Export-Control Reforms Stall In Aftermath of Terror Attacks. (Analysis).

One of the casualties of this fall's terrorist attacks upon the United States may have been the latest effort to reform controls limiting exports of technologies that could provide a military advantage to the nation's potential enemies. The question is: How serious is the wound?

The controls have a wide impact, Kenneth I. Juster, undersecretary of commerce for export administration, said in a speech to the 2001 Export Control and Policy Update Conference in Washington, D.C. "Today, more than 20 percent of the goods produced in the United States are exported, and more than 200,000 U.S. firms are involved in international trade," he said.

Under current regulations, all products that have a defense-related use--even those with both civilian and military applications--must be licensed by the federal government before they can be exported.

Products whose applications are strictly military, such as combat aircraft, ranks or small arms, require licenses from the State Department's Office of Defense Trade Controls under the Arms Export Control Act of 1976.

Those with dual uses--including some computer hardware and software, communications equipment and encryption technology--fall under the jurisdiction of the Commerce Department's Bureau of Export Administration, as specified in the Export Administration Act (EAA) of 1979. Sensitive cases often are referred to the State, Defense, Energy or Justice Departments, or other agencies for review.

In fiscal year 2000, the State Department reviewed more than 46,000 applications for export licenses, according to a recent study by the congressional watchdog agency, the General Accounting Office. During the same year, the GAO said, the Commerce Department completed more than 11,000.

This system is designed "to slow the spread of items and technologies that can threaten U.S. national security--particularly the security of U.S., allied and friendly armed forces," Dave Tarbell, former deputy undersecretary of defense for technology security policy, told a congressional hearing earlier this year.

Export controls were imposed first before World War II to ensure that U.S. supplies would be adequate to meet wartime needs. They were continued during the Cold War to help keep U.S. defense technology out of the hands of the Soviet Union and its allies.

In 1990, Congress and the executive branch filed to agree on terms to renew the EEA, and it expired. Since then--with brief exceptions--presidents have enforced the controls through executive orders. A year ago, Congress reinstated the EEA, but it expired again in August.

President Bush immediately issued an executive order extending the controls under the International Economic Emergency Powers Act. He pledged to terminate the executive order as soon as Congress passes legislation reforming the export-control system.

"Such legislation is long overdue," Bush said. "The EAA is a Cold War statute that does nor reflect and is ill-suited to deal with current economic and political realities."

The need to update export controls is widely acknowledged on Capitol Hill. When the first EAA was enacted, "Jimmy Carter was president, bellbottoms were the style and disco was king," said Sen. Mike Enzi, R-Wyo. "Times have changed, and improvement of this outdated legislation is past due."

What kinds of changes are necessary, however, are hotly disputed, noted Edmund Rice, chairman of the Export Controls Working Group, a coalition of 130 companies advocating EEA reforms.

Basic Differences

"There are two groups on the Hill with very basic philosophic differences," he told National Defense. One side, led by exporting businesses, argues that since the end of the Cold War, many export controls--particularly those on dual-use products--are no longer required for national security. If it can be bought at Radio Shack, said Sen. Phil Gramm, R-Tex., "you're wasting your rime trying to protect that item."

Larry E. Christensen, vice president for international trade content for Vastera Inc., told the House International Relations Committee that current controls impose "at least six types of burdens" upon industry. He spelled them out:

1. Under the decade-old Enhanced Proliferation Control Initiative, Christensen said, companies are required to avoid exporting to buyers planning to develop nuclear, missile or chemical and biological weapons.

2. It is a felony, he noted, for a U.S. company to deal with "more than 3,000 firms or people" who are blacklisted by the federal government, mostly for acting as fronts for embargoed governments, drug traffickers or terrorists.

3. Before a product can be exported, Christensen complained, companies are required to determine whether it is on the Commerce Control List and how it should be classified on that list.

4. Getting an export license, he said, can take months.

5. Companies must comply with differing regulations at each of the federal agencies involved with exports, including the Commerce, State and Treasury Departments, he said.

6. In addition, Christensen noted, many exporters have to master not only U.S. regulations, but those of other nations, as well.

Every country has its own set of export controls, he explained, and "even a medium-sized manufacturing firm in the United States will often have manufacturing or distribution centers in five other countries."

In the face of such criticism, federal agencies have streamlined their export-licensing processes extensively in recent years. The Commerce Department's Bureau of Export Administration reduced the average processing time for cases that were not referred to other agencies from 23 days in the first quarter of fiscal year 2000 to 11 days in the fourth quarter, according to the agency's most recent annual report. However, the report added:

"A challenge remains to reduce the average processing time for cases that undergo agency review In fiscal year 2000, 83 percent of all completed licensing decisions were referred, with an average processing time of 43 days."

Other federal agencies are working to speed up their reviews. The State Department's office of Defense Controls is hiring additional licensing officers. The Defense Department earlier this year established a $30 million, three-year program--called the U.S. Export Systems Automation Initiative, or USXPORTS--to standardize the automated license-review processes of the Defense, Commerce and State Departments.

In the Senate, the reformers won the debate. On September 6, that body voted 84-14 to pass the S. 149, Export Administration Act of 2001. The goal of this bill "is to eliminate unnecessary trade barriers, while focusing controls on the items most sensitive to our national security," said Enzi, one of its cosponsors.

Global Economy

"At the same time, it takes into account the realities of today's global economy, incorporating the concept that some items are very difficult to control. The bill recognizes that items available from foreign sources or available in mass-marker quantities cannot be effectively controlled." Specifically, he said the bill would:

* Allow the commerce secretary to remove controls on items that are readily available overseas or on the mass market.

* Create an Office of Technology Evaluation to help determine which products meet those criteria.

* Authorize the president to impose enhanced controls on an item, regardless of its mass-market or foreign availability, if he determines that the item would constitute a significant threat to national security.

* Establish tough, new criminal and civil penalties--up to $1 million or 10 times the value of the export, whichever is greater, and up to 10 years in prison--for export-control violations involving sensitive items.

* Encourage U.S. participation in multilateral export-control agreements with other nations, rather than trying to impose its own controls unilaterally on specific products.

"The United States is rarely the only producer of militarily useful high-tech products," Enzi said. Over the past decade, he argued, "the effects of globalization--such as increased flows of trade, foreign investment and international communications--have contributed to the more widespread production and availability of high-tech products."

Export controls are still important to national security, Enzi said. "Unilateral approaches, however, are nor very effective." A multilateral process is necessary, he said.

Despite the overwhelming vote in the Senate, many in Congress oppose any loosening of controls. In the final debate on the floor of the Senate, Sen. Fred Thompson, R-Tenn., said that it would be a mistake to do so "in an era of increased technological proliferation, with the world becoming a more dangerous place, where rogue nations are getting their technology from countries such as China and Russia."

Traditionally, export administration legislation "has been designed not to facilitate business, but to help protect the national security interests of this country," Thompson said. "Nobody wants to bog these exports down, but the fact of the matter is, they are not being bogged down." The average processing rime for "a broad category of items" is 13 days, he said.

The purpose for such legislation should be "to make sure that we are not assisting the proliferation of weapons mass destruction," Thompson said.

Added Sen. John McCain, R-Ariz., "Hostile nations, like Iran and North Korea, are disturbingly close to developing multiple-stage ballistic missiles with the capability to target the United States.

"These and other nations, including Syria and Iraq, receive significant and continuing technical assistance and material support from China and Russia, with whom much of our trade in dual-use items is conducted," McCain said.

Such arguments apparently resonated in the House of Representatives, where International Relations Committee Chairman Henry J. Hyde announced that he had "substantive concerns" about the "overly permissive standards" in the House version of the bill, which he referred to the Rules Committee, effectively postponing a floor vote.

The legislation's sponsors hoped eventually to get some version of it passed by the House, even if they opposed some of the provisions, then go to conference with the Senate bill, and work our a compromise acceptable to both sides.

Then, the world changed. On September 11--just days after the Senate vote--hijacked airliners hit the World Trade Center and Pentagon. Weeks later, deadly anthrax-tainted letters infected media and government facilities in New York, New Jersey, Florida and Washington, D.C.

In the aftermath of these assaults, all export-control reforms are on hold at least until after the holidays, according to Capitol Hill insiders. Said one industry source, who asked not to be named: "Right now, the question is, are we even going to be able to hold the ground that we took before September 11?"

Frank Cevasco, vice president of Hicks and Associates, a consulting firm based in McLean, Va., agreed. "It's nor a good time," he said. "Those who don't want the United States to export anything more complex than ballpoint pens will see their positions strengthened."

The Bush administration, meanwhile, has signaled that it still supports reforms. "The events of September 11 have only reinforced the importance of our commitment to free trade," said Juster. "We must ... demonstrate to the terrorists that, even if they destroyed the World Trade Center, they cannot shake the foundations of the world trading system."

Even without reforms, the president already has the power to waive export controls in the interests of national security. In late September, in fact, he lifted sanctions against Pakistan and India. The sanctions were imposed in 1998, after the two longtime enemies both tested nuclear weapons. But the president waived them in an effort to bolster support for the war against terrorism. He might do the same for other nations, he said, on a "case-by-case" basis, "where the law allows."