Obama Addresses Export Control Reform Process

December 16, 2010. President Obama gave a speech on December 9, 2010, at a meeting of the President's Export Council (PEC), in which discussed several trade related topics, including changes to the US export regulation regime.

Summary. He stated that the regulations are a "maze" and "onerous" and that they are being reformed. He also announced several items that are a part of an ongoing reform process.

The President announced several incremental developments in his efforts to reform the export control regime, which has long been divided, complex, and harmful to U.S. companies' ability to compete abroad. The regime regulates exports, not only of military items, but also of software and computers, on the basis that these are dual use items, with both commercial and military applications.

On December 9, 2010, President Obama announced the launch of an informational web page. He also announced several rulemakings. And, the government departments that regulate exports released notices of proposed changes to their rules.

Two advance notice of proposed rulemakings (ANPRMS) address making the rules more clear. One Department of Commerce (DOC) NPRM would create a new license exception that would allow exports of controlled items to countries that are members of all four multilateral export control regimes or other regime members that also are members of NATO. See also, White House news office release.

The President announced no legislative proposals, although that will ultimately be necessary. That would come later in the President's reform process.

President Obama also expressed his hope that exports will double in five years.

The goals, or holy grail, of this process include (1) producing a single, tiered, comprehensible, positive list, (2) using a single information technology (IT) system, and (3) having a single licensing agency.

President Obama announced plans to reform the export control process in August of 2009. In October of 2009, Secretary of Commerce Gary Locke stated that "reforming the current system is a high priority for the Obama administration". He also said that "Fundamental reform will likely require new statutory authority and action from Congress." See, October 21, 2009, speech and story titled "Locke Addresses Reforming the Export Control System" in TLJ Daily E-Mail Alert No. 2,001, October 12, 2009.

In April of 2010, the President and others outlined a reform strategy. See, White House news office release of April 20, 2010. He again spoke on the reform process in August of this year. See, White House news office release of August 30, 2010, and Obama's speech of August 30, 2010.

John Engler, head of the National Association of Manufacturers (NAM), stated in a release that "Manufacturers are pleased the Administration listened to the business community and is moving forward with the most sweeping export control reform in the last 50 years."

Obama's December 9 Speech. President Obama stated in his December 9 speech that "we've also been working to reform our export control system with high-tech companies ... so that American firms that make products with national security implications can stay competitive even as we better protect our national security interests."

He announced that "we're publishing a first set of guidelines for what products should be controlled going forward, and the licensing policies that will apply to them".

"Typically", the President explained, "all businesses that export have to go through a maze of different lists, different formats, from different departments, to make sure they're not selling their products somewhere or to someone that they shouldn’t be. As important as that is, the process is repetitive, it's redundant, and particularly onerous for small businesses without the means to navigate it all."

He said that "we're changing that. Effective today, businesses can, for the very first time, go to Export.gov and download one consolidated list of entities that have special export requirements."

Regulatory Background. Two departments regulate exports. The Department of State's (DOS) Directorate of Defense Trade Controls (DDTC) administers the International Traffic in Arms Regulations (ITAR). The Department of Commerce's (DOC) Bureau of Industry and Security (BIS) administers the Commerce Control List (CCL) among other things.

The DOC/BIS regulates dual use items, including things such as software, computers, and encryption products that may also have military uses.

The statute that the DOC/BIS regulations implement is the Export Administration Act of 1979, which was drafted with reference to the cold war between the US and Soviet Union. It expired in 2001.

However, another statute gives authority to implement it, provided the President issues an emergency order every year. Presidents Obama and Bush have routinely issued these orders. See for example, story titled "Obama Issues Routine Annual Emergency Declaration to Continue Export Regulation Regime" in TLJ Daily E-Mail Alert No. 2,125, August 18, 2010.

The Congress was working on export control legislation a decade ago. Bills were drafted, debated, and amended. But, the House and Senate substantially dropped these efforts after September 11, 2001.

NPRMs. On December 10, the DOS/DDTC published a notice in the Federal Register that announces, describes, and sets the comment deadline for its "advance notice of proposed rulemaking" (ANPRM) regarding revisions to the United States Munitions List (USML). The deadline to submit comments is February 8, 2011. See, Federal Register, December 10, 2010, Vol. 75, No. 237, at Pages 76935-76940.

This notice states that this ANPRM does not seek "input on whether particular defense articles should or should not be controlled on the USML or whether any defense articles should be controlled differently. Rather, it is only seeking with this ANPRM input on how the USML can be revised so that it clearly describes what is subject to the jurisdiction of the International Traffic in Arms Regulations (ITAR), how defense articles are identified by tier, and what current defense articles do not fall within the scope of any of the tiers."

On December 9, the DOC/BIS published a notice in the Federal Register that announces, describes, and sets the comment deadline for its ANPRM regarding revisions to its rules to make the descriptions of items controlled on the CCL more clear, positive, and tiered. The deadline to submit comments is February 7, 2011. See, Federal Register, December 9, 2010, Vol. 75, No. 236, at Pages 76664-76666.

Also on December 9, the DOC/BIS published a second notice in the Federal Register that announces, describes, and sets the comment deadline for its NPRM regarding creating a new license exception to the EAR "to allow exports, reexports and transfers (in-country) of specified items to destinations that pose little risk of unauthorized use of those items. To provide assurance against diversion to unauthorized destinations, transactions under this license exception would be subject to notification, destination control statement and consignee statement  requirements." The deadline to submit comments is February 7, 2011. See, Federal Register, December 9, 2010, Vol. 75, No. 236, at Pages 76653-76664.

Congressional Activity. Rep. Howard Berman (D-CA), the Chairman of the House Foreign Affairs Committee, stated in a release that "The President's export control reform initiative is making progress in meeting the goals of better protecting national security while strengthening America’s high technology sector and promoting job growth through increased exports."

Rep. Howard BermanRep. Berman (at left) continued that "I have advanced through the House significant improvements in the Arms Export Control Act, incorporated in H.R. 2410, the Foreign Relations Authorization Act, to rationalize control policy for commercial satellites, streamline and establish benchmarks for license processing, expedite license processing for transfers to our closest allies and revamp Congressional oversight of licensing."

The House passed HR 2410 [LOC | WW] on June 9, 2009, by a vote of 235-187. See, Roll Call No. 328. It was a nearly straight party line vote. Only seven Republicans vote for the bill. Neither the Senate Foreign Relations Committee, nor the full Senate, have passed this bill.

Rep. Berman added that "In addition, major progress has been made in drafting and building support in Congress for a complete modernization of the Export Administration Act, to provide a flexible authority to the President, refocus the system on counteracting today’s and tomorrow's threats and break new ground by defining national security to include both control requirements and U.S. scientific and technological leadership."

He wrote that "In the upcoming 112th Congress, these legislative initiatives should remain priorities with incoming House Republican leadership. The modernization of our export control systems is essential both to protect national security and foster U.S. technological leadership for U.S. economic growth."

GAO Findings. On December 16, 2010, the Government Accountability Office (GAO) release a letter [25 pages in PDF] to Sen. Jon Kyl (R-AZ) and Sen. Russ Feingold (D-WI) regarding "Export Controls: Agency Actions and Proposed Reform Initiatives May Address Previously Identified Weaknesses, but Challenges Remain". (It is dated November 16, 2010.)

This letter concludes that "The export control reform framework -- as proposed -- has the potential to address weaknesses in the U.S. export control system related to control lists, licensing, enforcement, and information technology, including areas where agencies have not addressed prior findings."

"However, for a few areas, such as developing measures of effectiveness for the arms export control system, agencies have not addressed some of our prior findings and the reform framework does not contain specific initiatives to address them."