Where Industry and Security Intersect
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I am pleased to be here in Pasadena and welcome you to Update West 2002.
It is important for us to come to the West Coast to hold this conference for
several reasons. California is a key – if not the key – center
of high-technology commerce in the United States. In addition, many companies
in California and in other West Coast locations depend on trade with Asia
– especially China – for their profitability and growth. Because
of the importance of ensuring that trade in high-tech commerce with countries
such as China proceeds in a manner that is consistent with our national security
objectives, it is essential that we reach out from Washington to meet with
you where you live and work.
As you may know, the purpose of Update is to assist you, the exporting community,
in understanding the various procedures, requirements, and policies administered
and enforced by the Bureau of Export Administration. This conference provides
a forum for you to ask us questions about export control issues that you confront
on a day-to-day basis, as well as inquire about broader export control policy
issues.
The plenary sessions and breakout groups that are scheduled for the next two days will explore a number of specific topics of concern to you. However, I would like to take a step back and discuss the broad mission of the Bureau. Specifically, I would like to review the philosophy and principles that guide how the Bureau approaches export control policy issues. I will then explain how these guiding principles are reflected in the Bureau's recent actions with respect to some of our major initiatives and decisions.
As you know, the Bureau addresses issues where industry and national security intersect. This includes export controls, but also a variety of other matters. For example, we investigate imports or foreign acquisitions that potentially threaten U.S. national security. We represent U.S. industry on issues relating to the Biological Weapons Convention and compliance with the Chemical Weapons Convention. We administer the Defense Priorities and Allocations System to ensure that critical national security needs are met. We advocate on behalf of U.S. companies for foreign defense contracts. We monitor the defense industrial base. We work with industry on the national strategies for cyber security and homeland security. And we lead the Federal government's outreach efforts to industry on critical infrastructure protection and cyber security. Indeed, because of all of these diverse responsibilities, we really should be known as the "Bureau of Industry and Security."
Among our responsibilities, the administration and enforcement of export controls remains one of our core functions. Let me turn, therefore, to the principles and philosophy that guide our export control policy formulation.
First, the protection of U.S. national security is, and must be, the paramount concern of the Bureau. That is why our Bureau was created. The terrorist attacks of September 11 simply reinforced the importance of our mission. We will vigorously administer and enforce export controls to stem the proliferation of weapons of mass destruction and the missiles to deliver them, to halt the spread of advanced conventional weapons to terrorists or countries of concern, and to further important U.S. foreign policy objectives. Where there is real and credible evidence suggesting that the export of a dual-use item threatens our national security, we must act to combat that threat. That is in all of our interests. No company wants to see its name in the headlines of the Los Angeles Times or some other newspaper as the source of some critical item or technology that facilitated an act of terrorism. And the American public would not support a free trade system that resulted in U.S. companies arming our adversaries or contributing to terrorist activities.
But we also view the concept of national security in its broadest sense. In addition to the military defense of our country, its citizens, and its interests, protecting our national security includes keeping American companies competitive and, where possible, market leaders in today's global environment. We want to promote a strong and vibrant defense industrial base that can develop and provide technologies that will enable the United States to maintain its military superiority. Because U.S. industry often relies on international sales to fund research and development efforts, we must take great care that our controls on exports do not impose unreasonable restrictions on legitimate international commercial activity that is necessary for the health of the U.S. high-tech industry. In order to protect national security, we must avoid an export control system that compromises the international competitiveness of U.S. industry without appreciable national security benefits.
A second guiding principle is that the export control framework under which we operate must be flexible and must acknowledge and adapt to global realities. The political, economic, technological, and security environment that exists today is substantially different than that of ten years ago, let alone 20 years ago. Laws or regulations that do not take into account these changes – and that do not have sufficient flexibility to allow for adaptation in response to future changes – ultimately harm national security by imposing costs and burdens on U.S. industry that produce no national security benefit.
A third guiding principle is that effective export controls require international cooperation. Whatever the ability of the United States to control unilaterally the spread of dangerous goods and technologies in the past, it is no longer feasible as a result of globalization. Unilateral controls by the United States on technology that is widely available from multiple foreign suppliers do nothing to protect our national security. In fact, such controls may harm our national security by denying our high-tech industries the opportunity to compete on a fair and equal basis with their foreign competitors for profitable export sales to fund future research and development efforts. Such controls also could result in U.S. industry losing its technological superiority in the global marketplace. We harbor no illusions that multilateral cooperation on export controls is easy. And multilateralism must never be reduced to lowest common denominatorism. But it is essential that we seek to cooperate on a multilateral basis if we want to achieve our goal of stemming the spread of sensitive technology to terrorists or countries of concern.
On a more concrete level, a fourth guiding principle is to make every effort to ensure that all decision making in the Bureau is fact-based, analytically sound, and consistent with governing law and regulations. We do not approach decisions – be they licensing issues, jurisdictional issues, or enforcement issues – with a preconceived or ideologically-driven notion of who is right or who should prevail. The effective administration of export controls requires, at its very essence, careful consideration of the facts relevant to each particular case and a balancing of various interests. Just as we will expect the defense establishment to make its case that any expanded controls are, in fact, necessary for – and will, in fact, protect – national security, we will expect industry to make its case that proposals for liberalization of controls are justified and will not have detrimental effects on U.S. national security.
* * *
I would like to take a moment now to discuss how these guiding principles – protecting all aspects of U.S. national security, promoting flexible controls that reflect current realities, enhancing multilateral cooperation, and making fact-based, analytically sound decisions – are reflected in some major actions and initiatives of the Bureau.
In order to administer an effective system of dual-use export controls, we
must have a new statutory framework that provides the necessary flexibility
to adjust export controls in response to the dynamic global environment in
which we find ourselves. Our top priority, therefore, is to work with the
Congress to pass a new Export Administration Act.
As I am sure most of you know, the Senate last year passed by a vote of 85-14
the Export Administration Act of 2001 – also known as Senate bill 149.
This bill advances our twin objectives of protecting national security and
promoting the international competitiveness of U.S. industry. In other words,
we believe that the bill would impose effective export controls and facilitate
responsible exports. S. 149 provides the right framework for an export control
system that is in line with today's global realities, and provides the flexibility
to adjust that system to meet tomorrow's challenges.
S. 149 helps exporters by providing transparency, predictability, and time limits in the export licensing process. S. 149 also sets forth procedures for U.S. companies to seek to decontrol mass market items and items that are readily available from foreign sources. It thus enhances the ability of U.S. companies to compete for legitimate international sales on a fair and equal footing with their foreign competitors.
I want to emphasize, however, that S. 149 – contrary to some misperceptions – also significantly strengthens our authority to safeguard national security. For example, S. 149 guarantees relevant agencies a place in the export licensing process and authorizes the imposition of export controls to protect U.S. national security, to deter acts of international terrorism, to stem the proliferation of weapons of mass destruction and the means to deliver them, and to promote U.S. foreign policy objectives. S. 149 also substantially enhances our export enforcement capabilities, including increases in penalties for export control violations and new undercover authority for export enforcement agents. Finally, the bill would grant the President the authority to override, for reasons of national security, any administrative decisions to decontrol the export of mass market items or items for which there is foreign availability.
We are working now with the leadership of the House of Representatives to have the House pass a version of the Export Administration Act that is substantially similar to S. 149. We believe that we are close to resolving what we hope are the few remaining differences regarding the legislation. The Administration is strongly behind S. 149, and the House leadership has committed to moving the bill during this session. We are cautiously optimistic that we will be able to reach a resolution of this process and that Congress will pass a new Export Administration Act.
Some of the guiding principles that I summarized have also been reflected in the Bureau's participation in interagency decisions related to export control issues. This is especially true with respect to the interagency resolution of two contentious issues during the last year – the control threshold for high performance computers and jurisdiction over space-qualified items.
On January 2 of this year, President Bush announced that the United States was raising the control threshold for high performance computers to 190,000 MTOPS. The Bureau played a key role in this decision. We had extensive consultations with industry, carefully considered evidence regarding the appropriate level for control of high performance computers, and evaluated this information in light of several concerns raised by the defense establishment. We did not approach this matter with any preconceived notions, and we evaluated the positions of both industry and the defense community critically. Our goal was to make what we believed to be the right decision. We intend to apply that same process in seeking to establish a better, more meaningful, and more targeted metric – if any – for control of high performance computers in the future.
We utilized this same approach last year when the Bureau successfully resolved
a long-standing interagency dispute with the State Department regarding which
agency has jurisdiction over certain space-qualified items. After evaluating
the list of items at issue, we reached agreement that those items with widely-accepted
commercial applications should be controlled by Commerce, those items with
widely-accepted military applications should be controlled by State, and the
remaining items should be controlled jointly by Commerce and State depending
on the item's ultimate end-use. The regulation implementing this agreement
will be issued shortly, once we have finished working out a few details with
the Department of Defense.
In the case of both high performance computers and space-qualified items,
I believe that the Bureau was successful in reaching a decision that was good
for industry and good for national security. I also believe that our efforts
enhanced the Bureau's credibility, both with industry and with the national
security community. Re-establishing the Bureau's credibility in the interagency
process is essential for us to be able to accomplish further reforms in our
export control system.
As I noted earlier, we are striving to enhance export control cooperation on a multilateral basis. Without multilateral cooperation, foreign purchasers denied a critical item by one country often are able to obtain the same item from another country that does not control its exports as stringently. In order to put in place effective export controls that accomplish their intended purpose of denying sensitive items to known or suspected proliferators or terrorists, all countries possessing such items must work together.
In our view, the multilateral regime that is most in need of strengthening is the Wassenaar Arrangement. We were successful last December in achieving consensus to change the Initial Elements so that all members commit to avoid transfers of controlled items to terrorists. This year, we are working hard to gain consensus among Wassenaar members for two additional proposals.
First, we will push to obtain agreement for establishment of a formal denial consultation procedure in Wassenaar. Such a procedure would allow for bilateral consultations prior to a proposed export in situations where one member already has denied a license for essentially an identical export. Denial consultation procedures already exist in the other multilateral regimes, and are essential for preventing proliferators or terrorists from "shopping" among various countries until they can find one that is willing to export sensitive items or technologies that others will not.
In addition, we will renew our efforts to secure consensus within Wassenaar for a conventional arms "catch-all" control. Such a control would impose an export licensing requirement based on the known or suspected end-use of an item for military purposes rather than its identification on the Wassenaar control list. In our view, "catch-all" controls are vital to ensure the effectiveness of an export control regime because such controls can be targeted directly at end-users involved in proliferation or other activities of concern. "Catch-all" controls provide a legal basis for countries to license the export of items that may fall just outside of control list parameters, but that still would make a material contribution to proliferation activities or other activities of concern.
In coordination with the Departments of State and Defense, the Bureau is spearheading the U.S. Government's effort to secure adoption of these two proposals in Wassenaar. We have been meeting with foreign officials at all levels to push these proposals. Indeed, I plan to lead an interagency delegation this spring to meet with my counterparts in several European countries in order to focus attention on these issues at senior levels of government. In the aftermath of September 11, we see no good reason why any country that claims to be serious about nonproliferation and anti-terrorism would oppose these proposals to strengthen the credibility and effectiveness of the Wassenaar Arrangement.
In addition to multilateral efforts, we are seeking to enhance our cooperation with certain key countries. In response to the November 2001 summit between President Bush and Prime Minster Vajpayee of India, we have begun discussions with the Indian government to work cooperatively on developing a strategy for increasing high-technology commerce between our two countries while protecting U.S. national security and nonproliferation interests.
Another important bilateral relationship – and one that I suspect is of particular interest to many of you – involves China. Our relationship with China is, in many ways, a microcosm of the broad challenge that the Bureau faces in trying to protect national security without unnecessarily restricting legitimate international commerce. China is a huge potential market for U.S. companies. Indeed, the United States currently is China's second largest trading partner. Many U.S. companies – both here and in China – have repeatedly stressed to us the growing importance of China's vast domestic market to their bottom line.
The U.S. Government, however, has serious concerns about Chinese proliferation activities. China has on a number of occasions exported missile and nuclear-related items to countries of concern. In addition, we are always mindful of the possibility that sensitive U.S. items and technologies that are authorized for export to China for commercial end-uses may be diverted for use in military projects that pose national security concerns.
We are working on various ways to permit greater trade in high-technology items and additional opportunities for U.S. companies in China while still protecting U.S. national security interests. One of our primary goals is to work with the Chinese government to enhance the effectiveness of end-use visits that the Bureau performs in China. Such visits – which are similar to those that we do with each of our trading partners – help ensure that strategically sensitive exports are not diverted to Chinese military end-users. The more evidence that we collect that U.S. exports to China are being used by the authorized end-user for the authorized end-use, the more confidence we will have in approving additional exports of sensitive items, and thereby increasing trade in high-technology products.
In order to address proliferation concerns, we are working, in conjunction with the State Department, to revive and invigorate our export control cooperation program with China. The President's National Security Advisor, Dr. Rice, stressed in February the importance to U.S. nonproliferation strategy of re-establishing export control cooperation activities with the Chinese. Following up on that, I raised this subject with senior Chinese officials during my visit to Beijing last month. The officials with whom I met were receptive to our holding a seminar in China in early 2003, as well as to some technical exchanges. I believe that there is a real opportunity for progress in this area, and we will be pursuing this opportunity with the Chinese.
Finally, we are developing various proposals to work cooperatively with transshipment hubs, such as Hong Kong, Singapore, and the United Arab Emirates. We seek to strengthen trade controls in these hubs so that terrorists and countries of concern do not take advantage of lax procedures to acquire sensitive items and technologies.
In the end, we all need to work together to ensure that export trade is conducted responsibly and in a manner that supports our national security objectives. The government cannot do this alone. We need a public-private partnership to ensure effective and efficient export controls. No export control system will be effective without the knowing and willing compliance of the private sector. We simply do not have the resources to search every outgoing container, or investigate every export to sensitive destinations. We must rely on individual exporters to take the time and effort to be responsible corporate citizens – to implement internal compliance programs, to apply for licenses, to perform due diligence on new customers, and to contact us when they suspect potential violations. And, for our part, we need to reward companies that do this by recognizing their good efforts and facilitating their license applications.
September 11 made it clear that we all are on the front lines of international trade and national security. I look forward to working in partnership with each of you in the exporting community in addressing this important challenge.
Thank you.