Most of you are aware that the Bureau of Export Administration has faced more than the usual array of issues and distractions that competed for our attention over the past year. You also know that the distractions -- particularly the numerous Congressional investigations and the literally hundreds of thousands of pieces of paper and man hours they required -- have had a negative impact on our ability to be responsive to you, our customers. Those demands brought us close to a standstill at times during the year. Just last week, we were closed for a day to respond to a court order for more documents. Average license processing times have increased -- from 33 days last year, to 38 days this year. But average processing times for China, Russia, and India -- the most sensitive and difficult licensing destinations these days -- were 52, 51, and 48 days, respectively. The number of cases escalated to the Operating Committee and the ACEP have increased sharply, causing more cases to be held beyond the statutory time targets. The better news, however, is that despite these distractions and delays, with your patience and responsiveness to our increasing requests for more information, we were able to keep the overall rate of denials steady at about 3%, although I expect a rather sharp increase in that number in 1999 mostly because of the India-Pakistan sanctions. So far this year, our denial rate is running at about six percent.
Looking over the numbers a bit further, in FY 98 we received 10,696 applications valued at $17.5 billion (a slight decrease from FY97 when we received about 11,400 applications). Eighty-six percent of license applications were referred for interagency review, a decrease from the year before, but those numbers are on the rise again in FY99. The ebb and flow of these figures reflect the ever changing landscape of export controls. However, one thing that is certain is that we will continue to have important policy matters to work together on -- and more changes in the year ahead.
The entire exporting community came under intense scrutiny in a politically tense year last year, and frankly we lost some ground. The license exception for computers was narrowed by the imposition of notification requirements for computers in the 2000-7000 MTOP range to the 50 "Tier III" countries. We received nearly 800 notifications during the first year that requirement was in effect (November 97 to November 98), two-thirds of those for China. Out of all those notifications, which otherwise would have been covered by license exception CTP, only 3 cases were denied -- one to China and two to India. Also by legislation, Commerce was stripped of its role in licensing commercial satellites and satellite components. That authority will revert to the State Department on March 15, although we still have several applications in the system we hope to complete by then.
It's tempting to comment on these legislative measures. The National Football League has a rule that coaches and general managers may not comment on the quality of the referees or the officiating after NFL games. They're subject to fines larger than my salary if they do. One general manager, however, after a particularly bad game, was asked what he thought about the refereeing, and after thinking about it a minute, said "I'm not allowed to comment on lousy officiating." I guess I would say the same thing about these legislative measures. Hopefully, I won't be fined for saying so -- but I may be investigated!
But rather than focusing any further on the frustrations of the past year, I'd like to look forward -- to share with you my goals and priorities for the export licensing process in the months ahead.
One priority is to remain focused on combating the proliferation of weapons of mass destruction while furthering the growth of U.S. exports, which are critical to maintaining our leadership in an increasingly competitive global economy. To the greatest extent possible, the target of our export controls must be specific end-users that are of real proliferation concern. That requires greater effort and commitment by business to "know your customer." But in such a difficult area, it is not fair to put the burden entirely on you. End-user-based controls also require greater effort by the government to assemble reliable information on proliferators and make it available. That is no small task.
Prior to the sanctions imposed on India and Pakistan for their nuclear tests last year, the process of informing business of proliferators had not worked very well. The requirement of interagency consensus produced only 15 published entities. In November, we added more than 200 Indian and Pakistani entities involved in the proliferation of weapons of mass destruction. And just recently, we have received initial interagency agreement to add 10 additional entities - 7 Chinese and 3 Indian. We hope to publish the names of those entities shortly, and I hope that this is a sign that the process of publishing unacceptable end-users will be revitalized so that it can be of greater help to you.
While we have made progress on the naming of entities of concern, I'm not very satisfied with our success in applying the sanctions to the listed Indian and Pakistani entities. In order to avoid a blanket embargo on those entities, we insisted that the sanctions should vary depending upon the nature of the entity and the extent of its possible involvement in nuclear or missile activities. As you know, government agencies directly involved in proliferation projects are sanctioned most severely, and private entities least severely, with military and government-related (parastatal) entities in between. Unfortunately, the subtleties of this policy have proved difficult for the business community to understand, and other agencies in the process have tended to respond to all cases the same -- denial. For example, while there is a presumption of approval for pre-existing business relationships for sales to certain listed entities, we are finding that companies are not using that opportunity and other agencies are not fully accepting it when they do. Consequently, there are presently more than 100 India-Pakistan cases outstanding we cannot finally resolve because we believe agency positions do not accurately reflect sanctions policy. Most of these involve items that normally require no individual license -- so-called EAR 99 items. These will have to be escalated in order to break this policy log-jam. We intend to do that in the near future and thereby begin to make the sanctions policy work more as it was intended -- as a policy of selective -- not blanket -- denial.
Another priority is to continue streamlining controls wherever possible. We have reduced the list of items and technologies subject to individual licensing requirements to the point that there are no longer broad categories where substantial streamlining is possible. But we need to focus on keeping up with several technologies that are changing very rapidly in capability and volume -- especially computers, electronic components, and encryption. We took a small step forward recently when we raised the eligibility level for License Exception CIV for individual microprocessors from equal to or less than 500 MTOPS to 1200 MTOPS, which is consistent with immediate technological changes in microprocessors.
We took another step by liberalizing the conditions for deemed exports. The new policy, which was approved by the ACEP on January 8, modifies certain parameters which define the level of controlled technical data that U.S. firms can release to foreign nationals for the design and development of "state-of-the-art" microprocessors and the use of high performance computers. Approved foreign nationals can now work on computers up to 15,000 MTOPs, the design of computers of up to 7,000 MTOPs, and feature sizes as low as 0.13 microns. The proposal also allows for favorable consideration on a case-by-case basis of requests to release design data for advanced compound materials for use in the design of controlled microprocessors.
We must now bite the bullet and raise the control levels for computers and other finished products utilizing microprocessors. The Wassenaar countries will meet later this month to consider revisions in control levels for computers. We expect other countries to propose raising the control level to 10,000 MTOPs or higher. We are presently formulating the U.S. position on this question.
For licensing, we depend very heavily on our computer system -- ECASS. Timely, efficient, and responsible handling of export license applications requires an up-to-date computer system. Such a computer system must have the capacity to handle all of the data associated with even the most complicated cases -- not just the application itself, but all of the relevant technical, financial, and end-user data. To the maximum extent possible, our system should be at least compatible with those of other agencies of our own government, and increasingly of other governments who have their own export control systems and cooperate with us. Our current computer system is more than 15 years old. It is a great old workhorse which continues to serve us well. But it needs to be replaced with a fundamentally more flexible and comprehensive system. We have completed the initial design review for such an expanded and updated system. Now we must move rapidly to implement it using the best available hardware and software. We are trying to make improvements not only on our internal system, but our interface with you as well, as has been demonstrated by our work with SNAP, which will give you the option to submit export license applications, classification requests, and reports via the Internet.
Entering the 21st Century with a computer system that can handle the full range of information associated with export controls within Commerce, throughout the U.S. government, and even internationally, is a major priority to which we are devoting increasing time, money, and effort.
No computer system, however powerful, can replace the human element in export licensing. Computers are only a tool. With national security, foreign policy, and commercial competitiveness at stake in every export license, our stakeholders -- from your CEO to the Congress -- will always insist that the human judgement determine the outcome of every export licensing decision. Commerce already has the best trained, most experienced and competent group of professionals handling export licensing of any Department or agency involved in the process. For the first time in some years, we have the opportunity to hire some new talent due to retirements and to some expansion of our responsibilities and our budget. Despite the tight market for both policy and technical people, we have hired very capable people who will become the core of our licensing operation for the future, and will be fully capable of meeting all challenges. As rapidly as both policy and technology are always changing, we must give these people the professional growth opportunities they need to do their jobs into the 21st Century. I want to take this opportunity to acknowledge and thank the Export Administration managers and staff -- both those who are here and those who are back in Washington minding the store -- for the excellent work they do every day, and to assure them and you how much their efforts are valued. We are committed to supporting them and enabling them to "be the best that they can be."
Legislation will be another high priority this year. The Committees of jurisdiction in both houses have already announced they intend to act to renew the Export Administration Act which expired in August 1994. This is a welcome development which we have long urged. Welcome as it is, it will require much effort on our part and on the part of those affected by it. There are likely to be ups and downs in the process, and plenty of undesirable proposals along the way. Our goal is to work with the Congress to fashion comprehensive legislation that allows us to fully and effectively address our national security and foreign policy concerns while maintaining a transparent and efficient licensing system. In contrast to the past few years, it looks like we will not have to urge Congress to move. The relevant Committees appear eager to -- perhaps stimulated, in part, by the Cox-Dicks report and the attention it received. That report itself recommends new, comprehensive legislation. Failure of the responsible committees of the Congress to respond would jeopardize their jurisdiction. So hold on to your hats -- it looks like an active legislative year.
Finally, improving compliance with license conditions is another immediate priority. In order to approve as many license as we do, it is increasingly necessary to impose conditions. Only a very small percentage of licenses do not include conditions, so most of you are probably familiar with them. They are an important part of the success of the licensing program in permitting maximum exports consistent with U.S. national security and foreign policy interests. It is essential that the exporters, intermediaries, and ultimate end-users know and adhere to all license conditions. I believe, for the most part, they do. But it is our responsibility to do more to make sure. The ability to better demonstrate that these license conditions are effective enhances the confidence we and the Congress need to support a liberal export policy. I often say that export controls are about measuring and managing the risks associated with exports, and license conditions are a major risk-management device.
You will be hearing more about our "License and Enforcement Action Program (LEAP)" over the next few days and weeks. As part of that program, the export licensing part of BXA will be working to standardize license conditions. We will be requiring exporters to notify not just consignees, but all parties to the transaction, of license conditions. We will be requiring more end-users and intermediaries to acknowledge license conditions. We will be contacting more exporters before shipment to be sure they understand the conditions and have notified the other parties. Finally, we will be asking for the records you are required to keep on conditions and the use of license exceptions to help us determine the impact and effectiveness of these mechanisms. We believe a program like this, as I have said, is important to preserve and build -- and perhaps to restore -- public confidence in the process of exporting sensitive technologies. So it is in everyone's interest to give it high priority.
We look forward to hearing your reaction to this initiative, and, as is the tradition at our Updates, we are looking forward to hearing from you on how we are doing on all of our export control efforts.
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.