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July 26, 2007 

House Foreign Affairs Subcommittee Holds Export Controls Hearing

The House Foreign Affairs Committee's Subcommittee on Terrorism, Nonproliferation, and Trade held a hearing today entitled, "Exports Controls: Are We Protecting Security and Facilitating Exports?"

In his opening statement, House Foreign Affairs Chairman Tom Lantos (D-CA) came out with his guns blazing. Most of his ammunition was directed at the State Department's Directorate of Defense Trade Controls (DDTC). For example, Chairman Lantos said that DDTC:

. . . has been awash in unprocessed applications for licenses to ship military equipment overseas – a whopping 10,000 of them at one point last fall. The State Department is beset by so-called managers who, in fact, area unable to manage this process. Their recommendation: Throw more money at it. I certainly support increasing the resources at the State Department for this crucial job. It is absurd in the extreme that State has only 37 licensing officers to process nearly 70,000 applications, while Commerce boasts over 70 officers for a comparatively-paltry workload of 23,000 licenses. But increased resources alone will not fix the problem of mismanagement. Simply put, the management of arms licensing needs sustained attention and commitment by the senior leadership of the State Department to fix the problems – attention that has been lacking for several Administrations. The Committee on Foreign Affairs will do its part in finding solutions, with or without the Administration’s help. This hearing is an important part of that process.
Below are links to and some highlights of the prepared testimony of the hearing witnesses:

Christopher A. Padilla, Assistant Secretary for Export Administration, Bureau of Industry and Security, U.S. Department of Commerce:
  • In Fiscal Year 2006, BIS processed 18,941 export licenses valued at $36 billion, a 13% increase over Fiscal Year 2005 and the highest number of applications reviewed by BIS in over a decade.
  • In Fiscal Year 2006, average processing time for dual-use licenses – including full interagency review – was 33 days. Through June 30 of the current fiscal year, the average licensing processing time dropped to 29 days, a decrease from 40 days in FY 2001.
  • Said that any new dual-use export control system must have the following three defining features: (1) must become more end-user focused; (2) must be further improved to ensure America’s exporters are able to apply for and receive licenses in a timely, transparent, and efficient way; and (3) must limit the export of sensitive products while still ensuring that controls do not unduly restrict the vast majority of legitimate, civilian high-tech trade.
Stephen D. Mull, Acting Assistant Secretary, Bureau of Political-Military Affairs, U.S. Department of State:
  • In FY 2007, [DDTC] expects to license up to $100 billion in authorized exports. On a year-to-year basis, the number of application received have increased 8%, with total licenses completed by [DDTC] anticipated to rise from 66,000 in FY 2005 up to an estimated 80,000 in FY 2007.
  • At the beginning of FY07 DDTC had over 10,000 pending applications, but by January 2007 the number was reduced to approximately 5,200. DDTC currently has approximately 7,200 pending applications, with 567 over 60 days old. The complexity of license applications and Technical Assistance Agreements (TAA) is increasing. In FY 2006, more than 7,000 TAAs were received and the value of defense services provided with such agreements is roughly equal to or greater than the value of hardware exports.
  • DDTC is initiating the following changes "to manage export control risk": (1) Deputy Assistant Secretary for Defense Trade Control will institute a mandatory DAS-level review of any Operation Iraqi Freedom or Operating Enduring Freedom case that is pending for greater than seven days; (2) will shortly commence with the concurrent review of TAA applications with DOD, which we expect to expedite the review of such items; (3) ill initiate a policy change that will permit employees of foreign companies who are nationals from NATO or EU countries, Japan, Australia and New Zealand to be considered authorized under an approved license or TAA.
Ann Calvaresi-Barr, Director of Acquisition and Sourcing Management at the U.S. Government Accountability Office (GAO):
  • State and Commerce have yet to clearly determine which department controls the export of certain sensitive items. No one has held State or Commerce accountable for making clear and transparent decisions about export control jurisdiction.
  • Lack of clarity on exemption use has limited the government’s ability to ensure that unlicensed exports comply with export laws and regulations. At times, State has provided conflicting information to exporters on the proper use of the Canadian exemption, which has resulted in some exporters using the exemption while others applied for licenses to export the same item.
  • State and Commerce can provide little assurance about the overall effectiveness of their respective export control systems. In managing their systems, neither department has conducted systematic assessments that would provide a basis for determining what corrective actions may be needed to ensure they are fulfilling their missions.
  • DDTC's streamlining initiatives have generally not been successful and processing times have increased in recent years—from a median of 13 days in 2002 to 26 days in 2006. Also, at the end of 2006, State's backlog of applications reached its highest level of more than 10,000 open cases.
  • Anticipated efficiencies of D-Trade have not been realized. GAO's analysis of processing times for permanent export licenses does not show a significant difference between D-Trade and paper processing for fiscal years 2004 through 2006.
John W. Douglass, President and CEO, Aerospace Industries Association of America:
  • Discussed Coalition for Security and Competitiveness' proposals for development of a modern export control system that is efficient, predictable, transparent and an enabling component of America’s broader national security strategy.

  • Seeking export control system that can deliver decisions on 95 percent of all license applications in 30 days, not the current 55+ days it often takes.

  • Said that Coalition is in beginning stages of discussing and identifying key elements of a “model modern system” to compare with the existing system. The Coalition intends to put forward proposals for a "next generation" system next year for consideration by and discussion with Congress as well as the 2008 Presidential campaigns.
Will Lowell, Managing Director Lowell Defense Trade, LLC and Former Director, Directorate of Defense Trade Controls, U.S. Department of State:

  • Described three interrelated problems challenging U.S. arms export control system today: (1) Failure to Assess and Reorient Controls against Terrorist Threats; (2) Systemic Vulnerabilities and Risks to U.S. Technology; (3) Declining Levels of Service for U.S. Industry
  • Advocated proposal for Congress to work with senior management at DDTC on plan to: (1) clear backlog of license applications within next 120 days; (2) Identify permanent funding sources (e.g., budgetary or license fees) to prevent recurrence of any backlog and assure predictable time lines for U.S. business community; (3) Establish timetable and reporting channel to Congress for a post-9/11 inter-agency review of gaps to be closed or enhancements needed in U.S. export control regulations and policies; and (4) Include plan and timetable for eliminating system vulnerabilities and weaknesses that triggered GAO’s “high risk” designation.
The testimony of Beth M. McCormick, Acting Director Defense Technology Security Administration, U.S. Department of Defense was not available prior to the hearing.

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