Testimony of William A. Reinsch Under Secretary for Export Administration Department of Commerce Before the House International Relations Committee Subcommittee on International Economic Policy and Trade On Reauthorization of the Export Administration Act March 3, 1999 Thank you, Madam Chairman, for the opportunity to testify on reauthorization of the Export Administration Act. The Administration has not had an opportunity to review this issue with you since May 1997, and many developments have taken place in the intervening time which should be considered, so I appreciate the opportunity to be here at the beginning of the session. The Administration is still working on formulating the details of its position on the legislation, and I look forward to working with you to achieve a goal I believe we both share -- the long overdue reauthorization of an EAA that will protect our national security in an era of economic globalization that has arrived in the wake of the Cold War's end. Since the EAA's August 1994 expiration, we have maintained export controls through a combination of emergency statutory authority, executive orders, and regulations. Enacting a revised EAA will help exporters by bringing the law up to date with current global realities, minimize the possibility of legal challenges under current emergency authority, enhance U.S. credibility in international fora, and curtail the piecemeal export control legislation that is difficult for industry to understand and comply with. Today, I would like to first describe why a new EAA is preferable to operating under emergency authority. I will then discuss the significant features of the Administration's proposed bill and H.R. 361, which the House passed in 1996. The Need for a Revised Export Administration Act Operating under the emergency authority of IEEPA means functioning under certain legal constraints and leaving important aspects of our control system at risk of legal challenge. In addition, it can undercut our credibility as 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 we have thus far not faced these complications, and we will continue to pursue our export control policies despite them, at a minimum they are likely to consume increasing amounts of time and energy that could be better used to administer and enforce the export control system more effectively. Legal Limits In some significant areas, we have less authority under IEEPA than under the EAA of 1979. Foremost among these are the penalty authorities which are substantially lower, both criminal and civil, than those for violations that occur under the EAA of 1979. However, even the EAA penalties are too low, having been eroded over the past 20 years by inflation. The Administration's bill as well as H.R. 361 both significantly increased these penalties. We rely on the deterrent effect of stiff penalties. The longer we are under IEEPA, or even the EAA of 1979, the more the deterrent erodes. Another limitation of IEEPA concerns the police powers (e.g., the authority to make arrests, execute search warrants, and carry firearms) of our enforcement agents. 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 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 Departments 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. On a practical note, we are also finding that the Congressional requirement to conduct post-shipment visits on every computer over 2,000 MTOPS exported to fifty countries is rapidly becoming a major burden. It forces us to divert enforcement resources to visit computers that do not need to be seen with the result that we have fewer resources left to focus on real enforcement problems. Unlike the computer export notification provision in the same law, the visit provision cannot be adjusted by the President to take into account advancing levels of technology, so we must seek relief from the Congress on this issue. Policy Ramifications The lapse of authority also has policy ramifications. Although we have made great progress in eliminating unnecessary controls while enhancing our ability to control sensitive exports, exporters have the right to expect these reforms to be certain and permanent. For example, while we are implementing the President's 1995 executive order making the licensing process more disciplined and transparent, a statutory foundation for that process would send an important message to exporters that these reforms will not be rolled back, and they will 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, whom we have been urging to strengthen their export control laws. We have also been working with the former Soviet Union and Warsaw Pact countries to encourage them to strengthen their export control laws, but our credibility is diminished by our own lack of a statute. Renewal of the EAA of 1979 Some of these same issues also militate against a simple renewal of the expired EAA. For example, as I noted earlier, the penalties 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 single bipolar adversary and a multilateral regime, COCOM, that ended nearly five years ago. A renewal of the EAA of 1979 is not much better than operating under IEEPA. Significant Features Needed in a Revised Export Administration Act The Administration's Proposal In February 1994, the Administration proposed a revised EAA. Granted many things have changed since then, but our overall goal was, and remains, to refocus the law on the security threat the United States will face in the next century -- the proliferation of weapons of mass destruction in a more complicated era than we faced during the Cold War -- while taking into account the growing dependence of our own military on strong high technology companies here at home developing state of the art products and, in turn, those companies' need to export to maintain their cutting edge. 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) increase focus on our own economic security by greater discipline on unilateral controls; 3) simplify and streamline the licensing system; 4) strengthen enforcement, and 5) provide exporters with expanded rights to petition for relief from ineffective controls without impinging on the Administration's ultimate authority to make judgments that protect our national security. Consequently, the Administration's proposal differed in several significant ways from the EAA of 1979. The control authorities reflected the 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 clearer. 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. H.R. 361 - The Omnibus Export Administration Act of 1996 H.R. 361 was largely similar to the Administration's proposal, including updates in control authority to address current security threats, increased discipline on unilateral controls, and enhanced enforcement authorities. H.R. 361 also contained provisions consistent with Administration licensing process reforms. H.R. 361's structure reflected the new challenges resulting from the end of the Cold War. As proposed by the Administration's bill, 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 (the Wassenaar Arrangement, the Missile Technology Control Regime, the Australia Group, the Nuclear Suppliers' Group, and the Zangger Committee) 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 required a more precise analysis of the anticipated and actual effectiveness of unilateral controls. This more precise analysis would have ensured that our economic security was not adversely affected by controls which did not significantly advance national security, foreign policy, or nonproliferation objectives. The Administration will likely want to suggest some changes to these provisions to ensure that unilateral export controls are available when they are in the overall national interest, consistent with the position we have taken on sanctions reform, but in general we agree with the need to exercise discipline in the application of such controls. H.R. 361 also supported Administration reforms of the licensing and commodity jurisdiction processes. Its standards for license processing were consistent with the 1995 executive order, which provided for a transparent, time-limited review process that permitted all pertinent agencies to review any license application and raise issues all the way to the President if they desired. This "default to decision" approach has replaced the black hole into which licenses often fell, improving the system's responsiveness to exporters while also providing broader inter-agency review of license applications that enhances our ability to meet our national security, foreign policy, and nonproliferation goals. One other area where H.R. 361 made significant improvements is enforcement by substantially increasing criminal and civil penalties and providing 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. Provisions of Concern 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 taken 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. The Administration opposed H.R. 361's unfair impact provision to clarify exporters' rights to petition for relief from burdensome and ineffective export control requirements. The provision limited U.S. exporters' statutory right to petition for relief by failing to include ineffective controls and competitive disadvantage as grounds for such petitions. Unlike the Administrations 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 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 inadvertently allow 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. The Administration is undertaking a review of its bill as well as H.R. 361, and we will report to Congress any proposed modifications or changes we might have. Conclusion We believe an EAA that allows us to fully and effectively address our security concerns while maintaining a transparent and efficient system for U.S. exporters is essential. As I have discussed, the Administration and the House, in H.R. 361, agreed on most of the important changes to bring the law up to date in light of current economic and proliferation realities. Our preference is that you take up reauthorization of an EAA that would build on the consensus already achieved. I can understand, however, given the Committee's heavy agenda of other matters, that you may find it difficult to devote the time and attention needed to produce such a bill, which has not been without controversy in the past to say the least. Under those circumstances, we would be prepared to discuss with the Committee an extension of the expired EAA to remedy some of the short term problems I discussed, particularly in the enforcement area. That is not a substitute for full reauthorization, but it will better enable us to do our business more effectively while Congress is deliberating.