U.S. Department of Commerce

Bureau of Industry and Security

Update 2015 Conference

Remarks of

Eric L. Hirschhorn

Under Secretary for Industry and Security

November 2, 2015





Thank you Dan for those kind remarks. They do remind me of a line a friend of mine once used explaining the difference between a testimonial and a eulogy. With a testimonial, there is at least one person in the room who believes it. Thanks also to Karen Nies-Vogel, Rebecca Joyce, and our BIS outreach team, as well as the many BIS and U.S. government colleagues who have contributed so much to making this conference a success. I’d also like to thank our BIS management team, and our colleagues from the other departments and from the Congress who are involved in export controls and for their important work on the export control reform initiative. It is indeed an honor to work with all of you. Thanks also to the foreign governments who have sent representatives to this conference. It is important that we are able to work with you as well. Finally I’d like to thank Brian Nilsson who is a BIS employee of 21 years who worked tirelessly at the National Security Council for the last 7 years as Director of Export Controls and Nonproliferation. Brian recently has left both BIS and the NSC to move to the State Department where he is serving as Deputy Assistant Secretary for Defense Trade Controls at the State Department. Today I’d like to take a few minutes to outline the success we have achieved over the past 6 years in revising our regulations and processes to establish a control system that is responsive to today’s national security challenges. The success of ECR, Expert Control Reform, represents a successful blending of several critical elements. In 2009, President Obama made ECR a priority. The active support and commitment of former Secretaries Gary Lock, Bob Gates, and Hilary Clinton, the strong support of our current Secretary of Commerce, Penny Pritzker and the level of commitment and cooperation among the export control agencies is unprecedented in my nearly 40 years of experience in this field. An essential element of our success has been the commitment of the exporting community, including many of you in this room, and engaging in a very beneficial, mutually beneficial dialog. We’ve made a number of significant improvements to the Export Administration Regulations in recent years, but the review of the U.S. Munitions List and corresponding changes in the Commerce Control List represent the keystone of the reform effort. We’ve changed the U.S. Munitions List from a list based on open ended subjective design intent standards to one based almost entirely on objective technical or other parameters. This means that an item will be on the U.S. Munitions List only if determined by technical experts, and we rely very heavily on the military services for this, to confer a critical military or intelligence advantage on the United States. If an item is not listed on the U.S. Munitions List, it is not subject to the International Traffic in Arms Regulations. The USML review has removed casual controls for many thousands of unspecified parts and components. We’ve transferred many, many militarily less sensitive items to the licensing jurisdiction of the Department of Commerce. We’ve published final rules on 15 of the 21 categories of the USML and the CCL. All 15 are now effective. A key benefit of the regulatory reform process has been the recognition by all involved that reform does not have a finish line. Our March 2015 notice of inquiry on aircraft and gas turban engines, and a similar October 9th notice about military vehicles and vessels realize that technology does not stand still and that development and production are not the exclusive province of the United States. We and the State Department anticipate issuing similar notices of inquiry for the other revised categories once they’ve been in effect for approximately 18-24 months. More work remains to be done to complete the remaining USML categories and to harmonize the definitions of common terms used in both the EAR and the ITAR. Assistant Secretary Kevin Wolf will be discussing these issues shortly in greater detail. License exception Strategic Trade Authorization, STA, was an important step in the administration’s effort to streamline the licensing and exporting process. STA as most of you know streamlines exports to 36 close allies and friends. Since July 2011, exporters have used STA for well over a billion dollars, that’s with a B, worth of exports. Exporters also continue to make use of other exceptions, such as those allowing for replacement parts, shipments to government end users, temporary exports, and limited value shipments. This action, in turn, has enhanced national security, by expanding military interoperability with our allies and reducing regulatory burdens on joint development and trade with those countries. Allowing the easier cases to be eligible for STA or other license exceptions also reduces the burden on U.S. exporters. We understand that getting a company to the point where STA is more efficient than the old system takes time and resources. Compliance systems must be revised, items reclassified, foreign partners educated, and old habits changed. But we believe that once such initial tasks have been completed, ECR works as intended. We are confident that the exceptions, which are already being used a great deal, will be used even more when exporters and their customers become used to them and make the requisite changes to their internal systems. BIS works hard to insure that we have an informed regulated community. In Fiscal Year 2015, which ended a few weeks ago, we conduced more than 50 outreach events that reached well over 5, 000 people. The bureau’s educational services to the exporting community include online interactive tools, webinars and training seminars, and exporter counselling. Assistant Secretary Wolf conducts a weekly export control call-in where he answers questions on proposed ECR rules and other aspects of the reform effort. These sessions are two way. They increase our understanding of industry concerns and of instances where our regulations could be clearer. We hope they are equally useful to those who phone in. Assistant Secretary Wolf and his colleagues also have conducted outreach to foreign governments and companies that receive controlled items to insure that they understand the opportunities and the obligations of the new system. BIS is committed to conducting as much outreach and industry training as our resources will permit. I hope there is somebody from the Appropriations Committee in the audience. We will continue to target activities that benefit small and medium sizes companies, particularly defense exporters, many of whom are new to the Export Administration Regulations. The benefits of our reforms cannot be realized unless you, the regulated community, understand and comply with them. On October 5th, the Departments of Defense, Commerce, State and Energy completed installing an interagency referral module on the Defense Department’s USXports IT platform. As directed by the President, all 4 agencies now are reviewing and providing their positions on Commerce license applications on a single platform. The next step will be to seek input from industry as we begin to develop requirements for a single portal with a single license application form. Now those of you who recall Secretary Gates’ speech from April 2010 will recall that he talked about not only a smaller yard, in terms of what’s controlled and how it’s controlled but also higher fences around the smaller yard. Export enforcement is critical to our national security. It helps ensure that our technical superiority is not employed against us on the battle field. It also helps ensure a level playing field so that companies who play by the rules are not disadvantaged by those who would profit from willful or ignorant disregard of those rules. Over the past five years we have leveraged our resources through increased interagency coordination. We work with other agencies through the export enforcement coordination center to increase collaboration and the efficient use of all of our agency resources. At the front end of the process, consideration of license applications, our Information Triage Unit facilitates the review of foreign parties to proposed export transactions. During Fiscal Year 2015, again just ended, about 1/3 of our licensed denials involved information emanating from the examination that we undertake at the ITU. At BIS, the synergy created by Export Enforcement agents, working with their Export Administration licensing and regulatory counterparts is unique within the U.S. government. This expertise and teamwork enables a timely focus on issues ranging from complex enforcement cases to the administration of sanctions. Export Enforcement is developing new administrative enforcement guidelines to improve transparency and predictability as well as to bring our enforcement approach more into alignment with that of the Office of Foreign Assets Control. Tomorrow, Assistant Secretary David Mills will preview these important proposed revisions. I’d also like to repeat my long standing message that our enforcement efforts seek to focus on truly bad actors, not those who have decent compliance programs and a decent compliance culture, make a mistake and then work with us to remedy the situation. The exporting community has made extensive investments in reclassifying its products, modifying IT systems and training employees in the new process and the changes to the U.S. Munitions List, the Commerce Control List, and the corresponding sets of regulations. I’d like to take one more minute to share with you some of the quantitative and qualitative measurements of the return on your hard work. ECR can perhaps be best understood by viewing the countries of the world in three main groups. The first is the 36 NATO and other close allies that are eligible to receive military items subject to the EAR under license exception STA. Your benefits include timely exports to key defense allies, enhanced U.S. and partner country affordability throughout the product life cycle, the absence of unanticipated license conditions, and a reduction in licensing burdens. BIS‘s Munitions Control Division which licenses 600 series items and reviews STA transactions processed more than 13,00 licenses during Fiscal Year 2015. And remember three years ago the entire bureau processed only 21,000 licenses, so this is a big jump for us. We believe that for you, the exporters, the benefits substantially exceed the hard work and investment that you’re making to adjust to the new system. The second group of countries, the other end of the spectrum, are those subject to arms embargos. ECR will make no change in the long standing U.S. policy to deny sales, including sales of military items transferred to the CCL, to this group of nations. The third group, by far the largest, includes the rest of the world, as to which ECR provides worldwide market opportunities and eligibility for de minimis treatment. The one size fits all ITAR controls contain no de minimis exclusion which means that even a small amount of U.S. content incorporated into a foreign end product subjects that product to U.S. reexport controls. Export control reform changes enhance the defense industrial base by reducing incentives for foreign companies to make their products ITAR free.

Let me step outside of ECR for just a couple more minutes and give you some updates on country policy. First Cuba. Last December the President announced a new course in our relations with Cuba. A course that would engage and empower the Cuban people. These steps build upon actions taken since 2009 that have been aimed at supporting the ability of the Cuban people to gain greater control over their own lives and determine their country’s future. In January, the Commerce and Treasury Departments took coordinated actions that included changes to licensing policy and license exceptions in the EAR that are consistent with these goals. On July 22nd, BIS published a second rule, implementing the Secretary of State’s rescission of Cuba’s designation as a state sponsor of terrorism. Most recently, BIS published a third rule on September 21st that amended the terms of existing license exceptions available for Cuba, increased the number of license exceptions available for Cuba, and created a revised licensing policy in the EAR. Last most Secretary Pritzker visited Cuba to participate in the inaugural U.S.-Cuba regulatory dialog which will facilitate implementation of President Obama’s Cuba policy and associated regulatory changes. Deputy Assistant Secretary Matt Borman who accompanied the Secretary and is participating in the dialog will update you on this during his panel tomorrow. BIS and the Office of Foreign Assets Control have implemented a number of sanctions to deter Russian conduct that violates international norms. Specifically, we seek to convince Russia to desist from its territorial claims against Crimea, cease its interference in Ukraine and, importantly and I think too often overlooked, refrain from misconduct elsewhere. Our sanctions cover exports to the defense and energy sectors as well as transactions with specified foreign persons who have been placed on our Entity List. Most recently we issued a final rule on August 7th adding a Russian oil and gas field, the Yuzhno-Kirinskoye field, (I never took Russian, I’m sorry) to the Entity List. Exports to this field are restricted because they present an unacceptable risk of use in producing oil in a Russian deep water location. BIS is coordinating with our international partners to identify items of strategic concern and is working hard to minimize damage to allies and friends. But we are prepared to impose additional sanctions if circumstances so require. The future of sanctions is dependent on President Putin’s willingness to comply with the Minsk II packages of agreements to alleviate the ongoing war in the Donbas region of Ukraine and to respect Ukraine’s territorial integrity.

On July 14th, the P5+1 countries and Iran agreed on a Joint Comprehensive Plan of Action to ensure than Iran’s nuclear program will be exclusively peaceful. Building on key parameters that were announced by the same group in April 2015, the joint comprehensive plan, I haven’t got the acronym down yet, JCPOA will provide Iran with phased sanctions relief upon verification that Iran has implemented key nuclear commitments. Currently all of Commerce’s controls pertaining to Iran remain in place. The Office of Foreign Assets Control licenses the export or reexport of items that are subject both to our regulations and OFAC’s Iranian Transactions and Sanctions Regulations. When implementation day is reached, which would be probably early next year, most U.S. sanctions will remain in place. This is because they largely are directed not at Iran’s nuclear activities, but at its continued sponsorship of terrorism and ballistic missile development.

I’m about to go to China for the annual meeting of the Joint Commission on Commerce and Trade and I can tell you that we remain committed to facilitating trade with China, of commercial items including high technology items for civilian end uses and civilian end users. It is and continues to be U.S. policy however, not to support exports of military items to China, exports of many types of items for Chinese military end uses or end users, or exports that may be diverted to proliferation or military related end uses.

These then are some of the national and economical security benefits we’ve achieved by working together to make export control reform a reality. Our partnership and dialog with the exporting community have been dispensable to creating more reliable and predictable rules that in turn enable U.S. companies to be more reliable and predictable suppliers. This enhances our national security, which of course includes economic security.

Please take advantage of this conference. Ask questions and challenge us. Follow all of the conference coverage on Twitter, on our account at bisgov, no dot, and under the hashtag, I guess its #bisupdateconf. Thank you all for attending and thank you all for your attention.

I am now going to take a few minutes to introduce our next speaker, Kevin Wolf, who as our Assistant Secretary for Export Administration has been a prime mover of the reform effort. His energy, intelligence, collegiality, and least in his view, even his humor have driven and nurtured this effort. Nothing in the official catalog, and it is extensive, of his responsibilities begins to illustrate the way in which he served as a spark plug of expert control reform. Like Secretary Pritzker from whom you are going to hear at lunch time, he is full of energy and always committed to getting the job done. It is an enormous pleasure to have Kevin at BIS and to hear from him this morning. Please welcome Assistant Secretary Kevin Wolf.