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RL30169: Export Administration Act of 1979 Reauthorization
Ian F. Fergusson, Coordinator
Updated March 26, 2001
The 107th Congress has shown an interest in revising the Export Administration Act of 1979 (EAA). This Act, which had last expired in 1994, was reauthorized until August 20, 2001 at the end of the 106th Congress (H.R. 5239, P.L. 106-508). The Export Administration Act of 2001 (S. 149) was introduced by Senator Mike Enzi on January 23, 2001. The bill would delegate from Congress to the executive branch its express constitutional authority to regulate foreign commerce. This delegation of export controls has traditionally been temporary, and when it has lapsed, the President has declared a national emergency and maintained export control regulations under the authority of an executive order. The EAA, which was written and amended during the Cold War, focuses on the regulation of exports of those civilian goods and technology that have military applications (dual-use items). Export controls were based on strategic relationships, threats to U.S. national security, international business practices, and commercial technologies that have changed dramatically in the last 20 years. Many Members of Congress and most U.S. business representatives see a need to liberalize U.S. export regulations to allow American companies to engage in generally unrestrained international competition for sales of high-technology goods. But, there are also many Members and national security analysts who contend that liberalization of export controls over the last decade has contributed to foreign threats to U.S. national security, that some controls should be tightened, and that Congress should weigh further liberalization carefully.
While EAA authorizes the Department of Commerce to regulate U.S. exports of most dual-use commodities in consultation with the Department of Defense and other agencies, several other U.S. government agencies regulate exports of specified goods and technologies. For example, the Department of State must approve exports of defense articles and defense services that are identified on the U.S. Munitions List, which includes some dual-use items such as commercial communication satellites. See the box below for a list of other government organizations involved in export administration.
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Export controls in time of war have been an element of U.S. policy since the earliest days of the republic. (1) The end of WWII, however, ushered in a new era in which export control policy would become an extensive peacetime undertaking. The start of the cold war led to a major refocusing of export control policy on the Soviet-Bloc countries. Enactment of the Export Control Act of 1949 was a formal recognition of the new security threat and of the need for an extensive peacetime export control system.
The 1949 Act identified three possible reasons for imposing export controls. Short-supply controls were to be used to prevent the export of scarce goods that would have a deleterious impact on U.S. industry and national economic performance. Foreign policy controls were to be used by the President to promote the foreign policy of the United States. The broad issues of regional stability, human rights, anti-terrorism, missile technology, and chemical and biological warfare have come to be served by these controls. National security controls were to be used to restrict the export of goods and technology, including nuclear non-proliferation items, that would make a significant contribution to the military capability of any country that posed a threat to the national security of the United States.
Coincident with the establishment of the post-war U.S. export control regime was the establishment of a multilateral counterpart involving our NATO allies. The large amount of critical technology being transferred from the United States to the NATO allies, and the growing capability for technological development by the allies themselves required the establishment of a multilateral control regime. Toward this end, the Coordinating Committee for Multilateral Export Controls (CoCom) was established in 1949. CoCom controls were not a mirror image of U.S. controls but generally did reflect a uniformly high level of restrictions.
With little change in the perceived threat, the Export Control Act was renewed largely without amendment in 1951, 1953, 1956, 1958, 1960, 1962, and 1965. With the onset of the era of "detente" in the late 1960's there occurred the first serious reexamination and revision of the U.S. export control system. At this time, the growing importance of trade to the U.S. economy and those of our allies began to exert significant political pressure for some liberalization of export controls. Congress passed the Export Administration Act of 1969 to replace the near-embargo characteristic of the Export Control Act of 1949. The continued to shift of policy toward less restrictive export controls continued in the renewal of the Act in 1974, 1977, 1979, 1985, and some moderate further liberalization occurred in the following years.
The collapse of the Soviet Union in 1989, an event partially attributable to the success of U.S. cold war export control policy, marked a dramatic change in the nature of the external threat the United States now faces. Over the course of the Bush and Clinton Administrations, the export control system has been reduced in scope and streamlined, but the basic structure of the law remains intact. There are many who see a need to revamp the Act, whether to enhance exports, to shift the focus to current national security threats, or to increase penalties for violations.
The dissolution of CoCom in 1994 and its replacement by the Wassenaar Arrangement in 1997, also significantly changed the export control environment. (2) This new multilateral arrangement is more loosely structured than CoCom, allowing much wider variance between what is controlled by the United States and other members of the arrangement. Generally more liberal control practices abroad raise important questions about the ultimate effectiveness of U.S. export controls (under either the current or a revised EAA) in achieving national security objectives and the fairness of unilateral controls to American industry.
A lack of consensus on key issues has meant that Congress has not been able to agree on measures to reform the Export Administration Act that have been introduced since the 101st Congress. The export control process was continued from 1989-1994 by temporary statutory extensions of EAA79 and by invocation of the International Emergency Economic Powers Act (IEEPA). Thereafter, export controls were continued for six years under the authority of Executive Order No. 12924 of August 19, 1994, issued under IEEPA authority. Many of those who favor reforming the Act, whether to liberalize or tighten controls, contend that operating under IEEPA imposed constraints on the administration of the export control process and made it vulnerable to legal challenge, thus undermining its effectiveness. Legislation passed by the House and Senate and signed by the President on November 13,2000 (P.L. 106-508) extended the EAA of 1979 until August 20, 2001, temporarily removing the need to operate the export control system under IEEPA powers. (3)
Legislation to rewrite the Export Administration Act was introduced in the 104th -106th Congress. In the 104th Congress, the House passed the Omnibus Export Administration Act of 1996 (H.R. 361) on July 16, 1996, after hearings and consideration by the Committee on International Relations, the Committee on Ways and Means, and by the Committee on National Security. On July 17, 1996, the bill was received by the Senate and referred to the Committee on Banking, Housing and Urban Affairs, which held a hearing but took no further action. In the 106th Congress, the Export Administration Act of 1999 (S. 1712) was introduced by Senator Michael P. Enzi. On September 23, 1999 the Senate Banking Committee voted unanimously (20-0) to report this legislation to the Senate floor. Action by the Senate on S. 1712 was not taken due to the concerns of several Senators about the bill's impact on national security.
The EAA and the implementing Export Administration Regulations (EAR) establish policies and procedures for the regulation of exports and set out which items need to be licensed for export to which destinations. Many of the current procedures were established by executive orders and regulations. The proposed Act (S. 149) would modify certain procedures and codify them. The Commerce Control List (CCL) currently provides detailed specifications for about 2400 dual-use items including equipment, materials, software, and technology (including data and know-how) likely requiring some type of export license. In many cases, items on the CCL will only require a license if going to a particular country. Yet some products, even if shipped to a friendly nation, will require a license due to the high risk of diversion to an unfriendly destination or because of the controversial nature of the product. The end-use and the end-user can also trigger a restriction. The CCL is periodically updated (with the benefit of significant input from other government agencies) to decontrol broadly available items and to focus controls on critical technologies and on key items in which the targeted countries are deficient. A major revision of the EAR was completed in 1996. It streamlined the licensing process and provided that exporters could follow a step-by-step process to determine whether a license was needed.
The task of the Bureau of Export Administration (BXA) of the Department of Commerce is to provide a complete analysis of each of the 10 to 12 thousand license applications received each year, reviewing not just the item in question but also its stated end use, as well as the reliability of each party to the transaction. (4) Within 9 days of receipt of the license application, BXA must notify the applicant as to whether the application is accepted, denied, in need of more information, or is being referred to other agencies for review. In practice, about 85% of all applications for a license are referred to other government agencies for evaluation, extending the length of the review process.
The current regulations give the Departments of Defense, Energy, and State a direct and equal role in the review of all license application submitted to the BXA. The interagency review process is facilitated by the use of several established interagency groups that provide broad expertise and help give a timely interagency consultation.
When review of a license application by another agency is requested by BXA, regulations give a set time table and procedure for that process. Within 10 days of such referral the receiving agency must advise BXA of any information deficiencies in the application. (Time taken to find such information does not count against the total allowed processing time). Within 30 days of the initial referral the reviewing agency will give BXA a recommendation to grant or deny the license application. If no recommendation is made within the 30-day period the reviewing agency will be deemed to have no objection to the license decision of BXA. If there is interagency disagreement the EAR contains a three tiered dispute resolution process set with explicit time limits for each stage of that process. (5) Disagreements arise on about 6% of all license applications, and approximately 93% of all such disputes are resolved by consensus at the first tier.
BXA's goal is to make a decision on all license applications no latter than 90 days from the date of registration with the BXA. The recent goal of the BXA review process has been to use strict time limits mixed with extensive inter-agency review to assure an expedited, but thorough review process. BXA reports that 96% of all license applications are processed and resolved within the 90-day time limit. (6) Interagency review typically takes less time than allowed in the regulations. But, if an agency needs more time for a thorough review it has the option of "stopping the clock."
BXA's denial of an export license must be explicitly supported by the statutory and regulatory basis for the denial, giving specific considerations and what modifications would allow BXA to reconsider an application. An explicit appeal procedure is specified in the EAR. One possible basis for appeal is an "assessment of foreign availability." If the item in question can be shown to be readily available from a non-U.S. source in sufficient quantity and of comparable quality then a license denial may, in some cases, be reversed.
In deciding the manner in which to restrict exports of goods and technologies, and to which destinations, current policy calls for consideration of several factors: a) the potential contribution of the export to the ability of the recipient to threaten U.S. security interests, (7) b) the importance of the goods or technology to U.S. military forces and the extent to which they "would permit a significant advance in a military system" of a threatening country, (8) c) the likelihood that the recipient will divert the export to another party who poses a threat to U.S. security, and d) the ability of the United States, in conjunction with other countries or multilateral regimes, to prevent the proposed recipient from obtaining identical or similar goods.
Based on the evaluation of these and other criteria, the U.S. government regulates exports using a range of approaches:
On January 23, 2001, Senator Michael P. Enzi introduced the Export Administration Act of 2001 (S. 149). Hearings were held on this legislation by the Senate Banking Housing and Urban Affairs Committee in February 2001, and the measure was reported favorably to the Senate by a vote of 19-1 on March 22, 2001. This bill is similar though not identical to the Export Administration Act of 1999 (S. 1712), introduced by Senator Enzi in the 106th Congress (see following sections on Differences between S. 1712 and S. 149 and Changes from Current Law). Like S. 1712, S. 149 attempts to update the Act and to strike a new balance in the U.S. export control regime between national security and economic concerns. The major provisions of the bill are:
National Security Export Controls (Title II). The bill would authorize the President to prohibit, to curtail, or to require a license for the export of any item for national security purposes (Sec. 201) and direct the Secretary of Commerce, with the concurrence of the Secretary of Defense, to establish a National Security Control List within the Commerce Control List (Sec. 202). S. 149 would focus controls on the current threats to national security, such as proliferation of weapons of mass destruction and terrorism (although detailed provisions regarding terrorism are included under foreign policy controls), rather than communism. The President would be directed to establish a country tier system and assign each country to a tier for each item controlled for national security purposes (Sec. 203). The bill also requires the imposition of sanctions against persons who violate regulations issued pursuant to a multilateral export control regime, and other sanctions against persons who engage in the proliferation of missiles, chemical weapons, or biological weapons. It would limit the items that could be controlled for national security purposes: the re-exportation of items that incorporate controlled U.S. content valued at 25% or less of the total value of the items, or valued at 10% for countries identified as supporting terrorism (Sec. 204), and items that are available from foreign sources or that have a mass-market status would generally not be controlled (Sec. 211). If the President determines that decontrol of an item subject to foreign availability, mass market or re-export criteria constitutes a significant threat to national security, the item can be controlled under the enhanced control provision (Sec. 201). Like EAA79, Title II does not prohibit any export, nor does it direct the administration to deny a license application for any reason, nor does it require a license for any commodity to any end-user in the interest of national security. The determination of the goods and destinations subject to control are left to the discretion of the executive branch.
Mass Market and Foreign Availability. The bill would charge the Secretary of Commerce with determining on a continuing basis whether any item currently subject to export control for reasons of national security meets specified criteria for mass market or foreign availability status (Sec. 211). If an item does meet this criteria, it would be removed from the national security control list. Such a determination can be requested by any interested party (Sec. 205). The President would be given the power to set aside a foreign availability determination for reasons of national security, and when there is a high probability that foreign availability can be eliminated through negotiations, or to fulfill international obligations. If those negotiations fail or agreement cannot be reached within 18 months the set-aside would end (Sec. 212). The President may also set-aside a mass-market determination for reasons of national security or to fulfill international obligations. The President must review this determination every six months (Sec. 213).
Foreign Policy Export Controls (Title III). The legislation would authorize the President to control exports for the purpose of promoting foreign policy objectives (such as peace, stability, and human rights) and deterring and punishing terrorism. The bill would place several requirements, limitations, and prohibitions on the use of such controls such as it would prohibit controlling re-exports for foreign policy purposes; it would generally prohibit controlling items subject to a binding contract (Sec. 301); it would require 45 days notice and consultation before imposing a control (Sec. 302); it would require the President to clearly state objectives and criteria for controls which would be reported to Congress (Sec. 303-304); and it would require the President to review all such controls every two years (Sec. 307). S. 149 would also allow the President to impose controls prior to notifying Congress in particular situations (Sec. 306); it would allow him to terminate any such control not required by law (Sec. 308);it would allow him to impose controls to comply with international obligations (Sec. 309). It does require a license for the export of certain items to countries that support international terrorism (Sec. 310).
License Review Process (Title V). The bill would establish a license review process that is similar to the current process, but with a notable difference. The current regulations (created by Executive Order 12981) specify that the Departments of Defense, State, and Energy have the authority to review any license application submitted to the Department of Commerce. S. 149, in contrast, specifies referral by the Secretary of Commerce to the Department of Defense and other departments and agencies as the Secretary considers appropriate. The bill would make statutory current rules that subject application review to a strict time schedule by allowing 30 days for interagency review. This time schedule can be interrupted if agencies need additional information on an application, but such delays also have specified time limits (Sec. 501). Like the current process, if there is no agreement by the reviewing agencies, the license is referred to an interagency dispute resolution process. S. 149 specifies that the initial level of this process be a committee chaired by a designee of the Secretary of Commerce who would have the authority to make a decision on the license application after consideration of the positions of the agencies. This decision can be appealed to a higher level of review, but only by a Presidential appointee. S. 149 does not specify the form of higher levels of the dispute resolution process, but it does stipulate that decisions at higher levels be made by majority vote and that the whole appeals process be completed or referred to the President within 90 days of the initial referral by the Department of Commerce (Sec. 502).
Penalties and Enforcement (Title VI). The legislation would authorize substantially higher criminal penalties than those contained in the EAA and IEEPA (Sec. 603). Willful violations by individuals would be punishable by a fine of up to 10 times the value of the exports involved or $1,000,000 (whichever is greater), imprisonment of up to 10 years, or both, for each violation. Willful violations by firms would be punishable, for each violation, by up to 10 times the value of the exports involved or $5 million, whichever is greater. Individuals and firms convicted of an offense would also be required to forfeit to the United States property interests and proceeds involving the violative exports, subject to procedures set out in the forfeiture chapter of Title 18 of the U.S. Code. The proposed S. 149 would significantly raise civil penalties as well, allowing the Secretary to impose a fine of up to$500,000 for each violation, in addition to, or instead of, any other liability or penalty. As under current law and regulations, the Secretary could also deny the export privileges of a violator and exclude any person acting in a representative capacity from practicing before the Commerce Department in an export matter. Persons convicted under other named statutes (e.g., IEEPA, Arms Export Control Act) could also be denied export privileges by the Secretary for up to 10 years, as could persons associated with the violator. Civil penalties could only be imposed after notice and a hearing and would be subject to judicial review in accordance with provisions of the Administrative Procedure Act. The bill would authorize the Secretary to impose temporary orders denying a person's export privileges in a broader range of circumstances than permitted under the prior EAA, allowing the Secretary to act where there was reasonable cause to believe that a person was engaging in or about to engage in activity violating the EAA, a criminal indictment had been returned alleging a violation of the new EAA, or one of the statutes whose violation may result in a denial of export privileges. While temporary denial orders could be imposed without a hearing, affected persons would have a limited right of administrative appeal and judicial review (Sec. 608).
Competing Perspectives In Export Control Legislation (11)
A principal theme in debates on export administration legislation is the tension between commercial and national security concerns. These concerns are not mutually exclusive, and thus it is often difficult to characterize opposing camps. For example, nearly everyone favors reform of the current system, yet no one considers themselves opposed to national security. Generally, however, many who favor reform of the current export control accept the business perspective that such reform would assist U.S. business to compete in the global marketplace. Others view the issue with a national security perspective. To this group, reform should be concerned less with the abilities of U.S. industry to export and more with effective controls placed on terrorists, violators of human rights, and proliferators of weapons of mass destruction. From these different perspectives, controversies arise regarding which items should be regulated for national security and foreign policy purposes, which items can realistically be regulated, which destinations warrant close scrutiny, and which regulating mechanisms are most effective.
Foreign Availability and the Effectiveness of Multilateral Regimes. Industry groups believe that when technologies are available from foreign suppliers, due to non-existent or weak multilateral controls, unilateral controls force U.S. firms to cede the market to overseas competitors, while doing little to promote national security. Thus, they argue, legislation should authorize only those export controls that will be effective, and should concentrate on controls that coincide with the multilateral regimes of which the United States is a member.
Others contend the United States should strictly control any export that is likely to damage U.S. security or foreign policy, and that foreign availability should not be a primary consideration in determining the need for unilateral controls. While acknowledging the weaknesses of current regimes, opponents of further liberalization believe that rather than acquiescing to the international availability of sensitive technologies, the U.S. should actively promote more effective regimes and should not validate proliferation of sensitive technologies by taking part in that sales market.
The Licensing Process and Organization of the Export Control System. Industry leaders identify several problems with the existing licensing system: First, overlapping jurisdiction between the Commerce and State Departments with regards to certain dual-use products makes it unclear where the exporters need to apply for licenses. Second, extended time periods required for license approval compromise the reliability of U.S. suppliers and make it hard for manufacturers and customers to plan ahead. Third, the licensing system does not reflect advances in technology, foreign availability of dual-use items, and the economic impact of export controls on the industrial base. Finally, there is no opportunity for judicial review of licensing decisions.
Others consider foreign availability and economic impact to be important considerations, yet secondary to national security. Export administration officials claim that they conduct thorough, fair, and expeditious license reviews. Time is required to check proposed export items against lists of controlled items, check end users and end uses against lists of suspect recipients, and coordinate with several government agencies. Officials say they must be able to "stop the clock" to obtain additional information and investigate certain issues on a case-by- case basis to insure that sensitive technologies do not find their way into the wrong hands. Some analysts who see national security as the primary purpose of the export control regime would question whether BXA belongs in the Department of Commerce. That Department's mission is mostly one of promoting exports and generally serving commercial interests. This, in some eyes, may create an institutional bias towards the granting of export licenses and skew the process against national defense goals. Other analysts point to the full and equal participation of other agencies, particularly the Department of Defense, in the current structure in arguing that such bias is unlikely to prevail.
China. The focus of the debate over export controls in regard to China has focused on how to benefit from the potentially vast Chinese market and low Chinese production costs while minimizing the risk to U.S. security interests of exporting sensitive dual-use technologies to China. Some representatives of the business community have argued that U.S. export controls are too stringent. They claim such controls have hampered technology transfers to China in the past few years while the controls of U.S. allies have not. They reported that Chinese companies will not ask U.S. companies to bid on sales because of the delays associated with the U.S. licensing process. As one industry spokesman has testified: "The result has been that the Chinese are denied nothing in terms of high technology, but U.S. firms have lost out in a crucial market. This serves neither our commercial nor our strategic interests". (12)
However, other analysts and several Members of Congress have expressed grave concerns about China's dual-use technology acquisitions. They cite findings of the Cox Commission that China evaded existing export controls to illegally obtain missile design and satellite technology and that China circumvented end-user controls on high-performance computers. (13) According to this view, the Commission's findings show the need for both tightened controls and greater enforcement of export controls against China.
Impact on the U.S. Economy and U.S. Business. The argument is often heard that export controls damage the U.S. economy because they cause U.S. high-tech companies, farmers, and others to lose overseas sales, thereby suffering a loss of global competitiveness, decreased ability to develop new products and services, and a loss of profits and jobs. Although export controls probably do have an overall negative impact on the economy, the size of that effect may be overstated by individual claims of adversely affected firms and sectors. International trade -- the exchange of exports for imports -- increases national income over what would be possible without trade. Therefore, export controls, by reducing exports, curtail this exchange and degrade U.S. economic welfare. Standard economic analysis indicates that the total economic loss associated with imposing export controls would be the net outcome of several partially offsetting effects, depending on whether one is a producer or consumer and whether one's economic circumstances are linked to exports or imports. Reduced exports in the long run translate into reduced imports and diminished economic welfare. But, the resources that produced those exports are not lost to the economy and, when applied to other uses, tend to raise economic welfare. Reduced imports in the long run assist domestic import competing activities which will find their economic position improved. The combined effect of reduced exports must be an unambiguous economic loss to the overall economy, but a loss that is a fraction of the initial reduction of export sales. A reasonable conjecture about the net welfare loss attributable to export controls would be between 5% to 35% of the value of lost export sales, with the more probable effect in the middle of that range rather than at the extremes. Based on a 1995 estimate of exports lost due to export controls, these fractions translate into an estimated welfare loss ranging from a low of $500 million to a high of $14 billion, but with the greatest probability attached to a central range of about $2 billion to $4 billion. Losses of this magnitude amounted to from 0.007% to 0.2% of GDP in 1995. Liberalization of export controls since the early 1990s suggests that this burden would have become even smaller today. (14)
Sectoral Costs. As suggested above, the direct cost of export controls to particular firms, industries, and sectors proportionately is larger than the net cost to the overall economy. The open and flexible nature of the U.S. economy helps to minimize such costs, although, significant burdens may still remain. Estimates of lost export sales are relevant to an evaluation of the U.S. export control regime. Lost sales provide some insight into possible adjustment costs and other social costs associated with export controls. They may also become useful in any discussion of equity of burden and possible policies to compensate those harmed by export controls. In theory, the federal government can provide compensation to ameliorate the domestic burden of export controls.
Economic Sanctions and Export Controls. In addition to the laws and regulations that restrict certain exports in order to protect U.S. national security or foreign policy, other laws and regulations restrict certain types of exports to punish or coerce individuals, companies, or countries that have violated international norms in such areas as proliferation, regional stability, terrorism, drug trafficking, and human rights. These sanctions are intended to punish the violators, persuade them to cease violating the norms, deter others from such violations, and prevent them from using the exports in ways that threaten U.S. security or foreign policy goals. There has been a great deal of debate in recent years on the need for sanctions to support national security and foreign policy goals, their effectiveness and appropriateness, and the cost of sanctions to U.S. exporters and the U.S. economy. (15)
Controversial exports have included telecommunications and advanced electronic equipment, precision machine tools (especially computer assisted machines), guidance technology (including Global Positioning System technology), aerospace and jet engine technology, synthetic materials (especially high-strength, light-weight, heat- and corrosion-resistant materials), specialized manufacturing and testing equipment (including mixers, high temperature ovens, heat and vibration simulators). In the last few years, congressional attention has focused on the following goods and technologies.
High Performance Computers (HPCs). (16) These are computers that can perform multiple, complex digital operations within seconds. Sometimes also called supercomputers, HPCs are actually a wide range of technologies that also include bundled workstations, mainframe computers, advanced microprocessors, and software. The benchmark used for gauging HPC computing performance is the standard know as millions of theoretical operations per second (MTOPS), which measures that the computer can perform. The actual MTOPS performed by an HPC over a period of time can vary, based on which operations are performed (some can take longer than others or can be performed while other operations are taking place) and the real cycle speed of the computer. Since the advent of this technology, there have been restrictions on U.S. exports. However, some advocates have maintained that because the computing capabilities of HPCs have advanced so rapidly, and due to the foreign availability of models comparable to some of those produced in the United States, export restrictions of HPCs are neither practical or enforceable. During the Clinton Administration, HPC export thresholds-or the amount of MTOP capability that an HPC would need to require a license-were raised several times. The last change was in January 2001, when the Clinton Administration raised the MTOP threshold of HPC exports to Tier 3 (17) countries to 85,000 MTOPS, up from 2,000 MTOPS in 1995. (18) This change is subject to notification requirements of the National Defense Authorization Act of 1998, which allows implementation of the performance level 60 days after a report has been submitted to Congress justifying the new levels. (19)
Encryption. (20) Encryption is the encoding of electronic messages to transfer important information and data securely. "Keys" are needed to unlock or decode the message. Encryption is an important element of e-commerce security, with the issue of who holds the keys at the core of the debate. The Clinton Administration promoted the use of strong (greater than 56 bits) encryption domestically and abroad only if the encrypted product had "key recovery" features in which a "key recovery agent" holds a "spare key" to decrypt the information. Under this policy, the administration tried to use export control policy to influence companies to develop key recovery encryption products. There has been no control over domestic use of encrypted products, but the executive branch hoped that companies would not want to develop two sets of encrypted products, one for the United States and another for the rest of the world. However by 1998, businesses and consumer groups, concerned about cost and privacy, came to oppose this approach. In September 1999, the Clinton Administration announced plans to further relax its encryption export policy by allowing export of unlimited key length encryption products, with some exceptions. It also reduced reporting requirements for those firms that export encrypted products. The rules for implementing this policy were issued in September 2000 by the Bureau of Export Administration in the Department of Commerce. While this new policy appears to have addressed both industry, consumer and security concerns, many policymakers in the 107th Congress will likely maintain a key interest in this issue, both in the way it affects e-commerce and how the government may use its encryption policy as a form of government surveillance.
Stealth Technology and Materials. (21) Stealth design incorporates materials, shapes, and structures into a functional system to protect it against electronic detection. There are two major stealth technique categories: first, materials can deflect an incoming radar signal to neutral space thus preventing the radar receiver from "seeing" the object. Second, materials may absorb incoming radar signals preventing them from reflecting back to the receiver. Stealth related commodities are sensitive from an export control perspective because some materials and processes involved have civil applications that make it difficult to control dissemination and retain U.S. leadership in this technology. (22)
There have been some concerns over stealth related exports. In 1994, the Department of Commerce approved two applications to export a high-performance, radar absorbing coating. Both applications were approved in less than 10 days, and, in accordance with referral procedures, the Commerce Department did not refer the applications to the State or Defense Departments. Reportedly, 200 gallons of the exported material would be used by a German company for a cruise missile project, and by another country for a commercial satellite. In addition, the radar frequencies this coating seeks to defend against reportedly include those employed by the Patriot anti-missile system. In response to this report and concerns raised by DOD, the State Department performed a commodity jurisdiction review and ruled that radar-absorbing coating was included on the U.S. Munitions List and therefore under State Department's export control jurisdiction. State did not approve the applications. (23)
Satellites. Members have debated the issue of how strictly to control exports of satellites and whether monitoring of foreign launch operations has been effective in preventing disclosures of missile secrets. In April 1998, the press reported that U.S. firms may have engaged in transfers of sensitive missile technology to China. Exports of satellites were licensed by the Department of Commerce from late 1996 till March 1999. In October 1998, Congress returned the authority, effective March 15, 1999, to license exports of commercial communications satellites to the Department of State which had traditionally licensed missile technology exports. (24) The satellite industry claims that this transfer has led to licensing delays and lost sales resulting from regulatory uncertainty. They claim that the market share percentage of U.S. built satellites launched has declined from a ten year average of 75% to 45% in 2000, and they have lobbied to reverse export controls to Commerce. (25) Satellites launched for commercial communication purposes may contain embedded sensitive technology such as positioning thrusters, signal encryption, mating and separation mechanisms, and multiple satellite/reentry vehicle systems. These systems would be controlled under the Munitions List as individual entities.
Machine Tools. This category covers manufacturing technology such as lathes and other manufacturing equipment used to produce parts for missiles, aircraft engines and arms. This capital equipment is increasingly sophisticated, employing advanced computer software and circuitry. The industry has been vocal in claiming that its competitive position has been hampered by the lack of multilateral controls over sales of this equipment, especially the lack of consensus on controls regarding China.
Aerospace. "Hot section" technology is used in the development, production and overhaul of jet aircraft both military and commercial. Technology developed principally by the Department of Defense is controlled by the Munitions List. However, technology actually applied to commercial aircraft is regulated by the Department of Commerce. This has caused concern that sensitive technology may be improperly licensed, especially if it had mass market or foreign availability characteristics. During the 106th Congress, a "carve-out" of hot section and other sensitive technologies was advocated to prevent such items from being decontrolled. (26)
Congress has several options in addressing export administration policy, ranging from approving no new legislation to rewriting the entire Export Administration Act. Some of the major legislative approaches and their implications are outlined below.
Maintain the Status Quo. EAA79 is currently in force until August 20, 2001. Congress may continue to grant temporary extensions to EAA79. Alternatively, Congress may continue the authority of EAA79 with increased penalties or other technical changes, yet this approach would leave in place the current system devised during the Cold War. If EAA79 lapses without an extension or having been rewritten by Congress, the President would probably revert to continuation of export controls under the emergency authority of IEEPA. Thus, the limitations of IEEPA (discussed in Appendix 1) would again apply -- including its lower penalties and other deficiencies regarding enforcement. The Executive branch would continue to administer export controls with a considerable amount of discretion, absent new legislative directives.
Conduct Rigorous Oversight. Congress can pass legislation to delegate export control authority to the executive with certain policy guidelines. The President would create the bureaucratic and enforcement mechanisms he deemed necessary. Through hearings and review of reports, Congress would conduct oversight of export administration. This approach can help insure compliance with existing law and policy and could help build the foundation for a new policy.
Legislate U.S. Export Administration Policy for Specific Commodities. Legislation on encryption, high-performance computers, nuclear weapons, chemical weapons, biological weapons, missiles and other commodities helps to fill gaps in export administration policy, yet these separate efforts would fail to provide an overall policy framework and implementing structures and procedures.
Legislate U.S. Policy for Exports to Particular Destinations. Legislation that restricts exports to Iran, Iraq, Libya, North Korea, Cuba, China, or Russia may help address particular current problems but may fail to provide a broad policy and implementing structures and procedures and may not provide for changed circumstances in these areas.
Legislate U.S. Policy to Persuade Exporters in Other Countries to Restrict Their Exports of Specific Commodities or Exports to Particular Destinations. This approach has usually been used to authorize the use of U.S. sanctions in reaction to foreign exports of weapons-related technology or exports to rogue regimes. However, this approach would also fail to establish new overall policy and procedures.
Rewrite the Export Administration Act to Establish a U.S. Export Administration Policy That Addresses Existing and Likely Future Threats to U.S. Security and Economic Well Being. It should be noted that many question the effectiveness of export controls in contributing to national security and some contend that exports controls can harm national security through their deleterious effect on the national economy. Others question the effectiveness of export liberalization in contributing to the U.S. economy and point to the fractional percentage of the U.S. economy that is affected by the Export Administration Regulations.
In establishing a balance between security/foreign policy and economic goals, a new bill might emphasize one over the other. A bill more tightly focused on security goals might require the administration to prohibit exports of goods and technology that would contribute to the ability of any nation or subnational group to threaten U.S. national security interests with weapons of mass destruction, missiles, destabilizing types or quantities of conventional weapons, terrorists or special operations forces, illegal drugs, organized crime, or information warfare. It might also authorize and encourage the administration to restrict U.S. exports to induce other nations to refrain from activities that threaten U.S. security interests and to cooperate with the United States in the responsible regulation of exports. On the other hand, a bill more tightly focused on U.S. economic interests might make it more difficult for the executive branch unilaterally to restrict exports that are subject to international regimes. This bill could require effectiveness and non-foreign-availability tests for these exports. It might also consolidate and rationalize the use of sanctions for the enforcement of U.S. and multilateral export policies.
Other issues that Congress may wish to resolve through the passage of a new EAA include the following:
When EAA79 expired in September 1990, President Bush extended existing export regulations by executive order, invoking emergency authority contained in the International Emergency Economic Powers Act (IEEPA). (27) As required by IEEPA, the President first declared a national emergency "with respect to the unusual and extraordinary threat to the national security, foreign policy and economy of the United States" posed by the expiration of the Act. IEEPA-based controls were later terminated during two temporary EAA extensions enacted in 1993 and 1994 as Congress attempted to craft new export control legislation. (28) After the second extension expired in August of 1994, President Clinton reimposed controls under IEEPA. (29) These controls remained in effect until November 11, 2000 when the authority of EAA79 was again extended until August 20, 2001. (30) During the interim period, a major restructuring and reorganization of export control regulations was published as an interim rule in the March 23, 1996 Federal Register.
If EAA79 is allowed to lapse again, the President may return to continuing dual-use export controls through IEEPA. During the last period in which export controls were continued in this manner, several deficiencies were noted including:
1. (back)In the first half of this century, war or the imminent threat of war led to the Trading With The Enemy Act of 1917 and the Neutrality Act of 1935. In 1940, Congress increased presidential power over the export of militarily significant goods and technology with the passage of Public Law 703, "An Act to Expedite and Strengthen the National Defense." In each of these instances the rationale for control was the necessity of not giving aid and comfort to the nation's enemies.
5. (back)The first tier is the Operating Committee (OC) chaired by BXA, which makes an initial determination. Appeals from this committee's decision must be made in five days by a Presidential appointee. The next level of appeal is to the Advisory Committee on Export Policy(ACEP). That committee makes a decision within 11 days of the receipt of the appeal. Appeals from the ACEP decision must be made in 5 days by a presidential appointee to the Secretary of Commerce who also serves as the chair of the Export Administration Review Board (EARB). The EARB renders a decision within 11 days of receipt of the appeal. ACEP and EARB decisions are based on a majority vote. After this point the dissenting agency can, within 5 days, appeal the decision to the President.
7. (back)Under the "catchall provision," the export of any item controlled by the Export Administration Regulations (EAR), whether it is on the CCL or not, that is destined for an end-use or end-user engaged in the development or production of weapons of mass destruction or missiles, must be licensed. See 15 C.F.R. 744 regarding the licensing of EAR 99 items, not included on the CCL.
8. (back)Section 5(d) EAA requires the Secretaries of Defense and Commerce to list and regulate exports of "Militarily Critical Technologies." The law requires emphasis be given to a) arrays of design and manufacturing know-how, b) keystone manufacturing, inspection, and test equipment, c) goods accompanied by sophisticated operation, application, or maintenance know-how, and d) keystone equipment which would reveal or give insight into the design and manufacturing of a U.S. military system, which are not available to threatening countries. The list can be seen at http://www.dtic.mil/mctl/.
11. (back)See also CRS Report RL30689, The Export Administration Act: Controversy and Prospects,by Ian F. Fergusson, for background on positions of the stakeholders.
Committee, February 8, 2001, p. 7; available on the Committee's Web site at http://www.senate.gov/~banking/01_02hrg/020701/freeden. htm.
15. (back)For further discussion of U.S. sanctions, see CRS Report 97-949 (pdf), "Economic Sanctions to Achieve U.S. Foreign Policy Goals: Discussion and Guide to Current Law," by Dianne E. Rennack and Robert D. Shuey.
17. (back) For HPCs, the Commerce Department organizes countries of destination into 4 tiers with increasing levels of export control. These range from a no-license policy for HPC exports to Tier 1 countries (Western Europe, Australia, Mexico, Japan, and New Zealand) to the strictest controls for exports to Tier 4 countries (Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria). Tier 3 countries, including China, Russia and other countries of the Commonwealth of Independent States (CIS), India, and Pakistan, were made subject to a dual control system distinguishing between civilian and military end-users and end-uses. In January 2001, President Clinton merged the Tier I and Tier 2 categories effectively decontrolling exports to those countries. 18 International Trade Reporter 91, January 18, 2001.
29. (back)"Continuation of Export Controls," Exec. Order No. 12924, 59 Fed. Reg. 43437 (1994); Message from the President, Sept. 11. 1998, "Continuation of National Emergency Regarding the Lapse of the Export Administration Act of 1979," Ex. Com. 10845, H. Doc. 105-303.
31. (back)Testimony of William A. Reinsch the Under Secretary for Export Administration, Department of Commerce on the Reauthorization of the Export Administration Act of 1979 (EAA), before the Senate Committee of Banking, Housing and Urban Affairs, Subcommittee on Trade and International Finance, on January 20, 1999.
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