GLOBAL DEFENSE MARKET

JUST IN: U.S. May Loosen Weapons Export Restrictions in Coming Months

7/16/2020
By Jon Harper

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The Trump administration may soon allow a wider range of U.S. military technology to be exported to partners and allies, according to a top Pentagon official.

Boosting international weapons sales has been an economic and national security priority for President Donald Trump. The administration has taken a number of steps to make it easier for other nations to buy American-made drones and other items. Soon, even more systems could be available.

“In the next six months, I very much hope to open the envelope, particularly on some of the weapons technology that we can export,” Undersecretary of Defense for Acquisition and Sustainment Ellen Lord said July 16 during a virtual event hosted by the Ronald Reagan Institute.

An interagency process which includes the Departments of Defense, State and Commerce manages export regulations and sales.

Lord said she has been in talks with other officials and pushing to help U.S. defense contractors do more business overseas.

“One of the items that I'm dealing with with a few of my colleagues here that I am passionate about currently is the fact that we have not really revisited what technology we export … in a significant way recently,” she said “I am concerned that sometimes we are losing international [industry] competitions because … as we have increased our capability, we have not increased the capability that we export in a commensurate fashion.”

Potential customers such as Middle Eastern nations and India, for example, sometimes turn to Russia or China to procure military equipment because the United States won’t sell it to them, she noted.

The U.S. government needs to protect sensitive defense technologies, but in some instances export controls are counterproductive, Lord said.

“We are having a very focused discussion on let's rethink this from a strategic point of view,” she said. “We might in fact be hurting ourselves when we think we're helping ourselves. And a lot of this technology, frankly, the magic sauce is in the manufacturing of it. The technical data package doesn't always give it to you.”

As the Pentagon pushes to loosen export controls, it is also pursuing avenues to bring critical manufacturing capabilities back to the United States in order to mitigate supply chain risks.

Microelectronics, which is now the Defense Department’s top modernization priority, is of particular concern due to its criticality in a wide range of U.S. military systems.

Lord’s team has been conducting a five-month study that took a deep dive into the microelectronics industry to better understand the players and the source of technologies.

“We have just finished a piece of work internally that we are now beginning to socialize in the interagency throughout the government saying we have a challenge in that the majority of the intellectual property associated with microelectronics is generated in the U.S., but the majority of the fabrication and packaging is done offshore,” she said.

There are multiple risks associated with being dependent on foreign suppliers for the critical technology, much of which is manufactured in China, which the Pentagon views as a great power adversary. An obvious one is having the supply cut off.

“Another more nefarious kind of issue we have is that we could have implants in those electronics,” Lord said. “All of a sudden, as we've seen in DJI drones, for instance, we [could] have U.S. systems calling home to China” and providing sensitive information.

Intellectual property theft is another concern.

“That is very well documented where what we think we licensed for a specific use is all of a sudden repurposed into capability organic to China,” Lord said.

Another problem is the loss of manufacturing knowhow over time as other countries take the lead in producing microelectronics, she noted.

The Trump administration is considering launching a number of private-public partnerships to bring more of that activity back to the United States, Lord said.

Defense Production Act Title III authorities – which enable the government to use funding to prop up critical nodes in the supply chain — could also be leveraged to boost domestic manufacturing capability, not just for microelectronics but other critical items such as medical resources, she noted.

Trump recently signed an executive order that could help with that, Lord said. The directive, aimed at dealing with challenges associated with the COVID-19 pandemic, essentially gives the U.S. International Development Finance Corp. authority to use DPA Title III money as collateral to grant loans to help boost domestic production of critical capabilities. Officials are “working through all the legalities of that,” Lord noted.

“We are looking at what are those critical capabilities that we should re-shore … and microelectronics is one of those,” Lord said.

Before the COVID-19 pandemic, executives at U.S. companies had concerns about China, particularly when it came to trade secrets and intellectual property theft. However, many didn’t see a compelling reason to bring manufacturing of key technologies back to the United States or invest in domestic production capabilities. The disruptions caused by the novel coronavirus have changed that, Lord said.

“I have seen a number of CEOs reach out and have conversations with me about the fact that they're more willing now to talk about a consortium going together for trusted microelectronics, for instance,” she noted.

There needs to be a national policy to include capital investments, tax incentives and easing regulatory burdens to encourage companies to bring manufacturing back to the homeland, she said.

Lord noted that the government also needs to be vigilant about preventing hostile actors from China or elsewhere from taking over cash-strapped, high-tech U.S. businesses and obtaining their intellectual property. The Committee on Foreign Investment in the United States, or CFIUS, reviews transactions to make sure they won’t be detrimental to national security.

The Pentagon has launched its own initiative known as the Trusted Capital Marketplace to connect vetted investors with vetted startups and small businesses that make innovative technologies of interest to the military. Those efforts are expected to ramp up soon.

“We have had some live events and some virtual events, but we are on the cusp of actually putting this into an electronic marketplace because we know that there are sources of capital out there looking for investments that not only have a good return, but contribute to our national security,” Lord said. “We've been talking about it for a year and very quietly working in the background, but I have great expectations that in a few months, you're going to see this roll out in a very, very significant way.”

 

 

Topics: Global Defense Market, Government Policy, International, Export Import Compliance

Comments (1)

Re: U.S. May Loosen Weapons Export Restrictions in Coming Months

We should have been addressing this YEARS ago. The Chinese have proven to Rob & Duplicate... although we do the real R&D.

Jeff Koch at 12:09 PM
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