In doing so, DOD  certifies that the export appropriately qualifies for one or more of a limited  number of applicable ITAR license exemptions. These guidelines were provided to the military services,  given that they are primarily responsible for managing and implementing  international defense cooperative programs. Guidelines for DOD’s Certification of Exemption Use Have Raised Some Concerns by State

In support of defense activities, DOD components prepare letters  certifying the use of certain exemptions by exporters under State’s export  control regulations. Nonservice DOD components also certify the use of exemptions but are  not subject to the guidelines, which were not issued departmentwide. State suggested that DOD revise its guidelines to include (1)  ITAR sections 126.6(a) and 126.6(c) on foreign military sales to provide  further context, citing that their inclusion would inform the military  services that other ITAR exemptions are provided for the exclusive use  of DOD in the conduct of its official business, and (2) ITAR section  125.4(b)(3)—the provision of technical data in furtherance of a  contract between the exporter and the U.S. government if the contract  provides for the export of data—which State identified as one that may  be certified by DOD for use by exporters when conducting DOD’s  mission. However, to date, State and DOD officials have not reached agreement on  these issues, and the lack of common understanding of regulatory  exemption use could result in inconsistent application of the regulations. DOD Components Certified the Use of Exemptions for a Variety of Programs and Foreign Recipients

On the basis of over 1,100 certification letters that DOD components  provided to us and our review of them, DOD components certified the use  of over 1,900 exemptions for multiple companies and various programs  from 2004 through 2006. More than 270 exporters, including prime contractors and subcontractors,  were identified in exemption certification letters we reviewed. The most  frequently identified exporters were defense contractors, but university  laboratories and federally funded research and development centers were  also identified. State and DOD Lack Complete Data to Oversee Exemptions Certified by DOD

State and DOD lack comprehensive data to oversee the use of DOD- certified exemptions, limiting their knowledge of defense activities under  this process. DOD’s annual report to State on the use of exemptions  captures data from the military services but not from other DOD  components. In addition, the data may not capture the magnitude of  transfers certified for exemption use. This information was not included in  the DOD component’s reporting on exemption certification use. Further, DOD’s  2006 report to State includes only the certification letter that was broad in  scope, but it does not include the magnitude of transfers under this  certification. Others making key contributions to this report  are listed in appendix V.

Appendix I: Scope and Methodology

To describe the approach used by the Department of Defense (DOD) for  certifying the use of export exemptions for exporters, we reviewed export  control regulations and discussed with the Department of State and DOD  their interpretation of when DOD can certify that a specific export activity  qualifies for the use of certain export exemptions. We also interviewed officials from State’s  Directorate of Defense Trade Controls—from the Licensing, Compliance,  Management, and Policy offices, and DOD’s Defense Technology Security  Administration about their views on the International Traffic in Arms  Regulations (ITAR) allowances for exemption use by exporters,  requirements for DOD to direct the use of certain ITAR exemptions, and  practices by DOD components that certify the use of exemptions by  exporters in support of DOD activities. We collected and summarized DOD export exemption certification letters  for calendar years 2004 through 2006 to summarize the use of DOD- certified exemptions.
Why GAO Did This Study

Defense (DOD) activities, U.S. defense companies may export defense items. The Department of State (State) controls such exports through its International Traffic in Arms Regulations (ITAR), which provides for some exemptions from export licensing requirements. For a limited number of these exemptions, DOD may confirm--or certify--that the export activity qualifies for the use of an ITAR exemption. As part of an initiative, DOD is to make more effective use of ITAR exemptions, but little is known about the extent to which this is done. This report (1) describes DOD's approach for certifying exporters' exemption use in support of defense activities, (2) summarizes the use of selected DOD-certified exemptions, and (3) examines State and DOD's oversight of exemption use. GAO's findings are based on its review of export control law, regulation, and DOD guidelines; interviews with State, DOD, and defense industry officials; and a GAO-developed database of DOD certification letters.

What GAO Found

In support of defense activities, DOD prepares letters certifying that a proposed export qualifies for the use of certain ITAR exemptions by exporters. To guide this approach, DOD issued exemption certification guidelines in March 2004 to the military services because they are the DOD components primarily responsible for managing and implementing defense international cooperative programs. However, GAO found other DOD components that also certify the use of exemptions in support of international activities but are not subject to the DOD guidelines. Officials from State, which regulates and controls defense exports, have raised several concerns to DOD about its guidelines, including the use of one ITAR exemption by contractors and the comprehensiveness of the guidelines. While State and DOD officials have met and exchanged correspondence on these issues, to date, they have not resolved fundamental disagreements. A lack of common understanding of regulatory exemption use could result in inconsistent application of the regulations. The exemption certification letters from DOD components that we reviewed showed that over 1,900 exemptions were certified for about 270 exporters in calendar years 2004 through 2006. The majority of the certifications related to missile defense and Air Force programs and included the export of technical data. While most of the exporters identified in the DOD-certified exemption letters were defense contractors, other exporters included university laboratories and federally funded research and development centers. The United Kingdom, Australia, Canada, and the North Atlantic Treaty Organization were the most frequently cited recipients for exports under exemptions certified by DOD components. State and DOD lack comprehensive data to oversee the use of DOD-certified exemptions, limiting their knowledge of defense activities under this process. While DOD's guidelines provide for annual reporting to State on certified exemptions, this report captures data from the military services, but not from other DOD components. GAO identified 271 letters from nonservice components that were not included in DOD's 2006 report to State. In addition, DOD's report to State may not capture the magnitude of transfers certified for exemption use. For example, one letter that GAO reviewed certified the use of an exemption for more than 50 companies, but only the certification letter--not the actual transfers, which totaled 600 over a 3-year period--was captured in the cognizant military service's record keeping on exemption certifications. Furthermore, the details on these transfers were not included in DOD's report to State, limiting insight into the number of transfers under this certification.