Defense Trade:

Lessons to Be Learned from the Country Export Exemption

GAO-02-63: Published: Mar 29, 2002. Publicly Released: Mar 29, 2002.

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To control the export of defense items, the U.S. government requires exporters to obtain a license from the State Department. A license is not required to export many defense items to Canada, currently the only country-specific exemption to the licensing requirement. In May 2000, the U.S. government announced the Defense Trade Security Initiative, which included a proposal to grant Canadian-like export licensing exemptions to other qualified countries. Since the initiative was announced, the State Department has been negotiating such exemptions with the United Kingdom and Australia. Exporters have been implementing the Canadian exemption inconsistently. Moreover, some exporters are interpreting reporting requirements about the use of the exemption differently. The U.S. government has mechanisms in place to reduce the risk of defense items being inappropriately exported, but there are associated limitations. U.S. Customs officials attributed these enforcement weaknesses to a lack of information and resources, including inspectors to staff ports. In addition, there are competing demands on the agency, which include the prevention of terrorism, and the interdiction of illicit drugs, illegal currency, and stolen vehicles. Experience with the Canadian exemption shows that three areas need to be addressed when negotiating and executing license exemptions with other countries. First, there needs to be upfront agreement on such issues as what items are to be controlled, who can have access to controlled items, and how to control these items through each country's respective export laws and regulations. Second, the U.S. government needs to monitor agreements to assess their effectiveness and ensure that unanticipated problems have not arisen. Third, enforcement mechanisms need to be in place to monitor exporters' compliance with the exemption and enable prosecution of violators.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The U.S. Customs Service updated and finalized its Export Control Handbook on July 23, 2002, and forwarded it to its Customs Issuance Office in August 2002 for distribution to the inspectors in the field.

    Recommendation: To strengthen enforcement activities, the Commissioner of the U.S. Customs Service should update, finalize, and disseminate its guidance on defense export inspection requirements to all inspectors.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security: Bureau of Customs and Border Protection

  2. Status: Closed - Implemented

    Comments: The U.S. Customs Service conducted threat assessments for its Northern Border ports. In August 2002, the Customs Service had started its review of these assessments to see if additional resources or training was needed. On February 11, 2003, the U.S. Customs Service told GAO that the Office of Field Operations had completed its review of the Northern Border assessments. They determined that the threat had not changed significantly, and accordingly stated that there was no need to reallocate outbound personnel or to add additional training.

    Recommendation: To strengthen enforcement activities, the Commissioner of the U.S. Customs Service should assess the threat of illegal defense exports at all ports along the northern border and evaluate whether reallocation of its inspectors, additional training, or other actions are warranted to augment the capability of inspectors to enforce export regulations.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security: Bureau of Customs and Border Protection

  3. Status: Closed - Not Implemented

    Comments: The Department of State has not taken action to review or clarify guidance.

    Recommendation: To enhance the exemption process, the Secretary of State should direct the Office of Defense Trade Controls to review guidance and licensing officer training to improve clarity and ensure consistent application of the exemption. The State Department should also direct the Office of Defense Trade Controls to provide this guidance to the U.S. Customs Service for dissemination to field inspectors and agents so that consistent information about the exemption is provided to exporters.

    Agency Affected: Department of State

  4. Status: Closed - Not Implemented

    Comments: The Department of State has not taken action to assess lessons learned from the Canadian exemption.

    Recommendation: To facilitate future country exemption negotiations, the Secretary of State should work with the Department of Justice and the U.S. Customs Service to assess lessons learned from experience with the Canadian exemption and ensure that these are incorporated in any future agreements.

    Agency Affected: Department of State

 

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