Bureau of Export Administration
U. S. Department of Commerce

Testimony of William A. Reinsch
Under Secretary for Export Administration
Department of Commerce

Before
The Senate Committee on
Banking, Housing and Urban Affairs

On Reauthorization of the
Export Administration Act

June 23, 1999

Thank you for the opportunity to testify once again on reauthorization of the Export Administration Act. I am pleased to be here to provide our preliminary views on the staff discussion draft Export Administration Act of 1999. I know that you and your staff have put a tremendous amount of work into this draft, and I appreciate that effort because a sound reauthorization of the Export Administration Act that protects our national security and maintains our system of efficient decision making for the exporter is long overdue.

The Administration has only completed a preliminary review of the draft since receiving it last Thursday. We expect to have our in-depth review finished by July 12. Based on our work thus far, however, we have identified several serious concerns. If these concerns, which I will discuss in more detail, are not addressed, the Administration could not support the bill. In addition, the draft has a number of what appear to be drafting errors that should also be addressed because they would produce unintended results. We would welcome the opportunity to work with the Committee to address both our policy concerns and the many technical problems we are discovering, although we do not believe that there is time to do that adequately between now and the scheduled markup date of June 29th.

With respect to our most significant concerns, first, the draft would require the consensus of the pertinent departments and agencies all the way through Cabinet level before a decision could be reached on a license application. This requirement would cripple the existing effective export licensing process without any appreciable gain to national security. The Administration reformed the interagency license review process in 1995 with Executive Order 12981 that enhanced national security by giving all the pertinent departments and agencies an opportunity to review every application for the export of dual-use items on the Commerce Control List. This executive order, which does not require consensus but gives agencies the opportunity to contest decisions with which they disagree and take them all the way to the President, has worked quite well. This is not only the Administration's view but also that of Commerce's Inspector General (IG). In his recent review of the export control system requested by Senator Thompson, the IG specifically found that the interagency dispute resolution process is "working well." In contrast, the draft's consensus requirement will lead to many applications being referred to the Cabinet level and even to the President, particularly given the short time allowed for decisions at the various review levels. The logistical difficulty alone of getting the Secretaries of Commerce, State, Defense, and Energy together on a regular basis to review dozens of license applications is likely to render this requirement unworkable.

More important, the concept itself abrogates the Administration's "default to decision" approach that has been so effective in making the licensing process much more efficient. Instead, a consensus approach would institute a "default to delay" system that politicizes the process by encouraging low level officials to pass the buck to senior officials who should be spending their time setting licensing policy rather than handling individual cases. As a result, the exporter will be left holding the bag, waiting for Cabinet level meetings that cannot be arranged because of scheduling conflicts. At the end of the day, this consensus approach would turn the President into a Licensing Officer, which we do not believe is an efficient use of his time.

Second, while the Administration supports a restructuring of the basic control authorities away from the Cold War focus of the Export Administration Act of 1979, the draft's attempt to do this is problematic. From inconsistencies between the control authority sections and the underlying policy sections, which make it unclear whether important foreign policy controls, imposed to support our efforts in antiterrorism, human rights, and regional stability, could be continued; to requirements to promulgate lists of items subject to an expedited notification and review process that is too short to be meaningful and in any event is likely only to delay, rather than expedite, the licensing process for items that are not critical to national security by effectively creating additional license requirements; to the establishment of five country groups based on inflexible and sometimes conflicting criteria, these sections would curtail the flexibility needed to have effective and responsive export control structures and processes.

A third significant concern is the draft's provisions related to international cooperation on export controls. These provisions would prevent the U.S. government from exercising the judgement and discretion needed to continue our efforts to make the multilateral export control regimes more effective. The draft bill would require Congressional approval for any future export control arrangement the U.S. might conclude with even one other country. This is an infringement on the President's authority to conduct foreign policy which any administration would strongly resist. It would have the practical effect of weakening U.S. efforts to persuade our trading partners to cooperate with us on export control matters because every such effort would effectively be viewed as a treaty or formal international agreement. The draft bill also sets out very detailed criteria for evaluating multilateral export control regimes and negotiating positions. These are likely to be counterproductive because they mandate positions from which the U.S. could not deviate. Successful negotiations require the flexibility to adjust positions to take advantage of what are often fleeting opportunities and mandated negotiating positions are the antithesis of flexibility. The evolution of the multilateral regimes thus far into more effective regimes is in part the result of the ability the U.S. to be flexible as it negotiates with its regime partners.

These issues also make other provisions of the draft problematic. To give but one such example, the draft has a provision authorizing judicial review of various departmental actions. While the Administration has supported expanded judicial review in previous attempts to revise the Export Administration Act, the provision in the draft taken in conjunction with other provisions could allow inappropriate legal challenges. For example, the judicial review provision, read in conjunction with the limitation on the Department of Energy's participation in all but nuclear related matters, could lead to a legal challenge of a license denial based on Energy's participation in the review process. Defending against such a challenge would be a waste of government resources and not lead to any qualitative improvement in the export control system or in our national security. Other examples include the unrealistic time frames allotted to conduct pre-license checks and obtain government-to-government assurances.

Finally, our preliminary review of the draft also identified issues that appear to be drafting errors. For example, the antiboycott provision could be read as changing current law to allow U.S. persons to comply with a range of boycott requests or activities that are now prohibited. For example, under current law and regulations, U.S. companies may not honor an Arab importer's request that the U.S. company not do business with another U.S. company that is blacklisted by an Arab country, a so-called "tertiary" boycott request. Because the draft focuses only on "secondary" boycotts, it could be read to no longer prohibit such conduct.

Other examples include the lack of clarity regarding the number of petition procedures that are being created, the absence of language permitting agencies to delegate authority to review categories of licenses back to the Department of Commerce, a requirement for an undefined "extra scrutiny," in reviewing critical items, and ambiguity on what structure of the National Security Control List is required by the draft.

Having said all this, I want to make it clear that there is much in the draft that is useful in providing a framework for our efforts to move ahead. For example, the draft provides important revisions to our enforcement authorities, such as increased penalties and a more appropriate threshold for imposing temporary denial orders, and requires piecemeal legislation on export controls to undergo stringent economic analyses. The draft also recognizes the importance of taking into account foreign availability in deciding what items should be subject to export controls.

Nonetheless, I must conclude by reiterating that at present we have such significant concerns about the draft that we would not be able to support it should the Committee decide to proceed with it quickly and not provide an opportunity for further discussion.