Update 2015 Conference
Remarks of
Eric L. Hirschhorn
Under Secretary for Industry and Security
November 2, 2015
Thank you, Dan Hill. Thanks to Karen Nies-Vogel, Rebecca Joyce, and our BIS outreach team as well as the many BIS and U.S Government colleagues who have worked on and contributed to this conference.
I’d also like to thank our BIS management team and our colleagues from the other departments and from the Congress who are involved in export controls and my colleagues at BIS for their important work on the Export Control Reform initiative. It is an honor to work with you. Thanks also to the foreign governments who have sent representatives to this conference.
Finally, I’d like to thank Brian Nilsson, a BIS employee of 21 years, who worked tirelessly at the National Security Council for the last seven years as the Director for Export Controls and Nonproliferation. Brian recently became Deputy Assistant Secretary for Defense Trade Controls at the State Department, but I want to acknowledge his hard work and commitment to export control reform.
Overview
Today, I’d like to outline the success we have achieved over the past six years in revising the regulations and processes to establish a control system that is responsive to today’s national security challenges.
The success of ECR represents a successful blending of several critical elements. In 2009, President Obama made Export Control Reform a priority. The active support and commitment of former Secretaries Gary Locke, Bob Gates, and Hillary Clinton, the strong support of our current Secretary of Commerce, Penny Pritzker, and the level of commitment and cooperation among the agencies is unprecedented in my nearly 40 years of experience in this field. A key element of our success has been the commitment of the exporting community—including many of you in this room—to engage in a mutually beneficial dialogue.
Export Control Regulatory Reform
We have made significant improvements to the EAR in recent years but the review of the U.S. Munitions List (USML) and corresponding changes to the Commerce Control List (CCL) represent the keystone of the reform effort. We have changed the USML from a list based on open ended, subjective, or design-intent standards to one based almost entirely on objective technical or other parameters. This means that an item will be on the USML only if it is determined by technical experts to confer a critical military or intelligence advantage on the United States.
If an item is not listed on the USML, it is not ITAR-controlled. The USML review has removed catch-all controls for many thousands of unspecified parts and components. We have transferred many of militarily less sensitive items to the licensing jurisdiction of the Commerce Department.
The Departments of Commerce and State have published final rules on fifteen out of the twenty-one categories of the CCL and the USML. All of those fifteen are now effective.
A key benefit of the reform process has been the recognition by all that regulatory reform does not have a finish line. Our March 2015 notice of inquiry on aircraft and gas turbine engines, and a similar October 9th notice about military vehicles and vessels, recognized that technology doesn’t stand still and that development and production aren’t the exclusive province of the United States. We and the State Department anticipate issuing similar notices of inquiry for the other revised categories once they’ve been in effect for approximately eighteen months.
More work remains to be done to complete the remaining USML categories and harmonize the definitions of common terms used in the EAR and the ITAR. Assistant Secretary Kevin Wolf will discuss these issues shortly.
Streamlined Licensing and Higher Compliance Fences
License Exception Strategic Trade Authorization (STA) was an important step in the Administration’s effort to streamline the licensing process. STA streamlines exports of many items to thirty-six close allies and friends.
Since July 2011, exporters have used STA for more than 19,000 shipments valued at $1.2 billion. Exporters also continue to make heavy use of other exceptions, such as those allowing for replacement parts (RPL), shipments to Government End Users (GOV), Temporary Exports (TMP), and limited value shipments (LVS). This action in turn has enhanced national security by expanding military interoperability and reducing regulatory burdens on joint development and trade with close allies. Allowing the easier cases to be eligible for STA or other license exceptions also reduces the burden on U.S. exporters.
We understand that getting a company to the point where STA is more efficient than the old system takes time and resources. Compliance systems must be revised, items reclassified, foreign partners educated, and old habits changed. But we believe that once such initial tasks have been completed, ECR works as intended. We are confident that the exceptions will be used more as exporters and their customers become accustomed to them and make the requisite changes to their systems.
Education and Compliance
BIS works hard to ensure an informed and regulated export community. In FY 2015, we conducted more than fifty outreach events that reached more than 5000 people.
BIS’s educational services to the export community include online interactive tools, webinars and training seminars, and exporter counselling. Assistant Secretary Wolf conducts weekly export control reform call-ins where he answers questions on proposed rules and other aspects of Export Control Reform. These sessions increase our understanding of industry concerns and of instances where our regulations could be clearer. He has also conducted outreach to foreign governments and companies that receive controlled items to ensure that they understand the opportunities and the obligations of the new system.
BIS is committed to conducting as much outreach and industry training as our resources permit. We will continue to target activities that benefit small and medium-sized companies, particularly defense exporters. The benefits of our reforms cannot be maintained unless you—the regulated community—understand and comply with them.
USXports
On October 5th, the Departments of Defense, Commerce, State, and Energy completed installing an interagency referral module on the Department of Defense’s USXports platform. As directed by President Obama, all four agencies now are reviewing and providing their positions on Commerce license applications on a single I.T. platform. The next step will be to seek input from industry as we develop requirements for a single portal with a single license application form
Enforcement
Export control enforcement is critical to our national security. It helps ensure that our technological superiority is not employed against us on the battlefield. It also also helps ensure a level playing field, so that companies who play by the rules are not disadvantaged by those who would profit from willful or ignorant disregard of those rules.
Over the past five years, we have leveraged our resources through increased interagency coordination. We work through the interagency Export Enforcement Coordination Center to increase collaboration and the efficient use of resources among the enforcement agencies.
At the front end of the process—consideration of license applications—BIS’s Information Triage Unit (ITU) facilitates the review of foreign parties to proposed export transactions. During FY 2015, about a third of our license denials involved information emanating from the ITU.
At BIS, the synergy created by Export Enforcement officers working with their Export Administration licensing and regulatory counterparts is unique within the U.S. Government. This expertise and teamwork enables a timely focus on issues ranging from complex enforcement cases to the administration of sanctions.
Export Enforcement is developing new Administrative Enforcement Guidelines to improve transparency and predictability, as well as to bring our enforcement approach more into alignment with that of Treasury’s Office of Foreign Assets Control. Tomorrow, Assistant Secretary Mills will preview these important proposed revisions.
I would also like to repeat my longstanding message that our enforcement efforts seek to focus on truly bad actors, not those who have decent compliance programs, make a mistake, and work with us to remedy the situation.
The Return on the National Security Investment
The exporting community has made extensive investments in reclassifying its products, modifying I.T. systems, and training employees on the USML-to-CCL process. I would like to share with you the qualitative and some quantitative measurements of the return on your hard work.
The success of ECR can be understood by viewing the countries of the world in three main groups. The first is the thirty-six NATO and other close allies that are eligible to receive military items subject to the EAR under License Exception STA, other exceptions, or the less burdensome Commerce licensing system. Your benefits include timely exports to key defense allies, enhanced U.S. and partner country affordability throughout the product life cycle, the absence of unexpected license provisos, and a reduction in licensing burden. BIS’s Munitions Control Division, which licenses “600 series” items and reviews STA transactions, processed more than 13,000 licenses during FY 2015. We believe that for you—the exporters—the benefits substantially exceed the hard work and investment you have made to adjust to the new system.
The second group—the other end of the spectrum—is countries subject to arms embargoes. There will be no change in longstanding U.S. policy to deny sales, including sales of items transferred to the CCL from the USML, to this group.
The third group includes the rest of the world, as to which ECR provides worldwide market opportunities and eligibility for de minimis treatment. The one-size-fits-all ITAR controls contain no de minimis exclusion, which means that even a small amount of U.S. content incorporated in a foreign end product subjects that product to U.S. reexport controls. The ECR changes enhance the defense industrial base by reducing incentives for foreign companies to make their products “ITAR-free.”
Beyond ECR—Country Policy
Cuba
Last December, the President announced a new course in our relations with Cuba, a course that would engage and empower the Cuban people. These steps build upon actions taken since 2009 that have been aimed at supporting the ability of the Cuban people to gain greater control over their own lives and determine their country’s future.
In January, the Commerce and Treasury Departments took coordinated actions that included changes to licensing policy and license exceptions in the EAR that are consistent with U.S. support for the Cuban people. On July 22nd, BIS published a second rule, implementing the Secretary of State’s rescission of Cuba’s State Sponsor of Terrorism designation. Most recently, BIS published a third rule on September 21st that amended the terms of existing license exceptions that are available for Cuba, increased the number of license exceptions available for Cuba, and created a new licensing policy in the EAR.
Last month, Secretary Pritzker visited Cuba to participate in the inaugural U.S.-Cuba Regulatory Dialogue, which will facilitate implementation of President Obama’s Cuba policy and associated regulatory changes. Deputy Assistant Secretary Matt Borman, who accompanied the Secretary and participated in the Regulatory Dialogue, will update you during his interagency panel tomorrow.
Russia/Ukraine
BIS and the Treasury Department’s Office of Foreign Assets Control have implemented a number of sanctions to deter Russian conduct that violates international norms. Specifically, we seek to convince Russia to desist from its territorial claims against Crimea, stop its interference in Ukraine, and—importantly—refrain from misconduct elsewhere. BIS’s sanctions cover certain exports to the defense and energy sectors, as well as certain transactions with specified foreign persons.
Most recently, BIS issued a final rule on August 7th, adding a Russian oil and gas field, the Yuzhno-Kirinskoye Field, to the Entity List. Exports to this field present an unacceptable risk of use in producing oil in a Russian deep water location.
BIS is coordinating with our international partners to identify items of strategic concern and working hard to minimize damage to allies and friends. We are prepared to impose additional sanctions if circumstances so require.
The future of sanctions is dependent on President Putin’s willingness to comply with the Minsk II package to alleviate the ongoing war in the Donbas region of Ukraine, and to respect the territorial integrity of Ukraine.
Iran
On July 14, 2015, the P5+1 countries and Iran agreed on a Joint Comprehensive Plan of Action (JCPOA) to ensure that Iran’s nuclear program will be exclusively peaceful. Building on the key parameters announced in April 2015, the JCPOA will provide Iran with phased sanctions relief upon verification that Iran has implemented key nuclear commitments.
Currently, all Commerce controls pertaining to Iran remain in place. The Office of Foreign Assets Control (OFAC) licenses the export or reexport of items subject to both BIS’s EAR and OFAC’s Iranian Transactions and Sanctions Regulations (ITSR).
When Implementation Day is reached, most U.S. sanctions will remain in place. This is because they are directed not at Iran’s nuclear activities but at its continued sponsorship of terrorism and ballistic missile development.
China
The United States remains committed to facilitating trade with China of commercial items, including high technology items, for civilian end uses and end users. It is long standing U.S. policy, however, not to support (1) exports of military items to China, (2) exports for Chinese military end users or end uses or (3) exports that may be diverted to proliferation or military-related end uses.
Conclusion
These, then, are some of the national and economic security benefits we have achieved by working together to make Export Control Reform a reality. Our partnership and dialogue with the exporting community have been indispensable to creating more reliable and predictable rules that enable U.S. companies to be more reliable and predictable exporters. This is good for our national security, including our economic security.
Please take advantage of this conference. Ask questions and challenge us! Follow all the conference coverage on Twitter, on our account @BISgov, and under the hashtag #BISUpdateConf. Thank you for attending.
***
Let me now take a few moments to introduce our next speaker. Kevin Wolf, our Assistant Secretary for Export Administration, has been a prime mover of the reform effort. His energy, intelligence, collegiality, and—yes, even his humor—have driven and nurtured this effort. Nothing in the official catalog of his responsibilities begins to illustrate the way in which he’s served as a sparkplug of the ECR effort. Like Secretary Pritzker, from whom you’ll hear at lunchtime, he’s full of energy and always committed to getting the job done.
It is a pleasure to have Kevin at BIS and to hear from him this morning. Please welcome Assistant Secretary Kevin Wolf.