens for obtaining export expanding the International
Traffic in Arms Regulations export licensing licenses; and assist industry
by providing insight into exemptions to other countries- similar to the
historical exemption provided to the licensing process for foreign military
sales and Canada, and direct commercial sales. establishing an ombudsman to
give exporters an avenue to the licensing system.

Eight Defense Industrial Base Initiatives such as To improve the bilateral
framework for cooperation concluding the Declaration of Principles with the
United Kingdom,

and facilitate a more integrated industrial base; documenting DOD's
utilization of foreign sources, and

improve the quality of information on U. S. reliance on starting industrial
base discussions with other countries. foreign sources; and identify common
areas to improve cooperation. Three Defense Industrial Security Initiatives
such as

To eliminate unnecessary requirements that do not proposing changes to the
National Industrial Security Program Operating

enhance national security. Manual. Thirty- four Foreign Military Sales
Reinvention Initiatives such as

To establish a better working relationship between developing policies for
U. S. government and industry cooperation and for Foreign

the U. S. government and industry to provide Military Sales agreements,
accurate information on requirements and pricing to adjusting Foreign
Military Sales surcharges, b and meet customer's needs; provide foreign
customers reimbursing U. S. government for support of direct commercial
sales and foreign

greater visibility and participation in the development military financing/
direct commercial contracts. of agreements; and increase U. S. government

partnering with U. S. industry in the area of direct commercial sales
opportunities. a The disclosure initiatives cover the approval of foreign
customers' visits and/ or access to classified information. b Surcharges are
authorized charges included in Foreign Military Sales agreements, which are

calculated as a percentage of the basic cost of the item or service to
recover costs that have been incurred by the U. S. government.

Source: GAO analysis of DOD initiatives.

DOD's defense cooperation initiatives prompted additional discussions on the
U. S. export control system. In December 1999, the Departments of State and
Defense established a new working group to develop proposals

to change the export control process. The State Department is responsible
for controlling the export of defense items but refers export license
applications to DOD and other agencies when technical or policy reviews are
needed before making a licensing decision. By March 2000, the Departments of
State and Defense had agreed to 15 proposals intended to streamline the
export control process. The proposals ranged from improving the use of
existing regulatory exemptions to creating new types

of export licenses. The White House, the National Security Council, and the
Department of Justice joined the discussions, and the parties reached final
agreement on these and two additional proposals that were announced on

May 24, 2000, as the Defense Trade Security Initiative. DOD Selected Many of
To improve defense cooperation, DOD compiled a list of initiatives, 47 of
Its Initiatives Without

which were intended to address problems with the Department's internal
export control and procurement processes and policies. Although some
Sufficiently Analyzing

initiatives were intended to correct deficiencies previously identified the
Underlying through audit reports, DOD proposed many of the 47 initiatives
without Problems first analyzing the reasons for the problems. For these
initiatives, DOD had very little data or analysis demonstrating the
underlying problems and how best to resolve them. In addition, DOD justified
some of its initiatives using examples to demonstrate problems with the
export control process. However, the information provided on the examples
was often incomplete and in many cases, the reports on the incidents
contained factual errors.

Without a full understanding of the underlying problems, it is unclear
whether DOD's initiatives will correct problems that may exist. Some
Initiatives Were Thirteen of the 47 initiatives were supported by audit
recommendations or Intended to Address Known

based on the need to modernize existing computer systems. For example,
Deficiencies, but Many Were certain initiatives cited the need to establish
training, guidance, and Based on Limited Analysis communication processes to
improve efficiency within the export licensing

process that DOD uses to provide technical reviews to the State of the
Problems Department. The Department of Defense Inspector General, in a 1999
audit report, identified deficiencies in these areas and recommended changes
to address these problems. DOD identified other initiatives that were part
of its ongoing modernization efforts to replace a variety of internal
software programs or databases pertaining to classified information, export
licenses, and foreign visits. For example, one of these databases had not
been upgraded for about 20 years, and another required changes to make the

system Y2K compliant.

The remaining 34 initiatives were largely based on limited data or analysis
of the underlying problems. For example, 14 of DOD's initiatives to change
the processes for controlling exports and release of classified data were
consistent with recommendations in a white paper prepared by the Defense
Security Cooperation Agency in 1999. 3 The white paper, however, was largely
based on concerns from customers and industry, and DOD did not verify the
information provided or assess the basis for the concerns before undertaking
the initiatives. In addition, a 1999 Defense Science Board report on
globalization and security also contained

recommendations consistent with 14 of DOD's initiatives. 4 Some senior-
level officials who worked on this report told us that limited empirical
data existed to support the report's recommendations. When we examined the
report's list of source documents, we found that 70 percent were taken from
newspapers and periodicals; no original data were collected. Finally, the
remaining initiatives were based on anecdotal evidence collected during
meetings with allies and industry and from an informal survey of several
major defense companies. However, DOD often

did not validate whether the problems existed nor examine the underlying
reasons for problems identified by allies and industry.

Without examining the underlying reasons for problems that may exist, DOD
has no assurance that many of its initiatives will resolve the problems. For
example, DOD has several initiatives intended to reduce lengthy license
processing time by including time limits for reviewing licenses and reducing
the number of review levels. In examining processing time, DOD collected
data on the average time it takes to review export licenses. While reducing
processing time is a worthy objective, concentrating on average time may
obscure reasons for lengthy processing times on particular cases or obscure
the factors that contributed to a speedy licensing decision. Data could be
collected on the export control licensing process that may provide

indications of where problems lie in the process. In fact, a recent law
stated that the State Department should perform such a study and report to
congressional committees on the munitions licensing process. 5 Among 3 The
Defense Security Cooperation Agency (in cooperation with the Office of
Policy Support within the Office of the Secretary of Defense and the Defense
Threat Reduction Agency as well as industry organizations) prepared a white
paper entitled Arms Transfer/ Technology Transfer White Paper in 1999. 4
Nine recommendations were found in both the white paper and the Defense
Science Board report. 5 P. L. 106- 113, Nov. 29, 1999, sec. 1310.

other things, the Department's study is to analyze the processing time for
each major category of licenses and include a breakdown of licenses by
country. The State Department was to submit this report by the end of May
2000 but has not done so because of scarce resources and other demands,
according to a senior State Department official. When the study is
performed, it may contribute to an understanding of the reasons for various

processing times. Further, the Principal Deputy Under Secretary of Defense
for Acquisition, Technology, and Logistics told us that while the average
processing time has been reduced, it does not appear to be the fundamental
problem with the U. S. export control process. This official said that the
major problem is not the time it takes to review an export license
application but rather that the outcome of the review process is often not
satisfactory. In other words,

when reviewing license applications for national security concerns, DOD
officials may decide to deny the application or place terms and conditions
on the application. Such conditions may be so stringent that they hinder the

export of the defense article or service. Some senior officials from defense
companies also told us that the rules governing license approvals are not
consistently applied. Many of DOD's Examples of

To justify its export control- related initiatives, DOD prepared a list of
Export Control Problems 20 examples to illustrate situations where the
export control process takes Lacked Key Information or

too long, is outdated, and hampers U. S. companies from competing abroad.
Contained Factual Errors

DOD compiled the list from news sources, e- mails, congressional testimony
by a U. S. company president, and company and embassy officials. Of the 20
examples, 6 pertained to comments made by or opinions expressed by foreign
company and government officials about the U. S. export control process that
did not involve an export license. In addition, one example involved a
company and export license that DOD officials could not identify because the
DOD official who provided the example did not

specify the name of the company and has since left the Department. Of the 13
examples where licensing information was available, several examples
indicated inefficiencies in the export licensing process. Specifically, in
one instance the State Department was slow in determining if it needed to
notify Congress about an export, and in another instance an unexplained
error in DOD and State Department records caused a delay in approving a
license application. However, in 9 of 13 examples, DOD did not include
information needed to understand the reasons that the situation

arose or the examples contained factual errors. Appendix I provides DOD's

description and our analysis of 10 of DOD's examples. The remaining three
examples are discussed below.

One example, based on a company's press release, stated that a Singapore-
based consortium (two- thirds owned by a Chinese affiliate) terminated its
contract with a U. S. aerospace company because this company was unable to
secure necessary U. S. export licenses in a

timely manner. Under this contract, the U. S. company was to build a $450
million satellite- based mobile telephone system. However, we found that the
Department of Commerce- responsible for controlling the export of items with
both civil and military applications- denied the U. S. company's license
application. The Department, in consultation with other federal agencies,
decided to deny the export application

because of concerns of possible Chinese military involvement, questions
about the company's dealings with China, and its hiring of a foreign
national- the son of the Chinese general overseeing China's military
satellite program. DOD's example indicates that lengthy processing time
caused the company to lose the contract when, in fact, the company was
denied the license because of concerns with the export. In a second example,
based on an aviation publication, a U. S. company

is still waiting for the State Department to complete a review of its
Technical Assistance Agreement to build a Chinese communications satellite.
6 According to DOD's example, the U. S. government approved the agreement
(in February 1998) and then temporarily suspended it in December 1998 to
make sure it was in compliance with new export regulations. However, we
found that the State Department suspended

the agreement principally because of an ongoing criminal investigation of
the company. Section 1512 of the Strom Thurmond National Defense
Authorization Act for Fiscal Year 1999 (P. L. 105- 261, Oct. 17, 1998)
requires the President to certify that any export to the People's Republic
of China of missile equipment or technology will not be detrimental to

the U. S. space launch industry or will not measurably improve the missile
or space launch capabilities of the People's Republic of China. Since the
company's agreement involved missile technology, the State Department was
required to suspend the agreement to review the case for the purpose of such
a certification. After the review, the State

6 A Technical Assistance Agreement is an agreement for the performance of
defense services or the release of technical data that is subject to the
review and approval of the State Department.

Department determined that it was not prepared to recommend such a
certification because the company was under grand jury investigation for
possible export violations; consequently, the suspension remained. In June
1999, the company asked the State Department to lift the suspension. The
State Department responded in August 1999 that the suspension should not be
terminated, but it did not disclose the reason for its decision. However, 5
days later, a State Department spokesman publicly stated that the Department
was concerned about the company being investigated for allegedly breaking
export control laws. DOD's example indicates that the company had not
received a response from

the State Department when, in fact, the Department had completed the review
and communicated the response to the company. A third example, based on a
DOD e- mail, stated that in June 1999 a U. S. company could not perform
inspection and repair work on aircraft purchased by the Royal Thai Navy
under the Foreign Military Sales

Program because the State Department required the company to first obtain a
signed Technical Assistance Agreement, which the Royal Thai Navy refused to
sign. The example stated that the State Department had not previously
required a signed agreement for such work under its export control
regulations. We found that the State Department had not

changed its requirement. In fact, the State Department issued guidance in
March 1997 to the contractors stating that a Technical Assistance Agreement
is needed when providing defense services under a Foreign

Military Sales agreement. In this particular case, the company had already
obtained an approved agreement from the State Department in anticipation of
this work. According to an e- mail sent by a DOD official in Thailand, the
Royal Thai Navy refused to sign the agreement because it believed its
contract was with the U. S. government and not the U. S. company. However,
according to a company official, the Royal Thai Navy refused to sign the
agreement because a DOD official advised

against signing. Therefore, while DOD's example stated that the problem was
a new State Department requirement for a Technical Assistance Agreement, in
fact, the problem was a disagreement between the

company and the Royal Thai Navy on the need for an agreement. DOD officials
at the U. S. Embassy in Thailand sided with the Royal Thai Navy.

These examples demonstrate the complexities of the export control system and
the need to understand the underlying reasons for problems that may exist.
Without a full appreciation of the problem, it is unclear whether DOD's
initiatives will resolve existing problems.

The Extent to Which DOD has several desired outcomes it wants to achieve
from its defense

DOD's Initiatives Will cooperation initiatives, including (1) improving
interoperability in coalition warfare scenarios, (2) reducing a gap in
military capabilities between the Achieve Desired United States and North
Atlantic Treaty Organization allies, and

Outcomes Is Unclear (3) ensuring that U. S. defense companies successfully
compete abroad.

Senior DOD officials have stated that the defense cooperation initiatives
are an approach to achieving these desired outcomes in addition to efforts
under way with the North Atlantic Treaty Organization member nations.
However, DOD has not clearly demonstrated how its initiatives will achieve
these three outcomes, especially since other factors can influence these

desired outcomes. DOD has asserted that its initiatives will help achieve
one of its desired outcomes- interoperability- but has not clearly
demonstrated how these initiatives might result in this outcome. For
example, regarding one recent

conflict, the Kosovo/ Operation Allied Force After- Action Report did not
identify U. S. export controls as a major impediment. 7 Instead, the report
identified failures in communications and logistics and certain shortcomings
in the Allies' capabilities as impediments to interoperability. The report
also cited some concerns about the release of classified information to the
allies and suggested the need to refine the policy and process for releasing
such information. Although the report stated that the United States must
carefully review its policy regarding licensing requirements for the allies,
it provided no specific examples to support this suggestion. Further,
officials responsible for supporting Kosovo operations from the U. S.
European Command, as well as DOD and State Department arms transfer
officials, told us that the U. S. export control system was not

an impediment to interoperability in Kosovo. In fact, the State Department
had established an expedited review process for export licenses designated
to support the Kosovo operations. Additional resources were devoted to
reviewing these export licenses, which were given priority over routine
licenses that companies submitted. Also, some officials from major U. S.
defense companies told us that DOD's export control initiatives are unlikely
to help achieve interoperability because other factors may have a more
direct impact on interoperability than DOD's initiatives.

7 Kosovo/ Operation Allied Force After- Action Report to Congress, DOD (Jan.
31, 2000).

DOD's initiatives may facilitate greater technology sharing between U. S.
and European companies that, in turn, could affect the Department's second
desired outcome of closing the transatlantic military and

technology gap. Nonetheless, other factors, beyond DOD's influence, could
more directly impact this outcome. For example, the Secretary General of the
North Atlantic Treaty Organization and U. S. government officials have
stated that European nations are not investing sufficient resources in

developing military and technological capabilities and, in fact, European
investment in defense research and development has been significantly below
U. S. levels. According to some European officials, the gap in defense
spending results from different spending priorities and different threat
perceptions. In addition, whereas the United States has a global military

threat and interest, European countries generally have focused on European
security. 8

Finally, DOD's initiatives may increase opportunities for some U. S.
companies to compete in European and other overseas defense markets.
However, like the United States, European countries tend to purchase major
defense equipment from their domestic companies when such options exist. For
example, in the United Kingdom's recent competition for the Beyond Visual
Range Air to Air Missile, the U. K. government chose a European missile that
is still in development over a U. S. product that DOD officials advocated
was proven and less expensive. DOD also assured the U. K. government that
access to U. S. technology would not be a problem.

However, according to the U. K. Ministry of Defense, it selected the
European option because it would provide superior military capability.
Further, even when importing major weapon systems, many European countries
have obtained benefits to their domestic economies by requiring subcontract
awards to firms in their own countries. 9

DOD's defense cooperation initiatives may encourage the formation of
“global” defense alliances that can help achieve some of its
desired outcomes, but this may not affect other countries' procurement
decisions, policies, and practices. In addition, if defense budgets remain
constant, defense companies will compete in a limited global defense market,

8 NATO: Implications of European Integration for Allies' Defense Spending
(GAO/ NSIAD- 99- 185, June 30, 1999). 9 For more information on this
practice, see Defense Trade: U. S. Contractors Employ Diverse Activities to
Meet Offset Obligations (GAO/ NSIAD- 99- 35, Dec. 18, 1998).

thereby creating a situation where all companies may not be able to survive.

Effect of the On May 24, 2000, the administration unveiled 17 proposals to
expedite and

Administration's reform the U. S. export control system, which it
characterized as the first major post- Cold War adjustment to the U. S.
system. However, it is Export Control

uncertain what effects the proposals will have. In a press statement, the
Proposals Is Uncertain

State Department said that the proposals are intended to increase mutual
security by (1) increasing interoperability, (2) enhancing defense
capabilities, and (3) promoting transatlantic defense industrial cooperation
and competition. As with DOD's cooperation initiatives, the administration
has not demonstrated how its proposals will achieve these identified
outcomes. Further, State Department officials told us that there was no

analysis of existing problems. As a result, there is little assurance that
the underlying problems with the U. S. export control system have been
sufficiently analyzed to determine what the causes of the problems are and
that the 17 proposals will remedy problems that may exist. Appendix II
provides a description of the proposals, which are collectively known as the
Defense Trade Security Initiative.

The effects of the proposals on desired outcomes cannot be assessed until
the Departments of State and Defense issue regulations covering key
proposals and gain some experience in their implementation. Some of the
proposals call for fine- tuning regulatory procedures and practices and do
not require significant changes to implement. However, the Departments have
not agreed on the criteria or parameters for other proposals, such as
granting exemptions to certain countries and/ or foreign companies from
export licensing requirements. The U. S. government has experience with
exemptions of this nature, but according to the State Department,

problems have arisen when the regulatory exemption was misused.
Specifically, the U. S. government has long granted an export exemption
enabling many controlled defense articles to be exported to Canada without
licenses. However, the scope of that exemption was limited in

April 1999 because the State Department concluded that some companies
misunderstood the exemption and unauthorized exports occurred. 10 Under the
new country exemption proposal, the administration envisions

that the United Kingdom and Australia are the two countries most ready to
take advantage of a broad export license exemption. The administration
started discussions with the United Kingdom first. However, State

Department and U. K. government officials told us that the United Kingdom's
export system is not compatible with that of the United States in several
areas. For example, U. S. export control laws require restrictions on

other countries' ability to transfer U. S.- controlled defense articles to
third countries. In contrast, according to these officials, the United
Kingdom does not have the same restrictions. The U. S. and U. K. governments
have yet to evaluate the compatibility of their export licensing systems and
determine how enforcement concerns will be addressed. The negotiations may
lead to a binding agreement between the United States and the United

Kingdom. Once the agreement is reached, the details of the implementing
regulatory language are key to avoiding misinterpretation of the exemption
and possible abuses of the export control system.

The Departments of State and Defense also do not agree on how to implement
another key proposal to establish an interagency computer system to exchange
export license application information. Specifically, the two Departments
have not established up- front what their needs are.

DOD has allocated funds to establish an interagency database that would
include interconnectivity not only with the State Department but also with
industry, the Department of Commerce, and other federal agencies

involved in the export licensing process. In contrast, the State Department
would prefer a more limited scope whereby interconnectivity would be
established between the Departments of State and Defense utilizing

upgrades of existing systems. Many decisions have to be reached and actions
taken before the administration can implement some of its proposals. In
making such decisions, a senior State Department official told news
reporters in June 2000 that the State Department is likely to establish
strict standards for

10 On June 19, 2000, the U. S. and Canadian governments announced an
agreement to strengthen their respective export control regimes. As part of
this agreement, the Canadian government will introduce legislative and
regulatory changes to strengthen certain defense

export controls. The U. S. government, concurrent with these changes,
intends to revise its regulations to reinstate most of the pre- April 1999
Canadian exemption.

implementing the proposals, which may take time. Senior DOD officials,
however, have emphasized the importance of implementing the proposals in the
near term. In addition, the administration has to determine if it will need
to establish new monitoring or enforcement procedures to make certain that
defense articles are properly controlled once exported. While the
Departments are hiring additional staff, they will need to evaluate whether
the new resources are sufficient once the proposals are fully implemented.
Until such decisions are reached, it is uncertain how the U. S. export
control system will change.

Conclusions The administration, the U. S. defense industry, and foreign
governments have expressed a high level of concern about current
restrictions on

cross- border cooperation. This level of concern indicates that the postCold
War environment of declining defense budgets, multinational military
operations, and rapid technological changes has created the need for a
reexamination of U. S. defense trade and investment policies. Based on work
done by DOD, the administration is moving forward to implement proposals to
change the U. S. export control system. Without a clear and

common understanding of perceived versus real problems and their underlying
causes and without an appropriate analytical framework to tie changes to
desired goals, it will be difficult to anticipate the outcomes of changes
and to determine whether progress is being made. Such a situation will
likely require subsequent reexamination. Agency Comments In written comments
on a draft of this report, DOD stated that it disagreed

with our findings, which it characterized as assumptions. Specifically, DOD
said it did not develop its initiatives without first examining the
underlying causes of the problems and did not rely exclusively on the export
control examples cited in our report as support. According to DOD, many of
its

initiatives addressed problems raised by contractors and foreign
governments. In addressing these complaints, DOD said it performed extensive
analysis of the problems including the formation of a Rapid Improvement Team
to examine the export license process. DOD also stated that the effects of
the administration's export control proposals are not uncertain. According
to DOD, it has achieved procedural improvements in its own export control
process resulting in reduced license review times. DOD's comments are
reprinted in appendix III. DOD also provided some

technical comments, which we have incorporated as appropriate.

We agree that DOD relied on problems raised by contractors and foreign
government officials to identify many of its initiatives. Although
complaints are a means of identifying potential problems, they do not amount
to a

validation of the problems or an assessment of the underlying causes for
problems that may exist. As stated in our report, some initiatives were
intended to address known deficiencies such as those previously identified

in audit reports, but many were based on limited analysis of problems
identified in white papers, task force reports, and through discussions with
industry and foreign government representatives. Moreover, the Rapid
Improvement Team, which DOD established to reengineer the export control
process, relied on corporate knowledge of its participants and did not focus
on collecting and analyzing data to validate the problems they discussed.
Finally, we examined the 20 export control cases provided by DOD and found
that many did not contain information necessary to understand the situation
or were inaccurate. DOD has used these examples on many occasions to support
its initiatives, referring to them in speeches and congressional testimony.
DOD did not provide any other examples to support its position. Because DOD
has not provided additional information

to support its initiatives, we see no need to revise our report. While DOD
states that the effects of the Defense Trade Security Initiative are not
uncertain, it only provided reductions of the average license review times
as an example of a known outcome. Although DOD has implemented

initiatives to increase the timeliness of its review process, this
represents only one aspect of a broad range of changes to modify the export
control system. We acknowledge that there is value in reducing processing
time. However, concentrating on average time may obscure the reasons
associated with such time frames. As with many of DOD's initiatives, the
administration's proposals are based on limited analysis of the underlying
causes for existing problems. Therefore, there is no assurance that problems
are going to be addressed by the proposed solutions. Further,

decisions still have to be reached on how to implement proposals such as
computer system improvements and the country licensing exemption. Until
these decisions are reached, it is not possible to determine their effects.
We see no reason to revise our report based on DOD's comments. In written
comments on a draft of this report, the State Department agreed with our
assessment of DOD's export control examples and disagreed with our
characterization of the status of the computer system improvements. For
example, the State Department has indicated that it already has a

modern computer system and has been working with the defense industry to
electronically receive export license applications. While the

Departments of Defense and State have agreed in principle to a proposal to
enhance U. S. government export license computer systems, our discussions
with agency officials shows that the Departments have not agreed on the
implementation of this initiative. DOD has requested funding to create a new
interagency database to improve interconnectivity between industry; the
Departments of Defense, State, and Commerce; and other federal agencies
involved in the U. S. export control process. In contrast, the State
Department has said that the proposal is limited to enhancing

communications and data exchange connectivity between the State Department
and DOD. At the time of our review, both Departments have been working
separately with industry on prototypes for electronic license

applications, which may result in some duplication of efforts or
incompatible approaches. Therefore, we believe that the two Departments have
different goals and expectations as to how to achieve computer
interconnectivity during the export license review process. We revised our
report to clarify the different positions held by the two Departments. The

State Department's comments are reprinted in appendix IV, along with our
evaluation of them. The State Department also provided technical comments,
which we incorporated as appropriate.

Scope and To determine the analysis and data DOD used to support its
initiatives, we Methodology

compared DOD's specific initiatives with recommendations presented in audit
reports, studies, and white papers, and we evaluated the sources of
information used to support the need for the initiatives. We discussed the
extent of empirical data collected and analyses performed with key officials
from industry, DOD, and the State Department involved in the studies and the
initiatives. We examined DOD's examples of problems with the U. S. export
control system by reviewing the export licenses and

government technical assessments of the licenses and discussed the
circumstances of each case with relevant industry, DOD, and State Department
officials.

To determine the relationship between DOD's initiatives and desired
outcomes, we reviewed DOD documents on global markets and international
defense cooperation, including white papers, studies, speeches,
congressional testimony, and DOD's initiatives. We also reviewed reports on
interoperability and the European defense market to determine factors that
could affect DOD's desired outcomes. We discussed the objectives of each
initiative and the connection between the initiatives and

desired outcomes with officials from 10 offices within the Office of the
Secretary of Defense and with the Defense Threat Reduction Agency, the

Defense Intelligence Agency, the Defense Security Cooperation Agency, the
Defense Security Service, the Joint Chiefs of Staff, the military services,
and the State Department. To examine the potential outcomes of the
administration's proposals that make up the Defense Trade Security
Initiative, we reviewed position papers and other documents on the
Initiative. We discussed the Initiative and its

likely impact on the U. S. export control system with senior DOD and State
officials involved in its development.

We performed our review from January through June 2000 in accordance with
generally accepted government auditing standards. As agreed with your
offices, unless you publicly announce the contents of this report earlier,
we plan no further distribution of this report until 30 days after its issue
date. At that time, we will send copies of this letter to Representative Sam
Gejdenson, Ranking Minority Member, House International Relations Committee
and to Representative Ike Skelton, Ranking Minority Member, House Armed
Services Committee. We are also

sending copies to the Honorable William S. Cohen, Secretary of Defense; the
Honorable Madeleine K. Albright, Secretary of State; and the Honorable Jacob
J. Lew, Director, Office of Management and Budget. Copies will also be made
available to others upon request.

Please contact me on (202) 512- 4841 if you or your staff have questions
concerning this report. Another contact and key contributors to this
assignment are listed in appendix V. Katherine V. Schinasi Associate
Director Defense Acquisitions Issues

Appendi Appendi xes x I

Examples of Export Control Problems To justify the need for change to the
export control system, the Department of Defense (DOD) prepared a list of
examples of situations depicting problems with the system. Ten of these
examples, pertaining to specific export licenses, are discussed in table 2
along with our analysis. We found that several of the examples indicated
inefficiencies in the export licensing process but most contained factual
errors or did not provide information

needed to understand the reasons the situations arose.

Table 2: DOD's Export Control Examples and GAO's Analysis DOD's export
control examples GAO's analysis

1. A U. S. company waited 7 months for an export license to This example
demonstrates a problem of lengthy processing time. supply technical data to
a Dutch company that was building On September 21, 1998, a U. S company
submitted an export components for a U. S. fighter engine. DOD characterized
this license application amending an existing coproduction agreement.

example as demonstrating that the export control process is The State
Department approved the license application, valued at not suited to the
current global environment.

$20 million, on July 16, 1999. The approval process took almost 10 months
because the Department was late in determining if the Arms Export Control
Act required notice to Congress about this export. The State Department
determined that the dollar value of this amendment and the value of the
basic agreement required congressional notification. Before the Department
could notify Congress, it had to provide the license application to the Arms
Control and Disarmament Agency for review. The Agency took 3 months to
review and approve the export, thus delaying the notification process. 2. By
the time a major U. S. electronics company received a State Although the
example suggests that the U. S. company was unable Department export license
to bid on a contract to sell

to submit a bid, in fact the company bid on the contract and lost. The
electronic modules worth more than $50 million for European

French spacecraft builder awarding the contract evaluated the commercial
satellites, the foreign spacecraft builder had

competing companies using five performance categories. The turned to
suppliers in Europe and Japan. DOD used this builder rated the U. S. company
poorly in one category because it example to demonstrate that the export
licensing process perceived the U. S. export control system as possibly
disrupting takes too long.

future supply. In the remaining four categories, the U. S. company was rated
acceptable in three and outstanding in one. We do not know how the company's
rating compared with other companies competing for the contract or what the
final determining factor was in awarding the contract.

3. A U. S. company applied to the State Department for a license Processing
of the license application was delayed pending the

to send updated repair instructions for helicopter engines to results of an
investigation on the country receiving the export. The

Greece. The license took 5 months. DOD used this example U. S. company
submitted its export license application to the State to demonstrate that
the export licensing process takes too Department on December 3, 1998, and
it was approved on May 5,

long. 1999. The license application took 5 months to approve because the

State Department was delaying all munition exports to Greece in the spring
of 1999 pending the conclusion of an investigation on whether Greece
improperly transferred U. S. technology.

4. A U. S. company submitted license applications to send digital According
to State Department records, the license review process maps of Bosnia to
the Netherlands for use in Dutch Chinook took 51 days, rather than 3 months
as stated. In addition, the export CH- 47 helicopters supporting the United
Nation's license application did not indicate that the maps were intended
for peacekeeping operations. The example stated that it took

use in Kosovo. Therefore, according to a State Department official, 3 months
to process the license applications, despite the the reason cited in the
example for expediting the request- the Dutch Embassy urging the State
Department to expedite the

Kosovo situation- had no bearing on the license request. applications due to
the deteriorating situation in Kosovo. DOD used this example to demonstrate
that the export licensing process takes too long.

(Continued From Previous Page)

DOD's export control examples GAO's analysis

5. A U. S. company waited 3 months for a license to ship parts for Approval
of the license application was delayed for an unknown British engines for a
critical program for the United States.

reason. The U. S. company submitted its export license application DOD used
this example to demonstrate that the export

to ship parts for the British engines for the Joint Strike Fighter licensing
process takes too long. Program on November 6, 1997. The State Department
then referred the application to DOD for review. However, there was a
discrepancy in the two Departments' records as to when DOD completed its

review. DOD's records showed that it completed its review on December 22,
1997, but the State Department's records indicated that DOD completed its
review on February 6, 1998. According to the Director of the State
Department export licensing office, the State Department accesses the DOD
computer licensing system every night to obtain DOD's final position on all
export licenses for

that day. However, this case, for some unknown reason, was not retrieved. As
a result, the State Department did not approve the export license until
February 11, 1998. The license would have been issued in 1-ï¿½ months rather
than 3 months had the case been retrieved on the day that DOD completed its
review. This example demonstrates inefficiencies in the export licensing
review process.

6. A U. S. company license request to sell Air- Sea Rescue Flares The
company's initial application was returned on January 14, 1999, to the
Italian Coast Guard to rescue North Atlantic Treaty because of missing
information needed for the license review Organization airmen during the
Kosovo crisis was turned process. The company resubmitted its application on
February 1, down because the licensing officer did not think the

1999, and the license was approved on April 13, 1999. The export application
had enough detail. The flares had already been license application stated
that the flares were to be used for the approved for sale to 30 countries,
and the export to Italy was

certification and operational testing of the launcher for the ATR- 42
eventually approved. DOD used this example to demonstrate

aircraft; the application did not associate this export with the Kosovo that
the export control process does not reflect the real world crisis. In
addition, the application referred to a prior export of the situation.

item about 8 years ago for which the State Department no longer has a
record, but it did not indicate that the item had been approved for sale to
30 countries. According to the Director of the State Department export
licensing office, such information is needed to facilitate the review of an
export license application. The Department

of Defense took almost 7 weeks to review this case because it had a backlog
of export licensing cases and this license application did not identify an
urgent requirement for turnaround, according to a DOD official.

(Continued From Previous Page)

DOD's export control examples GAO's analysis

7. A U. S. company applied for an export license to ship modules A pending
determination of whether this export license application containing focal
plane arrays (a type of optical sensor) to falls under the jurisdiction of
the Department of Commerce or State Sweden. These modules were to be
incorporated into Department delayed this case. At the time the U. S.
company

cameras for civilian use by factories, power plants, and similar submitted
its export application, the U. S. government was

customers. For 4 years, the company applied for and obtained determining
whether the type of modules were to be controlled as a 6 export licenses
from the Department of Commerce dual- use item by the Department of Commerce
or as a munition authorizing the export of 1,000 modules. (The Department of

item by the State Department. DOD officials believed that these Commerce is
responsible for reviewing and approving exports modules were a munitions
item and, consequently, advised the that have both civilian and military
applications.) In November Department of Commerce to return the export
application to the 1998, the U. S. company submitted another application to
the company and direct the company to submit its application to the

Department of Commerce to export 200 modules. In January State Department.
Subsequently in April 1999, the State 1999, the Department of Defense, which
was reviewing the Department determined that the modules should be
controlled as a

license at the request of the Department of Commerce, asked munitions item.
the company for additional information. The company promptly submitted the
requested information but received no reply from DOD. On May 12, 1999, the
company's export application was returned without action but included
instructions to apply for an export license at the State Department. DOD
used this example to demonstrate that the

export control process does not reflect the real world situation. 8. A U. S.
company bid on a contract to sell gear knobs for use in

The approved export license did not contain the restrictions cited in a
commercial airliner to a manufacturer in a North Atlantic DOD's example. The
U. S. company's initial export application was Treaty Organization country.
The U. S. company has had a submitted on January 12, 1999, and was returned
on January 22, license pending for months despite the fact that the knobs
are 1999, because it lacked sufficient documentation for information in
widespread commercial use. At the critical design review, needed during the
licensing review process, such as specification of the company was told that
the knobs had to be covered by a the end user and end- use of the export.
The U. S. company

shroud so the visiting foreign contractors could not see the resubmitted its
application on March 11, 1999, and the license was

product to be installed in their aircraft. DOD used this example issued on
July 13, 1999. The approved license did not contain any to demonstrate that
the export control process does not reflect restriction on shrouding the
knob during the critical design review. the real world situation.

The company is required to abide only by those restrictions stated on the
approved license.

(Continued From Previous Page)

DOD's export control examples GAO's analysis

9. In September 1999, a U. S. company was preparing the GE- 4 The U. S.
company did not use options available to it for export commercial satellite
for launch in French Guiana scheduled for

components with high failure rates. The U. S. company submitted its late
November. During final checkout prior to shipment, a

initial application on May 25, 1999, which the State Department failure
occurred with one of the traveling wave tubes made by received on June 3,
1999. The export license application was for a German company. To determine
the cause of the tube's 400 traveling wave tubes destined for France,
Germany, and Japan. failure and remove the technical lien from the
spacecraft, the A State Department licensing officer called the U. S.
company to U. S. company submitted a license for the traveling wave tube
discuss the case. Subsequently on July 19, 1999, the State

to the State Department on June 2, 1999. The State Department returned the
application and asked the U. S. company to Department rejected the license
application as being too submit a new license application with additional
information and

broad. The tube had to be licensed for reexport to the clarifications. The
U. S. company resubmitted its application on company in Germany for repair
and/ or replacement before the September 13, 1999, for two traveling wave
tubes destined for satellite could be retested with the repaired tubes. The
license Germany with an urgent requirement to approve by September 23,
application was resubmitted on September 15, 1999, to the 1999, in support
of GE- 4 satellite. The application was approved on State Department. It was
approved on October 6, 1999

October 6, 1999. The Director of the State Department export (21 days
later). The license processing time almost caused a licensing office stated
that the U. S. company should have used the shipping delay for the repaired
satellite and thus was close to temporary licenses available under the
export regulations, which are causing a launch slip and, consequently, steep
financial commonly used by other companies. penalties for the company. Since
the company already had authority to buy and install this commercial
satellite

component, company officials thought it seemed excessive to get an
additional license for this activity. DOD used this example to demonstrate
that the export control process does not reflect the real world situation.
10. In October 1998, a U. S. company submitted a license

The U. S. company submitted its initial application on November 3,
application to the State Department to enable it to compete on 1998. The
State Department returned the application on March 29, the United Kingdom's
Future Strategic Tanker Aircraft project. 1999, because it was concerned
that commercial entities were The company's intent was to compete its
aircraft as a possible

involved as end- users in the case. Specifically, the tanker aircraft
candidate to replace the United Kingdom's aging fleet of VC10 were to be
owned and operated by commercial entities as cargo and TriStar aircraft. The
company had also received notice planes and leased to the United Kingdom
part- time as strategic that a European company would be proposing its
aircraft in tankers- an unusual arrangement raising licensing policy
questions. the competition. Because it had not received any feedback The
State Department licensing officer informed the U. S. company from the U. S.
government, the U. S. company resubmitted its

about its concerns and asked the company to submit a new export license
application in April 1999. Both the Departments application and include more
details about the roles of the of State and Defense delayed the license
approval, preventing commercial entities in the project. The U. S. company
resubmitted its the U. S. company from participating in the U. K.
competition

application on May 5, 1999. After discussing its concerns with until
significant high- level intervention brought this case to officials of the
Embassy of the United Kingdom in Washington, the light. DOD used this
example to demonstrate that the export

State Department approved the license application with conditions control
process does not reflect the real world situation. on August 16, 1999. The
Director of the State Department export licensing office stated that DOD,
unlike the State Department, was

not concerned about the commercial entities and approved the case in 3 weeks
without placing any conditions or restrictions on the expor t.

Appendi x II

The Defense Trade Security Initiative In May 2000, the administration agreed
to these 17 proposals as part of its Defense Trade Security Initiative. 1.
Major Program License: Create a single comprehensive export license for
hardware, technical data, and defense services issued at the beginning of a
project where the U. S. firm is the prime contractor.

2. Major Project License: Create a single comprehensive license for a direct
commercial sale of defense articles by a U. S. prime contractor to North
Atlantic Treaty Organization member states, Japan, and Australia. 3. Global
Project License: Create a single comprehensive license to cover all exports
occurring under a government- to- government international agreement for a
cooperative project.

4. Technical Data Exports for Acquisitions, Teaming Arrangements, Mergers,
Joint Ventures, and Similar Arrangements: Develop a single comprehensive
export authorization to permit qualified U. S. defense companies to exchange
broad ranging technical data for a variety of

business arrangements with qualified foreign firms from North Atlantic
Treaty Organization members, Japan, or Australia. 5. Enhance the Use of
Multiple Destination Licenses: Increase the use of an existing license to
permit U. S. firms to market specific products to designated users for a
specified purpose.

6. Enhance the Use of Overseas Warehousing Agreements: Increase the use of
overseas warehousing and distribution agreements that permit U. S. firms to
export large numbers of items (such as spare parts) to a foreign company.

7. Expedited License Review for North Atlantic Treaty Organization Allies:
Expedite U. S. government review of export licenses for Defense Capabilities
Initiative projects or programs.

8. Special Embassy Licensing Program: Expedite U. S. government review of
licenses submitted by the governments of the North Atlantic Treaty
Organization countries, Japan, and Australia via their embassies in
Washington, D. C., for end use by the requesting government.

9. Interagency Export License Electronic Control Process: Enhance computer
connectivity between the Departments of Defense and State to

permit greater and more timely exchange of data on export license
applications.

10. Extension of International Traffic in Arms Regulations Exemption to
Qualified Countries: Extend a licensing exemption to countries that share
with the United States congruent and reciprocal policies in export controls,
industrial security, intelligence, law enforcement, and market access. This

exemption would be limited to unclassified exports to a foreign government
and companies that are identified as reliable by the U. S. government in
consultation with the foreign government.

11. Defense Services Exemptions for Maintenance and Related Training: Create
a new regulatory exemption for increased levels of maintenance services and
training for North Atlantic Treaty Organization countries, Japan, and
Australia.

12. Exemption for Department of Defense Bid Proposals: Permit U. S. firms to
export certain technical data and services in support of DOD bid proposals
without a license.

13. More Effective Use of Existing International Traffic in Arms Regulations
Exemptions by the Department of Defense: Clarify the Department's use of
existing regulatory exemptions that are available to it. 14. Streamlined
Licensing for Commercial Satellite Components and Technical Data: Streamline
the licensing process for parts and minor components and limited technical
data needed to bid on projects and

respond to insurance requests on commercial satellites. 15. International
Traffic in Arms Regulations Exemption for Foreign Military Sales Defense
Services: Permit the license- free export of technical data and defense
services if they are expressly authorized in a Foreign Military Sales
agreement and in the associated contract with a U. S. company.

16. Advance Retransfer Consent for Items Sold or Granted by the U. S.
Government: Permit the retransfer of unclassified defense articles (valued
under $7 million) previously sold or granted by the U. S. government if the
articles are to be transferred only between the governments of North
Atlantic Treaty Organization countries, Japan, or Australia that signed
advance blanket retransfer assurances.

17. Review and Revise the U. S. Munitions List of Controlled Defense
Articles and Services: Establish a process for reviewing portions of the U.
S. Munitions List on an annual basis so that the entire list is reviewed
over a 4- year period.

Appendi x II I Comments From the Department of Defense

Appendi x V I Comments From the Department of State Note: GAO comments
supplementing those in the report text appear at the end of this appendix.

Now on p. 4. See comment 1. Now on pp. 9- 10. See comment 2.

Now on pp. 10- 12 and appenndix I.

Now on p. 16.

The following are GAO's comments on the State Department's letter dated
August 9, 2000.

GAO Comments 1. We have modified the text of the report to address this
comment. 2. The law states that the State Department should provide the
Senate Foreign Relations Committee and the House International Relations

Committee with a study examining the munitions licensing process, including
the time it takes to review various licenses. The State Department
recognizes that it is expected to perform such a study, but it did not meet
the statutory time frame because of other commitments. As we stated in the
report, this study may contribute to an

understanding of the reasons for various processing times. We encourage the
State Department to fulfill its intentions of providing the congressional
committees with this study.

Appendi x V

GAO Contacts and Staff Acknowledgments GAO Contact Thomas J. Denomme (202)
512- 4287 Acknowledgments In addition to the name above, Anne- Marie
Lasowski, Marion Gatling, Lillian I. Slodkowski, John Ting, and John Van
Schaik also made significant contributions to this report.

(707524) Lett er

GAO United States General Accounting Office

Page 1 GAO/ NSIAD- 00- 191 Defense Trade

Contents

Page 2 GAO/ NSIAD- 00- 191 Defense Trade

Page 3 GAO/ NSIAD- 00- 191 Defense Trade United States General Accounting
Office

Washington, D. C. 20548 Page 3 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 4 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 5 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 6 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 7 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 8 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 9 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 10 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 11 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 12 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 13 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 14 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 15 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 16 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 17 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 18 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 19 GAO/ NSIAD- 00- 191 Defense Trade

B- 285761 Page 20 GAO/ NSIAD- 00- 191 Defense Trade

Page 21 GAO/ NSIAD- 00- 191 Defense Trade

Page 22 GAO/ NSIAD- 00- 191 Defense Trade

Appendix I

Appendix I Examples of Export Control Problems

Page 23 GAO/ NSIAD- 00- 191 Defense Trade

Appendix I Examples of Export Control Problems

Page 24 GAO/ NSIAD- 00- 191 Defense Trade

Appendix I Examples of Export Control Problems

Page 25 GAO/ NSIAD- 00- 191 Defense Trade

Appendix I Examples of Export Control Problems

Page 26 GAO/ NSIAD- 00- 191 Defense Trade

Page 27 GAO/ NSIAD- 00- 191 Defense Trade

Appendix II

Appendix II The Defense Trade Security Initiative

Page 28 GAO/ NSIAD- 00- 191 Defense Trade

Appendix II The Defense Trade Security Initiative

Page 29 GAO/ NSIAD- 00- 191 Defense Trade

Page 30 GAO/ NSIAD- 00- 191 Defense Trade

Appendix III

Page 31 GAO/ NSIAD- 00- 191 Defense Trade

Appendix IV

Appendix IV Comments From the Department of State

Page 32 GAO/ NSIAD- 00- 191 Defense Trade

Appendix IV Comments From the Department of State

Page 33 GAO/ NSIAD- 00- 191 Defense Trade

Appendix IV Comments From the Department of State

Page 34 GAO/ NSIAD- 00- 191 Defense Trade

Appendix IV Comments From the Department of State

Page 35 GAO/ NSIAD- 00- 191 Defense Trade

Page 36 GAO/ NSIAD- 00- 191 Defense Trade

Appendix V

Ordering Information The first copy of each GAO report is free. Additional
copies of reports are $2 each. A check or money order should be made out to

the Superintendent of Documents. VISA and MasterCard credit cards are
accepted, also. Orders for 100 or more copies to be mailed to a single
address are discounted 25 percent.

Orders by mail: U. S. General Accounting Office P. O. Box 37050 Washington,
DC 20013

Orders by visiting: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW)
U. S. General Accounting Office Washington, DC

Orders by phone: (202) 512- 6000 fax: (202) 512- 6061 TDD (202) 512- 2537

Each day, GAO issues a list of newly available reports and testimony. To
receive facsimile copies of the daily list or any list from the past 30
days, please call (202) 512- 6000 using a touchtone phone. A recorded menu
will provide information on how to obtain these lists.

Orders by Internet: For information on how to access GAO reports on the
Internet, send an e- mail message with “info” in the body to:
info@ www. gao. gov or visit GAO's World Wide Web home page at: http:// www.
gao. gov

To Report Fraud, Waste, or Abuse in Federal Programs

Contact one: Web site: http:// www. gao. gov/ fraudnet/ fraudnet. htm e-
mail: fraudnet@ gao. gov 1- 800- 424- 5454 (automated answering system)

United States General Accounting Office Washington, D. C. 20548- 0001

Official Business Penalty for Private Use $300

Address Correction Requested Bulk Rate

Postage & Fees Paid GAO Permit No. GI00
*** End of document. ***