DOD Needs to Change Its Export Control Thinking, Industry Board Says

The Pentagon should drop its outdated approach to technology security and export controls and allow American defense companies to work more efficiently with U.S. allies, a Defense Department advisory committee said in a new report this month. The committee said the agency needs major revisions to the way it treats restrictions under the International Traffic in Arms Regulations, warning that DOD is “failing to address shortcomings in international engagement amid a rapidly evolving global security landscape.”

The report, written by the Defense Innovation Board -- which the Pentagon said is composed of representatives from the U.S. defense innovation base -- said the agency should be given authority to waive certain ITAR restrictions “at will.” The agency should also create a formal process to allow U.S. trading partners to suggest changes to both the U.S. Munitions List and Commerce Control List, should push to revise Technical Assistance Agreement (TAA) requirements under the ITAR, and more.

The board said it issued those recommendations after being asked to provide “specific and actionable” steps to improve Pentagon-led “innovation cooperation with allies and partners.” It noted that “numerous” reports and studies have previously tried to improve the ITAR and the U.S. Foreign Military Sales program, “but many of the same barriers persist.” It also pointed to a congressional report released in February that said DOD doesn’t “consistently value the strategic benefit of sharing major defense articles with our allies,” and the lack of a “common operating picture for the FMS process across the DoD, State, Congress, Industry, and our allies and partners” has led to confusion.

“In short, we are failing to move technologies across borders when appropriate and failing to integrate capable and willing partners across foreign industry,” the report said.

The Biden administration is in the process of altering portions of its defense and dual-use export controls through the AUKUS partnership with Australia and the U.K. (see 2404300050 and 2404180035). The board applauded the effort but said current trade regulations create so many barriers that “even within AUKUS, a small and relatively focused effort among longstanding allies, the current ITAR regime may completely derail any actual coinnovation.”

“Fundamentally, the risk we face today is not that we accidentally release classified information to an ally, or that we allow the export of a protected technology to an unprepared partner,” the report said. “The risk we face today is that on day-one of a conflict, we have failed to properly integrate and align with the nations that underpin our military strength.”

Among a range of recommendations in the 51-page report, the Defense Innovation Board said the U.S. defense secretary should be allowed the “authority to waive ITAR constraints at will.” The agency should also create a new undersecretary of defense for international industrial cooperation, which would oversee defense innovation collaboration with allies and would also have a “similar blanket waiver authority for any technologies not on some restricted list.”

DOD needs a “dedicated, empowered executive” to “negotiate process improvements involving these regulatory and compliance frameworks across the U.S. federal government,” the report said. The board envisions this new undersecretary helping the Defense Technology Security Administration -- the office representing the Pentagon in export control discussions with the Commerce and State departments and others -- propose changes to the ITAR and Export Administration Regulations.

“A higher altitude strategic leader is necessary to properly coordinate this account,” the report said.

The agency also should develop a formal process for allowing U.S. allies, as well as industry officials, to “recommend the relocation” of controlled dual-use items from the ITAR’s USML to the EAR’s Commerce Control List, the board said, adding that the “current speed of the interagency review process is untenable,” and "foreign partners and industry are generally more up to date on the proper placement of their technologies."

“The modern technology environment has significantly blurred the lines between dual-use, commercial, and military systems,” the report said, “and a more agile and modern approach is necessary to maintain proper identification.”

The U.S. also needs to streamline ITAR requirements for TAAs, the report said, especially as they apply to NATO members. U.S. companies must use TAAs in certain cases before sending controlled technical data or assistance abroad, and if that data or assistance is sent to a company or government within NATO, the board said the TAA “must be completed listing each of NATO’s 32 members, regardless of their involvement.” It said this “requires an execution signature from each nation and presents an undue burden on the entities working through this process.”

Instead, TAAs should include a broad "NATO Alliance" selection to include the alliance's “full complement of 32 members, and any future expansion given the ten-year expiration for TAAs.” The report added that any specific technology restrictions would be addressed in provisos attached to the TAA.

Other improvements are needed to USXports, the Pentagon’s export licensing database, the report said. It said the database recently crashed for weeks “at the height of the Ukraine War,” which caused FMS case officers at the State Department to hand-carry classified ITAR materials between government buildings to manually obtain signatures. “This should never happen again,” the report said. The database should be “fortified with new analytic and automated capabilities to make it easier to identify and tag cases in the system for review and signature.”

A host of other recommendations suggest other possible improvements to the FMS program and call for more collaboration between officials implementing the FMS, EAR and ITAR. The report said government employees should rotate among the State, Defense and Commerce departments -- specifically mentioning the Directorate of Defense Trade Controls and the Bureau of Industry and Security -- to “strengthen relationships and connections between these vital organs of the multilateral export control process.”

It said employee swaps among all three agencies would “enhance the DoD’s position on proposed changes to the ITAR and EAR regimes.” The agencies can work together to hold more frequent export control seminars for industry and create a “training module” on multilateral export controls and the FMS review process for foreign service officers. The board also suggested increasing the number of DOD uniformed officers assigned to DDTC, which is currently between six and eight.

The board said the Pentagon has an important role in creating a “regulatory and compliance environment that allies and partners feel comfortable navigating," adding that the ITAR "has not been fit-for-purpose for some time.”

DOD "is failing to fully integrate allies and partners into a networked defense industrial base, and to modernize the concepts, systems, and processes that enable these relationships to flourish," the report said.

In a July 30 email, a Pentagon spokesperson said the agency "absolutely values the Defense Innovation Board’s work and insights" but declined to comment on the board's specific recommendations.