|Donald L. Evans
Secretary of Commerce
Kenneth I. Juster
Under Secretary for Industry and Security
It is our privilege to present this report on the activities of the Department of Commerce's Bureau of Industry and Security (BIS) during Fiscal Year 2003.
The last two and one-half years have witnessed an enormous transformation of our political, economic, and security landscape. The spread of democracy and free markets, combined with increasing globalization, has resulted in unprecedented prosperity around the globe. At the same time, however, it is clear that the world remains a dangerous place. BIS plays an essential role in meeting the challenges created where business and security intersect. During Fiscal Year 2003, BIS responded to these challenges by strengthening and streamlining export controls, engaging in important international initiatives to deter proliferation, and working with industry to enhance both U.S. national security and U.S. economic interests.
One of our top priorities over the past year was to make our export control system more efficient and effective. To that end, we published a rule to update and clarify U.S. encryption controls, released guidance for exporters on deemed export license renewals and updates, issued revised guidance on reexports' and issued proposed guidelines for administrative case penalties.
BIS also continues to work closely with other U.S. Government agencies and the Congress to seek to renew and revise as appropriate the Export Administration Act (EAA), and thereby place our export control system on a stronger statutory foundation.
In addition, we made substantial progress in promoting high-technology trade with India under the auspices of the U.S.-India High Technology Cooperation Group (HTCG). In February 2003, we joined the Government of India in signing a Statement of Principles on U.S.-India High Technology Commerce. The two sides also convened meetings of the HTCG, in both the United States and India, that addressed export controls, market access, tariff and non-tariff barriers to trade, and outreach to industry. These meetings were held in tandem with public-private conferences on trade and investment, which were well attended by representatives of U.S. and Indian industry.
BIS also had a very active year in export enforcement. We concluded a number of sign)ficant cases, with total criminal penalties of approximately $3.4 million and administrative fines of $4.1 million. Several of these cases made new law. One established the precedent of successor liability for violations of the Export Administration Regulations; another established a precedent for reaching beyoncl exporters to hold freight forwarders and other participants in an export transaction liable for export control violations.
Another priority area for BIS over the past year was to work with other countries on the development and enforcement of their export controls. The Commerce Department's Transshipment Country Export Control Initiative (TECI) works with global transshipment hubs to strengthen their trade compliance and export control systems. Working through TECI, BIS concluded a new information sharing arrangement with Hong Kong that will enhance export enforcement, held several conferences to discuss export controls and transshipment trade, and developed a list of best practices for exporters, reexporters, and trade facilitators operating in transshipment hubs.
In undertaking all of its activities, BIS worked cooperatively and constructively with the U.S. business community. In Fiscal Year 2003, we handled a 17 percent increase in license applications through an improved licensing process, and conducted a record number of outreach events, including major seminars throughout the United States and in China, Japan, Korea, and Singapore.
Outside of the domain of export controls, BIS worked effectively with industry across a range of security-related issues. For example, our advocacy efforts in Fiscal Year 2003 contributed to U.S. defense export sales of approximately $4.5 billion, including aircraft engines to Japan, military trucks to Hungary, fighter aircraft to Poland, and radar spare parts to Sri Lanka. We also worked closely with U.S. industry and the Department of Defense through the Defense Priorities and Allocations System to expedite the supply of defense articles needed to support Operation Enduring Freedom in Afghanistan and Operation Iraqi Freedom. Moreover, BIS completed several major initiatives monitoring the strength of the U.S. defense industrial and technological base, including conducting assessments of the U.S. textile and apparel industries and the biotechnology industry, and providing reports to Congress on the use of offsets in defense trade. In addition, we worked with industry on matters relating to the implementation of the Chemical Weapons Convention, including hosting nine inspections of U.S. industrial sites and conducting 12 site assistance visits to help prepare for inspections.
Thus, throughout Fiscal Year 2003, BIS pressed ahead with a range of initiatives in the areas of export control policy and enforcement, international cooperation' and industry outreach and collaboration. Our efforts were guided by the principle that protecting security and promoting trade are mutually reinforcing objectives. Indeed, legitimate trade is based on the foundation of sound security. We believe that BIS has been successful in pursuing these dual objectives. We look forward to building on this success as we address new challenges in the years ahead.
Donald L. Evans
Secretary of Commerce
Kenneth I. Juster
Under Secretary of Commerce for Industry and Security
Table of Contents
Guiding Principles of the Bureau of Industry and Security
Regulatory Changes in Fiscal Year 2003
Bureau of Industry and Security Organizational Structure
Summaries of Closed Criminal and Administrative ExportEnforcement Cases
Tables of Antiboycott Settlements and Reporting Data
Approved Applications for Country Group D:1 and Cuba
Report on Domestic Impact of U.S. Exports to Controlled Countries
Agricultural Supply Tables and Information
This report summarizes the activities of the Department of Commerce's Bureau of Industry and Security during Fiscal Year 2003.1
In Fiscal Year 2003, BIS worked to advance U.S. national security, foreign policy, and economic interests. BIS focused on facilitating legitimate high-technology trade while preventing the illicit transfer of critical enabling technologies for advanced conventional weapons, weapons of mass destruction, and their delivery systems. BIS also worked with business to strengthen the U.S. defense industrial and technological base and comply with certain international treaty obligations.
In the area of export control policy and regulation, BIS took a number of steps to ensure that controls on exports and reexports of U.S.-origin items met U.S. national security objectives without unnecessarily burdening U.S. industry.
· BIS published revised guidance on the nature and scope of controls on the reexport of U.S.- origin items, and translated that guidance into several foreign languages.
· BIS published a rule updating U.S. export controls on dual-use encryption items to reflect changes made to the Wassenaar Arrangement List of Dual-Use Goods and Technologies
· BIS expanded export controls on designated terrorists by imposing a license requirement on exports and reexports to Specially Designated Global Terrorists.
· BIS expanded the scope of controls on explosives detection equipment to include equipment that detects the presence of explosives, explosive residue, or detonators, and added controls on related software and technology.
In the export licensing area, BIS processed an increased number of export license applications.
· BIS completed the review of 12,443 license applications, a 17 percent increase over Fiscal Year 2002, and the highest volume of license applications in ten years.
· BIS processed 846 deemed export license applications, an increase of nearly 20 percent over Fiscal Year 2002.
BIS also continued to enforce U.S. export control laws vigorously and improve compliance with export license conditions.
· BIS closed 34 administrative enforcement cases, many of which established important precedents. For example, the $1.76 million settlement agreement with Sigma Aldrich Corporation regarding exports of biological toxins set the precedent of successor liability in export control cases.
· BIS published proposed penalty guidelines for the settlement of administrative cases that will provide the public with a comprehensive description of how BIS determines appropriate penalties for such cases.
In addition, BIS undertook a number of efforts in Fiscal Year 2003 to improve communication with industry and other interested parties. BIS focused on enhancing the role of advisory committees in the formation of U.S. policy and seeking input from the public on its various programs and initiatives.
· BIS convened the President's Export Council Subcommittee on Export Administration to discuss current issues involving high-technology trade.
· BIS conducted educational seminars on subjects ranging from the obligations of exporters and others under the Export Administration Regulations, to BIS's enforcement of the Export Administration Regulations, to reporting requirements under the Chemical Weapons Convention regulations.
· BIS held targeted seminars and other outreach programs focusing on technology export controls and the application of the deemed export rule. These programs likely contributed to the significant increase in the number of deemed export license applications that BIS received in Fiscal Year 2003.
In cooperation with other U.S. Government agencies, BIS also took significant steps to strengthen the four multilateral nonproliferation regimes and improve treaty compliance.
· BIS worked through the Nuclear Suppliers Group, the Missile Technology Control Regime, the Australia Group, and the Wassenaar Arrangement to update regime controls in light of technological change.
· BIS hosted nine on-site inspections of U.S. facilities engaged in chemical production activities, which were conducted by the Organization for the Prohibition of Chemical Weapons and carried out in compliance with the requirements of the Chemical Weapons Convention. In addition, BIS conducted 12 site assistance visits to help U.S. companies prepare their facilities for on-site inspections.
In coordination with other federal agencies, BIS also participated in a number of international cooperation and enforcement programs.
· BIS led a major U.S. Government initiative with the Government of India to promote bilateral high-technology cooperation and strengthen export control compliance.
· BIS conducted major International Export Control Outreach Seminars in China, Japan, South Korea, and Singapore, which educated attendees on the obligations of foreign persons under the U.S. export control system.
· BIS advanced the overall objectives of the Transshipment Country Export Control Initiative by organizing conferences on export controls and transshipment trade, as well as by publishing a set of "best practices" for industry to assist in eliminating illegal transshipments and diversions of goods.
· BIS sent enforcement agents to numerous countries, including Brazil, Cyprus, Italy, Malaysia, Malta, Panama, South Africa, Syria, and Thailand, to conduct pre-license checks and post-shipment verifications pursuant to the Safeguards Verification Program.
BIS also monitored and supported the U.S. defense industrial and technological base.
· BIS exercised its authority under the Defense Priorities and Allocations System to require preferential acceptance and performance of certain contracts supporting Operation Enduring Freedom, Operation Iraqi Freedom, and homeland security activities. These included contracts for special ballistic material for lightweight body armor for U.S. Army and Marine Corps troops, and data processing and communications equipment for the Department of Homeland Security's Transportation Security Administration and Bureau of Customs and Border Protection.
· BIS assisted U.S. companies in securing $4.5 billion in contracts to supply foreign governments with defense articles, including sales of aircraft engines to Japan, military trucks to Hungary, fighter aircraft to Poland, and radar spare parts to Sri Lanka.
· BIS completed six major reports to monitor the strength of the defense industrial and technological base, including a comprehensive assessment of the U.S. textile and apparel industries requested by Congress.
1 In accordance with the Department's past practice, this report has been prepared and is being submitted to the Congress pursuant to the annual reporting requirement set forth in Section 14 of the Export Administration Act of 1979 (EAA). It should be noted, however, that this annual reporting requirement, together with the rest of the EAA, has expired, and that the President has continued the U.S. dual-use export control regime under the authority of the International Emergency Economic Powers Act. It should be further noted that some of the information included in this report fulfills reporting requirements in statutes other than the EAA.
The Bureau of Industry and Security (BIS) is charged with the implementation of U.S. export control policy on dual-use commodities, software, and technology. Dual-use items subject to BIS regulatory jurisdiction have predominantly civilian uses, but also have military, proliferation, and terrorism-related applications. One of BIS's principal objectives is to ensure that direct exports from the United States and reexports of U.S.-origin items from third countries are consistent with national security and foreign policy interests, without imposing unnecessary regulatory burdens on U.S. exporters or impeding the flow of legitimate trade.
In order to accomplish its objectives, BIS seeks to promulgate clear, concise, and timely regulations setting forth license requirements and licensing policy for the export of dual-use items. Principal areas of focus include implementation of controls agreed to in the four multilateral export control regimesthe Nuclear Suppliers Group (NSG), the Missile Technology Control Regime (MTCR), the Australia Group (AG) (chemical and biological nonproliferation), and the Wassenaar Arrangement (WA) (conventional arms and dual-use goods and technologies).
BIS regulations also further other U.S. foreign policy interests, including sanctions policies; specify which export licensing agency has jurisdictional authority for a given item; and clarify the rights and obligations of U.S. exporters.
In the development of regulatory policy, BIS consults with industry through its six Technical Advisory Committees (TACs). The TACs provide valuable input regarding industry perspectives on trends in technology as well as the practicality and likely impact of export controls. In addition, BIS often publishes significant rules in proposed form to give the exporting community an opportunity to comment before the regulations take effect.
In Fiscal Year 2003, BIS took important steps toward fulfilling its mission, while building a solid foundation for more progress in Fiscal Year 2004.
During Fiscal Year 2003, geopolitical and security considerations had a significant impact on BIS's export control policies. Concerns regarding the proliferation of weapons of mass destruction, the transfer of critical enabling technologies for advanced conventional weapons, and the need to develop international cooperation in the war on terrorism have played a major role in focusing BIS's policies towards individual countries.
BIS is leading a major initiative with the Government of India to promote cooperation in bilateral high-technology commerce. In November 2002, the U.S. Government and the Government of India formed the U.S.-India High Technology Cooperation Group (HTCG), designed to reduce the barriers to bilateral high-technology trade and enhance controls to prevent the proliferation of sensitive goods and technologies. In February 2003, Under Secretary Kenneth I. Juster and Indian Foreign Secretary Kanwal Sibal signed a Statement of Principles on U.S.-India High Technology Commerce, in which the two governments acknowledged the need to address systemic issues inhibiting high-technology trade and strengthen export controls.
In July 2003, the United States and India convened the first meeting of the HTCG in Washington, D.C., where the two governments discussed export controls, market access issues, tariff and non-tariff barriers to trade, and outreach to industry. The government discussions were preceded by the "Financing Innovation Forum," a major public-private forum addressing the current climate of U.S.-India high-technology trade and investment. The Forum included break-out sessions on information technology, defense technology, life sciences, and nanotechnology, and was well attended by industry and government representatives. In 2004 BIS will seek to build on its achievements by continuing to expand U.S.-India collaboration in high-technology trade and export control issues.
China, is the fourth largest U.S. trading partner and represents a major market with great potential for U.S. exporters. As the overall level of U.S.-China trade and investment has expanded, the licensed trade of dual-use goods and technologies has also been robust. Licensed exports to China increased from approximately $175 million in Fiscal Year 2001 to over $2 billion in Fiscal Year 2002, with electronic devices (including microprocessors and analog to digital converters) and semiconductor manufacturing equipment composing the two largest sectors. Largely because exports of general purpose microprocessors were decontrolled, only $1.4 billion worth of exports required licenses in Fiscal Year 2003. This is just one example of how BIS is working to minimize the burden on U.S. exporters, while ensuring that U.S. national security requirements are met.
BIS, in cooperation with other U.S. Government agencies, continues to seek to ensure that Chinese importers comply with U.S. export control requirements. BIS also is working to obtain greater transparency regarding end-user assurances by improving our ability to conduct on-site checks, which are used to verify that licensed items are being used for the approved purpose by the approved end user.
One of the key challenges for U.S. export controls is China's growing semiconductor industry, which is poised to become a large global player and a vast potential market for U.S. semiconductor manufacturing equipment producers. While the U.S. Government is supportive of U.S. exporters pursuing economic opportunities, exports of sophisticated semiconductor manufacturing equipment can also raise potential security concerns, because advanced semiconductors are significant components in many modern weapons systems. Similar market potential and security concerns exist with respect to exports to China's large telecommunications sector. In this regard, BIS officials undertook several visits to key organizations in the emerging Chinese semiconductor and telecommunications industries in order to familiarize them with U.S. and multilateral export control regulations, policies, and practices. These visits also increased U.S. officials' understanding of the dynamics of these markets, and China's role in them.
BIS continued to support U.S. Government efforts to work with Russia as a strategic partner on issues of nonproliferation. For example, BIS issues Special Comprehensive Licenses to facilitate the export of items needed to ensure the safety and security of Russian nuclear materials and weapons. In addition, the United States and Russia have a mutual interest in strengthening export controls on the transfer of conventional arms and dual-use goods controlled under the Wassenaar Arrangement. Obtaining Russian support for key proposals within Wassenaar is an important goal for BIS in Fiscal Year 2004. Doing so would both strengthen international nonproliferation efforts and enhance confidence between the United States and Russia on issues of high-technology trade.
In Fiscal Year 2001, BIS implemented the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), as amended. In Fiscal Year 2003, the combination of export licenses for agricultural commodities, medicines, and humanitarian items with export authorizations for agricultural commodities to Cuba under our expedited TSRA procedures resulted in BIS processing almost 600 export applications. Because of the complexities of trade with Cuba and recent legislative proposals to make certain changes to the U.S. embargo, BIS continued to receive a significant number of queries regarding trade with Cuba.
In April 2003, the U.S. Government hosted consultations on export control issues with a visiting delegation from the Hong Kong Special Administrative Region. These bilateral meetings occur annually in accordance with a 1997 Agreed Minute between the U.S. Department of Commerce and the Hong Kong Department of Trade and Industry. Representatives of the two sides provided an update of export licensing and enforcement activities taken over the past year and discussed ways of improving cooperation. The two sides also exchanged letters setting forth procedures for increased cooperation in the sharing of information on export transactions, so as to enhance law enforcement efforts.
On May 7, 2003, following the end of major hostilities in Iraq, President Bush exercised his authority under the Emergency Wartime Supplemental Appropriations Act, 2003, to suspend most of the provisions of the Iraq Sanctions Act of 1990. As a result, the U.S. Government is no longer required to prohibit the export of items to Iraq that would require an export license under the Export Administration Regulations (EAR) and now has the discretion to review and approve license applications on their merits.
Throughout Fiscal Year 2003, the Department of the Treasury's Office of Foreign Assets Control (OFAC) continued to be responsible for licensing transactions involving Iraq, including the export of dual-use items that would require a license under the EAR. Since the embargo on Iraq was implemented in the early 1990s, both the Department of the Treasury and BIS have maintained licensing jurisdiction for the export of dual-use items to Iraq. In order to avoid a duplicate licensing requirement while the embargo is in effect, however, the EAR currently provides that authorization from OFAC to export items subject to EAR licensing requirements also constitutes authorization from BIS.
During Fiscal Year 2003, BIS worked toward a rule that would appropriately revise BIS's regulations regarding Iraq, once the primary licensing jurisdiction is returned to BIS. Until such a rule is published, however, exporters must continue to obtain authorization from OFAC (either through a specific or a general license) for any exports of dual-use items to Iraq.
On November 25, 2002, BIS published a final rule that removed the special controls on the export and reexport of arms-related items that were imposed with respect to Yugoslavia and the Western Balkans in 1998. The rule lifted the arms and related-materiel embargo that was applicable to military, crime control, and regional stability-controlled items, and changed BIS licensing policy from one of denial to one of case-by-case review.
Progress continued on the interagency review of the United States Munitions List (USML), which provides the products controlled by the Department of State as defense articles. Items on the USML are reviewed, analyzed, and updated on an ongoing basis, in order to keep the list current with technological developments and changed market conditions. As part of this process, items that are of predominantly commercial use are moved to the Commerce Control List (CCL), which is administered by BIS.
In Fiscal Year 2003, BIS played an important role in the interagency USML review process, during which the reviews of Categories VII (Tanks and Other Military Vehicles), IX (Training Equipment), and XIII (Auxiliary Equipment) were completed. These reviews resulted in clarification of the entries and some movement of equipment entries between the Departments of State and Commerce. These changes will be implemented in regulations in Fiscal Year 2004. In addition to these completed categories, BIS participated in review of Categories IV (Missiles, Bombs, Rockets), VI (Naval Vessels), VIII (Aircraft), X (Protective Equipment), XI (Electronics), XII (Optics and Guidance), and XV (Space). Several of these categories have moved from a technical review to a policy review/decision level, guided by the National Security Council.
The President's Export Council Subcommittee on Export Administration (PECSEA) is the preeminent advisory body to the President and the Secretary of Commerce on export control issues that affect both trade and national security. On July 31, 2003, the PECSEA convened in Washington, D.C., to introduce new members and establish an agenda for future PECSEA discussions. The PECSEA will meet throughout Fiscal Year 2004 to discuss the impact of technological developments on existing U.S. and foreign export controls, and the foreign availability of controlled items, as well as related economic and security issues.
U.S. encryption export control policy continues to be anchored on the technical review of encryption products prior to export, streamlined post-export reporting, and license review for certain exports of strong encryption to foreign government end-users. BIS published a rule on June 17, 2003 (68 Fed. Reg. 35783), updating U.S. export controls on dual-use encryption items. The rule implemented changes made to the Wassenaar Arrangement List of Dual-Use Goods & Technologies in December 2002, and further clarifies U.S. encryption export policy in light of the widespread use of encryption products by individuals, businesses, and governments.
The encryption policy published by BIS in June 2003 clarifies when encryption commodities and software may be given "de minimis" treatment; provides that short-range wireless devices incorporating encryption may be given "mass market" or "retail" treatment; and confirms that specially designed medical equipment and software are not controlled as encryption or "information security" items under the EAR. The rule also expands the authorizations according to which travelers departing the United States may take encryption items for their personal use, and provides additional guidance on when exporters are required to submit encryption review requests for new products that will be sold or otherwise exported for other than "personal use" overseas. Finally, this rule implements changes to the Wassenaar Arrangement List of Dual-Use Goods & Technologies (finalized in December 2002) by eliminating national security-based controls on certain types of "personalized smart cards" and equipment controlling access to copyright protected data.
In Fiscal Year 2003, BIS strongly supported the global war on terrorism. For example, at the urging of the United States, members of the Wassenaar Arrangement agreed to intensify cooperation to prevent the acquisition by terrorists of conventional arms and dual-use items, and to develop a new means for sharing information to strengthen controls over such items.
In addition, BIS expanded the scope of export controls on explosives detection equipment to include equipment that detects the presence of explosives, explosive residue, or detonators, and added controls on related software and technology. This rule also imposed broader foreign policy controls on these items.
Finally, BIS expanded export controls on designated terrorists by imposing a license requirement on the export and reexport of any item subject to the EAR by a U.S. person or non-U.S. person to persons designated in, or pursuant to, Executive Order 13224 of September 23, 2001 (also known as Specially Designated Global Terrorists).1
In Fiscal Year 2004, BIS plans to continue to work closely with other agencies and with Congress on the possible renewal of and revision to the Export Administration Act (EAA), which lapsed in 2001. Renewal is important to protect U.S. national security and U.S. economic interests. It would place the U.S. export control system on a stronger legislative foundation and enhance the U.S. Government's ability to encourage other countries to enact similar legislation.
BIS also will work to achieve needed export policy changes. In particular, BIS expects to undertake a comprehensive examination of deemed exports and technology controls. While controls on information technology hardwaresuch as computers and microprocessorshave been updated regularly to keep pace with rapid technological and market changes, the corresponding technology and software controls have not always kept pace. In addition to updating information technology control parameters, BIS will work with its interagency partners in the U.S. Government to seek to revise the restrictions on transfers of technology within U.S. companies.
BIS also intends to publish a rule to clarify the "knowledge" standard in the Export Administration Regulations, principally in the provisions that implement the Enhanced Proliferation Control Initiative (EPCI), which are known as "catch all" controls. Moreover, BIS will update and improve the "Red Flag" guidance in the EAR, which identifies circumstances that point to a heightened risk that a claimed end-use, end-user, or ultimate destination is not the actual one, and identifies steps that parties can take to recognize and resolve any such red flags.
In addition, BIS plans a review of the current "country group" structure of the EAR, which affects overall licensing policy as well as the availability of license exceptions. BIS will seek to determine whether there is a simpler way to convey this information to exporters, consistent with our overall goal of streamlining the regulations.
In the area of thermal imaging technology, which accounts for a significant percentage of the total volume of dual-use license applications, BIS will work with other agencies and the private sector to develop ways to facilitate exports to rapidly growing legitimate commercial markets, while continuing to protect vital security interests.
In the area of semiconductor manufacturing equipment, the multilateral Wassenaar Arrangement control lists have not been reviewed or updated in a number of years. Working with our partners in the U.S. Government and U.S. industry, BIS plans to review controls on chipmaking equipment, with the goal of developing proposals for consideration within the Wassenaar Arrangement as part of the overall list review process.
Finally, BIS will work with other U.S. Government agencies and industry to simplify U.S. encryption regulations and streamline current pre-export technical review procedures. This policy update is needed to increase the effectiveness of BIS's administration, compliance, and enforcement programs. In addition, the encryption policy update will maintain a level playing field and "license-free zone" with the European Union, as well as reduce the complexity of encryption classifications and licensing determinations.
1 Any person who is determined by the Secretary of the Treasury to be a specially designated terrorist under notices for regulations issued by the Office of Foreign Assets Control.
Under Secretary Kenneth I. Juster and Indian Foreign Secretary Kanwal Sibal convene the inaugural meeting of the U.S.-India High Technology Cooperation Group.
Under Secretary Kenneth I. Juster addresses the Bureau of Industry and Security's Annual Update Conference on Export Controls and Policy.
Under Secretary Kenneth I. Juster and Indian Foreign Secretary Kanwal
A primary mission of the Bureau of Industry and Security (BIS) is the accurate, consistent, and timely evaluation and processing of license applications for proposed exports of dual-use goods and technology from the United States. BIS's objective is to protect U.S. national security and foreign policy interests without imposing undue regulatory burdens on legitimate international trade. Consistent with that objective, BIS attempts to minimize the length of time necessary to analyze proposed export transactions while working closely with other U.S. Government agencies to determine the appropriate disposition of such transactions.
In Fiscal Year 2003, BIS reviewed 12,443 license applications covering transactions with a total value of approximately $15 billion. Overall, BIS approved 10,416 license applications, returned 1,784 applications without action, and denied 243 applications. BIS received 12,918 license applications in Fiscal Year 2003, compared to 11,001 applications in Fiscal Year 2002. This 17 percent increase marked the highest volume of applications in ten years.
Over the past decade, the volume of certain types of commodities that are subject to export licensing requirements has changed significantly. For example, the largest reduction in applications over the past decade has been for digital computers, assemblies, and related equipment (Export Commodity Classification Number (ECCN) 4A003). In Fiscal Year 1993, 11,164 of the 26,126 applications received by BIS concerned items classified under ECCN 4A003. In Fiscal Year 2003, only 14 of the 12,918 applications received concerned items controlled under ECCN 4A003.
The most significant increase over the past ten years has been for applications concerning thermal imaging and light intensifying cameras (ECCN 6A003). BIS received 40 applications under ECCN 6A003 in Fiscal Year 1993. Ten years later, that number had increased to 2,818.
Japan was the destination for the largest number of approved licenses in Fiscal Year 2003. BIS approved 950 licenses for exports to Japan, 79 percent of which were for cameras controlled under ECCN 6A003. The People's Republic of China was second in approved licenses with 846 approvals, 37 percent of which were for so-called "deemed exports."1
The average processing time for all completed license applications during Fiscal Year 2003 was 44 days, compared to 39 days in Fiscal Year 2002. Several factors contributed to this rise, including an increase in the number of referrals because the reviewing agencies rescinded delegations of authority to Commerce to process certain categories of applications, and an increase in the processing time for license applications referred to other agencies for review.
Another significant factor affecting the average processing time was the marked increase in the number of license applications for the export of sensitive commodities to certain countries. Thermal imaging and light intensifying cameras, accounting for 22 percent of all completed license applications in Fiscal Year 2003, took an average of 52 days to process. This processing time increased significantly when the camera was destined for certain countries. For example, the average time for cameras to Taiwan was 68 days and for those to China was 95 days. In Fiscal Year 2004 BIS will continue its efforts to minimize processing time, consistent with the national security of the United States.
BIS reviewed 846 deemed export license applications in Fiscal Year 2003, representing an almost 20 percent increase over Fiscal Year 2002. BIS believes that this increase was due at least in part to a more robust outreach program that promoted better industry understanding of deemed export licensing requirements. In addition to these outreach efforts, BIS pursued several other initiatives throughout the year, including improved technical reviews and progress toward standardized deemed export licensing conditions. These efforts resulted in a substantial improvement in deemed export licensing processing time from 87 days in Fiscal Year 2002 to 63 days in Fiscal Year 2003.
Most deemed export cases involved the transfer to foreign nationals of technologies controlled for national security reasons. In addition, most deemed export cases involved foreign nationals employed in the semiconductor manufacturing, telecommunications, and computer industries. More than 69 percent of the deemed export license applications reviewed related to Chinese and Russian nationals. Additionally, over 30 percent of the deemed export license applications received in Fiscal Year 2003 were for renewals and technology upgrades of existing deemed export licenses.
In Fiscal Year 2003, BIS reduced the number of cases escalated to the interagency Operating Committee for dispute resolution. The Operating Committee is tasked with resolving cases in which there is disagreement among the relevant U.S. Government agencies as to the appropriate licensing action. This year, only 170 license applications required this higher level of review, compared to 427 license applications in Fiscal Year 2002. Of these 170 cases, 44 were further escalated for ultimate resolution to the policy-level Advisory Committee on Export Policy (ACEP).
This means that the vast majority of export license applications processed in Fiscal Year 2003 were completed within the 90-day time-frame set out by Executive Order 12981, with full interagency consensus.2
BIS administers sections 3(2)(c) and 7 of the Export Administration Act of 1979, as amended (EAA), which authorizes the President to prohibit or curtail the export of goods "where necessary to protect the domestic economy from the excessive drain of scarce materials and to reduce the serious inflationary impact of foreign demand." Section 7 of the EAA also authorizes the President to monitor exports of certain goods to determine the impact of such exports on domestic supply and to evaluate whether this impact on domestic supply has an adverse effect on the U.S. economy. In addition, BIS administers export controls under the Energy Policy and Conservation Act, the Mineral Leasing Act, the Naval Petroleum Reserves Production Act, the Outer Continental Shelf Lands Act, and the Forest Resources Conservation and Shortage Relief Act, as amended.
Domestically produced crude oil and certain unprocessed timber harvested from federal and state lands are controlled for short supply reasons. During Fiscal Year 2003, BIS approved 18 licenses for the export of crude oil, amounting to 34.1 million barrels. No licenses were approved during Fiscal Year 2003 for the export of unprocessed timber. No licenses were denied in either category.
Section 14(a)(13) of the EAA requires a report on any short supply monitoring program conducted pursuant to the EAA or Section 812 of the Agricultural Act of 1970. Information from the U.S. Department of Agriculture on its monitoring activities during Fiscal Year 2003 is included in Appendix H of this report.
In Fiscal Year 2003, BIS completed three Internal Control Program (ICP) reviews for Special Comprehensive License (SCL) amendment submissions related to exports to China.
An SCL is a license that is issued only to experienced and knowledgeable exporters and consignees. The SCL is used in place of individual export licenses for shipments by exporters that routinely participate in export and/or reexport transactions involving multiple destinations. Parties to the SCL must have mechanisms in place to ensure that each export and reexport meets all of the terms and conditions of the SCL and is in accordance with applicable provisions of the EAR.
Consignee ICP reviews were required to ensure that SCL holders and consignees had sufficient controls in place to ensure compliance with the Export Administration Regulations (EAR) and license conditions imposed on the consignee. BIS completed two ICP reviews for new SCL submissions and one domestic on-site review as a follow-up to extensive rewriting of an ICP undertaken to enhance safeguards.
BIS also completed three Export Management Systems (EMS) reviews of corporate written compliance programs. An EMS review consists of a comparison of a company's written compliance program procedures and internal controls against EMS Guidelines as they relate to the company's typical export transactions.
BIS processed a substantial number of pre-export encryption review requests for a variety of products with encryption features, including commodities and software for desktop and laptop computers, wireless handheld devices, e-business applications, network security, and telecommunications platforms. Commercial encryption products, except high-end networking products, source code, and products for which the cryptography has been customized or tailored to customer specification, may be exported and reexported to any destination other than a designated terrorism-supporting country after a one-time technical review.
In Fiscal Year 2003, BIS received over 1,400 technical review requests for 2,400 controlled encryption products, components, toolkits, and source code items. Encryption reviews comprised 34 percent of BIS's total output of commodity classifications in Fiscal Year 2003. Of the 1,759 encryption products actually reviewed during the fiscal year, 82 percent (1,444) were classified as "retail" (964) or "mass market" (480) encryption items, making them eligible for export and reexport without a license to government and non-government end-users in most countries.
During Fiscal Year 2003, BIS also approved 373 license applications for "non-retail" encryption items (such as high-end routers and other network infrastructure equipment) and technology valued at $71.1 million.3
The Simplified Network Application Process (SNAP) system permits exporters to transmit submissions directly to BIS via the Internet. From a single secure Web site, exporters can certify and submit license applications, reexport authorizations, and commodity classification requests.
During Fiscal Year 2003, 12,120 export and reexport license applications, commodity classification requests, and other submissions were submitted electronically to BIS through the SNAP systeman increase of 20 percent over the 10,077 submissions received in Fiscal Year 2002. Of these, 9,554 were license applications, and 2,450 were commodity classification requests, and 116 were miscellaneous other submissions.
Training is an important aspect of building a skilled staff of BIS licensing officers and increasing the quality and consistency of licensing decisions. During Fiscal Year 2003, BIS held three separate internal training sessions for licensing personnel. "Enforcing U.S. Controls" provided valuable insight into how the Office of Enforcement Analysis and Office of Export Enforcement augment the export licensing process. "Item Jurisdiction and Classification" was designed to strengthen skills in resolving licensing jurisdiction questions and in making commodity classification determinations. "The Operating Committee (OC) and You" informed licensing personnel about dispute resolution deadlines, the structure of the OC, how to prepare a case for escalation, and how to negotiate common positions with other U.S. Government agencies.
In Fiscal Year 2004, BIS will build on the progress made to process license applications and related tasks more effectively and efficiently. To that end, BIS intends to launch a comprehensive review of license conditions to evaluate, strengthen, and streamline the language in approximately 54 commonly used conditions and develop guidelines that will ensure that license conditions are easily understood and enforceable. The review will also ensure that the recent changes in market conditions and nonproliferation and foreign policy are reflected in Commerce's license conditions. In addition, BIS will look at ways to use special licenses for certain types of transactions, continue internal training, and work further on upgrading the electronic licensing system.
BIS is also exploring ways to apply the Special Comprehensive License (SCL) to certain exports of commercial night vision and thermal imaging equipment. It is not uncommon for an individual night vision/thermal imaging company to submit over 200 license applications for similar products and destinations in a given year. Under an SCL, exports are approved for a fouryear period, eliminating the need for BIS to review each individual transaction. Implementation of an SCL for commercial night vision and thermal imaging exports would offer a more cost-effective, streamlined licensing mechanism and application procedure while still protecting national security interests. Furthermore, such a licensing policy would allow U.S. industry to better compete in the global marketplace and strengthen the defense industrial base.
In Fiscal Year 2004, BIS also expects to propose a new Company Transfer License (CTL) that will authorize the release of controlled technology to foreign nationals in the United States (deemed exports) and the transfer of controlled technology from a company in the United States to and among its foreign operations, if the company agrees to certain undertakings designed to prevent the unauthorized release of technology.
In addition, BIS will continue to enhance employee expertise by emphasizing instruction for new licensing officers in case analysis, review and referral, and item classification. BIS also will use training workshops to further cooperation and understanding between organizational components involved in the licensing process, such as the other U.S. Government agencies that review export license applications and the intelligence community. BIS will explore opportunities for ancillary programs to support professional competencies, as well.
Finally, BIS plans to continue development of the improved SNAP+ system. SNAP+ is designed to offer electronic submission of documentation that supports a license application and improved tracking of interagency information requests. As part of the development process, we anticipate launching a limited SNAP+ pilot, involving a small number of exporters, in Fiscal Year 2004.
1 Under the current deemed export rule, set forth in Part 734 of the Export Administration Regulations (EAR), the transfer of technology within the United States to foreign nationals who do not have permanent residence or asylum status requires a license if the direct transfer of the technology to the foreign national's home country would require a license.
2 Executive Order 12981 sets forth procedures and time limits for the review of license applications, including procedures for the escalation of agency disagreements on applications to successively higher levels within the government for resolution.
Assistant Secretary for Export Administration Peter Lichtenbaum testifies before the Committee on Banking, Housing, and Urban Affairs, United States Senate.
Secretary of Commerce Donald L. Evans addresses the Bureau of Industry
A critical mission of the Bureau of Industry and Security's (BIS) Export Enforcement division is to protect U.S. national security and foreign policy interests by enforcing the export control and antiboycott provisions of the Export Administration Regulations (EAR). BIS accomplishes this mission by preventing violations whenever possible, by identifying and apprehending violators, and by pursuing criminal and administrative sanctions against them. BIS works with the Department of Justice to impose criminal sanctions for violations, including fines and incarceration, and with the Department of Commerce's Office of Chief Counsel for Industry and Security to impose civil penalties for violations, including fines and denials of export privileges.
At the core of BIS's enforcement mission is the prevention of violations before they occur. As part of its preventive enforcement program, BIS conducts outreach activities to train U.S. exporters to identify illegal export transactions and to avoid participation in unsanctioned foreign boycotts.
BIS conducts investigations of potential export control violations through its Office of Export Enforcement (OEE). OEE investigators are located in eight field offices that serve regional areas around Los Angeles, San Jose, New York, Washington, Boston, Miami, Dallas, and Chicago. In Fiscal Year 2004, OEE plans to open an additional office in Houston. OEE special agents have traditional police powers, including the authority to make arrests and execute warrants. In addition, agents may issue administrative subpoenas and detain and seize goods about to be illegally exported.
The field offices are supported by the Operations Division, based in BIS's Washington, D.C., headquarters. The Operations Division reviews information relating to potential export control violations and generates leads for investigations conducted in the field. Agents assigned to the Operations Division also coordinate resources among the field offices and provide administrative support to those offices. A Supervisory Special Agent assigned to the Operations Division coordinates the deployment of highly trained Computer Evidence Recovery agents stationed throughout the United States. These agents participate in the execution of search warrants to seize stored digital information from hard drives, servers, and other computer equipment and conduct forensic computer analysis of the seized data in support of ongoing investigations.
BIS's investigative work is supported by analysts in its Office of Enforcement Analysis (OEA). OEA analysts review export license data for enforcement concerns and communicate those concerns to BIS investigators. OEA analyzes open-source and intelligence information to determine the need for pre-license checks of consignees and end-users identified in a license application as well as post-shipment verifications to confirm whether the actual end-use conforms with the terms of an export license. OEA also reviews Shipper's Export Declarations (SEDs) and Automated Export System (AES) records to detect violations of export control requirements and to uncover patterns of illegal procurement, particularly with respect to sensitive items of proliferation concern. In addition, OEA reviews visa applications submitted by those seeking to travel to the United States in order to prevent transfers of controlled technology to visiting foreign nationals without required licenses. Where necessary, OEA forwards information to BIS field offices for investigation.
The Office of Antiboycott Compliance (OAC) enforces the antiboycott provisions of the EAR, which are designed to encourage and, in specified cases, require U.S. firms to refuse to participate in foreign boycotts that the United States does not sanction. Antiboycott violations can include furnishing boycott-related information, refusing to deal with blacklisted businesses, and discriminating based on religion or national origin. OAC also pursues criminal and administrative sanctions for violations of U.S. antiboycott laws and provides support to the State Department in connection with the U.S. Government's efforts to persuade Arab governments to end their boycott of Israel. Finally, OAC educates the public on U.S. antiboycott regulations and the importance of compliance with such laws and regulations.
Fiscal Year 2003 saw a significant increase in criminal penalties. Criminal fines totaled $3,410,322, compared to $93,000 in Fiscal Year 2002. Criminal sentences included the conviction of 21 individuals and businesses, who received a combined total of 133 months in prison, probation of 456 months, 208 months of supervised release, and one year pre-trial diversion.
There also was an increase in the number of administrative cases in Fiscal Year 2003. BIS completed 34 administrative enforcement settlements, compared with 21 administrative enforcement settlements in Fiscal Year 2002. Civil penalties for export violations totaled $4,092,000 in Fiscal Year 2003.
Fines for violations of the antiboycott provisions of the EAR increased to $93,700 in Fiscal Year 2003, compared to $86,000 in Fiscal Year 2002.
In Fiscal Year 2003, BIS began tracking its preventive enforcement activity. Such activity includes actions that directly thwart intended or threatened violations before they occur, such as detaining shipments suspected of involving violations of the EAR, placing parties on the Unverified List1, recommending denials of license applications, and preventing exposure of foreign nationals to controlled technology, for example by recommending denials of visa requests for visitors suspected of targeting controlled technology. Other types of preventive enforcement activity include issuing warning letters and monitoring compliance with the conditions on particular export licenses. During Fiscal Year 2003, BIS completed 136 such preventive enforcement activities.
A detailed summary of significant export control cases closed in Fiscal Year 2003 is included in Appendix D of this report. Of particular significance:
Sigma-Aldrich Corporation and two of its subsidiaries agreed to pay a $1,760,000 civil penalty for violations involving the export of biological toxins, the largest-ever penalty imposed for illegal exports of biological toxins. The case established the important precedent of successor liability by establishing that, when a company acquires another firm, it assumes the risk of acquiring liability for prior violations of the EAR committed by the acquired company.
DSV Samson Transport, a freight forwarding company, was sentenced to a $250,000 criminal fine and five years corporate probation for 30 illegal exports to India. DSV Samson also paid a $399,000 civil penalty to settle administrative charges relating to these illegal exports. The case demonstrates that freight forwarders who disregard export compliance responsibilities can face serious criminal and civil penalties.
Worldwide Sports & Recreation Inc., currently doing business as Bushnell Corporation, was sentenced to a $650,000 criminal fine and five years corporate probation for illegally exporting over 500 generation II night vision goggles to 15 different countries. Bushnell also paid a $223,000 civil penalty and received a one year denial of export privileges (which denial was suspended) to settle related administrative charges. This case highlights the importance of controls on exports of night vision equipment, which is of significant concern given their potential military- and terrorism-related applications.
In October 2002, Ihsan Elashyi was sentenced to 48 months in prison and 36 months probation, and was ordered to pay $281,892 in restitution and to forfeit several properties in connection with his guilty plea. That plea included charges for violating the temporary denial order imposed against him by shipping and attempting to ship goods to Libya and Syria without the required authorization.
BIS imposed a $65,000 penalty on Serfilco Ltd, of Northbrook, Illinois, and denied the company's export privileges to 11 Middle East countries for three years, for violating a previously imposed denial order by selling goods to companies in the United States for export to Bahrain and Saudi Arabia, and by negotiating the sale of goods to companies in the United Arab Emirates and Saudi Arabia.
In September 2003, BIS published in the Federal Register proposed penalty guidance for the settlement of administrative enforcement cases under the EAR. The proposed guidance provides the public with a comprehensive description of how BIS determines what penalties are appropriate in the settlement of administrative enforcement cases. Because many such cases are resolved this way, the settlement process is integral to BIS's export enforcement program. The proposed guidance identifies general factors, such as the destination of the export and degree of willfulness involved in violations, and specific mitigating and aggravating factors that BIS typically takes into account in determining an appropriate penalty. The proposed guidance encourages parties to provide information to BIS that would be helpful in the application of the guidance to their cases. BIS published this guidance as a proposed rule, so that BIS can receive and consider public comments on these issues before finalizing the guidance.
During Fiscal Year 2003, BIS made significant revisions to its Special Agent Manual (SAM). The SAM covers policies and procedures for BIS special agents. The SAM was revised to update firearms policies and procedures, case review and case management procedures, issuance of warning letters, and Safeguards Team procedures for conducting pre-license checks and post- shipment verifications. The revised SAM is now provided in a digital format that enables timely changes and access by all agents online.
Investigative Management System
Early in 2003, BIS implemented a case management system to track information related to commodities, persons, and organizations involved in BIS enforcement cases. The system also enables special agents to uncover links among investigations being conducted by the various field offices that might not otherwise be apparent. Due to the increased storage capacity of the new system, special agents are able to maintain an electronic case file that contains all the principal investigative material for the case and is available to agents in each field office. Ready access to this information will improve investigations, prevent duplication of effort, and provide a tool for managing the caseloads of the field agents.
During Fiscal Year 2003, seven companies agreed to pay civil penalties totaling $93,700 to settle allegations that they violated antiboycott regulations. In these cases, BIS found that the companies furnished business information for boycott reasons, violated an order issued under the EAR failing to report receipt of boycott requests, and failed to maintain records as required by U.S. antiboycott regulations. The seven companies sanctioned included two foreign subsidiaries of U.S. companies. These cases demonstrate that U.S. companies, wherever located, must comply with the antiboycott provisions of the EAR.
BIS also supports other federal agencies in the antiboycott effort. BIS participated in discussions with the State and Treasury Departments to discuss Treasury's removal of Iraq from the list of boycotting countries. Subsequent to those discussions, Treasury published a list of boycotting countries that did not include Iraq. BIS also provides information to the State Department regarding boycott requests imposed on U.S. companies. The State Department then uses this information in its discussions with other countries to counter the boycott of Israel. In addition, BIS shares information with the Commerce Department's International Trade Administration for use in advising industry on how to participate in trade opportunities in the Middle East without violating U.S. antiboycott laws.
Training in export control laws and in modern investigatory techniques is crucial to the development of BIS's special agents. To meet the demands of a changing legal framework and advances in investigatory methods, BIS provides opportunities for its agents to attend courses in a variety of specialties at the Department of Homeland Security's Federal Law Enforcement Training Center. These courses cover such topics as the use of technical investigative equipment, the investigation of criminal activity involving computer networks, and updates on developments in relevant areas of the law. Course instructors include senior special agents in their fields of expertise and experienced attorneys from the Department of Justice and other law enforcement agencies.
As part of BIS's international efforts to achieve its enforcement mission, it sends experienced Special Agents overseas as export control attachés at key U.S. embassies. In Fiscal Year 2003, attachés were posted in Beijing, China, and Abu Dhabi, United Arab Emirates, to work with host governments to help develop and maintain effective export control systems and facilitate cooperation between the host governments and the United States on export control enforcement matters. The principal mission of the attaché is to help ensure that U.S. dualuse goods entering a country (or region) in which the attaché is posted are used in accordance with U.S. export control laws and regulations. This is accomplished through targeted enduse checks and by working with the host governments and local businesses to ensure that they understand and comply with U.S. export control laws and regulations. The attachés also work with host governments and local businesses to provide information and appropriate training to facilitate better understanding of U.S. dualuse export control laws and regulations, and to help develop indigenous export control capabilities.
During Fiscal Year 2003, BIS received funding to post additional attachés in New Delhi, India; Moscow, Russia; and Hong Kong, and expects to place these attachés at post during Fiscal Year 2004.
To ensure efficient use of resources, BIS will refine its ability to target the most sensitive items and end users of the greatest concern. A primary goal is to ensure consistency among the field offices in their approaches to cases, whether they result in criminal prosecution, administrative charges, or the issuance of a warning letter.
In coordination with other agencies and with BIS licensing officers, BIS's Export Enforcement office also plans to develop a more targeted approach to the enforcement of export license conditions. As part of a pilot project, BIS will conduct targeted reviews and investigations regarding license conditions and monitor compliance with conditions that have already been imposed. In addition, Export Enforcement will consult with licensing officers on drafting license conditions that can be enforced more effectively and on identifying license applications where the imposition of particular conditions will have the greatest benefit.
Building on precedents established during Fiscal Year 2003, BIS will strategically pursue investigations that confirm and highlight the liability of export facilitators for violating the EAR. Cognizant that a lapse anywhere along the global supply chain can result in violations harmful to national security, BIS will focus resources upon investigation of violations by parties such as financing, brokering, and shipping entities to increase awareness in these sectors of responsibilities and potential liability under the EAR.
BIS also will work with both the Department of Homeland Security's Bureau of Immigration and Customs Enforcement and the State Department to enhance its ability to detect violations of the deemed export provisions of the EAR, and to identify situations that might lead to unauthorized access to technology by foreign nationals working in the United States. BIS will deploy its analytical resources along geographic lines to improve its ability to identify patterns of illegal procurement and to provide regional expertise to investigators in the field.
In addition, BIS will work with industry to further increase awareness of the impact of the boycott of Israel and to educate U.S. companies on their responsibilities to avoid adhering to the boycott. As part of this effort, BIS will provide increased counseling to companies that do business in the Middle East. To accomplish this goal, BIS will continue to implement its program for educating employees of other government agencies on the antiboycott regulatory scheme so that they, in turn, can guide companies seeking business opportunities in regions of the world where antiboycott issues arise.
Finally, BIS will work with the Office of Chief Counsel for Industry and Security to accelerate the administrative case process. In particular, BIS is working with the Office of Chief Counsel to facilitate the processing of administrative enforcement cases by developing a "fast track" protocol for accelerated handling of appropriate cases.
1 The Unverified List consists of companies for which U.S. exporters should exercise heightened due diligence because of concerns raised by BIS's inability to perform end-use visits at these companies.
Assistant Secretary for Export Enforcement Julie L. Myers testifies before the Committee on Banking, Housing, and Urban Affairs, United States Senate.
Under Secretary Kenneth I. Juster addresses the Financing Innovation Forum, a public-private meeting held under the auspices of the U.S.-India High Technology Cooperation Group.
An integral part of the Bureau of Industry and Security's (BIS's) mission is to facilitate compliance with U.S. export controls by keeping U.S. firms informed of export control regulations through an aggressive outreach program. BIS provides timely information to U.S. industry regarding the updating of export controls, new regulations in support of non-proliferation and anti-terrorism goals, and compliance with the Export Administration Regulations (EAR). BIS also trains U.S. exporters to identify and avoid illegal transactions.
BIS worked closely with industry in Fiscal Year 2003 through meetings, conferences, seminars, and increased public-private partnerships.
Seminars and Conferences
In Fiscal Year 2003, BIS conducted 45 domestic seminars in 20 states, which were attended by 3,310 participants. These programs provide guidance to new and established exporters regarding the EAR and changes in export policy and licensing procedures. For example, BIS offers a one-day seminar program that covers the major elements of the U.S. dual-use export control system and an intensive two-day program that provides a more comprehensive presentation of exporter obligations under the EAR. BIS also conducts workshops on topics of specialized interest, such as commercial encryption licensing, freight forwarder compliance, implementation of export management systems, control of technology transfers to foreign nationals, and reporting and on-site verifications requirements under the CWC Regulations.
In addition, BIS holds an annual Update Conference on Export Controls and Policy to bring together high-level government officials and industry representatives to discuss new U.S. export control policies, regulations, and procedures. The Fiscal Year 2003 Update Conference, held in Washington, D.C., in October 2002 attracted over 700 exporters.
BIS also partnered with a number of public and private sector organizations to introduce the mission and services of BIS to audiences in specific business and technology sectors, while providing BIS with greater insight into technology and market developments in key sectors of the economy. BIS supported 55 of these programs, which reached over 4,100 people through company visits and formal presentations at conferences.
BIS conducted four international export control outreach seminars in Fiscal Year 2003. These seminars provided key export control-related information beneficial to companies in other countries that use U.S.-origin parts and components for manufacturing and assembly; companies in other countries that use U.S. origin systems, software, or technology to develop foreign-made products; and companies that reexport U.S.-origin goods. Over 1,000 participants attended the BIS conferences in Japan, Korea, Singapore, and the People's Republic of China.
Japan: The BIS Export Control Outreach Seminar for Japanese industry was held in Tokyo, Japan, in June 2003, with an audience of 300 participants. The seminar provided an opportunity for Japanese exporters to learn about U.S. export and reexport requirements and their obligations as recipients of U.S.-origin items. The seminar also provided an opportunity for open exchanges of information among participants on the difficulties they encounter with reexports and license condition obligations. In addition, BIS representatives engaged in one-on-one consultations with attendees to address specific issues of individual interest or concern in Japan.
Republic of Korea: Nearly 80 participants attended the BIS Export Control Outreach Seminar in Seoul, South Korea, in June 2003. The seminar provided an overview of U.S. export licensing requirements and described the obligations of recipients of U.S.-origin items. The seminar also provided a forum in which industry discussed various difficulties that companies encounter with reexport controls and license condition obligations. BIS officials also held one-on-one consultations with industry representatives during the conference.
Singapore: The June 2003 BIS Export Control Outreach Seminar in Singapore provided a basic understanding of U.S. Export Administration Regulations and conveyed reexport requirements and obligations of recipients of U.S.-origin items. As Singapore is a major transshipment hub country, the discussion of reexporting requirements and obligations was of particular interest to participants. BIS representatives also held one-on-one consultations with attendees to address specific issues of interest.
People's Republic of China: BIS held a major export control conference in Shanghai in September 2003 in conjunction with China's Ministry of Commerce. This was the first BIS seminar in China in three years. BIS staff provided an overview of the U.S. export control regulations and requirements. They also discussed other current topics, including export enforcement and compliance and the Transshipment Country Export Control Initiative (TECI). The audience of over 250 participants included attendees from the governments of Japan, Russia, and the United Kingdom. In addition to presentations by BIS, the Chinese Ministry of Commerce spoke on topics related to Chinese export controls, including the legal framework for and administration of export controls in China; the current status of China's non-proliferation policy; China's CWC-related export control implementation; China's Nuclear Export Controls and Control List; and other related export control topics.
In Fiscal Year 2003, BIS regulatory specialists assisted over 93,000 people in one-on-one counseling sessions through phone calls, visits, and e-mails to our Outreach and Educational Services Division in Washington, D.C., and our Western Regional Office in California. These sessions provide guidance on regulations, policies, and practices that affect the particular company's export operations, and help increase compliance with U.S. export control regulations.
BIS has implemented an e-mail notification program through its Web site, www.bis.doc.gov, whereby exporters may subscribe to receive information about BIS seminars and training programs. In addition, exporters may now sign up to receive e-mail notification of Web site changes, regulations, press releases, and other information relating to the administration of export controls.
BIS also continues to partner with U.S. industry to ensure that the private sector's views on export control policy issues and regulations are fully considered. In Fiscal Year 2003, six Technical Advisory Committees (TACs) covering information systems, materials, materials processing equipment, regulations and procedures, sensors and instrumentation, and transportation and related equipment advised BIS on export control issues, including proposed revisions to multilateral export control lists, licensing procedures that affect export controls, and assessments of foreign availability of controlled products. TAC industry representatives are selected from firms producing a broad range of goods, technologies, and software.
In addition, the President's Export Council Subcommittee on Export Administration (PECSEA) convened in Fiscal Year 2003 to identify key export control policy issues on which to concentrate over the next year. The PECSEA will meet throughout Fiscal Year 2004 to discuss the impact of technological developments on existing U.S. and foreign export controls, and the foreign availability of controlled items, as well as related security and economic issues.
In Fiscal Year 2003, BIS conducted 43 deemed export outreach activities. Six specific sectors of industry and government were targeted individual companies and research organizations, industry trade organizations, BIS technical advisory committees, U.S. Government agencies (e.g., the FBI, the Department of Energy, and the Department of State), BIS export control seminars, and industry personnel management groups. This expanded outreach promoted a better understanding of deemed export licensing requirements, including documentation requirements for license applications, proper technology classification, required attributes of company internal and technology control plans, and the deemed export licensing process.
This expanded outreach likely contributed to a 20 percent increase in the number of deemed export license submissions. There also was an almost 50 percent reduction in the number of license applications returned because of improper technology classification or inadequate documentation.
In the latter part of Fiscal Year 2003, BIS supplemented its deemed export outreach activities to include site visits to assess implementation by individual license holders of their Technology Control Plans (TCP) and to verify compliance with deemed export license conditions. BIS plans to use the information obtained and practices observed in these site visits to develop and promulgate a "best practices" TCP in Fiscal Year 2004.
This robust outreach program will continue in Fiscal Year 2004 and will be expanded to include universities and educational organizations.
In Fiscal Year 2003, BIS conducted instructional seminars to raise industry and government awareness of updates to U.S. encryption export policies and regulations in Austin, Texas; Bethlehem, Pennsylvania; Dallas, Texas; Denver, Colorado; Providence, Rhode Island; Santa Clara, California; Seattle, Washington; and Washington, D.C. BIS also revised its encryption Web site to reflect the policy updates of June 2003.
In addition, BIS offered targeted outreach for the semiconductor and night vision industry sectors, which currently account for a significant volume of complex licenses. In the semiconductor sector, for example, BIS participated in 17 outreach events, including national and international site visits, attendance at industry sponsored meetings, and active participation in the Information Systems TAC. In the night vision sector, BIS participated in 16 outreach activities. These included one-on-one meetings with companies, attendance at industry sponsored events, and active participation in the Sensors and Instrumentation TAC. In Fiscal Year 2004, BIS plans to expand this outreach, as these industries continue to grow and face new regulatory and policy changes.
Through its Office of Export Enforcement, BIS is committed to maintaining a constructive and cooperative relationship with the business community through enforcement outreach programs. In Fiscal Year 2003, BIS renewed Project Outreach, a program to educate companies on their responsibilities under the EAR, as well as to advise exporters and freight forwarders on how to recognize the warning signs of potential illegal transactions. Through Project Outreach, BIS held seven Business Executives Enforcement Team (BEET) meetings around the country, bringing business executives and law enforcement personnel together to discuss cooperation in an effort to ensure compliance with U.S. export controls. Many of these meetings were co-sponsored by local business groups. Three BEET meetings were held in conjunction with licensing seminars sponsored by the Office of Exporter Services.
During Fiscal Year 2003, BIS Special Agents spoke at numerous conferences, seminars, and meetings sponsored by local, state, and federal organizations. They participated in 24 public presentations and seminars, and 129 conferences and seminars with government and enforcement organizations. They also visited 710 companies to brief their employees on how to identify suspicious transactions and how best to contact law enforcement officials for prompt assistance. Through these types of direct contacts with U.S. industry, BIS Special Agents gain critical feedback from exporters and freight forward ers about the conduct of international business to better prepare BIS to detect possible illegal transactions and take appropriate preventive measures.
During Fiscal Year 2003, BIS's Office of Antiboycott Compliance (OAC) responded to 1,172 requests from companies for guidance on compliance with the antiboycott regulations. During the same period, BIS officials made 14 public presentations on the antiboycott regulations to exporters, manufacturers, financial services institutions, freight forwarders, and attorneys involved in international trade. In addition, BIS provided extensive counseling to individual companies with specific boycott problems.
BIS intends to continue the important work of outreach to the business community and the general public regarding export controls. Specifically, BIS plans to schedule over 40 programs at various locations around the country, in addition to the annual Update Conference on Export Controls and Policy to be held in Washington, D.C.
BIS also plans to introduce two new seminar programs. The first program, "Exploring Export Compliance Issues and Practices," will offer an in-depth examination of compliance techniques that companies may use to prevent export control violations. The second program, "Exploring the Export Administration Regulations," will provide exporters with hands-on experience in using the EAR through the use of case studies.
In addition, BIS plans to expand its outreach program by meeting with exporters dealing with particular types of sensitive commodities, such as night vision equipment. For example, BIS will work with the Sensors and Instrumentation Technical Advisory Committee and develop a dialogue with industry groups regarding licensing and compliance responsibilities associated with the export of such commodities.
BIS will continue to work closely with other U.S. Government agencies and industry groups to ensure the continued effectiveness of U.S. encryption export control policy and regulations. BIS also intends to expand the deemed exports outreach program initiated in Fiscal Year 2003. Sectors to be added this year include small business trade associations, the biotechnology industry, universities and educational institutions, and various government agencies, such as relevant components of the Department of Homeland Security. Site visits to deemed export licensees to evaluate implementation of licensing conditions and Technology Control Plans also will continue. Information obtained from such site visits will be used to develop a "Practical Guide for Technology Control Plans."
Secretary of Commerce Donald L. Evans addresses the Bureau of Industry and Security's annual Update Conference on Export Controls and Policy.
Under Secretary Kenneth I. Juster addresses the Bureau of Industry and Security's annual Update Conference on Export Controls and Policy.
One of the Bureau of Industry and Security's (BIS's) principal missions is to promote the effective implementation of export controls, consistent with the objectives of multilateral export control regimes and treaty obligations.
BIS plays a major role in the development, interpretation, and refining of control lists and operational guidelines for four major nonproliferation regimes the Nuclear Suppliers Group (NSG), the Missile Technology Control Regime (MTCR), and the Australia Group (AG, which deals with chemical and biological weapons), and the Wassenaar Arrangement, (which is the successor organization to the Coordinating Committee for Multilateral Export Controls (COCOM), and focuses on controls on conventional arms and dual-use exports).
In addition to these multilateral regimes, BIS administers the industry compliance program for the Chemical Weapons Convention (CWC), the treaty that bans the development, production, stockpiling, and use of chemical weapons and provides for an extensive verification regime to ensure adherence to its terms. BIS also actively works with other CWC State Parties and the Technical Secretariat of the Organization for the Prohibition of Chemical Weapons (OPCW) to ensure that the provisions of the CWC are being implemented in a rigorous, analytically sound, and equitable manner among all State Parties.
BIS continued to focus on enhancing multilateral export controls through its international programs. In Fiscal Year 2003, BIS was at the heart of the U.S. Government effort to encourage the multilateral regimes to address the renewed threat of international terrorism, promote the uniform interpretation and enforcement of multilateral controls, refine technical control parameters to focus on items of specific proliferation concern, and reach out to non-regime members to enlist their support for multilateral nonproliferation goals.
Nuclear Suppliers Group
In 1974, the United States approached six other major nuclear supplier statesCanada, Germany, France, Japan, the United Kingdom, and the Soviet Unionto create an informal group of nations concerned with the proliferation of nuclear weapons. The NSG was formally established in 1992, and now totals 40 member countries.
In December 2002, the NSG met in a Special Plenary session in Vienna, Austria, to discuss North Korea's revelations regarding its nuclear weapons program and its violations of commitments made under the Nuclear Non-Proliferation Treaty. A corollary discussion was held on North Korea's violations of the Agreed Framework with the United States, which required North Korea to halt all weapons development activities in return for U.S. support for its commercial power programs. At that meeting, the NSG agreed to adopt U.S.-proposed anti-terrorism amendments to the NSG Guidelines, and to issue a press statement alerting supplier states to concerns regarding the North Korean nuclear weapons program. In Fiscal Year 2003, NSG members also requested the NSG Chair to specifically alert key non-member suppliers, as well as transit states, to the risks of diversion of NSG controlled and non-controlled items to North Korean nuclear weapons programs.
In May 2003, the NSG held its annual Plenary in Pusan, South Korea. The theme was the need for outreach efforts to promote the views of the NSG on nuclear proliferation. With the full support of the NSG membership, agreement was reached to continue to engage transshipment states in a dialogue on the need for nuclear export controls. Egypt, Indonesia, Israel, Lithuania, Malaysia, Mexico, and Pakistan will be the focus of this initiative in the coming year. The NSG also reached agreement at the annual Plenary to reiterate the need for supplier vigilance with regard to North Korean nuclear procurement efforts.
The United States has been a member of the Missile Technology Control Regime (MTCR) since its inception in 1987. The MTCR's focus is to limit the proliferation of missiles capable of delivering weapons of mass destruction. Beginning with seven members, the MTCR has grown to include 33 member countries that have agreed to coordinate their national export controls to prevent missile proliferation.
The focus and scope of the MTCR has evolved in the years since its creation in response to world events. The threat of chemical and biological weapons, highlighted by the Iran-Iraq War of 1980-88, led to an expansion in the focus of the MTCR from vehicles capable of delivering nuclear weapons to include delivery systems for all weapons of mass destruction.
The annual MTCR Plenary was held in Buenos Aires, Argentina, in September 2003. Agreements were reached that strengthened regime members' nonproliferation commitments. These included commitments to implement catch-all controls1 as well as controls on the transfer of MTCR Annex technology by intangible means, such as oral communications. It was also agreed that the MTCR Chair should reach out to regional international organizations in order to promote broad adherence to missile nonproliferation objectives. Regime members also reached agreement on a number of critical modifications to the Annex. The most significant was the expansion of controls on Unmanned Aerial Vehicles that could be used to deliver chemical and biological weapons. Agreement was reached as well on a number of parameter clarifications for existing controls to better ensure international harmonization of interpretation and implementation, such as telemetry.
Alarmed by the use of chemical weapons during the Iran-Iraq war in the early 1980s, Australia called for a meeting of like-minded countries to harmonize export controls on chemical weapons precursor chemicals. The Australia Group (AG) was formed in 1985 and subsequently expanded its initial focus on chemical weapons to include chemical production equipment and technologies. In 1990, the AG expanded to include regime measures to prevent the proliferation of biological weapons. Today, the AG is composed of 33 member countries.
At the June 2003 AG Plenary in Paris, France, members reinforced their determination to prevent the spread of chemical and biological weapons by agreeing to a series of new measures to strengthen multilateral export controls. At the urging of the United States, they approved the addition of 14 biological agents (human and zoonotic pathogens) to the Biological Agent Control List. BIS identified these biological agents, which can infect both humans and animals, as pathogens that can cause serious or lethal disease and are highly infectious and/or easily produced. AG members signaled their agreement with the BIS assessment by adopting the BIS-inspired U.S. Government proposal. Further, the AG agreed to impose controls on two additional animal pathogens proposed by the United Kingdom.
Agreement was also reached at the AG Plenary to endorse a cooperative program of action for more effectively engaging countries in the Asia-Pacific region on chemical/biological weapons-related export control issues a response in part to specific requests from several countries in that region. Should the program prove to be successful in conveying the tenets of the AG, and encouraging other countries to adopt comparable controls, the program may be expanded in the future to include other regions.
Plenary participants agreed that full adherence to the CWC and the Biological Weapons Convention (BWC) by all governments is essential to achieving a permanent global ban on chemical and biological weapons. They also reaffirmed their commitment to continuing active outreach programs to non-AG countries to promote global adherence to chemical/biological nonproliferation objectives.
On April 25, 1997, the United States ratified the Convention on the Prohibition of the Development, Production, Stockpiling, and Use of Chemical Weapons and their Destruction (known as the Chemical Weapons Convention or CWC). Four days later, the CWC entered into force with ratification by 87 of the 165 signatories. Thus far, 154 signatories have become State Parties to the CWC.
The CWC bans the development, production, stockpiling, or use of chemical weapons among its signatories and provides for an extensive verification regime to ensure compliance with its nonproliferation tenets. Its verification functions are the responsibility of the Organization for the Prohibition of Chemical Weapons (OPCW). Approximately 200 inspectors, drawn from among the State Parties to the CWC, inspect military and industrial chemical facilities throughout the world to verify compliance with the CWC's nonproliferation provisions.
Under the terms of the CWC, certain commercial chemical facilities are required to submit data declarations, which include information on chemical production and consumption levels. Companies exceeding certain thresholds are required to submit appropriate documents to BIS. This information is then compiled and forwarded to the OPCW's Technical Secretariat, which is charged with carrying out verification functions. To date, the OPCW has conducted 1,542 routine inspections at over 663 sites in 58 countries. Since the CWC's entry into force, the United States has hosted approximately one-third of all CWC inspections, and over half of the number of total inspection days.
During Fiscal Year 2003, 790 declarations and reports from 702 plant sites were received and verified by BIS staff. Of this number, 758 were forwarded to the OPCW and 32 were returned without action. BIS also hosted nine on-site inspections of U.S. facilities engaged in chemical-related activities during Fiscal Year 2003.
In response to requests from U.S. companies for assistance in preparing their facilities for inspection by the OPCW, BIS conducted 12 site assistance visits (SAVs) in Fiscal Year 2003. The SAVs were successful in assisting industry in the preparation of pre-inspection briefings and inspection plans, and providing industry with methods for identifying and protecting confidential business and national security information.
BIS also hosted a seminar on issues affecting industry's ability to meet the parameters of the CWC compliance program. The seminar, held in Arlington, Virginia, provided an overview of industry CWC reporting requirements and lessons learned from recent inspections, as well as a preview of potential changes to the United States CWC regulations. A second seminar on chemical sampling and analysis was held August 12-13, 2003, in Philadelphia, Pennsylvania.2 The seminar was held at a chemical facility, and was open to U.S. chemical industry and U.S. Government representatives. The seminar provided the U.S. chemical industry an opportunity to witness how sampling and analysis might occur, and to evaluate the impact that sampling and analysis might have on an industrial facility during an inspection.
The United States is one of three original depositories of the Biological Weapons Convention (BWC), which prohibits developing, producing, stockpiling, or otherwise acquiring or retaining of biological agents or toxins for non-peaceful purposes. The BWC entered into force in 1975 and currently has 146 State Parties as members.
BIS took an active role in Fiscal Year 2003 in strengthening international cooperation with BWC principles and implementation efforts. For example, BIS chaired numerous meetings with major biotechnology trade organizations to discuss the U.S. Government's approach to two issues being considered by State Parties in 2003: (1) enactment of comprehensive legislation that implements the prohibitions in the BWC, including enhanced export controls; and (2) enactment of biosecurity measures, such as transfer, registration, and personnel background checks to ensure that potential proliferators do not have access to dangerous toxins and pathogens. As part of this effort, BIS presented a briefing at the Experts Group Meeting in August 2003 on the role export controls play in enforcing the BWC's prohibitions.
The Wassenaar Arrangement is a multilateral arrangement regarding export controls on conventional arms and sensitive dual-use goods and technologies. Wassenaar was founded in 1996 to replace the East-West technology control program under the Coordinating Committee (COCOM) regime that ended in 1994.
Wassenaar was designed to promote transparency, the exchange of views and information, and greater responsibility in transfers of conventional arms and dual-use goods and technologies. Through their national policies, Wassenaar members seek to ensure that transfers of arms and dual-use goods and technologies do not contribute to the development or enhancement of military capabilities that undermine international or regional security and stability. They also seek to ensure that such goods and technologies are not diverted to support those capabilities. Wassenaar does not target any state or group of states. All measures undertaken with respect to Wassenaar are in accordance with national legislation and policies of member countries, and are implemented on the basis of national discretion.
Wassenaar members undertake to maintain effective export controls for the items on its agreed control lists, which are reviewed periodically to respond to technological developments. Wassenaar's specific information-exchange requirements involve semi-annual notifications of arms transfers, covering seven categories derived from the UN Register of Conventional Arms. Members are also required to report approvals, transfers, and denials of certain controlled dual-use commodities and technologies. Reporting of denials helps to bring to the attention of member countries attempts to obtain strategic items that may undermine the objectives of Wassenaar.
During Fiscal Year 2003, there were several major accomplishments within Wassenaar, reflecting the changing nature of technology and the threat to global security. At the Wassenaar Plenary in Vienna, Austria, in December 2002, members agreed to implement significant initiatives to combat terrorism, including intensified cooperation among members to prevent the acquisition by terrorists of conventional arms and dual-use items, and adoption of new means for sharing information to strengthen controls over such items. Members also reached agreement on best practices guidelines and criteria for the export of small arms and light weapons. A Statement of Understanding that recognizes the importance of controlling arms brokering was also issued. In order to keep pace with advances in technology and developments in international security, Wassenaar members agreed to several control list amendments, including strengthened controls on radiation-hardened integrated circuits. Wassenaar members also acknowledged the widespread availability of certain items and the broad range of suppliers for them, and agreed to raise the control threshold for computers and eliminate controls on general purpose microprocessors. Work will continue during Fiscal Year 2004 on proposals to strengthen the effectiveness of the regime.
The U.S. Government led efforts to develop an Additional Protocol to the International Atomic Energy Agency (IAEA) Safeguards Agreement to enhance the IAEA's capabilities to detect proliferation activities by expanding declaration and inspection requirements to the entire nuclear fuel-cycle. In May 2002, President Bush transmitted the U.S. Additional Protocol to the Senate for its advice and consent, where, as of the end of Fiscal Year 2003, it was still pending.
In anticipation of the ratification of the Additional Protocol, and as part of the domestic implementation effort, BIS has been designated the lead agency for issues, declarations, and inspections related to industrial nuclear fuel cycle activities and locations not licensed by the Nuclear Regulatory Commission (NRC). The locations not licensed by NRC include equipment manufacturing facilities, research and development facilities, and uranium mines. BIS will also compile and submit the U.S. national declaration to the IAEA. To that end, BIS began developing draft declaration forms and regulations, and the Additional Protocol Reporting System, which will process BIS and NRC declarations and aggregate all agency submissions into a U.S. national declaration.
BIS also participated in numerous meetings on the Additional Protocol among the relevant U.S. Government agencies in order to develop the roles and responsibilities of lead agencies for inclusion in a draft national security presidential directive and draft implementing legislation. BIS conducted outreach with the nuclear industry to explain the Additional Protocol and BIS's planned role in its implementation. In addition, BIS published a Notice of Inquiry in the Federal Register in November 2002 seeking public comments on the impact of the Additional Protocol on the civil nuclear fuel cycle industry.
Key goals for BIS's international programs for Fiscal Year 2004 include the following:
BIS will continue to lead and support U.S. Government efforts to persuade members of the nonproliferation regimes to harmonize regime implementation in an attempt to globally strengthen multilateral export controls. BIS will also play a central role in U.S. engagement with nonproliferation regime members on issues that support U.S. national security goals, such as anti-terrorism measures, catch-all controls, and controls on intangible technology, and to updating regime controls to address developments in technology.
BIS will work with other U.S. Government agencies to strengthen the Wassenaar Arrangement in a number of ways to better address the challenges posed by international terrorism and non-state actors.
In the area of catch-all controls, BIS will continue to strongly support adoption of a process to ensure that goods and technology of all types be controlled to known or suspected uses in military activities or to proliferators and terrorism-supporting organizations. In the area of denial consultations, BIS hopes to seek a denial consultation mechanism in which member countries would consult with each other before one member could approve a transfer that another had denied out of security concerns. Such information sharing would promote the broad objectives of Wassenaar through increased transparency and responsibility among member nations. BIS also will continue to support U.S. advocacy for increased transparency and information-sharing in the area of transfers of small arms and light weapons to non-member countries.
BIS will work to modify the CWC data declaration system to accommodate the receipt of industry data via the Internet and, once successful, expand this system to accommodate any future treaty data declaration programs. BIS will also work to design and launch a global outreach program to encourage all State Parties to the CWC to establish a national legislative programs to fully implement the tenets of the CWC.
1Catch-all controls impose export controls based on the end-use or end-user of an item or technology, instead of the capabilities of the equipment or technology, regardless of its intended use or user. In this regard, catch all controls relate to items that are not listed on the multilateral regime control lists.
2Sampling and analysis refers to the OPCW process of requesting an analysis of the chemicals at a facility during a CWC inspection.
Secretary of Commerce Donald. L. Evans meets with members
Deputy Under Secretary Mark Foulon addresses an
NEC Cooperation Fiscal Year 2003 MAP: NIS: Ukraine(11), Multilateral: Conference(1), training(1). Central Europe: Bulgaria(1), Czech Republic(1), Hungary(6), Poland(6), Romania(5), Slovenia(2), Slovakia(2). Russia(21). Central Asia: Armenia(1), Azerbajan(1), Kazakhstan(9), Kyrgyzstan(1), Tajikistan(1), Georgia(1). South Asia: India(4).
As part of the overall mission of the Department of Commerce to advance responsible economic growth and trade while protecting American security, the Bureau of Industry and Security (BIS) strives to enhance compliance with and enforcement of U.S. export controls worldwide, and endeavors to promote the development of effective export and transit control systems in key countries and transshipment hubs. By assisting in the development of effective indigenous infrastructures for export controls in other countries, BIS not only addresses issues of proliferation concern and terrorism, but also helps level the playing field for U.S. industry. BIS meets these objectives through a combination of international outreach seminars, technical exchange programs, and other mechanisms.
BIS conducts an active program of international collaboration with countries needing assistance in the development of effective export control systems. BIS's Nonproliferation Export Control Cooperation (NEC) program has a major role in BIS's bilateral and multilateral initiatives. Established in 1994, the NEC program was designed to work with selected countries to help them develop or strengthen their national export control systems so as to to keep nuclear, chemical and biological weapons, delivery systems, and other sensitive materials out of the hands of terrorists and "states of concern." BIS carries out its mission to strengthen foreign national export control systems through bilateral and multilateral technical exchanges. Through these activities, BIS helps each cooperating nation create the infrastructure for an effective export control system that meets international standards.
During Fiscal Year 2003, BIS organized or coordinated 74 bilateral technical exchange workshops and one multilateral conference. The conference and each of the exchanges focused on one of the five key areas of export control systems necessary to address the growing threat of the proliferation of weapons of mass destruction: legal basis and framework of export controls; export control licensing procedures and practices; export enforcement; industry-government relations; and export control system automation.
The 75 total activities completed in Fiscal Year 2003 represent an increase of 42 percent over Fiscal Year 2002. As a function of these and prior exchanges, BIS helped remedy 39 targeted deficiencies in the export control systems of cooperating countries. This amounts to an increase of more than 50 percent over the number of deficiencies remedied in Fiscal Year 2002. The activities undertaken by BIS during Fiscal Year 2003 ranged from assisting in the drafting of legislation to helping companies adopt effective compliance programs. BIS conducted cooperative bilateral export control workshops with Armenia, Azerbaijan, Bulgaria, the Czech Republic, Georgia, Hungary, India, Kazakhstan, the Kyrgyz Republic, Moldova, Poland, Romania, Russia, Slovakia, Slovenia, Tajikistan, and Ukraine, and led the multilateral Southeast Asia Regional Forum on Transshipment Controls.
In addition to the exchanges and the conference that BIS hosted in Fiscal Year 2003, BIS participated in several other multilateral export control conferences, including the Secure Trade in the Asian Pacific Rim Conference; the 10th Asian Export Control Seminar; the 7th Central Asia and Caucasus Regional Forum on Export Controls and Border Security; the Nonproliferation, Disarmament Cooperation Initiative Conference; and the Berlin Export Control Seminar of 2003.
The Internal Control Program (ICP), created in 1998, plays central role in the overall BIS export control and nonproliferation cooperative mission. The ICP software tool provides companies with self-paced training, searchable databases, and procedure development assistance related to their respective national export control systems. The ICP tool is widely used in Russia, Ukraine, Poland, and elsewhere. Through the ICP training program, BIS offers a basic ICP tool workshop, followed by a specialized workshop on product classification, to enhance industry export control compliance and improve industry-government relations.
The BIS program tailors and translates the ICP software into the national language of the recipient country. It has made the ICP software available to over 4,000 overseas-based exporting organizations in Russia, Ukraine, and Poland. In Fiscal Year 2003, Poland began requiring the ICP as an element of the International Organization for Standarization compliance for its exporters, and BIS offered four ICP software deployments to help meet this need. The more mature programs in Russia and Ukraine provided instruction in the next level of ICP training and ICP classification. BIS held six workshops in Ukraine and 13 workshops in Russia in Fiscal Year 2003. Along with these workshops, BIS and the host governments conducted ICP program reviews in Russia and Ukraine. The Russian program review addressed reporting requirements, electronic licensing, and ideas for improving the ICP program as the program matures, while the Ukrainian program review focused on changes resulting from the new export control law passed by the Government of Ukraine in March 2003.
In Fiscal Year 2003, BIS helped develop new ICP training tools for several countries, including Hungary, Romania, Slovakia, and Kazakhstan, thereby making the ICP development software available to approximately 1,000 overseas-based exporting companies. BIS is in the process of developing an ICP for the Czech Republic and the Baltic countries of Estonia, Lithuania, and Latvia, which have incorporated concepts conveyed by the ICP into their national export control laws.
BIS unveiled a new instrument the Product Identification Tool (PIT) to combat weapons of mass destruction (WMD) proliferation in Fiscal Year 2003. The PIT provides computer-based self-paced training and case studies on screening shipments at the border, along with operational support to help front-line export control enforcement officials improve their capacity to target and respond to illicit traffic in dual-use items related to WMD proliferation. The PIT should significantly enhance cooperation between licensing and enforcement officials in intercepting illicit traffic of WMD-related items through its training component, search engine, aids for developing procedures manuals, and extensive database of controlled items (including photographs) that allow officials in the field to match such items with key trade document information. After fitting the baseline PIT to new Russian export control laws, regulations, and procedures, the Government of Russia has begun deploying the PIT in its regional customs centers in preparation of deployment to more than 150 customs posts. A similar project has been initiated with the Government of Ukraine.
During Fiscal Year 2003, BIS, in cooperation with the U.S. State Department under the Export Control and Border Security program (EXBS), developed a new curriculum on Export Enforcement operations, methods, and procedures to train export enforcement agents in cooperating countries. The training curriculum for the program is divided into five areas: the export enforcement system, the legal framework that guides export policy, preventive enforcement, prosecution of violators, and outreach efforts. Training for the program is divided into three presentation levels according to competencies and responsibilities of agency leaders, supervisors, and export control officers. In addition, an instructor training program has been designed to familiarize BIS enforcement agents with the training materials and to enhance their presentation delivery techniques.
In Fiscal Year 2003, BIS's Transshipment Country Export Control Initiative (TECI) increased government-to-government cooperation and dialogue with regard to export controls and transshipment trade with the nine major transshipment hubs: Cyprus, Hong Kong, Malaysia, Malta, Panama, Singapore, Taiwan, Thailand, and the United Arab Emirates. With the development of "best practices" for industry, BIS made fundamental inroads into creating a new public-private partnership on export controls with companies and trade associations engaged in shipping, air cargo, freight forwarding, port operations, and other aspects of transshipment trade facilitation.
Now in its second year, TECI is a multi-faceted, cooperative initiative that seeks to strengthen the export control systems of countries that constitute global transshipment hubs, while improving compliance with relevant rules by companies engaged in trade in those hubs. In this way, BIS seeks to enhance security and confidence in international trade flows and to counter illegal diversions of controlled goods through the world's major transshipment hubs.
TECI functions on a two-prong basis: government-to-government and government-to-private sector. Under the first prong, BIS works with its counterpart trade and export control agencies in key transshipment hubs to assist them in the adoption of export and transshipment control regimes tailored to their economies, exchange data to facilitate more effective administration of trade controls, and encourage transshipment hubs to adopt certain measures to facilitate better enforcement of U.S. trade and export control laws. Under the government-to-private sector prong, BIS works with companies involved in the transportation of goods through transshipment country hubs, and major consignees and end-users of goods located in those hubs, to enlist their support in preventing illicit transshipments.
In order to fulfill TECI objectives, BIS works with other Department of Commerce agencies, such as the International Trade Administration, and other relevant U.S. Government agencies, including the Departments of State, Energy, and Homeland Security. TECI builds on, coordinates with, and supports relevant existing and proposed programs and initiatives, including the Export Control and Border Security (EXBS) Program, the Container Security Initiative (CSI), the Customs-Trade Partnership Against Terrorism (C-TPAT), Operation Shield America, the Dangerous Materials Initiative, and the Proliferation Security Initiative (PSI).
In December 2002, BIS partnered with the U.S. Department of Homeland Security, the Department of State, and the Government of Thailand in organizing the three-day Regional Nonproliferation Transshipment Enforcement Forum in Bangkok, Thailand. The conference discussed transshipment enforcement issues with governments of Southeast Asian countries and further addressed best practices for governments and industry with regard to improving transshipment enforcement.
In July 2003, BIS participated in the Global Transshipment Control Enforcement Conference in Sydney, Australia, which was co-hosted by the U.S. and Australian governments. The objective of the conference was to examine current and potential best practices for securing effective controls on transit, transshipment, and reexport of WMD-related items, technologies, and delivery systems in four areas: legislative and regulatory framework; inspections and investigations; detection technologies; and outreach. The Sydney Conference developed a set of "Principles" on transshipment trade controls in line with TECI objectives. A list of best practices developed at the Sydney conference supplemented the "Best Practices for Effective Export, Re-export, Transit and Transshipment Controls" adopted at the Transshipment Enforcement Conference held November 15-17, 2000, in San Diego, California. In addition to the discussion of these Best Practices, the Sydney Conference facilitated BIS bilateral discussions with the key transshipment hub countries in attendance at the conference.
In Fiscal Year 2003, BIS deepened its cooperation with Hong Kong by working with the Hong Kong Trade and Industry Department to establish a new confidentiality arrangement for sharing information. Following the Eighth U.S.- Hong Kong Bilateral Export Control Discussions held in Washington, D.C., in April, 2003, BIS and the Hong Kong Trade and Industry Department launched a pilot project for more effective exchanges of licensing and enforcement information.
BIS engaged Panamanian authorities in Fiscal Year 2003 on export controls, including TECI, through several high-level bilateral meetings. These included a BIS-funded legal technical exchange that prompted the Government of Panama to conduct a comprehensive review of all its legal authorities to control the export, transit, and transshipment of sensitive items and to make export controls a regional priority for Central America.
During Fiscal Year 2003, BIS developed draft Best Practices for industry as part of TECI, with input from BIS's Regulations and Procedures Technical Advisory Committee. The Best Practices were targeted to assist U.S. exporters, foreign reexporters of U.S. products, and trade facilitators, including freight forwarders, cargo carriers, and customs brokers. They set forth a series of activities, such as screening of all parties in a transaction, obtaining confirmation of receipt of controlled items, and reporting suspicious transactions. BIS published the draft Best Practices in the Federal Register seeking comments from the private sector. The final Best Practices will be published in Fiscal Year 2004.
In July 2003, BIS posted on its Web site, www.bis.doc.gov, revised guidance on the exports and reexports of U.S.-origin dual-use items. To assist U.S. exporters and reexporters worldwide to better understand U.S. reexport laws and regulations, BIS also translated the guidance into Arabic, Chinese, Spanish, and Japanese.
In Fiscal Year 2004, BIS will continue to monitor, advise, and direct global strategies for adherence to nonproliferation objectives.
Through NEC, BIS plans to increase the number of technical exchanges conducted from 75 in Fiscal Year 2003 to 85 in Fiscal Year 2004, and will start new technical bilateral exchange programs in Malaysia, Taiwan, Thailand, and Turkey. BIS also plans to develop new means for conducting technical exchange programs, including by deploying new Web-based training tools. BIS will continue the ICP program with Russia, Ukraine, Hungary, and Kazakhstan, and expand the ICP program activities into the Czech Republic and the Baltic States. BIS will continue working with the customs service in Russia on the PIT program and expand activities beyond Russia into other countries, including Ukraine. BIS will promote TECI by engaging in dialogues with TECI partners in bilateral and multilaterals meetings and conferences. In addition, BIS will publish the final TECI Best Practices for industry. Additional translations of BIS export control regulations and guidance will be posted on the BIS Web site in foreign languages to help foreign companies and persons comply with U.S. export control requirements.
Former Deputy Under Secretary Karan Bhatia addresses the
Bureau of Industry and Security officials participate in
Under Secretary Kenneth I. Juster and other senior Bureau of Industry and Security officials participate in the Eighth Annual Bilateral U.S.-Hong Kong Discussion on Export Controls and Information Sharing.
Bureau of Industry and Security and Chinese government officials conduct a seminar on export controls in Shanghai, China.
Through its Office of Strategic Industries and Economic Security, the Bureau of Industry and Security (BIS) is the focal point within the Department of Commerce for issues related to the strength and competitiveness of the U.S. defense industrial and technological base. In partnership with industry and other U.S. Government agencies, BIS implements programs to ensure that the U.S. defense industrial and technological base has the capacity and capability to meet current and future national security, economic security, and homeland security requirements. BIS supports the U.S. defense industrial and technological base by securing timely delivery of products for approved national defense, emergency preparedness, and critical infrastructure development programs; by conducting analyses of sectors important to U.S. national defense; and by promoting U.S. defense exports.
Administering the Defense Priorities and Allocations System
BIS's administration of the Defense Priorities and Allocations System (DPAS) has played an important role in support of the deployment of U.S. and allied forces in Iraq and Afghanistan, and for ongoing homeland security initiatives.
In Fiscal Year 2003, BIS worked closely with U.S. industry and the Department of Defense to utilize the DPAS to expedite the supply of defense articles needed to support Operation Iraqi Freedom and Operation Enduring Freedom. Noteworthy examples include ensuring the delivery of special ballistic material to produce lightweight body armor for U.S. Army and U.S. Marine Corps troops; securing the supply of satellite communications and search and rescue radio equipment to meet critical Department of Defense requirements; delivering of Identification Friend or Foe (IFF) transponder equipment to the U.S. Air Force; expediting shipments from a U.S. company of component parts needed for antenna equipment to support the U.S. Special Forces Command, and displays needed to assemble electronic translation equipment to support U.S. Army and U.S. Marine Corps ground forces in Iraq; and participating in the Department of Defense's Priorities and Allocations Industrial Resources group to assist in resolving industrial resource conflicts and supply issues associated with operational requirements.
In support of homeland security initiatives, BIS, in cooperation with the Department of Homeland Security (DHS), authorized use of DPAS to ensure the timely delivery of industrial items for several DHS emergency preparedness programs. Specifically, in Fiscal Year 2003, BIS issued DPAS priority ratings supporting the procurement of data processing and communications equipment for the Transportation Security Administration's seven-year, $1 billion aviation security Information Technology Managed Services program to upgrade airport and airline security, and supporting data processing and communication equipment deliveries for the Bureau of Customs and Border Protection's five-year, $1.3 billion Automated Commercial Environment (ACE) system to enhance port security, particularly as it pertains to the tracking and identification of containerized cargo.
The Aviation and Transportation Security Act of 2001 required that all major U.S. commercial airports be able to screen 100 percent of passenger baggage for explosives by the end of 2002. The Transportation Security Administration used the DPAS authorities granted by BIS to comply with this requirement for the deployment of explosive detection machines at airports across the United States. In Fiscal Year 2003, BIS also used DPAS authorities to support ongoing DHS continuity of operations programs.
BIS completed several major initiatives in Fiscal Year 2003 to monitor the strength of the U.S. defense industrial and techological base. In September 2003, BIS completed a comprehensive assessment of the U.S. textile and apparel industries, as requested by Congress. The final report relied heavily on data collected from responses to a BIS-administered survey sent to more than 1,600 companies. The final report analyzed the economic health and competitiveness of the textile and apparel industries; the contribution of the industries to the U.S. economy and, more specifically, to the U.S. armed forces; U.S. dependency on foreign sources for critical materials; and the effectiveness of the Department of Defense's implementation of Buy American Act and Berry Amendment requirements.1
During Fiscal Year 2003, BIS also provided the sixth and seventh congressionally mandated reports on offsets in defense trade, covering data for 1999 and 2000, respectively. BIS also began to analyze data for the eighth report, covering data for 2001 and 2002. Offsets are mandatory compensation required by foreign governments when purchasing weapons systems and services. Offset practices include co-production, subcontracting, technology transfer, and foreign investment. These reports detail the impact of offsets in defense trade on U.S. defense preparedness, industrial competitiveness, employment, and trade.
BIS also completed an assessment of the U.S. biotechnology industry. Together with the Commerce Department's Technology Administration and other agencies of the U.S. Government, BIS surveyed more than 3,000 companies and assessed the economic health and competitiveness of U.S. companies that are part of the biotechnology industry. The preliminary results of the assessment were presented by the Department of Commerce at the June 2003 Biotechnology Industry Organization Conference.
In Fiscal Year 2003, BIS continued to work closely with the Department of Defense, other U.S. Government agencies, and U.S. industry on several ongoing U.S. defense industrial base assessments. For the U.S. Army, BIS continued analysis of the air delivery (parachute) industry; collected all data and began analyzing the precision-guided munitions power source industry; and completed an assessment of the potential economic impact on U.S. shipyards of the proposed Theater Support Vessel procurement. For the U.S. Air Force, BIS finalized a report on the concerns of high-technology commercial companies when considering research and development partnerships with the Department of Defense.
Working with the Department of Education and the Federal Laboratory Consortium, BIS also completed an assessment of the assistive technology industry, which manufactures products for people with disabilities. One important goal of this assessment was to facilitate the use of defense-related technologies in the industry's products. Based on the study's results and recommendations, the Department of Commerce proposed an eight-point initiative to advance the U.S. assistive technology industry and meet the technology needs of disabled Americans.
BIS's defense industrial and technological base responsibilities extend beyond the analysis of specific industry sectors. In Fiscal Year 2003, BIS, in coordination with the Department's International Trade Administration, conducted reviews of 42 foreign acquisition cases submitted to the interagency Committee on Foreign Investment in the United States to ensure that they did not threaten U.S. national security. BIS also examined 173 proposed memoranda of understanding and other types of international cooperative agreements that the Department of Defense planned to conclude with foreign governments. BIS's analysis of these documents focused on their commercial implications and potential effects on the international competitive position of U.S. industry. BIS reviewed 121 proposed transfers of excess defense equipment to foreign governments through the Department of Defense's Excess Defense Articles program, and provided the Department of Defense with recommendations to ensure that these transfers would not interfere with ongoing sales or marketing activities of U.S. industry.
Supporting the U.S. Defense Industry' s International Competitiveness
BIS continues to work successfully with other U.S. Government agencies to help U.S. companies compete and win in the highly competitive international defense market. BIS advocates on behalf of U.S. companies for foreign defense contracts, and works closely with the Departments of State and Defense to engage foreign decision makers on the strategic, military, and economic issues associated with major defense procurements.
In Fiscal Year 2003, working with U.S. Government partners, BIS successfully assisted U.S. companies to obtain contracts to supply foreign governments with defense articles worth approximately $4.5 billion, led by the $3.5 billion sale of F-16 fighter aircraft to Poland. These sales help maintain the U.S. defense industrial and technological base and preserve high-technology employment. BIS also actively supported proposals by U.S. industry to satisfy the fixed wing and rotary aircraft requirements of a number of nations, with several multibillion dollar procurement decisions expected in Fiscal Year 2004.
BIS continued to work closely with the Commerce Department's global network of commercial offices, including Export Assistance Centers across the United States, to identify defense trade opportunities for U.S. industry, to support U.S. defense trade exhibitions overseas, and to provide export counseling to U.S. industry exploring emerging market opportunities, such as defense requirements in South Asia and Central Europe.
In addition, in Fiscal Year 2003, BIS was an active participant in the Administration's comprehensive assessment of U.S. defense trade policies designed to identify changes necessary to ensure that those policies continue to support U.S. national security and foreign policy goals.
Supporting the U.S. Maritime Industry
BIS has partnered with the U.S. Coast Guard to promote the export of an array of assets being developed through the U.S. Coast Guard's $17 billion Integrated Deepwater System Program to modernize its fleet of ships, aircraft, sensors, communications, and logistics infrastructure over the next two decades. During Fiscal Year 2003, BIS participated, as part of the Deepwater team, in maritime trade events in Europe, South America, South Asia, and the United States to promote the sale of Deepwater assets to foreign navies, coast guards, fisheries, and environmental agencies. These sales are intended to bolster interoperability with allied and friendly nations, create business opportunities for U.S. industry at the prime and subcontractor levels, and lower unit procurement costs for the U.S. Coast Guard.
In Fiscal Year 2003, BIS and its partner organization, the U.S. Navy's Best Manufacturing Practices program, continued work with the Department of Transportation and other agencies participating in the Marine Transportation System (MTS) initiative on developing a best practices program for 350 U.S. ports,2 covering port security, as well as other operational issues.
BIS, in consultation with the Department of Defense, worked with U.S. industry to satisfy allied operational requirements in support of Operation Iraqi Freedom, Operation Enduring Freedom, and other defense-related needs using DPAS authorities. Such support included accelerating deliveries of communications equipment, infra-red night vision equipment, electronic cargo identification tags, and precision guided munition guidance system components; expediting the delivery of laser targeting equipment; and facilitating the shipment of telemetry equipment.
In addition, BIS represented the United States on the NATO Industrial Planning Committee (IPC), which addresses industrial base issues associated with the NATO's defense and civil emergency planning. BIS is actively working within the IPC to implement the NATO Members' June 2002 agreement on Security of Supply for industrial resources. This agreement, based on the principles and procedures of the BIS administered DPAS, recommends that NATO nations enter into bilateral and multilateral agreements on Security of Supply. In June 2003, the Department of Defense, with BIS support, entered into a bilateral Security of Supply agreement with Sweden. The Department of Defense concluded a similar agreement with the United Kingdom in February 2002. These agreements complement the NATO Security of Supply initiative.
BIS's advocacy and Deepwater export promotion efforts have also supported the interests of the Department of Defense and the U.S. Coast Guard in standardization and interoperability with the armed forces of allied and friendly nations.
Building on Fiscal Year 2003's accomplishments, BIS will continue to partner with industry and other U.S. Government agencies to ensure that the U.S. defense industrial and technological base meets current and future national security requirements. Goals for Fiscal Year 2004 include:
BIS will continue to work closely with U.S. industry and interagency partners, under the authority of the DPAS program, to support the production and delivery of industrial resources needed to meet national defense and homeland security requirements.
For the U.S. Army, BIS plans to complete and publish assessments of the air delivery and munitions power sources industries and the economic impact of the proposed U.S. Army procurement of a Theater Support Vessel.
For the U.S. Air Force, BIS is on track to complete and publish a study on research and development partnerships.
BIS also will transmit its eighth report on offsets in defense trade to the Congress. With the completion of this report, BIS will have collected and analyzed data on offset agreements and transactions from 1993-2002. In an effort to provide more comprehensive data on offsets in defense trade, BIS will enhance the survey specifics and deepen its level of analysis in preparation for the ninth report, which will also be published during Fiscal Year 2004.
BIS will continue to work with U.S. industry and interagency partners to support the sale of U.S. defense products overseas. Such sales can help maintain and enhance the U.S. industrial and technological base, preserve high-technology employment, and further the U.S. interest in standardization and interoperability with the armed forces of allied and friendly nations. BIS's Deepwater export promotion activities will focus on South and Southeast Asia and the Persian Gulf regions.
BIS will continue to support the Department of Defense in negotiating bilateral Security of Supply agreements with allied and friendly nations. Using the Security of Supply agreements with the United Kingdom and Sweden as models, the Department of Defense, with BIS support, has initiated bilateral negotiations with other nations, including Italy, the Netherlands, Norway, and Spain.
1 The Buy American Act and the Berry Amendment are parts of defense procurement law that require the Department of Defense to procure clothing and other textile and apparel articles from U.S. manufacturers.
2 Nineteen federal departments and agencies are working together through theMTS initiative to address the security, environmental, infrastructure, competitiveness, and safety challenges facing individual port authorities across the country.
Working with interagency partners, the Bureau of Industry and Security successfully advocated for the sale of F-16 fighter aircraft to Poland, a contract worth approximately $3.5 billion.
Former Deputy Under Secretary Karan Bhatia testifies on reauthorization of the Defense Production Act before the Subcommittee on Domestic and International Monetary Policy, Trade, and Technology of the Committee on Financial Services, U.S. House of Representatives.