Where Industry and Security Intersect
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I am going to speak tonight about globalization and its relationship to U.S. trade policy, U.S. national security, and my role in the U.S. government. You might ask why someone with the title "Under Secretary of Commerce for Export Administration" would speak on these topics. The term "Export Administration" in my title is really a bit of a misnomer. My Bureau -- the Bureau of Export Administration -- actually handles a range of issues at the intersection of business and national security. Our mission is to protect U.S. national and economic security, while at the same time seeking to further U.S. economic interests. You may think that these objectives are incompatible; that protecting national security and promoting international trade are mutually exclusive; that whenever business interests intersect with national security, business ultimately is the loser. However, that is not the case and I will try this evening to explain why.
I would like to begin with some observations on the subject of globalization and the impact of the terrorist attacks of September 11. These attacks have had a profound effect on all of us. 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 some respects, it is not so much that these realities changed on September 11, as it is that our perception of these realities changed so dramatically.
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 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 developers 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. While the United States negotiated and implemented the North American Free Trade Agreement and the Uruguay Round trade agreements, the U.S. economy grew at its fastest rate in a generation.
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.
Finally, 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. Indeed, as one of my colleagues stated, we must demonstrate to the terrorists that, even if they destroyed the World Trade Center, they cannot shake the foundations of the world trading system.
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," formerly referred to as "fast track authority." This authority provides that the Congress must vote a trade agreement negotiated by the President either "up" or "down" in its entirety, rather than being able to modify the terms of the agreement through the amendment process. 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.
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, and the salience of economic integration as a primary component of globalization, 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 Western technology to conduct their activities, our political openness to move relatively effortlessly across borders, and 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 with our values of modernization, political openness, and social tolerance. Globalization also can juxtapose enormous economic wealth with severe economic poverty, and magnify 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. It is therefore no understatement to say that, while globalization has brought the benefits of increased trade and unprecedented economic growth, it also has brought with it 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, the intimacy of personal rituals, and the depth of private relationships. And, as I have noted, this human conflict exists not only within ourselves and our own society, but across societies that may well strike a different balance than we do and that 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 understand 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 also have vividly and tragically demonstrated much more than just the futility of trying to insulate ourselves from the spread of an economic downturn or the outbreak of disease. We can no longer safely assume that 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, and the full panoply of problems that such failure spawns. 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 try to fix them. We surely cannot do that, and it is a mistake of some commentators or critics 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. A proper consideration of them is more suitable to a one-semester course in college than a short speech by me. I would like to focus briefly, therefore, on two of the threats to national security exacerbated by globalization and for which I have some responsibility. One, which I am sure is familiar to many of you, results in large part from increased worldwide access to high technology. This is the threat posed by the proliferation of weapons of mass destruction and the means to deliver them. The other threat, which probably is less familiar to most of you but equally important, results in large part from an increased reliance on information technology and networks. This is the problem not of weapons of mass destruction, but of what I like to call weapons of mass disruption which refers to the vulnerability of our nation’s critical infrastructures to cyber attack.
My Bureau is charged with addressing significant aspects of both of these threats.
Throughout history, nations have used restrictions on their export trade as a security measure. Although such restrictions often were imposed only in time of conflict or strained relations, broader and continuing export control regimes developed in the wake of World War II. Initially, U.S. export control legislation was aimed at protecting both our domestic economy from post-war scarcity and our national security from the impact of exports with potential military significance. These two concerns ultimately were reflected in the establishment of something known as CoCom [Coordinating Committee] by the NATO allies. CoCom was a mechanism designed to prevent diversions to the Eastern Bloc of resources for the reconstruction of Europe, as well as to counter the perceived Soviet military threat.
The legal framework and administrative machinery for imposing and enforcing export controls mushroomed during the Cold War, spurred initially by the desire to make CoCom controls stronger and more effective. During the 1980s, a new objective for multilateral export controls emerged -- namely, the goal of preventing the proliferation of nuclear, chemical, and biological weapons and of missile delivery systems. In addition to changes in our national legislation, this new objective led to the establishment of several multilateral "regimes" focused on stemming the proliferation of weapons of mass destruction and the means to deliver them.
The 1990s brought further changes to the scope and focus of export controls. First, in light of the demise of the Soviet Union, CoCom greatly reduced restrictions on trade with Russia and former Warsaw Pact countries and, ultimately, CoCom was disbanded in 1994. The CoCom participating countries agreed to maintain the ability to control the export of sensitive items with potential military applications under a new multilateral regime, named the "Wassenaar Arrangement" after the site in the Netherlands where the agreement was concluded. The Wassenaar Arrangement controls the export of conventional arms and dual-use items and technologies. Dual-use items are those that have both military and commercial applications, such as high performance computers, semiconductors, encryption, or night vision equipment. Unlike CoCom, the Wassenaar Arrangement does not have an East-West orientation and there are no officially agreed-upon target countries of concern.
One of the primary responsibilities of my Bureau is to administer and enforce U.S. export controls on dual-use items and technologies. 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. Indeed, you might think at first glance that controls on exports are the antithesis of free trade. 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 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.
Indeed, the responsible and strategic export of high technology can not only help our economy, but can actually advance U.S. national security. Sharing U.S. technology with allies and partners promotes defense industrial cooperation, 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.
In order to maintain a level international playing field between U.S. exporters and their foreign competitors, the United States is committed to enhancing multilateral cooperation in the area of export controls. The export of items and technologies that are produced by several countries cannot be controlled effectively by only a single country. The United States therefore strongly supports effective multilateral cooperation on export controls that establishes rules that are enforceable and that will be enforced equally.
In addition to multilateral cooperation, 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 New York Times 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 acts of terrorism. Effective export controls, thus, are one method by which the government and the private sector can work together to ensure responsible exports, and thereby advance free trade.
A second -- and less well-known -- threat to national security arising from globalization is the threat of disruption of our nation’s critical infrastructures. Critical infrastructures have been around for the better part of a century and, in some cases, longer. They comprise those industries, institutions, and distribution networks that provide a continual flow of goods and services essential to the nation’s defense and economic security, the functioning of its government, and the welfare of its citizens. These infrastructures relate to information and communications; electric power; oil and gas supplies; banking and finance; transportation; water supply; and emergency assistance. They are deemed "critical" because their disruption could have a debilitating regional, national, or even international impact.
Protecting our critical infrastructures from disruption is not a new concept. The need to manage the risks arising from service disruption has existed for as long as there have been critical infrastructures. However, as a result of advances in information and communications technology, each of the infrastructure sectors increasingly relies on shared information systems and networks for its operations. Indeed, the very information systems and networks that facilitate commerce also leave us vulnerable to a new type of threat -- that of cyber attacks. And the interconnected nature of our infrastructure sectors significantly magnifies the consequences of a service disruption. Today, disturbances originating locally or in one sector are more likely than ever before to cascade regionally or nationally and affect multiple sectors of the economy. For example, a significant electrical or communications problem in one part of the country could adversely affect our banking and finance system, our air traffic control system, or even our oil and gas distribution system.
Although we witnessed on September 11 a physical attack directed at our financial infrastructure, we also must be concerned about our vulnerability to cyber attacks. I refer to this as the threat of weapons of mass disruption because one person with relatively little training, inexpensive equipment, and access to the Internet has the potential to wreak havoc on an entire network or infrastructure. Indeed, the range of those who can cause damage is enormous, including terrorists, foreign intelligence agencies, and even recreational hackers.
Securing the nation’s critical infrastructures against cyber attacks goes well beyond the government’s traditional role of physical protection through defense of national airspace and national borders. Because there are no boundaries in cyberspace, and because approximately 90 percent of the nation’s critical infrastructures are privately owned and operated, government action alone cannot secure them. Only an unprecedented partnership between private industry and government will work.
In order to effectively address these new threats to our national security arising from globalization and increased reliance on interconnected information systems and networks, President Bush signed an Executive Order on October 18 of this year setting forth U.S. policy for ensuring protection of information systems for critical infrastructures. The purpose of this Order is to take steps to protect against disruption and to ensure that any disruptions that may occur are infrequent, are of minimal duration, and cause the least damage possible.
My Bureau will be playing a significant role in critical infrastructure protection under this Executive Order. I am the Commerce Department representative on the President’s Critical Infrastructure Protection Board and I will chair the Board’s Standing Committee that coordinates our activities with the private sector and state and local governments. Our preferred approach will be to promote market rather than regulatory solutions in managing the risks posed to infrastructure companies. One of my jobs is to raise awareness that massive disruptions due to deliberate cyber attacks are a risk management problem that companies must solve, with government playing a supporting role. Part of this task involves translating our concerns into business terms that corporate boards and CEOs will appreciate. The basic message is that critical infrastructure assurance is a matter of sound corporate governance, and that corporate boards, as part of their duty of care, must provide effective oversight of the development and implementation of appropriate security policies and practices.
Critical infrastructure assurance also concerns all of you in the private sector. After all, the government’s concern is at the macro level -- to ensure that there is a sufficient availability of infrastructure services for the delivery of vital government services to the public and for an orderly functioning of our national economy. Your concern, however, is at the micro level -- a major failure of infrastructure services could mean that you are unable to serve your customers or receive your own services. That is why we are working with the private sector on a national strategy with a shared vision of how to tackle the important issue of critical infrastructure assurance.
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, securing computer networks, and protecting critical infrastructure assets are issues that are relevant not only to individual and corporate responsibility, but also to the maintenance of our national security. Our challenge is to manage these issues in a way that allows the United States to reap the maximum economic benefits of globalization while still protecting our people and our country.
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.