Proposed changes in US defence export licencing system

UKDF Viewpoints comment : this brifing flags up the existence of US-UK and US-Australia Treaties on export licencing which haven't been approved by the Senate. Presumably they hope that the process will be facilitated by introducing this new system. This is a topic on which the U K Defence Forum has been taking UK legislators to lobby in Washington DC for more than five years and which despite many expressions of American goodwill has still not resolved the issues.

US House Armed Services Chairman Ike Skelton released the statement below following the speech by Secretary Gates  announcing a comprehensive reform of export control reform. Rep Skelton was one of the people the U K Defence Forum arranged for MPs to meet on two occasions :

"Our nation has the very best military technology, and it is absolutely critical that these highly sensitive systems do not fall into the wrong hands. While controlling the export of sensitive technologies is fundamental to keeping our nation safe, it cannot be truly effective if the system is muddled and wrought with gaps and inconsistencies across agencies.

"Earlier today, Secretary Gates announced a plan for the kind of comprehensive reforms that can strengthen our export control system to better protect Americans, placing a top priority on our national security.  By building a better and stronger protective system, we can be more effective in preventing terrorists or others who seek to do us harm from obtaining our technologies.

"The Armed Services Committee has long worked to make the export control system stronger, more efficient, and more effective.  I am confident that we can work closely with Secretary Gates on a bipartisan basis and with other committees in the Congress to make sure that the system protecting our technology is as excellent as the technology itself. I look forward to holding a hearing on this issue in the coming months."

DOD Background Briefing with Senior Defense Officials from the Pentagon 20 April

STAFF: So, guys, before we get started, let me just go over a few
things. I mean, I think the reason that you guys are here, other
than you were walking down the halls and didn't have anything better
to do today when I saw you, was most of you have expressed -- that
were invited here ahead of time were -- expressed some interest in
this particular topic. Many of you have written on this topic.

As you know from our announcements, the secretary's going to be
giving a major speech tomorrow in front of the BENS organization at
the Ronald Reagan center on this topic, and we thought it might be
helpful for those of you that are particularly interested in hearing
kind of what this is all about and be able to position yourself to
kind of have the fullest type -- fullest kind of story when the
speech is given.

But the ground rules for this, therefore, though, is that it is
embargoed until the speech is delivered tomorrow; it is on
background, so the senior Defense official one, furthest to my left,
for referring in to the transcript, and senior official number two,
Defense Department official number two, is right here to my
immediate left.

And with that, they're going to start out and kind of give you an
overview of where we are, a little bit of the system as it exists,
and then some of the initiatives going forward.

So with that, I'll turn it over to senior official number one.

SR. DEFENSE OFFICIAL: Okay. Well, thank you. Appreciate people
taking the opportunity today. And as [our moderator] said, the
secretary will give what we hope to be a major speech tomorrow to
BENS on export control reform. And it will frame it, appropriately,
as a national-security issue. We know that export control reform
has been tried a number of times in the past, and without tremendous
success. We think we have a good plan going forward, and that -- we
want to lay that out for you today.

In thinking about the overall battle rhythm of this effort,
interagency work on this began last summer, and a number of
senior-level meetings, including principals' committee meetings,
occurred. And it was -- it was agreed at the principal level that
we have a serious set of national-security challenges, and that
fundamental reform was necessary. This speech is an important point
in that process.

Just for those of you who may have heard about it, remind you of
another one in late January. On January 27th, the secretary and some
of his colleagues got together with a number of senators and members
from the House to talk through export control reform and to indicate
that we -- that we were moving towards fundamental reform, and,
frankly, to ask for their support. We do expect to propose
legislation, have been in conversations with both staff and members
on the Hill. And senior Defense official number two will talk more
about those details when we -- when we get there.

We started with an assessment that -- the NIC, National Intelligence
Council, did an assessment that will be turned into a national
intelligence estimate, and looked at the current U.S. export control
system. And the frank and unfortunate conclusion is that it itself,
the system itself, poses a potential threat to national security.
The processes and institutions on which it's based are over 50 years
old, and it really was designed -- or the multiple systems that
comprise it were designed for a bipolar world.

And the conclusion -- the conclusion that we've reached is that it
-- that it's insufficiently focused on the most critical threats
that we -- that we face today. And the phrases that have been used
in this regard is we look at tens of thousands -- over -- well over
100,000 cases per year, that we continue to add more hay around the
needles, that we're overlooking the crown jewels, and that we're not
looking forward enough in time to consider the trends in technology.

So the threats we face today are different. And you could look at
our Quadrennial Defense Review, our Missile Defense Review, our
other -- Nuclear Posture Review. The significance on global
terrorism and the -- and the proliferation of weapons of mass
destruction and the delivery systems, and advanced conventional
systems as well. And we see those systems -- we see those systems
proliferating.

At the same time, we see more dual-use technologies, and we see a
diffusion of technologies. So many of the controls that we may have
assumed -- excuse me -- could work in a bipolar world won't work, or
won't work for long in today's world. And we need to think about a
process for setting priorities and for focusing on those crown
jewels.

As I said before, export control reform was attempted several times
in the past and didn't make a -- didn't make a lot of progress. And
there are a couple things that are fundamentally different today.
And at the top of that list, I think, is the Secretary of Defense,
who understands the problem, who worked on it extensively in his --
in his past and who is committed to change.

The other element that we have that is unique not just in -- well,
is unique over time on this issue -- I'll leave it to that -- is a
very strong interagency consensus, so Secretary of State, Secretary
of Commerce, Secretary of Defense, Secretary of Energy, Homeland
Security, intelligence community, agreement on this -- on the nature
of the problem and agreement that we need to take significant steps
to deal with it and, as I said before, in understanding that this is
a national-security problem.

We are not going to give you a lot of examples; we'll leave some of
those for Secretary Gates tomorrow. And senior defense official two
will have more to follow on that topic after the speech tomorrow.

So looking at fundamental reform of the system, we came to the
conclusion that it was needed in four dimensions. And for shorthand
we've referred to them as the four singles.

Q The four what?

SR. DEFENSE OFFICIAL: The four singles.

Q Singles.

SR. DEFENSE OFFICIAL: Four singles: a single export control list,
a single licensing agency, a single agency to coordinate
enforcement, and a single unified IT system. I'll go through each
of them very quickly.

And so first, with the single export control list, we currently have
two primary lists, the -- and I think I'll leave it to -- I think
you'll get into those when you talk about the phases. Two primary
lists, but one led by State, one led by Commerce, DOD involved in
both, other agencies involved in both. The -- you're familiar with
the USML, the United States Munitions List and the critical
commodities list, the two -- the two main elements of this.

So we're looking to move toward a single export control list, to
make it clear to companies that they have a single place to go, in
terms of understanding what restrictions may be, and frankly to
avoid situations where people may attempt to either forum shop, by
trying to use one list versus the other, or cases where they get
captured by two lists and have to go -- in some cases, we've had
people have to go or organizations have to go sequentially through
more than one -- more than one export control process.

The second single is moving forward toward a single licensing
agency. This is to streamline the review process and to ensure that
export decisions are consistent and made on the capabilities of the
technologies.

As it stands today, we have two different authorities, one at the
State Department and one at Commerce, often making independent,
unilateral decisions in some cases. And the stovepipes that this
creates can result in sometimes not the optimal decision and very
often delay, as we see -- as we see agencies competing for who's the
lead and, in some cases, who's not the lead. So the single
licensing agency is a critical step in this process.

The third single -- the third element is a single agency to
coordinate enforcement. This is to strengthen our ability to
identify, to investigate and to prosecute violators.

We have multiple enforcement agencies today including ICE
[Immigration and Customs Enforcement], State enforcement, Commerce
Export Enforcement Office, FBI and many others. We intend that in
the future, even once reform is accomplished, that there will still
be multiple players involved in enforcement.

But what we want to do is have those efforts coordinated -- we don't
have that today -- so that rather than having each agency go on more
or less on its own, there is a lead for coordination of their
activities, so that we can deal with the challenges of overlapping
jurisdiction and, in some cases, confused authorities.

And then underlying this effort and really fundamental to it is to
move to a single IT system. This system is to both review license
applications across the U.S. government and to make this process --
make this process move more efficiently.

Today, there are three main IT systems. I'll let SDO-2 talk more
about them if you'd like to. Our view, and I think it's generally
agreed that DOD has the most modern system, is it's likely to be the
backbone of where we go forward. But to say we have not adequately
applied information technology to this problem set would be, I
think, a great understatement.

So my colleague is going to talk about the nature of the system
today, and what would be different under this reform, and also about
the phases that -- the three phases that we intend.

Let me just say very briefly that the first two phases can be done
predominantly by the administration. And we are planning to move
forward with those expeditiously.

We want to consult with Congress very closely, even as we do the
things that we can do administratively, because Congress has an
interest in this. And number one, they could legislate in the other
direction. And number two, we will want and need their help to go
forward into phase three.

And I think with that, I'll turn it over to my colleague.

SR. DEFENSE OFFICIAL: Okay, thank you.

Just to say a few more words about each of these four singles and
sort of compare it to the current system and what will be different.
If you look at the single list, right now you have, as SDO-1 said,
the U.S. Munitions List and the critical commodities list controlled
-- over which Commerce has oversight.

In the current system, we spend a great deal of time fighting
interagency about whether or not an item should be on one list or
the other, rather than how important the item is, because there seem
to be differences in how various items are controlled.

Our view would be that we need to take that and turn it into one
list, on which you would instead focus on the most important items
and control items based on how important the technology or the
article is, rather than simply who controls it.

We believe that would bring a lot of efficiency. It would help - it
would be predictable and transparent to exporters. And it would
also allow us to focus our resources on those things which are most
important for national security.

When you look at the single agency, again there is right now this
huge amount of time spent on who has jurisdiction. Often exporters
don't know who to go to, to ask the questions or to get the license.

With the single agency, we would have that consolidated in a single
place. This is a model that is used by many of our allies,
including both the U.K. and Australia, to do their export licensing.

For the coordinated enforcement, there is likely to be a need to at
least currently an item is -- the penalties for exporting an item
are the same as any other item on its particular list, whether it be
CCL [Commerce Control List] or USML, without regard to the
particular importance of the technology.

Under this concept, you might have much higher penalties on the most
important items. And you would also have coordination among all the
enforcement agencies, to ensure that they are focusing their
resources on the most important violations or potential violations,
rather than viewing all violations as being of equal importance.

And the IT system -- as SDO-1 said, the Commerce Department IT
system I believe was essentially set up in 1987 and has not had any
serious update since then. The State Department has only recently
begun to move from a predominantly paper licensing system to an IT
system.

We have a system that's fairly modern. And we are looking to help
out the single licensing agency, when it is established. And in the
meantime, even our current interagency colleagues with this are
moving forward on that.

SDO-1 mentioned that there -- that there were phases in how we will
implement this. We have broken this, for conceptual purposes, into
phase one, two and three.

In phase one, we will do those things that are sort of most
important initially for getting ourselves ready to move forward into
this transformation. This includes agreeing on the criteria for
tiers on a single list. It includes doing the groundwork to put
together the coordination center that would be in the enforcement --
single coordinating enforcement agency. It includes making sure
that people have a clear understanding of what is and isn't
controlled on their current list, which obviously is something we
should be doing. And it is getting the initial groundwork laid for
getting the IT system agreed across the interagency.

In phase two, which we would see beginning later this year, we would
move towards actually applying a tiered single concept for control
across the current two lists, which would make it very easy to
integrate them at a later point in time; getting the single IT
system into place, and working through any issues that may arise
there; getting the coordination enforcement up and running, and
beginning preparations for moving towards a single agency.

Phase three is when you -- when you bring on the rest of the system,
when you would move from two licensing agencies to a single
licensing agency; when you would move from a regulatory perspective
into a single control list; the single IT system would be up and
running, and the enforcement mechanisms would be working and in
place.

While we don't -- that would obviously take some time to get in
place, what we are hoping is that there would be legislation giving
the president authority to move in those directions, even this year.

When we talk about this end-state, one of the words that are used
are fewer walls -- higher walls around fewer items, excuse me. And
just to be a little concise about what that means, when we say fewer
items, it doesn't necessarily mean that we will de-control large
amounts of items. What it really means is that we are focused:
that we're focusing our resources, our interests and our controls,
on the most important technology, ones that either have a strategic
or WMD implications, and ones where the U.S. has -- probably has a
substantial lead, or it has a very substantial impact on what our
forces face. We want to focus our efforts there, rather than on the
lug nut or the bolt that might be being currently controlled at the
same level as those things.

And so you focus on those fewer items, and then in terms of higher
walls, it's the enforcement being stronger. It's the focusing of
resources on those items. It's creating a system in which things
are coordinated and less time is spent fighting about jurisdiction
and more time focusing on how you control, or directly control, and
reach out to allies and partners about how you control the most
important items.

So with that, maybe I should stop there.

STAFF: Good. Let's open it up to some questions.

SR. DEFENSE OFFICIAL: But if I could, let me --

STAFF: Go ahead.

SR. DEFENSE OFFICIAL: I think we had -- very, very briefly, a
little commentary. While we didn't want to give examples, let me
give three categories of challenges that we have faced in this
system.

The first is a situation where allies and partners can't get
equipment quickly for the fights that they're in, for their
security, or get the parts that they need to support them, because
our export-control system is chugging along at its -- at its slow
rate.

The second, as we did mention, is inadequate attention to the crown
jewels, to the most important technologies. That would be in this
top tier.

And the third is broader and longer-term, but it is important. And
that is that the U.S. industrial tech base is over time going to --
is losing out competitively. As you -- as you know, this has been a
particular issue in the space arena, where there are companies that
advertise themselves as non-ITAR [International Traffic in Arms
Regulation], so that they're using no components that require an
ITAR review. And this is -- this is an issue that's important as we
do our -- look at export control, but also as we look at the future
for our space policy, as well.

So those three categories are all important as security elements in
this.

Q What percentage of the items -- and I know this is hard to
generalize -- but on the two lists that would be -- that could be
dropped off as a result of a single-list scenario?

SR. DEFENSE OFFICIAL: Well, it is -- it is impossible at this point
to give you a clear answer on that. But if you look --

Q Most of them?

SR. DEFENSE OFFICIAL: I would say very few items will be sort of in
that highest-walls area. That doesn't mean that there won't be some
form of control around other things, but it will be a lower level,
and you might have arrangements like the U.K. and Australia treaty
would -- as examples, for how you would deal with items in those
areas.

But there are a set of items, things like -- that are currently
controlled because they were designed for use in defense items,
which have no real technology or military applicability; things like
lug nuts, screws, bolts, you know, those simple tools. And those
things could go license-free.

It's also possible that we would be able in this new arrangement to
set up certain kinds of agreements with friends and allies where you
would be able to move more items without specific licenses.

SR. DEFENSE OFFICIAL: So, we didn't talk about the U.S.-U.K. and
U.S.-Australia treaty, but they are really a part and parcel of
this, and important as we go forward.

Q Sir, you said you had spoken to Congress as you were setting
this up. What sort of a reception did you get from them?

SR. DEFENSE OFFICIAL: I think it's -- I think it's fair to say that
we have a combination of real interest, including some on both sides
of the aisle, and at the same time -- okay, let me add to that.
Interest and concern about the current system, understanding a need
for significant change, all of that on the positive side. And at
the same time, among those who have been around the block on this, a
concern that we do this right, that we have -- it appears that we
have things lined up internally in the administration to make real
progress, and a Secretary of Defense who cares a lot about it and
other Cabinet heads who also care a lot, who want to move in the
same direction.

And so we have concern about the details of how it's accomplished, I
think, to ensure that we make the progress that -- you know, the
most and -- the most appropriate progress that we can.

Q Let me, if I could, ask you one substance question and one
politics question. On the substance, trying to convey this to a
mass audience is tricky. Without trying to get into percentages
that would fall off the list or stay on the list, can you point to
specific cases where individual countries weren't -- partners of
ours couldn't get parts they needed, things were on the list with
walls around them that shouldn't?

And then, as a politics question, trade obviously has been explosive
on the Hill for a long time. The Korea trade pact hasn't gone
anywhere. The Colombian trade pact hasn't gone anywhere. What
gives you any confidence that this, which could be more easily
caricatured as potentially weakening national security, will go
through when those haven't?

SR. DEFENSE OFFICIAL: On the examples question, we've been -- what
I'd like to do is to leave a few for the secretary tomorrow and then
ask senior Defense official two to follow up with more details, and
a number of cases -- I'd want to save some of the -- some of the
examples for those.

On the politics of it, it's -- you've asked, I think, a perfectly
appropriate question, and it's also -- it's also -- has a potential
to be a crowded agenda going forward in this legislative season.

The reality is, though, that by casting it appropriately as a
national security issue, where change is an -- is important to our
national security, you know, rather than this being about increasing
exports or -- et cetera, I think that the politics are a little bit
different. And I -- and I -- and I -- and I do think that there's
interest among those who follow national security on the Hill to
look into what kind of change is possible, you know, starting with
the understanding that it's first and foremost as a national
security issue.

Q Shouldn't we be shedding more light on what Congress needs to do?

SR. DEFENSE OFFICIAL: Yeah.

Q In, for example, phase three --

SR. DEFENSE OFFICIAL: Yeah.

Q -- what exactly do you -- would you like Congress --

SR. DEFENSE OFFICIAL: There's a few things Congress needs to do.
Congress needs to give the president the authority to -- right now
the USML is authorized by the Arms Export Control Act, and the CCL
is authorized under the Export Administration Act, which actually
expired several years ago and has been renewed under executive order
by the president.

So the Congress needs to give authority to the president to create a
unified list. The Congress needs to give authority to the president
to create a single licensing agency.

There are some elements of the enforcement piece -- for example,
higher penalties and uniformity of penalties across items that need
-- require legislative change -- there is also the need, obviously,
for some appropriations to do some of this, and authorizations,
including for the IT system, which, while we've got a basic backbone
for it, there is quite a bit of development work that needs to be
done too, to make it stand up correctly.

So those are the real essential elements, and we look to get those
in to be able to do phase three, for the most part, although there's
one or two things, like getting money for the IT system, that we
will need to do earlier.

Q Do you get the sense -- Howard Berman's working on
reauthorization. Do you get the sense he's moving in the same
direction with the Pentagon and these other agencies?

SR. DEFENSE OFFICIAL: In general, yes. I think his -- having
talked to his staffers some, I think his legislation may not be
quite as far-reaching as ours is, but in general we're headed in the
same direction.

Q A couple clarifications. How much money are you going to need?

SR. DEFENSE OFFICIAL: Well, the total amount of money for the
single licensing agency is not yet quite clear. The IT system, we
believe, including sustainment, for the first several years is in
the range of $20 million. It could be less than that, but --

Q And was -- did I hear correctly -- you said that you could
have agreements with allies that would cover certain items and
essentially then they wouldn't have to go through -- they were
pre-approved for a certain categories?

SR. DEFENSE OFFICIAL: That is a concept we're looking at under the
single list, yes.

Q Okay. And then, finally, aside from the question of delays in
getting important stuff to allies and partners, how is this a
national security issue? How does making these changes improve
national security?

SR. DEFENSE OFFICIAL: Want to do --

SR. DEFENSE OFFICIAL: Yeah. Again, I'd say two things. One is
that if we take the -- if we take existing system and the resources
we put into it and apply it to -- more to the -- more to the crown
jewels and less to the things that -- and less to the things that
are -- that are -- that -- where the answer's going to be yes -- and
for most of the -- for most of the questions that are asked of our
export control system, the answer is yes. At the end of the day,
the vast majority, the answer is yes. Some of those we should be
able to sort out early by putting them -- by having -- we think
about tiers -- by having them in -- either in a lower tier or not on
the list, or by having arrangements with -- and/or by having
arrangements with allies in which -- in which they're able to move
forward.

The second and longer-term issue is that the U.S. industrial base
and our technology base really is part of the foundation of our
national security over time. And I think -- and I think it's really
in the space arena where you see it the most, where we've seen it
over the last couple decades -- and export, if you will, of some of
the -- some of the talent and therefore some of the -- some of the
core competencies that we need over time.

Q So that is essentially a trade point, then.

SR. DEFENSE OFFICIAL: It's -- the last one is a -- it's a -- it's
not only a trade point, it's that you -- that in order to sustain an
industrial and technology base in some key areas, you've got to be
able to -- you've got to be able to compete in the marketplace. And
we want the -- there is an economic benefit for the sales, but
there's a national security benefit for having a leading technology
base in these -- in these key areas.

Q Could you give examples of the tiers? What do you consider a
crown jewel technology and then perhaps a little bit farther down --

SR. DEFENSE OFFICIAL: Examples.

For example, if you're talking about stealth technology, that is
something we would view as being a crown jewel. Perhaps the
manufacturing know-how for the latest kind of night vision devices
could be a crown jewel, the manufacturing technology.

In sort of the next tier, which is sensitive things but not crown
jewels, you could have items that incorporate some of those
technologies, which we would export to close allies and friends. So
for example, the Joint Strike Fighter is a potential sensitive item.
Or night vision devices and goggles could be, but not the
manufacturing for it.

Then in the basic tier, you get down to sort of, you know, the basic
items that you have to control under international obligations but
that aren't quite as important to national security. And then, you
know, there are also items that need to be controlled under
sanctions or foreign policy reasons.

SR. DEFENSE OFFICIAL: The concept is to have the top tier be as
small as possible while protecting national security and really
focus on those items that are vital, and then also -- we haven't
mentioned it before, but to have a process over time that migrates
items as they --

Q Out of the whole process?

SR. DEFENSE OFFICIAL: -- as they become more broadly available, to
move down the tiers and eventually they move out of the process.

Q Can I ask a question about these tiers? Because I get the idea
like, you know, some things are more important than other things,
but -- so if it's on a bottom tier, you don't need to look at it?

SR. DEFENSE OFFICIAL: No, you would need to look at it, but you
wouldn't put the same level of --

Q What does that mean, practically? Like, you know, if I'm
exporting, you know, X item on the bottom tier, is that -- and I
guess I shouldn't be, because it's on the tier, or else it wouldn't
be there at all, right? I mean, is it still a problem?

SR. DEFENSE OFFICIAL: Well, in the current list, for example, on
the Commerce side you have certain items that are controlled, for AT
reasons, to a very small number -- for anti-terrorism reasons -- to
a very small number of countries. So there might be items in the
bottom where you would need to make sure they weren't going to
countries that have clear records of diversion or to groups where
they might go to -- to terrorists or something. But you wouldn't
need to look at those in the same way on, you know, every export
that you would at higher tiers, and certainly in the most critical
tier.

Q But does that mean it's depending on what country, like certain
countries can't get things on the bottom tier, whereas on the top
tier, nobody gets?

SR. DEFENSE OFFICIAL: Well, I wouldn't say that nobody would ever
get those things on the top tier, but you would have a very rigorous
review of who would get them. But yes, if you go down to the bottom
tier, it would probably be, you know, a very -- fairly limited
number of countries who don't get those very -- fairly basic things.

STAFF: Question?

Q Gopal with Bloomberg News. I was wondering -- you talked about
a single licensing agency. What role is taken -- right now, State
has a role in licensing as well. So are now proposing one shop
where all of this will be coordinated?

SR. DEFENSE OFFICIAL: We're looking at several different models for
that. And let me say one option is this independent agency. It's
not at all clear that that's the direction we would go. An
alternative is to identify an existing department and put an
integrated -- put a single licensing agency under it. And that is
so it could -- for example, that could go under the State
Department. And we are currently in conversations, both within the
administration and with the Hill, about the appropriate model.

Q If I could follow up on that, if you did have a single
licensing agency, would the criteria change at all for their
decision-making and issuing licenses based on economic, national
security or other factors that maybe State and Commerce would take a
different look at, different perspective on now? Do you expect that
to change, or would the guidelines and criteria remain more or less
the same?

SR. DEFENSE OFFICIAL: The notion is to have a set of criteria that
are applied irrespective of where it sits. And your -- let's see,
what's the right way to put this without tilting one way or the
other. The fact that we've portrayed it as a national security
issue really means that the criteria that we intend -- that we'd
intend to apply really are focused heavily about that, understanding
that there's still -- in addition to protecting the most important
technologies, we also want to be able to have the ability to export
others as well to -- well, for the, you know, frankly, for the trade
and economic benefits but also to sustain our industrial and
technology base.

Q Does that then mean that the Defense Department could be one of
those agencies that could do all the licensing? Is that under
consideration?

SR. DEFENSE OFFICIAL: What's the best way to answer that? I think
-- I think it's fair to say at this point no one has been ruled --
none of the national security agencies involved in this have been
ruled out.

SR. DEFENSE OFFICIAL: All options are being considered, yeah.

Q You have both mentioned lug nuts and bolts and tools. Were
those just picking out to be sort of colloquial, or are there
actually on this list lug nuts and tools --

SR. DEFENSE OFFICIAL: If you look at the United States munitions
list, if you have a bolt that was specifically designed for a
defense article, it is on the United States munitions list.

Q Actual, like, bolt that you'd pick up at a hardware store?

SR. DEFENSE OFFICIAL: Yes, absolutely. Even if it has no
particular shape, size, you know, strength or anything else, if it's
just a bolt but it was designed for that particular item, it is on
the United States munitions list currently and controlled by the
State Department.

STAFF: You got your example after all, didn't you? (Laughter.) In
an oblique kind of way, you did. (Laughter.)

Q (Inaudible) -- sly -- (inaudible).

STAFF: We'll have more for you tomorrow.

Q You mentioned before the U.S. agreements with Australia and
with the U.K. and how those fit into this. Can you explain what --
why, or a little more about that?

SR. DEFENSE OFFICIAL: Well, just for anybody who's not familiar
with those agreements, the treaties that are currently pending
ratification in the Senate allow for a special arrangement between
the U.S. and each of these key allies under which an export license
would not be required, for export of goods that are not on an
excluded list of very sensitive items, to agreed communities of
companies that have been vetted by the foreign government, in that
government, for certain purposes and processes.

So this -- assuming there was ratification, this would allow the
much freer exchange of goods and services without a licensing
process, within that set of constraints.

SR. DEFENSE OFFICIAL: For the vast majority of items.

SR. DEFENSE OFFICIAL: Yeah. So we could foresee -- I mean,
certainly those agreements fit into this idea that below sort of the
excluded list or critical items, you could set up arrangements where
you could find, under very controlled circumstances, certain
license-free, you know, arrangements for certain sets of items.

Q So this new -- these new export-control -- new export-control
regime that would be pushed by the administration would allow the
government to put in ally -- special allies without the need of
having these separate agreements. Basically, you know, I can say
later on that --

SR. DEFENSE OFFICIAL: No, no, no, no, not necessarily. It would --
it would certainly incorporate and have a place for the U.K. and
Australia treaties if they are ratified. And then, given that the
administration would certainly be consulting and looking to Congress
for approval for its actions, you could foresee that there might be
other cases where you would do certain license-free arrangements.
So there's room for it, but it's not -- that is not in and of itself
a key component of the four singles.

Q What -- like -- (inaudible) -- treaty allies or other --

SR. DEFENSE OFFICIAL: Something like that. I believe Secretary
Locke, at one time or another, has talked about making some
arrangements on EU licenses. I'm not sure. You know, we'd have to
-- I'm not fully talking about that arrangement, but there are other
examples out there.

Q So you're saying it would no longer require a treaty that
requires Senate ratification, that there'd be -- it'd be something
administrative?

SR. DEFENSE OFFICIAL: No, no, no. I think that we're talking about
the tiers that are about the technologies and items that are going
to be controlled. In a different dimension, you have the actors to
which they may be exported.

At one end you have the U.K. and Australia, where we -- where we
think it makes good sense to move forward with these -- with these
treaties so that most of the items that -- most of the tiers, at
least -- at least, you know, at least in all but the top tier would
be presumptively exportable to these -- to the -- to the -- to the
U.K. and Australia.

The other side, there's a different dimension in the tiers. On the
other side, there are those countries or entities that have been
involved with proliferation in the past, where they'd -- they could
be subject to much more restrictive treatment and indeed sanctions.

And then there's, if you will, the default in the middle that the
system would orient around. I don't know if that's the right -- if
that's the right three categories, but there's a -- there's a
spectrum of actors, then, to which --

SR. DEFENSE OFFICIAL: I think the way I'd characterize it is that
arrangements like the U.K. and Australia treaties would be
compatible with this arrangement that we're setting up.

Q And it wouldn't preempt them?

Q Who negotiated those? Was it this administration?

SR. DEFENSE OFFICIAL: It was negotiated by the last administration.

SR. DEFENSE OFFICIAL: Previous administration.

SR. DEFENSE OFFICIAL: Yes.

STAFF: All right. We've got time for probably one more --

SR. DEFENSE OFFICIAL: The Senate will still have its role.

Q You mentioned --

Q This issue of reforming it for control has been debated by --
now this is the third administration that's looking at it. How
would -- is this, you know, a significant departure from the way it
is now? Is it just, you know, changes on the margin? Is there more
that could be done? (inaudible.)

SR. DEFENSE OFFICIAL: I'll just say very quickly that the big
change, from my perspective -- in addition to the fact that over the
last 20 years since the first time this was -- this was tried, the
world has moved forward, technologies have advanced and so forth --
is that you have an administration that is unified on the -- on the
objective of making progress and on the specific approach to be
taken, and, as you will see I think with some clarity tomorrow, a
Secretary of Defense who has -- who is not just okay with it but is
the leading champion of export-control reform as a national security
issue. I think those factors are extraordinarily important in
moving this effort forward.

SR. DEFENSE OFFICIAL: And I think what I would add to that is that,
you know, a lot of the reforms that have been brought up, including
the one at the end of the Bush Administration, really had to do with
efficiency of the system or process management. And in fact, I
think if you looked at the statistics, you would see that we're
turning licenses in both State and Defense and to a certain degree
Commerce much faster than we used to. And we're -- we have already
tried to increase our transparency to industry.

But the things that the secretary is focused on, which is that the
world really has changed substantially since the current
export-control system was put in place, aren't solved by this sort
of process-improvement issues and really need to force us to take a
look at what is the right way to do this in the future. So I think
that's the genesis of what we're talking about here.

Q Well, how much more restrictive will this be just to get it --
to modify it in some way?

SR. DEFENSE OFFICIAL: It's not -- it's not intended to be more
restrictive except for those things that are -- you know, are
surrounded by the higher walls where we'll take a very careful look
and have higher penalties.

SR. DEFENSE OFFICIAL: If something's in the top tier, it will be --
the intention is that it be -- more time be spent in -- first in
understanding and identifying the potential ways in which it could
get released and so forth. And then there will be, as was said,
higher thresholds, higher walls associated with exporting those
items.

STAFF: I think that's a good place to probably close it up.

Q Just one basic question.

Q Actually, just a click clarification, possibly.

STAFF: All right. A quick clarification and a basic question, and
then we're done.

Q You mentioned the two independent agencies. One is licensing,
and one is enforcement. Will they be two separate, or will the same
agency do the licensing and enforcement?

SR. DEFENSE OFFICIAL: Well, since the single licensing agency
decision has not yet been made, I'm not sure that there's a
hundred-percent answer to that. But we have conceived of them as
two.

Q Two. Separate ones.

SR. DEFENSE OFFICIAL: Quite likely.

Q Okay.

STAFF: And basic question.

Q And when -- and when this -- in theory, if this all gets
passed, what's the timetable for implementation?

SR. DEFENSE OFFICIAL: Well, it depends quite a bit on when it gets
passed.

Q I'm sorry, in terms of --

SR. DEFENSE OFFICIAL: Phase one and two, very soon, this year, and
-- this year and as -- and as soon as -- we want to have
consultations with the Hill before we begin to do even the
administrative steps, so that we don't bias the prospects for phase
three and some -- and the funding we need for some elements of phase
one like for IT. But we'd like to move forward quickly, and we'd
like to get some legislation passed this year on the Hill. And
that's a conversation that has begun and is -- I think is going to
intensify over the coming few weeks.

Q Some but not all the legislation.

SR. DEFENSE OFFICIAL: We'll see how -- we'll see what the --
frankly, what the -- what the -- what the traffic will bear. We
think that there's a clear vision for getting to phase three and
accomplishing this. The more we can do this year, the better.