Defense Trade
Arms Export Control Vulnerabilities and Inefficiencies in the Post-9/11 Security Environment Gao ID: GAO-05-468R April 7, 2005In the aftermath of the September 11, 2001, attacks and the subsequent global war on terror, the nature of threats facing this country has changed, and as a result, policies and structures from previous decades need to be rethought. One area for reexamination in this changed security environment is the arms export control system. The State Department oversees this system to ensure that arms exports are consistent with U.S. national security and foreign policy goals. As such, the State Department is responsible for authorizing arms exports, which is generally done through export licensing, and for monitoring exporter compliance with governing laws and regulations. In so doing, the department needs to balance complex and competing interests. Specifically, the State Department must limit the possibility that exports will erode the U.S. military's technological advantage and prevent U.S. arms from falling into the wrong hands. At the same time, the department needs to allow legitimate defense trade with allies to occur. At a Congressional request, we are providing highlights from our most recent report on the arms export control system and observations regarding weaknesses and inefficiencies in the system based on our larger body of export control work.
The State Department has not made significant changes to the arms export control system since the September 2001 terror attacks. State Department officials maintain that such changes are not needed. However, their position is not based on systematic evaluations of the effectiveness of controls. Over the years, we have identified weaknesses in the arms export control system and made corrective recommendations, a number of which the departments involved have not yet implemented. Weaknesses include disagreements and poor coordination over whether certain items are controlled by the State Department, as well as limitations in the government's ability to ensure that exports not needing prior government approval comply with export laws and regulations. These weaknesses are compounded by challenges facing the enforcement community, including constrained budgets and limited resources. Taken together, these weaknesses and challenges create vulnerabilities in the arms export control system and undermine assurances that the system is protecting U.S. interests. To facilitate arms exports to allies, the State Department has sought over the last several years to reduce processing times for license applications. The department undertook efforts, such as reallocating staff and implementing initiatives, to streamline and expedite the processing of export license applications. However, the State Department's median processing times for arms export cases--after declining since fiscal year 1999--began increasing in fiscal year 2003. Further, the department's streamlining initiatives have generally not met established goals and have not been widely used by exporters.
GAO-05-468R, Defense Trade: Arms Export Control Vulnerabilities and Inefficiencies in the Post-9/11 Security Environment
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April 7, 2005:
The Honorable Henry J. Hyde:
Chairman, Committee on International Relations:
House of Representatives:
Subject: Defense Trade: Arms Export Control Vulnerabilities and
Inefficiencies in the Post-9/11 Security Environment:
Dear Mr. Chairman:
In the aftermath of the September 11, 2001, attacks and the subsequent
global war on terror, the nature of threats facing this country has
changed, and as a result, policies and structures from previous decades
need to be rethought. One area for reexamination in this changed
security environment is the arms export control system. The State
Department oversees this system to ensure that arms exports are
consistent with U.S. national security and foreign policy goals. As
such, the State Department is responsible for authorizing arms
exports,[Footnote 1] which is generally done through export licensing,
and for monitoring exporter compliance with governing laws and
regulations. In so doing, the department needs to balance complex and
competing interests. Specifically, the State Department must limit the
possibility that exports will erode the U.S. military's technological
advantage and prevent U.S. arms from falling into the wrong hands. At
the same time, the department needs to allow legitimate defense trade
with allies to occur.
At your request, we are providing highlights from our most recent
report on the arms export control system[Footnote 2] and observations
regarding weaknesses and inefficiencies in the system based on our
larger body of export control work.[Footnote 3] Enclosure I contains
summaries of our arms export-related reports from fiscal year 1999 to
date, along with information on the status of implementation of our
recommendations by the various departments involved with arms exports.
Enclosure II lists related products we have issued over the last
decade. These reports were prepared in accordance with generally
accepted government auditing standards. Because this report and its
enclosures are based on those prior reports, we did not request agency
comments.
Summary:
The State Department has not made significant changes to the arms
export control system since the September 2001 terror attacks. State
Department officials maintain that such changes are not needed.
However, their position is not based on systematic evaluations of the
effectiveness of controls. Over the years, we have identified
weaknesses in the arms export control system and made corrective
recommendations, a number of which the departments involved have not
yet implemented. Weaknesses include disagreements and poor coordination
over whether certain items are controlled by the State Department, as
well as limitations in the government's ability to ensure that exports
not needing prior government approval comply with export laws and
regulations. These weaknesses are compounded by challenges facing the
enforcement community, including constrained budgets and limited
resources. Taken together, these weaknesses and challenges create
vulnerabilities in the arms export control system and undermine
assurances that the system is protecting U.S. interests.
To facilitate arms exports to allies, the State Department has sought
over the last several years to reduce processing times for license
applications. The department undertook efforts, such as reallocating
staff and implementing initiatives, to streamline and expedite the
processing of export license applications. However, the State
Department's median processing times[Footnote 4] for arms export
cases[Footnote 5]--after declining since fiscal year 1999--began
increasing in fiscal year 2003. Further, the department's streamlining
initiatives have generally not met established goals and have not been
widely used by exporters.
Background:
The U.S. export control system for defense-related items involves
multiple federal agencies and is divided between two regulatory bodies-
-one for arms and another for dual-use items that have both military
and commercial applications (see table 1).
Table 1: Roles and Responsibilities in the Arms and Dual-Use Export
Control Systems:
Principal regulatory body: State Department's Directorate of Defense
Trade Controls;
Mission: Regulates export of arms by giving primacy to national
security and foreign policy concerns;
Statutory authority: Arms Export Control Act[A];
Implementing regulations: International Traffic in Arms Regulations.
Principal regulatory body: Commerce Department's Bureau of Industry and
Security;
Mission: Regulates export of dual-use items by weighing economic,
national security, and foreign policy interests; Statutory
authority: Export Administration Act[B];
Implementing regulations: Export Administration Regulations.
Other federal agencies:
Principal regulatory body: Defense Department;
Mission: Provides input on which items should be controlled by either
the State Department or the Commerce Department and conducts technical
and national security reviews of export license applications submitted
by exporters to either the State Department or the Commerce Department.
Principal regulatory body: Homeland Security Department;
Mission: Enforces arms and dual-use export control laws and regulations
through border inspections and investigations[C].
Principal regulatory body: Justice Department;
Mission: Prosecutes suspected violators of arms and dual-use laws.
Source: Cited laws and regulations (data); GAO (analysis).
[A] 22 U.S.C. 2751 et. seq.
[B] 50 U.S.C. App. 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 implementing
Export Administration Regulations.
[C] The Homeland Security Department shares responsibility with the
Commerce Department for the enforcement of dual-use export control laws
and regulations.
[End of table]
Implementing regulations for both the Departments of State and Commerce
contain lists that identify which items each department controls and
establish requirements for exporting those items. Exporters are
responsible for determining which department controls the items they
are seeking to export and what the requirements for export are. The two
departments' controls differ in several key areas. In most cases, the
Commerce Department's controls over dual-use items are less restrictive
than the State Department's controls over arms. For example, many items
controlled by the Commerce Department do not require licenses for
export to most destinations, while State-controlled items generally
require licenses to most destinations. Also, Commerce-controlled items
may be exported to China while most arms exports to China are
prohibited.
Arms Export Control System Fundamentally Unchanged Despite
Vulnerabilities:
After the September 2001 terror attacks, the State Department did not
make fundamental or significant changes to the arms export control
system, its objectives, or implementing regulations. State Department
officials maintain that such changes are not needed because they regard
the system as effective in keeping U.S. defense items out of enemy
hands while ensuring that allies can obtain needed arms. However, the
department's conclusions regarding the sufficiency of its controls both
prior to September 2001 and afterward appear to be without basis. For
example, the State Department has not provided evidence that it
systematically assesses the effectiveness of its controls or its
streamlining initiatives, which were introduced in 2000 and
characterized as a major post-Cold War adjustment to the system.
Although the State Department has not performed systematic assessments,
we have. Our current and prior reports have clearly documented
weaknesses and challenges in the arms export controls system that point
to vulnerabilities in the system and its ability to protect U.S.
interests. The weaknesses we have identified relate to the most basic
aspects of the arms export control system--which items should be
controlled and when those items should be subject to government review
prior to export. Weaknesses include a lack of clarity as to whether an
item is State-controlled or Commerce-controlled, thereby increasing the
risk that defense items will be improperly exported, and limitations in
the government's ability to ensure that exports exempt from licensing
requirements comply with laws and regulations. Exacerbating these
weaknesses are various challenges to enforcement agencies' ability to
carry out their responsibilities.
A number of our recommendations to address these weaknesses and
challenges have not yet been implemented.
Weaknesses and Challenges in the Arms Export Control System:
Fundamental to the U.S. export control system is the determination as
to which items are controlled by the State Department and which are
controlled by the Commerce Department. A lack of clear jurisdiction and
improper decisions regarding jurisdiction create the risk that defense-
related items will be exported without the proper level of government
review and control to protect national interests. By not clearly
establishing which department has jurisdiction over some items, the
government leaves the determination of jurisdiction to the exporter,
who by default can then determine which national policy interests are
to be considered and acted upon when defense-related items are
exported. As we have reported in the past, there are persistent
disagreements between the Departments of State and Commerce regarding
jurisdiction and problems with the processes for deciding which
department has jurisdiction. Jurisdictional disagreements involve
sensitive defense items, such as those related to missiles and night
vision. These jurisdictional disagreements and problems are rooted in
differing interpretations of the regulations by the departments and
minimal or inefficient coordination between the departments. In the
end, the departments are not held accountable for making clear and
transparent decisions about export control jurisdiction.
Once an item has been determined to be State-controlled, generally a
State-issued license is required before the item can be exported.
However, the State Department's regulations allow exemptions from
licensing requirements under certain conditions. For example, some arms
exports to Canada do not require licenses. When exemptions are used,
the burden for ensuring the exports' legitimacy shifts from the State
Department to exporters. To help ensure that exemptions are properly
used and items are safeguarded, exporters need sufficient guidance to
minimize the possibility of incorrect interpretations of the
regulations and improper exports. As we have reported, a lack of
regulatory clarity has resulted in exporters inconsistently
implementing exemptions and related reporting requirements. State
Department officials have, at times, provided conflicting information
about the proper use of exemptions to exporters and enforcement
officials.
Enforcement officials have raised serious concerns regarding their
ability to enforce the proper use of exemptions and identified other
challenges. Homeland Security Department officials explained that they
generally oppose licensing exemptions because items can be more easily
diverted without detection, which complicates potential investigations.
Justice Department officials also informed us that prosecuting export
violations under an exemption is difficult because of the challenges in
acquiring evidence of criminal intent, given the limited "paper trail"
available to prove violations. In addition to these difficulties,
enforcement officials cited other challenges in enforcing arms export
control laws and regulations that include budgetary constraints,
limited staff resources, and difficulties in hiring and retaining
experienced staff.
Arms Export Control System Hampered by Inefficiencies and Ineffective
Initiatives:
While many license applications appropriately take time to review
because of the need to consider different viewpoints, State Department
inefficiencies in the processing of applications have created
unnecessary delays. Over the last several years, the State Department
has initiated various efforts to reduce license application processing
times in response to exporter complaints. For example, the department
enlarged its staff of licensing officers, who review applications, and
developed a new automated system for processing applications.
However, after declining since fiscal year 1999, median processing
times for arms export cases began increasing in fiscal year 2003 (see
figure 1). Data provided on the State Department's Web site indicate
that processing times have continued to increase throughout fiscal year
2004 and the start of fiscal year 2005.
Figure 1: Median Processing Time for Cases, Fiscal Years 1999 - April
2004 (in days):
[See PDF for image]
[End of figure]
Although the State Department increased the number of licensing officer
positions between fiscal years 2000 and 2003 to 37, it has since
transferred 5 of these positions to other activities. This raises
questions regarding the department's commitment to its stated goal of
reducing processing times. In addition, use of the State Department's
new automated system for processing applications is limited. While a
senior department official described the new system as the most
significant effort to improve efficiency, the State Department reported
that only 6 percent of applications were processed using the new system
one year after it was introduced.
As part of its efforts to reduce processing times, the State Department
implemented a series of initiatives primarily designed to expedite the
processing of license applications that meet certain criteria. However,
we found that processing time goals for applications submitted under
the initiatives have generally not been met. For example, only 19
percent of the applications submitted under the initiatives for
Operations Enduring Freedom and Iraqi Freedom were processed within the
goals set by the department.[Footnote 6] Additionally, several
initiatives have not been widely used by exporters. For example, over
the last 5 years, the State Department has received only three
applications for comprehensive export authorizations that were intended
to streamline licensing by providing advance approval for a range of
exports associated with multinational defense efforts, such as the
Joint Strike Fighter.
The initiatives' lack of success is not surprising. When many of these
initiatives were announced in 2000, we determined that there was no
analysis of the problems that the initiatives were intended to remedy
or demonstration of how they would achieve identified goals. As a
result, there was little assurance that the initiatives would result in
improvements to the arms export control system.
Conclusions:
At a time of evolving threats and changing allied relationships, it is
appropriate to ask how Congress can be assured that the arms export
control system is achieving its intended purposes--protecting national
security and promoting foreign policy interests. To accomplish such
purposes, an export control system needs to clearly define what should
be controlled and how, so that it is understandable by exporters and
enforceable by the government. The system should also be able to
readily prioritize which export applications can be approved quickly
and which require greater scrutiny to consider the various national
interests at stake. Our recent and past work casts doubts on the
effectiveness and efficiency of the system. In our opinion, therefore,
it is time to step back and rethink whether the current system can
appropriately protect U.S. interests in the post-9/11 security
environment.
We will send copies of this report to interested congressional
committees. We will also provide copies to the Secretaries of Commerce,
Defense, Homeland Security, and State; the Attorney General; the
Director, Office of Management and Budget; and the Assistant to the
President for National Security Affairs. In addition, this report will
be 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. Key contributors to this report were Anne-
Marie Lasowski, Johana R. Ayers, E. Brandon Booth, Masha Pastuhov-
Pastein, and Lily J. Chin.
Sincerely yours,
Signed by:
Katherine V. Schinasi:
Managing Director:
Acquisition and Sourcing Management:
Enclosures:
Enclosure I: Prior GAO Reports on Arms Exports:
Over the last several years, we have issued numerous reports regarding
exports of U.S. arms, which can be sold either directly by companies or
by the U.S. government. Direct commercial sales of arms are regulated
by the State Department's export control system, while U.S. government
sales occur through the Foreign Military Sales (FMS) program.
For both methods of sale, we have identified weaknesses in two areas:
(1) the U.S. government's controls on arms to ensure that U.S.
interests are protected and (2) the mechanisms to ensure that these
exports comply with U.S. laws and regulations. We have also identified
inefficiencies in the administration and management of both the arms
export control system and the FMS program. To correct those weaknesses
and inefficiencies, we have made multiple recommendations. These
recommendations have generally focused on clarifying regulations and
guidance, improving interagency coordination, and obtaining sufficient
information for decision making. Based on follow ups with the various
departments, we determined that a number of these recommendations have
not yet been implemented.[Footnote 7] Tables 2 and 3 summarize what we
found, what we recommended, and what actions, if any, the departments
have taken to implement those recommendations.
Direct commercial sales: These sales are regulated through the arms
export control system, which is overseen by the State Department under
the authority of the Arms Export Control Act. The State Department
maintains a list of the items subject to its export controls. Prior to
exporting State-controlled items to either overseas companies or
governments, companies generally need to obtain State-issued licenses.
The Defense Department assists the State Department by providing input
on which items should be State-controlled and by conducting technical
and national security reviews of export license applications. The State
Department's controls on arms exports are separate from those
maintained by the Commerce Department on the export of dual-use items,
which have both military and commercial applications. The State and
Commerce Departments' controls differ in several key areas. For
example, many items controlled by the Commerce Department do not
require licenses for export to most destinations, and Commerce-
controlled items may be exported to China while most arms exports to
China are prohibited.
Table 2: 1999-2004 GAO Reports on the Arms Export Control System:
Export Controls: Clarification of Jurisdiction for Missile Technology
Items Needed (Oct. 9, 2001, GAO-02-120).
Background: The United States has committed to work with other
countries through the Missile Technology Control Regime to control the
export of missile-related items. The regime is a voluntary agreement
among member countries to limit proliferation and consists of common
export policy guidelines and a list of items to be controlled. In 1990,
Congress amended existing export control statutes to strengthen missile-
related export controls consistent with U.S. commitments to the regime.
Under the amended statutes, the Commerce Department is required to
place regime items that are dual-use on its list of controlled items.
All other regime items are to appear on the State Department's list of
controlled items.
Main issues: The Departments of State and Commerce have not clearly
determined which department has jurisdiction over almost 25 percent of
the items that the United States agreed to control as part of its
regime commitments. The lack of clarity as to which department has
jurisdiction over some regime items may lead an exporter to seek a
Commerce Department license for a militarily sensitive item controlled
by the State Department. Conversely, an exporter could seek a State
Department license for a Commerce- controlled item. Either way,
exporters are left to decide which department should review their
exports of missile items and, by default, which policy interests are to
be considered in the license review process.
GAO recommendations: Departments of Commerce and State;
* jointly review the listing of items included on the Missile
Technology Control Regime list, determine the appropriate jurisdiction
for those items, and revise their respective export control lists to
ensure that proposed exports of regime items are subject to the
appropriate review process.
Action taken: The Departments of Commerce and State have not
implemented our recommendations despite initially agreeing to do so.
Export Controls: Processes for Determining Proper Control of Defense-
Related Items Need Improvement (Sept. 20, 2002, GAO-02-996).
Background: Companies seeking to export defense-related items are
responsible for determining whether those items are regulated by the
State Department or by the Commerce Department and what the applicable
export requirements are. When in doubt about whether an item is State-
or Commerce-controlled or when requesting a change in jurisdiction, an
exporter may request a commodity jurisdiction determination from the
State Department. The State Department, which consults with the
Commerce and Defense Departments, is the only department authorized to
change export jurisdiction. If an exporter knows an item is Commerce-
controlled but is uncertain of export requirements, the exporter can
request a commodity classification from the Commerce Department. The
Commerce Department can refer classification requests to the State and
Defense Departments to confirm that an item is Commerce-controlled.
Main issues: The Commerce Department has improperly classified some
State-controlled items as Commerce-controlled because it rarely obtains
input from the Departments of State and Defense before making a
commodity classification. As a result, the U.S. government faces an
increased risk that defense items will be exported without the proper
level of government review and control to protect national interests.
Also, the Commerce Department has not adhered to regulatory time frames
for processing classification requests.
In its implementation of the commodity jurisdiction process, the State
Department has not adhered to established time frames, which may
discourage companies from requesting jurisdiction determinations. The
State Department has also been unable to issue determinations for some
items because of interagency disputes occurring outside the process.
GAO recommendations: Commerce Department;
* promptly review existing guidance and develop criteria with
concurrence from the Departments of State and Defense for referring
commodity classification requests to those departments;
* work with the Departments of State and Defense to develop procedures
for referring requests that are returned to companies because the items
are controlled by the State Department or because they require a
commodity jurisdiction review;
Departments of Commerce, State, and Defense:
* revise interagency guidance to incorporate any changes to the
referral process and time frames for making decisions;
* assess the resources needed to make jurisdiction recommendations and
determinations within established time frames and reallocate them as
appropriate;
Action taken: With a limited exception, our recommendations have not
been implemented. In responding to our report, the State Department
indicated it partially agreed with our recommendations, while the
Departments of Commerce and Defense agreed to implement our
recommendations.
* The Departments of Commerce and Defense have added staff to assist
with their respective processes.
Defense Trade: Lessons to Be Learned from the Country Export Exemption
(March 29, 2002, GAO-02-63).
Background: The State Department's export regulations do not require
licenses for the export of many defense items to Canada. In 2000, the
U.S. government announced plans to extend similar licensing exemptions
for exports to other countries. The State Department has negotiated
agreements with the United Kingdom and Australia to provide a basis for
license-free exports to those countries.
Main issues: Because of unclear guidance, some exporters have
implemented the Canadian exemption inconsistently and have
misinterpreted requirements to report their export activities to the
State Department. The State Department has provided inconsistent
answers to exporters and U.S. Customs Service[A] officials when
questions were raised about the exemption's use in specific situations.
The State Department encourages exporters to voluntarily disclose
violations but relies primarily on U.S. Customs to enforce export
control laws and regulations, including use of the Canadian exemption.
U.S. Customs' ability to enforce the proper use of exemptions is
weakened by a lack of information and resources, difficulties in
investigating suspected violations, and competing demands, such as
terrorism prevention and drug interdiction.
GAO recommendations: State Department;
* review guidance and licensing officer training to improve clarity and
ensure consistent application of the exemption and provide the guidance
to U.S. Customs to ensure that consistent information is disseminated
to exporters;
* work with the Justice Department and U.S. Customs to assess lessons
learned from the Canadian exemption and ensure the lessons are
incorporated in future agreements; U.S. Customs;
* assess the threat of illegal defense exports along Canadian border
and evaluate whether reallocation of inspectors or other actions are
warranted to better enforce export regulations;
* update, finalize, and provide guidance on inspection requirements to
all inspectors;
Action taken; The State Department has not implemented our
recommendations. In its response to our report, the State Department
said it would provide training and guidance but did not indicate how it
would ensure that the guidance and training are clear and understood by
those who need to use them. The department also said it would work with
law enforcement agencies to assess lessons learned but did not identify
how it would do so. The agreements with the governments of the United
Kingdom and Australia were drafted before the department conducted a
lessons learned assessment.
U.S. Customs has implemented our recommendations.
Export Controls: Reengineering Business Processes Can Improve
Efficiency of State Department License Reviews (Dec. 31, 2001, GAO-02-
203).
Background: The U.S defense industry and some foreign government
purchasers have expressed concern that the arms export control process
is unnecessarily lengthy. While the export licensing process can be
lengthy because of foreign policy and national security considerations,
other factors may also affect processing times.
Main issues: The State Department lacks formal guidelines for
determining which agencies and offices should review arms export
license applications and does not have procedures to monitor the flow
of applications through the process. As a result, thousands of
applications have been delayed while no substantive review occurred and
hundreds more have been lost.
GAO recommendations: State Department;
* develop criteria for determining which applications should be
referred to which agencies and offices for further review, develop
formal guidelines and training for reviewing organizations so they
clearly understand their duties;
* establish timeliness goals for each phase of the licensing process
and mechanisms to ensure that applications are not lost or delayed;
* implement these recommendations before proceeding with a planned
upgrade to the department's electronic business processing system;
* Use of the State Department's new electronic system for processing
and tracking applications has been limited.
Joint Strike Fighter Acquisition: Cooperative Program Needs Greater
Oversight to Ensure Goals Are Met (July 21, 2003, GAO-03-775)[B].
Background: The Joint Strike Fighter, a next-generation fighter
aircraft, is being developed and produced by the United States and
eight partner countries.
Main issues: International participation in the Joint Strike Fighter
program involves the management of numerous export authorizations to
share project information with partner governments, solicit bids from
foreign suppliers, and execute contracts. Authorizations for exports to
critical foreign suppliers need to be planned for, prepared, and acted
on in a timely manner to help avoid program schedule delays. Without
proper planning, there could be pressure to expedite approvals to
support program goals, which could lead to inadequate license reviews.
The contractor has not fulfilled a requirement to complete a long-term
plan that could anticipate the export authorizations necessary to
execute the program's use of foreign suppliers to design and
manufacture key parts of the aircraft.
GAO recommendations: Department of Defense;
* ensure that contractor's international industrial plan:;
* identifies contracts involving the transfer of sensitive data and
technology to partner suppliers;
* evaluates the risks that unfavorable export decisions could pose for
the program;
* develops alternatives, such as using U.S. suppliers, to mitigate the
risks of unfavorable decisions;
Action taken; The Defense Department has tasked the contractor to
develop a technology transfer "road map" as an initial step in
implementing the recommendations.
* GAO is currently evaluating the extent to which this road map
fulfills the recommendations.
Export Controls: Better Interagency Coordination Needed on Satellite
Exports (Sept. 17, 1999, GAO/NSIAD-99-182).
Background: U.S. export controls over commercial communications
satellites are complicated and have changed frequently over the years.
Starting in 1992, the Departments of Commerce and State shared
licensing responsibility for satellite-related exports. However, in
1998, Congress transferred licensing responsibility for satellite-
related exports to the State Department because of concerns that the
Commerce Department had weakened controls over satellite exports. The
Defense Department also plays a role by reviewing satellite-related
export applications and monitoring sensitive launch activities. To help
protect sensitive technologies during a satellite launch, the U.S.
government entered into formal agreements with the governments of
China, Russia, Kazakhstan, and Ukraine that give the United States the
right to take steps to safeguard U.S. technology. The Departments of
Commerce and State have attached conditions to export licenses to
reflect these agreements.
Main issues: Most of the licensed satellite launch campaigns by China,
Russia, and Ukraine from 1989 to 1999 included license conditions to
protect sensitive U.S. technology. However, the Commerce Department
approved eight launch campaigns that omitted most license safeguard
conditions, and neither the State Department nor the Defense Department
requested the conditions be included. Documents from the Departments of
State and Defense show that monitoring problems, unauthorized transfers
of technology, and other violations of export control regulations
possibly occurred in 14 launch campaigns in China, Russia, and Ukraine,
including some of the campaigns where license conditions were omitted.
Recent legislative changes address some causes of past export licensing
problems but do not fully resolve the implementation problems by the
Departments of Commerce, State, and Defense.
GAO recommendations: State Department;
* consult with Departments of Commerce and Defense to establish clear
roles and responsibilities for all agencies and overseas posts in
implementing the government-to- government technical safeguards
agreements and ensuring U.S. exporter compliance with U.S. satellite
export regulations; Action taken; Our recommendations have been
implemented.
Defense Trade: Analysis of Support for Recent Initiatives (Aug. 31,
2000, GAO/NSIAD-00-191).
Background: In 1999, the Defense Department compiled a list of 81
defense cooperation initiatives intended to enhance cross-border
defense trade and investment. Several initiatives were part of an
ongoing effort to reinvent the FMS program, while other initiatives
were to help streamline processes and/or change policies considered
important for defense cooperation, such as export controls. Building on
the 81 initiatives, the Departments of State and Defense announced 17
measures, collectively known as the Defense Trade Security Initiative
(DTSI), to adjust the export control system.
Main issues: The Defense Department developed its initiatives on the
basis of incomplete data and inadequate analysis to determine
underlying causes for problems it identified. It is unclear whether the
department's initiatives will achieve the desired outcomes of improving
U.S. and foreign forces' ability to operate together in coalition
warfare scenarios, reducing a gap in military capabilities between the
United State and its allies, and ensuring that U.S. companies
successfully compete in overseas markets. Further, there was no
demonstration of how DTSI measures would achieve identified goals and
no analysis of existing problems. As a result, there is little
assurance that any underlying problems with the U.S. export control
system have been sufficiently analyzed to determine whether DTSI will
remedy any existing problems.
GAO recommendations: No recommendations;
Action taken; Not applicable.
Export Controls: State and Commerce Department License Review Times are
Similar June 1, 2001, GAO-01-528).
Background: The U.S. defense industry and some U.S. and allied
government officials have expressed concerns about the amount of time
required to process export license applications.
Main issues: In fiscal year 2000, the State Department took an average
of 46 days to reach a decision on license applications, while the
Commerce Department took 50 days. Both departments approved more than
80 percent of license applications.
GAO recommendations: No recommendations;
Action taken; Not applicable.
Source: GAO analysis of prior work.
[A] The U.S. Customs Service is now part of the Homeland Security
Department's Customs and Border Protection and Immigration and Customs
Enforcement.
[B] This report addresses international program management issues in
addition to arms export controls.
[End of table]
FMS program: Eligible foreign governments may purchase arms from the
U.S. government through the FMS program. While the FMS program is
overseen by the State Department, which must approve all sales, the
Defense Department's Defense Security Cooperation Agency is responsible
for overall administration of the program, and the military departments
execute the individual sales agreements that are signed with foreign
governments. The program is governed by the Arms Export Control Act.
Table 3: 1999-2004 GAO Reports on the Foreign Military Sales Program:
Foreign Military Sales: Actions Needed to Provide Better Controls over
Exported Defense Articles (June 5, 2003, GAO-03-599) FOR OFFICIAL USE
ONLY.
Main Issues: GAO identified a number of weaknesses related to the
government's ability to ensure that items exported through the FMS
program are authorized, received by the appropriate foreign government,
or properly monitored. Citing the sensitivity of the information
contained in the report, the Homeland Security Department directed that
the report not be made publicly available.
GAO recommendations: Departments of Defense, Homeland Security, and
State;
* multiple recommendations to improve the security of FMS exports and
enhance end-use monitoring efforts;
Action taken; While the departments have taken some action to implement
the recommendations, most have not yet been implemented.
Nonproliferation: Further Improvements Needed in U.S. Efforts to
Counter Threats from Man-Portable Air Defense Systems (May 13, 2004,
GAO-04-519)[A].
Background: The proliferation of man-portable air defense systems
(MANPADS), shoulder-launched surface-to-air missile systems, has been
of growing concern to the United States and its allies. The U.S.
government has sold MANPADS--the Stinger--through the FMS program since
1982. To prevent proliferation, U.S. law requires the Defense
Department to conduct annual inspections to ensure that Stinger systems
are being used and stored as required under the FMS program. Countries
that purchase Stingers are legally bound to cooperate with these
inspections.
Main issues: The disposition of Stingers sold overseas is unknown
because the Defense Department's Stinger inventory inspection process
is flawed. The department does not require inspecting organizations to
maintain records on the number and destinations of Stingers. Records
are neither complete nor reliable. Also, the Defense Department lacks
procedures for conducting inspections, which has resulted in
inconsistent inspection processes. As a result, the department lacks
the ability to periodically account for Stingers sold through the FMS
program, compare the results against credible control records, and
examine exceptions to what was authorized.
GAO recommendations: Defense Department;
* establish standardized record-keeping requirements for all U.S.
organizations responsible for maintaining records on Stinger systems
sold overseas;
* issue standardized inventory and physical security inspection
procedures for officials responsible for conducting inspections;
Action taken; The Defense Department has begun implementing our
recommendations.
Foreign Military Sales: Changes Needed to Correct Weaknesses in End-Use
Monitoring Program (Aug. 24, 2000, GAO/NSIAD-00-208).
Background: Since 1996, the Arms Export Control Act has required an end-
use monitoring program for items sold through the FMS program. To the
extent practicable, the end-use monitoring program is to provide
reasonable assurance that the recipient of defense articles and
services is complying with U.S. government requirements to safeguard
these defense articles. The act also requires the Defense Department to
report annually to Congress on the implementation of the end-use
monitoring program.
Main issues: The Defense Department has not effectively implemented the
requirement that it observe and report on foreign governments' use of
U.S. defense articles and services sold through the FMS program. Field
personnel have not received the guidance needed to conduct end-use
checks. Also, the department relied on host country records to maintain
accountability for certain weapons systems, such as Stinger missiles,
but these records have discrepancies. As a result, the end-use
monitoring program cannot provide assurances that foreign governments
are adhering to conditions placed on U.S. arms sales.
The Defense Department has not complied with the act's reporting
requirements to track cost and personnel information used in the end-
use monitoring program. As a result, Congress may be limited in its
ability to evaluate the end-use monitoring program or to determine if
additional resources are needed.
GAO recommendations: Defense Department;
* issue specific guidance to field personnel on what activities need to
be performed for the routine observation of U.S. defense equipment and
additional guidance for the monitoring of specific weapon systems;
* reconcile discrepancies in foreign governments' Stinger missile
inventories;
* comply with the 1996 end-use monitoring amendment of the Arms Export
Control Act by reporting required information to Congress;
Action taken; The Defense Department has implemented our
recommendations regarding guidance and reporting requirements. It has
recently begun implementing our recommendation regarding Stinger
missiles.
Foreign Military Sales: Review Process for Controlled Missile
Technology Needs Improvement (Sept. 29, 1999, GAO/NSIAD-99-231).
Background: The U.S. government relies on a complex process with many
participants to determine what items may be transferred through the FMS
program.
Main issues: The U.S. government has not established a process for
ensuring that certain controlled items are fully and systematically
identified when reviewing or approving foreign military sales
agreements. As a result, items controlled as part of the Missile
Technology Control Regime have been sold under the program without
proper review and approval.
GAO recommendations: Departments of State and Defense;
* establish a process to identify all items on proposed FMS sales
agreements controlled under the Missile Technology Control Regime or
other nonproliferation agreements and to refer the information to the
State Department so it can review proposed sales to ensure compliance
with nonproliferation agreements.
Action taken; Our recommendations have been implemented.
Foreign Military Sales: Efforts to Improve Administration Hampered by
Insufficient Information (Nov. 22, 1999, GAO/NSIAD-00-37).
Background: The Arms Export Control Act requires the Defense Department
to recover the full estimated cost of administering foreign military
sales from foreign customers. Because of budget pressures and customer
complaints about program inefficiencies, the Defense Department has
begun reinvention efforts to improve the management and implementation
of the FMS program.
Main issues: The Defense Department does not have sufficient
information to determine the administrative costs for the FMS program.
It is, therefore, unable to use actual costs as a basis to determine
what charges should be applied to sales and does not know if the
percentage charged to customers on the dollar value of individual sales
is appropriately recovering program costs. As a result, the department
estimates future sales and uses the administrative account balance to
plan future budgets and adjust administrative charges, but these
projections are subjective. Reinvention efforts could help better
identify costs, but the initiatives lack a common approach and are
unlikely to provide complete and consistent information about the costs
of administering sales.
GAO recommendations: Defense Department;
* use a comprehensive and consistent definition of administrative tasks
to collect cost information and issue guidance to the military services
on the consistent application of program management charges;
* assess the amount of administrative funds needed to complete existing
sales and use excess funds, if any, on other program costs;
Action taken; Our recommendations have been implemented.
Source: GAO analysis of prior work.
[A] This report also addresses international efforts to limit MANPADS
proliferation and efforts to develop countermeasures to minimize the
MANPADS threat to aircraft.
[End of table]
Enclosure II: Related GAO Products:
Defense Trade: Arms Export Control System in the Post-9/11 Environment.
GAO-05-234. Washington, D.C.: February 16, 2005.
Nonproliferation: Further Improvements Needed in U.S. Efforts to
Counter Threats from Man-Portable Air Defense Systems. GAO-04-519.
Washington, D.C.: May 13, 2004.
Defense Acquisitions: DOD Needs to Better Support Program Managers'
Implementation of Anti-Tamper Protection. GAO-04-302. Washington, D.C.:
March 31, 2004.
Nonproliferation: Improvements Needed to Better Control Technology
Exports for Cruise Missiles and Unmanned Aerial Vehicles. GAO-04-175.
Washington, D.C.: January 23, 2004.
Export Controls: Post-Shipment Verification Provides Limited Assurance
That Dual-Use Items Are Being Properly Used. GAO-04-357. Washington,
D.C.: January 12, 2004.
Joint Strike Fighter Acquisition: Cooperative Program Needs Greater
Oversight to Ensure Goals Are Met. GAO-03-775. Washington, D.C.: July
21, 2003.
Defense Trade: Better Information Needed to Support Decisions Affecting
Proposed Weapons Transfers. GAO-03-694. Washington, D.C.: July 11, 2003.
Nonproliferation: Strategy Needed to Strengthen Multilateral Export
Control Regimes. GAO-03-43. Washington, D.C.: October 25, 2002.
Export Controls: Processes for Determining Proper Control of Defense-
Related Items Need Improvement. GAO-02-996. Washington, D.C.: September
20, 2002.
Export Controls: Department of Commerce Controls over Transfers of
Technology to Foreign Nationals Need Improvement. GAO-02-972.
Washington, D.C.: September 6, 2002.
Export Controls: More Thorough Analysis Needed to Justify Changes in
High Performance Computer Controls. GAO-02-892. Washington, D.C.:
August 2, 2002.
Export Controls: Rapid Advances in China's Semiconductor Industry
Underscore Need for Fundamental U.S. Policy Review. GAO-02-620.
Washington, D.C.: April 19, 2002.
Defense Trade: Lessons to Be Learned from the Country Export Exemption.
GAO-02-63. Washington, D.C.: March 29, 2002.
Export Controls: Issues to Consider in Authorizing a New Export
Administration Act. GAO-02-468T. Washington, D.C.: February 28, 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.
Information Security: Weaknesses Place Commerce Data and Operations at
Serious Risk. GAO-01-751. Washington, D.C.: August 13, 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.
Export Controls: System for Controlling Exports of High Performance
Computing Is Ineffective. GAO-01-10. Washington, D.C.: December 18,
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 Initiatives on
Defense Cooperation. GAO/NSIAD-00-190R. Washington, D.C.: July 19, 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.
Export Controls: Better Interagency Coordination Needed on Satellite
Exports. GAO/NSIAD-99-182. Washington, D.C.: September 17, 1999.
Export Controls: National Security Issues and Foreign Availability for
High Performance Computer Exports. GAO/NSIAD-98-200. Washington, D.C.:
September 16, 1998.
China: Military Imports From the United States and the European Union
Since the 1989 Embargoes. GAO/NSIAD-98-176. Washington, D.C.: June 16,
1998.
Export Controls: Change in Export Licensing Jurisdiction for Two
Sensitive Dual-Use Items. GAO/NSIAD-97-24. Washington, D.C.: January
14, 1997.
Export Controls: Sensitive Machine Tool Exports to China. GAO/NSIAD-97-
4. Washington, D.C.: November 19, 1996.
Export Controls: Sale of Telecommunications Equipment to China. GAO/
NSIAD-97-5. Washington, D.C.: November 13, 1996.
Export Controls: Concerns Over Stealth-Related Exports. GAO/NSIAD-95-
140. Washington, D.C.: May 10, 1995.
Export Controls: Some Controls Over Missile-Related Technology Exports
To China Are Weak. GAO/NSIAD-95-82. Washington, D.C.: April 17, 1995.
Export Controls: License Screening and Compliance Procedures Need
Strengthening. GAO/NSIAD-94-178. Washington, D.C.: June 14, 1994.
(120431):
FOOTNOTES
[1] "Arms" refers to defense articles and services as specified in 22
U.S.C. 2778.
[2] GAO, Defense Trade: Arms Export Control System in the Post-9/11
Environment, GAO-05-234 (Washington, D.C.: Feb. 16, 2005).
[3] This information was initially prepared for a hearing that had been
scheduled for April 7, 2005.
[4] The median processing time is the point at which 50 percent of the
cases took more time and 50 percent took less time. We are reporting
the median processing time because the average, or mean, processing
time can be significantly affected by a small number of cases that had
much longer review times than the majority of cases.
[5] Arms export cases include applications for the permanent export of
arms, the temporary export and import of arms, and agreements between
U.S. industry and foreign entities to provide technical assistance or
manufacturing capability, as well as requests for amendments to
existing licenses and jurisdiction determinations.
[6] This covers license applications processed between October 1, 2001,
and April 30, 2004.
[7] GAO's standard practice is to follow up with departments to
periodically determine the status of open recommendations.
