Pursuant to Section 6(j) of the Export Administration Act (the Act), the Secretary of State has designated five countries – Cuba, Iran, North Korea, Sudan, and Syria – as nations with governments that have repeatedly provided support for acts of international terrorism. In 2006 two countries were removed from this list: Iraq and Libya . Further, the United States maintains comprehensive embargoes on exports and reexports to Cuba , Iran , Sudan , and Syria . Embargo controls applicable to such countries are discussed in Chapter 5 of this report. The remaining controls applicable to Iraq are also discussed in Chapter 5 of this report.
Effective December 28, 1993 , the Acting Secretary of State determined that the United States would control five categories of dual-use items subject to multilateral controls to certain sensitive end-users under Section 6(j) of the Act, because these items meet the criteria set forth in Section 6(j)(1)(B) of the Act. Specifically, the Acting Secretary determined that these items, if exported to military, police, or intelligence organizations, or to other sensitive end-users in a designated terrorist-supporting country, could make a significant contribution to that country’s military potential or could enhance its ability to support acts of international terrorism. As a result, any such export is subject to a 30-day Congressional notification period prior to approval. The Acting Secretary also advised that the United States would continue to control exports and reexports of such items, as well as exports and reexports of other items not specifically included in these five categories, to other end-users within designated state sponsors of terrorism for general foreign policy purposes under Section 6(a). Such transactions are also reviewed against the Section 6(j) standard on a case-by-case basis. These controls are identified in the Export Administration Regulations (EAR) as anti-terrorism (AT) controls.
On August 31, 2006 , the Department of Commerce published in the Federal Register an amendment to the EAR implementing the U.S. Government’s decision to rescind Iraq ’s designation as a state sponsor of terrorism (71 FR 51714). As a result of the changes described in this rule, Iraq is no longer subject to AT controls. A detailed discussion of remaining controls on Iraq is located in Chapter 5.
On August 31, 2006 , the Department published in the Federal Register an amendment to the EAR implementing the U.S. Government’s decision to rescind Libya ’s designation as a state sponsor of terrorism (71 FR 51714). As a result of the changes described in this rule, Libya is no longer subject to AT controls.
As a result of North Korea’s test launch of ballistic missiles in July, 2006, and testing of a nuclear device in October, 2006, and consistent with United Nations Security Council Resolutions (UNSCRs) 1695 and 1718, the Department is working to publish a regulation in the Federal Register to implement the requirements of the UNSCRs as well as sanctions triggered under U.S. law as a result of the nuclear test.
For AT reasons, a license is required to export and reexport items classified as 5A980, 5D980 or 5E980 to Cuba, Iran, North Korea, Sudan, and Syria. The Department of Commerce will generally deny all applications for items controlled for AT reasons and those involving a material contribution to certain proliferation activities as set forth in part 744 of the EAR. Additional discussion of this issue is included in Chapter 13.
Pursuant to the 1993 determination of the Acting Secretary of State, and subsequent action consistent with such determination, certain items are controlled for anti-terrorism (AT) reasons pursuant to Section 6(j) of the Act, while others are controlled pursuant to Section 6(a). The Department of Commerce refers all license applications for items controlled for AT reasons to the Department of State for review. With respect to items controlled pursuant to Section 6(a) (including exports or reexports of CCL items to non-sensitive end-users), a determination is made regarding whether the requirements of Section 6(j) apply. If the Secretary of State determines that the particular export “could make a significant contribution to the military potential of the destination country, including its military logistics capability, or could enhance the ability of such country to support acts of international terrorism,” the Department of Commerce and the Department of State must notify the appropriate Congressional committees 30 days before issuing a license, consistent with the provisions of Section 6(j) of the Act. Transactions not subject to such requirements are generally reviewed on a case-by-case basis.
The following items are controlled pursuant to Section 6(j) to military, police, intelligence and other sensitive end-users in all designated terrorist-supporting countries:
Transactions involving exports or reexports of items controlled pursuant to Section 6(j) to military or other sensitive end-users in all five designated terrorist-supporting countries are subject to a general policy of denial. Pursuant to Section 6(a) of the Act, the Department of Commerce requires a license for the export or reexport of the items specified above to non-sensitive end-users in all five designated terrorist-supporting countries for AT reasons. Such exports or reexports are generally reviewed on a case-by-case basis.
Pursuant to Section 6(a) of the Act, the Department of Commerce requires a license for the export of certain items on the CCL to all end-users in all five designated terrorist-supporting countries, and for the reexport of certain items on the CCL to all five designated terrorist-supporting countries for AT reasons. Additionally, certain other items on the CCL require a license for export and/or reexport to one or more of the five designated terrorist-supporting countries for AT reasons. The applicable controls are contained in the relevant EAR sections applicable to each country. All export controls presently maintained for AT reasons pursuant to either Section 6(j) or Section 6(a) continue in force.
However, as described further in Chapter 5, the United States maintains comprehensive controls on exports and reexports to Cuba , Iran , Sudan , and Syria . As a result, the U.S. Government reviews license applications for exports and reexports of most items to these countries under a general policy of denial, with certain very limited exceptions. The Department of Commerce continues to maintain AT controls with respect to these countries, though such controls and the related licensing policies are secondary to the comprehensive embargoes in place.
Anti-terrorism controls are intended to prevent acts of terrorism and to distance the United States from nations that have repeatedly supported acts of international terrorism and from individuals and organizations that commit terrorist acts. The controls demonstrate U.S. resolve not to trade with nations or entities that fail to adhere to acceptable norms of international behavior. The policy provides the United States with the means to control U.S. goods or services that might contribute to the military potential of designated countries and to limit the availability of such goods for use in support of international terrorism. U.S. foreign policy objectives are also furthered by ensuring that items removed from multilateral regime lists continue to be controlled to designated terrorist-supporting countries. With respect to exports and reexports to Cuba , Iran , Sudan , and Syria , anti-terrorism controls are maintained as part of broader U.S. embargoes discussed in Chapter 5.
On September 12, 2003 , in response to Libya ’s renunciation of terrorism and abandonment of its weapons of mass destruction programs, the United Nations terminated its sanctions against that country. In April and September 2004, respectively, the United States terminated sanctions under the Iran Libya Sanctions Act (ILSA) and under the International Emergency Economic Powers Act, in response to Libya 's steps to dismantle its weapons of mass destruction programs and MTCR-class missiles.
On August 31, 2006, the Department published in the Federal Register an amendment to the EAR implementing changes in export controls with respect to Libya (71 FR 51714). This amendment implemented the U.S. Government’s decision to rescind Libya ’s designation as a state sponsor of terrorism. This decision was announced on May 15, 2006 , and became effective on June 30, 2006 .
The Department’s amendment removed the licensing requirement to Libya for all items controlled for anti-terrorism (AT) reasons only on the Commerce Control List (CCL). In addition, the amendment removed Libya from Country Group E:1 and added Libya to Country Group D:1, making Libya eligible to receive exports and reexports under a wider range of License Exceptions than was the case prior to the amendment’s publication. Libya remains in Country Groups D:2, D:3, and D:4. The amendment also established a case-by-case review policy for all items continuing to require a license for export or reexport to Libya . Items continuing to require a license for export or reexport to Libya include items controlled on the CCL for chemical/biological (CB), nuclear nonproliferation (NP), national security (NS), missile technology (MT), regional stability (RS), and crime control (CC) reasons.
The United States continues to work on a bilateral and trilateral (with Libya and the United Kingdom ) basis to resolve our remaining concerns and to continue to improve the relationship between the two countries.
Under the U.S.-North Korea 1994 Agreed Framework, North Korea agreed to freeze and eventually dismantle its nuclear program in exchange for heavy fuel oil shipments and the construction of two light water reactors (LWR). In December 2002, the Executive Board of the Korean Peninsula Energy Development Organization (KEDO), comprised of the United States, South Korea, Japan, and the European Union, suspended oil shipments to North Korea after discovering that North Korea, by pursuing an enriched uranium nuclear program for nuclear weapons, failed to comply with its commitments under the Agreed Framework, the Nuclear Nonproliferation Treaty (NPT), North Korea’s safeguards agreement with the International Atomic Energy Agency (IAEA), and the Joint North-South Declaration on the Denuclearization of the Korean Peninsula. On January 8, 2006 , KEDO completed the withdrawal of all workers from the LWR project site. In May 2006, KEDO officially terminated the LWR project as a result of North Korea ’s failure to perform the steps that were required in the agreement and took other actions in opposition to KEDO’s goal, such as withdrawing from the Nuclear Nonproliferation Treaty, expelling IAEA inspectors, and restarting its nuclear program.
Concurrent to KEDO’s activities, six-party talks resumed in 2005 with the goal of obtaining a commitment from North Korea to abandon its nuclear weapons programs and to return to the NPT and the IAEA safeguards. After the first phase of the fifth round of talks ended in November 2005, Pyongyang boycotted further talks.
On July 4, 2006 , in defiance of international calls for restraint, North Korea test-launched a series of ballistic missiles. In response to these actions, on July 15, 2006, the United Nations Security Council adopted Security Council Resolution 1695 (UNSCR 1695) demanding that North Korea suspend all ballistic missile-related activity and reinstate a moratorium on missile launches. UNSCR 1695 requires all United Nations Member States to prevent (1) the transfer of missile and missile-related items, materials, goods and technology to North Korea’s missile or weapons of mass destruction programs; (2) the procurement of such items and technology from North Korea; and (3) the transfer of financial resources in relation to such programs.
On October 9, 2006 , North Korea tested a nuclear device. In response, on October 14, 2006 , the United Nations Security Council adopted UNSCR 1718 condemning the nuclear test and expressing grave concern over the threat the test constituted to the Treaty on Non-Proliferation of Nuclear Weapons, to regional peace and stability, and to international efforts to strengthen global non-proliferation. UNSCR 1718 also requires all member states to prevent the supply, sale or transfer of: (1) certain arms and related materiel, including spare parts; (2) items (set out in the lists in UN documents S/2006/814, S/2006/815, and S/2006/853), as well as other items determined by the Security Council or the Committee established by the Security Council that could contribute to North Korea’s nuclear, ballistic missile, and other weapons of mass destruction-related programs; and (3) luxury goods. UNSCR 1718 also requires Member States to prevent transfers to North Korea of technical training, advice, services or assistance related to the provision, manufacture, maintenance or use of the items specified above. Furthermore, UNSCR 1718 demands that North Korea , in a verifiable and irreversible manner, abandon nuclear weapons, existing nuclear programs, and all other existing weapons of mass destruction programs. The Resolution also demands that North Korea suspend all ballistic missile activities, and return to the Treaty on the Non-Proliferation of Nuclear Weapons and the terms and conditions of the International Atomic Energy Agency (IAEA) Safeguards Agreement. As a result of North Korea’s test launch of ballistic missiles in July 2006, and testing of a nuclear device in October 2006, and consistent with UNSCRs 1695 and 1718, the Department is working to publish a regulation in the Federal Register to implement the requirements of the Security Council Resolutions, as well as sanctions triggered under U.S. law as a result of the nuclear test.
1. Probability of Achieving the Intended Foreign Policy Purpose. The Secretary has determined that these controls are likely to achieve the intended foreign policy purpose, in light of other factors, including the availability of these AT-controlled items from other countries. He has further determined that the foreign policy purpose cannot be achieved through negotiations or other alternative means. Although widespread availability of comparable goods from foreign sources limits the effectiveness of these controls, the controls do restrict access by these countries and persons to U.S.-origin commodities, technology, and software, and demonstrate U.S. determination to oppose and distance the United States from international terrorism.
2. Compatibility with Foreign Policy Objectives. The Secretary has determined that these controls are compatible with U.S. foreign policy objectives and specifically with overall U.S. policy toward the designated terrorist-supporting countries. The Secretary has further determined that the extension of these controls will not have any significant adverse foreign policy consequences. These controls affirm the U.S. commitment to restrict the flow of items and other forms of material support to countries, individuals, or groups for terrorist purposes.
3. Reaction of Other Countries. The Secretary has determined that any adverse reaction to these controls is not likely to render the controls ineffective, nor will any adverse reaction by other countries be counter-productive to U.S. foreign policy interests. Most countries are generally supportive of U.S. efforts to fight terrorism and stop the proliferation of weapons of mass destruction in countries of concern.
Following the 1986 Berlin disco bombings, the Untied States imposed broad unilateral sanctions on Libya . In 1992, after Libya was implicated in the bombing of Pan Am flight 103 over Lockerbie , Scotland , the United Nations and the European Union also imposed sanctions. In 1999, the U.N. suspended its sanctions after Libya handed over two suspects for trial, and lifted them in 2003 after Libya met the U.N. Security Council’s demands related to the Lockerbie bombing. In April and September, 2004, following Libya 's renunciation of weapons of mass destruction and MTCR-class missiles in December 2003, and subsequent cooperation with the United States , the United Kingdom , and the international community to rid itself of these programs, the United States lifted its Iran-Libya Sanctions Act and International Emergency Economic Powers Act-based economic sanctions. On August 31, 2006 , the Department lifted AT controls on Libya , implementing Libya ’s June 30, 2006 removal from the list of designated state sponsors of terrorism within the EAR.
Many countries and the United Nations concurred with the United States ’ position that Libya ’s behavior during the 1980s and 1990s was unacceptable. Similarly, as Libya has continued to take steps to rejoin the international community, other countries concur with the United States ’ decision to lift the sanctions against Libya . Regarding the controls the United States maintained until this year for anti-terrorism reasons, although there was no active opposition that rendered the controls ineffective, and although the controls were not otherwise counterproductive to U.S. foreign policy interests, few countries maintained controls on Libya similar to those implemented by the United States .
The United States maintained a comprehensive trade embargo against North Korea for 50 years, until 1994. In general, during that time period, U.S. allies largely acted in concert with the United States to deny North Korea strategic equipment and technology. Similarly, the easing of U.S. sanctions toward North Korea and the removal of some U.S. controls in June 2000 were echoed by other Western countries. On October 14, 2006 , as a result of North Korea ’s July 2006 missile tests and October 2006 nuclear test, the United Nations Security Council imposed sanctions on North Korea . In parallel with the United States ’ responsibilities as a member of the United Nations, the Department is currently working to implement the requirements of the Security Council resolutions.
4. Economic Impact on United States Industry. The Secretary has determined that the adverse effect of these controls on the economy of the United States , including on the competitive position of the United States in the international economy, does not exceed the benefit to United States foreign policy objectives. The AT controls maintained on designated terrorist-supporting countries as a whole have had some impact on U.S. industry. The impact of such controls is described further below, with respect to countries not presently subject to a comprehensive embargo. The economic impact of comprehensive controls maintained on Cuba , Iran , Sudan , and Syria , countries subject to unilateral U.S. restrictions, is described further in Chapter 5. On the whole, the impact on U.S. industry is modest while stopping state sponsorship of terrorism is a very high priority of the U.S. Government.
The suspension of some IEEPA-based sanctions against Libya and the Department's publication of a regulation revising export licensing requirements and policies for the export and reexport of items subject to the EAR in April 2004 and the subsequent lifting of the remaining IEEPA-based sanctions in September 2004 had a significant and positive impact on U.S. industry. Similarly, the Department’s lifting of AT controls on August 31, 2006 is having a further significant positive impact on U.S. industry. In Fiscal Year 2006, the Department approved 325 licenses for Libya valued at $3.68 billion, rejected one application valued at $582,667.00 and returned without action 111 applications valued at $375.7 million. The Department returned many of the 111 license applications without action as a result of the August 31 publication liberalizing license requirements for Libya .
The long-term duration of the embargo makes measuring the impact of the controls in place until August 2006 difficult, as there is little history to suggest what the dollar value of U.S. trade would have been, absent the controls (see Table 1). Libya ’s total annual imports average around $6 billion. On the basis of information received from exporters, the Department anticipates that there is significant opportunity in Libya for a broad array of U.S. goods. The steady increase in license applications since the end of the embargo, and of the value thereof, provides additional evidence in support of the Department’s position.
Number of Applications / Notifications
Total Value in U.S. Dollars
As a result of the small size of the North Korean economy, U.S. export sanctions on North Korea have had a minimal impact on U.S. industry. North Korea ’s total imports average about $1-2 billion annually, with primary imports including minerals, metallurgical products and manufactured goods, including armaments, textiles and fishery products. The CIA World Factbook estimates that North Korean imports totaled $2.8 billion in 2004 (the most recent year for which figures are available). North Korea ’s leading sources of imports in 2004 were China (45.6 percent), South Korea (20.2 percent) and Japan (12.9 percent).
Based on U.S. Census Bureau statistics, total U.S. exports to North Korea , although far below the levels of other countries, generally increased with the signing of the U.S.-North Korea Agreed Framework in October 1994. Exports rose from only $179,730 in 1994 to between $3 and $4 million annually from 1995 through 1998. In 1999, U.S. exports to North Korea nearly tripled to $11.3 million. However, in 2000, U.S. exports dropped to $2.7 million and in 2001, the value of U.S. exports was only $650,000. In 2002, U.S. exports to North Korea increased to $25 million, the vast majority (95%) of which was agricultural products. In 2003, the level of exports dropped to $8.0 million with agricultural products again comprising the majority of exports (80%), followed by pharmaceutical preparations (16%). In 2004, the level of exports rose to $23.8 million with corn and wheat accounting for over half of total exports, followed by unmanufactured agricultural industry products and other foodstuffs. Agricultural products as a whole accounted for 99% of total U.S. exports to North Korea in 2004. In 2005 (the most recent year available), the value of U.S. exports to North Korea was $5.8 million. As in previous years, exports were comprised primarily of agricultural products (98%), mainly wheat, soybeans and vegetables. The remaining 2% was comprised of finished textile supplies valued at $100,000.
SOURCE: U.S. Census Bureau, Foreign Trade Division, Data Dissemination Branch, Washington , D.C. 20233
Export license applications approved by the U.S. Government for North Korea increased from six licenses in Fiscal Year (FY) 1994 to an annual average of 38 licenses in FY 1995-1999 (see Table 2). However, since Fiscal Year 2000, the Department has approved less than 10 licenses per year. In 2006, BIS approved one license valued at $217,519, rejected one license worth $126,430, and returned nine licenses with a total value of $292,197 without action.
On September 17, 1999 , as a result of North Korea ’s actions at that time, President Clinton announced a decision to ease sanctions maintained against North Korea . Implemented in June 2000, the new policy made most U.S. consumer goods, including humanitarian goods and low-level consumer items, eligible for export without a license to North Korea . This change helps to account for the decline in license applications for North Korea since Fiscal Year 2000. The small size of North Korea ’s economy and its refusal to comply with its obligations to the international community, specifically on its nuclear and missile programs – coupled with the accompanying deterrent effect – account for the low number of license applications in recent years. The one license that the Department authorized during 2006 was for items destined for use in the Kaesong Industrial Park .
Number of Applications
Total Value in U.S. Dollars
5. Effective Enforcement of Controls. The Secretary has determined the United States has the ability to effectively enforce these controls. Because of the well-publicized involvement of these countries in acts of international terrorism, there is public knowledge of and support for U.S. controls, which facilitates enforcement. The large number of items exported in normal trade to other countries, including some aircraft items and consumer goods that have many producers and end-users around the world, creates innumerable procurement opportunities for brokers, agents, and front companies working for these countries. In addition, differences in export laws and standards of evidence for violations complicate law enforcement cooperation between countries.
Nonetheless, the overriding foreign policy objective of maintaining these controls outweighs the difficulties of effective enforcement. The Department of Commerce views these controls as a key enforcement priority, and uses regular outreach efforts and other programs to keep businesses informed of concerns, gather leads on activities of concern, and conduct sentinel visits to verify end-use and end-users of U.S. commodities. The Department is moving to implement a strong program to address procurement by or for designated terrorist-supporting countries. This program includes enhanced agent training, development of a targeted outreach program to familiarize U.S. businesses with concerns, and close cooperation with lead agencies working on terrorism issues.
In 2006, BIS completed administrative cases against six respondents involved in a conspiracy to ship Aflatoxins and Staphloccocyl Enterotoxins to North Korea via Netherlands without the required Department of Commerce licenses. Kakade Gnaneshwar Rao (K.G. Rao) of Orcas International Inc.( Flanders , New Jersey ) conspired with Kakade Vishwanath Rao (K.V. Rao) of Dolphin International, Ltd ( New Delhi India ) and Kailash Muttreja of Mutco International ( Amsterdam , Netherlands ) were all part of this conspiracy. Orcas and K.G. Rao agreed, on a joint and several basis, to pay $19,800 administrative fine and to accept a four-year denials of export privileges limited to items on the Commerce Control List. K.V. Rao and Dolphin agreed, on a joint and several basis, to pay a $22,000 administrative fine and to accept a standard four year-denial of export privileges. BIS also imposed six year denial orders on both Kailash Muttreja and Mutco International for their role in engaging in the conspiracy and in soliciting the exports described above.
In an October 23, 2006 , Federal Register notice (71 FR 62065), the Department of Commerce solicited comments from industry on the effectiveness of U.S. foreign policy-based export controls. In addition, comments were solicited from the public via the BIS website. Comments from the Department’s six Technical Advisory Committees and the President’s Export Council Subcommittee on Export Administration are solicited on an ongoing basis and are not specific to this report. The comment period closed on November 22, 2006 , and three comments were received. A detailed review of all public comments received can be found in Appendix I.
The United States continues to consult with a number of countries, both on a bilateral and a multilateral basis, on activities of designated terrorist-supporting countries. In general, most countries are supportive of U.S. anti-terrorism efforts but do not implement export control programs similar to that of the United States .
The United States consults on an ongoing basis with other countries regarding Libya ’s change in policy as well as the remaining concerns about Libyan behavior. The United States also has extensive bilateral discussions with Libya on a broad array of issues . The Department of Statehas the lead in ongoing discussions with other countries to coordinate a common approach that will affect foreign availability of controlled items.
The United States is consulting with other United Nations member states as well as with its allies regarding implementation of UNSCR 1718.
Previously, in December 2002, the United States and its partners in the NSG drafted a “Watch List” of items not currently controlled by the NSG, in response to disclosures regarding North Korea ’s nuclear program. These items do not meet the licensing threshold of the NSG export control regime; however, these items may make a material contribution to nuclear activities of concern. Many of the items on the “Watch List” are already controlled by the U.S. Government unilaterally for anti-terrorism reasons. Although the expanded “Watch List” is not intended to be the basis of expanded NSG controls, it has increased the scrutiny by our NSG partners of proposed exports of items that are not NSG-controlled but that the United States controls for anti-terrorism reasons. On December 1, 2003 , KEDO’s Executive Board suspended the North Korean light water reactor program for a period of one year in response to North Korea ’s nuclear activities. In May 2006 KEDO officially terminated the LWR project as a result of North Korea ’s failure to perform the steps that were required in the agreement and other actions in opposition to KEDO’s goal, such as withdrawing from the Nuclear Nonproliferation Treaty, expelling IAEA inspectors, and restarting its nuclear program.
The United States has taken a wide range of diplomatic, political, and security-related steps, in addition to economic measures such as export controls, to persuade certain countries to stop their support for terrorist activities. The methods that the United States uses against a country, terrorist organization, or individual vary and are dictated by the circumstances prevailing at any given time. In general, the United States believes that maintenance of AT controls is an appropriate method to demonstrate the obligation of each of the designated terrorist-supporting countries to act against terrorist elements within their jurisdiction or control.
7 Provisions pertaining to foreign availability do not apply to export controls in effect before July 12, 1985, under sections 6(i) (International Obligations), 6(j) (Countries Supporting International Terrorism), and 6(n) (Crime Control Instruments). See the Export Administration Amendments Act of 1985, Public Law 99-64, section 108(g)(2), Stat. 120, 134-35. Moreover, sections 6(i), 6(j), and 6(n) require that controls be implemented under certain conditions without consideration of foreign availability.