Notes from the Defense Trade Advisory Group (DTAG) meeting
U.S. Department of State
26 November 2002
Lincoln Bloomfield, Assistant Secretary of State for Political-Military
Affairs: Opening Remarks
- Many things are going on in defense trade; these remarks are to
set the stage
- Go over impulse and intention behind the defense trade policy
- There has been much discussion and debate about the export
process; it is intended to make things “quicker, more user-friendly and
- Remedies are now in train, and will be fully mature perhaps a
year from now.
- Defense Trade Controls (DTC) is now at full strength to deal with
50,000 licenses a year, plus dealing with export law, negotiations on
penalties, and other responsibilities.
- There is work on re-engineering and documenting the export
- Electronic upgrades are important, but can’t just be grafted onto
the existing process: re-engineer for use with information technology.
- The electronic upgrades will largely remedy complaints about
time, he hopes.
- He wants to puncture the perception that the review will lead to
a huge liberalization; this is the diligent thing for a new administration to
- How can national security and foreign policy equities be
satisfied with less burden to exporters?
- There is no preordained ideological outcome to the review.
- Realignment of the Political Military (PM) bureau: under the
“Pol-Mil Action Team” (PMAT), which brings all the forces together and tries to
relieve the front office from working on DTC.
- After 9/11, they developed a 24-hour capability by tapping
current PM staff and others who answer to John Bolton.
- One deputy assistant secretary is responsible for everything
newly required after 9/11.
- Another deputy is responsible for all pre-9/11 responsibilities.
- PM is too busy – one of the busiest bureaus in State. It needs
more staff but doesn’t have the management structure in place to support it.
- Bloomfield has spent much time working with DTC, to relieve the
front office from “fast-burning” defense trade issues. The third deputy
assistant secretary will relieve that load.
- There is much inter-departmental policy work done at the
assistant secretary or deputy assistant secretary level. The DAS will take that
- Spread the “Powell effect” (apparently, improve the work
environment): a larger executive team can make DTC a better work environment.
- He wants to improve the “vertical fidelity” of license processing
to foreign policy, that is, better “top-down” communication so that licensing
decisions are better informed by foreign policy. There is frequent
ministerial-level engagement with other nations, and sometimes Powell will be
surprised when a licensing issue crops up in discussion. He wants to improve
the early warning for the Secretary.
- Expressed appreciation for the patriotism and hard work of Lowell
and Dixon at DTC; he said he felt they were doing a great job and had been
pressed far beyond reasonable limits.
- Some discussion of the policy and process outlined in the
National Security Presidential Directive (NSPD). It does not just affect State;
it includes the services and DoD.
- NSPD attempts to clarify what the positions of these
organizations are in the war on terror, and once their positions are understood
State can delegate the process and not have to review every export. The
Pentagon needs to decide what it needs for capabilities and what is too
sensitive for trading.
- Questions include: what capabilities do our allies need in order
to fight alongside us, and what capabilities are too sensitive to transfer?
- NSPD policy is accepted among departments, and will assist the
process people in carrying out their jobs, including at Commerce.
- This is not the place for dual-use issues.
- Outlined the discussion topics for the morning, with reference to
- Anti-competitive practices and barriers to trade: What are
foreign practices, and what is outrageous?
- DTSI initiatives: DTSI initiatives so far have only covered the
Joint Strike Fighter program. What is the problem? Does the idea have no
appeal, or does it need to be modified? (Bloomfield rhetorically asks audience)
What could make DTSI more useful?
- Defense trade policies and practices that might benefit from
review: What is unenforceable? What is gratuitous?
- Information that should be required on licenses to satisfy DoD
releasability requirements: DoD often asks for more information on license
applications that State refers to it. How can the license application be
restructured to regularize the process? It should ask for enough information to
satisfy DoD, but not to excess.
William Schneider, DTAG Chair: Opening Remarks
- He wants to do fundamental thinking about the management of the
- Think in transformational terms: the government controls
distribution of capabilities, but consider other ways the system can be
- What fundamental changes can make the export control system more
Questions and Answers
- Q: What does the USG communicate on license approvals? It
would be good to provide some context and justification for the license
approval, to head off “merchant of death” articles when a license is approved.
- Bloomfield: It is Bloomfield’s and Powell’s job to explain
why a sale happens. Congress is vigilant, as they are notified of all arms
sales and have the right to deny their export. Bloomfield then asked the audience
rhetorically what would the world look like if weapons were sold by another
country with less transparent export policies? Mentioned Grimmett Report on
conventional arms exports and how the report shows the United States as being a
leading exporter, but what would the world look like if 90 percent of the
world’s arms exports came from other countries? “U.S. export controls are a
success story, if you look at U.S. weapons and how well they have been used in
the past.” If you go back 25 years, what U.S. arms sales were forces for
instability or harm? He suspects there will be a few, but only a very few. It
may be useful to explain the utility of each major weapon exported, and it is
true that we need a more coherent way to regulate the trade in arms.
- Schneider: Why confer a capability upon a recipient? The
question is how capabilities are embedded into technology. The “stage is set
for powerful American dominance” of defense trade in the next ten years. DoD
increasingly uses commercial, unclassified technology developed under auspices
other than its own.
- Q: The capabilities of Commerce Control List (CCL) and
U.S. Munitions List (USML) equipment are increasingly a “distinction without a
difference.” If the NSPD is confined to review of the Arms Export Control Act
(AECA), what is a process to infuse its results into the dual-use licensing
- Bloomfield: The NSPD is an open-ended process. Commerce
is a “dance partner” in the USML review: reviewers need to know where an item
will go if it is removed from the USML.
- Q: There is a legitimate question about the national
security implications of technology developed in the commercial sector. One can
look at the criteria examined in the NSPD and debate a license; the debate is
likely to “asymptotically approach” an answer but unlikely to produce an answer
in finite time. In terms of the list review, is there anything constructive in
the procedural discussion (of a license)? That is, if you can’t figure
out in two weeks whether something should be released, does it really matter?
- Bloomfield: Formulas along the lines of “it takes 30 days
or it’s automatically approved” are often floated. In some cases he sees a
fit—the formula works some of the time. A thing that undermines it: sometimes
there are factors outside the control of licensors—for example, they’re waiting
for field information or a judicial decision. If it were possible to limit to
such cases, the formula could be OK, but it would be too “racy” to
automatically say yes in X number of days. What you can do is institute
some rigor by automatically kicking the approval up a level (to a manager)
if it’s waited for X days. The interagency discussion is interested in making
decisions rather than sitting on them. Really can’t limit time for decision –
still need to uphold security considerations.
- Q: Under the NSPD, will someone in the Office of the
Secretary of Defense be able to make changes (to export policy)?
- Bloomfield: No, departments are independent and OSD does
not outrank other departments. But policy-level leadership at DoD is collegial
with leadership at other departments. All sides are reasonable and open-minded,
contrary to common perception—perhaps less so on the working level, but more so
on the policy level.
- Q: In sensors, the U.S. is not in the lead—the capability
cannot be confined. Look at the jurisdiction on firefighting or commercial
cameras. The “military application” designation creates disputes.
- Schneider: This raises the question of whether there needs
to be one list or two.
- Q (Joel Johnson, Aerospace Industry Association): A few
- DTAG members don’t know much about the NSPD. It’s classified
Confidential, while most DTAG members are cleared to Secret. Will DTAG be
briefed? He’s not sure what he can ask in this room.
- There have been implementation failures in the Organization for
Economic Cooperation and Development (OECD) Code on Bribery. How to tighten
bribery rules for foreign competitors?
- Export financing: How do we finance exports to others? Can the
system be changed?
- Schneider: DoD is interested in the Defense Export Loan
Guarantee program. Ex-Im is also knowledgeable on defense issues.
- Q (follow-up from Joel Johnson): How about
interoperability, especially with allies in the developing world? How to
emphasize it? How to encourage sustainability of transferred equipment, and
training for it?
- Bloomfield: Interoperability is meaningful. PM is engaged
in coalition management, e.g. overflight coordination. Experience in
Afghanistan and Iraq, and the Prague summit, have “crystallized” thinking: if
you don’t have interoperable allies, you are alone, and arms sales should be
consistent with our allies’ needs. Burden-sharing is also in the PM portfolio:
he doesn’t want to leave a future President in a situation where only the U.S.
is capable of responding to a threat.
Regarding ways to transfer equipment to poorer countries, there is EDA, and
with many allies in Operation Enduring Freedom—particularly the Philippines,
Georgia, and Yemen—PM has had to look at their capabilities. What adds capability
without sinking the economy? PM has to look at economic impact.
PM must also pay attention to sustaining capability. There are good examples of
developing countries who have developed capabilities and worked well with the
- Q: Regarding the licensing process: there is a disconnect
with exporters’ business processes. Approval requires a signed contract in some
cases, which imposes delays. The review should ask: how do companies have to
operate to comply with the process?
- Q (follow-up): Applauds the department and administration
on the comprehensiveness of the review. Asks how to ensure understanding of the
- Bloomfield: Current mergers and contracts make the process
complex. However, Congressional oversight is a necessary part of the process.
Electronic licensing will speed the process. The review does not have authority
over Congressional oversight: that is important and necessary, and it is a
“stopping point” in licensing. In this new environment, DTC must look at
allies’ export control systems to have confidence that they will control
technology transferred to them.
- Q (follow-up): How can the “Congressional time-out” be
- Bloomfield: Need private sector involvement: how often
will Congress be asked to review applications which never make it to contract? Or
when is the opportunity so great that it justifies a possible false
notification to Congress?
- Q (follow-up): The 15 to 30 days in Congress is nothing.
The problem is the pre-notification time. When a contract is submitted during
the license application it is re-reviewed in DoD, even for trivial changes, and
that imposes unpredictable delays.
- Q (follow-up): The problem is the dance among H (?),
PM, and Congressional staff.
- Bloomfield: Submit a one-page specific case of a timeline
and the review can take it into account.
- Q (rep from IBM): Statement concerning radiation-hardened
microelectronics, category XV(d). Before 1999 commercial circuits were
excluded. Some words were removed and the material is now ambiguous. The
substitution is not found in the international lists. Future ICs may pass
criteria without industry realizing it, and the tests are very expensive.
Customers demand specialized parts. He requests the return of the words
“specifically designed or rated” to exclude commercial electronics. Non-members
of Wassenaar produce technology after we produce it, and their tech is not
controlled. Category (d)(iv) is not up to date with technology.
- Schneider: Time is up for the morning’s discussion. One
issue to consider is that of global license approval; the Joint Strike Fighter
(JSF) is well understood but it could be harder to work with GPA for a
- Bloomfield: Took issue with the JSF being described as
“simple” – noted the number of licenses combined into one.
Break. After the end of the
break, the meeting returned for a discussion of DTAG’s work program, led by
Giovanna Cenelli and Joel Johnson.
- Cenelli: DTAG wants to inject certainty into the licensing
process, particularly regarding the intangibles of know-how and technology
transfer. Particular areas of focus:
- Employment of foreign nationals. There should be more clarity on
what information is needed. There used to be better understanding of how you
employ a dual national. Commerce uses the last citizenship the person obtained,
while State looks at all citizenships and applies the strictest restrictions.
- What due diligence is needed with regard to customers? Exporters
have a general familiarity with their customers but sometimes there is a new
one. How much due diligence is enough on the export side? For example,
exporters are required to give the address where equipment will be used, but
some MoD’s won’t give more than a PO box or airport for security reasons. This
happened in Israel. How much is enough to cover a license applicant for
- Acquisitions and divestiture issues. Juster (from Commerce) says
that, when one company acquires another, liability for export practices extends
to all past and present actions. There should be guidelines to aid
understanding of policy. In particular, can a company get rid of liability for
a violation by divesting a subsidiary which committed the violation?
- Bloomfield: On the last piece, corporate self-policing is
the wave of the future. Corporations need to elevate the level of confidence in
multi-national arrangements. There will be consequences for diversion but
limited or little monitoring. An acquiring company must consider its due
diligence to uncover liability for export violations. This also builds State’s
confidence in an acquiring company.
- Cenelli: The export side is often reviewed later.
Management views it as “in the weeds” but it should be considered alongside the
financials of an acquired company.
- Schneider: How can exported goods be amortized over years?
The U.S. and U.K. do this with leases.
- Johnson: The U.S. offers no governmental way to make such
a deal, unlike its competitors.
- Schneider: We should consider privatizing export finance.
- Johnson: Are leasing and export finance a subject of the
NSPD? Other topics to discuss:
- Control of utility components: A-4M and satellites are
manufactured without U.S. components. There should be de minimis provisions for
control of dual use components.
- Should broaden the experience of International Traffic in Arms
Regulations (ITAR) waivers and project licenses. Bring this to the table with
LOI6 – reconstruct a mini CoCom, create higher barriers to trade outside the
group and lower inside it.
- In a multilateral world, consider utility items and third country
- Bloomfield: In bilateral negotiations on ITAR issues, the
European trend is significant. The U.S. cannot pull its allies by one arm while
they are moving into Europe.
- Q (Victoria Ralston): How about a waiver for U.S.
manufacturers to return goods to foreign importers? It could be used for repair
and overhaul, not for enhancement of capabilities. It would touch 21 CFR
123.16(b) and 120.1(c).
- Schneider: UAVs are covered in the Missile Technology
Control Regime (MTCR). Does this limit our ability to support our allies?
- Bloomfield: If the U.S. moves off center for UAV exports
for a certain pool of countries, how would we work a rollout of missile
defense? Fealty to MTCR is related to the proliferation of missile defense.
- Schneider: Foreign direct investment in U.S. companies:
Regs have been liberalized and foreign direct investors have come in with the
legal obligations of U.S. companies. Export licensing has increased the
barriers of separation between U.S. subsidiaries and foreign parents. Consider
how the export control system could evolve here.
- Cenelli: This is a bigger issue because of the consensus
process. The government is looking at the use of the process to increase,
though there was a GAO report on national security and the consensus process
which wasn’t very complimentary.
- Bloomfield: Where is the national security downside? He is
interested in the argument that the development of Fortress Europe and Fortress
America takes us to a bad place. ITAR works bilaterally, and the EU evolution
is becoming an impediment to this. The solution may rest in the improvement of
EU members’ export control laws.
- Schneider: Recently DoD liberalized foreign direct
investor access to the U.S. market. How can we reach a more integrated
transatlantic market? U.S. subsidiaries act largely autonomously of the parent
when the parent is offshore. In the long term U.S. companies must invest
directly in Europe. He wants a regulatory environment which could aid
integration. Defense is largely transatlantic—not in Asia or China—so it
commingles with alliance politics.
- Bloomfield: What is the vision of the end result? A
possible vision is that the Pentagon procures from foreign companies. Could
R&D accelerate so that the best product is from a European factory? Are
they then diligent about training and spares for us?
- Question: Consider: markets differ. In the U.S. the USG is
the market, then we sell into the rest of the world. In Europe, the primary
market is the rest of the world; European governments don’t buy so much.
- Schneider: What is the vision of transatlantic industry?
Don’t need a structure of prime contractors.
- Q (Paula McDowell): Underlying technology isn’t about
minor companies. Civilian technology is a major underlying part (of defense).
We could have preferred suppliers: a major European supplier could be preferred
if they agree to certain export practices.
Summary (Ramona Hazera, DTAG
Vice Chair): Issues where continuation of work is necessary:
- Automated export systems
- Radiation-hardened ICs
- NSPD briefing
- USML review continuation
- Workflow within government. What is the process in State?
- Joel Johnson: Civilian aircraft are UAVs. NASA seeks
unmanned vehicles. How do we adapt to civilian use of technology?
- Comment: This applies to UVB’s too.