Remarks of Eric L. Hirschhorn

Under Secretary for Industry and Security

United States Department of Commerce

(As prepared for delivery)

Export Control Forum

Newport Beach, California

February 23, 2015

 

 

Good morning and welcome to BIS’s 10th Export Control Forum. Let me begin by thanking Michael Hoffman, our Western Regional Office Director, his hard-working staff, and the many other BIS and U.S. government colleagues who have contributed to this conference. I’d also like to note that Larry Sullivan, an Export Administration Specialist who has worked in our San Jose office since November 2007, is retiring. We’ll miss Larry, who has been a valuable member of the BIS team, but want to congratulate him on his retirement and wish him all the best.

 

Before I begin my report on the Export Control Reform initiative, I’d like to highlight another Administration priority – working with the Congress to pass a bipartisan Trade Promotion Authority bill. Trade agreements help unlock our export potential, and trade promotion authority is a critical part of the President’s trade agenda and effort on job creation. There is a lot of pressure from all sides on this issue, but we're comfortable that the agenda the President has laid out will unlock significant opportunities for American businesses to increase their exports and create jobs.

 

Now, back to the Export Control reform initiative and the progress we’ve made over the past year. When I spoke at this conference a year ago, the Commerce Department and our counterpart agencies were just beginning the implementation phase of the new categories under the Administration’s Export Control Reform initiative. Today, I want to give you a progress report on how we are moving forward with the new regulatory requirements and share some best practices we’ve received from the export community. I’ll also discuss recent export control policy changes for several countries, including heightened sanctions for Russia and the Crimea region of Ukraine, and export control policy developments with India and Cuba.

 

My colleagues will be providing you with a wealth of information on the range of export control issues. I encourage you to utilize this forum to ask whatever questions you may have, and benefit from the knowledge and expertise of those around you. This time is only as valuable as you make it, so please ask questions, give us your feedback, and help us improve the process.

 

After Commerce and State published numerous final rules, 15 out of the 21 categories of the Commerce Control List (CCL) and the U.S. Munitions List (USML) are now effective. I will update you on our most recent changes and share some of the ECR successes we’ve seen so far.

 

On November 10, 2014, the export control rule changes covering commercial satellites went into effect. The rules transferred 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 International Traffic in Arms Regulations (ITAR). At the request of the semiconductor industry, the portion of the regulations governing "radiation-hardened" chips took effect earlier — on June 27, 2014.

 

Although only a short time has passed since the satellite rules’ effective dates, we have already seen a significant drop in the number of State Department licenses for Category XV of the ITAR.

 

The State and Commerce final military electronics rules, which went into effect on December 30, 2014, added to the CCL certain military electronics and related items formerly controlled by USML Category XI. The rule also added to the CCL certain cryogenic and superconductive equipment that had been formerly controlled under the "catch-all" provisions of the ITAR.

 

We are working with our colleagues at the Departments of State, Defense, and Homeland Security to reach consensus on proposed amendments to export controls on Category XII, night vision devices and sensors, and Category XIV, toxins and biological organisms. This spring, State and Commerce hope to publish proposed rules for these categories, which will also include minimal changes to Category XVIII, directed energy weapons.

 

We are also working with the Department of State on harmonized definitions of some of the most significant terms in our respective regulations, including "publicly available," "fundamental research," "technical data," and "export."

 

As part of this effort, Commerce and State intend to publish a proposal regarding cloud computing. As the proposed rule is still undergoing interagency discussion, I cannot give more details at this time. We expect to publish a proposed rule for public comment in the near future.

 

Commerce and State will be publishing a Notice of Inquiry to solicit comments from the public on the first implementation rules for ITAR Categories VIII and XIX, for aircraft and related parts, and gas turbine engines, which took effect in October 2013. This is an opportunity for the export community to provide us with feedback on how the reform effort is going. We plan to publish a Notice of Inquiry for each of the ECR rule changes at a reasonable time after its effective date.

 

BIS completed the initial round of end-to-end testing for USXPORTS in August 2014. BIS identified many functions that worked correctly. The testing also uncovered a number of development and programming issues that need to be resolved. BIS will continue to work closely with the Department of Defense, the owner and operator of the system, to resolve these issues. None of this work, however, is visible to exporters. It all pertains to the government’s internal processing of license applications. Currently, we are working on establishing the ability of all referral agencies to undertake joint processing in USXPORTS.

 

Once BIS implements USXPORTS, we hope to turn our attention to the next phase which is the development of a single license application, a single portal for submitting license applications, and an automated submission system from exporters’ computers. Funding is short, though, so I can make no promises about the timing of this step.

 

Last October, to mark the one year anniversary of ECR, the Department of State announced that they had seen a 64% reduction in licensing volume in the 13 implemented categories of the USML. This trend doubtless will continue as additional CCL categories become eligible for "600 series" licensing treatment and/or license exceptions. Gerry Horner, BIS’s Director of the Office of Technology Evaluation, will discuss these trends in further detail later today.

 

BIS's Munitions Control Division, which licenses "600 series" items and reviews STA transactions, has processed approximately 11,000 licenses with an average processing time of about 15 days.

 

Between October 15, 2013 and December 31 of last year, the number of Commerce-specific ECR exports related to "600 series" items surpassed 65,000 transactions, with a value of $2.3 billion. Exporters have used License Exception STA to export "600 series" items for more than 5,000 transactions, valued at more than $300 million. It’s not surprising that nearly a third of these transactions originated from the State of California.

 

Exporters also continue to make heavy use of other exceptions such as RPL, GOV, TMP, and LVS.

 

As I told you last year, BIS is employing a layered approach to verifying compliance with License Exception STA, and we are continuing to refine our procedures and practices to ensure compliance with such streamlined vehicles.

 

Since October 2013, the Munitions Control Division has found a 95% compliance rate with the use of STA for/to export "600 series" items. This industry compliance rate is laudable, and we are working to help ensure that companies become comfortable with the use of License Exception STA. The U.S. Government can make changes, but it is up to industry to take the leap and begin using and benefitting from those changes.

 

BIS recognizes that at first glance, License Exception STA can leave the impression that more work is required, but this is not the case. We are dedicated to helping industry navigate these new processes, and in that vein, I’d like to highlight some of the STA best practices the Munitions Control Division has identified. They include:

 

    • Creating and using an internal checklist of steps to meet STA requirements prior to shipment;
    • Drafting templates for the prior consignee statement and notification of complete ECCN;
    • Maintaining complete records for all shipments;
    • Conducting periodic internal reviews of shipments;
    • Ensuring that foreign consignees are aware of what STA is and its requirements; and
    • Training licensing staff to stay on top of changes in regulations.

 

You may find these best practices helpful as you begin to navigate the new "600 series."

 

As we go through the reform process, we have strived to be clear and predictable. These are significant changes, and we want to encourage industry to ask questions and provide feedback to us. We also want to address issues that arise with the reform effort. As rules are published, we seek your comments to rectify any inadvertent outcomes that could be needlessly disruptive to the exporting community.

 

With that in mind, I’d also like to remind you of a resource we make available to you on a weekly basis, a forum where you can provide this feedback to us. BIS Assistant Secretary Kevin Wolf holds a weekly conference call for exporters where he makes himself available to answer questions directly. Many issues raised and addressed in these calls cut across industries. I encourage you to use this resource.

 

BIS also provides comprehensive outreach services to exporters, ranging from seminars, online interactive tools, and webinars, to one-on-one exporter counselling. We recognize the importance of our education and compliance effort, and hope that our FY 2016 appropriation will allow us to continue expanding this important effort.

 

Our Export Enforcement arm continues to improve its capabilities through interagency efforts including the Export Enforcement Coordination Center (E2C2) and the Information Triage Unit (ITU). Both the E2C2 and the ITU ensure information is shared among the relevant agencies to support law enforcement efforts and a thorough review of foreign parties on license applications.

 

Fundamentally, our job is to deprive our adversaries and potential adversaries of the technological advantage we possess, to ensure that our own advances are not employed against us in the battlefield. Export Enforcement works in close cooperation with our interagency colleagues and industry to maintain our military superiority. You will hear more tomorrow from Assistant Secretary for Export Enforcement David Mills and his team on the range of enforcement activities BIS is currently engaged in.

 

Over the past year, there have been a number of country-specific policy changes. On December 17, 2014, President Obama announced changes in our Cuba policy designed to provide U.S. support for the Cuban people. On January 16, BIS and the Treasury Department’s Office of Foreign Assets Control published regulations to implement the President’s policy. BIS’s changes include the creation of a new License Exception – Support for the Cuban People - that authorizes certain exports and reexports to improve living conditions, support independent economic activity, strengthen civil society, and improve the free flow of information to, from and among the Cuban people.

 

We are working to further implement the U.S.-India Bilateral Understanding that was announced by President Obama and India's Prime Minister Singh in 2010. In November 2014, India imposed reexport controls on U.S.-origin items controlled for regional stability and crime control reasons. Accordingly, on January 23, BIS removed license requirements for certain items controlled to India for crime control and regional stability reasons. This rule furthers President Obama’s and former Prime Minister Singh's commitment to work together to strengthen the global nonproliferation and export control framework and realize the full potential of the strategic partnership between the two countries.

 

There has been a change in government in India, but it has not weakened the relationship. Indeed, on January 25, 2015, President Obama and Prime Minister Modi issued the India-U.S. Delhi Declaration of Friendship, which builds on earlier strategic agreements and commits to elevate the Strategic Dialogue to a Strategic and Commercial Dialogue. This reflects the United States and India’s commitment to strengthen commercial and economic ties to advance mutual prosperity, regional economic growth, and stability.

 

Last October, in response to the Venezuelan military's violent repression of the Venezuelan people, BIS imposed new license requirements on the export, reexport, or in-country transfer of certain items to or within Venezuela when intended for a military end use or end user. This new licensing requirement complements an existing U.S. arms embargo against Venezuela for its failure to cooperate in areas of counterterrorism.

 

In recent months, BIS and the Treasury Department’s Office of Foreign Assets Controls have implemented a number of sanctions to deter Russian conduct that violates international norms – specifically, to convince Russia to desist from its territorial claims against Crimea, interference in Ukraine, and potential misconduct elsewhere. BIS’s sanctions cover certain exports, reexports, and transfers to the defense and energy sectors, as well as certain transactions with specified foreign persons.

 

Most recently on January 29, BIS published a rule imposing license requirements, with a presumption of denial, for the export and reexport to the Crimea region of Ukraine of all items subject to the EAR other than food and medicine.

 

As sanctions continue, BIS is coordinating with our international partners on shared definitions, identifying items of strategic concern, and standardizing license decision making. We are prepared to impose additional sanctions if circumstances require. We are also working with the Departments of Energy, State and Treasury, and the National Security Council staff, to harmonize implementation of the Russia sanctions with our European and Asian allies.

 

Deputy Assistant Secretary for Export Administration Matt Borman will discuss these topics in more detail.

 

For the past several years, as part of the Export Control Reform initiative, Commerce, State and other relevant agencies have focused on regulatory reform through the list review process, and internal coordination and improvements such as USXPORTS. I’d also like to mention our ongoing work in related areas –

 

We are working to clarify and streamline the EAR to help ease the burden for the export community.

 

Commerce and State are working on a rule to harmonize the definitions of destination control statements in both the EAR and the ITAR.

 

Last April, BIS published a proposed rule to revise and clarify support documentation requirements for export licenses. The proposed changes include the removal of the international import certificate requirement for BIS export licenses controlled for national security reasons. This requirement is an outdated and burdensome remnant from the Cold War. We are reviewing those comments and we hope to publish a final rule soon.

 

As we move forward with these significant policy and regulatory changes, particularly those related to ECR implementation and the category changes, your input and engagement remains important. These changes will affect the export control landscape for years to come. Your comments and insight help us shape a regulatory regime that fosters our national security, including interoperability with our friends and the continuing vitality of our defense industrial base.

 

Thank you and enjoy the conference.

 

 

   
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