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EXPORTS CONTROLS: ARE WE PROTECTING

SECURITY AND FACILITATING EXPORTS?

HEARING

BEFORE THE

SUBCOMMITTEE ON TERRORISM, 

NONPROLIFERATION, AND TRADE

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JULY 26, 2007

Serial No. 110–92

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 

TOM LANTOS, California, Chairman 

HOWARD L. BERMAN, California 

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 

ADAM SMITH, Washington 

RUSS CARNAHAN, Missouri 

JOHN S. TANNER, Tennessee 

GENE GREEN, Texas 

LYNN C. WOOLSEY, California 

SHEILA JACKSON LEE, Texas 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

DAVID WU, Oregon 

BRAD MILLER, North Carolina 

LINDA T. SA ́ NCHEZ, California 

DAVID SCOTT, Georgia 

JIM COSTA, California 

ALBIO SIRES, New Jersey 

GABRIELLE GIFFORDS, Arizona 

RON KLEIN, Florida 

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 

STEVE CHABOT, Ohio 

THOMAS G. TANCREDO, Colorado 

RON PAUL, Texas 

JEFF FLAKE, Arizona 

JO ANN DAVIS, Virginia 

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 

LUIS G. FORTUN ̃ O, Puerto Rico 

GUS BILIRAKIS, Florida 

ROBERT R. KING, Staff Director 

YLEEM POBLETE, Republican Staff Director 

SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE

BRAD SHERMAN, California, Chairman 

DAVID WU, Oregon 

DAVID SCOTT, Georgia 

RON KLEIN, Florida 

GENE GREEN, Texas 

JOSEPH CROWLEY, New York 

EDWARD R. ROYCE, California 

JOHN BOOZMAN, Arkansas 

TED POE, Texas 

DONALD A. MANZULLO, Illinois 

THOMAS G. TANCREDO, Colorado 

DON MACDONALD, Subcommittee Staff Director 

JOHN BRODTKE, Subcommittee Professional Staff Member 

TOM SHEEHY, Republican Professional Staff Member 

KINSEY KIRIAKOS, Staff Associate 
(III)

C O N T E N T S 

Page

WITNESSES 

Mrs. Beth M. McCormick, Acting Director, Defense Technology Security Administration, U.S. Department of Defense ......................................................... 12

The Honorable Stephen D. Mull, Acting Assistant Secretary, Bureau of Political-Military Affairs, U.S. Department of State ................................................. 14

The Honorable Christopher A. Padilla, Assistant Secretary, Bureau of Industry and Security, U.S. Department of Commerce .............................................. 18

Ms. Ann Marie Calvaresi Barr, Director, Acquisition and Sourcing Management, U.S. Government Accountability Office ................................................... 36

Mr. Will Lowell, Managing Director, Lowell Defense Trade, LLC ...................... 75

Mr. John W. Douglass, President and CEO, Aerospace Industries Association 

of America ............................................................................................................. 79

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

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

of California, and Chairman, Subcommittee on Terrorism, Nonproliferation, 

and Trade: Prepared statement .......................................................................... 5

The Honorable Edward R. Royce, a Representative in Congress from the 

State of California: Prepared statement ............................................................ 7

The Honorable Donald A. Manzullo, a Representative in Congress from the 

State of Illinois: Prepared statement ................................................................. 11

The Honorable Stephen D. Mull: Prepared statement ......................................... 16

The Honorable Christopher A. Padilla: Prepared statement ............................... 21

Ms. Ann Marie Calvaresi Barr: Prepared statement ............................................ 38

Mr. Will Lowell: Prepared statement ..................................................................... 76

Mr. John W. Douglass: Prepared statement .......................................................... 80

(1)

EXPORTS CONTROLS: ARE WE PROTECTING 

SECURITY AND FACILITATING EXPORTS? 

THURSDAY, JULY 26, 2007

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

The subcommittee met, pursuant to notice, at 2:07 p.m. in Room 

B–318, Rayburn House Office Building, Hon. Brad Sherman (chairman of the subcommittee) presiding. 

Mr. SHERMAN. Greetings, we are honored by the attendance of 

the full committee chairman and before we proceed with further 

business, I would like to hear what he has to say. 

Mr. LANTOS. Thank you very much, Mr. Chairman, I appreciate 

your courtesy. 

Every year, U.S. companies deliver tens of billions of dollars’ 

worth of weapons and defense systems to foreign clients. It is our 

Government’s job—via the Departments of Commerce and State—

to ensure that such military technology does not fall into the wrong 

hands. 

This year, for the first time, the Comptroller General of the 

United States has designated the Government’s regulation of this 

deadly trade as a ‘‘new high risk area’’ for U.S. national security. 

The agencies responsible for safeguarding our vital national security are now, themselves, a risk to that security. 

What is the reason for this sorry situation? The GAO has been 

pointing out the problems for nearly a decade. In report after report, it has noted that the State and Commerce Departments are 

in a state of denial about the need to adapt to new threats and new 

global technological challenges. These issues are particularly acute 

at the State Department, which has been awash in unprocessed applications for licenses to ship military equipment overseas—a 

whopping 10,000 of them at one point last fall. The State Department is beset by so-called managers who are, in fact, unable to 

manage this process. Their recommendation: Throw more money at 

it. I certainly support increasing the resources at the State Department for this crucial job. It is absurd in the extreme that State has 

only 37 licensing officers to process nearly 70,000 applications, 

while Commerce boasts over 70 officers for a comparatively-paltry 

workload of 23,000 licenses. 

But increased resources alone will not fix the problem of mismanagement. Simply put, the management of arms licensing needs 

sustained attention and commitment by the senior leadership of 
2

the Department of State to fix the problems—attention that has 

been lacking for several administrations. 

The Committee on Foreign Affairs will do its part in finding solutions with or without the administration’s help. This hearing is an 

important part of that process. 

Let me be clear on two further points: First, I am not an advocate of cutting corners on national security, either to boost exports 

or to reduce the long line built up at the arms licensing office. The 

recent treaty to exempt the United Kingdom from most arms licensing requirements may or may not be a good idea—the details 

of this treaty have yet to be worked out. I have long supported special consideration for our closest and most reliable ally. But these 

types of agreements are not a panacea for reducing State’s licensing workload, which is increasing by more than 10 percent every 

year. 

Second, I will do everything in my power to preserve and expand 

congressional oversight over this process. I understand that the administration is preparing changes to both munitions and so-called 

‘‘dual-use’’ licensing procedures. I strongly advise the administration to reflect on past experiences and to consult with Congress 

this time around—especially the Foreign Affairs Committees of the 

House and the Senate—before finalizing these changes. 

The executive branch must treat Congress as the co-equal partner in governance that the Constitution mandates we are. But if 

it refuses to do so, Congress will be forced to assert its authority 

by less friendly means. It is the administration’s choice which path 

we take. 

Thank you, Mr. Chairman. 

Mr. SHERMAN. Thank you, Mr. Chairman, for coming to our subcommittee hearing. 

Last Monday, the OPIC bill passed the full House. I want to commend all the members of the subcommittee for all the hard work 

on that, and especially thank the full committee chairman for his 

efforts and his entrusting to this subcommittee the trade jurisdiction of the full committee. And I hope very much that these hearings will also lead to legislation. It may be a bit more difficult because we are not reauthorizing, and thus it is not must-pass legislation in the legislative sense of the term, but I think these hearings will illustrate that we have must-pass legislation in the sense 

of making our Government work better. 

The purpose of these hearings is to examine U.S. export controls; 

we must prevent the spread of weapons and sensitive technologies 

to the wrong hands while at the same time allowing defense trade 

with our allies and non-defense items to go to all of our trading 

partners. 

Our current export control policy was designed decades ago. 

Since then technology has changed, the Cold War is over, and yet 

our export control regime remains pretty much unchanged. 

The regime resides in two key Federal agencies. The first is the 

State Department’s Directorate of Defense Trade Controls (DDTC). 

This agency licenses every U.S. purveyor of munitions whether that 

purveyor chooses to sell abroad or not, and then issues a license 

for every munitions export and a separate license for any followup contracts for repair maintenance or whatever. 
3

The second agency is the Department of Commerce, we have the 

Bureau of Industry Security, BIS, if you will, which issues licenses 

for the exports of certain items, non-munitions, but dual-use items 

to certain countries. It also affects every export of this country because before you export a paper clip you have to think, is this a 

dual-use item. Fortunately for the vast majority of exports, you can 

easily look on BIS’ Web site and realize you are not required to get 

a license. 

If we are too quick to issue licenses, bad people will get stuff 

they can use to blow us up. That is the obvious side. But we should 

also be cognizant what happens if we are too slow to approve the 

licenses we ought to approve. 

Obviously we lose exports and jobs. We also lose revenue coming 

in to our high-tech and munitions companies, which they can use 

to spread the cost of research and development and keep America 

first in technology, which is so critical for our national security. 

And if we are too slow to issue the right licenses, we hurt our allies 

and their ability to maintain their militaries and their economy. 

Perhaps the greatest problem in not issuing the right license or 

not doing it quickly enough is we create a demand for the NotMade-in-America label, that is to say we cause customers around 

the world to provide the critical sales necessary to build defense industries in countries that do not share our national security concerns. 

We should begin by examining the growing number of export licenses that have been piling up at State. Last year, the backlog of 

unprocessed licenses at DTTC reached 10,000, a number unheard 

of in prior years. The Bureau of Industry and Security over at the 

Department of Commerce is not reporting the same problems, and 

the numbers point to the reason why. 

If you look back at this chart, you will notice that BIS processed 

23,000 export control applications with a staff of 351 people. By 

contrast, DDTC processed, as Chairman Lantos said, over 70,000 

applications with a staff of 64 people. Moreover the State Department’s numbers show that license applications have grown at the 

rate of 8 percent or more every year for the past 4 years. 

It is growing even faster now. The department expects to receive 

some 80,000 applications this fiscal year, a 14.3 percent increase 

from last fiscal year. There has been some recognition of the problem, and I commend the State Department for taking the steps to 

streamline some of the paperwork to electronic submission forms. 

However, the median processing time for a license has doubled 

since 2002. The agency continues to have trouble recruiting and retaining personnel including senior management and has other 

problems that Chairman Lantos spoke of. 

When you have a projected doubling of applications over a decade 

and don’t have more staff, you raise the likelihood of two problems: 

First, national security can suffer because not everyone who should 

be applying for a license or required to apply for a license is investigated. When they are applying for a license and not getting the 

attention they deserve and it also becomes increasingly easy to violate the terms of licensing agreements. 

Second, you make it unnecessarily difficult, as I mentioned before, for U.S. businesses to supply our allies. One aspect of the 
4

problem is clear, there is simply not enough personnel to handle 

the problem and the State Department, administration, and Congress all must share some of this blame. The administration has 

not asked for the money to get the job done in a timely basis. The 

State Department then raids the general account so that DDTC 

doesn’t get the money that Congress intends; Congress doesn’t line 

item DDTC. So as to prevent that raid, I see a fair number of lobbyists in this room must share some of the blame for not using 

some of their lobbying muscle to solve these problems. Of course I 

share some of this blame—until we got trade jurisdiction in the 

subcommittee, I had not spent a whole lot of time looking at these 

issues. 

DDTC obviously needs a dedicated independent funding source. 

History has shown, as I mentioned, that the State Department cannot resist raiding these funds for other functions. 

One option for us as a subcommittee is to write the appropriators 

and urge them in conference to subdivide the general account and 

provide a specific line item for DDTC. But frankly we need to look 

at other solutions beyond that, including the possibility of a feegenerated source of revenue to add to the fee State is now getting 

in order to make sure that we are not holding up billions of dollars 

for want of a few personnel. 

We also face turf battles between State and Commerce, as GAO 

will note in their testimony. For example, Commerce and State 

have not settled which agency has control over 47 missile-related 

items. There is an ongoing turf war over civil aviation equipment, 

even though Congress specifically laid out in the Export Administration Act the provision that places certified civilian aircraft parts 

and components under the jurisdiction of Commerce. Congress will 

be asking the State Department what part of the EAA they don’t 

understand, or whether they think Congress should amend it and 

reinvest that control in the State Department. 

I am concerned that we are placing U.S. companies on a playing 

field dominated by confusion, needlessly adding to our mammoth 

trade deficit, and in turn creating a perverse incentive to move development and manufacturing of defense technologies overseas. 

The majority of our defense related items go to long-standing allies of the United States. Sixty percent of our defense items go to 

these seven countries: Japan, by far the largest; Germany; the 

United Kingdom; South Korea; Canada; Italy; and Israel. These exports do not consist of just tanks or aircrafts or major items that 

are physical, but also contracts to maintain, train with, and operate the U.S. equipment and technology. 

We should carefully examine multiple options, including the establishment of guidelines for average processing times, and perhaps even more importantly, to make sure that the 10 percent of 

the toughest cases do get processed in some expeditious manner. 

We should examine the appropriateness of having the maintenance 

and service in training contracts be subject to a license that can be 

applied for at the same time as the export license—that is to say, 

applied for way in advance of when that servicing and repair work 

is going to be provided. 

And we should be looking, as I alluded to before, at the idea of 

calling upon the exporters to fund this system, so that we can have 
5

1Government Accountability Office 

2Department of State, Budget Justification, FY 2008

3Government Accountability Office (GAO) 

a better-staffed system than we currently have. I realize that may 

not be the best approach, because every other country tries to subsidize its exports. Charging a fee to those who export is a second 

best solution, but it is certainly a lot better than enormous delays 

because that can kill a deal far more than a governmental fee. 

As the GAO notes, neither Commerce nor State has made any 

fundamental updates to the export control systems in recent years, 

and each department has conducted ad hoc reviews that 

unsurprisingly determined there was no need to make fundamental 

changes. However, I believe that fundamental changes need to 

occur in the next few years. 

I am eager to hear from all our witnesses how we can be sure 

we are not needlessly blocking exports and inadvertently focusing 

our resources on technologies that are already easily available in 

our international market. At the same time, I look forward to hearing whether there are times when the current system is letting 

deadly technologies get into the wrong hands. 

I thank, for his patience, my ranking member and recognize him. 

[The prepared statement of Mr. Sherman follows:]

PREPARED STATEMENT OF THE HONORABLE BRAD SHERMAN, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA, AND CHAIRMAN, SUBCOMMITTEE ON

TERRORISM, NONPROLIFERATION, AND TRADE

The purpose of this hearing is to examine U.S. export controls and how they are 

implemented. Our laws, regulations, policies, and practices in this area must effectively prevent the spread of weapons and sensitive technologies to countries, groups 

and individuals of concern, while at the same time allowing appropriate defense 

trade with our allies for their legitimate self-defense needs. 

Our current export control policy was designed three decades ago in the middle 

of the Cold War. While subtle changes to our export control policy have been made 

since the fall of the Berlin Wall, there has been no concentrated effort to modernize 

the system to account for changing foreign policy objectives and the national interest. 

We should begin by examining the growing number of export licenses that have 

been piling up at the State Department. Last year, the backlog of unprocessed licenses at DDTC reached 10,000 1—a number unheard of in previous years. The Bureau of Industry and Security (BIS) at the Commerce Department is not reporting 

the same problems, and the numbers paint a clear picture as to why. 

Last year, Commerce’s BIS processed 23,673 export control applications with a 

staff of 351. By contrast, the State Department’s DDTC processed 65,274 applications with a staff of 64. 

Moreover, the State Department’s numbers show that license applications have 

grown at a rate of 8 percent or more every year for the past four years.2 In this 

fiscal year alone, the Department expects to receive more than 80,000 applications, 

a 23% increase from last year. 

There has been some recognition of the problem, and I commend the State Department for taking steps to streamline some of the paperwork through electronic 

submissions forms. The median processing time for a license has doubled since 

2002 3, and the agency continues to have trouble recruiting and retaining personnel, 

including its senior management. 

Obviously, when you have a projected doubling of applications over the course of 

a decade and no more staff, you raise the likelihood of two problems. First, national 

security suffers because not everyone who should be getting a license does, and it 

become increasingly easier to violate the conditions of a licensing agreement. Second, you make it unnecessarily difficult for U.S. businesses to supply our allies. 

One aspect of the problem is clear: there are simply not enough personnel to handle the growing demand, and the State Department, the Administration, and Con-
6

4Government Accountability Office, Briefing Paper Submitted to the House Foreign Affairs 

Committee on Terrorism, Nonproliferation and Trade, July 17, 2007 5Section 17 (c) of the Export Administration Act of 1979 states, in part, that ‘‘standard equipment certified by the Federal Aviation Administration (FAA), in civil aircraft and is an integral 

part of such aircraft, and which is to be exported to a country other than a controlled country, 

shall be subject to export controls exclusively under this Act. Any such product shall not be subject to controls under Section 28 (b) (2) [licensing requirements] of the Arms Export Control 

Act.’’ 6Department of State, Budget Justification, FY 2008

gress have either been unwilling or unable to commit the resources needed to address these challenges. 

DDTC obviously needs a dedicated, independent funding source. History has 

shown that the State Department cannot resist raiding these funds for other functions, and it is time for Congress to take action. 

There are also turf battles between State and Commerce. For example, Commerce 

and State have not settled which agency has control over 47 missile-related items.4

There is also on ongoing turf war over the control of civil aviation equipment, even 

though Congress specifically laid out in the Export Administration Act (EAA) 5, a 

provision that places certified civilian-aircraft parts and components under the jurisdiction of Commerce. 

I am concerned that we are placing U.S. companies on a playing field dominated 

by confusion, needlessly adding to our mammoth trade deficit, and creating a perverse incentive to move the development and manufacture of new defense technologies overseas. 

The majority of our defense related exports are to long-standing U.S. allies like 

Japan (27%), Germany (8%), the United Kingdom (7%), South Korea (7%), Canada 

(4%), Italy (3%), and Israel (4%).6 These exports are not just a single item like a 

tank or aircraft, they include the components and services necessary for our coalition partners to maintain, train with, and operate U.S. equipment and technology. 

We should carefully examine multiple options including the establishment of 

guidelines for average processing times. We should also examine the appropriateness of bundling some of the anticipated servicing and repair parts to the initial license for a defense system. 

As the GAO notes, neither the Commerce nor the State Department has made any 

fundamental updates to their export control systems in recent years. Each Department has conducted ad hoc reviews that, unsurprisingly, determined there was no 

need to make any fundamental changes. 

I am eager to hear from all of our witnesses how we can ensure that we are not 

needlessly blocking exports and inadvertently focusing resources on technologies 

that are already easily available on the international market.

Mr. ROYCE. Thank you, Mr. Chairman. I think we all recognize 

that our enemies are conspiring to hurt us in many ways. We know 

hostile governments, including Iran and terrorist organizations as 

well, are quite determined to acquire United States military technology. Frustrating their attempts to do that is an urgent responsibility. This subcommittee has looked very closely at some real life 

examples of how that has been done in the past. 

One case is the A.Q. Khan network. We have held a number of 

hearings in the last 2 years on this and we have heard about that 

network’s sophisticated attack on export controls worldwide. They 

used front companies and false documentation. A.Q. Khan and his 

people used diversion and he ended up with the ability to sell the 

component parts to make an atom bomb. 

Frankly, if you were Libya or North Korea or Iran at the time, 

this was a network to put on your payroll or trade clandestinely 

missile technology with and that is what happened at the time. 

We can be sure from looking at that example that others out 

there are using similar means in seeking technology, including 

American technology to harm us. This makes it critical that we 

have in place an effective export control system. Unfortunately, we 

are not at that point. 
7

The GAO has reported poor coordination between the Departments of State and Commerce as they control the export of military 

technology and dual-use items. There are persistent and problematic disputes over which export control lists particular items belong 

on. End-use monitoring is weak in many cases. We know it is weak 

in the case of China. 

One expert had said, ‘‘The safety net here is full of holes.’’ Indeed, as we will hear, the GAO has designated the effective protection of technology critical to national security as cause of immediate concern. So I commend the chairman for calling this hearing. 

An effective export control system—while denying technology to 

those hostile—facilitates the exports of technology that poses little 

threat. Our national defense relies upon our technological edge. 

Maintaining that edge in the face of increasing global competition 

requires vibrant manufacturers, which requires robust exports and 

coordination with foreign governments and foreign companies, 

which is also important to our joint military operations. 

At the State Department the number of export license cases are 

up, many of which are increasingly complex. So while we may need 

to commit adding resources to administrating our export controls, 

we have been upping those resources, filling more licensing positions. It would be more helpful to the system and reduce processing 

time, which have reached an unacceptable number of days, if key 

reforms were made. Resolving disputes over lists would be a start. 

We don’t want to drive American manufacturers offshore because 

of inefficient bureaucracies. 

The A.Q. Khan case also highlighted something else, the fact 

that many other key exporters of military use technology have 

weak and shoddily-enforced export controls. In this case, Europe. 

While some progress has been made internationally, the system is 

only as strong as the weakest country. 

In this day of terrorism and weapons of mass destruction proliferation, it is critical that we work with others to bolster their 

controls of dangerous technology to minimize the chances of it falling into the wrong hands. This is a long-term project, which frankly, I think, on this subcommittee we should lead. Mr. Chairman, 

again, thank you for holding this hearing. 

[The prepared statement of Mr. Royce follows:]

PREPARED STATEMENT OF THE HONORABLE EDWARD R. ROYCE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA

Our enemies conspire to hurt us in many ways. We know that hostile governments, including Iran, and terrorist organizations are determined to acquire U.S. 

military technology. As at least one witness will testify, frustrating their attempts 

is an urgent matter. 

This Subcommittee has looked closely at the A.Q. Khan network over the last two 

years. We have heard about its sophisticated attack on export controls worldwide, 

using front companies, false documentation and diversion. We can be sure that others are using similar means in seeking technology, including American technology, 

to harm us. This makes it critical that we have in place an effective export control 

system. 

Unfortunately, we’re not at that point. The GAO has reported poor coordination 

between the Departments of State and Commerce as they control the export of military technology and dual use items. There are persistent and problematic disputes 

over which export control lists particular items belong on. End use monitoring is 

weak in many cases, including in China. One expert has said that ‘‘the safety net 

is full of holes.’’ Indeed, as we’ll hear, the GAO has designated the effective protec-
8

tion of technology critical to national security as cause of immediate concern. So I 

commend the Chairman for calling this hearing. 

An effective export control system—while denying technology to those hostile—facilitates the export of technology that poses little threat. Our national defense relies 

upon our technological edge. Maintaining that edge in the face of increasing global 

competition requires vibrant manufacturers, which requires robust exports and cooperation with foreign governments and companies, which is also important to our 

joint military operations. 

At the State Department, the number of export license cases are up, many of 

which are increasingly complex. So while we may need to commit added resources 

to administering our export controls, we have been upping these resources, filling 

more licensing positions. It would be more helpful to the system, and reduce processing times, which have reached an unacceptable number of days, if key reforms 

were made. Resolving disputes over lists would be a start. We don’t want to drive 

American manufacturers off-shore because of inefficient bureaucracy. 

The A.Q. Khan case also highlighted the fact that many other key exporters of 

military use technology have weak and shoddily enforced export controls. While 

some progress has been made internationally, the system is only as strong as the 

weakest country. In this day of terrorism and weapons of mass destruction proliferation, it’s critical that we work with others to bolster their controls of dangerous technology to minimize the chances of it falling into the wrong hands. This is a longterm project, which we should lead.

Mr. SHERMAN. Thank you, Mr. Royce. Let me now recognize the 

vice chair of this subcommittee, Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman, and certainly welcome our 

distinguished panelists, we are certainly looking forward to your 

discussions. This is very, very important, our USS for control system. 

As you may know, I represent one of the largest, and certainly 

the finest, rare aerospace defense technology companies in the Nation, certainly in the world, and that is Lockheed Martin in Marietta, Georgia, in my district. As such, the concerns of the industry 

certainly weigh heavily on my thinking on this issue. But that 

being said, I understand the need to keep a close watch on the 

items we export and to where we export them. 

In the age of rapid technology development and with the numbers of dual-use items sky rocketing, we must keep items that can 

be turned into weapons out of the hands of potential terrorists who 

want desperately to kill us and destroy our way of life. That is the 

delicate balance that we face now, and that is why this hearing is 

so critical. 

With that in mind, it is also important that we do not severely 

restrict the ability of industries to do business in a free market 

way. That also is extraordinarily critical. 

I am concerned that any move toward a user fee to process a license might do just that. Any user fee would only create additional 

barriers to doing legitimate business and would almost certainly 

shut small companies out of the process all together and that we 

must not do, as these fees would be on top of already large registration fees, registration fees which recently tripled to almost 

$1,800. 

Moreover, I feel that a fee for service system has the potential 

of tremendous corruption. We have all heard the horror stories 

about corruption in the user fee system of the FDA for drug approval. With scientists and regulators being in the pocket of pharmaceutical manufacturers. That is precisely the kind of situation 

we definitely want to avoid. 
9

It would make more sense, it seems to me, to reduce the number 

of licenses a company has to apply for. And eliminate duplicative 

paperwork and registration requirements for simple things like 

change in a company’s name. 

As my time is running short, I will summarize by simply saying 

this, as we proceed in developing much needed reforms to the U.S. 

export control system, it is important that we proceed carefully, 

with well-thought out analysis, and in a calculated way, with all 

the players at the table, both industry and government, to find a 

mutually agreeable solution. 

Finally, one fundamental issue I hope we get into today is the 

degree that licensing delays and the increasing backlog of pending 

applications, we need to determine what their impact is on the 

management of defense programs with our key allies and partners 

around the world. 

With that, Mr. Chairman, I yield back the balance of my time. 

Mr. SHERMAN. I thank the vice chairman. I will just comment 

that any user fee is, at best, a second best solution and as the gentleman from Georgia points out may be fraught with other problems. 

One problem with the existing registration fee is one flat rate for 

a large and small companies, and certainly any fees that come out 

of this subcommittee this year should be somehow a percentage of 

the sale, a tiny, tiny percentage of the sale, if we did anything at 

all, and certainly not a flat rate fee where the huge company and 

the small are paying the same amount. 

Knowing of his advocacy for small business on this point and 

every other, I recognize, if he has an opening statement, the former 

chair of the Small Business Committee, Mr. Manzullo. 

Mr. MANZULLO. Thank you, Mr. Chairman, for calling this important hearing on export controls and their impact on U.S. export 

control policy, the impact on U.S. national security and economic 

competitiveness. 

As many of you know, I formed the Export Control Working 

Group with my distinguished colleagues, Joe Crowley and Eric 

Blumenauer, at the beginning of this Congress, because I was and 

I am still concerned that our Cold War era export control system 

is not working as envisioned. 

I would like to speak more broadly about my concerns of our current system. I am going to focus my remarks on the area greatest 

for opportunity for improvement, defense trade license processing 

by the Directorate of Defense Trade Controls, DDTC, a concern 

that such an important function has historically received so little 

attention by the Department of State. The fundamental changes 

are necessary in processing licenses if our Government is to fulfill 

its core mission of promoting U.S. national security and foreign policy without sacrificing the defense industrial base in America’s 

competitiveness. 

These concepts are not mutually exclusive, I am not concerned 

about the number of licenses approved or not approved. My concerns are about the length of time it takes to process those licenses. 

If our allies in Europe are able to process licenses in 1 or 2 weeks, 

why does it take us 5 to 10 times longer? 
10

I understand DDTC is working overtime to minimize the time it 

takes to process license applications, but more is necessary. Last 

year, there was a backlog of 10,000 licenses waiting to be processed 

by DDTC. It is my understanding that licensing officers worked 

day and night into the weekends to reduce the backlog back down 

to 5,000 pending licenses, which is still unacceptable. And now the 

backlog is back up to 7,000 licenses. Either the program is underfunded or major programmatic changes are necessary. 

Currently license processing can be so slow and burdensome that 

U.S. suppliers are denied access to international trade opportunities because they had been seen as unreliable suppliers. Those are 

the losses that we can never set a dollar figure on. 

Also I am concerned that scarce resources can be applied to low 

risk areas with particular items—particular sensitivity not receiving appropriate attention. Some of you may be wondering about the 

low risk areas I am referring to. One category that readily comes 

to mind is civil aircraft parts and components that have been certified by the Federal Aviation Administration. Aerospace manufacturers in the Northern Illinois Congressional District I am proud 

to represent have stated that DDTC has not applied 17C of the Export Administration Act consistently. I want testimony on that. 

This provision explicitly states that all previously certified aircraft parts and components belong under the jurisdiction of the Department of Commerce. I would be interested in hearing from Mr. 

Padilla and Ambassador Mull regarding the Department of State’s 

justification for not applying 17C, and therefore not following the 

law as intended. 

This is just one example of the confusion associated with following the International Trafficking and Arms Regulations, ITAR, 

particularly for small manufacturers who don’t have the resources 

to hire export compliance departments. There are many others. 

This lack of clarity could lead to incomplete application that can 

further over burden the licensing system. 

Let me give you an example of the problems. This connecting 

cable is ITAR regulated. This one is not. The one on the left is not. 

This is the bad guy; the bad guy is 1 inch shorter. There has to 

be a way to export these things without going for a license. 

These are two fasteners, the one on the right is ITAR regulated 

the one on the left is not even on the CCL list. This is absurd. This 

is why you have so many licenses. This is why there has to be a 

complete reorganization and restructuring of the system by which 

American manufacturers can be competitive, because if our guys 

have to go through all the licensing to sell this, foreign buyers will 

say. I can get that somewhere else. 

In fact, we see today advertised ITAR free, come buy from us, 

U.S. is crazy. And we are doing it to ourselves. And so something 

has to be done, because I have a lot of manufacturing jobs in my 

district and, I just lost another plant yesterday. 

As we become more and more recognized in the world as an unreliable supplier, people in Washington just look at each other and 

say, you know, we have got to do something about this licensing 

problem. Well, I want some answers today as to why this, if it falls 

into the hands of the enemy, I guess it could get me in prison, so 

I better put it in here so nobody comes around. 
11

So if this falls in the hands of someone else, I guess I am okay 

with that. That is the position American manufacturers find themselves, especially the little guys, especially the little guys out there 

who make quality products and can’t hire people to go through the 

weeds involved in export controls. 

We have got some real enemies out there. One of the biggest enemies lies within all these regulations so that the people who made 

this country with their hands, the manufacturers are becoming so 

frustrated, some give up and many have and set up shop in Europe 

and in Asia. And so I look forward to the testimony. 

I would also trust that the second panel would stick around and 

I will be watching to see if you do, to listen to the second panel 

of people who experienced the real life angst and grief, including 

the GAO people who I wish were seated with this first panel so 

GAO accountants could confront the people in the other agencies 

directly as to the inefficiencies involved and I look forward to the 

testimony. 

[The prepared statement of Mr. Manzullo follows:]

PREPARED STATEMENT OF THE HONORABLE DONALD A. MANZULLO, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Thank you, Mr. Chairman for calling this important hearing on export controls 

and their impact on U.S. export control policy and the impact on U.S. national security and economic competitiveness. I look forward to hearing from our distinguished 

panelists today. 

As many of you know I formed the Export Control Working Group with my distinguished colleagues Joe Crowley and Earl Blumenauer at the beginning of this Congress because I was and still am concerned that our Cold War era export control 

system is not working as envisioned. While I could and would like to speak more 

broadly about my concerns with our current system, I am going to focus my remarks 

on the area of greatest opportunity for improvement, defense trade license processing by the Directorate of Defense Trade Controls (DDTC). I am concerned that 

such an important function has historically received so little attention by the Department of State. 

I believe fundamental changes are necessary in processing licenses if the U.S. government is to fulfill its core mission of promoting U.S. national security and foreign 

policy interests without sacrificing the defense industrial base and America’s competitiveness. These concepts are not mutually exclusive. Let me be clear, I am not 

concerned about the number of licenses that are approved or not approved. My concerns are about the length of time it takes to process licenses. If our allies in Europe 

our able to process licenses in one to two weeks, why does it take us five to ten 

times longer? 

I understand that DDTC is working overtime to minimize the time it takes to 

process license applications, but more is necessary. Late last year there was a backlog of 10,000 licenses waiting to be processed by DDTC. It is my understanding that 

licensing officers worked day and night and through the weekends to reduce the 

back log down to 5,000 pending licenses—which is still unacceptable number for the 

backlog. And now the backlog is back up to 7,000 licenses. Clearly changes must 

be made in the processing of these licenses. Either the program is under-funded or 

major programmatic changes are necessary. I personally believe that it is both. Currently, license processing can be so slow and burdensome that U.S. suppliers are 

denied access to international trade opportunities because they have been seen as 

unreliable suppliers. Also, I am concerned that scarce resources could be applied to 

low risk areas with items of particular sensitivity not receiving appropriate attention. 

Some of you may be wondering about the low risk areas that I am may be referring to. One category that readily comes to mind is civil aircraft parts and components that have been certified by the Federal Aviation Administration. Aerospace 

manufacturers in the northern Illinois Congressional district I am proud to represent have stated that DDTC has not applied 17(c) of the Export Administration 

Act consistently. This provision explicitly states that all previously certified aircraft 

parts and components belong under the jurisdiction of the Department of Commerce. I’ll be interested in hearing from Mr. Padilla and Ambassador Mull regard-
12

ing the Department of State’s justification for not applying 17(c) and therefore not 

following the law as intended. 

This is just one example of the confusion associated with following the International Trafficking in Arms Regulations (ITAR) particularly for small manufacturers who don’t have the resources to hire export compliance departments. There are 

many others. This lack of clarity can lead to incomplete applications that can further overburden the licensing process. If defense trade is truly a matter of national 

security, it is in everyone’s best interest that all manufacturers understand and be 

able to comply with the law. 

Mr. Chairman, I greatly appreciate the opportunity to issue a statement and I 

look forward to hearing from our witnesses.

Mr. SHERMAN. Thank you for overcoming your shyness. I also do 

want to point out the Export Administration Act, which both Mr. 

Manzullo and I cited, of course, has been allowed to lapse by Congress, but it is being kept alive in effect by Executive order, and 

the provisions that we both cited on civilian aircraft, I believe, are 

still enforced through Executive order. 

With that, let me check with the gentleman from Colorado—who 

has just indicated that he does not have an opening statement. 

We have before us three agencies, I mentioned two, the third is 

the Department of Defense which plays a more modest role, such 

a modest role that I haven’t heard any criticism of the role of the 

Department of Defense. 

I point out as we talked about turf battles, I wouldn’t want to 

give the President any advice, but I would hope since you both 

work for the President, that he would get somebody in there as a 

referee to deal with these turf battles, and one department that 

has the qualifications to do that is the Department of Defense, but 

frankly, however, the President wants to carry out or deal with 

these turf battles, he ought to be doing so. 

Let me introduce the woman from the not-yet-criticized agency, 

the Department of Defense, Mrs. Beth McCormick, Acting Director 

of the Defense Technology Security Administration. In this capacity, she is responsible for developing and implementing DoD technology security policies for international transfers of defense-related goods, services and technologies. Mrs. McCormick. 

STATEMENT OF MRS. BETH M. McCORMICK, ACTING DIRECTOR, DEFENSE TECHNOLOGY SECURITY ADMINISTRATION, 

U.S. DEPARTMENT OF DEFENSE 

Mrs. MCCORMICK. Thank you, Mr. Chairman. I appreciate the 

opportunity to be here today to talk about my role and leading my 

agency and the Department of Defense’s role in export control. 

Simply stated, the role of the Department of Defense in this regard is to support the two agencies represented to my right, Department of State and Department of Commerce. But I think my 

agency and the Department of Defense possess some unique capabilities to provide technical expertise, to develop and validate coalition and interoperability requirements and to provide program insight, which is necessary to insure export controls, protect national 

security interest, while at the same time, facilitating exports and 

trade, and that is an important balance that we all have to do in 

the job we perform. 

The ultimate goal for the Department of Defense in this regard 

and in this process is to protect the U.S. war fighter and the coalition forces that also join us in military operations. 
13

Within the Department of Defense, the Under Secretary of Defense for Policy has delegated to the Defense Technology Security 

Administration this responsibility. A couple of years ago when we 

had a new charter from our organization signed back in 2005, we 

had a new set of responsibilities laid out, I think they are a really 

good set of responsibilities that my agency is charged with. The 

first one is to preserve critical U.S. militarily technological advantages. This is important because as we go in the battlefield, we 

want to make sure that our coalition forces have the best equipment to fight the enemy that we face. 

Secondly, we need to support legitimate defense cooperation with 

foreign friends and allies because, obviously, having similar equipment and working with people who are fighting with us alongside 

with us in the global war on terrorism is incredibly important. 

Third, it is important that we assure the help of the defense industrial base. 

Fourth, we need to prevent proliferation and diversion of technology that can prove detrimental to U.S. national security. So 

those goals of my agency, I think, it sort of shows the different balance that we have to do everyday and I take very seriously the fact 

that I have to try to meet each one of them. Sometimes there is 

inherent tension in them, but we need to do our best job to balance 

those goals. 

My agency’s contribution to technology protection comes at two 

ends of the export control process. First, through our participation 

in making recommendations to the Department of State and Commerce on what our position about licenses should be; and also, 

through continuous work on both national and international regimes, this is an area particularly in the international regime front 

is particularly important, it is important that we work with other 

countries to be sure we have sort of a similar, at least a harmonized approach, to export controls because obviously individuals 

out there are going to acquire technology where they can. It is very 

important that we do that, it is also important to ensure that our 

industry is operating on a level playing field. 

So I thank you again for the opportunity to be here and I look 

forward to working with this committee and discussing this matter, 

because I think it is an area where it is important that we have 

a very constructive dialogue between the executive branch and legislative branch. Thank you. 

Mr. SHERMAN. Thank you. And thank you for pointing out that 

when we do make a good export of military goods, not only do we 

make our allies stronger, but interoperable with us and with each 

other. 

As I move to the second panelist on our first panel, let me point 

out that we are going to combine the second and third panels to 

try to get through by not too much after 4 o’clock p.m. today. With 

that, let’s move to Ambassador Steven Mull. He is acting Assistant 

Secretary of State in the Bureau of Political Military Affairs. He is 

a career Foreign Service Officer who has served as U.S. Ambassador to Lithuania. 
14

STATEMENT OF THE HONORABLE STEPHEN D. MULL, ACTING 

ASSISTANT SECRETARY, BUREAU OF POLITICAL–MILITARY 

AFFAIRS, U.S. DEPARTMENT OF STATE 

Ambassador MULL. Thank you very much, Mr. Chairman. 

Thanks to you and to all the committee for giving us the opportunity to come down as a group and talk about this critically important topic. 

My bureau’s most important job is to manage the export of our 

Nation’s sensitive technology and equipment in a way that both 

protects America’s national security interest and our military preeminence, but also insures a rapid military supply to our allies and 

partners in defending our common interest around the world, also 

supporting America’s industrial base and economic prosperity. 

This is a very fine and difficult line to walk, because these goals 

are often in opposition to one another. I am proud to do this job 

with a tremendous team of colleagues at the Directorate of Defense 

Trade Controls. They are an extraordinary group of people from the 

ranks of the civil service and foreign service and as well as some 

active duty military officers who the Defense Department lends to 

us to help carry out of this job. 

Jammed, crowded, overcrowded cubicles, this team of patriots 

works very long hours to do its best to protect and promote America’s interest. I think they have a good record of success. Our team 

has flagged legal diversion to sensitive night vision equipment, 

Black Hawk helicopter engines and unmanned aerial vehicle technologies from potential adversaries around the world. We supported very successful criminal prosecutions of these cases. 

But despite this proud record, when I became acting Assistant 

Secretary earlier this year, it was very clear to me that our operations faced enormous and growing challenges and that continues 

to be true today. 

Those challenges include, as you mentioned, a rapidly escalating 

caseload both in numbers and complexity combined with years of 

operating within a very tight physical environment. That has contributed to a significant increase, and to my standard, an unacceptable length of processing time in each of these cases. This increased 

workload has also cramped our ability to adjudicate disputes over 

commodity jurisdiction sufficiently quickly to assist U.S. businesses 

in their planning. 

We have also had software problems in attempting to computerize our operations. Those problems have significantly delayed the 

new efficiencies that we had hoped to achieve by now. We faced 

gaps in the directorate senior management with the departure of 

one official for service in Afghanistan and the retirement of another. 

And also, as you all know, the Government Accountability Office 

has identified the issue of export control of sensitive technology as 

a high risk vulnerability for the United States. 

Now, in developing a strategy to respond to these mushrooming 

challenges, my colleagues and I have undertaken a number of 

measures. First, and this may sound odd coming from the lips of 

a government official, but we warmly welcomed the GAO investigation into our operation earlier this year. We very much look for-
15

ward to benefiting from the thoughtful insights and advice that I 

expect that Ms. Calvaresi Barr to provide in the next panel. 

Internally, I also invited a team of State Department management experts who were veterans, well respected, to study our operation and to make recommendations on how we can improve our 

management. 

Further, the directorate senior management is surveying other licensing operations in the U.S. Government for best practices. We 

have already greatly benefited from starting Mrs. McCormick’s office at the Defense Technology Security Administration. 

I have also asked my staff to begin work with the Office of Management and Budget on the possibility of using OMB’s program assessment rating tool as a means of systematically addressing how 

we can best improve. In the meantime, we have begun implementing a number of measures that I think will significantly improve our ability to protect America’s security in a more transparent, a more efficient and a more customer friendly way. 

I want to extend my appreciation to the Coalition for Security 

and Competitiveness for its constructive suggestions which have 

greatly helped us in our internal review. These are the measures 

that we are in the process of implementing now. We are set to introduce a case management review mechanism that will immediately identify high priority cases for expedited handling, and reject those at the start of the process that pose a clear threat if approved to America’s security interests. 

Second, we will implement benchmarks for our case management 

process to adjudicate cases within 45 days, with exceptions for national security or congressional notification requirement. 

Third, the Deputy Assistant Secretary for Defense Trade Controls will immediately and personally review any case related to 

military operations in Afghanistan and Iraq that is not completed 

within 7 days. 

Fourth, we are about to fix the software to bring our new system 

on-line and that will be up and running in October, and I am very 

confident that that will immediately lead to increased efficiency. 

Fifth, we will work with colleagues in the Commerce and Defense 

Department to institute a more efficient jurisdictional dispute 

mechanism that will need to establish deadlines. 

Finally, we will continue to update our policy to reflect the 

changes that are underway in the global economy. Notably we will 

initiate a policy change, authorize employees of foreign companies 

for nationals of NATO and EU countries, Japan, Australia and 

New Zealand, to operate within the terms of licensing without having to go through further red tape and additional documentation. 

We also hope that we will diminish our licensing workload and 

improve efficiency with Senate’s ratification of the treaty President 

Bush recent signed with Prime Minister Blair on defense cooperation with the United Kingdom. 

Finally, I want to pay special tribute to the extremely valuable 

partnership in Congress in managing export controls, particularly 

this committee’s talented staff whose insight greatly informed and 

assists our work. In the months ahead, we hope to work with you 

in exploring such ideas as alternative financing mechanisms for our 
16

operations and whether we can work together to make the notification process more transparent and more efficient for both sides. 

We have a tough job in balancing America’s security, alliance 

and commercial interest. The American people have the right to expect the very best efforts in responding to that challenge. With 

Congress’ help, I pledge to you that is exactly what we will do, and 

I look forward to answering your questions, specifically about the 

ITAR issues that Congressman Manzullo raised as well as the EAA 

items about the aircraft. Thank you. 

[The prepared statement of Mr. Mull follows:]

PREPARED STATEMENT OF THE HONORABLE STEPHEN D. MULL, ACTING ASSISTANT

SECRETARY, BUREAU OF POLITICAL-MILITARY AFFAIRS, U.S. DEPARTMENT OF STATE

The Department of State has been responsible for regulating defense trade since 

1935, with the objective of ensuring that defense trade supports U.S. national security and foreign policy interests. The Department’s primary mission in this regard 

is to deny our adversaries access to U.S. defense technology, yet permit appropriate 

defense trade with our allies and coalition partners to allow for their legitimate self 

defense needs and to fight effectively alongside U.S. military forces in joint operations. 

This function is vested in the Bureau of Political Military (PM) Affairs’ Directorate of Defense Trade Controls (DDTC), headed by a Deputy Assistant Secretary 

and consisting of the Offices of Policy, Licensing, Compliance, and Management. The 

Arms Export Control Act (AECA) and Foreign Assistance Act of 1961 are the basic 

legal authorities, implemented by the International Traffic in Arms Regulations 

(ITAR), including the U.S. Munitions List (USML). The USML covers items specially designed for military applications, and its 20 categories extend from firearms 

to the Joint Strike Fighter. 

The administration of U.S. export controls has become increasingly complex in the 

post-Cold War era, particularly since the terror attacks on September 11, 2001. The 

emergence of a significant transnational terrorist threat using unconventional methods, coupled with globalization of the world’s economies, presents challenges to export control practices developed in simpler times. 

The revolution in international finance, transportation, and communications have 

reduced significantly the cost structure of international trade and transformed the 

global economy. U.S. companies are now global in nature, manufacturing an increasing amount of goods overseas and deriving an increasing percentage of revenue 

through overseas operations and sales. The defense industry is not immune to these 

changes. Globalization also is fueled by the increasingly unfettered movement and 

immigration of human capital across national boundaries. In the EU, for example, 

nationals can move freely to seek employment throughout the community. Such 

changes have made industry and trade more complex to understand and difficult to 

regulate. 

Unfortunately, these same globalization trends are being distorted by international terror organizations to conduct attacks in the United States and against 

our friends and allies on their soil. This fact was evident on September 11, 2001 

and equally linked to terror attacks in London, Madrid, and Bali. Terror organizations such as al-Qaeda and Hezbollah also seek to acquire sensitive U.S. military 

hardware and technology, including sophisticated night vision devices, MANPADs 

and components for crude weapons of mass destruction. 

To combat this international terror threat, the United States has put together a 

coalition of nations to take the fight to the terrorists. The United Kingdom, Australia and other coalition partners are critical to U.S. efforts in Iraq, Afghanistan 

and against terror targets internationally. Building the partnership capacity of 

these nations is now a primary U.S. foreign policy and national security objective, 

both to allow these countries to control their territory and to ensure our partners 

can operate with us on the battlefield, alleviating the need for additional U.S. forces. 

From an export control perspective, we have no higher priority than approving licenses for coalition forces in the field in Iraq and Afghanistan. 

At the same time, more traditional national security and foreign policy challenges 

continue to exist in terms of export control policy. China’s rise as an economic powerhouse coupled with its increased military spending and recognized efforts to acquire sensitive U.S. military technology require U.S. diligence to halt U.S. military 

technology from fueling these trends. From a regional security perspective, the 
17

United States also must continue to seek to restrict sensitive technology from going 

to Iran, other state sponsors of international terrorism, Venezuela and others. 

In a June speech, the Attorney General noted the critical importance of export 

control enforcement to combating these threats and to counter the proliferation of 

nuclear weapons, their delivery systems and related technologies. The Department 

of Justice recently announced the appointment of the first National Export Control 

Coordinator to support a nationwide export enforcement initiative. The scope of the 

threat and the importance of this work are seen in the growth in export enforcement 

cases in the past few years. In FY 2006, law enforcement actions (DHS–ICE) pursuant to the AECA and the ITAR resulted in 119 arrests, 92 indictments, and 60 convictions. Many of these cases involved efforts to illegally export defense technology 

to China or Iran or to terrorist groups. Export controls and the Department play 

a key role in preventing the illegal export or diversion of militarily sensitive items 

to rogue states and terrorist organizations. 

All of these international trends—globalization, the war on terrorism, and the 

shifting balance of power in Asia and other regional hot spots, are reflected directly 

in the export control work of the Department of State’s Bureau of Political-Military 

Affairs. Specifically, these trends are reflected in the increasing number of licenses 

received by the PM Bureau and the value of overall licensed trade. In FY 2007, the 

PM Bureau expects to license up to $100 billion in authorized exports. On a yearto-year basis, the number of application received have increased at an eight percent 

pace, with total licenses completed by the Bureau anticipated to rise from 66,000 

in FY 2005 to up to an estimated 80,000 in FY 2007. 

Not only is the licensing volume and dollar value rising, the complexity of license 

applications also is increasing, particularly in the area of Technical Assistance 

Agreements (TAA)—the export of defense technology and services, which includes 

furnishing assistance to a foreign person in the design, development, and production 

of defense articles. Such agreements reflect the complexities inherent in 

globalization, with such applications including multiple countries and third country 

nationals, as well as complex flows of technology transfers. In FY 2006, more than 

7,000 TAAs were received and the value of defense services provided with such 

agreements is roughly equal to or greater than the value of hardware exports. We 

refer nearly all such agreements to the Department of Defense’s Defense Technology 

Security Administration for review to ensure the proposed activities are consistent 

with our national security interests. 

This added complexity and increased volume of licenses has led to an increase in 

the number of license application the PM Bureau is working. At the beginning of 

FY07 DDTC had over 10,000 pending applications, but by January 2007 the number 

was reduced to approximately 5,200. We currently have approximately 7,200 pending applications, with 567 over 60 days old. It should be noted there always will 

be a significant number of cases in the processing pipeline (this simply reflects the 

hundreds of new applications we receive daily) and some cases will be difficult from 

a national security and foreign policy perspective. 

To deal effectively with the increasing license volume, the Department is exploring policy initiatives to manage the risk of more expeditiously licensing military 

hardware to U.S. allies, as well as taking internal steps to facilitate the processing 

of licenses. We expect these efforts to allow us to use our resources more efficiently 

to focus on restricting U.S. military technology from potential U.S. adversaries. 

A prime example of the former is the U.S.–UK Treaty on Defense Cooperation, 

which was signed by President Bush and Prime Minister Blair in June 2007. This 

treaty recognizes the UK as our closest ally and one of our largest defense trade 

partner and will permit without prior written U.S. authorization the export of 

USML items, with certain exceptions, to the United Kingdom for the following purposes: (1) combined U.S.–UK military and counter-terrorism operations, (2) joint research, development and production projects, (3) UK only projects for end-use by the 

UK military and (4) items for the end-use of the U.S. military. The department will 

maintain its authority of which end-users can have access to USML items under the 

treaty in the UK by vetting and approving an approved community in the UK. In 

addition, the UK has agreed to make USML items exported under the treaty subject 

to the UK Official Secrets Act, which will prevent re-exports and re-transfers of 

such items outside the approved community without U.S. approval. The Administration is preparing to provide the Treaty to the Senate for advice and consent, and 

hopes that the Congress will strongly support this initiative. 

The U.S.–UK Treaty is a good example of the Department managing risk to fulfill 

its dual obligations to build partnership capacity and to protect U.S. military technology via exports controls. In the past two years the Department has processed 

roughly 14,000 license application for the United Kingdom, with only 18 licenses denied, none of which were for exports to the UK government. Given these facts, we 
18

are comfortable with creating a license free zone for mutually agreed projects with 

the UK. Among the benefits we expect to see from implementing this Treaty is a 

reduction in the overall growth rate in license applications received. 

The Administration also is reviewing the recommendations put forward by the Coalition for Security and Competitiveness. 

In the Department’s continuing review of export control policy, the PM Bureau 

also is initiating changes to manage export control risk. Let me briefly mention 

three of these. First, I have asked the Deputy Assistant Secretary for Defense Trade 

Control to institute a mandatory DAS-level review of any OIF or OEF case that is 

pending for greater than seven days. Second, we will shortly commence with the 

concurrent review of TAA applications with DOD, which we expect to expedite the 

review of such items. Third, we are set to initiate a policy change that will permit 

employees of foreign companies who are nationals from NATO or EU countries, 

Japan, Australia and New Zealand to be considered authorized under an approved 

license or TAA. This will alleviate the need for companies to seek non-disclosure 

agreements for such nationals and recognizes the low risk to of transferring technologies to nationals of these countries under an approved license or TAA. 

The Administration values Congress’s role in the consideration of U.S. munitions 

exports. The AECA requires advance notification to Congress if a proposed license 

exceeds a certain value. For NATO, Japan, Australia and New Zealand, the thresholds are $25 million for Major Defense Equipment (MDE) and $100 million for all 

other defense articles and services, and the notification period is 15 days. For all 

other countries, the thresholds are $14 million for MDE and $50 million for all other 

exports, and the notification period is 30 days. Small arms exports over $1 million 

must also be notified to Congress, as well as all overseas manufacturing agreements 

for Significant Military Equipment, regardless of value. The AECA allows both 

houses of Congress to enact a joint resolution prohibiting the export within the 15/

30 day notification period. 

The Department would ask the HFAC and other committees of jurisdiction take 

a close look at several areas that would help the Executive Branch manage the risk 

of facilitating defense trade with partners and allies, while continuing to restrict 

U.S. military technology from reaching potential competitors and enemies. For example, the Congress may wish to consider raising the dollar reporting threshold for 

Congressional notifications. 

In the end, U.S. export control policy is designed to enhance our national security 

and foreign policy interests, which of course include protecting sensitive technology 

and preserving our economic strength and industrial base. Those two standards are 

sometimes in conflict. What we as your government owe the American people is designing a system that adjudicates such conflicts efficiently and transparently. We 

hope, with your help and support, to reform our system with that goal in mind in 

order to protect our national interest.

Mr. SHERMAN. Ambassador Mull is not only a wildly fun experience for a State Department official whose office has a huge backlog to come testify before our committee. Just thank God you are 

not involved with passports. 

Finally, we have the Honorable Christopher A. Padilla, the Assistant Secretary of Commerce for Export Administration. He is responsible for developing and implementing U.S. policies governing 

the export of items controlled for national security, foreign policy 

and nonproliferation reasons, except for, of course, those items subject to the State Department. Mr. Padilla. 

STATEMENT OF THE HONORABLE CHRISTOPHER A. PADILLA, 

ASSISTANT SECRETARY, BUREAU OF INDUSTRY AND SECURITY, U.S. DEPARTMENT OF COMMERCE 

Mr. PADILLA. Thank you, Mr. Chairman, Mr. Royce, members of 

the subcommittee, I very much welcome your interest in this topic. 

Your hearing today asks an important question, do our export controls protect our security while facilitating exports, and I believe 

the answer is yes, and I am pleased to explain the Commerce Department’s role in that process. The Commerce Department is responsible for the control of the export of dual-use goods, which are 
19

those that are primarily for civilian uses but that could be used for 

military purposes. 

Now, a prime example of that is this product, which is a triggered spark gap—it looks like an oversized spool of thread that 

used to go on my mother’s old sewing machine. In fact, it is a high 

speed electrical switch capable of generating synchronized very 

high voltage electronic pulses. It can be used in medical devices to 

help break up kidney stones; it can also be used to detonate nuclear weapons. 

The Commerce Department’s role in controlling the export of 

products like this is primarily implemented through a licensing 

system. In fiscal year 2006, we processed nearly 19,000 export licenses and an additional 4,700 requests for commodity classifications valued at $36 billion. That is the highest number of applications that we reviewed in over a decade. Nearly all of those applications were referred for review to the Departments of State, Defense and, in some cases, the Department of Energy and the intelligence community for review. But even with all of this careful review, we are reaching, I believe, in the Commerce Department system, new heights of efficiency. 

Through June 30th of this year, the average license processing 

time has dropped from 34 days, which we had in the last fiscal 

year on your chart, to 29 days. And we certainly hope to maintain 

the 29 or 30 days at the conclusion of this fiscal year. That is down 

from 40 days in fiscal 2001. So while the number of export license 

applications at the Commerce Department is up 74 percent since 

the beginning of Bush administration, our processing time, on average, is down 28 percent. 

I think, Mr. Chairman, if you ask the exporting community you 

would find that the opinion of our process is that it generally is 

adequately staffed, that it works with relative efficiency, a clear 

dispute resolution process and a focus on customer service through 

extensive training programs and on-line services. 

Although the dual-use system operates reasonably effectively, it 

was designed for the Cold War, as Mr. Manzullo said, and it needs 

updating. 

First, we need to focus our controls not just on countries of concern, but now also on customers of concern, and that is because terrorists and proliferators don’t operate conveniently within the borders of certain countries, they operate across borders. And export 

controls focused on customers of concern will help us keep dangerous products out of their hands. 

Another challenge we face is that our relationship with emerging 

powers are not as simple or black and white as our relationship 

was with the Soviet Union. There is no better example of this than 

China, which is neither our adversary nor our ally. And to reflect 

this, our export controls on China seek to permit legitimate civilian 

trade while prudently hedging against the uncertainties of a significant Chinese military expansion. 

In response to these challenges, the Commerce Department is 

making a number of changes. First, we are moving away from looking at only countries of concern toward customers of concern. And 

to do that we have to tell exporters more about who the good guys 

and the bad guys are. We are doing that for things like the vali-
20

dated end-user program, which will tell exporters who the trusted 

customers are in certain countries, and we are also expanding our 

entity list, which is our bad guy list and expanding our ability to 

put companies on there if they are engaged in terrorism-related activities or conventional arms proliferation. 

We also need to continue to make improvements in our licensing 

process. We recently deployed a simplified on-line export application system so that now everything can be submitted electronically; 

we are about to completely phase out paper-based licensing at the 

Commerce Department. 

Finally, Mr. Chairman, we need to make sure that controls keep 

up with technology. An excellent example I brought with me today 

are these thermal imaging cameras, these cameras take a thermal 

image of whatever you point them at. This one seems to be reading 

only red at the moment, which is because the cap is on. I can see 

Ambassador Mull here, he is looking relatively warm. 

Mr. SHERMAN. We will monitor his temperature through the 

hearings. Whichever Member of Congress creates the highest temperature gets the award for today. 

Mr. PADILLA. This is a product that actually is a commercial 

product. These are used in firefighting, to look for fires in buildings, they are used in search and rescue to search for children lost 

in the woods, or preventive maintenance—you point them at a boiler to see where steam might be leaking. Yet this product requires 

a license from the Commerce Department to go to any country virtually in the world. We export these principally to Europe, Japan 

and Australia. We issue more licenses every year from the Commerce Department for this commodity than for any other single 

item on the Commerce Control List. 

Yet this camera, which also has the lens cap on does the same 

thing, made in China, with French parts and components and it 

has the same, actually slightly more advanced technological capability than this one. Chinese product can go anywhere in the world 

without a license, and we are issuing about 2,500 licenses a year 

for this one. We know that is a control that needs to be updated. 

We have agreed among agencies that controls on these types of 

very low level cameras do need to be updated. 

Now we are working to finalize how we do that without releasing 

higher level technology that could be used by terrorists as night vision devices. 

So to sum up, Mr. Chairman, this is not easy, it is an exercise 

in drawing lines, we could certainly use a renewed Export Administration Act in helping us to draw those lines, bringing clarity to 

things like the control of civil aircraft. We welcome the recent recommendations of the industry coalition on security and competitiveness. We appreciate the Export Control Working Group with 

Mr. Manzullo, Mr. Crowley and Mr. Blumenauer. I have met with 

them a couple of times. The task is complex but I believe working 

with Congress we can continue to update our controls to meet the 

security needs of the 21st Century. Thank you. 

[The prepared statement of Padilla follows:]
21

PREPARED STATEMENT OF THE HONORABLE CHRISTOPHER A. PADILLA, ASSISTANT

SECRETARY, BUREAU OF INDUSTRY AND SECURITY, U.S. DEPARTMENT OF COMMERCE

Chairman Sherman, Ranking Member Royce, Members of the Subcommittee: 

The title of today’s hearing asks an important question: are our export controls 

protecting security and facilitating exports? I believe that the answer is absolutely 

yes, and I am pleased to have the opportunity to appear before you today to discuss 

this critical role that export controls play in America’s national security and economic well-being. 

America’s future security and prosperity depend on our ability to control the proliferation of sensitive technologies that can be used for nefarious purposes while ensuring continued U.S. competitiveness in the global economy. The Commerce Department’s Bureau of Industry and Security (BIS) plays a key part in this effort by 

maintaining and strengthening an effective dual-use export control system. Dual-use 

technologies are those items—commodities, software, and technologies—that are primarily for civilian uses, but that also can be used for military purposes or to build 

weapons of mass destruction. A good example is this triggered spark gap. Triggered 

spark gaps, which resemble empty spools of thread, are in fact high-speed electrical 

switches capable of sending synchronized, high-voltage electronic pulses. They have 

two principal uses: to break up kidney stones and to detonate nuclear weapons. 

BIS carries out its critical mission primarily through the regulation and licensing 

of dual-use exports from the United States. In Fiscal Year 2006, BIS processed 

18,941 export licenses valued at $36 billion. This marked a 13 percent increase over 

Fiscal Year 2005 and represents the highest number of applications reviewed by the 

Bureau in over a decade. Yet even as the Commerce Department reviews more license applications, we are doing so more efficiently. In Fiscal Year 2006, average 

processing time for dual-use licenses—including full interagency review—was 33 

days. Through June 30 of the current fiscal year, the average licensing processing 

time has dropped to 29 days. That’s down from 40 days in FY 2001. So while the 

number of license applications is up 74 percent, processing time is down 28 percent 

since the beginning of the Bush Administration. 

One reason for this efficiency is a well-understood process, well-administered 

under the terms of a 1995 Executive Order. The vast majority of license applications 

received by the Commerce Department are referred to the Departments of State, 

Defense, and Energy and the Intelligence Community for review. This system ensures that the relevant agencies review and provide input into the licensing process, 

and that the Intelligence Community provides critical intelligence on end-users and 

uses. Guided by the 1995 Executive Order, this licensing system has worked well. 

We operate under clear time frames for reviewing and referring licenses and have 

a clear escalation and dispute resolution process when agencies disagree. 

CHANGING NATURE OF THE INTERNATIONAL SYSTEM

Although the dual-use regulatory system operates effectively, the system itself 

was designed to meet the challenges of an earlier era when there was a clear international consensus on the security threat facing the United States and its allies. 

During the Cold War, it was sufficient for export controls to focus almost exclusively 

on countries: exports to the Soviet Union and Warsaw Pact were broadly restricted, 

regardless of the customer. 

Today, the threats are different and, in many cases, more diffuse. As a result, our 

current export control system must now cope with four broad challenges: 

First, states no longer constitute the sole threat to our national security. Today, 

we face sub-state actors such as terrorists and proliferators who are capable of inflicting great harm on our country. These terrorists and proliferators do not wear 

uniforms, do not advertise their intentions, and are not limited in their quest for 

deadly weapons—including WMD—by a country’s borders. They operate within and 

across states, even within the open societies of friendly nations, as recent events in 

Britain, Canada, and Spain clearly indicate. As the recently released National Intelligence Estimate noted, terrorists have shown continued strong interest in attempting to acquire chemical, biological, radiological, or nuclear materials. Export controls 

are an important tool in the fight against terrorism. 

Second, America’s relationships with emerging powers are more complex and 

multifaceted than ever before. With only a few exceptions, the United States can 

no longer broadly restrict all trade to targeted countries. Instead, our export control 

system must be able to promote trade and peaceful development, while at the same 

time addressing the national security issues posed by rapid foreign military buildups. Nowhere is this more evident than in the case of China. As President Bush 

has said, the United States welcomes the growth of a peaceful and prosperous 

China, and our policy is to encourage China to become a responsible stakeholder in 
22

the international system. This means working to expand and promote legitimate civilian trade, while prudently hedging against the uncertainties of a significant military expansion program in China. Our export controls must therefore distinguish 

between civilian and military customers within the large and diverse Chinese economy. 

Third, the globalization of research and development and the rise of new economic 

competitors challenge U.S. competitiveness. As a result of an unprecedented increase in the cross-national flow of goods, services, capital, and technology over the 

last three decades, U.S. companies now have access to billions of new customers. 

At the same time, our companies face the ever-growing challenge of operating profitably in a competitive global market. Export controls must not place an undue burden on U.S. companies, thereby undermining America’s economic and technological 

competitiveness. 

Finally, national perceptions of security risks are no longer as consistent among 

the United States and its partners as they were during the Cold War. At that time, 

under the Coordinating Committee on Export Controls, or COCOM, the United 

States and its allies broadly restricted most exports to the Soviet Union and Warsaw bloc. Any member of COCOM could veto the sale or export of dual-use items 

by another COCOM member. Today, while members of the multilateral export control regimes coordinate on common control lists and on certain regulatory policies, 

there are disparities between the implementation of U.S. export controls and those 

of our allies. 

The Commerce Department continues to effectively administer and enforce the 

dual-use export control system. However, we must at the same time address these 

four challenges by adapting and updating the dual-use export control system. An 

important part of this is renewal of the Export Administration Act (EAA). The Administration has been working with Congress to renew the EAA since its lapse in 

2001. The Administration recently proposed legislation, the Export Enforcement Act 

of 2007, to renew the EAA and to address a few key enforcement issues vital to national security. This bill would give BIS the solid legal and statutory basis to oversee the dual-use export control system and strengthen its ability to punish violators, 

while laying the groundwork for more comprehensive reform in the future. 

The Administration recognizes, however, that EAA renewal is not a substitute for 

comprehensive reform and has already begun talking with Congress and the private 

sector on ideas to update export controls for the 21st Century. Indeed, we at the 

Commerce Department welcomed the recent recommendations from the Coalition for 

Security and Competitiveness, and are working with our interagency partners to implement many of its suggestions, such as creating a Validated End-User program 

to remove license requirements for trusted civilian customers, and beginning a comprehensive review of the Commerce Control List. In addition, we have worked closely with the recently created Congressional Export Control Working Group, cochaired by Congressmen Manzullo, Blumenauer, and Crowley, and have benefited 

enormously from its leadership on issues important to the export community. 

I believe that any new system must have three defining features: 

DEVELOPING AN END-USER BASED EXPORT CONTROL SYSTEM

First, the dual-use export control system must become more end-user focused. As 

I just noted, the changing nature of the international system means that we can 

no longer rely solely on country-based controls. In an increasingly complex world in 

which the same economy may harbor legitimate customers and terrorists or proliferation networks, we must actively seek to facilitate trade in controlled items to 

trusted customers, while denying sensitive technologies to end-users engaged in 

WMD activities, conventional arms proliferation, support for terrorism, or other activities detrimental to U.S. national security. 

To manage this shift, the Commerce Department has developed a number of new 

initiatives that will make export controls more effective in identifying legitimate and 

potentially dangerous end users throughout the world. On the ‘‘legitimate customer’’ 

side, Commerce recently published a regulation creating the Validated End User 

Program, a new and unprecedented initiative in the world of export controls. The 

program is simple: for customers who have demonstrated their ability to use controlled items responsibly, fewer export licenses will be required. In the past, the 

world of export controls was one of many sticks and few carrots. The Validated End 

User Program is a step in a different direction. For the first time, we will create 

an export authorization that will act as a market-based incentive for firms to demonstrate good export control behavior. Customers who act responsibly with sensitive 

products would have better access to such technology than would their domestic 
23

competitors. And U.S. exporters would be able to sell more efficiently to their best 

civilian customers. 

On the ‘‘suspect customer’’ side, the Commerce Department is strengthening its 

ability to target and sanction proliferators, terrorist networks, and front companies. 

We recently published a regulation that would expand our current Entity List to 

target end users who are engaged not only in WMD-related activities, but also other 

activities contrary to U.S. interests, including conventional arms proliferation and 

support for terrorism. 

We are also considering a possible new regulation to target countries of diversion 

concern. This proposal—for a Country Group C—‘‘Destinations of Diversion Concern’’—is one possible way to address the threats to national security posed by the 

illicit transshipment and diversion of sensitive dual-use technologies to end users 

and countries of concern. 

To aid America’s exporters, we are providing more information about end users 

around the world that raise concerns. As I just mentioned, we recently published 

criteria for an expanded Entity List. We are also planning a draft proposal that 

would introduce a standard format for all U.S. Government screening lists. Our goal 

is to have a more complete continuum of information—from the Unverified List 

through the Entity List to the Denied Persons List—available for exporters to use 

in screening potential customers. 

Let me especially emphasize that continued participation in the licensing process 

by the Intelligence Community will be critical to the effectiveness of an end-user 

based export control system. The Intelligence Community plays a key role in the export control process by providing timely, relevant, and in-depth analysis of endusers and technologies of concern to licensing agencies. These finished intelligence 

reports are a crucial factor for our licensing officers and foreign policy analysts 

when deciding whether a proposed export will be contrary to U.S. national security 

and foreign policy interests. The need for such support will increase as we continue 

to move toward more end-user focused controls. 

IMPROVING THE DUAL-USE LICENSING PROCESS

Second, the system must be further improved to ensure America’s exporters are 

able to apply for and receive licenses in a timely, transparent, and efficient way. 

Although the majority of our controls are based on obligations under the four multilateral export control regimes and are thus shared by many of our allies, implementation of these controls among countries differs considerably. A French exporter, for 

example, may be able to receive blanket permission to export a certain technology 

controlled under the Wassenaar Arrangement in a matter of days, whereas a U.S. 

exporter may have to wait weeks before receiving permission to ship under strict 

conditions. 

To ensure that U.S. companies are not put at a competitive disadvantage, the 

Commerce Department is working to further improve the licensing process. We recently developed and deployed the Redesigned Simplified Network Application Process (SNAP–R) that now enables exporters to submit export license applications, 

commodity classification requests, and associated documents to Commerce via the 

Internet. SNAP–R significantly improves security and ease of use for our exporters, 

and assists the Bureau in receiving and processing licenses in a more efficient and 

effective manner. 

Commerce also conducts an extensive outreach program through which we provide 

timely information to U.S. industry regarding export controls. In 2006, we conducted 

52 domestic export control seminars in 19 states. In addition, staff in our Office of 

Exporter Services assisted more than 54,000 people in one-on-one counseling sessions. Not only do these outreach efforts assist U.S. exporters in understanding and 

complying with our regulations, they allow Commerce to hear directly from companies and individuals directly impacted by the dual-use licensing system. This valuable feedback is critical to our efforts to further streamline the system. 

UPDATING U.S. CONTROLS

Finally, the export control system must limit the export of sensitive products 

while still ensuring that controls do not unduly restrict the vast majority of legitimate, civilian high-tech trade. The Commerce Department is working closely with 

Congress, interagency partners, and the private sector to ensure that U.S. companies are not precluded from participating in global markets open to foreign competition. We are working to create a more formal process to take foreign availability into 

account in licensing and control decisions. For example, foreign availability assessments should consider the availability of foreign items and the relative controls 
24

placed on these items not only from ‘‘controlled countries,’’ but also from multilateral export control regime members. 

Moreover, we recently published a notice in the Federal Register calling for public 

comment on ways in which the Commerce Control List can be revised. A systematic 

review of the CCL will help ensure that the regulatory regime is deliberative and 

incorporates all relevant data, including the competitive nature of the global marketplace and the changing nature of national security threats. We are also actively 

working with our Technical Advisory Committees to develop recommendations for 

updating and refining the CCL in institutional and standardized way. 

These steps are critical to ensuring that we strike the right balance. An excellent 

example of changing technology and foreign availability is the U.S. imaging and sensors industry. Thermal imaging cameras are used in the medical and automotive industries, for fire-fighting and search-and-rescue, and for preventative maintenance. 

This industry plays a critical part in the U.S.-high technology and defense industrial 

base. But Commerce recently conducted an industrial base assessment of the industry and found that, while U.S. exports of all imaging and sensor products have increased steadily over the last six years the total U.S. share of global exports for imaging and sensors products has declined since 2001. In one area—uncooled infrared 

(thermal) imaging cameras—U.S. exports declined a disturbing 64 percent. Industry 

cites export controls as the reason. 

So the Commerce Department is working with its interagency partners to develop 

a regulation that will ease controls on low-end cameras being exported to Japan and 

the EU, while ensuring that adequate controls remain on more sensitive cameras. 

These types of regulations are a key part of our efforts to ensure that we control 

only the most sensitive items while minimizing the impact of these controls on U.S. 

economic competitiveness and innovation. 

CONCLUSION

Adapting the dual-use export control system for the 21st Century will be difficult. 

But a more focused, customer-based system tailored towards new threats, and taking into account technological and economic changes, will help ensure that we are 

able to maintain export controls that enhance security for the United States. The 

task is complex, but I am confident that working together with Congress, we will 

be able to develop technology controls that meet the security needs and economic 

imperatives of the 21st Century. Together, we can help ensure that in this era of 

globalization, our continued prosperity and well-being will not be jeopardized by 

those who would do us harm. 

Thank you Mr. Chairman. I welcome any questions which you and the subcommittee may have.

Mr. SHERMAN. Thank you. I know that Ambassador Mull has 

pointed out that he is seeking outside advice; he has got it from 

a number of sources. He ought to get it from you, Mr. Padilla, as 

to how you got three times the budget. If you give him that advice, 

he would be very grateful. 

I am going to do my questioning last and turn it over for questioning to Mr. Royce. 

Mr. ROYCE. Thank you, Mr. Chairman. 

I remember back in 2004 registration fees were tripled, and I 

wanted to just check and see what happened to licensing processing time as a result. I think the fees went up at the time from 

$600 to $1,400-some. 

Ambassador MULL. $1,750. 

Mr. ROYCE. What was the consequence in licensing processing 

time? 

Ambassador MULL. Well, over that period our licensing processing time has increased as the statistics have shown. So the bulk 

of the money that we put, that we gained from the increasing licensing fees we did put into infrastructural investments to develop 

computerized so we can move to a paperless licensing operation. As 

I mentioned, we have had some development problems that I ex-
25

pect we will have resolved by October, but the processing time has 

gone up. 

Mr. ROYCE. One of the most critical questions is doing this in 

real-time, quick turnaround and getting from you exactly what we 

can do to make sure that happens. 

Another question the International Relations Committee report 

from 2004 suggested was that the administration then was working 

on a grand bargain with other countries in which we relax some 

of the export controls that we are talking about here in exchange 

for them tightening theirs. 

I wondered what type of focus and results came from that effort 

where we stand today vis-a`-vis that concept. 

Ambassador MULL. The effort in 2004 we had to shelf because of 

opposition within the Congress at the time. We do have a number 

of initiatives underway to work with our partners around the 

world. One of the most significant ones is the proliferation security 

initiative where over 80 countries have now signed up. We work 

with these countries to make sure we have uniform strict export 

controls in place. In every foreign trip I make on this job, it is a 

topic I discuss. We look to provide technical assistance to those 

countries that require it. We need to do better and it remains a 

continuing high priority for the administration. 

Mr. ROYCE. We might look at reraising that bargain given the 

circumstances we find ourselves in today. 

I was going to ask Mr. Padilla; the GAO report says that China 

limits the United States Government’s access to facilities where 

dual-use items are shipped. Now, I don’t know how you do enforcement given that lack of access and I would ask you how you respond on that point? 

Mr. PADILLA. We have a continuing dialogue with the Chinese 

and an agreement with the Chinese that allows us to conduct enduse visits in China and we conducted I believe about 35 such visits 

last year. We have an export control attache ́ at our Embassy at 

Beijing. We are looking at finding additional resources to provide 

more help, because that is an important aspect of building trust. 

What we have explained to the Chinese is that for certain very sensitive items, if we are not able to do an end-use visit, we won’t 

issue a license for the product. 

So if Chinese will work with us to provide access to certain of 

these facilities, then we could possibly consider those licenses, that 

has been our approach. 

Mr. ROYCE. I did want to ask you, Mr. Padilla, you mentioned 

in your testimony that the intelligence community provides critical 

information on these end users. Within the parameters of what is 

appropriate here, it might be helpful if you tell us a little bit more 

about the strengths and weaknesses of that process, whether you 

have enough resources to monitor end usage of dual-use technology. I think it would be very important to us to know that. And 

to me, I would like to know the extent of the violations you uncover, because Ambassador Mull reported a little bit about the extent of that problem in China. 

Mr. PADILLA. Thank you, Mr. Royce. As we move toward a system that focuses on individual customers of concerns, not just countries of concern as I mentioned, it will be vital for the intelligence 
26

community to play a key role in that in telling us who the trusted 

and not-so-trusted customers are. We have had a good relationship 

with the intelligence community; they review upwards of 85 percent of all the licenses we receive. 

Mr. SHERMAN. Mr. Padilla, if I could ask all witnesses to speak 

into the microphone. We are able to hear you in this room, but 

there is an overflow room that is also listening. 

Mr. PADILLA. I hope that works a little better. 

Mr. ROYCE. But certainly some of this is done with Chinese Government involvement. I think that is the part that really compounds the problem here vis-a`-vis other countries. 

Mr. PADILLA. I couldn’t agree more. We need more help from the 

Intelligence Community, not less. We have had, my colleagues and 

I, a vigorous discussion with our colleagues at DNI to urge them 

to devote the resources necessary to this critical function, because 

otherwise our licensing officers in both agencies would be flying 

blind. 

Mr. ROYCE. Ultimately Iran was the most active customer in the 

international black market, at least according to the International 

Institute for Strategic Studies; would you agree with that conclusion? Lastly, how closely focused are you on denying Iran sensitive 

technology given them coming out number one? 

Mr. PADILLA. Iran is a major source of concern with regard to illegally transshipped goods. I don’t know if they are the number one 

in terms of enforcement. We have a total embargo on Iran, which 

is actually maintained by the Treasury Department. And we vigorously, however, in the Commerce Department enforce that embargo 

on Iran, whether it is for commercial aircraft or the transshipment 

of parts that could be used for IEDs being sent through transshipment points like Dubai. 

Mr. ROYCE. Thank you, Mr. Padilla. 

Thank you, Mr. Chairman. 

Mr. SHERMAN. Thank you. 

Let me now recognize our vice chairman, Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Ambassador Mull, I want to ask you about the licensing delays. 

How have licensing delays and increasing backlog of pending applications affected the management of defense programs with our key 

allies and partners? 

Ambassador MULL. Well, they have contributed to a number of 

complaints from our key partners that we have moved to address 

in a number of ways. As you may know, since 2004, it has been 

the law to provide expedited licensing to our British and Australian 

partners, and that system, we believe, is working. We are constantly trying to improve it to reduce the number of referrals that 

we need to make to the Defense Department and other agencies in 

administering that part of the program. 

We have also run into problems. For example, we have for many 

years had a general exemption for countries that are participating 

in the Joint Strike Fighter program. That has not worked very 

well, though, because the primary users to whom we issued the licenses have been unwilling or unable to guarantee that their subsidiaries and their contractors whom they employ would be able 

to—would also respect the restrictions that we put on. 
27

Mr. SCOTT. Do you have any examples of that? 

Ambassador MULL. A specific example within the Joint Strike 

Fighter? 

Mr. SCOTT. Yeah, with the subsidiary, who they might be. 

Ambassador MULL. I can’t remember a specific example of a specific country right now, but I could get that for you and provide 

that to you or your staff, sir. 

[NOTE: The information referred to was not received prior to 

printing.] 

Mr. SCOTT. Who would you refer to as our key U.S. allies and 

partners? What nations fall into that category? 

Ambassador MULL. Certainly Great Britain, Australia, Japan, all 

of the members of NATO as our primary alliance. Members of the 

European Union who are not in NATO, many of those are partners 

as well. 

Mr. SCOTT. We have as a requirement a prohibition against selling certain of our materials, information, our platforms to foreign 

governments; for example, like our F–22s. What are your thoughts 

on that? There is one side that says we do not want anything to 

jeopardize our air superiority, our superiority. There is certain of 

our platforms that we don’t need to put on the market. And then 

there is the other side that says, well, maybe we should, there is 

a market. What are your thoughts on this? And I would like to get 

the thoughts of the other combat as well. 

Ambassador MULL. My thoughts are that we have an obligation 

when we have a military ally or partner like Japan, for example, 

to work very closely in making sure that both sides bring the resources and the capabilities that we need to defend each other and 

to look out for each other’s interest. And Japan is actually a very 

good example, because as you may know, Japan has been very interested in acquiring the F–22, but United States law forbids providing the F–22 to any of our foreign partners. So working within 

the law, I believe certainly the Pacific Command I know has a very 

productive dialogue with our Japanese partners in assessing what 

their defense requirements are if they can’t get the F–22, and I 

think we are able to work within those restrictions well. That 

doesn’t mean key partners do demand some of our most sensitive 

technology, but we can’t provide it to them because of the law or 

because of our own need to protect ourselves. We certainly work 

very closely with the militaries in devising alternatives that are 

within the law. 

Mr. SCOTT. I would like to get your response to that, too, it if I 

have time, but I did want to follow up on the earlier part of my 

question. Has the administration heard from our key allies or our 

coalition partners expressing either support for or concern about 

the U.S. export licensing process? 

Ambassador MULL. Congressman, I think the most graphic example would be just a few weeks ago we—perhaps the biggest 

source of concern out of all of our partners have come from the 

British in recent years. And in response to that concern, and in recognition of the key role they play as our partner around the world, 

President Bush signed with then-Prime Minister Blair a new treaty 

that we hope the Senate will ratify to greatly ease the process of 

defense cooperation. So we hope that that will work not only as a 
28

good model in providing our British allies of what they need to 

work with us, but also to reduce the workload on our operation and 

contribute to our efficiency. 

Mr. SCOTT. Briefly, Mr. Chairman, could I get a response from 

the two of you on the prohibition language on the other nations? 

Do you agree with that? 

Mrs. MCCORMICK. I think, sir, what I guess I would say on that 

is that there are certain technologies where it is important for the 

United States to have a technological advantage. And in the case 

of the particular system that you mentioned, that program really 

was not designed initially for export at all. But with programs like 

the Joint Strike Fighter program, I think it is an excellent model, 

because what we have done is we have taken a very advanced system, basically a fifth-generation aircraft that has a very similar 

technology. We have brought international partners in at the early 

stages of that, and they are working closely with us to develop that 

program. 

I think it is incumbent upon us, because we do want to have and 

work with allies around the world, we are really looking now to 

think about capabilities and making them basically think about export and the fact that we will share that technology with other 

countries. And we are trying to do that in the really early stages 

of our program development. 

Mr. SHERMAN. Mr. Manzullo. 

Mr. MANZULLO. Back in the early spring of 1993 when I was a 

freshman, I invited a young man by the name of Chris Padilla, who 

was in the private sector, to come to my office and to begin the instruction of exactly what dual-use technology is, and that conversation has continued. And my questions have continued. Maybe someday I will get it, Chris. 

Mr. PADILLA. I hope my answers are getting better. 

Mr. MANZULLO. They are. But we are both getting more gray 

hair. I like your toys better than mine, and I will be glad to exchange them. But since EAA has expired, my understanding is the 

International Emergency Economic Powers Act, IEEPA, has been 

continuing the EAA in force; is that correct? 

Mr. PADILLA. Yes, sir, that is correct. 

Mr. MANZULLO. Under the EAA as drafted in 1979 and as 

amended, I understand that 17(c) expressly places previously FAAcertified parts and components under your agency’s jurisdiction; is 

that correct? 

Mr. PADILLA. Yes, sir, that is correct. 

Mr. MANZULLO. And do you think that the law in any way is unclear? 

Mr. PADILLA. No, sir. The President’s Executive Order Number 

13222, which directs us under IEEPA to continue the EAA in force, 

says that to the extent permitted by law, the provisions of the EAA 

shall be carried out under this order so as to continue in full force 

and effect, and that is what we have tried to do, sir. 

Mr. MANZULLO. Obviously these questions are leading to another 

question. Then why are manufacturers in the congressional district 

I represent telling me that 17(c) is not being applied? 

Mr. PADILLA. Well, as far as I am concerned, this is black-letter 

law. The provision of the EAA is quite clear, and the provision of 
29

the Executive Order is quite clear. What the EAA says is the part 

has to be certified by the FAA and be an integral part of civil aircraft. What we are trying to do working with our interagency colleagues is to provide more guidance to exporters and, frankly, to 

our licensing officers on what that means. What does it mean to 

be type-certified? What does it mean to be integral to civil aircraft? 

And most importantly, could we give a list of exactly what kinds 

of aircraft we mean, Boeing 737 type 200 and so forth? 

So from our point of view, there is no question as to the intent 

of Congress and the intent of the President. I would add though, 

sir, we have not had, as far as I know, very many commodity jurisdiction cases that have explicitly raised this question, at least not 

yet. 

Mr. MANZULLO. Let me take a look at your toys and my toys. For 

every 100 applications for a license—I didn’t mean to bring it up 

here, but I am thrilled. I live for objects like this. But for every 100 

licenses applied for, how many of those would be represented by 

items like this that obviously should not be controlled? 

Mr. PADILLA. Well, that is a very difficult question to answer. Of 

the 19,000 or so licenses we do a year, I believe that if the proposal 

that I was talking about to remove these low-end thermal-imaging 

cameras were to be implemented, that I think we might take as 

many as 1,500 licenses a year out of our system right there. If we 

implement our validated end-user program, trusted customer program, where we remove license requirements for customers who we 

know we have done intelligence checks, it is the same stuff year 

after year after year. That could be several hundred more licenses. 

So I would hope that we might reverse the trend that we have 

seen in commerce where the number has been going up about 15 

percent a year. But those are probably the best estimates I can give 

you. 

Mr. MANZULLO. Another question is when you have something as 

simple as this fiber optic cable, which is really a wiring harness, 

which has many applications, how does something like this end up 

being on the ITAR list in the first place? Anybody know? 

Ambassador MULL. I will be happy to take that question. 

Mr. MANZULLO. Okay. You can even answer it if you would like. 

Ambassador MULL. I will try to answer it. Of course, the examples that you showed are very, very compelling. And it does suggest 

that maybe these on the surface appear that these decisions might 

be made capriciously or without very much thought. But, in fact, 

the ITAR is very much driven by parts, by things, and so when 

something goes on the ITAR list, it is because it is useful in a particular part, so that I am not dealing with that particular piece of 

equipment, but one could imagine a situation where that specific 

wire fits exactly on an F–14——

Mr. MANZULLO. But do you know what——

Ambassador MULL [continuing]. Which are only used by Iran. 

Mr. MANZULLO [continuing]. If you put the longer version on it 

also, it will still fit with just a little slack. 

Ambassador MULL. But if a piece of equipment is designed for an 

airplane, a fighter plane, that in today’s world only Iran is using, 

we have an obligation according to our interpretation of the law to 

restrict that. 
30

Mr. MANZULLO. But that is the problem. I mean, this is breadand-butter stuff. I mean, this is Radio Shack stuff. I mean, this is 

the stuff that is made in America, and these manufacturers really 

don’t know how to sell this. I can’t defend what you just said; I 

really can’t, because this is not controlled at all. This is—take out 

1 inch, and it fits. Can you explain that? 

Ambassador MULL. But the one that is shorter or longer is designed only for use in sensitive military technology that our enemies could use. 

Mr. MANZULLO. No, it is just the length of it. I mean, this is the 

same thing. You measure it off, and you put it in there. If you want 

to, you know, you could just snip off an inch here and just move 

it up. I mean, this is the problem. I mean, this is why there is so 

much angst. I can’t see how you can defend this, Ambassador. For 

the life of me it is the same thing. What happens if it is on a spool 

that is 100 feet long; what do you do in that case? 

Ambassador MULL. Again, sir, we look at the item. If it is designed specifically for use in sensitive equipment, we believe the 

law requires us to regulate that. 

Mr. MANZULLO. I don’t think that is the case at all. I think if it 

is something, number one, that is not readily available, and that 

is so sophisticated that if it falls into the hands of the enemy—I 

mean, the enemy can go out there and buy this and take off 1 inch. 

So then why should this be regulated? 

Ambassador MULL. Well, let’s take aircraft, for example. 

Mr. MANZULLO. No, no. Answer the question. 

Mr. SHERMAN. This will have to be your last question. 

Mr. MANZULLO. If the enemy can go out and buy this that is an 

inch longer than this, and which the enemy can shorten by 1 inch, 

then why should this be regulated? 

Ambassador MULL. Sir, we have the capability of—every civilian 

aircraft has millions of parts to it, so we have to look at what is 

designed for a specific aircraft that might be sensitive that might 

be used by our enemies. And if something is designed for that—can 

somebody work around and jimmy up something? Yes, they could. 

But I don’t think you are suggesting that we expand our regulation. 

Mr. MANZULLO. No, I would suggest that you decrease your regulation. I appreciate your attempt at answering it, but I think that 

goes to the problem. 

Mr. SHERMAN. I will point out that at least we are protecting our 

customers from buying the F–14 part by mistake and then getting 

one that is an inch too short and thinking that America doesn’t 

produce good aircraft parts. I hope that our customers around the 

country are protected from buying a part which fits only in an airplane that they are not operating. 

Mr. ROYCE. Will the gentleman yield for a minute? 

Mr. SHERMAN. I yield. 

Mr. ROYCE. I thank the gentleman for yielding. 

I think part of the problem is the focus. Instead of stigmatizing 

nuclear weapons and wondering about what is happening with the 

A.Q. Khan network and how we missed that. And how we missed 

the technology being transferred from Europe which was used to 

make atom bombs for various countries; so they were in the process 
31

of doing it—Iran is still in the process of doing it with his technology—I just think you have got to balance here, and that is hard 

for bureaucracies to do. But the focus should be on the nuclear 

weapons, on things that can really hurt us, and somehow you are 

going to have to do the calculus internally to do that. That is, I 

think, your charge, and that should be part of our oversight. 

Thank you again, Mr. Chairman. 

Mr. SHERMAN. Thank you. 

The gentleman from Colorado. 

Mr. TANCREDO. Thank you, Mr. Chairman. 

Mr. Padilla, it has come to our attention recently that the United 

Nations Development Program has transferred dual-use technology 

to North Korea, technology and equipment that they, as I understand, originally applied for permission to obtain—they applied to 

obtain, and we denied that, which I am so glad to hear. They then 

obtained it somehow. Nobody is quite sure, as I understand it, exactly how they got it. And it has now been—we recognize that it 

has been used, it is being used by the North Koreans. It includes 

very sensitive GPS equipment to very high-end portable spectrometers, and a large quantity of high-specification computer hardware. 

What happened? Do we have any idea what happened? And what 

is—I guess what can we do about the fact that the United Nations 

is involved with shipping dual-use material to our enemies? 

Mr. PADILLA. Well, I will tell you what we know right now, sir, 

and what we are working to find out and investigating. What we 

know is that apparently the U.N. Development Program did ship 

a number of items, as you described, to a project in North Korea. 

We know that those items were shipped and are not under the control of the UNDP in North Korea. What we do not know with any 

specificity yet is exactly what the technical specifications of all 

those items were and whether they would have required a Commerce Department license or not. 

Mr. TANCREDO. I thought that they had applied and you turned 

them down. 

Mr. PADILLA. They did apply. There were some applications in I 

believe it was 1999——

Mr. TANCREDO. That is correct. 

Mr. PADILLA [continuing]. For equipment that clearly did need a 

license and was denied. What we don’t know about the most recent 

shipment, sir, which I understand took place, I believe, within the 

last year, is whether the technical specifications of that equipment 

was such that it would have been on the Commerce control list and 

required a license. What we also don’t know is whether the equipment was U.S. origin and therefore subject to our jurisdiction, 

whether it was bought in the United States and shipped from here, 

or whether it had U.S. parts and components that would make it 

subject to our regulations. 

We are working closely with the State Department and the U.S. 

Mission to the United Nations, including Ambassador Khalilzad 

and Ambassador Wallace, to learn more about the details of these 

transactions, and then we will take appropriate action. I think it 

is clear at a minimum, and we have asked to do this, that we talk 
32

with the UNDP and ensure that they understand what our regulations and law require. 

Mr. TANCREDO. Yes, I think that is an excellent idea. I think that 

we should probably expand that to any other department of the 

United Nations that is actually obtaining this—I mean, it is a 

strange thing anyway in a way to hear that a part of the United 

Nation is requesting this kind of equipment and then, of course, 

finding out that it has fallen into the hands of the North Koreans, 

and that there were North Koreans that were actually working in 

the agency itself. And they lied about that in their first response, 

as I am told, that there were none. Later we found out that that 

was true. It is quite disconcerting. And I hope it is something that 

people in the Commerce and State are paying a great deal of attention to. Thank you. 

The last question I have deals with I think it was, Ambassador 

Mull, your comments with regard to a change of focus away from 

country to consumer of the products because it is no longer the 

Cold War situation. 

Mr. PADILLA. I think that it was me. 

Mr. TANCREDO. Mr. Padilla, excuse me—which is certainly understandable and commendable. The question arises, a situation 

where, for instance, our ally, in this case Great Britain, requests 

or attempts to purchase something from the United States, and 

does, in fact, obtain materials that we would agree to provide with 

a close ally, or to a close ally. And then you recognize that the EU, 

inside the EU, which now has a ban on all shipments of this kind 

of material to China, as do we, but you recognize that inside the 

EU there is now this restlessness about that and the possibility 

that that would be overturned. And so we then have provided 

something to an ally who is also part of the EU, which then in turn 

ends up shipping it to China. I mean, what do we do about that? 

Ambassador MULL. Yes, sir. That is a very good question. And, 

in fact, we are refining, we are developing the answer to it in our 

current negotiations with the British. We are in the process of coming up with the implementation regulations that would accompany 

the treaty if the Senate does provide its consent to it. But our 

thinking is that the best way to do that is to put restrictions on 

the supplies that we would provide to Great Britain under the 

terms of the treaty so that it would enjoy the official protection of 

the British Official Secrets Act and could not be reexported or 

transferred away from the original user of this service without certainly the permission of the United States. So we will be sure to 

implement control so that scenario you described, which is a real 

unfortunate possibility, that that would not happen. 

Mr. TANCREDO. Thank you very much. I have no other questions, 

Mr. Chairman. Thank you. 

Mr. SHERMAN. Thank you, Mr. Tancredo. 

Mr. Mull, until the F–14 is flown by only one country in the 

world, that is Iran, do you allow any exports of any part used exclusively in the F–14? 

Ambassador MULL. No. 

Mr. SHERMAN. We have got these turf battles. Have you gentlemen tried to sit down and just work it out? 

Ambassador MULL. Well——
33

Mr. SHERMAN. You guys could sit down for a couple hours and 

issue a memorandum of understanding that would identify exactly 

the answers to all these turf battle questions we keep hearing. 

Ambassador MULL. In fact, I think that is an excellent suggestion. And our agencies are in the process of coming up with a better way of doing this. 

Mr. SHERMAN. Well, I hope you could get it done in the next 

week. I don’t know why it would take longer, except this is the 

Federal Government. But there are circumstances where you disagree. 

Mrs. McCormick, are you willing to act as referee when they 

can’t reach an agreement? 

Mrs. MCCORMICK. Sure. I would be more than glad to perform 

that role. 

Mr. SHERMAN. Okay. Good. Then I know they will report back a 

week from now that they have reached full agreement on a number 

of things, and on the rest, you know, give Mull a couple, give 

Padilla a couple, and you are done with your work. 

Mr. PADILLA. Mr. Chairman, I would say specifically with regard 

to the issue that is most often contentious between us, and that is 

commodity jurisdiction, does the product that Mr. Manzullo was 

holding up belong under Commerce’s control or State’s control? I 

think we have made some improvements recently, for example, by 

having more regular meetings between Commerce and State officials——

Mr. SHERMAN. There shouldn’t be a single product where industry doesn’t know who has control, except in circumstances where 

the product was invented in the last few weeks or months. These 

folks all can list the products. And you do have a circumstance now 

where the decision is being made. It is just being made by the exporter and not by the government, which is not the way we want 

to have these decisions made. So you can say, oh, we are making 

progress; oh, we will get together. These are the kinds of disputes 

which in the private sector two subsidiaries of the same parent corporation would work out in a week. Why can’t you come back to 

us when we come back for the August recess and say for every single commodity identified as one where there is some question as to 

jurisdiction, you have come up with the answer? 

Mr. PADILLA. What I would just suggest, Mr. Chairman, is the 

way that we work our licensing system I actually think provides 

a good model for what you are talking about. We have licenses for 

example 20,000 a year in Commerce. We refer them out to all of 

these agencies. Sometimes Defense disagrees, and they don’t think 

we should approve it, and we have a dispute. 

What we have, however, in the licensing process is a very clear 

dispute resolution system with time lines, so by a certain number 

of days, if Defense hasn’t gotten their views in, it is deemed approved. If there is a dispute, it goes to an interagency committee 

that I chair. We have a certain number of days to make a decision. 

It works pretty well. 

Mr. SHERMAN. Then how come there is certain items where you 

have had disputes for years? 

Mr. PADILLA. Because we don’t have a similar for commodities. 
34

Mr. SHERMAN. Then why don’t you get one? Mrs. McCormick is 

great. She will just decide these things very quickly for you, and 

we will solve the problem. Again, in private fields you wouldn’t 

have two subsidiaries of the same parent corporation running these 

disputes. 

For each of the two operating agencies, Mr. Mull and Mr. 

Padilla, how many applications do you have that are more than 

120 days old where you haven’t said yes or no yet?

Ambassador MULL. Right now? 

Mr. SHERMAN. Yes. Give me your best guess. 

Ambassador MULL. It is 567 that have not been resolved that are 

beyond 60 days. 

Mr. SHERMAN. 567. Mr. Padilla, how many do you have that are 

old and cold? 

Mr. PADILLA. I could probably count them on the fingers of two 

hands. 

Mr. SHERMAN. Without taking off your shoes. 

Mr. PADILLA. Yes, sir. 

We have an Executive Order that we operate under the Commerce licensing system that requires and actually puts an outside 

deadline of 90 days. And as you can see, our average is about 30 

days. So to have something 120 days, the only case I could think 

of would be one that was pending in very senior interagency levels, 

and perhaps to a terrorist country or something like that. 

Mr. SHERMAN. Why does your average licensing officer only complete 408 applications a year, which sounds like a lot, when the 

State Department is able to do three times as many per licensing 

officer? 

Mr. PADILLA. Well, we have fewer license applications. But we 

have the—I believe the appropriate number of staff. If you think 

about 408 applications, that is more than 1 a day. 

Mr. SHERMAN. So your argument is you are not overstaffed, he 

is understaffed. 

Mr. PADILLA. I don’t think the Commerce Department is 

overstaffed. I think we are adequately staffed. And I think if you 

asked our customers who are exporters of dual-use goods, they 

would generally say that the Commerce system works well. 

Mr. SHERMAN. Well, just between you and me, he is not listening, 

do you think the State Department can process 1,700 applications 

per licensing officer and do it well? 

Mr. PADILLA. I think it is a lot, sir. I don’t think—in my personal 

opinion, I don’t think the State Department has sufficient resources 

to do the job. 

Mr. SHERMAN. I recognize the gentleman from Oregon. 

Mr. WU. Thank you very much, Mr. Chairman. 

Is it the Department of Commerce which regulates computer exports? 

Mr. PADILLA. Yes, sir, by and large. 

Mr. WU. By and large, okay. 

This is years ago, but I remember a controversy about which 

computers are exportable, which computers are nonexportable, and 

which fall sort of in the gray zone of, shall we say, requires a little 

time to consider. Where are we currently in setting those lines for 

delineation in terms of computation speed? 
35

Mr. PADILLA. The current computational speed limit is 0.75 

weighted teraflops. And I hope you don’t ask me to explain what 

a weighted teraflop is, sir. What I can tell you is that basically that 

is the multilateral control level for most countries. It is a little bit 

lower for terrorist-supporting countries. But what we generally 

issue licenses for in computers now are essentially supercomputers, 

like IBM, Blue Gene, supercomputer mainframe equipment. And 

we do a handful of those a year. It is certainly not laptops or 

desktops or things that you could buy on line. 

Mr. WU. Is there a different way—just think with me for moment. Is there a different way of regulating computer exports other 

than regulating teraflops? 

Mr. PADILLA. Well, for many years there was a different control 

metric called MTOPS (Millions of Theoretical Operations per Second). Some people may remember it. And every other year or so, 

the administration would have to raise that level because of 

Moore’s Law and the technology moving so quickly. 

Mr. WU. Let me reguide you, because what I am trying to at 

least try to explore with you is whether there is an approach to 

this which is other than computational speed or crunch power; 

whether there is a way of delineating architecture, hardware, software architecture that we want where we can do a work-around on 

this raw speed. 

Mr. PADILLA. Right. Well, I think we certainly are open to working with industry. We know the types of machines that we are concerned about, and we know why. We have come up with this 

weighted teraflop measure, which is relatively new, because we 

think it is a better way that won’t require us to change those computational speed limits every other year. If the industry has suggestions that have to do with architecture or even with end users, 

I think my colleagues and I would be certainly open to them. 

Mr. WU. I haven’t heard that suggestion from industry. And 

when I have discussed this with some other folks, there have been 

some specific problems raised. Since you are the regulator, if you 

will, I wanted to probe this with you about whether you have considered ways of regulating these exports that is, shall we say, a little bit more intellectually elegant than measuring computer speed. 

And I will give you two concerns about this. One is the administrative burden, if you will. And you have tried to work around that 

with the weighted teraflop rather than the prior approach. But a 

more interesting question to me is well, gee, you know, if the limit 

is today .75 weighted teraflops, shoot, 10 years ago the limit might 

have been .10 weighted teraflops. And as an intellectual matter, if 

a computer that could do .50 weighted teraflops was dangerous 5 

years ago, what makes it safe today? It is a reasonable inquiry. 

I know commercial demands change. I am just saying that there 

are some problems with measuring these things, measuring using 

the metric that you all have been using. The inquiry is, is there 

a consensually different paradigm? 

Mr. PADILLA. I think we are open to consider different paradigms. We recently published a notice in the Federal Register calling for input from industry or academia or others on a comprehensive review of the Commerce control list. The way the Teraflop 

measure was developed with extensive input from industry and 
36

computer experts to try to take architecture into account, I think, 

sir, that we are very open to considering the more elegant types of 

intellectual approaches. We have not yet found one that we think 

is better than weighted teraflops. And I think that the weighted 

Teraflop has succeeded in sharpening the focus of the control pretty 

well. We are no longer running into the problem of the laptop that 

you can buy at Radio Shack bumping up against the control limit. 

Mr. WU. Thank you very much. 

Mr. PADILLA. Thank you, sir. 

Mr. SHERMAN. Mr. Mull, it has been suggested by Mr. Manzullo 

that you send this subcommittee a report, status report, every 

month on your backlog, and I think that would be a good idea. 

What do you think? 

Ambassador MULL. Well, I am not really sure in terms of defining how you would define the backlog. We are certainly eager to 

communicate with you and communicate our process to you. 

Mr. SHERMAN. I would say average processing time and number 

of applications that are more than 120 days old or more than 60 

days old. 

Ambassador MULL. I will have to check with our legislative affairs, but personally that sounds like a fine idea. 

Mr. SHERMAN. Okay. Otherwise I can always call you and ask if 

they won’t let you issue something in writing, and then I can share 

that with other interested Members of Congress. 

I want to thank the first panel and move on to the second panel. 

Our first witness is Ms. Barr, Director in the Acquisition and 

Sourcing Management team of the GAO, now known as the Government Accountability Office. As an old CPA, I liked your old 

name better. In any case, in this capacity she oversees the review 

of technology transfers, international management, and defense 

supplier base in contract management. 

Ms. Barr. 

STATEMENT OF MS. ANN MARIE CALVARESI BARR, DIRECTOR, 

ACQUISITION AND SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. BARR. Thank you, Mr. Chairman. 

Mr. Chairman and members of the subcommittee, thank you very 

much for the invitation to discuss the export control system. As you 

are aware, this system is critical to protecting our national security, foreign policy and economic interests, yet GAO’s extensive 

body of work has shown that export control programs and related 

processes have for the most part been neglected. This raises serious 

questions about the government’s ability to protect defense-related 

items while allowing legitimate trade to occur. 

GAO has made numerous recommendations on ways to improve 

both the effectiveness and efficiency of the system, but a lack of action or fixes that were not grounded in an analysis of the problems 

have left the system even more vulnerable. These deficiencies in 

part prompt the GAO to add to its 2007 high risk list the effective 

protection of technologies critical to U.S. interest. 

Today I will focus on three key areas: questionable program effectiveness, concerns regarding efficiency, and an overall lack of 

management due diligence. The first area concerns weaknesses 
37

that relate to the most basic aspects of the export control system. 

That is jurisdictional control and clarity on the use of licensing exemptions. 

Regarding jurisdictional control, State and Commerce continue to 

debate which Department controls the export of certain sensitive 

items. For some items, including certain missile-related technologies, both Departments have claimed jurisdiction. For other 

items, such as night vision technology and explosive detection 

equipment, Commerce improperly claimed control, making the item 

subject to less restrictive export control requirements. Unless and 

until these disputes are resolved, it is ultimately the exporter, not 

the government, who determines what level of governmental review and control will follow. 

A lack of clear guidance on exemption use has further limited the 

government’s ability to ensure that exports comply with laws and 

regulations. Clear guidance is critical for exporters as they are the 

ones responsible for ensuring legitimacy of license exempt exports. 

However, State has provided conflicting information to exporters on 

exemption use, which has in some cases harmed U.S. interests. For 

an example, an exporter was incorrectly informed by State that a 

planned shipment of items to support NATO training exercises was 

not eligible for an exemption; therefore, the exporter cancelled the 

shipment, and the training exercises were called off. 

These weaknesses also create considerable challenges for other 

players, namely the enforcement community. Without information 

as fundamental as what items are controlled and which need a license, enforcement officials are limited in their ability to carry out 

their respective inspection, investigation and prosecution responsibilities. 

The second area concerns inefficiencies in the export licensing 

process. Clearly reviews of export license applications require careful deliberation; however, licensing decisions should not be delayed 

due to process inefficiencies, nor should licensing requirements be 

bartered for efficiency. 

While State has initiated various efforts to improve its license 

application processing times, these initiatives have generally not 

been successful. In fact, median processing times doubled in 4 

years, and as was mentioned in the first panel, State reached an 

all-time high of over 10,000 open application cases. Quite frankly, 

this grim trend is not surprising to us. When State announced 

many of its initiatives in 2000, we cautioned then without an analysis of underlying problems, any initiative that State would develop 

to achieve efficiencies would at best be a shot in the dark. 

Although most Commerce-controlled exports can occur without a 

license, it is no less important for Commerce to seek efficiencies 

where needed, yet the overall efficiency of the department’s licensing process is unknown, in part due to its limited assessments. 

The third and final area concerns a more fundamental issue: 

State and Commerce’s lack of due diligence in assessing the overall 

effectiveness of their systems. Neither Department has conducted 

a thorough assessment of their system, yet both argue that no fundamental changes are needed. Making this determination without 

basis is risky business. 
38

In conclusion, our work has repeatedly demonstrated that the 

U.S. export control system is in desperate need of repair. Redefined 

security threats, changing allied relationships and increasing 

globalization, coupled with the numerous weaknesses we have 

identified, demand that the U.S. Government step back, assess and 

rethink the current system’s ability to protect multiple U.S. interests. 

Mr. Chairman, this concludes my prepared statement. I would be 

happy to answer any questions that you or other subcommittee 

members may have. 

Mr. SHERMAN. Thank you. 

[The prepared statement of Ms. Barr follows:]
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Mr. SHERMAN. I should point out that copies of this wonderful 

chart prepared by my staff, the testimony of our witnesses. And 

what I guess I would refer to as a GAO report being issued today 

are all available at the table on the side. 

With that, let’s go on to our next witness, Mr. Lowell. 

STATEMENT OF MR. WILL LOWELL, MANAGING DIRECTOR, 

LOWELL DEFENSE TRADE, LLC 

Mr. LOWELL. Thank you, Mr. Chairman. I have submitted a prepared statement, so I will just summarize my views. 

Mr. SHERMAN. Before I let you proceed, let me indicate that Mr. 

Lowell is managing director of Lowell Defense Trade, LLC, which 

advises United States and European firms on export control compliance. He headed the State Department’s Office of Defense Trade 

Control for virtually a decade, from 1994 until 2003. And most impressively of all, he is a former staffer to the Foreign Affairs Committee. 

Mr. LOWELL. Thank you, Mr. Chairman. I will just take a few 

minutes. 

The basic system we have for arms export control is sound. That 

is the statutory system. The problem, in my opinion, lies in three 

areas, and it has to do with the administration of the licensing system, or in some cases the lack of proper administration. 

But there are three things I want to just focus on today briefly. 

Two of them have already been discussed, and I won’t dwell on 

them. One is the GAO designation of this system as a high-risk 

area. This is really a flashing red light that needs to be addressed 

with some sense of urgency in an across-the-board way. This is just 

the most inopportune time to have all of these vulnerabilities and 

risks to our system out there in such a documented way. So I applaud your involvement, Mr. Chairman, in making sure that this 

is given proper attention, and also that of Mr. Lantos’ statement 

that I thought was very encouraging. 

The second thing is the impact of the license delays is really taking a toll not just on the economic and commercial interests of the 

companies and the interests of our allies and their companies and 

interoperability matters and so forth; it affects compliance with our 

laws and our regulations in an across-the-board way because of the 

delays and frustrations and uncertainty. And our system really is 

the sort of centerpiece of what happens internationally in export 

controls. The United States’ system is the high-water mark. If we 

expect other countries to cooperate and to strengthen controls 

where we need them to, to go along with our controls and respect 

and enforce them, then we need to be able to administer our system efficiently and generate the support for compliance with it. 

The third thing relates somewhat to GAO’s finding, but is a separate issue. It is important enough that I think it needs to be raised. 

And that is as alluded to by Ms. Calvaresi Barr, there has been no 

systematic evaluation in the post-9/11 environment to either the 

Commerce system or the State Department system. This is probably the only area of U.S. Government national security policy that 

hasn’t been assessed for weaknesses and vulnerabilities. And the 

agencies have asserted, mostly as an article of faith rather than 

rigorous assessment, that changes aren’t needed. But, in fact, this 
76

is a very dangerous situation the United States is in now. We need 

to look at these regulations, we need to see if additional authorities 

are needed, and see if there are particular areas that we need to 

focus on. 

And I think it is important to remember in this respect we are 

not only talking about weapons going abroad and falling into dangerous hands and then coming back to be used against us. These 

laws and regulations are also an important means by which we 

control the transfer of defense articles in the United States to foreign persons and the import, temporary import in particular, of 

weapon systems from other countries. 

So at the current time we have in the regulations a situation 

where U.S. Government approval is required for the transfer of a 

commercial communication satellite to a foreign person, but the 

same regulations don’t require a license for the transfer of biological weapons to a foreign person, or harbor entrance detection 

equipment or other things controlled on the munitions list that we 

know are of interest to terrorist groups and al Qaeda in particular. 

So I would urge, Mr. Chairman, that the subcommittee also put 

this part of the problem on its agenda. It involves a bigger audience than just State, Commerce and Defense. It involves the law 

enforcement communities, Justice, FBI, intelligence agencies and 

so forth, to make sure we have an adequate and effective assessment and solve and address any areas of risk and vulnerability 

that are related directly to the terrorist threat at this time. And 

I thank you, sir. 

[The prepared statement of Mr. Lowell follows:]

PREPARED STATEMENT OF MR. WILL LOWELL, MANAGING DIRECTOR, LOWELL

DEFENSE TRADE, LLC 

Thank you, Mr. Chairman. Please permit me to commend you, Ranking Member 

Royce and other Members of the Sub-Committee for convening this hearing today, 

which concerns matters of genuine importance and urgency. 

I think the questions the Subcommittee is raising are exactly the right ones: Are 

we doing what needs to be done to ensure our technology does not fall into the 

wrong hands; and are we taking appropriate steps to facilitate technology sharing 

where this furthers our interests. 

Before summarizing where I believe the main problems lie in this area, I think 

it is important to state what is not a problem. I am referring to the comprehensive 

framework set forth in the Arms Export Control Act for controlling transfers of armaments and related technology. This statutory framework ensures crucial oversight by Congress and has served our country’s security and foreign policy interests 

well over the years. I think it is no exaggeration to say that, if other governments 

had similar frameworks in place, we might be dealing with significantly more favorable security situations in various trouble spots around the world. A corollary of 

this, in my view, is that the United States should be providing leadership in the 

effort to strengthen international control of armaments—not retreating from leadership through proposals to water down our own system, or undercutting our leadership by administering our system in such a difficult manner as to discourage even 

our closest allies. 

There are three, interrelated problems challenging our arms export control system 

today. In my view, they all arise with the Executive Branch’s administration—or, 

in part, the lack of proper administration—of various authorities granted by Congress under the Arms Export Control Act. 
77

1GAO, Defense Trade: Arms Export Control System in the Post-9/11 Environment, GAO–05–

234 (Washington, D.C.: Feb. 16, 2005); Defense Trade: Arms Export Control Vulnerabilities and 

Inefficiencies in the Post-9/11 Security Environment, GAO–05–468R (Washington, D.C.: Apr. 7, 

2005). GAO, Export Controls: Improvements to Commerce’s Dual-Use System Needed to Ensure 

Protection of U.S. Interests in the Post-9/11 Environment, GAO–06–638 (Washington, D.C.: June 

26, 2006). 2The U.S. Government spent $67 million in FY 2005 controlling slightly more than one billion 

dollars in dual use goods and technology licensed by the Commerce Department. In contrast, 

only $11 million was spent in the same year controlling $54 billion in defense articles and services licensed by State. 3GAO’s report (GAO–05–234) supra suggests that the Department did not execute a funding 

authorization to hire additional licensing officers beginning in FY 2003 in order to expedite muContinued

(1) FAILURE TO ASSESS AND REORIENT CONTROLS AGAINST TERRORIST THREATS

Despite repeated urgings from Congress—and two detailed reports by the Government Accountability Office1—there has been no review in the Executive Branch, 

even at this late date, of whether our export controls should be tightened in some 

areas (or loopholes closed in others) to deal with the heightened terrorist threat. 

There is ample information about this threat, including an important study released by the National Intelligence Council in December 2004, forecasting that terrorists will continue to rely primarily on conventional weapons in the coming 

years—but will also move up the technology ladder to include advanced explosives, 

unmanned aerial vehicles and other items of the type controlled on the U.S. Munitions List by State. If we needed a more recent reminder, just last Sunday during 

his interview on ‘‘Meet the Press’’ Admiral McConnell pointed to concerns about terrorist sleeper cells in the United States and al Qaeda’s continued primary interest 

in explosives that generate mass casualties. 

Mr. Chairman, to my knowledge, our export control programs are the only part 

of our overall national security structure that has not been subjected to a post-9/11 

security review. Why the agencies continue to assert—as an article of faith, rather 

than rigorous assessment—that our programs in this area are sound and immune 

from exploitation is mystifying and dangerous. 

(2) SYSTEMIC VULNERABILITIES AND RISKS TO U.S. TECHNOLOGY

For the first time in history, Executive Branch programs related to export control 

and protection of critical military technology have been placed in GAO’s ‘‘high risk’’ 

list. This is not just a dubious distinction; it is a flashing red light signaling that 

many things are wrong—and it comes at an inopportune time. 

GAO has spelled out in a series of reports since 9/11 all of the corrective actions 

needed to resolve problems related to those vulnerabilities. The problems cover the 

waterfront, from clarifying export license requirements for missile technologies to 

providing reasonable assurance that anti-tamper systems in U.S. weapons are working as intended when sold to foreign countries. 

Given Ms. Calvaresi-Barr’s presence at today’s hearing, there is no need for me 

to elaborate on the magnitude of the problems in this area—except to note that the 

very fact of the high risk designation impeaches any assurance by the Executive 

Branch that the programs it administers pursuant to the Arms Export Control Act 

are functioning effectively to safeguard U.S. interests. 

(3) DECLINING LEVELS OF SERVICE FOR U.S. INDUSTRY

U.S. industry plays a decisive—perhaps, the decisive—role in safeguarding our 

military equipment and technology. Executive Branch agencies establish the policies 

and parameters for exports and other technology transfers to foreign persons 

through federal regulations and the export license process. But, hundreds of U.S. 

companies execute those policies on a daily basis through their corporate compliance 

programs. These companies—particularly small and medium sized defense companies who cannot afford Washington law firms or lobbyists—are currently in very difficult straits due to excessive delays and uncertainty in the export license process. 

This is not only harmful to U.S. industry; it also takes a toll on our national security interests in multiple ways. For one thing, we will not be very successful in persuading other nations of the need for strict controls over their weapons technology 

if we cannot administer our own efficiently. 

Flat resources at State2 in the face of an increase in license applications represent 

only one part of the problem and one that is easily resolved for not a great deal 

of money. The other, more intractable part is the Department of State’s strategy for 

solving this problem.3 It is a strategy that appears to imply an air of indifference 
78

nitions export licensing and, instead, planned a reduction in the number of licensing officers 

over the next two fiscal years. 

to legitimate concerns of exporters and one that is committed to reducing the backlog of license applications chiefly by redefining the mission to eliminate export license requirements. 

There are problems with such a strategy on multiple levels. For one thing, increases in license applications of the magnitude reported by State (i.e., six-to-eight 

percent per annum) generally correlate to a growing share of the international arms 

market by U.S. companies. The message we inevitably send to other countries 

through such a strategy is that the more arms technology our country sells abroad, 

the less we will control. This does not seem to be a sound basis for managing U.S. 

security interests internationally. Nor is it one we would welcome if adopted by 

other governments. 

IMPORTANCE OF CONGRESSIONAL OVERSIGHT

Mr. Chairman, the Congress and the American people are entitled to a high degree of confidence that:

(1) Important United States interests related to transfers of military and dual 

use technology are being safeguarded in the war on terrorism; 

(2) This area of national security policy is being thoughtfully and fully integrated into U.S. counterterrorism and nonproliferation policy; and 

(3) Legitimate defense trade with our friends and allies is being furthered 

through timely and efficient adjudication of export license applications submitted by U.S. companies.

Unfortunately, there are serious reasons for concern in all of these matters. The 

solutions are not expensive and are attainable in the near term. They do not involve 

any massive re-engineering of the arms export control process at State, which has 

already become something of a reinvention lab in recent years. But, the solutions 

do require a commitment by the Department of State to administer the system provided in the Arms Export Control Act responsibly and effectively. They will also require expanded oversight by Congress, at least in the near term to ensure this is 

done. 

That is why I think it would be very helpful for either the Subcommittee or the 

full Committee as the leadership deems most appropriate to designate several Members who will work intensively with senior management from State on a work plan 

to:

• Clear away the backlog of license applications at State over the next 120 days 

through all appropriate means, including through the temporary detail of Department of Defense personnel, the temporary redeployment of State personnel and other extraordinary measures;

• Identify a permanent funding sources (e.g., budgetary or license fees) necessary to prevent a recurrence of any backlog and assure predictable 

timelines for the U.S. business community in the range of 10 days for most 

cases (unstaffed) and 30 days for more complex cases (interagency staffed);

• Establish a timetable and reporting channel to Congress for a post-9/11 interagency review (including law enforcement and intelligence agencies) of any 

gaps to be closed or enhancements needed in U.S. export control regulations 

and policies; and

• Include in this discussion a plan and timetable for eliminating system 

vulnerabilities and weaknesses which have triggered GAO’s ‘‘high risk’’ designation, and also include GAO representatives in the discussion to ensure 

the approach is sound.

These are the priorities areas that need to be addressed, Mr. Chairman, in my 

opinion. In focusing on these urgent matters, I do not mean to imply we should exclude eventual consideration by Congress of well-designed proposals that promote 

cooperation with allies while preserving credible means for the U.S. Government to 

safeguard our systems, and deter, detect and prosecute violations when they occur. 

But, I am persuaded the primary focus at this juncture should be on getting the 

arms export control system back on some reasonable footing and dealing effectively 

with existing security threats and system vulnerabilities. Accomplishing these tasks 

is well within the grasp of the U.S. Government and should not prove to be vexing 

or protracted provided there is a good faith effort to do so. 

I thank you, Sir.
79

Mr. SHERMAN. You are one of the few witnesses not to use his 

entire allocated time. That does not mean Mr. Douglas gets 6 minutes. Let’s hear from Mr. Douglas for 5. 

And I should point out that Mr. Douglas is here. We welcome 

him. He is president and CEO of the Aerospace Industries Association. He is a former Assistant Secretary of the Navy for Research 

Development and Acquisition of defense systems for the United 

States Navy and the Marine Corps. 

Mr. Douglas. 

STATEMENT OF MR. JOHN W. DOUGLASS, PRESIDENT AND 

CEO, AEROSPACE INDUSTRIES ASSOCIATION OF AMERICA 

Mr. DOUGLAS. Thank you, Mr. Chairman. And I would also like 

to join my colleagues and thank you for having this important 

hearing. This indeed is an area where we need some structural 

changes in the way our Government operates. 

I would add, sir, in addition to being former Assistant Secretary 

of the Navy, I am also a former general officer in the Air Force, 

a NATO Commander, a member of the National Security Council 

staff, and a member of the congressional staff, so I have seen this 

issue from a lot of different viewpoints. 

Mr. SHERMAN. The highest ranking of all being that former congressional staffer. 

Mr. DOUGLAS. Yes, sir. The most powerful of all for sure. 

I would also ask, sir, with your permission to have my written 

statement entered into the record. 

Mr. SHERMAN. Without objection, all written statements will be 

made part of the record. 

Mr. DOUGLAS. Mr. Lantos’ letter of invitation asked me to speak 

broadly on the impact of U.S. laws, regulations, policies and practice, the impact that these have on the United States industry’s 

ability to sell its products overseas. And I think the place to put 

this in some perspective, sir, is to sort of describe the span of 

where all of these laws take place. 

On the one end of the spectrum is purely civil equipment, which 

is generally not reading at all. Then there is dual-use civil equipment. Then there is civil equipment that is modified for military 

use. Then there is military equipment which is unclassified. And 

then there is military equipment which is classified by our classification system. And generally speaking, sir, we don’t have problems on either end of the spectrum. The industry clearly has no 

problem in understanding how classified material is dealt with and 

the products that are manufactured as a result of that system of 

how we license and export those. 

It is in this middle area of dual-use civil equipment, of civil modified equipment. And incidentally, the things that Mr. Manzullo 

held up were civil items which had been modified. In other words, 

they just made it an inch longer to go in a military airplane, or I 

think it is an inch shorter to go in a military airplane. And then 

there is military unclassified, and there is all kinds of things that 

are in our military equipment today. And it is really important to 

note, sir, that that material, the drawings and the specifications for 

that equipment and so on, since it is not classified, it is not controlled by our military. In other words, you could go on a military 
80

base, and, Mr. Scott, you have military bases in your district, you 

would find that that is just sitting around a file cabinet, they don’t 

even have to lock it up, it doesn’t go in the safe because it is not 

classified. It is just specifications for screws, bolts, tubes, wires like 

you just saw today, widely available on the Internet. Although industry is often asked to write specifications for that kind of equipment, it is not classified, it is not controlled. 

So you asked me, What is the impact? Well, first of all, there is 

a huge impact in jobs lost. In my part of the industry that I represent—and I should also add, sir, that I am here today representing the Coalition for Security and Competitiveness, and there 

are 18 different associations in that coalition. But just in the aerospace and defense area that I am involved in, we can see tens of 

thousands of jobs that are lost on an annual basis due to the current system. When you expand that to the whole national manufacturing area, many people believe that the number of jobs lost is in 

the hundreds of thousands versus tens of thousands. 

The financial impact is also large. It is at least in the range of 

billions, not millions, of lost business each year. 

Thirdly, as you pointed out, Mr. Chairman, there is a perverse 

impact of the current system in which we sometimes create industries among our competitors overseas. We have seen this in the 

space business from time to time where we have put things on the 

munitions list that are really commercial products, and we create 

an industry overseas. 

What causes these negative effects? Well, first of all, the law 

itself is a potential cause. As we all know, these laws were all written back in the mid- to late 1970s. I usually have equipment, like 

Mr. Manzullo pointed out. I could show you a bracket, for example, 

that is on the munitions list that is also on a John Deere tractor 

that is exported all over the world. 

Regulations, they generally follow the law. Both the Commerce 

Department and the Department of State generally write regulations that follow the law. So as the law goes, so go the regulations. 

When you get to the policies arena, we often see that the policies 

of administrations from time to time go significantly beyond the 

law. My colleagues at the table had mentioned the jurisdiction policies as one area where they have gone way beyond the law. Your 

comments are right on, sir. And clearly the practices of implementing these policies also go far beyond the law. 

What can be done? We have made a number of recommendations. 

They were alluded to by the Ambassador this afternoon. 

[The prepared statement of Mr. Douglass follows:]

PREPARED STATEMENT OF MR. JOHN W. DOUGLASS, PRESIDENT AND CEO, 

AEROSPACE INDUSTRIES ASSOCIATION OF AMERICA

INTRODUCTION

Chairman Sherman, Congressman Royce, and members of the Terrorism, Nonproliferation, and Trade Subcommittee: the Aerospace Industries Association of 

America (AIA) appreciates the opportunity to provide a statement for the record for 

today’s hearing evaluating how well the U.S. export control system both protects national security and facilitates exports. AIA represents more than 100 regular and 

180 associate member companies, and we operate as the largest professional organization in the United States across three lines of business: space systems, national 

defense, and civil aviation. Representing a total high-technology workforce of 

640,000 that manufactures products for customers around the world, we have broad 
81

and deep experience with the U.S. export control system. AIA is also a member of 

the Coalition for Security and Competitiveness, representing eighteen industry and 

trade associations committed to working with the Executive Branch and Congress 

in a cooperative spirit to develop a more modern export control system. 

The United States currently faces unprecedented threats to its security both at 

home and abroad. In confronting these threats, we must be able to exploit the full 

advantage we derive from our economic strength and technological prowess. To that 

end, the U.S. export control system must be modernized so that it is better able to 

respond quickly and effectively to evolving security threats, and promote our nation’s continued economic and technological leadership. 

THE COALITION FOR SECURITY AND COMPETITIVENESS

The Coalition for Security and Competitiveness advocates the development of a 

modern export control system that:

• Accurately identifies and safeguards sensitive and militarily critical technologies;

• Enhances U.S. technological leadership and global industrial competitiveness 

through more responsive and efficient regulatory management;

• Facilitates defense trade and technological exchange with allies and trusted 

partners;

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

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

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

By efficient, the government must do a better job at making decisions on export 

authorizations in a timely manner. The goal is a system that can deliver decisions 

on 95 percent of all license applications in 30 days, not the current 55+ days it often 

takes. 

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

or similar time frames. 

Transparent means that the rules governing the license process must be interpreted and used consistently, and that industry and foreign partners have quick, 

easy access to information on the status of their applications. 

The export control system we operate under today lacks these three basic qualities. We can and we must do better because the current system is paradoxically 

hurting our national security, our economic strength, and our technological competitiveness, and the problems will continue to get worse if we do not take action. 

THE NEED FOR EXPORT CONTROL MODERNIZATION

Let me say up front—export controls are necessary. They are critical to our national security. We must keep sensitive items out of the wrong hands. However, 

equally important to our national security is sharing technology with our friends 

and trusted partners. 

Our failure to do so effectively is hurting interoperability, capacity building, and 

our relationships with allies. The U.S. benefits considerably when the technologies 

our allies bring to the battlefield are compatible and have capabilities that multiply 

the effectiveness of our own forces. Licenses facilitating such technology exchange 

are generally approved. However, delays and inconsistencies associated with the 

eventual processing of these same licenses bruise these important relationships, and 

do not send a message of trust and partnership. Such problems in the export control 

system also hamper the ability of U.S. industry to leverage global innovation to deliver the best equipment to our warfighters at the best value to the U.S. taxpayer. 

This goes to the heart of what led to the formation of the Coalition—of which AIA 

is an important member. 

How the current export control system operates is also hurting our economic and 

technological competitiveness. We must recognize the importance of trade and international collaboration for sustaining economic growth, innovation and skilled employment in U.S. industry. Nearly four million workers are employed in U.S. hightech industries—those affected either directly or indirectly by export controls. And 

these industries account for about one third of manufactured goods exports or nearly 
82

$350 billion in 2006. The challenges created by the current export control system 

are particularly harmful to our most dynamic and innovative small businesses, who 

incur costs of compliance with a byzantine system and risk missing out on business 

opportunities because they cannot turn around an export license in an overloaded 

system fast enough. 

THE COALITION’S PHASE I PLANS

In the first phase (Phase I) of the Coalition’s plans to advocate for a modern export control system, we decided to focus on improvements to the current system that 

could have an immediate, positive impact on predictability, efficiency, and transparency in license processing. Our criteria for identifying these recommendations 

were that they had to be measurable, attainable, and meaningful. We also agreed 

to focus, at least initially, on process improvements that the Administration could 

implement now under existing statutes. At the same time, mindful of Congressional 

interest in this issue, we committed to organize briefings with Congressional committees and offices on the importance of this issue and how our proposals can help. 

Detailed explanations of these defense and dual-use related proposals can be found 

at the Coalition’s website: www.securityandcomeptitiveness.org. The remainder of 

this statement will focus on the Coalition’s defense trade proposals. 

PHASE I PROPOSALS FOR DEFENSE EXPORT CONTROLS—INTERAGENCY

There are proposals in our defense trade package that cut across all parts of the 

federal government. These proposals primarily seek to drive greater interagency dialogue and generate more and clearer political guidance on the risks and rewards of 

defense trade transactions. 

The Coalition has called on the White House to re-state the strategic policy principles that should govern the operation of the U.S. export control system. This statement should highlight the need to capture the full benefits of prudent technology 

exchange with our friends and allies. We ask for the appointment of a Senior Director at the National Security Council focused on conventional defense and dual-use 

export controls by separating these issues from the nonproliferation portfolio. The 

Coalition also calls for the creation of a new Presidential advisory body to establish 

a dialogue among the executive branch, congress and industry on defense trade and 

technology cooperation. 

At the policy-making level, while the Coalition is not challenging the Administration’s national security determinations on transactions, we are asking that those decisions be made consciously, consistently, and clearly. This is especially true for administering the rules governing the Commodity Jurisdiction process, the process for 

determining whether the State Department or Commerce Department has jurisdiction over an export authorization. We believe a significant number of export licenses 

that clog up the current system may, in fact, no longer be required if the interagency process that evaluates such transactions all followed the same regulatory interpretation. 

In commodity jurisdiction and other policy-related cases where the interagency 

process must come to a consensus decision, an interagency appeals process for precedent-setting decisions would also be useful to ensure policy and process are consistent, and that policies continue to be relevant as circumstances change. Such 

quality control, in the form of reviews of licenses that are denied or ‘‘returned without action (RWA), would be helpful at the transaction level as well. 

PHASE I PROPOSALS FOR DEFENSE EXPORT CONTROLS—STATE DEPARTMENT

There are also defense proposals that will primarily require the leadership of the 

State Department to implement. The most immediate proposal requiring attention 

is funding the hiring of additional licensing and agreements officers to handle the 

8% a year growth rate in defense license applications and the license backlogs that 

have ranged between 5,000 and 10,000 licenses in recent years. 

Besides advocating the adding of more personnel to handle this challenge, the Coalition asked the Administration to begin to consider, and develop, new approaches 

to caseload management, particularly the licensing caseload generated by U.S. government programs with our allies and partners. New management approaches are 

needed to reduce the number of authorizations related to a given program and to 

facilitate efficient interaction with our program partners. The Coalition’s proposal 

for a new approach to licensing major U.S. government programs involving our allies and partners can be found in Annex 1, and should be considered as a starting 

point for a more in-depth and timely discussion. 

Finally, the Coalition has called for the development of a more robust electronic 

system for processing licenses that enhances transparency. The system should track 
83

across the entire interagency process automatically not only the current status of 

license applications but also their transit times and next steps against mandatory 

timelines. Industry is especially interested in tracking licenses that require congressional notification from when they are first submitted to the government to when 

they are sent to Congress for review. 

PROSPECTS FOR THE COALITION’S PHASE I PLANS

The Coalition is appreciative of the careful consideration and positive remarks 

given to our objectives and our proposals in numerous discussions with Administration and Congressional leadership. We believe the favorable response reflects the 

different way industry is trying to approach the issue of export control modernization versus previous campaigns. First, this time we have specific recommendations 

that are measurable, attainable, and meaningful. Second, we are focused on process 

improvements that can help all of industry—and the US Government—not just demands for policy changes on specific technologies, countries, or other slices of the 

broader issue that tend to divide people. Third, we want to work with the Executive 

Branch and Congress to improve the system. This administration and this Congress 

have shown their interest and commitment to understanding our concerns and engage us in thoughtful consultations. Lastly, we are working as a coalition, speaking 

with the voices of the thousands of companies we represent, and the millions of 

Americans that go to work every day to make this country great . . . and we intend 

to grow this coalition. 

THE COALITION’S PHASE II PLANS

Implementation of any/all of the Coalition’s proposals would have an immediate 

and positive impact on U.S. national security and economic competitiveness. However, the Coalition is mindful that process improvements to the existing system will 

not make the system fully prepared for the security and economic challenges and 

opportunities of the 21st century. For this reason, we are in the beginning stages 

of discussing and identifying within the Coalition the key elements of a ‘‘model modern system’’ to compare with the existing system. This exercise is important to sustain the new, necessary, and ongoing process of review and consideration of this important issue, exemplified by this hearing today. We intend to put forward proposals 

for a ‘‘next generation’’ system next year for consideration by and discussion with 

Congress as well as the 2008 Presidential campaigns, and we look forward to working with your Subcommittee on this important initiative. 

CONCLUSION

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

ANNEX 1

PROPOSED FRAMEWORK FOR STREAMLINED LICENSING FOR U.S. GOVERNMENT

PROGRAMS

The current interagency review of industry recommendations for export control 

modernization affords the Administration an opportunity to address a particularly 

important issue—improving management of licensing that supports the government’s own critical programs. The Administration is urged to take action requesting 

the State and Defense Departments to develop a framework for streamlined licensing of U.S. government programs involving significant international participation in 

support of national security and foreign policy objectives. 

The State Department’s export licensing caseload is huge, having risen last year 

to 70,000 separate transactions, with a backlog of some 10,000 applications last 

year. A significant portion of this caseload is generated by U.S. government programs that have both important practical and policy mission objectives. These programs can generate hundreds if not thousands of individual licenses to enable hardware, technology and technical data-sharing between the U.S. and its international 

allies and partners. 

This creates a major bottleneck in the ITAR export control process that burdens 

both U.S. government agencies and industry, and hampers cooperation among allies 

and partners that is essential to achieving program objectives. Reducing the volume 

of licensing transactions associated with these programs would alleviate a signifi-
84

cant administrative burden on government and industry, facilitate important program objectives, and free up resources for other license applications—especially 

those that do warrant special attention. 

As recommended in Coalition Proposal 7, what is needed is a different approach 

to managing export licensing that significantly—

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

overall for a given program; and 

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

This approach may be implemented, as appropriate, under existing authority (e.g., 

ITAR 126.14) or pursuant to a new framework for program licensing. 

STREAMLINED LICENSING FOR U.S. GOVERNMENT PROGRAMS PROPOSAL 

In confronting unprecedented threats to the nation’s security both at home and 

abroad, U.S. technological leadership and ability to make full and speedy use of advanced technologies is of paramount importance. Export licensing is necessary both 

to protect technology deemed critical to our national security interests, and to enable the technology-sharing needed to implement critical programs and operations 

involving the U.S. and its allies and partners. It shall be the policy of the United 

States to achieve these objectives through effective and efficient management of export licensing, consistent with the following principles—

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

• Safeguard access to critical technologies.

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

workforce.

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

Agency Responsibilities:

1. The State and Defense Departments shall develop a new framework for 

streamlined program licensing that significantly—

a. Reduces the regulatory and administrative burden on both the U.S. 

government and industry, in particular, by minimizing the number of 

authorizations required overall for a given program; and 

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

2. The framework shall provide for an authorization that—

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

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

c. Pre-qualifies companies in allied and partner nations for each category 

to, inter alia—

i. authorize each to handle and share controlled hardware, technology and related technical data with other pre-qualified companies; 

ii. eliminate need for amendments to add pre-qualified subcontractors 

and teammates; 

iii. establish an appropriate vetting process for dual national personnel of pre-qualified companies. 

d. Establishes shared responsibility for ensuring ITAR compliance, certification, and auditing through periodic U.S. government monitoring of 

authorized entities, including U.S. and allied and partner companies.

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

to existing authority.

Mr. SHERMAN. Mr. Douglas, I am going to have to make your 

statement part of the record and ask my colleagues to ask one and 

only one question, and then we are going to have to go to the floor 

for what I am told is roughly 10 votes. And I will not ask you to 

stay here, so this hearing will end quickly. 

My one question, Mr. Douglas, is if, God forbid, the only way to 

deal with the State Department backlog was to turn to industry 
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and ask for them to pay $1 out of every $10,000 for a licensed export, is that a good thing or a bad thing? 

Mr. DOUGLAS. In general, sir, we don’t like user fees for what we 

consider to be inherently government functions. On the other hand, 

if it would solve the problem, we would probably gladly pay it. But 

we don’t have high confidence it would solve the problem. You have 

seen some evidence of that yourself here today. They tripled the 

fees, and the length of time went up. 

Mr. SHERMAN. Clearly if the fees are then hijacked by State or 

for other purposes, they wouldn’t do any good. There has to be a 

maintenance of effort. 

And with that, I turn it over to Mr. Royce for one question. 

Mr. ROYCE. Thank you, Mr. Chairman. I appreciate that. It is 

good to see Mr. Lowell with us. I want to commend him for his testimony, but also for the service he provided us before on this committee. 

Thank you, Mr. Lowell, for being with us. I was going to ask you 

for your views on the U.S.-U.K. defense trade treaty that has been 

proposed. Also you discussed the need to bring a sense of urgency 

to some of the shortcomings that we have been talking about today. 

I would like you to further explain the need for urgent action and 

what are the consequences. Mr. Lowell. 

Mr. LOWELL. Well, thank you, Mr. Royce, for your kind words. 

While you were out voting, there is actually just one point I made 

about the urgency of that, which has to do with the need to look 

systematically at potential threats that could be exploited from terrorist—terrorist organizations and our current regulations’ need for 

a systematic examination of that. 

I also think that the growing backlog creates multiple national 

security problems in countless ways and unforeseen ways. There 

are a lot of important things in there that need to be adjudicated, 

and there are probably some things in there that shouldn’t be adjudicated. So while this backlog builds up, it just corrodes compliance 

throughout the industry. We depend on industry in the private sector to make this all work. The government describes the regulations and the parameters. The industry has got to carry it out. So 

it is just a recipe for problems if it continues to go on. 

With respect to the U.K. treaty, I would be reluctant on something so important to give you sort of a definitive view. I think the 

fact that it is a treaty is a response in part to one of the concerns 

that Members of Congress had in the House at least the last time 

of rounds, and that is a good development, but I think we will have 

to wait to see the details to see whether this is really another part 

of a broader strategy to decontrol the arms export control system, 

or whether it is really a well-designed way to safeguard our interest in a different fashion. So I think we just have to see the details. 

Mr. SHERMAN. Thank you, Mr. Lowell. I appreciate that. 

Mr. ROYCE. Thank you, Mr. Lowell. I appreciate that. 

Mr. SHERMAN. Mr. Scott. 

Mr. SCOTT. Thank you. 

I would like to just take a look at the comment given the state 

of the world now with terrorism and some of our problems with 

Iran. And I asked earlier about who our allies and our partners 

were for a reason, because I think that there is an enormous loop-
86

hole in how we deal with other nations with our technical information and aspects of our weaponry, especially, for example, we have 

alliances with countries that might have alliances and partnerships 

with countries that we don’t have. So it seems to me that there is 

a loophole here, that there is a problem here, and I am wondering 

how we address that. 

I think that is one of the reasons why we got into the mess in 

Iraq that we are in, because we weren’t sure what information was 

getting to countries we were dealing with and other countries were 

dealing with who we found out were dealing with Iraq. We just 

didn’t have any way of knowing what solid intelligence was. 

I was wondering, where would we tighten our export controls, 

and where do you see the loopholes? I notice in your testimony, I 

think you referred to that, Mr. Lowell, and I think, Ms. Barr, you 

used the word ‘‘neglect.’’ I am wondering if you could respond to 

that. 

Mr. SHERMAN. Quickly address that. We had been told the vote 

would be at 5:30. 

Ms. BARR. I would be happy to respond. 

I think part of the issue here is that it is really important for 

the U.S. export control agencies to be fully aware of what the other 

countries’ export controls policies and procedures are going forward, because clearly then you can find what needs to be controlled 

and how we have to control it. 

If you license things, you have to get a license number with certain conditions and provisos, and have to have access to check and 

make sure that the export that did eventually go out is being used 

as intended. I am not confident based on the work that we have 

done that we have that kind of sophisticated or comprehensive intelligence gathering to know the repercussions of some of what we 

are sending out. 

Mr. SCOTT. Mr. Lowell. 

Mr. LOWELL. Mr. Scott, I mentioned a few—with respect to the 

gaps and weaknesses, I mentioned a few a few moments ago with 

respect to internally United States transfers to foreign persons 

where there is no coverage under the Arms Export Control Act. So, 

we have a control on a commercial COMSAT but not on biological 

weapons. That seems to be something that should be updated. 

Other things might be exemptions we have in the regulations. 

For example, it is still the case that anybody coming from Canada 

can temporarily import any munitions item from Canada. We have 

had problems with Canada, the millennium bomber came from 

Canada, and so it is not clear that that shouldn’t be restricted in 

some way. 

Mr. SHERMAN. Mr. Lowell, I will have to gavel down the hearing. 

And all of our witnesses do add whatever comments that they have 

to Mr. Scott’s questions or other questions for our record sometime 

in the next 5 days. 

Thank you very much, and the floor calls. 

[Whereupon, at 4:11 p.m., the subcommittee was adjourned.]

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