Where Industry and Security Intersect
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Thank you, Eileen, for that kind introduction. And thank you as well for all of the hard work that you and your staff have put into planning this event.
I am pleased to welcome you to the 15th Annual Update Conference. I see many familiar faces in the crowd, and I look forward to meeting many more of you today.
As you know, the purpose of Update is to assist you, the exporting community, in understanding the various procedures, requirements, and policies administered and enforced by our Bureau. This conference provides a forum for you to ask us questions about issues that you are confronting as you deal with export controls on a day-to-day basis. It also gives us an opportunity to hear from you - the ones who are on the front lines of the exporting world - on ideas as to how export controls can be improved. Indeed, the plenary sessions and breakout groups scheduled for the next two days are dedicated to exploring in detail a number of topics of concern to U.S. exporters, such as controls on technology transfers, the commodity jurisdiction determination and review process, and the interagency license application review process.
I would like to begin by noting that, while this is the 15th Annual Update Conference, it is the first one under our new name - the Bureau of Industry and Security. Many of you may wonder why we made this change and what significance is attached to it. It is really rather simple. Although administering and enforcing export controls is a core responsibility of the Bureau, we are actually engaged in a variety of other activities. For example, we investigate imports and foreign acquisitions that potentially threaten U.S. national security. We represent U.S. industry on issues relating to the Biological Weapons Convention and compliance with the Chemical Weapons Convention. We administer the Defense Priorities and Allocations System to ensure that critical national security needs are met. We advocate on behalf of U.S. companies for foreign defense contracts. We monitor the defense industrial base. We have worked with industry on the national strategies for cyber security and homeland security. And we lead the Federal government's outreach efforts to industry on critical infrastructure protection and cyber security.
Indeed, we deal with a broad range of issues where industry and security intersect. First and foremost, therefore, the name "The Bureau of Industry and Security" is meant to more accurately reflect the full scope of the Bureau's activities. In addition, the name reflects the fact that, in today's world, industry and security are more closely intertwined than ever before. As amply demonstrated by the events of last year, the health of U.S. industry is dependent on security - the security of our borders, our transportation systems, our computer networks, and our mail systems. At the same time, the government is dependent on a vibrant private sector working in partnership with us to protect our security and promote our economic well-being.
This partnership is especially important in the area of export controls. You are on the front lines in evaluating new customers and monitoring exports of your goods and services. And you possess expertise on cutting-edge technologies and the state of global economic competition that we need to tap into when formulating export control policy.
We at the Bureau value our role as the representative of industry in the export control process. We have set up formal Technical Advisory Committees to work with the private sector and to ensure that your views on policy issues and regulations are considered. Senior management also routinely meets with industry representatives - including many of you - to discuss export control matters. We routinely stand up for industry on issues where we believe that other agencies want to impose restrictions on exports without any corresponding national security benefit.
A prime example of this is the interagency process for determining controls on the export of high performance computers. In this process, Bureau staff at all levels worked tirelessly with industry to put together a sound and fact-based argument that raising the control threshold would not harm U.S. national security. We have worked together in the same constructive manner on efforts to lift controls on general purpose microprocessors - again because this makes economic sense without harming U.S. national security. Another example of effective partnership has occurred in situations where our staff has negotiated license conditions with the other agencies that, in many cases, have allowed for the approval of transactions that would otherwise have been denied altogether. In my view - and I know it is biased - the Bureau does an excellent job as an advocate for industry and for the importance of commercial interests in the export control process.
I want to be clear, however, that the Bureau is not simply a lobbyist for industry in the interagency process. We have an independent responsibility to protect the national security of the United States. And since September 11, everyone in the government has been more highly focused on ways to increase the security of our country. This heightened attention to security issues has some consequences. Export license applications are receiving a higher level of scrutiny by agencies to make sure that we are not approving items or technologies that could be used against our armed forces, or that could be diverted for use in proliferation activities.
The extra scrutiny given to licenses involving sensitive technologies destined for critical countries sometimes may result in longer processing times. But this is not true across the board. Indeed, the overall average license processing time decreased from 40 days in Fiscal Year 2001 to 39 days in Fiscal Year 2002. Average processing times for license applications involving China actually have decreased slightly from 76 days during 2001 to 72 days through the first nine months of 2002. And when we discuss the numbers for licenses involving China that are not referred to other agencies, the Bureau's average license processing time has decreased markedly from 26 days in 2001 to 15 days in 2002. We understand that lengthy processing times can cause economic and commercial hardship for many exporters. However, most licenses involving sensitive items are referred to other agencies for review, and we cannot control the pace or quality of their review and recommendations. We are doing our best to act quickly and efficiently on each license application, and will look into steps that we can take to make the interagency review process work more effectively.
I want to emphasize, though, that you in industry can play a significant role in this process. The quality of the information that you provide to us has a clear effect on the process. Just as we expect the defense establishment to make its case that any expanded controls are, in fact, necessary for - and will, in fact, protect - national security, we need industry to help us make the case that proposals for liberalization of controls are justified and will not have detrimental effects on our security. You can be of great assistance in arming us with facts and arguments to show how a specific license or a specific proposal to liberalize controls will be good for business and will not have a detrimental effect on our national security. When industry does this, we will be in the best position possible to represent you effectively and persuasively, and to ensure that interagency decisions are rational, logical, and based on fact rather than unsupported assertions.
Let me now turn to some of the Bureau's major activities - and accomplishments - over the past year. We actually have had a very busy year since our last Update Conference. Focusing first on the realm of export controls:
All of these accomplishments are the result of our staff's hard work at all levels. I would like to thank everyone in the Bureau for their efforts and dedication to our mission over the past year. And I would like to thank all of you in the private sector - including especially the members of the Technical Advisory Committees - for your hard work and cooperation on many of these matters.
Having listed some of our major accomplishments over the past year, I would like to spend a few moments discussing some of our activities for the year to come.
Enormous advances in information and communications technology have created new opportunities for the worldwide expansion of economic activity. Today, it is much easier for companies to create multinational workforces, set up operations and facilities in remote areas of the world, and market and sell their products and services worldwide. Vast amounts of technology - including sensitive information for the design or development of weapons of mass destruction - can be transferred virtually anywhere in the world by the click of a button. And the sheer volume of global trade is growing exponentially as more and more countries come to the realization that free trade and open markets are the surest path to economic prosperity.
Unfortunately, our export control legislation has not changed at the same pace. The Bureau has the difficult mission of administering and enforcing export controls in a way that protects U.S. national security but does not impede legitimate exports or unreasonably interfere with U.S. commercial interests. On the one hand, we need to enhance controls to stem the proliferation of weapons of mass destruction and the means to deliver them. On the other hand, we need to be careful not to restrict or burden legitimate commerce in high-technology items, as it is our export sales that often provide needed revenues for research and development of next generation technologies essential to maintain our commercial and military superiority.
Export Administration Act
This is a daunting task, made even more difficult by the fact that the statutory authority for our dual-use export control system - the Export Administration Act of 1979 - has not been comprehensively revised or overhauled for 23 years. That is why an important priority remains the passage of a new Export Administration Act.
The legislation that currently is pending in Congress - based on Senate bill 149 - would update and refine the dual-use export control system in a way that is good for industry. It would help exporters by providing transparency, predictability, and time limits in the export licensing process. It sets forth procedures for U.S. companies to seek to decontrol mass market items and items that are readily available from foreign sources. It thus enhances the ability of U.S. companies to compete for legitimate international sales on a fair and equal footing with their foreign competitors.
Contrary to many misperceptions, however, the pending legislation also would strengthen U.S. national security. It guarantees relevant agencies a place in the export licensing process and authorizes the imposition of export controls to protect U.S. national security, to deter acts of international terrorism, to stem the proliferation of weapons of mass destruction and the means to deliver them, and to promote U.S. foreign policy objectives. It also substantially enhances our export enforcement capabilities, including increases in penalties for export control violations and new undercover authority for export enforcement agents. Finally, the bill would grant the President the authority to override, for reasons of national security, any administrative decisions to decontrol the export of mass market items or items for which there is foreign availability.
In short, the pending legislation provides the right framework for an effective export control system that is in line with today's global realities. It also provides the flexibility to adjust that system to meet tomorrow's challenges. We have been working very closely with the White House and the Congress to reach agreement on a bill before the end of the current session, and I am still holding out hope that this will occur.
Even with a new Export Administration Act providing an updated statutory framework, you may ask how the Bureau could possibly be effective in controlling the export of sensitive dual-use items and technologies. The Bureau has a staff of approximately 400 people and a relatively small budget. We certainly do not have the resources to scrutinize every export that leaves the United States, let alone effectively monitor the disposition of all U.S.-origin products overseas. Moreover, an increasing percentage of exports are in the form of "nontraditional" exports, such as intangible transfers of technology, which are even more difficult to monitor than traditional exports.
Although the challenge is substantial, we believe that we can be effective in our mission and make a positive contribution to U.S. national security by focusing our limited resources on key "chokepoints" in the system - in terms of what is controlled, the flow of global trade, and key destinations. By focusing our resources and our efforts on these chokepoints, we can maximize our ability to protect U.S. national security.
With respect to the scope of controls, we can work harder to impose tighter controls on a smaller set of the most important technologies. Utilizing information provided by industry, trade statistics, and intelligence reports, we can attempt to identify certain items and technologies that would make a material contribution to advancing the development of a sought-after weapons systems, or items that are on the "shopping lists" of terrorists or countries seeking to develop weapons of mass destruction. Focusing export controls on chokepoint technologies like this would allow us to utilize our resources where they will make the most difference, and may allow us to liberalize controls on other, less critical items that may be more widely available.
Transshipment Countries Export Control Initiative
Another way to maximize our ability to administer and enforce export controls is to focus our international monitoring and enforcement efforts on major chokepoints in the flow of global commerce. As many of you know, a significant amount of global trade passes through a handful of major transshipment hubs, which serve as key distribution points in the global economy. Many such hubs are located near countries that pose proliferation concerns, and potentially could be used by terrorists or rogue nations to divert sensitive items to unauthorized destinations or end-uses. By focusing the Bureau's international efforts on these major transshipment hubs, we can maximize our ability to monitor and enforce controls on sensitive items and technologies. If we can tighten security and enhance export control systems at these major transshipment hubs, then we can increase the security of a significant amount of global commerce - which is obviously in everyone's interest.
For this reason, we have developed and launched the Transshipment Countries Export Control Initiative. The Initiative as currently envisioned has two principal components. First, we envision a government-to-government prong, whereby the Bureau will work with its counterpart export control agencies in key transshipment countries to strengthen their export control regimes and facilitate better enforcement of U.S. laws. The second component would be a government-to-private sector prong, whereby the Bureau works with industry - in particular, companies involved in the transportation of goods through transshipment hubs - to enlist their support in preventing illicit shipments.
Efforts undertaken pursuant to this Initiative will be focused on countries that are significant global commercial hubs, that are geographically proximate to countries of concern, and that have expressed a strong desire to work closely with the United States in combating illicit transshipments. I am leaving tomorrow for a trip to Singapore, Malaysia, and Thailand to engage in bilateral discussions with senior governmental officials there to explore the possibility of a cooperative agenda to address these issues. The Bureau also will be co-sponsoring with the Department of State and the Customs Service a conference for the countries of Southeast Asia that will be held in Bangkok in December of this year to address transshipment issues. In addition, we have begun to reach out to certain key players in the global transportation industry and will continue to do so in upcoming weeks.
Relationship with China
Finally, we can maximize the positive effects of our efforts if we focus on certain key countries that are substantial markets for U.S. products but that pose significant national security threats to the United States. One such country is China.
China is a huge potential market for U.S. companies. Indeed, the United States is currently China's second largest trading partner and the largest non-Chinese foreign investor. Many U.S. companies - both here and in China - have repeatedly stressed to us the growing importance of China's vast domestic market to their bottom line. We clearly see this opportunity and want to help American companies beat out foreign competitors for market share. At the same time, the U.S. Government has some serious concerns about Chinese proliferation activities. China has on a number of occasions exported missile and nuclear-related items to countries of concern. In addition, we are always mindful of the possibility that sensitive U.S. items and technologies that are authorized for export to China for commercial end-uses may be diverted for use in military projects that pose national security concerns.
With these considerations in mind, we have been working hard to take steps that would enhance trade with China in high-technology items while still protecting U.S. national security interests. We have engaged the Chinese and are working on a plan to broaden the effectiveness of end-use visits that the Bureau performs in China. Such visits - which are similar to those that we do with each of our trading partners - help ensure that strategically sensitive exports are not diverted to Chinese military end-users, and thereby strengthen confidence in U.S.-China high technology trade. As we speak, Deputy Under Secretary Karan Bhatia is in China, consulting with senior officials in the Chinese government regarding end use visits there.
We also are working, in conjunction with the State Department, to revive and invigorate our export control cooperation program with China. If we are successful in these efforts to enhance the Chinese export control system, we may be able to resolve some of our proliferation concerns. Success in these areas will have the added benefit of increasing confidence in the bilateral relationship generally, which could allow for greater trade in high-technology items.
In short, we are working hard on a number of fronts to try to make progress in this most complex of our trading relationships. Success will ultimately depend upon the cooperation of the Chinese government and the cooperation of industry.
Having provided you with some flavor of our recent activities and accomplishments, and of our priorities going forward, I would now like to comment on the principles that guide how the Bureau makes decisions and how we strive to interact with others in the government and in the private sector.
As I know you understand, the Bureau's paramount concern is, and must be, the security of the United States. After all, that is why our Bureau was created. The Bureau's credibility - within government, with industry, and with the American people - depends on its fidelity to this principle. We will vigorously administer and enforce export controls to stem the proliferation of weapons of mass destruction and the missiles to deliver them, to halt the spread of advanced conventional weapons to terrorists or countries of concern, and to further important U.S. foreign policy objectives. Where there is real and credible evidence suggesting that the export of a dual-use item threatens our national security, we must act to combat that threat. That is in everyone's interest.
But we also view the concept of national security in its broadest sense. It is important to recognize that protecting U.S. security includes ensuring the health of the U.S. economy and the competitiveness of U.S. industry. We must avoid an export control system that compromises the international competitiveness of U.S. industry without providing appreciable national security benefits.
Another guiding principle - and one that I have touched on briefly already - is that the export control framework under which we operate must be flexible and must acknowledge and adapt to global realities. The political, economic, technological, and security environment that exists today is substantially different than that of 10 years ago, let alone 20 years ago. Laws, regulations, and policies that do not take into account these changes - and that do not have sufficient flexibility to allow for adaptation in response to future changes - ultimately harm national security by imposing costs and burdens on U.S. industry without any corresponding benefit to U.S. security.
Next, the Bureau's rules, policies, and decisions should be stated clearly, applied consistently, and followed faithfully. Bureau decisions should be transparent and Bureau action should be guided by precedent. Uncertainty - and the delay it engenders - constitute a needless transaction cost on U.S. companies and citizens, hampering their ability to compete effectively. An effective export control regime necessarily depends upon the private sector clearly understanding and seeking to implement the Bureau's rules and policies voluntarily.
A corollary principle is that we must make every effort to ensure that all decision making in the Bureau is fact-based, analytically sound, and consistent with governing law and regulations. We do not approach decisions - be they licensing issues, jurisdictional issues, or enforcement issues - with a preconceived or ideologically-driven notion of who is right or who should prevail. A "reasonable person" standard should be applied to all decisions. The effective administration of export controls requires, at its very essence, careful consideration of the facts relevant to each particular case and a balancing of various interests.
A final guiding principle is that effective export controls require international cooperation. Unilateral controls by the United States on technology that is widely available from multiple foreign suppliers do nothing to protect our national security. In fact, such controls may harm our national security by denying our high-tech industries the opportunity to compete on a fair and equal basis with their foreign competitors for profitable export sales to fund future research and development efforts. Such controls also could result in U.S. industry losing its technological superiority in the global marketplace. We harbor no illusions that multilateral cooperation on export controls is easy. And multilateralism must never be reduced to lowest common denominatorism. But it is essential that we seek to cooperate on a multilateral basis if we want to achieve our goal of stemming the spread of sensitive technology to terrorists or countries of concern.
Let me conclude by going back to where I began. In the end, we need to have the cooperation and participation of the private sector in order to maintain the effectiveness of our export control system. As the world has changed, so have the respective roles of government and industry in the protection of U.S. national security.
Because we cannot monitor every export transaction, we must be smart about how we implement controls and allocate our resources. We must focus our controls on chokepoint technologies, and we must focus our monitoring and enforcement efforts on chokepoints in the global economy where we can get the best return on our work. We also must rely on the exporting community to be aware of legal requirements and take steps to effectively and seamlessly implement those requirements in their operations through internal compliance programs and the training of employees. At the same time, we look to industry to provide us with accurate information about the current state of technology and the global marketplace, so that we can bring this information to the interagency process and ensure that policymaking is informed and based on facts - and not preconceived notions.
We aim to be responsive and responsible. And we look forward to working with you on the many interesting issues that we both face.
Thank you very much.