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1. Intro/PM Overview

Thank you, Marc, for the invitation to be here today. It is a pleasure to speak to you as Assistant Secretary for the Bureau of Political-Military Affairs (PM). I am very pleased that the PM team is represented so robustly on the two days of panels for this conference. And while our remarks during the conference are not for attribution, they are for application; your use.

It is an exciting time to be a part of PM, and am proud to announce we have a full leadership team in place. Together, we are committed to keeping America the global security partner of choice. We will deliver on mission capability by advancing American diplomatic and security interests, as well as further the Trump Administration’s objectives on strengthening U.S. industry and delivering on economic security.

PM is driving policy on arms transfers and regional security while operationalizing White House priorities, which include:

  1. Executing strategic sales in support of U.S. national security and foreign policy objectives and in accordance with the President’s Conventional Arms Transfer (CAT) policy;
  2. Improving interoperability and burden sharing with our partners;
  3. Ensuring security assistance supports our foreign policy objectives; and
  4. Responding to emerging needs in conflict-affected areas.

To show you how we’re meeting these goals, I’d like to update you on a number of initiatives we have going on within the bureau. These include:

  • PM Modernization;
  • The Conventional Arms Transfer (CAT) Implementation Plan;
  • Working with our Five Eyes allies;
  • Licensing process improvements; and
  • Compliance activities.

2. PM Modernization

PM is undertaking a strategic initiative to modernize the bureau to ensure we are fully capable of executing Trump Administration priorities.

PM Modernization will assess our IT and data management capability, as well as our most valuable asset—our workforce—to ensure we are prepared to anticipate and respond to the challenges of the next decade.

As industry continues to modernize and technological advances continue to define new and improved options for management of business processes, it is essential that PM is prepared to oversee and advance State’s prerogatives when engaging with allies, partners, and colleagues across the interagency.

As an example, the Directorate of Defense Trade Controls (DDTC) has been making steady progress in launching the Defense Export Controls and Compliance System (DECCS), which you are hopefully all familiar with through use of the Advisory Opinions and Commodity Jurisdiction applications.

We conducted a first round of industry testing on the DECCS registration and licensing applications. The testing period concluded just this past Friday. Our IT Team is working on improvements based on industry feedback, and a second round of testing is scheduled to take place starting November 8th before the system fully launches prior to the close of the calendar year.

The launch of DECCS will mark a significant step towards helping DDTC modernize our systems and processes to better serve you and meet the needs of the defense trade industry.

3. Conventional Arms Transfer (CAT) Implementation Plan

As you are likely aware, in July 2018, Secretary Pompeo submitted to the President the Implementation Plan for the Conventional Arms Transfer (CAT) Policy. This plan supports the U.S. National Security Strategy through a whole-of-government approach to better align our conventional arms transfers with our national security and economic interests.

The implementation plan accounts for the increasingly competitive environment described in the National Security Strategy and seeks to modernize the U.S. government’s policies and processes regarding arms transfers.

As part of the implementation plan, the Interagency Offset Working Group has been reestablished, including engagement with industry on offset issues as they arise. The Group – chaired by State and Commerce – has met with industry representatives several times to discuss systemic offset issues that they face.

Further efforts include updating the International Traffic in Arms Regulations (ITAR). Two key rules are in development. The first will consolidate ITAR definitions into a single part of the ITAR, which will be the first step in a multi-rule initiative to improve the logical flow of the regulations. The second rule will establish that the transmission and storage in the cloud of adequately encrypted technical data does not constitute an export, similar to the concept that already exists in Department of Commerce regulations.

Additionally, we seek to expand financing options. We requested authority from Congress to issue up to $8 billion per year in Foreign Military Financing (FMF) loans. We are hopeful Congress will indeed support our well-developed request.

We continue our efforts to best organize, support, and staff our work to ensure our defense exports will prevail in an increasingly competitive global market and remain a vital pillar of U.S. defense and foreign policy.

DDTC is also reviewing the United States Munitions List (USML) with our interagency partners to determine necessary updates to the list of items controlled by the ITAR.

In summary, we are continuing to streamline procedures, clarify regulations, increase contracting predictability and flexibility, and maximize the ability of U.S. industry to grow and support allies and partners while maintaining appropriate oversight of arms transfers.

4. Five Eyes Updates

PM is acutely sensitive to the burden our defense trade regulations can place on our global allies, and the balance between national security and global security. I have several updates on ways we are working to support our key allies:

  • The United Kingdom and Australia both now have authorizations which should facilitate retransfers for repair and maintenance. We did this as recognition of how operational readiness of our closest allies is essential not only to those allies, but to the national security of the United States as well. In developing these authorizations, DDTC identified a class of low-risk retransfer activities, with a focus at this point on sustainment activities as a proof of concept. We discuss the implementation of these authorizations with the UK and Australian governments on a regular basis and will consider opportunities to expand them as appropriate.
  • We are re-investing resources toward improving the implementation of the U.S.-UK and the U.S.-Australian Defense Trade Cooperation Treaties, to review the list of excluded technologies and make the treaties the most effective tools possible. We are aware certain limitations, such as the list of excluded technologies, have made the treaties less valuable than initially anticipated. With our colleagues at DoD and with input from our UK and Australian counterparts, we are actively reviewing the list in an effort to open up the range of treaty-eligible technologies. To initiate this process we sent a team to Canberra in May of this year to begin discussions with the Australian government, and similarly sent a team to London last month to engage HMG on the effort. Our DoD colleagues are leading the technical review of the list and are hoping to have a revised product ready for consideration in 2020.
  • It is also important to remember the UK and Australia enjoy priority status in the ITAR licensing process today. Section 126.15 of the ITAR requires the “expeditious processing” of licenses to export to these countries, and our Director of Licensing takes this very seriously, reviewing processing times on a weekly basis to ensure this is being implemented. We engage in regular dialogue with the UK and Australian embassies to make sure the licensing process is fluid, applications are well prepared to ensure expeditious review, and to be sure that provisos are being applied clearly and consistently.

5. Updates on Exports by or for the U.S. Government

In April, DDTC implemented a sweeping reform to §126.4 of the ITAR to reflect the circumstances under which transfers of defense articles and services by or for a Department or Agency of the U.S. government may occur without a license.

  • First, the revisions greatly expanded the scope to allow for permanent exports, reexports, and retransfers. Prior to its amendment, the 126.4 exemption could only be used for temporary exports and imports, limiting its utility and application.
  • Second, the revisions clarified the run rules for contractors acting on behalf of the U.S. government. We did this by establishing explicit criteria detailing the circumstances in which a contractor could employ this exemption. This change was an effort to reflect the contemporary defense industry environment, which is increasingly collaborative and dynamic in its use of contractors to develop and sustain platforms.
  • Third, the revisions expanded the scope of the exemption to allow transfers by third parties acting at the direction of the U.S. government.
  • And finally, the revisions clarified the availability for transfers in furtherance of international agreements or security cooperation programs with the U.S. government.
  • Almost seven months passed since we announced the regulatory changes, and we have received positive feedback from industry partners. We are now reviewing initial use of the exemption to derive lessons learned, and to identify areas to provide additional guidance.
  • We are also working diligently with our colleagues at DoD to contribute to their internal guidance on exemptions implementation, which we understand is forthcoming in the near term.
  • We hope revisions to 126.4 have substantially lessened the DCS licensing burden for U.S. government contractors and have helped our cooperative programs and agreements thrive and become more effective in an increasingly collaborative national security environment.
  • We understand industry partners have questions regarding this exemption and are working toward putting implementation guidance on DDTC’s website.

6. Licensing Process Improvements

The DDTC Licensing Office is moving full steam ahead processing close to 40,000 licenses each year, but also instituting processes to make the submission and adjudication of license applications more consistent and predictable for industry, and more responsive to a dynamic and volatile geopolitical landscape.

As you all know, arms export authorizations are fundamentally foreign policy decisions, and as the world’s largest arms exporting nation, we also shoulder the responsibility to field the most transparent and deliberate regulatory system to adjudicate exports of controlled defense articles and services. To that end, DDTC Licensing instituted a number of process improvements to enhance the consistency, efficiency, and policy responsiveness of the licensing process:

  • We’ve consolidated and updated our internal staffing guidance to be more clear, concise, consistent, and reflective of changing world events.
  • What this means for industry is the adjudication process for DDTC licenses will be more bespoke to each application, helping to reduce processing times for straightforward applications while ensuring the interagency has the bandwidth to properly deliberate the most complex transactions.
  • As to what may be music to your ears, DDTC Licensing has also comprehensively re-written the Agreement Guidelines, our suggested best practices for submitting Technical Assistance Agreements, Warehouse and Distribution Agreements, and Manufacturing License Agreements. The revised Agreement Guidelines will be the subject of a stand-alone presentation by DDTC later in the program, so I do not want to preview too much, but I can say overall length of the guidelines was truncated by half as result of more than six months of painstaking work by the Licensing team. We removed inconsistencies, consolidated definitions and standard language, took out redundant information which applies to all licenses, and improved the readability and references throughout.
  • Lastly, I want to mention the work the DDTC Licensing team executed to improve the standard provisos applied to agreements. Licensing management directed a soup-to-nuts review of the standard agreement provisos and consolidated them all into a single ordered list. This will reduce the variation on provisos applicants receive from different divisions within the Licensing office, and – we assess– will significantly reduce the number of questions exporters presumably have on the back end of an agreement approval. Licensing is also starting work on standardizing proviso language for all remaining authorization types, so stay tuned for that.

7. Increased Compliance Activity

As of September, DDTC has over 13,500 entities registered as manufacturers, exporters, and brokers. We are experiencing a steady increase in the number of registrants this year.

As the number of registrants increases, happy to report the DDTC Compliance Team is actively working to ensure that proper oversight of Defense Trade activity is in place:

  • This year the Office of Defense Trade Controls has reviewed over 440 voluntary disclosures.
  • In February, the Department concluded an administrative settlement with Darling Industries, Inc. of Tucson, Arizona, to resolve alleged violations of the Arms Export Control Act and the ITAR. The Department and Darling reached the settlement following an extensive compliance review by the Office of Defense Trade Controls Compliance.
  • In September, the Department concluded a civil settlement with L3Harris Technologies, Inc. (L3Harris) of Melbourne, Florida. The Department and L3Harris reached an agreement to address alleged unauthorized exports of defense articles, including technical data involving radios; providing a false statement regarding the promised payment of a commission; violating provisos, terms, and conditions of authorizations; and failing to properly manage temporary export licenses.
  • Furthermore, in June, the Department published a Federal Register notice of 23 individuals and entities statutorily debarred for having been convicted of violating, or conspiring to violate, the Arms Export Control Act. This action, as required by section 127.7(b) of the ITAR, highlights the Department’s responsibility to protect U.S. defense articles.
  • These actions demonstrate the Department’s role in strengthening U.S. industry by protecting U.S.-origin defense articles, including technical data, from unauthorized exports.

8. Concluding Remarks

I would like to emphasize the PM Bureau leadership team is complete and in place, executing on national-level priorities, and modernizing the Bureau to anticipate and respond to the challenges of the next decade while underscoring the long-term effects of resource constraints on our ability to meet mission.

We do so by ensuring our interagency counterparts understand PM drives foreign policy oversight and shapes U.S. defense activities and policies. We are a one-stop shop for global defense and security policy coordination.

Finally, as the activity of this conference conveys, economic security is national security, and this is how we add value to the U.S. economy. PM’s work is at the heart of the Trump Administration’s focus on growing the American economy and ensuring a robust defense industrial base for generations to come.

Thank you again for the invitation and opportunity for the PM team to participate. We greatly value engagements which enable us to reach you in person and to and receive your valuable and candid insights.

U.S. Department of State

The Lessons of 1989: Freedom and Our Future