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

    TITLE:     DEFENSE TRADE Analysis of Support for Recent Initiatives

    DATE:   08/31/2000

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    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-� 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

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    Contents

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    Appendix I

    Appendix I Examples of Export Control Problems

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    Appendix I Examples of Export Control Problems

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    Appendix I Examples of Export Control Problems

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    Appendix I Examples of Export Control Problems

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    Appendix II

    Appendix II The Defense Trade Security Initiative

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    Appendix II The Defense Trade Security Initiative

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    Appendix III

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    Appendix IV

    Appendix IV Comments From the Department of State

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    Appendix IV Comments From the Department of State

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    Appendix IV Comments From the Department of State

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    Appendix IV Comments From the Department of State

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    Appendix V

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