1. Problems and Impacts: US Export Controls Regime Defense MOU Attaches Group August 2009

2. 2 Topics Need for a more strategic and consistent approach Long reach of ITAR Bid solicitation issues Third party transfers Joint military and cooperative approaches The “dual national” issue Summary and some solutions

3. 3 Need for a more strategic and consistent approach Many countries purchase major weapon systems from the US, securing appropriate Congressional and State approvals. Why then is the process for follow-on approval of logistics, support, upgrades, repairs and spare parts so difficult? E.g.,Canada’s CF-18 Modernization Program –CF 18 bought in the late 70’s. Approximately 100 separate transactions have been needed for hardware, data, software, documentation, equipment and tools related to support and upgrades.

4. 4 Need for a more strategic and consistent approach For ITAR-controlled items purchased by foreign governments via commercial sales, Technical Assistant Agreements (TAAs) or Manufacturing Licensing Agreements (MLAs), with “dual national” provisos restricting access by dual or third country nationals, are required. If these same items are purchased through Foreign Military Sales (FMS), all government personnel are allowed access. This applies to even the most sensitive items which are only available through FMS.

5. 5 Need for a more strategic and consistent approach The following are examples of situations that the DMAG feels illustrate inconsistencies or argue for a more strategic approach.

6. 6 Example 1 A NATO ally and close partner of the US acquired a weapon system for its troops in Afghanistan. A “loan” system was shipped from the US on a temporary export license. The crew needed training in advance of the test. Not allowed to train the test crew until a permanent export license (DSP-5) was received. What was the added value in terms of US national security?

7. 7 Example 2 Under the terms of a decades-old agreement the MOD of a close ally provides quality assurance services for equipment purchased in that country by DOD. A government inspector went to a US subsidiary to inspect goods and contractor performance. Following guidance from its US parent, the company denied access, citing that the goods were ITAR-controlled and State authority was needed.

8. 8 Example 3 A country procured hot/cold weather clothing through FMS for a battalion serving in the Golan Heights. These items are available worldwide. When the clothing became surplus and the country wanted to sell it off to military surplus stores, needed third party transfer approval. Caused delays and costs for the government and prospective buyers.

9. 9 Example 4 Temporary import license exemptions under FMS do not apply to shipments that transit the US to or from Canada. F-16 tension struts manufactured in Canada and purchased through FMS require a temporary export license to be delivered to a NATO country’s US freight forwarder, even though the procurement is being done by the US Department of Defense (DoD) in Canada.

10. 10 Example 5 MOU Country A and MOU Country B are longstanding members of a military partnership with the US government. Country A is currently engaged in operation ISAF and has an urgent requirement for a number of MK-82 Laser Kits. Ordered additional kits through FMS but experiencing long lead times. Therefore, Country A asked to borrow these assets from Country B.

11. 11 Example 5 (cont’d) This did not prove to be a faster route. Country B had to request US Government approval to transfer the kits and go through the process of obtaining end-assurances from the Government of Country A, as required by US law. Again, raises the question of what was the added value in terms of US national security?

12. 12 Long reach of ITAR The “ITAR taint” - one small component can result in a whole system falling under ITAR control. Foreign companies are encountering difficulties in receiving ITAR controlled information in time for bidding on US solicitations.

13. 13 “ITAR Taint” Examples 6.A recent TAA approval for the provision of a defense service included a proviso requiring USG approval to retransfer the country’s own data just because they had shared it with a US contractor. 7.A non-US contractor refused to install a rack designed to hold a military radio on the seat of a vehicle because this would make the whole vehicle ITAR-controlled.

14. 14 “ITAR Taint” Examples (cont’d) 8.A country ordered a space heater for an Arctic tent. Commerce and State said the heater comprised SME (“made to military specs”) and required an export licence. The country must now seek State approval each time the heater is used in another country.

15. 15 Bid Solicitation Examples 9.Company A already building vehicles for the US Government will not be able to obtain a classified annex necessary to put in a proposal by the bid closing date. 10.Company B cannot get an ITAR-restricted RFI for the C-130 Avionics Modernization Program (AMP). The requirement is for 90% plus standard products built with commercial components. The company was involved in the initial bids for AMP 5 years ago without encountering such restrictions.

16. 16 Long Reach of ITAR - Impacts Foreign companies are actively seeking non-US solutions. Partnerships with foreign companies are hampered; impacts US companies bidding on US programs with foreign subs and US companies bidding on foreign solicitations. The US may not get the best equipment at the best value. Negative impacts on allies’ military capability and hence effectiveness as coalition partners.

17. 17 Third Party Transfers Obtaining transfers in a timely manner is a key risk to schedule and cost of acquisitions. There are corresponding delays in fielding capability, or increased cost so great that fielded capability is reduced. An official third party transfer is needed even in theatre when one MOU country requires emergency support from another (e.g., only non- major F-16 spare parts can be shared among countries who have purchased F-16s, without DOS authorization).

18. 18 Third Party Transfers (cont’d) Confusion over the definition of agent for FMS- acquired items has led some countries to share with their contingent workforce of contractors without proper approvals. The Foreign Procurement Group formally asked DoD and State to change the definition of agent to include a country’s registered contractors in 2005. A revised definition and simplified process was approved by State Legal Counsel in April 2009 – expected implementation in September.

19. 19 Example 12 US sourced parts incorporated into an EADS radar were authorized for retransfer to Malaysia. Malaysia ran into funding issues. About the same time US requested same radars for CG Deepwater Program. EADS issued a case to the State Department to retransfer the US parts in the radar to the US. There were questions about the end user (US Navy). Took 11 months.

20. 20 Example 13 A Foreign Military Sales third party transfer (TPT) was approved for a government furnished radio. Systems integration necessitated purchase of a second version of the same radio. Had to go through whole process again before Letter of Offer and Acceptance could be amended. Then all contractors had to sign an end use assurances. The radios have been sitting in a secure military facility for 13 months from 2 nd request; 2 years have gone by from the original approval.

21. 21 Example 14 After phasing out an older-model fleet, a NATO country’s air force was left with a lot of spare parts. Found a US buyer and requested a TPT. Not possible to verify which parts were procured FMS and which DCS. The original licensing officer had retired. Following pressure, approval received for DCS parts – which of course was of little use. Buyer is threatening to pull out of contract.

22. 22 Example 15 An allied government made a request in November 2008 for permanent/temporary third party transfer authorization for F/A-18 fighter aircraft including weaponry and support for training and missile firing exercises in another allied country. Eight months later - July 2009 - an answer was received from PM/RSAT that a transfer was not required since the equipment will remain in possession of the government's air force. If not for an intervention shortly before from the country’s National Armament’s Director, this approval would have come too late for the exercises.

23. 23 Example 16 Feb 2006 - PM/RSAT approved transfer of 51 Miniaturized Airborne GPS Receivers under an FMS case to two of an allied country’s contractors for integration into a helicopter fleet with a “no dual nationals” (DN) proviso. July 2006 - one of the companies requested DN approval (no DNs from US proscribed countries). Key employees working on program are DNs and already had access to ITAR items under TAAs for commercial programs. Dec 2006 - PM/RSAT informed the government that all DN issues were now handled by DDTC.

24. 24 Example 16 (cont’d) March 2007- DDTC informed PM/RSAT that the TAA referenced applied to four other helicopters, but not the fleet in question. The TAA needed to be amended or a new TAA issued. The country requested clarification as to why an amended TAA was required for FMS-procured equipment - no response. May 2007- the foreign company requested the prime contractor to amend the TAA. The prime asked to be paid for their effort. June 2007 - PM/RSAT requested an updated list of all DNs. Immediately supplied. November 2007 – approval received from DDTC (for DNs from NATO, Australia, Japan and Switzerland).

25. 25 Joint Military and Cooperative Activities It seems that ITAR issues are rarely raised in theatre. However there are examples of ITAR-related delays impacting coalition operations and cooperation opportunities. Conversely, there are instances of where timely release and delivery of equipment for coalition operations has saved lives (e.g., MRAP vehicles, Chinook helicopters).

26. 26 Example 17 A NATO country had a requirement for the urgent repair in the UK of compressors for engines. Compressors were purchased through FMS and available in the US. However, the ITAR required the written approval from DDTC to ship to the UK, causing extra delay.

27. 27 Example 18 3 NATO countries operated as one unit in a deployment to Afghanistan. LANTRIN pods became scarce, so they wanted to share the operational ones. Process for obtaining US permission was long and slow.

28. 28 Example 19 Country A requested temporary loan of two engagement control stations for training and testing from Country B while its systems were being modified. Country B had an MOU with DoD in which Country A was mentioned. Country A was also mentioned in Country B’s FMS case. The troops of the two countries are integrated. Still State required a third party transfer. The training and testing had to be called off.

29. 29 Example 20 During operations in Iraq, a NATO country’s ground forces were given the impression that an information system in use by US forces was available for sale or lease. FMS process initiated. After a long staffing process, told that hardware could be released, but not software. Finally resolved at the SecDef/MOD level, and the country offered a lease. Delay of about 18 months.

30. 30 Example 21 US Navy ran into problems in the shipyard of a NATO country when the cargo equipment handling system of one of their ships needed repair. Shipyard had specialists in this system, but they were not allowed to touch the system until re-export licenses were received.

31. 31 The “Dual National” Issue Since 9/11, "dual nationals" issue more problematic. Negative impact on both industry and government – discrimination based solely on an individual's place of birth – contravenes many countries human rights legislation.

32. 32 Dual Nationals (cont’d) As mentioned, “dual national” restrictions do not apply in Foreign Military Sales, although items so purchased are more sensitive than those purchased commercially. Confusion at State about who is responsible for some cases - the Directorate of Defense Trade Controls (DDTC) or the Office of Regional Security and Arms Transfers (RSAT). Has resulted in delayed approvals, with concomitant impacts on allied countries’ budgets and programs.

33. 33 Dual Nationals (cont’d) The issue threatens to delay or derail a number of countries’ military programs and coalition commitments. Need a solution that addresses US security concerns and allied countries’ legal concerns.

34. 34 Example 22 Aerospace subsidiary of American Company located in the country of a close ally denied an internship to a citizen because of his place of birth and ITAR regulation ITAR restricted his access due to his country of birth being a proscribed country. Individual had lived in the Ally’s country for 30 years and complained to Human Rights Commission. Aerospace company was required to pay compensation and was unable to employ the most competent individual.

35. 35 Example 23 Land Vehicle subsidiary of American Company located in the country of a close ally denied six workers the ability to work on ITAR controlled military vehicles. Six workers were citizens of the close ally or were landed immigrants who were born in proscribed countries. Six workers complained to Human Rights Commission and were re-assigned to other work not ITAR controlled. Subsidiary settled with six employees and were not able to take advantage of the technical expertise of these craftsmen.

36. 36 In Summary US Regime was designed for the Cold War. Since 9/11, “tightened” requirements are leading to increased paperwork, processing time and costs. Resulting impacts on cost and schedules of allies’ defense programs. Contractors are sometimes paid to sit idle while waiting for approvals. Wastes scarce resources – in the end 99% of all submissions are approved. Reduces capability of key allies by restricting access to best US technology and impedes interoperability.

37. 37 In Summary (cont’d) Treatment of “dual nationals” conflicts with some countries’ human rights legislation. “Reach” of ITAR into products and technology of other countries hurts US industry. US may be denying itself valuable technology from its partners when overseas contractors avoid information transfer with their US primes due to ITAR hurdles.

38. 38 Some Solutions An export control regime that takes into account trusted allies and communities and mutual commitments (UK and Australian Treaties). Language in export licenses focused on security not nationality (ITAR arrangement for Canadian and Dutch national security employees). Consider informing State rather than requiring formal retransfers among close allies in cooperative situations. The revised definition of agent and streamlined FMS third party transfer process announced by State in 2009.

39. 39 Other Export Control Reform Initiatives 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

40. 40 Export Control Reform Initiatives (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 Several GAO reports and recommendations

41. 41 Export Control Reform Initiatves (cont’d) Studies by CSIS, Heritage Foundation, NATO Industrial Advisory Group, National Academy of Sciences, Defense Business Board, the international networks and others 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)