Where Industry and Security Intersect
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Export controls maintained for foreign policy purposes require annual extension according to the provisions of Section 6 of the Export Administration Act of 1979, as amended (the Act). Section 6(f) of the Act requires the President to submit a report to Congress to extend the controls. Such authority has been delegated to the Secretary of Commerce. Sections 6(b) and 6(f) of the Act require the report to include certain considerations 1 and determinations 2 with respect to the criteria established in those sections. This report complies with all of the requirements set out in the Act for extending, amending, or imposing foreign policy controls.
The Department of Commerce is acting under the authority conferred by Executive Order 13222 of August 17, 2001 (Executive Order), as extended by the Notice of August 3, 2006 (71 FR 44551 (Aug. 7, 2006)). In that Executive Order, the President, by reason of the expiration of the Act, invoked his authority, including authority under the International Emergency Economic Powers Act (IEEPA), to continue in effect the system of controls that had been maintained under the Act. Under a policy of conforming actions under the Executive Order to those under the Act, the Department of Commerce, insofar as appropriate, is following the provisions of Section 6 of the Act with regard to extending foreign policy controls.
With this report, all foreign policy export controls discussed herein are hereby extended for the period from January 21, 2007 , to January 20, 2008 . The Bureau of Industry and Security (BIS) of the Department of Commerce is taking this action pursuant to the recommendation of the Secretary of State. As further authorized by the Act, foreign policy export controls remain in effect for replacement parts and for parts contained in goods subject to such controls. The controls administered in accordance with procedures established pursuant to Section 309(c) of the Nuclear Nonproliferation Act of 1978 similarly remain in effect.
Each chapter of this report describes a particular category of foreign policy controls and delineates modifications that have taken place over the past year. Although this report covers the 2006 calendar year, most of the statistical data presented in the report are based on Fiscal Year 2006 export licensing statistics, unless otherwise noted. BIS generates this data from the computer system it uses to process and track export license activity. Due to the tabulating procedures used by the system in accounting for occasional license applications that list more than one country or destination, the system has certain limitations as a means of gathering data. In addition, BIS bases the data in this report on values contained in issued export licenses. Such values may not represent the values of actual shipments made against those licenses, because in some cases an exporter may ship only a portion of the value of an approved license or may not ship at all.
Certain goods, technology, and software described in this report also may require a license for national security purposes for export to certain destinations in accordance with Section 5 of the Act.
On August 31, 2006 , the Department published in the Federal Register an amendment to the Export Administration Regulations (EAR) implementing the U.S. Government’s decision to rescind Iraq ’s designation as a state sponsor of terrorism (71 FR 51714). As a result of the changes described in this rule, Iraq is no longer subject to AT controls. Items covered by eight Export Control Classification Numbers (ECCNs), which previously required a license for AT reasons for export or reexport to Iraq or transfer within Iraq , now require a license for Regional Stability (RS) reasons.
On August 31, 2006 , the Department published in the Federal Register an amendment to the EAR implementing the U.S. Government’s decision to rescind Libya ’s designation as a state sponsor of terrorism (71 FR 51714). As a result of the changes described in this rule, Libya is no longer subject to AT controls.
On May 26, 2006 , the Department of Commerce published in the Federal Register an amendment to the EAR (71 FR 30283) clarifying the application of License Exception Baggage (BAG) for Cuba .
On June 5, 2006, the Department published in the Federal Register a General Order (General Order No. 3) imposing license requirements on the export and reexport of all items subject to the EAR and destined to Mayrow General Trading, a United Arab Emirates (UAE) company, and nine affiliated companies (71 FR 32272). The Department published the General Order on the basis of information giving the U.S. Government reason to believe that Mayrow and its affiliated companies had acquired electronic components and devices capable of being used to construct improvised explosive devices (IEDs) to be used against U.S. and Coalition Forces in Iraq and Afghanistan . On September 6, 2006, the Department published in the Federal Register an amendment to General Order No. 3, imposing license requirements on seven additional entities affiliated with or conducting business with Mayrow (71 FR 52426).
During the past year, the Department: (1) expanded the scope of the Commerce Control List (CCL) entry that controls certain chemical manufacturing facilities and equipment to include equipment in which all surfaces that come in direct contact with the chemical(s) being processed or contained are made from niobium (columbium) or niobium alloys; and (2) established export and reexport controls on certain biological agents and toxins that have been determined by the Centers for Disease Control and Prevention (CDC) of the U.S. Department of Health and Human Services, and/or the Animal and Plant Health Inspection Service (APHIS) of the U.S. Department of Agriculture, to have the potential to pose a severe threat to human, animal, and plant life, as well as certain sectors of the U.S. economy (i.e. agriculture). Prior to the publication of the rule in the Federal Register on June 12, 2006 (71 FR 33614), 21 of these agents were not listed on the CCL and one was incompletely specified therein. This rule complements the controls that CDC and APHIS have imposed on the transfer of these select agents and toxins within the United States .
On July 31, 2006, the Department of Commerce published a rule in the Federal Register revising the EAR to implement changes to the Missile Technology Control Regime (MTCR) Annex that member countries agreed to at the September 2005 Plenary in Madrid , Spain (71 FR 43043). The rule revised the control parameters on accelerometers which resulted in a more focused control on accelerometers of concern for “missiles.” It also added a new missile technology control for liquid propellant tanks used in “missiles,” but it should be noted that this item will be controlled by the Department of State under the International Traffic in Arms Regulations (ITAR). In addition, this rule clarified controls on bulk graphite and made several other minor editorial changes to the text.
On April 24, 2006 , the Department published a rule in the Federal Register (71 FR 20876) that updated the U.S. policy on high performance computer (HPC) exports and implemented a new formula for calculating computer performance. This rule removed XP as a reason for control from the EAR and removed MT (Missile Technology) controls from the ECCNs for HPCs. HPCs will continue to be controlled for National Security (NS) and Anti-Terrorism (AT) reasons. With this rule, XP controls are removed from the scope of future reporting under Section 6(f) of the Export Administration Act.
BIS export enforcement efforts focus on the most significant international threats facing U.S. national and homeland security, foreign policy, and economic interests: the proliferation of weapons of mass destruction (WMD), international terrorism and state sponsors of terrorism, and diversions of U.S. dual-use goods and technologies to unauthorized military end-uses. The ability of the United States to enforce the foreign policy controls that it imposes is one of the criteria that this report examines. Below are summaries of some of the more significant foreign policy-related enforcement cases that have occurred recently.
Missile technology controls: On November 18, 2005, Fiber Materials Inc., of Maine; its wholly-owned subsidiary, Materials International of Massachusetts; and the companies’ two top officers, Walter Lachman and Maurice Subilia, were sentenced for conspiracy and export violations related to the unlicensed export to India of equipment used to manufacture carbon-carbon components with applications in ballistic missiles. All four defendants had been convicted of one count of violating the Export Administration Act and one count of conspiracy by a federal trial jury on March 31, 1995 . The equipment, a specially designed control panel for operation of a hot isostatic press used to produce carbon-carbon items, was exported to the Defense Research Development Laboratory in India and delivered to Agni, the defense laboratory developing India ’s principal nuclear-capable ballistic missile. Lachman was sentenced to three years probation, the first year of which is to be spent in home detention. Subilia was sentenced to three years probation, the first six months of which was to be spent in community confinement to be followed by one year of home detention. A fine of $250,000 was imposed on Lachman, Subilia, and Fiber Materials; no fine was imposed on Materials International because it is a wholly-owned subsidiary of Fiber Materials. The Department of Commerce’s Office of Export Enforcement of the Bureau of Industry and Security (OEE) and the Department of Homeland Security's Immigration and Customs Enforcement (ICE) jointly conducted this investigation.
Foreign Terrorist Organizations: On August 9, 2005 , Naji Antoine Abi Khalil pled guilty to criminal charges for attempting to export Department of Commerce-controlled and Department of State-controlled night vision units to Greece knowing they would be shipped to the foreign terrorist organization Hezbollah in Beirut , Lebanon . On February 2, 2006, Khalil was sentenced to two sixty-month prison terms, and a fifty-seven month prison term, all to be served concurrently; plus a $100,000 criminal fine. In June 2004, Khalil was indicted for allegedly providing material support to a foreign terrorist organization, and has been in federal custody since his arrest. An associate of Khalil, Tomer Grinberg of Tober Group Inc., a Brooklyn , New York , freight forwarder, was also arrested and indicted for his role in allegedly conspiring to export the same night vision units to Greece knowing they would be shipped to Lebanon . Grinberg pled guilty on July 28, 2005 . On April 12, 2006 , Grinberg was sentenced to six months in prison. The Department of Commerce’s Office of Export Enforcement of the Bureau of Industry and Security jointly conducted this investigation as a member of the New York Joint Terrorism Task Force.
Chapters 2-13 of this report describe the various export control programs maintained by the Department of Commerce for foreign policy reasons. Each of these programs is extended for another year. The analysis required for such an extension is provided in each chapter in the format described below.
This section defines the export controls maintained for a particular foreign policy purpose that are imposed or extended for the year 2007. Each of the following chapters describes the licensing requirements and policy applicable to a particular control.
Section 6(f)(2) of the Act requires that the Secretary of Commerce describe the purpose of the controls and consider or determine whether to impose or extend foreign policy controls based on specified criteria, including consultation efforts, economic impact, alternative means, and foreign availability. For each control program, the Department of Commerce’s conclusions are based on the following required criteria:
This section provides the foreign policy purpose and rationale for each particular control.
This section describes the Secretary’s determinations or considerations with respect to the following criteria:
1. Probability of Achieving the Intended Foreign Policy Purpose. Whether such controls are likely to achieve the intended foreign policy purpose in light of other factors, including the availability from other countries of the goods or technology subject to control, and whether the foreign policy purpose can be achieved through negotiations or other alternative means.
2. Compatibility with Foreign Policy Objectives. Whether the controls are compatible with the foreign policy objectives of the United States and with overall U.S. policy toward the country or the proscribed end-use subject to the controls.
3. Reaction of Other Countries. Whether the reaction of other countries to the extension of such export controls by the United States is likely to render the controls ineffective in achieving the intended foreign policy purpose or to be counterproductive to other U.S. foreign policy interests.
4. Economic Impact on United States Industry. Whether the effect of the controls on the export performance of the United States , its competitive position in the international economy, the international reputation of the United States as a reliable supplier of goods and technology, or the economic well-being of individual U.S. companies exceeds the benefit to U.S. foreign policy objectives. 3
5. Effective Enforcement of Controls. Whether the United States has the ability to enforce the controls. Some enforcement problems are common to all foreign policy controls. 4 Other enforcement problems are associated with only one or a few controls. Each control has been assessed to determine if it has presented, or is expected to present, an uncharacteristic enforcement problem.
This section discusses the results of consultations with industry leading to the extension or imposition of controls. In an October 23, 2006 , Federal Register notice (71 FR 62065), the Department of Commerce solicited comments from industry on the effectiveness of U.S. foreign policy-based export controls. In addition, comments were solicited from the public via the BIS website. Comments from the Department’s six Technical Advisory Committees and the President’s Export Council Subcommittee on Export Administration are solicited on an ongoing basis and are not specific to this report. The comment period closed on November 22, 2006 , and three comments were received. A detailed review of all public comments received can be found in Appendix I.
This section reflects consultations on the controls with countries that cooperate with the United States on multilateral controls and with other countries as appropriate.
This section specifies the nature and results of any alternative means attempted to accomplish the foreign policy purpose, or the reasons for extending the controls without attempting any such alternative means
1 Section 6(b)(2) requires the Secretary to consider the criteria set forth in Section 6(b)(1) when extending controls in effect prior to July 12, 1985 . In addition, the report must include the elements set forth in Sections 6(f)(2)(A) (purpose of the controls); 6(f)(2)(C) (consultation with industry and other countries); 6(f)(2)(D) (alternative means attempted); and 6(f)(2)(E) (foreign availability).
2 Section 6(b)(1) requires the Secretary to make determinations regarding the criteria set forth therein when imposing, extending, or expanding controls. The report must also contain the additional information required in Section 6(f)(2)(A), (C)-(E) (as set forth in footnote 1, supra.)
3 Limitations exist when assessing the economic impact of certain controls because of the unavailability of data or because of the influence of other factors, e.g., currency values, foreign economic activity, or foreign political regimes, which may restrict imports of U.S. products more stringently than the United States restricts exports.
4 When the United States implements controls without the imposition of corresponding restrictions by other countries, it is difficult to prevent reexports from third countries to the target country, to secure third country cooperation in enforcement efforts, and to detect violations abroad and initiate proper enforcement action. The relative ease or difficulty of identifying the movement of controlled goods or technical data is also a factor. Controls on items that are small, inexpensive, easy to transport or conceal, or that have many producers and end-users, are more difficult to enforce.