EXPORT CONTROLS
Under Secretary of Commerce William Reinsch
Senate Banking Subcommittee on
International Finance and Monetary Policy
31 July 1996
Thank you for the opportunity to testify on H.R. 361, the Omnibus
Export Administration Act of 1996. Reauthorization of an Export
Administration Act (EAA) that takes into account the end of the Cold
War is long overdue. In addition to helping exporters by bringing the
law up to date with current global realities, it is also essential
that we enact a new law in order to minimize the possibility of legal
challenges under the current emergency authority and to enhance our
credibility in international fora.
The administration supports H.R. 361. We believe it provides the
proper balance for controlling dual-use items while minimizing the
burden on U.S. exporters. We do have concerns about several of its
provisions, which my testimony details.
Before I get to those issues, however, let me explain why enactment of
a new EAA is essential.
The Need for a Revised Export Administration Act
Simply put, continuing to operate under emergency authority raises the
possibility of increasing legal and political complications.
Operating under authority of the International Emergency Economic
Powers Act (IEEPA), as we have done on a number of occasions, most
recently for the past two years, means that we must function under
certain legal constraints, and it leaves important aspects of our
dual-use export control system increasingly at risk of legal
challenge. Operating under emercency authority also can undercut our
credibility as leader of the world's efforts to stem the proliferation
of weapons of mass destruction.
While I do not want to overstate the case, because these complications
are currently surmountable, and we will continue to pursue our export
control policies despite them, at a minimum they are likely to consume
increasing amounts of resources that could certainly be better used to
administer and enforce the export control system effectively.
Legal Limits
In some significant areas, we have less authority under IEEPA than
under the EAA. Foremost among them are the penalty authorities. The
penalties for violations of the Export Administration Regulations that
occur under IEEPA, both criminal and administrative, are significantly
lower than those available for violations that occur under the EAA.
Even the EAA penalties are too low, having been eroded over the past
17 years by inflation. One of H.R. 361's most useful enforcement
features is its increase in criminal and administrative penalties.
We rely on the deterrent effect of stiff penalties for export control
violations. The longer we are under IEEPA, or even the EAA of 1979,
the more the deterrent effect will erode, and companies will begin to
think of the lower penalties merely as a cost of doing business,
especially for nonproliferation and foreign policy cases.
Another limitation of IEEPA concerns export enforcement agents' police
powers (e.g., the authority to make arrests, execute search warrants,
and carry firearms). Those powers lapsed with the EAA. Our agents
must now obtain Special Deputy U.S. Marshal status, which expires and
must be renewed annually, in order to exercise these authorities and
function as law enforcement officers. While this complication can be
overcome, doing so consumes limited resources that would be better
used on enforcement.
Finally, the longer the EAA lapse continues, the more likely we will
be faced with attempts to impose additional limits on our authority.
For example, IEEPA does not have an explicit confidentiality provision
like that in section 12(c) of the EAA or the similar provision in H.R.
361. As a result, the Department's ability to protect from public
disclosure in information obtained concerning export license
applications, the export licenses themselves, and related export
enforcement information is likely to come under increasing attack on
several fronts. Similarly, the absence of specific antiboycott
references in IEEPA has led some respondents in anti-boycott cases to
argue -- thus far unsuccessfully -- that BXA has no authority to
implement and enforce the anti-boycott provisions of the EAA and
Export Administration Regulations.
Policy Ramifications
The lapse of authority also has domestic and intemational policy
ramifications. Although we have made great progress in eliminating
unnecessary controls while enhancing our ability to control truly
sensitive exports, industry has the right to expect these reforms to
be certain and permanent. For example, while the administration has
begun to implement the president's executive order on license
processing, which increases the discipline on and timeliness of the
license review process, a statutory foundation for that process would
send an important message to U.S. exporters that these reforms will
not be rolled back. That will give our exporters the certainty they
need to plan their export transactions.
In addition, failure to enact a new EAA that reflects the changed
world situation sends the wrong message to our allies and regime
partners, many of whom we have been urging to strengthen their export
control laws and systems. We have also been urging, as part of our
export control cooperation with the former Soviet Union and Warsaw
Pact countries, that those countries adopt control laws passed by
their respective parliaments. Our credibility could be diminished by
our own lack of a statute.
Renewal of the EAA of 1979
Some of these same issues militate against a simple renewal of the EAA
of 1979. For example, as I noted earlier, the penalties of the EAA of
1979 have been substantially eroded by inflation. In addition, the
EAA of 1979 is a Cold War statute that simply does not reflect current
geo-political realities. Its basic national security control
authorities are predicated on the existence of a multilateral regime,
CoCom, that ended more than two years ago. A renewal of the EAA of
1979 is not much better than operating under IEEPA.
H.R. 361 - The Omnibus Export Administration Act of 1996
H.R. 361 makes several needed and significant improvements to the EAA
which are similar to those proposed in the administration's 1994 bill.
They include control authority updated to address current security
threats, increased discipline on unilateral controls, and enhanced
enforcement authorities. H.R. 361 also contains provisions consistent
with recent administration licensing process and commodity
jurisdiction reforms.
H.R. 361's structure reflects the new challenges resulting from the
end of the Cold War. The basic control authorities are multilateral
and unilateral (emercency) controls instead of the national security
and foreign policy authorities of the EAA of 1979, just as the
administration's bill proposed. H.R. 361's new structure explicitly
recognizes the preference for compliance with international regimes
that the United States either is a member of (such as the Wassenaar
Arrangement, the Missile Technology Control Regime, the Australia
Group, and the Nuclear Suppliers' Group) or may help create or join in
the future. H.R. 361's clear preference and explicit guidelines for
multilateral controls is essential for achieving our nonproliferation
goals without disadvantaging U.S. exporters.
Another significant positive feature of H.R. 361 is its increased
discipline on unilateral controls. The determinations required by
H.R. 361 for the imposition, extension, or expansion of unilateral
controls are similar to those proposed by the administration. These
determinations will require a more precise analysis of the anticipated
and actual effectiveness of unilateral controls. This more precise
analysis will ensure that the economic security of the United States
is not adversely affected by controls which do not significantly
advance national security, foreign policy, or nonproliferation
objectives.
H.R. 361 also supports the recent administration reforms of the
licensing and commodity jurisdiction processes. Its standards for
license processing, which are consistent with the new executive order,
include shortening the time allowed for review of applications and
adding discipline to the interagency process, while permitting all
pertinent agencies to review any license applications. These reforms
improve the system's responsiveness to exporters while also enhancing
our ability to meet our national security, foreign policy, and
nonproliferation goals.
Consistent with the President's recent revision of the commodity
jurisdiction process, H.R. 361 requires timely settlement of
interagency disputes on whether an item is dual-use or munitions. It
also requires increased coordination and transparency among the
agencies in commodity jurisdiction and classification determinations.
These reforms will make the export control system more responsive to
exporters without diminishing the system's ability to meet our
national security, foreign policy, and nonproliferation objectives.
One other area where H.R. 361 makes sicnificant improvements is
enforcement. First, it substantially increases criminal and civil
penalties, which, as I mentioned, is long overdue. Not only has
inflation eaten away at the 1979 penalty levels, but global political
changes demand the significantly higher civil penalties that H.R. 361
provides for violations of nonproliferation controls in order to add
credibility to our efforts. H.R. 361 also provides greater
operational enforcement authority for undercover operations and
forfeitures. These enhancements are particularly important in the
current environment, with more diffuse threats, elaborate procurement
networks, and suspect end users more difficult to identify.
Provisions of Concem
We do have concerns, however, about H.R. 361's terrorism, unfair
impact, antiboycott private right of action, and judicial review
provisions, which I will outline. We also have constitutional
concerns which another Administration witness will address.
The Administration shares the Congress' concern about terrorism, and
we have adopted a very hard line acainst terrorist states, including
support for Senator D'Amato's Iran-Libya legislation. However, H.R.
361's terrorism provision would significantly reduce the
Administration's flexibility to regulate exports to countries on the
terrorist list to reflect unique or changed circumstances. For
example, the Administration would lack the necessary flexibility to
supply U.S. government (diplomatic, military, or humanitarian)
operations, multilateral peacekeeping and humanitarian missions,
International Atomic Enercy Agency inspections, and activities of U.S.
or third country nationals unaffiliated with the terrorism-list
government.
H.R. 361's unfair impact provision is a step backward from the
Administration's proposal to clarify exporters rights to petition for
relief from burdensome and ineffective export control requirements.
The provision limits U.S. exporters' statutory right to seek relief by
failing to include ineffective controls and competitive disadvantage
as statutory crounds upon which U.S. exporters can petition for
relief. Second. it exempts some of the bill's provisions from the
unfair impact process entirely. Third, it fails to explicitly allow
unfair impact petitions based on anticipated market conditions.
H.R. 361's authorization of private actions for antiboycott violations
could compromise enforcement of the antiboycott provisions of the EAA.
Allowing suits for actual and punitive damages, whether or not a
violation has been found through government enforcement action, could
jeopardize the record of successful enforcement of the antiboycott law
through inconsistent judicial interpretations, diversion of government
resources, and private settlements that deny access to evidence.
Finally, H.R. 361's judicial review provision should be clarified to
ensure it does not inadvertently allow inappropriate judicial review
of U.S. foreign and national security policies.
Conclusion
Those are our concems, Mr. Chairman, and we look forward to working
with the Committee to address them. The important point, however, is
the need to act this year on the bill in order to provide the proper
balance for controlling dual-use items while minimizing the burden on
U.S. exporters.
(end text)
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