Thank you all for being here today and it is my great pleasure to welcome the new Defense Trade Advisory Group.
We have many new faces, but I am also glad to see so many familiar faces. We are thrilled to have Sam Sevier back as DTAG Chair. Sam has done an outstanding job during what was a very busy two years. We are also excited to have Bill Wade as Vice Chair, as well as Kim DePew and Terry Otis serving as DTAG leadership. Overall, we have 28 returning members and 16 new members. Additionally, we are also excited to have so many DTAG members coming from outside the Beltway and bringing that perspective to deliberations.
These are certainly exciting times to come on board. This Administration has made tremendous progress in advancing export control reform and expanding U.S. defense trade with our allies and partners. As DTAG members, you provide an invaluable service to the Political Military Affairs bureau and the State Department. As we seek to reform our export control system, expand our defense trade abroad, and protect our most sensitive systems and technologies, your knowledge, experience and insight will be critical to guiding us through these eventful times.
Just in this past year, there have been a number of significant events with implications for the defense trade. The Arab Awakening in the Middle East has brought sweeping change to the region. Countries like Egypt, Libya, and Tunisia have undergone dramatic transitions. The recent events in Syria promises more dramatic change, as the Syrian people rise up against the brutal rule of the Assad regime. Each of these developments forces us assess the nature of our relationships with these countries and the region, and to take a look at our policies and practices. In addition, to these events in the Middle East, the Administration’s renewed focus on Asia will have significant defense trade implications. As we seek to reinvigorate existing alliances and develop new partnerships in Asia, our defense trade will be an important aspect of our diplomatic engagement. I have already spent more time on Asia than I anticipated coming into this job and I expect this to become the norm going forward.
While we navigate through these changing times, we look to you for advice and guidance. Defense trade is a critical component of our foreign policy and I encourage you to take advantage of these DTAG sessions to make your voices heard.
Today, I want to talk to you briefly about our efforts to expand the defense trade.
As many of you know, this Administration has made it a top priority to promote U.S. business abroad. We view the American defense industry as an integral part of our efforts to advance U.S. national security and foreign policy. This is because security cooperation is fundamentally a foreign policy act. It is therefore the Secretary of State that is given the authority to oversee and authorize all arms sales in order to ensure they advance U.S. foreign policy. As a result, we only allow a sale after we carefully examine issues like human rights, regional security and nonproliferation concerns and determine a sale is in the best foreign policy and national security interests of the United States.
The arms transfer process sometimes causes consternation among our international partners. Some may gripe about onerous rules and procedures, intrusive monitoring, and rigorous investigations of potential violations. And at times it makes countries perhaps reluctant to partner with the United States. However, the safeguards we have in place are critical to U.S. foreign policy.
What is remarkable though, is that despite our high bar for approving transfers and our aggressive monitoring, more and more countries want to partner with the United States.
At the State Department – when we deem that cooperating with an ally or partner will advance our national security – we advocate tirelessly on U.S. companies behalf. And, as I like to say, I have the frequent flier miles to prove it.
It is no longer just our Ambassadors who promote U.S. security cooperation abroad. Senior State Department officials regularly advocate on behalf of U.S. bidders on foreign government and foreign military procurements. We do so when we meet with officials on our travels abroad, on the margins of international conferences, and in regular diplomatic correspondence to foreign government officials.
These efforts are having an impact. Despite the global economic strain, demand for U.S. defense products and services is stronger than ever.
We recently released the 655 Report – an annual report of defense articles and services that were authorized for export. This report focuses on Direct Commercial Sales and it showed that there was a more than $10 billion increase in FY11 in items authorized for transfer. In 2011 the Directorate for Defense Trade Controls processed more than 83,000 licenses. The most ever.
I can also confirm that this is a record-breaking year for Foreign Military Sales. We have surpassed $50 billion in sales in FY12. This represents at least a $20 billion increase over FY11 and we still have a chunk of the fiscal year left. To put this in context, FY11 was a record setting year at just over $30 billion. This fiscal year will be at least 70 percent greater than FY11. These sales support tens of thousands of American jobs, which is welcome news in this economy.
Let me briefly outline why I think we are seeing such strong interest in U.S. systems.
First, it’s because countries want to partner with the United States of America. The defense industry should understand – when it comes to sales abroad, it does better when America’s image abroad is strong and when countries want to partner with the United States. This Administration has done a tremendous amount to rebuild America’s image and that is demonstrated in record FMS and DCS sales.
We have reached out to new partners and emerging markets where we see the defense trade growing. This spring I was in India for the first Political-Military talks in six years. Cumulative defense sales have grown from virtually zero to more than $8 billion since 2008. One of the major goals we had during these talks was to make progress in advancing the defense trade. We sought to better familiarize the Indian government with our system and to address any concerns they may have. We think the U.S.-India defense and trade relationship would benefit from linking defense sales with broader strategic goals. That’s why we specifically articulated the technical and political advantages that FMS offers.
We have also actively engaged Brazil. Brazil is seeking to modernize and expand its military capabilities and we are seeking to support these efforts. Last year, I travelled to Brasilia to restart Political-Military talks and this past February a Brazilian delegation travelled to Washington, as we hope to make this an annual dialogue.
And in February, I travelled to the Philippines, Indonesia, Malaysia, and Singapore; and in June to Thailand, Vietnam, and Brunei. Many of these partners are seeking to modernize their defense sectors andwe are hopeful that our defense trade with these partners will continue to grow in the years ahead.
For a country to be willing to cooperate in the area of national defense – perhaps the most sensitive area for any nation – they have to be sure about the nature of the relationship with the United States. When a country buys an advanced U.S. defense system through our FMS, DCS, or Foreign Military Financing programs, they aren’t simply buying a product, they are also seeking a partnership with the United States. These programs both reinforce our diplomatic relations and establish a long term security relationship. The complex and technical nature of advanced defense systems frequently requires constant collaboration and interaction between countries over the life of that system – decades in many cases. This cooperation therefore helps build bilateral ties and creates strong incentives for recipient countries to maintain good relations with the United States.
For many countries procurement decisions aren’t simply based on the specifications of the given system. Our advocacy helps demonstrate that the U.S. government believes these sales are critical to our diplomatic relationships. The fact that more countries want to deepen their defense trade partnership with the United States is a sign that our broader diplomatic efforts are having an impact.
Second, countries want to buy the best. And to get the best they rightly turn to U.S. defense systems. These systems are “made in America” and the growth in defense sales abroad demonstrates the capabilities of American manufacturing and of American workers. This administration has worked hard to support the U.S. defense industry abroad because it helps sustain our defense industry base and supports jobs here at home.
For example, our agreement in December to expand our security cooperation with Saudi Arabia not only helps advance the security of a critical ally, it is projected to have a significant impact on the U.S. economy. According to industry experts, this agreement will support more than 50,000 American jobs. It will engage 600 suppliers in 44 states, and provide $3.5 billion in annual economic impact to the U.S. economy. This will support jobs not only in the aerospace sector, but also in our manufacturing base and support chain, which are all crucial for sustaining our national defense.
Third, we are also working to improve our ability to cooperate with our partners. Nothing shows our commitment to expanding U.S. exports more than our Export Control Reform efforts.
Our export control reform efforts are ultimately about making sure that our system appropriately protects the things it needs to protect and prioritizes how we protect them. To that end, we are focusing our efforts in the near term on the re-write of the U.S. Munitions List, or USML, and the Commerce Control List, or CCL, to create clear bright lines between munitions and dual-use items. Our work is focused now on the removal of the majority of parts and components from the USML to the CCL in these categories. They also will remove some end items, including unarmored military vehicles, cargo and utility aircraft, auxiliary surface vessels, and commercial communications satellites from the USML. We are working category by category, using objective rather than subjective criteria, to create that bright line between the USML and the CCL. We are making significant progress in this effort.
As part of our broader Export Control Reform Initiative, we have also recently reformed the broken “pre-notification” process with Congress. Under the old system, U.S. industry was placed at a competitive disadvantage as a result of the unpredictability and uncertainty of the process. This prompted our allies to question our reliability as a defense and security supplier. The new process, which is currently in place, has a tiered review process that, while bounded, allows significant time to review all potential arms sales under the Foreign Military Sales and Direct Commercial Sales programs.
Nothing about Congress and the Administration’s legal authority has changed under the reformed new system. Congress is still able to stop the entire pre-notification process if a Representative or Senator raises a concern. But under the new process, if a committee staffer thinks that an arms sale should be delayed, that staffer must escalate that concern to their representative or senator to convey to the Department. The Department has a strong history of being responsive to Member concerns, and this will not change.
We are committed to the new pre-notification process because we believe it will make the U.S. a more reliable partner and ally and will therefore help expand U.S. defense trade.
Lastly, we have advanced defense trade through the Defense Trade Treaties with the UK and Australia. This past April the United States and the UK signed an exchange of notes which brought the U.S.-UK Defense Trade Treaty into force. This treaty is the first of its kind and allows for the more efficient transfer of certain defense articles between the U.S. and UK. We are also making progress in the implementation of the treaty with Australia, which we hope to be completed in the next year.
So from all of this, I think it is clear we are doing a lot. And that we are going to keep you busy.
Before I close, I would once again like to thank the DTAG members for their willingness to serve and for their dedication in reforming defense trade. The last DTAG had a very busy – but successful – two years and I fully expect this DTAG to be just as busy and just as successful as the last.
With that, I am happy to take any questions you might have.