[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
EXPORT CONTROL REFORM: THE AGENDA AHEAD
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
APRIL 24, 2013
__________
Serial No. 113-52
__________
Printed for the use of the Committee on Foreign Affairs
Available via the World Wide Web: http://www.foreignaffairs.house.gov/
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida ENI F.H. FALEOMAVAEGA, American
DANA ROHRABACHER, California Samoa
STEVE CHABOT, Ohio BRAD SHERMAN, California
JOE WILSON, South Carolina GREGORY W. MEEKS, New York
MICHAEL T. McCAUL, Texas ALBIO SIRES, New Jersey
TED POE, Texas GERALD E. CONNOLLY, Virginia
MATT SALMON, Arizona THEODORE E. DEUTCH, Florida
TOM MARINO, Pennsylvania BRIAN HIGGINS, New York
JEFF DUNCAN, South Carolina KAREN BASS, California
ADAM KINZINGER, Illinois WILLIAM KEATING, Massachusetts
MO BROOKS, Alabama DAVID CICILLINE, Rhode Island
TOM COTTON, Arkansas ALAN GRAYSON, Florida
PAUL COOK, California JUAN VARGAS, California
GEORGE HOLDING, North Carolina BRADLEY S. SCHNEIDER, Illinois
RANDY K. WEBER SR., Texas JOSEPH P. KENNEDY III,
SCOTT PERRY, Pennsylvania Massachusetts
STEVE STOCKMAN, Texas AMI BERA, California
RON DeSANTIS, Florida ALAN S. LOWENTHAL, California
TREY RADEL, Florida GRACE MENG, New York
DOUG COLLINS, Georgia LOIS FRANKEL, Florida
MARK MEADOWS, North Carolina TULSI GABBARD, Hawaii
TED S. YOHO, Florida JOAQUIN CASTRO, Texas
LUKE MESSER, Indiana
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
C O N T E N T S
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Page
WITNESSES
Mr. Thomas Kelly, Acting Assistant Secretary, Bureau of
Political-Military Affairs, U.S. Department of State........... 4
The Honorable Kevin J. Wolf, Assistant Secretary of Commerce for
Export Administration, Bureau of Industry and Security, U.S.
Department of Commerce......................................... 10
Mr. James A. Hursch, Director, Defense Technology Security
Administration, U.S. Department of Defense..................... 20
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Mr. Thomas Kelly: Prepared statement............................. 6
The Honorable Kevin J. Wolf: Prepared statement.................. 12
Mr. James A. Hursch: Prepared statement.......................... 22
APPENDIX
Hearing notice................................................... 50
Hearing minutes.................................................. 51
The Honorable Gerald E. Connolly, a Representative in Congress
from the Commonwealth of Virginia: Prepared statement.......... 53
The Honorable Edward R. Royce, a Representative in Congress from
the State of California, and chairman, Committee on Foreign
Affairs: Material submitted for the record..................... 55
The Honorable Brad Sherman, a Representative in Congress from the
State of California:
Chinese entities sanction under INKSNA since October 2008...... 58
Statement for the record from the International Association of
Machinists and Aerospace Workers dated March 19, 2013........ 59
Questions submitted for the record by the Honorable Edward R.
Royce and responses from:
Mr. Thomas Kelly............................................... 61
The Honorable Kevin J. Wolf.................................... 73
Questions submitted for the record by the Honorable Eliot L.
Engel, a Representative in Congress from the State of New York,
and responses from:
Mr. Thomas Kelly............................................... 94
The Honorable Kevin J. Wolf.................................... 98
Questions submitted for the record by the Honorable Christopher
H. Smith, a Representative in Congress from the State of New
Jersey, and responses from the Honorable Kevin J. Wolf......... 110
Questions submitted for the record by the Honorable William
Keating, a Representative in Congress from the Commonwealth of
Massachusetts, and responses from Mr. Thomas Kelly............. 113
Questions submitted for the record by the Honorable David
Cicilline, a Representative in Congress from the State of Rhode
Island, and responses from:
Mr. Thomas Kelly............................................... 115
The Honorable Kevin J. Wolf.................................... 116
EXPORT CONTROL REFORM:
THE AGENDA AHEAD
----------
WEDNESDAY, APRIL 24, 2013
House of Representatives,
Committee on Foreign Affairs,
Washington, DC.
The committee met, pursuant to notice, at 10:10 a.m., in
room 2172 Rayburn House Office Building, Hon. Edward Royce
(chairman of the committee) presiding.
Chairman Royce. This Export Control Reform hearing will
come to order. Today we meet to discuss the agenda for
advancing U.S. export control reform. The U.S. has long had in
place a system of strategic export controls. These controls
restrict the commercial export of both arms and dual-use
items--that is, items that have both a civilian and military
application--in order to advance our national security, our
foreign policy, and of course our economic interests around the
globe.
The main goal of our export controls is to restrict the
flow of sensitive technology to terrorists and state sponsors
of terrorism, or other countries that may be hostile to the
United States. Under this system, the State Department is
responsible for regulating arms exports while the Commerce
Department is responsible for regulating exports of dual-use
items. The Department of Defense identifies and helps protect
military critical technologies, including by providing
technological expertise. Several agencies, including the
Department of Justice and the Department of Homeland Security,
are responsible for export enforcement.
This committee has jurisdiction over all aspects of U.S.
strategic export controls, and for many years this system has
been regarded as the gold standard of national export control
regimes. But over time, the GAO and many others have observed
that the complexities of the system have begun to erode its own
effectiveness. In particular, the nature of our controls became
out of step with changes in defense acquisition policy, global
manufacturing trends, and technological development. The world
economy left our bureaucracy behind.
As we will hear today, the administration has begun a
comprehensive restructuring of the U.S. export control system.
The goal of that reform effort is to better tailor U.S. export
controls to our national security interests. These interests
include helping our industries shed needless bureaucracy and
compete in the global marketplace and strengthening our
economy.
Indeed, this reform will affect a broad swath of American
business, including the defense industry, aerospace, the
commercial satellite and space industry, electronics,
semiconductors, and communications technology. The goal is a
more transparent and a more efficient system.
However, some caveats are in order. The primary
beneficiaries of the current reforms are expected to be small
and medium sized industries, but they and others initially may
struggle to adapt to the intricacies of a new regulatory
regime. Likewise, it is uncertain whether executive branch
agencies themselves are fully prepared for these changes, both
with respect to licensing and enforcement functions.
Effective outreach to business will be critical. Missteps
in implementation are inevitable. The committee will be
watching and lend a hand when we can.
Meanwhile, there is a large reform agenda still ahead. More
effort should be placed on enhancing licensed defense trade
with friends and allies. Implementation of multilateral regime
changes should be accelerated. The increasingly elaborate
Export Administration Regulations need to be simplified. Some
of these goals can be accomplished by the executive branch, but
Congress also has an important role to play here. And in this
regard, I look forward to working with the ranking member on
bipartisan legislation to advance common sense reforms.
As with the historic reforms of U.S. satellite controls
that passed Congress last year, we hope to cooperate closely on
these matters with the executive branch. Here, I would suggest
it is long past due to reassess the status of the lapsed Export
Administration Act. Let us ensure that we are guarding against
those enemies that are determined to hurt us with our own
technology.
And I turn now to the ranking member for his opening
statement.
Mr. Sherman?
Mr. Sherman. Mr. Chairman, it is like old times. For 6
years we were the ranking member and chair of the Terrorism,
Nonproliferation, and Trade Subcommittee. We held five hearings
on this issue. And I want to commend you for bringing this
issue early in your first year as chair of this committee to
the full committee. We have got two statutory regimes--arms
sales regulated by the State Department which creates the
Munitions List, dual-use items regulated by the Department of
Commerce which both by the nature of the items it regulates and
its own proclivities is somewhat less stringent.
In late 2006, the State Department had a backlog of 10,000
license applications. Waiting times went for months. Even
exporting handguns to be used by police officers in the most
friendly countries could take months. Delays in the
adjudication are often just as bad as answering with a no,
because in either case the business will go elsewhere. The
effect of that is not only lost jobs in the United States, but
also money flowing into the industrial base of countries that
may be less stringent or even unfriendly to the United States.
Manufacturers have viewed being on the Munitions List as a
great difficulty, leading to the so-called ITAR-free
satellites, satellites carefully constructed so not a single
part would be subject to the International Traffic in Arms
Regulations of the State Department. I look forward to
satellites being moved to the dual-use list with some
additional restrictions.
Our subcommittee held six hearings on this. I want to
commend especially the State Department for allocating
additional resources and shortening the wait times. The Obama
administration has announced the outlines of export control
reform. Secretary Gates was right when he said we need to build
a higher fence around a smaller yard, and I would add, with a
faster gatekeeper.
The President's Export Reform Initiative will make a number
of improvements to the system, including an enforcement
coordinator to coordinate Commerce and State IT improvements to
allow easier submission and processing applications, and a
single electronically available list of prescribed entities
ineligible for exports, which has been made available.
The focus here is to look category by category at items on
the Munitions List and determine what items in that category
can be transferred to a new Commerce Department Munitions List
I referred to as the Series 600. And so you have a State
Department list that is getting smaller, and a Commerce
Department list that is getting larger. We need to reauthorize
the statute for the Commerce Department. The Export
Administration Act, right now it is being continued on life
support under the general emergency statute, IEEPA. It is about
time Congress actually craft legislation in this area rather
than keeping alive ancient legislation or letting the
administration do so. We need to carefully look at the export
control reform, perhaps move toward a single agency rather than
just coordination between two agencies.
Finally, I want to emphasize that it is not in our interest
to be exporting not goods, but to export tools and dies and
blueprints. The effect of that is not only that we lose jobs
but that we build an arms or dual-use infrastructure elsewhere.
And I think it should be an explicit part of our policy that we
are not here to liberalize the rules to offshore production,
even if there are powerful interests in this area that would
find that the profitable thing to do.
So I look forward to hearing from our witnesses how we can
make sure that the infrastructure and manufacturing
infrastructure stays here in the United States and that there
are not undue delays in exporting that which should be
exported. I yield back.
Chairman Royce. Well put. We will go to our representatives
now from the Departments of State, Commerce and Defense. We
will start with Mr. Thomas Kelly, acting Assistant Secretary
for the Bureau of Political-Military Affairs at the State
Department. In his career as a Foreign Service Officer he has
served in posts across the continent of Europe and South
America.
Mr. Kevin Wolf serves as Assistant Secretary for Export
Administration for the Bureau of Industry and Security at the
Department of Commerce, and prior to this appointment he
practiced law specializing in Export Administration Regulations
and International Traffic in Arms Regulations.
And we have Mr. James Hursch, Director of the Defense
Technology Security Administration for the Defense Department.
His career at the Department began 28 years ago. He has been
awarded the Secretary of Defense Exceptional Service Award.
We are welcoming here all our witnesses to the committee,
and without objection the witnesses' full prepared statements
will be made part of the record. And members may have 5 days to
submit statements and questions and extraneous material for the
record. So I would ask that you all summarize your prepared
statement, and we will start with Mr. Kelly.
STATEMENT OF MR. THOMAS KELLY, ACTING ASSISTANT SECRETARY,
BUREAU OF POLITICAL-MILITARY AFFAIRS, U.S. DEPARTMENT OF STATE
Mr. Kelly. Thank you very much, Mr. Chairman, and good
morning. Thanks to you and to Congressman Sherman for your
remarks.
Chairman Royce, Congressman Sherman, committee members, it
has been 2 years since the committee last met to hear testimony
on the President's Export Control Reform Initiative. A lot of
work has been done in the intervening period. I would like to
start by thanking the committee on behalf of the State
Department for its bipartisan support throughout this process.
As the pace of technological advance accelerates and as
technological capability spreads around the world, the need to
update our export controls is increasingly urgent. We are no
longer in an era in which a handful of countries hold the keys
to the most sensitive technologies, as was the case during the
Cold War. Today a whole range of nations have advanced
technological capability. At the same time, because of the
diffusion of technology many U.S. companies must collaborate
with foreign partners to develop, produce and sustain leading
edge military hardware and technology. And their survival
depends on it.
But because our current export controls are confusing, time
consuming, and many would say overreaching, our allies
increasingly seek to design out U.S. parts and services thus
avoiding our export controls, and use monitoring that comes
with them, in favor of indigenous design. This threatens the
viability of our defense industrial base especially in these
austere times.
Our current system has another problem. It can prevent our
allies in theater from getting the equipment and technology
they need to fight effectively alongside our troops in the
field. The system has its basis in the 1960s and hasn't
undergone significant updates since the early 1990s. It is
cumbersome, complex, and incorrectly controls too many items as
though they were crown jewel technologies. And what that has
meant is that there has been an inordinate amount of agency
resources both in terms of licensing and compliance activities
that have been expended on nuts and bolts as well as our real
crown jewel technologies.
In November 2009, President Obama directed a White House
taskforce to identify how to modernize our export control
system so that it will address the current threats that we face
as well as account for the technological and economic landscape
of the 21st century. His direction was grounded in national
security with a goal of putting up higher fences around the
items that deserved the greatest protection while permitting
items of lesser sensitivity to be exported more readily when
appropriate.
To address the problems the task force identified, they
recommended reforms in four key areas: Licensing policies and
procedures, control lists, information technology, and export
enforcement. The President accepted the recommendations, and
since early 2010 agencies have been working very hard to
implement them. Much of the agencies' efforts have centered on
revising the U.S. Munitions List and Commerce Control List.
This reform will draw a bright line between the two lists using
common terms and control parameters. This will help our
exporters determine far more easily which list their products
are on. The reform will ensure that those items of greatest
concern to us from a national security and foreign policy
perspective will remain on the USML and thus be subject to the
most stringent licensing requirements, while items of less
sensitivity will be moved to the CCL.
I want to emphasize a key point. Items moving to the CCL
are going to remain controlled. They are not being de-
controlled, but in specific circumstances they will be eligible
for export under Commerce's more flexible licensing mechanisms.
I am confident that the revised list will permit State to
continue to perform its national security and foreign policy
mandates in export licensing. I would also like to note that we
are making tremendous progress in the effort to rewrite the
categories. We published 12 rebuilt USML categories in the
Federal Register for public comment. The proposed rules for the
seven remaining categories have been drafted and are either
undergoing or awaiting interagency review so that we can then
publish them for public comment.
On April 16, the Departments of State and Commerce
published companion rules that implement the revised USML
categories, eight aircraft and 19 engines. This is the first
pair of series of final rules that put in place the rebuilt
export control lists. Our goal is to publish the revised USML
in its entirety on a rolling basis throughout this year.
In the last phase of our reform effort we will need
legislation to bring the initiative to its logical conclusion
by creating a single licensing agency. The administration
hasn't yet determined when to approach this effort, but we will
fully engage our oversight committees and know we can count on
your support when we do so.
On that note, one final point I want to make is that this
hasn't only been an interagency process, it has been a cross-
government process. Over the course of the past 3 years I have
had the opportunity to work closely with the committee, with
many others across the Congress on both the broad strategic
questions of national security and the finer technical details
of our proposals. Our work together shows what we can achieve
together. I am very grateful for your bipartisan support for
this initiative. I look forward to working closely with you on
the remainder of the reform effort.
And with that I want to thank you for inviting me to
testify, and I would like to turn the floor over to my
colleague, Commerce Assistant Secretary Kevin Wolf.
[The prepared statement of Mr. Kelly follows:]
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STATEMENT OF THE HONORABLE KEVIN J. WOLF, ASSISTANT SECRETARY
OF COMMERCE FOR EXPORT ADMINISTRATION, BUREAU OF INDUSTRY AND
SECURITY, U.S. DEPARTMENT OF COMMERCE
Mr. Wolf. Chairman Royce, Congressman Sherman, members of
the committee, I am pleased to be here today to discuss the
President's Export Control Reform Initiative. As both of you
said well in your introductions, the Obama administration is in
the midst of the most comprehensive effort to reform our export
control system in history. It will significantly enhance the
national security, foreign policy and economic interests of the
United States. It has taken unprecedented interagency
cooperation, extensive consultation and discussion with
Congress, and significant input from the public in order to
bring about a reform of the Cold War-era system that we have
now.
As best described in a speech that then Secretary of
Defense Gates gave in April 2010 on the subject,
``Fundamentally reforming our export control system is
necessary for national security.'' And what he meant by that is
that our national security will be enhanced if our system
allows for greater interoperability with our close allies, it
reduces the current incentives in the system for foreign
companies in allied countries to design out and avoid U.S.
origin content, and allows the administration to focus its
resources on more of the transactions of concern.
The Commerce Department's Bureau of Industry and Security
plays a unique role in this process. We are the only U.S.
Government agency with trained staff focused on both the
administration and the enforcement of export control Laws. This
includes also educating the public on the rules, performing
engineering and regulatory analysis of actual and proposed
rules for purposes of making licensing determinations and
proposed changes, and conducting enforcement analysis and
investigations in order to help bring violators to justice.
These technical skills combine with the judgments of the
Departments of Defense, Energy and State to make decisions on
licensing policy and applications for dual-use and other items,
and until now a handful of less sensitive military items. In
addition, BIS's law enforcement assets augment those of the
Department of Homeland Security and the Department of Justice
to investigate and prosecute violators criminally and
administratively, as well as to further inform the intelligence
community on policy and enforcement related activities.
The export control effort that we are engaging in is a
paradigm shift in how the U.S. Government implements U.S.
export controls. In the near term, as was just described, that
shift entails the transfer of tens of thousands of less
significant military items that don't warrant the controls of
the U.S. Munitions List to the more flexible controls of the
Commerce Control List, a list that allows for both
comprehensive embargoes and prohibitions as well as more
flexible license exceptions for trade with certain allies and
other countries.
Although all these changes can be made in accordance with
the notification provisions of Section 38(f) of the Arms Export
Control Act and the new legislation pertaining to satellites,
there are a number of authorizations that Congress could enact
in the short term to enhance the effectiveness of the U.S.
export control system. Of course, when we move beyond rewriting
the lists and merging them into one, legislation, as was just
described, will be needed to establish a single list as well as
a single licensing agency and a primary enforcement
coordination agency, the three final pieces of the fundamental
reform envisioned by the effort. We are committed to working
closely with Congress when we approach this phase of the
initiative.
In 2010, Congress granted BIS permanent law enforcement
authorities as part of the Comprehensive Iran Sanctions,
Accountability and Divestment Act of 2010, CISADA. However,
BIS's authorization for non-enforcement related EAR activities
under Section 109(d) of CISADA expires in 2013, later this
year. We believe this authorization should be extended and that
the confidentiality protections of Section 12(c) of the Export
Administration Act should be made permanent.
Additional resources would increase Commerce's operational
efficiencies and activities. The President's Fiscal Year 2014
budget requests $8.2 million for additional resources to
augment BIS enforcement capabilities. These include additional
analysts, special agents, and three new export control
officers, two of whom would be dedicated to conducting end-use
checks in STA-eligible countries, with the third expanding our
regional footprint in the Middle East.
Anyway, thank you very much for the opportunity to testify
on this topic. I would be pleased to answer any questions that
you have, and I now turn the floor over to my friend and
colleague, DTSA Director Jim Hursch.
[The prepared statement of Mr. Wolf follows:]
----------
STATEMENT OF MR. JAMES A. HURSCH, DIRECTOR, DEFENSE TECHNOLOGY
SECURITY ADMINISTRATION, U.S. DEPARTMENT OF DEFENSE
Mr. Hursch. Thank you, Mr. Chairman, Congressman Sherman
and members of the committee, for the opportunity to discuss
the Department of Defense's perspective on our work on export
control reform. I would like to highlight briefly why this
initiative is of such great importance to our national security
and therefore to the Department of Defense.
The hard work by the Departments of Defense, State,
Commerce and other agencies has moved us closer to President
Obama's vision of fundamentally reforming our export control
system--a vision that has been supported by Secretary Gates,
Secretary Panetta, and now Secretary Hagel. At the same time we
still have much work ahead to achieve a more transparent,
flexible, efficient and enforceable system based on the four
singles of reform: A single control agency, working with a
single control list, on a unified IT system, and supported by
coordinated enforcement activities. The Department of Defense
remains committed to this effort because it will enhance our
national security in several ways.
First and foremost, the goal of our revised controls is to
be clearer and better focused on protecting those items and
technologies that give our war fighters a military edge. We
should concentrate our efforts on the crown jewel technologies
to support our forces and protect our investments. For other
important items, we should be more willing to share with our
allies and partners, thus the second reason for DoD support.
In the new strategic environment, coupled with increasing
fiscal constraints, we rely more heavily on allies and partners
to take on more of the security burden. While the U.S. will
maintain the capabilities to defeat any adversary anytime and
anywhere, we will seldom go to war alone. This means it is in
our national interest to equip our partners and increase their
military capacity to meet mutual security needs. More flexible
licensing requirements for certain items means that our allies
will no longer have to wait for a license for an essential but
militarily insignificant spare part such as a hose or a switch.
Of course, we do recognize that with increased flexibility and
speed come compliance and enforcement needs.
Accordingly, the administration has established new
safeguards for these more flexible authorizations to mitigate
risks. We will continue to have a policy of denial for items
moved from the U.S. Munitions List to the Commerce Control List
600 Series, if destined to embargoed or sanctioned countries,
including China, including the re-export of any 600 Series item
integrated into a foreign system.
It is also important to note that export control reform
will promote the health of our defense industrial base. It will
help U.S. exporters, particularly our defense industry, to
compete more effectively. This will in turn provide incentive
for them to invest in advanced technologies that will enable
the U.S. military to maintain its superiority in the future.
The recent legislation, which returned the authority to
determine the controls of satellites and related items to the
President that was mentioned by both the chairman and the
ranking member, will be an example of how reform can provide an
important boost to a very important segment of our industrial
base.
We are moving forward to meet the reporting requirements
set forth in the legislation on that matter and to send the
draft regulations out soon for public comment. Rewriting our
controls is an important interim step toward a single control
list and will allow us to spend much less time discussing
commodity jurisdiction issues to determine whether an item
should be controlled on one list or another. The technology,
not the jurisdiction, should be our focus.
Again, the Defense Department is committed to fundamental
reform and strongly supports continued efforts to establish a
single control list and a single control agency. Our national
security will not be served if we stop halfway. We must ensure
that we protect those few critical technologies that are
critical to our U.S. military superiority and establish new
export control mechanisms that best serve the national security
objectives of this reform effort.
Thank you for the opportunity to speak to you today, and I
look forward to answering any questions you may have.
[The prepared statement of Mr. Hursch follows:]
----------
Chairman Royce. Well, the most immediate would come to mind
is as Mr. Sherman points out, we have had this dialogue for
many years now, and when do you intend to submit legislative
details of the proposal in terms of that new single licensing
agency?
Mr. Hursch. When we first have briefed this and in the task
force report, we set up a three-phase plan to do fundamental
export control reform. We are into phase 2 and working through
that with the revised lists that we have published for public
comment and will submit for congressional consideration through
the 38(f) process. We believe we need to get further down the
road with that before we submit legislation to enable that. And
we will work closely with you when that time comes.
Chairman Royce. Well, the Export Administration Act is
expired, so what you are using now, for a number of years now,
is emergency authority to carry out the Commerce Department's
basic licensing and enforcement activities, and hence, the
desire on our part either to work together with you in terms of
updating and reauthorizing or replacing that expired act.
And one of the things I was going to ask you is the impact
that the expiration may have had on enforcement efforts to
combat illegal technology transfer. With you operating under
emergency powers now and without us moving forward to actually
reauthorize the act or replace it or not having received the
submission of your details for your proposal, has it had an
impact on that?
Mr. Wolf. With respect to the enforcement of the existing
regulations it has had no impact. There is a significant number
of, over the years, civil and criminal actions that have been
taken and maintained to that end under the International
Emergency Economic Powers Act. As I described in my testimony
and in a little bit more detail in my prepared remarks, there
is a little bit more that can be done. But with respect to the
ability to bring and maintain criminal and civil enforcement
actions it hasn't had an impact.
Chairman Royce. Let me ask you just for a minute, should we
be able to get this proposal out there and get this done? What
would it mean for U.S. exporters as a consequence? What is the
payoff, if you could----
Mr. Wolf. Are you referring to the single enforcement
agency?
Chairman Royce. To get the single enforcement agency
through to the finish line, what then would that----
Mr. Wolf. Oh, the payoff for national security we have just
described very well on the panel, but with respect to exporters
the goal is a more efficient, more organized, more transparent
system than what we have now.
Chairman Royce. Maybe in dollar terms, if you could
quantify that for----
Mr. Wolf. Well, we don't have a dollar estimate with
respect to the particular economic benefit, but in the end it
will result in a dramatically more efficient system.
Chairman Royce. That is our hope, and I think that is why
we need to see the details of the proposal. I think there is
one item that I have long been concerned about and I guess I
will bring it up here. And that was Viktor Bout's ability,
frankly, his machinations around the globe to get his hands on
the transfer of military equipment. And a lot went into
bringing him to the bar of justice. Not only his capture, but
getting him extradited here was something we were very involved
in.
So we have got a situation where motivated by profit, and
we have a situation where arms brokers search for ways to
funnel arms to terrorist groups and to rebel groups, and many
of the items being proposed to move from the Munitions List to
the Commerce List have clear military value to a guy like Bout.
He would be very focused on that. Presently, pre-export checks
allow the government to identify risks of diversion or other
illicit activities.
With intelligence information gleaned from those checks,
the U.S. Government then stops U.S. companies from working with
these shady brokers. That has been our experience. If you could
explain the types of pre-export checks that military items
moved to the Commerce List will receive for companies seeking
to export to the 36 destinations judged to be of low risk, I
think once these goods get to Europe that is going to be the
test of your implementation of your enforcement. I just wanted
to get some feedback on that, Mr. Wolf.
Mr. Wolf. Sure. With respect to the use of the license
exception, Strategic Trade Authorization, a condition is that
all of the foreign parties have gone through the U.S.
Government licensing system before so that they have been
vetted, effectively, the same way that they would be vetted
now. In addition, there is a limited number, a listed group of
items, not all items that would warrant it, and it is only for
ultimate end use by the governments of those 36. To the extent
those and a series of other notification and certification
obligations can't be satisfied, then a license would be
required from the Commerce Department even to that group of 36.
Chairman Royce. Thank you, Mr. Wolf.
Mr. Sherman?
Mr. Sherman. Thank you, Mr. Chairman.
Mr. Wolf, China is clearly, or at least Chinese companies,
sending technology to Iran. Some of that technology is
American. Why haven't we designated China as a country of
diversion concern and applied the measures called for by Title
3 of CISADA?
Mr. Wolf. That is actually a State Department question.
Mr. Sherman. Okay, Mr. Kelly?
Mr. Kelly. I am sorry. Could I have the question again?
Mr. Sherman. Oh. Why haven't we designated China as a
country of diversion concern and applied the measures called
for in Title 3 of CISADA?
Mr. Kelly. Okay, I will take that question back. Thank you,
sir.
Mr. Sherman. Okay, we look forward to getting an answer for
the record. Mr. Kelly, I will----
Mr. Kelly. I am sorry. I will provide it now. For CISADA,
ODNI is required to provide an annual report that identifies
each country that the government in which the director
believes, based on information available to the director, is
allowing diversion of a country of goods, services and
technologies described in the act to Iranian end users. The
report is classified so we can't go into too much detail in
this forum, but what I can say is that the report hasn't yet
provided us with a case that would enable us to so designate
China or any other country to date. Thank you.
Mr. Sherman. Well, several Chinese companies have already
been sanctioned, so you have the specifics. And we know how we
are very reluctant to do anything that would upset our Chinese
friends. And that may be the real reason, but I am sure that
the official State Department reason will be provided in
greater depth for the record. As I said in my opening
statement, one concern I have is that we will use this
relaxation not to export goods but to export tools, dies,
technology and offshore production.
Without objection, I would like to enter into the record a
letter from the International Association of Machinists and
Aerospace Workers where they hope that there is a comprehensive
review of how the changes, including transfers of items to the
CCL, will impact U.S. employment and suppliers. When we export
technology rather than products, we lose the jobs and we build
the technological base of those not subject to the control of
you three gentlemen.
What steps are we taking so that we review the impact of
moving a particular item from the State Department list to the
Commerce List to see whether that will have the effect of
allowing the export of blueprints, tools and dies technology?
Mr. Wolf. That is a very good question. As I said in my
introduction, one of the national security justifications for
the entire effort is to reduce the current incentives that
exist in the system to design out to avoid U.S. origin content.
As someone working in this area for over 20 years, I have seen
this firsthand.
Mr. Sherman. Mr. Wolf, I think I may need to rephrase the
question. Many items have already been transferred to the
Commerce List.
Mr. Wolf. Yes.
Mr. Sherman. The effect of that is to make it easier to
export the technology and to do the production abroad. What has
been done in this review process, moving an item from one list
to another to see whether that will lead to the export of goods
or whether that will lead to the export of technology? Mr.
Kelly, do you have a response?
Mr. Kelly. Sure. I would just say that the whole rationale
behind this reform effort is to enhance our national security.
And an important part of that is our defense industrial base.
Mr. Sherman. But if I were at random to identify an item
that has been moved from one list to another, would you be able
to assure me that that liberalization has the effect of making
it easier to export goods and will not result or is not likely
to result in the export of technology and the offshoring of
production?
Mr. Kelly. Well, sir, the basis for transferring from USML
to CCL was asking the following question: Does this item
contribute to preserving U.S. military advantage? And that was
the basis of our decision. And for items that are important to
preserving U.S. military advantage, we have kept them on the
USML.
Mr. Sherman. I would hope you add something else to your
criteria and that is, is the action you're about to take likely
to lead to offshoring of production, the decline of the U.S.
industrial base, the decline of U.S. jobs, and an increase in
the industrial technology base of other countries? If you leave
that out of the decision making process, what looks like an
effort to enhance America's position will actually hurt it. I
ask for unanimous consent to put this letter in the record.
Chairman Royce. Without objection, the letter from the
Association of Machinists and Aerospace Workers as well as the
sanctioned companies mentioned in China will be entered into
the record.
Mr. Sherman. Thank you, Mr. Chairman. I yield back.
Chairman Royce. We go now to Ileana Ros-Lehtinen.
Ms. Ros-Lehtinen. Thank you so much, Mr. Chairman, and
thank you to the panelists for excellent testimony. I have
consistently been supportive of making common sense
improvements in our export control system as long as it
enhances our national security and proper procedures are in
place to avoid our sensitive technologies from falling into the
wrong hands. At a time when our economy is struggling, it is
imperative that necessary reforms for our export control system
are undertaken in order to help American businesses create jobs
and grow our economy.
Has the administration undertaken a detailed economic and
regulatory analysis of the impact of these rules on small
businesses before they are implemented, and if so, what were
the results? Last Congress, I introduced the Export
Administration Renewal Act which would have allowed for the
removal of the least sensitive items from the U.S. Munitions
List, because we can all agree that generic items like bolts,
nuts and wires, as you had testified, should not be regulated
in the same manner as truly sensitive defense articles.
Streamlining this process would provide U.S. manufacturers
immediate benefits, while at the same time would allow for
quick common sense reform which we could also all agree on.
That the initiative could be implemented in a much timelier
manner than some of the reforms set forth by the administration
while still ensuring that effort is consistent with our
national security interests. However, this is not the path that
the administration has chosen. Instead, it has opted to act
unilaterally in reforming export controls, and the scope of its
agenda is so sweeping and so complex in its implementation that
it raises several concerns.
Two of my main concerns with the administration's approach
have been enforcement and oversight. It has taken the
administration several years now just to get to our current
state. For example, the administration has proposed to transfer
military end-use items, thousands of other sensitive components
and parts, and even software code to the Commerce Munitions
List under the Commerce Control List. Such a proposal may
eliminate congressional notification requirements for the
export or retransfer of such defense articles, and that is of
grave concern to me because congressional notification must be
kept. And this leaves these items eligible for a broad new
license exemption to over 36 friendly countries, but it fails
to include key safeguard measures such as end-use monitoring
programs that could keep these items from falling into the
wrong hands.
So what protocols and safeguards are in place to ensure
that third-party transfers, front companies, or foreign
intelligence entities are not using these country exemptions
for defense articles? This broad license exemption also raises
the possibility of actually making it easier for regimes such
as China, North Korea, and Iran to obtain U.S. parts and
components related to fighter jets, tactical airlift,
helicopters, tanks, and satellites that can pose an unintended
threat to our national security.
Given this reality, I am concerned about the lack of
government oversight over the military items that have been
eliminated from both the U.S. Munitions List and the Commerce
Control List. As you are aware, Singapore, and Malaysia, and
even China, have emerged as transshipment hubs for the export
of Commerce-controlled goods to Iran. Now that Commerce will
also license munitions, what will the administration do to
ensure that these items do not reach those irresponsible
governments and do not end up in countries like Iran and North
Korea?
So thank you, gentlemen, if you could answer in written
form the questions I have posed, but any comments you care to
make now would be fine.
Mr. Wolf. Sure. I am happy to, thank you. A whole series of
questions, I will try to touch on many of them. In the big
picture, one of the primary goals of the effort is to allow us,
in fact, to focus more of our resources not so much on the
transactions that are of less concern with respect to those for
ultimate end use by the governments of the 36 countries that
you mentioned but with respect to the diversions and reexports
that are of concern. So in the main that is at the core of what
we are dealing with.
With respect to the congressional notification question, we
have written into our regulation that the major defense
equipment that would move, to the extent there is any, to the
Commerce Control List would have congressional notification
obligations attached to it.
Ms. Ros-Lehtinen. Thank you.
Mr. Wolf. Sure.
Ms. Ros-Lehtinen. And I will ask for the rest of the
questions to be in written form, and I will give you the
questions so you could respond.
Mr. Wolf. Sure.
Ms. Ros-Lehtinen. Thank you, Mr. Chairman.
Chairman Royce. We go now to Mr. Eni Faleomavaega from
American Samoa.
Mr. Faleomavaega. Thank you, Mr. Chairman. And I want to
thank members of the panel for their testimony this morning,
and deeply appreciate your services to our nation.
I suppose the two fundamental principles underlying the
whole question of export control system is one based on
national security, and then on the other hand export
competitiveness. And it is my understanding we are currently
the number one exporter of military equipment in the world.
Could you give me some idea of how much, what is the dollar
value of the amount of military equipment that we sell to the
world at this point in time? I think $35 billion maybe, or
maybe I am overestimating.
Mr. Hursch. Sir, I don't have the very latest number, but
it has been in that neighborhood.
Mr. Faleomavaega. Can you provide that for the record?
Mr. Hursch. I will provide that.
Mr. Faleomavaega. And probably also the top five exporters
of military equipment, I would be very curious. I suppose China
and Russia----
Mr. Hursch. I believe it is China, Russia----
Mr. Faleomavaega [continuing]. And our European allies
perhaps.
Mr. Hursch [continuing]. And Israel, yes.
Mr. Faleomavaega. Okay. We currently have what, 11 aircraft
carriers? And you are talking about--which the bottom line is
that understandably competitive as economically, what does this
mean in terms of jobs for the American people? When you are
looking at, say, we export $35 billion-plus worth of military,
what does this mean in terms of jobs to our fellow Americans?
Mr. Hursch. I don't have the numbers on that with me, but
we can certainly get it----
Mr. Faleomavaega. Can you provide that for the record?
Mr. Hursch. Yes.
Mr. Faleomavaega. Did we not just recently sign an
agreement selling some $10 billion worth of military equipment
to our allies in the Middle East? I believe it was to Israel--
--
Mr. Hursch. Yes.
Mr. Faleomavaega [continuing]. Saudi Arabia and the United
Arab Emirates. Do you happen to have a listing in terms of
exactly what are some of these toys that we provide for our----
Mr. Hursch. Well, I believe those will all be notified by
the Department of State at the appropriate time, sir.
Mr. Faleomavaega. And touching on the fact that it is in
our national security interests as well as economic
competitiveness, do our European allies compete in this effort
in selling this military equipment to the Middle East? France
maybe?
Chairman Royce. Might I suggest, Mr. Kelly, would you hit
the button?
Mr. Kelly. Yes, Congressman, the economic stakes indeed are
vast. It is very important for U.S. companies all over the
United States. Just last year we had our best year in terms of
defense sale exports ever. Just in the foreign military sales
programs that we administer, last year we had sales of
approximately $70 billion, which is by far the most that we
have ever achieved. So the trend line is in the right path. Our
partners all over the world want U.S. equipment because it is
the best military equipment that is available and it hugely
empowers us to work with our allies better in the battlefield
as well because we are all using the same equipment.
I would just add that these sales create excellent well
paying jobs all over the country, and so the stakes are very
well. It is a great credit to U.S. companies, I think, that
they have performed so well over the last couple of years even
as they continue to have to deal with the system that has
developed in export controls over the past few years. It is the
administration's estimation that once we get through this
process, our defense exporters are going to be more competitive
than ever.
Mr. Faleomavaega. More competitive than ever? Okay. I have
a different twist in terms of trying to understand the issues.
You know when our country was attacked by these 19 terrorists
on September 11th, it is my understanding there were 16 Federal
agencies all had subdivisions on intelligence and the process
of filtering information, and by the time it got to the
President a lot of cherry picking went into the process. And
you get to wondering how accurate, how well are we monitoring a
system so that we can get a sense of accuracy--oh man, I only
have 7 seconds left.
Thank you, Mr. Chairman. I would love to follow up with
some written questions on this end. Thank you, Mr. Chairman.
Chairman Royce. We will go now to Mr. Chris Smith of New
Jersey.
Mr. Smith. Mr. Chairman, thank you for convening this very
important hearing. On February 15th, 2006, I chaired a hearing
in this room. The first in a series on gross violations of
global online freedom especially in China, and on the selling
and harmful transfer of weapons of mass surveillance to
dictatorships' secret police that systematically employ torture
and repressive militaries. Representatives from Google,
Microsoft, Yahoo!, and Cisco testified, and it was further
revealed at that hearing that Cisco had greatly enhanced the
command and control capabilities of the secret police in China,
enabling them to hunt down human rights activists, religious
believers, and democracy activists as well.
So since 2006, I have introduced the Global Online Freedom
Act endorsed by a virtual who's who of human rights
organizations from Freedom House to Human Rights Watch,
Reporters Without Borders, Amnesty International, access, and
12 other human rights organizations, and by Yahoo!, and others
have shown a great deal of interest on the corporate side as
well. The Global Online Freedom Act addresses what Eric Schmidt
calls the ``dark side of the digital revolution.'' The bill
would prohibit the export of hardware or software that can be
used for surveillance tracking and blocking to the governments
of Internet-restricting countries. Current export control laws
do not, as you know, take into account the human rights impact
of these exports, and therefore do not create any incentive for
U.S. companies to evaluate their role in assisting repressive
regimes.
The Global Online Freedom Act will not only help stop the
sale of these items to repressive governments, but will create
an important foreign policy stance for the United States that
will help ensure that dissidents abroad know that we are on
their side, tangibly and for real, and that the U.S. businesses
are not either wittingly or unwittingly profiting from this
repression. This export control law is long overdue and
thoroughly consistent with the approach Congress has taken, for
example, in restricting certain exports for crime control
equipment to the People's Republic of China. It seems to me to
make no sense for us to allow U.S. companies to sell
technologies of repression to dictators, or enable it, then
turn around and have to spend millions of dollars to develop
and deploy circumvention tools and other technologies to help
protect dissidents.
So my question is--I hope you have seen the bill; it has
been around; we have pushed it for a long time; we have had
many hearings on it--are you in any position to offer a view as
to whether or not you could support the Global Online Freedom
Act? And your thoughts on these weapons of mass surveillance.
Again, they are modern tools used to hunt down dissidents and
to jail them and to torture them.
Mr. Kelly. Congressman Smith, first of all, thank you very
much for your support for export control reform. I am not at
liberty to express an opinion on the bill. What I will say is
that our arms transfer policy continues to be governed by our
Conventional Arms Transfer Policy which has been in effect for
many years, more than a decade, and it requires us to consider
a number of different factors as we decide whether to approve
the export of conventional arms and defense related exports.
And those considerations include a host of foreign policy
considerations that include human rights, intellectual property
rights and considerations like that.
Mr. Smith. I would ask you if you--Mr. Wolf?
Mr. Wolf. Yes, we haven't as an administration, I believe,
taken a position, but from the export control angle it is a
significant issue that we are spending a significant amount of
time internally researching and thinking through without
creating unintended consequences. So I don't have an answer for
you yet, but I can guarantee that a significant amount of time
is being spent internally trying to think through the very
issues that you set out from an export control perspective.
Mr. Smith. I certainly do appreciate that. If you could,
H.R. 491, take a look at it, and if you can convey at least a
view back to the committee for inclusion in our record, I would
appreciate it.
Mr. Wolf. Understood.
Mr. Smith. And I thank you for that. And I yield back the
balance. And Mr. Chairman, I do hope that our committee could
take a good long look at this legislation as well and mark it
up. I have been pushing it for 7 years. We got it out of
subcommittee one year. There has been some opposition to it,
but I think we were more than willing to work with the
corporations to try to find a way that is very corporate
friendly but also human rights friendly. There is a way of
threading that needle, and I think this legislation in its most
current form does precisely that.
Chairman Royce. And we will take a look at that, Mr. Smith.
Mr. Smith. I appreciate that.
Chairman Royce. And we go now to Mr. Gerry Connolly of
Virginia.
Mr. Connolly. Thank you, Mr. Chairman, and welcome to the
panel. I begin with a different premise than some of my
friends. I actually believe we need to blow apart the current
system. It doesn't work. I believe that the bottom line for us
ought to be efficacy. If you can control sensitive information,
great. But the facts are that ubiquity of knowledge and
technology today make that a very problematic proposition, and
we are wasting time and we are damaging U.S. industry when we
attempt to control something we can't.
And the commercial satellite industry is a classic case
study, where for a normal cause to deny a particular country
sensitive technology we handed over the industry to foreign
competition. They got it anyhow, and we allowed an indigenous
industry to grow up with a competitor, damaging jobs here and
our industry here, and the goal was, in fact, foiled. Would
that be a fair characterization in your opinion, Mr. Wolf?
Mr. Wolf. No, I don't think so. I think because the rules
do still have a very fundamental impact----
Mr. Connolly. No, wait. I am sorry. My question is, is that
a fair characterization about the commercial satellite
industry?
Mr. Wolf. Oh. Well, as described in the report that both
the Departments of Defense and State provided last year, yes.
The controls that were imposed in the late 1990s had a
significant negative impact on the U.S. satellite industry.
Mr. Connolly. Thank you. My staff has just handed out to
you three so you can see it, because I know it is going to be
hard, this is a flow chart of what you have to go through on
the U.S. Munitions List process for export practices. Is this
an accurate depiction of the flow chart?
[The information referred to follows:]
Mr. Kelly. I think it is accurate to say that the status
quo is very complex, and that is why we are working so hard to
try to reflect that.
Mr. Connolly. Well, I am kind of stuck in the status quo
before we get to what are we doing to try to improve it. So the
current system is spread across seven primary departments, is
that accurate? Somebody, yes?
Mr. Wolf. Yes.
Mr. Connolly. Yes. There are three primary export licensing
agencies. Is that correct?
Mr. Wolf. Yes.
Mr. Connolly. And there are two different lists.
Mr. Wolf. At least.
Mr. Connolly. At least. And somebody has to make a
qualitative decision, which list do I want to go under.
Mr. Wolf. Correct.
Mr. Connolly. Both at your end and at the, say, the
industry, the corporate end. Is that correct?
Mr. Wolf. Correct.
Mr. Connolly. Have any of you--I did, so in truth of
advertising--any of you taken a test to see if you understand
compliance requirements on export controls?
Mr. Wolf. Sir, I have practiced in this area for 20 years,
so yes, many tests, and on a regular----
Mr. Connolly. You have taken a test?
Mr. Wolf. On a regular and daily basis, yes.
Mr. Connolly. Okay, so you have been doing it for 20 years.
Mr. Wolf. Yes.
Mr. Connolly. But if you are sort of doing a lot of other
things in a corporate world this is not necessarily your
expertise, but nonetheless you have to pass a test to make sure
you can show you understand the rules of engagement. Would you
concede they are fairly complex and sometimes subjective?
Mr. Wolf. Yes, they are complex, and we are trying to move
away from that. And yes, they are subjective, and we are trying
to move away from that as well with a straightforward list.
Mr. Connolly. Well, tell me--and I applaud that. I think
you have really made some progress. But I guess what I want to
hear is simplicity, clarity and, frankly, focus.
Mr. Wolf. Right.
Mr. Connolly. So it is not some Cold War where we are going
to control everything because we can when we know we can't. So
what are we focusing on in the efforts you are making, which I
do applaud, I think they are making progress, but what are you
focused on? What is the ultimate achievement here in terms of
what is doable? And are we going to continue to control things
like rubber hoses and nuts and bolts that we know we can't
control, and I am not sure why we waste our time doing it?
Mr. Wolf. Well, at the core of the effort is the goal to
spend dramatically less time and attention with respect to the
less significant items to countries of less concern, primarily
the group of 36 NATO and other plus allies, so that we can
focus our resources more on the transfers of more sensitive
items for transfers to other countries.
With respect to the complexity point, inevitably there will
be some degree of complexity with any compliance regime when
you have to control everything always, everywhere all the time
versus controlling nothing anywhere any time.
And when you try to lay out different degrees of control
and sensitivity with respect to different items of different
concern to different groups of countries, inevitably complexity
results. But what we are trying to do with this effort is to
try to make those rules more objective and standardized and
common across those multiple regimes that you just referred to.
Mr. Connolly. A laudable goal, and I urge you on in your
efforts. But I plead with you, the bottom line should be
efficacy. One might feel good about a whole bunch of rules and
regulations to control X, but if you know that X is free-
flowing and you can't control it, give it up. Thank you so
much. Thank you, Mr. Chairman.
Chairman Royce. Thank you. We go now to Mr. Rohrabacher of
California.
Mr. Rohrabacher. Thank you very much, Mr. Chairman, and
thank you for your leadership you personally have shown on this
and so many other vital issues. Let us not miss the bottom line
in all this, or I should say the central issue and what has
brought us together. It is that business companies,
international corporations or even major American corporations
cannot be trusted to make economic decisions for their company
and take into consideration the national security of our
country. That can't be expected.
The American people look at the business community and see
the people going into their country clubs and their churches,
et cetera, and expect that maybe these people love their
country so much that they wouldn't do something to make money
that would hurt us and put us in jeopardy. That is just not the
case, and we have seen it time and again. Businessmen are
overwhelmed with the idea that their corporation has to have a
20 percent profit instead of a 10-percent profit, and if it
means putting us in jeopardy, America a little more in
jeopardy, they will do it in a heartbeat.
One example of this could be the National Foreign Trade
Council which has long lobbied us against sanctions that we
have placed on Iran and China and among other adversaries to
our country, that in its ratings last year the National Foreign
Trade Council gave those of us who voted for sanctions on Iran,
no less, on Iran, we got a negative mark from them for voting
for sanctions on Iran. Now I am sure my friend Mr. Connolly
does not think that was a bad vote. I am sure you were very
supportive of our efforts against Iran, but we need to take
into consideration that our business community does things like
this.
Another example perhaps is one that we have just heard
discussed, was the satellites. I originally was supportive and
got talked into the idea that our satellite manufacturers
should have more freedom to deal with the Chinese. And I was
assured by the administration, the Clinton administration, that
there would be so many protections that no transfer of
technology would happen that I went ahead and supported it.
Well, within a short period of time we found out that all these
safeguards amounted to nothing. As soon as we permitted it, the
businesses moved forward as fast as they could, and what was
the result? The result was long-range Chinese missiles were
made much more reliable, and then after our help were MIRV and
could carry more than one payload. So they would hit more than
one city if they decided to attack the United States.
Well, we can't let that happen again. And let us note that
the reason why it has taken so long for you to be here and us
discussing this today is because for over a decade the business
community has refused to put countries that may be harmful to
the United States and accept that they should be looked at
differently than those countries like the democratic countries
they deal with--Belgium, Brazil, whatever country. I am happy
to see today that we, indeed, as we shift the satellite issue
from the State Department Munitions List over to the Commerce
Department that these new rules in the Commerce--and you will
please correct me, Mr. Wolf, if I am wrong--that there are yes,
there will be fewer rules on our satellite industry, except for
cases like China and Iran and other countries that are deemed
potential adversaries of the United States. Is that correct?
Mr. Wolf. That is correct.
Mr.Rohrabacher. All right. And let us not minimize what you
just said. It took us 10 years to get to that point, because
fair trade and free trade with all the rest of these countries
was being held hostage by our business community so that they
could deal with China and make a huge profit in dealing, short
term profit in dealing with China. The last thing this country
needs is to help China build an aerospace industry to compete
with our aerospace industry. And so we need to make sure that
our technology that is going over there isn't going to come
back and hurt us not only with military planes but also put our
people out of work as Mr. Sherman outlined.
Thank you very much for holding this hearing. And I
appreciate your testimony today. And this is a very serious
issue and I can see that you guys have done your homework.
Thank you.
Mr. Hursch. Mr. Congressman, if I could just respond. One
of the few items that is truly seared upon my memory from my
experience in this position was sitting here 2 years ago and
listening to you talk about China and the satellites. And as
you mentioned, we took very careful efforts in the 1248 report
that was finally issued and in the legislation to take account
of those. I think you will find, when you look at the
regulations for what we have just finished notification to
Congress on that, we have also taken very careful work on China
and other prohibited countries. And I think you will see that
we have done a lot to do risk mitigation in that area.
Mr.Rohrabacher. Yes, sir. Thank you very much. As I say,
you did your homework.
Chairman Royce. Mr. Cicilline of Rhode Island?
Mr. Cicilline. Thank you, Mr. Chairman, and thank you to
members of the panel. I am interested in receiving from you in
written form because I want to focus on another area. But first
I want to acknowledge and applaud the administration's
interagency effort to reform our export control system, which
began with the President's Export Control Reform Initiative,
with the goal of making it more efficient for all the parties
and to eliminate duplication within the system. I think the
implications for America's competitiveness and securing our
national security interests around the world are obvious.
I am very interested, some estimates say that tens of
thousands maybe even hundreds of thousands of items will be
transferred to the Commerce Control List. And so I am
interested to know how will the Department of Commerce decide
if an item is eligible for a license exemption into one or more
of the 36 friendly countries? Two, how we will ensure that the
items that are going to this list are going to the correct
government and not being diverted for some improper use, and
what is the system for review of that and examination of it?
And three, are there, as there are under the Arms Export
Control Act, sufficient sanctions for a violation of that by
improperly diverting materials or items by, for example,
terminating future sales? So I would like some detail on the
kind of standard that is used, what the review process is to be
sure that the end use is as described, and what is the sanction
if there is a violation.
But I would like to use my time today to really focus on
another area and that is, really, advocacy. In my district in
Rhode Island as many of our defense companies are looking to
expand their business, really, to respond to declines in
defense domestic spending, international sales are becoming
even more important and really critical not only to the
companies but to the job growth in my state. These are sales
which are essential to maintain the positions they have, to
grow jobs, and to maintain a steady flow of work throughout the
supply chain especially for small- and medium-sized businesses.
And I would really like to encourage the administration to
increase its efforts when appropriate to advocate for these
defense sales internationally, and I am particularly
interested, Mr. Wolf, in understanding what you understand to
be the timeline. My understanding is the Department of Commerce
has the responsibility for approving advocacy for defense
sales. What is the current time period under which that occurs?
What is the average time for approving request for advocacy of
defense sales? And also do you anticipate as a result of
sequestration whether or not that will have some impact on
this? Because very often this time is critical to a company.
And then, Mr. Kelly, I would like to ask you, from where
you sit are there recommendations that you can make for
improving the process to advocate specifically for defense
sales? This is important to my district, important to Rhode
Island's economy, and while I want the review to be done
properly, I am anxious to know how we might accelerate that
process in the appropriate circumstances.
Mr. Wolf. Sure. With respect to the defense trade advocacy,
that is another part of the Commerce Department and I will have
to get back to you with respect to what the actual timelines
are on that topic. With respect to the second question, I think
it was directed at Mr. Kelly?
Mr. Cicilline. Yes.
Mr. Wolf. Okay.
Mr. Kelly. Thank you, Congressman. I am very happy to
respond to that issue. I think all of us at the State
Department, indeed, all through government understand the
critical importance of advocacy on behalf of our defense
producers and exporters. And I will say as somebody who has
been involved in this field for many decades, now back in
Washington at the Political-Military Bureau, that it is an
issue that has the attention of every top level official who is
working on foreign policy throughout the government, including
the top officials at the State Department who are certainly
engaged in talking to our partners, especially from the
countries that are our biggest customers, in advocating on
behalf of our companies and doing everything we can to make
sure that these sales go through, again taking into
consideration all the other factors that we are required to
consider in the Conventional Arms Transfer Policy.
At the same time, many of us not just in the State
Department but across government try to participate in defense
sales shows all over the world. I recently traveled to the UAE
where I participated in the biggest defense sales conference in
that region, and had bilaterals with a dozen countries where I
pressed for them to buy American. And that is something that we
are doing every day on basically every continent in the world
and we take it very, very seriously, and we are constantly
thinking of how we can do better.
But some of the issues that are critically important to our
competitiveness relate to structural issues like the export
control regime, and that is why we have spent thousands of man-
hours and lots of consultations with this committee and with
others in trying to enhance our system so that our defense
industry is going to become even more competitive than they are
already. Thank you.
Mr. Cicilline. I thank you, Mr. Chairman. I yield back.
Chairman Royce. We go to Mr. Chabot, Steve Chabot from
Ohio.
Mr. Chabot. Thank you, Mr. Chairman. In November 2010, the
U.S. committed to support India's full membership in the four
multilateral export control regimes--the Nuclear Suppliers
Group, the Missile Technology Control Regime, the Australia
Group for chemical and biological controls, and the Wassenaar
Arrangement, which was for dual-use and conventional arms
control in a phased manner. For its part, the Government of
India committed to taking steps toward the full adoption of the
regimes' export control requirements. What progress has been
made by India and the United States in advancing this important
matter?
Mr. Kelly. Okay, thank you for your question, Congressman.
We are working very closely with India on a number of different
issues including on these four regimes. They are working
intensively on their adherence to all these regimes. We are
working and collaborating with them. We think it is very
important that India be brought on and participate in these. We
think that it is going to enhance the international strength of
all these regimes, and it is a high priority for us.
I would just add that we are engaged with India in
intensive conversations on a whole range of defense issues. I
just traveled to India recently. It is my second trip in the
past year with a Department of Defense delegation in which we
engaged with our Indian friends in talking about how we can
bring our defense relationship to another level. Thank you.
Mr. Chabot. Thank you very much. The new Secretary of State
was before this committee about a week ago, and received a lot
of questions. There were so many things going on. I raised an
issue, but he really didn't have the time to answer it to any
degree, so I would like to raise it again. It has been more
than a decade since President Bush back in 2001 announced that
Washington was willing to sell Taiwan eight diesel electric
submarines at a cost of about $12 billion. The official
position of Taiwan's Ministry of National Defense is that it
remains committed to procuring those submarines from the U.S.
Of course, the U.S. stopped making diesel submarines quite some
time ago, so the sale has been stalled and we work with some of
our European partners on this issue as well, and that hasn't
come to anything yet.
Could you advise what the current status of those
submarines are and whether the administration is planning to
get this moving again? I am the chair of the Asia and the
Pacific Subcommittee. I am going to be in Asia next week, in
Taiwan, Korea, and Japan. So I am sure that the Taiwanese are
going to raise this issue and I would like to have an answer
for them.
Mr. Kelly. Yes, sir. If I may, I would like to take that
back and we will give you an update. I will say that as is
consistent with the Taiwan Relations Act we are in constant
communication with Taiwan about their defense requirements, and
that dialogue continues and is vigorous.
Mr. Chabot. Thank you very much. Finally, if you could get
us some additional information before Saturday it would be
particularly helpful because that is when we are leaving. If it
is a little later than that, you can get it to my office and
they can get it back to me.
I will tell you what, instead of asking a third question
which is going to take some time, Mr. Chairman, I will yield
back at this time.
Chairman Royce. I thank you, Mr. Chabot. We will go now to
Mr. Deutch of Florida.
Mr. Deutch. Thank you, Mr. Chairman. I wanted to follow up
on a question I think the chairman asked originally and
Congressman Sherman asked as well. The fact sheet that we had
received says that these reforms will make it harder for
countries like Iran to acquire arms, but it doesn't really
explain why. And what I am trying to understand is, if we know
that the Iranians, for example, and other countries are
actively seeking to acquire U.S. arms, defense items,
technology, manufacturing equipment, et cetera, and we have a
reform proposal that transfers defense items from the Munitions
List to the Commerce Control List, what impact does that
transfer have and why does it make it harder and not easier for
them, ultimately, to acquire those sorts of arms?
Mr. Wolf. Thank you, very good question. There are two
primary ways. One, the Commerce Department is adding its
enforcement and investigative resources into the mix with
respect to such items, so we are taking the status quo of all
of the law enforcement and intelligence resources and adding
more to it, and that is one way. And the second way goes to the
fundamental nature of the reform effort in that we would be
spending less of our time with respect to trade for ultimate
end use by governments of NATO-plus countries, and taking more
of those resources that we spend today in monitoring and
licensing and approving and reviewing those items and diverting
them toward enforcement and follow-up on the transactions of
concern that you just mentioned.
Mr. Deutch. Okay. Let me ask you, you said it was generally
off point then to talk about the way things work today, not in
the enforcement area--well, let us talk about export control
agents for a second. Mr. Wolf, that is your area as well. For
those of us who don't think about these issues every day, tell
me what an export control agent does.
Mr. Wolf. It is all the same things another law enforcement
officer does in terms of investigating, following up on leads,
reviewing intelligence, and then participating in the
prosecution of those that have violated U.S. export control.
Mr. Deutch. And where are our export control agents outside
of this country?
Mr. Wolf. There are seven outside the United States.
Mr. Deutch. And where are they?
Mr. Wolf. Just a moment. I have that list.
Mr. Deutch. And as you look, I ask because at a hearing we
had 2 years ago I asked the question and was told then that we
had--well, I will let you tell me the numbers. But I was
particularly concerned about the numbers that we had in the UAE
and then China. Very sensitive areas, very few export control
agents.
Mr. Wolf. Well, in addition to the resources that we would
have working through our Embassies----
Mr. Deutch. Yes, but how many do we have though?
Mr. Wolf. We have one in the United Arab Emirates,
Singapore, Hong Kong, India, Russia, and two in China.
Mr. Deutch. Two in China, one in each of those other
places?
Mr. Wolf. Correct.
Mr. Deutch. And then getting back to my original question,
here is my concern. We have two export control agents in all of
China.
Mr. Wolf. Yes.
Mr. Deutch. And we have one in the UAE. And we are making
this pretty significant change under this reform proposal which
you have, if I understood correctly, assured us is going to not
make it easier for countries like Iran to acquire U.S. arms
because we will have more resources to commit to enforcement?
Mr. Wolf. We are adding those resources plus all of the
other resources of the Commerce Department on top of that which
exists today such as ICE, FBI, Homeland Security, which are
spread out in a 140 other countries. So it is not only those
seven people that are responsible for maintaining the
enforcement and the investigations of----
Mr. Deutch. Can you just tell me then, how does the
export--oh, we are not going to have enough time to do this in
detail, but just generally, the export control agent, the role
that that person plays is what at the outset, and when would
any of those other agencies come into play?
Mr. Wolf. Those agents are dedicated full time to nothing
but export controls. They will facilitate coordination with
ICE, FBI, Homeland Security and other resources around the
world in order to be able to monitor, follow up, do post
shipment verifications, do Blue Lantern checks, do a variety of
audits of where items are going after they have been shipped.
The advantage of these people being added to the mix is that
they are focused 100 percent of the time on the export control
topic.
Mr. Deutch. Who are we adding?
Mr. Wolf. We are adding the Commerce Department's export
enforcement authorities on top of those that already exist with
respect to the current system.
Mr. Deutch. And so my goal like yours, one of the goals
here, I think, or certainly part of the overall goal we are
trying to achieve is to ensure that we do everything we can to
prevent U.S. arms from flowing into the hands of those, into
those countries where they don't belong and we don't want them.
Shouldn't part of this discussion include increasing the number
of export control agents? Won't that make this easier? Instead
of saying they are going to be able to continue to work with
all of these other agencies, they are the only ones doing this
full time and as we make this major change, shouldn't part of
that also require an increase of those export control agents?
Mr. Wolf. Indeed. And, in fact, in the President's Fiscal
Year 2014 budget we have asked for an increase in the number of
agents for many of the same reasons that you just----
Mr. Deutch. How many?
Mr. Wolf. Three.
Mr. Deutch. Okay, and where are you asking that they be
placed?
Mr. Wolf. Turkey, Europe, and another one in the United
Arab Emirates.
Mr. Deutch. Okay, we will talk after. And if you could just
think about how, particularly in China, if this reform were to
be enacted, how those two export control agents will have
enough time to do what they do every day already and coordinate
all of their activities with all of these other agencies,
perhaps we can follow up in my office on that. And I appreciate
it. I yield back. Thanks, Mr. Chairman.
Chairman Royce. Thank you. We go to Mr. Randy Weber of
Texas.
Mr. Weber. Thank you, Mr. Chairman. Gosh, I have got a lot
of questions for you guys. I don't know who to aim them at. Oh,
that might be a bad term when we are talking about weaponry,
aim. How many licensed exporters are there would you guess? Mr.
Wolf, maybe?
Mr. Wolf. Well, in terms of numbers of licenses, I can give
you, there were over 80,000 licenses processed by the State
Department last year, and approximately 25,000 individual
licenses from the Commerce Department. In terms of how many
individual companies, there were----
Mr. Kelly. 13,000.
Mr. Weber. 13,000? What is the process if a licensee
develops a new super weapon, what is the process whereby we get
notified that this weapon we want to maintain control over and
we don't want it exported, how do we get that notification?
Mr. Hursch. Well, when the exporter--it depends a little
bit where the weapon you are talking about is coming from. If
it is something that the industry has developed on their own,
then they look at the list, determine where on the list it
falls and tell us that they are going to export. If it
something that they have developed in coordination with the
Department of Defense, then we are likely aware of it in other
ways.
Mr. Weber. Okay, so you are already going to know. Is it a
problem for patent rights and proprietary information that they
have to come to you and tell you that they are thinking about
developing this, especially if it is not with the Department of
Defense?
Mr. Hursch. We are very, very careful when we deal with
individual companies, and I believe that is true across the
government, to make sure that we protect their proprietary
information when it is identified to us as such.
Mr. Weber. Okay. Are there ways of tracking? In other
words, if a licensee, an exporter sends an export to a country
that is prohibited, how do you track that?
Mr. Wolf. Well, one, if it is prohibited such as with
respect to 600 Series items destined to China, a license
wouldn't have been granted in the first place. So by definition
it would have been illegal. And then we use all the standard
investigative tools in terms of intelligence, resources, tips
from other countries, tips from companies, follow-on checks,
post shipment checks, post shipment verifications. There is a
wide range of methods in order to be able to identify whether
an item is being transshipped from one country to another in
violation of U.S. export controls.
Mr. Weber. What is the most recent example you would give
us?
Mr. Wolf. There was a very large action taken with respect
to a company operating out of Texas, which is a pending matter
that the Justice Department has described in a press release
and a series of indictments, of transferring items that
required authorization to ship from the United States through a
variety of different sources around the world into Russia, all
activities which required a license that didn't exist. And we
can provide you more information about it, but it was a rather
substantial interagency exercise to monitor and track and
follow up on illegal transfers.
Mr. Weber. What is the penalty for that?
Mr. Wolf. There are both administrative penalties in terms
of debarment, the inability to do business, the inability to
ship from the United States, in addition to criminal penalties,
up to 10 years in jail and significant dollar penalties as
well. The dollar and criminal penalties, by the way, have been
harmonized between the State Department and the Commerce
Department.
Mr. Weber. Of course, you could argue the damage was
already done because they already have that technology.
Mr. Wolf. Understood. But the point of the threat of
prosecution is to be able to compel compliance and to stop that
once it is discovered and once it does begin to occur.
Mr. Weber. Okay. When that happens, and forgive me, these
are probably questions that you guys know and I don't have a
clue on. When somebody sells technology abroad whether it is to
Russia or China, whoever, do they service that equipment? Do
they do follow-up service on it?
Mr. Wolf. Generally it is not uncommon, and with respect to
the State Department and the Commerce Department rules, that
the regular follow-on transfer of technology or in the State
Department's case, services, requires authorization as well.
Mr. Weber. Okay, so you all get notified of that? You are
supposed to get notified of that, let me rephrase it, is that
right?
Mr. Wolf. Generally, yes.
Mr. Weber. Okay. When someone sells equipment or technology
in violation of our rules, is there such a thing as a slap on
the wrist and you just say don't do it any more, it was very,
very low level, and you get notice that you are going to be
taken off, you are going to lose your license?
Mr. Wolf. Yes, both the Commerce Department and the State
Department have a wide range of particular penalties, anywhere
from a warning letter to a requirement for an audit, to dollar
penalties, to suspension and debarment, all the way up to
incarceration.
Mr. Weber. Okay, so you have a list of those violations
going how far back?
Mr. Wolf. As far as our records indicate. There is a
significant list going back, yes.
Mr. Weber. Okay, thank you.
Chairman Royce. Thank you. We want to thank our witnesses
for their time this morning. And this is a critical issue in
terms of both our economy, growing the economy, and at the same
time protecting national security. So we will be following the
administration's progress on this, and we look forward to
collaborating closely with you as we move forward. I thank the
members, and I thank the witnesses again. We stand adjourned.
[Whereupon, at 11:36 a.m., the committee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing RecordNotice deg.
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Material submitted for the record by the Honorable Edward R. Royce, a
Representative in Congress from the State of California, and chairman,
Committee on Foreign Affairs
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Material submitted for the record by the Honorable Brad Sherman, a
Representative in Congress from the State of California
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