High Performance Computers

Remarks of David W. Mills, Assistant Secretary for Export Enforcement

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Bureau of Industry and Security
Remarks of David W. Mills
Assistant Secretary for Export Enforcement
BIS Annual Update Conference

 September 1, 2010

 

Good afternoon, and thank you for coming today. It’s nice to see so many familiar faces.  And it’s great to be back at the Commerce Department.  This is where I started my career as a young attorney for the Bureau of Export Administration in the 1980s.  And now, under President Obama, I have the honor of serving as the Assistant Secretary for Export Enforcement. 

In the intervening three decades, much in the world has changed: 

  • Global trade has grown exponentially;
  • The number of nations Americans regularly do business with has grown dramatically; 
  • Today, some of our most significant adversaries during the Cold War have become our most important trading partners.  

But flourishing global trade has made dual-use items more accessible, and the possibility that American-made technology can be used against us has grown.

Today, we face myriad threats from bad actors, rogue regimes and terrorist groups, threats that are both more diffuse and far less predictable than ever before. 

But what has stayed the same since I last worked at Commerce is the importance of robust export controls, and smart export enforcement. 

Additionally, it continues to be a top priority of BIS to work cooperatively with the crucial first line of defense against illegal export transactions: our exporters, forwarders, and couriers.  These are the folks who know what products are being exported, who the ultimate end-users will be and where they’re located, and how best to comply with the EAR.

Stopping bad actors from doing us harm will take a tremendous effort.

And effective export enforcement remains a critical pillar of our national security strategy and foreign policy objectives.

Export Enforcement will always prosecute any threat to America’s national security.  If someone sells items that enhance the military capabilities of a potential adversary, we will leave no stone unturned to prosecute them.   

So how does Export Enforcement adapt to threats that arise in the increasingly globalized and technology driven world economy? 

Our agents are singularly focused on export controls and have a highly developed expertise both in the regulations they enforce and the global threats that they address.  It is my commitment to do these dedicated men and women justice in my capacity as the Assistant Secretary for Export Enforcement at BIS.

Our agents are based throughout the country and around the world in critical international export hubs such as Hong Kong, Singapore and the United Arab Emirates.

They are export enforcement experts; they inspect cargo before it’s shipped abroad, detain items being illegally exported and they can recall shipments in transit if unlicensed exports are involved.

And the President’s export control reform initiative will mean that we do more of this, not less.

Our mission is also supported by our analysts in the Office of Enforcement Analysis, or OEA, who evaluate export transactions, visas, press reporting and intelligence information to help our Special Agents better identify and investigate bad actors.  And agents rely on OEA to recognize and track the evolving illegal practices that our adversaries continuously engage in.

Domestically, OEA helps licensing officers differentiate good actors from bad ones.  And OEA also plays a key role in conducting and supporting end-use checks overseas by our special agents, including those serving as Export Control Officers stationed abroad.  By verifying the trustworthiness of foreign end-users, OEA has enabled U.S. businesses to get licenses to sell sensitive technologies overseas.

Export Enforcement also plays a vital role in protecting American businesses from foreign boycotts, a mission charged to our Office of Antiboycott Compliance, or OAC.  U.S. firms may not participate in foreign economic boycotts that are counter to U.S. foreign policy. Typically, when businesses run afoul of these regulations, it’s by going along with the Arab League boycott of Israel.

In the past year, OAC has negotiated settlements in 11 cases involving alleged violations of the antiboycott provisions of the EAR, resulting in fines totaling $350,000.

Catching those who violate our export control laws and finding the world’s most sophisticated bad actors – the weapons proliferators, state sponsors of terrorism and terrorist organizations, and prohibited end-users - has become increasingly complicated.

This is why we also work closely with the Department of Justice and a number of other federal law enforcement agencies to bring criminal prosecutions, and with the Treasury Department’s Office of Foreign Assets Control on joint civil settlements. 

Our agents and analysts also work routinely with the domestic and international intelligence communities to disrupt and dismantle extremely sophisticated international procurement networks.

All of these agencies bring unique skills and authorities to the table.  And together, we work to preserve and enhance our national security.

The use of targeted sanctions to isolate bad actors and rogue states is on the rise.  And for these sanctions to work against nations like Iran and North Korea, cooperation will be at a premium.

For us, that plays to our strengths.  Both within BIS and with our sister agencies, we play well with others.  

Moreover, our breadth of experience helps us be a better partner with one of our most critical allies: you, the exporting community. 

You have heard in the last day or so about a change of focus on the export licensing side.  We also are altering our approach on the enforcement side as well.  We will continue encouraging voluntary self-disclosures, and we will minimize penalties in the VSD cases where appropriate. 

Moreover, if a company had a good internal compliance program in place before the violation and the violation was inadvertent, those will be considered significant mitigating factors.  

But, we will also be taking a harder line in other circumstances involving willful misconduct.    

While we have typically sought penalties against companies more so than individual employees, as Under Secretary Hirschhorn pointed out yesterday, this is about to change.

Going forward, when a violation is a deliberate action of an individual, we will consider seeking penalties against that individual - including the denial of export privileges, fines and imprisonment.  The same will hold true for a supervisor who is complicit in these deliberate violations by subordinates.

Additionally, we are going to focus increasingly on disrupting major illicit procurement networks. 

Over the past decade, embargoed countries like Iran and North Korea have turned to foreign middle-men and front companies to acquire U.S.-origin goods. 

As a result, we’ve increased our focus on these off-shore networks.  In the last two years alone, we’ve placed 185 new foreign entities on our Entity List. 

This Entity List strategy has proven particularly effective because the Entity List targets the illegal export activities of companies where it hurts – their bottom line.

Once an entity is placed on the List, it typically finds its access to U.S. goods curtailed, and its business opportunities are often diminished, which can lead to financial problems.  Increasingly, suppliers perceive listed entities to be radioactive and accordingly are reluctant to do business with them out of fear that they themselves may end up on the same List. 

The Entity List has been a real success story, and it must continue as such.  Because we know if we don’t keep deploying effective new tactics, the cost to America could be devastating. 

As you know, the most rudimentary dual use items can be lethal.  Off-the-shelf U.S.-made electronic components have been found in Improvised Explosive Devices, or IEDs, that were used against our troops and other Coalition forces deployed in Iraq and Afghanistan, as well as injuring local civilians: men, women and children. 

While the diversion and criminal misuse of these commodities and technology is unfortunately not new – it must stop.

So let me be clear:  When exporters put our national security at risk, or jeopardize our foreign policy objectives, we will take quick and firm action.  

As always, we will aggressively bring to bear our wide-ranging enforcement powers, and utilize to its full advantage the flexible discretion these tools give us.

We will especially focus our criminal investigatory authority, our regulatory powers and our administrative enforcement authority to target companies and individuals that aide rogue regimes and terrorist groups. 

For example, look at what Export Enforcement did against the Mayrow network – headquartered in Tehran - where we exercised our role as both regulator and enforcer. 

We imposed new licensing requirements to thwart Mayrow’s efforts to acquire U.S.-origin goods and technology, and we simultaneously worked to criminally prosecute Mayrow and its agents, thereby taking aim at one of Iran’s most lethal procurement networks.

Export Enforcement utilizes this dual regulatory and enforcement role in numerous cases to disrupt and defeat these illicit procurement networks.

Take the recent case of Balli Aviation.  This is a British-based multi-national company that illegally transferred U.S.-made Boeing 747s to Mahan Air of Iran.  Had Balli applied for export licenses, its applications would have been denied. 

About two years ago, we learned that Balli was planning to complete the transfer of three additional planes to Iran.

We issued a Temporary Denial Order to stop that transfer, using this unique administrative authority to name the Balli Group, its involved subsidiaries and principal officers, and Mahan Air and its front company.  Consequently, we were successful not only in interdicting the transfer of three additional aircraft from a third country to Iran, but also in effectively grounding the three aircraft already there.

In February of this year, Balli agreed to the largest civil penalty in the history of BIS.  It was fined $15 million to settle administrative claims brought by us and the Treasury Department. 

And a federal judge handed down a $2 million criminal fine and imposed a five-year probation against a Balli subsidiary for criminal violations charged by the Justice Department.  We are currently pursuing indictments and penalties against the remaining companies and individuals involved in this activity, including those in Iran.

Another case we settled in the past year involved a Dutch firm named Aviation Services International, or ASI.

This is a small company owned and operated by a father, Robert Kraaipoel, and his son.  But this was no ordinary family run operation.  ASI ran a criminal conspiracy to sell parts for airplanes and Unmanned Aerial Vehicles to Iran.  The Kraaipoels would order items from U.S. exporters, claim the parts were for legitimate end-users, and then transship the items to Iran. 

As in the Balli case, we issued a Temporary Denial Order against ASI and its principals.   The TDO shut down ASI's business activity and forced them to come to the table with the U.S. Government.

Last September, Robert Kraaipoel pleaded guilty to a criminal conspiracy charge, ASI was hit with a $100,000 criminal penalty, and we handed down a $250,000 fine, suspended the company’s export privileges for seven years, and placed ASI on the Denied Party’s list. 

These cases are just a few examples of the outstanding work done by the agents and analysts in Export Enforcement at BIS.

Each of these cases involved companies and individuals who willfully violated our export control laws. 

We caught them; we stopped them in their tracks.  And every day, every one of us at Export Enforcement is committed to our mission to protect our national security in this dangerous and ever-changing world of proliferation and terrorist threats.

But we cannot do it alone, and we do not try to do it alone.  We need your help.

For my part, I look forward to working with all of you to continue to enhance and expand this natural partnership with the exporting community.

Thank you. 


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Remarks of Kevin J. Wolf, Assistant Secretary for Export Administration

Details

Assistant Secretary Kevin Wolf’s Remarks
Update Conference on Export Controls and Policy

August 31, 2010

 

Thank you Eric for your kind introduction.  Thank you also for your terrific leadership of BIS.  It is a pleasure working for you as we work together to help ensure our national and economic security.

As you can see from the President’s, the Secretary’s, and the Under Secretary’s comments, the Obama Administration takes export control reform seriously.  Moreover, there is strong inter-agency cooperation on the reform effort generally and on the day-to-day aspects of running the export control system.  Of course, the departments don’t always agree on every issue all the time. 

I am nonetheless impressed and heartened by the commitment of the staff and leadership of each of the departments to work together to make the export control system better and more focused on the contemporary national and economic security concerns.

The presentations this morning go from the general to the more specific.  Before I leave the trees and get in to the tall grass of export controls, I want to first thank everyone at BIS, particularly in Export Administration, for their terrific work and commitment to public service.  I am thrilled to be here and honored to be working with this group of outstanding career professionals.

When people ask how I like government service, my short answer is that I’m doing well, doing good, and having fun.  I’m incredibly enthusiastic and optimistic about the reform effort, working with my interagency colleagues, and running Export Administration at BIS.  Also, people laugh at my jokes a lot more than they used to.

My two main tall grass topics are the content and direction of the reform effort and a discussion of some of the more significant developments with BIS and the EAR since the last Update.>

The Reform Effort
Most of the public attention regarding the reform effort has been on the Phase III aspects – the four “singularities” the President first set out earlier.  No less important are the Phase II changes the Administration is working on that can be done without legislation or a single agency.  

The primary aspects of Phase II involve (a) developing the three-tiered control criteria; (b) screening items on the two control lists -- the USML and the CCL -- against those criteria; (c) revising the USML and the CCL to make them more “positive,” and (d) developing a licensing policy for Tier 2 and Tier 3 items. &nbsp

In addition to the other efforts Eric mentioned – (a) harmonizing definitions of common terms that are used in the ITAR, the EAR, and the sanctions regulations and (b) developing a common export license application form that the Departments of State, Commerce, and Treasury will use – we are also developing a single list of proscribed persons and entities that will consolidate all the various lists used by the Departments of State, Commerce, and Treasury.  The goal of this effort is to make compliance with end-user based controls easier for exporters.

Each one of these efforts will be significant to exporters and practitioners.  We will be getting in to the weeds on these topics later.  For now, I will get in to the tall grass of the control list review effort.

I realize Eric generally described the effort, but it is worth repeating a little since it is such a fundamental change to the current list structure.  In sum, the goal of the effort is to enhance national security by reviewing and revising the USML and the CCL so that they:

  1. are “tiered” consistent with the three-tiered criteria the U.S. Government has established to distinguish the types of items that should be controlled at different levels for different types of destinations, end-uses, and end-users;
  2. create a “bright line” between the two lists to clarify jurisdictional determinations and reduce government and industry uncertainty about whether particular items are subject to the jurisdiction of the ITAR or the EAR; and
  3. are structurally “aligned” so that they later can be combined into a single list of controlled items by the end of Phase III.

In order to accomplish these tasks simultaneously, the USML and, to a lesser degree, the CCL must be revised so that they are “positive lists.”
 
The background to this effort is the decision to screen all items on the USML and the CCL against the Criteria the U.S. Government has developed to determine new control levels consistent with contemporary national security threats and other issues.  If an item type falls within the scope of one of the Criteria’s three tiers, the item should be controlled for export, reexport, and in-country transfer at the level set forth in the licensing policy the U.S. Government is developing for that tier.  If an item type is determined not to be within the scope of any of the three tiers, it should not be on a control list.  This type of screening and tiering cannot easily be done for controls that are not based on objective criteria.

Another motivation for the effort is the U.S. Government decision that, during Phase II, the USML and the CCL should be revised and aligned so that there is a clear jurisdictional “bright line” between the items subject to the control of the ITAR and the control of the EAR. 

The U.S. Government is committed to creating a clear jurisdictional “bright line” because exporters, U.S. Government officials, and foreign parties cannot always easily and consistently determine whether many types of commodities, technologies, and software – and directly related services – are subject to the ITAR or the EAR.  This has huge practical impacts on the licensing obligations associated with any particular export.

The creation of an aligned, positive, “bright line” is also a vital interim step in the U.S. Government’s plan to have, by the end of Phase III, a single list of controlled items that is divided into three tiers and administered by a single licensing agency under a single set of export control regulations.  The interim “bright line” is necessary because the structures of the USML and the CCL are significantly different, as Eric described.

The first step in the list review effort will be for subject matter experts assigned to each category of items to apply their expertise and judgment to decide what the general universe of defense articles are that should be ITAR controlled.  After a review team has generally mapped out the broad scope of items that should be USML-listed defense articles, it will then need to translate the judgments of the experts into objective, positive control lists consistent with the three-tiered criteria. 

They will at the same time also need to decide what, if any, types of items that are now actually or arguably ITAR-controlled should become EAR-controlled in order (a) to differentiate items that may not need the more rigid national security and foreign policy controls of the ITAR; (b) to take advantage of the EAR’s more flexible country group-based controls; and (c) to create a bright line between the two lists. 

This task of translating subjective judgments into objective criteria is the key to the success of the entire tiered, positive list review and revision effort.

After a review team identifies the general types of items that should remain USML-controlled defense articles, it will organize each USML category so that it tracks the A, B, C, D, E structure of the CCL and also has an additional F and G “Group” to address ITAR-specific defense service and manufacturing controls.

Within each category Group (A, B, C, etc.), the review team will identify the types of defense articles that fall within that category Group’s heading and any one of the three control Criteria. 

This means that the review teams will not include in any of the revised USML categories any defense articles that do not fall within any of the control Criteria.  A different group of policy officials will, with interagency consensus, decide which other types of items should nonetheless be added to Tier 3 USML or CCL controls pursuant to the Criteria for statutory, national security, foreign policy, or human rights reasons, or other multilateral obligations. 

When revising the lists of defense articles, the review teams must abide by various guidelines.
 
For example, the current plan is that revised USML categories must not contain any (a) catch-all controls for generic “parts,” “components,” “accessories,” “attachments,” or “end-items” or (b) other types of controls for specific types of defense articles because, for example, they were “specifically designed or modified” for a defense article.

Also, items are not to be listed on both the CCL and the USML unless there are specific technical or other objective criteria – regardless of the reason why any particular item was designed or modified – that distinguish between when an item is USML-controlled and when it is CCL-controlled.

“Specially designed” – which is different than “specifically designed” -- is to be used as a control criterion only when required by multilateral obligations or when no other reasonable option exists.

After the tiering and positive listing is completed with respect to the types of articles controlled by a USML category, the government will identify the types of items in the USML category that should be moved to the jurisdiction of the EAR after any applicable Arms Export Control Act section 38(f) obligations are satisfied. 

Specifically, the government will identify for potential transfer to the CCL items that are now considered USML-listed defense articles but that, based on the teams’ review, have been historically USML-controlled defense articles merely by virtue of modifications to their form or fit (as opposed to their function) and are types of items that do not provide a significant military or intelligence advantage in and of themselves.

Items that are to be moved to the CCL will fall into one of five controls on the EAR:  (a) an amended existing ECCN, (b) a new Holding ECCN, (c) a new CML ECCN that Commerce plans to create in coordination with State, (d) a new ECCN, or (e) EAR99 status.  The details on the structure of each of these approaches and the various levels of controls within them are still being worked out.

Licensing Policy:  Commerce, in cooperation with Defense, State, and Energy, is also developing a regulatory proposal that will provide more flexible licensing authorizations as we move down the control tiers.  This approach will eliminate certain dual-use licensing requirements for allies and partner nations, consistent with our statutory and international obligations. 

The Department of Commerce will implement the new licensing policies in the EAR by creating a new Part 740 License Exception that will authorize the export and re-export of EAR-controlled items to specified destinations without an individual validated license.  The details of precisely which countries will be fixed to which of the tiers are still being worked out.

The primary reason for adopting a License Exception as the method for implementing the new licensing policies is that the use of License Exceptions in the EAR can easily be made conditional.  That is, if an exporter wants to export an item without a license under the scope of a License Exception, there are additional steps and obligations pertaining to the export. 

The new License Exception will thus be a vehicle for implementing some of the “higher fences” aspects of export control reform that Eric mentioned.  Specifically, use of the new License Exception will impose a licensing requirement on the reexport from abroad, even by foreign persons, to most destinations outside the exception’s applicable country group of items originally exported from the United States under the authority of the exception. 

The License Exception will also likely impose as a condition for its use some combination of (a) end-use restrictions and assurances, (b) destination control statements, (c) reporting requirements that distinguish between end-users and distributors, and (d) recordkeeping requirements.  In addition, based on the data derived from the reporting requirements, Commerce would conduct outreach to U.S. companies with a history of exporting to destinations eligible for the License Exception on the enhanced compliance requirements. 

The Export Control System Today
While the Bureau works with its interagency partners on Phase II tasks and plans for Phase III of the reform effort, we continue to respond to the day-to-day export control challenges.  For example:

BIS processed last year approximately 20,000 licenses.  We project that by the end of this year there will be a 20% increase in licenses processed.

As part of our effort to ensure the efficiency of the regulatory process, the Bureau has issued this year 35 regulations, proposed rules, and Notices of Inquiry involving dual-use trade.  In comparison, we issued 26 amendments last year.

The rules and notices address a number of essential export control issues, including (a) more focus on end-user and end-use controls; (b) export control initiatives; (c) implementation of export control regime changes; and (d) notices of inquiry on emerging issues.

With respect to the focus on end-user and end-use based controls, we have since 2008 issued 11 rules significantly expanding the Entity List of foreign parties warranting additional scrutiny.   Since its expansion, BIS has added 185 entities to the Entity List and removed 9 entities.  This is part of the general effort to ensure that export controls are tailored more toward specific end-uses and end-users when country-based controls may be too broad or too narrow.

Export Control Initiatives:  On June 25, we published our first encryption reform regulation which enhances our national security by allowing the government to focus its resources on the more sensitive encryption items, while cutting the red tape by eliminating the review of readily available encryption items such as cell phones and household appliances.  As described in the preamble to this rule, it is the first step in our efforts to reform U.S. encryption export controls.  We will continue to review the encryption rules to further enhance national security and competitiveness.

Implementation of Export Control Regime Changes:  I recently signed the rule implementing the 2009 changes to the Wassenaar Arrangement’s Dual-Use list.  It is now at the Office of the Federal Register waiting to be published.  The rule adds, removes or amends certain items that are controlled for national security reasons in most CCL categories and affects 40 ECCNs.  Examples of the changes include:

a. Revisions to the control parameters for plasma dry etching equipment (i) to make the control of this equipment consistent with current integrated circuit production sizes, (ii) to maintain control on more advanced equipment, and (iii) to remove controls on older equipment and spare parts that are no longer of proliferation concern.

b. Revisions to the control parameter for automatic loading multi‑chamber Central Wafer Handling systems to relax controls on two classes of systems that have been found to be of less proliferation concern and to place the focus on more advanced systems.

c. Adding paragraph 6A001.a.1.e to control active individual sonars specially designed or modified to detect, locate and automatically classify swimmers or divers.  This new control is necessary to close the loophole that exists for these commercial sonar-based detection systems that are nearly equivalent to existing military systems.

Regime Changes Continued:  During this past year, we also issued rules implementing changes agreed to at the Australia Group and the Missile Technology Control Regime.  We also revised License Exception GOV to provide authorization for exports and reexports of items for use on the International Space Station.

Notices of Inquiry:  We also recently issued a notice that requested public comment on best practices for exporters and governments to address transshipment of export control items through third countries -- an important security and non-proliferation issue.  We also are planning to issue a notice seeking input on the impact of export controls on small and medium size exporters.

Advisory Committees:  On behalf of the Bureau I would like to thank our seven Technical Advisory Committees for their help in revising our control lists.  We value the contributions of the TACs and are recruiting new members to many of the TACS.

Education and Outreach:   As Eric mentioned, education and outreach are vital to BIS’s mission.  BIS, for example, last year conducted 42 domestic outreach seminars in 18 states.  BIS staff also led or participated with the Department of State in 28 meetings with their foreign government counterparts to address the risk of diversion of unauthorized items to unauthorized destinations or end-users.

Switching from export controls, I want to mention the treaty compliance work BIS is responsible for.  Specifically, BIS implements the treaty compliance aspects of the Chemical Weapons Convention and the Additional Protocol to the U.S.-IAEA Safeguards Agreement and is engaged in efforts to strengthen implementation of the Biological Weapons Convention.

BIS collects and transmits to the Organization for the Prohibition of Chemical Weapons declarations for approximately 450 chemical facilities each year on behalf of the United States.  Furthermore, BIS facilitates the inspection, by international inspectors, of approximately two dozen U.S. chemical industry sites under the CWC each year and BIS has facilitated 140 such inspections to date. 

BIS implements several of the industry aspects of the Additional Protocol, a bilateral treaty that supplements and amends verification arrangements under the existing Safeguards Agreement between the United States and the International Atomic Energy Agency.  The IAEA will likely inspect an industry location in the United States this year under the complementary access provisions of the Protocol.  The Commerce Department is responsible for declarations from certain research and development activities as well as uranium mines and will facilitate their inspections, called Complementary Access, when they occur.

President Obama released the National Strategy for Countering Biological Threats last year and the Commerce Department is continuing to define its roles in implementing this strategy.  Of particular interest is the constructive paradigm shift in the implementation of the Biological Weapons Convention.  The recent avian flu epidemic has caused States Parties to the BWC to recognize a link between the preparation for and response to naturally occurring and deliberately caused diseases.  This public health nexus has resulted in an opportunity for the health industry, and other industries, to play an important role in the solution to biological weapons concerns.  As a result, our Materials Technical Advisory Committee is establishing a working group to consider ways of improving implementation of the BWC.

Thank you for coming today.  Stay tuned.  And don’t hesitate to send me or my staff your suggestions, complaints, issues, concerns, and even compliments.  I actually do read everything that is sent to me.

Keynote Remarks of U.S. Commerce Secretary Gary Locke

Details

Secretary Gary Locke
Remarks to BIS Update Conference
Tuesday, August 31, 2010
Grand Hyatt, Washington D.C.

Introduction

Hello everybody.  Thank you, Eric for that generous introduction.  And thank you for all the critical work the Bureau of Industry and Security is doing.  BIS has a difficult job, and we are fortunate to have you as Under Secretary.

It’s wonderful to see such a large turnout today to discuss a pivotal issue.

Export control reform is a key priority of the Obama administration.  And to talk a bit about why, and how we’re moving forward on this issue, we’ve got a video to show you.

As you heard from the president, how the U.S. moves forward on export control reform is going to significantly impact our national security as well as our economy.

We must have an export control system that can ensure both national security and economic prosperity.

Current Export Controls are Outdated

Yet, while we currently have one of the world’s most stringent export control systems – it’s not necessarily the world’s most effective and efficient.

Our current export control system has its roots in the Cold War-era, when it was in every Western country’s security and economic interest to keep dual-use and military technologies away from a well defined bloc of adversarial nations. 

But we no longer live in that bi-polar world.  

Today, we simultaneously face a growing array of threats, from chemical and nuclear weapons proliferators, to rogue regimes, to state sponsors of terrorism. 

Meanwhile, our goods and technologies are incredibly sophisticated, and there are more consumers for them around the world than ever before. 

Our export control regime has not kept pace with these changes.     

For instance, our current system operates under two different control lists with distinctly different approaches to identifying and controlling products. 

The Department of State administers the Munitions List, which includes items specifically designed for military applications and uses fairly broad and general terms.     

And the Commerce Department administers the Commerce Control List, which is a far more specific list of mostly “dual use items” -- that is commercial items that could have military applications -- items like truck parts, electronic components and even computers. 

And there are three different licensing agencies – each with different procedures and different information technology systems—and three different sets of regulatory definitions.

It would be hard for anyone to argue that this existing system is maximizing our national security.

And for American exporters, time they could be spending figuring out how to sell their products is instead spent navigating a confusing and time-consuming export control bureaucracy.

What’s more, America is frequently putting our companies at a competitive disadvantage when we forbid them from selling an item to an overseas market even when that item is readily available world-wide. 

Our global trading partners have unfortunately taken notice.

Let me read you a quote that I mentioned at last year's update conference that is troubling enough to bear repeating. 

It’s from Charles Edelstenne, the president of the Aerospace and Defense Industries Association of Europe.  He said:

“The only way to resolve technology access and U.S. government export restrictions is by not including any U.S.-sourced technology in our products.”

Now, this is a self-evidently bad thing for the US aerospace sector.  But it’s just as damaging to U.S. security.

And as the "Beyond Fortress America" report issued by the National Research Council and co-authored by Brent Scowcroft and John Hennessy, indicated:

“Many current controls aimed at protecting U.S. national security, in fact weaken U.S. innovation and competitiveness in global markets.”

These are essential elements of our national security.

With increased sales, come greater opportunities and incentives for our companies to constantly innovate and refine the technologies that ultimately enhance and benefit U.S. national security.

These excessive controls are harmful because they dissipate our energies and effectiveness on those items so critical to national security

As the “Beyond Fortress America” report said, “today's system in fact, is arguably becoming more and more dangerous, because the inclination to equate controls with safety gives a false sense of security.

With the military becoming increasingly dependent on commercial-off-the-shelf dual-use technology, it is important to  ensure that our licensing criteria are based on objective technical parameters that take into account the strategic nature of an item and whether or not the item is available from non-U.S. suppliers.

Consider the case of the two blocks on the screen before you. 

These are nearly identical control arm pivot blocks for heavy vehicles.  They help connect the axle to the vehicle frame.  The only differences between them are that the holes are of minutely different sizes and that one is steel and the other aluminum. 

They have no functional difference.

But, one of these items, the one made out of steel, can be exported almost anywhere without a license.  It is for an ordinary fire truck. 

The other, because it is “specifically modified”, that is, it has minutely larger holes and is made out of aluminum, is designed for use in a military vehicle, and can get you 20 years in prison if you sell it abroad without a license.

Improvements to Our Export System

There simply has to be a better way.  And the Obama administration is working towards it.

Overhauling our export control framework will not happen overnight.  Fundamental reform will require new statutory authority and new action by Congress.

But there is still a lot we can do now administratively.

When I spoke here last year, in this very room, some were overheard expressing skepticism that we are serious about reforming America's export control system.   We are proving them wrong.

Thanks to the leadership of President Obama, and the hard work of his national security team: General Jim Jones, Secretary Clinton and Secretary Gates among others, we’re making significant progress. 

We are taking important steps towards streamlining and simplifying our export control system to make it more transparent, and to enable exporters to quickly know exactly what can and cannot be exported, and where products can and cannot go.  

The first step to make this happen is to ensure that the Commerce and State Department control lists clearly lay out which products are controlled, and by which agency. 

To do this, we are working to make both the Commerce Control List and the Munitions List “positive lists.”  What this means is that we’ll have two lists that classify and control items based upon specific characteristics, such as by size or by wavelength, or by the ability to operate under extreme atmospheric conditions. 

And, when this process is done – creating a “bright line” between the two lists – exporters will be able to know which agency has jurisdiction over their products.

An additional step will be to divide each control list into a three-tiered structure. 

Think of the tiers as shelves in a cabinet:

  • The top tier – or the highest shelf – will be reserved for our most sensitive items, ones made in the U.S. which have high value military or intelligence capabilities;  
  • The middle tier – or a more accessible shelf – will hold somewhat less sensitive items, and will be products that are available almost exclusively from our multilateral partners and allies;
  • The lowest tier will be reserved for items that are less sensitive, and which are more broadly available.

Once all of the items are placed into a tier, a corresponding licensing policy will be assigned to ensure appropriate agency review.

  • For the top tier, a license will generally be required for all destinations;
  • Many of the items in the middle tier will be eligible to be exported to allies and most multilateral partners under a license exception or general authorization;
  • And for items placed in the lowest tier, licenses will typically not be required.

Or course we will continue to maintain robust and comprehensive sanctions against countries like Iran, North Korea and Cuba.

In the final stage of export reform, we plan to merge the two lists into one – and we will continue to work with our colleagues on Capitol Hill to try to make this happen.

But the restructuring and harmonization of control lists and licensing policy that is already under way will be groundbreaking.   

And preliminarily, this process is showing impressive results.

Experts from across the government have already turned Category VII of the State Department’s Munitions List, which controls Tanks and Military Vehicles, into a positive, tiered list. 

And what we’ve found so far is that about 74 percent of the licensing activity is for parts and components – items like brake pads and the pivot blocks you saw a few minutes ago– which, going forward, will likely be moved to the Commerce Control List or decontrolled.

The pivot blocks, in fact, illustrate one of the significant inefficiencies and incongruities of our current system. 

Pivot blocks for Marine all-terrain vehicles require export licenses from the State Department.

But nearly identical pivot blocks for fire trucks can be exported nearly anywhere in the world without a license. 

And yet, under our current system, we devote the same licensing resources to protecting pivot blocks for Marine all terrain vehicles as we do to protect the vehicles themselves.   

This simply does not make sense.

A reformed export control system will allow us to focus on the high-risk dual-use technologies that pose the greatest risk to our national security, while permitting greater exports of items that pose little or no risk.

One of the first results of the reform effort is the encryption rule that Commerce published in June.  It will provide useful data to the Government about exports of encryption items while creating for exporters a more efficient and timely process for reviewing notifications.   

Conclusion

Finally, we have just heard the President announce that he intends to sign an Executive Order to create an export enforcement coordination center.

Export enforcement will continue to be a crucial part of our export control system.  And by reforming how we license dual-use products and technologies, we will free up our export enforcement agents to focus on interdicting those exports that pose the greatest potential risk to our national security.

In the past year, BIS special agents investigated and helped in the criminal prosecution of an Iranian front company that was shipping U.S.-made 747s to Iran.  And special agents also broke up an illegal transshipment ring in the Netherlands that was exporting American airplane parts to end-users in Iran.

With a more efficient and rational export control system, we can free up more of our enforcement and licensing teams to focus their resources on these real threats.  

Going forward, our export control regime must be nuanced enough to allow our companies to remain competitive throughout the world, but most importantly, strong and robust enough to keep America safe.

This is a process on which I look forward to working with all of you.

Thank you.

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Remarks of Eric L. Hirschhorn, Under Secretary for Industry and Security

Details

Bureau of Industry and Security
U.S. Department of Commerce

Remarks of Eric L. Hirschhorn,
Under Secretary for Industry and Security

BIS Annual Update Conference
August 31, 2010

 

Good morning, and welcome to BIS’s twenty-third annual Update conference.  Let me first thank Bernie Kritzer, Kirsten Mortimer and her staff, and the many BIS and U.S. government colleagues who have contributed to this conference.

I’d like to introduce the BIS management team.  Please stand when I call your name.  We have Assistant Secretaries David Mills and Kevin Wolf, Deputy Under Secretary Dan Hill, Chief of Staff Sharon Yanagi, Deputy Assistant Secretaries Matt Borman and Rob Luzzi, our incoming Deputy Assistant Secretary for Export Enforcement, Don Salo, Director of Administration Gay Shrum, and Chief Information Officer Eddie Donnell.

This year, BIS’s day-to-day administration of the EAR must be considered against the backdrop of President Obama’s export control reform initiative.  This extraordinary effort has been overseen by the White House on a daily basis.  Its champions include the three key cabinet secretaries principally responsible for reviewing export license applications—Secretary Locke, Secretary Clinton, and Secretary Gates.  I would especially like to thank Brian Nilsson of the National Security Council staff for his important contributions.  Much credit also is due to the agency representatives who serve on the Task Force that has done much of the actual work.

Once we have implemented a reformed export control mechanism, I expect to see a system based on three overarching principles—three “E”s, if you will.  These are efficiency, education, and enforcement.

Efficiency
An effective export control system must protect U.S. national security.   This means military security—first and foremost—but that is not all.  As General James Jones, the President’s National Security Advisor, has declared, “The future of the United States’s national security in the 21st century is our competitiveness.”  Unfortunately, our regulations can undermine national security if they’re unduly complicated and burdensome.  That encourages foreign customers to seek foreign suppliers and American companies to seek foreign partners who aren’t subject to U.S. export controls.  If we over control, we risk diverting our licensing and enforcement resources from the most significant items and the most dangerous end users.

Our approach rests on two fundamental principles:  First, the rules should be transparent and predictable.  Second, we must have streamlined processes and higher fences to control sensitive items appropriately while facilitating exports of less sensitive items to destinations and end users that don’t pose substantial national security, proliferation, or similar concerns.

Let me start with the first principle—transparent and predictable regulations.

The Commerce Control List generally controls items based on technical parameters.  Items not meeting a specified threshold are not subject to control.  There typically is no corresponding technical basis, though, for determining when an item is subject to the U.S. Munitions List.  Instead, the USML relies heavily on the concept of “design intent,” even where the function of an item may not be uniquely military.  The vehicle pivot arms and brake pads mentioned by Secretary Locke offer good examples of how that concept works in practice.

Our system should make clear when an item, regardless of the intent of its designers, is subject to control.  As Secretary Locke has indicated, we are restructuring the USML and, where necessary, the CCL, to create “positive lists” of controlled items.

We are beginning by turning Category VII of the USML into a positive list of tanks, military vehicles, and elements of such goods that warrant control as defense articles.  The results, as Secretary Locke reported, have been excellent.  BIS and our colleagues from State and Defense soon will conduct similar reviews of the other USML and corresponding CCL categories.

Additionally, we will divide each control list into a three-tiered structure, with licensing policies corresponding to the specific tiers.  We anticipate that as technology advances over time, items will drop to lower tiers or off the control list altogether.

Other initiatives that will lead to a more streamlined system will include (1) harmonizing definitions across all the export control regulations, (2) rationalization, and (3) merging export control I.T. systems.

Our work on harmonizing definitions is in its early stages.   The encryption rule we published in June exemplifies the second initiative—rationalization.  Its goal is to give us useful data about encryption products while providing a more efficient review process.  This regulation demonstrates that it’s possible to enhance national security while increasing the competitiveness of U.S. companies.

EAR license applications are reviewed by State, Energy, and Defense as well as by Commerce.   Currently the four departments use different I.T. systems, have access to different data, and can’t directly communicate among one another.  This soon will change.  We and our sister agencies are developing a single I.T. system that will allow free and immediate data-sharing.  Defense is currently using this system, State will begin doing so early next year, Commerce should be on board later in 2011, and other agencies will follow.  

For now, the industry interfaces for license applications will continue to be D-Trade for USML items and SNAP-R for CCL items.  When the control lists are combined in Phase III, we expect to have a single application form that is linked to the common I.T. system.

Our second efficiency principle is to establish streamlined processes and higher fences—to control items requiring review while facilitating exports of less sensitive items to destinations that don’t pose significant national security concerns.  As the new control lists are created, we will tailor our licensing policies to focus on the most sensitive items and on destinations and end-users of concern.  We are preparing a regulatory proposal that would provide more flexible licensing authorizations as we move down the tiers.

At the same time, we will expect more of companies that benefit from these streamlined licensing policies.  The more sensitive the item, the more intensive should be the controls.  These higher fences will include more frequent end-use checks and may, in some instances, require identifying markings on items subject to reexport controls.

BIS will closely scrutinize Automated Export System transactions to ensure that exporters are complying with the EAR.  We may require foreign consignees to provide end-use assurances against diversion and similar undertakings from, or at least notification to, subsequent purchasers.  We will be stepping up outreach, domestically and abroad.

Finally, the Administration is preparing legislation that would combine the administrative enforcement and licensing activities of BIS, the State Department’s Directorate of Defense Trade Controls, and the Treasury Department’s Office of Foreign Assets Control into an independent licensing agency.  We will seek action on this legislation in the near future.

Education
This sold-out Update conference demonstrates the exporting community’s abiding interest in compliance.  In addition to outreach publications, seminars, and one-on-one counseling, the Bureau in recent years has expanded its effort to include such cutting edge strategies as on-line training and webinars.  Yet we need to spread the word even further—particularly to those who may not even realize they’re subject to controls.

Every exporter must classify its exports and should screen its customers against such lists as the Denied Persons List and the Entity List.  BIS has a responsibility to assist exporters, particularly small and medium-sized businesses, to do this.  To that end, we are mining Automated Export System data to identify exporters of interest.  We are working with other bureaus and agencies, and with such private sector entities as freight forwarders, to educate exporters.  We are employing such outreach techniques as foreign language seminars and CommerceConnect.  Moreover, we continue to work with the Census Bureau and Customs and Border Protection on new electronic tools to help exporters make timely and accurate submissions to AES.  This will expedite the clearance of exports and facilitate our compliance reviews.

Enforcement
Concurrently with licensing efficiencies and education efforts, enforcement will become an even higher priority.  I already have discussed some actions we are taking to erect higher fences.  Let me mention several additional enforcement initiatives.

The new Comprehensive Iran Sanctions, Accountability, and Divestment Act confers permanent law enforcement authorities on our export enforcement agents for the first time.  This enhances our ability to deter and prosecute violators of the EAR.

To ensure coordination with other enforcement agencies, we participate in the National Export Enforcement Coordination Network.  Working with colleagues from the Federal Bureau of Investigation, military security agencies, Immigration and Customs Enforcement, and the Intelligence Community, we are sharing information and leveraging resources.  As the President told you a few minutes ago, he soon will issue an executive order making this coordination center permanent.  The order will mandate participation by all relevant law enforcement agencies and the intelligence community.

At the same time, we recognize that even companies who have good intentions can make mistakes.  We long have promoted the submission of voluntary self-disclosures (VSDs) in these and other instances.  We view VSDs, along with internal compliance programs, as important mitigating factors.

Given the volume of exports and reexports that are subject to the EAR, we must rely upon industry for the bulk of compliance.  You are the front-line troops in that effort.  You and your co-workers know your products, their end-uses, and your customer base.

I ask that you carry a message back to your senior management and those who market your products:  We are working to create a more efficient export control system and to ensure that those subject to it are aware of that fact.  Also, where appropriate, we will seek to minimize penalties for companies that have good internal compliance programs and make demonstrably unintentional errors.  But—and this is an important but—we are planning increased efforts against individuals who flout the rules and against companies whose inadequate internal compliance programs tell us that they are indifferent to whether they follow the rules.

Finally, I mentioned that the proposed single licensing agency would include the administrative enforcement functions of BIS, the Department of State, and the Treasury Department.  The Administration also plans to seek legislation to transfer BIS’s criminal enforcement functions to Immigration and Customs Enforcement, which would have a separate unit dedicated to enforcement of the export control and embargo laws.

Defense Industrial Base Activities and Treaty Compliance
No discussion of BIS activities would be complete without addressing our vital role in supporting national security through defense industrial base-related programs and treaty compliance activities.  I’m going to offer a few words about developments in the former area and Kevin Wolf will talk about the latter.

A core mission of the Bureau is to help ensure the health of our defense industrial base—which, as General Jones and Secretary Gates have noted, is essential to ensuring that our military men and women have the cutting-edge technologies they need.

BIS has four core programs aimed at supporting the defense industrial base:  studies, priorities and allocation, foreign acquisition reviews, and advocacy.  Recent and current studies cover such diverse topics as the impact of counterfeit electronics on weapons system reliability, the impact of Space Shuttle termination on the domestic economy, the effect of controls on green technology exports, and dependence on foreign suppliers in critical sectors.

In the priorities area, we recently have issued a notice of proposed rulemaking for a Defense Priorities and Allocations System regulation.  The new rule will implement recent amendments to the Defense Production Act. 

Our participation in the Committee on Foreign Investment in the United States, which reviews foreign acquisitions of United States businesses, continues to be frequent and vigorous. 

Finally, we contribute to the defense trade advocacy process and recently updated our regulation on reports of defense trade offsets.

PECSEA
Before I conclude, I’d like to put in a plug for the President’s Export Council’s Subcommittee on Export Administration, or PECSEA.  Our August 6 Federal Register notice seeks members for this high-level, policy-oriented group—which, by the way, is an active working committee that advises the Commerce Department and the Administration on key export control issues.  We’re particularly interested in industry people at the CEO, COO, or Senior Vice Presidential level, as well as in having a diverse group of members.  The notice expires in a few days, so please don’t tarry.

Conclusion
As you heard earlier, President Obama is committed to export control reform.  We and our colleagues in sister agencies are committed, too.  These actions will increase our national security and enhance U.S. competitiveness.  We will accomplish these reforms through more efficient regulatory processes, enhanced outreach to exporters and reexporters, and better focused compliance and enforcement activities.


Thank you for your attention.  I hope you find our Update program informative.

 

Remarks of Under Secretary Eric L. Hirschhorn to the Practising Law Institute

Details

Remarks of
Eric L. Hirschhorn
Under Secretary for Industry and Security
U.S. Department of Commerce

Coping with U.S. Export Controls 2010
Practising Law Institute

December 6, 2010

 

A little more than a year ago, President Obama directed Secretaries Gates, Clinton, and Locke, together with the National Security Council staff, to conduct a thorough review of the U.S. export control system.  The goal was to identify ways to strengthen national security, as well as the competitiveness of key U.S. manufacturing and technology sectors, by focusing on current threats and adapting the system to the changing economic and technological landscape. 

Last April, Secretary of Defense Robert Gates set out the Administration’s conclusion that these goals could be accomplished only through fundamental reform.  The system, he said, “has the effect of discouraging exporters from approaching the process as intended.  Multinational companies can move production offshore, eroding our defense industrial base [and] undermining our control regimes in the process.”   Moreover, he continued—the time for change is long overdue.  If the application of controls on key items and technologies is to have any meaning, we need a system that dispenses with 95 percent of “easy” cases and lets us concentrate our resources on the remaining 5 percent.  By doing so, we will be better able to monitor and enforce controls on technology transfers with real security implications while helping to speed the provision of equipment to allies and partners who fight alongside us in coalition operations.

In August, the President, Secretary Locke, and others further described how the end result of the reform effort would be a single control list administered by a single licensing agency running on a single information technology platform and enforced by a single primary export enforcement coordination agency.  The structural reforms require congressional action but the other two major elements–working toward a single control list and a single I.T. system–largely can be achieved through administrative action.

I cannot announce today that we have completed the effort but, to borrow from Winston Churchill, we are at the end of the beginning.  This week, the Departments of State and Commerce will issue proposed regulations that begin the process of aligning the Commerce Control List and the U.S. Munitions List into parallel-constructed lists, pursuant to two fundamental objectives: 

(1)  controlling items based on objective technical parameters, or in export control parlance, “positive lists,” that do not overlap; and

(2)  segregating items by tier, in order to focus on the most sensitive items while permitting more flexible authorizations for more mature technologies that are more widely available. 

Reforming the Control Lists

The USML

The most important aspect of control list reform may be making the USML a “positive” list.  Currently, the USML controls many defense articles based on “design intent,” in part because at one time, the majority of items used by the military were produced specifically for the military.  Today, however, many—if not most—technologies used by the military are developed and manufactured by the commercial sector.

The design-intent nature of the USML also runs counter to a predictable and transparent regulatory process—one where industry readily and objectively can determine what is controlled.  The absence of this ability has fueled an increase in commodity jurisdiction disputes.  This has resulted in many commercial systems being ruled subject to ITAR control or jurisdictional decisions being delayed, thereby impeding the competitiveness of U.S. items or, even worse, resulting in their being “designed out” of foreign end products.

Under the leadership of the Defense and State Departments, the Administration is addressing this problem by converting the USML to a positive list.  The Department of State will issue this week a proposed regulation that would revise Category VII of the USML—Tanks and Military Vehicles—into a positive list.  This would focus the category’s controls on truly significant military items, while moving less significant items—particularly parts and components that do not serve an inherently military function—to the Commerce Control List.  The process for such moves, and for control on the Commerce Control List, will be described in detail early next year.

You may have seen the Update speech where Secretary Locke displayed two functionally equivalent pivot blocks that hold wheel axle assemblies together.  One can be exported to China, without a license, for use in the axle of a fire truck.  Export the other, which is designed for a military vehicle and almost imperceptibly different, to China and you’ll end up in jail.  Control for insignificant items whose function isn’t inherently military results in unnecessary burdens, particularly for small- and medium-sized businesses.  Ameliorating such burdens, which divert the time, energy, and resources of the Government as well as exporters, is an essential aspect of this reform.

Concurrently with the proposed Category VII rewrite, State will seek public comment on converting the remaining USML categories into positive lists.  This is your chance (and that of your clients) for input on this critical aspect of the project.  It’s very important that those affected participate.  The Department of Defense has an ambitious plan for completing its work on this review in 2011.  State and Defense are working hard on this project, and the President’s vision of a reformed export control system could not be accomplished without it.

The CCL

The USML is not the only focus of attention.  Although the CCL is largely a “positive” list that describes items using objective criteria, it is not wholly so.  We seek to make it sufficiently “positive,” clear, and precise, so that someone who isn’t an expert on U.S. export controls but understands the technical characteristics and capabilities of an item, accurately can determine its jurisdictional status and classification.

For these reasons, later this week the Commerce Department will seek public comment on how to improve CCL entries that are unclear or that use vague, open-ended, or subjective criteria.  Where ECCNs lack objective criteria, we want specific suggestions on what technical parameters, characteristics, thresholds, and capabilities should be used to describe the items controlled.  All suggestions should propose revisions to the text of ECCNs or propose Technical Notes to ECCNs that explain terms or phrases used in the ECCN.  Each suggested change should be accompanied by an explanation, with supporting materials if available, of why the proposed change is appropriate and would make the ECCN more clear and positive.

Public input to these control list exercises is important.  The Government does not have perfect knowledge about every item that may be affected by the bright line or tiering exercises.  In constructing positive lists that are consistent with internationally accepted standards, use industry-standard terms and references, and reflect the availability of items outside the United States and its partners and allies, we want to take advantage of the public’s resources and knowledge.

All this work, including public input on the lists, is necessary to reach the point where the lists can be combined into a single clear, positive list.  In the interim, the consistency that we seek from the review process will create more clarity and eliminate certain items from being subject to both lists.  If a particular type of item is controlled on both lists, we expect that objective technical parameters will distinguish whether a particular version is subject to USML or CCL control.

Parallel-Tiered Control Lists

The second part of this exercise will be to convert the USML and CCL into parallel-constructed, three-tiered lists that allow the Government to focus controls on the most sensitive items while “cascading” controls on more mature, less critical technology to enable less stringent treatment. 

To implement this tiered construct, the U.S. Government has developed control list criteria:

    • Tier 1 items are weapons of mass destruction or are almost exclusively available from the United States that provide a critical military or intelligence advantage.  These are what Secretary Gates has termed our “crown jewels.”
    • Tier 2 items are almost exclusively available from regime partners or adherents and provide a substantial military or intelligence advantage, or make a substantial contribution to the indigenous development, production, use, or enhancement of a Tier 1 or Tier 2 item. 
    • Tier 3 items are more broadly available and provide a significant military or intelligence advantage or make a significant contribution to the indigenous development, production, use, or enhancement of a Tier 1, 2, or 3 item, or are other items controlled for national security, foreign policy, or human rights reasons.

The Government would then apply licensing policies associated with the tiers.  On the dual-use side, my Department has prepared a proposed rule that would begin the process of implementing revised licensing policies.  If adopted, these policies would focus controls on the most sensitive items, while facilitating exports—to specified destinations—of less sensitive items.  We expect to publish this proposal later this week.

With these changes in licensing policies would come new safeguards.  These would include acknowledgements by foreign purchasers of the need to control the items in accordance with U.S. law, reexport controls to destinations outside those eligible for the new license exception, and authority for U.S. compliance and enforcement personnel to audit records of eligible exports.

We will then turn our attention to “tiering” the CCL in an effort to further focus our licensing policies on items warranting control while providing flexible authorizations for items that are more widely available or are determined to be less significant.  This aspect of the effort, like the others, is a cooperative endeavor among the Defense Department—including the military services—the State Department, and the Commerce Department, with assistance from the intelligence community.  To begin, BIS will solicit information from the public about the availability of CCL items outside our close allies to help us further differentiate the control of items by tier.

This proposed license exception regulation will identify in its preamble a number of commodities and technologies that we will be scrutinizing particularly closely to determine their tiering levels and, in doing so, whether the license exception will apply to them.  We strongly urge companies not to overlook these items when preparing their comments.

Commerce, State, and Treasury are completing work on a consolidated license application form that would simplify the license application process.  We intend to solicit public comments on this form soon.  When combined with our effort to harmonize definitions and the creation of a new information technology system, this action would reduce compliance costs and burdens for exporters. 

Finally, early next year, we plan to publish proposed revisions to the definitions of “specially designed,” “technology,” “publicly available,” and “fundamental research” that would be common to the ITAR, the EAR, and the Treasury Department’s sanctions regulations.  We’ll provide more detail on these and other harmonization proposals soon.

Compliance/Enforcement 

In addition to these administrative export control reform efforts, we are working to enhance enforcement of U.S. export controls—that is, to build higher fences.  We soon will post on the Internet a consolidated list of proscribed parties.  This cost-saving tool will allow you to download all Department of Commerce, State, and Treasury lists to your own computer systems and run electronic screens to ensure that you don’t inadvertently export to an ITAR-debarred party, a specially designated national, a denied person, or an entity on our Entity List.

We continue to seek ways to use the Automated Export System to flag non-compliant transactions, in order to address problematic exports before they reach their destinations.  For example, the Census Bureau has imposed new electronic validations in AES that have increased the compliance rates on controlled transactions from 85 percent to better than 99 percent.  We also are exploring additional ways to use AES to ensure that exporters know whether their items require licenses.

At the same time, the Government continues working to discourage illicit proliferation activities.  BIS’s Entity List, for example, was originally developed to list proscribed organizations involved in WMD proliferation.  Beginning with the Mayrow case, Commerce has used the Entity List to shut down networks that pose threats in other areas of national security, including the security of our troops in Afghanistan and Iraq.  We will continue to use the Entity List to encourage foreign companies to behave responsibly and to protect our servicemen and women, as well as our civilian population, from terrorist attacks.

BIS is also adjusting how we penalize those who violate U.S. export controls.  In the past, BIS typically has imposed penalties on companies involved in export violations.  Going forward, where a violation is the deliberate action of an individual, we will consider seeking penalties against that individual—including the denial of export privileges, fines, and imprisonment—as well as against the company.  The same will be true for supervisors who are complicit in deliberate violations by subordinates.

Finally, BIS is working with the FBI, Immigration and Customs Enforcement, and the intelligence community to implement the Export Enforcement Coordination Center that the President established by executive order on November 9th.  The center will help law enforcement agencies coordinate and “deconflict” their activities, so as to better leverage their resources without duplicating or undermining one another’s efforts in the field.

When we have implemented these actions, the Administration will have achieved what I term the three “Es”: 

    • Greater efficiencies in terms of focusing controls and investigations on those items that are the most significant in terms of providing the United States with a military or intelligence advantage, while facilitating exports to coalition partners in order to improve our interoperability.
    • Increase education to help exporters understand how the changes will affect their compliance responsibilities.  Greater clarity in the control lists will simplify the educational effort.  AES changes will help educate exporters about whether their items require licenses.  We are also emphasizing the adoption of export management and compliance programs.
    • The final “E” is enhanced enforcement, to ensure that exporters and foreign end users comply with our regulations and use U.S.-origin items responsibly.  BIS compliance personnel evaluate exports made under license or license exception to ensure they comply with the EAR.  We review EAR99 transactions as well.  Our enforcement agents are increasing their presence domestically and abroad, including new export control officers in China and Singapore, and we will leverage the resources of the FBI and ICE as participants in the Export Enforcement Coordination Center.  Finally, we will continue to use all the law enforcement tools at our disposal, including the Entity List and temporary denial orders, to inhibit illicit trade in controlled items.

Strengthened International Trading System

Export control reform has occupied much of our energy in 2010 but it isn’t the only initiative that will improve the way we implement dual-use export controls.  BIS’s bilateral relationships with other countries also play a role in strengthening the security of the international trading system.

India

Let me start with India, where on November 8th, Prime Minister Singh and President Obama committed to work together to strengthen the global export control framework and further transform bilateral export control regulations and policies to realize the full potential of the strategic partnership between our two countries.  Commensurate with India’s nonproliferation record and commitment to abide by multilateral standards, this will include removing Indian entities from our Entity List and realignment of India in the EAR.

We are preparing regulations to implement the first part of the President’s announcement, including removing the remaining defense and space entities—Bharat Dynamics Limited, the listed subordinate entities of the Indian Space Research Organization, and the listed subordinate entities of the Defense Research and Development Organization—from the Entity List.  The removal of these entities is expected to facilitate trade and cooperation in civil space and defense, and enable the two governments to focus on addressing other barriers to high technology trade.

In addition, we soon will “realign” India in the Export Administration Regulations to reflect its status as a strategic partner, effectively treating India similarly to other close allies and partners.  Although current dual-use export controls affect less than one percent of U.S.-India trade, the perception of onerous U.S. export controls has been a hindrance to high technology trade.  This realignment will remove India from categories within the EAR that connote it as a “country of concern”—with a focus on Country Groups A and D.  India will harmonize its national control list with the multilateral regimes and impose reexport controls on certain U.S.-origin items.

The President also announced our intention to support India’s membership in the four multilateral export control regimes—the Nuclear Suppliers Group, Missile Technology Control Regime, Australia Group, and Wassenaar Arrangement.  At the same time, India will move toward the full adoption of the regimes’ export control requirements to reflect its prospective membership.

Further, both leaders reaffirmed previous assurances and end-use visit arrangements that provide the foundation for our bilateral export control cooperation.  They also committed to a strengthened and expanded dialogue on such export control issues as capacity building, sharing of best practices, and industry outreach.  These changes will bring fundamental change to the U.S. relationship with India, consistent with U.S. national security objectives.

China

BIS remains actively engaged with China under the auspices of the Joint Committee on Commerce and Trade’s High Technology Working Group and as part of the State Department’s bilateral nonproliferation dialogue.  Last October, BIS led an interagency delegation to China for the High Technology Working Group meeting and we are looking forward to engaging again with China during the JCCT meeting later this month.

I recognize that U.S. export controls continue to be viewed as a hindrance to trade with China.  To put the issue into perspective, though, of the $63.4 billion in U.S. exports to China in 2009, only one-third of one percent was exported under Commerce licenses.  U.S. export control policy toward China continues to be that we encourage trade for civil end uses but do not support its military modernization.  Thus, we require licenses even for low-level items that would be used to support China’s military while permitting exports to Chinese end-users that demonstrate the ability to use U.S. technology responsibly.

Transshipment Countries

Our bilateral relationships with transshipment countries also continue to flourish, particularly in encouraging these governments to control sensitive items and interdict illicit trade.  Our message is straightforward—effective export controls facilitate secure trade—and it is resonating.

Terrorist-Supporting Countries

Additionally, of course, our resources are focused on transactions involving countries of concern, most notably Iran.  On October 5th, Secretary of State Clinton imposed new sanctions under the Iran Sanctions Act.  We are revising § 744.19 of the EAR to impose a BIS license requirement for exports to entities sanctioned by the State Department under the authority of that statute. 

Conclusion

As you can tell, BIS and its sister agencies have been busy.  In addition to the export control reform and other efforts that I’ve outlined, we’re continuing to do our regular jobs of export licensing and enforcement, treaty compliance, antiboycott compliance, participation in the CFIUS process, and helping monitor and protect the U.S. defense industrial base.  It’s exhausting but exhilarating for us all.  Thank you for your support of our efforts.


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