3

THE INTERAGENCY PROCESS FOR EXPORT CONTROLS

A SINGLE CONCEPT OF NATIONAL SECURITY

The national security of the United States is a single concept with a unified goal: to protect the United States and its citizens from harm of all types in ways consistent with our values, our laws, and our way of life. This goal has remained consistent throughout U.S. history. The means to achieve our security were also remarkably consistent until the nuclear age, when, for the first time, the United States became vulnerable to massive attack.

The Cold War launched a new approach to U.S. national security that involved three innovations. One was the development and deployment of America’s nuclear deterrent. Another was the support for a vigorous, permanent industrial base in the United States that could sustain U.S. battlefield dominance. The third was the codification of the export control laws1 that would help to deny potential adversaries access to advanced American technology or equipment, which, in enemy hands, could expose U.S. and allied forces to significant risk.

This approach to U.S. national security did not change following the end of the Cold War, because there was no driving impetus within the national security establishment to reevaluate the twin goals of maintaining America’s technological dominance and maintaining tight restrictions on the export of advanced sensitive technologies.

Then, on September 11, 2001, terror attacks brought about mass casualties on U.S. soil. The shocking success of these attacks required a new understanding of the nature of threats facing the United States. Gone was America’s traditional sense of secure borders. Attacks using mass casualty weapons, including nuclear, biological, and chemical weapons, appeared more plausible and could originate from anywhere in the world. America’s newest adversaries were not confined to a battlefield or to a particular country. Hereafter, deterring and defending against many of these new threats would not take place solely in a traditional military theater, but at airports and shipping hubs around the world, at shopping centers and utility plants, and in cyberspace. Because of the important domestic elements of this defense, this was not a job for the traditional elements of the national security establishment—the Defense Department and the State Department—whose domestic reach is limited by law and long-standing practice. Yet it would be necessary to establish a centralized national security entity whose mandate could span from local first responders to global networks. As President George W. Bush said nine days after the attacks on the World Trade Center and the Pentagon:

Our nation has been put on notice: We are not immune from attack. We will take defensive measures against terrorism to protect Americans. Today, dozens of federal

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1 For a brief description of the evolution of export control legislation, see Beyond “Fortress America,” p. 29.



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3 THE INTERAGENCY PROCESS FOR EXPORT CONTROLS A SINGLE CONCEPT OF NATIONAL SECURITY The national security of the United States is a single concept with a unified goal: to protect the United States and its citizens from harm of all types in ways consistent with our values, our laws, and our way of life. This goal has remained consistent throughout U.S. history. The means to achieve our security were also remarkably consistent until the nuclear age, when, for the first time, the United States became vulnerable to massive attack. The Cold War launched a new approach to U.S. national security that involved three innovations. One was the development and deployment of America’s nuclear deterrent. Another was the support for a vigorous, permanent industrial base in the United States that could sustain U.S. battlefield dominance. The third was the codification of the export control laws1 that would help to deny potential adversaries access to advanced American technology or equipment, which, in enemy hands, could expose U.S. and allied forces to significant risk. This approach to U.S. national security did not change following the end of the Cold War, because there was no driving impetus within the national security establishment to reevaluate the twin goals of maintaining America’s technological dominance and maintaining tight restrictions on the export of advanced sensitive technologies. Then, on September 11, 2001, terror attacks brought about mass casualties on U.S. soil. The shocking success of these attacks required a new understanding of the nature of threats facing the United States. Gone was America’s traditional sense of secure borders. Attacks using mass casualty weapons, including nuclear, biological, and chemical weapons, appeared more plausible and could originate from anywhere in the world. America’s newest adversaries were not confined to a battlefield or to a particular country. Hereafter, deterring and defending against many of these new threats would not take place solely in a traditional military theater, but at airports and shipping hubs around the world, at shopping centers and utility plants, and in cyberspace. Because of the important domestic elements of this defense, this was not a job for the traditional elements of the national security establishment―the Defense Department and the State Department―whose domestic reach is limited by law and long-standing practice. Yet it would be necessary to establish a centralized national security entity whose mandate could span from local first responders to global networks. As President George W. Bush said nine days after the attacks on the World Trade Center and the Pentagon: Our nation has been put on notice: We are not immune from attack. We will take defensive measures against terrorism to protect Americans. Today, dozens of federal 1 For a brief description of the evolution of export control legislation, see Beyond “Fortress America,” p. 29. 33

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34 EXPORT CONTROL CHALLENGES ASSOCIATED WITH SECURING THE HOMELAND departments and agencies, as well as state and local governments, have responsibilities affecting homeland security. These efforts must be coordinated at the highest level.2 The creation of the Department of Homeland Security (DHS) was the most significant change to the U.S. national security apparatus since the National Security Act of 1947.3 The legislatively specified antiterror missions make DHS a critical part of the national security establishment along with the Defense Department and the State Department. The Defense Department has responsibility for deterring and, if need be, defending against military and paramilitary attack. The State Department has responsibility for conducting the nation’s foreign policy in accord with U.S. national security interests, including dealing with foreign countries or entities that may pose a danger to the United States.4 Although the overall mission of these three cabinet agencies—to protect the nation’s security—is the same, their focus and implementation of the mission must and do vary. One area in which the implementation of these missions has the potential to conflict is in the risk assessment involved in balancing their approach to export controls. For example, if DHS seeks to export devices for bomb detection to a civilian location, a very similar technology may be used for bomb detection on the battlefield. The Defense Department would want to ensure that the enemy does not have access to this military application either to undermine U.S. or allied forces, or to reverse engineer for the purpose of devising ways to counter the technology or make its use less effective. Dealing with the potential dual-use nature of this technology is sometimes described as a conflict between counterproliferation5 policies and counterterrorism policies.6 However, this is an oversimplification. Rather, this is an important risk-balancing process. The elements of risk are specific to each situation and are not susceptible to much generalization. The net risk with bomb-detection technology, for example, is a complex calculation that compares the risk to soldiers if the enemy gains access to the technology with the risk to civilians if a bomb goes undetected. This risk calculation is further complicated by the likelihood that the adversary may try to manipulate the technology for its own purposes; by the numbers of people likely to be killed; and by the economic, social, and political fallout from a civilian terrorist incident. There is no simple policy formulation for choosing one set of risks or one strategy over another in carrying out export control policy. This problem lies at the heart of this study. 2 http://georgewbush-whitehouse.archives.gov/news/releases/2001/09/20010920-8.html. Last accessed November 19, 2010. 3 Before the Homeland Security Act of 2002, the Goldwater-Nichols Department of Defense Reorganization Act of 1986, which revised the command structure of the U.S. military, was considered to be the most sweeping change in the National Security Establishment since the National Security Act of 1947. 4 The chief national security role of the Commerce Department is discussed on pp. 35-36 of this report. 5 Counterproliferation and counterterrorism are in no way oppositional policies, but the strategies for operationalizing them tend to focus on different issues and may appear to conflict on occasion. 6 In this report, counterproliferation is defined as preventing the spread to adversaries, or the illegal transfer, of weapons or related technologies that could be developed that could be used against U.S. and allied military forces in the field or could cause mass civilian casualties.

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THE INTERAGENCY PROCESS FOR EXPORT CONTROLS 35 EXPORT CONTROLS AND THE NATIONAL SECURITY ESTABLISHMENT Export controls are, in most cases, national security measures. They constitute a key legislative or regulatory mechanism to deny potential adversaries access to technology that could be used to defeat or deter U.S. forces. They also assist in preventing the proliferation of weapons of mass destruction, missiles, and conventional and unconventional weapons by denying access to countries, entities, and individuals who might threaten the United States or its allies. Export controls have an extraordinarily important but not readily visible effect on the nation’s economy and security, as documented in the NRC study Beyond “Fortress America”: National Security Controls on Science and Technology in a Globalized World. The export control system is based on licenses that constitute a positive review and authorization of the export of defense articles and services (including technical data and other forms of technology) or dual-use goods and services (including technical data, et cetera). Regarding the cases discussed in this report, the fundamental decision is whether to issue or deny a license for the export of a particular technology (including the shipment of a piece of equipment or the release of technological data that is shared with foreign nationals in the workspace, during a conversation, or at a conference). Although based on legislation, export control practices are largely the creation of executive branch administrative regulation during the past 60 years. The current system involves licensing decisions that are initially reviewed by lower-level government officials. If an interagency agreement is not reached, the decision-making process may escalate to the directors of staff offices, to the deputy assistant secretary or assistant secretary level, to cabinet officers, and ultimately, if necessary, to the President. At each level, risks are weighed and conclusions are reached. The organizational efficiency and staffing at each level and decision point in the bureaucratic process is critical to a realistic (and ultimately successful from a policy viewpoint) assessment of the relevant risks. The current export control system has two separate licensing regimes.7 The Commerce Department manages export licenses for potentially militarily sensitive—that is, dual-use— goods and technologies. The State Department has licensing responsibility for defense articles and services. The Defense Department does not have a direct licensing role, but is involved in the licensing process as an advisor to both the Commerce and State departments. This system can be confusing, cumbersome, and complex.8 The jurisdictional line between dual-use and military technology is sometimes unclear, and the means for resolving interagency jurisdictional disputes are inadequate.9 Even within the dual-use system, different agencies’ interpretations of their regulatory authority and their national security missions can result in long licensing delays while policy differences are resolved. 7 There is a third U.S. export licensing regime that falls under the Atomic Energy Act of 1954. This licensing regime is carried out by the U.S. Nuclear Regulatory Commission and the Department of Energy. DHS is not likely to request to export items under this regime. 8 See, for example, Appendix D, Recent Studies and Initiatives Outside U.S. National Academies in Beyond “Fortress America,” pp. 101–105. 9 See, for example, U.S. Government Agency Jurisdiction and Export Decision Tree, which is reprinted in Appendix F, Beyond “Fortress America,” pp. 110–122.

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36 EXPORT CONTROL CHALLENGES ASSOCIATED WITH SECURING THE HOMELAND DHS-related exports are subject to both of these licensing regimes. A key export control decision is therefore whether a DHS-related export falls within the jurisdiction of one department or the other. Dual-Use Goods and Services The Commerce Department is responsible for implementing the Export Administration Regulations (EAR), issued pursuant to the Export Administration Act of 1979,10 through the department’s Bureau of Industry and Security (BIS). The bureau’s mission is to “[a]dvance U.S. national security, foreign policy, and economic objectives by ensuring an effective export control and treaty compliance system and promoting continued U.S. strategic technology leadership.”11 BIS manages the licensing process for dual-use licenses and engages as the lead agency for interagency reviews on behalf of the Commerce Department. For most dual-use licenses, BIS coordinates directly with representatives from the Departments of State, Defense, and Energy, and these departments may review any license application sent to the Commerce Department. The dual-use licensing system provides a formal structure for other agencies to participate in licensing decisions. Under Executive Order 12981 (issued in 1995), the Defense Department, the State Department, and the Energy Department play a role in the review of applications submitted to the Commerce Department. The executive order establishes time frames for these other agencies to review license applications, and a process for license denials to be appealed. The first appeal goes to an interagency working group known as the BIS Operating Committee on Export Policy; and if issues are not resolved there, the appeal goes to the Advisory Committee on Export Policy, an assistant secretary–level body in which each agency has one vote. In extremely rare instances, cases may be escalated to the cabinet-level Export Administration Review Board and ultimately to the President. At present, DHS is accommodated informally in the Operating Committee and Advisory Committee processes and is included, by Executive Order 13286 (issued in 2003), in the Export Administration Review Board review.12 Defense Articles and Services The President is charged with the authority to control the export of defense articles and services. Executive Order 11958 (issued in 1977) delegates this statutory authority to the secretary of state. The State Department is the only national security agency with direct licensing responsibility for defense articles and services. The State Department’s Directorate of 10 This act expired most recently in 2001. In the breach, the EAR is authorized via the International Emergency Economic Powers Act. For more information, see Beyond “Fortress America,” pp. 29–32. Commerce-controlled items are enumerated on the Commerce Control List (CCL). This list largely consists of items controlled under multilateral export control regimes, including the Wassenaar Arrangement, Nuclear Suppliers Group, Australia Group, and Missile Technology Control Regime. The CCL also covers a small portion of the items controlled by the Nuclear Suppliers Group. A “positive“ list, the CCL specifically enumerates the items controlled and the particular control parameters. If not specifically enumerated, the item falls to a general catchall category (so-called EAR99), which is not subject to strict export controls. These items may generally be exported to all but embargoed countries. 11 BIS Web site: http://www.bis.doc.gov/about/index.htm. Last accessed September 30, 2010. 12 The EARB has not met in more than 20 years because dual-use licensing adjudications have not escalated to this level.

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THE INTERAGENCY PROCESS FOR EXPORT CONTROLS 37 Defense Trade Controls (DDTC) in the Bureau of Political-Military Affairs administers the International Traffic in Arms Regulations (ITAR), the implementing regulations of the Arms Export Control Act of 1976.13 The defense articles and services that are subject to ITAR control are included on the United States Munitions List (USML), which is created and updated by the State Department with the advice of the Defense Department. The central purpose of the ITAR provisions is to control the export of items that have been specifically designed, developed, configured, adapted, or modified for military applications.14 In many cases, design intent and use are clear. Increasingly, however, commercial items purchased off-the-shelf are being used in military applications. Although it happens much less frequently, technologies originally designed for military applications are also being used with very slight modifications in commercial applications.15 If an advanced technology or product is subject to the ITAR, an individual license application must be submitted for each export from the United States and each re-export from one foreign country to another. Each license application must identify all parties, including consignees, distributors, and freight forwarders, and in some cases, the exporter must obtain end- use statements signed by the purchaser and the purchaser’s government. These license requirements also apply to foreign products that incorporate U.S.-origin ITAR-controlled content. Exports of defense articles and services to countries that are subject to an arms embargo, such as China, are prohibited. In addition, these licensing requirements apply to ITAR-controlled technical data released to foreign nationals whether they reside within or outside the United States. Such technical data are subject to essentially the same restrictive licensing requirements, which mandate approval for exports and re-exports.16 The Defense Department does not issue export licenses, but it plays a critical role in the export control system via the Defense Technology Security Administration (DTSA), whose strategic goal is to “preserve the U.S. defense edge by preventing the proliferation and diversion of technology that could prove detrimental to U.S. national security.”17 13 From U.S. Defense Articles and Services Supplied to Foreign Recipients: Restrictions on Their Use. CRS Report RL30982: The Arms Export Control Act (AECA), as amended, authorizes the transfer by sale or lease of United States origin defense articles and services through the government-to-government foreign military sales (FMS) program or through the licensed commercial sales process. 22 U.S.C. 2778, the Arms Export Control Act (AECA). 14 See the International Traffic in Arms Regulations, Part 121, The United States Munitions List. http://www.fas.org/spp/starwars/offdocs/itar/p121.htm. Last accessed May 26, 2011. 15 Perhaps the most well-known military-to-commercial use item is the global positioning system that was developed by the Defense Department in the 1970s. Today every smartphone has its own GPS. 16 The ITAR requirements apply not only to technical data transferred from one company to another but also to transfers within a company if the company employs nationals of another country or dual nationals. State Department-approved technical assistance agreements can alleviate the need for specific transactional approvals. For example, the department has permitted access to ITAR-controlled technical data to employees of a company that is a party to a technical assistance agreement who sign nondisclosure agreements, instead of requiring each employee who has access to such technical data to be an individual signatory to the agreement. (Previously, every time a new employee was added to the program or left the company, the entire agreement had to be amended, new signatures had to be obtained from all parties, and the State Department had to approve the amendment before it could go into effect.) 17 DTSA’s mission: The Defense Technology Security Administration (DTSA) administers the development and implementation of Department of Defense (DoD) technology security policies on international transfers of defense- related goods, services and technologies. It ensures that critical U.S. military technological advantages are

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38 EXPORT CONTROL CHALLENGES ASSOCIATED WITH SECURING THE HOMELAND Via DTSA, the Defense Department makes substantial contribution to the commodity jurisdiction process. When DTSA recommends that an item be controlled under the ITAR, the State Department almost always follows this recommendation. However, the department has no obligation to follow the recommendation of DTSA or any agency or to consult once comments have been received. Before exporting an item or related technology, exporters must determine whether the export is subject to the ITAR or to the EAR. Making a wrong determination could potentially expose an exporter to criminal liability, and certainly to significant delays. In almost all cases, items subject to the ITAR require licenses for each transfer, while items subject to the EAR are often eligible for export under license exceptions that permit shipments without specific federal authorization. Companies often self-classify their products and technology, either independently or with the aid of consultants, to determine which agency has jurisdiction and, in turn, to determine which licensing requirements apply. When the licensing applicant is in doubt, the ITAR provides a “commodity jurisdiction” process for deciding which regulatory regime controls the particular technology proposed for export. Only the State Department has the authority to issue a commodity jurisdiction determination. The Commerce Department issues determinations of how an EAR-controlled product is classified on the Commerce Control List (CCL),18 but cannot adjudicate whether a product is appropriately controlled under the EAR or ITAR. Since September 2009, all commodity jurisdiction cases have been made available electronically to interested agencies, including DHS.19 This innovation, discussed in the following section, has enabled DHS to review all of the cases and to respond to those that do, or could, involve current or anticipated department projects and programs. If the State Department determines that an item is subject to the ITAR, all such items exported in the future will be subject to the ITAR restrictions, unless there is a formal policy or regulatory change, a new assessment is made in light of information that was not considered in the original determination process, or because of other changed circumstances. When such a change is made, congressional notification is required. The commodity jurisdiction portion of the State Department’s licensing system involves about 500 to 600 cases a year, but this number is only a very small portion of the approximately 83,000 licenses a year the department processes.20 Once a commodity jurisdiction determination has been made to subject an item to the ITAR, or if an exporter determines on its own that the ITAR apply,21 then the State Department must decide for each export and re-export whether a license will be granted and, if so, the terms of the license.22 preserved; transfers that could prove detrimental to U.S. security interests are controlled and limited; proliferation of weapons of mass destruction and their means of delivery is prevented; diversion of defense-related goods to terrorists is prevented; military interoperability with foreign allies and friends is supported; and the health of the U.S. defense industrial base is assured. DTSA Web site: http://www.dtsa.mil/. Last accessed November 3, 2010. 18 See 15 CFR Parts 748 (2010). 19 See pages 39-40 of this report for a fuller description of this process. 20 Approximately .5 percent of all ITAR applications are denied and less than 10% are returned without action. This information was made available by the Directorate of Defense Trade Controls on February 29, 2012. 21 Many exports are conceded to be covered by ITAR provisions either because they have been covered by prior commodity jurisdiction decisions by the State Department or because of the inherent nature of the technology. 22 Approximately 90 percent of license applications are approved. This information was made available by the Directorate of Defense Trade Controls on February 29, 2012.

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THE INTERAGENCY PROCESS FOR EXPORT CONTROLS 39 The Interagency Process At present, there are two separate interagency processes dealing with export controls. One deals with the Commerce Department’s licensing authority. The other deals with the State Department commodity jurisdiction determinations. These interagency processes provide a table around which agencies can discuss the facts of a case, classified intelligence about the trustworthiness of the parties to the transaction, or the policy reflected in the applicable regulations. These processes, however, do not necessarily mean that disputes are resolved easily or quickly. When the Commerce Department acts on a license application, the case may reach the appellate level (the Operating Committee or Advisory Committee) months into the license application process. Each agency around the table―Commerce, State, Defense, and Energy―has one vote. Despite efforts to reach consensus, an agency with a strongly held position may be outvoted. The Defense Department (DTSA), for example, may assert that a particular technology has a certain military utility even though the license application has been submitted to the Commerce Department (BIS) because it involves dual-use technology listed on the Commerce Control List. Another complication to the voting arises because the State Department participates in the Operating Committee and Advisory Committee reviews through its Bureau of International Security and Nonproliferation (ISN).23 ISN, which, inter alia, manages the multilateral export control regimes on behalf of the State Department, has a somewhat different national security mission from the State Department’s Bureau of Political- Military Affairs, which through DDTC is responsible for the ITAR.24 Regarding commodity jurisdiction (CJ) determinations, since January 2009, a new interagency structure has grown out of NSPD-56―the National Security Presidential Directive on Defense Trade Reform―that enables interagency participation throughout the commodity jurisdiction process. Among other actions, this directive established an interagency group of deputy assistant secretaries (DAS) to adjudicate commodity jurisdiction cases. 25 The Secretary of Homeland Security (or the Secretary’s designee) shall participate whenever compliance, enforcement, and specific commodity jurisdiction issues relating to technologies of homeland security concerns, as well as other issues as determined by the Secretary of State, are addressed.26 The interagency process for commodity jurisdictions includes three steps:27 23 The State Department’s ISN bureau is the formal U.S. government representative in multilateral export control organizations such as the Wassenaar Arrangement. Despite efforts to coordinate a unified U.S. government position, lingering interagency disagreements often result in long delays in publishing regulations that change the CCL to reflect the results of decisions taken in these multilateral bodies. 24 In such a case, DTSA may lodge a government jurisdiction (GJ) request, i.e., a request for a jurisdictional determination submitted by a government agency, asserting that the item should be subject to the ITAR. This launches a separate commodity jurisdiction process, which, as discussed above, is controlled entirely by DDTC and DTSA without voting by other agencies and may last months (or even years) longer. 25 The DHS representative is from the S&T Directorate. 26 National Security Presidential Directive (NSPD) 56. SUBJECT: Defense Trade Reform (U). 27 Officials of the directorate of defense trade controls described the steps of the CJ process on August 22, 2011.

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40 EXPORT CONTROL CHALLENGES ASSOCIATED WITH SECURING THE HOMELAND 1. CJs are first considered at the working level at the Directorate of Defense Trade Controls. Any agency, including DHS, may participate at this level. 2. If any agency disagrees with the decision, the case escalates to the DAS level, and the DAS overrules or sustains the original decision. DHS determines its own participation at this level. 3. If any agency disagrees with the decision at the DAS level, the case escalates to an interagency policy committee (IPC) that is run by national security staff. The assistant secretary for political-military affairs makes the final decision. At that point, the government agency has run out of appeals, but if a company is seeking a license, it may appeal to the undersecretary of state for arms control and international security. DHS determines its own participation in IPC adjudications. Meetings of the assistant secretaries are held to resolve cases that are not solved at the deputy level. According to the DHS representative who has attended the deputy-level meetings, DHS has not yet had an issue to escalate to that level.28 When that happens, however, DHS does not have an assistant secretary with clearly identified responsibility and authority for export control policy and licensing to send to these meetings, and thus lower-ranked staff would participate. When the State Department acts on an ITAR license application (as distinguished from a commodity jurisdiction determination, as discussed above), at present, there is no formal review or appellate process. For that reason, if a proposed export is subject to the ITAR, DHS has no mechanism to challenge the decision by the State Department either to deny the license or to impose license terms that may be impossible or impractical to meet. These licensing systems, and the delays in the interagency process that may occur, can make it very difficult for DHS to collaborate internationally on the development of advanced technology. When the Science and Technology (S&T) Directorate works with foreign partners on the development of advanced technologies, it typically participates in the export licensing process by supporting the application of a private company seeking to export a product or technology related to a DHS program. The S&T Directorate has sought to work within the existing export control system and to share technology by means of licenses, technology exchange agreements, or government-to-government memoranda of understanding. However, the risk that foreign technology brought into a collaborative project might be subjected to restrictive ITAR licensing requirements has deterred foreign governments and companies from working with DHS. So strong is the ITAR taint that some foreign companies have adopted explicit policies to design out all U.S.-origin ITAR-controlled content and to ensure that their products are ITAR-free.29 Under the current system, there is insufficient recognition of DHS’s fundamental security mission as a significant factor to be weighed in licensing decisions when DHS seeks to discuss technical details or to share equipment overseas for research and development purposes. In addition, DHS does not have the ability to require an advance commodity jurisdiction determination or advisory opinion. These policy conflicts, and the resulting uncertainty and 28 This group did not exist when the counter-Man-Portable Air Defense Systems case was being adjudicated (see pages 16-17 in this report for a discussion of this case). Telephone call with Brandt Pasco, January 25, 2011. 29 See, for example, Mitchel Wallerstein’s article, “Losing Controls: How U.S. Export Restrictions Jeopardize National Security and Harm Competitiveness,“ in Foreign Affairs, November-December 2009. http://www.foreignaffairs.com/articles/65502/mitchel-b-wallerstein/losing-controls. Last accessed June 14, 2011.

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THE INTERAGENCY PROCESS FOR EXPORT CONTROLS 41 delay, should be resolved so that DHS can fulfill its national security mission. DHS and its implementing partners need a clear procedural path from technology identification to development and deployment in order to protect national security. In effect, the committee found, the current export control system defaults to “no” when its administrators are faced with an export for homeland security purposes about which there is either doubt or uncertainty. DHS would be able to fulfill its mission more effectively if the system showed more flexibility, especially when the secretary of homeland security determines that the balance of risks requires an export to secure an exceptionally important U.S. homeland security interest. CURRENT EXPORT CONTROL REFORM INITIATIVE The January 2009 National Research Council report Beyond “Fortress America”: National Security Controls on Science and Technology in a Globalized World concluded that “the export controls and visa regulations that were crafted to meet conditions the United States faced over five decades ago now quietly undermine our national security and our national economic well-being. The entire system of export controls needs to be restructured . . . to serve the nation’s current economic and security challenges.”30 The study report made detailed recommendations for a new and modernized system. In August 2009 the President directed the national security advisor and the National Economic Council to launch “a broad-based interagency process for reviewing the overall U.S. export control system, including both the dual-use and defense trade processes.” 31 The aim of the review is to “enhance the national security, foreign policy, and economic security interests of the United States.”32 In April 2010, then U.S. Secretary of Defense Robert M. Gates announced a comprehensive reform proposal intended to achieve “a more agile, transparent, predictable, and efficient regime.”33 The proposal aims to consolidate the existing U.S. export control system into a single structure that would eventually consist of one export control list (rather than the separate military list [USML] and dual-use list [CCL]) with tiered levels of controls, a single licensing agency (instead of DDTC and BIS), one enforcement coordination agency, and one information technology system. As set forth by Secretary Gates, the goal of the administration’s export control reform effort is to “focus controls on key technologies and items that pose the greatest national-security threat . . . [including] items and technologies related to global terrorism, the proliferation and delivery of systems of weapons of mass destruction, and advanced conventional weapons.”34 In August 2010 the White House announced, inter alia, that under the new system, licensing treatment will turn on whether an item or technology presents a low, medium, or high risk if diverted (with the most sensitive items being in the tier with the highest level of controls). 30 Beyond “Fortress America,” p. 1. 31 http://www.whitehouse.gov/the_press_office/Statement-of-the-Press-Secretary/. Last accessed November 4, 2010. This reform effort is not considering changes to the Atomic Energy Act export licensing regime. 32 Ibid. 33 http://www.defense.gov/transcripts/transcript.aspx?transcriptid=4613. Last accessed March 22, 2011. 34 Ibid.

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42 EXPORT CONTROL CHALLENGES ASSOCIATED WITH SECURING THE HOMELAND The regulations will be structured as a “positive” list35; that is, items will be controlled based on their specifications and functions, rather than on their design history or intent. This approach is intended to create a bright line between what is captured by the ITAR and what is captured by the EAR controls. The purpose of this reform effort is to provide a more realistic approach to export controls. This is an ambitious and promising reform proposal that has the potential to improve the relationship between export controls and U.S. national security significantly. These proposals, if implemented, will resolve many jurisdictional disputes before they arise because there will be greater clarity from the outset regarding the sensitivity of the technology and the appropriate level of control. Elements of the export control reform initiative would address the uncertainty that causes difficulties for DHS under the current regime. A positive USML, without catchall categories and with a clear distinction between military and dual-use technologies, will provide better predictability. A tiered review of USML categories according to criteria that take into account the specific military significance of particular technologies and their legal availability among U.S. military allies or more widely, and the transfer of items that are less sensitive or more widely available to the CCL, will help avoid export delays.36 These elements, however, may not address DHS’s need to share advanced technologies. As a policy matter, DHS’s role in the export licensing system highlights the problem at the heart of this study: DHS counterterrorism programs require sharing of technical data, collaboration on technology development programs, and attending conferences with international partners that may involve the export of dual-use or military technology. Yet the export control programs administered by other federal agencies may inhibit―if not prohibit outright―such “exports” from the United States. Consequently, DHS is unable to fulfill part of its national security mission, because preventing harmful goods or people from getting into the United States requires the export of U.S. technologies and re-export of technologies from the United States that are proscribed by export controls as implemented by the other national security agencies. Finding III As recognized by reform efforts during the past 2 years, the current export control system has weaknesses and involves delays that harm national security. In the current context, this includes harm to counterterrorism programs and international collaboration and deployment to support the specific mission of DHS. Although current reform efforts may resolve many jurisdictional disputes, additional measures are needed to enable DHS to work with its foreign counterparts and other entities to develop the best possible technology for homeland security applications. 35 A positive list is one that lists in specific terms the items subject to control; if an item is not listed, it is not controlled. By contrast, the current approach prohibits exports of an entire category of items and permits exports of only those items that are specifically licensed. 36 The implementation of tiering has been delayed until all categories of the U.S. Munitions List have been reviewed and published. See 76 FR 68689, November 7, 2011.

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THE INTERAGENCY PROCESS FOR EXPORT CONTROLS 43 Recommendations for Finding III A. The committee endorses, in principle, the current reform efforts of the administration to enhance national security by reforming and streamlining the export control system. B. The ITAR processes should be amended to include an exemption for situations when the DHS or other relevant Agencies’ missions require an export without a license. The criteria for situations meeting the exemption should be clearly stated in the exemption. C. For DHS to be effective in carrying out its mission, it will be important to: 1. Put DHS on an equal footing in interagency processes for export controls when its interests are affected. 2. Streamline processes for exports necessary to execute urgent DHS missions. 3. Provide for commodity jurisdiction and advisory license decisionmaking early in the interagency process upon DHS’s request. Complete the Current Reforms of the Export Control System This committee endorses in principle the current reform efforts of the administration to enhance national security by reforming and streamlining the export control system. Some of the proposals under consideration will, indirectly, assist DHS in fulfilling its mission, including (1) establishing a positive United States Munitions List, (2) creating a clear, jurisdictional distinction between military and dual-use technology, and (3) reviewing USML categories according to criteria that take into account the military significance of particular technologies and their foreign availability. These three proposals will help DHS accomplish its mission and should be completed expeditiously. Provide DHS with Limited ITAR License Exemptions ITAR process can take many months, particularly if the item involved is the subject of a commodity jurisdiction dispute. Under these circumstances, the State Department should consider an exemption or set of exemptions to the ITAR for certain narrowly drawn circumstances where homeland security needs cannot be met through the licensing process.37 Any proposal must include appropriate terms and conditions to ensure that all national security risks are appropriately addressed. If properly defined, such an exemption would eliminate the 37 Under current conditions, an exemption can be used when the export of an item is for the agency's official use or for carrying out any "foreign assistance, cooperative project or sales program authorized by law and subject to control by the President by other means." All aspects of the transaction, including the export, transport and delivery abroad must be conducted by a U.S. government agency or must be covered by a U.S. government bill of lading. An exemption can also be used when the export is pursuant to a contract with or written direction of a U.S. government agency. The end user in the foreign country must be a U.S. government agency or facility, the defense article may not be transferred a foreign person, and the urgency of the USG requirement is such that the appropriate export license or USG bill of lading could not have been obtained in a timely manner. Neither of these circumstances works for DHS. In the first instance, private parties are often involved in fulfilling DHS' mission. Items would not necessarily be exported for DHS' own use and all aspects of the shipping wouldn't be handled by the USG. In the second instance, the end user wouldn't be a USG facility (but could be, e.g., a port or airport authority), and the items might be transferred to a foreign person.

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44 EXPORT CONTROL CHALLENGES ASSOCIATED WITH SECURING THE HOMELAND need for further reviews in connection with the licensing process. For example, an exemption of this sort could allow the exchange of ITAR-controlled technical data with foreign parties when such exchanges are in the interests of U.S. homeland security and could address current problems in sharing ITAR-controlled technical data in international cooperative research and development. This authority would be comparable to the types of exemptions that are currently allowed under the ITAR.38 Put DHS on an Equal Footing in Interagency Processes for Export Controls When its Interests are Affected DHS should have a vote on each interagency committee for export control licensing and policymaking on any matter related to the international collaboration or international deployment of items for counterterrorism reasons. For EAR-controlled technology, Executive Order 12981 should be amended to include DHS when licenses involving these matters are considered. A comparable interagency structure and process should be established to provide for DHS participation in the early stages of reviewing ITAR-controlled license applications involving counterterrorism matters. Streamline Processes for Exporting Technology Necessary to Execute Urgent DHS Missions Circumstances may arise when the Department of Homeland Security has an urgent need to share advanced technology with a security partner or perhaps with a parastatal entity.39 The State Department should delegate authority to the secretary of homeland security to release temporarily from export controls the goods and services necessary to achieve counterterrorism missions upon a finding by the secretary that time is of the essence for an urgent and important objective. In exercising this authority, the DHS secretary would consult with other departments and notify them of the intent to export, subject to review only by the National Security Council with appeal to the President. This authority would be exercised only under extraordinary circumstances to address a potential national emergency and only when existing licensing authorities or exemptions cannot be brought to bear in a timely manner. Provide for Commodity Jurisdiction and Advisory License Decisionmaking Early in the Interagency Process upon the Request of DHS The committee recommends that the State Department establish a process under which DDTC will provide, upon request from DHS, an early and prompt commodity jurisdiction determination and, if ITAR-controlled, a concise determination whether a product or technology may be exported for DHS programs for international collaboration or deployment for counterterrorism purposes and, if so, the conditions to which the exportation is subject. 38 See 22 CFR §125.4(b)(11) (2010), which refers to the possibility of exemptions to the exporter, “pursuant to an arrangement with the Department of Defense, the Department of Energy or NASA which requires such exports.” 39 A parastatal entity could be a government-owned corporation or a government-private partnership whose employees are not government officials, such as a major transportation hub.

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THE INTERAGENCY PROCESS FOR EXPORT CONTROLS 45 An export license application typically is not submitted until the export opportunity is at hand, which means the technology has already been developed. By this time, there has already been substantial commitment of time and resources for the project. As in the counter–man- portable air defense systems (MANPADS) case,40 millions of dollars may be expended with the expectation that the equipment that houses a specific technology will be deployed internationally to better protect U.S. citizens against possible terrorist attacks. However, without a formal commodity jurisdiction determination or advisory opinion at the outset of the project, DHS and its contractors cannot know with confidence whether the State and Defense departments will seek to impose ITAR controls. In the counter-MANPADS case, if a determination had been required when Congress proposed the mission to DHS, then Congress would have known that no matter how much was expended on the program, it was highly unlikely to succeed. There is the countervailing problem that precise technical parameters may not be known until the system is built, and it may be a specific parameter that causes rigorous export controls to be applied under the ITAR. DHS procurement processes can be used, however, to monitor the kinds of new or changed parameters that could bring export controls to bear, and a flexible system for advisory determinations can produce substantial savings. 40 See pages 16-17 in this report.

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