STATEMENT FOR THE RECORD

MR. JOHN W. DOUGLASS

PRESIDENT AND CHIEF EXECUTIVE OFFICER

AEROSPACE INDUSTRIES ASSOCIATION OF AMERICA

Hearing on Export Controls: Are We Protecting Security and Facilitating Exports

House Committee on Foreign Affairs

Subcommittee on Terrorism, Nonproliferation, and Trade

July 26, 2007

Introduction

Chairman Sherman, Congressman Royce, and members of the Terrorism, Nonproliferation, and Trade Subcommittee: the Aerospace Industries Association of America (AIA) appreciates the opportunity to provide a statement for the record for today’s hearing evaluating how well the U.S. export control system both protects national security and facilitates exports. AIA represents more than 100 regular and 180 associate member companies, and we operate as the largest professional organization in the United States across three lines of business: space systems, national defense, and civil aviation. Representing a total high-technology workforce of 640,000 that manufactures products for customers around the world, we have broad and deep experience with the U.S. export control system. AIA is also a member of the Coalition for Security and Competitiveness, representing eighteen industry and trade associations committed to working with the Executive Branch and Congress in a cooperative spirit to develop a more modern export control system.

The United States currently faces unprecedented threats to its security both at home and abroad. In confronting these threats, we must be able to exploit the full advantage we derive from our economic strength and technological prowess. To that end, the U.S. export control system must be modernized so that it is better able to respond quickly and effectively to evolving security threats, and promote our nation’s continued economic and technological leadership.

The Coalition for Security and Competitiveness

The Coalition for Security and Competitiveness advocates the development of a modern export control system that:

· Accurately identifies and safeguards sensitive and militarily critical technologies;

· Enhances U.S. technological leadership and global industrial competitiveness through more responsive and efficient regulatory management;

· Facilitates defense trade and technological exchange with allies and trusted partners;

· Supports a strong U.S. technology industrial base and highly-skilled workforce; and,

· Promotes greater multilateral cooperation with our friends and allies on export controls.

The Coalition believes a modern export control system should be efficient, predictable, and transparent, and an enabling component of America’s broader national security strategy.

By efficient, the government must do a better job at making decisions on export authorizations in a timely manner. The goal is a system that can deliver decisions on 95 percent of all license applications in 30 days, not the current 55+ days it often takes.

By predictable, we mean that the license process must be consistent with applicable laws, regulations, and policies and consistent in that comparable export applications under the same conditions receive the same or similar approvals in the same or similar time frames.

Transparent means that the rules governing the license process must be interpreted and used consistently, and that industry and foreign partners have quick, easy access to information on the status of their applications.

The export control system we operate under today lacks these three basic qualities. We can and we must do better because the current system is paradoxically hurting our national security, our economic strength, and our technological competitiveness, and the problems will continue to get worse if we do not take action.

The Need for Export Control Modernization

Let me say up front---export controls are necessary. They are critical to our national security. We must keep sensitive items out of the wrong hands. However, equally important to our national security is sharing technology with our friends and trusted partners.

Our failure to do so effectively is hurting interoperability, capacity building, and our relationships with allies. The U.S. benefits considerably when the technologies our allies bring to the battlefield are compatible and have capabilities that multiply the effectiveness of our own forces. Licenses facilitating such technology exchange are generally approved. However, delays and inconsistencies associated with the eventual processing of these same licenses bruise these important relationships, and do not send a message of trust and partnership. Such problems in the export control system also hamper the ability of U.S. industry to leverage global innovation to deliver the best equipment to our warfighters at the best value to the U.S. taxpayer. This goes to the heart of what led to the formation of the Coalition – of which AIA is an important member.

How the current export control system operates is also hurting our economic and technological competitiveness. We must recognize the importance of trade and international collaboration for sustaining economic growth, innovation and skilled employment in U.S. industry. Nearly four million workers are employed in U.S. high-tech industries—those affected either directly or indirectly by export controls. And these industries account for about one third of manufactured goods exports or nearly $350 billion in 2006. The challenges created by the current export control system are particularly harmful to our most dynamic and innovative small businesses, who incur costs of compliance with a byzantine system and risk missing out on business opportunities because they cannot turn around an export license in an overloaded system fast enough.

The Coalition’s Phase I Plans

In the first phase (Phase I) of the Coalition’s plans to advocate for a modern export control system, we decided to focus on improvements to the current system that could have an immediate, positive impact on predictability, efficiency, and transparency in license processing. Our criteria for identifying these recommendations were that they had to be measurable, attainable, and meaningful. We also agreed to focus, at least initially, on process improvements that the Administration could implement now under existing statutes. At the same time, mindful of Congressional interest in this issue, we committed to organize briefings with Congressional committees and offices on the importance of this issue and how our proposals can help. Detailed explanations of these defense and dual-use related proposals can be found at the Coalition’s website: www.securityandcomeptitiveness.org. The remainder of this statement will focus on the Coalition’s defense trade proposals.

Phase I Proposals for Defense Export Controls - Interagency

There are proposals in our defense trade package that cut across all parts of the federal government. These proposals primarily seek to drive greater interagency dialogue and generate more and clearer political guidance on the risks and rewards of defense trade transactions.

The Coalition has called on the White House to re-state the strategic policy principles that should govern the operation of the U.S. export control system. This statement should highlight the need to capture the full benefits of prudent technology exchange with our friends and allies. We ask for the appointment of a Senior Director at the National Security Council focused on conventional defense and dual-use export controls by separating these issues from the nonproliferation portfolio. The Coalition also calls for the creation of a new Presidential advisory body to establish a dialogue among the executive branch, congress and industry on defense trade and technology cooperation.

At the policy-making level, while the Coalition is not challenging the Administration’s national security determinations on transactions, we are asking that those decisions be made consciously, consistently, and clearly. This is especially true for administering the rules governing the Commodity Jurisdiction process, the process for determining whether the State Department or Commerce Department has jurisdiction over an export authorization. We believe a significant number of export licenses that clog up the current system may, in fact, no longer be required if the interagency process that evaluates such transactions all followed the same regulatory interpretation.

In commodity jurisdiction and other policy-related cases where the interagency process must come to a consensus decision, an interagency appeals process for precedent-setting decisions would also be useful to ensure policy and process are consistent, and that policies continue to be relevant as circumstances change. Such quality control, in the form of reviews of licenses that are denied or “returned without action (RWA), would be helpful at the transaction level as well.

Phase I Proposals for Defense Export Controls – State Department

There are also defense proposals that will primarily require the leadership of the State Department to implement. The most immediate proposal requiring attention is funding the hiring of additional licensing and agreements officers to handle the 8% a year growth rate in defense license applications and the license backlogs that have ranged between 5,000 and 10,000 licenses in recent years.

Besides advocating the adding of more personnel to handle this challenge, the Coalition asked the Administration to begin to consider, and develop, new approaches to caseload management, particularly the licensing caseload generated by U.S. government programs with our allies and partners. New management approaches are needed to reduce the number of authorizations related to a given program and to facilitate efficient interaction with our program partners. The Coalition’s proposal for a new approach to licensing major U.S. government programs involving our allies and partners can be found in Annex 1, and should be considered as a starting point for a more in-depth and timely discussion.

Finally, the Coalition has called for the development of a more robust electronic system for processing licenses that enhances transparency. The system should track across the entire interagency process automatically not only the current status of license applications but also their transit times and next steps against mandatory timelines. Industry is especially interested in tracking licenses that require congressional notification from when they are first submitted to the government to when they are sent to Congress for review.

Prospects for the Coalition’s Phase I Plans

The Coalition is appreciative of the careful consideration and positive remarks given to our objectives and our proposals in numerous discussions with Administration and Congressional leadership. We believe the favorable response reflects the different way industry is trying to approach the issue of export control modernization versus previous campaigns. First, this time we have specific recommendations that are measurable, attainable, and meaningful. Second, we are focused on process improvements that can help all of industry--and the US Government--not just demands for policy changes on specific technologies, countries, or other slices of the broader issue that tend to divide people. Third, we want to work with the Executive Branch and Congress to improve the system. This administration and this Congress have shown their interest and commitment to understanding our concerns and engage us in thoughtful consultations. Lastly, we are working as a coalition, speaking with the voices of the thousands of companies we represent, and the millions of Americans that go to work every day to make this country great…and we intend to grow this coalition.

The Coalition’s Phase II Plans

Implementation of any/all of the Coalition’s proposals would have an immediate and positive impact on U.S. national security and economic competitiveness. However, the Coalition is mindful that process improvements to the existing system will not make the system fully prepared for the security and economic challenges and opportunities of the 21^st century. For this reason, we are in the beginning stages of discussing and identifying within the Coalition the key elements of a “model modern system” to compare with the existing system. This exercise is important to sustain the new, necessary, and ongoing process of review and consideration of this important issue, exemplified by this hearing today. We intend to put forward proposals for a “next generation” system next year for consideration by and discussion with Congress as well as the 2008 Presidential campaigns, and we look forward to working with your Subcommittee on this important initiative.

Conclusion

The Coalition for Security and Competitiveness welcomes the support and participation of those who recognize the importance for the United States of having an efficient, predictable, and transparent export control system that supports U.S. national security and competitiveness.

ANNEX 1

PROPOSED FRAMEWORK FOR STREAMLINED LICENSING FOR U.S. GOVERNMENT PROGRAMS

The current interagency review of industry recommendations for export control modernization affords the Administration an opportunity to address a particularly important issue – improving management of licensing that supports the government’s own critical programs. The Administration is urged to take action requesting the State and Defense Departments to develop a framework for streamlined licensing of U.S. government programs involving significant international participation in support of national security and foreign policy objectives.

The State Department’s export licensing caseload is huge, having risen last year to 70,000 separate transactions, with a backlog of some 10,000 applications last year. A significant portion of this caseload is generated by U.S. government programs that have both important practical and policy mission objectives. These programs can generate hundreds if not thousands of individual licenses to enable hardware, technology and technical data-sharing between the U.S. and its international allies and partners.

This creates a major bottleneck in the ITAR export control process that burdens both U.S. government agencies and industry, and hampers cooperation among allies and partners that is essential to achieving program objectives. Reducing the volume of licensing transactions associated with these programs would alleviate a significant administrative burden on government and industry, facilitate important program objectives, and free up resources for other license applications – especially those that do warrant special attention.

As recommended in Coalition Proposal 7, what is needed is a different approach to managing export licensing that significantly –

a. Reduces the regulatory and administrative burden on both the U.S. government and industry by minimizing the number of authorizations required overall for a given program; and

b. Facilitates program management and interaction with allies and partners.

This approach may be implemented, as appropriate, under existing authority (e.g., ITAR 126.14) or pursuant to a new framework for program licensing.

STREAMLINED LICENSING FOR U.S. GOVERNMENT PROGRAMS PROPOSAL

In confronting unprecedented threats to the nation’s security both at home and abroad, U.S. technological leadership and ability to make full and speedy use of advanced technologies is of paramount importance. Export licensing is necessary both to protect technology deemed critical to our national security interests, and to enable the technology-sharing needed to implement critical programs and operations involving the U.S. and its allies and partners. It shall be the policy of the United States to achieve these objectives through effective and efficient management of export licensing, consistent with the following principles –

¨ Support U.S. technological leadership and strengthen U.S. industrial competitiveness in global technology markets.

¨ Safeguard access to critical technologies.

¨ Preserve the U.S. industrial base, including a highly skilled U.S. defense workforce.

¨ Facilitate defense cooperation and interoperability with U.S. allies.

Agency Responsibilities:

1. The State and Defense Departments shall develop a new framework for streamlined program licensing that significantly –

a. Reduces the regulatory and administrative burden on both the U.S. government and industry, in particular, by minimizing the number of authorizations required overall for a given program; and

b. Facilitates program management and interaction with allies and partners.

2. The framework shall provide for an authorization that –

a. Specifies categories of technologies, systems, components, and materials;

b. Defines and tailors protection requirements to each category; and

c. Pre-qualifies companies in allied and partner nations for each category to, inter alia –

1. authorize each to handle and share controlled hardware, technology and related technical data with other pre-qualified companies;
2. eliminate need for amendments to add pre-qualified subcontractors and teammates;
3. establish an appropriate vetting process for dual national personnel of pre-qualified companies.

d. Establishes shared responsibility for ensuring ITAR compliance, certification, and auditing through periodic U.S. government monitoring of authorized entities, including U.S. and allied and partner companies.

3. The framework may be implemented under new authority or a new approach to existing authority.