On January 22, 2008 President Bush issued a package of directives to modernize the US export control regime. These reforms seek to promote national security and advance US economic competitiveness and technological innovation through implementation of a more efficient and transparent export licensing process.

The Department of State announced the following measures in order to enhance the effectiveness of the Directorate of Defense Trade Controls (DDTC) in licensing the export of defense equipment, services and technical data:

  • Providing additional financial resources and intelligence support to the DDTC in order to ensure the timely adjudication of defense exports licenses;
  • Imposing a 60-day deadline for decisions on most routine defense export license applications;
  • Upgrading the electronic licensing system to permit the submissions of all types of defense licenses and enabling all agencies to access the same electronic
  • information; and
  • Updating US controls on exports involving dual and third country nationals from NATO and other allied countries.

The Department of Commerce's Bureau of Industry and Security (BIS), the primary licensing agency for dual-use exports, announced the following reforms in response to the directive:

  • Establishing a Validated End User (VEU) program that will facilitate trade to reliable foreign companies;
  • Imposing additional scrutiny of exports to foreign parties with a record of activities contrary to US foreign policy and national security through the expansion of the
  • Department's Entity List;
  • Performing regular updates of the list of controlled dual-use items;
  • Revising controls on intra-company transfers of sensitive items;
  • Revising controls on the export of encryption products;
  • Reviewing re-export controls; and
  • Increasing transparency through the publication of advisory opinions online and listing foreign parties that warrant higher scrutiny.

Moreover, the directives call for the creation of a formal interagency dispute mechanism to address commodity jurisdiction questions – i.e., to determine whether an item or service is subject to the export licensing authority of the DDTC or the BIS. Presently, commodity jurisdiction determinations are processed by the DDTC.

The Administration signaled that it wants to ensure that the US export control regime remains contemporary, as the nation faces evolving national security and economic challenges, by mandating the establishment of a multi-agency working group to improve procedures for conducting export enforcement investigations.

It is our observation that, by and large, the BIS and DDTC announcements in response to the President's directive reflect initiatives that have been previously discussed, proposed or in some cases, already implemented by the agencies. For example, BIS established its VEU program in 2007. In fact, VEU programs have been implemented by BIS for use in both China and India, with five companies having been declared eligible in China for VEU status. We have been active in advising our clients on the use of the BIS Authorization VEU to permit exports without individual licenses to one of these approved companies, Semiconductor Manufacturing International Corporation, facilitating exports to that company's facilities in Shanghai, Tianjin, Beijing and Chengdu.

Similarly, the Department of State recently amended the ITAR with regard to exports involving dual and third country nationals from NATO and other allied countries. Overall, we do not foresee any major regulatory changes arising from the President's initiative in the near future.