Defense Trade

Lessons to Be Learned from the Country Export Exemption Gao ID: GAO-02-63 March 29, 2002

To control the export of defense items, the U.S. government requires exporters to obtain a license from the State Department. A license is not required to export many defense items to Canada, currently the only country-specific exemption to the licensing requirement. In May 2000, the U.S. government announced the Defense Trade Security Initiative, which included a proposal to grant Canadian-like export licensing exemptions to other qualified countries. Since the initiative was announced, the State Department has been negotiating such exemptions with the United Kingdom and Australia. Exporters have been implementing the Canadian exemption inconsistently. Moreover, some exporters are interpreting reporting requirements about the use of the exemption differently. The U.S. government has mechanisms in place to reduce the risk of defense items being inappropriately exported, but there are associated limitations. U.S. Customs officials attributed these enforcement weaknesses to a lack of information and resources, including inspectors to staff ports. In addition, there are competing demands on the agency, which include the prevention of terrorism, and the interdiction of illicit drugs, illegal currency, and stolen vehicles. Experience with the Canadian exemption shows that three areas need to be addressed when negotiating and executing license exemptions with other countries. First, there needs to be upfront agreement on such issues as what items are to be controlled, who can have access to controlled items, and how to control these items through each country's respective export laws and regulations. Second, the U.S. government needs to monitor agreements to assess their effectiveness and ensure that unanticipated problems have not arisen. Third, enforcement mechanisms need to be in place to monitor exporters' compliance with the exemption and enable prosecution of violators.

Recommendations

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