U.S.-India High Technology Cooperation Group

Remarks of Under Secretary of Commerce

Eric L. Hirschhorn

November 20, 2014

Introduction

Foreign Secretary Singh, Ladies and Gentlemen… It’s great to be here.

Thank you, Diane for that very kind introduction. I would like to thank our hosts—the Confederation of Indian Industries (CII)—and the Federation of Indian Chambers of Commerce and Industry (FICCI). CII and FICCI have consistently and successfully advocated for increased trade and cooperation between the United States and India.

I would also like to thank Foreign Secretary Singh for the invitation to return to India. Madam Secretary, thank you for your commitment to the U.S.–Indian strategic partnership and for taking the time to be with us today.

Let me also thank members of the U.S. industry delegation who traveled to India for today’s discussion, and our HTCG partner in the United States—the U.S.-India Business Council (USIBC).

It is great to see many U.S. companies in the audience. I visited Bangalore earlier this week and was impressed with the breadth and diversity of the U.S. companies there. The broad and growing presence of American companies throughout India is a testament to how far we’ve come in expanding U.S. –India business ties.

Finally, I would like to thank the many Indian company representatives that are here today. The U.S.-India High Technology Cooperation Group has been a success because of the support and effort you have demonstrated in building trade with the United States.

Expanding U.S.-India Trade Ties

It is a great honor to return to India and work with our friends to strengthen our "indispensable relationship". When I visited India in 2011, we resolved to work to together to implement and grow our partnership.

As President Obama said during Prime Minster Modi’s recent visit to Washington, "We have so much in common that it is critical for us to continue to deepen and broaden the existing framework of partnership and friendship that already exists."

Working together, we are establishing a normalized business environment in which trade can grow. Now it is time for the two business communities to make expanded cooperation through trade a reality. The government-to-government relationship has and will continue to facilitate expanded trade ties, but it is up to you—Indian and U.S. importers and exporters—to construct the edifice. The success or failure of this endeavor depends above all on commercial relationships.

India and The U.S. form a natural partnership for expanding trade and prosperity based on our shared values. Our two countries have diverse and talented populations, entrepreneurial skills, and deep and growing technological cooperation. These synergies, which are based on deep rooted and common values, offer endless opportunities for increased trade and economic development.

At the same time, we cannot take these endowments for granted. We must continue to ensure that our bureaucracies are facilitators of change rather than impediments to progress. Accordingly, we need to end policies that discourage research and innovation, eliminate tariff and non-tariff barriers to growing trade, and improve the overall climate for doing business.

The Importance of the HTCG

Since its formation in 2002, the U.S.-India High Technology Cooperation Group has been a valuable forum for discussing U.S.-India high technology trade and fostering the confidence necessary to facilitate trade in high technology items. Your focus on the appropriate economic, legal, and structural environment has provided valuable input for successful trade in sensitive technologies. The HTCG’s contributions demonstrate how a focus on discrete, attainable goals can help reach our mutual goal of a stronger economic relationship. In the area of Homeland Security, India and the United States are essential partners in combatting terrorism in such areas as capacity building and training infrastructure protection, global supply chain with emphasis on port and border security, megacity policing, and cooperation in science and technology.

I am pleased to note that this year’s HTCG government discussions will include Homeland Security technologies. This addition is an example of how the HTCG can evolve and expand as the U.S.–India partnership continues to develop. The Biotechnology and Life Sciences Working Group (BLSWG) facilitates business partnerships and shares best practices with respect to regulatory issues in both countries. Drawing upon intergovernmental participation from the United States and India, the Working Group covers cross cutting issues in pharmaceuticals, biotechnology, Health IT, medical devices, healthcare services, and academic and institutional linkages. Our companies seek mutually beneficial opportunities to develop India’s healthcare infrastructure, expand the medical devices sector, and spur a climate of innovation in both countries. Defense and Strategic Trade Increased defense trade and cooperation is a vital part of advancing our partnership. And defense trade has increased steadily over the last decade. Expanding trade and cooperation provides a "win-win" for U.S. and Indian security interests. The U.S. Department of Defense-led Defense Trade and Technology Initiative (DTTI) will deepen and streamline defense trade with India. Notwithstanding strong defense sales, we continue to look for ways to improve our bureaucratic processes and identify significant and achievable opportunities for co-production and co-development with Indian companies. Building a foundation based on expanded foreign direct investment in the Indian defense sector, cooperation in science and technology, timely procurement processes, co-production, and co-development will strengthen our security relationship. We recognize that not every contract has or will go to a U.S. company, but DTTI provides the opportunity to purchase mission-critical and cost-competitive defense technologies via a streamlined bureaucratic process. As you move forward in your discussions later this month with my colleague, Under Secretary of Defense Frank Kendall, I urge you to sustain the momentum by converting good intentions into tangible results.

U.S. Export Controls and High Technology Trade

My organization, the U.S. Department of Commerce’s Bureau of Industry and Security, administers the U.S. export control regime for commercial and certain militarily-less sensitive items. U.S. export licenses affect only a small portion of overall trade with India. Fifteen years ago, 24 percent of U.S. exports to India required export licenses. Last year, Commerce licenses were required for only 0.3 percent of U.S. exports to India. Very few license applications for items under Commerce Control are denied. We are in a new world.

In 2011, I spoke with you about our efforts to undertake Export Control Reform in the United States, as well as the status of our actions to implement President Obama and former Prime Minister Singh’s November 2010 bilateral understanding on strategic trade. Three and a half years later, the U.S. Government has converted many of our export control reform objectives into concrete regulations. With few exceptions, the U.S. Munitions List is being made into a positive list that controls only those items that provide the United States with a significant military or intelligence advantage. Militarily less sensitive items, such as parts and components, have been transferred from the licensing jurisdiction of the Department of State to that of Commerce. The U.S. Government has revised 15 of the 21 categories of the USML. There has been a 64 percent reduction in the Department of State’s license volumes for the 13 categories that have been fully implemented, and two more categories—space and electronics—are taking effect only now. The transfer of certain aerospace items from the licensing jurisdiction of State to Commerce already has resulted in the timely approval of licenses to India valued at more than $70 million.

On November 10, the Export Control Reform revisions covering commercial satellites went into effect. The rule provides Indian companies with the opportunity to purchase commercial satellites; remote sensing satellites below certain thresholds; and importantly, because India has its own satellite industry systems, subsystems, parts and components associated with those satellites. These actions will increase the efficiency, timeliness and security of the supply chain for sales of parts and components to Indian companies.

Since 2011, India has taken steps to complete the November 2010 commitments to strengthen its export control system. In 2013, India updated the Missile Technology Control Regime and Nuclear Suppliers Group control list items on its SCOMET. You have continued to implement the 2010 Export Control Cooperation Plan this year and conducted outreach events in support of this. The U.S. remains committed to supporting India’s membership in the four multilateral export control regimes. Completion of these remaining items will bring us closer to the longstanding bilateral commitment to "bring fundamental change to the U.S. export relationship with India."

Conclusion

India and the United States have so much in common. Our partnership in export controls and strategic trade is critical to enhancing this strategic relationship for three reasons. First, it helps fulfill our common national security interests. Second, it demonstrates a willingness to work together on export control issues that affect global nonproliferation and homeland security. Lastly, it addresses our shared economic partnership. Our strategic relationship is further reinforced by the sharing of common values. Our democracy. Our diversity. Our entrepreneurial spirit. And most important our unshakable commitment to working together to build a better future. Together we have set the agenda for expanded trade and security cooperation. I look forward to working with all of you to make this a reality.

Thank you for your time and participation.

Conventional Arms Threat Reduction Director Ann K. Ganzer

Remarks for the 2014 Update Conference, July 30, 2014

Good morning. On behalf of my colleagues at the U.S. Department of State, I’d like to thank Under Secretary Hirschhorn for hosting this year’s event, and for inviting me to participate in this discussion. I welcome the opportunity to highlight some of the ways we at State ISN are supporting effective export controls around the globe within the context of the Administration’s export control reform initiative.

A lot has happened since we briefed the 2013 Update Conference. As the President announced on April 28, in response to Russia’s actions in Ukraine, the Department’s Directorate of Defense Trade Controls (DDTC) 　and Commerce/BIS have been denying applications for export or re-export of high technology defense articles or services to Russia that contribute to Russia’s military capabilities.　 The President announced further sanctions yesterday. This situation is fluid, and our sanctions are dependent on the facts on the ground. The United States has clearly announced that it will continue to adjust its export licensing policies toward Russia, as warranted by Russia’s actions in Ukraine.

On the export control reform front, we are well into the new world of reviewing 600 series items. We continue supporting the interagency efforts to completely review all remaining ITAR categories while at the same time working to operationalize our review of 600 series exports. Since last year’s Update conference State has reviewed 3050 cases for 600 series items. We endeavor to provide consistent and timely foreign policy analysis of these transactions by working closely with other offices within State as well as the interagency. To this end we have also identified the types of cases that the Department does not need to review in order to speed up our response time to applicants. In short, if you never had a problem exporting an item when it was regulated by the ITAR, you should not be experiencing any problems or delays exporting them to the same end use and users now that they are controlled by Commerce.

As we have said before, one of the basic tenets of the President’s export control reform initiative is to honor our commitments to the multilateral export control regimes, the Australia Group (AG), the Missile Technology Control Regime (MTCR), the Nuclear Suppliers Group (NSG), and the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual Use Goods and Technologies (WA). Multilateral standards underpin effectiveness of national export control measures and help even the playing field for international suppliers of strategic goods and technologies. With this in mind, the State Department works with the interagency to strengthen U.S. controls and bolster export controls around the world through bilateral engagements. In addition, the U.S. works in partnership with multilateral regime members to assist other countries in developing effective national strategic trade control systems. This helps ensure that bad actors will not be able to "shop around" and obtain from elsewhere technology that is denied by the United States.

Our work with regime partners is a dynamic process that intends to account for technology innovations and proliferation trends in order to refine regime guidelines and their control lists to make continual progress in fighting proliferation.

Nuclear Suppliers Group (NSG)

The 2014 Nuclear Suppliers Group Plenary, Consultative Group, and Information Exchange and Licensing and Enforcement Experts Meetings were recently held in Buenos Aires, last month, June 23-27.　 At the meeting the NSG noted its strong concerns about the nuclear programs of North Korea and Iran. 　The group discussed and is looking forward to proposals from the United States for a fundamental review of the NSG Guidelines, beginning with Part 2, the Dual-Use Guidelines, and with a proposal to consider supply of uncontrolled items needed for the operational safety and security of nuclear facilities in certain non-member countries.　 While concerns were raised by certain Participating Governments (PGs) about these proposals, the Group agreed to continue discussions. Consensus was reached for publication on the NSG website of the German Guide to Brokering and Transits but as a "Good Practices" national paper with a number of co-sponsors including the United States, rather than an NSG "Best Practices Guide. The Group strongly endorsed the importance of a continued vigorous outreach program, not only with non-members, but also with organizations such as the IAEA, and with the other export control regimes, building on the success of recent informal meetings and joint workshops with Wassenaar Arrangement experts.

Missile Technology Control Regime (MTCR)

During the October 2013 Plenary in Rome, MTCR Partners highlighted the importance of the Regime working to address regional proliferation, adopted changes to the control list, and noted the importance of placing greater focus on intangible technology transfers, brokering and transit, and transshipment. In particular, partners had extensive discussions on the missile programs of Iran and North Korea and key procurement and technology trends related to the proliferation of Weapons of Mass Destruction (WMD) delivery systems. Partners also emphasized the importance of catch-all controls and visa vetting to impede proliferation and exchanged information on best practices in export control implementation and enforcement. In addition, the October 2013 Plenary marked the 25^th anniversary of the first MTCR Plenary held in Rome in 1988. More recently, at the May 2014 MTCR’s intersessional Reinforced Point of Contact (RPOC) meeting, Partners discussed developments since the Rome Plenary and began planning for the 2014 Oslo Plenary.

Australia Group (AG)

On the Chemical and Biological Weapon, or CBW front, the Australia Group or AG continues its effort to impede the flow or supplies and technology to chemical and biological weapons programs around the world. In June 2014, the AG, held its annual plenary meeting in Paris. In the wake of the use of chemical weapons in Syria, AG members adopted a series of measures to strengthen the regime’s focus on Chemical/Biological Weapons terrorism, the implementation of ‘catch-all’ controls, and outreach to industry and academia. AG members also agreed to launch an initiative to encourage more non-member countries to adhere to the regime’s guidelines and common control lists.

The AG welcomed the progress made to rid Syria of its chemical arsenal, but also expressed concerns about lingering ambiguities about the completeness of Assad regime’s declaration to the Organization for the Prohibition of Chemical Weapons and continued reports of the use of chemical agents in the Syrian conflict.

On a more positive note, plenary participants also welcomed Mexico as the AG’s newest member.

Biological and Toxin Weapons Convention (BWC)

In the specific area of the life sciences and biotechnology, the Australia Group serves to reinforce the Biological Weapons Convention (BWC). The BWC is a short treaty, but there’s a lot packed into it. It doesn’t just outlaw the possession or development of biological weapons by states – it requires us not to transfer biological weapons or their components to others, or "in any way to assist, encourage, or induce" anyone to acquire biological weapons. And parties to the treaty are also required to take steps to "prohibit and prevent" anyone under their jurisdiction from developing or acquiring such weapons. BWC States Parties have strongly reaffirmed – most recently, just last December – the importance of effective national export control systems as a means to fulfill these obligations.

The BWC is continuing to work to develop common understandings and best practices for implementation of the BWC, including export controls, by gathering information on national implementation, and by providing targeted assistance to strengthen implementation around the world. The AG works to ensure its members fulfill their legally-binding obligations under the BWC, and the two are necessary and mutually reinforcing elements of the overall regime to stem the proliferation of biological weapons.

Wassenaar Arrangement

The Wassenaar Arrangement continues to keep pace with advances in technology and market trends. Participating States have worked to make the existing control lists more readily understood and user-friendly for licensing authorities and exporters, and to ensure the detection and denial of undesirable exports. The Arrangement continues work on a comprehensive and systematic review of the Wassenaar Lists to ensure their continued relevance.

In 2013, new export controls were agreed in a number of areas including surveillance and law enforcement/intelligence gathering tools and Internet Protocol (IP) network surveillance systems or equipment, which, under certain conditions, may be detrimental to international and regional security and stability. Participating States also further clarified existing controls in respect of inertial measurement equipment or systems and relaxed some controls such as for instrumentation tape recorders and digital computers.

Significant efforts have also been taken to promote the WA and to encourage voluntary adherence to the WA’s standards by non-WA members. The WA continues to undertake outreach in support of its aims and objectives, in particular through post-Plenary briefings, interaction with industry and bilateral dialogues with non-WA members.

Participating states in each of these consensus-based groups have voluntarily committed to observe coordinated export control guidelines and control lists. The guidelines and control lists increasingly are observed by non-member adherent countries; some of the regime lists also feature in UN Security Council Resolutions (UNSCRs) on Iran and North Korea. They are also implicitly endorsed by UNSCR 1540, which requires all UN Member States to have nonproliferation export controls to prevent the proliferation of weapons of mass destruction or their means of delivery and to prevent their acquisition by terrorist groups or other non-state actors. As a founding member and strong supporter of these regimes, the United States welcomes expanding acceptance of their multilateral export control standards.

All four regimes continue efforts to expand their outreach and dialogue with non-participating states. These efforts further the regimes’ nonproliferation objectives through technical interactions with unilateral adherents as well as pursuing greater international acceptance of the guidelines and control lists among the broader international community. At the same time, there has been strong interest by some countries to become part of the regimes.

Arms Trade Treaty (ATT)

118 countries (including the United States) have signed the Arms Trade Treaty or ATT, of which 41 have ratified, putting it near the 50 ratifications needed for its entry into force. When Secretary Kerry signed the Treaty last September, he explained what the treaty is about and why this historic treaty is in the United States’ interest. It is worth repeating his words. He said this treaty is about keeping weapons out of the hands of terrorists and rogue actors. It is about reducing the risk of illicit international transfers of conventional arms that will be used to carry out the world’s worst crimes. It is about keeping Americans safe and keeping America strong. It is about promoting international peace and global security, and about advancing important humanitarian goals.

Secretary Kerry also clearly spelled out what this treaty is not. It is not about taking away domestic freedoms. As the President has said, he strongly believes that the Second Amendment guarantees an individual’s right to bear arms. The treaty is fully consistent with the rights of U.S. citizens, including those conferred by the Second Amendment. The ATT recognizes the freedom of individuals and states to obtain, possess, and use arms for legitimate purposes. This treaty reaffirms the sovereign right of each country to decide for itself, consistent with its own constitution and legal requirements, how to deal with conventional arms exclusively within its borders.

Let me add one other thing that this treaty is not. It is not about limiting a country’s sovereign right to conduct responsible arms transfers. Indeed, the ATT is a trade regulation treaty focused exclusively on the international trade in conventional arms. It aims to create a global framework for countries’ responsible national regulation of the international transfer of conventional arms, which the treaty recognizes as a legitimate activity that supports countries’ national security and commercial interests.

The ATT will compel countries to undertake rigorous national assessments when making decisions to export weapons so that, in the future, rather than conventional arms being secreted out of warehouses and into the unknown, a government will need to have a control system in place to adequately review the request to authorize the export of such arms to another country. In this way, the Arms Trade Treaty helps establish a common international standard for regulating the international trade in conventional arms. The Arms Trade Treaty won’t change what the U.S. does on a day-to-day basis to implement effective export and import controls on conventional arms and address illicit shipments of conventional arms. Rather, it will induce other countries to come up to our standards. The goals of the ATT are important goals that are also aligned with our foreign policy and national security interests. We believe it is important for the United States to give a public endorsement of the ATT and its effectiveness so that as many other states as possible will be encouraged to sign on as well.

UN Security Council Resolution 1540

As I noted, the U.N. Security Council has adopted a number of resolutions that extend the reach of multilateral controls. Renewal of the mandate of the UNSCR 1540 Committee to 2021 marked a critical diplomatic achievement.　 In extending this mandate, the U.N. Security Council requested that the Committee identify effective practices for implementing UNSCR 1540. In addition to the international practices it has already identified in its earlier reports, the 1540 Committee has begun assembling an additional set of effective practices, including on export controls, identified by the United States and other countries. The Security Council also encouraged the Committee to draw on relevant expertise, including from the private sector, so the 1540 Committee has enhanced its work with industry, especially through a series of industry-focused meetings hosted by Germany, which recognizes the crucial role of industry in developing develop effective measures to control WMD-related materials and technologies

Export Control and Related Border Security (EXBS)

The Export Control and Related Border Security, or EXBS, program is the flagship initiative of the U.S. government designed to assist other countries in developing effective national strategic trade control systems. EXBS is active in more than 60 countries worldwide and conducts more than 250 outreach and capacity building activities each year to support partner countries in developing modern legal and regulatory frameworks; effective licensing systems; greater government-to-industry outreach programs; stronger enforcement capabilities; and improved interagency and international coordination and cooperation. These efforts help partner governments fulfill their international obligations to prevent proliferation of weapons of mass destruction (WMD) and diversion of conventional arms to inappropriate end users. Partner government officials, including parliamentarians, senior executive branch officials, the judiciary, and front-line licensing and enforcement personnel take part in these capacity building efforts.

EXBS continues to be a valuable tool in pursuing U.S. nonproliferation objectives. This type of engagement and cooperation provides us with obvious security benefits while at the same time preserving our economic competitiveness by ensuring that U.S. exporters are not held to a stricter level of controls than their foreign competitors.

As countries seek to develop their high-tech industrial sectors and expand their ports and transportation networks, EXBS engagement helps give us and our allies greater confidence that controlled items will not be diverted or re-exported for unauthorized uses. EXBS engagement combines outreach to existing and emerging suppliers with capacity-building for major transshipment hubs in order to help address global supply chain security.

I would like to close by reiterating that the regimes and treaties I’ve discussed this morning continue to be dynamic. Every year changes to the control lists and guidelines based on ever-changing and advancing technology and proliferation trends are debated, negotiated, and agreed upon. Every year changes in the regime control lists, lead to updates of export control regulations not only in the United States, but around the world as well. Multilateral export controls must be continually improved, so that national security concerns are balanced with economic considerations. Finally, the treaties and United Nations Security Council Resolutions we discussed demonstrate a growing acceptance by the international community of the role of export control in addressing shared concerns.

The U.S. export control reform effort has helped us to better focus our attention on transactions that merit higher scrutiny while continuing to carry out our international commitments and obligations. In the end US export control rules is, and will continue to be, recognized as the "gold standard" and our actions will be dictated by national security and foreign policy objectives.

Thank you.

Remarks As Prepared For Delivery

U.S. Deputy Commerce Secretary Bruce Andrews

Thank you, Eric. Good afternoon. It's great to be here. I would like to join Eric in welcoming all of you today.

I also want to thank the entire team at the Bureau of Industry and Security (BIS) for organizing this Update Conference. It has become a must-attend event for many in our exporting community. And the reason is simple: as Secretary Pritzker said, export control reform is essential to our national security, which includes our economic security. 

To be honest, when I first joined the Department of Commerce as the Secretary's Chief of Staff, I did not have a full appreciation for the importance of BIS and its work. That changed quickly.

Around the time I started, I traveled to my home town of Syracuse to speak at an event organized by the International Trade Administration. During a roundtable with roughly 25 business leaders, I was surprised to hear them repeatedly raise the issue of the export control system.

This sentiment – this focus on export controls – was almost unanimous around the table; it was a real moment of epiphany for me. I never would have expected so many companies to raise this as one of their top issues.

From that experience, it became clear why, shortly after taking office, President Obama ordered a broad-based review of our export control system—a system that too often reflected assumptions of the Cold War era. We needed a system that addressed contemporary threats and realities. We needed a system that was more reliable and predictable so that U.S. exporters could be more reliable and predictable suppliers. We needed a system that was nuanced so that less sensitive items destined to countries and end uses of less concern could be controlled more flexibly. The Commerce Department system and regulations are designed to address all these concerns, which is why we have taken on the burden of implementing many of the reforms.

To the get to the point where we are today, a massive amount of work was needed over the course of the last five years. The Departments of Defense, State, and Commerce, supported by multiple other agencies and laboratories, reviewed every control for every military and space-related item. They had the difficult job of identifying which were the items that continued to warrant the worldwide controls of the ITAR and which were the military and space items that would still require control, but could be exported more flexibly to close allies. This was a massive exercise. And every one of the proposed changes went through multiple rounds of industry and public comment and congressional notification.

Assembling, devising, and executing this strategy has been considered one of the most difficult jobs in government. But the truth is, government can't do this job alone, which is why, at this conference and year-round, we seek out and appreciate the cooperation and participation of all of you – our nation's exporting community.

Now that the regulations are starting to come on line and grand policy plans are being put to the test in actual implementation, we need to hear from you whether they work and whether we are accomplishing the national security objectives that then-Secretary of Defense Gates set out in 2010.

Are the reforms allowing for greater interoperability with our close allies? Are the reforms reducing the incentive for foreign companies to design out or avoid U.S.-origin content or services? Are the reforms allowing the government to focus its resources on transactions of greater concern? We are looking to you to let us know whether we are failing or succeeding in each of these objectives.

Based on a review of the data since the first set of rules became effective last October, the new system seems to be working as intended. Exports of parts and components in the supply chain to our close allies are occurring more quickly and efficiently. Non-U.S. companies are more willing to buy items from U.S. companies without fear of an "ITAR taint" to what they build. The ability of companies in allied countries to engage in joint production and development projects is becoming easier. Once companies get comfortable with the new system, the paperwork and licensing burden is being reduced. Companies are able to determine more clearly when items are and are not ITAR controlled. The Administration is becoming able to spend more time investigating exports and reexports to destinations and end uses of more concern.

All told, here's the bottom line: export control reform maintains effective safeguards, brings transparency to our system, and ensures efficiency in a field of regulation that has long lacked it.

And for those aspects that are not yet as efficient as they could or should be, the heart of the reform effort includes a spirit of transparency and regular interaction with industry and national security stakeholders to continually improve and streamline the system.

As we work to make our reform initiative a source of even greater strength for the security of our country and the competitiveness of key industries, BIS and the Department of Commerce are here to help.

BIS provides a wide range of services to ensure companies can navigate the export control process easily and efficiently. Among these are: counselling; training seminars; Web-based interactive tools; compliance assistance; and, technical support to register and use the simplified network application process.

BIS has held more than 200 outreach activities to educate companies on the nuances of export control reform. Tomorrow, for example, the Bureau is hosting a large number of subject matter expert roundtables, including representatives from the Small Business Administration and Commerce's Minority Business Development Agency. I encourage you all to attend.

We know that you are investing substantial resources to make export control reform work. Many of you have reclassified thousands of parts, revised your IT control systems, and conducted thousands of hours of training for your compliance, operations, and technical teams.

We recognize that, for some, this process has resulted in a significant increase in your workload. But we firmly believe that your tactical investment will reap strategic rewards over time.

In government, we are few in number and we rely on you, the private sector, to help educate your suppliers, employees, and customers. The effort and resources you devote to this exercise are crucial to the success of our reform efforts and indeed, of the export control system generally.

At Commerce, we are committed to working side-by-side with you to educate stakeholders, keep our supplier base informed, and reach out to customers at home and abroad.

Our task is not easy. Changing mindsets is always a seemingly impossible challenge. But you have demonstrated, time and again, your capacity to reinvent yourselves, to develop new products, to market ideas and items and innovations that place all of you at the forefront of the 21st century global economy.

With your ongoing commitment, with the expertise of the businesses in this room and the know-how of our teams at BIS and the Department of Commerce, we will achieve President Obama's goal: to make America safer, to give an edge to American industry, to keep American workers strong, competitive, and prosperous.

Thank you.

American Bar Association Conference on FCPA, Economic Sanctions and Export Controls

 Remarks of

Eric L. Hirschhorn

Under Secretary for Industry and Security

U.S. Department of Commerce

October 1, 2014

(As prepared for delivery)

Thank you Andrew, and thanks to the National Institute on International Regulation and Compliance for the invitation to address this group. I also would like to thank the Criminal Justice Section, the Criminal Justice Section's Global Anti-Corruption Committee, the Business Law Section, and the Section on International Law for hosting this conference.

The legal community plays an important role in the ongoing dialogue on Export Control Reform (ECR). Your review of proposed rules as well as your counseling of clients transitioning from State to Commerce licensing jurisdiction is instrumental to developing and effecting sound public policy that enhances U.S. national security. We appreciate the support you have provided Commerce and other national security agencies in getting the ECR rules right.

I  Export Control Reform (ECR)

Since 2010, I have been discussing the importance of ECR to the U.S. exporting community and sharing my vision of what the U.S. Government needs to accomplish to ensure the success of ECR. Although the government must make the final call on what is in our foreign policy and national security interests, our rules must be transparent and predictable so that the manufacturing and exporting community can be reliable, predictable, and successful exporters.

Why did the U.S. Government recognize the need in 2009 to undertake comprehensive reform of the export control system? The end of the Cold War changed the geopolitical landscape. The development of a multipolar world included state sponsors of terrorism as well as the rise of non-state terrorist groups and individuals.

At the same time, the commercial environment changed rapidly, with a country or group of countries no longer maintaining exclusive control over leading edge technologies, the growth of manufacturing and markets in emerging countries that could provide foreign availability of export controlled items, and the globalization of the international technology work force, which now operates on a "24/7" basis.

The focus of research and development (R&D) shifted from the military to the commercial sector. The days when the defense sector developed advanced computing and electronics such as Global Positioning Systems and spun these products off to the private sector largely came to an end. The bulk of R&D spending shifted to the private sector as the military increasingly began purchasing "commercial-off-the shelf" items, such as electronics, for integration into weapons systems. More recently, this process has been accelerated by the decline in expenditures for defense R&D. At the same time, we increasingly have found ourselves acting in coalitions that include our closest allies—countries with whom we need interoperability when it comes to defense items.

As former Secretary of Defense Robert Gates stated in his April 2010 speech about the need for reform, the post-Cold War export control system was constraining interoperability of weapons with allies and friends. Numerous and time-consuming commodity jurisdiction exercises and licensing requirements were resulting in foreign manufacturers "designing out" U.S. parts and components from major defense projects, and the U.S. defense industrial base began to decline. The export control regime was not achieving the U.S. defense policy goal of getting parts and components to our allies on a timely basis.

Four and one half years later, the U.S. Government has converted many of our export control reform objectives into concrete regulations. With few exceptions, the USML is becoming a positive list that controls only those items that provide the United States with a significant military or intelligence advantage. Militarily less sensitive items, such as parts and components, have been and continue to be transferred from the licensing jurisdiction of State to that of Commerce. We have established and implemented License Exception Strategic Trade Authorization—STA—to provide flexible and refined arrangements for trade with and among close allies. At the same time, enhanced compliance and enforcement measures create effective safeguards to deter the diversion and misuse of controlled items. We have achieved these goals by issuing transparent and predictable rules that state clearly what they cover.

The Department of State's International Traffic in Arms Regulations (ITAR) tend toward a one-size-fits-all model—one in which an F-16 aircraft and a bolt for an F-16 are subject to the same stringent licensing requirements. By contrast, the Export Administration Regulations (EAR) allow for nuanced licensing of sensitive items based on country, technology, end use, and end user.

II  Export Control Reform Accomplishments

The success of ECR is based on two fundamental principles: 1) the rules should be transparent and predictable; and 2) there must be streamlined processes and higher fences to control sensitive items appropriately while facilitating exports of less sensitive items to destinations and end users that do not pose substantial national security, proliferation, foreign policy, human rights, or similar concerns.

The U.S. Government began the USML review process in 2010. That process has resulted in the removal, as far as we could, of the basket categories that have until now accounted for about half the 85,000 licenses issued annually by the Department of State. If the U.S. Government determines that a military item does not warrant continued control on the USML, it becomes subject to the EAR and the new "600 series" controls on the Commerce Control List (CCL).

Commerce and State have published final rules covering controls on 15 categories of the USML. In April 2013, Commerce published a transition rule describing how items previously controlled under the ITAR are dealt with under the EAR.

In 2014, Commerce and State have published two major ECR rules: Satellites and Military Electronics. The May 2014 Commerce and State satellite rules transfer many items to the CCL, including commercial communications and lower performing remote sensing satellites, ground control systems, and radiation-hardened microelectronics formerly controlled in Category XV of the ITAR. Turning to military electronics, the July 2014 rules add to the CCL many electronics and related materials that previously had been controlled by Category XI of the USML.

Many of the items that have been transferred to Commerce are eligible for License Exception STA, which permits exports of certain items to 36 allied and friendly countries. STA has established a license- free zone to cover the initial export while creating new safeguards to ensure that items are not diverted outside the designated country group and authorized end users within that group.

STA provides greater flexibility and predictability, while still providing necessary safeguards. Here, as elsewhere in life, there is no such thing as free lunch. Exporters using STA, and their customers, are responsible for compliance with that license exception's requirements to ensure that the items are not reexported outside STA-eligible countries or employed for unapproved end uses within such countries.

The publication of rules covering 15 categories of the U.S. Munitions List represents milestones for ECR. We have made significant progress but our efforts are not yet complete.

The Departments of Commerce, Defense, and State are reviewing two of the more difficult categories: Category XII, which includes sensors and night vision items, and Category XIV, which includes biological toxins and related items. We need to publish these categories in proposed form, work through public comments, notify Congress of each category change, and make the changes in the revised USML and "600 series" export control classification numbers together with other necessary edits to the EAR and the ITAR.

The changes I have discussed provide exporters with a number of benefits, including:

• Vastly improved defense interoperability with coalitions, including our closest allies.

• Availability of the 25% de minimis treatment to non-embargoed destinations, which should go far toward accomplishing former Defense Secretary Gates's instruction to reduce incentives for non-U.S. companies to design out or avoid U.S.-origin content and services.

• Eligibility for certain license exceptions, notably License Exceptions STA, GOV (for certain government end users), and RPL (for replacement parts). This allows the U.S. Government to focus its scarce resources on the more sensitive licensing transactions.

III  Ensuring the successful implementation of ECR

You—the legal community—have an important role to play in ensuring that the regulated community understands and complies with our rules, including the list changes. This is significant because a more nuanced export control system means a more complex system. The price for removing certain controls is increased nuance and greater reliance upon exporters to see to compliance.

Whether you serve as in-house or outside counsel, you need to ensure that your clients understand the rules; maintain effective internal compliance programs; communicate the rules throughout their companies; and stay current with rule changes. For your part, there are several questions I recommend you ask yourselves. First, have you worked with your clients to ensure that they have developed and coordinated their internal ECR corporate planning, ranging from the training of staff, to reclassifying products? Second, have you worked with the compliance and marketing teams to encourage them—strongly—to train their supplier base and customers? If you are a U.S. subsidiary of a foreign-owned company, what regulatory training is counsel providing to its foreign parent? Finally—Trust but Verify. Have you worked with your clients to ensure that they put in place a system to monitor for errors and to take corrective action if errors occur?

For our part, the Bureau of Industry and Security (BIS) will continue issuing rules that make it easier for exporters, including small and medium-sized enterprises, to navigate the export control bureaucracy.

We also will continue providing comprehensive services to exporters, ranging from seminars, to online interactive tools, to weekly teleconferences, to one-on-one exporter counselling. During FY 2013, we conducted more than 200 ECR-related outreach activities, including weekly teleconferences that are conducted by Assistant Secretary Kevin Wolf and open to all.

As we continue to implement ECR, we will offer training materials, conduct webinars, and undertake related activities. We are open to continue working with ABA committees as well as other legal groups to discuss the rules. However, it is important that you continue to play a leading role in educating exporters.

BIS continues to expand its public education effort, including developing partnerships with non-profit educational groups representing defense exporters, many of which are small and medium-sized. We are committed to helping the nation's small businesses reach their commercial potential, while protecting national security.

IV  Enforcement

The enhancement of our export compliance and enforcement capabilities is critical to the success of ECR. We are coordinating interagency efforts to: maximize finite resources; train interagency enforcement colleagues on ECR; increase our visibility into foreign parties of concern; continue our layered approach to compliance; and provide more clarity to exporters on how to address red flags.

Tomorrow afternoon Kevin Kurland, Director of the BIS Office of Enforcement Analysis, will discuss in depth the evolution of Export Enforcement into a sophisticated law enforcement agency, with criminal investigators and enforcement analysts collaborating with other licensing officials to identify and act upon violations.

Briefly, as part of the ECR process over the past four years, we have created the Export Enforcement Coordination Center (E2C2) and the Information Triage Unit (ITU). The E2C2 ensures that export enforcement agencies talk to one another and share relevant information, while the ITU facilitates the review of license applications by compiling, coordinating, and reporting intelligence about foreign parties to license transactions.

License Exception STA is a prime example of the successful layered verification culture and practice that ECR has spawned. Our review of Automated Export System data, exporter and consignee records, including some on-site document reviews, shows a high degree of compliance with STA. We are continuing to review STA transactions to guard against misuse.

Export Enforcement is also working with our interagency colleagues to guard against the evolving cyber threat posed to the United States. At our July Update Conference, we hosted an interagency panel to discuss the U.S. Government's effort to help mitigate cyber risks and receive reports on exfiltrations. On August 1, we took the unprecedented step of designating a Chinese national and associated companies involved with exfiltrating export controlled technology from U.S. defense contractors. This demonstrates our commitment to protecting U.S. intellectual property as well as national security.

Finally, it is important to repeat that in our enforcement efforts, we are trying to focus on truly bad actors, not those who have a decent compliance program and corporate culture, make a mistake, and work with us to remedy the situation.

V  ECR and the Evolving Export Control World

At the outset of my remarks I described the importance of reform as the United States moved from the Cold War bipolar world to the multipolar world of today. Today, ECR is resulting in a tripartite export control world with significant benefits for two important groups of countries.

First, if you export defense parts and components or satellite items to U.S. allies and friends, the movement of items from the USML to the CCL will allow you to ship these items via license exception or the more flexible licensing mechanisms of the CCL. This will increase the efficiency, timeliness, and security of the supply chain for sales of such parts and components to the "STA 36" countries.

Second, if you expected that ECR would allow the sale of satellite items and former defense articles to countries at the other end of the spectrum—those subject to arms embargoes or controlled for anti-terrorist reasons—you will be disappointed.

Third, for trade with the rest of the world, licenses generally will be required but you will obtain the benefits and efficiencies associated with the Commerce licensing regime. Moving beyond the one-size-fits-all controls of the ITAR, your foreign customers can use the EAR for de minimis amounts of U.S. content incorporated into foreign produced end items without subjecting those items to U.S. export or reexport controls—that is, for sales to countries that are not subject to an arms embargo. This will help avoid having your defense-related items "designed out" of foreign products. 

VI  Export Control Reform Box Score

 A useful way to measure the return on the national security investment in ECR is to examine the evolving scorecard. Between October 15, 2013 and August 31st of this year, the number of Commerce-specific ECR exports related to "600 series" items exceeded 36,000 with a value of $1.2 billion. BIS's Munitions Control Division has processed more than 6,000 licenses with an average processing time of approximately 15 days.

Exporters can now use STA and other license exceptions to facilitate exports to key allies. STA has been used for more than 4,000 transactions. Exporters have also used other license exceptions, such as RPL, GOV and Temporary Exports, for an additional 10,000 transactions.

The statistics I've cited will continue to increase as additional CCL categories become eligible for "600 series" licensing treatment and/or license exceptions, and as existing State Department licenses for these items are used up or expire.

Conclusion

With your support, we have navigated the USML List Review and regulatory policy process, and we now have a strong foundation of efficient and—I hope—clear regulations. It's important that you continue to provide your clients with education and compliance support to ensure the successful implementation of the ECR initiative. Your work will go a long way towards enabling them to reap the benefits of these changes.

Thank you. I look forward to your insights and questions.