Good morning Mr. Chairman and members of the Committee, thank you for the opportunity to discuss the legislation known as the Export Administration Act of 2001 (S. 149) that was introduced on January 23, 2001. My name is Larry Christensen, and I am vice president of international trade content for Vastera. I am here today on behalf of AeA (formerly the American Electronics Association), a 3,700-member company organization, and the largest U.S. high-tech trade association representing the U.S. electronics, software and information technology industries.
I have a brief oral statement describing my company and background, and AeA's comments on S. 149. I ask that my written statement be made part of the record.
My company, Vastera, manages global trade for our clients through software, consulting, and managed services. We provide our software and services to over 200 blue chip clients, and we are on the front lines of international trade every day. I am also an adjunct professor at Georgetown University Law Center and co-teach export controls and trade sanctions. Earlier I served the Commerce Department for eleven years where I directed the first complete rewrite of the Export Administration Regulation. In the private sector and in government, I have done export control work for twenty-two years.
Overall, AeA supports the creation of a new Export Administration Act, as it would provide a certain and stable legal framework for the executive branch to implement export controls. As recent events have shown, absence of an EAA can bring new challenges to the U.S. exporting community. In 1990, the EAA of 1979 expired and the International Emergency Economic Powers Act (IEEPA) was put in place to fill the void. Never intended to be a replacement for the EAA, IEEPA's authority was recently challenged in the United States District Court, M.D. Florida, Tampa Division, in the case of the Times Publishing Company, and Media General Operations, Inc., d/b/a The Tampa Tribune versus the United States Department of Commerce. If the U.S. government had not successfully appealed the original decision, it would have had two potentially catastrophic impacts: 1) it would have undermined the current U.S. export control regime; and 2) it would have enabled competitors, especially foreign ones, to obtain highly confidential marketing and pricing information of U.S. high technology companies.
As a result of this case, last October Congress reinstated through August 20, 2001 the expired EAA of 1979. AeA is very appreciative of the initiative taken by the Senate Banking Committee on this issue. However, I believe that this is a short-term fix to a long-term problem. After August 20, 2001, the disciplines of the EAA will no longer be available unless the statute is renewed.
Industry and government both have strong interests in making the export control system as effective as possible. AeA's member companies support effective national security and non-proliferation export controls. The challenge for government is to avoid ineffective controls that not only do not advance important interests of the United States, but also might result in lost jobs and lost export opportunities. Exporting is good for the United States. It drives the growth in our economy, provides well-paid jobs for our people, provides an industrial base necessary for our military, and generates the revenues for the research and development necessary to move to the next generation of products.
In regard to S. 149, the essentials of the dual-use structure carry over from the approach of the 1979 EAA as amended, which were developed at the height of the Cold War. AeA member companies now find themselves in a much different environment; the Cold War and the peer-to-peer technological competition between the United States and its major potential adversary of that period are a thing of the past. Administrative approaches developed in the Cold War environment are no longer effective and, in fact, can be seriously harmful to truly globalized U.S. companies.
In response to this new environment, AeA has recommendations that would enhance the bill and minimize some of the harmful by-products of the current control regime. Our recommendations are focused on two key areas:
the controls on transfer of technology and software within U.S. enterprises; and,
the open-ended nature of EPCI catch-all controls on decontrolled and uncontrollable products, particularly in light of the order of magnitude increases in civil penalties found in S. 149.
Section 2(10)
AeA recommends including language in Section 2(10), definition of an export, specifying that an export for the purposes of the Act does not include transfers of data, technology or source code within a company.
U.S. companies must operate in a competitive global environment. Integration of worldwide facilities and efficient use of resources within U.S. companies are critical to the maintenance of leadership within high-technology industries and the economic and employment benefits that leadership provides. These activities are seriously impeded by restrictions that apply to non-US employees in the United States and abroad. Inclusion of the recommended AeA language would build on stringent company controls on proprietary data and be a step forward in minimizing this impediment. The United States can maintain and enhance its national security interest by controlling the transfer at the critical stage abroad, rather than inhibit the sharing of knowledge at a U.S. enterprise.
End-Use and End-User Controls (Section 201( c ))
End-use and end-user controls in Sec. 201(c) should be enhanced with language that would mandate the exclusion of certain items from control that fall below reasonable low value standards, thereby eliminating pro-forma Enhanced Proliferation Control Initiative (EPCI) controls from marginal and uncontrollable transactions. Such language would provide a concrete benchmark for the "material contribution" standard already specified in the catch-all proliferation controls in this section.
This language would provide that no controls on end-use or end-user could be imposed on exports or reexports if, for example, the item would qualify for export or reexport to the country of destination under "No License Required", notwithstanding controls on end-use or end-user, and the value of the export is less than $10,000.
This exemption from end-use/end-user controls would not apply if the Secretary of Commerce determined that any item specifically identified and published in the Federal Register, if released from control by this provision, would pose a serious risk to the national security. It also would not apply to any export controlled under statutory authority other than the EAA.
This provision could eliminate EPCI end-use/end-user screening from tens of thousands of low value export transactions involving decontrolled products, eliminating the need for extensive screening for decontrolled products. In addition, it would create reasonable boundaries for potential imposition of massive civil penalties for low value administrative errors of no national security significance. An "escape clause" would be available to specifically list items that are so sensitive that a low value shipment criteria would pose serious security risks.
Penalties (Section 603)
In regard to penalties contained in Sec. 603, AeA asks that the Committee seriously consider development of a tiered system similar to that used by the U.S. Customs Service. Customs' system ranks offenses as negligence, gross negligence, and fraud, with a corresponding tiered schedule of penalties.
The potential for imposition of civil penalties for low value administrative errors, particularly under EPCI controls, is extremely great, and is exacerbated by the order of magnitude increase in civil penalties included in the draft legislation. Under these conditions, boundaries must be established to protect exporters from arbitrary enforcement involving low value administrative errors in an extremely complex regulatory environment. In the absence of such limits, many exporters, particularly small businesses, may forgo the export market.
Country Tiers (Sec. 203)
AeA members believe that the five-tier system laid out in Sec. 203 is counterproductive and should be eliminated.
A country-tier approach limits the flexible and effective management of controls by imposing artificial groupings and constraints based on country criteria alone. Moreover, the five-tier system articulated in the draft would not lend simplicity to the system, but would complicate it further. Finally, the tier classifications have been proven to acquire a life of their own, becoming "signals" of potential policy shifts rather than being modes of control as originally intended, thus tying the hands of any Administration wishing to change them.
Foreign Availability and Mass Market (Sec. 211)
Incorporate into Section 211 language that is forward looking. For instance, Sec. 211(d)(1)(A) currently reads "is available…". AeA recommends that it read "is or will be available".
Export control legislation needs to encompass language that takes into account present realities as well as future developments. This is particularly important to the high-tech sector where technology is constantly advancing and new products are regularly entering the market place. The requirements for determining foreign availability and mass market status currently established in S. 149 are restrictive. If the Act does not provide for the administration to anticipate probable competitive developments that undermine the effectiveness of controls, U.S. exporters will first have to lose a market and demonstrate that it is lost before relief can be granted. However, once a market is lost, it is often lost forever and the damage to the U.S. industrial base cannot be undone.
Office of Technology Evaluation at the Department of Commerce (Sec. 214)
Establish criteria such as annual training and internship programs that ensure that the staff of this office is up-to-date in its technical knowledge and information.
The Office of Technology Evaluation will have important responsibilities including, but not limited to, foreign availability and mass market assessments, evaluation of global technological developments, and the monitoring and evaluation of multilateral export control regimes. It is therefore important that the staff's knowledge is current with the present day export environment and technologies. Deficiencies in this area will directly impact the exporting community.
National Defense Authorization Act (NDAA)
Repeal the provisions of the NDAA relating to high performance computers (Subtitle B of the NDAA).
These provisions no longer reflect the realities of the marketplace and have become a serious obstacle to U.S. interests. The "MTOPs" restriction on computers which requires the President to control computers based on their performance levels, no longer make sense under current technological trends, much less for future circumstances. The exponential growth of computing power and the availability of clustering and other technological developments have made this metric-based approach obsolete. While the metric fails to serve national security interests, it imposes a serious burden on U.S. economic interests and the Administration, diverting resources to constant adjustment of the MTOPs thresholds to reflect the latest technological trends.
In summary, AeA feels a new EAA is important. However, the legislation must be reflective of todays and future realities, while not undermining national security and foreign policy objectives.
Once again, I thank you Mr. Chairman and Committee members for this opportunity, and I am happy to answer any questions you may have.
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