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President Obama Announces First Steps Toward Implementation of New U.S. Export Control System

WASHINGTON, D.C. — Dec 9, 2010, President Obama held a meeting of the President’s Export Council at the White House where he discussed progress made on our goal to double exports over the next five years and support millions of new American jobs.

At the meeting, the President announced that the Administration released a series of regulations and requests for comment as part of the implementation of the new U.S. export control system announced by the President in August.  The Administration is also deploying today its Export Control Reform Initiative webpage at www.export.gov  It includes a new tool to facilitate compliance with U.S. export control requirements by bringing together, for the first time, the various screening lists maintained by multiple Departments.

Today’s announcement includes:
The publication of a draft rule setting out the criteria and procedures to be used in determining whether a product is subject to export controls.

The application of these criteria to one category of items (Category VII:  Tanks and Military Vehicles), to be seen as an example of how the new policies would apply.

The publication of a draft rule specifying what licensing policies will apply to products subject to export controls.
In publishing these documents, the Administration is seeking public comment before the rules are finalized and the control lists are completed.

The export control reform initiative was announced in August 2009, when the President directed a broad-based interagency review of our current export control system to ensure that the system, designed for a bipolar world of the Cold War era, is updated to address the threats we face today and the changing economic and technological landscape.  At the end of the review, in August 2010, the President announced, “we need fundamental reform in all four areas of our current system – in what we control, how we control it, how we enforce those controls, and how we manage our controls.”

The President announced today’s releases in his meeting with the President’s Export Council (PEC).  At its September 2010 meeting, the PEC made several recommendations to the President, including formalizing the involvement of industry in the reform effort and devoting more resources to help small businesses comply with the export control laws.  Today’s releases are responsive to their recommendations.

Background on Export Control Reform Announcements

The Control Lists

Rebuilding the two U.S. export control lists – which currently have completely different structures, take different approaches to defining controlled products, and are administered by two different departments – is the cornerstone of the reform effort because all other aspects of our system are contingent upon what we control.

As announced in August, agencies have developed new criteria for determining what items need to be controlled and are developing a complementary set of policies for determining when an export license is required.  The control list criteria are based on transparent rules, which will reduce the uncertainty faced by our allies, U.S. industry and its foreign partners, and will allow the government to erect higher walls around the most sensitive items in order to enhance national security.

Eighteen interagency technical teams, under the leadership of the Department of Defense, are applying the criteria and revising the lists of munitions and, to the extent necessary, dual-use items that are controlled for export so that they:

are “tiered” to distinguish the types of items that should be subject to stricter or more permissive levels of control for different destinations, end-uses, and end-users;

create a “bright line” between the two current control lists to clarify which list an item is controlled on, and reduce government and industry uncertainty about whether particular items are subject to the control of the State Department or the Commerce Department; and

are structurally aligned so that they potentially can be combined into a single list of controlled items.

The Administration has determined that the U.S. Munitions List and, to the extent necessary, the Commerce Control List need to be fully structured as “positive lists” to accomplish these tasks.   A “positive list” describes controlled items using objective criteria (e.g., technical parameters such as horsepower or microns) rather than broad, open-ended, subjective, generic, or design intent-based criteria.  Doing this will end most jurisdictional disputes and ambiguities that hinder our current system.

Applying the criteria, items on the control lists will be identified as being within the scope of one of three tiers:
Items in the highest tier are those that provide a critical military or intelligence advantage to the United States and are available almost exclusively from the United States, or are weapons of mass destruction or related items.
Items in the middle tier are those that provide a substantial military or intelligence advantage to the United States and are available almost exclusively from our multilateral partners and allies.

Items in the lowest tier are those that provide a significant military or intelligence advantage to the United States but are available more broadly.

This flexible construct will improve the nation’s national security and permit the government to adjust controls in a timely manner over a product’s life cycle in order to keep lists targeted and current based on the maturity and sensitivity of an item.

Licensing Policies
Once a controlled item is placed into a tier, a corresponding licensing policy will be assigned to it to focus agency reviews on the most sensitive items.  The Administration has developed an initial set of proposed licensing policies for dual-use items:

A license will generally be required for items in the highest tier to all destinations.  Many of the items in the second tier will be authorized for export to multilateral partners and allies under license exemptions or general authorizations.  For less sensitive items, a license will be required for some, but not all, destinations.
For items authorized to be exported without licenses, there will be new limitations imposed on the reexport of those items to prevent their diversion to unauthorized destinations.

At the same time, the U.S. Government will continue our sanctions programs directed toward specific countries, such as Iran and Cuba, and prohibited end-uses or end-users.

The Regulations
Today, the Departments of State and Commerce each published a proposed regulation and a request for public comments within 60 days.

First, the Department of State published a proposed regulation to rewrite Category VII (Tanks and Military Vehicles) of the U.S. Munitions List (USML).  The proposed Category is a “positive list” of those defense articles that an interagency technical working group has determined provide at least a significant military or intelligence advantage to the United States.  The Department of State is soliciting public comment to ensure that the new Category clearly and concisely identifies the items that are controlled in this Category.

The items subject to control in the revised Category account for only about 26 percent of what the Department of State licensed for Category VII last year.  We expect approximately 74 percent of the items formerly controlled under this Category on the USML will, once Congressional notification obligations are satisfied, be transferred to the jurisdiction of the Export Administration Regulations.  The new Category more precisely focuses on those key items and technologies that should be controlled because they provide, at least, a significant military or intelligence advantage.  Once public comments have been received and the Administration completes its final version of a revised Category VII, the Department of State will begin the notification process in cooperation with the Congress to transfer items to the jurisdiction of the Export Administration Regulations.  At that point, the agencies will begin a process to determine which of those items should remain on the EAR’s Commerce Control List (CCL) and which do not need to be listed on the CCL.  At the end of this process, we anticipate that a significant percentage of the items that are transferred off of the USML would be permitted to be exported without a license.

Second, the Department of State published a companion notice that provides details on the U.S. Government’s methodology for generating the revised, positive Category VII as a model for other categories.  The notice also solicits public input for virtually all the remaining categories on the USML (excluding the categories for classified defense articles and for miscellaneous articles), requesting input on:

1. Describing currently controlled defense articles in a “positive manner;”
2. Recommending each defense article’s proposed tier of control; and
3. Identifying any current defense article that does not meet any of the tiered control criteria, with an explanation of the analysis that resulted in that conclusion.

These inputs will be reviewed by the interagency technical working groups as the U.S. Government continues its work in revising the control lists.  The Administration has an aggressive schedule to complete its rewrite of the entire USML in 2011.

Third, the Department of Commerce published a similar notice requesting public input on entries on the Commerce Control List as well as requesting foreign availability information on a wide range of controlled items outside a proposed set of countries who are allies and multilateral regime partners.

Fourth, the Department of Commerce published a proposed regulation that offers an initial set of new licensing policies.  The proposed regulation would create a new license exception that would allow exports of controlled items (consistent with statutory and treaty requirements) to countries that are members of all four multilateral export control regimes or other regime members that also are members of NATO.  It would also allow exports of items controlled on the Wassenaar Arrangement’s Basic List to countries that are members of or adherents to all four multilateral export control regimes, members of NATO, or for civil end-uses in destinations that have not historically represented a significant diversion or proliferation risk for U.S.-origin items.  The proposed exception would impose new requirements to provide safeguards against possible unauthorized re-exports, including notification, destination control statement and consignee statement requirements.

Export Control Reform Initiative On-Line
Today the Administration also debuted its Export Control Reform Initiative webpage, a new component of export.gov.  It features the Government’s first-ever consolidated electronic screening list, which will enhance exporter compliance.  Until today, exporters had to check different lists published in different formats maintained by different departments, or read the Federal Register every day for names that are not published on any list, to ensure they were not exporting to someone who is sanctioned or otherwise requires special scrutiny before receiving U.S. origin goods.

For the first time, exporters can download a single electronic list of the literally thousands of names maintained across the U.S. Government for whom there is an export control restriction or special requirement.  This will provide significant time-saving and compliance benefits, particularly to small businesses.

All these steps – more clearly identifying what is controlled, how it is controlled, and how to screen to ensure that items do not end up where they shouldn’t – are tangible results in implementing the Administration’s common sense approach to export controls.  This clarity ensures that our export control system works as it was intended, as a key tool in protecting our national security.

As we continue to release proposed revisions to our export control system, the Administration will keeping working with Congress and the export control community.



Executive Order — Export Coordination Enforcement Center
By The White House on 11/09/2010

    By the authority vested in me as President by the Constitution and the laws of the United States of America, and in order to advance United States foreign policy and protect the national and economic security of the United States through strengthened and coordinated enforcement of United States export control laws and enhanced intelligence exchange in support of such enforcement efforts, it is hereby ordered as follows:

    Section 1.  Policy.  Export controls are critical to achieving our national security and foreign policy goals.  To enhance our enforcement efforts and minimize enforcement conflicts, executive departments and agencies must coordinate their efforts to detect, prevent, disrupt, investigate, and prosecute violations of U.S. export control laws, and must share intelligence and law enforcement information related to these efforts to the maximum extent possible, consistent with national security and applicable law.

    Sec. 2.  Establishment.  (a)  The Secretary of Homeland Security shall establish, within the Department of Homeland Security for administrative purposes, an interagency Federal Export Enforcement Coordination Center (Center).

    (b)  The Center shall coordinate on matters relating to export enforcement among the following:

        (i)     the Department of State;

        (ii)    the Department of the Treasury;

        (iii)   the Department of Defense;

        (iv)    the Department of Justice;

        (v)     the Department of Commerce;

        (vi)    the Department of Energy;

        (vii)   the Department of Homeland Security;

        (viii)  the Office of the Director of National Intelligence; and

        (ix)    other executive branch departments, agencies, or offices as the President, from time to time, may designate.

    (c)  The Center shall have a Director, who shall be a full time senior officer or employee of the Department of Homeland Security, designated by the Secretary of Homeland Security.  The Center shall have two Deputy Directors, who shall be full time senior officers or employees of the Department of Commerce and the Department of Justice, designated by the Secretary of Commerce and the Attorney General, respectively, detailed to the Center and reporting to the Director.  The Center shall also have an Intelligence Community Liaison, who shall be a full time senior officer or employee of the Federal Government, designated by the Director of National Intelligence, and detailed or assigned to the Center.

    (d)  The Center shall have a full time staff reporting to the Director.  To the extent permitted by law, executive departments and agencies enumerated in subsection (b) of this section are encouraged to detail or assign their employees to the Center without reimbursement.

    Sec. 3.  Functions.  The Center shall:

    (a)  serve as the primary forum within the Federal Government for executive departments and agencies to coordinate and enhance their export control enforcement efforts and identify and resolve conflicts that have not been otherwise resolved in criminal and administrative investigations and actions involving violations of U.S. export control laws;

    (b)  serve as a conduit between Federal law enforcement agencies and the U.S. Intelligence Community for the exchange of information related to potential U.S. export control violations;

    (c)  serve as a primary point of contact between enforcement authorities and agencies engaged in export licensing;

    (d)  coordinate law enforcement public outreach activities related to U.S. export controls; and

    (e)  establish Government wide statistical tracking capabilities for U.S. criminal and administrative export control enforcement activities, to be conducted by the Department of Homeland Security with information provided by and shared with all relevant departments and agencies participating in the Center.

    Sec. 4.  Administration.  (a)  The Department of Homeland Security shall operate and provide funding and administrative support for the Center to the extent permitted by law and subject to the availability of appropriations.

    (b)  The Director of the Center shall convene and preside at the Center’s meetings, determine its agenda, direct the work of the Center, and, as appropriate to particular subject matters, organize and coordinate subgroups of the Center’s members.

    Sec. 5.  General Provisions.  (a)  This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

    (b)  Nothing in this order shall be construed to impair or otherwise affect:

(i)   authority granted by law, regulation, Executive Order, or Presidential Directive to an executive department, agency, or head thereof; or

(ii)  functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

    (c)  Nothing in this order shall be construed to provide exclusive or primary investigative authority to any agency.  Agencies shall continue to investigate criminal and administrative export violations consistent with their existing authorities, jointly or separately, with coordination through the Center to enhance enforcement efforts and minimize potential for conflict.

    (d)  This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.


November 9, 2010.



Commerce Secretary Gary Locke 
Remarks at 23rd Annual  Bureau of Industry and Security Update Conference
31 August 2010

Hello everybody.  Thank you, Eric for that generous introduction.  And thank you for all the critical work the Bureau of Industry and Security is doing.  BIS has a difficult job, and we are fortunate to have you as Under Secretary.
It’s wonderful to see such a large turnout today to discuss a pivotal issue.

Export control reform is a key priority of the Obama administration.  And to talk a bit about why, and how we’re moving forward on this issue, we’ve got a video to show you. (Video of President’s Remarks, Transcript follows)

Video Remarks by The President to the Department of Commerce Annual Export Controls Update Conference

Below are remarks by the President that will be delivered via videotape tomorrow, August 31, at the Department of Commerce’s Annual Export Controls Update Conference in Washington, D.C.

Hello everyone.  I’m sorry I’m not able to be with you in person today, but I’m pleased to have the chance to join you by video to talk about our export control reform initiative.

About a year ago, we launched a comprehensive review of our export controls and determined that we need fundamental reform in all four areas of our current system – in what we control, how we control it, how we enforce those controls, and how we manage our controls.  I want to thank Secretary Locke, Secretary Gates, Secretary Clinton and many others for their work on this initiative.  And today I want to highlight the key elements of our new approach and the first steps toward its implementation.

For too long, we’ve had two very different control lists, with agencies fighting over who has jurisdiction.  Decisions were delayed, sometimes for years, and industries lost their edge or moved abroad.  Going forward, we will have a single, tiered, positive list – one which will allow us to build higher walls around the export of our most sensitive items while allowing the export of less critical ones under less restrictive conditions.
In the past, there was a lot of confusion about when a license was required.  It depended on which agency you asked.  Now, we will have a single set of licensing policies that will apply to each tier of control, bringing clarity and consistency across our system.

In addition, I plan to sign an Executive Order that creates an Export Enforcement Coordination Center to coordinate and strengthen our enforcement efforts – and eliminate gaps and duplication – across all relevant departments and agencies.

Finally, right now, export control licenses are managed by multiple, different IT systems or, in some cases, even on paper.  Going forward, all agencies will transition to a single IT system, making it easier for exporters to seek licenses and ensuring that the government has the full information needed to make informed decisions.
While there is still more work to be done, taken together, these reforms will focus our resources on the threats that matter most, and help us work more effectively with our allies in the field.  They’ll bring transparency and coherence to a field of regulation which has long been lacking both.  And by enhancing the competitiveness of our manufacturing and technology sectors, they’ll help us not just increase exports and create jobs, but strengthen our national security as well.

All of this represents significant progress.  And as we implement these reforms and take further steps – including working to create a single licensing agency – I look forward to working with both Congress and the export control community to ensure their success. 

Thank you. 



As you heard from the president, how the U.S. moves forward on export control reform is going to significantly impact our national security as well as our economy.

We must have an export control system that can ensure both national security and economic prosperity.  Yet, while we currently have one of the world’s most stringent export control systems – it’s not necessarily the world’s most effective and efficient.

Our current export control system has its roots in the Cold War-era, when it was in every Western country’s security and economic interest to keep dual-use and military technologies away from a well defined bloc of adversarial nations. But we no longer live in that bi-polar world.

Today, we simultaneously face a growing array of threats, from chemical and nuclear weapons proliferators, to rogue regimes, to state sponsors of terrorism.  Meanwhile, our goods and technologies are incredibly sophisticated, and there are more consumers for them around the world than ever before.  Our export control regime has not kept pace with these changes.

For instance, our current system operates under two different control lists with distinctly different approaches to identifying and controlling products.

The Department of State administers the Munitions List, which includes items specifically designed for military applications and uses fairly broad and general terms.

And the Commerce Department administers the Commerce Control List, which is a far more specific list of mostly “dual use items” — that is commercial items that could have military applications — items like truck parts, electronic components and even computers.

And there are three different licensing agencies – each with different procedures and different information technology systems—and three different sets of regulatory definitions. It would be hard for anyone to argue that this existing system is maximizing our national security.

And for American exporters, time they could be spending figuring out how to sell their products is instead spent navigating a confusing and time-consuming export control bureaucracy.

What’s more, America is frequently putting our companies at a competitive disadvantage when we forbid them from selling an item to an overseas market even when that item is readily available world-wide.  Our global trading partners have unfortunately taken notice.

Let me read you a quote that I mentioned at last year’s update conference that is troubling enough to bear repeating. It’s from Charles Edelstenne, the president of the Aerospace and Defense Industries Association of Europe.  He said: “The only way to resolve technology access and U.S. government export restrictions is by not including any U.S.-sourced technology in our products.”

Now, this is a self-evidently bad thing for the US aerospace sector.  But it’s just as damaging to U.S. security.
And as the “Beyond Fortress America” report issued by the National Research Council and co-authored by Brent Scowcroft and John Hennessy, indicated: “Many current controls aimed at protecting U.S. national security, in fact weaken U.S. innovation and competitiveness in global markets.” These are essential elements of our national security.

With increased sales, come greater opportunities and incentives for our companies to constantly innovate and refine the technologies that ultimately enhance and benefit U.S. national security. These excessive controls are harmful because they dissipate our energies and effectiveness on those items so critical to national security.

As the “Beyond Fortress America” report said, “today’s system in fact, is arguably becoming more and more dangerous, because the inclination to equate controls with safety gives a false sense of security.

With the military becoming increasingly dependent on commercial-off-the-shelf dual-use technology, it is important to  ensure that our licensing criteria are based on objective technical parameters that take into account the strategic nature of an item and whether or not the item is available from non-U.S. suppliers.

Consider the case of the two blocks on the screen before you.
These are nearly identical control arm pivot blocks for heavy vehicles. They help connect the axle to the vehicle frame.  The only differences between them are that the holes are of minutely different sizes and that one is steel and the other aluminum. They have no functional difference. But, one of these items, the one made out of steel, can be exported almost anywhere without a license.  It is for an ordinary fire truck.  The other, because it is “specifically modified”, that is, it has minutely larger holes and is made out of aluminum, is designed for use in a military vehicle, and can get you 20 years in prison if you sell it abroad without a license.

There simply has to be a better way.  And the Obama administration is working towards it. Overhauling our export control framework will not happen overnight.  Fundamental reform will require new statutory authority and new action by Congress.

But there is still a lot we can do now administratively.
When I spoke here last year, in this very room, some were overheard expressing skepticism that we are serious about reforming America’s export control system.   We are proving them wrong. Thanks to the leadership of President Obama, and the hard work of his national security team: General Jim Jones, Secretary Clinton and Secretary Gates among others, we’re making significant progress.

We are taking important steps towards streamlining and simplifying our export control system to make it more transparent, and to enable exporters to quickly know exactly what can and cannot be exported, and where products can and cannot go.

The first step to make this happen is to ensure that the Commerce and State Department control lists clearly lay out which products are controlled, and by which agency.  To do this, we are working to make both the Commerce Control List and the Munitions List “positive lists.”  What this means is that we’ll have two lists that classify and control items based upon specific characteristics, such as by size or by wavelength, or by the ability to operate under extreme atmospheric conditions. And, when this process is done – creating a “bright line” between the two lists – exporters will be able to know which agency has jurisdiction over their products.

An additional step will be to divide each control list into a three-tiered structure.
Think of the tiers as shelves in a cabinet:
    •    The top tier – or the highest shelf – will be reserved for our most sensitive items, ones made in the U.S. which have high value military or intelligence capabilities;
    •    The middle tier – or a more accessible shelf – will hold somewhat less sensitive items, and will be products that are available almost exclusively from our multilateral partners and allies;
    •    The lowest tier will be reserved for items that are less sensitive, and which are more broadly available.
Once all of the items are placed into a tier, a corresponding licensing policy will be assigned to ensure appropriate agency review.
    •    For the top tier, a license will generally be required for all destinations;
    •    Many of the items in the middle tier will be eligible to be exported to allies and most multilateral partners under a license exception or general authorization;And for items placed in the lowest tier, licenses will typically not be required.

Or course we will continue to maintain robust and comprehensive sanctions against countries like Iran, North Korea and Cuba.

In the final stage of export reform, we plan to merge the two lists into one – and we will continue to work with our colleagues on Capitol Hill to try to make this happen.

But the restructuring and harmonization of control lists and licensing policy that is already under way will be groundbreaking. And preliminarily, this process is showing impressive results.

Experts from across the government have already turned Category VII of the State Department’s Munitions List, which controls Tanks and Military Vehicles, into a positive, tiered list.

And what we’ve found so far is that about 74 percent of the licensing activity is for parts and components – items like brake pads and the pivot blocks you saw a few minutes ago– which, going forward, will likely be moved to the Commerce Control List or decontrolled.

The pivot blocks, in fact, illustrate one of the significant inefficiencies and incongruities of our current system.
Pivot blocks for Marine all-terrain vehicles require export licenses from the State Department. But nearly identical pivot blocks for fire trucks can be exported nearly anywhere in the world without a license.  And yet, under our current system, we devote the same licensing resources to protecting pivot blocks for Marine all terrain vehicles as we do to protect the vehicles themselves. This simply does not make sense.

A reformed export control system will allow us to focus on the high-risk dual-use technologies that pose the greatest risk to our national security, while permitting greater exports of items that pose little or no risk.

One of the first results of the reform effort is the encryption rule that Commerce published in June.  It will provide useful data to the Government about exports of encryption items while creating for exporters a more efficient and timely process for reviewing notifications.

Finally, we have just heard the President announce that he intends to sign an Executive Order to create an export enforcement coordination center.

Export enforcement will continue to be a crucial part of our export control system.  And by reforming how we license dual-use products and technologies, we will free up our export enforcement agents to focus on interdicting those exports that pose the greatest potential risk to our national security.

In the past year, BIS special agents investigated and helped in the criminal prosecution of an Iranian front company that was shipping U.S.-made 747s to Iran.  And special agents also broke up an illegal transshipment ring in the Netherlands that was exporting American airplane parts to end-users in Iran.

With a more efficient and rational export control system, we can free up more of our enforcement and licensing teams to focus their resources on these real threats.
Going forward, our export control regime must be nuanced enough to allow our companies to remain competitive throughout the world, but most importantly, strong and robust enough to keep America safe.
This is a process on which I look forward to working with all of you.

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Changes Weighed in Military Exports


President Barack Obama will announce a series of initiatives this week aimed at streamlining the system that governs the export of weapons but also commercial products that have a potential for military use.

The policies are part of a broader effort to boost the competitiveness of U.S. manufacturing and technology sectors.
Mr. Obama, in videotaped remarks to be delivered Tuesday to an annual Department of Commerce conference on export controls, is expected to outline measures aimed at laying the foundation for a new export-control system to replace a decades-old system that critics say is burdensome and outmoded.

Among other steps, government agencies would revise their lists of items requiring export licenses to create a tiered system. It would distinguish between the “crown jewels” of military technology—such as stealth aircraft technology—and other more mundane and less sensitive items such as vehicle parts.

Such changes “will allow us to build higher walls around the most critical items to be exported, while allowing other items to be exported under less restrictive conditions,” a senior administration official said in a briefing.

The U.S. defense industry, which is looking to expand sales to overseas markets in the face of a flattening U.S. defense budget, has generally welcomed the administration’s push. Raytheon Co. Chief Executive William Swanson said in a recent interview that the current system was “trying to protect too much, and if you protect everything, you protect nothing.”

The measures the White House is announcing this week will be carried out primarily by executive order. The administration has outlined additional plans to create a single licensing agency, a measure that would require congressional action.

The U.S. export control system was originally designed to prevent the Soviets from getting their hands on sensitive U.S. technology.

The U.S. government now maintains two primary lists of items subject to export control. The Munitions List, administered by the State Department, covers weaponry. The Commerce Department maintains a second list of commercial items that have possible military applications.

Officials describe the Munitions List as more open-ended, which means that every nut, bolt or screw on a weapon system may be subject to formal licensing requirements, even if similar items are commercially available. Thus, the brake pads on an Abrams tank require a license to be exported, even though they are virtually identical to the brake pads on a fire truck.

Mr. Obama also plans to sign an executive order creating an export-enforcement coordination center at U.S. Immigration and Customs Enforcement, which would work with other enforcement agencies that have overlapping authorities.

In addition, federal agencies involved in the process are supposed to move toward a unified IT system.
Secretary of Defense Robert Gates has backed the initiative, saying in an April speech that the “decades-old, bureaucratically labyrinthine system does not serve our 21st-century security needs or our economic interests.”
U.S. defense manufacturers, which have long complained that the current system undercuts their competitiveness, are likely to welcome the move.

“You will find a lot of enthusiasm in the business community for the whole enterprise,” said Bill Reinsch, president of the National Foreign Trade Council, a business group advocating an open global trading system.

Remy Nathan, assistant vice president for international affairs at the Aerospace Industries Association, a U.S. trade group, said industry has been calling for change for years. But now “it’s the apparatus that’s responsible for our national security taking a good hard look at the mechanism for export control.”

Clif Burns, an export-control attorney at the law firm Bryan Cave LLP in Washington, D.C., expressed doubt that the next phase of the administration’s plan would get through Congress

“For people on both sides of the aisle, export reform is dynamite, because it’s less understood than most things by voters,” he said.

“But it’s easily characterized as, ‘Rep. so-and-so made it easier to send things to the Russians.”‘


Export Controls for the 21st Century

The current system is a legacy of the Cold War and fails to distinguish between low-tech items and the most advanced proprietary technology.

This week, President Barack Obama will announce a major step forward in the administration’s efforts to fundamentally reform the nation’s export-control system so that we strengthen our national security and enhance the competitiveness of U.S. manufacturing and technology.

Export controls constitute the regulations we have to restrict the export of certain products and technology for national security and other reasons. The changes that we are making—in what we control, how we control it, how we enforce those controls, and how we manage our controls—will help strengthen national security by focusing on controlling the most critical technologies, preserving the technological edge that U.S. forces enjoy on the battlefield, and strengthening our economic competitiveness.

Preserving our technological edge to meet our national security requirements is the key tenet and rationale for export controls. Advanced technology saves American lives in combat and is a necessity on 21st century battlefields. Preserving our edge gives our soldiers, seamen, airmen and Marines the tools and technology they need to win today’s wars.

But the current export control system was established in another era, during the Cold War, when many key war-fighting technologies were developed first by the U.S. and primarily by the government. Today, our military is more dependent on technology initially developed by private companies for commercial purposes. It is therefore critical to our national security that our export control system enhances, not undermines, the competitiveness of U.S. industry.

Furthermore, the current system is the product of layers upon layers of regulations adopted over the last few decades, with very little distinction between relatively low-tech and widely available items and the most advanced proprietary technology. Going forward, our goal is to focus our efforts on the most critical technologies and items needed to defend ourselves against current and anticipated threats, and to place more emphasis on protecting them effectively.

The foundation of our new system will ultimately include a single control list that distinguishes in tiers between the most sensitive items and technologies and everything else; a single licensing policy to be applied across all agencies; a center to better coordinate the many agencies involved in export-control enforcement; and a single IT system to make sure decisions are fully informed.

The development of a single, tiered, positive control list will allow us to closely and efficiently scrutinize the export of our most sensitive items and more effectively deny exports to those who mean to do us harm.

At the same time, such a system will allow the export of other items under less restrictive conditions, helping to ensure that the U.S. government can move quickly to respond to the needs of allies and coalition partners. The current system often makes it difficult for allies and partners to have the key items necessary for today’s operations. We can do better. For example, if we decide to share a weapons system with our partners, we shouldn’t require them to seek a license for every spare part.

A single set of licensing policies across the government will streamline our processes and eliminate confusion about what is controlled and when a license is required. These reforms will make export controls more transparent to both U.S. industry and foreign customers, which will make it harder for illicit procurement networks to gain access to controlled items.

In addition, this new dynamic system will enable the U.S. government to recognize and adapt to rapidly changing technology developments. We can reduce control levels for technology that has matured and is no longer considered cutting-edge. At the same time, the system will be better able to apply export controls to emerging technologies that enhance our war-fighting and intelligence capabilities.

Finally, we will make improvements to export control enforcement, strengthening our government’s ability to find violators and bring them to justice, and to deter those who might circumvent our laws. Improving coordination among law enforcement organizations, and between them and the intelligence community, will strengthen the new export-control system. Regulatory transparency and the coherence of export-control laws will eliminate jurisdictional uncertainty and enable prosecutors to better pursue violators.

These reforms constitute much-needed, common-sense change in the way we do business. They will focus our resources on the threats that matter most and help us work more effectively with our allies in the field—all of which bolsters our national security.

Gen. Jones (ret.) is the president’s national security adviser.


Export Control Reform

Ellen Tauscher
Under Secretary for Arms Control and International Security
Statement before the House Foreign Affairs Committee
Washington, DC
May 12, 2011
As prepared

Good morning Madam Chairwoman, Ranking Member Berman, and Members of the Committee. I appreciate the opportunity to be here with you today to speak on the Administration’s efforts to reform the U.S. export control system.

These efforts flow from two priorities. Our first priority is to improve the current system so that it enhances U.S. national security and advances our foreign policy interests around the world. Our second priority is to create an efficient system by using modern management, analytical and information-sharing best practices. A timely and predictable system will benefit American companies by making them more competitive in the global marketplace while we solidify our economic recovery.

I will not review in detail what President Obama and Secretary Gates have said so eloquently about the need for reform, but I would like to reiterate Secretary’s Gates’ succinct statement of the problem from his speech to the Business Executives for National Security last year:

“[It is] critically important …to have a vigorous, comprehensive export-control system that prevents adversaries from getting access to technology or equipment that could be used against us. The problem we face is that the current system, which has not been significantly altered since the end of the Cold War, originated and evolved in a very different era, with a very different array of concerns in mind. As a result, its rules, organizations, and processes are not set up to deal effectively with those situations that could do us the most harm in the 21st Century.”

I would like to briefly note how the Obama Administration devised this new strategy and then provide a brief overview of some of the licensing actions that State is taking as part of the Administration’s initiative. Licensing is one of the four pillars of our new system, together with enforcement, our control lists, and our information technology infrastructure.

My colleague Eric Hirschhorn will provide a summary of the Commerce-related licensing actions, as well as the Administration’s plans for export enforcement, and my colleague Dr. Jim Miller will then provide the Defense perspective, including a summary of the key technical work he is leading in our list work, and the Administration’s IT plans, and will conclude our testimony with our vision for the ultimate end-state of our new export control system.

As President Obama said last August:

“We need fundamental reform in all four areas of our current control system – in what we control, how we control it, how we enforce those controls, and how we manage our controls.”

For decades, the U.S. export control system worked adequately to keep sophisticated U.S. technologies out of the hands of our Cold War adversaries. But the 21st century presents us with a new set of challenges, and we need more than incremental change to meet those challenges.

In today’s world, as you know, we no longer face a monolithic adversary like the Soviet Union. Terrorist groups seeking a critical component for a weapon of mass destruction, individual states striving to improve their WMD and missile capabilities, destabilizing accumulations of conventional arms in regions of tension, and illicit front companies seeking items to support such activities pose new dangers.

We also must recognize that the power of globalization, including the rapid pace of advances in technology and the technological capability that exists beyond our borders. It is no longer 1960, when the U.S. was largely self-sufficient and almost the sole source of key items and technologies. U.S. companies no longer can “go it alone” in the marketplace. In many cases, they need to collaborate with companies in allied countries to develop, produce and sustain leading edge military hardware and technology for U.S. and allied forces.

In November 2009, the President and his entire national security team agreed that we needed to devise a new approach to export controls that would address today’s threats as well as the changing technological and economic landscape.

President Obama also directed that we maintain our multilateral commitments. The best controls are those that are multilateral. We remain firmly committed to our partners in the Missile Technology Control Regime, the Nuclear Suppliers Group, the Australia Group, and the Wassenaar Arrangement.

Finally, he instructed us to maintain appropriate controls on exports to terrorist supporting states, and to states of human rights concern.

To develop the new approach, the White House created a task force that included the primary departments involved in the licensing and enforcement of our strategic trade controls – the Departments of State, Defense, Commerce, Treasury, Justice, Energy, Homeland Security, and the Office of the Director of National Intelligence. I think you will agree that the sheer number of agencies involved in export controls alone is a key indicator of the need for reform.

The task force reviewed numerous studies, including GAO reports that have analyzed the strengths and weaknesses of our export control system during the past 20 years. Task force members consulted policy and technical experts within the government, reached out to our allies, and sought input from the business community to learn what works and what doesn’t.

The review found numerous deficiencies in our current system. For example, agencies have no unified computer system that will permit them to communicate with each other, let alone with U.S. exporters, or easily leverage the information available across the government to help make informed decisions.

The current system presents exporters with a myriad of paperwork requirements, which in the case of the State Department alone, could be any one of 13 different forms. Licensing requirements in the current system are confusing and duplicative, which causes delays for U.S. exporters, and helps those who would evade our controls. The current system has no regular and timely process to review all of what we control, and as a result, we have lists that have not been comprehensively updated since the early 1990s.

The current system also has no standard set of data, including intelligence reporting, available to all agencies to use in evaluating proposed exports. Our enforcement agencies with jurisdiction over export control violations do not always communicate well or de-conflict investigations. As a result, we’ve seen instances of competing enforcement actions that are ineffective and waste resources.

The task force recommended steps to address these problems by creating standardized policies and processes and consolidating resources in four key areas. This is what we refer to as the “Four singularities,” which include a single control list, a single information technology system, a single enforcement coordination capability, and a single licensing agency.

The Administration is approaching implementation of these recommendations in a common sense, three-phase plan. All concerned agencies are working well together, which is a significant departure from previous reform efforts, and is a tribute to the strong leadership provided by the President and the relevant Cabinet Members.

Phase I involved making core decisions on how to rebuild our lists, recalibrate and harmonize our definitions, regulations, and licensing policies to start to create the Export Enforcement Coordination Center, and decide on a consolidated licensing database. We have done that.

At this time, we are implementing Phase II.

This includes working to revise the U.S. Munitions List and the Commerce Control List so that they use common terminologies and structures. Dr. Miller will discuss this topic in more detail.

State, Commerce, and Treasury are also in the process of adopting the Department of Defense’s export licensing computer system, which will be part of a unified, cross-government computer system for export control purposes. As part of this effort, exporters eventually will use a single form for applications to State, Commerce and Treasury. Exporters also will be able to submit those applications through a single electronic portal. This isn’t rocket science; we are simply adopting modern business practices.

In addition, the President announced the creation of an Export Enforcement Coordination Center, which is the first step toward a partially consolidated and fully coordinated enforcement capability. And the Administration hopes to work with Congress to pass legislation to create a single primary U.S. export enforcement agency, which we view as the logical final step in our phased implementation plan.

We have heard numerous complaints from U.S. businesses about the lack of clarity and predictability as to just what a munitions or dual-use item is.

Let me just say that interagency “commodity jurisdiction” discussions over the years have bordered on epic.

To address this problem, the State Department is working with the Departments of Defense and Commerce to create a “bright line” between munitions and dual-use items, which will finally provide clear guidance to exporters on commodity jurisdiction issues. This is necessary to update our system that is still designed with the assumption that technologies are developed for the military and only later find their way into the commercial sector, whereas, today, that is often the exception rather than the rule.

As I noted, the Department of Defense is leading a comprehensive review of the U.S. Munitions List. We have briefed the committee’s staff on the initial proposal to revise the category that controls military vehicles.

As part of the list review, agencies are developing a process for transferring items from the U.S. Munitions List to the Commerce Control List which includes deciding on the appropriate licensing requirements on items that are moved to the Commerce Controlled List. We will continue to consult our oversight Committees as we move forward on these new processes.

I want to be clear. Our goal with the list review exercise is not to permit the free export of munitions items or sensitive dual-use technologies to any country in the world. First, we have multilateral control obligations to abide by. Second, we control sensitive technologies, many of which have lethal applications. This is why the experts in the Department of Defense are leading the list review exercise. Our goal is to focus controls on sensitive goods and technologies.

At the same time, we want to apply a consistent and realistic licensing policy to other controlled items that balances risk and legitimate secure trade. Not only will this ensure that we are fully interoperable with our Allies alongside us in the field, but it will provide a more predictable and level playing field for American companies.

The Administration also wants to improve the process for notifying Congress about arms sales and the transfer of items from the United States Munitions List. This reform is of special interest to me as a former Member of Congress. I understand that Congressional prerogatives must be respected, but over the years this process has become lengthy and unpredictable. I know that by working with you, we can do better. Secretary Clinton looks forward to talking with you and other Members on this issue, and I hope to be part of that discussion.

We realize that we have more work to do to refocus our export control system, but we are committed to this initiative because the American people will benefit. As President Obama noted last August:

“…these reforms will focus our resources on the threats that matter most, and help us work more effectively with our allies in the field. They’ll bring transparency and coherence to a field of regulation which has long been lacking both. And by enhancing the competitiveness of our manufacturing and technology sectors, they’ll help us not just increase exports and create jobs, but strengthen our national security as well.”

And that brings me to Phase III, which will complete the reform process by creating the “four singularities” – a single control list, a single information technology system, a single enforcement coordination agency, and a single licensing agency. This will bring the initiative to its logical conclusion.

Without completing this entire agenda and creating the single list and single licensing agency, we would miss the opportunity to better focus our export control efforts, and face higher national security risks as a result.

And, of course, we want to continue to work collaboratively with this Committee. I am happy to answer questions, but first I would like to turn to my colleagues from the Departments of Commerce and Defense, Under Secretary Eric Hirschhorn and Principal Deputy Under Secretary Jim Miller, so that they may give you their Departments’ perspectives on the reform effort.