Remarks of Kevin J. Wolf Assistant Secretary of Commerce for Export Administration July 29, 2014

Details

U.S. Department of Commerce

Bureau of Industry and Security

Update 2014 Conference -- Washington, D.C.

Remarks of

Kevin J. Wolf

Assistant Secretary of Commerce for Export Administration

July 29, 2014

Kevin Wolf_update

Thank you Eric. It is still an honor to work for and with you. You’re a terrific leader, public servant, and friend. And, better yet, you are making a difference. We’ve worked together on a daily and usually hourly basis for nearly five years now, and I continue to be amazed and amused that you still have in your head relevant anecdotes to cleanly sum up or shed light on whatever the issue of the hour is. They are mostly from the 1970s, but they are still germane.

Last year I spoke about the 5 Stages of Export Control Reform Acceptance. I hope none of you is still in the denial stage. As Eric well described, the reform is happening. It will continue to happen. When the Administration said five years ago that it was going to reform the system, it was serious. It is not an academic exercise. Indeed, as of June 2014, the dollar value of 600 series license applications has exceeded $7 billion. Commerce license exceptions have been used 11,000 times for exports of 600 series items to allied countries. The rate of growth in the usage of License Exception STA is exponential as more companies get used to it and its requirements. In addition, there have been nearly 3000 exports of 600 series items to Canada. The other top destinations for 600 series exports, by the way, are the United Kingdom, Japan, South Korea, and Mexico. And all this information pertains only to the new categories that have come on line. These numbers will certainly grow as grandfathered State Department approvals begin to expire and other categories, particularly satellites and military electronics, become effective at the end of this year.

For those of you in the second stage – anger – and thus angry that "reform" didn’t mean that we would just completely decontrol your product. Get over it. As Eric described, this isn’t a decontrol exercise and isn’t a regulatory game with arbitrary regulations and burdens just to mess with you. There are serious national security and foreign policy reasons for controlling items that, regardless of sophistication, have been specially designed for military applications. All we’re saying with the defense trade side of the reform effort is that most such items do not always require the worldwide licensing and other ITAR requirements that are warranted for the most sensitive military items.

I know some of you are still in the third stage -- panic. We get it. We know that learning the new system, the new definitions, the new controls, the new exceptions, and the new options is a lot of hard work for everyone. Thank you. But based on all the public comments and all our interactions with companies large and small, we are confident that, once you get over the hump of learning the new rules, they will accomplish our national security goals and regulatory efficiency goals.

May of you are in the 4th stage – bargaining. You are working with us to see the contours of the new regulations relative to your product. Great. Keep it up. We look forward to working with you and answering all your questions. For those you trying to see how much you can get away with, we’re on to you. Just stick to words written.

The rest of you are in the acceptance stage. The system is working. You are engaged in trade, including joint development and production activities, with regular customers in closely aligned countries far more efficiently than was the case last year. The time you spent on getting ready for the new system has driven a new sense and awareness of export compliance through your companies, which, of course, furthers the objectives of the export control system. In the course of putting our grand ideas and new regulations into practice, you are identifying various things that would help the overall goal even more. Great. Please keep spotting and letting us know your thoughts. We have already published several clarification rules and FAQs to respond to your ideas.

When thinking of the reform effort, we often speak of the status of the list review effort. That is appropriate, of course, because almost all control issues flow from the scope and meaning of what is on the control lists and the work of revising the lists has been a massive interagency effort. My earlier point about the regular need to tweak and revise the regulations and the system is, however, one of the real victories of the reform effort. So, don’t think about the reform effort exclusively as something where there is a finish line and then the regulations and the procedures stop changing. Think about the reform effort as instilling in the Administration a culture of regularly thinking about and then actually making the changes that are needed to the system in order to accomplish the core mission, which is, again, for various national security, foreign policy and other reasons, identifying and controlling the specific items, technologies, software, and services that warrant government review before being exported or reexported to specific end uses, end users, and destinations. If something no longer warrants such controls because of changes in technologies, for example, then it should come off the list. If something new presents issues from a national security or foreign policy perspective, which includes human rights concerns, then the regulations need to be revised to address it. For export controls to accomplish their mission without imposing more of a regulatory burden than necessary, they, thus, need to be dynamic. This is where you -- those focused on export control compliance -- come in and why we are delighted that you are with us for the next three days at our Update conference. You will listen to us. We will listen to you. Together we will keep working to make this an ever more perfect export control system.

Another victory of the reform effort is that we are getting to a system where exporters -- and reexporters -- can really believe the regulations. When I was an export control attorney, I’d usually give two types of advice – what the law said and what the lore was. We have not gotten rid of all lore yet, but we’re moving in that direction. In particular, if something is on the USML, it’s ITAR controlled. If it’s not, then it’s not. If something is on the CCL, then you need to check for licensing obligations beyond the general prohibitions pertaining to end uses and end users. If not, then you don’t.

Over the course of the next three days, you will be hearing many weedy details from me and the others here about the reform in defense trade, and also trade in satellite and other dual-use and controlled commercial items. By the way, the rumors are true – for any export control topic, I really do have a three minute version, a thirty minute version, three hour version, and a three day version. Yes, there are lots of words in the new regulations, but the concepts for the new controls are actually quite simple. So, here is the three minute version of the main part of ECR.

If the item you’re exporting is described on the new USML, it is still ITAR controlled. If your technology, software, or service directly relates to something that is on the new USML, then it remains ITAR controlled. If your item is not described on the USML, then it and the technology, software, and services directly related to it are also not ITAR controlled. Remember, the ITAR doesn’t include as many catch-all controls for unspecified parts and components as it once did, so do not just assume your part or component is still ITAR controlled because it is for a military end item.

If your item (or related technology or software) is not described on the USML, then you check the relevant 600 series entry on the CCL. If it is a part or component listed there or if it is otherwise specially designed for something in the 600 series entry or the corresponding USML category, then it is subject to the 600 series controls. Similarly, for those in the satellite business, if your item is not listed in the new USML Category XV, then it will (effective November 10th) not be ITAR controlled. If it’s listed in the new satellite 9x515 ECCNs on the CCL, then it will be controlled there.

The significance of this new jurisdictional and classification system is that we’ve essentially divided the world up in to three groups with respect to 600 series and satellite items subject to the EAR – the group of 36 NATO and other close allies, the group of countries subject to arms embargoes, and all other countries. If you are engaging in trade with known companies or with the governments in the group of 36, there are several license exceptions for most 600 series and satellite items that you can use. With some advance planning and compliance-related work with the companies, your trade in these items can become incredibly efficient. If you are working with new companies or other companies or governments in other countries, then you will generally still need a license, but, once you get used to the Commerce system, getting it will involve fewer overall regulatory and paperwork burdens. If you are engaging or want to engage in unauthorized defense trade, directly or indirectly, with countries subject to arms embargoes, then that is just as illegal today under the EAR as it was before the reform effort with the ITAR. Indeed, one of the ultimate goals of the reform effort is to allow us to focus more of our attention on investigating, stopping, and prosecuting illegal trade with such countries. Again, there are lots of details, but that is the three minute version.

Many of you here, I realize, are not involved in defense trade. You may be wondering how the reform effort pertains to you. It is true that changes to the controls on dual-use items have not been as dramatic as changes regarding less significant military items. This is a function of several things. First, the volume of trade in less significant military items is dramatically larger than trade in controlled dual-use items. Second, we have essentially done for less sensitive military items that which has been done for controlled dual-use items for decades – allowed for the export under license exceptions to destinations and for end uses that are not as much of a concern within the scope of our commitments to the multilateral regimes. Moreover, we created STA for use with most dual-use items several years ago – long before it was applicable to defense items. Third, most of our dual-use controls are a function of the multilateral agreements. In order to make material changes to those controls beyond the domestic exceptions that already exist, we need to work through the processes associated with each of those regimes. Thus, the significant changes for dual-use items are coming out more piecemeal and without the dramatic effect of publishing new USML categories that have not been materially revised for decades. By the way, as Eric pointed out, we are not decontrolling any item on the Wassenaar Munitions List, we are just controlling it differently.

With respect to changes on dual-use controls, we have, since the last Update conference, revised 80 ECCNs, added 11, and removed 4. We’ve revised 7 EAR definitions, added 4, and amended 14 supplements. In the Wassenaar rule that will be published this week, we revised 34 ECCNs, removed 3, and added 1. We raised the Weighted TeraFLOPS control parameter from 3 to 8 in 4A003.b and from .25 to .60 in 4D001 and 4E001. We added to 5A002 a decontrol for mobile telecommunications Radio Access Network (RAN) equipment designed for civil use. We removed the licensing requirements for exports to Mexico for NS 2 and RS 2 items. We clarified the General Technology and Software Notes. We revised, clarified, and added new controls on Microwave Monolithic Integrated Circuits. We added controls on accelerometer-based hydro-acoustic sensors because of their military utility. We added ECCN 7D005 "software" "specially designed" to decrypt Global Navigation Satellite Systems (GNSS) ranging signals designed for government use, to close a loophole in the controls that are associated with the control of receivers. There are many other changes that will be described later in detail.

As part of the ongoing effort to harmonize the ITAR and the EAR, we have, for example, revised the structure of a BIS license to make it more like those issued by DDTC. The general validity period is now four years, and now end users and ultimate consignees can ship or release items to and among each other to allow for easier collaboration and less paperwork than applying for multiple licenses for the same program. I described at last year’s Update multiple other harmonization efforts with respect to definitions used in the two sets of regulations. We are working on more such efforts with respect to the definitions of "technology," "fundamental research," "public domain," and "export." We are harmonizing and updating our support document, recordkeeping, and destination control statement requirements. We are also planning on various additional efforts to reduce other outdated aspects of the EAR, such as the Special Comprehensive License. I’d like to adopt a zero-based regulatory drafting rule that for every new word we add to the EAR we have to remove a word from another part of the EAR. Getting rid of outdated provisions will help in this effort.

There is another less quantifiable benefit to the dual-use controls that has occurred as a result of the reform effort. The agencies are working well together. Sure, we don’t always agree – and I’d be worried if we did. But the number of disagreements about what the rules actually say or what the right outcome should be are way down. The number of disputed licenses, CJ’s, CCATS, and other interagency decisions is dramatically less than it was when Eric and I arrived. This all leads to a smoother, more professional export control system, regardless of whether you necessarily like the outcome specific to your company or transaction. This is all moving us closer to one of my personal goals for the limited time I have in government, which is that the export control agencies think of themselves as part of one system, one Administration, bound by the rules, but willing and able to change those rules in a transparent, regularized process as foreign policy and national security considerations change, and as technology evolves.

Switching gears slightly, I want to address the non-US companies in the audience or who are otherwise listening. I’ve spent a significant amount of time visiting the largest non-US customers of 600 series items. I plan to do many more such visits this fall. I heard during those visits the following objections to the use of License Exception STA: 1. We don’t want to put in writing what the end use is or who the end user is because we don’t want the liability associated with providing this information to the exporter. 2. We don’t want the extra recordkeeping requirements of STA. 3. We don’t want the U.S. government to do an end use check.

As I explained, and as I think they all eventually understood and agreed to, these are not good arguments for avoiding STA. For the U.S. exporter to prepare an application, you need to provide information about the end use and the end user, and you have the same obligation to report that correctly whether it’s as part of a licensed shipment or a shipment under an exception. 2. The purpose of the recordkeeping requirements is to make sure that all the parties handling the items exported under STA are aware of the items’ control status. And these obligations are really not all that different from those associated with exports under a license. 3. We will still be conducting end use and other checks in cooperation with the local governments, and we’ll do it the same way whether the item was shipped under a license or a license exception.

I’ll close with a summary of some of the highlights of the always terrific work for each of the BIS offices. Our Office of National Security and Technology Transfer Controls, in cooperation with NOAA, has completed all the Commerce-related work that went into the re-writing of the satellite and military electronics controls. It has automated the processing of licensing determinations. It has been amazingly busy in working with the TACs and others in preparing and advocating changes to the Wassenaar regime dual use controls. And under the terrific leadership of Eileen Albanese, it continues to run a very efficient, professional, and thoughtful licensing operation.

Our Office of Exporter Services has put together another terrific Update conference and numerous other seminars around the country. They have drafted and published all the many new regulations I described earlier plus many others. They have processed hundreds of questions from the public for the weekly conference calls plus many others specific to compliance with every aspect of the EAR. OExS has also completed over 200 compliance on-site or desk reviews to confirm compliance with the EAR, some in coordination with other BIS offices, specific to both licenses exports and shipments made under license exceptions. Don’t forget to welcome the new OExS Acting Director, Karen Nies-Vogel. She will do a terrific job. You will enjoy working with her.

Our Office of Strategic Industries and Economic Security (SIES) has processed more than 5,300 600 series applications since October 15, with an average processing time of 15 days. It has conducted numerous outreach and training events with U.S. and foreign industry and foreign governments to support the implementation of Export Control Reform, including participating in major international aerospace/defense air shows in Asia and Europe. It has also launched reviews of industry’s use of STA with 600 series transactions, and has completed more than 80 reviews to date. In addition, leveraging our export control and industrial base expertise, SIES has supported the Committee on Foreign Investment in the United States’ review of the national security implications of foreign investments in the United States. It has also worked closely with the Departments of Defense and Homeland Security to administer the Defense Priorities and Allocations System (DPAS) regulation in support of national defense programs and national emergency planning. We published a proposed rule to update the DPAS regulation to reflect recent amendments to the Defense Production Act earlier this year. BIS will be publishing a final rule shortly. Thank you, Mike Vacarro, for taking the helm as the Director of this newly transformed office. You and your crew are doing great things.

The Office of Technology Evaluation (OTE) has successfully implemented needed requirements in AES for the collection of exports related to Export Control Reform. It successfully organized the training of over 200 CBP outbound officers and recorded a CBP nationwide training video on ECR. It completed the Space "Deep Dive" Survey to over 4,000 respondents and published an initial report on the impact of export controls on the space industry. It substantially contributed to the creation of the President's Executive Order on the International Trade Data System - a single window through which businesses will transmit data required by participating agencies for the importation or exportation of cargo. It established a system that targets in AES exporters non-compliant with the EAR, built a database of these exporters, and implemented a follow-up program to educate these exporters via compliance letters. Thank you, Gerry Horner, and your crew for all the great work.

As you may know, our Office of Nonproliferation and Treaty Compliance administers the industry compliance aspects of the Chemical Weapons Convention, the private sector compliance aspects of the U.S. Additional Protocol to the nuclear safeguards agreement, and participates in activities to enhance international implementation of the Biological Weapons Convention. This past year, they materially aided international efforts to verify and destroy Syria’s chemical weapons program. Foreign Policy Division licensing officers enabled the U.S. Government to provide highly sensitive protective equipment to inspectors from the Organization for the Prevention of Chemical Weapons (OPCW) and United Nations Joint Mission in Syria to enable them to perform their functions in an expeditious and safe manner. Treaty Compliance Division specialists established procedures for verifying the receipt and destruction of some of Syria’s most difficult-to-destroy chemicals at a U.S. industry facility and managed the OPCW’s verification activities at the private sector entities in the United States associated with this destruction. BIS took great pride in implementing its responsibilities efficiently and effectively during this virtually whole-of-government effort to eliminate the threat of further use of chemical weapons in Syria. Secretary of State John Kerry recently noted that the success of the interagency efforts, "took tremendous team work," and constituted, "a great accomplishment which only happened with loads of creativity, constant push and follow through." Thank you, Alex Lopes, for leading all these and all the other foreign policy and day-to-day licensing efforts of your office.

Finally, a special thanks to my good friend and export control partner, Deputy Assistant Secretary Matt Borman. He is as fine a public servant as you will ever meet. He is the rock of Export Administration and the key to its success.

Thank you all for coming. We all look forward to working with you for the next three days.