Thank you for the opportunity to address this distinguished gathering of export control officials and others interested in this important topic. It is good to see so many of my friends from outside the States as well as my U.S. government colleagues. When Terry Murphy and I had lunch over six months ago to discuss my participation in this conference, we agreed that I would speak about my agency's role in implementing a new export control law in the United States, the Export Administration Act.
At the time, I felt very confident that by today President Bush would have signed into law the most comprehensive reform of export controls in our country in the past 25 years. Yet, here we are - November 11 - and we are still hoping that Congress will act on this important piece of legislation. So, instead I will focus today on why it is more important than ever that Congress re-authorize and reform U.S. export controls, how the pending Export Administration Act furthers the President's export control agenda, and the steps we are taking as an Administration to strengthen and streamline U.S. export controls in the absence of new legislation.
As they say in all good novels, let us start at the beginning. The statute authorizing U.S. export controls was enacted in 1979, a far different time and place in terms of the threats that we face and the technologies that we seek to control. To be sure, the United States controlled the export of certain technologies prior to that time - in a systematic manner since the Second World War. But the apex of U.S. export controls - as measured by their effectiveness and pervasiveness - was reached during the Cold War, and culminated in the enactment of the 1979 Export Administration Act.
The effectiveness of export controls during the Cold War was based on several factors. Most importantly, the United States possessed a significant edge over most other supplier countries in the production of key, enabling technologies. The United States and its allies clearly agreed on the target of export controls, namely the Soviet bloc. And we joined in a highly coordinated effort to implement such controls.
None of these factors exist today in any large measure. While the United States most certainly enjoys a technological edge in some areas of production, foreign competitors often provide the same or similar products in the global market. And while many of us come together to discuss the issue of export controls quite frequently - and indeed, coordinate our efforts more formally in the various multilateral export control regimes - it is clear that the international export control system in place today lacks the cohesion and common purpose of the old Coordinating Committee for Multilateral Export Controls.
In addition to the extraordinary developments that marked the end of the
Soviet Union and with it the high degree of international consensus on export
controls, we have witnessed stunning developments in technology in the past
20 years and, consequently, a transformation in Defense procurement practices.
Until the 1980s, most all defense programs in the United States began with government-funded research and development. But in the past 20 years government spending on defense, as a percentage of Gross Domestic Product, has declined. In the decades of the 80's and 90's, capital poured into private sector research and development, and human capital poured into the high tech sector, as Silicon Valley and other technology centers attracted the "best and the brightest" and led the extraordinary growth in the U.S. economy.
Increasingly, the U.S. Department of Defense procured commercially available products for use in its weapon systems. Suddenly, the very items that provided us with a military edge over other countries were, in some cases, the same items available in the open market for civilian use. At the very least, defense articles were being produced by firms that produced other goods for the civilian market, and relied on those sales - often in export markets - to fund research and development for weapons programs. It was becoming increasingly clear that an inefficient and unduly burdensome export control system could actually harm national security, by overly restricting the firms that produced today's leading-edge weapons technology.
Now with all that said, I don't mean to suggest that export controls cannot be effective in this environment. Of course they can and, to be certain, effective export controls are being implemented in many countries today. But I am suggesting that an export control law enacted more than 20 years ago may not reflect current geopolitical and economic realities. President Bush recognized this fact, issuing his Export Control Initiative during the 2000 presidential election campaign, and making reform of the nation's export control system one of his top international and economic priorities.
The President's Export Control Initiative outlined the elements of a modern, coherent export control regime. Then-Governor Bush called for removing restrictions on exporters when their products are already available from foreign suppliers or are available on a mass market basis, in order to focus scarce government resources on the most dangerous items and those susceptible to control. The Initiative also proposed raising penalties for those who would violate export control law. In short, Governor Bush called for an export control regime based on the principle of "building higher walls around fewer items."
Shortly after the 2001 inauguration, President Bush vowed his support for the Export Administration Act then pending in the United States Senate. This piece of legislation embodied the elements of the President's Export Control Initiative and represented the best chance of reforming U.S. export control law in two decades. And most legislators agreed. Indeed, last summer the United States Senate approved the new Export Administration Act by an overwhelming vote of 85-14. Less than three weeks later, however, the Pentagon and the World Trade Center were attacked by terrorists. The attacks of September 11, 2001 were a wake up call to the world community that sworn enemies of peace and freedom do exist and they are committed to waging a war against civil society. The attacks provide the most tragic and stark example of the rise of threatening non-state actors and the need to focus export control resources on individuals, groups and entities, as well as countries. This diffuse nature of the threat to our security is in direct contrast to the threat we perceived in the Cold War.
Although the export control debate in Washington was temporarily set aside as those of us in government focused on the immediate response to the September 11 terrorist attacks, the urgency for a new approach to export controls clearly increased on that day. A new approach that would have to take into account the changing nature of the threat we now faced to national, regional, and global security.
To summarize then, since the United States Congress last enacted comprehensive export control legislation, in 1979, virtually every variable that could possibly have an impact on the effectiveness of an export control regime has changed profoundly; the nature of the threat we face, the technology we seek to control, the degree of international consensus on export controls, the technological edge of domestic producers, and military procurement practices, just to name a few. Yet our export control system - at least as reflected in its statutory basis - has virtually remained unchanged. I would submit that if a business chose to ignore such significant changes in its operating environment, it would cease to exist rather quickly. Such is the nature of government.
Operating under an outdated, and in some cases obsolete, 1979 law would be problematic enough for those of us responsible for implementing export controls, but as some of you know, we don't even have the 1979 Act to fall back on today. The 1979 Act has expired six times in the past 23 years, most recently in August 2001. Accordingly, in order to maintain our system of export controls, the President was forced to declare a national emergency under the International Emergency Economic Powers Act, or IEEPA.
Operating under IEEPA raises serious legal and political complications. In fact, the U.S. government is currently defending a legal challenge to certain aspects of our export control system in the federal Court of Appeals. In addition, IEEPA greatly weakens export enforcement authorities. Most notably by lowering penalties for export control violations to a level that can only be described as a cost of doing business for most U.S. exporters. The deterrent effect of strong, clear penalties has been eroded.
Perhaps most importantly, operating under emergency authorities sends the wrong message - at home and abroad - about this country's commitment to a strong export control program. It is hard to persuade other countries to implement a sound and effective export control system when we are unable to enact an export control law ourselves. The lack of an authorizing statute harms U.S. credibility abroad and undermines our traditional leadership role in the international export control community.
And harkening back to my Civics 101 course in college, enactment of a statute creates a sense of legitimacy. It puts the regulated industry on notice that the government takes export controls seriously and restrictions will be seriously enforced. The lack of an authorizing statute sends a negative message to exporters as to the importance that the U.S. Congress places on export controls. Fortunately, a remedy does exist in the form of the Export Administration Act of 2001, or the EAA as it is called; the same bill supported by President Bush and passed by the Senate overwhelmingly last year. Let me briefly describe the key features of the EAA and how it addresses some of the issues I have raised previously.
I'll begin with several new authorities that enhance our ability to protect national security, particularly as compared to the 1979 Export Administration Act. First, the EAA provides authority to control exports for national security purposes to deter terrorist acts. In the past, national security controls were employed mainly to stem the proliferation of weapons and mass destruction and prevent countries that threaten the U.S. or its allies from enhancing their military capability.
Why is this change important? The 1979 Act considered controls aimed at terrorists as foreign policy controls, which are primarily aimed at influencing the behavior of countries - as opposed to denying technology to groups, entities and individuals. These foreign policy controls actually expire each year unless specifically renewed. The new EAA recognizes the importance of export controls in preventing the acquisition of dangerous items by terrorists and elevates export controls to the same level as other tools in the War on Terrorism.
In addition, the EAA authorizes several types of controls that have never been authorized in statute, though some have been implemented by regulation. These include "catch-all" controls to prevent any item from being exported to a weapons of mass destruction program; "enhanced" controls, that allow the President to maintain controls on any item, regardless of its availability from foreign suppliers or its availability on a mass market basis; and controls on intangible technology transfers that address the situation where technology is transmitted via telecommunication or other nontraditional means.
These controls expand the scope of current statutory authority and enable regulators to respond to changing threats and technology. The EAA enhances our export enforcement efforts by substantially increasing penalties for violating U.S. export control law and increasing available enforcement tools. Under the bill, criminal penalties are capped at $5 million per violation for corporations and $1 million for individuals, and civil penalties are increased to a maximum of $500,000 per violation. These penalties represent a significant increase over current levels and will provide a real deterrent for potential wrongdoers. In addition, export enforcement agents will be authorized to conduct undercover operations and employ wiretaps. These tools are not currently authorized for export control violations and are critical in uncovering potential terrorist activity.
Furthermore, the EAA codifies a significant role in the export licensing process for the Departments of Defense, State and Energy, in addition to the traditional role played by the Department of Commerce. It is important that the government tap into the expertise on national security and nonproliferation matters that exists in each of these departments in order to come to the correct judgment on individual licensing decisions.
Finally, but not least importantly, the EAA attempts to reinvigorate the multilateral export control system and the partnership between the government and the private sector in implementing export controls. With respect to the former, it is clear that export controls can only truly be effective if there is broad agreement and close cooperation among supplier nations. A unilateral control that penalizes one country's exporters but fails to prevent an entity of concern from obtaining dangerous technology provides no national security benefit. Just as terrorism can only be defeated with the cooperation of like-minded nations - as is happening today - export controls will only be successful with strong, effective multilateral institutions.
With respect to a renewed public-private partnership on export controls, it is clear that in a free and open society the cooperation of the exporting public is crucial to the effectiveness of an export control system. High penalties will deter some. Better enforcement tools will allow us to prevent more illicit exports. But with finite government resources devoted to implementing export controls, willing compliance with the law is necessary to our efforts to protect national security.
There are also two key provisions in the EAA that address the changing economic situation since 1979 and, in particular, globalization. The first is a new concept in U.S. export control law and has become to be known as the "mass market" provision. Simply put, the provision would require the decontrol of an item if it is available in such a ubiquitous manner, in the normal chain of commerce, that control of the item is rendered ineffective. In other words, if a terrorist can walk into a Radio Shack in Frankfurt and purchase the technology, it is senseless to spend government resources and burden U.S. manufacturers in an attempt to control the technology.
The second concept - embodied in the foreign availability provision - is a relatively old concept that has never been used to its full extent. It states that if an item is available from foreign producers, to such an extent that a unilateral control would be ineffective, the President must seek agreement of the foreign suppliers to control the item. If no agreement can be reached among supplier countries, the U.S. control must be removed. Again, if an end-user can easily obtain the identical technology from a foreign supplier, one must question the utility of placing a burden solely on the domestic producer that achieves no concomitant national security benefit.
Both of these concepts - mass market and foreign availability - recognize the economic backdrop in which export controls currently function. The United States no longer leads the world in developing all of the technology we seek to control. And much of the technology that can be used to enhance a country's military capabilities can be found in the commercial market. These are not easy fact to come to grip with from an export control standpoint. We would certainly choose to control at least some of this technology, if we could. But the EAA recognizes these inherent limitations on export controls and directs regulators to target resources on "choke point" technologies that can be controlled effectively.
This may be a useful point to elaborate briefly on what the EAA does not do. Because there has been some misperception about the bill and most of it centers on the mass market and foreign availability provisions. Some of the congressional opponents to the EAA have argued that the new legislation could jeopardize U.S. security because the mass market and foreign availability provisions would mandate the decontrol of such items as aluminum tubes and carbon fibers that can be useful in rogue nuclear weapons programs. This allegation is, of course, flatly incorrect.
Any item that is controlled multilaterally - as the types of aluminum tubes and carbon fibers used in nuclear programs are by the Australia Group - will remain controlled. The vast majority of items on the U.S. control list is controlled multilaterally and, accordingly, will remain controlled by the U.S. under this new provision of the EAA. In addition, a separate provision authorizes the President to maintain controls on any item, for virtually any reason, notwithstanding its mass market and foreign availability status. These safeguards ensure that the most sensitive, strategically-important items will remain controlled while less sensitive, and truly uncontrollable technology, will no longer encumber scarce export control resources. This principle is the essence of the EAA.
I hope that by now I have laid out a strong argument for enacting a new export control law and why, I believe, the EAA addresses the changing economic and security environment and fulfills the objectives of the President's Export Control Initiative. As I stated earlier, the EAA has been approved by the U.S. Senate but still awaits action in the House of Representatives. Congress returns to Washington this week for the first of, what could likely be, two "lame duck" sessions. The Administration remains hopeful that Congress will still take up this important piece of legislation prior to adjourning for the year.
But I don't want to leave you with the impression that the lack of a new EAA means that the United States is no longer interested in playing a leading role in the international export control community. As many of you know, as a result of the September 11 attacks we have doubled our efforts to strengthen export controls, especially through the various multilateral export control regimes.
At the end of last year, the Wassenaar Arrangement participants came together and embraced its first ever change to the Arrangement's Initial Elements that symbolizes a new commitment to preventing terrorists from obtaining items controlled under the Arrangement. This year we hope to take additional steps to strengthen the Wassenaar Arrangement. Namely, the United States has proposed that the Arrangement adopt a "denial notification" procedure, similar to those already employed in other regimes, that would increase the consultations between participating countries when one is considering approving an export license previously denied by another. Ultimately, the final decision to grant authorization for an export remains a matter of national discretion but this proposed procedure is certainly consistent with the Arrangement's goal of increasing dialogue on export control matters.
The U.S. also strongly supports a proposal to adopt a limited "catch-all" provision that would allow countries to restrict the export of otherwise uncontrolled items if the export is destined for military use in certain sanctioned countries. Finally, the U.S. supports, along with many other countries, increased transparency on small arms and light weapons transfers. We are hopeful that at the Wassenaar Plenary in December these proposals can be adopted by the entire membership.
Earlier this year, the Australia Group adopted a series of U.S. proposals, and those made by others, that will serve to keep dangerous chemicals and biological agents, and related equipment, out of the hands of terrorists. When we conducted a comprehensive review of our export controls in the aftermath of September 11, we found that the Australia Group was effectively and properly focused on state-run chemical weapons and biological weapons programs. However, it was apparent that certain items that could be useful to terrorists or rogue entities were not being controlled sufficiently. We were pleased that the other members of the Australia Group agreed with this assessment and new controls were adopted this summer.
Finally, on the domestic front the United State launched several other initiatives that we can explore more fully at the panel discussion tomorrow, including the publication of the Specially Designated Global Terrorist list to prevent exports from being made to individuals and entities suspected of terrorist activity, publication of the Unverified List to give exporters more information on potential problems with named end-users and the development of a new transshipment initiative to attempt to ensure that goods reach their intended destination and are not diverted at a transshipment point for nefarious use. We will continue to give exporters as much guidance as we can, consistent with intelligence and law enforcement methods, to ensure that they do not unknowingly contribute to terrorism or the proliferation of weapons of mass destruction.
I began this morning by saying I was happy to be among my many friends in the international export control community. Our challenge is to continue this dialogue, not only at conferences such as this, but bilaterally, within the multilateral export control regimes and between the public and private sectors. Export controls have always been important; now they are crucial.
Export controls have always been an important element in our nonproliferation strategy; now they are an indispensable means of keeping rogue states from obtaining weapons of mass destruction. Export controls have always been one tool in combating terrorism; now they are a vital tool in winning the War on Terrorism. But it will take all of us, working together towards a common purpose. It has been said that terrorism can only succeed if the governments of the civilized world are not vigilant, if we abdicate our responsibility to provide a safe, peaceful environment for our citizens. I am confident that we will successfully discharge this responsibility. And I am confident that many of us in this room - working together - will play a leading role in doing so.
Thank you again for inviting me to speak with you today.