Export Controls
State and Commerce Have Not Taken Basic Steps to Better Ensure U.S. Interests Are Protected Gao ID: GAO-08-710T April 24, 2008In controlling the transfer of weapons and related technologies overseas, the U.S. government must limit the possibility of sensitive items falling into the wrong hands while allowing legitimate trade to occur. Achieving this balance has become more challenging due to redefined security threats and a globalized economy. The export control system is a key component of the safety net of programs intended to balance multiple U.S. interests. The export control system is managed primarily by the State Department, which regulates arms exports, and the Commerce Department, which regulates dual-use exports that have military and civilian applications. Unless an exemption applies, arms exports require licenses, while many dual-use exports do not require licenses. Based on GAO's extensive body of work on the export control system, this testimony focuses on export licensing inefficiencies, poor interagency coordination, and limits in State's and Commerce's ability to provide a sound basis for changes to the system. In prior work, GAO made recommendations to address vulnerabilities in the export control system, but many have not been implemented. Because of these vulnerabilities and others identified in the larger safety net of programs, GAO has designated the effective protection of technologies critical to U.S. national security interests as a high risk area warranting strategic reexamination.
State and Commerce have not managed their respective export licensing processes to ensure their effective operations. In November 2007, GAO reported that procedural and automation weaknesses, along with workforce challenges, created inefficiencies in State's arms export licensing process. In less than 4 years, median processing times for license applications nearly doubled, with State's backlog of open cases peaking at 10,000. According to State officials, the department has begun analyzing its licensing data and implementing actions that will allow it to better manage its workload and determine the most effective workforce structure. While Commerce's license application processing times for dual-use exports have remained relatively stable, the overall efficiency of its process is unknown. This is due in part to Commerce's lack of performance measures for all steps in its process and analyses that would allow it to identify opportunities for improvement. Poor coordination among State, Commerce, and the other departments involved in the export control system has created vulnerabilities. State and Commerce have disagreed on which department has jurisdiction over the export of certain items. In one case, Commerce determined that an item was subject to its less restrictive export requirements when, in fact, it was State-controlled. Such improper determinations and unclear jurisdiction not only create an unlevel playing field--because some companies may gain access to markets that others will not--it also increases the risk that sensitive items, such as missile-related technologies, will be exported without the appropriate review and resulting protections. Further, State and Defense took almost 4 years to reach agreement regarding when certain arms export licensing exemptions could be used by exporters in support of Defense-certified programs. This lack of agreement could have resulted in export requirements being applied inconsistently. Also, in response to a GAO recommendation, State and Commerce only recently began regularly receiving information on criminal enforcement actions--information that is important to consider upfront when reviewing license applications for approval. Despite dramatic changes in the security and economic environment, State and Commerce have not undertaken basic management steps to ensure their controls and processes are sufficient and appropriate for protecting U.S. interests. Notably, neither department has assessed its controls in recent years. Nevertheless, State and Commerce maintained that no fundamental changes to their export control system were needed. Earlier this year, the White House announced that the President signed directives intended to ensure that the export control system focuses on meeting security and economic challenges. Similarly, legislation to make changes to the export control system has been introduced. However, few details about the basis for these initiatives are known. In the past, GAO has found that export control initiatives not grounded in analyses have generally not resulted in the desired improvements to the system.
GAO-08-710T, Export Controls: State and Commerce Have Not Taken Basic Steps to Better Ensure U.S. Interests Are Protected
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Testimony Before the Subcommittee on Oversight of Government
Management, the Federal Workforce, and the District of Columbia,
Committee on Homeland Security and Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 2:00 p.m. EDT:
Thursday, April 24, 2008:
Export Controls:
State and Commerce Have Not Taken Basic Steps to Better Ensure U.S.
Interests Are Protected:
Statement of Ann Calvaresi Barr:
Director:
Acquisition and Sourcing Management:
GAO-08-710T:
GAO Highlights:
Highlights of GAO-08-710T, a testimony before the Subcommittee on
Oversight of Government Management, the Federal Workforce, and the
District of Columbia, Committee on Homeland Security and Governmental
Affairs, U.S. Senate.
Why GAO Did This Study:
In controlling the transfer of weapons and related technologies
overseas, the U.S. government must limit the possibility of sensitive
items falling into the wrong hands while allowing legitimate trade to
occur. Achieving this balance has become more challenging due to
redefined security threats and a globalized economy. The export control
system is a key component of the safety net of programs intended to
balance multiple U.S. interests.
The export control system is managed primarily by the State Department,
which regulates arms exports, and the Commerce Department, which
regulates dual-use exports that have military and civilian
applications. Unless an exemption applies, arms exports require
licenses, while many dual-use exports do not require licenses.
Based on GAO‘s extensive body of work on the export control system,
this testimony focuses on export licensing inefficiencies, poor
interagency coordination, and limits in State‘s and Commerce‘s ability
to provide a sound basis for changes to the system.
In prior work, GAO made recommendations to address vulnerabilities in
the export control system, but many have not been implemented. Because
of these vulnerabilities and others identified in the larger safety net
of programs, GAO has designated the effective protection of
technologies critical to U.S. national security interests as a high
risk area warranting strategic reexamination.
What GAO Found:
State and Commerce have not managed their respective export licensing
processes to ensure their effective operations. In November 2007, GAO
reported that procedural and automation weaknesses, along with
workforce challenges, created inefficiencies in State‘s arms export
licensing process. In less than 4 years, median processing times for
license applications nearly doubled, with State‘s backlog of open cases
peaking at 10,000. According to State officials, the department has
begun analyzing its licensing data and implementing actions that will
allow it to better manage its workload and determine the most effective
workforce structure. While Commerce‘s license application processing
times for dual-use exports have remained relatively stable, the overall
efficiency of its process is unknown. This is due in part to Commerce‘s
lack of performance measures for all steps in its process and analyses
that would allow it to identify opportunities for improvement.
Poor coordination among State, Commerce, and the other departments
involved in the export control system has created vulnerabilities.
State and Commerce have disagreed on which department has jurisdiction
over the export of certain items. In one case, Commerce determined that
an item was subject to its less restrictive export requirements when,
in fact, it was State-controlled. Such improper determinations and
unclear jurisdiction not only create an unlevel playing field”because
some companies may gain access to markets that others will not”it also
increases the risk that sensitive items, such as missile-related
technologies, will be exported without the appropriate review and
resulting protections. Further, State and Defense took almost 4 years
to reach agreement regarding when certain arms export licensing
exemptions could be used by exporters in support of Defense-certified
programs. This lack of agreement could have resulted in export
requirements being applied inconsistently. Also, in response to a GAO
recommendation, State and Commerce only recently began regularly
receiving information on criminal enforcement actions”information that
is important to consider upfront when reviewing license applications
for approval.
Despite dramatic changes in the security and economic environment,
State and Commerce have not undertaken basic management steps to ensure
their controls and processes are sufficient and appropriate for
protecting U.S. interests. Notably, neither department has assessed its
controls in recent years. Nevertheless, State and Commerce maintained
that no fundamental changes to their export control system were needed.
Earlier this year, the White House announced that the President signed
directives intended to ensure that the export control system focuses on
meeting security and economic challenges. Similarly, legislation to
make changes to the export control system has been introduced. However,
few details about the basis for these initiatives are known. In the
past, GAO has found that export control initiatives not grounded in
analyses have generally not resulted in the desired improvements to the
system.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-710T]. For more
information, contact Ann Calvaresi Barr at (202) 512-4841 or
calvaresibarra@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
It is my pleasure to be here today to discuss the U.S. export control
system--one component of the government's safety net of programs
designed to protect critical technologies while allowing legitimate
defense trade. In controlling the transfer of weapons and related
technologies to other countries and foreign companies, the U.S.
government must consider and strike a balance among multiple and
sometimes conflicting national security, foreign policy, and economic
interests. Achieving this balance has become increasingly difficult
given the evolving security threats we face, the quickening pace of
technological innovation, and the increasing globalization of the
economy. GAO has examined not only the export control system but also
other components of the safety net, such as the foreign military sales
program, reviews of foreign investments in U.S. companies, and a
program for identifying militarily critical technologies. Within each
component and across the safety net, we identified significant
vulnerabilities and threats that prompted us in 2007 to designate the
effective protection of technologies critical to U.S. national security
interests as a new high-risk area warranting strategic reexamination.
[Footnote 1] I believe that today's hearing contributes to that
reexamination.
The export control system is a particularly complex component of the
government's safety net. The system is managed primarily by the
Departments of State and Commerce, though other departments such as
Defense, Homeland Security, and Justice play active roles in the
system. State regulates arms exports,[Footnote 2] while Commerce
regulates exports of dual-use items, which have both military and
civilian applications. Exports subject to State's regulations generally
require a license, unless an exemption applies. Many Commerce-
controlled items do not require a license for export to most
destinations. However, in managing their respective systems, both
departments are responsible for limiting the possibility of export-
controlled items and technologies falling into the wrong hands while
allowing legitimate trade to occur.
Over the last decade and most recently in November 2007, we have
reported on various aspects of the U.S. export control system and the
weaknesses and challenges that affect the system's overall
effectiveness.[Footnote 3] My statement today focuses on: (1)
inefficiencies in the export licensing processes, (2) poor interagency
coordination, and (3) limits in State's and Commerce's ability to
identify problems and provide a sound basis for making changes to the
system.
My statement is based on GAO's extensive body of work on the export
control system. We have made a number of recommendations to address the
weaknesses and challenges we identified, but many of them have yet to
be implemented. We conducted these performance audits in accordance
with generally accepted government auditing standards. Those standards
require that we plan and perform audits to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
Summary:
State and Commerce have not managed their export licensing processes to
ensure their effective operation. In 2007, we found that State's export
licensing process was hindered by procedural weaknesses, problems with
a key electronic processing system, and human capital challenges. These
inefficiencies contributed to State's median processing times nearly
doubling from 14 days in fiscal year 2003 to 26 days in 2006 and a
significant increase in State's backlog of open cases. According to
State officials, the department has begun analyzing its licensing data
and implementing measures that will allow it to better manage its
workload and determine the most effective workforce structure. For the
small percentage of dual-use exports that require licenses, Commerce's
median processing times have remained relatively stable at about 40
days. However, the overall efficiency of Commerce's application review
process is unknown. This is due in part to Commerce's lack of
performance measures for all steps in its review process.
Our prior work has also found that poor coordination among State,
Commerce, and other departments involved in export controls has further
weakened the system. For example, State and Commerce have disagreed on
which department controls the export of certain items. In one case,
Commerce determined that an item was subject to its less restrictive
export requirements when it was, in fact, State-controlled. Such
improper determinations and unclear jurisdiction not only create an
unlevel playing field because some companies may gain access to markets
that others will not, it also increases the risk that sensitive items,
such as explosive detection devices, will be exported without the
appropriate review and resulting protections. Further, State and
Defense took almost 4 years to reach agreement regarding when certain
licensing exemptions could be used by exporters in support of Defense-
certified programs. This lack of agreement could have resulted in
export requirements being inconsistently applied. Finally, in response
to our prior recommendation, State and Commerce only recently began
regularly receiving information on criminal enforcement actions from
Justice--information that is important to consider upfront as part of
the license application review process.
State and Commerce have not undertaken basic steps to ensure their
controls and processes are sufficient and appropriate to protect U.S.
interests. Notably, neither department has systematically assessed its
controls in recent years--despite dramatic changes in the security and
economic environment. Nevertheless, State and Commerce have maintained
that no fundamental changes to the export control system were needed.
Earlier this year, the White House announced the President signed
directives intended to ensure that the export control system focuses on
meeting security and economic challenges. Legislation has also been
introduced to make changes to the export control system. However, few
details about the basis for these initiatives are known. In the past,
we have reported that export control initiatives not grounded in
analyses have generally not resulted in the desired improvements to the
system.
Background:
The U.S. government has a myriad of laws, regulations, policies, and
processes intended to identify and protect critical technologies so
they can be transferred to foreign parties in a manner consistent with
U.S. national security, foreign policy, and economic interests.
Advanced weapons and militarily useful technologies are sold by U.S.
companies for economic reasons and by the U.S. government for foreign
policy, security, and economic reasons. Yet, the technologies that
underpin U.S. military and economic strength continue to be targets for
theft, espionage, reverse engineering, and illegal exports. As a
result, the safety net of programs, many which were put in place
decades ago, not only has to protect critical technologies but it also
has to do so in a manner that allows legitimate trade with allies and
other friendly nations.
The U.S. export control system for defense-related items involves
multiple federal agencies and is divided between two regulatory bodies-
-one managed by State for arms and another managed by Commerce for dual-
use items (see table 1).
Table 1: Roles and Responsibilities in the Arms and Dual-Use Export
Control Systems:
Principal regulatory agency: 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 of 1976[A];
Implementing regulations: International Traffic in Arms Regulations.
Principal regulatory agency: 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 of 1979[B];
Implementing regulations: Export Administration Regulations.
Other federal agencies: Department of Defense;
Mission: Provides input on which items should be controlled by either
State or Commerce and conducts technical and national security reviews
of export license applications submitted by exporters to either State
or Commerce;
Statutory authority: [Empty];
Implementing regulations: [Empty].
Other federal agencies: Department of Homeland Security;
Mission: Enforces arms and dual-use export control laws and regulations
through border inspections and investigations[C];
Statutory authority: [Empty];
Implementing regulations: [Empty].
Other federal agencies: Department of Justice;
Mission: Investigates any criminal violations in certain
counterintelligence areas, including potential export control
violations, and prosecutes suspected violators of arms and dual-use
export control laws;
Statutory authority: [Empty];
Implementing regulations: [Empty].
Source: Cited laws and regulations.
[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, Continuation of Export
Control Regulations, issued August 2001, continues the export controls
established under the Act and the implementing Export Administration
Regulations. Executive Order 13222 requires an annual extension and was
recently renewed by Presidential Notice on August 15, 2007.
[C] Homeland Security, Justice, and Commerce investigate potential dual-
use export control violations. Homeland Security and Justice
investigate potential arms export control violations.
[End of table]
State's and Commerce's implementing regulations contain lists that
identify the items and related technologies each department controls
and establish requirements for exporting those items. Exporters are
responsible for determining which department controls the items they
seek to export and what the regulatory requirements are for export. The
two departments' controls differ in several key areas. In most cases,
Commerce's controls over dual-use items are less restrictive than
State's controls over arms. Many items controlled by Commerce do not
require licenses for export to most destinations, while State-
controlled items generally require licenses for most destinations.
Also, some sanctions and embargoes only apply to items on State's U.S.
Munitions List and not to those on the Commerce Control List. For
example, Commerce-controlled items may be exported to China while arms
exports to China are generally prohibited.
Even when items are exempt from licensing requirements, they are still
subject to U.S. export control laws. Responsibility for enforcing those
laws and their associated regulations largely rests with various
agencies within Commerce, Homeland Security, Justice, and State. These
enforcement agencies conduct a variety of activities, including
inspecting items to be exported, investigating potential export control
violations, and pursuing and imposing the appropriate penalties.
Punitive actions, which are either criminal or administrative, can be
taken against violators of export control laws and regulations. Justice
can prosecute criminal cases, where the evidence shows that the
exporter willfully and knowingly violated export control laws.
Prosecutions can result in imprisonment, fines, and other penalties.
State or Commerce can impose fines, suspend export licenses, or deny
export privileges for administrative violations.
Inefficiencies in the Processing of License Applications Hinder the
Export Control System:
Reviews of export license applications require time to deliberate and
ensure that license decisions are appropriate. Such reviews, though,
should not be unnecessarily delayed due to inefficiencies or be
eliminated for efficiency's sake--both of which could have unintended
consequences for U.S. security, foreign policy, and economic interests.
However, State and Commerce have not managed their respective export
licensing processes to ensure their efficient operation.
As we have previously reported, inefficiencies have contributed to
increases in State's processing times for license applications and
related cases and its inability to keep pace with a growing workload.
[Footnote 4] State's processing times for arms export cases began
increasing in fiscal year 2003--with median processing times nearly
doubling from 14 days to 26 days by fiscal year 2006 (see fig. 1).
During this period, State's workload increased by 20 percent, from
about 55,000 to 65,000 cases. State was unable to keep pace with this
growing number of cases, which resulted in a significant number of open
cases awaiting review and final action. At the end of fiscal year 2006,
this so called "backlog" reached its peak at over 10,000 open cases,
prompting State to undertake extraordinary measures--such as extending
work hours and canceling training and industry outreach--to reduce the
number of open cases. However, such measures were not sustainable and
did not address underlying inefficiencies. Concerns were also raised
that these measures could have the unanticipated effect of shifting the
focus from the mission of protecting U.S. interests to simply closing
cases to reduce the number of open cases.
Figure 1: Median Processing Times for Arms Export Cases, Fiscal Year
1999 through April 2007 (in days):
[See PDF for image]
This figure is a line graph depicting the following data:
Median Processing Times for Arms Export Cases, Fiscal Year 1999 through
April 2007 (in days):
Fiscal year: 1999;
Processing time in days: 26;
Fiscal year: 2000;
Processing time in days: 25.
Fiscal year: 2001;
Processing time in days: 15.
Fiscal year: 2002;
Processing time in days: 13.
Fiscal year: 2003;
Processing time in days: 14.
Fiscal year: 2004;
Processing time in days: 18.
Fiscal year: 2005;
Processing time in days: 19.
Fiscal year: 2006;
Processing time in days: 26.
Fiscal year: 2007;
Processing time in days: 27.
Source: GAO analysis of State data.
[End of figure]
At the time of our 2007 review, we found that State had not analyzed
licensing data to identify inefficiencies and develop sustainable
solutions to manage its review process and more effectively structure
its workforce. Through our extensive analysis of State's data, we
determined that the overall trend of increased processing times and
open cases was attributable to several factors, including procedural
weaknesses, problems with its new electronic processing system, and
human capital challenges, many of which had gone unnoticed and
unaddressed by State.
* Procedural Weaknesses: State lacked screening procedures to promptly
identify those cases needing interagency review. As a result, cases
often languished for weeks in a queue awaiting assignment or initial
review before being referred to another agency, such as Defense, for
further review. State also lacked procedures to expedite certain cases.
We found that processing times in fiscal year 2006 for exports to the
United Kingdom and Australia, which by law were to be expedited, did
not differ significantly from processing times for other allied
countries.[Footnote 5] Similarly, processing time goals for
applications in support of Operations Iraqi Freedom and Enduring
Freedom were not being met.
* Electronic Processing Problems: State officials have cited D-Trade--
its new automated system for processing cases--as the most significant
effort to improve efficiency. However, State's implementation of D-
Trade has been problematic and has not been the promised panacea for
improving processing times. Our analysis showed that there was no
significant difference in processing times for similar cases whether
they were submitted via D-Trade or the traditional paper-based system.
State relied on this automated solution without reengineering the
underlying processes or developing tools to facilitate the licensing
officer's job. For example, D-Trade has limited capabilities to
reference precedent cases that would allow licensing officers to
leverage work previously done on similar cases, which could not only
help to expedite the processing of a case but could also ensure greater
consistency among similar cases. Further, D-Trade experienced
performance problems that State officials attributed to poorly defined
requirements and a rush to production. For example, because of a glitch
in January 2007, 1,300 cases received during a 3-day period had to be
resubmitted by exporters, which resulted in rework.
* Human Capital Challenges: State has also faced human capital
challenges in establishing and retaining a sufficient workforce with
the experience and skills needed to efficiently and effectively process
arms export cases. For example, the number of licensing officers on
board was at the same level in fiscal years 2003 and 2006, despite an
almost 20 percent increase in cases over that period. As a point of
comparison, in fiscal year 2005, State had 31 licensing officers who
closed approximately 63,000 cases while Commerce had 48 licensing
officers who closed approximately 22,000 cases. Additionally, Defense
had not been providing State with its full complement of detailed
military officers, who are generally assigned to review complex
agreements.[Footnote 6] State officials have acknowledged that more
work was falling on fewer experienced staff. According to these
officials, in the summer of 2006, about half of State's licensing
officers had less than a year of experience, and many lacked the
authority needed to take final action on cases.
These findings prompted us to recommend that State conduct analyses of
its licensing data to assess root causes of inefficiencies and then
identify and implement actions that would allow it to better manage its
workload, reexamine its processes, and determine the most effective
workforce structure. We are encouraged to learn that, under the
direction of new leadership responsible for managing the arms export
control system, State has recently committed to implementing these
recommendations and taking actions to address the issues we identified.
Specifically, State has informed us that it (1) has implemented
procedures to more quickly determine whether cases should be referred
to other agencies or State bureaus for review and instituted senior
level reviews of cases that are over 60 days old, (2) is planning
future D-Trade upgrades that are expected to facilitate case reviews by
licensing officers and allow managers to better oversee the processes,
and (3) has restructured its licensing divisions to ensure a more
equitable distribution in the workload and skill level of licensing
officers based on our analysis. While these recently reported actions
are encouraging, we have not yet examined them to determine their
effects.
Concerns about efficiency have largely focused on State's processing of
applications for arms exports, in part, because few dual-use exports
subject to Commerce's controls require licenses. In 2005, for example,
98.5 percent of dual-use exports, by dollar value, were not licensed.
[Footnote 7] While few dual-use exports are licensed, the number of
license applications processed by Commerce has increased in recent
years--increasing by over 50 percent from fiscal years 1998 through
2005.[Footnote 8] During that time period, Commerce's overall median
processing times have remained stable, around 40 days, and are
consistent with time frames established by a 1995 executive
order.[Footnote 9] However, the overall efficiency of Commerce's
licensing process is unknown in part because Commerce lacks efficiency-
related measures and analyses that would allow it to identify
opportunities for improvement. For example, to determine the efficiency
of its license application review process, Commerce only measures its
performance in terms of how long it takes to refer an application to
another agency for review. Commerce does not have efficiency-related
measures for other steps in its review process, such as how quickly a
license should be issued once other agencies provide their input, or
for the entire process. During the course of our prior reviews,
Commerce did not provide us with evidence that would indicate it has
undertaken analyses of licensing data to determine if previously
established time frames are still appropriate or to identify the
drivers of its workload or the bottlenecks in its processes that would
allow it to implement actions to improve efficiency.
Poor Interagency Coordination Creates Vulnerabilities:
Since multiple departments have a role to play in the export control
system, its effective operation depends on those departments working
together. However, we have identified instances related to export
control jurisdiction, the use of license exemptions, and the
dissemination of enforcement information when poor coordination among
the departments has created vulnerabilities in the system's ability to
protect U.S. interests. The departments have taken action to address
some--but not all--of these vulnerabilities.
Given the different restrictions State and Commerce have on the items
subject to their controls, the determination of which items fall under
State's export jurisdiction and which fall under Commerce's is
fundamental to the U.S. export control system. However, we have
previously reported that State and Commerce have disagreed on which
department has jurisdiction over certain items. In some cases, both
departments have claimed jurisdiction over the same items, which was
the case for certain missile-related technologies.[Footnote 10] In
another case, for example, Commerce improperly determined that
explosive detection devices were subject to Commerce's less restrictive
export control requirements when they were, in fact, State-
controlled.[Footnote 11] Such jurisdictional disagreements and problems
are often the result of minimal or ineffective coordination between the
two departments and the departments' differing interpretations of the
regulations. Despite our recommendations to do so, the two departments
have not yet come together to resolve these jurisdictional disputes or
develop new processes to improve coordination. Until these
disagreements and coordination problems are resolved, exporters--not
the government--will continue to determine which restrictions apply
and, therefore, the type of governmental review that will occur. Not
only does this create an unlevel playing field and competitive
disadvantage--because some companies may gain access to markets that
others will not--but it also increases the risk that critical items
will be exported without the appropriate review and resulting
protections.
Even when jurisdiction over an export-controlled item is clearly
established, there is not always agreement among the departments on
when an export license is required. While State generally requires a
license for most arms exports, its regulations exempt exports that meet
specific criteria from licensing requirements. For a limited number of
licensing exemptions, Defense may confirm that the export qualifies for
the use of an exemption in support of Defense activities, such as
sharing of technical data related to defense acquisition programs and
defense cooperative agreements with allies and friendly nations.
However, our work revealed that State and Defense had different
interpretations of the exemptions and what exports could be certified
by Defense.[Footnote 12] For example, State officials maintained that
one exemption was only for use by U.S. government personnel, while
Defense officials stated it was available for use by contractors
working in direct support of Defense activities. For approximately 4
years, the lack of a common understanding of the exemption created a
vulnerability as regulations and licensing requirements could have been
inconsistently applied. Further, we found that State and Defense lacked
comprehensive data to oversee the use of these exemptions. Such data
would allow the departments to identify and assess the magnitude of
transfers certified for exemption use. Specifically, Defense's 2006
annual report to State on the use of the exemptions provided data on
161 certifications, but we identified 271 additional certifications
that were not included in Defense's report because they were not
entered into a centralized Defense database. We understand that, in
response to our recommendation, State and Defense established a working
group and recently reached agreement to resolve the issues identified
in our report.
When an exporter applies for a license, both State and Commerce are to
consider whether the parties to the proposed export are eligible to
sell or receive controlled items and technologies. Individuals or
companies indicted or convicted of violating various laws may be denied
from participating in proposed exports. Therefore, information on
criminal export control prosecution outcomes should help inform the
export control process by providing State and Commerce with a complete
picture of the individual or company seeking an export license.
Prosecuting export cases can be difficult, since securing sufficient
evidence to prove the exporter intentionally violated export control
laws can represent unique challenges, especially when the item being
exported is exempted from licensing or the case requires foreign
cooperation. We reported in 2006 that while Justice and the other
enforcement agencies have databases that capture information on their
enforcement activities, the outcomes of criminal cases were not
consistently shared with State and Commerce.[Footnote 13] Instead State
and Commerce relied on informal processes to obtain information on
indictments and convictions, which created gaps in their knowledge. For
example, we found that the watchlist used by Commerce to screen
applications was incomplete as it did not contain 117 companies and
individuals that had committed export control violations. Prompted by
our recommendation, Justice began providing State and Commerce with
quarterly reports on criminal enforcement actions so that such
information can be considered upfront during the license application
review process.
Absence of Assessments Limits Ability to Identify Problems and Make
Improvements to the System:
To adapt to the accelerating pace of change in the global security,
economic, and technological environment, federal programs need to
systematically reassess priorities and approaches and determine what
corrective actions may be needed to fulfill their missions.[Footnote
14] For example, to meet the challenges of the 21st century, agency
leaders need to reexamine their programs, asking questions related to
their program's relevance and purpose, how success should be measured,
and whether they are employing best practices. Given the two
departments' missions of controlling defense-related exports while
allowing legitimate trade, State and Commerce should not be exceptions
to this basic management tenet. Although dramatic changes have occurred
in the security and economic environment since the start of the 21st
century, State and Commerce have not conducted systematic assessments
to determine whether their controls and processes are sufficient and
appropriate or whether changes are needed to better protect U.S.
interests. Despite providing us with no basis for their positions and
the existence of known vulnerabilities, both departments informed us
that no fundamental changes to their respective systems were needed.
Earlier this year, the President signed a package of directives that,
according to the White House, will ensure that U.S. export control
policies and practices support national security while facilitating
economic and technological leadership. Relatively few details about the
directives or the basis for particular initiatives have been publicly
released, though they reportedly incorporate recommendations provided
by industry. We have not had an opportunity to review the specifics of
the directives, how they were formulated, or how they will be
implemented. Legislation has also been introduced to make changes to
the export control system.[Footnote 15]
While we have not had an opportunity to evaluate the new directives, a
note of caution may be drawn from our work regarding a prior set of
initiatives that were also designed to improve the export control
system. In 2000, the Defense Trade Security Initiatives (DTSI), which
was characterized as the first major post-Cold War revision to the U.S.
export control system, was unveiled. DTSI was comprised of 17 different
initiatives developed by State and Defense to expedite and reform the
U.S. export control system. At the time, we determined that no analysis
of the problems that the initiatives were intended to remedy or
demonstration of how they would achieve identified goals had been
conducted.[Footnote 16] It turned out that the justifications for the
initiatives was, in part, based on anecdotes that were factually
incorrect or only told part of the story. In one example cited by
Defense, the lengthy processing time for an export license caused a
foreign firm to cancel its contract with a U.S. aerospace company, but
upon closer examination, we learned that U.S. government had denied the
license because of concerns regarding the foreign firm's ties with the
Chinese military. Because there was little assurance that DTSI would
result in improvements to the system, we were not surprised during our
subsequent work when we found that the initiatives had generally not
been successful. For example, D-Trade was one of the initiatives, but
as already discussed, its anticipated efficiencies have not yet been
realized. Additionally, processing time goals established in DTSI for
applications to assist allies in increasing their military capabilities
have not been met. Other initiatives have not been widely used by
exporters. For example, we reported that between 2000 and 2005, State
had only received three applications for comprehensive export
authorizations for a range of exports associated with multinational
defense efforts, including the Joint Strike Fighter.[Footnote 17]
According to Defense and contractor officials, while such
authorizations were intended to lessen the administrative burden and
improve processing times for routine export authorizations, companies
have opted not to use them because of the extra costs associated with
their compliance requirements.
Conclusions:
The government's safety net of programs is intended to protect critical
technologies while still allowing legitimate trade. Therefore, the
components of that system must address known vulnerabilities and be
able to adapt to a changing global environment if they are to
individually and collectively protect and promote U.S. national
security, foreign policy, and economic interests. Our past work
demonstrates that State and Commerce have not managed the export
control system to better ensure its overall effectiveness in protecting
U.S. interests. Recent actions taken by the departments to begin
addressing some of the management issues and vulnerabilities identified
in our prior reports are encouraging. However, other recommendations,
most notably those related to export control jurisdiction, remain
unimplemented. While the implementation of our recommendations is an
important first step for improving the efficiency and effectiveness of
the export control system, a sustained commitment on the part of the
departments to engage in a continuous process of evaluation, analysis,
and coordination is needed. It is only then that meaningful and
sustainable improvements to the export control system can be developed
and implemented to ensure the efficiency and effectiveness of the
system in protecting U.S. interests.
Mr. Chairman this concludes my statement. I would be happy to answer
any questions you or other members of the subcommittee may have.
GAO Contacts and Acknowledgments:
For questions regarding this testimony, please contact me at (202) 512-
4841 or calvaresibarra@gao.gov. Johana R. Ayers, Assistant Director;
Marie Ahearn, Jennifer Dougherty, Karen Sloan, and Anthony Wysocki made
key contributions to this statement. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this statement.
[End of section]
Related GAO Products:
Defense Trade: State Department Needs to Conduct Assessments to
Identify and Address Inefficiencies and Challenges in the Arms Export
Process. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-89].
Washington, D.C.: November 30, 2007.
Defense Trade: Clarification and More Comprehensive Oversight of Export
Exemptions Certified by DOD Are Needed. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-1103]. Washington, D.C.:
September 19, 2007.
Export Controls: Vulnerabilities and Inefficiencies Undermine System's
Ability to Protect U.S. Interests. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-1135T]. Washington, D.C.: July 26, 2007.
High Risk Series: An Update. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-310]. Washington, D.C.: January 2007.
Export Controls: Challenges Exist in Enforcement of an Inherently
Complex System. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-
265]. Washington, D.C.: December 20, 2006.
Analysis of Data for Exports Regulated by the Department of Commerce.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-197R]. Washington,
D.C.: November 13, 2006.
Export Controls: Agencies Should Assess Vulnerabilities and Improve
Guidance for Protecting Export-Controlled Information at Universities.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-70]. Washington,
D.C.: December 5, 2006.
Export Controls: Agencies Should Assess Vulnerabilities and Improve
Guidance for Protecting Export-Controlled information at Companies.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-69]. Washington,
D.C.: December 5, 2006.
Defense Technologies: DOD's Critical Technologies Lists Rarely Inform
Export Control and Other Policy Decisions. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?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.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-638]. Washington,
D.C.: June 26, 2006.
Defense Trade: Arms Export Control Vulnerabilities and Inefficiencies
in the Post-9/11 Environment. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-05-468R]. Washington, D.C.: April 7, 2005.
21st Century Challenges, Reexamining the Base of the Federal
Government. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-
325SP]. Washington, D.C.: February 2005.
Defense Trade: Arms Export Control System in the Post-9/11 Environment.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?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. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-04-519]. Washington, D.C.: May
13, 2004.
Nonproliferation: Improvements Needed to Better Control Technology
Exports for Cruise Missiles and Unmanned Aerial Vehicles. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?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. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-04-357]. Washington, D.C.:
January 12, 2004.
Joint Strike Fighter Acquisition: Cooperative Program Needs Greater
Oversight to Ensure Goals Are Met. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-03-775]. Washington, D.C.: July 21, 2003.
Defense Trade: Better Information Needed to Support Decisions Affecting
Proposed Weapons Transfers. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-03-694]. Washington, D.C.: July 11, 2003.
Nonproliferation: Strategy Needed to Strengthen Multilateral Export
Control Regimes. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-
43]. Washington, D.C.: October 25, 2002.
Export Controls: Processes for Determining Proper Control of Defense-
Related Items Need Improvement. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-02-996]. Washington, D.C.: September 20, 2002.
Export Controls: Department of Commerce Controls over Transfers of
Technology to Foreign Nationals Need Improvement. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-02-972]. Washington, D.C.:
September 6, 2002.
Export Controls: More Thorough Analysis Needed to Justify Changes in
High Performance Computer Controls. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?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. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-02-620]. Washington, D.C.: April
19, 2002.
Defense Trade: Lessons to Be Learned from the Country Export Exemption.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-63]. Washington,
D.C.: March 29, 2002.
Export Controls: Issues to Consider in Authorizing a New Export
Administration Act. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-
02-468T]. Washington, D.C.: February 28, 2002.
Export Controls: Reengineering Business Processes Can Improve
Efficiency of State Department License Reviews. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-02-203]. Washington, D.C.:
December 31, 2001.
Export Controls: Clarification of Jurisdiction for Missile Technology
Items Needed. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-
120]. Washington, D.C.: October 9, 2001.
Export Controls: State and Commerce Department License Review Times are
Similar. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-528].
Washington, D.C.: June 1, 2001.
Export Controls: Regulatory Change Needed to Comply with Missile
Technology Licensing Requirements. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-01-530]. Washington, D.C.: May 31, 2001.
Defense Trade: Analysis of Support for Recent Initiatives. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-00-191]. Washington, D.C.:
August 31, 2000.
Defense Trade: Status of the Department of Defense's Initiatives on
Defense Cooperation. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/NSIAD-00-190R]. Washington, D.C.: July 19, 2000.
Export Controls: Better Interagency Coordination Needed on Satellite
Exports. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-99-
182]. Washington, D.C.: September 17, 1999.
Export Controls: Change in Export Licensing Jurisdiction for Two
Sensitive Dual-Use Items. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/NSIAD-97-24]. Washington, D.C.: January 14, 1997.
[End of section]
Footnotes:
[1] See GAO, High Risk Series: An Update, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-310] (Washington, D.C.:
January 2007).
[2] "Arms" refers to defense articles and services as specified in 22
U.S.C. § 2778.
[3] See list of related GAO products at the end of this statement.
[4] GAO, Defense Trade: State Department Needs to Conduct Assessments
to Identify and Address Inefficiencies and Challenges in the Arms
Export Process, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-
89] (Washington, D.C.: Nov. 30, 2007).
[5] Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375, § 1225 (2004).
[6] The Foreign Relations Authorization Act, Fiscal Year 2003 (Pub. L.
No. 107-228, § 1401(c) (2002)) states that the Secretary of Defense
should ensure that 10 military officers are continuously detailed to
State's Directorate of Defense Trade Controls.
[7] This amount reflects only the export of items specifically
identified on Commerce's control list. If an item is not listed on the
control list but is subject to Commerce's regulations, it falls into
the category know as EAR 99. In 2005, 99.98 percent of EAR99 items were
exported without licenses. Amounts do not include data for exports to
Canada.
[8] GAO, Export Controls: Improvements to Commerce's Dual-Use System
Needed to Ensure Protection of U.S. Interests in the Post-9/11
Environment, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-638]
(Washington, D.C.: June 26, 2006).
[9] Under Executive Order No. 12981 and 15 C.F.R. §750.4, the entire
dual-use license application process--including an interagency
escalation process if agencies cannot reach agreement--is to be
completed within 90 days, unless an agency appeals the decision to the
President who is given no time limit. However, few applications are
escalated through the interagency dispute resolution process, which
means that reviews of most applications are completed within 40 days.
[10] GAO, Export Controls: Clarification of Jurisdiction for Missile
Technology Items Needed, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-02-120] (Washington, D.C.: Oct. 9, 2001).
[11] GAO, Export Controls: Processes for Determining Proper Control of
Defense-Related Items Need Improvement, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-02-996] (Washington, D.C.: Sept.
20, 2002).
[12] GAO, Defense Trade: Clarification and More Comprehensive Oversight
of Export Exemptions Certified by DOD are Needed, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-1103] (Washington, D.C.: Sept.
19, 2007).
[13] GAO, Export Controls: Challenges Exist in Enforcement of an
Inherently Complex System, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-265] (Washington, D.C.: Dec. 20, 2006).
[14] GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP]
(Washington, D.C.: February 2005) and 21st Century Challenges:
Transforming Government to Meet Current and Emerging Challenges,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-830T] (Washington,
D.C.: July 13, 2005).
[15] S. 2000, the Export Enforcement Act of 2007, was introduced in
August 2007 and H.R. 4246, the Defense Trade Controls Performance
Improvement Act of 2007, was introduced in November 2007.
[16] GAO, Defense Trade: Analysis of Support for Recent Initiatives,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-00-191]
(Washington, D.C.: Aug. 31, 2000).
[17] GAO, Defense Trade: Arms Export Control System in the Post-9/11
Environment, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-234]
(Washington, D.C.: Feb. 16, 2005).
[End of section]
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