Thank you for inviting me to speak with you this morning on the latest developments in export controls. I’ve always found that it’s best to have a discussion of this subject over a good strong cup of coffee, so today’s venue is just perfect. Let me especially thank my friend and former colleague, Regina Vargo, for her kind introduction. Regina was well known at USTR for having successfully negotiated more Free Trade Agreements than any other USTR official in living memory.
When I worked at the State Department, I learned that former Secretary of State George Schultz often talked about the importance of “tending the garden” – the diplomatic practice of traveling overseas to check in with key allies on planned initiatives, to share perspectives, to build relationships, and to learn what others are doing and thinking.
I returned this past weekend from such a trip to Europe, where I visited Paris, Berlin, London, Stockholm, and The Hague. My purpose was to share ideas with European allies about the latest developments in export controls, and to deliver remarks to the annual plenary meeting of the Chemical Weapons Convention. In each country, I met with counterparts in foreign and economic ministries, and with representatives of local business.
My meetings focused on the increasing trend towards end-user controls, proposed changes to export controls for China, implementation of UN sanctions on North Korea, and our growing concerns about illegal diversion of sensitive goods to Iran and Syria. I thought it might be useful this morning to give you a brief update on each of these areas.
Trends in Export Controls
Like the United States, Europe is grappling with the need to adjust export controls to focus on 21 st Century security threats. European governments understand from first-hand experience that terrorist networks operate not only across borders, but within friendly countries. As a result, I think our allies in Europe recognize – as we do – that it is no longer sufficient to talk only about export controls on “countries of concern.” We must now focus also on individual customers of concern.
This means that in Europe as in the United States, we are likely to see controls that are targeted more and more on specific terrorist threats. We are also seeing controls that account for the many new ways that sensitive technology can be transferred across international borders.
For example, the Wassenaar Arrangement concluded its annual plenary while I was in Europe last week. In recent years, the United States has worked closely with European allies to strengthen multilateral controls on items that are of particular interest to terrorists, such as MANPADS, cell phone jamming equipment, and unmanned aerial vehicles (UAVs). This year, I’m pleased that we reached consensus on best practices regarding intangible technology transfers – updating controls to apply to transfers that take place not just physically, but via fax, phone, or internet. This was another important step in modernizing and strengthening one of the most important multilateral export control regimes. Next year, in the upcoming Quadrennial Assessment of Wassenaar, the United States will work with others to strengthen that regime’s transparency provisions, including dual-use denial consultation procedures.
On end-user controls, I explained to our colleagues in Europe that we in the United States plan to tell exporters more about who the good guys and the bad guys are, with such new approaches as “trusted customers” (or validated end-users, as we call them in our proposed regulations) and an expanded and revitalized Entity List. My European counterparts recognized that as all nations move toward end-user controls, there will be a vital need to increase cooperation and information-sharing, so that our approach to individual customers is coordinated internationally to the maximum extent possible.
European governments expressed considerable interest in the “trusted customer” concept. They asked whether foreign subsidiaries of European multinationals might be eligible, and wondered whether the concept would have applicability beyond China. My answer was yes on both counts. I explained that Chinese subsidiaries of European firms could be good “trusted customer” candidates – just as Chinese subsidiaries of U.S. firms could be – provided that they have established records of using controlled technology responsibly. As for countries where the VEU concept will be implemented, I mentioned that we are in active discussions with India, following up on commitments made by President Bush during his visit to India in March 2006.
European governments are also following closely cases in which we take firm action against lawbreakers. I briefed my European counterparts on the recent case of Mayrow General Trading, a UAE-based company. BIS imposed a comprehensive license requirement on Mayrow and related entities for acquiring electronic components used to construct Improvised Explosive Devices (IEDs) like those that have been used against coalition forces in Iraq and Afghanistan.
Indeed, the United States is increasingly disturbed by the diversion of goods to Iran and Syria through various ports in the UAE. Like the EU, the United States has worked patiently with the UAE government to train export control officials and to offer technical assistance. But the UAE still lacks an export control law, and the Mayrow case is just one example of an alarming lack of export oversight by the government of the UAE. We continue to discuss this issue with UAE authorities, but time for action is running short.
As I promised when I assumed office, I traveled to Europe to discuss proposed changes in export controls for China and urged European governments to follow suit. We recalled that a 2003 Statement of Understanding in the Wassenaar Arrangement called on all members to restrict unlisted items when they are going to a military end-use in a country subject to an arms embargo.
The EU maintains an arms embargo on China, though different European counterparts had different explanations of what that embargo entails. Yet regardless of the nomenclature, I emphasized that the United States believes European governments share our interest in ensuring that exports of certain advanced dual-use technologies do not have the effect of undermining the arms embargo by enabling Chinese weapons systems.
I would characterize the European response as attentive but noncommittal. One gets the impression that there are more questions than decisions in this area, and different interpretations – even within the EU – of what the 2003 Wassenaar statement required. As I outlined the U.S. proposal, there was a lot of careful listening, and many informed questions about the specific items we propose to subject to military end-use controls, as well as the validated end-user concept.
Meanwhile, back in the United States, December 4 was the closing date for comments on the proposed China rule. We received more than 50 individual submissions, amounting to nearly 600 pages of detailed comments.
Clearly, exporters took our request for input quite seriously. That’s good news. Since assuming this position in early October, I have met with scores of exporters and trade associations. I urged them to give us detailed input on the proposed China rule, and they responded. We’ve received detailed and extensive information on alleged foreign availability within China, on the definition of military end-use, and on how to make the trusted customer concept work most effectively.
Now we have a lot of reading to do. We will carefully review and consider the comments we received, and the reaction of our European and Asian allies, and factor all of this into our decisions on how to finalize and implement our new export control policies for China. As a result of this review, there may be some changes to the original proposal.
But scrapping the rule is simply not in the cards. Our proposed rule on China export controls derives from very fundamental tenets of U.S. foreign policy. For more than three decades across seven presidential administrations, the United States has sought to encourage legitimate civilian trade with China. That remains our policy, and the China rule will have the effect of helping to facilitate and streamline legitimate civilian exports, even as we prudently hedge against the rapid, double-digit growth in China’s military capabilities.
Rapid advances in civilian technology, combined with an increasing reliance on commercial components by the Chinese military, mean that certain dual-use technologies could make a material contribution to Chinese weapons systems – systems that would be banned for export if sold in finished form. In light of these ongoing technology and procurement trends, failure to act would erode the effectiveness of the U.S. arms embargo, a well-established and longstanding policy of the United States. We therefore believe imposing controls on a focused list of technologies – in a very particular set of circumstances with national security implications – is an appropriate response. We do not believe the new rule imposes an unbearable burden on business. In fact, it is likely that the trusted customer program will liberalize more U.S. exports than the military end-use controls will prohibit.
During my travels in Europe we announced that the Commerce Department will be following up on UN Security Council Resolution 1718 by imposing a ban on luxury goods exports to North Korea. For those of you who haven’t seen the list, it is available on the BIS and State Department websites. We plan to issue final regulations to put this ban into legal effect in the near future.
I consulted with my European counterparts on the luxury goods ban. The good news is that the U.S. and Japanese lists (which have been published) and the draft EU list (which is nearly final) are very, very similar. It sends a powerful message that the world’s three largest trading powers will impose nearly identical bans on luxury goods sold to the Kim Jong-Il regime. I plan to travel to Asia next month to consult with governments there about taking similar measures.
Some of the press reports suggested that our main purpose was simply to annoy the North Korean leader. Perhaps Kim will find it annoying that the world is restricting new additions to his wine cellar, but irking him was not the main purpose. In this most isolated and totalitarian of regimes, wristwatches and handbags are the equivalent of cash bonuses or stock options. Kim dispenses luxury goods to military and government elites as a way of maintaining his absolute power; these controls will make it more difficult for Kim to reward repression. We also believe it is simply wrong for North Korea’s leaders to be splurging on expensive goodies while North Korea’s people starve.
As the Bush Administration updates the export control system to meet the new challenges, threats, and economic opportunities of the 21 st Century, we will continue to work closely with other nations so that our export controls are as multilateral and effective as we can make them. I appreciated the cooperation and attentiveness of my counterparts in Europe, and look forward to consultations with Asian countries early next year.