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A STRATEGIC AND ECONOMIC REVIEW OF

AEROSPACE EXPORTS

HEARING

BEFORE THE

SUBCOMMITTEE ON TERRORISM, 

NONPROLIFERATION AND TRADE

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

DECEMBER 9, 2009

Serial No. 111–74

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

HOWARD L. BERMAN, California, Chairman 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

DONALD M. PAYNE, New Jersey 

BRAD SHERMAN, California 

ROBERT WEXLER, Florida 

ELIOT L. ENGEL, New York 

BILL DELAHUNT, Massachusetts 

GREGORY W. MEEKS, New York 

DIANE E. WATSON, California 

RUSS CARNAHAN, Missouri 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

MICHAEL E. MCMAHON, New York 

JOHN S. TANNER, Tennessee 

GENE GREEN, Texas 

LYNN WOOLSEY, California 

SHEILA JACKSON LEE, Texas 

BARBARA LEE, California 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

MIKE ROSS, Arkansas 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

JIM COSTA, California 

KEITH ELLISON, Minnesota 

GABRIELLE GIFFORDS, Arizona 

RON KLEIN, Florida 

VACANT 

ILEANA ROS-LEHTINEN, Florida 

CHRISTOPHER H. SMITH, New Jersey 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

DANA ROHRABACHER, California 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

RON PAUL, Texas 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

JOE WILSON, South Carolina 

JOHN BOOZMAN, Arkansas 

J. GRESHAM BARRETT, South Carolina 

CONNIE MACK, Florida 

JEFF FORTENBERRY, Nebraska 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

BOB INGLIS, South Carolina 

GUS BILIRAKIS, Florida 

RICHARD J. KESSLER, Staff Director 

YLEEM POBLETE, Republican Staff Director 

SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION AND TRADE

BRAD SHERMAN, California, Chairman 

GERALD E. CONNOLLY, Virginia 

DAVID SCOTT, Georgia 

DIANE E. WATSON, California 

MICHAEL E. MCMAHON, New York 

SHEILA JACKSON LEE, Texas 

RON KLEIN, Florida 

EDWARD R. ROYCE, California 

TED POE, Texas 

DONALD A. MANZULLO, Illinois 

JOHN BOOZMAN, Arkansas 

J. GRESHAM BARRETT, South Carolina 

DON MACDONALD, Subcommittee Staff Director 

JOHN BRODTKE, Subcommittee Professional Staff Member 

TOM SHEEHY, Republican Professional Staff Member 

ISIDRO MARISCAL, Subcommittee Staff Associate 

(III)

C O N T E N T S 

Page

WITNESSES 

Matthew S. Borman, J.D., Acting Deputy Assistant Secretary for Export 

Administration, U.S. Department of Commerce ................................................ 7

Mr. Robert S. Kovac, Acting Deputy Assistant Secretary for Defense Trade, 

Bureau of Political-Military Affairs, U.S. Department of State ....................... 16

Ms. Marion Blakey, President and Chief Executive Officer, Aerospace Industries Association ................................................................................................... 35

Mr. David J. Berteau, Senior Advisor and Director of the Defense-Industrial 

Initiatives Group, Center for Strategic and International Studies .................. 52

Mr. Henry Sokolski, Executive Director, Nonproliferation Policy Education 

Center .................................................................................................................... 58

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Matthew S. Borman, J.D.: Prepared statement .................................................... 10

Mr. Robert S. Kovac: Prepared statement ............................................................. 18

Ms. Marion Blakey: Prepared statement ............................................................... 38

Mr. David J. Berteau: Prepared statement ........................................................... 53

Mr. Henry Sokolski: Prepared statement .............................................................. 60

APPENDIX 

Hearing notice .......................................................................................................... 82

Hearing minutes ...................................................................................................... 83

The Honorable Gerald E. Connolly, a Representative in Congress from the 

State of Virginia: Prepared statement ............................................................... 84

The Honorable Brad Sherman, a Representative in Congress from the State 

of California, and Chairman, Subcommittee on Terrorism, Nonproliferation 

and Trade: Letter to Foreign Affairs Committee Chairman Howard L. Berman, dated October 16, 2009, from the International Association of Machinists and Aerospace Workers ................................................................................ 85

(1)

A STRATEGIC AND ECONOMIC REVIEW OF 

AEROSPACE EXPORTS 

WEDNESDAY, DECEMBER 9, 2009

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION AND TRADE, COMMITTEE ON FOREIGN AFFAIRS, Washington, DC. 

The subcommittee met, pursuant to notice, at 2:03 p.m. in room 

2200, Rayburn House Office Building, Hon. Brad J. Sherman 

(chairman of the subcommittee) presiding. 

Mr. SHERMAN. I want to thank everyone for being here. As one 

of our largest sources of exports, the aerospace industry plays a 

vital role in securing our military strength and bolstering the economic competitiveness of the United States. Today’s hearing is to 

examine the strategic and economic impact of our current policy on 

this industry. This is part of an ongoing effort by this subcommittee. We have held hearings on this issue; in July 2007, May 

2008 and earlier this year, both in April and in July. These hearings have led to changes in policy and procedure in the Executive 

Branch and to the passage, through at least the House, of important legislation that has yet to make it through the Senate. 

This includes the Defense Trade Controls Improvement Performance Act, which has passed the House twice, the second time as 

part of the Foreign Relations Authorization Act, which is pending 

in the Senate. That act pending before the Senate has the work of 

this subcommittee and collegially several of us in the Section 826, 

which provides authority to remove satellites and related components from State Department control to Commerce control, while at 

the same time protecting our technology from China. We are also 

in the process of including in a larger bill the Export Controls Improvement Act. The aerospace industry has been a particular focus, 

not only of myself, but Mr. Royce, our ranking member, Mr. Manzullo, who has focused on small business, and our vice chairman, 

Mr. Scott. 

We have seen important changes involving Section 17(c) related 

to civilian aviation equipment in response to the concerns of this 

subcommittee. The Commerce and State Departments, both of 

which are with us today, worked together to issue a rule in August 

2008 that clarifies jurisdiction significantly. Moving forward, ongoing clarification in this arena from the Departments of State and 

Commerce would be beneficial, as will a timely review of control 

items. Also, as a result of this subcommittee’s previous work with 

the directorate of defense trade controls, the DDTC, I am pleased 

2

to see that the State Department has decreased the average license 

application processing time to one-third of the 2006 average, so you 

are to be commended. 

I want to commend both agencies represented here for responsiveness to congressional concern. Not only does the aerospace industry contribute to the economic output of the U.S. and provide 

high paying jobs, it also is critical to the defense strategic capacity 

of the United States, to that of our allies, and the fact that we are 

building the planes means that some other country isn’t and that 

we are preventing the development of technology in hands that we 

might not control. In fact, organizations, such as the International 

Association of Machinists and Aerospace Workers, warned at our 

last hearing on this subject that failure to consider the employment 

impact in export control policy may exacerbate the existing job crisis in the United States. 

I want to submit for the record a letter sent to us by the Machinists’ Union which states, in part, mindful that policies that encourage or facilitate further outsourcing of technology and production 

can, and do, have a detrimental impact on U.S. workers and will 

impede our nation’s recovery. Clearly, in deciding what our policy 

in this area ought to be we should be weighing on the one hand 

any possible, or even remotely possible, diminution in our national 

security by shipping abroad sensitive technologies versus the jobs 

impact. Where we have a circumstance where something has a negative jobs impact, then we should not accept even the tiniest and 

most theoretical diminution in our national security. 

Now, currently there is no legal requirement for the export control process to take into account the employment impact when assessing licensing decisions or the consequences that certain transfers will have to the stability of the defense industrial base. While 

companies need licenses through the DDTC to manufacture certain 

munitions overseas, it is time to start thinking about making a 

similar requirement for dual-use items, and whether it is Commerce or State, no license should be issued that doesn’t take into 

consideration the affect on jobs. As I have said before, there is no 

reason to issue a license if it is going to have a detrimental impact 

on jobs. 

We need to insure that we are not outsourcing our critical national security infrastructure or facilitating the outsourcing of U.S. 

jobs and perpetuating our trade deficit. A particular issue arises 

over the defense needs of Japan, their prior interest in the F–22, 

their possible future interest in the F–35. I know that we have refused past Japanese Government’s requests for them to purchase, 

for us to sell, the F–22. Every year since 1998, Congress has imposed a year long ban on foreign sales of the F–22. This has not 

been done by the Foreign Affairs Committee, but rather, through 

the appropriations process. 

I can’t blame the Appropriations Committee for taking this action when our committee has not stepped forward with a clear policy answer to the question of whether, and what, should be the limitations on the export of the F–22. When we don’t act, they do. 

Congress works best when the different roles of the appropriations 

and authorizing committees are followed, and I look forward to a 

return to regular order on that issue. The 2010 National Defense 

3

Authorization bill includes reporting language, rather, a reporting 

requirement to detail the feasibility, cost and impact of selling the 

F–22s abroad showing that the other relevant authorizing committee is, in fact, taking a look at whether we should sell these F–

22s in certain circumstances. 

As I said, there may be interest in the F–35. I would say that 

it is in the U.S. national security interest for Japan to have a 

major qualitative advantage over China and other potential Japanese adversaries, and to enhance Japanese security is, for the most 

part, to enhance American security. Notably, due to a recent 

change in the ruling party, the Japanese Government, which had 

expressed continuing interest in purchasing the F–22, may or may 

not be interested at the present time. They had been interested in 

purchasing 40 to 60 aircraft. Taiwan has also expressed an interest 

in purchasing F–16 aircraft. Given the violence done to the American economy by the illegal actions of China in so many economic 

spheres, for us to accede to the Chinese concerns in not providing 

the F–16 to Taiwan seems to add, not insult to injury, but injury 

to injury. 

U.S. aerospace companies have had significant financial interest 

in the export of their commercial products. Our industry today 

faces foreign competition for these sales. The Europeans unfairly 

subsidize their industry. I believe the United States has a vested 

interest in supporting our domestic producers. For example, markets in China and Russia have potentially high demand for U.S. 

commercial aircraft. In particular, the Chinese may have a demand 

for as many as 3,700 new civilian aircraft in the next 20 years. 

That represents $40 billion in potential sales. Additionally, new 

Russian airline Rossiya, and I am sure I mispronounced that name, 

has solicited bids for up to 65 aircraft. 

I have long advocated for a better relationship between the 

United States and Russia, and the integration of U.S. commercial 

planes into the Russian civil aviation carriers would be a real signal of an improvement in increased U.S./Russian cooperation. Finally, I want to comment on the possibility that GE might want to 

move various facilities to China, perhaps to take advantage of the 

Chinese market. We have a strategic decision to make. One is do 

we try to compete against the Europeans to see who can hand more 

technology to China on the thickest silver platter, or do we want 

to cooperate with Europe to say that as long as China is running 

such a huge trade surplus with the world, that perhaps this is one 

area of economics that they should not be expanding into. 

None of the arguments in favor of cooperating with China should 

assume that cooperation with Europe on this is impossible until we 

at least try. I look forward to hearing from today’s witnesses, and 

I especially look forward to hearing the opening remarks of our 

ranking member, Mr. Royce. 

Mr. ROYCE. Thank you very much, Mr. Chairman. This is the latest hearing on export controls. The subcommittee is, I think, very 

well positioned should the committee move ahead with broad export control legislation. Let me just make a couple of observations, 

and one is that aerospace is one of our nation’s key industries, both 

economically, but certainly national security-wise as well. Of 

course, American dominance and leadership can’t be assumed here. 

4

Russia and China are focused on developing exportable aircraft. 

India has a vibrant space program. Our export control system was 

crafted during our economic and technological dominance. That has 

changed, unfortunately. 

The question today is whether the system has evolved appropriately in a way that doesn’t choke innovation and competitiveness, yet protects critical technology. There have been some helpful 

reforms, made mainly by the past administration, and there have 

been encouraging words by the current administration, but more is 

needed to manage rapidly evolving technology and crafty foes. A 

witness at our satellite hearing called the system broken, very bureaucratic and unable to distinguish what is commercially available 

and what is not. The GAO has observed an inherently complex system having what they call significant vulnerabilities. Meanwhile, 

the GAO keeps rattling the system. 

GAO put out a June report that explained how its investigators 

beat export controls by buying sensitive technology and illegally 

shipping fake versions abroad. It was very easy for them to pull 

that off, and this is a big problem. The full House has approved an 

authorization bill giving the President authority to remove satellites from the State Department managed munitions list, except 

for technologies that could be transferred or launched into space by 

China. This change reflects the view of the Pentagon and others 

that satellite export controls have hurt U.S. innovation. Excluding 

China is smart, though. For one, China is working with Iran on 

space and satellite programs. I have expressed concerns about 

China before, particularly the validated end-user program, which 

expedites tech exports to China, yet lacks strong monitoring capacity. 

There is too much trust. But it is not just in export controls that 

China is naively viewed. A recent Time Magazine story analyzed 

what a lousy decade we are finishing. We had 9/11, two market collapses, the financial crisis, Katrina, and so forth. On the plus side 

of its ledger, one of the few ‘‘amazingly great’’ things was the, 

‘‘stunning rise of China.’’ ‘‘Amazingly great,’’ as if China is not a 

totalitarian country aggressively stealing our technology. We need 

more realism about China across the board in this society. I want 

U.S. companies to be world class. That means killing the bureaucratic excess. I want to deny terrorists, and Iran, critical technology, and that means being efficient. These aren’t contradictory 

goals. We won’t get near them unless export control betterment is 

a key administration goal. I hope to be proved wrong in my skepticism. Let us start today. Thank you very much, Mr. Chairman, 

and I yield back. 

Mr. SHERMAN. Thank you. With that, let us see who else has an 

opening statement. I assume Mr. Scott does. 

Mr. SCOTT. Thank you, Mr. Chairman. I appreciate this hearing, 

the commercial and military aerospace industries are very significant in terms of our export, but also in terms of vital employment, 

for our aerospace industries employ hundreds of thousands of 

workers in the United States. The recent economic downturn has 

affected a great number of Americans with unemployment exceeding well over 10 percent, so it is timely, and it is a pleasure to be 

with you here. I would like to join you in welcoming our distinVerDate 0ct 09 2002 11:42 Apr 08, 2010 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\WORK\TNT\120909\53991 HFA PsN: SHIRL
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guished witnesses as we tackle the subject of strategic and economic review of aerospace exports. The topic of today’s hearing is 

one that we have broadly been considering for quite a while. 

The specific aspects of today’s hearing, particularly the economic 

impact of aerospace exports, is one that I am keenly interested in. 

So I thank you once again, Mr. Chairman, for providing this forum 

to discuss these important issues. As I said, the boom and bust of 

aerospace exports has played out on the stage, particularly of my 

congressional district where Lockheed Martin and the people of 

Georgia build some of the finest planes in the world. As a matter 

of fact, Lockheed has long been the structural backbone of the reason why the United States has the air superiority that we have 

today which means we have the military superiority in the world 

today. 

Let me tell you, Mr. Chairman, the Obama administration dealt 

a mighty blow to my district when it decided to terminate a program that employed thousands of workers, not just in Georgia, but 

all across this country, impacting over 85,000 employees, and that 

is in the building of the F–22. The F–22. That platform that gives 

us, and has given us, that competitive edge, that has helped us to 

maintain our military superiority. Myself and hundreds of other 

Members of Congress, both in the House and the Senate, implored 

the President. I visited the White House on three different occasions to plead with the President and Secretary Gates to consider 

the economic consequences of closing this production line. 

Our entreaties were roundly ignored by this administration, 

though. During a time when our economy is hemorrhaging jobs left 

and right, they decided to kill thousands of more jobs. And so what 

is left for these workers? Is there any hope that their jobs might 

be saved? Well, we do have the F–35 coming on line, but when? It 

is my understanding that the Japanese, for example, wanted to 

purchase F–22s, but the administration has told them no. Of 

course, that makes little sense on any front. The Japanese are a 

close friend, and they are a close ally who wish to help out the 

United States economy by purchasing high value products from us, 

but we tell them no. 

Mr. Chairman, I do want to add one other point at this time, 

that I think it is very important for us and the Foreign Affairs 

Committee, and us, particularly on our subcommittee, for it is our 

subcommittee that deals with international trade, and while I have 

great respect for the Appropriations Committee, they are appropriators. It is the Foreign Affairs Committee that provides the analytical information, the thoughtful embrace of these decisions dealing 

with our military and our defense needs and relations to our foreign policy, interwoven with the very important issue of international trade, and I think it is very important that if there is a 

final say so in terms of the F–22 and others that will come on line 

regarding international trade, that it should be done in the committee of jurisdiction, which is the Foreign Affairs Committee, and 

certainly in the bosom of the subcommittee of which we sit today. 

As I said, the Japanese are close friends and they are allies. By 

purchasing these high value products from us it helps us. Moreover, this administration has stated a commitment to helping our 

partners build their capacity for defense and security. It has been 

6

pointed out it is important that our partners in the world maintain 

the qualitative edge, whether it is Japan on one hand, or perhaps 

Israel and the Middle East on another hand. So it is even more cresotic that this administration would tell the Japanese that they 

can’t buy what they want, and especially with the Japanese being 

our friend. Admittedly, the United States Government does not 

have a responsibility to promote exports from one particular company or another, and economic concerns shouldn’t always trump 

national security concerns. In fact, they must not. 

When our economy is struggling and a friend offers us a win/win 

solution and help that creates and preserves jobs and helps ensure 

our national security at the same time, why not jump at the chance 

instead of telling them thanks, but no thanks and driving them 

into the hands of others? So, well again, Mr. Chairman, I have had 

my say on this, and I hope that my points have been made clear, 

and I thank you for giving us the chance to explore, and I look forward to the testimony of our witnesses. 

Mr. SHERMAN. I agree with the gentleman from Georgia that 

when we don’t sell to one of our friends we drive them into the 

hands of others. So not only do we not help the development of our 

industry, we help the development of industry elsewhere which creates a new competitor economically, and, depending upon who that 

competitor is, a new competitor strategically as well. Mr. 

Ruppersberger, the chair of the Technical and Tactical Subcommittee of the Intelligence Committee, who helped to bring to 

our attention the potential impact of ITAR on the domestic satellite 

industry and the potential ramifications of that for U.S. intelligence would like to submit a statement for the record on that 

issue, and so, without objection, I would like to have that statement added to the record at the appropriate place. Hearing no objection, it will be done. In addition, I would like unanimous consent 

to add to the record the Congressional Research Service study of 

November 25 done at the request of this subcommittee. It is some 

32 pages long and is comprehensive and helpful, and, without objection, will be added to the record of this hearing. I guess the gentleman from Illinois does not have an opening statement. 

Mr. MANZULLO. I am going to waive mine. I am very anxious to 

hear the testimony of the witnesses and would like unanimous consent to make it part of the record. 

Mr. SHERMAN. Why thank you. I know the gentleman from California is no less anxious to hear the witnesses, but we are anxious 

to hear his opening statement. 

Mr. ROHRABACHER. Thank you very much, Mr. Chairman. I want 

to thank you for your leadership in this very significant issue in 

terms of exporting American technology and these economic decisions that are also national security decisions, and thank you for 

letting me be part of this subcommittee hearing today. So many 

American companies are now American in name only, having sent 

their manufacturing facilities, along with millions of American jobs, 

overseas. This has been both an economic and a national security 

disaster for the people of the United States. The latest move by GE 

to join forces with a Chinese Government run company to compete 

with Boeing and Airbus in the sale of avionics technology is particularly unforgivable. 

7

It is a betrayal of American aerospace engineers, and workers 

and entrepreneurs who over the years have done so much for our 

prosperity and our national security. It is unforgivable. Mr. Chairman, it was a disastrous economic mistake for this Congress to 

grant Communist China most favored nation in trading status to 

begin with. Ever since then, tens of millions of good jobs have been 

lost to China, which has resulted in the present disastrous situation where Communist dictators control our economy by holding 

trillions of dollars of U.S. debt. They also have technology available 

to them to outcompete us and to defeat us militarily, which is, 

again, a disaster for the people of the United States of America. 

The Foreign Affairs Committee should ensure that the greed of 

a few American businesspeople who have already done so much 

damage to the American economy, and again, so much damage to 

the well-being of American engineers and skilled laborers, that we 

have do what we can to make sure that they are not permitted to 

render our nation’s security in permanent vulnerability. If we end 

up sending over to Communist China, which is involved with proliferation and involved with sending military equipment to rogue 

regimes, if we let them have the technology that was developed by 

hundreds of millions, even billions of dollars worth of U.S. research, shame on us for not stepping in and getting in the way of 

these so-called Americans who are putting our country at risk. 

Thank you very much, Mr. Chairman. I am looking forward to the 

hearing. 

Mr. SHERMAN. Thank you. Sometime you will tell us how you 

really feel. We have with us two acting deputy assistant secretaries. Acting does not comment adversely on the authoritativeness 

of their pronouncements, but it does reflect on the fact that it has 

taken a very long time for this administration to gear up and get 

its people into positions throughout government. We are at the 

close of 2009. You could blame the administration for the fact that 

they have been slow to gear up, you could blame the Senate. This 

is one of the few things going wrong in Washington for which you 

cannot blame the House of Representatives. I welcome Mr. Matthew S. Borman, acting deputy assistant secretary of commerce for 

export administration. In this capacity, Mr. Borman is responsible 

for implementing the Bureau of Industry and Securities, also 

known as BIS, controls on dual-use items. 

After Mr. Borman, we will hear from Robert S. Kovac, acting 

deputy assistant secretary of state for defense trade and the managing director of the directorate of defense trade controls, also 

known as DDTC, at the State Department. First Mr. Borman. 

STATEMENT OF MATTHEW S. BORMAN, J.D., ACTING DEPUTY 

ASSISTANT SECRETARY FOR EXPORT ADMINISTRATION, U.S. 

DEPARTMENT OF COMMERCE 

Mr. BORMAN. Thank you, Mr. Chairman. It is a pleasure to be 

here before you and the committee again. I commend you for your 

continued interest in this subject. Chairman Sherman, Ranking 

Member Royce and distinguished members of the subcommittee, 

thank you for the opportunity to testify on the Department’s role 

in controlling the exports of aerospace items. The Department’s Bureau of Industry and Security, in conjunction with other Federal 

8

agencies, administers controls on a range of dual-use items, including aerospace commodities, software and technology, to further 

U.S. national security, foreign policy and economic objectives. We 

administer and enforce the controls through the Export Administration Regulations. 

The promotion of the competitiveness of the aerospace industry 

is the responsibility of the Department’s International Trade Administration, which is a different part of the Department of Commerce. The International Trade Administration of Commerce performs several critical functions to help ensure the U.S. aerospace 

industry remains globally competitive. The aerospace market is the 

United States’ most significant advanced technology export sector. 

In the last fiscal year, Fiscal Year 2009, over $80 billion worth of 

aerospace exports were made from the United States. In the aerospace industry sector, of course, there are many dual-use items, 

items that have both civilian and military applications. 

In the last fiscal year, the Bureau of Industry and Security approved 1,230 applications for licenses to export aerospace products 

worth about $1.3 billion. That constituted more than 7 percent by 

volume of all of the roughly 20,000 export license applications we 

processed. Our controls seek to allow U.S. companies to supply secure markets and to benefit from international technology collaboration, while minimizing potential threats to national security and 

foreign policy. Under the Export Administration Regulations, most 

civil aircraft and related parts, including virtually all commercial 

aircraft and engines, can be exported to most of the world without 

individual export licenses. Individual licenses are required to export these items, however, to Cuba, Iran, North Korea, Syria and 

Sudan, as well as a range of proscribed persons. 

In 2008, the Departments of Commerce and State clarified our 

respective regulations on the export jurisdiction of certain aerospace components. It appears that the clarification has served its 

purpose as the number of requests for commodity jurisdiction determinations for aerospace items, which had been significantly increasing, has dropped substantially after the publication of that 

clarification. We also seek to regularly update our list of controlled 

items, the Commerce Control List, to ensure that it reflects global 

realities, including the availability of controlled items from foreign 

sources. In this regard, our Technical Advisory Committees, and 

particularly, our Transportation Technical Advisory Committee, 

has formulated modifications to make sure that aerospace controls 

are up to date as partnership between the aerospace industry and 

the Bureau of Industry and Security has been an effective tool in 

our continuing efforts to more precisely target our controls. 

Our enforcement efforts help to ensure compliance with our dualuse aerospace export policy. This includes thwarting potential violations of the regulations by a variety of means, including end-use 

checks abroad and temporary denial orders. We also vigorously 

pursue violations of the regulations, and several examples of enforcement actions involving aerospace items are included in my 

written testimony, which I request, Mr. Chairman, be included in 

the hearing record. A significant challenge for the Bureau, especially with respect to its enforcement activities, is the longstanding 

lapse of the Export Administration Act. This lapse hinders the abilVerDate 0ct 09 2002 11:42 Apr 08, 2010 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 F:\WORK\TNT\120909\53991 HFA PsN: SHIRL
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ity of the bureau to employ up to date authorities to enforce the 

dual-use export control system. 

In August, the President made his annual renewal of our authority to continue our dual-use export control regulations in light of 

a lapse of the EAA. He also directed that the National Security 

Council launch a broad-based interagency process for reviewing the 

overall U.S. export control system. The aim of the review is to ensure that the system best addresses the threats and changing economic and technological landscape we face today. This review is 

well underway. Thank you for the opportunity to testify on the Department of Commerce’s controls on the export of aerospace items. 

I am, of course, pleased to answer any questions members have. 

Thank you. 

[The prepared statement of Mr. Borman follows:]

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Mr. SHERMAN. Thank you. 

STATEMENT OF MR. ROBERT S. KOVAC, ACTING DEPUTY ASSISTANT SECRETARY FOR DEFENSE TRADE, BUREAU OF POLITICAL-MILITARY AFFAIRS, U.S. DEPARTMENT OF STATE 

Mr. KOVAC. Thank you, Chairman Sherman, and members of the 

subcommittee for the opportunity to testify on the export control 

processes and policies of the Department of State. Directorate of 

defense trade controls and the Department of State administers the 

U.S. defense trade system. Its mission is to advance national security and foreign policy through the licensing of direct commercial 

sales for defense articles and services and the development and enforcement of defense trade control laws, policies and regulations. 

Like any regulatory agency, our goal is to ensure that this mission 

is performed in a manner that is transparent, efficient and predictable as possible while preventing exports or retransfers of defense 

articles and technologies that are counter to, or could undercut, 

U.S. national security and foreign policy interests. 

Several years ago, without justification, the directorate had a 

less than stellar reputation for the processing of licensing applications. During calendar year 2006 the directorate processed 70,000 

license applications with an average processing time of 43 days. 

This does not tell the whole story, however. At one point in 2006, 

the directorate had over 10,000 license applications open and 

awaiting final action. I am proud to say that the situation has 

changed radically and for the better. In 2008, the Department processed over 84,000 license applications while decreasing the average 

processing time to just over 16 calendar days. The number of applications open at any one time average 3,400, and the number of 

cases that took over 60 days were reduced to just 1,100 during that 

year. 

I am also extremely proud to note that this was not an isolated 

event or the result of extraordinary exertions that could not be sustained. So far in 2009 the Department has processed over 70,000 

license applications at an average processing time of just 15 days. 

The number of open cases at one time has also dropped. Improvement of this magnitude requires changes to process, policy and 

practices, as well as a sustained effort on the part of all those involved in the export process. The promulgation of NSPD–56 provided the impetuous for many changes in policy in the processing 

of licenses, including the establishment of the 60 day limit in processing unless national security or foreign policy concerns apply, 

and the requirement for applicants to utilize electronic licensing. 

Department of Defense support in the policy and process improvements has also been critical. The Department’s Defense Technology Security Administration has been a steadfast partner in all 

of the regulatory and policy changes, and most importantly, in its 

own process improvements, which included the use and continued 

refinement of a do not staff list identifying technologies and circumstances that do not require DOD review. Finally, and most importantly, these improvements have been the result of actions within the directorate itself. We have done a detailed review of the 

processes, policies and practices used in licensing, developed internal standard operating procedures, published guidelines and policy 

17

notices to the exporting community and maintained a sustained effort on all fronts to improve the process on a daily basis. 

Kevin Maloney and his team in the office of Defense Trade Controls, Licensing, deserve much of the credit for these improvements. 

Regulatory changes have, and will, play a part in these improvements. As I already mentioned, Section 17(c) changes last year 

have significantly reduced the number of aircraft-related commodity jurisdiction requests. Expansion of the exemption that permits retransfers without prior approval to include NATO agencies 

has likewise had a positive impact. The Department has recently 

published a draft rule to clarify the exemption for exports in furtherance of foreign military sales cases and work was just completed on a draft rule to clarify exports exempt from licensing when 

buying for the United States Government. 

Other improvements are on the drawing board. In summary, the 

improvements that have taken place have been impressive, and 

will continue. The Department is committed to making the system 

efficient, transparent and predictable. Our goal is threefold. First, 

to establish a regulatory regime that requires licenses only when 

required by law or when U.S. national security and foreign policy 

concerns are a factor that the applicant cannot address. Second, to 

make the process as expeditious as possible when a license is required. Finally, to design the process to support enforcement. Any 

specific future improvement be implemented will depend on a number of factors, including the impact of any legislation that might be 

forthcoming. However, any improvement, as Under Secretary 

Tauscher and Assistant Secretary Shapiro have made clear, will be 

executed with the U.S. national security being the primary consideration. I would be happy to respond to your questions. 

[The prepared statement of Mr. Kovac follows:]

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Mr. SHERMAN. I thank you both for your testimony. Our export 

control system is based on the idea of controlling that which is exported. Therefore, an awful lot of items, important dual-use items, 

can be purchased by any American for any reason, or for no reason, 

no matter who they are, and then we are going to hope that that 

person doesn’t then ship it abroad without permission. Mr. 

Borman, given the fact that many of these dual-use items could be 

put in a pick up truck and trucked to the Iranian Ambassador in 

Ottawa any day of the week, are we just fooling ourselves with the 

idea that we can allow these items to be purchased by anybody who 

can go on the internet in the United States, and then that somehow we are going to prevent their export? 

Mr. BORMAN. Well, Mr. Chairman, I can tell you how we currently try to deal with that situation. There are two aspects. As it 

relates to release of controlled technology to foreign nationals in 

the United States, there is a part of the regulations that covers 

that. So if an individual in the United States seeks to get access 

to technology information that would require a license——

Mr. SHERMAN. For many years there was stuff at sale at Egghead. This shows how far back, when Egghead was where you 

bought your software, but it was illegal to ship abroad, so the Iranian Ambassador to the United Nations was free to buy it at Egghead, but somehow we were going to prevent him from sending it, 

or the electrons on the disk, back to Tehran. Are you saying that 

we make sure, or at least have a system to make sure, that any 

American buying something has a good use for it and a legitimate 

reason to buy it if that is something that we would not allow the 

export of? 

Mr. BORMAN. No. What I am saying is the current system requires a license if a foreign national who is in the United 

States——

Mr. SHERMAN. Foreign national. 

Mr. BORMAN [continuing]. Could get access to controlled technology. 

Mr. SHERMAN. Okay. So the Iranian Ambassador to the U.N. 

would have to have one American citizen friend willing to do this. 

So you have got to go on the internet. You can’t say ship it to the 

U.N. Ambassador of Iran, you would have to say send it to this one 

individual. Given the recent terrorist arrests, are we assuming that 

every legal citizen and resident of the United States, that not a single one of them would cooperate? Is our whole export control proVerDate 0ct 09 2002 11:42 Apr 08, 2010 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 F:\WORK\TNT\120909\53991 HFA PsN: SHIRL

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gram based on the assumption that not a single one of them would 

cooperate with, say, Iran? 

Mr. BORMAN. No. The definition of ‘‘export’’ as it is in the Export 

Administration Act doesn’t give us the authority to control the domestic——

Mr. SHERMAN. Yes. I am not blaming you. I am saying Congress 

created a really stupid system, which you are doing a great job of 

administering, where we think we are accomplishing something by 

saying, you know, if you are sitting in Malaysia or in Denmark, 

you can’t buy this widget, but if you are the Iranian Ambassador 

to the U.N.’s best friend, you can. 

Mr. BORMAN. Well, that would still be a violation of the existing 

law because if there is a domestic transfer and then there is an attempt to make that——

Mr. SHERMAN. Trust me, whoever is his best friend is willing to 

violate the law of the great Satan. Basically, any American citizen 

or resident can buy any one of these things, put it in the back of 

a pick up truck and drive to Canada or Mexico, and the only person 

violating the law would be the guy in the pick up truck, right? 

Mr. BORMAN. Well, whoever is facilitating that illegal export. 

Mr. SHERMAN. Well, you go on the internet, you buy it, it is delivered to your house by UPS, you are not going to put the UPS driver in jail, you know, what he is doing is entirely legitimate, he puts 

it in his pick up truck and he drives to Mexico City. We have got 

one person violating the law, we have got terrorist organizations 

where people are willing to blow themselves up. Here, the chance 

at being caught is, would you say zero? 

Mr. BORMAN. We have had cases. We have had enforcement 

cases where we have apprehended and prosecuted individuals who 

have procured things in the United States and tried to do exactly 

what you have said. 

Mr. SHERMAN. Do we have a system that would do that or we 

just get real lucky? 

Mr. BORMAN. No. I mean, we have law enforcement agents, both 

in our department and other departments, who are on the look out 

for that. That is what they do. 

Mr. SHERMAN. I would say you have got thousands of things on 

your list you are trying to control. Any one of my staff can buy any 

of them as long as they can afford them just by going on the internet. They don’t have a use for any of them, and thank God none 

of them is a good friend of the Iranian Ambassador to the United 

Nations. With that, I will yield to Mr. Royce. 

Mr. ROYCE. Thank you, Mr. Chairman. I am going to ask Mr. 

Borman a couple of questions here and I will start by asking in 

January the Bureau of Industry and Security announced the full 

implementation of the validated end-user program with China. 

There have been concerns that one of those entities, Aviza Technology China, shared an address with a state owned firm that was 

sanctioned by the State Department in December 2006, and they 

were sanctioned expressly for illicit sales to Iran and to Syria as 

well. So I would ask, are you confident that this program is defensible on national security grounds? 

Mr. BORMAN. Yes, I am. In that particular case that end-user underwent a thorough intelligence, law enforcement, interagency reVerDate 0ct 09 2002 11:42 Apr 08, 2010 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 F:\WORK\TNT\120909\53991 HFA PsN: SHIRL
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view and the location is actually a bonded warehouse, and so we 

have a long record of being able to check and see what they are 

doing there, and the Intel information, as I said, intelligence, law 

enforcement information indicated that the bonded warehouse that 

Aviza uses is a bonded warehouse, which means the items come in, 

they are secure and then they are sent to their customers. Of 

course, the company is responsible for informing us if items authorized to go there don’t end up at the customer where they are supposed to go, which is a strong business incentive for them. 

Mr. ROYCE. But here is part of the catch. You have got to give 

60 days notice, I understand, right? You have got to give that notice to the Chinese Government before you subsequently have that 

opportunity to do that inspection. Now, first I would ask, is that 

still 60 days? Because that seems like an awful long time to get 

your ducks in a row if you are notified that the U.S. is tripped to 

some question here as to the end-use. Let me ask you about that. 

Mr. BORMAN. It is 60 days. That is right. 

Mr. ROYCE. Must an inspector be accompanied when he goes in 

there by an official representative of the Chinese Government? Is 

that also still part of the——

Mr. BORMAN. The Chinese Government can choose to do that. On 

Aviza, remember that the business model here is the item goes into 

the facility, which is the bonded warehouse, and then it goes to a 

customer. 

Mr. ROYCE. Right. 

Mr. BORMAN. So if it were to go to someone else than the customer, I mean that is a significant business impact for the companies so they have a strong incentive to make sure that the individual item that comes in that is for a specific customer and order 

then goes there. It is not a stockpile. 

Mr. ROYCE. On the other hand, the return on investment can be 

very, very high. Well, let me ask you one other question. In June, 

the GAO concluded as a result of its covert testing that sensitive 

dual-use and military technology can be easily and legally purchased from manufacturers and distributors within the United 

States and illegally exported without detection. The items in its 

test included gyro chips, night vision equipment, parts used for 

smart bombs and nuclear explosives. What are your thoughts on 

that? Then I will defer to other members. 

Mr. BORMAN. Well, as I mentioned to Chairman Sherman, right 

now, under the legal authority, we don’t have authority to regulate 

domestic transfers of controlled dual-use items. What are illegal, of 

course, is if there is a domestic transfer and the parties know that 

they are going to illegally take it out of the country. We have had 

any number of enforcement cases where we have identified those 

transactions, apprehended the individuals and prosecuted them. 

Mr. ROYCE. Well, these accelerometers, as they are called, are 

pretty handy for smart bombs, and frankly, for nuclear explosives 

as well, so we have got a little bit of a problem. Mr. Chairman, I 

yield back. 

Mr. SHERMAN. Thank the ranking member. Recognize our vice 

chairman, and then we will need to go vote. We will reconvene 

after the votes. 

24

Mr. SCOTT. Thank you, Mr. Chairman. Let me just ask a question. First of all, I want to deal with the security environment in 

the Pacific I alluded to in my opening remarks. With North Korea 

moving with their nuclear program and missile program, China 

now having, really in the midst of developing a counterpart to the 

F–22, it seems to me that these events that are on the front pages 

of our newspapers, what effect would the U.S. sales of military aircraft, like the F–22, to Japan or the F–16s to Taiwan have on the 

insecurity environment in the Pacific region given what I said 

about North Korea and China? 

Mr. KOVAC. Well, in any export there is going to be a positive 

and negative effect. Increase your friends, decrease the enemy. In 

each of those cases, when we receive the request we look at it very 

seriously to balance both the national security and foreign policy of 

the United States of that country and the potential regional impacts, as we are required to do by law. 

Mr. SCOTT. So, I mean, do you see an imbalance occurring as a 

result of this? Do you see a need to move more aggressively? Do 

you see some need for us to look more carefully at this situation? 

Are you all concerned about the balance in the Pacific and what 

role we are or are not playing to get a better balance there? 

Mr. KOVAC. Yes, sir. We work in very close coordination with the 

Department of Defense, and, you know, from the Department of 

Defense, the PAYCOM commander, and what his regional security 

plan is and how that interplays with any specific request that we 

receive is taken very seriously. 

Mr. SCOTT. So if you had your doubters about this, you would say 

we need to move ahead and try to respond to Japan’s request for 

our F–22s and Taiwan for F–16s. 

Mr. KOVAC. Absolutely, sir. The State Department isn’t in the 

trade advocacy business. 

Mr. SCOTT. Right. 

Mr. KOVAC. We only evaluate the requests that we do receive, 

and we evaluate them at the time. For Japan, for example, we have 

got an extremely loyal, upstanding country. They have got a tremendous record on export controls, they are in a relatively dangerous part of the world, and we have wholeheartedly supported 

exports there in the past and would in the future, if that was available. 

Mr. SCOTT. Okay. Good. I know we have got a vote, Mr. Chairman, but let me just ask a question about the employment impact 

that I brought up. Given the impact from an employment standpoint in our country, how might including economic impact studies 

and rendering export control decisions mitigate the harmful effects 

of outsourcing on the U.S. economy? 

Mr. KOVAC. You want to take that one first? 

Mr. BORMAN. Well, sir, at least on the dual-use side the economic 

impact of a proposed transaction is always part of the equation. In 

the vast majority of cases, frankly, it is an issue for the U.S. company that wants to make the export, and then they typically make 

the case, or try to make the case, that if the export is not allowed 

the business goes to a foreign competitor and that has an adverse 

impact on jobs in the United States. So that is the most typical scenario that we hear about. From time to time, we do studies on speVerDate 0ct 09 2002 11:42 Apr 08, 2010 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 F:\WORK\TNT\120909\53991 HFA PsN: SHIRL
25

cific industry sectors to evaluate the foreign availability of the 

product that we are trying to control. 

Mr. SCOTT. Okay. 

Mr. SHERMAN. The statements of the President that America 

does not torture apply only to the Executive Branch. We are going 

to ask our witnesses to remain, and we are going to continue to ask 

them questions after the votes. Thank you. 

[Recess.] 

Mr. SHERMAN. Other colleagues will be here when they can be. 

We will start the second, and for your sakes, hopefully last, round. 

In an effort to appear to be a nice guy, I am going to start with 

Mr. Scott in the second round of questions. 

Mr. SCOTT. Thank you, Mr. Chairman. I would like to get an idea 

of a ranking of our exports. I understand Canada is number one, 

is that correct? 

Mr. KOVAC. Yes. 

Mr. SCOTT. Could you give us the other top, say, three or four 

in order? 

Mr. KOVAC. I know the UK is high. I would have to get back to 

you with a specific order in the ranking. 

Mr. SCOTT. All right. Let me ask you about then Russia specifically. In recent months, the Obama administration has made overtures toward improving U.S./Russian relations. I am a member of 

the NATO parliamentary assembly, and I am the general 

rapporteur in our science and technology area. An area in which 

we are moving forward on is how do we more progressively bring 

Russia into a more stronger partnership with the alliance? Could 

you tell me how might the sale of American made commercial aircraft to Russia improve relationships between the United States 

and Russia? Mr. Borman? 

Mr. BORMAN. I will take a shot at that. On its merits, we would 

just evaluate the issue of technology transfer, but generally speaking, the sale of full up commercial aircraft to Russia would not 

even require an export license. 

Mr. SCOTT. You said it doesn’t? 

Mr. BORMAN. It would not. If these are civilian aircraft going for 

a civilian end-use in Russia, it would not require a license, and so 

then it is really a business transaction to the parties involved. The 

U.S. seller and the Russian buyer think that it makes business 

sense. So that is the perspective that we would bring to that transaction. Now, others may impute additional meaning to such a sale, 

but from our point of view, the issue is really do the items need 

a license to go to Russia or not? If they do, you do a national security analysis. 

Mr. SCOTT. What do you feel would be the unique challenges to 

this and the unique opportunities? 

Mr. BORMAN. Well, on the challenges side, I suppose if there is 

an issue of transfer of controlled technology to make sure that it 

is used for those civilian aircraft. The opportunities, I think, I 

guess are obvious, that is, you have potentially significant sales for 

a U.S. company, and then with that there might be other impacts 

on the bilateral relationship. 

Mr. SCOTT. And so how would you categorize the status quo right 

now? 

26

Mr. BORMAN. Well, it is as I said before. If it is a full up civilian 

aircraft, it can be exported to a civilian end-user in Russia without 

any export licensing impediment or implication. 

Mr. SCOTT. Okay. Let me ask you if you could give us a bit of 

an idea of the extent of our Canadian export relationship. It is the 

largest. It is about $9.7 billion. How would you explain our Canadian exports? 

Mr. BORMAN. Well, Canada is our largest export market. In the 

aerospace area last year, calendar year 2008, there were over $6 

billion worth of aerospace exports alone to Canada, and then there 

is a very strong connection, integration between the industrial 

base, particularly in the aerospace area, in Canada and the United 

States. A lot of U.S. companies have facilities in Canada, there are 

Canadian companies that have facilities in the United States, so 

from the point of view of the aerospace market, it is almost one 

market. 

Mr. SCOTT. Right. So there is a certain part that is for the licensed products, and then there are unlicensed products. What is 

the differentiation between that and a one hand holds one, one 

hand holds the other? How much is the unlicensed? 

Mr. KOVAC. Well, sir, in both our cases we have licensed and unlicensed exports. I think the vast majority of what the Commerce 

Department does is unlicensed. 

Mr. BORMAN. To Canada. 

Mr. KOVAC. To Canada. 

Mr. BORMAN. Sorry. From a dual-use export control viewpoint, 

we have very, very few export licensing requirements. The companies have to get individual government approval before a transaction for exports to Canada, even in the aerospace area. 

Mr. SCOTT. So combined, what are we talking about in dollar figure? Over $10 billion? 

Mr. BORMAN. Yes. 

Mr. SCOTT. Okay. Let me move to, if I may, Mr. Chairman? 

Mr. SHERMAN. For one more question. 

Mr. SCOTT. I wanted to while we are moving around to in 2007, 

the United States signed treaties with the United Kingdom and 

with Australia that would eliminate the need for the export licenses for certain defense and counterterrorism technologies. One 

motivation for these treaties was to facilitate collaboration of military aircraft, such as the joint strike fighter. More than 2 years 

after their signing, the treaties have not been ratified by the Senate. So what impact would ratification of these treaties have on the 

domestic aerospace industry? 

Mr. KOVAC. Basically, determining what the impacts are going to 

be of the treaties, if ratified, is a little tough to determine far down 

range. The treaties have certain specific requirements. The enduses are recorded in the treaty, U.S. Government, the UK MOD, 

or an approved program, or an operation. They have an approved 

community which would be a UK approved community, in addition 

to the U.S. community, whom are our exporters, and then it has 

an exclusion list of certain technologies that are excluded from 

being treated as exports under the treaty. Because of all of those 

variables it would be extraordinarily difficult to predict the impact 

27

of the treaties on a specific sector or a specific area. Time is going 

to have to tell. 

Mr. SCOTT. All right. Thank you, Mr. Chairman. 

Mr. SHERMAN. We are in a hybrid situation in that one member 

has done his second round, but we have got members who haven’t 

done their first round, starting with Mr. Manzullo. 

Mr. MANZULLO. Well, thank you, Chairman, for having this 

meeting, and thank you for collaborating last year on that marvelous victory on 17(c) of the Export Administration Act along with 

Mr. Blumenauer and Mr. Crowley. The area that I represent used 

to be known as the machine tool center of the world, and that is 

Rockford, Illinois. We have probably 2,000 factories in the congressional district. No one really knows because it is kind of hard to 

quantify them all. Unemployment is officially at 16.9 percent. Add 

seven points to it, that is 22, 23 percent. I guess what has really 

bothered me for years is the restriction on exports of the five axis 

machine tools. When I was elected, the U.S. share of worldwide 

machine tool sales was around 13–17 percent. 

Now it is down to 7 percent. We have a situation in Rockford 

where a wholly owned Chinese industry bought a machine tool 

shop, saved 90 jobs directly, indirectly another 180, and that company wanted to make a five axis machine. They couldn’t export it 

back to China even though China owns all the technology and is 

actually manufacturing it here in the United States. I mean that 

is lunacy. It has continued over the years as we have tried to rework the Export Administration Act. Year after year we sell fewer 

and fewer machine tools. It is not that. It is just parts on United 

States becoming an unreliable supplier. We can never quantify how 

many sales are lost because the United States is simply an unreliable supplier. 

I have seen the brochures come in from Canadian and European 

companies saying we are ITAR free. I just don’t know how long or 

what it is going to take for this Congress or for the agencies to realize that there is nothing immoral about a five axis machine. Constituents have bought an eight axis cutting tool from a German 

company. We have one of the most sophisticated laser manufacturers in the world, W.A. Whitney. The laser is so powerful it can cut 

through one and a quarter inch of bullet proof stock. W.A. Whitney 

couldn’t even manufacture it here because unless you can have an 

overseas sale, you know, why limit it just to domestic manufacturers? 

I mean, you know, I guess my question is why don’t we just grow 

up and realize that the world is more than four axis? People can 

come in and take a look at these machine tools at EMO in Milan 

every 2 years or in Chicago and simply copy them by taking a picture of them. Anybody want to tackle that one? 

Mr. BORMAN. I guess that is in my bailiwick. 

Mr. MANZULLO. There you are. 

Mr. BORMAN. I think you are right. I mean, this is a very vivid 

example of the challenge of export controls because, as you well 

pointed out, folks in the machine tool industry, I think, would say 

export controls are significantly responsible for the decrease in 

market share and the development of foreign competitors. Of 

course, the challenge is, I think most would agree, that we would 

28

not want a five axis machine tool going to a country for their military programs. 

Mr. MANZULLO. No, but you don’t know. I mean, you know, Canada was selling the five axis machine and it could be used for military or nonmilitary. I mean, it is almost commoditized. In today’s 

technology you have got to have more than four axis. Even BIS 

considers the moveable platform to be an axis. I just, you know, 

those regulations really, I mean, they are regulations, I mean, and 

so it ends up being used for military application, but Canada can 

sell the same machine. These are machines that cut pieces. They 

cut steel, they cut iron, they cut whatever is necessary. They do 

precision lasering. We lose all the jobs here and the technology. 

Mr. BORMAN. Yes. Two further responses. One is we actually are 

in the process of developing I would call it a short-term revision to 

the regulation to address this, at least in part, based on a foreign 

availability study we did. Of course, that is exactly the kind of 

thing the long-term, the more fundamental reform the President 

has directed us to do has to look at exactly those kinds of issues. 

That is exactly right. 

Mr. MANZULLO. Okay. The other question is you had published 

a notice of inquiry on the effects of export controls on decisions by 

companies abroad to use or not use U.S. parts. Could you comment, 

Mr. Borman, on the gist of those comments and where we are going 

with that? 

Mr. BORMAN. Yes. We did receive a significant amount of input 

from foreign companies, and not surprisingly, many of them said 

their preference would be to avoid U.S. products or U.S. components if they can because they don’t want to take the risk that 

somehow the export control system and policies will impede their 

ability to do business, and so, again, that is exactly the kind of 

thing that is being fed into this fundamental review that the President has asked——

Mr. MANZULLO. So what is going to happen after you review it? 

Can you take the envelope and read through it and give us an 

idea? 

Mr. BORMAN. Well, I can tell you this. I can tell you that the 

charge to us is don’t necessarily just look at the existing system 

and decide how to make it better, but really look at what would 

be the best system in light of all these factors, including foreign 

availability, including design out desires of foreign buyers, to construct a system that really best addresses the security, and technology and economic realities of the 21st century. So, and one of 

the pieces of the charge is to take a very hard look at the control 

lists and see, should the control lists be pared down to something 

less than they are now? 

Mr. MANZULLO. Do you anticipate a date by which that will 

occur? I know we are rewriting the Export Administration Act in 

our committee. 

Mr. BORMAN. Right. Well, the current NSC led process is designed to have a recommendation or a set of recommendations to 

the agency principals early next year, and then they will have to 

decide based on those recommendations, how to implement that or 

what they want to implement. I think the goal is to really do something next year. 

29

Mr. MANZULLO. Thank you. 

Mr. SHERMAN. Thank you. Now the gentleman from Virginia. 

Mr. CONNOLLY. Thank you, Mr. Chairman, and welcome. This 

subcommittee had a hearing a number of months ago where we 

looked at the satellite industry and how export controls have affected the satellite industry. It is not too much of a stretch to say 

that with the best of intentions in trying to control sensitive technology and the export of it we ended up damaging the domestic satellite industry and unintentionally helping foreign competitors who 

then had no controls over the technology transfer, and so in an effort to do a noble thing our actions were self-defeating, obviously 

not intentional, but we hurt both the industry and, frankly, ultimately had trouble achieving the goal behind our actions. What do 

you think we have learned from that? What do you take away from 

that experience? 

Mr. KOVAC. I will take that first because I have got them. I think 

that in any, as Matt was saying, the control lists are the key. Narrowing them down, making them specific, making them clearly 

where there is an edge required to go ahead and maintain that, but 

not take it down so far that you end up hurting everybody in the 

process, even those that do not cause a problem in the greater 

scheme of things. Where the technology is simple, well-known, 

foreignly available, we take a look at that. The problem we have 

with our two lists right now is that we look at them very myopically. The structure should be very myopic. I control defense articles. Defense articles, anything specifically designed and developed 

for, you know, specifically designed and developed for a military 

end-use, or an end-use, or an end-use that is determined to be military. 

The vast majority of firearms, for example, aren’t military firearms, but I control all firearms, so therefore, I control all the parts 

and components of those firearms. When the action was taken in 

1999 to move the satellites, it had the identical effect and it controlled things that we did not care about in satellites and things 

that we cared a lot about in satellites. So with the legislation as 

currently, you know, the 24/10, if that is able to be realized, and 

right now the Department of Defense has a study ongoing under 

Section 1248 of their NDAA to go ahead and look at the industry 

and separate that wheat from the chaff, to look at those that may 

receive or require higher controls and those which should be controlled in another manner, if those two things come to fruition, I 

think we will have a better way to do it. 

Mr. CONNOLLY. Yes. I guess I would add, Mr. Kovac, and I certainly concur with what you just said, but I guess I would add one 

other thing you haven’t considered, and that is unintended consequences. 

Mr. KOVAC. Absolutely. 

Mr. CONNOLLY. Because you could still do what you did and come 

to the same conclusion and you would be wrong. 

Mr. KOVAC. Correct. 

Mr. CONNOLLY. In retrospect, I don’t think you can argue that 

our policy vis-a`-vis satellites worked. It hurt domestic industry and 

the technology got transferred anyhow just by other people who are 

then able to exploit commercial sales and so forth, so that can’t be 

30

the intended consequence. I think we have to look at even if the 

goal is desirable, if we realize that by adopting a policy, you know, 

the operation is a success but the patient dies, I think we have got 

to look at that saying that is not something, you know, we want 

to achieve, that is not a desirable objective. 

Mr. KOVAC. Absolutely. 

Mr. CONNOLLY. Mr. Borman? 

Mr. BORMAN. If I could just add a little bit to that. In the fundamental review that we are undertaking right now on export controls, that is exactly one of the tenants we are applying is we really 

don’t want to have a policy that drives foreign customers to foreign 

suppliers. 

Mr. CONNOLLY. Even at the risk then of technology transfer. 

Mr. BORMAN. Yes. 

Mr. CONNOLLY. Okay. 

Mr. BORMAN. You work to mitigate that as much as you can, but 

ultimately, if a foreign customer buys a U.S. product, at least we 

have some control in visibility over that in addition to the economic 

benefit. 

Mr. CONNOLLY. And let me ask, building on that a little bit, a 

Devil’s advocate question. Perhaps the nature of technology today 

that is very different than when we envisioned the original export 

control regime in the middle of the Cold War, you can’t control it. 

I mean, it is sort of a hopeless venture, and so there may be some 

limited things of highly sensitive nature we still control, but Devil’s 

advocate question, maybe you have to basically yield to, you know, 

the imperative of technology and just say there are just things we 

can’t control, and so we are going to recognize that and move on. 

The very notion of an export control list is questioned in that Devil’s advocate question, obviously. I am just trying to determine how 

far our thinking is along those lines? 

Mr. BORMAN. Well, one of the ways we have been evolving the 

system, and my sense is we will continue to do this, is you are 

right, there are strata of technologies that are just not controllable 

but they still can do us harm, and so another way to get at that 

is to deal with the foreign parties involved. One of the ways we 

have dealt with that is we have identified a procurement ring of 

foreign parties that were buying and trafficking in low level electronic components that were the same type showing up in IEDs in 

Iraq and Afghanistan. You can’t really control them based on their 

technology level, but we published a list of these parties and made 

them restricted and that has had some effect. So there may be 

other ways to get at this because there are technologies, low level, 

that can do us and our allies harm and we want to deal with them 

in some way, but you are right, at some point you can’t based on 

technology. 

Mr. CONNOLLY. If I may, Mr. Chairman. Just a final point. I 

hope in your deliberations, and I am very glad we are having this 

review, keep in mind the burden in private sector, too. You know, 

I worked in the industry for the last 20 years and I can remember 

every year the last 6, 7 years I had to take a refresher on export 

control rules. I will be honest with you, I am a high school graduate, but they were tough to fully get straight and make sure you 

weren’t violating the law, and which falls in which category. When 

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you multiply that in terms of liability of large companies that, you 

know, are in various businesses, it is a real burden, it is an economic burden they bear, and so if we can in streamlining our own 

requirements also streamline the burden on private industry, I 

think that would be a good thing for the American economy. Thank 

you, Mr. Chairman. 

Mr. SHERMAN. Thank you. I will now start the second round, and 

then we will have second round for the two that haven’t had a 

chance. Mr. Borman, now and then it seems like we are allowing 

exports to a particular country with a promise that the goods will 

only be used for civilian use within that country. Do we put any 

stock at all if that promise comes from a Chinese company? I mean, 

if they double promise and cherry on top that they are not going 

to use it for military purposes, does that ever convince you? 

Mr. BORMAN. We don’t rely solely on the assertions or promises 

that a foreign company puts on it. There are license conditions on 

the U.S. company, and we have the ability to do end-use checks. 

Mr. SHERMAN. Mr. Borman, when it comes to China is there any 

time when you are going to allow the export because you are told 

that the end-user is not going to be military? 

Mr. BORMAN. Not solely because of what the end-user says. 

There are any number of other sources we look at. 

Mr. SHERMAN. If it has not been used by the military today, it 

will be at any time, it is useful for the military, so there are occasions when if you had two applications, one said we are shipping 

this to the People’s Republic’s Army and the other says we are 

shipping this to a private company that is owned by Chinese interests and located in China, you might treat those two applications 

differently? 

Mr. BORMAN. Well, sure, because there are plenty of end-users 

in China who have legitimate civilian businesses and there are any 

number of ways——

Mr. SHERMAN. And is there a single one of them which would 

defy the People’s Liberation Army if that army wanted those goods 

to be used temporarily or permanently for military purposes? 

Mr. BORMAN. Well, you have to remember, most of the things 

that we license are of course on the dual-use side so they are machine tools or they are——

Mr. SHERMAN. Well, I am not saying that they couldn’t be used 

for civilian purposes from 9 o’clock to 5 o’clock, but can you imagine 

that they wouldn’t be used for military purposes from 5 o’clock to 

9 o’clock? 

Mr. BORMAN. Well, again, in the interagency review process with 

State, Defense and Energy, we look at all the available information, including classified information, to make an assessment as 

to——

Mr. SHERMAN. Well, I would hope that you would be less trusting 

and would simply recognize that once something is physically located in China, it is available to the People’s Liberation Army at 

their request, at any time, regardless of any promises that have 

been made to you. 

Mr. BORMAN. Right. 

Mr. SHERMAN. If you start with that as a starting point, you will 

have a more—the goal here isn’t to paint a pretty picture; the goal 

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is to actually control this technology, which is why I will shift back 

to the idea of goods that are widely available in the United States. 

If something is easily portable and easily purchasable by anybody 

in the United States, does that factor into whether you think you 

can actually control the technology by prohibiting its export? 

Mr. BORMAN. Well, maybe I ought to take a step back and describe a little bit how we put things on the control list. Our control 

list, roughly three-quarters of the items are subject to a multilateral export control regime. The process every year that happens is 

in the United States we, Defense and State Department, look at 

the list and decide are there items that should come off the list because they are widely available, lower technology now, or they are 

items that should be added to the list. Then we have to get all of 

the other members of the regimes to decide. So the items that are 

on the list are items that really are supposed to have——

Mr. SHERMAN. So there are plenty of things on the list that anybody in the United States could buy on the internet and put in that 

pick up truck I talked about. 

Mr. BORMAN. I wouldn’t say that there are plenty of things on 

the list. 

Mr. SHERMAN. Hundreds? 

Mr. BORMAN. There clearly are things that could be bought over 

the internet, but again, you know, people buy them——

Mr. SHERMAN. Do we need to shift to a system where we have 

a know your customer regime, just as we have opposed a know 

your customer regime on the bank, where we identify a few hundred items or a few thousand items and say, look, if you want to 

sell these in the United Stats, it has got to be to a licensed consumer? Yes, hospitals have a reason to buy those isotopes, but you 

can’t just ship them to Jack Jones in Toledo who doesn’t own a hospital. 

Mr. BORMAN. Yes. And that is the case in some cases. I mean, 

select biological agents, for example, or some hazardous sales. 

Mr. SHERMAN. Isotopes is the wrong example there. 

Mr. BORMAN. Yes. The order of magnitude. Last year we processed about 20,000 dual-use export license applications for exports. 

If we were to look at imposing a similar government vetting before 

sale review for domestic sales, you are talking——

Mr. SHERMAN. Well, you would license the purchaser and once 

somebody is a certified purchaser, you wouldn’t have to look at it 

again, and you might very well take hundreds of items off your 

international control list. I mean, this stuff works bureaucratically, 

but the fact is anything that a guy named Jack Jones, you know, 

with a P.O. box in Toledo can buy and truck to Mexico or Canada 

is not controlled. You can believe it is controlled, you can say it is 

illegal to do this or that, you can say I have got certificates, and 

files and a review process, but the other guy has got a pick up 

truck, and that trumps you. 

Mr. BORMAN. Sir, if I could? 

Mr. SHERMAN. Yes. 

Mr. BORMAN. If ultimately the system comes down to anything 

that somebody couldn’t take out of the country and that magnitude, 

you are talking about an extremely small list. 

33

Mr. SHERMAN. Well, I am talking about those things for which 

we cannot identify those customers that have a legitimate use. It 

is one thing to say it is going to be sold to Jack Jones. It is another 

thing to say it is going to be sold to a company that is known to 

the seller and has a legitimate end-use for it. It is extremely easy 

for a foreign state or a terrorist organization to get a P.O. box in 

the name of a guy named Jack Jones. It is much more difficult to 

establish an aircraft manufacturing operation that would have a legitimate use for this or that. We are not going to make it impossible, but so far our enemies have not created whole, large scale 

dummy companies in the United States. P.O. boxes are a lot easier. 

Mr. Kovac, just want to—hope my colleagues indulge me for one 

last question. The UAE has been a state of concern. It is now 

claimed that scores of ships have been intercepted by their security 

forces carrying illicit cargo, and while I doubt that that is not an 

exaggeration, I note that the UAE hasn’t adopted regulations to enforce its 2007 export statute. Malaysia is another key transport 

hub and hasn’t even taken those actions. Can we trust Malaysia 

with U.S. technology? Should we oppose technology transfer, especially when it facilitates offshore production to Malaysia at this 

time? 

Mr. KOVAC. Yes. You are going to have to because that is a little 

out of my field. 

Mr. BORMAN. Yes. On the UAE, you are right, the UAE now has 

an export control law. They are in the process of standing up their 

export control authority. What they have told us when we have discussed this with them is right now, because they don’t effectively 

have regulations in place, any controlled item is prohibited from 

being transited through the UAE. They are in the process. They 

have said they have hired a number of people for their export control organization. 

Mr. SHERMAN. Do they have an export control list? 

Mr. BORMAN. Yes. 

Mr. SHERMAN. Have they copied ours? 

Mr. BORMAN. No. All the multilateral regime items are on their 

list. 

Mr. SHERMAN. Okay. 

Mr. BORMAN. Malaysia, we continue to try to press them to make 

progress. They are not nearly as far along. 

Mr. SHERMAN. Have they made progress? 

Mr. BORMAN. Well, they are working on an export control law, 

they tell us, and we continue to press them to accomplish that. 

Mr. SHERMAN. Well, when is the first time they told us that they 

were working on it? 

Mr. BORMAN. They have been working on it for a while. 

Mr. SHERMAN. Did I have hair at that time? 

Mr. BORMAN. I am not sure. You very well may have. 

Mr. SHERMAN. Let me yield to the gentleman from Illinois. 

Mr. MANZULLO. I wanted to follow up. You sell a five axis machine to China that is used to make a dump truck, but then the 

same dump truck has a military application as a truck in the Chinese army. You know, export controls in the United States unfortunately means that we are losing all our technology because of being 

an unreliable supplier. Assume they are trying to dance on the 

34

head of a needle as to whether that truck that will have parts that 

are machined or cut from five axis machines are used for civilian 

or defense, and then they just, you know, why would you recreate 

a whole new frame, for example, on a military truck when it is 

going to be the same tonnage of carrying for a civilian truck? 

I am sorry. I have got a new Blackberry and I can’t figure out 

the technology of it yet, but it is Canadian technology, I think is 

what it is, even though at one time the insides were magnesium 

and were made here in the United States, but now it is plastic, unfortunately. That is why, you know, we sit back, and the arguments have been going on for, I have been for 17 years. How much 

more of our machine tool industry do we have to lose? You know, 

you can buy a profiling machine now for $25,000. You just send in 

your coordinates on your design, and with the layering they can 

create a product like this for a very small amount of money. So 

when somebody buys it they know exactly what it is. 

In fact, I have got in my bag, it is a man’s hand that has been 

profiled by a laser and then with the layering machine as a composite of a person’s hand. That is how exact this stuff is. It goes 

on all the time. How much more of our machine tool industry are 

we going to lose because we are losing all the technology? I know 

you are with me on the issue, but I guess with C–SPAN here, 

maybe we get the message out more we have got to move faster. 

I mean, this is really saving American jobs. 

Mr. BORMAN. Yes. I mean, the challenge, frankly, with China 

and machine tools is not really the factory that makes dump truck 

parts. The challenge is in the aerospace you have to have a lot of 

colocation facilities that make parts for civilian aircraft and military aircraft. That is one of the challenges. I am not saying that 

I disagree with you, I am just pointing out the challenges. The 

other, of course, is that these are multilaterally controlled. We 

know that other partners apply a different China policy than we 

do. If they are not multilaterally controlled, then you open up the 

possibility for these type of machines to go from other countries to 

a place like Iran. So that is how we have got to try to figure out, 

how do we address the very legitimate concerns? 

Mr. MANZULLO. Well, I don’t know if you can stop that either. I 

mean, at one time knowledge was discovered. Today it is invented. 

It is not that difficult. You know, you don’t want to give the people, 

the bad guys in Iran, anything, but goodness gracious, with the incredible marsh of technology and the ability to make these machines almost anywhere, and here we are in the United States, we 

keep on losing more, and more, and more. I mean, I have talked 

to people that, you know, have been to these machine shows and 

they say, you know, we would like to buy more from the United 

States, and, I mean, it even got so dumb here that I had to rewrite 

the Fastener Quality Act. 

We just, you know, wrote off a huge amount of our business here 

because that footbridge collapsed in Kansas City and it wasn’t the 

problem with the tensile strength of the bolt, it was just the wrong 

one was put in by the architect on it. That is the whole problem 

that we have with manufacturing here is that some of my colleagues, and Dana is a good friend of mine, think that because we 

have got a real gem here, that we can prohibit somebody else from 

35

using it when the same thing is made in a country like Canada 

that doesn’t have the extent of those controls on it. I just wanted 

to share that with you. I had one further question on deemed export. 

Mr. BORMAN. Just to follow-up on that. 

Mr. MANZULLO. Go ahead. Then I will stop right here. 

Mr. BORMAN. That is exactly the point, though, of the review we 

are undertaking is exactly to try to grapple with those issues in a 

way that reflects the 21st century reality. Absolutely. 

Mr. MANZULLO. The other issue is that we have University 

Diacome that has many foreign students and I helped link up that 

university to a very sophisticated company, and the school is now 

doing research for the company. The problem is with deemed exports, some of these kids come in from the countries on the list. I 

mean, the companies are really getting in trouble and the school 

figures that what are we going to do here? Are you taking a look 

at the deemed export issue also? 

Mr. BORMAN. Absolutely. 

Mr. MANZULLO. Okay. 

Mr. BORMAN. Yes. In fact, we have a new advisory committee, we 

call it the Emerging Technologies and Research Advisory Committee, that is specifically looking at the issue of what methodology 

we should decide to apply to technologies that should be subject to 

deemed exports. So we are looking very hard at that issue because 

we know the impact it has on research. 

Mr. MANZULLO. Thank you. 

Mr. SHERMAN. Gentlemen, thank you. We will now move on to 

the next panel. Matter of fact, I will sing their praises as they take 

their seats. We will first hear from Ms. Marion Blakey, president 

and CEO of the Aerospace Industries Association. Prior to her work 

with that association, Ms. Blakey served as administrator of the 

FAA and chair of the National Transportation Safety Board. Next, 

we will welcome David Berteau, senior advisor and director of the 

Defense-Industrial Initiatives Group at the Center for Strategic 

and International Studies. Mr. Berteau was principal deputy assistant secretary of defense for production and logistics. 

Lastly, we will welcome Henry Sokolski, executive director of the 

Nonproliferation Policy Education Center. He currently serves as a 

member of the Congressional Commission on the Prevention of 

Weapons of Mass Destruction, Proliferation and Terrorism. Previously, he served as deputy for nonproliferation policy in the Department of Defense. Ms. Blakey? 

STATEMENT OF MS. MARION BLAKEY, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, AEROSPACE INDUSTRIES ASSOCIATION 

Ms. BLAKEY. Thank you, Mr. Chairman. I do want to thank you 

and the other members of our panel today for the attention you are 

paying to this. The Aerospace Industries Association of America appreciates the opportunity to testify today, and I would like to ask 

that my written statement be submitted for the record, if I might. 

AIA represents more than 273 member companies with total high 

technology workforce of 267,600 people. We operate as the largest 

trade organization in the United States across three lines of business: Space systems, national events, civil aviation. Our industry 

36

consistently generates America’s largest manufacturing trade surplus, $57.4 billion in 2008, but continuing this track record of success can’t be taken for granted. 

So why do aerospace exports matter? Last year, nearly half of the over $205 billion in U.S. aerospace sales went to overseas customers. It is critical to recognize that these exports are necessary 

to both sustain and increase the capacity for cutting edge innovation in the United States industrial base. We must continue to 

compete effectively in the international marketplace in order to 

speed up our economic recovery, increase our jobs and set a trajectory for even greater economic growth. Aerospace exports also serve 

as a foundation for building key relationships and a shared future 

for the important international allies and partners. Additionally, 

our companies rely on exports to provide Americans defending our 

country and guarding our homeland with the very best technology 

at the best price for the U.S. taxpayer. 

The value of aerospace exports is certainly not lost on members 

of this subcommittee, nor on other leaders here on Capitol Hill and 

in the administration. The consistent and sustained efforts of senior leadership in Congress and the administration is crucial to ensuring a level playing field, opening up markets for U.S. products, 

winning sales opportunities, particularly in the face of strong and 

determined advocacy from foreign governments on behalf of our 

international competition. 

Presuming our industry is able, with the help of the U.S. Government, to compete successfully for a contract in the international 

marketplace, one of the last hurdles to cross is the U.S. export control system. This subcommittee has heard from AIA in the past 

about our ultimate goal for modernization, a more predictable, efficient and transparent system. We have heard that before today, 

but permit me the opportunity to clarify again what we mean. By 

efficient, the government must make decisions on export authorizations in a timely manner, eliminating unnecessary administrative 

delays. By predictable, we mean that the license process must be 

consistent with applicable laws and policies and that similar export 

licenses should be considered in similar timeframes. 

Transparent means that the rules governing the license process 

must be interpreted and used consistently, and industry and foreign partners have quick, easy access to the information on the status of their applications. In 2007, our Cold War Era export control 

system had reached a point where it was paradoxically hurting our 

national security. It was also hurting our economic strength, and 

our technological competitiveness had a good chance of worsening. 

This subcommittee recognizes that it is in our national security interest both to prevent our adversaries from accessing our technology and to facilitate technology trade with our closest allies and 

trading partners. 

So I am pleased to report that your efforts have resulted in a 

great deal of improvement in how the export control system operates. However, I think it is clear to everyone that additional steps 

will make the system more predictable, efficient and transparent. 

AIA continues to be a staunch supporter of Senate ratification of 

the UK and Australia Defense Trade Cooperation Treaties. Our industry has also welcomed President Obama’s call in August for a 

37

comprehensive review of the U.S. export control system. We believe 

that there are several potential reform initiatives that this committee can actually lead. I encourage the committee to review my 

submitted testimony for detailed descriptions. 

In conclusion, the U.S. aerospace industry has the strength to lift 

America in these challenging times. Our nation reaps the benefits 

of aerospace exports in the form of enhanced national security and 

economic growth. The government/industry partnership supporting 

aerospace exports is crucial and it can’t be taken for granted. As 

you are aware, previous modernization efforts have met with varying degrees of success. Experience suggests that critical factors and 

enabling meaningful reform includes sustained oversight by senior 

administration officials, as well as effective consultation with Congress and the private sector. We stand ready to work with you and 

the Obama administration to ensure that we continue to make 

meaningful progress toward a 21st century technology control regime. Thank you very much. 

[The prepared statement of Ms. Blakey follows:]

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Mr. SHERMAN. Thank you. Mr. Berteau? 

STATEMENT OF MR. DAVID J. BERTEAU, SENIOR ADVISOR AND 

DIRECTOR OF THE DEFENSE-INDUSTRIAL INITIATIVES 

GROUP, CENTER FOR STRATEGIC AND INTERNATIONAL 

STUDIES 

Mr. BERTEAU. Thank you, sir. This mike on? Yes. We are adjusted now. Mr. Chairman, thank you for the opportunity to be 

here today. My statement will stand for the record. I will just make 

a couple of comments and go there. CSIS has been engaged in looking at export controls for quite a number of years. We have a long 

record of studies. I cite those in my statement. We have learned a 

number of lessons for those. They are in there as well. I think all 

I want to say orally are two things. One is there are some national 

security issues here that the current regime tends to work in the 

opposite direction of what we would intend them to do so. I would 

note three things. One is, in fact, there is a lack of prioritization 

in the system today that leads us to spend an awful lot of time on 

things that we should well spend less time on, and perhaps ignore 

the things that are more important. 

Secondly is the effect of globalization, and a number of the committee members brought this up in earlier with the first panel, and 

the degree to which at some point we may get to the point where 

we can’t get access to what we need because somebody else doesn’t 

want to be subject to our controls. We haven’t reached that point 

yet. We have come close to it a number of times. There is no smoking gun, but the elements of the gun are there. Third is the degree 

to which we have the unintended consequences of promoting a capability elsewhere that actually works against our national interests rather than in favor of it. These are all tough questions that 

are hard to wrestle with. I think it is also instructive, and my 

statement goes into some detail on this, to look at what the Europeans are doing with the new EU directives on both procurement 

and transfer and the potential to create a situation that would, I 

think, substantiate some of the comments I made about the national security impacts. With that, Mr. Chairman, I will yield back 

the rest of my time and proceed to your questions. 

[The prepared statement of Mr. Berteau follows:]

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Mr. SHERMAN. Thank you. Let us move on to the third witness. 

STATEMENT OF MR. HENRY SOKOLSKI, EXECUTIVE 

DIRECTOR, NONPROLIFERATION POLICY EDUCATION CENTER 

Mr. SOKOLSKI. Thank you, Mr. Chairman, for holding this hearing. I note the presence of my congressman, at least indirectly. My 

mother lives in Palos Verdes, so you have been there a long time. 

We actually are contemporaries. I went to PV High. Not quite the 

same school, but close. Mr. Chairman, I want to thank you again, 

and the ranking member, for inviting me to speak today on this 

issue of controlling U.S. aerospace controls, and ask that the full 

statement that I have written be placed in the record. My general 

recommendation, which is based on my experience over the last 20 

years initially working in the Defense Department licensing a lot 

of aerospace items, particularly missile tech, is that it would generally be a mistake to encourage more U.S. aerospace exports to go 

license free or to reduce our ability at least to detract them. 

After 9/11, and at least three post-Cold War rounds of export 

control decontrols, we now are at a point where according to the 

GAO 99.5 percent of the goods subject to Commerce Department 

regulation are already being exported license free. As for munition 

items, the U.S. last year sold at least 10 times more than any other 

country, capturing 68 percent of the world’s arms market. This suggests that we are holding our own against our competition even 

under current export control. More important, I think such controls 

are still warranted. This is my role, I believe, on this panel, to 

make that case. 

At the high end there is plenty of aerospace technology that the 

U.S. should only export with the greatest care and only in support 

of the most critical security alliance and cooperative undertaking. 

These technologies, and they are explicated in much greater length 

in the testimony, include things like software codes, aerospace 

black art skills, there is systems integration insights, satellite technology relating to the design, integration and satellite subsystems 

of satellites that we use in our military, unmanned air vehicles and 

related ground equipment and technology, stealth technology and 

air and missile defense penetration aides, and advanced missile 

and air defense systems. 

It should be noted that most of these military-related technologies and their subsystems are controlled by the Missile Technology Control Regime, and that when you do decontrol, you have 

to attend to that. We talk generally about reducing nuclear arms. 

This will inevitably lead to some kinds of limits, I suspect, on missile technology and missiles. The instrument for doing that will be 

very heavily dependent on the MTCR. Now, it could be that we get 

rid of the MTCR, but then we are in a bit of a bind with regard 

to our general goals on doing strategic arms reductions. There are 

still difficult adversaries out there and they may try to acquire our 

goods and they cannot get them anywhere else. 

In fact, there have been 50 to 75 Federal prosecutions last year 

of individuals attempting to export these items illicitly out of the 

U.S. Despite all of the reasonable points the chairman points out, 

I sympathize with what he is commenting on, still the law does get 

exercised. Also, after 9/11, the transhipment of dual-use and miliVerDate 0ct 09 2002 11:42 Apr 08, 2010 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 F:\WORK\TNT\120909\53991 HFA PsN: SHIRL
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tary technology directly from the U.S. has become a much greater 

security concern. At the very low end we have this example of bin 

Laden buying a surplus military transport, which is, to my knowledge, I am not sure if it is a controlled technology. Even now I 

think it is still possible. He used it for transport purposes. The 

General Accounting Office study was cited. I won’t go into that. 

Meanwhile, I think neither State, nor Commerce, has yet to reassess what a complete list of items might be that terrorists might 

be seeking. Slightly different point. In other words, I think they 

have got their eye on the commercial ball, and that is important, 

but I am not sure they have their eye on the other ball which they 

have to balance. Why then is there a push for decontrol? I think 

one reason has to do with the integration of U.S. with European 

aerospace firms. The EU-based consortiums that operate throughout the EU and the U.S. no longer have a very high interest after 

the Cold War in investing heavily to develop defense capabilities. 

As a result, they are falling further and further behind the U.S. 

in key leading military-related technologies, including the list I just 

gave you, and they have a clear interest in gaining access to this 

technology without having to pay for the research and development 

themselves. These same EU-based vendors are among those most 

interested in decontrolling military exports to places like China. 

They tried to do so several years ago. Let me get to the recommendations. I think, by the way, doing a totally license free approach, even with regard to Australia, my wife is Australian so I 

say this with hesitation, would probably be a mistake. You still 

want to keep track of things. 

I don’t think you want to hold things up, but you want to keep 

track of things and you don’t want to send things without a trace, 

even to good neighbors like Australia. I say that hesitantly. My 

wife will talk to me later. Recommendations. I think you need to 

clarify what is being controlled before authorizing any further decontrol. What specifically might be shipped out under decontrols 

needs to be specified by industry before government pushes to 

change broad categories to reform the export control system. Second, I think we need to consider ways we might share the benefits 

of controlled technology without transferring the technology itself. 

In the case of space launch vehicle services, the services relating 

to UAVs and the intelligence they might gather, there is, in fact, 

something of a burgeoning industry already. 

I think we need to investigate how much more can be done. Finally, I think we need to strengthen, rather than undermine, certain critical multilateral aerospace control efforts, such as the 

MTCR. In particular, if we are going to have missile defenses, it 

would be nice if the technology to defeat them wasn’t going around 

license free or uncontrolled. The MTCR doesn’t cover all of that yet. 

It ought to. With that, I conclude. I should make one last comment. 

I certainly sympathize with the previous panel’s need to make 

things transparent and to expedite. I was a little astonished after 

so many years looking at the system to see how many inefficiencies 

it still has. They are doing better, though. 

[The prepared statement of Mr. Sokolski follows:]

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Mr. SHERMAN. I want to thank you. I am going to have to step 

out in a few minutes for a few minutes and our vice chair will take 

over chairing the hearing in that interim. Ms. Blakey, reading the 

detailed testimony that you referred us to, I am looking for things 

we can do here in Congress and you basically have said pass H.R. 

2410. Been there, done that. Is there anything else for the House 

of Representatives to do? 

Ms. BLAKEY. Well, we think at this point of course we would like 

to ask you, of course, to be as persuasive as possible with your set 

of colleagues because I do think a lot of the actions, as you are undoubtedly noting here, rightly sits there. 

Mr. SHERMAN. My advocacy for a unicameral legislature has not 

been taken well by the state. 

Ms. BLAKEY. You know, but I do think we do think there are a 

number of things that might be very helpful in all of this. We 

would like to see more flexibility in the way DDTC can use the fees 

that are being collected because we want to see the system modernized, and we do want to see the kind of updated computer system 

that the State Department needs. 

Mr. SHERMAN. Now, does H.R. 2410 provide that flexibility on 

the fees? 

Ms. BLAKEY. It is my understanding you do, so, you know, I 

would—all right, let me go to one that is a tiny bit harder. Again, 

this is something that is a multilateral issue, but it is one that I 

think, you know, as we are discussing things here with the panel, 

when we are talking about the Missile Technology Control Regime, 

right now we are catching all forms of UAVs as missiles there. This 

goes to things that are essentially blimps. 

Mr. SHERMAN. Essentially you say blimp? 

Ms. BLAKEY. Blimps. 

Mr. SHERMAN. Blimps. Got you. 

Ms. BLAKEY. You know, dirigibles. I mean things that none of us 

would ever recognize or consider to be a missile. It is the way the 

language is constructed. The definitions are not as precise, and 

they certainly are not up-to-date with regard to these kinds of technologies. Now, again, advocacy on that part and helping to instruct 

that we take that on, it is a task that needs to be done. 

Mr. SHERMAN. So if we deleted from the definition of missile anything that travelled at under 200 miles an hour we would pretty 

much solve this problem? 

Ms. BLAKEY. You know, I don’t want to try to pin down that definition, I am certainly not the one who can conjecture all the potential issues there, but we do see that this is not up-to-date, it is not 

clear, and it is certainly something that is not to our advantage as 

it is currently constructed. So, you know, among the things that I 

would point out, those are some of the things that I think we would 

very much appreciate congressional action on across the board. 

Mr. SHERMAN. I have been concerned with Iran being able to get 

its hands on various technologies, including aircraft parts. We 

made a mistake in allowing Boeing to just ship them aircraft parts. 

We don’t necessarily have to make that mistake again. Now, I posited to the last panel the fact that it is not tough for Iran to just 

get a P.O. box in the name of Jack Jones, maybe print up some letterhead on a computer, Jack Jones Aircraft Repair, Incorporated. 

68

How much of a burden would it be if there were certain items produced by your members where they weren’t just allowed to ship it 

to anybody who claimed to have a company and a use for it, they 

would actually have to know something about the customer. 

Ms. BLAKEY. The circumstances I am familiar with are going, of 

course, to commercial aircraft, and they are going to the issue of 

safety of flight. This is a situation where I think we all understand 

that we have enormous issues with the Iranian regime, but we certainly don’t want to undermine the safety of passengers flying——

Mr. SHERMAN. Well, if I could interrupt, though, that is outside 

the scope of this hearing. What we should have done is said Iran 

should ground its fleet as long as it is developing nuclear weapons 

and that anybody who dies on one of those planes dies at the hands 

of the Ayatollah, not at the hands of the United States. We made 

a clear mistake in instead telling Iran that they can have commercial aircraft functioning and a nuclear program. That is a mistake 

we made. It is outside the scope of these hearings. Let us return 

to the scope of the hearing. How much of a burden would it be if 

your members had to know the difference between a real user of 

their product, on the one hand, and some guy with a P.O. box and 

some letterhead he printed up on his own printer? 

Ms. BLAKEY. I think at this point in the defense arena there is 

no question about the fact that our companies do know who the 

end-users are. Defense products are not shipped willy-nilly to Jack 

Smith at a P.O. box, and that is something that I really do not 

think we are encountering difficulty on. 

Mr. SHERMAN. I am focusing more on the dual-use items. 

Ms. BLAKEY. Even on dual-use. I mean, I think, again, for things 

that are at real issue that have defense and military sensitivities 

of higher order, I don’t think we are running into an issue there, 

but when you get down to what I think is at the heart of this, it 

is an enforcement issue, and, you know, how do you track those 

issues when someone violates U.S. law? 

Mr. SHERMAN. We will never be able to enforce against a guy 

named Jack Jones who drove his pick up truck to Mexico City, so 

the question then is do we have a list of companies that you are 

allowed to ship to? Do we just say that it is your obligation to know 

your customer? We have to put the burden, unfortunately, on legitimate actors saying that Jack Jones, the guy in his pick up truck, 

is subject to criminal prosecution. It is not going to deter Jack 

Jones. So we have got to control things at the factory gate of legitimate factories, not just hope that we can—in any case, I think I 

am over time, as my staff has identified. It is now time to recognize 

Mr. Rohrabacher, and I will return in just a few minutes. 

Mr. ROHRABACHER. Thank you very much, Mr. Chairman. Let me 

identify myself with your very good idea of making sure that when 

we state a policy toward Iran there is teeth behind it. Mr. Chairman, I identify with your statements about grounding the Iranian 

airline fleet, which it should have been. If we were going to actually be serious about putting pressure on them not to develop nuclear weapons, that would have been a very good way to do it and 

a safe way to do it. It sounds like we didn’t have courage enough 

at that time to move forward with that policy. Let me just ask, 

there is a debate been going on about whether or not we should 

69

have a two-tiered system of controls on exports of aerospace and 

other technologies, that one tier would be a tier which would have 

somewhat controls on it to undemocratic and potentially hostile 

governments versus the other tier which would be clearly democratic governments and it would be had with somewhat unlimited 

restrictions. 

China has been the one element that has prevented us from having that system because there are so many companies, large American companies, that are making huge short-term profits by dealing 

with that gangster regime. What does the panel think about twotiered system and whether or not China should be treated any differently than Belgium when exporting potentially dangerous technology? 

Mr. BERTEAU. Mr. Rohrabacher, let me take a first crack at that. 

I think there are two issues associated with the idea of the twotiered system that are very hard to solve. It is pretty easy to put 

most countries in the world into one category or the other. As you 

note, it is the ones at that boundary, plus China, which is a different question that come into play. The two issues are at the 

boundary. Number one is where exactly do you draw that line? The 

second is, in fact, as you know, sometimes countries move from one 

of those categories into another without a whole lot of warning, and 

so the system would have to be able to accommodate both of those 

things. Neither of those would solve your China issue, however, 

where the question of short-term versus long-term clearly needs to 

be addressed. 

Mr. ROHRABACHER. Well, our refusal to define China as a potential enemy, even as it is still the world’s worst human rights 

abuser, and expanding their own military capabilities, I think, has 

had a dramatic negative impact on the security of the United 

States in the long run, but go ahead. The question is still on the 

table. 

Mr. SOKOLSKI. I think, first, we do differentiate the lobbying, if 

you will, when we are getting someone on the good or the naughty 

list is always an act of policy issue. I would warn you, though, having administered export controls, it is end-use controls, and destination controls are something that you have and you use, but in 

the end, for the really important stuff there is an expression: It is 

like kissing your sister, it is not serious. The reason why is if something is worthwhile and important it will move, and it will move 

from the destination you have okayed to destinations you don’t 

want it to move. If you don’t have a way of tracking that, and that 

usually means an individual validated analysis, your goose is 

cooked. 

A lot of these schemes where you send things to the EU, or Great 

Britain, or, I say again Australia, license free means it is over to 

them, and if they don’t have a tracking system and we don’t as to 

what was received, it is over. 

Mr. ROHRABACHER. Well, I agree with that, so we are talking 

about necessarily for everybody that we have to know who the enduser is going to be and ably have a system to determine that. I 

agree with that. What about you on a two-tiered system? 

Ms. BLAKEY. I don’t think any of us are advocating license free 

per se. I mean, the UK and Australia treaties that we are very 

70

much in favor of still stipulate appropriate technologies and, of 

course, trusted end-users there, so, and that is the highest echelon 

here. 

Mr. ROHRABACHER. Well, let us just take a look at this, what we 

have got now. General Electric announces they are going to go into 

the, and as a partnership with producing aerospace parts in China. 

Is this not against the national security interest of the United 

States considering that China is still a vicious dictatorship and 

considering that China’s relationship with the regimes, like Iran, 

and North Korea, et cetera, that where we traced very irresponsible, if not hostile, actions, Burma, et cetera, is this not in against 

the interests of the United States of America national security, as 

well as economic? 

Ms. BLAKEY. My understanding of the new joint venture that 

General Electric has entered into is that it is entirely on the commercial side, commercial avionics is what we are talking about. We 

are talking about, again, technologies that are appropriate and 

widely available worldwide. In speaking about the economic interest, the issue in the long run is that you are going to have a 

healthier industry and you are going to have, also, both jobs in the 

United States that are created when you do have a vibrant vigil 

like this. 

Mr. ROHRABACHER. Okay. Let me just note for the record, and of 

course I have strong disagreement with you this, the idea that you 

can now differentiate between the avionics going into a modern jet 

airliner and the avionics that will go into a bomber that will deliver a weapon on Taiwan, or somebody else, or the United States, 

or Japan, I don’t think that there is this distinction. I think that 

number one, anybody in our, and our big corporations have been 

doing this, anybody who builds up the avionics and the aviation 

aerospace capabilities of China at this time is: (1) betraying their 

employees who have been loyal to them all this time, rather than 

having them buy parts from us, they are going to now manufacture 

it in China; and (2) it is not only bad for us economically, but our 

national security will suffer greatly in the long run unless, of 

course, there is, like you mentioned, countries have a way of changing. 

China could well have some sort of a, Tiananmen Square might 

have succeeded. Of course, the Bush administration back then decided not to wade in on the side of democracy and decided to side 

basically, with their silence, with the people who murdered the democracy movement. So, anyway, let me ask you one question, and 

then I know we will move on. I am using my time. I see, it is my 

perception, that the high level decision makers in the aerospace industry are not considering the national security interests of the 

United States and not even considering the long-term interest of 

their employees, much less their own stockholders who in the end 

we are ending up building an industry that will compete with ours 

in China. Can we logically say, then, that it is not a good thing to 

leave these decisions up to people in the industry, but instead, we 

should be trying to establish a policy to make sure our country, and 

our countrymen, are not betrayed? 

Ms. BLAKEY. Well, I would take complete and enormous exception, of course, to the characterization of the aerospace interest in 

71

terms of our national security. I think we are the bailiwick on that, 

and I do believe, in fact, that we with the kind of innovation and 

the kind of ability to compete, which we have great confidence in, 

that with appropriate technologies, not all technologies, the United 

States can increase our national security because, in fact, we will 

be able to continue to innovate. We will have the kind of economic 

engine that allows us to continue to have the technological edge. 

That is inherent in the system that we are currently using. I would 

refer you back again to $57.6 billion of trade surplus, which is what 

is driven by our ability to also, appropriate technology, share with 

allies. 

Mr. ROHRABACHER. Well, when the Chinese can manufacture this 

and pay their people, unlike our own very well paid aerospace engineers who deserve the pay they get, if we ship those jobs over 

there, we are not going to have that trade surplus anymore because 

people are going to be able to buy Chinese made airplanes. I think 

this is a catastrophe in the making, and every patriotic American 

should stand up to the aerospace industry. I am someone who 

stands in awe of the accomplishments of the aerospace industry in 

the past. Let us just hope they are not doing things that are going 

to put my children in jeopardy and make sure that we don’t have 

good paying jobs for our own people. Any other comments? 

Ms. BLAKEY. Could I make one other comment about this, 

though? 

Mr. ROHRABACHER. Sure. 

Ms. BLAKEY. We are talking about a situation in which we actually cannot control the world dynamic on this. The fact of the matter is that the Chinese are entering the aviation and aerospace 

market. Whether we are there or not, that will happen. It is not 

a situation we control. What I have tremendous confidence in, and 

I think that is shared among the leadership of our industry, is our 

ability to innovate and to compete is something that will keep us 

in the leadership as long as we are not trying to pull back into a 

shell and hold on tight to only what we have now. We will evolve, 

and exports will help us evolve. 

Mr. ROHRABACHER. I will leave you with the last word on that. 

Go right ahead. 

Mr. SOKOLSKI. I would like to make one comment. 

Mr. ROHRABACHER. Yes. 

Mr. SOKOLSKI. I am old enough to have been here before during 

the Loral Hughes controversy. I think you were here. That was not 

a pretty time for the American aerospace industry. We made mistakes, and they were very, very significant. We are still paying for 

those. 

Mr. ROHRABACHER. Just a note. Fifteen years ago when that happened and we had a more open policy of trade, and I supported it 

originally because I bought on to the argument let them launch the 

satellites, there is not going to be any tech transfer, in the end 

now, there was so much technology transfer that Chinese rockets 

today can outcompete American rockets because they have got 

technologies which either they have stolen from us or transferred 

back in those days that give them tremendous capabilities based 

on, what, research and development paid for by the United States 

taxpayer. We just hand it over to them or they come in and steal 

72

it, and now they are using it to put us out of work and outcompete 

us. I am glad you brought that up. Thank you very much, Mr. 

Chairman. I appreciate this hearing. 

Mr. SCOTT [presiding]. Well, thank you. I am always continually 

impressed with my good friend from California and his intellect 

and depth of these issues. I enjoy our travels together, and you continue to make some excellent points. I might add that it might be 

perhaps our laissez faire attitude with China might have something to do with the fact they control over $1 trillion of our debt 

right now. Doesn’t necessarily put us in the best position, and it 

is something we both are working hard to address. Let me go back 

to the economic issue here a little bit. Would each of you agree that 

it makes sense to support U.S. jobs and the manufacturer of U.S. 

goods as a part of our national security policy? 

Mr. BERTEAU. Mr. Scott, I think that that is clearly a very significant issue associated with that. One of the real challenges this 

entire question of the export control system faces is that we don’t 

have a good definition from a national security point of view of 

what defense industrial base we really do need to protect and at 

what level. It is not just a technology question. It is a question of 

skill, it is a question of supplier base, it is a question of access to 

materials and technology as well. We tend, as a government, to 

look at these kinds of questions on a program by program basis 

rather than in a comprehensive manner across the board. Until, 

and unless, we tackle this from a more comprehensive approach, 

your question is just an academic one. 

Mr. SCOTT. Yes, Mr. Sokolski. 

Mr. SOKOLSKI. If I was out of work, it wouldn’t be academic. 

Mr. SCOTT. That is right. 

Mr. SOKOLSKI. I think we are losing, though, scope on what we 

really want to focus on. I think I actually sympathize with what 

you I think were trying to say. What you want to do in all business 

ventures and military, diplomatic, and probably even social ventures, is build up your comparative advantage. Sometimes that 

means letting go. I think that was industry’s point. But, how shall 

I put it, they might let go a lot earlier than I would. That is where 

we differ. But just saving jobs and industries, that wouldn’t be a 

complete thought, I don’t think. What you want to do is say, hey, 

we are really good here, we can compete here, let us build on that 

strength. How do we do that? So you have got to identify where you 

are strong. 

Mr. SCOTT. Well, let us take a specific situation, you said a specific situation, in terms of strengthening the U.S. industrial base. 

Doesn’t it make sense for a United States company, a United 

States company, to build the next tanker for the United States Air 

Force as opposed to building it by the Europeans through Airbus 

even knowing that some of the production will be in the United 

States? 

Mr. SOKOLSKI. Well, they are nervous, I am not. I have lots of 

cars. I have actually five. I have a big carbon footprint, potentially. 

I don’t drive them, I collect them. Two of them are American, the 

other three are Japanese. Japanese car is a lot better. I think on 

this we have to be fair. If the Japanese are willing to build plants 

here and get us to build these wonderful cars even though they are 

73

their design, even though they include, on the other hand, American materials, science and other things, I mean, it is a kind of collaborative thing that car, should we care? If they are trusted allies, 

I don’t think so. I think when you get to the Chinese and some of 

these other things, I think you have to worry. So I am a little agnostic on that one. By the way, I still have the two old cars. 

Mr. SCOTT. What about you, Ms. Blakey? How do you feel about 

that? 

Ms. BLAKEY. Well, we are certainly, because, as you know, we 

represent the industry on all fronts and we are not in a position 

to comment on the tanker competition, but I do think it is important, going to this issue of what our industrial base should be capable of doing, and preserving those capabilities is a very important 

consideration as DOD is making choices that we do need to be certain that we continue to be able to preserve the technological edge 

that this country has always had. I would simply say that it is 

something that as tough choices and tough budget choices are 

being made, I hope that will be very much a part of their strategy 

and the consideration it needs to be. 

Mr. SCOTT. Well, in examining the rationale of the United States’ 

policy for doing something like this, like awarding the U.S. Air 

Force tanker contract to a foreign company, the question to the 

man on the street is why would we do that, particularly if it is for 

our own armed forces? That is a major issue, it is a concern. We 

hear it from our union members. How do we grapple with that? 

Mr. BERTEAU. We have spent a lot of time looking at questions 

like that, not just only for the tanker, but for, in fact, most defense 

systems. I think you have got to start from the very strong starting 

point that this is not about who wins the contract but about what 

the military requirements are and whether or not those military requirements will be satisfied. Now, we could have a whole different 

conversation about whether the draft request for proposals that 

was put out by the Defense Department for the tanker actually 

does the right job of defining those requirements and whether or 

not the source selection criteria and the source evaluation criteria 

will align with satisfying those requirements. That is a different 

issue. I think the primacy of the military requirements has got to 

be where we start from here, not the question of who wins the 

work. 

Mr. SCOTT. Do we have any empirical data or information to do 

any comparative analysis on the number of jobs in the aerospace 

industry 20 years ago, or the percentage of those jobs that were 

here in the United States, as opposed to jobs we have lost outside 

of the United States due to our export policies? 

Mr. BERTEAU. There is a lot of data that you could use to analyze 

that. Unfortunately, a lot of that data is provided not necessarily 

by the government, but by those who are participating in the process. Back during the 1990s, in part as a cost saver, we no longer 

required companies to provide that level of information, particularly for subcontractors when they had a government contract because the government had to pay for the companies to collect and 

provide that information, so we saved the money by no longer getting that data. We can create estimates, we can look at estimates. 

I am not aware of anything that looks particularly at the answer 

74

to your question, but we will check and see what is available on 

the record and provide that for you. 

Mr. SCOTT. We currently have very searing unemployment in 

this country, loss of jobs. Do you see anything that needs to be 

changed in our export policy dealing with the aerospace industry 

that could help us with the unemployment in this country? Do you 

see any need of change? 

Mr. BERTEAU. I think it is a very timely question. I would actually call the attention of the subcommittee to a front page article 

on the Wall Street Journal today; in fact, you might want to consider including it in the record at this point, on the value of the 

Export-Import Bank in promoting aerospace exports from the U.S. 

I think it is a very positive indication of how you can have a countercyclical, from an economic point of view, benefit from export promotions. I would note that the article itself doesn’t cite this but 

that the level of default on those is essentially zero. It is almost 

a win/win situation. I think the degree to which we could look for 

other opportunities to do that would be something that would behoove us. 

Ms. BLAKEY. I certainly think, you know, when you look at the 

drop in market share in the commercial satellite arena, the steps 

this committee and this House has taken are very constructive, as 

well as the significant improvements that DDTC has made in 

terms of license processing. There are a lot of levels to this, but in 

the long run, our jobs are depending upon a very significant export 

ability. 

Mr. SOKOLSKI. I would suggest one change in recognition of a 

trend. Another article I would recommend is in the Economist. In 

there, they describe the provision of intelligence gathering and 

UAV-related services. I think we think too much about selling 

hardware and not enough about what probably is easily very significant, maybe even more significant, which are things that are 

not hardware. Much of the concern we are going to be facing regarding Iran is going to be dealing with all kinds of missiles. That 

technology goes there because folks are selling a lot of hardware. 

I am not sure you should be doing that. I think there is a lot more 

industry to be had and a lot more high paying jobs to be had if we 

build on the comparative advantage of the services that we can 

provide with the hardware, but not leaving it or shipping it overseas. 

Mr. SCOTT. Okay. Mr. Chairman, I just had one——

Mr. SHERMAN [presiding]. One more point. 

Mr. SCOTT [continuing]. More point. I know you just came in at 

the time, but those moments were shared with the other questioner. I wanted to go back for a moment and get a good, clear understanding of your thoughts on the deemed exports, if I may. I 

wanted to get your opinions on what type of security threat, in 

your opinion, is posed by foreign nationals inside the United States 

who are working on or purchasing controlled technologies. 

Ms. BLAKEY. Well, in the area of working on technologies, I 

mean, there is a very tiny percentage of foreign nationals who are 

involved in defense and production, and therefore, in the area of 

controlled technologies. There is a very definite distinction in facilities across the board in our companies between what foreign naVerDate 0ct 09 2002 11:42 Apr 08, 2010 Jkt 000000 PO 00000 Frm 00078 Fmt 6633 Sfmt 6633 F:\WORK\TNT\120909\53991 HFA PsN: SHIRL
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tionals may do on the commercial side where there is certainly a 

significant workforce, but it also again contributes to the expertise, 

the pool, if you will, of talent, but strictly on the commercial side 

when you look at the numbers. 

Mr. SCOTT. Do you feel that our security is tight enough? In a 

kind of a halfway related way, we had an incident, for example, at 

Ft. Hood. Who would have thought that even within our own military we would have that kind of terrorist mentality at work? This 

individual engaged in communications with a known terrorist in 

getting this. So it begs the question if we have this happening right 

within our military units, how sure we don’t have this kind of situation happening let us say in this area where we have sensitive 

technologies? Do you believe that our security is strong enough in 

place to prevent any sensitive material from getting into the hands 

of individuals, like Iran or others, who might not be on the same 

page with us? 

Mr. SOKOLSKI. If I may. I think what has changed in the industry, aerospace field, is the most valuable things no longer are tangible, they are intangible things. This presents an immense problem for control, and it doesn’t get any better if you can’t keep track 

of who is working where on what. That is a very difficult problem, 

but I think it is worth bearing down on because that is at least as 

important as some of the physical things that we are worried 

about. 

Mr. SCOTT. Yes. I am glad that you mentioned that because in 

my district, if you all recall, it was in the news, we had Georgia 

Tech students who were arrested on terrorism charges because of 

a similar incident in dealing with sensitive materials and trying to 

get it back out. So I think it is good that we brought that up as 

a part of the record. It is good to hear that you all feel that we are 

not as secure. It is an area we certainly need to tighten up on. 

With that, I yield back to you, Mr. Chairman. 

Mr. SHERMAN. Thank you. My initial questions will relate to your 

district more than mine, and that is on this tanker deal. I understand Ms. Blakey can’t talk about it and our other two witnesses, 

I am, frankly, disagree with their position. Since I introduced them 

I am aware of their qualifications, but, I hate to say it, also lack 

of qualifications in the sense that we here in Congress are responsible for jobs and the economy, you spent your lives a step away 

from those constituent concerns, and we are concerned, especially 

in this subcommittee, on the unfair trade practices that are used 

to create the enormous national debt. 

If we don’t fight back, we are going to see a hollowing out of the 

U.S. economy even more than what we face now. Finally, I don’t 

think either of you have been involved in trying to explain to a 

town hall why it is a good thing that we spend so much on military 

hardware. One of those arguments is that we build it here, we 

build our companies here, we build jobs here, and so being an agnostic as to whether the tankers are built here in the United States 

or not, or whether they are built by U.S. companies or foreign companies makes it hard for you to be an Evangelist for the idea of 

us having the tankers at all. I am sure that even though you have 

spent time, at least one of you, at the Pentagon, nobody in there 

is screaming stop spending money on the military. 

76

I would hope that, I mean, looking at everything involved you 

cannot be an agnostic on the economic impact of where we get our 

tankers. Now, Mr. Sokolski, I couldn’t agree with you more, it is 

not all about hardware. Software, you don’t even need that pick up 

truck to take the stuff to Mexico. 

Mr. SOKOLSKI. Do not. 

Mr. SHERMAN. So there is an even greater concern to making 

sure that those who are legally in the United States who get their 

hands on stuff should get their hands on things for the right purposes with the right restrictions. The idea that, and this harkens 

back to the 1990s, it could be sold at Egghead, which was a place 

they bought software back long ago——

Mr. BERTEAU. I used to buy a lot from Egghead. 

Mr. SHERMAN. Yes, but will let anybody who walks in with cash 

to Egghead to buy it but we are going to prevent its export—may 

have heard of this thing, it is called the internet. You can just, any 

program you have got. So now I would like to shift to coproduction 

and talk about things Ms. Blakey may be allowed to talk about. We 

import from China five times what they are willing to buy from us, 

or they buy from us only one-fifth of what they sell. That, if anything, overstates the amount they are willing to buy from us because when they are willing to buy from us it is the subject of these 

coproduction agreements. 

In fact, U.S. companies reported some 9,200 offset transactions 

worth $45 billion from 1993 to 2007. Not all of those are with 

China. Now we see them saying well, of course, we will have free 

access to U.S. markets whenever we want, but Americans will sell 

aerospace products to us only subject to coproduction agreements. 

Ms. Blakey, is it entirely legal for China to be demanding these coproduction agreements in order to purchase U.S. products? 

Ms. BLAKEY. I think we see a tendency around the world for developing countries and developing markets to want to share in the 

development of technologies and of these capabilities. Their proposition, of course, is: (1) it is an open market, and those who refuse 

to enter will do so. If U.S. firms do not, others will. 

Mr. SHERMAN. So what we could do is say if you insist on coproduction agreements as to aerospace, we immediately close our 

markets to all Chinese exports. That would be an effective response 

if our Government was capable of fighting for America rather than 

kowtowing to those few Americans who make a lot of money importing things into the United States. Since we don’t do that, the 

very few exports that we do have to China only can be counted as 

exports in the short term. They are really imports in the long term. 

Either we don’t sell to China at all or we are allowed to slit our 

own throats. In particular, we have this GE announcement. Is it 

in the interest of the total employment in your industry that we 

equip China with this capability? 

Ms. BLAKEY. I think a more robust capability on the part of our 

companies, U.S. companies, and certainly GE is one, in the long 

run will allow for a much greater share of the Chinese market. It 

is an enormous market from an aviation standpoint, and they already have sophisticated avionics. It is not as though avionics are 

not present on Chinese aircraft, and, in a multiplicity of ways, very 

competitive ones. This is all in the commercial arena. I would simVerDate 0ct 09 2002 11:42 Apr 08, 2010 Jkt 000000 PO 00000 Frm 00080 Fmt 6633 Sfmt 6633 F:\WORK\TNT\120909\53991 HFA PsN: SHIRL
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ply say that I think an argument certainly is a very strong one 

that in the long run this benefits U.S. economic terms and benefits 

our economy and benefits U.S. work. 

Mr. SHERMAN. So right now our companies face competition from 

Europe, just a little bit from Brazil. Are we conjuring up a world 

20 years from now where the Chinese can take a good half, threequarters of the world’s commercial airplane business. Is that in 

America’s interest? 

Ms. BLAKEY. Well, the Chinese market itself, which they have a 

great deal of control over, is an enormous market. 

Mr. SHERMAN. Well, if I can interrupt there. They have control 

of it as long as we are total wimps. Once we say you can’t import 

anything into the United States unless you buy American aircraft, 

then we have control. Of course, that would require us to assert 

some fortitude, and it is unlikely that we will do so. So we live in 

a world where we have decided to bleed to death slowly, and the 

question is who will prosper during that process? 

Ms. BLAKEY. You are arguing broader economic policy than just 

the aerospace industry by a long shot; things that would quake the 

terms of trade and our economy itself. 

Mr. SHERMAN. So, but do you expect that your industry is going 

to face a loss of half of the world market due to Chinese exports 

20 years from now? 

Ms. BLAKEY. No, we don’t because we believe that, again, U.S. 

technology and U.S. capabilities are incredibly strong. We will continue to compete as long as we have——

Mr. SHERMAN. Well, wait a minute. If you give all those capabilities to China so that they have the low labor cost, the ridiculously 

low currency and government subsidies, why do you think that you 

can give them the technology and you are still not going to face 

them as an international competitor? 

Ms. BLAKEY. I certainly can’t speak to the specific technologies 

that may be involved in the terms that General Electric has set up, 

but again, we are talking about commercial technologies that are 

widely available there and do evolve, and will evolve on global 

basis. I do believe the United States and our capabilities when it 

comes to everything from, you know, the avionics itself, which is 

at issue here, all the way through composites, all the way through 

advanced designs, we will continue to maintain a technological 

edge, and therefore, an advantage in exports, which we have now, 

as long as we have the resources to do so. That, again, is fueled 

by this trade. 

Mr. SHERMAN. Is there any technology that we have in avionics 

that GE is holding back? Are we just shipping them our old and 

bad stuff or is GE fully cooperating with the Aviation Industry 

Corp. of China and providing them with avionics capabilities fully 

at the level that GE is able to provide? 

Ms. BLAKEY. Well, representing the industry as a whole, I can’t 

speak specifically for the terms of this deal with GE, but what I 

would like to do is certainly ask that your question go to them directly and we will see about facilitating some further information. 

Mr. SHERMAN. Assuming U.S. companies fall over each other in 

an effort to get a short term advantage for a little while in China 

and provide to the Chinese all the technology that they are legally 

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allowed to do so and presumably get the licenses that are envisioned by this GE agreement, why do you assume that we are not 

going to lose half the market or more to China 20 years from now? 

Ms. BLAKEY. I think because, again, it comes back to do we have 

our capabilities that have proven over time to be those that will be 

to our ultimate advantage? I think that has proven the case so far 

and it will continue to do. 

Mr. SHERMAN. We have certainly proven the ability to develop 

great aircraft. We have also proven the ability in every other industry to ship our technology to China and give it to them and to lose 

the market. We had great technology in a lot of other fields. The 

one thing American companies have proven the ability to do is to 

offshore. As a matter of fact, almost all the profits that are made 

are made from offshoring. Why do you think that your industry is 

incapable of immediately transferring in a very profitable way to 

China all the great technology that you and I are confident that 

they can develop? Why are you guys so bad at offshoring? 

Ms. BLAKEY. I can’t suggest that I think it really comes down to 

that. I think, you know, when you are talking about a sophisticated 

set of technologies, which is what aerospace is all about, it is not 

making widgets, it is not going and giving them a singular technology that suddenly gives a tremendous advantage—I also think 

our companies are very intelligent about what makes sense in 

terms of strategic advantage and what does not. Again, I would be 

happy to get more specific information on this from General Electric’s standpoint, but as a broad matter we are projecting that we 

can hold our market share very well using the kind of strategies 

that we are taking these days to the world market. 

Mr. SHERMAN. Well, you have lost a good share to Airbus, and 

there the Euro is 11⁄2 to the dollar and is allowed to float. Assume 

that the Chinese currency is not only under priced by 40 percent, 

but let us say they decide to underprice their currency by 60 or 70 

percent next decade. How confident are you that planes can be 

manufactured in the United States profitably to continue our level 

of the world market share? 

Ms. BLAKEY. You know, some of these are the dynamics of world 

trade that I honestly will tell you are not within the control of a 

singular industry, or even the kind of projections that any of us can 

make. You are conjecturing a future that I believe is not one that 

is necessary or reality, but at the same time, we are all going to 

have to be aware that there are bigger dynamics in this that are 

beyond, as I say, any single industry. 

Mr. SHERMAN. Are there elements in your coalition that are 

pushing for a denial of the licenses that are necessary in order to 

export all of our aerospace technology to China? 

Ms. BLAKEY. There is very little aerospace technology that is controlled technology that is going to China at this point. Again, we 

have been talking in the commercial arena almost exclusively today 

as regards China. Our companies are very serious about not only 

maintaining, but enhancing controls on sensitive technologies. It is 

something we are advocating. As a part of export control reform, 

we believe there needs to be greater scrutiny, and, in fact, something that may be somewhat counterintuitive even when it comes 

to the Commerce controlled items. We would like to see a gradation 

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with some controls there that may be higher controls so that it is 

not simply a one size fits all approach. 

Mr. SHERMAN. So at the present point do you have an association 

position on whether we should grant the licenses necessary for this 

joint venture to go forward? 

Ms. BLAKEY. The joint venture has just been announced and I 

am not aware that there are licenses at issue. We can try to find 

out more and be more specific for you on it. 

Mr. SHERMAN. If you could get back to us and either say grease 

the skids or use every tactic to delay, which I would sure like to 

know your position on this joint venture. I have just begun to look 

at whether this is good for American jobs. They say it is going to 

provide 200 American jobs. That is a very few jobs to take in return for losing a big chunk of our technological advantage. Mr. 

Berteau, I think you——

Mr. BERTEAU. Mr. Chairman, you have raised over the course of 

the last few minutes a broad array of very significant issues and 

I know that both Mr. Sokolski and myself have been busily jotting 

down notes of what we would like to say in response to these 

issues. I think that in light of the time and the pressure of that 

that I would request that we be allowed to provide for the record 

a number of comments on——

Mr. SHERMAN. All three witnesses, and our two earlier witnesses, 

are all invited and urged to provide written comments for the 

record for 5 business days. In addition, if either of you recently ignored witnesses can have 1 minute to make an oral statement, that 

is fine. Otherwise, we will get your comments for the record. 

Mr. SOKOLSKI. One comment. I think there is a one word or two 

word answer to your question. What has kept, or what will keep, 

whatever it is that you are worried about from happening would 

be export controls. So if the review is done properly, you might get 

the results you want. If it is not done or you get rid of the controls, 

caddie bar the door. 

Mr. SHERMAN. Not only do we need to maintain our export control system and make it better, we have got to put into that review 

an explicit jobs component on both what State, as well as Commerce, does. 

Mr. BERTEAU. And, Mr. Chairman, there is one area where we 

have stayed ahead of the global curve in terms of competitive advantage flowing to places other than the U.S. and that is in national security. I think that is the core issue why we have export 

controls in the first place. We have done it by investing in the research necessary to keep us ahead of the technology curve that others have developed. You asked earlier on what the Congress can do 

and I will expand a little bit on that in my written remarks because I think that is the key question. 

There are other industries where we have done the same. They 

are not a lot of them. I think the larger questions of how we maintain a competitive advantage not only against China, but against 

the rest of the world is a very significant challenge facing America. 

I think national security and the national defense arena plays an 

important role in that, both from an economic and a technology 

perspective, as well as from a defending America perspective. I will 

be glad to expand on that. 

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Mr. SHERMAN. I look forward to getting your comments. Just as 

concluding comments, we have devoted hundreds of billions of dollars to national security research, chiefly in aerospace. This has 

given our companies an edge. That edge is important in order to 

maintain our national security and needs to be preserved. That 

edge has also been important to maintaining one of the last few industries where the United States is a major exporter, and we have 

to make sure that our national security research dollars not only 

keep us ahead in national security technology, but also preserve for 

the United States the lion’s share of the jobs that are made available by the civilian exploitation of that technology. I want to thank 

you all for being here. These hearings are concluded. 

[Whereupon, at 5:13 p.m., the subcommittee was adjourned.] 

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