Stakeholder Perspectives

1. Stakeholder Perspectives

2. Identify and coordinate common positions with stakeholders; and organize and blend stakeholders’ needs and requirements Assess the technical capabilities of a customer / partner, and compare & contrast various international acquisition, procurement & ownership frameworks Relate the NATO, EU, and other international fora defense procurement policies to U.S. acquisition laws, regulations, and policies Formulate potential implementation schemes to harmonize international programs by comparing the recent UK and Australian Treaties Lesson Objectives

3. Foreign Investment U.S. policy has long sought to open U.S. markets to foreign investment. Foreign investment in the U.S. strengthens our economy: • Creates/preserves jobs • Improves productivity • Helps maintain U.S. competitiveness • Opens foreign markets to U.S. products/services • Gives us access to new technologies BUT: Can present risks to national security … … both CFIUS and FOCI address these risks

4. CFIUS Origins & Authority • Defense Production Act of 1950 • CFIUS Committee established in 1975 • Omnibus Trade & Competitiveness Act of 1988 and associated Exon-Florio Amendment • Defense Authorization Act of 1993 and associated Byrd Amendment • Foreign Investment and National Security Act (FINSA) of 2007 Authorizes the President to investigate and block foreign acquisitions, mergers, or takeovers (called “covered transactions”), if there is evidence it may threaten national security

5. Key CFIUS Provisions • Reporting by foreign and U.S. parties is voluntary • Contracts barred requiring access to proscribed info • “National Security” not defined • Significant term is “control” • Case is reviewed/investigated only once • Cases must proceed to investigation stage if: • Foreign government involved, could impair national security, involves critical infrastructure, or lead agency recommends • CFIUS Chair and lead agencies must provide Congress a certification for each case concluded • Congress provided an annual aggregate report

6. CFIUS Procedures • CFIUS has 30 days to complete a review and decide whether or not to conduct a follow-on investigation • Investigations must be completed within 45 days. If no consensus or CFIUS blocks  sent to President • President has 15 days to decide By law, all cases must be closed within 90 days • Statistics (last 10 years) • Total cases reported ~2,000 • Cases investigated 26 • Determined by President 12 • Cases denied 1

7. Foreign Ownership, Controlor Influence (FOCI) • Definition – A foreign interest has the power to direct or decide matters affecting the management or operations of a company in a manner that may result in unauthorized access or adversely affect the performance of classified contracts. • If there is FOCI … • Clearance could be denied • Existing clearance could be revoked or invalidated • Unless; action is taken to remove the possibility of unauthorized access or adverse effects on contracts • Negate the effects of FOCI  Mitigate the associated risks

8. FOCI Factors • Seven factors are considered in aggregate to determine whether a company is under FOCI • Factors relate to the company, foreign interest, and the government of the foreign interest, to include: • Record of economic & government espionage against U.S. • History of cooperation on technology transfer • Type & sensitivity of information that will be accessed • Source, nature, and extent of FOCI • Company’s record of compliance with U.S. laws, regulations, and contracts • Nature of bilateral or multilateral security agreements with the foreign government • Foreign government ownership or control

9. FOCI Mitigation Instruments • Voting Trust(Negates)– majority ownership, convey legal title, and cleared U.S. citizen trustees • Proxy Agreement (Negates) – majority ownership, convey most voting rights, and cleared U.S. citizen proxy holders • Special Security Agreement (Mitigates) – majority ownership, & 2+ cleared U.S. citizen Outside Dirs. • Security Control Agreement (Mitigates) – minority ownership sufficient to elect board members, and 1-3 cleared U.S. citizen Outside Dirs. • Board Resolution (Mitigates) – minority ownership insufficient to elect board members

10. CFIUS vs FOCI • Scope:Broad “national National security security” issues information (i.e. classified) • Reporting: Voluntary Mandatory • Timing:90 days Time required • Closure: After review/ Any time investigation

11. Working with NATO • Working habits of the NATO workplace • Oral versus written tradition • Process versus product • Informal networks • Expatriate networks • Organizations do not collaborate, humans do • Must build trust first – personal and positional • Building rapport and trust with nations begins with a handshake • Strategic listening is critical to success • NATO Reform (?)

12. NATO’s Challenges • Rhetoric does not equal resources • Under Spending: 23 Allies spend less than 2% of GDP on Defense (NATO’s unofficial floor) • Under Resourced for Out of Area Operations: Deployment at strategic distances stresses most Allies’ budgets/capabilities • Budget Tradeoffs • Medium/small Allies making tradeoffs between the NATO Response Force and current operations (Afghanistan, Kosovo) • Critical Capability Shortfalls (Afghanistan) • C-IED action plan • Mission network • Strategic & tactical lift • NATO integrated logistics, including medical support

13. NATO Production and Logistics Organizations (NPLOs) • Manage collective requirements of participating nations in design and development, production, operational or logistic support • NPLO membership is based on Memoranda of Understanding (MOUs) signed by each participating country • NPLO organization • Senior policy committee, a Board of Directors (sometimes called Steering Committee) • Subordinate committees or working groups • Executive agency normally headed by a General Manager • Title used to describe the overall organizational structure normally concludes with the word "Organization" & the management body with "Agency“

14. European Defense Agency (EDA) • Established under a Joint Action of the Council of Ministers in 2004 • “… to support the Member States and the Council in their effort to improve European defence capabilities in the field of crisis management and to sustain the European Security and Defence Policy as it stands now and develops in the future.” • Functions and tasks • Developing defense capabilities in the field of crisis management • Promoting defense research and technology • Promoting armaments cooperation • Strengthening European Defense Technological and Industrial Base (EDTIB) for the creation of an internationally competitive European Defense Equipment Market

15. Why an EDA? • Fragmentation in Europe • National requirements, R&T + procurement, and industry  diverging demand, different equipment & national production • Effects • Operations: lack of standardization and interoperability • Defense budgets: wasting money (intra-European duplication) • Industry: lack of adaptation to a competitive and open market • Key data on European defense • 23 armored fighting vehicles / 4 main battle tanks • 3 fighter aircraft / 7 types of armed helicopters • 89 major platform programs (U.S.: 27) • 16 national naval shipyards (U.S.: 3)

16. EDA’s Strategic Framework • Capability Development Plan • Overall strategic tool – driving R&T, Armaments & Industry • Connects short, medium, and longer term needs • European Defense R&T Strategy • What technologies to invest in & how to do this better • New formula: Joint Investment Program (JIP) • Two JIPs ‘Up and Running’ • Armaments Cooperation Strategy • Effective and efficient cooperation programs • EDTIB Strategy • Future European industrial landscape • Regime on defense procurement • Key defense related industrial capabilities

17. Will EU Consolidation Lead to “Fortress Europe”? • EDA Code of Conduct on ‘Offsets’ encouraging • Agreed to by all countries less Romania plus Norway (not legally binding) • Transparency - national offset policies published @ http://www.eda.europa.eu/offsets/ • Provides for evolving use of offsets to help develop an industrial base that is capability driven, competent, and competitive • Introduces a 100% cap on offsets - subscribing member states will neither request nor accept offsets exceeding the value of the procurement contract (effective October 1, 2010) • Reporting and monitoring system provides reciprocal visibility to the member states • “Active” since July 1, 2009

18. Will EU Consolidation Lead to “Fortress Europe”? (cont.) • Code of Conduct on ‘Defense Procurement’ • Covers Art. 296 EC Treaty (exempting Common Market rules); now Art. 346 • Will reduce administrative burdens for intra-EU cross-border transactions through standardized licensing mechanism • run through Electronic Bulletin Board • Governmental defense contracts with value > 1M Euros • “Active” since July 1, 2006; nearly 500 contracts published • approximately 260 contracts awarded under competition; value nearly 4B Euros (30% awarded cross-border) • Compatibility with U.S. export controls (?) – U.S. approaches European market on country-by-country basis • U.S. industry market access will increasingly depend on alignment of U.S. and EU policies

19. NATO & EU Bumper Stickers

20. Other Multinational • Bilateral Agreements/Arrangements • Multilateral Agreements/Arrangements • “5 Eyes” Cooperation • AUSCANNZUKUS • Standardization & Interoperability Forums (ABCA) • Research & Technology Forums (TTCP) • Multinational Interoperability Council • Pacific Area Senior Officers Logistics Seminar (PASOLS) • BMD International Forum

21. UK & Australian Defense Trade Cooperation Treaties • UK and Australia Treaties were signed in 2007, ratified on September 29, 2010 • Treaties will permit the export (without license or other prior approval) of certain U.S. defense articles and services to the UK and Australian governments + companies meeting specific requirements • The U.S. and the UK, and the U.S. and Australia will jointly agree on qualified projects and operations • Both UK and Australian preparations ‘to implement’ took much longer than expected … • U.S.-UK Treaty entered into force on April 13, 2012; and the U.S.-Australian Treaty on May 16, 2013

22. “Treaty Context” • U.S., UK, & Australia are allies in war – best and most interoperable equipment • U.S., UK, & Australia all have experienced significant terror attacks against their citizens • Allied defense & security companies must be able to collaborate in technology development • Defense trade license numbers rising • Over 99% of UK & Australian export license applications approved

23. “Treaty Goals & Means” • Treaties recognize and support the long-standing special relationship between the U.S. and two of its closest allies • Treaties allow for the export or transfer of certain ITAR-controlled defense articles and services within an “Approved Community” • Government entities/facilities and non-governmental facilities mutually determined to be eligible • Treaties support U.S. national security interests and are essential in successfully meeting our shared security challenges

24. “Treaty Basics” • Any USML item is eligible for export under the Treaties, unless specifically identified as an exempt technology in Supplement #1 to ITAR Part 126 • Treaties will facilitate defense trade with the two countries in four primary scope areas: • Combined U.S.-UK or U.S.-Australian military or counterterrorism operations; • Joint U.S.-UK or U.S.-Australian cooperative security and defense R&D, production, and support programs; • Her Majesty’s Government (UK) or Australian Government end use; and • U.S. Government end use, when specifically identified in a USG solicitation or contract

25. “Treaty Implementation” • ITAR amended to implement the UK Treaty (126.17), the Australian Treaty (126.16), & to add Supplement No. 1 (exempt defense articles) • Authorized exporters and eligible recipients – “community” • Marking: REL USA AND GBR [AUS] TREATY COMMUNITY • Transfers, re-transfers, and re-exports • Illustration of the process • HMG contacts U.S. community member with critical operational requirement • U.S. community member turns to Treaty to rapidly respond • Using ITAR exemption, verify approved end-use and involves non-exempt technology • Immediately export to HMG – no license needed Though the exemptions are restrictive, they bring the UK and Australia close to the status accorded Canada under the ITAR