Defense Exports
Reporting on Exported Articles and Services Needs to Be Improved Gao ID: GAO-10-952 September 21, 2010The U.S. government exports billions of dollars of defense articles and services annually to foreign entities, generally through direct commercial sales (DCS) from U.S. companies under licenses issued by the State Department (State) or through the Department of Defense (DOD) Foreign Military Sales (FMS) program. GAO has previously reported on weaknesses in the export control system. As requested, GAO (1) identified the magnitude and nature of defense articles and services exported and (2) assessed information currently reported on defense exports and any gaps and limitations in defense export data. To conduct this work, GAO analyzed export data from DOD for FMS and the Department of Commerce's U.S. Census Bureau (Census) for DCS for 2005 through 2009; reviewed relevant laws and regulations; assessed State and DOD reports on defense exports; reviewed agency data systems documentation; and interviewed officials from State, DOD, Homeland Security, and Census.
U.S. exports of defense articles--such as military aircraft, firearms, and explosives--ranged from about $19 billion to $22 billion annually in calendar years 2005 to 2009. Of these defense articles, about 60 percent have been exported by companies to foreign entities through DCS licenses, while the remaining 40 percent were exported under the FMS program. Aircraft and related parts constitute the largest category of such exports--about 44 percent--followed by satellites, communications, and electronics equipment and their related parts. U.S. exports of defense articles were concentrated in a few countries: about half went to Japan, the United Kingdom, Israel, South Korea, Australia, Egypt, and the United Arab Emirates. Although no data are available on the export of defense services--such as technical assistance and training--provided through DCS, exports of defense services through FMS were stable, accounting for about one-third of the value of FMS exports. Congress does not have a complete picture of defense exports under current reporting--including which method of export is used more often by individual countries or for certain types of items. State--which has overall responsibility for regulating defense exports--and DOD, report to Congress in response to various requirements. However, their annual reports on DCS and FMS exports have several information gaps and inconsistencies--in part, because of the differing purposes of the agencies' data systems and different reporting methodologies. For example, State does not obtain data from U.S. companies on the export of defense services under DCS licenses, although it authorizes several billion dollars of such exports annually. State officials noted that they do not have an operational requirement to collect such information and doing so could be burdensome on exporters. Other limitations on defense export data include differences in agencies' item and country categorizations and the inability to separate data on some permanent and temporary exports. Further, while State's report is available on its Web site, DOD's is not. These differences and limitations may inhibit congressional oversight and transparency into the entirety of U.S. defense exports. GAO suggests that Congress consider whether it needs specific data on exported defense services and is recommending that State publicly report consolidated defense export data on DCS and FMS in a consistent manner. In the absence of additional direction and resources from Congress, State did not agree. GAO believes the recommendation remains valid.
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: Belva M. Martin Team: Government Accountability Office: Acquisition and Sourcing Management Phone: (202) 512-4285GAO-10-952, Defense Exports: Reporting on Exported Articles and Services Needs to Be Improved
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Report to the Committee on Foreign Affairs, House of Representatives:
United States Government Accountability Office:
GAO:
September 2010:
Defense Exports:
Reporting on Exported Articles and Services Needs to Be Improved:
GAO-10-952:
GAO Highlights:
Highlights of GAO-10-952, a report to the Committee on Foreign
Affairs, House of Representatives.
Why GAO Did This Study:
The U.S. government exports billions of dollars of defense articles
and services annually to foreign entities, generally through direct
commercial sales (DCS) from U.S. companies under licenses issued by
the State Department (State) or through the Department of Defense
(DOD) Foreign Military Sales (FMS) program. GAO has previously
reported on weaknesses in the export control system. As requested, GAO
(1) identified the magnitude and nature of defense articles and
services exported and (2) assessed information currently reported on
defense exports and any gaps and limitations in defense export data.
To conduct this work, GAO analyzed export data from DOD for FMS and
the Department of Commerce‘s U.S. Census Bureau (Census) for DCS for
2005 through 2009; reviewed relevant laws and regulations; assessed
State and DOD reports on defense exports; reviewed agency data systems
documentation; and interviewed officials from State, DOD, Homeland
Security, and Census.
What GAO Found:
U.S. exports of defense articles”such as military aircraft, firearms,
and explosives”ranged from about $19 billion to $22 billion annually
in calendar years 2005 to 2009. Of these defense articles, about 60
percent have been exported by companies to foreign entities through
DCS licenses, while the remaining 40 percent were exported under the
FMS program. Aircraft and related parts constitute the largest
category of such exports”about 44 percent”followed by satellites,
communications, and electronics equipment and their related parts.
U.S. exports of defense articles were concentrated in a few countries:
about half went to Japan, the United Kingdom, Israel, South Korea,
Australia, Egypt, and the United Arab Emirates. Although no data are
available on the export of defense services”such as technical
assistance and training”provided through DCS, exports of defense
services through FMS were stable, accounting for about one-third of
the value of FMS exports.
Figure: Exports of Defense Articles through Direct Commercial Sales
and Foreign Military Sales, Calendar Years 2005 through 2009:
[Refer to PDF for image: pie-chart]
FMS: 40.6%:
2005: $8.17 billion;
2006: $8.43 billion;
2007: $8.02 billion;
2008: $7.38 billion;
2009: $8.84 billion;
Total: $40.85 billion.
DCS: 59.4%;
2005: $10.60 billion;
2006: $11.71 billion;
2007: $12.19 billion;
2008: $12.05 billion;
2009: $13.31 billion;
Total: $59.86 billion.
Source: GAO analysis of DOD and census data.
Note: All values in billions adjusted to 2009 constant dollars and may
not add to total due to rounding.
[End of figure]
Congress does not have a complete picture of defense exports under
current reporting”including which method of export is used more often
by individual countries or for certain types of items. State”which has
overall responsibility for regulating defense exports”and DOD, report
to Congress in response to various requirements. However, their annual
reports on DCS and FMS exports have several information gaps and
inconsistencies”in part, because of the differing purposes of the
agencies‘ data systems and different reporting methodologies. For
example, State does not obtain data from U.S. companies on the export
of defense services under DCS licenses, although it authorizes several
billion dollars of such exports annually. State officials noted that
they do not have an operational requirement to collect such
information and doing so could be burdensome on exporters. Other
limitations on defense export data include differences in agencies‘
item and country categorizations and the inability to separate data on
some permanent and temporary exports. Further, while State‘s report is
available on its Web site, DOD‘s is not. These differences and
limitations may inhibit congressional oversight and transparency into
the entirety of U.S. defense exports.
What GAO Recommends:
GAO suggests that Congress consider whether it needs specific data on
exported defense services and is recommending that State publicly
report consolidated defense export data on DCS and FMS in a consistent
manner. In the absence of additional direction and resources from
Congress, State did not agree. GAO believes the recommendation remains
valid.
View [hyperlink, http://www.gao.gov/products/GAO-10-952] or key
components. For more information, contact Belva M. Martin at (202) 512-
4841 or martinb@gao.gov.
[End of section]
Contents:
Letter:
Background:
The Majority of U.S. Defense Articles Are Exported through Direct
Commercial Sales, with About Half Going to Relatively Few Countries:
Differences in Agencies' Reporting and Data Collection Limit
Visibility of Defense Exports:
Conclusions:
Matter for Congressional Consideration:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of State:
Appendix III: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Differences in Agencies' Reporting on Defense Exports:
Figures:
Figure 1: Exports of Defense Articles through DCS and FMS, Calendar
Years 2005 through 2009:
Figure 2: Value of Exports through FMS and DCS from Calendar Years
2005 through 2009 by Type of Defense Articles:
Figure 3: Top Seven Countries for Exports of Defense Articles,
Calendar Years 2005 through 2009:
Abbreviations:
AES: Automated Export System:
CBP: U.S. Customs and Border Protection:
DCS: direct commercial sales:
DDTC: Directorate of Defense Trade Controls:
DOD: Department of Defense:
DSCA: Defense Security Cooperation Agency:
FMS: Foreign Military Sales:
ITAR: International Traffic in Arms Regulations:
USML: United States Munitions List:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
September 21, 2010:
The Honorable Howard L. Berman:
Chairman:
The Honorable Ileana Ros-Lehtinen:
Ranking Member:
Committee on Foreign Affairs:
House of Representatives:
Each year, the U.S. government exports billions of dollars of defense
articles and services, such as military aircraft and related parts,
firearms, explosives, technical assistance, and training, that may
include critical technologies. The government views the export of
these articles and services as an integral part of safeguarding U.S.
national security and furthering U.S. foreign policy objectives. Over
the last decade, we have reported on weaknesses in the effectiveness
and efficiency of government programs designed to protect critical
technologies, which were largely attributable to poor coordination
among multiple U.S. government agencies, complex interagency
processes, and a lack of information sharing that together contributed
to export enforcement challenges. These findings, along with others,
prompted us to include the U.S. arms export control system as part of
a high-risk area on ensuring the effective protection of technologies
critical to U.S. national security interests since 2007.[Footnote 1]
The Department of State (State) regulates defense exports for
consistency with national security and foreign policy interests.
Eligible foreign entities[Footnote 2] can obtain U.S. defense articles
and services through the Department of Defense (DOD) Foreign Military
Sales (FMS) program or through direct commercial sales (DCS) from U.S.
defense companies under export licenses issued by State.
To ensure that there is an accounting of what defense articles and
services are actually exported from the United States, you asked us to
provide information on the scope of U.S. defense exports.
Specifically, we (1) identified the magnitude and nature of defense
exports and (2) assessed information currently reported on these
exports and limitations and any gaps in available defense export data.
For the purpose of this report, we define "defense exports" as the
permanent transfer--including shipment or delivery of defense articles
or provision of defense services--to foreign entities either through
DOD's FMS program[Footnote 3] or through license provided by State for
a DCS export. We excluded temporary exports--which leave from and
return to the United States without changing ownership--and articles
shipped to U.S. government end users located in foreign countries. To
identify information on the magnitude and nature of defense exports,
we analyzed calendar years 2005 through 2009 data from DOD for FMS
defense articles and services. We also analyzed data for the same
period from the Department of Commerce's U.S. Census Bureau (Census)--
which maintains data on exports--for DCS of defense articles.
Currently, no data are collected on the export of defense services
through DCS. Although our analysis focuses on exports of defense
articles, we obtained data from State on DCS licenses primarily to
assess the reliability of Census data. This report does not include
values for classified defense exports. However, we determined that
excluding classified data would not materially affect our high-level
analysis because the values of classified exports are small relative
to the overall export totals. We assessed the reliability of defense
export data by performing electronic testing, reviewing system
documentation, comparing our data to published and other available
information, and interviewing knowledgeable officials about data
quality and reliability, and determined that the data were
sufficiently reliable for the purpose of this review. For trend
analysis--that is, changes in values over time--we adjusted for the
effects of inflation by converting values to 2009 constant dollars.
To compare export data through FMS and DCS, we analyzed the different
item classification systems used by State, DOD, and Census and
developed a common classification system enabling analysis of the
values of defense articles by type of items. We also reviewed relevant
laws and regulations regarding the export of defense articles and the
requirements for reporting export information through Census's
Automated Export System (AES). To identify information currently
reported on defense exports, we obtained and analyzed the reports
issued by State's Directorate of Defense Trade Controls (DDTC) and
DOD's Defense Security Cooperation Agency (DSCA).[Footnote 4] To
identify any limitations and gaps in the agencies' data collection and
reporting, we reviewed data systems and related documentation at DDTC,
DSCA, and Census. We also interviewed officials at these agencies and
at the Department of Homeland Security's U.S. Customs and Border
Protection (CBP) on their export data collection processes.
Information on dual-use items--which can have both commercial and
military uses and are regulated by the Department of Commerce under a
separate control list--is outside the scope of this review. For more
detailed information on our scope and methodology, see appendix I.
We conducted this performance audit from February 2010 to September
2010 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Background:
The Arms Export Control Act[Footnote 5] authorizes the President to
control the export and import of defense articles and defense
services. The statutory authority of the President to promulgate
regulations with respect to exports of defense articles and defense
services and designate those items to be considered defense articles
and defense services[Footnote 6] for export control purposes has been
delegated to the Secretary of State.[Footnote 7] State administers the
arms export control system through requirements contained in the
International Traffic in Arms Regulations (ITAR)[Footnote 8] and
designates the articles and services deemed to be defense articles and
defense services. These designations are made by State, with the
concurrence of DOD, and constitute the United States Munitions List
[Footnote 9] (USML), which comprises 21 major categories--for example
Aircraft, Spacecraft, Military Electronics, and Guns and Armament--and
more detailed subcategories. The ITAR also designates defense services
subject to export controls, including furnishing assistance, technical
data, or training to foreign entities. As defense exports are part of
U.S. foreign policy, Congress requires reports to enable its
oversight, including annual reports under the Foreign Assistance Act
of 1961, as amended,[Footnote 10] Section 655 on defense exports,
commonly referred to as Section 655 reports.
U.S. defense articles and services generally can be exported to
foreign entities in two ways--by FMS or DCS. Under FMS, the U.S.
government procures defense articles and services on behalf of the
foreign entity. Countries approved to participate in this program may
obtain defense articles and services by paying with their own funds or
with funds provided through U.S. government-sponsored assistance
programs. While State has overall regulatory responsibility for the
FMS program and approves the export of defense articles and services,
DOD's DSCA directs the execution of the program, and the individual
military departments implement the sale and export process. DOD bills
foreign entities and tracks the export of articles and services
through its financial systems. For FMS, an approved Letter of Offer
and Acceptance authorizes the export. Under DCS, U.S. companies obtain
permanent export licenses generally valid for 4 years[Footnote 11]
from State's DDTC, which authorizes the export of defense articles and
services directly to foreign entities. State also licenses defense
articles for temporary export--when the article will be exported for a
period of less than 4 years and will be returned to the United States
without transfer of title.
While most defense articles and services require a license for export,
the ITAR contains numerous exemptions from licensing requirements that
have defined conditions and limitations. For both FMS and DCS, the
actual export of defense articles or services may occur years after
the authorization--or may not take place at all.
In addition to State and DOD, other U.S. government entities are
involved with oversight of defense exports and management of export
data. CBP oversees exports of defense articles leaving the country for
compliance with export control laws and regulations and collects
information on those exports through AES. AES is jointly managed and
operated by CBP and Census, and the data it collects are used by State
and other federal agencies. It is the central point through which
export data required by multiple agencies are filed electronically to
CBP. Foreign Trade Regulations[Footnote 12] and the ITAR require AES
filings for all articles on the USML that are sent, taken, or
transported out of the United States, and the exporter must provide
either a license number or a citation of the license exemption. The
data obtained through AES are maintained by Census's Foreign Trade
Division and CBP for the purpose of developing merchandise trade
statistics and enforcement of U.S. export control laws, but also are
provided to State for reporting purposes.
DCSA information on the FMS program identifies several considerations
for foreign entities in choosing between FMS and DCS. Under FMS, DOD
procures defense articles and services for the foreign entity under
the same acquisition process used for its own military needs, and
recipients may benefit from economies of scale achieved through
combining FMS purchases with DOD's. In addition, DOD provides contract
administration services that may not be available through the private
sector. To recover its administration costs, DOD applies a surcharge
to each FMS agreement that is a percentage of the value of each sale.
Under DCS, foreign entities may have more direct involvement during
contract negotiation with U.S. defense companies, may obtain firm-
fixed pricing, and may be better able to fulfill nonstandard
requirements. However, according to State officials, some types of
defense articles, such as certain types of missiles, can only be
exported through FMS.
In addition, DOD administers other programs through which defense
articles can be exported to foreign governments. For example, the
fiscal year 2006 National Defense Authorization Act[Footnote 13]
provides funding authorities for DOD to jointly formulate and
coordinate with State in the implementation of security assistance
programs, which can include the export of U.S. defense articles and
services. DOD also may export certain defense articles deemed "excess"
to our national security needs to foreign governments or international
organizations on a reduced or no-cost basis.
The Majority of U.S. Defense Articles Are Exported through Direct
Commercial Sales, with About Half Going to Relatively Few Countries:
From calendar years 2005 through 2008, the value of U.S. exports of
defense articles remained relatively stable, from about $19 billion
and $20 billion,[Footnote 14] with an increase to about $22 billion in
2009. Of the approximately $101 billion total in U.S. defense articles
exported from 2005 through 2009, about 60 percent were exported
through DCS, as shown in figure 1. This figure also shows that exports
through DCS increased from $10.6 billion to $13.3 billion during this
period--an increase of about 25 percent--while the value of FMS
exports remained relatively stable.
Figure 1: Exports of Defense Articles through DCS and FMS, Calendar
Years 2005 through 2009:
[Refer to PDF for image: pie-chart]
FMS: 40.6%:
2005: $8.17 billion;
2006: $8.43 billion;
2007: $8.02 billion;
2008: $7.38 billion;
2009: $8.84 billion;
Total: $40.85 billion.
DCS: 59.4%;
2005: $10.60 billion;
2006: $11.71 billion;
2007: $12.19 billion;
2008: $12.05 billion;
2009: $13.31 billion;
Total: $59.86 billion.
Source: GAO analysis of DOD and census data.
Note: All values are in billions and are adjusted to 2009 constant
dollars. Values may not add to totals because of rounding.
[End of figure]
Although there are currently no data available on the export of
defense services through DCS, we found that the value of defense
services exported through FMS was also relatively stable over the last
5 calendar years, ranging from about $3.8 billion to $4.2 billion
annually from 2005 through 2009. Overall, services account for about
one-third of the value of all FMS exports annually.
Over the last 5 years, aircraft and their related parts and equipment
accounted for about 44 percent of the value of all defense articles
exported. The second largest category was satellites, communications,
and electronics equipment and their related parts--accounting for
about 20 percent of defense articles. We also found differences in the
method of export for defense articles, with values for some types of
articles higher through FMS versus DCS and vice versa. As shown in
figure 2, of the approximately $26 billion in aircraft equipment and
parts exported over the 5-year period, almost 66 percent (about $17.2
billion) was exported through DCS. A much larger value of other
equipment and parts; satellites, communications and electronics
equipment, and related parts; and firearms were also exported through
DCS. On the other hand, a larger value of missiles, ships, and their
related parts were exported through FMS. For two categories--aircraft
and vehicles, weapons, and their parts--export values were about
evenly divided between DCS and FMS.
Figure 2: Value of Exports through FMS and DCS from Calendar Years
2005 through 2009 by Type of Defense Articles:
[Refer to PDF for image: stacked vertical bar graph]
Commodity: Aircraft Parts & Equipment;
DCS: $17.23 billion;
FMS: $8.96 billion.
Commodity: Satellites, Communications, Electronics Equipment & Parts;
DCS: $114.77 billion;
FMS: $4.58 billion.
Commodity: Aircraft;
DCS: $17.72 billion;
FMS: $8.92 billion.
Commodity: Vehicles, Weapons & Parts;
DCS: $15.09 billion;
FMS: $5.59 billion.
Commodity: Other Equipment & Parts;
DCS: $17.48 billion;
FMS: $3.11 billion.
Commodity: Missiles & Parts;
DCS: $12.19 billion;
FMS: $5.71 billion.
Commodity: Ammunition, Explosives & Parts
DCS: $12.11 billion;
FMS: $1.38 billion.
Commodity: Firearms;
DCS: $10.98 billion;
FMS: $0.16 billion.
Commodity: Ships & Parts;
DCS: $10.13 billion;
FMS: $0.86 billion.
Source: GAO analysis of DOD and Census data.
Note: Values are not adjusted for inflation.
[End of figure]
Although defense articles and services are exported to hundreds of
countries, we found that exports of defense articles were highly
concentrated in a few countries. Over the past 5 years, the top three
recipient countries--Japan, the United Kingdom, and Israel--accounted
for almost one-third of the value of defense article exports. The top
seven recipient countries, which include South Korea, Australia,
Egypt, and the United Arab Emirates, accounted for about half of the
value of all U.S. defense article exports.[Footnote 15] We also
identified differences by the method of export through either FMS or
DCS. In general, the value of FMS exports was higher for developing
countries, while the value of DCS exports was higher for
developed[Footnote 16] countries. State officials noted that
developing countries may benefit from the FMS logistics,
infrastructure, and other support that come with the FMS program. As
shown in figure 3, of the $13 billion in defense articles that Japan
imported, 85 percent ($11.15 billion) was exported through DCS.
Similarly, of the $8.3 billion that the United Kingdom imported, 82
percent (about $6.8 billion) was exported through DCS. On the other
hand, Israel and Egypt import a higher value of their U.S. defense
articles through the FMS program. Israel and Egypt receive annual U.S.
security assistance funding[Footnote 17] that according to DOD and
State officials, generally is used to purchase U.S. defense articles
and services through the FMS program. FMS exports of defense services
were also concentrated in a relatively few countries, with Saudi
Arabia, Japan, and Egypt accounting for over one-third of the value
over the last 5 years.
Figure 3: Top Seven Countries for Exports of Defense Articles,
Calendar Years 2005 through 2009:
[Refer to PDF for image: illustrated world map]
Country: United Kingdom;
DCS: $6.84 billion;
FMS: $1.48 billion.
Country: Egypt;
DCS: $0.41 billion;
FMS: $3.66 billion.
Country: Israel;
DCS: $2.68 billion;
FMS: $5.32 billion.
Country: United Arab Emirates;
DCS: $3.63 billion;
FMS: $0.35 billion.
Country: South Korea;
DCS: $4.12 billion;
FMS: $2.41 billion.
Country: Japan;
DCS: $11.15 billion;
FMS: $1.99 billion.
Country: Australia;
DCS: $2.15 billion;
FMS: $2.02 billion.
Source: GAO analysis of DOD and Census data.
Note: Values are in billions of dollars and are not adjusted for
inflation.
[End of figure]
Differences in Agencies' Reporting and Data Collection Limit
Visibility of Defense Exports:
Although Congress requires reporting on various aspects of U.S.
defense exports, State's and DOD's annual reports on "military
assistance and military exports"--as required by Section 655 of the
Foreign Assistance Act of 1961, as amended--do not provide a complete
picture of the magnitude and nature of defense exports because the
agencies use different reporting methodologies and have information
inconsistencies and gaps--in part, because of the separate purposes of
their data systems. Although the data we obtained and analyzed were
sufficiently reliable to develop high-level, overall information on
the magnitude and nature of defense exports, the differences in
agencies' data--including the lack of information for defense services
exported under DCS licenses, differences in agencies' item and country
categorizations, and the inability to separate some permanent and
temporary exports--hinder the ability to provide a comprehensive and
transparent picture of defense exports. Current export reform
discussions acknowledge that the proliferation of individual data
systems make export licensing and enforcement more difficult; however,
the FMS system has not been specifically cited in these proposals.
Because defense exports are used for furthering U.S. foreign policy
objectives, there are legislatively mandated reporting requirements to
enable congressional oversight. State has overall responsibility to
report on exports of defense articles and defense services. DOD also
reports on defense exports under FMS and other programs. The most
comprehensive reporting requirement is contained in Section 655 of the
Foreign Assistance Act of 1961, as amended, which requires annual
reporting of defense articles and services that were authorized and
provided (exported)[Footnote 18] to each foreign country and
international organization for the previous fiscal year under State
export license or furnished under FMS, including those furnished with
the financial assistance of the U.S. government.[Footnote 19] Also,
for defense articles licensed for export by State, the act requires "a
specification of those defense articles that were exported during the
fiscal year covered by the report." There is not a parallel provision
for a specification of defense services exported under licenses issued
by State. In addition, the act requires that unclassified portions of
the report be made public on the Internet through State. Although
State publishes its Section 655 reports on its Web site, DOD's Section
655 reports are not available either through DOD's or State's Web
site. Other reporting requirements are focused on discrete aspects of
defense exports and, as such, are not intended to provide a complete
picture of such exports. For example, Section 36 of the Arms Export
Control Act requires advance notifications to Congress for proposed
sales based on certain dollar thresholds, as well as reports on
defense exports sold. DOD also noted numerous additional reporting
requirements for defense exports that occur under other programs, such
as Excess Defense Articles and International Military Education and
Training.
While State and DOD each provide annual reports to Congress in
response to the Section 655 requirement, we identified differences in
the way each agency reports its data--in some cases based on differing
interpretations of the same requirement--that lead to an incomplete
overall picture of the magnitude and nature of such exports, as shown
in table 1.
Table 1: Differences in Agencies' Reporting on Defense Exports:
State's Section 655 report:
Authorized during the fiscal year:
* Includes values for approved licenses for permanent exports of
defense articles listed by country and USML category and subcategory;
- These values include licenses to U.S. government end users located
in foreign countries;
* Includes values for approved licenses for export of defense services
by country and USML category;
Exported[A] during the fiscal year:
* Began including export values from AES with the fiscal year 2008
report, with no export values provided in prior reports;
* Export values include permanent exports, temporary imports and
exports, exports exempt from license requirements, and shipments to
U.S. government end users in foreign countries;
* Values are listed as a total by country but do not provide a
specification of articles exported;
* Values for defense services exported are not included because this
information is not collected;
Availability on the Internet:
* Report is available through State's Web site.
DOD's Section 655 report:
Authorized during the fiscal year:
* Does not include values for approved authorizations;
- DOD officials told us that they interpret the requirement to mean
those articles exported in the fiscal year because exports must be
authorized prior to export. They noted that authorizations meeting
certain criteria are reported separately to Congress under other
reporting requirements;
Exported[A] during the fiscal year:
* Includes values for exports of defense articles and services by
country and category of items. However, some reported exports are not
designated as defense articles and services under the USML (e.g.,
fuel, generators, forklifts, and construction);
* Does not include values for export of defense articles and services
funded by the U.S. government through non-FMS programs[B];
Availability on the Internet:
* Report is not made available on the Internet through DOD's or
State's Web sites.
Source: GAO analysis of State's and DOD's Section 655 reports.
[A] We use the term "exported" here, while the act uses both
"provided" and "exported."
[B] DSCA officials stated that prior to 2009, they were not receiving
data on exports authorized by Sections 1206 and 1207 of the National
Defense Authorization Act, but they are now receiving data on these
exports.
[End of table]
The differences in reporting also occur because the data on defense
exports are gathered and maintained by multiple government agencies
for a variety of purposes using different data systems. State and DOD
officials told us that information reported on defense exports is
based on data that are contained in existing systems developed to
satisfy the operational requirements of each organization and was not
designed to integrate with other agencies' systems. For example,
State's system was designed to manage the DCS licensing process,
DSCA's system was developed to facilitate the management of the FMS
program, and data collected in the AES system are maintained by Census
primarily for generating trade statistics. Nonetheless, these systems
are the principal sources of information on defense exports. In areas
where these systems differ from each other, certain data fields need
to be reconciled before data can be aggregated. Even with these
adjustments, these and other system differences hinder the ability to
perform a more detailed and in-depth analysis of defense exports.
For example, one difference between State's and DOD's reporting is the
lack of data on defense services exported under DCS licenses.
According to State's reporting to Congress, for fiscal year 2005, it
licensed[Footnote 20] over $27 billion in defense services. By fiscal
year 2008, the most recent data available, the value of approved
licenses for defense services almost tripled to over $71 billion.
However, State does not report on the value of defense services
exported under license authorizations because it does not have such
information. This is in part because AES does not capture data on the
export of services to foreign entities as it was developed to track
information on the export of physical articles. Also, State officials
noted that they have no operational requirement to have information on
the value of exported defense services, and they do not require such
information to be reported to State as it could create an additional
burden on exporters. Further, these officials noted that they have not
received feedback from congressional committees on the lack of such
data in prior reports to Congress and therefore are not planning to
obtain these data from exporters. In contrast, because DOD bills FMS
customers for the export of defense services--including logistical
support, repairs, training, and technical assistance--it tracks data
on the value of services exported. As noted earlier in this report,
defense services constitute about one-third of annual FMS exports.
Further complicating efforts to combine and compare State and DOD data
reported in the Section 655 reports is that agencies involved in the
licensing, export, and collection of related data lack a unified item
categorization scheme. According to agency officials, these item
categorization schemes were developed for their specific purposes and
were not designed to integrate with other agencies' data for reporting
defense exports. In issuing DCS licenses, State uses the categories
for defense articles and services enumerated on the USML and reports
license values by USML categories and subcategories. However, when
exporters file their export information through AES for these licensed
exports, they include the USML category that provides a high-level
categorization of articles (e.g., "Aircraft and Associated Equipment")
but does not allow for the more detailed breakout of articles by
subcategories, which State uses to report license values. Exporters
also categorize articles according the Harmonized Tariff Schedule,
based on the international "Harmonized System," which was developed
for reporting merchandise trade statistics. The Harmonized System and
USML are not directly comparable. For example, while the USML has a
category for "tanks and military vehicles" separate from other
categories for weapons, the Harmonized System has one combined
category that includes both weapons and "weaponized" vehicles such as
tanks and armored vehicles. As a result, a more detailed combined
analysis of the types of military vehicles is not possible using
existing category schemes.
Under the FMS program, DOD reports export values based on information
used to bill foreign entities using a unique item categorization
system that also is not directly comparable to the USML. For example,
the USML has separate categories for explosives, bombs, training
equipment, and guidance equipment; DOD's single category for "bomb"
includes items in all of those USML categories. Further, some of the
articles and services exported through the FMS program, such as fuel
and construction, are not controlled under the USML. However, since
DOD bills foreign entities for these articles and services, they are
included in DOD's reports along with defense articles and services.
DOD officials noted that there is no requirement to report exports by
USML categories.
Defense export data comparisons also are limited because DOD, Census,
and State define some countries and international organizations
differently. For example, DOD's FMS data and State export license
authorizations include exports to international organizations such as
the United Nations. Exports documented through AES are coded for the
country of destination and not for international organizations that
may be located within those countries. Furthermore, each agency's
system uses different codes for some countries, requiring manual
analysis to enable combining and comparing of these data. For example,
the code used for a country in one database may be used for a
different country in another database, and some country names are
different. These differences hamper efforts to make comparisons
between the systems or to combine the databases to analyze like
exports to countries and international organizations.
Another difference between State's and DOD's Section 655 reports is
State's inclusion of U.S. government end users in its data. While all
exports under FMS are to foreign entities, State reports license
authorization values for exports that are used by U.S. government
agencies within the recipient country as well as articles exported for
use by U.S. and allied forces operating on foreign soil. Because the
values reported for exports of defense articles include these U.S.
government end users, the value of such articles exported to foreign
entities is overstated.
In addition, obtaining precise data on DCS exports is further limited
for certain types of exports where permanent and temporary exports are
grouped together. For example, both temporary and permanent exports of
classified items are identified under a single export license type.
For 2005 through 2009, this license type included a total of about $7
billion in exports, which can include temporary exports. In addition,
the ITAR provides for a license exemption for some defense articles
exported to Canada.[Footnote 21] However, the ITAR provides a single
Canadian exemption that includes both permanent and temporary exports.
As noted earlier, defense export data for Canada are likely
understated since the data do not delineate permanent exports from
temporary ones in the approximately $4.1 billion reported under this
exemption from 2005 through 2009.
DOD's reporting of total defense exports is also limited by the lack
of data on exports of defense articles and services under certain U.S.
government-funded programs. For example, until recently DSCA did not
have access to centralized data on defense exports authorized under
sections 1206 and 1207 of the National Defense Authorization Act for
Fiscal Year 2006. Such exports are tracked separately from FMS cases--
generally by the appropriation that funded the export. In 2009, the
DSCA system identified a cumulative total for these exports that
included multiple years with no way to separate the data by the year
of export. However, DSCA officials told us that they now receive
monthly updates on these exports and are considering options for
including these data in future reporting. Furthermore, officials at
Census, CBP, and DOD told us that reporting through AES for FMS
exports is not complete, although the U.S. Foreign Trade Regulations
and the ITAR require AES filings for all USML items exported from the
United States including those exported through FMS.[Footnote 22] DOD
officials noted that while AES filing is required, not all DOD
components fully comply. Census officials stated that they are
providing outreach and training for DOD components to encourage
compliance with this requirement. CBP officials noted that reporting
of FMS exports through AES has improved over the years, and our
analysis of AES data showed that the value of FMS exports reported in
AES has increased from 2005 to 2009.
Under the U.S. export control reform effort currently under way, the
administration has noted that the myriad of U.S. government agencies
involved in export controls continue to maintain separate information
technology systems and databases that are not accessible or easily
compatible with each other. According to a recent statement by the
U.S. National Security Advisor,[Footnote 23] this proliferation of
individual systems makes export licensing and enforcement more
difficult. In our High-Risk Series, we found weaknesses in the
effectiveness and efficiency of U.S. government programs that are
related to the protection of technologies critical to national
security interests, such as FMS and DCS, and recommended that these
programs be reexamined to determine how they can collectively achieve
their missions.[Footnote 24] The U.S. government is currently
considering consolidating the current export control lists and
adopting a single multiagency system for licensing with a single
interface for exporters, ultimately leading to a single enterprisewide
information technology system that can track an export from the filing
of a license application until the item leaves a U.S. port. However,
the administration has not announced plans on how defense articles and
services authorized and exported under FMS and other government-to-
government programs will be incorporated into a reformed U.S. export
control system.
Conclusions:
A complete picture of defense exports--including which method of
export is used more often by individual countries or for certain types
of items--is not available under current reporting to Congress.
Although State has overall responsibility to regulate the export of
defense articles and services, it reports separately from DOD on some
aspects of defense exports. Information from DOD and State cannot be
readily combined to provide a complete picture of defense exports.
Gaps and limitations in these data--including the lack of information
on defense services exported under DCS, which could be substantial
given the high dollar value of such services authorized by State--may
inhibit congressional oversight and transparency into the entirety of
U.S. defense exports. For example, Congress does not have complete
data to determine whether specific U.S. foreign policy objectives are
being furthered through the various export programs. While State has
noted a potential burden for exporters if they were required to report
on exports of defense services under DCS, there may be value to
Congress in having such information, especially in light of the large
and growing value of license authorizations for defense services.
As U.S. export control reform efforts move beyond the initial phase of
revising and consolidating control lists, it will be important to
consider ways to standardize and integrate data across agencies to
mitigate the gaps and limitations noted in this report. Recognizing
that complete integration and standardization across agencies' data
systems is a long-term effort that may require additional resources,
State could improve overall reporting of defense exports under the
constraints of current data systems by using a methodology similar to
ours to enhance congressional oversight and transparency of such
exports. Also, as policymakers develop and debate export control
reform proposals, it is important to consider whether other programs
related to the protection of technologies critical to U.S. national
security, such as the FMS program, should be included in the reform
efforts.
Matter for Congressional Consideration:
In order to obtain a more complete picture of defense exports,
Congress should consider whether it needs specific data on exported
defense services similar to what it currently receives on defense
articles and, if so, request that State provide such data as
appropriate.
Recommendation for Executive Action:
To improve transparency and consistency of reporting on defense
exports required by the Foreign Assistance Act, we recommend that the
Secretary of State direct the Directorate of Defense Trade Controls to
coordinate with the Departments of Defense and Commerce to identify
and obtain relevant defense export information under existing agency
data systems and provide a consolidated report to Congress on DCS and
FMS that:
* specifies articles exported using a common category system;
* separates U.S. government end users from foreign entities;
* separates permanent and temporary exports;
* incorporates all defense exports, including U.S. government-funded
programs; and:
* is made public through the Internet.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Departments of State,
Homeland Security, and Defense and to Census under the Department of
Commerce for their review and comment. Census and the Department of
Homeland Security provided technical comments, which we incorporated
as appropriate, and DOD did not comment on our draft. State provided
written comments that are reprinted in appendix II. In commenting on
the draft, State acknowledged the importance of maintaining and
reporting to Congress and the public reliable data on U.S. defense
exports through FMS and DCS, and notes that gaps and inconsistencies
in current reporting are caused by differences in accounting by
agencies for transfers of defense exports. However, State did not
agree with our recommendation to report consolidated defense export
data on FMS and DCS in a consistent manner. State reiterated that
Congress has not requested any change to the substance of its current
reporting, and State does not believe that the added resources
necessary to change reporting formats are merited. However, based on
our work and analysis of defense export data, we believe that
congressional oversight and transparency into the entirety of U.S.
defense exports could be improved with existing data and systems by
utilizing more consistent reporting methodologies similar to those
that we developed. State also noted that providing consolidated
defense export data to Congress and the public was consistent with the
goals of current export control reform efforts and encouraged Congress
to provide criteria and the resources to develop appropriate
information. We agree that ongoing export control reform efforts may
provide opportunities to improve information and reporting, but
recognizing that reforms may take years to implement, we believe that
congressional oversight and transparency can be improved in the short
term by implementing our recommendation.
We are sending copies of this report to interested congressional
committees, the Secretary of State, the Secretary of Defense, the
Secretary of Commerce, and the Secretary of Homeland Security. This
report also is available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
If you have questions about this report or need additional
information, please contact me at (202) 512-4841 or martinb@gao.gov.
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. Key contributors
to this report are listed in appendix III.
Signed by:
Belva M. Martin:
Acting Director:
Acquisition and Sourcing Management:
[End of section]
Appendix I: Scope and Methodology:
To identify information on the magnitude and nature of defense
exports, we obtained data for calendar years 2005 through 2009 on
direct commercial sales (DCS) from the U.S. Census Bureau's (Census)
Automated Export System (AES) and on the Foreign Military Sales (FMS)
program from the Department of Defense's (DOD) Defense Security
Cooperation Agency (DSCA). For the purpose of this report, we defined
"defense exports" as articles permanently exported under a Department
of State (State) license to foreign end users. As such, we did not
include temporary exports that return to the United States without
transfer of ownership, shipments to U.S. government end users as
identified in AES by the export information code, or articles exported
under a license exemption.
* For DCS, we obtained a data extract from Census for AES records for
this time frame of electronic information filings designated with a
State "license type," a required field for all exports covered by the
United States Munitions List (USML). State has several different
license types that generally identify the nature of the export or
import, including permanent exports, temporary exports, temporary
imports, agreements, articles exported with an exemption, or articles
exported through the FMS program. For FMS data, although Foreign Trade
Regulations and the International Traffic in Arms Regulations require
AES filings for all articles on the USML, including those exported via
FMS, we were told by both U.S. Customs and Border Protection (CBP) and
Census officials that AES filings for DOD exports of FMS articles are
not complete. Therefore, we could not use AES as a single data source
for exports of defense articles.
* For this reason, we obtained data from DSCA for FMS exports for the
same time frame from DSCA's 1200 Delivery Subsystem. We did not
include articles exported under Section 1206 or 1207 programs under
the National Defense Authorization Act for Fiscal Year 2006. As noted,
DSCA did not obtain export data on Section 1206 and 1207 exports until
2009. We also did not include data on DOD's excess defense article
program.
* Although most of our analysis focuses on exports of defense
articles, we obtained data from State on DCS licenses that were in
effect during 2005 through 2009, primarily for the purpose of
assessing the reliability of AES data for these exports.
* For each of these three data sets, we also obtained the relevant
reference tables and documentation from each agency. These reference
tables translate the codes used in the databases--such as those for
country name or commodity/item type--into their names or descriptions.
* We also reviewed relevant laws and regulations regarding the export
of defense articles and requirements for reporting export information
through AES.[Footnote 25]
In order to combine and compare information from FMS and AES on the
types of articles exported, we analyzed the item categorization
systems used by each system to identify areas of commonality. We
determined that the broad categories used by DOD for grouping like
items together could be adapted to accommodate the lowest level of
detail identified between the two systems. This allowed us to develop
relatively large categories, but precluded us from further refining
the analysis by breaking these out into more detailed categories
because some types of items were combined into one category in either
of the two systems.
To assess overall defense exports by country, we created a cross-
reference table to enable us to relate the data for a specific country
in one data set to information for that same country in the other data
set. We also identified groupings of countries considered developed or
developing according to the United Nations' definition.
We did not include data on classified exports for either FMS or DCS.
DOD officials stated that classified data on FMS exports could not be
used in an unclassified report, even if aggregated with other data. We
obtained and reviewed classified data for FMS and determined that
excluding the FMS classified data from our analysis would not
materially affect the high-level trend analysis and other information
we discuss in this report. For classified DCS exports, temporary and
permanent exports are grouped together in one license type in AES,
with no way to separate permanent from temporary exports.
For trend information across the 5-year time frame, we adjusted for
the effects of inflation by converting values to 2009 dollars. We
assessed the reliability of these data by performing electronic
testing; reviewing system documentation, including system edits and
validations; comparing our data to published or other available
information; and interviewing knowledgeable officials about data
quality and reliability. For the purposes of our analyses, we
determined that the data were sufficiently reliable.
To assess information reported on U.S. defense exports, we reviewed
relevant reporting requirements and reviewed State and DOD reports to
Congress on various portions of the export process, including
notification of potential sales, authorizations, and exports.
Specifically, we reviewed the reporting requirements in the Foreign
Assistance Act of 1961, as amended, Section 655, on foreign military
assistance that requires an annual report on both defense articles and
services authorized and provided/exported to foreign countries and
international organizations. We then analyzed and compared the
relevant reports that State and DOD annually submit to Congress,
identifying differences in reporting methodologies between the
reports, and identified where such information is available to the
public. We also interviewed agency officials at State's Directorate of
Defense Trade Controls (DDTC) and DOD's DSCA responsible for
generating these reports to obtain information on methodologies and
definitions used in their respective reports. To identify limitations
and gaps in available defense export data, we reviewed information and
available system documentation for the data systems at DSCA, DDTC, and
Census and interviewed knowledgeable officials at these agencies
regarding data system purposes and functionality. We also interviewed
officials at CBP who manage the AES interface with exporters.
We conducted this performance audit from February 2010 to September
2010 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Comments from the Department of State:
United States Department of State:
Chief Financial Officer:
Washington, D.C. 20520:
September 14, 2010:
Ms. Jacquelyn Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548-0001:
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report,
"Defense Exports: Reporting on Exported Articles and Services to Be
Improved," GAO Job Code 120862.
The enclosed Department of State comments are provided for
incorporation with this letter as an appendix to the final report.
If you have any questions concerning this response, please contact
Steven Rice, Deputy Director, Bureau of Political-Military Affairs at
(202) 663-2803.
Sincerely,
Signed by:
Barbara Retzlaff:
cc: GAO ” John Neumann:
PM ” Andrew J. Shapiro:
State/OIG ” Evelyn Klemstine:
[End of letter]
Department of State Comments on GAO Draft Report:
Defense Exports: Reporting on Exported Articles and Services Needs to
Be Improved (GAO-10-952, GAO Code 120862):
Thank you for the opportunity to comment on your draft report entitled
"Defense Exports: Reporting on Exported Articles and Services Needs to
Be Improved." The Department of State recognizes the importance of
maintaining and reporting to the Congress and public reliable data on
United States defense exports through direct commercial sales or the
Foreign Military Sales program. The draft report identifies gaps and
inconsistencies in reports of this nature by the Executive Branch.
However, the State Department notes that gaps and inconsistencies in
reporting are inherent in accounting for transfers of defense export
across agencies. While Foreign Military sales may, for example,
include items such as tanks and weaponry on the U.S. Munitions List
under the jurisdiction of the Department of State, dual-use items
under the licensing jurisdiction of Commerce will not be included in
State reports. Likewise, the requirements of the Congress for
reporting direct commercial sales and Foreign Military Sales are also
different.
The Department of State faithfully reports to Congress all data
pertaining to exported articles and services that are within its
jurisdiction to collect. To date, the Congress has expressed no desire
to change the substance of our current reporting. The Department does
not believe that devising additional reporting formats would merit the
commitment or allocation of additional resources and therefore
disagrees with the report's recommendations.
Providing consolidated defense export data to Congress and the public
is consistent with the goals of Export Control Reform and the
Executive Branch task force evaluating proposals and recommendations
associated with it. As decisions are made on Export Control Reform,
the Department of State encourages the Congress to furnish criteria
and resources to develop appropriate information technology platforms
and reporting criteria of benefit to both the Congress and the public.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Belva M. Martin, (202) 512-4841 or martinb@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, John Neumann, Assistant
Director; Marie Ahearn; Richard Brown; Sharron Candon; Julia Kennon;
Roxanna Sun; Robert Swierczek; and Bradley Terry made key
contributions to this report.
[End of section]
Footnotes:
[1] GAO, High-Risk Series: An Update, [hyperlink,
http://www.gao.gov/products/GAO-07-310] (Washington, D.C.: January
2007).
[2] Eligible foreign entities can include foreign governments,
corporations, as well as international organizations, all of which are
defined as foreign persons under 22 C.F.R. § 120.16. In addition, the
Foreign Military Sales program is limited to eligible countries and
international organizations. 22 U.S.C. § 2753, and Department of
Defense, Security Assistance Management Manual, DOD 5105.38-M (Oct. 3,
2003), C4.2.
[3] We did not include articles exported under DOD's excess defense
article program or articles and services exported under sections 1206
and 1207 of the National Defense Authorization Act for Fiscal Year
2006. Section 1206 authorized the President to direct the Secretary of
Defense to build or support the capacity of foreign military forces to
conduct counterterrorist operations or to support stability and
military operations in which the United States is a participant.
Section 1207 authorized the Secretary of Defense to transfer defense
articles to the Secretary of State to facilitate the reconstruction,
security, or stability assistance provided to a foreign country.
[4] The information discussed in this report on the reporting
requirements does not reflect our independent legal analysis or
determination of the specific requirements. Rather, it is generally
descriptive and reflects the differing interpretations, implementation
of the requirements, or both by State and DOD.
[5] 22 U.S.C. § 27 51 et seq.
[6] 22 U.S.C. §§ 2778(a) and 2794(7).
[7] Exec. Order No. 11,958, 42 Fed. Reg. 4,311 (1997).
[8] 22 C.F.R. § 120 et seq.
[9] 22 C.F.R. § 120.2; 22 C.F.R. Part 121.
[10] 22 U.S.C. § 2415.
[11] For the export of defense services, State authorizes technical
assistance agreements, which State officials said are generally valid
for 10 years.
[12] 15 C.F.R. § 30.2.
[13] National Defense Authorization Act for Fiscal Year 2006, Pub. L.
No. 109-163 §§ 1206 and 1207 (2006).
[14] In 2009 constant dollars.
[15] Canada was the eighth largest recipient of U.S. defense articles
at $3.6 billion exported under FMS and DCS. However, another $4.1
billion of defense articles was exported to Canada under a license
exemption, which can include both temporary and permanent exports that
are not separately delineated in the AES data. Therefore, the value of
Canada's permanent defense imports from the United States is likely
understated.
[16] As defined by the United Nations, Japan in Asia, Canada and the
United States in northern America, Australia and New Zealand in
Oceania, and Europe are considered "developed" regions or areas. All
other regions are considered "developing."
[17] For example, in fiscal year 2008, Israel and Egypt received about
$2.4 billion and $1.3 billion, respectively, in Foreign Military
Financing funds to improve their military capabilities.
[18] Because authorizations are valid for several years, exports
during a fiscal year may be based on authorizations from prior years.
[19] 22 U.S.C. § 2415.
[20] Services may be exported over the 10-year period covered by the
license, and the value of services exported may be less than the
authorized amounts.
[21] 22 C.F.R. 126.5.
[22] 30 C.F.R. § 30.2; 22 C.F.R. § 123.22.
[23] "The Administration's Export Control Reform Plans," remarks by
General James L. Jones, USMC (Ret), National Security Advisor, at the
Senate Aerospace Caucus luncheon, June 30, 2010.
[24] [hyperlink, http://www.gao.gov/products/GAO-07-310].
[25] As previously indicated, the information discussed in this report
on the reporting requirements does not reflect our independent legal
analysis or determination of the specific requirements. Rather, it is
generally descriptive and reflects the differing interpretations,
implementation of the requirements, or both by State and DOD.
[End of section]
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