Terrorism & U.S. Export Controls

Terrorism & U.S. Export Controls Stephen Kraly, Carmen Lozano, Diana ManningDr. Stuart Malawer

Presentation Outline Export Controls: Concepts Carmen History and Context Dual-Use Technology Export Restrictions What Reforms Are Necessary? Carmen Changes to Domestic Regimes Diana Legal Orders, Administration & Enforcement Changes to International Regimes Stephen Global Need for Multilateral Reform Conclusion Stephen

Defense Export Controls • DEFINITION: Laws and practices that deny the access and distribution of arms and sensitive technologies that can be used for weapons by potential enemies, proliferators and terrorists. • POWERS: • Legislative: Two Sets of Regulations EAR and ITAR • Executive: Administration by Department of Commerce and Department of State– Overlapping Jurisdictions • Judicial : Very little oversight, mostly executive power.

DEFENSE TRADE: EXPORT CONTROLS AND LICENSE • Export defense articles must obtain approval from the Department of State Directorate of Defense Trade Controls (DDTC) under the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR) controls items covered under the U.S. Munitions List (USML)

DUAL-USE EXPORTS • “Dual-use” – are those items that have both commercial and military or proliferation application. They reflect the changing threats to the United States. These controls reflect policies chosen by the executive branch and the Congress to address the national security and foreign policy goals of the United States. • Multilateral Regimes • Unilateral Regimes • Regional stability • Crime control • Anti-terrorism- more complicated- requires Department of the Treasury Office of Foreign Asset Control before being allowed to engage in a financial transaction

Agencies, Laws, & Regs: Arms Statute Arms Export Control Act • What’s Controlled • Implementing Regs • Regulating Agency • Enforcement Agency • U.S. Munitions List w/ specific articles, services & technical data to be protected • ITAR • Dept of State • CBP, ICE, FBI, US Attys

Agencies, Laws, & Regs: Dual-Use Statute Export Administration Act • What’s Controlled • Implementing Regs • Regulating Agency • Enforcement Agency • Commerce Control List specifies dual-use items ,technologies to be protected • EAR • Commerce: BIS • CBP, OEE, ICE, FBI, US Attys

LEGAL FRAMEWORK • The President obtains its commerce power by the International Economic Emergency Power Act, which directed commerce to follow the prohibitions of the Export Administration Act (EAA) of 1979. • EAA established the Legal framework for dual-use export controls but this expired in 1994 • Meanwhile the President executive orders allows for dual-export controls to continue. This is done to ensure that regulations are consistent with U.S. national security and foreign policy Ex. Ord. No. 13316, Sept. 17, 2003, 68 F.R. 55256

ADMINISTRATIVE AGENCIES • PRIMARY • Department of State • Department of Commerce • Licenses export of dual-use goods and technologies • Bureau of Industry and Security (BIS) IMPORTANT • ADJUNCT • Department of Defense • Department of Treasury • Department of Energy • Nuclear Regulatory Commission

EXPORT CONTROLS AND THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interest • (i) relating to fissionable material or the material from which they are derived; • (ii) relating to the traffic in arms, ammunition and implements of was to such traffic in other goods and material as is carried on directly or indirectly for the purpose of supplying a military establishment; • (iii) taken in time of war or other emergency in international relations; or (c) to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

COMMERCE EXPORT LICENSE • What you are exporting? • Where are you exporting? • Who will receive your items? • What will your item be used for? *Licenses from Commerce are reviewed by a number of agencies which proved their recommendations as whether they are approved or not *Many items exported to certain countries do not required a license such as the U.S. allies like Japan, Australia or the member countries of the North Atlantic Treaty Organization. U.S. is trying to shift policies on High performance computer exportation to seek balance of real security concerns with performance and to reduce regulatory burden for exporters when they are shipping to safe countries.

Proposal for Regime Change • What do we think will fix the situation? • Proper Automation of review of applications by BIS needs to be done to prevent terrorist from slipping through the cracks. • Proper legal framework needs to be established to give power back over export to the Commerce department and reduce the involvement of the executive power. Other delegations should only be used for consultation when dealing with specialized items. • A lot of money and time is wasted trying to go through the application process. Export controls are very confusing due to its lack of specific jurisdictions. • It is necessary to prevent foreign policy, and politics from influencing commerce. Harsh exports control and the difficulty of the process has made the U.S. environmentally unfriendly towards importers.

Domestic Reforms Overview • 1st: Legal Orders No legal framework for EAR; expired 1994 Confusion over ITAR v EAR • 2nd: Bureaucratic Administration and Jurisdiction: Overlaps are Structurally Unsound; are there cracks? Few performance measurements so unable to see if achieving goals • 3rd: Enforcement: Significant compliance issues; mostly self-regulation Globalization issues: National v Corporate Power • Unknown Deterrence on U.S. Commerce: How Do We Quantify Significant Trade Impact?

Review of Important Numbers • U.S. is the World’s Largest Arms Dealer • $11-12B/Annum (not including Dual-Use Tech) • This represents a positive trade category • U.S. is the World’s 2nd Largest Patent Issuer • Have significant intellectual property protection issues around existing and new technologies • Approximately 400,000/annum, (w/uncharted uses) • U.S. Trade in Goods: Aeronautical and Aerospace products #1 exports by $ volume--Exposure

Current Reform Efforts • On March 28, 2005, BIS published notice of proposed changes that would revise EAR. The notice also proposed restricting the scope of the fundamental research exemption and clarifying the definition of “use” technology. • BIS requested that that parties submit comments. In all, BIS received 311 comments mainly from academic institutions and private industry, which was overwhelmingly opposed to the provision. • On May 31, 2006, BIS published a withdrawal of Advance Notice of Proposed Rulemaking. BIS's withdrawal of the rulemaking effort and its appointment of a “blue ribbon” committee to study the issue represents a near total victory for those in opposition to the OIG recommendations.

How Does Control Work? Part 1 • Controlled Items- • Nuclear Materials, Facilities, Equipment • Materials Processing • Electronics • Computers • Telecomm & Info Tech Security • Sensors & Lasers • Navigation & Avionics • Marine Equipment • Propulsion Systems, Space Vehicles & Related Equip • Systems, Equip, Components, Test & Inspection Equip, Software & Tech

How Does Control Work? Part 2 • Controlled Circumstances • Controlled End-User • What Nation? Three Tiers • What Company or Firm • What Individuals • Controlled End Use Including Re-Exportation • Foreign components assembled in US then Exported • US components exported then reassembled by foreign • Concept of extraterritoriality

JURISDICTIONIONAL REFORMS • Clearly draw the lines between the DOD (Administered by State Dept.) US Munitions List (USML) and BIS Commerce Control List (CCL) • USML has precedence over the CCL • Revise these lists w/assistance from industry • Form Blue Ribbon Panels with government, military, academic and industry advisors to aggressively redefine which agency is primary. • Rectify Omissions from Watchlists: Items & Users • Make Red-flag lists public

Administrative Reforms • Commerce Department studies show that online and workplace based industry education efforts for licensing is effective: increase these programs. • Institute evaluation systems to analyze compliance data across bureaucracies. Insist on standardized performance measures. • Streamline the license process to encourage industry cooperation. • Create consistent rules for ambiguous exports, especially dual-use

EXPORTS CASE STUDY: Controls on Encryption • U.S. treats encryption as munitions but its increased used in commercial technology has lead to a change of policy to a transfer from the State Department U.S. Munitions list to the Commerce Control List (more lenient) WHEN IS ENCRYPTION AN EXPORT NOT SUBJECT TO…..? • Encryption Cases v 1st Amendment • Karn v US Dep’t of State • Programmer at Qualcomm • Re: Restraint on electronic version of algorithms • Bernstein v US Dep’t of State • Mathematics Professor at U Illinois/Chicago • Academic software and code on Internet • Junger v Daley (Sec’y of Commerce) • Professor Case Western Law School • Source code published on internet

EXPORTS CASE STUDY: “Deemed an Export” • Technology or information that is exported by virtue of release or passage through foreign hands whether that takes place within or outside US. • Huge issues for multinational institutions • University researchers • Foreign born technology workers at US companies • Technicians handling communications equipment, (onsite or remote) since transmission can be “export” • Grey area between commercial & military rules

CURRENT ISSUES • U.S. Export Control towards China “(Our Strategy seeks to encourage China to make the right strategic choices for its people, while we hedge against other possibilities” President Bush in the 2006 National Security Strategy of the United States • The Department of Commerce imposed new export controls on certain items to prevent a better hedge against China’s military build-up: • “Validated End User” program • Three components: (i) a multi-agency national security certification process; (ii) mandatory follow-on compliance obligations; and (iii) and ongoing U.S. Government Monitoring and review process. • Why this policy towards China? • The export controls and the VEU reduces transactional risk • Responsibly facilitates civilian trade enhancing U.S. competitiveness

MULTILATERAL EFFORTS • Many changes after the Cold War • Eastern Europe and the former Soviet Countries support Western countries controlling exports • Internet and high tech computers which makes diffusion easier and harder to control • U.S. and other countries are focusing their controls on those Choke-point technologies without which missiles cannot be built and there are only a hand full of suppliers (making it easier to control) • Countries have to deal with the complexities of dealing with countries that are determine to acquire weapons such as Iran, Iraq, Libya, and North Korea

International Coordination-Post 9/11 • Sensitive dual-use commodities and advanced weapons cannot be controlled without broad consensus and cooperation among exporting, transit, and transshipment countries. • Transshipment countries need to strengthen their export control systems through legal, licensing, and enforcement fronts. • Need to prevent the unauthorized transfer of potentially dangerous and destructive capabilities to hostile parties.

International Coordination – Export Control Programs • Export Control and Border Security (EXBS) Program • Department of CommerceTransshipment Country Export Control Initiative (TECI)

EXBS - Five Core Areas • Laws and Regulations • Licensing • Enforcement • Government-Industry Cooperation • Interagency Cooperation Coordination

Transshipment Country Export Control Initiative (TECI) • Seeks to strengthen the trade compliance and export control systems of those countries and companies that constitute global transshipment hubs. • TECI has two principal prongs: government-to-government government-to-private sector

Treaties Post World War II era • Chemical Weapons Convention (CWC)- prohibits development, production, acquisition, retention, transfer and use of Chemical Weapons • Wassenaar Arrangement on export controls for dual-use technologies and commercial weapons • Coordinating Committee for Multilateral Export Controls (COCOM)

INITITATIVES TO COUNTER PROLIFERATION OF WMD TECHNOLOGIES • U.S. is assisting other countries develop effective export controls • Export Control and Related Border Security (EXBS) program • Model Country Plan developed by BIS • Tools such as Internal Control Program (ICP) • International export Control Outreach Seminars • Transshipment country Export Control Initiative (TECI) • Proliferation Security Initiative (PSI)

GOVERNMENT ACCOUNTABILITY OFFICE REPORT ON EXPORT CONTROLS • Commerce’s dual-use system needs to ensure protection of U.S. Interests in the Post-9/11 Environment • Dual-use system lack systematic evaluations • Omissions in the BIS’s watch list • Prior GAO recommendations were left unaddressed

Conclusion • US Laws Regarding Export Controls Need to Reflect 21st Century Realities • This will diminish conflicts between Executive and Legislative Branches for Domestic Policy • Identifies sensitive current technologies to protect • Simplify, Streamline Bureaucratic Ownership for Clear Control of Administration and Enforcement • Ends jurisdictional overlap increases compliance • Actively Negotiate International Protocols to Conform Multinational Regulations

Recommendations To ensure that the dual-use export control system is effective as well as efficient in protecting U.S. interests, we recommend that the Secretary of Commerce direct the Under Secretary for Industry and Security to • • identify and obtain data needed to evaluate the system; • • review existing measures of efficiency to determine their appropriateness and develop measures that address commodity classifications; • • develop, in consultation with other agencies that participate in the system, measures of effectiveness that provide an objective basis for assessing whether progress is being made in achieving the goal of protecting U.S. interests; and • • implement a plan for conducting regular assessments of the dual-use export control system to identify weaknesses in the system and corrective actions.

Recommendations BIS should develop a process that effectively identifies parties of concern during the export license application review process • • develop criteria for determining which parties should be on the watch list; • • implement regular reviews of the watch list to help ensure its completeness; and • • establish interim measures for screening all parties until the planned upgrade of the computerized screening system eliminates current technical limitations

Bibliography Reinsch, William. “US Dual-Use Export Controls.” USIA ElectronicJournal, Vol. 2, No. 4 9/1997 Center for Democracy & Technology. “Encryption Litigation: The Karn Case, Bernstein Case & Junger Case.” http://www.cdt.org/crypto/litigation Bell, Thomas. “Junger v. Daley; 209 F.3d 481 (6th Cir. 2000)” http://www.tomwbell.com/NetLaw/Ch08/Junger.html U.S. Government Publishing Office. “Export Administration Regulations Database.” http://www.access.gpo.gov/bis/ear/ear_data.html#ccl Business Wire. “Federal Judge Issues Landmark Ruling in Arms Export Control Act Case.” April 7, 2008 www.pr-inside.com/federal-judge-issues-landmark-ruling-in-r524313.htm Doornaert, Andrew. “Export Controls of the US Government: Scope and Legal Challenges.” . www.michbar.org/journal/article.cfm?articleID=947&volumeID=73 US Government Accountability Office.

Bibliography US Government Accountability Office. “Export Controls”. Doc. 06-638. December 2006 report. Cecil Hunt and Thomas M. deButts “Coping with U.S. Export Controls 2007”, Harris, Wiltshire & Grannis LLP. Practising Law Institute via Westlaw Online US Dept. Commerce. “French Corporation pleads guilty to conspiracy.” April 10, 2008. http://www.bis.doc.gov/news/2008/doj04_10_08.html http://www.state.gov/t/isn/export/ecc/20779.htm http://www.bis.doc.gov/complianceandenforcement http://www.cbp.gov/xp/cgov/trade/cargo_security/ctpat/what_ctpat/ctpat_overview.xml

Terrorism & U.S. Export Controls