1. Jennifer Stewart, Ph.D Director General, Defence Procurement, Canadian Embassy and Chairman of the Foreign Procurement Group 1 Munitions Industrial Base Task Force International Sales Committee Meeting 19 August 2010 International Customer Perspectives

2. 22  Overall customer perspectives  The international networks and their priorities  Successes and future challenges Topics

3. 33 “The good”  Department of Defense and industry associations’ support of global defense cooperation and trade  Accelerated process for coalition requirements  Partnership and progress in FMS improvements  The Administration's Export Control reform initiative Overall Perspectives

4. 44 “The bad and the ugly”  Protectionist thinking and “Buy American” legislation  The “unintended consequences” of U.S. export controls, in particular the International Traffic in Arms Regulations (ITAR) Overall Perspectives

5. 5 Navy ILCO, PA Major FMS Customers MoU/DoP Countries Defense MoU Attachés’ Group Foreign Procurement Group International Customers’ User Group The International Customer Environment

6. 66 Defense MOU Attachés Group  21 countries with reciprocal defense procurement agreements with the US  Founded in 1986  “Parent” of the Foreign Procurement Group

7. 77 DMAG Member Nations France Germany Greece Israel Italy Luxemburg Netherlands Australia Austria Belgium Canada Denmark Egypt Finland Norway Portugal Spain Sweden Switzerland Turkey United Kingdom

8. 88 DMAG Priorities  Advocacy against protectionist thinking and legislation  “Buy American” provisions in defense legislation since 2004 – removed or mitigated  Identifying and suggesting solutions to problems with U.S. export controls  Significant reductions in processing times for licenses since 2007  Other improvements within the existing ITAR regime

9. 99 The Foreign Procurement Group  Washington DC-based group of countries that participate in Security Assistance and/or buy from U.S. suppliers  Mix of uniformed & civilian Defense Cooperation/Logistics/Procurement officials  Founded Feb 1999 as a result of ‘FMS Reinvention’ (‘Hamre’ Memo 1999)  Provides the international customer viewpoint to FMS re-engineering and reform

10. 10 FPG Member Nations 1999 - 17 members 2009 - 33 members Argentina Australia Austria Belgium Brazil Canada Chile Denmark Egypt Finland France Germany Greece Indonesia Israel Italy Japan Korea Netherlands New Zealand Norway Pakistan Peru Poland Portugal Saudi Arabia Singapore Spain Sweden Switzerland Taiwan Turkey UK

11. 11  The Defense MOU Attachés Group and the Foreign Procurement Group have developed a number of presentations and white papers as input to initiatives to promote international defense trade and modernize export controls  These include:  Conference on Myths and Facts of Global Defense Trade and Cooperation – co-organized with CSIS (April 2005) Work of the International Networks

12. 12  Briefings to Departments of Defense and State, Government Accountability Office, National Security Council, Defense Industry Associations, Heritage Foundation, etc.  Greater use of ITAR exemptions (2006)  Redefining “agent” for FMS Retransfers (2006)  An Integrated International Export Controls Regime (Sept 2009)  Examples of allies’ issues with U.S. Export Controls (August 2009, July 2010)  A paper of proposals on the 2009 Defense Trade Controls Performance Improvement Act (June 2009) Work of the International Networks (cont’d)

13. 13  Exchanges with AIA on the Coalition’s export control reform proposals (starting in 2006)  Participated in the Center for Strategic and International Studies’ 2007 Export Control Project and the Defense Business Board’s 2008 Task Group on Best Practices for Export Controls  Provided input to the National Academies of Science 2009 study of export controls: “Beyond Fortress America”  Applied for membership for the DMAG and FPG Chairs in the Defense Trade Advisory Group (2010-12 term) Input from the International Networks (cont’d)

14. 14 Partnership in FMS Improvements  A decade of cooperation on FMS reform  DSCA’s active invitation to participate in FMS reengineering (1999) and transformation (2003) initiatives  DSCA Policy Memo on Enhancing Partnership through Team International (July 2001)  Policy guidance by Deputy Secretary of Defense on customer involvement in LOA process (January 2002); DFARS rule change (November 2002)

15. 15  Security Cooperation Business Forum (SCBF)  FPG proposals for improvements to DSCA metrics (March 2003) and SCBF response  Issues of importance to the FMS Customer (December 2004) and DSCA/Services’ response  DISAM Curriculum Reviews  FPG guest lecturers at selected DISAM courses Partnership in FMS Improvements (cont’d)

16. 16  International Customer Symposium (Oct. 2004)  Annual FMS Case Closure and Reconciliation Conferences (2002-06)  Stakeholder/sounding board in the major culture change associated with the changes to the Administrative Surcharge and related initiatives Partnership in FMS Improvements (cont’d)

17. 17 Many Successes  Increased transparency and customer participation  Resolution of transportation issues  Resolution of case closure problems  Progress on FMS as a commercial alternative  Redefinition of what constitutes an agent in FMS third party transfers (well, almost…)  Proposed new regulation for treatment of dual nationals (ITAR 126.18), posted for comment 11 August 2010

18. 18 Many Successes (cont’d)  New regulations being drafted:  ITAR 123.28, exemption for the export of components and spare parts in support of previously exported US origin items, and  ITAR 120.9, narrowed definition of defense service

19. 19 Future Challenges  “Top 10” priority list with DSCA and the Services  Ensuring customer access to critical security cooperation tools and information  Ensuring international input and participation in export control reform

20. 20 FPG Top 10 Priorities 1.Standard Level of Service 2.Access to DoD websites 3.Transportation 4.Processing Times 5.Third Party Transfers 6.Blanket Authorizations  DSCA/MILDEPs  DSCA/DoD CIO  DSCA/Customs/Dept of Transportation/State  DSCA/MILDEPs/FPG Metrics WG  State (5 and 6) Stakeholders Priority

21. 21 7.FMS as a commercial alternative/quantify and define the value- added of FMS 8.Country specific cost and schedule performance measures 9.Access to contracting documentation 10.Improvements to delivery listings  Foreign Commercial Procurement WG  DSCA/MILDEPs/FPG Metrics WG  DSCA/DPAP  DSCA Priority Stakeholders FPG Top 10 Priorities

22. 22 1. Standard Level of Service  Consistent application by all Military Departments (MILDEPS)  Continued transparency and customer access to reports and information  Adequate provision for Program Management Reviews for larger, more complex cases and an annual financial or case reconciliation review of a country’s total active cases  Small Case Management Line fee should be waived when USG says “no” to a country’s proposed consolidation

23. 23 2. Access to Department of Defense Websites  A December 2009 directive by the DoD CIO, on Public Key Infrastructure (PKI) implementation, required that individuals have DoD approved certificate based authentication for access to sensitive DoD websites. This has resulted in some FMS customers being blocked from sites containing critical military information  Taken to its logical conclusion, this directive would preclude the use of the Security Cooperation Information Portal (SCIP)

24. 24 2. Access to DoD Websites (cont’d)  SCIP was developed in close cooperation with the customer community, with the expectation that the USG would provide uninterrupted access. It is the principal route for obtaining reports and information on case execution and management needed to manage, track and reconcile all FMS purchases and hence critical to the continued transparency of the FMS program and SLS objectives  DSCA is working with the FPG on workarounds and with DoD CIO to amend the policy on website access and protocols

25. 25 3. Transportation  Need for formal guidance in the Security Assistance Management Manual on documents required for repair and returns, upgrades and modifications and classified shipments  Need for clarification on the process and policy for movement of hazardous material and the Department of Transportation’s requirement for an explosive item to have a Competent Authority Approval (EX number) before it can be moved into or within the U.S.  Issue of incorrect documentation/packaging for movement of hazardous stores purchased via FMS

26. 26 4. Processing Times  Except for Operation Iraqi Freedom and Operation Enduring Freedom requirements and requirements from smaller agencies (NGA, NSA), the target of 120 days from LOR to LOA 80% of the time is often not being met  Important to have a reliable estimate to manage expectations of our capitals - but the solution should not be a longer timeframe

27. 27 4. Processing Times (cont’d)  Issue front and center at the Security Cooperation Business Forum (LOA milestones, concept of an Anticipated Offer Date)  Metrics Working Group developing recommendations, including steps that the customer can take to reduce delays

28. 28 Reality of outsourcing needs to be better addressed in FMS agreements  Existing FMS case terms provide rights to transfer and use intellectual property and materiel to customer government and/or its agents 5. Third Party Transfers

29. 29  Agents are freight forwarders only. Contractors are not considered as agents  Given increased reliance on outsourcing – government employees working with a contingent workforce of contractors – the FPG has been advocating since 2004 to change the FMS definition of agent to include licensed, in-country contractors 5. Third Party Transfers (cont’d)

30. 30 5. Third Party Transfers (cont’d)  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 – new process to be operational by September 2009

31. 31 6. Blanket Export Authorizations  Defined as: pre-clearing of nations, or communities of US military system users, for certain categories of requirements, or securing "blanket" export authorization for lower risk defense articles  Would streamline the procurement process and speed up approvals, particularly for urgent operational requirements

32. 32  Examples:  Broadened existing blanket end-use and retransfer assurances to provide for transfers among user communities of US military systems – suggested by Belgium  A blanket case waiver for certain routine, in service munitions requirements - suggested by New Zealand  Blanket export authorization for CF-18 system support and munitions - suggested by Canada; could also be applied to other US military systems 6. Blanket Authorizations (cont’d)

33. 33  A provision in the “Defense Trade Controls Performance Improvement Act of 2007” - HR 4246 (introduced into the House 15 Nov 07, but never passed) would have allowed U.S. manufacturers to export spare and replacement parts without a license to the governments of NATO allies, Australia, New Zealand and Japan, for defense articles that were previously lawfully exported 6. Blanket Authorizations (cont’d)

34. 34 6. Blanket Authorizations (cont’d)  “If the Departments of State and Defense have approved the export of a major defense article to one of our closest allies, why are we requiring licenses for nuts, bolts and brackets to keep these items working?”  Representative Don Manzullo (R-IL), Chairman of the Congressional Export Controls Working Group and one of the bill’s sponsors

35. 35 7.1. FMS as a Commercial Alternative  Major issue = how to level playing field so an FMS proposal can compete with a direct commercial sales proposal  How to provide for firm delivery dates, fixed prices and performance guarantees, when required by a country's competitive procurement regime  These are not included in the FMS framework

36. 36  Past solutions involve approval for a waiver or a hybrid (part DCS, part FMS), where the contractor "underwrites" FMS  The Foreign Commercial Procurement Group will take on this issue, determine methodologies for comparing/competing FMS and DCS alternatives and report back to the FPG and DSCA 7.1. FMS as a Commercial Alternative (cont’d)

37. 37 7.2. Quantify and Define the Value-added of FMS  This is part of the business case for comparing DCS and FMS  DSCA has provided a paper on benefits of using the FMS process in general terms  Need specifics related to individual cases for a true DCS/FMS business case analysis  Will be studied by the FCPWG and a more specific list of requirements presented to the FPG and DSCA

38. 38 8. Country Specific Cost and Schedule Performance  At the Security Cooperation Business Forum, members are briefed on cost and schedule performance at an aggregate level  Need to have this data at a country specific level – at least for major FMS cases – to be able to report on whether a case is:  Tracking to budget  Reflecting a financial overrun of >5% of case value

39. 39  Reflecting a financial underage of >5% of case value  Meeting the agreed (LOA) schedule  Reflecting a schedule slip of >3 months  Major hurdle to overcome  Required information must be collected manually 8. Cost and Schedule Performance (cont’d)

40. 40 9. Access to Contracting Documentation  Need to gain better insight into the final form of the contract between the U.S. government and a vendor, in the context of an FMS case  This is to enable the purchaser to understand the performance obligations of the vendor, in areas such as warranty provisions, transportation clauses and price sensitivities in support contracts

41. 41 9. Access to Contracting Documentation (cont’d)  Requirement for assurance that the DoD contracting officer will enforce the same performance on behalf of the FMS customer as they would do for a DoD purchase

42. 42 10. Improvements in Delivery Listings  Need to relate invoiced amount to delivered items/services in current delivery listings  Currently not the case:  One line in the delivery listing may include a number of different services rendered  Can easily take 6 to 9 months before a delivery gets invoiced on the delivery listing

43. 43 10. Improvements in Delivery Listings  Impossible to verify charges made on an FMS case against received deliveries and ensure financial control  Requisite information is available in the various US systems; this information needs to be made available to the customer

44. 44 In Summary  Many success stories  Some challenges remain in areas such as transparency and access to security cooperation information  Export control modernization/improvement very much on the radar screen, with highest and widest level of support ever  Myths persist and success stories are perhaps not widely known

45. 45 In Summary  The international networks have a wealth of ideas and experience to offer  Greater international involvement and cooperation would add value to the way forward  Excellent partnership with DSCA and the Services will be instrumental in addressing the challenges