Dear Assistant Secretary Wolf
Thank you very much for your kind introduction
Ladies and Gentleman
First and foremost I would like to thank the Government of the United States and especially Assistant Secretary Wolf for the invitation and warm hospitality. It is an honor to participate in this year’s Update Conference here in Washington D.C.! I am aware of the reputation that the Update Conference has gained as an outstanding communication platform between the U.S. government and American exporting companies. My goal, in the short time that we have together is - after saying a few brief words about BAFA's tasks and mission and the challenges we all face working with export control -to make a few initial comments on the impressive reforms here in the US – focusing mainly on the German perspective and a few practical problems our companies have had with the US export control system.
Ladies and Gentleman,
When I began working with export controls, the world and especially Germany was still characterised in this domain by a conflict between the East and the West and the COCOM regime was the benchmark for all things. Interestingly, I was actually working here in America doing an internship when the wall separating the East and the West fell. Already back then, I was impressed by the lively interest shown by my American colleagues in the European and German views on such issues and events, which makes me all the more excited to share with you today some thoughts from BAFA’s perspective on export control. In her speech to the United States Congress in November 2009, German Chancellor Merkel underscored the following, saying, and I quote: “Even after the end of the Cold War we are faced with the task of tearing down the walls between different concepts of life, in other words the walls in people’s minds that make it difficult time and again to understand one another in this world of ours. This is why the ability to show tolerance is so important. While, for us, our way of life is the best possible way, others do not necessarily feel that way. There are different ways to create peaceful coexistence. Tolerance means showing respect for other people’s history, traditions, religion and cultural identity”. Chancellor Merkel also added to that, and I quote: “But let there be no misunderstanding: Tolerance does not mean “anything goes”. There must be zero tolerance towards all those who show no respect for the inalienable rights of the individual and who violate human rights. Zero tolerance must also be shown if, for example, weapons of mass destruction fall into the wrong hands and possibly threaten our security.” End quote.
Ladies and Gentlemen,
I’m convinced that no one will disagree when I say that the fight against the proliferation of weapons of mass destruction is indispensable for international peace and security. Preventing the spread of WMD, an aim shared by the international community, cannot be achieved by one person or by a few alone. Rather, it is a joint task for all responsibly acting individuals and states. BAFA - and I think I can speak on behalf of Germany - and the United States of America share a common interest in implementing effective measures against the threats posed by international terrorism, the proliferation of weapons of mass destruction, organized crime and any other challenges arising from a permanently changing political and technological landscape. In order to achieve our mutual security goals we highly appreciate the open exchanges with the United States of America and any opportunity to deepen the transatlantic dialogue on these issues.
I am of the opinion that when faced with especially critical and important tasks, as the fight against proliferation indisputably is, we must also be prepared to very honestly and openly address the problems that accompany them. For all those involved, but in particular for industry, export controls are not always necessarily a source of joy. It is therefore very important – and I see this as a general challenge not just for the EU but also for friendly states – that all of us working on the side of the control authorities be careful that the control system does not become too complex and that we maintain transparency as well as the goals of the control process. Otherwise, we risk losing the acceptance and understanding of all those involved, especially industry. A system that is not understood or accepted can simply not work, even if we increase the legal pressure to follow the rules.
In Germany, we are confronted with the matter of transparency and awareness on a daily basis, for example, when exports have to be cleared through customs. In this instance, one of the first questions that is asked is whether or not an export license has been issued by BAFA. The answer to this question is sometimes: “What kind of document from whom do you want from me?” It probably comes as no real surprise that not all exporters know of BAFA and what we are and what we do, even if I wish they all did. But that means, Ladies and Gentlemen, that you are not alone in wondering who it is that is standing here before you and what organisation I represent.
I work for BAFA, which stands for the Federal Office of Economics and Export Control. We deal mainly with the question of whether an export may be permitted or not. Our decisions are guided by security needs, Germany’s foreign policy interests and similar objectives of the European Union. Just as importantly, we must ensure that exports do not lead to a situation that could damage Germany’s good reputation as a reliable partner with an efficient export control system. The volume of export licence applications received by BAFA in 2010 added up to approximately 13 billion Euros. The amount of exports subject to an export control review made up about 1.5 % of the German foreign trade volume for industrial goods. Last year approximately 2,700 companies, most of these medium sized, submitted over 35,000 formal licence applications to BAFA. Additionally, more than 10,000 general inquiries were sent to BAFA’s technical and administrative experts. The number of licence applications has increased by over 50% in six years. This growth has been very difficult to handle for our office. It is also another reason why we have been following the reforms in the US very closely and with much interest, as I am sure that there’s always something new for us to learn for the optimisation of our own system.
Ladies and Gentleman
This gives me the first opportunity to try to broadly comment on your impressive reform package- but – and this is very important – don’t consider me as an expert in US export control law. However, when I see how comprehensive the approaches are, I can very well imagine and appreciate the amount of work that went into it. I therefore want to congratulate you for it and accord you my deepest respect for what you have achieved. I would like to start by remarking that some legal elements that are now under consideration in the U.S. are already very much part of the export control reality in Germany. BAFA operates on a so-called “single window” principle. That means that for any export control related matter – regardless of whether it is a military or nuclear-related or dual-use item, or whether it is a question about embargoes – exporters always have to turn to BAFA first. Even in cases where we request political guidance from other ministries – which happens in about 8% of cases – the rest we decide autonomously - we remain the responsible authority for issuing licenses and sometimes also denials. BAFA offers a fully electronic application system, completely paperless, with one form and processing channel for everything. From a German point of view I am very much in favour of your planned reforms, which if I have properly understood them, would establish what has been termed the “four singularities“. Even if at first glance these would seem to be first and foremost administrative measures, the extent to which they will surely simplify procedures for exporters is of an importance which should not be underestimated. This is also true for Europeans concerned with authorizations for re-exports. And not least for the administrations themselves, as this will automatically open up opportunities for improving cooperation and the transparency of the licensing and decision-making processes. And I hope that the new independent licensing agency will have enough qualified employees, as I know that for us, the lack of skilled human resources is one of the greatest challenges facing European export control authorities. But let me assure you that from a German perspective, the plan to establish the “four singularities” is very significant and, in my opinion, definitely not overly ambitious.
Ladies and Gentlemen,
I consider the reforms in the US to be an important signal for other states as well. BAFA – like the US – seeks to provide support to some states for developing their legislation and setting up their administration. Please believe me when I say that the disorder you sometimes find in some developing countries with regard to who gets to decide what about which export is often astounding, and doesn’t necessarily contribute to the efficiency of the export control system there. However, the existence of functioning export control systems in third countries is an essential element of the international fight against proliferation of WMD. In this respect, your own national reforms serve as an excellent model for the whole international export control community, and will also certainly serve as a benchmark for what you can demand of others. This is why I am very pleased to hear that the reforms will be consistent with the US multilateral obligations, especially with the export control regimes and their control lists. Once the USML has been turned into a positive list and both it and the CCL have been tiered and combined into a single US control list, maybe then it will be time to think about an initiative in the regimes to check what items should be controlled and what could be deleted. A US initiative in the different regimes would be a worldwide and remarkable signal to focus export control on the really relevant items.
In this context I would like to encourage you to move forward with the process of shifting less critical items to the somewhat more flexible licensing system implemented trough the EAR. Of course, flexibility does not mean automatically and unjustifiably reducing the level of control. I’m convinced that you know better than I that the sensitivity of an export is not only determined by the listing of an item but more so by the end-user and end-use. Making use of the flexibility of the EAR for a larger group of items, though, could be one step in the direction of creating a level playing field for US and EU industry. As well, the EAR regulations are less complicated than the ITAR when it comes to the question of re-export.
Speaking of ITAR, I would like to mention another point. For the experts among you who have already heard about the EU initiative with regard to intra-community transfers of military items, I would like to encourage you to further explore the possibility of a more simplified cooperation with the EU. The intra-community transfers initiative is built upon the principle of certifying companies as dependable and responsible consignees of military items, which opens up the door for a simplified process, e.g. for global component licences between trustworthy states. If you combine this thought with the model of an agreed upon global project license even for European prime contractors, this could very much ease cooperation and collaboration without threatening security interests. Without going into too much detail, such an approach - maybe at least for certified companies - could be taken into consideration when planning the next steps of the reform.
In connection with ITAR I would like to mention very briefly one more point: The US State Department’s Directorate of Defense Trade Controls released in May (16) a final rule amending the ITAR to create a new exemption authorizing the transfer of unclassified defense articles (including technical data) to dual national and third-country national employees of approved end-users. This is a major and positive step forward and doubtlessly provides new flexibility for foreign companies. There are, however, strict conditions on the use of this exemption. I would like to turn your attention to a legal problem. There are obvious concerns that the purposed screening procedure of dual nationals and third country nationals will make the conflict with local law more acute. Under local law, the purposed requirement to provide governments of other countries with screening records – which may contain personal information will lead to increased difficulties in collecting and recording data, especially regarding employees' substantive contacts with proscribed countries or persons.
Ladies and Gentleman,
As you can see, U.S. export controls are a topic of direct interest not only to you but also to us. As the director of the export control unit of the German BAFA I can assure you that as a matter of principle I love export controls. And I fully agree with the objective of your reforms, which is to focus more on the key cases, or as you put it “higher walls around fewer goods” as well as with your very important approach of a three-tiered structure. My experience has taught me that only a system allowing for differentiated processing of licenses makes it possible to solve the contradiction between “security” and “promptness”. At the same time the authority can protect itself against the reproach of arbitrariness. A comprehensive and consequently very time-consuming screening to reach 100 % safety – which is never possible, anyway, for a prognosis – is hardly compatible with the demand for speedy and transparent processing which is essential for the exporter. From my point of view it is especially interesting not only which objective criteria guide the classification within the three-tiered structure but also how often the structure itself is subject to a review with regard to how quickly an item can be moved from one level to another. If you add to that the sometimes variable assessment of the recipient country, the flexibility of the three-tiered structures represents in my opinion the biggest challenge.
Ladies and Gentleman,
For Germany, the United States constitutes the most important trading partner outside of Europe. These transatlantic trade relations are traditionally of greatest importance to us and to our companies. It is always as challenging as it is complicated to discuss how export controls can serve the people and the world best. There are no easy answers. Safeguards that seem to be suited for today can prove ineffective and outdated tomorrow. However, all efforts to enact export controls should be governed by realism and vigilance. German companies keep a close eye on American (re)export regulations and take them very seriously. However, attempts to comply with the regulations and apply them often constitute a highly ambitious task for German companies. Many details prove in practice more burdensome for foreign companies than one probably might expect. I would like to mention some examples without going into too much detail.
German companies often do not have the correct classification of the U.S. item needed to conform with the Export Administration regulations and have problems getting the correct Export Control Classification Number (ECCN) from the United States. They told me that it could not be totally ignored, but that the official classification request is time consuming, costly and burdensome for foreign firms.
Second: Export and / or re-export
If I order something from Germany knowing already that it will be forwarded to another country it is considered to be an export. If I order something from Germany not knowing already that it will be forwarded, the later shipment is considered to be a re-export. Especially for situations of short term demand this legal distinction is difficult for foreign firms to handle. Given the additional cost arising from having to handle individual transactions in German firms, it would be an important step to eliminate this special provision, especially considering that the situations are nearly identical anyway. Let me mention another – minor - point as to the re-export regulations: Much would be achieved if the “bundling allowance” BIS introduced some time ago can be applied not only to software that is controlled exclusively for anti-terrorism reasons or classified as EAR99. but was extended to all re-exports.
Third: The “De minimis Rule”
According to the EAR the calculation of the de minimis percentage has to be made for each separate item if there are U.S. origin components, software or technology. However, the EAR de minimis rules do not completely reflect the actual developments in industry which usually deal with complex product combinations, e.g. a German machine manufactured in Germany but incorporating U.S. American software. In this scenario an artificial splitting up of the product is required. Let me mention another point as to the de minimis rule:
The advisory opinion concerning the so-called “second incorporation rule” is a very important and highly welcome step towards liberalizing the de minimis rule. From a German industry standpoint it would be helpful if the U.S. would implement this “second incorporation rule” in the Export Administration Regulations in order to give foreign firms legal certainty when they apply this principle. Considering the overall complexity of the de minimis calculation it is no surprise that German companies would sometimes like to redesign their products so as to remove the U.S. origin content. Just counting the aggregate value in order to determine the U.S. content would hopefully reduce endless discussions on the correct calculation of the de minimis share in Germany. Alternatively the U.S. could review its concept of “de minimis” in general and whether it is really necessary in civil items – at least for their closest allies. This could in turn promote the use of U.S. items in foreign made products.
Ladies and Gentleman
Allow me to come back one more time to our exporter mentioned at the beginning. Once he knows where, how and for what he needs to get a license, the next question that is sure to come is: must I always do this now? I don’t know how US exporters are, but I know that in Germany, our exporters are very happy to complain about the overly bureaucratic process, including the processing time which is always much too long. And since everyone else does it better than BAFA, we often hear cries of how the process has to be simplified. This brings me to my last remark about your reform, more specifically, the License Exception Strategic Trade Authorization (STA). The willingness to enact such liberalizations for long-time partners is without doubt a step in the right direction to get rid of some ineffective, unduly burdensome regulations that restrict German–American economic relations. If I have understood it correctly there is a requirement that the exporter, re-exporter or transferor using STA must obtain different written assurances from the consignee receiving the item, especially the prior consignee statement (§ 740.20(d)(2)EAR) and the notification to consignee of STA shipment (§ 740.20(d)(3) EAR)
Ladies and Gentleman
There is an old poem which tells of a man who spends a lot of time teaching a fish how to sing and after he is successful he kills the fish because it is not able to fly. In this sense, even if it is for sure helpful that under certain conditions one consignee statement may be used for multiple shipments, please do not misunderstand me if I also wonder whether the additional documentation requirements that will come with the STA are really necessary in the case of your closest allies. In the review of public comments made to the proposed STA mention is made of several commentators who noted that foreign customers are often reluctant or unwilling to acknowledge US jurisdiction. This is definitely not my motivation and I do not want to diminish the altogether absolute positive impressions I have of the new reforms. But may I use this opportunity of speaking to you to honestly say that German industry had hoped that the reforms would bring with them an even greater ease and facilitation of operation. Given the significance of EU-U.S. relations, an important step would be to equally reconsider the U.S. re-export control regulations during your reform efforts. Looking at the high standard of export controls in Germany and in the EU there are multiple mechanisms to prevent the items from falling into the wrong hands. German companies question sometimes why they need a US license for the re-export of a US items if they have already received a German license for e.g. the same items, which is – by the way - covered by the international export control regimes of which the US and Germany have both been members for many years, sharing the same goals and harmonizing their export control policies
Finally, without going into any analysis, I want to draw your attention – probably like the EU Commission in Brussels – to a legal problem. The EU is based on the principles of free circulation, including of services, employees, capital and dual use goods. In terms of export control law, at least for dual-use goods, the EU is a single market, a community. And even if recent events such as the ongoing financial crisis may have left some of you doubting in the last little while whether the EU Member States really do form a community, it is a fact that there are hardly any hurdles left for the trade of dual-use goods between EU Member States. Since the STA may vary depending on which European country I ship to, this constitutes an obstacle to provisions related to the free circulation of goods.
Ladies and Gentlemen,
To summarize: Functioning export control systems are overall systems with various intertwined sub-systems that include government and industry as well as a close, trustful and peaceful coexistence with our partners and friends, all working towards one overall goal: securing peace and stability. As far as I can contribute to this, BAFA continues to be prepared and willing to fulfil its share of the responsibility and I hope that I have been able to strengthen your trust in what we do. As chancellor Merkel just put it – and please let me quote one more time: “Europe and Germany have no better partner than America”. I would like to encourage you to continue liberalizing trade with your closest friends and allies who also possess strong and reliable export control systems with similarly high control standards that are in place to defend the same values and spirit.All that remains is for me to thank you once again for the invitation and for your very generous hospitality. I wish you much success for the remainder of the conference.
Thank you for your attention.