American Conference Institute Export Control Conference
May 15, 2007
Thank you for inviting me to address the American Conference Institute’s 10 th Conference on Export Controls. I need not convince anyone in this room of the dramatic economic, geopolitical, and technological changes that have occurred in the almost two decades since the end of the Cold War. Today, all of you do business in a rapidly changing world in which the global economy is becoming more closely linked. This process of globalization has changed the very way we operate, interact, and do business, and the impact on our way of life has been profound.
"Globalization" is a broad concept, and to understand how this process is bringing the global economy together, we need to look more deeply at the forces that are shaping our world. The process of globalization is generally made up of three changes.
First, the last three decades have witnessed an unprecedented increase in the cross-national flow of goods, services, investment, and technology. Today, we find Indian and Chinese entrepreneurs and engineers in America developing cutting-edge technologies, while American companies look abroad for software design and high-technology products. With the breakdown of trade and investment barriers, U.S. companies now have access to billions of new customers. At the same time, we face increasing competition from new competitors throughout the world, and U.S. firms face the ever-growing challenge of operating profitably in a competitive global market.
Second, the geopolitical landscape has changed dramatically since the end of the Cold War. The consequences of the fall of the Berlin Wall are still being felt today. Instead of being neatly divided between two opposing ideological blocs, the geopolitical landscape has grown complex and intertwined, with new threats emerging from what might have once been considered unlikely quarters.
Finally, we are witnessing an unprecedented technological revolution which continues to transform at a breathtaking pace the way people live, consume, and work. Every time it appears that we have reached a technological ceiling, the revolution moves into higher gear. Globalized technology ties are helping to drive this revolution.
These three profound changes have created historic and unprecedented opportunities, and countries around the world are reaping the benefits—with profound and positive impacts on their citizens. Three decades ago, China was largely cut off from the global trading system. Today, according to World Bank estimates, several hundred million people in China have been lifted out of poverty as that economy has opened to the outside world. Indeed, over the past four decades, the entire Asian region has experienced breathtaking growth and an unparalleled rise in living standards and wealth creation as a result of global trade and new, cutting-edge technologies.
America has also greatly benefited from globalization. In 2006, America exported a record $1.5 trillion worth of goods and services abroad, accounting for 11.1 percent of total GDP, twice the percentage of fifty years ago. Since 1994, exports have contributed to a 42 percent increase in real GDP and a 25 percent increase in real per capita incomes. The globalization of high-tech products has allowed American companies to reinvest savings in high-end research and development, further accelerating technological advances.
Adapting Export Controls to Address New Threats
But while the growing closeness and openness of the world has created historic opportunities for progress, they have also spawned threats from the darker side of globalization… international terrorism and the proliferation of weapons of mass destruction. National security policy and economic policies are becoming increasingly intertwined as the barriers to the flow of people, products, technology and information are broken down. As a consequence, policies once seen as primarily security-related, such as nonproliferation, now have important implications for economic policy as well. At the same time, issues that were normally viewed only through an economic lens—such as foreign direct investment and visa policy—increasingly have security implications.
Nowhere is this more evident than in the field of technology collaboration— America’s conduct in the areas of technology trade, research and development, and manufacturing with other countries. Advances in composite materials that can make commercial aircraft stronger and more fuel efficient, for example, could also end up making the fighter aircraft of potential adversaries more deadly. U.S. policy makers must strike the right balance of controls, incentives, and market-based policies to allow the United States to reap the benefits of technology collaboration while minimizing potential threats to national security and economic security. Effective export controls are critical to striking this delicate balance.
Today, a key issue we face is adapting our current export control system to the rapidly changing global landscape. During the Cold War, export controls were both broad and clearly focused: the United States and its European and Asian allies strictly controlled technology exports to the Soviet Union and the Warsaw Pact countries. Under the Coordinating Committee on Export Controls, or COCOM, end-use controls were country-based, with a general consensus that advanced economies would deny most technology exports to the Communist countries. The system worked. America and its allies were generally able to deny the Soviet Bloc key technologies for economic, technological, and military development. While not a primary cause of the collapse of the Soviet Bloc, export controls undoubtedly were an important and effective tool in impeding communist economic and military development.
Today, however, we are left with an export control system that was designed for the Cold War but must now address the complex and changing world that I described earlier; we continue to base controls primarily on countries or nationality when our greatest threats are from non-state organizations and terrorists who may hold passports from friendly nations. So the key challenge we have is how to reform controls to reflect the world today. To this end, export controls must move away from the broad, country-based approach of the Cold War and must now be targeted at sub-state actors who could acquire sensitive technology and use it to do us harm. In today’s world, terrorists and proliferators do not wear uniforms, do not advertise their intentions, and do not restrict their quest for deadly weapons conveniently within the borders of a single state. That is why the Commerce Department is moving to make changes in export controls that will tell exporters much more about who the reliable customers are, and who the suspect customers are as well. Our new validated end-user, or Trusted Customer, program will soon be launched to facilitate exports to legitimate civilian end-users in China, and other eligible countries are likely to soon follow. At the same time, we will take steps to expand the criteria of the Entity List to impose license restrictions on bad actors, and will continue to identify companies of potential diversion risk who have not been verified through recent end-user checks.
We must take these steps to re-focus export controls on individual companies, because the implications of sub-state groups acquiring sensitive technology to use in weapons of mass destruction are severe. As President Bush wrote in his introduction to the 2002 National Security Strategy of the United States, “The gravest threat our nation faces lies at the crossroads of radicalism and technology. The ability of a terrorist group to acquire Weapons of Mass Destruction will determine the future of our global prosperity.”
We should never underestimate the threat to our well-being. The economic and trade impacts of the September 11 attacks were immediate and significant for the entire global economy and trading systems. In the week after the American stock market opened on September 17, 2001, the Dow Jones Industrial Average declined by 14.3 percent. U.S. stocks lost a total of $1.2 trillion, sending shock waves through global markets with the resulting loss of trillions of dollars in wealth. Economic sectors throughout the world—such as airlines, insurance companies, and financial trading—were immediately affected. The negative impact spilled over to other sectors, such as manufacturing, retail, and technology. Those economies dependent on export-led growth were hit hard by the fall in demand in the United States and around the world.
Now imagine the impact had a weapon of mass destruction been involved. The immediate and long-term economic impact is almost impossible to calculate. Export controls, then, are critical to ensuring that terrorists do not acquire the means to produce and deliver WMDs and destroy the very economic and political fabric of our country and global economic system.
Equally important, export controls must also take into account our complex relationships with emerging powers and economies. Nowhere is this more evident than in the case of China. As President Bush and others have made clear, the United States welcomes the growth of a peaceful and prosperous China, and our policy is to encourage China to become a responsible stakeholder in the international system that has enabled its success. This means working to expand and promote trade and peaceful development, even as we also prudently hedge against the uncertainties of that country’s rapid military buildup. Our export controls must reflect the duality inherent in this policy and must distinguish between different kinds of customers within a large and diverse economy.
Reform, then, is key to addressing the opportunities and challenges of the 21 st century. Any serious reform must involve three important constituencies: Congress, the executive branch, and the private sector. Each has an important and legitimate voice in technology controls, and all must unify around a common vision of the threat and the solution.
In the short-term, we must pass the Export Enforcement Act of 2007, a measure sent to Congress recently by the Administration. While not a long-term solution to comprehensive reform, this measure will put our export controls on a more solid legal foundation by renewing the old EAA, while also increasing the ability of our enforcement agents to investigate and prosecute serious export enforcement violations. Current enforcement authorities and penalties under the International Emergency Powers Act are not as strong as those afforded in the EAA. As a result, export control investigations are severely hampered, and prosecutors are sometimes reluctant to bring criminal indictments for export control violations, given the complex web of authorities for current export control regulations. In addition, the ability of the United States to lead other countries to adopt comprehensive export control legislation, as called for by United Nations Security Council Resolution 1540, would be bolstered by a current EAA in effect.
The Administration recognizes, however, that EAA renewal is not a substitute for long-term reform and is already working with the private sector and with Congress to craft an export control system for the 21 st century. Indeed, now is the time to begin the process of defining a new system of technology controls that enjoys broad support. We at the Commerce Department welcomed the recent administrative suggestions from the Coalition for Security and Competitiveness, and are working to implement some of them. One example is the new Validated End-User, or Trusted Customer, program, which the Coalition and others have called on us to create. Initially to be launched for China, this program will provide a market-based incentive for good export control behavior by Chinese customers engaged in civilian business. It will, to put it simply, remove individual license requirements for companies that have a good track record as responsible civilian customers. This will free up Commerce Department resources to focus on the more difficult and sensitive cases, while facilitating legitimate civilian trade with China.
Building consensus around a new system will be difficult. But a more focused, customer-based system tailored to new threats and based on common interests could enhance security for the United States and the world. The task is complex, but I am confident that working together, we will be able to develop technology controls that will meet the security needs and economic imperatives of the 21 st Century. Globalization simply will not wait.