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1996 Summary and Export Control Reform Strategy for 1997
by Roszel C. Thomsen II
Regulatory Reform Strategy
Enclosed is a copy of our Summary of Final Rules, Proposed Rules and Notices Published in the United States Federal Register by the Commerce, State and Treasury Departments Amending Provisions of the Export Administration Regulations, International Traffic in Arms Regulations and Foreign Asset Control Regulations During 1996, for your archives.
As you can see, seventy five changes to the various export control regulations were published in 1996, approximately one new change published every third business day throughout the year. This pace is somewhat slower than years past. However, I think you will agree that the publication of the “new” Export Administration Regulations on March 25, by itself, made 1996 one of the most challenging years in terms of export control compliance in the 1990’s.
You also might want to take this opportunity to review the changes which occurred in 1996, in order to formulate a regulatory reform strategy for 1997. Consider the following:
Commerce Control List Revisions. There are a number of changes to the Commerce Control List which need to be published in order to correct errors in the March 25 interim rule. A draft has been circulating inter-agency since September of 1996. It is time to publish these changes in the Federal Register!
Implementation of the Wassenaar Arrangement. The members of the Wassenaar Arrangement agreed to significant changes in the dual use products control list at the plenary session last July. These changes already have been published and become effective in the European Union and Japan. When will American exporters be able to take advantage of these new thresholds?
Relief from Unnecessary Paperwork. Reporting requirements are proliferating faster than weapons of mass destruction. New ones were introduced for cryptography exports in 1996, and the March 25 interim rule suggested that they may be required for computers in 1997. These are unnecessary. This also might be a good year to eliminate the written assurance requirement under License Exception TSR.
Reform of the Enhanced Proliferation Control Initiative. We now have five years of (sometimes bitter) experience under the Enhanced Proliferation Control Initiative (“EPCI”). We all know that (1) the “is informed” procedure is unfairly applied; (2) the regulations require exporters to screen millions of transactions involving countries that do not represent any proliferation threat; and (3) the regulations require exporters to screen millions of transactions involving products which could not possibly make a “material contribution” to proliferation. It is time to press for reform of EPCI.
Reform of the Licensing Requirements for Foreign Nationals. With the end of the Cold War, and the frequent imposition of foreign policy controls against the enemy of the moment, exporters have encountered problems in the hiring of foreign nationals, particularly nationals of China and Iran. One possible solution would be amending the so-called “deemed export” rule, but there are others under consideration by the Bureau of Export Administration and the Regulations and Procedures Technical Advisory Committee.
Encryption Export Controls. The interim rule with request for comments published on December 30 obviously presents a useful opportunity to influence the development of this regulatory regime. Some suggestions for improvement might be (1) a more precise description of “recovery” products that are eligible for License Exception KMI, like cable modems and civil telephony which are not capable of point-to-point encryption, (2) clarification of the controls on cryptographic components, and (3) clarification of the new controls on “technical assistance”.
Please consider advocating these regulatory reforms, early in 1997, at meetings of the various industry and government sponsored forums in which you may participate. The Regulations and Procedures and Information Systems Technical Advisory Committees, the President’s Export Council Subcommittee on Export Administration, and industry trade associations all have meetings scheduled in the next month or so, and they need to formulate work plans and priorities for 1997. Perhaps, the foregoing could provide food for thought.
Legislative Strategy
Four years of lobbying for a new Export Administration Act (“EAA”), beginning with formation of the National Association of Manufacturers (“NAM”) coalition and active lobbying efforts by industry during the 103rd Congress, and proceeding largely without meaningful input from industry or any observable results in the 104th Congress, has left most of us exhausted and many of us discouraged.
Nevertheless, the issue of how to reauthorize the EAA will not go away. Sooner or later, there will be a lawsuit which will directly challenge the enforcement provisions, the foreign policy controls, or some other aspect of the EAA as lacking a statutory basis. Such a legal challenge, not an inchoate desire for a “better” bill, is what really is driving the Clinton Administration to obtain a new EAA. The issue cannot be ignored, indefinitely.
Some have suggested that it is time to push one final time for reform of H.R. 361, which died at the end of last session. However, H.R. 361 fell far short of the NAM coalition’s objectives. It offers nothing to industry, and should be opposed.
Others have suggested that it is time to shift strategies, and lobby for passage of a “short” bill, which simply would reauthorize export controls and retain maximum flexibility for interpretation by the Executive Branch. However, a “short” bill strategy could be dangerous. There are many protections which have been built into the EAA through a lot of hard work by industry in the 1980’s and 1990’s.
The Clinton Administration has demonstrated its disdain for these protections in the lapsed EAA. For an example, one need look no further than Executive Order 13026, which exempts cryptographic products from the foreign availability provisions, the de minimis provisions, the mass market software note, and other important protections under the EAA. A “short” bill would increase the risk of such arbitrary and capricious elimination of statutory protections, if not by this Administration, then perhaps by the next.
In summary, it is time to return to the basic principles of export control reform articulated by the NAM coalition four years ago. If real relief of the sort proposed by the NAM coalition four years ago is not included, then industry should oppose any new EAA, short or long, in my view.