1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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.)

9. 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

10. 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

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

12. 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

13. 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

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

15. 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)

16. 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

17. 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

18. 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 ) 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

19. 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 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

20. 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

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

22. 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

23. 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

24. 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

25. 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

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

27. 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

28. 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

29. 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)

30. 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 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

31. 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

32. 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