European Affairs

Reforms in U.S. Licensing Process Facilitate Joint Allied Operations     Print Email

The U.S. Department of State is responsible for regulating defense trade with the objective of ensuring the defense-trade support, national security and foreign-policy interests of the United States. The department’s primary mission in this regard is to deny our adversaries access to U.S. defense technology while facilitating appropriate defense trade with our allies and coalition partners to allow for their legitimate self-defense needs and to fight effectively alongside U.S. forces and joint operations. We carry out our work under the authority of the Arms Export Control Act, the Foreign Assistance Act of 1961, and the International Traffic in Arms Regulations which includes the U.S. Munitions List (USML).

The USML covers items specifically designed for military applications in 21 categories, extending from firearms to the Joint Strike Fighter and just about everything in between. In recent years, U.S. exports have become increasingly complex, and there have been aggressive efforts to obtain U.S. technology. The increasing number and value of licenses reviewed by the Department are directly linked to the demands of conducting extensive joint operations and warfare with increasingly diverse partners.

In 2007, the State Department received approximately 81,000 license applications, valued at over US $100 billion. The volume had been going up eight percent a year since 2000. As a global industrial base continues to emerge, licensing applications become more complex, particularly in the area of Technical Assistance Agreements (TAAs), which include the furnishing of assistance to foreign parties for the development and production of defense articles. Last year, more than 9,000 TAAs were received involving a total potential value of defense services estimated to be roughly equal to or greater than the value of hardware exports from the U.S. We refer nearly all of these agreements to the Department of Defense and its Defense Technology Security Administration for review to ensure that those activities are consistent with our national security and foreign policy interest. We have instituted a number of reforms and initiatives to improve the ability to manage this challenge in a way that protects the U.S. while ensuring that our allies have what they need to participate with us in military operations to protect our common interest. These initiatives include enhanced leadership and staffing of our defense trade operations, more robust enforcement activities, and innovative new treaties with our closest allies and a number of business practice reforms. Many of the latter were formalized in Jan. 2008 directly by President George W. Bush. With continued cooperation from Congress and industry, we aim to introduce even greater reforms in the months ahead.

One of the greatest changes has been a difference in mindset. We have new leaders in key positions at the State Department to sharpen the focus on defense trade. Improving the administration of defense trade controls, however, requires more than just good people. It also demands a fresh and imaginative approach to structuring of our work. Two such examples are the recently concluded treaties for defense cooperation with the United Kingdom and Australia, which the President has submitted to the Senate for advice and consent. The treaties recognize the U.K. and Australia as two of our closest allies and largest defense trade partners. Accordingly, the treaties will permit, without prior written U.S. authorization, the export of USML items with certain exceptions to both countries for combined military counter-terrorism operations, joint research, development and production projects that are mutually agreed and items for U.S. military’s use.

The State Department will maintain its authority on which end-users can have access to USML items under the treaties by vetting the approved community of defense-related entities in both countries. Both the U.K. and Australia have agreed to prevent the re-export and retransfer of such items outside the approved community without U.S. approval. If ratified, the treaties will be self-executing, and implementing regulations are being prepared identifying which defense articles, projects and recipients are within the scope of the treaties. We anticipate that the first exports, should the Congress provide its advice and consent, take place under these treaties in the fall of 2008.

These treaties should become good examples for the department’s managing risk to fulfill its dual obligations to build partnership capacity but to protect U.S. military technology via export controls. Out of the roughly 23,400 license applications that the department has processed from the U.K. and Australia in the past two years, only 15 have been denied. We feel assured that the exports are going where we need them to go and are therefore comfortable creating a license-free zone for mutually agreed end-users and projects. By implementing these treaties, we expect to see a reduction in license applications, freeing up time to adjudicate applications even more expeditiously.

In improving our business practices with a series of reforms, many of them address the recommendations put forth last year by the Coalition for Security and Competitiveness and some already are close to fruition within the department.

The first of those was a commitment by the President and by the department to provide additional financial resources, as well as procedural reforms to expedite export-licensing applications. Under the new procedures, the Secretary of State has implemented guidance to ensure that the process – review, analysis and decision on export authorization requests for the International Traffic in Arms Regulation, controlled articles, services and technologies – is completed within 60 days unless certain national security exceptions apply. In addition, we have instituted a mandatory weekly review of applications for all licenses at the 60-day mark, particularly for licenses required for Afghanistan and Iraq.

The President also directed that we implement a policy to grant access to third country nationals from other NATO countries, European Union member states, Japan, Australia and New Zealand to certain defense exports without the need for additional separate export authorization. This has alleviated the need for companies to seek non-disclosure agreements for such nationals and recognizes the low risk of transferring technologies to nationals of these countries under an approved license or TAA.

The presidential directive in January also instructed the State Department to fulfill the upgrading of its electronic licensing system, with a goal of ensuring that all reviewers within the Department and other agencies can electronically receive, distribute and respond to the full range of documentation and material that is required or requested in support of the licensing process, including commodity jurisdiction requests. It ensures U.S. industry may interact as appropriate with the Department of State on a fully electronic basis.

Results, so far, have been striking. At the beginning of the 2007 fiscal year, Defense Trade Controls had over 10,000 open license applications. By the end of April of this year, the number was reduced to approximately 3,600.

We have reduced the average processing time for licenses, on average, by over 50 percent, going from 35 days last year at this time to just 15 days last month.

Finally, we cannot just focus our efforts on improving licensing operations. An important component of our mission is to ensure that end-users of U.S. military equipment and technology are using the equipment within the restrictions that we might impose. Last summer, the Department of Justice appointed the first national export-control coordinator to support worldwide the export-control enforcement initiative. In 2007, law enforcement actions pursuant to the Arms Export Control Act and the International Traffic in Arms Regulations resulted in 165 arrests, 138 indictments and 94 convictions. The focus of these cases continues to involve efforts related to China, Iran and terrorist groups.

Mr. Kovac responded to questions. Excerpts follow.

Question: Could you address some of the reforms that your office has undergone in terms of the access for small business?

What we are looking at in this respect, across the board, is to separate those things that do not hurt us and those things that are so available that national security cannot be reasonably considered being impaired: it is a risk-management approach. For this kind of analysis, two of the bluntest instruments that we have are the identification of systems specially designed for civil use and those specifically designed for military use. Although the lines between the two are often blurred, we are using the commodity jurisdiction process as well as the USML to see if we can separate the two. We are not, as in a national export-control system, capable of dividing things by capability as opposed to use. But within the existing system, we are trying to break out, for example, items that have a military application. The people who basically will benefit from dividing civil and military categories are the second and third-tier suppliers, and we need to help them supply the market.

Q: Beyond getting the resources you need to meet the 60-day mandate, what do you need in terms of staff so that the Directorate of Defense Trade Controls (DDTC) is a creative player in a reform debate?

Right now, part of the problem with the licensing has not been the number of people (even though the tendency is to throw more people at a problem). We have worked on adjusting the chain of command focus and improving the day-to-day focus – watching the cases, giving people requirements, telling them how long they had.

In dealing with the larger question, the first answer is to look at the process in terms of what the process does. Even though I have had some really good people working at DDTC, they were spending a lot of time trying to find a solid precedent, resulting in the complete review of only two licenses a day, not ten. This is why we have increased the staffing to the Department of Defense. It is the export item that matters, and the Department of Defense is equipped to scrutinize it by getting engineers, licensing officers, policy guys, and intelligence specialists all in the room at the same time. They have the talent on hand, it takes about an hour and a half and they can provide an indepth review on many licenses often the day they get it. Then I get that license back. That is what makes the backlog go away. Whereas it used to take 22 days for a case to get from the Department of State to the Department of Defense, now it only takes eight, and it will take less.

The second way you deal with the larger questions is the same way you deal with the smaller questions. My philosophy is, if the answer is always yes, why make them ask? We can use this simple question to reduce the licensing workload. For example, the year before I began working at the Directorate of Defense Trade Controls, the rate of return-without-action on licenses was 17 percent. That meant that you saw eight percent more licenses than you needed to (because 17 percent of the licenses were duplicates of licenses that had already been reviewed once). By getting rid of the licenses returned without action (RWAs), we could reduce the application rate by 17 percent. If the signatures were not right, if all of the paperwork was not there, if all the boxes were not checked, it went back; but the problem was that there were no written guidance for which of those problems were a concern, and which could be mitigated in other ways, besides RWA. So we put new procedures in place, wrote them out and looked at all of the reasons why people thought they needed to do a RWA, kept the reasons supported by law or regulations – and we threw out the ones that were not. Now the RWA rate has dropped from 17 to 12.

In addition to adding licensing resources under the President’s plan, we will expand both our policy and compliance sections in terms of resources. Compliance is everything. If my first rule is, “If the answer is always yes, why ask,” then my second one is, “Have the questions already been answered somewhere else and can we leverage them?” We only have to make sure of two things: one, that the export is consistent with the national security and foreign policy interests of the United States; and, two, that the export takes place in such a way that we can ensure compliance with the other requirements of law, that we do not use parties that have been debarred, for example. When you have circumstances where those questions have already been answered in the interagency process, why add a license requirement?

Q: With regards to the idea of higher rules around fewer things, it seems that if something is available commercially and you can have some kind of test that is available commercially, then it should not be on the munitions list. Couldn’t you almost automatically reduce the USML by applying a test of commerciality?

I have no objections to this in concept, but how do you play it out? Where is your break point? How do you differentiate in such a way that all the people involved in the process are going to recognize it? For example, we are trying to work now on an overall night-vision policy because it is a critical technology in 21st-century warfare. You may ask, “If it is so available, so what?” The “so what” is that a commercial item can still get you killed. Small arms are widely available in this world, but they are commercial items that can kill you. So I like the theory, I just don’t know if it can be applied in a general way. But quite frankly, a lot of countries, even in the European Union, accept the availability argument in a lot of categories of things that we do control, but the reverse is also true.

Robert S. Kovac is the Managing Director of the Directorate of Defense Trade Controls at the U.S. Department of State. He previously served as Director of Licensing at the Defense Department’s Defense Technology Security Administration. This article was adapted from remarks delivered at The European Institute on May 20, 2008.

 
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