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DoD Briefing on U.S./U.K. Defense Cooperation

Presenters: Mr. Kenneth H. Bacon, ASD PA
February 08, 2000 2:00 PM EDT

Tuesday, February 08, 2000 - 2:00 p.m. EST

(Also Participating: Mr. James Bodner, Principle Deputy Undersecretary of Defense for Policy)

Mr. Bacon: Good afternoon. Thanks for coming. Our briefer today is James Bodner, who is the principal deputy undersecretary of Defense for policy. And he's going to talk first about a declaration of principles that the United States signed with the United Kingdom in Munich on Saturday, but he'll talk more broadly about current programs underway to increase interoperability of defense establishments on both sides of the Atlantic.

He's brought a team with him, and he will introduce the team.

Q: Do you have copies of the declaration?

Mr. Bacon: We do, and you can get them from Mr. Whitman in -- Where are they?

Staff: In the back.

Mr. Bacon: They're back there, just down the hall.

Staff: (Off mike) -- I'll give you some right now, how about that?

Mr. Bacon: All right. Jim Bodner.

Mr. Bodner: Thank you, Ken. As Ken said, while the primary topic here is the declaration of principles that Secretary Cohen and British Defense Secretary Hoon signed over the weekend, I want to put it into a broader context about the efforts we've been undertaking in recent months to enhance international cooperation and our technology security.

The first and most important point I'm going to stress is that ensuring the national security requires that we do both -- we have to have effective export controls and technology security, and we also have to have effective mechanisms for international industrial cooperation in defense products and services. We need to prevent technology from going where we do not want it to go, and at the same time we have to facilitate the technology transfer to and from those with whom we expect to conduct military operations in the future.

The current processes that we have accomplish both these objectives, but not as effectively or as efficiently as we would like.

Moreover, our current processes will become less effective and less efficient on both counts if they do not keep pace with a changing world -- in particular, with the restructuring and internationalization of industry; with the approaching ubiquity of information systems, both to conduct business and to conduct war; and the growing importance of commercially developed technology for defense equipment. And if our processes fail to keep pace with these changes, the result will be that our allies will be denied capabilities that we want them to acquire, while our adversaries will acquire capabilities that we want them to be denied, with national security suffering on both counts.

That's why, at the direction of Secretary Cohen and Deputy Secretary Hamre, we have undertaken aggressive reform efforts to simultaneously facilitate industrial cooperation, to enhance U.S. and allied military capability, and at the same time improve the effectiveness of our export control system.

A key factor in enhancing the military capabilities of the NATO alliance, as well as with our other allies and partners, is improving the ability of our respective forces to operate together effectively on the battlefield.

Interoperability, of course, is not a new issue, but I would say that there's a new urgency behind it. First of all, NATO is no longer solely deterring; it is doing. For four decades, NATO prepared for the possibility of conducting military operations, but for the past four years, NATO has spent every single day conducting contingency operations, ranging the spectrum from peacekeeping to high-intensity conflict.

Second, there's a large gap in military capabilities between the United States and our allies that affects our ability to operate together in the field.

Third, this gap is growing because of a disparity in investment, both capital investment in R&D and procurement, but also intellectual investment in innovative concepts.

To give some measure to this disparity, let me just note that since 1997, DOD's procurement budget has grown from $42 billion to over $60 billion, a 40 percent nominal increase and a 33 percent real increase. Both in terms of procurement and R&D, DOD invests far more than our allies do combined. And in terms of innovative concepts, we continue to move forward with such measures as the establishment of the Joint Forces Command, to accelerate joint experimentation on new operational concepts, and the services also have moved forward with plans to transform how they fight.

Now NATO's primary answer for addressing these gaps is the Defense Capabilities Initiative, which NATO's heads of state launched last April, after the 50th anniversary summit. As you know, NATO has identified specific steps to improve allied capabilities and interoperability in the five areas of mobility, precision weaponry, communications, sustainment, and survivability. And if you're anything like me, all of that is too bureaucratic to memorize, so the way I remember it is to talk about it as forces need to move, to shoot, to talk, to eat, and to breathe. Those are the five elements of the DCI.

And the requirements for those five elements are changing as we look at the need for NATO be able to conduct sustained operations on short notice at distant locations involving digitized forces in an environment in which they will be subject to attack by chemical, biological, or other asymmetric forms of warfare.

So, NATO's response is the DCI. There's a number of things that we have to do if we're going to facilitate the success of the DCI, the Defense Capabilities Initiative. Let me list just a few of the things we're doing, and then we can get into a discussion of the Declaration of Principles.

One of the more important things we're doing is that we have reengineered the Foreign Military Sales program to make it more transparent and user friendly. We have done so with the participation of allied governments and defense industry. The FMS program is one of the most important means of fostering interoperability and cooperation between U.S. and allied military forces and programs.

Secondly, we've also reengineered our export licensing system within the Department of Defense. We've eliminated a huge backlog of license applications. We've reorganized how we process licenses within DOD to expedite review of routine cases, so that our licensing officers can focus on more complicated, higher-risk cases. And we've also increased the number of licensing officers by about 50 percent.

In addition to that, we've also improved the National Disclosure Process, and that is the DOD-chaired interagency process for determining when it's appropriate to share classified military information with foreign governments, as it frequently is in order to support sales of U.S. defense equipment or cooperative military programs. As of last August, we've taken the National Disclosure Process system paperless, entirely paperless, pursuant to the Defense Reform Initiative. Over the last year, we've often imposed discipline on the system so that decisions are made in a timely fashion.

In another effort, we're moving forward with our plan to realign the structures and the processes within the three military departments, by which they address international cooperation, disclosure questions, and export control. This will make the overall system within DOD more transparent, more user friendly, more efficient, and in the end, more effective.

And to demonstrate that we put our money where our mouth is, in the defense budget we have just submitted to the Congress, we are proposing $30 million in DOD money, over the next four years, to buy an integrated information system that will link the export licensing authorities at DOD, the State Department, the Commerce Department, and defense industry. A common, integrated information system among these players will have a dramatic impact on improving the efficiency of reviewing export license applications and, therefore, it will also improve technology security by allowing more interagency time and energy to be focused on high-risk cases.

Now, of course, in addition to all of these steps, another critical effort is the effort we have under way to reduce the impediments to cooperation between U.S. and European defense companies; and I should say actually more broadly than that, companies on both sides of the Atlantic that develop and produce defense equipment and services because we no longer rely just on defense companies but more broadly on industry in general, given that we are moving more and more to use of commercial technology.

Transatlantic industrial linkages of various types can be a powerful mechanism for promoting interoperability of our forces; for example, by creating incentives for common or compatible standards, as well as through joint projects.

The U.S.-U.K. Declaration of Principles signed this past weekend is a major step forward in this effort. It gives us a road map for moving ahead with reducing obstacles to industrial cooperation. As you know, it specifically addresses harmonization of military requirements, assurance of supply of defense goods and services, export procedures, information and technology security, ownership in corporate governance, and R&D cooperation. The declaration sets forth the direction we want to pursue, and it leaves the basis for follow-on negotiations on binding agreements that can be pursued in each of these areas that I have just mentioned.

The United States and U.K. of course have had a long history of close cooperation, both between our governments and between our industries. We think that the declaration will facilitate us moving forward towards even greater cooperation that will enhance the interoperability of allied forces and enhance allied military capabilities.

Now, some of you have already had the opportunity to ask questions of Secretary Cohen and Defense Secretary Hoon about this. Many of you have already seen the background material, but I know some of you haven't. So some of the questions here, for those who have been through this, might repeat what you have already done in Munich. That's okay.

Let me also say that we have got people here from different elements of the Department of Defense, who have more expertise than I do on some aspects of this. And I'd be happy to call them up, if appropriate.

And let me just mention, I have got Pete Verga here, who is the deputy undersecretary of Defense for Policy Support, Al Volkman next to him, who is the deputy undersecretary of Defense for International Cooperation. And in the back is Marv Winkelmann, who works with Al Volkman on international cooperative programs. Paul Gebhard of Secretary Cohen's staff, he has also been involved in this intimately.

So with that, let start with questions, and I will call up folks as appropriate. Yes, ma'am?

Q: Could you describe very specifically the current impediments between cooperation between U.S. and U.K. countries and governments on programs and which specifically you'll be looking to get rid of?

Mr. Bodner: Well, the first and most important point is that we actually have a great deal of cooperation with the U.K., and between our industry. And our governments are organized and aligned in similar fashions. And so the cooperation we have is significant.

And that's reflected in, for example, the degree of U.K. involvement in the United States defense industry and, on a reciprocal basis, U.S. involvement -- U.S. industry involvement in the U.K.

At the same time, we recognize that we have a wide variety of impediments. Just here within the Department of Defense, we know that the way in which we process and handle export license applications impedes the ability of U.S. companies to work with British counterparts. It takes a significant amount time for an application to get reviewed and a decision to be issued, sometimes far too long, far longer than is necessary. That's a practical impediment that we hope to improve. We have taken steps on our own within DOD to reduce that time for routine cases. We think that we can work cooperatively within the U.S. government to reduce that time even further. We think on the British side there are similar improvements that can be made.

But that is just one practical element. We really did not try to pre-judge what specific impediments need to be worked on. We have gone out to industry both in the U.S. and in the U.K. to query them as to things they view as to impediments to cooperation between companies on both sides. And that will certainly be part of the input that we use as we go forward.

I'll ask my colleagues if there's anything else to add.

Mr. Volkman: I would just probably reiterate what you just said, and that is, as part of the preparation for these negotiations, we asked the U.S. industry what they considered to be the largest --

Q: Would you use the mike?

Mr. Volkman: I'm sorry. In preparing to have these discussions with the United Kingdom, we surveyed some U.S. industrial concerns and asked for their views as to what the impediments were. And the largest single impediment that was identified by everyone was the export license process, the one that Mr. Bodner has identified as an area that we're paying particular attention to.

Mr. Bodner: I'll add to that that there are cultural impediments, if you will, and that's one of the most important aspects, I think, of the declaration. Within our system, you have very many people who work on issues related to disclosure questions, cooperation and transfer of information and technology in the review of export licenses. Just to put it in practical terms, for example, in a situation in which we have sold a piece of military equipment to another country, there are many follow-on issues that come into play. Should a particular technical manual be shared with the other government's military representatives? We have people in the field who have to make these kinds of decisions, and they have delegated authority to make those decisions, and where they base their decisions in part on the record in the past of when such information has been shared, but also from their general understanding of what the department's policy is.

We are trying to shift the culture from one focused solely on protecting technology to one that is focused both on protecting technology that needs to be protected, but also sharing technology when that's appropriate.

Our system has not been enculturated on the latter point enough. That's one of the reasons why, despite all the efforts over many years to improve NATO interoperability, we've had only limited success, because the people in the field, doing the best job they can, on the basis of what they understand policy to be, have put primary focus -- in some cases, sole focus -- on protection of technology.

My opening comments were pointed towards both factors are required for national security. We have to keep technology from going where we don't want it to go. We have to facilitate technology going where we do want it to go.

And so by having the two secretaries of Defense signing this document in public and issuing this in unclassified form and distributing it around, we hope to educate everyone in our system that the orientation has to be towards both.

In routine matters, we want to expedite license review. That will enable us to focus our energy on the troubling cases where technology truly is at risk. We also want to get people out in the field who make these decisions on a delegated authority basis to be focused on both aspects: protecting security and technology where we need to; facilitating transfer of technology where it's appropriate and enhances national security.

So I think that's implicitly one of the most important elements of this. It's the commanders' intent, as our military colleagues would put it, to facilitate cooperation between the United States and the United Kingdom.

Q: This may seem awfully basic, but can you define for me the difference between a routine sale and a high-risk sale, how that determination is made, and perhaps give a few examples of some high- risk sales that are pending now?

Mr. Bodner: In a general sense, what I refer to as "routine cases" are ones that are cases that have been considered in the past -- same type of technology, same type of equipment, going to the same destination. If a decision has already been made in the past that it's appropriate for a particular technology or piece of equipment or a component to go to a particular destination, it should not take an extensive period of time to reaffirm that decision yet again in the future.

A more difficult case would be a case that is very complex or a case that breaks new ground, with new types of technology that previously have not been reviewed, and therefore you do need a lot of input from the military departments, the intelligence community, and others as to the risk that might be attendant with a decision on that.

Q: Is the UAE jet sale -- is that a high-risk sale?

Mr. Bodner: It's a complicated case, to be sure.

Q: But -- so is there a difference between being complicated and being high-risk, or is that the same thing?

Mr. Bodner: It's complicated, and it's breaking new ground.

Q: So the answer is yes?

Mr. Bodner: It's complicated and breaking new ground.

Q: (Laughs.) Are there other examples that come to mind of pending sales that are in that same class?

MR. BODNER: Again, I wouldn't want to cite specific cases, but I will say that anytime you have new technology developed and you don't have a track record for how you're going to deal with it, that requires more careful consideration. And right now, we have a system in which too much time is devoted to the routine cases and that denies us the ability to focus our energy as we would like to on cases that are more complicated or are breaking ground.

But we've made great progress, I think, at least within the Department of Defense at the Defense Threat Reduction Agency, in doing this, and I give great credit to Dr. Jay Davis, the head of the Defense Threat Reduction Agency.

Q: I don't mean to monopolize this, but I gather that one effect of what you're trying to do is process both the routine things and the high-risk cases a little more quickly. I mean, figure out ways to deal with both of them a little more efficiently --

Mr. Bodner: If it can be more efficient on the routine cases, then the finite number of people we have working them can focus their attention on the more complicated cases and increase security as a result, I think.

Q: What's the average length of the review process, and what do you want to get it down to?

Mr. Bodner: Well, let me put it not in terms of averages; look, Pete may have better data. But let me go back to May. I think we had 650 applications that had been in the system in excess of 60 days, back in May. That number has been cut by 95 percent.

Q: Applications for what, exactly?

Mr. Bodner: Applications for export licenses for some good which is subject to export controls.

Q: This is purely a declaration. There's not going to be any legislation proposed, any executive orders issues, any regulations changed as a result of this, right?

Mr. Bodner: (Inaudible.) This declaration is a commander's intent coming from the two secretaries. It's a vision statement that gives us a roadmap, and in the specific areas I talked about, such as R&D cooperation, harmonization of military requirements, export processes, security. All of those are areas in which we can anticipate potential benefit in negotiating further agreements that would, in fact, be legally binding. This is not legally binding, but it does set a roadmap for our organizations which is a path down which we intend to walk.

Q: The U.S. government is not going to take any steps on its own to change any regulations because of this declaration, is that correct?

Mr. Bodner: We already are doing a great deal, in the Department of Defense and interagency, to improve the system. This is a statement of principles by which the Department of Defense identifies with the UKMOD common objectives that we seek to further as we continue this ongoing process. So this fits into a broader set of efforts that we have under way.

Every year we, in fact, do propose legislative changes to improve the system, and that continues this year; this year we will have proposals. And we are working with our colleagues in the interagency on specific ideas they have and specific ideas we have to improve the system.

Q: If I could go back, in routine cases, what's your goal for how many days you'd like to have those dealt with?

Mr. Bodner: I think our average, back in May, was roughly 50 days, inside the Defense Threat Reduction Agency. I think that by about October, we had reduced that to approximately 30 days, and our goal is 15 to 20 days, on average. But again, more complicated cases deserve more time; more routine cases ought to be done more quickly.

I'm sorry, let me go back to people who have not had a chance.

Yes, ma'am?

Q: Is this statement likely to change the policy for approvals of buy-outs of American companies by British companies? The approval process, is that likely to change -- is that going to make it easier for British companies to buy American companies?

Mr. Bodner: As I say, historically, we have actually had a very close relationship with the British, between our governments, between our industries. Just as the United States industry has good representation in Britain, U.K. industry has good representation here in the United States.

You'll recall that May of 1997 -- (to staff) -- was it, Al? -- (returning) -- that we dealt with the proposed GEC Marconi acquisition of Tracor. That was by no means the first British acquisition; it was by no means GEC Marconi's first acquisition. They already had three major acquisitions in the U.S. But that was groundbreaking in the sense of the size of the deal, the complexity of the deal, and the sensitivity of the technology involved. But I think it demonstrated that we, in fact, are very open-minded about integration of our industrial bases. And GEC Marconi had a track record that we could count on and, therefore, we did approve that deal. That, of course, has changed over time as British Aerospace Systems has purchased Marconi.

So what I would say is that we have always been open-minded. Over the last couple years we have become, I would say, more open-minded and demonstrated that through our actions. This document, I think, is reflective of that same attitude in the Department of Defense.

Q: So there are no specific changes in the antitrust reviews and things like that?

Mr. Bodner: No. First of all, this document, of course, is between U.S. DOD and U.K. MOD, so it reflects our intentions, our common objectives, and it reflects our attitudes about those kinds of issues; it doesn't push changes in those issues.

Q: Kind of a follow-up to that, really. Last year when there were various studies going on of how the Pentagon should deal with globalization, Dr. Hamre and others had said that there would never be, or at least there wasn't the anticipation that there would be, a set policy on globalization, but that it would be approached country by country. Could this be considered somewhat of a policy on globalization vis-a-vis the Brits, at least? And I guess the follow- up to that would be should we expect other things like this maybe down the road?

Mr. Bodner: Let me focus on your last point, because I'm not sure if I would agree with how you've characterized a previous statement.

We have been conducting discussions with a number of countries. A number of countries have come to us looking for discussions on these issues, because they know that we have impediments on both sides to industrial cooperation and defense cooperation. And so there's a common desire to try to reduce those impediments. In the case of the British, we started off from a point of closer collaboration, I would say. And so it was easier to come to agreements on this set of principles. We hope that our discussions with other countries will also be fruitful. The forum in which they will produce results may differ. But we are talking with other countries. So we have bilateral discussions under way.

We have a variety of forums in which we work this. Pete and his staff work in a forum that's called the Multinational Industrial Security Working Group that addresses some of these issues on a multilateral basis. So we have a wide-ranging effort going on, and our general philosophy has been to make as much progress in any given area that we can make. We were able to come to closure with the British on this agreement, and I think this will produce results and we will push forward with subsequent follow-on agreements that potentially would be legally binding and bring about even greater improvements. But we're very interested in pursuing improvement with many of our allies.

Q: Besides Germany, what countries are you having these kind of discussions with?

Mr. Bodner: There are a number of countries in Europe, and there are some countries outside of Europe.

Q: Well, can you name a few?

Mr. Bodner: Have we said publicly?

Staff: Yeah.

Mr. Bodner: We have. Okay.

We're talking to the Australians, we're talking to the Dutch, we're talking to the French, we're talking to the Germans, and eventually we'll be talking to the Swedes.

Back there?

Q: Are you able to put your finger on it and say what exactly does Britain get access to now that you've signed this declaration? I mean, it's a lot of words, but in essence, what is it that the U.K. get access to? And secondly, this agreement will differ from country to country. Is that -- is my understanding of that correct? What you have signed here with the U.K. isn't necessarily what you've signed with the Dutch or the Australians. They all differ.

Mr. Bodner: Again, this document reflects progress that has been made in our discussions with the British on a basis in which we already have a tremendous amount of cooperation between industry and between governments.

This lays forth a road map that we intend to walk down, leading potentially to other agreements that would be legally binding, that would in fact change systems and processes.

So this is the vision statement, the road map, the instruction from our leadership on how to proceed.

In terms of other countries, again, each case we'll pursue as much as we can, as quickly as we can. If we can come to agreement on terms, based upon a common philosophy and common view about how we want to proceed, that's similar to this, that's fine. If, in certain cases, it takes another path, because that's the most effective path to take to improve cooperation, then that's what we'll do.

Q: What about my first question?

Mr. Bodner: I think I answered it. In terms of disagreement per se --

Q: No, what exactly does the U.K. get access to now? What doors does this open? I mean, does the U.K. suddenly more access, say, to stealth technology vis-a-vis JSF?

Mr. Bodner: As I say, we already have a good deal of cooperation with the British.

Q: Yeah, but no --

Mr. Bodner: There's cooperative programs on Joint Strike Fighter. Mr. Volkman might be able to address that, if you want more details on that.

We have a high degree of openness, as we talked about with an earlier question, in terms of U.S. investment in British business and, on a reciprocal basis, British investment in U.S. business. So we already have a high degree of openness between us. We think this will remove some of the impediments so that more of them can proceed.

The answer to what specifically does this produce on Sunday that wasn't there on Friday, it doesn't produce a specific change in that. What it does is it creates the road map by which we will accomplish the kinds of changes you're talking about. And you need to have that vision before you can accomplish the specific measures. And this is the statement that spells out that vision.

Q: Yeah. How has the State Department cooperated or not cooperated with your efforts?

Mr. Bodner: We have had a great deal of cooperation with the State Department, very productive dialogues. I'll give you some background. Al's boss, Admiral Dave Oliver, and I earlier this year convened an inside DOD working group of all parties who were involved in the export control process. And the State Department very generously has given us a lot of time, coming to our internal meetings for hours on end, once or twice a week, listening to us inside DOD air our dirty laundry about how our system doesn't work as well as we would like. And they've given us many insights to help us improve our system -- the Commerce Department as well. So they've devoted at very senior levels a lot of attention to these issues.

More recently, we have sat down with the State Department and we're working through, as I said earlier, some very specific proposals they have for improving the process and very specific proposals we have for improving the process. And we hope that that will come to fruition in the coming weeks and months.

So I think the dialogue we stage has been excellent, and I think it's been very helpful to us, and I think it'll produce important improvements in the system.

Q: And there's $30 million just in computer systems?

Is that basically a computer network linking --

Mr. Bodner: (Inaudible) -- an integrated information system. I think we have $1.5 million in the '00 budget to help develop that over the course of four years, $30 million request is. We are requesting legislative authority to enable us to do this because normally you don't commingle funds from different departments. So DOD is willing to step forward and develop and buy this system for all the departments.

Q: So the DOD will be footing the entire $30 million?

Mr. Bodner: We think it's so important to have an integrated system that will improve the effectiveness of the system and the efficiency of the system, and we're willing to pay for it.

Q: I don't want to belittle what you have accomplished here. But if I understand correctly, these discussions that led up to this agreement have gone on for at least a year or more.

Mr. Bodner: I think that June was where we got down to brass tacks. And the British actually proposed in June, that we had a document of this sort.

Q: And as you said though, Britain is our closest and most trusted ally. We have extensive cooperation with them. Why is it so difficult to actually make some decisions about what indeed you are going to change; I mean, to actually move forward and start making changes?

Mr. Bodner: I wouldn't say that it's been difficult. I think we have accomplished a great deal in identifying the road map. Before you head out on a path, you ought to know your destination. This attempts to identify the destination so that when we sit down to work out specific agreements, we know what our common objectives are.

Q: And I am just wondering, is it because the system is so complicated; is it because the equipment is so complicated? Is it because of differences of opinion within the government on how fast to proceed? What's the -- what makes it such tough going?

Mr. Bodner: First of all, I am not sure I agree with your premise that this has been slow in coming. I think that this represents a lot of progress fairly quickly in the course of a period of time, a course in which we had some change in the leadership in the MOD.

So I think we are quite pleased with the pace at which this has gone. We have set ourselves a very aggressive schedule to, one year from now, put forward in front of the secretaries, the two secretaries, specific proposals in each of the areas that we have talked about, either new agreements or amendments to existing agreements. So I think it's a very aggressive schedule.

Q: A hypothetical: Does this make it easier or if not easier, help pave the way for, you know, British Aerospace or BAE Systems, for example, to buy Lockheed Martin-Sanders? Without addressing that specifically, would you characterize this as helping pave the way for those kinds of things to happen in the future? It would be easier now -- you would have this road map, this big vision -- than it was earlier?

Mr. Bodner: First, let me say that going back to the earlier question, there already is a high degree of cooperation in the industry. And the Department of Defense, going back the last couple of years, has, I think, taken a more open-minded view of that kind of thing between the United States and Britain.

And that was reflected, to cite one example, in our review and quick decision in the Tracor case in which we not only agreed to it, but we had sufficient confidence in the British government system, sufficient confidence in the companies involved that we actually agreed to proceed forward with it before we had worked out the details of a special security arrangement. There's a high degree of confidence there that -- (inaudible word) -- us move forward.

But it reflected, I think, a ground-breaking choice that we made at that time, and so that reflects a general attitude within the Department of Defense that we think that industrial linkages of various types can, in fact, facilitate enhanced allied capabilities and interoperability. And certainly that would be a factor in any future review, along with all the other factors that get taken into account in those kinds of considerations. Of course, DOD is not the lead on those deliberations in the first place. Department of Justice or the Federal Trade Commission is the lead. We play a supporting role, commenting to them on the national security requirements.

So this document, I think, reflects the same development of DOD views as did those earlier decisions, such as the Tracor decision. It's reflective of the same open-mindedness, and it does, in fact, point to, if you look at the actual document, if you have a chance to review it, there are a couple of passages in it -- in the corporate governance, in ownership passage -- where we do talk about our desire to see the freest possible cross-border investment in defense-related industry.

So this reflects the desires that we have to see industrial linkages that businesses decide make business sense and which support the efforts to improve interoperability and allied capabilities as well as improve the health of the defense industry. And let me turn to Al Volkman and see if he has additional comments on this kind of point. This is the area in which he focuses.

Q: What I'm asking is does this reflect that the Pentagon is ready now to get on board with something like a -- I just mentioned the example of Lockheed Martin-Sanders -- but some people would describe this as earth-shattering, compared to ground-breaking, like you mentioned Tracor was. (Laughter.) That's not on the same level with sensitivity of the technology being a primary concern. But I guess that's my question. Does this reflect the Pentagon's willing to get on board a big thing like that?

Mr. Bodner: Obviously, we're not going to comment on any specific hypothesized case from the get-go. That's a given here.

We are open-minded.

We have said, in October, that given the practicality or the difficulty of very large-scale mergers and acquisitions, as a practical matter we see it more likely that there'll be joint projects, joint (teaming ?) arrangements, joint ventures of varying size and complexity as opposed to a mega-merger of one of the mega-companies on either side of the Atlantic not as a matter of philosophy, but as a matter of practicality.

Do you have any comment?

Mr. Volkman: I'd just make a short comment.

In my discussions with defense industries on both sides of the Atlantic they see discussions between the U.S. and the U.K. government toward removing impediments as being -- to industrial cooperation as being a valuable exercise for the governments to undertake. So in that regard I think they view this positively, and it creates confidence that governments are making honest efforts to remove the impediments that have kept industry in the U.S. and in the U.K. from cooperating closer in the past.

Mr. Bodner: And on that I would just say that we've actually had a very productive discussion with industry over the last few months in which in addition to our acknowledging some of the impediments we have in place, they have acknowledged some of the impediments they have in place. They need to do a better job, for example, in training.

The single most common reason why a license application takes a long time to process is that the license application came in with incomplete information. So they acknowledge that they have to do a better job on their part in training their people to facilitate our consideration of their applications. We need to do a better job on training ourselves.

One of the things we have done that I didn't mention is that Dr. Hamre has signed off on a directive that, in essence, all elements of the department that are involved in these kinds of international programs get proper training. We'll prioritize who gets the training so that it'll have the greatest impact the soonest. But right now we don't do a good enough job in giving training opportunities to the people in the department who have to work these cases. And therefore it takes them longer to get the job done.

Q: How does it affect cooperation with U.K. companies which aren't necessarily U.K.-owned -- I'm thinking, for instances, Shorts Missiles, which is now owned by the French -- where you don't have an agreement with that third country? Where does the line draw?

Mr. Bodner: If you look in the agreement, you'll see that we talk in terms of some of the additional complexity that attends a situation in which you have third parties, third countries involved. So they'd naturally bring additional complications to them.

Q: As we stride purposefully on the path the road map has laid out, do we expect to arrive at a destination somewhat similar to that which Canada occupies, where the U.S. will treat countries we sign such agreements with as part of our industrial base, effectively?

Mr. Bodner: For those of you who aren't familiar with the situation with Canada, for a very long time, even preceding NAFTA, we have had an arrangement in which the U.S. regulations that govern defense equipment cooperation, we have a very broad exemption for Canada, which has allowed U.S. industry and Canadian industry to, in many respects -- not all respects, but many respects -- develop a common industrial base. So that is today a unique situation.

Will this take us to a similar place? I don't want to prejudge the outcome of that. We certainly see the benefits of the situation we have with Canada. We also are aware of the challenges, because it requires a high degree of cooperation between the governments, the different elements of government that are involved in export controls.

So that is setting a high mark. But it certainly could result in a greater degree of cooperation. And so we're not ignoring the possibility, let me put it that way.

Q: I'm not sure I understand how this agreement, you know, deals with the problem of transferring sensitive technologies from, say, a U.S.-owned company to a, say, in this case, a British-owned company, and, you know, whether it will allow it? And is that necessarily a good thing for the United States? I mean, how does the United States keep control over that technology?

Mr. Bodner: That is one element of this. What this agreement does is not change the processes by which we work those questions, it says that we want to improve those processes; that we recognize that in some cases there are impediments to that kind of technology-sharing which are in neither country's interest, which, in fact, are contrary to the national security interests. And in those cases, we want to reduce those impediments.

The question you're implying at the end has to do with third- party retransfer. We currently have in place procedures with the U.K. regarding third-party retransfers. Those existing procedures remain in place until we have an opportunity to improve upon them. But that will in fact be one of the things that I think we would look at doing. This covers much more than that, as well, than what you identified, but what you identified certainly is part of this.

Q: But in principle, you don't have a problem with ownership of sensitive technologies moving from the United States to Britain?

Mr. Bodner: That's a rather general question, and outside a specific case, it's hard to answer. But I will say that there are certain cases in which --

Q: You're willing to consider that on a case-by-case basis?

Mr. Bodner: Yeah. Administrative impediments to information sharing and technology sharing, both countries recognize as not in our interest. And in that case, when it's not in either country's interest, it's not in the national security interest, we want to reduce those impediments.

Q: You say this is a DOD-MOD only agreement. What about defense activities carried out by the Department of Energy -- the defense programs, things of that sort? Because I know -- I'm thinking of a specific example, you had a fellow from Oak Ridge at Lockheed Martin a couple of weeks ago. He's now going to be in Great Britain handling work for the British nuclear weapons activity. Would this cover that sort of cooperation as well?

Mr. Bodner: What we anticipate is that in the follow-on discussions with the British, it will be necessary, depending on what the topic is, to bring other government agencies involved, because DOD is not the only stakeholder in this. There certainly are other stakeholders. Which agencies would be involved depends upon which issue is being addressed.

Q: Is this at all -- I guess this isn't legally binding, but would this affect Burton's status, like under "buy America" restrictions? Could it, at some point, where their companies would be considered effectively part of the U.S. industrial base and could get around those restrictions?

Mr. Bodner: This agreement does not change anything with regard to that. What it does is it gives us a path to improve things, a course of discussions on how to improve things. If there is some improvement to be made in that arena, well, then we certainly will be open-minded about talking about it. But these obviously are complicated questions, and to your point earlier, in some instances they are very complicated questions and there are not going to be quick resolutions; in some cases, there will.

Q: Are the State Department and the Foreign Ministry going to do something similar? Would you like to see them do something similar?

Mr. Bodner: As I say, we are engaged right now in some very productive discussions with the State Department on specific ideas they have for improving the system, specific ideas we have for improving the system. In some cases, these ideas are very similar, and we're very hopeful that they will lead to rapid progress.

Let me ask my colleagues if I've overlooked some issues or other questions you feel elsewhere that might need addressing.

Mr. Verga: (Off mike.)

Mr. Bodner: Well, thank you very much.

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