Where Industry and Security Intersect
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I am pleased to be here today to discuss some of the issues facing the Bureau of Export Administration. I have been in my current position for a bit more than six months and, in that short period, I already have been involved in a surprisingly broad range of issues for someone with the title "Under Secretary for Export Administration."
There is, of course, the well-known export control work, which has been substantial. Since I have taken office, the Bureau has adopted new regulations governing the exports of medical and agricultural items to terrorist countries and has made significant changes to the India and Pakistan sanctions and to the Entity List. The Bureau also has worked with other agencies to resolve the long-standing dispute over export licensing jurisdiction for space qualified items. And the Bureau recently played a leading role in the interagency process that resulted in significant increases in the MTOPS control thresholds for exports of high performance computers and microprocessors.
On the enforcement side, the Bureau has concluded a number of important cases, including a $2.12 million agreement with McDonnell-Douglas to settle charges that the company violated export control laws in connection with a transaction in which certain machine tools were diverted to a military factory in China. This settlement resulted from a 6-year investigation, and is the second-largest civil penalty ever imposed by the Bureau.
Beyond this work in the area of export controls, there have been other significant activities within the Bureau. As the Commerce Department’s representative on the President’s Critical Infrastructure Protection Board, my colleagues and I have been devoting a substantial amount of time to homeland security and critical infrastructure issues. In addition, the Bureau has played a significant role in issues involving our defense industrial base. This has included obtaining a reauthorization of the Defense Production Act, conducting an investigation under Section 232 of the Trade Expansion Act of 1962 into whether imports of iron ore and semi-finished steel threaten to impair U.S. national security, and providing input with respect to a high-profile foreign investment case involving the national security implications of the transfer of control of a U.S. semiconductor equipment manufacturer to a Dutch company. Finally, the Bureau has been integrally involved in implementing the reporting and inspection provisions set forth in the Chemical Weapons Convention and in issues relating to the Biological Weapons Convention.
Indeed, in light of all of these diverse responsibilities, the Bureau probably should be known as the "Industry and National Security Administration," because we operate at the intersection of most issues that affect key U.S. industries and U.S. National security. The importance of these issues – and the Bureau’s mission to protect national security while seeking to advance U.S. economic interests – was only heightened by the terrorist attacks of September 11 on New York and Washington, D.C.
That day and subsequent events have had a profound effect on all of us. While it has not changed the Bureau’s mission, it has brought a further urgency to our work and that of our colleagues, both inside and outside of government, who are involved in the protection of U.S. National security. The diplomatic and military activities related to Afghanistan may well be ushering in a new era of U.S. foreign policy and national security. We – and other nations of the world – are reevaluating and readjusting to the realities of the global system that became so apparent on September 11. In many respects, it is not that these realities changed on September 11, but rather that our perception of these realities has changed.
I would like, therefore, to take a moment today to reflect on our new perceptions of globalization – which I grant you is a rather lofty subject – and try to relate it back to our work at the Bureau of Export Administration.
I would like to begin with some observations on the subject of globalization and the impact of the terrorist attacks of September 11. Globalization certainly is far too complex a phenomenon for me to address with any level of rigor or completeness in a short amount of time. But there are a few key points that I would like to make.
I think it is fair to say that, prior to September 11, most people here would have thought of globalization primarily in terms of increased economic integration throughout the world – whether it be increased trade, increased flows of information and capital, increased foreign investment, and increased mobility of labor and the means of production. Related to – and indeed accelerating - these trends have been enormous advancements that have occurred in information technology, including the use of the Internet. These advancements allow information to be accessed and transferred throughout the world instantaneously. This has brought about significant changes in the ways that companies do business, creating new opportunities for the global expansion of economic activity. Advances in information and communications technology have made it much easier for companies in all sectors of the economy to "go global," to create multinational workforces, to set up operations and facilities in remote areas of the world, and to market their products and services worldwide. For example, I know of at least one U.S. software company that has located research and development facilities in various time zones throughout the world in order to allow for continuous product research and development. Once the development team in one country finishes for the day, it simply e-mails the results of its work to colleagues in another country, who are just arriving in the office, so that development work can continue uninterrupted. That’s the epitome of globalization.
I would venture to say that, prior to September 11, most of you would have viewed globalization as an overwhelmingly positive force, contributing greatly to our economic prosperity and that of other countries around the world. After all, the decade of the nineties was one of unprecedented economic growth and the enormous generation of wealth that resulted, in large part, from increased economic interaction and trade.
I don’t know whether we became too complacent in our thinking, too arrogant in our deeds, or simply too naïve in our full appreciation of globalization and its many nuances. But the terrorist attacks of September 11 clearly shattered many of our preconceptions and those of our friends – and even our adversaries. I do not want to suggest that everything has changed or that our positive views of globalization were misplaced. In some ways, things are simpler and clearer today than ever before and, in some ways, they are far more complicated and complex.
One of the simple and clear points, in my view, is the continued importance of international trade. Indeed, the promotion of free trade is – and remains – a fundamental pillar of the Administration’s economic and foreign policy. In our view, free and open trade sustains economic growth and contributes to economic prosperity. The benefits of free trade are undeniable.
Open markets allow for increased export sales, which lead to more jobs, higher revenues, more profits, and overall economic growth. Department of Commerce statistics show that exports have accounted for almost one quarter of U.S. Economic growth during the past decade.
Similar statistics show that free trade also benefits American workers. Jobs supported by international trade pay 13 to 18 percent more than the national average.
Free trade also benefits U.S. consumers. Global competition results in more choices and lower prices in the marketplace.
And free trade enhances U.S. competitiveness in the global marketplace. Imports stimulate competition, which leads to technological innovation and quality enhancement.
In short, the benefits that free trade provide to the U.S. economy are tangible and substantial.
Free trade and open markets, however, result in more than just economic benefits. Increasing free trade and promoting open markets lay the foundation for democracy by creating better jobs, greater mobility, higher levels of education, and increased political participation. All of this facilitates the development of open societies and the spread of democratic values.
The events of September 11 have only reinforced the importance of our commitment to free trade. Restoring and sustaining confidence in our economy – and our nation – during these uncertain times is critical. And, in my view, that requires that America assume an active leadership role in the global trading system. We must continue to show developing countries that our system – based on freedom, democracy, openness, tolerance, and the rule of law – is the best choice for economic growth and prosperity. We must be able to offer the hope of a better way of life to impoverished and underdeveloped countries so that they do not fall prey to the hatred and extremism that are espoused by those responsible for the September 11 attacks.
In order to achieve this goal, the United States is committed to playing a leading role in the new multilateral negotiations launched by over 140 members of the World Trade Organization at Doha, Qatar last month. These negotiations are aimed at further reducing barriers to trade by cutting tariffs, reducing agricultural subsidies, modifying intellectual property protections to allow poor countries to gain access to drugs to treat AIDS and other diseases, liberalizing trade in financial and environmental services, and revisiting laws designed to protect domestic industries from unfairly traded imports.
We also will continue to urge the Congress to enact trade promotion authority. As you know, trade promotion authority – in one form or another – has been a fundamental feature of U.S. trade negotiations since it was first granted in 1974. This authority, however, lapsed in 1994 and has not yet been reauthorized. It should be. We are gratified that the House last week passed legislation authorizing trade promotion authority. We look forward to the Senate taking the same step shortly.
Trade promotion authority is critical for negotiating and concluding trade agreements. As the global economy has become more interconnected, so too have global trade negotiations become more complex and difficult – often requiring carefully crafted compromises. Without trade promotion authority, other countries will be reluctant to negotiate with the United States for fear that such carefully crafted compromises may be nullified during our ratification process. Indeed, other countries today are negotiating mutually beneficial trade agreements without the United States. We simply cannot afford to let other countries design the structure and create the rules of the new global trading system without our active leadership.
Despite the importance of free trade, we all should now appreciate that globalization involves much more than an increase in economic activities throughout the world. Globalization also involves the integration – or, at times, the collision – of political, social, and cultural activities and values. Indeed, the terrorism we experienced on September 11 was the product of both integration and collision. The terrorists relied on our technology to conduct their activities, on our political openness to move relatively effortlessly across borders, and on our social diversity to blend into our societies. And yet the extreme religious beliefs and values of the terrorists are diametrically opposed to, and collided violently with, our values of modernization, political openness, and social tolerance. In addition, globalization has juxtaposed our enormous economic wealth with the severe economic poverty of others, and magnified these differences. All of this – as we now know only too well – can breed, at least in some, not just resentment, but the sort of strong hatred that produces indiscriminate violence and terror. Thus, globalization has brought with it not just the benefits of increased trade and unprecedented economic growth, but new problems, new risks, and new vulnerabilities.
We know well the risks in the economic sphere. At the micro level, there are inevitable short-term dislocations, as resources and capital move across open borders to seek out comparative advantages, such as lower labor or raw materials costs. There also are economic risks at the macro level. Markets are increasingly volatile due to large amounts of cross-border investment and the ease with which capital can be injected into and withdrawn from different markets. As we saw with the Asian financial crisis in 1997 and 1998, a downturn in one financial market can have almost immediate repercussions around the world as a result of the interconnectedness and interdependence of financial markets arising from globalization.
In addition to these well-known economic risks, globalization presents new challenges on a human dimension. As Tom Friedman described in his book The Lexus and the Olive Tree, globalization is a continual struggle to balance the drive for improvement, prosperity, and modernization with those traits that identify us as communities and individuals, such as the warmth of family, and the intimacy of personal rituals and private relationships. Indeed, this human conflict exists not only within ourselves and our own society, but also across societies. And others may well strike a different balance than we do and may even view the forces of globalization as an irreconcilable threat to their fundamental values.
Globalization also presents increased health risks. The increased amount and frequency of international travel, as well as the shipment of agricultural goods and other products across the globe, facilitate the spread of pathogens and viruses. Diseases that once were contained in isolated areas now can spread rapidly across countries and even continents. For example, I understand that scientists in Europe were shocked by how fast the most recent outbreak of foot and mouth disease spread throughout the European Union because they did not appreciate the high volume and frequency of trade in meat products and livestock among the EU members. Not too long ago, this outbreak might have been contained in a single region of a single country. There is not a chance of that today.
The events of September 11 demonstrated – vividly and tragically – another important aspect of globalization. Indeed, with globalization we must cope with issues more complex than simply trying to insulate ourselves from the spread of an economic downturn or the outbreak of disease. We can no longer safely assume that a whole range of problems far away from our country will not affect us; that we will be insulated from the broader phenomenon of a failed society or nation. This does not mean, of course, that we will have the resources, the will, or even the ability to tend to all of the world’s problems or somehow to try to fix them. We surely cannot do that, and it is a mistake to think that we can. But what globalization in all of its dimensions does mean is that we have to broaden the range of risks and vulnerabilities that we are prepared to try to manage.
The challenges presented by globalization are thus substantial. I would like to focus briefly, now, on one of the threats to national security exacerbated by globalization and for which I have some responsibility. This is the threat of proliferation of weapons of mass destruction and the means to deliver them, and it is one of the main reasons why we have export controls.
As you know, the Bureau administers and enforces controls on the export of sensitive dual-use items and technologies for national security and foreign policy reasons. In this age of rapid technological advancement and a blurring of the line between military and commercial technology, it is increasingly difficult to administer a system designed to keep sensitive technology out of the hands of potential adversaries, yet also support international trade and the advancement of U.S. economic interests. Export controls are – to be sure – a form of limited government intervention in the marketplace. But rather than viewing export controls as imposing restrictions on the free flow of goods, I would suggest that they be viewed as supporting conditions for a safe and secure global economy – conditions that are an important ingredient to sustaining free trade. The events of September 11 – and the concern that the next terrorist attack might involve weapons of mass destruction – leave no doubt in my mind that effective export controls are vital to the preservation of the international trading system. Effective export controls reduce the likelihood that a devastating act of terrorism will disrupt our critical infrastructures, deflate our consumer confidence, and throw our economy into a tailspin. Effective export controls also help ensure that markets are not destabilized by regional arms races or by the proliferation of weapons of mass destruction.
I say "effective" because export controls should not arbitrarily exclude U.S. companies from foreign markets or improperly impinge on free trade. Controls should be administered as efficiently as possible and should be focused only on those items and technologies that are critical to maintaining U.S. military superiority, preventing weapons proliferation, or furthering significant U.S. foreign policy objectives. We fully appreciate the importance of exports to America’s economic well being, and are striving to improve the export control system so that it supports, rather than hinders, responsible trade.
Indeed, the responsible and strategic export of high technology not only helps our economy, but can actually advance U.S. national security. Sharing U.S. technology with allies and partners promotes defense industrial cooperation and defense interoperability, each of which enhances U.S. national security. Moreover, in light of declining procurement budgets, increased export sales provide much-needed revenues to U.S. companies for research and development, so that U.S. industry can continue to maintain its technological lead in the world and preserve U.S. military superiority.
Of course, no export control system will be effective without the knowing and willing participation of the private sector, through effective export compliance programs. I used to meet with some industry representatives and business leaders who viewed almost any form of export control as a threat to their livelihood. But that changed after September 11. Today, no company wants to see its name in the headlines of the Washington Post or any other newspaper as the source of some critical item or technology that facilitated an act of terrorism. And, I submit, the American public would not support a free trade system that resulted in U.S. companies arming our adversaries or facilitating the acts of terrorists. Effective export controls are thus one method by which the government and industry can work together to ensure responsible exports and thereby advance free trade.
That being said, our system of dual-use export controls can certainly benefit from some fine-tuning. Many aspects of our current system were drafted in the environment of the Cold War, where the primary purpose of the controls was to deny advanced Western military technology to the Soviet Union and Warsaw Pact countries in order to preserve U.S. technological superiority. The global situation, however, has changed significantly. In addition to preserving U.S. military superiority over potential adversaries, export controls must focus on stemming the proliferation of weapons of mass destruction to rogue states and terrorist groups, as well as on supporting other important U.S. foreign policy interests. In light of these changing objectives, I would like to talk for a minute about some of the policy initiatives that we are undertaking to ensure that export controls reflect the realities of today’s global system.
First, we need a modernized Export Administration Act. We think that the Export Administration Act that was passed by the Senate this year – known as Senate bill 149 – provides a balanced framework for protecting national security and promoting free trade; for imposing effective export controls and facilitating responsible exports. S. 149 provides transparency, predictability, and time limits in the export licensing process. S. 149 also sets forth procedures for U.S. companies to seek to decontrol mass market items and items that are readily available from foreign sources. It thus enhances the ability of U.S. companies to compete for legitimate international sales on a fair and equal footing with their foreign competitors.
I want to emphasize, however, that S. 149 – contrary to some misperceptions – also significantly strengthens our authority to safeguard national security and combat terrorism. For example, S. 149 requires a license for any export if the Secretary of State determines that the destination country supports international terrorism and the export would make a significant contribution to the country’s military potential or enhance its ability to support acts of international terrorism. S. 149 also substantially enhances our export enforcement capabilities, including increases in penalties for export control violations and new undercover authority for export enforcement agents.
We therefore believe that S. 149 provides the right framework for an effective export control system that is in line with today’s global realities. S. 149 also provides the flexibility to adjust that system to meet tomorrow’s challenges. The Senate passed this bill by an overwhelming vote of 85-14. While the legislative process may be a bit more difficult in the House, we will be strongly urging the House to pass a similar bill early in the next session.
Another important initiative that is of heightened concern since the events of September 11 is our effort to enhance multilateral cooperation on export controls. As a result of the increasing globalization of the world economy, sensitive dual-use items and technologies simply cannot be controlled effectively unless there is broad cooperation among exporting and transit countries. Without such cooperation, foreign purchasers denied a critical item by one country often are able to obtain the same item from another country that does not control its exports as stringently. In order to put in place effective export controls that accomplish their intended purpose of denying sensitive items to known or suspected proliferators or terrorists, all countries possessing such items must work together. The Bureau will continue to work hard, in conjunction with the State Department, to take steps to increase the effectiveness of the various multilateral export control regimes.
One of these steps will be to push for widespread adoption of end-use oriented controls – so called "catch-all" or "catch-more" controls – in the multilateral regimes. These types of controls generally impose an export licensing requirement based on the known or suspected end-use or end-user of an item, rather than on the item’s identification on a control list. Controls can therefore be targeted directly at end-users involved in proliferation or other activities of concern. We believe that carefully crafted end-use controls strengthen the effectiveness of an export control regime by requiring countries to license the export of items that may fall just outside of control list parameters, but that still would make a material contribution to proliferation activities or other activities of concern.
In addition to pushing for the adoption of end-use oriented controls in the international arena, we also have undertaken a thorough review of end-use oriented controls, or EPCI [Enhanced Proliferation Control Initiative] controls, in our regulations in order to find ways to improve their effectiveness while lessening the burden on industry. Indeed, we see the trend in export controls shifting from being primarily "list based" to being a mixture of "list based" and "end-use based" controls. And the recent terrorist attacks will only accelerate this trend. Thus, we must ensure that the administration and enforcement of end-use based controls is done in such a way that protects U.S. national security without infringing on legitimate commercial activities. We will be soliciting input from the private sector on ways to improve end-use oriented controls, and I encourage you to provide comments on the legal and business issues related to such controls.
Another important issue on which we are working is improvement of the interagency export licensing process. In the past, the interagency system has not worked as smoothly or efficiently as it should. Jurisdictional disputes have continued for years without resolution and the processing of licenses has been delayed due to indecision and infighting among agencies. As a result, the development of a consistent export control licensing policy has sometimes been difficult. The new senior management at the relevant agencies is committed to building the level of trust and cooperation necessary to restore integrity to the interagency process.
Finally, some changes are required with respect to the rules governing technology transfers to foreign nationals in the United States, or "deemed exports." Compliance with the deemed export rule is one of the more perplexing and difficult aspects of our licensing system. I know that it is particularly difficult to develop internal compliance programs to cover the full range of potential intangible technology transfers between companies, or within a company. On the other hand, those in the national security community argue that liberalizing technology controls presents significant national security risks, because acquiring sensitive technological know-how means acquiring the ability to manufacture our most sensitive products. Thus, some argue, technology must be controlled even more stringently than we control commodities.
There is, of course, truth on both sides of this debate. The challenge for us is to reform our technology controls to account for the realities of globalization while still protecting our critical national security interests. We have assembled an internal task force to examine the "deemed export" issue and develop some recommendations for policy changes, if warranted. Again, we welcome your input on this issue.
In sum, as a result of globalization, economic interaction and national security are more intertwined than ever. Indeed, the entire concept of "national security" takes on new meaning in the current global economy and in light of the recent terrorist attacks. No longer is national security narrowly limited to national defense and military preparedness. Our conception of national security must also be concerned with securing the international conditions necessary for preserving and enhancing free trade and U.S. economic prosperity.
As the events of September 11 made crystal clear, with globalization we all now find ourselves on the front lines of both international trade and U.S. national security. Complying with export controls is relevant not only to individual and corporate responsibility, but also to the maintenance of our national security. Our challenge is to manage this issue in a way that allows the United States to reap the maximum economic benefits of globalization while still protecting our people and our country.
Thank you.
In April of 2002 the Bureau of Export Administration (BXA) changed its name to the Bureau of Industry and Security(BIS). For historical purposes we have not changed the references to BXA in the legacy documents found in the Archived Press and Public Information.