Chairman Hyde, Congressman Lantos, and Members of the Committee:
Thank you for the opportunity to testify about export controls and the proposed Export Administration Act of 2001, now pending in the Senate.
The Administration believes that an effective export control system is important to our national and economic security. It is critical that we protect this country's national security by ensuring that our sensitive goods and technologies do not fall into the wrong hands. Equally important is an export control system that affords business the opportunity to compete effectively in today's increasingly competitive global marketplace. It is essential to the health of our nation's industrial and technological base that U.S. companies be able to export their goods, services, and technology without being hindered by arbitrary and unnecessary regulation. The challenge for all of us -- in government and in the private sector -- is to have a tough-minded, yet common-sense export control regime that strikes the proper balance between sharing our technology with friends and protecting against the transfer of sensitive technology to potential adversaries.
In my remarks today, I first will discuss the elements necessary for an effective export control system. I then will address the need for a new Export Administration Act. Finally, I will explain why the Administration strongly supports S. 149 -- the Export Administration Act of 2001.
An effective export control system is essential for national and economic security. We must ensure that our adversaries, or potential adversaries, do not obtain goods or technologies that could be used for weapons that might ultimately be directed against us. Given my own background, which includes almost four years at the U.S. Department of State, I can assure you that I fully appreciate the critical importance of protecting this country's national security.
At the same time, we also must ensure that U.S. exporters are not arbitrarily excluded from foreign markets. The ability of many U.S. exporters to produce state-of-the-art goods and technologies for our national security is in part dependent on the revenue stream they can generate from export sales. Indeed, America's economic well-being increasingly depends on exports.
To protect national security, an effective system should provide for controls on the export of goods and technologies that could make a significant contribution to conventional arms or weapons of mass destruction. An effective system also should provide for the control of goods and technologies to further foreign policy objectives, such as the promotion of human rights. In addition, an effective system must provide adequate opportunity for those agencies with national security and foreign policy expertise to review and comment upon proposed exports of controlled items.
Export controls are most effective, of course, when they are implemented in concert with the controls of other supplier nations. To this end, the majority of the items subject to export controls in the United States are controlled by most of the other supplier nations through the four multilateral export control regimes -- the Wassenaar Arrangement (which relates to arms and dual-use items useful for conventional arms purposes); the Nuclear Suppliers Group; the Missile Technology Control Regime; and the Australia Group (which relates to items useful for chemical and biological weapons). These four regimes form the multilateral basis for export controls, and they are an important element for effective nonproliferation. One of my priorities on behalf of the Administration will be to work closely with our allies and regime partners in further developing multilateral cooperation and strengthening the contribution of these regimes to our nonproliferation goals.
Another element of an effective system is vigorous enforcement. There must be sufficient authority to conduct a wide range of enforcement activities, and penalties should be set at a level high enough to appropriately punish violators and deter would-be violators.
Control authority and vigorous enforcement alone, however, are not sufficient for an effective system. The cooperation of exporters also is essential. It is incumbent upon the government to create a system that is rational and transparent, so that exporters can comply with it. The system should not adversely affect U.S. companies from competing equally with their foreign competitors, unless there is an overriding national security or foreign policy interest at stake. The system also should be predictable, so that exporters can safely plan their business activities.
Having outlined what I believe to be the essential elements of an effective export control system, let me now explain why we need a new Export Administration Act.
We need a new Export Administration Act because the existing law -- the Export Administration Act of 1979 -- is significantly out of date. It is a Cold War statute that simply does not reflect current economic and political realities. The basic national security control authority of this law is predicated on the existence of a multilateral regime -- the Coordinating Committee on Multilateral Export Controls (CoCom) -- that ended seven years ago. In addition, the level of the penalties in the 1979 Act has been substantially eroded by inflation. Ideally, we rely on the deterrent effect of stiff penalties for export control violations. But under the 1979 Act, this deterrent effect has largely eroded, because the low level of penalties could be viewed merely as a cost of doing business.
If we do not pass a new Export Administration Act, it is possible that the 1979 Act will expire in August of this year without being renewed. Under those circumstances, we would operate our export control system under the International Emergency Economic Powers Act. Operating under this emergency authority raises an increasing number of legal and political complications. Moreover, operating under emergency authority sends the wrong message -- at home and abroad -- about our commitment to export controls. It is hard to persuade other countries about the importance of establishing a sound and workable export control system if we are unable to do that ourselves.
Enactment of a new Export Administration Act that reflects current global realities is thus imperative. Operating under either the 1979 Act or the authority of the International Emergency Economic Powers Act is simply not appropriate. As you know, the Administration carefully reviewed S. 149. As a result of its review, the Administration proposed a number of changes to the bill, which the Secretaries of State, Defense, and Commerce, and the National Security Advisor agreed would strengthen the President's national security and foreign policy authorities to control dual-use exports in a balanced manner. The Administration's proposed changes were incorporated into S. 149 and, as a result, the Administration strongly supports the legislation now pending in the Senate. Recently, in a speech to the Electronics Industries Alliance, the President reiterated his Administration's "strong support" for S. 149. He added that "[i]t's time to pass it [in] the House, so I can sign it into law."
The Administration believes S. 149 provides appropriate authorities to address two major interests -- the protection of U.S. national security and foreign policy interests, and the promotion of U.S. trade and industry. The bill eliminates the Cold War structure of the existing law and provides greater opportunities for exporters to seek revision of ineffective controls.
Contrary to the impression that some may have, it is important to note that S. 149 gives the President broad authority to protect national security. For example, S. 149 authorizes national security controls for three distinct purposes:
In addition, S. 149 provides, for the first time in explicit statutory provisions, several additional important authorities. One such authority is known as "catch-all controls." Catch-all controls ensure that items otherwise uncontrolled are not exported to weapons of mass destruction programs.
Another such authority is known as "enhanced controls." Enhanced controls allow the President to exempt, for reasons of national security, items from the foreign availability, mass market, and parts and components provisions of the bill. Thus, the most sensitive items will not be subject to those provisions that would otherwise limit controls.
A third authority that appears for the first time in statute allows the President to continue indefinitely controls on the export of items found to be readily available from foreign sources if the United States has committed to control such items through one of the four multilateral export control regimes. This provision ensures that the most sensitive items -- those controlled by agreement with our allies in a multilateral forum -- will remain controlled.
The bill has other significant provisions that focus on national security. For example, the bill allows the President to continue indefinitely, for reasons of national security or adherence to multilateral regimes, controls on the export of items notwithstanding their mass market status. The bill also defines the term "export" so that it encompasses "deemed exports," thereby authorizing the continuation of existing controls on transfers of technology to foreign nationals in the United States. And the bill enhances the statutory role of the Department of Defense and other relevant departments in the export control process in several ways:
S. 149 also provides the authority necessary to further significant foreign policy interests. In this regard, the bill authorizes controls to promote international peace, stability, and respect for fundamental human rights. In addition, the bill provides for strict controls on exports that could assist terrorist countries.
S. 149 significantly raises the penalties for export control violations and contains other provisions that enhance the U.S. government's ability to enforce the law effectively. Higher penalties and increased enforcement authority will deter those who might otherwise endanger U.S. national security through illicit exports. For example, penalties on corporations are raised to $5 million per violation, or ten times the value of the export, whichever is greater. This represents a substantial increase over the current level of penalties. Criminal penalties on individuals are raised from $250,000 to $1 million, and civil penalties increase under the bill from $10,000 to $500,000. In addition, the Commerce Department is authorized to conduct undercover operations and station attachés abroad to ensure that U.S. items are not diverted.
The bill also contains many important features for exporters. First, it provides broad authorization for exporters to formally seek government review of items subject to control. It does this by creating foreign availability and mass market provisions. Under the foreign availability provision, an exporter can request that the U.S. government determine if a product is readily available to foreign countries from foreign sources. Under the mass market provision, an exporter can request that the U.S. government determine if a product is widely available and therefore cannot be effectively controlled for export. If the product is found to be readily available to foreign countries from sources outside the United States or if the product is found to be widely available in the United States, the government must remove controls on the product, unless doing so would be inconsistent with our international commitments, such as our commitments in the multilateral export control regimes, or threaten our national security.
A second important feature of the bill is its treatment of parts and components. The bill limits, with certain exceptions, controls on the export or reexport of dual-use parts and components incorporated into a final product based solely on the nature of the incorporated part or component. These provisions ensure that U.S. exports are not subject to more restrictive treatment than is necessary simply because they contain a controlled part. This also reduces the incentive for foreign producers to design products so as to omit U.S. components.
It is worth noting that the applicability of the mass market, foreign availability, and parts and components provisions is limited when national security concerns are raised. As I stated earlier, the President can exempt any item from these provisions by exercising his authority to invoke "enhanced controls." The President also can set aside for reasons of national security any mass market or foreign availability determination.
A third important feature of the bill is the time limit provision for government decisions. The bill requires decisions on license applications within 39 days of submission unless the application requires higher level review. Historically, only about 5 percent of license applications require such review. The bill also establishes short time limits for the government to respond to formal classification requests and opinions from exporters. Prompt responses are essential for doing business abroad.
In conclusion, we believe that S. 149 provides the authority necessary for an effective export control system. It provides broad control authority and appropriate enforcement authority in order to protect our national security. And it provides transparency, predictability, and time limits for the benefit of our exporters.
Passage of the Export Administration Act of 2001 is a vital step in the Administration's effort to meet the new challenges that today's global environment presents for U.S. national security and economic health. In particular, this legislation will help strengthen the Commerce Department's administration of national security and nonproliferation controls. My goal is to ensure that the United States has an effective and efficient export control system, and I look forward to working with the Committee on this important task.
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.