Where Industry and Security Intersect
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The Department of Commerce's Bureau of Industry and Security (BIS) requested public comments on existing foreign policy-based export controls maintained under Section 6 of the Export Administration Act (EAA) through a Federal Register notice published September 27, 2002. A notice also was posted on the BIS Web site. BIS requested comments on how existing foreign policy controls have affected exporters and the overall public. The notice invited public comments about issues such as the effectiveness of controls when foreign availability exists; whether the goals of the controls can be achieved through other means such as negotiations; the compatibility of the controls with the overall U.S. policy toward a country in question; the effect of controls on U.S. economic performance; and the ability to enforce the controls. BIS also requested comments from member companies of the Technical Advisory Committees.
BIS received five responses from the following organizations: the Sensors and Instrumentation Technical Advisory Committee (SITAC); a member of the Materials Technical Advisory Committee (MTAC); a foreign multinational, Royal Philips Electronics; the American Bar Association's Section of International Law and Practice; and Sun Microsystems. BIS makes the comments available for public review upon request. The comments also are available for review in the BIS Freedom of Information Act Reading Room available on the BIS Web page. This Appendix summarizes the comments received.
The SITAC reemphasized its request made the previous year and added additional comments on foreign competition. The SITAC restated that Category 6 commodities related to commercial night vision and thermal imaging equipment (specifically 6A002, 6A003, 6E001, and 6E002), which are controlled for Regional Stability (RS) Column 1 be moved to RS Column 2. Although RS1 includes all countries except Canada, the imposition of RS2 controls would allow items classified under these ECCNs to be exported to Canada, most European Union member states, Japan, and several other countries without a license. Due to the development of foreign competition in the United Kingdom, France, and Japan, SITAC stated that "the negative effect on U.S. companies far exceeds the perceived benefit to the foreign policy objective." SITAC notes the importance of thermal imaging for firefighting, law enforcement, and security organizations worldwide and stated that the U.S. call for building a large international coalition to combat terrorism is undermined when allies' access to available U.S. technology is restricted. SITAC further stated that treating all regions with the exception of Canada as being potentially unstable "dilutes the focus on regions where stability may truly be in question."
On November 21, 2002, a member of the MTAC responded with the following: "There appear to be too many holes in the 'sieve' to effectively stop the transfer of technology in our industry. Trade secrets, mainly processing, seem to have had a slowing effect on the rate of transfer." The individual from the MTAC did not submit any comments on how to improve the system, but noted the following on export controls in general: "If we were to depend on a voluntary,
pro-American attitude on the part of US companies to control the use of our commercial capabilities to produce products that could be purchased by countries to be used against us, we would find that the justification of commercial profit would come before security."
On November 26, 2002, Royal Philips Electronics, submitted the following comments: "Once products are decontrolled by the Wassenaar Arrangement, the United States may maintain controls while the European Union fully implements the decontrol. U.S. and foreign companies bear the "tremendous burden to maintain those ECCNs worldwide in every local database.
In addition, U.S.-based companies have to report the export of such material. Any time a new product is developed a company has to take into account that U.S.-origin products could be under U.S.-foreign policy controls and that these products have to be cumulated to investigate the 10 or 25 percent de minimis rule." The company suggested that the regulations be written with less complexity and burden for commercial companies. It recommended the following changes be made in the regulations: "1) No direct export of U.S.-origin products to several embargoed counties; 2) No reexport of U.S.-origin products to several (other) embargoed countries; 3) For listed countries, having a good 'origin' or 'made in' rule, and having a export control system, with the 25 percent 'de minimis' rule should be available for US-origin Wassenaar controlled articles. For other countries the "de minimis" rule would include the foreign made product is subject to U.S. law when having incorporated 25 percent or more of certain technologies."
On November 26, 2002, BIS also received comments from the American Bar Association's Section of International Law and Practice on the extraterritorial effects of U.S. export controls and controlled U.S.-origin content under the de minimis provisions. The Section noted that the reexport controls on items controlled for foreign policy and national security reasons have unwarranted effects. U.S. extraterritorial controls, controls on U.S.-origin and U.S.-content items and technology outside the United States, are "at odds with the territorial principle, which recognizes the right of a state to prescribe rules of conduct for persons within its borders." Extraterritorial controls lead to conflicts with U.S. trading partners, including countries with which the United States has close ties. U.S. trading partners respond to U.S. extraterritorial controls with statutes "designed to nullify the effect of various U.S. extraterritorial trade controls." Next, extraterritorial controls have economic and foreign policy costs. Anecdotal evidence suggests that "foreign parties 'design out' U.S.-origin components or technology to avoid the burden of U.S. export controls," placing U.S. companies at a "clear disadvantage." Finally, the Section commented on the position of the Department of Commerce with respect to controls on foreign products that contain more than a de minimis level of U.S. origin content. They believe the intent of section 5 of the EAA was that only items controlled for national security reasons should be considered "controlled U.S.-origin" content and that U.S. controls should only be applied to foreign products containing more than 25 percent of such national security controlled content. The Section believes the controls in the Export Administration Regulations (EAR) that apply to foreign products containing more than 10 percent U.S. foreign policy controlled content are beyond the scope of the authority provided in section 5 of the EAA. (Note: The de mimimis provisions of the EAR were promulgated pursuant to the authorities contained in section 5 (national security controls) and section 6 (foreign policy controls) of the EAA. Foreign manufactured items that contain 10 percent or less U.S.-origin controlled commodities, software or technology (to designated terrorist countries) or 25 percent or less U.S.-origin items (to other countries) are not subject to the EAR.
The final public comment received was from Sun Microsystems. Sun Microsystems commented on Section 744 Proliferation Controls, known specifically as the "EPCI" (the Enhanced Proliferation Control Initiative) provisions, and controls on high performance computers (HPCs). The company believes that EPCI catch-all requirements cause substantial unnecessary costs associated with export compliance for global information technology (IT) companies. The burden to IT companies lies in "policies, procedures, and automated systems [that] must be constructed to screen thousands of transactions involving uncontrolled or uncontrollable products, and techniques [that] must be devised to stop transactions for which an exporter has 'reason to know' that the ultimate end-use will involve weapons of mass destruction." In addition, IT companies spend "substantial money and time on screening shipments of de minimis, irrelevant and uncontrollable items, or attempting to enforce compliance with such a system, [which] detracts from the ability of both companies and enforcement authorities to enforce what really matters." Sun Microsystems calls for a "complete, authoritative list of entities presenting proliferation concerns, including those end-users to whom exports were previously subject to enhanced controls (i.e., export prohibition or licensing)." The company also suggested the creation of new practices pursuant to which the Department of Commerce: "(1) processes voluntary company requests to screen individual end-users for a particular transaction in no more than 14 days, and (2) permits voluntary one-time end-user reviews and certifications so that companies can export to a given end-user, free of EPCI liability, until the exporter is notified otherwise." With regard to HPCs, the "scope of Tier III controls should be narrowed substantially in order to recognize the realities of the networked world and to discontinue the dangerous and counterproductive pretension that controlling commercial computing power will be either viable or effective in the coming years." Tier III countries should be those "identified in the CIA's semiannual WMD report to Congress under Section 721 of the Intelligence Authorization Act for FY 1997" rather than the extensive list of countries currently included in Computer Tier III.