Modernizing Export Controls for Coalition Interoperability Presentation to ComDef 2009 Washington D.C. Jennifer Stewart, Ph.D. Director General of Defence Procurement, Canadian Embassy and Chairman of the Foreign Procurement Group (jennifer.stewart@pwgsc.gc.ca); 202 682-7604

Topics Issues with U.S. export controls for defense items and technology From the perspective of the international community From a Canadian perspective Canada-U.S. export controls cooperation and defense industry integration Progress in modernizing export controls since 2006 Success stories and solutions

Issues with U.S. export controls From the perspective of the international defense materiel community, main issues are with the International Traffic in Arms Regulations (ITAR) Foreign Military Sales retransfers Two international defense materiel networks Defense MOU Attachés Group Foreign Procurement Group

About the international defense materiel networks Defense MOU Attachés Group (DMAG) 21 U.S. allies with reciprocal defense procurement Memorandum of Understanding (MOUs) with the U.S. Department of Defense facilitating bilateral defense trade cooperation Foreign Procurement Group (FPG) 33 countries who purchase from the U.S. government via the Security Assistance program and/or buy commercially from U.S. suppliers

ITAR issues U.S. regime was designed for the Cold War “Tightened” requirements since 9/11 Have led to increased paperwork, processing time and costs Resulting impacts on budgets and schedules of allies’ defense programs Wastes scarce resources – in the end 99% of all submissions are approved Reduces capability of key allies by restricting access to best U.S. technology Impedes interoperability

ITAR issues (cont’d) Treatment of “dual nationals” conflicts with many countries’ human rights legislation “Reach” of ITAR into products and technology of other counties Hurts U.S. industry by motivating foreign countries and companies to avoid American systems and components U.S. may be denying itself valuable technology from its partners when overseas contractors avoid information transfer with their U.S. primes due to ITAR hurdles

Foreign Military Sales retransfers Approval from the Department of State is not required for the initial government-to-government purchase Contained in the Letter of Offer and Acceptance (LOA) Disclosure/releasibility determinations, Congressional notification (as required) precede LOA

End use assurance in LOA “The Purchaser will not transfer title to, or possession of, the defense articles, components and associated support materiel, related training or other defense services (including plans, specifications, or information), or technology furnished under this LOA to anyone who is not an officer, employee, or agent of the Purchaser (excluding transportation agencies)… unless the written consent of the USG has been obtained.” (LOA standard terms and conditions, Section 2.3.)

Definition of “agent” In early 2000s, the international community believed that this definition could include certain contractors. In 2004, the Department of State’s Office of Regional Security and Arms Transfers clarified that “agent” is a transportation agent – i.e., freight forwarder – only and that retransfer approval is required for sharing with any other third party

Definition of agent (cont’d) Many countries recognized that they may have disseminated FMS data and materiel without seeking the requisite approval The Foreign Procurement Group (FPG) argued that the current definition impedes military programs, which require a combined effort by governments and their contingent workforces of contractors Made a proposal for redefinition of agent one of their top 10 priorities

Canadian perspective Export controls cooperation with U.S. Integration of defense industrial bases Issues with U.S. export controls

Canadian export controls cooperation with U.S. Canada is the only country with an “exemption” under ITAR (Section 126.5) Covers goods of less concern only, and not technical data Canada has in place measures to control U.S. goods transiting Canada Since 2001, Canada has: Harmonized our Export Control List with the U.S. Munitions List Put in place a Controlled Goods Program for Canadian industry Required re-export authorization before U.S. goods in Canada can be exported to a third country

Integration of Canadian and U.S. defense trade and industries Canada First Defence Strategy $395 billion total investment to modernize the Canadian military and enhance the role of the Canadian forces as a partner in global security operations Significant share of Canada First procurements will go to U.S. companies and their Canadian subsidiaries Over 600 formal agreements between the two countries covering all aspects of North American defense and security Unique relationship underpinned by a highly integrated North American defense industrial base Recognized in U.S. law and regulations

Canadian issues with U.S. export controls Processing times Conflict between dual national provisions and Canadian human rights legislation

Processing times A few years ago the major complaint of Canadian companies Through efforts of State and a 2008 Presidential Directive, timeframes for licenses and agreements greatly reduced Cases over 60 days require review by a Deputy Assistant Secretary of State Accelerated processing for cases associated with coalition operations (e.g., Operation Enduring Freedom)

Processing times (cont’d) Average processing time has continued to decline since June 2007, when many internal changes were implemented In response to a GAO report to the House Committee on Foreign Affairs (November 2007), State noted that for cases that require referral to other agencies, the average timeframe is 39 days, and 24 days for cases that do not require referral

Dual national issue ITAR precludes exports to nationals of U.S. proscribed countries (ITAR 126.1) Under current practice, this includes Canadians born in those countries Application of ITAR requires discrimination based on country of origin Poses a dilemma of complying with ITAR, or facing challenges from employees on human rights grounds

Initiatives to modernize U.S. export controls Proposals of the Coalition for Security and Competitiveness announced in March 2007 Over 20 studies by the Administration, think thanks and academia Amended dual national provision in the ITAR (section 124.16) December 2007 Provisions for defense trade controls improvement were included in a number of House bills in 2007 and 2008 – but the bills were not passed into law

Initiatives to modernize U.S. export controls (cont’d) However, a number of the Coalition and Congressional recommendations were picked up and mandated in a 2008 Presidential Directive HR 2410, the 2009 Foreign Relations Act includes as Title VIII a Defense Trade Controls Performance Improvement Act August 2009 - President orders inter-agency review to overhaul system, spearheaded by Secretary of Defense, supported by National Security Advisor, Undersecretary of State for Arms Control and International Security

Input from international networks The DMAG and FPG developed a number of presentations and white papers as input to these initiatives, including Towards an Integrated International Export Controls Regime Examples of issues with U.S. Export Controls A paper of proposals on the 2009 Defense Trade Controls Performance Improvement Act Some of these proposals were included in the House Foreign Affairs Committee Report directive that accompanied HR 2410

Other success stories A breakthrough on FMS third party transfers A possible solution to the dual national conflict

A breakthrough on FMS retransfers In May 2007, State briefed the FPG on a proposed redefinition of agent and associated streamlined third party transfer process to include a country’s registered, in house contractors In April 2009, they notified the international networks that the proposal had been approved by State Legal Counsel Briefings given to the FPG and DMAG Plans and procedures being developed for the new process to be operational by September 2009

Towards solving the dual national conflict Exchanges of letters with Canada (2007) and the Netherlands (2008) on a solution based on nationality in the context of security Access for citizens with Secret clearance, need to know -dual nationality/country of birth not called out Government defense and national security employees only Canadian embedded contractors also included, but no other industry personnel Allowed initial Canada First defence procurements to proceed

Redefining foreign national U.S. government has three definitions Commerce, State (DDTC and RSAT) In March 2009, State asked the National Security Council to review these definitions and, if possible, recommend a consistent definition based on citizenship, rather than place of birth Potential to resolve most, if not all, of the international community’s dual national conflict

In summary Challenges remain, but progress has been made Export control modernization/improvement on the radar screen Myths persist and success stories perhaps not widely known Greater international involvement and cooperation would add value to the way forward

Back-up slides Initiatives to modernize U.S. export controls

Initiatives to modernize export controls Proposals for export control modernization by the Coalition for Security and Competitiveness Congressional Export Controls Working Group Defense Trade Treaties for the UK and Australia “Defense Trade Controls Performance Improvement Act of 2007” - HR 4246 (introduced in the House in Nov 07) Department of State amended the ITAR effective 19 Dec 2007, to remove the requirement for dual and third country nationals of NATO/EU, plus 4 countries, to sign non-disclosure agreements in retransfers authorized under Technical Assistance Agreements and Manufacturing License Agreements

Initiatives to modernize export controls (cont’d) Security Assistance and Arms Export Control Reform Act - HR 5916 (passed by the House in May 2008) Presidential Export Controls Directive – January 21, 2008 Integrated Process Team within DoD; 2008 Defense Business Board Task Group on Best Practices in Export Controls Several GAO reports and recommendations Studies by CSIS, Heritage Foundation, NATO Industrial Advisory Group, National Academy of Sciences, and others

Initiatives to modernize export controls (cont’d) White papers and briefs by the DMAG and FPG Towards an Integrated International Export Controls Regime Problems and Impacts: U.S. Export Controls FMS Third party transfers Greater use of ITAR exemptions 2005 Global Defense Cooperation and Trade Conference and series of Roundtables on Capitol Hill (with CSIS and Jane’s Advisory Services)

Initiatives to modernize export controls (cont’d) Title VIII of HR 2410: Foreign Relations Act (passed by House in June 2009) incorporates export control modernization provisions from previous legislation (HR 4246, 5916) August 2009 - President orders inter-agency review to overhaul system, spearheaded by Secretary of Defense, supported by National Security Advisor, Undersecretary of State for Arms Control and International Security

2009 Defense Trade Controls Performance Improvement Act Directs the President to perform a strategic review and assessment of the U.S. export controls system Provides for specified performance requirements for ITAR license applications Ensures that the Directorate of Defense Trade Controls has the necessary staff and resources Calls for a review the International Traffic in Arms Regulations and the United States Munitions List to determine those technologies and goods that warrant different or additional controls

Defense Trade Controls Performance Improvement Act (cont’d) Provides for special licensing authorization, under specified conditions, for exports of spare and replacement parts or components of defense items NATO member states, Australia, Japan, Israel, South Korea, and New Zealand Authorizes the President to remove satellites and related components from the United States Munitions List, except for any satellite or related component that may be transferred to, or launched into outer space by, the PRC