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United States Government Accountability Office: 
GAO: 

Report to the Chairman, Committee on Foreign Affairs, House of 
Representatives: 

September 2007: 

Defense Trade: 
Clarification and More Comprehensive Oversight of Export Exemptions 
Certified by DOD Are Needed: 

GAO-07-1103: 

GAO Highlights: 

Highlights of GAO-07-1103, a report to the Chairman, Committee on 
Foreign Affairs, House of Representatives. 

Why GAO Did This Study: 

In support of Department of 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. 

What GAO Found: 

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. 

What GAO Recommends: 

GAO is recommending that State and DOD resolve disagreements on 
exemption use and guidelines, and strengthen oversight through data 
collection. State and DOD agreed to resolve disagreements, but DOD 
misunderstood the intent of the recommendation on oversight. In 
response, GAO clarified the language in this recommendation. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-07-1103]. For more information, contact Ann 
Calvaresi-Barr at (202) 512-4841 or calvaresibarra@gao.gov. 

[End of Section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Guidelines for DOD’s Certification of Exemption Use Have Raised Some 
Concerns by State: 

DOD Components Certified the Use of Exemptions for a Variety of 
Programs and Foreign Recipients: 

State and DOD Lack Complete Data to Oversee Exemptions Certified by 
DOD: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Appendix II: ITAR Sections Discussed in This Report: 

Appendix III: Comments from the Department of Defense: 

Appendix IV: Comments from the Department of State: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: ITAR Exemptions Identified in DTSA Guidelines for Military 
Service Certification and ITAR Exemption Description: 

Table 2: GAO Analysis of DOD Exemption Certifications (2004 through 
2006): 

Table 3: ITAR Sections Cited in This Report: 

Figure: 

Figure 1: Sample Letter: 

Abbreviations: 

DDTC: Directorate of Defense Trade Controls: 

DOD: Department of Defense: 

DTSA: Defense Technology Security Administration: 

ITAR: International Traffic in Arms Regulations: 

NATO: North Atlantic Treaty Organization: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

September 19, 2007: 

The Honorable Tom Lantos: 
Chairman: 
Committee on Foreign Affairs: 
House of Representatives: 

Dear Mr. Chairman: 

As part of its efforts to promote cost sharing and increase 
interoperability of defense assets, the Department of Defense (DOD) 
enters into defense cooperative agreements with allies and friendly 
nations. In support of these agreements and associated DOD activities, 
U.S. defense companies may export defense items[Footnote 1] to foreign 
governments and defense companies. The Department of State (State) 
controls the export of defense items, requiring most to be licensed for 
export through its International Traffic in Arms Regulations 
(ITAR).[Footnote 2] Under certain conditions, however, the ITAR 
provides for exports to be exempt from license requirements and 
establishes the criteria for such exemptions. For a limited number of 
exemptions, DOD may confirm—or certify[Footnote 3]—in writing that the 
export activity qualifies for the use of an ITAR exemption in support 
of DOD activities, such as sharing of technical data related to DOD 
acquisition programs. The use of exemptions, including those certified 
by DOD, and compliance with the ITAR are ultimately the responsibility 
of the exporter. 

Over the past decade, Congress has requested that we examine the U.S. 
export control system, and we have reported on various problems in the 
processes for this system.[Footnote 4] This report looks at how 
unlicensed exports in support of DOD activities, such as defense 
cooperative programs, are overseen. Specifically, in response to your 
request, this report (1) describes DOD’s approach for certifying the 
use of export exemptions by exporters in support of defense activities, 
(2) summarizes the use of DOD-certified exemptions that we identified 
and reviewed, and (3) examines the extent to which State and DOD 
oversee the use of these exemptions. 

To conduct our work, we identified DOD’s approach for certifying the 
use of export exemptions by exporters in support of defense activities 
through an examination of export control laws, regulations, DOD 
guidelines, and practices. We also interviewed officials responsible 
for export controls from State, DOD, and defense companies. To 
summarize the use of DOD-certified exemptions, we created a database of 
DOD certification letters issued between 2004 and 2006 that we were 
able to identify and collect from DOD components. From these data, we 
extracted information such as the most frequent type of export and top 
foreign recipients and summarized the results. We coordinated with 
State and DOD officials to identify a list of DOD components certifying 
the use of exemptions. However, the universe of all DOD-certified 
exemptions is unknown, and additional exemption letters might exist. To 
examine the extent to which State and DOD oversee the use of DOD-
certified exemptions, we reviewed DOD’s 2006 report to State on 
exemption certifications and discussed how data were collected with 
cognizant officials. For more on our scope and methodology, see 
appendix I. We performed our review from January through July 2007 in 
accordance with generally accepted government auditing standards. 

Results in Brief: 

DOD components, including the military services, prepare letters 
certifying the use of certain ITAR exemptions by exporters in support 
of DOD activities. The letters typically state the exporter’s name, the 
item to be exported, and the applicable ITAR exemption. The military 
services’ approach for certifying the use of ITAR exemptions is set 
forth in guidelines DOD issued in March 2004, which cover five specific 
exemptions. These guidelines were issued to the military services 
because they are the DOD components primarily responsible for managing 
and implementing international defense cooperative programs. However, 
we found other nonservice DOD components that are certifying the use of 
exemptions in support of international activities but that are not 
subject to the DOD guidelines. Some of these nonservice components had 
created or were creating their own guidelines, which could lead to 
inconsistent certification practices. 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. According to DOD officials, this exemption is available to 
contractors when they work in direct support of DOD activities. 
However, State officials stated that the exemption is limited to use by 
U.S. government personnel. State officials also have raised concerns to 
DOD about the comprehensiveness of DOD’s exemption certification 
guidelines, including the scope and purpose. DOD is in process of 
revising its guidelines, partially in response to State’s concerns. 
Although senior-level export control officials at both State and DOD 
have met and exchanged correspondence, to date, State and DOD have not 
reached agreement on fundamental issues. 

The letters provided to us by DOD components showed that over 1,900 
exemptions were certified for use by more than 270 exporters in 
calendar years 2004 through 2006. Two ITAR sections were most commonly 
cited, covering (1) the export of technical data, including classified 
information, and (2) the temporary export of technical data or defense 
services for official use by the U.S. government. The majority of the 
certified exemptions related to missile defense and Air Force programs. 
Exporters who were identified in DOD-certified exemption letters 
included defense contractors, university laboratories, and federally 
funded research and development centers. Four defense contractors 
represented more than one-fourth of the exemption certifications during 
this 3-year period. The United Kingdom, Australia, Canada, and the 
North Atlantic Treaty Organization (NATO) [Footnote 5] 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. While DOD’s exemption guidelines provide for 
annual reporting to State on certified exemptions, this report captures 
data from the military services but not from other DOD components, such 
as the Missile Defense Agency. For example, in July 2007, DOD’s report 
to State indicated that 161 certification letters were issued by the 
military services in 2006; for the same year, we collected 271 letters 
from nonservice components. In addition, the data may not capture the 
magnitude of transfers certified for exemption use. For example, one 
letter that we reviewed certified the use of an exemption by more than 
50 companies for the purposes of sharing, with allied partners, 
technical data relating to a quote or bid proposal. 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 exemptions. However, the details on these transfers were not 
included in DOD’s 2006 report to State on exemptions certified by DOD, 
limiting insight into the number of transfers that occurred. 

We are recommending that State and DOD resolve disagreements on 
exemption use and guidelines and increase insight and oversight of 
certified exemptions. Specifically, we are recommending that State and 
DOD establish a work group to resolve disagreements. If needed, State 
should revise the ITAR to incorporate any necessary changes. Once 
agreement is reached, DOD should revise its guidelines and make them 
applicable to all DOD components. We are also recommending that DOD 
ensure that its report to State is more complete by collecting data, 
analyzing trends and usage, and reporting on certifications from all 
DOD components. In commenting on a draft of this report, DOD and State 
agreed to establish a work group to resolve disagreements on exemption 
use and for DOD to revise and distribute its guidelines accordingly. 
However, DOD misunderstood the intent of our recommendation on 
oversight, stating that there is no existing mechanism whereby the U.S. 
government can collect data from exporters to monitor exports of 
defense items made under exemptions and that such a mechanism would 
exceed DOD’s existing authority. As a result, we clarified the language 
in this recommendation to indicate that DOD should ensure that the 
revised guidelines provide the appropriate oversight mechanisms for the 
exemption certification process, such as the collection of data from 
all DOD components on exemptions they certified. 

Background: 

Authority for controlling the export of defense items is provided 
through the Arms Export Control Act,[Footnote 6] and these exports are 
regulated through the ITAR by State Department’s Directorate of Defense 
Trade Controls. While most defense items require a license for export, 
the ITAR contains numerous exemptions from licensing requirements that 
have defined conditions and limitations. For exports that directly 
support DOD activities, such as exports related to defense cooperative 
programs, exporters may claim an exemption from licensing requirements 
pursuant to the written request, directive, or approval of DOD. In 
doing so, DOD certifies that the export appropriately qualifies for one 
or more of a limited number of applicable ITAR license exemptions. As 
with all exemptions, the exporter decides whether to export using an 
exemption and bears ultimate responsibility for complying with 
requirements in the ITAR. 

In May 2000, the Administration announced 17 proposals as part of its 
Defense Trade Security Initiative—an effort to facilitate cross-border 
defense cooperation and streamline U.S. export controls. One proposal 
was that DOD make more effective use of ITAR exemptions to facilitate 
exports that further U.S. government interests in defense cooperation 
with allies and friendly nations. To clarify exemption use, DOD’s 
Defense Technology Security Administration (DTSA)—which is responsible 
for developing and implementing DOD security policies on international 
transfers of defense-related goods, services, and technologies—issued 
guidelines in March 2004 for certifying U.S. exporters’ use of certain 
ITAR exemptions. [Footnote 7] These guidelines were provided to the 
military services, given that they are primarily responsible for 
managing and implementing international defense cooperative programs. 

Guidelines for DOD’s Certification of Exemption Use Have Raised Some 
Concerns by State: 

In support of defense activities, DOD components prepare letters 
certifying the use of certain exemptions by exporters under State’s 
export control regulations. The approach used by the military services 
for certifying the use of ITAR exemptions is set forth in DOD 
guidelines. Nonservice DOD components also certify the use of 
exemptions but are not subject to the guidelines, which were not issued 
departmentwide. Some of these nonservice components had created or were 
creating their own guidelines, which could lead to confusion regarding 
certain certification practices. State, as the regulator of defense 
exports, has raised concerns about the guidelines not clearly 
explaining the purpose and scope of the exemptions available to DOD, 
and State and DOD disagree on contractors’ use of one exemption that 
has been certified by DOD components. 

Military Services’ Approach for Certifying ITAR Export Exemptions Is 
Set Forth in DOD Guidelines, but These Guidelines Were Not Issued DOD-
wide: 

Some ITAR exemptions apply to exports that directly benefit DOD 
activities, ranging from support of defense cooperative programs, such 
as the Joint Strike Fighter, to providing equipment and technical 
services necessary to support U.S. forces in foreign locations. For 
such exemptions, DOD confirms whether the export activity appropriately 
qualifies for the use of an exemption and typically documents this 
confirmation in a written letter directly to the exporter or sometimes 
to the cognizant DOD program office that the exemption will benefit. 

Typically, the letters identify the ITAR sections that pertain to the 
exemption, the type and purpose of the export, the destination country, 
and a time frame for the export to occur (see fig. 1). 

Figure 1: Sample Letter: 

Date: January 30, 2005 (Issue date): 

From: [DOD Component] (DOD component certifying the exemption): 

To: [Exporter] (Name of exporting company or individual): 

In furtherance of DOD’s mission and under the provision of paragraph 
125.4(b)(1), International Traffic in Arms Regulation (ITAR) (Pertinent 
ITAR exemption), your company and your subcontractors are hereby 
directed, requested, and authorized to disclose certain specified 
export control data to [recipient country] (Foreign government, foreign 
contractor, or both) related to [DOD program] (Component and/or program 
exemption supports). The technical exchanges will occur between 
February 15 and April 15, 2005 in [country] at [conference] (Purpose 
for exemption). 

The technical data must be limited to information approved by [DOD 
component] for oral and visual disclosure, and documentary release and 
must be consistent with the limitations listed below and the disclosure 
authorizations of Delegation of Disclosure Authority Letters for this 
program: 
* A U.S. military person knowledgeable about the above-referenced 
program will be present at all meetings requiring foreign participation 
to ensure that the U.S. exporter complies with the pertinent disclosure 
authorizations and the conditions and limitations of this exemption. 
* [Exporter] must maintain for 5 years a record of all U.S. export-
controlled information disclosed to the [foreign 
government/contractor]. 
* [Exporter] must be eligible pursuant to ITAR section 120.1 and must 
comply with ITAR conditions applicable to the use of exemptions. 
(Conditions and limitations) 

This exemption expires April 20, 2005 (Date exemption expires). 

Sincerely, 

Jane Smith: 
Director: 

Source: GAO review of DOD certification letters. 

[End of figure] 

In March 2004, DOD issued guidelines to the military services that were 
intended to provide a level of oversight for the exemption 
certification process, such as establishing elements of authority and 
record-keeping requirements.[Footnote 8] The guidelines included the 
following procedures for certifying exporters’ use of ITAR exemptions 
in support of DOD’s activities: 

* Established authorized exemption officials within each service to 
certify the use of ITAR exemptions. These designated general officers 
or senior executive service personnel in the military services are 
responsible for overall management and oversight of the exemption 
certification process. 

* Provided elements for the certification, to include (1) a tracking 
number for the certification; (2) ITAR exemption citation number; (3) 
name of the exporter for whom use of the exemption is certified; (4) 
the reason/purpose for certifying use of the exemption and benefit to 
the U.S. government; (5) description of the specific defense article, 
service, or technical data exempted; (6) conditions and limitations as 
necessary to establish a clearly defined scope for defense articles, 
services, and technical data authorized for export and any handling, 
control, or accountability measures deemed necessary; (7) the foreign 
end users; and (8) the expiration date—not more than 1 year from date 
of issue. 

* Required the military services to enter data on exemptions into a 
centralized DOD database. 

* Stated that DTSA would annually report on the services’ exemption 
certification data to State. 

* Restated requirements in the ITAR that exemptions may only be 
certified for use by eligible U.S. persons registered with the 
Department of State, Director of Defense Trade Controls; and that U.S. 
persons must comply with ITAR requirements for use of exemptions, 
including applicable criteria and limitations. DOD certifications do 
not supersede other ITAR requirements for use of exemptions. 

* Listed five exemptions that relate to exports of defense items—such 
as technical data pursuant to a written DOD request, shipments of 
defense items by or for U.S. government agencies, or plant visits 
(classified or unclassified) (see table 1). 

Table 1: ITAR Exemptions Identified in DTSA Guidelines for Military 
Service Certification and ITAR Exemption Description: 

ITAR exemption: 125.4(b)(1); 
Description from ITAR[a]: Technical Data Pursuant to Written Request: 
“Technical data, including classified information, to be disclosed 
pursuant to an official written request or directive from the U.S. 
Department of Defense.” 

ITAR exemption: 125.4(c); 
Description from ITAR[a]: Responding to a Quote or Bid Proposal: 
“Defense services and related unclassified technical data... to 
nationals of NATO countries, Australia, Japan, and Sweden, for the 
purposes of responding to a written request from the Department of 
Defense for a quote or bid proposal. Such exports must be pursuant to 
an official written request or directive from an authorized official of 
the U.S. Department of Defense.” 

ITAR exemption: 125.5 (a),(b),(c); 
Description from ITAR[a]: Exemptions for Plant Visits: (a) “A license 
is not required for the oral and visual disclosure of unclassified 
technical data during the course of a classified plant visit by a 
foreign person, provided (1) the classified visit has itself been 
authorized pursuant to a license issued by the Directorate of Defense 
Trade Controls; or (2) the classified visit was approved in connection 
with an actual or potential government-to-government program or project 
by a U.S. Government agency...” (b)...Directorate of Defense Trade 
Controls approval is not required for disclosure of oral and visual 
classified information during the course of a plant visit approved by 
the appropriate U.S. Government agency if certain requirements are met, 
such as the classified information is directly related to that which 
was approved by the U.S. Government agency... (c) “...a license is not 
required for the disclosure to a foreign person of unclassified 
technical data during the course of a plant visit (either classified or 
unclassified) approved by the Office of Defense Trade Controls or a 
cognizant U.S. Government agency... provided the technical data does 
not contain information in excess of that approved for disclosure.” 

ITAR exemption: 126.4(a); 
Description from ITAR[a]: Shipments by or for United States Government 
Agencies: “A license is not required for the temporary import, or 
temporary export, of any defense article, including technical data or 
the performance of a defense service, by or for any agency of the U.S. 
Government for official use by such an agency, or for carrying out any 
foreign assistance, cooperative project or sales program authorized by 
law and subject to control by the President by other means.” 

ITAR exemption: 126.4(c); 
Description from ITAR[a]: End-Use by U.S. Government Agency in a 
Foreign Country: “A license is not required for the temporary import, 
or temporary or permanent export, of any classified or unclassified 
defense articles, including technical data or the performance of a 
defense service, for end-use by a U.S. Government Agency in a foreign 
country...” 

Source: DOD Guidelines for Certifying Use of International Traffic in 
Arms Regulation Exemptions, (March 2004) and reissued December 2006; 
International Traffic in Arms Regulations, 22 C.F.R. Parts 125 and 126 
(2006). 

[a] For complete citations, see appendix II. 

[End of table] 

DTSA officials stated that DOD has not determined the need for a 
departmentwide directive or instruction on certifying the use of ITAR 
exemptions. Because all nonservice DOD components currently are not 
subject to existing DOD guidelines, officials at some nonservice 
components that we spoke with had created or were in the process of 
creating their own exemption guidelines. [Footnote 9] A lack of common 
guidelines could lead to inconsistent certification practices. In 
addition, some confusion exists regarding certain certification 
practices. For example, an official from one of the four nonservice 
components questioned whether the component could provide 
certifications for exporters with which it had contracts or whether the 
cognizant military service that maintained the overall contract would 
need to provide the certification. This official continues to certify 
exemptions for such exporters with which it contracts. 

State and DOD Disagree on the Use of Certain Exemptions by Contractors 
and the Comprehensiveness of DOD’s Exemption Guidelines: 

State officials, who regulate and control the export of defense items, 
have raised concerns about DOD’s exemption certification guidelines. 
Specifically, DTSA provided State with proposed revisions to its 
guidelines in April 2006, and in response, State provided DTSA with 
written comments raising concerns with the guidelines. According to 
senior-level export control officials at both State and DOD, they met 
to discuss areas of disagreement but were unable to reach resolution. 
To date, State and DOD have not resolved fundamental areas of concern. 

* First, State disagreed with DOD’s certification of exporters’ use of 
the exemption under ITAR section 126.4(a). According to State 
officials, language in this section indicates that the exemption is 
only designed for use by U.S. government personnel for U.S. government 
end-use and is not designed to be used by contractors. DTSA disagreed 
on this point and stated that the section’s phrase “by or for any 
agency of the U.S. government” indicates that the exemption can be used 
by contractors when their work is directed by DOD for its own benefit. 
In the most recent draft iteration of the guidelines, DTSA now plans to 
further define responsibility for certifying this ITAR exemption, 
removing some certification responsibility from the military services 
in an attempt to provide greater control over its use. However, DTSA 
officials stated that DOD plans to continue to certify the use of this 
exemption. 

* Second, State indicated that the guidelines to the military services 
are not clear on the purpose and scope of the exemptions available to 
DOD. State suggested that DOD revise its guidelines to include (1) ITAR 
sections 126.6(a) and 126.6(c) on foreign military sales to provide 
further context, citing that their inclusion would inform the military 
services that other ITAR exemptions are provided for the exclusive use 
of DOD in the conduct of its official business, and (2) ITAR section 
125.4(b)(3)—the provision of technical data in furtherance of a 
contract between the exporter and the U.S. government if the contract 
provides for the export of data—which State identified as one that may 
be certified by DOD for use by exporters when conducting DOD’s mission. 
State also noted that the use of each exemption is pursuant to the 
conditions and terms specified in the ITAR and that the exporter should 
be directed to the relevant ITAR sections. DTSA officials stated that 
its guidelines only include those ITAR sections that specifically 
provide for exemption use for exports at the direction or approval of 
DOD. DTSA officials further stated that the foreign military sales 
process is defined separately in the ITAR and that DOD has its own 
system and process for reporting to State on foreign military sales. 
(The complete text of cited ITAR sections under discussion can be found 
in app. II.) 

* Finally, State suggested that DTSA be the certifying entity for all 
other DOD components outside of the military services and that all 
certifying organizations be trained in the evaluation of certification 
requests and the application of DOD guidelines. DTSA officials plan to 
include in the revised guidelines a provision that nonservice DOD 
components seek guidance from their respective general counsel, as is 
the current practice. 

DOD is in the process of revising its guidelines, which are set to 
expire in December 2007. These revisions are partially in response to 
State’s concerns, and DOD is planning to submit them to State for its 
review. However, to date, State and DOD officials have not reached 
agreement on these issues, and the lack of common understanding of 
regulatory exemption use could result in inconsistent application of 
the regulations. 

DOD Components Certified the Use of Exemptions for a Variety of 
Programs and Foreign Recipients: 

On the basis of over 1,100 certification letters that DOD components 
provided to us and our review of them, DOD components certified the use 
of over 1,900 exemptions [Footnote 10] for multiple companies and 
various programs from 2004 through 2006. Most of the exemptions were 
for exports of technical data or services for Air Force or missile 
defense programs and for exports to long-standing allies. 

We identified a number of DOD components that certified the use of ITAR 
exemptions by exporters. These components varied widely in the number 
of certifications they issued—ranging from 24 to more than 1,040. Table 
2 summarizes highlights of our analysis of export exemptions certified 
by various DOD components. 

Table 2: GAO Analysis of DOD Exemption Certifications (2004 through 
2006): 

Area of analysis: Number of certifications, by DOD component; 
Results: 
* Missile Defense Agency—1,040; 
* Air Force—595; 
* Navy—112; 
* National Security Agency—112; 
* Army—53; 
* National Geospatial-Intelligence Agency—24; 
* Acquisition, Technology, and Logistics—24. 

Area of analysis: Most frequently cited ITAR exemptions; 
Results: 
* 125.4(b)(1)—“Technical data, including classified information, to be 
disclosed pursuant to an official written request or directive from the 
U.S. Department of Defense.” 
* 126.4(a)—“Temporary import or export of a defense article or service 
by or for any agency of the U.S. government for official use by such an 
agency, or for carrying out any foreign assistance, cooperative project 
or sales program....” 

Area of analysis: Most frequent type of export; 
Results: 
* Knowledge transfer (technical data and defense services). 

Area of analysis: Most frequently cited foreign destinations; 
Results: 
* United Kingdom; 
* NATO; 
* Australia; 
* Canada; 
* Norway; 
* Japan. 

Area of analysis: Programs/activities most often cited; 
Results: 
* Command, Control, Battle Management, and Communications (C2BMC); 
* Joint Strike Fighter (JSF); 
* Upgraded Early Warning Radar (UEWR); 
* Space Based Infrared System (SBIRS); 
* Joint Project Optic Windmill (JPOW). 

Area of analysis: Companies/organizations most often identified for 
exemption use; 
Results: 
* Northrop Grumman; 
* Lockheed Martin; 
* Raytheon; 
* SPARTA; 
* MITRE; 
* Boeing. 

Source: GAO analysis of DOD component exemption certification letters 
from calendar years 2004 through 2006. 

Of the components we identified, the Missile Defense Agency and the Air 
Force provided us about 80 percent of the exemption certification 
letters that we reviewed. Almost all of the certifications were for the 
export of technical data or for the temporary export of defense items 
“by or for any agency of the U.S. government for official use by such 
an agency.” About half of the certifications were for the use of ITAR 
section 125.4(b)(1) for the export of technical data, including 
classified information, typically related to a particular program, such 
as Joint Strike Fighter or Upgraded Early Warning Radar, with allies 
during discussions at scheduled meetings or participation in technical 
conferences in foreign locations. In addition, almost 30 percent of the 
certifications were for ITAR section 126.4(a), such as exports of 
technical data, defense services, or hardware in support of joint 
military exercises. ITAR section 126.4(a) is the one that State and DOD 
disagree on its use by contractors. An additional 19 percent of the 
certifications cited both of these ITAR sections. Less than 3 percent 
of the ITAR exemptions identified were for transfers of software and 
hardware—primarily for use by U.S. forces outside of the United States, 
sometimes in support of operations in Iraq. Twenty-one of the 
certifications issued by two nonservice components cited ITAR section 
125.4(b)(3)—technical data in furtherance of a contract between the 
exporter and the U.S. government if the contract provides for the 
export of data. 

More than 270 exporters, including prime contractors and 
subcontractors, were identified in exemption certification letters we 
reviewed. The most frequently identified exporters were defense 
contractors, but university laboratories and federally funded research 
and development centers were also identified. Four major defense 
contractors represented one-fourth of the exemption certifications, 
with one receiving over 200 certifications. However, more than 80 
percent of the exporters were identified five or fewer times in the 
certifications we reviewed from DOD components. A total of 266 
different programs and activities were identified in the 
certifications, with the Missile Defense Agency having the largest 
number. [Footnote 11] Over 90 foreign destinations, including NATO, 
were identified on DOD certifications. The most frequently cited 
destination country was the United Kingdom—identified 900 times. 
Thirteen countries were only identified once as exempted export 
destinations—some of which were situations in which U.S. entities 
located in the countries were the recipients, not the foreign 
government or industry of that country. [Footnote 12] Some 
certifications were for exports to multiple countries within one 
geographic region, such as Latin America. 

State and DOD Lack Complete Data to Oversee Exemptions Certified by 
DOD: 

State and DOD lack comprehensive data to oversee the use of DOD-
certified exemptions, limiting their knowledge of defense activities 
under this process. DOD’s annual report to State on the use of 
exemptions captures data from the military services but not from other 
DOD components. In addition, the data may not capture the magnitude of 
transfers certified for exemption use. Specifically, we found that one 
DOD component used one letter to certify multiple companies’ use of an 
ITAR exemption during a 1-year period. This information was not 
included in the DOD component’s reporting on exemption certification 
use. In addition, we found that some of the certification letters that 
we reviewed lacked key information that could be helpful in overseeing 
exemptions certified by DOD components. 

The DOD exemption guidelines state that the military services must 
record the exemption in a centralized DOD database. However, nonservice 
components, such as the Missile Defense Agency—which had the largest 
number of certifications from 2004 through 2006—do not record their 
exemption certification data in the centralized DOD database, known as 
USXPORTS. [Footnote 13] Instead, the nonservice components retain their 
own records on certified exemptions. In addition, DOD guidelines 
provide that DOD submit a report to State on exemptions certified for 
use on an annual basis. In July 2007, DOD submitted its 2006 report to 
State based on the data contained in USXPORTS. However, the utility of 
DOD’s report to State on exemption use is limited in several areas. 
First, since DOD collects data for only the military services, its 
exemption report to State does not provide total exemption data for all 
DOD components. Specifically, DOD’s report to State contained data on 
161 certification letters issued by the military services in 2006; for 
the same year, we collected an additional 271 letters from nonservice 
components. Second, for each certification letter, the report contains 
(1) a certification tracking number, (2) certification date, (3) 
certifying organization, (4) destination country or countries, (5) 
description of export, and (6) exporter name. However, it does not 
contain other information that the DOD guidelines specify for inclusion 
in the certification letters and maintenance in the military services’ 
records on exemption certifications, such as which ITAR exemption is 
being certified and the expiration date for each exemption. [Footnote 
14] 

Therefore, State does not have a complete report for the exemptions 
certified for use by all of DOD’s components. 

While the certification letters we reviewed frequently contained the 
information as called for in the DOD exemption guidelines, some 
differences existed that resulted in DOD not having insight into the 
magnitude of transfers certified for exemption use. For example, for 
its Joint Strike Fighter program, the Air Force issues an annual 
certification letter—to more than 50 companies—that certifies their use 
of one ITAR exemption for the purposes of responding to written 
requests from DOD for a quote or bid proposal. These letters are broad 
in scope and do not specify what technical data would be released for 
the program. When these companies listed on the certification letter 
cite a specific need for using this exemption throughout the year for 
an export, they submit their request directly to the program office. 
However, because the Air Force does not require the program office to 
report these specific data on these program office approvals for 
transfers, it is likely that the Air Force lacks comprehensive 
knowledge on exports transferred under the use of this ITAR exemption. 
From 2004 through 2006, we found that the Joint Strike Fighter program 
had authorized the release of more than 600 transfers of technical data 
under the quote or bid proposal exemption containing specific 
information—such as the types of technical data and related drawings 
exported and the frequency of these exports—which the Air Force lacks 
in its central record keeping on exemptions. Further, DOD’s 2006 report 
to State includes only the certification letter that was broad in 
scope, but it does not include the magnitude of transfers under this 
certification. 

We found some variations in the type of information contained in the 
certification letters provided by the military services and non-service 
components, which can lessen DOD’s insight into the specific export 
activities that DOD is certifying. [Footnote 15] For example, 163 did 
not specify whether the foreign export destination entity was a foreign 
government, foreign industry, or U.S. entity. [Footnote 16] Over 70 
certifications—about 4 percent of the total certifications we 
reviewed—did not contain an expiration date for the exemption; 
[Footnote 17] for the remainder, the length of coverage from 
certification date to expiration date ranged from less than 1 day to 
more than 4.5 years. The scope of the letters ranged from covering one 
exporter to covering multiple exporters, and about 30 percent of the 
certifications that we reviewed included subcontractors. While covering 
more than one exporter under one certification letter may create some 
workforce efficiencies, it could limit DOD’s insight into exporters 
receiving exemption certifications. In addition, this practice, while 
not specifically addressed in the DOD guidelines, has raised concern 
among some contractors that doing so could blur transparency and create 
some liability issues. Export control officials from each of the four 
companies we spoke with said they would prefer that each subcontractor 
have a separate certification letter from DOD to provide a clearer 
record of, and decrease their liability for, subcontractors’ exports. 

Conclusions: 

While the exemption certification process is one way to facilitate 
defense cooperation with friendly nations and allies, the U.S. 
government needs a consistent approach to and knowledge of defense 
export activities certified through this process. However, State and 
DOD have disparate understandings of regulatory exemption use and 
guidance, and efforts to resolve these differences have proven 
unsuccessful. Further, neither State nor DOD has complete and accurate 
data to obtain sufficient knowledge of the extent to which all DOD 
components are certifying the use of exemptions for the export of 
defense items. Therefore, State and DOD cannot readily identify in 
total and on a program-by-program basis the defense items that DOD has 
certified for exemption use in support of DOD’s activities. 

Recommendations for Executive Action: 

To ensure a common understanding of the use of ITAR exemptions 
available for DOD’s activities, we recommend that the Secretary of 
State direct the Deputy Assistant Secretary for the Directorate of 
Defense Trade Controls and the Secretary of Defense 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. 

We are also recommending that 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 Comments: 

The Departments of Defense and State provided comments on a draft of 
this report. DOD also provided technical comments, which we 
incorporated as appropriate. In commenting on our first recommendation, 
Defense and State both concurred with the need to establish a work 
group to define and resolve disagreements on exemption use and 
guidelines, and to document decisions reached. State indicated that 
initial discussions with DOD have begun, and DOD stated that it plans 
to codify the understandings in a clear set of guidelines to be issued 
to DOD components. 

In its comments on our second recommendation, DOD did not agree, 
stating that there is no existing mechanism whereby the U.S. government 
can collect data from exporters to monitor exports of defense items 
made under exemptions. DOD further stated that such a mechanism would 
exceed DOD’s existing statutory and regulatory authority because the 
ultimate responsibility for obtaining appropriate authorization to 
export defense items rests with the exporter. Our intent was not for 
DOD to collect information directly from exporters. Instead, our 
recommendation is intended for DOD to expand its existing data 
collection of exemptions certified by the military services to include 
those from all DOD components. To clarify this intent, we modified the 
language in the recommendation. 

Formal written comments provided by DOD and State are reprinted in 
appendixes III and IV, respectively. 

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution of it until 30 
days from the date of this letter. We will then provide copies of this 
report to interested congressional committees, as well as the 
Secretaries of Defense and State; the Attorney General; the Director, 
Office of Management and Budget; and the Assistant to the President for 
National Security Affairs. In addition, this report will be made 
available at no charge on the GAO Web site at [hyperlink, http://www.gao.gov]. 

Please contact me at (202) 512-4841 or calvaresibarra@gao.gov if you or 
your staff have any questions concerning this report. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. Others making key contributions 
to this report are listed in appendix V. 

Sincerely yours, 

Singed by: 

Ann Calvaresi-Barr: 
Director: 
Acquisition and Sourcing Management: 

[End of section] 

Appendix I: Scope and Methodology: 

To describe the approach used by the Department of Defense (DOD) for 
certifying the use of export exemptions for exporters, we reviewed 
export control regulations and discussed with the Department of State 
and DOD their interpretation of when DOD can certify that a specific 
export activity qualifies for the use of certain export exemptions. We 
reviewed DOD’s exemption certification guidelines, State’s response to 
the guidelines, DOD components’ internal guidance on exemption 
certifications, and DOD components’ practices. We also interviewed 
officials from State’s Directorate of Defense Trade Controls—from the 
Licensing, Compliance, Management, and Policy offices, and DOD’s 
Defense Technology Security Administration about their views on the 
International Traffic in Arms Regulations (ITAR) allowances for 
exemption use by exporters, requirements for DOD to direct the use of 
certain ITAR exemptions, and practices by DOD components that certify 
the use of exemptions by exporters in support of DOD activities. 

We collected and summarized DOD export exemption certification letters 
for calendar years 2004 through 2006 to summarize the use of DOD-
certified exemptions. We selected 2004 because the Defense Technology 
Security Administration (DTSA) issued guidelines on the certification 
process to the military services in that year. Prior to 2004, no formal 
procedures existed for designating senior-level personnel in the 
military departments for the authorization of ITAR exemption 
certifications. Through interviews with knowledgeable State and DOD 
officials, we created a list of DOD components potentially certifying 
the use of exemptions. While this coordination helped identify the DOD 
components certifying the use of exemptions, there may be other 
components that were not included in this list and additional exemption 
letters might exist. We then contacted the DOD components on our list 
to ask if they certified exemptions between 2004 and 2006. While some 
components on our list stated that they did not certify export 
exemptions, we collected certification letters from those DOD 
components that did certify the use of exemptions—the Air Force, Army, 
Navy, Missile Defense Agency, National Geospatial-Intelligence Agency, 
National Security Agency, and the Office of Acquisition, Technology, 
and Logistics. We created a database to summarize information provided 
in these certification letters, such as the exemptions certified, types 
of exports, and foreign recipients. In some cases, DOD components 
provided separate letters for each exporter receiving an exemption 
certification for an activity, while other components combined all 
exporters onto one exemption certification letter for an activity. 
Therefore, to get an equitable count, we separated individual companies 
from exemption certifications granted for multiple companies on one 
letter. The total number of exemption certification letters provided by 
the DOD components to us was 1,142. After separating out the individual 
companies from the certification letters, the total number of ITAR 
exemptions certified by the DOD components for the calendar years 2004 
through 2006 totaled 1,960. 

To examine the extent to which State and DOD oversee the use of export 
exemptions certified by DOD, we reviewed DOD’s 2006 report on certified 
exemptions provided to State in July 2007. We also interviewed DTSA 
officials about the USXPORTS automation system and what it contains. To 
gain a DOD acquisition program office perspective, we interviewed the 
Joint Strike Fighter Program Office about its exemption certification 
processes and practices. We compared the data of the program office 
with the data from the cognizant military service. We also interviewed 
officials from four of the companies—Boeing, Lockheed Martin, Northrop 
Grumman, and Raytheon—who most often received certification letters to 
gain their perspective on DOD components’ processes for and guidance to 
exporters on DOD-certified exemptions. We examined the certification 
letters we obtained from DOD components and identified differences 
among information contained in the letters. 

[End of section] 

Appendix II: ITAR Sections Discussed in This Report: 

We discussed in this report a number of ITAR subparts and sections that 
are cited in DOD certification letters, identified in DOD’s exemption 
certification guidelines, or are under discussion between State and 
DOD. These ITAR sections are cited below in their entirety. 

Table 3: ITAR Sections Cited in This Report: 

§125.4 Exemptions of general applicability: 
§125.4(a) The following exemptions apply to exports of technical data 
for which approval is not needed from the Directorate of Defense Trade 
Controls. These exemptions, except for paragraph (b)(13) of this 
section, do not apply to exports to proscribed destinations under 
§126.1 of this subchapter or for persons considered generally 
ineligible under § 120.1(c) of this subchapter. The exemptions are also 
not applicable for purposes of establishing offshore procurement 
arrangements or producing defense articles offshore (see § 124.13), 
except as authorized under §125.4 (c). If §126.8 of this subchapter 
requirements are applicable, they must be met before an exemption under 
this section may be used. Transmission of classified information must 
comply with the requirements of the Department of Defense National 
Industrial Security Program Operating Manual and the exporter must 
certify to the transmittal authority that the technical data does not 
exceed the technical limitation of the authorized export. 

§125.4 Exemptions of general applicability: 
§125.4(b) The following exports are exempt from the licensing 
requirements of this subchapter. 

§125.4 Exemptions of general applicability: 
§125.4(b)(1) Technical data, including classified information, to be 
disclosed pursuant to an official written request or directive from the 
U.S. Department of Defense; 

§125.4 Exemptions of general applicability: 
§125.4(b)(3) Technical data, including classified information, in 
furtherance of a contract between the exporter and an agency of the 
U.S. Government, if the contract provides for the export of the data 
and such data does not disclose the details of design, development, 
production, or manufacture of any defense article; 

§125.4 Exemptions of general applicability: 
§125.4(c) Defense services and related unclassified technical data are 
exempt from the licensing requirements of this subchapter, to nationals 
of NATO countries, Australia, Japan, and Sweden, for the purposes of 
responding to a written request from the Department of Defense for a 
quote or bid proposal. Such exports must be pursuant to an official 
written request or directive from an authorized official of the U.S. 
Department of Defense. The defense services and technical data are 
limited to paragraphs (c)(1), (c)(2), and (c)(3) of this section and 
must not include paragraphs (c)(4), (c)(5), and (c)(6) of this section 
which follow: 
(1) Build-to-Print. “Build-to-Print” means that a foreign consignee can 
produce a defense article from engineering drawings without any 
technical assistance from a U.S. exporter. This transaction is based 
strictly on a “hands-off” approach since the foreign consignee is 
understood to have the inherent capability to produce the defense 
article and only lacks the necessary drawings. Supporting documentation 
such as acceptance criteria, and specifications, may be released on an 
as-required basis (i.e. “must have”) such that the foreign consignee 
would not be able to produce an acceptable defense article without this 
additional supporting documentation. Documentation which is not 
absolutely necessary to permit manufacture of an acceptable defense 
article (i.e. “nice to have”) is not considered within the boundaries 
of a “Build-to-Print” data package; 
(2) Build/Design-to-Specification. “Build/Design-to-Specification” 
means that a foreign consignee can design and produce a defense article 
from requirement specifications without any technical assistance from 
the U.S. exporter. This transaction is based strictly on a “hands-off” 
approach since the foreign consignee is understood to have the inherent 
capability to both design and produce the defense article and only 
lacks the necessary requirement information; 
(3) Basic Research. “Basic Research” means a systemic study directed 
toward greater knowledge or understanding of the fundamental aspects of 
phenomena and observable facts without specific applications toward 
processes or products in mind. It does not include “Applied Research” 
(i.e. a systemic study to gain knowledge or understanding necessary to 
determine the means by which a recognized and specific need may be met. 
It is a systematic application of knowledge toward the production of 
useful materials, devices, and systems or methods, including design, 
development, and improvement of prototypes and new processes to meet 
specific requirements.); 
(4) Design Methodology, such as: The underlying engineering methods and 
design philosophy utilized (i.e., the ‘‘why’’ or information that 
explains the rationale for particular design decision, engineering 
feature, or performance requirement); engineering experience (e.g., 
lessons learned); and the rationale and associated databases (e.g., 
design allowables, factors of safety, component life predictions, 
failure analysis criteria) that establish the operational requirements 
(e.g., performance, mechanical, electrical, electronic, reliability and 
maintainability) of a defense article. (Final analytical results and 
the initial conditions and parameters may be provided.) 
(5) Engineering Analysis, such as: Analytical methods and tools used to 
design or evaluate a defense article’s performance against the 
operational requirements. Analytical methods and tools include the 
development and/or use of mockups, computer models and simulations, and 
test facilities. (Final analytical results and the initial conditions 
and parameters may be provided.) 
(6) Manufacturing Know-how, such as: information that provides detailed 
manufacturing processes and techniques needed to translate a detailed 
design into a qualified, finished defense article. (Information may be 
provided in a build-to-print package that is necessary in order to 
produce an acceptable defense article.) 

§ 125.5 Exemptions for plant visits: 
§ 125.5 (a) A license is not required for the oral and visual 
disclosure of unclassified technical data during the course of a 
classified plant visit by a foreign person, provided: (1) The 
classified visit has itself been authorized pursuant to a license 
issued by the Directorate of Defense Trade Controls; or (2) the 
classified visit was approved in connection with an actual or potential 
government-to-government program or project by a U.S. Government agency 
having classification jurisdiction over the classified defense article 
or classified technical data involved under Executive Order 12356 or 
other applicable Executive Order; and (3) the unclassified information 
to be released is directly related to the classified defense article or 
technical data for which approval was obtained and does not disclose 
the details of the design, development, production or manufacture of 
any other defense articles. In the case of visits involving classified 
information, the requirements of the Defense Industrial Security Manual 
(Department of Defense Manual 5220.22M) must be met. 

§ 125.5 Exemptions for plant visits: 
§ 125.5 (b) The approval of the Directorate of Defense Trade Controls 
is not required for the disclosure of oral and visual classified 
information to a foreign person during the course of a plant visit 
approved by the appropriate U.S. Government agency if: (1) The 
requirements of the Defense Industrial Security Manual have been met; 
(2) the classified information is directly related to that which was 
approved by the U.S. Government agency; (3) it does not exceed that for 
which approval was obtained; and (4) it does not disclose the details 
of the design, development, production or manufacture of any defense 
articles. 

§ 125.5 Exemptions for plant visits: 
§ 125.5 (c) A license is not required for the disclosure to a foreign 
person of unclassified technical data during the course of a plant 
visit (either classified or unclassified) approved by the Directorate 
of Defense Trade Controls or a cognizant U.S. Government agency 
provided the technical data does not contain information in excess of 
that approved for disclosure. This exemption does not apply to 
technical data which could be used for design, development, production 
or manufacture of a defense article. 

§ 126.4 Shipments by or for United States Government agencies: 
§ 126.4(a) A license is not required for the temporary import, or 
temporary export, of any defense article, including technical data or 
the performance of a defense service, by or for any agency of the U.S. 
Government for official use by such an agency, or for carrying out any 
foreign assistance, cooperative project or sales program authorized by 
law and subject to control by the President by other means. This 
exemption applies only when all aspects of a transaction (export, 
carriage, and delivery abroad) are affected by a United States 
Government agency or when the export is covered by a United States 
Government Bill of Lading. This exemption, however, does not apply when 
a U.S. Government agency acts as a transmittal agent on behalf of a 
private individual or firm, either as a convenience or in satisfaction 
of security requirements. The approval of the Directorate of Defense 
Trade Controls must be obtained before defense articles previously 
exported pursuant to this exemption are permanently transferred (e.g., 
property disposal of surplus defense articles overseas) unless the 
transfer is pursuant to a grant, sale, lease, loan or cooperative 
project under the Arms Export Control Act or a sale, lease or loan 
under the Foreign Assistance Act of 1961, as amended, or the defense 
articles have been rendered useless for military purposes beyond the 
possibility of restoration. NOTE: Special definition. For purposes of 
this section, defense articles exported abroad for incorporation into a 
foreign launch vehicle or for use on a foreign launch vehicle or 
satellite that is to be launched from a foreign country shall be 
considered a permanent export. 

§ 126.4 Shipments by or for United States Government agencies: 
§ 126.4(c) A license is not required for the temporary import, or 
temporary or permanent export, of any classified or unclassified 
defense articles, including technical data or the performance of a 
defense service, for end-use by a U.S. Government Agency in a foreign 
country under the following circumstances: (1) The export or temporary 
import is pursuant to a contract with, or written direction by, an 
agency of the U.S. Government; and (2) The end-user in the foreign 
country is a U.S. Government agency or facility, and the defense 
articles or technical data will not be transferred to any foreign 
person; and (3) The urgency of the U.S. Government requirement is such 
that the appropriate export license or U.S. Government Bill of Lading 
could not have been obtained in a timely manner. 

§ 126.6 Foreign-owned military aircraft and naval vessels, and the 
Foreign Military Sales program: 
§ 126.6 (a) A license from the Directorate of Defense Trade Controls is 
not required if: 
(1) The article or technical data to be exported was sold, leased, or 
loaned by the Department of Defense to a foreign country or 
international organization pursuant to the Arms Export Control Act or 
the Foreign Assistance Act of 1961, as amended, and; 
(2) The article or technical data is delivered to representatives of 
such a country or organization in the United States; and; 
(3) The article or technical data is to be exported from the United 
States on a military aircraft or naval vessel of that government or 
organization or via the Defense Transportation Service (DTS). 

§ 126.6 Foreign-owned military aircraft and naval vessels, and the 
Foreign Military Sales program: 
§ 126.6 (c) Foreign Military Sales Program. A license from the 
Directorate of Defense Trade Controls is not required if the defense 
article or technical data or a defense service to be transferred was 
sold, leased or loaned by the Department of Defense to a foreign 
country or international organization under the Foreign Military Sales 
(FMS) Program of the Arms Export Control Act pursuant to an Letter of 
Offer and Acceptance (LOA) authorizing such transfer which meets the 
criteria stated below: 
(1) Transfers of the defense articles, technical data or defense 
services using this exemption may take place only during the period 
which the FMS Letter of Offer and Acceptance (LOA) and implementing USG 
FMS contracts and subcontracts are in effect and serve as authorization 
for the transfers hereunder in lieu of a license. After the USG FMS 
contracts and subcontracts have expired and the LOA no longer serves as 
such authorization, any further provision of defense articles, 
technical data or defense services shall not be covered by this section 
and shall instead be subject to other authorization requirements of 
this subchapter; and; 
(2) The defense article, technical data or defense service to be 
transferred are specifically identified in an executed LOA, in 
furtherance of the Foreign Military Sales Program signed by an 
authorized Department of Defense Representative and an authorized 
representative of the foreign government, and; 
(3) The transfer of the defense article and related technical data is 
effected during the duration of the relevant Letter of Offer and 
Acceptance (LOA), similarly a defense service is to be provided only 
during the duration of the USG FMS contract or subcontract and not to 
exceed the specified duration of the LOA, and; 
(4) The transfer is not to a country identified in § 126.1 of this 
subchapter, and; 
(5) The U.S. person responsible for the transfer maintains records of 
all transfers in accordance with Part 122 of this subchapter, and; 
(6) For transfers of defense articles and technical data, (i) The 
transfer is made by the relevant foreign diplomatic mission of the 
purchasing country or its authorized freight forwarder, provided that 
the freight forwarder is registered with the Directorate of Defense 
Trade Controls pursuant to part 122 of this subchapter, and, (ii) At 
the time of shipment, the Port Director of U.S. Customs and Border 
Protection is provided an original and properly executed DSP–94 
accompanied by a copy of the LOA and any other documents required by 
U.S. Customs and Border Protection in carrying out its 
responsibilities. The Shippers Export Declaration or, if authorized, 
the outbound manifest, must be annotated "This shipment is being 
exported under the authority of Department of State Form DSP–94. It 
covers FMS Case [insert case identification], expiration [insert date]. 
22 CFR 126.6 applicable. The U.S. Government point of contact is _____, 
telephone number _____," and, (iii) If, classified hardware and related 
technical data are involved the transfer must have the requisite USG 
security clearance and transportation plan and be shipped in accordance 
with the Department of Defense National Industrial Security Program 
Operating Manual, or; 
(7) For transfers of defense services: 
(i) A contract or subcontract between the U.S. person(s) responsible 
for providing the defense service and the USG exists that: (A) 
Specifically defines the scope of the defense service to be 
transferred, (B) Identifies the FMS case identifier, (C) Identifies the 
foreign recipients of the defense service, (D) Identifies any other 
U.S. or foreign parties that may be involved and their 
roles/responsibilities, to the extent known when the contract is 
executed, (E) Provides a specified period of duration in which the 
defense service may be performed, and; 
(ii) The U.S. person(s) identified in the contract maintain a 
registration with the Directorate of Defense Trade Controls for the 
entire time that the defense service is being provided. In any instance 
when the U.S. registered person(s) identified in the contract employs a 
subcontractor, the subcontractor may only use this exemption when 
registered with DDTC, and when such subcontract meets the above stated 
requirements, and; 
(iii) In instances when the defense service involves the transfer of 
classified technical data, the U.S. person transferring the defense 
service must have the appropriate USG security clearance and a 
transportation plan, if appropriate, in compliance with the Department 
of Defense National Industrial Security Program Operating Manual, and; 
(iv) The U.S. person responsible for the transfer reports the initial 
transfer, citing this section of the ITAR, the FMS case identifier, 
contract and subcontract number, the foreign country, and the duration 
of the service being provided to the Directorate of Defense Trade 
Controls using DDTC’s Direct Shipment Verification Program. 

Source: ITAR, 22 C.F.R. Parts 125 and 126 (2006). 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Defense: 

Defense Technology Security Administration
2900 Defense Pentagon: 
Washington, DC 20301-2900: 

September 7, 2007: 

Ann Calvaresi-Barr:	
Director: 
Acquisition and Sourcing Management: 
Government Accountability Office: 
441 G Street NW: 
Washington, D.C. 20548: 

Dear Ms. Ann Calvaresi-Barr: 

This is the Department of Defense (DoD response to the GAO draft report 
07-1103, "Defense Trade: Clarification and Increased Oversight of 
Export Exemptions Certified by DoD Is Needed," dated August 15, 2007, 
(GAO CODE 120617). I appreciate the professional and constructive 
manner in which the GAO team conducted this review. In this same 
spirit, I offer the following comments and information. 

Recommendation 1: The GAO recommends that the Secretary of Defense 
direct the Director of the Defense Technology Security Administration 
to establish a work group with the Department of State 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. Once 
agreement is reached the Secretary of Defense should direct that the 
guidelines be revised and made applicable to all DoD components. (p. 
15/GAO Draft Report) 

DOD Response: Concur with recommendation in substance, including the 
recommendation that DTSA's Guidelines be expanded to all DoD 
components. Sec attached line-in/line-out for details. The Director of 
DTSA has agreed with her counterpart at the Department of State, the 
Deputy Assistant Secretary, Directorate of Defense Trade Controls, to 
initiate a working group as described in the draft Report. This working 
group will define and resolve disagreements on the use of exemptions by 
the DoD and codify the understandings in a clear set of guidelines to 
be issued to DoD components. 

Recommendation 2: The GAO recommends the Secretary of Defense direct 
the Director of the Defense Technology Security Administration to 
collect data on exports of defense items made under exemptions 
certified by all DoD components, analyze trends and usage, and include 
this information in its report to State. (p. 16/GAO Draft Report) 

DOD Response: Non-concur with the recommendation. 

There is no existing mechanism whereby the US Government can collect 
data from exporters in order to monitor exports of defense items made 
under exemptions, whether or not the use of those exemptions was 
certified by any or all DoD components, such that DoD could analyze 
trends and usage and include such information in a DoD report to State. 
Such a mechanism would exceed DoD's existing statutory and regulatory 
authority because the ultimate responsibility to obtain the appropriate 
USG authorization for an export (whether a license or an exemption) 
always rests with the exporter. The exporter is also responsible for 
maintaining records of what material is exported and whether under a 
license or under a license exemption and must be able to support its 
decision to utilize an exemption in lieu of obtaining an export license. 

Creating a mechanism involving DoD that would allow DTSA to "...collect 
data on exports of defense items made under exemptions certified by all 
DoD components, analyze trends and usage, and include this information 
in its report to State" would require changes to the Arms Export 
Control Act (AECA) to provide DoD with enforcement and compliance 
function authority and responsibility that it does not currently have. 
Imposing such a requirement on DoD will require additional personnel 
resources. 

The Guidelines DTSA developed and provided to the Services in 2004 were 
developed in response to a voluntary request from the Services for 
DTSA's guidance on the process of certifying use of exemptions by 
Service contractors that explicitly require a written directive front 
DoD. The Guidelines developed by DTSA were intended to provide a 
response to the Services' request; the Guidelines were never intended 
to obtain such data, nor were they ever expected to lead to collection 
of comprehensive data on use of exemptions by DoD components or their 
contractors. 

The fact that a DoD component has issued a letter certifying that a 
particular situation appears to comply with the requirements of the 
ITAR for use of an exemption does not itself constitute a US Government 
export authorization, nor does it absolve the exporter of its 
responsibilities under the AECA and the ITAR. All five of the ITAR 
exemptions identified it the DoD Guidelines and many others that do not 
involve the DoD arc exemptions the exporter may claim with or without a 
written certification from DoD on the exporter's own responsibility 
(i.e., so-called "self-claimed" exemptions). 

If such data is to be collected and analyzed, it should be done by the 
Department of State, which has the statutory and regulatory compliance 
and enforcement authority. Additionally, the data should also include 
information from the exporters on the vast array of other export 
license exemptions that do not require any sort of "certification" from 
DoD. 

Attached please find a series of detailed comments on the text of the 
draft Report for your consideration. 

Thank you for the opportunity to comment. My point of contact for CIAO 
matters is Dr. Peter Leitner, peter_Ieitner@osd.mil, or 703-325-4080. 

Signed by: 

Beth M. McCormick: 
Director (Acting): 
Defense Technology Security Administration: 

Attachment: 
As stated. 

[End of section] 

Appendix IV: Comments from the Department of State: 

United States Department of State: 
Assistant Secretary for Resource Management and Chief Financial 
Officer: 
Washington, D.C. 20520: 

Ms. Jacquelyn Williams-Bridgers: 
Managing Director: 
International Affairs and Trade: 
Government Accountability Office: 
441 G Street, NW: 
Washington, D.C. 20548-0001: 

September 12, 2007 

Dear Ms. Williams-Bridgers: 

We appreciate the opportunity to review your draft report, "Defense 
Trade: Clarification and Increased Oversight of Export Exemptions 
Certified by DOD Is Needed," GAO Job Code 120617. 

The enclosed Department of State comments are provided for 
incorporation with this letter as an appendix to the final report. 

If you have any questions concerning this response, please contact 
Capt. Laurell Brault, Deputy Director, Bureau of Political-Military 
Affairs, at (202) 663-2736. 

Sincerely, 

Signed by: 

Sid Kaplan (Acting): 

cc: 
GAO — Anne-Marie Lasowski: 
PM – Stephen Mull: 
State/OIG — Mark Duda: 

Department of State Comments on GAO Draft Report: 
Defense Trade: Clarification and Increased Oversight of Export 
Exemptions Certified by DOD Is Needed: 
(GAO-07-1103, GAO Code 120617): 

The GAO report Defense Trade: Clarification and Increased Oversight of 
Export Exemptions Certified by DOD Is Needed (GAO-07-1103 GAO Code 
120617) contains recommendations for the Department of State. 

In the first recommendation, the Department of State's Directorate of 
Defense Trade Controls (PM/DDTC) is requested to establish a working 
group with the Director of the Defense Technology Security 
Administration (DTSA) to define and resolve disagreements on exemption 
use and guidelines and to document decisions reached. GAO also 
recommended that DDTC revise the International Traffic in Arms 
Regulations (ITAR) if needed, based on the findings in the report and 
the outcome of the working group discussions. 

DDTC concurs with the GAO recommendations. Initial discussions are 
already underway between the Department and DoD officials. 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Ann Calvaresi-Barr (202) 512-4841 or calvaresibarra@gao.gov: 

Acknowledgments: 

In addition to the contact name above, Anne-Marie Lasowski, Assistant 
Director; Lisa Gardner; Sharron Candon; Peter Grana; Arthur James, Jr.; 
Karen Sloan; and Marie Ahearn made key contributions to this report. 

[End of section] 

Related GAO Products: 

Export Controls: Vulnerabilities and Inefficiencies Undermine System’s 
Ability to Protect U.S. Interests. GAO-07-1135T. Washington, D.C.: July 
26, 2007. 

High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 31, 
2007. 

Export Controls: Challenges Exist in Enforcement of an Inherently 
Complex System. GAO-07-265. Washington, D.C.: December 20, 2006. 

Defense Technologies: DOD’s Critical Technologies List Rarely Informs 
Export Control and Other Policy Decisions. GAO-06-793. Washington, 
D.C.: July 28, 2006. 

Export Controls: Improvements to Commerce’s Dual-Use System Needed to 
Ensure Protection of U.S. Interests in the Post-9/11 Environment. GAO-
06-638. Washington, D.C.: June 26, 2006. 

Joint Strike Fighter: Management of the Technology Transfer Process. 
GAO-06-364. Washington, D.C.: March 14, 2006. 

Defense Trade: Arms Export Control Vulnerabilities and Inefficiencies 
in the Post-9/11 Security Environment. GAO-05-468R. Washington, D.C.: 
April 7, 2005. 

Defense Trade: Arms Export Control System in the Post-9/11 Environment. 
GAO-05-234. Washington, D.C.: February 16, 2005. 

Foreign Military Sales: DOD Needs to Take Additional Actions to Prevent 
Unauthorized Shipments of Spare Parts. GAO-05-17. Washington, D.C.: 
November 9, 2004. 

Nonproliferation: Improvements Needed to Better Control Technology 
Exports for Cruise Missiles and Unmanned Aerial Vehicles. GAO-04-175. 
Washington, D.C.: January 23, 2004. 

Export Controls: Post-Shipment Verification Provides Limited Assurance 
That Dual-Use Items Are Being Properly Used. GAO-04-357. Washington, 
D.C.: January 12, 2004. 

Nonproliferation: Strategy Needed to Strengthen Multilateral Export 
Control Regimes. GAO-03-43. Washington, D.C.: October 25, 2002. 

Export Controls: Processes for Determining Proper Control of Defense-
Related Items Need Improvement. GAO-02-996. Washington, D.C.: September 
20, 2002. 

Export Controls: Department of Commerce Controls over Transfers of 
Technology to Foreign Nationals Need Improvement. GAO-02-972. 
Washington, D.C.: September 6, 2002. 

Export Controls: More Thorough Analysis Needed to Justify Changes in 
High-Performance Computer Controls. GAO-02-892. Washington, D.C.: 
August 2, 2002. 

Export Controls: Rapid Advances in China’s Semiconductor Industry 
Underscore Need for Fundamental U.S. Policy Review. GAO-02-620. 
Washington, D.C.: April 19, 2002. 

Defense Trade: Lessons to Be Learned from the Country Export Exemption. 
GAO-02-63. Washington, D.C.: March 29, 2002. 

Export Controls: Issues to Consider in Authorizing a New Export 
Administration Act. GAO-02-468T. Washington, D.C.: February 28, 2002. 

Export Controls: System for Controlling Exports of High Performance 
Computing Is Ineffective. GAO-01-10. Washington, D.C.: December 18, 
2000. 

Defense Trade: Analysis of Support for Recent Initiatives. GAO/NSIAD-00-
191. Washington, D.C.: August 31, 2000. 

Defense Trade: Status of the Department of Defense’s Initiatives on 
Defense Cooperation. GAO/NSIAD-00-190R. Washington, D.C.: July 19, 
2000. 

Export Controls: Better Interagency Coordination Needed on Satellite 
Exports. GAO/NSIAD-99-182. Washington, D.C.: September 17, 1999. 

Export Controls: Some Controls over Missile-Related Technology Exports 
to China Are Weak. GAO/NSIAD-95-82. Washington, D.C.: April 17, 1995. 

Export Controls: Actions Needed to Improve Enforcement. GAO/NSIAD-94-
28. Washington, D.C.: December 30, 1993. 

[End of section] 

Footnotes: 

[1] For purposes of this report, “defense items” includes defense 
articles, technical data, and services. 

[2] International Traffic in Arms Regulations, 22 C.F.R. §§ 
120.1–130.17 (2006). 

[3] DOD uses the term “certify” to confirm that an exemption is being 
used pursuant to an official written request, directive, or approval 
from DOD. 

[4] A list of related GAO products is provided at the end of this 
report. 

[5] NATO is an alliance of 26 countries from North America and Europe 
committed to fulfilling the goals of the North Atlantic Treaty. 

[6] 22 U.S.C. § 2751 et seq. 

[7] According to DOD officials, this certification was intended to meet 
the ITAR requirement for DOD’s “written direction or approval.” 

[8] According to DOD, this approach was part of a set of initiatives to 
facilitate defense trade. 

[9] Some nonservice components incorporated elements of the DOD 
exemption guidelines into their approach for certifying ITAR 
exemptions. 

[10] DOD components provided us over 1,100 certification letters, some 
of which covered multiple exporters. We counted an exemption for each 
company or organization separately, therefore reaching over 1,900 
exemptions. 

[11] Not all certification letters had a specific program listed. Some 
certification letters had just a description of a meeting, an activity, 
or a topic. 

[12] U.S. entities included U.S. government personnel, U.S. military 
services, and U.S. military personnel. 

[13] USXPORTS is a DOD automated system containing export licenses and 
other related information. 

[14] While the DOD guidelines provide that DTSA will annually forward a 
consolidated report to State, they do not specifically provide for the 
content of the report. 

[15] Some of the information that varied included elements provided for 
in the DOD exemption guidelines that were issued to the military 
services. 

[16] The DOD guidelines do not provide a level of specificity 
concerning the foreign end user category, such as whether it is a 
foreign country, government, or industry official, or a U.S. entity in 
a foreign country. 

[17] While the ITAR does not specify an expiration date for the use of 
an exemption, the DOD guidelines specify that the certification letter 
provide an expiration date, not to exceed 1-year from the date the 
letter is issued. 

[End of section] 

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