oversight

Defense Trade: Better Information Needed to Support Decisions Affecting Proposed Weapons Transfers

Published by the Government Accountability Office on 2003-07-11.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to the Ranking Minority Member,
             Subcommittee on National Security,
             Emerging Threats, and International
             Relations, Committee on Government
             Reform, House of Representatives
July 2003
             DEFENSE TRADE

             Better Information
             Needed to Support
             Decisions Affecting
             Proposed Weapons
             Transfers




GAO-03-694
                                                July 2003


                                                DEFENSE TRADE

                                                Better Information Needed to Support
Highlights of GAO-03-694, a report to the       Decisions Affecting Proposed Weapons
Ranking Minority Member, Subcommittee
on National Security, Emerging Threats,         Transfers
and International Relations, Committee on
Government Reform, House of
Representatives




The heightened visibility of                    Before transfers are approved, the U.S. government must first determine if
advanced U.S. weapons in military               classified weapons or technologies are releasable to the requesting country
conflicts has prompted foreign                  according to the National Disclosure Policy (NDP). The process for
countries to seek to purchase such              determining releasability is complex. A foreign government’s request is first
weaponry. In 2001, transfers of                 reviewed by the military department that owns the requested weapon or
U.S. weapons and technologies to
foreign governments totaled over
                                                technology. In cases where the request exceeds NDP’s approved
$12 billion. The potential loss of              classification level, the military department forwards the request to the
U.S. technological advantage has                National Disclosure Policy Committee for its review. For some sensitive
been raised as an issue in recently             technologies, such as stealth, the case is also forwarded to a special
approved transfers of advanced                  committee for review. The process requires coordination among different
military weapons and                            U.S. government entities—including DOD, the military departments, the
technologies—such as military                   State Department, and the intelligence community—which have varying
aircraft that were reported in the              perspectives. Adding to this complexity, determinations of releasability are
media to contain superior radar                 governed by broad guidance, which allows latitude in interpreting the unique
and avionics than those in the                  circumstances of each proposed transfer.
Department of Defense’s (DOD)
inventory.
                                                In determining the releasability of advanced weapons and technologies, a
GAO looked at how releasability of              number of factors are considered, including how U.S. technological
advanced weapons is determined,                 advantage would be affected. To protect U.S. technological advantage,
how U.S. technological advantage                safeguards—such as lowering the capability of a transferred weapon and
is considered and protected, and                withholding sensitive information on how the system operates—are
what information is needed to                   considered for proposed transfers. However, the effectiveness of some
make informed decisions on the                  individual safeguards may be limited. For example, one safeguard—the
potential release of advanced                   ability of the United States to deny spare parts to former allies—may not be
weapons.                                        effective if these countries are able to obtain spare parts through other
                                                means. While certain individual safeguards may not be as effective as
                                                desired, DOD officials said they consider various safeguards to ensure
                                                technological advantage is maintained.
GAO is recommending that the
Secretary of Defense direct the                 Information needed to assess releasability is not always complete, up-to-
National Disclosure Policy                      date, or available. For example, DOD’s centralized National Disclosure
Committee Executive Secretariat                 Policy System database that was used to make decisions during the last
to take several actions to improve              4 years only contained information for that time period. DOD has recently
efforts for collecting and updating             deployed an upgrade to the system, but has not yet determined its
information needed for the review               effectiveness. Other information, such as Central Intelligence Agency risk
process. DOD concurred with                     assessments—which provide counterintelligence information and risks
some of GAO’s recommendations
                                                involved in releasing advanced weapons to a foreign country—are often
but did not concur with others.
DOD provided additional                         outdated or nonexistent. Finally, some intelligence information that could
information about recent actions it             have a direct bearing on whether an advanced weapon or technology should
has taken, which lead to the                    be released is prepared for other purposes and is not provided to decision
modification of some of GAO’s                   makers involved in releasability determinations.
recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-03-694.

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Katherine V.
Schinasi at (202) 512-4841 or
schinasik@gao.gov.
Contents


Letter                                                                                          1
                       Results in Brief                                                         2
                       Background                                                               4
                       Process to Determine the Releasability of Advanced Weapons and
                         Technologies Is Inherently Complex                                     6
                       Technological Advantage and Various Safeguards Are Considered
                         When Determining Releasability                                        14
                       More Complete, Current, or Available Information Would Better
                         Support Determinations of Releasability                               15
                       Conclusions                                                             22
                       Recommendations for Executive Actions                                   23
                       Agency Comments and Our Evaluation                                      23

Appendix I             Scope and Methodology                                                   26



Appendix II            National Disclosure Policy Criteria                                     28



Appendix III           Comments from the Department of Defense                                 30



Appendix IV            Staff Acknowledgments                                                   36



Related GAO Products                                                                           37



Table
                       Table 1: NDP Criteria and Examples of Information to Consider for
                                Each Criterion                                                 28


Figures
                       Figure 1: U.S. Military Departments’ Review Processes for
                                Determining the Releasability of Proposed Advanced
                                Weapons and Technologies Transfers                              8



                       Page i                                            GAO-03-694 Defense Trade
Figure 2: NDPC Review Process for Considering Exceptions to
         NDP                                                                              10
Figure 3: Example of a Special Committee Process: Low
         Observable/Counter Low Observable                                                12
Figure 4: Dates of CIA Risk Assessments for Countries with
         Exceptions Approved between 1997 and 2002                                        19
Figure 5: Dates of NDPC Security Surveys for Countries with
         Exceptions Approved between 1997 and 2002                                        20




Abbreviations

CIA                        Central Intelligence Agency
DOD                        Department of Defense
LO/CLO                     Low Observable/Counter Low Observable
NDP                        National Disclosure Policy
NDPC                       National Disclosure Policy Committee




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Page ii                                                        GAO-03-694 Defense Trade
United States General Accounting Office
Washington, DC 20548




                                   July 11, 2003

                                   The Honorable Dennis Kucinich
                                   Ranking Minority Member
                                   Subcommittee on National Security, Emerging
                                    Threats, and International Relations
                                   Committee on Government Reform
                                   House of Representatives

                                   Dear Mr. Kucinich:

                                   The heightened visibility of advanced U.S. weapons1 in military conflicts
                                   over the last decade has prompted foreign countries to increasingly seek
                                   to purchase such weaponry. In 2001, transfers of weapons from the U.S.
                                   government to foreign governments totaled over $12 billion, or 46 percent
                                   of the world market share, representing a 15 percent increase in market
                                   share since 1997. According to the Department of Defense (DOD), such
                                   transfers can help strengthen defense coalitions and enhance
                                   interoperability between the United States and its allies, as well as extend
                                   production lines and lower unit costs for key weapon systems. Before
                                   transfers are approved,2 the U.S. government must first determine if
                                   classified weapons or technologies are releasable to the requesting
                                   country according to policies and procedures stated in the National
                                   Disclosure Policy (NDP).3

                                   The potential loss of U.S. technological advantage has been raised as an
                                   issue in recently approved transfers of advanced military weapons and
                                   technologies—such as those to the United Arab Emirates and South Korea
                                   of military aircraft that were reported by the media to contain superior
                                   radar and avionics than systems in DOD’s inventory. Therefore, you asked


                                   1
                                     For this report, advanced weapons primarily refer to the weapons and related
                                   technologies that DOD has designated as classified. Some DOD officials acknowledged that
                                   unclassified items can also contain advanced technology, such as night vision devices.
                                   However, this report does not focus on unclassified items that are subject to U.S. export
                                   control restrictions.
                                   2
                                    Arms transfers can generally be approved through the U.S. government’s Foreign Military
                                   Sales Program or the U.S. export control system.
                                   3
                                    NDP governs the releasability of classified military information, including classified
                                   weapons.



                                   Page 1                                                          GAO-03-694 Defense Trade
                   us how the U.S. government protects technological advantage when
                   considering the transfer of advanced weapons. This report (1) describes
                   the process for determining the releasability of advanced weapons and
                   technologies, (2) describes how U.S. technological advantage is
                   considered and protected through this process, and (3) assesses the types
                   of information needed to make informed decisions on the potential release
                   of advanced weapons.

                   To conduct our work, we reviewed and analyzed policies and procedures
                   and the relevant directives and guidance governing the potential release of
                   advanced weapons and technologies. To identify safeguards to protect
                   U.S. technological advantage, we reviewed and analyzed records for
                   selected weapon systems approved for release. We also analyzed data on
                   various assessments and information used in the releasability process. We
                   spoke with officials in DOD, the military departments, the Joint Chiefs of
                   Staff, the Department of State, and the intelligence community to
                   understand how the process works, what safeguards are considered to
                   protect U.S. technological advantage, and what information is used to
                   support the decision-making process. Details on our scope and
                   methodology are provided in appendix I.


                   The process for determining the releasability of advanced weapons and
Results in Brief   technologies to foreign countries is complex because it involves several
                   multilevel reviews and coordination among different U.S. government
                   entities with varying perspectives. Each military department has its own
                   process for reviewing foreign governments’ requests for transfers. When
                   the request exceeds the classification level approved for release in NDP,4
                   the military department forwards the request for an exception to the
                   National Disclosure Policy Committee (NDPC)—which includes members
                   from DOD, the military departments, the State Department, and the
                   intelligence community—for its review. For some sensitive technologies,
                   such as stealth, the request is also forwarded to special committees for
                   review. Further, the releasability process is governed by broad guidance,
                   which allows latitude in interpreting the unique circumstances
                   surrounding each proposed transfer.


                   4
                     NDP provides the classification levels for various countries that may receive certain types
                   of classified military information. If a foreign country’s request for advanced weapons
                   exceeds the classification level specified for the country, an exception to the policy is
                   required. In addition, exceptions are required when the requested item is not covered in the
                   NDP or does not comply with NDP criteria.




                   Page 2                                                          GAO-03-694 Defense Trade
In determining the releasability of advanced weapons and technologies,
NDPC members consider a number of factors, including how U.S.
technological advantage would be affected if a weapon or technology were
released. To protect U.S. technological advantage, committee members
rely on safeguards, which include general safeguards to help accomplish
military objectives and specific limitations and conditions that are placed
on a transfer. Limitations and conditions generally include lowering the
capability of a transferred weapon, withholding sensitive information on
how the system operates, or time-phased delivery—that is, timing the
contractual delivery date of a weapon system to follow the expected
fielding of a more capable weapon. However, the effectiveness of some of
these individual safeguards may be limited for various reasons. For
example, as we have previously reported, projected time frames for
fielding next generation weapons systems are consistently
underestimated, resulting in unexpected delays. 5 Such delays could negate
the effectiveness of time-phased delivery if the fielding of a more capable
weapon or technology does not coincide with the advanced weapon’s
contractual delivery date to the foreign government. Some DOD officials
told us that while the effectiveness of certain individual safeguards may be
limited, various safeguards are considered to ensure that technological
advantage is maintained.

Finally, release decisions may not be fully informed because information
needed to assess the releasability of an advanced weapon or technology,
such as information on a foreign government’s ability to protect the
weapon or technology, is not always complete, up-to-date, or available.
For example, DOD’s centralized National Disclosure Policy System
database, which is intended to improve coordination by capturing
information on proposed transfers, contained limited historical data and
search capability needed to facilitate decision making. DOD has developed
a system upgrade to provide more search capability and more historical
data. After several delays, DOD had recently deployed the upgraded
system but its effectiveness will not be known for some time. Other
information, such as risk assessments and security surveys, that could be
useful in making releasability decisions is either outdated or, in some
cases, not prepared. In addition, some intelligence information, such as
information on illegal transfers of U.S. weapons and technologies, could
be germane to the decision-making process. This information is used



5
 Major Management Challenges and Program Risks: Department of Defense, GAO-03-98
(Washington, D.C.: January 2003).




Page 3                                                  GAO-03-694 Defense Trade
                 primarily for nonproliferation purposes and is not provided to decision
                 makers involved in the releasability process.

                 To ensure that decisions to release advanced weapons and technologies
                 are better informed, we are recommending that DOD take several actions
                 to collect and update information needed for the review process. In
                 commenting on a draft of this report, DOD concurred with several of our
                 recommendations but did not agree with others. Specifically, DOD
                 concurred with our recommendations to evaluate the upgraded system,
                 prioritize risk assessments, and identify additional information for the
                 process. However, DOD did not concur with other recommendations
                 regarding the upgraded system and a plan for security surveys. DOD
                 provided additional information in its comments about recent actions it
                 has taken, which led to modification of some of our recommendations.
                 The Department of State chose not to provide formal written comments.


                 The Arms Export Control Act, as amended,6 is the primary statute
Background       governing exports of U.S. defense articles and services, including
                 advanced weapons and technologies, to eligible countries through the
                 government-to-government Foreign Military Sales program and sales made
                 directly by U.S. companies.7 The act also includes a statement of
                 conventional arms transfer policy, which provides that sales of defense
                 items be consistent with U.S. national security and foreign policy interests.
                 The Conventional Arms Transfer Policy, a Presidential Decision Directive
                 last updated in 1995, provides policy for weapons transfers.8 In addition to
                 stipulating that transfer decisions be made on a case-by-case basis, the
                 policy has several key goals that must be considered when transferring
                 weapons:

             •   Ensure U.S. military forces maintain technological advantage over their
                 adversaries.


                 6
                     22 U.S.C. § 2751 et seq.
                 7
                  According to DOD Directive 2040.2, International Transfers of Technology, Goods,
                 Services, and Munitions, dated January 1984, direct commercial and government sales are
                 two methods for transferring weapons and military technology to foreign governments.
                 Other methods include licensing and data exchange agreements, codevelopment and
                 coproduction agreements, and international meetings and symposia on advanced
                 technology.
                 8
                  The Conventional Arms Transfer Policy is classified; however, details of the policy were
                 made publicly available through White House Fact Sheets in February 1995.




                 Page 4                                                        GAO-03-694 Defense Trade
•   Help allies and friends deter or defend against aggression, while promoting
    interoperability with U.S. forces when combined operations are required.
•   Promote stability in regions critical to U.S. interests, while preventing the
    proliferation of weapons of mass destruction and their missile delivery
    systems.
•   Promote peaceful conflict resolution and arms control, human rights,
    democratization, and other U.S. foreign policy objectives.
•   Enhance the ability of the U.S. defense industrial base to meet U.S.
    defense requirements and maintain long-term military technological
    superiority at lower costs.

    While the Conventional Arms Transfer Policy generally covers all arms
    transfers, NDP9 specifically governs the releasability of classified military
    information, including classified weapons and military technologies.10 NDP
    establishes a framework for policy decisions on proposed transfers to
    foreign recipients and is key in governing the release of an advanced
    weapon or technology. These decisions are made before weapons or
    technologies are approved for transfer. As implemented by DOD Directive,
    this policy specifies that releasability decisions must satisfy five criteria.11
    For example, the proposed transfer must be consistent with U.S. military
    and security objectives and be protected by the foreign recipient in
    substantially the same manner as the United States. The DOD Directive
    also requires department officials to enter NDP case data, including
    releasability decisions, into a centralized database to facilitate the
    coordination and review of potential transfers of weapons.12

    In November 2002, the White House announced that it had begun a
    comprehensive assessment of the effectiveness of U.S. defense trade
    policies to identify changes needed to ensure that these policies continue
    to support U.S. national security and foreign policy goals. It also aims to
    assess how U.S. technological advantage can be maintained. The


    9
     NDP was established by National Security Decision Memorandum 119, Disclosure of
    Classified Military Information to Foreign Governments and International Organizations,
    July 20, 1971, as approved by the President. It was amended by a White House
    memorandum dated June 6, 1978.
    10
      There are eight categories of classified military information, including military materiel
    and munitions, which covers advanced weapons and technologies; intelligence
    information; and research and development information.
    11
     DOD Directive 5230.11, Disclosure of Classified Military Information to Foreign
    Governments and International Organizations, June 16, 1992, enclosure 3.
    12
         DOD Directive 5230.11, section 4.7.




    Page 5                                                           GAO-03-694 Defense Trade
                       assessment is expected to cover such topics as the Arms Export Control
                       Act and the military departments’ technology release policy, as well as a
                       determination of the effectiveness of the Defense Trade Security
                       Initiatives.13 The assessment is also expected to cover issues related to the
                       NDP process.


                       The process governing the release of advanced weapons and technologies
Process to Determine   is inherently complex because it involves multiple, multilevel reviews by
the Releasability of   various U.S. government entities and individuals with varying
                       perspectives. A country’s request for an advanced system initially is sent to
Advanced Weapons       the military department that is responsible for—or “owns” the weapon or
and Technologies Is    technology, which then coordinates with various functional units to arrive
                       at a decision on whether to fulfill the request. Depending on the
Inherently Complex     circumstances of the request and the outcome of this initial review, the
                       request may be submitted to an interagency committee and other special
                       committees for additional review. Further, because the reviewers
                       represent different agencies, they bring varying perspectives to the
                       process and must reconcile differences to reach a unanimous decision on
                       each request. Finally, the guidance governing the process is broad and
                       applied on a case-by-case basis, allowing decision makers to use judgment
                       and interpretation when considering each foreign country’s request for the
                       release of an advanced weapon or technology.


Multiple Reviews Are   A foreign government’s request for the transfer of an advanced weapon or
Conducted              technology is directed to the military department that is responsible for
                       the particular weapon or technology. Each military department has its
                       own review process for determining whether the weapon or technology
                       should be released (see fig. 1). To develop a position, the military
                       department receiving the request coordinates with and obtains input from
                       military experts14 in various offices and divisions within those offices. For
                       example, we were told that the Air Force coordinates a proposed transfer
                       of an Air Force fighter aircraft to a foreign government with subject matter
                       experts in functional offices, such as acquisition, plans, operations, and
                       weapons systems division. These experts, in turn, may consult with other


                       13
                         For a discussion of the initiatives see Defense Trade: Analysis of Support for Recent
                       Initiatives, GAO/NSIAD-00-191 (Washington, D.C.: Aug. 31, 2000.)
                       14
                        Military experts are officials from various functional units such as acquisition, plans, and
                       weapons systems division that provide technical input on proposed transfers.




                       Page 6                                                          GAO-03-694 Defense Trade
experts within their divisions. For instance, the weapons systems division
may coordinate with its electronic warfare staff, its radar staff, or both to
obtain input.

Military department reviews can result in one of three outcomes:
concurrence, concurrence with limitations and conditions, or
nonconcurrence. If a consensus to approve a request cannot be reached,
the request is elevated within the military department for a final decision.
If the requested item (1) is not covered in NDP, (2) exceeds the NDP
classification level specified for a particular foreign country, or (3) does
not comply with NDP criteria, the military department may seek an
exception to NDP from the National Disclosure Policy Committee, an
interagency review forum.15 Timelines for military departments’ reviews of
requests can vary. For example, Army officials stated that some cases can
be handled quickly while others may require a major investment of time
and resources.




15
  National Security Decision Memorandum 119 gives implementing responsibility for
controlling the release of classified military information to the Secretaries of State and
Defense, consulting as appropriate with other agency heads, including the Director of
Central Intelligence.




Page 7                                                           GAO-03-694 Defense Trade
Figure 1: U.S. Military Departments’ Review Processes for Determining the Releasability of Proposed Advanced Weapons and
Technologies Transfers




                                        Page 8                                                 GAO-03-694 Defense Trade
a
 The Navy board cochairs are the Assistant Secretary of the Navy for Research, Development, and
Acquisition and the Vice Chief of Naval Operations or the Assistant Commandant of the Marine Corps
(for issues specific to the Marine Corps).
b
 The Deputy Chief of Staff for Intelligence finalizes the position package and serves as the Army’s
representative on NDPC.


When NDPC receives a request for an exception, the Executive Secretariat
distributes the request to committee members and seeks a unanimous vote
within 10 days (see fig. 2). Each committee member coordinates a position
with various experts. For example, the Joint Staff sends the request to the
Combatant Command that has responsibility for the country requesting
the advanced weapon or technology. The Combatant Command, in turn,
coordinates the request with various units within the Command, which
may include the Scientific Advisor, plans and operations division, weapons
systems division, and intelligence division to provide input on such issues
as the impact of the transfer on the region. These units may further
coordinate with other offices within their units. A final coordinated
Command position is then provided to the Joint Staff NDPC member.

If any NDPC member votes not to approve a request for an exception,
there is a negotiation period for no more than 20 days. During this time,
the member that has requested the exception may propose or accept
placing different or additional conditions on the request to gain unanimity.
If agreement cannot be reached, the request is elevated to the Chairman
for a decision. Members have 10 days to appeal the Chairman’s decision or
it is accepted. If a committee member appeals the decision, the request is
elevated to the Deputy Secretary or Secretary of Defense. However, of the
330 exceptions reviewed over the last 4 years, only 1 had been appealed
and 2 denied.16 The appeal and denials covered requests for weapons and
technologies and intelligence information. In addition, 5 requests for
exceptions related to weapons and technologies were withdrawn before a
decision was reached.17 According to DOD officials, most exceptions are
approved with limitations and conditions.




16
  The majority of these exceptions cover requests for weapons and technologies. The
remainder includes other categories of classified military information covered by NDP.
17
  According to DOD officials, requests are withdrawn when additional information is
needed or concerns cannot be addressed during the review process.




Page 9                                                                 GAO-03-694 Defense Trade
Figure 2: NDPC Review Process for Considering Exceptions to NDP




                                      In addition to the military departments’ reviews and the NDPC exception
                                      process, special committee processes are set up to review requests for
                                      sensitive technologies that may be included in a proposed transfer. For
                                      example, if a proposed transfer includes a stealth component, the military
                                      department submits the case to the Director of Special Programs within
                                      the Office of the Under Secretary of Defense for Acquisition, Technology,
                                      and Logistics who manages low observable/counter low observable
                                      (LO/CLO) issues (see fig. 3). Precedent decisions, which are contained in a
                                      database, are used to determine the releasability of the technology. Based
                                      on the level of sensitivity of the technology involved, the case may be
                                      elevated to the Tri-Service Committee18 for further review. Some



                                      18
                                        The Tri-Service Committee consists of colonel-level officers that meet weekly to discuss
                                      any sensitive cases that need to be elevated to the LO/CLO Executive Committee.




                                      Page 10                                                        GAO-03-694 Defense Trade
controversial or extraordinarily complex cases may require exceptions to
precedent LO/CLO policy and further elevation to the LO/CLO Executive
Committee for final decision. If needed, the Tri-Service Committee can
charter a “Red Team,” which, according to DOD officials, is composed of
subject matter experts, including those from industry, academia, and the
military department laboratories. The Red Team is convened to assess the
risks associated with the proposed transfer. The Tri-Service Committee
and the Executive Committee make their decision based on their
assessment of the information provided by the military department that is
responsible for the technology and the pros and cons presented by the Red
Team, if convened.




Page 11                                           GAO-03-694 Defense Trade
Figure 3: Example of a Special Committee Process: Low Observable/Counter Low Observable




                                      a
                                       Low Observable (LO) cases are referred to the Air Force; Counter Low Observable (CLO) and ship
                                      LO cases are referred to the Navy; and ground vehicle cases are referred to the Army.
                                      b
                                       DOD Instruction S-5230.28, Low Observable, and Counter Low Observable Programs, October 2,
                                      2000, governs the LO/CLO process and determines which cases to elevate.




                                      Page 12                                                            GAO-03-694 Defense Trade
Varying Perspectives and     The multilayered reviews involved in the process for determining the
Broad Guidance Governing     releasability of an advanced weapon or technology can be particularly
Potential Transfers Add to   complex because individual entities and decision makers have varying
                             perspectives. For example, the combatant commanders’ position may
the Complexity of the        concentrate on such issues as the effects the proposed transfer could have
Review Process               on coalition warfare, political-military relations in a region, and their plans
                             and operations. The State Department, concerned with U.S. foreign policy
                             goals, tends to focus on issues such as the proposed transfer’s potential
                             effect on the stability of the region of the requesting country. Others may
                             deliberate the benefits and risks of the proposed transfer. In addition, we
                             were told that resource issues, including turnover of officials involved in
                             the releasability process, can affect the reviews. As we previously
                             reported, military personnel rotate, on average, every 2 years.19

                             The guidance governing releasability adds further complexity to the
                             review process because it is broad and implemented on a case-by-case
                             basis, allowing for judgment and interpretation of the unique
                             circumstances surrounding each transfer. Specifically, decisions on the
                             release of advanced weapons or technologies must satisfy five broad NDP
                             criteria that are subject to interpretation. (See app. II for a discussion of all
                             five criteria and examples of information to be considered for each.) For
                             example, one criterion decision makers must consider is whether the
                             proposed transfer is consistent with U.S. military and security objectives.
                             In examining this criterion, decision makers must address multiple factors,
                             including how technological advantage would be protected if the weapon
                             or technology were sold or transferred. According to NDPC members, the
                             broad criteria allow for a certain level of flexibility that is needed in
                             determining whether an advanced weapon should be released to a foreign
                             country. Some NDPC members further pointed out that this flexibility is
                             especially critical in the current foreign policy environment in which many
                             different countries are working with the United States in the war on
                             terrorism.




                             19
                              Military Personnel: Longer Time Between Moves Related to Higher Satisfaction and
                             Retention, GAO-01-841 (Washington, D.C.: Aug. 3, 2001).




                             Page 13                                                   GAO-03-694 Defense Trade
                      One criterion NDPC must consider when determining the releasability of
Technological         advanced weapons and technologies is that the transfer must be consistent
Advantage and         with U.S. military and security objectives. In satisfying this criterion,
                      military experts involved in the NDP coordination and review process told
Various Safeguards    us they consider the effect the transfer could have on U.S. technological
Are Considered When   advantage, along with various safeguards—both case-specific and
                      general—to protect this advantage.20 The effectiveness of individual
Determining           safeguards may be limited; however, a variety of safeguards may be
Releasability         considered.

                      In considering technological advantage, military experts said that they first
                      review relevant military department documents and policies to determine
                      if the requested weapon or technology exceeds the technology thresholds
                      specified for the country making the request. If the requested weapon or
                      technology exceeds this threshold, the experts may consult and
                      coordinate with military engineers, the contractor that manufactures the
                      weapon or technology, the system program office, and other operational
                      experts to incorporate appropriate safeguards—typically in the form of
                      case-specific limitations and conditions—to protect U.S. technological
                      advantage. These include (1) sanitized or export variants, where the
                      released weapon or technology has a lower operational capability or less
                      advanced technology than what the United States has in its inventory;
                      (2) anti-tamper measures, where features are built into the weapon to
                      prevent reverse engineering such as code encryption, and protective
                      coatings on internal weapon components; (3) time-phased release, where
                      the advanced weapon or technology is not released until the United States
                      has fielded a better capability; and (4) withheld information and data,
                      where the transfer does not include information such as software source
                      codes. Military experts said that program offices, in some cases, conduct
                      verification tests and the Defense Contract Management Agency works
                      with contractors to ensure that limitations and conditions are
                      implemented before the weapon is transferred.

                      Military department officials told us that in addition to case-specific
                      limitations and conditions, they also consider other general safeguards to
                      preserve U.S. military superiority. These include (1) superior U.S. tactics
                      and training, where military tactics for maneuvers and operations may not
                      be shared with other nations; (2) control of system spare parts, where the



                      20
                        U.S. military superiority is also addressed when NDP officials assess criteria on
                      U.S. military and security objectives.




                      Page 14                                                         GAO-03-694 Defense Trade
                        United States can stop providing spare parts to former allies; and
                        (3) countermeasure awareness, where the United States has the ability to
                        develop measures to defeat the released system because of its knowledge
                        of how the system functions.

                        However, the effectiveness of certain individual safeguards used to protect
                        technological advantage may be limited for various reasons. For example,
                        a time-phased release may not be effective if the fielding of a more capable
                        weapon or technology is delayed and does not coincide with the
                        contractual delivery date of the weapon to be released to the foreign
                        government. As we reported in January 2003, schedule delays have been
                        pervasive in certain major acquisition programs.21 The Air Force’s F/A-22,
                        the next generation fighter aircraft, for example, was initially expected to
                        be fielded in September 1995. As development proceeded, the estimated
                        fielding date was pushed out 8 years to September 2003. According to a
                        current estimate, the F/A-22 projected fielding date has slipped another
                        2 years to December 2005. In addition, factors outside of U.S. control can
                        diminish the effectiveness of certain individual safeguards. For example,
                        the United States may stop providing spare parts to former allies, but these
                        countries may obtain needed parts through other means, such as
                        “cannibalizing” parts from other weapons or obtaining parts from other
                        countries at a higher cost through the “grey market.” Some DOD officials
                        told us that while certain individual safeguards may not be as effective as
                        desired, they consider various safeguards for each proposed transfer to
                        ensure technological advantage is maintained.


                        In addition to considering technological advantage when making
More Complete,          releasability decisions, NDPC considers other criteria such as a foreign
Current, or Available   government’s capability to protect U.S. classified military information,
                        including weapons or technologies. Information such as Central
Information Would       Intelligence Agency (CIA) risk assessments and NDPC security surveys
Better Support          can be used to validate a country’s capability to provide such protection.
                        DOD’s centralized database contains some of this information, as well as
Determinations of       historical case data; however, it is not always complete, up-to-date, or easy
Releasability           to access. In addition, some information such as end-use monitoring
                        reports, which may identify countries that have not protected U.S. military
                        information, is not provided to NDPC.




                        21
                             GAO-03-98.




                        Page 15                                              GAO-03-694 Defense Trade
DOD’s Centralized NDP   DOD requires that NDP exception cases be recorded in a centralized
Database Was Not        automated system to assist committee members in reviewing,
Complete and the        coordinating, and reaching decisions on proposals to release classified
                        military information.22 This centralized system contains several databases,
Effectiveness of the    including the National Disclosure Policy System, which tracks and assigns
Upgrade Is Unknown      exception cases, records releasability decisions, and contains historical
                        data on exceptions.23 Historical data are important for identifying weapons
                        or technologies that have been released to the requesting country, as well
                        as its neighboring countries. However, the National Disclosure Policy
                        System that was used to make decisions during the last 4 years contained
                        data only for decisions made during that time period. It did not contain
                        data on exceptions that were decided in prior years. In addition, it did not
                        allow users to conduct full text searches or to search for specific data
                        elements, such as exceptions by country, weapon system, or date.24

                        Because of limited historical data in the National Disclosure Policy
                        System, NDPC members told us that they could not always use it to
                        analyze precedent cases. To obtain historical data and other information,
                        the military departments have relied on their own separate databases
                        containing information on their departments’ prior requests for transfers.
                        Unlike the military departments, other NDPC members do not have their
                        own databases. For example, the State Department has relied on manual
                        reviews of paper files and discussions with country experts or other
                        officials with knowledge of prior cases—assuming the files still exist and
                        the experts and officials still work at the State Department. Because of
                        limitations in the National Disclosure Policy System, the NDPC Executive
                        Secretariat has also relied on manual file reviews to identify information




                        22
                          DOD Directive 5230.11, last updated in 1992, requires the use of the Foreign Disclosure
                        and Technical Information System, now called the Security Policy Automation Network.
                        23
                          Other databases include the Foreign Visit System, which contains requests by foreign
                        governments to visit U.S. government facilities, and the Classified Military Information
                        database, which contains decisions made by disclosure officials on classified information
                        or material. However, the Classified Military Information database is not kept up-to-date.
                        24
                          Full text search capability will allow users to enter keywords and retrieve documents on
                        the system containing those words, thus providing a wider search capability.




                        Page 16                                                        GAO-03-694 Defense Trade
                           necessary for preparing its annual NDP report to the National Security
                           Council.25

                           To add more capability to the National Disclosure Policy System, DOD’s
                           Policy Automation Directorate developed an upgrade that is expected to
                           provide historical data from 1960 to the present and enhance data query
                           ability. According to NDPC officials, the upgrade has taken over 3 years to
                           develop because of other priorities, technical issues, and limited input
                           requested from users on the requirements and improvements for the
                           upgraded database. In addition, deployment of the upgraded system was
                           delayed several months because the upgrade had been experiencing
                           technical problems. For example, NDP exception cases have been
                           mislabeled as “current” when they were 2 years old, some cases were
                           missing from the system, and certain queries did not always provide
                           accurate results. While the upgrade has recently been deployed, the NDPC
                           Executive Secretariat stated that it may take about 3 to 4 months to assess
                           its effectiveness.


CIA Risk Assessments and   As part of the NDP process, the DOD Directive requires26 decision makers
NDPC Security Surveys      to determine whether foreign recipients of classified military information
Are Often Outdated         are capable of providing substantially the same degree of security
                           protection given to it by the United States.27 In addition to historical
                           precedence, decision makers can rely on CIA risk assessments and NDPC
                           security surveys to make these determinations.28 The National Disclosure
                           Policy System includes information such as security surveys, but it does
                           not include CIA risk assessments. CIA risk assessments provide
                           counterintelligence risk information, including the assessment of risks


                           25
                             This annual report discusses the effectiveness of NDP and exceptions granted to the
                           policy. For example, it enumerates disclosures of classified military information to foreign
                           recipients that were known not to possess the capability to protect classified military
                           information in a manner comparable to the United States.
                           26
                             DOD Directive 5230.11. This requirement is also specified in U.S.C. section 2753 (a)(3)
                           and the National Security Decision Memorandum 119.
                           27
                             DOD Directive 5230.11 also requires that decision makers determine the foreign
                           government’s intent for protecting classified military information. To establish this intent,
                           the U.S. government enters into a General Security of Information Agreement or a similar
                           security arrangement with the foreign government.
                           28
                            DOD Directive 5230.11 also indicates that embassy security assessments can be used to
                           make these determinations. However, NDPC officials we spoke with said that these
                           assessments have not been used because they are often not prepared.




                           Page 17                                                          GAO-03-694 Defense Trade
involved in releasing classified material to a foreign government. NDPC
security surveys consist of reviews of the foreign government’s security
laws, regulations, and procedures for protecting classified information.
These reviews include making certain that recipients (1) have procedures
to provide clearances to personnel, restrict access to properly cleared
individuals, and report promptly and fully to the United States any known
or suspected compromises and (2) agree not to reveal to a third party any
U.S. classified military information without prior consent of the U.S.
government.

Our analysis shows that of the approximately 70 percent of countries
covered by NDP that had exceptions approved for advanced weapons and
technologies between 1997 and 2002, most have outdated or no CIA risk
assessments.29 Specifically, of these, 66 percent were conducted more than
5 years ago and 12 percent have not been completed (see fig. 4). And while
22 percent of CIA risk assessments are currently up-to-date, our analysis
shows that an overwhelming majority of these risk assessments will be out
of date by the end of 2003.




29
  Based on discussions with NDPC officials, we define outdated assessments to be those
that are 5 years or older.




Page 18                                                      GAO-03-694 Defense Trade
Figure 4: Dates of CIA Risk Assessments for Countries with Exceptions Approved
between 1997 and 2002




According to the NDPC Executive Secretariat, CIA officials have been
unable to respond to some requests to update risk assessments because of
resource reductions and other agency priorities. Responding to a CIA
request, the Secretariat prioritized the top four or five assessments that
were needed in 1999. However, NDPC would like to have all assessments
updated every 2 years.

In addition, while NDPC has set a goal to perform security surveys every
5 years, some of them are outdated while others were not conducted.
Specifically, 23 percent of these surveys are 5 years or older and 7 percent
have not been completed for countries that had exceptions approved for
advanced weapons and technologies between 1997 and 2002, (see fig. 5).
And while 70 percent of security surveys are currently up-to-date, our
analysis shows that over half of these surveys will be out of date by the
end of 2003.




Page 19                                                GAO-03-694 Defense Trade
Figure 5: Dates of NDPC Security Surveys for Countries with Exceptions Approved
between 1997 and 2002




Some NDPC security surveys have not been completed in a timely manner
because of lack of foreign government cooperation, and other unforeseen
circumstances, such as country unrest and limited resources. According to
NDPC officials, the scheduling of NDPC security surveys is a time-
consuming effort performed by one staff member who has other
responsibilities. In addition, security surveys are performed as a collateral
duty by the Executive Secretariat. Depending on their availability,
committee members also volunteer to assist the Executive Secretariat in
conducting the surveys.

NDPC officials also noted that in some cases, assessments and surveys
may not be needed because the system or technology requested is not
significant and the country makes infrequent requests. For example, a
country may request one weapon requiring an exception in a 20-year time
frame, negating the need for expending resources to regularly update or
conduct a CIA risk assessment or security survey for that country.

However, NDPC members told us that the CIA risk assessments and the
NDPC security surveys provide different information that is often
important for making NDPC decisions. CIA risk assessments are
particularly important for exception cases because they provide an



Page 20                                                GAO-03-694 Defense Trade
                            evaluation of a country’s security forces and the risk environment of a
                            country that will potentially receive U.S. advanced weapon systems.
                            However, because the assessments are outdated, they likely do not reflect
                            the current conditions of the countries and therefore cannot be relied on
                            for deciding exception cases. Further, the upgraded National Disclosure
                            Policy System does not include CIA risk assessments—which NDPC
                            members have said would be useful to have in the new upgraded system.
                            According to some NDPC members, having outdated or no NDPC security
                            surveys may hamper efforts to determine whether a country could protect
                            advanced weapons and technologies from compromise. Specifically,
                            without these surveys, NDPC members may not be able to identify
                            weaknesses in the country’s current systems or areas that need
                            improvement. In addition, the NDPC Executive Secretariat said, in some
                            cases, when security surveys were not prepared, decisions were made to
                            grant exceptions because benefits were deemed to outweigh risks.


Some Intelligence and       Once weapons have been transferred to other countries, the State
Other Information Not       Department and the intelligence community track information on their use
Currently Provided to NDP   and disposition. For example, a State Department-chaired committee
                            collects intelligence information on the illegal transfers of weapons to
Decision Makers             third parties and transfers of non-U.S. weapons among foreign countries.
                            However, according to some NDPC members, this information is used by
                            the State Department primarily for nonproliferation purposes and is not
                            provided to NDPC. This information could assist NDPC members in
                            determining the releasability of a weapon or technology to a foreign
                            country because it indicates how well the country has protected
                            previously transferred advanced weapons and technologies. Further, this
                            information can provide a more accurate assessment of the types of
                            weapons the country receiving the illegal transfers has in its arsenal.

                            In addition, information from DOD’s recently initiated end-use monitoring
                            program30 could also be useful in making releasability decisions.31 The
                            program will include monitoring of sensitive defense articles, services, and


                            30
                              End-use monitoring refers to the procedures used to verify that foreign governments are
                            using and controlling U.S. defense articles and services in accordance with U.S. terms and
                            conditions of the transfer. Verification measures range from contacting the appropriate
                            foreign government representative for information to physical inspection by U.S.
                            personnel.
                            31
                              Foreign Military Sales: Changes Needed to Correct Weaknesses in End-Use Monitoring
                            Program, GAO/NSIAD-00-208 (Washington, D.C.: Aug. 24, 2000).




                            Page 21                                                        GAO-03-694 Defense Trade
              technologies that have special conditions placed on them when
              transferred through the Foreign Military Sales program. However, DOD
              has not yet determined the resources needed to conduct the end-use
              monitoring requirements outlined in the program’s policy. The end-use
              monitoring program manager is expected to provide reports on end-use
              violations to NDPC. Committee officials said that this information would
              be useful because it would indicate how well a country is protecting the
              weapons and technologies that have been transferred through the Foreign
              Military Sales program.

              Finally, the intelligence community sometimes obtains derogatory
              information on countries that may be of interest to NDPC in making
              determinations of releasability. For example, NDPC officials said that in a
              recent instance an intelligence agency discovered that a country
              requesting the release of an advanced weapon system did not have the
              security capabilities to protect U.S. classified military information, but did
              not provide this information to NDPC during the review process. These
              officials stated that while such cases are not typical, this type of
              information would have been useful in evaluating whether the country
              provided the same degree of protection that would be provided by the
              United States—a key criterion governing NDP decisions.


              The U.S. government has invested hundreds of billions of dollars in the
Conclusions   research and development of advanced weapons and technologies. To
              protect this investment, it is important for decision makers to be fully
              informed of the benefits and risks associated with the release of such
              weaponry. The process for determining the releasability of advanced
              weapons and technologies is necessarily complex because the integrity of
              the process relies on multiple layers of decision makers who consider
              numerous factors in assessing the risks involved if a weapon is
              compromised or ends up in unfriendly hands. To minimize the risks, it is
              critical that the decision makers have ready access to reliable and
              complete information on such factors as the recipient country’s ability to
              protect the advanced weapon or technology. Yet the process does not
              always include a systematic sharing of up-to-date information with NDPC
              members. Given the turnover of military officials involved in the NDPC
              process, it is especially critical that complete and readily accessible data
              from the National Disclosure Policy System database, up-to-date CIA
              assessments and NDPC security surveys, and relevant intelligence
              information from other agencies are available to make fully informed
              decisions.



              Page 22                                               GAO-03-694 Defense Trade
                         To ensure that NDPC members have complete and accurate information in
Recommendations for      a centralized database that facilitates coordination and decision making on
Executive Actions        the potential release of advanced weapons and technologies, we are
                         recommending that the Secretary of Defense direct the NDPC Executive
                         Secretariat to

                     •   evaluate the accuracy and effectiveness of the upgraded National
                         Disclosure Policy System,
                     •   determine with NDPC members the additional capabilities, such as
                         inclusion of CIA risk assessments, needed for the upgraded National
                         Disclosure Policy System, and
                     •   work with the DOD Policy Automation Directorate to address user
                         comments and technical problems related to the upgraded system as they
                         arise.

                         To ensure that useful and timely information is available for making
                         informed release decisions, we are recommending that the Secretary of
                         Defense direct the NDPC Executive Secretariat to

                     •   work with CIA to prioritize risk assessments that need to be updated,
                         establish a schedule for performing these assessments, and systematically
                         distribute the assessments to NDPC members through the automated
                         system or other means;
                     •   develop a plan to be used as a business case for determining the
                         appropriate level of resources required to conduct needed security surveys
                         or if a survey cannot be conducted, ensure that an alternative analysis of
                         or information on the foreign government’s security capability is made
                         available to NDPC members; and
                     •   identify what additional information, such as end-use monitoring reports,
                         would be useful to NDPC members, and establish a mechanism for
                         requesting this information from appropriate sources, and systematically
                         distribute it to NDPC members.


                         In written comments on a draft of this report, DOD agreed with a number
Agency Comments          of our findings and recommendations but did not agree with others.
and Our Evaluation       Specifically, DOD concurred with our recommendations to evaluate the
                         upgraded National Disclosure Policy System, prioritize CIA risk
                         assessments that need to be updated or conducted, and identify additional
                         information needed to facilitate decision making. DOD did not concur with
                         our recommendations to investigate further the capabilities of the
                         upgraded National Disclosure Policy System or establish a firm schedule
                         for addressing technical problems with the upgrade. DOD also did not



                         Page 23                                            GAO-03-694 Defense Trade
concur with our recommendation to develop a plan for NDPC security
surveys. Further, DOD stated that our depiction of the NDP process
appears to mislead the reader about the information available to
committee members when making decisions.

At the time of our review, DOD had taken 3 years to develop an upgraded
system primarily because of limited input requested from users, which
resulted in a major redesign of the system. In addition, deployment of the
upgrade was delayed a number of times because of technical problems.
This system was deployed after our review was completed, and we have
since modified our recommendations to reflect the current situation. In
commenting on our original recommendations, DOD stated that
improvements to the upgrade cannot be identified at this time. However,
in our discussions with NDPC members, they have already identified
capabilities they would like to have in the upgrade, such as inclusion of
CIA risk assessments. Additionally, DOD stated that NDPC personnel will
identify problems with the system and bring them to the attention of the
software developers. We believe all users of the system, including
committee members and not just NDPC personnel, should participate in
the identification of technical problems to ensure that the system is
meeting user needs. Further, DOD said that developers have quickly fixed
minor software problems. We, therefore, are no longer recommending that
a firm schedule be established but rather that technical problems be
addressed as they arise.

With regard to our recommendation on a plan for NDPC security surveys,
DOD stated that it already develops a schedule for completion of such
surveys. Implementation of the schedule is largely dependent on
committee members volunteering to conduct the surveys. However, the
plan we envisioned in our recommendation would include not only a
schedule but also information such as the reason each security survey is
needed and the level of resources necessary to schedule and conduct the
survey. We believe the plan would provide an opportunity to develop a
business case to determine if dedicated resources are needed to complete
security surveys on a prioritized basis, instead of largely relying on
committee volunteers. We have modified our recommendation to clarify
its intent.

We disagree that our report misleads the reader about the sufficiency of
the information available to make decisions. Committee members we
spoke with stated that information, such as more timely CIA risk
assessments and security surveys, would allow them to make more
informed decisions. Our recommendations are intended to enhance the



Page 24                                            GAO-03-694 Defense Trade
information needed for the decision making process. DOD’s letter and our
detailed evaluation of its comments are reprinted in appendix III.

The Department of State did not provide formal written comments;
however, a senior State official said that the report was informative.


As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution of this report until
30 days after its issuance. At that time, we will send copies of this report to
the Chairmen and Ranking Minority Members of the House Committees on
Government Reform, on International Relations, and on Armed Services
and Senate Committees on Governmental Affairs, on Foreign Relations,
and on Armed Services. We will also send copies to the Secretaries of
Defense and State and the Director, Office of Management and Budget. We
will also make copies available to others upon request. In addition, the
report will be available at no charge on the GAO Web site at
http://www.gao.gov.

Please contact me at (202) 512-4841 or Anne-Marie Lasowski at (202)
512-4146 if you or your staff have any questions concerning this report.
Major contributors to this report are listed in appendix IV.

Sincerely yours,




Katherine V. Schinasi
Director, Acquisition and Sourcing Management




Page 25                                               GAO-03-694 Defense Trade
             Appendix I: Scope and Methodology
Appendix I: Scope and Methodology


             To ascertain the process for determining the releasability of an advanced
             weapon or technology, we conducted a literature search, reviewed the
             related law and regulations, and analyzed policy, directives, and guidance
             governing the process. We interviewed officials in the Departments of
             Defense and State, the military departments, the Joint Chiefs of Staff, three
             Combatant Commands, and the intelligence community to understand
             how the interagency committee process works for reviewing exceptions to
             the National Disclosure Policy (NDP). We also obtained briefings on
             special committee processes such as the Low Observable/Counter Low
             Observable Executive Committee process. We analyzed military
             department policies and procedures for reviewing requests for the transfer
             of weapons and technologies and discussed the review and coordination
             processes with pertinent military officials.

             To determine if U.S. technological advantage is considered and protected
             in the review process, we reviewed selected weapons transfers records,
             including pertinent initial country requests; military department, Joint
             Staff, and other National Disclosure Policy Committee (NDPC) members’
             input and positions on the requests; and limitations and conditions
             included in the final committee positions. We analyzed the types of
             limitations and conditions used to protect technological advantage and
             discussed these and their effectiveness with military department experts,
             as well as Joint Staff officials. Through discussions with these officials, we
             also identified other safeguards that committee members consider to
             preserve U.S. military advantage. We reviewed GAO and Department of
             Defense (DOD) reports related to these various safeguards and specific
             limitations and conditions.

             To identify and assess the types of information used in the process, we
             reviewed the NDP and DOD’s and the military departments’ releasability
             regulations. We interviewed officials in the Executive Secretariat for the
             NDPC, the military departments, Joint Staff, and State Department to
             obtain their perspectives on information required for NDP exception
             decisions. We also obtained a briefing and demonstration on DOD’s
             centralized National Disclosure Policy System database and its upgrade
             and discussed the capability of this system with various users. We
             analyzed data on Central Intelligence Agency risk assessments and NDPC
             security surveys performed over the last 25 years. We determined the
             number of assessments and surveys that were performed more than
             5 years ago or were not completed for countries that had received
             exceptions to NDP for potential weapons transfers during 1997 through
             2002. We identified additional information that may be useful to the



             Page 26                                               GAO-03-694 Defense Trade
Appendix I: Scope and Methodology




National Disclosure Policy Committee and discussed this with committee
members.

We performed our review from June 2002 through May 2003 in accordance
with generally accepted government auditing standards.




Page 27                                          GAO-03-694 Defense Trade
                                             Appendix II: National Disclosure Policy
Appendix II: National Disclosure Policy      Criteria



Criteria

                                             The National Disclosure Policy Committee (NDPC) considers five criteria
                                             when determining the releasability of classified military information,
                                             including weapons and technologies. These criteria are broad and are
                                             implemented on a case-by-case basis. Table 1 provides the criteria and the
                                             types of information that decision makers consider when assessing each
                                             criterion.

Table 1: NDP Criteria and Examples of Information to Consider for Each Criterion

NDP criterion                                Examples
Proposed transfer must be consistent with    Officials must reference presidential, National Security Council, or other high-level policy
U.S. foreign policy and national security    decisions to justify how this criterion would be met. These officials can consider how:
objectives.                                  • The prospective recipient government cooperates with the United States in pursuit of
                                                foreign policy and political objectives.
                                             • A specific U.S. national, diplomatic, or military purpose will be served.
                                             • The proposed release will be used in support of mutual defense objectives.
Proposed transfer must be consistent with    Officials must explain how the transfer, if compromised, will not constitute an
U.S. military and security objectives.       unreasonable risk to U.S. military technology and operational capabilities, regardless of
                                             the intended recipient. If officials determine that risks outweigh gains, alternatives are
                                             considered to minimize or prevent damage to U.S. technological advantage. They
                                             consider such issues as:
                                             • The type of technology involved.
                                             • The impact of possible compromise.
                                             • The susceptibility of the item to reverse engineering.
                                             • The capability of the foreign recipient to reverse engineer the item.
                                             • The foreign availability of the technology or equipment involved, as well as other
                                                governments to whom similar equipment or technology has been released.
Proposed transfer must result in benefits    Officials must consider contributions to U.S. political, military, or economic objectives.
to the U.S. equivalent to the value of the   They consider such contributions as:
transfer.                                    • Standardization and interoperability of equipment or increased defensive capability for
                                                an ally.
                                             • Access to bases and ports owned by the recipient nation.
                                             • Positive impacts on the U.S. industrial and technology bases when the recipient nation
                                                funds research and development of an advanced weapon or technology that the
                                                United States can also use.
                                             • A foreign government’s support or participation in a specified military objective that is
                                                advantageous to the United States.
Proposed transfer must depend on the         Officials must evaluate the proposed recipient government’s intent and capability to
foreign recipient providing the items        protect U.S. classified military information. To establish a recipient government’s intent,
substantially the same degree of             the U.S. government enters into a General Security of Information Agreement or a
protection as provided by the United         similar security arrangement with the recipient government. To validate the capability of
States.                                      the recipient government to provide the necessary degree of protection, DOD relies on
                                             • embassy security assessments,
                                             • historical precedence,
                                             • Central Intelligence Agency risk assessments, and/or
                                             • NDPC security survey reports.
                                             In the absence of an NDPC security survey, efforts shall be made to obtain, through
                                             intelligence channels, a counterintelligence risk assessment or security analysis of the
                                             foreign government’s security capabilities.




                                             Page 28                                                        GAO-03-694 Defense Trade
                                                                Appendix II: National Disclosure Policy
                                                                Criteria




 NDP criterion                                                   Examples
 Proposed transfer must be limited solely                        Officials must limit the transfer of the weapon to information for operating and
 to information needed to fulfill the purpose                    maintaining that weapon, as well as for training on the equipment. However, other
 for which the transfer is made.                                 information, such as research and development data and production data, would not be
                                                                 provided.
Source: DOD Directive 5230.11, Office of the Deputy Under Secretary of Defense for Policy Support International Programs Security Handbook, and discussions with NDPC members.




                                                                Page 29                                                                                  GAO-03-694 Defense Trade
                            Appendix III: Comments from the Department
Appendix III: Comments from the
                            of Defense



Department of Defense

Note: GAO comments
supplementing those in
the report text appear at
the end of this appendix.




See comment 1.




See comment 2.




                            Page 30                                      GAO-03-694 Defense Trade
Appendix III: Comments from the Department
of Defense




Page 31                                      GAO-03-694 Defense Trade
                 Appendix III: Comments from the Department
                 of Defense




Now on p. 23.




See comment 3.




Now on p. 23.




See comment 4.




Now on p. 23.




Now on p. 23.




                 Page 32                                      GAO-03-694 Defense Trade
                 Appendix III: Comments from the Department
                 of Defense




Now on p. 23.




See comment 5.




Now on p. 23.




                 Page 33                                      GAO-03-694 Defense Trade
               Appendix III: Comments from the Department
               of Defense




               The following are GAO’s comments on the Department of Defense’s
               (DOD) letter dated June 24, 2003.


               1. We disagree with DOD’s statement that our depiction of the National
GAO Comments      Disclosure Policy (NDP) process appears to mislead the reader about
                  the sufficiency of the information available to make decisions. We
                  accurately describe the process, but found that the information
                  supporting the decisions was not always complete, up-to-date, or easy
                  to access. We further acknowledge in the report that each request is
                  reviewed on a case-by-case basis. While DOD states that supporting
                  information must be furnished to each member of the Committee for
                  review, committee members we spoke with stated that information
                  such as more timely National Disclosure Policy Committee (NDPC)
                  security surveys and Central Intelligence Agency (CIA) risk
                  assessments would facilitate the process, thus allowing members to
                  make more informed decisions.

               2. The National Disclosure Policy System that was used to make
                  decisions during the last 4 years contained data only for decisions
                  made during that time period. DOD indicated that this system was a
                  follow-on to another database containing historical data. However,
                  some committee members and officials told us that this older database
                  is not easy to use and contains only summary information. In addition,
                  one committee member does not have access to this database. The
                  report clearly states that an upgraded system has been developed.
                  DOD asserted that glitches and technical problems are to be expected
                  for a system in development. We understand that such technical
                  problems can occur with an upgrade. However, at the time of our
                  review, the system had taken over 3 years to develop, and deployment
                  was delayed a number of times because of technical problems and
                  limited input requested from users. As DOD has acknowledged, the
                  effectiveness of the upgrade is yet to be determined.

               3. We believe that it is too early for DOD to assert that the upgraded
                  system has proven to be reliable and efficient, given that it will not
                  formally assess the effectiveness of the system until September 2003.
                  DOD’s response acknowledges that improvements are expected but
                  cannot be identified at this time. However, NDPC members told us
                  about capabilities they wanted included in the upgrade, such as
                  inclusion of CIA risk assessments. We believe that DOD should be
                  proactive in seeking input from users about such additional
                  capabilities needed for the upgraded system. We have clarified our
                  recommendation to indicate that this information should be obtained



               Page 34                                             GAO-03-694 Defense Trade
Appendix III: Comments from the Department
of Defense




    from members after they have had an opportunity to use the system
    and can assess the need for improvements.

4. DOD acknowledged that as NDPC personnel identify problems with
   the upgraded system, they will bring these problems to the attention of
   the software developers. However, our recommendation was directed
   toward obtaining input from all NDPC members who are users of the
   system, not just NDPC personnel, to ensure that user needs are met. In
   addition, DOD said that developers have quickly fixed minor software
   problems. We, therefore, are no longer recommending that a firm
   schedule be established but rather that technical problems be
   addressed as they arise.

5. While DOD indicates that it already develops a schedule for
   completion of NDPC security surveys, our recommendation is
   intended to include not only a schedule but also additional
   information. Specifically, we believe that a plan should also identify
   surveys to be conducted and the reasons each survey is needed;
   establish time frames for completing these surveys; and estimate the
   resources needed to schedule and conduct these surveys. Based on
   this information, DOD can develop a business case to determine if
   dedicated resources, instead of committee volunteers, are needed to
   ensure that surveys are completed on a prioritized basis. We have
   modified our recommendation to clarify this point.

    Finally, DOD states that no known alternative analysis currently exists
    that would provide information comparable to that provided through
    the security surveys. However, the department has acknowledged that
    the CIA risk assessments may be used as the basis for decisions when
    a security survey cannot be conducted. This is the type of alternative
    analysis that we are referring to in our recommendation.




Page 35                                              GAO-03-694 Defense Trade
                  Appendix IV: Staff Acknowledgments
Appendix IV: Staff Acknowledgments


                  Anne-Marie Lasowski, Marion Gatling, John Ting, Ella Mann, Shelby S.
Acknowledgments   Oakley, Karen Sloan, Marie Ahearn, and Stan Kostyla made key
                  contributions to this report.




                  Page 36                                          GAO-03-694 Defense Trade
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             Page 37                                           GAO-03-694 Defense Trade
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           Page 38                                           GAO-03-694 Defense Trade
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