What do jet fighters, radiators and certain bolts have in common? It may sound like a riddle, but it is also a question that has bedeviled and perplexed the U.S. aerospace industry for nearly 30 years since Congress passed the Arms Export Control Act of 1976 and the Export Administration Act of 1979. American companies have long groaned under the burden of obtaining export licenses for an astounding array of items that are considered to have military applications. The acts and the regulations that they’ve spawned were supposed to enhance U.S. national security and give America the moral high ground vis-à-vis other arms exporting countries. Instead, according to a consensus within the U.S. aerospace industry, the export laws are Cold War relics that equate to a windfall for foreign competitors whose governments have fewer qualms about selling seemingly non-lethal items.

Yet a thaw appears to be on the way that will expand the bottom line of American aerospace manufacturers and enhance the preparedness of America’s allies. In light of the recommendations by a presidential commission to relax the process required for licenses of “dual use” products, the aerospace and defense industries are likely to get at least some of the changes they have been clamoring for.

Regulatory Road Blocks

But it won’t be easy to change a regulatory regime so broad that one congressional expert laughed when asked to summarize the Arms Control Export Act. Nor does anyone suggest that export controls be abolished.

“Export controls have been and should be an important component of America’s national security,” said a report by the Commission on the Future of the U.S. Aerospace Industry. “The Commission believes, however, that export controls are increasingly counterproductive to our national security interests in their current form and method of implementation. Our export control system needs a thorough overhaul.”

Coming from a panel featuring moonwalker astronaut Buzz Aldrin, plus a passel of former members of Congress, senior officials and aerospace executives, these words should carry weight with policy-makers. And with a business-friendly Republican occupying the White House, it is not surprising that industry insiders say the Bush administration has been receptive to relaxing export controls as well as overhauling a cumbersome licensing process. “We have had some meetings with senior officials,” said Joel Johnson, vice-president for international affairs for the Aerospace Industries Association in Washington, D.C. “They want the system to run better, even though they’re not sure how to go about changing it.”

Report From The Commission

In its March 20 interim report, the commission promised to make “sweeping recommendations” in a final report due out in November. In the meantime, it urged that several measures be immediately adopted. Of primary importance is the acceleration of the Defense Trade Security Initiative (DTSI).

Promulgated in May 2000 by the Clinton administration, the DTSI was designed to give U.S. aerospace companies greater access to foreign markets as well as improve industrial collaboration between America and its allies. According to the interim report, however, the “pace of implementation of several of these initiatives has slowed, including electronic licensing, the U.S. Munitions List (USML) review, bilateral negotiations with major allied nations to streamline export licensing requirements, and a reduction in the barriers to global program/project licenses.”

Specifically, the commission minced no words when it came to speeding review of the U.S. Munitions List.

“The review of the USML can hasten the removal of items from the list that are needlessly burdening the compliance-monitoring process and increasing the cost to U.S. exporters by requiring the licensing of items that should not require export licenses.”

As for expediting the use of electronic licensing, the commission report said, “The implementation of electronic licensing can increase the speed of license processing, reduce costs, and improve compliance with export control regulations.”

In the area of speeding up bilateral negotiations toward granting International Traffic in Arms Regulations (ITAR) exemptions to Australia and the U.K., the commissioners said, “Although these negotiations began in earnest, they have stalled and need an impetus to reach an agreement.”

And, as for lowering barriers to global program/project licenses, the commission highlighted both the intrinsic problem and one possible response: “An effort to exploit residual authority under the Arms Export Control Act to facilitate issuing comprehensive licenses covering an entire defense industrial program or project has been burdened by needless regulatory barriers. These regulatory barriers have prevented the issuance of global program/project licenses, even though current efforts with the Joint Strike Fighter (F-35) may be productive.”

It then added that licensing is “…dependent on an up-to-date and detailed understanding of the willingness and ability of recipient nations to comply with restrictions on the unauthorized use or retransfer of U.S.-origin defense exports. Unfortunately, many of these surveys are several years out of date. The absence of up-to-date data causes export-licensing authorities to depend on data that may no longer reflect current conditions in many United States defense export markets.”

Status Quo Anti

“I would be happy if any of the commission’s recommendations were adopted,” said Johnson, who would actually like to see project-wide exemptions for multiple U.S. allies so that, for example, any items related to the F-18 could be exported to allies without licenses. “This would reduce irritation among American allies,” he added. And he further more faults the present system for having too many items on the Munitions List.

But the problem seems to be the disconnect between what the government regards as a munitions-related item and what common sense would dictate. “There is a notion that if you take a commercial product and modify it slightly for military use, it becomes a munition,” Johnson said. “Why do we control radiators for the M-113 (the Army’s armored personnel carrier)? Because they’re slightly different than a truck’s radiator. If Carrier Air Conditioning sells a unit to Carnival Cruise Lines, that’s fine. But if it modifies it slightly for an Italian frigate, then it’s a munition.”

The result is that foreign competitors have been scooping up business that America could have, Johnson said. At the same time, European manufacturers have been avoiding the use of components from U.S. firms in order to avoid licensing delays and the hassle of obtaining U.S. approval before products containing American components can be exported to third parties. “There has been a concerted effort [by potential partners] to design out U.S. components,” Johnson said.

No one in industry or government could provide any monetary estimates of lost business caused by the licensing process. But anecdotes of red tape-mired cases are legion.

In February, Dave McCurdy, president of the Electronic Industries Alliance, told the commission of a real-life situation that one U.S. aerospace manufacturer faced: The manufacturer was seeking to buy a component from a European company for one of its products. But to do so, it had to send product specifications to the foreign firm—and that required a munitions export license.

Johnson allowed that it is not easy to devise a hard-and-fast definition of a munition, but he suggested that, while fire control systems are weapons-related, nuts and bolts are not.

Even the regulators themselves admit that the Munitions List could be culled.

Deputy Under Secretary of Defense for Technology Security Policy and Counterproliferation Lisa Bronson told the commission in February that DoD’s own review of the aircraft section of the list found that national security would not suffer if some items were transferred to the Commerce Department’s Commerce Control List (CCL). “Certain cargo and utility aircraft might be ideal candidates for transfer to the CCL if certain military capabilities, equipment or interfaces were removed,” Bronson said, adding that there would no longer be blanket denials of exports of Unmanned Aerial Vehicles to U.S. allies.

Perhaps more importantly, the DoD review looked at easing restrictions on aircraft spare parts and components. It concluded that items “without unique military capabilities,” such as landing gears, tires, brakes, nuts/bolts, and basic fuel, electrical, and hydraulic components could be removed from the list. “My experts estimate that we could reduce munitions licenses by approximately 2,500 per year if the proposals of the working group are implemented,” Bronson said. She cautioned, however, that aircraft like the C-5 and C-17 would remain on the Munitions List.

Regarding matters across the Potomac, Bronson also noted that the State Department’s ultimate goal is a “system that enables exporters to push a button and electronically deliver technical data to Defense and Commerce or State simultaneously.” Such a system is already being tested by Boeing Satellite Systems for transmission of post-license technical data. Once completed, it will be offered as an option to all aerospace exporters.

However, unlike the State and Defense Departments, the Commerce Department seems less preoccupied with the state of its licensing system, even though its export controls are operating on the basis of presidential emergency powers until Congress hammers out the final details of a new Export Administration Act. “I believe the existing regulatory process works fairly well,” testified Matthew Borman, deputy assistant secretary of Commerce for Export Administration. But even Borman stated that the department would soon enhance its own electronic licensing capability.

Speeding the Snail

As with every industry that requires government licenses, aerospace companies claim that the process takes too long and requires too much paperwork—while regulators reply that they’re steadily improving the system.

“The process is slow and unpredictable,” said Johnson. “State often can’t send documents to DoD electronically. They have to use a courier.”

Indeed, a General Accounting Office report released last December found major flaws in the State Department’s licensing process. It included:

• No guidelines for determining when applications have to be referred to another agency. In fiscal year 2000, the State Department referred one-third of all applications to other agencies for review, even though some referrals were unnecessary. The average processing time for these applications was 91 days, compared to 23 days for the others. The GAO recommended that guidelines be established to determine which applications should be referred.
• Little understanding of the licensing process. GAO investigators found that State Department employees assigned to licensing didn’t understand what they are doing it—or why. “Officials in State Department reviewing offices generally do not receive training on how the licensing process works or how to conduct a review, and consider the reviews a secondary work priority,” noted the report. “One attaché showed us a pile of license applications that he had accumulated over the past four weeks. The attaché explained that he waits for enough applications to come in so he can review them all in one afternoon.”
• No monitoring of the status of applications during the review process. “In Fiscal Year 2000, hundreds of applications were lost and thousands more were delayed,” the study found. “There are no guidelines on how long the review should take, nor is there any monitoring of applications under review.”

The GAO found that currently about 50 percent of license applications are submitted electronically. But even electronic submissions still generate a mound of paper. Both electronic and paper applications require seven copies of supporting documentation. Thus, the GAO concluded that electronic licensing will not fix the system until the entire licensing process is overhauled.

And although the State Department dismissed the GAO report as invalid and inflammatory, it does appear to be taking the issue seriously: the Web site for the department’s Office of Defense Trade Controls—http://www/pmdtc.org—now boasts a license processing time comparison of 58 days in January to 47 days for April.

Obstacles in the Path of Change

While prospects are excellent that the aerospace industry will get much of the regulatory reform it seeks, there still are major potholes in the road to export simplification.

One congressional researcher and expert on arms export regulations said that when fears run high about terrorists acquiring weapons of mass destruction, regulatory leniency becomes a sensitive issue.

“Don’t you think that in this environment that issue would resonate?” he asked. He also questioned whether U.S. intelligence agencies would be willing to ease up on items relating in any way to surveillance equipment.

The aerospace industry also faces U.S. labor unions’ attempts to link export controls to domestic union issues, such as saving American jobs. For example, International President of the International Association of Machinists and Aerospace Workers and aerospace commission member R. Thomas Buffenbarger has said that less stringent controls should only be granted only to U.S. companies that keep jobs in the United States.

That, however, is “a minority view” on the commission, said Commissioner Tillie Fowler, a former congresswoman and avid student of export control regulations, who favors reform.

Labor union “bread and butter issues,” bureaucratic inertia, intelligence community misgivings, and even the monumental nature of the reform task itself notwithstanding, Fowler believes that the long-awaited day of arms export control reform will soon be dawning.