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13 February 1998
Source: http://www.bxa.doc.gov/bxaissue.htm

Opening Address
Under Secretary William A. Reinsch
Bureau of Export Administration
U.S. Department of Commerce

Update West 98
Los Angeles, California
February 10, 1998

Continuing Global Change | Wassenaar Arrangement
Chemical Weapons Convention | Domestic Changes
Encryption | Export Administration Act
Process Reform | Enforcement | Foreign Export Controls
The Future | Conclusion

Introduction

Good morning and welcome to Update 98.

It is a pleasure to be with you again at BXA's annual West Coast reunion with American exporters. This conference provides an opportunity to brief you on what we have accomplished, what we are planning, and to hear back from you on whether our direction is the right one.

Continuing Global Change

In past years I have discussed with you the extraordinary economic and political changes wrought by the end of the Cold War and the breakup of the former Soviet Union. By now we are familiar with those changes and busy going about the business of adapting to them.

Yet at the same time the roller coaster ride of further change continues, both here and elsewhere, as our economy continues to globalize, and technological progress advances rapidly. Technology has always been difficult to contain, and now the Internet, the modem, and the availability of high performance computers make its diffusion even easier. They also make the consequences of that diffusion more serious. That means it is time for some new thinking about export controls and the role they play.

Part of that is identifying other means of protecting our security as well as new threats to it. That was the impetus for the President's Commission on Critical Infrastructure Protection to study the threat of cyber attacks on our critical infrastructures -- communication and information networks, transportation, energy, banking and finance, and so on.

The Commission has completed its study, and we are now working on a plan to reduce our cyber vulnerabilities. The private owners and operators of these infrastructures are the front lines of this effort, and we plan to work in partnership with them to deal with threats and to develop new protections to make threats less credible. The President's plans for implementing the Commission's recommendations will be out soon, and I anticipate a role for the Commerce Department, particularly in the information and communications sectors. This is not export control, but it is recognition of the breadth of the concept of national security in a global economy, and how our mission is changing as a result.

Efforts like this also demonstrate the inherent limitations of export controls in trying to prevent bad actors' acquisition of high tech tools. We fool ourselves if we think export controls alone can stop the spread of high technology, and we underestimate the resistance we will encounter from other nations who accuse us of trying to hold back their economic development and entry into the global information age.

That makes it more important than ever that we do in reality what we have often said we want to do in theory -- focus controls on those choke-point technologies without which a weapon cannot be built and which can be controlled because of their special qualities, small number of producers, or limited alternative uses. That is why Congressional action last year imposing new restraints on the export of high performance computers is so frustrating. By forcing us to devote time and scarce resources to controlling a ubiquitous technology, Congress is missing the point of export controls and diverting our attention from enforcement areas that are more important and more productive. BXA, by law, is now required to perform a post-shipment check on every computer over 2,000 MTOPS sold to 50 countries. In a very short time this will be an unsustainable burden made all the worse by the fact that it serves no purpose. Computing technology is readily available worldwide, and our efforts will only handicap our companies' competitiveness as well as retard legitimate economic development elsewhere in the world.

We also face rogue states, like Iran, Iraq, Libya, and North Korea, still determined to acquire weapons of mass destruction and still destabilizing their regions through their support of terrorism. They have branched out from conventional military buildups and efforts to acquire a nuclear capability to chemical and biological weapons and the missile technology to deliver them. The widespread availability of some of those ingredients and technologies -- which have common civilian uses -- makes the threat more dangerous and our export control task more difficult.

It will be even more difficult, if not impossible, to the extent it is unilateral. We have learned through painful experience that multilateralism is critical to our success, even as it remains uneven in practice.

Trying to deal with these challenges has demanded changes in our export control system and changes in the way BXA operates. In past meetings with you, I laid out our goals for reform, streamlining and liberalization.

The good news is that many of these goals have been met. The bad news is that there are attempts, like the one I just mentioned, to roll back those hard-fought improvements and return us to a darker era. Even so, we are not standing still. More remains on our agenda, and I would like to take a few moments to comment on our successes and our plans.

EXPORT CONTROL CHANGES

Wassenaar Arrangement

On January 15th we published regulations to implement the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use technologies. As you know, this has been a long time coming.

The Wassenaar Arrangement's lack of strong central authority and its lack of explicit target countries, in contrast with COCOM, is a reflection of the times -- the absence of a single large threat and lack of agreement over the nature and seriousness of the smaller threats. That weakness has complicated its development and made consensus among the expanded membership more difficult to achieve. Nevertheless, its inclusion of conventional weaponry is a major step forward, and I am confident that as its procedures and reporting requirements become routinized, discipline will grow.

In that regard the battle with Congress over the Chemical Weapons Convention reminded us that arms limitation agreements rarely arrive fully grown and complete. They are incremental. Establishing comprehensive adherence and compliance is an ongoing process that takes years of patience and confidence building. The result is worth waiting for, but the time spent getting there is also not wasted. Even works in progress produce successes along the way.

Chemical Weapons Convention

With respect to the CWC, its ratification has been one of our most significant nonproliferation accomplishments. It prohibits the development, production, acquisition, retention, transfer and use of chemical weapons. It is one of the most comprehensive arms control treaties of the post World War II era, and I look forward to working with industry to ensure an effective compliance program. Congress has not yet passed in final form the implementing legislation, but we are preparing for our role once it does so. BXA will have major responsibilities for obtaining company data declarations and for managing inspections of civilian facilities.

We are also deeply engaged in the ongoing negotiations to strengthen the Biological Weapons Convention by providing a similar inspection system. That will occupy an increasing portion of BXA's attention over the next two years.

Domestic changes

In past years you have listened to me tick off our domestic accomplishments: licensing process reform, rewritten regulations, control liberalizations on computers, software, semiconductors, semiconductor manufacturing equipment, and, most recently, oscilloscopes to mention a few, a new commodity jurisdiction review process -- including resolution of the hot section technology and commercial communication satellite issues.

We are now processing some 11,000 licenses per year, and I do not expect that to decline significantly in the future because I see few high volume areas ready for major liberalization. Our challenge will not be to shrink it further but to keep it from growing due to our failure to keep pace with technology advances.

In terms of licenses approved to the western region of the U.S. -- I've got some fairly compelling numbers. In the past 5 years, BXA has approved more than 18,000 applications valued at more than $20 billion. This represents 32% of all license approvals and 36% of their value. During this same time period, California companies alone have received nearly 13,000 licenses valued at $17.4 billion, accounting for 23% of all licenses and 31% of the total value.

Encryption

One of the reasons why our licensing load is inching back up is the transfer of encryption licensing to Commerce earlier this year. No speech from me would be complete without a paragraph on encryption, so here it is. Our policy is intended to balance the competing interests of privacy, electronic commerce, law enforcement, and national security. We believe that use of key recovery technologies is the best way to achieve that balance. We do not focus narrowly on a single technology or approach. We expect the market to make those judgments, but we are taking steps to facilitate the development and dissemination of these products.

Our regulations allow recoverable encryption products of any strength and key length to be exported freely after a single review by the government. To encourage movement toward recoverable products, we have also created a special, two-year liberalization period during which companies may export 56 bit DES or equivalent products provided they submit plans to develop key recovery products. This provides an incentive for manufacturers to develop these products, which in turn will facilitate the development of key management infrastructures. So far, we have approved 47 plans, from companies large and small, and have five more pending.

In terms of licenses, in calendar year 1997, we received 2076 applications, and approved 1801 licenses with a dollar value of $4.7 billion. (The reason for the high dollar value is because we approve encryption licensing arrangements for extended periods of time, from 4 to 10 years.)

The interagency working group on cryptography policy, which includes representatives from BXA, NSA, and the FBI, continue to meet to discuss ways to streamline the licensing process on encryption export licenses. Several items have been identified and progress is being made in these areas. We have established a pre-Operating Committee group to discuss contentious cases. In part as a result, no encryption cases have been escalated to the OC since mid-December. We have created an Autolist to eliminate agency referrals. So far, we have agreed to list specific products amounting to 20% of the products we see. This means, once implemented, that a subset of licenses can be processed by Commerce without prior referral to other agencies. Finally, we have posted on our web page "helpful hints" to make the encryption licensing process more transparent. We continue to work on other initiatives to streamline the process.

We are also discussing with our trading partners a common approach to encryption policy. We have found that most major producing countries have public safety and national security concerns similar to ours. We are working together with these governments to ensure that our policies are compatible, and that they facilitate the emergence of a key management infrastructure.

With respect to legislation, we believe the McCain-Kerrey Bill, S. 909, the Secure Public Networks Act, provides a sound basis for legislation acceptable to both Congress and the Administration. In particular, we appreciate the bill's explicit recognition of the need to balance competing objectives and of the potential for key recovery to become a market-driven mechanism to facilitate maintaining that balance.

Export Administration Act

Speaking of legislation, my speech would be incomplete if I failed to mention the Export Administration Act. I continue to hope for its passage. We made good progress in the House last year, and I hope the same bill will be considered there again soon. If so, perhaps this time the Senate will be able to take it up as well.

This bill does not do everything you want. Frankly, everything you want cannot pass the current Congress, just as it could not pass the two previous Congresses. The bill does take some important steps forward, however, in the areas of unilateral and multilateral controls, in broadening the coverage of unfair impact, and in codifying some of the procedural improvements I've described. I believe you may want that statutory protection of what this Administration has done. Some of you may see the bill as a cap on your ability to make further progress in a more hospitable Congress. I'd urge you to see it instead as a floor that will build in protection against a less friendly Administration and Congress.

That such protection is needed is illustrated by the Congressional attack on our computer policy. The President's decision was a realistic response to the technology available in the marketplace, and the procedures we put into place have, by and large, worked. Where they have not, investigations are ongoing. This is an enforcement issue, not a policy issue. Reimposing specific licensing requirements on a broad range of widely available computers is a sledge hammer solution that will substantially restrict legitimate trade without solving the problem of diversion.

While we intend to enforce these new provisions vigorously, as we are required to do, we have also begun the process of reviewing our control parameters and plan to present the President with a recommendation next month.

If there is any good in this episode, it is validation of BXA's long standing belief that we need to provide more specific guidance to exporters on proliferation end-users. That is why we have begun to publish the names of entities of concern, and we expect to continue that in the future. At the same time, business should redouble its efforts to know its customers and do its own due diligence using open source information about end-users.

There are, of course, other issues we continue to face besides the need to provide more end user information -- for example, the rule on hiring foreign nationals, longer than desirable license processing times, and a disturbing trend toward using individual licensing decisions as a means of de facto policy making. There are also the periodic surprises Congress puts on the table. We will continue to work on all of those. We also will ensure that the work we have done and the reforms we have undertaken do not fall by the wayside. I hope this time next year I will be able to include all these outstanding issues in the finished column.

Process Reform

As I indicated, we've made a great deal of progress reforming our process. Yet more remains to be done. We need to ensure that Executive Order 12981 is functioning properly. I invite your comments -- positive or negative -- on that process as we undertake this review and continue our efforts to reduce licensing times. One of Roger Majak's goals is to make our procedures work better, and I know he would welcome your input on how to do that.


Enforcement

On the enforcement side we have continued the shift to a focus on bad end users or end uses. That places a greater burden on our enforcement and intelligence resources, and we have just concluded a major reevaluation of how our enforcement unit works. We have developed a 5 year strategic plan for enforcement strategies that will make EE a flagship to lead us into the next century.

In the past we have had notable successes in pursuing and prosecuting violators like those who assisted Iraq's bomb-making efforts, Libya's attempts to evade UN sanctions, and India's strategic missile program. We recently concluded a lengthy investigation and imposed an $824,000 penalty on a company for shipping botulinum pharmaceutical toxin product without a license in violation of export controls on biological agents. We hope this case will be instructive for other companies. This was an unusual case because the toxin exported has medical applications. We hope that other companies developing or selling biological products will take note of this case and be careful to comply with our laws and regulations.

These results are a tribute to our effective enforcement team, but they are also a reminder of the continuing need for such a team. There are bad guys out there; we all know that, and we all need to be alert to them.

Foreign Export Controls

BXA not only works with our domestic industry, but also with foreign nations tofurther our mutual interest in strong export controls. Over the past several years we have helped them draft their laws, obtain and install hardware and software to maintain a control program, train licensing officers, enforcement agents, and border control officials, and prepare to adhere to international regimes. The result will be better global controls which will benefit all of us.

The Future

Despite our progress in reorienting, major challenges remain. As the pace of economic globalization quickens, technology becomes more diffuse, and maintaining effective controls in the face of widespread foreign availability becomes more difficult.

We do not have a monopoly on sophisticated technology, and countries intent on developing weapons of mass destruction can usually find a number of suppliers to choose from. We would be wasting our time if we maintained long lists of items to control unilaterally that are available from other sources.

Instead, as we continue to pare those lists down to what is truly critical, we must also concentrate on increasing multilateral discipline over those same items. Developing a consensus on that is a continuing challenge for us. Let me suggest three ways to help that process:

  1. The first is to continue our own control review process, applying a strict effectiveness test. Controls that do not advance our security or policy objectives should be eliminated. Doing so will add to our credibility with our trading partners, most of whom take a much more limited approach. We have not done as good a job as we should have of reducing unilateral controls and sanctions. This is not an easy task, but it is one on which we should -- and will -- press harder.
  2. The second is to provide more information to exporters and our trading partners about problem end users. Many of our trading partners have followed our lead and adopted a catch-all clause like our enhanced proliferation control initiative. Making them work effectively means sharing more information -- about end users, end uses, potential for diversion, and so on. As I mentioned before, we have made some progress on this issue, and we will continue to provide this much needed information.
  3. The third is to better coordinate our sanctions policy. We are driven to sanctions in cases like Cuba and Iran, often because of the Congress, but also by our determination to condemn and modify, if we can, behavior we find unacceptable. Increasingly, however, we think of them as a first resort, rather than a last resort. More than many other issues, however, the sanctions devil is in the details. Badly implemented, these measures can cause enormous uncertainty and difficulty for businesses -- even for those who do not trade with these countries and have no intention of doing so. Careful implementation will minimize the extraterritorial impact that so irritates our allies.

The Administration is working to develop a healthier sanctions policy. The one lesson we've all learned is that unilateral sanctions almost never work -- support and agreement for sanctions among the international community is paramount to reaching a successful result.

Conclusion

In closing, let me thank you for your understanding during these last few years. These changes have not come easily, and we have tried very hard to consult with you as we have gone forward. Your cooperation and support in that is much appreciated and continues to be needed.

Let me conclude by mentioning BXA's two new Assistant Secretaries: Roger Majak and Amanda Debusk. As you will see, they are intelligent, talented and dedicated individuals, and I hope you will take time to get to know them.

In that regard, we are fortunate to have in our Secretary Bill Daley a leader who understands the problems we face and provides the same caliber of leadership that we were so fortunate to have with Ron Brown and Mickey Kantor.

Remember though, that while the people have changed, our policies remain the same. We will continue an export control agenda which recognizes the global diffusion of technology and our economic interest in being at its forefront, and which balances our national security and foreign policy interests with our economic interests, and one that will serve us well in meeting these objectives into the next century.

Source: http://www.bxa.doc.gov/press/98/updamand.htm

Remarks of F. Amanda DeBusk
Assistant Secretary for Export Enforcement
Bureau of Export Administration
U.S. Department of Commerce

Update West 98
Los Angeles, California
February 10, 1998

Good morning and welcome to Update West. It is a real pleasure for me to meet all of you in the exporting community. I appreciate having this opportunity to let you know what is happening in Export Enforcement and what our plans are for this year.

Export Enforcement is strengthening its operations. In 1997, we hired 36 new special agents for our field offices. We are planning more new hires this year. Now that we have a larger and stronger workforce, we are in a better position to meet the new enforcement challenges. We have been generating a lot of new cases. Our case inventory is around 1,700 cases. There are many national security cases, and the number of those cases is growing. We also have numerous cases involving illegal shipments to embargoed destinations such as Cuba, Iran and Libya.

While we vigorously pursue cases, we also have major preventive enforcement and outreach programs. We provide firms with specific export guidance, while at the same time giving our office a better understanding of the private sector's needs. In 1997, we completed over 500 outreach visits to companies, and we plan to increase the number of visits to companies in 1998. Export Enforcement works closely with Customs. We review Shippers Export Declarations, focusing on destinations and items of proliferation concern.

We conduct end-use checks overseas to determine the disposition of controlled commodities. We review visa applications to prevent unauthorized access to controlled technology by foreign nationals visiting the United States. We also strictly enforce the antiboycott regulations. For example, last month we reached a settlement agreement with a company which will pay a $298,000 civil penalty to resolve allegations that it agreed to comply with the Arab boycott of Israel.

Today I would like to discuss five programs on which a lot of attention has been focused. They involve: high performance computers, Hong Kong and China, encryption controls, the Chemical Weapons Convention, and the Fastener Quality Act.


Conclusion

In closing, I want to thank you for this opportunity to share with you some of the new policy challenges and new areas of responsibility we face in the year ahead. I encourage all of you to participate in the panel discussions that Export Enforcement has planned for today. The theme to the enforcement panel is "Don't Let This Happen to U.S." I would like to introduce my deputy, Frank Deliberti, who will be chairing the panel. Frank, please stand. I also would like to introduce Bob Schoonmaker, the Special Agent in charge of our Los Angeles field office. Bob, could you also please stand. The program they have developed will provide an excellent opportunity for you to learn about our enforcement programs. It also gives us an opportunity to learn about your concerns and interests.

Thank you.

Source: http://www.bxa.doc.gov/press/98/updmajak.htm

Opening Remarks
R. Roger Majak
Assistant Secretary for Export Administration
U.S. Department of Commerce

Update West 98
Los Angeles, California
February 10, 1998

1997 was a great year for American exports. U.S. companies exported almost a trillion dollars in goods, services, and technology. These record high exports account for fully one-third of our economic growth.

The Bureau of Export Administration received 11,472 license applications in FY 1997, valued at $21,003,900,693. That's just over 2% of total U.S. exports. Of course, it's an important 2% - your 2%!

The eleven thousand-plus licenses we received in 1997 reflect a 24% increase over 1996. We completed action on 8,717 of those licenses in FY 1997, returning 1522 without action and denying only 318.

Ninety-one percent of these licenses were referred for interagency review under Executive Order 12981. The Departments of State, Defense, Energy and the Arms Control and Disarmament Agency (ACDA) are the principal agencies entitled to review applications and advise Commerce of their recommendations. In addition, the Department of Justice and National Security Agency participate in processing licenses for encryption. Despite this extensive referral requirement, average processing time dropped from 33 days in 1996 to 32 days last year -- a trend we are determined to continue and accelerate. Once again in 1997, we were able to resolve all interagency differences at the Operating Committee or the Advisory Committee (ACEP) without referring a single case to Cabinet level.

In fact, by improving our internal procedures, we have in recent months reduced by more than half the number of cases that go to the Operating Committee -- and we've done so without increasing the rate of denials. That has been done, in part, by improved management procedures on the part of my staff and by contacting the exporter earlier in the process for additional information we may need. Some of you may have noticed that you are being contacted more often on cases. To improve front-end processing even further, I will soon be establishing an internal quality control group to better assure that each case enters the system properly classified and otherwise ready to process. We have improved the quality of information we are bringing to bear on cases -- much of that new information is from the Internet. By integrating that with information brought to the table by the other agencies, we are getting cases resolved more quickly and with greater confidence on the part of all agencies. That, in turn, has led to a greater trust among the agencies, and fewer interagency disputes. In short, the interagency arrangement, established by Executive Order 12981, is working. You should be seeing better results -- fewer denials and shorter average processing times.

The increase in licenses we are experiencing is attributable not only to increased exports, but to transfer of items from the Munitions List to Commerce jurisdiction. Encryption licenses account for a significant portion of the increase. We created a special division to handle those. As of today, there is only one encryption case that has been pending over 40 days.

At the same time, we removed certain items from control last year -- most notably oscilloscopes. Already this year, with the publication on January 15 of regulations conforming the U.S. list to the Wassenaar list, we have removed additional items such as pipes and valves used with nuclear plants.

We continue to review the employment of foreign nationals who are not permanent U.S. residents, but who would have access to controlled technology. Since our policy was clarified and licensing began in June 1997, we have decided 430 cases, only 3% of those have been denied. Only a few cases involving Iranian nationals are currently unresolved. We hope to be able to streamline the process further, especially for Tier 1 and 2 country nationals.

As you know, we have increased the number and broadened the scope of license exceptions available to exporters. This year, you will see an increase in the reporting requirements on the use of those exceptions. Some of those requirements are a result of changes in U.S. law. Others are based on agreements with our Wassenaar and other multilateral partners. We are making every effort to make those reporting requirements as straight-forward as possible, and to eliminate potential duplications.

The need to compile and analyze this reporting data has strained our internal data processing resources. Particularly, the need to analyze high performance computer information requested of us by the Congress has put us a bit behind in our efforts to implement filing of both information and applications via the Internet. We had hoped and expected to have that option available to you by now. In the meantime, however, applications filed electronically via our ELAIN system increased this year by one-third -- from 30% to 40%. We are continuing actively to prepare for Internet filing -- with the protection of full key recovery encryption -- at the earliest possible date this year.

We have been moving forward in a number of areas that have been troublesome for you. We have published additional names of entities about which we have proliferation concerns. We have issued revised and updated Export Management System guidelines to help you with your internal compliance procedures. We are also working with the Non-Proliferation Center on the "Diversion Risk Profile Search System" which we demonstrated at Update in July. It is being revised and updated based on your comments and the new version will be up on the Website in the spring for comments. In addition to the sessions on EMS today and tomorrow, we will be offering new workshops throughout the coming months. We have more information -- sooner -- on our Website, and I'm happy to see that there has been a dramatic increase in your use of that resource. Usage is going up every month.

The focus of today's export controls continues to be to deter the development of weapons of mass destruction. As the Cold War fades into history, the proliferation threat remains. The need to isolate rogue nations which have or seek to develop weapons of mass destruction assures that this will continue to be our focus for the foreseeable future. The increasing threat of biological weapons and the current negotiations of bio-safety and biological weapons verification agreements suggests more attention to biological agents, toxins and genetically modified organisms in the future.

Implementation of the Chemical Weapons Convention is our newest area of activity. Although the implementing legislation has not yet been enacted, we are prepared to supervise the required industrial inspections. A recent mock inspection at an industrial site went very well and greatly improved our understanding of the inspection process. Regulations governing those inspections will be issued as soon as the implementing legislation passes. We will soon issue separate regulations slightly expanding the list of chemicals subject to export controls to conform with the Convention. At the same time, we have taken steps to simplify and liberalize export controls on mixtures containing controlled chemicals so that many common commercial chemicals can be exported without a license.

All this gives us plenty to talk about at Update West. We appreciate your attendance and active participation. I hope we will have a full and frank exchange of views over these next two days. Customer service is an important part of our responsibility. You are our customers. As the old saying goes, if you are satisfied with our service, tell others. If you are unsatisfied, please tell us -- any one of us. We are here to listen as well as to inform. That is a tradition here at Update. I hope you will continue that tradition -- and take full advantage of it -- by giving us feedback in the group sessions or individually.