Making Sense of Export Control Reform

Signal Group

A dive into export control reform as the Obama administration comes to a close.

Authored by Erin Neal

Amid the news and noise associated with this month’s election, missed in the mainstream media was another significant event: Administration officials announced that the final export control reforms will be completed by year’s end. These regulatory changes amount to the removal of previous insurmountable obstacles for American industries seeking to grow jobs by selling U.S. technologies overseas. The latest announcement details a second round of regulatory changes easing the export of satellites, aircraft and their engines, and final rules governing overseas sales of night vision goggles. Behind this announcement, and many more that have preceded it, are thousands of hours of tedious work by Administration officials, industry experts, and congressional staff, the culmination of efforts over the last seven years to overhaul antiquated export regulations dating back to the Cold War era.

I had an inkling that something would be different about the way this Administration would embrace and understand technology, when President-elect Obama refused to give up his Blackberry. I wasn’t alone in these predictions. In August 2009, dozens of industry representatives showed up to cram into a modest-sized conference room at the National Foreign Trade Council (NFTC). We were there to hear from the White House’s newly appointed “export control czar” about the Administration’s intentions for a comprehensive export control reform initiative (later referred to simply as “ECR”). Despite being eager to sit in contorted positions to hear his words, the message was met with skepticism from some in the audience, who had heard similar promises before. The NFTC President later released a statement saying “export control reviews are frequently announced, occasionally begun, and never completed. The really good news will be when it is finished.”

Unscrambling Scrambled Eggs

For national security reasons, American companies may be required to obtain permission from the federal government to export specific technology items to foreign countries, end-users, or end-uses of concern. And, the U.S. export control system is extremely complex. It is administered by seven departments, and includes two different export control lists. The first being the U.S. Munitions List, controlled under the International Traffic in Arms Regulations (ITAR), with twenty-one categories of technologies, each with specific military application, as administered by the Department of State. There is also the Commerce Control List of commercial technologies also with potential military application (so-called “dual-use” items), as administered by the Department of Commerce. The two lists were established under different 1970s statutory authorities with significantly different requirements. And, pre-ECR, each of these departments and agencies operated under a separate information technology system, by which licenses were sometimes, but not always, available for online application and processing.

Maintaining two different control lists created ambiguity for would-be exporters, confusion, and jurisdictional disputes between federal departments, delaying license decisions for months, sometimes years. Any item – whether technical or simple – that was specifically designed, developed, configured, adapted, or modified for a military application was included on the USML. This resulted in controlling everything from a weapons system itself, to every nut, bolt, tube, or screw “specifically designed for” that system. This same ambiguity and associated delays adversely impacted enforcement agencies’ abilities to quickly verify if an item was controlled and how, while also hampering the aggressive pursuit of investigations and criminal prosecution of violators. There were three primary export licensing agencies, and a multitude of additional agencies, each with authority to investigate and/or enforce some or all of the licensing agencies’ export controls. The entire system was so complex, ambiguous, decentralized, and difficult to navigate, that one industry colleague referred to the potential monumental task for reform as akin to being asked to “unscramble a batch of scrambled eggs.”

While modest export control reforms had been implemented in every Administration since President Kennedy, most have added layers upon layers of additional protection, with accompanying bureaucracy. Senior White House officials decided early on in the Obama administration that “incremental changes were no longer a viable mechanism for meeting U.S. national security needs.” The ECR agenda defined in the spring of 2010 was ambitious: create a single control list, with a single primary enforcement coordination agency, under a single IT system, and a single licensing agency. Referred to as the “four singulars,” the goal of the overhauled export control system was to “build higher walls around a smaller yard,” and thus focus enforcement on our nation’s “crown jewel” technologies.

In late 2009, a Herculean effort commenced that involved career and political staff within every of interest as coordinated by White House staff, technical and legal experts in industry, multiple trade associations with every flavor of political persuasion, and seasoned professional staff in the Congress. First, agencies worked together to develop new criteria for determining which items still need to be controlled, and a set of policies for determining when an export license is required. Eighteen interagency technical teams then combed through every item listed on any control list, creating a new “positive list,” describing controlled items using objective criteria, rather than broad, open-ended, subjective, generic, or design intent-based criteria. Each draft category was published in the federal register, enabling industry to convene its own teams of experts to review and provide specific comments. Congress was consulted via formal and informal notifications, with dozens of meetings, briefings, and consultations with professional staff, and Members all along the way. This process of numerous reviews was awkward with the first category, but perfected as each technology category was taken down off the figurative shelf for review. Industry also improved its own representation to trade association working groups as each category commenced discussion, and groups of trade associations found interesting bed fellows in working together to achieve the ECR’s goals. Congressional staff, while initially reluctant to devote time to this technically complex process given limited staff and resources, eventually embraced the process, knowing of the benefit it held for high tech, research and development industries.

Don’t Stop Now

The Obama administration should be applauded for its efforts to overhaul the export control system, working with industry, via a bipartisan congressional process. Eighteen of the twenty-one categories of the USML have been revised and published for public comment, fifteen of which are now final rules. For items moved to the CCL, new licensing policies are in effect allowing for streamlined exports of most items for 36 U.S. allies (and a few other countries that adhere to similar export control regimes). The heroes of ECR have “unscrambled a lot of scrambled eggs” by removing items from control that should never have been controlled in the first place, and making very clear which “crown jewel” technologies are of the highest military importance to our country and should be most tightly controlled.

In the words of Dean Cheng of the Heritage Foundation, “It is clearly in the interests of the United States to maintain some degree of control over its exports, if only to safeguard security-related technologies and deny them to its potential adversaries, as well as to support other aims such as nonproliferation. However, the United States has an equally high interest in supporting a healthy U.S. economy and fostering international political links, which require sustaining a robust portfolio of exports.”

The Obama administration has not yet achieved the “four singulars,” but has come so very far in this process. Over the last seven years, the Administration’s ECR team – and the hundreds of industry, congressional, and trade association individuals who supported them – have reconciled various definitions, regulations, and policies for export controls. And this process took seven years. They have not yet created a single control list, single licensing agency, unified information technology system, and enforcement coordination center. The Trump Administration should pick up and embrace, implementing the final rules published at the end of this administration, and move forward in continuing to work with the Congress and industry to enable full implementation of the “four singulars,” as originally envisioned. They should do this on behalf of American innovators and the jobs they seek to create.