In Big Win for Defense Industry, Obama Rolls Back Limits on Arms Exports

Critics, including some who’ve worked on enforcing arms export laws, say the changes could undermine efforts to prevent arms smuggling to Iran and others.

Brake pads may sound innocuous, but “the Iranians are constantly looking for spare parts for old U.S. jets,” said Steven Pelak, who recently left the Department of Justice after six years overseeing investigations and prosecutions of export violations.

“It’s going to be easier for these military items to flow, harder to get a heads-up on their movements, and, in theory, easier for a smuggling ring to move weapons,” said William Hartung, author of a recent report on the topic for the Center for International Policy.

In the current system, every manufacturer and exporter of military equipment has to register with the State Department and get a license for each planned export. U.S. officials scrutinize each proposed deal to make sure the receiving country isn’t violating human rights and to determine the risk of the shipment winding up with terrorists or another questionable group.

Under the new system, whole categories of equipment encompassing tens of thousands of items will move to the Commerce Department, where they will be under more “flexible” controls. Final rules have been issued for six of 19 categories of equipment and more will roll out in the coming months. Some military equipment, such as fighter jets, drones, and other systems and parts, will stay under the State Department’s tighter oversight.

Commerce will do interagency human rights reviews before allowing exports, but only as a matter of policy, whereas in the State Department it is required by law.

The switch from State to Commerce represents a big win for defense manufacturers, who have long lobbied in favor of relaxing U.S. export rules, which they say put a damper on international trade. Among the companies that recently lobbied on the issue: Lockheed, which manufactures C-130 transport planes, Textron, which makes Kiowa Warrior helicopters, and Honeywell, which outfits military choppers.

Overall, industry trade groups and big defense companies have spent roughly $170 million over the last three years lobbying on a variety of issues, including export control reform, a ProPublica analysis of disclosure forms shows.

The administration says in a factsheet that “spending time and resources protecting a specialty bolt diverts resources from protecting truly sensitive items,” and that the effort will allow them to build “higher fences around fewer items.” Commerce says it will beef up its enforcement wing to prevent illegal re-exports or shipments to banned entities. The military has also supported the relaxed controls, arguing that the changes will make it easier to arm foreign allies.

An interview with Commerce Department officials was canceled due to the government shutdown, and the State Department did not respond to questions.

The shift is part of a larger administration initiative to update the arms export process, which many acknowledge needed to be streamlined. But critics of the move to Commerce say that decision has been overly driven by the interests of defense manufacturers.

“They’ve cut through the fat, into the meat, and to the bone,” said Brittany Benowitz, who was defense adviser to former Senator Russ Feingold, D-Wisc., and recently co-authored a paper on the pending changes.

“I think it’s fair to say that the views of the enforcement agencies and actors charged with carrying out the controls haven’t won the day,” said Pelak, the former Justice Department official.

Current controls haven’t prevented the U.S. from dominating arms exports up to now: In 2011, the U.S. concluded $66 billion in arms sales agreements, nearly 80 percent of the global market. The State Department denied just one percent of arms export licenses between 2008 and 2010.

At a recent hearing, a State Department official touted the economic benefits, saying the “defense industry is going to become even more competitive than they are already.”

Under the new policy, military helicopters, transport planes and other types of military equipment that typically need approval may be eligible for license-free export to 36 allied governments, including much of Europe, Argentina, Japan, South Korea, and New Zealand.

According to Colby Goodman, an arms-control expert with the Open Society Policy Center, once an item is approved for that exemption, it’s not clear that there will be any ongoing, country-specific human rights review. (The State Department hasn’t yet responded to our request for comment on that point.)

Goodman is particularly concerned about Turkey, where in the last year authorities violently suppressed protests and “security forces committed unlawful killings,” according to the most recent State Department Human Rights report.

Under the new system, some military parts can now be sent license-free to any country besides China, Cuba, Iran, North Korea, Sudan or Syria. Other parts that are deemed not “specially designed” for military use, while also initially banned from those countries, have even fewer restrictions on re-exports.

Spare parts are in high demand from sanctioned countries and groups, which need them to keep old equipment up and running, according to arms control researchers. Indonesia scrambled to keep its C-130s in the air after the U.S. blocked exports for human rights violations in the 1990s. In a report on trade in arms parts, Oxfam noted that by the time of the 2011 NATO intervention in Libya, Muammar Qaddafi’s air combat fleet was in dire shape, referred to by one analyst as “the world’s largest military parking lot.” Goodman said Congolese militia members may be using aging arms that the U.S. sold decades ago to the former Zaire.

Pelak says the changes will make enforcement harder by getting rid of part of the paper trail as parts and munitions exit the U.S.: “When you take away that licensing record, you put the investigation overseas.” His office handled dozens of cases each year in which military items had been diverted to prohibited countries. The Government Accountability Office raised concerns last year about Commerce’s enforcement abilities as it takes control of exports that once went through the State Department.

The president is authorized – in fact, required – to revise the list of items under State Department control. But the massive shift to Commerce means that laws and regulations that were designed with the longstanding State Department system in place may now be up to presidential prerogative.

Vetting for human rights compliance is one such requirement. The Commerce Department said it will also continue to publicly report the sales of so-called “major defense equipment.”

Other laws may not get carried over, however. For example, if firearms are moved to Commerce, manufacturers may no longer have to notify Congress of foreign sales.

Several organizations, including the Center for International Policy, the Open Society Policy Center, and the American Bar Association’s Center for Human Rights, have called on the administration to hold off moving some military items from the State Department, and have asked Congress to apply State’s reporting requirements and restrictions to more of the military items and parts soon to be under Commerce control.

In one area, the administration does appear to have temporarily backed off – firearms and ammunition. Any decision to loosen exports for firearms could have conflicted with the president’s call for enhanced domestic gun control.

According to a memo obtained by the Wall Street Journal last spring, the Departments of Justice and Homeland Security both opposed draft versions of revisions to the firearms category. (The Justice Department press office is out of operation due to the government shutdown, and the Department of Homeland Security did not respond to requests for comment.) Shifting firearms was also likely to be a lightning rod for arms control groups. As the New York Times’ C.J. Chivers has documented, small arms trafficking has been the scourge of conflicts around the world.

Draft rules for firearms and ammunitions were ready in mid-2012, according to Lawrence Keane, general counsel for the National Shooting Sports Foundation, a trade group for gun manufacturers. The Commerce Department even sent representatives to an industry export conference to preview manufacturers on the new system they might fall under.

But since the school shooting in Newtown, Conn., last December, no proposed rule has been published.

Keane thinks the connection is irrelevant. “This has nothing to do with domestic gun control legislation. We’re talking about exports,” he said. “Our products have not moved forward, and we’re disappointed by that.”

The defense industry has long pushed for a loosening of the U.S. export controls. Initial wish-lists were aimed at restructuring and speeding up the State Department system, where the wait for a license had sometimes stretched to months. The current focus on moving items to Commerce began under the Obama administration.

The aerospace industry has been particularly active, as new rules for aircraft are the first to take effect. Commercial satellites had been moved briefly to Commerce in the 1990s, but when U.S. space companies were caught giving technical data to China in 1998, Congress returned them to State control. Last year, satellite makers successfully lobbied Congress to lift satellite-specific rules that had kept them from being eligible for the reforms.

Newer industries want to cash in, too. Virgin Galactic wrote in a comment on a proposed rule that the “nascent but growing” space tourism industry was hindered by current rules. At a conference in 2011, the chief executive of Northrup Grumman warned of “the U.S. drone aircraft industry losing its dominance” if exports weren’t boosted. (Drones are regulated under missile technology controls, and are mostly unaffected by the current changes.)

Lauren Airey, of the National Association of Manufacturers, named two main objections to the current system. First off, fees: Any company that makes a product on the State Department list has to be registered whether or not they actually export, with yearly costs starting at $2,500. There’s no fee for the Commerce list.

Secondly, any equipment that contains a listed part gets “lifetime controls,” Airey said. If a buyer wants to resell something, even for scrap, they need U.S. approval. (For example, the U.S. is currently debating whether to let Turkey re-sell American attack helicopters to Pakistan.) Under Commerce, “there are still limitations, but they are more flexible,” Airey said.

Airey’s association (and other trade groups) makes the case that foreign competitors are “taking advantage of perceived and real issues in U.S. export controls to promote foreign parts and components – advertising themselves as State-Department-free.” Airey demurred when asked for an estimate on the amount of business lost: “It’s hard to put a number directly on how much export controls cause U.S. companies to be avoided.”

An Aerospace Industries Association executive noted at a panel this spring, “We really did not move the needle at all by complaining about the fact that we weren’t making as much money as we wanted to.”

But at a recent hearing of the House Committee on Foreign Affairs, members of Congress highlighted economic impact.

“In my district in Rhode Island,” said David Cicilline, D-R.I., “as many of our defense companies are looking to expand their business, really, to respond to declines in defense domestic spending, international sales are becoming even more important and really critical…to the job growth in my state.”

William Keating, D-Mass., said that “with declining defense budgets, arms sales are even more critical to the defense industry in my state to maintain production lines and keep jobs.”

“That would not have been the response a decade ago,” said one staffer who works on the issue. “National security hawks would have been worried about defense items moving to the Commerce list. The environment on the Hill has dramatically changed.”

One concern came from the International Association of Machinists and Aerospace Workers, which believes that easing controls on military technology and software could actually lead to more outsourcing of production.

William Lowell, who spent a decade of his 30 years at the State Department directing defense trade controls, told ProPublica that the move represents a major shift in the U.S. attitude towards international arms trade. U.S. policy has long been aimed at “denying the entry of U.S. military articles of any type into the international gray arms market – for which small arms and military parts are the lifeblood,” Lowell wrote in comments opposing the new rules. “Commercial arms exports have never been considered normal commercial trade.”