6
The U.S. and Multilateral Export Control Regimes

DEVELOPMENT OF THE EXPORT CONTROL REGIMES

In 1940, following the outbreak of war in Europe, Congress gave the President authority to control the export of "militarily significant" goods and technology, as well as arms. Following World War II, U.S. export control policy began for the first time to assume important peacetime dimensions.* It is significant that national security during this period was being defined largely in terms of the importance of conserving supplies of critical materials, rather than in strategic, ideological, or other terms.

The Cold War Response

By late 1948, the United States had begun for the first time to impose licensing requirements on exports to the Soviet bloc, and Congress formally recognized the need for continuing peacetime controls in the Export Control Act of 1949. By the early 1950s, U.S. and North Atlantic Treaty Organization (NATO) strategy was firmly rooted in the need to contain Communist expansionism (now including China) and to maintain the political and territorial integrity of the West (which by this time included Japan). In 1955, the NATO alliance was formally opposed by the newly established Warsaw Pact.

*  

See Appendix G for a more detailed discussion of the evolution of U.S. export control policy.



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Finding Common Ground: U.S. Export Controls in a Changed Global Environment 6 The U.S. and Multilateral Export Control Regimes DEVELOPMENT OF THE EXPORT CONTROL REGIMES In 1940, following the outbreak of war in Europe, Congress gave the President authority to control the export of "militarily significant" goods and technology, as well as arms. Following World War II, U.S. export control policy began for the first time to assume important peacetime dimensions.* It is significant that national security during this period was being defined largely in terms of the importance of conserving supplies of critical materials, rather than in strategic, ideological, or other terms. The Cold War Response By late 1948, the United States had begun for the first time to impose licensing requirements on exports to the Soviet bloc, and Congress formally recognized the need for continuing peacetime controls in the Export Control Act of 1949. By the early 1950s, U.S. and North Atlantic Treaty Organization (NATO) strategy was firmly rooted in the need to contain Communist expansionism (now including China) and to maintain the political and territorial integrity of the West (which by this time included Japan). In 1955, the NATO alliance was formally opposed by the newly established Warsaw Pact. *   See Appendix G for a more detailed discussion of the evolution of U.S. export control policy.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment The primary objective of the export controls authorized in the Export Control Act then became to prevent or delay improvements in Warsaw Pact (and Chinese) military capabilities that could be accomplished or facilitated through the acquisition of Western technology and end products. This objective derived in large measure from a recognition that, for political and economic reasons, it was neither possible nor even desirable for the West to maintain numerical equality with the mobilized troop strength or fielded conventional weaponry of the Warsaw Pact countries. This recognition led to the "force multiplier" strategy of maintaining technological superiority over potential adversaries. An inevitable outgrowth of this strategy was the control of exports of goods and technology that had commercial, as well as military, applications. Thus, the NATO decision in the early 1950s to rely on force multipliers also locked the alliance into an active policy of controlling the export of militarily significant goods and technology, including arms and so-called dual use* items, which has continued until the present day. The Coordinating Committee for Multilateral Export Controls (CoCom),† was established in 1949 as an informal forum associated with NATO to coordinate national export control policies and review potential exports to the Soviet Union and other proscribed destinations. U.S. Export Control Policy The Cold War strategy was translated in the United States into laws governing trade in arms and goods with significant military utility. The Arms Export Control Act (AECA) of 1976, which succeeded the Battle Act of 1954, authorized the President to control the export and import of defense articles and services. Although preventing Cold War adversaries from acquiring military items is a function of export controls on defense articles and services or munitions items, the stated rationale for munitions controls is to further U.S. foreign policy, world peace, and security. The Export Control Act of 1949 was superseded by the Export Administration Act (EAA) of 1969 and 1979. The objectives of the Export Administration Act of 1979, as amended, are threefold: The short supply objective. "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." *   A dispute has continued over how to distinguish between exports to be controlled as arms or munitions and exports to be controlled as "dual use," that is, items not inherently military in character. †   The CoCom participants currently are Australia, Belgium. Canada, Denmark, France, Germany, Greece, Italy, Japan, Luxembourg, the Netherlands, Norway, Portugal, Spain, Turkey, the United Kingdom, and the United States.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment The national security objective. "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." The foreign policy objective. "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."1 To implement the national security objective, Section 5 of the EAA requires the President to establish a list of countries and a list of commodities and technologies controlled for reasons of national security. The decision on targeted countries for national security purposes must take into account several factors, including (1) the extent to which a particular country's policies are adverse to the national security interest of the United States; (2) whether the nation is Communist or non-Communist; (3) the nation's current and potential bilateral relationship with the United States, other countries that are friendly with the United States, and countries that are hostile to the United States; (4) the nation's nuclear weapons capability and its record of compliance with nuclear weapons agreements (e.g., the Nuclear Non-Proliferation Treaty, NNPT) to which the United States is a party; and (5) any other factors that the President may deem appropriate. With respect to trade with CoCom countries and countries cooperating with CoCom, the act directs the President to certify those countries whose export control programs meet certain standards outlined in the law. With limited exceptions, the export of goods to certified countries may not be controlled. To date, the executive branch has not certified any countries as meeting the standards in the law. Section 5 of the EAA, as amended in 1988, also states that no unilateral national security controls can be maintained, except on items for which it is determined there is no foreign availability. Section 6 of the EAA concerns the foreign policy objective. The denial of exports, or in some cases, the offer of renewed access, as a source of political influence or leverage has been an attractive instrument in the conduct of U.S. foreign affairs for many years. This has been increasingly true as other traditional foreign policy instruments, such as the threatened or actual use of military force, have become less viable in some circumstances. The denial of exports is a prerogative jealously guarded by the administration and the Congress, and it is employed in support of an enormously broad range of policy objectives: from emphasizing the seriousness of human rights violations to addressing the proliferation of nuclear and chemical weapons. Few of the remaining foreign policy controls are significantly related to East-West tensions. A distinctive feature of foreign policy export controls is that they may be applied with extraterritorial features and without corresponding action in other

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment countries. As a result, they have caused serious damage both to the reputation of the United States as a reliable trading partner and to the competitiveness of U.S. companies whose major foreign competitors are not similarly constrained.* The EAA renewal in 1979 added a provision requiring all foreign policy controls to be reviewed annually. The President must certify annually the need and justification for continuing foreign policy controls. The President's ability to apply foreign policy controls was also modified by the 1985 Export Administration Amendments Act, which required that the President consult with Congress and American business organizations before imposing foreign policy controls. The Congress also specified that, prior to imposing such controls, the President should determine that reasonable efforts have been made to employ diplomatic or other alternative means to achieve the purpose of the proposed controls. In the event that foreign policy controls are imposed, the President is directed to "take all feasible steps" to secure the cooperation of other governments in establishing comparable export controls. Exports that fulfill contracts or agreements entered into prior to the date on which the President announces the intention to impose foreign policy controls may not be restricted unless the President determines that the export would constitute a breach of the peace or a direct contribution to the situation posing the threat. CoCom The NATO response to the Cold War through CoCom has evolved since its inception in 1949, and CoCom has undergone major organizational and political changes in the past five years. The increasing ability of newly industrializing countries to produce CoCom-controlled goods has necessitated either decontrolling all goods not produced exclusively in CoCom countries or including those third countries within the control process. In addition, the highly publicized Toshiba-Kongsberg illegal sale of high-precision, multiaxis milling machines (see Chapter 4) focused attention on each member's political commitment to CoCom and the effectiveness of the group as a whole. Although the operational environment and political attention to the organization have changed over time, the fundamental rule of decisions by consensus,† *   This fact was substantiated by information collected on the panel's European, Asian. and Canadian fact-finding missions. †   Decision by consensus requires that no member dissent from the decision. not necessarily that every member express unconditional support for the decision. This rule of consensus applies to all CoCom decisions.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment which applies to list review, case review, and the determination of proscribed countries, remains unchanged. COCOM METHODOLOGY CoCom maintains an International Munitions List (IML), an International Atomic Energy List (IAEL), and an International Industrial List (commonly referred to as the Industrial List, or IL). The three lists are reviewed completely on a four-year cycle, but the Industrial List is given primary attention. In June 1990, CoCom members agreed to overhaul the list of controlled items by creating a new "core list" to replace the current Industrial List. The core list exercise is expected to be completed in the spring of 1991. CoCom members collectively determine proscribed destinations. They also collectively review all applications to export IL goods at the "general exceptions" level (i.e., the level of goods for which a general embargo is assumed and approvals, while possible, are the exception). For some IL entries, "favorable consideration" parameters have been established for items that may be approved for export to appropriate destinations and end uses, and "administrative exception notes'' have been established for items that the members consider warrant national control, but not collective review. CoCom itself has no independent methodology for constructing the lists of items to be controlled, because the lists are based on national submissions of items for control or decontrol. CoCom did, however, identify in 1978 criteria for "strategic" items as guidance for national systems. The strategic criteria include (1) materials, equipment, and technology specifically designed for and used in national military systems; (2) unique technology that, if acquired, would be of significant assistance to an adversary's military capability; and (3) materials, equipment, and technology regarding which proscribed countries are so deficient that, in the event of war, the gap could not be closed within a reasonable period of time. The IML contains items meeting the first criterion; the IAEL and IL contain dual use items meeting the second and third criteria. The CoCom list of proscribed countries has remained virtually unchanged since the organization's inception, with one notable exception. In 1985, the United States initiated a change in the status of the People's Republic of China (PRC) as a controlled destination, which was accepted by CoCom. As a result, the technical parameters for goods requiring CoCom review for export to the PRC are less restrictive than for other proscribed countries. This threshold for CoCom review is known as the "China Green Line." In addition, CoCom agreed in June 1990 to extend special treatment in limited areas to Czechoslovakia, Hungary, and Poland and to extend broad special treatment eventually to countries that represent a lesser strategic threat and

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment have adopted appropriate safeguard systems to protect controlled technology imports. THIRD COUNTRY COOPERATION The original goal of the Third Country Initiative, now called Third Country Cooperation (TCC), was to encourage third countries to adopt five essential elements outlined by CoCom as constituting an effective control program. The essential elements are as follows: Acceptable import certificate and delivery verification documents (IC/DV) Control over reexports of CoCom-origin, controlled goods Control over indigenous exports of CoCom-controlled goods Cooperation in prelicense and postshipment checks Enforcement cooperation (includes cooperation in policing transshipments and free-trade zones) CoCom partners agreed on primary and support assignments to approach a number of newly industrializing countries concerning cooperative agreements. A permanent working group, the Third Country Cooperation Working Group, was established to track progress in completing cooperative agreements. CoCom members are committed to support agreements reached with third countries and to use the control mechanisms installed in such countries. Some CoCom countries have been reluctant to engage third countries in formal negotiations, primarily because they are uncomfortable with the extraterritorial nature of the TCC requirements. This lack of effort has been largely overlooked by the United States, in part because U.S. officials doubted the commitment of CoCom partners to negotiate agreements containing all five elements. All CoCom countries use the IC/DV documents available from cooperating third countries to some degree. The real discrepancy in practice is in the area of reexports. Unlike the United States, other CoCom members expect that any general export control program put in place in a cooperating country will sufficiently cover reexports of CoCom-origin goods. Thus, no other CoCom partner requires the type of authorization for reexport out of a CoCom or cooperating country required by the United States. The end result is a serious disadvantage for U.S. economic interests. Section 5(k) of the Export Administration Act requires that cooperating countries, or countries with export control systems comparable in practice to those in place in CoCom countries, be given preferential licensing treatment similar to that for CoCom countries and distinct from that for other nonproscribed countries. The preferential treatment, called 5(k) benefits, consists of the special or general license practices that automatically apply to CoCom

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment members. U.S. officials have considered the 5(k) benefits as negotiating tools with third countries and have promised to grant the benefits incrementally in accordance with progress in implementing the five essential CoCom elements. Nine distinct licensing benefits are available to third countries, although two of the provisions (G-Com and G-CEU) are outdated and are being eliminated. (Table 6-1 identifies the types of licenses available to specific cooperating third countries.) Given the current licensing guidelines and processing times for most third countries, however, the only benefits of any significant value are the enhanced distribution license, permissive reexport exceptions, the broad general license for CoCom (G-CoCom), and the new general license for intra-CoCom trade (GCT).* No country outside CoCom currently is eligible for GCT, although Switzerland and Finland receive all the other benefits, and Austria was expected to receive the same package by the end of 1990. There are no CoCom-wide economic benefits to third countries for cooperation and no real penalty for noncooperation. In reality, most CoCom partners rarely restrict trade in CoCom-controlled goods with noncontrolled countries, except for trade in munitions and proliferation-related items. Further, most CoCom partners do not have the licensing resources to distinguish among nonproscribed destinations and may not even offer any special licensing privileges for exports to other CoCom countries. A COMMON STANDARD OF LICENSING AND ENFORCEMENT; INTRA-COCOM TRADE In January 1988, an ad hoc working group on the "common standard level of effective protection" was established to improve harmonization of export controls. The establishment of this working group followed several special and high-level meetings to "reenergize" CoCom. The "common standard" working group identified the elements of effective licensing and enforcement systems, which were then approved by the CoCom Executive Committee. All members were requested to submit analyses of their systems based on the agreed elements. The working group reviewed the submissions and summarized the basic areas for improvement. Members agreed at the June 1990 High-Level Meeting to comply fully with all elements by April 1991. Members have repeatedly stated that while equally effective measures are essential, identical measures are not necessary. Thus, it is difficult to identify *   For a complete description of these provisions, see Sections 770, 773. and 774 of the Export Administration Regulations.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment TABLE 6-1 Date of Receipt of 5(k) Export Licensing Benefits, by Country Benefit Austria Finland Singapore Sweden Switzerland G-Coma 12-1-87 8-26-87 10-21-87 7-17-87 8-28-87 GCGb 12-1-87 11-15-88 10-21-87 7-17-87 8-28-87 G-CEUc   11-15-88   7-17-87 8-28-87 15/15 dayd 3-1-88 8-26-87     8-28-87 PRC reexporte 12-1-87 11-15-88     8-28-87 Enhanced DLf   11-15-88     6-20-86 G-CoComg   7-11-89     7-11-89 Reexport to CoComh   7-7-89     7-7-89 GCTi           NOTES: The dates indicate the day on which a Federal Register notice appeared granting the benefit to the country. South Korea signed a Memorandum of Understanding with the United States in 1987, but the agreement was not ratified by the Korean parliament until 1989. South Korea was scheduled to receive GCG and 15/15 day licensing benefits in late 1990. Further benefits are predicated on implementation of the agreement. a General license for CoCom and cooperating countries, G-Com, authorizes exports under general license of administrative exception note items (not advisory notes for the People's Republic of China, PRC) to countries listed in Part 771.18 of the Export Administration Regulations (EAR). G-Com was almost entirely subsumed in general license free-world, GFW, as expanded by the Omnibus Trade and Competitiveness Act of 1988. b General license for cooperating governments, GCG, allows for export under general license of all controlled national security items to government agencies of countries designated as cooperating in Part 771.14 of the EAR. c General license for certified end users, G-CEU, authorizes the export under general license of all national security controlled items, except supercomputers, to any entity that is "controlled in fact" by the government of the cooperating countries listed in Part 771.20 of the EAR. d The "15/15" benefit requires that license applications for countries listed in Part 770.14 of the EAR be processed within 15 days after receipt, unless an extension is requested, in which case the government has an additional 15 days to complete the license processing. e PRC permissive reexport allows countries listed in Part 774.2(j) of the EAR to reexport goods below the PRC "Green Line" to the PRC without prior approval from the U.S. government. f The enhanced distribution license, DL, benefit makes a higher threshold of goods eligible for export under the distribution license for countries listed in Supplements 2 and 8 to Part 773 of the EAR. g General license for CoCom, G-CoCom, authorizes the export under general license of items that require only notification to CoCom (not full review), including items below the PRC "Green Line" as of August 1988, to countries listed in Part 771.24 of the EAR. h Permissive reexport to CoCom authorizes the reexport of all national security controlled items, with limited exceptions, to and among countries listed in Part 774.2(k) of the EAR without prior U.S. government authorization. i General license for intra-CoCom trade, GCT, was not in final form as of December 1, 1990, but was published for comment in June 1990. GCT would authorize exports under general license of all national security controlled items, with limited exceptions, to CoCom countries. SOURCE: U.S. Department of Commerce, Bureau of Export Administration.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment specific deficiencies in any system since judgments of its effectiveness are subjective. Another working group, this one on intra-CoCom trade (ICT), was established to review export control practices among members. This working group considered a number of options to reduce the burden of licensing practices for trade among members while minimizing the risk of diversion. The initial proposals involved the exchange of multiple copies of customs documents between exporting and importing governments and some combination of exporter and importer registration with their respective governments. The proposal that was ultimately accepted was a joint U.S.-Canadian scheme that retains a paper trail and some responsibility on the part of both the exporter and importer, while virtually eliminating government involvement. Beyond these elements, CoCom members have not yet agreed on the scope of a new ICT system. This includes both the goods and the destinations that are eligible for license-free treatment. The United States supports the exclusion of a limited list of items from license-free treatment until all common standard elements are in place, as well as the eventual extension of license-free treatment to cooperating countries. All CoCom members have accepted, in principle, the exclusion of some items from license-free treatment until the target date for complete implementation of the common standard. However, members do not agree on the need for a common or joint list, opting instead for national exclusion lists. Most members also favor independence in determining destinations eligible for license-free treatment. The Proliferation Challenge The challenges to U.S. security interests posed by the proliferation of chemical and nuclear weapons and advanced missile delivery systems are addressed through the Export Administration Act, the Arms Export Control Act, and the Atomic Energy Act, as amended by the Nuclear Non-Proliferation Act. Many of the laws are directly related to U.S. obligations internationally. NUCLEAR WEAPONS The Nuclear Non-Proliferation Treaty of 1968 formed an agreement between the nations that possessed nuclear weapons in 1968 and those that did not. The nuclear "haves" pledged to work toward nuclear disarmament and to share peaceful nuclear technology with the "have nots." In return, the other signatory nations pledged not to attempt to acquire nuclear weapons.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment The NNPT currently has over 140 signatories.* In addition, regional agreements exist that preclude the placement of nuclear weapons in Latin America, outer space, the seabed, the South Pacific, and Antarctica. U.S. export controls on nuclear-related items were originally based on authority in the Atomic Energy Act of 1954. The Nuclear Non-Proliferation Act of 1978 updated the Atomic Energy Act and is the principal authority for the control of nuclear, dual use items. Although the NNPT does not specifically obligate signatories to institute and practice broad export controls, such controls are implicit in treaty commitments. In 1974, a group of countries signed a letter of agreement prohibiting the export of certain items to "non-weapon" states without a pledge of "no explosive use" and acceptance of International Atomic Energy Agency (IAEA) safeguards. The list of items triggering the need for assurances and IAEA safeguards became known as the "trigger list," and the group became known as the Zangger Committee,† after its first chairman, Claude Zangger. In 1978, another group of countries committed themselves to similar, but more comprehensive export guidelines in support of nonproliferation goals and added technology and technical assistance to the "trigger" list. This group is known as the Nuclear Suppliers Group (NSG),‡ or London Suppliers Group (the group originally met in London). MISSILE TECHNOLOGY U.S. missile technology controls were implemented on July 31, 1987, by both the Departments of Commerce and State for items under their respective control, as part of the multilateral Missile Technology Control Regime (MTCR). The MTCR was developed in response to the challenge of missile proliferation and the ensuing threat to the security of its members and to world peace. The arrangement developed from the conventional arms talks of the 1970s into a formal arrangement in 1987 among France, Germany, Japan, Canada, the United Kingdom, Italy, and the United States. Australia, Spain, the Netherlands, Belgium, and Luxembourg have since joined the organization. *   Countries of proliferation concern that have not signed the NNPT are Argentina, Brazil, India, Israel, Pakistan, and South Africa. Among countries of concern that have signed the treaty are Iran, Iraq, and North Korea. †   The members of the Zangger Committee are Australia, Canada, Czechoslovakia, Denmark, Finland, the Federal Republic of Germany, the former German Democratic Republic, Greece, Hungary, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Sweden, Switzerland, the United Kingdom, the United States, and the Soviet Union. (France, although not a signatory to the NNPT or to the letter in question, agreed to abide by the letter's guidelines.) ‡   The members of the Nuclear Suppliers Group are Belgium, Canada, Czechoslovakia, France, the Federal Republic of Germany, the former German Democratic Republic, Italy, Japan, the Netherlands, Poland, Sweden, Switzerland, the United States, the United Kingdom, and the Soviet Union.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment The MTCR's purpose is to restrict the export of goods and technology that could be used to produce a missile capable of carrying a nuclear payload. The parameters of control are missiles with ranges greater than 190 miles and payloads of more than 1,100 pounds (300 kilometers/500 kilograms). The MTCR includes guidelines for participants and an annex of items to be controlled, but national export decisions are not subject to group review or consensus. Exports of munitions items on the annex are to be denied to nonmembers, but dual use items can be exported with "appropriate assurances" from the government of the importing country. Multilateral cooperation is based on an agreement not to undercut the export denials of other members and to share intelligence on "projects of concern." CHEMICAL WEAPONS Twenty nations, under the leadership of Australia, have joined what has come to be known as the Australia Group.* The Australia Group identifies chemical precursors that could be significant in the development of chemical weapons and are being sought for such purposes. The Australia Group is meant to be an interim arrangement in anticipation of the Chemical Weapons Convention (CWC) currently being negotiated as part of the Conference on Disarmament. The Australia Group has no formal basis and does not specify required conduct by its participants. Export controls or appropriate restrictions are recommended for trade in the chemicals identified as weapons precursors. Intelligence is shared among the participants on suspected chemical weapons development, and Iran, Iraq, Libya, and Syria have been identified as official targets of export controls. There are no collective sanctions for end-use violations. Country-Specific Objectives In addition to the East-West national security controls, nuclear proliferation controls, and other, foreign policy based proliferation controls, the United States targets a number of individual countries for specific export restrictions. Authority for these specific types of controls is found in Section 6 of the EAA and in the Trading with the Enemy Act of 1917, as amended by the International Emergency Economic Powers Act (IEEPA) of 1977. Before imposing controls under the IEEPA, the President must determine that a situation constitutes a national emergency or an "unusual and extraordinary *   The Australia Group consists of Australia, Austria, Belgium, Canada, Denmark, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Switzerland, the United Kingdom, and the United States.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Export Control Act provides for civil penalties, the State Department does not have a comparable system. Both the Customs Service and the Treasury Department's Office of Foreign Assets Control use what can be characterized as a primitive "show cause" civil penalty process without an administrative law judge. The use of a denial order is peculiar to the Export Administration Act,* and a number of export control statutes, including the Trading with the Enemy Act and the Atomic Energy Act, lack civil enforcement provisions. Another area of enforcement overlap involves U.S. and foreign enforcement activities. Although the denial order as applied to foreign parties has proven to be an effective enforcement tool, it is generally regarded abroad as an illegitimate exercise of U.S. authority. Also controversial is denial of U.S. import and government contracting privileges to foreign parties not abiding by U.S. or multilateral export control measures. Such denials now apply only to foreign exports in violation of multilateral security controls, but they have been proposed for other situations. Unilateral U.S. adoption of extraterritorial sanctions such as these may seriously undermine U.S. efforts to achieve effective export control cooperation. Despite the need for multilateral action, Customs and BXA officials report that while other CoCom governments are generally cooperative in assisting U.S. investigations, they seldom initiate their own investigations or request information from the United States on the credibility of end users. Some CoCom countries use the U.S. Table of Denial Orders as a list of potentially unreliable end users, but other CoCom countries do not recognize that list at all. Further, there is no CoCom-wide mechanism for identifying suspicious parties or parties that have been proven unreliable. Outdated and Confusing Control Lists The system of U.S. list management suffers from a lack of clear definitions and criteria for control and decontrol, as well as the widely varying formats and structures that exist in domestic and international lists. The Militarily Critical Technologies List is supposed to be the basis for U.S. proposals for items on the CoCom Industrial List and U.S. Commodity Control List. However, many items that are not on the MCTL remain on the CoCom and U.S. lists, and the United States has not proposed their removal. A recent report by the Institute for Defense Analyses evaluated the CoCom Industrial List on the basis of control parameters in the MCTL. Of 115 controlled categories examined, the report recommended additional controls for 17 percent of the categories, no change for 13 percent, deletion for 10 percent, and some decontrol of 60 percent (69 categories).16 The fact *   The provision for a denial order under the AECA might be redundant since every munitions case is reviewed on an individual basis and may be denied if the parties involved are not reliable.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment that an item is taken off the MCTL does not necessarily lead to U.S. action to delete it from the CoCom or U.S. control lists. Further, the dissension and confusion surrounding the definition of ''militarily critical" for items under national security control have resulted in outdated U.S. control lists. Despite repeated calls to "balance" military criticality with economic concerns, the only balancing factor explicitly recognized in the list construction process is the foreign availability, or controllability, of items. Of the 14 foreign availability assessments completed since the Omnibus Trade and Competitiveness Act was passed in 1988, 10 resulted in positive findings. Of those 10, 1 was referred to negotiations with the foreign source, 1 resulted in approved licenses, 5 resulted in decontrol, and the others are awaiting action. The average time from the initial claim to final action for those items that were decontrolled was more than seven months (see Table 6-6). The foreign availability assessment process that was established to determine the controllability of items on the Commodity Control List has proven largely ineffective. Although data from the foreign availability assessments are used in list review, the assessment process itself is costly and contentious and has rarely resulted in timely decontrol. The extensive decontrol of certain CoCom-controlled categories at the June 1990 High-Level Meeting provides an instructive case study of the policy process for list construction and review. In only a few months, CoCom agreed to the complete elimination of 30 control categories (out of 116) and to partial elimination of 13 more (favorable consideration practices were outlined for certain East European destinations). It focused revisions on three key areas—computers, machine tools, and telecommunications—and called for swift development of a "core list" of critical technologies. Prior to this decontrol, a series of streamlining efforts to reduce the control list were perceived as largely ineffective. It took a foreign catalyst—communism's collapse in Eastern Europe and the resulting pressures on CoCom for loosening restrictions—to bring about, temporarily, a workable process for decontrol. The U.S. interagency review was propelled by the need to formulate a position in time for the June 1990 CoCom meeting and, indeed, to avert a feared collapse of CoCom if certain of its members judged the resulting decontrol insufficient. The President was able to present a coherent decontrol plan to CoCom only by short-circuiting the existing process. Continued White House pressure on the participating agencies was necessary to bring about significant loosening of restrictions. Advice from the Joint Chiefs of Staff, who conducted a threat assessment prior to the decontrol, proved especially useful. Because the White House policy aim—wide-ranging decontrol—was made clear and constantly reiterated, the types of interagency disputes that have often blocked the process were minimized. Although the United States succeeded in presenting an acceptable plan of action to CoCom in June 1990, subsequent U.S. proposals on specific

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment TABLE 6-6 Results of Foreign Availability Assessments Under the Omnibus Trade and Competitiveness Act Commodity Initiated Completed Decision/Result Freon (5799C)a 9-26-88 2-23-89 Decontrol (2-28-89) 2,4-D (4707B) 10-31-88 2-23-89 Decontrol (2-28-89) 6,000-m SSS (1510A) 2-10-89 6-02-89 Negative finding (7-12-89) Prepreg equipment (1357A) 4-18-89 8-18-89 National security override (3-15-90) 50-MB disk (1565A) 7-28-89 11-28-89 Decontrol (6-29-90) Polysiliconb (1757A) 9-5-89 1-5-90 Licenses approved (6-19-90) Polysilicon (1757A) 9-12-89 1-12-90 Decontrol (8-31-90) Array processors I (1565A) 9-29-89 12-28-89 Negative finding (3-13-90) Die bonders (1355A) 9-5-89 1-5-90 Negative finding (2-7-90) Array processors II (1565A) 2-1-90 6-1-90 Decontrol (6-29-90) Polyimides (1746A) 2-28-90 6-28-90 Positive finding; no action to date D-RAMs (1564A) 3-5-90 7-5-90 Positive finding; no action to date Diamond turning (1091A) 3-20-90 7-20-90 Negative finding (8-23-90) Gallium arsenides (1757A) 5-15-90 9-15-90 Positive finding; no action to date a The numbers in parentheses are export commodity control numbers (ECCNs). b Denied license claim. SOURCE: U.S. Department of Commerce, Bureau of Export Administration. core list entries again could undermine the solidarity of CoCom if such proposals fall far short of European and Japanese expectations for decontrol. Thus, in this key national security area, foreign nations and suppliers—not the U.S. interagency process—are driving the U.S. export control apparatus. Although the core list process has produced relatively

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment substantial results, it is doubtful that the institutionalized CoCom and U.S. list review processes could work effectively in less exigent circumstances. Finally, in the proliferation area, the Zangger Committee meets regularly to update the nuclear trigger list. The Nuclear Suppliers Group, in contrast, has not met since its inception. Updates to the U.S. Nuclear Referral List are made on an ad hoc basis (a comprehensive update was completed in 1989). The annex of the Missile Technology Control Regime also is updated on an ad hoc basis. The annex itself is generic, which leaves the interpretation of actual items to be controlled up to national authorities. This type of national discretion leads to important discrepancies in national control systems, especially for dual use items. Conversely, chemicals that are considered sensitive precursors to chemical weapons are specifically identified by the Australia Group on a regular basis. Ineffective Dispute Resolution The process for dispute resolution is characterized by a lack of transparency resulting from unclear policy guidelines and complicated agency responsibilities. In considering whether to allow certain shipments, agencies disagree on levels of technology and the necessary conditions of sale. Agencies also disagree on the criteria for control or decontrol of list items and the interpretation of statutory guidelines for list review. For example, a foreign availability assessment for semiconductor wire bonders was begun in 1985, and decontrol was recommended, and approved by the President, in 1987. Despite the President's decision, negotiations with the foreign source to control the export of wire bonders were undertaken in 1988. The source country declined to cooperate based on the argument that the item was not strategically critical and was available in the Soviet Union and East Germany. Action was still blocked into 1990 by bitter interagency dissension. Similarly, in discussions in 1989 on whether to decontrol personal computer technology to the Soviet Union, the Commerce and Defense Departments sharply disputed almost every element of the congressionally stated criteria for determining foreign availability. The number of personal computers necessary to meet Warsaw Pact military needs and thereby satisfy the "available in sufficient quantity to render U.S. controls ineffective" criterion is a matter of subjective judgment, not established fact. The other foreign availability criteria are also subject to interpretation and therefore ripe for interagency dispute. Yet, no working mechanism exists for resolving these disputes. The interagency procedure for resolving disputes on license decisions is confusing to industry and often takes too long for businesses to plan effectively. If an important dispute does reach as high as the under secretary level of review, the arguments for or against a case are frequently very technical

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment in nature and the officials in charge often lack the technical expertise to address the matter adequately. Although the Export Administration Review Board's process for resolving disputed licenses has worked fairly successfully for exports to proscribed destinations. as of late 1990 there was no parallel system for exports to nonproscribed countries or for proliferation cases. The insufficient procedures for dispute resolution in licensing decisions cause further tension between agencies and disadvantage U.S. exporters. Clearer guidelines for case referral and more definitive standards for licensing decisions are needed. Exercise of Export Control Authority Although a number of other countries maintain various types of export controls, the United States is alone in its historically frequent use of trade controls to respond to international events, beginning with the Stamp Act of 1765. Although U.S. law does not expressly state that trade is a privilege extended to citizens by the government, not a right of citizens, implementation of U.S. export control laws assumes that the universe of U.S. exports is controlled worldwide, unless otherwise stipulated. This assumption is inconsistent with foreign trade laws that operate on the basis of trade as a right, not a privilege. Thus, the willingness of foreign governments to use trade as a routine foreign policy tool is somewhat circumscribed. Both the U.S. Congress and the executive branch routinely resort to trade controls or sanctions in response to human rights abuses or other politically distasteful activities. Other countries may also restrict trade with "pariah" countries, but it is rarely their first international response. The proclivity of the United States to use trade sanctions as a ready tool of foreign policy has caused significant problems for U.S. exporters. An example of the disparity between U.S. and foreign practices is U.S. enforcement practices. A party convicted, or even suspected, of committing an export control violation may be placed on the Table of Denial Orders and embargoed from legal trade in any U.S. products or technical data. If a party is convicted of a criminal violation and serves prison time for the conviction, that party may not regain exporting or importing privileges for 10 years. In contrast, once a convicted party has served a sentence for export control violations in foreign countries, that party regains its original trading rights and may not be discriminated against on the basis of past records. Nature and Extent of Unilateral Controls One result of the bias toward trade as a privilege, rather than a right, is the unilateral nature of many aspects of U.S. control practices. Significant unilateral features of the U.S. control system include the following: reexport

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment controls, foreign policy controls over U.S.-owned foreign entities, written assurance requirements and other importer certifications, more stringent controls on technical data (including visits and employment of non-U.S. citizens), controls over foreign products with U.S.-origin technology, parts, or components, control of many civil products and technologies under the munitions control regime, more burdensome and complex licensing regimes, and more stringent enforcement mechanisms. In a world of diffuse economic and technological power, the widespread use of unilateral export controls is counterproductive. Although some CoCom countries practice limited or unofficial forms of reexport controls, the United States is the only country formally requiring that its permission be obtained by non-U.S. parties for the reexport of goods or technology that have come to rest in another country. In addition to items unchanged in form, non-U.S. technology may be controlled if it is commingled with U.S.-origin technology, and foreign-made goods may be controlled if they contain more than 25 percent U.S.-origin parts or components (10 percent if the destination is one of seven selected countries controlled for foreign policy reasons). U.S. rules require that written assurances be obtained from recipients of controlled dual use technical data that neither the data nor their direct product will be reexported to a controlled country without U.S. permission. In addition, goods and technical data received under license from the Department of State cannot be reexported without U.S. permission, and State does not allow for a 25 percent de minimus on the foreign incorporation of U.S. parts and components. These reexport rules are enforced through administrative, civil, and criminal penalties and by restricting or denying trade with the foreign violator. The U.S. rationale for reexport controls is that the absence of such controls allows third-party middlemen to make sales where U.S. firms are restricted and thus undercuts the purpose of the control program and disadvantages U.S. exporters. Other governments say that reexport controls cannot be effectively enforced, and most say they have no legal authority to require or enforce reexport controls. The major adverse reaction to U.S. reexport controls arises when they are imposed in connection with U.S. unilateral foreign policy objectives and when their application is complex, such as the rules for parts, components, and technical data. Data collected in 1986 for the Allen panel showed that compliance with U.S. reexport controls is minimal among foreign parties who are independent of U.S. firms.17 Although BXA licensing data show that more than 11,500 cases, at a value of close to $41 million, were approved for reexport in 1989, there is virtually no way to estimate the portion of total controlled reexports these figures represent (see Table 6-7). The panel's European fact-finding delegation was told by a major German industrial association that member industries are advised to comply only with

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment TABLE 6-7 Department of Commerce Licensing Decisions, 1989   Exports Reexports Destination Approved Denied Approved Denied By volume Free worlda 59,995 154 6,450 35 CoCom 27,313 23 2,430 3 China 3,862 101 718 4 Eastern bloc 1,709 123 1,958 66 By value (in $ millions) Free worlda 79,050 191 36,794 159 CoCom 33,895 106b 3,619     .088 China 3,170 .027 .225 .041 Eastern bloc 1,807 17 234 3 a Department of Commerce designation for all nonproscribed, non-CoCom countries. b More than 99 percent of this figure represents computers SOURCE: U.S. Department of Commerce, Bureau of Export Administration. the controls on reexports of goods with 25 percent U.S.-origin parts or components, thus ignoring U.S. foreign policy reexport controls on locally manufactured goods with lesser U.S. content. In addition, there is an abundance of anecdotal evidence that, when possible, foreign manufacturers avoid U.S. sources in order to escape the encumbrance of U.S. reexport controls. Another contentious aspect of the licensing debate concerns whether the CoCom countries should practice "national discretion," that is, the export of certain controlled dual use items to proscribed destinations without first getting CoCom approval. (The licensing term for this kind of exception is an administration exception note.) The argument for national discretion is that it reduces the burden of license processing on CoCom and provides a paper trail for shipments that otherwise would not exist. Yet, because nations interpret quite differently the control threshold at which national discretion is employed, national discretion for dual use items undermines the principles of a multilateral regime. Insufficient Judicial Review The Export Administration Act generally exempts Commerce Department actions from the judicial review provisions of the Administrative Procedure Act. The Omnibus Trade and Competitiveness Act of 1988 provided limited judicial review only for Commerce Department civil enforcement actions. The question of whether to extend review to nonenforcement situations, such as licensing actions and the issuance of regulations, has been given new significance by the failure of the administration to implement various pro-

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment visions of the EAA.* Judicial review is no cure-all, however. Specifically, it is not the appropriate means for resolving interagency disputes on the very issues on which courts lack expertise and traditionally defer to the executive branch. Unjustifiable burdens on the resources of the Commerce Department must be avoided, and the Commerce Department must retain unfettered discretion on fundamental questions of administration. What courts can do, however, is correct agency errors in interpreting and applying statutory provisions, for example, a failure to dismantle unilateral controls when such action is mandated by Congress or the imposition of new foreign policy controls when statutory criteria have not been satisfied. Industry Participation The Export Administration Act provides a formal mechanism for industry participation in the national security export control process. The secretary of commerce appoints a technical advisory committee for any goods or technology determined by the secretary to be difficult to evaluate because of technical matters or worldwide availability. The TACs also comment on the utilization of products and technology and licensing procedures. The TACs advise and assist the Commerce and Defense Departments and any other appropriate agency in establishing and administering national security controls. They consist of representatives of industry, the Departments of Commerce, State and Defense, and the intelligence community, and others at the discretion of the secretary of commerce. The State Department has established no comparable mechanism for obtaining industry input in matters related to the International Traffic in Arms Regulations. The Commerce Department has established 10 technical advisory committees, which now include about 175 industry members, and it recently has begun to upgrade support for their participation and to integrate their input in list construction.‡ Industry members are chosen by the Commerce Department on the basis of individual company nominations. In addition to subject matter qualifications, appointments traditionally have been subject to the nominee's receipt of a security clearance and screening by the Office of the Secretary of Commerce and the White House Personnel Office. The latter has resulted in rejection of otherwise technically qualified applicants and has added months to the appointment process. Another avenue of industry input to the dual use control list is through the structure of technical working groups, whose members are not subject to White House screening. *   See Appendix H for further discussion of this issue. ‡   Appendix I discusses the technical advisory system for export controls and suggests a way to enhance the participation of the TACs.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Any truly effective export control system requires close cooperation between industry and government. Exporters must be involved in determining not only the goods to be controlled but also the rationale for controls. Controls will be far more effective if industry fully understands and supports the rationale for controlling exports. In practical terms, this involves comprehensive explanation from the government on the security concerns being addressed and detailed interaction between government and industry on how best to address them. In many cases, industry experts are more qualified to identify end uses and patterns of behavior that indicate sensitive or proscribed activity than government technicians. Recently, there has been somewhat greater industry participation in list management. Technical advisory committees, for example, were given a role in the construction of the CoCom core list. However, serious problems still remain with the extent of involvement by U.S. industry, which is a major reason why legitimate economic considerations are not taken into account at the start of the policy process. The traditional policy process does not lend itself to effective and fair presentation of industry views, particularly for small and medium-sized firms that are without Washington representation. The lack of sufficient business involvement in the system is partly self-inflicted. Too few companies make the effort or devote the resources necessary to placing qualified personnel on the advisory committees. Business must take a more active part in the process, particularly in the nomination of technically qualified personnel to work on the committees. Admittedly, much of the lack of response may be due to disillusionment with the current system and the conviction of industry that the government will not respond adequately to business advice even when it is given. Unfortunately, the current system of export controls tends to cast government and industry as adversaries, rather than partners. In the process of energizing and upgrading export control regimes, it is not enough to solicit the participation of other governments. The private sector must be brought in as a full and cooperative partner. NOTES 1.   Sections 3.2(c), 3.2(a), and 3.2(b), respectively, Export Administration Act. 2.   Section 5(d), Export Administration Act, as amended. 3.   Part 120.3, International Traffic in Arms Regulations. 4.   15 C.F.R. 768–799. 5.   Section 776.14, Export Administration Regulations. 6.   Section 785.4, Export Administration Regulations. 7.   Section 776.16, Export Administration Regulations. 8.   Sections 785.1 and 785.7, Export Administration Regulations. 9.   Section 785.4, Export Administration Regulations.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment 10.   Section 776.19, Export Administration Regulations. 11.   Section 778, Export Administration Regulations. 12.   Section 776.18, Export Administration Regulations. 13.   Section 776.19, Export Administration Regulations. 14.   The stated purpose of the various statutes is as follows: Export Administration Act, Public Law 96-72, Section 3(2): "It is the policy of the U.S. to use export controls only after full consideration of the impact on the economy of the U.S. 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 U.S.; (b) to restrict the export of goods and technology where necessary to further significantly the foreign policy of the U.S. 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." Arms Export Control Act, Public Law, 90-629, Senate 2778: "In furtherance of world peace and the security and foreign policy of the U.S., the President is authorized to control the import and the export of defense articles and defense services . . . Decisions on issuing export licenses under this section . . . shall take into account . . . whether the export will contribute to an arms race, support international terrorism, increase the possibility of outbreak or escalation of conflict or prejudice the development of bilateral or multilateral arms control arrangements." Atomic Energy Act of 1954, as amended by the Nuclear Non-Proliferation Act of 1978, Public Law 95-467, Section 3201: "The Congress finds and declares that the proliferation of nuclear explosive devices or of the direct capability to manufacture or otherwise acquire such devices poses a grave threat to the security interests of the U.S. and to continued international progress toward world peace and development." Section 3202: "It is the purpose of this Section to promote the policies set forth (in Section 3201) by— (a) establishing a more effective framework for international cooperation to . . . ensure that . . . the export by any nation of nuclear materials and technology intended for use in peaceful nuclear activities do not contribute to proliferation. (b) authorizing the U.S. to take such actions as are required to ensure that it will act reliably in meeting its commitment to supply nuclear reactors and fuel to nations which adhere to effective non-proliferation policies; (c) providing incentives to the other nations of the world to join in such international cooperative efforts and to ratify the Treaty; and (d) ensuring effective controls by the U.S. over its exports of nuclear materials and equipment and of nuclear technology." Trading with the Enemy Act of 1917, as amended by the International Emergency Economic Powers Act of 1977. H.R. 7738. The purpose of the International Emergency Economic Powers Act is to redefine the power of the President to regulate international economic transactions in times of war or national emergency and to separate war and non-war authorities. Presidential powers are narrowed and made subject to congressional review in times of "national emergency" short of war. A national emergency is defined in Title II, Section 202 as an "unusual and extraordinary threat which has its source in whole or substantial part outside the United

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment     States, to the national security, foreign policy, or economy of the United States." Section 203 authorizes the President to regulate transactions in foreign exchange, banking transactions involving any interest of any foreign country or national thereof, and the importing and exporting of currency or securities, and to freeze any property in which any foreign country or national thereof has any interest. Title III, Section 301, provides authority for control over exports of non-U.S. origin goods and technology by foreign subsidiaries of U.S. concerns. Section 302 provides authority to control U.S. exports. 15.   Federal Register 50, October 11, 1985, pp. 41545–41546. 16.   Institute for Defense Analyses, Analysis of Militarily Critical Technologies List Implementation (Critical Technologies Implementation ) (Alexandria, Va., 1990), p. II–2. 17.   National Academy of Sciences, National Academy of Engineering, and Institute of Medicine, Balancing the National Interest: U.S. National Security Export Controls and Global Economic Competition (Washington, D.C.: National Academy Press, 1987), p. 139.