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The U.S.-U.K Defense Trade Cooperation Treaty: Entering a New Era of Transatlantic Defense Cooperation

John C. Rood, Acting Under Secretary for Arms Control and International Security
Remarks to Aerospace Industry Association Board of Governors Meeting
Phoenix, Arizona
November 16, 2007

Good afternoon and thank you [John Douglass or Bill Swanson] for that kind introduction. It is my pleasure to speak to you, not only because the member companies of AIA are responsible for maintaining U.S. world leadership in the aerospace industry, but also because you had the excellent sense to schedule this meeting in my home town.

If I may first tell you a bit about my background. My government service began as an analyst in the U.S. intelligence community, and has included work as a staff person to a U.S. Senator, service on the National Security Council, and until recently, as the Assistant Secretary of State for International Security and Nonproliferation. In [September] of this year, I was named Acting Under Secretary of State for Arms Control and International Security. My current portfolio includes the responsibility for administering the Department of State's defense export licensing program, and providing foreign policy input to the dual-use export licensing program administered by the Department of Commerce -- programs that I believe hold more than a passing interest for your companies.

I was asked to speak about the two treaties on defense trade cooperation that President Bush signed recently with the United Kingdom and Australia. Since these treaties are of particular interest to me, I am most happy to talk about them -- perhaps with more detail than you care to hear. But I would like to first give you some context about the effort to create these treaties and several related Administration initiatives in export controls.

It is of paramount importance that we protect truly sensitive U.S. technologies in order to maintain U.S. military superiority in the world. Threats to the safety of the United States and our allies grow daily. We must always be able to arm our military forces with the very best defense technology available to meet these threats, and at the same time we must keep that technology from our enemies. We also must strike the right balance to ensure that the measures we take to protect technology against diversion do not undermine the ability of U.S. companies to conduct legitimate business transactions. To have the resources available to develop and produce leading edge technologies, companies must be able to reliably fulfill their customers' requests.

U.S. industry has the first part of this equation "down cold", as they say. Your companies have equipped U.S. military forces with cutting edge technology for decades. The Bush Administration is working on the second part of the equation -- ensuring that our export control system for U.S. defense goods and technologies is administered in a timely, transparent and predictable manner that protects sensitive technology and which permits U.S. companies to remain competitive.

Improving the responsiveness and consistency of the U.S. export control systems is a priority for me, and I believe we have made significant headway in accomplishing this goal in the last several months. I'd like to discuss some important efforts the State Department has undertaken this year as part of the Administration's effort to modernize the U.S. export control system.

On the dual-use front, the State Department worked closely with the Department of Commerce to implement its "Validated End User" program. Under this program, individual licensing requirements are lifted for carefully screened end-users, thus removing a number of routinely approved licenses from the system.

By doing so, U.S. agencies will be able to better focus their resources on the review of dual-use exports that raise greater security concerns. As you may know, the Commerce Department recently published the first set of Validated End-users, listing 5 Chinese end-users, which collectively account for --18% o f the total licensed U.S. exports to China. The only other country eligible for this special licensing treatment at this point in time is India, and we are working to identify eligible Indian companies.

The State Department also is working with the Department of Commerce to clarify the application of U.S. munitions export controls to parts and components certified by the Federal Aviation Administration for use on civilian aircraft. I know this is an extremely important issue to AIA companies, and both Departments are working to publish regulatory clarifications very soon.

The Administration also has been reviewing the recommendations provided by the Coalition on Export Control Reform. Agencies took a hard look at the Coalition's recommendations and have developed a forward leaning response. Senior levels within the Administration are reviewing that response and I believe meaningful reforms actions will be announced soon which in many ways go farther than those recommended by U.S. industry.

We are hopeful that the proposed reforms will make a true difference to the export licensing process: making the commodity jurisdiction process more predictable and transparent, making the license review process timelier, and improving communication among the various Departments, and with U.S. industry.

In the meantime, the State Department already has implemented a series of process and management reforms that have had a dramatic impact on the munitions licensing process.

In FY 2007, the PM Bureau expects to license up to $100 billion in authorized exports. The number of application received has increased at about 8% annually. We anticipate that total licenses received will rise from 66,000 in FY 2005 to up to 80.000 in FY 2007.

This is a huge responsibility - first and foremost, we must ensure that our licensing decisions protect U.S. national security interests. At the same time, we should strive to make this process timely and, to the extent possible, predictable.

Accomplishing this is a challenge. The State licensing agency, the Directorate for Defense Trade Controls, is understaffed, but we are working to increase staffing.

We also are bringing a new management team on board. Our new Deputy Assistant Secretary in charge of this area is Frank Ruggiero. Frank is a veteran of the U.S. national security community, and I know that he is dedicated to making the State system efficient, responsive, and rational.

We have already seen impressive improvements in the munitions licensing. Over the last 4 months:

  • The Directorate for Defense Trade Controls has reduced its licensing backlog by 24%, from 7,200 pending cases to 5,500.
  • All export license applications for OIF and OEF are now being completed within 7 days.
  • We have a DAS-level review of all applications pending over 90 days, thus reducing the number of cases pending over 90 days from 200 to 30 (an 85% reduction).
  • We also are looking at longstanding policies, and will shortly implement the first change as a result of this review. We are set to initiate a policy change that will permit employees of foreign companies who are nationals from NATO or EU countries, Japan, Australia and New Zealand to be considered authorized under an approved license or TAA.

This will alleviate the need for companies to seek non-disclosure agreements for such nationals and recognizes the low risk to of transferring technologies to nationals of these countries under an approved license or TAA.

And, as you know, the Administration also signed landmark treaties with the United Kingdom and Australia on Defense Trade Cooperation this year. The U.S.-UK Defense Trade Cooperation Treaty was submitted to Parliament in the UK and to the Senate in the United States in late September, and we expect the US-Australia Defense trade Cooperation Treaty to be submitted to the Senate shortly. These actions put us into a much wider public debate about these important agreements. It is fitting to discuss them with AIA, since your companies are at the forefront of U.S. defense trade and are so deeply affected by U.S. Government policies in this area.

In the interests of time, I would like to focus on the U.S.-U.K. Treaty, and note that our goals for concluding these Treaties with the United Kingdom and Australia -- with whom we share exceptionally close defense relationships -- were the same, and that both Treaties are largely the same in content.

The United States and United Kingdom enjoy the closest of relationships and it is no cliché to properly describe this as a special relationship. This special relationship is the product of a variety of factors, such as our shared history and common language. A pint is a pint and a pound is a pound in both the UK and the U.S. (although those terms are also used to describe beer and money in the UK). But the special relationship is special because of our shared values, our shared outlook on the world, and because of our deep and longstanding cooperation over the decades to deal with the threat to our way of life. And it has been this way for many, many years, including innovative defense trade arrangements and sharing of cutting edge technologies.

For example, in the early stages of World War II, now some 70 years ago, the United States under President Franklin Delano Roosevelt provided the UK with military hardware under the lend-lease program. Under this innovative program, Roosevelt found a way to "lend" military hardware to the UK for use in war. (As a former Congressional staffer, I've sometimes wondered what the budget documents submitted to Congress said about these expenditures and whether they said that the UK would return the loaned equipment that was used in the war to the United States).

World War II also saw tremendous advances in military technology, such as the invention of radar in the UK and advances in code breaking, which were shared with the United States as our countries fought to defeat fascism.

Our deep cooperation continued during the Cold War, where the U.S. and UK worked extraordinarily closely to successfully defeat another threat to our liberty and way of life: the threat from communism. And, as you would expect, this involved close collaboration between our defense industries, including the transfers of advanced technologies and know-how as well as large weapons systems like the Polaris missile and Tomahawk cruise missile.

Today, our nations are engaged in a struggle against another threat to our liberty, values and way of life: the fight against terrorism and Islamic extremism.

Both the U.S. and the UK have experienced significant terror attacks on our soil. Australia has experienced significant terror attack against its citizens on foreign soil. The September 11 attacks in the U.S, the 717 attacks on the UK, and the Bali bombing demonstrate the emergence of a significant transnational threat which uses unconventional fighting methods. Al Qaeda and other Terrorist organizations will use whatever technology they can acquire to accomplish this goal. As we have seen in thwarted attacks in the UK and elsewhere, they are a resourceful foe, using traditional military hardware and technology, as well as adapting less sophisticated technologies, like the ubiquitous cell phone and other common items.

This is a conflict that is global with several "fronts." The United Kingdom as been our staunchest ally in this struggle, with Australia and other coalition partners critical to U.S. efforts in Iraq and Afghanistan, and in efforts to combat terrorism and the causes of Islamic extremism internationally.

In this contemporary security environment, it is essential that we take steps to achieve more rapid movement of defense items and technologies and enable our nations to more efficiently pool resources and leverage the technological strengths of U.S. and UK industries.

Our military, intelligence, and other security personnel need to be able to work together seamlessly, to efficiently share information about combined operations, and the men and women on the "front lines" need to have interoperable equipment to successfully accomplish the mission-whether they are on the "front line" in Basra, Kandahar, London, Sydney, or New York.

In addition, our defense and security companies must be able to collaborate in the development of technologies that will effectively counter both conventional and unconventional threats.

It was against this backdrop that we began considering ways to put in place a more effective and efficient defense trade regime. We were mindful of the security environment, but as we sought a solution we also needed to take into account the large scale of economic trade between our countries, and the large volume of defense trade.

For example, the United Kingdom is the largest foreign investor in the U.S. (over $250 billion), and the United States is the largest foreign investor in the United Kingdom (over $350 billion). Moreover, the UK is our largest defense trade partner. The Department of State approved over 7,000 licenses for defense exports to the UK in 2006, worth over $14 billion.

We also looked at how we were handling this large volume of defense trade and discovered that we needed to take into account the costs and benefits of continuing to perform case-by-case reviews of export license requests. Over the past two years, the State Department has processed over 13,000 such exports licenses for defense trade with the UK. Over 99.9% of these requests were approved. (Licensing volume for exports to Australia is lower, but with the same extraordinarily high approval rate.)

We were also mindful of the less-than-hoped for results of thenumerous defense trade reform initiatives of the past decade. As John Maynard Keynes observed, "the Difficulty lies not so much in developing new ideas as in escaping from old ones."

President Bush and former Prime Minister Blair were determined to bring our countries closer together, and decided to seek meaningful reform of the defense trade system between our two countries. They recognized that it was in our mutual national security, homeland security, and economic interests to take bold action, and directed the negotiation of the Treaty that would:

  • support joint U.S.-UK military and counterterrorism operations
  • speed U.S.-UK research, development, production, and support of the next generation of interoperable defense technologies;
  • enable development of the most effective countermeasures possible to combat terrorist attacks, at home and against our partners in the war on terror, and
  • leverage each other's experience, and reduce duplication of efforts in research, development, production, and support.

Engaging in an intensely focused process, a small team of U.S. and UK experts negotiated the Treaty, which was signed on June 21 and June 26,2007 in Washington and London.

The President and Prime Minister's goal was to create the ability for the U.S. and UK militaries and security authorities, and for U.S. and UK companies, to freely exchange information and technologies. To accomplish this, we have created an entirely new structure for most defense exports.

The Treaty will create a community of the U.S. government and Her Majesty's Government, including the various Ministries, Departments, and agencies, as well as the defense and security companies and facilities in both countries. Exports of most classified and unclassified US defense goods, technology, and services will be permitted to go into, and to move freely within this community, without the need for government approvals and export licenses, when in support of:

  • Combined military and counterterrorism operations;
  • Cooperative security and defense research, development, production, and support projects;
  • Specific security and defense projects where HMG is the end-user; and
  • USG only end uses.

This will be a big change from today's export licensing system where numerous government approvals are often necessary for companies to hold discussions about potential projects, to pursue joint activities, to ship hardware and know-how to one another, and even sometimes to move engineers and other personnel within branches of the same company on both sides of the Atlantic. These numerous export licenses and the weeks and months waiting for review and approvals make the task of transatlantic cooperation more difficult.

The Treaty framework has been agreed, but many of the implementing details remain to be completed and our governments are working now on these agreements. Although the list of activities and projects that will fall under the Treaty's scope - and the criteria for adding activities and projects in the future -- is still under discussion, we envision the Treaty will cover the bulk of our efforts.

While the details are still being worked out, and we have not yet determined which specific projects will be covered, I believes some good examples include technologies to defeat IED1s which our forces face on a daily basis in countries like Iraq and Afghanistan, aspects of U.S.-UK Missile Defense cooperation, U.S.-UK armor cooperation, U.S.-UK surface ship radar development, and the U.S. Joint tactical Radio System-UK BOWMAN radio interoperability project.

Regarding UK only end-use programs, we believe UK programs with significant U.S. content, such as ASTOR, would likely qualify. As with any rule, there will be exceptions. Exports of some defense items, technologies, and services will be excluded from coverage under the Treaty, however, and we will identify these exclusions for the exporting public. Excluded items will still require a State Department license under the current process.

One important highlight of the Treaty is that it will include the ability for both governments to effectively enforce it against violators. For example, in the UK, defense articles exported under the Treaty will be considered "RESTRICTED" in the UK, and the Official Secrets Act will apply to such defense articles. In addition to the Official Secrets Act, UK export control laws may also apply and provide an additional level of protection. The defense articles exported under the Treaty may not be transferred or exported to companies or other entities that are not part of the Treaty's approved community without prior permission from the UK MOD and USA. A violation of this requirement will, at a minimum, be a violation of the Official Secrets Act, as well as a violation of US export control laws.

Retransfers and reexports outside the approved community will require an HMG and USG authorization. The Treaty provides for an exception to the requirement for reexport authorizations for exports going outside the Treaty's approved community when such exports are in direct support of UK forces deployed overseas.

We recognize that it is important to create procedures that protect national security interests, but which also are usable by our respective industries. To that end, we have sought industry feedback as we go through the IA development process. In the U.S., for example, one avenue we have used is the Defense trade Advisory Group, an established channel through which we will seek industry feedback on proposed procedures. We also have sought input in informal discussions with industry.

So how would the Treaty work? With apologies to J.K. Rowling, let's consider that the U.S. and UK are each pursuing an independent effort to develop a personal invisibility cloak like that used by Harry Potter. Our DOD and HMG's MOD decide to join forces, hoping to leverage our separate efforts. They negotiate a cooperative MOU to develop the cloak. Our two governments agree to add the invisibility cloak to the list of approved projects, and each government selects its contractor team.

Under the Defense Trade Cooperation Treaty, instead of the U.S. company preparing and seeking U.S. State Department approval of a TAA for this project-which would normally take around 45-60 days-the contractor will check a U.S. Government website. There are three lists to check-is the UK industry partner on the list of approved companies facilities? Check. Is the invisibility project on the list of approved projects? Check. Is the technology on the excluded list? The invisibility cloak technology isn't excluded. Check. With all three boxes checked, the U.S. contractor and UK companies can freely cooperate without export licenses.

The U.S. company will be able to send its technical data to the UK firm to begin work, using the system established to implement the Treaty. Subcontractors can be added later without the need for licenses as is the case today, so long as the subcontractor is also a member of the approved community. No need to wait for an amendment to a TAA to add an additional party like today. A few weeks later the UK contractor team wants to visit the U.S. company to examine and discuss initial samples. This can also be done under the Treaty, and does not require a license.

All of these activities can all be performed without seeking prior authorization from either government, although records will need to be kept. This is a dramatic departure from the way we do things today. The Treaty goes beyond being a new way of doing business-it establishes a unique defense cooperation environment to reinforce our partnership with our most important allies.

We have much more work to do. To paraphrase Sir Winston Churchill, we are not at the beginning of the end of this process on the treaty. Rather, we are closer to the end of the beginning. The Treaty must still be considered and approved by Parliaments on both sides of the Atlantic. Implementing agreements must still be negotiated and signed. And the hard work of implementing and making this new arrangement a reality must be accomplished.

Of course, improved defense and security cooperation is not an end in itself. Its value lies in enabling both our countries to develop and field more effective military capabilities, at lower costs, than otherwise would be the case, and to support the ability for our two countries to operate together in pursuit of common security objectives.

But to paraphrase the noted American philosopher and catcher for the New York Yankees Yogi Berra, who once offered this simplistic observation on the need for clear goals, "If you want to get where you're going, it helps to know where you want to be." The U.S., UK and Australian governments know where we want to be and are moving forward toward that goal.

So, in closing, let me thank you for your attention this afternoon. I hope that I have provided you with useful information about the U.S.-UK and U.S.-Australia Treaties on Defense Trade Cooperation, and other actions the Administration is taking to ensure our export control system is the most effective and efficient in the world.

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