Where Industry and Security Intersect
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Thank you for the opportunity to testify on the future of the Export Administration Act (EAA). Since its August 1994 expiration, we have maintained our system for controlling the exports of dual-use goods and technologies through a combination of emergency statutory authority, executive orders, and regulations. Reauthorization of an EAA that takes into account the end of the Cold War is long overdue. In addition to helping exporters by bringing the law up to date with current global realities, it is also essential that we enact a new law in order to minimize the possibility of legal challenges under the current emergency authority and to enhance our credibility in international fora. At your request, I will describe some of the most important reasons a new EAA is preferable to continuing to operate under the International Emergency Economic Powers Act (IEEPA). I will also discuss the significant features of the Administration's proposed revision of the EAA and the Omnibus Export Administration Act of 1996 passed by the House of Representatives in the last Congress (H.R. 361), with particular focus on the balance between trade interests and national security concerns. I hope you will recognize the need for a new EAA and the general agreement between the Administration and the House of Representatives on the basic features of such a bill.
Simply put, continuing to operate under emergency authority raises the possibility of increasing legal and political complications. Operating under authority of IEEPA, as we have done on a number of occasions, including for the past two and one-half years, means that we are functioning under certain legal constraints. Functioning under emergency authority also leaves important aspects of our system for controlling the export of dual-use goods and technologies increasingly at risk of legal challenge. In addition, operating under emergency authority can undercut our credibility as a leader of the world's efforts to stem the proliferation of weapons of mass destruction.
While I do not want to overstate the case, because these complications are currently surmountable, and we will continue to pursue our export control policies despite them, at a minimum they are likely to consume increasing amounts of resources that could be better used to administer and enforce the export control system more effectively.
In some significant areas, we have less authority under IEEPA than under the EAA of 1979. Foremost among these areas are the penalty authorities. The penalties for violations of the Export Administration Regulations that occur under IEEPA, both criminal and civil, are substantially lower than those available for violations that occur under the EAA of 1979. Even the EAA penalties are too low, having been eroded over the past 17 years by inflation. The Administration's proposed revised EAA significantly increased these penalties. Similarly, one of the most useful enforcement features of H.R. 361 was its comparable increase in criminal and administrative penalties. We rely on the deterrent effect of stiff penalties for export control violations. The longer we are under IEEPA, or even the EAA of 1979, the more the deterrent effect will erode, and companies will begin to think of the lower penalties merely as a cost of doing business, especially for nonproliferation and foreign policy cases. Another limitation of IEEPA concerns the police powers (e.g., the authority to make arrests, execute search warrants, and carry firearms) of the export enforcement agents in the Department of Commerce's Bureau of Export Administration. Those powers lapsed with the EAA of 1979. Our agents must now obtain Special Deputy U.S. Marshal status in order to exercise these authorities and function as law enforcement officers. While this complication can be overcome, doing so consumes limited resources that would be better used on enforcement. Both the Administration's proposed EAA and H.R. 361 continued these powers. Finally, the longer the EAA lapse continues, the more likely we will be faced with challenges to various aspects of our authority. For example, IEEPA does not have an explicit confidentiality provision like that in section 12(c) of the EAA of 1979 or similar provisions in the Administration's proposal and H.R. 361. As a result, the Department's ability to protect from public disclosure information concerning export license applications, the export licenses themselves, and related export enforcement information is likely to come under increasing attack on several fronts. Similarly, the absence of specific antiboycott references in IEEPA has led some respondents in antiboycott cases to argue -- thus far unsuccessfully -- that BXA has no authority to implement and enforce the antiboycott provisions of the EAA and Export Administration Regulations.
The lapse of authority also has domestic and international policy ramifications. Although we have made great progress in eliminating unnecessary controls while enhancing our ability to control truly sensitive exports, industry has the right to expect these reforms to be certain and permanent. For example, while the Administration is implementing the President's executive order on the licensing process, which increases the discipline and timeliness of that process, a statutory foundation for it would send an important message to U.S. exporters that these reforms will not be rolled back. Our exporters will then have the certainty they need to plan their export transactions. In addition, failure to enact a new EAA that reflects the changed world situation sends the wrong message to our allies and regime partners, many of whom we have been urging to strengthen their export control laws and systems. We have also been urging, as part of our export control cooperation with the former Soviet Union and Warsaw Pact countries, that they adopt export control laws passed by their respective parliaments. Our credibility could be diminished by our own lack of a statute.
Some of these same issues also militate against a simple renewal of the EAA of 1979. For example, as I noted earlier, the penalties of the EAA of 1979 have been substantially eroded by inflation. In addition, the EAA of 1979 is a Cold War statute that simply does not reflect current geo-political realities. Its basic national security control authorities are predicated on the existence of a multilateral regime, CoCom, that ended more than three years ago. A renewal of the EAA of 1979 is not much better than operating under IEEPA. Recent Attempts to Revise the Export Administration Act
In February 1994, the Administration proposed a revised EAA. The goal of the Administration's proposal was to refocus the law on the security threat the United States will face into the next century -- the proliferation of weapons of mass destruction -- without sacrificing our interests in increasing exports, reducing our trade deficit, and maintaining global competitiveness in critical technologies. To meet that goal, the Administration's proposal emphasized the following principles: 1) establish a clear preference for export controls exercised in conjunction with the multilateral nonproliferation regimes; 2) heighten focus on economic security by an increased discipline on unilateral controls; 3) simplify and streamline the export control system; 4) strengthen enforcement; 5) provide exporters with expanded rights to petition for relief from ineffective controls; and 6) allow exporters greater opportunity to seek judicial review of certain Commerce actions. Consequently, the Administration's proposal differed in several significant ways from the EAA of 1979. The central control authorities reflected the positive trend towards international cooperation on nonproliferation through multilateral export control regimes instead of reliance on the Cold War distinction between CoCom-based national security controls and other foreign policy concerns. The criteria governing the imposition or extension of unilateral controls were made more stringent. The licensing process was shortened and simplified. Enforcement was strengthened through increased penalties, greater authority for undercover operations, and revisions to forfeiture and temporary denial order authority. The unfair impact provision provided exporters with expanded rights to petition for relief from ineffective controls. Finally, exporters were also given greater opportunity to seek judicial review of certain Commerce actions.
H.R. 361 made several needed and significant improvements to the EAA which were similar to those contained in the Administration's 1994 proposal. These improvements included control authority updated to address current security threats, increased discipline on unilateral controls, and enhanced enforcement authorities. H.R. 361 also contained provisions consistent with recent Administration licensing process and commodity jurisdiction reforms. H.R. 361's structure reflected the new challenges resulting from the end of the Cold War. As proposed by the Administration's EAA, the basic control authorities were multilateral and unilateral instead of the national security and foreign policy authorities of the EAA of 1979. H.R. 361's new structure explicitly recognized the preference for compliance with international regimes that the U.S. either is a member of (currently the Wassenaar Arrangement, the Missile Technology Control Regime, the Australia Group, and the Nuclear Suppliers' Group) or may help create or join in the future. We viewed H.R. 361's clear preference and explicit guidelines for multilateral controls as essential for achieving our nonproliferation goals without disadvantaging U.S. exporters. Another significant positive feature of H.R. 361 was its increased discipline on unilateral controls. The determinations required by H.R. 361 for the imposition, extension, or expansion of unilateral controls were similar to those proposed by the Administration. These determinations would have required a more precise analysis of the anticipated and actual effectiveness of unilateral controls. This more precise analysis would have ensured that the economic security of the U.S. not be adversely affected by controls which do not significantly advance national security, foreign policy, or nonproliferation objectives. H.R. 361 also reflected the recent Administration reforms of the licensing and commodity jurisdiction processes. H.R. 361's standards for license processing, which were consistent with the 1995 executive order, included shortening the time allowed for review of applications and adding discipline to the interagency process, while permitting all pertinent agencies to review any license application. These reforms have improved the system's responsiveness to exporters while also enhancing our ability to meet our national security, foreign policy, and nonproliferation goals. Consistent with the President's revision of the commodity jurisdiction process, H.R. 361 required timely settlement of interagency disputes on whether an item is subject to the EAA (dual-use) or the Arms Export Control Act (munitions). Like the commodity jurisdiction reforms, it also required increased coordination and transparency among the agencies in commodity jurisdiction and classification determinations. These reforms have made the export control system more responsive to exporters without diminishing the system's ability to meet our national security, foreign policy, and nonproliferation objectives. One other area where H.R. 361 would have made significant improvements is enforcement. First, it would have substantially increased criminal and civil penalties, which, as I mentioned, are increases long overdue. Not only has inflation eaten away at the 1979 penalty levels, but global political changes demand the significantly higher civil penalties that H.R. 361 provided for violations of nonproliferation controls in order to add credibility to our efforts. H.R. 361 also provided greater operational enforcement authority for undercover operations and forfeitures. These enhancements are particularly important in the current environment, with more diffuse threats, elaborate procurement networks, and suspect end users more difficult to identify.
We did have concerns, however, about H.R. 361's terrorism, unfair impact, antiboycott private right of action, and judicial review provisions, which I will outline. We also believe that certain provisions raised constitutional issues. The Administration shares the Congress' concern about terrorism, and we have adopted a very hard line against terrorist states. However, H.R. 361's terrorism provision would have significantly reduced the Administration's flexibility to regulate exports to countries on the terrorist list to reflect unique or changed circumstances. Under it, for example, the Administration would lack the necessary flexibility to supply U.S. government (diplomatic, military, or humanitarian) operations, multilateral peacekeeping and humanitarian missions, International Atomic Energy Agency inspections, and activities of U.S. or third country nationals unaffiliated with the terrorism-list government. H.R. 361's unfair impact provision was a step backward from the Administration's proposal to clarify exporters' rights to petition for relief from burdensome and ineffective export control requirements. The provision limited U.S. exporters' statutory right to seek relief by failing to include ineffective controls and competitive disadvantage as statutory grounds upon which U.S. exporters can petition for relief. Unlike the Administration's bill, H.R. 361 also exempted some other provisions from the unfair impact process entirely and failed to explicitly allow unfair impact petitions based on anticipated market conditions. H.R. 361 authorized private actions for antiboycott violations. These private actions could compromise enforcement of the antiboycott provisions of the EAA. Allowing suits for actual and punitive damages, whether or not a violation has been found through government enforcement action, could jeopardize the record of successful enforcement of the antiboycott law through inconsistent judicial interpretations, diversion of government resources, and private settlements that deny access to evidence. We also believe that H.R. 361's judicial review provision needed to be clarified to ensure it would not have inadvertently allowed inappropriate judicial review of U.S. foreign and national security policies. Finally, certain provisions of H.R. 361 raised constitutional concerns regarding the President's authority to conduct diplomatic relations and to act on advice from members of his cabinet.
An EAA that allows us to most fully and effectively address our current security concerns while maintaining a transparent and efficient system for U.S. exporters is essential to protect our national interests. As I have discussed, the Administration and the House, in H.R. 361, agreed on many of the most salient issues, such as focusing on multilateral controls, further discipline on unilateral controls and the licensing process, and enhanced enforcement. These reforms would facilitate the proper balance for controlling dual-use items while minimizing the burden on U.S. exporters. I urge you to take up reauthorization of EAA, and we look forward to working with you to acheive a consensus that meets all of our interests.
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.