Regulatory Updates & News
Update on Export Control Reform
A senior administration official this week said the administration is close to interagency agreement on two key regulatory steps that will help pare down U.S. export control lists and create a single application form for export licenses for the departments of State, Commerce and Treasury. Both of these steps are part of the first two phases of the administration's three-part export control reform initiative.
Agencies are getting close to agreement on a decision tree that will be used to determine which items are vital for the United States to control, the official said in a June 3 interview with Inside U.S. Trade.
Once there is agreement on the selection-making filter, review and paring down of the Commerce Control List (CCL) and the U.S. Munitions List (USML) will begin with the goal of only controlling the most critical items, the official said.
Administration departments are also "close to agreement" on a single application form, and the administration official said this will help to reduce paperwork faced by exporters applying for licenses.
Currently, the Commerce Department's Bureau of Industry and Security (BIS) uses a single form for export license applications, while State employs several and the Treasury department's Office of Foreign Assets Control (OFAC) does not use a standard form, the official said.
Plans are also well under way toward establishing a single information technology (IT) system that will allow licensing officers in Commerce, Treasury, State and Defense to view all licensing application data for all U.S. export controls, the official said.
The administration has decided that this system will be the current Defense Department IT system. Key reasons for this are that the Defense system is the most modern, it already allows users to see both Commerce and State Department data, and that Congress already set aside appropriations for this system to be applied to State, Commerce and Treasury, although this was never implemented, the official said.
The current aim of the administration remains to have "as much done as possible" on phase I and phase II of its export control initiative by August, the official said.
Since February, an "enormous" amount of staff work has gone into developing a process to rationalize the Commerce Control List and the U.S. Munitions List, the official said.
The work on the short- and medium-term steps is proceeding even as the administration is working on the blueprint for eventual legislation creating a single export control agency, the official said. The creation of such an agency is part of the third phase of the export control reform effort.
The official said some elements of the single agency have been decided already, and that includes that the Nuclear Regulatory Commission (NRC) export licensing officials will not be incorporated into the single agency. The NRC controls items for nuclear applications.
The official gave the concrete reform examples in an effort to dismiss as a misperception industry complaints that the administration has focused too much on implementing the third phase of the export control reform initiative by working on legislation that will create a single export control licensing agency.
The three phases of the administration's export control reform initiative are interdependent and the administration needs a vision of eventual phase three legislation in order to structure the first two phases, the official said. In these first two phases, export control procedures will be reformed by regulatory changes alone.
The administration official acknowledged that it would be difficult to pass such a bill this year, which was the timeline Defense Secretary Robert Gates outlined in April when unveiling the three-part export control reform effort. "But we are going to give it the old college try," the official said.
The first step toward revising the USML is to convert it to a positive list of items, the official said. At present, some of the USML, such as the section on chemicals, is structured as a positive list, but other parts simply consist of paragraphs describing attributes of items, the official said.
"Every category" of the USML will be converted into a positive list of items. At that point, only the "crown jewels" will remain on the list, the official said. Gates has described the "crown jewels" as critical technologies and items that are vital for maintaining the U.S. military's technology advantage.
The official confirmed that the new criteria will get the U.S. away from vague language in the International Traffic in Arms Regulations (ITAR), which defines items and services as military if they are "specifically designed" for military applications. This language is confusing and has needlessly ensnared items under strict State Department controls, the official said.
A "significant transformation" of the lists is expected to occur at the end of the "huge lift" of examining each item, the official said. At that point, both export control lists would be positive lists with a common criteria governing what needs to be controlled.
Work is also being finalized on developing a common list of definitions of important export control terms such as what constitutes a "U.S. person" or an "export," which will make it easier for Commerce, Treasury and State to communicate, the official said.
Regarding legislation implementing phase three, the official said that House Armed Services Committee and Senate Armed Services Committee staff have suggested making the bill part of the National Defense Authorization Act, since this bill would be one of the only must-pass legislative vehicles moving this year. The bill passed the House last week and awaits a Senate floor vote.
Contrary to the understanding of some sources, the administration was not rebuffed in its desire to move the bill on this vehicle (Inside U.S. Trade, May 28). Instead, the administration made clear that the legislative proposal is not drafted at this point, the official said.
The administration has always believed that the proposal should be crafted in conjunction with House Foreign Affairs and Senate Banking and Foreign Relations, the official emphasized.
The administration has been in talks with Foreign Affairs Committee Chairman Howard Berman (D-CA) about the possibility of establishing the single licensing agency through the Export Administration Act (EAA) reauthorization bill he has been drafting.
While it is accurate to say that Berman has not shown any desire to do so, it is also the case that the administration has not put forth a specific proposal, the official said. In any case, the current draft Berman bill does not prevent the creation of a single agency, because it leaves the president the authority to create it, the official said.
Overall, the administration is very supportive of the draft and believes there needs to be statutory authority for dual-use export controls, which are now in effect by virtue of emergency powers granted to the president under the International Emergency Economic Powers Act (IEEPA) because the EAA has lapsed.
Some experts have long feared that criminal penalties under the dual-use controls could be subject to a successful court challenge because the IEEPA authority does not cover them.
This applies particularly to the U.S. anti-boycott regulations, which require companies to report instances of anti-Israeli boycott activities to BIS, the official said. This is because IEEPA's authority is based on national security threats to the U.S. and anti-boycott compliance may not meet this definition, an attorney explained this week.
The official said that even without legislation, much can be done to effect a sea change in export controls. A single export control list can be created without a bill, although it would have to be called the USML because the Arms Export Control Act specifically mentions the use of a U.S. Munitions List.
In this scenario, the CCL would disappear, but Commerce would retain jurisdiction over dual-use export controls. This is because the law grants the president the authority to implement the USML and does not specify that State controls it.
The Berman EAA bill could be released in draft form as soon as next week, sources said this week. A final bone of contention has been the statutory penalties in the bill, which some sources now expect to increase over the maximum civil penalties under IEEPA. -- Erik Wasson