Briefing on Department of State Efforts to Expand Defense Trade

Special Briefing
Andrew J. Shapiro
Assistant Secretary, Bureau of Political-Military Affairs
Via Teleconference
June 14, 2012

MR. TONER: Thank you so much. And thanks to everyone for joining us. Promoting U.S. businesses abroad and expanding U.S. exports our top priorities for the U.S. Department of State. And Assistant Secretary of State for Political and Military Affairs Andrew Shapiro joins us today to talk about how the Bureau of Political-Military Affairs is engaging with allies and partners to expand the defense trade that’s critical both to our national security as well as a part of our larger economic statecraft efforts on this Economic Statecraft Day.

Just before I hand it over to Assistant Secretary Shapiro, I just want to remind everybody this is an on-the-record briefing and you’ll have a chance for questions after he says a few words. So go ahead, Assistant Secretary.

ASSISTANT SECRETARY SHAPIRO: Thank you, Mark. And I’m delighted to be able to speak to you all today as part of Global Economic Statecraft Day. And as Mark noted, Global Economic Statecraft Day is a global event that we’re holding to highlight America’s commitment to put strengthening American jobs at the center of our foreign policy and to use diplomacy to advance America’s economic renewal. We’re using diplomatic tools to strengthen the economic foundations of America’s global leadership. And we are elevating the strategic role of economics, both in what we choose to prioritize and how we pursue solutions to some of the world’s most pressing challenges.

Our work in the Political-Military Bureau, to expand security cooperation with our allies and partners, is critical to America’s national security and economic prosperity. And it is also an important part of the State Department’s economic statecraft efforts. It also serves critical national security interests by helping allies and partners more capably secure their countries and contribute to international security efforts. And that’s a point that I want to emphasize. The purpose of our sales is to serve national security interests and that is a theme that runs through every sale that we conduct. We evaluate for how it will support U.S. national security and foreign policy interests.

So let me be clear about why the State Department oversees U.S. security cooperation, and that’s because security cooperation is fundamentally a foreign policy act. It is therefore the Secretary of State that is given the authority to oversee and authorize all arms sales in order to ensure they advance U.S. foreign policy.

The Bureau of Political-Military Affairs, which I oversee, implements the Secretary’s authority in this area and ensures that any assistance in the U.S Government – that the U.S. Government provides is fully in line with U.S. foreign policy. All sales and arms transfers are reviewed and assessed through the Conventional Arms Transfer Policy. This means we take into account political, military, economic, arms control, and human rights conditions in making decisions on the provisions of military equipment and the licensing of direct commercial sales to any country. We only allow a sale after we carefully examine issues like human rights, regional security, and nonproliferation concerns, and determine a sale is in the best foreign policy and national security interests of the United States.

Review and monitoring are also an integral part of our work. We work to make sure that items of U.S. origin are being used in the manner intended and are consistent with our legal obligations, foreign policy goals, and our values. If a license or transfer is approved, recipients are bound by end use restrictions and conditions. This grants U.S. Government officials full access to monitor how that defense article is being used throughout its lifetime. We also investigate all potential violations and take appropriate action depending on the nature and scope of the infraction.

Additionally, the transfer of items above a certain value requires the approval of Congress. We therefore work closely with Congress on all significant sales. The arm – to be quite frank, the arms transfer process sometimes causes consternation among our international partners who will gripe about onerous rules and procedures. And at times it makes countries, to be honest, reluctant to partner with the United States. But these safeguards are critical to our foreign policy, and I can assure you that they are aggressively enforced.

So therefore, what I think is remarkable is that despite our very high bar for approving transfers and our aggressive monitoring, more and more countries want to partner with the United States. At the State Department, when we deem that cooperating with an ally or partner in the security sector will advance our national security, we advocate tirelessly on behalf of U.S. companies abroad, and I think I have the frequent flyer miles to prove it.

It’s no longer just our ambassadors who promote U.S. security cooperation abroad. Senior State Department officials regularly advocate on behalf of the U.S. bidders on foreign government and foreign military procurements. We do so when we meet with officials on our travels abroad, on margins of international conferences, and in regular diplomatic correspondents to foreign government officials. And these efforts are having an impact. Despite the global economic strain, demand for U.S. defense products and services is stronger than ever.

Last week, we released the 655 Report, which is an annual report of defense articles and services that were authorized for export. This report focuses on direct commercial sales, and it showed that there was a more than $10 billion increase in Fiscal Year 2011 in items authorized for transfer. In 2011, the Directorate for Defense Trade Controls, which is part of the Political-Military Bureau, processed more than 83,000 licenses, the most ever. Today, I can confirm that this is already a record-breaking year for foreign military sales, which are government-to-government sales. We have already surpassed $50 billion in sales in Fiscal Year 2012. This represents at least a $20 billion increase over Fiscal Year 2011, and we still have more than a quarter of the fiscal year left.

To put this in context, Fiscal Year 2011 was a record-setting year at just over 30 billion. This fiscal year will be at least 70 percent greater than Fiscal Year 2011. These sales support tens of thousands of American jobs, which is welcome news for the economy.

So I’ll just take a minute or so to briefly outline why I think we are seeing such strong interest in U.S. systems. First, it’s because countries want to partner with the United States of America. This Administration has worked aggressively to improve America’s image abroad, to build new partnerships, and strengthen existing ones. We have seen tremendous growth and sales with developing countries and emerging powers such as Brazil and India, and this speaks volumes about our diplomatic efforts.

For a country to be willing to cooperate in the area of national defense, perhaps the most sensitive area for any nation, they have to be sure about the nature of the relationship with the United States. When a country buys an advanced U.S. defense system through our FMS, DCS, or Foreign Military Financing programs, they aren’t simply buying a product. They are also seeking a partnership with the United States. These programs both reinforce our diplomatic relations and establish a long-term security relationship.

The complex and technical nature of advanced defense systems frequently requires constant collaboration and interaction between countries over the life of that system, decades in many cases. This cooperation therefore helps build bilateral ties and creates strong incentives for recipient countries to maintain good relations with the United States. The fact that more countries want to deepen their defense trade partnership with the United States is a sign that our broader diplomatic efforts are having an impact.

For many countries, procurement decisions aren’t simply based on the specifications of the given system. Our advocacy helps demonstrate that the U.S. Government believes these sales are critical to our diplomatic relationship.

Second, countries want to buy the best. And to get the best, they rightly turn to U.S. defense systems. These systems are made in America, and the growth in defense sales abroad demonstrates the capabilities of American manufacturing and of American workers. This Administration has worked hard to support the U.S. defense industry abroad, because it supports our national security and supports jobs here at home.

For example, our agreement in December to expand our security cooperation with Saudi Arabia is projected to have a significant impact on the U.S. economy. According to industry experts, this agreement will support more than 50,000 American jobs. It will engage 600 suppliers in 44 states and provide $3.5 billion in annual economic impact to the U.S. economy. This will support jobs not only in the aerospace sector, but also on our manufacturing base and support chain, which are all crucial for sustaining our national defense.

Lastly, we are also working to improve our ability to cooperate with our partners. Nothing shows our commitment to expanding U.S. exports more than our export control reform efforts. The current system operates under laws written in the 1970s and was designed to address the challenges of the Cold War. It’s bad for U.S. business, it’s bad for enforcing our export control requirements, and it hurts our ability to prosecute those who violate U.S. export control laws.

The goals of our export control reform efforts are ultimately about making sure that our system protects the things it needs to protect. This will allow the U.S. Government to focus its limited resources on safeguarding and monitoring the most sensitive items. Our reform efforts will also allow us to streamline access to export-controlled items for our close allies. This will help improve interoperability with our allies as well as bolster our defense industrial base. And we are making substantial progress. We have almost finished our interagency work on all the list categories, and we’re working to have this process completed by the end of the year.

Another way we have worked to facilitate defense trade is through the defense trade treaties with the UK and Australia. This past April, the United States and UK signed an exchange of notes which brought the U.S.-UK Defense Trade Treaty into force. This treaty is the first of its kind and allows for the more efficient transfer of certain defense articles between the U.S. and UK. We’re also making progress in the implementation of the treaty with Australia, which we hope to be completed in the next year.

So with that, I’d be happy to take any questions.

MR. TONER: Okay. We’re ready to take any questions you might have now, Operator.

OPERATOR: Okay, thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press *1. Please un-mute your phone and record your name clearly when prompted. If you need to withdraw your request, press *2. Again, to ask a question, it’s *1. It will be one moment, please, for the first question.

And our first question comes from Kate Brannen with Defense News.

QUESTION: Hi. I just wanted to clarify quickly a point and then ask a question. You said $50 billion in sales so far for 2012. Are those sales that the State Department has authorized? Is that the correct way to phrase it?

ASSISTANT SECRETARY SHAPIRO: Well, I believe that those are – and I’ll confirm this for you, but I believe that those are ones in which they’re authorized and the sales have been – the contracts have been negotiated.

QUESTION: Okay. And I was hoping to get an update on some of the changes the State Department has proposed to the Congressional notification process. I know there was some pushback on the Hill, and I was just curious what the current status is of – are you using that new notification process to inform Congress of sales?

ASSISTANT SECRETARY SHAPIRO: Yes, we are. And again, changes to the notification process were designed to ensure – to give Congress more information earlier than they’ve had it before, but also to provide some predictability to the length of the process and to identify which sales Congress has the most concerns about, so we’re able to address those concerns. But yes, we are proceeding with the new process.

QUESTION: Okay, thank you.

MR. TONER: Next question, please.

OPERATOR: And our next question comes from Eli Lake with Newsweek.

QUESTION: Hi. Thank you very much, Assistant Secretary. Could you break down in a little bit more detail what is responsible for this pretty significant uptick for what you anticipate for this fiscal year? Was it just more than the Saudi Arabia – can you get into that?

And if I can sneak in another one, how does the – these latest numbers kind of effect next month’s negotiations on, I guess, what would be a kind of global arms control – arms trade treaty?

ASSISTANT SECRETARY SHAPIRO: For your first question, obviously the sale to Saudi Arabia was very significant. It’s a sale worth $29.4 billion. And Saudi Arabia signed a letter of offer and acceptance in December for the sale, up to 84 advanced F-15SA fighter aircraft. It also includes upgrades of – to its current fleet of 70 F-15 aircraft, as well as munitions, spare parts, training, maintenance, and logistics. But this number also includes the sale of the Joint Strike Fighter to Japan, which is valued at approximately $10 billion.

In terms of the arms trade treaty, I’ll have to admit that’s not an issue that my bureau follows closely, and we work closely with our nonproliferation bureau led by Tom Countryman on this, so I’m going to allow – boot your question over to him and get you back an answer on that.


MR. TONER: All right. Next question, please.

OPERATOR: And next is Jen Dimascio with Aviation Week. And Jen, your line is open. Check your mute button.


OPERATOR: Yes. Please continue.

QUESTION: Okay, sorry. I wanted to follow up on this record breaking year and kind of push it forward to next year. I mean, are you anticipating another record breaking year in FY13? And do you expect additional sales from countries like India?

ASSISTANT SECRETARY SHAPIRO: It’s too early to predict what FY13 will look like. Obviously, we’re going to continue to press and advocate for U.S. arms sales. We are hopeful that arms sales to India will increase. We’ve made tremendous progress in the relationship over the last decade. We went from nearly zero sales to about $8 billion in sales.

Going forward, there’s a number of tenders which we hope we’re successful on, including a tender for Apache helicopters. And we continue to advocate for them, and we’re hopeful that we’ll be successful on a number of sales over the coming year with India.

MR. TONER: All right. Next question please.

OPERATOR: And next is Austin Wright with Politico.

QUESTION: Hi. Can you give us a quick update on your efforts to push some export control reform initiatives through Congress? And there’s been some grumbling on the Hill, and I’m wondering if you think you’re going to make progress on this, given that many administrations have tried and have been unable to get these kind of reforms through the Hill.

ASSISTANT SECRETARY SHAPIRO: Right. Thanks. As you know, export control reform has many components, one of which is to revise both the State U.S. Munitions List and the Commerce Control List so that there is a clear distinction between what is controlled on each list. And our goal has been to complete the list reviews and publish the revised control list categories in proposed form this year and to both publish the revised categories in final form on a rolling basis, and that remains the goal. We’ve almost finished our interagency work on all the list categories, and we have people working from across our – the interagency working hard on this as we speak, and we are committed to meeting this goal.

I know that a lot of others have tried and failed and that there is skepticism that we can get this done, but let me be clear: Any speculation that export control reform is stalled is absolutely false. We’re making significant progress, interagency teams are making progress every day, and this has been a long, tough slide but we’re close to the finish line. And we published a number of categories and we have more in pipeline. We’re nearly halfway through rewriting the categories, and we have thus far briefed our Congressional committees on 13 categories.

QUESTION: Thank you.

MR. TONER: Great, thanks. Next questioner, please.

OPERATOR: And as a reminder, press *1 to ask a question. And next is Raymond Barrett with PAR.

QUESTION: Would you be able to expand on how completing that list and the categories and how maybe some of the individual categories might boost the domestic industry here in the States?

ASSISTANT SECRETARY SHAPIRO: Well, for example, we anticipate that – and Secretary Gates was quite eloquent in describing some of the challenges in our current export control reform system where a part or component for a previously approved aircraft would need a license. And it’s our hope that for those types of items, including thousands of parts and components, that once they move from the U.S. Munitions List to the Commerce Control List, it’ll improve the ability of our partners to acquire those parts and components (inaudible) it will streamline the system, make it easier for our partners to acquire those types of parts and components and help our manufacturing base as a result.

QUESTION: And also, just – you mentioned that the Defense Trade Cooperation Treaty with Australia might be done by the end of the year. Is that treaty going to be as extensive in nature as the one with the UK? As in – so if you can maybe compare the two.

And also, are there any other nations that you’re looking at signing a similar treaty with? Are there any ones that are (inaudible) proposed, that are next on the list after Australia?

ASSISTANT SECRETARY SHAPIRO: Well, there may be some minor differences in the text of the defense cooperation treaties between the UK and Australia. We anticipate that they will have the same broad impact in encouraging defense trade between both of our – between both the UK and Australia and the United States. And so we very much anticipate that this will have an impact.

What was your second question again?

QUESTION: Basically, who’s next? Okay, so –

ASSISTANT SECRETARY SHAPIRO: Oh. I’ll be quite clear. I testified before Congress that these would be – that we would not – that the Administration would not seek any further defense cooperation treaties. So any decision to reverse that will have to leave – be left to my successor.

QUESTION: All right.


QUESTION: Thank you.

OPERATOR: And our next question comes from Larry Shaughnessy from CNN.

QUESTION: Hello. This is Larry. My question is about the Secretary’s comments earlier this week alleging Russia is selling armed attack helicopters to Syria. How does the Department answer the Russian insistence that the U.S. is supplying crowd control weapons to places like Bahrain, and how do these issues differ?

ASSISTANT SECRETARY SHAPIRO: Well, I don’t have a lot to add to Toria’s response from yesterday where she – and today where she’s directly addressed this. But what I will say is it’s a totally specious comparison. Our – we have made clear that we’re not selling equipment to Bahrain now that can be used for internal security purposes until there is improvement on human rights; and whereas, as Secretary Clinton pointed out, the sales to Syria are directly implicated in attacking innocent people, innocent civilians. So we believe that that comparison does not hold water.

MR. TONER: Next question, please? And time for just a couple more, I think.

OPERATOR: Okay. And our next question comes from Adam Behsudi with Inside U.S. Trade.

QUESTION: Yes. Hi. I wanted to – you’d mentioned earlier that the goal on the export control reform would be to publish all the proposed rules this year and then final rules on a rolling basis. I mean, how many final categories or final rules for categories do you expect to be done this year, if any? And is there an effort to get more of that done based on the fact that it’s an election year, and maybe if there’s a change in administration this won’t be picked up as well by the next White House?

And then finally, what does the – in terms of Congressional pushback on wanting more notification on some of the categories that – on the items that are moving from one category to another, I mean, what is State Department doing in terms of working with Congress on their – on the 38 – Section 38(f) notification process?

ASSISTANT SECRETARY SHAPIRO: In response to your question, I’m not going to give you a precise estimate of how many will be published, because we do want to consult with Congress. And this will be a dialogue with Congress, and we want to make sure we have – take their concerns into account as we’re going through this system. And we intend to have robust consultations with Congress before we issue 38(f) notifications.

In terms of the timing, my view is by January of next year we’ll either be done or we’ll be so close to the goal line that it’ll just be up to the next administration to dive over the goal line and do a touchdown dance.

MR. TONER: Great, thank you. And I think it’s going to have to be our last question, unfortunately.

OPERATOR: And our last question comes from Jim Berger with Washington Trade Daily.

QUESTION: Yeah. Thank you. I guess – I don’t know – I don’t think you answered the second part of the previous question, but have you worked out a system with Congress on notifying as the products move from the Munitions List to the CCL? As I understand it, it’s such a large number, it’s very impractical to do it one by one.

ASSISTANT SECRETARY SHAPIRO: We’ve discussed – we are having discussion with Congress on each of the categories as they come up. And our goal, as I mentioned, is to have robust consultations with Congress. And we intend to follow the law regarding Congressional notification. And so we will provide the requisite notification for any of these changes to the United States Munitions List or Commerce Control List.

But this is – again, this is an iterative process. We are having discussions with Congress on a continuing basis about how best to provide them the information they need and solicit their input.

QUESTION: Thank you.

MR. TONER: Well, thank you all for joining us. And thanks certainly to Assistant Secretary Shapiro. Hope it was informative, and have a great afternoon.

PRN: 2012/990