United States Department of State
Defense Trade Advisory Group


Minutes of the Plenary Session

Partially Closed Meeting

September 20, 1995
Loy Henderson Conference Room
U.S. Department of State
10:00 - 4:45 P.M.


* To allow for discussion of classified information, the Department of State restricted attendance at the afternoon briefings to DTAG members and government officials. A Federal Register notice announced that the DTAG September 20, 1995 meeting would be partially closed to the public. As none of the closed session speakers incorporated classified statements into their presentations, these Minutes summarize the entire day's proceedings.

OPEN SESSIONS

CAT POLICY AND EMERGING MARKETS: Thomas E. McNamara
Assistant Secretary of State for Political-Military Affairs Thomas McNamara summarized PM's August 1995 reorganization. The Office of Defense Relations and Security Assistance (PM/DRSA) no longer exists. The new Office of Arms Transfer and Export Control Policy (PM/ATEC) combines DRSA's arms transfer functions with those of the former Office of Export Control Policy. ATEC officers either handle issues involving various countries and regions, or have portfolios which are not region-specific. The latter include industry outreach, the COCOM successor regime or New Forum, Export Administration Act and other legislation, supercomputers, and encryption technologies. Next, the former Office of Regional Security Policy assumed DRSA duties for defense relations and security assistance; the expanded office is called the Office of Security Relations, Policy and Resources (PM/SRP). Lastly, the Office of Arms Control Implementation (PM/ACI) has been abolished, with the Office of Strategic Policy and Negotiations (PM/SPN) taking on some of its functions. This restructuring streamlines PM functions, moving foreign military sales (FMS) and commercial arms transfer responsibilities into one office.

A/S McNamara reviewed how the USG applies the broad principles of the Conventional Arms Transfer (CAT) Policy to restrain or support proposed sales as appropriate. The CAT policy prohibits destabilizing transfers and transfers destined for countries of concern, such as nations which produce weapons of mass destruction or those with aggressive foreign/military policies. Sales must be consistent with multilateral restrictions, including the nonproliferation regimes, the New Forum, and U.N. arms embargoes and sanctions against Iran, Iraq, and the former Yugoslav republics. Major U.S. objectives are to promote multilateral restraint and transparency among the major suppliers. The United States imposes unilateral constraints only for overriding foreign policy reasons. Unilateral restrictions have been placed on Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria, which practice aggression and/or terrorism.

The CAT policy supports defense sales which advance U.S. security and foreign policy interests. The global arms market has shrunk and may contract by at least another 25% by the end of the decade. U.S. firms are doing well in relation to foreign companies, capturing about half of all new sales. But because U.S. arms purchases nave declined, U.S. manufacturers must rely more on overseas sales to survive. The USG supports responsible transfers in several ways, including tasking embassies to support marketing efforts, getting senior Washington officials to promote sales crucial to U.S. interests, and supporting DOD participation in international trade.shows.

Several recent major sales illustrate how the USG helped U.S. companies obtain significant defense contracts. In August 1995, Westland/McDonnell Douglas secured a $4 billion contract to provide the Apache attack helicopter to the UK. Country team members in London, including the U.S. ambassador, worked with McDonnell Douglas and one other U.S. bidder to develop suitable marketing strategies. Because the UK required assurances that there would be no obstacles to technical data release, an interagency team (State, Commerce, and DOD) processed requests for manufacturing licenses and technical assistance agreements prior to the final selection for both U.S. competitors. To mitigate pressures on the UK government to buy European, the embassy and American manufacturers stressed the operational and economic advantages of U.S. aircraft. In the future, the UK will likely demand more offsets: although McDonnell Douglas already promised 100% offsets and 3,000 new jobs, the UK lobbied for even more benefits.

U.S. companies made two major sales to the Netherlands. In June the Dutch bought thirty McDonnell Douglas Apache helicopters. The USG and McDonnell Douglas used similar tactics to those employed in the UK case to win the contract: there was interagency coordination; government and industry representatives emphasized the benefits of cooperation with the United States; and testimony from U.S. Apache pilots about the Apache's technical merits overcame the pro-European bias of some senior Dutch official. In addition, senior USG officials weighted in for McDonnell Douglas. While high-level French and German officials lobbied for their industries, the President and Secretaries of State, Defense, and Commerce all made persona appeals to counter this.

During the same month, the Dutch Defense Ministry decided to buy two hundred Hughes/Raytheon AMRAAM missiles worth $90 million. The missiles are co-produced by the two firms for overseas sales, and would be delivered during 1998-99. At one point the Netherlands blocked consideration of AMRAAM because of an unrelated U.S. trade measure, and the embassy worked closely with Washington to separate the two issues. In the final stages of the competition, the ambassador met with Defense State Secretary Meijling and a key member of parliament.

Industry representatives realize that U.S. sales to major European allies are easily determined to be in the national interest, but often require guidance on U.S. policy towards transfers destined for emerging and potentially lucrative markets. In the Middle East, Israel can receive U.S. advanced conventional weaponry because the United States is committed to sustaining Israel's qualitative military advantage. The Administration maintains a rough ratio of arms sales to Egypt and Israel in order to meet Egypt's legitimate defense needs, reinforce the bilateral relationship, and underscore that the United States accords Egypt significant advantages for being the first Arab state to make peace with Israel and to participate in the peace process. The United States wants to sustain Saudi Arabia's security and defensive capabilities. Saudi Arabia is the United States' largest FMS customer, and the commercial market will likely grow as financial constraints subside. The Administration supports marketing efforts of U.S. firms in Saudi Arabia. The Administration reviews arms sales to the Gulf Cooperation Council (GCC) states on a case-by-case basis, with the overall goal of enhancing the ability of those countries to defend themselves against neighboring aggressors. The United States is committed to help Kuwait, which borders on Iran and Iraq, meet its legitimate defense requirements, and a U.S.-UAE bilateral defense cooperation agreement exists.

In South Asia, Pakistan and India seek to obtain WMD and nuclear weapons. The United States prohibits transfers which would destabilize the region, undermine U.S. nonproliferation objectives, or contribute to offensive capabilities. Under Pressler Amendment sanctions, Pakistan cannot receive any FMS transfers. The Department's interpretation of the Pressler Amendment allows for commercial transfers of defense equipment connected with repairs and maintenance of equipment transferred before 1990.

In East Asia, Tiananmen sanctions against China will probably not be lifted in the near future because of the PRC's human rights abuses. China can only receive USML items if the President waives these sanctions for exports which he determines are in the national interest. The Tiananmen sanctions also apply to dual-use items intended for the People's Liberation Army, but, with the exception of high tech transfers, the Department of Commerce generally approves applications for dual-use exports for commercial end-uses. U.S. arms transfer policy towards Taiwan remains unchanged, allowing the USG to fully meet Taiwan's legitimate defensive needs while upholding U.S. commitments under the August 1982 Communique. Human rights abuses have caused the United States to restrict arms transfers to Indonesia and Sri Lanka. The Administration denies requests to export small arms and lethal crowd control items to Indonesia, and closely scrutinize requests to export non-lethal items applicable to crowd control or police work. The Administration restricts exports to Sri Lanka, but is monitoring recent improvements in the situation there. Vietnam remains a proscribed country under the ITAR.

The United States seeks to preserve the existing military balance in Latin America, and therefore will not transfer advanced conventional weapons into the region. At the same time, the United States supports modernizing the Latin American armed forces in a limited and balanced way. In February 1995, the United States suspended munitions exports to Peru and Ecuador because of their border conflict. When hostilities ceased and they moved towards resolving the dispute, the United States decided in early May to allow case-by-case review of transfers of non-lethal defense items. In September 1995, the Administration decided to lift the blanket arms embargo imposed during border hostilities. Ecuador had been eligible to receive non-lethal FMS items, and the United States extended this policy to Peru. In addition, the United States has reinstated the previous policy of considering transfers of lethal weapons on a case-by-case basis. Proposed exports to Guatemala are reviewed on a case-by-case basis, but proposed exports of lethal equipment are closely scrutinized because of human rights concerns.

In conclusion, A/S McNamara emphasized that arms transfers are distinct from commercial exports because of their security and foreign policy implications, and urged industry members to recognize the necessity of restricting arms sales in certain circumstances.

PERSPECTIVES OF THE SERVICES ON ARMS TRANSFER OBJECTIVES:
Major General Hale Burr, Jr., U.S. Air Force

General Hale Burr, Principal Assistant Deputy Under Secretary of the Air Force for International Affairs, noted that the United States faces new challenges in the post-Cold War era. The United States must combat WMD proliferation, restrain aggressor states which destabilize regions, and combat threats to emerging democracies and our economic security. The USAF seeks to advance international peace and democratic values through expanding CINC coalition warfare capabilities, building security coalitions, and establishing and sustaining democracies. The Air Force plays a substantial role in FMS sales. In terms of dollar value, the Middle East receives over fifty percent of Air Force foreign military financing (FMF) sales, while the remainder is mostly divided between the Pacific Rim and Europe. FMS funding levels have been cut and will probably continue to decrease.

In Western Europe and NATO, U.S. priorities are redefining the Alliance and reducing the conflict in the former Yugoslavia. In the Pacific region, North Korea and China present security, proliferation, and human rights concerns. Challenges in the Middle East include the Arab/Israel peace negotiations, joint exercises, and restructuring the Saudi FMS program. Severe budget constraints handicap Latin American countries' efforts to modernize their forces, and they look to the United States to help secure much needed equipment upgrades. F-16 sales remain a major program "potential" to certain countries, but require State Department concurrence.

Frank S. Besson, U.S. Army
Frank Besson, Director of Security Assistance for the U.S. Army, remarked that security assistance supports the military's goals of improving the military capabilities of the United States and its allies, promoting democratic ideals, alleviating suffering throughout the world, and enhancing regional stability. First, the Army has taken steps to achieve arms transfer objectives. It has created a new position of Deputy Under Secretary of the Army for International Affairs, which coordinates the Army's international activities. Second, the Secretary of the Army has delegated authority for security assistance policy oversight to the Assistant Secretary of the Army, Installations, Logistics, and Environment. Third, an action team has been instituted to define how the Army should implement the CAT policy. Issues the team considers include how the Army should support defense exports; how the Army should support commercial sales as opposed to FMS sales; participation in international competitions, international exhibitions, and demonstrations; integrating non-standard subsystems for FMS sales, and developing commodity-specific export strategies. Frank Besson concluded by discussing potential overseas markets for Army equipment.

Rear Admiral John W. Snyder, U.S. Navy
John W. Snyder, Deputy Director of the Navy International Program Office (Navy IPO), considered what role the services should have in formulating U.S. arms transfer policy. While the services can provide technical reviews of proposed exports, their overall expertise and perspective can improve the arms transfer process.

In his view, those who argue for restraint in arms sales have "unrealistic" expectations. The United States exercises much more restraint than other nations, and by and larger people throughout the world are not killed by U.S. weapons. If the United States finds itself at war, it is more advantageous for U.S. forces to face U.S. high tech items rather than those of another country: the United States would know the weapons' capabilities and tactics, and be able to cut off our adversary's supply. The U.S. military knows a country's military needs, regional balances of power, and the strengths and weaknesses of armed forces around the world. With this broad perspective, it should have a substantial role in developing arms transfer policy. Navy IPO can contribute to this: it is the Navy's expert on technology transfer issues, thoroughly reviewing proposed transfers in an era when technology is changing rapidly, and developing coordinated technology transfer policies through its Technology Transfer and Security Assistance Review Board (TTSARB).

Rear Admiral Snyder commented on specific regions and countries. The United States needs to rethink its arms transfer policy for the Americas. European and Israeli defense firms are selling to Central and South America, to the disadvantage of U.S. producers. In bidding for European contracts, U.S. companies sometimes lose out because the customer faces pressures to buy European. U.S. firms should concentrate on initiating more U.S.-European cooperative programs. Israel and Egypt are important U.S. allies and customers, receiving respectively $1.8 billion and $1.3 billion of foreign military financing (FMF) each year. South Africa may become a significant force in the global arms market. The United States must factor South Africa into its nonproliferation efforts, as it is both an arms producer and the only African country able to afford large purchases. U.S. arms transfer policy towards the Central European states is still evolving. The CEE countries want U.S. weaponry, but lack of money may force them to settle for European articles. Russia's need for currency strongly drives it to sell its armaments. The Russians have developed more sophisticated and Western-type marketing standards to succeed. When asked for his views on foreign availability as a criterion for transfers, Snyder replied that Navy IPO routinely factors foreign availability into its technology transfer assessments, using intelligence sources to obtain the most thorough information.

Sanctions: Shaun Donnelly
Shaun Donnelly, Deputy Assistant Secretary for Energy, Commodities and Sanctions in the Bureau of Economic and Business Affairs, noted that the Office of Economic Sanctions Policy (EB/ESP) coordinates U.S. unilateral economic sanctions within State and with Commerce and Treasury. ESP also coordinates the U.S. implementation of U.N. mandated sanctions with Treasury, working closely with U.S. Mission staff in New York. With the support of Under Secretary for Economic Affairs Joan Spero, EB also plays an active role in the arms transfer issues on which PM has the lead, ensuring that economic consequences are factored into major decisions. David Ruth, State's Coordinator for Business Affairs (EB/CBA), also consults regularly with industry. Mr. Ruth and the EB bureau will be initiating regular quarterly dialogue sessions with industry on economic sanctions generally.

DAS Donnelly cited several of the unilateral programs under his responsibility, including those against specific countries designated as state supporters of International terrorism. Donnelly emphasized that the Administration gave serious consideration to how restrictions against trade with Iran would affect U.S. firms, but determined that the United States must demonstrate leadership to the world community that Iran must be isolated until it renounces its unacceptable behavior. No changes are foreseen for the multilateral U.N. sanctions against Iraq and Libya. Major changes are also not anticipated in the U.S. sanctions against Cuba. Although the Administration is considering a range of possible unilateral measures against Nigeria, Donnelly indicated that an embargo in the oil sector was not likely to be implemented. Narrower sanctions against Nigeria may be decided later.

CLOSED SESSIONS

DTAG REPORTS
Chairman Bill Schneider commenced his segment by congratulating and introducing the new members present at the plenary. He provided a brief overview of DTAG activities and offered that more details were available in the DTAG Summary, which had been provided that morning at registration.

The DTAG has been extremely active since the last plenary meeting in March 1995. Several projects were completed. The COMSAT Task Force formulated recommendations and submitted these to the State Department, focusing on the U.S. Munitions List, Category XV, on the control of communication satellites. Recommendations were provided on draft Federal Register notices, to include the proposed ITAR exemption for cryptographic products for personal use. Several policy papers were completed, including the Latin America Transfer Policy Paper. A study on the Integration of Non-Standard Subsystems into U.S. or Foreign Weapons Platform Policy Paper is in progress. The Automated Export System Task Force submitted the first in a series of formal recommendations, to which State responded favorably and supportively.

New Task Forces were established to deal with the growing issues of defense trade. Various ITAR task forces address sections of the ITAR not previously reviewed, such as Parts 127 and 128. The ITAR Part 130 Task Force has been invigorated. There is a new Offsets Policy Task Force. The Defense Export Loan Guarantees Task Force will ensure that if defense export financing legislation is enacted, which seems imminent, the DTAG will make recommendation on how the loan guarantee program is implemented. Lastly, a Registration of Manufacturers Task Force and an ITAR Exemptions Task Force have been instituted.

In support of ongoing task force activities dealing with compliance, a member of the RWG prepared and briefed a paper on "Export Control Compliance and the Federal Sentencing Guidelines", focusing on the importance of compliance with regulations and policy.

To track and implement the increased activity, the State Department and the DTAG instituted a formal process for the DTAG to submit recommendations to the Department. Since its inception, the Automated Export System Task Force and the COMSAT Task Force have presented recommendations to the Department, while the various policy papers have been circulated.

During the discussion period, several DTAG members expressed their concern about results or feedback on completed work. A member asked if the DTAG Policy Papers, such as the Latin America Policy Paper, could be distributed, and if so, what were the guidelines for distribution. In an effort to keep DTAG members informed about the work of the numerous working groups and task forces, DTAG Quarterly Reports will be published; the first issue was handed out at the plenary meeting. Further specific guidance will be provided on the distribution of papers and recommendations. DTAG members suggested disseminating information about the DTAG through the Internet, interagency contacts, and industry association newsletters.

PLATFORM UPGRADES: Stephen Geis
Stephen Geis, Division Chief in the Office of Arms Transfer and Export Control Policy, outlined U.S. policy towards platform upgrades. U.S. defense manufacturers want to participate in potentially lucrative equipment upgrades. The USG will support upgrades consistent with the CAT policy, which contains guidelines for USG approval of upgrades. First, there must be a well-defined program. Second, there is a presumption of denial if an export would give the recipient a capability which the United States would not transfer to it directly. Next, the total scope of the program is examined to ensure that U.S. licensing decisions are consistent with U.S. policy on transferring equivalent new systems. This standard applies whether a U.S. firm participates as a prime contractor or a subcontractor. Fourth, because technology transfer risks are inherent in upgrade programs, U.S. technologies must be protected. Last, both the integrator and final end user must provide standard USG end use and retransfer assurances. Although U.S. companies wish to take part in upgrades, a practical difficulty is that the FSU has limited funds for significant upgrades.

U.S. ARMS TRANSFER POLICY TOWARDS COUNTRIES PRESENTING MISSILE/WMD PROLIFERATION CONCERNS: Vann Van Diepen
Vann Van Diepen, Director of the Office of Chemical, Biological and Missile Nonproliferation (PM/CBM), noted that the New Forum places more emphasis on countries which raise WMD concerns. In conjunction with this, the Administration is putting more effort into preventing U.S. firms from inadvertently fueling WMD programs. Even when considering countries such as Pakistan or India, which present major proliferation concerns, the United States focuses on programs rather than the country. There is a General policy of denial for Category I missile programs as defined in the MTCR guidelines. An exception to this is the Arrow theater missile defense (TMD) program. In the Arrow program, the challenge the Undated States faces is to transfer capabilities to defend against missile attacks without releasing technologies for manufacturing missiles.

Bringing new member states into the Missile Technology Control Regime (MTCR) is an important part of multilateral nonproliferation efforts. Russia and South Africa, both significant suppliers, joined within the past two months. Agenda items for the MTCR plenary meeting scheduled for mid-October include the problems of transshipment points, increased cooperation among member states, and halting specific shipments. In addition, the MTCR Annex will be reviewed in the near future. During the question period, V. Van Diepen was asked about North Korea and China. North Korea is one of the United States' greatest concerns, as it sells both missiles and the ability to manufacture them. In connection with having the M-ll sanctions lifted, China has agreed to abide by the MTCR guidelines. The Administration considers the Enhanced Proliferation Control Initiative (EPCI) catch-all controls to be an important part of U.S. nonproliferation efforts. In July the European Union instituted catch-all controls, which allows the United States to extend the scope of U.S. interdiction efforts. The question of whether to have a positive or negative list has not been resolved; both alternatives have advantages and disadvantages.

COCOM SUCCESSOR REGIME / NEW FORUM: Thomas E. McNamara
A/S McNamara noted that the negotiations to create the New Forum were more prolonged than the United States would have liked. Participant states in the most recent High Level Meeting (HLM) in mid-September aimed to have the New Forum operational by the end of 1995. The organization now includes twenty-eight member countries, with Russia and the Visegrad-Four countries as the most significant new members. Its primary goals are to focus on preventing destabilizing buildups by encouraging transparency, holding consultations, and adopting common policies; and to deal firmly with countries of concern (Iran, Iraq, North Korea, and Libya) by restricting transfers of arms and sensitive dual-use technologies.

The Gulf War illustrates the dangers of destabilizing buildups in a region with aggressive states. Often only a lack of funds limits the amount of weapons they acquire. To guard against destabilizing conventional arms buildups in pariah states, members will share intelligence on threats and global trends; provide information on transfers of arms and sensitive dual-use articles to countries of concern; and define common approaches, including restraint policies when appropriate.

Although the strategic rationale for COCOM is gone, the termination of COCOM does not mean that controls have ended. Interim guidance and guidelines on sensitive transfers will remain in place until the New Forum is established. Russia and the Visegrad-Four nations have agreed to the same terms as other participants: they will institute adequate export controls, adhere to the requirements of the nonproliferation regimes, and establish responsible export policies toward pariah states. Specifically, Russia has agreed not to make any new sales to Iran. Argentina, Bulgaria, Romania, the Ukraine, and South Korea have expressed an interest in joining the New Forum, but they must demonstrate that they meet the terms for membership.

The organization's Working Groups are meeting in Paris in September - October to complete the remaining tasks. They will define procedures and modalities for arms and dual-use exports. Second, the six major suppliers making up the Small Group on Arms will discuss prior notification for major exports, both when the proposed export is being considered and after deliveries have been made. This group consists of the G-8 countries, excluding Canada and Australia, and concentrates on weapons rather than dual-use items. Third, the Working Groups will consider whether information exchange should apply to civil end-users. Last, they will finish compiling lists of the munitions and dual-use items which will be controlled.

Significant obstacles to establishing the New Forum have led individuals to question whether the institution will be able to accomplish its objectives. A/S McNamara noted that similar skepticism surrounded the establishment of the MTCR. When the MTCR was being established, some felt that the resources needed to halt WED proliferation were beyond the range of the United States and other participating nations. A/S McNamara conceded that some nations, such as Russia, will face difficulties in controlling unauthorized WMD exports. Nevertheless, he is convinced that over time the value of the New Forum, like the value of the MTCR, will be demonstrated. New Forum member countries may have different perspectives, but they share common goals.


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