Where Industry and Security Intersect
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BXA's Office of Strategic Industries and Economic Security (SIES) plays a leadership role in a wide range of issues that relate to both the national and economic security of the United States. SIES is the focal point within the Department of Commerce for issues related to the competitiveness of the U.S. defense industrial base. Its efforts include assisting American companies to diversify their product lines, adding commercial production and markets to their defense-related business; promoting the sale of U.S. weapons systems to our allies; analyzing the impact of export controls on key industrial sectors; and conducting primary research and analysis on critical technologies and defense-related sectors. The office has two divisions: the Defense Programs Division and the Strategic Analysis Division. SIES also provides staff support for BXA's Technical Advisory Committees. For a detailed description of the office programs and functions, consult the SIES web site.
During fiscal year 2000, SIES continued to provide research and analytic support to other BXA offices and BXA management on a variety of export control-related issues. For example, SIES prepared a thorough analysis of the nuclear heavy water industry worldwide in support of an export licensing decision. In addition, SIES completed an evaluation of the reasons behind the decline since the early 1990s in the number of suppliers to manufacturers of precursor chemicals for chemical and biological weapons.
SIES provides staff support to the Under Secretary for Export Administration in his role as a member of the interagency Committee on National Security (CNS). The CNS advises and assists the White House National Science and Technology Council on increasing the overall effectiveness and productivity of our national security efforts, specifically focusing on critical infrastructure protection research and development, international technology transfer, nonproliferation, and arms control. SIES serves as primary liaison to one of the several CNS working groups, the International Technology Transfer Working Group (ITTWG). SIES also brings the Commerce Department perspective to the larger interagency review of science and technology expenditures. This review seeks to ensure U.S. national security while meeting the policy challenge of strengthening economic security.
In fiscal year 2000, BXA prepared two case studies concerning international aspects of federal laboratory technology transfer, and coproduction of the M109 howitzer gun. The purpose of these case studies is to examine the government interagency process and to consider the immediate and long-term implications of globalization and international transfers of technology. These studies permit the CNS to concentrate on the lessons learned in the decision making processes and then develop a mechanism to evaluate individual technology transfer cases as they develop.
During fiscal year 2001, SIES will continue its important role in providing economic and industrial considerations to the only interagency forum that works to increase the overall effectiveness and productivity of federal efforts in areas of international technology transfer, nonproliferation and arms control.
SIES reviews the Department of Defense's (DOD) proposed Memoranda of Understanding and other types of international agreements for commercial implications and potential effects on the international competitive position of U.S. industry in accordance with the provisions of title 10 U.S.C. 2531 (2000), which addresses defense memoranda of understanding and related agreements. These domestic and international agreements provide the framework for research and development cooperation and cooperative production between the United States and other countries.
In fiscal year 2000, SIES reviewed 126 proposed international agreements with 39 countries. Since 1990, SIES has reviewed more than 970 proposed agreements. SIES has developed a comprehensive database of proposed agreements, and in fiscal year 2001 will complete a multi-year study reviewing the technology transfer implications of these agreements.
During fiscal year 2000, SIES agreed on a Statement of Principles with the Department of Defense to more precisely explain the interagency coordination process for DOD's international cooperative agreements. This statement provides sound guidance to harmonize the promotion of American economic and security interests, while also supporting the goal of fostering defense cooperation with our allies.
SIES also continued to serve on the interagency team overseeing Japan's development and production of the FS-X/F-2 weapon system (derived under a licensing agreement from the U.S. F-16). Each phase of the program is governed by the terms of a separate MOU. SIES represents U.S. industry interests in the ongoing U.S. and Japanese government discussions regarding the implementation of the MOUs and adherence to their provisions.
Under Title I of the Defense Production Act (DPA), the President is authorized to require the preferential acceptance and performance of defense contracts or orders over other contracts or orders to meet approved defense and energy program requirements and to allocate materials, facilities, and services as needed to meet those requirements. Authority for establishing priorities and allocations of industrial resources under the Defense Priorities and Allocations System (DPAS) is delegated to the Department of Commerce and, within Commerce, to SIES.
In fiscal year 2000, SIES staff continued to work closely with Boeing, a key Boeing subcontractor, and that subcontractor's lower tier suppliers of electronic components to ensure the timely delivery to the U.S. Air Force of the Joint Direct Attack Munition (JDAM). This was a high priority activity to replenish stocks of the weapon used during the 1999 coalition action in Serbia and Kosovo. SIES staff also worked on behalf of another Boeing subcontractor with the Department of State to expedite resolution of a defense export license violation that threatened to cause JDAM production delays. In another critical matter, SIES staff worked closely with Department of Defense officials and two U.S. companies to maintain domestic production capacity of active matrix liquid crystal displays (AMLCD) used in combat aircraft, such as the AH-64 Apache Longbow helicopter, the F-15, F-16, F-18, F-22, V-22 aircraft, and in the President's Air Force 1.
SIES staff continued to ensure timely U.S. industrial base support for NATO's ongoing peacekeeping effort in Bosnia and the deployment of troops from the U.S. and other Alliance nations, as well as helping to meet Allied nation defense requirements. Items at issue included engine seals and gears for the U.K. CH-47 Chinook helicopters and SATCOM radio equipment for deployed U.K. forces; communication equipment, including encryption modules, electronic components, and positional beacons, for deployed U.S. forces; transponders for U.K. Apache Longbow, and U.K. and Canadian EH-101 helicopters; and Hellfire missile launchers for the U.K. Apache Longbow helicopter.
SIES staff also continued to work with representatives to the NATO Industrial Planning Committee to implement a North Atlantic Council recommendation to Alliance nation members concerning implementation of multilateral Alliance-wide "security of supply" (priorities and allocations) plans and procedures. This effort will help ensure international industrial base defense cooperation in the event of future NATO defense emergencies. Other international efforts included working with Department of Defense officials to implement a bilateral agreement on security of supply with the U.K. Ministry of Defense and U.K. defense industry.
The DPAS handbook, which contains the recently revised DPAS regulation (15 CFR Part 700, 1999), statutory authority, and a series of questions and answers about the DPAS, continues to be readily accessible in hard copy, or electronically from the BXA web site. Presentation files on DPAS for use by public or private sector individuals in giving DPAS training are also available electronically.
SIES is the lead organization in the Department on international defense trade advocacy issues. The Department will consider formally supporting a conventional arms transfer if the transfer is in the economic interests of the United States, and after the U.S. Government determines that the transfer will further U.S. national security and foreign policy objectives.
In fiscal year 2000, SIES defense advocacy efforts supported sales of approximately $800 million, which comprised of the sale of the AEGIS system to the Norwegian Navy. SIES worked with the U.S. Commercial Service to develop the first trade mission for the U.S. defense industry to Belgium, Netherlands and Luxembourg. In addition, SIES assisted in the creation of the France - U.S. Defense Industry Business Forum, an event that brought small and medium-sized U.S. and French firms together in an effort to facilitate transatlantic industrial links. During fiscal year 2001, SIES will continue outreach activities at major defense-related trade shows in an effort to increase awareness among small and medium-sized U.S. defense firms of the important advocacy role that SIES and the Department play in this highly competitive industry sector.
SIES's capabilities and effectiveness are enhanced through partnerships with a wide range of defense and civilian federal agencies. Through an alliance with the Federal Laboratory Consortium, which represents more than 700 federal labs nationwide, the competitive enhancement and defense diversification needs of small and medium-sized businesses are matched with federal resources. A unique partnership between SIES, the Navy Department, and the University of Maryland promotes the sharing of exceptional manufacturing practices being used in industry, government, and academia. The goal of this partnership program is to provide low cost opportunities to small businesses to help them achieve competitiveness in manufacturing.
Federal Resource Access Partnership (FRAP) Needs Assessment Survey
In keeping with its mission, SIES continually works with small- and medium-sized businesses nationwide to help them gain access to government resources that could improve their competitiveness. SIES has formed a partnership with the Federal Laboratory Consortium (FLC) to assist businesses in the United States. SIES collects information about each company through a Needs Assessment Survey. The survey asks a wide variety of questions, designed to determine what kind of assistance would be most useful to the respondents. Topics covered in the survey include manufacturing technology deployment, product/service development, research and development programs, and exporting.
During fiscal year 2000 SIES received more than 100 completed surveys from companies located in the western United States. After analyzing the surveys, SIES forwards report summaries to twelve government response team members who will provide those businesses with assistance designed to help them maintain competitiveness in the marketplace. The response team includes the Commerce Department, the 700 laboratories that are part of the FLC, the Department of Labor, and the Small Business Administration. SIES has formed a partnership with the California Small Business Development Centers to serve more firms in the western region. In addition, preliminary discussions with the Small Business and Technology Development Center in North Carolina were held to initiate a pilot program to expand activities to reach businesses throughout North Carolina and other eastern coastal states.
Best Manufacturing Practices Program Partnership
SIES continues to be a contributing partner to the U.S. Navy's Best Manufacturing Practices (BMP) Program, which identifies, documents, and disseminates best practices through paper reports and the Internet. BMP also provides software tools to companies that mitigate risk in engineering and production programs. SIES is encouraging the BMP Program to include more small- and medium-sized companies in its activities in the coming years. SIES promotes the BMP Program to members of the U.S. industrial base and the federal government through private meetings and industry shows.
In addition to its promotion of the BMP Program in the United States, SIES helped the BMP Program expand its reach by meeting with Australian defense officials to promote establishing a similar program in Australia. This initiative was in response to the United States Department of Defense and Australian Department of Defense Statement of Principles for Enhanced Cooperation in Matters of Defense Equipment and Industry, which was signed in the summer of 2000. A Memorandum of Understanding regarding an Australian version of the BMP Program between the Departments of Commerce and Navy and the Australian government is expected later in fiscal year 2001.
SIES's National Security Emergency Preparedness (NSEP) program is the Department's focal point to ensure that the Nation's industrial/technology base can respond effectively to the requirements of national emergencies. Accordingly, during fiscal year 2000, SIES staff participated in several interagency NSEP activities such as planning for, and U.S. civil agency involvement in, the NATO CMX-2000 mobilization exercise, and planning for and Department of Commerce involvement in the joint U.S. military-civilian Positive Force 01 exercise to be held in April 2001. NSEP efforts in the first quarter of fiscal year 2000 also included working closely with representatives of the President's Council on Y2K and the Department's Critical Infrastructure Assurance Office to ensure industrial base responsiveness to a catastrophic Y2K emergency. Commerce continues to be the lead Federal agency responsible for industrial emergency preparedness planning and implementation of a variety of NSEP programs, and SIES continues to be a major interagency contributor to ongoing reviews and assessments of the industrial/technology base.
SIES reviews the proposed transfer of defense equipment to foreign buyers as Excess Defense Articles (EDA) to ensure that any proposed transfer does not interfere with ongoing sales or marketing by the U.S. defense industry. SIES reviewed 149 proposed EDA transfers in fiscal year 2000, valued at $315.3 million. SIES determines whether the transfer will have an adverse impact on the defense industrial base and, if so, can recommend to the Department of Defense that the transfer not be made.
Section 5021, the "Exon-Florio" provision, of the Omnibus Trade and Competitiveness Act of 1988 (which amended Section 721 of the Defense Production Act of 1950) provides authority for the President to review the effects on national security of certain mergers, acquisitions, and takeovers of U.S. companies by foreign interests. The interagency Committee on Foreign Investment in the United States (CFIUS) and the Department of The Treasury have authority to implement the law in consultation with other CFIUS members. SIES represents BXA on the CFIUS.
SIES conducts Exon-Florio national security reviews in coordination with other relevant offices within the Department. In fiscal year 2000, the Department reviewed 76 investment notifications; one case went to the 45-day investigation period. SIES, as a participant in CFIUS, works to ensure that the U.S. defense industrial base will not be compromised by foreign acquisitions. This is consistent both with the confines of the law and the Administration's open investment policy.
At the request of industry, Congress, and other agencies, SIES conducts investigations of the effects of imports on national security. These studies conducted under the authority of Section 232 of the Trade Expansion Act of 1962, provide recommendations to the President, who may, if necessary, use Section 232 authorities to adjust imports. During fiscal year 1999, the Department of Commerce initiated an investigation of the impact of imports on crude oil and refined petroleum products. The Department self-initiated this investigation because of strong Congressional interest on the impact that oil import levels have on the financial viability of non-integrated independent producers. These producers allege that growing imports of oil at below market prices threaten to force them out of business, resulting in lower U.S. domestic production and higher levels of imports from unreliable suppliers. The final report was released in fiscal year 2000.
SIES conducts primary market research and analysis on critical technology developments and industrial base capabilities of key sectors of the economy. The office uses industry-specific surveys to provide essential data. The final reports provide recommendations to government policy makers and industry leaders. The studies are conducted in cooperation with experts from the private sector and other government agencies. The result of this collaboration is detailed data that are unavailable from other sources. The goal is to maintain and enhance economic security and to enable the private sector to monitor trends in their respective sectors. Customers for these reports include the Armed Services, Congress, and industry associations.
National Security Assessment of the U.S. Maritime Industry
SIES is conducting a national security assessment of the U.S. maritime industry in partnership with the U.S. Navy's Naval Surface Warfare Center, Carderock, Maryland and other public and private entities. The study is being conducted to identify opportunities for increased sharing of maritime technologies between public and private entities and to expand the use of public maritime capabilities in order to increase private industry competitiveness. This will require SIES to conduct several maritime sub-sector surveys as part of the assessment. The first of the surveys was sent to approximately 330 companies in the shipbuilding and repair industry during fiscal year 2000. Subsequently, three additional surveys were sent to approximately 800 companies and academic institutions; two surveys were used to collect information on research and development, and the third was sent to major subcontractors to the shipbuilding sector. The first in a series of reports, a National Security Assessment of the Shipbuilding and Repair Industry, is anticipated for public release early in fiscal year 2001.
CAD/PAD Follow-on Study
A follow-on national security assessment of the U.S. cartridge and propellant actuated device (CAD/PAD) industry for the Navy Department in near completion. CAD/PADs (small energetic devices) are vital to many weapons systems such as aircraft anti-missile defense and pilot and aircrew ejection seats. The request was made by the Indian Head Division of the Naval Surface Weapons Center in view of the decline in combat aircraft production and the overall reduction in defense procurement. The assessment will reevaluate the health and competitiveness of the industry and recommend appropriate actions that can be taken to assure its long-term ability to support defense needs. SIES conducted the original assessment in 1995.
Survey data collected from 35 CAD/Pad firms located throughout the U.S. revealed several positive trends indicating a relatively strong industry. Since the initial study was published in October 1995, shipments of automobile airbag initiators and inflators were up an average of 38 percent per year ($25 million to 339 million) for the five-year period 1991-1995. This evidence of commercial diversification reveals an added source of revenue apart from defense contracts.
CAD/PAD shipments have increased 36% since 1995; employment is also up 13% in the same time period, including manufacturing as well as management and technical workers. New investments in plant, machining and equipment are strong with $ 45 million invested in the last five years. CAD/PAD research and development, was also a strong industry indicator, with $40 million in defense and commercial. The final report with complete findings and recommendations will be delivered to the Navy Department by December 2000.
High-Performance Explosives and Explosive Components
In June 1997, the U.S. Navy's Naval Surface Warfare Center, Indian Head Division requested that SIES conduct a study of the U.S. high performance explosive and explosive component (HPE and HPE component) industry. This request followed the 1995 publication of a cartridge- and propellant-actuated device industry assessment, which was also conducted for the Navy.
The Naval Surface Warfare Center requested the study because of significant declines in the budget for military grade explosives and explosive components. According to the Department of Defense, procurement spending for munitions fell 81 percent from its high point in 1986 to its low point in 1998. In addition, research and development funding has fallen significantly since the mid 1980s and is projected to continue falling to the year 2005.
As a result, the number of firms in the industry has decreased due to firms leaving the field and through mergers and consolidations. Many within the HPE and HPE component industry are concerned that industry contraction will cause a loss of critical skills within the remaining organizations.
In early fiscal year 2001, SIES completed a draft report that included data from 33 organizations competing in the HPE and HPE component industry. The final report for the Navy is expected in December 2000.
Assistive Technologies
This technology study, initiated in late fiscal year 1998, is an outgrowth of previous cooperative efforts between SIES and other agencies and associations in our defense diversification efforts. SIES initiated this study at the request of the Department of Education National Institute on Disability and Rehabilitation Research and the Federal Laboratory Consortium. Assistive technology devices enable persons with disabilities to function more fully in the workplace and in society as a whole. The purpose of the study is to identify the industry's technology needs and match these with the defense-related technologies that are available in federal laboratories. An industry-unique survey was mailed to more than 1,700 firms in the industry; the results will be used to make such matches. This effort is expected to be completed in early fiscal year 2001.
SIES developed its Diversification and Defense Market Assessments program to assist small and medium-sized U.S. companies in their efforts to diversify and/or expand into overseas commercial and defense markets. This program is structured to provide market information for dual-use and defense products and is implemented through publication of a series of international diversification and defense market assessment guides. These guides provide information to U.S. manufacturers regarding dual-use and defense markets in specific regions: Europe; the Middle East; the Pacific Rim; and the Western Hemisphere. Each chapter within the guides provides comprehensive information on how to do business in a specific country. This information includes details on specific upcoming commercial and defense trade opportunities open to U.S. firms in these markets, as well as a listing of key points of contact, both in the United States and in the host country, who can provide additional information and assistance to U.S. firms.
In fiscal year 2000, BXA added the existing defense market assessment guides to BXA's Web site in an effort to increase access by small and medium-sized companies. Updates of all the editions, including the Middle East and Western Hemisphere Guides, are underway and will be completed in late fiscal year 2001. These guides are also available in printed format.
SIES staff, on behalf of the Department of Commerce, and the Department of State are statutory co-chairs the Interagency National Defense Stockpile Market Impact Committee (MIC) which provides expert interagency advice to the Department of Defense (DOD) on Stockpile acquisitions and disposals. The MIC is responsible for helping DOD avoid undue market impact and protecting the government from avoidable loss. In fiscal year 2000, the MIC continued to monitor closely the price fluctuations in several major commodity markets and has encouraged DOD to limit proposed stockpile sales of these commodities where undue market impact appeared probable. The MIC also supported DOD increases in proposed stockpile sale quantities to take advantage of high prices and favorable market conditions in other major commodity markets.
During fiscal year 2000, SIES continued to represent the United States on the NATO Industrial Planning Committee (IPC) which is responsible for coordinating industrial preparedness planning among the NATO allies for both NATO military defense and civil emergency preparedness response. SIES plays a leading role in the IPC's industrial analysis subgroup, which has been focusing on defense industry consolidation within the NATO Alliance nations and improvements in international industrial emergency supply protocols.
In fiscal year 2001, SIES will continue its leadership role in moving the Security of Supply effort forward through the NATO system. The Security of Supply initiative is based on the U.S. Defense Priorities and Allocation System (DPAS) which would ensure supply of critical components to NATO forces during a coalition action.
SIES is responsible for preparing an annual report on Offsets in Defense Trade report to the Congress under authority of section 309 of the Defense Production Act of 1950, as amended. Offsets are mandatory compensation required by foreign governments when purchasing U.S. defense systems; they include technology transfer, licensing coproduction agreements, and counter trade. In this report, SIES assesses the impact of offsets on the U.S. defense industrial base, in particular small- and medium-sized subcontractors. SIES will submit its fifth report to Congress in early fiscal year 2001.
For the second time, SIES raised offsets as a trade concern in the U.S. Trade Representative's (USTR) Title VII Report on Unfair Foreign Government Procurement Practices. The report alerted governments around the world that the United States is seeking a way to conduct defense trade without offsets.
In the last fiscal year, SIES improved upon the steps taken in fiscal year 1999 in the area of international consultations. SIES participates in a Department of Defense-led Interagency Offsets Working Group. The Group has continued negotiations on both a multilateral and bilateral basis. Important steps have been taken to address the issue with our European allies, since they are our largest defense trade partners and demand the highest offsets. The Group sent letters to all countries with which the United States has a memorandum of understanding, inviting these nations to meet with us to discuss possibilities for eliminating barriers to trade, including offsets. The Group met with representatives of the British, Canadian, Dutch, French, and Spanish governments, both to gain their perspective on offsets and to discuss the cost to governments of requiring and administering offset programs. The Group also published a notice in the Federal Register requesting input from all interested parties on the prevalence and impacts of defense offsets on the nation's economy and competitiveness; this information will be incorporated into a negotiating strategy for upcoming discussions.
The Department of Commerce charters Technical Advisory Committees (TACs) to provide advice and assistance from U.S. industry regarding the formulation and implementation of export control policy. SIES manages the TACs. The TACs advise the Department of Commerce on proposed revisions to the U.S. and international export control lists, on worldwide availability and use of production technology, and on export control regulations and procedures. The Committees serve as a valuable source of information and advice on regulatory and policy matters.
The Information Systems Technical Advisory Committee (ISTAC) addressed issues relating to Control List Categories 3 (semiconductor section), 4, and 5. The ISTAC submitted a detailed proposal regarding the technical parameters for computer processing speed. It also prepared a paper that served as an initial examination of a paradigm shift for computer architectures.
The ISTAC prepared a draft proposal for an alternative to calculating Composite Theoretical Performance (CTP). The Committee also forwarded a proposal for control of low-power microprocessors that took into account mass-market controllability.
The Materials Technical Advisory Committee (MTAC) addressed export control issues regarding Control List Category 1. The Committee indicated that it favored adoption of the definition for the term "specially designed" currently in use by the Missile Technology Control Regime. The MTAC provided advice to the Chemical/Biological Controls Division of the Office of Nonproliferation Controls and Treaty Compliance on U.S. control proposals that were subsequently presented at the Plenary of the Australia Group. The Committee studied the capabilities and control status of downgraded prepreg machines, which are used in shaping composite materials.
The Materials Processing Equipment Technical Advisory Committee (MPETAC) made recommendations regarding current parameters for Control List Category 2. The MPETAC refined its "Reference Guide for Category 2 Machine Tools," a spreadsheet providing Commerce Control List paragraph references for each type of machine tool on the List. The MPETAC examined all entries in Category 2 using the term "specially designed." After reviewing the entries, the Committee recommended adoption of the Missile Technology Control Regime definition for the term.
The Regulations and Procedures Technical Advisory Committee (RPTAC) continued to advise the Department on policies and procedures pertaining to the Export Administration Regulations.
The Committee made recommendations on a wide range of issues, including the following: the Exporter of Record, deemed exports, license processing, compliance and enforcement, high performance computers and microprocessors, and implementation of the Wassenaar Arrangement.
The Sensors and Instrumentation Technical Advisory Committee (SITAC) advised the Department regarding commodities and data within Control List Category 3 (instrumentation section) and Category 6. In response to a request from a manufacturer of commercial underwater cameras, the SITAC agreed to investigate revisions to the Commerce Control List entry for that commodity. The SITAC continued its review of regulatory terms within the Export Administration Regulations and the Wassenaar Arrangement. It supported adoption of the Missile Technology Control Regime definition for "specially designed." The SITAC relayed to the Department the commercial implications of any changes to the commodity jurisdiction of night vision equipment.
The Transportation and Related Equipment Technical Advisory Committee (TransTAC) advised the Department on commodities and technical data within Control List Categories 7, 8, and 9. The TransTAC focused on changes to the listings for coatings, propulsion, and inertial equipment items that would correspond to changes in the Wassenaar Arrangement and the Missile Technology Control Regime. The TransTAC defined characteristics of concern for microelectromechnical systems (MEMS)-based angular accelerometers, supporting a control proposal for that item. The control was later adopted by the Wassenaar Arrangement.
In April of 2002 the Bureau of Export Administration (BXA) changed its name to the Bureau of Industry and Security(BIS). For historical purposes we have not changed the references to BXA in the legacy documents found in the Archived Press and Public Information.