Where Industry and Security Intersect
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Let me start with some good news. License processing times are declining from the 40 day average they climbed to in FY 1999. Our projected average for this fiscal year is 37 days - - an improvement that we anticipate will continue. Similarly, our rate of license denials jumped to nine percent during FY 1999 - - up considerably from prior years when it was between two and three percent. I'm pleased to report that in the first nine months of this fiscal year, denials have dropped back to around four percent. The major reason for both the increase and the recent drop can be summarized in one word: India. Most of our denials in 1999 are attributed to the India sanctions, and most of those were for EAR99 items and items not otherwise requiring a license. The trimming we did of the list of sanctioned Indian entities earlier this year, and the adoption of a presumption of approval for EAR99 items, has enabled us to approve more applications for India and has reduced our rate of denials. While the four percent is still higher than our previous norm, it is a significant drop, especially given that our India policy revision was only made a few months ago, in mid-March.
India sanctions are not the only ones we have eased. As you probably know, we recently trimmed back the long-standing embargo of North Korea in recognition of commitments made by the North Korean Government to restrain its weapons programs and to engage in peaceful dialogue with South Korea. Under the new policy, with the exception of about 50 items which are EAR99 for most destinations but are now listed in new ECCNs created specifically for exports to North Korea, licenses will no longer be required for EAR99 items for North Korea. Those fifty items, which have nuclear uses but are not controlled by the Nuclear Suppliers' Group (NSG), are still classified as EAR99 for all other destinations. The new ECCNs only apply when you intend to export one of these items to North Korea.
I'm also pleased to mention some changes we're working on with respect to the difficult area of "deemed exports." On a pilot basis with several companies who have volunteered, we have formulated procedures for a comprehensive license for Deemed Export (DEL). Under this new concept, which we will formalize in new regulations after the pilot program is a bit farther along, companies who meet the DEL requirements will be able to hire foreign nationals by simply notifying us of new (non-permanent resident) hires. We will review these new employees. If we do not object within 30 calendar days, the company is authorized to begin transferring controlled technology to that foreign national. Since new employees are normally on probation and limited in their activities by most companies as a matter of personnel policy for anywhere from 60 days to 6 months anyway, we believe this approach will streamline the process and ease the burden without additional risk to the government. We are currently making the necessary changes in our electronic systems to handle these DEL applications so that in the future they can be submitted electronically. Any company that is interested in using this new approach should contact Chuck Guernieri for further information.
One fact that has not changed much since I last reported to you is that China - - export applications for China - - remain our biggest challenge. They represent a significant portion of our workload, accounting for 12 percent of all incoming applications, and also have a longer average processing time - - 63 days. The fine line between sensitive Chinese military production and civilian commercial activities, sometimes taking place in the same facilities or within a single Chinese organization, presents the most difficult and time-consuming set of licensing facts. Nevertheless, we continue ultimately to be able to approve the overwhelming majority of cases for China while carefully avoiding high-risk transactions. In the first six months of FY 2000, we approved 413 applications for China, with a total value of $1.2 billion. During the same time period, we denied 21 applications.
The good news about China is that our cooperation with our Chinese counterparts is growing, reflecting greater recognition on the part of Chinese officials of the validity of export controls - - theirs and ours. On that point, I'm happy to announce that we will be conducting jointly with the Chinese Government an Update-like conference in Shanghai for both Chinese companies and American companies exporting or doing business in China. We have sought such a Chinese industry outreach conference for several years, and are pleased that Chinese officials feel that the time has come to begin reaching out to their companies in much the same way that we do at these Updates. We don't yet have a precise date for this conference, but we expect it will be late October or November. Please watch our web page for the exact dates and details. We hope that many of your companies will want to attend. It will be a good opportunity for building contacts and ties with Chinese companies and perhaps countering some of the impressions they have that U.S. export controls are an impossible obstacle which can only be overcome by sourcing from other nations.
We are now implementing a major industry compliance program for the Chemical Weapons Convention. We have received and processed declarations from almost 700 facilities throughout the United States who manufacture, process, or consume precursor chemicals for legitimate commercial purposes. In May of this year, the Organization for the Prohibition of Chemical Weapons began on-site inspections of these U.S. chemical facilities in accordance with the treaty's verification mandate. BXA is responsible for managing access at these inspections to ensure that we meet our treaty obligations while minimizing burdens on and risks to American companies.
Export Administration is also playing a major role representing industry's equities in negotiations to develop a legally binding compliance regime for the Biological Weapons Convention. Intense negotiations are currently underway in Geneva with an effort to bring the major issues to closure by the end of this year.
We are also continuing our research, advocacy, and conversion efforts on key sectors of the defense industrial base, with current research projects underway for the Air Force, Army, Navy and the Coast Guard.
I'm asked these days what particular goals I have for the remaining five and a half months left to this Administration. One is to replenish the Export Administration pool of licensing management and technical talent. Fortunately we have retained many of our best people despite growing demands for their skills in the private sector, and we have hired many talented and promising new people. But we have also lost some, and with them some of our institutional memory which is so important especially in the interagency aspects of the process. To mention three, Deputy Assistant Secretary Iain Baird, whose career with BXA spanned more than 25 years and who many of you depended for good counsel and effective customer service, retired from government last month. Several weeks ago we also lost LaVerne Smith, our director of the Export Counseling Division, who retired after 35 years in government. LaVerne was BXA's number one public service manager. She and her staff help over 100,000 people who call in with questions each year. We are also losing Patti Sefcik, who has headed our Encryption and Computer Division for the past several years. Working under Office Director Jim Lewis, Patti has contributed greatly to the positive direction of our encryption and computer control policies. In that case we're losing her not to the private sector, but to another branch of the Commerce Department - - ITA, where she will have responsibility for promoting e-commerce. I intend to fill these and other vacancies in our organization as rapidly as possible in order to maintain our level of expertise and effectiveness.
Another goal is to continue our active processing of all pending cases right up to the final days and hours of this Administration. I want simply to assure you that we will do exactly that.
But certainly permanent, comprehensive authorizing legislation has to go at the top of the list of remaining goals, despite the relatively little time left for Congressional action and the campaign season we're already in. This is made all the more urgent by the recent court ruling in Florida that calls into question the validity of our authority to protect confidential business information from public disclosure because the EAA has expired. As Stu Eizenstat will undoubtedly discuss further when he speaks at lunch today, Congress has also failed to act on comprehensive sanctions reform legislation. That in turn has encouraged inconsistent legislation on sanctions. Congress, for example, is currently considering legislation to eliminate licensing requirements for sales of agricultural and medical products to terrorist supporting governments like Libya, Iran, Iraq, and Sudan. At the same time it is also considering legislation to impose strict new sanctions specifically on China.
Export controls are here to stay for the foreseeable future in world trade. But as we approach the end of this Administration I am concerned that rather than continuing to become more targeted, as I believe they should, they may once again become expansive and intrusive. The political scientist Henry Howe Ransom wrote a thought-provoking little book during the Cold War called "Can American Democracy Survive the Cold War?" That book was about the threats to traditional personal freedoms from Cold War security measures. Today, a similar treatise might be called "Can Free Trade and Globalization Survive the Internet?" The fact is that E-commerce, and the computer systems that make it possible, also make it possible to contemplate cradle-to-grave, or in this case factory to scrap heap, tracking and control of trade. There are those who would like to do just that in the name of such laudable goals as arms control, human rights, and even environmental protection. Congress' desire to declare things like garden variety communications satellites as munitions when they are clearly not, and the desire of some government agencies for direct access to company computers to directly monitor transactions - - those seem to me to be early warning signs that pressures for control in peacetime can become just as intense and expansive as the Cold War controls we though we had left behind. In short, E-commerce can all too easily turn into "E-control."
Where we draw the line between our growing capacity to control trade, on the one hand, and the freedom of companies and countries to compete and cooperate through trade, on the other, is a critical part of the national security equation. Excessive controls could not only undermine our freedoms, but could undermine the very peace we are trying to secure by increasing international tensions rather than resolving them. We in this Administration have tried to strike the right balance, and the next Administration, with your help, must continue that effort.
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.