Where Industry and Security Intersect
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I am pleased to be here today to discuss the Clinton Administration's strategic trade control program and to explain how it addresses the proliferation and other security threats we face in an era of major geopolitical transformation. The President considers an effective strategic trade control program to be a critical element of our overall national security posture, and he has directed us to constantly update our system so that it focuses on the new threats we face today.
Since the end of the Cold War, crafting export control policy has become more difficult because the world is more complex and the battle lines between competing interests less defined. The Cold War, as long and costly as it was, had a certain elegant simplicity. The United States and its allies had a clear enemy, and we largely agreed on how it should be contained. Economic sacrifice was often asked and usually made by countries and companies in the name of containment, and that worked.
Now that familiar structure has been replaced by less defined and more ambiguous threats no longer confined to a handful of relatively predictable actors. The immediate threats are now terrorism and the proliferation of weapons of mass destruction to a handful of smaller, geographically diverse rogue states.
At the same time, the rapid spread of advanced technology in a globalizing economy has made critical items widely available, and it has greatly increased the number of nations capable of producing advanced technology. As a result, the United States does not have a monopoly on these items, if it ever did, and it has become harder to reach international consensus on what threats we face and harder to enforce any agreements we do reach. For many nations, economic objectives are now paramount as they seek to penetrate new markets. Yesterday's adversaries are today's customers, and yesterday's allies are today's competitors.
Even when a policy is clear, our ability to implement it is not. The world abhors chemical and biological weapons, for example, but they can be produced with forty-year-old technologies using feedstocks and equipment found in hotel kitchens, breweries, universities and even high schools around the world. Building a nuclear weapon does not require sophisticated computers. The Administration's response to these changed circumstances includes basing its program on four major cornerstones:
With respect to process reform, we have, through Executive Order, revamped the licensing process so that all relevant agencies can review all export license applications, if they wish. In return for that expansion of review authority, the other agencies have committed to Commerce to conduct their reviews within strict time limits, to provide a statutory or regulatory basis for their views, and to participate in a dispute settlement process at appropriate political levels.
Thus far, this system appears to be working. Agencies are taking their responsibilities seriously, and processing times are down, except for licenses that formerly were not reviewed by other agencies. Commerce has sought and will continue to seek delegations of authority from the other agencies narrowing the scope of licenses they wish to see.
It is important to note that some 96 per cent of the applications we review are resolved by interagency consensus at the working level. Those where there are differences of opinion are by far the minority of what we consider, and they are worked out in the dispute settlement process I referred to. Thus far all specific license disputes have been settled and have not had to be escalated beyond the assistant secretary level.
With respect to streamlining, we have updated controls on high performance computers, semiconductors and semiconductor manufacturing equipment, Beta-test software, telecommunications equipment, and chemical mixtures, among others. These changes reflect rapid technological advances that have made previously controlled items "old" technology widely available from numerous foreign sources.
For example, in 1992 we treated a computer capable of running at 195 Million Theoretical Operations per Second (MTOPS) as a supercomputer subject to strict controls. Today, personal computers that exceed this level of performance are being sold for less than $2000 at retail stores such as Best Buy and Radio Shack and through mail order catalogues.
When President Clinton took office he was urged by Congressional leaders of both parties to make long overdue reforms in this area, and I believe our policy has been a model of good government decision making. The President's 1995 decision was the result of a joint interagency recommendation based on work that various agencies, including the Department of Defense, did internally, as well as a private sector study. The studies came to similar conclusions -- that advances in computing technology were making ever-higher performing computers widely available internationally to the point where controls on them would be ineffective. In addition, they concluded that the level of computer power needed for a number of activities, including nuclear weapons development, was already widely available abroad. Other functions, which we wanted to protect, required performance levels well above the levels the President set.
It is also worth noting that none of these studies took into account the rapid development of semiconductor technology that has permitted significant upgrading of existing machines by adding processors as well as parallel processing -- the linking together of many smaller computers to achieve the same effect as a much larger machine. Both of these developments have had an enormous impact on making high performance computers essentially commodity products. In 1996, for example, the average performance level for a multiple processor was 6923 MTOPS, forecast to rise to well over 10,000 this year. The average level for a single processor this year is 655 MTOPS, forecast to rise to 1135 next year.
Our regulations prohibit the export under a license exception of computers that the exporter knows will be used to enhance computational power above the eligibility limit allowed for particular countries. Beyond that, controlling computers today with complete effectiveness would really mean individually licensing computers down to the level of those in your office, which would be absurd administratively and disastrous economically.
The President's policy is a reflection of the reality of computer technology today -- it is available abroad and is rapidly increasing in power and speed. Controls on all but the highest levels have limited utility, and efforts to control at lower levels will not only be unsuccessful, they will limit our ability to widely disseminate American standards and software and damage our companies economically. There has already been considerable consolidation within this industry, and these companies depend on exports for their survival.
In the area of regulatory reform, for the first time in over 40 years, we clarified and simplified the Export Administration Regulations through a comprehensive revision and reorganization, making them more user-friendly and easier to enforce. As a result, exporters have a better understanding of their obligations. All of this has been done in accordance with the goals set by the Trade Promotion Coordinating Committee (TPCC) in 1993.
With respect to multilateral cooperation, the Administration has worked hard to establish the Wassenaar Arrangement, which deals with multilateral controls on exports of conventional arms and sensitive dual use equipment. This is a particularly important development as we transition from East-West Cold War controls to a regime that focuses upon transfers of equipment and technology that could enhance conventional military capabilities in destabilizing ways or increase the access of rogue nations to weapons of mass destruction or the means to deliver them. We continue to work in Wassenaar to build consensus with our new partners on strategic controls and sales of military equipment.
The Administration has also worked to strengthen other multilateral nonproliferation regimes such as the Australia Group, the Missile Technology Control Regime and the Nuclear Suppliers Group by further harmonizing implementation procedures and expanding membership when possible. These actions not only advance our non-proliferation objectives but also enhance U.S. exporters' ability to engage in legitimate trade and compete worldwide on a level playing field.
Finally, we have worked with many of the newly independent states of the former USSR and Central and in Eastern Europe to help them develop effective export control systems. These initiatives are particularly important since many of these countries possess strong technical capabilities to support weapons proliferation programs. It is clearly in our national interest to work closely with them as they develop the legal, regulatory, administrative and enforcement capabilities they need to control sensitive exports.
In all of these initiatives BXA's enforcement program plays a key role in protecting our national security and foreign policy interests, particularly as we focus more on specific end-users and end-uses, and Congress has supported these efforts through additional funds. Through our nonproliferation, counter terrorism, and national security export enforcement programs, we have conducted hundreds of investigations over the last four and a half years. These 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. Just two weeks ago we executed a search warrant on a firm that apparently shipped software for integrated circuit design to China without the proper license.
BXA prohibits exports of items that would make material contributions to proliferation projects abroad, regardless of whether such items are specifically listed on the Commerce Control List in the Export Administration Regulations (EAR). Under the Enhanced Proliferation Control Initiative (EPCI) provisions of the EAR an exporter must apply for a license when he or she knows or is informed by BXA that the end use of an item may be destined for a project or activity of proliferation concern. In addition, the EAR prohibits any US person from supporting proliferation projects in any way -- even when there are no U.S. products or no export transactions involved. For example, following an investigation by Commerce, Customs and FBI, a Long Island resident pled guilty to violating the EPCI provisions of the EAR in that he brokered the sale of Chinese-origin ammonium perchlorate, a rocket fuel ingredient, to Iraq. The shipment was stopped. This "catch-all" control regime is comprehensive and provides an important underpinning to our overall strategic trade control program.
Future Trends
Chemical Weapons Convention
The Chemical Weapons Convention represents a critical step forward in our effort to counter the proliferation of weapons of mass destruction by establishing an international norm whereby nations agree to ban an entire class of weapons. BXA will focus on two major areas -- obtaining data declarations from about 2000 non-governmental plant sites and coordinating international inspections of those facilities. Our objective is to ensure compliance with U.S. treaty obligations in a manner that minimizes costs of compliance for US industry and maximizes protection of confidential business information.
Further Export Control Liberalizations Will Be Limited
We are down now to less than 9,000 licenses annually, and, increasingly, they are limited to items that are multilaterally controlled or items that are controlled to terrorist or other rogue states where our policy is unlikely to change in the short run. Accordingly, we are not likely to see many dramatic control list modifications in the near term. Nevertheless, we have an ongoing need to keep our controls up to date with advances in technology and spreading foreign availability. 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.
I know that at least two nations are of particular interest to this Committee with respect to our export control efforts -- Russia and China. Let me comment briefly on each.
Russia
Russia is continuing to develop its own export control system and is in the early stages of participating in international export control regimes. It is a member of Wassenaar and just signed the NATO-Russia Founding Act which provides a framework for a new substantive relationship between NATO and Russia. It is a party to major non-proliferation treaties and agreements. It has signed but not yet ratified the CWC, as the Russian Parliament still has the CWC before it. BXA is active in providing direct training and support to working with Russian (and NIS) trade and export control officials under our Nonproliferation Export Control Cooperation program. We are encouraged by these developments and hopeful that they will enable us to work out problems in a cooperative way, including cases of diversion or illegal purchases. At the same time, as Mr. Einhorn reported to this Committee last week, although Russian policies with respect to the development and export of weapons of mass destruction are encouraging, actual events from time to time are not consistent with those policies. Until we see greater consistency between Russian policy and practice, including a Russian export control system that is more reliable and fully harmonized with our own and that of our other Wassenaar partners, we will continue to maintain appropriate controls on exports to Russia.
China
Let me close by briefly addressing our licensing policy toward China. The Administration policy toward China is one of constructive engagement. We seek to engage with China to strengthen cooperation in areas where we agree and resolve differences where we do not. Our overall goal is to encourage China to become integrated into the worls system and to meet international norms of behavior, in nonproliferation and export controls, as well as other areas. We believe that expanding trade, business, academic, and government contacts with China is supportive of this goal.
The Administration rejects the view, held by some of our critics, that China is an enemy that must be contained. Our export control policy toward China seeks to support our engagement strategy and creation of higher-paying, export-based jobs in the U.S., while denying licenses for items whose export would pose significant national security risks to the U.S. For this reason the vast majority of U.S. exports to China proceed with no objections by the U.S. Government. However, we scrutinize carefully exports which might raise national security concerns. We also continue to maintain Tiananmen sanctions, which limit the items that can be licensed for China. Where appropriate we impose sanctions on Chinese entities for proliferation or other activities, consistent with U.S. laws.
The Clinton Administration is proud of its strategic trade and non-proliferation record. We have developed an effective interagency process that facilitates legitimate trade while restricting transfers that are inimical to our national interests. We have strengthened our enforcement capabilities, and we have worked effectively with the business community to enlist their support for our control initiatives. In the years ahead, we will continue our efforts to work closely with the Congress so that we can present a united front to the world community on nonproliferation and counter-terrorism.
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.