Where Industry and Security Intersect
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Before starting my remarks, I would like to express my appreciation to Michael Hoffman and BIS’s Western Regional Office for their efforts in putting together this conference. It is not often I get an opportunity to publicly express my appreciation to my employees, and I assure each of you that your efforts and important work here in California are valued and recognized in Washington.
As a country, the United States faces unprecedented challenges today. None more pressing than getting our economy flourishing again.
The backbone of our national security is a thriving economy supported by a strong industrial base; and secure international trade provides a critical impetus for enhancing our economic competitiveness and national security.
The Bureau of Industry and Security, by nature of our mission is a national security agency within an economic agency, playing a prominent role in protecting national security while facilitating legitimate trade. As you are aware, our mission is to advance U.S. national security, foreign policy, and economic objectives by ensuring an effective export control and treaty compliance system and promoting continued strategic technology leadership. However, it is important to be clear -- we do not balance “trade” and “security.” That is not our job and that is not what we do. There is nothing of comparable worth against which we “trade-off” national security. Our solemn obligation is to protect the national security of the United States. This effort would be impossible to achieve without the critical work undertaken in the field, and without the support of our industry partners.
Yet, the economic and national security challenges we face today are different than those that sustained our dual-use export control system and industrial base in past, and our actions need to continually adapt to meet current opportunities and challenges.
Today’s national security threats are more numerous and varied than ever before. At the same time, the international economic landscape has changed profoundly. The very success of our post-war economic diplomacy, the end of the Cold War, and globalization generally, has increased the pool of world-class competitors and altered the dynamics of global economic competition. Technology, talent and capital are ubiquitous, and the United States must now compete economically and technologically with the rest of the world.
Changing International LandscapeTechnology moves forward in leaps and bounds. As such, our export control policies must also adapt to changing realities and technologies. In the past, approximately two-thirds of U.S. military technologies were developed in a defense R&D setting, with the remaining third coming from adaptations of commercial, off-the-shelf technologies. Today, those proportions have been almost exactly reversed.
In the aggregate, these changes are not altogether a bad thing. But these changes have (i) challenged the core assumption of our export controls— i.e., that we have something that others do not; (ii) complicated the political economy of our national security; and (iii) further elevated the salience of U.S. technology and economic leadership.
In addition to rapidly advancing technology, the threats faced today are more numerous and varied than ever before, from a wide range of actors, including traditional states of varying capabilities and intentions, transnational groups, and even individuals. All seek technology – both sophisticated and pedestrian – to harm U.S. interests.
We also face a broad and growing diffusion of technologies, including some of the most sensitive technologies, from a wider range of sources. The United States and its allies no longer hold a monopoly over critical technologies. China, India, and other countries are producing high technology items that directly compete with our products. These capabilities are spurred through indigenous development, acquisitions, and joint ventures. This is in part fueled by a research and development process that has gone global; running 24 hours a day across the world by companies working to become first-to-market on technological breakthroughs.In addition, some of the most significant markets for U.S. products are the most challenging from an export control perspective. BIS controls must be calibrated to support the competitive position of U.S. companies in those markets without risking use of their products in ways contrary to our security interests. Competing in these commercial markets is particularly critical as our own defense systems become more reliant on commercial off-the-shelf products. Access to cutting edge technologies of American companies is dependent in part upon their ability to fairly compete in today’s globalized markets. Our relationships with other countries must be focused to support civil end-uses, such as aerospace, information technology, and environmentally sustainable energy projects, without empowering the military and police in a manner that could potentially destabilize our military advantages or undermine human rights.
Adapting Export ControlsIn this strategic environment, one that is altering the structure of our industrial and innovation base and reshaping the technological environment in which our military must compete, we can no longer rely exclusively on export controls to maintain our strategic technology leadership. We need to complement smart and effective export controls with an affirmative strategy to “outdistance” our enemies.
The export control system has already begun evolving to meet these challenges. This evolution has focused on the fundamentals of export controls -- who, what, and how. As we await our new leadership at the Bureau of Industry and Security, it is worthwhile to take stock of the system as it exists today.
The system now focuses more on differentiating not only among countries, but also among foreign parties. The goal has been to ensure our controls are calibrated to what we know about foreign parties. For example, we have significantly expanded our list of foreign parties warranting additional scrutiny. The expanded Entity List will help ensure that items subject to our controls are not used in ways adverse to our national security interests. In this regard, we have already expanded controls on exports to certain foreign entities regardless of technology levels. A number of the parties added to the list were involved in trading low-end technology, such as GPS systems and microchips, which can be used to produce improvised explosive devices. This approach has already yielded results.
Our enforcement efforts continue to focus on transactions that impose the most serious threat to U.S. national security, such as proliferation networks. In 2008, BIS investigations resulted in the criminal conviction of 40 individuals and businesses for export control violations. The penalties for these convictions came to over $2.7 million in criminal fines, over $800,000 in forfeitures and over 218 months of imprisonment. Additionally, BIS investigations resulted in the completion of 50 administrative cases against individuals and businesses, which were concluded with over $3.4 million in administrative penalties and nine denial orders.
Another example is our imposition of license requirements for Iranian parties sanctioned under Executive Order 13382 that have been determined to be weapons of mass destruction proliferators or their supporters. These controls allowed us to issue a Temporary Denial Order for the transfer of a fast-boat with U.S.-origin components to Iran. With the expanded Entity List, the system now has a complete continuum for dealing with foreign parties warranting additional scrutiny, from the Unverified List to the Entity List and related Department of Treasury foreign national lists to Temporary Denial Orders to the Denied Persons List. These lists allow us to more effectively ensure lower-level exports are not contrary to our security interests and provide exporters with objective information to facilitate more efficient screening of potential customers.
The system also now incorporates more systematic approaches to assess items and technology subject to control. We have completed several stages in our baseline revisions to the Commerce Control List. These stages were based on recommendations from our Technical Advisory Committees and public comments. Upon completion of the baseline revisions, we have committed to systematic annual reviews of the Commerce Control List to ensure it captures critical technologies that must be controlled for national security purposes while facilitating the legitimate commerce that underpins our economic security.
Our newest technical advisory committee – the Emerging Technology and Research Advisory Committee – is also engaged in a review of technology controls. The ETRAC, which includes membership from leading academic institutions, laboratories, and industry, is developing criteria for determining what items should be controlled for release to foreign nationals in the United States. This review is to help ensure that our deemed export controls do not impede legitimate scientific research that is critical to our underlying competitiveness and technology leadership while allowing us to deny access to sensitive technology to foreign nationals who seek to do us harm. The experiences of this committee will provide valuable insight into criteria for a broad review of the Commerce Control List.
The system administering these controls has also evolved over time. As a result of increased efficiencies, we processed over 20,000 license applications in an average of 27 days last year. This was the highest number of applications processed since 1993 and the lowest average processing time since 1992.
The system also now provides greater transparency for exporters. For example, we now have website links to commodity classifications published by U.S. companies. This will facilitate exports of those products by resellers and foreign customers. We now have 23 advisory opinions published on our website and will continue to publish those of general interest.
In addition, we are focusing more and more on compliance efforts. We have developed new electronic validations to keep non-compliant exports from leaving the United States and have enhanced our data mining techniques to identify more suspect transactions. These efforts have resulted in many clerical errors and less sensitive violations being preemptively identified and corrected without posing an undue burden on our law enforcement agents. Moreover, review of errors in export data has led to revisions to the Automated Export System that has raised compliance with filing requirements on a quarterly basis from 84% to 96% in the last two years. In February, we also published an updated self-assessment tool to assist exporters develop an export management and compliance program.
Particularly as the global economy grows and an increasing number of small businesses become exporters, our outreach has significantly evolved to better ensure that exporters are aware of their obligations under the Export Administration Regulations, including those that export without a license. We have developed more cost-effective and convenient web-based modules and webinars to supplement long-standing seminars and individual counseling.
ConclusionI have attempted to give you an overview of our dual-use export control system as it exists today. We strive to make it as efficient and effective as possible. We welcome input from you who have to compete for critical foreign business under this system. We also look forward to working with our new leadership on these challenging and important issues.
Thank you very much for your time and I look forward to your questions.