October 20, 2003
I am pleased to welcome you to the 16th Annual Update Conference – and my third Update Conference as Under Secretary. I want to thank you all for joining us today and tomorrow to discuss developments in the areas of strategic trade and economic security policy during the past year.
As you know, the purpose of Update is to assist you, the exporting community, in understanding the various procedures, requirements, and policies administered and enforced by our Bureau. This conference provides a forum for you to ask us questions about issues that you are confronting as you deal with export controls on a daily basis. It also gives us an opportunity to hear from you as to how export controls can be improved. Indeed, the plenary sessions and breakout groups scheduled for the next two days are dedicated to exploring in detail a number of topics of concern to U.S. exporters, including sessions on export licensing and regulatory policy, foreign sellers of U.S. items, transshipment dangers, and export enforcement issues.
I want to add that we are especially fortunate this year that Secretary of Commerce Don Evans will be giving our keynote address on trade and security at today’s luncheon. And I also hope that you will have an opportunity to introduce yourself during the conference to Peter Lichtenbaum and Julie Myers, who are awaiting confirmation, respectively, as Assistant Secretary for Export Administration and Assistant Secretary for Export Enforcement.
The last two and one-half years have been a time of great transformation in our political, economic, and security landscape – a time when we have been asked to rise to new challenges as well as new opportunities. I would like, therefore, to share my thoughts on how the Bureau of Industry and Security has tried to respond to this environment – what have been our priorities and accomplishments since we last met one year ago.
Let me start where I have begun in previous years – with the need for a new Export Administration Act. As you know, the statutory authority for our dual-use export control system has not been comprehensively revised or overhauled for a long time. Moreover, the Export Administration Act of 1979, as amended, expired in August 2001. Since then, we have been acting under authority of the President’s invocation of the International Emergency Economic Powers Act.
This Bureau and the Administration have supported new legislation to create a streamlined and strengthened export control system that promotes both U.S. national security and U.S. economic interests. We strongly supported the bill that passed the Senate last Congress – Senate bill 149. A related bill passed through the relevant committees in the House, but the session ended before the Senate and House bills could be reconciled and a new law enacted.
The Administration remains committed to working with the relevant committees of the Senate and House on a new bill. We hope that we will be able to do so. In the meantime, however, we have been moving forward on a number of fronts administratively to make our export control system more efficient and more effective. For example:
Another priority area for us – in addition to streamlining and strengthening our own export control system – has been to work with other countries and the multilateral regimes on the development and enforcement of export controls.
Transshipment Country Export Control Initiative
While we have engaged for years in technical cooperation programs with other countries, at last year’s Update Conference I announced the launching of the Commerce Department’s Transshipment Country Export Control Initiative – known as TECI. The purpose of TECI is to work with relevant government and private sector officials at key transshipment hubs to tighten security and enhance export control systems without hindering the rapid flow of legitimate trade. We have focused initially on those transshipment hubs that serve as major distribution points in the global economy and are also located near countries that pose proliferation or security concerns. These hubs could be used by terrorists or rogue nations to divert sensitive items to unauthorized end-users. To date, we have held bilateral discussions with eight TECI partners — Hong Kong, Panama, Taiwan, Thailand, Malaysia, Singapore, Cyprus, and the United Arab Emirates — and multilateral discussions with these eight and Malta, our ninth TECI partner.
These discussions have delivered useful results. This year, for example, Hong Kong entered into a new arrangement with us on information sharing that enhances our joint compliance and enforcement efforts. In addition, we have worked with members of the exporting community in developing and issuing a list of Best Practices for Exporters/Reexporters and Trade Facilitators Operating in Transshipment Hubs. We greatly appreciate the helpful input that many of you provided in the completion of this project.
U.S.-India High Technology Cooperation Group
As part of the trade and security agenda, we have also spearheaded a major U.S. Government initiative with the Government of India to promote bilateral high-technology commerce. In November of last year, we announced in conjunction with India’s Ministry of External Affairs the formation of the U.S.-India High Technology Cooperation Group, designed to facilitate strategic trade and enhance controls to prevent the proliferation of sensitive goods and technologies. Three months later, in February of this year, we signed with the Government of India a Statement of Principles on U.S.-India High Technology Commerce. These principles included the need to address systemic issues inhibiting high-technology trade, such as tariff and non-tariff barriers in India. We also agreed to engage in outreach and trade promotion activities with regard to market opportunities, to review U.S. export control policy toward India, and to work with India to enhance its export control and enforcement programs.
We have taken action in each of these areas. In July, we held a major public-private forum on the climate for U.S.-India trade and investment, and on financing innovation, with a particular emphasis on the sectors of information technology, defense technology, life sciences, and nanotechnology. We followed this conference with government-to-government meetings the next day to discuss, among other issues, the policy recommendations for trade facilitation and export control reforms that came out of the public-private forum. We will be having another series of meetings next month in India, with a private sector conference in Bangalore on November 19, and government meetings in New Delhi on November 20. I urge those of you who have operations in India and are interested in participating in these activities to contact us. India, as the world’s largest democracy and a rapidly growing economy, presents an enormous market opportunity for the high-tech sector, and we would like to work with you to help realize this potential.
Another huge potential market for U.S. companies is China. In my view, one of the quiet accomplishments of this Administration has been to keep relations with China on an even keel and in a positive, cooperative framework. The United States and China today are significant trading partners, peaceful competitors for regional influence, and nations with shared global interests. We seek to have constructive and cooperative relations with the Chinese, and to integrate China into a rules-based international community. In this manner, we and the Chinese can successfully address a wide range of issues important to our mutual well-being.
Since China first embraced market reform and significantly opened itself to foreign trade and investment, its trade with the United States has grown exponentially. China is now our fourth largest trading partner. Although we run our biggest trade deficit with China, and although the growth in U.S. exports to China has been much less pronounced than the tremendous growth in the U.S. imports from there, China is our seventh largest export market, with sophisticated manufactured products and machinery leading the list of U.S. exports.
The systemic reforms that China will undertake as a consequence of its WTO accession should facilitate our business dealings with the Chinese. To date, however, China’s implementation of WTO provisions has been mixed. Given the breadth and complexity of the commitments undertaken by China, the U.S. Government will devote considerable attention and resources to monitoring and enforcing Chinese compliance with its trade obligations.
The increases in the overall level of trade with China have been paralleled both by a steady growth of U.S. investment in China and by increases in licensed trade of dual-use goods and technologies. The dollar value of licensed exports to China increased from approximately $515 million in calendar year 2001 to over $2.8 billion in 2002. And licensed trade would be substantially higher than that this year had we not decontrolled the export of general purpose microprocessors, thereby leading us to return without action license applications valued at over $5 billion, because a license is no longer needed for the export of such microprocessors to China, except for certain proscribed end-uses.
I should also note, however, that licensed exports to China constitute less than 15 percent of overall exports to China and less than 3 percent of the value of our trade deficit with China. Thus, the notion often put forward that, if we simply relaxed or eliminated export controls, our trade deficit would disappear or be greatly reduced, is simply not the case.
Moreover, China’s performance in the area of nonproliferation and export controls has been less than fully satisfactory. A number of PRC entities have exported sensitive items to countries of concern. The U.S. Government has imposed sanctions on these entities, and we have urged the PRC to strengthen the implementation and enforcement of its export control program. In addition, we held a large conference last month in Shanghai in coordination with China’s Ministry of Commerce that focused on export controls.
We are also continuing to seek greater transparency regarding end-user assurances
through our ability to conduct on-site checks in the PRC. If we want to be able to make licensing decisions based on the commercial bona fides of end-users, we need to be able to conduct routine end-use checks in China to verify that the items we export are being used for the appropriate purpose by the appropriate entity.
Such end-use verification visits by the Commerce Department are an ordinary part of strategic trade. They ensure that sensitive exports are not diverted to unauthorized end-users or end-uses, and thereby strengthen confidence in our trade relationship. We conduct such end-use verification visits, without problem, in over 85 countries. However, we have difficulty on this issue in China, where the government often restricts our ability to conduct this routine activity. Although we have made some progress with the Chinese in this area, much more needs to be done in order to have an effective system in place. Without further progress, our ability to license exports to certain Chinese companies will decrease.
The Multilateral Regimes
Let me now touch briefly on another priority for us – seeking to improve the effectiveness of the multilateral nonproliferation regimes. Over the past year, we have worked to strengthen each of the four multilateral regimes – the Missile Technology Control Regime, the Nuclear Suppliers Group, the Australia Group (which deals with chemical and biological weapons), and the Wassenaar Arrangement (which deals with advanced conventional weapons and sensitive dual-use items). For example, we have been successful in securing agreement in the MTCR to implement “catch-all” controls, in developing in the NSG an informal “watch list” of non-controlled items that could be used to support nuclear weapons development activities, in securing agreement in the Australia Group to control a number of pathogens due to increasing concerns regarding bioterriorism, and in liberalizing certain Wassenaar controls while making progress toward agreement on several proposals at the upcoming December plenary. We will continue to work with each of the regimes to try to ensure that they respond effectively to the threats posed by global terrorism and by certain countries that seek weapons of mass destruction.
In all of the activities that I have just discussed, we want to work cooperatively and constructively with the U.S. business community. As I have stated in previous speeches, we believe that the government is dependent on a vibrant private sector working in partnership with us to protect our security and promote our economic well being. This partnership is especially important in the area of export controls. You are on the front lines in evaluating new customers and monitoring exports of your goods and services. And you possess expertise on cutting-edge technologies and the state of global economic competition that we need to tap into when formulating export control policy. Although I know that some of you at times get frustrated with our regulatory process, I believe that the Bureau of Industry and Security is an extremely user-friendly organization that does an excellent job working with the U.S. business community.
In Fiscal Year 2003, which just ended on September 30, we processed 12,444 export license applications, up more than 15 percent from the number of applications processed the previous fiscal year. Of these applications, approximately 84 percent were approved, with the remainder either denied or returned without action. We also processed close to 4,000 commodity classifications. And I am pleased to say that we currently have no backlog of deemed export license applications.
In addition, this past year we conducted over 110 outreach events around the country as well as four major overseas seminars – in China, Japan, Korea, and Singapore. We also completely redesigned our Web site to make it more presentable and easier to navigate.
Outside of the domain of export controls, we have worked effectively with industry across a range of other security-related issues. For example:
We are thus pressing forward across a range of initiatives in the areas of regulatory policy and enforcement, international cooperation, and industry outreach and collaboration. As I noted at the outset, we are doing this in an environment of enormous change over the past two and one-half years. Some argued at the outset of the Administration that, in the post-Cold War world, we no longer needed export controls. But I think the events that have taken place since then have put this issue to rest. With globalization, our world has become a highly competitive economic environment; yet it also remains a dangerous place. Export controls will therefore continue to play an important role in international trade. Indeed, they will be a feature of our trade and security landscape for years to come.
For that reason, we need to continue to adapt and refine our controls to ensure that they are never more extensive than is necessary and are targeted on the right technology and the right end-users. I am proud to say that one of the significant accomplishments of the past two years that I have not yet mentioned relates to something that we did not do. We did not overreact either to the events of September 11 or to the difficult economic times to tilt export controls too far toward “security” or too far toward “trade.” We will need to maintain that balance as we continue to address the challenges of developing a durable legislative underpinning for export controls in this country and of building a more effective global regime for export controls.
We want to work with you as we address these and other issues in the months ahead. Again, thank you very much for coming to our Update Conference. We look forward to meeting with you during the next two days.