Hearing on Reauthorization of the Export Administration Act:
Private Sector Views

Prepared Testimony of Mr. John Douglass
President and CEO
Aerospace Industries Association

10:00 a.m., Thursday, June 24, 1999

I am John Douglass, President and CEO of the Aerospace Industries Association. I am pleased to have the opportunity to talk with you this morning about the Export Administration Act of 1999 on behalf of the members of AIA, which is the trade association that represents the major manufacturers of commercial and military aircraft, helicopters, missiles, satellites, engines, and related aerospace subsystems.

The aerospace industry currently employs 860,00 Americans. Our exports of aerospace products totaled $64 billion last year, and our industry had a positive trade balance of $41 billion - the largest of any sector in the U.S. economy. In fact over 40% of the aerospace products manufactured in the U.S. are exported. Not surprisingly, our industry is deeply concerned with export control legislation, regulation, and administration. We would like to commend you, Senator Enzie, and the rest of the Committee for attempting the task of drafting an Export Administration Act geared for the next century, as opposed to current law which is rooted in the Cold War.

I have just returned from the Paris Air Show. No event dramatizes more clearly how the world has changed from the mid-seventies, when the current EAA was drafted, to the world we in industry face today. When you walked through the exhibit halls and the static aircraft displays at the show, you saw first rate products from countries which were until recently on the other side of the Cold War - Russia, China, the Ukraine, the Czech Republic, etc, who are now customers, suppliers, and competitors to the rest of the Western world. Other countries such as Brazil, Israel, and Korea, which were not players in aerospace in the seventies, are now active participants in our industry. The line between military products and commercial products is much more difficult to draw than it was then, with countries making available communications satellites, GPS systems, avionics, unmanned aerial vehicles, and many other aerospace products that have both military and commercial uses.

Finally, the pace of high technology business has increased enormously. Designers work on common electronic bases in real time, often in several companies and several countries. Improved production techniques have reduced the time that is needed from order to delivery - in the case of commercial aircraft from three years to eighteen months, with a current target of nine months. Commercial companies, and increasingly the military, expect contractors to hold inventories and deliver parts anywhere in the world in forty-eight hours. Information is no longer transmitted on paper, but through nearly instantaneous electronic communication.

The philosophical underpinnings, legal structure, and administrative framework for U.S. export controls, which are intended to deal with such technology, have not changed at a comparable pace. As a result, there are too many export licenses required and too many agencies involved in the review and administration of such licenses, and the process takes far too long.

Last March I testified before the Subcommittee on this subject, and provided a more detailed background of our industry's concerns on export controls. I won't repeat those points. However, I did include a list of safeguards which the aerospace industry hoped would be featured in any new bill. Based on an extremely quick review of your draft bill, let me touch on each of those issues, and how they are addressed in the bill:

n Foreign Availability: Except for very unusual circumstances, U.S. companies should be allowed to sell products that are, or are expected to be, available from other sources. Shifting the source of supply does not punish the importer, it punishes the exporter. Section 302 of the bill certainly goes a long way to meet our concern. I am concerned that the section includes authority to suspend a foreign availability ruling for up to two years if the administration believes there is a high probability that multilateral negotiations could result in controlling a product unilaterally. Two years is a long time in today's market, and some countries might see negotiating with the U.S. as a good way to seize a market during the negotiations. By the time an agreement is reached or fails, the issue might well be moot for U.S. producers.

n Contract Sanctity: In general, companies should be able to honor existing contracts, except when multilateral sanctions cut all contracts. Under circumstances where contracts cannot be honored because of government controls, any non-performance breach of contract penalties owed by U.S. companies because of U.S. Government actions should be compensated by the federal government. Section 401(f) of the bill attempts to strengthen current law on this point.

n Support of Formerly Exported Products: As a general rule, companies should be able to support products previously exported to a country, even if new sales are prohibited. This is particularly true for product support related to safety. This is especially important to my industry. I might also note that commercial aircraft, even of countries under U.S. sanctions, frequently carry passengers who are citizens of the United States and other close allies, and fly over the air space of a great many countries. The draft does not address this issue. I believe a tightly drafted safety provision could be included either in the exemption section on agriculture and medicine, or in the contract sanctity section.

n Multilateral vs. Unilateral Controls: In general, unilateral controls should only be imposed as an interim measure leading to multilateral controls. The bill does encourage use of a multilateral approach. Section 804, however, includes an array of unilateral sanctions against violators of multilateral agreements, which would likely have the effect of punishing U.S. suppliers rather than the violator. Ideally sanctions, as well as controls, should be undertaken in a multilateral fashion.

n Economic Impact: Export controls are politically attractive because they are essentially an unfunded mandate - the cost of the controls is imposed on labor and industry and is not reflected in the federal budget. Section 701, which requires a Congressional Budget Office estimate of the likely costs to the U.S. of proposed export control, is precisely what we recommended.

n Time Limits: Economic sanctions, particularly unilateral foreign policy controls, should be of limited duration. The U.S. has in place a large number of export sanctions which have clearly not accomplished their objective, but there is no politically acceptable way to remove them. Sanctions that automatically terminate unless a new decision is taken help alleviate that situation. The draft bill partly addresses this issue by requiring a review of all outstanding foreign policy export controls. However, the section excludes current law. We would urge that the bill provide for some type of Congressional review, perhaps by GAO, of the effectiveness of current statutory export controls in at least the same time frame as executive branch review.

n Licensing Processing Time: Except in unusual circumstances, there should be some time deadlines imposed on the process by which licenses are reviewed by the Department of Commerce and other agencies. This is particularly important for commercial products that are generally purchased by private companies as part of an endeavor that is intended to return income to investors. The draft bill does address this issue. We are concerned that the executive branch review process envisioned in the bill could be lengthy, and makes it overly easy for a single agency to force the process up to the President's level without having to thoroughly justify its position at the lower levels. We prefer the current system of majority voting, in which a losing agency has to make a specific decision to demand a review at the next highest level.

Mr. Chairman, these are at best preliminary observations based on a quick review of a 116 page bill, which admittedly were made under the influence of jet lag. I am encouraged that the bill addresses many of the industry concerns expressed by AIA in our previous testimony. It seems to me the bill does two things. It provides a new starting point for what will hopefully be a new Export Administration Act that is an appropriate law for the next century. And it will trigger a discussion in the Congress that will help educate members as to the complexity of the subject, and lead to a new consensus on this subject. Many members have never been involved in a debate on the Export Administration Act, and a deliberative process will be exceedingly useful to remedy that situation.

I know you are eager to move forward with markup and floor debate on this bill. However, I would strongly urge you to provide an opportunity in the next two or three weeks for a discussion among your staff, industry, and the executive branch of your bill, going through it on a section by section basis. This will insure we all understand what you have in mind in each section, and allow all interested parties to provide comments. This process will likely provide a strengthened draft bill, and hopefully increase support on all sides for moving the bill forward.

I appreciate the opportunity to appear before you this morning, and am ready to provide any further input I can to move this process forward.

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