Remarks to the Defense Trade Advisory Group

Andrew J. Shapiro
Assistant Secretary, Bureau of Political-Military Affairs
Washington, DC
November 28, 2012

As prepared

Sam, thank you for that kind introduction and thank you for all the hard work you put in as chair of the Defense Trade Advisory Group (DTAG). I also want to recognize the other members of the DTAG for their efforts and the invaluable service that you provide to me and the Department.

As President Obama finishes his first term and begins the transition to his second, it is worth looking back and taking stock of what has been achieved by the Political-Military Affairs Bureau. Over the last three and a half years it has been my great pleasure and distinct honor to lead this Bureau. It has certainly been an eventful period. While we have had crises to respond to, new partnerships to build, and long-lasting ones to strengthen – we have also simultaneously sought to improve the way we and the U.S. government operate. In the face of new challenges and demands, this Bureau has demonstrated an ability to innovate and find inventive solutions that improve the way we do business.

One of the major points of emphasis for the Secretary when she came to office was the need for an integrated approach to foreign policy – one that would leverage all the tools at our disposal. The Political-Military Affairs Bureau has played a fundamental role in turning the Secretary’s vision of “smart power” into reality. The collaboration between State and DoD is truly unprecedented. And it is the PM bureau, as the principal link between State and Defense, which has been at the forefront increasing State-DoD collaboration.

We’ve also been at the center of the U.S. response to the Arab Spring – one of the most significant geopolitical shift since the end of the Cold War.

This Bureau has had to carefully calibrate our security cooperation to the region. We have worked to maintain Israel’s Qualitative Military Edge, by supporting the deployment of systems like Iron Dome, which helped protect Israel from rocket fire. While we have worked to ensure Israel’s security, we have also strengthened partnerships in the region. This was evident when we completed the largest Foreign Military Sale in history with Saudi Arabia.

Additionally, our Office of Weapons Removal and Abatement has led the U.S. government’s response to combat MANPADS proliferation in Libya, and while continuing those efforts is now also focused on the potential challenge of Syria as well.

The Political-Military Affairs Bureau has played an essential role in the rebalance to Asia. This Bureau has been instrumental in enhancing our security partnerships in Asia and with new emerging powers, such as India. Our Foreign Military Sales to India have grown from virtually zero in 2008 to more than $8 billion.

Our outreach to Asia was also reflected in my travel. I travelled to the East Asia-Pacific region much more than I ever anticipated. While most of my travel was to the Middle East, as you might expect, I also travelled to Asia on 12 different trips, just one fewer than my trips to the Middle East. I visited more than ten different countries in East Asia and the Pacific. And after my five trips to Israel, I travelled to Australia more than any other country. I also travelled to seven different countries in South and Central Asia.

We have taken tangible steps to increase and institutionalize State-DoD cooperation. We negotiated a new Memorandum of Understanding between State and DoD that has dramatically increased the number of people exchanged between departments. This includes a dramatic expansion of the State Department’s Foreign Policy Advisor program, also known as the POLAD program.

We have also sought to reassert the State Department’s authority in key areas. Through the work of PM’s Policy and Plans Office, the State Department has reasserted its authority over security assistance and has developed innovative mechanisms to respond to today’s urgent national security priorities. Through the Pakistan Counter-Insurgency Capabilities Fund, PM has demonstrated that the State Department has the expertise to oversee these programs. And with the new Global Security Contingency Fund, PM has developed an innovative tool that will better allow the United States to respond to emergent challenges. It also creates a framework for closer cooperation with DoD.

State Department involvement in DoD planning has also increased dramatically, enabling the State Department to provide important diplomatic insight into the Pentagon’s planning process.

PM has also played an essential role in responding to global security challenges. When I first began this job Somali piracy was spiraling out of control. Attacks were escalating and pirates were expanding operations far out into the Indian Ocean. When Secretary Clinton called for a new strategy to tackle this seemingly intractable problem, it was this Bureau that took the lead in developing and implementing that strategy. And now – after years of hard work, building a novel international forum and pursuing innovative policies and partnerships – pirate attacks have plummeted.

As deployments to Afghanistan increased, the Office of Security Negotiations played a critical role in helping to negotiate agreements to help supply our troops.

And lastly, our efforts to build global peacekeeping capacity have been incredibly successful – surpassing its goals, GPOI has helped train more than 170,000 peacekeepers.

This brings me to the Bureau’s efforts to increase our defense trade partnerships.

The growth of the U.S. defense trade has been truly remarkable. Despite the tough global economy over the last four years, demand for U.S. defense sales abroad remains robust. There has been significant growth both in Direct Commercial Sales and in Foreign Military Sales.

When it comes to Direct Commercial Sales, by the end of October of this year, we had already received more than 73,000 license requests, which is 2,000 more than the same period last year. Despite the case load, we are maintaining efficiency. 50 per cent of the license requests have been adjudicated in less than 10 days and 80 per cent in less than 30 days. We are averaging about 18 days overall for all license types. We are projecting that by year’s end, the State Department will have received and reviewed over 85,000 DCS cases – the most ever. While the defense trade is growing, at the same time our Defense Trade Compliance office has also worked hard to ensure that companies are compliant with U.S. law. Their diligence resulted in the largest settlement in U.S. history with BAE and a significant settlement with United Technology Corporation this summer.

The growth in Foreign Military Sales has also been extraordinary. For four consecutive years, U.S. Foreign Military Sales or FMS have exceeded $30 billion. This is a significant increase over the last decade, when Foreign Military Sales averaged just $12 billion. This past year FMS sales grew at an enormous rate – more than doubling the totals in FY2011. This calendar year there have been 58 congressionally notified FMS cases with a value of $62 billion notified so far.

For example, we’ve notified Congress that:

  • Japan intends to purchase the F-35 in a sale worth more than $5 billion in total. The Japan F-35 sale will help increase production of the F-35 fighter aircraft, helping to preserve jobs for factory workers, subcontractors, spare parts manufacturers, and other U.S. jobs related to airlift production, transportation and suppliers.
  • The UAE and Qatar are seeking to purchase the Terminal High Altitude Area Defense System also known as THAAD. These sales are worth more than $7.6 billion and the transfer of THAAD to these two countries goes a long way in supporting the U.S. goal of establishing a regional missile defense on the Arabian Peninsula.

These are some of the more significant sales that have been reached this year. And what these sales demonstrate is that despite the high bar for approving transfers and our aggressive monitoring, more and more countries want to partner with the United States.

This is also evidence that the Administration’s efforts to strengthen America’s image abroad, to build new partnerships and revitalize long-standing ones, has been effective. If countries view the United States unfavorably, they will be less willing to cooperate on security matters. This is why the current U.S. administration has sought to revitalize U.S. diplomatic engagement, especially relating to security assistance and defense trade.

I have travelled to more than 40 countries and taken about 40 official trips, travelling to every region of the world, and have consistently advocated on behalf of U.S. companies. And I am not the only one. Secretary Clinton, Deputy Secretary Nides, other senior State Department officials, regularly advocate on behalf of U.S. bidders on foreign government and foreign military procurements. It is no longer just our Ambassadors who promote U.S. defense trade in a given country. This has been an important part of the Secretary’s economic statecraft initiative. This is because when the U.S. transfers a weapon system, especially through our Foreign Military Sales program, it is not just providing a country with military hardware, it is both reinforcing diplomatic relations and establishing a long-term security partnership. The complex and technical nature of advanced defense systems frequently requires collaboration and interaction between countries over the life of that system. This means that in purchasing the hardware, the buyer is actually committing to a broader long-term relationship with the United States. Our defense trade therefore helps solidify diplomatic ties between these countries and the United States.

What is also remarkable is that – while this Bureau has had record defense sales and been busier than ever, that has not stopped us from working to continuously improve the way the U.S. government operates.

Even while processing a record number of licenses and working the largest compliance settlement in its history, DDTC has also been busy reforming U.S. export controls. Every President since Kennedy has tried to reform our export control system and this Administration – through the hard work of DDTC and others – is actually getting it done.

With the election over and as President Obama transitions to his second term, our export control reform efforts will continue apace. The goals of our export control reform efforts are ultimately about making sure 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.

To accomplish this, we focused our primary efforts on the re-write of the U.S. Munitions List, or USML, and the Commerce Control List, or CCL, to create clear bright lines between munitions and dual-use items. We also wanted to ensure it could be implemented in a manner that would not make it difficult for U.S. industry to transition to the new list structure.

We have made great progress.

  • Already, ten USML categories have been published in the Federal Register for public comment. These include categories 5 through 11, as well as categories 13, 19 and 20.
  • Six additional categories have been reviewed and the proposed rules have been drafted and are currently either undergoing or awaiting interagency review. This includes categories 1 through 4, as well as 14 and 16.
  • Two additional USML categories are currently under review and are being drafted into proposed rules for public comment. These are categories 12 and 18.
  • The one remaining category, Category 15 on satellites, is drafted but will require legislation to provide the President the authority to remove items from the USML and transfer jurisdiction to the CCL. We will not be able to make the revisions until it is passed. But we are working closely with Congress to craft the language that will allow us to normalize our controls on Category XV like the rest of the USML categories.

In addition to the revisions to the control lists, other updates are being made to the ITAR which are further implementing the Administration’s goal of streamlining the licensing process. Such revisions include: drafting a new replacement parts and components exemption, a new incorporated articles exemption, and revising and clarifying the exemption for exports made by, or made for, the U.S. Government.

Congressional Notification Reform

As part of our broader Export Control Reform Initiative, we have also reformed the broken “pre-notification” process with Congress. This is shaping up as one of the most successful ECR efforts to date. Under the old system, U.S. industry was placed at a competitive disadvantage as a result of the unpredictability and uncertainty of the process. This prompted our allies to question our reliability as a defense supplier and security supplier.

As most of you are aware, the Arms Export Control Act requires the President to give Congress either 15 or 30 days notice prior to making a major arms sales. Recognizing that the statutory time frames might not be enough time to address questions or concerns from Congressional staff, over the years the Department developed an informal process for the staffers to ask the Administration questions before the formal notification period started. However, over time this informal process developed into an unstructured, unbounded process that could extend for months or in some cases years – where one staffer could hold up official notification without any oversight, time limits, or accountability. This was not conducive to the consistent, transparent and timely defense trade system we are attempting to establish.

After reviewing our current procedures, the State Department identified several process improvements that would provide committee staff with fuller and timelier information regarding upcoming arms sales. The new process, which has been in place since earlier this year, has a tiered review process that is bounded. However, in the new system the Department shares information earlier with congressional staff, before the Administration has even decided to move forward with a sale. Sharing of this pre-decisional material gives staffs up to 50 days advance notice for DCS notifications and 15 days advance notice for FMS notifications.

Nothing about Congress and the Administration’s legal authority has changed under the reformed new system. Under the new process, if a committee staffer thinks that an arms sale should be delayed, that staffer must escalate that concern to their representative or senator to convey to the Department. The Department has a strong history of being responsive to Member concerns, and this will not change. And for the most sensitive cases, the Department reaches out to staff or staff directors to confirm that there are no objections before delivering the notification. The State Department is strongly committed to providing Congress with information necessary to conduct its oversight of arms transfers under Foreign Military Sales and Direct Commercial Sales.

The new system allows significant time to review all potential arms sales. And thus far the effect of the new system has been to increase the transparency and efficiency of the notification process and eliminate the time-consuming and often ad hoc process delays.

The new process is showing positive results. We are currently showing a 40 percent reduction in congressional committee staff review times for FMS and a 35 percent reduction in review times for DCS. In 2011 congressional reviews for sales notified to Congress were averaging 41 days for FMS and 58 days for DCS and to date in 2012 the averages have been reduced to 29 days for FMS and 43 days for DCS. We project that in 2013 we will see further efficiencies demonstrated in reduced review times.

In addition to Export Control Reform, this Bureau has also finalized and is now implementing Defense Trade Cooperation Treaties with the United Kingdom and Australia. We are continuing to make strides related to the US-UK Defense Trade Cooperation Treaty. The provisions of the Treaty were codified in an exemption to the ITAR in April of this year. Since that time we’ve been working with our UK counterparts to develop a robust community of UK entities eligible to receive shipments under the Treaty. I’m pleased to announce that the UK informed us that they are currently processing over 20 applications for membership to the Approved Community. I am also pleased that we have seen the first shipments to the UK under the new treaty exemption to the ITAR. In terms of Australia, we achieved a major milestone in implementation of the Treaty with the Australian Parliament’s passage last month of the legislation needed to implement provisions of the Treaty. Our goal is to have the Treaty enter into force in early 2013.

This brief overview of the work being done by the Political-Military Affairs Bureau barely scratches the surface. What’s obvious is that the Bureau is playing an increasingly central role in advancing U.S. foreign policy.

But often the Bureau’s role is not fully appreciated or understood. A major reason for this is that coordinating diplomacy and defense is really hard. On trip after trip, to countries in every region in the world, I’ve witnessed countless countries struggle coordinating between their diplomatic and defense agencies. On a number of occasions I have had foreign officials pull me aside after Political-Military talks to tell me that these talks forced their Foreign and Defense Ministries to talk to each other. This demonstrates the inherent structural difficulties that exist in coordinating diplomacy and defense. Yet close coordination of diplomatic and military efforts is at the foundation of an effective and strong national security.

The Political-Military Bureau’s role in coordinating diplomacy and defense is both incredibly important and exceedingly challenging. At times the work this Bureau does can be overlooked. Yet there is an increasing awareness of the role of the Bureau in U.S. foreign policy. A clear sign of the increased attention being paid to the Bureau is the increase in media inquiries. In 2009, PM fielded just 57 inquiries, this year – for the second year in a row, we have already surpassed 300.

The reason for the increased attention is clear. This Bureau is playing a central role in some of this country’s most pressing national security issues. Through the hard work of the dedicated employees the Political-Military Affairs Bureau is demonstrating its value every day and, as a result is advancing U.S. foreign policy.

Before I close, I would like to express my sincere appreciation to Chair Sam Sevier, Vice-Chair Bill Wade and all the DTAG members for their dedication in reforming defense trade. Your advice and guidance over the years has helped inform our efforts and advance U.S. national security.

Thank you all. And with that, I am happy to take your questions.