Mr. Chairman: Thank you for the invitation to address the Committee on Banking, Housing, and Urban Affairs regarding legislative efforts to reauthorize the Export Administration Act (EAA). I am a member of the political science faculty at the University of Georgia and serve as the head of the Washington office of the Center for International Trade and Security (CITS), an interdisciplinary, policy-oriented research institution of the University of Georgia. For more than a decade, Center staff have focused their research and service efforts on export control issues in the United States, the former Soviet Union, China, India, and elsewhere. Through their research, the Center staff hope to promoting prudent export control policies that encourage legitimate commercial activities while strengthening U.S. and global security. Please note that these remarks represent my personal views and not necessarily those of the Center or the University of Georgia.
I will address several aspects of the draft legislation, but I base all my remarks on three assumptions:
Export controls remain a relatively low cost means of delaying the diffusion of proliferation-related technologies or raising the costs of such transactions, buying time for other nonproliferation policies to work;
If national and multilateral export control systems are not improving, then they are getting worse, as determined proliferators are always seeking new ways to gain access to sensitive technologies; and
Effective export control policies depend on a partnership between government, industry, and the public.
Finding a prudent balance of the many security, economic, and other interests inherent in nonproliferation export control policy is one of the most difficult tasks facing the U.S. government. If this Committee can craft what becomes a new Export Administration Act, it will overcome a major impediment to U.S. efforts to improving export controls here and abroad.
Control Lists and Country Tiers
The draft legislation creates a new system of country groups (i.e., tiers) and multiple control lists (i.e., the Expedited and Critical Lists as subsets of the National Security List). The tier system is more logically coherent than the system of country groups used by the United States during most of the Cold War era. Determining which countries will go into which tiers, especially which countries end up in Tiers 3 and 4, however, will certainly create controversy and the executive branch may require more than the sixty days allowed in the legislation to generate the list.
The system of multiple lists marks the reintroduction of a "watch list" approach used by the United States in the early days of the Cold War. This appears to be an attempt to reduce the licensing burden on business and government by implementing the second element of the "higher fences, fewer goods" strategy. The Expedited List will serve this purpose only if sufficient items appear on the list to make a significant impact on the numbers of licenses processed. If only a small number of mainly insignificant items comprise the Expedited List, it will only succeed in making an elaborate export control system even more complex. In that regard, I suggest that the Secretary of Commerce report annually on the impact of this list design system on the licensing process.
Perhaps the most important change in the license review process proposed in the draft legislation is the shift to consensus rather than majority voting in the Review Committee (currently called the Operating Committee). Given the sharp increase in cases reaching this level (from 122 in 1995 to about 1,000 in 1998), stalemate in the Review Committee could become a major bottleneck in the licensing process. Although there is no public data on the number of cases where agencies issued a dissenting vote in the Operating Committee, in only 29 cases did an agency raise the case to a higher level when it objected to the majority decision or the decision of the chair of the Operating Committee (who can overrule a majority decision). This suggests that decision by consensus may pose relatively few practical problems.
The proposed legislation also adds to the strict time limits for licensing decisions by the Review Committee and higher bodies. This does not appear to match the time that additional investigation, such as conducting a pre-license check, may require. Allowing agencies to stop the clock to obtain additional information at this stage will prove useful in some cases.
The general literature on sanctions suggests that narrow sanctions targeting the parties directly responsible for non-compliance usually have a better chance at eliciting conformity with the rules one attempts to enforce. Some evidence exists that narrow sanctions on entities of proliferation concern, or the threat of such sanctions, have promoted compliance with nonproliferation norms. Discussions with representatives of sanctioned entities in China and Russia indicate that U.S. sanctions imposed real costs (even if only in terms of a damaged reputation) and generally spawned increased efforts by the entity in question to address the proliferation issues raised by the United States. Moreover, such sanctions have also heightened awareness of nonproliferation and export control issues in a wider set of enterprises and government entities, helping to move the whole system toward greater compliance.
These same cases, however, suggest that sanctions should not be a first resort. At one recently sanctioned Russian entity, for example, the enterprise manager and the enterprise's export control officers believed they had made a good faith effort to comply with Russian law and MTCR Guidelines. Although clearly willing to try to accommodate U.S. concerns, the enterprise officials appear to have had little direct contact with U.S. government officials on the matter before the United States imposed sanctions. In another instance, the arms control program of a key Chinese nuclear organization only discovered it had been placed on the Entities List through information obtained through the World Wide Web, not through any direct contact with U.S. government officials. In both instances, more direct contact with the entities in question might have proved fruitful in addressing U.S. concerns.
Penalties and Enforcement
For many potential violators, the monetary penalties associated with the old EAA posed no compelling reason for compliance. By sharply increasing the penalties for violations, the draft redresses this problem and helps implement the first element of a "higher fences, fewer goods" strategy. The draft could go farther, however, in the emphasis it places on enforcement by:
Including sound and compatible national enforcement policies among the criteria for an effective multilateral export control regime; and
Making enhanced cooperation and transparency on enforcement issues a major item for negotiations with other members of the supplier regimes (as the current draft only includes this as an objective in negotiations with non-members).
Enforcement remains a weak link in implementing nonproliferation export controls in many countries, as many governments appear to rely on a "trust-based" enforcement system, rather than the "trust, but verify" approach taken by the United States. Among other negotiating objectives, the United States could seek to increase the penalties imposed by other governments to match U.S. penalties, and to increase the resources countries devote to enforcement. The United States also could attempt to negotiate better approaches to detecting violations and imposing sanctions at the multilateral level. This might include better modalities for and more extensive use of pre-license checks and post-shipment verification by other countries. Even if these efforts do not succeed in developing a multilateral response, they make U.S. sanctions consistent with a broader effort on enforcement.
Obligations for U.S. Exporters
The proposed legislation appears to eliminate the Entities List and shifts the primary burden for end-user determinations back to the executive branch. This should not, however, relieve exporters from reasonable obligations to assess the end-use and end-user of its products or services. Japanese industry, for example, worked with the Ministry of International Trade and Industry to develop specific criteria to include in export contracts. These criteria apparently meet the nonproliferation concerns of the government while limiting their obligations and liability. Here, the Secretary of Commerce, in consultation other agencies, the Regulations and Procedures Technical Advisory Committee, the President's Export Council Subcommittee on Export Administration, trade associations, NGOs, and other bodies, could create a set of reasonable obligations for U.S. exporters regarding end-use and end-user determinations, such as following the guidelines on "red flags."
In some other international regimes, moreover, non-governmental entities can play an important role in improving compliance with regime norms. Action by insurance companies, professional societies, trade associations, and other groups can improve monitoring, impose significant sanctions for non-compliance, and so on. In this instance, the federal government might establish a means for the private sector or other NGOs or the international community to provide authoritative audits of end-users, and provide some reward or relief from liability for exporters that use these audits. Several companies already attempt to provide these assessments for exporters and investors. If these companies are well regulated, then rewarding exporters for seeking such counsel through swifter licensing or using these practices as a mitigating factor in the prosecution of violations seems a reasonable means to secure greater industry compliance and prevent cases of sensitive technology ending up in foreign nuclear weapons laboratories.
In addition to the issue of enforcement, the proposed legislation appears to limit the capacity of the President to enter into new national security supplier arrangements. In the case of high-performance computers, for example, the legislation would make it more difficult for the United States to build a broader multilateral arrangement based on its current bilateral agreement with Japan. Similarly, this would restrict the capacity of the United States to replace the Wassenaar Arrangement with a more robust institution. As important, as proliferation concerns related to new technologies evolve, such as in the area of bio-technologies or software viruses, the United States and the international community may need to construct new and distinct export control arrangements rather than attempt to absorb these concerns through existing multilateral structures.
The EAA and U.S. Leadership
By virtue of its capabilities and interests, the United States plays a leading role in promoting nonproliferation export controls around the world. The inability of the U.S. government to craft a firm legislative foundation for its own controls on the export of dual-use goods, technologies, and services over the last decade, however, has compromised U.S. leadership initiatives. When the legal basis for nonproliferation export control laws is one of the first concerns raised by U.S. officials in discussions with representatives from the states of the former Soviet Union, the absence of an EAA at best embarrasses the United States and at worst, makes the United States appear hypocritical. In discussions with hundreds of foreign government officials in more than two dozen countries throughout the 1990s, I found that many wanted the United States to take a position on key export control issues, such as catch-all controls, so that they could develop complementary policies and practices. Without the policy guidance a new EAA could provide U.S. officials in international negotiations, however, these officials eventually crafted their own solutions to export control issues when they could no longer wait for the United States to act. Although international cooperation on nonproliferation export control policies has increased substantially during the last decade, the lack of an EAA has reduced the capacity of the United States to influence the direction, scale, and pace of such cooperation. Most important, if the United States can not coordinate its export controls with its partners, then the regimes will become less effective and less fair, as those attempting to acquire weapons of mass destruction will be able to exploit more differences and U.S. businesses will likely face more restrictions than their foreign competitors.
In my discussions with hundreds of export control officials from dozens of countries during the last decade, I often emphasize that strong export controls improve their trade prospects, not diminish them. There is some anecdotal evidence to support this argument. Poland, the Hong Kong Special Administrative Region, Taiwan and other governments that have adopted robust nonproliferation export controls in the 1990s, for example, increased their exports through access to U.S. technology and investment. Parallel promises of access to foreign technologies, however, are not quite as significant an incentive for U.S. industry. Nonetheless, effective and fair national and multilateral export control regimes can help secure the stable foundation and a level playing field upon which U.S. trade and commerce depend. Even for the United States, a prudent system of national export controls is trade enhancing, not trade restricting.
Again, I thank the Committee and the Chairman for giving me this opportunity to speak.
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