U.S. Department of Commerce
Bureau of Industry and Security
Update 2016 Conference
Prepared Remarks of
Eric L. Hirschhorn
Under Secretary for Industry and Security
October 31, 2016
Thank you, Dan. Thanks to Karen Nies-Vogel, Rebecca Joyce, and our BIS outreach team as well as the many BIS and U.S Government colleagues who have worked on and contributed to this conference.
I would like to introduce our BIS management team. Please stand when I call your name. Please hold your applause until I have read everyone’s name. We have Assistant Secretaries David Mills and Kevin Wolf, Deputy Under Secretary Dan Hill, our new Chief of Staff Aparna Paladugu, Deputy Assistant Secretaries Matt Borman and Rich Majauskas, Chief Financial Officer and Director of Administration Carol Rose, Director of Congressional and Public Affairs Brett Hewitt, and Chief Information Officer Roger Clark.
I’d also like to thank our colleagues from the other departments and Capitol Hill who are involved in export controls, and of course my colleagues at BIS for their important work on the President’s Export Control Reform initiative. It is an honor to work with you.
Overview
Six years ago at this conference, the President set out the general plan to fundamentally reform the U.S. export control system. Many said that the plans were too ambitious to succeed. Previous administrations had tried with at most only moderate success. I am happy to report that thanks to the hard work and support of many talented public servants—we have succeeded.
I know we've described the primary purpose of the effort many times, but let me repeat it so that you all have a concise statement of both the vision to guide future efforts and the standard you can apply to assess our efforts in retrospect.
To enhance our national security and foreign policy objectives, the export control system needed to be reformed—and needs to be regularly revised—in order to:
1. Strengthen military interoperability with NATO and other close allies;
2. Reduce the regulatory burdens on joint development and production among such countries by reducing incentives to design out or avoid U.S.-origin content;
3. Focus the U.S. government’s limited licensing and enforcement resources on the items, end uses, end users, and destinations of greatest concern; and
4. Improve the reliability and predictability of the regulations so that exports and enforcement can be reliable and predictable, thus enhancing not only our national security but also our economic security.
All the accomplishments over the last seven years in pursuit of this vision have set the stage for the ultimate goal, which is the eventual creation of a single export control system with a single set of regulations administered by a single agency. When that is accomplished, the regulatory friction and burden caused by the need for export controls will be at their lowest possible levels.
Revising the control lists and the attendant regulatory structure was a massive effort, not only for many dedicated government officials but for industry as well. In order to be transparent and to get the benefit of industry expertise regarding our reform ideas, the Departments of Commerce and State, working closely with the Department of Defense and other agencies, published ideas for change as proposed rules over the course of the last five years. Commerce received more than 600 public comments on its rules, for which we are grateful. Many of the suggestions were adopted and made for better final rules. Thank you to those who took the time to send in comments.
After reviewing industry comments, we have gradually been moving less-sensitive military items and commercial space-related items to the jurisdiction of the Commerce Department from that of the State Department. This movement has been a centerpiece of our reform effort. Most of the items that moved, and most dual-use items, are now eligible for export to NATO and other close allies without a license, under the conditions of License Exception Strategic Trade Authorization. Many other license exceptions are now available for former U.S. Munitions List items with respect to, for example, exports directly to the governments of these countries, exports of replacement parts, limited value shipments, and temporary exports.
We understand that learning the parameters of these new exceptions is complicated and time-consuming. We are confident, however, that once companies understand the scope of the exceptions, their overall regulatory burden will be reduced significantly. Again, if we are wrong, you need to let us know so that we can improve the utility of the exceptions.
Even for trade that requires a BIS license, the regulatory burdens in the EAR are significantly less than those in the ITAR. The EAR, unlike the ITAR, has de minimis provisions, for example, that allow more non-U.S. companies to focus on price and quality in making purchasing decisions rather than concentrating on avoiding U.S. content, services, or technology for fear of entanglement in the ITAR’s regulatory requirements. The movement of items from the ITAR to the EAR should greatly improve the ability of U.S. companies to collaborate with non-U.S. companies in allied countries on research projects and joint development, which in turn enhances our collective security.
The improvements of the reform effort, however, go far beyond the availability of de minimis provisions. The EAR do not have import licensing requirements, so non-U.S. companies dealing with items moved to the EAR no longer need worry about notifying the U.S. vendor when a component is shipped back to the U.S. for repair.
The EAR also do not regulate defense services or brokering, thus reducing a significant compliance burden. We do regulate the export, reexport, and transfer of commodities, technology, and software but not most other acts pertaining to such items. Our licenses and license exceptions are far less burdensome than the Technical Assistance Agreements or Manufacturing License Agreements required by the ITAR. And for reexports of items subject to the EAR, non-U.S. companies can use the same electronic licensing system as U.S. companies.
We have made BIS licenses more flexible so that they can be used to authorize trade by and among multiple parties. Also, if you have a transaction involving EAR items that will be used in or with ITAR items, you have the flexibility to get a single license from DDTC rather than one from BIS and a second from the State Department. Further, the State Department requires a purchase order to apply for a license but Commerce does not. This means that applications to BIS can cover multiple purchase orders over longer periods, which in turn reduces the total number of license applications you have to file. The Commerce system thus allows exporters and reexporters to resolve any regulatory licensing issues before the deal is completed.
As a result of such flexibilities, applicants now have more incentives and opportunities to work with licensing officers to meet the needs of their complex fact patterns. One company, for example, had over 1200 separate licenses to authorize its activity in respect of a particular program. After thinking through the common denominators for the controlled activities, we were able to work with the company to re-write the authorizations and the conditions so that the entire program was covered with just four omnibus licenses. Complying with the export control requirements associated with the program is now much easier for the companies. At the same time, reviewing and authorizing the transactions has become less burdensome for the government.
We also clarified important terms and definitions to make the system easier to use and understand. One important change affecting non-U.S. companies was to clarify the scope of technology releases, including deemed reexports. Such changes are part of the effort to harmonize, to the extent possible, the EAR and the ITAR to reduce regulatory burdens caused solely by structural and definitional differences between the two sets of regulations.
As for the numbers, we have seen great changes to how U.S. companies export less sensitive defense items and commercial spacecraft items. Since October 2013, when the first two USML categories became effective, the Department of State has seen a 57% reduction in licensing volume. This includes a 67% reduction for the largest categories of licenses by volume—largely parts and components for military aircraft and military gas turbine engines—as well as an 81% reduction in licenses for commercial space-related items. Such data reflect not only the reduction in actual licenses but also in regulatory burdens that exist in the ITAR but not in the EAR.
At BIS we have received more than 37,000 license applications for items that have moved from the ITAR to the EAR. The average processing time since October 2013 is about 17 days, which is in line with the average processing time at DDTC when such items were subject to the ITAR. (Of course, the processing time for items now exportable under license exceptions is zero days.) U.S. exporters have made over 241,000 shipments of transitioned items valued at $15.4 billion under BIS authorizations. This has not been an academic exercise. This work is in addition to our regular flow of dual-use and other applications.
We have also worked hard to create tools and provide training opportunities so that exporters and reexporters can better understand and comply with the regulations. For example, we have created free, online decision-tree tools that allow exporters to apply the order of review, definition of “specially designed,” License Exception STA, and the de minimis and direct product rules to their transactions. These tools request answers to a series of questions to apply applicable concepts to the specific facts of a transaction. In 2015, the tools received more than 33,000 hits, and we expect their use to continue to grow.
We have conducted extensive outreach in the United States and abroad. We estimate that our outreach programs resulted in over 86,000 interactions with U.S. and foreign persons. We have conducted 227 events for industry, including the weekly teleconferences on specific Export Control Reform topics that Assistant Secretary Kevin Wolf hosts, the seminars that are held throughout the country and overseas, and the webinars we produce. Since beginning the weekly ECR teleconferences, we have offered more than two hundred sessions heard by more than 15,000 listeners in the U.S. and elsewhere.
Enforcement
Turning to enforcement, when I started at BIS, I characterized my agenda with three words: “Efficiency, Education and Enforcement.” As I have said repeatedly, without strong enforcement, those who expend energy and resources to comply with our rules are put at an economic disadvantage vis-à-vis those who flout or are unaware of the rules. At my first Update conference as Under Secretary (in 2010), I described Assistant Secretary David Mills as the “skunk at the picnic.” None would dispute that over the intervening years, he has lived up to that name. While the President’s ECR initiative has proceeded ahead full steam, David and his able staff of Special Agents and analysts have aggressively pursued a robust but even-handed enforcement agenda. Their work guards against diversion risk and ensures appropriate consequences for those who violate our export controls, including culpable individuals as well as entities. The accomplishments and successes of BIS Enforcement during the course of the ECR initiative will be described more fully tomorrow by David and his team, but they have left no doubt that enforcement of the controls on items transferred from the USML to the CCL is in good hands.
Of course, the other federal law enforcement agencies responsible for policing exports continue to be involved in the enforcement of 600 and 500 Series exports as well as dual-use exports. But BIS Enforcement adds further value because it is the only federal law enforcement agency whose sole focus is enforcement of export controls and whose enforcement staff—agents and analysts—is entirely dedicated to that purpose. Administration, licensing, and enforcement are most efficiently and successfully performed when housed under the same roof. From determining the proper classification of an item to convincing a United States Attorney that a prosecution of its illegal diversion is in the national security interests of the United States, our agents, analysts, and licensing officers work seamlessly together to carry out our unique mission.
Conclusion
These are some of the national and economic security benefits we have achieved by working together to make Export Control Reform a reality. Our partnership and dialogue with the exporting community has been indispensable to creating clear and predictable rules that increase national security and allow you to reap the benefits of reform. I know that this very positive dynamic will only increase in the future.
Please take advantage of this conference. Ask questions and challenge us! Thank you for attending.
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Let me now take a moment to introduce our next speaker. Kevin Wolf, our Assistant Secretary for Export Administration, has been a prime mover of the reform effort. His efforts, dedication, and energy have driven and nurtured this effort.
Kevin is a distinguished graduate of the University of Missouri and the University of Minnesota, and he spent many years working on export control and embargo matters in private practice before I lured him into the Obama Administration.
It is an honor and a pleasure to have him at BIS and to hear from him this morning.
Please welcome Assistant Secretary Kevin Wolf.