Where Industry and Security Intersect
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I am pleased to be back with PLI to discuss the direction of the Administration's export control program. We have a lot to discuss, so I'll get right into it.
When I spoke to you last year, I mentioned the turning point for our nation's future -- the shift with the end of the Cold War to identifying national security with global economic competitiveness. In that regard, nothing I said last year 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 the bridge into the 21st Century.
These last few years have been very 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 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 That is precisely why we reformed outdated controls, streamlined our existing export control system and worked to enhance multilateral regimes.
In the last three years, we have:
Defense Diversification: As you know, BXA also does more than administer U.S. export controls. During these last few years, through our Needs Assessment and Defense Diversification programs, we have made significant strides in reinforcing the U.S. defense industrial base which has had to deal with shrinking defense budgets. 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.
Export Enforcement: I would also be remiss if I didn't mention the important role that our enforcement programs play in protecting our national security and foreign policy interests, particularly as we focus more on specific end-users and end-uses. Through our nonproliferation, counter terrorism, and national security export enforcement programs, we have conducted hundreds of investigations over the last four 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. Other cases involved illegal exports of police shields to Romania and polygraph equipment to South Africa during the periods when those countries' human rights policies did not meet international norms.
While the issue of enforcement is not always a pleasant topic for many 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, which we continue our efforts to identify.
And in reality, these I have just mentioned 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.
In looking at this question we are trying to focus 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. 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 items that are controlled to terrorist or other rogue states where our policy is unlikely to change in the short run.
At the same time, there is the 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.
One of the more important and difficult issues BXA has been involved with extensively is encryption. The Vice President announced on October 1 the Administration's policy, which is intended to balance a number of important equities -- 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 move forward in developing 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. We are committed to implementing our policy on January 1, and I would urge our business colleagues to be patient. There has so far been something of a tendency in the business community to assume that when we do not answer a question, the answer must be no. In fact, we have not answered because there is no answer -- yet. Grappling with the many issues involved takes time. I am confident that ultimately we will produce a work product that is grounded in a market-driven approach to the problem and which balances the equities I've mentioned.
As I indicated, we have also made a lot of progress reforming our process. Yet more work remains. We need to make sure the Executive Order is functioning properly, and in that regard 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 have been working particularly hard on delegating back to us applications for temporary exports -- for trade shows and the like -- but I regret I cannot yet report success.
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 enhanced proliferation control initiative (EPCI). We understand that exporters view EPCI as insufficiently focused, unclear, and too broad in scope to enable them to comply, with or for the government to enforce, its provisions. And we are working on it.
The Trade Promotion Coordinating Committee Deport to Congress of September 30, 1993, stated that the regulations implementing EPCI should be clarified by "narrowing its scope to specific categories of commodities." While there is interagency agreement on the need to re-focus EPCI, there is some disagreement on the method to be employed. Some agencies favor applying EPCI to a "positive" list of items created from the current U.S. dual use export control list, while some favor a "negative" list of items that exporters would be permitted to export without EPCI restrictions. There is also some discussion on how to revise the lengthy "informed" process. When a company has been "informed" that a particular transaction presents a risk of diversion, no one else is so informed, and thus, this may leave others free to make the sale.
We are currently awaiting consideration by the National Security Council (NSC) of our proposal to resolve this informal issue, and we expect to discuss the other issues into next year.
We are awaiting ratification of the Chemical Weapons Convention. It is an Administration priority which will be resubmitted to the Congress early in next year. 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, 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. So once again, I urge patience.
One issue that never seems to go away is the Export Administration Act. We think that we won a little battle when the Export Administration Act passed in the House of Representatives in the last Congress, but we lost the war when the Senate killed it.
Their action 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 they risk playing defense over the next two years -- fending off legislation that will constrain them instead of supporting our legislation which will provide a firm statutory foundation for moving forward.
That's an update on specifics. Let me close with a few comments on larger issues.
As I said in the beginning, I have spent a good bit of time the past several years talking about the end of the Cold War and the changes it has brought to our licensing policies. I think everyone has gotten that message. Now I see attention turning to what may be the prolonged uncertainty of the future. From BXA's perspective there are two parts to that -- how we handle rogue, or pariah states, and 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.
An increasing portion of my time is taken up with the latter category, and the most obvious case is China. Here, we are caught up in a very public debate. The business community by and large 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 Westernization and more acceptance of Western economic rules and norms; and that the economic internationalization of China will spill over into the political sphere 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 to various degrees believe that China is heading down a road that leads to them becoming a committed adversary, and 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 recent press release, 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 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, by the way, 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 some unstable parts of the world. We have imposed sanctions against China for the latter behavior twice, and we have legislation on the books imposing Tienanmen 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 that would be a self-fulfilling prophecy that 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.
The question of how to deal with pariah states is no easier, though we have been trying to answer it longer. The United States has a long history of employing a variety of sanctions in such cases, and there is a considerable body of literature devoted to analyzing those actions. 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 probably 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, successfully assertive role of Congress in the country-of-the month syndrome. These 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 role of provisions with extra-territorial application, which is a major expansion of America's efforts to assert its moral and political will. I understand there will be a major business anti-sanction lobbying effort. The problem is growing evidence that extra-territoriality works. Foreign companies do alter their behavior. Lobbyists will need not only to show the principle of extra-territoriality is bad, but that it is also counterproductive.
The last time I spoke with you, I touched on the efforts to dismantle the Commerce Department, and the incredible job that Ron Brown was doing to stave off those efforts. The Department is still here, but he isn't. What a difference a year makes. Secretary Brown is no longer with us and I miss him dearly. He 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, but we were lucky to inherit a Secretary Mickey Kantor who could understand these same complexities and provides the same leadership.
While Secretary Kantor has decided to leave the Department, 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.
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.