Defense Trade
Clarification and More Comprehensive Oversight of Export Exemptions Certified by DOD Are Needed Gao ID: GAO-07-1103 September 19, 2007Defense (DOD) activities, U.S. defense companies may export defense items. The Department of State (State) controls such exports through its International Traffic in Arms Regulations (ITAR), which provides for some exemptions from export licensing requirements. For a limited number of these exemptions, DOD may confirm--or certify--that the export activity qualifies for the use of an ITAR exemption. As part of an initiative, DOD is to make more effective use of ITAR exemptions, but little is known about the extent to which this is done. This report (1) describes DOD's approach for certifying exporters' exemption use in support of defense activities, (2) summarizes the use of selected DOD-certified exemptions, and (3) examines State and DOD's oversight of exemption use. GAO's findings are based on its review of export control law, regulation, and DOD guidelines; interviews with State, DOD, and defense industry officials; and a GAO-developed database of DOD certification letters.
In support of defense activities, DOD prepares letters certifying that a proposed export qualifies for the use of certain ITAR exemptions by exporters. To guide this approach, DOD issued exemption certification guidelines in March 2004 to the military services because they are the DOD components primarily responsible for managing and implementing defense international cooperative programs. However, GAO found other DOD components that also certify the use of exemptions in support of international activities but are not subject to the DOD guidelines. Officials from State, which regulates and controls defense exports, have raised several concerns to DOD about its guidelines, including the use of one ITAR exemption by contractors and the comprehensiveness of the guidelines. While State and DOD officials have met and exchanged correspondence on these issues, to date, they have not resolved fundamental disagreements. A lack of common understanding of regulatory exemption use could result in inconsistent application of the regulations. The exemption certification letters from DOD components that we reviewed showed that over 1,900 exemptions were certified for about 270 exporters in calendar years 2004 through 2006. The majority of the certifications related to missile defense and Air Force programs and included the export of technical data. While most of the exporters identified in the DOD-certified exemption letters were defense contractors, other exporters included university laboratories and federally funded research and development centers. The United Kingdom, Australia, Canada, and the North Atlantic Treaty Organization were the most frequently cited recipients for exports under exemptions certified by DOD components. State and DOD lack comprehensive data to oversee the use of DOD-certified exemptions, limiting their knowledge of defense activities under this process. While DOD's guidelines provide for annual reporting to State on certified exemptions, this report captures data from the military services, but not from other DOD components. GAO identified 271 letters from nonservice components that were not included in DOD's 2006 report to State. In addition, DOD's report to State may not capture the magnitude of transfers certified for exemption use. For example, one letter that GAO reviewed certified the use of an exemption for more than 50 companies, but only the certification letter--not the actual transfers, which totaled 600 over a 3-year period--was captured in the cognizant military service's record keeping on exemption certifications. Furthermore, the details on these transfers were not included in DOD's report to State, limiting insight into the number of transfers under this certification.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-07-1103, Defense Trade: Clarification and More Comprehensive Oversight of Export Exemptions Certified by DOD Are Needed
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United States Government Accountability Office:
GAO:
Report to the Chairman, Committee on Foreign Affairs, House of
Representatives:
September 2007:
Defense Trade:
Clarification and More Comprehensive Oversight of Export Exemptions
Certified by DOD Are Needed:
GAO-07-1103:
GAO Highlights:
Highlights of GAO-07-1103, a report to the Chairman, Committee on
Foreign Affairs, House of Representatives.
Why GAO Did This Study:
In support of Department of Defense (DOD) activities, U.S. defense
companies may export defense items. The Department of State (State)
controls such exports through its International Traffic in Arms
Regulations (ITAR), which provides for some exemptions from export
licensing requirements. For a limited number of these exemptions, DOD
may confirm”or certify”that the export activity qualifies for the use
of an ITAR exemption. As part of an initiative, DOD is to make more
effective use of ITAR exemptions, but little is known about the extent
to which this is done.
This report (1) describes DOD‘s approach for certifying exporters‘
exemption use in support of defense activities, (2) summarizes the use
of selected DOD-certified exemptions, and (3) examines State and DOD‘s
oversight of exemption use. GAO‘s findings are based on its review of
export control law, regulation, and DOD guidelines; interviews with
State, DOD, and defense industry officials; and a GAO-developed
database of DOD certification letters.
What GAO Found:
In support of defense activities, DOD prepares letters certifying that
a proposed export qualifies for the use of certain ITAR exemptions by
exporters. To guide this approach, DOD issued exemption certification
guidelines in March 2004 to the military services because they are the
DOD components primarily responsible for managing and implementing
defense international cooperative programs. However, GAO found other
DOD components that also certify the use of exemptions in support of
international activities but are not subject to the DOD guidelines.
Officials from State, which regulates and controls defense exports,
have raised several concerns to DOD about its guidelines, including the
use of one ITAR exemption by contractors and the comprehensiveness of
the guidelines. While State and DOD officials have met and exchanged
correspondence on these issues, to date, they have not resolved
fundamental disagreements. A lack of common understanding of regulatory
exemption use could result in inconsistent application of the
regulations.
The exemption certification letters from DOD components that we
reviewed showed that over 1,900 exemptions were certified for about 270
exporters in calendar years 2004 through 2006. The majority of the
certifications related to missile defense and Air Force programs and
included the export of technical data. While most of the exporters
identified in the DOD-certified exemption letters were defense
contractors, other exporters included university laboratories and
federally funded research and development centers. The United Kingdom,
Australia, Canada, and the North Atlantic Treaty Organization were the
most frequently cited recipients for exports under exemptions certified
by DOD components.
State and DOD lack comprehensive data to oversee the use of DOD-
certified exemptions, limiting their knowledge of defense activities
under this process. While DOD‘s guidelines provide for annual reporting
to State on certified exemptions, this report captures data from the
military services, but not from other DOD components. GAO identified
271 letters from nonservice components that were not included in DOD‘s
2006 report to State. In addition, DOD‘s report to State may not
capture the magnitude of transfers certified for exemption use. For
example, one letter that GAO reviewed certified the use of an exemption
for more than 50 companies, but only the certification letter”not the
actual transfers, which totaled 600 over a 3-year period”was captured
in the cognizant military service‘s record keeping on exemption
certifications. Furthermore, the details on these transfers were not
included in DOD‘s report to State, limiting insight into the number of
transfers under this certification.
What GAO Recommends:
GAO is recommending that State and DOD resolve disagreements on
exemption use and guidelines, and strengthen oversight through data
collection. State and DOD agreed to resolve disagreements, but DOD
misunderstood the intent of the recommendation on oversight. In
response, GAO clarified the language in this recommendation.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.GAO-07-1103]. For more information, contact Ann
Calvaresi-Barr at (202) 512-4841 or calvaresibarra@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Guidelines for DOD‘s Certification of Exemption Use Have Raised Some
Concerns by State:
DOD Components Certified the Use of Exemptions for a Variety of
Programs and Foreign Recipients:
State and DOD Lack Complete Data to Oversee Exemptions Certified by
DOD:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: ITAR Sections Discussed in This Report:
Appendix III: Comments from the Department of Defense:
Appendix IV: Comments from the Department of State:
Appendix V: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: ITAR Exemptions Identified in DTSA Guidelines for Military
Service Certification and ITAR Exemption Description:
Table 2: GAO Analysis of DOD Exemption Certifications (2004 through
2006):
Table 3: ITAR Sections Cited in This Report:
Figure:
Figure 1: Sample Letter:
Abbreviations:
DDTC: Directorate of Defense Trade Controls:
DOD: Department of Defense:
DTSA: Defense Technology Security Administration:
ITAR: International Traffic in Arms Regulations:
NATO: North Atlantic Treaty Organization:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
September 19, 2007:
The Honorable Tom Lantos:
Chairman:
Committee on Foreign Affairs:
House of Representatives:
Dear Mr. Chairman:
As part of its efforts to promote cost sharing and increase
interoperability of defense assets, the Department of Defense (DOD)
enters into defense cooperative agreements with allies and friendly
nations. In support of these agreements and associated DOD activities,
U.S. defense companies may export defense items[Footnote 1] to foreign
governments and defense companies. The Department of State (State)
controls the export of defense items, requiring most to be licensed for
export through its International Traffic in Arms Regulations
(ITAR).[Footnote 2] Under certain conditions, however, the ITAR
provides for exports to be exempt from license requirements and
establishes the criteria for such exemptions. For a limited number of
exemptions, DOD may confirm”or certify[Footnote 3]”in writing that the
export activity qualifies for the use of an ITAR exemption in support
of DOD activities, such as sharing of technical data related to DOD
acquisition programs. The use of exemptions, including those certified
by DOD, and compliance with the ITAR are ultimately the responsibility
of the exporter.
Over the past decade, Congress has requested that we examine the U.S.
export control system, and we have reported on various problems in the
processes for this system.[Footnote 4] This report looks at how
unlicensed exports in support of DOD activities, such as defense
cooperative programs, are overseen. Specifically, in response to your
request, this report (1) describes DOD‘s approach for certifying the
use of export exemptions by exporters in support of defense activities,
(2) summarizes the use of DOD-certified exemptions that we identified
and reviewed, and (3) examines the extent to which State and DOD
oversee the use of these exemptions.
To conduct our work, we identified DOD‘s approach for certifying the
use of export exemptions by exporters in support of defense activities
through an examination of export control laws, regulations, DOD
guidelines, and practices. We also interviewed officials responsible
for export controls from State, DOD, and defense companies. To
summarize the use of DOD-certified exemptions, we created a database of
DOD certification letters issued between 2004 and 2006 that we were
able to identify and collect from DOD components. From these data, we
extracted information such as the most frequent type of export and top
foreign recipients and summarized the results. We coordinated with
State and DOD officials to identify a list of DOD components certifying
the use of exemptions. However, the universe of all DOD-certified
exemptions is unknown, and additional exemption letters might exist. To
examine the extent to which State and DOD oversee the use of DOD-
certified exemptions, we reviewed DOD‘s 2006 report to State on
exemption certifications and discussed how data were collected with
cognizant officials. For more on our scope and methodology, see
appendix I. We performed our review from January through July 2007 in
accordance with generally accepted government auditing standards.
Results in Brief:
DOD components, including the military services, prepare letters
certifying the use of certain ITAR exemptions by exporters in support
of DOD activities. The letters typically state the exporter‘s name, the
item to be exported, and the applicable ITAR exemption. The military
services‘ approach for certifying the use of ITAR exemptions is set
forth in guidelines DOD issued in March 2004, which cover five specific
exemptions. These guidelines were issued to the military services
because they are the DOD components primarily responsible for managing
and implementing international defense cooperative programs. However,
we found other nonservice DOD components that are certifying the use of
exemptions in support of international activities but that are not
subject to the DOD guidelines. Some of these nonservice components had
created or were creating their own guidelines, which could lead to
inconsistent certification practices. Officials from State, which
regulates and controls defense exports, have raised several concerns to
DOD about its guidelines, including the use of one ITAR exemption by
contractors. According to DOD officials, this exemption is available to
contractors when they work in direct support of DOD activities.
However, State officials stated that the exemption is limited to use by
U.S. government personnel. State officials also have raised concerns to
DOD about the comprehensiveness of DOD‘s exemption certification
guidelines, including the scope and purpose. DOD is in process of
revising its guidelines, partially in response to State‘s concerns.
Although senior-level export control officials at both State and DOD
have met and exchanged correspondence, to date, State and DOD have not
reached agreement on fundamental issues.
The letters provided to us by DOD components showed that over 1,900
exemptions were certified for use by more than 270 exporters in
calendar years 2004 through 2006. Two ITAR sections were most commonly
cited, covering (1) the export of technical data, including classified
information, and (2) the temporary export of technical data or defense
services for official use by the U.S. government. The majority of the
certified exemptions related to missile defense and Air Force programs.
Exporters who were identified in DOD-certified exemption letters
included defense contractors, university laboratories, and federally
funded research and development centers. Four defense contractors
represented more than one-fourth of the exemption certifications during
this 3-year period. The United Kingdom, Australia, Canada, and the
North Atlantic Treaty Organization (NATO) [Footnote 5] were the most
frequently cited recipients for exports under exemptions certified by
DOD components.
State and DOD lack comprehensive data to oversee the use of DOD-
certified exemptions. While DOD‘s exemption guidelines provide for
annual reporting to State on certified exemptions, this report captures
data from the military services but not from other DOD components, such
as the Missile Defense Agency. For example, in July 2007, DOD‘s report
to State indicated that 161 certification letters were issued by the
military services in 2006; for the same year, we collected 271 letters
from nonservice components. In addition, the data may not capture the
magnitude of transfers certified for exemption use. For example, one
letter that we reviewed certified the use of an exemption by more than
50 companies for the purposes of sharing, with allied partners,
technical data relating to a quote or bid proposal. Only the
certification letter”not the actual transfers, which totaled 600 over a
3-year period”was captured in the cognizant military service‘s record
keeping on exemptions. However, the details on these transfers were not
included in DOD‘s 2006 report to State on exemptions certified by DOD,
limiting insight into the number of transfers that occurred.
We are recommending that State and DOD resolve disagreements on
exemption use and guidelines and increase insight and oversight of
certified exemptions. Specifically, we are recommending that State and
DOD establish a work group to resolve disagreements. If needed, State
should revise the ITAR to incorporate any necessary changes. Once
agreement is reached, DOD should revise its guidelines and make them
applicable to all DOD components. We are also recommending that DOD
ensure that its report to State is more complete by collecting data,
analyzing trends and usage, and reporting on certifications from all
DOD components. In commenting on a draft of this report, DOD and State
agreed to establish a work group to resolve disagreements on exemption
use and for DOD to revise and distribute its guidelines accordingly.
However, DOD misunderstood the intent of our recommendation on
oversight, stating that there is no existing mechanism whereby the U.S.
government can collect data from exporters to monitor exports of
defense items made under exemptions and that such a mechanism would
exceed DOD‘s existing authority. As a result, we clarified the language
in this recommendation to indicate that DOD should ensure that the
revised guidelines provide the appropriate oversight mechanisms for the
exemption certification process, such as the collection of data from
all DOD components on exemptions they certified.
Background:
Authority for controlling the export of defense items is provided
through the Arms Export Control Act,[Footnote 6] and these exports are
regulated through the ITAR by State Department‘s Directorate of Defense
Trade Controls. While most defense items require a license for export,
the ITAR contains numerous exemptions from licensing requirements that
have defined conditions and limitations. For exports that directly
support DOD activities, such as exports related to defense cooperative
programs, exporters may claim an exemption from licensing requirements
pursuant to the written request, directive, or approval of DOD. In
doing so, DOD certifies that the export appropriately qualifies for one
or more of a limited number of applicable ITAR license exemptions. As
with all exemptions, the exporter decides whether to export using an
exemption and bears ultimate responsibility for complying with
requirements in the ITAR.
In May 2000, the Administration announced 17 proposals as part of its
Defense Trade Security Initiative”an effort to facilitate cross-border
defense cooperation and streamline U.S. export controls. One proposal
was that DOD make more effective use of ITAR exemptions to facilitate
exports that further U.S. government interests in defense cooperation
with allies and friendly nations. To clarify exemption use, DOD‘s
Defense Technology Security Administration (DTSA)”which is responsible
for developing and implementing DOD security policies on international
transfers of defense-related goods, services, and technologies”issued
guidelines in March 2004 for certifying U.S. exporters‘ use of certain
ITAR exemptions. [Footnote 7] These guidelines were provided to the
military services, given that they are primarily responsible for
managing and implementing international defense cooperative programs.
Guidelines for DOD‘s Certification of Exemption Use Have Raised Some
Concerns by State:
In support of defense activities, DOD components prepare letters
certifying the use of certain exemptions by exporters under State‘s
export control regulations. The approach used by the military services
for certifying the use of ITAR exemptions is set forth in DOD
guidelines. Nonservice DOD components also certify the use of
exemptions but are not subject to the guidelines, which were not issued
departmentwide. Some of these nonservice components had created or were
creating their own guidelines, which could lead to confusion regarding
certain certification practices. State, as the regulator of defense
exports, has raised concerns about the guidelines not clearly
explaining the purpose and scope of the exemptions available to DOD,
and State and DOD disagree on contractors‘ use of one exemption that
has been certified by DOD components.
Military Services‘ Approach for Certifying ITAR Export Exemptions Is
Set Forth in DOD Guidelines, but These Guidelines Were Not Issued DOD-
wide:
Some ITAR exemptions apply to exports that directly benefit DOD
activities, ranging from support of defense cooperative programs, such
as the Joint Strike Fighter, to providing equipment and technical
services necessary to support U.S. forces in foreign locations. For
such exemptions, DOD confirms whether the export activity appropriately
qualifies for the use of an exemption and typically documents this
confirmation in a written letter directly to the exporter or sometimes
to the cognizant DOD program office that the exemption will benefit.
Typically, the letters identify the ITAR sections that pertain to the
exemption, the type and purpose of the export, the destination country,
and a time frame for the export to occur (see fig. 1).
Figure 1: Sample Letter:
Date: January 30, 2005 (Issue date):
From: [DOD Component] (DOD component certifying the exemption):
To: [Exporter] (Name of exporting company or individual):
In furtherance of DOD‘s mission and under the provision of paragraph
125.4(b)(1), International Traffic in Arms Regulation (ITAR) (Pertinent
ITAR exemption), your company and your subcontractors are hereby
directed, requested, and authorized to disclose certain specified
export control data to [recipient country] (Foreign government, foreign
contractor, or both) related to [DOD program] (Component and/or program
exemption supports). The technical exchanges will occur between
February 15 and April 15, 2005 in [country] at [conference] (Purpose
for exemption).
The technical data must be limited to information approved by [DOD
component] for oral and visual disclosure, and documentary release and
must be consistent with the limitations listed below and the disclosure
authorizations of Delegation of Disclosure Authority Letters for this
program:
* A U.S. military person knowledgeable about the above-referenced
program will be present at all meetings requiring foreign participation
to ensure that the U.S. exporter complies with the pertinent disclosure
authorizations and the conditions and limitations of this exemption.
* [Exporter] must maintain for 5 years a record of all U.S. export-
controlled information disclosed to the [foreign
government/contractor].
* [Exporter] must be eligible pursuant to ITAR section 120.1 and must
comply with ITAR conditions applicable to the use of exemptions.
(Conditions and limitations)
This exemption expires April 20, 2005 (Date exemption expires).
Sincerely,
Jane Smith:
Director:
Source: GAO review of DOD certification letters.
[End of figure]
In March 2004, DOD issued guidelines to the military services that were
intended to provide a level of oversight for the exemption
certification process, such as establishing elements of authority and
record-keeping requirements.[Footnote 8] The guidelines included the
following procedures for certifying exporters‘ use of ITAR exemptions
in support of DOD‘s activities:
* Established authorized exemption officials within each service to
certify the use of ITAR exemptions. These designated general officers
or senior executive service personnel in the military services are
responsible for overall management and oversight of the exemption
certification process.
* Provided elements for the certification, to include (1) a tracking
number for the certification; (2) ITAR exemption citation number; (3)
name of the exporter for whom use of the exemption is certified; (4)
the reason/purpose for certifying use of the exemption and benefit to
the U.S. government; (5) description of the specific defense article,
service, or technical data exempted; (6) conditions and limitations as
necessary to establish a clearly defined scope for defense articles,
services, and technical data authorized for export and any handling,
control, or accountability measures deemed necessary; (7) the foreign
end users; and (8) the expiration date”not more than 1 year from date
of issue.
* Required the military services to enter data on exemptions into a
centralized DOD database.
* Stated that DTSA would annually report on the services‘ exemption
certification data to State.
* Restated requirements in the ITAR that exemptions may only be
certified for use by eligible U.S. persons registered with the
Department of State, Director of Defense Trade Controls; and that U.S.
persons must comply with ITAR requirements for use of exemptions,
including applicable criteria and limitations. DOD certifications do
not supersede other ITAR requirements for use of exemptions.
* Listed five exemptions that relate to exports of defense items”such
as technical data pursuant to a written DOD request, shipments of
defense items by or for U.S. government agencies, or plant visits
(classified or unclassified) (see table 1).
Table 1: ITAR Exemptions Identified in DTSA Guidelines for Military
Service Certification and ITAR Exemption Description:
ITAR exemption: 125.4(b)(1);
Description from ITAR[a]: Technical Data Pursuant to Written Request:
’Technical data, including classified information, to be disclosed
pursuant to an official written request or directive from the U.S.
Department of Defense.“
ITAR exemption: 125.4(c);
Description from ITAR[a]: Responding to a Quote or Bid Proposal:
’Defense services and related unclassified technical data... to
nationals of NATO countries, Australia, Japan, and Sweden, for the
purposes of responding to a written request from the Department of
Defense for a quote or bid proposal. Such exports must be pursuant to
an official written request or directive from an authorized official of
the U.S. Department of Defense.“
ITAR exemption: 125.5 (a),(b),(c);
Description from ITAR[a]: Exemptions for Plant Visits: (a) ’A license
is not required for the oral and visual disclosure of unclassified
technical data during the course of a classified plant visit by a
foreign person, provided (1) the classified visit has itself been
authorized pursuant to a license issued by the Directorate of Defense
Trade Controls; or (2) the classified visit was approved in connection
with an actual or potential government-to-government program or project
by a U.S. Government agency...“ (b)...Directorate of Defense Trade
Controls approval is not required for disclosure of oral and visual
classified information during the course of a plant visit approved by
the appropriate U.S. Government agency if certain requirements are met,
such as the classified information is directly related to that which
was approved by the U.S. Government agency... (c) ’...a license is not
required for the disclosure to a foreign person of unclassified
technical data during the course of a plant visit (either classified or
unclassified) approved by the Office of Defense Trade Controls or a
cognizant U.S. Government agency... provided the technical data does
not contain information in excess of that approved for disclosure.“
ITAR exemption: 126.4(a);
Description from ITAR[a]: Shipments by or for United States Government
Agencies: ’A license is not required for the temporary import, or
temporary export, of any defense article, including technical data or
the performance of a defense service, by or for any agency of the U.S.
Government for official use by such an agency, or for carrying out any
foreign assistance, cooperative project or sales program authorized by
law and subject to control by the President by other means.“
ITAR exemption: 126.4(c);
Description from ITAR[a]: End-Use by U.S. Government Agency in a
Foreign Country: ’A license is not required for the temporary import,
or temporary or permanent export, of any classified or unclassified
defense articles, including technical data or the performance of a
defense service, for end-use by a U.S. Government Agency in a foreign
country...“
Source: DOD Guidelines for Certifying Use of International Traffic in
Arms Regulation Exemptions, (March 2004) and reissued December 2006;
International Traffic in Arms Regulations, 22 C.F.R. Parts 125 and 126
(2006).
[a] For complete citations, see appendix II.
[End of table]
DTSA officials stated that DOD has not determined the need for a
departmentwide directive or instruction on certifying the use of ITAR
exemptions. Because all nonservice DOD components currently are not
subject to existing DOD guidelines, officials at some nonservice
components that we spoke with had created or were in the process of
creating their own exemption guidelines. [Footnote 9] A lack of common
guidelines could lead to inconsistent certification practices. In
addition, some confusion exists regarding certain certification
practices. For example, an official from one of the four nonservice
components questioned whether the component could provide
certifications for exporters with which it had contracts or whether the
cognizant military service that maintained the overall contract would
need to provide the certification. This official continues to certify
exemptions for such exporters with which it contracts.
State and DOD Disagree on the Use of Certain Exemptions by Contractors
and the Comprehensiveness of DOD‘s Exemption Guidelines:
State officials, who regulate and control the export of defense items,
have raised concerns about DOD‘s exemption certification guidelines.
Specifically, DTSA provided State with proposed revisions to its
guidelines in April 2006, and in response, State provided DTSA with
written comments raising concerns with the guidelines. According to
senior-level export control officials at both State and DOD, they met
to discuss areas of disagreement but were unable to reach resolution.
To date, State and DOD have not resolved fundamental areas of concern.
* First, State disagreed with DOD‘s certification of exporters‘ use of
the exemption under ITAR section 126.4(a). According to State
officials, language in this section indicates that the exemption is
only designed for use by U.S. government personnel for U.S. government
end-use and is not designed to be used by contractors. DTSA disagreed
on this point and stated that the section‘s phrase ’by or for any
agency of the U.S. government“ indicates that the exemption can be used
by contractors when their work is directed by DOD for its own benefit.
In the most recent draft iteration of the guidelines, DTSA now plans to
further define responsibility for certifying this ITAR exemption,
removing some certification responsibility from the military services
in an attempt to provide greater control over its use. However, DTSA
officials stated that DOD plans to continue to certify the use of this
exemption.
* Second, State indicated that the guidelines to the military services
are not clear on the purpose and scope of the exemptions available to
DOD. State suggested that DOD revise its guidelines to include (1) ITAR
sections 126.6(a) and 126.6(c) on foreign military sales to provide
further context, citing that their inclusion would inform the military
services that other ITAR exemptions are provided for the exclusive use
of DOD in the conduct of its official business, and (2) ITAR section
125.4(b)(3)”the provision of technical data in furtherance of a
contract between the exporter and the U.S. government if the contract
provides for the export of data”which State identified as one that may
be certified by DOD for use by exporters when conducting DOD‘s mission.
State also noted that the use of each exemption is pursuant to the
conditions and terms specified in the ITAR and that the exporter should
be directed to the relevant ITAR sections. DTSA officials stated that
its guidelines only include those ITAR sections that specifically
provide for exemption use for exports at the direction or approval of
DOD. DTSA officials further stated that the foreign military sales
process is defined separately in the ITAR and that DOD has its own
system and process for reporting to State on foreign military sales.
(The complete text of cited ITAR sections under discussion can be found
in app. II.)
* Finally, State suggested that DTSA be the certifying entity for all
other DOD components outside of the military services and that all
certifying organizations be trained in the evaluation of certification
requests and the application of DOD guidelines. DTSA officials plan to
include in the revised guidelines a provision that nonservice DOD
components seek guidance from their respective general counsel, as is
the current practice.
DOD is in the process of revising its guidelines, which are set to
expire in December 2007. These revisions are partially in response to
State‘s concerns, and DOD is planning to submit them to State for its
review. However, to date, State and DOD officials have not reached
agreement on these issues, and the lack of common understanding of
regulatory exemption use could result in inconsistent application of
the regulations.
DOD Components Certified the Use of Exemptions for a Variety of
Programs and Foreign Recipients:
On the basis of over 1,100 certification letters that DOD components
provided to us and our review of them, DOD components certified the use
of over 1,900 exemptions [Footnote 10] for multiple companies and
various programs from 2004 through 2006. Most of the exemptions were
for exports of technical data or services for Air Force or missile
defense programs and for exports to long-standing allies.
We identified a number of DOD components that certified the use of ITAR
exemptions by exporters. These components varied widely in the number
of certifications they issued”ranging from 24 to more than 1,040. Table
2 summarizes highlights of our analysis of export exemptions certified
by various DOD components.
Table 2: GAO Analysis of DOD Exemption Certifications (2004 through
2006):
Area of analysis: Number of certifications, by DOD component;
Results:
* Missile Defense Agency”1,040;
* Air Force”595;
* Navy”112;
* National Security Agency”112;
* Army”53;
* National Geospatial-Intelligence Agency”24;
* Acquisition, Technology, and Logistics”24.
Area of analysis: Most frequently cited ITAR exemptions;
Results:
* 125.4(b)(1)”’Technical data, including classified information, to be
disclosed pursuant to an official written request or directive from the
U.S. Department of Defense.“
* 126.4(a)”’Temporary import or export of a defense article or service
by or for any agency of the U.S. government for official use by such an
agency, or for carrying out any foreign assistance, cooperative project
or sales program....“
Area of analysis: Most frequent type of export;
Results:
* Knowledge transfer (technical data and defense services).
Area of analysis: Most frequently cited foreign destinations;
Results:
* United Kingdom;
* NATO;
* Australia;
* Canada;
* Norway;
* Japan.
Area of analysis: Programs/activities most often cited;
Results:
* Command, Control, Battle Management, and Communications (C2BMC);
* Joint Strike Fighter (JSF);
* Upgraded Early Warning Radar (UEWR);
* Space Based Infrared System (SBIRS);
* Joint Project Optic Windmill (JPOW).
Area of analysis: Companies/organizations most often identified for
exemption use;
Results:
* Northrop Grumman;
* Lockheed Martin;
* Raytheon;
* SPARTA;
* MITRE;
* Boeing.
Source: GAO analysis of DOD component exemption certification letters
from calendar years 2004 through 2006.
Of the components we identified, the Missile Defense Agency and the Air
Force provided us about 80 percent of the exemption certification
letters that we reviewed. Almost all of the certifications were for the
export of technical data or for the temporary export of defense items
’by or for any agency of the U.S. government for official use by such
an agency.“ About half of the certifications were for the use of ITAR
section 125.4(b)(1) for the export of technical data, including
classified information, typically related to a particular program, such
as Joint Strike Fighter or Upgraded Early Warning Radar, with allies
during discussions at scheduled meetings or participation in technical
conferences in foreign locations. In addition, almost 30 percent of the
certifications were for ITAR section 126.4(a), such as exports of
technical data, defense services, or hardware in support of joint
military exercises. ITAR section 126.4(a) is the one that State and DOD
disagree on its use by contractors. An additional 19 percent of the
certifications cited both of these ITAR sections. Less than 3 percent
of the ITAR exemptions identified were for transfers of software and
hardware”primarily for use by U.S. forces outside of the United States,
sometimes in support of operations in Iraq. Twenty-one of the
certifications issued by two nonservice components cited ITAR section
125.4(b)(3)”technical data in furtherance of a contract between the
exporter and the U.S. government if the contract provides for the
export of data.
More than 270 exporters, including prime contractors and
subcontractors, were identified in exemption certification letters we
reviewed. The most frequently identified exporters were defense
contractors, but university laboratories and federally funded research
and development centers were also identified. Four major defense
contractors represented one-fourth of the exemption certifications,
with one receiving over 200 certifications. However, more than 80
percent of the exporters were identified five or fewer times in the
certifications we reviewed from DOD components. A total of 266
different programs and activities were identified in the
certifications, with the Missile Defense Agency having the largest
number. [Footnote 11] Over 90 foreign destinations, including NATO,
were identified on DOD certifications. The most frequently cited
destination country was the United Kingdom”identified 900 times.
Thirteen countries were only identified once as exempted export
destinations”some of which were situations in which U.S. entities
located in the countries were the recipients, not the foreign
government or industry of that country. [Footnote 12] Some
certifications were for exports to multiple countries within one
geographic region, such as Latin America.
State and DOD Lack Complete Data to Oversee Exemptions Certified by
DOD:
State and DOD lack comprehensive data to oversee the use of DOD-
certified exemptions, limiting their knowledge of defense activities
under this process. DOD‘s annual report to State on the use of
exemptions captures data from the military services but not from other
DOD components. In addition, the data may not capture the magnitude of
transfers certified for exemption use. Specifically, we found that one
DOD component used one letter to certify multiple companies‘ use of an
ITAR exemption during a 1-year period. This information was not
included in the DOD component‘s reporting on exemption certification
use. In addition, we found that some of the certification letters that
we reviewed lacked key information that could be helpful in overseeing
exemptions certified by DOD components.
The DOD exemption guidelines state that the military services must
record the exemption in a centralized DOD database. However, nonservice
components, such as the Missile Defense Agency”which had the largest
number of certifications from 2004 through 2006”do not record their
exemption certification data in the centralized DOD database, known as
USXPORTS. [Footnote 13] Instead, the nonservice components retain their
own records on certified exemptions. In addition, DOD guidelines
provide that DOD submit a report to State on exemptions certified for
use on an annual basis. In July 2007, DOD submitted its 2006 report to
State based on the data contained in USXPORTS. However, the utility of
DOD‘s report to State on exemption use is limited in several areas.
First, since DOD collects data for only the military services, its
exemption report to State does not provide total exemption data for all
DOD components. Specifically, DOD‘s report to State contained data on
161 certification letters issued by the military services in 2006; for
the same year, we collected an additional 271 letters from nonservice
components. Second, for each certification letter, the report contains
(1) a certification tracking number, (2) certification date, (3)
certifying organization, (4) destination country or countries, (5)
description of export, and (6) exporter name. However, it does not
contain other information that the DOD guidelines specify for inclusion
in the certification letters and maintenance in the military services‘
records on exemption certifications, such as which ITAR exemption is
being certified and the expiration date for each exemption. [Footnote
14]
Therefore, State does not have a complete report for the exemptions
certified for use by all of DOD‘s components.
While the certification letters we reviewed frequently contained the
information as called for in the DOD exemption guidelines, some
differences existed that resulted in DOD not having insight into the
magnitude of transfers certified for exemption use. For example, for
its Joint Strike Fighter program, the Air Force issues an annual
certification letter”to more than 50 companies”that certifies their use
of one ITAR exemption for the purposes of responding to written
requests from DOD for a quote or bid proposal. These letters are broad
in scope and do not specify what technical data would be released for
the program. When these companies listed on the certification letter
cite a specific need for using this exemption throughout the year for
an export, they submit their request directly to the program office.
However, because the Air Force does not require the program office to
report these specific data on these program office approvals for
transfers, it is likely that the Air Force lacks comprehensive
knowledge on exports transferred under the use of this ITAR exemption.
From 2004 through 2006, we found that the Joint Strike Fighter program
had authorized the release of more than 600 transfers of technical data
under the quote or bid proposal exemption containing specific
information”such as the types of technical data and related drawings
exported and the frequency of these exports”which the Air Force lacks
in its central record keeping on exemptions. Further, DOD‘s 2006 report
to State includes only the certification letter that was broad in
scope, but it does not include the magnitude of transfers under this
certification.
We found some variations in the type of information contained in the
certification letters provided by the military services and non-service
components, which can lessen DOD‘s insight into the specific export
activities that DOD is certifying. [Footnote 15] For example, 163 did
not specify whether the foreign export destination entity was a foreign
government, foreign industry, or U.S. entity. [Footnote 16] Over 70
certifications”about 4 percent of the total certifications we
reviewed”did not contain an expiration date for the exemption;
[Footnote 17] for the remainder, the length of coverage from
certification date to expiration date ranged from less than 1 day to
more than 4.5 years. The scope of the letters ranged from covering one
exporter to covering multiple exporters, and about 30 percent of the
certifications that we reviewed included subcontractors. While covering
more than one exporter under one certification letter may create some
workforce efficiencies, it could limit DOD‘s insight into exporters
receiving exemption certifications. In addition, this practice, while
not specifically addressed in the DOD guidelines, has raised concern
among some contractors that doing so could blur transparency and create
some liability issues. Export control officials from each of the four
companies we spoke with said they would prefer that each subcontractor
have a separate certification letter from DOD to provide a clearer
record of, and decrease their liability for, subcontractors‘ exports.
Conclusions:
While the exemption certification process is one way to facilitate
defense cooperation with friendly nations and allies, the U.S.
government needs a consistent approach to and knowledge of defense
export activities certified through this process. However, State and
DOD have disparate understandings of regulatory exemption use and
guidance, and efforts to resolve these differences have proven
unsuccessful. Further, neither State nor DOD has complete and accurate
data to obtain sufficient knowledge of the extent to which all DOD
components are certifying the use of exemptions for the export of
defense items. Therefore, State and DOD cannot readily identify in
total and on a program-by-program basis the defense items that DOD has
certified for exemption use in support of DOD‘s activities.
Recommendations for Executive Action:
To ensure a common understanding of the use of ITAR exemptions
available for DOD‘s activities, we recommend that the Secretary of
State direct the Deputy Assistant Secretary for the Directorate of
Defense Trade Controls and the Secretary of Defense direct the Director
of the Defense Technology Security Administration to establish a work
group to define and resolve disagreements on exemption use and
guidelines and to document decisions reached. If the work group cannot
reach agreement before the existing DOD exemption guidelines expire,
then it should elevate the matter for resolution within its appropriate
chain of command. If needed, the Secretary of State should direct the
Deputy Assistant Secretary for the Directorate of Defense Trade
Controls to revise the ITAR to incorporate any necessary changes. Once
agreement is reached, the Secretary of Defense, with concurrence from
the Secretary of State, should direct that the guidelines be revised
and made applicable to all DOD components.
We are also recommending that the Secretary of Defense should direct
the Director of the Defense Technology Security Administration to
ensure that the revised exemption certification guidelines provide the
appropriate mechanisms for overseeing the exemption certification
process, such as the collection of data from all DOD components on
exemptions they certified.
Agency Comments:
The Departments of Defense and State provided comments on a draft of
this report. DOD also provided technical comments, which we
incorporated as appropriate. In commenting on our first recommendation,
Defense and State both concurred with the need to establish a work
group to define and resolve disagreements on exemption use and
guidelines, and to document decisions reached. State indicated that
initial discussions with DOD have begun, and DOD stated that it plans
to codify the understandings in a clear set of guidelines to be issued
to DOD components.
In its comments on our second recommendation, DOD did not agree,
stating that there is no existing mechanism whereby the U.S. government
can collect data from exporters to monitor exports of defense items
made under exemptions. DOD further stated that such a mechanism would
exceed DOD‘s existing statutory and regulatory authority because the
ultimate responsibility for obtaining appropriate authorization to
export defense items rests with the exporter. Our intent was not for
DOD to collect information directly from exporters. Instead, our
recommendation is intended for DOD to expand its existing data
collection of exemptions certified by the military services to include
those from all DOD components. To clarify this intent, we modified the
language in the recommendation.
Formal written comments provided by DOD and State are reprinted in
appendixes III and IV, respectively.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from the date of this letter. We will then provide copies of this
report to interested congressional committees, as well as the
Secretaries of Defense 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 made
available at no charge on the GAO Web site at [hyperlink, http://www.gao.gov].
Please contact me at (202) 512-4841 or calvaresibarra@gao.gov if you or
your staff have any questions concerning this report. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. Others making key contributions
to this report are listed in appendix V.
Sincerely yours,
Singed by:
Ann Calvaresi-Barr:
Director:
Acquisition and Sourcing Management:
[End of section]
Appendix I: Scope and Methodology:
To describe the approach used by the Department of Defense (DOD) for
certifying the use of export exemptions for exporters, we reviewed
export control regulations and discussed with the Department of State
and DOD their interpretation of when DOD can certify that a specific
export activity qualifies for the use of certain export exemptions. We
reviewed DOD‘s exemption certification guidelines, State‘s response to
the guidelines, DOD components‘ internal guidance on exemption
certifications, and DOD components‘ practices. We also interviewed
officials from State‘s Directorate of Defense Trade Controls”from the
Licensing, Compliance, Management, and Policy offices, and DOD‘s
Defense Technology Security Administration about their views on the
International Traffic in Arms Regulations (ITAR) allowances for
exemption use by exporters, requirements for DOD to direct the use of
certain ITAR exemptions, and practices by DOD components that certify
the use of exemptions by exporters in support of DOD activities.
We collected and summarized DOD export exemption certification letters
for calendar years 2004 through 2006 to summarize the use of DOD-
certified exemptions. We selected 2004 because the Defense Technology
Security Administration (DTSA) issued guidelines on the certification
process to the military services in that year. Prior to 2004, no formal
procedures existed for designating senior-level personnel in the
military departments for the authorization of ITAR exemption
certifications. Through interviews with knowledgeable State and DOD
officials, we created a list of DOD components potentially certifying
the use of exemptions. While this coordination helped identify the DOD
components certifying the use of exemptions, there may be other
components that were not included in this list and additional exemption
letters might exist. We then contacted the DOD components on our list
to ask if they certified exemptions between 2004 and 2006. While some
components on our list stated that they did not certify export
exemptions, we collected certification letters from those DOD
components that did certify the use of exemptions”the Air Force, Army,
Navy, Missile Defense Agency, National Geospatial-Intelligence Agency,
National Security Agency, and the Office of Acquisition, Technology,
and Logistics. We created a database to summarize information provided
in these certification letters, such as the exemptions certified, types
of exports, and foreign recipients. In some cases, DOD components
provided separate letters for each exporter receiving an exemption
certification for an activity, while other components combined all
exporters onto one exemption certification letter for an activity.
Therefore, to get an equitable count, we separated individual companies
from exemption certifications granted for multiple companies on one
letter. The total number of exemption certification letters provided by
the DOD components to us was 1,142. After separating out the individual
companies from the certification letters, the total number of ITAR
exemptions certified by the DOD components for the calendar years 2004
through 2006 totaled 1,960.
To examine the extent to which State and DOD oversee the use of export
exemptions certified by DOD, we reviewed DOD‘s 2006 report on certified
exemptions provided to State in July 2007. We also interviewed DTSA
officials about the USXPORTS automation system and what it contains. To
gain a DOD acquisition program office perspective, we interviewed the
Joint Strike Fighter Program Office about its exemption certification
processes and practices. We compared the data of the program office
with the data from the cognizant military service. We also interviewed
officials from four of the companies”Boeing, Lockheed Martin, Northrop
Grumman, and Raytheon”who most often received certification letters to
gain their perspective on DOD components‘ processes for and guidance to
exporters on DOD-certified exemptions. We examined the certification
letters we obtained from DOD components and identified differences
among information contained in the letters.
[End of section]
Appendix II: ITAR Sections Discussed in This Report:
We discussed in this report a number of ITAR subparts and sections that
are cited in DOD certification letters, identified in DOD‘s exemption
certification guidelines, or are under discussion between State and
DOD. These ITAR sections are cited below in their entirety.
Table 3: ITAR Sections Cited in This Report:
§125.4 Exemptions of general applicability:
§125.4(a) The following exemptions apply to exports of technical data
for which approval is not needed from the Directorate of Defense Trade
Controls. These exemptions, except for paragraph (b)(13) of this
section, do not apply to exports to proscribed destinations under
§126.1 of this subchapter or for persons considered generally
ineligible under § 120.1(c) of this subchapter. The exemptions are also
not applicable for purposes of establishing offshore procurement
arrangements or producing defense articles offshore (see § 124.13),
except as authorized under §125.4 (c). If §126.8 of this subchapter
requirements are applicable, they must be met before an exemption under
this section may be used. Transmission of classified information must
comply with the requirements of the Department of Defense National
Industrial Security Program Operating Manual and the exporter must
certify to the transmittal authority that the technical data does not
exceed the technical limitation of the authorized export.
§125.4 Exemptions of general applicability:
§125.4(b) The following exports are exempt from the licensing
requirements of this subchapter.
§125.4 Exemptions of general applicability:
§125.4(b)(1) Technical data, including classified information, to be
disclosed pursuant to an official written request or directive from the
U.S. Department of Defense;
§125.4 Exemptions of general applicability:
§125.4(b)(3) Technical data, including classified information, in
furtherance of a contract between the exporter and an agency of the
U.S. Government, if the contract provides for the export of the data
and such data does not disclose the details of design, development,
production, or manufacture of any defense article;
§125.4 Exemptions of general applicability:
§125.4(c) Defense services and related unclassified technical data are
exempt from the licensing requirements of this subchapter, to nationals
of NATO countries, Australia, Japan, and Sweden, for the purposes of
responding to a written request from the Department of Defense for a
quote or bid proposal. Such exports must be pursuant to an official
written request or directive from an authorized official of the U.S.
Department of Defense. The defense services and technical data are
limited to paragraphs (c)(1), (c)(2), and (c)(3) of this section and
must not include paragraphs (c)(4), (c)(5), and (c)(6) of this section
which follow:
(1) Build-to-Print. ’Build-to-Print“ means that a foreign consignee can
produce a defense article from engineering drawings without any
technical assistance from a U.S. exporter. This transaction is based
strictly on a ’hands-off“ approach since the foreign consignee is
understood to have the inherent capability to produce the defense
article and only lacks the necessary drawings. Supporting documentation
such as acceptance criteria, and specifications, may be released on an
as-required basis (i.e. ’must have“) such that the foreign consignee
would not be able to produce an acceptable defense article without this
additional supporting documentation. Documentation which is not
absolutely necessary to permit manufacture of an acceptable defense
article (i.e. ’nice to have“) is not considered within the boundaries
of a ’Build-to-Print“ data package;
(2) Build/Design-to-Specification. ’Build/Design-to-Specification“
means that a foreign consignee can design and produce a defense article
from requirement specifications without any technical assistance from
the U.S. exporter. This transaction is based strictly on a ’hands-off“
approach since the foreign consignee is understood to have the inherent
capability to both design and produce the defense article and only
lacks the necessary requirement information;
(3) Basic Research. ’Basic Research“ means a systemic study directed
toward greater knowledge or understanding of the fundamental aspects of
phenomena and observable facts without specific applications toward
processes or products in mind. It does not include ’Applied Research“
(i.e. a systemic study to gain knowledge or understanding necessary to
determine the means by which a recognized and specific need may be met.
It is a systematic application of knowledge toward the production of
useful materials, devices, and systems or methods, including design,
development, and improvement of prototypes and new processes to meet
specific requirements.);
(4) Design Methodology, such as: The underlying engineering methods and
design philosophy utilized (i.e., the ……why‘‘ or information that
explains the rationale for particular design decision, engineering
feature, or performance requirement); engineering experience (e.g.,
lessons learned); and the rationale and associated databases (e.g.,
design allowables, factors of safety, component life predictions,
failure analysis criteria) that establish the operational requirements
(e.g., performance, mechanical, electrical, electronic, reliability and
maintainability) of a defense article. (Final analytical results and
the initial conditions and parameters may be provided.)
(5) Engineering Analysis, such as: Analytical methods and tools used to
design or evaluate a defense article‘s performance against the
operational requirements. Analytical methods and tools include the
development and/or use of mockups, computer models and simulations, and
test facilities. (Final analytical results and the initial conditions
and parameters may be provided.)
(6) Manufacturing Know-how, such as: information that provides detailed
manufacturing processes and techniques needed to translate a detailed
design into a qualified, finished defense article. (Information may be
provided in a build-to-print package that is necessary in order to
produce an acceptable defense article.)
§ 125.5 Exemptions for plant visits:
§ 125.5 (a) A license is not required for the oral and visual
disclosure of unclassified technical data during the course of a
classified plant visit by a foreign person, provided: (1) The
classified visit has itself been authorized pursuant to a license
issued by the Directorate of Defense Trade Controls; or (2) the
classified visit was approved in connection with an actual or potential
government-to-government program or project by a U.S. Government agency
having classification jurisdiction over the classified defense article
or classified technical data involved under Executive Order 12356 or
other applicable Executive Order; and (3) the unclassified information
to be released is directly related to the classified defense article or
technical data for which approval was obtained and does not disclose
the details of the design, development, production or manufacture of
any other defense articles. In the case of visits involving classified
information, the requirements of the Defense Industrial Security Manual
(Department of Defense Manual 5220.22M) must be met.
§ 125.5 Exemptions for plant visits:
§ 125.5 (b) The approval of the Directorate of Defense Trade Controls
is not required for the disclosure of oral and visual classified
information to a foreign person during the course of a plant visit
approved by the appropriate U.S. Government agency if: (1) The
requirements of the Defense Industrial Security Manual have been met;
(2) the classified information is directly related to that which was
approved by the U.S. Government agency; (3) it does not exceed that for
which approval was obtained; and (4) it does not disclose the details
of the design, development, production or manufacture of any defense
articles.
§ 125.5 Exemptions for plant visits:
§ 125.5 (c) A license is not required for the disclosure to a foreign
person of unclassified technical data during the course of a plant
visit (either classified or unclassified) approved by the Directorate
of Defense Trade Controls or a cognizant U.S. Government agency
provided the technical data does not contain information in excess of
that approved for disclosure. This exemption does not apply to
technical data which could be used for design, development, production
or manufacture of a defense article.
§ 126.4 Shipments by or for United States Government agencies:
§ 126.4(a) A license is not required for the temporary import, or
temporary export, of any defense article, including technical data or
the performance of a defense service, by or for any agency of the U.S.
Government for official use by such an agency, or for carrying out any
foreign assistance, cooperative project or sales program authorized by
law and subject to control by the President by other means. This
exemption applies only when all aspects of a transaction (export,
carriage, and delivery abroad) are affected by a United States
Government agency or when the export is covered by a United States
Government Bill of Lading. This exemption, however, does not apply when
a U.S. Government agency acts as a transmittal agent on behalf of a
private individual or firm, either as a convenience or in satisfaction
of security requirements. The approval of the Directorate of Defense
Trade Controls must be obtained before defense articles previously
exported pursuant to this exemption are permanently transferred (e.g.,
property disposal of surplus defense articles overseas) unless the
transfer is pursuant to a grant, sale, lease, loan or cooperative
project under the Arms Export Control Act or a sale, lease or loan
under the Foreign Assistance Act of 1961, as amended, or the defense
articles have been rendered useless for military purposes beyond the
possibility of restoration. NOTE: Special definition. For purposes of
this section, defense articles exported abroad for incorporation into a
foreign launch vehicle or for use on a foreign launch vehicle or
satellite that is to be launched from a foreign country shall be
considered a permanent export.
§ 126.4 Shipments by or for United States Government agencies:
§ 126.4(c) A license is not required for the temporary import, or
temporary or permanent export, of any classified or unclassified
defense articles, including technical data or the performance of a
defense service, for end-use by a U.S. Government Agency in a foreign
country under the following circumstances: (1) The export or temporary
import is pursuant to a contract with, or written direction by, an
agency of the U.S. Government; and (2) The end-user in the foreign
country is a U.S. Government agency or facility, and the defense
articles or technical data will not be transferred to any foreign
person; and (3) The urgency of the U.S. Government requirement is such
that the appropriate export license or U.S. Government Bill of Lading
could not have been obtained in a timely manner.
§ 126.6 Foreign-owned military aircraft and naval vessels, and the
Foreign Military Sales program:
§ 126.6 (a) A license from the Directorate of Defense Trade Controls is
not required if:
(1) The article or technical data to be exported was sold, leased, or
loaned by the Department of Defense to a foreign country or
international organization pursuant to the Arms Export Control Act or
the Foreign Assistance Act of 1961, as amended, and;
(2) The article or technical data is delivered to representatives of
such a country or organization in the United States; and;
(3) The article or technical data is to be exported from the United
States on a military aircraft or naval vessel of that government or
organization or via the Defense Transportation Service (DTS).
§ 126.6 Foreign-owned military aircraft and naval vessels, and the
Foreign Military Sales program:
§ 126.6 (c) Foreign Military Sales Program. A license from the
Directorate of Defense Trade Controls is not required if the defense
article or technical data or a defense service to be transferred was
sold, leased or loaned by the Department of Defense to a foreign
country or international organization under the Foreign Military Sales
(FMS) Program of the Arms Export Control Act pursuant to an Letter of
Offer and Acceptance (LOA) authorizing such transfer which meets the
criteria stated below:
(1) Transfers of the defense articles, technical data or defense
services using this exemption may take place only during the period
which the FMS Letter of Offer and Acceptance (LOA) and implementing USG
FMS contracts and subcontracts are in effect and serve as authorization
for the transfers hereunder in lieu of a license. After the USG FMS
contracts and subcontracts have expired and the LOA no longer serves as
such authorization, any further provision of defense articles,
technical data or defense services shall not be covered by this section
and shall instead be subject to other authorization requirements of
this subchapter; and;
(2) The defense article, technical data or defense service to be
transferred are specifically identified in an executed LOA, in
furtherance of the Foreign Military Sales Program signed by an
authorized Department of Defense Representative and an authorized
representative of the foreign government, and;
(3) The transfer of the defense article and related technical data is
effected during the duration of the relevant Letter of Offer and
Acceptance (LOA), similarly a defense service is to be provided only
during the duration of the USG FMS contract or subcontract and not to
exceed the specified duration of the LOA, and;
(4) The transfer is not to a country identified in § 126.1 of this
subchapter, and;
(5) The U.S. person responsible for the transfer maintains records of
all transfers in accordance with Part 122 of this subchapter, and;
(6) For transfers of defense articles and technical data, (i) The
transfer is made by the relevant foreign diplomatic mission of the
purchasing country or its authorized freight forwarder, provided that
the freight forwarder is registered with the Directorate of Defense
Trade Controls pursuant to part 122 of this subchapter, and, (ii) At
the time of shipment, the Port Director of U.S. Customs and Border
Protection is provided an original and properly executed DSP–94
accompanied by a copy of the LOA and any other documents required by
U.S. Customs and Border Protection in carrying out its
responsibilities. The Shippers Export Declaration or, if authorized,
the outbound manifest, must be annotated "This shipment is being
exported under the authority of Department of State Form DSP–94. It
covers FMS Case [insert case identification], expiration [insert date].
22 CFR 126.6 applicable. The U.S. Government point of contact is _____,
telephone number _____," and, (iii) If, classified hardware and related
technical data are involved the transfer must have the requisite USG
security clearance and transportation plan and be shipped in accordance
with the Department of Defense National Industrial Security Program
Operating Manual, or;
(7) For transfers of defense services:
(i) A contract or subcontract between the U.S. person(s) responsible
for providing the defense service and the USG exists that: (A)
Specifically defines the scope of the defense service to be
transferred, (B) Identifies the FMS case identifier, (C) Identifies the
foreign recipients of the defense service, (D) Identifies any other
U.S. or foreign parties that may be involved and their
roles/responsibilities, to the extent known when the contract is
executed, (E) Provides a specified period of duration in which the
defense service may be performed, and;
(ii) The U.S. person(s) identified in the contract maintain a
registration with the Directorate of Defense Trade Controls for the
entire time that the defense service is being provided. In any instance
when the U.S. registered person(s) identified in the contract employs a
subcontractor, the subcontractor may only use this exemption when
registered with DDTC, and when such subcontract meets the above stated
requirements, and;
(iii) In instances when the defense service involves the transfer of
classified technical data, the U.S. person transferring the defense
service must have the appropriate USG security clearance and a
transportation plan, if appropriate, in compliance with the Department
of Defense National Industrial Security Program Operating Manual, and;
(iv) The U.S. person responsible for the transfer reports the initial
transfer, citing this section of the ITAR, the FMS case identifier,
contract and subcontract number, the foreign country, and the duration
of the service being provided to the Directorate of Defense Trade
Controls using DDTC‘s Direct Shipment Verification Program.
Source: ITAR, 22 C.F.R. Parts 125 and 126 (2006).
[End of table]
[End of section]
Appendix III: Comments from the Department of Defense:
Defense Technology Security Administration
2900 Defense Pentagon:
Washington, DC 20301-2900:
September 7, 2007:
Ann Calvaresi-Barr:
Director:
Acquisition and Sourcing Management:
Government Accountability Office:
441 G Street NW:
Washington, D.C. 20548:
Dear Ms. Ann Calvaresi-Barr:
This is the Department of Defense (DoD response to the GAO draft report
07-1103, "Defense Trade: Clarification and Increased Oversight of
Export Exemptions Certified by DoD Is Needed," dated August 15, 2007,
(GAO CODE 120617). I appreciate the professional and constructive
manner in which the GAO team conducted this review. In this same
spirit, I offer the following comments and information.
Recommendation 1: The GAO recommends that the Secretary of Defense
direct the Director of the Defense Technology Security Administration
to establish a work group with the Department of State to define and
resolve disagreements on exemption use and guidelines, and to document
decisions reached. If the work group cannot reach agreement before the
existing DoD exemption guidelines expire, then it should elevate the
matter for resolution within its appropriate chain of command. Once
agreement is reached the Secretary of Defense should direct that the
guidelines be revised and made applicable to all DoD components. (p.
15/GAO Draft Report)
DOD Response: Concur with recommendation in substance, including the
recommendation that DTSA's Guidelines be expanded to all DoD
components. Sec attached line-in/line-out for details. The Director of
DTSA has agreed with her counterpart at the Department of State, the
Deputy Assistant Secretary, Directorate of Defense Trade Controls, to
initiate a working group as described in the draft Report. This working
group will define and resolve disagreements on the use of exemptions by
the DoD and codify the understandings in a clear set of guidelines to
be issued to DoD components.
Recommendation 2: The GAO recommends the Secretary of Defense direct
the Director of the Defense Technology Security Administration to
collect data on exports of defense items made under exemptions
certified by all DoD components, analyze trends and usage, and include
this information in its report to State. (p. 16/GAO Draft Report)
DOD Response: Non-concur with the recommendation.
There is no existing mechanism whereby the US Government can collect
data from exporters in order to monitor exports of defense items made
under exemptions, whether or not the use of those exemptions was
certified by any or all DoD components, such that DoD could analyze
trends and usage and include such information in a DoD report to State.
Such a mechanism would exceed DoD's existing statutory and regulatory
authority because the ultimate responsibility to obtain the appropriate
USG authorization for an export (whether a license or an exemption)
always rests with the exporter. The exporter is also responsible for
maintaining records of what material is exported and whether under a
license or under a license exemption and must be able to support its
decision to utilize an exemption in lieu of obtaining an export license.
Creating a mechanism involving DoD that would allow DTSA to "...collect
data on exports of defense items made under exemptions certified by all
DoD components, analyze trends and usage, and include this information
in its report to State" would require changes to the Arms Export
Control Act (AECA) to provide DoD with enforcement and compliance
function authority and responsibility that it does not currently have.
Imposing such a requirement on DoD will require additional personnel
resources.
The Guidelines DTSA developed and provided to the Services in 2004 were
developed in response to a voluntary request from the Services for
DTSA's guidance on the process of certifying use of exemptions by
Service contractors that explicitly require a written directive front
DoD. The Guidelines developed by DTSA were intended to provide a
response to the Services' request; the Guidelines were never intended
to obtain such data, nor were they ever expected to lead to collection
of comprehensive data on use of exemptions by DoD components or their
contractors.
The fact that a DoD component has issued a letter certifying that a
particular situation appears to comply with the requirements of the
ITAR for use of an exemption does not itself constitute a US Government
export authorization, nor does it absolve the exporter of its
responsibilities under the AECA and the ITAR. All five of the ITAR
exemptions identified it the DoD Guidelines and many others that do not
involve the DoD arc exemptions the exporter may claim with or without a
written certification from DoD on the exporter's own responsibility
(i.e., so-called "self-claimed" exemptions).
If such data is to be collected and analyzed, it should be done by the
Department of State, which has the statutory and regulatory compliance
and enforcement authority. Additionally, the data should also include
information from the exporters on the vast array of other export
license exemptions that do not require any sort of "certification" from
DoD.
Attached please find a series of detailed comments on the text of the
draft Report for your consideration.
Thank you for the opportunity to comment. My point of contact for CIAO
matters is Dr. Peter Leitner, peter_Ieitner@osd.mil, or 703-325-4080.
Signed by:
Beth M. McCormick:
Director (Acting):
Defense Technology Security Administration:
Attachment:
As stated.
[End of section]
Appendix IV: Comments from the Department of State:
United States Department of State:
Assistant Secretary for Resource Management and Chief Financial
Officer:
Washington, D.C. 20520:
Ms. Jacquelyn Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, NW:
Washington, D.C. 20548-0001:
September 12, 2007
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report, "Defense
Trade: Clarification and Increased Oversight of Export Exemptions
Certified by DOD Is Needed," GAO Job Code 120617.
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
Capt. Laurell Brault, Deputy Director, Bureau of Political-Military
Affairs, at (202) 663-2736.
Sincerely,
Signed by:
Sid Kaplan (Acting):
cc:
GAO ” Anne-Marie Lasowski:
PM – Stephen Mull:
State/OIG ” Mark Duda:
Department of State Comments on GAO Draft Report:
Defense Trade: Clarification and Increased Oversight of Export
Exemptions Certified by DOD Is Needed:
(GAO-07-1103, GAO Code 120617):
The GAO report Defense Trade: Clarification and Increased Oversight of
Export Exemptions Certified by DOD Is Needed (GAO-07-1103 GAO Code
120617) contains recommendations for the Department of State.
In the first recommendation, the Department of State's Directorate of
Defense Trade Controls (PM/DDTC) is requested to establish a working
group with the Director of the Defense Technology Security
Administration (DTSA) to define and resolve disagreements on exemption
use and guidelines and to document decisions reached. GAO also
recommended that DDTC revise the International Traffic in Arms
Regulations (ITAR) if needed, based on the findings in the report and
the outcome of the working group discussions.
DDTC concurs with the GAO recommendations. Initial discussions are
already underway between the Department and DoD officials.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Ann Calvaresi-Barr (202) 512-4841 or calvaresibarra@gao.gov:
Acknowledgments:
In addition to the contact name above, Anne-Marie Lasowski, Assistant
Director; Lisa Gardner; Sharron Candon; Peter Grana; Arthur James, Jr.;
Karen Sloan; and Marie Ahearn made key contributions to this report.
[End of section]
Related GAO Products:
Export Controls: Vulnerabilities and Inefficiencies Undermine System‘s
Ability to Protect U.S. Interests. GAO-07-1135T. Washington, D.C.: July
26, 2007.
High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 31,
2007.
Export Controls: Challenges Exist in Enforcement of an Inherently
Complex System. GAO-07-265. Washington, D.C.: December 20, 2006.
Defense Technologies: DOD‘s Critical Technologies List Rarely Informs
Export Control and Other Policy Decisions. GAO-06-793. Washington,
D.C.: July 28, 2006.
Export Controls: Improvements to Commerce‘s Dual-Use System Needed to
Ensure Protection of U.S. Interests in the Post-9/11 Environment. GAO-
06-638. Washington, D.C.: June 26, 2006.
Joint Strike Fighter: Management of the Technology Transfer Process.
GAO-06-364. Washington, D.C.: March 14, 2006.
Defense Trade: Arms Export Control Vulnerabilities and Inefficiencies
in the Post-9/11 Security Environment. GAO-05-468R. Washington, D.C.:
April 7, 2005.
Defense Trade: Arms Export Control System in the Post-9/11 Environment.
GAO-05-234. Washington, D.C.: February 16, 2005.
Foreign Military Sales: DOD Needs to Take Additional Actions to Prevent
Unauthorized Shipments of Spare Parts. GAO-05-17. Washington, D.C.:
November 9, 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.
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: 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.
Defense Trade: Status of the Department of Defense‘s Initiatives on
Defense Cooperation. GAO/NSIAD-00-190R. Washington, D.C.: July 19,
2000.
Export Controls: Better Interagency Coordination Needed on Satellite
Exports. GAO/NSIAD-99-182. Washington, D.C.: September 17, 1999.
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: Actions Needed to Improve Enforcement. GAO/NSIAD-94-
28. Washington, D.C.: December 30, 1993.
[End of section]
Footnotes:
[1] For purposes of this report, ’defense items“ includes defense
articles, technical data, and services.
[2] International Traffic in Arms Regulations, 22 C.F.R. §§
120.1–130.17 (2006).
[3] DOD uses the term ’certify“ to confirm that an exemption is being
used pursuant to an official written request, directive, or approval
from DOD.
[4] A list of related GAO products is provided at the end of this
report.
[5] NATO is an alliance of 26 countries from North America and Europe
committed to fulfilling the goals of the North Atlantic Treaty.
[6] 22 U.S.C. § 2751 et seq.
[7] According to DOD officials, this certification was intended to meet
the ITAR requirement for DOD‘s ’written direction or approval.“
[8] According to DOD, this approach was part of a set of initiatives to
facilitate defense trade.
[9] Some nonservice components incorporated elements of the DOD
exemption guidelines into their approach for certifying ITAR
exemptions.
[10] DOD components provided us over 1,100 certification letters, some
of which covered multiple exporters. We counted an exemption for each
company or organization separately, therefore reaching over 1,900
exemptions.
[11] Not all certification letters had a specific program listed. Some
certification letters had just a description of a meeting, an activity,
or a topic.
[12] U.S. entities included U.S. government personnel, U.S. military
services, and U.S. military personnel.
[13] USXPORTS is a DOD automated system containing export licenses and
other related information.
[14] While the DOD guidelines provide that DTSA will annually forward a
consolidated report to State, they do not specifically provide for the
content of the report.
[15] Some of the information that varied included elements provided for
in the DOD exemption guidelines that were issued to the military
services.
[16] The DOD guidelines do not provide a level of specificity
concerning the foreign end user category, such as whether it is a
foreign country, government, or industry official, or a U.S. entity in
a foreign country.
[17] While the ITAR does not specify an expiration date for the use of
an exemption, the DOD guidelines specify that the certification letter
provide an expiration date, not to exceed 1-year from the date the
letter is issued.
[End of section]
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