Export Controls
Processes for Determining Proper Control of Defense-Related Items Needs Improvement Gao ID: GAO-02-996 September 20, 2002The U.S. government controls the export of defense-related items to minimize the risk such exports may pose to its interests. The U.S. export control system is primarily divided between two regulatory regimes, one managed by the Department of State for defense items and another managed by the Department of Commerce for dual-use items that have both military and commercial applications. Companies are responsible for determining which department to use and what requirements apply when exporting their items, but can obtain government assistance through two different processes. If companies have determined that their items are Commerce-controlled but are uncertain of export licensing requirements, they may request a classification from Commerce through the commodity classification process. Commerce can refer classification requests to State and the Department of Defense to confirm that the items are Commerce-controlled. However, if companies are unsure of which department has jurisdiction over their items, they can request a determination through the commodity jurisdiction process from State, which consults with Commerce and Defense. In implementing the commodity classification process, Commerce has improperly classified some State-controlled items as Commerce-controlled and has not adhered to regulatory time frames for responding to requests. Improper classifications have occurred because Commerce rarely obtains input from State and Defense before making decisions. Commerce officials stated that they have sufficient experience to determine which items can be classified as Commerce-controlled without referring requests to State and Defense, which could delay the process. However, in several instances, Commerce improperly provided companies with classifications for State-controlled items, increasing the risk of such items being inappropriately exported. State has not adhered to established time frames when implementing the commodity jurisdiction process and has been unable to issue determinations for some items due to interagency disputes occurring outside the process. Causes for delays included late input from Defense and Commerce, disagreements over the appropriate jurisdiction for an item, need for sufficient information to make determinations, and untimely initial determinations to Defense and Commerce before finalizing an item's jurisdiction. Delays in the process can discourage companies from requesting determinations, as well as affect their ability to compete in certain markets.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-02-996, Export Controls: Processes for Determining Proper Control of Defense-Related Items Needs Improvement
This is the accessible text file for GAO report number GAO-02-996
entitled 'Export Controls: Processes for Determining Proper Control of
Defense-Related Items Needs Improvement' which was released on
September 20, 2002.
This text file was formatted by the U.S. General Accounting Office
(GAO) to be accessible to users with visual impairments, as part of a
longer term project to improve GAO products‘ accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
Report to the Chairman, Subcommittee on National Security, Veterans
Affairs, and International Relations, Committee on Government Reform,
House of Representatives:
United States General Accounting Office:
GAO:
September 2002:
Export Controls:
Processes for Determining Proper Control of Defense-Related Items
Need Improvement:
GAO-02-996:
Contents:
Letter:
Results in Brief:
Background:
Commerce Improperly Classified Items and Has Not Adhered to Regulatory
Time Frames:
Commodity Jurisdiction Process Exceeded Time Frames and Is Affected by
External Disagreements:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Scope and Methodology:
Appendix I: Comments from the Department of Commerce:
Appendix II: Comments from the Department of State:
Appendix III: Comments from the Department of Defense:
Appendix IV: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Table:
Table 1: Commodity Classifications Completed by Commerce and Referred
to State and Defense, Fiscal Years 1998-2001:
Figures:
Figure 1: Median Processing Times for Commodity Classifications, Fiscal
Years 1998-2001:
Figure 2: Commodity Jurisdiction Process and Time Frames:
Figure 3: Commodity Jurisdiction Determinations and Timeliness, Fiscal
Years 1998-2001:
United States General Accounting Office:
Washington, DC 20548:
September 20, 2002:
The Honorable Christopher Shays
Chairman, Subcommittee on National Security,
Veterans Affairs, and International Relations
Committee on Government Reform
House of Representatives:
Dear Mr. Chairman:
The U.S. government controls the export of defense-related items to
minimize the risk such exports may pose to its interests. The U.S.
export control system is primarily divided between two regulatory
regimes, one managed by the Department of State (State) for defense
items[Footnote 1] and another managed by the Department of Commerce
(Commerce) for dual-use items that have both military and commercial
applications. Generally, State‘s controls over defense items are more
restrictive than Commerce‘s controls over dual-use items. Companies are
responsible for determining which department to use and what
requirements apply when exporting their items, but when in doubt can
obtain government assistance through two different processes. If
companies have determined that their items are Commerce-controlled but
are uncertain of export licensing requirements, they may request a
classification from Commerce through the commodity classification
process. Commerce can refer classification requests to State and the
Department of Defense (Defense) to confirm that the items are Commerce-
controlled. However, if companies are unsure of which department has
jurisdiction over their items, they can request a determination through
the commodity jurisdiction process from State, which consults with
Commerce and Defense.
Determining which department has jurisdiction over an item and how that
item is controlled is fundamental to the proper implementation of the
bifurcated U.S. export control system. Yet over the years, the U.S.
government has experienced interagency disagreements over proper
jurisdiction for items, and companies have been uncertain about which
department controls the export of their items. In response to your
request, we assessed how government departments assist companies in
determining the proper controls for defense-related items,
specifically, (1) how Commerce implements the commodity classification
process and (2) how State implements the commodity jurisdiction
process.
Results in Brief:
In implementing the commodity classification process, Commerce has
improperly classified some State-controlled items as Commerce-
controlled and has not adhered to regulatory time frames for responding
to requests. Improper classifications have occurred because Commerce
rarely obtains input from State and Defense before making decisions.
Only 40 out of over 12,000 classification requests were referred by
Commerce to State and Defense during the 4-year period covered by our
review, even though at least 250 nonreferred requests appear to meet
Commerce‘s referral criteria. Commerce officials told us the referral
criteria are subjective and may not have been consistently applied.
These officials stated they have sufficient experience to determine
which items can be classified as Commerce-controlled without referring
requests to State and Defense, which could delay the process. However,
in several instances, Commerce improperly provided companies with
classifications for State-controlled items, increasing the risk of such
items being inappropriately exported. In some other instances, Commerce
returned classification requests for State-controlled items to
companies without notifying State, thereby limiting an opportunity for
State to ensure that companies comply with statutory requirements.
Commerce is also required by regulation to complete classification
requests within 14 calendar days; however, Commerce took a median of 39
days to complete requests during our review period.
State has not adhered to established time frames when implementing the
commodity jurisdiction process and has been unable to issue
determinations for some items due to interagency disputes occurring
outside the process. State exceeded the maximum 95 days established in
guidance for 62 percent of the jurisdiction determinations made during
our review period. Causes for delays included late input from Defense
and Commerce, disagreements over the appropriate jurisdiction for an
item, need for sufficient information to make determinations, and
untimely initial determinations to Defense and Commerce before
finalizing an item‘s jurisdiction. Delays in the process can discourage
companies from requesting determinations, as well as affect their
ability to compete in certain markets. Additionally, over 30 commodity
jurisdictions for space-related items were placed on hold when the
National Security Council intervened to resolve a disagreement between
Commerce and State. Pending resolution of this disagreement, companies
that requested jurisdiction determinations have exported their space-
related items under different controls.
This report contains recommendations to the Secretaries of Commerce,
State, and Defense to improve the transparency, consistency, and
timeliness of the commodity classification and commodity jurisdiction
processes. In commenting on a draft of this report, Commerce disagreed
with our findings and conclusions, but it agreed to work with State,
Defense, and companies to implement our recommendations. State, in its
comments on our draft report, partially concurred with our
recommendations. Defense concurred with our recommendations.
Background:
The U.S. government‘s controls on the export of defense-related items
are primarily divided between two departments. Commerce, through its
Bureau of Industry and Security, controls the export of dual-use items
under the authority granted by the Export Administration Act.[Footnote
2] Commerce‘s Export Administration Regulations[Footnote 3] establish
the Commerce Control List, which generally contains detailed
specifications for dual-use items. State, through its Office of Defense
Trade Controls, regulates exports of defense items under the authority
of the Arms Export Control Act.[Footnote 4] State‘s International
Traffic in Arms Regulations[Footnote 5] provide controls over defense
items, which are identified in broad categories on the U.S. Munitions
List. Both departments‘ control lists are developed with the Defense
Technology Security Administration, which represents Defense on export
control issues. Defense reviews both State and Commerce export licenses
for national security concerns.
Commerce and State control exports differently in several key areas.
Commerce seeks to balance national security, foreign policy, and
economic interests when considering how to control items and review
export licenses. By contrast, State gives primacy to U.S. national
security and foreign policy interests. In most cases, Commerce‘s
controls over dual-use items are less restrictive than State‘s controls
over defense items. State requires licenses for exports and re-exports
to all destinations with few exceptions, while many items under
Commerce‘s jurisdiction do not require licenses to most destinations.
Also, some sanctions and embargoes only apply to items on the U.S.
Munitions List and not to those on the Commerce Control List. For
example, most exports of defense items to destinations such as China
are prohibited under State, while Commerce can allow the export of many
dual-use items to China.
Companies are responsible for determining whether the item they seek to
export is on the Commerce Control List and, therefore, subject to
Commerce‘s jurisdiction, or on the U.S. Munitions List and subject to
State‘s jurisdiction. Under Commerce regulations, companies may request
a commodity classification when unsure of the requirements for
exporting a Commerce-controlled item.[Footnote 6] After reviewing the
characteristics of the item, Commerce provides an export control
classification number from the Commerce Control List, which indicates
the applicable controls and licensing requirements.[Footnote 7] Under
State regulations, companies may request a commodity jurisdiction
determination from State when unsure whether an item is subject to
State or Commerce controls or when requesting that an item be
transferred from State to Commerce jurisdiction.[Footnote 8] State is
to consult with Defense and Commerce to determine the proper
jurisdiction of an item based on several criteria, including its civil
applications and military significance. State is the arbiter in the
commodity jurisdiction process and is the only department that may
change the jurisdiction of an item.
In 1996, the National Security Council issued guidance to improve the
transparency and interagency coordination of the commodity
classification and commodity jurisdiction processes. The Council‘s
guidance was prompted by State and Commerce disagreement over
jurisdictional determinations. This guidance also came after Commerce
issued a commodity classification for State-controlled missile
technology, which resulted in harm to U.S. national security when this
technology was improperly transferred to China. The guidance provides
referral criteria for when Commerce should consult with State and
Defense on commodity classification requests before making a decision.
In addition, the guidance establishes time frames for making commodity
jurisdiction determinations as well as an interagency dispute
resolution process.
Commerce Improperly Classified Items and Has Not Adhered to Regulatory
Time Frames:
Commerce rarely referred classification requests to State and Defense,
even though some items appear to meet referral criteria. Commerce
officials said they usually do not obtain input from State and Defense
since they have sufficient experience to properly classify items. As a
result of the limited referrals, Commerce has improperly classified
some State-controlled items as Commerce-controlled. Some of these
improper classifications have been identified through the license
application review process. However, since many items exported under
Commerce do not require licenses to most destinations, the commodity
classification process is sometimes the only opportunity for State and
Defense to become aware of what companies are exporting. Therefore,
other improper classifications may not have been identified. In
addition, Commerce has not adhered to regulatory time frames for
issuing commodity classifications.
According to the National Security Council guidance, Commerce is to
refer to State and Defense all commodity classification requests for
’items/technologies specifically designed, developed, configured,
adapted and modified for a military application or derived from items/
technologies specifically designed, developed, configured, adapted or
modified for a military application.“ State and Defense can then
provide input on whether the items are State-controlled and therefore
cannot be classified on the Commerce list or need to be reviewed
through the commodity jurisdiction process. The guidance also directs
Commerce to promptly forward to State requests from companies asking if
an item is under Commerce or State jurisdiction.
Commerce Rarely Referred Classification Requests That Appear to
Meet Criteria:
Commerce has referred a limited number of commodity classification
requests to State and Defense. Of the 12,457 commodity classification
requests completed during fiscal years 1998 through 2001, only 40
requests were referred by Commerce to State and Defense for
review.[Footnote 9] Commerce cited several reasons for referring these
cases, including that the items had military applications or origins,
were to be exported to military end-users, or were under State control.
Through the referral process the departments agreed that 12 of the
requests involved items under State jurisdiction,[Footnote 10]
9 involved items under Commerce jurisdiction, 18 required additional
review through the commodity jurisdiction process, and 1 was withdrawn
by the company after it was referred. Commerce did not refer the
remaining 12,417 commodity classification requests it completed during
this period. Table 1 shows the number of commodity classifications and
referrals by fiscal year.
Table 1: Commodity Classifications Completed by Commerce and Referred
to State and Defense, Fiscal Years 1998-2001:
Fiscal year: 1998; Commodity classifications completed: 2,721;
Commodity classifications referred: 6.
Fiscal year: 1999; Commodity classifications completed: 3,004;
Commodity classifications referred: 5.
Fiscal year: 2000; Commodity classifications completed: 3,411;
Commodity classifications referred: 12.
Fiscal year: 2001; Commodity classifications completed: 3,321;
Commodity classifications referred: 17.
Fiscal year: Total; Commodity classifications completed: 12,457;
Commodity classifications referred: 40.
Source: GAO‘s analysis of Commerce classification data.
[End of table]
Commerce has based its criteria for referring commodity classification
requests to State and Defense on its interpretation of the National
Security Council guidance. Commerce officials told us that they follow
the guidance to refer classification requests for items specifically
designed for military use. For example, Commerce referred a request
involving software designed to analyze and simulate submarines.
However, under their interpretation of the guidance, Commerce officials
do not refer all requests involving items derived from military
technology, only those that have been recently adapted for civilian
use. For example, Commerce referred a classification request for a
military vehicle that was converted for civilian use in the early
1990s. In addition to the guidance, Commerce officials stated they
refer requests involving items where jurisdiction is unclear.
In contrast, State and Defense officials said that under their
interpretations of the National Security Council guidance, Commerce
should be referring most, if not all, commodity classification requests
to them. For example, Defense officials stated that Commerce should
refer classification requests for all items derived from military
technology regardless of how long ago this occurred. They added that
most items on the Commerce Control List were derived from items
designed for the military. The officials also stated that Commerce
should refer all classification requests involving items with unclear
jurisdiction.
Commerce has not consistently applied its referral criteria for
implementing the National Security Council guidance. We identified
253 commodity classification requests that appear to meet Commerce‘s
stated criteria for referral but were not referred to State and
Defense.
* Commerce returned 123 requests to companies without providing a
classification and informed these companies that State should review
the items through the commodity jurisdiction process. In other
instances, Commerce has referred requests when it needed to confirm
which department has jurisdiction over an item.
* Commerce returned 89 requests to companies without providing a
classification and informed these companies that the items were subject
to State control. By definition, an item that is State-controlled meets
the referral criteria of being specifically designed for a military
application. Also, Commerce has referred other requests to State and
Defense for items it considered to be State-controlled.
* We identified 37 requests involving items that Commerce classified
without referral to State and Defense but that are included in
categories that appear on both State and Commerce control lists. For
example, Commerce provided companies with classifications for two
sensitive missile technology items that we had previously identified as
subject to unclear jurisdiction since they appear on both Commerce and
State‘s control lists.[Footnote 11]
* We found 4 classifications issued by Commerce where the requests were
not referred to State and Defense, involving items with military
applications, military origins, or unclear jurisdiction--all of which
were reasons Commerce cited when referring other requests. For example,
one request involved night vision technology, which has military
origins and applications and is currently under jurisdictional review
by State.
Commerce officials stated that the referral criteria are subjective and
have not always been applied consistently by Commerce officials that
review classification requests. These officials acknowledged that their
implementation of the referral criteria may pose some risk of
improperly classifying a State-controlled item, but the risk is minimal
because Commerce reviewers have sufficient experience with classifying
and licensing items. They also stated that increased referrals would
limit their ability to meet the regulatory requirement to process
commodity classification requests in a timely manner. State and Defense
officials told us that they have the necessary expertise to review
classification requests to ensure proper jurisdiction. Furthermore,
only State, with Defense‘s concurrence, has been delegated the
statutory authority to determine which items are under its
jurisdiction.
Commerce does not always receive sufficient information from companies
to identify all classification requests that meet referral criteria.
Commerce regulations require companies to provide precise technical
specifications on an item when submitting a commodity classification
request. However, Commerce regulations do not require companies to
submit information that relates to referral criteria such as whether an
item‘s applications are predominantly military or civil or whether an
item was originally developed for military use. Commerce officials
stated that they do not need this information to make classification
decisions but would need additional information in some cases to
determine whether to refer requests to State and Defense.
Commerce Has Improperly Classified State-Controlled Items and Limited
State‘s Exporter Oversight:
Classification of items without input from State and Defense has
resulted in Commerce improperly classifying some State-controlled
items. We identified several instances in which companies have received
classifications from Commerce for State-controlled items without input
from State and Defense. For example, one company received
classifications for items that can be used to analyze missile flight
test data and subsequently submitted several license applications to
Commerce to export these items. During its review of the license
applications, Defense questioned Commerce‘s jurisdiction over the items
and the company agreed to seek licenses from State to export these
items in the future. Two other companies received classifications from
Commerce for items containing night vision technology. However, when
these companies submitted export license applications to Commerce,
Defense objected to Commerce jurisdiction and recommended that the
items be licensed through State. Commerce returned one license
application to the company because the item may be State-controlled and
advised the company to seek a commodity jurisdiction determination from
State. The item in the other license application is currently under
jurisdictional review by State.
While Defense officials can identify some improper classifications
through the license review process, most Commerce-controlled items do
not require export licenses. Therefore, the referral of commodity
classification requests could provide State and Defense their only
opportunity to become aware of what companies are exporting through
Commerce. Of the total classifications provided to companies during
fiscal years 1998 through 2001, about two-thirds involved
classifications for items that generally would not require export
licenses to most destinations. A State-controlled item that is
classified as a Commerce item that generally does not require a license
can then be improperly exported without the appropriate government
review. We identified one company that received a commodity
classification for explosive detection devices that would allow the
company to export them to most destinations without Commerce licenses.
Another company that exports the same devices through State‘s licensing
process notified State of its competitor‘s activities. This prompted
State to issue a commodity jurisdiction determination that the devices
are State-controlled. Until this jurisdiction determination was issued,
the company obtaining licenses from State experienced a competitive
disadvantage because the other company could meet customer demands more
quickly by not obtaining licenses.
By not referring classification requests, Commerce also does not
provide State with an opportunity to ensure that companies comply with
State‘s governing export control statute and regulations. Pursuant to
the Arms Export Control Act,[Footnote 12] State‘s regulations require
all manufacturers of defense items to register with State, even if they
are not planning to export their items.[Footnote 13] The U.S.
government then uses registration information to ensure compliance with
export control laws. Based on our review of classification data, we
identified several companies that did not register with State, as
required by law, after Commerce advised them that their items were
State-controlled. State officials said that they will determine what
actions are needed to have these companies comply with the regulations
and whether any violations occurred. In addition, a senior State
official told us that Commerce‘s limited referrals and improper
classifications may limit State‘s ability to have enforcement actions
taken against companies for possible export control violations since
the companies have already obtained government direction to export
through the Commerce system.
Commerce Has Not Met Required Commodity Classification Time Frames:
Commerce has not adhered to regulatory time frames for responding to
commodity classification requests from companies. The Export
Administration Regulations require Commerce to provide companies with a
classification within 14-calendar days.[Footnote 14] However, during
fiscal years 1998 through 2001, Commerce completed only 13 percent of
the commodity classifications within 14 days. Commerce took a median of
39 days to respond to classification requests during this 4-year
period. Figure 1 shows the median number of days Commerce took to
respond to classification requests by fiscal year.
Figure 1: Median Processing Times for Commodity Classifications, Fiscal
Years 1998-2001:
[See PDF for image]
Source: GAO‘s analysis of Commerce classification data.
[End of figure]
Commerce officials stated that delays in responding to classification
requests are due to other priorities, limited staff resources, and
companies not providing required information. Commerce officials, who
review commodity classification requests, assign highest priority to
processing licenses because companies rely on the timely issuance of
licenses to meet customers‘ orders. These officials have other duties
that delay their review of classification requests, which include
providing information for enforcement cases. Commerce officials noted
that they recently received additional hiring authority for personnel
to review commodity classification requests and perform other duties,
but they have not yet completed the hiring process. Commerce officials
also attributed delays to companies not providing required technical
specifications with their commodity classification requests,
estimating that about 80 percent of requests require officials to
perform additional research. If companies provided the required
information, then Commerce could spend less time processing each
commodity classification request. Commerce officials told us that they
have implemented a new procedure to place requests on hold while they
obtain additional information from companies, thereby reflecting
Commerce‘s actual processing time.
Commodity Jurisdiction Process Exceeded Time Frames and Is Affected by
External Disagreements:
The commodity jurisdiction process has exceeded established time frames
and is affected by external disagreements. State has often not adhered
to the 95-day time frame established by the National Security Council
for providing companies with commodity jurisdiction determinations.
Factors that delay determinations have included late input from Defense
and Commerce, disagreements among the departments over the appropriate
jurisdiction for an item, need for sufficient information to make
determinations, and initial determinations to Defense and Commerce not
issued in accordance with guidance. Delays in resolving jurisdiction
requests can discourage a company from using the process and affect its
ability to compete in certain markets. In addition, an interagency
disagreement being resolved outside the commodity jurisdiction process
has affected the resolution of some requests.
According to the National Security Council guidance, all commodity
jurisdiction requests are to be resolved through a State-led process
within a maximum 95-calendar day time frame. During that period, State
refers requests to Commerce and Defense, providing them up to 45 days
to recommend the appropriate jurisdiction for an item.[Footnote 15]
State is also to resolve any disagreements over jurisdiction between
the departments and issue a determination to the company. If the
departments disagree on the appropriate jurisdiction for an item, they
can escalate initial jurisdiction determinations to higher levels
within State and ultimately to the President. Figure 2 shows each step
in the commodity jurisdiction process and the associated time frames
for issuing determinations.
Figure 2: Commodity Jurisdiction Process and Time Frames:
[See PDF for image]
Source: Based on National Security Council guidance.
[End of report]
Commodity Jurisdiction Determinations Have Not Been Timely:
State has not adhered to the time frames established in guidance for
responding to commodity jurisdiction requests. Of the 802 commodity
jurisdiction determinations made by State between October 1, 1997, and
May 31, 2001, 62 percent took over the maximum 95 days to
resolve.[Footnote 16] State took a median of 118 days to issue a
jurisdiction determination, with 25 percent taking twice as long as the
established maximum time frame. Figure 3 shows the total number of
determinations and those that took over 95 days to resolve by fiscal
year.
Figure 3: Commodity Jurisdiction Determinations and Timeliness, Fiscal
Years 1998-2001:
[See PDF for image]
Source: GAO‘s analysis of State commodity jurisdiction data.
[End of figure]
While State consistently referred jurisdiction requests to Defense and
Commerce in a timely manner, State has not adhered to established time
frames for issuing commodity jurisdiction determinations generally due
to four contributing factors. First, for the majority of determinations
made between October 1, 1997, and May 31, 2001, Commerce and Defense
did not provide their recommendations on the appropriate jurisdiction
within 45 calendar days. Specifically, Commerce took a median of 81
days while Defense took 69 days to provide State with their respective
recommendations. State officials explained that they are reluctant to
make jurisdictional determinations without input from the other
departments, particularly since Defense has a statutory role in
developing the U.S. Munitions List. Defense and Commerce officials told
us they are sometimes late because commodity jurisdictions are low
priority. According to these officials, their limited staff resources
are primarily devoted to reviewing export license applications. For
example, during our review period, Defense had one official responsible
for administering the commodity jurisdiction process and coordinating
input from technical experts, but it has recently hired an additional
staff person. Additional time may be needed for the departments to
provide their recommendations in certain cases. For 3 of the 34
commodity jurisdiction files we reviewed, Defense officials requested
additional time to provide their recommendations, citing either
internal disagreements about the appropriate jurisdiction or the
precedent setting nature of the case.
Second, State‘s ability to resolve jurisdiction requests has been
delayed by disagreements between the departments over the appropriate
jurisdiction for an item. When Commerce and Defense both provided
recommendations to State, they conflicted 35 percent of the time. In
such cases, State took a median of 51 additional days to issue a
determination. According to State officials, they attempted to
reconcile the departments‘ positions by discussing the cases with the
departments and conducting further research on the military
applications and origins of the item. In one of the commodity
jurisdiction files we reviewed where there was disagreement between the
departments, State indicated that it was suspending the established
time frame because the case was complex.
Third, the issuance of commodity jurisdiction determinations has been
delayed by the need for sufficient information. In some instances,
State officials told us that they have not always found the information
and justifications from Commerce to be sufficient for them to make
determinations. In several of the commodity jurisdiction files we
reviewed, Commerce did not fully address whether the items have
predominate civil applications or performance equivalents to those used
in civil applications, which are among the criteria State uses when
determining jurisdiction. According to Commerce and State officials,
Commerce has recently improved the quality of input to State.
Furthermore, State officials told us they need to conduct additional
research on an item before making a determination, regardless of the
quality of input from Commerce and Defense.
Fourth, State has not always issued initial determinations in
accordance with the guidance. State is to provide Commerce and Defense
with initial jurisdiction determinations no later than 55 calendar days
after receiving a request, even when those departments have not
provided their input. If Commerce and Defense do not object within 5
days, State‘s decision becomes final. According to Commerce and Defense
officials, commodity jurisdictions become a priority when they receive
State‘s initial determinations, so they can provide input before the
determinations become final. A senior State official told us that State
would prefer to receive Commerce and Defense‘s input as set out in the
guidance before issuing an initial determination. Our review of
commodity jurisdiction files indicated that most did not contain
documentation on initial determinations. Those files that did contain
documentation indicated that State issued initial determinations more
than 75 days after receiving the request. Additionally, State has not
tracked the issuance of initial determinations in its commodity
jurisdiction database.
While the commodity jurisdiction process is used to assist companies,
State‘s delays may discourage companies from requesting jurisdiction
determinations. For example, officials from two companies told us that
they are reluctant to request determinations in the future because of
delays they have experienced in the process. Officials with other
companies expressed dissatisfaction with the process because they were
unable to obtain information from State on the status of their pending
requests. Therefore, companies may determine jurisdiction on their own
or seek jurisdiction guidance outside the process.
Delays in the commodity jurisdiction process may also affect a
company‘s ability to compete in certain markets. An item is generally
subject to State‘s export controls until State determines otherwise. As
a result, pending the resolution of a commodity jurisdiction request,
the item is subject to State‘s restrictions and generally requires a
license to be exported. Under current U.S. law, most items subject to
State‘s jurisdiction cannot be licensed for export to China.[Footnote
17] Commerce does not have a comparable restriction on the export of
dual-use items to China. For example, officials with one company
informed us that they were unable to compete for a significant contract
in China while waiting over a year for a commodity jurisdiction
determination. State eventually determined that the item in question
was subject to Commerce‘s jurisdiction, which it did in 36 percent of
the cases resolved during our review period. Officials with other
companies also stated that delays in receiving jurisdiction
determinations have affected their ability to compete in certain
markets.
Interagency Disagreement Outside the Process Affects Resolution of Some
Commodity Jurisdiction Requests:
Commodity jurisdiction requests for space-related items have remained
unresolved for several years due to an interagency jurisdictional
debate occurring outside the established commodity jurisdiction
process. In March 1999, State and Commerce issued regulations pursuant
to a change in law that transferred commercial satellites and related
items from Commerce‘s jurisdiction to State‘s jurisdiction.[Footnote
18] Commerce and State disagreed on what constituted ’related items“
and whether the law transferred certain space-related items to State.
The National Security Council initiated an interagency review to
resolve the disagreement and determine jurisdiction over these items.
At the direction of the National Security Council, State placed
commodity jurisdiction cases for space-related items on hold until an
interagency agreement could be reached and implemented. As a result,
State officials said they placed 33 commodity jurisdiction cases on
hold, most of which have been open since 1999. In 2001, State and
Commerce announced the resolution of the disagreement, and they are
currently developing regulations to specify control over these items.
While their commodity jurisdiction requests remain on hold, companies
have exported their space-related items through both departments.
Officials with four companies told us that they have been exporting
their space-related items through State. Officials with another company
told us, that based on advice from Commerce, they have been exporting
their space-related items through Commerce. State and Commerce
officials confirmed that companies could export such items through
Commerce. However, neither department issued written guidance
specifying what companies with pending commodity jurisdiction requests
should do.
While the origins of the jurisdictional disagreement over space-related
items were unique, disagreements between departments over the
jurisdiction of other items could limit State‘s ability to make
determinations through the commodity jurisdiction process. For example,
State has placed a jurisdiction request involving night vision
technology on hold until jurisdiction for that technology is decided
through the ongoing review of the U.S. Munitions List.[Footnote 19]
State officials said they expect this review of night vision technology
to be difficult and time-consuming to complete. Defense and Commerce
officials also told us that there is considerable interagency debate on
how night vision technology should be controlled.
Conclusions:
The bifurcated U.S. export control system seeks to manage risks by
balancing national security and foreign policy with economic interests.
Commerce has altered this balance by not implementing the commodity
classification process in a manner that considers other stakeholder
interests. While State‘s implementation of the commodity jurisdiction
process allows for the consideration of multiple interests, it is slow
to reach decisions and, in some cases, has been affected by larger
interagency disputes occurring outside of the process. Existing
guidance was intended to improve transparency and coordination within
these processes, but problems persist. If the U.S. export control
system is to effectively manage risk, these processes have to balance
stakeholder interests, be transparent to stakeholders, and efficiently
reach and communicate decisions. In the absence of this, the U.S.
government faces the possibility of defense-related items being
exported without the proper level of government review and control to
protect national interests. Also, companies may export similar items
under different controls, placing some companies at a competitive
disadvantage or at risk of violating U.S. export control laws.
Recommendations for Executive Action:
To increase transparency to stakeholders and minimize the risk of
Commerce making jurisdictional determinations through the commodity
classification process, we recommend that the Secretary of Commerce
direct the Bureau of Industry and Security to promptly review existing
guidance and develop, with the concurrence of the appropriate entities
within State and Defense, criteria for referring commodity
classification requests to those departments. In developing the
criteria, the departments should agree on a common definition of terms
to be contained in the criteria. Until the departments develop and
implement referral criteria, the risk of Commerce improperly
classifying State-controlled items will continue to exist.
To increase transparency and assist State in enforcing its statutory
requirements, we recommend that the Secretary of Commerce direct the
Bureau of Industry and Security to develop, with the concurrence of
State‘s Office of Defense Trade Controls, procedures for referring
requests that are returned to companies because the items are State-
controlled or require a commodity jurisdiction review.
To ensure that Commerce has sufficient information to make timely and
appropriate commodity classifications, we recommend that the Secretary
of Commerce direct the Bureau of Industry and Security to revise
guidance for companies on the information to be provided with commodity
classification requests and consider including a requirement for
information on an item‘s origins and applications.
To comply with existing time frames for responding to classification
requests, we recommend that the Secretary of Commerce direct the Bureau
of Industry and Security to assess the amount of resources needed, then
reallocate resources as appropriate.
To improve the timeliness of the commodity jurisdiction process, we
recommend that the Secretaries of State, Commerce, and Defense direct
the respective entities within their departments to assess the amount
of resources needed to make jurisdiction recommendations and
determinations within established time frames, then either reallocate
resources as appropriate or seek changes to the established time frames
that are consistent with available resources. We also recommend that
the Secretary of State direct the Office of Defense Trade Controls to
issue initial determinations in accordance with the guidance.
To improve transparency and consistency of the commodity classification
and jurisdiction processes, we recommend that the Secretaries of State,
Commerce, and Defense revise interagency guidance to incorporate any
changes to the referral process and time frames for making decisions.
Agency Comments and Our Evaluation:
We received written comments on a draft of this report from Commerce,
State, and Defense, which are reprinted in appendixes I, II, and III,
respectively, along with our detailed evaluation of their comments.
Commerce disagreed with our findings and conclusions, which it believes
are based on erroneous facts and, therefore, are fundamentally flawed.
Specifically, Commerce did not agree with our finding that
253 classification requests, which were not referred, appear to meet
Commerce‘s referral criteria and, therefore, should have been referred.
Commerce asserts that it did not improperly classify State-controlled
items. Additionally, Commerce indicated that State and Defense‘s
position that most commodity classifications should be referred does
not reflect the National Security Council guidance. However, Commerce
agreed to work with other departments and companies to implement our
recommendations and noted it has allocated resources to ensure the
timely issuance of its classifications and State‘s jurisdiction
determinations. In responding to our draft, State partially concurred
with our findings and recommendations. State noted that it has made
progress in reducing the amount of time needed to issue jurisdiction
determinations. Citing improved timeliness and deference to Defense‘s
national security views, State did not agree that it needs to implement
our recommendation to issue initial determinations in a timely manner,
but it did agree to enlist greater cooperation from other departments
in meeting established time frames. In its comments, Defense concurred
with our recommendations.
We disagree with Commerce‘s characterization of our findings and
conclusions and are confident that our report accurately assesses
Commerce‘s implementation of the commodity classification process. As
stated in our report, we identified at least 253 classification
requests that appear to meet the referral criteria. By Commerce‘s own
admission, requests involving State-controlled items or those in need
of a jurisdictional review were returned to the companies without
referral to State and Defense, which is not consistent with the
referral criteria. In addition, Commerce inconsistently applied the
criteria because in some instances it referred requests that met the
criteria. Our report highlights the risk of Commerce improperly
classifying State-controlled items through the commodity
classification process. We identified several instances in which
Commerce classified State-controlled items, including explosive
detection devices that were determined to be State-controlled through
the commodity jurisdiction process. Commerce‘s position regarding the
interpretation of the National Security Council guidance by State and
Defense demonstrates that the criteria are subjective and that the
departments have not reached a consensus on which requests should be
referred. While we cannot verify whether State has decreased the amount
of time needed to process jurisdiction requests, we agree that State
should enlist the cooperation of other departments to improve
timeliness. We continue to recommend that State issue initial
determinations in accordance with established guidance because this is
a mechanism to improve timeliness, while still providing Defense and
Commerce with an opportunity to provide input before a final
determination is made.
Scope and Methodology:
To assess how Commerce implements the commodity classification process,
we reviewed relevant laws, regulations, and the National Security
Council guidance to identify the criteria for the process and examined
how Commerce implemented the criteria. We discussed the process and the
referral criteria with officials from Commerce‘s Bureau of Industry and
Security, State‘s Office of Defense Trade Controls, and Defense‘s
Defense Technology Security Administration. We reviewed 41 commodity
classification requests Commerce referred to State and Defense during
fiscal years 1998 through 2001 and identified the reasons for referral.
We analyzed commodity classification data for fiscal years 1998 through
2001 and selected 34 cases to review that were not referred to State
and Defense. We compared the characteristics of the items in the 34
cases with Commerce‘s stated referral criteria, as well as items
identified as State-controlled in Defense‘s review of Commerce
licenses. We reviewed the data and identified nonreferred requests
returned to companies without classifications because the items either
were State-controlled or needed a commodity jurisdiction review. We
then confirmed whether the companies involved in these cases appeared
in State‘s registration database. In addition, we reviewed the
classification data to identify the export control classification
numbers provided to companies. We then compared those classification
numbers with classification numbers that cover items appearing on both
the Commerce and State control lists. To determine Commerce‘s
timeliness in providing classifications, we analyzed the time elapsed
between the receipt of the classification request and the issuance of
the classification. To assess the reliability of Commerce‘s
classification data, we compared information in selected files to the
data. During our analysis, we found some minor inaccuracies with
Commerce‘s data, which did not adversely affect its overall
reliability.
To assess how State implements the commodity jurisdiction process, we
identified the steps in the commodity jurisdiction process as
established in relevant regulations and the National Security Council
guidance and discussed the implementation of the process with officials
from the relevant offices at State, Defense, and Commerce. We requested
State‘s data for commodity jurisdiction determinations and open cases
during fiscal years 1998 through 2001. However, State did not provide
complete data for fiscal year 2001. We analyzed the data to determine
the time taken to complete key steps in the process. We reviewed 34
selected commodity jurisdiction files. We discussed reasons for delays
as well as the interagency disagreement over space-related items with
State, Commerce, and Defense officials. We also reviewed documents
related to the history of the space-related interagency disagreement.
To assess the reliability of State‘s commodity jurisdiction data, we
compared the information in the files reviewed to the data and found
inconsistencies. However, we determined that these are the best
available data and are sufficiently reliable for assessing timeliness.
We discussed the commodity classification and jurisdiction processes
with companies. To select companies, we analyzed Commerce and State
data to identify companies that had experience with one or both
processes. We also obtained recommendations from industry associations
and others to develop a list of additional companies that had used
these processes. We then conducted structured interviews with officials
from 31 companies, which included small, medium, and large companies
with varying degrees of experience in using the export control
processes.
We conducted our work from May 2001 through September 2002 in
accordance with generally accepted government auditing standards. The
time taken by State, Commerce, and Defense to respond to our requests
for information and data adversely affected the timeliness of our
reporting.
We will send copies of this report to the Chairmen and Ranking Minority
Members of the House Committees on Government Reform, on International
Relations, and on Armed Services and Senate Committees on Governmental
Affairs, on Foreign Relations, on Armed Services, and on Banking,
Housing, and Urban Affairs. We will also send copies to the Secretaries
of State, Commerce, and Defense; the Director, Office of Management and
Budget; and the Assistant to the President for National Security
Affairs. In addition, this report will be made available at no charge
on the GAO Web site at http://www.gao.gov.
If you or your staff have questions concerning this report, please
contact me at (202) 512-4841. Others making key contributions to this
report are listed in appendix IV.
Sincerely yours,
Katherine V. Schinasi
Director, Acquisition and Sourcing Management:
Signed by Katherine V. Schinasi:
[End of section]
Appendix I: Comments from the Department of Commerce:
The following are GAO‘s comments on the Department of Commerce‘s letter
dated September 9, 2002.
Ms. Katherine V. Schinasi:
Director, Acquisition and Sourcing Management, United States General
Accounting Office, Washington, D.C. 20548:
Dear Ms. Schinasi:
Thank you for the opportunity to comment on the draft General
Accounting Office (GAO) report titled EXPORT CONTROLS: Processes for
Determining Proper Control of Defense-Related Items Need Improvement.
The report reaches two principal conclusions with respect to the
Commerce Department‘s commodity classification practices: (1) that the
Commerce Department has failed to refer to the Departments of State and
Defense certain commodity classification requests received from
exporters during the period 1998-2001 that should have been referred,
consistent with guidance issued by the National Security Council (NSC)
in 1996, and (2) that, ’as a result of the limited referrals, Commerce
has improperly classified some State-controlled items as Commerce-
controlled.“ We believe that both conclusions are based on erroneous
facts and, therefore are fundamentally flawed.
The report‘s conclusions are all premised on the GAO‘s identification
of 253 (out of over: 12,000) commodity classification requests that
the Commerce Department received that the GAO believes, ’appear to
meet Commerce‘s referral criteria“ but that the Commerce Department
did not refer. Commerce Department staff has reviewed these 253
requests.
It turns out that in 212 of these cases Commerce did not issue the
requester a commodity classification at all, but instead referred the
requester to the State Department. With respect to the remaining,
41 cases - more accurately, 39 cases, as the GAO appears to have
double-counted two cases - the report provides a superficial
explanation
of why the GAO believes referral was merited in those cases or how the
products in those cases were classified incorrectly. In fact, after
review,
we have determined that those 39 requests did not require referral
under either the 1996 NSC guidance or the Commerce Department‘s own
criteria. Moreover, those 39 requests were, in any event, classified
correctly.
To be sure, there may be differences among the agencies as to what
ideally the referral practice should be with respect to commodity
classification requests. The report itself cites unnamed
representatives of the Departments of State and Defense who believe
that the Commerce Department ’should be referring most, if not all,
commodity classifications to them.“ Whatever the potential merits of
such a broad referral policy (which would likely entail substantial
lengthening of the classification process with concomitant economic
costs), this approach clearly does not reflect the guidance set forth
by the NSC in 1996 and should not be used as the benchmark against
which to judge Commerce Department practices.
For the reasons stated above, we would urge that, prior to finalization
of this report, the GAO meet with Commerce Department technical experts
and clarify misunderstandings regarding the classification requests
that purportedly form the basis of the report‘s conclusions. More
detailed comments on the report are attached.
Sincerely,
Matthew S. Borman, Deputy Assistant Secretary:
Signed by Matthew S. Borman:
Attachment:
Department of Commerce Comments on the Draft GAO Report EXPORT
CONTROLS: Processes for Determining Proper Control of Defense-Related
Items Need Improvement (GAO Code 120062):
GENERAL COMMENTS:
1. The Report‘s Conclusions about Commerce‘s Classification Processes
Are Fundamentally Flawed because They Are Based on Erroneous Facts. The
Report‘s conclusions are premised on its assertion that during the
period 1998-2001, the Commerce Department failed to refer to other
agencies 253 commodity classification requests that should have been
referred. The Report states that, ’as a result of the limited
referrals, the Commerce Department has improperly classified some
State-controlled items as Commerce-controlled.“:
We have reviewed the 253 classification requests identified by the GAO
and believe that they do not support the GAO‘s conclusions. 212 of the
253 requests identified by the GAO never resulted in the issuance of a
classification by the Commerce Department at all and, therefore, could
not have been ’improperly classified“ by Commerce. Rather, upon an
initial review of these classification requests, the requests were
returned to the applicants and the applicants were referred directly to
the State Department.(1):
We have determined that the 41 remaining cases (which are in fact only
39 cases because the GAO ’double counted“ two of the cases) did result
in issuance of a commodity classification but did not require referral
to the other agencies. The GAO‘s premise for believing that these
requests should have been referred was apparently that the items at
issue in those requests appear to be covered by both the U.S. Munitions
List (USML) and the Commerce Control List (CCL). However, as the
Commerce Department noted in response to a previous GAO report (GAO
Code 707550), the fact that an item might appear to be covered by both
the USML and the CCL does not necessarily mean that jurisdiction over
the item is unclear (and thus that a referral is required). The CCL
describes - in far greater specificity than the USML - relevant
technical control parameters agreed upon by the Departments of
Commerce, State, and Defense. An item that meets those parameters is
not on the USML by interagency agreement. For example, one of the non-
referred classifications that the GAO identified was for AFLATOXIN.
Although toxins that fall outside the CCL control parameters might
be covered by the USML, this toxin is clearly on the CCL (Export
Control Classification Number (ECCN) IC351.d.1 1). This item,
therefore, is not under State jurisdiction and did not require
referral.
In any event, we have reviewed the 39 remaining cases and determined
that they were correctly classified because they all clearly fell
within the relevant CCL entries. The GAO‘s report provides no evidence
to the contrary (2).
2. The Report Erroneously Faults Commerce for ’Rarely“ Referring
Commodity Classification Requests. As noted above, the Report‘s
conclusion - that the Commerce Department did not refer classification
requests that it should have - is fundamentally erroneous. More
generally, the Report suggests that the Commerce Department refers
classification requests too ’rarely.“ In fact, the Commerce Department
refers inter-agency those requests that it is required to refer under
the National Security Council‘s (NSC) 1996 Guidance.
The NSC Guidance provides that the Commerce Department will share
commodity classification requests with the Departments of State and
Defense for items specifically designed, developed, configured,
adapted, or modified for a military application, or derived from items
specifically designed, developed, configured, adapted, or modified for
a military application. These criteria define a narrow category of
items and clearly belie the assertions of representatives of State and
Defense, as provided in the Report, that the Commerce Department
’should be referring most, if not all, commodity classifications to
them.“:
The dual-use export control system administered by the Commerce
Department is broad in scope - covering all items in the U.S. economy,
except items specifically under the jurisdiction of other Departments.
Commodity classification requests cover the full range of these items.
With respect to many of these requests, there is no issue about the
item potentially being ’designed ... for a military application“ or
’modified for a military application,“ and thus subject to referral
under the NSC Guidance. Rather, these requests concern whether an item
is appropriately classified under one CCL sub-category or another.
Accordingly, it is appropriate that Commerce Department referrals be
relatively ’rare.“(3):
To be sure, the NSC Guidance could be interpreted in such an awkward
fashion as to merit referral of a larger array of commodity
classification requests. For example, a product such as the Barbie Chat
With Me walkie talkie could require referral because the first portable
FM two-way radio was originally designed by Motorola for the U.S. Army
Signal
Corps in 1940. This is not how the NSC Guidance has been traditionally
interpreted, and such an interpretation would result in inefficient use
of scarce government resources and an unnecessary burden on U.S.
exporters.
3. The Report Fails to Evaluate Compliance with All NSC-Mandated
Referral Processes. Although the Report reviews Commerce Department
referral and classification decisions under the 1996 NSC guidance, it
does not evaluate implementation of the reciprocal NSC requirement that
the State Department refer certain munitions license applications to
the Commerce Department for review. Since 1996, the Commerce Department
has received only one informal referral of a munitions license from the
State Department. The Report also fails to evaluate whether
jurisdictional decisions by the State Department or jurisdictional
assertions by the Defense Department are consistent with jurisdictional
criteria set forth in the International Traffic in Arms Regulations
(ITAR). If incorrect, such decisions could adversely affect U.S.
economic welfare, and could also can skew perceptions of what types of
items appropriately merit commodity classification referrals.
4. The Report Fails to Recognize the Nature of Commodity Classification
Determinations. Commodity classification requests are not licensing
determinations. Rather, they are objective, determinations as to
whether an item meets the technical parameters of a specific ECCN. The
Report fails to note that the Commerce Department officials responsible
for commodity classifications are seasoned engineers with experience in
industry and the military. Commerce Department engineers have the
ability to properly evaluate the technical specifications of a
commodity and match those specifications to one of the detailed ECCN
entries on the CCL. It is also important to note that the ITAR does not
define what is meant by specifically designed, developed, configured,
adapted, or modified for a military application.
5. Commerce Cannot Confirm GAO‘s Assertions regarding Median Processing
Times for Commodity Jurisdiction Cases. The Commerce Department is
unable to verify the GAO‘s assertions regarding the median processing
time of the Commerce Department for commodity jurisdiction responses to
State. The Commerce Department does not have access to data used by the
GAO for its review. We would note, however, that the data should
exclude the time the case was not under the Commerce Department‘s
control (i.e., the time between the Commerce Department‘s initial
response and when the Commerce Department might reopen the case to
appeal the State Department‘s initial determination); otherwise, the
median processing time will be overstated. We would further note that
the amount of time between the Commerce Department‘s initial
recommendation and the State Department‘s initial determination is
considerable. For example, on one commodity jurisdiction case, the
Commerce Department provided its initial response to the State
Department on November 6, 2000, and reopened the case on February 15,
2001 to appeal the State Department‘s initial determination. Because
the Commerce Department‘s electronic database used to track these cases
is old and relatively unsophisticated, it shows the Commerce Department
as taking 126 days to process this case.
This figure represents the number of days from initial referral to the
Commerce Department until the Commerce Department‘s appeal of State
Department‘s initial determination was completed. This number is far
greater than the actual number of days the Commerce Department had the
case. For this case, the Commerce Department‘s actual review time was
24 days; the State Department‘s was 102 days. This limitation will be
addressed in the redesign of the Commerce Department‘s Export Control
Classification System (ECASS); however, it is an important
characteristic for the GAO to note in calculating median processing
time.
SPECIFIC COMMENTS:
Page 2:
As noted above, the Commerce Department disagrees with the assertion
that it has improperly classified some State-controlled items. The
Commerce Department also disagrees that 253 that were not referred
commodity classification requests appear to meet the referral criteria.
Regarding classification processing times, the Commerce Department is
taking several steps to reduce such times, including hiring additional
engineers (six in fiscal year 2002 and an additional four, if the
budget request is appropriated, in fiscal year 2003), implementing the
ability to place commodity classifications on hold without action
status in ECASS while licensing analysts wait for additional
information from the exporter, and improving the electronic commodity
classification system as part of the ECASS upgrade.
As noted above, the Commerce Department cannot evaluate GAO‘s
calculation of our median processing time for commodity jurisdiction
requests. For commodity jurisdiction requests for space qualified
items, the Department of Commerce, State, and Defense have reached
agreement on this issue. The Departments of Commerce and State will be
issuing implementing rules soon.
Page 3:
It should be noted that the export control system administered by the
Commerce Department has considerable input from the Department of State
and the Department of Defense, which clear on all substantive changes
to the Export Administration Regulations (EAR), including changes to
the CCL. Under Executive Order 12981, as amended, those Departments can
make recommendations on all license applications submitted to the
Commerce Department.
Page 4:
On the specific case referenced, jurisdiction on the specific technical
data at issue was not clearly delineated in the EAR and the ITAR.
Page 5:
As noted above, the Commerce Department disagrees that it has
improperly classified items. The GAO has only one example of a case in
which it alleges the Commerce Department classified an item as on the
CCL and the State Department subsequently issued an inconsistent
commodity jurisdiction determination. However, the GAO refused to
provide the Commerce Department any information on this case; thus, the
Commerce Department cannot evaluate the GAO‘s assertion. The Commerce
Department notes that when this item was placed on the CCL, through an
interagency cleared rule, there was no corresponding change to the
USML. The GAO also failed to review whether the State Department‘s
determination comported with the USML criteria set forth in the ITAR.
Page 6:
Regarding the classification request for a military vehicle converted
for civilian use, it should be noted that this involves the civil
derivative of that vehicle. The Commerce Department properly referred
this request because it was not for the finished vehicle (which has
been classified under the EAR for nearly 10 years), but rather for the
frame and power transfer systems which have a higher percentage of
commonality between the civil and the military versions of the vehicle.
As noted above, the notion that most, if not all, classifications
should be referred to the Departments of State and Defense is
inconsistent with the scope and establishment of the CCL and Commerce
Department jurisdiction.
Pages 7-10:
In addition to the 253 licenses referenced above, GAO also discusses
’several“ non-referred classifications that it claims were improperly
classified (page 8 of the Report). Despite Commerce Department
requests, GAO refused to provide either the classification numbers or
the related license application numbers for these cases. As a result,
the Commerce Department is unable to address in detail GAO‘s
assertions. Nonetheless, several comments can be made based on the
information in the Report. First, if the State Department or the
Defense Department raise a jurisdictional claim in processing a license
application submitted to the Commerce Department, the application
generally must be returned without action to the exporter to apply for
a commodity jurisdiction determination from the State Department.
Returning such applications to the applicant does not reflect agreement
by the Commerce Department that the item may be on the USML. Rather, it
reflects the practical reality that the application cannot be further
processed without a commodity jurisdiction determination. Second, for
the four classifications noted on page 7 of the Report, three of which
involved night vision equipment, there is an interagency MOU on night
vision items that the Commerce Department applies to such commodity
classifications. In the case of the explosive detection devices covered
under ECCN 2A993 (page 7 and 9), this CCL control was approved
interagency, but there was no counterpart revision of the USML.
Classifications for such items were likely proper under existing
guidelines. The Commerce Department also notes that GAO did not discuss
any of these cases with Commerce Department technical experts during
this review. Such a discussion would have led to a better informed
analysis of these cases.
Also see above comments on steps the Commerce Department is taking to
improve the timeliness of its classifications. Specific to Commerce
Department actions having an impact on State Department enforcement
actions, the Commerce Department fails to see how returning
classification requests to applicants and informing them to contact
State could affect enforcement actions. If anything, Commerce
Department responses should strengthen enforcement cases by putting
companies on notice to contact the State Department.
Page 15:
See above comments on Commerce Department commodity jurisdiction
processing times.
Page 18:
The Commerce Department has not altered the balance of the dual-use
export control system. Even by GAO‘s calculations, only a very small
percentage of classification requests would be referred to the
Departments of State and Defense. Not considering the cases for which
the Commerce Department told applicants to contact the State
Department, the number of cases identified is less than one-third of 1
percent. This hardly represents an altering of the balance. Moreover,
of the cases GAO identified to the Commerce Department, our review
indicates these classifications were properly not referred and properly
classified based on the interagency cleared criteria in the EAR.
Consequently, although improvements can be made to the classification
review system, it does not represent a risk to national security.
Regarding the impact on industry, the Commerce Department notes that
GAO failed to review how the Departments of State and Defense apply the
ITAR criteria for USML items and State Department‘s sharing of
munitions license applications with the Commerce Department under the
NSC guidance.
COMMENTS ON GAO‘S RECOMMENDATIONS:
As set forth above, the Commerce Department believes that the draft
report is fundamentally flawed with respect to its conclusions
concerning the Commerce Department‘s commodity classification
processes, and urges further consultation between GAO and the
Department before finalizing the study. Such further consultation may
affect the GAO‘s recommendations. In the event that GAO decides not to
seek further consultation, we offer the following comments on the
recommendations provided.
Recommendation: Promptly review existing guidance and develop, with the
concurrence of the appropriate entities within State and Defense,
criteria for referring commodity classification requests to those
departments.
Comment: The Commerce Department supports an interagency review of the
NSC guidance, including referral of munitions license applications and
application of the ITAR criteria for the USML, to address any mis
perception that the Commerce Department does not refer enough
classifications.
Recommendation: Develop with the concurrence of State‘s Office of
Defense Trade Controls, procedures for referring requests that are
returned to companies because the items are State-controlled or require
a commodity jurisdiction review.
Comment: The Commerce Department will discuss this recommendation with
the State Department to determine the most effective way to address
this issue.
Recommendation: Revise guidance for companies on the information to be
provided with commodity classification requests and consider including
a requirement for information on an item‘s origins and applications.
Comment: The Commerce Department will solicit public comment on this
recommendation. Note that the EAR provides exporters detailed guidance
in Section 748.3 and Supplement No. 1 to part 748 on the correct way to
submit classification requests and the type of information needed to
conduct a technical analysis. On GAO‘s suggestion that exporters should
be required to provide information on an item‘s origin and
applications, exporters are currently required to provide the name of
the manufacturer, if known, and a technical description of the items.
Applying this recommendation too broadly could have the unintended
consequence of catching clearly commercial items, such as the toy
described above.
Recommendation: Assess the amount of resources needed to comply with
the
regulations, then either reallocate resources as appropriate or make a
regulatory change that reflects a time frame that is consistent with
available resources.
Comment: The Commerce Department has already done this in its fiscal
year 2002 and 2003 budget requests. The time frame for commodity
classifications is set by statute.
Recommendation: Direct the respective entities within their departments
to assess the amount of resources needed to make jurisdiction
recommendations and determinations within established time frames, then
either reallocate resources as appropriate or seek changes to the
established time frame that are consistent with available resources.
Comment: As noted above, the Commerce Department has already done so.
Recommendation: Revise interagency guidance to incorporate any changes
to
the referral process and time frames for making decisions.
Comment: This recomendation will be covered in addressing the first
recommendation:
Notes:
(1) Classification requests that clearly involve items specifically
designed, developed, configured, adapted, or modified for a military
application are returned to the exporter without action and with
instructions that the exporter consult with the State Department. It is
not necessary to consult with the Departments of State or Defense when
it is clear that the Commerce Department does not have jurisdiction. In
these cases, the applicant is directed to the Department of State.
Putting such cases into the referral process would likely prolong the
process for the exporter and needlessly consume limited government
resources. It remains the exporter‘s responsibility to comply with all
export laws, regardless of whether the Commerce Department or the State
Department has jurisdiction.
(2) The GAO Report also made reference to an additional four cases that
will be discussed later in these comments.
(3) It should be noted that, even if GAO were correct about the 253
requests discussed above (which it is not), Commerce Department
referrals would still be relatively rare - i.e., they would occur in
approximately 2 percent of the cases.
GAO Comments:
1. Commerce misrepresented our findings and conclusions because it
incorrectly combined two different findings related to the commodity
classification process by suggesting that we concluded that all 253
requests resulted in improper classifications. The 253 requests
identified in our report represent cases that appear to meet the
National Security Council or Commerce‘s stated referral criteria but
were not referred to State and Defense for interagency review.
Separately, our report discusses several instances in which Commerce
improperly classified State-controlled items. We concluded that not
referring commodity classification requests that appear to meet the
referral criteria increases the risk of improper classification.
As already noted in our report, 212 commodity classification requests
were returned to companies without classifications because Commerce
determined that the items involved were either State-controlled or
possibly State-controlled. Commerce‘s footnote acknowledges that these
requests clearly meet the National Security Council referral criteria
as they involve items ’specifically designed, developed, configured,
adapted, or modified for a military application,“ yet Commerce stated
that it is not necessary to refer such requests. However, as stated in
our report, we identified instances in which Commerce referred similar
requests to State and Defense. We also found that by not consistently
referring such requests, Commerce does not provide State with an
opportunity to ensure that companies comply with the Arms Export
Control Act. For example, we identified several companies that did not
register with State after Commerce returned their classification
requests and advised them that their items were State-controlled.
The identification of the remaining 41 classification requests that
were not referred, despite appearing to meet the referral criteria, was
based on our analysis of Commerce‘s data. We did not find any
duplicates and were not able to independently verify Commerce‘s
statement. We, therefore, have no basis for revising the numbers
contained in our report.
2. Commerce maintains that an item appearing on both control lists does
not necessarily mean that it is unclear which department has
jurisdiction over the item, because Commerce‘s control list contains
technical control parameters that differentiate jurisdiction. We do not
agree because Commerce‘s control list does not always provide such
technical control parameters. For example, the requests we identified
as having unclear jurisdiction were classified in Commerce Control List
categories that either contain technical control parameters identical
to those on the U.S. Munitions List or do not contain specific
parameters to clearly differentiate those items that are Commerce-
controlled.
3. As discussed in comment 1, these cases were identified as appearing
to meet the referral criteria but were not referred to State and
Defense.
4. We disagree that Commerce refers requests as required by the
National Security Council guidance. As noted in our report, Commerce
officials admitted that they inconsistently apply the guidance. Defense
and State officials informed us that under their interpretations of the
guidance, Commerce should be referring most, if not all, commodity
classifications. The guidance does not provide a common definition of
terms to be used when applying the criteria. Commerce officials
informed us that they have never met with Defense or State officials to
define key terms or to agree on a common interpretation of the
guidance. Further, we disagree with Commerce‘s assertion that the 253
commodity classification requests that we identified represent all the
requests that should have been referred. After reviewing a subset of
Commerce data, we found at least 253 requests that appear to meet the
referral criteria, but we did not conclude that this represents all the
requests that should have been referred.
5. As discussed in our report, the departments have different
interpretations of the National Security Council guidance, particularly
as it relates to items derived from military applications. There is no
’traditional“ interpretation of the guidance. The example Commerce
provides in its comments does not reflect the complexity or sensitivity
of the types of items, such as night vision devices, which may meet the
referral criteria.
6. The objectives of our report were to assess how Commerce and State,
respectively, implement the commodity classification and commodity
jurisdiction processes, not to assess the implementation of the
National Security Council guidance as it relates to other processes
such as licensing.
7. We assessed the implementation of the commodity jurisdiction process
and did not evaluate the resulting determinations. In its
implementation of the commodity jurisdiction process, State provides
Commerce and Defense the opportunity to provide input on jurisdiction
determinations and to escalate requests when there is a disagreement
over the appropriate jurisdiction for an item.
8. Our report clearly reflects the nature of commodity classifications
and the fact that they are not licensing determinations. We would note,
however, that of the classifications provided by Commerce during our
review period, about two-thirds involved classifications for items that
generally would not require export licenses to most destinations. As a
result, the classification process may be the only opportunity for
State and Defense to become aware of what companies are exporting.
While Commerce officials may be knowledgeable about the Commerce
Control List, State and Defense officials have the authority and
expertise to determine whether an item is covered by the U.S. Munitions
List. The National Security Council guidance was issued to improve
interagency coordination and transparency by providing State and
Defense a role in the commodity classification process.
9. Our analysis of Commerce‘s median processing time for commodity
jurisdiction cases is based on data provided by State. The median
processing time, as contained in the report, reflects the amount of
time that lapsed between when State referred the case to Commerce and
when Commerce provided its initial input. Therefore, our calculation
does not need to be revised.
10. See comments 1 and 15.
11. While Commerce notes that State and Defense have roles in reviewing
Commerce‘s regulations and license applications, we are not
incorporating this comment because it is not relevant to understanding
the roles of these departments in the commodity classification process.
12. The technical data that Commerce refers to in its comment involved
State-controlled missile technology that was exported to China based on
an improper Commerce classification. A congressional inquiry determined
that U.S. national security was harmed as a result. This incident
highlights the risk of Commerce making commodity classification
decisions without input from State and Defense. We note that Commerce
admits that jurisdiction is not always clearly delineated between
Commerce and State regulations.
13. Our report identifies several instances in which Commerce
improperly classified State-controlled items. The one case referred to
in Commerce‘s comments involved explosive detection devices that were
classified by Commerce but were later determined to be State-controlled
through the commodity jurisdiction process. When these devices were
reviewed through the commodity jurisdiction process, Commerce provided
its recommendation on the appropriate jurisdiction and chose not to
escalate State‘s determination that the items were
State-controlled. As we explained to Commerce officials, we were unable
to provide Commerce with documents or other evidence related to this
case due to our policy to protect proprietary information.
14. As noted in comment 8, the National Security Council guidance
provides a role for State and Defense in the commodity classification
process. Furthermore, Commerce‘s comment reflects a disagreement with
State and Defense as to which commodity classification requests should
be referred in accordance with the guidance.
15. In our report, we identified three instances in which
jurisdictional questions were raised during the license application
review process. These license applications involved items for which
Commerce had previously issued commodity classifications, but were
identified by Defense in the license review process as being State-
controlled. While Commerce may not agree with Defense‘s position,
Commerce does not have the authority to determine which items are not
subject to State‘s jurisdiction. By law, Commerce can only control, and
therefore classify, items that are not controlled by another
department. In its comments, Commerce refers to an interagency
memorandum of understanding regarding which department has jurisdiction
over certain night vision devices. However, there is currently an
interagency disagreement on how the memorandum should be interpreted
and, as mentioned in our report, an interagency debate on how night
vision devices are to be controlled. Commerce also refers to the case
involving the explosive detection devices and suggests that it did not
improperly classify the devices. However, the devices were ultimately
determined to be State-controlled through the commodity jurisdiction
process, as discussed in comment 13. Also, we did not provide Commerce
with the requested information because it was proprietary information
obtained from other sources. While we did not discuss these specific
cases with Commerce officials to protect the identity of the companies
involved, we did review government documents related to the cases and
discussed the cases with company and other government officials.
16. Commerce states that when it returns a classification request to a
company indicating that the item is subject to State‘s jurisdiction, it
puts the company on notice. However, Commerce‘s practice does not
provide State with an opportunity to obtain information on companies
that need to register with State.
17. Our conclusion considers the effects our findings have on the
entire export control system, which consists of separate regulatory
regimes for defense and dual-use items. As noted in comments above, we
did not attempt to identify all commodity classification requests that
appear to meet referral criteria or those that resulted in improper
classifications. The examples contained in the report are illustrative
of weaknesses in Commerce‘s implementation of the commodity
classification process. Furthermore, one improper classification can
have serious implications for U.S. national security, as demonstrated
by the release of missile technology to China discussed in the report.
In discussing the impact on industry, Commerce‘s comments do not
acknowledge that improper classifications can place companies at a
competitive disadvantage. Specifically, a company may be exporting
through State while its competitor may be exporting the same item
through Commerce, based on an improper classification from Commerce.
18. The findings contained in our draft report were discussed in detail
with Commerce officials before the draft was provided to Commerce for
official comment. After considering Commerce‘s written comments, we are
confident that the report accurately reflects information provided by
Commerce, Defense, State, and company officials during our review.
We have revised our recommendation because Commerce believes that it
cannot change the time frame for responding to commodity classification
requests.
[End of section]
Appendix II: Comments from the Department of State:
SEP 10 2002:
Dear Ms. Westin:
We appreciate the opportunity to review your draft report, ’EXPORT
CONTROL: Processes for Determining Proper Control of Defense-Related
Items Need Improvement,“ GAO-02-996, GAO Job Code 120062.
The Department‘s comments are enclosed for incorporation, along with
this letter, as an appendix to the GAO final report.
If you have any questions regarding this response, please contact Peter
Berry, Office of Defense Trade Controls, Bureau of Political Military
Affairs on (202) 663-2806.
Sincerely,
Christopher B. Burnham, Assistant Secretary and Chief Financial
Officer:
Signed by Christopher B. Burnham:
Department of State Comments on GAO Draft Report:
EXPORT CONTROLS: Processes for Determining Proper Control of Defense-
Related Items Need Improvement (GAO-02-996, GAO Code 120062):
State Department comments on this draft report are set forth in detail.
As always, Department officers are prepared to discuss and elaborate on
these comments in person at any time.
The State Department welcomes the opportunity to comment on the draft
report, entitled ’Processes for Determining Proper Control of Defense-
Related Items Need Improvement.“ We agree with your observation that
what is controlled is fundamental to proper implementation of the
system and we are committed to meeting established time lines. Over the
past year have take steps to better do so. We appreciated the finding
that the commodity jurisdiction (’CJ“) requests managed by the
Department were consistently transparent and coordinated interagency
with Defense and Commerce in all instances. It would appear appropriate
to highlight this more visibly in the draft report because the specific
purpose of the April 15, 1996, NSC procedures on commodity jurisdiction
and commodity classification is, as stated in that document, ’to
improve interagency coordination and transparency.“:
Your report recommended that the Department consider either assigning
additional resources to the Office of Defense Trade Controls in order
to meet the goal established in the NSC procedures of a 95-day
cumulative
timeline for responding to commodity jurisdiction requests submitted by
exporters or revising the goal. We agree with the spirit of this
objective
and in March 2001, in response to a recommendation from the Department
of
State‘s Office of Inspector General, Office of Audits, did, in fact,
assign an additional full time officer to the CJ function. Since then,
there has been steady progress made in reducing timelines, as reflected
in the following data (which we shared with the GAO team):
Table 1: Progress Toward 95-Day Cumulative Timeline:
[See PDF for Image]
[End of table]
The Department believes that at the current rate, the median overall
timeline for CJs will be consistent with the NSC goal of 95 days by the
end of the first half of fiscal year 03. If it is not, the Department
will consider whether additional resources should be assigned or the
timeline revised at that time. We are also instituting other
enhancements consistent with our commitments to State‘s OIG. For
example, we have entered into discussions with Commerce (BIS) to map-
out a pilot program for full electronic CJ submissions. This program
should be initiated during 2003. Similarly, as noted to the GAO audit
team, we are developing an approach for making greater information
available as a matter of public record on CJ determinations via the DTC
Internet web site, while protecting those business interests accorded
confidentiality under Section 38(e) of the AECA. This approach will
also be initiated during 2003, subject to further consultation with the
Department‘s Office of the Legal Adviser and with the U.S. defense
industry through the relevant advisory committee (i.e., Defense Trade
Advisory Group).
Your report also recommended that ’the Secretary of State direct the
office of Defense Trade Controls to issue initial determinations in
accordance with the guidance“ (even when other departments have not
provided their input). We disagree with this recommendation in view of
the overall improvement in CJ timelines (noted above) and in light of
the longstanding policy and practice of ODTC, which the Department
believes should continue, to accord great deference in this area to the
national security views of the Department of Defense. A better
approach, which we are following, is to enlist greater cooperation from
other departments in meeting established timelines consistent with U.S.
foreign policy and security interests. The Bureau of Political-Military
Affairs is committed to adhering to established time lines and is
approaching senior DoD officials to emphasize the importance of timely
responses in CJ decision-making, and will also continue to remind other
interagency participants of the established guidelines. If our approach
does not produce the desired results over the next twelve months, we
will re-examine your recommendations.
Related to your recommendations in this area, please allow us to point
out also that the draft report appears to omit that ODTC is
consistently meeting the 5-day timelines for initial referral of CJ
applications to other agencies and that these referrals are for the
express purpose (spelled-out in the NSC Procedures) of providing other
departments with a basis upon which to submit recommendations to ODTC,
preparatory to ODTC‘s initial determination. In this respect, it is not
the case, as the draft report may unintentionally imply, that CJ
submissions are not being acted upon until after the notional 55-day
period for initial determination. The data on this point indicate that
ODTC has consistently acted upon all CJ requests received from US
exporters in a timely fashion:
Table 2: Referrals by State Now Beat 5-Day Initial Timeline:
[See PDF for image]
[End of table]
The following are GAO‘s comments on the Department of State‘s letter
dated September 10, 2002.
GAO Comments:
1. While State consistently referred commodity jurisdiction requests to
Commerce and Defense, we found indications in State‘s data that a
limited number of requests were not referred to both departments.
However, we could not confirm with State whether these cases were not
referred because State officials did not provide responses to questions
regarding specific jurisdiction requests.
2. During our review, State officials showed us the information
contained in State‘s table 1. However, they did not provide us with the
supporting data that would be needed to verify State‘s progress in
reducing the amount of time to process jurisdiction requests.
Furthermore, as noted in the report, State officials did not provide us
with complete data for fiscal year 2001, despite our requests.
3. While we recognize State‘s efforts to reduce the amount of time to
process jurisdiction requests, we note that the National Security
Council guidance establishes 95 days as the maximum amount of time in
which escalated cases are to be resolved. According to the guidance,
final jurisdiction determinations should be issued in less than 65 days
after a request is received, unless the case is escalated.
4. The issuance of an initial determination prior to receiving input
from Defense or Commerce still provides Defense and Commerce an
opportunity to express their views on the appropriate jurisdiction for
an item, as those departments can escalate the initial determination if
they disagree. Also, as discussed in the report, the issuance of an
initial determination serves to increase the priority level Defense and
Commerce assign to commodity jurisdiction reviews and is, therefore, a
mechanism for facilitating the timely resolution of jurisdiction
requests. We agree that State should emphasize to the other departments
the importance of receiving timely input.
5. We revised the text to reflect the amount of time taken by State to
refer jurisdiction requests to Defense and Commerce once it received
the requests. Our analysis of State‘s data indicates that State took a
median of 5 days to refer a request to Defense and 6 days to refer a
request to Commerce for our review period.
[End of section]
Appendix III: Comments from the Department of Defense:
SEP 3 2002:
Ms. Katherine Schinasi:
Director, Acquisition and Sourcing Management, U.S. General Accounting
Office:
441 G Street, N.W. Washington, D.C. 20548:
Dear Ms. Schinasi:
This is the Department of Defense (DoD) response to the GAO draft
report, ’EXPORT CONTROLS: Processes for Determining Proper Control of
Defense-Related Items Need Improvement,“ dated August 8, 2002 (GAO Code
120062/GAO-02-996).“:
Specific remarks related to your recommendations are attached. Thank
you for the opportunity to comment on this draft report.
Lisa Bronson:
Deputy Under Secretary of Defense, Technology Security Policy and
Counterproliferation:
Signed by Lisa Bronson:
Attachment: As stated:
GAO DRAFT REPORT - DATED AUGUST 8, 2002 GAO CODE 120062/GAO-02-996:
’EXPORT CONTROLS: Processes for Determining Proper Control of Defense-
Related Items Need Improvement“:
COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: To increase transparency to stakeholders and minimize
the risk of Commerce making jurisdictional determinations through the
commodity classification process, the GAO recommended that the
Secretary of Commerce direct the Bureau of Industry and Security to
promptly review existing guidance and develop, with the concurrence of
the appropriate entities within State and Defense, criteria for
referring commodity classification requests to those departments. In
developing the criteria, the departments should agree on a common
definition of terms to be contained in the criteria. Until the
departments develop and implement referral criteria, the risk of
Commerce improperly classifying State-controlled items will continue to
exist. (p. 19/GAO Draft Report):
RESPONSE: In many respects the existing guidance is generally
straightforward. The larger problem is the lack of sufficient
information contained in commodity classification requests. We are
prepared to work with Commerce to develop and implement additional
referral criteria.
RECOMMENDATION 3: To insure that Commerce has sufficient information to
make timely and appropriate commodity classifications, we recommend
that the Secretary of Commerce direct the Bureau of Industry and
Security to revise guidance for companies on the information to be
provided with commodity classification requests and consider including
a requirement for information on an item‘s origins and applications.
RESPONSE: Although this recommendation is not directed to DoD, we
concur with this recommendation, particularly regarding the inclusion
of a requirement for information on an item‘s origins and applications
to be mandatory information submitted with commodity classification
requests. Such information should not only improve the timeliness and
quality of the Commerce response, but also reduce the number of
classification requests referred to the commodity jurisdiction process
due to insufficient information. We are prepared to assist Commerce in
revising guidance related to commodity classification requests and
suggest that this could be done in conjunction with the GAO‘s
recommended development and implementation of commodity classification
referral criteria (see Recommendation 1).
RECOMMENDATION 5: To improve the timeliness of the commodity
jurisdiction process, the GAO recommended that the Secretaries of
State, Commerce, and Defense direct the respective entities within
their departments to assess the amount of resources needed to make
jurisdiction recommendations and determinations within established
time frames, then either reallocate resources as appropriate or seek
changes to the established time frame that are consistent with
available resources. (p. 19/GAO Draft Report):
RESPONSE: As noted in your report, DTSA has recently hired an
additional staff person to work on commodity jurisdiction requests.
While we anticipate that this action will greatly contribute to
reducing Defense processing time, we will continue to monitor and
assess the overall commodity jurisdiction review process and take
further action as necessary.
RECOMMENDATION 6: To improve transparency and consistency of the
commodity classification and jurisdiction processes, the GAO
recommended that the Secretaries of State, Commerce, and Defense revise
interagency guidance to incorporate any changes to the referral process
and time frames for making decisions. (p. 20/GAO Draft Report):
RESPONSE: We are prepared to work with State and Commerce to improve
transparency and consistency of both the commodity classification and
commodity jurisdiction processes.
Note: A GAO comment supplementing those in the report text appears at
the end of this appendix.
The following is GAO‘s comment on the Department of Defense‘s letter
dated September 3, 2002.
GAO Comment:
1. Because Commerce, State, and Defense officials expressed different
interpretations of the National Security Council guidance during our
review, we do not agree that the existing guidance is generally
straightforward.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Anne-Marie Lasowski, (202) 512-4146:
Acknowledgments:
John Neumann, Johana R. Ayers, Raymond H. Denmark, W. William Russell
IV, Richard K. Geiger, Markques Y. McKnight, and Christina Sklarew also
made significant contributions to this report.
[End of section]
Related GAO Products:
Defense Trade: Lessons to Be Learned from the Country Export Exemption.
GAO-02-63. Washington, D.C.: March 29, 2002.
Export Controls: Reengineering Business Processes Can Improve
Efficiency of State Department License Reviews. GAO-02-203. Washington,
D.C.: December 31, 2001.
Export Controls: Clarification of Jurisdiction for Missile Technology
Items Needed. GAO-02-120. Washington, D.C.: October 9, 2001.
Defense Trade: Information on U.S. Weapons Deliveries to the Middle
East. GAO-01-1078. Washington, D.C.: September 21, 2001.
Export Controls: State and Commerce Department License Review Times Are
Similar. GAO-01-528. Washington, D.C.: June 1, 2001.
Export Controls: Regulatory Change Needed to Comply with Missile
Technology Licensing Requirements. GAO-01-530. Washington, D.C.:
May 31, 2001.
Defense Trade: Observations on Issues Concerning Offsets. GAO-01-278T.
Washington, D.C.: December 15, 2000.
Defense Trade: Data Collection and Coordination on Offsets.
GAO-01-83R. Washington, D.C.: October 26, 2000.
Defense Trade: Contractors Engage in Varied International Alliances.
GAO/NSIAD-00-213. Washington, D.C.: September 7, 2000.
Defense Trade: Analysis of Support for Recent Initiatives.
GAO/NSIAD-00-191. Washington, D.C.: August 31, 2000.
Foreign Military Sales: Changes Needed to Correct Weaknesses in
End-Use Monitoring Program. GAO/NSIAD-00-208. Washington, D.C.:
August 24, 2000.
Defense Trade: Status of the Department of Defense‘s Initiative on
Defense Cooperation. GAO/NSIAD-00-190R. Washington, D.C.:
July 19, 2000.
Defense Trade: Identifying Foreign Acquisitions Affecting National
Security Can Be Improved. GAO/NSIAD-00-144. Washington, D.C.:
June 29, 2000.
Foreign Military Sales: Efforts to Improve Administration Hampered by
Insufficient Information. GAO/NSIAD-00-37. Washington, D.C.:
November 22, 1999.
Foreign Military Sales: Review Process for Controlled Missile
Technology Needs Improvement. GAO/NSIAD-99-231. Washington, D.C.:
September 29, 1999.
Defense Trade: Department of Defense Savings from Export Sales Are
Difficult to Capture. GAO/NSIAD-99-191. Washington, D.C.:
September 17, 1999.
Defense Trade: Status of the Defense Export Loan Guarantee Program.
GAO/NSIAD-99-30. Washington, D.C.: December 21, 1998.
Defense Trade: U.S. Contractors Employ Diverse Activities to Meet
Offset Obligations. GAO/NSIAD-99-35. Washington, D.C.: December 18,
1998.
Defense Trade: Weaknesses Exist in DOD Foreign Subcontract Data. GAO/
NSIAD-99-8. Washington, D.C.: November 13, 1998.
FOOTNOTES
[1] For the purposes of this report, ’defense items“ refers to defense
articles and services as specified in the Arms Export Control Act.
[2] 50 U.S.C. App. secs. 2401 et seq. Authority granted by the act
terminated on August 20, 2001. Executive Order 13222 continues the
export control regime established under the act and the Export
Administration Regulations.
[3] 15 C.F.R. secs. 730-774.
[4] 22 U.S.C. secs. 2751 et seq.
[5] 22 C.F.R. secs. 120-130.
[6] 15 C.F.R. 748.3.
[7] Some items may also be designated ’EAR99,“ which serves as a
general designation for items that are covered by the Export
Administration Regulations but are not specified on the Commerce
Control List.
[8] 22 C.F.R. 120.4.
[9] Commerce referred another request in fiscal year 2001 that has not
been completed.
[10] One of the requests involved multiple items, most of which were
determined to be State-controlled.
[11] See General Accounting Office, Export Controls: Clarification of
Jurisdiction for Missile Technology Items Needed, GAO-02-120
(Washington, D.C.: Oct. 9, 2001).
[12] 22 U.S.C. sec. 2778(b).
[13] 22 C.F.R. 122.1.
[14] 15 C.F.R. 750.2.
[15] The National Security Council guidance indicates that Commerce and
Defense should provide their recommendations within 35 calendar days,
but they may request 10 additional days to submit recommendations for
extraordinary cases.
[16] We requested data on jurisdiction determinations made during
fiscal years 1998 through 2001. However, State only provided data on
determinations made from fiscal year 1998 through May 31, 2001.
[17] P.L. 101-246, Feb. 16, 1990. Under the statute, licensing of
State-controlled items for export to China is prohibited unless the
President reports to Congress that (1) China has achieved certain
political and human rights reforms or (2) it is in the U.S. national
interest.
[18] P.L. 105-261, Oct. 17, 1998.
[19] State and Defense are reviewing and revising different portions of
the U.S. Munitions List on an annual basis, as part of the Defense
Trade Security Initiative, to ensure that coverage on the list is
appropriate. See General Accounting Office, Defense Trade: Analysis of
Support for Recent Initiatives, GAO/NSIAD-00-191 (Washington, D.C.:
Aug. 31, 2000).
GAO‘s Mission:
The General Accounting Office, the investigative arm of Congress,
exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability
of the federal government for the American people. GAO examines the use
of public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO‘s commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO‘s Web site ( www.gao.gov ) contains
abstracts and full-text files of current reports and testimony and an
expanding archive of older products. The Web site features a search
engine to help you locate documents using key words and phrases. You
can print these documents in their entirety, including charts and other
graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as ’Today‘s Reports,“ on its
Web site daily. The list contains links to the full-text document
files. To have GAO e-mail this list to you every afternoon, go to
www.gao.gov and select ’Subscribe to daily E-mail alert for newly
released products“ under the GAO Reports heading.
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. General Accounting Office
441 G Street NW,
Room LM Washington,
D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.
General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.
20548:
