Venezia by PVII

Export Control Reform – Needed Now More Than Ever

By Representative Donald A. Manzullo (IL-16th)

American manufacturers face a staggering number of challenges during this recession, and a key obstacle to global competitiveness is the regulatory barrier associated with exporting into the international marketplace. Modernizing the U.S. export control policies would increase competitiveness while reinforcing U.S. national security. A modernized system would also allow the U.S. to work more closely with international partners and help to achieve more efficient and effective interoperability with our allies.

I created the Congressional Export Control Working Group in January 2007 with the goal of informing Members of Congress about the importance of common sense export control reform. The bipartisan Working Group is co-chaired by Rep. Earl Blumenauer (D-OR) and Rep. Joe Crowley (D-N.Y.). We have hosted key administration officials as well as major industry representatives and have coalesced around a plan of action on several key issues.

Defense Trade Controls

Recognizing the primacy of U.S. national security concerns, my initial efforts to improve the export control system have addressed the State Department. The Defense Trade Controls Performance Improvement Act was originally introduced in November 2007 and passed the House in May 2008 as part of a larger security assistance package. The legislation has now passed the House again, this time as Title VIII of the Foreign Relations Authorization Act (H.R. 2410).

The legislation, which I co-wrote along with Rep. Brad Sherman (D-CA), will reduce defense trade license processing times, create a spare part waiver for our closest allies, and make licensing of defense items more predictable and transparent. These process improvements will, in turn, make U.S. defense manufacturers more competitive in the global marketplace and strengthen our ties with partners and allies abroad. No longer will these manufacturers have to fear being shut out of foreign markets or designed out of products merely because they are regulated by the International Traffic in Arms Regulations (ITAR). Without this legislation, foreign customers will continue to search out products that are “ITAR-free” to avoid being entangled in U.S. export control laws.

This legislation directs the State Department’s Directorate of Defense Trade Controls (DDTC) to hire more staff, reducing the backlog of defense trade license applications and improving the scrutiny of the most sensitive technologies. Eventually, DDTC will need to maintain a ratio of at least one officer for every 1,250 applications.

DDTC will also be mandated to assign at least three individuals to review applications for commodity jurisdiction determinations. These determinations, of whether a particular widget is a commercial dual-use item or a munition, are extremely complex and time consuming. Having specialized personnel dedicated to this task will greatly improve the efficiency and efficacy of their processing. The legislation also increases the transparency of these commodity jurisdiction decisions to help companies determine in advance whether their particular product might fall into a commercial or munitions category.

The bill creates a special licensing authorization for domestically manufactured spare and replacement parts or components in connection with defense items previously exported to our close friends and allies. This will help free up time of DDTC employees to go after more significant threats to national security, reduce wait times for spare parts and improve battlefield interoperability to the benefit of allied and U.S. forces on the ground. The legislation also calls for additional input of the private sector Defense Trade Advisory Group (DTAG) and the international community into the State Department’s defense trade agenda.

Finally, the legislation provides statutory authority for performance goals already in place by Presidential directive: no longer than 60 days to process a defense trade license; 30 days to process a defense trade license for close allies; and seven days to process a defense trade license for our closest allies in support of combat operations or peacekeeping missions. These critical reforms will help ensure a vibrant and growing U.S. aerospace industry and reinforce our relationships with our international allies. In 2008, the U.S. exported more than $99 billion worth of aerospace products, producing a $60 billion positive trade balance in an otherwise grim trade picture. I’m hopeful that the Senate will support the Defense Trade Controls Performance Improvement Act when they begin to scrutinize H.R. 2410.

Satellite Technology

The current export control system has been particularly troublesome to U.S. commercial satellite industry. When Congress made the mistake of moving commercial satellites and their components from the jurisdiction of the Commerce Department over to the munitions list regulated by the State Department in 1998 – a move that I opposed – the goal was to keep sensitive technologies out of the hands of our enemies. That shift, much as I predicted, has damaged America’s space industrial base and caused the U.S. to falter in its global space leadership while contributing little to national security. Foreign commercial satellite manufacturers simply made investments to improve their own technology.

Today, America’s advantage in exploring and commercializing space is slipping away. Efforts to deny space technology to potential enemies through export controls have hampered U.S. companies and limited sales of hardware made in America while diminishing our ability to cooperate with international partners. According to a joint report by the National Security Space Office and the Commerce Department, ITAR has hit U.S. space component manufacturers and exporters to the tune of $600 million a year.

It’s no secret that ITAR-free satellites and rockets are being sold by non-U.S. manufacturers. Furthermore, our export controls are impacting academic institutions and research facilities. We are pushing space research and development out of America’s universities and into foreign countries, often hindering those universities and labs from international collaboration.

The Foreign Relations Authorization Act (H.R. 2410) addressed the issues of satellite technology, with the inclusion of Section 826 giving the President the authority to move satellite parts and components from the U.S. Munitions List back to the Commerce Control List, with a caveat for sales or transfers to China. This is a sensible compromise to a difficult problem.

Automated Export System

Both small and large firms alike have told me that our export control laws are incredibly complicated and hard to track. In fact, inadvertent errors are made all of the time. The Export Controls Improvement Act, which I authored with Reps. Sherman and Adam Smith (D-WA), will help strengthen the reliability of shipment information.

The Export Controls Improvement Act – part of which I originally introduced last year as the Security Exports Through Coordination and Technology Act (H.R. 5828) with Rep. Smith – addresses these problems by requiring the federal government to program its electronic system known as the Automated Export System (AES) to provide alerts to exporters that will help prevent them from making illegal exports to restricted parties or embargoed countries.

The AES record has long been used for trade statistics and export control purposes. Both the Export Administration Regulations (EAR), which apply to “dual use” items, and the International Traffic in Arms Regulations (ITAR), which apply to defense articles, use the AES record as an export control document. These records are used to describe export shipments totaling more than $1 trillion worth of goods each year.

There are various lists of restricted parties and entities and items compiled and maintained by the Bureau of Industry and Security (BIS), the State Department’s Directorate of Defense Trade Controls (DDTC), and the Office of Foreign Assets Control (OFAC) at the Treasury Department. With so many hands stirring the pot, our export control system is complicated and confusing. Until now, it has been left to the private sector to develop and maintain a consolidated list of items, entities and countries regulated by export controls. By programming the AES to scan all of these lists simultaneously, the federal government can potentially help both our nation’s manufacturers and the agents who facilitate the shipment of their goods to better comply with our export control regulations.

This bill will prevent well-intentioned manufacturers, customs brokers, freight forwarders, and other shippers who help facilitate the exports that are essential to our economy from accidentally making prohibited shipments. At the same time, it will make it easier to detect and track intentional violators of U.S. export laws.

Export Administration Act

Congress must pass an updated Export Administration Act (EAA) that is relevant to both the needs and threats of the 21st century. Fundamental reforms to the U.S. export control system are necessary to enhance national security and bolster global trade..

The EAA has not been updated since the end of the Cold War, despite several attempts by Congress. New threats to U.S. national security have emerged over the past 15 years while, unfortunately, our primary control regime for dual-use items has remained focused on protecting technology transfers to the defunct Soviet empire. The U.S. government must establish an export control policy based on clearly defined national security and foreign policy priorities that also recognizes the realities of a global supply chain and encourages legitimate trade. It is clear that overly broad controls are actually detrimental to U.S. national security interests, America’s overall global competitiveness and our international relationships.

When we talk about dual-use items adversely affected by export controls, I can think of no better – or more timely – example than thermal imaging cameras. Recognizing growing foreign availability, BIS issued a final rule just last month that revises the export licensing requirements for certain thermal imaging cameras. While imposing license requirements on exports that incorporate certain thermal imaging cameras, the new regulations removed Commerce Control List (CCL)-based export and re-export license requirements for 36 destinations – mostly European countries – for certain thermal imaging cameras, with a couple of caveat.

The authorities under the EAA officially lapsed eight years ago, during the last major attempt to pass export control reform. Since then, any attempts to reauthorize and modernize the system have failed because of entrenched views held by one stakeholder or another. Congress, the Administration, and industry all seem to agree, though, that the current system does not adequately meet U.S. foreign policy, national security, and economic objectives.

Recent efforts to reauthorize the basic EAA statute without any underlying reforms other than enhanced penalties have not gone far enough to address the realities of trade in the 21st century. I support expanded enforcement authorities to the BIS, but these higher fines and penalties can only be part of the solution. I am concerned that moving a narrow EAA reauthorization bill will satisfy just one faction of the stakeholders interested in this issue; thus providing little incentive for them to negotiate other critical changes needed to update our export control regime. I believe that key elements of reform include:

  • Removing all references to the Cold War, making the new export control system better able to respond to new threats to national security – terrorism and the proliferation of weapons of mass destruction.
  • Accounting for globalization by recognizing the increased role of civilian technology for military applications; and
  • Making the Wassenaar arrangement a more effective multilateral export control regime by providing incentives in the form of defense technology sharing, re-export policies, and intra-company transfers if member countries develop a more strict export control regime, perhaps starting with the United Kingdom, Australia, and Canada.

If we can’t find consensus on these concerns, a simple short-term extension like the one that passed the House in the 107th Congress, would be an appropriate template for a stopgap EAA reauthorization bill that would allow time for the stakeholders to come to an agreement on a comprehensive EAA rewrite. If we go this route, I will strongly recommend the creation of a commission comprised of experts from both the public and private sectors to thoroughly analyze U.S. export control laws in the context of a more globalized society and deliver to Congress an EAA proposal that accounts for foreign availability.

Conclusion

It seems clear that U.S. export controls, meant to protect our most precious technologies, are broken. They are hindering America’s economic competitiveness, threatening national security and hindering our ability to work closely with international partners. I have outlined here a few first steps, but the list of problems – and solutions – are numerous. I look forward to working with the new Administration, my colleagues in Congress, U.S. industry and our allies abroad as we find a new way forward.

Rep. Donald A. Manzullo is the co-founder and co-chairman of the House Manufacturing Caucus. He has been awarded the Aerospace Industry Association’s Wings of Liberty, the National Association of Manufacturers Award for Manufacturing Legislative Excellence, and the National Federation of Independent Business Guardian of Small Business Award. He has received several endorsements from the U.S. Chamber of Commerce. In 2004, The Manufacturer magazine called him “Mr. Fix-It.”