Where Industry and Security Intersect
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I am pleased to welcome you to the Bureau of Export Administration’s Fourteenth Annual Update Conference. Given the recent events of September 11, I greatly appreciate your attendance, especially those who have traveled long distances under difficult circumstances to be here. I sincerely hope that you will not be disappointed and that you will find our two days of presentations and discussions to be worthwhile.
The purpose of Update is to assist you, the exporting community, in understanding the various procedures, requirements, and policies administered and enforced by the Bureau of Export Administration. This conference provides a forum for you to ask us questions about issues that you are confronting as you deal with export controls on a day-to-day basis. Indeed, the plenary sessions and breakout groups scheduled for the next two days are dedicated to exploring a number of specific topics of concern to U.S. exporters.
I would like to step back for a moment, however, to discuss some broader issues relating to the Bureau of Export Administration and the impact of the terrorist attacks of September 11 on the Bureau’s activities.
I want to begin by reiterating that one of the fundamental pillars of the Bush Administration’s economic and foreign policy is the promotion of free trade. Free trade and open markets sustain economic growth and contribute to economic prosperity. That was true before September 11, and it remains true today. As Bob Zoellick, the U.S. Trade Representative, recently stated: "Economic strength -- at home and abroad -- is the foundation of America’s . . . power."
The economic benefits of free trade are simply 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. Today, more than 20 percent of the goods produced in the United States are exported and more than 200,000 U.S. firms are involved in international trade.
Free trade and open markets, however, result in more than just economic benefits. Increasing free trade and promoting open markets lays 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. President Bush said it best when he noted that "Economic freedom creates habits of liberty. And habits of liberty create expectations of democracy."
The events of September 11 have only reinforced the importance of our commitment to free trade. America must 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. We must therefore 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, we are committed to launching a new round of multilateral negotiations aimed at further reducing barriers to trade. And we will continue to urge the Congress to enact the trade promotion authority that is so critical for concluding trade agreements. Without such authority, other countries will be reluctant to negotiate with the United States for fear that carefully crafted compromises may be nullified during the ratification process. Indeed, as one of my colleagues stated, we must demonstrate to the terrorist that, even if they destroyed the World Trade Center, they cannot shake the foundations of the world trading system.
So how does the Bureau of Export Administration fit into the overall free trade agenda? As you know, the Bureau deals with issues at the intersection of business and national security, including both export controls and another subject I will touch on briefly, critical infrastructure assurance. Our mission is to protect U.S. national and economic security, while at the same time promoting U.S. economic interests. You may think that these objectives are incompatible; that protecting national security and promoting international trade are mutually exclusive. But I don’t believe that has to be the case, and I will explain why.
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. 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.
The responsible and strategic export of high technology not only helps our economy, but also can 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.
However, I think it is clear -- especially in the aftermath of September 11 -- that 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.
We think that the Export Administration Act that was passed by the Senate -- 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. This will enable us to maintain the vibrant industrial base that is so critical to our continued security.
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:
We therefore believe that S. 149 provides the 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 recently passed this bill by an overwhelming vote of 85-14. We strongly urge the House to pass a similar bill.
You will hear shortly from three of my colleagues -- Jim Jochum, the Assistant Secretary for Export Administration; Mike Garcia, the Assistant Secretary for Export Enforcement; and Karan Bhatia, the Chief Counsel for Export Administration -- on several of the specific policy and enforcement issues on which we are currently focusing, including improvements in the interagency licensing process, the "deemed export" issue, and increased resources for pre-license checks and post-shipment verifications. But I want to mention one other important initiative that is of heightened concern since the events of September 11 -- our effort to enhance multilateral export control cooperation.
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.
In recent months, the U.S. government has been criticized -- unfairly in my view -- for allegedly engaging in a unilateral and isolationist foreign policy. This simply is not the case. The United States strongly supports effective multilateral cooperation on export controls that establishes rules which are enforceable and which will be enforced equally.
The Bureau is working hard, in conjunction with the State Department, to take steps to increase the effectiveness of the various multilateral export control regimes. For example, we are working to expand to all multilateral regimes the use of formal denial notification procedures. A denial notification procedure allows for bilateral consultations prior to a proposed export in situations where one regime member already has denied a license for essentially an identical export. Simply put, we do not want to let would-be proliferators or terrorists "shop around" until they can find a regime member that is willing to allow the export of items that other regime members will not. If we agree to control an item multilaterally, then those who have agreed to maintain these controls should be vigilant to ensure that such an item is exported only for legitimate purposes. Anything less than a united front with respect to multilaterally-based export controls undermines their effectiveness.
We also are pushing 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 its identification on a control list. Controls can therefore be targeted directly at end-users involved in proliferation or other activities of concern. As you are no doubt aware, the United States currently employs broad "catch-all" controls -- also known as EPCI [Enhanced Proliferation Control Initiative] controls -- focused on exports destined for use in proliferation activities. 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. 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.
Finally, no export control system will be effective without the knowing and willing compliance of the private sector. Especially in light of the events of September 11, we all must work together to ensure that export trade is conducted responsibly and in a way that supports, rather than undermines, our national security. Now, more than ever, companies should strive to know their customers and the end-uses of their exports. Internal compliance programs should include more extensive due diligence on potential export transactions. A properly designed export control system, in which government and industry work together, is in everyone’s best interest.
I would like to briefly discuss one other topic that is relevant to the businesses
in which many of you work, particularly those of you involved in information
technology. As you all know, globalization has been a mixed blessing. While
it has brought the benefits of increased trade and economic growth, it also
has brought with it new risks and vulnerabilities. I just discussed one --
the spread of technology needed to develop weapons of mass destruction or
advanced conventional weapons. A second -- and less well-known -- threat to
national security arising from globalization relates to our nation’s
critical infrastructures. Although we witnessed on September 11 a physical
attack directed at our financial infrastructure, we also must be concerned
about our vulnerability to cyber attack. I refer to this as the threat of
weapons of mass disruption.
Critical infrastructures 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 generation, transmission, and distribution; oil and gas storage and distribution; 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.
I refer to cyber attacks as "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. 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.
Our preferred approach is 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 business community. 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. That is why we are working with industry on a national plan 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 risks in a way that allows the United States to reap the maximum economic benefits of globalization while still protecting U.S. national security. I look forward to working closely with all of you in the business community in addressing this important new challenge.
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.