It has again been a busy year for us, and for you. We have had an overall increase in license applications, partly because of the continued strength of the U.S. economy. But also because of increased complexity in balancing our national security requirements with our ever-more-globalized economy. I want to summarize a few of our successes and challenges, and offer a few thoughts on where we may be going from here
Based on the number of license applications we've received thus far this year, we anticipate receiving a total of almost 12,000 by year's end. That's a 12 percent increase over last year. We attribute this increase to several factors: ever more rapid advances in technology ; additions to the entities list; increases in deemed export license applications; and easing of restrictions on sales and donations of humanitarian items.
While the number of license requests has increased, our average license processing times have unfortunately also increased -- up from 33 days last year to 38 days this year. While this delay can be attributed to some of the factors I've just mentioned, it can also be attributed to our active participation in numerous Congressional investigations, Freedom of Information Act inquiries, and related court-ordered document searches. Continuing to provide the exporting community with the best possible service while fulfilling these other, sometimes distracting, requirements has been a major challenge for us.
Challenges like the on-going Congressional scrutiny of exports can be both constructive and resource-consuming at the same time. Let me add a few points to what Bill has already said about the Cox Committee Report. We agree with many of the report's recommendations and, in fact, had already implemented some of the recommended changes before we had even seen the report. We were especially pleased with the recommendation that the Export Administration Act should be renewed -- something the Administration has long advocated. While we disagree with many of the report's statements and inferences about trade with China, we concur with the committee's support for continued exports of technology to civilian end-users in China. In fact, despite the debate and reexamination that is taking place, our basic policy toward China has not changed. We have continued to approve the vast majority of applications for China without a major increase in the denial rate. As Secretary Daley said during his visit to China last spring, applications for exports to end-users and end-uses involving the Chinese military will continue to be closely scrutinized, and -- as in the past -- some will be denied. But that leaves still a very large civilian market in China for U.S. technology, and this is not the time for U.S. exporters to abandon that market.
My personal "favorite" misimpression that seems to have emerged from the Cox Report and other investigations is the notion that the Commerce Department "dominates" the licensing process. Now I ask you, does anyone up here look like they're into domination?
Seriously, as you know, Commerce is both a participant in the policy and licensing process, and is the administrative custodian of that process. We handle most of the paperwork, and keep the process moving. But ultimately we are only one voice and one vote out of four when it comes to final licensing decisions. Any of the four Departments can escalate any case all the way to the President if they remain dissatisfied. How any one Department can be said to dominate such a process is difficult to understand. In my view, what dominates the current process is not any particular agency, but facts -- the facts of each case. The current process of majority interagency determination of licenses induces both proponents and opponents to bring their best arguments to the interagency table. When compelling facts are presented -- whether they point to approval or denial -- other agencies will acknowledge them, and sound, timely decisions can be made. We are currently referring 87 percent of all cases and achieving interagency consensus in more than 90% of all cases.
A requirement of unanimous interagency approval, however, as proposed by the Cox Committee and draft Senate legislation, will reduce the factual basis of the licensing process. Each individual agency will know it can block a license by just saying "no" -- with or without any facts to back that up that position. Imposing such a requirement would be a significant step -- backward.
This recommendation also contradicts the findings of our Inspector General's report that was released last month. It was one of six reports requested by the Chairman of the Senate Governmental Affairs Committee from the Inspector Generals of the Departments of Commerce, Defense, Energy, State, Treasury, and the Central Intelligence Agency. These Inspector Generals were asked to conduct an interagency review of the export licensing process for dual-use commodities and munitions. This was no "drive by" review. This was a highly detailed and specific review, involving -- among other things -- analysis of our handling of random samples of actual cases. As you can imagine, this was major undertaking for the IG and for BXA, and I want to take this opportunity to compliment the IG and his staff for their thoroughness, skill, and professionalism. In sum, the Inspector General found that, while there is room for improvement, the current system works. Of course, we are pleased by that finding, and we think it is sound. It makes us particularly reluctant to implement Congressional recommendations that would fundamentally alter the interagency process.
I mentioned the Export Administration Act earlier. I am pleased to report that there is now considerable activity and movement toward its renewal. The Senate Banking Committee intends to report a bill very soon. We are studying various drafts and we hope to work together with the Congress and with you to come up with an Act which is workable.
In the midst of the various investigations and information collections, BXA has continued to implement new initiatives to better serve you -- our customers. Some of these initiatives reinforce the recommendations in the Cox Committee and Inspector General reports. Last month Secretary Daley inaugurated the Department's new USA Trade Center across the street in the Ronald Reagan International Trade Building. The new center serves as a "one-stop-shop" for a full spectrum of exporting information. BXA is represented in the Center, with a staff member available to answer questions and provide assistance and information. If you have an opportunity, I encourage you to stop by the Center and take a look at all it has to offer.
Two weeks ago the Secretary announced another BXA initiative -- a new, secure, on-line way to submit license applications. The Simplified Network Application Process, or SNAP, is an alternative to paper license submissions. By using our new on-line system, you will save as many as ten days. Using SNAP will allow your application to enter the license system on the same day that you file it, and you'll receive a notification of final action electronically. Already we have over 300 registered SNAP users. Even though this system has been in operation only a short time, last month 53% of applications filed electronically and 28% of all applications came in on SNAP. We will be doing a SNAP demonstration in tomorrow morning's session, which I hope you'll be able to attend. Those of you who have not registered to use this secure service will have an opportunity to do so "on the spot."
And just yesterday we went back "on-line" with our newly installed automated telephone inquiry system, ELVIS (Electronic Licensing Voice Information System), replacing our 15-year old system. As many of you know, ELVIS has been "down" for some time during the transition to the new system. Even though some people think ELVIS lives on forever, ours definitely died and had to be replaced. I apologize for the inconvenience that you have experienced during the transition and hope that you find that the new system, with its many new features, was worth the wait. This is no ELVIS impersonator -- but a reliable new system. [The telephone number for ELVIS is 202-482-4811.]
In the near future we will be installing a new internal electronic licensing support system that will provide our licensing analysts with instant on-line access to the latest policies and agency procedures. This data base will provide analysts with information and guidelines on all aspects of the licensing process, with the goal of improving the application reviews, improving consistency, and increasing customer service. The system reflects the hard work of an internal BXA task force which has done an excellent job. We look forward to having this new system in place in the near future.
Earlier I mentioned several factors that have affected both the number of license applications received and our average time in processing them. There have been a number of changes -- some tightening of controls and some easing. Let me mention a few of them.
Bill has already mentioned high performance computers. I expect to sign the regulations in the next few days adding four countries to Tier I, raising the licensing level (from 10,000 MTOPs) to 20,000 MTOPs for Tier II, and raising the level for civilian end-users to 12,300 for Tier III. Those regulations will go into effect as soon as they appear in the Federal Register later this week or early next. The change in the level (from 2000 MTOPs) to 6,500 MTOPs for military end-users in Tier III, however, is not included in these regulations because, as Bill mentioned, that change must await Congressional review for up to six months unless the Congrss provides for faster implementation. For more details on the changes, take a look at the White House fact sheet released on July 1, which is available on our Web site. [Web site use, by the way, continues to increase, which we hope is helpful to you.] Again, we believe these changes strike a good balance between our national security requirements and our economic competitiveness.
The total economic impact of these restrictions on U.S. exports has so far been modest, yet we realize that there was initial confusion over the requirements. This has hopefully been alleviated since the publication of the Entities List back in November. The number of license applications received has increased correspondingly. In the first two quarters of this fiscal year, we have received over 1,200 applications for India, in comparison to 1,044 applications in all of FY 1998. There has also been an increase in applications for Pakistan, although the total for Pakistan is only a few dozen, reflecting the much small volume of civilian trade with Pakistan. Together, however, the India/Pakistan sanctions account for a significant portion of our licensing applications. Many of those applications (over 50%) are being denied, including many for items that normally would require no license at all. But those denials represent only around one percent of U.S. exports to India-Pakistan by dollar value. Exports to India alone were $3.5 billion in 1998 and are actually running a little higher than that so far this year.
We are continuing to work internally within the Administration, and with the Congress, to bring greater consistency and constraint to our use of economic sanctions in general, and the use of export controls as sanctions in particular. This does not mean an end to such sanctions. There is broad consensus that sanctions are sometimes necessary, and the President should have authority to use them. Just in the past few months we have had to impose new sanctions, including export controls on Serbia and the Taliban, for example.
On the other hand, we also announced a general exemption from sanctions for food, agricultural products, medicines and medical products, although most of those will continue to require licenses for export to sanctioned countries. Since the announcement of that initiative, the volume of export applications for these items to Cuba has particularly increased. In the first two quarters of this fiscal year, we have received almost 100 applications for exports to Cuba, nearly matching the total we processed in all of 1998. On Thursday morning we're hosting a special briefing for exporters interested in the Cuba market at the Department. You are all invited to attend. There is more information about this briefing and how to register for it at the BXA Registration Desk.
As many of you know, there is still great deal of inconsistency in the way license applications are handled in these sanction situations. Various agencies are involved, including in many cases the Treasury Department. We are working to bring greater consistency and transparency to these procedures. I regard that as one our major challenges. In the meantime, if your company is interested in exporting to a sanctioned destination using one of these exceptions, you need to be especially attentive to the requirements that apply to each destination. They are not all the same. The Commerce Department is glad to advise you, but we are not the licensing agency in every case. [You can learn more about those requirements in the seminar on Country Policy which I believe is tomorrow.]
Deemed Exports is another area where we've received an increasing number of licensing applications. That increase corresponds to the significant increase in the maximum number of H(1)(b) work visas for foreign nationals allowed each year in the United States. Because many of these foreign nationals are working in high tech companies, it makes sense that there would be an increase in license requests. The need for greater industry awareness of our deemed export requirements is one area in which we, the Cox Committee, and the Inspector General agree.
Based on the number of high skilled foreign workers entering the United States and those already here, as well as anecdotes that we hear from some of you, we believe we should be receiving even more deemed export licenses. So let me remind everyone here in this plenary session of the basic deemed export requirement: employers are required to obtain a "deemed export" license for any employee or potential employee who is not at least a permanent resident of the United States who will be developing, working with, or having access to products or technology that would require a license if exported to that employee's home country . In most cases, these licenses will be approve (we deny only about 3%). But conditions and restrictions may be imposed upon the activities of those employees. Those restrictions will generally apply until the employee becomes a permanent resident or citizen. These restrictions, however, should reflect changes in technology, and we will be working with you to adjust the levels of technology to which these employees may have access. Bernie Krietzer of our staff is our "deemed export" guru -- Bernie will you raise a hand. Bernie has done a terrific job of keeping applications moving in this difficult area. I urge you to attend the session on deemed exports or stop Bernie and talk directly with him if you have questions or problems in this area.
Commodity Jurisdiction is another area in which we need to make improvements, and we are working with the interagency community to do that. As you know, the process of deciding whether an export falls under the State Department's munitions licensing system is led by State. In general, State consults with us and Defense regarding where jurisdiction for an item should lie and then makes its decision. There is a procedure for the escalation of disputes which the Administration established in 1996. This appeal process, however, has not worked well, and the Administration will be reviewing it.
In particular, we are aware of the problems companies have experienced in trying to determine where the licensing jurisdiction of their item falls. The current process lacks transparency and is plagued with delays and uncertainty. Some companies have been given unclear and inconsistent advice. The expense to companies to resolve jurisdiction issues when an export is about to be shipped continues to concern us. We are aware of this problem and are working closely with Defense and State to rectify the situation.
Last year I reported to you about our newest responsibilities under the Chemical Weapons Convention. There has been much activity since then, most notably that the President issued an Executive Order providing for U.S. implementation several weeks ago and our new regulations will be published in the Federal Register by the end of the month. With implementation comes a tremendous work load, in which we will supervise inspections by international verification teams of our domestic chemical industry. These inspections will supplement existing multilateral export controls on chemicals that can be used as chemical weapons agents or precursors. The United States is behind many other countries in implementing this inspection regime, which means that our work load will be especially heavy over the next two years as we try to "catch up" on our inspections. I want to note, however, that we have hired additional personnel -- chemical inspection experts -- to perform this work, with separate funds "earmarked" for that purpose, so it will not detract from our export licensing resources. I would also note that the requirements for industrial inspections apply not only to producers of listed chemicals, but to "processors" and "consumers" of those chemicals. So if your company uses chemicals in its manufacturing processes, as many high-tech companies do, you should check the list of controlled chemicals to determine whether your company will need to submit a declaration and prepare for a possible international inspection. We will be holding a separate seminar on these inspections in September, and periodically thereafter as our regulations take effect.
Yes, it's been a busy year. But busy is better for you and for us. It means trade is growing and thriving. Much as we yearn for greater simplicity, the complexity seems never to diminish. That brings to mind a point with which I'd like to close. Since international trade is complex, it is difficult for the public to evaluate. Those of us who are involved in it on a daily basis are convinced that the benefits are far greater than the risks. But that is not always obvious to the public or to the public's elected representatives -- the Congress. For that reason, I believe trade -- and especially high technology trade -- needs to be politically reexamined and rejustified every few years. That's how I prefer to view the political scrutiny we've been undergoing this past year. With your help, I believe we will emerge from this time of reappraisal with the benefits of high tech trade being reaffirmed and licensing authorities enacted that reflect that. We look forward to working with you and better serving you in the year to come. I hope that you find this Update to be the best ever, and I want to extend my welcome again to each of you.
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.