[House Hearing, 111 Congress]
[From the U.S. Government Printing Office]
A STRATEGIC AND ECONOMIC REVIEW OF AEROSPACE EXPORTS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION AND TRADE
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
DECEMBER 9, 2009
__________
Serial No. 111-74
__________
Printed for the use of the Committee on Foreign Affairs
Available via the World Wide Web: http://www.foreignaffairs.house.gov/
______
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COMMITTEE ON FOREIGN AFFAIRS
HOWARD L. BERMAN, California, Chairman
GARY L. ACKERMAN, New York ILEANA ROS-LEHTINEN, Florida
ENI F.H. FALEOMAVAEGA, American CHRISTOPHER H. SMITH, New Jersey
Samoa DAN BURTON, Indiana
DONALD M. PAYNE, New Jersey ELTON GALLEGLY, California
BRAD SHERMAN, California DANA ROHRABACHER, California
ROBERT WEXLER, DONALD A. MANZULLO, Illinois
FloridaUntil 1/4/ EDWARD R. ROYCE, California
10 deg. RON PAUL, Texas
ELIOT L. ENGEL, New York JEFF FLAKE, Arizona
BILL DELAHUNT, Massachusetts MIKE PENCE, Indiana
GREGORY W. MEEKS, New York JOE WILSON, South Carolina
DIANE E. WATSON, California JOHN BOOZMAN, Arkansas
RUSS CARNAHAN, Missouri J. GRESHAM BARRETT, South Carolina
ALBIO SIRES, New Jersey CONNIE MACK, Florida
GERALD E. CONNOLLY, Virginia JEFF FORTENBERRY, Nebraska
MICHAEL E. McMAHON, New York MICHAEL T. McCAUL, Texas
JOHN S. TANNER, Tennessee TED POE, Texas
GENE GREEN, Texas BOB INGLIS, South Carolina
LYNN WOOLSEY, California GUS BILIRAKIS, Florida
SHEILA JACKSON LEE, Texas
BARBARA LEE, California
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
MIKE ROSS, Arkansas
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
JIM COSTA, California
KEITH ELLISON, Minnesota
GABRIELLE GIFFORDS, Arizona
RON KLEIN, Florida
VACANT
Richard J. Kessler, Staff Director
Yleem Poblete, Republican Staff Director
------
Subcommittee on Terrorism, Nonproliferation and Trade
BRAD SHERMAN, California, Chairman
GERALD E. CONNOLLY, Virginia EDWARD R. ROYCE, California
DAVID SCOTT, Georgia TED POE, Texas
DIANE E. WATSON, California DONALD A. MANZULLO, Illinois
MICHAEL E. McMAHON, New York JOHN BOOZMAN, Arkansas
SHEILA JACKSON LEE, Texas J. GRESHAM BARRETT, South Carolina
RON KLEIN, Florida
Don MacDonald, Subcommittee Staff Director
John Brodtke, Subcommittee Professional Staff Member
Tom Sheehy, Republican Professional Staff Member
Isidro Mariscal, Subcommittee Staff Associate
C O N T E N T S
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Page
WITNESSES
Matthew S. Borman, J.D., Acting Deputy Assistant Secretary for
Export Administration, U.S. Department of Commerce............. 7
Mr. Robert S. Kovac, Acting Deputy Assistant Secretary for
Defense Trade, Bureau of Political-Military Affairs, U.S.
Department of State............................................ 16
Ms. Marion Blakey, President and Chief Executive Officer,
Aerospace Industries Association............................... 35
Mr. David J. Berteau, Senior Advisor and Director of the Defense-
Industrial Initiatives Group, Center for Strategic and
International Studies.......................................... 52
Mr. Henry Sokolski, Executive Director, Nonproliferation Policy
Education Center............................................... 58
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Matthew S. Borman, J.D.: Prepared statement...................... 10
Mr. Robert S. Kovac: Prepared statement.......................... 18
Ms. Marion Blakey: Prepared statement............................ 38
Mr. David J. Berteau: Prepared statement......................... 53
Mr. Henry Sokolski: Prepared statement........................... 60
APPENDIX
Hearing notice................................................... 82
Hearing minutes.................................................. 83
The Honorable Gerald E. Connolly, a Representative in Congress
from the State of Virginia: Prepared statement................. 84
The Honorable Brad Sherman, a Representative in Congress from the
State of California, and Chairman, Subcommittee on Terrorism,
Nonproliferation and Trade: Letter to Foreign Affairs Committee
Chairman Howard L. Berman, dated October 16, 2009, from the
International Association of Machinists and Aerospace Workers.. 85
A STRATEGIC AND ECONOMIC REVIEW OF AEROSPACE EXPORTS
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WEDNESDAY, DECEMBER 9, 2009
House of Representatives,
Subcommittee on Terrorism,
Nonproliferation and Trade,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:03 p.m. in
room 2200, Rayburn House Office Building, Hon. Brad J. Sherman
(chairman of the subcommittee) presiding.
Mr. Sherman. I want to thank everyone for being here. As
one of our largest sources of exports, the aerospace industry
plays a vital role in securing our military strength and
bolstering the economic competitiveness of the United States.
Today's hearing is to examine the strategic and economic impact
of our current policy on this industry. This is part of an
ongoing effort by this subcommittee. We have held hearings on
this issue; in July 2007, May 2008 and earlier this year, both
in April and in July. These hearings have led to changes in
policy and procedure in the Executive Branch and to the
passage, through at least the House, of important legislation
that has yet to make it through the Senate.
This includes the Defense Trade Controls Improvement
Performance Act, which has passed the House twice, the second
time as part of the Foreign Relations Authorization Act, which
is pending in the Senate. That act pending before the Senate
has the work of this subcommittee and collegially several of us
in the Section 826, which provides authority to remove
satellites and related components from State Department control
to Commerce control, while at the same time protecting our
technology from China. We are also in the process of including
in a larger bill the Export Controls Improvement Act. The
aerospace industry has been a particular focus, not only of
myself, but Mr. Royce, our ranking member, Mr. Manzullo, who
has focused on small business, and our vice chairman, Mr.
Scott.
We have seen important changes involving Section 17(c)
related to civilian aviation equipment in response to the
concerns of this subcommittee. The Commerce and State
Departments, both of which are with us today, worked together
to issue a rule in August 2008 that clarifies jurisdiction
significantly. Moving forward, ongoing clarification in this
arena from the Departments of State and Commerce would be
beneficial, as will a timely review of control items. Also, as
a result of this subcommittee's previous work with the
directorate of defense trade controls, the DDTC, I am pleased
to see that the State Department has decreased the average
license application processing time to one-third of the 2006
average, so you are to be commended.
I want to commend both agencies represented here for
responsiveness to congressional concern. Not only does the
aerospace industry contribute to the economic output of the
U.S. and provide high paying jobs, it also is critical to the
defense strategic capacity of the United States, to that of our
allies, and the fact that we are building the planes means that
some other country isn't and that we are preventing the
development of technology in hands that we might not control.
In fact, organizations, such as the International Association
of Machinists and Aerospace Workers, warned at our last hearing
on this subject that failure to consider the employment impact
in export control policy may exacerbate the existing job crisis
in the United States.
I want to submit for the record a letter sent to us by the
Machinists' Union which states, in part, mindful that policies
that encourage or facilitate further outsourcing of technology
and production can, and do, have a detrimental impact on U.S.
workers and will impede our nation's recovery. Clearly, in
deciding what our policy in this area ought to be we should be
weighing on the one hand any possible, or even remotely
possible, diminution in our national security by shipping
abroad sensitive technologies versus the jobs impact. Where we
have a circumstance where something has a negative jobs impact,
then we should not accept even the tiniest and most theoretical
diminution in our national security.
Now, currently there is no legal requirement for the export
control process to take into account the employment impact when
assessing licensing decisions or the consequences that certain
transfers will have to the stability of the defense industrial
base. While companies need licenses through the DDTC to
manufacture certain munitions overseas, it is time to start
thinking about making a similar requirement for dual-use items,
and whether it is Commerce or State, no license should be
issued that doesn't take into consideration the affect on jobs.
As I have said before, there is no reason to issue a license if
it is going to have a detrimental impact on jobs.
We need to insure that we are not outsourcing our critical
national security infrastructure or facilitating the
outsourcing of U.S. jobs and perpetuating our trade deficit. A
particular issue arises over the defense needs of Japan, their
prior interest in the F-22, their possible future interest in
the F-35. I know that we have refused past Japanese
Government's requests for them to purchase, for us to sell, the
F-22. Every year since 1998, Congress has imposed a year long
ban on foreign sales of the F-22. This has not been done by the
Foreign Affairs Committee, but rather, through the
appropriations process.
I can't blame the Appropriations Committee for taking this
action when our committee has not stepped forward with a clear
policy answer to the question of whether, and what, should be
the limitations on the export of the F-22. When we don't act,
they do. Congress works best when the different roles of the
appropriations and authorizing committees are followed, and I
look forward to a return to regular order on that issue. The
2010 National Defense Authorization bill includes reporting
language, rather, a reporting requirement to detail the
feasibility, cost and impact of selling the F-22s abroad
showing that the other relevant authorizing committee is, in
fact, taking a look at whether we should sell these F-22s in
certain circumstances.
As I said, there may be interest in the F-35. I would say
that it is in the U.S. national security interest for Japan to
have a major qualitative advantage over China and other
potential Japanese adversaries, and to enhance Japanese
security is, for the most part, to enhance American security.
Notably, due to a recent change in the ruling party, the
Japanese Government, which had expressed continuing interest in
purchasing the F-22, may or may not be interested at the
present time. They had been interested in purchasing 40 to 60
aircraft. Taiwan has also expressed an interest in purchasing
F-16 aircraft. Given the violence done to the American economy
by the illegal actions of China in so many economic spheres,
for us to accede to the Chinese concerns in not providing the
F-16 to Taiwan seems to add, not insult to injury, but injury
to injury.
U.S. aerospace companies have had significant financial
interest in the export of their commercial products. Our
industry today faces foreign competition for these sales. The
Europeans unfairly subsidize their industry. I believe the
United States has a vested interest in supporting our domestic
producers. For example, markets in China and Russia have
potentially high demand for U.S. commercial aircraft. In
particular, the Chinese may have a demand for as many as 3,700
new civilian aircraft in the next 20 years. That represents $40
billion in potential sales. Additionally, new Russian airline
Rossiya, and I am sure I mispronounced that name, has solicited
bids for up to 65 aircraft.
I have long advocated for a better relationship between the
United States and Russia, and the integration of U.S.
commercial planes into the Russian civil aviation carriers
would be a real signal of an improvement in increased U.S./
Russian cooperation. Finally, I want to comment on the
possibility that GE might want to move various facilities to
China, perhaps to take advantage of the Chinese market. We have
a strategic decision to make. One is do we try to compete
against the Europeans to see who can hand more technology to
China on the thickest silver platter, or do we want to
cooperate with Europe to say that as long as China is running
such a huge trade surplus with the world, that perhaps this is
one area of economics that they should not be expanding into.
None of the arguments in favor of cooperating with China
should assume that cooperation with Europe on this is
impossible until we at least try. I look forward to hearing
from today's witnesses, and I especially look forward to
hearing the opening remarks of our ranking member, Mr. Royce.
Mr. Royce. Thank you very much, Mr. Chairman. This is the
latest hearing on export controls. The subcommittee is, I
think, very well positioned should the committee move ahead
with broad export control legislation. Let me just make a
couple of observations, and one is that aerospace is one of our
nation's key industries, both economically, but certainly
national security-wise as well. Of course, American dominance
and leadership can't be assumed here. Russia and China are
focused on developing exportable aircraft. India has a vibrant
space program. Our export control system was crafted during our
economic and technological dominance. That has changed,
unfortunately.
The question today is whether the system has evolved
appropriately in a way that doesn't choke innovation and
competitiveness, yet protects critical technology. There have
been some helpful reforms, made mainly by the past
administration, and there have been encouraging words by the
current administration, but more is needed to manage rapidly
evolving technology and crafty foes. A witness at our satellite
hearing called the system broken, very bureaucratic and unable
to distinguish what is commercially available and what is not.
The GAO has observed an inherently complex system having what
they call significant vulnerabilities. Meanwhile, the GAO keeps
rattling the system.
GAO put out a June report that explained how its
investigators beat export controls by buying sensitive
technology and illegally shipping fake versions abroad. It was
very easy for them to pull that off, and this is a big problem.
The full House has approved an authorization bill giving the
President authority to remove satellites from the State
Department managed munitions list, except for technologies that
could be transferred or launched into space by China. This
change reflects the view of the Pentagon and others that
satellite export controls have hurt U.S. innovation. Excluding
China is smart, though. For one, China is working with Iran on
space and satellite programs. I have expressed concerns about
China before, particularly the validated end-user program,
which expedites tech exports to China, yet lacks strong
monitoring capacity.
There is too much trust. But it is not just in export
controls that China is naively viewed. A recent Time Magazine
story analyzed what a lousy decade we are finishing. We had 9/
11, two market collapses, the financial crisis, Katrina, and so
forth. On the plus side of its ledger, one of the few
``amazingly great'' things was the, ``stunning rise of China.''
``Amazingly great,'' as if China is not a totalitarian country
aggressively stealing our technology. We need more realism
about China across the board in this society. I want U.S.
companies to be world class. That means killing the
bureaucratic excess. I want to deny terrorists, and Iran,
critical technology, and that means being efficient. These
aren't contradictory goals. We won't get near them unless
export control betterment is a key administration goal. I hope
to be proved wrong in my skepticism. Let us start today. Thank
you very much, Mr. Chairman, and I yield back.
Mr. Sherman. Thank you. With that, let us see who else has
an opening statement. I assume Mr. Scott does.
Mr. Scott. Thank you, Mr. Chairman. I appreciate this
hearing, the commercial and military aerospace industries are
very significant in terms of our export, but also in terms of
vital employment, for our aerospace industries employ hundreds
of thousands of workers in the United States. The recent
economic downturn has affected a great number of Americans with
unemployment exceeding well over 10 percent, so it is timely,
and it is a pleasure to be with you here. I would like to join
you in welcoming our distinguished witnesses as we tackle the
subject of strategic and economic review of aerospace exports.
The topic of today's hearing is one that we have broadly been
considering for quite a while.
The specific aspects of today's hearing, particularly the
economic impact of aerospace exports, is one that I am keenly
interested in. So I thank you once again, Mr. Chairman, for
providing this forum to discuss these important issues. As I
said, the boom and bust of aerospace exports has played out on
the stage, particularly of my congressional district where
Lockheed Martin and the people of Georgia build some of the
finest planes in the world. As a matter of fact, Lockheed has
long been the structural backbone of the reason why the United
States has the air superiority that we have today which means
we have the military superiority in the world today.
Let me tell you, Mr. Chairman, the Obama administration
dealt a mighty blow to my district when it decided to terminate
a program that employed thousands of workers, not just in
Georgia, but all across this country, impacting over 85,000
employees, and that is in the building of the F-22. The F-22.
That platform that gives us, and has given us, that competitive
edge, that has helped us to maintain our military superiority.
Myself and hundreds of other Members of Congress, both in the
House and the Senate, implored the President. I visited the
White House on three different occasions to plead with the
President and Secretary Gates to consider the economic
consequences of closing this production line.
Our entreaties were roundly ignored by this administration,
though. During a time when our economy is hemorrhaging jobs
left and right, they decided to kill thousands of more jobs.
And so what is left for these workers? Is there any hope that
their jobs might be saved? Well, we do have the F-35 coming on
line, but when? It is my understanding that the Japanese, for
example, wanted to purchase F-22s, but the administration has
told them no. Of course, that makes little sense on any front.
The Japanese are a close friend, and they are a close ally who
wish to help out the United States economy by purchasing high
value products from us, but we tell them no.
Mr. Chairman, I do want to add one other point at this
time, that I think it is very important for us and the Foreign
Affairs Committee, and us, particularly on our subcommittee,
for it is our subcommittee that deals with international trade,
and while I have great respect for the Appropriations
Committee, they are appropriators. It is the Foreign Affairs
Committee that provides the analytical information, the
thoughtful embrace of these decisions dealing with our military
and our defense needs and relations to our foreign policy,
interwoven with the very important issue of international
trade, and I think it is very important that if there is a
final say so in terms of the F-22 and others that will come on
line regarding international trade, that it should be done in
the committee of jurisdiction, which is the Foreign Affairs
Committee, and certainly in the bosom of the subcommittee of
which we sit today.
As I said, the Japanese are close friends and they are
allies. By purchasing these high value products from us it
helps us. Moreover, this administration has stated a commitment
to helping our partners build their capacity for defense and
security. It has been pointed out it is important that our
partners in the world maintain the qualitative edge, whether it
is Japan on one hand, or perhaps Israel and the Middle East on
another hand. So it is even more cresotic that this
administration would tell the Japanese that they can't buy what
they want, and especially with the Japanese being our friend.
Admittedly, the United States Government does not have a
responsibility to promote exports from one particular company
or another, and economic concerns shouldn't always trump
national security concerns. In fact, they must not.
When our economy is struggling and a friend offers us a
win/win solution and help that creates and preserves jobs and
helps ensure our national security at the same time, why not
jump at the chance instead of telling them thanks, but no
thanks and driving them into the hands of others? So, well
again, Mr. Chairman, I have had my say on this, and I hope that
my points have been made clear, and I thank you for giving us
the chance to explore, and I look forward to the testimony of
our witnesses.
Mr. Sherman. I agree with the gentleman from Georgia that
when we don't sell to one of our friends we drive them into the
hands of others. So not only do we not help the development of
our industry, we help the development of industry elsewhere
which creates a new competitor economically, and, depending
upon who that competitor is, a new competitor strategically as
well. Mr. Ruppersberger, the chair of the Technical and
Tactical Subcommittee of the Intelligence Committee, who helped
to bring to our attention the potential impact of ITAR on the
domestic satellite industry and the potential ramifications of
that for U.S. intelligence would like to submit a statement for
the record on that issue, and so, without objection, I would
like to have that statement added to the record at the
appropriate place. Hearing no objection, it will be done. In
addition, I would like unanimous consent to add to the record
the Congressional Research Service study of November 25 done at
the request of this subcommittee. It is some 32 pages long and
is comprehensive and helpful, and, without objection, will be
added to the record of this hearing. I guess the gentleman from
Illinois does not have an opening statement.
Mr. Manzullo. I am going to waive mine. I am very anxious
to hear the testimony of the witnesses and would like unanimous
consent to make it part of the record.
Mr. Sherman. Why thank you. I know the gentleman from
California is no less anxious to hear the witnesses, but we are
anxious to hear his opening statement.
Mr. Rohrabacher. Thank you very much, Mr. Chairman. I want
to thank you for your leadership in this very significant issue
in terms of exporting American technology and these economic
decisions that are also national security decisions, and thank
you for letting me be part of this subcommittee hearing today.
So many American companies are now American in name only,
having sent their manufacturing facilities, along with millions
of American jobs, overseas. This has been both an economic and
a national security disaster for the people of the United
States. The latest move by GE to join forces with a Chinese
Government run company to compete with Boeing and Airbus in the
sale of avionics technology is particularly unforgivable.
It is a betrayal of American aerospace engineers, and
workers and entrepreneurs who over the years have done so much
for our prosperity and our national security. It is
unforgivable. Mr. Chairman, it was a disastrous economic
mistake for this Congress to grant Communist China most favored
nation in trading status to begin with. Ever since then, tens
of millions of good jobs have been lost to China, which has
resulted in the present disastrous situation where Communist
dictators control our economy by holding trillions of dollars
of U.S. debt. They also have technology available to them to
outcompete us and to defeat us militarily, which is, again, a
disaster for the people of the United States of America.
The Foreign Affairs Committee should ensure that the greed
of a few American businesspeople who have already done so much
damage to the American economy, and again, so much damage to
the well-being of American engineers and skilled laborers, that
we have do what we can to make sure that they are not permitted
to render our nation's security in permanent vulnerability. If
we end up sending over to Communist China, which is involved
with proliferation and involved with sending military equipment
to rogue regimes, if we let them have the technology that was
developed by hundreds of millions, even billions of dollars
worth of U.S. research, shame on us for not stepping in and
getting in the way of these so-called Americans who are putting
our country at risk. Thank you very much, Mr. Chairman. I am
looking forward to the hearing.
Mr. Sherman. Thank you. Sometime you will tell us how you
really feel. We have with us two acting deputy assistant
secretaries. Acting does not comment adversely on the
authoritativeness of their pronouncements, but it does reflect
on the fact that it has taken a very long time for this
administration to gear up and get its people into positions
throughout government. We are at the close of 2009. You could
blame the administration for the fact that they have been slow
to gear up, you could blame the Senate. This is one of the few
things going wrong in Washington for which you cannot blame the
House of Representatives. I welcome Mr. Matthew S. Borman,
acting deputy assistant secretary of commerce for export
administration. In this capacity, Mr. Borman is responsible for
implementing the Bureau of Industry and Securities, also known
as BIS, controls on dual-use items.
After Mr. Borman, we will hear from Robert S. Kovac, acting
deputy assistant secretary of state for defense trade and the
managing director of the directorate of defense trade controls,
also known as DDTC, at the State Department. First Mr. Borman.
STATEMENT OF MATTHEW S. BORMAN, J.D., ACTING DEPUTY ASSISTANT
SECRETARY FOR EXPORT ADMINISTRATION, U.S. DEPARTMENT OF
COMMERCE
Mr. Borman. Thank you, Mr. Chairman. It is a pleasure to be
here before you and the committee again. I commend you for your
continued interest in this subject. Chairman Sherman, Ranking
Member Royce and distinguished members of the subcommittee,
thank you for the opportunity to testify on the Department's
role in controlling the exports of aerospace items. The
Department's Bureau of Industry and Security, in conjunction
with other Federal agencies, administers controls on a range of
dual-use items, including aerospace commodities, software and
technology, to further U.S. national security, foreign policy
and economic objectives. We administer and enforce the controls
through the Export Administration Regulations.
The promotion of the competitiveness of the aerospace
industry is the responsibility of the Department's
International Trade Administration, which is a different part
of the Department of Commerce. The International Trade
Administration of Commerce performs several critical functions
to help ensure the U.S. aerospace industry remains globally
competitive. The aerospace market is the United States' most
significant advanced technology export sector. In the last
fiscal year, Fiscal Year 2009, over $80 billion worth of
aerospace exports were made from the United States. In the
aerospace industry sector, of course, there are many dual-use
items, items that have both civilian and military applications.
In the last fiscal year, the Bureau of Industry and
Security approved 1,230 applications for licenses to export
aerospace products worth about $1.3 billion. That constituted
more than 7 percent by volume of all of the roughly 20,000
export license applications we processed. Our controls seek to
allow U.S. companies to supply secure markets and to benefit
from international technology collaboration, while minimizing
potential threats to national security and foreign policy.
Under the Export Administration Regulations, most civil
aircraft and related parts, including virtually all commercial
aircraft and engines, can be exported to most of the world
without individual export licenses. Individual licenses are
required to export these items, however, to Cuba, Iran, North
Korea, Syria and Sudan, as well as a range of proscribed
persons.
In 2008, the Departments of Commerce and State clarified
our respective regulations on the export jurisdiction of
certain aerospace components. It appears that the clarification
has served its purpose as the number of requests for commodity
jurisdiction determinations for aerospace items, which had been
significantly increasing, has dropped substantially after the
publication of that clarification. We also seek to regularly
update our list of controlled items, the Commerce Control List,
to ensure that it reflects global realities, including the
availability of controlled items from foreign sources. In this
regard, our Technical Advisory Committees, and particularly,
our Transportation Technical Advisory Committee, has formulated
modifications to make sure that aerospace controls are up to
date as partnership between the aerospace industry and the
Bureau of Industry and Security has been an effective tool in
our continuing efforts to more precisely target our controls.
Our enforcement efforts help to ensure compliance with our
dual-use aerospace export policy. This includes thwarting
potential violations of the regulations by a variety of means,
including end-use checks abroad and temporary denial orders. We
also vigorously pursue violations of the regulations, and
several examples of enforcement actions involving aerospace
items are included in my written testimony, which I request,
Mr. Chairman, be included in the hearing record. A significant
challenge for the Bureau, especially with respect to its
enforcement activities, is the longstanding lapse of the Export
Administration Act. This lapse hinders the ability of the
bureau to employ up to date authorities to enforce the dual-use
export control system.
In August, the President made his annual renewal of our
authority to continue our dual-use export control regulations
in light of a lapse of the EAA. He also directed that the
National Security Council launch a broad-based interagency
process for reviewing the overall U.S. export control system.
The aim of the review is to ensure that the system best
addresses the threats and changing economic and technological
landscape we face today. This review is well underway. Thank
you for the opportunity to testify on the Department of
Commerce's controls on the export of aerospace items. I am, of
course, pleased to answer any questions members have. Thank
you.
[The prepared statement of Mr. Borman
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Mr. Sherman. Thank you.
STATEMENT OF MR. ROBERT S. KOVAC, ACTING DEPUTY ASSISTANT
SECRETARY FOR DEFENSE TRADE, BUREAU OF POLITICAL-MILITARY
AFFAIRS, U.S. DEPARTMENT OF STATE
Mr. Kovac. Thank you, Chairman Sherman, and members of the
subcommittee for the opportunity to testify on the export
control processes and policies of the Department of State.
Directorate of defense trade controls and the Department of
State administers the U.S. defense trade system. Its mission is
to advance national security and foreign policy through the
licensing of direct commercial sales for defense articles and
services and the development and enforcement of defense trade
control laws, policies and regulations. Like any regulatory
agency, our goal is to ensure that this mission is performed in
a manner that is transparent, efficient and predictable as
possible while preventing exports or retransfers of defense
articles and technologies that are counter to, or could
undercut, U.S. national security and foreign policy interests.
Several years ago, without justification, the directorate
had a less than stellar reputation for the processing of
licensing applications. During calendar year 2006 the
directorate processed 70,000 license applications with an
average processing time of 43 days. This does not tell the
whole story, however. At one point in 2006, the directorate had
over 10,000 license applications open and awaiting final
action. I am proud to say that the situation has changed
radically and for the better. In 2008, the Department processed
over 84,000 license applications while decreasing the average
processing time to just over 16 calendar days. The number of
applications open at any one time average 3,400, and the number
of cases that took over 60 days were reduced to just 1,100
during that year.
I am also extremely proud to note that this was not an
isolated event or the result of extraordinary exertions that
could not be sustained. So far in 2009 the Department has
processed over 70,000 license applications at an average
processing time of just 15 days. The number of open cases at
one time has also dropped. Improvement of this magnitude
requires changes to process, policy and practices, as well as a
sustained effort on the part of all those involved in the
export process. The promulgation of NSPD-56 provided the
impetuous for many changes in policy in the processing of
licenses, including the establishment of the 60 day limit in
processing unless national security or foreign policy concerns
apply, and the requirement for applicants to utilize electronic
licensing.
Department of Defense support in the policy and process
improvements has also been critical. The Department's Defense
Technology Security Administration has been a steadfast partner
in all of the regulatory and policy changes, and most
importantly, in its own process improvements, which included
the use and continued refinement of a do not staff list
identifying technologies and circumstances that do not require
DOD review. Finally, and most importantly, these improvements
have been the result of actions within the directorate itself.
We have done a detailed review of the processes, policies and
practices used in licensing, developed internal standard
operating procedures, published guidelines and policy notices
to the exporting community and maintained a sustained effort on
all fronts to improve the process on a daily basis.
Kevin Maloney and his team in the office of Defense Trade
Controls, Licensing, deserve much of the credit for these
improvements. Regulatory changes have, and will, play a part in
these improvements. As I already mentioned, Section 17(c)
changes last year have significantly reduced the number of
aircraft-related commodity jurisdiction requests. Expansion of
the exemption that permits retransfers without prior approval
to include NATO agencies has likewise had a positive impact.
The Department has recently published a draft rule to clarify
the exemption for exports in furtherance of foreign military
sales cases and work was just completed on a draft rule to
clarify exports exempt from licensing when buying for the
United States Government.
Other improvements are on the drawing board. In summary,
the improvements that have taken place have been impressive,
and will continue. The Department is committed to making the
system efficient, transparent and predictable. Our goal is
threefold. First, to establish a regulatory regime that
requires licenses only when required by law or when U.S.
national security and foreign policy concerns are a factor that
the applicant cannot address. Second, to make the process as
expeditious as possible when a license is required. Finally, to
design the process to support enforcement. Any specific future
improvement be implemented will depend on a number of factors,
including the impact of any legislation that might be
forthcoming. However, any improvement, as Under Secretary
Tauscher and Assistant Secretary Shapiro have made clear, will
be executed with the U.S. national security being the primary
consideration. I would be happy to respond to your questions.
[The prepared statement of Mr. Kovac
follows:]Robert Kovac deg.
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Mr. Sherman. I thank you both for your testimony. Our
export control system is based on the idea of controlling that
which is exported. Therefore, an awful lot of items, important
dual-use items, can be purchased by any American for any
reason, or for no reason, no matter who they are, and then we
are going to hope that that person doesn't then ship it abroad
without permission. Mr. Borman, given the fact that many of
these dual-use items could be put in a pick up truck and
trucked to the Iranian Ambassador in Ottawa any day of the
week, are we just fooling ourselves with the idea that we can
allow these items to be purchased by anybody who can go on the
internet in the United States, and then that somehow we are
going to prevent their export?
Mr. Borman. Well, Mr. Chairman, I can tell you how we
currently try to deal with that situation. There are two
aspects. As it relates to release of controlled technology to
foreign nationals in the United States, there is a part of the
regulations that covers that. So if an individual in the United
States seeks to get access to technology information that would
require a license----
Mr. Sherman. For many years there was stuff at sale at
Egghead. This shows how far back, when Egghead was where you
bought your software, but it was illegal to ship abroad, so the
Iranian Ambassador to the United Nations was free to buy it at
Egghead, but somehow we were going to prevent him from sending
it, or the electrons on the disk, back to Tehran. Are you
saying that we make sure, or at least have a system to make
sure, that any American buying something has a good use for it
and a legitimate reason to buy it if that is something that we
would not allow the export of?
Mr. Borman. No. What I am saying is the current system
requires a license if a foreign national who is in the United
States----
Mr. Sherman. Foreign national.
Mr. Borman [continuing]. Could get access to controlled
technology.
Mr. Sherman. Okay. So the Iranian Ambassador to the U.N.
would have to have one American citizen friend willing to do
this. So you have got to go on the internet. You can't say ship
it to the U.N. Ambassador of Iran, you would have to say send
it to this one individual. Given the recent terrorist arrests,
are we assuming that every legal citizen and resident of the
United States, that not a single one of them would cooperate?
Is our whole export control program based on the assumption
that not a single one of them would cooperate with, say, Iran?
Mr. Borman. No. The definition of ``export'' as it is in
the Export Administration Act doesn't give us the authority to
control the domestic----
Mr. Sherman. Yes. I am not blaming you. I am saying
Congress created a really stupid system, which you are doing a
great job of administering, where we think we are accomplishing
something by saying, you know, if you are sitting in Malaysia
or in Denmark, you can't buy this widget, but if you are the
Iranian Ambassador to the U.N.'s best friend, you can.
Mr. Borman. Well, that would still be a violation of the
existing law because if there is a domestic transfer and then
there is an attempt to make that----
Mr. Sherman. Trust me, whoever is his best friend is
willing to violate the law of the great Satan. Basically, any
American citizen or resident can buy any one of these things,
put it in the back of a pick up truck and drive to Canada or
Mexico, and the only person violating the law would be the guy
in the pick up truck, right?
Mr. Borman. Well, whoever is facilitating that illegal
export.
Mr. Sherman. Well, you go on the internet, you buy it, it
is delivered to your house by UPS, you are not going to put the
UPS driver in jail, you know, what he is doing is entirely
legitimate, he puts it in his pick up truck and he drives to
Mexico City. We have got one person violating the law, we have
got terrorist organizations where people are willing to blow
themselves up. Here, the chance at being caught is, would you
say zero?
Mr. Borman. We have had cases. We have had enforcement
cases where we have apprehended and prosecuted individuals who
have procured things in the United States and tried to do
exactly what you have said.
Mr. Sherman. Do we have a system that would do that or we
just get real lucky?
Mr. Borman. No. I mean, we have law enforcement agents,
both in our department and other departments, who are on the
look out for that. That is what they do.
Mr. Sherman. I would say you have got thousands of things
on your list you are trying to control. Any one of my staff can
buy any of them as long as they can afford them just by going
on the internet. They don't have a use for any of them, and
thank God none of them is a good friend of the Iranian
Ambassador to the United Nations. With that, I will yield to
Mr. Royce.
Mr. Royce. Thank you, Mr. Chairman. I am going to ask Mr.
Borman a couple of questions here and I will start by asking in
January the Bureau of Industry and Security announced the full
implementation of the validated end-user program with China.
There have been concerns that one of those entities, Aviza
Technology China, shared an address with a state owned firm
that was sanctioned by the State Department in December 2006,
and they were sanctioned expressly for illicit sales to Iran
and to Syria as well. So I would ask, are you confident that
this program is defensible on national security grounds?
Mr. Borman. Yes, I am. In that particular case that end-
user underwent a thorough intelligence, law enforcement,
interagency review and the location is actually a bonded
warehouse, and so we have a long record of being able to check
and see what they are doing there, and the Intel information,
as I said, intelligence, law enforcement information indicated
that the bonded warehouse that Aviza uses is a bonded
warehouse, which means the items come in, they are secure and
then they are sent to their customers. Of course, the company
is responsible for informing us if items authorized to go there
don't end up at the customer where they are supposed to go,
which is a strong business incentive for them.
Mr. Royce. But here is part of the catch. You have got to
give 60 days notice, I understand, right? You have got to give
that notice to the Chinese Government before you subsequently
have that opportunity to do that inspection. Now, first I would
ask, is that still 60 days? Because that seems like an awful
long time to get your ducks in a row if you are notified that
the U.S. is tripped to some question here as to the end-use.
Let me ask you about that.
Mr. Borman. It is 60 days. That is right.
Mr. Royce. Must an inspector be accompanied when he goes in
there by an official representative of the Chinese Government?
Is that also still part of the----
Mr. Borman. The Chinese Government can choose to do that.
On Aviza, remember that the business model here is the item
goes into the facility, which is the bonded warehouse, and then
it goes to a customer.
Mr. Royce. Right.
Mr. Borman. So if it were to go to someone else than the
customer, I mean that is a significant business impact for the
companies so they have a strong incentive to make sure that the
individual item that comes in that is for a specific customer
and order then goes there. It is not a stockpile.
Mr. Royce. On the other hand, the return on investment can
be very, very high. Well, let me ask you one other question. In
June, the GAO concluded as a result of its covert testing that
sensitive dual-use and military technology can be easily and
legally purchased from manufacturers and distributors within
the United States and illegally exported without detection. The
items in its test included gyro chips, night vision equipment,
parts used for smart bombs and nuclear explosives. What are
your thoughts on that? Then I will defer to other members.
Mr. Borman. Well, as I mentioned to Chairman Sherman, right
now, under the legal authority, we don't have authority to
regulate domestic transfers of controlled dual-use items. What
are illegal, of course, is if there is a domestic transfer and
the parties know that they are going to illegally take it out
of the country. We have had any number of enforcement cases
where we have identified those transactions, apprehended the
individuals and prosecuted them.
Mr. Royce. Well, these accelerometers, as they are called,
are pretty handy for smart bombs, and frankly, for nuclear
explosives as well, so we have got a little bit of a problem.
Mr. Chairman, I yield back.
Mr. Sherman. Thank the ranking member. Recognize our vice
chairman, and then we will need to go vote. We will reconvene
after the votes.
Mr. Scott. Thank you, Mr. Chairman. Let me just ask a
question. First of all, I want to deal with the security
environment in the Pacific I alluded to in my opening remarks.
With North Korea moving with their nuclear program and missile
program, China now having, really in the midst of developing a
counterpart to the F-22, it seems to me that these events that
are on the front pages of our newspapers, what effect would the
U.S. sales of military aircraft, like the F-22, to Japan or the
F-16s to Taiwan have on the insecurity environment in the
Pacific region given what I said about North Korea and China?
Mr. Kovac. Well, in any export there is going to be a
positive and negative effect. Increase your friends, decrease
the enemy. In each of those cases, when we receive the request
we look at it very seriously to balance both the national
security and foreign policy of the United States of that
country and the potential regional impacts, as we are required
to do by law.
Mr. Scott. So, I mean, do you see an imbalance occurring as
a result of this? Do you see a need to move more aggressively?
Do you see some need for us to look more carefully at this
situation? Are you all concerned about the balance in the
Pacific and what role we are or are not playing to get a better
balance there?
Mr. Kovac. Yes, sir. We work in very close coordination
with the Department of Defense, and, you know, from the
Department of Defense, the PAYCOM commander, and what his
regional security plan is and how that interplays with any
specific request that we receive is taken very seriously.
Mr. Scott. So if you had your doubters about this, you
would say we need to move ahead and try to respond to Japan's
request for our F-22s and Taiwan for F-16s.
Mr. Kovac. Absolutely, sir. The State Department isn't in
the trade advocacy business.
Mr. Scott. Right.
Mr. Kovac. We only evaluate the requests that we do
receive, and we evaluate them at the time. For Japan, for
example, we have got an extremely loyal, upstanding country.
They have got a tremendous record on export controls, they are
in a relatively dangerous part of the world, and we have
wholeheartedly supported exports there in the past and would in
the future, if that was available.
Mr. Scott. Okay. Good. I know we have got a vote, Mr.
Chairman, but let me just ask a question about the employment
impact that I brought up. Given the impact from an employment
standpoint in our country, how might including economic impact
studies and rendering export control decisions mitigate the
harmful effects of outsourcing on the U.S. economy?
Mr. Kovac. You want to take that one first?
Mr. Borman. Well, sir, at least on the dual-use side the
economic impact of a proposed transaction is always part of the
equation. In the vast majority of cases, frankly, it is an
issue for the U.S. company that wants to make the export, and
then they typically make the case, or try to make the case,
that if the export is not allowed the business goes to a
foreign competitor and that has an adverse impact on jobs in
the United States. So that is the most typical scenario that we
hear about. From time to time, we do studies on specific
industry sectors to evaluate the foreign availability of the
product that we are trying to control.
Mr. Scott. Okay.
Mr. Sherman. The statements of the President that America
does not torture apply only to the Executive Branch. We are
going to ask our witnesses to remain, and we are going to
continue to ask them questions after the votes. Thank you.
[Recess.]
Mr. Sherman. Other colleagues will be here when they can
be. We will start the second, and for your sakes, hopefully
last, round. In an effort to appear to be a nice guy, I am
going to start with Mr. Scott in the second round of questions.
Mr. Scott. Thank you, Mr. Chairman. I would like to get an
idea of a ranking of our exports. I understand Canada is number
one, is that correct?
Mr. Kovac. Yes.
Mr. Scott. Could you give us the other top, say, three or
four in order?
Mr. Kovac. I know the UK is high. I would have to get back
to you with a specific order in the ranking.
Mr. Scott. All right. Let me ask you about then Russia
specifically. In recent months, the Obama administration has
made overtures toward improving U.S./Russian relations. I am a
member of the NATO parliamentary assembly, and I am the general
rapporteur in our science and technology area. An area in which
we are moving forward on is how do we more progressively bring
Russia into a more stronger partnership with the alliance?
Could you tell me how might the sale of American made
commercial aircraft to Russia improve relationships between the
United States and Russia? Mr. Borman?
Mr. Borman. I will take a shot at that. On its merits, we
would just evaluate the issue of technology transfer, but
generally speaking, the sale of full up commercial aircraft to
Russia would not even require an export license.
Mr. Scott. You said it doesn't?
Mr. Borman. It would not. If these are civilian aircraft
going for a civilian end-use in Russia, it would not require a
license, and so then it is really a business transaction to the
parties involved. The U.S. seller and the Russian buyer think
that it makes business sense. So that is the perspective that
we would bring to that transaction. Now, others may impute
additional meaning to such a sale, but from our point of view,
the issue is really do the items need a license to go to Russia
or not? If they do, you do a national security analysis.
Mr. Scott. What do you feel would be the unique challenges
to this and the unique opportunities?
Mr. Borman. Well, on the challenges side, I suppose if
there is an issue of transfer of controlled technology to make
sure that it is used for those civilian aircraft. The
opportunities, I think, I guess are obvious, that is, you have
potentially significant sales for a U.S. company, and then with
that there might be other impacts on the bilateral
relationship.
Mr. Scott. And so how would you categorize the status quo
right now?
Mr. Borman. Well, it is as I said before. If it is a full
up civilian aircraft, it can be exported to a civilian end-user
in Russia without any export licensing impediment or
implication.
Mr. Scott. Okay. Let me ask you if you could give us a bit
of an idea of the extent of our Canadian export relationship.
It is the largest. It is about $9.7 billion. How would you
explain our Canadian exports?
Mr. Borman. Well, Canada is our largest export market. In
the aerospace area last year, calendar year 2008, there were
over $6 billion worth of aerospace exports alone to Canada, and
then there is a very strong connection, integration between the
industrial base, particularly in the aerospace area, in Canada
and the United States. A lot of U.S. companies have facilities
in Canada, there are Canadian companies that have facilities in
the United States, so from the point of view of the aerospace
market, it is almost one market.
Mr. Scott. Right. So there is a certain part that is for
the licensed products, and then there are unlicensed products.
What is the differentiation between that and a one hand holds
one, one hand holds the other? How much is the unlicensed?
Mr. Kovac. Well, sir, in both our cases we have licensed
and unlicensed exports. I think the vast majority of what the
Commerce Department does is unlicensed.
Mr. Borman. To Canada.
Mr. Kovac. To Canada.
Mr. Borman. Sorry. From a dual-use export control
viewpoint, we have very, very few export licensing
requirements. The companies have to get individual government
approval before a transaction for exports to Canada, even in
the aerospace area.
Mr. Scott. So combined, what are we talking about in dollar
figure? Over $10 billion?
Mr. Borman. Yes.
Mr. Scott. Okay. Let me move to, if I may, Mr. Chairman?
Mr. Sherman. For one more question.
Mr. Scott. I wanted to while we are moving around to in
2007, the United States signed treaties with the United Kingdom
and with Australia that would eliminate the need for the export
licenses for certain defense and counterterrorism technologies.
One motivation for these treaties was to facilitate
collaboration of military aircraft, such as the joint strike
fighter. More than 2 years after their signing, the treaties
have not been ratified by the Senate. So what impact would
ratification of these treaties have on the domestic aerospace
industry?
Mr. Kovac. Basically, determining what the impacts are
going to be of the treaties, if ratified, is a little tough to
determine far down range. The treaties have certain specific
requirements. The end-uses are recorded in the treaty, U.S.
Government, the UK MOD, or an approved program, or an
operation. They have an approved community which would be a UK
approved community, in addition to the U.S. community, whom are
our exporters, and then it has an exclusion list of certain
technologies that are excluded from being treated as exports
under the treaty. Because of all of those variables it would be
extraordinarily difficult to predict the impact of the treaties
on a specific sector or a specific area. Time is going to have
to tell.
Mr. Scott. All right. Thank you, Mr. Chairman.
Mr. Sherman. We are in a hybrid situation in that one
member has done his second round, but we have got members who
haven't done their first round, starting with Mr. Manzullo.
Mr. Manzullo. Well, thank you, Chairman, for having this
meeting, and thank you for collaborating last year on that
marvelous victory on 17(c) of the Export Administration Act
along with Mr. Blumenauer and Mr. Crowley. The area that I
represent used to be known as the machine tool center of the
world, and that is Rockford, Illinois. We have probably 2,000
factories in the congressional district. No one really knows
because it is kind of hard to quantify them all. Unemployment
is officially at 16.9 percent. Add seven points to it, that is
22, 23 percent. I guess what has really bothered me for years
is the restriction on exports of the five axis machine tools.
When I was elected, the U.S. share of worldwide machine tool
sales was around 13-17 percent.
Now it is down to 7 percent. We have a situation in
Rockford where a wholly owned Chinese industry bought a machine
tool shop, saved 90 jobs directly, indirectly another 180, and
that company wanted to make a five axis machine. They couldn't
export it back to China even though China owns all the
technology and is actually manufacturing it here in the United
States. I mean that is lunacy. It has continued over the years
as we have tried to rework the Export Administration Act. Year
after year we sell fewer and fewer machine tools. It is not
that. It is just parts on United States becoming an unreliable
supplier. We can never quantify how many sales are lost because
the United States is simply an unreliable supplier.
I have seen the brochures come in from Canadian and
European companies saying we are ITAR free. I just don't know
how long or what it is going to take for this Congress or for
the agencies to realize that there is nothing immoral about a
five axis machine. Constituents have bought an eight axis
cutting tool from a German company. We have one of the most
sophisticated laser manufacturers in the world, W.A. Whitney.
The laser is so powerful it can cut through one and a quarter
inch of bullet proof stock. W.A. Whitney couldn't even
manufacture it here because unless you can have an overseas
sale, you know, why limit it just to domestic manufacturers?
I mean, you know, I guess my question is why don't we just
grow up and realize that the world is more than four axis?
People can come in and take a look at these machine tools at
EMO in Milan every 2 years or in Chicago and simply copy them
by taking a picture of them. Anybody want to tackle that one?
Mr. Borman. I guess that is in my bailiwick.
Mr. Manzullo. There you are.
Mr. Borman. I think you are right. I mean, this is a very
vivid example of the challenge of export controls because, as
you well pointed out, folks in the machine tool industry, I
think, would say export controls are significantly responsible
for the decrease in market share and the development of foreign
competitors. Of course, the challenge is, I think most would
agree, that we would not want a five axis machine tool going to
a country for their military programs.
Mr. Manzullo. No, but you don't know. I mean, you know,
Canada was selling the five axis machine and it could be used
for military or nonmilitary. I mean, it is almost commoditized.
In today's technology you have got to have more than four axis.
Even BIS considers the moveable platform to be an axis. I just,
you know, those regulations really, I mean, they are
regulations, I mean, and so it ends up being used for military
application, but Canada can sell the same machine. These are
machines that cut pieces. They cut steel, they cut iron, they
cut whatever is necessary. They do precision lasering. We lose
all the jobs here and the technology.
Mr. Borman. Yes. Two further responses. One is we actually
are in the process of developing I would call it a short-term
revision to the regulation to address this, at least in part,
based on a foreign availability study we did. Of course, that
is exactly the kind of thing the long-term, the more
fundamental reform the President has directed us to do has to
look at exactly those kinds of issues. That is exactly right.
Mr. Manzullo. Okay. The other question is you had published
a notice of inquiry on the effects of export controls on
decisions by companies abroad to use or not use U.S. parts.
Could you comment, Mr. Borman, on the gist of those comments
and where we are going with that?
Mr. Borman. Yes. We did receive a significant amount of
input from foreign companies, and not surprisingly, many of
them said their preference would be to avoid U.S. products or
U.S. components if they can because they don't want to take the
risk that somehow the export control system and policies will
impede their ability to do business, and so, again, that is
exactly the kind of thing that is being fed into this
fundamental review that the President has asked----
Mr. Manzullo. So what is going to happen after you review
it? Can you take the envelope and read through it and give us
an idea?
Mr. Borman. Well, I can tell you this. I can tell you that
the charge to us is don't necessarily just look at the existing
system and decide how to make it better, but really look at
what would be the best system in light of all these factors,
including foreign availability, including design out desires of
foreign buyers, to construct a system that really best
addresses the security, and technology and economic realities
of the 21st century. So, and one of the pieces of the charge is
to take a very hard look at the control lists and see, should
the control lists be pared down to something less than they are
now?
Mr. Manzullo. Do you anticipate a date by which that will
occur? I know we are rewriting the Export Administration Act in
our committee.
Mr. Borman. Right. Well, the current NSC led process is
designed to have a recommendation or a set of recommendations
to the agency principals early next year, and then they will
have to decide based on those recommendations, how to implement
that or what they want to implement. I think the goal is to
really do something next year.
Mr. Manzullo. Thank you.
Mr. Sherman. Thank you. Now the gentleman from Virginia.
Mr. Connolly. Thank you, Mr. Chairman, and welcome. This
subcommittee had a hearing a number of months ago where we
looked at the satellite industry and how export controls have
affected the satellite industry. It is not too much of a
stretch to say that with the best of intentions in trying to
control sensitive technology and the export of it we ended up
damaging the domestic satellite industry and unintentionally
helping foreign competitors who then had no controls over the
technology transfer, and so in an effort to do a noble thing
our actions were self-defeating, obviously not intentional, but
we hurt both the industry and, frankly, ultimately had trouble
achieving the goal behind our actions. What do you think we
have learned from that? What do you take away from that
experience?
Mr. Kovac. I will take that first because I have got them.
I think that in any, as Matt was saying, the control lists are
the key. Narrowing them down, making them specific, making them
clearly where there is an edge required to go ahead and
maintain that, but not take it down so far that you end up
hurting everybody in the process, even those that do not cause
a problem in the greater scheme of things. Where the technology
is simple, well-known, foreignly available, we take a look at
that. The problem we have with our two lists right now is that
we look at them very myopically. The structure should be very
myopic. I control defense articles. Defense articles, anything
specifically designed and developed for, you know, specifically
designed and developed for a military end-use, or an end-use,
or an end-use that is determined to be military.
The vast majority of firearms, for example, aren't military
firearms, but I control all firearms, so therefore, I control
all the parts and components of those firearms. When the action
was taken in 1999 to move the satellites, it had the identical
effect and it controlled things that we did not care about in
satellites and things that we cared a lot about in satellites.
So with the legislation as currently, you know, the 24/10, if
that is able to be realized, and right now the Department of
Defense has a study ongoing under Section 1248 of their NDAA to
go ahead and look at the industry and separate that wheat from
the chaff, to look at those that may receive or require higher
controls and those which should be controlled in another
manner, if those two things come to fruition, I think we will
have a better way to do it.
Mr. Connolly. Yes. I guess I would add, Mr. Kovac, and I
certainly concur with what you just said, but I guess I would
add one other thing you haven't considered, and that is
unintended consequences.
Mr. Kovac. Absolutely.
Mr. Connolly. Because you could still do what you did and
come to the same conclusion and you would be wrong.
Mr. Kovac. Correct.
Mr. Connolly. In retrospect, I don't think you can argue
that our policy vis-a-vis satellites worked. It hurt domestic
industry and the technology got transferred anyhow just by
other people who are then able to exploit commercial sales and
so forth, so that can't be the intended consequence. I think we
have to look at even if the goal is desirable, if we realize
that by adopting a policy, you know, the operation is a success
but the patient dies, I think we have got to look at that
saying that is not something, you know, we want to achieve,
that is not a desirable objective.
Mr. Kovac. Absolutely.
Mr. Connolly. Mr. Borman?
Mr. Borman. If I could just add a little bit to that. In
the fundamental review that we are undertaking right now on
export controls, that is exactly one of the tenants we are
applying is we really don't want to have a policy that drives
foreign customers to foreign suppliers.
Mr. Connolly. Even at the risk then of technology transfer.
Mr. Borman. Yes.
Mr. Connolly. Okay.
Mr. Borman. You work to mitigate that as much as you can,
but ultimately, if a foreign customer buys a U.S. product, at
least we have some control in visibility over that in addition
to the economic benefit.
Mr. Connolly. And let me ask, building on that a little
bit, a Devil's advocate question. Perhaps the nature of
technology today that is very different than when we envisioned
the original export control regime in the middle of the Cold
War, you can't control it. I mean, it is sort of a hopeless
venture, and so there may be some limited things of highly
sensitive nature we still control, but Devil's advocate
question, maybe you have to basically yield to, you know, the
imperative of technology and just say there are just things we
can't control, and so we are going to recognize that and move
on. The very notion of an export control list is questioned in
that Devil's advocate question, obviously. I am just trying to
determine how far our thinking is along those lines?
Mr. Borman. Well, one of the ways we have been evolving the
system, and my sense is we will continue to do this, is you are
right, there are strata of technologies that are just not
controllable but they still can do us harm, and so another way
to get at that is to deal with the foreign parties involved.
One of the ways we have dealt with that is we have identified a
procurement ring of foreign parties that were buying and
trafficking in low level electronic components that were the
same type showing up in IEDs in Iraq and Afghanistan. You can't
really control them based on their technology level, but we
published a list of these parties and made them restricted and
that has had some effect. So there may be other ways to get at
this because there are technologies, low level, that can do us
and our allies harm and we want to deal with them in some way,
but you are right, at some point you can't based on technology.
Mr. Connolly. If I may, Mr. Chairman. Just a final point. I
hope in your deliberations, and I am very glad we are having
this review, keep in mind the burden in private sector, too.
You know, I worked in the industry for the last 20 years and I
can remember every year the last 6, 7 years I had to take a
refresher on export control rules. I will be honest with you, I
am a high school graduate, but they were tough to fully get
straight and make sure you weren't violating the law, and which
falls in which category. When you multiply that in terms of
liability of large companies that, you know, are in various
businesses, it is a real burden, it is an economic burden they
bear, and so if we can in streamlining our own requirements
also streamline the burden on private industry, I think that
would be a good thing for the American economy. Thank you, Mr.
Chairman.
Mr. Sherman. Thank you. I will now start the second round,
and then we will have second round for the two that haven't had
a chance. Mr. Borman, now and then it seems like we are
allowing exports to a particular country with a promise that
the goods will only be used for civilian use within that
country. Do we put any stock at all if that promise comes from
a Chinese company? I mean, if they double promise and cherry on
top that they are not going to use it for military purposes,
does that ever convince you?
Mr. Borman. We don't rely solely on the assertions or
promises that a foreign company puts on it. There are license
conditions on the U.S. company, and we have the ability to do
end-use checks.
Mr. Sherman. Mr. Borman, when it comes to China is there
any time when you are going to allow the export because you are
told that the end-user is not going to be military?
Mr. Borman. Not solely because of what the end-user says.
There are any number of other sources we look at.
Mr. Sherman. If it has not been used by the military today,
it will be at any time, it is useful for the military, so there
are occasions when if you had two applications, one said we are
shipping this to the People's Republic's Army and the other
says we are shipping this to a private company that is owned by
Chinese interests and located in China, you might treat those
two applications differently?
Mr. Borman. Well, sure, because there are plenty of end-
users in China who have legitimate civilian businesses and
there are any number of ways----
Mr. Sherman. And is there a single one of them which would
defy the People's Liberation Army if that army wanted those
goods to be used temporarily or permanently for military
purposes?
Mr. Borman. Well, you have to remember, most of the things
that we license are of course on the dual-use side so they are
machine tools or they are----
Mr. Sherman. Well, I am not saying that they couldn't be
used for civilian purposes from 9 o'clock to 5 o'clock, but can
you imagine that they wouldn't be used for military purposes
from 5 o'clock to 9 o'clock?
Mr. Borman. Well, again, in the interagency review process
with State, Defense and Energy, we look at all the available
information, including classified information, to make an
assessment as to----
Mr. Sherman. Well, I would hope that you would be less
trusting and would simply recognize that once something is
physically located in China, it is available to the People's
Liberation Army at their request, at any time, regardless of
any promises that have been made to you.
Mr. Borman. Right.
Mr. Sherman. If you start with that as a starting point,
you will have a more--the goal here isn't to paint a pretty
picture; the goal is to actually control this technology, which
is why I will shift back to the idea of goods that are widely
available in the United States. If something is easily portable
and easily purchasable by anybody in the United States, does
that factor into whether you think you can actually control the
technology by prohibiting its export?
Mr. Borman. Well, maybe I ought to take a step back and
describe a little bit how we put things on the control list.
Our control list, roughly three-quarters of the items are
subject to a multilateral export control regime. The process
every year that happens is in the United States we, Defense and
State Department, look at the list and decide are there items
that should come off the list because they are widely
available, lower technology now, or they are items that should
be added to the list. Then we have to get all of the other
members of the regimes to decide. So the items that are on the
list are items that really are supposed to have----
Mr. Sherman. So there are plenty of things on the list that
anybody in the United States could buy on the internet and put
in that pick up truck I talked about.
Mr. Borman. I wouldn't say that there are plenty of things
on the list.
Mr. Sherman. Hundreds?
Mr. Borman. There clearly are things that could be bought
over the internet, but again, you know, people buy them----
Mr. Sherman. Do we need to shift to a system where we have
a know your customer regime, just as we have opposed a know
your customer regime on the bank, where we identify a few
hundred items or a few thousand items and say, look, if you
want to sell these in the United Stats, it has got to be to a
licensed consumer? Yes, hospitals have a reason to buy those
isotopes, but you can't just ship them to Jack Jones in Toledo
who doesn't own a hospital.
Mr. Borman. Yes. And that is the case in some cases. I
mean, select biological agents, for example, or some hazardous
sales.
Mr. Sherman. Isotopes is the wrong example there.
Mr. Borman. Yes. The order of magnitude. Last year we
processed about 20,000 dual-use export license applications for
exports. If we were to look at imposing a similar government
vetting before sale review for domestic sales, you are
talking----
Mr. Sherman. Well, you would license the purchaser and once
somebody is a certified purchaser, you wouldn't have to look at
it again, and you might very well take hundreds of items off
your international control list. I mean, this stuff works
bureaucratically, but the fact is anything that a guy named
Jack Jones, you know, with a P.O. box in Toledo can buy and
truck to Mexico or Canada is not controlled. You can believe it
is controlled, you can say it is illegal to do this or that,
you can say I have got certificates, and files and a review
process, but the other guy has got a pick up truck, and that
trumps you.
Mr. Borman. Sir, if I could?
Mr. Sherman. Yes.
Mr. Borman. If ultimately the system comes down to anything
that somebody couldn't take out of the country and that
magnitude, you are talking about an extremely small list.
Mr. Sherman. Well, I am talking about those things for
which we cannot identify those customers that have a legitimate
use. It is one thing to say it is going to be sold to Jack
Jones. It is another thing to say it is going to be sold to a
company that is known to the seller and has a legitimate end-
use for it. It is extremely easy for a foreign state or a
terrorist organization to get a P.O. box in the name of a guy
named Jack Jones. It is much more difficult to establish an
aircraft manufacturing operation that would have a legitimate
use for this or that. We are not going to make it impossible,
but so far our enemies have not created whole, large scale
dummy companies in the United States. P.O. boxes are a lot
easier.
Mr. Kovac, just want to--hope my colleagues indulge me for
one last question. The UAE has been a state of concern. It is
now claimed that scores of ships have been intercepted by their
security forces carrying illicit cargo, and while I doubt that
that is not an exaggeration, I note that the UAE hasn't adopted
regulations to enforce its 2007 export statute. Malaysia is
another key transport hub and hasn't even taken those actions.
Can we trust Malaysia with U.S. technology? Should we oppose
technology transfer, especially when it facilitates offshore
production to Malaysia at this time?
Mr. Kovac. Yes. You are going to have to because that is a
little out of my field.
Mr. Borman. Yes. On the UAE, you are right, the UAE now has
an export control law. They are in the process of standing up
their export control authority. What they have told us when we
have discussed this with them is right now, because they don't
effectively have regulations in place, any controlled item is
prohibited from being transited through the UAE. They are in
the process. They have said they have hired a number of people
for their export control organization.
Mr. Sherman. Do they have an export control list?
Mr. Borman. Yes.
Mr. Sherman. Have they copied ours?
Mr. Borman. No. All the multilateral regime items are on
their list.
Mr. Sherman. Okay.
Mr. Borman. Malaysia, we continue to try to press them to
make progress. They are not nearly as far along.
Mr. Sherman. Have they made progress?
Mr. Borman. Well, they are working on an export control
law, they tell us, and we continue to press them to accomplish
that.
Mr. Sherman. Well, when is the first time they told us that
they were working on it?
Mr. Borman. They have been working on it for a while.
Mr. Sherman. Did I have hair at that time?
Mr. Borman. I am not sure. You very well may have.
Mr. Sherman. Let me yield to the gentleman from Illinois.
Mr. Manzullo. I wanted to follow up. You sell a five axis
machine to China that is used to make a dump truck, but then
the same dump truck has a military application as a truck in
the Chinese army. You know, export controls in the United
States unfortunately means that we are losing all our
technology because of being an unreliable supplier. Assume they
are trying to dance on the head of a needle as to whether that
truck that will have parts that are machined or cut from five
axis machines are used for civilian or defense, and then they
just, you know, why would you recreate a whole new frame, for
example, on a military truck when it is going to be the same
tonnage of carrying for a civilian truck?
I am sorry. I have got a new Blackberry and I can't figure
out the technology of it yet, but it is Canadian technology, I
think is what it is, even though at one time the insides were
magnesium and were made here in the United States, but now it
is plastic, unfortunately. That is why, you know, we sit back,
and the arguments have been going on for, I have been for 17
years. How much more of our machine tool industry do we have to
lose? You know, you can buy a profiling machine now for
$25,000. You just send in your coordinates on your design, and
with the layering they can create a product like this for a
very small amount of money. So when somebody buys it they know
exactly what it is.
In fact, I have got in my bag, it is a man's hand that has
been profiled by a laser and then with the layering machine as
a composite of a person's hand. That is how exact this stuff
is. It goes on all the time. How much more of our machine tool
industry are we going to lose because we are losing all the
technology? I know you are with me on the issue, but I guess
with C-SPAN here, maybe we get the message out more we have got
to move faster. I mean, this is really saving American jobs.
Mr. Borman. Yes. I mean, the challenge, frankly, with China
and machine tools is not really the factory that makes dump
truck parts. The challenge is in the aerospace you have to have
a lot of colocation facilities that make parts for civilian
aircraft and military aircraft. That is one of the challenges.
I am not saying that I disagree with you, I am just pointing
out the challenges. The other, of course, is that these are
multilaterally controlled. We know that other partners apply a
different China policy than we do. If they are not
multilaterally controlled, then you open up the possibility for
these type of machines to go from other countries to a place
like Iran. So that is how we have got to try to figure out, how
do we address the very legitimate concerns?
Mr. Manzullo. Well, I don't know if you can stop that
either. I mean, at one time knowledge was discovered. Today it
is invented. It is not that difficult. You know, you don't want
to give the people, the bad guys in Iran, anything, but
goodness gracious, with the incredible marsh of technology and
the ability to make these machines almost anywhere, and here we
are in the United States, we keep on losing more, and more, and
more. I mean, I have talked to people that, you know, have been
to these machine shows and they say, you know, we would like to
buy more from the United States, and, I mean, it even got so
dumb here that I had to rewrite the Fastener Quality Act.
We just, you know, wrote off a huge amount of our business
here because that footbridge collapsed in Kansas City and it
wasn't the problem with the tensile strength of the bolt, it
was just the wrong one was put in by the architect on it. That
is the whole problem that we have with manufacturing here is
that some of my colleagues, and Dana is a good friend of mine,
think that because we have got a real gem here, that we can
prohibit somebody else from using it when the same thing is
made in a country like Canada that doesn't have the extent of
those controls on it. I just wanted to share that with you. I
had one further question on deemed export.
Mr. Borman. Just to follow-up on that.
Mr. Manzullo. Go ahead. Then I will stop right here.
Mr. Borman. That is exactly the point, though, of the
review we are undertaking is exactly to try to grapple with
those issues in a way that reflects the 21st century reality.
Absolutely.
Mr. Manzullo. The other issue is that we have University
Diacome that has many foreign students and I helped link up
that university to a very sophisticated company, and the school
is now doing research for the company. The problem is with
deemed exports, some of these kids come in from the countries
on the list. I mean, the companies are really getting in
trouble and the school figures that what are we going to do
here? Are you taking a look at the deemed export issue also?
Mr. Borman. Absolutely.
Mr. Manzullo. Okay.
Mr. Borman. Yes. In fact, we have a new advisory committee,
we call it the Emerging Technologies and Research Advisory
Committee, that is specifically looking at the issue of what
methodology we should decide to apply to technologies that
should be subject to deemed exports. So we are looking very
hard at that issue because we know the impact it has on
research.
Mr. Manzullo. Thank you.
Mr. Sherman. Gentlemen, thank you. We will now move on to
the next panel. Matter of fact, I will sing their praises as
they take their seats. We will first hear from Ms. Marion
Blakey, president and CEO of the Aerospace Industries
Association. Prior to her work with that association, Ms.
Blakey served as administrator of the FAA and chair of the
National Transportation Safety Board. Next, we will welcome
David Berteau, senior advisor and director of the Defense-
Industrial Initiatives Group at the Center for Strategic and
International Studies. Mr. Berteau was principal deputy
assistant secretary of defense for production and logistics.
Lastly, we will welcome Henry Sokolski, executive director
of the Nonproliferation Policy Education Center. He currently
serves as a member of the Congressional Commission on the
Prevention of Weapons of Mass Destruction, Proliferation and
Terrorism. Previously, he served as deputy for nonproliferation
policy in the Department of Defense. Ms. Blakey?
STATEMENT OF MS. MARION BLAKEY, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AEROSPACE INDUSTRIES ASSOCIATION
Ms. Blakey. Thank you, Mr. Chairman. I do want to thank you
and the other members of our panel today for the attention you
are paying to this. The Aerospace Industries Association of
America appreciates the opportunity to testify today, and I
would like to ask that my written statement be submitted for
the record, if I might. AIA represents more than 273 member
companies with total high technology workforce of 267,600
people. We operate as the largest trade organization in the
United States across three lines of business: Space systems,
national events, civil aviation. Our industry consistently
generates America's largest manufacturing trade surplus, $57.4
billion in 2008, but continuing this track record of success
can't be taken for granted.
So why do aerospace exports matter? Last year, nearly half
of the over $205 billion in U.S. aerospace sales went to
overseas customers. It is critical to recognize that these
exports are necessary to both sustain and increase the capacity
for cutting edge innovation in the United States industrial
base. We must continue to compete effectively in the
international marketplace in order to speed up our economic
recovery, increase our jobs and set a trajectory for even
greater economic growth. Aerospace exports also serve as a
foundation for building key relationships and a shared future
for the important international allies and partners.
Additionally, our companies rely on exports to provide
Americans defending our country and guarding our homeland with
the very best technology at the best price for the U.S.
taxpayer.
The value of aerospace exports is certainly not lost on
members of this subcommittee, nor on other leaders here on
Capitol Hill and in the administration. The consistent and
sustained efforts of senior leadership in Congress and the
administration is crucial to ensuring a level playing field,
opening up markets for U.S. products, winning sales
opportunities, particularly in the face of strong and
determined advocacy from foreign governments on behalf of our
international competition.
Presuming our industry is able, with the help of the U.S.
Government, to compete successfully for a contract in the
international marketplace, one of the last hurdles to cross is
the U.S. export control system. This subcommittee has heard
from AIA in the past about our ultimate goal for modernization,
a more predictable, efficient and transparent system. We have
heard that before today, but permit me the opportunity to
clarify again what we mean. By efficient, the government must
make decisions on export authorizations in a timely manner,
eliminating unnecessary administrative delays. By predictable,
we mean that the license process must be consistent with
applicable laws and policies and that similar export licenses
should be considered in similar timeframes.
Transparent means that the rules governing the license
process must be interpreted and used consistently, and industry
and foreign partners have quick, easy access to the information
on the status of their applications. In 2007, our Cold War Era
export control system had reached a point where it was
paradoxically hurting our national security. It was also
hurting our economic strength, and our technological
competitiveness had a good chance of worsening. This
subcommittee recognizes that it is in our national security
interest both to prevent our adversaries from accessing our
technology and to facilitate technology trade with our closest
allies and trading partners.
So I am pleased to report that your efforts have resulted
in a great deal of improvement in how the export control system
operates. However, I think it is clear to everyone that
additional steps will make the system more predictable,
efficient and transparent. AIA continues to be a staunch
supporter of Senate ratification of the UK and Australia
Defense Trade Cooperation Treaties. Our industry has also
welcomed President Obama's call in August for a comprehensive
review of the U.S. export control system. We believe that there
are several potential reform initiatives that this committee
can actually lead. I encourage the committee to review my
submitted testimony for detailed descriptions.
In conclusion, the U.S. aerospace industry has the strength
to lift America in these challenging times. Our nation reaps
the benefits of aerospace exports in the form of enhanced
national security and economic growth. The government/industry
partnership supporting aerospace exports is crucial and it
can't be taken for granted. As you are aware, previous
modernization efforts have met with varying degrees of success.
Experience suggests that critical factors and enabling
meaningful reform includes sustained oversight by senior
administration officials, as well as effective consultation
with Congress and the private sector. We stand ready to work
with you and the Obama administration to ensure that we
continue to make meaningful progress toward a 21st century
technology control regime. Thank you very much.
[The prepared statement of Ms. Blakey
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Mr. Sherman. Thank you. Mr. Berteau?
STATEMENT OF MR. DAVID J. BERTEAU, SENIOR ADVISOR AND DIRECTOR
OF THE DEFENSE-INDUSTRIAL INITIATIVES GROUP, CENTER FOR
STRATEGIC AND INTERNATIONAL STUDIES
Mr. Berteau. Thank you, sir. This mike on? Yes. We are
adjusted now. Mr. Chairman, thank you for the opportunity to be
here today. My statement will stand for the record. I will just
make a couple of comments and go there. CSIS has been engaged
in looking at export controls for quite a number of years. We
have a long record of studies. I cite those in my statement. We
have learned a number of lessons for those. They are in there
as well. I think all I want to say orally are two things. One
is there are some national security issues here that the
current regime tends to work in the opposite direction of what
we would intend them to do so. I would note three things. One
is, in fact, there is a lack of prioritization in the system
today that leads us to spend an awful lot of time on things
that we should well spend less time on, and perhaps ignore the
things that are more important.
Secondly is the effect of globalization, and a number of
the committee members brought this up in earlier with the first
panel, and the degree to which at some point we may get to the
point where we can't get access to what we need because
somebody else doesn't want to be subject to our controls. We
haven't reached that point yet. We have come close to it a
number of times. There is no smoking gun, but the elements of
the gun are there. Third is the degree to which we have the
unintended consequences of promoting a capability elsewhere
that actually works against our national interests rather than
in favor of it. These are all tough questions that are hard to
wrestle with. I think it is also instructive, and my statement
goes into some detail on this, to look at what the Europeans
are doing with the new EU directives on both procurement and
transfer and the potential to create a situation that would, I
think, substantiate some of the comments I made about the
national security impacts. With that, Mr. Chairman, I will
yield back the rest of my time and proceed to your questions.
[The prepared statement of Mr. Berteau
follows:]David Berteau deg.
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Mr. Sherman. Thank you. Let us move on to the third
witness.
STATEMENT OF MR. HENRY SOKOLSKI, EXECUTIVE DIRECTOR,
NONPROLIFERATION POLICY EDUCATION CENTER
Mr. Sokolski. Thank you, Mr. Chairman, for holding this
hearing. I note the presence of my congressman, at least
indirectly. My mother lives in Palos Verdes, so you have been
there a long time. We actually are contemporaries. I went to PV
High. Not quite the same school, but close. Mr. Chairman, I
want to thank you again, and the ranking member, for inviting
me to speak today on this issue of controlling U.S. aerospace
controls, and ask that the full statement that I have written
be placed in the record. My general recommendation, which is
based on my experience over the last 20 years initially working
in the Defense Department licensing a lot of aerospace items,
particularly missile tech, is that it would generally be a
mistake to encourage more U.S. aerospace exports to go license
free or to reduce our ability at least to detract them.
After 9/11, and at least three post-Cold War rounds of
export control decontrols, we now are at a point where
according to the GAO 99.5 percent of the goods subject to
Commerce Department regulation are already being exported
license free. As for munition items, the U.S. last year sold at
least 10 times more than any other country, capturing 68
percent of the world's arms market. This suggests that we are
holding our own against our competition even under current
export control. More important, I think such controls are still
warranted. This is my role, I believe, on this panel, to make
that case.
At the high end there is plenty of aerospace technology
that the U.S. should only export with the greatest care and
only in support of the most critical security alliance and
cooperative undertaking. These technologies, and they are
explicated in much greater length in the testimony, include
things like software codes, aerospace black art skills, there
is systems integration insights, satellite technology relating
to the design, integration and satellite subsystems of
satellites that we use in our military, unmanned air vehicles
and related ground equipment and technology, stealth technology
and air and missile defense penetration aides, and advanced
missile and air defense systems.
It should be noted that most of these military-related
technologies and their subsystems are controlled by the Missile
Technology Control Regime, and that when you do decontrol, you
have to attend to that. We talk generally about reducing
nuclear arms. This will inevitably lead to some kinds of
limits, I suspect, on missile technology and missiles. The
instrument for doing that will be very heavily dependent on the
MTCR. Now, it could be that we get rid of the MTCR, but then we
are in a bit of a bind with regard to our general goals on
doing strategic arms reductions. There are still difficult
adversaries out there and they may try to acquire our goods and
they cannot get them anywhere else.
In fact, there have been 50 to 75 Federal prosecutions last
year of individuals attempting to export these items illicitly
out of the U.S. Despite all of the reasonable points the
chairman points out, I sympathize with what he is commenting
on, still the law does get exercised. Also, after 9/11, the
transhipment of dual-use and military technology directly from
the U.S. has become a much greater security concern. At the
very low end we have this example of bin Laden buying a surplus
military transport, which is, to my knowledge, I am not sure if
it is a controlled technology. Even now I think it is still
possible. He used it for transport purposes. The General
Accounting Office study was cited. I won't go into that.
Meanwhile, I think neither State, nor Commerce, has yet to
reassess what a complete list of items might be that terrorists
might be seeking. Slightly different point. In other words, I
think they have got their eye on the commercial ball, and that
is important, but I am not sure they have their eye on the
other ball which they have to balance. Why then is there a push
for decontrol? I think one reason has to do with the
integration of U.S. with European aerospace firms. The EU-based
consortiums that operate throughout the EU and the U.S. no
longer have a very high interest after the Cold War in
investing heavily to develop defense capabilities.
As a result, they are falling further and further behind
the U.S. in key leading military-related technologies,
including the list I just gave you, and they have a clear
interest in gaining access to this technology without having to
pay for the research and development themselves. These same EU-
based vendors are among those most interested in decontrolling
military exports to places like China. They tried to do so
several years ago. Let me get to the recommendations. I think,
by the way, doing a totally license free approach, even with
regard to Australia, my wife is Australian so I say this with
hesitation, would probably be a mistake. You still want to keep
track of things.
I don't think you want to hold things up, but you want to
keep track of things and you don't want to send things without
a trace, even to good neighbors like Australia. I say that
hesitantly. My wife will talk to me later. Recommendations. I
think you need to clarify what is being controlled before
authorizing any further decontrol. What specifically might be
shipped out under decontrols needs to be specified by industry
before government pushes to change broad categories to reform
the export control system. Second, I think we need to consider
ways we might share the benefits of controlled technology
without transferring the technology itself. In the case of
space launch vehicle services, the services relating to UAVs
and the intelligence they might gather, there is, in fact,
something of a burgeoning industry already.
I think we need to investigate how much more can be done.
Finally, I think we need to strengthen, rather than undermine,
certain critical multilateral aerospace control efforts, such
as the MTCR. In particular, if we are going to have missile
defenses, it would be nice if the technology to defeat them
wasn't going around license free or uncontrolled. The MTCR
doesn't cover all of that yet. It ought to. With that, I
conclude. I should make one last comment. I certainly
sympathize with the previous panel's need to make things
transparent and to expedite. I was a little astonished after so
many years looking at the system to see how many inefficiencies
it still has. They are doing better, though.
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Mr. Sherman. I want to thank you. I am going to have to
step out in a few minutes for a few minutes and our vice chair
will take over chairing the hearing in that interim. Ms.
Blakey, reading the detailed testimony that you referred us to,
I am looking for things we can do here in Congress and you
basically have said pass H.R. 2410. Been there, done that. Is
there anything else for the House of Representatives to do?
Ms. Blakey. Well, we think at this point of course we would
like to ask you, of course, to be as persuasive as possible
with your set of colleagues because I do think a lot of the
actions, as you are undoubtedly noting here, rightly sits
there.
Mr. Sherman. My advocacy for a unicameral legislature has
not been taken well by the state.
Ms. Blakey. You know, but I do think we do think there are
a number of things that might be very helpful in all of this.
We would like to see more flexibility in the way DDTC can use
the fees that are being collected because we want to see the
system modernized, and we do want to see the kind of updated
computer system that the State Department needs.
Mr. Sherman. Now, does H.R. 2410 provide that flexibility
on the fees?
Ms. Blakey. It is my understanding you do, so, you know, I
would--all right, let me go to one that is a tiny bit harder.
Again, this is something that is a multilateral issue, but it
is one that I think, you know, as we are discussing things here
with the panel, when we are talking about the Missile
Technology Control Regime, right now we are catching all forms
of UAVs as missiles there. This goes to things that are
essentially blimps.
Mr. Sherman. Essentially you say blimp?
Ms. Blakey. Blimps.
Mr. Sherman. Blimps. Got you.
Ms. Blakey. You know, dirigibles. I mean things that none
of us would ever recognize or consider to be a missile. It is
the way the language is constructed. The definitions are not as
precise, and they certainly are not up-to-date with regard to
these kinds of technologies. Now, again, advocacy on that part
and helping to instruct that we take that on, it is a task that
needs to be done.
Mr. Sherman. So if we deleted from the definition of
missile anything that travelled at under 200 miles an hour we
would pretty much solve this problem?
Ms. Blakey. You know, I don't want to try to pin down that
definition, I am certainly not the one who can conjecture all
the potential issues there, but we do see that this is not up-
to-date, it is not clear, and it is certainly something that is
not to our advantage as it is currently constructed. So, you
know, among the things that I would point out, those are some
of the things that I think we would very much appreciate
congressional action on across the board.
Mr. Sherman. I have been concerned with Iran being able to
get its hands on various technologies, including aircraft
parts. We made a mistake in allowing Boeing to just ship them
aircraft parts. We don't necessarily have to make that mistake
again. Now, I posited to the last panel the fact that it is not
tough for Iran to just get a P.O. box in the name of Jack
Jones, maybe print up some letterhead on a computer, Jack Jones
Aircraft Repair, Incorporated. How much of a burden would it be
if there were certain items produced by your members where they
weren't just allowed to ship it to anybody who claimed to have
a company and a use for it, they would actually have to know
something about the customer.
Ms. Blakey. The circumstances I am familiar with are going,
of course, to commercial aircraft, and they are going to the
issue of safety of flight. This is a situation where I think we
all understand that we have enormous issues with the Iranian
regime, but we certainly don't want to undermine the safety of
passengers flying----
Mr. Sherman. Well, if I could interrupt, though, that is
outside the scope of this hearings deg.. What we
should have done is said Iran should ground its fleet as long
as it is developing nuclear weapons and that anybody who dies
on one of those planes dies at the hands of the Ayatollah, not
at the hands of the United States. We made a clear mistake in
instead telling Iran that they can have commercial aircraft
functioning and a nuclear program. That is a mistake we made.
It is outside the scope of these hearings. Let us return to the
scope of the hearing. How much of a burden would it be if your
members had to know the difference between a real user of their
product, on the one hand, and some guy with a P.O. box and some
letterhead he printed up on his own printer?
Ms. Blakey. I think at this point in the defense arena
there is no question about the fact that our companies do know
who the end-users are. Defense products are not shipped willy-
nilly to Jack Smith at a P.O. box, and that is something that I
really do not think we are encountering difficulty on.
Mr. Sherman. I am focusing more on the dual-use items.
Ms. Blakey. Even on dual-use. I mean, I think, again, for
things that are at real issue that have defense and military
sensitivities of higher order, I don't think we are running
into an issue there, but when you get down to what I think is
at the heart of this, it is an enforcement issue, and, you
know, how do you track those issues when someone violates U.S.
law?
Mr. Sherman. We will never be able to enforce against a guy
named Jack Jones who drove his pick up truck to Mexico City, so
the question then is do we have a list of companies that you
are allowed to ship to? Do we just say that it is your
obligation to know your customer? We have to put the burden,
unfortunately, on legitimate actors saying that Jack Jones, the
guy in his pick up truck, is subject to criminal prosecution.
It is not going to deter Jack Jones. So we have got to control
things at the factory gate of legitimate factories, not just
hope that we can--in any case, I think I am over time, as my
staff has identified. It is now time to recognize Mr.
Rohrabacher, and I will return in just a few minutes.
Mr. Rohrabacher. Thank you very much, Mr. Chairman. Let me
identify myself with your very good idea of making sure that
when we state a policy toward Iran there is teeth behind it.
Mr. Chairman, I identify with your statements about grounding
the Iranian airline fleet, which it should have been. If we
were going to actually be serious about putting pressure on
them not to develop nuclear weapons, that would have been a
very good way to do it and a safe way to do it. It sounds like
we didn't have courage enough at that time to move forward with
that policy. Let me just ask, there is a debate been going on
about whether or not we should have a two-tiered system of
controls on exports of aerospace and other technologies, that
one tier would be a tier which would have somewhat controls on
it to undemocratic and potentially hostile governments versus
the other tier which would be clearly democratic governments
and it would be had with somewhat unlimited restrictions.
China has been the one element that has prevented us from
having that system because there are so many companies, large
American companies, that are making huge short-term profits by
dealing with that gangster regime. What does the panel think
about two-tiered system and whether or not China should be
treated any differently than Belgium when exporting potentially
dangerous technology?
Mr. Berteau. Mr. Rohrabacher, let me take a first crack at
that. I think there are two issues associated with the idea of
the two-tiered system that are very hard to solve. It is pretty
easy to put most countries in the world into one category or
the other. As you note, it is the ones at that boundary, plus
China, which is a different question that come into play. The
two issues are at the boundary. Number one is where exactly do
you draw that line? The second is, in fact, as you know,
sometimes countries move from one of those categories into
another without a whole lot of warning, and so the system would
have to be able to accommodate both of those things. Neither of
those would solve your China issue, however, where the question
of short-term versus long-term clearly needs to be addressed.
Mr. Rohrabacher. Well, our refusal to define China as a
potential enemy, even as it is still the world's worst human
rights abuser, and expanding their own military capabilities, I
think, has had a dramatic negative impact on the security of
the United States in the long run, but go ahead. The question
is still on the table.
Mr. Sokolski. I think, first, we do differentiate the
lobbying, if you will, when we are getting someone on the good
or the naughty list is always an act of policy issue. I would
warn you, though, having administered export controls, it is
end-use controls, and destination controls are something that
you have and you use, but in the end, for the really important
stuff there is an expression: It is like kissing your sister,
it is not serious. The reason why is if something is worthwhile
and important it will move, and it will move from the
destination you have okayed to destinations you don't want it
to move. If you don't have a way of tracking that, and that
usually means an individual validated analysis, your goose is
cooked.
A lot of these schemes where you send things to the EU, or
Great Britain, or, I say again Australia, license free means it
is over to them, and if they don't have a tracking system and
we don't as to what was received, it is over.
Mr. Rohrabacher. Well, I agree with that, so we are talking
about necessarily for everybody that we have to know who the
end-user is going to be and ably have a system to determine
that. I agree with that. What about you on a two-tiered system?
Ms. Blakey. I don't think any of us are advocating license
free per se. I mean, the UK and Australia treaties that we are
very much in favor of still stipulate appropriate technologies
and, of course, trusted end-users there, so, and that is the
highest echelon here.
Mr. Rohrabacher. Well, let us just take a look at this,
what we have got now. General Electric announces they are going
to go into the, and as a partnership with producing aerospace
parts in China. Is this not against the national security
interest of the United States considering that China is still a
vicious dictatorship and considering that China's relationship
with the regimes, like Iran, and North Korea, et cetera, that
where we traced very irresponsible, if not hostile, actions,
Burma, et cetera, is this not in against the interests of the
United States of America national security, as well as
economic?
Ms. Blakey. My understanding of the new joint venture that
General Electric has entered into is that it is entirely on the
commercial side, commercial avionics is what we are talking
about. We are talking about, again, technologies that are
appropriate and widely available worldwide. In speaking about
the economic interest, the issue in the long run is that you
are going to have a healthier industry and you are going to
have, also, both jobs in the United States that are created
when you do have a vibrant vigil like this.
Mr. Rohrabacher. Okay. Let me just note for the record, and
of course I have strong disagreement with you this, the idea
that you can now differentiate between the avionics going into
a modern jet airliner and the avionics that will go into a
bomber that will deliver a weapon on Taiwan, or somebody else,
or the United States, or Japan, I don't think that there is
this distinction. I think that number one, anybody in our, and
our big corporations have been doing this, anybody who builds
up the avionics and the aviation aerospace capabilities of
China at this time is: (1) betraying their employees who have
been loyal to them all this time, rather than having them buy
parts from us, they are going to now manufacture it in China;
and (2) it is not only bad for us economically, but our
national security will suffer greatly in the long run unless,
of course, there is, like you mentioned, countries have a way
of changing.
China could well have some sort of a, Tiananmen Square
might have succeeded. Of course, the Bush administration back
then decided not to wade in on the side of democracy and
decided to side basically, with their silence, with the people
who murdered the democracy movement. So, anyway, let me ask you
one question, and then I know we will move on. I am using my
time. I see, it is my perception, that the high level decision
makers in the aerospace industry are not considering the
national security interests of the United States and not even
considering the long-term interest of their employees, much
less their own stockholders who in the end we are ending up
building an industry that will compete with ours in China. Can
we logically say, then, that it is not a good thing to leave
these decisions up to people in the industry, but instead, we
should be trying to establish a policy to make sure our
country, and our countrymen, are not betrayed?
Ms. Blakey. Well, I would take complete and enormous
exception, of course, to the characterization of the aerospace
interest in terms of our national security. I think we are the
bailiwick on that, and I do believe, in fact, that we with the
kind of innovation and the kind of ability to compete, which we
have great confidence in, that with appropriate technologies,
not all technologies, the United States can increase our
national security because, in fact, we will be able to continue
to innovate. We will have the kind of economic engine that
allows us to continue to have the technological edge. That is
inherent in the system that we are currently using. I would
refer you back again to $57.6 billion of trade surplus, which
is what is driven by our ability to also, appropriate
technology, share with allies.
Mr. Rohrabacher. Well, when the Chinese can manufacture
this and pay their people, unlike our own very well paid
aerospace engineers who deserve the pay they get, if we ship
those jobs over there, we are not going to have that trade
surplus anymore because people are going to be able to buy
Chinese made airplanes. I think this is a catastrophe in the
making, and every patriotic American should stand up to the
aerospace industry. I am someone who stands in awe of the
accomplishments of the aerospace industry in the past. Let us
just hope they are not doing things that are going to put my
children in jeopardy and make sure that we don't have good
paying jobs for our own people. Any other comments?
Ms. Blakey. Could I make one other comment about this,
though?
Mr. Rohrabacher. Sure.
Ms. Blakey. We are talking about a situation in which we
actually cannot control the world dynamic on this. The fact of
the matter is that the Chinese are entering the aviation and
aerospace market. Whether we are there or not, that will
happen. It is not a situation we control. What I have
tremendous confidence in, and I think that is shared among the
leadership of our industry, is our ability to innovate and to
compete is something that will keep us in the leadership as
long as we are not trying to pull back into a shell and hold on
tight to only what we have now. We will evolve, and exports
will help us evolve.
Mr. Rohrabacher. I will leave you with the last word on
that. Go right ahead.
Mr. Sokolski. I would like to make one comment.
Mr. Rohrabacher. Yes.
Mr. Sokolski. I am old enough to have been here before
during the Loral Hughes controversy. I think you were here.
That was not a pretty time for the American aerospace industry.
We made mistakes, and they were very, very significant. We are
still paying for those.
Mr. Rohrabacher. Just a note. Fifteen years ago when that
happened and we had a more open policy of trade, and I
supported it originally because I bought on to the argument let
them launch the satellites, there is not going to be any tech
transfer, in the end now, there was so much technology transfer
that Chinese rockets today can outcompete American rockets
because they have got technologies which either they have
stolen from us or transferred back in those days that give them
tremendous capabilities based on, what, research and
development paid for by the United States taxpayer. We just
hand it over to them or they come in and steal it, and now they
are using it to put us out of work and outcompete us. I am glad
you brought that up. Thank you very much, Mr. Chairman. I
appreciate this hearing.
Mr. Scott [presiding]. Well, thank you. I am always
continually impressed with my good friend from California and
his intellect and depth of these issues. I enjoy our travels
together, and you continue to make some excellent points. I
might add that it might be perhaps our laissez faire attitude
with China might have something to do with the fact they
control over $1 trillion of our debt right now. Doesn't
necessarily put us in the best position, and it is something we
both are working hard to address. Let me go back to the
economic issue here a little bit. Would each of you agree that
it makes sense to support U.S. jobs and the manufacturer of
U.S. goods as a part of our national security policy?
Mr. Berteau. Mr. Scott, I think that that is clearly a very
significant issue associated with that. One of the real
challenges this entire question of the export control system
faces is that we don't have a good definition from a national
security point of view of what defense industrial base we
really do need to protect and at what level. It is not just a
technology question. It is a question of skill, it is a
question of supplier base, it is a question of access to
materials and technology as well. We tend, as a government, to
look at these kinds of questions on a program by program basis
rather than in a comprehensive manner across the board. Until,
and unless, we tackle this from a more comprehensive approach,
your question is just an academic one.
Mr. Scott. Yes, Mr. Sokolski.
Mr. Sokolski. If I was out of work, it wouldn't be
academic.
Mr. Scott. That is right.
Mr. Sokolski. I think we are losing, though, scope on what
we really want to focus on. I think I actually sympathize with
what you I think were trying to say. What you want to do in all
business ventures and military, diplomatic, and probably even
social ventures, is build up your comparative advantage.
Sometimes that means letting go. I think that was industry's
point. But, how shall I put it, they might let go a lot earlier
than I would. That is where we differ. But just saving jobs and
industries, that wouldn't be a complete thought, I don't think.
What you want to do is say, hey, we are really good here, we
can compete here, let us build on that strength. How do we do
that? So you have got to identify where you are strong.
Mr. Scott. Well, let us take a specific situation, you said
a specific situation, in terms of strengthening the U.S.
industrial base. Doesn't it make sense for a United States
company, a United States company, to build the next tanker for
the United States Air Force as opposed to building it by the
Europeans through Airbus even knowing that some of the
production will be in the United States?
Mr. Sokolski. Well, they are nervous, I am not. I have lots
of cars. I have actually five. I have a big carbon footprint,
potentially. I don't drive them, I collect them. Two of them
are American, the other three are Japanese. Japanese car is a
lot better. I think on this we have to be fair. If the Japanese
are willing to build plants here and get us to build these
wonderful cars even though they are their design, even though
they include, on the other hand, American materials, science
and other things, I mean, it is a kind of collaborative thing
that car, should we care? If they are trusted allies, I don't
think so. I think when you get to the Chinese and some of these
other things, I think you have to worry. So I am a little
agnostic on that one. By the way, I still have the two old
cars.
Mr. Scott. What about you, Ms. Blakey? How do you feel
about that?
Ms. Blakey. Well, we are certainly, because, as you know,
we represent the industry on all fronts and we are not in a
position to comment on the tanker competition, but I do think
it is important, going to this issue of what our industrial
base should be capable of doing, and preserving those
capabilities is a very important consideration as DOD is making
choices that we do need to be certain that we continue to be
able to preserve the technological edge that this country has
always had. I would simply say that it is something that as
tough choices and tough budget choices are being made, I hope
that will be very much a part of their strategy and the
consideration it needs to be.
Mr. Scott. Well, in examining the rationale of the United
States' policy for doing something like this, like awarding the
U.S. Air Force tanker contract to a foreign company, the
question to the man on the street is why would we do that,
particularly if it is for our own armed forces? That is a major
issue, it is a concern. We hear it from our union members. How
do we grapple with that?
Mr. Berteau. We have spent a lot of time looking at
questions like that, not just only for the tanker, but for, in
fact, most defense systems. I think you have got to start from
the very strong starting point that this is not about who wins
the contract but about what the military requirements are and
whether or not those military requirements will be satisfied.
Now, we could have a whole different conversation about whether
the draft request for proposals that was put out by the Defense
Department for the tanker actually does the right job of
defining those requirements and whether or not the source
selection criteria and the source evaluation criteria will
align with satisfying those requirements. That is a different
issue. I think the primacy of the military requirements has got
to be where we start from here, not the question of who wins
the work.
Mr. Scott. Do we have any empirical data or information to
do any comparative analysis on the number of jobs in the
aerospace industry 20 years ago, or the percentage of those
jobs that were here in the United States, as opposed to jobs we
have lost outside of the United States due to our export
policies?
Mr. Berteau. There is a lot of data that you could use to
analyze that. Unfortunately, a lot of that data is provided not
necessarily by the government, but by those who are
participating in the process. Back during the 1990s, in part as
a cost saver, we no longer required companies to provide that
level of information, particularly for subcontractors when they
had a government contract because the government had to pay for
the companies to collect and provide that information, so we
saved the money by no longer getting that data. We can create
estimates, we can look at estimates. I am not aware of anything
that looks particularly at the answer to your question, but we
will check and see what is available on the record and provide
that for you.
Mr. Scott. We currently have very searing unemployment in
this country, loss of jobs. Do you see anything that needs to
be changed in our export policy dealing with the aerospace
industry that could help us with the unemployment in this
country? Do you see any need of change?
Mr. Berteau. I think it is a very timely question. I would
actually call the attention of the subcommittee to a front page
article on the Wall Street Journal today; in fact, you might
want to consider including it in the record at this point, on
the value of the Export-Import Bank in promoting aerospace
exports from the U.S. I think it is a very positive indication
of how you can have a countercyclical, from an economic point
of view, benefit from export promotions. I would note that the
article itself doesn't cite this but that the level of default
on those is essentially zero. It is almost a win/win situation.
I think the degree to which we could look for other
opportunities to do that would be something that would behoove
us.
Ms. Blakey. I certainly think, you know, when you look at
the drop in market share in the commercial satellite arena, the
steps this committee and this House has taken are very
constructive, as well as the significant improvements that DDTC
has made in terms of license processing. There are a lot of
levels to this, but in the long run, our jobs are depending
upon a very significant export ability.
Mr. Sokolski. I would suggest one change in recognition of
a trend. Another article I would recommend is in the Economist.
In there, they describe the provision of intelligence gathering
and UAV-related services. I think we think too much about
selling hardware and not enough about what probably is easily
very significant, maybe even more significant, which are things
that are not hardware. Much of the concern we are going to be
facing regarding Iran is going to be dealing with all kinds of
missiles. That technology goes there because folks are selling
a lot of hardware. I am not sure you should be doing that. I
think there is a lot more industry to be had and a lot more
high paying jobs to be had if we build on the comparative
advantage of the services that we can provide with the
hardware, but not leaving it or shipping it overseas.
Mr. Scott. Okay. Mr. Chairman, I just had one----
Mr. Sherman [presiding]. One more point.
Mr. Scott [continuing]. More point. I know you just came in
at the time, but those moments were shared with the other
questioner. I wanted to go back for a moment and get a good,
clear understanding of your thoughts on the deemed exports, if
I may. I wanted to get your opinions on what type of security
threat, in your opinion, is posed by foreign nationals inside
the United States who are working on or purchasing controlled
technologies.
Ms. Blakey. Well, in the area of working on technologies, I
mean, there is a very tiny percentage of foreign nationals who
are involved in defense and production, and therefore, in the
area of controlled technologies. There is a very definite
distinction in facilities across the board in our companies
between what foreign nationals may do on the commercial side
where there is certainly a significant workforce, but it also
again contributes to the expertise, the pool, if you will, of
talent, but strictly on the commercial side when you look at
the numbers.
Mr. Scott. Do you feel that our security is tight enough?
In a kind of a halfway related way, we had an incident, for
example, at Ft. Hood. Who would have thought that even within
our own military we would have that kind of terrorist mentality
at work? This individual engaged in communications with a known
terrorist in getting this. So it begs the question if we have
this happening right within our military units, how sure we
don't have this kind of situation happening let us say in this
area where we have sensitive technologies? Do you believe that
our security is strong enough in place to prevent any sensitive
material from getting into the hands of individuals, like Iran
or others, who might not be on the same page with us?
Mr. Sokolski. If I may. I think what has changed in the
industry, aerospace field, is the most valuable things no
longer are tangible, they are intangible things. This presents
an immense problem for control, and it doesn't get any better
if you can't keep track of who is working where on what. That
is a very difficult problem, but I think it is worth bearing
down on because that is at least as important as some of the
physical things that we are worried about.
Mr. Scott. Yes. I am glad that you mentioned that because
in my district, if you all recall, it was in the news, we had
Georgia Tech students who were arrested on terrorism charges
because of a similar incident in dealing with sensitive
materials and trying to get it back out. So I think it is good
that we brought that up as a part of the record. It is good to
hear that you all feel that we are not as secure. It is an area
we certainly need to tighten up on. With that, I yield back to
you, Mr. Chairman.
Mr. Sherman. Thank you. My initial questions will relate to
your district more than mine, and that is on this tanker deal.
I understand Ms. Blakey can't talk about it and our other two
witnesses, I am, frankly, disagree with their position. Since I
introduced them I am aware of their qualifications, but, I hate
to say it, also lack of qualifications in the sense that we
here in Congress are responsible for jobs and the economy, you
spent your lives a step away from those constituent concerns,
and we are concerned, especially in this subcommittee, on the
unfair trade practices that are used to create the enormous
national debt.
If we don't fight back, we are going to see a hollowing out
of the U.S. economy even more than what we face now. Finally, I
don't think either of you have been involved in trying to
explain to a town hall why it is a good thing that we spend so
much on military hardware. One of those arguments is that we
build it here, we build our companies here, we build jobs here,
and so being an agnostic as to whether the tankers are built
here in the United States or not, or whether they are built by
U.S. companies or foreign companies makes it hard for you to be
an Evangelist for the idea of us having the tankers at all. I
am sure that even though you have spent time, at least one of
you, at the Pentagon, nobody in there is screaming stop
spending money on the military.
I would hope that, I mean, looking at everything involved
you cannot be an agnostic on the economic impact of where we
get our tankers. Now, Mr. Sokolski, I couldn't agree with you
more, it is not all about hardware. Software, you don't even
need that pick up truck to take the stuff to Mexico.
Mr. Sokolski. Do not.
Mr. Sherman. So there is an even greater concern to making
sure that those who are legally in the United States who get
their hands on stuff should get their hands on things for the
right purposes with the right restrictions. The idea that, and
this harkens back to the 1990s, it could be sold at Egghead,
which was a place they bought software back long ago----
Mr. Berteau. I used to buy a lot from Egghead.
Mr. Sherman. Yes, but will let anybody who walks in with
cash to Egghead to buy it but we are going to prevent its
export--may have heard of this thing, it is called the
internet. You can just, any program you have got. So now I
would like to shift to coproduction and talk about things Ms.
Blakey may be allowed to talk about. We import from China five
times what they are willing to buy from us, or they buy from us
only one-fifth of what they sell. That, if anything, overstates
the amount they are willing to buy from us because when they
are willing to buy from us it is the subject of these
coproduction agreements.
In fact, U.S. companies reported some 9,200 offset
transactions worth $45 billion from 1993 to 2007. Not all of
those are with China. Now we see them saying well, of course,
we will have free access to U.S. markets whenever we want, but
Americans will sell aerospace products to us only subject to
coproduction agreements. Ms. Blakey, is it entirely legal for
China to be demanding these coproduction agreements in order to
purchase U.S. products?
Ms. Blakey. I think we see a tendency around the world for
developing countries and developing markets to want to share in
the development of technologies and of these capabilities.
Their proposition, of course, is: (1) it is an open market, and
those who refuse to enter will do so. If U.S. firms do not,
others will.
Mr. Sherman. So what we could do is say if you insist on
coproduction agreements as to aerospace, we immediately close
our markets to all Chinese exports. That would be an effective
response if our Government was capable of fighting for America
rather than kowtowing to those few Americans who make a lot of
money importing things into the United States. Since we don't
do that, the very few exports that we do have to China only can
be counted as exports in the short term. They are really
imports in the long term. Either we don't sell to China at all
or we are allowed to slit our own throats. In particular, we
have this GE announcement. Is it in the interest of the total
employment in your industry that we equip China with this
capability?
Ms. Blakey. I think a more robust capability on the part of
our companies, U.S. companies, and certainly GE is one, in the
long run will allow for a much greater share of the Chinese
market. It is an enormous market from an aviation standpoint,
and they already have sophisticated avionics. It is not as
though avionics are not present on Chinese aircraft, and, in a
multiplicity of ways, very competitive ones. This is all in the
commercial arena. I would simply say that I think an argument
certainly is a very strong one that in the long run this
benefits U.S. economic terms and benefits our economy and
benefits U.S. work.
Mr. Sherman. So right now our companies face competition
from Europe, just a little bit from Brazil. Are we conjuring up
a world 20 years from now where the Chinese can take a good
half, three-quarters of the world's commercial airplane
business. Is that in America's interest?
Ms. Blakey. Well, the Chinese market itself, which they
have a great deal of control over, is an enormous market.
Mr. Sherman. Well, if I can interrupt there. They have
control of it as long as we are total wimps. Once we say you
can't import anything into the United States unless you buy
American aircraft, then we have control. Of course, that would
require us to assert some fortitude, and it is unlikely that we
will do so. So we live in a world where we have decided to
bleed to death slowly, and the question is who will prosper
during that process?
Ms. Blakey. You are arguing broader economic policy than
just the aerospace industry by a long shot; things that would
quake the terms of trade and our economy itself.
Mr. Sherman. So, but do you expect that your industry is
going to face a loss of half of the world market due to Chinese
exports 20 years from now?
Ms. Blakey. No, we don't because we believe that, again,
U.S. technology and U.S. capabilities are incredibly strong. We
will continue to compete as long as we have----
Mr. Sherman. Well, wait a minute. If you give all those
capabilities to China so that they have the low labor cost, the
ridiculously low currency and government subsidies, why do you
think that you can give them the technology and you are still
not going to face them as an international competitor?
Ms. Blakey. I certainly can't speak to the specific
technologies that may be involved in the terms that General
Electric has set up, but again, we are talking about commercial
technologies that are widely available there and do evolve, and
will evolve on global basis. I do believe the United States and
our capabilities when it comes to everything from, you know,
the avionics itself, which is at issue here, all the way
through composites, all the way through advanced designs, we
will continue to maintain a technological edge, and therefore,
an advantage in exports, which we have now, as long as we have
the resources to do so. That, again, is fueled by this trade.
Mr. Sherman. Is there any technology that we have in
avionics that GE is holding back? Are we just shipping them our
old and bad stuff or is GE fully cooperating with the Aviation
Industry Corp. of China and providing them with avionics
capabilities fully at the level that GE is able to provide?
Ms. Blakey. Well, representing the industry as a whole, I
can't speak specifically for the terms of this deal with GE,
but what I would like to do is certainly ask that your question
go to them directly and we will see about facilitating some
further information.
Mr. Sherman. Assuming U.S. companies fall over each other
in an effort to get a short term advantage for a little while
in China and provide to the Chinese all the technology that
they are legally allowed to do so and presumably get the
licenses that are envisioned by this GE agreement, why do you
assume that we are not going to lose half the market or more to
China 20 years from now?
Ms. Blakey. I think because, again, it comes back to do we
have our capabilities that have proven over time to be those
that will be to our ultimate advantage? I think that has proven
the case so far and it will continue to do.
Mr. Sherman. We have certainly proven the ability to
develop great aircraft. We have also proven the ability in
every other industry to ship our technology to China and give
it to them and to lose the market. We had great technology in a
lot of other fields. The one thing American companies have
proven the ability to do is to offshore. As a matter of fact,
almost all the profits that are made are made from offshoring.
Why do you think that your industry is incapable of immediately
transferring in a very profitable way to China all the great
technology that you and I are confident that they can develop?
Why are you guys so bad at offshoring?
Ms. Blakey. I can't suggest that I think it really comes
down to that. I think, you know, when you are talking about a
sophisticated set of technologies, which is what aerospace is
all about, it is not making widgets, it is not going and giving
them a singular technology that suddenly gives a tremendous
advantage--I also think our companies are very intelligent
about what makes sense in terms of strategic advantage and what
does not. Again, I would be happy to get more specific
information on this from General Electric's standpoint, but as
a broad matter we are projecting that we can hold our market
share very well using the kind of strategies that we are taking
these days to the world market.
Mr. Sherman. Well, you have lost a good share to Airbus,
and there the Euro is 1\1/2\ to the dollar and is allowed to
float. Assume that the Chinese currency is not only under
priced by 40 percent, but let us say they decide to underprice
their currency by 60 or 70 percent next decade. How confident
are you that planes can be manufactured in the United States
profitably to continue our level of the world market share?
Ms. Blakey. You know, some of these are the dynamics of
world trade that I honestly will tell you are not within the
control of a singular industry, or even the kind of projections
that any of us can make. You are conjecturing a future that I
believe is not one that is necessary or reality, but at the
same time, we are all going to have to be aware that there are
bigger dynamics in this that are beyond, as I say, any single
industry.
Mr. Sherman. Are there elements in your coalition that are
pushing for a denial of the licenses that are necessary in
order to export all of our aerospace technology to China?
Ms. Blakey. There is very little aerospace technology that
is controlled technology that is going to China at this point.
Again, we have been talking in the commercial arena almost
exclusively today as regards China. Our companies are very
serious about not only maintaining, but enhancing controls on
sensitive technologies. It is something we are advocating. As a
part of export control reform, we believe there needs to be
greater scrutiny, and, in fact, something that may be somewhat
counterintuitive even when it comes to the Commerce controlled
items. We would like to see a gradation with some controls
there that may be higher controls so that it is not simply a
one size fits all approach.
Mr. Sherman. So at the present point do you have an
association position on whether we should grant the licenses
necessary for this joint venture to go forward?
Ms. Blakey. The joint venture has just been announced and I
am not aware that there are licenses at issue. We can try to
find out more and be more specific for you on it.
Mr. Sherman. If you could get back to us and either say
grease the skids or use every tactic to delay, which I would
sure like to know your position on this joint venture. I have
just begun to look at whether this is good for American jobs.
They say it is going to provide 200 American jobs. That is a
very few jobs to take in return for losing a big chunk of our
technological advantage. Mr. Berteau, I think you----
Mr. Berteau. Mr. Chairman, you have raised over the course
of the last few minutes a broad array of very significant
issues and I know that both Mr. Sokolski and myself have been
busily jotting down notes of what we would like to say in
response to these issues. I think that in light of the time and
the pressure of that that I would request that we be allowed to
provide for the record a number of comments on----
Mr. Sherman. All three witnesses, and our two earlier
witnesses, are all invited and urged to provide written
comments for the record for 5 business days. In addition, if
either of you recently ignored witnesses can have 1 minute to
make an oral statement, that is fine. Otherwise, we will get
your comments for the record.
Mr. Sokolski. One comment. I think there is a one word or
two word answer to your question. What has kept, or what will
keep, whatever it is that you are worried about from happening
would be export controls. So if the review is done properly,
you might get the results you want. If it is not done or you
get rid of the controls, caddie bar the door.
Mr. Sherman. Not only do we need to maintain our export
control system and make it better, we have got to put into that
review an explicit jobs component on both what State, as well
as Commerce, does.
Mr. Berteau. And, Mr. Chairman, there is one area where we
have stayed ahead of the global curve in terms of competitive
advantage flowing to places other than the U.S. and that is in
national security. I think that is the core issue why we have
export controls in the first place. We have done it by
investing in the research necessary to keep us ahead of the
technology curve that others have developed. You asked earlier
on what the Congress can do and I will expand a little bit on
that in my written remarks because I think that is the key
question.
There are other industries where we have done the same.
They are not a lot of them. I think the larger questions of how
we maintain a competitive advantage not only against China, but
against the rest of the world is a very significant challenge
facing America. I think national security and the national
defense arena plays an important role in that, both from an
economic and a technology perspective, as well as from a
defending America perspective. I will be glad to expand on
that.
Mr. Sherman. I look forward to getting your comments. Just
as concluding comments, we have devoted hundreds of billions of
dollars to national security research, chiefly in aerospace.
This has given our companies an edge. That edge is important in
order to maintain our national security and needs to be
preserved. That edge has also been important to maintaining one
of the last few industries where the United States is a major
exporter, and we have to make sure that our national security
research dollars not only keep us ahead in national security
technology, but also preserve for the United States the lion's
share of the jobs that are made available by the civilian
exploitation of that technology. I want to thank you all for
being here. These hearings are concluded.
[Whereupon, at 5:13 p.m., the subcommittee was adjourned.]
A P P E N D I X
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