Pentagon to study if export controls keep firms out

An aerial view of the Pentagon building in Washington, June 15, 2005. The Pentagon will examine industry concerns about U.S. export controls and whether they are keeping nontraditional contractors out of the defense market, a top Defense Department official told Reuters on Tuesday.

WASHINGTON (Reuters) - The Pentagon will examine industry concerns about U.S. export controls and whether they are keeping nontraditional contractors out of the defense market, a top Defense Department official told Reuters on Tuesday.

Bill Greenwalt, U.S. deputy undersecretary of defense for industrial policy, said a new report prepared for his office by the independent Institute for Defense Analyses cited concerns about long wait times for approval of export licenses.

It also found many companies feared that selling products to the Pentagon could make them subject to stringent federal rules aimed at keeping sensitive items out of the wrong hands, hampering their ability to compete internationally.

"Firms have expressed a concern that they don't want to do business with (the Department of Defense) for fear that their products will become ITAR-controlled and therefore they will not be able to go out on the marketplace," Greenwalt said.

ITAR, or International Traffic in Arms Regulations, is a set of U.S. regulations that control the export and import of certain defense-related articles and services.

A coalition of U.S. aerospace, electronics and other manufacturers on Tuesday called for an overhaul of U.S. export controls, blaming them for delays and lost business.

"The fear of an ITAR taint ... that's one we really have to work on," added Greenwalt, a former top aide to the Senate Armed Services Committee. Attracting more non-defense contractors is one of his top strategic goals, he said.

Pentagon and State Department officials are already working closely to improve the export control process, and Greenwalt said his office planned to closely examine the concerns raised in the new report.

The Pentagon has tried to streamline its procurement rules to attract more new companies to the multibillion-dollar defense market, including those in the telecommunications, biotechnology and information technology sectors.

Buying more products on the commercial market could save money and give the Pentagon access to big logistics and supplier chains, he said. Smaller companies were also often more creative in responding to changing military needs.

"We want those dynamic, commercial entrepreneurial firms to be part of our supplier base," he said.

In a letter to President Bush, the companies complained that the approval process for exporting defense and dual-use technology, which has both military and civilian applications, is plagued by delays. Last year, the State Department had a backlog of 10,000 cases.

Companies complain that tough and lengthy export control procedures keep them out of foreign competition.

Greenwalt said his office's annual report to Congress, due out soon, would conclude that the overall health of the U.S. defense industrial base was good, although there were continuing concerns about maintaining a well-trained work force, boosting competition and fostering more innovation.

Other concerns included the need to better understand the growing importance of the service sector for the Pentagon, as well as the health of the helicopter industry, he said.

That sector is facing capacity issues after over a decade of fluctuating military orders and the lack of consistent investment in new platforms, Greenwalt said.