Chairman Goss, Representative Pelosi and Members of the Committee:
Thank you for the opportunity to present the Administration's views on the Export Administration Act of 2001.
The Administration believes that an effective export control system is critical to our national and economic security. This is particularly true as we continue to face threats from terrorists and rogue states developing weapons of mass destruction. We must ensure that our adversaries and potential adversaries do not obtain goods or technologies that could be used for weapons that might ultimately be directed against us. Equally important is an export control system that affords American exporters the opportunity to compete on an equal footing with their foreign competitors in the global marketplace. The challenge for policy makers is to construct a tough-minded, yet common-sense export control regime that enhances legitimate, commercial trade while at the same time prevents the diversion of sensitive goods and technologies that could jeopardize our national security.
In my remarks today, I first will discuss the need for a new Export Administration Act. I will then describe how both the Senate bill and H.R. 2581, as introduced in the House, represent a significant improvement over current authorities in terms of protecting national security and facilitating commerce. Finally, I will explain why the Administration opposes the bill reported by the House International Relations Committee (HIRC).
For the most part, over the past 23 years U.S. export controls have been authorized under the Export Administration Act of 1979. The 1979 Act has expired on six occasions during that time frame; it most recently expired in August of last year. It has not been re-authorized to date.
To maintain our system of export controls the President was forced to declare a national emergency under the International Emergency Economic Powers Act (IEEPA). Operating under this emergency authority raises serious legal and political complications. It also greatly weakens our enforcement efforts by, among other things, significantly lowering the penalties for export control violations. Moreover, operating under emergency authority sends the wrong message -- at home and abroad -- about our commitment to export controls. It is hard to persuade other countries about the importance of establishing a sound and workable export control system if we are unable to enact an export control statute ourselves.
In the past, the remedy to operating under IEEPA has been simply to extend the 1979 Act. This is no longer sufficient. The 1979 Act is a Cold War statute that does not reflect current economic and political realities. The basic national security control authority of this law is predicated on the existence of a multilateral regime -- the Coordinating Committee on Multilateral Export Controls (CoCom) -- that ended eight years ago.
In addition, the penalty levels in the 1979 Act have been substantially eroded by inflation. Ideally, we rely on the deterrent effect of stiff penalties for export control violations. But under the 1979 Act, this deterrent effect has largely eroded, because the low level of penalties could be viewed merely as a cost of doing business.
Finally, the repeated shifting back and forth between IEEPA authorities and the 1979 Act has hampered our enforcement efforts. A coherent, modern statutory basis for U.S. export control law will enhance our ability to bring enforcement actions against alleged violators.
Enactment of a new Export Administration Act that reflects current global realities is thus imperative. In early 2001, the Administration conducted a thorough interagency review, led by the National Security Council, of the bill then pending in the Senate, S.149. As a result of its review, the Administration proposed a number of changes to the bill, which the Secretaries of State, Defense, and Commerce, and the National Security Advisor all agreed would strengthen the President's national security and foreign policy authorities to control dual-use exports. The Senate incorporated these proposed changes into S. 149 and, as a result, the Administration strongly supported the bill approved by the Senate last summer by a vote of 85-14.
In the House, Representative Gilman introduced H.R. 2581, a bill that largely incorporated the provisions supported by the Administration in the Senate-passed bill. Unfortunately, the Gilman bill was modified significantly by the House International Relations Committee. I will come back to the Administration's opposition to the HIRC-passed bill later in my testimony, but first I would like to take a moment to discuss several provisions of the Gilman bill, as introduced, and explain how these provisions enhance national security and promote legitimate, commercial trade.
In general, H.R. 2581, as introduced, eliminates the Cold War structure of the existing law, provides greater opportunities for exporters to seek revision of ineffective controls and, importantly, gives the President broad authority to protect national security. For example, national security controls are authorized for three distinct purposes:
First, to restrict the export of items that would contribute to the military potential of countries to the detriment of the United States and its allies;
Second, to stem the proliferation of weapons of mass destruction; and
Third, to deter terrorist acts.
In addition, the bill provides, for the first time in explicit statutory provisions, several additional important authorities. For example, "catch-all controls" are authorized for the first time in statute. Catch-all controls ensure that no exports, even of otherwise uncontrolled items, are made to weapons of mass destruction programs.
The bill also contains a new provision known as "enhanced controls." Enhanced controls allow the President to exempt, for reasons of national security, items from the foreign availability, mass market, and parts and components provisions of the bill. Thus, the President can prevent, at the outset, sensitive technologies from being considered under those provisions that would otherwise limit controls.
If enhanced controls are not invoked, and an item is found to be readily available from foreign sources or has mass market status, the President still can continue controls on these items indefinitely for reasons of national security or adherence to our commitments under one of the four multilateral export control regimes. This provision ensures that items controlled by agreement with our allies in a multilateral forum will remain controlled.
The bill defines the term "export" so that it encompasses "deemed exports," thereby authorizing the continuation of existing controls on transfers of intangible technology to foreign nationals.
In addition, the Gilman bill provides a statutory role for the Department of Defense and other relevant departments in the export control process in several important ways:
First, the Secretary of Commerce is required to refer all license applications to the Secretaries of Defense and State, and to other relevant agencies for their review and recommendations;
Second, all reviewing departments are authorized to escalate a proposed licensing decision to the President;
Third, the Department of Commerce is required to notify the Department of Defense of all commodity classification requests; and
Finally, as it relates to this Committee's jurisdiction, the bill provides a formal advisory role for the intelligence community in the licensing process. Intelligence information is a critical component of the export license decision-making process and the intelligence community's role in this process should be formally defined in the authorizing statute.
It is important to note that, although licenses are referred to several agencies, the bill requires that decisions on license applications be made within 90 days of referral. Agencies can, however, "stop the clock" if additional information is needed from the applicant. These transparent and specific deadlines give exporters increased certainty when developing marketing and production plans. Of course, prompt licensing decisions are essential for doing business abroad.
In the area of enforcement, the Gilman bill - like S. 149 - significantly raises the penalties for export control violations and contains other provisions that enhance the U.S. government's enforcement authorities, thereby deterring those who might otherwise endanger U.S. national security through illicit exports. For example, penalties on corporations are raised to $5 million per violation, or ten times the value of the export, whichever is greater. Criminal penalties on individuals are raised to $1 million, and civil penalties increase to $500,000. By way of comparison, under IEEPA the maximum criminal penalty is $50,000 and civil penalties are capped at $12,000.
In addition, the bill authorizes the Commerce Department to conduct undercover operations and enables wiretaps based on violations of export control law. Furthermore, Commerce is authorized to station additional attachés abroad to ensure that U.S. items are not diverted or misused.
In August, the House International Relations Committee ordered reported H.R.2581. The HIRC bill retained many of the provisions of the Gilman bill that I have just mentioned, but also added approximately 30 amendments to the framework of that carefully constructed bill. Consequently, the Administration strongly opposes the bill as reported by the House International Relations Committee. That said, we would welcome the opportunity to continue to work with Members of that Committee as the bill progresses in the House.
I would like to provide three examples of the concerns that the Administration has with the HIRC amendments. I would emphasize, however, that the Administration continues to carefully review the amendments and to formulate a comprehensive Administration position.
First, several provisions in the HIRC bill would limit the flexibility of the President to conduct foreign policy and implement export controls. For example, one amendment would require the President to wait 30 days prior to removing those foreign policy control not imposed by law. This provision could constrain the President from acting promptly to protect national security. You will recall that following September 11, the Administration removed certain sanctions on India and Pakistan, in part, to build a coalition for the war in Afghanistan. Under the bill reported by HIRC, the President would have been unable to have acted so promptly and effectively.
Second, several provisions would change the focus of export controls from protecting national security to other non-security related areas. For example, two amendments would require export controls on pesticides, agricultural chemicals and test articles intended for clinical investigations for purposes of public health and environmental protection. These amendments would result in the diversion of our resources devoted to stemming the proliferation of weapons of mass destruction and preventing terrorist acts. We believe the issues raised by these amendments are best addressed under authorities outside the context of the Export Administration Act.
Third, certain provisions of the HIRC bill would actually roll back existing authority to protect national security.For example, the amendment to the definition of "export" appears to limit our ability to control the transfer of intangible technology to foreign nationals outside the United States, as we do today. So this amendment would appear to roll back existing control authorities, to the detriment of our national security.
In conclusion, the Administration strongly believes that S. 149 and H.R. 2581, as introduced, provide the authority needed to prevent terrorists and other potential adversaries from obtaining sensitive items that could be used to threaten our national security. The bills also provide transparency and predictability in the licensing process that will benefit U.S. exporters. Although the Administration does not support H.R. 2581 as reported by the House International Relations Committee, we look forward to working with this Committee and others in the House to pass a new Export Administration Act this year.
Thank you for the opportunity to testify. I look forward to your questions.