U.S. Export Control Reform: the Wall is still standing

Too many bricklayers make a crooked wall.” 

– A Chinese Proverb 

In light of U.S. President Trump’s speech at the United Nations, regurgitating his ramblings of putting U.S. interests first, I’d like to revisit the U.S. effort to reform it’s export controls system (Export Control Reform Initiative – ECRI). The ECRI was launched in 2009, by former President Barack Obama, as a comprehensive review of the U.S. export control system. 

The ECRI is another attempt by the U.S. to strike a balance between national security and economic competitiveness. Since the Second World War, the U.S. has attempted to strike a balance between the two, whereby export controls are one of the tools in the U.S.’ arsenal to maintain its national security. One could describe the debate on striking the right balance as building a wall; how high and how wide should the wall be? 

Revisiting this issue is important given President Trump’s “America First,” policy, whereby the pursuit of U.S. interests are placed at the forefront of the current U.S. Administration. However, to a large extent, the success of the ECRI and the functioning of export controls in general, depends to a large extent to international cooperation. This policy has had an impact on security issues, which of course has impacted the field of export controls, e.g. the agonizing burden-sharing debate within NATO, but also the approach towards the nuclear deal with Iran. Given that economic competitiveness and national security are not mutually exclusive, it will take a combination of diplomacy and statesmanship to navigate the U.S.  to strike the right balance. 

Summary of the ECRI

Currently, the U.S., similar to close allies and other major powers (e.g. the Russian Federation), maintains security related trade controls regarding so-called strategic items. These are commonly known as export controls, which restrict the export in:

  • military items, i.e. munitions;
  • dual-use items (goods, technologies and software) – i.e. goods destined for the civilian market, but which have the potential for either military end-uses or the proliferation weapons of mass destruction (nuclear, chemical, and biological);
  • certain nuclear materials and technology; and
  • items and technologies which facilitate the deliver of weapons of mas destruction – e.g. the missile technology.

U.S. export controls are also used to restrict exports to certain countries on which the United States imposes economic sanctions (e.g. Iran and North Korea).

Former U.S. Secretary for Defense Robert M. Gates

Since 1979, the U.S. has attempted to reform the landscape of its export controls. This is because the structure and execution of U.S. export controls have come under pressure given their byzantine character. Even at the height of the Cold War, certain aspects of the U.S. export control system was subject to a yo-yo of criticism – as being either too or insufficiently rigorous, obsolete, and/or inefficient.

The current U.S. export control system is an opaque structure, which contains a myriad of different licensing and enforcement agencies. Exports of dual-use items — as well as some military items—are licensed by the Department of Commerce, munitions are licensed by the Department of State, and restrictions on exports based on U.S. sanctions are administered by the ubiquitous U.S. Department of the Treasury.

For instance in 2010, while expounding the blueprint of the ECRI, former Defense Secretary Robert M. Gates described the bureaucratic structure of U.S. export controls as a “byzantine amalgam of authorities, roles, and missions scattered around different parts of the federal governments.”

In the same year, then-Defense Secretary Robert M. Gates went on to outline the blueprint for a new system based on four singularities:

  • a single export control licensing agency for the three-main security related trade controls, i.e. dual-use items, military items, and U.S. economic sanctions and embargoes (see Basic overview U.S. Export Controls)
  • a unified control list (i.e. one list of items subject to U.S. export controls)
  • a single license and enforcement coordination agency, and 
  • a single integrated information technology (IT) system.

The ECRI would be implemented in three phases (see below). The main thrust of the ECRI is probably updating and modernizing of the dual-use (CCL) and military/ munitions control (USML) lists. This often referred to as the rationalization of the control lists. Further, the Obama Administration did not provide any details for the single licensing agency, although it did lay some of the required foundations for such an agency – e.g. developing a consolidated screening list. 

Overview of ECRI Implementation Phases
 The Obama Administration envisaged to implement the ECRI in three phases. 

  1. Phase I was the  preparatory phase which aimed to harmonize the dual-use with the military control lists – respectively the Commerce Control List (CCL) and the U.S. Munitions List (USML). This phase also aimed to:
    • standardize licensing processes among the control agencies;
    • create an “Enforcement Fusion Center” to synchronize enforcement, along with a single electronic gateway to access the licensing system.
  2. Phase II would then implement a harmonized licensing system with two identically-structured tiered control lists, aimed to reduce the amount of licenses required by the system. Further, this phase would also include:
    • transferring certain items from the USML to the CCL, for which congressional notification is required;
    • examining unilateral controls on certain items; and
    • undertaking consultations with multilateral control regime partners to add or remove multilateral controls on certain items.
  3. Phase III this phase aims to implement a new export control system, although changes to the structures of agencies would require legislation, which would then:
    • establish a single licensing agency;
    • merge the two harmonized, tiered control lists, with mechanisms for review and updating;
    • merge the two primary export control enforcement agencies, BIS-OEE and ICE; and
    • operationalize a single IT system for licensing and enforcement.

Subsequently, in 2011, the then-BIS Assistant Secretary Kevin Wolf expounded seven principles driving the ECRI:

  • Controls should focus on a small core set of key items that can pose a serious national security or intelligence threat to the United States and its interests; 
  • Controls should be fully coordinated with the multilateral export control regimes in order to be effective; 
  • Unilateral controls must address an existing legal or foreign policy objective; 
  • Control lists must clearly identify which items are controlled and be easily updated as technology emerges, matures, or becomes widely available; 
  • Licensing processes must be predictable and timely; 
  • Enforcement capabilities must be enhanced to address non-compliance and increase capacity to interdict unapproved transfers; and 
  • Controls must address counter-terrorism policy and the need to export items that support homeland security priorities.

How High and wide should the wall be?

In the debate to reform U.S. export controls, most relevant to us since 1979, parties generally fall into two camps. Firstly, those who believe that (further) liberalization of export controls may compromise U.S. national security interests; and secondly, those who wish to liberalize such controls in order to promote U.S. exports to boost U.S. national security. 

Image downloaded from White House/ Obama Archive _https://obamawhitehouse.archives.gov/administration/cabinet/exit-memos

However, analyzing export control reform is not that simple, given that national security and trade are not mutually exclusive. In the context of the ECRI, the balancing act basically boils down to the question how high and how wide should the wall be (i.e. the cordon) surrounding export controlled items.  

The two sides of the debate readily agree that the exports of goods, software and technologies which threaten U.S. national security and foreign policy goals, e.g. military or dual-use items which can enhance the proliferation of weapons of mass destruction, need to be controlled. 

An example of this is North Korea’s controversial nuclear program, which unnecessarily continues to raise the adrenaline levels in Washington.  Another example of this debate, is the ongoing debate within NATO allies regarding their defense expenditures, which President Trump has again confronted U.S. allies with.  Although this debate is not usually equated with export controls, it is an illustration of the debates within many NATO member states regarding how to strike the balance between national security and trade. 

Those favoring liberalizing controls, primarily representatives of U.S. industry, cite that too strict export controls are a security threat to America. These argue that a healthy and competitive U.S. economic base is a fundamental prerequisite to U.S. security and military preeminence. They argue that too strict exports controls, especially if these are unilaterally imposed, can be detrimental to the U.S. economy and American companies, which can lead to loss of market share, loss of competitiveness and erosion of U.S. jobs. As a result, too strict controls threaten to dislodge the U.S.’ technological supremacy in those industries which underpin America’s military dominance. As such, the export controls system needs to be overhauled. 

Those supporting the national security approach, believe that security concerns must be paramount in the U.S. export control system and as a result, they view export controls as an potent tool to safeguard U.S. military supremacy and against those who proliferate weapons of mass destruction which threaten the security of the U.S.  As result, their approach can be described as “a gram of prevention is worth a kilo of cure.”

Controversies have arisen with certain exports, e.g.

  • “hot-section”aerospace technology,
  • the effectiveness of multilateral export control regimes,
  • the U.S. licensing proces and organization hereof,
  • the issue of deemed exports,
  • the foreign availability of equivalent U.S. controlled items against unfriendly countries (i.e. the availability of substitute goods and technologies equivalent to U.S. export controlled items on the global market which makes unilateral U.S. export controls pointless), and
  • restricting access to U.S. goods solely based on nationality, which is not only administrative burdensome, but can also be discriminatory under non-U.S. employment laws. 

The balancing act is best illustrated in the Export Administration Act (EAA), the statue which regulates, amongst others, the export of U.S. dual-use goods. The EAA is implemented through the Export Administration Regulations (EAR). 

Although the reasons for control in the EAA can be contradictory, they are all compelling, whereby striking the right balance between national security and trade is probably a never ending balancing act. In this context, the EAA demonstrates how countries apply security related trade controls. In the case of the U.S., export controls were introduced in ernst after the Second World War, although were widely applied during the First World War. 

Under the EAA, the licensing policy cover three types of controls, namely national security, foreign policy, non-proliferation, and short supply controls. These are all interlocked and reflect different dimensions of U.S. national security policy. The controls are connected to not only controlled goods (based on the inherent technical characteristics of an item), but also their potential end-uses, end-users and end-destinations (see for instance Supplement No. 1 to Part 740—Country Groups). 

Controls subject to EAR
National security controls (see Section 5 EAA and Part 742.4 EAR) are imposed to restrict the “(re)export of items that would make a significant contribution to the military potential of any other country or combination of countries that would prove detrimental to the national security of the United States.” Although the items subject to these controls are based on common multilateral control lists, i.e. items subject to export control regimes, the targets of U.S. controls are based on U.S. policy. Items subject to these controls usually involve highly sophisticated technologies, with encryption as a subset (see Part 742.15 EAR).  These types of controls are classic policy choices which each country is entitled to apply for national defense reasons. 

Foreign Policy controls (See Section 6 EAA and e.g. Part 742.6-10) are imposed for a variety of reasons which are based on either unilateral or multilateral controls. These can be imposed:

  • to protect fundamental human rights,
  • for regional stability reasons (e.g. how exports of certain goods could affect the security stability of a particular region – for the EU see article 2 Common Position 2008/944/CFSP),
  • to implement U.S. international obligations, and
  • to implement U.S. unilateral controls regarding terrorist supporting countries (see Section 6 (j) EAA/ e.g. Iran and North Korea). These controls basically implement a comprehensive ban on the (re)export of items subject to the EAR (parallel to an arms embargo and economic sanctions). These types of controls can be classified as either retorisons, counter-measures or the implementation of UN Security Council resolutions.  Basically, they serve three purposes (1) to induce a change of behavior or policy what the U.S. finds objectionable by imposing economic costs on the target 2) punish a nation for such behavior by imposing costs; and (3) symbolically demonstrate displeasure with, or distance the United States from, a specific country or behavior by restricting United States exports.

Non-proliferation controls (see for example Part 742.2-3 and 5 EAR) which are justified for anti-proliferation reasons – to prevent the (re)export of items which can facilitate the development of nuclear, biological and chemical weapons and their delivery (e.g. missile technologies). Note that the control of nuclear technologies – both civil and military – are scattered across different U.S. Departments. These types of controls are largely based on anti-proliferation treaties and multilateral export controls regimes (e.g. Nuclear Suppliers Group, Australia Group and Missile Technology Control Regime). 

End-Use and End-User controls (see Part 744 EAR) are restrictions imposed due to the nature of a particular end-use or end-user which are parallel to controls imposed concerning the inherent characteristics of a controlled item. These controls basically restrict the (re)export of items which can enhance the development, manufacture, delivery of weapons of mass destruction, military end-users, specific end-destinations (e.g. Russia and D:2 or D:4 countries), terrorist organizations and other blacklisted parties by the U.S. Government. Further, specific restrictions are imposed on U.S. Persons (see Part 744.6) if these know that an export will occur for prohibited end-uses or are destined for a proscribed end-user.

However, the fundamental drawback of the ECRI, which also applied to earlier attempts to reform U.S. export controls in the 1970’s and 1980’s, is the fact that reforms only address what has been described as the “mechanics of U.S. export controls,” e.g. organizational issues, reviews of the controlled items or the licensing process. 

Although these issues need to be addressed, it’s questionable whether the ECRI can achieve the aim to strike the right balance, and decrease the export control burden to U.S. industry. In my opinion, only focusing on the mechanics of export controls is not enough, given that there are other factors which impact U.S. export controls.

Reforming the Mechanics of Export Controls U.S. Government Accountability Office 2017 Report Further Findings
 What GAO Found  

In January 2007, the U.S. Government Accountability Office (GAO) cited that governmental programs designed to protect critical U.S. technologies, including the U.S. export control system, as a “high-risk,” area. In this context, the GAO advised that a “strategic reexamination of existing programs to identify needed changes.”

The GAO’s report named poor coordination among governmental agencies responsible for export controls, jurisdictional disagreements between the Departments of State and Commerce, which led to unnecessary delays and inefficiencies in the license application process, and a lack of systematic evaluative mechanisms to determine the effectiveness of export controls.

Since then, a 2017 GAO report cites progress concerning the objective to improve the U.S. export control system (see pages 377-388).

Since this area was added to the High-Risk List in 2007, our body of work in this area has identified progress in the programs designed to protect
technologies critical to U.S. national security interests, but government wide challenges remain, including the need to adopt a more consistent
leadership approach, improve coordination among programs, address weaknesses in individual programs, and implement export control reform.”

Hence, we continue to consider each of our high-risk criteria in this area to be partially met:

  • Leadership commitment to addressing challenges has been evident in some areas of the critical technologies portfolio, particularly with respect to the Export Control Reform initiative. However, as we reported in our 2015 update, greater collaboration among the critical technologies programs not directly related to export controls— including the FMS program, the anti-tamper program, and the National Industrial Security Program—could ensure that lead and stakeholder agencies take a more consistent approach to meeting program goals.
  • The capacity for addressing challenges and implementing reforms has improved for some programs. However, many efforts remain limited to individual programs or activities within the overall program portfolio, and there are areas where broader coordination could be beneficial,
    such as determining an appropriate technical reference to inform key decisions relating to critical technologies.
  • Action plans to guide improvements are in place for some programs; however, additional steps have yet to be taken to develop and implement action plans that will address ongoing challenges, such as administering the anti-tamper program.
  • Monitoring of efforts to meet key challenges also has improved at some programs. DOD and State have implemented some, but not all, of our past recommendations on developing performance measures and monitoring program outcomes 

Firstly, the post Cold War strategic environment has, at least for the U.S., not been the impetus to liberalize the export controls burden.

Despite the tremendous change in the strategic landscape after the fall of the Soviet Union, the export control burden has not dissipated. The paradox is that extensive military controls aiming to isolate the conventional military power of the Soviet Union are no longer required. Even during the last phase of the Cold War, with the emergence of non-U.S. alternatives to U.S. technologies, the extensive U.S. export controls were already too restrictive and self-defeating. To be fair, the ECRI has addressed this issued with the transfer of many low risk items from the munitions list to the dual-use list.

However, despite the thawing of the Cold War, the U.S. has tended to tighten export controls. Although the U.S. does not face the same level and magnitude of organized military threats by the Soviet Union, it still faces a variety of security threats by terrorism and the proliferation of weapons of mass destruction by rogue states. This was clearly demonstrated by the tragedy of 9/11, the continuing embargo against Cuba, and the nuclear ambitions of North Korea. As a result, the U.S. has increasingly imposed tighter unilateral foreign policy, end-user controls or embargoes to a growing list of countries, as a matter of (foreign) policy, rather than motivated by national security interests.

One aspect of this trend which does impact the mechanics of export controls, but not fully addressed in the ECRI, is the discretionary power of the U.S. President to impose unilateral security related trade controls. Although these are more geared towards foreign policy controls, since 1985, the EAA for instance places some restrictions on the President to impose unilateral foreign controls.

For instance, the President has to consult with the U.S. Congress, allies and U.S. industry before imposing unilateral foreign policy controls. For instance, the earlier cited controversy regarding the issue of foreign availability is addressed in the EAA (Sections 4, 5 and 6). In particular, Section 6 (h) EAA requires the elimination of export controls if there is sufficient credible evidence to suggest the ineffectiveness of U.S. export controls. Thus, during the revisions of the EAA, as far back as 1985, the complaints of U.S. industry were already recognized.

However, seen from an ECRI perspective, i.e. the concessions to industry to lighten the burden of export controls, these sections could be best described as a poisoned chalice.

Secondly, the EAA itself exempts certain items from a so-called foreign availability analysis. U.S. export controls imposed to fulfill international obligations, anti-terrorism and/or the protection of human rights are exempted.

In the post 9/11 world, including an upsurge of UN Nations Security Council embargoes, there is little chance that U.S. Administrations and close allies for that matter, e.g. the EU, will remove such controls. Whether the such controls should be seen as a burden, especially the respect for human rights, is another debate, which I won’t go into now, but should be seen as the price of doing business in the global market.

Although I’d argue that companies, especially multinational companies have a social responsibility, the problem here is that the opaque wording of the controls can be interpreted extremely broadly by governments. In this context, I’d question whether companies are sufficiently proficient to understand and apply the complexities of ensuing obligations under human rights treaties. 

Thirdly, from a procedural point of view, the U.S. President can easily side-step these restrictions by changing the ‘controls reason’ to national security or, during an emergency, to national defense.

Why would the U.S. President run the gauntlet of difficult discussions and negotiations, while he/she could just re-characterize the reason for controls. In this context, the U.S. President is asked to enter into either bi- or multilateral negotiations with countries to address the issue of foreign availability. The imposition of unilateral U.S. export controls can thus arise if these negotiations simply fail. The risk of such controls increases in an era in which we have a U.S. Administration that aspires to place America’s interests first.

Abe Kim Tightrope_https://www.japantimes.co.jp/opinion/2014/07/12/cartoons/abe-kim-tightrope/#.WecrjtOCyM8

Note that these debates are not only confined to the issue of export controls, but issues of foreign policy between countries.

Given that export controls are one of the tools to implement foreign policy, they are subject to changes, which invariably include disagreements. Even during the Cold War, despite the common resolve not to export strategic goods to the Soviet block, the U.S. and close allies disagreed on the scope and depth of export controls, e.g. the Siberian Pipeline Dispute and the 1987 Toshiba-Kongsberg incident.

These disagreements have also spilled into the realm of embargoes and sanctions, e.g. the case of Iran in which U.S. allies weren’t always willing to enforce sanctions or divest themselves from the lucrative Iranian oil sector. In the post-Nuclear Deal era, we see again a possible schism between the U.S. and it’s allies on how to proceed with Iran.  

Key ECRI Implementation Issue: A Single Licensing Agency
For more background information – see CRS Report R41916 and a Report by Institute for Science and International Security

A Single Licensing Agency

The creation of the single agency is still wanting. Critics of the current U.S. export controls structures argue that the effectiveness of U.S. export controls are snapped by the myriad of departments involved in the licensing and enforcement of U.S. export controls. According to these, this in turn results in a too heavy burden for U.S. industry and loss in trade caused by unnecessary delays in the licensing process. A single licensing agency aims to minimize these problems. 

As cited earlier, former Defense Secretary Gates description of the bureaucratic structure of the U.S. export control system as a “byzantine amalgam of authorities, roles, and missions scattered around different parts of the federal government.” This is partly illustrated in the link to the Basic overview U.S. Export Controls.

The licensing of U.S. export controls is spread across different U.S. Governmental departments, namely:

  • the Department of Commerce for dual-use and certain military items (responsible agency BIS), 
  • the Department of State for munitions (responsible agency DDTC),
  • the Department of the Treasury for certain sanctions (responsible agency OFAC), and 
  • the Nuclear Regulatory Commission (NRC) and Department of Energy (DOE) for certain nuclear materials and technologies.

On June 30, 2010, then-National Security Adviser General Jim Jones announced the aim to create an independent licensing agency with Cabinet members from existing control agencies serving as a board of directors. However, the Obama Administration did not provide specific details how this new agency is expected to take over the licensing (and possible enforcement functions) of BIS, DDTC, and OFAC. In this context, it is likely that the NRC will continue to be a stand-alone agency – given the low volume of licenses and unique field of operations.  

The above listed agencies all operate under different statutory authorities and enforce different laws and regulations. Although there are procedures in place to address inter-agency licensing issues, e.g. referrals or licensing disagreements, critics have long maintained that the multi-agency structure contributes to negative institutionalism and under-cutting. For instance, not all licenses are referred onto other agencies, whereby it can occur that licenses requested by the same exporter to the same destination have been approved by one license agency and denied by another. One licensing system would thus minimize disputes regarding which agency should have jurisdiction over a given item. In this context, the required IT systems to operationalize the required secured communications are still being developed. 

Whether a single agency will resolve all the licensing issues, remains to be seen.

Let’s be clear, a single licensing agency could minimize the licensing burden for U.S. industry. If executed correctly, miscommunications could certainly be averted. But at the outset, there are several factors which are beyond the powers of a single licensing agency to minimize the burden of U.S. industry. 

Firstly, the ECRI only focuses on the mechanics of U.S. export controls, i.e. mechanical changes how export controls are actually implemented. Examples of such changes are tightening of license application deadlines, eliminating controls on low-technology exports to low risk countries – e.g. think of License Exception Strategic Trade Authorization (STA) (Part 740.20 EAR), and transferring items from U.S. Munitions List to Dual-Use control list (CCL). If streamlined and funneled into an effective coherent agency, this could address the issues cited by critics of U.S. export controls.

In practice, having experienced the creation of new governmental agencies, I would argue that its impossible to totally remove inter-agency differences. I would also go one step further, and argue that these differences should remain given the span of focus of the BIS, DDTC and OFAC.  

  • For instance, the regulation of exports should and must take the characteristics of the relevant industries into account. Thus, crucial expertise should not be lost just to satisfy the need for standardization.
  • Further, the inherent operations of economic sanctions versus export controls, i.e. how BIS, DDTC and OFAC implement controls, cannot be polished away as it were in a single agency.
    • Economic sanctions regulated by OFAC operate on a fundamentally different premise than export controls. They in-effect aim to punish the targets of U.S. sanctions, prohibit or deny access to U.S. goods, economic support or finance to induce a change in behavior. These restrictions are highly reactive: (a) subject to emerging and evolving foreign policy priorities triggered by international incidents; (b) temporary in nature, implemented or withdrawn very quickly. In contrast, export controls aim to facilitate trade of strategic goods (e.g. dual-use or military items) if certain conditions are met. Export controls of these goods, if they retain their strategic characteristics, are a permanent feature of these goods, which can change over-time due to the technological evolution in armaments. For instance, when navy vessels were made of wood and had sails, both timber and ropes were considered dual-use items.  
    • Further, there are also differences between the DDTC and BIS, whereby the latter, given that dual-use items impact U.S. industry more, are more open to accommodate the interests of industry.
    • Finally,I question if a single licensing agency will be able to lighten the burden to U.S. industry given the trend of all existing agencies to shift compliance responsibilities onto the private sector. This is clearly demonstrated in the emphasis of the U.S. government for U.S. companies to adopt robust compliance programs, whereby agencies are able to divert more resources towards enforcement. A good example of this is the Enhanced Proliferation Control Initiative (ECPI) – whereby the BIS mandates that companies ensure end-use and end-user compliance (e.g. Part 744/ 1-6 EAR). As a result, companies are now required to conduct due diligence on the end-users of their products, which in many cases might normally not require a license. Further, the shift of export control responsibilities from the public sector to industry can also be a vicious circle. For instance, more enforcement can result in reactionary regulators, e.g. heavier penalties more oversight, whereby companies become more cautious and instead of using common sense needlessly submit licenses or reject commercial opportunities in fear of invoking the wrath of the U.S. Government. 

However, in my opinion, this is not enough, as factors impacting licensing policies are not fully addressed by the ECRI.

The ECRI has until now not fully addressed the U.S. President’ unparalleled discretionary authority to impose (unilateral) national security and foreign policy controls, which has considerable impact on U.S. companies to trade in export controlled items. 

The Export Administration Act 1979 (as amended) – EAA, the statutory law governing U.S. Dual-Use export controls, as amended in 1985, intended to restrict the President’s discretionary authorities, although this was a nuanced approach.

Restrictions were directed more towards foreign policy controls, than national security controls – which the Executive has more latitude to impose export controls. In this context, the U.S. President holds the trump card as he/she can invoke the argument that continued trade with a target of export controls, e.g. an unfriendly country could jeopardize U.S. national defense.

Given that the authority to impose unilateral controls are frequently based on political considerations at the discretion of the U.S. President, it’s manifest that this does not address the earlier cited concerns of U.S. export control critics.

For example, Section 6 EAAaims to restrict the U.S. President’s authorities to impose foreign policy export controls by asking the President to consult with U.S. industry prior to imposing such controls.  The major problem for U.S. industry and those advocating to reform the U.S. export control system is that these consultations procedures are in fact a poisoned chalice. They invite the Executive to circumvent consultation procedures. Why would the President allow his/her administration be bogged down by nettlesome consultations with business leaders, U.S. Congress or allies for that matter, while the justification for the controls could be re-characterized as falling under national security controls. 

Another example, is the issue of foreign availability (e.g. Section 4 (c) EAA). This is a term applied in export control jargon, describing situations which render unilateral U.S. export controls against an unfriendly nation superfluous when the item or a technologically equivalent substitute is freely available on the world market. Since the 1980’s, U.S. industry has repeatedly criticized the U.S. export control system that foreign availability is a constant burden which has become more pronounced given that the U.S. is no longer the uncontested leader of an array of controlled goods and technologies.  

More painful is the issue of contract sanctity, in which the U.S. President can impose export controls retroactively – done during the Siberian Pipeline incident. During this incident, former U.S. President Reagan incurred the wrath of U.S. partners when it retroactively imposed export controls on U.S. origin items being supplied to the construction of a Soviet pipeline. Although retroactive controls are rarely imposed, the risk that such controls can be imposed always looms over U.S. companies and their partners. This only increases the unpredictability of the application of U.S. export controls, which undercuts the aims of the ECRI. In the face of this, non-U.S. partners can equate unpredictability with unreliability, which again only hurts U.S. industry.  

Another impediment is the fact that the EAA has expired. This bizar situation, caused by the fact that U.S. Congress was unable to enact the EAA since 1989, has resulted that the U.S. imposes dual-use controls (albeit for national security, foreign policy or short-supplies reasons) on the basis of the International Emergency Economic Powers Act, as amended, (IEEPA).

In 1990, President George H.W. Bush extended existing export regulations by executive order, invoking emergency authority contained in the IEEPA. Since then, the EAA has repeatedly been continued under the authority of the IEEPA. Most bizar, and highly embarrassing, as required by the IEEPA, the U.S. President had first to declare a national emergency “with respect to the unusual and extraordinary threat to the national security, foreign policy and economy of the United States” posed by the expiration of the EAA. This situation not only poses, what I would call mechanical problems, e.g. altering penalty levels, but most importantly the message which the U.S. sends to the world. How can the U.S. ask other countries to strengthen their dual-use export controls when it can’t even adopt a statute to govern it’s own export controls. 

Here again, through the use of the IEEPA, the propensity to justify export controls for national security reasons is increased, whereby I cannot see how a single licensing authority can resolve the burden on U.S. industry.

Gerelateerde afbeeldingFourthly, since the post Cold War, the export controls burden for the private sector, not only for U.S. companies, has increased due to a marked shift in export compliance responsibilities.

Regulators have demanded that exporters increase their compliance obligations on end-use and end-user controls. This has resulted in companies having to invest more resources in compliance programs. Coupled with increased penalties, the attraction to settle out of court with regulators (not only a phenomenon limited to the U.S.) and ever increasing extra-territorial reach of U.S. export controls and sanctions, companies have become more conservative and erred on the side of caution, which has led to an increase in the compliance burdens instead of the desired lightening hereof. 

This shift in export controls responsibilities is probably the main obstacle to lighten the burden for U.S. industry. Liberalizing the export controls, i.e. rationalizing the controls lists or shifting controls from the military to dual-use controls, can also be considered a poisoned chalice for business, if the compliance burden for companies is increased.  

Firstly, compliance regarding U.S. dual-use items, although more flexible than the military controls, has not made life easier.

Even with the introduction of the Strategic Trade Authorization (STA) license exception (see EAR Par. 740.20), which aims to facilitate transfers to low-risk countries and to promote interoperability to U.S. allies in the field, restrictions are still cumbersome. See for instance U.S. Federal Register “Export Control Reform Initiative: Strategic Trade Authorization License Exception,” 76 Federal Register 35276, June 16, 2011

STA eligibility requires considerable due diligence and is relatively expensive to apply. For example, U.S. exporters must provide notification to the U.S. Government of the transaction and a destination control statement notifying the foreign consignee of the exception’s safeguard requirements; exporters must also obtain from the foreign consignee a statement acknowledging the consignee’s understanding and willingness to comply with the requirements of the license exception. Furthermore, for those U.S. munitions items controlled by the EAR, STA-eligible recipients are not allowed to re-export such items without a license. Such recipients are also prohibited from re-exporting “STA-eligible items to any destination outside the STA-eligible countries.” 

Secondly, the ECRI has not, despite positive developments in this field, eliminated the earlier cited problem of possible discrimination based on nationality, e.g. the status of dual-nationals or controls following the deemed export rule. Although this issue has been overhauled, it still remains a thorny subject.

Maurits Cornelis Escher, Relativity, 1953_http://www.mcescher.com/

In 2010, the Obama Administration, in an effort to create centralized, i.e. an unified, U.S. export control system,  announced that it would take action to eliminate “obstacles to exporting to companies employing dual nationals.”

In particular, the plan was, i.e. is, to harmonize the conflicting standards used by the Departments of Commerce and State to determine a foreign person’s nationality, in order to make certain export control decisions.

In the globalized market, attracting the best skilled workers for critical jobs usually ignores the nationality of the worker in question. Thus, imposing any types of restrictions on the movement of skilled people is detrimental for the private sector, which invariably will lead to companies pressurizing their governments to lift any impediments.

In 2011, when the State Department (the most restrictive of U.S. export control regulators) revised its rule, it admitted that the country-of-birth based controls were discriminatory, administratively burdensome with little gains to U.S. nationality security.

The fundamental issue regarding ECRI is that we shall always have walls surrounding security related trade controls. Export controls have always been and shall remain a permanent feature concerning certain goods. Given the demands on the national and foreign security policies of countries, governments will remain imposing such controls. An interesting question is whether the U.S. Trump Administration will be able and willing to finalize the ECRI, e.g. create a central licensing agency. A more interesting question will be to see whether the America First Policy will potentially undo the ECRI by not isolating the U.S. from key allies, but also through the imposition of U.S. unilateral controls. 

The ECRI is an attempt to reform these types of controls, although they focus primarily on the mechanics of export controls. Releasing the controls of less sensitive items is a welcome, although this should not divert our attention to the fact that controls remain and in some instances have increased. From a compliance perspective, given the fact that the U.S. Government, a trend to be found in other countries, has shifted its focus on enforcement, arguably at the expense of companies, e.g. by imposing stricter due diligence responsibilities – end-user obligations, the export control burden for (U.S.) companies  shall remain, and in some cases, increase. Thus, not matter how many controls are loosened, the burden remains.

In my opinion, the compliance burden has increased as the earlier cited trend is not only limited to the field of export controls, e.g. health environment and security, labor conditions, finance, privacy, etc. In many cases, companies must have a holistic approach to compliance or they risk to be inundated  in rules, which at times can also be contradictory. 

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