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Remarks at Bureau of Industry and Security Update Conference on Export Controls

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Thursday, October 1, 2009

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Secretary of Commerce Gary Locke
Remarks at Bureau of Industry and Security Update Conference on Export Controls
Washington, D.C.

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Good afternoon.

It’s so nice to speak with you here today at the very appropriately-named “Update” Conference.

It's great to see so many people here from the export control community, especially our nominee to lead BIS, Eric Hirschhorn. Thank you for coming.

This afternoon, I want to update you on steps the Obama Administration is taking to enhance America’s security, boost international trade and make us more competitive in the global marketplace.

Trade has always been crucial to American prosperity. But it has assumed an even greater significance in the current economic climate, as other sources of growth, like consumer and business spending have deteriorated.

President Obama, and we at the Commerce Department, see real opportunities for U.S. exports across our entire economy—from large corporations to small and medium-sized businesses.

But it won't happen on its own.

The federal government has an important role to play in revitalizing United States exports.

That’s why a few months ago, I announced five key strategies I would be pursuing during my tenure at Commerce to improve America's export capacity:

They include:

  • Enhancing our trade promotion efforts by putting more resources into a commercial service corps that has staff stationed all over the world to help open new markets for our companies.
  • Streamlining our business visa system to make it easier for foreign company executives to travel to the United States.
  • Strengthening international intellectual property protections to safeguard American innovators from counterfeiters and pirates who cost our companies as much as $250 billion every year.
  • Mobilizing the entire federal government to encourage export promotion. Whether it's the State Department writing a letter on behalf of an American company that wants to do business in Russia, or our Department of Energy helping to facilitate renewable energy partnerships between U.S. companies and the Chinese government, every federal department has a role to play in promoting American business—and Commerce will serve as a facilitator.
  • And finally, what I want to talk about today: Reforming the American export control system.

We live in a world today where a simple chip that powers an alarm clock can be rigged to trigger an Improvised Explosive Device. An oscilloscope that displays a patient’s heart rate can enable production of a nuclear device.

That's why the United States has an export control system that seeks to prevent sensitive items from falling into the hands of those who want to do us harm.

But our current system was designed in the 1950s, and its Cold-War-era framework is ill-suited to manage the highly complex 21st century threats currently faced by the United States and our allies.

Almost exactly one year ago, Brent Scowcroft, former National Security Adviser to President George H.W. Bush—chaired a distinguished National Academy of Sciences panel to look into this issue. The group flatly declared:

“The national security controls on science and technology are broken.”

The panel concluded that our Cold War era export control system is damaging both our security and our economy.

  • Because most military production in the United States is now based in the private sector, control measures that unnecessarily hurt the profitability of U.S. companies and restrict their ability to pursue costly and risky research, cuts our military off from information and technologies that are central to battlefield success.
  • And as more advances in science and technology occur in places like Europe, Russia and Asia, we are running the risk of preventing U.S. companies from participating in promising avenues of growth. And that means more high-tech, high-paying jobs going abroad.

Just as financial regulations designed in the 1930s have proven unable to effectively manage the risks of complex derivatives and other facets of today's financial markets, our export control system cannot handle a world where goods and services cross national borders freely, and where items bought at an electronics store in mid-America can end up hurting American troops in Iraq.

The challenge we face is to design a new system that keeps us safer by increasing export control measures on the items and technologies most critical to our national security and freeing American companies from an out-dated set of rules that often prevents them from selling items that are readily available from non-U.S. companies.

Make no mistake; any reform must maintain a robust and active enforcement regime to punish those who would seek to sell sensitive technologies to our enemies.

And it will also take into account that maintaining our economic competitiveness is a key element of our national security.

In August, President Obama called for a broad-based interagency review of the U.S. export control system, including both the dual-use items that are designed for civilian purposes but often have military applications, as well as defense trade processes.

And last week, I sat down with Defense Secretary Gates to discuss this overhaul. This morning I met with Secretary of State Clinton to coordinate next steps in support of the Administration review.

Fundamentally reforming the current system is a high priority for the Obama administration, and many leaders on Capitol Hill.

I look forward to working with Congress, which will be a key partner in making serious reforms.

But let me just note the challenges we face.

Our current export control system was created to contain adversarial nations that were relatively easy to identify.

At the time it was implemented, much of the world’s sophisticated technology came from the West. Keeping dual-use and military technologies from a well-understood block of countries was in everyone’s mutual economic and national security interest.

Today, our global economy is far larger and more integrated, and nations’ economic and security interests are more nuanced.

Our old adversaries are now some of our most significant trading partners.

And no country or hemisphere has a monopoly on creating sophisticated goods and services.

Numerous countries with less than robust export control laws than ours now compete with U.S. firms to manufacture sophisticated equipment.

We have an obligation to work with these countries to enhance their controls and to broaden the breadth and scope of multilateral controls to ensure that we have both fair and secure trade.

For example, working with the United Arab Emirates, we successfully targeted Mayrow General Trading which was forwarding U.S. made goods to Iran that ended up in bombs in Iraq.

This type of international cooperation is critical if we are to face-down existing and emerging threats.

On the other hand, we also need to ensure that we protect our national security in a manner that doesn’t unnecessarily undercut our companies’ global competitiveness.

It is not uncommon to hear about U.S. companies that lost a sale because a foreign competitor said it could supply the item faster or even without a license.

For example, we had a U.S. company lose two key sales to Italy for predictive maintenance imaging cameras – a standard commercial technology that utilities often use to monitor their equipment.

The Italians didn't want to deal with the time delays in our control system so they turned right around and bought the same technology from the Japanese.

Moreover, U.S. companies are being “engineered out” of collaborative foreign projects due to U.S. export control requirements.

Let me read you a troubling quote from Charles Edelstenne, the president of the Aerospace and Defense Industries Association of Europe. He said:

The only way to resolve technology access and U.S. government export restrictions is by "not including any U.S.-sourced technology in our products."

Recently, we had an instance where a major foreign aerospace company designed an American microchip out of its navigation subsystem for this reason.

And we are now hearing about provisions in sales contracts that explicitly bar the use of U.S.-manufactured articles because companies don’t want to have to deal with our export control system.

America puts our exporters in an untenable position when we forbid or delay them from selling an item to an overseas market even when foreign competitors face no similar restrictions from their home country.

The United States must be seen as a reliable supplier—which is why it is so important to make our export control system more expeditious, transparent and predictable.

A comprehensive overhaul of our flawed export system is not a race to the bottom and a slackening of controls.

Rather, it means a focus on those high-risk technologies that pose the greatest risks to national security, and working with our partners and allies to ensure no country exports or re-exports dual-use items to those that seek to do us harm.

At the same time, it means fundamentally revising our export control system to account for the emergence of new foreign markets, competitors, and multifaceted threats that have arisen over the past few decades.

And we need to provide transparency and predictability to how the most sensitive items are controlled—either as military or dual-use items.

In short, we need enhanced and more targeted controls on highly sensitive items, and streamlined controls elsewhere.

Our new export control regime must be able to more precisely target those that seek to do us harm, while allowing U.S. companies to trade with law-abiding consumers in those same places.

Overhauling our export control framework will not happen overnight. Fundamental reform will likely require new statutory authority and action from Congress.

The Commerce Department is already working with our colleagues within Defense, Energy and State to support the president’s initiative and we will be working diligently with folks on the Hill to shape this reform in the months to come.

But, in addition to these fundamental structural reforms, I am proposing that the Commerce Department—working with other counterparts in the federal government—begin moving forward on two reforms that will provide substantial relief to U.S. exporters while strengthening U.S. national security and foreign policy interests.

I have asked the Bureau of Industry and Security to initiate the following actions:

First, we should consider eliminating certain dual-use export license requirements for allies and partner nations—consistent with statutory and international obligations.

As a general rule, many of the items that would be covered by this change do not now even require a license for export within the European Union.

Most important, this change would stem the trend of foreign suppliers having a competitive advantage over U.S. companies in these critical trade markets due solely to the difference between export control policies.

This is a low-risk and high-impact change that will immediately help our exports become more competitive.

Second, I’ve asked BIS to explore implementing a fast-track process for the review of dual-use export licenses for other key countries that do not pose a significant threat and have a strong history of export control compliance.

Although license applications to these countries are generally approved and processed within regulatory timelines, the time taken to review a license application can undermine U.S. sales abroad.

As a result, I have directed my team to develop a plan that will seek to dramatically reduce the number of days it takes to review a license application for certain transactions, and bring our system more in line with that of our international export control regime partners and competitors.

The process will maintain the same rigor and commitment to our security as before—but will operate on a faster timeline.

Even as I speak with you here today, my team is aggressively exploring efforts on this front.

And, of course we will continue to scour the Export Administration Regulations and de-list those items and technologies that no longer pose a threat to national security.

Pursuing these two immediate reforms—

  • eliminating dual-use export license requirements for allies and partner nations;
  • implementing a fast-track procedure for the review of dual-use export licenses for other key allies;

—will have an immediate and positive impact for American economic competitiveness and security.

But this is not enough.

Our export control system has served us well for half a century.

But like so many regulatory frameworks ranging from the world of finance to patents—our export control system has not been able to keep up with a changing world.

These two reforms that the Commerce Department is moving forward support the administration’s strategy to bring real reform to our export control system.

I look forward to working with my colleagues at Defense and State to make this happen.

These administration efforts will also be complemented by significant efforts underway in Congress to make the important statutory reforms necessary for fundamental change.

With your active involvement and that of the Congress, we can truly create a more rational, reasonable system that enhances both our national security and our economic competitiveness.

Thank you.