Where Industry and Security Intersect
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I am pleased to be here in San Francisco to discuss the direction of the Administration's export control program. We have a lot to talk about, so I'll get right into it.
At our last Update, I discussed the turning point for our export control policy -- the shift at the end of the Cold War to identifying national security with global economic competitiveness. In that regard, nothing I said before has changed. That shift continues, and the Clinton Administration remains sensitive to it. But we also have to move beyond it and look ahead at the kind of world we face in the future.
First, however, I would like to recap the last several years of accomplishments, give you an idea of what we are currently working on, and then lay out a couple of issues I believe will be important as we walk over that already well-traveled bridge into the 21st Century.
These last few years have been busy ones for BXA. The Administration realized early on that rapid technological change and economic globalization compelled comprehensive reform of our export control system, reform which balances the need to keep sensitive goods and technologies out of the hands of countries and projects of concern without imposing unnecessary or ineffective constraints on U.S. business. That is precisely why we reformed outdated controls, streamlined our existing export control system, enhanced our enforcement programs, and helped to strengthen multilateral regimes.
In the last three years, we have:
The end of the Cold War has also had significant implications for our own economy, particularly the defense sector. BXA helps defense firms diversify their activities into civilian areas by developing and providing detailed economic and statistical information that helps the government develop policies that ensure our industry and technology base are able to support changing security requirements, as well as develop next generation weapon systems. For industry, we provide information that firms can use to develop new product lines and market existing products both here and abroad. Much of our work is one-on-one with individual companies, and we have a growing stack of success stories as testimony to our efforts.
In addition, we have worked with our embassy defense and commercial officers to provide significant new market information for defense and dual-use companies. These market guides covering Europe, the Pacific-Rim, Western Hemisphere and Middle east are available outside at our booth as well as on the Internet. They explain the procurement process and points of contact in approximately 50 of the major defense and high technology markets around the world. Utilizing a special grant from the Economic Development Administration, BXA was also able to assist two former Naval Shipyards including the Mare Island Redevelopment Agency in Vallejo in participating in its first international trade show this past October. Mare Island generated 35 solid trade leads as a result of its participation which they are actively pursuing.
In addition, if you want more information about our efforts to assist U.S. companies in foreign defense sales, I would encourage you to attend the Defense Trade Advocacy seminar tomorrow.
In addition, we continue to work with the Newly Independent States to help them develop effective export control programs and to assist their defense industries in diversifying into civilian lines of production. We are working with these countries to create new civilian jobs in their own country, while at the same time, matching U.S. firms with potential business opportunities there. Specifically, we have an extensive effort to focus on export control licensing processes and procedures, preventive enforcement mechanisms, industry-to-government relations and electronic automation of the licensing system. The effectiveness of the U.S. export control system is enhanced by our working with these countries to develop strong export control capabilities.
BXA's enforcement programs continue to play a critical role in protecting our national security and foreign policy interests, particularly as we focus more on specific end-users and end-uses. We have conducted hundreds of investigations over the last four years that have led to the criminal prosecution of persons who illegally exported zirconium for Iraqi munitions, unlicensed equipment for India's missile program, brokerage services for Iraqi rocket fuel, and gas masks to suspected Aum Shinrikyo terrorists in Japan, just to name a few. These investigations also included the first civil charges and penalties for alleged unlicensed exports of biotoxins which are controlled to prevent proliferation.
Enforcement is a critical partner for exporters. I cannot stress to you enough the importance of companies to "know their customers," and as always to exercise due diligence in transactions to destinations of proliferation concern. I urge you to work with our enforcement people when you uncover a suspect transaction. Our enforcement organization has developed special programs to help with such "preventive enforcement" activities. We have enforcement representation from Washington, D.C., Los Angeles and San Francisco with us today. They are your best defense against potentially bad transactions.
These are just SOME of the goals I am proud to say we have achieved. There is much more work to do, and some issues for us just never seem to go away -- despite our best efforts.
Further Liberalizations
In looking at the question of further liberalizations we are focussing on areas where we can get the biggest bang for the buck, as it were, consistent with our national security priorities (poor choice of cliche!). That is, are there products, like computers several years ago, where we are controlling in excess of what is necessary for national security, and where liberalization would make a significant difference to exporters?
The two areas that come to mind in that regard are oscilloscopes and machine tools, and we continue to try to come to closure internally on what to do in both areas. The former is moving more rapidly than the latter.
In addition, we are further analyzing our current licensing profile to identify other sectors that might be in a similar situation, but to be candid, I don't expect a great deal more. We are down now to less than 9,000 licenses annually, and, increasingly, they are limited to items that are multilaterally controlled or controlled to terrorist or other rogue states where our policy is unlikely to change in the short run.
But we do have an ongoing need to keep our controls up to date with advances in technology and spreading foreign availability. One reason our computer liberalization was so significant was because our predecessors delayed action, leaving a large number of items on the list that did not need to be there. In sectors like electronics, where product life cycles are short, we need to review our policies regularly to make sure we are not continuing to control old generation items that are now widely available from other sources.
Not unrelated to this problem is the question of Wassenaar implementation. We are now in the process of preparing our control list to conform to that agreed upon by our Wassenaar colleagues. I have to say that providing a publication date always gets me in trouble, so let's just say that I hope this list will be published by the end of this month.
One of the more important and difficult issues now sitting in BXA's lap is encryption. The Vice President announced on October 1 the Administration's policy, which is intended to balance business' need for strong encryption to secure commercial transactions, the individual's need for privacy, and the law enforcement and national security needs of the government.
As we implement the regulations, it has become clear that this is an extraordinarily complex subject with many fast-evolving technologies, each posing its own special problems and questions. The good news is that we have published our regulations and answered many of the questions industry had been raising; I am confident that we have produced a work product that is grounded in a market-driven approach to the problem and which balances the equities I've mentioned.
So far we have received four plans and commitments and have approved three, meaning that those companies are now able to export 56-bit non-key recovery products through a license exception. We continue to receive license applications and are being inundated with commodity classifications and telephone calls for help.
Next comes the even harder tasks of building a key management infrastructure here and coordinating with our allies' policies. We expect the private sector to do the former, but we are preparing legislation to help deal with liability questions for certificate authorities and key recovery agents that should help build key management systems. With respect to other countries, our special ambassador for cryptography, David Aaron, was just here two weeks ago discussing that.
In addition to policy, we have also reformed process. And we want very much to hear from you as to whether the new interagency process is functioning properly. I hope exporters will come forward and report on any problems they are encountering.
We are also working with our sister agencies to have them delegate back to us those items they have no interest in reviewing. The Defense Department has done that to a modest degree, but as they become more familiar with the various kinds of applications we face, I expect additional delegations. We are particularly pleased that the Department of Energy, which has given us extensive delegations, has confined its review to NRL items and to countries of concern. This can only increase the timeliness of the review process.
We also plan a thorough review of the conditions we impose on licenses. We will look at whether they are realistic and clear, and we will examine how we monitor and enforce them. Obviously, conditions are not meaningful if there is no follow up to make sure they are being adhered to.
We continue to grapple with revising the "catch-all" controls that formed a part of the 1991 Enhanced Proliferation Control Initiative (EPCI). Exporters view the catch-all as too broad in scope and the knowledge standard as unclear.
The Trade Promotion Coordinating Committee Report of September 30, 1993, stated that the regulations implementing the catch-all should be clarified by providing a clearer standard of the knowledge that triggers a licensing requirement and by "narrowing its scope to specific categories of commodities." The 1996 EAR rewrite contains a definition of "knowledge." While there is some inter-agency agreement on the need for a more focused "knowledge" trigger list, there is some disagreement on the method to be employed. Some agencies favor applying the knowledge-based catch-all to a "positive" list of items created from the current U.S. dual export control list, while some favor a "negative" list of items that exporters would be permitted to export without responsibility for screening end-use and end-user. There is also some discussion on how to revise the "is informed" process. When a company has been "informed" that a particular transaction presents a risk of diversion activities, no one else is so informed, and thus, this may leave others free to make the sale. In that regard, late last year we put in place new procedures for determining when we will publish the names of entities of concern which I hope will lead to more -- and more timely -- publications. Exporters should bear in mind, however, that it is not enough simply to screen against published lists of end-users. Since the definition of "knowledge" includes "awareness of a high probability" that a proliferation-related use is involved, you need to screen, to pursue and resolve red flags, and to come to us for guidance or a license if you cannot satisfactorily resolve red flags.
One of the most important issues confronting us is ratification of the Chemical Weapons Convention. It is a Presidential priority which unfortunately fell victim to election year politics last September. I am confident that in a less political environment, we will be able to get it approved. Even so, it will be a significant burden on BXA -- but not on business -- which is responsible for receiving industry data declarations and assisting business in preparing them, because we will need to do in two or three months what we had planned on doing in seven -- in all likelihood without any extra money.
The question of how to deal with pariah states is one we have been trying to answer for a long time. Most of the time scholars have concluded sanctions have little effect, and they frequently hurt the imposer more than the recipient as other countries' exporters rush to fill the trade gap.
Sanctions work best when they are broadly multilateral, when the target country is small and relatively defenseless, and, I would argue, when sanction-breaking activity is most likely to lead to media criticism and international embarrassment.
Sanctions work least well when they are unilateral and are driven by home country politics rather than as part of a well thought-through multilateral strategy.
What is new is the increasingly assertive role of Congress in what I call the country-of-the month syndrome. Amendments have been offered for years, but until recently the moderate center used to prevail, and they were defeated.
What is also new is the aggressiveness with which some of this legislation attempts to use economic leverage to influence commercial activity abroad--even activity that has no link to U.S. goods, or to U.S. territory. Part of the problem is the growing evidence that such aggressive use of sanctions can work, and in ways that may appear to support America's efforts to assert its moral and political will. Foreign companies do alter their behavior when faced with limitations on their access to our market. Lobbyists will need to show not only that such extraordinary sanctions are bad in principle, but that they are also counterproductive.
One issue that never seems to go away is the Export Administration Act. Once again -- for the fourth time -- the Congress failed to act last year.
Their inaction was the product of several factors -- some turf issues, resistance to Administration policies for both substantive and political reasons, and lack of business community support for legislation. While the latter is in some respects a compliment -- our liberalizations and reforms have made the Act less important to substantial portions of the business community -- it is also a sign that they see the glass as half empty rather than half full. They are worried that the bill does not give them everything they want. My response has been that the bill gives them important procedural and substantive protections that they will need in the face of future Administrations that might be less helpful than this one. Unfortunately, I have failed to convince them. The result, I fear, will be that we all risk playing defense over the next two years -- fending off legislation that will constrain you instead of supporting our legislation which will provide a firm statutory foundation for continued reform.
That's an update on specifics, and if you would like more information on our programs, accomplishments, or other information on the future of BXA, please visit our web site, which is www.bxa.doc.gov.
Let me close with a few comments on larger issues.
I think everyone has gotten the message that the Cold War is over. Now attention is turning to the prolonged uncertainty of the future. One important part of how we deal with gray-area states, those that are neither friend nor foe; particularly those whose markets are large but whose behavior is often troubling.
The most obvious case is China. Here, we are caught up in a very public debate. The business community sees and understands the significance of the Chinese market and wants as big a piece of it as they can get. They also believe, as do I, that more Western business activity in China leads to more acceptance of Western economic rules and norms; and that the economic internationalization of China will spill over into its politics as well, ultimately affecting the nature of the Chinese government and the policies it pursues.
At the same time, however, there is an active and growing group of people, in the Congress, in the media, and in academia, who believe that China is heading down a road that will make them a committed adversary, and who believe we should abandon the policy I have described and take a much harder line, including denying them a wide variety of items on national security grounds.
The chairman of the House National Security Committee, for example, in a press release last fall, discussed the need to "prevent countries such as China from receiving technologies that they will exploit to increase the strength and effectiveness of their militaries..." In the next breath, he went on to say, "we must assume that any sale to China is also a sale to the China's People's Liberation Army." Putting those two statements together, of course, suggests we should sell virtually nothing to China because we must always assume it will end up in the hands of the PLA, which is presumed to be malevolent. This is not a unique view in the Congress.
With some occasional bumps in the road, the first course I described is largely the policy we have followed the past two and one-half years, but it is also fair to say the Chinese don't make it easy, which has given the other side plenty of ammunition. The Administration has spoken out clearly about China's human rights record and its troubling record of support for weapons proliferation in unstable parts of the world. We have imposed sanctions against China for the latter behavior twice, and we have legislation on the books imposing Tiananmen Square sanctions. The Chinese reaction to these steps has usually been less than conciliatory, often as much related to internal maneuvering in their hierarchy as to genuine policy differences. The result is that while our policy has been consistent, its application has led to peaks and valleys in the relationship that have also spilled over into commercial activities. It has also led to ongoing criticism from those who would treat China as the enemy, that we are not tough enough. In my judgment, doing what they want would produce exactly the China they fear and would not only harm our commercial interests in the region but would also complicate the achievement of our foreign policy goals.
At the same time, it is critical that we maintain consistency in our encounters with China. Nothing would serve us worse than leaving ourselves and the Chinese confused about our goals. Achieving some consensus between the Administration and the Congress is a key element of that consistency.
In closing, I want to say how fortunate we were in the past Administration to have been led by Ron Brown, who knew so well the complexities of our export control and trade policy and how important it is to the business community that we respond to their concerns. Between his tragic death and Congressional efforts to dismantle the Department, we had a long and difficult year. But we are fortunate in the choices the President has made to succeed the him -- first Mickey Kantor and now Bill Daley. I have spent some time with Secretary Daley, and I am confident he is a man who understands the same complexities and will provide the same leadership.
While we are welcoming a new Secretary, our policy will remain the same. You should be confident that we will continue to push for an export control agenda and policy which balances national security and foreign policy interests with our economic interests. The entire Clinton Administration will continue to provide best quality service into this next Century and to do it in close consultation with the private sector. Thank you.
In April of 2002 the Bureau of Export Administration (BXA) changed its name to the Bureau of Industry and Security(BIS). For historical purposes we have not changed the references to BXA in the legacy documents found in the Archived Press and Public Information.