In April 2010, the Obama Administration announced a comprehensive export control reform effort. The goal of the reforms was to modernize the export control system to respond to the current threats the U.S. faces by strengthening controls over key strategic goods and technologies, while reducing controls over items that have less strategic significance. The Administration sought a new export control system whose guiding principle is “building high walls around a smaller yard.” See Fact Sheet on the President’s Export Control Reform Initiative, April 20, 2010, available at http://www.whitehouse.gov/the-press-office/fact-sheet-presidents-export-control-reform-initiative.
A little more than a year into this reform effort, it is worthwhile to look back at what has been accomplished thus far, look forward to the next stages of the effort, and consider some of the biggest challenges to the reform process going forward.
The U.S. export control system consists of several different regulatory regimes scattered among several different U.S. government agencies. The U.S. State Department’s Directorate of Defense Trade Controls (“DDTC”) administers the International Traffic in Arms Regulations (“ITAR”), 22 C.F.R. Parts 120-130, which govern the export of items designed or adapted for military use. Dual-use items applicable to both civilian and military uses, but not specifically designed or adapted for military use, are controlled by the U.S. Commerce Department, Bureau of Industry and Security (“BIS”), under the Export Administration Regulations (“EAR”), 15 C.F.R. Parts 730-774. U.S. economic sanctions and embargoes are maintained by the Office of Foreign Assets Control (“OFAC”) of the U.S. Treasury Department, under a plethora of regulatory regimes, for specific countries and entities of concern. Other U.S. government agencies, such as the U.S. Energy Department, Nuclear Regulatory Commission, and the Food and Drug Administration, also have their own export regulations.
For many years, exporters in many sectors of the U.S. economy have complained that the U.S. export control system is outdated and does not address the challenges of the post-Cold War environment. Exporters have also been frustrated by the fact that the U.S. government – alone among Western nations – has multiple agencies administering licensing, enforcement, and other aspects of its export control regime. Moreover, as other countries have increased their technological prowess, more and more goods that the U.S. controlled for export have become available through non-U.S. sources – thereby costing U.S. companies business without providing a corresponding benefit to U.S. security interests. Simultaneously, an increasing proportion of goods and technologies with important military applications have been developed in the private sector, principally for non-defense uses, rather than by defense contractors with public funding. Likewise, the developers of many of these goods and technologies are now multinational companies with research, development, and production facilities located outside the U.S. For many U.S. exporters, the structure of the U.S. export control system hurts their competitiveness while providing diminishing national security benefits. Many in the U.S. exporting community believe that without fundamental reform, the U.S. export control system will continue to hinder U.S. competitiveness without effectively accomplishing its stated goal of preventing dangerous goods from getting into the hands of U.S. adversaries or strategic competitors.
With these concerns in mind, the Obama Administration in April 2010 announced a comprehensive effort to reform the U.S. export control system. At the cornerstone of that effort are the “four singularities” – creating a single list of controlled goods from the existing U.S. Munitions List (“USML”) and Commerce Control List (“CCL”), creating a single licensing agency, creating a single enforcement coordinating agency, and implementing a single information technology (“IT”) system. The overall goals of the effort are to streamline U.S. export controls – placing high walls around key strategic technologies, while lowering the level of control over more available or mundane, less strategic technologies – and modernize the system to respond to the global challenges the U.S. presently faces. The four singularities are intended to cover the work of the DDTC, BIS, and OFAC, but not the other, more esoteric U.S. export control agencies.
The reform effort is to take place in three phases. In Phase I, now largely completed, the relevant agencies were to begin revising their regulations to streamline the licensing process, to begin the process of reviewing and revising the USML and CCL to make them both “positive” lists and to identify the “tiers” of control for each listed item, to set up a coordinated export enforcement center, and to begin the development of a single, system-wide IT infrastructure. In Phase II, the agencies will complete the restructuring of the USML and CCL, complete the process of placing the controlled items into “tiers” of control, finalize the lists of USML items to be migrated to the CCL, provide within the CCL the mechanisms for controls over those migrated items, and transition to a single IT system. Phase III – the phase that will require congressional action – will merge the USML and CCL into a single control list, create a single licensing agency and a single enforcement coordination agency, and complete the implementation of the single IT system devoted to export control. See Fact Sheet on the President’s Export Control Reform Initiative, April 10, 2010, available at http://www.whitehouse.gov/the-press-office/fact-sheet-presidents-export-control-reform-initiative.
Thus far, the Administration has made significant strides in implementing Phases I and II of its export control reform vision. The purpose of this article is to summarize the current state of the reform effort, describe what the effort has accomplished so far, and identify the likely next steps in the reform process.
Revisions to the USML and CCL The process of combining the USML and CCL into a single list will be a multistage process. First, the lists are to be turned into “positive” lists, meaning that they specify objective criteria that identify, with objective particularity, items that are controlled (such as threshold quantities measured in hertz, horsepower, or microns, or by measured quantities, such as accuracy, speed, or wavelength), rather than provide open-ended descriptions of what is controlled. The CCL currently is largely a positive list, but the USML is not. Therefore, the first stage of the process will be to turn each of the 20 categories on the USML into a “positive” list. During that process, the government will identify items that no longer need to be controlled under the stricter ITAR regime, but instead should be controlled under the EAR. Such items will, after the required notification to Congress, be transferred from the USML to the CCL. Some items now on the USML or CCL will be decontrolled to the point where they are controlled only under the EAR as EAR99 items, and are controlled for export only with respect to the most restricted destinations.
The first stage of the revisions of the USML and CCL is also intended to harmonize the terminology used by the USML and CCL in preparation for their ultimate combination into one list. One example of this harmonization is the effort to provide a single definition of “specially designed,” a term that is used in several Export Control Classification Numbers (“ECCNs”) and that will be used as a control criterion for some USML categories. In its advanced notice of proposed rulemaking on the revisions to the USML, the State Department provided a draft definition of the term “specially designed”: “that the end-item, equipment, accessory, attachment, system, component, or part (see ITAR § 121.8) has properties that (i) distinguish it for certain predetermined purposes, (ii) are directly related to the functioning of a defense article, and (iii) are used exclusively or predominately in or with a defense article identified on the USML.” See Revisions to the United States Munitions List, 75 Fed. Reg. 76,935, 76,939 (Dec. 10, 2010). Other terms used in the USML and CCL will have to be harmonized prior to combining the USML and CCL into one control list.
So far, the State Department has issued a proposed revision of one category of the USML, Category VII (Tanks and Other Military Vehicles). See 75 Fed. Reg. 76,930 (December 10, 2010). The revisions place the items in Category VII into three tiers, reflecting the intended structure of the final, single control list to be created by combining the USML and CCL. Those categories are Tier 1, which controls weapons of mass destruction (“WMDs”), unmanned WMD delivery systems, and critical military technology available almost exclusively from the U.S.; Tier 2, which controls items almost exclusively available from U.S. export control regime partners that provide a substantial military advantage or contribute to the indigenous development of Tier 1 or 2 articles; and Tier 3, which controls items not in Tiers 1 or 2 that provide a significant military or intelligence advantage to U.S., that contribute to the indigenous development, production, or use of Tier 1 or 2 items, or that are controlled for national security, foreign policy, or human rights reasons. As part of the revisions of Category VII, the agencies have concluded that approximately 74% of the items that were previously controlled under Category VII will be moved to the CCL or will be classified as EAR99.
Going forward, Deputy Under Secretary of Defense James Miller indicated in testimony before the House Foreign Affairs Committee on May 12, 2011 that the Defense Department (“DoD”), which has taken the lead in the USML revisions, expects to have positive control lists for 19 of the USML’s 20 categories by July 2011. See Statement of Dr. James N. Miller, Principal Deputy Under Secretary of Defense for Policy Before the House Committee on Foreign Affairs, May 12, 2011 (“Miller Testimony”). Recently, the Under Secretary of Commerce for Industry and Security stated that a plan for migrating items from the USML to the CCL will be published in July 2011, before BIS’s annual update conference begins on July 19. See BIS Sketches Reform Outlook at Meeting; House Legislation, Hill Outreach Discussed, BNA Daily Report for Executives, June 13, 2011. This would be a significant accomplishment given the size of the USML, the highly technical nature of converting such a large, open-ended list into a positive list with tiers of control, and the focus on identifying which items should be migrated to the CCL or to an EAR99 classification.
One of the most difficult aspects of the process of revising the USML and CCL going forward will be the migration of items off of the USML and onto the CCL or to an EAR99 classification. While the conversion of the USML to a positive list can be accomplished by regulatory changes alone, under section 38(f) of the Arms Export Control Act, removal of items from the USML requires congressional notification at least 30 days before such removal, and a description of the controls that will be imposed under the EAR. Representative Ileana Ros-Lehtinen, the Chairman of the House Foreign Affairs Committee, one of the congressional committees that will be at the forefront of the reform effort, stated in a hearing on export control reform held on May 12 that, in reviewing the migration of items from the USML to the CCL, the committee “must vigorously perform [its] due diligence on these important security matters in accordance with existing protocols,” and that the committee “cannot fulfill its oversight responsibilities in this regard, however, until it understands fully how such articles would be regulated under Commerce jurisdiction, as well as assess enforceability of the new controls.” See Opening Statement of Rep. Ileana Ros-Lehtinen at Export Control Reform Hearing, May 12, 2011 (available at http://foreignaffairs.house.gov/press_display.asp?id=1820). The diligence that Rep. Ros-Lehtinen refers to likely would involve Committee staff with both technical and national security expertise reviewing the proposed migrations of items from the USML. Given the wholesale nature of the changes to the USML that the agencies intend to propose, and the likelihood that the agencies may seek to migrate a large percentage of items from the USML to the CCL, this may be a time-intensive review.
Indeed, Rep. Ros-Lehtinen cited the time-consuming nature of this work as one factor in a broader concern about the export control reform effort. She stated at the May 12 hearing that “the Administration should reconsider this time-consuming exercise and focus on common sense reforms on which we can all agree.” Id. As an example of such common ground, she stated that, as an alternative to the complicated comprehensive effort to reform the USML, she would shortly propose legislation to lessen controls over generic parts, such as bolts, rivets, and wire, that were designed for military use, but that do not have inherent military utility. Id. Since the hearing, Rep. Ros-Lehtinen has proposed H.R. 2122, the Export Administration Renewal Act of 2011, which includes in its Title II a proposed mechanism for lessening controls over such generic parts and components. (This bill will be discussed in greater detail below.)
The issue of controlling generic parts and components is certainly an important one – companies often are forced to treat what appear to be non-specialized items as ITAR-controlled because they (or their predecessors) were designed or modified (even slightly) for use on military equipment. However, Rep. Ros-Lehtinen’s comments portend possible difficulties and conflicts between the Administration and Congress in achieving the more comprehensive migration of items from the USML to the CCL or to EAR99 classification. This is especially true if the reform effort seeks to migrate a large number of items from the USML to the CCL – such as the 74% of Category VII items that are intended by the Administration to be migrated to the CCL or EAR99.
Although the CCL is already structured more as a “positive” list than the USML, it too is in the process of being revised to make some of its categories more positive, and to assess which tier should cover each listed item. On December 9, 2010, BIS published advanced notice of its proposed rulemaking regarding the CCL revisions, and solicited comments from the public. See 75 Fed. Reg. 76,666 (Dec. 9, 2010). BIS particularly sought comments on how to make the CCL clearer and more positive, and guidance on the tiering of items on the CCL. In addition, in keeping with the spirit of the broader reform effort, BIS sought comments on the worldwide availability of items on the CCL in order to identify whether any CCL items may be candidates for decontrol. The comment period closed on February 7, 2011, and BIS has not yet released its assessment of the comments or publicly indicated its next steps in revising the CCL based on that input. According to Commerce Secretary Gary Locke, the Commerce Department will publish a proposed regulation describing the framework and structure of the revised CCL, as well as licensing policies for a new 600 series of ECCNs for items removed from the USML and placed onto the CCL. See New License Exception Will Affect Estimated $1.4 Billion, Locke Says, BNA Daily Report for Executives, June 17, 2011, at 3.
Space-related Goods and Technology
In addition to the general reform of the control lists, the Administration has also been reviewing the treatment of space-related items. Currently, spacecraft and space hardware are, for the most part, controlled under the USML. Space items, whether commercial or military, were transferred by statute to the USML and DDTC jurisdiction after the incidents in the 1990s in which U.S. companies provided failure analysis and other space-related technical information to China in the wake of launch failures by Chinese launch vehicles carrying U.S. satellites. The responsible agencies, particularly the DoD and State Department, are reviewing Category XV, Spacecraft Systems and Associated Equipment, to determine whether any items currently controlled under USML Category XV could be moved to the CCL. The DoD and State Department issued an interim report of this review in May 2011.
The DoD and State Department interim report stated that commercial communications satellites, related components, and the information necessary to integrate and launch these satellites could be removed from the USML and transferred to the CCL “without unacceptable security risk” subject to certain exceptions, conditions, and limitations, including special monitoring and oversight. See Departments of Defense and State Interim Report to Congress, Section 1248 of the National Defense Authorization Act for Fiscal Year 2010, available at http://www.aia-aerospace.org/assets/Sec_1248_Report.pdf at 3. The interim report recommended, among other points, that satellite design methodology and manufacturing know-how remain on the USML, along with failure reviews, radiation-hardened microelectronics, and apogee engines. Id. at 4. The report also recommended that satellite items transferred to the CCL initially be designated as significant items (“SI”) under ECCN 9A004, and moved to lower controls only with interagency concurrence.
It is important to note that this is only an interim report, and the full report may still be some time in coming. Congress may wait to see the contents and recommendations of the final report before making final decisions about migrations from USML Category XV that require legislative action.
Creation of the Consolidated Screening List
On December 9, 2010, the U.S. government launched an online Consolidated Screening List of the existing Commerce, State, and Treasury lists of parties subject to U.S. trade restrictions or economic sanctions. The consolidated list combines BIS’s Entity List, Denied Persons List, and Unverified List, OFAC’s Specially Designated Nationals (or “SDN”) List, and the State Department’s Nonproliferation Sanctions List and Arms Export Control Act (“AECA”) Debarred List. The Consolidated Screening List can be viewed or downloaded at http://www.export.gov/ecr/eg_main_023148.asp. This new consolidated list – comprising over 24,000 entities – is intended to permit exporters to screen their transactions against one comprehensive list of entities of concern, rather than having to separately obtain each list from the various agencies.
Streamlining the Licensing Process and Regulations
As part of the overall export reform process, both BIS and DDTC have taken steps in the last several months to ease the licensing burden on exporters. These efforts have already resulted in the streamlining of the treatment of key technological areas, such as encryption. They have also begun the process of building higher walls around a narrower set of goods and technology.
Encryption Controls Amendments
BIS has revised the export controls on encryption items to simplify them and facilitate the export of software. On June 25, 2010, BIS introduced a significant revision to its encryption controls, allowing broader self-classification of encryption items and introducing the concept of encryption registration, which allows the export of self-classified encryption items without the burden of a formal export classification review. See Encryption Export Controls: Revision of License Exception ENC and Mass Market Eligibility, Submission Procedures, Reporting Requirements, License Application Requirements, and Addition of Note 4 to Category 5, Part 2, 75 Fed. Reg. 36,482 (June 25, 2010). In January 2011, BIS further modified its encryption regulations, removing most publicly available mass market encryption software from EAR jurisdiction altogether. See Publicly Available Mass Market Encryption Software and Other Specified Publicly Available Encryption Software in Object Code, 76 Fed. Reg. 1059 (Jan. 7, 2011).
License Exception STA
BIS undertook a second significant revision of the EAR with the adoption of License Exception Strategic Trade Authorization (“STA”). See Export Control Reform Initiative: Strategic Trade Authorization License Exception, 76 Fed. Reg. 35,276 (June 16, 2011). This new license exception will increase the number of items that can be exported without a license, potentially significantly. The new license exception actually contains two separate authorizations. The first authorization permits the export to 36 countries that are close U.S. allies of items controlled for reasons of national security (NS), chemical or biological weapons (CB), nuclear nonproliferation (NP), regional stability (RS), crime control (CC), and/or significant items (SI). Id. at 35,288 (15 C.F.R. § 740.20(c)(1)). The second authorization permits exports without a license to, in addition to the 36 close U.S. allies, eight other countries/political entities (including Albania, Hong Kong, India, Israel, Malta, Singapore, South Africa, and Taiwan), if the only reason for control that imposes a license requirement on the export is NS, and the item is not listed as excluded from STA treatment in the item’s ECCN. Id. (15 C.F.R. § 740.20(c)(2)). The new license exception also specifically includes provisions for deemed exports and reexports, permitting the release of source code or technology subject to the same controls as the items eligible for export under License Exception STA to non-U.S. persons without a license. Id. at 35,288-89 (15 C.F.R. §§ 740.20(c)(1, 2), 740.20(d)(4)).
A number of specific ECCNs are not eligible for export under License Exception STA. These include equipment used for torture, certain toxins and components, software, and technology related to aero engines. See 76 Fed. Reg. at 35,287-88 (15 C.F.R. § 740.20(b)(2)(ii, v-vii). In addition, Encryption Items, or “EI-controlled” items, are not eligible for export under License Exception STA. In the Federal Register notice, BIS stated that it would separately address the encryption-related aspects of the export control reform initiative. Id. at 35,277.
In order to take advantage of License Exception STA, exporters (and reexporters and retransferors) are required to obtain a written statement from the consignees identifying the items shipped under License Exception STA and their ECCNs (previously provided by the exporters to the consignees), and an acknowledgement that the items have been shipped under License Exception STA and that reexports or retransfers prohibited under the EAR will not take place. Id. (15 C.F.R. § 740.20(d)(2)). Exporters (and reexporters and retransferors) must maintain a log or record of each shipment made under License Exception STA, along with its associated consignee statement. Id. Consignees are permitted to rely on the ECCN provided by the exporter if they subsequently retransfer the item under License Exception STA, unless the consignee knows that the ECCN is incorrect or has changed. Id. (15 C.F.R. § 740.20(d)(1)(iii)). For deemed exports or reexports, rather than requiring the written statement described previously, the exporter must notify the recipient of source code or technology of the restrictions on retransfer of the information under the EAR. This notification can also take the form of an agreement in which the recipient agrees to limits on further disclosure of the information that are equal to or stricter than those imposed by the EAR. Id. at 35,288-29 (15 C.F.R. § 740.20(d)(4)).
The final rule was substantively altered in a number of ways from the proposed rule that was published in December 2010. See Export Control Modernization: Strategic Trade Authorization License Exception, 75 Fed. Reg. 76,653 (Dec. 9, 2010) (the originally-proposed version of License Exception STA). One major change was that a proposed third authorization under License Exception STA was eliminated in the final version of the license exception. That authorization would have permitted the export of items without a license to an additional 125 countries, if the only reason for control that imposed a license requirement on the export was NS, the item was not listed as excluded from STA treatment in the item’s ECCN, and the item was intended for civil end-uses only. Id. (proposed 15 C.F.R. § 740.20(c)(2)(ii)). Another change was that, for reasons not explained in the Federal Register notice, Ukraine was removed from the list of countries that are eligible for exports without a license of items controlled for reasons of national security (NS), chemical or biological weapons (CB), nuclear nonproliferation (NP), regional stability (RS), crime control (CC), and/or significant items (SI). The final rule also removed the proposed requirement that the exporter, reexporter, or retransferor include a formal Destination Control Statement on the invoice and any other export control document that accompanies the export, and replaced this requirement with the more general notification requirement described above. Id. at 76,658 (proposed 15 C.F.R. § 740.20(d)(3)).
This new exception has the potential to significantly increase the number and kind of exports that can take place under the EAR without a license. BIS estimated that the originally-proposed version of License Exception STA had the potential to eliminate approximately 3,000 low-risk licenses. See Statement of Eric L. Hirschhorn, Under Secretary of Commerce, Bureau of Industry and Security, Before the House Committee on Foreign Affairs, Hearing on Export Controls, Arms Sales, and Reform: Balancing U.S. Interests, Part I, May 12, 2011 (“Hirschhorn Testimony”), at 4, available at http://www.bis.doc.gov/news/2011/ehirschhorn_testimony05122011.pdf (last visited June 10, 2011). While the final version of License Exception STA is somewhat narrower, it is still expected to reduce the number of low-risk licenses BIS issues. This is in keeping with the broader goal of the export reform effort: to build higher walls around a narrower set of goods and technologies.
Amendment to the Definition of Defense Services
On April 13, 2011, DDTC proposed an amendment to the definition of “defense services” under the ITAR that would, for the most part, exclude from that definition assistance furnished using public domain data, even if provided with respect to defense articles. See International Traffic in Arms Regulations: Defense Services, 76 Fed. Reg. 20,590 (Apr. 13, 2011). The proposed regulation also provides an explicit list of activities that are not defense services, providing helpful guidance to industry, academia, and other entities that work with ITAR-controlled items. An important example of activities that would no longer be considered defense services under the proposed rule is the testing, repair, or maintenance of an item subject to the EAR that is incorporated into an ITAR-controlled item. This proposed new rule, if adopted, should provide greater freedom to discuss public domain information without being concerned about inadvertently providing a defense service. The proposed amendment, by narrowing the scope of what constitutes a “defense service,” furthers the export control reform effort’s larger goal of narrowing the scope of what the regulations cover, while building stronger licensing requirements around what remains subject to control.
Revised ITAR Treatment for Dual Nationals and Third-Country Nationals Employed by Foreign End-Users of ITAR-Controlled Items
DDTC published a revision to its regulations on disclosures on dual nationals and third-country nationals on May 16, 2011. See International Traffic in Arms Regulations: Dual Nationals and Third-Country Nationals Employed by End-Users, 76 Fed. Reg. 28,174 (May 16, 2011). The revision, which will go into effect on August 11, 2011, provides an alternative to the existing methods of providing access to ITAR-controlled defense articles and technical data to dual nationals and third-country nationals of authorized end-users. Under this new regulation (22 C.F.R. § 126.18), no DDTC authorization will be required to transfer ITAR-controlled defense articles (including technical data) to dual nationals and third-country nationals who are employees of a non-U.S. business or governmental entity that is an authorized end-user of the ITAR-controlled defense articles or technical data. See 22 C.F.R. § 126.18(a). The transfer must take place within the country where the end-user is located, and must comply with the export authorization of the end-user. To take advantage of this new rule, the employee must have a security clearance issued by the host country, or the end-user must have a screening process in place to screen the employee’s contacts with section 126.1 prohibited countries, execute a non-disclosure agreement with the affected employee, and maintain a technology control plan to prohibit unauthorized diversion of ITAR-controlled defense articles or technology. See 22 C.F.R. § 126.18(c).
The screening process is somewhat involved and requires more than a perfunctory review of the employee’s background. The employer must screen its employees for “substantive contacts” with the restricted or prohibited countries listed in ITAR section 126.1. The regulation provides that “substantive contacts” include regular travel to 126.1 countries, recent or continuing contacts with agents, brokers, and nationals of 126.1 countries, continued demonstrated allegiance to such countries, business relationships with individuals from such countries, continuing to maintain residences in such countries, receiving salary or monetary compensation from such countries, or “acts otherwise indicating a risk of diversion.” See 22 C.F.R. § 126.18(c)(2). These various factors may not be easy to determine without a thorough screening procedure, and may pose a challenge to companies with limited resources.
This new treatment applies where the dual or third-country national is a “regular employee” of the company. Regular employees include permanent employees of a company and contract employees who have had a long-term contractual working relationship with the company, and work full-time and exclusively for the company and exclusively at the company’s direction. See 22 C.F.R. § 120.39(a). DDTC provided this narrow range of contract employees eligible for special treatment under new section 126.18 in response to comments it received from exporters. See International Traffic in Arms Regulations: Dual Nationals and Third-Country Nationals Employed by End-Users, 76 Fed. Reg. at 28,175-76. However, contract employees on temporary assignment, or that work simultaneously for more than one company, are not eligible for the section 126.18 treatment. Id.
This new rule may greatly simplify licensing for dual and third-country nationals working for non-U.S. companies. It reduces the licensing burden for non-U.S. companies with dual or third-country nationals. It does, however, require these non-U.S. companies to screen these employees’ connections to section 126.1 prohibited countries and to implement a technology control plan. Note that the authorization of section 126.18 is only an option; companies can still seek licenses or use the special retransfer authorization at ITAR section 124.16 if it is applicable.
Single Enforcement Coordination Agency
Creation of the Export Enforcement Coordination Center
The Administration has also begun taking steps toward a coordinated export enforcement approach. On November 9, 2010, President Obama issued Executive Order 13558, establishing the Export Enforcement Coordination Center (“EECC”). See Executive Order 13558, 75 Fed. Reg. 69,573 (Nov. 15, 2010). The purpose of the center is to coordinate export enforcement among the agencies currently responsible for various aspects of export enforcement. The EECC’s director will be a senior officer of the Department of Homeland Security, and its two deputy directors will be from the Departments of Justice and Commerce. The center will coordinate among the various agencies with a role in export enforcement, including State, Commerce, Treasury, Justice, Energy, Homeland Security, and the Office of the Director of National Intelligence, as well as other agencies as appropriate. It will be funded and operated by the Department of Homeland Security.
The EECC is charged with serving as the “primary forum” for the agencies to coordinate export enforcement efforts and resolve conflicts in their investigations, as a conduit between the enforcement and intelligence agencies, and as a point of contact between the licensing and enforcement agencies. EECC is also tasked with coordinating public outreach on export controls and maintaining capabilities for tracking export enforcement statistics.
It is hoped that the new EECC will be the predecessor to a single enforcement coordination agency. Thus far, the EECC has not made significant public statements or undertaken any significant activities noted in the public record. The creation of the EECC is the first step in integrating the various enforcement agencies, and developing this cooperation will be essential to the ultimate goal of creating a single enforcement coordinating agency. How the EECC works in practice, once it becomes fully operational, will be a helpful barometer by which to judge whether a single export enforcement agency can be successfully created.
Single IT System
The U.S. government has made initial progress toward the fourth “singularity”: the single IT system. The Defense Department has been designated as the Executive Agent for the new single IT system, which will be based on DoD’s existing USXPORTS system. See Report on the Department of Defense’s Plans to Reform the Export Control System, available at http://www.export.gov/%5C/ static/FY11%20NDAA%20Section%201237%20-%20May%202011_1_69807_eg_main_029125.pdf. The Departments of State, Commerce, and Treasury are in the process of adopting the Defense Department’s USXPORTS IT system as the single IT system for export licensing. See Miller Testimony at 3. According to Deputy Under Secretary Miller, DoD expects to have initial operational capability with the State Department by August 2011, and initial operational capability with the Commerce Department is currently projected to take place by October 2011. Id.
The agencies are also in the process of developing a single license application form that all of the responsible export control agencies can use. See Hirschhorn Testimony at 5. This form, coupled with the single IT system, will simplify and centralize the licensing process, an important step toward the ultimate goal of creating one licensing agency.
The Path Forward
The three principal responsible agencies have made significant progress in reforming the U.S. export control system to date, with substantial progress made towards completing Phases I and II. Phase III of the reform effort, however, may prove to be the most difficult. This is because Phase III will require legislation, and, as noted previously, there appears to be no consensus in Congress as to the best approach to export control reform.
The elements of Phase III of the reform process that will require legislation include:
- Merging the USML and the CCL into a single list;
- Creating one export licensing agency by merging the existing export licensing agencies; and
- Combining the Commerce Department’s Office of Export Enforcement and the DHS/Immigration and Customs Enforcement (ICE) Counterproliferation unit.
See The Administration’s Export Control Reform Plans, Remarks by General James Jones, National Security Adviser, June 30, 2010, available at http://www.aia-aerospace.org/assets/speech_jones_ 06302010.pdf. According to Gen. Jones, the former National Security Adviser, the Administration plans to introduce legislation to achieve these elements in 2011.
As noted previously, some in Congress have advocated a more incremental approach to export control reform. In keeping with this alternative approach, Rep. Ros-Lehtinen recently proposed a renewal of the Export Administration Act (which lapsed in 2001), H.R. 2122, that increases the penalties for dual-use export violations, and would permit revision of the controls over generic parts and components. See H.R. 2122, 112th Cong. (2011). However, Title II of H.R. 2122, which deals with generic parts and components, appears in practice to discourage the migration of such items from the USML to the CCL, by imposing the same level of control on the items after their migration to the CCL, and by requiring a complicated bureaucratic process to lower the controls on the items once they are migrated to the CCL. Id. at § 202. This legislation suggests that the Administration will face difficulty in the current Congress in obtaining approval of legislation completing and codifying the export control reform effort.
In addition, the departure of Defense Secretary Robert Gates from the Administration may slow the momentum for additional reforms. Secretary Gates was perhaps the most credible and articulate proponent and supporter of the export control effort, and he had been involved in developing export control reform proposals since before he assumed the Defense Secretary post. However, Defense Secretary-designate Leon Panetta was briefly asked in his confirmation hearings about U.S. export controls, and said he agreed with Sec. Gates that the system needs to be reformed to improve U.S. companies’ ability to trade internationally. See Hearing to Consider the Nomination of Hon. Leon E. Panetta to be Secretary of Defense, June 9, 2011, at 55-56, available at http://armed services.senate.gov/Transcripts/2011/06%20June/11-47%20-%206-9-11.pdf.
Much has been accomplished by DDTC, BIS, and the other agencies responsible for aspects of the U.S. export control system. In the coming months, we expect to see proposals for the revisions of additional USML categories to go along with the revisions already proposed to Category VII. The proposed regulatory revisions of the definition of “defense service” are expected to be finalized in the next few months. The new License Exception STA and the changes to the ITAR’s treatment of dual and third-country national employees have recently been finalized.
However, the prospects for completing all three phases of the export reform effort seem to have grown dimmer, as certain key players in Congress have expressed concern with the scope and pace of the reform effort. This puts pressure on the overall goal of the “four singularities,” especially the creation of one export control list and a single licensing agency. In the near future, therefore, while the reforms that can be accomplished through executive action are likely to be completed, whether the final phase of the export reform process will be realized is less certain.