Mr. Chairman and members of the Subcommittee, I welcome this opportunity to discuss the
export licensing for dual-use technology. The Subcommittee requested that I address the export
control list process, as well as the export license application review process.
Dual-use technology consists of products and know how -- both tangible and intangible
technology -- that have potential military use, but that are primarily commercial in design, and
are in fact widely traded and used for non-military purposes. The United States and many of its
allies have reviewed and controlled the export of such technology since the beginning of the Cold
War. As I have testified previously before this Subcommittee, U.S. controls are coordinated with
like-minded governments through various multilateral regimes.
Since 1993, in conjunction with the formation of the Wassenaar Arrangement, we have
substantially streamlined both the U.S. and multilateral dual use export control lists, removing
many items that were of marginal national security or foreign policy significance, particularly in
the area of telecommunications and information processing. Having accomplished that major
streamlining, we do not currently see major categories of items that require decontrol, except for
lower level computers and microprocessors. We are always, however, considering a few
individual items that are candidates for enhanced or reduced control. Since technology is
changing and advancing, it is essential to continually update the control list just to keep pace with
We are constantly scrutinizing and evaluating the U.S. dual-use control list, known as the
Commodity Control List (CCL). The Defense Department each year updates its Militarily
Critical Technologies Lists. Each of the multilateral regimes periodically reviews its list, which
may result in changes in the U.S. list. Companies, research centers, think tanks, and government
agencies constantly bring items to our attention that they believe should -- or should not -- be
controlled. For items that are not controlled either by the munitions list, maintained by the State
Department to control munitions exports, or the dual-use list, the first issue is whether the item
should be controlled as a munition. That decision is made by State and Defense. If they
determine that an item does not meet the definition of a "munition" and is therefore not
controlled by the Munitions List, it is then considered for possible dual-use controls. Adding an
item to, or removing it from, the dual use control list is decided by consensus of the same
agencies involved in the licensing review process. Regulations are issued to implement these
revisions in the CCL.
One of the most difficult but important aspects of the export control process, Mr. Chairman, is
determining when a product or technology which was originally used or intended for military
purposes has become sufficiently commercialized to justify being treated as a dual-use item.
This is particularly so now, when more and more military technologies are finding commercial
applications and markets. Commercialization of military items began, I suppose, with the Jeep.
Now it includes everything from night vision goggles, to traffic helicopter cameras, to satellites.
All began as military products, but are now used commercially. This involves moving the item
from the Munitions List to the Commodity Control List. Such transfers are determined by the
State and Defense Departments. These "commodity jurisdiction" decisions can be escalated, and
there is provision for appeals to the State Department, and the President, but that process has not
been used often.
U.S. dual-use export controls, Mr. Chairman, consist of a combination of restrictions on
products, countries, end-uses, and end-users. All U.S. products and technology are potentially
subject to export controls. The regulations, however, provide detailed technical specifications of
those products and technologies that actually require a license. Controls are imposed for general
national security and foreign policy reasons, as well as specific non-proliferation reasons. The
Commodity Control List consists of many categories of items that have been identified by the
U.S. and the multilateral regimes as requiring control. It includes some items which the U.S.
controls unilaterally. The CCL specifies the basis or bases for control on each item. In addition,
the Export Administration Regulations specify the destinations and end-uses, and end users for
which a license is required. Many items are restricted on the CCL for more than one reason.
Certain machine tools, for example, are controlled for national security, missile technology, and
Evaluation of dual-use export licenses has always been a multi-agency process. The Commerce
Department is both a decision-making participant, as well as the administrative custodian of the
process. In its administrative role, Commerce maintains central records of license applications
and decisions, prepares the relevant regulations and regulatory changes (with interagency
concurrence), and issues actual licenses and license denials. In its decision-making role, the
Commerce Department's licensing officers examine and evaluate the commercial, national
security, and foreign policy facts of each license application, along with counterparts in other
agencies. More than half of Commerce's 50 license officers have advanced technical degrees,
mostly in various engineering fields.
During the Cold War, the Department of Defense was the primary referral agency for national
security cases to the Communist bloc, and was accorded the right to appeal any decision to the
President under Section 10(g) of the Export Administration Act. The Departments of State and
Energy reviewed foreign policy and nuclear cases, respectively.
With the end of the Cold War, and in recognition of the greater diversity and variety of threats,
particularly from rogue nations, terrorists, and weapons of mass destruction, the Administration
revised the interagency process. In December, 1995, President Clinton issued Executive Order
12981, which took effect in February, 1996. That Executive Order gave five Departments and
agencies a direct and equal role in export licensing decision making -- Commerce, Defense,
State, ACDA, and Energy. Under that Executive Order, each agency may review any and all
license applications, and may appeal any decision with which it disagrees through a series of
escalating interagency levels, ultimately to the President. In clearing that Order, all agencies
agreed to respect the time limits and provide the statutory grounds for their positions. (As of
April 1, ACDA was absorbed by the State Department and is no longer separately represented in
export licensing.) The intelligence community receives applications for review at the same time
they are distributed to other agencies, and participates actively as a non-voting adviser
throughout the licensing process.
The three interagency dispute resolution bodies under Executive Order 12981 are the Operating
Committee (OC) at the senior civil service level, the Advisory Committee on Export Policy
(ACEP) at the assistant secretary level , and the Export Administration Review Board (EARB) at
Cabinet level. Decisions are made at the OC by the Chair, a senior Commerce Department civil
servant, usually on the basis of interagency consensus. Any dissenting agency at the OC may
escalate a license decision to the ACEP. The ACEP is chaired by the Commerce Assistant
Secretary for Export Administration, but decisions are made by majority vote. Cases can even be
escalated beyond the EARB to the President. The EARB is chaired by the Secretary of
Commerce, and decisions are likewise made by majority vote. To date, however, in the Clinton
Administration, no case has been escalated beyond the ACEP.
Between 10- and 12-thousand dual-use license applications a year are being processed under
these procedures. Of those, 85% are referred and decided interagency. The 15% that Commerce
alone processes are mostly incomplete applications that are returned without action (RWA),
some automatic denials, and a small number of routine cases which the other agencies have
elected to delegate to Commerce. These Commerce actions are generally accomplished in the
first 9-days of the license application process. With those exceptions, Mr. Chairman, no license
is issued without the concurrence of at least two -- and usually four -- other agencies. All
agencies receive referral cases simultaneously. Unless they choose otherwise, the participating
agencies receive all cases. The Department of Energy has chosen to concentrate its efforts and
expertise on nuclear cases, so it receives fewer referral cases than the other agencies.
Viewed as a whole, this interagency decision process accomplishes several important objectives:
First, it assures that a wide range of facts and opinions are brought to bear on each case.
Second, it encourages decision rather than indecision. With four (previously five) agencies
participating, there is a strong possibility of indecision. But in dealing with commercial
transactions, delay or indecision can easily constitute denial. To deal with that problem,
Congress enacted specific but flexible time limits for dual use export control decisions. Those
time limits are reflected in our regulations and procedures. But it takes more than time limits to
achieve timely decisions. It takes effective dispute resolution -- or to put it positively, consensus
building -- procedures. The current process provides those, as evidenced by the fact that 96% of
all applications received are processed and resolved within the 90-day target called for in the
regulations. On average, all agencies take less time than is allotted at each stage, with the
Defense Department, for example, currently responding to cases in an average of 14 days rather
than the allotted 30.
Some observers have suggested that the current time limits are inflexible, risking hasty decisions with incomplete information. That is simply not the case. If any additional information is necessary, any participating agency can "stop the regulatory clock" by simply posing relevant questions for the applicant or other sources. There is no limit on the number of questions that can be posed or the time available to answer them. This means of extending the time for analysis and decision is frequently used. Any agency's request for a pre-license check, to conduct consultations with other governments, or consult with other governments are also grounds for "stopping the clock."
Third, the process allows cases that raise factual uncertainties, policy issues, and sometimes
sharp differences of opinion to be escalated to the highest levels of government. Any agency
involved in the process can appeal if they remain dissatisfied at any stage of the process. This
provides a strong incentive for agencies to reach consensus by responding to each others
concerns. That, of course, may be a consensus for approval or for denial.
About 93% percent of all cases are resolved by consensus among the licensing officers and their
management without escalation. The first level of escalation is the Operating Committee. For
cases in disagreement after 30-days or more of consideration, the OC is the "work horse" of this
process. Of the 7% of all cases that go to the OC, all but 5% (less than 1 % of all cases) of those
are resolved there at the OC through face-to-face interagency information exchange, debate, and
consensus building. Nevertheless, some observers of export control policy have focussed on the
OC, noting particularly the fact that the Commerce Department Chair decides cases at this level.
Agency positions are noted and recorded in the OC records, but formal votes are generally not
taken. On occasion, the OC Chair even rules against the Commerce Department position. More
than half of the 777 cases escalated to the OC in FY 1998 were ultimately decided there by
consensus. Only about 5% were decided by the Chair contrary to the majority, and virtually all
of those were escalated to the ACEP for final decision by majority vote.
Of the 70 cases escalated to the ACEP in the past two years (Feb. 1997 to Feb. 1999), 5 were
approved over the remaining dissent of one or more agencies, while 40 were approved
unanimously. Eight were denied and 17 returned without action. Only 6 of these decisions
overturned the decision of the OC Chair. The rarity of cases appealed to the ACEP and the high
rate of approval of OC decisions are strong indications that this process works well to reach
sound, timely decisions.
The technologies that have mostly frequently been the subject of OC and ACEP cases decided
without complete consensus are:
ECCN Product Category Description
3B001 Semiconductor equipment
Various Nuclear items
Category 6 Sensors
6A003 Infrared cameras
2B001 Five-axis machine tools
There are various reasons for failure to reach consensus at the OC. In most cases, Mr. Chairman,
the agencies themselves have concluded that a case should be decided at higher levels because it
raises policy questions, and they hold to differing positions precisely in order to escalate the case.
In such instances, it is misleading to suggest that the OC chair acted contrary to the wishes of the
agencies by making a ruling that results in escalation, although that might appear to be the case.
If cases can be decided at the ACEP by majority vote of the agencies, why not use majority rule
at the OC? Or even require consensus (unanimity)? A requirement of consensus at the OC
would give every agency a veto over every case, removing the incentive to reach agreement and
encouraging delay and indecision. Especially at lower decision levels, it is always easier to say
"no", or take no position, than to defend a "yes." In the pre-1996 process, this led to too many
cases falling into a "black hole" of indecision. We have replaced that with a "default to
decision" through a combination of time limits, authority for the Chair to resolve cases at the OC
level, and majority vote and the ACEP (and Export Administration Review Board) levels.
Limited and preliminary as it is, the ability of the OC Chair to decide cases at the senior civil
service level provides a needed incentive for agencies to reach consensus -- to make "default to
Enabling the OC Chair to rule on cases, of course, means that some agencies must justify their
positions or risk being overridden. But that does not mean that their views or concerns are
ignored. Very often, the positions put forward initially by agencies are themselves preliminary.
Often, the information and analysis assembled at the OC enables agencies willingly to change
their positions on grounds that their concerns have been satisfied. In many cases, strict
conditions are placed on licenses to meet particular agency concerns. In some cases, the
proposed transaction is modified (with the concurrence of the applicant) in order to reach a
Implicit -- and sometimes explicit -- in criticisms of this process is the contention that it is biased
in favor one agency or another. Nothing could be further from the truth. That it is biased in
favor of commercial interests is particularly unsupportable. To begin with, of the four
(previously five) participating agencies, three (previously four) are charged primarily with
furthering U.S. arms control and non-proliferation policies. If anything, the process is weighted
in favor of national security and foreign policy concerns. Only if a majority of agencies can
satisfy themselves on the basis of the facts of the case and relevant policy that national security
and foreign policy concerns are met can any case be approved.
It is sometimes alleged that Commerce Department involvement constitutes a "dumbing down"
of this process. Press reports often loosely refer to the Commerce Department's role in licensing
as "lax", or worse. The fact is that most dual use applications reflect genuine commercial sales to
non-military end users that pose little risk or threat to U.S. national security interests. But that is
not assumed in the license review process. It must be clearly and persuasively established in
each and every case. That is what the Commerce Department manages, and the other agencies
participate in, so effectively. Simplistic studies of aggregate licenses issued to this or that
country fail to take account of the facts of each case that are the basis for each individual
decision. Anyone with experience in export licensing is aware that many cases are not what they
appear to be on the surface. Conclusions drawn from studies that ignore the facts of each case
are misleading at best.
No process is perfect, Mr. Chairman, especially when it comes to the difficult task of balancing economic, national security, and foreign policy interests in specific cases. This is a highly informed processed handled to a large extent by experts from the various agencies. But -- especially when the experts disagree -- it is also a democratic process, and like democracy itself, it can be said to be the worst method of making decisions except for all the alternatives. In such a process, there are always individuals who feel that their views and conclusions have not been accorded sufficient weight. Sometimes those individuals violate their professional responsibilities by leaking confidential information that supports their views knowing that the agencies cannot respond publicly without revealing additional -- sometimes very sensitive -- information. Neither the Congress nor any Administration should let such tactics rule the day.
Many of the criticisms of the dual use export control process seem, in fact, to reflect
disagreements over policy. Such policy disagreements are legitimate. We should recognize them
as such, discuss them, and work together to resolve them. We should not, however, try to resolve
them by discrediting or placing undue blame upon a process that is working and reaching
objective decisions through careful interagency consideration. The Administration looks forward
to working with this and other Committees of the Congress toward that end.
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