“21 st Century Export Control System”

1. Defense Trade Advisory Group “21st Century Export Control System” December 4, 2009

2. The Overall “Vision” for a 21st Century Export Control System “National Security is paramount” • AECA & EAA written for a different time – the world has changed • Transition from multiple agencies with differing controls (some overlapping) to a single USG coordinated export system with a single point of entry for U.S. industry • Transfer responsibility of defense industrial policy issues from the legislative to the executive branch • Transition from a transactional base system to one built on a “trusted” relationship between the USG, U.S. industry, and friendly foreign governments • Entities must earn this trust based on their actions and their internal compliance programs • Exemptions to permit transfers of hardware, data and services to support items previously approved for sale. • Annual reporting of transfers, sales

3. The Overall “Vision” / continued • Transition from an expanding universe of controlled commodities to a more dynamic system based on existing National Security concerns • Global trend suggests a focus on lesser scope of controlled items and technologies • Military capabilities are no longer just developed in the defense sector • The U.S. does not have a lead in all civil/militarily critical technologies • Annual review of controlled items to eliminate unnecessary controls • e.g., what, why and how • USG senior level concurrence for items controlled unilaterally

4. The Overall “Vision” / continued • Recognition that the U.S. industrial base is an element of National Security • Globalization of technologies, foreign availability of products needs to be taken into consideration in the decision making process • Minimize controls over commodities whose design/production is based on widely available technology • Minor parts/components • Permit U.S. industry to compete in foreign markets on a competitive basis • e.g., Permit marketing, including “bid & proposal” efforts, to friendly foreign governments based on precedent cases (e.g., NATO) • e.g., Permit retransfer of non-sensitive U.S. origin items when embedded in a foreign system to remove the “ITAR free” label from foreign designed products

5. Near Term Steps Process recommendations: • Creation of a “turbo” type electronic licensing system • Increase the types of exemptions to reflect current business practices • Intra-country transfers and collaboration among affiliated businesses • Vehicle crash investigations • Other DTAG exemption recommendations • e.g., DoD foreign officer exchange program • Right of appeal throughout the process • Eliminate the requirement for a DSP-83 end use certificate • Eliminate unnecessary referrals of license requests by State • Formulate internal guidelines for decision making that would assist State personnel in the staffing decision making process

6. Near Term Steps / continued Designation of items that warrant control: • Establish an industry / USG dialogue on DTAG proposed definitions • Establish specific criteria for identifying which items should be designated as Significant Military Equipment (SME) – limit to those items based on their inherent capability • Delete controls over items at the bottom of the food chain • Where global production is so wide and diverse that the controls are not meaningful e.g., Fasteners, raw materials, hydraulic/mechanical/electrical commodities

7. Near Term Steps / continued • Establishment of a “sunset” review of individual items • Predefined period of time to review (e.g., 15 years) • Establish validity for control • Establish criteria for unilateral controls of individual items • Items not controlled by international regimes • Wassenaar Arrangement, MTCR, Chemical Weapons Convention • Emphasis for control should be based on capability rather than origin of design e.g., avoid classification strictly based on “end use” or “designed or modified” for military applications.

8. Near Term Steps / continued Pre-approval in principle: • Establish a series of Tier groups for individual countries • Certain items are authorized for export to specific Tier group countries under an exemption • Country / item matrix is based on an interagency working group with U.S. industry input • Countries are placed in a specific Tier level • Based on international alliances (e.g., NATO, EU) • Individual gov-to-gov agreements (e.g. MoUs) • International regimes (e.g., Wassenaar, MTCR, CWC) • Establish a country / capability matrix • Based on the matrix – industry could market (including bid/proposal efforts) to foreign governments without an individual export authorization. • Only the sale of the item would require a formal authorization

9. Near Term Steps / continued • Lifecycle authorizations for defense articles previously approved for sale • No additional authorizations are required to provide spare parts, organizational and intermediate level maintenance support • Limited to the same end use and end user • e.g., foreign governments, maintenance centers • Limited to supporting a specific quantity of items • e.g., “x” number of aircraft previously approved for sale • Limited to the approved configuration • Spare parts must not provide enhanced capability • Change in quantity or configuration would require a reauthorization (i.e. new license) • U.S. industry would provide USG with an annual report of hardware and services provided

10. Near Term Steps / continued Congressional notification • Update notification thresholds to the 21st century • Amend the re-notification criteria • Replace the 10% threshold to initial notification increments • e.g., original notification at $50M or $100M, re-notification thresholds would be $100M and $200M • Eliminate double notifications • Notifications of agreements under section (c) that involve off-shore procurement of non-SME items – does not involve any sale • Notifications of agreements under section (c) of an international cooperative project (F-35) even when the cooperative agreement was notified under 22 USC 2767(g)

11. Other Considerations • Clarify liability [Section 127.1(b] • Exporter of record is responsible for their own actions • Permits more than one U.S. applicant to be on an agreement • Effective implementation of single comprehensive export authorizations for multi-lateral government to government cooperative programs (Section 126.14) • Correct deficiencies of previous Global Project Authorizations (JSF Program) • Eliminate the requirement for foreign parties to sign an agreement (TAA/MLA) • In lieu of signing the agreement the foreign parties sign individual “Compliance Certificates” which are filed with the executed agreement • Certificates are unique to each foreign party and identify their sub-licensees and/or dual/third country nationals • Certificates are amended (resigned) only when there is a change such as a new address, addition/deletion of either sub-licensees and/or dual/third country nationals.

12. Other Considerations / continued • Eliminate identification of dual/third country nationals in export authorizations for access to unclassified hardware/data/services if they hold a security clearance from a NATO, x, y, and z country • Eliminate retransfer requirements for non-SME parts/components which are incorporated as an integral part of a foreign designed system for end use by a non 126.1 government entity