Where Industry and Security Intersect
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The Clinton Administration continued to make progress in eliminating unnecessary and ineffective export controls and streamlining the export control process. It simultaneously strengthened the implementation and enforcement of those export controls which are still required to combat proliferation and protect other U.S. national security and foreign policy interests while easing or eliminating unnecessary controls. These actions have greatly reduced obstacles for exporters while maintaining our security interests.
BXA made a number of regulatory changes during FY 2000. Rules were published which implemented the Administration's new approach to encryption export controls, removed 51 Indian entities from the Entity List and revised the license review policy for items classified as EAR99 to Indian and Pakistani entities from a presumption of denial to one of approval. BXA published other rules that liberalized controls on exports of High Performance Computers (HPCs) and implemented the President's announcement easing sanctions on North Korea.
Other regulatory actions included raising the performance level of microprocessors that can be exported under a license exception to civil end-users in the former East Bloc countries and the People's Republic of China, and expanding controls on restraint devices and other police equipment and modifying the review policy on crime control items to include consideration of whether there is civil disorder in the country or region or whether there is evidence that the government of the importing country may have violated internationally recognized human rights.
On January 14, 2000, BXA published regulations implementing the Administration's September 16, 1999, announcement to simplify the export of cryptography. The U.S. encryption policy rests on three tenets: a review of encryption products in advance of sale; a streamlined post-export reporting system; and a license process that preserves the United States government's ability to review the proposed sale of strong encryption to foreign governments, military organizations, and nations of concern. Just as the market for information security products has grown and changed, this policy continues to evolve, consistent with the national interest in areas such as electronic commerce, national security, and support to law enforcement.
On July 17, 2000, the Administration announced further modifications to U.S. encryption controls to track with regulations adopted by the European Union. The most significant change is that U.S. companies are now able to export encryption products and technology under license exception to any end user in the 15 nations of the European Union as well as Australia, the Czech Republic, Hungary, Japan, New Zealand, Norway, Poland, and Switzerland immediately upon notifying BXA of intent to export. Companies will no longer need to wait thirty days before exporting to these destinations.
U.S. encryption policy reflects active participation with other nations, such as members of the Wassenaar Arrangement. In December 1998, Wassenaar Arrangement members agreed to move encryption items from the Sensitive List to the Basic List, and to make other revisions to encryption controls. This agreement was the culmination of a two-year effort to modernize and improve multilateral export controls on encryption. The January and October 2000 U.S. regulations implement this agreement. For example, 64-bit mass market encryption products, which previously required a prior review, can now be exported immediately.
On October 21, 1998, the United States enacted Chemical Weapons Convention (CWC) implementing legislation. BXA is implementing the Commerce Department's lead agency responsibilities for compiling data declarations and hosting Organization for the Prohibition of Chemical Weapons (OPCW) inspections at U.S. companies covered by the CWC. To fulfill its responsibilities under the treaty, BXA published proposed regulations and is published interim regulations on December 30, 1999. BXA completed the creation of an information management system to comply with the treaty's reporting requirements, and held a series of eight outreach seminars around the country. It received and verified 3,075 declarations and reports from 319 chemical companies representing more than 750 plant sites, and submitted this information to the OPCW.
BXA is also responsible for managing international inspections at U.S. commercial facilities, which are selected from the data submitted to the OPCW. The first OPCW inspection was held in May, followed by an additional 10 inspections in the remaining months of FY 2000.
The Administration continued to work with interested parties toward achieving meaningful sanctions reform. The Administration remained committed to a carefully targeted sanctions policy that advances U.S. foreign policy goals and avoids damaging other U.S. interests. BXA participated in Departmental and interagency working groups which reviewed sanction reforms and legislation and developed proposals to rationalize the process.
On March 17, 2000, BXA published implementing regulations that removed 51 Indian entities from the Entity List, and revised the licensing policy from a presumption of denial for EAR99 items to one of approval. On June 19, 2000, BXA issued a new regulation implementing the President's decision to ease sanctions on North Korea. Under this new policy, most items subject to the Export Administration Regulations designated as EAR99 may be exported or reexported to North Korea without a license.
On October 28, 2000, the President signed the Agriculture Rural Development, Food and Drug Administration, and Related Agencies Appropriation Act of 2001 which included Title IX, the Trade Sanctions Reform and Export Enhancement Act. In general, this Act requires the President to lift all U.S. unilateral sanctions on food and medicine to most destinations worldwide and to allow the export of food and medicine to certain designated terrorist supporting countries under license exception. This change reflects the desire of Congress to expand potential markets for the U.S. agriculture industry and to stop the use of food and medicine as a sanction tool. Implementing regulations must be published by February 25, 2001.
As part of the President's commitment to review HPC export control policy every six months, on February 1, 2000, and again on August 3, 2000, President Clinton unveiled modified export controls on HPCs. These policy revisions include changes critical to maintaining the strong, vibrant high-technology industry, which is critical to America's national security interests. The changes ensure a realistic export control regime in this rapidly-changing high-technology industry.
Continuing this approach only serves to further handicap our industry's ability to maintain its global leadership at a time when foreign production capabilities are rapidly expanding. Keeping the U.S. industry at the cutting edge of technology developments in this sector is important not only for economic reasons but because it is essential if we are to maintain our military lead as weapons systems and defense strategies because increasingly depend on high performance computers.
Export controls on high performance computers (HPCs) will continue to be a high priority as improvements in computer technology continue to enhance system performance. In an effort to avoid the continuous review cycles the rapid pace of technology demands and capture only computers of true significance to our national security, the Administration is currently studying alternative control metrics to Composite Theoretical Performance (CTP.)
BXA requires U.S. companies and other organizations to obtain prior approval before foreign nationals from certain countries are allowed to work on projects involving controlled technology. An export license is required because the EAR treats any release of controlled technology or software source code to a foreign national as a "deemed export" to the home country. BXA reviews license applications under the licensing policies that apply to the actual export of the technology or software in question to the home country or countries of the foreign national. The "deemed export" rule is most often encountered in the employment context where a company will release controlled technology or software to a foreign national.
During FY 2000, BXA processed 971 "deemed export" cases, slightly less than the 1,000 cases processed during FY 1999. During this period, the license application processing time continued to be 55-60 days. In FY 2000, BXA established a pilot program to speed up the "deemed export" license process. Under this program, companies that hire a stream of foreign technical staff can obtain a one-time approval for the technology proposed for transfer. After the interagency community authorizes the technology for export, additional staff can be added to the Deemed Export License (DEL) by amendment, subject to referral to the intelligence community.
BXA continues to work to harmonize multilateral lists and list interpretations to increase transparency and consistency and to maintain a level playing field for U.S. companies.
In April and September 2000, BXA representatives attended Expert Group Meetings to review the Wassenaar Arrangement's controls on conventional arms and dual-use goods and technologies. Nearly 70 proposals were discussed to modify and streamline Wassenaar's Dual-Use and Munitions Lists, approximately 30 of which were submitted by the United States. The majority of the proposals were in the areas of electronics, computers, sensors and machine tools. Agreement was reached on a number of proposals for liberalization in the areas of electronics and sensors.
BXA representatives attended the Third Annual Licensing and Enforcement Officers Meeting (LEOM) in April 2000. The meeting was designed to exchange information on national practices of respective licensing and enforcement procedures. Discussions focused on fifteen Plenary Mandated agenda items, including intangible transfers of technology and software, catch-all controls, elements of effective enforcement and International Import Certificates. Further discussion of these issues will continue in FY 2001..
In May and October 2000, a BXA representative participated at the Wassenaar Arrangement's General Working Group Meetings. The General Working Group addressed ways of reinforcing the general information exchange, outreach activities and procedures, general information exchange regarding regions and projects of concern, specific information exchange on dual-use goods and technologies, and scope of dual-use notification procedures.
The Nuclear Suppliers Group (NSG) held its annual Plenary session in Paris, France, on June 19-24, 2000. Three new countries were welcomed -- Belarus, Turkey, and Cyprus -- as NSG members. It was proposed that the administrative structure of the NSG be streamlined, easing the application process for future new members. The NSG agreed that the United States will
host the 2001 Plenary in Aspen, Colorado, when the United States will take over the chairmanship of the NSG.
The annual Missile Technology Control Regime (MTCR) Plenary and Technical Experts Meeting (TEM) were held in Noordwijk, Netherlands, on October 11-15, 1999. In the information exchange portion of the Plenary, sixteen MTCR members actively participated in sharing information on non-MTCR partner missile programs that constitute serious missile proliferation threats. The information exchange highlighted the need for a global approach to missile nonproliferation, and gave impetus to consideration of an expansive outreach initiative to nonmember countries focused on missile nonproliferation.
At the TEM, the MTCR agreed to relax controls on aluminum powder and other metal powders used as fuel in solid rocket motors, reducing the number of license applications submitted to the Department for metal fuels. Special dual use items for chemical/biological weapons delivery systems were also identified that could be added to the MTCR Equipment and Technology Annex in the future.
The proposal first raised at the TEM meeting in September, to reformat the MTCR Equipment Annex into larger categories based on the newly reformatted Annex structure, was reviewed and action on the proposal tabled for further discussion.
An MTCR seminar was held in Munich, Germany on May 24-26, 2000, to discuss possible measures to reduce the regional and global security risks involved with specific proliferation cases, the further elimination of existing missile stockpiles and the curtailment of indigenous missile development programs, and the establishment of norms to govern the production, testing, deployment and export of missiles and related technology. First raised at the Plenary in 1999, the proposed parameters of this "Global Action Plan" were briefly outlined.
The MTCR held an intercessional Technical Experts Meeting (TEM) in Berlin, Germany, on July 4-6. The TEM, at which proposals on technical changes to the MTCR Annex are reviewed and prepared for consideration by the full MTCR membership, considered a proposal tabled by the United States that would expand controls on small fuel efficient engines and integrated navigation systems used in unmanned air vehicles that can become potential delivery vehicles for chemical and biological agents.
Regulations implementing the decisions reached at the Australia Group (AG) Plenary in October 1999 were published in FY 2000 as part of the EAR. The new regulations adjust the specifications of some controlled items to narrow controls that previously caught more than was necessary to accommodate nonproliferation concerns; clarify the application of the rule for mixtures containing AG chemicals that are also identified as Chemical Weapons Convention Schedule 1 chemicals; and add two new corrosion-resistant materials to the control list of substances used to construct heat exchangers that are also controlled by the AG. The U.S. delegation to the AG also took the opportunity offered by the Plenary to present U.S. positions in support of the strengthening of export controls on graphite composite chemical manufacturing equipment, centrifugal separators, and impermeable protective suits.
The AG maintains a denial notification procedure by which members agree to notify the group when a license for a controlled item is denied. This procedure is coupled with a "no undercut policy" whereby members agree not to approve an identical sale without first consulting the member issuing the denial notification. This process helps to prevent the undercutting of a member's denial.
The AG continues to consider potential new members. The group engages in a wide range of contacts to promote greater awareness and understanding of the important role that national export licensing measures play in preventing the proliferation of chemical and biological weapons. These activities include a program of regional seminars and briefings for nonparticipating countries on export licensing practices.
BXA is responsible for preparing an annual report to Congress on offsets in defense trade. Offsets are mandatory compensation required by foreign governments when purchasing U.S. defense systems; they include technology transfer, licensing coproduction agreements, and counter trade. In this report, BXA assesses the impact of offsets on the U.S. defense industrial base, in particular on small- and medium-sized subcontractors. BXA will submit its fifth report to Congress in early fiscal year 2001.
For the second time, BXA raised offsets as a trade concern in the U.S. Trade Representative's (USTR) Title VII Report on Unfair Foreign Government Procurement Practices. The report alerted governments around the world that the United States is seeking a way to conduct defense trade without offsets.
In the last fiscal year, BXA built on the steps taken in FY 1999 in the area of international consultations. BXA participates in a Department of Defense-led Interagency Offsets Working Group. The Group has continued negotiations on both a multilateral and bilateral basis. Important steps have been taken to address the issue with our European allies, since they are our largest defense trade partners and demand the highest offsets.
BXA continues its role as an advocate of certain international defense trade advocacy issues. The Department will consider supporting conventional arms transfers if the transfer is in the economic interests of the United States, and the U.S. Government has determined that the transfer will further U.S. national security and foreign policy objectives. In FY 2000, BXA defense advocacy efforts supported sales of approximately $800 million, mainly through the sale of the AEGIS system to the Norwegian Navy. BXA worked with the U.S. Commercial Service to develop the first trade mission for the U.S. defense industry to Belgium, Netherlands and Luxembourg. In addition, BXA assisted in the creation of the France - U.S. Defense Industry Business Forum, an event that brought small- and medium-size U.S. and French firms together in an effort to facilitate transatlantic industrial links.
BXA continues its commitment to provide the business community with information regarding the constant changes in export policy and licensing procedures, through counseling, seminars, and workshops. In FY 2000 BXA hosted 43 export compliance seminars and held its 13th annual Update Conference on Export Controls and Licensing that attracted 815 representatives from the exporting community around the globe.
The popularity of the on-line Simplified Network Application Process (SNAP) system grew substantially in FY 2000. SNAP is a Web-based system that allows exporters to submit export and re-export license applications, high performance computer notices, and commodity classification requests directly to BXA through a secure environment via the Internet. As more and more exporters gravitate to SNAP, we have seen a gradual decrease in the number of applications submitted electronically using the Export License Application and Information Network (ELAIN). We have also experienced a marked decline in the receipt of paper applications. SNAP submissions represented 77 percent of all received electronic submissions and 61 percent of all received applications (paper and electronic) during the fiscal year.
During FY 2000, BXA was involved in four major industrial base projects. All four will be completed by the end of calendar year 2000 or in early 2001. BXA completed its research on a Navy-sponsored assessment of high performance explosives. It continued its assessments of the U.S. maritime industry, requested by the U.S. Navy, and of assistive technologies (technologies that enable persons with disabilities to function more fully), a study requested by the Department of Education and the Federal Laboratory Consortium. BXA also neared completion of its assessment of the U.S. cartridge and propellant actuated device (CAD/PAD) industry at the request of the U.S. Navy.
BXA's Export Administration (EA) comprises four offices under the Office of the Assistant Secretary. Two EA offices have responsibility for addressing a wide range of export control policy and licensing activities, including dual-use nuclear and missile goods and technologies; dual-use chemical and biological goods and technologies; and commercial encryption policy, dual-use goods and technologies related to conventional arms, certain other sensitive dual-use goods and technologies, and foreign policy controls. EA also has an office that focuses on strategic industries and economic security issues, and an office that focuses on EA's administrative, education, and compliance responsibilities. This organizational structure allows BXA to formulate and implement timely policy changes, undertake quality analysis of licensing decisions, focus on issues of international competitiveness, and provide increased customer service.
The Office of Strategic Trade and Foreign Policy Controls (STFPC) is responsible for implementing multilateral export controls under the Wassenaar Arrangement, which deals with conventional arms and related dual-use goods and technology. The office is responsible for policy pertaining to and licensing of encryption and high performance computer exports. STFPC also has the lead for policy issues involving countries like China and India, for unilateral and UN sanctions, and for export controls maintained for antiterrorism, regional stability, and crime control reasons.
The Office of Nonproliferation and Treaty Compliance (NPTC) was created during FY 2000. It consists of two former offices, the Office of Nuclear and Missile Technology Controls (NMT), and the Office of Chemical and Biological Controls and Treaty Compliance (CBCTC), that were merged. NPTC has overall responsibility for administering export controls and policy development relating to the Australia Group (e.g., chemical weapons precursors and biological agents), the Nuclear Suppliers Group, and the Missile Technology Control Regime. The office has the major role of overseeing compliance by U.S. industry with the requirements of the Chemical Weapons Convention. The office also carries out the provisions governing deemed exports and executes BXA responsibilities in furtherance of its controls on exports for short supply reasons.
The Office of Strategic Industries and Economic Security (SIES) is the focal point within the Commerce Department for issues relating to the health and competitiveness of the U.S. defense industrial base. As such, SIES plays a leadership role in a wide range of issues that relate to both the national and economic security of the United States. Its efforts include assisting American companies to diversify from defense to commercial production and markets, promoting the sale of U.S. weapons systems to our allies, analyzing the impact of export controls on key industrial sectors, and conducting primary research and analysis on critical technologies and defense-related sectors.
The Office of Exporter Services (OEXS) is responsible for counseling exporters, conducting export control seminars; and developing, drafting, and publishing changes to the EAR. It develops brochures and other written guidance to educate and train exporters, and to ensure compliance with the EAR. It is also responsible for compliance actions relating to the special comprehensive license, for administering the processing of license applications, commodity classifications, and advisory opinions, and for implementing the End-User Verification process through which U.S. exporters are informed of foreign entities of proliferation concern.
In FY 2000, BXA's Office of Export Enforcement (OEE) and the Office of Enforcement Analysis (OEA) continued their programs to prevent and investigate dual-use export control violations and thereby protect important national security and foreign policy interests safeguarded by the Export Administration Act (EAA) and Export Administration Regulations (EAR). Additionally, Export Enforcement's Office of Antiboycott Compliance continued to administer and implement the antiboycott policy and program articulated in Section 8 of the EAA.
During FY 2000, $1,107,500 in civil penalties and $694,300 in criminal fines were imposed for export control violations of the EAA and EAR. A total of $164,000 in civil penalties for antiboycott violations of the EAA and EAR was imposed.
OEE conducted numerous investigations, some of which led to both criminal and administrative sanctions. It also issued 192 warning letters in cases of minor violations, informing the recipients that OEE had reason to believe they had violated the EAR, and that increased compliance efforts were warranted.
The Office of Antiboycott Compliance (OAC) is responsible for implementing the antiboycott provisions of the Export Administration Act (EAA) and the Export Administration Regulations (EAR). The Office performs three main functions: enforcing the antiboycott provisions of the EAR, assisting the public in complying with the antiboycott provisions of the EAR, and compiling and analyzing information regarding international boycotts. Ten enforcement actions were completed in FY 2000. All 10 were settlement agreements. Additionally, eight investigative cases were closed because violations were not found.
BXA established the Nonproliferation and Export Control (NEC) International Cooperation team in early 1994 to coordinate BXA's activities in support of U.S. export control cooperative programs with Russia, Ukraine, Kazakhstan and Belarus, and the Central Asian, Caucasian, Baltic, and Central European states.
During FY 2000, the NEC team, in conjunction with BXA organizations and other representatives from the U.S. government, hosted, coordinated, sponsored or participated in 47 technical exchange workshops, multilateral events, and related activities. These activities included cooperative bilateral workshops with Armenia, Azerbaijan, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Lithuania, Moldova, Poland, Russia, Slovakia, Slovenia, Tajikistan, Ukraine, and Uzbekistan. The NEC team conducted two major multilateral regional conferences, one for the nations of Central Asia and the Caucasus region, and the other for the nations of Europe and North America, participated in a third, for South Central Europe, and presented a forum on legal and enforcement transshipment issues for Cyprus and Malta.
In April of 2002 the Bureau of Export Administration (BXA) changed its name to the Bureau of Industry and Security(BIS). For historical purposes we have not changed the references to BXA in the legacy documents found in the Archived Press and Public Information.