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Export Controls: Concerns Over Stealth-Related Exports (Letter Report,
05/10/95, GAO/NSIAD-95-140).

Pursuant to a congressional request, GAO reviewed export controls over
stealth-related commodities and technology, focusing on: (1) how control
over stealth technology and related commodities is split between the
Department of State's U.S. Munitions List (USML) and the Department of
Commerce's Control List (CCL); (2) the impact of shared jurisdiction
over stealth-related items; and (3) whether current referral procedures
allow the Department of Defense (DOD) to review all stealth-related
exports.

GAO found that: (1) stealth technology materials fall under the
jurisdiction of both USML and CCL; (2) Commerce believes that
stealth-related commodities should be placed on USML to avoid confusion
and possible seizure by the Customs Service; (3) the unclear
jurisdictional lines over stealth technology may lead to the
inappropriate export of militarily-sensitive stealth materials and
technology; (4) the less restrictive export controls governing CCL
commodities give exporters an incentive to apply for CCL export licenses
for USML-covered material; (5) Commerce can deny CCL export licenses
only under limited circumstances or for certain destinations, while
State has broader authority to deny applications that are against
national interests; and (6) Commerce is not required to refer stealth
technology export applications to DOD or State for review; therefore,
the agencies cannot ensure that export licenses for stealth technology
are properly reviewed and controlled.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-95-140
     TITLE:  Export Controls: Concerns Over Stealth-Related Exports
      DATE:  05/10/95
   SUBJECT:  Interagency relations
             Exporting
             Licenses
             Munitions
             Technology transfer
             Export regulation
             Defense capabilities
             Dual-use technologies
             Foreign military sales policies
             International trade restriction
IDENTIFIER:  U.S. Munitions List
             Commodity Control List
             President's Enhanced Proliferation Control Initiative
             Missile Technology Control Regime Annex
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Acquisition and Technology,
Committee on Armed Services, U.S.  Senate

May 1995

EXPORT CONTROLS - CONCERNS OVER
STEALTH-RELATED EXPORTS

GAO/NSIAD-95-140

Export Controls


Abbreviations
=============================================================== ABBREV

  DOD -
  USML -
  CCL -
  EAA -
  AECA -
  MTEC -

Letter
=============================================================== LETTER


B-260666

May 10, 1995

The Honorable Robert C.  Smith
Chairman, Subcommittee on Acquisition
 and Technology
Committee on Armed Services
United States Senate

Dear Mr.  Chairman: 

As you requested, we are reporting on the results of our review
examining export controls over low-observable, radar signature
reduction technology (hereafter referred to as "stealth
technology").\1 Our review focused on (1) determining how control
over stealth technology and related commodities is split between the
State-managed U.S.  Munitions List (USML) and the Commerce Control
List (CCL), (2) identifying the impact of shared jurisdiction over
stealth-related items, and (3) assessing whether current referral
procedures allow the Department of Defense (DOD) to review all
stealth-related exports. 


--------------------
\1 Our review did not address counter low-observable technologies or
other aspects of low-observable designs, such as technologies for
reducing infrared, acoustic, electromagnetic, and visual signatures. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Stealth-related commodities and technology are sensitive for many
reasons.  When incorporated into advanced weapon systems, stealth
technology greatly improves the effectiveness of forces.  The United
States is the world leader in stealth technology, and this lead has
given U.S.  forces a clear battlefield advantage as was demonstrated
in Operation Desert Storm.  Stealth-related commodities are sensitive
from an export control perspective because some of the materials and
processes involved have civil applications that make it difficult to
control the commodities' dissemination and retain U.S.  leadership in
stealth technology. 

Stealth designs incorporate materials, shapes, and structures in a
functional system that can meet mission requirements.  Stealth
techniques fall into two general groups.  First, a material may
deflect an incoming radar signal into neutral space thereby
preventing the source radar from picking up the radar reflection and
"seeing" the object.  Second, a material may simply absorb an
incoming radar signal, not allowing the signal to reflect back to its
source.  In addition to materials, measurement gear used to test
radar-absorbing properties and technologies and software related to
manufacturing and application techniques are also considered
sensitive from an export control perspective. 

DOD's policy on the commercial export of stealth technology
recognizes its military significance and sensitivity while
acknowledging that some items with stealth properties have been
developed for commercial purposes, are widely available, and are not
militarily significant.  DOD's policy states that commercial
marketing of unclassified, non-DOD funded stealth technology may be
permitted on a case-by-case basis after review by appropriate offices
and agencies and approval of the required export license. 

The U.S.  export control system is divided into two regimes, one for
munitions items under the Arms Export Control Act (AECA) and one for
dual-use items (items with both civil and military uses) under the
Export Administration Act (EAA).  The Department of State controls
munitions items through its Office of Defense Trade Controls and
establishes the USML, with input from DOD.  The Department of
Commerce, through its Bureau of Export Administration, controls
dual-use commodities (e.g., machine tools) and establishes the CCL. 
In general, export controls under the EAA are less restrictive than
the controls under the AECA. 

Exporters must determine whether the item they wish to export is on
the CCL or the USML and then apply to the appropriate agency for an
export license.  When there is confusion over which agency controls a
commodity, an exporter may ask State to make a commodity jurisdiction
determination.\2 State, in consultation with the exporter, DOD,
Commerce, and other agencies, reviews the characteristics of the
commodity and determines whether the item is controlled under the
USML or the CCL.  Since 1992, the majority of all commodity
jurisdiction determinations ruled that the commodity belonged on the
CCL and not the USML. 


--------------------
\2 Under the implementing regulations of the AECA, the commodity
jurisdiction procedure is the only process for determining whether an
article is controlled on the USML. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

Materials used for stealth have civil and military applications and
are controlled on the CCL and the USML.  However, the unclear lines
of jurisdiction over stealth-related items may lead to the
inappropriate export of militarily sensitive stealth materials and
technology. 

Exporters may unknowingly or knowingly seek and obtain export
licenses from Commerce for militarily sensitive items controlled on
the USML.  The less restrictive export controls under the EAA provide
an incentive for exporters to go to Commerce rather than State. 
Moreover, Commerce has limited authority to prevent such exports. 
Licenses to export stealth-related commodities and technology
controlled on the CCL can only be denied under limited circumstances
and when the exports are going to certain destinations. 

Under current referral practices, the majority of applications for
the export categories related to stealth are not sent to DOD or State
for review.  Without such referrals, DOD, State, and Commerce cannot
ensure that export licenses for militarily significant stealth
technology are properly reviewed and controlled. 


   STEALTH-RELATED COMMODITIES ARE
   CONTROLLED BY STATE AND
   COMMERCE
------------------------------------------------------------ Letter :3

On the USML, stealth-related commodities are primarily controlled in
two general categories.  Stealth-related items are controlled under
several other categories when the technology is incorporated as part
of a system or end item.  For example, fighter aircraft that
incorporate stealth features are controlled under the category for
aircraft.  In general, the USML relies on functional descriptions of
the items being controlled.  Table 1 shows that the USML controls
stealth-related exports as parts of several control categories. 



                           Table 1
           
             Portions of USML Categories That Are
                Applicable to Stealth-Related
                         Commodities

USML
catego
ry      Portion related to stealth
------  ----------------------------------------------------
XIII    Concealment and deception gear, including paints
(e)

XIII    Signature measurement gear, signature materials and
(j)     treatments, and signature control design methodology

Variou  Stealth items incorporated as parts of various
s       weapon systems
------------------------------------------------------------
The CCL, as shown in table 2, controls stealth-related exports under
seven export commodity control numbers.  In general, the CCL uses
more detailed language (often with technical performance criteria)
than the USML to describe what is controlled.  Because some export
control classification numbers cover a broad array of items, some of
the exports classified under these numbers are not related to
stealth. 



                           Table 2
           
            Portions of CCL Entries Applicable to
                 Stealth-Related Commodities

ECCN\a  Portion related to stealth
------  ----------------------------------------------------
1C21    Materials and coatings for reduced observables,
        i.e., stealth technology, for applications usable in
        missile systems and subsystems

1D23    Software specially designed for the development,
        production, or use of items controlled by 1C21 and
        1C01

1E23    Technology for the development, production, or use
        of items controlled by 1C21

1C01    Materials specially designed for use as absorbers of
        electromagnetic waves or intrinsically conductive
        polymers

1E01    Technology for the development or production of
        equipment or materials controlled by 1C01

1E02    Technology for the installation, maintenance, or
        repair of materials controlled by 1C01

6B08    Pulse radar cross-section measurement systems and
        specially designed components
------------------------------------------------------------
\a Export control classification number. 

State and DOD officials acknowledge that the descriptions in the CCL
and the USML covering stealth-related items and technology do not
clearly define which stealth-related exports are controlled by which
agency.  State and DOD officials also agree that the lines of
jurisdiction should be clarified.\3 DOD officials noted that they are
only concerned about militarily significant items or items in the
grey area that are potentially militarily significant. 

A Commerce official noted that overlapping jurisdiction is confusing
for exporters and said commodities that fall in the grey area between
Commerce and State should be placed on the USML.  The Commerce
official said that putting grey area cases on the USML would help
exporters avoid the (1) confusion of determining where to go for a
license and (2) possibility of having their exports seized by a
Customs agent who believes the items belong on the USML.  The
Commerce official cautioned, however, that in moving items to the
USML, consideration should be given to whether comparable items are
readily available from other countries.  State noted in its comments
to this report that, under the AECA, foreign availability is not a
factor in determining whether an item warrants the national security
and foreign policy controls of the USML. 

Commerce noted in its comments that it does not agree that there is
overlapping or unclear jurisdiction over stealth-related commodities
and technology between the CCL and the USML.  We disagree.  As noted
in the report, officials from both DOD and State told us that the
lines of jurisdiction are unclear and should be clarified.  Further,
as discussed below, this unclear jurisdiction has led to problems in
Commerce's licensing of sensitive stealth- related commodities. 


--------------------
\3 DOD technical experts noted that clarifying what belongs on the
USML might involve classified information concerning which
performance levels are militarily significant. 


   UNCLEAR JURISDICTION MAY LEAD
   TO INAPPROPRIATE EXPORTS OF
   MILITARILY SENSITIVE
   STEALTH-RELATED COMMODITIES
------------------------------------------------------------ Letter :4

Unclear jurisdiction over stealth-related commodities increases the
likelihood that militarily sensitive stealth technology will be
exported under the less restrictive Commerce export control system. 
In 1994, Commerce approved two export applications for a
radar-absorbing coating determined later to belong on the USML. 
Although DOD and State have not verified the exact capabilities and
military sensitivity of this product, these export licenses
illustrate the problems with unclear jurisdiction and authority over
stealth-related exports. 


      COMMERCE APPROVED
      APPLICATIONS FOR MILITARILY
      SENSITIVE STEALTH MATERIAL
---------------------------------------------------------- Letter :4.1

Commerce approved two applications in 1994 to export a
high-performance, radar-absorbing coating.  The details of one of the
applications was reported in a major trade publication.  As reported,
the export application described the high- performance claims for the
product and indicated that 200 gallons of the material would be used
for a cruise missile project headed by a German company.  Commerce
also granted a license to export the same commodity to another
country for use on a commercial satellite.  Commerce approved both of
these applications in fewer than 10 days and, in accordance with
referral procedures, did not refer these applications to either DOD
or State. 

The article reporting Commerce's approval of this material for export
noted that the radar frequencies this stealth coating seeks to defend
against include those employed by the Patriot antimissile system.  In
response to that report and subsequent concerns raised by DOD, State
performed a commodity jurisdiction review to determine whether the
stealth coatings actually belonged under the USML.  At this time, the
coatings had not yet been shipped overseas.  On the basis of State's
review that included consultation with both DOD and Commerce, State
ruled that the radar-absorbing coating was under the jurisdiction of
the USML. 

After State's ruling, Commerce suspended the export licenses it had
approved and the exporter submitted new export applications to State. 
After State and DOD were unable to obtain adequate information on the
exact performance characteristics of the product from the exporter,
State decided not to approve the export applications. 


      COMMERCE'S EXPORT CONTROL
      REGULATIONS ARE LESS
      RESTRICTIVE THAN STATE'S
      MUNITIONS CONTROL
      REGULATIONS
---------------------------------------------------------- Letter :4.2

Commerce's export control authority under the EAA is more limited
than State's authority under the AECA.  In fact, a high-ranking
Commerce official said Commerce probably could not have denied the
two applications to export the radar-absorbing coatings. 

The EAA regulates dual-use exports under national security controls
and foreign policy controls.\4 As shown in table 3, the seven
stealth-related commodities on the CCL are controlled for national
security and missile technology reasons (considered a foreign policy
control). 



                           Table 3
           
            Reason for Control of Stealth-Related
                      Commodities on CCL

ECCN
\a    Description                 Basis for control on CCL
----  --------------------------  --------------------------
1C21  Other materials for         Missile technology concern
      reduced observables

1D23  Software for 1C21 and 1C01  Missile technology concern

1E23  Technology for 1C21         Missile technology concern

1C01  Materials designed as       Missile technology concern
      absorbers                   and national security
                                  concern

1E01  Technology for 1C01         Missile technology concern
                                  and national security
                                  concern

1E02  Repair items for 1C01       National security concern

6B08  Pulse radar measurement     National security concern
      equipment
------------------------------------------------------------
\a Export control classification number. 

National security controls are designed to prevent exports from
reaching the former East bloc and Communist nations.  Exports that
are controlled on the CCL for national security reasons and that are
going to noncontrolled countries can only be denied by Commerce if
there is evidence the exports will be diverted to a controlled
country. 

Foreign policy controls under the EAA are designed to control exports
for specific reasons (e.g., missile technology concerns) and if the
exports are going to specific countries (e.g., countries considered
to be missile proliferators).  In essence, these controls are
targeted to specific items, end uses, and/or countries. 
Consequently, items controlled for missile technology reasons (e.g.,
most stealth-related commodities), as a practical matter, are not
restricted if they are destined for other end uses (e.g., ship
applications and aircraft) or for a country not considered to be a
missile proliferation threat (e.g., any member of the Missile
Technology Control Regime).\5

In contrast, under the AECA, commodities on the USML are controlled
to all destinations, and authority to regulate exports is not limited
by end use or country.\6 The AECA grants State broad authority to
deny export applications based on a determination that the license is
against national interests. 


--------------------
\4 In addition, the EAA regulates exports of commodities that are
considered to be in short supply in the United States. 

\5 The Missile Technology Control Regime is an international
arrangement.  Under this arrangement, the United States, Canada,
France, Germany, Italy, Japan, Spain, the United Kingdom, and 17
other countries, adopted export control policies designed to limit
the proliferation of missiles capable of delivering weapons of mass
destruction (i.e., nuclear, chemical, and biological weapons). 

\6 Under the USML, some items going to Canada are not controlled. 


   REFERRAL PRACTICES PREVENT DOD
   FROM SEEING MOST
   STEALTH-RELATED EXPORTS
------------------------------------------------------------ Letter :5

Commerce referral procedures for the seven stealth-related categories
do not require most applications to be sent to either DOD or State
for review.  Commerce referral procedures depend on the reason the
export is controlled and the ultimate destination. 


      DOD DOES NOT REVIEW MOST
      STEALTH-RELATED EXPORTS
---------------------------------------------------------- Letter :5.1

As shown in table 4, between fiscal years 1991 and 1994, most
applications under the seven export control classification numbers
related to stealth were not referred to either DOD or State.  During
this time, only 15 of 166 applications processed by Commerce were
sent to either DOD or State for review.  Table 4 also shows, because
some export control classification numbers cover a broad array of
items, some of the export applications classified under these numbers
are not related to stealth.  Table 5 lists examples of applications
that were referred by Commerce, and table 6 lists applications that
were not referred. 



                           Table 4
           
             Applications and Referrals for ECCNs
                      Related to Stealth

                                        Applicati   Referred
                                        ons FY91-  to DOD or
ECCN\a  Category description                 FY94      State
------  ------------------------------  ---------  ---------
1C21    Materials for reduced                  28          3
         observables (i.e., stealth
         technology), including
         structural materials and
         coatings
1D23    Software specially designed             0          0
         for the development,
         production, or use of items
         controlled by 1C21, 1C01. and
         other categories
1E23    Technology for development,            24          5
         production, or use of items
         controlled by 1C21 and nine
         other categories
1C01    Materials designed as                  12          0
         absorbers of electromagnetic
         waves or intrinsically
         conductive polymers
1E01    Technology for the development         95          6
         or production of equipment or
         materials controlled by 1C01
         and 18 other categories
1E02    Technology for the                      5          1
         installation, maintenance, or
         repair of items controlled by
         1C01 and other categories
6B08    Pulse radar cross-section               2          0
         measurement systems and
         specially designed components
============================================================
Total                                         166         15
------------------------------------------------------------
Note:  Because export categories are broad, an undetermined number of
the 166 applications classified under these seven categories do not
have direct relevance to stealth technology. 

\a Export control classification number. 



                           Table 5
           
              Selected Applications Referred by
                           Commerce

ECCN
\a    Commodity              End use                Region
----  ---------------------  ---------------------  --------
1C21  Material and coatings  Golf club heads        East
      for reduced                                   Asia
      observables (i.e.,
      stealth technology)

1C21  Material and coatings  Computer housings,     East
      for reduced            leisure goods          Asia
      observables (i.e.,
      stealth technology)

1E01  Technology for the     Manufacturing data on  East
      production or          composite structures   Asia
      development of         for civil aircraft
      materials designed
      for use as absorbers
------------------------------------------------------------
\a Export control classification number. 



                           Table 6
           
            Selected Applications Not Referred by
                           Commerce

ECCN
\a    Commodity               End use                 Region
----  ----------------------  ----------------------  ------
1C21  Material and coatings   Reduction of radar      Middle
      for reduced             cross-section on ship   East
      observables (i.e.,      applications
      stealth technology)

1C21  Material and coatings   Cruise missile          Wester
      for reduced                                     n
      observables (i.e.,                              Europe
      stealth technology)

1C21  Material and coatings   Radome on military      Wester
      for reduced             aircraft                n
      observables (i.e.,                              Europe
      stealth technology)

6B08  Pulse radar cross-      Test military aircraft  Middle
      section measurement                             East
      systems
------------------------------------------------------------
\a Export control classification number. 


      REFERRAL PROCEDURES DEPEND
      ON REASON FOR CONTROL
---------------------------------------------------------- Letter :5.2

In general, commodities controlled on the CCL for national security
reasons are referred to DOD only if they are going to a controlled
country.\7 These referral procedures are based, in part, on
agreements between Commerce and DOD.  National security controls are
designed to prevent exports from going to controlled countries. 
Consequently, exports of commodities that are controlled for national
security reasons and that are going to other destinations are
generally not restricted, and Commerce does not refer such
applications to DOD. 

Exports of commodities controlled for missile technology reasons are
referred by Commerce only if they meet two key tests.  First, the
description of the export must fit the definition of missile
technology items as described in the Annex to the Missile Technology
Control Regime.  Some commodities that fall under export commodity
control numbers controlled for missile technology may not fit the
detailed description of missile technology found in the Annex. 
Second, the export must be going to a country considered to be of
concern for missile technology proliferation reasons.\8

Export applications that Commerce refers based on missile technology
concerns are sent to the Missile Technology Export Control group
(MTEC).  The MTEC is chaired by State with representatives from DOD,
Commerce, the U.S.  intelligence agencies, and others at the
invitation of the Chair and the concurrence of the group.  DOD, by
being a member of MTEC, has access to missile technology applications
that Commerce refers to the group.\9

In a recent report, we noted concerns about Commerce's referral
practices for missile-related exports.\10 Only a fraction of the
export applications under export control classification numbers
controlled for missile technology reasons going to China were sent by
Commerce to other agencies for review.  According to the current
Chair of the MTEC, Commerce does not refer all relevant missile
technology applications to the MTEC for review.  Commerce officials
stated that they refer all relevant cases and noted that the MTEC
Chair may be unfamiliar with Commerce referral procedures.  State
noted in its comments that it would be preferable for the MTEC to
review all export licenses for Annex items. 


--------------------
\7 In addition, Commerce refers to DOD applications involving certain
exports going to a special list of countries (mainly countries that
support terrorism). 

\8 Under the terms of the Enhanced Proliferation Controls Initiative,
items not on the Missile Technology Control Regime Annex may be
referred if Commerce believes the items are destined for a missile
project of concern. 

\9 In contrast to Commerce's referral procedures, State's Office of
Defense Trade Controls refers to the MTEC, through the Defense
Technology Security Administration, potential missile-related
applications regardless of their destination. 

\10 Export Controls:  Some Controls Over Missile-Related Technology
Exports to China Are Weak (GAO/NSIAD-95-82, Apr.  17, 1995). 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

In light of the more stringent controls under the AECA and the
sensitivity of stealth technology, we recommend that

  the Secretary of State, with the concurrence of the Secretary of
     Defense and in consultation with the Secretary of Commerce,
     clarify the licensing jurisdiction between the USML and the CCL
     for all stealth-related commodities and technologies with a view
     toward ensuring adequate controls under the AECA for all
     sensitive stealth-related items and

  the Secretary of Commerce revise current licensing referral
     procedures on all stealth-related items that remain on the CCL
     to ensure that Commerce refers all export applications for
     stealth-related commodities and technology to DOD and State for
     review, unless the Secretaries of Defense and State determine
     their review of these items is not necessary. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

We obtained written comments from the Departments of State and
Commerce (see apps.  I and II).  State generally agreed with the
analyses and recommendations in the report.  State indicated that our
first recommendation should be revised to properly reflect State's
leading role in determining which items are subject to the AECA
(i.e., belong on the USML).  State also noted that our second
recommendation should be amended to include State in determining
whether some stealth-related export licenses need to be referred to
State for review for foreign policy reasons.  We clarified both
recommendations to address State's concerns. 

Commerce disagreed with our first recommendation stating that the
lines of jurisdiction over exports of stealth-related commodities are
already clear.  As demonstrated in the report, we believe the lines
of jurisdiction are unclear.  In addition, State, in its comments to
this report, concurs with our recommendation to clarify which
stealth-related items should be controlled under the USML and the
CCL.  Commerce also disagreed with our second recommendation
indicating that the executive branch has drafted an executive order
that would give the relevant agencies authority to review all
dual-use license applications.  If implemented, this draft executive
order may help improve the review of sensitive exports by DOD and
State.  However, this draft executive order, by itself does not
address the need to clarify jurisdiction between the CCL and the USML
in light of the military significance and sensitivity of
stealth-related technology and the more stringent controls under the
AECA. 

DOD officials provided oral comments on a draft of this report.  We
made changes to the report as appropriate to address the technical
issues they raised. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

To determine how control over stealth technology is split between the
CCL and the USML, we reviewed the two lists and interviewed officials
from State's Office of Defense Trade Controls, Commerce's Bureau of
Export Administration, DOD's Defense Technology Security
Administration, and the Institute for Defense Analyses. 

To identify the impact of shared jurisdiction over stealth-related
items, we

  reviewed the export controls established in the AECA and the EAA;

  obtained Commerce export licensing records on computer tape and
     focused our analysis on licenses processed after the CCL was
     restructured in 1991;\11

  examined Commerce export license application records that had
     export classification numbers related to stealth technology; and

  discussed the impacts of shared jurisdiction over stealth with
     defense and technical experts in DOD's Special Programs Office,
     the Institute for Defense Analyses, the Defense Technology
     Security Administration, and officials from the MTEC group,
     State's Office of Defense Trade Controls, and the Bureau of
     Export Administration. 

To assess whether current referral procedures allow DOD to review all
stealth-related exports, we examined the referral histories for the
stealth-related exports we identified. 

We conducted our review from June 1994 through April 1995.  Our
review was performed in accordance with generally accepted government
auditing standards. 


--------------------
\11 We assessed the reliability of this computer data in the
following reviews and found it to be generally adequate:  Export
Controls:  License Screening and Compliance Procedures Need
Strengthening (GAO/NSIAD-94-178, June 14, 1994) and Nuclear
Nonproliferation:  Export Licensing Procedures for Dual-Use Items
Need to Be Strengthened (GAO/NSIAD-94-119, Apr.  26, 1994). 


---------------------------------------------------------- Letter :8.1

As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution of this
report until 15 days after its issue date.  At that time, we will
send copies to other congressional committees and the Secretaries of
Defense, State, and Commerce.  We will also make copies available to
other interested parties upon request. 

Please contact me at (202) 512-4587 if you or your staff have any
questions concerning this report.  Major contributors to this report
were Davi M.  D'Agostino, Jai Eun Lee, and David C.  Trimble. 

Sincerely yours,

David E.  Cooper
Director, Acquisition Policy, Technology,
 and Competitiveness Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
STATE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of State's letter
dated May 1, 1995. 


   GAO COMMENTS
------------------------------------------------------------ Letter :9

1.  We agree that foreign availability is not relevant in determining
whether an item should be controlled on the U.S.  Munitions List
(USML).  Our statement in the draft report concerning foreign
availability considerations has been deleted. 

2.  The report was changed to more accurately describe the Missile
Technology Control Regime. 

3.  We made changes to the report to reflect State's view that
Commerce should not "pre-screen" export licenses and that the Missile
Technology Export Control group (MTEC) should review all export
licenses for Missile Technology Control Regime Annex items. 

4.  We added a footnote to the report to mention Enhanced
Proliferation Controls Initiative referrals. 




(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
COMMERCE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of Commerce's
letter dated May 2, 1995. 


   GAO COMMENTS
----------------------------------------------------------- Letter :10

1.  We agree that the two systems are different.  However, as
discussed in the report, Commerce's system is less restrictive than
State's system.  This difference, as Commerce notes, is due to
Commerce being responsible for regulating dual-use commodities and
State regulating more sensitive military commodities. 

2.  The rationalization exercise was initiated in 1990 by President
Bush to move dual-use items on the USML to the Commerce Control List
(CCL), not to examine both control lists for problems of unclear or
overlapping jurisdiction.  Though some stealth-related commodities
were examined during the course of this exercise in 1991, problems of
overlapping jurisdiction remain.  In addition, as noted in our
report, the Department of Defense (DOD) and State officials agree
that jurisdiction over stealth-related technology and commodities is
ill defined and should be clarified. 

3.  We do not have responsibility for determining where the lines of
jurisdiction between the control lists should be drawn.  As we stated
in our recommendation, this is the role of the Department of State in
consultation with DOD and the Department of Commerce. 

4.  We made changes to the report to more accurately reflect
Commerce's position. 

5.  We do not suggest that new International Traffic in Arms
Regulations controls over dual-use items be implemented. 

6.  Our draft report acknowledged the role of DOD in establishing
referral procedures.  We made changes to the final report to further
clarify DOD's role.  Moreover, in comments on our draft report, State
indicated that it would be preferable for Commerce to refer to State
all export licenses for Missile Technology Control Regime Annex items
regardless of destination. 

7.  We clarified our use of the term "stealth" in the final report to
explain that our review focused primarily on radar cross-section
reduction.  Consequently, any possible overlap in export controls for
other aspects of stealth technology (e.g., technologies and materials
related to reducing infrared, acoustic, electromagnetic and visual
signatures, and counter low-observables technologies) was not
addressed in our report. 

8.  We made changes to the report to comply with the confidentiality
concerns raised by Commerce. 

9.  Our draft report acknowledges that because some export control
classification numbers cover a broad array of items, some of the
exports classified under these numbers are not related to stealth. 
We made changes to the final report to make this point more clearly. 
We would have preferred to review these applications with technical
experts from DOD to determine which applications involved stealth
technology.  However, in our review examining missile related exports
to China, we were prevented from sharing license information with DOD
for the purposes of assessing the technology in a sample of Commerce
export licenses.\1 Due to Commerce's lengthy administrative
requirements for requesting permission to share license information
with DOD, we were unable to perform this detailed analysis in the
timeframes of our assignment. 

10.  Commerce states that it has sufficient authority to deny
validated license applications for products the U.S.  government does
not want to export.  It points to regional stability controls reached
with interagency consensus as examples of its use of such authority. 
While Commerce could take a more expansive view of its statutory
charter, in practice, it has been more restrained.  For example,
Commerce officials told us they could not have prevented the export
of radar-absorbing coatings to Germany for use on a cruise missile. 

11.  We made changes to the report to clarify our point that items
controlled for missile technology reasons are, as a practical matter,
not restricted if they are destined for other uses or for a country
not considered a missile proliferation threat. 

12.  The report does not state that Commerce violated its referral
procedures for exports going to China that are controlled for
missile-technology reasons.  Our point is that current referral
practices preclude State and DOD from seeing most Commerce license
applications for export commodity classification numbers controlled
for missile technology reasons. 

13.  The examples in the table are valid.  The license that was
returned without action was held by Commerce for 44 days before it
was returned.  This provided Commerce ample time to refer the case to
DOD for review.  The other application involved equipment used to
make radar cross-section measurements--an important capability in
assessing efforts to reduce the radar signature of an aircraft or
missile. 


--------------------
\1 Export Controls:  Some Controls Over Missile-Related Technology
Exports to China Are Weak (GAO/NSIAD-95-82, Apr.  17, 1995).