*Remarks delivered at Update 2005*
Peter Lichtenbaum
October 24, 2005

Thank you Eileen. Let me also welcome all of you to Update 2005. I’m especially pleased to welcome our new Under Secretary, David McCormick, and our new Assistant Secretary for Export Enforcement, Darryl Jackson. I’m sure that together we will have an outstanding two days.

I was going to use this opportunity to list all of BIS’s accomplishments since we last met. But in order to finish before the Secretary speaks at noon, I had to go back to the drawing board. Instead, I decided to talk about a fundamental issue that affects many of the export control policy decisions we make. The issue is the importance of understanding the medium and long-term impact of policy options. We need to understand national and international economic trends in the industries we regulate, as well as the export control policies of other countries.

Without this information, we risk taking actions that are aimed at protecting U.S. national security but which end up being ineffective or even harming U.S. security interests. Policies that are intended to protect U.S. security may not achieve their goal if they do not fully take into account the impact of our decisions in the context of changing global conditions. Instead, such policies may actually undermine our national security. I’d like to talk about this theme in the context of U.S. export controls and high technology leadership.
This impact analysis has become critical due to two major global trends. First, the effects of economic globalization on our export control system. Before globalization of production, the United States was the unquestioned high technology leader. There was little need to consider the impact of export controls on the health of our industries, given their leading position. Yet today, globalization means that the United States’ position as the technology leader is under challenge. We welcome this intense competition, which benefits billions of consumers in our country and around the world. But it means that we can no longer take it for granted that our industries will have the high-technology lead. And as a result, we need to understand better the trends in the U.S. and global industries that we regulate, and take into account the impact of our rules on industry.

Moreover, before globalization, there were only a small number of other countries that did have advanced high technology industries, and – under COCOM – these countries applied export control rules very similar to the U.S. rules. So it was not that important for U.S. export control policy to take into account the economic impact of our rules in order to determine whether they would be effective. But now, because of globalization, most sensitive items are available from multiple sources. Export restrictions are less effective in protecting our national security if sensitive commodities are readily available from countries who do not share our security concerns. So we need to understand the extent of foreign availability.
And this leads to the second reason why improved policy analysis is increasingly important: foreign policy trends. During the Cold War, there was an exceptional degree of international consensus regarding foreign policy, viewing the Communist countries as a monolithic and direct threat to Western collective security. Today the degree of consensus has diminished, given the increased complexity of the international system. There is agreement on key objectives, such as the encouragement of China to become a constructive stakeholder in the international system or the need to prevent Iran’s development of nuclear weapons. But because there are various tactical strategies to achieve these objectives, it is more difficult today to build consensus.

This difficulty has led to countries taking different approaches to their multilateral commitments. Disparate implementation undermines the effectiveness of controls by allowing proliferators to shop for the weakest link, and generally puts U.S. industry at a disadvantage. We therefore need to ensure that we understand and take into account the extent of international support for proposed policies.

Of course, where possible, we seek to harmonize implementation of multilateral controls so that our partners do not impose less stringent requirements on industry than we do. This harmonization requires greater strategic consensus. As one initiative to seek this consensus, the Administration has launched a strategic dialogue with the European Union regarding China.

But such harmonization of views does not happen overnight. In the meantime, we need to ensure that U.S. licensing requirements are not so onerous that we virtually compel critical U.S. industries to move offshore. We want to encourage foreign manufacturers to purchase U.S. parts and components, not to design them out of their products because our licensing requirements do not track with those of our regime partners. The night vision industry is a current example: we need to adapt our policies to streamline sales to Western Europe and Japan, since these products have become readily available from domestic suppliers in those countries. If we do not take this into account, we will end up controlling exports that no longer exist. Paradoxically, stronger controls may weaken our national security by reducing our influence over the market.

In sum, in today’s world, in order to achieve our national security objectives, we must understand and take into account the potential effects of export control decisions.
One especially important example of this dynamic involves our rules on technology transfers to foreign nationals with the United States. Without such rules, foreign nationals would be able to access and repatriate sensitive U.S. technology to potentially hostile military programs. Moreover, we face a particular threat today from terrorist groups, who may be operating within our own borders. At the same time, foreign nationals play a vital role in promoting the development of advanced technology within the United States. Many of the top researchers at our universities, government labs, and private industry are foreign nationals.

On first impression, this issue appears to involve a "trade-off", balancing our national security interests against our economic policy interests. But given the critical role of foreign nationals in the U.S. research system, attracting foreign nationals is itself very important to our technology edge and therefore to our national security. So the right analysis of this issue requires policymakers not to leap for the superficially attractive solution of severely restricting foreign nationals’ participation in U.S. research. Rather, we should strive to focus our controls on protecting the technology that matters most, and avoid imposing undue restrictions that will undermine our ability to attract the best and the brightest to our shores.

More generally, in order to preserve U.S. technological leadership and thereby protect our national security, the Commerce Department has a special responsibility to carefully analyze developments in the defense industrial base. As I mentioned, this is important in the context of export control policy, so we understand the consequences of our decisions in the marketplace. But beyond export controls, it is important for our government to better understand the condition of our strategic industries.

Currently, BIS evaluates specific defense-related industries on request, often from the Armed Services. We should expand this work to identify industries that are critical to U.S. national security, and assess whether those industries are in good economic condition. For instance, if an item is sufficiently critical that we impose controls on its export, then we should be well-informed regarding trends in the U.S. industry. We could also identify industries that supply inputs that are fundamental to the normal functioning of the U.S. economy and are not easily sourced from abroad. As an example, after Hurricane Katrina, we learned that liquid hydrogen production had been affected and that the resulting shortfalls could have a cascading effect throughout the economy, in the steel and semiconductor industries among others. The Federal government acted quickly to mitigate the impact on the economy.

As another example, the Defense Science Board recently studied the semiconductor industry. It concluded that semiconductor technology and manufacturing leadership must be maintained if the U.S. military is to continue to lead in applying electronics to support the warfighter. The Board provided several thoughtful recommendations for actions to strengthen the domestic industry production of high-performance semiconductors. These recommendations ranged from improved Defense Department acquisition planning, to stronger multilateral implementation of existing export controls on exports to potential adversaries.

To sum up, successful U.S. policy-making, on export controls and beyond, requires us to understand fully the industries we regulate, the global system in which we operate, and the likely consequences of our actions. I know of no better person to address these challenges than our new Under Secretary, David McCormick.

The President has selected an extraordinary leader in Dave McCormick. His experience in the boardroom and on the battlefield make him uniquely qualified to lead BIS, an organization working to advance U.S. national and economic security interests.

Most recently Dave was a CEO of a publicly traded software and services company. Before that he worked as a consultant and served in the United States Army, where he received a Bronze Star Medal for his service in Iraq during the first Gulf War. Dave received his bachelor’s degree from the United States Military Academy at West Point and his master’s degree and Ph.D. from Princeton University. As the former CEO of a global technology company, he understands the challenges U.S. companies face in maintaining competitiveness in a dynamic global marketplace. And as a former soldier, he appreciates the critical importance of protecting this country’s security by ensuring our sensitive technologies do not fall into the hands of our enemies.

He has been on the job a few short weeks and his impact has already been felt throughout the organization. As you’ll see in a moment, he is very enthusiastic about his job and is strongly committed to public service. I know that Dave is a leader with the skills to successfully advance U.S. national and economic security at a challenging time in our country’s history. Please join me in welcoming Dave to Update 2005.