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U.S. Department of Defense

April 20, 2010

Remarks by Secretary Gates to the Business Executives for National Security on the U.S. Export Control System

GEN. MONTGOMERY C. MEIGS (U.S. Army, Ret.; president and CEO, Business Executives for National Security): We're honored this afternoon to welcome Secretary of Defense Robert Gates to speak on a topic that we in BENS, as well as he, have supported as far back as the early '90s: updating and reforming the United States export control system.

Last August, President Obama announced his intention to pursue an export control reform initiative. Because over the last few decades many businesses have struggled with the complexities of the current system, many in the industry welcomed this announcement. While some of us recall failed attempts to reform the export-control process, one important factor is different this time. The secretary himself has emerged as one of the most enthusiastic voices calling for fundamental reform of this important system.

Some of you will be pleased to learn that Secretary Gates' vision includes a common-sense approach that proposes a new, transparent and predictable export-control system, one finally focused on controlling those few critical items and technologies that fundamentally ensure that our forces continue to maintain their technological edge over any likely adversary.

Secretary Gates is keenly aware of the importance of export control to national security as well as, first, how the U.S. might not be controlling the most critical technologies or, conversely, that we may be controlling too much; second, how current controls make cooperation with partners and allies more difficult; and last, how the system may not be supporting our defense industry, an asset upon which national security fundamentally depends.

With that, please let me welcome Secretary Gates to discuss the Administration's plan for reforming our export control system.


SEC. GATES: Thank you, General Meigs, for that kind introduction. Also would like to thank my colleague the Undersecretary of State, Ellen Tauscher, for being here for moral support.

And Monty, thank you for your long service to our country, most recently leading the Defense Department's efforts to combat improvised explosive devices. Your efforts over the last few years have saved the lives and limbs of countless men and women in uniform.

My thanks as well to the Business Executives for National Security for hosting this event. In areas like accounting, procurement, privatization, excess base structure, BENS has identified problems and proposed solutions that have saved the taxpayers billions of dollars and made our military a more effective fighting force.

As many of you know, for the better part of three years now I've spoken out at various times about the need to adapt and reform America's national security apparatus better to deal with the realities of the post-Cold War world. Some of those necessary shifts include enhancing America's civilian instruments of national power -- above all, diplomacy and development -- and better integrating them with our military; rebalancing the defense establishment to reflect the lessons learned and capabilities gained from recent conflicts, especially counterinsurgency, stability and reconstruction operations; and most recently, reforming the way we build the capacity of allies and partners to better fight alongside us and secure their own territory.

All of these institutional shifts are to one degree or another aimed at improving the way the United States works with and through other countries to confront shared security challenges. So is the matter I want to discuss today, the need to reform the U.S. government's regulations and procedures for exporting weapons and so-called dual-use equipment and technology.

Earlier this year, the president announced that he would seek to further enhance our national security through substantial changes to our export control regime. He did so with the unanimous support of his entire national security team. This afternoon I'll focus on what I believe are the compelling security arguments for the changes recommended by the president.

I want to state from the outset how critically important it is to have a vigorous, comprehensive export control system that prevents adversaries from getting access to technology or equipment that could be used against us. The problem we face is that the current system, which has not been significantly altered since the end of the Cold War, originated and evolved in a very different era with a very different array of concerns in mind.

As a result, its rules, organizations and processes are not set up to deal effectively with the situations that could do us the most harm in the 21st century: a terrorist group obtaining a critical component for a weapon of mass destruction, or a rogue state seeking advanced missile -- ballistic missile parts. Most importantly, the current arrangement fails at the critical task of preventing harmful exports while facilitating useful ones.

The United States is thought to have one of the most stringent export regimes in the world, but stringent is not the same as effective. A number of lapses in recent years -- from highly sensitive materials being exported, to vital homeland security capabilities being delayed -- have underscored the flaws of the current approach.

Several factors contribute to these kinds of scenarios, which at worst, could lead to the wrong technology falling into the wrong hands. One major culprit is an overly broad definition of what should be subject to export classification and control. The real-world effect is to make it more difficult to focus on those items and technologies that truly need to stay in this country. Frederick the Great's famous maxim that he who defends everything, defends nothing certainly applies to export control.

This problem goes back a long way and was evident well before the collapse of the Soviet Union.

In 1982, when I became deputy director for Intelligence at CIA, my responsibilities included tracking prohibited transfers of U.S. technology. It soon became apparent that the length of the list of controlled technologies outstripped our finite intelligence monitoring capabilities and resources.

It had the effect of undercutting our efforts to control the critical items. We were wasting our time and resources tracking technologies you could buy at Radio Shack.

Today, the government reviews tens of thousands of license applications for export to European Union and NATO countries. In well over 95 percent of these cases, we say yes to the export.

Additionally many parts and components of major pieces of equipment, such as a combat vehicle or aircraft, require their own export licenses. It makes little sense to use the same lengthy process to control the export of every latch, wire and lug nut -- for a piece of equipment like the F-16 -- when we've already approved the export of the entire aircraft.

In short, the time for change is long overdue, if the application of controls on key items and technologies is to have any meaning. We need a system that dispenses with the 95 percent of easy cases and lets us concentrate our resources on the remaining 5 percent.

By doing so, we'll be better able to monitor and enforce controls on technology transfers with real security implications, while helping to speed the provision of equipment to allies and partners who fight alongside us in coalition operations.

A second major obstacle we face is the bureaucratic apparatus that has grown up around export control, a byzantine amalgam of authorities, roles and missions scattered around different parts of the federal government.

In theory, this provides checks and balances, the idea being that security concerns customarily represented by Defense would check economic interests represented by Commerce and balance out domestic and diplomatic and relationship-building equities represented by State.

In reality, this diffusion of authority, where separate export control lists are maintained by different agencies, results in confusion about jurisdiction and approval on the part of companies and government officials alike.

It creates more opportunities for mistakes, enforcement lapses and circumvention strategies such as forum shopping, where exporters with problematic license applications try different agencies looking for the best result.

In one instance, an individual was caught intentionally exporting a controlled item without a license but escaped prosecution by presenting two conflicting determinations from two different government agencies. The item in question was a carbon composite material used in ICBM [intercontinental ballistic missile] nose cones.

As a result of this dispersed arrangement, the U.S. government spends an enormous amount of time and energy on what are essentially process questions, trying to decide which agency has jurisdiction, as opposed to the more important issue of whether a given technology can be safely exported.

These internal squabbles can have real-world consequences. A fight between agencies over jurisdiction, for example, delayed a program to place new screening equipment in U.S. and overseas airports.

Correspondingly many companies face a frustrating situation where an exporter with a single purchase order may have to seek licenses from two separate agencies and could be approved by one, but denied by the other.

Additionally, because it's so difficult to modify or update the control list, a controlled item might never be considered for a lower level of restriction, even if it becomes much less sensitive and important over time.

The system has the effect of discouraging exporters from approaching the process as intended. Multinational companies can move production offshore, eroding our defense industrial base, undermining our control regimes in the process, and not to mention losing American jobs.

Some European satellite manufacturers even market their products as not being subject to U.S. export controls, thus drawing overseas not only potential customers but some of the best scientists and engineers as well.

At the same time, onerous and complicated restrictions too often fail to prevent weapons and technologies from going places they shouldn't. They only incentivize more creative circumvention strategies, on the part of foreign companies as well as countries that do not have our best interests at heart.

Concurrently we have not updated our system to deal with the U.S. military's transition to off-the-shelf procurement. More and more, our military is taking advantage of commercially manufactured items, presenting challenges when determining whether or not a given technology is acceptable for export. There are electronic components used in many third-generation cellular devices that are also important components of sophisticated stealth-defeating radar systems. We need to update our export control system to reflect these realities.

Finally, the current export control regime impedes the effectiveness of our closest military allies, tests their patience and goodwill, and hinders their ability to cooperate with U.S. forces -- and this at a time when we count on allies and partners to fight with us in places like Afghanistan and potentially elsewhere.

Not too long ago, a British C-17 spent hours disabled on the ground in Australia, not because the needed part wasn't available, but because U.S. law required the Australians to seek U.S. permission before doing the repair. These are two of our very strongest allies, for God's sake. Similarly, close, long-standing allies and partners like South Korea have bought U.S. aircraft only to encounter difficulties and delays in getting spare parts, something that weakens our bilateral relationships, our credibility and ultimately American security.

That is one of the reasons why several U.S. Secretaries of Defense, representing multiple administrations of both political parties, have voiced frustration over the export control system. As defense secretaries, we have all, at one time or another, had to sit across the table from defense ministers from important allies or new partners and explain why the U.S. government is unable to follow through expeditiously on its commitments to provide the weapons, equipment and support they've been promised, and paid for. It's not an edifying experience. All the while, other countries that do not suffer from our encumbrances are taking the opportunity to sell weapons, build relationships and improve their strategic position and economic standing.

Some obstacles to having a strategically sound defense trade relationship can be addressed through bilateral agreements with our closest allies and partners. In 2007, the United States signed defense trade cooperation treaties with both the United Kingdom and Australia, treaties that still await ratification by the Senate. Though -- through streamlined export-control arrangements and enhanced security technology measures, these agreements would substantially improve our ability to equip and support U.S., U.K. and Australian forces deploying in combat operations. They contain provisions for allowing the establishment of export-authorized groups of U.S., U.K. and Australian companies. Except for a short list of truly critical equipment and technologies, these trusted companies could largely avoid individual export licenses. And I remain hopeful that the Senate will give advice and consent to both of these treaties prior to the summer recess.

The kinds of common-sense changes contained in the U.K. and Australia treaties are a step in the right direction, at least with these two key allies. But international agreements are still no substitute for the kind of fundamental, systematic reform of export control that this country urgently needs. The fact is, for all of the reasons I described earlier, America's decades-old, bureaucratically labyrinthine system does not serve our 21st-century security needs or our economic interests.

It is clear our current limitations in this area undermine our ability to work with and through partners to confront shared threats and challenges, from terrorism to rogue states to rising powers. Our security interests would be far better served by a more agile, transparent, predictable and efficient regime. Tinkering around -- tinkering around the edges of the current system will not do.

For these reasons and more, in August of last year the president directed a broad-based review of the U.S. export control regime. He has called for reforms that control -- that focus controls on key technologies and items that pose the greatest national-security threat. These include items and technologies relating to global terrorism, proliferation and delivery of systems of weapons of mass destruction and advanced conventional weapons -- in short, a system where higher walls are placed around fewer, more critical items.

Following this directive and informed by a recent National Intelligence Council assessment of the key national-security considerations, I have worked closely with my counterparts at the Departments of State, Commerce, Homeland Security, as well as with the director of National Intelligence and the national security adviser, to develop a blueprint for such a system.

Our plan relies on four key reforms: a single export control list, a single licensing agency, a single enforcement coordination agency and a single information technology system.

First, a single export control list will make it clear to U.S. companies which items require licenses for export and which do not. This single list, combined with a single licensing agency, would allow us to concentrate on controlling those critical technologies and items -- the crown jewels, if you will -- that are the basis for maintaining our military technology advantage, especially technologies and items that no foreign company or government can duplicate.

Items that have no significant military impact or that use widely available technology could be approved for export quickly. We envision a more dynamic tiered control system, where an item or technology would be cascaded from a higher to a lower level of control as its sensitivity decreases.

Second, a single licensing entity, which will have jurisdiction over both munitions and dual-use items and technologies, will streamline the review process and ensure that export decisions are consistent and made on the real capabilities of the technology. This single entity would also reduce exporters' current confusion over where and how to submit export license applications, as well as which technologies and items are likely to be approved.

The Administration is currently preparing options for the agency's location, and I anticipate a presidential decision later this spring.

Third, the coordination of our currently dispersed enforcement resources by one agency will do a great deal to strengthen enforcement, particularly abroad, as well as coordination with the intelligence community.

Those who endanger our troops and compromise and our national security will not be able to hide behind jurisdictional uncertainties or game the system. Violators will be subject to thorough investigation, prosecution and punishment severe enough to deter law-breaking.

Fourth, the single unified information technology infrastructure will reduce the redundancies, incompatibilities and waste of taxpayer money that our current system of multiple databases produces. For example, a single online location and database would receive, process and help screen new license applications and end users.

Of course the question of which end users are eligible to receive our technology is a critical national security concern. An essential component of the reform system is the list of entities -- terrorist organizations, rogue states and others -- that cannot be allowed access to sensitive items. This would deny them technology or force them to acquire it through a more difficult -- through more difficult routes.

In order to facilitate compliance and tracking, we propose to consolidate current lists of banned end users into one single, frequently updated list that will be easy for those performing transfers to consult. Entities can be added at any time if there's reasonable cause to believe they are involved in activities contrary to U.S. national security interests.

These fundamental reforms, if enacted together, will improve America's ability to work with and fight along -- alongside allies and partners by setting clear, transparent standards, standards that will make it possible to share technology more freely, especially items needed and used by all of us to come -- counter common threats.

I'd like to emphasize that the new system will be in full compliance with all of our existing multilateral treaties and obligations. The prospect of more defense trade with the U.S. will incentivize other nations to strengthen their own export regimes.

Given how quickly and how easily goods and information now can flow around the world, export controls are far more effective when they involve multiple partners with shared interests and values.

As happens with any major reform to an entrenched, long-standing system, there will be resistance and criticism. Some people will be concerned that having fewer items subject to the most onerous export restrictions will make it easier for hostile states or groups to obtain weaponry and technology that potentially could be used against us.

No system -- above all, the current one -- is foolproof, but by consolidating more -- most export licensing functions in one agency and creating an enforcement coordination agency, we can focus our energies and our scrutiny on technologies that truly could threaten America's security, making it far less likely that these critical items will fall into the wrong hands.

It is also important to bear in mind that the U.S. government will retain the ability to impose economic sanctions on any foreign country or group, to include prohibiting the export of any equipment, material or technologies that could have military use.

We will turn these principles and proposals into action through a three-phase process that will unfold over the course of the next year. In the first phase, the executive branch will begin the transition toward the single list and single licensing agency, by making significant improvements to the current system. These efforts would include establishing criteria for a tiered control list and standing up an integrated enforcement center.

The second phase will complete the transition to a single IT structure, implement the tiered control list and make substantial progress toward a single licensing system.

These changes, which can be made through executive action, represent substantial progress and momentum toward reform. But they are by themselves insufficient to fully meet the challenge at hand. We need a final, third phase, a thorough overhaul of the current system along the lines I've described today; most notably, the single licensing agency and single enforcement coordination agency.

These fundamental changes will require congressional actions. I greatly appreciated the chance to meet earlier with a number of senior members of Congress this year to discuss this topic. I valued the feedback and the suggestions they provided at the time, and look forward to further dialogue. It's the president's hope that his national security team can continue to work closely with congressional leaders and all of the key committees to turn these proposals into legislation that the president can sign sometime this year.

I know better than most that earlier attempts at reform have foundered in the face of resistance. The proposition that a more focused and streamlined system actually helps our national security can go against conventional wisdom. But for the reasons I've described today, I believe it is the right approach, and it is urgently needed, given the harmful effects of continuing with the existing set of outdated processes, institutions and assumptions.

Indeed, America's ability to engage effectively with the rest of the world and keep our most sensitive technology away from those who would do us harm depend critically on our ability to get this right.

I look forward to working with the Congress and my interagency colleagues to achieve the kind of systematic reform that will benefit both the security and the prosperity of the American people. Thank you.

MODERATOR: The secretary has agreed to take a few questions, so any of you -- here, right down front.

Q Mr. Secretary, first of all, thanks very much for spending this time with us today on this very intensely interesting and also critical topic.

Would you expect that the new export-control approach that you're advocating would have a -- an effect on our ability to limit Iran's race toward nuclear-weapons capability -- specifically, things like the acquisition of high-temperature gas centrifuge components?

SEC. GATES: Well, first of all, the likelihood of the Iranians being able to get any of that stuff from us is somewhere south of zero, but the -- unless someone games the system.

I think what's important here: one of the things that has happened since the collapse of the Soviet Union, and that has a real impact on technology transfer to people we don't want to have technologies, is that the international consensus that stood behind COCOM for decades in dealing with the Soviet Union and preventing the transfer of technologies, or working to prevent the transfer of technologies to the Soviet Union, that consensus has completely collapsed. And my hope, and the hope of my colleagues, is that by reforming our system, making it more transparent, making it simpler and easier to understand, that we can then gain back some of those partners, in terms of working better with us to prevent the export of things like you just described to the Iranians and to others.

Right now, it requires a U.N. Security Council resolution or significant governmental action by an individual government to prevent those transfers. And at the -- at the current time, that's a high-level political decision.

We hope that, through this kind of a process, we can begin the kind of working-level relationships that we had in the COCOM days, where this doesn't take a decision by the president or the prime minister of a country but rather can be done as part of the regular ongoing security cooperation between us. But part of this is to -- is to begin to get some allies back with us on this subject, because we are pretty much alone right now.

MODERATOR: Back here. Please wait for the mike.

Q Thank you. Nigel Sutton from Raytheon. Again, I'd like to echo sentiments earlier, sir. Mr. Secretary, thank you so much for your insightful words.

My question is -- is regarding the disclosure process. It wasn't really mentioned, but I'm assuming -- is it a part of that phased approach that you're going to take, Mr. Secretary? Is that going to be addressed as part of your reform?


MODERATOR: Right here.

Q Hello, I'm Jennie Stewart from the Canadian embassy and also the chairman of the Foreign Procurement Group. And the international community is just delighted with your announcement and really support it and have been working with your officials to try and provide our perspective.

We're very pleased to hear you say over and over again the importance of working with allies. My question is, do you have any ideas of concrete steps or processes or approaches to do this consultation with allies?

SEC. GATES: Well, I think that the first step for us -- there have been some informal consultations, and those obviously will continue. I think that the next major step for us is to engage in a -- in a major way with the Congress and to begin working with them in terms of not only informing them better of what phases one and two comprise and what the executive branch is doing, but what and -- what we need them to do and why we need them to do it. So I think that before there was -- would be any kind of formal structured consultation with the allies, that the consultation with our Congress has to come first.

MODERATOR: Right over here.

Q Thank you, Mr. Secretary. Rahul Gupta with PRTM. You identified a couple impediments as to the prior approaches to streamline export control. Could you speak to your timelines in the interagency process to make sure that this go around everybody lines up and endorses not only the changes you're recommending, but how those two potential new agencies would be created?

SEC. GATES: Well, that's one of the things we need to -- we need to pursue. And as I mentioned in my remarks, we're developing the options for that that I hope the president will be able to make a decision on this spring.

The impediments are mostly, I would say, for us, entrenched bureaucracies. This is a process that in this administration is being driven from the top down. Let's just say that my building has not overflowed in the past with enthusiasts for this kind of change. I would say that's also true of some other buildings in town.

I feel very strongly about this. I've felt strongly about it for a long time, and fortunately so do my colleagues at senior levels -- at the most senior levels of other agencies, such as Undersecretary Tauscher and Secretary Clinton, Secretary Locke and so on.

And so I think that we are going to be driving this process from the top down. I think that our hope is we can get both phases one and two done over the period of the next number of months, and we would love to be able to get legislation before the end of the year.

MODERATOR: Got one right here.

Q Hi, Catherine Robinson with the National Association of Manufacturers. Thank you so much for your leadership on this initiative. We look forward to working with you as this moves forward.

I just wondered if you could touch upon some of the near-and-medium-term reforms that were discussed by the interagency early on in the review process and whether or not any of those ideas, such as the intercompany transfer, program licensing and some of the other areas would be addressed as we move forward with -- towards a single agency.

SEC. GATES: Well, I'm happy to say that you have just exhausted my knowledge of this subject. And frankly I'm not in a -- I'm not smart enough or well-enough informed to talk about some of the proposals that have been discussed earlier in the review process or in terms of the interagency on some of the specific things like you're talking about.


MODERATOR: There's one right over here.

Q Pamela Abshire, University of Maryland. I serve on a committee for Department of Commerce that's been looking at deemed exports. And I'm wondering if that's one of the biggest -- so again, thank you very much for your leadership in this area that I'm truly hopeful will reinforce U.S. national security and protect our competitiveness.

I'm particularly interested, since deemed exports is one of the main ways in which we differ in our enforcement, although we're considerably more stringent than other nations, what role you see for that continued enforcement of deemed exports in the new streamlined system.

SEC. GATES: Well, I would tell you that at the principals level of discussion of this issue, deemed exports really has not come up except in passing. However, having in my earlier life served on that Commerce-sponsored deemed exports committee as president of Texas A&M, I can tell you that deemed exports, in my view, are a real -- I think a challenge for this country in terms of our ability to attract and keep scientists and engineers from all over the world, to come to our universities and to come to our companies and work.

And frankly, in a university setting, the notion that you could have a graduate student from a foreign country working for an American professor, and that in a university laboratory setting, have that foreign student singled out and denied access to that laboratory, is on a day-to-day basis unworkable.

And so I don't quite know where the Commerce deemed export effort has come out, since I had to leave it prematurely, but as a matter of principle, that's my concern with deemed exports and what the consequences are. I get it that -- you know, we used to have this joke back in the Cold War that the Soviets would send 40-year-old nuclear physicists to study in U.S. universities, and we would send 21-year-old college seniors to study Pushkin in their universities.

So there is an issue here that's real, but we've got to figure out a better way to deal with it.

MODERATOR: We have time for one more question. Right back here.

Q Secretary Gates, it's John Rood from the Raytheon Company. I wanted to ask you two things. One, you're talking about going forward to the Congress with proposals to change the law to enforce -- or implement this new system, which is commendable. But one of the issues that industry has struggled with is the legislative branch's execution of the export control system, at times taking longer the rest of the Byzantine system that you talked about to again approvals from Congress.

Will that be part of the Administration's proposals, reform of the Congress's handling of these things?

And then secondly, will things like the industrial base be considered in the Administration's legislation, the effect of export control decisions on that base?

SEC. GATES: Well, I think from my standpoint, the defense industrial base is one of the reasons for supporting this effort, quite frankly. You know, trying to reform the Defense Department and, on this issue, reform the executive branch really pretty much takes up most of my day. Taking on reform of the Congress is -- (laughter).

My hope is we -- there are some congressional leaders who are supportive of this effort. Chairman Howard Berman of the House Foreign Affairs Committee. I talked to Senator Dodd this morning. So there are a number of people who have expressed interest. And they understand that the congressional piece of it is something they have to take on as well.

But I think let's handle this in a -- let's try and be as realistic as we possibly can. Let's fix the executive branch piece that we can fix first. Let's then get the legislation changed, as second. And then my hope is that as we streamline the process that the executive branch is responsible for, that there will be those in the Congress who can then lead some efforts to streamline the effort up there. But that initiative, as everybody here knows, really has to come out of the legislative branch.

Thank you all very much for being here today.

Source: Department of Defense