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4 The Dimensions of National Security Export Controls Two laws provide the primary mandate for U.S. national security export controls. The Arms Export Control Act of 1976~ requires govern- ment approval for the import and export of military weaponry and services. The Export Administration Act (EAA) of 1979, as amended,2 controls the export of commercial goods and technologies that would make a significant contribution to the military capabilities of a potential adversary. EAA also authorizes controls to serve U.S. foreign policy goals and to ensure the domestic availability of resources in short supply. The regulations implementing these laws are extensive and complex. The United States asserts jurisdiction over goods and technology even outside the territorial United States when: (1) the product or technology in question originated in or is to be or has been exported from the United States; (2) the product or technology incorporates or uses products or technology of U.S. origin; and (3) the exporter is a U.S. national or is owned or controlled by U.S. interests. Responsibility for administering the export control system is divided among many federal departments and agencies as is representation in the export control policymaking process. To some degree, U.S. export controls parallel multilateral or bilateral agreements or understandings with other countries. The United States is a founding member of the Coordinating Committee on Multilateral Export Controls (CoCom), an informal, nontreaty organization comprising all the NATO countries (except Iceland) and Japan.3 Created in 1949 in the early 70
THE DIMENSIONS OF NATIONAL SECURITY EXPORT CONTROLS 71 days of the Cold War, CoCom administers a uniform system of multilat- eral controls over three categories of products: munitions, nuclear energy, and dual use. All products subject to CoCom control are also subject to U.S. controls. In addition the United States has bilateral agreements or arrangements with a number of non-CoCom nations that provide for varying degrees of cooperation on national security export controls. These countries include Australia, New Zealand, Austria, Switzerland, and Sweden. This chapter presents an overview of the dimensions of the current national security export control system. It first summarizes the evolution of export controls in the United States to provide a historical context. Next, it examines the mechanisms used by the United States for policymaking and administration. Finally, it reviews the multilateral CoCom framework for controlling strategic goods and technologies and key attributes of the controls maintained by several other nations. HISTORICAL BACKGROUND Current controls on the export of commercial dual use products and technologies have their roots in the period leading up to World War II. To understand more fully the current efforts of the United States to impede the flow of these products and technologies to potential adversaries, it is useful to review the evolution of export controls and the historical circumstances that have shaped them. World War II Origins and the Early Postwar Years Before 1940 the United States had no legal mechanism for controlling peacetime exports of militarily significant products or information to potential enemies.4 Consequently, despite the growing military threat posed by fascism and militarism in the late 1930s, there were no legal constraints on exports, and U.S. firms were free to sell almost anything to Germany, Italy, or Japan virtually until the outbreak of hostilities. Japan's military industry in particular seems to have benefited to a considerable degree from free access to technology, strategic materials, and capital from the United States.5 By 1940, however, the war had begun in Europe, and Congress moved to give the President authority to control the export of militarily signifi- cant goods and technology. Section 6 of Public Law 703 (July 2, 1940 [54 Stat. 7141) gave the President authority to prohibit or curtail the export of "military equipment or munitions or component parts thereof, or machin- ery, tools, or material, or supplies necessary for the manufacture, servicing, or operation thereof...." The President was required only to
72 BALANCING THE NATIONAL INTEREST determine that his actions were necessary in the interest of national defense and to issue a proclamation describing the articles or materials included in the prohibition or curtailment. The export control authority provided by the 1940 law originally was intended to expire in only 2 years. But by 1942 the United States was at war, and Congress extended the authority. It was extended again in 1945, in 1946, and in 1947 with only minor revisions. A reading of the hearings accompanying these extensions, together with the fact that each exten- sion was of such limited duration, suggests that Congress regarded export controls as merely a temporary restriction on U.S. trade made necessary by the war. But by 1949, when export controls again came up for renewal, Congress was weighing a somewhat different set of factors in its export control policy equation. The Export Control Act of 1949 and the Establishment of CoCom In considering the export control issue in the increasingly tense West-East atmosphere of the late 1940s, Congress sought to avoid the mistakes of the period leading up to World War II; primary among these was providing potential enemies with the wherewithal to make war. By 1949 it was apparent that the Soviet Union and its allies, including the People's Republic of China (PRC), were potential military adversaries. Thus, the lesson of prewar U.S. trade with Japan- trade that had increased that country's military effectiveness entered into the debate on export controls. Although shortages still played an important role in justifying the continuation of export controls, the 1949 debates included for the first time explicit references to the behavior of the Soviet Union in Eastern Europe and reminders that uncontrolled exports to Japan before the war were "subsequently used against our own people."6 When the export control question came to a vote, Congress elected to perpetuate the extraordinary wartime powers extended to the executive branch and to maintain the strict export control regime that had evolved during the war. The new authority, the Export Control Act of 1949, codified the export control procedures that were then being practiced by the executive branch under the terms of the 1940 act (and its subsequent extensions). Two important principles embodied in this legislation have survived the three major, subsequent revisions of the law (1969, 1979, and 19851: (1) the executive branch has broad authority to determine what products or technical data should be subject to export licensing, to administer the licensing system, and to impose penalties for violations; and (2) the rule-making process, including those procedures that apply to the composition of the Control List (of items subject to licensing), is exempt from the usual provisions for public participation and is less .
THE DIMENSIONS OF NATIONAL SECURITY EXPORT CONTROLS 73 likely to be the subject of judicial review.7 Thus, the export control authority exercised by the executive branch today is substantially unchanged in its basic legal structure from that originally granted by Congress in 1940 as an extraordinary war power. The renewed international tensions that contributed to Congress' decision to maintain what were essentially wartime export controls also led, in 1949, to the founding of NATO and the other regional treaty organizations. To ensure the effectiveness of NATO and the other regional alliances, the United States transferred military technology (mostly in the form of hardware) directly to its allies. In addition, as Western Europe and Japan recovered from the war, they began to revitalize their industrial capabilities and to challenge what had been virtually a U.S. monopoly on advanced technology (see Chapter 31. To prevent such technology from reaching the hands of potential adversaries, it became necessary to establish a mechanism to coordinate allied export control policies. That mechanism, which was created in 1949, was the Coordinating Committee on Multilateral Export Controls, or CoCom. From the start, however, the items on which the United States imposed controls differed from those controlled by CoCom: In addition to those items that all CoCom members agreed to control, the United States controlled many items unilaterally. The vast majority of these pertained to areas in which the United States held a virtual monopoly. To prevent the flow of controlled U.S. technology and information from third (non-CoCom) countries to the Communist world, the United States also imposed controls on the reexport of U.S.-origin goods, controls that were accepted because the United States at that time was the only source of many advanced technology-based products. Further- more, countries that were the beneficiaries of the Marshall Plan and other U. S. government programs and that were dependent on the United States for their security were not inclined to challenge U.S. export controls. As with the previous export control acts, the Export Control Act of 1949 was originally scheduled to expire in just a few years, this time in 1953. That it was necessary to extend and strengthen the act repeatedly throughout the next two decades was due not only to continued tense relations with the Soviet Union but also to a fundamental change in the U.S. military posture and strategy in the decade following World War II. The United States and its allies chose to abandon the successful wartime strategy of being prepared to outproduce the adversary and began under the NATO doctrine to rely on superior military technology to offset the numerical advantages achieved by the Soviet military in the postwar decades.
74 BALANCING THE NATIONAL INTEREST The New Role of Science and Technology in Postwar U.S. Defense Strategy From the start of the postwar era, U.S. military planners understood that they could not achieve the goal of maintaining military superiority solely with narrowly defined engineering research aimed at meeting a specific military requirement. Before them was the example of the development of atomic weapons a graphic demonstration that highly speculative ideas at the frontiers of basic research could become militarily decisive in a very short period of time. The lesson inherent in the Manhattan Project was that the U.S. government, in a departure from prewar policy, should continue to promote the early development of technologies with possible military application. Thus, the United States perpetuated parts of the research system that had been created during the war and expanded the role of federal laboratories in the early postwar years. The government also expanded the role of the military services in supporting science and engineering research at both government and private laboratories. In the l950s Congress broadened federal research support still further. At the beginning of the decade, it established the National Science Foundation as a source of federal funding for scientific research that was not directed at a specific military or other previously defined national objective. In the late l950s the coming of the space race resulted in the founding of NASA*; it also provided the impetus for the creation of federal programs to enhance scientific and technical education, which was considered to be a vital part of the infrastructure necessary to support military programs. In the 1960s and 1970s federal support of research and development continued; programs included funding directed toward solv- ing key national environmental, energy, health, and economic problems. Thus, federal support of research and development a governmental role that originated during the postwar era as a military necessity ultimately evolved into a permanent recognition of the importance of science and technology to broader national interests. Detente and the Export Administration Act of 1969 When export control legislation again came up for renewal in 1969, the mood of Congress and of the nation was far different from what it had been at the time of the previous reauthorizations. Detente was the *NASA incorporated the National Advisory Committee for Aeronautics, an aeronautical research agency established in 1914.
THE DIMENSIONS OFNATIONALSECURITY EXPORT CONTROLS 75 operative principle, and there were calls in Congress for a relaxation of West-East trade restrictions. According to Henry Kissinger, even as the debate over the renewal of export controls went on in Congress, the National Security Council issued a directive: The list of items controlled by the United States should be brought in line with the less extensive CoCom list, except for those items over which the United States held a monopoly.8 In the legislation Congress finally adopted, the substitution of "admin- istration" for "control" in the title of the 1969 Export Administration Act reflected the political mood of the time and implied a far more liberal export control policy than was embodied in the previous acts. The act included language advocating expanded trade with the Soviet Union and Eastern Europe, recognized the economic cost of excessive controls, and required the executive branch to provide Congress with explicit justifica- tion for the continued control of products and technical data available to potential enemies from suppliers outside the United States. Believing, however, that improved Soviet attitudes on other issues should be a quid pro quo for improved trade relations, President Nixon blocked a number of efforts made by the Department of Commerce to reduce the number of items controlled for export to the Soviet bloc. Nevertheless, the atmo- sphere of detente ultimately did bring some relaxation, albeit only briefly, in the U.S. export control regime. The United States and its allies approved the export of major automotive and semiconductor manufac- turing facilities to the Soviet Union, and U.S. companies sold to the Soviets some highly advanced machine tools, computers, and communi- cations equipment. During this same period there were shifts in the economies of the Western nations that significantly changed the dynamics of export con- trols. Most important was that for many areas of advanced technology the civil sector began to lead the military, and sophisticated dual use items increased in relative importance in international trade. As a result, export controls reached an ever-growing share of U.S. commercial exports. U.S. NATIONAL SECURITY EXPORT CONTROLS Figures 4-1 and 4-2 illustrate the structure of current U.S. national secur~tv export controls. The complexity illustrated by these figures is -~~~^~ ~~ Or ¢~ , partly a function of the multifaceted task of controlling the exports of militarily significant products and technology and partly a result of the long evolution of U.S. controls as described above. Although the enabling legislation has been amended many times, there has never been a complete overhaul of the controls or of the list of controlled items since the system was initiated in the days preceding World War II.
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80 BALANCING THE NATIONAL INTEREST Controls on Munitions Under the 1976 revision of the Arms Export Control Act, the U.S. government strictly controls the import and export of defense articles (arms, ammunition, and implements of war), defense services, and directly related technical data. The International Traffic in Arms Regula- tions (ITAR)9 implement the law; the Office of Munitions Control (OMC) in the Department of State administers the regulations. Through its role as adviser to OMC, the Department of Defense is largely responsible for determining the defense items to be controlled. ~ . ~ . ~ . ~ .. . .. ITAR defines a defense article as any item specifically designated on the U.S. Munitions List, which is part of ITAR. Defense service means "the furnishing of assistance, including training, to foreign persons in the design, engineering, development, production, processing, manufacture, use, operation, overhaul, repair, maintenance, modification, or recon- struction of defense articles. " a If an article or service is on the Munitions List, ITAR regulates its export and reexport exclusively. To supplement the published Munitions List, OMC determines on written request whether particular articles or services are controlled by ITAR or whether they are subject to the Commerce Department's controls on dual use items. Before an article or a service subject to ITAR can be exported, OMC, with DoD advice, must formally approve the transaction. No approvals are granted for exports or reexports to actual or potential adversaries. And unlike the Commerce Department's Export Administration Regula- tions (see below), there are no general licenses or "bulk" validated licenses covering multiple transactions. The written approval of the State Department also must be obtained before an end user abroad may resell or dispose of an ITAR-controlled item to another party in his country or in any other nation. Most other Western nations maintain similar controls on the import and export of munitions. And, as noted earlier, CoCom also maintains a munitions list specifying the items that all its member countries control. For most nations, including the United States, munitions controls are relatively straightforward. The control system for dual use products and technologies is more complex. Controls on Dual Use Products and Technologies The Export Administration Act (EAA) of 1979, as amended , authorizes the control of exports of commercial goods and technologies that would make a significant contribution to the military capabilities of a potential adversary. It also authorizes controls to achieve U.S. foreign policy goals
THE DIMENSIONS OF NATIONAL SECURITY EXPORT CONTROLS 8 1 and to ensure the domestic availability of resources in short supply. Most export controls imposed under EAA for national security reasons have been agreed to multilaterally within CoCom. Although these national security controls are directed primarily at the Soviet Union and its Warsaw Pact allies, the control scheme regulates exports to many other nations because of concern about possible diversions or uses that might be detrimental to U.S. security or to the security of U.S. allies or other friendly nations. Export Administration, which is an element of the International Trade Administration of the Department of Commerce, administers these con- trols over U.S. exports and over reexports of U.S.-origin commodities from foreign countries. The extensive, complex instrument that provides the framework for this control is the Export Administration Regulations REARM, which Export Administration publishes and updates frequently. Products and technical data are addressed separately in the regulations, a division paralleled in this report. DUAL USE PRODUCTS A major EAR component is a list (i.e., the U.S. Control List) specifying the characteristics of each commodity subject to control. The current list of 128 pages contains 240 entries divided into 10 categories: Metal-working machinery Chemical and petroleum equipment Electrical and power-generating equipment General industrial equipment Transportation equipment Electronics and precision equipment Metals, minerals, and their manufactures Chemicals, metalloids, petroleum products, and related materials Rubber and rubber products Miscellaneous The entries or commodity classification descriptions range from the very specific (e.g., "pulse modulators capable of providing electric impulses of peak power exceeding 20 MW or of a duration of less than 0.1 microsecond, or with a duty cycle in excess of 0.005....") to the very general* (e.g., "other electronic and precision instruments, including *These very general or "basket" categories serve to "catch" new products with important characteristics not yet reflected on the U.S. Control List. They also ensure that no exports are made to certain countries such as Cuba, North Korea, Kampuchea, and Vietnam without specific U.S. government approval.
8 2 BA LANCING THE NA TI ONAL INTERES T photographic equipment and film, n.e.s. [not elsewhere specified], and parts and accessories, n.e.s."~. The commodity classifications have different broad levels of restric- tions, which depend on the military importance of items in that category, the ultimate country of destination, and in some cases the dollar value of the proposed shipment. For control purposes, Export Administration separates the nations of the world, except Canada, into country groups (see Figure 4-3, pp. 84-851. Of particular importance with regard to national security export controls are country groups W (Hungary and Poland), Y (other Eastern European nations and the USSR), and Z (North Korea, Vietnam, Cambodia, and Cuba). Canada does not fall into any country group and is the only destination for which licenses for most U.S. exports are not required. The Hyde Park Declaration of 1941, negotiated by President Franklin D. Roosevelt and Prime Minister Mackenzie King along with an Exchange of Notes in 1945, began a course of collaboration between the two countries relating to hemispheric defense. As a result, Canada and the United States have eliminated licensing in either direction for all exports except a few nuclear-related, communications countermeasures, and short-supply items. This unique relationship does not apply to any other U.S. ally. To export products, U.S. firms must use a general license or obtain a validated license (see Figure 4-41. Moreover, if reexport approvals are not authorized by EAR or the terms of a validated export license, U.S. exporters must obtain them if, prior to the time of shipment, they know or have reason to believe that the person or firm receiving the item will reexport it to another destination. The complexity of the system becomes apparent in considering the types of licenses that may be required for an export. GENERAL LICENSES A general license authorizes the export of certain products on the EAR control list that have been approved in advance by Export Administration for shipment. (An exporter must determine that certain conditions are met but need not apply to the government for permission.) These products have been so identified because of their low sensitivity, minimal value, country of destination, or other elements of control. G-DEST, a general license available for shipments of products to destinations not requiring a validated license, is the most commonly used general license; but there are also 17 other general licenses available for such circumstances as shipments of limited value, temporary exports, the return of products to countries from which they were imported, and the replacement of defective parts.
THE DIMENSIONS OF NATIONAL SECURITY EXPORT CONTROLS 83 To reduce the volume of formal license applications and the need for specific approvals, the Export Administration Amendments Act (EAAA) of 1985~2 created a special type of general license available to CoCom member nations for goods that would ordinarily require a validated license to non-CoCom destinations. General license G-COM covers shipments of less-sensitive controlled items to CoCom member nations. "Less-sensitive items" are items on the CoCom control list that a member country, at its discretion, may approve for shipment to pro- scribed destinations. In 1986 Export Administration proposed to establish general license G-CEU (certified end user),~3 which would authorize exports of most products that ordinarily require validated licenses to precertified foreign end users located in CoCom member nations. Upon application to the Department of Commerce, certification would be provided to foreign firms that consistently demonstrate and maintain compliance with U.S. export and reexport control regulations. A certified end user would be required to use and retain the commodities obtained under G-CEU at its own facilities or dispose of them only to other certified end users. Any other disposition would require prior individual authorization. VALIDATED LICENSES A validated license grants limited permission to make exports, either on a single- or a multiple-transaction basis. Validated licenses are also used to authorize the reexport of U.S.-origin commodities under certain circumstances to new destinations abroad. U.S. exporters of products that do not qualify for shipment under a general license must apply to Export Administration for a validated license. Exporters most often use two types of validated licenses-individual and distribution. A typical individual validated license authorizes the export of a specified quantity of products during a 2-year period to a single recipient. A distribution license, which is also a 2-year authorization, permits an approved U.S. exporter to ship unlimited quantities of specified commodities to approved distributors or customers in Free World countries. With a distribution license a U.S. firm can ship its controlled products to foreign distributors; the distributors are then permitted to resell the products to responsible parties within their approved sales territories without obtaining individual approvals for each sale. Other types of multiple or bulk approvals include project licenses, which authorize the export of products for up to 1 year for use in specific projects (such as building, equipping, and/or supplying a manufacturing facility); and service supply licenses, which authorize the export of spare and replacement parts for servicing equipment abroad.
84 Q t ~ . ~ __
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86 BALANCING THE NATIONAL INTEREST l Can shipment be made under general license authorization, e.g.. G-DEST, GLV. etc? (Check Parts 399. 371 and 379) _ | Prepare application for license (see l Part 372 and instructions on reverse of cover sheet. ITA-622P) _ EN ~ ~, Place Destination Control Statement on commercial documents. if required (r3 386.6) I Is Shipper's Export Declaration required? (§ 386.3) ~3 E ~ Submit Shipper's Export Declaration to carrier ('i 386 3) 1 ~ r : . | Is supporting docur nentation required? I | (Check Parts 375 and 376) l __ No ~ r Obtain documentation and File application attach to application . with OEL . l , | File applical on and required l | documentation with OEL | t . l L Upon receipt of license (Form ITA-628), prepare Shipper's Export Declaration (§ 386.3) Place Destination Control Statement on | | commercial documents (§ 386.6) l Submit Shipper's Export Declaration to carrier (§ 386.3) Make shipment and complete Record of Shipments on reverse of license (a ~R6 2) | Return license to OEL l L , EXPORT CONTROL FLOW CHART-This is intended as a general guideline for exports of commodities under Department of Commerce jurisdiction. However, it is not comprehensive. You should review other parts of the Regulations. for example. for special commodity restrictions and special country restrictions. Also. you should consult the "Table of Denial Orders Currently in Effect'' (see Supps. Nos. 1 & 2 to Part 388) to be sure your proposed export does not involve a party currently denied export privileges. FIGURE 4-4 Export control flowchart.
THE DIMENSIONS OF NATIONAL SECURITY EXPORT CONTROLS 87 To speed up the export licensing process, EAAA made a number of changes in the control regulations in addition to instituting the G-COM license. The amendments now require that individual validated license applications for most exports to CoCom nations either be rejected or approved automatically within 15 working days after filing-unless the applicant is notified that more time (not to exceed 15 additional working days) is required. At the end of the 15- (or 30-) working-day period, the export request must be rejected or it is deemed to be licensed even if no document or communication to that effect has been sent or received. In addition, EAAA amended Section 5(k) of the 1979 act to extend this automatic licensing procedure and the provisions of general license G-COM to exports to those non-CoCom nations that enter into agree- ments imposing export restrictions comparable to those agreed to within CoCom. Applications for distribution licenses and other special licenses must be accompanied by extensive documentation and may require months to process for first-time applicants. Applications for exports to proscribed destinations including the Soviet bloc are subject to interagency review and may also require lengthy processing. Controls on Technical Data The regulations that govern exports of technical data are similar but not identical to those for exports of products. Separate EAR control proce- dures govern the export of technical data. EAR defines technical data as "information of any kind that can be used, or adapted for use, in the design, production, manufacture, utilization, or reconstruction of articles or materials." The data can be tangible (a proto- type, blueprint, or operating manual) or intangible (technical advice). Figure 4-5 is a flowchart of the procedures for controlling technical data. An "export" of technical data is defined broadly to include not only the actual shipment or transmission of data out of the United States but also visual inspection by foreign nationals of U.S.-origin equipment and facilities, oral exchanges of information with foreigners in the United States or abroad, and the application to situations abroad of personal knowledge or technical experience acquired in the United States. Most technical data can be exported under one of two general licenses: GTDA (technical data available) or GTDR (technical data restricted). General license GTDA principally covers technical data that have been made generally available to the public (i.e., released in readily available publications and at open conferences, lectures, trade shows, etc.~. It also covers scientific and educational data "not directly and significantly related to design, production, or utilization in industrial pro
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90 BALANCING THE NATIONAL INTEREST cesses...."~4 The license permits U.S. firms and individuals to dissem- inate these kinds of data to all destinations without requesting U.S. government approval. U.S. companies export most proprietary technical data under general license GTDR. Like GTDA data, exports covered by this license do not require specific U.S. government approval; but for the most part they can only be sent to Free World destinations. Specific permission is required in the form of a validated license to export most nonpublic data to country groups S. Q. W. Y. and Z~5 and to the People's Republic of China. Before using the GTDR license for data related to products subject to CoCom control and certain other sensitive data categories, the exporter must receive written assurance from the foreign recipient of the data that the recipient will not reexport the data-and in many cases the direct products of the data to proscribed destinations without the approval of the U.S. government. This requirement applies to the exchange of technical data between U.S. and foreign nationals,* whether that national resides overseas, is living in the United States, or is a visitor (e.g., at a U.S. university). Certain more-sensitive technical data do not qualify for the GTDR license at all; these data relate to such areas as civil aircraft, airborne electronic direction-finding equipment, hydrofoil and hovercraft water- craft, and infrared-imaging equipment. To export such data to any destination (except Canada), an exporter must obtain a validated license. The export of some technical data, particularly nuclear-related, requires a validated license even to Canada. Congress anticipated that certain products and technologies (both tangible and intangible) would be identified during the development of the Militarily Critical Technologies List (MCTL) as particularly "critical" and thus subject to more stringent licensing requirements. (Mandated originally by Congress, the MCTL is a document listing technologies that the Department of Defense considers to have present or future utility in military systems.) Accordingly, EAAA authorized the creation of a comprehensive operations license (COL) for such products and technical data. Although it has not yet been implemented and U.S. firms continue to use general license GTDR, this license is intended to be a technology counterpart to the distribution license available for commercial products. It would allow for multiple exchanges of technical data within a multina- tional company or network over a given period of time without the requirement for validated licenses for each transfer. The multinational - *Aforeign national is any person who is not a citizen of the United States and who has not been lawfully admitted for permanent residence in the United States.
THE DIMENSIONS OF NATIONAL SECURITY EXPORT CONTROLS 91 company or network would have to demonstrate an internal capability, which would be audited periodically by the Department of Commerce, to protect such exchanges. The license would be available only to demon- strably reliable U.S. exporters for use with eligible consignees in Free World countries with which they have ownership affiliations or long-term contractual relationships. The export of technical data in patent applications is controlled by the Patent and Trademark Office (PTO) within the Department of Commerce and may be restricted through secrecy orders. Patent applications that must by definition contain sufficient detail to allow skilled readers to practice the invention may contain useful technical data that would otherwise be subject to validated licensing requirements under ITAR or EAR. In the United States, an application is published when the patent is issued; in most of the rest of the world, an application is published a year or two after filing, whether or not a patent ultimately will be issued. A secrecy order can be used to delay issuance of a U.S. patent and restrict the dissemination of technical data contained in the application. Secrecy orders are issued by the commissioner of patents at the request of a defense agency. Under current law, an inventor or his designee may file for patent protection on any invention in a foreign country thus transferring or "exporting" technical data to that country in the application process- without requesting U.S. governmental approval if two conditions are met: (1) the U.S. application has been on file 6 months or longer, and (2) no patent secrecy order has been imposed. If the patent application has not been on file in the United States for at least 6 months, or if a secrecy order is in place, the inventor must obtain a license or permit from the Patent Office prior to the foreign filing. Thus, compliance with these rules permits an inventor to foreign-file a patent application without applying to the appropriate U.S. licensing agency (the State Department, for an export license under ITAR, or the Commerce Department, for a license under EAR). There are now three types of secrecy orders. One of these is specifically available to PTO when the Department of Defense determines that unclassified technical data in a patent application should be subject to export controls.~7 This order permits disclosure of the data for business purposes to U.S. nationals within the United States and authorizes the filing of foreign applications in Canada, Australia, and most of Europe- but not in Japan or in any newly industrializing or developing nation where there are no applicable patent secrecy provisions. The order further authorizes both selling or producing products for the commercial domestic marketplace based on the innovation contained in the application and sales abroad provided an appropriate export license is obtained.
92 BALANCING THE NATIONAL INTEREST Reexport Controls In addition to export controls, EAR specifies a comprehensive control system for reexports of U.S.-origin products and technical data from foreign countries. These reexport controls encompass finished end prod- ucts and, under certain circumstances, U.S.-origin parts and components incorporated into end products that are manufactured abroad. They are similar to controls for direct exports: An exporter in another country must obtain specific approval from the Department of Commerce for a reexport if the product or technical data involved would have required a validated license for shipment directly from the United States to the country of final destination (see Figure 4-61. Under a 1986 Commerce Department pro- posal published in the Federal Register, no reexport approval would be required for foreign-manufactured products that are exported to most Free World nations if the U.S.-origin controlled parts and components constitute 20 percent or less of a product's value. In certain instances, exports of foreign end products that are manufac- tured with U.S.-origin technical data are controlled by EAR even if these products are entirely of foreign content. Controls on foreign-made "direct products" of U.S.-origin technology apply primarily to exports to Soviet bloc or other embargoed countries of products in categories that are subject to CoCom export regulation. These controls have their principal impact on exports from industrialized countries outside CoCom such as Switzerland, Sweden, Austria, South Korea, Taiwan, and Singapore, countries that do not themselves have comparable export control sys tems. Penalties for Violations The U.S. government is authorized to impose several types of admin- istrative sanctions for EAR violations. First, the Commerce Department has discretionary authority to impose fines of up to $100,000 per violation in cases involving national security controls and up to $10,000 per violation in other cases. Second, the department may suspend or revoke a company's privilege to participate in all types of export transactions- those carried out under general licenses as well as those covered by validated licenses. In invoking this type of sanction, the department may suspend or revoke a company's or an individual's existing export li- censes, it may deny future license applications, and it may prohibit export transactions that would be covered by a general license. Third, the U.S. Customs Service may require the forfeiture of goods that have been seized during the course of an unauthorized export. Companies and individuals whose export privileges have been sus
THE DIMENSIONS OFNATIONALSECURITY EXPORT CONTROLS 93 pended or otherwise impaired are listed by the Department of Commerce in the Table of Denial Orders, which is published in the Federal Register. Any company that engages in an export transaction with these companies or individuals in violation of the denial order is itself subject to all the penalties available under the act. These civil sanctions apply even to unintentional violations. The Justice Department enforces criminal provisions of the Export Administration Act in the federal courts. Under these provisions, indi- viduals may be imprisoned for up to 10 years and/or fined up to $250,000 for each willful violation. Companies may be fined up to five times the value of the exports involved or $1 million, whichever is greater. Unintentional violations generally are not subject to criminal prosecution. ADMINISTRATION OF U.S. CONTROLS The spectrum of administrative, investigatory, and enforcement activ- ities related to export controls involves a broad array of departments and agencies within the executive branch. Various instruments-legislation, regulations, and executive orders-define the roles of these departments and agencies. In general, the Commerce Department regulates exports of commercial equipment and technology, and the State Department over- sees exports of military equipment and technology. The Defense Depart- ment plays a key advisory role for both commercial and military exports. In addition to these departments, a number of other governmental entities maintain a special interest in controlling the transfer of militarily impor- tant technology; these include the Departments of Treasury (U.S. Cus- toms Service), Energy, and Justice, as well as NASA, the Nuclear Regulatory Commission, and the intelligence agencies. The Department of Commerce and the U.S. Customs Service share responsibility for the enforcement of export controls and are now directly linked by computer for more efficient case processing. The latter agency is empowered to seize unauthorized shipments or suspected diversions, which are subject to forfeiture. It also has an extensive enforcement program known as Operation Exodus that includes random checks of outgoing shipments for license authority. The existence of such a program indicates the increased enforcement emphasis within the U.S. government and has helped to focus public attention on the need to uncover and prevent illegal ship- ments. By law the interagency process for deciding export control issues for dual use commodities and technologies centers in the Department of Commerce; recently, however, the Department of Defense has dominated the national security aspects of the procedure. The Reagan administration came into office convinced that Soviet acquisition of U.S. military and
- P NO . I U.S. r~xpo~ authorization required. 374.3 ~ ~ ~ ~ Ajar a ~ ~ ~ ~ ~ ~ an ~ ~ ~ reasons ache commode was 10 be exposed dlrec11y from the United Sages 10 Me new Mung ~ d~n~o~ l U.S. reexport au1horiza110n required - ~n~ - Nuclear: 378.7 I . No U.S. r~xpo~ authorlz~10n required. 1 & 3 I 1 ^ _ ~ I _ ~ - o1 dosllra110n under General Llcense G-DEST? T I ~ _ principal element in lhe end produc1 snd ~k~~ __ ~. | No 1 [ I I ~u~ ~o ~-n~ end p~du~, were o1 U.S.-origin, be expo~d 10 lhe _~_u~ U-n~ G-DE~? . . ~a~ ~ ~. ~ ~ _ France, lhe Federal Republlc o1 Germany, Greece, llaly, Japan, Luxembourg, lhe Nelherlands, . No-~, ~-g~, Sp~n, ~, or ~e Un~d ~ngdo~ ~ ~e ~un~ G~up O, W, or Y ~ ~ ~e - ~ ~ I I , 1 ~ No U.S. reexpo~ au~horiz~lon required. | 374.3(e) TH~ CH^~ IS FOR ILLU~IVE PURPOSES ON~ ~_~ ~ FIGURE 4-6 U.S. reexpo~ bcensing decidon cb=. Basic steps required of ~reign reexpo~ers 10 comply witb und~er~ U.S. reexpod regulations.
THE DIMENSIONS OF NATIONAL SECURITY EXPORT CONTROLS 95 l ED 1 - 1 ~ 1 Is the commodity a part of a component which is incorporated into a foreign product? Will any of the following conditions be met? 1) Reexports of any commodity that at the time of reexport- (A) May be exported directly from the United States to the new country of destination under General License G-DEST, GTE, G-COM, G-NNR, or G-FTZ; (B) Are valued at an amount that does not exceed the GLV value on the Commodity Control List for the new country of destination; (C) Could be exported under General License SHIP STORES or PLANE STORES if the same vessel or aircraft were departing from a U.S. port (except equipment and spare parts described in 371.9(a)(3) and 371.10(a)(3)); or (D) May be exported directly from the United States to the country of destination under subsection (f) of General License GLR (371 .1 7(f)). 2) Reexports to a destination to which direct shipment from the United States is authorized under an unused outstanding validated export license. 3) Reexports of any commodity from Canada that, at the time of reexport, may be exported directly from the United States to the new country of destination under any general license; 4) Reexports between Switzerland and Liechtenstein; 5) Reexports between ultimate consignees as provided by the terms of: the Project License procedure (see 373.2(g)), or the Distribution License procedure (see 373.31 (i)). 6) Reexports to a destination in Country Group T or V of a U.S.-origin commodity for servicing, and subsequent return of the serviced commodity to the original consignee, provided that the return of the serviced commodity complies with the conditions of 371.17(a); 7) Reexports (return) to the United States of any commodity. 8) Reexports from a foreign destination to Canada of any commodity if the commodity could be exported to Canada from the United States without a validated license. Reexports from COCOM countries to Country Group Q. W. or Y or to the People's Republic of China that meet the conditions set forth in 374.3(e). 10) Reexports from a COCOM country to the People's Republic of China that meet the requirements set forth in Advisory Notes for the People's Republic of China in the Commodity Control List (Supplement No. 1 to 399.1) and are licensed for shipment by that country. No U.S. reexport authorization required. 374.2 Will all of the following conditions be met? _ 1) The commodities being exported: (A) Are identified by an "A" on the CCL; (B) Are not included in the "Advisory Notes" for those commodities in the CCL; (C) Are valued at more than $4,000 (except that commodities in CCL entries 1548, 1555, 1559, and 1781, and entries beginning with the digits 2 and 3, are eligible regardless of value); and (D) If included in entry 1s6sA, have at least one parameter falling in the extreme right hand, i.e. (d), column of boxes on Form ITA-6031 P. Computer Systems Parameters. 2) The reexport is made in accordance with the conditions of the licensing authorization issued by the applicable COCOM participating country; and 3) The reexport has received unanimous approval from COCOM. FIGURE 4-6 Continued.
96 BALANCING THE NATIONAL INTEREST dual use products and technology was a serious problem. The Department of Defense took the lead and acted with vigor in a number of areas, either directly or by pushing Commerce, State, or other organizations to take action. At the behest of DoD, the U.S. Customs Service has intensified its enforcement efforts and the Departments of Commerce and State have encouraged the CoCom member countries to improve their enforcement programs. The Department of Defense has had a statutory obligation for many years to review license applications for selling controlled items to proscribed destinations; this obligation is now being fulfilled by the Defense Technology Security Administration (DTSA), created under DoD Directive 5105.51. DTSA has assumed primary responsibility for license reviews, which was formerly held by the Office of the Under Secretary for Research and Engineering. Now, as a result of a presidential directive issued in January 1985, DoD also reviews license applications for certain commodities to 15 Free World destinations from which the risk of diversion to the Soviet bloc is considered particularly high. During both the first and second Reagan administrations, the National Security Council (NSC) evolved and modified a structure for export control policy and decision making. From 1981 to mid-1982, the Senior Interagency Group on Foreign Policy (SIG-FP) coordinated the imple- mentation of policy decisions on unilateral and multilateral control of dual use high-technology exports. This group also dealt with other interna- tional foreign policy and economic issues such as the export of oil and gas equipment and U.S. policy toward construction of the Siberian natural gas pipeline. The State Department chaired the SIG-FP and its lower- level working groups. Staffing within the SIG-FP on high-technology exports was thin, however, and policymaking reportedly was slow and indecisive, primarily because of three factors: (1) the State Department's desire to focus on other foreign policy issues that it considered to be of higher priority; (2) State's reluctance to antagonize other Western allied nations; and (3) disagreement within the SIG-FP over the issues. In June 1982 following the imposition of U.S. sanctions against its European allies over the Siberian pipeline,~9 NSC created a new Senior Interagency Group on International Economic Policy (SIG-IEP). The main objective of this new group was to improve NSC attention to issues such as high-technology exports, issues that have overlapping diplomatic, economic, and military implications. During the second half of 1982, when attention remained focused on the Siberian pipeline and the resistance to U.S. controls by the allies, the secretaries of treasury and state cochaired the SIG-IEP. The United States and its allies finally resolved the pipeline issues in December 1982 through an agreement within NATO: The United States agreed to lift the sanctions in exchange for a thorough review of West-East trade questions.
THE DIMENSIONS OF NATIONAL SECURITY EXPORT CONTROLS 97 In early 1983 under National Security Decision Directive 83-1, NSC relegated export control policy to a lower "working-level" SIG, which was established officially as the Senior Interagency Group on Transfer of Strategic Technology (SIG-TST). This group continues to function and has become known more commonly as the SIG-TT (Technology Trans- fer). A primary purpose of the SIG-TT is to expedite decision making in connection with the CoCom list review process. The under secretary of state for security assistance, science, and technology chairs the SIG-TT; the assistant secretary of defense for international security policy or the deputy under secretary of defense for policy represents DoD; and the assistant secretary of commerce for trade administration or the deputy assistant secretary for export administration represents the Department of Commerce.20 Since 1983 some of SIG-TT's major activities have focused on export policy vis-a-vis the People's Republic of China, the development of an administration position on the renewal of the expiring Export Adminis- tration Act of 1979, and the allocation of enforcement responsibility between the Treasury and Commerce Departments. SIG-TT also has devoted attention to U.S. proposals for strengthening multilateral na- tional security controls through CoCom. MULTILATERAL NATIONAL SECURITY EXPORT CONTROLS Based in Paris, the Coordinating Committee on Multilateral Export Controls (CoCom) administers uniform multilateral national security export controls on munitions, products and technologies related to nuclear energy, and dual use products and technologies. Items in each of these categories are placed on control lists maintained by CoCom if there is unanimous consent among the member nations for control. Many of the items on the U.S. Control List parallel items found on the CoCom dual use list, which is known as the International List. The International List covers three types of goods: · items designed specially or used principally for development, pro- duction, or utilization of arms, ammunition, or military systems; · items incorporating unique technological know-how, the acquisition of which might give significant direct assistance to the development and production of arms, ammunition, or military systems; and · items in which proscribed nations have a deficiency that hinders development and production of arms, ammunition, or military systems, a deficiency they are not likely to overcome within a reasonable period. CoCom groups the items on the International List into various catego- ries. Some categories, such as those covering measuring instruments
98 BALANCING THE NATIONAL INTEREST (category no. 1529) and computers (category no. 1565), include products whose technical characteristics range across several levels of sophistica- tion. The degrees of control, which are outlined in Table 4-1, depend on various technical parameters specified in the list or in notes appended to the list. There must be unanimous approval by CoCom members for the export to proscribed destinations of items representing the highest level of technological sophistication; at the lowest level any CoCom government can approve an export based solely on national discretion. This method of operation reflects the fact that, although there is strong support among CoCom members for a system of common national security export controls, there is considerable disagreement about the scope of items subject to control and the degree to which control is necessary and practical. For example, Canada, the United Kingdom, France, West Germany, and Japan have for years actively advocated major reductions in the scope of coverage. They subscribe to the view that the current multilateral CoCom control list is too extensive and that it would be more credible and more enforceable if widely available items were removed. Prior to 1985, CoCom conducted reviews of the dual use and other control lists every 3 years. In 1985 it initiated a process of annual reviews covering one-fourth of the list every year. (This spreads out the review process and alleviates administrative requirements at the CoCom secre TABLE 4-1 CoCom Procedures · General embargo-covering items that must be submitted to CoCom for a general exception to the embargo with approval to export requiring unanimity among the members. - Favorable consideration-covering items falling below the general embargo line that will be considered favorably for export on a case-by-case basis if they meet certain conditions specified in the accompanying notes. · One-time review and listing or the "45-day" procedure-covering items for which a decision to approve their export as a category of product will be made within 45 days; in this case, the question period lasts only 30 days (as compared to 8 weeks for general exception cases). If a product is listed (by make and model number), subsequent exports are controlled under administrative exception note procedures or are free from controls depending on the procedure specified. Notification- covering items that have been nationally approved for export for which notice must be given to CoCom 30 days in advance of shipment but that do not require CoCom approval. Administrative exception notes (AEN)-covering items that may be exported at national discretion with only the requirement to report statistics to CoCom monthly (after the fact unless stipulated otherwise).
THE DIMENSIONS OF NATIONAL SECURITY EXPORT CONTROrS 99 lariat.) Although CoCom now reviews list items on the average only once every 4 years, it publishes the results of the review (i.e., additions and deletions to the list) at the end of each year instead of waiting until all items have been reviewed. In practice, this puts changes into effect more quickly than under the old procedures. Moreover, the practice of review- ing only a portion of the list each year does not preclude any CoCom member government from proposing essential changes additions, mod- ifications, etc. to portions of the list not under review. Not all proscribed destinations are treated by CoCom in the same way. At the end of 1985, CoCom agreed to treat the People's Republic of China more liberally than the other CoCom-proscribed destinations. As a result, it added certain equipment (i.e., equipment that falls within agreed-upon technical parameters in each of 27 International List categories) to the national discretion level of control for the PRC. This equipment now can be shipped to that country without prior multilateral CoCom review. Currently, CoCom follows a policy of not permitting exceptions to the general embargo for proposed exports to the Soviet Union. This policy, which was adopted after the Soviet invasion of Afghanistan, does not apply to other CoCom-proscribed destinations that is, nations in East- ern Europe. THE CONTROL SYSTEMS OF OTHER WESTERN NATIONS The panel reviewed in detail the export control systems of five CoCom countries that maintain control lists substantially parallel to the CoCom list: Canada, France, Japan, the United Kingdom, and West Germany. All five nations have objected to the U.S. assertion of jurisdiction over the following: (1) the reexport of U.S.-origin items; (2) the export of foreign- made products that contain U.S. parts and components or that are based on U.S. technology; and (3) the export of non-U.S.-origin items by U.S. subsidiaries located in their countries. None of the five administers the type of reexport controls listed above on their own dual use items. Moreover, Canada, France, and the United Kingdom have adopted legislation that is specifically designed to protect their sovereignty from the reach of extraterritorial U.S. controls. All five nations support the international import certificate/delivery verification (IC/DV) system. Under this system the government of the nation importing controlled items from a CoCom country assumes the responsibility for preventing diversionary reexports to proscribed desti- nations. With limited exceptions, none of the countries imposes controls that extend beyond the CoCom lists. Certain chemicals make up the only category of items controlled unilaterally by Canada for other than
100 BALANCING THE NATIONAL INTEREST short-supply reasons. West Germany controls a few munitions and nuclear energy items unilaterally. There is little similarity among countries with respect to technical data controls. Some restrict the export of intangible data; others limit controls to tangible forms of information. Generally speaking, each CoCom country requires export licenses for CoCom-controlled commodities shipped to non-CoCom, nonproscribed destinations or "third countries." These third countries, however, are not dealt with uniformly. Several of the nations require consignee assurances from Third World countries, a practice that does not mirror U.S. policy. Even within the United States there is no uniformity. For example, the Commerce Department requires import certificates from some non-CoCom nations (e.g., India and Hong Kong); in the case of other countries, it requires consignees merely to sign and submit supporting end use state- ments. From still other consignees-in some nations in Central and South America the United States does not require any such assurances. As part of the special relationship with Canada discussed earlier, Canada abides (albeit somewhat reluctantly) by U.S. national security reexport regulations requiring authorization for U.S.-origin items that are originally shipped to Canada but are being supplied finally to third countries. Canadian cooperation also includes restricting reexports of U.S.-origin items pursuant to U.S. foreign policies not shared by Canada. However, Canadian and U.S. views differ on whether or not an item is of U.S. origin. Although the United States essentially contends that U.S. identity is never lost, Canada maintains that a U.S. item loses its identity if it is materially changed in Canada and the proportion of U.S.-origin parts and components in the resulting new product is less than 80 percent. The panel also reviewed in detail the export controls of one non- CoCom nation in Europe and one non-CoCom nation in the Far East- Austria and South Korea, respectively. As a neutral nation, Austria approaches export controls from a different perspective than the CoCom countries. Because it desires to maintain good commercial relations with the West without violating its neutrality, Austria maintains controls on reexports as specified by the original country of origin. Austrian-origin goods, how- ever, are restricted only to prevent shortages or price fluctuations. Austria requires licenses for exports of items that are imported with import certificates, a system based on voluntary agreements between Austrian firms and the Austrian government. Under this system, firms certify that they will abide by the conditions in the export license or reexport license governing items they import from other nations. Because of its hostility toward North Korea, the Republic of Korea engages in no direct trade with CoCom-proscribed destinations on the presumption they are conduits to North Korea. Otherwise, Korea does
-102 BALANCING THE NATIONAL INTEREST of these acts provided for judicial review of export regulations or individual licensing decisions. 8. Henry Kissinger, White House Years (New York: Little, Brown and Co., 1979), pp. 153-154. 9. 10 C.F.R. 120-130. 10. 10 C.F.R. 120.8. 11. 15 C.F.R. 368-399. 12. Public Law 99-64, 99th Congress, July 12, 1985. 13. See "Notice of Proposed Rulemaking: General License for Certified End-User Proce- dure," Federal Register 51, no. 120, pp. 22826-22829. 14. 15 C.F.R. 379.3. The Department of Commerce has proposed modifying the terms of the GTDA license; see Federal Register 51, no. 95, pp. 17986-17989. 15. Romania, Libya, Hungary, Poland, Albania, Bulgaria, Czechoslovakia, Estonia, the German Democratic Republic, Laos, Latvia, Lithuania, the Mongolian People's Re- public, the Union of Soviet Socialist Republics, Cuba, Kampuchea, North Korea, and Vietnam fall within these five country groups. 16. Invention Secrecy Act of 1951: 35 U.S.C. 181 et seq.; 37 C.F.R. Part 5. 17. See FederalRegisterS1, no. 180, pp. 32938-32939. This notice appears to imply that only technical data whose export is controlled by the Department of Defense according to guidelines contained in DoD Directive 5230.25, dated November 6, 1984 (32 C.F.R. Part 250), may be subject to the "Secrecy Order and Permit for Foreign Filing in Certain Countries." The commissioner of patents and trademarks, however, in correspondence to the American Association for the Advancement of Science dated March 13, 1986, has asserted that this secrecy order may be used in connection with patent applications arising from privately sponsored research. 18. See `'Notice of Proposed Rulemaking: Revision of Controls on Foreign Products Incorporating U.S. Origin Parts, Components, and Materials," Federal Register 51, no. 129, pp. 24533-24535. 19. In 1978 the Soviet Union proposed building a large-diameter natural gas pipeline from Siberia to Western Europe. Beginning in 1981 the United States sought to block cooperation by Western European nations and Japan. On June 18, 1982, President Reagan extended a previous order prohibiting direct exports from the United States of oil and gas equipment for the project to include sales by overseas subsidiaries of U.S. firms and by foreign firms producing such equipment under U.S. license. This order was rescinded on November 13, 1982. 20. Membership of the Senior Interagency Group on Transfer of Strategic Technology includes representatives from the Departments of Commerce, Energy, Justice, State, and Treasury, the Arms Control and Disarmament Agency, the Central Intelligence Agency, the Federal Bureau of Investigation, the Joint Chiefs of Staff, the National Aeronautics and Space Administration, the National Security Agency, the National Science Foundation, the National Security Council, the Office of Management and Budget, the Office of the Secretary of Defense, the Office of Science and Technology Policy, the Office of the Vice President, the U.S. ambassador to the United Nations, the U.S. Customs Service, and the U.S. trade representative.
