Defense Trade: State Department Needs to Conduct Assessments to Identify and Address Inefficiencies and Challenges in the Arms Export Process
Released: 2008-01-03T00:00:00

Letter

Background

Under the authority of the Arms Export Control Act, State regulates and controls arms exports by U.S. companies to help ensure that those exports are consistent with national security and foreign policy interests. This function has been delegated to DDTC within the Bureau of Political- Military Affairs. DDTC’s staffing levels are allocated and funded by State. Funding for other DDTC activities and operations comes from two main sources: (1) appropriated funds that State then allocates to DDTC through the Bureau of Political-Military Affairs, and (2) registration fees, which DDTC is authorized to retain to help fund certain activities related to licensing, enforcement, and compliance.

Exporters submit arms export cases via paper or electronically through D- Trade, DDTC’s Web-based electronic processing system. Cases include permanent arms export licenses, temporary arms exports or imports, agreements between U.S. industry and foreign entities to provide technical assistance or manufacturing capability, requests for amendments to existing licenses or agreements, and requests to determine commodity jurisdiction. Cases vary in terms of complexity and time to process. For example, agreements generally take longer than other cases because they are complex, require substantial work by licensing officers, and often require interagency review.

Once cases are received, DDTC assigns them to one of five teams, based on commodity categories: firearms, aircraft, missile and spacecraft, military electronics, and military vehicles and naval vessels. Team leaders, in turn, assign cases to a licensing officer, who conducts an initial review to determine whether the case needs a referral to an agency, such as DOD’s DTSA, and/or another State bureau for additional review—or whether the case can be reviewed and analyzed internally. Either way, the licensing officer conducts the final review and determines the final action. Final action on cases can only be taken by licensing officers with designated signature authority, which DDTC officials stated takes an average of 18 months of training and experience to obtain. Prior to approving cases that involve exports meeting statutory dollar thresholds and involving selected countries, State must notify Congress. Figure 1 depicts DDTC’s licensing review process.

In addition to reviewing arms export cases, DDTC conducts outreach to educate industry about export controls and promote compliance with laws and regulations.

Trends Indicate DDTC’s Licensing Process Is Under Stress

Our analysis shows several trends have emerged in the processing of arms export cases, which indicate the system is under stress. First, the number of arms export cases processed by DDTC has increased since fiscal year 2003. Most of the increase was for licenses for permanent export. Second, processing times almost doubled from fiscal year 2003 to 2006. Third, the number of open arms cases has increased since fiscal year 2003. While extraordinary actions taken by DDTC to address the mounting number of open cases achieved short-term gains, these actions are not sustainable because they strained personnel and involved deferring other mission- related activities.

Arms Export Caseload, Processing Times, and Open Cases Have Significantly Increased

Between fiscal years 2003 and 2006, the arms export caseload processed by DDTC has increased 20 percent, from about 55,000 to 65,000. DDTC officials attributed this growth to several possible factors, including increased globalization of the defense industry and an overall increase in arms exports. In addition, our analysis of the cases processed by DDTC shows that permanent export licenses constituted about two-thirds of all cases, thereby accounting for the major part of DDTC’s caseload activity. For these cases, the greatest increase occurred in aircraft and related components among the various types of controlled commodities. Our analysis also showed a high concentration of cases by country of destination—almost half consisted of seven countries, with 25 percent involving Japan and the United Kingdom. In contrast, we found cases are not concentrated by major defense arms exporting companies. In fiscal year 2006, only 21 percent of cases processed involved the top 10 arms exporting firms. (For additional analyses of cases, including type of case, commodities, countries, and expedited cases, see app. II.)

Overall, processing times for all types of cases have increased. Between fiscal years 2003 and 2006, median processing times nearly doubled, from 14 days to 26 days. Some types of cases take longer to process than others, in part because of their complexity. For example, in fiscal year 2006, technical assistance agreements took a median of 94 days to process. However, these agreements made up less than 9 percent of the cases processed for that year, and therefore may not be a significant driver of overall increased processing times. Permanent exports, which constituted the majority of cases, took a median of 25 days to process in fiscal year 2006.

For nonreferred cases, which made up about two-thirds of all cases, DDTC’s in-house processing times increased significantly. For example, between fiscal years 2003 and 2006, median processing times for nonreferred cases increased from 8 to 19 days. For the first 7 months of fiscal year 2007, the median processing time was 17 days. Moreover, the number of nonreferred permanent export license cases taking longer than 2 weeks to process increased from 26 percent in fiscal year 2003 to 72 percent in fiscal year 2006. The increase in the percentage of nonreferred agreements taking longer than 2 weeks was even more dramatic—increasing from about 13 percent to 87 percent (see fig. 2).

Processing times for cases referred outside of DDTC for review, which made up about one-third of all cases, have also increased. For example, between fiscal years 2003 and 2006, median processing times increased from 49 to 61 days. For the first 7 months of fiscal year 2007, the median processing time was 50 days. Moreover, in fiscal year 2006, 70 percent of referred agreement cases, which tend to take longer to process than other cases, took longer than 12 weeks to process, compared to 11 percent in fiscal year 2003. In contrast, processing times for permanent export license cases referred outside of DDTC have held relatively steady for the past several years (see fig. 3).

The number of open arms export cases has also increased because DDTC has received cases at a higher rate than it processed them. Open cases increased from about 5,000 in October 2002 to about 7,500 in April 2007, reaching a high of more than 10,000 open cases in September 2006 (see fig. 4).

Actions Taken by DDTC to Achieve Short-Term Gains Are Unsustainable

At the beginning of fiscal year 2007, DDTC launched its “winter offensive,” a campaign to reduce the growing number of open cases. Through extraordinary measures—such as extending work hours; canceling staff training, meetings, and industry outreach; and pulling available staff from other duties to process cases—DDTC was able to reduce the number of open cases by 40 percent in 3 months. However, DDTC officials told us that these measures were not sustainable for the long term because they put a strain on personnel and deferred mission-related activities.

Not only are these short-term measures unsustainable, they may have unintended adverse consequences. A DDTC official stated the short-term emphasis during the winter offensive was necessary to reduce the number of open cases but may have the unanticipated effect of shifting the focus from the mission of protecting U.S. national security and promoting foreign policy interests to simply closing cases to reduce the queue of open cases.

Systemic Inefficiencies Underlie Overall Trends in the Licensing Process

While some blips in the trends can be attributed to onetime events or efforts, such as the winter offensive, the overall trends of increased processing times and open cases are affected by several factors, including procedural inefficiencies, electronic processing system shortcomings, and human capital challenges. DDTC does not perform systematic assessments to identify overall trends and root causes, which could lead to sustainable solutions.

Case Processing Encumbered by DDTC Procedural Inefficiencies

While DDTC has established a time frame goal in its guidelines for referring cases outside of DDTC, it has not met this goal. Specifically, the guidelines indicate that DDTC licensing officers should refer cases to other agencies or State bureaus within 10 days of receipt by the licensing officer. Our analysis shows that DDTC has taken increasingly longer to refer cases. As shown in table 1, the median days from when the case was received to outside referral increased from 7 days in fiscal year 2003 to 20 days during the first 7 months of fiscal year 2007. In contrast, the median number of days cases spent outside of DDTC for referral has decreased over the same period from 31 to 18 days.

DDTC has not established procedures to promptly screen most cases to identify those that need outside referral. As a result, cases often languish in a team leader’s or licensing officer’s queue awaiting assignment or initial review. In contrast, DOD’s DTSA—which receives the majority of cases referred by DDTC—uses a team to screen cases daily to determine if cases should be reviewed solely at DTSA or whether they should be referred to military services or other DOD components for further review. In making the decision to refer cases, the team considers such factors as the existence of precedent cases, the level of technology, and the circumstances of the transaction. According to DTSA officials, this process allows them to expedite certain cases and to focus efforts on more complicated cases involving commodities or capabilities not previously exported or presenting special concerns. For referred cases, DTSA officials told us the daily screening process allows them to make the referral in less than 2 days on average. According to DDTC officials, they have recently established a process for promptly referring technical assistance agreements outside DDTC but have not done so for other types of cases.

Until recently, DDTC lacked procedures for expediting certain cases. Specifically, the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, enacted in 2004, requires the expeditious processing of arms export cases for the United Kingdom and Australia by State, in consultation with DOD. Although the legislation does not specify a processing time frame goal, in fiscal year 2006, the processing times for United Kingdom and Australia cases was 21 days, which did not differ significantly from the processing times for other allied countries. (For additional analysis of processing times by country, see app. II.) DDTC officials told us they have been working with DOD on developing procedures to expedite processing for United Kingdom and Australia cases, and recently established a process for doing so.

D-Trade Has Yet to Achieve Case Processing Efficiencies

The establishment of a new automated system for processing cases had been cited by State officials as its most significant effort to improve efficiency. However, the anticipated efficiencies have not been realized. Our analysis of processing times shows no significant difference between like types of cases submitted electronically versus paper submissions. For example, in fiscal year 2006, median processing time for permanent export cases submitted through D-Trade was 23 days versus 25 for paper submissions. Although 77 percent of cases are now received electronically through D-Trade, its implementation has been problematic and electronic processing has not been the promised panacea for improving processing times.

According to DDTC officials, poorly defined system requirements and a rush to production led to technical glitches and performance problems. For example, in January 2007, DDTC released a new version of D-Trade, but because of software problems, cases received could not be processed. As a result, the new version was shut down after 3 days, requiring DDTC to revert to the previous version. The 1,300 cases received during the 3-day period had to be resubmitted by exporters, resulting in some rework and an increase in the number of open cases.

DDTC has relied on an information technology solution without reengineering the underlying processes or without developing tools to facilitate the licensing officer’s job. In 2001, we reported information systems that simply use technology to do the same work, the same way, but only faster typically fail or reach only a fraction of their potential. While defense industry officials told us that D-Trade simplifies the process for submitting cases and receiving final authorizations, the system lacks tools to aid licensing officers to process cases more efficiently. For example, the system has limited capabilities to reference precedent cases that would allow licensing officers to leverage work previously done on similar cases. The system also lacks other tools, such as automated access to regulations, guidance, or other information that may facilitate processing. DDTC officials said they expect future versions of D-Trade will incorporate tools to help licensing officers process cases more efficiently.

DDTC Faces Staffing Instabilities

The fundamental work of reviewing and analyzing arms export cases requires an adequate number of personnel with the right skills and knowledge—especially given the continued rise in caseload. However, ensuring a sufficient workforce with the needed skills and knowledge has been a challenge for DDTC because of staffing instabilities. For example, the number of licensing officers on board has fluctuated over recent years and was at the same level in fiscal years 2003 and 2006, yet the number of cases processed increased about 20 percent during the same period (see table 2).

DDTC officials have acknowledged that more work is falling on fewer experienced staff. According to these officials, in the summer of 2006, about one-half of licensing officers had less than 1 year of experience, and many did not have the signature authority needed to take final action on cases. For example, early in 2007, one team had three licensing officers but only the team leader had the authority to approve or deny cases. Although the staff could perform research, the team leader had to review all cases before final action could be taken.

Staffing instabilities have also been affected by fluctuating levels of military officers detailed to DDTC from DOD, who are generally assigned to review agreements. The Foreign Relations Authorization Act for Fiscal Year 2003 states the Secretary of Defense should ensure that 10 military officers are continuously detailed to DDTC. However, the number of officers DOD detailed to DDTC has fluctuated over recent years. In fiscal year 2006, the number of military officers detailed to DDTC ranged from 3 to 7. From fiscal year 2005 to 2006, processing times for agreements nearly doubled from 48 days to 94 days. In fiscal year 2007, the number of military officers increased to 8, and by April 2007, processing times for agreements was 72 days. To help address the potential adverse effect of insufficient numbers of military officers, DDTC began assigning additional civilian licensing officers to process agreements in 2006.

DDTC Does Not Conduct Systematic Assessments to Identify Root Causes of Problems and to Develop Sustainable Solutions

DDTC management does not systematically assess licensing data to identify inefficiencies. Analysis of these data could allow DDTC to more effectively structure its workforce and manage workload. Instead, DDTC management reviews reports consisting of aggregate information on received, processed, and open cases to determine the status of cases and licensing officer productivity. However, DDTC cannot identify the drivers of the workload or bottlenecks in the process from these status reports. Using DDTC’s data, we conducted analyses of factors that can drive workload, such as type of cases, commodities, countries, and profiles of the exporter base (see app. II). Such analyses could provide insights to managers on ways to reduce workload, structure the workforce, target outreach with industry, and reengineer processes. For example: By examining caseload by type of commodity, DDTC could assess the impact on workload of potential changes to licensing requirements such as application of or modification to exemptions—if such changes are warranted given the national security risk and foreign policy interests.

Given DDTC’s current organizational structure of teams associated with particular commodities, DDTC could examine its licensing data to determine if there is a concentration of cases by factors other than commodity, such as country. Such analyses could permit DDTC to consider possible efficiencies related to aligning its workforce to where its workload is concentrated. Also, by monitoring processing times for factors driving the workload, DDTC could take corrective actions and reallocate resources before processing times for some types of cases become a problem.

By assessing the volume and type of case submissions by exporters, DDTC could better target its industry education and outreach activities to help ensure the quality of submissions and compliance with export control law and regulations.

DDTC could analyze the processing times associated with steps in the licensing process—such as time it takes to refer cases—to assess the flow of cases through the review process and identify possible bottlenecks or inefficiencies in the process.

While DDTC has taken actions to achieve some short-term gains to growing problems in its processing of cases, DDTC managers lack systematic analyses to identify root causes and develop sustainable solutions. Federal managers, including those at DDTC, need to monitor and assess their systems to ensure that they are well designed and efficiently operated, are appropriately updated to meet changing conditions, and provide reasonable assurance that the objectives of the agency are being achieved.

Conclusions

The licensing of arms exports is a key component of the U.S. export control system to help ensure arms do not fall into the wrong hands. Licensing officers are challenged to weigh national security and foreign policy interests on thousands of cases a year while allowing legitimate defense trade to occur in an efficient manner. However, systemic inefficiencies in arms export licensing are straining the system and may be diminishing licensing officers’ capacity to process cases efficiently and effectively. To date, DDTC has not comprehensively analyzed its export processing system to identify causes of inefficiencies and needed actions to address them. Unless DDTC systematically analyzes its licensing data in terms of drivers of workload and steps in the process, it will continue to ineffectively and inefficiently manage its processes, workload, and resources.

Recommendation for Executive Action

To improve the efficiency of processing arms export cases, we recommend that the Secretary of State direct the Deputy Assistant Secretary of the Directorate of Defense Trade Controls to conduct systematic analyses of licensing data to assess root causes of inefficiencies and to identify and implement actions to better manage workload, reexamine its processes, determine the most effective workforce structure, and target industry outreach.

Agency Comments

We provided a draft of this report to the Departments of State and Defense and for their review and comment. DOD did not comment on our draft. State provided written comments that are reprinted in appendix III. In commenting on the draft, State concurred with our recommendation and recognized the need for additional systematic analyses of data to achieve greater efficiencies. State noted that the report does not reflect the impact of three recent initiatives, which according to State resulted in a 30 percent reduction of open cases from April to October 2007. Because our analysis was through April 2007, we are not able to verify what effects—both short- and long-term—the initiatives have had on the number of open cases. Until State engages in a continual process of systematically analyzing its licensing data, it will have no assurance that current or future initiatives will address the underlying causes and achieve sustainable improvements to the processing of arms export cases.

As agreed with your office, unless you publicly release its contents earlier, we plan no further distribution of this report until 30 days from the date of this letter. At that time, we will send copies of this report to interested congressional committees, as well as the Secretaries of State and Defense; the Director, Office of Management and Budget; and the Assistant to the President for National Security Affairs. In addition, this report will be made available at no charge on the GAO Web site at http://www.gao.gov.

Please contact me at (202) 512-4841 or calvaresibarra@gao.gov if you or your staff have any questions concerning this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Others making key contributions to this report are listed in appendix IV.

Appendix I: Scope and Methodology

To determine trends in arms export case processing by State’s Directorate of Defense Trade Controls (DDTC), we obtained State’s arms export case data for fiscal year 2003 through April 30, 2007. We obtained data from State’s paper-based “legacy” system and its D-Trade system—a Web-based electronic processing system. We merged the data from these two systems and created a single Microsoft Access database to determine trends in caseload, cases processed, open cases, and processing times. Our analysis did not include cases that were approved and then subsequently suspended or revoked because this action takes place after the original cases were closed, and including these cases would thus skew the results. Processing time represents the median number of calendar days between receipt of a case and the final action. Open cases are those cases that were received by DDTC but on which no final action has been taken. To obtain an overview of the data systems used to accept and process license cases at DDTC, we interviewed State officials responsible for information technology management. We assessed data reliability by obtaining and reviewing system documentation and performing electronic testing of data, and determined the data to be sufficiently reliable for our intended purposes. We also analyzed the data by type of license, commodities, countries, cases referred, cases in support of ongoing war efforts, exporters, and case final actions.

To identify factors contributing to trends in processing times and open cases, we interviewed officials from DDTC, State bureaus to which cases are most frequently referred, the Department of Defense’s (DOD) Defense Technology Security Administration (DTSA), and selected arms exporters. To understand the process of reviewing arms export cases referred from DDTC, we obtained and reviewed DDTC case review guidelines, applicable regulations, and laws. We compared DDTC procedures with DTSA case processing procedures. To determine the status of D-Trade, we obtained briefings and systems documentation and discussed problems with implementing the electronic processing system and future development plans with cognizant officials. We also compared processing times for D-Trade and paper processing by calculating processing times for permanent exports, which are processed through both systems. We obtained and analyzed data on DDTC funding and staffing levels. We also obtained and reviewed DDTC status reports used to monitor workload, processing times, and open cases.

Appendix II: Additional Analyses Related to Arms Export Case Processing

This appendix provides additional analyses of licensing data related to the composition of cases closed and case outcomes. Specifically, we analyzed the data in terms of types of cases, commodities, countries of destination, cases in support of ongoing war efforts, exporters, and case final actions.

Of the 14 case types processed by DDTC, licenses for permanent exports made up the majority of cases. From fiscal year 2003 to 2006, the percentage of licenses for permanent exports increased from about 62 percent to over 66 percent of all cases, as shown in table 3.

Processing times varied by type of case, as shown in table 4. For example, in fiscal year 2006, technical assistance agreements took a median of 94 days to process, while licenses for permanent exports, the most common case type, took 25 days, and amendments to existing licenses took 13 days to process.

For cases involving permanent export licenses, aircraft and related components were the primary driver of increased cases, increasing about 44 percent, from about 9,800 in fiscal year 2003 to over 14,000 in fiscal year 2006, as shown in table 5. Processing times for permanent export licenses also varied by type of commodity group and were increasing for most commodities from fiscal years 2003 through 2006, with missile and spacecraft taking the longest to process. Several commodity groups saw reductions in processing times during the first 7 months of fiscal year 2007, including a significant reduction in missile and spacecraft. Processing times for aircraft increased during each period.

Arms export cases are relatively concentrated by country of destination. As shown in table 6, in fiscal year 2006, cases identifying Japan and the United Kingdom as destination countries represented about 25 percent of all cases. Processing times, with the exception of those for Israel, are similar for the top countries of destination.

DDTC has procedures to expedite cases submitted in support of ongoing war efforts including Operation Enduring Freedom (OEF) or Operation Iraqi Freedom (OIF). These cases did not represent a significant caseload—-ranging from 0.8 percent to 1.5 percent from fiscal year 2003 through 2006. Median processing times for these cases ranged from 8 to 11 days, as shown in table 7.

The number of exporters registered with DDTC that submitted cases increased about 13 percent, from almost 2,500 in fiscal year 2003 to almost 2,800 in fiscal year 2006. However, most exporters submitted relatively few applications, as shown in table 8.

In contrast, some exporters submit thousands of applications in a given year. In terms of all cases received, the percentage of cases received from the top 10 exporters in terms of cases submitted ranged from about 19 to 26 percent, as shown in table 9.

As shown in table 10, most cases processed by DDTC are approved or approved with condition, known as a proviso. Very few cases are denied. The number of cases returned without action increased from about 13 percent in fiscal year 2003 to over 17 percent in the first 7 months of fiscal year 2007.

Appendix III: Comments from the Department of State

Appendix IV: GAO Contact and Staff Acknowledgments

Acknowledgments

In addition to the contact named above, Anne-Marie Lasowski, Assistant Director; Bradley Terry; Peter Zwanzig; Jacqueline Wade; Arthur James, Jr.; Julia Kennon; Karen Sloan; and Alyssa Weir made key contributions to this report.

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High Risk Series: An Update. GAO-07-310. Washington, D.C.: January, 2007.

Export Controls: Challenges Exist in Enforcement of an Inherently Complex System. GAO-07-265. Washington, D.C.: December 20, 2006.

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Export Controls: Improvements to Commerce’s Dual-Use System Needed to Ensure Protection of U.S. Interests in the Post-9/11 Environment. GAO-06-638. Washington, D.C.: June 26, 2006.

Defense Trade: Arms Export Control Vulnerabilities and Inefficiencies in the Post-9/11 Security Environment. GAO-05-468R. Washington, D.C.: April 7, 2005.

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Defense Trade: Analysis of Support for Recent Initiatives. GAO/NSIAD-00-191. Washington, D.C.: August 31, 2000.

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