Gates' Last Stand?

From AEI:

Gates's Last Stand?


Export Control Reform and Its Prospects for SuccessBy Neena Shenai
AEI Online

(July 2010)











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No. 1, July 2010



U.S. export control reform is a thorny political monster that periodically rears its ugly head. And it is back again. The Obama administration has proposed a comprehensive set of reforms to overhaul the U.S. export control system in an effort led by Defense Secretary Robert M. Gates.[1] Prior to his appointment by President George W. Bush in 2006, Gates served as a member of a National Academies committee that produced a report in 2009 titled Beyond "Fortress America": National Security Controls on Science and Technology in a Globalized World, which declared the U.S. export control system "broken" and set in motion the entire reform effort.[2] Gates has been credited with raising export controls to the highest level of visibility within the Obama administration--even meriting a mention in the president's State of the Union address.[3] In an April speech, Gates laid out the administration's vision of a reformed export control system--featuring a single export control licensing agency, a list of controlled items, an enforcement agency, and an information technology (IT) system--to enhance U.S. national security and economic competitiveness.[4] National Security Adviser General James L. Jones provided further details of the administration's proposals in a speech on June 30.[5] Yet, despite the high-level support for the reforms within the Obama administration, there is significant disagreement about the effectiveness of the proposed reforms and the likelihood that substantive reform can be achieved politically in the proposed one-year time frame. This National Security Outlook considers the Obama administration's export control reform initiative and discusses its prospects.



Key points in this Outlook:

•The Obama administration has proposed the most comprehensive plan to reform the U.S. export control system in three decades.

•The Obama administration's initiative has laudable goals, but how the reforms are implemented will determine whether U.S. national security is enhanced and the United States continues to be a preeminent hub of technological innovation.

•The Obama administration must prove its national security bona fides in order to achieve political buy in from the national security community and Congress for its proposed export control reforms.

Whether or not one agrees with the Obama administration's efforts to date, few would say the current export control system adequately achieves its objectives--that is, protecting U.S. national security and facilitating U.S. technological leadership. Supporters and detractors alike agree that the current, complex, cold war-based rules are overly broad and lack the sophistication and specificity needed to protect national security sufficiently and keep cutting-edge technologies out of the hands of our adversaries. Conversely, the rules also make it difficult to export high-tech products--even to allies--which has the perverse effect of harming U.S. national security through undermining our domestic defense industrial base. The overlapping jurisdictions of the various federal agencies involved, undecipherable lists of controlled products, varying methodologies and interpretations of the law among agencies, delays in the licensing process, and unaccountable administrators who make compliance a moving target are among the myriad problems with the current system. The system's very incoherence undermines the controls' national security ambitions. On the business side, unworkable rules eat away at U.S. economic competitiveness as high-tech R&D, manufacturing, and American jobs are driven abroad. At the end of the day, export controls are first and foremost national security provisions. How they are administered needs rethinking--not only to enhance U.S. national security but also to ensure the United States maintains its status as the preeminent hub of technological innovation.



What Reforms Are Needed?



This question gets to the crux of the debates that surround export control reform: the answer depends on where one sits. In a nutshell, there are two major camps on these issues: a "no" camp and a "pro-reform" camp--an admittedly highly simplified characterization that nonetheless is an illuminating way of framing their differences. The "no" camp includes those more hawkish on national security issues and tends to be generally averse to reform. It takes a transaction-by-transaction risk approach, perceives existing U.S. export controls as already too permissive, and believes controls have been ineffective in protecting sensitive U.S. products and technologies. This camp argues that even seemingly outdated U.S. technology could enhance the technical capabilities of our adversaries and distrusts any attempts to liberalize export controls, arguing that federal licensing agencies have not had a good track record of keeping sensitive technologies and products out of the hands of rogue regimes and hostile nonstate groups. In short, the "no" camp believes that reform efforts tend to be hijacked by industry and that the status quo--or even tightening controls--better serves U.S. national security interests.



The "pro-reform" camp tends to take a broader view of U.S. national security to confer more weight on U.S. economic competitiveness. Embodied by the National Academies' Beyond "Fortress America" report, this camp believes the existing system stymies private technological innovation and damages national security by undercutting the U.S. high-tech manufacturing base.[6] Many who favor reform believe the controls impede U.S. interoperability with close allies and limit cooperation with strategic partners. The "pro-reform" camp questions the need for U.S. dual-use and defense controls on products and technologies available from foreign sources. This camp argues that exporters must contend with a protracted export licensing system, which disadvantages them vis-à-vis foreign competitors that both do not face such restrictions and often market their items as free of U.S. export control restrictions. Overall, those in this camp observe that, while the United States may have had a monopoly on cutting-edge products and technologies in the past, the U.S. export control system has not kept pace with the evolving global economic landscape.



These differences of opinion have caused a stalemate on export control reform. Due to the complexity of the system and a dearth of studies quantifying its costs, the "pro-reformers" have been unable to make convincing arguments that the system is actually broken: it is difficult to quantify in dollar terms business lost because of export controls, opportunity costs foregone due to delays in agency licensing decisions, or regulatory compliance costs. Even the best studies tend to base their analyses on the results of surveys, interviews, or projections.[7] As a result, the shortfalls of the system tend to be predominantly anecdotal. Just as the "no" camp tends to brush off the "pro-reform" arguments on the basis of industry capture, those in favor of reform have been unable to prove their bona fides on national security issues. Because the "pro-reform" arguments usually lack quantitative proof, the "no" camp's national security arguments are dominant and more credible. There is only one answer to the question "should we risk exporting sensitive technology to Iran or North Korea?" And the "no" camp has embraced an absolutist approach to previous reform attempts, arguing that protections are routinely ignored in most reform plans.



Given these virtually irreconcilable philosophies that shape the export control reform debates, any kind of reform--liberalization or heightened restrictions--will be an uphill political battle. Whether the Obama administration's proposed reforms can bridge the philosophical divide and meet these challenges is uncertain and warrants closer examination.



The Obama Administration's Export Control Reform Proposals



In August 2009, the White House announced the commencement of a full-scale review of dual-use and defense trade export controls led by the National Economic Council and National Security Council (NSC).[8] The administration created an export control task force led by the NSC and composed of ten members from eight executive branch agencies to come up with a set of prescriptions for an ideal export control system divorced from the equities of the members' respective agencies. The task force compiled its set of recommendations and submitted them for cabinet-level top-down review earlier this year. Gates made the results of this process public in his April 20 speech, in which he called for a consolidation of the list of controlled products as well as the licensing, enforcement, and IT functions in one year.



The last attempt to reform the export control system was in the aftermath of the 9/11 terrorist attacks, but nothing came of this effort. Since then, some attempts at legislation have been made, along with National Security Presidential Directives 55 and 56 in 2008, which made tweaks to military and dual-use trade controls. However, this is the first proposed reform of this magnitude since the Carter administration, and the announced proposals have been more ambitious than most anticipated.



Depending on how it is implemented, the administration's proposal could be revolutionary in the chaotic world of export controls.[9] U.S. controls are administered primarily by the Department of State's Directorate of Defense Trade Controls (DDTC) and the Department of Commerce's Bureau of Industry and Security (BIS), the agencies that license defense and dual-use items, respectively. The Departments of Defense and Energy, other cabinet agencies, and the intelligence community are also involved in the interagency export control policy and licensing process. U.S. sanctions programs are admin-istered by the Department of Treasury's Office of Foreign Assets Control (OFAC) and have their own complex statutory and regulatory bases. The Arms Export Control Act (AECA) of 1976 and the Export Administration Act (EAA) of 1979 are the statutory bases of U.S. dual-use and defense controls.[10] The AECA has been implemented through the International Traffic in Arms Regulations, which contains the U.S. Munitions List (USML), the list of controlled defense articles and services.[11] The EAA, implemented through the Export Administration Regulations, contains the list of controlled items, the Commerce Control List (CCL).[12] The control lists include those items controlled pursuant to multilateral export control regimes as well as U.S. unilateral controls. The lists of controlled products have seen only minor updates over the years. Exporters are largely left to themselves to determine which agency has jurisdiction over their exports. When an exporter or even a government agency is unsure whether an export is a dual-use or defense item, a commodity jurisdiction (CJ) can be requested from DDTC.[13] The CJ process is time-consuming--it can take more than a year--and often acrimonious among agencies. Overall, these and other bureaucratic complexities have undermined and paralyzed the system's effectiveness, rendering its intended goals increasingly more difficult to realize. To attempt to address these issues, the Obama administration has proposed a three-phase approach to accomplish a full-scale overhaul of the system within one year.[14]



In Phase I, which is currently underway, the administration has commenced certain policy and regulatory changes. The USML and CCL are being reformulated, based on "independent objective criteria," into a parallel, tiered system of cascading levels of control from the most sensitive military products and technologies to those items controlled under multilateral arrangements. The control lists are being modified to be more flexible in terms of adding and removing items, program licenses are being created to deal with controlled items as well as their parts and components, a system is being created to prioritize licensing processes, and a "bright-line process" is being formulated to identify which items belong on which list. It is envisioned that the USML will become a "positive" list like the CCL, meaning that items will be controlled only if they are enumerated. Licensing is in the process of being standardized between agencies with the creation of a single application form. The IT system has begun to be reformed to include a single-entry portal for exporters, which will be the Department of Defense's USXPorts system. Enforcement activities have begun consolidation into an "Enforcement Fusion Center"--a permanent office with personnel from existing enforcement entities and the intelligence community that will be the locus of export enforcement activities. In addition, the recent Iran sanctions law included provisions to harmonize maximum export control penalties, add certain civil penalty provisions, and commission a study by the U.S. Sentencing Commission on the impact and advisability of imposing mandatory minimum criminal sentences for export control violations.



Phase II would build on Phase I by strengthening the parallel, tiered system of the control lists and removing unilateral controls as appropriate. The U.S. government would submit proposals to the multilateral regimes to add and remove items from the lists as necessary. Licensing would be further harmonized between agencies "to allow export authorizations within each control tier to achieve a significant license requirement reduction which is compatible with national security equities."[15] The IT system would be transitioned to USXPorts, and enforcement outreach and compliance activities would be expanded. Phase II would require both congressional notification to remove items from the USML or transfer them to the CCL and appropriations for enhanced enforcement and IT infrastructure.



Finally, while the Obama administration asserts that Phase I and Phase II reforms can be completed through executive branch policy and regulatory changes, much of Phase III would require congressional action. Phase III would merge the USML and CCL and create a single independent licensing agency with cabinet officials serving as its board of directors (through the advice and consent of the Senate). Commerce's Office of Export Enforcement and the Department of Homeland Security's (DHS) Immigration and Customs Enforcement Counterproliferation Program would be combined into a single dedicated enforcement unit, with a single IT system for licensing and enforcement.



Prospects for Effective and Meaningful Export Control Reform



The Obama administration's commenced reforms are certainly ambitious and have laudable goals. However, their success--in actuality and content--is by no means assured. There are questions regarding whether the haste to reform this very complex system in one year will produce ill-considered results. Few in Washington believe something this progressive has a chance of success, at least in the proposed time frame. Moreover, the nearly irreconcilable battle between the "no" and "pro-reform" camps will be the ever-present framework for the ensuing discussions. Important details regarding the nuts and bolts of the envisioned system are yet to emerge, but the following sections outline a number of considerations for whether the proposed reforms will be possible and whether they will have their intended results.



Will the Obama Administration Make a Convincing Case That the New System Will Protect U.S. National Security More Effectively? U.S. export controls are national security export restrictions with roots in the Export Control Act of 1949, a federal statute dating back to the cold war. National security concerns have stymied prior reform attempts. If the current export control reform effort has any chance of success vis-à-vis Congress or stakeholders, the Obama administration must make the case that the new system will protect national security and prevent sensitive goods and technologies from falling to terrorists and rogue states more effectively than the current system. The Democratic Party's reputation for being soft on national security will make this difficult for the president, whose foreign policy to date has done little to allay these concerns.



Further, the White House has not consistently cast export control reform as a national security initiative and has instead characterized it as an export promotion program. While the international trade agencies, such as the Office of the U.S. Trade Representative and the International Trade Administration of the Department of Commerce, are not participating in the reform efforts, the president's mention of export controls in his State of the Union address, while momentous, was in the context of international trade and the National Export Initiative (NEI), a plan to double U.S. exports in five years.[16] In his recent announcement of the NEI's Export Council, the president again featured export control reform.[17] One need only look at the 2010 National Security Strategy to see that the national security focus of this initiative continues to be muddled.[18] In each case, the president's simple caveat that export control reform must be consistent with national security concerns does little to diminish the export promotion context of those statements.



In contrast, Gates understands the need to cast export control reform in national security terms--even when discussing economic competitiveness issues. In his April 20 speech, Gates explicitly stated that the current system is in itself a threat to national security. He explained that export control reform is key to U.S. military superiority in a world where cutting-edge products and technologies are developed by a private-sector, high-tech manufacturing base. Gates sees such a system as sustainable only if the private technology sector is able to sustain its health and productivity through exports. Moreover, the secretary's mere presence as the standard-bearer for the reforms strategically attempts to convey the national security focus of the reforms. It also should not be forgotten that Gates is publicly leading the charge, even though the Department of Defense does not actually undertake export licensing.



Perceptions matter, but it is no secret that this effort also goes to the heart of long-term U.S. economic competitiveness. The proposal has an economic dimension and naturally fulfills a critical element of the president's NEI, in which high-tech industries will presumably play a significant role. Yet the Obama administration will have to tread this line lightly so as not to be seen as pandering to industry at the expense of national security. This is perhaps why Jones announced in his recent speech that the administration would undertake a strategy of addressing first the most sensitive items--in Gates's words, "those critical technologies and items--the 'Crown Jewels' if you will--that are the basis for maintaining our military technology advantage, especially technologies and items that no foreign government can duplicate."[19] By commencing the reform efforts by bolstering controls on such defense items, the administration may be able to secure subsequent political buy in for reforms to the lower-tech, dual-use controls.



Are the Proposed Reforms Comprehensive Enough to Actually Make Any Difference? The answer to this question depends on the details of the structural, statutory, and regulatory reforms that ultimately occur, but there are some preliminary observations. First, many assume that consolidating the USML and CCL into a single, tiered control list with standardized licensing criteria would lead to a liberalization of controls. This may not be the case. While some items may move "down" from munitions-level controls, other cutting-edge commercial technologies and products currently controlled under Commerce controls may move to higher-level, munitions-type controls. For example, munitions items cannot be exported to China without a presidential waiver because of the so-called Tiananmen Sanctions put in place following the Tiananmen Square massacre in 1989.[20] Depending on how the control lists are tiered, higher-level products and technologies that currently are permitted to be exported to China may, for better or worse, become prohibited. Additionally, a single, tiered control list with unilateral foreign policy or country-based controls could result in a system very similar to the one already in place. Dual-use export controls have restrictions for national security, regional stability, crime control, and other foreign policy objectives. Countries are also divided into groups that determine the level of controls on exports. The export control task force is tasked with paring down the control lists as well as reconsidering the foreign policy and country controls in place, but a full-scale change in U.S. foreign policy is unlikely to emerge from the review. Country-specific export control changes have been floated as a possibility with respect to India, but reports have not been confirmed.[21]



Second, there appear to be some gaps in the reforms. While the dual-use and defense trade control licensing regimes are slated to be reformed, it is unclear whether the nuclear regulatory regime, administered by the Department of Energy and the Nuclear Regulatory Commission, will be. The nuclear regulatory regime is, in many ways, as convoluted and complex as its sister export control systems and is also in need of reform. The Departments of State and Commerce are both involved in the inter-agency licensing process for nuclear materials and technologies. In addition, while Jones announced that the sanctions regime administered by OFAC will be included in the reforms, details have yet to emerge regarding what aspects of OFAC's controls might be affected.



Third, on a broader note, export control reforms have perennially suffered from piecemeal changes in which additional rules have led only to increased complexity, not simplification. Liberalizations have tended to require some restrictions--justified or unjustified--to secure buy in from the national security establishment. While Gates has been scrutinizing this system from a high-level policy perspective, the fragmented regulations in place will have to be revised and rewritten to implement the reforms. Horse-trading among security, foreign policy, and commercial interests is sure to ensue and could have unintended consequences. A simpler solution might have been to discard the existing layers of regulations and formulate a whole new system. A better system may not necessarily emerge from merging the USML and CCL if the levels of control on product- and technology-specific as well as country- and end-user-specific bases are not carefully considered. A single enforcement system will make a difference only if intelligence is used competently and significant violations are targeted. A single licensing agency will make the process more efficient only if a single licensing philosophy is maintained and enforced among the staff. All in all, effective reforms cannot simply add yet another level of complexity to the existing set of rules.



What Will the Planned Independent Single Licensing Agency to Administer Export Controls Look Like? Some had speculated that the single export control agency proposed in Phase III of the reforms would be housed in one of the existing cabinet departments. However, Jones announced in his June 30 speech that the administration has decided to create a single inde-pendent agency for export control licensing with cabinet members (presumably from the existing export control agencies) serving as its board of directors.



As discussed previously, the U.S. export control system currently is under the jurisdiction of a number of federal agencies. A single portal would eliminate much confusion for exporters but would not be an automatic panacea. Consolidating the export control licensing function into one agency and combining personnel under one roof do not guarantee an end to institutional warfare. A key hurdle will be to ensure that U.S. national security, foreign policy, and commercial interests are each adequately represented, as is the goal of the existing interagency process. If this significant set of reforms is undertaken only to arrive at a system hijacked by the disproportionate influence of one of the cabinet departments or by staff whose views are antithetical to the spirit of the reforms, the effort will have failed. In short, the chosen locus for the export control function must be sufficiently accountable and independent to integrate the many competing interests, and the philosophy of export control administration must be defined and faithfully administered with sufficient political oversight.



An independent agency would have its own challenges, apart from being another costly bureaucracy in the federal government. Would the staff from the requisite agencies be physically moved into the new agency? Would the agency be independent or would the process actually be controlled by one of the existing departments? Would the independent agency have sufficient political leadership and accountability? Would an independent agency have any political clout to administer the inherently political decisions involving export controls? How will decision making be handled among cabinet officials?



In addition, a massive reorganization of existing personnel can simply be an exercise of musical chairs. Many are concerned there is too much focus on creating the Phase III single agency instead of on implementing the important substantive reforms in Phases I and II. If Phase III is rushed and premature, creating a single agency will effectively postpone major policy decisions for years while bureaucrats wrangle over the new logo on the new stationery and who gets which job, which corner office, and which parking space. (One need only look at the continuing institutional difficulties of DHS and the Office of the Director of National Intelligence.) Stakeholders fear that reorganization inevitably means postponing important decisions in favor of minor ones and claiming victory on reform when little is changed in reality.



Is There Sufficient Political Will to See the Reforms Through? The administration's entire reform effort to date has been a top-down effort. Senior administration officials commenced the effort and are providing the political backing to keep the process moving forward. Gates is the driving force, and Jones, Secretary of State Hillary Clinton, Secretary of Commerce Gary Locke, and Undersecretary of State for Arms Control and International Security Ellen Tauscher also appear to be on board. The president has taken a degree of ownership over the effort, too. Because of Gates's stature and importance to the initiative, however, it will live and die with his role in the administration. If he leaves the administration within a year, as many speculate, the initiative will have even fewer prospects. This is why even the administration's one-year time frame for completion of the reforms is apparently driven more by Gates's departure schedule than by the congressional calendar.



This top-down strategy has been implemented at the operational level through the NSC-directed export control task force, presumably by design, to minimize institutional and bureaucratic resistance to change. Each of the agencies involved in the export control process and agency staff have their own "rice bowl" of equities that they will seek to protect through the reform effort. If the administration undertakes the requisite reforms through executive order in a continued top-down approach, institutional conflict could be minimized. The challenge will be to maintain political oversight over the subsequent implementation of the reforms to ensure each agency's middle management (whose positions may be made redundant) complies.



Has There Been Enough Transparency to Secure Buy In from Stakeholders? In addition to bureaucratic resistance, it is possible that the reforms could ultimately have only reluctant support from stakeholders. Neither the export control task force nor any of the agencies has formally requested outside input. A number of high-profile industry groups have submitted comments and met with administration officials, but, for an administration that has notionally made transparency a priority, this process has been remarkably opaque to those who do not enjoy high-level access. Those outside this cadre have had to rely on periodic speeches by administration officials or leaks in specialized trade publications to understand how the reform efforts are progressing. Thus, the system that emerges from the reform effort may be the product of government bureaucrats together with input only from select users.



Will Congress Go Along? In his April 20 speech, Gates indicated that Congress would be consulted throughout the reform process but did not state that congressional approval would be required for every step. In his June 30 speech, Jones reiterated that congressional action would only be required for Phase III. On close examination, many of the proposed reforms do not require legislation and could be undertaken through executive branch policy and regulatory changes. Phase I of the proposed reforms could be achieved entirely through executive branch action. In Phase II, only certain changes to the control lists would require congressional notification, and Congress would probably need to appropriate funds for enhanced enforcement and IT infrastructure. Only Phase III, which envisions merging the control lists, licensing, enforcement, and IT functions, would require certain congressional action. Even then, depending on how the reforms are implemented, only limited statutory modifications may be required: the AECA delegates much discretion to the president to organize and administer U.S. military controls. Under a scenario in which the EAA, which has been in lapse since 2001, is not reauthorized, the AECA could instead be amended to include dual-use export control provisions. Congress would then need to amend one statute, avoiding a multitrack approach that would be required to independently rewrite both the AECA and EAA through the distinct committees of jurisdiction in the House (Armed Services and Foreign Affairs) and Senate (Foreign Relations and Banking).



This rosy scenario, however, is likely divorced from the political realities of Washington. First, deep-seated, perennial, bipartisan congressional opposition to export control reform exists for a variety of reasons, many of which are inherent to the "no" versus "pro-reform" debate. A number of key members and their staff appear to believe that changes to the current system will damage U.S. national security, while others harbor a lack of faith in the executive branch to stand up to industry and limit liberalization of controls that is detrimental to national security, or believe the United States should not be exporting high-tech products and technologies to China because these items will only benefit the Chinese military. Others are hesitant to take responsibility for the liberalization of controls lest it come to light that unsavory regimes have acquired sensitive U.S. technologies as a result. Still others are likely to oppose the reforms for reasons less about substantive concerns than about not wanting to give the president any national security victories in an election year. Bipartisan support will be difficult to forge.



Even if key members can be convinced to support export control reform, what may seem like perhaps small amendments to existing legislation under the scenario described above would still place a significant onus on Congress to pass sweeping legislation. This will be a heavy lift, especially since the history of congressional action on export controls has been anemic at best. Congress has allowed the EAA to be in lapse since 2001. Multiple bills to reauthorize the statute have gone nowhere. In addition, the AECA would have to be amended in an environment in which defense treaties with two of our closest allies, the United Kingdom and Australia, have languished in the Senate. For export control reform to happen amidst this, in an election year, and among the president's other priorities, or next year with a newly elected (perhaps Republican-controlled) Congress, means facing virtually insurmountable political hurdles.



In addition, Congress may simply not be on the same page as the president regarding the concept of export control reform.[22] Key members of Congress are attuned to problems with the export control system, but few hearings have been held.[23] Those involved in these issues on Capitol Hill may have very different notions of what a new and improved export control system might look like.



Recently, the administration allegedly tried to insert provisions to create the single export control agency and single control list into the Defense Authorization Bill in order to bypass scrutiny by the relevant congressional committees.[24] However, lawmakers balked and the administration abandoned its efforts. This account of the facts has been disputed by the Obama administration.[25]



The alleged defense authorization bill incident has probably only perpetuated perceptions that Congress has not been consulted on the administration's version of export control reform and has been presented the administration's vision as a fait accompli. While the export control task force reportedly held briefings on Capitol Hill earlier this year, Obama administration officials have held few, if any, meetings with the relevant committees on the Hill.[26] The administration seems to be caught in a dilemma of conveying half-baked or fully formed ideas on Capitol Hill, where either approach tends to be viewed with disfavor. Regardless, there is a perception that the Obama administration's public relations sell of its plan has been insufficient to secure Capitol Hill buy in.



Congressman Howard Berman (D-Calif.), chairman of the House Foreign Affairs Committee (HFAC), has a potentially parallel export control reform effort underway. He has been a proponent of several unsuccessful export control reform efforts, and his staff has been working over the last year to rewrite the EAA. While a draft bill was scheduled to have been completed in January, the timeline has been extended. Suggesting some lack of communication between the administration and HFAC, Berman's response to Gates's speech was lukewarm. He indicated that Gates had "set forth his own vision of how the . . . export control systems might be fully merged. Should the president propose such a step later this year, I will carefully consider it."[27] Berman further indicated that he would be introducing his own legislation shortly, which is rumored not to include plans for a single export control agency. Apparently, members of Congress are treating the administration's proposals as a "study."[28] Berman is scheduled to release his draft of the EAA soon, but whether it comports with the Obama administration's efforts remains to be seen.[29] While these comments may suggest on one level a simple difference of opinion, disaffected bureaucrats, opposed to the Obama administration's views on reform, may also be back channeling their grievances through Congress. This infighting could lead to the demise of the entire effort.



Conclusion



The jury is still out on whether effective and meaningful export control reform is possible. It is not clear whether the political will exists to see the latest set of proposals succeed or how the tug between the "no" and "pro-reform" camps will turn out. Whether the Obama administration can accomplish what it has set out to achieve hinges on how the details of the reform efforts are carried out and on whether Congress can be convinced to support the administration's ideas.



Neena Shenai (neena.shenai@aei.org) is an adjunct scholar at AEI.



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Notes



1. White House, "Statement of the Press Secretary," news release, August 13, 2009, available at www.whitehouse.gov/the_ press_office/Statement-of-the-Press-Secretary (accessed July 12, 2010).



2. National Research Council of the National Academies, Committee on Science, Security, and Prosperity, Beyond "Fortress America": National Security Controls on Science and Technology in a Globalized World (Washington, DC, January 8, 2009).



3. Barack Obama, "State of the Union Address" (speech, Washington, DC, January 27, 2010), available at www.whitehouse.gov/the-press-office/remarks-president-state-union-address (accessed July 12, 2010).



4. Robert M. Gates, "Business Executives for National Security (Export Control Reform)" (speech, Ronald Reagan Building and International Trade Center, Washington, DC, April 20, 2010), available at www.defense.gov/speeches/speech.aspx?speechid=1453 (accessed July 12, 2010).



5. James L. Jones, "The Administration's Export Control Reform Plans" (speech, U.S. Capitol, Washington, DC, June 30, 2010), available at www.aia-aerospace.org/assets/speech_jones_06302010.pdf (accessed July 12, 2010).



6. National Research Council of the National Academies, Committee on Science, Security, and Prosperity, Beyond "Fortress America": National Security Controls on Science and Technology in a Globalized World.



7. See, for example, Milken Institute, Jobs for America: Investments and Policies for Economic Growth and Competitiveness (Santa Monica, CA, January 2010), available at www.milkeninstitute.org/pdf/JFAFullReport.pdf (accessed July 12, 2010); Pierre Chao, Toward a U.S. Export Control and Technology Transfer System for the 21st Century (Washington, DC: Center for Strategic and International Studies, May 15, 2008), available at http://csis.org/files/media/csis/pubs/080516_csis_exportcontrol_final.pdf (accessed July 12, 2010); Pierre Chao, Health of the U.S. Space Industrial Base and the Impact of Export Controls (Washington, DC: Center for Strategic and International Studies, February 19, 2008), available at http://csis.org/files/media/csis/pubs/021908_csis_spaceindustryitar_final.pdf (accessed July 12, 2010); and U.S. Department of Defense and Department of Commerce, Defense Industrial Base Assessment: U.S. Space Industry Final Report (Dayton, OH, August 31, 2007), available at www.bis.doc.gov/defenseindustrialbaseprograms/osies/defmarketresearchrpts/exportcontrolfinalreport08-31-07master___3---bis- net-link-version---101707-receipt-from-afrl.pdf (accessed July 12, 2010).



8. White House, "Statement of the Press Secretary."



9. For more detailed information about the structure of U.S. export controls, see Neena Shenai, "Export Control Reform 2010: Transforming the Legal Architecture of Dual-Use and Defense Trade Controls" (AEI Working Paper #163, Washington, DC, February 2, 2010), available at www.aei.org/docLib/Export%20Control%20 Reform%20Paper.pdf.



10. Arms Export Control Act, U.S. Code 22 (2006), §§ 2751-2994; Export Administration Act, U.S. Code 50, §§ 2401-2420. The Export Administration Act first expired in 1989, has been in lapse since 2001, and is continued by the president annually under the International Emergency Economic Powers Act. See Executive Order no. 13,222, Federal Register 66 (August 22, 2001): 44,025, most recently extended by Notice of August 17, 2009, Federal Register 74 (August 14, 2009): 41,325; and International Emergency Economic Powers Act, U.S. Code 50 (2006), §§ 1701-1706.



11. "International Traffic in Arms Regulations," Code of Federal Regulations, title 22, sec. 120-130 (2010).



12. "Export Administration Regulations," Code of Federal Regulations, title 15, sec. 730-774 (2010).



13. "International Traffic in Arms Regulations," Code of Federal Regulations, title 22, sec. 120.4 (2010); see U.S. Department of State, Directorate of Defense Trade Controls, "Commodity Jurisdiction," September 30, 2009, available at www.pmddtc.state.gov/commodity_ jurisdiction/index.html (accessed July 12, 2010).



14. White House, "Fact Sheet on the President's Export Control Reform Initiative," news release, April 20, 2010, available at www.whitehouse.gov/the-press-office/fact-sheet-presidents-export-control-reform-initiative (accessed July 12, 2010). National Security Adviser General James Jones gave further details about the phases in his June 30 speech. See James L. Jones, "The Administration's Export Control Reform Plans."



15. Ibid.



16. Barack Obama, "State of the Union Address": "[W]e're launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security." See also Executive Order no. 13,534, Federal Register 75, no. 50 (March 16, 2010): 12,433.



17. White House, "Remarks by the President Announcing the President's Export Council," news release, July 7, 2010, available at www.whitehouse.gov/the-press-office/remarks-president-announcing-presidents-export-council (accessed July 12, 2010): "We're also reforming our own restrictions on exports, consistent with our national security interests." See also White House, Progress Report on the National Export Initiative (Washington, DC, July 7, 2010), 4, available at www.whitehouse.gov/sites/default/files/exports_progress _report.pdf (accessed July 12, 2010).



18. The National Security Strategy includes export control reform in the context of international trade: "Save More and Export More: Striking a better balance at home means saving more and spending less, reforming our financial system, and reducing our long-term budget deficit. With those changes, we will see a greater emphasis on exports that we can build, produce, and sell all over the world, with the goal of doubling U.S. exports by 2014. This is ultimately an employment strategy, because higher exports will support millions of well-paying American jobs, including those that service innovative and profitable new technologies. As a part of that effort, we are reforming our export controls consistent with our national security imperatives." (White House, National Security Strategy [Washington, DC, May 2010], 32, available at www.whitehouse.gov/sites/default/files/rss_viewer/national_security_ strategy.pdf [accessed July 12, 2010], emphasis added.) See also White House, "Advancing Our Interests: Actions in Support of the President's National Security Strategy," news release, May 27, 2010, available at www.whitehouse.gov/the-press-office/advancing-our-interests-actions-support-presidents-national-security-strategy (accessed July 12, 2010.)



19. Robert M. Gates, "Business Executives for National Security (Export Control Reform)."



20. Foreign Relations Authorization Act, Fiscal Years 1990 and 1991, Public Law 101-246, U.S. Code 22 (1990), § 902, 2151 note.



21. "U.S. to Weaken Export Controls for India," Economic Times, June 8, 2010; "Positive Announcements Expected from U.S. on Export Controls," Hindu, June 9, 2010.



22. "NSC Official Sees Skepticism in Congress for Export Control Reform Bill," Inside U.S. Trade, July 9, 2010.



23. See, for example, House Committee on Foreign Affairs, The Impact of U.S. Export Controls on National Security, Science, and Technological Leadership, 111th Cong., 2d sess., 2010; and House Committee on Foreign Affairs, Subcommittee on Terrorism, Nonproliferation, and Trade, Export Controls on Satellite Technology, 111th Cong., 1st sess., 2009.



24. "White House Rebuffed on Tying Export Control Bill to DOD Authorization," Inside U.S. Trade, May 28, 2010.



25. "Administration Close to Finalizing Initial Export Control Reform Steps," Inside U.S. Trade, June 4, 2010.



26. Ibid.



27. Jeff Abramson, "Gates Outlines Export Control Overhaul," Arms Control Today 40, no. 4 (May 2010), available at www.armscontrol.org/ act/2010_05/Exports (accessed July 12, 2010).



28. Ibid.



29. "NSC Official Sees Skepticism in Congress for Export Control Reform Bill."



Case Study 1

The following case study illustrates the difficulties faced internally within the U.S. government with administering U.S. export controls.



Interagency Conflict over Body Scanners--A National Security Fair or Foul?



A few years ago, the Department of Homeland Security (DHS) planned an international conference to kick off a $35 million project to promote and fund millimeter-wave technology. This technology is integral to advanced body-scanner machines at airports and allows security personnel to view a person's physical outline to check for prohibited items. Shortly before the conference, staff-level officials at the Defense Technology and Security Administration (DTSA) at the Department of Defense requested a commodity jurisdiction, arguing that the technologies constituted night-vision equipment and were munitions items. DHS and Commerce took the position that the technology was uncontrolled. DHS's European R&D partners (European companies happen to be leaders in these technologies) pulled out of the research project because they did not want to contend with stringent U.S. munitions controls. Two years of inter-agency discussions ensued, but DTSA was unable to provide any live military applications for the technology. The agencies finally agreed that the technology as delineated by the outer limits of the laws of physics was the cutoff for Commerce list designation. A new regulation that kept most of the relevant hard-ware as uncontrolled but placed certain Commerce controls on the technologies was issued in March 2010.[1]



Was U.S. national security improved by ultimately controlling these technologies or did the delays actually hurt national security? The delays have deferred development of vital homeland-security technologies, impeded their sharing with allies, and stalled their deployment for use in foreign airports with U.S.-bound planes. One may ask whether these technologies could have prevented Umar Farouk Abdulmutallab from passing through airport security in Amsterdam and nearly blowing up a U.S. airliner on Christmas Day 2009. Nevertheless, should such technologies have been uncontrolled to start with? If terrorists could easily procure this technology, could they practice placing weapons and explosives under their clothes to ensure they could pass through airport security undetected?



Note: 1. Revisions to Export Administration Regulations to Enhance U.S. Homeland Security: Addition of Three Export Control Classification Numbers (ECCNs) and License Review Policy, Federal Register 75, no. 57 (March 25, 2010): 14,335



Case Study 2

The following case study illustrates the need for rethinking how opposing national security and economic competitiveness concerns are resolved in export control policy.



U.S. Commercial Space Industry--Death by a Thousand Paper Cuts?



On first look, the U.S. commercial satellite industry is a poster child for export control reform. Once the global leader, U.S. companies' world market share in the commercial satellite market has been nearly halved since the late 1990s when all U.S. commercial satellite products and technologies were designated by statute as munitions items.1 U.S. industry consistently argues that these products and technologies are commercially available abroad and do not belong on the U.S. Munitions List. (Note that under the International Traffic in Arms Regulations [ITAR], not only are commercial satellites controlled, but so are all parts and components including items such as screws and adhesive.) Foreign companies routinely market their commercial satellite products and technologies as "ITAR-free," even at higher prices, to convey to their customers that they will not need to contend with U.S. export control laws. Why did this happen?



In 1996, after interagency discussions, the Clinton administration transferred the jurisdiction of the export of commercial satellites to the Department of Commerce, while related technologies and other space items remained controlled as munitions items under the Department of State.[2] The split State/ Commerce jurisdiction became problematic following two failed Chinese satellite launch attempts in 1995 and 1996. U.S. companies supplied technical data to the Chinese government during the investigation into the failed launches. The Department of Justice found that Commerce should have consulted with State before authorizing such a release. The U.S. companies involved--Lockheed Martin, Loral, and Boeing--each paid millions of dollars in fines. This debacle spurred the creation of the congressional Cox Commission, which investigated whether this transfer of technical data to China may have enhanced the country's missile and intelligence capabilities. In response to the Cox Commission's report, the 1999 Defense Authorization Act returned jurisdiction over commercial satellite and satellite technologies to the State Department.



After considering the background, it is perhaps not difficult to see why U.S. commercial satellites are controlled as munitions items. Nevertheless, there has been a recognition that the level of controls on these products needs to be reconsidered, as European and Asian countries have developed their own space industrial bases and now possess many of these technologies.[3] Several recent legislative attempts to liberalize controls on commercial satellites have been made, but the specter of the 1990s looms large among the national security establishment. Has this become a lose-lose situation now that national security controls have virtually destroyed the U.S. space-industrial base? Are there still reasons we may need to keep strict controls on satellite products and technologies despite foreign availability?



Notes: 1. See House Committee on Foreign Affairs, Subcommittee on Terrorism, Nonproliferation, and Trade, Export Controls on Satellite Technology, 111th Cong., 1st sess., 2009; and William J. Broad, "For U.S. Satellite Makers, a No-Cost Bailout Bid," New York Times, April 2, 2009. 2. See Space Foundation, ITAR and the U.S. Space Industry (Washington, DC, August 5, 2008), 13-14, available at www.spacefoundation.org/docs/SpaceFoundation_ITAR.pdf (accessed July 12, 2010). 3. "DoD: U.S. Space Industry May Lose Edge," Defense News, May 29, 2010.