Venezia by PVII

Export Control Reform – Once More With Feeling

By Joel Johnson

The White House and the House Foreign Affairs Committee (HFAC) have both announced their intentions to overhaul the U.S. export control system. They need to understand that industry regards such a promise with the same skepticism as Charlie Brown when Lucy tees up the football one more time. However, hope triumphing over experience, industry will reenter the game, in spite of the accumulated grass stains on its collective rump.

It is certainly true that the export control reform playing field is littered with deflated footballs and injured players. Those of us who have been in the game for a number of years remember major efforts at redrafting the Export Administration Act (EAA), at the Clinton/Bush Defense Trade Security Initiatives (with the ignominious acronym of DTSI), at NSDP 19 (still classified), at Canadian exceptions to International Traffic in Arms Regulations (ITAR), at proposed treaties eliminating licenses for Australia and the UK (neither ratified or implemented), at NDP 55 and 56 (also still classified), and on and on. All too often the executive branch pachyderm labored mightily and brought forth a mouse, sometimes stillborn. If alive, it was frequently smothered in its cage by Hill staffers.

The fact is, that after all the reform attempts, the U.S. still has an export control system that is confusing, absorbs considerable manpower in the executive branch and industry, and antagonizes allied and friendly countries. While it is true that recent efforts at State and DoD have resulted in faster licensing turnaround for most applications, it is also true, as one industry observer put it, that “we have become very efficient at implementing the irrational”. There has been no fundamental policy change in the export control arena as a result of any of the above reviews and reforms.

So are there reasons to hope this time will be different, or are we simply succumbing to Einstein’s definition of insanity – doing the same thing over and over again and expecting different results? If the right people pursue achievable policies, there might be some room for optimism.

People: As anyone who has spent time in Washington is painfully aware, the best policies go nowhere if you don’t have individuals with the interest and power to change the law or rewrite the regulations. Export control reform is no exception. What’s more, it is an arcane subject. Advocates of change have to try to explain the convoluted language of the Arms Export Control Act (AECA) and its associated implementing ITAR, and the EAA and its implementing regulations, the Export Administration Regulations (EAR).

Trying to explain what needs changing and why to political appointees and Congressional members and staff quickly elicit the MEGO syndrome (my eyes glaze over). Furthermore, those who oppose any change toss out sound-bites that sound as if any reform threatens to hand over our deepest technology secrets to our worst enemies. Meanwhile, professional staff too often clutch their rice bowls while explaining that any change is unadvisable and politically impossible. As one frustrated State Department officer once commented, changing a sentence in the ITAR was more difficult than negotiating U.S. landing rights in Kyrgyzstan, and less fun.

So what might be different this time? There are some new faces in appropriate places. On the Hill, HFAC Chairman Howard Berman is taking a personal interest in the subject and plans a rewrite of the EAA, which lapsed several years ago. It’s worth remembering that as long ago as 2001 he co-sponsored an amendment to allow removal of civil communications satellites and components from the munitions list. This is a major contrast to the chairman from 2001-06, Henry Hyde, who opposed all efforts at export control reform. In the House both the AECA and EAA are under the jurisdiction of the HFAC, unlike in the Senate, where Foreign Relations has the AECA and Banking the EAA. Thus modifying one or the other does not cause jurisdictional problems for the HFAC. As a clear demonstration of Berman’s interest he convinced Ed Rice to return to the committee to spearhead the reform effort. Ed had served six years on the HFAC subcommittee dealing with the EAA, before leaving in 1997 to work with industry on various ways to promote exports. He was intimately involved in a number of industry efforts to promote export control reform, and is therefore thoroughly familiar with both the Hill and industry on the subject.

At the State Department, the new Under Secretary for Arms Control and International Security, Ellen Tauscher, was a Congresswoman for 13 years, on the Armed Services Committee, and talked with industry on export control reform in that capacity. Her Assistant Secretary of State for Political-Military Affairs, which administers State’s export control responsibilities, is Andrew Shapiro. He was the primary foreign affairs and defense policy advisor to Senator Hillary Clinton. Besides being sympathetic to export control reform, this leadership, including the Secretary of State, is less likely to see Congress as an illegitimate (as opposed to annoying) obstacle to pursuing export control reform. A great deal of the difficulty in moving forward with such reform in the Bush administration was the poisonous relationship between the Republican political appointees at the State Department and the Republican staffers on the Hill. There also seem to be individuals sympathetic to export control reform in DoD and the White House. In sum, this time there would appear to be well placed individuals at both ends of Pennsylvania Avenue that support export control reform.

Policy: Assuming we have some people in the right places that are willing to work either to convince or to exhaust opponents of export control reform, what is it that should be pursued? I’d focus on several issues:

--Tweak the system, don’t try to invent a new one: If one had a magic wand, it might make sense to trash the EAA and the AECA and draft a unified export control law. However, magic wands seem to be in short supply. The two laws aren’t actually so bad,
with a few exceptions. The devil as always is in the regulatory details, which are by and large in the hands of the executive branch. There’s no point in taking on the Congress when it will be hard enough to budge folk in State, DoD, and Commerce who will feel threatened by change. The executive branch, hopefully in consultation with industry, should identify the key changes it would like to see in the export control system, and determine when provisions of law would require modifying to allow such change. Otherwise work the regulations. And by all means consult with Hill staff, who even if they can’t stop you, can make your life miserable – they understand “don’t get mad, get even” better than any group of people in Washington, except perhaps the Members they serve.

--Communications Satellites: One example of where legislative change is needed is the treatment of civilian communications satellites. The Defense Authorization Act for FY 1999 required that communications satellites and related components would by law be treated as munitions items rather than dual use commodities under the jurisdiction of the Commerce Department. This was in response to the perception that such a move would limit Chinese rocket capability. A decade later, this policy has resulted in Europeans developing components to eliminate dependence on U.S. products and hence market “ITAR free” satellites, while the Chinese have developed man-rated rockets at a time when the U.S. soon will have none. This is clearly a case of the European and Chinese satellite and launch horses happily grazing in the pasture while the U.S. export control regime is still focused on nailing the barn door shut. While most of the damage has been done, there is no point in continuing a failed policy. The legal requirement to categorize communications satellite components as munitions items should be repealed, so that State, Commerce, and DoD can have the flexibility to decide on what few components might still be treated as defense articles, while allowing the rest to be treated as the dual use components they are.

--Quit treating dual use commodities as munitions items: This is not to say that it is necessary “to scrub the munitions list”. Most people who offer such helpful advice have never read the munitions list (ML). There are 21 categories of articles on the ML, broken into a various subcategories described in excruciating detail. Almost all those articles belong there. The problem is that at the end of each category, there is language along the lines of “and all components, parts, attachments and accessories specifically designed or modified for the articles in this category”. This is where screws, bolts, light fixtures, hoses, pumps, etc. that are virtually identical to civil products but have been cut, painted, or machined to fit a particular military product themselves become munitions items. One can scrub the munitions list with Brillo pads and never find any such specific items on the list. What is needed is for State to follow the policy already contained in Section 120.3 of the ITAR, which says an item may (emphasis added) be on the list if it is designed for a military application and doesn’t have a predominant civil application or the performance equivalent of a civilian product, unless it has such significant military applicability that it must be controlled anyway.

Of course the problem is that this would require decisions and work. That of course is what Commerce has to do with dual-use items. It must differentiate between high-end and low-end computers, between widely available encryption algorithms and those too sensitive to release, and it must constantly change those thresholds as technology advances around the world with or without the U.S. That’s what’s needed in determining which “designed or modified for” items need to be controlled as munitions items, and which don’t. Which brings up another point:
--Rethink how to pay for the licensing system: All exporters of defense articles and services must register with the Department of State. One of the reforms at the end of the last Bush administration was to insist that the State licensing system must be self-financing, and companies and individuals that register with State are now charged a fee that relates to the number of licenses they have submitted to State the previous year. This approach provides a perverse incentive to keep licensing those things that shouldn’t be. If, after all, I gain the same revenue for a license that takes 90 seconds to think through (spare parts for F-16s for the Royal Dutch Air Force) as opposed to nine months (Block 60 F-16s and associated weaponry to the UAE), then by God I’m not going to be anxious drop licensing requirements for those items that have a 99.9 approval rating. Which are precisely the items that should be de-controlled. Some rethinking here is needed.

--Start to prepare for the future Europe: No European country can support a stand-alone defense industrial base or efficiently produce a major weapons system for itself. Thus European countries are driven to multilateral projects and cross-border sales. But the U.S. runs an export control system which is geared to a bilateral world – we give a license to sell a specific part, component, system, or end item to Country A, and if Country A wants to transfer that to Country B it must come back and seek permission from the United States. This discourages the use of U.S. components and products. There are several ways to address this problem – eliminating items that are controlled as recommended above, issuing licenses that cover multiple countries, deciding that if a U.S. system is less than a certain percentage of the value of an end item we won’t try to control it’s export (as we do with dual use items), etc. What is clear is that Europe is evolving towards a system of relatively free movement of most military goods and technology within Europe, and a common approach to controlling the shipment of military goods from Europe. We must either find ways to adapt to that inexorable movement, or we will duplicate our communications satellite experience and find ourselves shut out of Europe – not by them but by us.

This is by no means an inclusive list of what could be done with relatively modest but sensible adjustments to the current system. So Lucy, tee up that football. Maybe, just maybe, this time there will be some points scored before the game is over.

Joel L. Johnson is Executive Director – International of the Teal Group Corporation, where he focuses on international trade issues involving civil and defense aerospace products. He also consults for various aerospace companies and the Institute for Defense Analysis. Mr. Johnson retired in July of 2005 from the Aerospace Industries Association of America, Inc. (AIA), where he served for 16 years as Vice President, International, and coordinated the efforts of AIA to obtain government policies which support exports, avoid protectionism and pursue fair principles of international trade. Prior to his trade association work, Mr. Johnson served 14 years in the federal government, including work as a Senate Foreign Relations Committee staffer and stints in the State and Treasury Departments.

Note: The views in this article are strictly those of the author, and not of any institution with which he may have some relationship.