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Weapons of Mass Destruction (WMD)

Export Administration Legislation

Glennon J. Harrison

Economics Division

Robert D. Shuey

Steven R. Bowman

Foreign Affairs and National Defense Division

Jeanne J. Grimmett

American Law Division

Zachary S. Davis

Environment and Natural Resources Policy Division

Updated August 27, 1996

EXPORT ADMINISTRATION LEGISLATION

SUMMARY

Congress and the Administration have tried to rewrite the Export Administration Act of 1979 (EAA-1979) since 1990 when the Act expired. One attempt by the 101st Congress to extend and amend the 1979 Act was pocket vetoed by President Bush and the 102nd and 103rd Congresses were unable to resolve disputes over the level and types of export controls and procedures to be adopted. The 104th Congress is considering an export administration bill. In June 1996, the House International Relations Committee favorably reported the Omnibus Export Administration Act of 1996 (EAA-1996) (H.R. 361; H.Rept. 104-605, Part I). The bill was sequentially referred to the House Ways and Means Committee, which issued a favorable report without amendment on June 27, 1996. On July 16, the House voted to suspend the rules and passed H.R. 361. The Senate received the bill on July 17, and the Subcommittee on International Finance of the Committee on Banking, Housing, and Urban Affairs conducted a hearing on July 31.

The EAA-1979 was based on legislation, passed in 1949 at the beginning of the Cold War, that had a primary purpose of blocking exports that could help the military buildup of Communist bloc countries. The world political, military, and economic situation has changed dramatically and some of the provisions of the EAA-1979 are not relevant to current U.S. interests. Most threats to U.S. national security and foreign policy goals no longer come from the Communist

bloc but from aggressive countries and sub-national groups that seek to expand their influence, intimidate their neighbors, or destabilize the international environment. Many of these countries are working to acquire weapons of mass destruction and delivery systems, and most employ or support international terrorists. In the meantime, the willingness of the major economic powers and of U.S. businessmen to link export regulations to foreign policy goals has declined.

This report discusses briefly the major export control provisions that existed under EAA-1979 and the current authorities for regulating exports. It then summarizes the major export control provisions of the proposed EAA-1996 and discusses some aspects of the bill that may be debated in Congress and the press. Highlighted are implications for nonproliferation policy, for national security and foreign policy, and for business; other topics covered are foreign boycott provisions, criminal and civil penalties, and judicial review.

TABLE OF CONTENTS

BACKGROUND 1

INTRODUCTION 1

National Security Controls 2

Foreign Policy Controls 2

Short Supply 2

Evolution of the Export Administration System 2

CURRENT EXPORT AUTHORITIES 4

THE PROPOSED EXPORT ADMINISTRATION ACT OF 1996 6

Multilateral Controls 6

Unilateral Controls 7

Short Supply Controls 8

IMPLICATIONS FOR U.S. NONPROLIFERATION POLICY 8

IMPLICATIONS FOR NATIONAL SECURITY AND FORIEGN POLICY 10

IMPLICATIONS FOR BUSINESS 13

FOREIGN BOYCOTTS 15

CRIMINAL AND CIVIL PENALTIES 16

JUDICIAL REVIEW 17

EXPORT ADMINISTRATION LEGISLATION

BACKGROUND

Since early 1990, Congress and the Administration have tried to rewrite the basic law that authorizes the President to regulate exports from the United States -- the Export Administration Act of 1979 (EAA-1979). In October 1990, Congress passed the Export Facilitation Act of 1990 to extend and amend the 1979 Act, but President Bush pocket vetoed the bill. The EAA-1979 expired in 1990. In the succeeding years, the world political, military, and economic situation changed dramatically making some provisions of the EAA-1979 less relevant to current U.S. interests. The nature of the threats to U.S. interests changed profoundly and the willingness of the major economic powers and of U.S. businessmen to link export regulations to foreign policy goals is significantly reduced, even while there is also a reluctance among major nations to use military power. The 102nd and 103rd Congresses wrestled with export administration legislation but were unable to resolve disputes between those who favored deregulation of exports or who thought attempts at control were futile, and those who wanted to preserve the use of export controls against new threats to U.S. national security and foreign policy goals. The 104th Congress built on the efforts of the past three Congresses to make headway in reconciling these differences. In June 1996, the House International Relations Committee favorably reported the Omnibus Export Administration Act of 1996 (EAA-1996) (H.R. 361; H.Rept. 104-605, Part I). The bill was sequentially referred to the House Ways and Means Committee, which issued a favorable report without amendment on June 27, 1996. On July 16, the House voted to suspend the rules and passed H.R. 361. The Senate received the bill on July 17, and the Subcommittee on International Finance of the Committee on Banking, Housing, and Urban Affairs conducted a hearing on July 31.

This report discusses briefly the major export control provisions that existed under EAA-1979 and the current authorities for regulating exports. It then summarizes the major export control provisions of the proposed EAA-1996 and discusses some aspects of the bill that may be debated in Congress and the press. Implications for nonproliferation policy, for national security and foreign policy, and for business are discussed. The report also addresses foreign boycott provisions, criminal and civil penalties, and judicial review.

INTRODUCTION(1)

The EAA-1979 was based on legislation passed at the beginning of the Cold War that had a primary purpose of blocking exports that could help the military buildup of the Communist bloc countries. Congress relaxed the law's restrictions somewhat in the 1960s and 1970s but, when the act expired in August 1990, it still had the same fundamental purpose and orientation. The act was reauthorized in 1994, but finally expired on August 20, 1994.

NATIONAL SECURITY CONTROLS

Under Section 5 of EAA-1979, the President was authorized to restrict exports of particularly sensitive and important items and technology (called militarily-critical technologies) for national security purposes. The intended primary targets of Section 5 export controls were the Soviet Union and other Communist countries. The United States coordinated national security export controls with its major Western Allies through the Coordinating Committee on Multilateral Export Controls (CoCom). The United States exerted strong influence over CoCom until March 31, 1994, when the group disbanded.

FOREIGN POLICY CONTROLS

Section 6 of EAA-1979 provided the President with the authority to impose export controls to further U.S. foreign policy goals related to human rights, anti-terrorism, regional stability, chemical and biological warfare, missile technology, nuclear nonproliferation, and counter-narcotics efforts. The U.S. coordinates a number of proliferation-related controls through several multilateral regimes, namely the Missile Technology Control Regime (MTCR), the Australia Group (for materials related to biological and chemical warfare), and the Nuclear Suppliers Group (NSG).

SHORT SUPPLY

Section 7 of EAA-1979 authorized restrictions on the export of goods and technology where necessary to protect the domestic industry from the excessive drain of scarce materials and to reduce the serious inflationary impact of foreign demand.

EVOLUTION OF THE EXPORT ADMINISTRATION SYSTEM

The U.S. and multilateral export control systems evolved much faster in the past decade than has the statute that provided the underlying authority for imposing export controls. The United States worked with its CoCom partners to eliminate export controls on many technologies, liberalize controls on others such as machine tools, telecommunications equipment and computers, and consider favorably exports to East Germany, Poland, Hungary, and Czechoslovakia. Characterizing the attitude of allies to the dominant role the United States played in CoCom, the House International Relations Committee report on EAA-1996 states:

...there is an absolute rejection of the kind of intrusive disciplines that characterized CoCom. As a result, there is no more United States veto power, no more procedural assurance that dangerous exports are not being made by even our closest allies, and no more procedural assurance that our exporters are being provided a reasonable playing field.

The former member countries of CoCom began negotiations to form a successor group before that regime was terminated. The effort was originally referred to as the New Forum. In December 1995, 28 countries met in Holland and announced they were close to agreement on the formation of an export coordinating group to be known as the Wassenaar Arrangement. In early April 1996, the expanded group of 31 countries(2) met in Vienna to establish the regime formally but failed to reach agreement on several basic issues. Russian delegates insisted their country would not provide the group notification of an export until the transfer had been completed thus precluding an opportunity for the members to discuss the propriety of sensitive exports to dangerous or questionable recipients. It also defeated the "no undercut rule" in which member countries would generally agree not to make a transfer that another member country had refused to make because it would violate norms of the Wassenaar Arrangement. Also, the members did not reach consensus on a ban or joint restriction on exports to states of serious concern, namely Iran, Iraq, Libya, and North Korea. Members also disagree on the inclusion of certain items on the Arrangement's munitions list and its industrial, or dual-use, list; differ on guidelines for exports to civilian end-users and end-use controls; and have not settled on an individual leader of the new arrangement. Russia's hard line was attributed to electoral politics by some reporters, and may soften before the group meets again, perhaps in July. U.S. officials and other observers see the arrangement as an important political step in adjusting to the post-Cold War world. But most analysts note the weaknesses of the arrangement that is likely to emerge and conclude it provides few of the national security protections of CoCom.(3)

The United States was also actively involved in the foundation and workings of nonproliferation regimes to control exports of goods and technologies useful in theproduction of nuclear, chemical and biological weapons and ballistic and cruise missiles. In keeping with the EAA-1979 (Section 6(j)), the Administration has used export controls against countries that aid international terrorists and has sought cooperation from other exporting countries. It has encouraged the founding countries of the Wassenaar Arrangement to focus export restrictions on Iran, Iraq, Libya, and North Korea; the so-called rogue regimes that sponsor international terrorism and are trying to acquire weapons of mass destruction. These developments have gone a considerable distance in changing the thrust of export administration practices from a Cold War strategy to a response to new challenges. Some analysts contend that the export administration policy, reflecting these changes, should be placed into law; some think the policy should be further liberalized to benefit U.S. exporters and the U.S. economy; and others think the export administration system has been so weakened that it cannot effectively serve U.S. security and foreign policy goals.

CURRENT EXPORT AUTHORITIES(4)

Article I, Section 8 of the U.S. Constitution gives Congress the power to regulate commerce with foreign nations. Congress had delegated authority to the President to regulate exports for purposes of national security, foreign policy, and short supply in a series of laws beginning with the Export Control Act of 1949 and terminating with the EAA-1979, as amended. When the EAA-1979 expired in September 1990, President Bush followed established practice and extended existing export regulations by executive order, invoking emergency authority contained in the International Emergency Economic Powers Act (IEEPA) to control financial and property transactions.(5) As required by IEEPA, the President first declared a national emergency "with respect to the unusual and extraordinary threat to the national security, foreign policy and economy of the United States" posed by the expiration of the Act. IEEPA-based controls were later terminated during two temporary EAA extensions enacted in 1994 as Congress attempted to craft new export control legislation.(6) After the second extension expired in August of that year, President Clinton reimposed controls under IEEPA.(7) These controls continue in effect to date.(8) A major restructuring and reorganization of export control regulations was published as an interim rule in the March 23, 1996 Federal Register. The rule was effective April 24, with full compliance required as of November 1 of this year.(9)

While Congress had expressly contemplated that IEEPA might be used to continue expired export regulations,(10) the authorities in IEEPA and the EAA 1979 are not identical. Questions have periodically arisen as to whether IEEPA may be used to extend the anti-boycott controls and administrative provisions of the EAA, whose administrative and enforcement procedures, selective provision of judicial review, and creation of executive branch positions are not expressly reflected in IEEPA's language. Moreover, IEEPA contains lesser penalties than the EAA 1979, limiting civil penalties to $ 10,000 fines and willful violations to fines of a maximum $ 50,000, and, if the violator is an individual or a corporate officer who has knowingly participated in a violation, imprisonment for a maximum 10 years or both. Penalties under the EAA 1979 and under the proposed EAA 1996 are described in the section "Criminal and Civil Penalties" later in this report. The President's order directs that EAA provisions be implemented "to the extent permitted by law" and makes regulations expressly subject to IEEPA's prohibitions on restricting communications and certain informational material, humanitarian donations, and travel-related transactions, and its penalty provision.(11) At least one IEEPA limitation has been judicially identified, namely that IEEPA does not authorize the President to limit the jurisdiction of federal courts and thus does not permit him to extend the EAA's general denial of judicial review.(12)

THE PROPOSED EXPORT ADMINISTRATION ACT OF 1996(13)

On March 29, 1996, the Committee on International Relations approved a motion favorably reporting the Omnibus Export Administration Act of 1996 (EAA-1996, H.R. 361) to the Committee of the Whole House. This action followed a March 22, 1996 vote by the Subcommittee on International Economic Policy and Trade to report H.R. 361 to the full committee.

EAA-1996 would replace the Cold War-period export control law, the Export Administration Act of 1979, as amended (EAA-1979),(14) with an approach that seeks to provide the President with the tools needed to respond to new foreign challenges such as weapons proliferation and terrorism. Proponents of the bill also believe that its passage would increase U.S. export competitiveness by introducing procedural and administrative changes to the U.S. export control system.

The bill proposes to replace the old categories of national security and foreign policy controls with multilateral controls and unilateral controls, with emphasis on controlling the export of sensitive items to countries engaged in the proliferation of weapons of mass destruction and missiles and to countries that support international terrorism. These proposed controls reflect a shift in primary purpose from combating communism to addressing more current threats. Short supply controls would be continued under the EAA-1996. The bill would also make permanent the Nuclear Proliferation Prevention Act of 1994.

MULTILATERAL CONTROLS

Section 105 of H.R. 361 authorizes the President to control exports to implement multilateral export control regimes. Unilateral controls are not authorized under Section 105. Much of Section 105 is concerned with the performance of other members of multilateral regimes and with standards for multilateral control regimes.

The President is required to ensure that steps are taken to increase the degree of harmonization of other countries licensing requirements with those maintained by the United States. The Secretary of State is required to take a number of steps to try to ensure that other members of the multilateral control regimes are effectively implementing export control systems. A set of standards for multilateral regimes is also established. All multilateral controls must be reviewed by the Secretary of Commerce at least every 2 years. The review must consider whether domestic availability of a controlled item makes the license requirement ineffective (i.e., if the item is available to the extent that control is not possible). The review must also take into account whether differences between U.S. controls and those of foreign countries have placed or will place the U.S. exporter at a significant commercial disadvantage.

UNILATERAL CONTROLS

Unilateral (or emergency) controls are authorized under Section 106, provided the President determines that controls are necessary to further significantly the nonproliferation, national security or foreign policies of the United States; the objective of the controls is in the overall national interest; reasonable alternative means are not available; the controls are likely to make substantial progress towards achieving a list of intended purposes; the controls are compatible with U.S. objectives and policy toward the target country; the reaction of other countries to the imposition of such controls is not likely to render them ineffective or counter-productive; the benefits of the control exceed the economic costs to the United States; and the controls are enforceable. The duration of such controls is for twelve months after they are imposed unless they are adopted multilaterally, incorporated in an embargo, or extended for one year (with a provision for additional annual extensions).

Congress and the private sector must be consulted before any unilateral controls may be imposed. The Secretaries of State and Commerce must pursue multilateral adoption of U.S. unilateral controls on an ongoing basis.

Unilateral Controls Against Designated Terrorist Countries

Section 106(i) prohibits exports of certain items to designated terrorist countries, including items controlled pursuant to the Wassenaar Arrangement, the Missile Technology Control Regime, the Australia Group, Section 309(c) of the Nuclear Non-Proliferation Act of 1978; any items controlled under Section 105; or any items(15), which could make a significant contribution to the military potential or that could enhance the ability of a country to support acts of terrorism. Food, medicine, and medical supplies may be exported under an individual validated license if the President determines that such exports will be used only for humanitarian purposes.

No Effect on President's Embargo Authority

The President's authority to impose an embargo on exports to, and imports from, a specific country under the International Emergency Economic Powers Act, the Trading With the Enemy Act, or other provision of law is unaffected by Section 106. The requirements of Section 106 do not apply for so long as an embargo is in effect.

Human rights

EAA-1996 would continue to require licenses for crime control and detection instruments to all countries except members of NATO, Japan, Australia, New Zealand, or other countries designated by the President.

SHORT SUPPLY CONTROLS

Short-supply controls would be reauthorized by Section 107.

IMPLICATIONS FOR U.S. NONPROLIFERATION POLICY

Nuclear Nonproliferation(16)

The bill would change the current licensing regulations and procedures for dual-use nuclear exports. While direct use nuclear exports such as reactors are regulated by the Nuclear Regulatory Commission under authority of the Atomic Energy Act, dual-use items such as equipment and reactor components, are controlled by the Commerce Department under regulations established pursuant to the Nuclear Non-Proliferation Act of 1978 (NNPA). Section 309(c) of the NNPA requires the Secretary of Commerce to establish regulations to control all exports (other than those licensed by the NRC) "which could be, if used for purposes other than those for which the export is intended, of significance for nuclear explosive purposes."

The EAA of 1979 (P.L. 96-72, Section 17d) explicitly did not supersede the NNPA procedures. H.R. 361, in Section 117(c), would replace the NNPA procedures with new ones which are to govern all export licensing. Otherwise, NNPA procedures remain unaffected.

Interagency Review

Section 109 of H.R. 361 codifies current practice. The Secretary of Commerce must refer licenses to the appropriate agencies and establish an interagency committee to review recommendations from other agencies. The Secretary of Commerce selects a chair, determines procedures for reviewing licenses, and makes decisions to grant or deny licenses. Agency heads may appeal the Secretary's license decisions in writing. The President is required to establish a second new review group, also chaired by the Secretary of Commerce, to resolve disputes. The new procedures include reduced time for licensing decisions and arrangements for the Secretary of Commerce to advise applicants on how denied licenses could be modified to allow approval.

The Nuclear Proliferation Prevention Act

H.R. 361 includes a provision to remove the termination of the Nuclear Proliferation Prevention Act of 1994. That act contains tough nonproliferation sanctions that would otherwise lapse when the law to which it was attached, the FY1994-95 Foreign Relations Authorization, expires.

Missile Proliferation(17)

The Administration's authority to restrict missile-related exports would be somewhat enhanced by H.R. 361. At Section 111(a)(1)(B)(ii), the bill would allow the Administration to include on the control index "items that would provide a material contribution to the design, development, test, production, stockpiling, or use of missile delivery systems," if the United States had proposed them for inclusion on the MTCR equipment annex even if the items were not yet included on the annex. The similar provision in the EAA-1979 allowed inclusion on the commodity list only "goods and technology that would provide a direct and immediate impact on the development of missile delivery systems...."

As did the EAA-1979, the new bill would establish a policy of denial of licenses for missile-related exports to a missile development or production facility in a country that is not an adherent to the MTCR, and to a facility in a country the government of which has repeatedly supported international terrorism. The bill adds statutory language to codify licensing requirements when an exporter knows an export is destined for a missile project or facility in a country that is not an adherent to the MTCR.

The EAA-1996 would reinstate the sanctions for missile-related activities that had been included in the EAA-1979.

Chemical and Biological Warfare(18)

The EEA-1996 would reestablish the provisions of the EEA-1979 that address chemical and biological weapons proliferation. The proposed bill would require an export license for items listed by the Australia Group or the Chemical Weapons Convention. Other items which the United States has proposed for inclusion in the Australia Group list, because they could materially contribute to the design, development, testing, production, stockpiling or use of chemical or biological weapons, would also require licensing pending Australia Group action. EEA-1996 would continue to exempt exports to Australia Group members from any licensing requirements. This practice has garnered some criticism because without any notification of exports to these countries, there is no practical way for U.S. authorities to track possible transhipment to third countries.

Though EEA-1996 does not specify a policy of "presumed denial" for controlled CBW-related items (as it does for missile technology), such items would fall under its general prohibition of exports if the "ultimate consignee" is a CBW program in a country that is not an adherent to the Australia Group. The bill adds statutory language to codify requirements when an exporter knows an export is destined for a CBW project of facility. The EEA-1996 also would require U.S. compliance with the export controls of the Chemical Weapons Convention, should that agreement come into force. These controls, similar to those currently in force, would be applied to all chemical exports to nations not party to the CWC.

IMPLICATIONS FOR NATIONAL SECURITY AND FOREIGN POLICY(19)

The proposed bill would authorize multilateral and emergency export controls to support U.S. foreign policy and national security with an emphasis on nonproliferation and counter-terrorism objectives. It would no longer authorize export administration with respect to Communist countries that constituted the primary threat to U.S. national security during the Cold War. While the bill emphasizes international terrorism and the proliferation of weapons of mass destruction and missiles as the primary threats in the late 1990s, it maintains the level of export administration authority in these fields rather than raising it to the level that was applied to the primary threats of the previous generation.

For example, the bill reemphasizes the preference for the use of multilateral export controls in pursuing national security goals, but the new multilateral regimes are much weaker than CoCom, the watchdog on exports to the Communist bloc. Whereas CoCom decisions to allow sensitive exports were based on a consensus of the member countries where any country could veto a transfer, decisions in the regimes designed to address new threats (Nuclear Suppliers Group, Missile Technology Control Regime, Australia Group, and the Wassenaar Arrangement) are based on national discretion.

The proliferation control regimes are narrowly focused on particular types of exports to particular types of countries. The Wassenaar group will probably address exports to only four countries (Iran, Iraq, Libya, and North Korea) and has not issued its commodity lists, so its contribution to U.S. national security is unknown. There is no multilateral regime for other terrorist countries, regional aggressors, human rights violators, nor drug producers and traffickers. Because of the weaknesses of current multilateral regimes, the U.S. ability to use export controls in pursuit of national security goals under the proposed bill is much more limited than it was in the previous four decades. Furthermore, CoCom procedures insured a level playing field for U.S. exporters. This is not necessarily true under any of the existing regimes. H.R. 361 addresses this in the way that it distinguishes between unilateral and multilateral controls. The Secretary of Commerce would have to identify controls that only the United States, and not any other member of a regime, requires.

The President could, under Section 106, impose unilateral export controls to:

stem proliferation;

restrict exports a) that would significantly contribute to the military potential of countries so as to prove detrimental to the national security of the United States or its allies, or b) to significantly further U.S. foreign policy;

further significantly the national security or foreign policy of the United States after full consideration of the economic impact of the controls and their effectiveness in achieving their intended objectives;

deter and punish acts of international terrorism and to encourage other countries to prevent the use of their territories or resources to aid, encourage, or give sanctuary to those persons involved in directing, supporting, or participating in acts of international terrorism;

enhance the national security and nonproliferation interests of the United States, restricting access to weapons of mass destruction, missile delivery systems, and other significant military capabilities; and

promote international peace, stability, and respect of fundamental human rights.

But before the President could use export restrictions for these purposes, cabinet officers must consult with U.S. industries, export advisory committees, other countries, and Congress; and the President must determine and report to Congress, among other things, that:

the controls are necessary to further significantly the nonproliferation, national security or foreign policies of the United States, the objective of the controls is in the overall national interest of the United States, and reasonable alternative means to the controls are not available;

the controls are likely to make substantial progress toward achieving the intended purpose;

the proposed controls are compatible with the foreign policy objectives of the United States and with overall U.S. policy toward the country to which the controls apply;

the reaction of other countries to the imposition or expansion of such export controls by the United States is not likely to render the controls ineffective in achieving the intended purpose or to be counter-productive to U.S. policy interests;

the effect of the proposed controls on the export performance of the United States, the competitive position of the United States as a supplier, or the economic well-being of individual U.S. companies, employees, and communities does not exceed the benefit to U.S. foreign policy, nonproliferation, or national security interests; and

the United States has the ability to enforce the proposed controls effectively.

Unilateral export restrictions would expire after 12 months but could be extended.

But the law (at Section 111 (c)) would also prohibit "the export of commodities or technology ... if the ultimate consignee is a program or activity for the design, development, manufacture, stockpiling, testing, or other acquisition of a weapon of mass destruction or missile in a country that is not an adherent to the regime controlling such weapon or missile, unless the Secretary [of Commerce] determines such export would not make a material contribution to such program or activity." This prohibition had been established in an executive order by President Bush but was not included in the EAA-1979.

The law (at Section 106(i)) would also prohibit exports of a wide variety of goods and technology to any country the government of which has repeatedly provided support for acts of international terrorism. This language is stronger than Section 6(j) of the EAA-1979 that required a validated license for the export of goods or technology to such a country.

A role for the Department of Defense would be secured by the law. Section 104 (g) would allow the Secretary of Defense to recommend items to be included on the commodity lists and licensing requirements to be applied. It adds that "The Secretary of Defense shall have primary responsibility for identifying commodities and technologies that are critical to the design, development, test, production, stockpiling, or use of weapons of mass destruction and other military capabilities ... in determining recommendations for inclusion of items on the control index." Section 109 (b) would require the Secretary of Commerce to refer all license applications and accompanying information, recommendations, and analysis to the Department of Defense and other departments identified by the President. The department heads are to notify Commerce of any types of license applications they do not wish to review.

Section 114(j) would put into law a policy not to require an export license "under this title or any other provision of law" for an item solely because it contains parts that would require a license "under this title" if those parts are essential to the functioning of the item, they are customarily included in sales of the commodity in other countries, and they comprise 25% or less of the item's value. This provision may allow export of some sensitive electronic or other components that would not otherwise be exported. The same section denies authority to require a foreign person to obtain U.S. government permission to re-export a foreign-produced item if U.S. controlled technology accounts for less than 25% of its total value. But technology and source codes used to design or produce foreign commodities are not deemed to be incorporated into such foreign-made commodities for purposes of Section 114(j) and therefore may require an export or re-export license.(20) Some U.S. militarily-critical technology may be incorporated into foreign products and re-exported to unfriendly states without U.S. permission.

As stated above, the President retains his recourse to the International Emergency Economic Powers Act and the Trading with the Enemy Act for future and existing embargoes.

IMPLICATIONS FOR BUSINESS(21)

The impact of export controls on exporters has been of long-standing concern to U.S. companies. The report filed by the Committee on International Relations (HIRC) notes that one of the three main purposes of the Act is to increase U.S. export competitiveness. The HIRC report states that H.R. 361 would foster competitiveness by:

(1) granting licenses for multiple exports to encourage and acknowledge companies' internal compliance programs;

(2) revising statutory time limits for issuing licenses while preserving Department of Defense and other relevant agencies authority to review any export license application;

(3) imposing greater transparency and stricter conditions on the use of most unilateral controls;

(4) updating foreign availability provisions to allow U.S. exporters to petition for relief from unfair treatment;

(5) allowing commodity jurisdiction questions to be more quickly and transparently resolved;

(6) requiring the U.S. government to provide exporters with more information about control lists, export control systems of other key governments; and information on the lists, rules, and actions of the multilateral regimes; and

(7) subjecting certain export control laws and regulations to greater administrative and judicial review.

Industry groups have, by and large, not taken positions on H.R. 361. One exception is the American Electronics Association, which reportedly opposes the bill.(22) Critics of H.R. 361 have stated that they "do not believe...that this bill will result in significant changes to what is still a cumbersome and bureaucratic export control apparatus.(23) Representatives Hamilton and Gejdenson cite four concerns:

Time frames for making licensing decisions. Under H.R. 361, license applications must be resolved or referred to the President no later than 90 days after the date of filing. Unlike the EAA-1979, which requires the President to make a decision within 20 days, H.R. 361 contains no provision requiring the President to make a decision within a specified period of time. The bill also contains no time limits on pre-license checks of intended end users.

Greater reliance on unilateral controls by the United States than by other countries: "Given its definition of unilateral controls and the criteria in Section 106 for imposing those controls, this bill will not adequately restrict unilateral U.S. controls on items on the Wassenaar list...."(24)

Commodity jurisdiction determinations: "The absence of a balanced statutory distinction between dual-use and munitions items could skew U.S. export controls in a more restrictive direction."(25)

Foreign availability.(26) H.R. 361 provides that no U.S. exporter should be unfairly affected by export control policies or practices unless relief from such controls would create a significant risk to the foreign policy, nonproliferation, or national security interests of the United States. The bill provides that a person may petition the Secretary of Commerce for relief from current export control requirements on the basis of foreign availability. Under a compromise agreement between the International Relations Committee and the National Security Committee, foreign availability determinations would be made under terms and conditions established by the Secretary of Commerce with the concurrence of the Secretary of Defense.(27) This provision of H.R. 361 has been criticized by the Administration and business groups. Both favor an earlier version that provided for "forward-looking foreign availability."(28) The earlier version of the bill would have deemed foreign availability to exist "when the controlled item is available in fact, or is expected with a high degree of certainty to be available in fact in the near term, in sufficient quantity and comparable quality to controlled countries or end users from sources outside the United States..."(29)

FOREIGN BOYCOTTS (Section 108)(30)

The legislation generally follows the anti-boycott provisions of the EAA 1979, which seek to discourage compliance with foreign boycotts against countries that are friendly to the United States and not the subject of a U.S. boycott. These regulations prohibit U.S. individuals and firms from undertaking boycott-related activities, require individuals and companies to report compliance requests and other related information to the Commerce Department, and preempt state and local laws on the subject. In addition, the legislation would create a private right of action in this area and would increase criminal and civil penalties for violations of anti-boycott provisions.

The new private right of action ( 110(j)) would allow any person (1) who has suffered boycott-related job or other discrimination or (2) who, because of a violation of any anti-boycott regulation issued under 108(a), has lost certain business opportunities, to bring suit in federal district court against a U.S. person committing the discrimination or violation. The statute's reference to "any person" would allow both domestic and foreign plaintiffs to avail themselves of the new provision. The plaintiff would be entitled to recover actual, and if the court so authorized, punitive damages. Actions may be brought whether or not a federal criminal or civil proceeding has found a potential defendant liable for violating the regulations involved. To date, federal courts have disagreed as to whether the EAA 1979 authorized an implied private right of action stemming from prohibited boycott-related activities.(31)

CRIMINAL AND CIVIL PENALTIES (Section 110)(32)

The legislation would substantially raise criminal penalties for knowing violations of the statute, eliminate those for wilful violations, and, except where anti-boycott violations are involved, require the forfeiture of a convicted person's interest in the goods at issue for any criminal violation. Individuals who knowingly violate (or conspire or attempt to violate) the EAA 1996 or an EAA regulation would be subject to fines of 5 times the value of the exports involved, or $ 500,000, whichever is greater; a maximum 5 years in prison; or both. Firms that knowingly violate the statute or regulations would be subject to fines of 10 times the value of the exports involved or $1 million, whichever is greater. Individuals who knowingly violate antiboycott regulations may face penalties for each violation of 5 times the value of the exports involved, or $ 250,000, whichever is greater; maximum imprisonment of 10 years; or both. The maximum penalty for firms would be $ 500,000.

The EAA 1979 subjected knowing violations to maximum fines of 5 times the value of exports or $ 50,000, whichever was greater; maximum imprisonment was 5 years. Wilful violations were punishable by fines of up to $ 1 million for firms; individuals could face maximum fines of $ 250,000 and, depending on the offense, possible imprisonment of 5 to 10 years. The 1979 Act did not contain separate criminal penalties for antiboycott violations and had required forfeiture only where criminal violations of national security export controls were involved.

Civil penalties would be raised to $ 250,000 for each violation, with boycott penalties limited to $ 50,000 per violation. The 1979 Act provided for civil penalties of up to $ 10,000 and, for violations of national security controls, $100,000.(33) The EAA 1996 specifically provides that export privileges may be denied for any violation of the Act or its regulations, an administrative sanction that was previously imposed by regulation.(34) The EAA 1996 would require notice and opportunity for an agency hearing on the record in accordance with the Administrative Procedure Act (APA, 5 U.S.C. 554-557) before any civil penalty or other administrative sanction could be imposed. The EAA 1979 required that full APA notice and hearing requirements applied only where antiboycott sanctions were involved; where other civil sanction proceedings were brought, a formal APA-style hearing on the record was required as modified by the EAA. Grounds for temporary denial orders would be expanded under the EAA 1996 to include pending criminal indictments; such orders could continue to be imposed without a hearing and would continue to be subject to limited administrative and judicial review.

JUDICIAL REVIEW (Section 112)(35)

Section 13 of the EAA generally exempted EAA administrative functions from those provisions of the Administrative Procedure Act (APA) that define terms (5 U.S.C. 551), set forth statutory standards for agency adjudicatory proceedings (5 U.S.C. 554-557) and give persons aggrieved by agency action a right to judicial review unless a statute precludes such review or the action is committed to agency discretion by law (5 U.S.C. 701-706). Section 13 allowed judicial review, however, in cases involving the imposition of civil penalties and temporary denial orders (but only as to certain issues), allowing defendants to challenge final departmental orders in the U.S. Court of Appeals for the District of Columbia. In addition, Section 10(j) allowed exporters to challenge the failure of the Department of Commerce to comply with statutory licensing deadlines in any federal district court. De novo court review of agency actions was also available in cases in which the Department sought to recover unpaid penalties.(36) Agency determinations as to items placed on the Commerce Control List and license denials were not reviewable in court, a situation that has been criticized by the export community. As the EAA did not limit judicial review under other statutes, however, court challenges could be brought on the grounds that a Department action was unconstitutional or ultra vires -- that is, beyond the agency's scope of authority.(37) With the extension of EAA regulations under IEEPA, which does not expressly prohibit APA judicial review,(38) a broader array of agency actions would theoretically be vulnerable to court challenge.

Section 112 of the reported legislation would extend the current APA exemption, but would significantly expand judicial review of final agency actions and make all civil sanctions proceedings (except those for temporary denial orders) subject to APA judicial review provisions. While judicial review of final agency actions would be limited to matters listed in Section 112(a)(2), reviewable issues would now include whether a regulation "fails to take an action" required by the statute, whether a regulation "takes an action" prohibited by it, and whether a regulation or agency action violates the export law. The statute does not expressly exempt from judicial review agency determinations as to items to be placed on the Commodity Control Index or license denials. Section 112(a)(2) review may take place only in the U.S. Court of Appeals for the District of Columbia. While regulations that fail to comply with mandatory time requirements would be reviewable under Section 112, a separate section (109(g)(3)) would also allow an exporter to request a compliance order in any federal district court where the Department has not complied with statutory deadlines for processing license applications and, after an administrative appeal, has not corrected the matter.

Section 112(b)(1) would make the imposition of all civil penalties subject to APA hearing requirements and its judicial review provisions. Review of temporary denial orders would generally parallel the 1979 Act, but reviewable issues would be enumerated in greater detail than in the past. While the Secretary of Commerce would now be required to request the Attorney General to institute civil actions to recover unpaid penalties, de novo review of the validity, amount and appropriateness of the penalty would no longer be allowed.

1. This section was prepared by Glennon J. Harrison, Specialist in International Trade and Finance.

2. The group currently includes the member countries of NATO except Iceland, plus Argentina, Australia, Austria, Czech Republic, Finland, Hungary, Ireland, Japan, South Korea, New Zealand, Poland, Romania, Russia, Slovak Republic, Sweden, and Switzerland.

3. Goldring, Natalie J. Dr. Wassenaar Arrangement in Limbo. Basic Reports: Newsletter on International Security Policy. May 13, 1996, pp. 1-3; Wassensour: Now That Russia Balked, Is the Wassenaar Arrangement Doomed to Fail or Is COCOM's Successor Just Playing Opossum? The Export Practitioner. May 1996, pp. 4-5.

4. Prepared by Jeanne J. Grimmett, Legislative Attorney.

5. 50 U.S.C. 1701 et seq. See Exec. Order No. 12730, 55 Fed. Reg. 40373 (1990). Presidents Nixon and Ford had earlier extended lapsed export regulations by executive order, invoking emergency authorities in the Trading with the Enemy Act. Exec. Order No. 11677, 37 Fed. Reg. 15483 (1972); Exec. Order No. 11796, 39 Fed. Reg. 27891 (1974); Exec. Order No. 11810, 39 Fed. Reg. 35567 (1974); Exec. Order No. 11940, 41 Fed. Reg. 43707 (1976). President Reagan did the same in 1983, invoking IEEPA. Exec. Order No. 12444, 48 Fed. Reg. 48215 (1983).

6. P.L. 103-10; P.L. 103-277.

7. "Continuation of Export Controls," Exec. Order No. 12924, 59 Fed. Reg. 43437 (1994).

8. "Continuation of Emergency Regarding Export Control Regulations, Notice of August 15, 1994, 60 Fed Reg. 42767 (1995).

9. Future agency rules would presumably be subject to recently-enacted provisions for congressional review of agency rulemaking, which require that agencies and the GAO report to Congress on rules before they take effect, delay the implementation of "major rules" (unless the President determines that immediate implementation is, inter alia, "necessary for national security"), and set forth a legislative procedure for joint resolutions of disapproval of agency rules. New 5 U.S.C. 801 et seq., as added by P.L. 104-121, 351-353. Immediate implementation of rules would also be allowed where "an agency for good cause finds ... that notice and public procedures thereon are impracticable, unnecessary, or contrary to the public interest." 5 U.S.C. 808(2)). While the statute defines the term "rule" as it is defined in the Administrative Procedures Act (5 U.S.C. 551), it does not appear to limit reviewable rulemaking to that which is undertaken under APA procedures. 5 U.S.C. 802(3). Rulemaking under the EAA 1996 would be exempt from APA requirements, as it was under the EAA 1979.

10. H.Rept. 459, 95th Cong., 1st Sess. 13 (1977); S.Rept. 466, 95th Cong., 1st Sess. 2 (1977). Support for this use of emergency authority may also be found in United States v. Spawr Optical Research, Inc., 685 F.2d 1076, 1081, cert. denied, 461 U.S. 905 (1983), and Nuclear Pacific, Inc. v. Dep't of Commerce, No. C84-49R, slip op. at 2-3 (W.D.Wash. 1984).

11. Authority to continue certain functions may possibly be inferred from the President's IEEPA authority to regulate "by means of instructions, licenses, or otherwise," to impose recordkeeping requirements, to issue regulations "as may be necessary for the exercise" of IEEPA authorities, and to impose civil and criminal penalties; other statutes such as 1 U.S.C. 109, which provides that liabilities under a temporary statue do not expire unless the statute expressly so provides; and judicial precedent indicating that expired de jure offices may in some cases be continued on public policy grounds. See 63A Am. Jur. 2d Public Officers and Employees 586 (1984).

12. Nuclear Pacific, Inc. v. Dep't of Commerce, No. C84-49R (W.D.Wash. 1984). The court exercised federal question jurisdiction contained in 28 U.S.C. 1331. Slip opinion at p. 10.

13. This section was prepared by Glennon J. Harrison, Specialist in International Trade and Finance.

14. EAA-1979 expired on August 20, 1994.

15. The Secretary of Commerce is required to maintain a list of such items, and must review the items on that list at least annually.

16. Prepared by Zachary S. Davis, Specialist in International Nuclear Policy.

17. Prepared by Robert D. Shuey, Specialist in U.S. Foreign Policy and National Defense.

18. Prepared by Steven R. Bowman, Specialist in National Defense.

19. Prepared by Robert D. Shuey, Specialist in U.S. Foreign Policy and National Defense.

20. Source codes have been held or assumed to be speech for purposes of the First Amendment in two 1996 court decisions involving constitutional challenges to Arms Export Control Act regulations. Bernstein v. U.S. Dep't of State, 1996 WL 186196 (N.D.Cal.)(opinion and order denying of motion to dismiss); Karn v. U.S. Dep't of State, 1996 WL 224759 (D.D.C.)(opinion and order granting motion to dismiss)(court assumed that a source code was protected by the First Amendment, but held that a prohibition on the export of a cryptographic source code contained on a diskette was a constitutional content-neutral regulation).

21. This section was prepared by Glennon J. Harrison, Specialist in International Trade and Finance.

22. "EAA Takes Hit from Industry Association," The Export Practitioner, May 1996, p. 10.

23. U.S. House. Committee on International Relations. Omnibus Export Administration Act of 1996. Committee report. Additional Views of Representatives Lee H. Hamilton and Sam Gejdenson.

24. Ibid.

25. Ibid.

26. In 1977, when the Congress added the "foreign availability" provision to the Export Administration Act of 1969, it directed that militarily significant commercial products not be controlled if they were freely available to the Soviet Union from other countries, unless the President determined that national security required such control. The EAA, as amended in 1977, 1979, 1985, and 1988, provided for the decontrol of goods and technologies for which foreign availability exists. The intent of these amendments was to reduce the number of products and related technologies subject to export control. U.S. General Accounting Office. Export Controls: Commerce's Assessment of the Foreign Availability of Controlled Items Can Be More Effective. GAO/NSIAD-88-71. February 1988. 47 p.

27. Bureau of National Affairs. House Committee Clears EAA Bill But With Controversial Amendment. Daily Report for Executives. April 1, 1996. p. A-20.

28. Ibid.

29. Section 105(k)(2)(b). The italicized words were replaced with "under terms and conditions established by the Secretary [of Commerce] with the concurrence of the Secretary of Defense."

30. Prepared by Jeanne J. Grimmett, Legislative Attorney.

31. Compare Israel Aircraft Industries Ltd. v. Sanwa Business Credit Corp., 16 F.3d 198 (7th Cir. 1994)(no private right of action) and Bulk Oil (ZUG) v. Sun Company, Inc., 583 F.Supp. 1134 (S.D.N.Y. 1983)(no private right of action) with Abrams v. Baylor College of Medicine, 581 F. Supp. 1570 (D.Tex. 1984)(implied private right of action exists).

32. Prepared by Jeanne J. Grimmett, Legislative Attorney.

33. Civil sanctions under the EAA 1979 have been subject to a strict liability standard -- that is, no knowledge or intent need be shown. Iran Air v. Kugelman, 996 F.2d 1253 (D.C.Cir. 1993).

34. The denial of export privileges for violating the EAA or an EAA regulation has been imposed as an administrative sanction by regulation (new 15 C.F.R. 764.3(a)(2), former 15 C.F.R. 787.1(b)). The EAA 1979 expressly stated, however, that the sanction could be employed for antiboycott violations. EAA 1979, 11(c)(2)(A). Similar to current law, the EAA 1996 would also provide that persons convicted of violating export administration acts, IEEPA, 38 of the AECA, and other statutes could be denied export privileges for up to 10 years.

35. Prepared by Jeanne J. Grimmett, Legislative Attorney.

36. This provision has not been viewed as a promising avenue of relief from adverse agency decisions because the Department was authorized to deny export privileges to the violator instead of proceeding in court. J. Ellicott, F. Cordell, & P. Flanagan, "Judicial Review Under Export Laws," in Coping with U.S. Export Controls 1994 at 359-60 (Practicing Law Institute 1994).

37. Id. at 362-71

38. See supra note 8.



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