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S. Hrg. 110–831 

BEYOND CONTROL: REFORMING EXPORT 

LICENSING AGENCIES FOR NATIONAL 

SECURITY AND ECONOMIC INTERESTS 

HEARING 

BEFORE THE

OVERSIGHT OF GOVERNMENT MANAGEMENT, 

THE FEDERAL WORKFORCE, AND THE 

DISTRICT OF COLUMBIA SUBCOMMITTEE 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

APRIL 24, 2008 

Available via http://www.gpoaccess.gov/congress/index.html 

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs 

( 

(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

BARACK OBAMA, Illinois 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

SUSAN M. COLLINS, Maine 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

PETE V. DOMENICI, New Mexico 

JOHN WARNER, Virginia 

JOHN E. SUNUNU, New Hampshire 

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL 

WORKFORCE, AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE 

DANIEL K. AKAKA, Hawaii, Chairman 

CARL LEVIN, Michigan 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

GEORGE V. VOINOVICH, Ohio 

TED STEVENS, Alaska 

TOM COBURN, Oklahoma 

JOHN WARNER, Virginia 

RICHARD J. KESSLER, Staff Director 

JOEL C. SPANGENBERG, Professional Staff Member 

THOMAS J.R. RICHARDS, Professional Staff Member 

JENNIFER A. HEMINGWAY, Minority Staff Director 

THOMAS A. BISHOP, Legislative Aide 

JESSICA K. NAGASAKO, Chief Clerk 

(III) 

C O N T E N T S 

Opening statements: Page 

Senator Akaka .................................................................................................. 1 

Senator Voinovich ............................................................................................. 2 

WITNESSES 

THURSDAY, APRIL 24, 2008 

Stephen D. Mull, Acting Assistant Secretary for Political Military Affairs, 

U.S. Department of State .................................................................................... 4 

Beth M. McCormick, Acting Director, Defense Technology Security Administration, U.S. Department of Defense .................................................................. 7 

Matthew S. Borman, Acting Assistant Secretary of Commerce, Export Administration, U.S. Department of Commerce ........................................................... 8 

Ann Calvaresi Barr, Director, Acquisition and Sourcing Management, U.S. 

Government Accountability Office ...................................................................... 10 

William A. Reinsch, President, National Foreign Trade Council ........................ 22 

Daniel B. Poneman, Principal, The Scowcroft Group ........................................... 25 

Edmund B. Rice, President, Coalition for Employment Through Exports, Inc .. 28 

ALPHABETICAL LIST OF WITNESSES

Barr, Ann Calvaresi: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 54 

Borman, Matthew S.: 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 48 

McCormick, Beth M.: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 44 

Mull, Stephen D.: 

Testimony .......................................................................................................... 4 

Prepared statement .......................................................................................... 37 

Poneman, Daniel B.: 

Testimony .......................................................................................................... 25 

Prepared statement .......................................................................................... 74 

Reinsch, William A.: 

Testimony .......................................................................................................... 22 

Prepared statement .......................................................................................... 70 

Rice, Edmund B.: 

Testimony .......................................................................................................... 28 

Prepared statement .......................................................................................... 78 

APPENDIX 

Background .............................................................................................................. 84 

Subject: ‘‘Background for Hearing on U.S. Export Controls,’’ CRS report by 

Ian F. Fergusson and Richard f. Grimmett ....................................................... 89 

Subject: ‘‘United Arab Emirates: Political Background and Export Control 

Issues,’’ CRS report by Kenneth Katzman and Ian F. Fergusson ................... 100 

Copy of Executive Order 12981 submitted by Mr. Poneman ............................... 105 

‘‘Combating Proliferation of Weapons of Mass Destruction,’’ Report of the 

Commission to Assess the Organization of the Federal Government to Combat the Proliferation of Weapons of Mass Destruction, containing Chapter 

4, Export Controls, submitted by Mr. Poneman ................................................ 109 

Page

IV 

Questions and Responses for the Record from: 

Mr. Mull ............................................................................................................ 117 

Ms. McCormack ................................................................................................ 138 

Mr. Poneman ..................................................................................................... 139 

Mr. Reinsch ....................................................................................................... 140 

Mr. Borman ....................................................................................................... 141 

Ms. Barr ............................................................................................................ 147 

(1) 

BEYOND CONTROL: REFORMING EXPORT 

LICENSING AGENCIES FOR NATIONAL 

SECURITY AND ECONOMIC INTERESTS 

THURSDAY APRIL 24, 2008 

U.S. SENATE,

SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT

MANAGEMENT, THE FEDERAL WORKFORCE,

AND THE DISTRICT OF COLUMBIA,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS,

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:33 p.m., in room 

342, Dirksen Senate Office Building, Hon. Daniel K. Akaka, Chairman of the Subcommittee, presiding. 

Present: Senators Akaka and Voinovich. 

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. This hearing will come to order. This is a hearing of the Subcommittee on Oversight of Government Management, 

the Federal Workforce, and the District of Columbia. I want to welcome our witnesses to this Subcommittee hearing and thank you 

very much for being here today. 

This is the first in a series of hearings that the Subcommittee 

is holding to explore the effectiveness and efficiency of government 

management in various aspects of national security. Today’s hearing focuses on the management of export controls for licensing military as well as commercial and military use, or dual-use, technology for export. 

Our export controls regime struggles against the challenges of a 

globalized world. Too often, dual-use technology falls into the 

wrong hands. We do stop some of it. For example, Commerce Department enforcement officers recently arrested two men boarding 

a plane bound for China. These men had in their possession sensitive thermal imaging equipment that was not and would not have 

been licensed to them. 

On the other hand, as you know, much gets through. At bazaars 

in the United Arab Emirates, sensitive dual-use technology is 

counted among the many items for sale. Three aircraft protected as 

dual-use technology were diverted illegally by a British company to 

Iran. At my request, Kenneth Katzman and Ian Fergusson of the 

Congressional Research Service produced an excellent background 

2 

1The CRS report by Kenneth Katzman and Ian Fergusson appears in the Appendix on page 

100. 2The CRS report by Ian Fergusson and Richard Grimmett appears in the Appendix on page 

89. 

report on issues relating to the UAE, which, without objection, I 

will introduce into the record.1

Today’s hearing will examine key Federal Government agencies 

responsible for licensing exports, how their processes help or hinder 

the licensing process, and the role of the Federal workforce. My 

goal is to identify possible recommendations for improving the export controls process. If our export control systems are not supported by adequate bureaucratic structures, processes, and people, 

our national interests will be harmed. Export controls are critical 

to achieving the right balance in America’s national and economic 

security. 

In fiscal year 2006, dual-use technology licensing covered 

approximately $36 billion in exports, or 1.4 percent of total U.S. exports. Nearly 19,000 dual-use export license applications were reviewed in 2006. This was more than any other year in the past decade. 

The Departments of State and Commerce have the lead in managing the export control system. The Department of Commerce’s 

Bureau of Industry and Security manages dual-use export licensing. The State Department’s Directorate of Defense and Trade Controls handles arms export licensing. Without objection, I would ask 

to insert into the record an excellent CRS analysis by Ian 

Fergusson and Richard Grimmett on export controls.2

In several reports, the Government Accountability Office has expressed its concern about export licensing delays, an absence of 

systematic analysis, unclear jurisdiction over controlled exports, 

and the lack of efficiency gained from automated licensing systems. 

We will also examine today some recommendations to address 

these and other export control system problems. 

Some of the reforms I want to explore are revising the multilateral coordination and enforcement aspects of export controls; addressing weaknesses in the interagency process for coordinating 

and approving licenses; reviewing alternative bureaucratic structures or processes that may eliminate exploitable seams in our export control system; and ensuring that there are enough qualified 

licensing officers to review license applications in an efficient manner. 

It is difficult for our national security, foreign policy, and economic interests to be met if they are weighed down by an inefficient export control system. Today’s hearing will help us identify 

ways that the agencies responsible for this system can work together to provide the economic and national security we need. 

I would like to now defer to our Ranking Member, Senator Voinovich, for his statement. 

OPENING STATEMENT OF SENATOR VOINOVICH 

Senator VOINOVICH. Chairman Akaka, thanks for convening today’s hearing to review the management of the Federal Government’s export licensing process. Sadly, our export control system is 

3 

a relic, unable to adapt to current threats to our national security 

while similarly impeding our economic competitiveness. 

Each year, the Department of Defense and its industrial partners 

spend billions of dollars to maintain our national security and military technological advantage. Preserving this advantage requires a 

balance between allowing defense and dual-use items to be exported to our friends and allies while similarly doing all in our 

power to prohibit the transfer of such goods to those with malicious 

intent. 

To avoid the transfer of security and dual-use technology to our 

enemies, watch lists must be comprehensive and regularly updated 

based on real-time data. Incomplete or differing watch lists have 

opened the door for malevolent end users to skirt the process designed to protect our national security. 

Agency coordination must go beyond basic information sharing. 

The Departments of Commerce and State must reach agreement on 

uniform guidelines for all aspects of our export control system, ending the current practice of forum shopping for a preferred answer, 

which does nothing more than waste taxpayer dollars and open 

loopholes in our national security. The Department of Defense 

must undertake the same task, creating uniformity across all 

branches with respect to how they classify what is military technology. 

One would have hoped this management challenge would have 

been resolved in light of our increased efforts to thwart terrorism. 

Instead, GAO has added this challenge to the high-risk list. Six 

years after September 11, 2001, it is critical that our allies in the 

War on Terror be given access to technology they need to save lives 

and protect their citizens. Similarly, American entrepreneurs must 

have the ability to more rapidly meet our allies’ demands for needed goods. All of this must be conducted under strict scrutiny. Countries who are uncooperative simply must be regulated. 

Congress shares part of this blame. Expired legislation has left 

our enforcement and oversight agencies ill prepared to deal with 

current problems in the export industry. Additionally, the number 

of employees needed to get the job done has not kept pace with the 

growing demand of license requests, as in many other cases 

throughout the government. 

Senator Akaka, as a little editorial here, you know the greatest 

excuse that one can give not to perform their jobs is the fact that 

you don’t give them the resources to get the job done. Over and 

over again, we seem to be having examples of cases where we are 

asking people to do things and we don’t give them the people to get 

it done. And then they say, well, I can’t get it done. That is the 

way it is. 

Rapid globalization over the last few decades has left current export controls extremely outdated. Technology gaps with foreign nations are rapidly shrinking and the United States must adjust to 

this to not only better understand the capabilities of other nations, 

but to avoid denying private companies the ability to compete on 

the open market with their goods, which may be readily available 

from other nations. By regulating exports with outdated lists, we 

are effectively ignorant of what exists elsewhere in the world, 

thereby denying benefits to the U.S. economy. 

4 

1The prepared statement of Mr. Mull appears in the Appendix on page 37. 

The United States would be naive, however, to think it is the 

only supplier for military critical technologies. Rapidly, industrializing nations in other parts of the world produce goods similar or 

identical to our own through ingenuity, hard work, and sometimes 

economic espionage. 

While this hearing calls into question the efficiency of our own 

export control system, I have no doubt it is more accountable and 

more scrupulous than many other nations who might provide similar technologies to countries we would seek to deny access. The 

world has changed. This only compounds the need for the United 

States to be the preferred marketplace for such goods. As a favored 

supplier, we become not only aware of who is purchasing military 

and dual-use technologies, but our economy becomes the beneficiary. 

I would like to thank the witnesses for being here today to share 

their perspectives on where we are and where we should be going. 

Thank you, Mr. Chairman. 

Senator AKAKA. Thank you very much, Senator Voinovich. 

I welcome the first panel of witnesses to this hearing: Ambassador Stephen Mull, Acting Assistant Secretary for Political-Military Affairs, Department of State; Beth McCormick, Acting Director, Defense Technology Security Administration, Department of 

Defense; Matthew Borman, Deputy Assistant Secretary, Bureau of 

Industry and Security, Department of Commerce; and Ann 

Calvaresi Barr, Director of Acquisition and Sourcing Management, 

U.S. Government Accountability Office. 

It is the custom of this Subcommittee to swear in all witnesses 

and I would ask all of you to stand and raise your right hand. 

Do you swear that the testimony you are about to give this Subcommittee is the truth, the whole truth, and nothing but the truth, 

so help you, God? 

Mr. MULL. I do. 

Ms. MCCORMICK. I do. 

Mr. BORMAN. I do. 

Ms. BARR. I do. 

Senator AKAKA. Thank you. Let it be noted for the record that 

the witnesses answered in the affirmative. 

Before we start, I want you to know that your full written statements will be part of the record. I would also like to remind you 

to keep your remarks brief given the number of people testifying 

this afternoon. 

Ambassador Mull, will you please proceed with your statement. 

TESTIMONY OF STEPHEN D. MULL,1 ACTING ASSISTANT SECRETARY FOR POLITICAL-MILITARY AFFAIRS, U.S. DEPARTMENT OF STATE 

Mr. MULL. Mr. Chairman and Ranking Member Voinovich, thank 

you very much for the invitation to appear with my colleagues here 

before you today. The invitation comes on a really timely occasion. 

There is a great deal of ferment and, I think, innovation going on 

in defense trade controls at the State Department right now. 

5 

We view our mission as three-fold in the Directorate of Defense 

Trade Controls at the State Department. One, is to give our allies, 

especially in wartime, what they need to fight alongside with us. 

Two, we have to protect our technology and our capabilities from 

falling into the hands of our enemies or of being used by recipients 

who might not have our best interests at heart or may be pursuing 

things that are inconsistent with our values. 

And three, we have an important obligation to work with our 

customer base, the U.S. industrial base, to serve them and help 

make sure that they realize every opportunity they can in a very 

competitive global marketplace. 

Now, these three missions are very often in conflict with one another, and frankly, there is a lot of tension that exists among them, 

and so we work very hard to carry out all of them as conscientiously and as effectively as we can. I won’t hide that the work has 

become much more complicated and much more difficult since September 11, 2001, as both of you mentioned, Mr. Chairman and 

Ranking Member Voinovich, with the threats that our country 

faces in this decade. And the workload has become much heavier 

in the Directorate of Defense Trade Controls. 

In fiscal year 1998, we had 44,000 applications for export of defense goods, and today, or rather at the end of fiscal year 2007, 

that number had grown to 79,000 applications, representing nearly 

$100 billion of defense trade in the last fiscal year. As I mentioned, 

many of these cases, they have not only grown in number, but they 

have grown seriously in complexity as our own technology becomes 

more complex. 

In fiscal year 2007, the situation had reached crisis proportions, 

as was well documented in the GAO’s report that came out a year 

ago. We had a standing case log of 10,000 cases. Many hundreds 

of them were unresolved for well over 60 days, some of them well 

over 100 days. Actually, my first week on the job as Acting Assistant Secretary, the GAO launched their investigation to look into 

the problems and causes that led to this situation. But we also had 

well-justified complaints about delays in commodity jurisdiction 

disputes, the processing time, and also many comments from our 

customers in industry that we had insufficient people and other resources devoted to the problem. 

Fifteen months later, I am proud to say that I think we are in 

a much better place. Our case log is now at about 3,500 cases, 

which is about, given the hundreds of cases we receive every day, 

about the lowest it can possibly get, and we are in the midst of instituting some major new reforms that I think will enable us to exceed our past performance and to carry out all three of our missions more effectively and more quickly. 

This results from several factors. Over the course of the past 

year, we have consulted very closely within the national security 

community, our colleagues in the Defense Department and the 

Commerce Department, as well as the business community, and of 

course here in the Congress, as well. We have filled significant 

gaps that existed in our organization with new and very experienced leadership that are already taking our organization into a 

much better direction. 

6 

In January, President Bush signed a series of Presidential Directives for our defense trade control operation that enable us to institute many new business process reforms. We now have a 60-day 

deadline for carrying out all of our licensing decisions with regular 

monitoring. If a case isn’t resolved within a certain amount of time, 

it gets escalated higher and higher in the organization so that we 

can meet that 60-day deadline. 

At the direction of the White House, we are developing a new 

plan so that we can become an at least 75 percent self-financed entity. That will enable us to increase our operating budget, our information technology, and most importantly, the number of people 

that we have doing this job. 

We have put fewer licensing restrictions on third-country nationals from countries with whom we already have licensing arrangements to remove a lot of the red tape for getting our allies what 

they need. We are in the process of reforming the commodity jurisdiction process to make sure that these disputes are resolved much 

more quickly and much more transparently. 

We have enhanced our enforcement cooperation with the Department of Justice and have seen gradually increasing successful prosecutions of those who violate our procedures. And we are moving 

to a fully electronic system to process defense trade controls that 

will substantially increase our efficiency, as well. 

There are a number of other initiatives that we have implemented that I will just quickly review. We have established a fast 

track system to take care of those cases that affect our allies in war 

situations in Iraq and Afghanistan to make sure that every such 

license is adjudicated within 7 days. We have managed to succeed 

at that. 

We have negotiated in record time treaties to approach our defense exports to the United Kingdom and Australia. Instead of requiring a license for every piece of technology that goes to these excellent allies, we have created a trusted community, an approved 

community of government entities and defense industries about 

which we have no concern about their misuse of our technology and 

they will be able to get this technology without a license. This will 

reduce our workload by as much as and even more than 20 percent, 

enabling us to devote even more resources to the problem cases. 

These treaties have been submitted to the Senate and we very 

much urge their rapid ratification by the Senate. 

In the weeks ahead, we hope to work with your staffs, Senators, 

as well as other Congressional staff to make the Congressional notification process more transparent and more efficient. 

I think we have accomplished much, but we have a long way to 

go and we look forward to consulting with this Subcommittee and 

hearing your thoughts during today, as well as the other expert 

witnesses, as well as our authorizing committees here in the Congress, and working with our interagency partners, our friends in 

the GAO and the business community, as well as our international 

partners to construct and manage the very best system to serve our 

customers in the business community while strictly protecting 

America’s defense technology. 

So thank you very much for this opportunity. I look forward to 

learning even more about how we can improve. Thank you. 

7 

1The prepared statement of Ms. McCormick appears in the Appendix on page 44. 

Senator AKAKA. Thank you very much, Mr. Ambassador. Ms. 

McCormick. 

TESTIMONY OF BETH M. McCORMICK,1 ACTING DIRECTOR, 

DEFENSE TECHNOLOGY SECURITY ADMINISTRATION, U.S. 

DEPARTMENT OF DEFENSE 

Ms. MCCORMICK. Thank you, Mr. Chairman, and Senator Voinovich. I appreciate the opportunity to be here today to discuss the 

Department of Defense’s role in the export control process. 

Simply stated, the Department of Defense’s role is to provide the 

national security perspective to the Departments of State and Commerce in their responsibilities in the export control process. In our 

role, the Department of Defense possesses unique capabilities to 

provide technical expertise, develop and validate coalition and 

interoperability requirements, and provide program insight necessary to ensure exports and technology security controls protect 

U.S. national security. 

Our mission involves two inherent tensions, maintaining the U.S. 

military technological advantage while supporting interoperable coalition forces, and protecting critical U.S. technology while ensuring the health of the U.S. industrial base. In this era of uncertainty 

and surprise, these two tensions will continue to intensify and require us to remain at the forefront of technological advancements 

and to build partnership capacity to meet the challenges of the 

ever-changing global security environment. 

The strategic goals of my agency summarize it best. First, preserve critical U.S. military technological advantages. Defenserelated technology is a valuable and limited national security resource that must be controlled as part of the U.S. military and defense strategy. DTSA ensures items and technologies important to 

U.S. national security interests are adequately controlled by reviewing export control lists and regulations and assisting the U.S. 

Government’s efforts to enforce export controls through safeguards. 

We must ensure our fighting men and women not only have the 

best equipment, but have a significant technological edge that provides them an advantage over any potential adversary. 

Second, we support legitimate defense cooperation with foreign 

friends and allies. The United States must engage in bilateral partnerships and multilateral regimes with allies and international 

partners to meet the challenges of today’s dynamic security environment. My agency annually processes over 40,000 export licenses 

and roughly 75 percent of those export licenses reflect direct commercial sales to our closest foreign friends and allies. 

The third goal of my agency is to assure the health of the defense 

industrial base. U.S. national security depends on a strong U.S. industrial base that can easily mobilize to support military capabilities and deter potential adversaries. The United States must maintain a technological superiority and highly competitive defense industrial base to thwart increased global competition. This will continue to balance national security interests while being receptive to 

the needs of the U.S. industrial base. 

8 

1The prepared statement of Mr. Borman appears in the Appendix on page 48. 

Our fourth goal is to prevent proliferation and diversion of technology that could prove detrimental to U.S. national security. 

DTSA’s ability to support the United States in preventing hostile 

States and terrorist groups from acquiring and using weapons of 

mass destruction and defense-related technology is critical to ensuring U.S. national security. DTSA works with government agencies and with friendly nations to impede weapons of mass destruction-related trafficking and improve controls over existing weapons 

materiel and expertise. 

DTSA coordinates the Department of Defense’s review of Department of State license applications for the export of defense-related 

goods and services under the International Traffic in Arms Regulation and the Department of Commerce license application for the 

export of sensitive dual-use goods and technologies under the Export Administration Regulations. DTSA’s critical role in reviewing 

these requests for export licensure and the conditions attached to 

those licenses is instrumental in ensuring U.S. national security is 

not jeopardized. 

The export control initiatives announced by President Bush in 

January 2008 address the need to reform the defense trade and 

dual-use export control processes to ensure proper levels of control 

for continued U.S. economic competitiveness and innovation while 

protecting national security. We are committed to working with our 

colleagues at the Departments of Commerce and State to implement these initiatives. 

Mr. Chairman, this concludes my opening statement. I look forward to your questions. Thank you. 

Senator AKAKA. Thank you very much, Ms. McCormick. And now 

we will hear from Mr. Borman. 

TESTIMONY OF MATTHEW S. BORMAN,1 ACTING ASSISTANT 

SECRETARY OF COMMERCE, EXPORT ADMINISTRATION, U.S. 

DEPARTMENT OF COMMERCE 

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

here to testify before you and Ranking Member Voinovich once 

again. I actually testified before a slightly earlier incarnation of 

this Subcommittee several years ago on export control systems of 

other countries, so it is a pleasure to be here again. As you have 

already heard from my colleagues, we all share the critical mission 

of protecting U.S. national security and economic interests. 

Much of our export control system was built during the Cold 

War, when the world, while still dangerous, was in some ways a 

simpler place. The West confronted a clearly defined enemy and we 

also held a significant technological advantage over our adversary. 

We maintained our technological superiority over our enemies then 

largely through a strategy of denying exports of technology to specified countries. This system was based on the assumption that we 

and our allies had technology not available to our adversary from 

other sources. 

Dramatic changes in the economic and security landscape, however, have challenged this assumption. As markets become increasingly integrated, production and supply chains for single goods now 

9 

span the globe. Defenses we constructed in the past to preserve our 

technological superiority can no longer afford us the same level of 

protection. At the same time, we face more and varied national security risks from a range of nation states as well as non-state actors. Furthermore, our allies, in addition to being economic competitors, do not always share our security views. 

To meet today’s challenges, BIS’s highest priority continues to be 

the effective and efficient operation of the U.S. dual-use export control system. This system covers products that have both civilian 

and military applications, including use in weapons of mass destruction and related delivery systems. We must ensure, however, 

that the system does not impose unreasonable burdens on innovation and commercial activity. 

Interagency and international cooperation are critical to BIS’s activities. Fulfilling the Bureau’s mission depends heavily upon cooperation with a range of departments, including but not limited 

to the Departments of Defense and State, as well as engagement 

with our principal trading partners and other countries of strategic 

importance. 

BIS carries out four major functions: Policy, licensing, outreach, 

and enforcement. BIS works closely with the Departments of State, 

Defense, and Energy in developing policies and implementing those 

policies through the Export Administration Regulations. BIS also 

works closely with those agencies and the intelligence community 

in licensing exports of controlled items. 

Keeping U.S. industry informed of its obligations under the regulations is another critical part of ensuring that the dual-use export 

control system is effective and efficient. BIS conducts a wide range 

of outreach activities domestically and abroad on an annual basis. 

BIS also prioritizes its enforcement activities on cases involving the 

proliferation of weapons of mass destruction, terrorism, and military diversion. 

In fiscal year 2007, BIS special agents made 23 arrests, resulting in 16 convictions and $25 million in criminal fines. In addition, BIS 

settled 65 cases administratively with final orders totaling $5.8 

million in fines. 

One of the most significant challenges for BIS is the longstanding lapse of the Export Administration Act of 1979. This lapse 

hinders the ability of BIS to employ up-to-date authorities to enforce the dual-use export control system, despite the ever-changing 

criminal landscape. The Export Enforcement Act, S. 2000, introduced by Senator Dodd, directly addresses this challenge and we 

support its prompt enactment. 

BIS is continually reviewing, revising, and updating its policies 

to ensure the system remains effective. In this regard, there are 

three recent developments I would like to highlight. First, the 

President issued a Dual-Use Export Control Reform Directive on 

January 22 along with the Defense Trade Directive that Ambassador Mull has already mentioned to further adapt the dual-use export control system to today’s challenges. The directive focuses on 

three objectives: First, moving to a more end-user-based system; 

second, ensuring continued U.S. global technological and economic 

competitiveness; and third, enhancing procedural transparency in 

the licensing process. 

10 

1The prepared statement of Ms. Barr appears in the Appendix on page 54. 

I would also like to point out that we are reviewing and implementing many of the recommendations contained in the December 

2007 report of Secretary Gutierrez’s Deemed Export Advisory Committee. Deemed exports, of course, are transfers of controlled technology to foreign nationals in the United States. 

And finally but certainly not least, in addition to the numerous 

existing measures of effectiveness of the different parts of the dualuse export control system, we have established a program for systematically evaluating compliance with the Export Administration 

regulations based on actual export data that is now available to us. 

This measure will further address issues raised in the Government 

Accountability Office’s January 2007 report. 

In conclusion, the United States faces unprecedented challenges 

from a varied set of threats and increasing worldwide diffusion of 

high-technology in global markets. BIS, in conjunction with other 

agency partners, is continually evaluating and revising the dualuse export control system to effectively meet those challenges. 

I thank you again for the opportunity to testify and I, of course, 

would be happy to answer questions you might have. 

Senator AKAKA. Thank you very much, Mr. Borman. And now we 

will hear the testimony of Ms. Barr. 

TESTIMONY OF ANN CALVARESI BARR,1 DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. BARR. Mr. Chairman and Members of the Subcommittee, 

thank you for inviting me to discuss the U.S. export control system, 

a key component of the government’s larger safety net of programs 

designed to protect critical technologies while allowing legitimate 

defense trade. 

As you know, significant vulnerabilities in export controls as well 

as in other safety net mechanisms, such as Committee on Foreign 

Investment in the United States and the foreign military sales program, prompted GAO in 2007 to designate the effective protection 

of technologies critical to U.S. national security interests as a new 

high-risk area, an area that warrants strategic reexamination. 

To start, let me briefly describe some longstanding vulnerabilities in the export control system. These vulnerabilities primarily relate to the licensing process and interagency coordination. 

Specifically, procedural and technology weaknesses, along with 

human capital challenges, have contributed to backlogs in the processing of export license applications submitted to the State Department. In less than 4 years, the State Department’s caseload increased almost 20 percent, median processing times nearly doubled, and the number of pending applications jumped to an all-time 

high of 10,000 in 2006. Yet the number of licensing officers remained unchanged. 

At the same time, D-Trade, the State Department’s IT system for 

processing cases, has not turned out to be the panacea it was promised to be. State’s backlog created the risk that the government’s 

export control focus will shift to expediting cases at the expense of 

11 

national security interests, a concern the State Department officials raised. 

And although the Commerce Department reviews comparatively 

fewer applications than the State Department, the Commerce Department also needs to ensure its processes are efficient. 

Poor coordination among the State and Commerce Departments, 

and other Departments has created additional risks. Of particular 

concern are disagreements over the control of certain items. In one 

case, Commerce determined that an item was subject to less restrictive exporting requirements when, in fact, it was State Department controlled. In other cases, there were disputes over the jurisdiction of certain sensitive items, such as missile-related technologies. Left unresolved, these disputes increased the risk of sensitive items being exported without appropriate protections and 

create an unlevel playing field because some companies may gain 

access to markets that others will not. 

Poor coordination and communication extends beyond the Commerce and State Departments. Specifically, there has been a lack 

of understanding between the State Department and DOD on 

whether contractors working in direct support of defense activities 

are exempt from certain licensing requirements. Further, the Departments did not until recently receive information from the Justice Department regarding export control-related indictments and 

violations, information that is needed to determine whether or not 

to approve a license in the first place. 

Despite these known vulnerabilities, neither the State nor Commerce Departments has taken the basic steps needed to ensure 

their controls and processes are sufficient and appropriate for protecting U.S. interests. Notably, neither Department has assessed 

its controls over the past decade or seen the need for such an assessment, despite dramatic changes in the security and economic 

environment. Additionally, we have made numerous recommendations to address weaknesses in their controls, recommendations 

that have largely been ignored. 

We are encouraged by the State Department’s recent attention to 

some of the issues we have identified, including analyzing licensing 

data and determining the workforce structure needed. Similarly, 

the Commerce Department has updated its watch list on known export violators. 

In the past, we have reported that export control initiatives not 

grounded in analyses have generally failed to achieve desired results. For example, in 2000, we determined that the Defense Trade 

Security Initiatives, an earlier effort to revise the U.S. export control system, were not grounded in analysis of the problems that the 

initiatives were intended to remedy. Ultimately, the initiatives 

proved to be solutions in search of problems and as such were generally unsuccessful. 

To protect critical technologies while allowing legitimate defense 

trade, it is imperative that the export control system function both 

efficiently and effectively, and let me also say in conjunction with 

the other safety net programs. Yet our work has consistently revealed disconcerting gaps in this safety net. Only when the Departments work together to reach agreement on jurisdiction and control 

12 

and make meaningful and sustainable improvements can we be assured that we have a system that supports all U.S. interests. 

Mr. Chairman, Members of the Subcommittee, I would like to 

thank you for holding today’s hearing as it contributes to the reexamination that our high-risk designation calls for. This concludes 

my prepared statement and I am happy to answer any questions 

that you may have. 

Senator AKAKA. Thank you very much, Ms. Barr. 

Mr. Borman, I understand that currently there is a BIS official 

assigned to the United States Mission to the Organization for the 

Prohibition of Chemical Weapons, but that the Commerce Department has cut funding for that person and there is concern that if 

this technical advisor is removed, it will affect the United States’ 

compliance obligations under OPCW. This, of course, is deeply disturbing and I wonder if you could comment on that. 

Mr. BORMAN. I would be happy to comment on this issue. A little 

context, I think, would be helpful. Under the President’s budget for 

fiscal year 2008, the Commerce Department, Bureau of Industry 

and Security, was due to be appropriated about $78 million and 

both the House and the Senate Appropriations Committees approved that amount. But in the omnibus appropriations bill, that 

amount was cut to $72 million. That is a very significant cut for 

us and we have had to do some very significant belt-tightening. 

Our representative supports the State Department’s representation of the U.S. Government at the OPCW. His term was due to 

expire in November. We looked at the potential cost savings of 

bringing that person back a few months earlier and we concluded, 

based on all of our other priorities, that was an appropriate use of 

our significantly limited funding. We still have the slot open, and 

pending funding becoming available, we would certainly look to 

consider to put someone back there. But certainly if we are operating under a continuing resolution in fiscal year 2009, still at the 

$72 million mark, that is going to have very severe budget circumstances for us. 

I would also point out that in terms of U.S. obligations under the 

CWC, our person performs an important role representing industry 

interests because that treaty affects U.S. industry. But a lot of that 

work can be done from the United States, probably not as efficiently as having someone on the ground, but that work can still 

be carried out. 

Senator AKAKA. Thank you. Ambassador, in your testimony, you 

stated that you will soon provide a plan to the Office of Management and Budget outlining the resources to carry out National Security Presidential Directive 56 without an increase in budgeted 

funds. When do you expect to present your plan to OMB? 

Mr. MULL. Thank you, Mr. Chairman. I reviewed what I think 

is the final version of all of our internal coordination of this plan 

last week. It is now with our Under Secretary for Management, 

Mr. Kennedy. I expect he will approve that within the next few 

days and we hope still within this month to communicate that to 

OMB. 

Senator AKAKA. Thank you. How do you intend to meet the requirements of NSPD–56 without an increase in budgeted funds? 

13 

Mr. MULL. It does sound like a feat of magic, I will allow you 

that. But, in fact, some of the procedures that we have been studying elsewhere in the government we think have been very instructive for us. For example, in the State Department, in our Consular 

Affairs Bureau for some years now, we have administered our consular and visa programs through a management of a fee-for-service 

system in which applicants for visas must pay an application fee 

and that in turn runs the program. 

In Defense Trade Controls, for many years, we have had a registration fee for all defense companies, regardless of whether or not 

they export. And over time, this has resulted in a system where essentially smaller companies, and about 60 percent of all our registered firms export less than $100,000 worth of goods per year, 

they pay the same registration fee as those companies that export 

billions of dollars a year and require many licenses. So it is an inequity in which the smaller businesses of our country are, in effect, 

financing the work for the larger businesses in our country. 

So we are looking at restructuring our registration fee structure 

to try and remove some of that inequity. I am afraid I can’t go into 

detail yet because we will want to get OMB’s approval, and I think 

we will want to consult very carefully with the Congress, as well, 

before we announce this. But that is the general philosophy that 

we have been taking and we think that this will increase produced 

revenue in keeping with the President’s instruction for us to become at least 75 percent self-financed. 

Senator AKAKA. Thank you for that. 

Ms. Barr, in a November 2007 report and in your testimony, you 

identified a number of human capital problems at the DDTC. Could 

you please elaborate as to what those human capital problems are 

and if you have seen any corrective steps taken by this date? 

Ms. BARR. Yes. I would be happy to, Mr. Chairman. Thank you. 

First and foremost, I would like to reiterate what Ambassador Mull 

just said, as we certainly have recognized the renewed and spirited 

leadership that has come into DDTC now, having aligned itself 

with some very capable leadership that is committed to responding 

to our recommendations and thinking through the process that has 

to be in place. 

With that being said, I think the first issue that we recognized 

overall with regards to staffing as the inequities and overall staffing ratios of licensing officers to the number of cases processed. 

And I believe the numbers that we stated back then, if you look 

at the State Department, you had approximately 31 officers looking 

at 63,000 cases. Compare that to what Commerce had, 48 officers 

who are reviewing 22,000 cases. So clearly there is an inequity in 

the ratio of the number of people needed to handle the volume of 

cases coming in. 

In addition, the State Department is to receive 10 military 

detailees to support DDTC operations and we found that those 

military detailees were not always at their full contingent. These 

are often individuals who have the requisite expertise to assist in 

the more complex types of cases and reviews and represent those 

individuals that are needed and have the ultimate signature authority for approving licenses. These detailees were not staffed and 

operating at the full contingent. 

14 

The third point that I would make is that many of the licensing 

officers—as you noted here—these are complex licensing applications oftentimes, and when they are, you need to have the right 

training and the skill set. What we found is that many of the licensing officers had less than 1 year experience to apply to complex 

licensing applications. 

So I would say those are the main things that we were pointing 

to in terms of some of the critical human capital challenges. 

Senator AKAKA. Thank you. Before I call on Senator Voinovich 

for his questions, let me ask the Ambassador, do you agree with 

GAO’s human capital assessment? 

Mr. MULL. I do in some measure. When I first took the job, it 

was clear to me, if by nothing else, that the intolerable level of 

caseload, standing caseload that we had at the 10,000 mark, that 

more people were clearly going to be an essential ingredient to 

chipping away and removing that backlog. But I also think that— 

I also don’t want to fall into the trap of saying we need more people 

to fix everything. It was clear, also, that there were no business 

practices that we could implement immediately without another 

dime of taxpayer money that would substantially help. And so that 

has been an important part of our improvement over the past year, 

as well. We also need to invest more in some technological solutions. We are hoping our new budget plan will allow us to do that. 

But yes, sir, people are an important part of the problem and I 

think when we get our new plan implemented, we will significantly 

increase the number of licensing officers that we have. 

Senator AKAKA. To determine the problem, Mr. Ambassador, 

have you completed a management assessment to determine how 

many staff are adequate for the job, and if so, how many? 

Mr. MULL. Yes. What we did—actually, my first week in the job, 

I brought in—again, it was from in-house, but I brought in some 

management consultants to spend a month as the GAO study was 

getting started to look at all of those things—budget levels, staffing 

levels, business processes—and I received a report on how we could 

begin to improve that situation within a month. 

We have constant monitoring of the number of pending licensing 

cases that we have. We have constant monitoring of the average 

time it takes to adjudicate each of those cases. As I mentioned earlier, we have alarm bells in our system. When a license isn’t acted 

on within a fixed period of time, it will automatically bump up to 

a higher level for engagement so we can meet that ultimate 60-day 

deadline. And a number of other constant evaluations that we are 

performing on our workload and how quickly we are getting 

through it, and recently we have begun posting this on our Website 

so that the business community and the public can see the progress 

that we are making. 

Senator AKAKA. Thank you. Senator Voinovich. 

Senator VOINOVICH. Do you have a strategic plan on how you intend to remedy this situation? Is it in writing and with deadlines, 

a pert chart, and all the things you need to do in order to get 

where you want to get? 

Mr. MULL. The plan that we are going to be submitting to OMB, 

sir, I am satisfied will do that. It provides the strategic context of 

where we need to grow the organization, where we need more peoVerDate Nov 24 2008 11:52 Jun 08, 2009 Jkt 042751 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 P:\DOCS\42751.TXT SAFFAIRS PsN: PAT
15 

ple, how we need to allocate them among our different functions, 

which include developing policies, participating in the commodity 

jurisdiction dispute, of course processing licenses, and enforcement, 

which is an important part. And so we believe that we have targeted all of these in our plan, both on a strategic level as well as 

a solid business plan. 

Senator VOINOVICH. When did you submit that? 

Mr. MULL. Again, this is still within the State Department. I 

hope it will be submitted to OMB—— 

Senator VOINOVICH. The fact of the matter is, it is submitted— 

and you do that through the State Department, that is not going 

to be reflected in this budget that we have right now. The State 

Department has already put their budget in place, so we are now 

talking about hopefully being included in the 2010 budget. 

Mr. MULL. Yes. Well, one of the features of our plan, sir, is that 

this will be a self-financing mechanism that will be independent of 

getting appropriations from the Congress. And so we will be able 

to grow the organization to the required levels without extra reliance on the budget that we have sought from the Congress this 

year. 

Senator VOINOVICH. Have you sat down at all with GAO to get 

their input and whether or not they think that the plan you put 

together is going to get the job done? 

Mr. MULL. I have not, sir, but once it is approved by OMB as 

the official administration position, I would be delighted to do that. 

Senator VOINOVICH. Once you submit it, it is going to be pretty 

well done. I mean, how much change are you going to make in it 

after you have submitted it? 

Mr. MULL. Well, what I want to do certainly is the very best possible job that we can do. I think this plan will be a good foundation 

to do precisely that. But it is not going to be the end of the line. 

I, and I expect my successors, will continue to welcome inputs not 

only from GAO but—— 

Senator VOINOVICH. Are you a regular State Department employee? 

Mr. MULL. I am. 

Senator VOINOVICH. How long have you been with the Department? 

Mr. MULL. I have been a Foreign Service officer for 26 years. 

Senator VOINOVICH. You have been acting in this capacity for 

how long? 

Mr. MULL. For 15 months. 

Senator VOINOVICH. Fifteen months, and your predecessor was 

an appointee? 

Mr. MULL. It was a non-career appointee, yes, sir. 

Senator VOINOVICH. How do we know that this plan you are putting in place is going to follow through in the next Administration 

and that we won’t be back here a year and a half from now doing 

the same thing over again? 

Mr. MULL. Well, we put together a plan that I think will be selfevidently good business sense in such a way that no one would disagree with it, not even my friends in the GAO. But again, we will 

welcome input from all of the stakeholders in the process. But I 

16 

trust that you will find it to be a solid plan that you will find much 

to like about. 

Senator VOINOVICH. Ms. McCormick, do you have a plan to remedy some of the things that you are dealing with? 

Ms. MCCORMICK. Well, sir, first off, I have a very comprehensive 

strategic plan for my organization and very detailed implementation plans and metrics. In fact, I just met yesterday with all my 

division chiefs and on a quarterly basis we review our performance 

metrics. I think we have also—we have implemented a variety of 

business processes that I think make us a relatively effective organization. We have some things like standing tiger teams that in the 

mornings we try to go through and try to do our best to determine 

what licenses we can turn, and I am pleased to report we do turn 

about 25 percent of the munitions licenses and about a third of the 

dual-use licenses, we are able to turn those around in about 1 to 

2 days. 

Senator VOINOVICH. Are you a political appointee? 

Ms. MCCORMICK. No, I am not. 

Senator VOINOVICH. So you are going to be around to continue 

to carry this out. 

Ms. MCCORMICK. I am, sir. I have been serving soon 25 years 

and will continue to do it for a while longer. 

Senator VOINOVICH. One of the things that has been laying 

around for a while is that in the January 2007 high-risk list update, GAO notes that the Commerce and State Departments have 

yet to reach an agreement on which agency has jurisdiction over 

certain missile technologies. Given the importance of the issue to 

our national security, why the delay and is there going to be an 

agreement in place prior to the transition? 

Mr. BORMAN. Maybe I will start on that and Ambassador Mull 

may have something to add. We already had, in fact, some years 

ago actually published a regulation that dealt with this issue in 

part. Another piece of this that I think is important to keep in 

mind is that the missile technology control regime items that are 

on our list have technical parameters. The State Department list, 

of course, covers things that are specifically designed for military 

application and so there is a commodity jurisdiction process if exporters are unsure whether their item is subject to our jurisdiction 

or the State Department’s. There is not really a possibility, though, 

that exporters could self-determine that their item is subject to our 

jurisdiction and just ship it without government oversight. 

Senator VOINOVICH. Was there an agreement? Ms. Barr, are you 

familiar with this issue? 

Ms. BARR. I am familiar with this issue, and if Mr. Borman 

wants to continue, I would like to comment on this afterwards. 

Mr. BORMAN. So, if exporters have an item and they think it is 

subject to our jurisdiction because of our controls on the export of 

missile technology items, they have to come into the Commerce Department for a license and under our Executive Order process we 

have to refer that to both the Defense and State Department for 

their review. And in that process, if either agency thinks that item 

is actually subject to State Department’s jurisdiction, they stop 

that process and we put it in the commodity jurisdiction realm. 

17 

So I think part of the GAO concern was that an exporter could 

sort of self-classify and ship without government authorization. But 

under the system, they either have to go into the State Department 

or they have to come in to us for any missile technology item. 

Senator VOINOVICH. Ms. Barr. 

Ms. BARR. The comment that I would like to make with regards 

to that is lets put ourselves in the seat of the exporter. I think it 

needs to be very clear up front whether these items are either on 

the USML or on the CCL list. I would not want to be an exporter 

who comes through a system only to find out after months elapsed 

and after it has been staffed out for review that you don’t fit under 

the Commerce Department anymore, but instead, you are under 

the State Department. Now you have to come back in under a different set of reviews with a different set of compliance requirements and costs. That is just not the way to do business. Items 

should appear on one list or the other and it should be clear from 

the get-go. 

Senator VOINOVICH. When you were putting your plans in place, 

how much input did you get from your external customers? We 

have some people representing industry here. Did you sit down 

with them and say, what are your problems? Did you get their 

input so that you could at least find out how the customers feel and 

what you could do to satisfy them? 

Mr. MULL. Yes, sir. At the State Department, we have a group 

called the Defense Trade Advisory Group in which the defense industry regularly participates and provides advice to the Secretary 

of State and all of us who work on these issues at the State Department. 

In addition, and I should have paid tribute to this in my opening 

statement, the Coalition for Competitiveness and Security, a very 

high-level group, a consortium group of leading defense industrialists, made some very important recommendations to the Administration last year that had a really important impact on—they made 

a series of 10 to 12 recommendations about how we could improve 

and we have implemented almost every one of their recommendations. There are a few that we were not able to because of legal 

problems or philosophical differences, but the vast majority, we did 

implement. 

Senator VOINOVICH. In other words, if I got them in a corner and 

said, what do you think about it, they would come back and say, 

I think they have done a pretty good job of putting it in place, or 

would they have some strong reservations yet? 

Mr. MULL. Well, sir, we have gotten very positive feedback, but 

I do encourage you to ask them because if they have a different 

view that they haven’t shared, I would love to hear it. 

Senator VOINOVICH. Well, they have all got to deal with you. Senator Akaka. 

Senator AKAKA. Thank you. We will have a second round. 

Ms. Barr, in your testimony and in a 2006 report, GAO found 

that the Commerce Department did not have measures of effectiveness to assess its performance. Will you please elaborate on this 

and how this situation can cause problems? 

Ms. BARR. What we found in the case of the Commerce Department, there were certain measures that looked at their system in 

18 

terms of how long it took for a license to actually be processed, and 

those measures focused on primarily the up-front part of the process, how long it took to staff a case out. But there weren’t measures in place to actually come back and report to them on how long 

it took for the whole process if it was staffed out. We had indicated 

that it would be important to know at each stage of the process. 

For example, how long does it take to get outside of the Commerce 

Department, how long does it take with the other agencies, and 

what are the overall processing times. 

Now, efficiency measures are just one part of effectiveness. I also 

think that it is absolutely critical for any agency with any goal, 

with any mission, particularly as important as this, to analyze data 

to look at what applications have come in, which have required licenses, which have gone out without licenses, what items have we 

shipped to where, and what intelligence information do we have regarding the cumulative impact of what we are shipping to certain 

countries under certain commodities. These are the kind of effectiveness measures and studies that we are calling for and some of 

the due diligence that we are asking for. 

And I think, as Mr. Borman indicated, there are new initiatives 

in place now to expand the assessments that they are doing. We 

have not yet had an opportunity to look at that. But we are aware 

that there are some initiatives underway. 

Senator AKAKA. Mr. Borman, do you agree with GAO’s assessment about the status of your measure of effectiveness and have 

any comment on that? 

Mr. BORMAN. Well, we certainly agree with GAO that it is very 

important to be able to measure as many pieces of your system and 

then measure it overall, as well, and as I mentioned in my statement, we have added additional effectiveness measures. Just to 

touch on two pieces that were just mentioned, under our Executive 

Order, we have 9 days to process internally a license application 

and then it goes to the agencies. They have 30 days to review. By 

our metrics, we know that the Commerce Department averages 2 

days to review. The agencies generally do their reviews in 12 to 14 

days, and our average overall processing time is 28 days. So we 

now have a system in place to track all those pieces. 

We also have added a new way of measuring effectiveness compliance with our regulations now that we have access to actual export data. We can analyze the filings in the Automated Export System against the regulations, and this is something that GAO has 

not had a chance yet to look at and review, but this is another very 

useful new tool to measure whether our U.S. exporters are really 

complying with our regulations. 

Senator AKAKA. Mr. Borman, in Mr. Poneman’s testimony, he 

proposed the creation of an export control career path for Bureau 

of Industry and Security (BIS) staff. Could you comment on that? 

Is there such a career path now, in your view? 

Mr. BORMAN. Well, in our Bureau, we are, of course, headed by 

political leadership at the Under Secretary and the Assistant Secretary levels, but at the Deputy Assistant Secretary and below, we 

are all career civil servants and certainly in our licensing ranks, we 

have a range of GS levels so that someone could certainly and have 

come in, say, at GS–12 level and by gaining experience and taking 

19 

different jobs, could move all the way up to the GS–15 level, which 

is the highest in the General Schedule. So I think we do have a 

good system in place to allow people to stay in, and we have quite 

a few licensing officers who have been at this a very long time and 

are really experts in their subject areas. 

Senator AKAKA. Mr. Borman, in your testimony, you stated that 

since the Export Administration Act has not been updated, the enforcement authorities of BIS’s special agents have not kept pace 

with the challenges of proliferation and globalization. Could you explain how BIS’s special agents work with DHS’s Immigration and 

Customs Enforcement and Customs and Border Patrol agents? 

Mr. BORMAN. Yes. Our agents have a very close working relationship with both those units of the Department of Homeland Security. On the Customs and Border Protection side, for example, on 

a daily basis, we send them updates of licensing decisions. So at 

the ports and borders, the inspectors have the most up-to-date information on what transactions are approved under the Commerce 

Department licenses so they can check shipments efficiently and effectively. 

On the investigative side, we often do joint cases with our Customs colleagues and we have an MOU that we have had in place 

for many years to make sure that functions very smoothly, and 

quite a few of our cases, particularly on the criminal side, are joint 

cases with Immigration and Customs Enforcement, as well as the 

Department of Justice. 

Senator AKAKA. Mr. Borman, in an April 2, 2008 article in the 

New York Times entitled, ‘‘U.S. Alarmed as Some Exports Veer Off 

Course,’’ reporter Eric Lipton identified that U.S. exports to the 

United Arab Emirates were diverted to countries like Iran and 

Syria. I am concerned that there may not be enough staff monitoring exports to the UAE. What is the current number of export 

control officers assigned to the UAE? 

Mr. BORMAN. We have one attachment stationed in Abu Dhabi 

who covers the UAE, and the way that we are getting at that 

issue—there are several ways, of course. One is close cooperation 

with the government of the UAE. They recently passed their own 

export control law and I was there with an interagency delegation 

2 months ago and they are, in fact, enforcing that law, they have 

told us. They continue to need to do more to implement that system. 

We also imposed specific additional controls on a whole range of 

foreign trading companies, including some in the UAE, over the 

last few years where we had strong reason to believe that they 

were importing low-level uncontrolled items that were showing up 

in Iraq and Afghanistan. So we have several ways to get at that 

issue. 

Senator AKAKA. Let me ask, how do you determine if there is a 

sufficient number of staff to keep up with the potential violations 

and transshipment activity in the UAE? 

Mr. BORMAN. Well, it is a constant process of monitoring what 

trade goes through there, looking at the relevant classified information, and having agents assigned. Now, some of the enforcement 

authorities that are in Senator Dodd’s bill would also get at that 

because that goes to foreign investigative authority. 

20 

Senator AKAKA. Thank you. Ms. McCormick, the DDTC, Directorate of Defense and Trade Controls, faced an almost 20 percent 

increase in the number of licensing cases between 2003 and 2006. 

The Foreign Relations Authorization Act of Fiscal Year 2003 states 

that the Secretary of Defense should ensure 10 military officers are 

on detail to DDTC. In a 2007 report, GAO revealed that DOD provided only three to seven military officers to DDTC at any given 

time. Is DOD currently assigning the mandated number of military 

officers to DDTC? 

Ms. MCCORMICK. Well, Mr. Chairman, it is obviously—you can 

imagine under the current circumstances we are, where our military is serving in so many operational assignments, we have a lot 

of shortfalls in our personnel, and to be perfectly frank, I actually 

have in my own organization, don’t even have the number of military officers that were assigned to my organization. I have had 

some vacancies in my own organization upwards of 3 years where 

the military services have not assigned officers to me. 

But I understand here recently there has been some movement 

to provide some additional military staff to the Defense Trade Controls, the State Department, I believe right now, and I can check 

this for the record then to make sure, but I think right now we are 

up to eight officers that are assigned over at the State Department. 

Senator AKAKA. Thank you. Mr. Reinsch in his written testimony 

proposed the idea of a unitary—handling both arms and dual-use 

technology—export licensing system that operates in an interagency framework. How do you feel about Mr. Reinsch’s idea for a 

single interagency coordinating body? Ambassador Mull. 

Mr. MULL. Thank you, Mr. Chairman. The State Department 

does not have an official position on that idea. My personal view 

is that, as I mentioned in my opening statement, there are inherent tensions in this entire function of government in which we have 

to balance our national security interests against our economic and 

commercial interests, and some of the frustration that users of this 

system encounter results from the tensions bubbling up to higher 

and higher levels, where it takes longer than the consumer might 

like to resolve what particular factor is more important, the national security or the economic and commercial dimension. 

I think those institutional tensions are going to exist regardless 

of how we organize ourselves as a government. If there were one 

agency doing all of this, you would find the same tensions and disputes that we have now, just given rise in a different kind of setting. 

I think what is important is to make sure that we as a government have as efficient a way as possible of managing those natural 

differences and tensions in a way that is quick and transparent to 

the user of the system, and I hope certainly by the end of this year 

with the President’s Directive we will be in a much better place 

than we have been. 

Senator AKAKA. Thank you. Ms. McCormick. 

Ms. MCCORMICK. Thank you, Mr. Chairman. It is probably a little easier for me to say this since my agency doesn’t have a regulatory role here, so I sort of sit between the two agencies that have 

the regulatory responsibility. But I think one of the things I see is 

we actually are organized—and maybe the way we are organized 

21 

is an interesting comment on this—in my organizational structure, 

the technical workforce that I have, because I have got a very solid 

technical staff of engineers and scientists, we have chosen in that 

particular case to organize along technology lines, and so my engineers and scientists actually review both dual-use and munitions 

licenses because we believe what is important for us to understand 

is the technology, how that technology is evolving, and what are 

the implications for the Department of Defense for that technology. 

But then my licensing officers, while I have one licensing shop, 

I have it divided between munitions and dual-use predominately 

because of the different regulatory regimes that we need to deal 

with and the fact that we need to interact with different people. 

But I think some of the initiatives that we are pursuing right 

now collectively as part of the President’s initiatives are really 

aimed at having the overall system be more transparent, and I can 

tell you the two gentlemen who are sitting on either side of me, the 

relationships, the professional relationships we have and the orientation we have to making change, I think it is very strong and 

I think that collaboration right now and the agencies working together in a more predictable and transparent manner is happening 

and can only get better. 

Senator AKAKA. Thank you very much. Mr. Borman. 

Mr. BORMAN. Mr. Chairman, I would like to answer this in two 

parts. One is, as with the State Department, the Department of 

Commerce does not have an official position on that proposition. 

I can tell you, as a career civil servant in this area, we have 

spent a lot of effort doing our interagency coordination focusing on 

the functions and the principles. To the extent that there would be 

an effort to create a unitary entity, I think that would divert a lot 

of attention and focus from the functioning to the structure and the 

process and inevitably that would be a fairly long undertaking. So 

I would just add that note to anyone who is thinking of pursuing 

that line, that there would be a lot involved just on the functional 

part, which by definition I think would take away from the current 

work that is being done because there are only so many hours in 

the day that each of us has. 

Senator AKAKA. Thank you. Ms. Barr. 

Ms. BARR. I think your question goes to the heart of our recommendation in the high-risk series, which calls for a strategic reexamination of what is needed. These programs have been in place, 

and I think in one of the opening statements are referred to as relics. They have been around for a long time. I think what this calls 

for is a reevaluation of the programs, ask some questions basically 

about the relevance of the program, the missions, the goals, what 

is it that we need to control, what is it that we can share with others, and then what is the framework that we need to best equip 

us to do that. 

Clearly, any interagency process is messy from the get-go. So, 

when there is not clear communication and coordination, it further 

exacerbates the problem. Those are issues that I think can be resolved with the current structure. 

I would also make just one other comment. If you look abroad, 

at other countries’ systems for export controls, I think it is quite 

interesting that you will find that in many other countries, they 

22 

1The prepared statement of Mr. Reinsch appears in the Appendix on page 70. 

have single licensing agencies for export control. So it is just an interesting point of comparison. There could be some things to be 

learned from that. 

Senator AKAKA. Thank you very much. I want to thank this 

panel very much for your testimonies, your responses. It will be 

helpful to us, and again, I thank you and we will have our second 

panel. Thank you. 

Mr. BORMAN. Thank you, Mr. Chairman. 

[Pause.] 

Senator AKAKA. This hearing will be in order. 

I want to welcome the second panel of witnesses. They are the 

Hon. William Reinsch, President of the National Foreign Trade 

Council and former Under Secretary of Commerce for the Export 

Administration, Department of Commerce. Also, Daniel Poneman, 

Principal of the Scowcroft Group and former Senior Director for 

Nonproliferation and Export Controls, National Security Council, 

and Edmund Rice, President, Coalition for Employment Through 

Exports. 

As you know, it is the custom to swear you in, so I ask you to 

rise and raise your right hand. 

Do you swear that the testimony you are about to give this Subcommittee is the truth, the whole truth, and nothing but the truth, 

so help you, God? 

Mr. REINSCH. I do. 

Mr. PONEMAN. I do. 

Mr. RICE. I do. 

Senator AKAKA. Thank you. Let it be noted in the record that our 

witnesses answered in the affirmative. 

Let me call for your testimony, and let me call on the Hon. William Reinsch for his testimony first. 

TESTIMONY OF WILLIAM A. REINSCH,1 PRESIDENT, NATIONAL 

FOREIGN TRADE COUNCIL 

Mr. REINSCH. Thank you, Mr. Chairman. I think we decided a 

few minutes ago this is the geezer panel. All of us have been involved in this issue for a long time, in my case for more than 30 

years, and we have a wealth of experience from different perspectives, both inside and outside the system. My own statement provides a little bit of detail about my background. 

Consistent with the Subcommittee’s jurisdiction, I want to focus 

on management and organizational issues that have impacted export control administration. My fundamental conclusion from having observed the system from both inside and outside is that it does 

not function well despite efforts over the years to clarify and simplify the process. 

From the perspective of users of the system, the main problems 

are delay and uncertainty in decisionmaking, and in the case of 

weapons, repetitive licensing requirements. Applicants can face 

these problems initially if there is uncertainty or interagency disagreement over whether their proposed export is a dual-use item 

or a weapon, and then subsequently in the licensing process itself. 

In addition, failure to keep the control list up to date by removing 

23 

lower-level items that have become widely available has led to a 

constantly increasing number of applications, which puts a growing 

burden on the bureaucracy to process them. 

The fundamental characteristic of export control administration, 

whether dual-use or weapons, is that both policy and specific licensing decisions inherently involve multiple equities. Selling the 

controled item is a foreign policy decision, a national security decision, a commercial decision, and often a nonproliferation or energy 

policy decision. Those equities are invested in different Federal 

agencies, all of which deserve to be part of the process. 

My experience has been that the government makes the best decisions when all relevant agencies are involved in the process and 

each plays the role assigned to it as part of its mission. That, however, creates a cumbersome bureaucracy because it means the various departments as well as the intelligence community need to 

work together. 

The need to cooperate at both the technical and policy levels has 

been the weak point of this system for years. On the dual-use side, 

the system is effective on paper, thanks to an Executive Order of 

December 1995 that set up a ‘‘default to decision’’ process that established rules for the referral of applications to different agencies 

and then permitted decisions to be made at the senior career level 

by a single agency after extensive consultation, but allowed them 

to be appealed to political levels where agencies vote. Mr. Poneman 

is largely responsible for that Executive Order, so he may want to 

spend a little bit more time on it. 

In reality, things do not always work quite so smoothly. Making 

the wheels turn requires persistence and discipline. Deadlines become meaningless if they are not enforced. Deciding an application, 

or more likely a number of them, raises a policy issue that can take 

the matter out of the system entirely and leave the license applications hanging while the agencies haggle over the underlying policy. 

On the weapons side, the State Department has been its own 

worst enemy, largely by resisting transparency and information 

sharing with other agencies and by insisting on a system that requires a separate license and thus a separate decision for each 

piece of a transaction or each part of a technology collaboration instead of issuing project licenses that cover all transactions relevant 

to a specific program. 

As a result, the number of applications has been growing 8 to 10 

percent annually and is now nearing 100,000 cases. A significant 

portion of this increase is attributable to U.S. Government defense 

and security initiatives that involve close collaboration between the 

U.S. and its allies. Successful execution of those collaborative programs requires appropriate, timely sharing of technical data and 

technology over the entire life cycle of a project. Requiring separate 

licenses for each transaction within a project after the government 

has already made the policy decision to go forward places an enormous bureaucratic burden on the State Department, frustrates our 

allies who have been told we want to work cooperatively with 

them, only to find that basic decision second-guessed over and over 

again, and creates inevitable delays for the companies seeking to 

bring these projects in under budget and on time. 

24 

In such cases, a project licensing approach that authorizes an entire project within specified parameters, along with reliance on 

trusted or validated foreign parties whose technical and security 

credibility has been established, would obviate the need for licensing of certain components of a collaborative program, or at least reduce the number of licenses required for activities that are predictable and repeatable. This would eliminate a major bottleneck, support effective program management, and strengthen cooperation 

with our allies. 

Probably the most unsatisfactory aspect of the current system, 

and the previous panel discussed this, is the commodity jurisdiction 

process, the process by which the State Department determines 

whether an item is military, subject to its licensing, or dual-use, 

subject to Commerce Department’s licensing. This authority belongs to the State Department, which over the years has not only 

refused to share it, but has been reluctant to take advice from 

other agencies, even though it has no technical expertise of its own 

and has been particularly opaque in explaining the reasoning behind its decisions. 

This has become much more important in the past decade because the line between military and dual-use items is increasingly 

blurred, thanks in large part to civilian spin-offs of military technology. These decisions could have significant effects on a company’s business strategy, since determining that a license is military subjects it to more restrictive licensing. 

Another major issue is list reduction. The last time the dual-use 

list was significantly updated was in 1994. Occasional changes 

have occurred since then, but periodic regular reviews have been 

frequently promised, occasionally begun, and never completed. The 

result is a control list that has not been reviewed in light of rapidly 

changing technology and increasingly widespread foreign availability and as a result has been growing when it should be shrinking. This, in turn, means more licenses are required in cases where 

our foreign competitors are not similarly constrained, resulting in 

loss of competitive advantage for American companies and no damage done to the end user, who simply buys a comparable European 

or Japanese product. 

Now, over the years, there have been a variety of proposals for 

reform. There are essentially three approaches that I want to comment on. The first is tweaking the increasingly creaky current system, applying duct tape and wire to keep it operating. The Coalition for Security and Competitiveness, of which my organization is 

a member, has proposed a set of administrative changes for both 

licensing systems that would be helpful in making them more efficient, and we support those strongly and are glad to see that the 

Administration is proceeding to implement them. They are not, 

however, fundamental reforms. 

The second way to go is to eliminate interagency squabbles by 

creating a unitary independent agency to administer both dual-use 

and weapons programs called the Office of Strategic Trade in legislation proposed in the 1980s and 1990s. My written statement, Mr. 

Chairman and Senator Voinovich, provides some detail about why 

that won’t work. 

25 

1The prepared statement of Mr. Poneman appears in the Appendix on page 74. 

To save time, I will skip to the proposal that I think will work, 

which is an approach to create a unitary system that operates 

within an interagency framework. In it, the distinction between 

military and dual-use items as far as licensing is concerned would 

be abolished. All would be subject to the same procedure, thus 

eliminating the commodity jurisdiction issue that has plagued the 

current system while still ensuring that all relevant parties are 

able to participate in the process. 

The system would be modeled on the Executive Order I referred 

to. One agency would act as the mailbox, receiving applications and 

circulating them to other relevant agencies for comment, creating 

deadlines for submission of agency positions. In the event of consensus, licenses would be granted quickly. In the event of conflict, 

the default to decision process I described would be used. By including the innovations I mentioned, like project licenses and the 

identification of trusted end-users eligible for streamlined treatment, we could reduce the volume of applications that are routinely 

approved and thereby significantly increase efficiency. 

I have not in my comments, Mr. Chairman, addressed the question of resources and I want to make clear that is not an oversight. 

A plea for more resources is the standard response of every Federal 

agency to every problem. When I ran BIS, I made the same plea. 

More money in this case would no doubt be helpful, particularly 

after the significant BIS budget cuts this year that Mr. Borman referred to. I do not, however, believe it is the most critical issue. 

Competent dedicated civil servants labor in a system whose problems are self-imposed, or in some cases imposed by Congress. Adding money will not clear away the obstacles to efficient Export 

Control Administration. It will simply allow more people to be inefficient. I would encourage the Subcommittee to address the fundamentals, however difficult that might prove to be, rather than 

settle for palliatives. 

Finally, Mr. Chairman, let me congratulate you and the Subcommittee on your examination of this issue and let me urge you 

to continue with it. During my time working on export controls, I 

have been involved in one way or another in 13 or 14 efforts to rewrite the EAA. I have lost count. Only five of those succeeded and 

the last one was 20 years ago. This is admittedly a difficult area. 

It is complicated and controversial. I hope your oversight efforts 

will lead you to some useful conclusions and that you will then 

work with the Banking Committee on legislation to implement 

them. Thank you. 

Senator AKAKA. Thank you very much. I should mention to you 

that your full statements will be included in the record. 

Mr. Poneman. 

TESTIMONY OF DANIEL B. PONEMAN,1 PRINCIPAL, THE 

SCOWCROFT GROUP 

Mr. PONEMAN. Thank you, Mr. Chairman, and Ranking Member 

Voinovich. I am delighted to be here. I will try to be succinct. 

I believe that the U.S. export control system is an anachronism. 

It was designed for a world that no longer exists. When the last 

26 

1The copy of the Export Control Chapter 4 submitted by Mr. Poneman appears in the Appendix on page 109. 

rewrite of the Export Administration Act was signed by a President 

into law, the hammer and sickle still rose above the Kremlin, 

CoCom still existed, the Berlin Wall stood tall. All that has 

changed. CoCom’s successor doesn’t have the strength that CoCom 

had. In fact, it seems almost quaint to recall that under CoCom, 

the United States had the right to reject an export from an allied 

country to a third country; and that worked. 

Meanwhile, Federal structures have not been updated to accommodate this new reality. They have not accounted for the changing 

role of technology. They have not accounted for the globalization of 

technology. They have not adequately accounted for the increasing 

availability overseas of the same technology that we seek to control. And meanwhile, the internal stresses and strains that you 

heard reported in the earlier panel continue to plague our export 

controls. 

What is to be done? For years, as Mr. Reinsch has reminded us, 

we have tried unsuccessfully to fix the system. Reviewing for this 

afternoon’s testimony, I looked at a panel I participated in mandated by the Congress in the late 1990s, and I will submit a copy 

of the export control chapter for the record.1 It still makes good 

reading. Unfortunately, it is still relevant. In other words, it has 

not been implemented. 

So let us go to first principles. Why do we have export controls? 

I dwell on a few reasons in my written submission. I will just note 

here the prevalent one, in my view, is to protect U.S. and allied 

military advantage over our adversaries. That means we have got 

to protect the source of our military superiority. That is increasingly innovation and the technology that keeps our fighting forces 

the best-equipped in the world. And over time, as we all know, that 

technology has come increasingly from the civilian sector and from 

investments financed by retained earnings, and therefore we need 

to encourage that kind of investment in advanced technology. Many 

of these companies that make these investments rely on exports for 

their health. 

Therefore, to the extent that we throttle those companies by unnecessary—an important qualification—export controls, we are 

throttling our own source of innovation and our own source of military strength. The commonplace that you hear—national security 

versus economic security—is false dichotomy. Economic strength 

drives military strength. 

What would I do? First of all, reform is way overdue. We need 

to rewrite the Export Administration Act. It has distinctions that 

are rooted in the CoCom system that is gone and what it should 

do is, in place of talking about national security controls and foreign policy controls and anachronisms from the past, it should 

focus on multilateral controls versus unilateral controls. That actually matters. And it should be harsh on unilateral controls because 

to a first order, my view is that unilateral controls tend to fail and 

therefore they should be subjected to some rigorous disciplines and 

oversight by the Congress to see if they are going to achieve their 

stated mission. 

27 

1 Copy of Executive Order 12981 submitted by Mr. Poneman appears in the Appendix on page 

105. 

Second, under this new law, all U.S. export controls should be 

implemented pursuant to what I would call generally accepted 

standards of good government. Mr. Reinsch referred to these. They 

were codified for the dual-use system in Executive Order 12981, 

which I would also like to see included in the record.1 I don’t want 

to run over time, so I will summarize by saying that they are characterized by certain principles: 

One, transparency. All agencies get to look at the license applications or commodity jurisdiction submissions. 

Two, deadlines, and a deadline means if you don’t meet the deadline, it defaults to a decision, not to paralysis. 

Three, accountability. Whoever is responsible for enforcing these 

controls should speak to the Congress and the President, and explain how they are implementing these reforms. 

Now, when this is first put into place, this kind of a system, I 

think you will need an overall list review. It seems to me when you 

were talking about the tens of thousands of applications that we 

heard in the earlier panel, that says to me there is something 

wrong about the size of our effort versus the size of the problem, 

and I think we need to address that head-on. Presumably, it would 

produce a result of higher fences around fewer items, but we 

should go through that exercise. 

But second, once that review was complete, I think we should let 

the process decide which items should be controlled and should not 

be controlled, and this would be my last point so I will just dwell 

on it for a moment. Many of us were involved in discussions in the 

1990s about whether communication satellites should shift from 

the munitions list to the dual-use list and back, and we had endless conversations among people who knew very little about the underlying technologies. 

And I remember that for me, the penny dropped in talking with 

my interagency colleagues when I said, let us just say on the nine 

parameters defining which satellites were munitions, baseband 

processors and embedded encryption and so on, if we agree on this 

today, how long would that solution last? Six months? Eighteen 

months, max? We don’t need a point solution. We don’t need to 

write that in a regulation. It took us longer to write the regulations 

than it took the companies to come up with the next-generation 

technology. 

What we need is to have a process as you have in common law. 

You have a case in controversy. You look at this item coming up 

for consideration and say, does this present a threat if exported? 

And you let, if you will, a common law system replace what we now 

have more of a civil code, line-drawing, definition-drawing kind of 

approach to export controls. 

Now, I do not suggest this is the only solution, but I do think 

that when we have a new Administration coming up of either 

party, it is a rare opportunity and an important time, given the 

stakes for our Nation and its security, to really go back to first 

principles and try to do it right. And in that respect, as my colleagues before me, I would like to commend and welcome the SubVerDate Nov 24 2008 11:52 Jun 08, 2009 Jkt 042751 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 P:\DOCS\42751.TXT SAFFAIRS PsN: PAT
28 

1The prepared statement of Mr. Rice appears in the Appendix on page 78. 

committee’s efforts to participate in that effort and I am sure all 

of us would be grateful for further opportunities to assist in any 

way we can. Thank you, sir. 

Senator AKAKA. Thank you, Mr. Poneman. And now we will hear 

from Mr. Rice. 

TESTIMONY OF EDMUND B. RICE,1 PRESIDENT, COALITION 

FOR EMPLOYMENT THROUGH EXPORTS, INC 

Mr. RICE. Mr. Chairman and Senator Voinovich, thank you. You 

asked us to use the GAO high-risk report as the jumping-off point 

for our testimony, so let me make four quick points summarizing 

my written statement. 

The first is that the GAO report traces export control problems 

to weak interagency coordination and inefficiencies. I think the 

Subcommittee should take a broader and more fundamental look 

than that. I believe the weaknesses stem from more basic policy 

issues which are not being addressed and those are then reflected 

through the operations of these export control systems. 

My second point is that in the dual-use system, the U.S. Government, and that is both the Executive Branch and the Congress, is 

having difficulty in adjusting U.S. policy and export controls to 

global forces, which you both noted in your opening statements. 

Dual-use technologies diffuse. There is almost nothing on the dualuse control list that is U.S.-only sourced. Almost everything now 

can be purchased globally. There is a growing disparity between 

the U.S. and other governments’ policies on export controls, leading 

the United States to increasingly move toward unilateral controls, 

as the previous witnesses have also mentioned. And military capability increasingly depends on commercial technology, which is 

changing the make-up of the defense industrial base and the responsibility of the export control systems to take that into account 

in their licensing decisions and policies. 

My third point is that these global forces are working against 

U.S. controls, particularly when they are unilateral. In the most recent control initiatives by the U.S. Government, that is the recontrol of certain technologies to China to try to prevent the Chinese 

military from getting these items, and the new rulemaking that is 

just underway to attempt to control the transfer of technological 

knowledge to certain foreign nationals when they are in the United 

States are both unilateral controls and are destined, as Mr. 

Poneman just indicated, to not be successful. 

My fourth point is that in the munitions area, the export licensing system has not kept up with the direction of U.S. defense policy, again as Bill Reinsch first mentioned. Multinational defense cooperation and joint operations in the field have not been adequately supported by the licensing system, and in fact, that has 

been one of the major impetuses for the Executive Branch to take 

on the reforms that they described in their testimony because of 

the rising chorus of complaints from the acquisitions people at the 

Pentagon and our combatant commanders. 

So my conclusion is that the Executive Branch is moving to address some aspects of the logjam through their reform efforts and 

29 

these efforts have been underway since the January 2007 high-risk 

report was issued. But more resources and greater efficiency cannot 

address the global dynamics without a more fundamental look at 

policy and policy changes and that is a management issue at a 

higher level than the GAO has analyzed. Thank you. 

Senator AKAKA. Thank you, Mr. Rice. And now, Senator Voinovich for your questions. 

Senator VOINOVICH. Thank you, Mr. Chairman. 

This has been around a long time, hasn’t it, this whole issue? As 

a member of the Senate Foreign Relations Committee, I am always 

concerned with who is paying attention to management. Dick 

Armitage paid a lot of attention to it, and then Zoellick came in 

and he toured the world, and we had Henrietta Fore and now we 

have Patrick Kennedy there. I just don’t think they pay enough attention to management in the State Department. From what I have 

heard, the GAO has come back with a nice report, but you really 

think you ought to junk the thing and come up with a whole new 

system that is relevant to being in a global marketplace and how 

everything has changed. 

Would any of you be willing to sit down with the other people 

who are at this table and come back with a comprehensive recommendation from the users on how this thing could be improved 

and share it with this Subcommittee? I understand you represent 

the private sector, but you are the customers. I mean, you are coming to the shop, and when I was governor, when I was mayor, if 

I had lots of complaints from people out there, what I did was get 

my folks together with them. The other thing I found out is a lot 

of times, people in the agencies are not happy with the system, either. They have some ideas on how things can be improved. 

But would you be willing to sit down and come back with recommendations on how you really think this thing could get done 

properly and maybe have that available to the next person over 

there so that maybe we can make some headway with it and try 

and get somebody in a new Administration to be in charge of the 

transformation because you know very well it is not going to happen in a year. It is going to take a couple of years to get—more 

than that, probably, if you are going to really get the job done. 

Mr. PONEMAN. Oh, yes. I might just say, Senator, I suspect I was 

joking beforehand, none of us had gray hair when we started working on export controls. Now, I won’t say how much came from export controls, but some. But I think, speaking for myself, I would 

be willing to work with anyone who is committed to trying to improve this system because I genuinely believe we have already paid 

some price in our security for lack of reform. I don’t want to see 

us pay a higher price, and my assessment from having seen so 

many of these efforts fail, Senator, is that each President gets 

about one shot and that shot lasts about 1 year. And now would 

be the time to lay the intellectual groundwork, and frankly the 

stakeholder buy-in, that could allow any President come January 

20 to say, OK, we are going to fix this. I would be happy to participate. 

Senator VOINOVICH. Gentlemen, I would be interested if you folks 

would get together and share that with us, come back, get everybody at a table and say, this is what we think is a consensus on 

30 

how we really straighten this out. I am sure that Senator Akaka 

and I would be glad to work with you and maybe get somebody 

from the Department there and get GAO at the table and work out 

a strategic plan and set some goals. Mr. Reinsch, you don’t think 

that they need more people there, or—— 

Mr. REINSCH. I think more money would be useful. I know more 

about BIS than the State Department. Certainly, more resources 

would be welcome. However, as long as the system is the way it 

is and the number of licenses are growing the way they are, you 

can give them all the money in the world and it is not going to improve the functioning of the system. You need to get a handle consistent with what Mr. Poneman suggested of what it is you are trying to control, and if you do that, then you can operate more efficiently. My guess is, if you do that, you can do it with the number 

of people they have now. 

I am happy to participate and am very much interested in doing 

exactly what you have suggested. Mr. Rice and I periodically convene a group that consists of, as near as I can tell, most of the companies who care about this, and we are happy to enlist them. 

I would add a cautionary note, Senator, that we have been down 

this road before and our experience is that the proposals that industry comes up with and submits to the Congress tend to be the 

high-water mark from our point of view. The criticism and the attacks come always from only one side, from the people that want 

to have more controls, and the amendments in Congress come only 

from one side, from the people who want to have more controls, 

and the business community generally starts with high hopes and 

ends up being disappointed with the process. The result has been 

that there is, frankly, in the business community, some cynicism 

about going down this road again because they have been disappointed in the past. 

Senator VOINOVICH. Well, I don’t think there is any other option. 

Mr. REINSCH. Well, that said, I think we are happy to undertake 

it, but I just want to—— 

Senator VOINOVICH. I just think that we are vulnerable right 

now and I think that we need to get on it. 

It is the management here. In so many areas, it is archaic, an 

anachronism, you name it. And if we don’t get it right one of these 

days, we are in really deep trouble because other people have these 

technologies. I think what you were saying is if I am a business 

person today and I have to come up with technology and I know 

it is not going to have to abide by certain restrictions, then I am 

going to go with the more relaxed level of regulation rather than 

get involved with regulations that could be very important to our 

national security, but are less convenient for my business. So I will 

say, well, here is where I am putting my money and I will go that 

direction. So, in effect, what I think you are saying is that stymies 

people from going forward because they figure, I have to make 

some money and if I am going to go over here, I may not ever be 

able to get it off the ground. 

Mr. RICE. Senator, you identified the critical element for moving 

forward, and that is leadership by the White House, usually a new 

White House. When President Bush came into office, he was seized 

with this issue and spent a lot of time on it in the first 8 months 

31 

of 2001 and a great deal of progress was made. But then, of course, 

September 11, 2001, and the efforts were eclipsed. But they said 

to me at the time that it can be done. 

Senator VOINOVICH. And you need somebody at the State Department that pays attention to management and transformation. 

Mr. RICE. That is right. 

Mr. REINSCH. And in that regard, Senator, they are a lot better 

than they used to be. To give the State Department credit, I think 

the current management is a significant improvement over previous management in both this administration and the previous 

one. 

Senator VOINOVICH. Well, I have to say that I was impressed 

with the first 4 years and what Armitage did, and Condoleezza 

Rice is a very fine woman, but I think that there wasn’t anybody 

over there that was paying enough attention to management and 

getting up early in the morning and moving the system along. I 

think we fell down. Thank you. 

Senator AKAKA. Well, thank you, Senator Voinovich. 

Mr. Poneman, you recommended the creation of an export controls career path. Could you please elaborate on this? You mentioned some things, but can you elaborate on this, describing what 

it would look like? 

Mr. PONEMAN. It is a concept, Mr. Chairman, that is rooted, 

again, in the changing world that we live in, and my own personal 

experience is that the private sector, by definition, pays some significant premium over salaries that are paid in the government 

and you end up with technologies, sir, that are being analyzed by 

people who might have had their training many years ago and they 

are trying to, frankly, keep up with the private sector, and it is 

hard to do. 

I was not speaking specifically about the Commerce Department. 

I would say probably the Commerce Department is the one place 

where that is more of a defined career path in export controls, but 

there are other parts of the interagency where you need to do the 

analytical work that says, this technology, that is too dangerous. 

This one, no, that is really available in six other countries and so 

on. That is the kind of agency that requires a career path that 

says, if you get into this, there are promotion opportunities and 

they could be SES slots or whatever is done inside the Federal 

Government to ensure that you get the best and the brightest and 

that they are invested with a mission that they believe in. 

I don’t have a detailed proposal, sir, but I think something that 

would enable the Federal Government to have at its disposal firstline, first-rate technologists to be good enough to analyze the technologies that may or may not be dangerous going out the door because if you don’t have people who are good enough to do that kind 

of analysis, then the whole system starts to break down. 

Senator AKAKA. Mr. Poneman, isn’t there an export controls or 

licensing officer career path now, and if not, why not? 

Mr. PONEMAN. Well, first of all, I have been out of government 

for a number of years. As I said, my impression is that in the Commerce Department, there is. But I think that in some parts of the 

extended complex, in different agencies to which these licenses are 

referred within the first 9 days, the license is, I think, understandVerDate Nov 24 2008 11:52 Jun 08, 2009 Jkt 042751 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 P:\DOCS\42751.TXT SAFFAIRS PsN: PAT
32 

ably referred to people who have technological expertise wherever 

they may be found. They may be found in parts of agencies that 

aren’t committed to export control itself but may be, if you will, the 

U.S. custodian of those kinds of technologies, and it is in those 

kinds of circumstances that I think there just need to be ways to 

compensate and advance those people to show that they are valued 

in the U.S. Government system and so that they are attracted to 

serve. 

Mr. REINSCH. May I comment on that, Mr. Chairman? 

Senator AKAKA. Yes, Mr. Reinsch. 

Mr. REINSCH. I think you have hit on something important, but 

I would frame it a little bit differently. At the Department of Commerce, within that Bureau, the only mission is export controls and 

the people there are, therefore, committed to it and they are 

trained to do that. At the Department of Defense and Department 

of State, this is a minor matter compared to the many other missions that they have. 

One of the problems I have always observed at the Defense Department, for example, is at the political management level, everybody is too busy to spend much time on this. I mean, functionally, 

despite lines of authority, functionally, there really isn’t anybody 

between Ms. McCormick, who is a Director, and the Deputy Secretary who focus on this with any large percentage of their time. 

In the State Department, this is not a path to career success, 

being in DDTC. It is something that you do if you don’t want to 

travel and you are not a Foreign Service officer. 

How you upgrade, if you will, these units and make the function 

more important within their Department, it seems to me, is what 

it would be useful to focus on, and that in part relates to something 

that Senator Voinovich said, which is how do you get senior management in these Departments to prioritize this problem, take it on 

board and invest their own time and energy into managing it and 

making clear to their people that it is a valued part of the mission 

and the people there have a career path upwards beyond it. 

Senator AKAKA. Mr. Reinsch, in your written testimony, you described two different unitary systems, approaches to reform the export control system. In one case, an independent agency would administer both the dual-use and arms export control systems. If 

such an independent agency was created, who do you think would 

or should administer it? 

Mr. REINSCH. Well, that is why it probably won’t be created because we won’t be able to reach agreement on that question. The 

original idea, which was proposed by Senator Garn and Senator 

Heinz, for whom I worked, and Senator D’Amato in the 1980s was 

to create an independent agency by basically ripping this function 

out of the existing agencies, simply abolishing BIS, abolishing 

DTSA, abolishing DDTC, and creating an independent agency over 

here that reported to the NSC and the President, thus eliminating 

the interagency squabbles by eliminating the interagency involvement. 

I explained in my statement why I think that won’t work, but 

simply put, what will happen, if you embark down that road, is at 

a key point in the process, the Secretary of State, Secretary of 

Commerce, Secretary of Defense will all come in, not to you but to 

33 

their authorizing committees and say, well, this has promise, but 

there is this small universe of licenses that we simply have to have 

a veto over. They are just too important for us not to have oversight. And their authorizing committees will agree with that and 

exceptions will be built into this new office. In 5 years, the bureaucracy will be back to normal and those small little exceptions 

will have grown into offices that are about the size of the current 

bureaus. 

That is why I ended up suggesting that a better approach is not 

to try to cut the agencies out of the process. They all have equities. 

They all should be at the table. I think the system works well— 

works best when they all are at the table and playing the roles 

they are assigned. The salient thing is if you abolish the difference 

between dual-use and weapons and put everybody into the same 

system, then you eliminate half the squabbles. You don’t get these 

long arguments, well, is it a weapon or is it a dual-use item? It is 

what it is and subject to the same process. 

You use the process that Mr. Poneman described in order to default to decision and use a series of deadlines and invest in responsibility in agencies and accountability in agencies to get to where 

you want to be at the end. That way, you don’t stick it to any agency, frankly. You leave them as part of the process, but you do it 

in a framework where they argue about what is important, which 

is should this item be controlled or not to this end user, and not 

what is increasingly irrelevant, is it a weapon or is it a dual-use 

item. That doesn’t matter anymore. In fact, most of the things they 

argue about are both. Why waste time on it? 

Senator AKAKA. Mr. Reinsch, the first panel did respond to the 

question of your recommendations. 

Mr. REINSCH. They were unusually polite. [Laughter.] 

Senator AKAKA. I just wanted to ask you whether you had any 

comment on the first panel’s response to your recommendation. 

Mr. REINSCH. They were more polite than I thought they would 

be. I thought Ms. McCormick had it right when she explained how 

her unit is organized. They focus on technologies, which is what 

they should do. To the extent they have different people on State 

and Commerce Department’s licenses, it is because they have a 

system that forces them to report in different directions and to deal 

with different processes. If they had only one process and one reporting structure, they could dispense with that and focus on what 

is more important, the technologies. 

That is the main comment I have. I don’t know what they would 

say if you got them in the back room and asked them off the 

record. It might be an interesting exercise. Mr. Kessler can do that 

sometime and see what they say. 

Senator AKAKA. Mr. Rice, National Security Presidential Directive 56 put a 60-day ceiling, with some exceptions, on DDTC’s license processing time. According to Ambassador Mull’s written testimony, DDTC has already lowered average processing time for 

each license from 36 to 18 days. What, if any, potential risk does 

this stated 60-day licensing processing requirement pose to our economic interests? 

Mr. RICE. Well, Mr. Chairman, the 60-day target, and it is a target in the NSPD, is subject to exceptions where there is a need for 

34 

more information, interagency disputes, etc. So it is really not a 

hard deadline and I don’t think it should be because as your question infers, there are going to be instances when difficult issues 

come up about end uses, end users, the reliability of information, 

and more time needs to be taken, and so some of those cases inevitably will take longer. 

As Bill Reinsch just indicated, though, having some discipline in 

the system that is imposed externally on these agencies is a good 

thing because it keeps them focused on the job at hand and ultimately under this new system will require them to show cause as 

to why, if there is a pattern of delays, why those are occurring, and 

I think that is a good thing. 

But your question goes to the heart of the need to take an adequate time to make the right decision and that is the most important thing, not a specific time frame. 

Senator AKAKA. Yes. Mr. Rice, you recommended that we approve a project or program license for munitions transfers to a defense project with an ally, but you also testified that we do not 

have a common agreement with our allies on dual-use exports and 

a common set of policies on munitions sales to third parties. Why 

not make one conditional on the other? That is, why not grant a 

program license only with States with whom we have worked out 

a common policy on dual-use and munitions sales? 

Mr. RICE. I certainly agree with that because again, as your 

question infers, if the United States were to simply enter into these 

projects willy-nilly with unreliable partners, then it would increase 

the proliferation threat, and I think that is what the United States 

is doing with these intergovernmental projects. 

The problem that I was trying to elucidate, which I believe Mr. 

Reinsch also mentioned in his testimony, is that under the current 

licensing system, if the United States enters into one of these 

projects, for example, with the United Kingdom or with Australia, 

to take two examples of close allies, there is still a requirement in 

some instances for thousands of individual licenses then to be processed for transfers of individual items or technologies pursuant to 

a project that the U.S. Government has already entered into with 

these other governments. 

That is one of the major problems in this explosion of licensing, 

which this fiscal year, left untreated, is going to reach 85,000 or 

90,000, and it is one of the reasons why the heads of state in both 

the United Kingdom and Australia, went to President Bush at various times last year and complained about the munitions licensing 

system here as interfering with existing defense cooperation 

projects. 

My point is that if the defense establishment here has decided 

and it has been approved to have such cooperation, then the licensing system should not be an obstacle to completing that, and some 

of the companies that are trying to carry out responsibilities for the 

United States under contract under these cooperative agreements 

have found a significant barrier just as then-President Howard and 

Prime Minister Blair found in reviewing this with their own governments. 

So to me, the decision of going to a project or program license is 

really going to be a key test of whether these reforms that were 

35 

testified to earlier are going to have any real relevance to fixing the 

problems. Time tables on license processing are one thing. Resources are another. But one of the central elements of real reform, 

and I think one of the criteria that some committee ought to use 

in judging progress on this, is whether this area is fixed. And since 

the NSPDs are classified, as you well know, we haven’t been able 

to see the black and white, so we don’t know. We are hopeful that 

when they are finally unveiled that this will be included. 

Senator AKAKA. Thank you all for your responses. I have one 

final question to all of you. You have all recommended ways to reform the export control system, so my question to you is please 

identify your top three recommendations. Mr. Reinsch. 

Mr. REINSCH. Well, for my part, eliminating the commodity jurisdiction problem, the distinction between weapons and dual-use, 

list—reviewing and reducing the number of items on the list, I 

think those two are overwhelmingly the more important. Probably 

the third one would be putting in streamlining devices like the 

project license that Mr. Rice talked about and the use of a trusted 

end user or validated end user approach where the credentials or 

bona fides of end users could be established, and once established, 

there could be a stream of technology flow to that person, that entity, without separate licensing because they have been vetted. I 

think those would be my three. 

Senator AKAKA. Mr. Poneman. 

Mr. PONEMAN. Since I had 2 minutes to think about it, I am 

grateful for Mr. Reinsch. I would say my first recommendation is, 

and this really falls into the category of what we really just ought 

to do to clean this up, we should have a law. We should have an 

Export Administration Act under which we can go around and tell 

people, this is how a law ought to be defined, and that law, I think, 

should not merely tinker at the edges of the old system. Your able 

staff should start with a blank sheet of paper and talk to all their 

relevant colleagues and committees. And to my way of thinking, 

the division should be unilateral versus multilateral controls because I think that is where so many of these pivotal decisions get 

made. 

Second, I would strongly urge that the same procedural disciplines that were codified by Executive Order 12981 be made generally applicable across the systems, commodity jurisdictions, licensing, munitions. They are good disciplines. I think they should 

apply. 

And third, I think we should, again, in terms of reconceptualizing, think more in terms of a common law approach. I think, to 

be honest, it is chasing a will-o’-the-wisp to say, the regulations 

just have to be clearer. Just write it clearer. Just get that last nth detail, and it is 0.0001 centimeters, not 0.01 centimeters. This 

approach would be disaster. What we need to do is to get transparency among the agencies. If everybody is not included but rather we try to get the real experts to say, ‘‘this one is dangerous, this 

one is not,’’ because of an overly prescriptive, if you will, have a 

civil code of approach to this thing, I think it is going to produce 

mountains of paper and mountains of conflict without a benefit to 

our national security. 

Senator AKAKA. Mr. Rice. 

36 

Mr. RICE. Mr. Chairman, I will identify two. One is to reestablish 

a high-level policy management of both the dual-use and munitions 

systems at the policy level within the White House. That is far and 

away, I think, the most important thing. 

The second is to give much greater attention to our diplomacy 

with our allies on trying to harmonize, to the extent possible, export control policies between the United States and other countries 

because as we move increasingly toward unilateral controls, which 

we are doing, we are destined to have even greater problems with 

these systems. 

Senator AKAKA. Well, I want to thank all of you and all of our 

witnesses today. It is my hope that the work each of your organizations is doing will help U.S. export controls systems become more 

efficient and effective at balancing national security, foreign policy, 

and economic interests. 

As with all complex systems, there is always room for improvement. I believe that our discussion today highlighted many of the 

fundamental improvements that can be implemented now and also 

when the next Administration takes office early next year. I intend 

to follow up with some of the suggestions you have already made. 

This Subcommittee will continue to focus on reforms to critical 

aspects of our national security. Over the next few months, we will 

examine and seek recommendations for improvements to our arms 

control and nonproliferation, foreign assistance, and public diplomacy bureaucracies and processes. 

The hearing record will be open for 1 week for additional statements or questions other members may have, and again, I thank 

you for your valuable contribution. We will continue to work together on this. 

This hearing is adjourned. 

[Whereupon, at 4:37 p.m., the Subcommittee was adjourned.] 

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