Where Industry and Security Intersect
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Good morning and welcome to Update '98.
It is a pleasure to be with you again at BXA's annual reunion with American exporters. This conference is our most important outreach event. It provides an opportunity to brief you on what we have accomplished and what we are planning and to hear back from you on whether our direction is the right one.
I am also pleased to welcome once again senior export control representatives from twenty-three countries in eastern Europe and central Asia. Many of these countries face the same challenges we do and have the same interest in strong export control systems. There is much we can learn from each other, and I hope you will take a moment today or tomorrow to meet them.
To our special guests, I would say that part of our support for the development of democratic and free market institutions is assisting in the creation of strong export control regimes so that we can deal effectively with our common adversaries. I know you share our commitment to export controls to keep critical technologies our of the hands of irresponsible parties, and I hope you find this week's program interesting and helpful.
This Administration's stewardship of export controls has occurred during a period of unprecedented political and economic transformation. We have worked hard to adapt our policies and procedures to these new realities and have accomplished a great deal over the past five years. Now we are finding, however, that further change is an uphill battle, as we contend with those, primarily in the Congress, who do not understand these changes and respond to them by trying to return to the simpler era of the Cold War and a single bipolar adversary. Only this time it is China. But before I get to that, let me comment on some of the changes that all of us have to deal with as we head into a new century.
The most important was laid out by President Clinton in his speech commemorating the fiftieth anniversary of the GATT, when he said, "Economic globalization is not a policy option; it is a fact." You know this because you live it in your jobs every day. More efficient modes of transportation and communication, the internationalization of capital flows, the development of the information-based economy, all work together to transform the traditional, national economic system into one which is truly global -- where capital, ideas, goods, technology -- and increasingly labor -- all flow across borders, not always freely, but more often than not successfully.
This means that companies have new choices. They can build, manufacture, produce and sell in multiple locations all over the world. They can locate their R&D facilities wherever they wish, often separate from their production facilities. They do so because they have to -- as a condition of doing business somewhere -- or because it is cheaper or more efficient. It is also true that the fact that we have fewer adversaries today than during the Cold War means that companies have new markets with expanded international demand for their products.
Second, countries have choices. With more competition and more sources of products and capital, they can keep companies out or pull them in with inducements or threats, playing one supplicant off against the other. Thirty years ago countries used to do that with the Russians and the Americans and their aid programs. Now they do it with all of you.
Third, if ever the U.S. had a monopoly on technology, it is no longer so. Technology has joined land, labor and capital in the Ricardian equation of comparative advantage, and it is the most fungible of these factors of production, residing as it does in books, blueprints, diskettes, our workers' brains and know-how. The diffusion of technology as well as the rapidly growing cost of state-of-the-art production facilities in a growing number of high tech sectors means that joint ventures are the economic and political reality of the future. Going it alone is too expensive and too isolating in a global marketplace.
Fourth, within this very truth lurks the danger of growing divisions between what is in the corporate interest and the national interest. What's good for General Motors is not necessarily what's good for the country. Economic globalization is a reality, but it still occurs in a world of nation-states, each with geopolitical concerns which may trump economic interests. There is probably no clearer case of that recently than the decisions of India and Pakistan to mortgage their economic futures by conducting nuclear tests.
This does not mean that trade and national security are always at odds, but it suggests they can be, and it is therefore incumbent on government to determine how to identify and better articulate the national interest. This is an issue BXA is working on outside the licensing process and something you may be hearing more about in the future.
Fifth, the line between military and civilian goods is increasingly fuzzy. This is partly because of the growing reliance of the military on commercial off-the-shelf items for reasons of cost, quality, and speed of procurement. As our military increasingly relies on sophisticated technology to meet a wide range of needs, it demands that our high-tech industries be on the cutting edge, and that means going to the civilian sector.
The other half of the equation is growing civilian demand for what began as military technologies. This began with the Jeep, but today items like night vision equipment and GPS continue to have military relevance at the same time they are carving out significant commercial demand. In the case of commercial communication satellites, a number of previously military technical parameters, such as radiation-hardened chips, have now become standard issue.
The result is that the military relies on a strong high tech sector to continue to develop and manufacture new and better products; yet it does not buy enough by itself to keep them healthy. Instead, in a globalized economy, exports have become the key to growth and good health. In the computer and satellite industries, for example, between 50 and 60% of all revenues come from sales outside the U.S. Just last week USA Today reported that one of our companies had to eliminate 300 jobs after suspending work on three Asian satellites due to the flagging Asian economy. So if you ever thought these problems are far away and not your concern, think again. In the global economy, there is no distance.
In the face of these changes, our goals remain clear:
- to maintain and promote American security and foreign policy interests in a world where threats are no longer posed by a monolithic bloc.
- to limit regulatory burdens on U.S. industry consistent with security and foreign policy objectives. Regulations that cannot be justified based on material contributions to these national interests should be eliminated.
- to enable defense related industries to make the transition from a cold war environment to an era where the volume of military procurement will be sharply reduced; yet still produce leading edge technologies, and; - to support countries establishing democratic institutions based on acceptance of recognized standards of responsible international behavior -- and to restrain countries who refuse to abide by internationally accepted norms.
Our actions have been in three parts -- retargeting controls, multilateralizing controls, and removing outdated controls.
Following the dissolution of the Soviet Union, the United States and its Western partners no longer target the Warsaw Pact states and instead seek to expand rather than restrict high technology trade with them. Our interest is in bringing these countries into the international economic and political system by ending their economic isolation and integrating them into Western economic structures. That means trade -- not just because it is good for us and for them -- but because it is good for our collective security as well.
It is important to stress that the top priority of our export control system remains protection of the nation's security. The Clinton Administration has a strong record of supporting economic growth through exports without sacrificing national security. In fact, pursuing the benefits of a global economy by having a top-notch high tech industry is very much in our security interest because it helps our companies -- all of you -- stay ahead.
Second, we continue to work multilaterally to prevent bad actors' acquisition of high tech tools. We fool ourselves if we think our export controls alone can stop the spread of high technology, and we underestimate the resistance we will encounter from other nations who accuse us of unilaterally trying to hold back their economic development and entry into the global information age. Working with the international community to develop consistent export control policies, and where necessary, multilateral sanctions, is the only was to achieve our nonproliferation goals.
In that regard we have worked hard to strengthen the multilateral control regimes -- the Nuclear Suppliers Group, the Australia Group, and the Missile Technology Control Regime -- and we have created the Wassenaar Arrangement to succeed the outdated COCOM and go beyond it. Wassenaar's lack of strong central authority and its lack of explicit target countries is a reflection of the times -- the absence of a single large threat and lack of agreement over the nature and seriousness of the smaller threats. That weakness has complicated its development and made consensus among the expanded membership more difficult to achieve. Nevertheless, its inclusion of conventional weaponry is a major step forward from COCOM, and I am confident that as its procedures and reporting requirements become routinized, discipline will grow.
We have been criticized for these efforts by some in the nonproliferation community who fail to understand that the perfect can be the enemy of the good. All these regimes are works in progress. None are perfect, but if we refused to accept anything but the perfect, we would still be empty-handed. Instead, brick by brick, we are building walls against terrorism and weapons of mass destruction. The result is worth waiting for, but the time spent getting there is also not wasted. Even works in progress produce successes along the way, and the world is a far safer place for it.
Another of our significant accomplishments has been ratification of the Chemical Weapons Convention. The CWC, which prohibits the development, production, acquisition, retention, transfer and use of chemical weapons, is one of the most comprehensive arms control treaties of the post World War II era, and I look forward to working with industry to ensure an effective compliance program.
We are also deeply engaged in the ongoing negotiations to strengthen the Biological Weapons Convention by providing a similar inspection system. That will occupy an increasing portion of BXA's attention over the next two years.
Third, we have made substantial progress over the past five years in overhauling our own export control system.
In past years you have listened to me tick off our domestic accomplishments: licensing process reform, rewritten regulations, control liberalizations on computers, software, telecommunications equipment, semiconductors, semiconductor manufacturing equipment, and oscilloscopes to mention a few, a new commodity jurisdiction review process -- including resolution of the hot section technology and commercial communication satellite issues -- at least until Congress got into the act.
We are now processing some 11,000 licenses per year, and I do not expect that to decline significantly in the future because I see few high volume areas ready for major liberalization. Our challenge will not be to shrink it but to keep it from growing if we are not allowed to keep pace with technology advances.
In terms of licensing procedures, we have listened to exporters. We will shortly be able to accept license applications and required reports over the Internet. Soon you will be able to sit at your home or office at any time of day and send us your application reliably and securely at no cost to the exporter.
We also continue to make progress on developing an encryption policy that reinforces market developments. Secretary Daley will have more to say about that at lunch today, and we will have some new information for you in the breakout sessions this afternoon.
I think this is a significant record of accomplishment that this Administration can be proud of. We have preserved our security and at the same time contributed to our record-setting economic growth. Unfortunately, many of these accomplishments are threatened by those in Congress who are looking backwards rather than forwards.
Many of you may know that I spent more than twenty years working in the Congress -- in both houses and for members of both parties. I have an abiding respect for the institution, but I must tell you we are now faced with the most anti-international Congress in decades. Simply put, they don't understand globalization; they don't like it; and they want to stop it. Like King Canute trying to hold back the tide, they won't succeed, but they may make all of us miserable in the process.
This is not only an export control issue. Look at the failure of fast track, the refusal of the House to act on the IMF bill, the expected close vote on China MFN, and the numerous sanctions laws that now tie the President's hands and force him into counterproductive action. Helms-Burton, ILSA, the just-vetoed Russia sanctions bill. A recent study reported we are now sanctioning 70 countries and half the world's people. The President has navigated through these legislative temper tantrums as best he could, but the fact remains that the Congress is forcing us to back into the 21st century kicking and screaming rather than moving toward it prepared and confident.
This is also a threat on the export control front. Last year saw Congress' misguided attack on the computer industry. Now we are in the middle of a similar attack on commercial communications satellite exports. Some of you may have seen me on television last month talking about machine tools. What's next? My guess is telecommunications and aircraft. Piece by piece the Congress is threatening to dismantle the progress this Administration has made in giving our high tech industries the opportunity to capture world leadership.
If they succeed, the consequences for national security, our economy, our foreign policy, and you, will be significant.
As I said earlier, a 21st century military that is the best in the world requires technology that is the best in the world. Having the best depends on our companies making profits and using them on R&D for next generation products and technologies. And increasingly, our civilian companies are also our military companies. Telling the commercial comsat industry it can't launch on Chinese rockets is like adding lead weights to a runner's ankles. Soon you will have a second class commercial industry, and shortly after that you will have a second class military satellite industry. They're the same companies. Likewise, tell the computer industry -- which leads the world right now -- that it can't sell in certain countries, and in a matter of months you will see new foreign competitors taking advantage of our self-inflicted wounds.
The economic implications are obvious. Exports are now an integral part of what we do. Cut them back and you increase our costs, decrease our competitiveness and cost us jobs -- good, higher paying jobs. When this Administration came into office and unemployment was high, Congress cared about jobs. Some of the same people attacking us now on the satellite issue wrote us in 1993 urging us to approve Chinese launches on the grounds it would create jobs in California. Now that unemployment is 4.3%, apparently we don't need to think about jobs. But I guarantee you we will be thinking about them again -- and regretting our mistakes this year.
What is less discussed is how high tech exports contribute to our foreign policy goals by spreading American ideas and principles. We did not win the Cold War in a military victory. We won a war of ideas. Our system worked; theirs didn't. Our people were free and prosperous; theirs were not. Some of the tools we used to win that war were mundane -- television, radio, fax machines, telephones, the Internet. These are how ideas spread. These are how people all over the world learn that they have alternatives, discover the importance of free speech, free press, and market economics.
So when we decide not to launch a satellite on a Chinese rocket, we are denying the Chinese people television, Internet, and cellular phone service, and by doing so are postponing their exposure to our ideas and their integration into Western economic and political systems by denying them the tools they need for access. I can think of few things more counterproductive.
So, what is to be done? By you and by us.
First, we need to educate Congress about the realities of modern global competition. This is not lobbying in the traditional sense. It is teaching. No one can do that better than those who spend every day in the fight for sales and market share.
Second, you should strengthen your own internal procedures and adhere to our laws and regulations. Don't provide ammunition for those seeking to turn back the clock and close our borders to commerce.
Third, continue to employ your own global strategies. Move into new markets -- grow your companies, develop new products, increase your R&D. It's good for our economy, our workers, our development of advanced technology. In other words, fight back by doing the only thing that makes sense -- advancing into the global marketplace rather than retreating from it.
Fourth, we will continue building stronger multilateral regimes by:
- identifying specific projects of concern.
- implementing "catch all" provisions so that exports of items destined to proliferation projects can be denied.
- sharing export licensing information so that "no undercut" agreements can be implemented -- no member country should approve a sale of an item that a partner has denied.
- strengthening penalties to deter and punish violators.
Fifth, we will continue our own control review process, applying a strict effectiveness test. Controls that do not advance our security or policy objectives should be eliminated. Doing so will add to our credibility with our trading partners, most of whom take a much more limited approach.
Finally, we should reconsider our sanctions policy. We must stop thinking of them as a first resort instead of a last resort. And we must implement them more carefully. More than many other issues, the sanctions devil is in the details, as is demonstrated in the case of India and Pakistan. Badly implemented, sanctions can cause enormous uncertainty and difficulty for our businesses -- even for those who do not trade with these countries and have no intention of doing so. Careful implementation will minimize those problems and the extraterritorial impact that so irritates our allies.
If we can succeed in these steps perhaps we can persuade the Congress not to try to force the national security paradigm of the Cold War onto today's situations. This paradigm is obsolete, and cries for a return to past practices, no matter how strident, will not change that fact. The problems posed by economic globalization are not amenable to simple or parochial answers. The best policy is one that moves in the direction of building alliances rather than enemies, and an export control agenda for the next century must reinforce that principle.
In closing, let me thank you for your understanding during these last few years and in advance for what I hope will be your future understanding. The changes we have made have not come easily, and we have tried very hard to consult with affected industries as we have gone forward. Your cooperation and support in that is much appreciated and continues to be needed in view of the threats we now face.
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.