House panel calls for export reform to help small defense firms

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Export reform is one of many recommendations included in a report sent to the Pentagon this week by the by the House Armed Services panel on Business Challenges within the Defense Industry.

The report, the first one drafted by the six-month old panel, strongly advocates loosening of federal export controls for military-specific equipment, with an eye toward supporting smaller defense firms. It also calls upon the Department of Defense to increase the percentage of business it awards to these firms from 23 to 25 percent.

Panel members also want Defense Secretary Leon Panetta and the service chiefs "to develop a long-term strategy for maintaining a robust and effective defense industrial base," according to the report.

Federal regulations governing foreign sales of military hardware have made it difficult for companies like Boeing or Lockheed Martin to market their wares to militaries around the world.

Major defense firms have been targeting markets in the Middle East and Asia especially, to coincide with the White House's new national security strategy and its focus on the Western Pacific.

But those same rules have virtually cut out small defense businesses from those markets, Rep. Bill Shuster (R-Pa.), chairman of the bipartisan panel, said Wednesday. 

The need to reform military export control laws is "something we heard everywhere we went," Shuster said, recalling conversations he had with small-business owners in his district and across the country.

Second-tier defense firms simply do not have the funding or resources to navigate the archaic export regulations that govern foreign military sales, Rep. Rick Larsen (D-Wash.) added.

Without access to foreign markets, small defense firms are solely dependent on the Pentagon as their main customer. But with DOD looking to trim more than $500 billion from department coffers over the next decade, there simply isn't enough business to go around, according to Larsen.

That said, "these businesses may not [necessarily] go away, but they may go do something else," he said.

Small defense firms often serve as the incubators for next-generation technologies in areas like cyberwarfare and unmanned systems. Losing those companies means losing an "important function of the defense industrial base," Larsen added.

Even though the panel is seeking changes to the way the United States sells weapons around the world, the GOP-led panel opted not to endorse the Obama administration's efforts on that front.

Last August, the Obama administration unveiled a new export reform strategy that is designed to double military and commercial exports over the next five years.

The strategy includes reducing the list of what sensitive military hardware cannot be sent overseas. The plan will also outline new parameters for information technology systems.

The panel faces an uphill climb getting export control reform through Capitol Hill. Jurisdiction over export control falls to the Armed Services, Foreign Relations and other powerful committees.