CHAPTER 9 TEXT | CHAPTER 9 NOTES
Chapter 9 Contents
CHAPTER SUMMARY
STATUTORY AND REGULATORY CONTROLS:
THE EXPORT OF OUR MILITARY SENSITIVE TECHNOLOGY
CONTROLS MAINTAINED IN COOPERATION
WITH OTHER NATIONS
COCOM (Coordinating Committee on
Multilateral Export Controls)
ENHANCED PROLIFERATION CONTROL INITIATIVE
EXPORT ADMIISTRATION REGULATIONS
ARMS EXPORT CONTROL ACT
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS
OMNIBUS TRADE AND COMPETITIVENESS ACT OF 1988
ECONOMIC ESPIONAGE ACT OF 1996
EXPORT LICENSES FOR MILITARILY SENSITIVE
TECHNOLOGY:
DEPARTMENT OF COMMERCE
Export License Processing Until December 1995
License Processing Since Executive Order 12981
in December 1995Pre-License Checks and Post-Shipment Verifications
Roles of Other Departments and Agencies
in Commerce's Export Licensing PolicyPenalties for Violation of
the Export Administration RegulationsPenalties Under the 1979 Act (Expired Since 1994)
Penalties Under the International Emergency
Economic Powers ActCommodity Classification Requests Under
the Commerce Control List
EXPORT LICENSES FOR MILITARILY SENSITIVE TECHNOLOGY: DEPARTMENT OF STATE
Commodity Jurisdiction Process
Congressional Oversight and Required Reports
Foreign-Origin Items with U.S. Content
Penalties for Violations of
the Arms Export Control Act and ITAR
EXPORT CONTROL POLICY TOWARD THE PRC
Launch of Satellites on PRC Rockets
Satellite Launches in the PRC Following Tiananmen Square
Missile Proliferation Sanctions on the PRC
U.S. Munitions List Changes Regarding Satellites
Relaxation of Satellite Export Rules
The 1996 Transfer of Jurisdiction Over Commercial Satellites to Commerce
The 1999 Return of Jurisdiction Over Commercial Satellites to the State Department
Chapter 9 Summary
he two principal statutes that govern United States export controls
are the Export Administration Act of 1979, as amended, which
controls "dual-use" items and is administered by the
Department of Commerce, and the Arms Export Control Act, which
controls munitions items and is administered by the Department
of State. The last major changes to the Export Administration
Act were included in the Export Administration Amendments Act
of 1985, and in the Omnibus Trade and Competitiveness Act of
1988.
Since the last extension of the Export Administration Act expired on August 20, 1994, the regulations issued under that Act have been maintained in effect under the International Emergency Powers Act by Executive Order. Another Executive Order, issued in 1995, established new procedures and deadlines for processing Commerce Department export license applications.
Prior to the 1995 Executive Order, decisions on export applications that were referred to other agencies were made by consensus. The 1995 Executive Order directed the Commerce Department to send all applications to the Departments of Defense, State, and Energy and the Arms Control and Disarmament Agency for review. It also shortened the maximum processing time from 120 to 90 days. The 1995 Executive Order also revised the Advisory Committee on Export Policy structure to resolve disagreements among the agencies regarding licensing decisions.
Until its dissolution in March 1994, the Coordinating Committee on Multilateral Export Controls (COCOM) was the primary multinational export control organization through which the United States and the other 16 member countries controlled the export of items for security purposes. COCOM was created in 1949 by the United States and the other NATO countries, excluding Iceland and Spain, plus Japan. Later, Spain and Australia joined COCOM. COCOM-proscribed countries included the Soviet Union, other Warsaw Pact nations, and the People's Republic of China. Under COCOM, member countries allowed other member countries to veto their export cases that required COCOM approval.
In late 1993, the COCOM member countries agreed with the U.S. proposal to terminate COCOM and replace it with a new multilateral mechanism. The COCOM members agreed in early 1994 to continue the COCOM controls on a "national discretion" basis after the dissolution of COCOM until a new multilateral mechanism was established.
Almost two and one-half years after the dissolution of COCOM, a new multinational organization, called the "Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies," became effective in September 1996. The 33 member countries implement the Wassenaar list of controlled items to countries of concern by "national discretion." The countries of concern are Iran, Iraq, North Korea, and Libya. In addition to the Wassenaar Arrangement, the United States currently participates in three other multilateral export control regimes: the Australia Group, the Missile Technology Control Regime, and the Nuclear Suppliers Group. The items controlled under these latter three regimes are considered to be under foreign policy controls.
Beginning in 1981, the United States and COCOM members gave the PRC access to higher levels of technology compared with the Soviet Union. This policy of differentiation continued until the Tiananmen Square massacre on June 4, 1989. After Tiananmen, COCOM members did not liberalize controls on any additional items specifically for export to the PRC.
Congress passed sanctions against the PRC in response to Tiananmen, including the Foreign Relations Authorization Act for Fiscal Years 1990 and 1991, which, among other things, required a presidential "national interest" determination, or waiver, for the export of a U.S.-manufactured commercial communications satellite for launch on a PRC rocket. There have been 13 such presidential "national interest" determinations pursuant to the Tiananmen sanctions legislation.
Although the Administration transferred the licensing jurisdiction for commercial satellites from State to Commerce by actions in 1992 and 1996, Congress moved the jurisdiction back to State in the National Defense Authorization Act for Fiscal Year 1999 due to technology transfer concerns.
Since early 1994, the United States has dramatically liberalized Commerce Department export controls on items controlled for national security purposes, which has reduced licensing activity by over 55 percent since Fiscal Year 1993. These export control liberalizations have affected computers, semiconductors, semiconductor manufacturing equipment, telecommunications equipment, oscilloscopes, and other commodities.
In the National Defense Authorization Act for Fiscal Year 1998, Congress imposed several restrictions on the export of high performance computers to countries posing proliferation, diversion, or other security risks, including the PRC.
Chapter 9 Text
STATUTORY
AND REGULATORY CONTROLS
THE EPXORT OF OUR
MILITARILY SENSITIVE
TECHNOLOGY
his chapter provides a brief explanation of the nature and sources
of U.S. export controls. It examines the evolution of current
export policy regarding the People's Republic of China and the
provisions of the relevant laws, regulations, and policies applying
to the categories of exports that are the primary subjects of
the Report:
· Commercial communications satellites
· High performance computers
· Machine tools
The two principal statutes that govern U.S. export controls are: (1) the Export Administration Act of 1979,1 as amended, which controls "dual-use" items and is administered by the Department of Commerce; and (2) the Arms Export Control Act,2 which controls munitions items and is administered by the Department of State. In addition, exports of certain other items are governed by other statutes administered by other U.S. Government agencies, including the Office of Foreign Assets Control of the Department of the Treasury, the Nuclear Regulatory Commission, and the Department of Energy.
Export Administration Act
Export controls in the United States date back to before World War II, when restrictions on exports were imposed to ensure that adequate supplies of commodities would be available to meet wartime needs. After the war, export controls were continued with the enactment of the Export Control Act of 1949 in response to the post-war shortage of many commodities and to the political situation between the United States and the Soviet Union.
Under the Export Control Act of 1949, exports from the United States to the Soviet Union and other Communist countries were controlled based on their military significance. In addition, the Act established a "short supply" export control program to deal with the post-war worldwide shortage of many goods.
The Export Control Act of 1949 continued in effect for 20 years. It was replaced effective January 1970 by the Export Administration Act of 1969 (the 1969 Act). In October 1979, the Export Administration Act of 1979 (the 1979 Act) replaced the 1969 Act. The 1979 Act was later amended by the Export Administration Amendments Act of 1981 and the Export Administration Amendments Act of 1985. Certain revisions to the 1979 Act were also included in the Omnibus Trade and Competitiveness Act of 1988.
Due to the inability of Congress and the Executive branch to reconcile conflicting views regarding export control policy, the Export Administration Act of 1979 was allowed to expire without replacement on September 30, 1990. At that time, the provisions of the 1979 Act were maintained in force by President Bush under the International Emergency Economic Powers Act,3 as implemented through Executive Order 12730 (Continuation of Export Control Regulations, September 30, 1990).
Also, there have been two brief extensions to the 1979 Act in recent years. Public Law 103-10 extended the 1979 Act from March 27, 1993 until June 30, 1994, and Public Law 103-277 extended it again from July 5, 1994 until August 20, 1994.4 Although a number of bills to revise and extend the 1979 Act on a more permanent basis have been introduced in Congress since 1990, an amendment bill or an extension bill has not been passed by both Houses of Congress since July 1994.
Since the last extension of the 1979 Act expired on August 20, 1994, the Export Administration Regulations issued under the 1979 Act have been maintained under the International Emergency Economic Powers Act by Executive Order 12924 (August 19, 1994).
The Export Administration Act of 1979, as amended, provides "authority to regulate exports, to improve the efficiency of export regulation, and to minimize interference with the ability to engage in commerce." The 1979 Act authorizes export controls to be used only after full consideration of the impact on the economy of the United States and only to the extent necessary:
(A) to restrict the export of goods and technology which would make a significant contribution to the military potential of any other country or combination of countries which would prove detrimental to the national security of the United States;
(B) to restrict the export of goods and technology where necessary to further significantly the foreign policy of the United States or to fulfill its declared international obligations; and
(C) to restrict the export of goods where necessary to protect the domestic economy from the excessive drain of scarce materials and to reduce the serious inflationary impact of foreign demand.5
These three categories of permissible restrictions through export controls are discussed in the 1979 Act in separate sections. Section 5 of the 1979 Act deals with national security controls; section 6 with foreign policy controls; and section 7 with short supply controls.6
National security export controls are established on the export and re-export of strategic commodities and technical data to prevent the diversion of such items to countries of concern. The United States pursues this objective through multilateral means when possible.
Until its demise in March 1994, the multilateral forum for controls on exports to controlled countries was the Coordinating Committee on Multilateral Export Controls (COCOM). The United States currently cooperates in the area of dual-use national security export controls with 32 other countries that participate in the Wassenaar Arrangement.
Section 5(b) of the 1979 Act requires the President to establish a list of "controlled countries" for national security purposes.7 The controlled countries currently are: Albania, Armenia, Azerbaijan, Belarus, Bulgaria, Cambodia, Cuba, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Laos, Latvia, Lithuania, Moldova, Mongolia, North Korea, the People's Republic of China, Romania, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, and Vietnam.8
Foreign policy export controls are imposed for a number of reasons in furtherance of the foreign policy of the United States.9 Such reasons include:
· Crime control
· Regional stability
· Anti-terrorism
· Chemical and biological weapons nonproliferation
· Missile technology
· Nuclear nonproliferation10
Items controlled pursuant to the three other current multilateral control regimes - the Australia Group, the Missile Technology Control Regime, and the Nuclear Suppliers Group - are under foreign policy controls, rather than national security controls. The exception occurs if the item is also under national security controls pursuant to the Wassenaar Arrangement or under unilateral U.S. national security controls.
Section 6(a)(3) of the 1979 Act requires foreign policy controls to expire annually, unless extended.11 Foreign policy controls may not be extended unless the President has submitted a report to Congress in accordance with section 6(f) of the 1979 Act.12
If a commodity is in short supply, export controls may be imposed under section 7 of the 1979 Act.13 Section 7 authorizes the President to prohibit or curtail the export of goods subject to the jurisdiction of the United States where necessary to protect the domestic economy from the excessive drain of scarce materials and to reduce the serious inflationary impact of foreign demand.14
Controls Maintained in Cooperation
with Other Nations
The 1979 Act provides:
It is the policy of the United States (A) to apply any necessary controls to the maximum extent possible in cooperation with all nations, and (B) to encourage observance of a uniform export control policy by all nations with which the United States has defense treaty commitments or common strategic objectives.15
Until its dissolution on March 31, 1994, the Coordinating Committee on Multilateral Export Controls (COCOM) was the primary multinational export control organization through which the United States and member countries controlled exports to countries of concern.
The United States currently participates in four multilateral export control regimes: the Wassenaar Arrangement, the Australia Group, the Missile Technology Control Regime, and the Nuclear Suppliers Group.
COCOM (Coordinating Committee on Multilateral Export Controls)
In 1949, the United States and 14 other countries created by informal agreement the Coordinating Committee on Multilateral Export Controls for security purposes.
The initial COCOM member countries were Belgium, Canada, Denmark, France, the Federal Republic of Germany, Greece, Italy, Japan, Luxembourg, the Netherlands, Norway, Portugal, Turkey, the United Kingdom, and the United States. Later, Spain and Australia joined COCOM.
COCOM maintained three control lists:
· The International Atomic Energy List
· The International Munitions List
· The Industrial List
The Industrial List contained dual-use items (that is, items that have both civil and military applications) not included in the other two lists. COCOM performed a comprehensive review of each of the control lists at least every three to four years to reflect technological developments and changes in the ways in which end users could apply technologies.
Under COCOM, member countries surrendered some of their national
sovereignty and national discretion by allowing other member
countries to vote on export cases that required COCOM approval,
according to Steven C. Goldman, Director of
the Office of Chemical and Biological Controls and Treaty Compliance
and Acting Director of the Office of Nuclear and Missile Technology
Controls within the Bureau of Export Administration at the Department
of Commerce.16
With the fall of the Berlin Wall and the changes in the Eastern European governments in 1989, President Bush approved in May 1990 a U.S. proposal to COCOM for a significant reduction in the COCOM controls and for the development of a new "core list" of strategic items to replace the existing Industrial List. In June 1990, COCOM agreed with most of the elements in the U.S. proposal, and COCOM eliminated 30 items in the Industrial List while partially decontrolling 12 additional items. COCOM also agreed to a reduced "core list" of dual-use items that would be controlled for national security purposes to proscribed countries.
In view of the changing strategic environment in Central and Eastern Europe and the Newly Independent States of the former Soviet Union, COCOM adopted criteria in December 1991 for the removal of countries from the list of proscribed countries. Hungary was removed from this list in May 1992.
The United States submitted a proposal to COCOM in 1992 to establish a COCOM Cooperation Forum to discuss international standards for export controls, and to provide a way to coordinate technical assistance efforts with the countries of Eastern and Central Europe and the former Soviet Union. COCOM agreed with this proposal in June 1992, and the COCOM Cooperation Forum held its first meeting in November 1992. One of the items discussed by the Forum was a new approach to COCOM export controls that would contribute to the economic development of reforming countries by providing more access to higher levels of controlled items.
A report to Congress, dated September 30, 1993, which was submitted by the U.S. Trade Promotion Coordinating Committee, an interagency group chaired by the Commerce Department, stated that the Clinton administration was taking action to:
Adapt the multilateral export control system to address proliferation threats and to ensure the consistent application of export control policies and procedures by member countries.
Continue current vigorous efforts to reorient COCOM export controls to the post-Cold War world . . .17
Shortly after this report was submitted to Congress, the Clinton Administration made a proposal to the COCOM member countries to dissolve COCOM and to create a new multilateral mechanism to achieve a number of objectives, including:
· Preventing states such as Iraq, Iran, North Korea, and Libya from obtaining conventional weapons and other sensitive technologies
· Furthering the process of engaging Russia and other Newly Independent States in developing export control systems
· Removing disadvantages to U.S. exporters resulting from inadequate multilateral coordination on exports of sensitive technologies to terrorist states18
In November 1993, the COCOM member countries agreed to the U.S. proposal to establish a new multilateral mechanism, including the proposal to phase out COCOM. The Export Administration Annual Report for 1994, and the 1995 Report on Foreign Policy Export Controls, stated that:
As a result of [the] end of the Cold War, it was agreed by all COCOM members that COCOM should cease to exist after March 31, 1994.19
Discussions among the COCOM member countries continued in early 1994 regarding the new organization to control exports of conventional weapons and sensitive dual-use goods and technologies.
At a meeting in Wassenaar, the Netherlands in March 1994, the COCOM member countries agreed to continue the use of the COCOM control lists to control exports until the new organization was formed.
The final agreement to establish a new multilateral export control organization was approved in July 1996, over two years after the dissolution of COCOM.
The new organization, called the "Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies" (Wassenaar Arrangement), became effective in September 1996.
The 33 member countries of the Wassenaar Arrangement include: Argentina, Australia, Austria, Belgium, Bulgaria, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, the Republic of Korea, Romania, Russia, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, Ukraine, the United Kingdom, and the United States.
Negotiations regarding the items to be covered under the Wassenaar Arrangement began with the COCOM control list prior to the final agreement, according to James A. Lewis, Director of the Office of Strategic Trade and Foreign Policy Controls within the Bureau of Export Administration at Commerce.20 Lewis says that the "essential" Wassenaar list of controlled items is not very different from the COCOM list as it existed in 1993 (that is, the same nine categories of items and the same general format and structure).21
Roger Majak, Assistant Secretary of Commerce for Export Administration, says the Wassenaar Arrangement includes no written agreement regarding the countries of concern.22 However, Majak indicated that there is a verbal agreement that the countries of concern are Iran, Iraq, North Korea, and Libya.23
Unlike the COCOM Secretariat, the Wassenaar Secretariat - located in Vienna, Austria - does not perform a review function. That is, the Wassenaar Arrangement does not require that member countries submit export licenses for sensitive commodities and technologies to the Secretariat for review by other member countries prior to approval.
Instead, licensing by Wassenaar member countries is done by "national discretion," which means that while member countries share a common control list and a common set of objectives, each country can decide on its own how it will implement the control list and the objectives.
Commerce's Lewis says "one of the challenges for Wassenaar is achieving greater consistency in national application." 24
Some items included in the Wassenaar control list are included in the Commerce Control List,25 and the remainder are included in State's Munitions List.26 Wassenaar control list items included in the Commerce Control List are considered to be subject to U.S. national security controls, although Lewis says that some of those items are subject to U.S. foreign policy controls as well.
Regarding high performance computers, Lewis indicates that Wassenaar member countries have agreed to control the export of computers capable of 2,000 millions of theoretical operations per second (MTOPS) and above, and that most member countries do not require licenses to export computers below this level of capability.27 Lewis says that, at a recent Wassenaar meeting held to discuss control list items, the United States was the only member country that opposed moving this level up to 4,000 MTOPS.28
Under the Wassenaar Arrangement, member countries provide semi-annual reports to the Wassenaar Secretariat of export licenses regarding covered items they have approved or denied. Member countries receive three levels of semi-annual reports from the Wassenaar Secretariat. The member countries are provided semi-annual reports regarding approvals that include the control number and a brief description of the commodity or technology, the quantity approved, and the country of receipt. They are also provided with semi-annual reports regarding denials that include the same information. In addition, members receive semi-annual reports regarding denials of sensitive items that include the names of the intended recipients.
The Wassenaar Arrangement has a "no undercut agreement" on denials, according to Lewis, although he says "it could use a little work." 29 Under this agreement, when a member country reports a denial of a sensitive item to the Wassenaar Secretariat, no member will approve the sale of the same item to the same end user without first consulting the country that initially denied the export.
Included in the July 1996 agreement to establish the Wassenaar Arrangement was a provision for a 1999 review of the "overall functioning" of the regime.30 Commerce's Lewis says this review will be conducted in the spring of 1999.31 Commerce's Bureau of Export Administration has, however, only begun to review the effectiveness of the Wassenaar Arrangement in preparation for this two-year review.
Commerce Assistant Secretary Majak says that "[o]n the dual use side. . . [the Wassenaar Arrangement] has been successful in defining a common list and some common target control levels, but the implementation of those control levels by the member countries has been very uneven and in many respects unsatisfactory." 32
The Australia Group was established in 1984 as an informal forum for member countries that seek to discourage and impede chemical weapons and biological weapons proliferation. The Australia Group pursues these goals by harmonizing national export controls on chemical weapons precursor chemicals, biological weapons pathogens, and dual-use equipment that may be used for chemical or biological weapons, and by sharing information on proliferation programs.33 The Australia Group meets annually in Paris.
Currently, 30 countries are members of the Australia Group - Argentina, Australia (which chairs the Group), Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, the Slovak Republic, the Republic of Korea, Spain, Sweden, Switzerland, the United Kingdom, and the United States. All member countries are signatories of the 1993 Chemical Weapons Convention.
The Australia Group has established export controls on 54 chemical precursors and a list of chemical weapons-related production equipment. Regarding biological weapons, the Group has established export controls on certain microorganisms, toxins, and biological weapons-related production equipment.34
Member countries implement export controls that are identified and agreed upon by the Australia Group by "national discretion," which means that member countries individually decide how to implement the controls.
Export license applications for Australia Group items that are approved by a member country are not reported to other member countries. Goldman indicates that there is a "no undercut agreement" on denials by Australia Group members.35
Australia Group items are included in the Commerce Control List of the Export Administration Regulations. Such items on the Commerce Control List are considered to be subject to foreign policy controls.
Missile Technology Control Regime
The Missile Technology Control Regime (MTCR) was created in April 1987 by Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The purpose of the MTCR is to limit the proliferation of missiles capable of delivering weapons of mass destruction.
Licensing by Missile Technology Control Regime member countries is done by "national discretion."
The Missile Technology Control Regime currently has 29 member countries. In addition to the seven original countries, the members are Argentina (joined in 1993), Australia (1990), Austria (1991), Belgium (1990), Brazil (1995), Denmark (1990), Finland (1991), Greece (1992), Hungary (1993), Iceland (1993), Ireland (1992), Luxembourg (1990), the Netherlands (1990), New Zealand (1990), Norway (1991), Portugal (1992), Russia (1995), South Africa (1995), Spain (1989), Sweden (1991), Switzerland (1992), and Turkey (1997).
MTCR controls are based upon Guidelines and an Equipment and Technology Annex. The Annex consists of a list of missile-related items subject to controls, and is divided into two categories:
· Category 1 includes missile subsystems and production equipment for missile systems. Category 1 items are controlled by the Department of State under the U.S. Munitions List
· Category 2 includes dual-use components, materials, and other commodities
Goldman, of Commerce's Bureau of Export Administration, says that approximately 70 percent of the items listed in Category 2 are included in the U.S. Munitions List, and about 30 percent of the items are included in the Commerce Control List.36
While the People's Republic of China is not a member of the MTCR, it agreed in 1992 to adhere to the original Guidelines, and the Equipment and Technology Annex agreed to in 1987 by the MTCR member countries.37
The PRC decision followed the imposition by the United States of missile proliferation sanctions on the PRC in 1991 because the PRC had transferred M-11 short-range ballistic missile technology to Pakistan.38
The PRC has not, however, agreed to adhere to revisions to the Guidelines and Annex that have been adopted since 1987.39
The Nuclear Suppliers Group was established in 1992. Member countries have agreed to adhere to Guidelines and implement an Annex with respect to exports of nuclear and nuclear-related dual-use commodities.
Also, member countries adhere to safeguards established by the International Atomic Energy Agency.
The Nuclear Suppliers Group currently consists of 34 member nations - Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, the Republic of Korea, Romania, Russia, the Slovak Republic, Spain, South Africa, Sweden, Switzerland, Ukraine, the United Kingdom, and the United States.
According to Stephen C. Goldman of Commerce's Bureau of Export Administration, the Nuclear Suppliers Group export controls are similar to those that existed under COCOM's International Atomic Energy List.40 Unlike the COCOM controls, however, the Nuclear Suppliers Group export controls are implemented on a "national discretion" basis.
The Nuclear Suppliers Group works on the basis of a consensus of the member countries, and the Guidelines call for consultations among member countries regarding sensitive export cases.
License applications for items covered by the Nuclear Suppliers Group that are approved by a member country are not reported to other member countries. However, there is a "no undercut rule" on denials by member countries.
Enhanced Proliferation Control
Initiative
In December 1990, President Bush approved the Enhanced Proliferation Control Initiative. This initiative was established to control items -
· When the exporter knows that the export will be used in the design, development, production, or stockpiling of missiles or chemical or biological weapons; or
· When the exporter is informed by the Department of Commerce that there is a serious risk of diversion.
Earlier, President Bush had issued Executive Order 12735 (Chemical and Biological Weapons Proliferation, November 16, 1990), which directed the imposition of additional controls on items used in the design, development, production, delivery, stockpiling, or use of missiles and chemical and biological weapons.41
In December 1993, the Department of Commerce published additional guidance for exporters on the "knows or is informed" licensing requirement of the Enhanced Proliferation Control Initiative.42
In February 1997, the Department of Commerce began publishing an "Entity List" to inform exporters of some of the organizations and companies that may be involved in proliferation activities. The "Entity List" appears in Supplement No. 4 to part 744 of the Export Administration Regulations, and is revised and updated on a periodic basis.43 This "Entity List" does not, however, include all of the organizations, companies, or individuals that are on the "watch lists" maintained by the Office of Export Enforcement at the Department of Commerce or by the Nonproliferation Center at the Central Intelligence Agency.
The Enhanced Proliferation Control Initiative's "knows or is informed" provision is known as a "catch-all" provision. This control imposes a licensing requirement in those cases where the exporter has "knowledge" of the end use or end user relating to missile and chemical or biological weapons activities.
A Department of Commerce Fiscal Year 1999 budget proposal document for the implementation of a Bureau of Export Administration internal compliance program stated:
Significant easing of the U.S. and multilateral export controls on West-East trade since the early 1990's; the implementation of the Enhanced Proliferation Control Initiative (EPCI) in 1991; and, the simplification of the Export Administration Regulations (EAR) which resulted in a conversion from general licenses to license exceptions have shifted the burden of screening many export transactions to the exporter.
Unfortunately, many companies have not established adequate procedures to ensure transactions no longer requiring export licenses are properly screened for proscribed end-uses and end users.44 [Emphasis added]
The Enhanced Proliferation Control Initiative does not apply to items controlled under the Wassenaar Arrangement, according to Goldman.45 However, the United States has obtained agreement from other member countries (except Canada) under the Australia Group, the Missile Technology Control Regime, and the Nuclear Suppliers Group to implement "catch-all" controls to some extent regarding controlled items.
Export Administration Regulations
The Export Administration Regulations are designed to implement the 1979 Act and control certain exports, reexports, and other activities.46 They are issued and administered by the Bureau of Export Administration of the Department of Commerce.47
The Export Administration Regulations control "dual-use" commodities - that is, technology that can be used in military and other strategic uses, as well as in commercial applications.48 However, the Export Administration Regulations also include some items that have solely civil uses.49
On May 11, 1995, the Bureau of Export Administration published a comprehensive revision and reorganization of the Export Administration Regulations after a two and one-half year effort. The revision made changes in the types of export licenses, eliminating the "general license" categories and replacing them with "License Exceptions." Also, the "special license" provisions (for example, Project License, Distribution License, Service Supply Procedure, Humanitarian License, Aircraft and Vessel Repair Station Procedure, and Special Chemical License) were removed and replaced by a "Special Comprehensive License." 50
The Commerce Control List specifies the commodities, software, and technology that are subject to the Export Administration Regulations.51 In addition, the General Technology and Software Notes provide guidance relevant to these items.52 Prior to the dissolution of COCOM in March 1994, the Commerce Control List was closely related to the COCOM Industrial List.53
The Commerce Control List is organized into ten categories:
· Category 0: Nuclear Materials, Facilities, and Equipment
· Category 1: Materials, Chemicals, Microorganisms, and Toxins
· Category 2: Materials Processing
· Category 3: Electronics
· Category 4: Computers
· Category 5: Telecommunications and Information Security
· Category 6: Sensors and Lasers
· Category 7: Navigation and Avionics
· Category 8: Marine
· Category 9: Propulsion Systems, Space Vehicles and Related Equipment54
The Commerce Country Chart contains licensing requirements based on the proposed country of destination and the "Reason for Control." 55 The Country Chart is designed to be used in conjunction with the Commerce Control List in determining whether a license is required to export a given item to a particular country.56 The Country Chart provides as "Reasons for Control":
· Anti-terrorism
· Chemical and biological weapons
· Crime control
· Encryption items
· Missile technology
· National security
· Nuclear nonproliferation
· Regional stability
· Short supply
· Computers
· Other significant items57
The Export Administration Regulations also identify 14 "License Exceptions." 58 A "License Exception" is an authorization to export or re-export without a Commerce license certain items that are subject to the Export Administration Regulations.59
One of the new 1995 License Exceptions - "License Exception CIV" 60 - authorizes the export and re-export of certain items that are controlled for national security reasons, provided the items are destined to civil end-users for civil end-uses in a group of countries that includes the PRC.61
Another License Exception - "License Exception CTP" - authorizes export and re-export of computers to various countries, including the PRC, according to criteria provided in the Export Administration Regulations.62
For example, the new 1995 License Exception CTP can be relied upon to export computers having a composite theoretical performance greater than 2,000 MTOPS (millions of theoretical operations per second), but less than or equal to 7,000 MTOPS, to other than military or nuclear, biological, or missile end-users and end-uses in the PRC.63
Arms Export Control Act
The U.S. Government controls the export and import of "defense articles" and "defense services" pursuant to the Arms Export Control Act.64
Section 38 of the Arms Export Control Act authorizes the President to control the export and import of defense articles and defense services.65
The statutory authority of the President to promulgate regulations with respect to exports of defense articles and defense services was delegated to the Secretary of State by Executive Order 11958, as amended.
International Traffic in Arms
Regulations
The Arms Export Control Act is implemented by the International Traffic in Arms Regulations (ITAR), which are administered by the State Department's Office of Defense Trade Controls within the Bureau of Political-Military Affairs. These regulations are found at 22 CFR parts 120-130.
The Arms Export Control Act provides that the President shall designate the articles and services that are deemed to be "defense articles" and "defense services." 66 These items, as determined by the State Department with the concurrence of the Department of Defense, are included on the U.S. Munitions List.67
No items may be removed from the U.S. Munitions List without the approval of the Secretary of Defense, and there must be 30 days advance notice to Congress.68
In addition to unilateral U.S. controls, the U.S. Munitions List includes controls on missile technology that are based on the multilateral Missile Technology Control Regime and its Annex.69
Omnibus Trade and Competitiveness
Act of 1988
The "Exon-Florio" provision of the Omnibus Trade and Competitiveness Act of 198870 amended the Defense Production Act71 to establish a procedure for the President to investigate the national security effects of proposed mergers, acquisitions, and takeovers of U.S. companies by foreign interests. If there is credible evidence that the foreign interest exercising control might take action that threatens to impair the national security, the President may suspend or prohibit the transaction.72
The Exon-Florio provision allows a maximum of 90 days to complete a review of a proposed transaction.73 The determination whether an investigation should be undertaken must be completed in 30 days. An investigation, if undertaken, must be completed in 45 days. The decision whether action is to be taken to block the transaction must be made within another 15 days.74
President Reagan designated the interagency Committee on Foreign Investment in the United States to administer the Exon-Florio provision in Executive Order 12661 (Implementing the Omnibus Trade and Competitiveness Act of 1988 and Related International Trade Matters, December 27, 1988). Under that Executive Order, the Secretary of the Treasury chairs the interagency committee.
Economic Espionage Act of 1996
The Economic Espionage Act of 1996 (P.L. 104-294, October 11, 1996) was enacted for two purposes:
· To thwart attempts by foreign entities to steal the trade secrets of U.S. companies
· To authorize the U.S. Government to investigate and prosecute persons, including domestic American companies, who are engaged in economic espionage75
The Economic Espionage Act was a response to an appeal by the Director of the Federal Bureau of Investigation for Congress to enact new legislation to criminalize the theft of trade secrets.76
Under the Economic Espionage Act, penalties for economic espionage by a foreign government or its agent include:
· Fines for an individual of up to $500,000
· Jail sentences of up to 15 years
· Fines for an organization of up to $10 million77
The Economic Espionage Act applies extraterritorially to activities of non-U.S. citizens abroad, if such activities conducted abroad are illegal under the Act, and if they are connected to an act in the United States that furthered the activity abroad.78
Economic espionage is defined as:
foreign power-sponsored or coordinated intelligence activity directed at the U.S. government or U.S. corporations, establishments or persons, designed to obtain unlawfully or clandestinely sensitive financial, trade, or economic policy information, proprietary economic information, or critical technologies, or, to influence unlawfully or clandestinely
sensitive economic policy decisions.79
Countries identified publicly by the U.S. Government as being involved in economic espionage include the People's Republic of China, which is reported to be enhancing its collection efforts in this area.80
Export Licenses for Militarily
Sensitive Technology: Department of Commerce
The Bureau of Export Administration within the Department of Commerce processes export license applications pursuant to the 1979 Act and the Export Administration Regulations.
The Bureau of Export Administration conducts a complete review of the license application, including any documentation submitted along with the application. This review includes an examination of the item to be exported, the proposed end use of the item, and all parties to the transaction.
Export License Processing Until December 1995
Prior to the issuance of Executive Order 12981 (Administration of Export Controls, December 5, 1995), Commerce's Bureau of Export Administration routinely referred certain license applications to:
· The Department of State
· The Department of Defense
· The Department of Energy
· The Arms Control and Disarmament Agency
Whether the Commerce Department made a referral to one of these other agencies depended upon the item to be exported and the country of destination. The protocol for these referrals evolved over the years. It was subject to change as items were controlled or decontrolled, and as concerns regarding destination countries changed.
For example, applications to export items controlled for national security purposes to end users in the People's Republic of China or Russia were routinely referred to the Department of Defense for review. License applications for items controlled for foreign policy purposes (such as regional stability, anti-terrorism, and crime control) to specific countries were referred to the State Department for review. The Department of Energy would receive referrals of license applications for items controlled by the Nuclear Suppliers Group as nuclear nonproliferation commodities.
If the reviewing departments and agencies differed regarding a specific license application, further consultation would occur in the structure of the Advisory Committee on Export Policy (ACEP). This consultation could also occur in any special groups that had been established to address specific types of items (for example, the Subgroup on Nuclear Export Coordination), or in less formal discussions between the particular departments or agencies.
The ACEP structure operated at three levels prior to December 1995:
· The Operating Committee of the ACEP, the first level for resolution of differences, was chaired by a Commerce Bureau of Export Administration official, and included representatives from the Departments of Commerce, Defense, State, and Energy, as well as other departments and agencies as appropriate.
· The ACEP itself, the second level, was chaired by the Assistant Secretary of Commerce for Export Administration. Members of the ACEP included the same representatives of departments and agencies as the Operating Committee.
· The Export Administration Review Board, the third level, was chaired by the Secretary of Commerce, and consisted of cabinet-level officials.
The ACEP structure operated on a consensus basis at each level. Interagency differences that could not be resolved at the Export Administration Review Board level could be sent to the President for final resolution.81
Export license application processing deadlines were established by the Export Administration Amendments Act of 1985. The maximum processing time for a license application that required referral to another department or agency was 120 days. If a license application did not require referral to another department or agency, the maximum processing time was 60 days.82
Prior to the issuance of Executive Order 12981 in December 1995, the 1979 Act required that the Commerce Department seek information and recommendations from other U.S. Government departments and agencies that had important interests in exports in determining whether a dual-use export license should be granted or denied.
Prior to December 1995, the Commerce Department referred many, but not all, license applications to the Departments of State, Defense, and Energy, and the U.S. intelligence community for review.
Nevertheless, a number of U.S. Government reports over the years identified problems and disagreements involving U.S. Government agencies regarding which applications the Department of Commerce should refer to them.83 One 1993 study noted that this disagreement resulted in part from ambiguities in the 1979 Act. In contrast, the Nuclear Non-Proliferation Act of 1978 required the Department of Commerce to consult with the Department of Energy under specific procedures regarding applications for items with nuclear-related capabilities.
License
Processing Since Executive Order 12981
in December 1995
Executive Order 12981 was issued on December 5, 1995. It established new procedures and deadlines for the processing of export license applications by the Department of Commerce pursuant to the 1979 Act and the Export Administration Regulations.
Among other things, the Executive Order made a major change regarding the referral by the Commerce Department of license applications to other departments and agencies. The effect of this change was to permit the Departments of State, Defense, and Energy, and the Arms Control and Disarmament Agency, to review any license application submitted to the Commerce Department.
As was the case prior to Executive Order 12981, the Commerce Department is free to refer license applications to other departments and agencies as it deems appropriate.84
The Executive Order also changed the composition and operation of the Advisory Committee for Export Policy (ACEP) for resolving interagency disputes on license applications. Instead of operating on a consensus basis at each level as previously had been the case, the Executive Order authorized the Operating Committee Chair to make decisions on license applications at the Operating Committee level.
These decisions could be appealed to the ACEP. The Executive Order established that decisions on license applications at the ACEP level and at the Export Administration Review Board level would be made by majority vote.85
The Executive Order also changed the time requirements. It specified that all license applications submitted to the Commerce Department must be resolved, or referred to the President, no later than 90 days after the license application. This represented a 30-day, or 25 percent, reduction in the maximum time that was previously allowed to process a license application.86
In October 1996, export license applications for commercial communication satellites and any jet engine "hot-section" technology for the development, production, and overhaul of commercial aircraft engines were transferred from the State Department's Munitions List to the Commerce Department's Control List.87 President Clinton issued Executive Order 13020 (Amendment to Executive Order 12981, October 12, 1996) regarding the procedure for interagency processing of these applications. Executive Order 13020 also called for a majority vote decision of the Operating Committee on disputed applications, rather than a decision by the Operating Committee Chair.88
By Executive Order 13026 (Administration of Export Controls on Encryption Products, November 15, 1996), President Clinton amended the process for export licensing of encryption products. The new system requires the Commerce Department to refer license applications for encryption products controlled under the Commerce Control List to the Department of Justice for review. The Executive Order includes the Justice Department as a full voting member of the Operating Committee, the ACEP, and the Export Administration Review Board when those bodies are reviewing encryption export license applications.89
Carol A. Kalinoski, the Commerce Department official who currently is the Chair of the ACEP Operating Committee, indicates that meetings are currently held at least weekly. The agenda for each Operating Committee meeting generally ranges between 60 and 70 license application cases. Out of that number, approximately 20 to 40 typically are new cases. The Operating Committee handled 704 export license application cases in fiscal year 1998, 634 in fiscal year 1997, and 385 in fiscal year 1996.90
Kalinoski says that Operating Committee meetings are getting "harder." This is occurring because the Operating Committee is reviewing license applications that are more complex than in the past. End-user concerns are a primary cause of export license disagreements.91
Only five percent of the license applications reviewed by the Operating Committee are escalated to the Advisory Committee on Export Policy. Currently, there is a meeting of the ACEP about every two months. Kalinoski says there has not been an appeal to the Export Administration Review Board since December 1988.92
The number of license applications received by the Department of Commerce has dropped dramatically over the past ten years. Commerce received 97,902 license applications in fiscal year 1988, 26,126 in fiscal year 1993, and 11,472 in fiscal year 1997.93 Commerce's Bureau of Export Administration explained this decline in export license applications in its 1997 Annual Report to Congress by stating:
Dramatic licensing liberalizations implemented following the September 30, 1993 release of the Trade Promotion Coordinating Committee's (TPCC) report to Congress on developing a "National Export Strategy" has reduced licensing activity by over 55% over the past four fiscal years. [Emphasis added]
Pre-License Checks and Post-Shipment Verifications
The Department of Commerce or another department or agency may request a pre-license check to establish the identity and reliability of the recipient of the items requiring an export license.94
The 1979 Act provides that the Secretary of Commerce and designees may conduct overseas pre-license checks and post-shipment verifications of items licensed for export: 95
· A pre-license check is conducted during the licensing process96
· A post-shipment verification is an on-site visit to the location to which the controlled item has been shipped under an export license, in order to ascertain that the item is being used by the appropriate end user and for the appropriate purpose
The Commerce Department's procedures for conducting pre-license checks and post-shipment verifications are similar.
A pre-license check or post-shipment verification is initiated by sending a cable with relevant information about the case to the appropriate U.S. Embassy overseas. Specific officials at the Embassy usually have been pre-designated to conduct these checks, although special teams from Washington, D.C. also periodically conduct end-use checks.
The Embassy official initially collects background information on the end user. Next, the Embassy official visits the end user and interviews senior employees there. Upon completing the visit, the Embassy official is required to cable the Commerce Department with the information collected and an evaluation as to whether the end user is considered a reliable recipient of U.S. technology.
Based on the cabled information, the Commerce Department evaluates whether the result of the check is favorable or unfavorable.97
Over the years, several studies have criticized how the authority for pre-license checks and post-shipment verifications has been implemented.98 These criticisms have included:
· Lack of technical expertise among Embassy officials
· Omission of vital information in requesting cables
· Performance of checks by unsupervised foreign nationals
· Delayed or denied access to some foreign facilities, including those in the PRC
· Lack of strategic plans for checks and verifications
· Failure to follow guidelines
· Presence of unreliable data
Roles
of Other Departments and Agencies
In Commerce's Export Licensing Policy
Department of State
Within the Department of State, the Export Control and Nonproliferation
Office is responsible for reviewing most dual-use license applications
referred from the Department of Commerce.
Normally, the license applications are received via a dedicated electronic link with the Commerce Department. As appropriate, the State Department coordinates the license application with its own offices and, when necessary, with U.S. Embassies overseas. Once the State Department formulates its position on a license application, it typically transmits the recommendation back to the Commerce Department via the same dedicated electronic link.
Depending on the technology involved, some dual-use license applications are processed by other State Department organizations instead of the Export Control and Nonproliferation Office:
· License applications relating to missile technology are reviewed by the Missile Technology Export Control Group, an interagency group chaired by the Office of Chemical, Biological, and Missile Nonproliferation within State's Bureau of Political-Military Affairs
· Dual-use applications for items controlled for chemical and biological weapons reasons are reviewed by SHIELD, an interagency group chaired by State
· License applications relating to items that are controlled for nuclear nonproliferation reasons are reviewed by the Subgroup on Nuclear Export Coordination (SNEC), another interagency group chaired by State
As appropriate, each of these interagency groups also reviews license applications involving other technologies that are destined to a country or end user of concern.99
Department of Defense
At the Department of Defense, the Technology Security Operations
Directorate in the Defense Technology Security Administration
(DTSA)100 reviews the end users that are identified on Commerce
Department export license applications.
The Defense Department uses information from a variety of sources, such as the U.S. Customs Service, the Federal Bureau of Investigation, the Central Intelligence Agency, and the Defense Intelligence Agency, to vet the end user. Also, a "tiger team" meets at the Defense Department each morning to review a synopsis of dual-use license applications that is transmitted electronically from Commerce.
Typically, the Defense Department has seven days to determine whether to recommend that it be given time to review a license application more closely. Invoking the seven-day period to ask for more information from the Commerce Department essentially places a hold on the license for a period of up to 30 days. During that time, the Defense Department works on developing information that eventually will lead to a recommendation for its position on the license application. Within the Defense Department, the License Directorate determines which Defense organizations will be afforded the opportunity to comment on the license application.
Central Intelligence Agency
Commerce Department officials may refer license applications
for dual-use items to the CIA's Nonproliferation Center for help
in identifying sensitive end users.101
Commerce Department officials say that they refer to the CIA all license applications for exports to the People's Republic of China.102
In 1996, the Commerce Department began referring to the CIA information it receives from exporters about end users for all high performance computer exports to certain countries - even if an export license is not required. However, the CIA has recommended 22 general types of foreign end users that the Commerce Department should exempt from Nonproliferation Center review. These include some foreign government entities whose activities are considered to be benign, public service organizations, and some foreign trade organizations.103
This effort included a joint industry
meeting in March 1995 with Commerce Department representatives
hosted by C. Michael Armstrong, Chairman and Chief Executive
Officer of GM Hughes Electronics.198 Also, Armstrong submitted
in March 1995 a report, "White Paper on Commercial Communications
Satellites: Issues and Answers," to Anthony Lake, Assistant
to the President for National Security Affairs.199
I will say that he had concerns,
but he made it clear that on the whole, given the alternatives,
that he felt that the risks were not unreasonable.225
In late 1993, the U.S. Department
of Commerce hired John Huang as the Principal Deputy Assistant
Secretary of Commerce for International Economic Policy.248
Huang
maintained contact with representatives of the Lippo Group while
he was at the Department of Commerce. During the 18 months
that he was at Commerce, Huang called Lippo Bank 232 times, in
addition to 29 calls or faxes to Lippo Headquarters in Indonesia.
Huang also contacted Lippo consultant Maeley Tom on 61 occasions
during the same period. Huang's records show 72 calls to Lippo
joint venture partner C. Joseph Giroir.266