This is in response to the Commerce Department’s request for comments on the foreign policy export controls maintained by the Bureau of Industry and Security as part of the Export Administration Regulations.
The first thing to observe is the way foreign policy controls are scattered throughout the Regulations instead of being in one place as is clear from just a quick glance at the BIS list of twenty-two foreign policy controls identified in its request for comments. Exporters are forced as a consequence to review and analyze a wide variety of provisions beyond those needed to classify a given product or technology and determine whether an item so classified is exportable in accordance with the Country Chart. By surrounding product classification and Country Chart analysis with numerous other, difficult to discern provisions that must be considered in determining whether a transaction is permissible, the Regulations make it easy to overlook the totality of what needs to be taken into account.
The Commerce Department’s Export Control Decision Tree at Supplement No. 1 to Part 732 of the Regulations, moreover, is misleading because it does not lead the exporter to each of these other provisions. The Decision Tree, for example, does not lead the exporter to section 742 of the Regulations except for a reference to 742.18 of the Regulations whereas section 742 contains numerous other foreign policy export control provisions.
In and of itself, that might not be fatal except that so many of the provisions even if the exporter manages to find them are so complex with their references to Commerce Control List numbers and sections of the Export Administration Regulations that their applicability and true impact cannot easily be discerned.
Among the numerous examples are the following:
Section 742.1 (d) pertaining to anti-terrorism controls:
Commerce maintains anti-terrorism controls on Cuba, Iran, North Korea, Syria and Sudan under section 6(a) of the Export Administration Act. Items controlled under section 6(a) to Iran, Syria, Sudan, and North Korea are described in §§ 742.8, 742.9, 742.10, and 742.19, respectively, and in Supplement No. 2 to part 742.
Section 742.6 (a)(1) pertaining to regional stability controls:
As indicated in the CCL and in RS column 1 of the Commerce Country Chart …, a license is required to all destinations, except Canada, for items described on the CCL under ECCNs 3A982; 3D982; 3E982; 6A002.a.1, a.2, a.3, .c or .e; 6A003.b.3, and b.4.a; 6A008.j.1; 6A998.b; 6D001 (only ‘software’ for the ‘development’ or ‘production’ of items in 6A002.a.1, a.2, a.3, .c; 6A003.b.3 and .b.4; or 6A008.j.1); 6D002 (only ‘software’ for the ‘use’ of items in 6A002.a.1, a.2, a.3, .c; 6A003.b.3 and .b.4; or 6A008.j.1); 6D003.c; 6D991 (only ‘software’ for the ‘development,’ ‘production,’ or ‘use’ of equipment controlled by 6A002.e or 6A998.b); 6E001 (only technology’ for ‘development’ of items in 6A002.a.1, a.2, a.3 (except 6A002.a.3.d.2.a and 6A002.a.3.e for lead selenide focal plane arrays), and .c or .e, 6A003.e.3 and b.4, or 6A008.j.1); 6E002 (only ‘technology’ for ‘production’ of items in 6A002.a.1, a.2, a.3, .c, or .e, 6A003.b.3 or b.4, or 6A008.j.1); 6E991 (only ‘technology’ for the ‘development,’ ‘production,’ or ‘use’ of equipment controlled by 6A998.b); 6D994; 7A994 (only QRS11-00100-100/101 and QRS11-0050- 443/569 Micromachined Angular Rate Sensors); 7D001 (only ‘software’ for ‘development’ or ‘production’ of items in 7A001, 7A002, or 7A003); 7E001 (only ‘technology’ for the ‘development’ of inertial navigation systems, inertial equipment, and specially designed components therefor for civil aircraft); 7E002 (only ‘technology’ for the ‘production’ of inertial navigation systems, inertial equipment, and specially designed components therefor for civil aircraft); 7E101 (only ‘technology’ for the ‘use’ of inertial navigation systems, inertial equipment, and specially designated components for civil aircraft).
Believe it or not, this is an exact quote!
Section 742.6 (a)(4)(i), also pertaining to regional stability controls:
As indicated in the CCL and in RS Column 2 of the Commerce Country Chart (see Supplement No. 1 to part 738 of the EAR), a license is required to any destination except Australia, Japan, New Zealand, and countries in the North Atlantic Treaty Organization (NATO) for items described on the CCL under ECCNs 0A918, 0E918, 1A004.d, 1D003 (software to enable equipment to perform the functions of equipment controlled by 1A004.d), 1E001 (technology for the development, production, or use of 1A004.d), 2A983, 2A984, 2D983, 2D984, 2E983, 2E984, 8A918, and for military vehicles and certain commodities (specially designed) used to manufacture military equipment, described on the CCL in ECCNs 0A018.c, 1B018.a, 2B018, 9A018.a and .b, 9D018 (only software for the ‘use’ of commodities in ECCN 9A018.a and .b), and 9E018 (only technology for the ‘development’, ‘production’, or ‘use’ of commodities in 9A018.a and .b).
This, too, is an exact quote!
Compounding the problem is the overlap between Commerce foreign policy controls and OFAC’s economic sanctions regulations.
One of many examples is contained in the Commerce provisions relating to Iran.
Section 746.7 (a)(1), for example, begins by providing in a numerical recitation common to the Regulations elsewhere as follows:
A license is required under the EAR to export or reexport to Iran any item on the CCL containing a CB Column 1, CB Column 2, CB Column 3, NP Column 1, NP Column 2, NS Column 1, NS Column 2, MT Column 1, RS Column 1, RS Column 2, CC Column 1, CC Column 2, CC Column 3, AT Column 1 or AT Column 2 in the Country Chart Column of the License Requirements section of an ECCN or classified under ECCNs 0A980, 0A982, 0A983, 0A985, 0E982, 1C355, 1C395, 1C980, 1C981, 1C982, 1C983, 1C984, 2A994, 2D994, 2E994, 5A980, 5D980, or 5E980.
The Regulations then go on to provide in section 742.8 (a)(1) that, regardless of whether a proposed export is covered by any of these designations, “a license is required for antiterrorism purposes [under the Regulations] to export or reexport to Iran any item for which AT column 1 or AT column 2 is indicated in the Country Chart column of the applicable ECCN or any item described in ECCNs 1C350, 1C355, 1C395, 2A994, 2D994 and 2E994.”
As if attempting to understand these provisions were not terrifying enough, the Regulations further provide in sections 742.8 (a)(5) and 746.7 (e), respectively, that “[e]xports and certain reexports to Iran are subject to a comprehensive embargo administered by the Department of the Treasury’s Office of Foreign Assets Control” and that “[n]o person may export or reexport any item that is subject to the EAR if such transaction is prohibited by [OFAC’s] Iranian Transaction Regulations … whether or not the EAR requires a license for the export or reexport.” While it is not entirely clear how this provision should be interpreted, it means at a minimum that a violation of OFAC’s regulations pertaining to Iran is a violation of the Export Administration Regulations if the transaction involves an item subject to the Regulations even if the Regulations themselves do not prohibit the transaction.
The Regulations also contain confusing sections like section 744.8 (2)(i) and others saying “U.S. persons are not required to seek separate authorization from BIS [Commerce] for an export or reexport [subject to OFAC regulations]” and that “[i]f OFAC authorizes an export from the United States or an export or reexport by a U.S. person … such authorization constitutes authorization for purposes of the [Export Administration Regulations] as well.” Statements like this beg the question of whether it is the absence of an OFAC prohibition or the issuance of an OFAC license despite a prohibition that constitutes OFAC authorization.
The problem is illustrated by the Commerce Department’s prohibitions relating to Executive Orders 13382, 13224, 12947, 13315, 13310, 13448 and 13464 in sections 744.8, 744.12, 744.13, 744.18, 744.22, respectively.
Each of these executive orders blocks property and interests in property of designated persons if that property is “in the United States [or] come[s] within the possession or control of United States persons” and prohibits “any transaction or dealing by United States persons or within the United States in property or interests in property” of persons so designated.
Nothing in these executive orders, however, authorizes a prohibition on reexports of items subject to the EAR just because they are subject to the EAR yet the Regulations provide in subsections (a)(1) and (a)(4) of sections 744.l2, 744.13, 744.18 and 744.22 and subsections (a)(1) and (a)(2)(iii) of section 744.8 that reexports of items subject to the Regulations to a designated person from abroad are prohibited even if the reexport is by a non-U.S. person and no U.S. person is involved.
The Regulations thus prohibit what the executive orders and OFAC’s implementing regulations do not, making the executive orders and OFAC’s implementing regulations something of a trap for the unwary because reliance on OFAC’s prohibitions alone to determine what is permissible under the Regulations is obviously insufficient.
They also raise questions about the legitimacy of Commerce Department actions in the foreign policy sphere when they prohibit activities not prohibited by the animating executive order, which is presumably based on a presidential determination of exactly what the President wishes to do in issuing the executive order in the first instance. Unilateral prohibitions applicable to non-U.S. persons, moreover, are particularly sensitive because of other countries’ sensitivities about the extraterritorial reach of sanctions in which they do not participate.
The scattering of foreign policy controls in various places in the Regulations, the virtual impossibility of understanding them simply by reading them given their intricate, numerical references to CCL and regulatory section numbers and the overlap between Commerce and OFAC regulations dealing with the same subject undoubtedly have adverse consequences for their overall effectiveness.
Some exporters will simply ignore the Regulations as not being worth the effort required to understand them. Some will try to understand them but give up because of the difficulty of understanding them or uncertainty about whether they have identified all the pieces of the puzzle. Some will hire outside experts to deal with the problem.
Some who ignore them will forge ahead with a desired transaction and simply keep their fingers crossed that they have done nothing wrong or, if they’ve done something wrong, will not get caught. Commerce enforcement will never be able to detect all transgressions.
Some will engage in prohibited transactions because their journey through the Rube Goldberg machine has led them to the wrong conclusion or because they have resolved an ambiguity in ways with which Commerce ultimately disagrees.
Some will simply forego permissible business opportunities because the journey through the Commerce and OFAC regulations is simply too difficult or fraught with so much uncertainty.
And others will wade through the mind-boggling complexity because they have the wherewithal or inclination to pay outside experts and proceed with transactions if the experts give them the green light.
Random, unpredictable and idiosyncratic consequences like these do not advance U.S. interests. Business that could take place is lost. Business that should not take place goes on. Punishing transgressors, moreover, cannot undo the harm that is done.
Making U.S. foreign policy controls more effective in what they are intended to accomplish thus requires the following:
- Consolidation of the controls into one section of the Regulations instead of having them scattered in a seemingly random fashion hither and yon;
- Reform of virtually incomprehensible provisions like those described above that require a laborious transliteration of numbers into words and an elaborate search for the substance of provisions identified only by section numbers to discern what is being said; and
- Elimination of provisions in the Export Administration Regulations that overlap, duplicate or are inconsistent with OFAC sanctions dealing with the same subject.
The extension of the Commerce Department’s foreign policy export controls without these reforms will continue to undermine their ability to achieve their intended purposes, their compatibility with overall U.S. foreign policy objectives, the willingness of other countries to accept them, their benefits in comparison to the adverse effects on U.S. export performance and the ability of the United States to enforce them effectively.