Defense Trade
Clarification and More Comprehensive Oversight of Export Exemptions Certified by DOD Are Needed
GAO-07-1103, Sep 19, 2007
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Defense (DOD) activities, U.S. defense companies may export defense items. The Department of State (State) controls such exports through its International Traffic in Arms Regulations (ITAR), which provides for some exemptions from export licensing requirements. For a limited number of these exemptions, DOD may confirm--or certify--that the export activity qualifies for the use of an ITAR exemption. As part of an initiative, DOD is to make more effective use of ITAR exemptions, but little is known about the extent to which this is done. This report (1) describes DOD's approach for certifying exporters' exemption use in support of defense activities, (2) summarizes the use of selected DOD-certified exemptions, and (3) examines State and DOD's oversight of exemption use. GAO's findings are based on its review of export control law, regulation, and DOD guidelines; interviews with State, DOD, and defense industry officials; and a GAO-developed database of DOD certification letters.
In support of defense activities, DOD prepares letters certifying that a proposed export qualifies for the use of certain ITAR exemptions by exporters. To guide this approach, DOD issued exemption certification guidelines in March 2004 to the military services because they are the DOD components primarily responsible for managing and implementing defense international cooperative programs. However, GAO found other DOD components that also certify the use of exemptions in support of international activities but are not subject to the DOD guidelines. Officials from State, which regulates and controls defense exports, have raised several concerns to DOD about its guidelines, including the use of one ITAR exemption by contractors and the comprehensiveness of the guidelines. While State and DOD officials have met and exchanged correspondence on these issues, to date, they have not resolved fundamental disagreements. A lack of common understanding of regulatory exemption use could result in inconsistent application of the regulations. The exemption certification letters from DOD components that we reviewed showed that over 1,900 exemptions were certified for about 270 exporters in calendar years 2004 through 2006. The majority of the certifications related to missile defense and Air Force programs and included the export of technical data. While most of the exporters identified in the DOD-certified exemption letters were defense contractors, other exporters included university laboratories and federally funded research and development centers. The United Kingdom, Australia, Canada, and the North Atlantic Treaty Organization were the most frequently cited recipients for exports under exemptions certified by DOD components. State and DOD lack comprehensive data to oversee the use of DOD-certified exemptions, limiting their knowledge of defense activities under this process. While DOD's guidelines provide for annual reporting to State on certified exemptions, this report captures data from the military services, but not from other DOD components. GAO identified 271 letters from nonservice components that were not included in DOD's 2006 report to State. In addition, DOD's report to State may not capture the magnitude of transfers certified for exemption use. For example, one letter that GAO reviewed certified the use of an exemption for more than 50 companies, but only the certification letter--not the actual transfers, which totaled 600 over a 3-year period--was captured in the cognizant military service's record keeping on exemption certifications. Furthermore, the details on these transfers were not included in DOD's report to State, limiting insight into the number of transfers under this certification.
Status Legend:
Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
- In Process
- Open
- Closed - implemented
- Closed - not implemented
Recommendations for Executive Action
Recommendation: To ensure a common understanding of the use of ITAR exemptions available for DOD's activities, the Secretary of State should direct the Deputy Assistant Secretary for the Directorate of Defense Trade Controls and the Secretary of Defense should direct the Director of the Defense Technology Security Administration to establish a work group to define and resolve disagreements on exemption use and guidelines and to document decisions reached. If the work group cannot reach agreement before the existing DOD exemption guidelines expire, then it should elevate the matter for resolution within its appropriate chain of command. If needed, the Secretary of State should direct the Deputy Assistant Secretary for the Directorate of Defense Trade Controls to revise the ITAR to incorporate any necessary changes. Once agreement is reached, the Secretary of Defense, with concurrence from the Secretary of State, should direct that the guidelines be revised and made applicable to all DOD components.
Agency Affected: Department of Defense
Status: Open
Comments: As of July 2011, DOD is awaiting the Department of State review and rewrite of relevant ITAR sections. As of July 2010, Defense Technology Security Administration (DTSA) is holding off on the exemption guidelines until more is known about the President's export reform proposal and State's revisions to the ITAR (details follow). While DTSA was editing a second draft of the exemption guidelines, two issues cropped up which impact the language of the DOD instruction. (1) The export control reform initiative by the President. Our concern was that as soon as we issued the DOD instruction it could be obsolete and require the writing of an updated version. We need to hear what the Principals decide before resubmitting a final draft to the DOD participants; and (2) State's rewrite of sections of the ITAR, including exemptions. State sent to DOD a regulation change which had implications on how we would interpret some of the DOD exemptions. DOD is meeting internally on this. We understand State is expected to post the re-writes to the Federal Register in the very near future for comments. Many of DOD concerns with the exemptions may be alleviated by State's re-writes of the ITAR, thus impacting the guidelines.
Recommendation: The Secretary of Defense should direct the Director of the Defense Technology Security Administration to ensure that the revised exemption certification guidelines provide the appropriate mechanisms for overseeing the exemption certification process, such as the collection of data from all DOD components on exemptions they certified.
Agency Affected: Department of Defense
Status: Open
Comments: As of July 2011, DOD is awaiting the Department of State review and rewrite of relevant ITAR sections. As of July 2010, Defense Technology Security Administration (DTSA) is holding off on the exemption guidelines until more is known about the President's export reform proposal and State's revisions to the ITAR (details follow). While DTSA was editing a second draft of the exemption guidelines, two issues cropped up which impact the language of the DOD instruction. (1) The export control reform initiative by the President. Our concern was that as soon as we issued the DOD instruction it could be obsolete and require the writing of an updated version. We need to hear what the Principals decide before resubmitting a final draft to the DOD participants; and (2) State's rewrite of sections of the ITAR, including exemptions. State sent to DOD a regulation change which had implications on how we would interpret some of the DOD exemptions. DOD is meeting internally on this. We understand State is expected to post the re-writes to the Federal Register in the very near future for comments. Many of DOD concerns with the exemptions may be alleviated by State's re-writes of the ITAR, thus impacting the guidelines.
Recommendation: To ensure a common understanding of the use of ITAR exemptions available for DOD's activities, the Secretary of State should direct the Deputy Assistant Secretary for the Directorate of Defense Trade Controls and the Secretary of Defense should direct the Director of the Defense Technology Security Administration to establish a work group to define and resolve disagreements on exemption use and guidelines and to document decisions reached. If the work group cannot reach agreement before the existing DOD exemption guidelines expire, then it should elevate the matter for resolution within its appropriate chain of command. If needed, the Secretary of State should direct the Deputy Assistant Secretary for the Directorate of Defense Trade Controls to revise the ITAR to incorporate any necessary changes. Once agreement is reached, the Secretary of Defense, with concurrence from the Secretary of State, should direct that the guidelines be revised and made applicable to all DOD components.
Agency Affected: Department of State
Status: Open
Comments: On Sept. 29, 2010, State responded that the working group on Export Control Reform discussed this issue, and DoD is preparing updated guidelines. For the time being, ongoing discussions on Export Control Reform have put the issuance of new guidelines to the ITAR on hold due to recent substantive revisions already made, and still under consideration, especially with regard to exemptions.